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Tissue Maker Essity Invests in Digital

Swedish hygiene products group Essity’s sales suffered again in the third quarter from the stay-at-home trend sparked by the COVID-19 pandemic, as well as the adverse effects of bulk-buying early in the outbreak, though lower costs supported profits.

Operating profit before amortisation and items affecting comparability shrank 1% from a year earlier to 4.12 billion Swedish crowns ($470.9 million) as cost cuts and lower raw material and energy costs compensated for the sales drop.

Essity is the world’s second-biggest maker of consumer tissue such as toilet paper and handkerchiefs under brands such as Lotus, Edet, Tempo and Vinda. It is the global leader in hygiene products for businesses under the Tork brand and in incontinence products with TENA.

With less demand for tissues and toilet paper at offices, restaurants, hotels and schools as people stayed at home, net sales fell 12% - roughly the same pace as in the second quarter - with sales to businesses down 27%.

“Sales were negatively impacted by the COVID-19 pandemic and the related lockdowns and inventory adjustments following stockpiling among distributors in March,” Essity said on Thursday.

Essity’s shares fell 2% in early trade, taking a year-to-date decline to 4%.

“Essity reported a weak Q3 with misses across the board,” analysts at JP Morgan said in a note to clients. “Near term challenges remain for top-line growth and profitability with risk of higher pulp costs.”

DIGITAL TRANSFORMATION

Essity unveiled plans to invest 2.6 billion crowns in a new digital platform.

“This will further strengthen the group’s customer and consumer offerings, generate significant cost savings and reduce the need for working capital,” it said. “A positive sales and earnings impact is expected gradually from 2022.”

Of the total investment, 1.4 billion crowns in costs will be charged in 2020-2024, while 1.2 billion crowns will comprise capital expenditures, it said.

The rival to Procter & Gamble and Kimberly-Clark said it was raising its target for adjusted return on capital employed to above 17% by 2025 after the previous target of above 15% had been achieved during the past 12 months.

Citing healthy cash flow in 2020, the company’s board in September reinstated a dividend proposal made before the pandemic, having withdrawn it in March due to uncertainty.

($1 = 8.7412 Swedish crowns)

(Reporting by Anna Ringstrom; Editing by Terje Solsvik, Mark Potter and Alex Richardson)

Source: Reuters


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