[Company Representative] (Essity): Going to give you that wow effect. This is everyday care. This is smarter care. This is sustainable care. Okay. To over 1 billion people. For everybody and every body. This is Essity.
Sandra Åberg: Good morning, everyone, and welcome to Essity's third quarter results webcast. With us here today, we have our CEO, Ulrika Kolsrud, and our CFO, Fredrik Rystedt. Ulrika and Fredrik will take us through the events and the financials of the quarter. After that, we will move into Q&A. To ask a question, please press star one, and please try to keep it to one question per call. With that, let's get started. I will hand over to our CEO, Ulrika, please.
Ulrika Kolsrud: Thank you, Sandra, and good morning, and also from my side, welcome to this webcast. The third quarter can be, or it was characterized by resilience and a stable performance in a quite challenging market. We continued with the volume-led growth momentum in our higher margin categories and segments such as Incontinence Care, Healthcare, Incontinence Care Retail, Feminine Care, Wound Care, and also our premium products in Professional Hygiene. On the other hand, we had declining sales and volumes in the areas where we see a contracting market, and that led to stable volumes overall for the group. As expected, we experienced higher costs in the quarter following the situation in Middle East, and to compensate for that, we implemented price increases. Prices were higher sequentially, Q3 versus Q2, across all our four business areas.
Ulrika Kolsrud: During the quarter, we also continued with our efforts to shift our portfolio towards our higher margin and higher-yielding categories and segments. We progressed our strategic review of consumer tissue according to plan, and we also announced yet another acquisition in feminine care. I will come back to that acquisition in a few minutes, but before doing so, let's zoom in on Health and Medical. In Health and Medical, we continued to grow both the incontinence care part of our business and the medical part of our business, driven by higher prices and stable volumes. I would say the highlight from a category perspective was the continued good growth in wound care, and the highlight from a geographical perspective was the continued good growth in North America. When we talk products, I would say the highlight is always the new innovation that we bring to market.
Ulrika Kolsrud: In this quarter, we enhanced our JOBST offering to lymphedema patients. We extended the JOBST Elvarex Soft ready-to-wear assortment with new styles, new sizes, and new body part options. For those of you now who know our assortment very well and who know how to treat lymphedema, you might think, "Isn't custom-made the better option?" Yes, many patients that have lymphedema, for them, custom-made compression garments is part of the treatment. However, it can take some time before you get an appointment with a lymph therapist and until you then get assessed and measured and get your custom-made compression garments. That is where the ready-to-wear assortment plays an important role. So that provides the patients with compression therapy in an early stage of their treatment journey. For us, that means that we attract consumers to the JOBST brand at an early stage.
Ulrika Kolsrud: We do this now by leveraging a strong technology platform that we already have, JOBST Elvarex Soft. Also in feminine care, we make use of a strong technology platform that we already have by rolling out the SmartProtect technology to our night segment in Latin America. I talked about the SmartProtect technology in another webcast. I will not repeat myself on that, but what I want to highlight is with this rollout, we strengthen our superiority further in the strategically very important and fast-growing night segment in Latin America. We are already strong market leaders here with over 60% market share. Talking market shares, the investments that we do to drive market shares across our Personal Care categories are paying off. We saw increasing market shares across the three categories for our branded business in Personal Care.
Ulrika Kolsrud: For incontinence care and for feminine care, that also translated into higher growth, volume and sales growth. For baby care, however, where we had been declining volumes and sales in our retailer brand part of the business, that did not play out in higher volumes and sales, but lower on a total scale. If we look at the geographical perspective, what stood out in the quarter was the performance we have in Latin America and North America for Personal Care as a total. There is a lot of activity, a high activity level in those two geographies, which reflects their strategic importance. If we start by turning our eyes to Latin America, this is where we announced a feminine care acquisition, more precisely, the acquisition of the brands o.b., Sempre Livre, and Carefree in Brazil.
Ulrika Kolsrud: This is supporting our strategy to grow and expand our higher margin categories in attractive geographies. As you know from before, feminine care is a category that we want to expand geographically. It is a category where we have higher margins and also where we have a proven success recipe and a very strong track record. That is true, not the least in Latin America, where we already have a leading position, for example, in Mexico and Colombia. Brazil is certainly an attractive market. It is actually the fourth largest feminine care market in the world and growing at 4% roughly. It is also a market that we know very well. We have a good presence there already with professional hygiene, with medical solutions, and also with incontinence care. In fact, we are market leaders in incontinence care with our TENA brand.
Ulrika Kolsrud: We are market leaders thanks to a very strong position in the pharmacy channel. Now, when we get access to the retail channel, which this acquisition provides, we expect to be able to accelerate our growth in TENA even further. This is a very exciting acquisition, and we expect the transaction to be closed by Q2 2027. We really look forward now to integrate this business and take it to the next level. If we move to North America, there, of course, since we closed that business in the beginning of this year, we are one step ahead when it comes to the integration. We continued the integration of the feminine care acquisition in North America during this quarter, and we are improving our margins step by step.
Ulrika Kolsrud: As you might recall, one of the benefits with this acquisition that we talked about was that in the US, this means that we will double our sales in personal care, and that gives us the scale to look at a more effective go-to market model. In the third quarter now, we have implemented the new sales model, which is moving us towards a more direct sales model. We are taking more ownership of our commercial execution. We have done this transition without any business disruptions, and it puts us in a better position, stronger position to build a deeper relationship with the retailers and to build our distribution and in-store visibility.
Ulrika Kolsrud: I would say that TENA certainly deserves more shelf space, and the evidence of that is the strong performance and higher market shares that we have online, which tells you something about the consumer pull that is out there in the market for TENA. I cannot help myself but to take this opportunity to show you some advertising that we do for TENA in the US. That is advertising that demonstrates our product benefits, but also helps to create that consumer pull that I talked about. The first ad that you see here promotes our TENA Sensitive Care pads that have a 5-in-1 SkinComfort formula. We have seen in consumer research that we have done locally that skin irritation is a real issue for users of bladder protection.
Ulrika Kolsrud: For us with TENA, we see that the combination of having the trusted protection that we have with TENA and caring for sensitive skin is a very good way of differentiating the TENA brand and a very relevant way of doing so. That is exactly what you see in this advertising. Looking at men that suffer from incontinence, here we offer superior products that are disposable, but we also offer attractive washable products. Whatever the user prefer, we make sure that there are no more dribble dramas. Moving to Consumer Tissue, here we had declining volumes and sales in the quarter. We see that in Europe, the market is contracting somewhat. On top of that, we had some deliberate volume reductions coming from a restructuring that we did in Latin America.
Ulrika Kolsrud: We were exiting two smaller production sites and moving production into a more efficient footprint and also by that, stepping out of some low-value volumes. Besides that, the strong focus in Consumer Tissue is, of course, this quarter, as previous quarter, and as following quarter, price adjustments. We experienced higher costs in the quarter, and we implemented price increases. Looking at pricing in this quarter then compared to same quarter last year, there is still a lower price effect, but that is coming from price adjustments done in previous quarters. As I said initially, sequentially, we are increasing price in Consumer Tissue and will continue to work on those price adjustments. While we do so, it is of course important to continue to invest in innovation and our long-term competitiveness. We did this also this quarter.
Ulrika Kolsrud: What you see on the picture there is that we took the Regio assortment to the next level of softness, but we also extended our moist toilet paper assortment. I actually brought this product that we put on the market in the quarter. Here, what we have learned from research is that consumers, when they use moist toilet paper, they use two or three sheets. With this product, you need just one sheet. One is enough. It is the largest and thickest moist toilet paper sheet that is available on the market, and it dissolves faster.
Ulrika Kolsrud: Moist toilet paper is still a small part of the consumer tissue category, but it is important because it offers the potential to bring value-added growth and differentiation into the consumer tissue category. Turning to Professional Hygiene, let us start to talk about a good growth opportunity in this business, and that is the Tork Vision Cleaning. If you remember, I talked about Tork Vision Cleaning in the context of AI last quarter, because in this product, we are using AI in order to help our customers to optimize their cleaning operations. In fact, we can reduce the time for their cleaning operations by up to 25% with Tork Vision Cleaning. We are continuously expanding this offer and the presence of this offer. We are now in 38 airports around the world and adding on more and more.
Ulrika Kolsrud: We are also increasing the presence in other channels like healthcare, in stadiums, and also in the industrial sector. Quite recently, we acquired a customer, a BMW factory, a big one in the US, and here we have 3,500 connected devices in their manufacturing site. It is big. All of this very encouraging data, but I think the most important thing is that 50% of our Tork Vision Cleaning customers are new to Tork. It is an excellent vehicle to attract new customers to the brand. The growth of the Tork Vision Cleaning was obviously then a highlight of the quarter. Another highlight in the quarter is that we continue to grow the strategic segments in Professional Hygiene. On the other hand, we had lower sales in the more commoditized base assortment that is more exposed to changes in the market environment.
Ulrika Kolsrud: Overall then that led to a volume drop for Professional Hygiene as a total. A volume drop that we anticipate to be temporary as we continue to adapt our assortment to changing market environment, continue to expand our channel presence, and acquire new customers. With that, I hand over to our CFO, Fredrik.
Fredrik Rystedt: Thank you, Ulrika, and I will not actually demonstrate any products, at least not this time. I will demonstrate a few numbers that relates to what Ulrika was talking about. If I start with net sales, you can see that our net sales increased with about SEK 1.5 billion or 4.1% in comparison to Q3 of 2025. Out of that, currency was 2.5%, and the feminine acquisition we have made in North America is close to 2%. As you can see, the organic sales growth is slightly negative at -0.3%. Turning to volume, overall volumes were stable for the group, but we had a bit more challenging environment in the third quarter, and that was especially the case for consumer tissue and to a degree, Baby and parts of Professional Hygiene.
Fredrik Rystedt: If I start with Health and Medical, volumes were generally stable, but it was an unusually, you could say, quiet quarter for Health and Medical. We saw a good growth in incontinence and also wound care, and that continues from many quarters, and a bit slower in compression and orthopedics. As I think Ulrika alluded to a bit, this is something we see as hopefully more temporary. If I then turn to Personal Care, this was another quarter of good growth, and especially so for incontinence and for feminine products. In feminine products, not least for leakproof apparel. It continues to be quite strong. Whilst in Baby, it is a challenging environment, both from a competitive standpoint, but of course, that is driven by continued low birth rates. We continue to work with our Nordic assortment, good market share growth there.
Fredrik Rystedt: Overall, of course, from a volume perspective, quite challenging for Baby. Looking at Consumer Tissue, we had, and we have talked about that, a tough quarter, but we were quite impacted by the factory footprint optimization that we did in Latin America. So out of the volume decline of about 1.9%, 1.2% related to that Latin American restructuring. Underlying, of course, it looks slightly better than what you would see in the numbers. Professional Hygiene, finally, from a volume perspective, negative by 0.6%, and this is all base products. Strategic products, as we talked about, that is actually continuing to improve. Pretty similar to what we saw in Health and Medical, we believe this is also, as Ulrika Kolsrud alluded to, a bit of phasing.
Fredrik Rystedt: In the case of Professional Hygiene, also relating to destocking, particularly on the North American market, on the back of consolidation in the distribution part of the market. So we anticipate better volumes as we go forward. Just some really short words on price mix. You can see that the net impact there is -0.2, and this is -0.5% on price and +0.3% in terms of mix. So that is good. Mix is positive. Price, as before, that comes from price concessions that we did previously in Q4 2025 and Q1 2026. Sequentially, we have an increase of prices for all business areas, and we will continue to see that also going forward. Turning to margins, we contracted our margins with about 150 basis points for the group as a whole, and this is all driven by higher COGS.
Fredrik Rystedt: I will come back to that impact, but it is very significant. In the previous quarter, in Q2, you will probably remember that we talked about the acquisition of the feminine business and the impact of that, and we experienced some cost issues and inflexibility when it comes to the TSA agreements relating to that acquisition in Q2. So we had quite substantial impact on our margin. We have taken a lot of actions related to that, so we are now back on track when it comes to the business case. So we are quite pleased with the development in that acquisition. It still has a negative impact, but it is quite marginal in comparison to what we saw in Q2. Looking at the gross profit margin, you can see it is down by 170 basis points. Actually, in fact, I mentioned COGS before.
Fredrik Rystedt: The impact from COGS is 190 basis points, and this is pretty much in every area. We see raw material up, and we also see basically energy having a quite negative impact, despite the fact that we have very significant savings. So SEK 180 million, very much in line with our full year estimate. So we are happy about the performance in terms of productivity gains. But clearly COGS is not developing where it should be. If you look at the rest of gross profit, we have some impact, positive impact actually from volume, and as I alluded to before, a negative impact from price. So all in all, of course, a big impact from COGS, as I mentioned. When it comes to A&P, basically pretty much on the same level as last year in percentage of sales.
Fredrik Rystedt: And when it comes to SG&A, you can see we have a fairly good contribution there to our margin of 20 basis points. This is, in fact, pretty much all of it coming from the cost-saving program that we are very much in the execution phase of, and actually nearly completing that execution phase. This is quite a good performance generally from SG&A and that cost savings program. This is pretty much the description of Q3, but let me give you a little bit of insight into Q4 and what we expect when it comes to various cost items. I will start with COGS, and you have seen now that we have had some very significant cost increases. We expect a significantly higher COGS also in Q4, and this is related to Q4 of 2025.
Fredrik Rystedt: But we also see significantly higher cost sequentially, and of course, this comes from also, again, raw material and also energy. This is the COGS part. When it comes to SG&A, we expect SG&A, excluding A&P, to be roughly on the same level or actually even slightly lower than what you have seen in Q4 of 2025, and actually also sequentially. This is, again, a result of the cost-saving program. You see that the savings is roughly about SEK 150 million or slightly more than SEK 150 million for this quarter, and we expect the savings in Q4 to be even bigger than what you see in this quarter. If you look at, of course, the program as a whole, we expect that to actually deliver in line or more than what we have promised. We will come back to that at a later stage.
Fredrik Rystedt: That is basically the forecast when it comes to SG&A excluding A&P. When it comes to A&P, finally, we expect that to be slightly higher than what you have seen this quarter. You might have seen from our report that the items affecting comparability is slightly higher than usual, or a lot higher than usual in this quarter, so close to SEK 1.1 billion. If you look at the full year, it is a bit above SEK 1.8 billion. I thought I would just give you a couple of insights into that big number. The restructuring cost or SG&A savings program is about SEK 450 million. If you look at the combined impact so far this year of that, it is slightly above SEK 1 billion. You can conclude from that that we have taken most of the cost now relating to that restructuring program or the cost-saving program.
Fredrik Rystedt: Ulrika Kolsrud mentioned the factory footprint optimization or manufacturing footprint optimization in Latin America, and we have taken cost of approximately about SEK 500 million for that in the third quarter. Roughly about half or slightly below half of that relates to cash. The annual saving that will materialize or has already actually started to materialize in the coming year is roughly about SEK 150 million, SEK 160 million or $70 million. So the cash impact, SEK 23 million, and the annual saving, roughly about $70 million. The rest is basically other, mainly relating to the acquisition of the Brazilian entity, apart some smaller amount to the feminine acquisition, and of course, also the consumer tissue strategic review. Turning then to our cash flow, you can see we had a really good cash flow quarter, so SEK 5.8 billion in total.
Fredrik Rystedt: This is, of course, the result of continued strong cash surplus, but it is also working capital having performed a lot better. You will remember perhaps that we have set an ambition to improve our working capital level as percentage of net sales, and we actually did that if you compare it to previous quarters. Some of you may have actually looked in the report, and you have seen that the percentage of sales increase compared to last year has increased a lot. It has actually, working capital is a higher percentage of net sales, but this has to do with our energy hedging. Some of you are aware of the fact that we hedge energy cost, and as energy increases in price, then our derivatives becomes worth more, and this is what you see in the working capital line.
Fredrik Rystedt: If you actually adjust for that, the working capital is roughly about the same. Turning then to our balance sheet, you can see here our net debt is SEK 25 billion, and net debt to EBITDA is 1.0. It is a very strong balance sheet. This is, of course, despite the fact that we have acquired the feminine business in North America, and it is also despite a quite significant share buyback and an increased dividend. Of course, the main reason, needless to say, is our strong cash flow. Something we talked about already in Q2, we have something we refer to as IFRS revaluation that has actually impacted net debt quite significantly this year. The impact, if you just take the full year, is roughly about SEK 5.4 billion. Then the question might be, what is it?
Fredrik Rystedt: Well, it is basically the surplus value in all our pension obligations. Over the past years, or year I should say, interest rates have gone up, which takes down the debt, and the asset management that we have had has performed quite well. On average, the asset surplus has grown quite a lot, and it is now approximately, in total, SEK 7.6 billion. We still have a very strong balance sheet, but if you were to adjust for this, our net debt to EBITDA ratio would be roughly about 1.3%. With that, I leave over to you.
Ulrika Kolsrud: Thank you. You did the clicking. That was good.
Fredrik Rystedt: I am sorry.
Ulrika Kolsrud: Now we did it twice.
Fredrik Rystedt: Okay.
Ulrika Kolsrud: I would just like to summarize the quarter with the fact that we delivered stable volumes, resilient profitability, and a strong cash flow. Looking at priorities moving forward then, to compensate the cost increases with price increases remains, of course, a top priority. Our ambition clearly is to do that while also protecting and growing market shares. Then, of course, with the cost pressure that we are experiencing, it is more important than ever to control and restrain costs and spending. As you heard from Fredrik, our cost-saving program is delivering very well, and we will make sure to get that to the finishing line, and also continue to deliver on our COGS savings. Then another top priority is, of course, the portfolio initiatives that we have, the integration of our feminine care acquisitions, and the strategic review of consumer tissue.
Ulrika Kolsrud: Beyond those priorities, we will take further actions to accelerate progress and returns. Thank you for listening. Thank you, Ulrika Kolsrud. Thank you, Fredrik Rystedt. We will now turn to Q&A, so a chance for you to interact directly with us. To ask a question, press star one. We already have a good list of people calling in, and the first name I find here on my list is Aron Adamski from Goldman Sachs. Good morning, Aron.
Aron Adamski: Good morning, Sandra, Ulrika Kolsrud, Fredrik Rystedt. Thank you for taking my questions. I had the first one on EBITA. It has been more resilient than consensus has anticipated, so I wondered if you view the 13% margin as sustainable given the expected sequential step-up in COGS that you commented about. Also, should we expect any material Latin America or any other adjustments going forward? My second question is on pricing. I was wondering if you could give us a sense around the magnitude of the price increases being implemented and your expectations for the volume elasticities. Specifically in consumer tissue, I was wondering if the production overcapacity and low-cost imports that we are hearing about in Europe, if that affects in any way your pricing discussions. Thank you.
Ulrika Kolsrud: Thank you, Aron. That was many questions. Yes. Let us start. When it comes to the margin, we do not guide on a margin perspective as such, but I am sure Fredrik Rystedt can talk a bit about what we expect when it comes to COGS. When it comes to pricing, of course, what you see in the numbers is that we compensate parts of the cost increases. What happens also is that once we compensate with pricing, then it is a moving target because then there are new cost increases, and we go back and adjust our prices again. So we have, as you know, in consumer tissue, it takes roughly two quarters to compensate. But then again, there are new cost increases that we have to compensate. So we will continue with those efforts, announcing and negotiating new price increases.
Ulrika Kolsrud: The Latin American part, I am not sure I caught the question there, but I think it was about if we can expect more restructuring costs from that. Now we have concluded on that initiative. So that is more or less finalized. Right, Fredrik Rystedt?
Fredrik Rystedt: Yes.
Sandra Åberg: Did you want to comment on the COGS?
Fredrik Rystedt: Not more than what I have said. This is quite observable that we have seen a significant increase in not least oil-based material, but it is also packaging and distribution and pretty much all material. The origin of this is, of course, the Middle East crisis, and then we see additional impact from energy costs. As I said earlier, we do expect significantly higher COGS, both year-on-year and sequentially. I do not think I can add much more than that. We will compensate part of it through good cost savings. We are doing well there, I think. We are quite happy about that. But overall, the impact will be very significant.
Aron Adamski: Thank you very much.
Sandra Åberg: Thank you, Aron. We will then move to the next question, which comes from Andrei Condrea from UBS. Good morning, Andrei.
Andrei Condrea: Good morning, and thank you for taking my questions. Two from me, please. The first one, could you help us unpack, as usual, the COGS increase into raw materials, distribution, and its other components? Secondly, just a point of clarification. On consumer tissue, 120 basis points of the volume decline also was linked to the LATAM restructuring because you exited low-cost products. Should we expect this to persist over the coming quarters, or do you expect an acceleration in other parts of your portfolio? Thank you.
Fredrik Rystedt: Yeah, I can start there. I am not sure if it is really helpful, but I will be happy to give you. So if you take COGS, in general, it increased by about SEK 660 million, if that is your question. Energy was SEK 245 of that, give and take. Then you have a bit over, close to SEK 420 in pure raw material. Then distribution, I think your question was, is SEK 75. So that is the total. Then we got, as I alluded to in my presentation, about SEK 180 or so in savings, and the rest is others. So if that was your question, those are the different components.
Andrei Condrea: Yes, exactly.
Andrei Condrea: Manufacturing Roadmap. The optimization of manufacturing, will that impact on volumes continue to have an impact throughout the year?
Fredrik Rystedt: Well, yeah, it will, because we executed on that factory footprint optimization. So what we did was we actually shut down a couple of plants, as Ulrika Kolsrud alluded to. At the same time, we actually then stopped selling some volumes that was less profitable. The volume impact in the quarter versus the same quarter of 2025 was 1.2% volume. That is actually going to be there. You will see exactly the same impact pretty much in Q4, Q1, and Q2 of 2027. So we will still have that impact.
Andrei Condrea: Thanks very much, Fredrik.
Fredrik Rystedt: Just to be clear, from a profitability standpoint, it is quite profitable. So we will see an uptick from that.
Sandra Åberg: Thank you, Andrei. Let us then move to Niklas Ekman from DNB Carnegie. Before that, can I just remind you to just have one question per call, please? In that way, we can give you better answers, then you can return with a new call if you want to clarify anything. So let us move to Niklas at DNB Carnegie. Good morning, Niklas.
Niklas Ekman: Good morning. Thank you. I want to come back to the COGS guidance here, because after Q2, you warned of much higher costs, and I think we were all surprised at the magnitude we saw here in Q3, that it was a lot smaller than anticipated. Is there any way that you can elaborate a bit on the future cost increases? Are you expecting a significant further increase? Were you surprised that there was not a bigger magnitude in this quarter to start with?
Fredrik Rystedt: I don't know what you think, Niklas, but I think SEK 658 million in COGS, I mean, 190 basis points in COGS impact, and that's including our savings. To me, that's very significant. I don't think we've had a lot of quarters with that kind of increase. The increase was basically also. If you look at this, it was year on year, SEK 658 million, as I mentioned. But if you look at sequential COGS, it was SEK 510 million just in one quarter. So to me, that's very significant. I'm not sure exactly, Niklas, what you expected, but to me, that was very significant. Now you're asking what's the number for Q4, and I can't tell you that.
Fredrik Rystedt: But of course, if I say it's significant also from a sequential perspective, then you would expect a fairly high number, and year on year then, of course, much higher than what you see this quarter.
Niklas Ekman: Okay, fair enough. Thanks a lot for taking my question.
Sandra Åberg: Thank you, Niklas, for that question. Let's then move to Karel Zoete from Kepler. Good morning, Karel.
Karel Zoete: Yes, good morning. Thanks for taking the question. I have a question on your momentum in the North American market, and then in particular for the consumer business, but also your H&M business. What are you seeing in this market?
Ulrika Kolsrud: When we look at that, if we start with the personal care business, first we have the feminine care acquisition that is progressing according to plan when it comes to our sales development. We talked already now in the presentation about the improvement when it comes to margin, but I think it's good to emphasize also that sales is progressing as we expected.
Ulrika Kolsrud: We also have the leak-proof apparel in North America that is doing very well. It's a fast-growing segment, and that is why we want to have a strong presence there. So we see that happening as well. And then we have our TENA business, our Inco business, where we are a challenger in the market. So there is a big potential for us to win market shares and grow. And we have a very strong plan in place in order to do so. And that plan is yielding results. And not the least, as I mentioned, we are growing our presence in online. And now when we are changing our go-to-market model, we believe that will help us also to accelerate in brick and mortar going forward.
Ulrika Kolsrud: When it comes to health and medical, there you might remember that we did an acquisition in wound care, Hydrofera, some years ago.
Fredrik Rystedt: Yep.
Ulrika Kolsrud: The strategic rationale for that was to support our overall growth in wound care, and that is exactly what we see in North America. Also generally speaking there in Health and Medical, we have a good momentum on the back of having a strong portfolio and an efficient commercial execution.
Karel Zoete: Thank you.
Sandra Åberg: Appreciate your question, Karel. Let us then take the next question, which comes from Oskar Lindström at Danske Bank. Good morning, Oskar.
Oskar Lindström: Yes. Health and Medical organic growth slowed. What drove the slowdown? When could we expect growth to recover here in this key segment? If you could expand a little bit on that would be very helpful.
Ulrika Kolsrud: Yes. When it comes to Inco, you might remember that we talked already last quarter about that. We had a strong growth momentum in Inco Healthcare, but we also had some pre-loadings. That is actually what played out. It was a very strong growth in Q2, as you might remember. Some of that was pre-loading. Nevertheless, in incontinence products, we continue to grow. That shows that the underlying performance is there. That is on that side. When it comes to medical, we continue to have a very growth momentum, as I said, in the wound care space, where it is a bit slower in orthopedics and compression therapy. Operationally, there are some different factors that are impacting the phasing. To Fredrik's point earlier, we expect the volume growth to come back also on the medical side.
Oskar Lindström: In Q4 already or?
Ulrika Kolsrud: That is what we anticipate. It is difficult to-
Oskar Lindström: Thank you.
Ulrika Kolsrud: guarantee anything like that and say, but since these are phasing issues, we believe so.
Oskar Lindström: Thank you. That was my question for now.
Sandra Åberg: Thank you, Oskar. Let's move back to Andrei Condrea from UBS. You had another question. Hi again.
Andrei Condrea: Yes, thank you for that. Following on from Oskar's question, could you help us quantify, if possible, the impact you have seen from the phasing in compression and orthopedics, but also in professional hygiene? You mentioned you are seeing there some phasing and destocking driven by the consolidation in distribution. Thank you.
Ulrika Kolsrud: I don't think we can quantify that or are able to quantify that in any way.
Fredrik Rystedt: No, it's very difficult.
Ulrika Kolsrud: Yeah.
Fredrik Rystedt: There are so many factors that impact volume. It's a perception that we see some destocking. We pick that up from many. We see that in professional hygiene, and we believe there's a bit of phasing, but the exact magnitude is very difficult to say.
Andrei Condrea: Understood. Thank you.
Sandra Åberg: Thank you, Andrei. Now, next question comes from Michal Manski from BNP Paribas. Good morning, Michal.
Michal Manski: Morning. Thanks for taking my question. I have one. How have your conversations been ongoing with the activist investor? Have there been any interesting suggestions from their side that you are considering now? Thank you.
Ulrika Kolsrud: Well, first, just to be clear on this, of course, where we have most of our conversations is with the board, and Cevian is not present in the board at this point in time. Then, of course, we meet with you guys, whether it is investors or it is future investors on an ongoing basis, especially in relation to the quarterly results. So we met with Cevian after the Q2 results, and we will meet again after the Q3 results. But that is more in discussing the quarter results. As you might have seen, what they have expressed from our earlier conversations is that they support the strategy that we have, including the various initiatives that we have.
Michal Manski: Very clear. Thank you.
Sandra Åberg: Thank you, Michal. Now we have another question from Aron Adamski from Goldman Sachs. Hi again, Aron.
Aron Adamski: Yeah. Hello again. Thanks for taking my follow-up. I was just wondering if you could please discuss the expected impact of the recent tariff escalation between the US and Canada. I believe in the past that has impacted your professional hygiene business. So I was wondering if you can discuss the expected impact on margins on an absolute basis from Q4 going forward. Thank you.
Fredrik Rystedt: Yeah. It is hard to tell exactly, Aron, but I think it is roughly in line with what we saw last time. So approximately about 60 basis points, if you look at professional hygiene, give and take. In 20-30 something, or a bit more maybe Professional Hygiene, and 20, 30% basis points for the group as a whole. But I think it is always difficult to predict because it depends on exactly what we do as well. How much do we sell to Canada from the United States, et cetera. But roughly thereabout.
Aron Adamski: Thank you.
Sandra Åberg: Thank you, Aaron. Now I cannot see any more questions. Do we have any final questions? Please press star one, or all the questions are answered. No, we have a new question here from Antoine Prévot, Bank of America. Good morning, Antoine.
Antoine Prévot: Good morning, everyone. Just on A&P. At the CMD, you were talking about increasing A&P spends more towards 5.3% to 5.7% of sales, but so far it remains a bit below that. Anything you can maybe comment a bit on your plans regarding the spending there, and the weaker consumer backdrop may be changing your thinking around your previous comment on the level of spending. Thank you.
Ulrika Kolsrud: We still have the ambition to increase A&P, and I think there are two factors to this. One is, of course, that we are redirecting our A&P to where it gets the most return on investment. We can see a lot of good effects from the marketing investments that we have. That is especially, for example, in Personal Care that I talked about already, that the marketing investments that we have done are playing out very good, and that is part of the reason why we are gaining market shares across the three categories. Then, as you know, we have the cost-saving program in SG&A where our intention is to free up more funds so that we can invest in A&P going forward. That, of course, we have to do in a responsible way.
Ulrika Kolsrud: At the point in time that we are right now, it is also a weaker market, which means that you do not get the same return on investment in certain specific A&P elements. We have to face it in a commercially smart way. Basically that is our thinking.
Antoine Prévot: Thank you for that.
Sandra Åberg: Thank you, Antoine. We have another question from Niklas Ekman, DNB Carnegie. Hi again, Niklas.
Niklas Ekman: Thanks. I just wanted to follow up also on this restructuring of the Consumer Tissue Latin America. Was this in any way related to the potential divestment of Consumer Tissue? Is this something that you would have done anyway? As a follow-up, if you could elaborate a little bit on the overlap between your Consumer Tissue production footprint and the rest of the group.
Ulrika Kolsrud: If we start with your first question, it is no and yes, meaning that no, it is not linked to the strategic review, and yes, we would do it anyhow. We continuously work with looking on how we can optimize our footprint to make sure that we are as competitive as possible and have the best possible cost structure. What we now did in Latin America is relevant with whatever the conclusion is of the strategic review. As we have talked about before when we have talked about the strategic review, we have some shared manufacturing between Professional Hygiene and Consumer Tissue. That is part of the assessment that we have done now on how do we detangle that in the best possible way and what are the implications of that.
Niklas Ekman: Okay, but you cannot quantify how many
Ulrika Kolsrud: And to be clear, that is an assessment that we have to do in order to understand the value potential of that scenario. Then we can compare that scenario, a separation with other scenarios, for example, keeping the Consumer Tissue business in Essity.
Niklas Ekman: Very good. Thank you so much.
Fredrik Rystedt: Can I just add one thing here, Niklas, since you are still on the line here? Because it just struck me that when we talked about, this is another subject, when we talked about the COGS impact in Q4, there has been some questions on that, which I think is quite relevant because that is a big thing. I just want to remind, and this is, of course, an absolute obvious thing. I just want to remind everyone that we always compensate for COGS increases or raw material or energy. We always do that. We have done that for the last 50 years, as long as we have checked with price and price alone. And of course, we see temporary impact from COGS, and we will see it, of course, we see it in this quarter, obviously.
Fredrik Rystedt: But over time, just to remind everyone, we are always compensating with price, and we will do it this time as well. So I just wanted to say that, Niklas, to remind you of that.
Niklas Ekman: Very clear. Thank you.
Fredrik Rystedt: Thank you.
Sandra Åberg: Thank you, Niklas. I think we are out of questions. I will give it a few minutes or 1 minute, maybe. Any more questions? No. So let us wrap up. Before we close, I will hand over back to you, Ulrika Kolsrud, for final remarks.
Ulrika Kolsrud: Yeah. Thank you, and thank you all for listening. To go back to where we started this call, it was characterized by resilience and a stable performance in a quite challenging market, which I think says something about the competitiveness of our business. That said, we want more growth, as you know, and our focus is now to really deliver on the priorities and actions that we have in order to accelerate progress and returns. And I want to leave you with one very positive news that we got the other day, and that is that Essity once again are awarded EcoVadis Platinum. And you might know this is an independent global sustainability rating, where they have assessed 175,000 companies worldwide, and we are among the top 1%. And that is certainly a great recognition of our sustainability performance.
Sandra Åberg: Great. Thank you, Ulrika, and thank you, Fredrik, for the presentations and the answers, and thanks to our audience for listening. If you have any further questions, just reach out to us in the IR team at Essity. Have a good day. Bye for now.
