The Group’s net sales increased 10.0% in the first quarter of 2020 compared with the corresponding period a year ago. Organic net sales increased 7.8%, of which volume accounted for 5.9% and price/mix for 1.9%. In mature markets, organic net sales increased 10.2%. In emerging markets, which accounted for 35% of net sales, organic net sales increased 4.0%.
- Net sales increased 10.0% to SEK 33,712m (30,656)
- Organic net sales increased 7.8%
- The COVID-19 pandemic resulted in a sharp increase in sales and earnings in March 2020 as a result of stockpiling among consumers and distributors
- In emerging markets, which accounted for 35% of net sales, organic net sales increased 4.0%
- Operating profit before amortization of acquisition-related intangible assets (EBITA) increased 77% to SEK 5,316m (3,002)
- Adjusted EBITA increased 67% to SEK 5,333m (3,190)
- Adjusted EBITA margin increased 5.4 percentage points to 15.8% (10.4)
- Profit for the period increased 87% to SEK 3,610m (1,929)
- Earnings per share increased 85% to SEK 4.61 (2.49)
- Adjusted earnings per share increased 69% to SEK 4.83 (2.86)
- Cash flow from current operations increased 25% to SEK 3,044m (2,434)
The COVID-19 pandemic resulted in a sharp increase in sales in many markets for Consumer Tissue, Incontinence Products, Baby Care, Feminine Care and Professional Hygiene as a result of stockpiling among consumers and distributors. In March 2020, organic net sales for the Group increased 19.7% compared with March 2019. Organic net sales for Personal Care rose by 17.0%, for Consumer Tissue by 19.5% and for Professional Hygiene by 24.5%. Sales in future quarters will be adversely impacted by the stockpiling seen in March and sales in Professional Hygiene will also be negatively impacted by reduced travel, fewer restaurant visits and more people working from home. In the long-term, the COVID-19 pandemic may lead to increased demand for hygiene and health products due to, for example, a greater focus on hand hygiene.
During the COVID-19 pandemic, Essity has three main priorities: care for our employees, continuing to operate a successful business and contributing to society. To maintain a safe work environment for our employees, satisfy increased demand and safeguard production and logistics, we have carried out measures in all parts of the business, including new ways of working for our employees, production adaptations and securing transportation. We have increased our presence and activity in digital sales channels. We contribute to society by delivering our leading hygiene and health solutions. In Sweden, the US and Mexico, we are investing in the production of surgical masks and face masks for the healthcare sector and our employees. We support the WHO COVID-19 Solidarity Response Fund and several local initiatives.
The Group’s adjusted gross margin for the first quarter of 2020 increased 5.6 percentage points to 32.8% compared with the corresponding period in the preceding year. The gross margin was positively impacted by higher volumes, a better mix and costs savings. Continuous cost savings amounted to SEK 260m. Lower raw materials and energy costs increased the gross margin by 4.7 percentage points. Lower raw material costs were primarily the result of lower pulp prices. Our production facilities outside of China did not experience any major production disruptions due to the COVID-19 pandemic, although distribution costs have increased. Lower prices, mainly related to Consumer Tissue in Europe and Asia, had a negative impact on the gross margin. The Group’s adjusted EBITA margin rose 5.4 percentage points to 15.8%. Investments in growth increased sales and marketing costs, also as a share of net sales. Adjusted EBITA for the first quarter of 2020 increased 67% compared with the same period in the preceding year. Adjusted return on capital employed rose 7.1 percentage points to 18.4 percent. Operating cash flow increased 108%. Earnings per share increased 85% to SEK 4.61.
Essity has a robust financial position and a solid funding situation. At March 31, 2020, net debt in relation to adjusted EBITDA was 2.09. The rapid spread of COVID-19 pandemic and related countermeasures mean the level of uncertainty in future forecasts is much greater than normal. At the Annual General Meeting, it was decided not to pay a dividend for 2019. The Board of Directors has announced that it intends to revisit the issue concerning a dividend later in the year when a better overview can be gained of the effects of the ongoing COVID-19 pandemic.
In 2020, interim reports will be published on July 17 and October 22.