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Essity reduces costs to increase profitability
To strengthen the Group’s long-term cost efficiency, the hygiene and health company Essity today introduced a Group-wide cost-savings program. The program is expected to generate annual cost savings of approximately SEK 800m, with full effect at the end of 2019.
For a number of years, Essity has reported sales growth and increased profitability. During the first half of 2018, the Group's margin has been negatively affected by significantly higher raw material costs. The rapidly increasing costs have, to a large extent, been offset by active work to increase prices, product mix improvements and cost savings. During the third quarter of 2018, the negative impact of external market factors, such as sharply increasing costs for pulp, oil-based raw materials and energy, have accelerated further.
The cost-savings program is being implemented in all parts of the Group to reduce the cost base related to cost of goods sold and sales, general and administration costs. The program will include headcount reductions and reduced costs for projects, consultants and travel. Personnel changes will be subject to customary consultations. The program that is now being launched is in addition to the efficiency initiatives already in progress in the Group, such as “Tissue Roadmap” and “Cure or Kill”.
“Sharply increasing raw material costs and higher energy prices are affecting our margins in the short term. We are implementing this savings program to increase profitability and strengthen our competitiveness. At the same time, we are continuing to invest in innovation and our strong brands,” says Magnus Groth, President and CEO of Essity.
Cost savings related to the program will be reported separately in addition to the savings reported on an ongoing basis by the Group. Restructuring costs arising from the savings program will be related to headcount reductions and will be presented in the fourth quarter of 2018.