Past performance is no guarantee of future returns. Fund units may go up or down in value and investors may not get back the amount invested.

Solutions are dynamic - a visit to Essity

VisitAtEssity 730X480
Huizi Zeng visiting the Essity office in Gothenburg.


SDGs_3_Good-Health-And-Well-Being   Essity has been a solution company mainly addressing SDG target 3.3 ‘End epidemic and communicable diseases’, with its business focus on hygiene and health products. But as new opportunities emerge and the company now strategically shifts more towards health and medical solutions, the company’s impact may increasingly extend to help address SDG Target 3.4 ‘Reduce premature mortality from non-communicable diseases through prevention and treatment and promote mental health and well-being’.


During May 2023, I had the opportunity to visit the Essity office in Gothenburg, along with a small group of investors. Additionally, we visited the world's first fossil-free soft tissue paper mill, located in Lilla Edet, which is about a 40-minute drive from Gothenburg city center.

The purpose of the visit was to gain in-depth knowledge about each of Essity's three business areas: Health & Medical, Consumer Goods, and Professional Hygiene. These areas were reorganised about a year ago. After attending four meetings with representatives from each business area and conducting a site visit to the soft tissue plant, it's easy to be impressed with Essity as a company. The employees are passionate and driven by purpose, the company differentiates by innovation and sustainable design even in everyday products like toilet paper and hand towels (with dispensers), and they have a clear vision for long-term profitable growth.
An Exciting Toilet Tour
Thanks to Essity's expertise in professional hygiene, even a toilet tour becomes an exciting experience. Accompanied by the company's key account manager for Northern Sweden, we learned that innovation happens in every aspect of their products. Examples were plentiful. For instance, their toilet paper rolls and drawable tissue dispensers offer a 25% total cost saving for customers, despite having a higher price per paper. The hand towel with dispenser focuses on reducing paper waste, ensuring ease of maintenance, and the highly compressed hand towel in a large dispenser provides a superior capacity of 2100 pieces compared to the previous system's 300 pieces. This innovation is supported by 25-30 related patents. Customers benefit from the peace of mind that comes with not having to worry about running out of paper too quickly. Additionally, Essity's hand towel recycling solution allows for 7-9 times the reuse of the same fiber, with the recycled tissue becoming new raw materials for Essity. Overall, this recycling process results in a 40% CO2 saving for the customer.
When Tradition Meets Innovation
At the Lilla Edet plant, we discovered that the paper mill operates an on-site biogas fired power plant that supplies nearly all the electricity required, including powering three large paper machines that run 24/7. Surprisingly, the oldest of these paper machines, which was put into use in 1957, remains the most energy-efficient despite not being the fastest. Although paper production is based on old technology, automation is highly implemented throughout all the steps, including converting, packaging, storage, and distribution. The innovative aspect comes in when we learned that 85% of the pulp used in the production process comes from recycled fiber, such as recycled pulp from office waste and newsprints. New recycled pulp from cardboards is also utilized, giving the end tissue paper products a pleasant brown tone. Furthermore, water is recycled throughout the process, and paper sludges from production are used in combustion to generate power. Steam generated during production is also utilized as a source of district heating.

Essity2 2023 730X530

A Business in Transition
At first glance, Essity appears to fall into the defensive Consumer Staple sector, but it's important not to overlook its cyclical fundamentals. Pulp, fiber, and oil-based raw materials, such as super absorbents, are widely used in the production of tissue paper, diapers, feminine care products, and incontinence care products. At the group level, raw materials and consumables account for 45% of Essity's total operating expenses as of 2022. Price volatilities in these key raw materials can be challenging for any company, especially when facing resistance from customers regarding price hikes.
It is evident that Essity has been actively working to defend its margins in the short term and reshape its business mix to be less cyclical in the long term. Over the past year, the company has successfully implemented price increases and has been striving to decouple from commodity price volatilities. This decoupling is achieved primarily through two strategies in our view: product innovation and gradually shifting focus toward new growth opportunities and higher-margin health and medical solution businesses. Currently, the company is conducting a strategic review of its European private label consumer tissue business and its 52% ownership in Vinda (83% of sales are tissue business). If these assets are divested, capital can be freed up for investment in new areas of profitable growth, both organically and through acquisitions.
The Excitement of Health and Medical Solutions
Two structural drivers in the market are an aging society and an increase in chronic conditions. Essity is well-positioned to further penetrate in the healthcare market, with its leading incontinence care brand, Tena, which has already made significant inroads into care providers and pharmacy channels. As a company with know-how in both consumer and medical markets, Essity has a good chance of success in categories that require expertise in both areas, such as wound care, compression therapy, and non-invasive orthopedics, among others. During our visit to Essity's Gothenburg office, we had the opportunity to see how the company's new digital solutions may unfold in hospitals, elderly homes, and home care scenarios. In addition to their value-creating products, Essity recognizes that changes are essential in driving sales to end customers, particularly for products and solutions built on connectivity and data management. In the lab, we also had a glimpse of Essity's Tena continence care sensor solution and an upcoming wearable bladder monitor device, which is the first of its kind in the world.
Overall, the visit to Essity and the Lilla Edet plant left us with a profound impression of a company driven by innovation, sustainability, and a clear vision for long-term success. While challenges clearly remain, Essity's deeply grounded commitment to creating value for customers and other stakeholders sheds light on a bright future.

Related articles

Impact investing or investing with impact
Invest with impact on the stock market
Espiria SDG Solutions Investor Memo Issue 1: The Offshore Wind Gale (June 2023)