Essity AB (publ)

STO:ESSITY B

Q1-2025 Earnings Call

[Sandra Åberg, executive]

Hello, and welcome to Essity's presentation of the results for the first quarter 2025. My name is Sandra Åberg, Head of Investor Relations. Today, our CEO, Magnus Groth; and our CFO, Fredrik Rystedt, will guide us through the essentials of the Q1 report. We will also share some assessments on the tariff situation and why we expect the current tariffs to have a limited impact on Essity's business. After that, we have set aside time to answer any questions that you might have.

After the webcast today, we will be road showing in Stockholm, and next week, we will be in London. So if you would like to meet, please reach out to me.

With that, a solid start to the 2025. Magnus, could you please elaborate?

[Magnus Groth, executive]

Thank you very much, Sandra, and good morning, everyone to -- and thanks for listening in and watching our Q1 report today.

So as a summary, a solid performance with higher sales and a strong cash flow. All business areas continued to the strong growth, and we saw higher volumes, mix and price in 2 out of the 3 business areas in Health & Medical and Professional Hygiene, and we saw a positive price in Professional Hygiene, but lower volumes. So overall stable volumes.

We saw strong growth in our high-margin categories, which is, of course, where we prioritize, and this was partly offset then by higher COGS and higher SG&A. The way to work with this is, of course, that we are always incredibly cost conscious. COGS is mainly attributed to raw materials and distribution, SG&A to inflation and investments in growing our business.

And the way to grow this to achieve our long-term margin and growth targets is to continue to focus on solid volume growth. So that will be a theme today and also a theme for the coming quarters. And as I mentioned, strong cash flow and a solid balance sheet.

Yesterday, so after the quarter and after our Board meeting, we announced a new share buyback program. Again, SEK 3 billion. This is to allocate our strong operating cash flow. It begins today and extends until the AGM next year at the latest. It will be safe harbor compliant. And very important, our ambition is to use this as a recurring way of allocating capital.

So as you know, our #1 priority is, of course, to invest in our value-creating growth of the business. So organic growth. Secondly, then to have stable and rising dividends. Thirdly, to be able to continue to deleverage our balance sheet, which is already very solid. And then, as a way of further increasing our capital efficiency, a recurring share buyback program. And we still have room for acquisitions with all this combined.

Over to product launches, so important. We know that our products, our solutions are loved by consumers and customers all over the world in the 150 countries where we are present, and here are some great examples from the first quarter.

To the left, the cuddly koala, Kenny, that here presents a new and very soft and value-related consumer tissue product in the U.K. And to the right, further launches in a fast-growing part of feminine care and incontinence care, with absorbent underwear where we are continuing to develop and grow.

A big launch for us is with the TENA ProSkin Slip. This is one of our biggest products in TENA. And as you know, in incontinence care, we're the global #1. And this is a product that's used both in health care and in retail. And that's very, very important for our continued growth and success in this area that's so important for Essity.

And to the right, maybe more as a fun fact, but showing how strong we are in different parts of our medical businesses. This relates to our casting business, where we are the global #1. And actually an adjacent product, that cast saw that helps move casting in a very safe and good and quick way. So maybe not a huge product, but still showing that we are developing and launching innovations in all our different categories.

And this results in our product superiority rising to a new level that we've never seen before, over 70% -- 71%. We keep raising the bar. This is something we spoke about during the Capital Markets Day that we would expect to see big improvements here in this year. And this means that 71% of our branded sales is perceived to be superior when you combine price/mix and product attributes and features by customers and consumers. So a clear customer preference, which, of course, drives buying and purchase intent.

So a very important measure for us, and we expect this to improve even further during the year with the innovations that we have ahead of us. And here's an example also on the baby side with Libero Touch that we launched last year and, we believe, will ensure that we also continue to grow our baby business, which was somewhat soft in the first quarter, but where we have strong plans for the remainder of the year.

With that, I thought that we might as well talk about tariffs because I'm sure you will have questions here. Overall, the message from Essity is that we see a very limited impact from tariffs. And the reason is, as we've spoken about before, that we have a global business and that we typically produce where we sell our products, and that's also where we source our raw materials.

And as you can see, specifically in North America, we have 17% of sales. Together with Canada, that's 25% of our sales. And that's -- those are the countries mostly then affected by the tariff situation as it is evolving. And of course, this could change and is changing more or less day by day.

If we then look at our global footprint, we have 70 production facilities. And this is just to show that it really proves the point that we're typically producing our products and sourcing our raw materials where we are also selling the products, which is a very good hedge against tariffs.

Zooming in then on North America specifically and the different business areas. Professional Hygiene, over 90% of what we sell under the Tork brand in North America is actually produced in North America. The raw material is mostly recycled fiber, which we also source in North America, which actually gives us a competitive advantage to several of our competitors in the country. We have some imports to Canada from the U.S. that are subject to tariffs currently, and we are managing that with adjusting the assortment and also pricing.

In Incontinence Products Health Care and Retail, we are producing in the U.S. We are also producing products in Canada that are being exported to the U.S. These trade flows are, right now, exempted from tariffs due to the USMCA agreement, the trade agreement between Mexico, Canada and the U.S.

And in Medical Solutions, we have some imports to the U.S. from Mexico plant in Reynosa, Mexico.

So conclusion, as it comes to tariffs, a majority of our products are produced locally. In the U.S., more than 80%. Imports, exports between U.S. and China, which I didn't mention, are very, very limited. And a majority of the flows that we have between the U.S. and the neighboring countries are exempt from tariffs due to the USMCA.

For parts that are impacted, we are working with various measures to minimize the impact. We can do it by optimizing trade flows. We can do it with pricing, adjusting the assortment and so on to further mitigate. So summary is limited impact on Essity from tariffs.

With that, I'd like to hand over to a more detailed overview of the business from Fredrik. Over to you.

[Fredrik Rystedt, executive]

Thank you, Magnus. I will provide a bit of comments on our 3 attractive business areas: Health & Medical, Consumer Goods and Professional Hygiene. And then I will conclude by providing you with some insight relating to the group as a whole.

And I'll start with Health & Medical. And as you can see on this slide, we grew with 1.7% organically. And this is coming mainly from volume and, to a degree, from price -- and price and mix. And as in previous quarters, we continue to do super well in our medical part, with good growth in all therapy areas, particularly so in wound care, but actually 3 of them grew. And we also saw a positive development in all regions, and this is both volume but also actually price.

When it comes to Incontinence Products, as you can see, we had a more or less flat development. And this was actually not something that we are concerned with. You may remember from our Q4 presentation that we had a very strong growth in Incontinence Health Care due to up-stocking from some of our customers in the quarter. And as a consequence of that, the sales of -- in the first quarter of incontinence health care was slightly lower. We expect that to pick up and normalize as we go forward in the year.

So basically a reasonable start to the year. A good start to the year for Health & Medical in terms of sales. The EBITA margin fell as you, and this was a result of actually falling margins for incontinence health care as a result of basically COGS coming up and a bit slightly less absorption due to that low volume development. When it comes to medical, margins actually picked up in comparison to the same period of last year. So all in all, a good start to Health & Medical.

Turning to Consumer Goods. Growth there was slightly stronger, so almost 3%, as you can see, and a very, very strong price and mix component. And if I start with price and mix, actually all of that is relating to price. So mix continues to be quite low, and this is a consequence of something we've talked about many quarters, the fact that growth is mainly coming in the good or lower segments of the market. So premiumization is still not kind of the name of the game, and this is particularly so for Consumer Tissue.

Volume was very strong in Incontinence Products for the retail market as it was also in feminine. And both of them have continued to grow for quite some time, both in terms of volume, and we also had a positive price and mix contribution. When it comes to Consumer Tissue, most of that growth you see of 2.7% is actually related to price although volume was actually also marginally positive.

When it come to baby, here, we had a bit of a disappointing quarter, in our view, with a decline of 6.5%. And this came from basically lower demand, but also quite fierce competition with big or high-priced promotions in the quarter. Here, we're working with our product assortment, and we expect to have a better development as we go forward, but it was a challenging quarter when it comes to sales for Baby Care.

Looking at the margin then for Consumer Goods, as you can see, it was actually down by 50 basis points, and this is all mainly attributable to predominantly Consumer Tissue and, to a degree, also baby. And when it comes to Consumer Tissue, we have increased prices quite considerably, but not enough to cover the additional cost of goods sold. So slightly down, but worth remembering here that if you look at the margin sequentially, as expected, it did pick up quite significantly with 170 basis points. So overall, a good development, you can say, good direction for Consumer Goods and Consumer Tissue.

Finally, then Professional Hygiene with a marginal growth of 0.7%. We remain with a very strong pricing discipline. So if you look at price and mix at 4.3%, a large part of that was related to price. So we continue to be robust in our pricing discipline. And also, as we saw continued growth in our strategic or premium product, as we say, we also had a positive mix.

But as you can see, the overall volume is down by 3.6%. So the base assortment, the development there was less favorable. And this was, to a very large extent, attributable to the North American market and particularly so in the foodservice space. So it was a bit challenging. Also here, we expect the development to improve, and we're working with many tactical things to make sure that volumes actually do pick up as we go -- going forward.

In this business area, margin was stronger than the corresponding quarter of last year, so plus 80 basis points. And this is, of course, very much a consequence of the pricing discipline that I mentioned earlier.

So if I sum all of this up for the group as a whole, you can basically see that volume was flat. And this was, as I've already said, a result of very strong development, medical, feminine, incontinence retail, and of course, weaker when it comes to particularly Professional Hygiene and baby. But all in all, flat volumes.

Pricing was very strong, plus 2.1%. This is basically all of it relating to price. And it was particularly strong, Professional Hygiene and Consumer Tissue, but actually all 3 business areas had a positive pricing, so -- or price/mix. So all in all, a good development in that space. And then we have the translation from -- coming from a stronger Swedish krona and bringing the total growth then to 0.4%.

If I then go to the EBIT margin for the group as a whole. I've already mentioned this that we've had higher COGS -- quite considerably higher COGS, and this is pretty much all of it coming from higher raw material and mainly pulp, but not only. So higher raw material is actually bringing that higher COGS. And we managed to compensate quite significant part of that headwind with higher sales price, as I've mentioned. And of course, it also helps that we are growing in our high-yielding segments like medical, like feminine, like incontinence. But it was, all in all, not sufficient to fully cover the headwind that we saw in terms of raw material.

When it comes to A&P, we have, in absolute terms, a bit lower spending and also in relation to sales. You should not look at this as a lower ambition or a lower permanent spend level. This is more a phasing issue. So as we have reported earlier, we expect A&P for the year as a whole to actually be higher, and we stand by that forecast.

And finally, SG&A is increasing here and, as in previous quarters, very much related to salary increases and higher spend for our IT structure. And of course, this is a consequence then of also the fact when you look at the impact on margin, the fact that sales is not growing as much as SG&A is increasing.

Just final few couple of words on our balance sheet and cash flow. And if you look at this, we continue to have a very strong cash flow. So normally, we consume working capital in the first couple of quarters in any given year. And we did that as well this year, so in line with our expectations. But generally, we remain with a very strong cash flow.

And as a consequence, we have continued to reduce our net debt. You can see it's close to SEK 27 billion there, so a quite considerable reduction. And the balance sheet has become even stronger with a net debt to EBITDA of roughly about 1. And just to remind you what you probably already know, but we, during the quarter, purchased roughly SEK 775 million of our own shares. And most of, of course, that was canceled, or pretty much all of it was -- those shares were canceled at the AGM.

So with those words, I'll leave back to you, Magnus.

[Magnus Groth, executive]

Thanks, Fredrik. So to summarize, I think the red thread here, the overall story is very clear: a solid start of the year. We have positive organic growth in all our business areas. We have strong cash flow. Looking forward, we are committed to accelerate our profitable growth and with a focus on volume. With additional volume, we get better cost absorption, and this is the way then to combine healthy growth with also improving margins. And I think that was also very clear from your presentation, Fredrik.

And overall then, just to summarize, we have a strong growth platform with leading market positions. We have an efficient supply chain. We're working very much close to our customers and consumers. So we are not affected to -- by tariffs to any major degree, rather to a limited degree. Of course, there's uncertainty remaining regarding the macroeconomic environment. We have seen maybe a first indication in North America in relation to Professional Hygiene.

And to summarize, again, then we are committed to accelerating profitable growth with a focus on volume growth. We have clear actions in place in all our different categories and markets, so not only in Professional Hygiene and in baby, but also in the other areas. And with the launch programs we have, with the go-to-market that we have and the plans we have, I'm convinced that we will be able to achieve this going forward.

So thank you for listening to our presentation. Let's move over to questions. Looking forward to answering all your questions together with Fredrik.

[Operator]

[Operator Instructions] And now first, we have a question from Niklas Ekman from Carnegie.

[Niklas Ekman, analyst]

First question is, I guess, the obvious one here on COGS and margin outlook, the usual question. What are you seeing now? And I mean just looking externally, it looks like you see more -- a little bit more stability in raw material prices. Energy costs have come down recently. The U.S. dollar has dropped quite a lot. Is there opportunity do you see here for margin expansion in the coming quarters with less pressure from COGS than in recent quarters? I guess that's my first question.

[Magnus Groth, executive]

We -- overall, Niklas, I agree with everything you're saying. Of course, we don't know yet what it's going to look like for the quarter. We've seen huge currency swings even within quarters here just recently in the last 2 quarters. But I think the overall picture you're painting is quite true. Even though we see that when it comes to raw materials, the lower dollar compared then to the euro and most of our currencies, of course, is a help. But it offsets actually higher underlying raw material costs. And we expect the combination to be quite flat in the second quarter compared to the first quarter while energy then will be lower.

So of course, we will use any kinds of benefits from this kind of help from external factors then to fuel further growth. And this is something that we will then manage very diligently and in varying degrees in the different categories. But overall, I think you're -- what you described there is quite correct.

[Fredrik Rystedt, executive]

But I guess stable cost is what we're predicting. So total COGS is stable, Niklas.

[Magnus Groth, executive]

Sequentially.

[Fredrik Rystedt, executive]

Yes, sequentially.

[Niklas Ekman, analyst]

Very clear. And on that topic, you specified in this quarter, SEK 610 million of COGS increase. You talked about energy being slightly lower, cost savings of SEK 82 million. Does that mean raw materials had a negative impact of SEK 740 million? Or am I missing something?

[Fredrik Rystedt, executive]

Yes. Actually, you are missing a little bit there because there was also some other costs. So raw material was actually a bit lower, about SEK 600 million, Niklas. And then there were other negative costs, taking up the total to SEK 740 million, as you say.

[Niklas Ekman, analyst]

Very clear. And just the last question. Buybacks, SEK 3 billion. You mentioned here that your net debt is down quite a lot, so 1x EBITDA right now, which is quite low. Why only SEK 3 billion? Are you looking at imminent M&A at the moment, for instance? Or just -- yes, if you could elaborate.

[Magnus Groth, executive]

We feel that this is a very prudent level considering that we expect this to be recurring for many years going forward. And also considering the uncertain times we're in, we believe that this is a reasonable and prudent and good level.

[Fredrik Rystedt, executive]

And maybe, Niklas, just to add. Obviously, you already know that, but we increased our dividend level quite considerably.

[Operator]

And our next question now comes from Charles Eden from UBS.

[Charles Eden, analyst]

Just on the softer volumes in North America Professional Hygiene. I guess we had some sort of insights here of sorts with the Bunzl warning, which, if I'm correct, is your largest distributor for the division. But could you just give some comments here on whether you think this is a temporary or phasing impact with some recovery from Q2 onwards or a more permanent softness in this region given all the macro uncertainty? Yes, that was my question.

[Magnus Groth, executive]

It's a good question, and we don't have to -- have an answer to how this will develop going forward. What's clear is that in Professional Hygiene, we have strong plans for North America to recover in various ways, working with, of course, pricing assortment and together with our key customers also together to regain growth in this category, so we have plans in place. Whether the underlying market will remain soft, get softer or not, I think it's impossible to say.

[Operator]

And from Barclays, we have a question now from Patrick Folan.

[Patrick Folan, analyst]

Patrick Folan from Barclays here. Just a couple for me. On the cost savings, I think it was SEK 82 million, it implies just a bit of a slower cadence than the SEK 500 million to SEK 1 billion guidance for the year. I assume that steps up from Q2, and I'm guessing we should assume no change to the full year guide. And also, can you comment on the lower marketing costs? I know, Fredrik, you touched on it, but 30 bps lower year-on-year and also in absolute terms, is this something that was strategic? Should we expect something to step up in Q2 or Q3? That's my first question.

Just maybe secondly, you touched on the higher COGS pressure and pricing not offsetting it entirely. So how should we think about the pricing dynamics in Q2 versus the raw material inflation you just touched on? I saw some competitors have been talking about raising prices in Europe again in tissue in the coming months.

[Magnus Groth, executive]

So I'll start, Fredrik, and then hand over to you. So when it comes to COGS saving for the year, we are committed to what we stated last year that we aim for savings between SEK 0.5 billion to SEK 1 billion for the year. So yes, it was a slow start, but we expect to pick up in the coming quarters, as you said.

So Fredrik, do you want to continue to talk about the A&P costs and how they are?

[Fredrik Rystedt, executive]

No. Patrick, it's a great question. But as we -- you will remember perhaps that the A&P is, to quite some degree, connected to our launches and exactly how we put things on the market. So if we have launches in -- at any given point of time, we also put a lot of A&P spend behind it. And then, of course, we also have maintenance A&P as we -- as you know.

So you can say there is always a phasing, and the number of launches early in the quarter is always a bit lower. So you should not look at this as a kind of a permanent shift downwards. We have communicated previously that we expect A&P spending for the year as a whole to be higher than it was in 2024, and we stand by that forecast. So basically, no, this is only phasing.

[Magnus Groth, executive]

Yes. And then, yes, your last question, referring to -- remind me, please.

[Fredrik Rystedt, executive]

Pricing in Consumer Tissue in Europe.

[Magnus Groth, executive]

Pricing in Consumer Tissue. We're very happy with the pricing we have achieved in Consumer Tissue in Europe and in other places. As you can see, a large part of the 2% growth in the quarter was actually related to pricing. I mean this could vary from market to market and from category to category, how we work with pricing.

Overall, we have a strong focus now on recovering volume growth. But of course, doing that at healthy margins level so that we can achieve a profitable growth also. And through the volume growth, then getting the operating leverage that we know really contributes to profitability and margins.

[Operator]

And up next, we have a question from Jeremy Fialko from HSBC.

[Jeremy Fialko, analyst]

I guess one pricing question and one volume question. So the pricing question is when we look at inco medical, your pricing was off a little bit. And so I want to know whether you think that is sort of a precursor to more pricing as you -- kind of you go through some of these contract renegotiations, which come up periodically, whether you're seeing a greater degree of kind of deflationary pressure within that market. And then similarly, whether we should -- you could see the pricing numbers come down quite a bit on professional as you work towards getting your volumes a little bit better in that category.

And then just on the volume side, any idea of what the volume sort of pull forward was in inco -- basically Health & Medical overall in Q4 so we can kind of get a sort of more of a clean idea number of what the clean volume number was in Q1?

[Magnus Groth, executive]

Thanks. Those are many detailed questions for sure. I don't really have any comment on whether the slight decline in pricing we saw in Health & Medical is a start of any kind of trend. Again, we continuously work on different contracts and in different markets to find a healthy balance between pricing and volume. And I haven't seen or discussed any such trends at this point in time.

Then when it comes to kind of the negative volume impact maybe from the prebuying in Q4 versus Q1, I don't think we have any really numbers to present there either, Fredrik.

[Fredrik Rystedt, executive]

No. I don't have that. It's -- you can say sequentially, there was a quite significant volume decline, roughly. I mean it was quite significant, of course, obviously. And this was on the back of the growth number you saw there Q-on-Q in December. So we think it's -- as I mentioned, this was expected from our side, and we expect things to normalize in Q2. So exactly how much it is in terms of percentage, I would like not to give actually. It's difficult.

[Jeremy Fialko, analyst]

But you would expect to see a clearly better volume picture in this division in Q2 without getting into the specifics of it as that...

[Fredrik Rystedt, executive]

That's absolutely our estimate. Of course, we -- it's impossible to give you any kind of exact volume numbers. We just don't have that crystal ball. We can only kind of mention what we are planning for in our own thinking. And there, of course, this is a consequence of the very strong stock-up in Q4 from our customers. And therefore, we expect Q2 to actually have a more positive development. But once again, of course, it's always difficult to forecast.

[Operator]

[Operator Instructions] And up next, we have a question from Oskar Lindstrom from Danske Bank.

[Oskar Lindström, analyst]

Actually, a couple of questions from me. First one, just on Professional Hygiene and the weakness in the U.S. foodservice space. Did you say that this was due to destocking and that you expect an improvement -- I mean have you seen sort of that destocking end already? Or do you expect it to end? That's my first question.

[Magnus Groth, executive]

Destocking discussion was relating to Incontinence Care Health Care, so not to Professional Hygiene. The lower sales in Professional Hygiene North America is -- relates to actually a softer demand. So -- and that, as discussed before, we don't have any really predictions how that will develop in the coming quarters. But just to underline again that we have plans in place in order to restore and improve here from a volume perspective, also in Professional Hygiene North America.

[Oskar Lindström, analyst]

Right. Because that's my second question actually. I mean, generally, on volumes going into this year, I mean, your ambition has been and continues to be to grow through volumes, which we haven't seen so far. You've seen -- I mean you mentioned that you have plans to revive volume growth. Could you -- I mean is this increased A&P spending? Or is it some movements on price? What is it that you plan to do that gives you confidence that you will be able to revive volume growth?

[Magnus Groth, executive]

Overall, our volumes were stable. I mean they weren't negative. They were stable, just to underline. And actually, in the highest-margin categories, they were positive. As Fredrik described, we had positive volumes in incontinence care, both in -- or flat in health care, but really good growth in retail. We had good growth in Feminine Care. We had growth in Consumer Tissue.

[Fredrik Rystedt, executive]

Medical, very, very strong.

[Magnus Groth, executive]

Medical, very strong growth. So we have good growth in many areas. And then there are a few exceptions. We -- I think we already covered Professional Hygiene. We covered Incontinence Care Health Care, where we have plans and we had the destocking issue in the first quarter. And also in baby, we typically have a little bit of a more lumpy, bigger variations in sales between the quarters. And we believe that with a very strong offering that we have currently and market positions that we will be able to recover also in baby. So very specific plans in specific areas.

And I mean just as an example, we had one big customer in North America that left us at the end of last year for a Chinese supplier. This was almost the first time we saw that. And of course, they are now discussing with us to come back, considering the tariffs that we have in place. So I mean it's just one example out of many what the dynamics. It could be many different reasons for why we believe that we will get back to volume growth in bigger parts of our business going forward.

[Oskar Lindström, analyst]

And so my final question is also related to this. You've talked a little bit about the low cost trend or consumers focusing on economy products rather than the higher end. Are you seeing any end to this? Or does that -- are you expecting that to continue for the rest of the year?

[Magnus Groth, executive]

We saw quite some of that during the inflationary period a couple of years ago, and then it kind of stabilized on a new level with a higher share of sales than in the good and better tiers of the good, better, best kind of tiering structure. We're always working then that, over time, we want our consumers and customers, and we believe that's to providing an even better experience to move up to premium products.

Right now, we see some of that continuing again in Europe. But I think it's too early to say if this will have a big impact or not. So far, this is quite limited compared to what we've seen in the last couple of years.

[Fredrik Rystedt, executive]

I think maybe to add, Magnus, as we -- you have said or we have said many times, we see the growth happening in the mid- to lower tiers more than in the premium space. So it's not premiumizing, but it's not necessarily downtrading a lot more either. It's much more the fact that the growth is actually coming. And therefore, mix is not contributing.

We've had a long period of time, and we will expect to have that also as we go forward where mix is contributing through our own premiumization and through our own innovation. Right now, that's not so much the case, and it hasn't been for a few quarters.

But of course, as we have communicated, if you look at our long-term targets, which is organic sales growth of more than 3%, we expect mix to be roughly about 1% or so of that. And we're quite far away from that at this point of time. So we expect, over time, that markets will more normalize and continue to premiumize. It's not happening now. And of course, it will probably take some time before it goes back to more normalized levels.

[Magnus Groth, executive]

And we also expect, in the long term, to achieve this above 3% growth target by having approximately 2% of volume also, so 2% of volume, 1% of mix. And of course, we're seeing something completely different now in the first quarter. But over time, as Fredrik said, that's what we expect, where we expect to see the longer-term growth coming.

[Operator]

And we're moving on to questions from Antoine Prevot from Bank of America.

[Antoine Prevot, analyst]

Two questions for me, please. First one on Professional Hygiene, I mean, in the volume decline, how much maybe was due to the restructuring and versus the softer market? And what makes you confident on the acceleration of volume maybe in the coming Qs -- quarters?

And second one on COGS. Just to clarify your earlier comment when you said that in 2Q, you expected COGS to be flat. Was that meant sequentially or year-on-year? Because I know it's still early, but pulp should no longer be a headwind, right, in 2Q, especially with the weakness in U.S. dollar.

[Fredrik Rystedt, executive]

Yes, the last question, let's see. I was referring when we said sequentially -- or flat, it's sequential. So basically, just to give you real rough components there. Raw material, largely flat. It's a bit of mixed picture for the different raw materials, but largely flat. Energy, positive. Distribution, a bit negative. And savings, positive. So all in all, stable for -- sequentially.

[Magnus Groth, executive]

Yes. And the Professional Hygiene volumes, what makes us confident. Again, I gave some examples of how we're working with various accounts to where we have seen lower sales partly due to underlying softness as we have referred to several times, but also where we have actually been selling less through certain accounts and distributors where we expect to increase our share of sales going forward.

And then when it comes to the restructuring, yes, we said previously that we shouldn't talk more about the restructuring impacts on Professional Hygiene, but there was a negative impact also in this quarter. But this is the final quarter. So promise not to talk about it in the second quarter. How big was it, Fredrik?

[Fredrik Rystedt, executive]

We've actually not specified, but it was actually more than 1% of that volume decline. It was actually close to almost -- yes, close to 2%.

[Magnus Groth, executive]

So now we spoke about it.

[Fredrik Rystedt, executive]

Yes, we spoke about it. But we -- this is the last quarter. So if you look at the group as a whole, it's actually quite marginal. And as we also mentioned before, for the year as a whole, it doesn't have a large impact for the group or for Professional Hygiene. So this is why we have chosen not to specifically mention that too much.

[Operator]

And we now take a follow-up question from Patrick Folan from Barclays.

[Patrick Folan, analyst]

Just to comment on the value focus or the purchasing in the mid- to lower-tier-priced products, which category specifically are you seeing this behavior in Europe coming back in? I'm guessing Baby Care is one of those categories.

[Magnus Groth, executive]

Yes. To some extent, in Baby Care, that's true, but even more in Consumer Tissue. Again, this is an indication that we're seeing and something where we've been preparing and also strengthened our assortment very much in the good and better tiers over several years now.

And one of the innovations I showed there, Cushelle with the koala, is an example of a value offering that is pinpointed exactly towards this trend. So I would say, first, Consumer Tissue; and secondly, to some extent, in baby. Baby is a bit different. It's a much more emotional category. So young parents are -- it's more important actually to make sure that their babies have the best possible products. So Consumer Tissue is where we're seeing the biggest impact.

[Patrick Folan, analyst]

Okay. And just on that Baby Care, I mean, it was down about 6.5%. So is that just a general market weakness as opposed to changing consumer behavior like in terms of downtrading? Or just like what's kind of going on behind that number?

[Magnus Groth, executive]

Two things. It was generally a weak quarter. Sometimes, we see that, as I stated, which seems odd, considering that one would think babies are typically born on a regular basis. Anyway, we see that, so maybe there's some kind of changes in how the retailers buy from us also. But then there was very strong also competitive pressure in the quarter from some of the main competitors, which also had an impact.

And of course, we make our promotion plans. Our competitors make their promotions plans, their new product launches. Sometimes, a competitor comes in with a big splash in 1 quarter, and the next quarter, it's us. So that's the reason why this category is more lumpy sometimes or -- than other categories. Typically, over the longer term, over a year, it kind of evens out. And that's the reason why we're confident that we will also recover in Baby Care.

We have the best product assortment, I think, we ever had. We have very good cost position here and super good marketing. So there's no reason why we shouldn't be successful in Baby Care in the coming quarters.

[Operator]

[Operator Instructions] And we now take another follow-up from Jeremy Fialko from HSBC.

[Jeremy Fialko, analyst]

So the first one is on pricing. With the fresh price increases that went in during the quarter, does that mean you will get sort of a full quarter impact of those in Q2? Or is the price effect mainly kind of a carryover effect from the price increases that you put through last year?

And then the second question is on the SG&A percent of sales. That was obviously up 50 basis points. Do you think that is representative of where you end up for the year? Or would you hope for actually a smaller increase in SG&A as a percent of sales when we look at 2025 as a whole?

[Magnus Groth, executive]

Yes. First question, yes, pricing is mostly a carryover from last year. Then there could always be areas where we're looking at, of course, enhancing pricing and finding the right volume between -- the right balance between price and volume and mix.

Then when it comes to SG&A outlook for the year, one thing is very clear. We have a strong cost focus in the group and making sure that we are in good shape for this more uncertain times that we're experiencing. Having said that, we still have salary inflation. Fredrik, what is the outlook?

[Fredrik Rystedt, executive]

Yes. I mean we -- as you say, 50 basis points is, of course, impacted by the fact that sales growth was relatively low, Jeremy. So of course, the margin impact should be lower than what you see here. We don't calculate with that much margin impact as we calculate with higher -- high growth.

But generally speaking, when it comes to the growth rate of SG&A, excluding A&P, so to speak, it is, as I said, mainly driven by salary inflation and higher IT spend. Even if we decompose that a bit, when it comes to salary inflation, it's probably fairly representative, I think, for the year as a whole. And so is the IT spend as we expect that to be fairly elevated during this year.

What I perhaps did not mention that much was that the number of employees have really not increased. So this is more a matter of activity level on the IT side and the inflation that is difficult for us to control. So overall, the growth rate should be relatively representative but not in terms of margin, if I put it that way.

Can I just -- one final question on the pricing. You're absolutely right, Magnus. Most of it is carryover. But we actually did raise prices in Health & Medical also sequentially. We did that in the early part, I should say, of the quarter. So it's not much carryover to Q2, but we had that in Health & Medical, and we had that in Consumer Goods, whilst the sequential development in PH was slightly down.

[Magnus Groth, executive]

Thanks for the clarification. And again, just getting back to the discussion around the SG&A, shows the importance of volume growth in order to cover then the inflationary cost environment.

[Operator]

And as there are no further questions in the queue at the moment, I'd like to hand the call back over to you for any additional or closing remarks.

[Magnus Groth, executive]

Thank you very much for watching. We remain committed to our ambition of profitable volume growth and overall growth throughout the coming quarters. Thanks for listening to our first quarter presentation.