UPDATE 2-Tissue maker Essity sees market recovery after record 2020 profit

* Q4 less bad than feared as demand from retailers grew

* Proposes dividend of 6.75 SEK/share for 2020, up 8% from 2019

* CEO sees Professional Hygiene recovery from H2

* Shares up (Adds CEO comment, shares, background, detail)

STOCKHOLM, Jan 27 (Reuters) - Swedish hygiene products maker Essity expects demand to gradually recover this year as COVID-19 vaccinations accelerate and restrictions ease, after a record 2020 profit despite lower sales.

The world’s biggest maker of hygiene products for offices said that while organic sales slid 2% in the year due to the pandemic and related lockdowns, big cost cuts and lower pulp costs helped boost operating profit by 17% to 16.8 billion crowns ($2.0 billion).

Fourth-quarter profit fell 8% from a year earlier to 4.19 billion crowns as the division that makes products for offices, restaurants and hotels suffered from the stay-at-home trend. But the fall was smaller than feared as other divisions’ higher sales to retailers helped compensate partly.

Shares in Essity were up 2.7% at 1224 GMT as the world’s second-biggest maker of consumer tissue such as toilet paper and handkerchiefs with brands such as Lotus and Vinda also proposed a higher dividend for 2020 than in 2019.

“The COVID-19 pandemic has had a major impact on people and the global economy. Vaccinations have started and market conditions are gradually improving. Increased awareness of hygiene and health is positive for Essity,” it said in a statement.

Chief Executive Magnus Groth said the first division to benefit as economies reopen would be Professional Hygiene. “We expect to see that from the second half of the year,” he told Reuters.

He told analysts and reporters on a call that while he saw pulp prices rising in the first quarter he expected effects for Essity to be relatively small.

The rival of Procter & Gamble and Kimberly-Clark said its board proposed a dividend of 6.75 crowns per share for 2020, up 8% from the dividend paid for 2019.

$1 = 8.3257 Swedish crowns Reporting by Anna Ringstrom; editing by Johannes Hellstrom, Niklas Pollard and Emelia Sithole-Matarise