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Huhtamäki Oyj's Interim Report January 1-September 30, 2017: Continued comparable growth


HUHTAMÄKI OYJ INTERIM REPORT 26.10.2017 AT 8.30

Huhtamäki Oyj's Interim Report January 1-September 30, 2017: Continued comparable growth

Q3 2017 in brief

  • Net sales grew to EUR 732 million (EUR 719 million)
  • EBIT was EUR 64.3 million (EUR 66.9 million)
  • EPS was EUR 0.44 (EUR 0.46)
  • Comparable net sales growth was 4% in total and 5% in emerging markets
  • Currency movements had a negative impact of EUR 21 million on the Group's net sales and EUR 2 million on EBIT

Q1-Q3 2017 in brief

  • Net sales grew to EUR 2,243 million (EUR 2,134 million)
  • Adjusted EBIT was EUR 202.7 million (EUR 202.5 million); EBIT EUR 202.7 million (EUR 202.3 million)
  • Adjusted EPS was EUR 1.39 (EUR 1.39); EPS EUR 1.39 (EUR 1.39)
  • Comparable net sales growth was 3% in total and 2% in emerging markets
  • Currency movements had a positive impact of EUR 16 million on the Group's net sales and EUR 2 million on EBIT
  • Capital expenditure increased to EUR 144 million (EUR 95 million) and free cash flow reduced to EUR 5 million (EUR 79 million)

  Key figures

EUR million Q3 2017 Q3 2016 Change Q1-Q3 2017 Q1-Q3 2016 Change FY 2016
Net sales 732.0 719.2 2% 2,243.3 2,133.5 5% 2,865.0
Adjusted EBITDA1 94.0 96.1 -2% 294.4 286.6 3% 381.8
Margin1 12.8% 13.4%   13.1% 13.4%   13.3%
EBITDA 94.0 96.1 -2% 294.4 286.4 3% 380.1
Adjusted EBIT1 64.3 66.9 -4% 202.7 202.5 0% 267.9
Margin1 8.8% 9.3%   9.0% 9.5%   9.4%
EBIT 64.3 66.9 -4% 202.7 202.3 0% 266.2
Adjusted EPS, EUR1 0.44 0.46 -4% 1.39 1.39 0% 1.83
EPS, EUR 0.44 0.46 -4% 1.39 1.39 0% 1.81
ROI1       13.9% 14.7%   14.7%
ROE1       16.4% 18.0%   17.7%
Capital expenditure 48.7 39.2 24% 144.1 95.2 51% 199.1
Free cash flow 17.0 41.0 -59% 5.2 78.6 -93% 100.3

1 Excluding IAC of EUR -0.2 million in Q1-Q3 2016, and EUR -1.7 million in FY 2016.

Unless otherwise stated, all comparisons in this report are compared to the corresponding period in 2016. Figures of return on investment (ROI), return on equity (ROE) and return on net assets (RONA) presented in this report are calculated on a 12-month rolling basis.

As announced on April 24, 2017, Huhtamaki has changed the name of its Molded Fiber business segment to Fiber Packaging. The new name is taken into use as of April 27, 2017 and is used in this report.

Jukka Moisio, CEO:

"Our comparable net sales growth returned to 4% during the third quarter. In emerging markets comparable growth was 5% despite net sales still declining in India. At the end of the quarter our net sales in India started to grow again as the demand for flexible packaging began to recover from the impact of Goods and Services Tax (GST) implementation.

Our profitability remained at a solid level but was affected by higher costs especially in the North America segment. In addition to costs related to major on-going investments the segment's distribution and resin costs were higher due to hurricane impact. The Foodservice Europe-Asia-Oceania segment's profitability held up well despite adverse product mix and the impact of weaker pound sterling on our UK business. The Flexible Packaging segment's net sales growth accelerated at the end of the quarter.

Three major quick-service restaurant customers recognized our North America segment with special awards for delivering outstanding service and design. This is a great credit to our North American foodservice team, reflecting our continued investment in our people and capabilities and gives us confidence our decision to invest in new capacity is well-timed. Setting up the new manufacturing unit in Goodyear, Arizona, is progressing as planned and we expect manufacturing activities to begin initial ramp-up in the fourth quarter. In China the acquisition of International Paper's foodservice packaging operations was closed during the quarter and the integration activities have started. This together with the modernization of our South China manufacturing operations makes us well positioned to serve the Greater China market.

Towards the end of the year we are completing the major expansions in the US and China. At the same time our major market India has started to recover from implemented reforms. We have work to do but the foundation for future progress is good."

Financial review Q3 2017

The Group's comparable net sales growth was 4% during the quarter, with all segments reporting positive comparable growth. Solid growth continued in the Foodservice Europe-Asia-Oceania and Fiber Packaging business segments. Despite negative development in India during the quarter the Flexible Packaging business segment reported 7% comparable net sales growth. Comparable growth in emerging markets was 5%. Growth was strong particularly in Eastern Europe, and Southeast Asia, but also Africa and Middle East developed well. The Group's net sales grew to EUR 732 million (EUR 719 million). Foreign currency translation impact on the Group's net sales was EUR -21 million (EUR -10 million) compared to 2016 exchange rates. Majority of the negative impact came from the US dollar, Chinese Yuan Renminbi, UK pound sterling and Egyptian pound.

Net sales by business segment

EUR million Q3 2017 Q3 2016 Change Of Group in
Q3 2017
Foodservice Europe-Asia-Oceania 202.6 195.2 4% 28%
North America 235.3 244.4 -4% 32%
Flexible Packaging 229.7 216.5 6% 31%
Fiber Packaging 68.6 67.1 2% 9%
Elimination of internal sales -4.2 -4.0    
Group 732.0 719.2 2%  

 

Comparable growth by business segment

  Q3 2017 Q2 2017 Q1 2017 Q4 2016
Foodservice Europe-Asia-Oceania 4% 2% 3% 3%
North America 2% 1% 2% 5%
Flexible Packaging 7% -2% 3% -3%
Fiber Packaging 5% 8% 4% 6%
Group 4% 1% 3% 3%

The Group's earnings declined, but remained at a solid level. Earnings of the Foodservice Europe-Asia-Oceania business segment remained at the previous year's level, whereas all the other business segments' earnings declined. The positive earnings impact of Other activities is mostly related to changes in the Group's long-term incentive plan expenses. The Group's earnings before interest and taxes (EBIT) were EUR 64.3 million (EUR 66.9 million). Foreign currency translation impacted the Group's profitability by EUR -2 million (EUR -1 million).

EBIT by business segment

EUR million Q3 2017 Q3 2016 Change Of Group in
Q3 2017
Foodservice Europe-Asia-Oceania 18.4 18.3 1% 29%
North America 20.2 24.5 -18% 32%
Flexible Packaging 17.7 18.2 -3% 28%
Fiber Packaging 7.3 8.3 -12% 11%
Other activities 0.7 -2.4    
Group 64.3 66.9 -4%  

Net financial expenses decreased to EUR 5 million (EUR 7 million). Tax expense was EUR 13 million (EUR 12 million).

Profit for the quarter was EUR 46 million (EUR 48 million). Earnings per share (EPS) were EUR 0.44 (EUR 0.46).

Financial review Q1-Q3 2017

The Group's comparable net sales growth was 3% during the reporting period with a positive contribution from all business segments. Comparable growth in emerging markets was 2%. Growth was strongest in Eastern Europe and Southeast Asia, while net sales declined in India. The Group's net sales grew to EUR 2,243 million (EUR 2,134 million). Foreign currency translation impact on the Group's net sales was EUR 16 million (EUR -49 million) compared to 2016 exchange rates. The majority of the positive impact came from the Russian ruble, Indian rupee and US dollar, while the impact from pound sterling and certain emerging market currencies was negative.

Net sales by business segment

EUR million Q1-Q3 2017 Q1-Q3 2016 Change Of Group in
Q1-Q3 2017
Foodservice Europe-Asia-Oceania 600.5 548.0 10% 27%
North America 756.9 745.3 2% 33%
Flexible Packaging 686.0 654.7 5% 31%
Fiber Packaging 212.7 198.8 7% 9%
Elimination of internal sales -12.8 -13.3    
Group 2,243.3 2,133.5 5%  

 

The Group's earnings were at the same level as previous year. Good earnings improvement in the Foodservice Europe-Asia-Oceania business segment supported the Group's earnings while the other business segments' earnings declined. The positive earnings impact of Other activities is mostly related to changes in the Group's long-term incentive plan expenses. The Group's Adjusted EBIT were EUR 202.7 million (EUR 202.5 million) and reported EBIT EUR 202.7 million (EUR 202.3 million). Foreign currency translation impacted the Group's profitability by EUR 2 million (EUR -5 million).

Adjusted EBIT by business segment

EUR million Q1-Q3 2017 Q1-Q3 2016 Change Of Group in
Q1-Q3 2017
Foodservice Europe-Asia-Oceania1 52.2 47.9 9% 26%
North America 75.3 82.5 -9% 38%
Flexible Packaging 50.6 56.2 -10% 25%
Fiber Packaging 22.7 24.7 -8% 11%
Other activities 1.9 -8.8    
Group1 202.7 202.5 0%  

1 Excluding IAC of EUR -0.2 million in Q1-Q3 2016; reported EBIT for Q1-Q3 2016 EUR 202.3 million for the Group and EUR 47.7 million for the Foodservice Europe-Asia-Oceania business segment.

Net financial expenses decreased to EUR 16 million (EUR 20 million). Tax expense increased and was EUR 41 million (EUR 35 million). The corresponding effective tax rate was 22% (19%).

Profit for the period was EUR 146 million (EUR 148 million). Adjusted EPS were EUR 1.39 (EUR 1.39) and reported EPS were EUR 1.39 (EUR 1.39).

Significant events during the reporting period

On March 3, 2017 Huhtamaki announced that it will set up a greenfield paper cup manufacturing unit in Kiev, Ukraine. The new unit will manufacture a full range of paper cups for cold and hot drinks. Manufacturing operations are expected to begin during 2018 and the unit is expected to employ approx. 50 employees. The unit will become part of the Foodservice Europe-Asia-Oceania business segment.

On April 21, 2017 Huhtamaki announced that it has agreed to sell one of its manufacturing facilities and the related land usage rights in Guangzhou, China, to Guangzhou Yashao Investment Co. Ltd. The sale is part of the ongoing consolidation of Huhtamaki's foodservice packaging manufacturing operations in South China. The selling price is approx. EUR 14 million. As a result of the sale, a gain of approx. EUR 6 million will be booked as an item affecting comparability (IAC) in the Foodservice Europe-Asia-Oceania business segment once the transaction is closed.

On April 25, 2017 Huhtamaki announced that is has signed a freely transferable loan agreement (Schuldschein) of EUR 117 million and USD 35 million (approx. EUR 33 million). The loan is targeted to institutional investors. It includes several floating and fixed rate tranches with maturities of 5, 7 and 10 years. Huhtamaki will use the funds for refinancing and general corporate purposes of the Group.

Significant events after the reporting period

On October 3, 2017 an aggregate nominal amount of EUR 135,008,000 of EUR 200 million Notes issued by Huhtamaki in 2013, due on May 14, 2020 and with a coupon of 3.375 percent, were accepted to be purchased back and cancelled. All Notes that were not purchased remained outstanding.

On October 4, 2017 Huhtamaki issued a EUR 150 million fixed rate unsecured bond that matures in seven (7) years and pays a coupon of 1.625 percent.

Outlook for 2017

The Group's trading conditions are expected to remain relatively stable during 2017. The good financial position and ability to generate a positive cash flow will enable the Group to address profitable growth opportunities. Capital expenditure is expected to be approximately at the same level as in 2016 with the majority of the investments directed to business expansion.

Financial reporting in 2018

In 2018, Huhtamaki will publish financial information as follows:

Results 2017                                                                            February 14
Interim Report, January 1-March 31, 2018                              April 25
Half-yearly Report, January 1-June 30, 2018                          July 20
Interim Report, January 1-September 30, 2018                      October 25

Annual Accounts 2017 will be published on week 8.

Huhtamäki Oyj's Annual General Meeting is planned to be held on Wednesday, April 25, 2018.

This is a summary of Huhtamäki Oyj's Results January 1 - September 30, 2017. The complete report is attached to this release and is also available at the company website at www.huhtamaki.com.

For further information, please contact:
Jukka Moisio, CEO, tel. +358 10 686 7801
Thomas Geust, CFO, tel. +358 10 686 7880

HUHTAMÄKI OYJ
Group Communications

Huhtamaki is a global specialist in packaging for food and drink. With our network of 78 manufacturing units and additional 24 sales only offices in altogether 34 countries, we're well placed to support our customers' growth wherever they operate. Mastering three distinctive packaging technologies, approximately 17,600 employees develop and make packaging that helps great products reach more people, more easily. In 2016 our net sales totaled EUR 2.9 billion. The Group has its head office in Espoo, Finland and the parent company Huhtamäki Oyj is listed on Nasdaq Helsinki Ltd. Additional information is available at www.huhtamaki.com.