CEO's review
Huhtamäki Oyj’s Results January 1– September 30, 2023
The market environment improved slightly during the third quarter of 2023, compared to the first half of the year. The significant destocking that impacted the previous two quarters faded during the third quarter. Overall, inflation continued to affect consumption negatively across categories and geographies.
Our profitability and cash generation in the third quarter improved significantly compared to the first half of the year, despite continued soft volumes and lower support from pricing. Comparable net sales decreased by 4% compared to the third quarter of 2022. For the first nine months of the year, comparable net sales decreased by 1%. Currency translation continued to have a negative impact, further accelerating in the third quarter. Adjusted EBIT decreased by 1% in the third quarter and by 6% during the first nine months of the year, including the negative impact from the divestment of our Russian operations. Throughout the year, we have taken actions to address productivity, and the results are starting to materialize. Free cash flow was strong, reaching EUR 122 million during the third quarter and EUR 193 million during the first nine months of the year, supported by reduced working capital.
All our business segments delivered an improved profitability level compared to the first half of 2023 and the third quarter of 2022. The improving trend in profitability during the third quarter was primarily driven by a strong performance in the Fiber and North America segments. The Flexible Packaging segment performance also improved during the third quarter, compared to the same period 2022. The profitability of Foodservice Europe-Asia-Oceania remained at same level as last year.
We continue to drive the execution of our 2030 strategy. We are making consistent progress on delivering on our sustainability commitments, particularly on operational health and safety, renewable energy and absolute greenhouse gas emissions. We are also investing in growth and innovation. At the end of the third quarter, we started ramping up commercial production at our expanded molded fiber factory in Hammond, US, entering the growing egg carton packaging market. This will allow us to leverage the rapid conversion into fiber egg carton packaging in several US states where foam packaging has been banned. In Europe, the acceleration of the fiber lids deployment in replacement of the traditional plastic lids allows a significant volume increase from our recently installed capacity in Alf, Germany. Our investments in technology and capacity will increasingly support our performance going forward.
Charles Héaulmé
President and CEO
October 2023
We continued to successfully execute the Huhtamaki 2030 growth strategy and despite facing a challenging operational environment, delivered a strong performance in 2022. Complexity, volatility, and uncertainty affected the business environment during the year, with geopolitical disruption and high inflation across the value chain. Whilst demand remained overall solid, the pressure of inflation on consumers started to erode the consumption growth across categories and geographies during the second half of the year. The year 2022 was most importantly marked by the war in Ukraine, which led to the decision to divest our operations in Russia. This was successfully completed in September.
In the fourth quarter, our business performance remained consistent with previous quarters, delivering solid revenue and profit growth. Our comparable net sales increased by 9% and adjusted EBIT by 14%. Free cash flow generated reached EUR 71.3 million, representing a significant improvement compared to previous quarters and last year. The positive cash flow was driven by a release of working capital, while we have continued to invest for growth and innovation.
For the full year 2022, our net sales increased to EUR 4.5 billion with comparable net sales growth of 15%. Despite continued high inflation, market headwinds and decreased sales volumes in the latter part of the year, adjusted EBIT improved by 25%. While the cash flow remained low, it improved during the second half of the year. Our solid performance in 2022 reflects the scale and strength of our global footprint, our key technologies and diverse portfolio, and importantly the resilience, agility and commitment of our people.
As we consistently execute our 2030 strategy with the ambition to be the first choice for our customers in sustainable packaging solutions, we are accelerating the development of our technology capabilities for differentiated innovation.In November, we announced our collaboration with Nespresso to create paper-based coffee capsules which are fully home compostable. This innovation in paper-based coffee capsules is born as a continued development of our fiber high-precision technology, which was previously illustrated by the launch of Fiber Lids for the foodservice sector, replacing plastics. In addition, we launched products such as the ICON recyclable ice cream packaging solution in North America and expanded the product range of recyclable flexible packaging.
Innovation in new product alternatives supports our ambitious sustainability agenda. We continuously develop it to take a comprehensive systems-thinking approach, by setting a framework to drive net positive impact of our products. Our goal is to design all our products to be recyclable, compostable, or reusable. During the year, we signed our
second virtual power purchase agreement, created water management plans for all our manufacturing sites and launched a sustainability-linked bond. We also invested in scalable recycling pilots, as we launched a plastic recycling plant in India through the Huhtamaki Foundation and started The Cup Collective initiative, focused on recycling paper cups. In 2022 we have taken important steps with our sustainability agenda, with our performance being recognized externally with improved sustainability ratings.
We have made good progress in 2022 on our journey to transform our company to address mega trends. We have a solid core business with underlying market growth and opportunities. Our scale, technology capabilities and customer innovation partnerships allow us to take a leading role in designing sustainable packaging solutions. This makes me
confident of the bright future of our company. I would like to thank our customers and stakeholders for their continued trust in us as well as our employees for their dedication and hard work.
Charles Héaulmé, President and CEO
February 2023
We continued delivering a strong performance in the second quarter of 2022, despite volatile market conditions. We faced strong headwinds created by supply chain constraints, challenges with raw material availability and geopolitical
turmoil.
Net sales increased by 31% in the second quarter. In comparable terms, growth reached 17%, driven by pricing actions. In most markets, demand developed favorably and has returned to pre-pandemic levels, however with some exceptions, particularly in China. Tensions on raw material availability limited our capacity to further grow volumes according to the demand, most notably in North America. We continued to mitigate the significant inflation which impacted all our major input costs, including raw materials, freight costs, energy and labor. We protected our profitability through operational efficiency improvements and pricing actions, with the adjusted EBIT increasing by 29%. Cash flow remained impacted by increased working capital and capital expenditure.
We continued our organic investment into sustainable product innovation and business expansion. For example, we announced the expansion of our molded fiber product manufacturing unit in Hammond, Indiana, US. This investment in fiber technology supports market demand for more sustainable solutions in North America, such as egg cartons and
cup carriers. The planned USD 100 million investment will start ramping up towards the end of 2023.
To secure our long-term financing, we launched a sustainability-linked EUR 500 million bond. It also underlines our commitment to embed sustainability in everything we do.
We initiated in April a divestiture process of our operations in Russia, for which the process is ongoing. We maintain our operations during this transitional period, to meet our contractual and regulatory obligations and to safeguard our employees and customers.
We are pleased by our strong and consistent performance during the first half of the year. Our ability to handle adverse and volatile conditions emphasizes the agility of our team, the efficiency of our global footprint and the resilience of our diverse portfolio. While uncertainty remains high in the global economy, we continue to execute on our long-term growth strategy.
Charles Héaulmé
President and CEO
July 2022
We continued delivering a strong performance in the second quarter of 2022, despite volatile market conditions. We faced strong headwinds created by supply chain constraints, challenges with raw material availability and geopolitical
turmoil.
Net sales increased by 31% in the second quarter. In comparable terms, growth reached 17%, driven by pricing actions. In most markets, demand developed favorably and has returned to pre-pandemic levels, however with some exceptions, particularly in China. Tensions on raw material availability limited our capacity to further grow volumes according to the demand, most notably in North America. We continued to mitigate the significant inflation which impacted all our major input costs, including raw materials, freight costs, energy and labor. We protected our profitability through operational efficiency improvements and pricing actions, with the adjusted EBIT increasing by 29%. Cash flow remained impacted by increased working capital and capital expenditure.
We continued our organic investment into sustainable product innovation and business expansion. For example, we announced the expansion of our molded fiber product manufacturing unit in Hammond, Indiana, US. This investment in fiber technology supports market demand for more sustainable solutions in North America, such as egg cartons and
cup carriers. The planned USD 100 million investment will start ramping up towards the end of 2023.
To secure our long-term financing, we launched a sustainability-linked EUR 500 million bond. It also underlines our commitment to embed sustainability in everything we do.
We initiated in April a divestiture process of our operations in Russia, for which the process is ongoing. We maintain our operations during this transitional period, to meet our contractual and regulatory obligations and to safeguard our employees and customers.
We are pleased by our strong and consistent performance during the first half of the year. Our ability to handle adverse and volatile conditions emphasizes the agility of our team, the efficiency of our global footprint and the resilience of our diverse portfolio. While uncertainty remains high in the global economy, we continue to execute on our long-term growth strategy.
Charles Héaulmé
President and CEO
July 2022
Huhtamaki had a strong start to the year, despite challenging market conditions. Overall, the demand was strong, in an operating environment affected by continued supply chain tensions and very high inflation across the board. The geopolitical development with the war in Ukraine and continued COVID-19 pandemic added complexity.
Net sales increased by 31% against the same period 2021, and by 19% in comparable terms. It was driven by both improved pricing and increased sales volumes. We have continued to mitigate impact of inflation, which is visible in all our major input costs, including raw materials, freight costs, energy and labor. The volume growth, improved operational efficiency and actions to mitigate inflation had a positive impact on profitability, with the adjusted EBIT increasing by 27%, broadly in line with net sales. While we have been able to handle the impact of inflation, it continues to put pressure on the business performance.
The first quarter has been dominated by geopolitical tensions and the war in Ukraine. We condemn the war in the strongest possible terms and stopped all our investments to Russia immediately after the Russian invasion of Ukraine. We consider that the current evolution of the situation and the long-term outlook in Russia will prevent the realization of our growth strategy and ambitions in the country. As a consequence, we have decided to initiate the divestiture process of our operations in Russia. We will continue to prioritize investments that capture the significant growth opportunities in the rest of the world, in line with our global ambitions and 2030 Strategy.
As a result of focus on our 2030 strategy, we have taken several steps on our sustainability journey, with the intent to reach carbon-neutral production by 2030 while optimizing usage of resources, including energy, water, and waste. During the first quarter, we signed a Virtual Power Purchase Agreement in the United States, covering 30% of our local
electricity usage. We also installed the first solar panel arrays at our factories in Guangzhou and Shanghai in China, covering an initial 10 % of the factories energy use. In addition, we continue investments into innovative, sustainable products and business expansion. For instance, we are stepping up production of advanced smooth molded fiber
packaging in Alf, Germany, to provide plastic free packaging solutions.
Our strong performance highlights the resilience of our diversified portfolio and global presence. It also underlines the ability of our company to manage adverse conditions. I want to thank our entire team for their great work in demanding times and during my absence in the first quarter. I am confident that we will continue to successfully deliver on our long-tem ambition.
Charles Héaulmé
President and CEO
Thomas Geust
CFO
April 2021