Interim report Q3 2018
“Our reported third quarter net sales grew 7% including a minor currency headwind impact of -1%. Comparable growth for the Group was 4% and in emerging markets 5%. Acquisitions added EUR 30 million to reported net sales accounting for 4% growth. During the quarter a number of important emerging market currencies devalued significantly.
Our profitability weakened because price and mix improvement actions were not enough to offset the increase in input costs. We will continue the price and mix improvement actions. In addition, we announced in early October plans to close down non-competitive production lines and invest further in automation to improve our productivity and efficiency. Executing the plan would generate an item affecting comparability (IAC) of EUR -30 million, to be recognized in Q4, and it is expected to improve our profitability by EUR 15-18 million annually, with full impact in 2020.
Net sales with global key accounts developed well and we made good progress on many innovation projects. I am pleased to see the project Fresh progressing to a second, larger consumer test phase in the UK. This compostable ready meal tray is made from renewable fibers and it can replace black plastic trays. Fresh is a good example of the work we do in developing solutions to pack and serve food safely and conveniently with less negative impact on the environment.
The ramp-up of our new facility in Arizona, the U.S., is on track supporting the sales growth of paperboard-based products. The building of the new flexible packaging manufacturing unit in Egypt is also progressing as planned and we expect to start early trials towards the end of 2018 and commercial deliveries in early 2019. Both units will help us address the growth opportunities we continue to see in food and drink packaging.”
“Our second quarter comparable net sales growth was good at 6%. In the emerging markets growth was 10%. All segments contributed to positive development and Flexible Packaging and Foodservice Europe-Asia-Oceania segments reported highest growth. In reported sales, which includes the contribution from the three acquisitions made during the quarter (Ajanta Packaging, Tailored Packaging and Cup Print Unlimited), negative currency conversion reduced net sales by EUR 48 million (6%) resulting in 2% growth.
Our profitability remained solid despite a decline compared to 2017. Currency conversion weakened our EBIT by EUR 4 million. Foodservice Europe-Asia-Oceania and Flexible Packaging segments improved their profitability while North America segment had negative margin development due to higher distribution costs and start-up costs of the newly-invested Goodyear, Arizona, facility. While we are pleased with the growth we will take additional actions to improve profitability.
Our net sales with global key accounts have progressed well with growth rates above our average growth. Organic investments and the three acquisitions made in the second quarter are expected to deliver continued strong net sales momentum in the coming quarters.
The Single Use Plastics (SUP) proposal was published by the European Commission at the end of May. It proposes to ban single use plastics cutlery, plates, stirrers and straws and introduce labelling requirements, to help reduce marine pollution. The adoption of the proposal will follow the EU Ordinary Legislative Procedure and will be the subject of negotiations between the Council of Ministers, the European Parliament and the European Commission.
As the legislation stands, the products that are proposed to be banned make less than 2% of our Foodservice business in Europe and can for the most part be replaced with alternative paper-based products. As a converter with innovations capabilities in many packaging materials and with the growing interest in replacing plastic with alternative materials, we are well placed to continue to work with our customers and their consumers to respond to their demands. Already now, the majority of our products are fiber-based.“
"We achieved a solid 5% comparable net sales growth in the first quarter. In emerging markets our comparable net sales grew by 8% with Eastern Europe and India growing strongest. The North America segment started to benefit from the Goodyear plant start-up and reported 5% comparable growth while other segments continued with good momentum that was already visible in 2017. Currency headwinds were strong and they had a significant negative impact on reported net sales. The main impact came from the weakening of the U.S. dollar versus euro, but all key currencies weakened versus euro.
In constant currencies our profitability was slightly ahead of previous year while reported EBIT declined. The Foodservice Europe-Asia-Oceania segment reported an improved EBIT and Fiber Packaging also progressed well. The North America segment reported weaker profitability due to currency conversion, higher distribution costs, and start-up of the Goodyear facility. The Flexible Packaging segment reported slightly weaker profitability due to tight pricing and competitive situation in Europe, while in India sales and profitability developed well.
During the quarter we were ramping up the new capacity of the Goodyear plant in North America. The project is progressing according to our plan and has met the first quarter technical and operational targets. Later in the year we will commission new lines and machines that have been part of our capital expenditure in 2017 and in the early part of 2018. The additional capacity allows us to capture further growth opportunities.
During the quarter we announced an acquisition of a labeling company Ajanta Packaging in India to expand our product offer and improve our competitive position in this key market for us. We also established a joint venture with Smith Anderson Group to manufacture and sell foodservice paper bags in Eastern Europe, strengthening our position as a one-stop-shop to foodservice customers.
Our high season is starting and we are confident about the growth momentum in our business."
“Huhtamaki had a good year in 2017. Comparable growth was 3% and adjusted earnings per share improved by 4% to a record EUR 1.90. Despite the headwinds in India growth in emerging markets was 4% and accelerated to 9% during the fourth quarter. The whole Huhtamaki Team did well in 2017 and I want to thank everyone for their contribution.
Foodservice Europe-Asia-Oceania and North America segments enjoyed positive momentum with increased net sales and good profitability. Flexible Packaging segment had net sales and profitability headwinds in India but the segment started to trade better towards the year-end.
We implemented our forward-looking investment program and at EUR 215 million our capital expenditure was 55% of Adjusted EBITDA. The most significant organic growth action in 2017 was constructing a new world class facility in Goodyear, Arizona, to serve the U.S. West Coast and Southwest markets. Parallel to the Arizona facility development we built new and expanded existing foodservice capabilities in China, Poland, Spain and Russia. In the Flexible Packaging segment we completed two new facilities in Eastern India, began building a new plant in Egypt, and extended our current operations in Thailand and Vietnam.
Our firepower and appetite for value-adding acquisitions remains high and we are ready to execute acquisitions when both strategic and financial justifications are met. In 2017 we made an important strategic acquisition with the purchase of International Paper’s foodservice packaging operations in China. The acquisition, together with the consolidation of operations both in South and North China, gives us a footprint of three well-located and efficient manufacturing units and provides an excellent position to support our customers in the growing foodservice market of Greater China.
Reflecting the forward-looking investment program our free cash flow was EUR 56 million and our ROI and ROE were 13.6% and 17.0% respectively.
The business environment in 2017 was generally positive and we look optimistically towards 2018. Megatrends support demand for food-to-go and prepacked food packaging, and we are well on our way in building the best global food packaging network. Our philosophy is to improve continuously and therefore we develop our people, operations, and business competence to make Huhtamaki a world class company. In 2018 our key deliverable is to leverage our investments into accelerated growth while delivering our profit targets.”
“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.”