CEO's review
Huhtamäki Oyj’s Results January 1– December 31, 2023
We are pleased with the many achievements during the year and energized by the plans going forward. In line with the previous years, we have proven our ability to deliver results in a volatile market environment, thanks to our diverse portfolio and the agility of our organization. Our investments for growth started to yield benefits, and we have made progress towards our profitability ambition by driving initiatives to improve our competitiveness.
We launched our updated 2030 growth strategy in 2023, which translated in higher financial ambitions. We focus on three priorities: scaling up our profitable core businesses; developing and deploying proprietary innovative sustainable packaging solutions; and driving world-class competitiveness. Our long-term financial ambition is to deliver 5-6% annual net sales growth, reaching a 10-12% adjusted EBIT margin with an adjusted return on investment of 13-15%. To best drive the execution of our strategy, we continue investing in talent and strategic capabilities.
In 2023, we delivered a solid performance despite the lower consumption across categories and geographies, driven by the impact of inflation. Destocking in the value chain had a negative impact on sales volumes during the first half of 2023, particularly in export markets in the Flexible Packaging segment. During the second half of the year, consumer demand started to slightly improve.
Our performance was strong in the latter part of the year, with a significant increase in adjusted EBIT in the fourth quarter of 2023. This was achieved despite a 3% decrease in comparable net sales, due to lower sales volumes. Cash flow remained strong, supported by a release of working capital. At the same time, we have continued to invest for growth and innovation, in line with our strategy.
Our full year 2023 comparable net sales decreased by 2% and adjusted EBIT by 1%. Our adjusted EBIT margin was strong at 9.4% despite lower sales volumes, the divestment of our operations in Russia in September 2022 and currency translation. Free cash flow reached EUR 321 million, mainly from a decrease in working capital. This represents a significant improvement compared to last year. With the improvement in cash flow, we were able to decrease our net debt and thereby improve our net debt to adjusted EBITDA ratio from 2.5 to 2.2.
In 2023, we brought new capacity to commercial production, including among others tableware in North America, and egg packaging in North America and South Africa. We also announced the expansion of our North America Foodservice capacity in Paris, Texas, to capture the growing demand for folding carton packaging. We also increased our capacity for fiber lids in Europe. Additionally, we launched the production of Nespresso’s home compostable paper-based coffee capsules. These projects illustrate our strategy to scale up our profitable core businesses and innovate for sustainable packaging solutions.
We took several steps during 2023 towards optimizing our manufacturing footprint and strongly improving productivity globally. These include consolidation of manufacturing capacity in Europe and India to larger units. In November we announced a program to accelerate the implementation of our strategy to materially support our profitability ambitions. All cost levers will be addressed including potential restructuring to a more optimal manufacturing footprint, reducing input costs at an accelerated pace, and improving productivity globally. The efficiency improvements are expected to lead to savings of approximately EUR 100 million over the next three years.
Innovation continues to be high on our agenda, as we seek to both improve our sustainability performance and deliver new solutions to our customers. Our goal is to design all our products to be recyclable, compostable, or reusable. In 2023, we made a significant leap towards this target, as we launched new sustainable solutions in mono-material flexible packaging, which are designed for recycling. We also continued to deploy fiber and paper-based solutions, converting Foodservice and FMCG applications to more sustainable alternatives. We are currently rolling out these solutions globally.
The execution of our strategy proceeded well in 2023. With the actions taken, we are well placed to capitalize on the opportunities in the transforming packaging market. With demand returning to growth in the foreseeable future, and with the support from our capacity expansions, innovation and improving operational performance, I believe we are well prepared to deliver on our financial ambitions.
I would like to thank our customers and suppliers for their trust and collaboration throughout the year. Importantly I would like to thank our entire team for their great work and continued commitment to deliver value to all our stakeholders.
Charles Héaulmé
President and CEO
February 2024
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
Huhtamäki Oyj’s Half-Yearly report January 1– June 30, 2023
The market environment remained muted in the second quarter of 2023, as inflation affected consumption across categories and geographies. Destocking also continued to impact volumes during the second quarter, although at a lower level than during the first quarter.
Our financial performance in the second quarter was in line with the first quarter of 2023, however it was soft compared to last year. Market conditions remained challenging, resulting in lower sales volumes. Our comparable net sales decreased by 2% in the second quarter but remained stable during the first half of the year. Adjusted EBIT decreased by 10% in the second quarter and 8% during the first half of the year, mainly due to lower sales volumes and the divested operations in Russia. Free cash flow continued to improve, reaching EUR 28 million during the second quarter and EUR 71 million during the first half of the year, driven by reduced working capital.
During the second quarter, the North America segment delivered a strong adjusted EBIT. We also had solid performance by the Foodservice Europe-Asia-Oceania and Fiber Packaging segments. However, the Flexible Packaging segment continued to face decreased demand, particularly impacted by inflation.
We are taking decisive actions to improve the financial performance in the Flexible Packaging segment. These actions include optimizing our operating model, labor productivity and consolidating our manufacturing footprint. In June, we announced the intention to close the manufacturing site in Prague, Czech Republic. In India, we have also initiated the consolidation of our smaller manufacturing sites with our existing footprint. Across the Group, we have continued to actively address productivity, with a focus on machine utilization, material waste reduction and labor efficiency. Employee numbers are 1,700 lower than in the comparison period, driven by the Russian divestment and efficiency improvements to drive competitiveness.
At the same time, we continue to drive our 2030 strategy by investing in growth and innovation. In 2023, we are bringing new capacity to commercial production, including tableware in North America, fiber lids in Europe, egg packaging in North America and South Africa, and Nespresso home compostable coffee capsules produced in The Netherlands. We recently announced the expansion of our North America Foodservice capacity in Paris, Texas, to capture the growing demand for folding carton packaging. These projects illustrate our strategy to scale up our profitable core business and innovate for sustainable packaging solutions.
Charles Héaulmé
President and CEO
July 2023
Huhtamäki Oyj’s Interim Report January 1– March 31, 2023
The first quarter of 2023 developed in line with the trend seen in the latter part of 2022, with continued inflation affecting consumption across categories and geographies. Order levels were also impacted by destocking in the value chain and the return of normal seasonality, which has impacted the timing of demand.
Our business performance in the first quarter remained consistent with previous quarters, delivering solid revenue and profit. Despite continued pressure on volumes, our comparable net sales increased by 2% compared to Q1 2022, driven by the Fiber Packaging and Foodservice Europe-Asia-Oceania segments, which performed well. The North America segment faced a return to normal seasonality and delivered strong profit growth. The Flexible Packaging segment continued to face a decrease in demand, particularly impacted by inflation in emerging markets. The Group’s adjusted EBIT at EUR 92 million, decreased against prior year, due to lower sales and the divestment of operations in Russia. Free cash flow improved significantly, reaching EUR 43 million, driven by an improvement in working capital. In line with our 2030 strategy, we have continued to invest for growth and innovation. As the market environment is challenging, we are focused on protecting our profitability and ensuring cash flow. Therefore, we have accelerated the implementation of operational efficiency measures.
In March, we published our updated 2030 growth strategy and long-term financial ambitions at our Capital Markets Day. The global packaging industry is undergoing a substantial transformation, as a result of changing consumer expectations. This is driving a greater focus on sustainable alternatives and innovative functionalities. This will require technology driven innovations and with our portfolio and technology base, provides significant profitable growth opportunities for us. To capitalize on this momentum, our strategy focuses on four areas: scaling up our profitable core businesses, developing our blueloop™ sustainable innovation platform in partnership with customers, driving world-class operational performance across our global footprint and investing in strategic capabilities to successfully drive our global transformation journey.
I want to thank our people for their passionate commitment to deliver on our growth strategy and reach our 2030 North Star to be the first choice in sustainable packaging solutions. Our focus on technology-driven innovation and ability to operate at scale differentiates and positions us well to leverage the growth opportunities in packaging for food and everyday necessities everywhere.
Charles Héaulmé
President and CEO
April 2023