Half-yearly Report 2021
We are pleased to deliver further net sales growth, beyond pre-COVID pandemic levels, and improved profitability while continuing to face a very challenging cost environment. Overall demand has supported growth. The global progress of vaccinations and removal of social mobility restrictions has benefited food on-the-go which has continued to gradually recover. However, the global food packaging market remains volatile with significant challenges in many countries still heavily impacted by the pandemic. This volatility is also evident in the supply chain with significant inflation in the prices of raw materials, especially polymers and recycled fiber.
Altogether our second quarter results were strong although with mixed performance across the different regions and businesses. Net sales increased 10%, amounting to EUR 877 million, reflecting the improved demand for foodservice packaging. Comparable net sales growth was 14%. This strong growth should be contextualized versus a depressed comparable period in 2020. Net sales for the first half of 2021 increased 2%, and 6% in comparable terms. The adjusted EBIT margin improved 0.3 p.p. to 9.1% in the second quarter and reached 9.3% in the first half of 2021. This was supported by a continued focus on operational efficiency and pricing actions to mitigate input cost inflation.
Huhtamaki’s robust performance supports investments for long-term sustainable growth. We continue to leverage our strong balance sheet to execute on our growth strategy. In May, we announced an investment in a new fiber packaging factory in South Africa. Our most recent acquisition, the asset purchase of the Chinese Jiangsu Hihio-Art Packaging, was completed in June. These strategic initiatives, together with investments announced in new manufacturing facilities in both Malaysia and Russia, strengthen our global manufacturing footprint and provide us with great opportunities to better serve both existing and new customers. We have also recently launched new products which further help plastic substitution in targeted markets. Our sustained innovation, our continued focus on operational efficiencies, with the support of our resilient business model, strong balance sheet and skilled employee base give me confidence that we face a bright perspective in terms of sustainable profitable growth.
President and CEO
The COVID-19 pandemic continued to affect the global food packaging market and the uncertainty around the pandemic remains visible in most markets. Huhtamaki’s business has remained resilient with solid demand for food on-the-shelf products, however food on-to-go has continued to be burdened by restrictions and lockdowns. The ongoing vaccination roll-out and easing of some of the restrictions has led to visible improvement.
In this context, the first quarter of 2021 was satisfactory for Huhtamaki. Despite the uncertainty in the global economy, demand for foodservice, though still below normal, has continued to gradually recover. Our net sales amounted to EUR 802 million for the quarter, with comparable net sales growth flat versus last year. The adjusted EBIT margin increased by 0.9 p.p. to 9.6% in the first quarter, particularly driven by favorable sales mix and continued focus on operational efficiency. Movement in currencies had a negative impact on net sales during the quarter. Our balance sheet position remained strong supporting our growth strategy.
We remain focused on the execution of our 2030 Strategy. Throughout the crisis Huhtamaki has been preparing for the new post-pandemic normal, including the implementation of actions to improve our competitiveness as well as investments for expansion and innovation in sustainable products and solutions. We recently launched our award-winning Future Smart fiber lids, replacing plastic lids. These new fiber lids made of renewable material are recyclable and compostable. We are also accelerating our focus on digitalization as an enabler and connector of our strategic priorities. Digitalization will create value in our internal operations and external value chain – including driving the necessary efficiency in circularity systems.
President and CEO
The year 2020 was marked by the COVID-19 pandemic. Throughout the crisis our primary focus has been to safeguard the health, safety and wellbeing of our employees and to ensure business continuity under these exceptional circumstances. Despite the challenging operational environment, with COVID-19 impact on markets across the world, we delivered a solid performance overall. This reflects the resilience of our diversified portfolio and the ability of our company to manage challenging conditions.
Pandemic-driven restrictions and lockdowns had a negative impact on demand for food on-the-go products globally, but conversely drove higher consumption of food on-the-shelf products. The decline of in-restaurant dining was partly compensated by the fast-growing food delivery and take-away channels. In particular, our foodservice business was impacted negatively, whilst increased in-home consumption supported growth in consumer goods. In North America, in-home dining further boosted the underlying growth of the retail tableware products. In our Flexible Packaging segment, overall demand remained good across most markets. However, pandemic-driven supply chain disruptions did impact the demand and the ability to serve the market, particularly in India and Middle East during in the second quarter of the year. Demand in the Fiber Packaging segment remained strong throughout the year, mainly driven by high demand for egg packaging and continued plastic substitution.
Our net sales amounted to EUR 3.3 billion for the full year. Comparable net sales growth was -2% during the fourth quarter. In 2020, our profitability was supported by a favorable sales mix, beneficial cost environment and continued focus on operational efficiency. The adjusted EBIT margin increased by 0.5 p.p. to 9.0% in the fourth quarter and to 9.1% for the full year. During 2020, the company focused on preparing for a post-COVID-19 world, including actions to improve competitiveness and investments in expansion and automation. Our balance sheet remains strong and we are well placed to invest in future growth through both organic investments and acquisitions.
The year 2020 was also the opportunity for us to celebrate Huhtamaki’s 100th anniversary. The celebrations were held in November with a series of virtual stakeholder events during “Founder’s week”. We introduced our new 2030 strategy and laid out high sustainability ambitions for this decade. Our focus is on creating value by delivering growth, improving competitiveness, developing talent while embedding sustainability in everything we do. Our ambition is to be the first choice in sustainable food packaging solutions. We have raised our external engagement through sustainability thought leadership initiatives and the deployment of local activities contributing to lowering the carbon footprint of our operations, such as increasing our use of renewable energy.
Throughout what proved to be a challenging year, we adapted to meet the transformative trends affecting our industry and responded to the challenges brought on by the pandemic. I am particularly proud of our entire team for taking proactive and focused actions, showing resilience in the face of COVID-19 and embarking on our journey to our 2030 Strategy.
President and CEO
The COVID-19 pandemic continued to dominate the news flow and everyday life in the third quarter of 2020. We remained focused on safeguarding the health and safety of our employees and business continuity throughout the organization. Whilst parts of our business, particularly foodservice, were still substantially impacted, we have seen a limited recovery during the third quarter. Demand for food on-the-go products has gradually improved, but it is still lower than in 2019. The significant gap in consumption in restaurant services is partly compensated by the fast-increasing trend in food delivery. On the other hand, demand for food on-the-shelf products has remained strong throughout the crisis. In North America, the increased in-home consumption continued to support retail tableware and consumer goods sales. Growth in the Fiber Packaging segment continued to be driven by high demand for eggs and continued substitution of plastics. In the Flexible Packaging segment, the supply chain disruptions suffered in India and UAE during the second quarter eased during the third quarter, although we did not see fully the recovery to a normal level of logistics and consumption.
Our resilient and diversified portfolio continued delivering solid performance in the third quarter, with a comparable net sales growth of 2%. On Group level, comparable net sales from the beginning of the year declined -1% compared to 2019. The adjusted EBIT margin in the third quarter increased to 10.1%, improving 1.6 percentage-points compared to the same period last year. Year to date it increased from 8.7% in 2019 to 9.2%. The improvement in profitability reflects favorable mix impact and our continued focus on costs and efficiency.
During the quarter, the Board of Directors decided to pay a dividend of EUR 0.89 per share for the fiscal year 2019. The dividend has increased every year since 2009, in line with Huhtamaki’s growth trajectory.
In March, we had introduced our 2030 strategy and laid out high ambitions for this decade. We are focused on delivering growth, improving competitiveness, developing talent, and embedding sustainability in everything we do. I am pleased to see that our work towards these ambitions is proceeding positively, albeit with some challenges and potential delays related to the current crisis. Our determination to strengthen and embed sustainability across products and operations has already yielded results. This is also visible in our stakeholders’ evaluation of Huhtamaki as a company with a strong commitment to sustainability.
President and CEO
The first half of 2020 has been marked by the COVID-19 outbreak. Throughout the crisis our primary focus has been to safeguard the health and safety of our employees and to maintain business continuity. We have taken necessary measures to carefully manage our financial situation, contain cost and prioritize investments, whilst planning ahead for a gradual recovery and a renewed growth trajectory.
Restrictions and lockdowns related to the pandemic negatively impacted the demand for food on-the-go products but conversely boosted consumption of food on-the-shelf products. Towards the end of the second quarter the demand for food on-the-go products improved as countries were easing restrictions. Demand however remained lower than 2019. As a result, for the first half of the year, we were able to deliver a solid performance in the face of the COVID-19 crisis.
The negative impact of COVID-19 is visible in our foodservice sales globally. In North America, where the lockdown period was shorter, sales of foodservice products decreased less and were partly compensated by growing food delivery and drive-thru channels. Increase in home consumption also supported retail tableware and consumer goods sales. In the Fiber Packaging segment comparable net sales growth was strong driven by high demand for eggs and continued plastic substitution. In Flexible Packaging, despite the strong demand for pre-packed food and hygiene products, growth was held back by supply chain disruptions in India and the United Arab Emirates. At Group level, after a first quarter of solid growth, net sales declined by 8% during the second quarter and overall, by 2% for the first half of the year. This is a solid performance reflecting the resilience of our diversified portfolio.
With on-going improvements and further measures implemented, we have delivered solid profitability. The adjusted EBIT margin reached 8.8% in the quarter and the first half of 2020. We also delivered a strong cash flow, ending the quarter with a stronger balance sheet, reflected in a net debt to adjusted EBITDA ratio of 2.0.
During the crisis, we leveraged our core capabilities to make a difference where it matters most. We used idle manufacturing capacity because of the COVID-19 crisis, to produce protective face shields for health care workers and launched a range of high-quality affordable and reusable consumer face masks for everyday use. 2020 also marks our 100-year anniversary and we have built a EUR 3 million donation plan giving back towards the future of life. We have responded to the immediate COVID-19 crisis needs with a donation to the International Red Cross and have launched three projects in partnership with several nonprofit organizations to have an impact on the circular economy at different levels: acting today, educating for tomorrow, innovating for the future. Whilst we are continuing to focus on our sustainability ambition and scaling up our capabilities, we have demonstrated through these unprecedented times our commitment to protecting people, food and the planet, offering well-being, convenience and a responsible lifestyle to billions of people everywhere.
President and CEO