Interim report Q1 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 two 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-term ambition.
President and CEO
The year 2021 was marked by a challenging business environment. This was linked to the continued COVID-19 pandemic, with appearance of new variants, and the significant disruption of the value chain. Throughout 2021 we continued to focus on the health, safety and wellbeing of our employees and to ensure business continuity under these exceptional circumstances.
During the year, we saw a gradual improvement in consumption, as vaccination deployment sped up and restrictions were eased across most geographies. This was visible in our foodservice packaging business globally, particularly in Europe and US. Solid growth continued in categories which were supported by in-home consumption, such as flexible packaging and retail tableware. The pandemic-driven supply chain disruptions throughout the year led to scarcity, particularly in raw materials, that resulted in an extraordinary inflation in input costs, and started to impact our operations. Freight, energy and labor inflation also increased significantly in the second half of 2021.
We delivered a solid performance in the face of this challenging operational environment. This reflects the resilience of our diversified portfolio and the ability of our company to manage adverse conditions. Huhtamaki delivered a solid fourth quarter in sales and profitability, with comparable net sales growth of 12%. For the full year 2021, our net sales amounted to EUR 3.6 billion with comparable net sales growth of 7%. In 2021, our profitability was constantly challenged by extraordinary input cost levels, however our adjusted EBIT improved 4%, reflecting our operational performance and ability to manage the impact of inflation. Negative cashflow was mainly impacted by increased working capital following market recovery and inflationary impact in raw materials as well as higher cash taxes.
Our long-term focus is on creating value by delivering growth, improving competitiveness, developing talent, embedding sustainability in everything we do and digitalizing our core operations. In 2021, we continued to implement these strategic priorities, making very good progress. Huhtamaki’s climate targets were approved and validated by the globally recognized Science Based Targets initiative (SBTi). We also received recognition of our commitment to our ESG agenda by improved ratings in three key ESG Ratings: EcoVadis, CDP and S&P Global Corporate Sustainability Assessment (part of DJSI). In 2021 we also saw the launch of several of our new transformative sustainable packaging solutions. We recently launched Push Tab® paper, an industry-first sustainable renewable paper-based blister solution for the global healthcare industry. We also announced the next generation of tube laminates for use in both the cosmetics and food sectors in partnership with LyondellBasell, Plastuni Lisses and Groupe Rocher. Earlier in the year, we launched our award-winning Future Smart fiber lids, replacing plastic lids. These new fiber lids made of renewable material are recyclable and compostable.
In line with these successful innovations in sustainable solutions, we increased our investments for deployment and capacity expansion, enabling profitable growth in technologies where Huhtamaki has developed a competitive advantage. We also announced investments in a new state-of-the-art foodservice manufacturing unit in Malaysia and in a new fiber packaging manufacturing site in South Africa.
In September, we completed the acquisition of Elif, a major supplier of sustainable flexible packaging for global FMCG brand owners, operating out of Turkey and Egypt. The acquisition of Elif expands our technology capabilities and product range. It also strengthens our position as a leading flexible packaging company in emerging markets. In addition, during the year we acquired Hihio-Art Packaging, a leading manufacturer of paper bags, wrapping paper and folding carton packaging in China.
In 2021, Huhtamaki made demonstrable progress on its strategic priorities. This was only possible because of our high-performing teams, whom we thank for the continued dedication, entrepreneurship and focus on delivery. We are also thankful for the support and recognition our customers, suppliers and other stakeholders have shown us throughout the year.
Charles Héaulmé, President and CEO
Thomas Geust, Interim Deputy CEO
Huhtamaki delivered a solid third quarter in the face of a challenging environment, demonstrating the resilience of our diversified product portfolio. Demand for our products improved during the quarter, supported by the continued recovery of on-the-go consumption. We continued to focus on mitigating the inflationary environment, managing the availability of raw materials and addressing the continued impact of COVID-19.
During the third quarter of 2021, our net sales increased by 6% with a comparable sales growth of 4%. All our business segments contributed to our solid growth, particularly visible in emerging markets. At the Group level, comparable net sales growth from the beginning of the year was 6% compared to the previous year, with a double-digit growth in Foodservice Europe-Asia-Oceania with Q3 segment sales returning to pre-pandemic levels. While the adjusted EBIT margin in the third quarter decreased driven by input costs, the year-to-date margin was 9.1%, reflecting our operational performance and ability to manage inflation impact.
We have continued to execute on our strategic priorities, and I am pleased to see how we are making progress on our sustainability, innovation and competitiveness initiatives. During the quarter Huhtamaki’s climate targets were approved and validated by the globally recognized Science Based Targets initiative (SBTi). In July we launched Push Tab® paper, an industry-first sustainable renewable paper-based blister solution for the global healthcare industry. We also launched next generation tube laminates with renewable content for use in cosmetics and food sectors.
During the third quarter we completed the acquisition of Elif, a major supplier of sustainable flexible packaging to global FMCG brand owners, operating out of Turkey and Egypt. The acquisition of Elif expands our technology capabilities and product range. It also strengthens our position as a leading flexible packaging company in emerging markets. Together with all our employees, I warmly welcome our new Elif colleagues to the Huhtamaki family.
President and CEO
“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