Interim Report Q1 2020
During the first quarter of 2020, our net sales increased by 5% with a comparable sales growth of 3% and improved profitability. This represents solid performance in a quarter that was marked by contrast – while good demand for food packaging continued, the outbreak of COVID-19 quickly transformed the overall business context. The lockdown in China and consequent drop in demand was followed in March by further impact in the rest of the world as the COVID-19 crisis proceeded to spread globally. This change was visible in our Foodservice segment, while demand in our other segments increased.
The safety and health of our employees and stakeholders remain our number one focus and priority during the COVID-19 pandemic. We are following the guidelines from governments and international and local health authorities and have taken actions to safeguard the continuity of our business. We have also taken all relevant measures to secure our cash position and reprioritize our costs and investments.
Despite serious turbulence in parts of our business, I am confident that together with our customers and other stakeholders we will successfully navigate through this crisis and come out of it even stronger than before. We have a diversified portfolio and a healthy balance sheet, and we are carrying on in our planned investments and efficiency activities, which are vital to our future success.
To maintain our growth trajectory and anticipate key transformative trends, we have renewed our long-term strategy for 2030. We will continue on our path as a growth company, and will further focus on competitiveness, talent, and sustainability. We are taking a leading role in addressing the global challenges of circularity and climate change within the food packaging industry. We will embed sustainability in everything we do – and for this reason, we have set high ambitions for the future.
I would like to extend a “Thank you!” to all Huhtamaki employees for demonstrating their commitment to our values during these unforeseen and unprecedented times. I am impressed by the agility of our organization to adapt and collaborate so well under these new work conditions. This has enabled us, for example, to use machines made idle by the crisis and launch, in record time, a new product line of certified Personal Protective Equipment (PPE) devoted to healthcare workers. I am convinced that the spirit and the engagement will help us get through this challenging period.
President and CEO
We maintained our growth trend during the last quarter of the year in an economic environment challenged by the trade war between the USA and China, the announced Brexit and the amplified concerns around sustainability of the planet. Despite the uncertainty in the global economy, demand for foodservice and pre-packed food packaging was good in 2019. Our net sales reached EUR 3.4 billion for the year 2019, increasing by 10 percent with the comparable growth at 6 percent. All our business segments contributed, especially North America. Net sales increased as a result of positive volume development and pricing management. Currencies movements had a positive impact on net sales during the year.
Our profitability improved in the last quarter as well as during the full year, particularly driven by pricing and operational improvement in all businesses. Our adjusted EBIT margin increased to 8.5 percent in the fourth quarter and to 8.6 percent in 2019.
Good progress on many fronts continued during 2019. The ramp-up of Goodyear, our new plant in Arizona, United States, progressed well. In April, our new, state-of-the-art flexible packaging unit in Egypt was inaugurated and in October, our newest fiber packaging line was launched in Russia. In addition to investments in new units and packaging lines, we also announced three acquisitions during 2019: Everest Flexibles in South Africa, Mohan Mutha Polytech in India, and full ownership of our joint venture company Laminor in Brazil. All three acquisitions support our growth in developing markets.
In 2019, critical society matters have amplified particularly around sustainability, digitalization of the value chain and consumption shifts. Their implication on our industry are key variables considered in our ongoing strategy development. To address the demand for more sustainable packaging solutions, we continued in 2019 to invest into both fiber-based alternatives and recyclable packaging. Good examples are our investments into paper straws, fiber trays and recyclable mono-material flexible packaging under our blueloop™ concept.
Following our investments into both existing and new units, in new products and innovations, as well as the announced acquisitions, our balance sheet is healthy. With a net debt/EBITDA ratio of 2.0, we are well placed to invest in future growth. We continue our strategy of looking for both organic and acquired growth.
President and CEO
Our growth continued to be strong in the third quarter of 2019. Net sales increased 10 percent to EUR 855 million with the comparable net sales growth at 7 percent. In the emerging markets our growth continued strong at 8 percent. We had some tailwinds from currencies during the quarter as the translation impact on net sales was 3 percent.
During the quarter, we continued to improve our profitability. Our adjusted EBIT increased 26 percent to EUR 72 million, and the corresponding margin improved to 8.5 percent. Adjusted EBIT increased significantly in the North America segment and strongly in the Flexible Packaging and Foodservice Europe-Asia-Oceania segments. Overall, the improvement in profitability is a result of the actions we took in late 2018 to improve pricing and efficiency.
We continue to develop and deploy our portfolio of sustainable packaging. Fresh, the fiber-based ready meal tray, has been well received. The pilots that have taken place in Waitrose stores in the UK have showed that there is a strong customer and consumer interest for Fresh and the product performs well through the supply chain. Huhtamaki’s first industrial-scale Fresh manufacturing line will start operations during the fourth quarter of 2019, in Lurgan, Northern Ireland. Our two other recent new launches, the Huhtamaki blueloop concept for recyclable flexible packaging and our paper straws, also progressed well during the quarter.
At the end of the quarter we announced two acquisitions that support our growth in the developing markets. One of the flexible packaging manufacturers is located in South Africa and the other in India. Following the acquisitions, we expand our flexible packaging manufacturing footprint into South Africa and are able to speed up our growth in India by improving our capability to serve the customers in the southern parts of the country.
President and CEO
In the second quarter of 2019 we achieved a strong growth of 10%, reporting net sales of EUR 867 million. Comparable growth was 6% and in emerging markets 7%. We also continued good progress with our global key accounts. Positive currency translation impact was 3%. The acquisitions completed during the last 12 months accounted for 2% of the total growth, adding EUR 13 million to the net sales.
Our adjusted EBIT for the quarter grew by 11% to EUR 78 million. All segments report an improved adjusted EBIT. The strong net sales growth, led by the North America segment, combined with the efficiency improvement actions and price increases we implemented last year, translated to higher adjusted earnings. Our tight focus on portfolio and margin management, particularly in Flexible Packaging India, drove profitability improvement.
It is good to see that the heavy investments of the last few years are paying off. The North America segment delivered a particularly strong quarter. In the Foodservice Europe-Asia-Oceania segment the investments to expand our product offering with folded carton, bags, wraps and paper straws are delivering good growth in the fast food segment. Capacity additions within the Fiber Packaging segment are consistently resulting in volume growth. In addition, during Q2 2019 we inaugurated a new manufacturing facility in Egypt to facilitate growth in Flexible Packaging in Africa and in Europe.
In addition, we continued our work to further improve the environmental performance of our products. With the launch of our Huhtamaki blueloop -concept we began commercial deliveries of recyclable flexible packaging. Waitrose in the UK chose our Fresh tray for the relaunch of their Italian ready meal range and we have invested in more capacity to meet the demand. We also opened a new paper straw manufacturing facility in Northern Ireland and expect to begin paper straw manufacturing in further units in Europe. We also published the results of an LCA study on coffee-to-go cups. The study confirmed that our Future Smart range, which is 100% made of renewable resources, is the best currently available solution for coffee-to-go.
During my first 100 days at Huhtamaki, meeting our customers and our employees, I am impressed with our business model, our operating structure and the competence of our people. Looking at our industry and the market, powerful trends are strengthening and changing the way forward for packaging. These include evolving consumer preferences that encourage us to accelerate our innovation work; rapid advancements in digitalization and analytics; strong growth of food delivery and grocery e-commerce; and focus on the impact packaging has on the environment. We are well positioned to deliver on these challenges, and we will further invest in the required strategic capabilities and resources to transform those trends into opportunities.
President and CEO
Our first quarter net sales grew 11% to EUR 802 million. The Group’s comparable net sales growth was 5% and in emerging markets 7%. Also, net sales to global key accounts developed well. Positive currency translation impact was 3%, mostly from the stronger US Dollar. The acquisitions completed in Q2 2018 brought the Group 3% growth and added EUR 25 million to the quarterly net sales.
Our EBIT grew by 12% to EUR 68 million. Good net sales growth combined with price and mix improvements and enhanced cost efficiency contributed to higher earnings. Foodservice Europe-Asia-Oceania, North America, and Flexible Packaging segments all increased their net sales and improved EBIT while Fiber Packaging EBIT declined mainly due to investments related to the ongoing Fresh innovation project.
We continued to make good progress on several innovation projects, most notably paper straws, fiber-based ready meal tray Fresh, and the recently launched Huhtamaki blueloop concept of recyclable flexible packaging. All of these are good examples of our solutions to pack and serve food safely and conveniently with less negative impact on the environment.
The year has started well with record net sales and EBIT for the first quarter. Significant organic growth investments made in the past couple of years are expected to deliver continued good growth. The most recent official facility opening was held early April in Egypt where the new flexible packaging plant is ramping up its production.