Huhtamäki Oyj's Interim Report January 1-September 30, 2015: Continued profitability improvement
HUHTAMÄKI OYJ INTERIM REPORT 22.10.2015 AT 8:30
Huhtamäki Oyj's Interim Report January 1-September 30, 2015: Continued profitability improvement
Q3 2015 in brief
- Net sales grew to EUR 692 million (EUR 563 million)
- EBIT improved to EUR 62 million (EUR 40 million)
- EPS improved to EUR 0.43 (EUR 0.26)
- Comparable net sales growth was 6% in total and 7% in emerging markets
- Currency movements had a positive impact of EUR 40 million on the Group's net sales, and EUR 3 million on EBIT
- Free cash flow improved to EUR 27 million (EUR 15 million) despite the negative impact from the fine of EUR 15.6 million paid to the European Commission
Q1-Q3 2015 in brief
- Net sales were EUR 2,036 million (EUR 1,655 million)
- EBIT excluding NRI was EUR 182 million (EUR 130 million)
- EPS excluding NRI was EUR 1.27 (EUR 0.85)
- Comparable net sales growth was 4% in total and 6% in emerging markets
- Currency movements had a positive impact of EUR 160 million on the Group's net sales, and EUR 13 million on EBIT
- Acquisition of Positive Packaging, a flexible packaging company operating in India, United Arab Emirates and Africa, was closed at the end of January and the business was consolidated into the Flexible Packaging business segment as of February 1, 2015
- The European Commission imposed a fine of EUR 15.6 million on Huhtamaki based on infringements of EU's competition regulation in 2002-2006. Huhtamaki has launched an appeal on the decision.
Key figures
| EUR million | Q3 2015 | Q3 2014 | Change | Q1-Q3 2015 | Q1-Q3 2014 | Change | FY 2014 | ||||||||||||
| Net sales | 692.2 | 562.7 | 23% | 2,035.9 | 1,655.2 | 23% | 2,235.7 | ||||||||||||
| EBITDA* | 88.6 | 61.2 | 45% | 259.6 | 191.4 | 36% | 259.0 | ||||||||||||
| EBITDA margin* | 12.8% | 10.9% | 12.8% | 11.6% | 11.6% | ||||||||||||||
| EBIT* | 62.4 | 40.2 | 55% | 181.8 | 129.6 | 40% | 174.9 | ||||||||||||
| EBIT margin* | 9.0% | 7.1% | 8.9% | 7.8% | 7.8% | ||||||||||||||
| EPS*, EUR | 0.43 | 0.26 | 65% | 1.27 | 0.85 | 49% | 1.24 | ||||||||||||
| ROI** | 14.2% | 12.3% | 12.6% | ||||||||||||||||
| ROE** | 18.4% | 16.0% | 16.1% | ||||||||||||||||
| Capital expenditure | 34.8 | 31.6 | 10% | 96.4 | 77.2 | 25% | 127.0 | ||||||||||||
| Free cash flow | 27.2 | 14.7 | 85% | 38.2 | 10.5 | 264% | 64.6 | ||||||||||||
| Including discontinued operations | |||||||||||||||||||
| EPS**, EUR | 0.43 | 0.29 | 48% | 1.27 | 0.93 | 37% | 1.28 | ||||||||||||
| EPS, reported, EUR | 0.43 | 0.29 | 48% | 1.04 | 0.93 | 12% | 1.33 | ||||||||||||
* Excluding NRI of EUR -22.6 million in Q1-Q3 2015.
** Excluding NRI of EUR -23.9 million in Q1-Q3 2015 and EUR 5.1 million in FY 2014.
Unless otherwise stated, all figures presented in this report, including corresponding periods in 2014, cover continuing operations only. Continuing operations include the Foodservice Europe-Asia-Oceania, North America, Flexible Packaging and Molded Fiber business segments. Discontinued operations for 2014 and 2015 include the Films business segment, which was sold at the end of December 2014. Unless otherwise stated, all comparisons in this report are compared to the corresponding period in 2014. ROI, ROE and RONA figures presented in this report are calculated on a 12-month rolling basis.
Jukka Moisio, CEO:
"We're pleased to report good comparable growth for the third quarter with emerging markets at 7% and the Group at 6%. Although growth has been uneven across geographies during the course of the year reflecting economic uncertainty, all our business segments did well during the third quarter. Demand development in India was subdued, whereas China appears to have arrested the deepest demand decline. In Western Europe we saw some early signs of recovery. In the current market environment our global food packaging position proved its strength by allowing us to achieve good growth despite geographic variations.
Our profitability improvement continued. The North America segment achieved an excellent result and all our business segments excluding Foodservice Europe-Asia-Oceania were able to improve their profitability. I'm delighted to see that the actions our teams have taken are bearing fruit. We'll continue our prudent housekeeping across business segments with an aim to achieve continued improvement.
Despite the volatility in raw material markets during the year, the impact of raw material prices on the Group level has been neutral. On the segment level, volatile plastic resin prices have had an impact on the profitability of the Foodservice Europe-Asia-Oceania and Flexible Packaging segments.
We continued to invest in growth in all segments according to our plans. Even with the increased investments and payment of the EUR 15.6 million fine to the European Commission, our cash flow developed well. There was also a good improvement in our return on equity and return on invested capital. Despite of the recent market uncertainty, we remain relatively optimistic on the longer term growth opportunities in food packaging and we remain focused on developing our business to capture our share of quality growth."
Financial review Q3 2015
The Group's comparable net sales growth was 6% during the quarter. All business segments contributed to the net sales growth. Growth was strongest in the North America and Foodservice Europe-Asia-Oceania business segments. Comparable growth in emerging markets was 7%. Growth was strongest in Eastern Europe and South America, while net sales development in India was soft. Net sales continued to decline in China. The Group's net sales grew to EUR 692 million (EUR 563 million). There was a significant positive impact on net sales from the Positive Packaging acquisition as well as foreign currency translation, which was EUR 40 million compared to the 2014 exchange rates. Majority of the currency impact came from the strengthening of the US dollar versus euro.
Net sales by business segment
| EUR million | Q3 2015 | Q3 2014 | Change | Of Group in Q3 2015 |
| Foodservice Europe-Asia-Oceania | 169.5 | 160.1 | 6% | 24% |
| North America | 240.3 | 191.2 | 26% | 35% |
| Flexible Packaging | 223.6 | 155.3 | 44% | 32% |
| Molded Fiber | 62.4 | 60.5 | 3% | 9% |
| Elimination of internal sales | -3.6 | -4.4 | ||
| Group | 692.2 | 562.7 | 23% |
Comparable growth by business segment
| Q3 2015 | Q2 2015 | Q1 2015 | Q4 2014 | |
| Foodservice Europe-Asia-Oceania | 6% | 2% | 3% | 2% |
| North America | 7% | -2% | 7% | 5% |
| Flexible Packaging | 5% | 4% | 5% | 12% |
| Molded Fiber | 5% | 5% | 5% | 7% |
| Group | 6% | 1% | 5% | 6% |
The Group's earnings growth accelerated driven by the robust earnings improvement in the North America business segment. Earnings growth was further supported by good development in the Flexible Packaging and Molded Fiber business segments. In addition, Positive Packaging continued to contribute positively to earnings. The Group's earnings before interest and taxes (EBIT) were EUR 62 million (EUR 40 million). Positive foreign currency translation impact on Group's EBIT was EUR 3 million.
EBIT by business segment
| EUR million | Q3 2015 | Q3 2014 | Change | Of Group in Q3 2015 |
| Foodservice Europe-Asia-Oceania | 13.8 | 16.0 | -14% | 22% |
| North America | 25.0 | 7.8 | 221% | 40% |
| Flexible Packaging | 15.7 | 10.8 | 45% | 25% |
| Molded Fiber | 7.9 | 7.4 | 7% | 13% |
| Other activities | 0.0 | -1.8 | ||
| Group | 62.4 | 40.2 | 55% |
Net financial expenses increased to EUR 10 million (EUR 7 million). Tax expense was EUR 8 million (EUR 6 million).
Profit for the quarter was EUR 44 million (EUR 27 million). Earnings per share (EPS) were EUR 0.43 (EUR 0.26 and EUR 0.29 including discontinued operations).
Financial review Q1-Q3 2015
The Group's comparable net sales growth was 4% during the period. All business segments contributed to the net sales growth. Comparable growth in emerging markets was 6%, driven by continued good development in Eastern Europe, Southeast Asia and South America. Net sales development was negative in China. The Group's net sales grew to EUR 2,036 million (EUR 1,655 million). In addition to organic growth, there was a significant positive impact on net sales from the Positive Packaging acquisition as well as the foreign currency translation, which was EUR 160 million compared to the 2014 exchange rates. The majority of the currency impact came from the strengthening of the US dollar versus euro.
Net sales by business segment
| EUR million | Q1-Q3 2015 | Q1-Q3 2014 | Change | Of Group in Q1-Q3 2015 |
| Foodservice Europe-Asia-Oceania | 498.8 | 464.8 | 7% | 24% |
| North America | 703.5 | 563.7 | 25% | 34% |
| Flexible Packaging | 654.4 | 458.2 | 43% | 32% |
| Molded Fiber | 193.8 | 183.8 | 5% | 10% |
| Elimination of internal sales | -14.6 | -15.3 | ||
| Group | 2,035.9 | 1,655.2 | 23% |
The Group's earnings development was robust. Earnings improvement was strongest in the North America business segment. Positive Packaging also contributed positively to earnings. The Group's EBIT were EUR 182 million, excluding NRI of EUR -23 million (EUR 130 million). Positive foreign currency translation impact on Group's EBIT was EUR 13 million.
EBIT by business segment
| EUR million | Q1-Q3 2015 | Q1-Q3 2014 | Change | Of Group in Q1-Q3 2015 |
| Foodservice Europe-Asia-Oceania | 42.1 | 44.4 | -5% | 23% |
| North America | 65.0 | 29.8 | 118% | 35% |
| Flexible Packaging | 50.5 | 33.1 | 53% | 28% |
| Molded Fiber | 25.5 | 25.0 | 2% | 14% |
| Other activities | -1.3 | -2.7 | ||
| Group | 181.8 | 129.6 | 40% |
Other activities EBIT excluding NRI of EUR -22.6 million in Q1-Q3 2015.
Net financial expenses increased to EUR 27 million (EUR 21 million). The payment of purchase price for Positive Packaging led to a higher amount of net debt and thus higher financial expenses. Tax expense was EUR 21 million (EUR 19 million). The corresponding tax rate was 16% (16%).
Profit for the reporting period was EUR 111 million, including NRI of EUR -23 million (EUR 90 million). EPS excluding NRI were EUR 1.27 (EUR 0.85). Reported EPS were EUR 1.05 (EUR 0.85) and EUR 1.04 (EUR 0.93) including discontinued operations.
Significant events during the reporting period
On June 24, 2015 the European Commission announced the outcome of its investigations on anticompetitive behavior in the markets of plastic trays used for retail packaging. Huhtamäki Oyj had received in September 2012 the European Commission's statement of objections concerning alleged anticompetitive behavior in the markets of plastic trays used for retail packaging of fresh food during years 2000-2008. The European Commission found certain of Huhtamaki's former operations to have been involved in anticompetitive practices. The concerned operations are no longer part of Huhtamaki as they were part of the Group's rigid consumer goods business in Europe that was closed down or divested in years 2006 and 2010. Based on infringements in North-West Europe and France during years 2002-2006 the European Commission imposed a EUR 15.6 million fine on Huhtamaki. The fine and legal costs of EUR 3 million related to the investigation and the appeal process were recognized as a non-recurring expense in the Group's Q2 2015 result and the payment of the fine was made during Q3 2015. Huhtamaki has examined the European Commission's decision and has launched an appeal against the decision before the General Court of the European Union.
Significant events after the reporting period
Olli Koponen, previously Executive Vice President, Molded Fiber, was appointed as Executive Vice President, Flexible Packaging as of October 22, 2015. He continues as a member of the Group Executive Team. Petr Domin, previously Managing Director, Molded Fiber Europe, was appointed as interim Executive Vice President, Molded Fiber as of October 22, 2015. Shashank Sinha, previously Executive Vice President, Flexible Packaging and member of the Group Executive Team, has decided to leave Huhtamaki.
Outlook for 2015
The Group's trading conditions are expected to remain relatively stable during 2015. The good financial position and ability to generate a positive cash flow will enable the Group to continue to address profitable growth opportunities. Capital expenditure is expected to be at the same level as in 2014. Majority of the investments are expected to be directed to enhance growth in the emerging markets.
Financial reporting in 2016
In 2016, Huhtamaki will publish financial information as follows:
Results 2015 February 11
Interim Report, January 1-March 31, 2016 April 21
Interim Report, January 1-June 30, 2016 July 22
Interim Report, January 1-September 30, 2016 October 26
Annual Accounts 2015 will be published on week 8.
Huhtamäki Oyj's Annual General Meeting (AGM) is planned to be held on Thursday, April 21, 2016.
This is a summary of Huhtamäki Oyj's Interim Report January 1-September 30, 2015. The complete report is attached to this release and is also available at the company website at www.huhtamaki.com.
For further information, please contact:
Jukka Moisio, CEO, tel. +358 10 686 7801
Thomas Geust, CFO, tel. +358 10 686 7880
HUHTAMÄKI OYJ
Group Communications
Huhtamaki is a global specialist in packaging for food and drink. With our network of 69 manufacturing units and 23 sales offices in 34 countries, we're well placed to support our customers' growth wherever they operate. Mastering three distinctive packaging technologies, approximately 16,700 employees develop and make packaging that helps great products reach more people, more easily. In 2014 our net sales totaled EUR 2.2 billion. The Group has its head office in Espoo, Finland and the parent company Huhtamäki Oyj is listed on NASDAQ OMX Helsinki Ltd. Additional information is available at www.huhtamaki.com.