Huhtamäki Oyj's Results January 1-December 31, 2017: A year of continued investment
HUHTAMÄKI OYJ FINANCIAL STATEMENT RELEASE 14.2.2018 AT 8:30
Huhtamäki Oyj's Results January 1-December 31, 2017: A year of continued investment
Q4 2017 in brief
- Net sales grew to EUR 745 million (EUR 732 million)
- Adjusted EBIT was EUR 65 million (EUR 65 million); EBIT EUR 62 million (EUR 64 million)
- Adjusted EPS improved to EUR 0.51 (EUR 0.44); EPS EUR 0.47 (EUR 0.42)
- Comparable net sales growth was 5% in total and 9% in emerging markets
- Currency movements had a negative impact of EUR 35 million on the Group's net sales and EUR 3 million on EBIT
FY 2017 in brief
- Net sales grew to EUR 2,989 million (EUR 2,865 million)
- Adjusted EBIT was EUR 268 million (EUR 268 million); EBIT EUR 264 million (EUR 266 million)
- A record adjusted EPS of EUR 1.90 (EUR 1.83); a record EPS of EUR 1.86 (EUR 1.81)
- Comparable net sales growth was 3% in total and 4% in emerging markets
- Currency movements had a negative impact of EUR 19 million on the Group's net sales and EUR 1 million on EBIT
- Capital expenditure of EUR 215 million for future growth
- Free cash flow was EUR 56 million (EUR 100 million)
- The Board of Directors proposes a dividend of EUR 0.80 (0.73) per share
Key figures
| EUR million | Q4 2017 | Q4 2016 | Change | FY 2017 | FY 2016 | Change |
| Net sales | 745.4 | 731.5 | 2% | 2,988.7 | 2,865.0 | 4% |
| Adjusted EBITDA 1 | 95.3 | 95.2 | 0% | 389.7 | 381.8 | 2% |
| Margin 1 | 12.8% | 13.0% | 13.0% | 13.3% | ||
| EBITDA | 91.9 | 93.7 | -2% | 386.3 | 380.1 | 2% |
| Adjusted EBIT 1 | 65.0 | 65.4 | -1% | 267.7 | 267.9 | -0% |
| Margin 1 | 8.7% | 8.9% | 9.0% | 9.4% | ||
| EBIT | 61.6 | 63.9 | -4% | 264.3 | 266.2 | -1% |
| Adjusted EPS 2, EUR | 0.51 | 0.44 | 16% | 1.90 | 1.83 | 4% |
| EPS, EUR | 0.47 | 0.42 | 12% | 1.86 | 1.81 | 3% |
| ROI 1 | 13.6% | 14.7% | ||||
| ROE 1 | 17.0% | 17.7% | ||||
| Capital expenditure | 70.7 | 103.9 | -32% | 214.8 | 199.1 | 8% |
| Free cash flow | 50.3 | 21.7 | 132% | 55.5 | 100.3 | -45% |
1 Excluding IAC of EUR -3.4 million in Q4 2017 (EUR -1.5 million in Q4 2016) and EUR -3.4 million in FY 2017 (EUR -1.7 million in FY 2016).
2 Excluding IAC of EUR -4.8 million in Q4 2017 (EUR -1.5 million in Q4 2016) and EUR -4.8 million in FY 2017 (EUR -1.7 million in FY 2016).
Unless otherwise stated, all comparisons in this report are compared to the corresponding period in 2016. Figures of return on investment (ROI), return on equity (ROE) and return on net assets (RONA) presented in this report are calculated on a 12-month rolling basis.
As announced on April 24, 2017, Huhtamaki has changed the name of its Molded Fiber business segment to Fiber Packaging. The new name is taken into use as of April 27, 2017 and is used in this report .In this report, Huhtamaki uses alternative performance measures in accordance with the guidelines issued by the European Securities and Markets Authority (ESMA). Alternative performance measures are derived from performance measures reported in accordance to International Financial Reporting Standards (IFRS) by adding or deducting the Items affecting comparability (IAC) and they are called Adjusted. Alternative performance measures are used to better reflect the operational business performance and to enhance comparability between financial periods. They are reported in addition to, but not substituting, the performance measures reported in accordance with IFRS.
Jukka Moisio, CEO:
"Huhtamaki had a good year in 2017. Comparable growth was 3% and adjusted earnings per share improved by 4% to a record EUR 1.90. Despite the headwinds in India growth in emerging markets was 4% and accelerated to 9% during the fourth quarter. The whole Huhtamaki Team did well in 2017 and I want to thank everyone for their contribution.
Foodservice Europe-Asia-Oceania and North America segments enjoyed positive momentum with increased net sales and good profitability. Flexible Packaging segment had net sales and profitability headwinds in India but the segment started to trade better towards the year-end.
We implemented our forward-looking investment program and at EUR 215 million our capital expenditure was 55% of Adjusted EBITDA. The most significant organic growth action in 2017 was constructing a new world class facility in Goodyear, Arizona, to serve the U.S. West Coast and Southwest markets. Parallel to the Arizona facility development we built new and expanded existing foodservice capabilities in China, Poland, Spain and Russia. In the Flexible Packaging segment we completed two new facilities in Eastern India, began building a new plant in Egypt, and extended our current operations in Thailand and Vietnam.
Our firepower and appetite for value-adding acquisitions remains high and we are ready to execute acquisitions when both strategic and financial justifications are met. In 2017 we made an important strategic acquisition with the purchase of International Paper's foodservice packaging operations in China. The acquisition, together with the consolidation of operations both in South and North China, gives us a footprint of three well-located and efficient manufacturing units and provides an excellent position to support our customers in the growing foodservice market of Greater China.
Reflecting the forward-looking investment program our free cash flow was EUR 56 million and our ROI and ROE were 13.6% and 17.0% respectively.
The business environment in 2017 was generally positive and we look optimistically towards 2018. Megatrends support demand for food-to-go and prepacked food packaging, and we are well on our way in building the best global food packaging network. Our philosophy is to improve continuously and therefore we develop our people, operations, and business competence to make Huhtamaki a world class company. In 2018 our key deliverable is to leverage our investments into accelerated growth while delivering our profit targets."
Financial review Q4 2017
The Group's comparable net sales growth was 5% during the quarter. Growth was strongest in the Flexible Packaging and Foodservice Europe-Asia-Oceania business segments driven by strong volume growth. The Group's comparable growth in emerging markets was 9%. Growth was strong in Eastern Europe, Middle East and Africa. Net sales in India grew also. The Group's net sales grew to EUR 745 million (EUR 732 million). Foreign currency translation impact on the Group's net sales was EUR -35 million (EUR -2 million) compared to 2016 exchange rates.
Net sales by business segment
| EUR million | Q4 2017 | Q4 2016 | Change | Of Group in Q4 2017 |
| Foodservice Europe-Asia-Oceania | 207.0 | 193.0 | 7% | 28% |
| North America | 243.5 | 259.8 | -6% | 32% |
| Flexible Packaging | 226.7 | 213.9 | 6% | 30% |
| Fiber Packaging | 72.4 | 69.0 | 5% | 10% |
| Elimination of internal sales | -4.2 | -4.2 | ||
| Group | 745.4 | 731.5 | 2% |
Comparable growth by business segment
| Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | |
| Foodservice Europe-Asia-Oceania | 6% | 4% | 2% | 3% |
| North America | 2% | 2% | 1% | 2% |
| Flexible Packaging | 9% | 7% | -2% | 3% |
| Fiber Packaging | 4% | 5% | 8% | 4% |
| Group | 5% | 4% | 1% | 3% |
The Group's adjusted earnings were at previous year's level while reported earnings declined slightly. Foodservice Europe-Asia-Oceania business segment's earnings improved significantly as a result of good volume growth and successful actions to improve its competitiveness in China and New Zealand. Flexible Packaging business segment's earnings improved as a result of net sales growth. The improvement in North America business segments' earnings resulted from a customary adjustment of year-end provisions. Fiber Packaging business segment's earnings declined significantly, primarily due to negative volume development in Europe. The Group's Adjusted EBIT were EUR 65 million (EUR 65 million) and reported EBIT EUR 62 million (EUR 64 million). Foreign currency translation impact on the Group's profitability was EUR -3 million (there was no significant foreign currency impact on the Group's profitability in Q4 2016).
Adjusted EBIT by business segment
| EUR million | Q4 2017 | Q4 2016 | Change | Of Group in Q4 2017 |
| Foodservice Europe-Asia-Oceania 1 | 17.9 | 15.3 | 17% | 25% |
| North America | 28.8 | 25.1 | 15% | 40% |
| Flexible Packaging | 19.1 | 17.6 | 9% | 27% |
| Fiber Packaging | 5.5 | 9.9 | -44% | 8% |
| Other activities | -6.3 | -2.5 | ||
| Group 1 | 65.0 | 65.4 | -1% |
1 Excluding IACs of EUR -3.4 million in Q4 2017 and EUR -1.5 million in Q4 2016.
Adjusted EBIT excludes EUR -3.4 million of IACs, which consist of restructuring costs of EUR 17 million and a gain of EUR 13 million. The restructuring costs are related to actions to improve the competitiveness of the foodservice business in China as announced on December 28, 2017 and the gain is related to the sale of a vacated building and related land usage rights in Guangzhou, China, as announced on April 21, 2017.
Adjusted EBIT and IACs
| EUR million | Q4 2017 | Q4 2016 |
| Adjusted EBIT | 65.0 | 65.4 |
| Restructuring costs | -16.7 | -1.5 |
| Gains and losses relating to business combinations and disposals | 13.3 | - |
| EBIT | 61.6 | 63.9 |
Net financial expenses were EUR 2 million (EUR 7 million). Tax expense was EUR 9 million (EUR 13 million).
Profit for the quarter was EUR 51 million (EUR 44 million). Adjusted EPS were EUR 0.51 (EUR 0.44) and reported EPS EUR 0.47 (EUR 0.42). Adjusted EPS is calculated based on Adjusted profit for the quarter, which excludes EUR -3.4 million of IAC's and EUR -1.4 million of taxes related to the actions to improve the competitiveness of the foodservice business in China as announced on December 28, 2017.
Adjusted EPS and IACs
| EUR million | Q4 2017 | Q4 2016 |
| Adjusted profit for the quarter | 55.6 | 45,5 |
| IAC items included in adjusted EBIT | -3.4 | -1.5 |
| Taxes relating to restructuring | -1.4 | - |
| Profit for the quarter | 50.8 | 44.0 |
Financial review FY 2017
The Group's comparable net sales growth was 3% in 2017. Growth was strongest in the Fiber Packaging business segment, driven by good development in Eastern Europe, particularly in Russia. The Flexible Packaging business segment's net sales grew well during the second half of the year, having suffered from negative development in India during the first half of the year. The Group's comparable growth in emerging markets was 4%. Growth was strongest in Eastern Europe. The Group's net sales grew to EUR 2,989 million (EUR 2,865 million). Foreign currency translation impact on the Group's net sales was EUR -19 million (EUR -51 million) compared to 2016 exchange rates. The majority of the negative currency impact came from the weakening of the US dollar versus euro.
Net sales by business segment
| EUR million | FY 2017 | FY 2016 | Change | Of Group in FY 2017 |
| Foodservice Europe-Asia-Oceania | 807.5 | 741.0 | 9% | 27% |
| North America | 1,000.4 | 1,005.1 | -1% | 33% |
| Flexible Packaging | 912.7 | 868.6 | 5% | 31% |
| Fiber Packaging | 285.1 | 267.8 | 6% | 9% |
| Elimination of internal sales | -17.0 | -17.5 | ||
| Group | 2,988.7 | 2,865.0 | 4% |
The Group's profitability was at the previous year's level. Earnings grew significantly in the Foodservice Europe-Asia-Oceania business segment, mainly as a result of good net sales development and the successful implementation of planned actions to improve the segment's competitiveness. Other activities' impact was EUR -4 million (EUR -11 million) on the Group's earnings. The change compared to previous year was primarily due to lower costs related to the Group's long-term incentive plan and projects. The Group's Adjusted EBIT were EUR 268 million (EUR 268 million) and reported EBIT were EUR 264 million (EUR 266 million). Foreign currency translation impact on the Group's profitability was EUR -1 million (EUR -5 million).
Adjusted EBIT by business segment
| EUR million | FY 2017 | FY 2016 | Change | Of Group in FY 2017 |
| Foodservice Europe-Asia-Oceania 1 | 70.1 | 63.2 | 11% | 26% |
| North America | 104.1 | 107.6 | -3% | 38% |
| Flexible Packaging | 69.7 | 73.8 | -6% | 26% |
| Fiber Packaging | 28.2 | 34.6 | -18% | 10% |
| Other activities | -4.4 | -11.3 | ||
| Group 1, | 267.7 | 267.9 | 0% |
1 Excluding IACs of EUR -3.4 million in FY 2017 and EUR -1.7 million in FY 2016.
Adjusted EBIT excludes EUR -3.4 million of IACs, which consist of restructuring costs of EUR 17 million and a gain of EUR 13 million. The restructuring costs are related to actions to improve the competitiveness of the foodservice business in China as announced on December 28, 2017 and the gain is related to the sale of a vacated building and related land usage rights in Guangzhou, China, as announced on April 21, 2017. IACs were booked for Q4 in the Foodservice Europe-Asia-Oceania business segment.
Adjusted EBIT and IACs
| EUR million | FY 2017 | FY 2016 |
| Adjusted EBIT | 267.7 | 267.9 |
| Restructuring costs | -16.7 | -9.5 |
| Gains and losses relating to business combinations and disposals | 13.3 | 7.8 |
| EBIT | 264.3 | 266.2 |
Net financial expenses decreased to EUR 18 million (EUR 27 million). Tax expense increased to EUR 50 million (EUR 48 million). The corresponding tax rate was 20% (20%).
Profit for the period was EUR 197 million (EUR 192 million). Adjusted EPS were EUR 1.90 (EUR 1.83) and reported EPS EUR 1.86 (EUR 1.81). Adjusted EPS is calculated based on Adjusted profit for the period, which excludes EUR -3.4 million of IAC's and EUR -1.4 million of taxes related to the actions to improve the competitiveness of the foodservice business in China as announced on December 28, 2017.
Adjusted EPS and IACs
| EUR million | FY 2017 | FY 2016 |
| Adjusted profit for the period | 201.3 | 193.2 |
| IAC items included in Adjusted EBIT | -3.4 | -1.7 |
| Taxes relating to restructuring | -1.4 | - |
| Profit for the period | 196.5 | 191.5 |
Significant events during the reporting period
On March 3, 2017 Huhtamaki announced that it will set up a greenfield paper cup manufacturing unit in Kiev, Ukraine. The new unit will manufacture a full range of paper cups for cold and hot drinks. The unit will become part of the Foodservice Europe-Asia-Oceania business segment.
On April 21, 2017 Huhtamaki announced that it has agreed to sell one of its manufacturing facilities and the related land usage rights in Guangzhou, China, to Guangzhou Yashao Investment Co. Ltd. The sale was part of the ongoing consolidation of Huhtamaki's foodservice packaging manufacturing operations in South China. The selling price was approximately EUR 14 million.
On April 25, 2017 Huhtamaki announced that is has signed a freely transferable loan agreement (Schuldschein) of EUR 117 million and USD 35 million (approx. EUR 33 million). The loan is targeted to institutional investors. It includes several floating and fixed rate tranches with maturities of 5, 7 and 10 years. Huhtamaki will use the funds for refinancing and general corporate purposes of the Group.
On June 29, 2017 Huhtamaki announced that it has entered into an agreement to acquire International Paper's foodservice packaging operations in China. The acquisition was completed on September 7, 2017 and the acquired business has been consolidated into the Foodservice Europe-Asia-Oceania business segment as of September 1, 2017.
On October 3, 2017 an aggregate nominal amount of EUR 135,008,000 of EUR 200 million notes issued by Huhtamaki in 2013, due on May 14, 2020 and with a coupon of 3.375 percent, were accepted to be purchased back and cancelled. All notes that were not purchased remained outstanding.
On October 4, 2017 Huhtamaki issued a EUR 150 million fixed rate unsecured bond that matures in seven (7) years and pays a coupon of 1.625 percent.
On November 13, 2017 Huhtamaki announced that it will invest EUR 11 million to have a new manufacturing unit built in Hämeenlinna, Finland, to replace the current facility that was built in the 1960's. The facility is expected to begin operations in spring 2019. The majority of the investment takes place during 2018.
On December 28, 2017 Huhtamaki announced actions to further improve competitiveness in China. To gain synergies from the acquisition of International Paper's foodservice packaging operations in China, manufacturing operations in Tianjin were decided to be consolidated into one unit. The transfer is expected to be completed by the end of Q1 2018. Huhtamaki also announced that it had completed the sale of the vacated manufacturing facility and related land usage rights in Guangzhou, China, as announced on April 21, 2017, and that to conclude the consolidation of its foodservice packaging operations in South China it had closed down the manufacturing unit in Shandong, China, impacting app. 200 jobs. Related to the announced activities approximately EUR -3 million was booked as items affecting comparability (IAC) in the Foodservice Europe-Asia-Oceania business segment in the fourth quarter of 2017.
Outlook for 2018
The Group's trading conditions are expected to remain relatively stable during 2018. The good financial position and ability to generate a positive cash flow will enable the Group to address profitable growth opportunities. Capital expenditure is expected to be approximately at the same level as in 2017 with the majority of the investments directed to business expansion.
Dividend proposal
On December 31, 2017 Huhtamäki Oyj's non-restricted equity was EUR 666 million (EUR 664 million). The Board of Directors will propose to the Annual General Meeting that a dividend of EUR 0.80 (EUR 0.73) per share be paid.
Annual General Meeting 2018
The Annual General Meeting of Shareholders will be held on Wednesday, April 25, 2018 at 11.00 (EET) at Messukeskus Helsinki, Expo and Convention Centre, Messuaukio 1, 00520 Helsinki, Finland.
Financial reporting in 2018
In 2018, Huhtamaki will publish financial information as follows:
Interim Report, January 1-March 31, 2018 April 25
Half-yearly Report, January 1-June 30, 2018 July 20
Interim Report, January 1-September 30, 2018 October 25
Annual Accounts 2017 will be published on week 8 on Huhtamaki's website at www.huhtamaki.com.
This is a summary of Huhtamäki Oyj's Results January 1 - December 31, 2017. 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 76 manufacturing units and additional 24 sales only offices in altogether 34 countries, we're well placed to support our customers' growth wherever they operate. Mastering three distinctive packaging technologies, approximately 17,400 employees develop and make packaging that helps great products reach more people, more easily. In 2017 our net sales totaled EUR 3.0 billion. The Group has its head office in Espoo, Finland and the parent company Huhtamäki Oyj is listed on Nasdaq Helsinki Ltd. Additional information is available at www.huhtamaki.com.
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