HUHTAMÄKI OYJ HALF-YEARLY REPORT 20.7.2018 AT 8.30
Huhtamäki Oyj's Half-yearly Report January 1-June 30, 2018: Good comparable net sales growth, negative currency impact
Q2 2018 in brief
- Net sales were EUR 786 million (EUR 772 million)
- Adjusted EBIT was EUR 70.2 million (EUR 75.6 million); EBIT EUR 79.7 million (EUR 75.6 million)
- Adjusted EPS was EUR 0.47 (EUR 0.52); EPS EUR 0.54 (EUR 0.52)
- Comparable net sales growth was 6% in total and 10% in emerging markets
- Currency movements had a negative impact of EUR 48 million on the Group's net sales and EUR 4 million on EBIT
- The North America segment's earnings declined due to high price level of distribution services and costs related to the start-up of the Goodyear plant
H1 2018 in brief
- Net sales were EUR 1,511 million (EUR 1,511 million)
- Adjusted EBIT was EUR 130.2 million (EUR 138.4 million); EBIT EUR 139.7 million (EUR 138.4 million)
- Adjusted EPS was EUR 0.87 (EUR 0.95); EPS EUR 0.94 (EUR 0.95)
- Comparable net sales growth was 6% in total and 9% in emerging markets
- Currency movements had a negative impact of EUR 107 million on the Group's net sales and EUR 8 million on EBIT
- The North America segment's earnings declined due to high distribution costs and costs related to the start-up of the Goodyear plant
- Capital expenditure decreased to EUR 81 million (EUR 95 million) and free cash flow improved to EUR 27 million (EUR -12 million)
Key figures
| EUR million | Q2 2018 | Q2 2017 | Change | H1 2018 | H1 2017 | Change | FY 2017 |
| Net sales | 785.9 | 771.9 | 2% | 1,511.1 | 1,511.3 | -0% | 2,988.7 |
| Adjusted EBITDA 1 | 100.7 | 106.4 | -5% | 190.8 | 200.4 | -5% | 389.7 |
| Margin 1 | 12.8% | 13.8% | 12.6% | 13.3% | 13.0% | ||
| EBITDA | 112.3 | 106.4 | 5% | 202.4 | 200.4 | 1% | 386.3 |
| Adjusted EBIT 2 | 70.2 | 75.6 | -7% | 130.2 | 138.4 | -6% | 267.7 |
| Margin 2 | 8.9% | 9.8% | 8.6% | 9.2% | 9.0% | ||
| EBIT | 79.7 | 75.6 | 5% | 139.7 | 138.4 | 1% | 264.3 |
| Adjusted EPS, EUR 3 | 0.47 | 0.52 | -10% | 0.87 | 0.95 | -9% | 1.90 |
| EPS, EUR | 0.54 | 0.52 | 4% | 0.94 | 0.95 | -1% | 1.86 |
| ROI 2 | 12.7% | 14.2% | 13.6% | ||||
| ROE 2 | 16.3% | 16.9% | 17.0% | ||||
| Capital expenditure | 47.7 | 48.4 | -2% | 80.9 | 95.4 | -15% | 214.8 |
| Free cash flow | 44.8 | -3.0 | 26.8 | -11.8 | 55.5 |
1 Excluding IAC of EUR 11.6 million in Q2 and H1 2018. FY 2017 excluding IAC of EUR -3.4 million. 2 Excluding IAC of EUR 9.5 million in Q2 and H1 2018. FY 2017 excluding IAC of EUR -3.4 million. 3 Excluding IAC of EUR 7.6 million in Q2 and H1 2018. FY 2017 excluding IAC of EUR -4.8 million.
Unless otherwise stated, all comparisons in this report are compared to the corresponding period in 2017. 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.
All figures in the tables have been rounded to the nearest whole number and consequently the sum of individual figures may deviate from the sum presented. Key figures have been calculated using exact figures.
Jukka Moisio, CEO:
"Our second quarter comparable net sales growth was good at 6%. In the emerging markets growth was 10%. All segments contributed to positive development and Flexible Packaging and Foodservice Europe-Asia-Oceania segments reported highest growth. In reported sales, which includes the contribution from the three acquisitions made during the quarter (Ajanta Packaging, Tailored Packaging and Cup Print Unlimited), negative currency conversion reduced net sales by EUR 48 million (6%) resulting in 2% growth.
Our profitability remained solid despite a decline compared to 2017. Currency conversion weakened our EBIT by EUR 4 million. Foodservice Europe-Asia-Oceania and Flexible Packaging segments improved their profitability while North America segment had negative margin development due to higher distribution costs and start-up costs of the newly-invested Goodyear, Arizona, facility. While we are pleased with the growth we will take additional actions to improve profitability.
Our net sales with global key accounts have progressed well with growth rates above our average growth. Organic investments and the three acquisitions made in the second quarter are expected to deliver continued strong net sales momentum in the coming quarters.
The Single Use Plastics (SUP) proposal was published by the European Commission at the end of May. It proposes to ban single use plastics cutlery, plates, stirrers and straws and introduce labelling requirements, to help reduce marine pollution. The adoption of the proposal will follow the EU Ordinary Legislative Procedure and will be the subject of negotiations between the Council of Ministers, the European Parliament and the European Commission.
As the legislation stands, the products that are proposed to be banned make less than 2% of our Foodservice business in Europe and can for the most part be replaced with alternative paper-based products. As a converter with innovations capabilities in many packaging materials and with the growing interest in replacing plastic with alternative materials, we are well placed to continue to work with our customers and their consumers to respond to their demands. Already now, the majority of our products are fiber-based."
Financial review Q2 2018
The Group's comparable net sales growth was 6% during the quarter, with all segments contributing. Net sales growth was strong in the Flexible Packaging and Foodservice Europe-Asia-Oceania business segments. Comparable growth in emerging markets was 10%. Strong growth in India, Eastern Europe, and Middle East and Africa continued. The Group's net sales grew to EUR 786 million (EUR 772 million). Foreign currency translation impact on the Group's net sales was EUR -48 million (EUR 17 million) compared to 2017 exchange rates. Majority of the negative impact came from the US dollar, Indian rupee and Russian ruble.
Net sales by business segment
| EUR million | Q2 2018 | Q2 2017 | Change | Of Group in Q2 2018 |
| Foodservice Europe-Asia-Oceania | 221.5 | 205.4 | 8% | 28% |
| North America | 257.0 | 274.3 | -6% | 33% |
| Flexible Packaging | 240.3 | 224.0 | 7% | 30% |
| Fiber Packaging | 71.3 | 71.8 | -1% | 9% |
| Elimination of internal sales | -4.2 | -3.6 | ||
| Group | 785.9 | 771.9 | 2% |
Comparable growth by business segment
| Q2 2018 | Q1 2018 | Q4 2017 | Q3 2017 | |
| Foodservice Europe-Asia-Oceania | 5% | 5% | 6% | 4% |
| North America | 2% | 5% | 2% | 2% |
| Flexible Packaging | 11% | 6% | 9% | 7% |
| Fiber Packaging | 3% | 5% | 4% | 5% |
| Group | 6% | 5% | 5% | 4% |
The Group's earnings declined. Solid earnings improvement continued in the Foodservice Europe-Asia-Oceania and Flexible Packaging business segments. Earnings declined in the North America segment due to higher distribution costs and costs related to the start-up of the Goodyear plant. The Group's Adjusted earnings before interests and taxes (EBIT) were EUR 70.2 million (EUR 75.6 million) and reported EBIT EUR 79.7 million (EUR 75.6 million). Foreign currency translation impacted the Group's profitability by EUR -4 million (EUR 2 million).
Adjusted EBIT by business segment
| EUR million | Q2 2018 | Q2 2017 | Change | Of Group in Q2 2018 |
| Foodservice Europe-Asia-Oceania 1 | 20.3 | 18.4 | 10% | 30% |
| North America | 22.5 | 32.6 | -31% | 33% |
| Flexible Packaging 2 | 18.0 | 14.0 | 28% | 26% |
| Fiber Packaging 3 | 7.3 | 8.1 | -10% | 11% |
| Other activities 4 | 2.1 | 2.5 | ||
| Group | 70.2 | 75.6 | -7% |
1 Excluding IACs of EUR -1.3 million in Q2 2018. 2 Excluding IACs of EUR -1.5 million in Q2 2018. 3 Excluding IACs of EUR -0.6 million in Q2 2018. 4 Excluding IACs of EUR 12.9 million in Q2 2018.
Adjusted EBIT excludes EUR 9.5 million of IACs, which consist of EUR 3.5 million restructuring costs including write-downs of related assets, EUR 1.2 million acquisition related costs and a gain of EUR 14.2 million. The restructuring costs are related to improvement actions in Foodservice Europe-Asia-Oceania, Flexible Packaging and Fiber Packaging segments, as well as in Other activities. The gain is related to the sale of the Group's confectionery trademark portfolio, as announced on April 30, 2018. Huhtamaki's confectionery business was divested in 1996.
Adjusted EBIT and IACs
| EUR million | Q2 2018 | Q2 2017 |
| Adjusted EBIT | 70.2 | 75.6 |
| Restructuring costs including write-downs of related assets | -3.5 | - |
| Acquisition related costs | -1.2 | - |
| Gains relating to sale of trademark portfolio | 14.2 | - |
| EBIT | 79.7 | 75.6 |
Net financial expenses increased to EUR 7 million (EUR 6 million). Tax expense was EUR 15 million (EUR 15 million).
Profit for the quarter was EUR 58 million (EUR 55 million). Adjusted earnings per share (EPS) were EUR 0.47 (EUR 0.52) and reported EPS EUR 0.54 (EUR 0.52). Adjusted EPS is calculated based on Adjusted profit for the quarter, which excludes EUR 9.5 million of IAC's and EUR -1.9 million of taxes relating to IAC items.
Adjusted EPS and IACs
| EUR million | Q2 2018 | Q2 2017 |
| Adjusted profit for the quarter | 49.9 | 54.5 |
| IAC items included in adjusted EBIT | 9.5 | - |
| Taxes relating to IAC items | -1.9 | - |
| Profit for the quarter | 57.5 | 54.5 |
Financial review H1 2018
The Group's comparable net sales growth was 6% during the first half of the year with a positive contribution from all business segments. Comparable growth in emerging markets was 9%. Growth was strongest in India, Eastern Europe and Middle East and Africa. The Group's reported net sales were in line with prior year at EUR 1,511 million (EUR 1,511 million). Foreign currency translation impact on the Group's net sales was EUR -107 million (EUR 36 million) compared to 2017 exchange rates. The majority of the negative impact came from the US dollar, Indian rupee and Russian ruble.
Net sales by business segment
| EUR million | H1 2018 | H1 2017 | Change | Of Group in H1 2018 |
| Foodservice Europe-Asia-Oceania | 420.3 | 397.9 | 6% | 28% |
| North America | 483.8 | 521.6 | -7% | 32% |
| Flexible Packaging | 474.3 | 456.3 | 4% | 31% |
| Fiber Packaging | 141.0 | 144.1 | -2% | 9% |
| Elimination of internal sales | -8.3 | -8.6 | ||
| Group | 1,511.1 | 1,511.3 | -0% |
The Group's earnings declined, mainly due to earning's decline in the North America business segment. The Foodservice Europe-Asia-Oceania segment's earnings improved significantly, mainly as a result of volume growth and favorable product mix development. Earnings grew also in the Flexible Packaging segment and were flat in the Fiber Packaging segment. The Group's Adjusted EBIT were EUR 130.2 million (EUR 138.4 million) and reported EBIT EUR 139.7 million (EUR 138.4 million). Foreign currency translation impacted the Group's profitability by EUR 8 million (EUR 4 million).
Adjusted EBIT by business segment
| EUR million | H1 2018 | H1 2017 | Change | Of Group in H1 2018 |
| Foodservice Europe-Asia-Oceania 1 | 39.5 | 33.8 | 17% | 31% |
| North America | 38.8 | 55.1 | -30% | 30% |
| Flexible Packaging 2 | 35.5 | 32.9 | 8% | 27% |
| Fiber Packaging 3 | 15.2 | 15.4 | -1% | 12% |
| Other activities 4 | 1.2 | 1.2 | ||
| Group | 130.2 | 138.4 | -6% |
1 Excluding IACs of EUR -1.3 million in H1 2018. 2 Excluding IACs of EUR -1.5 million in H1 2018. 3 Excluding IACs of EUR -0.6 million in H1 2018. 4 Excluding IACs of EUR 12.9 million in H1 2018.
Adjusted EBIT excludes EUR 9.5 million of IACs, which consist of EUR 3.5 million restructuring costs including write-downs of related assets, EUR 1.2 million acquisition related costs and a gain of EUR 14.2 million. The restructuring costs are related to improvement actions in Foodservice Europe-Asia-Oceania, Flexible Packaging and Fiber Packaging segments, as well as in Other activities. The gain is related to the sale of the Group's confectionery trademark portfolio, as announced on April 30, 2018. Huhtamaki's confectionery business was divested in 1996.
Adjusted EBIT and IACs
| EUR million | H1 2018 | H1 2017 |
| Adjusted EBIT | 130.2 | 138.4 |
| Restructuring costs including write-downs of related assets | -3.5 | - |
| Acquisition related costs | -1.2 | - |
| Gains relating to sale of trademark portfolio | 14.2 | - |
| EBIT | 139.7 | 138.4 |
Net financial expenses increased to EUR 13 million (EUR 11 million). Tax expense decreased and was EUR 27 million (EUR 28 million). The corresponding tax rate was 21% (22%).
Profit for the period was EUR 100 million (EUR 100 million). Adjusted EPS were EUR 0.87 (EUR 0.95) and reported EPS EUR 0.94 (EUR 0.95). Adjusted EPS is calculated based on Adjusted profit for the period, which excludes EUR 9.5 million of IAC's and EUR -1.9 million of taxes relating to IAC items.
Adjusted EPS and IACs
| EUR million | H1 2018 | H1 2017 |
| Adjusted profit for the period | 92.1 | 99.5 |
| IAC items included in adjusted EBIT | 9.5 | - |
| Taxes relating to IAC items | -1.9 | - |
| Profit for the period | 99.7 | 99.5 |
Acquisitions and divestments
On March 23, 2018 Huhtamaki announced that it has entered into an agreement to acquire the Indian business and related assets of Ajanta Packaging, a privately-owned manufacturer of pressure sensitive labels. With the acquisition Huhtamaki strengthened its labeling business in India by adding new printing technologies into its offering as well as improving its innovation capability. The acquisition is complementary to Huhtamaki's existing labeling product portfolio. The annual net sales of the acquired business are approximately EUR 10 million. It employs altogether 170 people and has two state-of-the-art manufacturing facilities. The debt free purchase price was approximately EUR 13 million. The transaction was closed at the end of May 2018. The business has been reported as part of the Flexible Packaging business segment as of June 1, 2018.
On April 30, 2018 Huhtamaki announced the majority acquisition of Tailored Packaging, an Australian foodservice packaging distribution and wholesale group. With the acquisition Huhtamaki gains access to a national network of distribution centers across Australia, allowing it to serve its customers even better and with more agility. Tailored Packaging is one of the largest importers and distributors of foodservice packaging in Australia with annualized net sales of approximately EUR 85 million and app. 130 employees. The debt free purchase price for 65% ownership of the joint venture was approximately EUR 35 million. As the majority shareholder Huhtamaki will consolidate the joint venture company as a subsidiary in the Group's financial reporting. The business has been reported as part of the Foodservice Europe-Asia-Oceania business segment as of May 1, 2018.
On April 30, 2018 Huhtamaki announced the sale of its confectionery trademark portfolio to Highlander Partners, a US based investment firm. Related to the sale, an after taxes gain of approximately USD 16 million was booked as an item affecting comparability during the second quarter of 2018. The sold trademark portfolio was related to Huhtamaki's confectionery business divested in 1996.
On May 31, 2018 Huhtamaki announced the majority acquisition of Cup Print Unlimited Company, a privately-owned paper cup manufacturer based in the Republic of Ireland. With the acquisition Huhtamaki improved its access to the growing market of short run custom-printed cups and boosted its on-line commercial activity. The short run capability allows Huhtamaki to even better support its current customers' promotional activities. CupPrint's annual net sales are approximately EUR 14 million and it employs altogether approximately 110 people. The debt free purchase price for 70% ownership of CupPrint was approximately EUR 22 million. The business has been reported as part of the Foodservice Europe-Asia-Oceania business segment as of June 1, 2018.
Significant events during the reporting period
On May 28, 2018 the European Commission published a proposal for a Directive of the European Parliament and of the Council on the reduction of the impact of certain plastic products on the environment (the Single Use Plastics proposal) targeting items that have been identified as contributing to marine pollution. The proposal is applicable to a part of Huhtamaki's product range and contains a number of different measures ranging from banning certain plastic products within the EU to introducing labelling requirements in order to reduce marine pollution. Adoption of the proposal will follow the EU's Ordinary Legislative Procedure and will be the subject of negotiations between the Council of Ministers, the European Parliament and the European Commission (the Trialogue). Once adopted by the EU, Member States will have two years to transpose the final Directive before it becomes law. Currently the majority of Huhtamaki's products are fiber-based.
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.
Financial reporting in 2018
In 2018, Huhtamaki will publish financial information as follows:
Interim Report, January 1-September 30, 2018 October 25
This is a summary of Huhtamäki Oyj's Half-yearly Report January 1-June 30, 2018. 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 Global Communications
Huhtamaki is a global specialist in packaging for food and drink. With our network of 78 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 18,200 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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