HUHTAMÄKI OYJ FINANCIAL STATEMENT RELEASE 13.2.2020 AT 8:30

Huhtamäki Oyj’s Results January 1–December 31, 2019: Strong net sales growth and profitability improvement in 2019

Q4 2019 in brief

  • Net sales increased 8 percent to EUR 875 million (EUR 813 million)
  • Adjusted EBIT was EUR 75 million (EUR 62 million); reported EBIT was EUR 72 million (EUR 27 million)
  • Adjusted EPS was EUR 0.48 (EUR 0.45); reported EPS was EUR 0.46 (EUR 0.17)
  • Comparable net sales growth was 5 percent at Group level and 6 percent in emerging markets
  • Currency movements had a positive impact of EUR 23 million on the Group’s net sales and EUR 2 million on EBIT

FY 2019 in brief

  • Net sales increased 10 percent to EUR 3,399 million (EUR 3,104 million)
  • Adjusted EBIT was EUR 293 million (EUR 251 million); reported EBIT was EUR 286 million (EUR 226 million)
  • Adjusted EPS was EUR 1.88 (EUR 1.69); reported EPS was EUR 1.82 (EUR 1.49)
  • Comparable net sales growth was 6 percent at Group level and 7 percent in emerging markets
  • Currency movements had a positive impact of EUR 90 million on the Group’s net sales and EUR 8 million on EBIT
  • Capital expenditure was EUR 204 million (EUR 197 million)
  • Free cash flow was EUR 226 million (EUR 80 million)
  • The Board of Directors proposes a dividend of EUR 0.89 (0.84) per share

Key figures

EUR millionQ4 2019Q4 2018Change20192018Change
Net sales874.6812.88%3,399.03,103.610%
Comparable net sales growth5%6% 6%5% 
Adjusted EBITDA1117.3101.915%456.3398.714%
 Margin113.4%12.5% 13.4%12.8% 
EBITDA115.082.040%448.8390.315%
Adjusted EBIT274.762.420%293.1251.017%
 Margin28.5%7.7% 8.6%8.1% 
EBIT72.327.5>100%285.5225.527%
Adjusted EPS30.480.458%1.881.6911%
EPS, EUR0.460.17>100%1.821.4922%
Adjusted ROI2   12.3%11.6% 
Adjusted ROE3   15.2%14.5% 
ROI   11.9%10.4% 
ROE   14.8%12.8% 
Capital expenditure71.070.41%203.9196.94%
Free cash flow108.741.0>100%225.879.6>100%

1 Excluding IAC of EUR -2.3 million in Q4 2019 (EUR -19.9 million) and EUR -7.6 million in 2019 (EUR -8.4 million).
2 Excluding IAC of EUR -2.3 million in Q4 2019 (EUR -34.9 million) and EUR -7.6 million in 2019 (EUR -25.5 million).
3 Excluding IAC of EUR -1.8 million in Q4 2019 (EUR -28.2 million) and EUR -5.9 million in 2019 (EUR -20.6 million).

Unless otherwise stated, all comparisons in this report are compared to the corresponding period in 2018. Figures of return on investment (ROI), return on equity (ROE) and return on net assets (RONA) as well as net debt to EBITDA presented in this report are calculated on a 12-month rolling basis.

IFRS 16 Leases standard has been adopted as of January 1, 2019 using full retrospective transition method. The financial information for 2018 has been restated except for key figures ROI, ROE, RONA and net debt to EBITDA for periods Q1 2018, Q2 2018 and Q3 2018. For more information see the notes.

The figures in the tables are exact figures and consequently the sum of individual figures may deviate from the sum presented. Key figures have been calculated using exact figures.

Charles Héaulmé, 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.”

Financial review Q4 2019

Net sales by business segment

EUR millionQ4 2019Q4 2018Change
Foodservice Europe-Asia-Oceania245.3231.66%
North America303.6276.610%
Flexible Packaging255.1235.58%
Fiber Packaging76.172.94%
Elimination of internal sales-5.5-3.8 
Group874.6812.88%

Comparable net sales growth by business segment

 Q4 2019Q3 2019Q2 2019Q1 2019Q4 2018
Foodservice Europe-Asia-Oceania4%4%3%4%3%
North America6%14%13%5%11%
Flexible Packaging3%4%1%5%4%
Fiber Packaging8%7%7%4%5%
Group5%7%6%5%6%

The Group’s net sales growth was strong during the quarter, especially in the North America segment. Comparable net sales growth was solid at 5 percent, supported by all segments. Growth in emerging markets was 6 percent. The Group’s net sales increased 8 percent to EUR 875 million (EUR 813 million). Foreign currency translation impact on the Group’s net sales was EUR 23 million (EUR -3 million) compared to 2018 exchange rates. The majority of the positive impact came from the US Dollar.

Adjusted EBIT by business segment

     Items affecting comparability
EUR millionQ4 2019Q4 2018Change Q4 2019Q4 2018
Foodservice Europe-Asia-Oceania20.918.016% -0.2-12.0
North America33.119.471% -0.1-10.7
Flexible Packaging18.816.911% -0.6-8.2
Fiber Packaging7.58.7-14% -0.2-1.5
Other activities-5.6-0.6  -1.2-2.5
Group 74.762.420% -2.3-34.9

Adjusted EBIT margin by business segment

 Q4 2019Q3 2019Q2 2019Q1 2019Q4 2018
Foodservice Europe-Asia-Oceania8.5%9.4%9.1%8.8%7.8%
North America10.9%8.8%10.6%8.0%7.0%
Flexible Packaging7.4%7.9%8.1%9.1%7.2%
Fiber Packaging9.8%10.4%9.8%9.6%12.0%
Group8.5%8.5%9.0%8.5%7.7%

The Group’s adjusted EBIT improved significantly and profitability was solid. Earnings growth was driven by pricing and operational improvement. Earnings improved significantly in the North America segment as a result of the pricing actions taken in the second half of 2018, higher sales volumes, and somewhat more favorable distribution environment. The Group’s adjusted EBIT was EUR 75 million (EUR 62 million) and reported EBIT EUR 72 million (EUR 27 million). Foreign currency translation impact on the Group’s earnings was EUR 2 million (EUR -1 million).

Adjusted EBIT excludes EUR -2.3 million (EUR -34.9 million) of items affecting comparability (IAC).

Adjusted EBIT and IAC

EUR millionQ4 2019Q4 2018
Adjusted EBIT74.762.4
Losses from property damage incidents-0.3-
Acquisition related costs-1.0-1.9
Restructuring costs including write-downs of related assets--33.0
Environmental provision-1.0-
EBIT72.327.5

Net financial expenses were EUR 6 million (EUR 8 million). Tax expense was EUR 15 million (EUR 1 million). Profit for the quarter was EUR 51 million (EUR 19 million). Adjusted earnings per share (EPS) were EUR 0.48 (EUR 0.45) and reported EPS EUR 0.46 (EUR 0.17). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR -1.8 million (EUR -28.2 million) of IAC.

Adjusted EPS and IAC

EUR millionQ4 2019Q4 2018
Adjusted profit for the period attributable to equity holders of the parent company50.046.4
IAC excluded from adjusted EBIT-2.3-34.9
Taxes related to IAC0.56.6
Profit for the period attributable to equity holders of the parent company48.2 18.2


Financial review 2019

Net sales by business segment

EUR million20192018Change
Foodservice Europe-Asia-Oceania956.7881.78%
North America1,152.71,002.715%
Flexible Packaging1,016.4952.37%
Fiber Packaging293.4283.04%
Elimination of internal sales-20.2-16.1 
Group3,399.03,103.610%

Comparable net sales growth by business segment

 201920182017
Foodservice Europe-Asia-Oceania4%4%4%
North America9%5%2%
Flexible Packaging3%7%4%
Fiber Packaging6%4%5%
Group6%5%3%

The Group’s net sales growth was strong during the reporting period, with all business segments contributing. Net sales increased 10 percent to EUR 3,399 million (EUR 3,104 million). Growth was strongest in the North America segment. Comparable net sales growth was strong at 6 percent, led by the North America segment. Growth in emerging markets was 7 percent. Foreign currency translation impact on the Group’s net sales was EUR 90 million (EUR ‑120 million) compared to 2018 exchange rates. The majority of the positive impact came from the US Dollar.

Adjusted EBIT by business segment

     Items affecting comparability
EUR million20192018Change 20192018
Foodservice Europe-Asia-Oceania85.777.111% -0.5-13.3
North America111.473.053% -3.1-10.7
Flexible Packaging82.667.822% -0.7-9.7
Fiber Packaging29.031.2-7% -1.2-2.1
Other activities-15.61.9  -2.010.3
Group 293.1251.017% -7.6-25.5

Adjusted EBIT margin by business segment

 201920182017
Foodservice Europe-Asia-Oceania9.0%8.7%8.7%
North America9.7%7.3%10.4%
Flexible Packaging8.1%7.1%7.6%
Fiber Packaging9.9%11.0%9.9%
Group8.6%8.1%9.0%

Figures for 2017 have not been restated for IFRS 16 impact.

The Group’s adjusted EBIT improved significantly, and profitability was solid. Earnings improved significantly in the North America and Flexible Packaging segments. Earnings declined in the Fiber Packaging segment due to development and commercialization costs of the Fresh ready meal tray. The Group’s adjusted EBIT was EUR 293 million (EUR 251 million) and reported EBIT EUR 286 million (EUR 226 million). Foreign currency translation impact on the Group’s earnings was EUR 8 million (EUR -10 million).

Adjusted EBIT excludes EUR -7.6 million (EUR -25.5 million) of items affecting comparability (IAC).

Adjusted EBIT and IAC

EUR million20192018
Adjusted EBIT293.1251.0
Losses from property damage incidents-4.3-
Acquisition related costs-2.2-3.4
Restructuring costs including write-downs of related assets--36.2
Gains relating to sale of trademark portfolio-14.2
Environmental provision-1.0-
EBIT285.5225.5

Net financial expenses were EUR 29 million (EUR 31 million). Tax expense was EUR 58 million (EUR 37 million). The corresponding tax rate was 23 percent (19%). Profit for the period was EUR 199 million (EUR 157 million). Adjusted earnings per share (EPS) were EUR 1.88 (EUR 1.69) and reported EPS EUR 1.82 (EUR 1.49). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR -5.9 million (EUR -20.6 million) of IAC.

Adjusted EPS and IAC

EUR million 20192018
Adjusted profit for the period attributable to equity holders of the parent company196.0176.0
IAC excluded from adjusted EBIT-7.6-25.5
Taxes related to IAC1.74.9
Profit for the period attributable to equity holders of the parent company190.1155.4

Acquisitions and divestments

On September 27, 2019, Huhtamaki announced that it has entered into an agreement to acquire the majority of Everest Flexibles (Pty) Limited (“Everest”), a privately-owned flexible packaging manufacturer in South Africa. With the acquisition Huhtamaki expands its flexible packaging manufacturing footprint into South Africa, thereby further strengthening its emerging market position. The product range and customer portfolio of Everest are complementary to those of Huhtamaki. The annual net sales of the acquired business are approximately EUR 40 million and it employs altogether approximately 460 people. The business was acquired for an enterprise value of EUR 58 million. The acquisition of the majority of the business was completed on December 18, 2019 and the business has been reported as part of the Flexible Packaging business segment as of December 1, 2019.

On September 30, 2019, Huhtamaki announced that it has agreed to acquire the assets and operations of Mohan Mutha Polytech Private Limited (MMPPL), a privately-owned flexible packaging manufacturer located in Sri City, Andhra Pradesh, India. The acquisition allows Huhtamaki to speed up its growth in India by improving its capability to serve the customers in South India. MMPPL has approximately 160 employees and its net sales in 2018 were approximately EUR 9 million. The debt-free purchase price was approximately EUR 10 million. The acquisition was completed on January 10, 2020 and the business has since been reported as part of the Flexible Packaging business segment.

On December 23, 2019, Huhtamaki announced that it has agreed to acquire full ownership of its joint venture company Laminor S.A. in Brazil. Laminor is specialized in high-quality tube laminates, particularly for oral care applications, and was set up in 2002 as a 50/50 joint venture together with Bemis Company, which is now part of Amcor. The acquisition enables Huhtamaki to expand its tube laminate business, an important part of the Group’s flexible packaging offering. Laminor has approximately 130 employees and its net sales in 2018 were approximately EUR 25 million. Following the acquisition, Laminor will be consolidated as a subsidiary in the Group’s financial reporting and reported as part of the Flexible Packaging business segment. The additional shares are acquired at a price of approximately EUR 30 million. The transaction is subject to the approval of competition authorities in Brazil and it is expected to be closed during the first quarter in 2020.

Significant events during the reporting period

On March 7, 2019 the European Commission announced that it has opened an investigation into Luxembourg tax practices, in particular Huhtamaki tax rulings from the years 2009, 2012 and 2013. The investigation is not targeted at Huhtamaki and Huhtamaki has not been approached by the European Commission.

On July 11, 2019 the General Court of the European Union announced that it has dismissed Huhtamaki’s appeal against the European Commission’s decision on anticompetitive behavior. In June 2015 the European Commission announced that it had found certain of Huhtamaki’s former operations to have been involved in anticompetitive practices during years 2000-2006 and imposed a EUR 15.6 million fine on Huhtamaki. The fine and legal costs of EUR 2.7 million were recognized as a non-recurring expense in the Group’s Q2 2015 result and the payment of fine was made during Q3 2015.

Significant events after the reporting period

On January 10, 2020 Huhtamaki announced that it has completed the acquisition of the assets and operations of Mohan Mutha Polytech Private Limited (MMPPL), a privately-owned flexible packaging manufacturer located in Sri City, Andhra Pradesh, India. MMPPL has approximately 160 employees and its net sales in 2018 were approximately EUR 9 million. The debt-free purchase price was approximately EUR 10 million. The business has been reported as part of the Flexible Packaging business segment as of January 10, 2020.

On January 16, 2020 Huhtamaki announced that Leena Lie, Executive Vice President, Marketing and Communications, and a member of the Global Executive Team decided to leave Huhtamaki to pursue other career opportunities. Teija Sarajärvi, Executive Vice President, Human Resources and Safety, will have an interim role as Executive Vice President, Marketing and Communications in addition to her current role, until a successor for the position has been appointed.

On January 24, 2020 Huhtamaki announced that Arup Basu, (52), PhD (Technology), has been appointed President, Flexible Packaging and a member of Global Executive Team as of February 1, 2020. Arup Basu has been the Managing Director for Huhtamaki's Flexible Packaging business in India since 2017. Olli Koponen, (61), who has had several leadership positions at Huhtamaki during the past 30 years and has headed the Flexible Packaging segment since 2015, will step down from the Global Executive Team and is appointed as Senior Vice President, Total Productive Manufacturing until his retirement.

On February 7, 2020 Huhtamaki announced that Thomasine Kamerling, (47), M.A., Modern History from Cambridge University (UK), has been appointed as Executive Vice President, Sustainability and Communications and a member of Global Executive Team as of March 1, 2020.

Outlook for 2020

The Group’s trading conditions are expected to remain relatively stable during 2020. 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 2019 with the majority of the investments directed to business expansion.

Dividend proposal

On December 31, 2019 Huhtamäki Oyj’s distributable funds were EUR 630 million (EUR 654 million). The Board of Directors will propose to the Annual General Meeting that a dividend of EUR 0.89 (EUR 0.84) per share be paid.

Annual General Meeting 2020

The Annual General Meeting of Shareholders will be held on Wednesday, April 29, 2020 at 11.00 (EET) at Messukeskus Helsinki, Expo and Convention Centre, Messuaukio 1, Helsinki, Finland.

Financial reporting in 2020

In 2020, Huhtamaki will publish financial information as follows:

Interim Report, January 1–March 31, 2020                           April 29
Half-yearly Report, January 1–June 30, 2020                        July 23
Interim Report, January 1–September 30, 2020                    October 22

Annual Accounts 2019 will be published on week 10 on Huhtamaki's website at www.huhtamaki.com.

This is a summary of Huhtamäki Oyj's Results January 1 - December 31, 2019. 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:

Calle Loikkanen, Head of Investor Relations and Financial Communications, tel. +358 10 686 7125

HUHTAMÄKI OYJ
Global Communications

Huhtamaki is a global specialist in packaging for food and drink. With our network of 81 manufacturing units and additional 24 sales only offices in altogether 35 countries, we’re well placed to support our customers’ growth wherever they operate. Mastering three distinctive packaging technologies, approximately 18,800 employees develop and make packaging that helps great products reach more people, more easily. In 2019, our net sales totaled EUR 3.4 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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