Huhtamäki Oyj's Results January 1-December 31, 2018

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Strong net sales growth in the quarter, margins still impacted by high costs

Q4 2018 in brief

  • Net sales grew to EUR 813 million (EUR 745 million)
  • Adjusted EBIT was EUR 62 million (EUR 65 million); EBIT EUR 27 million (EUR 62 million)
  • Adjusted EPS was EUR 0.45 (EUR 0.51); EPS EUR 0.18 (EUR 0.47)
  • Comparable net sales growth was 6% in total and 5% in emerging markets
  • Currency movements had a negative impact of EUR 3 million on the Group's net sales and EUR 1 million on EBIT

FY 2018 in brief

  • Net sales grew to EUR 3,104 million (EUR 2,989 million)
  • Adjusted EBIT was EUR 248 million (EUR 268 million); EBIT EUR 223 million (EUR 264 million)
  • Adjusted EPS was EUR 1.70 (EUR 1.90); EPS EUR 1.50 (EUR 1.86)
  • Comparable net sales growth was 5% in total and 7% in emerging markets
  • Currency movements had a negative impact of EUR 120 million on the Group's net sales and EUR 9 million on EBIT
  • Capital expenditure was EUR 197 million (EUR 215 million)
  • Free cash flow was EUR 59 million (EUR 56 million)
  • The Board of Directors proposes a dividend of EUR 0.84 (0.80) per share

Jukka Moisio, CEO:

Huhtamaki had a challenging year in 2018 as our growth and profitability were impacted by an inflationary cost environment and negative currency fluctuations. However, our full-year comparable net sales growth was 5% with three acquisitions completed in Q2 adding another 3% to our annual net sales growth. Q4 comparable growth was 6% and the quarterly net sales of EUR 813 million are an all-time high for Huhtamaki.

Profit declined, impacted by negative currency movements, higher costs, which price increases did not fully offset during the year, and the start-up costs of new facilities. We took actions to reduce costs and improve our selling prices during the year with these measures starting to have a positive impact in Q4 2018. Most of the cost reduction and restructuring actions were completed by the end of 2018, the full benefit of which will be reflected in 2019 and 2020. We will continue to drive productivity and price/mix improvement actions with the aim to offset increases in raw material, distribution, and other operating costs.

In 2018, Goodyear, our Arizona plant and the main project of our 2016 investment cycle, came on stream. The ramp-up of another investment commissioned in 2016, a new flexible packaging plant in Egypt, began in Q4 2018. The investments strengthen the Group's positions in North America and Africa allowing it to capture new growth opportunities. All our segments had a good net sales development in 2018. The 5% full year organic growth achieved in the North America segment helped Huhtamaki to meet its long-term organic growth ambition both in the fourth quarter as well as for the financial year.

The North America segment had the highest negative profit impact, with earnings declining by EUR 30 million. This was primarily driven by significantly higher distribution costs, the Goodyear plant start-up costs and the negative impact from currency translation. The improvement achieved by Foodservice Europe-Asia-Oceania and Fiber Packaging, as well as the Group's overall cost efficiency, were not enough to offset the headwinds in the North America segment.

With major investments and the completed acquisitions totaling EUR 256 million, our net debt/EBITDA ratio is 2.2. This maintains a good acquisition firepower and allows continued implementation of both acquired and organic growth. The recent capital expenditures will have a positive impact on 2019. In addition, we will look for value-adding acquisition targets and invest in new packaging solutions.

Innovation work focused on developing more sustainable packaging products for food. Our experience in using renewable raw materials like paper and fiber, and our know-how in plastics, gives us a very strong knowledge base to meet the customer and consumer expectations and address changing demand. The most interesting innovation projects revolve around replacing plastic with paper and fiber solutions and in making plastic food packaging easier to recycle. Our compostable ready meal tray, Fresh, that seeks to replace black plastic has attracted the highest attention. Several similar substitution projects, such as paper straws, are either in development phase or already in implementation.

Headwinds brought by the 2018 business environment did not slow down our growth but had a negative impact on our profitability. Now early into the new year we can confirm the actions to improve Huhtamaki's profitability are impacting and we expect to be back on a positive profitability development track in 2019. Underlying demand for high-quality, sustainable, and safe food packaging is growing and Huhtamaki is in an excellent position to contribute to that trend. Our customers see positive development for 2019 and so do we.

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Source: Huhtamaki