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Huhtamäki Oyj’s Half-yearly Report January 1–June 30, 2019: Strong net sales growth and solid profitability

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HUHTAMÄKI OYJ HALF-YEARLY REPORT 19.7.2019 AT 8:30

Huhtamäki Oyj’s Half-yearly Report January 1–June 30, 2019: Strong net sales growth and solid profitability

Q2 2019 in brief

  • Net sales grew to EUR 867 million (EUR 786 million)
  • Adjusted EBIT was EUR 78 million (EUR 71 million); reported EBIT EUR 78 million (EUR 80 million)
  • Adjusted EPS was EUR 0.51 (EUR 0.46); reported EPS EUR 0.51 (EUR 0.54)
  • Comparable net sales growth was 6% at Group level and 7% in emerging markets
  • Currency movements had a positive impact of EUR 25 million on the Group’s net sales and EUR 2 million on EBIT

H1 2019 in brief

  • Net sales grew to EUR 1,669 million (EUR 1,511 million)
  • Adjusted EBIT was EUR 146 million (EUR 131 million); reported EBIT EUR 145 million (EUR 141 million)
  • Adjusted EPS was EUR 0.95 (EUR 0.86); reported EPS EUR 0.95 (EUR 0.93)
  • Comparable net sales growth was 5% at Group level and 7% in emerging markets
  • Currency movements had a positive impact of EUR 44 million on the Group’s net sales and EUR 4 million on EBIT

Key figures

EUR million Q2 2019 Q2 2018 Change H1 2019 H1 2018 Change FY 2018
Net sales 867.3 785.9 10% 1,669.4 1,511.1 10% 3,103.6
Adjusted EBITDA1 118.6 107.0 11% 225.5 202.6 11% 398.7
Margin1 13.7% 13.6%   13.5% 13.4%   12.8%
EBITDA 118.1 118.6 -0% 224.9 214.2 5% 390.3
Adjusted EBIT2 78.3 70.8 11% 146.1 131.5 11% 251.0
Margin2 9.0% 9.0%   8.8% 8.7%   8.1%
EBIT 77.8 80.3 -3% 145.5 141.0 3% 225.5
Adjusted EPS3 0.51 0.46 11% 0.95 0.86 11% 1.69
EPS, EUR 0.51 0.54 -5% 0.95 0.93 1% 1.49
Adjusted ROI2,4       11.5% 12.8%   11.6%
Adjusted ROE3,4       14.8% 16.3%   14.5%
ROI4       10.0% 13.1%   10.4%
ROE4       12.6% 16.6%   12.8%
Capital expenditure 38.6 47.7 -19% 78.3 80.9 -3% 196.9
Free cash flow 52.4 49.9 5% 34.2 36.5 -6% 79.6

1 Excluding IAC of EUR -0.5 million in Q2 2019 (EUR 11.6 million) and EUR -0.6 million in H1 2019 (EUR 11.6 million) and EUR -8.4 million in FY 2018.
2 Excluding IAC of EUR -0.5 million in Q2 2019 (EUR 9.5 million) and EUR -0.6 million in H1 2019 (EUR 9.5 million) and EUR -25.5 million in FY 2018.
3 Excluding IAC of EUR -0.4 million in Q2 2019 (EUR 7.7 million) and EUR -0.5 million in H1 2019 (EUR 7.7 million) and EUR -20.6 million in FY 2018.
4 ROI and ROE for H1 2018 have not been restated for IFRS 16 impact.

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:

“In the second quarter of 2019 we achieved a strong growth of 10%, reporting net sales of EUR 867 million. Comparable growth was 6% and in emerging markets 7%. We also continued good progress with our global key accounts. Positive currency translation impact was 3%. The acquisitions completed during the last 12 months accounted for 2% of the total growth, adding EUR 13 million to the net sales.

Our adjusted EBIT for the quarter grew by 11% to EUR 78 million. All segments report an improved adjusted EBIT. The strong net sales growth, led by the North America segment, combined with the efficiency improvement actions and price increases we implemented last year, translated to higher adjusted earnings. Our tight focus on portfolio and margin management, particularly in Flexible Packaging India, drove profitability improvement.

It is good to see that the heavy investments of the last few years are paying off. The North America segment delivered a particularly strong quarter. In the Foodservice Europe-Asia-Oceania segment the investments to expand our product offering with folded carton, bags, wraps and paper straws are delivering good growth in the fast food segment. Capacity additions within the Fiber Packaging segment are consistently resulting in volume growth. In addition, during Q2 2019 we inaugurated a new manufacturing facility in Egypt to facilitate growth in Flexible Packaging in Africa and in Europe.

In addition, we continued our work to further improve the environmental performance of our products. With the launch of our Huhtamaki blueloop -concept we began commercial deliveries of recyclable flexible packaging. Waitrose in the UK chose our Fresh tray for the relaunch of their Italian ready meal range and we have invested in more capacity to meet the demand. We also opened a new paper straw manufacturing facility in Northern Ireland and expect to begin paper straw manufacturing in further units in Europe. We also published the results of an LCA study on coffee-to-go cups. The study confirmed that our Future Smart range, which is 100% made of renewable resources, is the best currently available solution for coffee-to-go.

During my first 100 days at Huhtamaki, meeting our customers and our employees, I am impressed with our business model, our operating structure and the competence of our people. Looking at our industry and the market, powerful trends are strengthening and changing the way forward for packaging. These include evolving consumer preferences that encourage us to accelerate our innovation work; rapid advancements in digitalization and analytics; strong growth of food delivery and grocery e-commerce; and focus on the impact packaging has on the environment. We are well positioned to deliver on these challenges, and we will further invest in the required strategic capabilities and resources to transform those trends into opportunities.”

Financial review Q2 2019

The Group’s net sales growth was strong during the quarter, with all segments contributing. Comparable net sales growth was also strong at 6%, led by the North America business segment. Growth in emerging markets was 7%. The Group’s net sales grew to EUR 867 million (EUR 786 million). Foreign currency translation impact on the Group’s net sales was EUR 25 million (EUR -48 million) compared to 2018 exchange rates. The majority of the positive impact came from the US Dollar.

Net sales by business segment

EUR million Q2 2019 Q2 2018 Change Of Group in
Q2 2019
Foodservice Europe-Asia-Oceania 241.0 221.5 9% 28%
North America 306.4 257.0 19% 35%
Flexible Packaging 248.7 240.3 3% 28%
Fiber Packaging 77.5 71.3 9% 9%
Elimination of internal sales -6.4 -4.2    
Group 867.3 785.9 10%  

Comparable net sales growth by business segment

  Q2 2019 Q1 2019 Q4 2018 Q3 2018
Foodservice Europe-Asia-Oceania 3% 4% 3% 5%
North America 13% 5% 11% 2%
Flexible Packaging 1% 5% 4% 6%
Fiber Packaging 7% 4% 5% 4%
Group 6% 5% 6% 4%

The Group’s adjusted EBIT improved significantly and profitability was at a good level. Earnings improved significantly in the North America segment as a result of successful pricing actions, volume increases and lower distribution costs. Earnings improved significantly also in the Flexible Packaging segment, driven by strong improvement in emerging markets. The Group’s adjusted EBIT was EUR 78 million (EUR 71 million) and reported EBIT EUR 78 million (EUR 80 million). Foreign currency translation impact on the Group’s earnings was EUR 2 million (EUR -4 million).

Adjusted EBIT by business segment

EUR million Q2 2019 Q2 2018 Change Of Group in
Q2 2019
Foodservice Europe-Asia-Oceania1 22.0 20.6 7% 27%
North America 32.4 22.6 43% 39%
Flexible Packaging2 20.1 18.1 11% 25%
Fiber Packaging3 7.6 7.4 3% 9%
Other activities4 -3.9 2.1    
Group 78.3 70.8 11%  

1 Excluding IAC of EUR -0.2 million in Q2 2019 and EUR -1.3 million in Q2 2018
2 Excluding IAC of EUR -1.5 million in Q2 2018
3 Excluding IAC of EUR -0.6 million in Q2 2018
4 Excluding IAC of EUR -0.3 million in Q2 2019 and EUR 12.9 million in Q2 2018

Adjusted EBIT excludes EUR -0.5 million (EUR 9.5 million) of items affecting comparability (IAC).

Adjusted EBIT and IAC

EUR million Q2 2019 Q2 2018
Adjusted EBIT 78.3 70.8
Acquisition related costs -0.5 -1.2
Restructuring costs including write-downs of related assets - -3.5
Gains relating to sale of trademark portfolio - 14.2
EBIT 77.8 80.3

Net financial expenses were EUR 8 million (EUR 8 million). Tax expense was EUR 15 million (EUR 15 million).

Profit for the quarter was EUR 55 million (EUR 57 million). Adjusted and reported earnings per share (EPS) were EUR 0.51 (adjusted EPS EUR 0.46 and reported EPS EUR 0.54). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR -0.5 million (EUR 9.5 million) of IAC and related taxes.

Adjusted EPS and IAC

EUR million Q2 2019 Q2 2018
Adjusted profit for the period attributable to equity holders of the parent company 53.7 48.4
IAC excluded from adjusted EBIT -0.5 9.5
Taxes related to IAC 0.1 -1.9
Profit for the period attributable to equity holders of the parent company 53.3 56.1

Financial review H1 2019

The Group’s net sales growth was strong during the first half of the year, with all segments contributing. Growth was strongest in the North America segment. Comparable net sales growth was solid at 5%, also led by the North America business segment. Growth in emerging markets was 7%. The Group’s net sales grew to EUR 1,669 million (EUR 1,511 million). Foreign currency translation impact on the Group’s net sales was EUR 44 million (EUR -107 million) compared to 2018 exchange rates. The majority of the positive impact came from the US Dollar.

Net sales by business segment

EUR million H1 2019 H1 2018 Change Of Group in
H1 2019
Foodservice Europe-Asia-Oceania 469.0 420.3 12% 28%
North America 562.1 483.8 16% 33%
Flexible Packaging 500.5 474.3 6% 30%
Fiber Packaging 149.1 141.0 6% 9%
Elimination of internal sales -11.3 -8.3    
Group 1,669.4 1,511.1 10 %  

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 146 million (EUR 131 million) and reported EBIT EUR 145 million (EUR 141 million). Foreign currency translation impact on the Group’s earnings was EUR 4 million (EUR -8 million).

Adjusted EBIT by business segment

EUR million H1 2019 H1 2018 Change Of Group in
H1 2019
Foodservice Europe-Asia-Oceania1 42.1 40.1 5% 28%
North America 53.0 38.9 36% 35%
Flexible Packaging2 43.2 35.7 21% 28%
Fiber Packaging3 14.4 15.4 -6% 9%
Other activities4 -6.6 1.3    
Group 146.1 131.5 11%  

1 Excluding IAC of EUR -0.2 million in H1 2019 and EUR -1.3 million in H1 2018
2 Excluding IAC of EUR -1.5 million in H1 2018
3 Excluding IAC of EUR -0.6 million in H1 2018
4 Excluding IAC of EUR -0.4 million in H1 2019 and EUR 12.9 million in H1 2018

Adjusted EBIT excludes EUR -0.6 million (EUR 9.5 million) of items affecting comparability (IAC).

Adjusted EBIT and IAC

EUR million H1 2019 H1 2018
Adjusted EBIT 146.1 131.5
Acquisition related costs -0.6 -1.2
Restructuring costs including write-downs of related assets - -3.5
Gains relating to sale of trademark portfolio - 14.2
EBIT 145.5 141.0

Net financial expenses were EUR 16 million (EUR 16 million). Tax expense was EUR 28 million (EUR 26 million). The corresponding tax rate was 22% (21%).

Profit for the period was EUR 102 million (EUR 99 million). Adjusted and reported earnings per share (EPS) were EUR 0.95 (adjusted EPS EUR 0.86 and reported EPS EUR 0.93). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR -0.6 million (EUR 9.5 million) of IAC and related taxes.

Adjusted EPS and IAC

EUR million H1 2019 H1 2018
Adjusted profit for the period attributable to equity holders of the parent company 99.1 89.6
IAC excluded from adjusted EBIT -0.6 9.5
Taxes related to IAC 0.1 -1.9
Profit for the period attributable to equity holders of the parent company 98.7 97.3

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.

Significant events after the reporting period

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.

Outlook for 2019

The Group’s trading conditions are expected to remain relatively stable during 2019. 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 2018 with the majority of the investments directed to business expansion.

Financial reporting in 2019

In 2019, Huhtamaki will publish financial information as follows:

Interim Report, January 1–September 30, 2019                       October 23

This is a summary of Huhtamäki Oyj's Half-yearly Report January 1-June 30, 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:

Thomas Geust, CFO, tel. +358 10 686 7880
Katariina Hietaranta, Head of IR and Financial Communications, tel. +358 10 686 7863

HUHTAMÄKI OYJ
Global Communications

Huhtamaki is a global specialist in packaging for food and drink. With our network of 79 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 18,100 employees develop and make packaging that helps great products reach more people, more easily. In 2018, our net sales totaled EUR 3.1 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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