Huhtamäki Results: Solid performance despite COVID-19 pandemic

February 12, 2021 Off By Sebastian Reisig

Huhtamäki Oyj’s Results January 1–December 31, 2020: Solid performance despite COVID-19 pandemic

Q4 2020 in brief

  •      Net sales decreased 7% to EUR 813 million (EUR 875 million)
  •      Adjusted EBIT was EUR 73 million (EUR 75 million); reported EBIT was EUR 48 million (EUR 72 million)
  •      Adjusted EPS was EUR 0.48 (EUR 0.48); reported EPS was EUR 0.30 (EUR 0.46)
  •      Comparable net sales growth was -2% at Group level and -7% in emerging markets
  •      The impact of currency movements was EUR -52 million on the Group’s net sales and EUR -5 million on EBIT

Q1-Q4 2020 in brief

  •      Net sales decreased 3% to EUR 3,302 million (EUR 3,399 million)
  •      Adjusted EBIT was EUR 302 million (EUR 293 million); reported EBIT was EUR 265 million (EUR 286 million)
  •      Adjusted EPS was EUR 1.95 (EUR 1.88) reported EPS was EUR 1.69 (EUR 1.82)
  •      Comparable net sales growth was -2% at Group level and -6% in emerging markets
  •      The impact of currency movements was EUR -89 million on the Group’s net sales and EUR -8 million on EBIT
  •      Capital expenditure was EUR 223 million (EUR 204 million)
  •      Free cash flow was EUR 207 million (EUR 226 million)
  •      The Board of Directors proposes a dividend of EUR 0.92 (0.89) per share

Key figures

EUR million   Q4 2020 Q4 2019 Change 2020 2019 Change
Net sales   812.8 874.6 -7% 3,301.8 3,399.0 -3%
Comparable net sales growth   -2% 5%   -2% 6%  
Adjusted EBITDA1   116.8 117.3 -0% 473.1 456.3 4%
Margin1   14.4% 13.4%   14.3% 13.4%  
EBITDA   101.4 115.0 -12% 464.5 448.8 4%
Adjusted EBIT2   72.8 74.7 -2% 302.1 293.1 3%
Margin2   9.0% 8.5%   9.1% 8.6%  
EBIT   47.9 72.3 -34% 265.3 285.5 -7%
Adjusted EPS3   0.48 0.48 1% 1.95 1.88 4%
EPS, EUR   0.30 0.46 -36% 1.69 1.82 -7%
Adjusted ROI2         11.7% 12.3%  
Adjusted ROE3         14.8% 15.2%  
ROI         10.3% 11.9%  
ROE         12.9% 14.8%  
Capital expenditure   103.2 71.0 45% 223.5 203.9 10%
Free Cash Flow   57.5 108.7 -47% 207.1 225.8 -8%
               
1 Excluding IAC of   -15.4 -2.3   -8.6 -7.6  
2 Excluding IAC of   -24.9 -2.3   -36.8 -7.6  
3 Excluding IAC of   -19.3 -1.8   -26.2 -5.9  

Unless otherwise stated, all comparisons in this report are compared to the corresponding period in 2019. 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.

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:

“The year 2020 was marked by the COVID-19 pandemic. Throughout the crisis our primary focus has been to safeguard the health, safety and wellbeing of our employees and to ensure business continuity under these exceptional circumstances. Despite the challenging operational environment, with COVID-19 impact on markets across the world, we delivered a solid performance overall. This reflects the resilience of our diversified portfolio and the ability of our company to manage challenging conditions.

Pandemic-driven restrictions and lockdowns had a negative impact on demand for food on-the-go products globally, but conversely drove higher consumption of food on-the-shelf products. The decline of in-restaurant dining was partly compensated by the fast-growing food delivery and take-away channels. In particular, our foodservice business was impacted negatively, whilst increased in-home consumption supported growth in consumer goods. In North America, in-home dining further boosted the underlying growth of the retail tableware products. In our Flexible Packaging segment, overall demand remained good across most markets. However, pandemic-driven supply chain disruptions did impact the demand and the ability to serve the market, particularly in India and Middle East during in the second quarter of the year. Demand in the Fiber Packaging segment remained strong throughout the year, mainly driven by high demand for egg packaging and continued plastic substitution.

Our net sales amounted to EUR 3.3 billion for the full year. Comparable net sales growth was -2% during the fourth quarter. In 2020, our profitability was supported by a favorable sales mix, beneficial cost environment and continued focus on operational efficiency. The adjusted EBIT margin increased by 0.5 p.p. to 9.0% in the fourth quarter and to 9.1% for the full year. During 2020, the company focused on preparing for a post-COVID-19 world, including actions to improve competitiveness and investments in expansion and automation. Our balance sheet remains strong and we are well placed to invest in future growth through both organic investments and acquisitions.

The year 2020 was also the opportunity for us to celebrate Huhtamaki’s 100th anniversary. The celebrations were held in November with a series of virtual stakeholder events during “Founder’s week”. We introduced our new 2030 strategy and laid out high sustainability ambitions for this decade. Our focus is on creating value by delivering growth, improving competitiveness, developing talent while embedding sustainability in everything we do. Our ambition is to be the first choice in sustainable food packaging solutions. We have raised our external engagement through sustainability thought leadership initiatives and the deployment of local activities contributing to lowering the carbon footprint of our operations, such as increasing our use of renewable energy.

Throughout what proved to be a challenging year, we adapted to meet the transformative trends affecting our industry and responded to the challenges brought on by the pandemic. I am particularly proud of our entire team for taking proactive and focused actions, showing resilience in the face of COVID-19 and embarking on our journey to our 2030 Strategy.”

Financial review Q4 2020

Net sales by business segment

EUR million   Q4 2020 Q4 2019 Change
Foodservice Europe-Asia-Oceania   213.5 245.3 -13%
North America   274.0 303.6 -10%
Flexible Packaging   250.8 255.1 -2%
Fiber Packaging   85.4 76.1 12%
Elimination of internal sales   -10.8 -5.5  
Group   812.8 874.6 -7%

Comparable net sales growth by business segment

    Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019
Foodservice Europe-Asia-Oceania   -7% -1% -28% -4% 4%
North America   -2% 4% -5% 9% 6%
Flexible Packaging   0% 1% 2% 2% 3%
Fiber Packaging   8% 7% 10% 9% 8%
Group   -2% 2% -8% 3% 5%

The Group’s net sales decreased 7% to EUR 813 million (EUR 875 million) during the quarter. Comparable net sales growth was -2%. Net sales decreased mainly due to lower demand for foodservice packaging, following the impact of COVID-19. Solid demand continued for food on-the-shelf products. Growth was strong in the Fiber Packaging segment, following COVID-19 driven boost in the in-house consumption trend. Strong demand continued in retail tableware in North America, however sales were limited by a lower-than-normal available inventory following the strong demand in the previous quarter. The Group’s growth in emerging markets was -7%. Foreign currency translation impact on the Group’s net sales was EUR -52 million (EUR 23 million) compared to 2019 exchange rates.

Adjusted EBIT by business segment

            Items affecting comparability
EUR million   Q4 2020 Q4 2019 Change   Q4 2020 Q4 2019
Foodservice Europe-Asia-Oceania   15.5 20.9 -26%   -10.5 -0.2
North America   32.2 33.1 -3%   0.1 -0.1
Flexible Packaging   17.9 18.8 -5%   -0.5 -0.6
Fiber Packaging   12.7 7.5 70%   -3.5 -0.2
Other activities   -5.5 -5.6     -10.5 -1.2
Group   72.8 74.7 -2%   -24.9 -2.3

Adjusted EBIT margin by business segment

    Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019
Foodservice Europe-Asia-Oceania   7.3% 9.4% 3.7% 8.0% 8.5%
North America   11.8% 12.7% 12.8% 10.6% 10.9%
Flexible Packaging   7.2% 8.5% 7.3% 7.7% 7.4%
Fiber Packaging   14.8% 11.1% 11.2% 11.0% 9.8%
Group   9.0% 10.1% 8.8% 8.7% 8.5%

The Group’s adjusted EBIT decreased to EUR 73 million (EUR 75 million) and reported EBIT was EUR 48 million (EUR 72 million). The decrease in earnings was primarily due to lower demand in the Foodservice Europe-Asia-Oceania segment, following the impact of COVID-19. The Group’s adjusted EBIT margin improved and was 9.0% (8.5%). The adjusted EBIT margin improved following favorable sales mix, beneficial cost environment and continued focus on operational efficiency. Foreign currency translation impact on the Group’s earnings was EUR -5 million (EUR 2 million).

Adjusted EBIT excludes EUR -24.9 million (EUR -2.3 million) of items affecting comparability (IAC).

Adjusted EBIT and IAC

EUR million   Q4 2020 Q4 2019
Adjusted EBIT   72.8 74.7
Acquisitions   -0.4 -1.0
Restructuring costs including write-downs of related assets   -14.0
Settlement of industrial dispute   -10.5
Environmental provision   -1.0
Losses from property damage incidents   -0.3
EBIT   47.9 72.3

Net financial expenses were EUR 6 million (EUR 6 million). Tax expense was EUR 9 million (EUR 15 million). Profit for the fourth quarter was EUR 32 million (EUR 51 million). Adjusted earnings per share (EPS) was EUR 0.48 (EUR 0.48) and reported EPS EUR 0.30 (EUR 0.46). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR -19.3 million (EUR -1.8 million) of IAC.

Adjusted profit and IAC

EUR million   Q4 2020 Q4 2019
Adjusted profit for the period attributable to equity holders of the parent company   50.4 50.0
IAC in EBIT   -24.9 -2.3
IAC in Financial items (related to reversal of contingent consideration related to acquisition)  
Taxes relating to IAC   5.6 0.5
Profit for the period attributable to equity holders of the parent company   31.0 48.2

Financial review 2020

Net sales by business segment

EUR million   2020 2019 Change
Foodservice Europe-Asia-Oceania   829.1 956.7 -13%
North America   1,138.9 1,152.7 -1%
Flexible Packaging   1,050.8 1,016.4 3%
Fiber Packaging   307.8 293.4 5%
Elimination of internal sales   -24.8 -20.2  
Group   3,301.8 3,399.0 -3%

Comparable net sales growth by business segment

    2020 2019 2018
Foodservice Europe-Asia-Oceania   -10% 4% 4%
North America   1% 9% 5%
Flexible Packaging   1% 3% 7%
Fiber Packaging   9% 6% 4%
Group   -2% 6% 5%

The Group’s net sales decreased 3% to EUR 3,302 million (EUR 3,399 million) during the reporting period. Comparable net sales growth was -2%. Net sales decreased especially in the Foodservice Europe-Asia-Oceania segment, following the impact of COVID-19. The Group’s growth in emerging markets was -6%. Foreign currency translation impact on the Group’s net sales was EUR -89 million (EUR 90 million) compared to 2019 exchange rates.

Adjusted EBIT by business segment

            Items affecting comparability
EUR million   2020 2019 Change   2020 2019
Foodservice Europe-Asia-Oceania   60.9 85.7 -29%   -30.0 -0.5
North America   136.6 111.4 23%   -6.5 -3.1
Flexible Packaging   80.7 82.6 -2%   -6.2 -0.7
Fiber Packaging   37.4 29.0 29%   -5.2 -1.2
Other activities   -13.5 -15.6     11.0 -2.0
Group   302.1 293.1 3%   -36.8 -7.6

Adjusted EBIT margin by business segment

    2020 2019 2018
Foodservice Europe-Asia-Oceania   7.3% 9.0% 8.7%
North America   12.0% 9.7% 7.3%
Flexible Packaging   7.7% 8.1% 7.1%
Fiber Packaging   12.2% 9.9% 11.0%
Group Total   9.1% 8.6% 8.1%

The Group’s adjusted EBIT increased to EUR 302 million (EUR 293 million) and reported EBIT was EUR 265 million (EUR 286 million). The increase in earnings was supported by the North America and Fiber Packaging segments. The Group’s adjusted EBIT margin improved and was 9.1% (8.6%). Foreign currency translation impact on the Group’s earnings was EUR -8 million (EUR 8 million).

Adjusted EBIT excludes EUR -36.8 million (EUR -7.6 million) of items affecting comparability (IAC).

Adjusted EBIT and IAC

EUR million   2020 2019
Adjusted EBIT   302.1 293.1
Acquisitions   -1.0 -2.2
Restructuring costs including write-downs of related assets   -47.6
Settlement of industrial dispute   -10.5
One-time gain from acquisition of Laminor   22.4
Environmental provision   -1.0
Losses from property damage incidents   -4.3
EBIT   265.3 285.5

Net financial expenses were EUR 28 million (EUR 29 million). Tax expense was EUR 53 million (EUR 58 million). The corresponding tax rate was 23% (23%). Profit for the period was EUR 184 million (EUR 199 million). Adjusted earnings per share (EPS) were EUR 1.95 (EUR 1.88) and reported EPS EUR 1.69 (EUR 1.82). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR -26.2 million (EUR -5.9 million) of IAC.

Adjusted profit and IAC

EUR million   2020 2019
Adjusted profit for the period attributable to equity holders of the parent company   203.0 196.0
IAC in EBIT   -36.8 -7.6
IAC in Financial items (related to reversal of contingent consideration related to acquisition)   3.0
Taxes relating to IAC   7.6 1.7
Profit for the period attributable to equity holders of the parent company   176.8 190.1

Acquisitions and divestments

On September 30, 2019, Huhtamaki announced its agreement 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 since then the business has reported as part of the Flexible Packaging business segment.

On December 23, 2019, Huhtamaki announced its agreement 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. The additional shares were acquired at a price of approximately EUR 28 million and the acquisition was completed on March 31, 2020. The business has been consolidated as a subsidiary in the Group’s financial reporting and it has been reported as part of the Flexible Packaging business segment as of April 1, 2020. As a result of the transaction, a gain from the difference between remeasured interest according to the purchase price and previously held equity interest of approximately EUR 22 million has been recognized in the income statement as item affecting comparability in Q1-Q4 2020 financial results.

Significant events during the reporting period

On March 23, 2020, Huhtamaki announced its long-term 2030 strategy in order to maintain its growth trajectory and meet future transformative trends. Going forward, Huhtamaki will focus on growth, competitiveness, talent and sustainability. The company’s ambition is to become the first choice in sustainable food packaging. Huhtamaki also outlined its long-term financial ambitions and introduced its new 2030 sustainability ambitions. The strategy emphasizes strong core values: Care, Dare, Deliver. In line with its renewed strategy, the company decided to integrate its Foodservice Europe-Asia-Oceania and Fiber Packaging business segments. The segments will continue to be reported separately. Eric Le Lay will continue as President for the combined Fiber and Foodservice EAO (Europe-Asia-Oceania) segment. This change became effective as of June 1, 2020.

On March 26, 2020, Huhtamaki announced that it has decided to withdraw its outlook for 2020 (published on February 13, 2020) due to the unprecedented and accelerated situation caused by the COVID-19 and its impact on the Group’s trading conditions. It was announced that the company will provide a new outlook when impacts of the changing business environment on its trading conditions in 2020 can be assessed in a reliable manner. Huhtamaki announced a new outlook for 2020 on July 23, 2020, in conjunction with its Half-yearly Report January 1–June 30, 2020.

On March 26, 2020, Huhtamaki announced that the Board of Directors changed its proposal for use of the profit shown on the balance sheet and proposed that no dividend payment would be decided by the Annual General Meeting. Instead, the Board of Directors proposed to the Annual General Meeting that the Annual General Meeting would authorize the Board of Directors to decide at a later stage and in its discretion on a dividend payment in one or several installments of a total maximum of EUR 0.89 per share. On September 17, 2020, Huhtamaki announced that the Board of Directors decided to pay out a dividend of EUR 0.89 per share from the distributable funds of the Company. The dividend was paid to a shareholder who on the dividend record date September 18, 2020 was registered as a shareholder in the Company’s shareholders’ register held by Euroclear Finland Ltd. The dividend was paid on September 25, 2020.

Significant events after the reporting period

On January 7, 2021, a signing of a EUR 400 million syndicated multicurrency revolving credit facility loan agreement (“RCF”) with a maturity of three (3) years was announced. The RCF refinances an existing EUR 400 million credit facility signed in January 2015 and will be used for general corporate purposes of the Group. The RCF has two one-year extension options and the interest margin is tied to three sustainability indicators: share of renewable or recycled material in products, share of non-hazardous waste recycled and EcoVadis rating.

Outlook for 2021

The Group’s trading conditions are expected to improve compared to 2020, however with continued volatility in the operating environment. Huhtamaki’s diversified product portfolio provides resilience and the Group’s good financial position enables addressing profitable growth opportunities.

Dividend proposal

On December 31, 2020 Huhtamäki Oyj’s distributable funds were EUR 542 million (EUR 630 million). The Board of Directors will propose to the Annual General Meeting that a dividend of EUR 0.92 (EUR 0.89) per share be paid.

Annual General Meeting 2021

The Annual General Meeting of Shareholders (AGM) will be held on Thursday, April 22, 2021 with exceptional meeting procedures based on the Finnish temporary legislative act to limit the spread of the COVID-19 pandemic (677/2020). The AGM will be held without the presence of shareholders or their representatives in order to ensure the health and safety of the Company‘s shareholders, personnel and other stakeholders. After the AGM, shareholders will be provided with an opportunity to follow a webcast where the Chairman of the Board and the President & CEO will address topical themes of the Company.

Financial reporting in 2021

In 2021, Huhtamaki will publish financial information as follows:

Interim Report, January 1 − March 31, 2021                      April 22
Half-yearly Report, January 1 − June 30, 2021                   July 22
Interim Report, January 1 − September 30, 2021               October 21