Good morning to all, and welcome to Huhtamäki's Investor Call. My name is Kristian Tammela, VP of IR. We have this morning released the results for Q4 and full year 2023, along with the proposals for the AGM, including the dividend. We will again start with presentations by our President and CEO, Charles Héaulmé, followed by our CFO, Thomas Geust. And after that, we have time for some questions. And with that, let's get started in handing over to Charles.
Thank you, Kristian. Good morning to all of you, and thank you for joining us this morning. I'm happy to report to all of you that in Q4 and for the full year of 2023, we delivered a strong cash flow and a strong margin improvement. I would like to start, as usual, with a couple of words of introduction on the business context and the outlines of our performance and our strategy execution. From a market point of view, we have seen, as you know, a challenging first semester, 2023, which was impacted by the inflation and this impact on the consumption and the demand, but as well, there was an impact of the destocking from most customers around the world.
This demand from consumers continued to be affected during the second semester based on the high inflation that we have all seen. This is important to remark, and you will see in our results, particularly in North America, that we start seeing the first shy signs of a slow recovery of the demand, and that we have seen in North America towards the end of the year. That's a positive sign. From a financial performance, we had a strong end of the year, so a strong Q4, we will see that. It was supported obviously and as expected by raw material price reductions. Our full year adjusted EBIT is almost at the level of 2022, so just 1% below.
And I would say, with the disclaimer, that this is actually a positive evolution when you would discount 2022 results for the positive profit generated from our operations in Russia, that, as you know, we divested in September 2022. So comparable EBIT was actually higher, and our adjusted EBIT margin has improved significantly from 8.8% in 2022 to 9.4% for the full year 2023. As Kristian was mentioning, we have issued the... This morning, the company has issued the proposal from our board of directors to have a dividend on the results 2023 of 1.05 EUR per share.
It's, I think, remarkable to mention that, if approved, the fifteenth year consecutive year of growing dividends paid out by Huhtamäki, with a CAGR over these 15 years of 8% growth per year in average. Going forward, 2024, you will certainly have many questions about. One of the highlights that we want to underline is the fact that we have back in the end of November last year. It says 2024 on the slide, but it should say 2023. Obviously, we have communicated an efficiency program for the next three years, 2024, 2025, 2026, where we are going to tackle all the input costs from a procurement point of view, manufacturing footprint, labor productivity.
This is in order to accelerate the implementation of our strategy and accelerate the improvement of our profitability, growth. The plan is to reduce our cost structure by EUR 100 million over three years. This program will, of course, have a cost, evaluated at EUR 80 million, treated as IACs. It's obvious, considering the magnitude of this program, that we will communicate on a regular basis back to you about the evolution of our performance in delivering. Now, moving on, immediately, I'm going to slide four for the ones who are offline on the presentation offline. Looking at the sales for quarter four, 2023, where our sales decreased by 6%, reported sales.
Important to mention that the impact from currency was a negative 4%, and it means that our comparable net sales are actually still negative, but if I may say, only in the context a comparable net sales decrease of 3%. When looking at the same view, but for the entire year, 2023, the net sales, the reported net sales decreased 7%. The comparable net sales decreased 2% because we had, again, this currency negative impact of 3%, and then the divestment negative impact from divesting our operations in Russia. That has an impact full year on our sales of minus 2%.
So obviously, so that's not an impact in Q4 because the divestment was in September 2022, but on the full year, it has a significant impact, both in sales but as well in the comparability of our results. Moving on to slide six, and now breaking down the sales per segment. You see that in quarter four, 2023, the sales remain negative, the sales growth remain negative versus the same period of last year, and that's particularly in the Flexible segments, as well as also in the food service segment. Flexible with -9% in Q4, and food service with -5%. The positive aspect of Q4 is the development in Fiber, with a growth of 2%.
We will see later on the back of a strong Q4 last year, well, you see it on that slide, it was 17% growth a year ago in Fiber. So on this basis, the 2% is quite a positive number. And then most importantly, if I may say, in North America, delivering a 4% growth in quarter four, we will see in detail where it is coming from. So that's the positive development in Q4, with demand improving. Moving on to the global P&L, the consolidated P&L, then I would say remarkable achievement is in Q4, that despite these remaining tensions on volume, we delivered a record EBIT of 10.4% of net sales and a record EPS of EUR 0.68 in a quarter per share.
So that, that is, extremely positive. The full-year EBIT increased zero point six point, as I said in introduction, from 8.8% to 9.4%. The EPS of €2.32 is a decrease of 7% versus last year. But again, we need to always compare apples with apples. 2022 has a very positive impact from the results coming from Russia. So if we would discount 2022 for this, then our EPS 2023 is very close to 2022 comparable level. We will see the cash flow a bit later, but important to note that we have continued to invest. We are confident about the future.
We have many growth opportunities in various markets, particularly in North America, and we have continued to invest, but at the same level as 2022. So during the year, many of you were asking whether we would maintain the same level of investment, and it's not by design, but, you know, we land exactly on the same level. Sustainability, before we go into the business details per business segment, sustainability performance is continuing to be positive. We are very pleased with the way it is embedded in everything we do, the way all segments and factories are very committed to deliver on the plans. And it shows up.
It's a dashboard where all the numbers, all the performance is basically green, if I may say, green, in terms of improving versus last year. So I, I may not take you through each and every single indicator. Our global—we—you know that we have a global sustainability and safety index that is improving year after year, in line with our trajectory or slightly above our trajectory to 2030 targets. If I focus on just a few of, of the indicators, renewable electricity, above 40% now in 2023. It's, comparing to last year at 25%, and not written on the slide, but, if I would say 2019, when we started, we were basically at 0%. We were at 3% in 2020. So, you know, remarkable development. Next one, industrial waste recycled.
We were at 70% on our baseline, 2020, we are at 79%. Obviously, we have a much higher ambition towards 90% by 2030, but we are progressing. Waste to landfill, which is a very important aspect for really protecting the environment, we were, now, top of my memory, 19% in 2020. Last year, 12%, now 8%. So this is a really steady improvement, and I think we are proud of this and as well encouraged to continue on the same path.
Moving on to slide 10 now with further comments by business segments now, and starting with the food service, Europe, Asia, Oceania, where the first point I would say is that the demand for food service packaging continued to be soft, in line with the rest of the year. Nothing dramatic, but still a mid-single digit kind of volume reduction. The net sales remained relatively flat in Europe, but we have continued to see a decrease in the Middle East and Africa, and particularly in Asia, Oceania, specifically in China, as you know, and we have commented in the previous quarters. The pricing continued to support the net sales.
However, the sales volume had a negative impact, and in this context, still, it is important to remark that, our EBIT, if you look at, quarter four, our EBIT margin reaches, 10%. And what could say-- one could say, "Yes, raw material is supporting a lot." Actually, in food service, that's probably the segment where, the raw material is actually not, supporting so much yet. So the paperboard, as prices have been relatively high still in 2023, and we expect, a cooler situation on the paperboard prices in 2024. So, so from that point of view, the margin in the, in the-... food service is, quite solid. You may see bottom of the page on the left, capital expenditure that we have invested.
You probably remember that in 2022, this is one of the segments where we really invested quite a lot, particularly for Smooth Molded Fiber applications. And therefore, in 2023, we had comparably to 2022, much less investment. And the cash flow has been strong with EUR 130 million versus EUR 28 million in 2022. North America is, as expected, the strong story in Q4, but as well for the full year. The demand started to show signs of improvement in Q4. The prices as well of most raw materials decreased, which is supporting the margin improvement. Our comparable net sales increased in all key product categories.
Particularly, we are pleased with the development in 2023, the development of food service demand in the U.S. We achieved in Q4 a strong adjusted EBIT margin at 14.3%, which is supported by temporary, and I'm saying temporary here on the slide, because I'm sure that some of you may ask, "Is this the new North America standard?" I think we should probably look more at the full year as a good comparison that is or benchmark, where we are improving the margin by more than a point in 2023. So this is altogether a remarkable, a remarkable performance, including generating a cash flow that is between two and three times more than last year. Almost three times, actually.
Despite investing in the U.S. and we are investing more than last year, and we're very pleased to invest more because North America is so such a profitable segment for us, and where there is demand on the market, we see growth, and therefore, we have decided a year ago to further invest in that segment. Moving on to Flexible packaging on slide 12, where the overall demand for Flexible packaging continued to be soft due to a strong inflationary pressure on consumption and inflationary pressure across the board in all geographies, but particularly in emerging markets. The margin in Q4 is much better than in Q4 last year. You see from 4.4% last year to 8% this year in the quarter four.
We need to remind, to be completely comparable, that Q4 last year was hampered by a one-time cost in one of our units. So not fully comparable. The full year is basically at the same level as last year, but with lower volume, we are impacted by the lower volume of 2023. So the key matter for going forward is to get the market demand to recover. And with this, we will be able to deploy our innovation and win in a much better and much more remarkable way in the market.
Capital expenditure has increased quite significantly from EUR 68 million to EUR 103 million, and that's linked, as you know, to the blueloop innovation, deployment, where we will see the fruits in the coming 2024, but 2024, 2025, 2026. Operating cash flow is as well a positive result for the year. Finally, Fiber Packaging, where we have seen flat volumes overall. But I need to mention that the avian flu that we informed about, the avian flu in South Africa that we informed about a quarter ago, it was still on during the last quarter of the year, impacting our volumes overall. Pricing has helped us to sustain a growth of 2% in net sales in quarter four.
Again, as I said at the beginning, this 2% growth in quarter four is compared to a very strong quarter four last year. And when we look at the margin, for the full year, we are maintaining a margin above an EBIT, adjusted EBIT margin above 11%, which is quite a good performance with a good cash flow as well, generated by this business segment. With this, I hand over to Thomas for the financials.
Thank you, Charles, and I'm turning immediately to slide 15. If I look at the year as such, I think it's in a way a year with plenty of challenges and a well-maintained profit and cash flow. I think that's summarizing the year. As such, we have had a difficult environment, and looking at averages, which is basically the outcome of you see in the P&L, is hiding the good work to some extent done on managing costs. We do have benefits. That's absolutely true. We have, I would say, more tailwind on the raw material than headwinds. On the other hand, we need to remember that other costs have also been inflated, like labor cost, clearly challenging in the year.
And net, net on labor cost, we are up despite the cost outs we have been doing on that item as well. If I highlight some things on this slide, I would pinpoint to the EBIT growth. The EBIT growth in the quarter was strong at 15%, as Charles said earlier, and that's accelerating versus the full year numbers. Here, I think it's important to highlight that Flexible delivered stable results during the second half of the year. And that's, of course, important for us when it comes to delivering a good performance also going forward. Other items to be highlighted that in the reported EBIT, we have also benefits from sale of assets.
I would highlight that if you look at the IACs over two years, we had a roughly EUR 10 million positive IAC reported last year, roughly EUR 10 million, EUR 11 million this year, negative. So over two years, we have on EBIT level, basically a wash when it comes to IACs. And I think that's also important to acknowledge. Financial costs, as we have been highlighting through the year, has been going up, but you also see that we had less one-time impacts in the quarter, so more stable through finance cost levels in the last quarter. And then on the tax level, on the tax, we are roughly at, I would say, from a ETR point of view on previous years level, we were 22.2% now adjusted versus 21% in the previous year.
Then, of course, highlighting that, we in previous quarter flagged also the IAC taxes related to high inflation environment, countries like Turkey and Egypt. So you can read in more on that item from the Q3 report. On the currency side, all currencies trending negatively. So if you consider this one as well, so obviously with net sales impact, we will also see a negative impact on the EBIT in comparison numbers. So, only Brazilian real trending positively, both on average and closing rate, British pound slightly positive in the last quarter. But all in all, a very strong headwind from currency throughout the year.
If we look at the balance sheet, this has been one of our key priorities in this year, supported then by the strong cash flow, we have been able to deleverage now to EUR 1.288 billion in net debt. That takes us to a net debt/EBITDA level of 2.2, and thereby we have deleveraged from the time of the Elif acquisition, when we were roughly at 3x net debt/EBITDA. So good deleveraging story over the last years here. Loan maturities, we are roughly on similar level as last year, so close to 3 years of average maturity.
Maybe the key highlight of the quarter was the issuance of the EUR 300 million bond, issued at roughly 5.13% coupon. It's a five-year bond, and we had a very strong book building and interest when issuing that one. Cash flow, really the highlight, one of the biggest highlights of the year here, EUR 321 million versus EUR 11 million previous year. I would highlight that we have maybe roughly EUR 60 million of one-time items in here, but so operationally, roughly EUR 260 million of free cash flow delivered. So really steep step up, of course, mainly driven by the change in working capital on this one.
Charles already, to some extent, highlighted the variations by segments, North American Flexibles investing more this year, food service clearly lower than 2022, but then and Fiber basically stable. So again, on average, we remain on a flat development versus previous year. So strong cash, despite having continued to invest for the future opportunities. The balance sheet as such, we have currency movements in the balance sheet, otherwise highlighting the decrease of the working capital. The gearing is now at 67% versus 77%.
Last year, the return on investments now trending slightly upwards, and I think you should take a look row by row by the segments. North America really being on a very high return on net assets currently. Looking at the proposal more in detail from the board to the AGM on dividend for this year, which, as Charles said, would be the fifteenth year of consecutive growth, highlighting a few things. With EUR 1.05, we would have a 5% increase versus previous year. It would mean a payout ratio of 45%, which is
... just in the middle of our payout ratio of 40%-50%. And if you calculate the yield based on the share price at the end of the year, which was 15% up versus end of year 2022, then we would have a dividend yield of 2.9% for the dividend. Here you see the long-term trajectory, so basically going from EUR 0.34 to EUR 1.05 over this 15-year period. Ambition levels. On ambition, obviously, we are not satisfied with the comparable net growth, although a lot of that is market-driven.
Then if you look at the EBIT margin, there we have already a few segments, food service and North America, at least in Q4, delivering basically on the ambition or the lower end of the ambition in the case of food service. So the trend is the right one on this one, though not yet meeting the target. Then if we look at the other parameters, they are on net debt, EBITDA, well in the range, on payout ratio well in the range. Then if you take the return on investments, there we are slowly creeping up towards the lower end of the ambition. So for the outlook, 2024, we have an updated outlook, and we have an updated short-term risks and uncertainties.
I will not be reading through them, but basically, the core elements here is that we assume the trading conditions to improve in 2024 compared to 2023. Obviously, there are a number of risks and uncertainties out there which are beyond the company's control.
With that, it's time for Q&A, and we will ask you to please limit yourself to two questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Cole Hathorn from Jefferies. Please go ahead.
Good morning. Thank you for taking my question. I'd just like to start off with the North America division. I mean, it continues to go very well, and you've got the ramp-up of your new investments there. But you called out that, you know, margins of 14%, you know, we shouldn't kind of run rate that into the future. But how should we think about that division? I mean, you've got guidance that you're exceeding at the moment. Should we think that when times are good, you should be running towards the top end, maybe exceeded on the short term, but maybe it's too early to upgrade kind of the longer-term margin guidance for North America? Just trying to think about how you think about that.
And then on the, the European division, you talked about paperboard. You know, you're only going to reset a lot of your, your annual contracts for 2024, so you'll see cost relief. Can you talk about some of the, the positives on the other cost initiatives and kind of footprint that you're doing on the food service EAO side that, that are going to help support margins and profitability in 2024? Thank you.
Thank you for the question. So, there are a couple of questions into the same. North America, you're asking about the perspectives and particularly linked to, number one, the past year, very good performance, but as well, the perspective of the market as well as our investments. So, you said many things in your question. Certainly the margin 2023 is a very good foundation, but we have to be always conscious of, you know, what are the elements. There are positive elements in 2023 that are supporting the margin. Actually, there are negative elements not supporting the margin. So from that point of view, it's a very balanced and high performance. The negative aspect is the volumes.
So when the volume are really going to come back from a demand point of view, but as well, thanks to the investments that we have done last year and that we are continuing to do this year in North America, volume will support further increase and utilization of our structure. So that will be positive. Now, the raw materials have been favorable this year. A record low level of distribution costs in 2023 after a very high 2022. So there are some support to the margin that we can't count on the long term to always be there year after year. And that's where we want to be slightly prudent on saying quarter four is not the new reference. But, you know, you're asking, is this your long-term ambition? Yes, certainly.
I mean, the ambition is certainly in North America, not- ... not to be just at the level of guidance that we have given in our strategy. And, you know, one of the aspects that will play as well is the efficiency and productivity program that includes procurement, but as well, labor productivity, where we believe we will benefit as well on the long run. I mean, on the long run in the next three years. So, we're looking optimistically at the future with North America, and that's why as well, we want to continue scaling that segment and our capacity in North America. On Europe, yes, Europe is probably the Europe or food service, your question was about food service Europe, I believe, because you talked about paperboard.
This is probably the segment that is going to most benefit from raw material price reduction in 2024. The other segments benefited more in 2023. That's because of the inertia in the contract structure with paperboard supply. You ask about the footprint. In the footprint, we may come back to the footprint when we discuss Flexibles. Footprint activities is more for Flexibles. In the case of Food Service Europe, we are not specifically looking at restructuring our footprint. However, we have, like in the other segments, many efficiencies and productivity activities which are going to... Our ambition is to drive the margin above 10%. 10% was Q4 in that segment, and our aim is on a full year basis to be at 10% or above 10%.
Thank you. And then maybe just a follow-up, could you give any color on the demand trends that you're seeing in India, in the Flexible packaging division? Thank you.
Yeah. So the demand in Flexible packaging is what has been the most—probably the biggest... Not probably, I mean, has been the biggest challenge of the whole year 2023. There is, from one side, we are optimistic that we're going to come back to the, to what we would call a normal demand. Let's remember that 2023 was impacted in the first semester by destocking, heavy destocking from the value chain in the first semester. So that will not be the case in 2024. Actually, it could be that when we are talking about destocking, I'm saying it could be, okay? We don't have yet signs, but it could be that at a certain point, there is a restocking in the value chain, and that would impact positively the demand.
Now, more importantly, because more structural, it would be the demand, the consumption. We are optimistic to see it coming back to what it used to be before this high inflation period. The question is, for us, not if, but when, and certainly we don't see it coming back in the first semester, but maybe hopefully in the second semester or at least in 2025. In India, India is no exception. In India, we have seen challenges with the demand linked to inflation, linked to Down Trading. That has a negative impact for us because we work predominantly with global key accounts, the global brands, and the Down Trading goes against that high-end part of the market.
Then there is a more short term, another aspect that is impacting a lot India, that's the decrease in exports that is linked to the demand in Africa, as well as the Red Sea crisis, which is since November, and that has hampered logistics and the lead time, and therefore deliveries. So, that's what we see. Even going into the beginning of 2024, we see a tail of that. How long this is going to remain? That's, that's, that's a question where I would prevent myself from commenting, obviously.
Thank you.
The next question comes from Pallav Mittal from Barclays. Please go ahead.
Hi, good morning. This is Pallav Mittal, on behalf of Gaurav Jain. So recently there has been a strike which has been announced by the workers in Finland. Can you please help us understand the impact that you could see in 2024 from that? And secondly, can you also outline your future CapEx plans and expected return from these investments?
Yeah, happy to answer that. So the first question was what we see as an impact from the strike in Finland, if I understood the question correctly. Here, obviously, though we are a Finnish-listed company, the operations we have in Finland are quite small. We have only one factory here. The strike so far has been a two-day strike, so from that perspective, building stock and similar has been possible. In any case, the size of the Finnish business is so small that we don't see any material impact coming out of strikes in Finland.
... Then, on the future CapEx, we had quite a detailed guidance, I would say, on that, in connection to our CMD. We highlighted that the level where we have elevated it over the last years is likely the level where we will be operating over the midterm. And that is to really benefit from the categories where we consider our internal capabilities are strong. So we are talking about the Fiber segment, and we are talking about building recyclable solutions for the Flexible segment. In addition to that one, we are investing in the core businesses, in the profitable core businesses, like in North America, as Charles was highlighting in his comments here earlier.
The returns we have been saying is to generate something in the range of 13%-15% for the company. When it comes to initiating investments in an already built footprint, we are normally talking about returns above 20%.
The next question comes from Robin Santavirta from Carnegie. Please go ahead.
Yes, good morning, and thanks for taking my questions. Can I ask about the volume performance you had in Q4? What is the outlook for the first half of this year regarding to volume performance for the group and also regarding input costs?
So good morning, Robin. The volume in Q4 has been, as said in the introduction, or at least suggested, still disappointing, in the sense of we have seen a mid-single-digit volume reduction overall in the full year of 2023. We were probably hoping for a slightly smaller decline in Q4. If we accept the positive signs from North America, then the volume basically overall remained under the same pressure in Q4. So you're asking about the outlook, which is now fairly complex for the first semester.
We need to be relatively prudent first on the demand, the demand recovery, because we have seen the experiences that the time it takes for the inflation from the value chain to hit really the prices at consumers, and therefore the consumers' demand, has been relatively long, around a year from 2022 at that time. At the same time, the recovery of the demand, because of many other pressures on consumers, will take time. So I would be prudent saying that, maybe by, you know, mid-2024, we will start seeing overall good signs, but let's be prudent on the first semester. Then there is a second aspect in the second semester, which is the geopolitical events that are multiplying, if I may say like this.
The war, the Gaza war is impacting not directly the demand, but it's impacting the value chain of American suppliers, so our customers, and that we see impacting our sales. And then the Red Sea crisis, which has an impact on the logistics, count on roughly for the sales, for the supply of material and the sales that goes through that region and the Suez Canal, we're talking three weeks additional lead time. So three weeks additional lead time to take different routes means for those sales, three weeks delay. And three weeks delay means not lost sales, but you know, sales that you don't see in the first quarter, let's say, basically. So that's... Let's be prudent about the first quarter.
At the same time, what we are seeing, it's only one month in, and I can't guide, but you know, this is nothing dramatic at all. On the contrary, but not maybe yet showing signs of strong recovery.
Thanks, and
Robin, because you asked about input cost-
Yeah.
I'm sorry.
Yeah.
Yeah, I was almost going to forget. So, input cost, the—we believe that during the first semester, we will continue to see the tail of the price. The cost reduction started, the raw material cost reduction started in the second semester of 2023. So we will continue to see first semester an advantage from that. That's number one overall. Number two, paperboard is going to be a lower price for us in most regions, particularly in Europe, in the year 2024, so that's second benefit. Three, less of a benefit is a likely distribution cost. For instance, in North America, cannot stay at the record low 2023. Four, energy is...
likely supposed to be for us is a benefit in 2024 because we still have some hedge contracts which were not so favorable in 2023, particularly for Flexibles in, in Europe. And last point, very importantly, labor inflation continues. Labor inflation continues. It was 7% for us in 2023. It's going to be a 5%, overall in 2024. And, at the same time, and maybe final comment then, our strong drive for efficiency and productivity, where we have started lots of actions in 2023, which didn't yet result into P&L impact, obviously, because there is a time lag, as you understand. That will unfold in 2024, plus all the, the other activities of our EUR 100 million three-year savings plan. All this should not only compensate, but, it is aimed to improve our profitability.
Thank you. And can you just briefly, sort of comment a bit more on the efficiency improvement program that you have launched, the EUR 100 million program? What is it specifically that you target? Is it only input costs or is it also fixed costs? And how much of this EUR 100 million should we expect to materialize already in 2024?
So, it's not only input cost, it's going to be structural cost as well. When we're talking about the proof is that in 2023, we have consolidated five factories. Or actually six, because five in India, and one in Europe, in Czech Republic. So, we are touching our structural cost. When I say consolidated, because it's not about. For us, it's not reducing capacity. We are consolidating our footprint in order to be more efficient with our structure, still remaining close to our customers, okay? But we're not reducing capacity, we are transferring capacity. So, we continue to look into our overall footprint to see any additional optimization possibility. That's one, very clear activity. If you ask me, is it the main activity of the EUR 100 million? No.
The main activities have to do with, for instance, procurement activities, have to do with, as well, waste reduction programs in our factories, so material waste reduction program. And all this is going to go in parallel. You may say, but procurement, you have always worked on procurement, obviously, but we want to, you know, go the next level. And then there is an aspect that in a global company, fairly decentralized as like us, there are aspects of, you know, processes, way of working for indirect supplies, for instance, where there are evidently some opportunities. So we are really looking to all the cost in order to become much more optimized everywhere. Last question you asked was: How much would be the impact in 2024? You may understand that...
So first of all, we, we're not guiding precisely. Second, you may understand that in the first year of implementation of activities, you don't get all the PNL impact, but obviously, we're looking for 2024 already having a sizable part of it.
Yeah, we are not looking for a hockey stick-
Thank you
... program as such.
Yeah, it's not. Our plan, because some of the activities have been already launched in 2023, it's not. We're not going to tell you quarter after quarter, "Don't worry, it's a hockey stick coming in 2027," okay? Or in 2026, sorry. It's our plan to be relatively consistent over time in delivering.
So we have clearly identified activities to the program already.
Yeah.
I think that's the most important thing.
Good to hear. Thank you very much.
The next question comes from Calle Loikkanen from Danske Bank. Please go ahead.
Yes, good morning and thank you for taking my question. I wanted to ask you about the raw materials and the tailwind from the raw material prices. Is there a way for you to quantify how big the impact was in Q4, for example, on the margin?
Quantification of it is extremely difficult, as we have on the top line also the other movements around volume and, and then also the currency impacts, impacts on that one. But for sure, we had a more significant tailwind in Q4 compared to the run rate of the full year. It is a tailwind, Calle. It's clear.
Mm-hmm. Yeah. All right. And you said that the tailwind would then perhaps continue for the first half of the year. Did I understand that correctly?
I think it's important to think about it as exactly in that way. First of all, we have the escalation, de-escalation, items coming through. When it's moderating a bit on some of the commodities, what we are hoping for and anticipating is that it will be compensated by the hopefully recovering demand on those businesses. And then, as said, when it comes to the paperboard side, there we will have a continued tailwind. And again, when you calculate averages, I think we are in a good position going into 2024.
Yeah, absolutely. And then just following up on that, do you see that there would be a kind of a risk or a possibility that you need to start lowering your sales prices because the raw material prices have come down so much?
So clearly, clearly, all in all, of course, you know, you know our contractual terms. We have been very open about it. We are following the contractual terms. We are therefore adapting the de-escalation in a down-turning turning environment. So from that perspective, we have that in. When it comes all in all to pricing, you have the contractual side, and then you have new contracts coming in. With every pricing, we take all the cost elements into account, and as we have been saying, and as I also said in my part, we have tailwind in some, we have headwind in other categories. So when we are doing our pricing, we are looking at the overall cost impacts and pricing it accordingly. Labor cost is up. You know, it's 20% of our total.
If you take raw materials, roughly 50% of our net sales, so the balancing act is extremely important here.
Yeah. One more comment, Calle.
Absolutely, yeah.
The price pressure is there. I mean, that's no... We're not going to hide. The price pressure is there. That's obvious. There is one variable that's going to impact strongly whether this price pressure will continue or will fade away, and that's demand. You know, so demand recovery is the number one variable. I mean, for in a manufacturing company, of course, you depend so much on volume, but the pricing will depend as well on volume.
Yeah, absolutely. Thank you. That's very helpful. And then lastly, you mentioned in the presentation the demand improvement in North America in the fourth quarter. I was just wanting to check that that was this kind of a, you know, underlying real demand or was this linked to the ramp-up of the Hammond production?
The full market demand, because, because the... You know, we, we told you, that, the Hammond factory would start end of Q3, so very last week of Q3, which is absolutely correct. But it started with one line, and then we are ramping up, you know, more capacity into the factory. So it's very early days, and the sales from this Hammond new factory in Q4 is basically insignificant. So, so the, so what you see in the P&L 2023 does not reflect the positive impact of having that factory, and that positive impact will be in the full year 2024, further in the full year 2025, and, and maybe the final tail of growth will be in 2026. So this is...
And then at the same time, we will have on top this new factory in Paris, Texas, the duplication of the capacity of the Paris, Texas factory that will start up 25 early 2025. So, you know, we have a program that the good thing with North America, we have a consistent program year after year of improving, increasing our capacity in line with the market demand. Plus, the investments in Fiber production for the retail tableware, the China, that as well is going to help us in 2024 volume, but not visible in the 2023 numbers yet.
The next question comes from Maria Wikström from SEB. Please go ahead.
Yes, hello, this is Maria Wikström from SEB. I was kicked out for a call for some time, so sorry if my questions have been asked, answered already. I have three questions, which one is on the emerging market trends. I mean, I think you mentioned in your presentation that India, you still continue to see down trading, which hurt your volumes. But if you could more broadly talk about the trends in Thailand, in China, in other emerging markets as well. So that's the first question.
Okay. So it's not one-size-fits-all emerging markets. We have very different situations depending on the business categories as well as geographies. So if we start with India, India is still affected. I commented that in the presentation, India is still relatively affected by the inflation and which is lowering the overall demand, and on top, which is creating down trading towards cheaper products. So that we see structural, it will come back because India is very much a market of swings, relatively agile and dynamic from that perspective. So on the long run, this would come back. Plus short term, I said there is the impact from the Red Sea crisis. And lastly, on India, there is the impact...
I mean, a lot of our sales in India are exports to, for instance, Africa, and that depends on those markets as well. When it comes to other emerging markets, such as Turkey, Egypt, we see relatively good, solid volume development. The problem in Egypt is more the currency aspect. So the inflation obviously, which is still between 20%-30%, that impacts consumption, but devaluation, possible devaluation is the number one issue coming up. Turkey, the pressure on consumers is huge. The inflation is still above 50%. I think last numbers were more in the range of 64%-65%. So that puts a lot of strain on the consumption. Then more east, so Asia, Southeast Asia, they're a completely different picture between food service in Asia.
Food service in Asia, for us, is a relatively depressed demand. Well, not only the demand, but as well, our competitiveness is put at stake by, you know, a supply in the value chain that may not be with the same certified and compliance requirements as we as a Finnish company, European company, we follow. So that makes us lose market share in China, particularly. That's for food service. The picture is completely different in Southeast Asia when it comes to Flexible packaging, where we are growing very nicely, between, you know, a double digit and a solid double digit. So that and we see that continuing. So you see, the emerging market is a very diverse, let's say, picture overall.
Any comments on China? I know it's, it's not that big market for you, but, what do you see in China?
Yeah, what we see in China is an economy that has a hard time taking off again in terms of consumption. And for what the improvement of the economy gives to the business and the value chain, then what we're seeing is it's very much prioritizing local companies. So it's really China with China and for China. So, you know, I'll be transparent. We are struggling with the business. It's a very small business for us, so not impacting overall the group numbers. But still, we are concerned about competitiveness and therefore engaging into... When we're talking about, you know, efficiency and productivity measures, you know, China is on top of the list for obvious reasons.
Okay, thank you. And then, my second question is on the profitability of Flexibles, which, after, I mean, waiting for some time, I mean, we see a very good progress in the Flexibles margins. And my... I wanted to know if this is sustainable now when, of course, I mean, you're penciling in raw lower raw material cost in your own pricing as well.
There are different aspects in the profitability improvement of Flexibles. And some are structural and some may be temporary. The raw material prices help, obviously, improving the profitability, and that's probably more temporary. We're looking forward to a more stable period from a raw material price evolution, but as well from a pricing evolution, because obviously, our pricing is under pressure as well. Second, more structural, we are taking a lot of actions. We have consolidated five factories in India, so one in 2022, for which you may have noted that we sold the real estate in the center of Mumbai. Basically, it's the so-called Thane factory.
So we consolidated it in 2022, sold the remaining real estate for a very good significant value in 2023. Then we consolidated four other factories in India in 2023. We consolidated the factory, I mean, the project is ongoing, the factory in Prague, in Czech Republic, this year, 2023. So all this is structural and this is efficiency measures that are going to sustain over time.
Then there is another very positive aspect that is yet to come, which is not in the improvement that you see yet, and that's the innovation in our blueloop recyclable solutions, which are going to drive growth of our market shares because we are offering to our customers, particularly to the global brands, a mono-material, fully recyclable solutions, and we believe that we are ahead of the market on this. Deployment is starting, and positively, so this as well will sustain margin improvement. Obviously, our plan, you see the full year is at 6.6%. Our plan and our long-term target is not to remain at that level.
... And then my final question, I know this is probably difficult to answer, but I'm very curious to hear your, your thoughts, because this is something that I'm thinking, I mean, myself, which comes to the food service trend. So what do you think, I mean, will be the key driver here when we talk about volume? So we, of course, have had high inflation, which have hurt affordability, and I think McDonald's mentioned that some income cohorts were actually drop out of the chain.
But then at the same time, we see that I think the global E-F-E-I, E-A-E-T, the supplies, airline traffic is expected to surpass the pre-pandemic levels in 2024. So people are moving a lot, which typically supports the food on-the-go consumption. What's your thoughts on the growth in takeaway food in general?
So our view of the food service business is optimistic with some headwinds. I mean, that's not headwinds, with challenges, okay? So challenges being, as you say, inflation has a number of impacts, but you know, different impacts depending on markets. In Europe, inflation tends to be relatively negative because, you know, with inflation, people tend to stay home. In the U.S., recession, difficult times, have always been positive to food service. It's, you know, down dining, if I may say, in a way. So that's an aspect that is depending on the geographies impacting differently.
More importantly to your question, we are optimistic about food service overall because the convenience way of life is there and is only going to increase going forward. We see that, I mean, in the U.S., in Americas, in general, but particularly in the U.S. We see it in Europe. Food delivery is growing, growing year after year, particularly since the pandemic, but this is there to stay. In Asia, this is a strong trend of the market. Plus, there are even markets where the, how should I say, the Western way of convenience with the, you know, brands that you are mentioning, have not even landed really in a strong way and may over time, I'm thinking about India, which is still a very traditional market. So we are actually positive about food service going forward.
All right. Thank you for your interest. We have unfortunately run out of time, but we'd like to thank you for attending this call and wish you a great day. Thank you. Thank you.