Ladies and gentlemen, welcome to Hooktamaki's Q1 2021 Results Presentation. My name is Ina Milas, and I represent Huhtamaki's Investor Relations. Huhtamaki's President and CEO, Charles Hoehn, together with CFO, Thomas Goust, will today walk us through the highlights and results of the quarter. After the presentations, we will have a Q and A session. Without any further introductions, let's begin with the presentation.
So let me hand over to Charles.
Thank you, Ina. Good morning, everyone, and thank you for joining us this morning for our Q1 2021 presentation. Will take you through, 1st of all, an executive summary of the keynotes we would like request you to keep in mind through our session. And the first thing is that we are reporting during this Q1 2021 and improved profitability with a gradual recovery in the demand. The gradual recovery in the demand is visible on the Food on the Go product that has been seen already in Q4, but is Continuing and then we see as well a strong demand for fiber packaging and retail tableware.
That's for represent the demand. 2nd aspect of the keynotes is that we see a significant tension in the supply and in the prices of That's particularly for polymers and recycled fiber, but not only. 3rd keynote represent the unfavorable currency exchange rate evolution that has been seen during this Q1. And lastly, I would mention that the transformation journey that we started in 2020 continues with a focus on improving our competitiveness, our innovation and sustainability, all these to deliver report on our growth strategy. This being said, without any further, I'll take you through our business report the Q1 that represents a minus 5% versus the same period of 2020.
Notable is, rip. As I said before, the currency impact, which here is a minus 5% negative impact. So our comparable net sales are actually represent flat globally. And at the same time, they are actually showing a growth in of 4% in the emerging markets. And we have in the Q1 2021 reported a 1% of growth from the previous acquisition made early 2020.
That's for the global sales. Moving on to the next will take a page and breaking down the sales performance per business segment. I would say that, first of all, The Foodservice Europe, Asia, Oceania reporting a minus 2% comparable growth is basically saying that We continue to see the effect of and the impact of the COVID-nineteen crisis globally. At the same time, we see that the demand is gradually improving. We'll come back to further details, of course, segment by segment North America with a minus 2% comparable growth, we would say that The most important aspect is to consider that this is a relative comparison to a very high, very strong Q1 2020, where we were growing 9% as a comparable growth.
And therefore, the performance represent the Q1 in 2021 is actually quite in line with our long term ambition. Then on Flexible Packaging, we see a slow progress of the organic growth and we will come back to much more details As it is linked to varying aspects in depending on the regions where we are operating with the flexible packaging. And then we see a solid growth of 4% comparable growth in the fiber packaging. And that again, like for North America, has to be put in perspective of the comparison with a very strong Q1 2020, where we were report 9% comparable growth for the Fiber business. Moving on to the consolidated P and L.
Represent. There we see that despite the reported net sales decline of 5% linked again to the currency evolution, Our adjusted EBIT is improving following the favorable sales mix, but as well continued focus on operational efficiency. So the adjusted EBIT is increasing in euro terms by 5%, but as well it's increasing By almost 1 percentage point is as a margin in percentage of net sales. The adjusted EPS is as well growing, about 7%, in line with the profitability increase represent the relative decrease that you can see on the CapEx is Probably not reflecting the plan that we have for 2021 and this decrease It's actually more timing related in terms of cash out than in terms of how much we are investing for expansion. So this is for the consolidated view, and I will now take you through quickly through represent where we see, as I said, a gradual recovery in the demand.
The COVID-nineteen, obviously, with all the restrictions and lockdowns that are still in place represent the world, COVID-nineteen continues to have during Q1 a negative impact on the demand, But the demand is improving gradually. The segment's adjusted EBIT In euro terms, as you see ending on €17,600,000 remains at the previous year's level, Q1 2020, report that the slightly lower sales and despite a comparison to a Q1 2020, which was represent much less affected by the pandemic, which had really started only in Asia and China and Asia overall. So all this is underlying one point, which is the this is reflecting some encouraging signs on the back of the transformation that we have announced in 2020 that we are continuing in 2021 and that is showing some benefits already will be happy to report that we will be happy to report that we will be happy to report that we will be happy to report that we will be happy to report that we will be happy to report that we will be happy to report that we will be happy to report that we will be happy to report that We have been signing the acquisition of Jiangsu Eyo Art Packaging in China and this agreement has been signed yesterday.
This company is a leading manufacturer of paper bags, repurchasing folding cartons in China with 1 manufacturing unit that is offering us a new capacity. And this company is serving international quick service restaurants as well as national bakery chains in China. So this is basically strengthening and in line with our 2,030 strategy To grow more in emerging markets and particularly to invest further in expanding in China, This is strengthening our position, both from a portfolio extension point of view, but as well in terms of represent channels to market. The net sales that the company is bringing is an amount of 22 rep EUR 1,000,000 on an annual basis and the purchase price was 20 or is EUR 27 represent EUR 1,000,000 we expect to complete the acquisition latest by Q3 this year. And as said before, repurchased this company will be integrated into our Foodservice Europe Asia Oceania segment.
Moving on to North America, where we see a continued strong performance. Certainly, the sales growth is represent the company's performance, but we have to consider 2 things. First of all, the very strong impact From a currency perspective, so comparable growth is actually only or decline is only minus 2% versus the reported a decline of minus 11%, so purely currency related. 2nd, as I said before, we are comparing to an extremely high Q1 2020, which was linked a lot to the starting point of the COVID crisis where in 2020, in March, we have seen a boom rip In the sales in the order of sales and consumption of retail table were particularly as will take a reaction to the commencing pandemic. In line with this and with the previous quarters, our earnings have improved represent as a result of our continued operational performance, but as well as in 2020 as a result of favorable represent the sales mix, particularly thanks to the growth of the retail tableware.
Moving on to the flexible Packaging, where we see a slow progress in our plans to deliver organic growth, and this is linked to varying level of Demand across geographies. The growth has been in Flexible Packaging, strongest in Southeast Asia. At the same time, We have seen that the restrictions and lockdowns have impacted our sales negatively, particularly in the United Arab Emirates, But as well, we are continuing to live and do business in an environment that is represent pretty volatile and uncertain with the pandemic that is continuing to have strong effects, for instance, in countries like India. The earning growth was driven mainly by improved operational efficiency. And at the same time, It has been offset by some commencing raw material price increases.
We may come back to that in the next session of will Q and A. Fiber Packaging, finally, is demonstrating a continued strong demand and performance, and that's completely in line with all the quarters last year. The net sales growth was fairly strong represent with a reported sales growth of 5%, a comparable growth of 4%, again, to be put in represent with a very strong Q1 last year. The growth was particularly strong in Europe and in Eastern Europe. We have It's driven by volume and pricing, but volume important to highlight that we have implemented some new capacity with A new line in France, a new line in Russia, and all this is basically well utilized and therefore providing more sales.
The earnings improvement is driven by this volume growth and the other operational aspects, including pricing actions, report good results on the fiber side. Now we will go into more details with the financials with Thomas.
Thank you, Charles. I jump on to the more detailed profit and loss statement with the heading adjusted EBIT margin increased translated into a 5% growth on adjusted EBIT. However, if you look at the row on reported EBIT, you see that, that's down Minus 13%, and that's explained by the LUMINO gains we did last year when we reevaluated report like for like a good development on profitability, turning all the way down then to EPS growth of 7%. Commenting on the net financial items, you can see that we are trending slightly better on that one. Main reason for that is lower net debt levels, which I will come back to later.
And then a tax rate of approximately same level, 23% The currencies were commented to be one of the main drivers for the growth development report by Charles here earlier. And here you see more details around it. The SEK 46,000,000 of net sales report the impact of €5,000,000 on EBIT comes to the greatest extent out of the U. S. Dollar, where you can see that the average rate has been now 121 versus an average rate of 110 report in the Q1 last year.
Other important currency is moving in the wrong direction for us. It's obviously the Indian rupee, the Russian ruble and Brazilian real report where the movements are biggest. However, if you look on the closing rate, there was some positive movements at that time for the U. S. Dollar, Still pending to see how that will develop on a more longer term.
It's been fluctuating quite a lot over the quarter. On the net debt adjusted EBITDA level, we remain on a good level with 1.9 percent in net debt EBITDA, it's down from previous year, 2.1%, and we are clearly down also in report on the net debt level. Gearing is at 62,000,000 while it was 68,000,000 last Last year same period. So we have been able to maintain the level or even represent the year end level on gearing as well. Cash and cash equivalents, NOK 272,000,000 and unused credit facilities of reap SEK 323,000,000.
The debt maturity is SEK 3.4 million versus SEK 3.2 In previous year, same period and the main recent development has been the syndicated represent RCF, which we launched in the beginning of January, but Highlighting with that one mainly the sustainability angle of it. But nevertheless, a good maturity on the debt outstanding with We are improving versus previous year, the main driver obviously coming from working capital in this case. And then we have lower CapEx as well compared to previous year, but that's a timing. Timing thing, as you who have been following us know, we are sometimes having projects coming in more towards the end of the year or usually, actually, it's more towards the end of the year in our CapEx cycle. Balance sheet, not a lot to comment on this one.
Equity moving upwards, also supported by actually a IRIE Financial position remains stable. Looking at the long term trends. The long term trends, unfortunately, the growth is subdued for all the reasons explained here earlier. Otherwise, the EBIT margin now trending continuing to trend favorably and in a performance of the company allows us for having a net debt to EBITDA, which is slightly below the corridor setup and obviously, That one then allowing us to both invest and do acquisitions. And then the dividend payout report proposal 47%.
No changes to the outlook and no changes The summary slide is there mainly For a bit of summarizing our recovery. So first of all, I was summarizing the quarter. So first of all, a gradual recovery in the food on the go has continued. The fiber packaging and retail tableware is trending quite favorably still. To highlight, though, that there's a we are obviously continuing to deliver on our ambition, which was communicated First time in March last year, so a year ago and now 1 year into it,
All right. Thank you, Thomas and Charles for the presentations. And now we are ready to move into the questions. So operator, please, repeat, do we have any questions?
Thank will now. Our first question comes from the line of Robin Santavirta from Carnegie. Please go ahead.
Yes. Thank you very much and good morning, everybody. Now this point that you raised about Significant tension in supply and price of raw materials. Could you sort of will go a bit more into details of that. We have heard that some of your peers have stated that The supply of especially plastic raw materials have been basically the supply chain a bit broken and we can see that prices have Increased quite significantly.
Is that also something that you see? And what kind of impact will Will that have on profitability in the next few quarters? And could you also talk a little bit about the pricing Historically, you have been able to offset higher input costs, but normally there's a bit of a lag so that we understand better
Good morning and thank you, Robin, for the question. So obviously, a very Relevant question in the context. So the simple answer to your question is yes, we are seeing what the market is already hope basically escalating, which is both a tension in the supply, but as well a tension in the prices. So tension in the supply, we are seeing it particularly on the polymer, but not only represent Polymers and that is linked to a combination of factors. One is the probably Not anticipated increase of the demand worldwide in all sectors.
2nd, there has been some very specific report some annual maintenance of different suppliers, which were planned during the Q1. 3rd, there is there has been the polar vortex represent the U. S. That has disrupted a lot the supply during Q1. That's only a temporary issue, but it will take a couple of months before it normalizes.
Then on the side of the prices, this tension is creating much more Tension on the prices, repercussions. There is a time lag both To get the impact in the P and L, but as well, as you said, to mitigate the P and L impact into, For instance, pricing actions. We have certainly learned from experience in the past And I have number 1, the coverage of our sales, a pretty high coverage of our sales With contracts which are preventing us from the raw material such raw material impact represent as well as we are trying in the context because the increases are in some of the commodities extremely high. We are playing, of course, the situation of a force majeure and which means that contract on our contract covering or hedging this kind of situation, we are entering into discussion with all our partners And the value chain is very receptive so far into understanding the situation and absorbing or mitigating the impact. So what will be the impact on profitability?
Very early days to say, there will be more impact in Q2 than in Q1 from a Cost point of view, now from a margin point of view, it's difficult to say. We are working on mitigating all of it or most of it. Therefore, Q2 is going to be, of course, tense, but we are working on it. And that's the situation is particularly tense on polymers represent recycled fibers. Thomas, anything you would like to add on this?
No, I think you gave a have quite comprehensive insight to it.
I agree with Thomas. Very good answer, very clear. Then just on the acquisition you made, it seems like a quite interesting acquisition. Can I just ask about the current profitability of this business and then perhaps the potential? And maybe if you don't want to talk about specific numbers, compare it to perhaps the division, the Foodservice division.
Thanks.
So basically, if we take the comment on the profitability, and as usual, we will not give a very Detailed answer on this one, not to your surprise, I assume. I could comment maybe on the multiple. The multiple is rep very much in line with where we have been trending over the with the earlier acquisitions more on the upper end From a profitability point of view, it is not decremental to the foodservice margins, I would say report pretty much in line with Foodservice margins as such.
What's important with this acquisition is what I maybe quite rapidly tried to outline during the presentation is that it's clearly strengthening our position in China Because it's and not only in China going forward because that acquisition comes with a certain level of capacity and a Possibility to implement further CapEx into it, particularly when we look at the boom of the food delivery represent a segment that is very important for us to utilize better in terms of rip. Growth wave. So the paperbacks, for instance, is something extremely important for us, and we were looking for such an opportunity to represent entering that category. So we're very pleased with the expansion of the product portfolio.
Seems like an interesting acquisition. Thank you very much.
And the next question comes from the line of Maria Riksdorf from Danske Bank. Please go ahead.
Yes. Thank you. Can you hear me?
Yes.
Yes, perfect. I have a couple of questions and if I may a little bit follow-up on Robin's earlier question. I think it was a good answer on the raw materials. Just the one that it will be the wonders means the I mean, it's easier to follow from here the raw material trends In North America and Europe, so can you a little bit give a light what is happening currently in Asia will talk about both of the polymers as well as the recycled paper, please.
So I would say when it comes to so for recycled pipe paper, I don't have any have strong view as we are not that much trend doing business with the recycled side in China as we don't have a molded fiber operations there. But the situation and the picture in Asia is Very much the same when it comes to the polymer situation as described already by Charles. So I don't see a significant Deviation to any of the markets when it comes to polymers.
But on recycled fiber, maybe it could be fair To give some granularity because of your question, Maria, on Asia and I guess you meant as well China particularly. Last year, China, 1st January 2020, China started to prohibit the import of the waste from the rest of the world And that has created a huge decrease of temporary decrease over a couple of months of the fiber Prices on the overall market in Western countries, so both in Europe and in the U. S, by reap 50% to 60% at the time. Now we see the other way around, not just because of China. So China has restarted to import report selectively some waste, particularly as we understand recycled paper.
And globally, there is a huge demand of recycled paper. Why? Because of the boom of the e commerce, and that's this trend is nothing new that we are giving us an information, but the impact it has is a huge demand on corrugated cartons and all the materials that are supporting the e commerce and the delivery of products and that creates attention, which means that the prices that we have seen now since the beginning of the year are basically exploding compared to a very low Q1 2020. So everything is always relative to rip a period a year ago. So that's the additional granularity we can give, but Nothing else on the other commodities like polymers.
It's basically a global. It's not specific Asia or rip U. S. It's or Europe, it's very much a global situation.
Okay. Thank you very much. That's clear. Then I had a question that I mean more about I mean what is your view that we learned an interesting Initiation from Starbucks that they will test a reusable cup repurchased the system in South Korea and that would be implemented there by 2025. So Do you think I mean this would be a like a global phenomenon, this is just a market to start?
And do you think I mean if that would be the case that you could really like focus your efforts to other product categories and therefore the mitigating the change read what could happen for the takeaway coffee. So how would you like how do you read these news?
So I would say that It is clearly appearing as a disruption. However, and with all respect for the decision taken represent by Starbucks in South Korea, which has been a discussion going on for quite some time. In isolation, this Specific decision in South Korea doesn't have a significant impact for us. At the same time, it speaks To the wider consideration, including in Europe that we have seen, that Reusable material or reusable container, many believe that it would be better for the environment, which IRIB is basically raising the question of thinking about the end to end life cycle assessment of products. We are very much are convinced that we have to drive all of us in the value chain, including our customers, including the global brands.
We have to think represent the number of factors that we have in place. Based on facts and evidence of what is really what really matters for the environment and what is really a benefit. If you remember a couple of months ago, and I don't have the exact date in my mind, but it was during Q4, probably in October, there was a life cycle assessment, which was conducted by Ramboll with a very well very high reputation represent the agency doing such analysis that and this LCA was clearly demonstrating that the carbon footprint of reusable containers is report higher than the carbon footprint of single use packaging. And I know that to many consumers report Many stakeholders in the value chain, it doesn't look, how should I say, intuitive Versus assumptions that we often make, but that's the reality that is demonstrated by the fact. And that's particularly linked to the fact that In the reusable containers and packaging, there is a washing process that is involving a lot of water, lots of chemicals, energy and even more Logistics that drive a negative sustainability impact.
So with this, Well, our position is to say that this is one more example where we think that wrong assumptions or bias in making decisions should drive all of us to make more evidence based decisions rather than based on bias or assumption. But all in all, we don't think this will have a significant impact for us. And I would say, we have a core business which has lots of opportunities and we cannot move or change direction every time there is a niche or
Thank you, very fair. And then finally Maria,
a very small addition to that And to Charles' last point, typically, all the big change always pilot and test things in various markets. So that to be recognized that many of the experiments never materialize and become scaled. Normal markets where we see piloting is markets like South Korea and Australia, which are
Perfect. Thanks. And then just finally, on the you had an extraordinary report item of SEK5 1,000,000 in the EBIT. And just really wanted to get a view that I mean what that was as the EBIT was more in line with the estimates, if you look at the reported number and then there was this SEK 5,000,000. So where did that come from?
And is it really nonrecurring?
Yes, it is really nonrecurring as such. And you might recall that We talked that we have initiated a lot of programs, and some of them are not necessarily yet Ready for materialization, so consultancy and similar stuff. So that's the main drivers In it. So as said, it's a restructuring and it's write down of assets, but in this case, mainly restructuring. To what we communicated in Q4.
Okay. Thank you very much. I have no further questions.
Next question comes from the line of Cole Hathorn from Jefferies. Please go ahead.
Good Good morning. Thanks for taking my question. Just to follow-up on the recovered fiber raw material input costs, which have been going up. Could you give a little bit of color how Those pricing contracts work in your fiber packaging division. My understanding is they're not really kind of pass through contracts.
It's more Kind of gentlemen's agreement contracts where you go back to your customers and push through those higher pricings. Just a little bit more color there would be helpful. And then on the Foodservice restructuring, how is that progressing? And are there any key items that you would call out On that restructuring program. Thank you.
Okay. So I can take that one. So yes, on the fiber side, it is Typically, the way you do it, and now we are talking the rough molded fiber side, as you recall, there are not report the same level of multinationals in here. So it is more local dealings and local businesses. So the negotiations are typically on a local level, and they are typically Either annual or then, as said, when there are interruptions, you go in and discuss and agree on new levels.
And then on the foodservice restructuring, it is very much progressing in line with Our plans, which we have not been very open about what it all includes, but it is about the Efficiency measures to adapt to what we consider to be the new normal in a way, and it's progressing hope Quite in line with our expectations.
Thank you. Just one follow-up on the retail table where You mentioned that demand has been good, capacity has been under some constraints and you've sold out a lot of your inventory. Could you give a little bit of color around the capacity in that market? Or do you still do you need more capacity there in the retail table where is that the next kind of
So on retail table where we have continuously been investing and that have been over the last years one of the biggest growth elements of our business. You recall going back to where we used to be, we used to be very much on the branded side with our China brand. China brand has been a more incremental single digit growth story, Well, then the new leg, which is private label tableware has been growing quite strongly. Investments into being able to continue to grow in both categories are report always there for the private table where it is easier as it is lighter assets to add capacity. And we have been keeping up on that area with normal growth.
The only deviation we have had To being able to keep up with growth was, I would say, the abnormal continuous demand Throughout last year, so normally what we are doing, especially with the fiber side of the business, is building stock for the seasonal peaks. Now we are producing and selling all the time basically out of stock, so selling immediately.
And this was not just linked to equipment capacity, but it was linked in 2020 to some tension on the labor market in the U. S, Tension linked to, of course, COVID and availability of our high absenteeism due to the COVID, but as represent the labor conditions with all the subsidies or helps which are given To the people, and therefore, it has been more challenging to get the label Up to the capacity needed in 2020, we need to recover that or to normalize the employment level.
Thank you.
And the next question comes from the line of Jutta Raikhenen from SEB. Please go ahead.
Thank you and good morning. A few questions. I'll follow-up on the U. S. Or North America theme Just to get the comparison and or the year on year comparison and the forward looking thoughts correct.
So 2020, you had a lot of positive mix effect because of weak foodservice and strong retail. And I'm just thinking now, if we assume that North America would be normalizingreopening as the year progresses, Does it then automatically mean that the profitability EBIT margin will decrease in the coming
It's clear that in North America, we have a high margin. We are above 12% in Q1, and we haven't seen yet the effect of The potential effect unless we mitigate of the raw material price increases. To your question on the mix impact, This was, of course, a clear concern in 2020 when we saw the very favorable mix impact to see the contrary In 2021, so far we don't see it. And the reason is that the demand on the retail Tableware is not going down at all. We are growing double digit on the back of already growing double digit In Q1 last year 2020 in Retail Tableware, so the it's not it was not just a temporary increase.
This Market is structurally growing, which is very positive and which links back to the previous question about capacity. So we are cautiously optimistic that we may continue to have, Maybe not to the same extent, but a relative mix good mix impact versus normal in North America. But at the same time, as you clearly point out, Foodservice, which is still with sales represent all kind of double digit affected by in Q1 in Foodservice by the continuation of report the lockdown, particularly the schools, the stadiums and of course, the QSRs, when this Comes back to normal, which we should expect in the 2nd semester that may have a slight negative mix impact. However, What is already in the pipeline is already a good level of margin with this plus 12%.
Okay. Thanks. And then the second question, sorry if you kind of covered it already, But I'll ask it once more. On the foodservice sales or organic sales, it was down only 2%. And the main reason for it being this good, was it the rebound in Asia, for example?
Or what was it? Some other things were not Why was it? I mean, you were saying it's down 10% or so? Thanks.
So it's the minus 2% is Of course, I'm always insisting is in relative comparison to the previous quarter of last year, which was a little bit of a disrupted quarter already. Why? Because the COVID had been impacting very strongly the outsize in China and Asia overall, around minus 50% in Q1 last year. So that's one thing. So we're comparing to a quarter which was affected In Asia, not in the rest of the world.
Now we're not affected really in China and Asia overall anymore, but still in Europe. At the same time, what we're seeing and that has been particularly in the month of March, but gradually through the quarter, we see the gap to normal demand Reducing. We were talking about a double digit gap back in Q4. Now we're talking about a probably represent high single digit gap and even less during the month of March, but we should not make a forecast based on 1 month. That's why I'm talking about more the quarter, and that is linked to a very strong push from the Food delivery and the takeaway channel that is compensating very strongly the fact that many or Most restaurants, sorry, are still being closed in, particularly in Europe.
Yes, sounds promising, I think, then for the coming quarters. But let's see. And then my last question, if I may, on India. I think here is sort of general perception is or was that India will be Very difficult or quite difficult for you. And would you mind giving us the organic sales development in Q1 For India and any other thoughts on how you think it will be in the coming quarters?
Thanks.
Yes. So India And India, of course, for the background is only flexible packaging in our case. We're selling only flexible packaging there. The development in Q1 this year has been better than in the Q4 last year. Rip the sales has been have been increasing from basically volume.
And we've seen a double digit growth in terms of volume, which was then a bit lowered by some necessary pricing actions. We continue to see an impact from the shift in the consumer behavior between are going away from premium brands to commodity products, and we believe it's temporarily linked to the pandemic And should revert back later, that has a negative product mix impact for us because we are playing mainly on premium brands. The business situation overall, so to try to extrapolate or give you insights report towards the near future Q2. It's difficult because the business situation in India remains very uncertain and you follow, of course, the news. It's right now the country in the world that is most talked about in terms of COVID contamination, between 203,100,000 more cases Per day, about unfortunately 2,000 people passing away from COVID per day in the last couple of days.
So This, we can expect, is going to continue driving further restrictions, even though the Indian government is trying to avoid rip full lockdown in order to avoid the economic impact. So it's from one side, From a global perspective, we see the overall economic prediction, which are pretty strong actually If we are looking at the IMF, for instance, forecast with double digit GDP growth, but there is still a lot of uncertainty in India. So it's a very uncertain and volatile context still in 2021.
And as there are no further questions, I'll hand it back for any closing remarks.
All right. Thank you very much, operator, and thank you for the questions. This then concludes the event for today. We will report our half year results on 22nd July. Thank you very much for participating.
Stay safe, and have a really good rest of the day.