Huhtamäki Oyj’s Results January 1-December 31, 2023: Strong cash flow and margin improvement

HUHTAMÄKI OYJ FINANCIAL STATEMENT RELEASE 8.2.2024 AT 8:30

Huhtamäki Oyj’s Results January 1-December 31, 2023: Strong cash flow and margin improvement

Q4 2023 in brief

• Net sales decreased 6% to EUR 1,033 million (EUR 1,104 million)
• Adjusted EBIT was EUR 108 million (EUR 93 million); reported EBIT was EUR 146 million (EUR 78 million)
• Adjusted EPS was EUR 0.68 (EUR 0.65); reported EPS was EUR 0.83 (EUR 0.54)
• Comparable net sales growth at Group level was -3% and -5% in emerging markets
• The impact of currency movements on the Group's net sales was EUR -44 million and EUR -5 million on EBIT

Q1-Q4 2023 in brief

• Net sales decreased 7% to EUR 4,169 million (EUR 4,479 million)
• Adjusted EBIT was EUR 393 million (EUR 395 million); reported EBIT was EUR 381 million (EUR 405 million)
• Adjusted EPS was EUR 2.32 (EUR 2.49); reported EPS was EUR 1.97 (EUR 2.65)
• Comparable net sales growth at Group level was -2% and -4% in emerging markets
• The impact of currency movements on the Group's net sales was EUR -153 million and EUR -15 million on EBIT
• Capital expenditure was EUR 319 million (EUR 318 million)
• Free cash flow was EUR 321 million (EUR 11 million)
• The Board of Directors proposes a dividend of EUR 1.05 (1.00) per share

Key figures

Unless otherwise stated, all comparisons in this report are compared to the corresponding period in 2022. 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.

IAC includes, but is not limited to, material restructuring costs and acquisition related costs (gains and losses on business combinations, professional and legal fees, material purchase price accounting adjustments for inventory, material purchase price amortization of intangible assets and changes in contingent considerations) as well as material impairment losses and reversals, gains and losses relating to sale of intangible and tangible assets, implementation costs concerning large projects with SaaS cloud computing technology, fines and penalties imposed by authorities and extraordinary taxes.

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.

President and CEO’s review

We are pleased with the many achievements during the year and energized by the plans going forward. In line with the previous years, we have proven our ability to deliver results in a volatile market environment, thanks to our diverse portfolio and the agility of our organization. Our investments for growth started to yield benefits, and we have made progress towards our profitability ambition by driving initiatives to improve our competitiveness.

We launched our updated 2030 growth strategy in 2023, which translated in higher financial ambitions. We focus on three priorities: scaling up our profitable core businesses; developing and deploying proprietary innovative sustainable packaging solutions; and driving world-class competitiveness. Our long-term financial ambition is to deliver 5-6% annual net sales growth, reaching a 10-12% adjusted EBIT margin with an adjusted return on investment of 13-15%. To best drive the execution of our strategy, we continue investing in talent and strategic capabilities.

In 2023, we delivered a solid performance despite the lower consumption across categories and geographies, driven by the impact of inflation. Destocking in the value chain had a negative impact on sales volumes during the first half of 2023, particularly in export markets in the Flexible Packaging segment. During the second half of the year, consumer demand started to slightly improve.

Our performance was strong in the latter part of the year, with a significant increase in adjusted EBIT in the fourth quarter of 2023. This was achieved despite a 3% decrease in comparable net sales, due to lower sales volumes. Cash flow remained strong, supported by a release of working capital. At the same time, we have continued to invest for growth and innovation, in line with our strategy.

Our full year 2023 comparable net sales decreased by 2% and adjusted EBIT by 1%. Our adjusted EBIT margin was strong at 9.4% despite lower sales volumes, the divestment of our operations in Russia in September 2022 and currency translation. Free cash flow reached EUR 321 million, mainly from a decrease in working capital. This represents a significant improvement compared to last year. With the improvement in cash flow, we were able to decrease our net debt and thereby improve our net debt to adjusted EBITDA ratio from 2.5 to 2.2.

In 2023, we brought new capacity to commercial production, including among others tableware in North America, and egg packaging in North America and South Africa. We also announced the expansion of our North America Foodservice capacity in Paris, Texas, to capture the growing demand for folding carton packaging. We also increased our capacity for fiber lids in Europe. Additionally, we launched the production of Nespresso’s home compostable paper-based coffee capsules. These projects illustrate our strategy to scale up our profitable core businesses and innovate for sustainable packaging solutions.

We took several steps during 2023 towards optimizing our manufacturing footprint and strongly improving productivity globally. These include consolidation of manufacturing capacity in Europe and India to larger units. In November we announced a program to accelerate the implementation of our strategy to materially support our profitability ambitions. All cost levers will be addressed including potential restructuring to a more optimal manufacturing footprint, reducing input costs at an accelerated pace, and improving productivity globally. The efficiency improvements are expected to lead to savings of approximately EUR 100 million over the next three years.

Innovation continues to be high on our agenda, as we seek to both improve our sustainability performance and deliver new solutions to our customers. Our goal is to design all our products to be recyclable, compostable, or reusable. In 2023, we made a significant leap towards this target, as we launched new sustainable solutions in mono-material flexible packaging, which are designed for recycling. We also continued to deploy fiber and paper-based solutions, converting Foodservice and FMCG applications to more sustainable alternatives. We are currently rolling out these solutions globally.

The execution of our strategy proceeded well in 2023. With the actions taken, we are well placed to capitalize on the opportunities in the transforming packaging market. With demand returning to growth in the foreseeable future, and with the support from our capacity expansions, innovation and improving operational performance, I believe we are well prepared to deliver on our financial ambitions.

I would like to thank our customers and suppliers for their trust and collaboration throughout the year. Importantly I would like to thank our entire team for their great work and continued commitment to deliver value to all our stakeholders. 

Charles Héaulmé
President and CEO

Financial review Q4 2023  

Net sales by business segment

Comparable net sales growth by business segment

The Group’s net sales decreased 6% to EUR 1,033 million (EUR 1,104 million) during the quarter and comparable net sales growth was -3%. Demand continued to be muted by the impact of inflation, but showed signs of improvement in certain categories and geographies, particularly in North America. Net sales were weighed on by a decrease in sales volumes and changes in currencies, whereas pricing had a positive impact. Comparable sales growth in emerging markets was -5%. Foreign currency translation impact on the Group’s net sales was EUR -44 million (EUR 46 million) compared to 2022 exchange rates.

Adjusted EBIT by business segment

Adjusted EBIT margin by business segment

The Group’s adjusted EBIT increased to EUR 108 million (EUR 93 million) and reported EBIT was EUR 146 million (EUR 78 million) in the quarter. Adjusted EBIT increased supported by lower raw material costs and the company’s actions to improve profitability, whereas a decrease in sales volumes had a negative impact. The Group’s adjusted EBIT margin increased and was 10.4% (8.5%). Foreign currency translation impact on the Group’s earnings was EUR -5 million (EUR 5 million).

Adjusted EBIT excludes EUR 38.5 million (EUR -15.3 million) of items affecting comparability (IAC). The main changes in IAC’s relate to the divestments of real estate in Thane, India and Prague, Czech Republic, as a result of the manufacturing footprint optimization actions.

Adjusted EBIT and IAC

Net financial expenses were EUR 18 million (EUR 16 million) in the quarter. Tax expense was EUR 29 million (EUR 3 million). Tax expense in the comparison period was lower due to a one-off fixed asset revaluation in Turkey, decreasing deferred tax liability. Profit for the quarter was EUR 99 million (EUR 59 million). Adjusted earnings per share (EPS) was EUR 0.68 (EUR 0.65) and reported EPS EUR 0.83 (EUR 0.54). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR 16.0 million (EUR -11.6 million) of IAC.

Adjusted profit and IAC

Financial review 2023

Net sales by business segment

Comparable net sales growth by business segment

The Group’s net sales decreased 7% to EUR 4,169 million (EUR 4,479 million) during the reporting period, and comparable net sales growth was -2%. Overall, demand was muted by the impact of inflation. Net sales were weighed on by a decrease in sales volumes and changes in currencies, whereas pricing had a positive impact. The divestment of the operations in Russia in 2022 had a negative impact. Comparable sales growth in emerging markets was -4%. Foreign currency translation impact on the Group’s net sales was EUR -153 million (EUR 234 million) compared to 2022 exchange rates.

Adjusted EBIT by business segment

Adjusted EBIT margin by business segment

The Group’s adjusted EBIT decreased to EUR 393 million (EUR 395 million) and reported EBIT was EUR 381 million (EUR 405 million). Adjusted EBIT decreased only by 1% despite the lower sales volumes, divestment of operations in Russia and the negative foreign currency impact. It was supported by lower raw material costs and the company’s actions to improve profitability. The Group’s adjusted EBIT margin increased and was 9.4% (8.8%). Foreign currency translation impact on the Group’s earnings was EUR -15 million (EUR 22 million).

Adjusted EBIT excludes EUR -11.7 million (EUR 10.2 million) of items affecting comparability (IAC). The main changes in IACs relate to the sale of real estate in Thane, India and the planned closure of the Flexible Packaging production facility in Prague, Czech Republic.

Adjusted EBIT and IAC

Net financial expenses were EUR 69 million (EUR 53 million). The increase was due to higher interest rates and other financing costs. Tax expense was EUR 87 million (EUR 67 million). The effective tax rate was 28% (19%). The increase was due to an impact from the business in Turkey, which has the US Dollar as a functional currency. As taxes are calculated in the significantly devalued Turkish lira, the current tax charge as well as deferred tax liabilities increased significantly. The functional currency remeasurements related impact to deferred tax liabilities (mainly Turkey) are a non-cash item and are treated as IAC. Additionally, the tax rate was impacted by a non-deductible goodwill impairment related to the planned closure of the Flexible Packaging site in Prague, Czech Republic. Profit for the period was EUR 225 million (EUR 285 million). Adjusted earnings per share (EPS) were EUR 2.32 (EUR 2.49) and reported EPS EUR 1.97 (EUR 2.65). Adjusted EPS is calculated based on adjusted profit for the period, which excludes EUR -35.9 million (EUR 16.0 million) of IAC.

Adjusted profit and IAC

Outlook for 2024

The Group’s trading conditions are expected to improve compared to 2023. Volatility in the operating environment is expected to continue, while Huhtamaki's diversified product portfolio provides resilience. The company’s initiatives, which include the ongoing savings and efficiency program are expected to support the company’s performance. The Group’s good financial position enables addressing profitable growth opportunities.

Dividend proposal

On December 31, 2023 Huhtamäki Oyj’s distributable funds were EUR 836 million (EUR 908 million). The Board of Directors will propose to the Annual General Meeting that a dividend of EUR 1.05 (EUR 1.00) per share be paid.

Annual General Meeting 2024

The Annual General Meeting of Shareholders (AGM) will be held on Thursday, April 25, 2024 at 11:00 (EEST) at Scandic Marina Congress Center, Katajanokanlaituri 6, Helsinki, Finland.

Teleconference

Huhtamaki will arrange a combined audiocast and teleconference on February 8, 2024, at 9:30 EET. Huhtamaki’s CEO & President Charles Héaulmé and CFO Thomas Geust will present the results. The event will be followed by a question-and-answer session. The event will be held in English and it can be followed in real-time.

A link to the audiocast is available at: https://huhtamaki.videosync.fi/2023-q4

A link to the teleconference is available at: https://palvelu.flik.fi/teleconference/?id=10012436. Registration is required for the teleconference. After the registration you will be provided with phone numbers and a conference ID to access the conference.

An on-demand replay of the audiocast will be available shortly after the end of the call at www.huhtamaki.com/investors

Financial reporting in 2024

In 2024, Huhtamaki will publish financial information as follows:

Interim Report, January 1 - March 31, 2024                        April 25
Half-yearly Report, January 1 - June 30, 2024                     July 25
Interim Report, January 1 - September 30, 2024                 October 24

The Annual Report 2023 will be published on the week commencing February 26, 2024.

This is a summary of Huhtamäki Oyj's Results January 1–December 31, 2023. The complete report is attached to this release and is also available at the company website at www.huhtamaki.com.

For further information, please contact:

Kristian Tammela, Vice President, Investor Relations, tel. +358 10 686 7058

HUHTAMÄKI OYJ 
Corporate Communications

About Huhtamaki

Huhtamaki is a leading global provider of sustainable packaging solutions for consumers around the world. Our innovative products protect on-the-go and on-the-shelf food and beverages, and personal care products, ensuring hygiene and safety, driving accessibility and affordability, and helping prevent food waste. We embed sustainability in everything we do. We are committed to achieving carbon neutral production and designing all our products to be recyclable, compostable or reusable by 2030. Our blueloopTM sustainable packaging solutions are world-leading and designed for circularity.

We are a participant in the UN Global Compact, Huhtamaki is rated ‘A’ on the MSCI ESG Ratings assessment and EcoVadis has awarded Huhtamaki with the Gold medal for performance in sustainability. To play our part in managing climate change, we have set science-based targets that have been approved and validated by the Science-Based Targets initiative.

With 100 years of history and a strong Nordic heritage we operate in 37 countries and 116 operating locations around the world. Our values Care Dare Deliver guide our decisions and help our team of around 18 000 employees make a difference where it matters. Our 2023 net sales totalled EUR 4.2 billion. Huhtamaki Group is headquartered in Espoo, Finland and our parent company, Huhtamäki Oyj, is listed on Nasdaq Helsinki Ltd. Find out more about how we are protecting food, people and the planet at www.huhtamaki.com.

Attachment

• Q4 2023_final