Huhtamäki Oyj

Good morning all and welcome to Huhtamäki's investor call for the fourth quarter of 2024. My name is Kristian Tammela, VP of IR. I'm happy to present our new president and CEO, Ralf K. Wunderlich, who joined us in January. And we also have with us our CFO, Tuomas Geust. We will go through the results and after that we'll have a Q&A session in a normal manner. But let's get started and handing over to Ralf.

Thank you, Kristian, and Welcome to all of you to this call. My name is Ralf Wunderlich and I started as President and CEO of Hutamaki on January 15th. I'm honored that the Board of Directors appointed me to lead Hutamaki and I look forward to a close collaboration with all of you. Let me say a few words about myself. I spent all my career in the packaging industry, and I worked and lived in a number of different countries and continents, including Europe, Asia, and the Americas. I had P&R responsibility for both regional as well as global businesses. My last executive role, I spent seven years working for a large packaging company and was a member of their global executive team responsible for one of their business groups. Before starting my role here at Utamaki, I worked in private equity as operating partner and advisor and was also appointed to serve on a number of boards, both publicly as well as privately owned companies. I was also a board member of Utamaki for the last almost seven years, just until my appointment to this new role. With that background, I'm confident that I have the understanding of Hutamaki and its opportunities. Look, we will continue to drive our 2030 strategy. In our strategy, safety and sustainability play a central role and will continue to do so. However, let me point out specifically areas we will focus on going forward. Number one is accelerating profitable growth. Second one is all around capital discipline. And the third one is around accountability and speed of execution. So I go through those three one by one, if you allow me. Number one is accelerating profitable growth. And here is first the organic side. We will focus even more on accelerating profitable growth through levers to increase our organic growth strategy. And those levers are supporting us to delight our customers, help them with innovation using the scale and global footprint we have. And of course, speeding up the time to market on the investments we have made so far and which we will make in the future. Competitiveness is extremely important to be successful, and we will continuously work on our competitiveness. We have taken actions to improve our competitiveness through our cost-saving program, which was launched late 2023. We are committed to deliver our saving targets ahead of time and with less cost to achieve. And I'll talk about this in a little while. We need to ensure that those new levels are then sustained, and we will then continuously improve those. Let me also say a word about inorganic growth, M&A. We haven't done acquisitions for several years now, and I believe M&A should be a relevant tool for us to support our growth agenda. Obviously, in a very disciplined manner, in early markets and geographies in which we are confident that we can create shareholder value. The second point, and that's a nice bridge, is about capital discipline. And we have to use our capital in a very disciplined way wherever we deploy it. It needs to support our ambition to accelerate profitable growth and reaching our targets also on return of investment. We will be strict in allocating capital to the best yielding projects and segments. Already during 2024, we decreased our capital expenditure levels significantly from the years before, and we expect similar levels also in 2025. In 2025, projects which were launched earlier in 2024, like, for example, the Hammond eggplant or the new plant in Paris, Texas, will start ramping up and we will see first impacts to our P&L later this year and certainly towards the end of the year. We have also launched a greenfield project in Egypt to support our fiber plants there. This will produce egg and fruit packaging and the first phase investments are moderate in size and the project is still in a very early phase. Last point on capital allocation, we have a very strong dividend track record. If the board of directors dividend proposal to the AGM is accepted, it would mark the 16th consecutive year of growth and an increase of almost 5% with a yield of 3.2%, which I believe is a great track record. Lastly, on accountability and speed. We need to simplify our decision-making throughout our organization to enable us to be close to our customers and markets. We want to make sure we have clear accountabilities in place with a focus on the customers and to make use of the scale which we have in our organization. A concrete step towards this is the announcement we just made earlier this morning, that we are splitting the fiber and food service segments into two distinct segments. I will give further updates on the progress on these topics and connections with the AGM. Let me now turn into Q4 and full year results. As I mentioned, we have separated fiber packaging and food service, and we have appointed two new presidents One who was already running our current food service fiber business, which is Frederick. And Frederick will continue now running with the food service, global food service operations which we have. Secondly, Sarah. Sarah Engber is appointed as president of the fiber packaging business which we have. Sarah has a very strong background in fiber. and is longtime Hutamaki, since 16 years and operating as the senior vice president of our operations in North America. She will move to ESPO. Effective day of this change will be the first of April, and there will be no change in reporting. Let me now turn to the outcomes of the year. And I'm extremely pleased to say that we had a very solid quarter and a very solid year. The market continued to gradually improve during the year, and the environment was still very much impacted by inflationary pressures. Our comparable net sales turned positive in Q4 with 3% growth, and our adjusted EBIT also grew 3%, with a very strong margin at 10.4% for the quarter. This is supported by the program to improve efficiencies. And let me talk about this program to improve efficiencies. It was launched back at the end of 2023. We announced then that we want to target savings of 100 million over three years with a cost to achieve of 80 million. And we had four main areas we wanted to focus on. Number one was sourcing. Number two was material efficiencies. Number three was labor productivity. And then finally, number four was our footprint optimization. Now, I'm personally very happy we launched this program because it clearly helped us during a very soft market in the beginning of 24. So this self-help was coming at the right time and at the right speed. And because we started it early, so back end of 23 already, we are able to deliver more than we thought we could during the period and had a very fast start and aren't today delivering 76 million savings. So that's ahead of what we thought we could do so far. And it also makes us believe that we can deliver on the program earlier than the three years which we announced. We are also lower on the cost to achieve than we thought we would be at the same period. Same here. We think we will come in earlier and lower on cost to achieve as well. With regards to sustainability, as I mentioned early on, safety and sustainability will continue to be core and really important to the market going forward. And we continue to make great progress on both safety and sustainability. On safety, we improved our total recordable incident rate by 28% during the year. And in the major part of our sustainability KPIs, we also had great improvements. Especially happy to announce that on the greenhouse gas, we had significant improvements, especially scope one and scope two. Now we will step up our sustainability communication and we will launch first time a communication results call on March 24th, which will be hosted by our EVP seller. Now let's move swiftly to our business performance. And the first point I'm happy to announce that the comparable net sales was supported by volume growth in the last quarter. We had very small impacts from FX during the quarter and no impact whatsoever on acquisitions or divestments. Now let's turn to the full year. Comparable net sales was flat over the whole year, but improving in H2 with slight volume growth. but there was a slight negative price impact during the year. And the FX impact for the full year was minus 1% or 37 million. Comparable net sales trends was improving over all the quarters over the year. So with a relatively soft start in the first half of the year, which we often see that the first half of the year is a bit softer with our seasonality really helping us in the second half. Now you see this trend also confirmed during 2024 with gradually improving net sales over the quarters. Specifically to highlight is here the very strong finish in fiber of 12% and our flexible packaging with 5%. North America, second quarter in a row, very strong and benefiting from a bit of a pull into Q4 from January 25. Food service, albeit being slightly negative for the quarter and finishing the year at minus 5, it had less of a negative in Q4 than we have seen during the year. On the EBIT margin side, we continue to see double-digit levels, and it's the first time that we are finishing the year at double-digit. The quarter was plus 3% in absolute and at the same margin levels as the same quarter last year at 10.4%. Look, as I said before, self-help clearly helped us. Our continuous efficiency program supported these great achievements. The EPS for the quarter was also at last year's levels, but we were able to improve it and increase it by 7% for the full year. We significantly reduced our capex from very high levels over the last few years and are still able to support our organic growth ambition. If we dive in into some of our businesses directly to give you a flare of what happened there. And let's start with food service. There was a conscious sign of improvement over the last quarter. But of course, the inflationary pressure to especially the food products continued over the year. The net sales remained at previous year levels in the quarter and was still impacted by the boycotts which we saw to certain brands in the Middle East due to the conflict there. Adjusted EBIT decreased due to lower pricing, whereas actions to improve profitability had a very positive impact. North America net sales increased by 2%, supported by volume growth, with pricing headwinds. Hammond, our investment in egg packaging, started and is ramping us nicely during the year. And towards the end of 2025, we will see the impacts. They're really supporting us as a group as well. Full year sales for North America was flat with a strong EBIT delivery though. That was also clearly supported by the self-help initiatives which we launched. The flexible packaging segment overall saw demand improvement over H2. Margin also improved for the quarter and the full year. Still lots of work for us to be done in India and Turkey. And we need to continue with our self-help, which is very, very essential for our flexible packaging segment. And then finally, fiber. And we saw in fiber a very strong year with strong bottom and top line. Q4 was benefiting clearly from the seasonality of the egg business. and the pricing for recyclable fiber increased during Q3, and we were able to then pass on in Q4. So with that, I'd like Thomas to talk about the financial results.

Thank you, Ralf, and welcome on board also to this first release in your case. I will start with... More detailing around the P&L as usual. So if we look at a few items which not necessarily were covered yet by Ralph or repeating some of them. Looking at the net sales, the net sales turned positive in the fourth quarter, helped by volume growth as Ralph was highlighting here earlier. If we look at that one then from a profitability point of view, it's evident that the volumes did support the profitability in Q4. However, as highlighted already several times in this call, the majority of the support we had on our profitability growth came from this efficiency program. This helped especially on our value-add side and still also looking at personal cost where we had a very high inflation. This program clearly helped us in mitigating some of that cost development. If we are looking at the Q4 as such – we can see that Q4 from a profitability development point is relatively moderate, but remembering that we came in strong at the end of previous year at a similar margin, 10.4 and a slightly lower absolute EBIT. So the comparison towards the end of the year, uh, reflecting some of the seasonality we have seen over the previous year. So fluctuations between quarters seems to be coming in and staying with our business. Other elements to highlight, the financial costs slightly increasing versus previous year. From a rate point of view, our financial costs are roughly on similar years level, slightly below 4% on gross debt level. Tax rate increasing slightly, mainly coming from in which countries where our profitabilities have been generated. So tax rate, adjusted tax rate at roughly 23% versus 22% previous year. So to conclude, a good EPS growth of 7% for the full year, taking our EPS from 232 to 248. And then, obviously, I need to repeat the message from Ralph earlier. First time we see a full year double-digit EBIT margin for the company. Currencies were mentioned here earlier. Currencies, as usual, have mainly a translation impact on our profitability. You can see from the slide that the most important currency from a size point of view are USD. landed at the end of the year on 104, which is an improvement from a translation point of view compared to previous year's average rate of 108. Then if we are looking at some other currencies, you can see that the Egyptian pound is the currency which has had the highest movement in the year and otherwise most of the currencies on average rate were trending negatively for us. But you can also see from the column on the right that the trend improved towards the end of the year. An important measure on the next slide where we are looking at our net debt EBITDA development We can see that our net debt decreased to roughly 1.2 billion. That is minus 5.5% versus previous year. Remembering that we are coming down from a spike level of roughly 1.6 billion in Q2 2022. So our deleveraging has continued. from a net debt EBITDA level of roughly three in the end of 2021 to now reaching the bottom of our corridor, roughly two, or actually slightly below if we take decimals into account. Other positive message here is that our gearing has improved. So, So from that perspective, our balance sheet is continuing to strengthen. On the loan maturities, maybe just a few things to highlight. We have a slightly longer maturity compared to previous year, now at 3.1 versus 2.9 at end of last year. Our repayment of the bond happened in the quarter, 100 million paid. And then we also secured the RCF by signing a five-year facility in November. And if you look at the financing structure role in all, you can see that the bonds are the biggest representation of financing instruments while then loans from other institutions makes up the second biggest portion. Moving to the cash flow, here we are glad to see that we were able to keep our working capital on roughly previous year's level. Last year, we had a strong release of working capital of 144 million coming out of the high inflation year of 2022. So from that point of view, maintaining now the working capital at that level is a good performance. You see also that the CapEx had a strong contribution to the cash flow, but here I would highlight that we have not stopped doing investments. $248 million is still a significant investment into profitable growth areas. So as Ralph was highlighting here earlier, our attention to capital growth to deploying capital where we see growth is essential and ensuring the returns coming out of them. Then you can see that proceeds from selling assets has been positive also this year, but not as high as last year when we had a big, big proceed from selling assets in our Indian operations. On the financial position, mentioned already that it continues to improve. Of course, in the balance sheet, we have, as always, readjustments coming from purely FX-related adjustments, so no real movement, but otherwise highlighting that working capital, that is the total working capital, not only the operating working capital, down versus previous year. Net debt, discussed already here earlier, and then taking our equity to roughly 2.1 billion, so increasing versus previous year. The lagging indicators of return on investments and return on equity are trending also positive, although still being below our long-term ambition. And as mentioned by Ralph earlier, the board is proposing an increased dividend, so an increase from 105 to 110 per share. That is a roughly 5% increase versus previous year. And calculating this on our adjusted EPS of 248 with a payout ratio of 44%, we would have a dividend yield of roughly... over roughly 3.2%. Looking at our trajectory towards our long-term ambition, we can see that three out of five have turned green. So the green ones are adjusted EBIT margin, where we are now on the lower end of the corridor at 10.1, 10.4 in the quarter. The adjusted EBIT Net debt to EBITDA is at 2, so the low end of the corridor, thereby leaving a headroom for taking capital decisions. And then the dividend payout ratio pretty much in the middle of the corridor. The areas which we still have work to be done on. Of course, we will work on also the ones where we are in the green, but the ones where we need to catch up is on the comparable net sales growth and then on the return on investments. But currently, the trend is looking positive. On the outlook, We have, in connection with the announcement, communicated the outlook for 2025. It is roughly an outlook with no material changes, and the same goes for the short-term risk and uncertainties. So with this one, I will open up for Q&As. So over to Doug.