Huhtamäki Oyj

Good morning all and welcome to Huhtamäki's investor call for the second quarter of 2025. My name is Kristian Tammela, VP of IR. Today, we will have a presentation first by our president and CEO, Ralf K. Wunderlich, and then by our CFO, Tuomas Gerust. After the presentations, we have time for Q&A as usual. And with that, handing over to Ralf.

Thank you, Kristian, and good morning also from my side. Look, it's a quarter which is showing stable performance in a very volatile environment. Many things did happen during the quarter. Clearly, the market uncertainty continued. The consumers continue to be also cautious. The geopolitical tensions continue to be effect. US tariff situation didn't clarify in full neither during the quarter. And we are seeing a very weakening US dollar. And still, we were able to deliver a financial performance which is in line with previous years and which is showing volume growth versus Q1 this year. We were upgraded also from S&P with regards to our credit rating and we are now investment grade. We acquired Selwyn Farms and integrated them over the quarter already into our North American business. And we finalized our program to improve efficiencies. There is notable progress in our three focus areas, which I talked to you over the last two quarters already. And I'll do that in a couple of slides again. It's good to be in a defensive market. People, consumers still want to eat. They want to drink, enjoy their lives. So it's good to be in a defensive market. And we are clearly seeing this in these uncertainties that we can still deliver. The actions which we took over the last few months are going to continue and are making good progress. So we talked about profitable growth and using all levers, talked about the discipline capital allocation, which we are now doing much more focused. And last but not least, the accountability and speed of execution. Let me give you a couple of examples for each of those three focus areas on profitable growth. A couple of examples I would like to give. One is we did an M&A, we acquired Selwyn Farms, as just reported on the earlier slide. But we also concluded a couple of relatively important three-year deals with large FMCG customers, which we will see the impact starting late this year already. On the capital discipline side, we continue to focus on both working capital as well as capex, and you will see a strong cash performance in the quarter. And then finally on accountability and speed of execution, we have implemented in the first half the change of our operating model. It's now much more focused on the segments to increase the speed of decision making and that will of course help us also going forward. Very happy to report that we have now finished and concluded on our program to take out 100 million of costs. We did this ahead of time. It was a three year program and after a year and a half we were able to deliver on the 100 million. We were also able to deliver with a lower cost to achieve. We said that we would spend 80 or less million euros and we finished it with 73 million euros. So very pleased with that achievement and of course it helped us significantly to offset inflation. during the quarter specifically it continued to work on our cost reduction in all four areas let me repeat those four areas for you number one was around sourcing number two was around material efficiencies so specifically waste reductions number three was labor productivity and number four was footprint So also here in the last quarter, we were active and we continue to restructure our production here specifically in the food service packaging segment. It was important for us to optimize our footprint according to the demand which we are seeing and to ensure a profitability which is meeting our expectations. Sustainability and being the leader in sustainable products continues to be our North Star and is really important to us. You see here the dashboard, which is helping us and guiding us to make this a reality. Let me point out a couple of things. Number one, we were awarded with EcoVadis Gold during the quarter. Two, we continue to make good progress on renewable and recyclable materials. Two thirds of our portfolio are now renewable, recyclable or compostable. So the good progress which we made over the last years continues. And again, a couple of percentage points improvement only in the quarter. Also strong improvement on renewable electricity. Specifically in fibre in North America, we saw strong improvements there. Last but not least, we are making progress also on greenhouse gas emissions. So a 10% improvement year over year on the greenhouse gas emissions, specifically driven by scope one and two, and we get more and more actions also for scope three. Let me go to the business performance now. The quarter saw net sales organically growing. In fact, if you exclude currency and even acquisitions, we are a positive flat number here of 1 million. That's encouraging specifically as we had a negative organic growth in the first quarter. But you also see that the currency impact is now getting much more significant to us. Two of our segments did see also volume growth during the quarter. For the half, it's a very similar picture. As I mentioned, we recovered a bit on the organic growth side in the quarter. So the half year number reduced slightly and is now pretty flat. And also here we see the currency impact. In both cases for the quarter and the half, you see the positive impact of Selwyn Farms, our acquisition, which we did in April this year. Some more details. So excluding the negative impact of FX, our key financials are in line or slightly ahead, in fact, versus prior year. So top line. If you add the 34 million, which I showed on the other slide, you'll see that we are slightly ahead for the quarter on net sales. The same is true adding the 3 million impact of FX in EBIT. The same is true also for our adjusted EBIT, which is slightly ahead of the same period last year. We continue to have a strong margin, over 10%. And our EPS for the quarter is flat. whereas our capital expenditure was reduced by 10% versus the same period last year. That's supporting what I said before with regards to capital discipline. Similar picture for the half. Here I'd like to point out that also for the half, we are still double digit 10% margin, and we are making good progress on EPS, which is growing by 3%. Let's move into the segments now, and let me start with food service. Clearly, food service is still a soft market and we are seeing this and experience it both in the quarter as well as in the half. Very similar picture in both cases. But still, we did a lot of work on cost out and the segment was able to still deliver a strong margin for the quarter of 9.6%. In fact, the margin was stronger in the quarter compared to same period last year. Capital expenditure was lower, hence they were able to deliver a stronger operating cash flow in the quarter. Very similar picture also here for the half. still seeing a margin of 9%, which is very encouraging in a market where we have negative growth. It shows that we are doing a lot of work also here on the operational side to protect our margin. So once growth will come back, we will see a lot of leverage specifically on the food service packaging side. Let me move to North America. Clearly, the impact of the FX is mainly not only but mainly related to our North American business. So if you take the impact of FX out of the net sales number, we would see a strong growth of over 3% in the quarter, mainly driven by very strong volume growth in the quarter, which is encouraging both with regards to what we told you last quarter, the impact of Easter, which this year was later than last year. So we saw that coming through, which is encouraging, but also The other segments, food service and consumer goods in North America did see growth in the quarter. We had negative pricing, though, hence the comparable growth of 3%. Our adjusted EBIT margin continues to be at a 12.2%, which is impacted by a number of factors. Number one, it's impacted by the ramp up of our new facilities, the one in Hammond and the other one in Texas, Paris, Texas. So both of those are producing costs in the ramp up, but not yet showing the sales on those. And we also see inflation, which we are going to work hard on productivity improvements. Capital expenditure, very similar to what I talked about when I talked about full service. So here we are below last year as well. And and also delivering strong operating cash flow in the quarter. Let me move on to flexible packaging. Flexible packaging continued its trend of delivering stronger results. We are both in the quarter and for the half now over 8%, currently standing at 8.3 for the half, which is 2% higher than same period last year. So the improvement in our turnaround facilities continued and shows also the impact there. So cost measures are really helping us. And we are seeing first signs of volume improvement also in flexible packaging, which is encouraging. In both quarters, we are seeing an EBIT improving by 5 million. So for the half, we are now at a 10 million absolute improvement versus last year. Segment delivered on cash flow. and is for the half ahead of last year's half. Finally, going to fiber packaging. Fiber packaging continues to deliver solid sales growth, both driven by volumes and pricing. Net sales is growing by 10%, as I mentioned, driven by both volume and pricing. And adjusted EBIT is at a strong margin of 11.8% in the quarter. That's impacted, if you see the comparison, by significantly lower sales of our machine segment, which is part of fiber packaging. Operating cash flow, even though we had capital expenditures which are going to help us to drive that segment even further, was higher than in the same period last year, but still they were able to deliver good operating cash flow. like to point the attention to two things one is that the impact on the avian flu in australia is fading away so we believe that end of q3 there will be no impact anymore on that but we had a fire in our south effing one of our south african factories which of course as it happened in the last month of the quarter will have an impact to us We believe that we will be able to be back in full production in the next six weeks. Let me now pass on to Thomas, who will give you an overview about our financials.

Thank you, Ralf. So moving over to the financial review, if I look at the delivery so far, we highlighted clearly that the USD is now, especially the USD, but as you see from this presentation, also many of the other currencies are, from a translation point of view, impacting our reported results negatively. You see the acceleration in the quarter going from to 34 million on top line, minus 3 million on EBIT. And then for the first half year from 23 million on top line and 2 million negative on EBIT. So from that perspective, you get... you get a good view of especially the impact of the USD, which from a low point at 102 in the beginning of the year has moved now to 118 as the rate latest number. The impact is seen on the income statement, but as you will see later on, the impact is even more clearly visible on the balance sheet as the balance sheet is reported on the closing rate of the quarter. So as you see here, USD average rate still at a 109, while the closing rate for the quarter was at 117. But as you see, also some of the other currencies are trailing negatively for us. Some deep dive into the P&L. I would say the positive side here is that we are maintaining a good conversion and a good discipline when it comes to our sourcing activities, which have been helpful for us in defending our result in this still pretty moderate market environment. You can see, however, that despite that, as Ralph already alluded to, we are maintaining the levels of EBIT. If you adjust for what I just highlighted on the currency impact, we are basically flat. I would highlight that we are getting some... benefits versus previous year from the financial items, so finance cost side, and that one is then helping in accelerating our EPS, adjusted EPS above the EBIT growth levels. So these are the levels which we are wanting to highlight from the operative point of view. Obviously, with the impairment we did, we have significant deviations between reported and Adjusted results, you will see the main impacts in the cost of goods sold. That's where the biggest impact is. You will see it on the R&D line and you will see it in other income. So that's mainly related to where the main impacts are from the impairment. Moving to the net debt EBITDA, I would say we are tracking on the 2-ish level, though the reported is 2.1 net debt to EBITDA. We have an increase in our net debt coming from two things that we have, including the increased lease liabilities, the lease liabilities from our Paris, Texas expansion. And then, of course, we had the cost of the acquisition of Selving Farm. But I would say we are still tracking and still trading on a very good level when it comes to leverage. You also see that our cash and cash equivalents are on a high level. That's partly due to the issuance of the shield shine for which we had the funds at the end of the quarter and obviously did not have yet by the end of the quarter the possibility to to utilize all of that cash for mitigation of other loan items. From that perspective, if you look at the average maturity, it's at 2.9. It was on 2.4 previous year. As I have said earlier, we are working always diligently to maintain a good structure on our maturities. Obviously, we are happy to have the investment grade now from S&P, which is both helping with the finance costs, but also in attraction of potential bond investors. So with the maturities coming up, we are obviously evaluating when and how to go to the market for additional funding. If we take the free cash flow generation at a good level, so the quarter was good after a weak start to the year. And as you can see from the negative sides, the change in working capital, you will see on the balance sheet side, it's up roughly 50 million versus previous year. with the 37 million previous year changing working capital that's also a outcome of a very favorable situation at the back end compared to the back end of 2023 but working capital capex is goes within our capital discipline category and we are working tightly on on managing this throughout the year in a as diligent way as possible. When it comes to the asset side, here you see the impact of the USD. So on the equity alone, we have a negative translation difference of 223 million. So with a significant part of our assets in USD, the movement in the dollar rate obviously moves significantly also our balance sheet. Here you see the working capital, so we are up 56 million versus previous year, as I alluded to on previous slide. And then the net debt, mainly driven by the items I referred to on the previous slide. Return on investments roughly or exactly actually on previous year's level. And here I would say what we need in order to drive that further up is top line. Top line supported profit, profitable growth. next moving into our long-term ambition comparing this one to to previous years same period which is not on the slide it's it's a pretty similar picture so uh uh we are still trailing behind on top line though the quarter was basically flat or slightly positive from a comparable growth point of view uh the ebit margin defended at 10 so in the lower end of our ambition uh corridor And then the other parameters are trailing on roughly the levels where we have been. On the outlook and short-term risks, we have no changes. So with that one, I would open up for questions.