Huhtamäki Oyj

Good morning, all. Welcome to Huhtamake's Q1 2026 results call. My name is Kristian Tammela, VP of IR. We have today released the Q1 report and are hosting our AGM later today. We will now have a presentation, first by President and CEO Ralf Wunderlich, and then by CFO Tuomas Geust. And after that, we, as usual, have time for Q&A. And with that, let's get started in handing over to Ralf.

Thank you very much, Christian, and welcome and good morning to all of you listening into this results call today. I'm, in fact, very pleased to report that we had comparable net sales growth in what you know is a very challenging market. And, of course, our growth was supported also by volume growth, which is also very pleasing. Negative currency impact, which we have seen last year in three of the last three quarters, already continued into the first quarter this year, which is giving us a negative impact both on the net sales side as well as on the EBIT side. However, our adjusted EBIT margin increased versus last year and is at 10%, so we are, again, very pleased with that outcome. Our focus on capital discipline also continued and enabled us to show a very strong cash flow in the first quarter, significantly up on last year again. We are, and that's the news of February, end of February now, asked to navigate the challenges which we are seeing from the war in the Middle East. So the team is on that, and that's clearly a very important task for us going forward. We have seen the latest changes of the management team and I'm really happy to now say that we have a very strong management team in place which will help the company going forward. Let me dive in into the macroeconomic and geopolitical situation after the war in the Middle East started. And let me first go to some of the facts. Facts number one is that, and you know this, but it's important to repeat it, that approximately 4% of our sales is coming from that region. And if I talk about the region, I really mean the UAE with our two factories in Dubai, our food service factory in Saudi Arabia, and our three factories in Egypt. So that is approximately 4% of our sales. What happened, of course, driven by the oil price increase, which was very steep and very sudden, it's today an increase of 75% of pre-war times. And we, of course, see all of that impacting our materials, be it resin, chemicals, solvents, adhesives, everything which is related to oil. But also on the energy and logistics side, we see a clear impact. So the actions we are undertaking to mitigate this. Action number one and most important is the safety of our people. Really important that we take care of our people and we are doing that and I'm really happy to report that up to now no one got hurt because of the situation in the Middle East. All our sites in the region's the six I reported before, are operating. But of course, initially, we had lots of closures, and then we started with single shifts, and then now we are back to running the operations. It is very important to report that so far we have been able to secure raw materials, but of course there is a risk of availability in the market. So our procurement team is working very hard on making sure that we are not running out of any raw material so we are able to continue to support our customers and reduce the impact to our customers to ensure that they continue to win in their respective markets. We have implemented appropriate actions to pass on rising costs, both with regards to our contractual terms, but also when needed, we had to talk to customers to make sure that we pass on earlier such cost increases. There is a possibility that the situation will have an impact on demand. We are very closely monitoring this, and we are staying on top of what it would mean to Hutamaki if demand would drop. Let me swiftly move on to the actions which we started taking last year to drive value for the company. And you remember the three value drivers which we have implemented. Profitable growth supported by all levers, capital discipline, and allocation to best projects which we find at Utamaki, and accountability with speed of execution. We have done that early last year, and I'm again very pleased to see that it's now really working in all our segments very well. Let me give you some examples of what we see. We see that we have now initiated with our strong sales initiatives growth. And as I mentioned before, we see comparable growth growing in the quarter, which makes us, of course, very pleased. We see that two of our segments continue to see also volume growth, which is again another very exciting thing for us. The mix improvement and the turnarounds actions which we did in flexibles are continuing to progress very well, and you can see this with our outcome in the flexible segment. And pretty much exactly one year ago, we bought Zellwein Farms. Integration is going very well. It's getting close to a one-year anniversary now. And again, very happy with that acquisition which we did. So we are using all levers, organic and inorganic, to drive growth for Hutamaki. And we start seeing the outcome. And yes, it doesn't happen overnight. We knew this, but we also knew that we needed to start that journey. Capital discipline. We did spend significant money before 2025 and we needed to be much more rigorous and disciplined how we allocate capital to the various segments which we have. You know that we are splitting it in three parts, equal parts for maintenance, for efficiency, and for growth. And that plays out really well. And, of course, we are always reserving approximately $10 million for what we call the license to operate, so safety, sustainability initiatives, which is very important. We are not jeopardizing any potential growth opportunities for the company, but we are much more disciplined. That is one of the reasons why we had a very strong cash flow outcome last year and, in fact, in the quarter this year, which I will talk about in a second, and then Thomas will dive in into more details later on. Accountability and speed of execution is something which was very important to the global executive team because in a market which is so volatile, which is changing so quickly, we needed to get faster. We needed to get closer to our customers and the end markets we are playing in. And we did a number of initiatives which we concluded last year, and we are again now seeing that those changes are helping our business segments to be faster, be closer to customers, and then see the outcome. Let me now go into more details of the quarter. And let's start with the top line where I said that I'm really proud of seeing comparable growth growing. So you'll see the 947 million outcome for the quarter and a very, very big impact of more than 60 million, 63 million of currency. So adding those two numbers together, you can see that we did grow 1%, which is coming from the organic side of the business and a small impact still in the quarter. for acquisitions. It's the last quarter where we will see that impact. So really pleased, and as I mentioned before, North America and our fiber packaging business did see growth for the quarter again. Going to the P&L. In the P&L, as just reported, we see the 1% comparable growth, so we ended up on a reported basis at $947 million. Our adjusted EBIT margin did grow from 9.8% to 10%. You see the 94.5% reported EBIT, adjusted EBIT there. If you add back the 4.8 million currency impact, we would have been at 99.3%, which would compare to 98.5%. So we would increase our adjusted EBIT on a comparable way. Adjusted EPS landed at 0.56%. and capital expenditure with $27 million below last year, but not significantly low because we believe that we have now found the right level to continue to invest in the business, maintain the business, and get efficiency out of the business. But very pleased to say and to report that our free cash flow increased by $32.5 million and was positive in the quarter with $10 million. Let me walk you through the segments specifically, and let me start, as always, with food service. The demand in food service continued to be soft, and it's especially the smaller accounts which are very soft for us in the quarter. That's partially driven by the Middle East impact, which is an important region for our food service business, which had a very weak top line. But overall, as I mentioned, smaller customers increased. are very soft in the quarter for us. So we see a comparable 8% decline because of the weak demand, but also driven by currency on that side. So 8% comparable decline, 11% on a reported number decline. The segment did great work and continued to do good work on taking costs out. So we were able to manage our adjusted EBIT and we came in at 8% margin with 16.7 million in absolute EBIT for the quarter. Capital expenditure absolutely in line with last year, but very good work on the working capital side enabled the segment to deliver very strong operating cash flow of 17.7 billion, so 10 million ahead of the same quarter last year. Very pleasing to see the focus on the cost side, the focus on the cash side. and of course working hard to get the small customers back to Utamaki and to make them win, and then also benefit on the back of that. Let me move to North America. And you heard us saying in the last report that we had a very significant weather impact in North America in January. We had it in five of our factories for multiple days, so we saw significant cost increases there, which, of course, we see in the quarter. However, what we also see in the quarter is a very strong net sales number. We see a comparable growth of 8%. which is fantastic, but I need to be clear that this is supported by an early Easter this year. Last year, Easter was a few weeks later, so we had the impact in April. This year, we have the impact, as Easter was early April, we have the impact for us in the first quarter. That clearly did help our comparable growth, and still we are very proud to report the 8% comparable growth in North America. On the margin side, we ended up double digit 10%, of course, impacted again by currency. And the big part of the just shy of 5 million currency impact for the group is coming from North America, just shy of 4 million from a currency perspective. And of course, we had, as I mentioned earlier on, we had the impact of the weather. So if you would put those two things together, we would have ended up on the adjusted EBIT side in North America at par or even slightly ahead of what we reported last year. So pleased with the outcome of the North American business after a very difficult start due to the weather in January. Capital expenditure discipline continues. $9 million versus the $12 million last year. So again, capital discipline implemented in all of our segments, and you see it here also in North America, really strongly implemented with a positive cash flow in the quarter for our North American business, which is very pleasing to report. Let me swiftly move over to flexible packaging. And the story continues in flexible packaging that with the focus of margin improvement, that one continued also into the quarter. And we would put a lot of emphasis again on our mix. So you see, even though comparable growth was down 3%, we continue to improve our mix. We continued to win with the customers which are focused for us. And so we're very pleased with the outcome on that side. Of course, that is translating with an amazing cost management and an adjusted EBIT increase of 7% to $28.6 million, with a margin of 9.5%, so they are well in the range of where we want to see our flexible packaging business. Capital expenditure, absolutely in line with last year, but a very strong focus on working capital, which enabled the segment to end up on the cash flow side at 20.9 billion. Significant increase versus the same quarter last year. So well done to the flexible packaging team. And then we go to fiber packaging. And here we also see a continuation of what I've reported to you last year. We continue to see strong comparable growth, both driven by pricing and volume. And as you know, on the fiber side, we are running at capacity. We are investing quite a bit in fiber to enable us to increase capacity as this is a business running flat out as we speak today. Adjusted EBIT increased by $2.5 million and 15.2% margin, which is a very pleasing margin to see for that segment. In fiber, we continue to invest significantly. We did it already in Q1 last year. We continued the same number this year, so significant investment in our very well-performing fiber business. So we spent $7.4 million in our fiber packaging business. And still, they were able to deliver a very strong cash flow, just shy of 6 million, so 5 million more than in the same quarter last year, with high capital expenditure, clearly driven by a very strong EBITDA delivery of the number. Let me hand over to Thomas, who will give you more details on the financial side, please.

Thank you, Ralph. Starting off with the currency impact, which still is trending negative for us. No surprise on that one, I believe, to any one of you listening in to this call. However, maybe pointing on some of the biggest moving parts here, if you look at At the average rate for the biggest impact currency, US dollar, you see that we had in the quarter last year a 1.05 average rate, while we now had 1.17. So despite the US dollar slightly strengthening, we had a significant negative impact of that currency in the quarter. You will also see that most of the other currencies are also trending negatively. But maybe focusing a bit on the impact from the U.S. dollar. So if we take a few data points out of last year, we had an average rate of the U.S. dollar of 109 in the first half of the year and landing end of year at 113. And as you said, now we are at 117. This means basically that the headwind rate will continue still in the second quarter, although then if continuing on the current level, slightly flattening out then towards the end of the year, so less currency impact in the second half of the year, hopefully. But as said, 63 million almost of net sale impact, translating to 4.8 million in overall EBIT impact. So similarly, despite the currency headwind, I'm very pleased to say that we are maintaining our margin or actually improving our margin slightly to 10% from 9.8 previous year. And that's very much supported by still the very focused cost out activities, so around both taking the accountability, but also continuing on that playbook we introduced when we ran our efficiency program, which we stopped reporting mid-last year. But activities are still going on. Also supported by a stable value add. Looking at the finance cost, you can see that we are approximately on previous year's level slightly up uh here i would say one could assume a 5 to 5.5 million uh monthly run rate costs for the for that item so uh we are still on on the low side there for the first first quarter and then on the tax rate we now reported 23.6 percent etr uh that's uh slightly below previous year when we were around 24% and year end 22%, 22.4%. So tax rate roughly in line with where we are and obviously depending on where the profits are collected, tax rate is slightly fluctuating. Then looking at the EPS with all the parameters just reported here earlier, the adjusted EPS coming in at 56 cents versus 59 previous year. Moving on to the cash flow, Ralph already mentioned that the cash flow was positive. This is not very typical actually for Huhtamäki. We are normally very strong in the fourth quarter and then coming in with a low free cash flow number in the first quarter, in many cases actually a negative number. So from this perspective, we are very pleased to deliver a positive cash flow. You will see from this graph that the main contributor here is working capital. We are slightly down also on capital expenditure. And as you see, the paid taxes are higher than previous year, which is really around the timing of when the taxes come to payment. Continuing on a healthy net debt debita level of 1.9, so our efforts to maintain a strong balance sheet has been delivered. The gearing is down slightly from fourth quarter, so also a positive development. And as stated on this slide, we have significant cash and cash equivalents available. And on top of that, we also have the unused committed credit facility of 450 million available. Despite that said, we are working on our loan maturities. You see from this slide that in 2027 we have a significant bond maturing. As you have seen from previous efforts from refinancing, we are continuously and diligently working on maintaining a healthy structure when it comes to maturity, so activities around that one can be expected. Looking at our balance sheet, on the balance sheet side, as I've mentioned so many times before, we are having translation differences on our equity, although it's slightly improved versus the year-end level of roughly 34 million. The drag is still coming through on currency. And I said... I said the working capital helped us to improve on the cash flow side. Our return on investment is still lagging our ambition, but we believe once we are getting more top line in that we will see that one improving as well. And that one, then how we progress on our long-term financial ambitions, you will see that our comparable net sales is significantly below the long-term ambition. However, given the last year's trend, we are very pleased to see a positive number on the comparable net sales in the first quarter. Adjusted EBIT margin continuing now on the double-digit level. Although we normally see some weakness in the first quarter, we are very pleased to see now the double-digit coming through also in the first quarter, similar to year-end 25 and 24. And then, as said earlier, the return on investment is still lagging our ambition. And if approved today, then we will have the dividend payout in line with our long-term ambitions. Looking forward, the outlook remains unchanged. However, on the short-term risk and uncertainties, we have added the sentence, ability to pass on increased input costs, just to highlight the importance of now managing this exceptional cost escalation situation we are seeing in the market as Ralph was so well presenting on the Middle East situation. And with that one, I would hand over for Q&A. So please feel free to address your questions.