Huhtamäki Oyj

Good morning, everyone, and welcome to Huhtamäki Quarter 3 results presentation. My name is Ilja Aarre. I am the VP of Investor Relations. Today's presentation will be a management discussion followed by a Q&A session. With that, I will hand it over to our President and CEO, Ralf Wunderlich.

Thank you, Ilya, and look great to have you on board with us. For those who don't know Ilya yet, Ilya is with Hutamaki five years now, Ilya. Started in strategy, then went to North America and worked in our business segment in North America. First also in strategy and then followed in a business role there. So, again, great to have you. Welcome, Ilya. From a Q3 perspective, I'd like to report that we are very pleased with another quarter of comparable net sales growth. We had 4% in the quarter, and that's in a very soft demand environment. We also delivered a very strong EBIT with a 10.9% margin. That's supported by solid performance in flexible packaging and fiber packaging. Additionally, the quarter was impacted positively by 23 million revenue recognition from a commercial contract which was concluded in food service packaging in our smooth molded fiber operations. North America and food service packaging were negatively impacted by weak demand, operational challenges and inflation-driven cost increases. However, we have taken actions to address those issues to support our profitable growth agenda. Now, how are we going to address those challenges? and, as I said, specifically in North America in food service. We'll do that with exactly the same playbook which we introduced a year and a half ago in flexible packaging. That playbook is focusing on three main areas. Number one, commercial excellence. Secondly, procurement. And last but not least, cost-out initiatives. The primary objective is to secure our long-term 10-12% adjusted EBIT ambition. Let me give you some more details around those activities and actions. Let me start with commercial excellence first. First, it's important for us to fill our growth pipeline and to have the resources to support that growth pipeline delivery. And secondly, we've got to take even more pricing actions to preserve the leakage which we are seeing from cost inflation, especially in freight and distribution. We have to make sure we pass those on. Secondly, procurement. We've had a year we've had significant direct and indirect input cost increases. Those are accelerating and we need to push against those and mitigate those inflationary impacts. And those are stemming largely from the Middle East crisis which we have seen since end of February this year. And then last but not least, cost out. All cost levers will need to be addressed. Potential restructurants and productivity need to occur. All those levers are important to us. Let me just give you a couple of examples of what we have done now already. We have suspended our production in smooth molded fiber in our Sacramento facility in the U.S. We're doing a lot of work as you know in our startups and here I'm really pleased to report that especially in Hammond we are seeing great progress on that startup at the end of the quarter already. So there's a lot going on and hence I'm very confident that we will execute these actions with the playbook which we have introduced a year and a half ago and we continue to fine tune. Let's move over to the business performance first in the quarter. It is the second quarter in a row with comparable growth. In the quarter itself, we see 4% comparable growth. Year-to-date, we are seeing 2% comparable growth, especially pleasing to see that both our flexibles and our fiber businesses continue to show good volume growth. It's also a quarter where we see first time that currency FX has started to turn positive. However, year to date you still see a 67 negative currency impact on the top line. Let's have a look at the P&L in a bit more detail. Strong EBIT margin as I reported in on the first slide of 10.9% and 110.5 million in absolute euro terms respectively. EPS did grow 10% to 68 cents per share. CAPEX is in line with last year in the quarter. Our disciplined capital allocation continues. It's really important and it's the sixth quarter in a row where we are showing and posting positive cash flow. Year to date it's a similar picture. Strong margin over 10%, lending at 10.4%. EPS is up 3%. And on the free cash flow, as I said, we are having six quarters in a row positive. We are setting us up for a strong finish to the end of the year as well. Let me move to food service packaging. Demand is again very weak and it's below last year's level. That's not a great starting point. However, the business continues to take significant costs out so that the underlying are performing still at the around 8% margin. And that is, of course, taking out the revenue recognition from a commercial contract which was concluded in the quarter. So I'm taking that out when I talk about the 8% for the year-to-date margin of the segment. Actions to support the commercial excellence, procurement and cost out, which I talked about before, are being implemented also in food service. Track record shows that the segment is able to take cost out. Now we have to start being much more successful on the top line and find areas to grow and fill our pipeline in food service as well. Let me move over to North America. Clearly the performance in the quarter is disappointing. We have had challenges that are really focused on two areas. First one is a weak top line. Second one is that cost inflation mainly in freight and distribution did hit us even more than we thought it would. Now on the top line side, we see a particularly weak in food service and in the quarter itself in retail. Good progress, though, in Hammond, as I mentioned before, and I mentioned before that we suspended Sacramento. There are now also actions in place to attack the cost inflation, which I talked about in freight and distribution, that we will make sure that we pass those on to our customers swiftly. Year-to-date, top line is also negative, but it's 3% negative versus the significant decrease in the quarter itself. Cost that is having a strong impact on the EBIT reduction in North America coupled with the inflationary pressure which we are seeing again mainly on freight and distribution we come to a year-to-date performance of 8.2% margin. In the quarter we delivered better operating cash flow and that is translating then also in better operating cash flow for the year-to-date in our North American business. Now look, the playbook is in place. The playbook is proven. We have done it before in flexibles. We will do this again here in North America. There's no doubt that we will get this business back to where it needs to be, which is above 10% EBIT margin. And I feel very confident that our North American team will get there. It's an attractive market. We have a strong team there. So we'll get this back on track. Let me move to flexible packaging. Flexible sustained its good momentum. I'm really proud of the segment's performance here. Healthy volume growth, also good on passing on the raw material price increase which we have seen in flexible packaging, and we have had also a very positive mix effect. Continuous focus in the segment on their cost management and their turnaround activities. They were the ones where we implemented the playbook which we are now using in North America and in food service. That's of course supporting their performance again. All their regions are up both in top line and in EBIT. So again, really proud of the performance there. Also proud of what they're doing on cash flow for the year to date. They are ahead of last year. You see the impact of the raw material price increases in the quarter itself, but they are defending their year to date performance on cash as well. Last but not least, our fiber packaging segment. Static growth with a good profitability continues here. It is another very strong quarter for our fiber segment with improved profitability again. Comparable growth in the quarter was 3%, year-to-date it's even 5%, with volume growth again all over the regions which we are playing in in our fiber segment. Stable and improving demand in our egg and fruit markets. Our food service markets which we are serving with the cup carrier was weaker but it's the smallest of the three segments we are serving within fiber. We will continue to invest in this business and we are looking forward to hopefully another strong finish to the year with our fiber. Let me pass on and hand over to our CFO Thomas Geust.

Thank you, Ralf. In the quarter, the currency turned positive, as Ralf already alluded to here earlier. We had roughly 11 million positive translation in the net sales and 1.6 million on EBIT. However, when you look at the year-to-date numbers, you see the significant negative still of roughly 67 million negative impact on net sales, while the impact on EBIT was still negative 4.7. Of the currency translation, a big part alludes to the USD currency. And when you look at the development of the USD, you can see that we have an average rate still of 1.16 in the quarter and 1.14 at the end of the quarter, so the closing rate. If you look at the currency yesterday, it was at 1.11, so the trend has continued positive throughout the quarter. Maybe highlighting a few of the other currencies also on that slide, we have British Pound, Chinese Renminbi, and Australian dollar also trending positively. Turning over to the profit and loss, Here we see that the growth of 5% on top line is nicely converting into EBIT growth of 10%, and that then delivering an EBIT margin of 10.9% in adjusted terms. The strongest operational improvement we see in our flexibles and fiber packaging segments, while then the conclusion of commercial contract in food service provide additional support to the top line and adjusted EBIT. Looking at the finance cost of roughly 17 million in the quarter, that is slightly elevated, but here I consider that the year-to-date numbers represent a good assumption for our run rate. That combined with the efficient tax rates delivers adjusted EPS of 68 cents, which is up 10% to prior, and also the year-to-date EPS of 188 is improving versus prior year. In the cash flow, as said by Ralf, we have now six consecutive positive cash flow quarters coming in with year-to-date free cash flow of 79 million down versus previous year. However, I would conclude this more on timing as well as some of the elements which I will allude to when going through the bridge. On the EBITDA, the main reason for the Our working capital is mainly related to the inflated raw material coming out of the Translator's Note When looking at the net debt leverage and liquidity, I would conclude that with 1.2 billion of net debt, we continue to deleverage. Our net debt-debit ratio is now 1.9x, which is below our ambition corridor of 2 to 3. We also improve on gearing, which is now 0.58. And looking at the liquidity position at the end of the quarter, we had 364 million of cash equivalents and 450 million euros available of unused committed credit facilities. So we can conclude that our balance sheet remains strong. Also on the debt structure, you can see our continuous work on maintaining a healthy loan maturity and that combined them with efficient financing terms. Our average maturity has now been extended to 3.9 years. versus 3.6 end of Q3 2025. And we have also continued with refinings throughout 2026 with the extension of the RCF as the latest example. Continuing to the more detailed balance sheet, as already mentioned earlier, our balance sheet remains strong. with equity roughly 2 billion. Beyond already highlighted topics, I would also like to highlight the improved adjusted return on investments, which is now 12.3 versus 11.9 prior year, as well as the adjusted return on equity of 13.8. Additionally, I would like to highlight that the balance sheet is impacted by currency movements alone on the equity roughly 186 million of negative currency translation differences. Looking at the progress towards our long-term ambitions, I would conclude that we are currently meeting our ambition for three of the parameters, adjusted EBIT margin, NetEBITDA, as well as dividend payout. For the adjusted return on investments and comparable growth, we are still trailing behind, however, seeing some positive development in that one lately. Looking forward, we have no changes to our outlook nor to our short-term risks and uncertainties. So with that one, I would actually hand back to Ralf for his concluding remarks.