Huhtamaki Oyj U/Adr

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 Christian 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 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 presidents, 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 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 1st 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 are 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 Utamaki 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 five, 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 25 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 ag business and the pricing for recyclable fiber increased during Q3 and we were able to then pass on in Q4. So with that, I would like Thomas to talk about the financial results.

Thank you, Ralph, 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 uh as highlighted already several times in this call uh 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, 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, our USD landed at the end of the year on 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 the currency which has had the 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. Another 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 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. the financial position mentioned already that it continues to improve of course in the balance sheet we have as always reclass readjustments coming from purely effects 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 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 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 the door.

To ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Kalle Leukenen from Danske Bank. Please go ahead.

Good morning, gentlemen. This is Kalle Loikkonen from Danske Bank. I have a few questions, maybe take them one by one. Firstly, on the organic growth, that was 3% in the quarter, and I was just wondering, could you open up the split between price and volume?

So on the last quarter, we had a positive volume development and a slight negative on the price and mix. So main drivers is volume in the quarter, clearly main driver.

Okay, sure, sure. Sounds good. Then on the flexible packaging side, And especially in terms of EBIT, EI was very weak. So the other markets must have been quite strong. Can you elaborate on what the challenges are in India? And perhaps more importantly, what needs to be done to get the India operations fixed?

Hi, Kalle. Look, you're right. The overall flexible packaging had a very strong quarter. And we saw really great performance in Europe. and in Southeast Asia and also in Africa. The two areas, as I was highlighting before, where we need to do further, much further work are India and Turkey. And it's similar. It's similar that in both those markets, we need to find ways to grow the top line. And if we grow the top line, like in those markets, many of our competitors do, then we will start seeing a clear turn in those markets. So let me talk about India than specifically first. India is a very competitive market and in India we got to really use our scale. We are a major player in India and we need to make sure that amongst our factories we are getting leaner, we are getting more competitive on the cost side and we can partner up with our customers on the medium and long term even stronger to benefit from their perspective in the market and help them to win. And we need to drive our export sales from India into other countries and other geographies. For example, Africa even more where we would have a very similar customer base. And I think we have a value proposition which can also help our customers there to win. So it's about top line and it's about competitiveness. We are launching as we speak a very focused approach to help our colleagues in India to turn the situation around. turkey even if you didn't specifically ask but let me just say it's a similar situation from a top line perspective we need also in turkey to grow the top line and even more important because the inflation in turkey on salary increases is hurting us a lot so the only way to compensate is this to pass on and grow your top line hope that helps color

Yeah, thank you. That was excellent. Thank you. That's a good summary of the situation. Okay, and then I was wondering about the raw materials and your expectations for 2025. How do you estimate at least where we stand today that the prices will develop for you? Perhaps mostly interesting for me would be the paper board side.

if i heard you correctly the line was broken you are asking about the raw material trends and how we see this developing if that's if that's the question then i would say that we have seen over the last quarter or two quarters roman more material prices generally flattening out so we we saw that coming down earlier in the year And then again, H2 flattening out. We don't see major changes on the raw material side as we look forward into 2025 at the time being. So we of course, we are monitoring that closely. But current outlook is that certainly for the beginning of the year, we don't see any major changes.

OK, that's perfect. And then lastly, on my behalf, I was wondering about the, I mean, your balance sheet is, or the leverage target is you're at the low end of the corridor. So I was wondering any thoughts on that. Are there any interesting M&A targets currently, or is it more kind of a waiting game? And also, is it some specific segment you are mostly looking at in terms of

Yeah, thanks for that question. I think you are asking really on the second point and the first point marrying I talked about, so growth and capital discipline. And if I answer it together, so we want to use all levers to grow. company the number one focus and will always be is organic growth supporting current customers current markets where we can get to our expectations on profitability so investments in those is always where we will allocate to the highest to the highest yielding projects our capital first but we want to be open-minded to also growing We have the firepower, but we will do it in a very disciplined way, not in a hurry, but we will monitor what's out in the market, which could strengthen us, which could help us either on the technology side or on the geographical side. of course we will look at the segments to say which segments are strong which segments are able to integrate and deliver the synergies so that's of course part in our evaluation of where to invest if and when we do m a but it's part of our overall accelerating growth agenda going forward color

all right thank you that sounds sounds very good um i think that's that's all for me i'll let the others others continue with questions but but but ralph um congrats for the appointment and and um and and good to good to good to speak to you thank you thank you the next question comes from maria wickstrom from scb please go ahead

Hello, gentlemen. This is Maria-Viktor from SCB. Thanks for a very clear presentation. I have three questions. I can take them one by one and would like to start... I mean, first of all, I think I was saying music to my ear here about the capital discipline. I mean, you said quite a few times, Ralph. And I wanted to look a little bit back, given that you sat on the board of Huhtamäki, and there were some heavy investment years prior to 2024. And what is your analysis that why did those investments not to meet the capital return targets that you have set for the whole group?

So I think the big capital investments which we have done as a company over the last really four, five, six years were very much focusing and supporting our organic growth and going with technologies which are going to support our sustainability agenda. so i i personally believe that for example investing heavily in smooth molded fiber was a very smart smart thing to do there is a clear conversion from plastic to smooth smooth molded fiber and we see this just maria look in in finland when you go to some of the quick service restaurants you see more and more our product our lid being in the in the market so the fiber lid is taking its way as an example It will take time. Look, it will take time for consumers to appreciate that new material. It will take time for customers to make the switch. But we are very committed and we are very optimistic that we did the right investments there. I could give you another example, you know, a very big investment which we did in North America in the Hammond site, which we announced, I think, over a year ago or so, where we are investing to support the egg packaging industry. And it's a similar story, you know, it's an investment which was very significant, but it needs time to build machineries, to bring them over, and then to commercialize. We did commercialize, we are very happy to say that in Q4 we saw commercialized business, and it will ramp up nicely over 2025. So we will see an impact at the back end of this year on that one as well.

Perfect. That was very clear.

Then my second question is on the profitability of flexibles, because this, I mean, if we look at the long-term history, I mean, this has always been a drag and below the company's own targeted EBIT margin of 9 to 11%. So I wanted to ask it a little bit differently. So if we exclude India and Turkey, I mean, would the flexible segment be already at the targeted EBIT margins?

Yeah, look, we would not, Maria, as you understand, comment on exact margins by regions. But clearly, clearly, you know, Turkey and India and the Indian numbers, you could see if you go to the India announcement as it is a listed company, are dragging us down quite a bit. We were very happy with the achievement of the flexible packaging segment during Q4. It is clearly a sign that they can step up quite significantly. They delivered, you know, in the quarter already 8%. And I think they are also stepping up for the full year. So, yeah, your assumption is correct. If you would exclude those two, you would see, of course, an improvement in the overall EBIT margin.

Thank you. And then finally, a little bit wanting to touch, how do you feel about the like the plastic to paper opportunity in North America? And you mentioned Hammond and I was very glad to be able to visit the Hammond site last September. And but I still think that the I mean, given that the the the foam packaging still represents 50% of the U.S. egg packaging market, I mean, roughly about a billion dollars in size. Do you see, I mean, there is a lot of growth opportunities for Hustamaki, I mean, going forward to increase their share in molded fiber segment or fiber segment in North America?

Thank you, Maria. Your question around plastic and plastic conversion to fiber in North America is a very relevant and frankly also very timely question. I believe that the trend of conversion of extended polystyrene towards fiber will continue. It's a state decision. There are states who made already the decision and are moving forward to go to fiber and other states will follow. I think it will be moderate timing. I think we won't see this conversion happening very fast. but I also believe that it will happen. And of course, you know, there are already big markets which are converted. So I think our investment in Hammond is not just there to support the conversion, but it's also there to address the already existing demand for fibre packaging.

Thank you very much and wish you good luck in your new position.

Thank you. Good to get to know you, Maria.

The next question comes from Efrey Ravi from Citi. Please go ahead.

Thank you. Two quick questions. Firstly, the comparable annual sales growth of 2% in Q4 is a recovery, but it's still kind of well below the 5% to 6% growth we've been targeting. If I do a very rough back of the envelope, there's been obviously some good years, bad years, but on average it's been about 3.5% or 4%. kind of kegar uh for uh the uh the comparable sales growth appreciate you are new to your current role but what time frame uh and path do you see to kind of restoring that uh that growth Target that's the first question you are asking about our growth rates in North America if I heard that correct line was broken again a little bit total for the company company growth

Pardon me. So it's for the total company. We are, of course, and you're right, I wouldn't have a long history on the details. So Thomas will jump in in a second as well to support my answer. I think overall, over the years, we have seen years, frankly, if you look at, for example, 2021, 2022, But even earlier than that, so from my memory, even in 2018, we have seen that we have delivered the growth rates which you were just quoting as a total company. Of course, we have seen over the last couple of years a lot of, you know, slow moving growth all over the world, clearly also in the markets which we are operating in. So from from my perspective, there is no point in making adjustments to our ambition for the company overall the site five to 6% comparable growth rates for the company. And by the way, also not for all the other KPIs where we have publicly announced our ambition on our strategy 2030.

Thank you. The second is just a topical question, I suppose. President Trump a few days ago signed the mandate to roll back on facing out of plastic straws and had a few colorful phrases to describe paper straws. Can you remind us your sales exposure to the paper straw category and how important is it to your U.S. business?

Yeah, we saw that as well. So rather than commenting on his announcement, I'd like to point out that, yes, we are in paper straw and we are in paper straws only in Europe and in Asia. We have no paper straw whatsoever in our U.S. operations as of today.

Thank you.

The next question comes from Lewis Merrick from BNP Paribas Exane. Please go ahead.

Morning, Ralph. Morning, Thomas, and congrats on the strong quarter. I'd just like to start by talking a bit more about the volumes, which continue to contribute positively, which is a good sign. Can you give us a bit further detail on seeing the stronger growth and also the areas which are still across the business? I know we talked a bit about India. Can you give us a bit more colour on how you're thinking about that evolving into 2025 from a volume perspective? Thank you very much. I've got one more follow-up.

I will take the first comment around the volumes all in all. If you think about how we communicated throughout the year, last year, we said that we have high fluctuations in, first of all, high fluctuations in both demand and in volumes. We also stated throughout the year that we see an improving trend, and the improving trend you can already interpret also from the overall comparable growth rates. So to conclude on almost segment by segment, the last part of the year we saw positive volume development. However, looking at it on an overall scale, in some cases also towards slightly more moderated previous year's comparisons. When it comes to 2025, I would say on overall, we remain optimistic about a similar trend going into 2025. We expect though that there is still volatility in the market. We also have, from our own point of view, capacity coming on more towards the end of the year. So H1 was more moderate for us previous year. H2 was strong. And I wouldn't be surprised if the trend is pretty similar this year. What we need to account on is that our customers are more and more cautious about how they order. So their order pattern is more on need basis than it used to be prior to the COVID period. So that explains some of the volatility as well.

The only thing, Luis, if I may, to compliment Thomas' comment would be that we have seen in Q4, which was strong on volume, impacts of a pull from early January February volumes, especially in North America, where customers were a bit nervous about what could happen on the tariff side. So we have seen that and a lot of promotions ending the year. So I would totally agree with Thomas that we are positive about 2025 in general as a gradual improvement should continue. But with the seasonality, which we have much more in the second half of the year.

Thank you, and you just touched on the point in my next question. Just on tariffs, can you talk about how you're thinking about potential impact from the various announcements we've had recently in the United States? Where do you have potential exposure? Where could you potentially benefit? Just help us think through that, thanks.

Yeah, Louis, I think Again, very timely question to ask. So we are in the, I think, fortunate situation that we have a very strong US business. We have 19 factories in the US. We have 4,000 very skilled and capable co-workers. in the US. It's a market where there's very little raw material bought from outside and frankly there's very little export going out of the US. It's really local for local. That would be my description. So I believe for us the impact will be minimal. Can't see how that would go the other direction. Now you could ask me, are you going to benefit from it? And also here I would suggest it's minimal because many of our customers are already buying locally or have changed over the last years. to maybe Asian suppliers outside of, for example, China. So there is this trend on the customer side. But then again, for us, as we are really looking at local for local, I don't see any significant impact, neither on the plus nor the minus side.

Thank you. I'll turn it over.

The next question comes from Cole Hathorn from Jefferies. Please go ahead.

Good morning. Thanks for taking my question. I'd just like an update on how your price negotiations are going with your customers at the moment. I'm just trying to understand how you see price cost into 2025 considering, you know, a lot of the raw material, paperboard are more stable, but, you know, there will be probably some inflation around the labor side and potentially on logistics. I'm just wondering how price cost is developing into 2025. Thank you.

Yeah, Cole, thank you for that one. So we are, as you rightly say, we are at the moment where lots of those negotiations on both sides, supplier and customers, are taking place. The very significant inflationary pressures of, for example, last year are still there, but not as big as they used to be, but they are there. So we have an absolute need to, on the one side, make sure that our cost efficiency program will continue and we will be hopefully able to deliver on that in full and ahead of time, as I mentioned before, which is going to help us to be competitive. And the negotiations, of course, on inflationary costs from our side are understood by our customers. And of course, on their side, you know, they are looking of options on how they can, together with us, work on cost out programs. So that's starting with the customers and we are in the middle of that. I'm positively optimistic on that side as I'm on the supplier side. So raw materials, as I mentioned, since a couple of quarters are relatively stable. So we believe that, again, with the capabilities which we have developed over the last couple of years, we should be able to also on that side have a relatively flat position going into 2025. So I think we are positioned well.

And then can you give some color on... what you're seeing working with your customers? I mean, you talk about promotional activity. I imagine that's mostly the QSR and trying to get customers back into stores. But are you seeing kind of any improvement in footfall data from the customers that are calling out or any positive trends on kind of consumer spending in a kind of an uncertain macro environment?

Yeah, look, it's early days. We are coming from this high inflationary pressure side. And if you look at the consumer, they have had in their wallet, frankly, less money to spend. And so they downgrade. They don't go to QSR. QSR prices went up very significantly. they downgrade and once they have downgraded for the qsr there's a lot of effort to get them back into their stores and you're spot on that's why they do their promotions to get people back into their stores and we saw in q4 a slight improvement still a negative number which we have shown but a slight improvement over the quarters before now that's one quarter so there is no trend yet We are monitoring this. We are working closely with the customers to see on how their promotions are going. It's not only on the QSR side. It's mainly there. So you are right on that call. But we see this also on the flexible packaging side. So also on that side, we see similar activities and similar trends. So we are again here, we are seeing it in Q4, but it's too early to call it a trend, monitoring it, of course.

Ralph, and then maybe the last one just on M&A. Are there any segments within the Hutamaki business that you feel you are subscale and you need to bulk up in order to compete? And I mean, the reason I ask this is there's been a lot of M&A across packaging and scale and procurement advantages are clearly a benefit. and I'm just interested in who Tamaki you feel needs to be bulked up and what your focus is initially. Thank you.

Yeah, so thanks for that one. So I think it is a lever which we as the organic growth side, which will always be there, it's a lever which we need to look at. And we will look at that in an extremely disciplined way. So we will not just do a deal to do a deal and to bulk up, but we will do it exactly for the segments, for the technologies where we feel strong about and we feel strong about because we believe they can deliver on our return ambition that's the way we are looking at that and we have a lens which is of course also on which segments do we believe can deliver and have the capabilities to do it because it's not just doing the deal it's afterwards about integrating it and getting the synergies out so it's a lens which we are putting as an overlay to that as we go forward looking at our pipeline on the M&A side which call we are developing

Thank you.

The next question come Henry Parkinen from OP Financial Group. Please go ahead.

Yes. First of all, good day for everyone. I have two questions. Both of those are related to your FEC improvement program. You mentioned that so far the savings are 70%. six million euros i wonder if you can split this uh between quarters during the two 20 24 so i'm looking for that what was the run rate uh during the fourth quarter and on the other hand when you have implemented this program what have been the key findings and key key learnings which makes you confident that you can keep these savings when going forward thank you very much

yeah thank you henry for for the questions so if i understand you right then you are splitting the questions really into two parts first part would be around you know in which of the four areas which i described before we make we made the progress and the second one was around the the split of timing and maybe there is a you know even a third one which is you know what's the run rate so it's maybe three parts really of of your question so if i understood you correctly and we let me go one by one so the first one is that we benefited from a very early launch so we we had already announced it at the end of 2023 And we were able already at the back end of 2023 start the program very strongly. And we got a big advantage of, if you will, a front end advantage. So early on in 2024, frankly, already at the back end of 2023, we saw first impacts coming. So it was, if you look at the year, it was front end loaded towards the H1 of 2024. which kind of helps you to explain or help me to explain that we won't see a significant run rate on the 76. We are confident, though, that we will deliver on the full 100 million ahead of time, which was three years commitment. So that is to this part of the program. The second question, pardon me. Second one is around which of those four areas we worked on. and the good news is we worked on all four of them and we got significant outcomes on all four of them now as you know our p l structure it's easy to understand that the major part did come from the raw material side so that's that's clearly one where we maybe had the biggest benefits but it's a it's a success in all four areas which i mentioned earlier on in in my presentation and then the last part is around maintaining and sustaining the benefits i feel good about that i feel good about this because we have also built capabilities in the company so we just we did not just do a quick and dirty cost out but we built capabilities to ensure that we have a very high likelihood to maintain the levels we are now on Having said that, Henry, you know that in every business you have to continuously look at cost out. It's nothing which you do as a one time and then you stop, but it's an ongoing program and it's part of what we would call continuous improvement. Look, the SG&A which we have built, so really the capabilities which we have built, are of course helping us going forward when we see the growth. And I mentioned earlier too, I think it was Ravi, that we are sticking to our growth ambition. When we see growth coming back, of course, the capabilities which we have built, which you would see in our SG&A, are going to help us to benefit even stronger.

Yes, thanks.

The next question comes from Pallav Mittal from Barclays. Please go ahead.

Good morning. Pallav Mittal on behalf of Gaurav Jain from Barclays. Two quick questions. Firstly, if you could help us understand the impact from the bird flu in the U.S. and how does it impact your ramp up of the new egg packaging plant? And secondly, if you could share your latest thoughts on the PPWR initiative and how do you think it will impact Hutamaki?

Thank you, Paolo, on these two questions. So the bird flu in the US currently has an impact of call it approximately 10% of the total volume available. Now, what's happening in the market is that prices for eggs are, of course, significantly going up. And because of the significant going up of pricing, consumers typically downgrade on how many eggs they buy. So they would buy typically smaller packs. buying smaller packs is is an advantage to us because our Hammond facility in fact is currently doing the ramp up focusing on smaller packs and only at the back end of 25 will start looking at bigger size packaging for eggs so yeah of course the bird flu is is impacting the market overall I think there is a limited impact to us specifically while we are working on the Hammond side ramp up. On PPWR, I think there is currently no new development. I think we are very neutral on what was decided and what is going to happen over the next years. It doesn't change our strategy really on sustainability. We are going to continue to work on recyclable packaging we are going to help you know really the customer and the consumer with post-consumed plastic on that side we are going to continue the conversion and helping our customers and their conversion from plastic for example the question from maria was about the lids or my answer was around the lids i should say so that conversion we will continue Look, we support what's happening there. And we see that, of course, fiber, as an example, is easier to recycle rather than plastic when it comes to food contact packaging.

Sure, thank you.

If I may add from the flexible packaging side, an example, we also invested heavily over the last years in what we call Blue Loop. And I think the Blue Loop investments which we did, which are also, of course, supporting the legislation on PPWR, There is a monomaterial which is supporting PPW on the one side, but it's also a competitive product on the other side. So I think it's very, very important to support regulation, but also support customers and consumers that we're having a very competitive product.

Thank you.

The next question comes from Kevin Fogarty from Deutsche Bank. Please go ahead.

Good morning, everyone, and thanks for taking my questions. Let's touch on the cost efficiency program. Obviously, there's good news that that's coming to a conclusion earlier than expected. I just wondered, did that program throw up the possibility that there might be scope for more in terms of cost savings to be delivered? So I just wondered if there was any sort of further capacity thought for cost saving improvement. And secondly, just apologies, I joined the call late, but in terms of the change of CEO and change of management, I appreciate there's a more sort of focused growth agenda But I just wondered if you could put a bit more sort of flesh on the bones of what that might mean from an organic perspective rather than just M&A. Or how should we think about that one, please?

Yeah. Hi, Kevin. Good to get to know you. So, look, on the first part, on the cost efficiency program, we are And I mentioned that earlier on, so you might have missed that. I mentioned we are on good track to deliver the 100 million commitment ahead of time. So we are at 76 million already and we are lower on the cost to achieve. So we feel good about those two. It's a program which we will finish if and when we reach the targets but we won't finish working on cost out it's part of our continuous work which we do and in our industry you have to do all the time so that one will not stop but the specific program with the allocated cost to achieve will stop if and when we achieve our targets which is set but rest assured the continuous improvement will continue So that's on the first part and I mentioned also and you might not have heard my answer on that. We think we have now the capabilities in place to sustain the savings going forward. So that's really the first part of your question. The second part, Kevin, it's of course not all around M&A. In fact, it's all around organic growth. I mentioned the organic growth side first because I believe that we need to come closer to our ambition. Ambition we did not change. It's the 5% to 6% comparable growth. And all segments are contributing to that ambition. We want to do this. by giving people more accountability, being faster. And the first step towards that was the change and the split of the fiber food service business, which we made today. It was a large business segment before we split it. which had very different drivers. There was a driver, for example, on the food service side with the change of what's happening with the conversion from plastic to fiber. On the one side, the fiber lids was my example there. And of course, a very moderate growth market for the QSR. So the focus for them is a very different focus than for our fiber segment. The fiber segment is enjoying strong growth Overall, you know, it's a very local market. It's a market which is serving the customers in in the countries where we operate. So very different drivers. We believe that, you know, with the approach which we have taken, we are going to be closer to those markets. We are going to be faster and we can accelerate organic growth with that approach. So we believe that, again, the change of accountability and speed will help us to grow faster. We will do investments. I think that's another point I mentioned. We will do the investments, which we did, much more focused on returns. So we will be very disciplined on where we invest and how we invest so that we will make sure that we have a high chance of getting to the return targets, which we set out, Kevin.

Okay. No, that's helpful, Kalle. Thank you very much for that. Thank you.

The next question comes from James Perry from Citi. Please go ahead.

Good morning. Thanks for the presentation. I think most of the questions have been asked now, but I'd just like to ask about fiber packaging. Obviously, we've brought in a strong 12% comparable growth in Q4. Do you think that the conditions allow for sustained growth, really, at that high level throughout 2025 with the Hammond ramp-up? or was this mostly short-term and due to easier comparison basis in the avian flu effects?

Yeah, look, first, the Hammond extension is something that you would see in our North American segment. So it is going, you're right, it's going into fiber. It's going also into fiber for egg packaging. But we are managing this and showing this under our North American segment. So the 12%, which you are seeing in Q4 for fiber, is excluding that one. now the the 12 percent was was a mix of volume and pricing and we had of course you know on the even if i said that overall the the pricing on raw material was pretty stable for the group in fiber specifically you would have seen that recycled part was going up over the second half quite a bit on the pricing side and we were then you know passing it through to customers with a bit of a lack so you would see also in q4 the positive impact of the pricing due to the lack of passing passing it on so i i see with the investments which we have made and now it's not 2025 relevant the investment we are doing in egypt but still with the investments which we've made in the past and and our efficiencies which are improving in our factories i i see good growth coming towards us on the fiber segment side okay thank you

That was all the questions we had for today. Thank you for dialing in and for all the questions. As usual, if you have any follow up questions, please feel free to reach out to our team. We will be glad to help you. And with that, we thank you for your time and wish you a great day.

Thank you.

Thank you.