Huhtamaki Oy Ser 1

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.

If you wish 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.

Next question comes from James Perry from Citi. Please go ahead.

Good morning. Thanks for the presentation. I'd like to ask a couple. Firstly, on fiber packaging, Obviously, you mentioned a strong 10% comparable growth in Q2 when other businesses are low single digits. What's still driving that performance, would you say? And do you think the conditions allow for a sustained growth of a similarly high level throughout 2025 or with this mostly short term and due to easier comparison basis? And secondly, North America, you mentioned the positive volumes and peers cited higher interest in domestically produced products. I know it's difficult to determine, but do you have any sense as to whether customers are looking for a temporary workaround or are they interested in long-term contracts, would you say?

Thanks, James. Let me start with the fibre question. So we are seeing since many quarters that the fibre volumes are strong and showing good growth. That's specifically true for the egg part of what we are doing here. So we actually believe that the investments which we are doing in fiber will continue to help us and support our growth ambition on the fiber side. So number one, we believe that the Australian avian flu, which is going to to fade away as I mentioned before it will help us in that market the investments which we are doing in Europe should help us in the European market so I foresee if there is no new avian flu coming up anywhere that we will continue to see for the foreseeable future a good growth in in the fiber area And we are supporting this with investments. You have seen that fiber is the only segment where we have invested more than last year in the first half. North America, and is seeing growth, which is mainly coming from a couple of things. First area are the investments which we did last year. We start seeing, it's early, so we believe we will see more end of Q3 and then in Q4, but we start seeing the positive impact of the investments which we did. So one in Hammond, which is also on the fiber side and also here specifically for the ag market. We continue to see really good interest from our customers. They have signed up not just for the short term, but for the medium term as well. So we see that in the states which are committed to continue with their sustainability, approach that we see that those markets and those states will continue to help us with our growth. We will see that and that's going to be helpful. We see also that with our tier two customers in North America, which we are supporting very strongly, we still see for the foreseeable future growth. So also on that side, we are pretty pleased. And our investment on the carton side will help us there as well. So you remember that we are doing an investment as we speak in Texas. So that one will help and will support our growth ambition. And we have also here signed up customers. We believe on that side it's good. The big unknown for all of us and clearly for Hutamaki as well is what is the impact of the tariff discussion of inflation in the US. That's so difficult to forecast. But currently we don't think there's any short-term positive behavior. We see the trends which I described continuing for the time being. But clearly something which we are monitoring very closely.

Okay, thank you.

Next question comes from Louis Merrick from BNP Paribas. Please go ahead.

Morning, Ralph.

Morning, Thomas. Thanks for taking the questions. Just starting off on volumes, can you talk a bit about what you were seeing early on in July across mainland food service and flexible packaging divisions? Are there any noticeable changes to fall out there relative to current trends and perhaps can you maybe quantify an exit rate on the quarter in those divisions?

Thanks. Thanks, Lewis. Look, July is seeing a continued trend to what we have seen in Q2. So we don't see here a significant change in either direction. So that would be an unfair statement to make. So we believe that if the market comes down in Europe and that we will start seeing in food service in Europe towards the end of the year an improvement, But we need the market to help us here. So that's one thing, especially in the UK. Western Europe, frankly, in Q2 was already a clear improvement. But the UK is our largest market in the overall European segment, which we have. but it would be unfair to describe in july there as a great improvement flexibles and i i believe that the contracts which i alluded to before which we did win will help us at the very back end of this year they are really contracts for the next three years and then there's always a time to qualify and to start delivering so we will not see any impact on those certainly not in q3 maybe at the back end of of q4 but these are these are good contracts with a very large multinational so they of course are very important to us in our flexible segment which is doing as i mentioned a good job on on cost a really good job on cost so they are ready to take on on volumes you know that they have invested heavily in blue loop so once the volumes are coming we will see this improving even faster and stronger

And just one more. On the restructuring you've done this quarter, are you able to quantify the benefit from this restructuring?

Look, the immediate benefit of that is part of what we have disclosed. So the 100 million which we delivered, a part of the benefit is in there and will continue. So the savings which we did to deliver the 100 million will continue so also there maybe that's the point i should make here louis is we are not stopping with cost initiatives we are not having this in this program anymore but all of those which we did in the four areas and other areas will continue productivity and packaging is is very important so we will see the impacts of the restructuring which we have done in the quarter a small number in the quarter and then that will help us going forward as well It's an adjustment, as I mentioned, it's an adjustment to the volumes which we are seeing in food service. So it was important to maintain our strong profitability to do that adjustment and to get the lines really in one area only. And it's important to continue to be competitive. If you don't do these things, you know, we won't be competitive in the market anymore. Thank you very much. Very clear.

Next question comes from Maria Wickstrom from SEB. Please go ahead.

Yes, hi. Thank you for taking my question. I have three questions. I'll take them one by one. So I first wanted to touch a little bit more on the volume growth in the North American market. You described the impact of the new investments, but could you be more specific, talk about the volume trends in retail tableware as well as food service, please?

So we see the volume strongest. So I'm talking about the half, not the quarter, because in the quarter, it's important to understand that we had on the retail side a shift from Q1 into Q2. So I would really, really ask you to think about the retail part as a half year. So that's the number one comment I want to make. We see overall that in the retail space, we continue with our tri-net to perform really strongly when we come to the holidays. So we see that and we see that consumers still really like our high-end tri-net product there. So that's why I was talking about look please at the half for the retail business. So that's number one and we don't see this going anyways in the wrong direction for us on the retail side. Food service and consumer, we see a more positive picture. Consumer really driven by the investments which we are making. So that one makes us think really positively about Q3 and Q4 and then going forward where we will see the impacts of those investments much stronger. and food service we are clearly winning we are clearly winning that's that's the um the segment in north america we are doing the best on the volume side in because we are we have chosen uh customers the tier two customers which are winning in that market and are growing in in that market so we feel good about that you know we don't give specific volume numbers uh for any of our segments so i have to unfortunately stay a bit vague here but i hope you get the message

Yes, perfect. And then I wanted to touch upon the pricing outlook in North America. I think you referred that the raw materials, I mean, besides aluminum have been, I mean, relatively flattish. I mean, how is the pricing outlook, I mean, with the, I mean, tier two customers, I mean, with the big, I mean, with your big retail customers?

Yeah, I believe that we had needed to use the pricing leverage to gain volume. So I mentioned that very early on in the year that the margin we were seeing before were driven from my perspective with very high pricing, which did not allow us to have sustainable growth. So I believe the margins you are seeing now are the ones we can think about going forward. And that is driven by an assumption of flat-ish raw material pricing. And that is what we are currently seeing in most, if not all, of our raw materials. So we see that. And it's, of course, also not only but also driven by a relatively volatile market. We are not the only packaging company which is seeing that. So our suppliers clearly are seeing that as well. And hence, we are not foreseeing any significant change on the raw material side. So pricing, I believe we will continue to see a similar trend in North America as well.

Thanks. This is very helpful. And then my final question, I mean, is on the relatively high impairment you made. And you commented specifically that this 39 million relates to the restructuring of the food service. And then you mentioned that there was some contractual compensation. Can you be more specific? I mean, who was this contractual compensation paid for and how much is the cash impacted?

Yeah, look, as you will appreciate, as a contractual payment which we received is related to one of our parties, we can't disclose the name of that. We were trying to be helpful by mentioning it's in the food service area, but we can't be specific and talk about of the party involved here.

Okay, it's just, I mean, a little bit unclear that if this paid for a client or, I mean, another winter, but I'll leave it here.

Maria, I'm happy to give you some more ideas about that. I think both Thomas and I, we were alluding to the fact that we have to get the volumes which we can produce and the growth which we can see, that we can do this in one product line rather than in two. So we were reducing that because the volumes which we were expecting were lower than they are. So that's why we did the restructuring.

All right. Perfect. That's helpful. Thank you. I have no further questions.

Next question comes from Ben Thielman from Barenburg. Please go ahead.

Hi. Hey, guys. Good morning. This is Ben from Barenburg. Thank you for taking my question. I actually just have one follow-up question on the restructuring one-off in the food service packaging division. What exactly were those 39 million out of the 45 million that we have seen hitting your EBIT in Q2. You mentioned it was restructuring related, but was that basically just an impairment of your PP&E or any color on that would be much appreciated. Thank you.

Yeah, so as Ralf already alluded to, we are talking about a investment that we were carrying out where we together with the prevailing market conditions and in negotiations and discussions with the customer came to a level where we concluded that of the investments done we don't see in the foreseeable future a volume level that would support the levels of assets we have in our asset base. And therefore we impaired assets. It's mainly related to assets. Correct.

Okay.

And then the contractual compensation.

Yeah. Okay. Perfect. That's it already from my side. Thank you very much guys.

Next question comes from Kaie Loikkonen from Danske Bank. Please go ahead.

Good morning, guys, and thank you for taking my question. I have a few ones here. Starting with the second half of the year, could you perhaps on an aggregate, on a group level, elaborate a bit on what you see and expect in terms of volumes and pricing as well.

Good morning, Kalle. Look, as Thomas has said in the outlook, we foresee a very similar trend in the next quarter to what we have seen in this quarter. So all of that is, of course, assuming that there won't be any other bigger impact coming from either geopolitical side or tariff side or currency side. So if I take all of that as of today, then we don't see the market reacting more positively than it currently is. We will continue, obviously, with our measures. As I said, even though we closed the program of taking costs out, we will continue to work on cost opportunities, self-help opportunities, and we will focus on growth. we have we have started our driving organic growth not just mna if we have started that and we are one of the mentioned points i mentioned there was the success with two customer contracts which we signed we will continue to drive really hard on that side we're not just waiting for the market we are working on growth initiatives but do i see those benefiting us short term so in q3 early in q4 most likely not where we see back end and there is no change to that as well where we see back end of the year and positive impact is of coming from the two investments which we did in north america we are clearly seeing that they are ramping up the way we have assumed they would so that impact we we continue or we are hopeful that we will see in clearly the back end of of this year But on volume and pricing, otherwise, I don't expect any significant change. Pricing would be driven mainly by raw material, and we don't currently have that. And as the market is relatively soft, we don't have many opportunities to go out and increase pricing.

Okay, thank you. That's very helpful. And then secondly, you mentioned inflexible packaging. that you have been seeing the first signs of volume improvement. So I was just wondering which markets are you seeing these positive signs?

Yeah, we are seeing the first good signs, especially in Western Europe. And as you know, we were working on turnaround also in Turkey, and we see that Western Europe gets support from lower-cost materials from Turkey. So their offering to customers is very often a combination of products produced in in western europe mainly in italy and germany and then get support for some lower cost volumes from turkey so that that offering now with turkey starting to improve is an offering which is appreciated by our customers so we see western europe slightly slightly okay that's an important word color improving but we see the rest of of the world for flexibles continuing as they did in q1 and q2

Okay, thank you. And then lastly, again, looking at the second half of the year and you as a CEO, which of the segments is the one that you would be most concerned about regarding the second half of the year?

I'm not concerned about any of our segments, Kalle, because we have very strong leadership in all of those. We got now also our new leader for flexible packaging who started with us, who has really experienced 30 years in this market. So, in fact, it's the other way around. I'm really hopeful that our team is going to continue to drive and use all our levers, you know, the growth lever, the discipline capital lever, and also the self-help on the cost side, which will continue. They need to know which one to play at what point. And currently with the soft market, we can't run away from self-help measures, which we will continue. So my concern is not specifically on one. My actually hope is that all of them will continue to work really hard to make us deliver good double-digit margin with hopefully soon-to-come growth to you.

All right, perfect.

That's helpful. Thank you. That's all for me.

Next question comes from Kevin Fogarty from Deutsche Bank.

Please go ahead.

Oh, hi there. Morning, everyone. If I could have two questions, please. Firstly, just around the sort of current uncertainties you guys are seeing, I just wondered if you could comment on, you know, how is that manifesting itself in areas like food service? Are we seeing kind of shorter ordering cycles? Clearly kind of volumes are a bit more challenged there. Just maybe if you could put a bit of color into how customers are behaving there and keeping in mind, you know, your comments on greater accountability, speed of execution, et cetera. So how does that business operate? you know, in that more challenging environment, I guess. What are you doing differently or what can you do differently is the first question. And secondly, if we think about where, you know, you talk about capital discipline and where CapEx is running at in H1, I just wondered if you could give us a view in terms of what the full year outlook might be for capital spend. That'd be useful. Thanks.

Thanks, Kevin, for those two. So look, clearly with a negative growth in food service, the question is very relevant. So let me give you an idea on what we are doing differently rather than just looking at the market and going with the trend of the market. What we are doing differently is that we have significantly strengthened with the new accountability model the sales forces which we have in country. So we are, of course, we will continue to work with the big QSRs. They are, for our food service segment, very, very important. And in addition to that, we are now also looking in our food service, especially European portfolio, also at the tier two opportunities which we are having. And that can be, from our perspective, only done if we are very close to them in the market. with sales leaders who are close to them, can form the intimacy, can understand what they need and can deliver not only on the basics, deliver in full on time and spec all the time, but also anticipating on how they can help them to win. So that change in the operating model is bringing us much closer. But we implemented this early in Q2. So we announced this change in Q1, but we implemented then the change in Q2. So we see first signs, but it would be misleading you, I would say, that we on short term are expecting any positive outcomes. That will take time. The trust of new customers you cannot build quickly but you got to start one day if you don't start you're going to lose even more time that's what we are doing to capture growth with customers which we are currently not serving but and but we will continue to be close to our big of course qsrs and we will continue to work on innovative products so we mentioned to you of course also the plastic free Cups, which is one initiative which we are driving. You know, we are working on the lid side as well, which is happening in many markets currently. So there are a number of also innovations which we are doing together with our customers, which once implemented and once the trend really starts, will help us to grow.

Thanks for that, Kader.

Thanks, Kevin. Capital discipline was your second question. On capital discipline, we believe that we will for the full year be below last year. We have a much, much more stringent process now in place. We need to absolutely understand where the capital is used and for what return purposes. So we are very focused on that part. You remember that we have our three big buckets. And of course, in an environment where we see less growth today, but we have free capacity, especially in food service. And there is currently no need to invest in further growth. So that growth bucket is, of course, reduced. The other two buckets are not reduced. So we will continue to look at productivity measures and we will continue to maintain our assets. So those two buckets out of the three will continue to be served. But in an environment where we don't see growth, but we have asset utilization, which is not full, of course, we are cautious on how to invest in growth.

Great. Thanks for that.

Very clear. Thanks very much.

Next question comes from Hai Nguyen from UBS. Please go ahead.

Hello. Thank you for taking my question. I have three, if you don't mind. The first one, I'll go one by one. Now that the 100 million euros three-year program has finished, What can you tell us about the remaining margin drivers ahead towards your long-term objective? Obviously top line in terms of self-help. How are you continuing to drive the margins towards your long-term objective?

Yeah, thanks for that. So I think our long term objectives are between 10 and 12 percent EBIT margin. So we are, of course, very excited that we again delivered the double digit, in fact, 10.2 percent. So very, very excited about that one. But of course, we won't stop here. We will continue to drive that. But we are in the range of what we have communicated. What we will do is we will not stop working on self-help opportunities. So BOOST is going to be an initiative which we will use going here forward to take costs out. And it's important to never stop that. In packaging, you have to do this work all the time. Costs will start growing again. Inflation will take in. Clearly, personal inflation, merit increases will take in 1st of January. So we can't stop, we can't go back and say, okay, we have done it and now we wait a few years. In fact, we have widened it. We have worked in this program specifically on the four areas I mentioned before. We are widening this now to say there are more opportunities, there are more areas. Maybe they don't give us the big numbers, but the sum of all the small ones will of course be helping us. We have in the program now established a culture of doing this all the time. And that culture is something which is important in any organization, but very specifically for us, so that it's not a one time off, but it's a culture, it's embedded in what we do, what our teams are doing. all the time. And then we've got to combine this with growth. We don't want to have also a culture which is just looking at self-help. It's needed now because we don't see the growth in the environment we are operating in. But we will clearly have a focus on accelerating profitable growth and using both organic as well as inorganic growth opportunities. Thanks for that question. Hi.

Thank you. Thank you. My second question is on... your leverage and the options of spending cash. With the capital discipline ahead, you're not spending too much on growth anymore as volumes hasn't picked up. You're at the lower end of your net at EBITDA range, 2.1 times. Are you exploring any options on spending cash outside of CapEx and M&A? So shareholder returns above the ordinary dividends? Is that a possibility in the midterm, near term?

Yeah, hi. We presented at the AGM our value creation model. And in that value creation model, other than what you just alluded to, of course, the first opportunity for us and we see the biggest return is to invest back into the business itself for the organic and the inorganic growth. And then we want to serve our shareholders in paying back money via dividends. more than I think it's 17 years, 16 pardon me, 16 years of improved and increased dividend. So, of course, dividends are important for our shareholders, but we are not excluding other means anymore. We are open to other means and we will, of course, always look at what is what is creating the highest level of shareholder return. So we are not excluding any of the means which we have at our disposal, but We are focusing, number one, can we invest the money back into the business to create shareholder value? Number two, let's make sure our shareholders continue to see good dividend. And number three is what other means do we have if there's still capital available?

Got it. Thank you. Very clear. And then my final one, just specific on the fiber packaging, that's one of the few segments that had increasing raw material costs. And typically if i'm not wrong, you tend to press past prices through, but it takes a quarter lack so should that mean should that mean that we're expecting a slight expansion and margin should. Because prices will pass to next quarter should the raw materials remain the same quarter and quarter in Q3.

So this quarter margin was impacted in the comparison by lower sales of our machine services. And of course, our big volume quarters are Q1 and Q4. uh in in fiber so that's i think that's one you will see the impact of south africa and i mentioned before we we had a fire there at the back end of of the quarter we will see an impact there in the beginning of q3 my my current estimate is for the next six weeks until we are back in full production in in south africa And we will still see in Q3 also the impact of the avian flu in Australia, which is, as I mentioned, at the end of Q3 fading away. So we see that now starting. But we see in general always a lag in passing through pricing. We believe that the fiber input prices, the pulp is now going to continue to be relatively stable. It increased over the last quarter, but now we have seen it lately be relatively stable. So hopefully that's helpful for your model.

Thank you very much. That's clear. That's all for now.

Thank you.

Next question comes from Marayo Adesina from Barclays. Please go ahead.

Hi there, Marayo here on behalf of Gaurav, Jane. Just a quick one, and apologies if you touched on this earlier and I missed it. In the food service segment, have you started to see increased promotions? I think you were previously expecting this. And I know you've touched on it already, but if you could just recap what your outlook is for Q3 and the rest of the year in food service.

The first one I got about the promotions, can you repeat the second point, please, Marayo?

Yeah, it was just on the outlook for food service for Q3 and the rest of the year.

For food service specifically, correct?

Yes.

So look, on the food service side, and I talked about this before, so let me clarify for you. On the food service side, our big tier one customers are driving promotions and they are starting to see some improvements, but even our largest customers are still not really seeing volume picking up in a very positive way. at all but they are and we know this they are continuing with their promotions we are supporting them on their promotions and we are of course hopeful that this will eventually and hopefully eventually is not too far away start showing some positive signs so yes they they continue with their promotions But it's overall still a weak market for our big QSR customers. We and that's maybe helpful for the not short term, but for the medium term outlook. We have started to focus much more on tier two customers, smaller customers. We increase significantly our sales forces to make sure that we are capturing them. Some of them would be new to us. That will take a bit longer because we have to prove ourselves first. But we are very sure that with increased local sales forces, that's why our accountability model is so important. We will start seeing traction there. So Q3, I'm not expecting any change of the trend. But of course, we are hopeful that the market will change. And then we are a big part of that market that we will start benefiting.

Great. Thanks, Dr. Clare.

Next question comes from Maria Wickstrom from Seb. Please go ahead.

Yes, hi, this is Maria again. I had one follow-up question. I wanted to touch upon a bit about this replacement trend, I mean, for more sustainable packaging, and namely if we think about the Nespresso capsules, I mean, where you invested alongside with Nestle on this home, compostable collection. So if you could give us a bit of color, like how is that collection selling and are the consumers in a more distressed environment willing to replace?

Yeah, thanks for that question, Maria, and thanks also for the follow-up. Yeah, look, we are really happy that regulation is now much clearer. I think the PPWR, which came out a few years back, was not clear at all, and I think now it's so much easier to understand what is going to happen when. so what what is clearly playing to our advantage is that we are a multi-substrate supplier so we are not focused just on paper or board we are also having options to support our our customers for example with plastic structures but And when I talked about sustainability in our dashboard, we are driving renewable compostable materials. So whether it's a paper or board or a plastic, that's the trend we are going through. And we are doing this together with our customers. And of course, if PPWR is pushed out and the urgency to change over a structure, of course, the pace of how fast customers want to do that changes. That doesn't take away the growth. The growth is still there. Maybe the growth isn't as strong and as fast as we were expecting it, but the growth is there. So we are very, very convinced that our strategy of being the leader in sustainable packaging is the right strategy, and we will continue to follow that one through. And we are extremely happy that we have a wide offering, not just a single material offering. Thanks for the follow-up, Maria.

Thank you very much.

With that, we are done for today. If you have any follow-up questions, obviously, as usual, feel free to reach out to us at IER. I would still like to remind everyone that we are arranging, again, this fall, a site visit, this time for the flexible packaging plant in Istanbul, Turkey, and we will be sending out registration links shortly. So feel free to join. We hope to see all of you there. With that, we'd like to thank you all and have a great day. Thank you.