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Good morning all, and welcome to the call on Huhtamäki's Q2 First Half 2022 Results. My name is Kristian Tammela. I'm the VP of Investor Relations. As usual, we will kick off with the presentation by our President and CEO, Charles Héaulmé; followed by our CFO, Thomas Geust. After that, we will have time for a Q&A session.
Without further ado, I will hand over to Charles.
Thank you, Kristian, and good morning to all of you, and thank you to all of you for joining this session this morning. I would like to, as usual, give you before entering into our business results for quarter two and first semester 2022, I would like to give a little bit of a frame into the business context of this quarter, which you can see on the Slide 2 for the ones following our deck off-line, on the Slide 2 where we are emphasizing the fact that we have been, like in the first quarter, during the second quarter, we have been evolving into a very volatile business conditions with discontinued very high inflation situation, which is broad-based in the sense that it's touching all input costs into the value chain, whether we're talking about raw materials, energy, of course, transportation as well as labor cost. And therefore, the inflation is really broad-based.
And as well, we have seen through the first semester, particularly in the second quarter, some challenges in the supply chain, particularly in terms of raw material availability, which add to the tension from the geopolitical perspective. And this – giving this context, of course, it's putting a perspective into the performance that we are delivering in the second quarter and the first semester with continued strong sales and profit growth. This sales growth and profit growth are driven by pricing, pricing mitigation of the inflation. It's driven as well by currencies that are evolving favorably in our case, particularly linked to the USD evolution, but as well it's driven by acquisitions.
The EBIT growth is driven by the size growth, but as well our continued focus on operational efficiencies and as well the contribution of the acquisitions that we completed in 2021. A couple of words on the execution of our strategy. We – first of all, we announced back in April our decision to engage in the divestment of our operations in Russia. An update for, as we speak, is the process is engaged and ongoing for the divestment of our operations in Russia. Second important aspect that happened during the second quarter is the launch of sustainability-linked €500 million bond that was during the month of June and that's very much with the aim of securing our long-term financing.
And as well, a third big event has been the announcement during the second quarter of the expansion of our manufacturing footprint in the U.S. with our fiber capacity in the factory of Hammond in Indiana in the U.S., which I would like to give maybe a few additional words about in order to understand the relevance of this investment. This investment, which is a high investment, about USD100 million, which is going to be an investment starting now in the second semester, well, starting actually in June and going over in 2023, we are expecting to start the ramp-up of the commercial production towards the end of 2023.
The relevance of this investment is really about expanding with existing customers, but it's as well – particularly in food service, but it's as well about expanding into new categories where we didn't have production in the U.S. on fiber-based solutions. For instance, for egg carton packaging, particularly using the fact that – or taking the opportunity of an evolution of the North American market towards plastic substitution, particularly EPS substitution, which is still a very important part of the U.S. market on egg packaging, and which is now showing very clear signs of moving towards fiber-based solutions, particularly linked to many states organizing legislation and bans against EPS solutions.
So that's really one more investment towards our sustainable innovation and leadership. These products are going to be manufactured using 100% recycled material from North America, obviously. And important to say that it's not a greenfield. It's not a new factory as such. It's an expansion because we have been in Hammond now for more than 70 years, precisely since 1948. We have already a large factory, employing 140 employees, and we plan to add an additional 100 employees for this new capacity.
Moving on now to the Slide 5 of the deck and into our business performance, specifically for the second quarter on sales, where you can see that our sales has been growing steadily 31% during the second quarter, which, if you remember, is very much in line with the first quarter, which was as well 31%. This growth is – comparable net sales growth of 17%, being 16% specifically in the emerging markets. A lot is driven by pricing, we'll come back to that. But as well, we have a growth, 7%, coming from the acquisitions of 2021. You have packaging in China, but mainly Elif, which is the flexible packaging company leader, a company that we acquired in Turkey and Egypt.
And then as suggested before, we have an 8% positive currency impact, making our sales for the quarter two more than EUR 1.1 billion and making it as well the highest sales in the quarter.
Moving on to the first semester, very consistent with Q2. So we are reaching now EUR 2.2 billion for the first semester, very much in line with Q2 in terms of growth in percentage, 31%. Comparable net sales growth of 18%, coming 7% from acquisitions and 6% from the positive currency evolution.
Page 7 to say that basically this strong net sales growth is coming from across all our business segment, and that's one of the very strong highlights of the quarter and the first semester. It's we are growing across all our businesses. And in addition, there is a strong consistency between the first quarter and the second quarter ending with a first semester where you see the numbers for the comparable growth being very much in line with what we have delivered in Q1 and in Q2.
The important aspect is the demand, as we see it in the first semester in Q2, particularly, the demand across our businesses remained solid. There has been eventually a slight slowdown of the growth that we saw in the demand in the first quarter. But still, overall, the demand is good across all our different segments, particularly in Foodservice where, as you remember, following the COVID crisis 2020 was obviously very depressed in terms of demand at the time, recuperating – recovering most of it in 2021. But now with this increase of the demand in 2022, we are back to the levels of pre-pandemic. I'll come back to that when we speak about Foodservice, specifically.
This translates in Page 8 of the deck into our consolidated key financial indicators of the P&L showing that there is a strong growth translation into the profit growth. You see that the adjusted EBIT in euro terms is growing 29% when, in nominal terms, we are growing 31% of sales. The EPS itself is growing 18%. So that's about 10 points less than the adjusted EBIT. It's growing in line with the earnings, but less and that's linked to increasing financing costs as well as increasing tax rates overall globally.
Third aspect to mention, which is positive but putting pressure on our cash flow, we are continuing our expansion investments. The investment I was mentioning before in the U.S., Hammond, doesn't have yet an impact on this number in quarter two, but we are expanding particularly for fiber-based sustainable packaging solutions. With investments in Q2 at the same level as Q2 last year, but overall, first semester is well above last year, which is in line with what we had announced to you previously, end of last year and at the end of the first quarter.
A couple of words on Page 9 before going into our different business segments, a couple of words about our sustainability, our ESG performance. I would start maybe it's our usual dashboard that we are presenting to you regularly. I will start maybe – starting with our license to operate, the safety. This is on the top end right of the page. The safety where it's obviously a top priority for the company. We have many actions being implemented across the company to really establish a zero accident culture. This is a long-term journey. We see overall over the last couple of years a regular improvement in our safety record. But one accident is one accident too much. So this is a permanent priority. We speak about it almost every day, if not every day with employees.
As I said, lots of actions are being put in place on the shop floor, both physically in terms of our infrastructure, physically in terms of the protection of employees, but as well in the culture meaning in the way we are working on the shop floor using – and we are using there our TPM methodology, which is primarily dedicated to productivity, so to improving OE and waste – OE improvements and waste reduction. Now we have started to implement the safety pillar in the TPM methodology so that it really drives this safety culture on the shop floor.
Second comment on this environmental or ESG KPIs. On the left hand side, you see the renewable or recycled materials ratio in the red going down compared to last year. And that's, I would say, not a bad performance. It's a mechanical consequence of the acquisition of Elif, which is – Elif is actually using for being in the Flexible business, is using a lot of recycled material. However, obviously has less renewable and recycled material in the base materials than the other idea of Huhtamaki, and therefore, that drags down our ratio, but we are – and that will happen during the whole of 2022 as we integrate fully the company, but we see that coming further positively as of 2023.
A big highlight is on the second quadrant, the renewable electricity, where you see that we are approaching 23%. Let's remember that we started at 0% in 2019. We started activities in 2020, and we are already at 23% so a lot is happening. I will not go through maybe all the KPIs but mentioning as well that the greenhouse gas emissions where the chart is looking like a growth of our greenhouses emission, but at the same time, we are growing in volume, in volume of production. So when you are looking into relative terms, we're actually reducing or improving by 2%.
So I would say that overall, on our sustainability performance, we are progressing in line with our long-term ambition. However, I would say we are progressing above our short-term target, so which is very positive.
Moving on to a quick review of our performance by business segment. Page 11 for the ones following off-line, the Foodservice Europe-Asia-Oceania, where we are reporting a strong overall performance. First of all, I would like to repeat that the demand for foodservice packaging continued to improve during the second quarter and during the whole of the first semester. However, there are some variations between markets and between categories.
The main lowlight, not being surprising, is linked to the COVID situation in China and linked to the geopolitical turmoil in Ukraine and Russia. But otherwise in all other markets, the demand is actually pretty strong and driving the growth. As you see from a P&L point of view, the strong net sales growth 23% Q2, 23% year-to-date is translating very nicely in profit growth. Actually, we're translating into even higher profit growth than sales growth and that is linked to the demand that is improving. That is linked to the pricing mitigation actions against the high inflation.
And third, let's remember that we talked to you last year quarter-after-quarter our restructuring plan in the Foodservice segment and this is paying off, and this is partly why you see this adjusted EBIT growing – the margin growing more than actually the – than the sales. Last point is about the CapEx, which is increasing quite substantially compared to last year, and that's in line with what I mentioned before in terms of innovation for more sustainable products, particularly linked to fiber.
Moving on to North America, where we see that the growth is there in nominal terms, 27% in Q2, 29% first semester. However, what we see in the second quarter is that the growth has been limited by the raw material availability, particularly on paperboard. This has not been a surprise. We have said and commented about the fact that we see paperboard having limitations in terms of capacity of supply and that will continue towards 2023, 2024 when new capacity is coming in the market both in Europe and in the U.S. But at this point, we could say that we could actually further grow our business with more supply of paperboard.
This being said, we are – we see that the demand remains solid into the different product categories and that’s fairly positive in terms of thinking not only year-to-date, but as well outlook for the year. The EBIT profitability or the EBIT profit in euro is improving. There is obviously the positive impact from net sales growth as well as the operational efficiency. However, when you look at the profitability as a margin, as a percentage, it’s lower than last year. And there, it’s mainly – purely a mix – an unfavorable mix impact.
You may remember that in 2021 we were permanently emphasizing the positive mix impact we had in the U.S. because at that time we were growing steadily in retail tableware, which is our highest margins categories in the U.S. This year, the recovery of Foodservice makes it an unfavorable mix. So it’s good for the sales, but less good in terms of percentage of EBIT.
Moving on Page 13 to Flexible Packaging, where we see a strong growth continuing. This is supported by the Elif acquisition, of course, but as well by the cost mitigation through strong pricing actions. We have a clear turnaround in this flexible segment since we – particularly since we embarked with new leadership with Marco Hilty as Business President back in September last year.
The overall demand for the Flexible Packaging remains good as we see it in all markets. And obviously, our growth is translating very nicely in adjusted EBIT in profit, thanks to the pricing mitigation that we have ongoing. And thanks as well to the positive mix impact, if I may put it like this, from the Elif acquisition that is giving us a favorable impact on our profitability.
And finally, Fiber Packaging, where we see the growth in Q2 accelerating, supported by volume but as well, of course, by pricing. Our pricing didn’t start all in the 1st of January on fiber. It was more through the first quarter on as well in the second quarter. And that’s why you see two things happening: number one, the growth accelerating; number two, the profitability as well benefiting much more into the second quarter. So a good performance overall in our Fiber Packaging segment in the second quarter and overall year-to-date with 11% margin.
With this, I hand over to Thomas for the financial review.
Thank you, Charles. So I’m moving directly to the full profit and loss with some or quite a lot more details compared to what Charles was showing earlier. The key numbers here in adjusted terms, if you look at the, first, at the quarter and compare that to the full year, I think the first conclusion can be that we have a very similar full year and second quarter as the first quarter.
Looking at the growth numbers here quite similar, actually all the way down to the EPS level. On EPS level, we have a higher level of finance cost coming mainly from the higher debt levels. And then we have a small change in the tax rate. So the tax rate is now 25% versus a roughly 24.4% in the first quarter. And that’s driven mainly by how we collect the profit in which markets. We have some countries with quite high tax rates.
Maybe highlighting a few other things here. So first of all, the growth, as Charles already indicated, mainly coming from the pricing currency and FX impacts. However, we do have also in the year-to-date numbers volume growth. We have a good development in the absolute profit margins, as we have been highlighting here earlier, important to see that with a growth of 28% in EBIT, we are more or less able to keep the margin despite the inflationary environment. So a strong performance on both absolute profitability as well as relative profitability.
And then if we take the pure reported versus adjusted, we do have roughly €10 million of IACs booked in both last year as well as this year. And therefore, the reported EPS clean is €1.21 this year, €0.95 previous year versus then an adjusted EPS of €1.26 versus €1.02 previous year. So quite comparable numbers, both in adjusted as well as reported.
If we go to the currency, the real strong currency movement against euro, which was weakening quite a lot over the quarter. U.S. dollars, you can see here, is up 12% in closing rates and also in average rates strongly up. We were still in Q2 2021 at 1.19. In the closing of the quarter, the rate was 1.05. Then we saw the USD go to parity and even slightly below. And I think today, we are at 1.02. So quite strong movement. However, the euro still remaining weaker.
Another currency to highlight here is the Russian ruble. The Russian ruble is basically on levels that we haven’t seen since 2015. And consequently, the outcome of that one is also that our non-current assets are now valued at €102.7 million versus €59 million in the first quarter. So one point to note when talking about the currency translation impact.
We can take the next slide. Then we go to the net debt level. The net debt is up from first quarter due to the weak cash flow. The net debt-to-EBITDA remains on three. That’s mainly driven by the fact that we do not have the full year impact yet of Elif in the EBITDA number. So with the pro forma amount, we would be slightly below three. Then also highlighting that the gearing is slightly down, improved versus first quarter. That’s mainly driven by a stronger equity where we also have currency impact further strengthening it.
Looking at the maturities, we are now – during the first half, we did two, I would say, significant financing arrangement. In the first quarter, we issued a term loan of €250 million. And then in the second quarter, we issued a sustainability-linked bond for which we have more details on the next slide. The key with this one is that we have then lengthened our average maturity to 3.5 years versus 3.1 end of 2021 first quarter – second quarter, sorry.
We take some more details around the bond. The bond is a sustainability-linked bond. It’s at a coupon rate of 4.25%. And the bond was – had a big interest in the investor community and was allocated to 100 investors roughly. We used it to refinance the bridge, the bridge was repaid in the quarter. And at the same time, we also came out as a rated company – S&P-rated company, BB+.
On the free cash flow, as already highlighted several times, the cash flow generation still remains tight, of course, driven by two key items. Improved profitability was not enough to offset the inflation in our inventories. Inventories are up mainly by the inflation side of the story. But yes, we do also have some volume increases in items where we have considered that it’s good to secure supply in order to be able to meet our customer deliveries.
Then on the capital expenditure, you have seen that we are now at EUR128 million, last year we had EUR85 million. And Charles already highlighted why we are doing the CapEx, so the CapEx is to facilitate growth in those sustainability enhancing categories like smooth molded fiber and also more efficient flexible solutions.
On the balance sheet, currency has a significant impact. As I already highlighted in the equity, we have roughly EUR155 million strengthening coming from currency translation compared to year-end, so clearly a strong currency drive. We do also have a slight uptick in net debt coming from currency-related loans, but not very significant, low double digit. Otherwise a favorable development in most of the parameters.
And then looking at the progress towards our long-term ambitions. Obviously, in the organic growth now we are quite a lot over the long-term ambition, but remembering also here that we have a higher share of pricing compared to our normal level of pricing in – assumed in the long-term ambition.
On the adjusted EBIT margin, we are slightly below. Also here, slightly impacted or impacted by the inflation coming into the top line. And then the net debt-to-EBITDA, in the upper end of the corridor. Then highlighting that, the dividend payout of 45% is being executed. The first instalment was made in May and then the second instalment will be made in October 2022.
If we take the outlook, our outlook remains unchanged. In the short-term risks, we have added or actually changed the wording in the first sentence slightly. The main change here is that we have added consumer demand.
And with this one, I will hand over back to Charles, who will give some further insights.
Thank you, Thomas. Just a couple of words maybe to finalize this presentation, if it is of interest for all of you. And that’s very much reflecting on a few words that we have given several times in our presentation on our technology development, which has happened over the last couple of years. And we want to stress here the importance of the fiber technology in redesigning the future of packaging.
We have fiber technology in our portfolio since many years with, of course, the rough molded fiber technology, which is mainly used for egg packaging as well as food packaging as well as cup carriers for Foodservice. We have as well since a very long time, the smooth molded fiber technology that is used for our China brand in the U.S.
Now in addition, and that’s over the last couple of years, and in anticipation of the plastic substitution trend that is very strongly ongoing in Europe, starting as well in the U.S. and in many other geographies in the world, we think that a winning technology is going to be the fiber technology. So we have developed this technology further based on our experience and expertise in rough molded fiber and smooth molded fiber. And you see – you have seen – I think we presented in April our awarded products using the smooth molded fiber technology. We have presented our awarded products, the sundae cups, for instance, as well as the fiber lids for which we have invested in expansion in our factory, Alf, in Germany.
So you have seen those examples. It’s really showing you and walking the talk of investing into this technology and into the capacity expansion that it means. So if of interest for some of you or all of you, we have added into this deck a link on this page where you can watch a short video that will be showing you a little bit more about the smooth molded fiber technology that we are developing, and we believe that you will hear much more of it in the near future.
All right. With that, we are ready for questions.
Thank you. [Operator Instructions] Our first question comes from the line of Justin Jordan from Exane. Please go ahead.
Thank you. Good morning Charles and Thomas. Well done on clearly a very strong Q2 performance. I’ve got two very, very quick questions. Firstly, the only, I suppose, certainty for the second six months is continued uncertainty. But – can you help us understand, I suppose, Huhtamaki pricing power versus cost inflation? Are you seeing going forward in the second six months of 2022?
And secondly, just a quick one for Thomas. Clearly, post the bond issue and the refi you’ve done, can you help us understand just the €1.6 billion of net debt, how that splits down between, shall we say, fixed coupon and variable coupon? And what I’m trying to get to is the sensitivity of Huhtamaki potentially rising through the interest rate environment. Thank you.
Okay. Thank you, good morning, and thank you for the question. So maybe I can take the first part, and then you complement Thomas on the second one. I mean you’re asking about the – yes, you’re right. I mean, uncertainty is really – we are in a vulgar situation. So very volatile situation, but as well very uncertain. So to give predictions about what’s going to happen in the next six months would be presumptuous, and will require some visionary competencies that we may not have. So, I will not take too much risk in answering this question.
But still, what are we seeing today that may influence the following six months? We are seeing some early signs of decrease in some raw material prices, but not all. So there is – it’s not – this inflation is not a coincidence in time on all the different input costs. So for instance, labor cost, we believe that it’s going to be more of an inflation than it has to be – it has been in the past six months. There has been a lot of discussions and negotiations ongoing, of course, because employees around the world are stressed with the issue of inflation, but there has not been so much of an impact on labor cost yet. There will be more going forward.
On raw material, we start to see some plateauing evolution, but at a high level. There will be further inflation in some other of the raw materials. So it’s a bit difficult to predict precisely what’s going to happen, and a lot will depend as well on how the geopolitical situation, namely particularly the crisis in Ukraine is going to resolve or not resolve over the next couple of months. And that will have an impact on something else, which is the cost of energy, so inflation, of course, but as well the availability of energy.
So that as well another factor to the uncertainty. That’s why in our short-term risks, we are – we’re pretty confident about the year. First of all, because we have a very strong performance in the first semester. We are confident about going forward. However, with many of those uncertainties, which – where it’s difficult to make another answer of whether it’s going to be positive or negative overall for the next six months there will be pluses and minuses between inflation and then availability constraints in the supply chain.
Thomas, do you want to complement?
Yes, no, I think I think your points were quite covering the topic quite well. So when it comes to the, if I comment the question on the interest rate, so the main moving financing we have are mainly on the short term. So the commercial papers are obviously exposed while then the loan rates are secure.
Great. Thank you, both.
And the next question comes from the line of Jutta Rahikainen from SEB. Please ahead.
Hi and good morning. A number of questions here. First of all, with the pricing and cost inflation discussion that we already partly have, but if we zoom that into Q3, I mean, now you've had an higher organic sales than ever. Is it set to assume that you're probably not growing double digit organically in Q3 or is it rather so that the price lifts continue to be hefty and it'll be maybe another copy paste of Q1 and Q3. That's the first one?
That's a difficult question Jutta. First of all, because we would not like to guide too much on the performance, but there are two aspects into, you're asking about the sales growth Q3. There are two aspects, I mean, one is volume. And one is pricing. The pricing, considering the pricing that we have, the pricing mitigation actions that we have implemented in Q4, in Q1, in Q2 it's relatively simple to predict that this will continue versus Q3 2021. It will continue to have an impact, a very positive impact in Q3, that's number one.
On the sales growth link to volume, that's a fairly much more complex question, because there are different parameters here. Number one is the market demand, you very well Jutta the diversity of our portfolio, the diversity of our geographies. So demand in the market. There are signs of potential recession. However, at this point we have not seen any sign of reducing demand yet, but we need to be extremely agile and alert in looking at the way the market is going to evolve in the next couple of weeks and month in terms demand.
Second for us to be able, if the demand continues to be relatively solid then for us to be able to supply, we need to have the raw materials. So that's another end, so I don't want to paint it into too much of an back to the answer to the first question. I want to paint it into a two uncertain, let's say period of time, but there are many, many volumes that can play positively or negatively still, we trying to not guide. I think we are expecting, we are, let's say reasonably confident about the next quarter.
Okay. Thank you. That's helpful. And then if we go back to Q2, could you give us a number for the split? I mean, how much was volume growth and how much was price mix, roughly at least I guess the volume part is small, but if you have a number.
Yeah. Let's go back to the first quarter. In the first quarter we said that we have been growing mainly let's say two-third linked to pricing, mainly from pricing, but as well we were growing in volume, according to our long-term ambition, which as Thomas was presenting a bit earlier 5% organic growth. So that was the first quarter.
In the second quarter, the growth of the sales has been even more linked to pricing, but there is not one simple answer because we have again different categories, different portfolio geographies. So if I go little bit across the world to give a bit of granularity on the question, in North America volume has not been particularly good in the second quarter. And that's again, not worrying because it's not linked to the market demand, but more linked to the availability of raw material that has been limiting slightly, our ability to supply. That's number one.
So with this, you understand that volume at North America quarter two was not a growth. Then in food service, we have continued – we were growing very nicely in the first quarter. We were growing slightly less in the second quarter, but still growing single digit in volume in food service, fiber as well low single digit, but still growing in volume. Flexibles however, there we are not growing in volume and that's not worrying. It has been a conscious decision of the company to manage the portfolio. We have been – our number one turnaround challenge was profitability in the flexible segment. And we decided to have a deep dive at our portfolio in terms of customers, in terms of product and look at all the tail of eventually not enough profitable items, if I may call it like this. And there we have made very stringent decisions.
You see the positive impact in terms of profitability, but obviously that has an impact – a negative impact on the volume. But it was a conscious decision so it's not a worrying aspect at all in our Flexible. So I'm giving a pretty complex answer because it's not a one-size-fits-all and I cannot answer with just one average number to your question. But hopefully, it helps the understanding.
Yes. It helps a lot. And then a few more, if I may, on India and I guess this links also to the volumes. But maybe you could describe, I mean, last year, it was difficult and now things are better. Are they even good or very good? If you tell us a bit more about the business landscape over there.
Yes. So India, yes, you made the question and the answer basically. Yes, it's going much better than 2021. Well, in a way, one could say it was not difficult – or wasn't much, let's say, rather than not difficult because it is difficult. It's a market that is extremely challenging. Not challenging in absolute terms, but challenging because the crisis, the COVID crisis, has been hitting this market very strongly. So the market has been very disrupted in terms of supply chain, in terms of employment as well. And we needed to take a lot of different actions.
But as well, we have raised the bar with the management – with the local management. We have supported from the group with a group management being on a permanent basis or a temporary basis on the ground in India. There has been a strong effort, but it paid off. We have invested a lot into building a restructuring plan, a cost-saving plan. We have invested a lot into the need of better executing the plans in India and this is paying off both in terms of sales, but as well in terms of profitability. It's a journey.
So we are not there yet. We are not at all at the level of growth and profit that we want to have when we invest. It's our number one emerging market, and therefore, our ambition is much more than what we are delivering so far. But we are happy with the development in the beginning of the turnaround, confirmed in Q2, which was already visible in Q1.
Good. And then my final one. On Germany and given that Germany is your biggest production country, I think you mentioned earlier that you had some energy or gas hedges for the prices in place, but could you tell us sort of what's the situation there? Are you handling it okay?
Yes. So the biggest consumption of gas is – in our business is in the fiber production, which we don't have fiber production in Germany. However, your guess is very correct. Germany is our number one country in terms of consumption because of the size of the flexible unit in Ronsberg. We have already in place a contingency plan in order to anticipate a potential shortage of gas supply.
So I don't think we will enter into the technicality of it now, but we have a – I mean it's business critical for us to have a contingency plan and be able to continue producing even if they would be towards the winter a potential shortage of gas supply. So that's in place for what is not yet in place, is in the making as we speak. But not only in Germany, actually in other countries of Europe where we are potentially at risk. The good news is in many very relevant countries of Europe where we have fiber production, this is countries which are much less exposed to the gas shortage or potential shortage like Netherlands or France.
All right. Thank you. That was all from me. Thank you very much.
And we have one more question from the line of Calle Loikkanen from Danske Bank. Please go ahead.
Good morning, Charles, and good morning, Thomas. First, I'd like to focus on the pricing and the price increases. So my first question is that were you able to raise prices in the second quarter? Or did you just enjoy the higher price level that you basically gained in Q4 and Q1?
Yes. So, Calle, first of all, we have been communicating now I think throughout – we started last year, and that's one point, point-to-point out. We started already last year very actively in most of the segments to increase the prices in order to really offset the real increase in costs. Flexibles was unfortunately, the last one to come on board, but as we have now been highlighting, we have been finding good success there. We have also communicated throughout the period that we are continuously monitoring how the cost development is moving.
And contrary to the normal cycle, we are taking more active actions when we see that one of the cost items, be it raw materials, energy, labor or transport is moving in the wrong direction, our sales teams are being advised to take actions. And that has been a continuous thing. It's not happening in all businesses at the same time, but it's a continuous process. So yes, we have been able to also have actions going on in Q2 and we believe we will continue with the same process also in the future. I wanted to give some background to it because it merits – it's really the outside circumstances, which is driving our pricing efforts.
Absolutely. Absolutely, and that's good to hear. And maybe can you elaborate on what has changed for you? I mean to be able to increase prices as much as you have done in the first half or in the past quarters, what has changed? Have you – I mean – have you changed the way you operate or how the sales teams are structured or even incentivized? What's really the driving force that's within the organization?
Well, I guess there are two aspects to this. One is the external factor and the external factor is a factor in the context of demand. And in the context of demand, of course, this is creating more power into the game. Second, it's internal and it's – so you guessed it rightly. And it's – a lot is linked to the culture and the tools. So culture, probably from a cultural point of view, the company was a bit shy before in terms of approaching customers with the reality, with the fact.
Selling is not just taking orders. Selling is about explaining the business context, making sense out of it and making yourself as well respected in terms of what are the conditions to be able to do business in a sustainable way. Because we are a company investing in innovation, we want to sell and we want to bring value to our customers, but this cannot go without any value, as I said.
So this cultural aspect has been relatively emphasized or enhanced or changed. So we have given tools to our sales teams, targets. And then I suggested before the example of Flexible segment where by changing and choosing the right leadership style and competence, then you get to turn around very quickly. So all these are elements. It's not – there is – when you see a high performance or turnaround, it's never a one-man show. There is complementary factors that have to play rightly at the same time. And this is what is happening – what we are trying to make happen since a couple of quarters, and that is showing up into the performance.
Thank you. That's very helpful. And to me, this sounds like these kind of changes or the extra focus that you have put in is kind of permanent in nature. So nothing temporary because of the high inflation, but more that when we look at Huhtamaki in the future, over the next raw material cycle and further, should we think that Huhtamaki has changed in a way and become better in pricing and input cost management? Is that the right way to think about it? Or that these cultural changes are more or less permanent?
Well, first of all, a couple of aspects. First of all, to me, performance is not just how we manage pricing, okay? So that would be that simple in the business. We will not need all these competencies around in an organization. So it's, by far, not just pricing. But of course, selling value is a huge aspect of growing and growing profitably a company. So that's one aspect. But second is about driving all the operational improvements. That takes time and that are not overnight changes in the company, but that are continuous improvement. And Calle, about our efforts in for instance, the TPM, the world-class manufacturing methodology.
This is a journey that through a company like ours, it takes 10 years to really move from who we were three years ago to what we want to be in 2030. It takes a lot of time, but it's a continuous improvement. It affects the way we operate with our equipment, with our assets, the way we operate with our people, the way we operate on safety on all aspects of the operational improvement.
Then last comment, maybe to your point, when you're saying in your question, should we expect that now permanently Huhtamaki is so on and so on, well, I would be very cautious and humble, okay? Performance, I'm always saying in the organization, performance is not a status. It's not because you are performing well – let's say, quality, for instance. Quality, safety. This is not the status. It's not because you're good now, that it's a promise to be good tomorrow. So it's a journey. We need – it's a permanent effort to always beyond your and anticipate – try to anticipate what's going to happen. So, in that sense, the questions which were put before by the colleagues, analysts are the right ones. I mean how do you anticipate the next quarter? We may not be able to tell you everything. But of course, we are trying permanently to anticipate like; I guess all companies are doing.
I think if I confirm at just – I think we have stepped up on capabilities and tools, and that's in the culture part that Charles was referring to here earlier. The second part, not to forget is the – to make it very clear, it's also the operational side, Charles indicated it, but remember that we come out of the turmoil to the supply market. So basically, our production efforts over the last two years were interrupted by plenty of things, and we do not have exactly the same interruption anymore. And that's also visible in the numbers. So it's definitely not only pricing.
Yes. And thank you, Thomas for complementing because I was forgetting the most important. This is people. Thank you for saying capabilities. I mean this is part of the change we are operating in the company. We are much more demanding in terms of level of expertise, experience, competence, commitment in the people we are recruiting. And the Flexible segment is an excellent example of that and more to come. We have very strong resources that embarked into the company, which is showing two things. Number one, it's the culture we are trying, the high performance culture. We're trying to create and develop. But second, it shows that if those very high resources our talent embarked with us is because probably the image of the company is as well improving in the market for different reasons, maybe the strategy, maybe the vision, maybe the sustainability priority and so on. So if we are able to attract more talent, then we will be further successful.
Absolutely. Thank you very much. That was very, very helpful and yes. Thank you. That’s all for me.
Thank you.
And as there are no further questions, I'll hand it back to the speakers.
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Thank you.