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Good afternoon. Welcome to Huhtamäki Quarter 3 results conference. I shall hand over to Huhtamäki CEO, Mr. Jukka Moisio, to begin with the presentation.
Thank you, Katrina. Welcome on my behalf, and I'll go through the prepared presentation, which is interim report Q3 2018. And I'll move to Page 2, which is quarter 3 net sales development. We had 7% net sales growth in quarter 3, 4% gain from comparable growth, with all segments contributing. We have 5% emerging market growth and 4% gain from acquisitions. Currency impact was less severe, and it was only minus 1%. If you go to Page 3, you will see that year-to-date comparable growth is at 5%, so slightly ahead of the quarter 3, which was 4%. In emerging markets, yesterday, our growth is at 8%, especially from growth in Africa, Russia, Brazil and India. And we saw that in quarter 3, growth at the emerging market was 5%, and there was 8% across all countries and geographies in emerging markets in quarter 3, probably caused by sentiment, some sensitivities from our customers to make call outs and similar. And therefore, there was a decline of -- or slowing down of the growth in quarter 3. Surely some of that was impacted by the currency changes and similar what happened during quarter 3, especially in August. In year-to-date, we have 2% growth of acquisitions and currency translation impact in year-to-date. This EUR 117 million, approximately minus 5%. That compared to quarter 3 where the negative currency impact was only minus 9%, so especially the U.S. dollar development is not negative anymore in the quarter while some of emerging market products is -- got more negative in the quarter. But year-to-date, minus 5% in the quarter, minus 1% from currencies. So revenue run-rate at about EUR 780 million in quarter 3 is equivalent to 12-month rolling in the range of about EUR 3.2 billion, which is up from the reported in 2017, about slightly below EUR 3 billion. Comparable growth on page 4: Foodservice in the quarter at 5%; North America, 2%; Mexico packaging at 6%; and Fiber Packaging at 4%, making the group at 4%. If you look at year-to-date in 2018: foodservice at 5%; North America 3%, Flexible Packaging 8%; and Fiber Packaging 4%, making the group achieving in first 9 months at about 5% like-for-like organic growth versus 3% in 2017. Good positive development in Flexible Packaging in India and Europe. Foodservice Europe-Asia-Oceania had a strong development in key accounts and the core paperboard items. North America growth was driven by paperboard growth. However, the primary paperware sales were all direct in the quarter and also in the previous quarter. And in Fiber Packaging, this growth was mostly outside Europe in Russia, Brazil and Africa. Now on to Page 5. From net sales growth, it not translate into strong profit development. Net sales up by 7% in the quarter and the adjusted EBITDA down by 7% and adjusted EBIT down by 12%. The main changes in the profitability come from [ higher ] net margins so in the cost/price mix, the impact is minus EUR 9 million in the quarter. Also higher distribution cost impact is minus EUR 5 million. Currency impact is about minus EUR 0.5 billion and a positive development organic growth and acquired growth about EUR 7 million. That includes the impact of startup in Goodyear in North America. Earnings improvement especially in Foodservice Europe-Asia-Oceania and North America continue to have a modest profitability development in the quarter.Cash flow year-to-date is EUR 23 million and capital expenditures are down by 12% at EUR 127 million versus EUR 144 million in 2017. As we said earlier that capital cycle is coming to an end and we are actually wrapping up the main investments, Goodyear and also we are start the early trials of our plant in Egypt, where the commercial operations and ramp up is starting first quarter 2019. I move to Page 6. Our profit is below long-term ambitions so therefore we have 3 key actions that are ongoing. One is pricing, it is just to improve the gross margin at the cost increases related to customer base of costs. So in the quarter -- third quarter, you saw that the impact on our profitability was approximately EUR 40 million and that gross margin gap -- the cost increase gap will have to be closed if price increases. On top of that, we have a cross-company efficiency improvement, which we have announced on 2nd of October. This consists of [ wind up of ] non-competitive lines, predominantly in India and also North America, focused restructuring activities. Mentioned here as an example is closing of EPS, expanded Polish starting operations in Poland that is happening in quarter 4. And also optimized food service manufacturing footprint in New Zealand. That also will happen in quarter 4. New Zealand plan is to move from manufactured locally to make -- manufacturing in China and then sell to New Zealand and have trading activities in New Zealand only for paper items. On top of that, we have efficiency improvement actions, automation in Western Europe, predominantly [ expos ] and also foodservice and starting the same in Southeast Asia. These are related to volume gains from our key customers but the volume gains are coming at a lower price, and therefore, we need to improve our own efficiency in order to make margin pockets happen. All in all, we have estimated items affecting comparability in quarter 4 at about EUR 30 million and the target to improve gross profit is EUR 50 million to EUR 80 million with full impact being achieved in 2020 of significant product impact already coming in 2019. And then, the final item is to maintain stable competitive SG&A, and our current efficiency is highly competitive. So in order to improve the profitability and get closer to our long-term ambitions and achieve them, we have pricing actions ongoing. We have cost-cutting actions ongoing at the same time, and we also work to maintain our stable SG&A and competitiveness, what we have achieved. I move to business segments theaters, starting with Foodservice Europe-Asia-Oceania, where we have the solid performance. It says developed bell figure driven by property accounts and core paperboard items. We also had good cost containment, good cost control. However, as you see, the EBIT margin was slightly impacted by the raw materials and that comes from emerging markets that our currency weakness we faced in raw material prices and came into margins in the quarter as our price increases did not happen immediately, especially that was to Eastern Europe. Year-to-date, our EBIT is 9%. Last year same time, we were 8.7%, and now topline year-to-date is EUR 650 million and achieving about 5% like-for-like growth. Capital expenditures slightly up, and operating cash flow slightly down. On Page 9, you will see an example of our new product or information that has been provided to a customer, a consumer use in the U.K. So there is QR code in cup which does tell us, if you still know the code -- to read the QR code, it tells you where and how you can recycle the paper cup after use. It also documents that cups are manufactured in the U.K. and are made of CTFC-certified board and are -- and the cups are recyclable and compostable. These sites have also the information that it will be available in the new products and in the next-generation products for make them more recyclable and understand for customers and consumers. On Page 10, there is a quick summary of European Commission Plastics directive. That status update both took place yesterday and so items that are supposed to be banned are straws, cutlery plates. They represent a small part of our sales in Europe from around 3.5%. And then, there are consumption reductions, extended producer responsibility, awareness raising and market requirements as you saw on the previous page on addressing those new foodservice packaging products. These also include, at this point of time, food packaging made of coated paperboard, again an example which you saw on the previous page. Same here, flexible packaging products are characterized or extended for the producer responsibility of awareness raising the market requirements and in fact, Huhtamäki is of the view, at the bottom of the page, is that we will see a transition in foodservice items into paper and fiber gain share over plastic and we think also market innovations and new product generations will come over time in the food service disposable space. Our main raw materials and our main supplier to food service products in Europe is based on paper fiber. We do have also complementary plastic products -- plastic cups, mix and so on. And we believe that there will be a pretty strong innovation momentum to replace many of the plastic items with either paper or fiber. Pipeline is so that the system for the -- the proposal for the European Commission, the system voting was yesterday and the timeline is that by 2025, there will be actions that have taken place over the long period for making changes and accommodating innovations.Now move to Page 11, North America. We had a strong progress in paperboard. We were also lower on the [ plastic ] tableware sales, actually we didn't participate in promotional activity in the third quarter. High cost continued, distribution input costs and also Goodyear startup. However, we can say that in the final month of the quarter, already Goodyear had almost a breakeven result, and we had good deliveries to our key customers part of Goodyear. Working capital change is negative anticipating a stronger Q4 deliveries. And also, currency impact is positive, so we still have not having a negative impact on our top line of profitability in the third quarter. Big but became positive. In terms of EBIT margin at 6%, not satisfactory compared to 8.9% -- 8.6% in 2017, clearly below. And there will be work on improvements in pricing, also building the higher -- seek to deliver higher volumes quarter, next quarter and in 2019. And that's how Goodyear had a positive impact on the profitability going forward. On Page 12, Flexible Packaging had a strong volume growth. Some weakness in exports to Africa. The profitability was mostly impacted by the devaluation of Indian rupee where the input cost went up because the commodity in raw materials purchased in either euros or dollars and translated into Indian rupees had a significant increase, and we have a delay in price increases. However, we are working on those and advancing them, as we speak, and expect also improvements already in the fourth quarter. Egypt, our plant start-up is on track, so we have early trials to give you to quarter 4 and expect that the commercial deliveries will start in the first quarter 2019. That is the final major investment, which is in the pipeline at this point of time. And then, we are wrapping up or we have [ plans to be ] Goodyear in in 2020, 2019. And we are then we are also wrapping up in Egypt in -- starting in first quarter. Profitability of the segment is EUR 15 million EBIT, which is 15% down from the prior year, entire decline is coming from India. That is extended EUR 13.5 million, reflecting the Egypt investment, the achieved final stages and operating cash flow at EUR 1.7 million. I move to Page 13, Fiber Packaging. This is typical bell and product is -- business is especially at good growth in the U.K., Russia, Brazil and Africa and also excellent situation with raw materials as they are low level and there is lots of good margin development. However, in the results, we have consumer tests related to fresh trade, which is revenue trade made up of fibers and the -- actually, the second phase of testing, approximately EUR 600,000 of those cost -- costs which are not -- capitalized as capital expense just roll into EBIT. So if the correct EBIT for those costs, we achieved slight improvement in profitability and EBIT margin of above 11% in the quarter. And I hand over to Thomas Geust to go through the financial review. Thomas, please.
Thank you, Jukka. I have turned to Slide #15, which takes us through the main headings of our profit and loss. [ Audio Gap ] 7% in the group quarter, accelerating from 2% in the full year. This is partly driven by the tailwind, we now or the less headwind in currency, EUR 117 million negative year-to-date quarter on quarter, only EUR 9 million in the quarter. We'll also see from the slide that our adjusted CapEx is down 12% for the quarter, but was down 8% year-to-date, so accelerating. The main reason for one comes from declining gross margin, so our gross margin compared to previous year is down some 1.6% both in the quarter compared to Q3 2017. And that main reason for this one is acceleration in raw material cost, especially in the emerging markets. Also the distribution costs continue burdening results at higher level. So all the negative impact in our margin decline comes basically from items above gross margin, [ as we recover sales and working down loan, ] improving on those. Moving further down across profit and loss, next financial items remain on a competitive level. The tax rate is at 21%. It was 22% last year same period. And then with this, we end up with adjusted EPS of EUR 0.38 for the quarter, down 12% and EUR 1.25 for the full year-to-date, down 10%. Turning to Slide #16. Details on the financial movement and as you can see from the last column comparing that one to the average 2017, you can see that still on this level, we are having a negative effect from all the currencies. However, looking at the more immediate ones, you get the entire impact is now progressing better than before. But asset U.S -- based of products which is giving us the best tailwind at the moment, and of course, that's 1/3 of our business approximately. Turning to slide # 17. The hedging uptrend in cost in raw materials, this time we disclose that approximately EUR 9 million impact in the quarter. That came to a large extent from the cost increase in India where, for instance, [ pec films ] were up 25% in the quarter alone. And of course, offsetting that one with price increases is quite difficult. The other commodity trending upwards is on the PaperPort side and they're very much still on the small fiber side. Turning to slide # 18. Debt position -- in the debt position, net debt to EBITDA, we are at 2.2%. It's up from 1.9%, I think, at Q3 '17, driven by higher debt levels and reflecting the tied up working capital we have in the business at the moment. Turning to slide number 19, debt maturities. In the debt maturities side, we have an average maturity of 3.9 years, as you know, it was 4.8 at Q3 2017. We have a -- have renewed a number of instruments and are currently in a good position to take on further organic and inorganic initiatives. Turning to slide number 20. You can see that the free cash flow is up from last year's level, clearly the main driver for the improvement comes from lower capital expenditures, so EUR 24 million versus EUR 5 million previous year. Like I said, we are currently still coming up too much in the working capital and are working on improving that one towards the end of the year. Slide number 21 highlights our progress towards our long-term ambitions. We are now basically on track when it comes to the organic growth -- comparable organic growth. However, as you will find from the slide, we are trending behind on all the other KPIs. So still lot of work to be done in order to be with that mission.Turning to slide number 23. The outlook, which remains unchanged from previous and the same goes for Slide number 24, which is the short-term risks and uncertainties, which also remain unchanged.
Thank you, Thomas. We are now open for questions.
[Operator Instructions] We will now take questions from Peter Testa from One Investments.
Three questions, please. I'll go one at a time. On North America with the input cost versus pricing, I was wondering if -- there are 2 parts. Whether you've seen any particular change in transport pricing on a sequential basis in Q3 and as you start into Q4? And then, on the pricing side, the extent to which pricing is able to cover for other non-transport import costs yet? Or whether that still needs to happen?
So with regards to -- if I got the question correct, so the input cost, the outlook in North America for the remainder of the year.
No, no. It's slightly different. It was -- sorry to interrupt you, it was just on 2 parts. It was transport extent to what you saw sequential increase in Q3 versus Q2. And are you still expecting one in Q4? And then on import cost, the extent to which you are now achieving the price increases necessary to cover the other non-transport import cost, please.
Okay. So we expect that the cost picture in terms of the transport cost appear to be moderating, so after lately this information suggests that there is some easiness of -- ease of the costs. However, this is early, but if you look at the trend lines of the transportation -- transport costs, they appear to be trending back down, slightly down. In terms of the raw material, we've seen the -- especially the pulp-based products and clean, sort of clean fibers, which are also demanded in China that those costs have been going up. But they are also the pulp prices, at this point of time, is plateauing and also same with the cost for pulp branded basically China play. We have not gotten all the price increases yet, so we are working on those. So price elements have come in the fourth quarter and also starting in 2019. So we are -- our prices are moving with the lag, so therefore, the lag is impacting quarter 3, and we expect to get some more price increase in quarter 4. But there is additional that will come in quarter 1, 2019.
Okay. And then on -- just to understand on Goodyear in the context of the U.S., how much did Goodyear add to organic growth in the quarter, please?
The PaperPort growth is about 11% compared to 2017 and that accounts for across the multiple categories. So therefore, the carton, paper cups, paper plates and Goodyear impact for the quarter. Overall growth in the PaperPort is 11% and that growth comes from the fact that Goodyear has helped us to open up capacity across the system.
Okay. I'm not sure. I'm just trying to get a context within either the U.S. or the group, just how much Goodyear -- Goodyear was contributing to growth for the operation? I'm not sure I understood the context you just gave.
Yes. Sorry, it would be about all in all, in the top line in paperboard is about EUR 20 million.
Around EUR 30 million.
Yes, EUR 29 million. I think EUR 29 million is the exact number.
That's paperboard overall? Or Goodyear?
Paperboard, yes.
Okay, paperboard overall. Okay. And then the other question I had was just on material cost inflation India. I was wondering at what point in the quarter that really started to come in? Was it for the whole quarter? Or really late in the quarter?
It was throughout the quarter. It started early in the quarter and when it spiked, price picked up almost immediately after.
That through the quarter. Okay. All right.
Starting in July. Yes.
[Operator Instructions] There are no further questions in the queue. At this time, I would like to turn the call back for any additional or closing remarks.
No, that was all from us. Thank you very much. Good rest of the day.
Thank you.