Huhtamaki Oyj

OMXH:HUH1V

Earnings Call Transcript 2021-Q3

[Calle Loikkanen]

Good morning, everyone, and welcome to Huhtamaki's Q3 2021 Results Presentation. My name is Calle Loikkanen, and I'm Head of Investor Relations. Huhtamaki's President and CEO, Charles Héaulmé, together with CFO, Thomas Geust, will today walk us through the results of the quarter and the year-to-date development. And after the presentation, we will, as always, end with a Q&A session. But without any further ado, let's begin with the presentation. So let me hand over to Charles.

[Charles Heaulme, CEO & President]

Thank you, Calle. Good morning to all of you, and welcome to our presentation of our Q3 2021 results, and thank you for joining the session. I will start with a couple of words summarizing before going into more details about our performance, summarizing the business context of -- on quarter 3, as well as a little bit of some highlights of our performance. First of all, we are delivering a solid growth in the third quarter 2021 and particularly in the emerging markets. And that is on the back of a continued recovery of the on-the-go consumption that we see in most markets. We'll come back to a bit more details, of course. Second point that all of you are, of course, aware of, there is an environment of a significant, if not extraordinary inflation particularly on the raw materials and freight as well as energy. And overall, we've been pretty successful in passing through this exceptional inflation. However, this has been slightly more challenging in the emerging markets. We will come back to that as well. Third point of importance is that we continue to focus on our sustainability priorities. As a matter of examples, we have seen our Science Based Targets being approved during the course of the quarter. We have been applying for the Science Based Targets during 2020. And second point, our Global Sustainability Index that we introduced at the end of last year, 2020, it continues to improve. And something that is not written as well on the slide that you have is one of our new sustainable products, the fiber lids and Sunday fiber cup have been awarded as the Sustainability Europe winner when it comes to bio-based products. So this is another highlight. And then another highlight of the quarter is that we have completed the acquisition of the company Elif. I'll come back to that after presenting the Q3 results. Let's start on Page 4 with the sales of the quarter with a total of close to EUR 900 million,EUR 896 million. This represents an increase of 6% versus the same period of last year. In terms of comparability, the comparable net size growth is 4%, and that's the same -- comparable net sales growth is 5% when it comes to emerging markets. We have seen, of course, a small impact from our acquisition that is coming from our acquisition in China completed at the beginning of June 2021, and a very little impact this quarter from the currencies. So that's for Q3. When this is considered with the first semester than year-to-date, from January to end of September, we are reporting sales in increase mode of 3%, but it's a comparable net sales growth of 6% year-to-date. They're off 11% in the emerging markets. Of course, that compares to year 2020, which was highly disrupted by the pandemic that really started to hit the economies more in the second quarter of 2020. Positive impact from the acquisition, that's as well what I mentioned already. It doesn't, however, include any impact from the Elif acquisition, which has been completed in the last days of September, and therefore, Elif impact will be eligible only as of Q4 2021. And unlike Q3, which was much more stable on the currency front, the year-to-date impact, so coming entirely from the first semester, is a negative 3% on our growth, minus EUR 78 million. Breaking down the growth or the comparable growth of 4% in Q3 and 6% year-to-date by business segment. I would say, first of all, Foodservice with a comparable growth of 2% year -- sorry, in Q3 and 11% year-to-date is confirming the gradual recovery that we were announcing in Q1, confirming in Q2 and reconfirming in Q3. We are not yet year-to-date at prepandemic level. But in Q3, we clearly see a bump, a positive surge in the demand of foodservice in continuation of Q2. North America continues to deliver solid comparable growth of 5% in Q3, 4% year-to-date. That's on the back of 2 things, the continued strong growth that we have seen in 2020 and the course of 2021 for retail tableware, but as well, in Q3, a recovery of the foodservice segment on category and particularly because the schools and stadiums have been reopening and that has boosted, of course, or restarted, I should say, in 2021, our sales of lunch trays as well as the catering products for the stadiums, cup carriers as an example. Flexible Packaging growing relatively well in the context of the continued pandemic in some regions of the world, with a 7% comparable growth in Q3, and a 4% in the year-to-date. We will see with differences depending on the different regions. And fiber is where, if you remember 2020, where we had a very strong growth in 2020. We ended the full year 2020 with a close to 10% comparable growth in fiber. This year, in relative terms, is slightly more modest. So we are recording a 2% comparable growth, and that's obviously on the back of that very strong year 2020. The demand is still there, but of course, the evolution of the consumption or the recovery of the normal consumption, if I may say, less home consumption and more on-the-go consumption, of course, plays relatively against the growth that we had in 2020. That's for the growth by segment. Going now to the consolidated P&L. The, as I said, solid comparable growth as well as reported growth. The adjusted EBIT and EPS have decreased due to the input cost headwind, and this input cost is linked to raw material, freight, energy, everything has been really emphasized strongly during the quarter 3. It started, of course, in the first semester, but it was hitting the P&L much more into Q3, whilst our mitigation actions had started as well already in the first semester. And then we are seeing as well, which is a positive sign of confidence and as well reflecting the market demand, we are increasing our investments, our organic investments in 2021. Very confident about the demand going forward. So we are implementing organic projects in the different packaging categories where we are playing. We look now, and I'm turning to Page 9 for the ones following the presentation offline. So Page 9, now going into some more business details by business segment. First of all, with the Foodservice Europe-Asia-Oceania where, as said, we continue to see a recovery in the demand. However, there are some variations depending on the markets and product categories. Product categories because there is, of course, the push of the plastic substitution and variations between markets because we still see markets in the world like Southeast Asia, for instance, where we continue to have very strong restrictions and eventually lockdowns in some markets in Southeast Asia linked to the COVID pandemic. The net sales have increased, particularly thanks to products related to food delivery that continues to be strong. And that's an area where we believe we should be very confident going forward. All the takeaway food-on-the-go, food delivery that has become part of our daily life, including in the developed markets, is there to stay. It's the convenience way of life is there to stay. Year-to-date adjusted EBIT is well above the previous year. At the same time, in Q3, it is decreased compared to last year, and that's very much on the back of a mix -- the sales mix that has been very different versus last year. Last year was more disrupted. And then we have, of course, in Q3, the impact of polymer and distribution cost that has a negative impact on our EBIT margin. North America, the demand, as I mentioned before, continues to be strong, particularly in retail tableware and food-on-the-go products. The raw material and freight availability is a real challenge in North America, particularly paper bond. And the price challenges have accelerated -- at least have accelerated in terms of hitting our P&L. If the spot prices were already known in Q2, it's visible in our cost of goods sold mostly in Q3, which explains why there is a slight reduction of our EBIT margin. At the same time, year-to-date EBIT margin is continuing to be strong with 12.4%, a little bit ahead of last year. Flexible Packaging. Overall, we are seeing -- and I'm on Page 11, we are seeing overall a good demand despite some significant variations between product categories and markets. It's, for instance, what I mentioned as well for foodservice, very visible in Southeast Asia, where, for instance, countries like Thailand or Vietnam have been suffering strict lockdowns still in Q3, and that has hampered not only the consumption, but as well, in some cases and for quite a few weeks, some restrictions for us in terms of the possibility to produce at capacity. The net sales increased in most markets, particularly in Middle East, Africa and in Europe. The earnings, however, are impacted negatively by the pass-through, which -- the raw material inflation pass-through that has been very successful, but much more challenging, we have to say, in emerging markets. And that explains why the margin of Q3 is lower. I'd like to mention here that it may look very low to lose 2.5 points in a quarter. But actually, when we look at the operational performance of Flexible, we are actually gaining 1 point of margin. So it's really the temporary raw material impact, raw material, energy and freight impact that is there impacting our margin. Therefore, we are, from a structural perspective, not concerned. On the contrary, a lot of very positive things are happening in the segment with a positive impact on the margin. And then as I said before, we have announced the acquisition of Elif, but as mentioned, it doesn't impact the Q3 numbers. And finally, fiber, where we see the demand for fiber-based packaging normalizing. Now we need to mention that in our fiber production, we have sales, of course, in the fiber division itself, but we have lots of sales for cup carriers that are going to the foodservice segment in terms of customer channels. So it may be a modest growth of 2% linked to, for instance, the x consumption that has normalized, but there is a growth, still strong growth happening for fiber products, for foodservice that are not visible into the fiber segment itself, but in the foodservice. The earnings are maintained over 10% on a year-to-date basis. However, suffering slightly from the raw material prices. And when I'm saying raw material prices, it's actually all input cost, particularly the recycled fiber, but as well the energy costs that are impacting our margin in Q3. With this, I'd like to give you a couple of words before handing over to Thomas for the financials about Elif, our acquisition in Turkey and Egypt. Elif, for some of you who have seen the presentation we gave earlier, I think, at the end of August when we signed the project of acquisition, it may be a repetition, but probably still good to have a few words on Elif. Elif is a major supplier of flexible packaging, particularly in Europe, Middle East and Africa. It's completely based in Turkey and Egypt, 2 big factories. In Turkey, it's a factory of 1,000 employees in the surrounding of Istanbul. And in Cairo, it's a factory of about 500 employees. I'll come back to the categories where Elif is particularly present. What is key for us is that it's bringing to Huhtamaki a state-of-the-art flexographic printing technology, which is a complement to our portfolio. And a second very strong aspect is the fact that Elif has a very strong, like Huhtamaki, sustainability ambition. And they have actually a very strong performance where the share of their recyclable products, so products which are technically recyclable, of more than 90%, precisely year-to-date 91%. So looking on Page 15, at the products categories, you see that it's a very diverse portfolio that Elif is bringing to us and very complementary. Elif is present in food and beverage and in pet care, like Huhtamaki, which is our core business for the Flexible Packaging, but Elif is very strong in personal care, home care products, which is an excellent complement to our portfolio in terms of not only products but as well customers and, therefore, bringing an opportunity to not only have synergies from a cost point of view, but as well from a top line point of view. So a couple of words, Page 16, on -- without maybe trying to repeat myself or give you too many details. A couple of words to explain the rationale for us to engage with Elif and now integrate Elif. First of all, it's about strengthening our existing footprint. We are already present in Egypt, but now we are very relevant in the market with these 2 factories, very complementary portfolio. And second, and very important, we were not present in our Flexible Packaging in Turkey, which in itself is a very important market, big market, a very large market but as well growing market. This company is making, which maybe is not mentioned in the slide but I would emphasize, from a risk perspective, is invoicing 100% of its sales in hard currency, mostly in USD and in euro but as well in British pound, which makes it unvulnerable to the risk of currency from a top line point of view. So it's adding scale for us where we are present and adding geographies into our emerging market leadership. Second, as I mentioned before, complementary technologies. We are particularly strong in rotogravure flexible packaging. Elif is bringing us the flexographic technology. So very complementary, extremely competitive from a production platform being based in Turkey and in Egypt, 2 countries, 2 markets which are in free trade agreement with the EU. So this is as well very important for us. And thirdly, it's a company that is accretive for us in terms of our sustainability strategy. So it really makes sense for us to have acquired Elif. There will be, as I said, some synergies, of course, from a cost perspective both in terms of organization, but as well, obviously, in terms of procurement. There are synergies in the technology side, but we expect synergies from a top line perspective and expanding our customer base from both sides, expanding the possibility of Elif products and technology for food categories as well as for Huhtamaki to health care, home care and personal care. And this too, this is an opportunity for me to remind all of us that for us, Flexible Packaging is absolutely key in the center of our core business and of our portfolio towards our 2030 ambition and for our growth. Just 1 or 2 important aspects. One is the fact that the market for flexible packaging is expected to grow significantly over the next years or decade. And second, that Flexible Packaging has a great value from a sustainability perspective. This is something we have repeated over the time as we are investing in such a big player. I think it's worth mentioning. Why? Because it makes food and products available everywhere. It brings or secures food safety as well as hygiene. It's very light, so very competitive from a freight point of view, that it's reducing the waste of food, which is, as you remember, the #1 issue of the food system's impact on the environment. So now handing over to Thomas for the financials.

[Thomas Geust, Chief Financial Officer]

Thank you, Charles. Jumping into the detailed profit and loss immediately, highlighting a few things that Charles maybe didn't cover completely. So first of all, I would highlight that the year-to-date numbers are reflective of the performance we have seen this year with the -- in some segments early activities around the pricing. And then in some segments, now slowly starting to see some recovery on the raw material side. So the year-to-date number is quite descriptive. The quarterly numbers showing an accelerated impact of the raw material hit. So our value-add decrease is higher in the quarter compared to year-to-date. I would also highlight that our recovery in direct costs and production overhead is actually quite favorable from the point of view that we have, of course, a different situation in 2021 versus 2020 when we had many factories down for -- with underabsorption. Then another item I want to highlight, which is not visible on this one, is that we do have a higher R&D cost as well. We have roughly EUR 4.5 million higher year-to-date. And this is obviously reflecting the part of our investments into new product categories. So these are additional information with regards to the sort of operational result that was already highlighted by Charles and the outcome is obviously that we have a development of -- a favorable development year-to-date with a slight drop -- or a drop in margin in the quarter, from 10.1% to 8.5% in adjusted numbers. Other things to highlight is that we do have IACs, both year-to-date and in the quarter. In the quarter, the main items are related to the acquisition costs of Elif while then year-to-date, we do have restructuring activities, both in foodservice and in Flexible. So related to the announcements and activities we did already at the back of last year. Finance costs here reported is higher than previous year. But also here, we do have arrangement costs related to the acquisition. So operationally, our finance cost is still trending favorably with, of course, now a higher net debt -- or debt level going forward. Our tax rate remains unchanged and the adjusted EPS year-to-date is up 4%, while in the quarter, down. On the currency exposure side, I'm happy to tell that -- to see that all our key currencies, except for the Thai baht, have been developing now favorably in the quarter, so only the Thai baht having a negative impact here. And that, of course, is explaining that despite having average rates still trending unfavorably, we are finally seeing a positive currency translation on the net sales row while the EBIT row is flat. So EUR 3 million positive into the quarterly results on -- from currency translation. Then maybe one of the more interesting slides as we have some real movements here. You can see that we are now on a net debt-to-EBITDA level of 3.0 and the net debt has gone up to EUR 1.4 billion. If we would take the net debt-to-EBITDA level pro forma, so with Elif numbers in, then we could take out a few tenths of points out of the turn. Other things to highlight is that the gearing obviously also goes up to 0.96. And we do remain clearly below the covenant level. And as said, with the pro forma, we are well -- still within the ambition level. Here is the structure on our financing. The big move here is bridge finance, which can be seen in the 2023 numbers. So we have drawn the bridge. We took it in order to finance the acquisition. A big part of the overall bridge has been drawn, and we still have some facilities available. Also on that one, looking at the average maturity, it's now 2.6 years, coming down mainly due to the length of the bridge, which is 2 years. But all in all, still a quite good spread of maturity in our financing structure. Cash flow is developing unfavorably, to a large extent, driven by working capital in the quarter. Working capital, of course, has also beyond real growth at the element of the price increases in there. So that's, to one large extent, driving the negative development in working capital. Otherwise, it's mainly the normal things of capital expenditure, where we are on a higher level and then the profit side. But -- so the cash flow development, we are, of course, not as such satisfied with it, but of course, it's also coming on the back of a very strong previous year. On the balance sheet, then the main items we have in here on the balance sheet movements comes again from Elif. So Elif is fully in the balance sheet, no impact in the profit and loss so far, so the profit and loss impact coming in Q4. So that's changing both the absolute balance sheet rows as well as the ratios in the -- seen on the page. So higher total assets, higher increased net debt and higher equity to be highlighted. Where are we then trending on our long-term ambition on our long-term ambition? On our long-term ambition, we are now seeing in the year-to-date numbers a growth of 6%, so slightly above the ambition level. The adjusted EBIT margin on a healthy level but below ambition at 9.1. And then the net debt-to-EBITDA without pro forma on the upper end of the corridor. And then we did pay the -- pay out the dividend, second part of the dividend now in October. So that's not yet reflected in the balance sheet numbers. Looking forward in the outlook, no changes in the short-term risks. We have a slight modification to the wording. However, nothing material. With that, we conclude our presentation and open up for questions.

[Calle Loikkanen]

Yes, that's right. Thank you, Thomas, and thank you, Charles. And now let's continue with Q&A. So let me hand over to the operator for instructions.

[Operator]

[Operator Instructions] And we have a few questions coming through. The first is from Robin Santavirta of Carnegie.

[Robin Santavirta, Head of Materials Research & Financial Analyst]

Thank you very much, and I would have a question about the input cost inflation you're seeing at the moment. Could you help us to understand how the Q-on-Q or the sequential or the development of, in a sense, the value-add margin going into Q4 just sort we understand is Q4 sort of where you will see more hurt from what we have seen recently related to logistics, energy and raw materials or was Q3 now sort of the most challenging quarter based on the information we have today? Could you also highlight how much of your cost is energy? And is that hedged in some way?

[Charles Heaulme, CEO & President]

So Robin, thank you for the question. And Thomas, you complement after me, of course, if relevant. So to your question, Robin, the -- I think it's important to look at the net, but of course, I'll try to give some elements about, of course, the input cost themselves, the growth increase. What we're seeing is -- and the reason I want to speak about the net is that in the diversity of our portfolio and geographies, we don't have a consistent timing in terms of when the input cost increase is hitting the P&L and the mitigation pricing is happening. So when we're looking at Q4, basically to answer in a very simple term to your question, we are seeing Q4 at about the same net impact as Q3. That's what -- to answer in a very simple way. Now why is that? And what has happened in Q3 and what is happening in Q4? In Q3, we have seen an increased impact from the raw material extraordinary inflation, particularly in developed markets. In the U.S. particularly, but as well in Europe for our Flexible Packaging, for instance. While the impact of this raw material inflation was much more, in the first semester, in the emerging markets. And that's because we have more spot purchases in emerging markets. We are not covered in the emerging markets with contracts at certain terms. Then the mitigation itself, the mitigation with our pass-through on pricing is increasing gradually through the year. It was fairly strong already or very early in the U.S., which has, of course, supported our margins in the first semester and makes the situation where net-net, the second semester in North America is slightly lower than the first semester. But all in all, what we're seeing is that when you take the inflation on energy, freight and raw materials netted from the mitigation, we see that Q4 will be net-net about the same as Q3. The second part of your question is specifically related to energy. Energy, it depends very much on our different, should I say, portfolio, businesses or product categories and technologies. But overall in the group, we have about 3% to 3.5% cost of our sales being energy. The energy costs have been increasing a lot in Q3. What we're seeing on overall all the input cost is that Q4 will remain at a very high level, but this is a level that is not increasing really anymore. It's the same level as we had in Q3. Anything you would like to add?

[Thomas Geust, Chief Financial Officer]

Yes. Maybe the addition, we do not hedge energy prices. So -- and we don't hedge commodities either.

[Robin Santavirta, Head of Materials Research & Financial Analyst]

Okay. Good, good. That is clear. Then so 2 other questions, first, related to Elif. I understand you will now consolidate that company into your P&L in your in -- fully in Q4. Could you comment, is that something that supports your margin in the Flexible Packaging division? Or is there any sort of cost that is related now to this company sort of being part of your P&L in Q4? And then related to the foodservice business or the on-the-go business overall, how would you describe sort of the current situation compared to the pre-pandemic or the normal level? How far are we below still at this stage? So those 2.

[Charles Heaulme, CEO & President]

Okay. So I'll answer again and then, Thomas, you complement. So if I take Elif quickly first. So with Elif, we are seeing Elif as accretive to our situation and specifically, of course, in flexibles business where it's going to be consolidated because Elif has a significantly higher profitability than our profitability at Flexible Huhtamaki, not just because of performance in 2021, but structurally more profitable. So that, we will -- on this, we will see a clear impact in Q4 and in 2022. The question on foodservice. So versus pre-pandemic, if I'm being more precise, so what I said is that we have seen the recovery of the demand starting in Q4 last year. We have said it again in Q1 that it was very clearly coming. It was confirmed in Q2 and Q3, same. So it's gradually increasing. And that's obviously linked to the easing of all restrictions around the world, even though some geographies remain, let's say, restricted. At the same time, when you look at our performance year-to-date, of course, in the growth that we see in fiber foodservice, a good part of it is linked to a pricing increase. So all in all, year-to-date, we are seeing that the volume is still a small single digit below pre-pandemic year-to-date. That's what we're seeing. The volume is clearly still below, but year-to-date, because Q1 was below, Q2 was below, and then we are recovering gradually. So very soon, and I would say 2022, we should be very clearly at pre-pandemic, if not above.

[Thomas Geust, Chief Financial Officer]

Yes. I would add to the last comment here that the difference is that on overall level, it's exactly as Charles is saying. However, there are markets which are clearly performing better, where some other markets are still distressed. So that element, we still do have in the foodservice numbers as well.

[Operator]

And our next question comes from the line of Peter [indiscernible] of MT Asset Management.

[Unknown Shareholder]

So we are an institutional investor in Huhtamaki India, and I had a couple of questions related to that. One impact, recently, the CFO and the management directors have both resigned. And that has also been the phase when the financial performance of the company has been weak. So how should one look at the management churn of the company and the financial performance? Any comments would be helpful.

[Charles Heaulme, CEO & President]

So I would say that there isn't a direct correlation at all between those events. First of all, the CFO is retiring rather than resigning. So we could have eventually thought about a later retirement, but it's the -- that's the situation and the wish of the CFO. So that was not something completely unplanned. The Managing Director has resigned from his duty indeed at the end of September, so he's still in duty until end of November. We are -- this is not linked to the weak performance. Let's remember that the weak performance is in the flexible segment overall. I would like to say I underline it into my presentation, but I want to make that very clearly understood. The numbers, the top-level numbers do not reflect that. Overall, we have actually a solid performance in flexible and we have an improvement of our operations. So not speaking here specifically about India. In India, we have a specific transformation plan ongoing in order to make ourselves more competitive from manufacturing perspective, from structural perspective. But overall in the segment, we are improving in terms of our overall operations. And that's a value of roughly 1 point of EBIT margin. So it's not insignificant. The entire situation is linked to the inflationary situation across the world, but particularly in India. Obviously, we have to acknowledge that the situation in a country like India where you get into a job about a year ago or beside 1.5 years ago to get into a job and you discover a situation where the country is very disrupted, much more than what we know in Europe by the COVID pandemic. Where, yes, we have a transformation that is due in our operations in the country. And then you end up into a situation of extraordinary inflation situation that is extremely complex to manage, extremely complex to manage, and even more in emerging markets than in developed markets. It can rain on the health of people, and that's part of the situation which has happened with Sudip Mall, our Managing Director, who wanted to preserve himself from the very high pressure. We have put in place an interim solution where the group itself is supporting strongly. We have sent on the ground immediately a team with 2 group members, both on -- a financial leader, as well as a sales leader of the group into India in order to manage the interim period. First of all, with Ranjeev and Sudip, our current CFO of India and Managing Director. And then to take over for until we are in a position to have the right management in place.

[Unknown Shareholder]

And just a follow-up on that. I mean, we have been raising the issues on the investor interaction by the management. And over the last couple of years, they have gone completely quiet. So how do you look at that part of the activity or the responsibility of the management from a corporate governance point of view? And would you like to make any changes over there?

[Thomas Geust, Chief Financial Officer]

Currently, we are looking into the overall situation in India, and let's get back to that one when we have more clarity on it.

[Unknown Shareholder]

Perfect. We'll wait for any positive development on that side.

[Operator]

Our next question comes from the line of Cole Hathorn at Jefferies.

[Cole Hathorn, Vice President]

Just like a little bit of a reminder on how the contracts work in the Flexible Packaging business to pass through the cost inflation. I mean you've talked about some challenges passing through that cost inflation in the emerging market side versus finding it a little bit easier on the developed side. Is there a difference in how the contracts work in the polymer pass-through is the first point? And then the second one is on the Elif acquisition. Is there any EBIT or EBITDA amount that you're guiding to on that acquisition? And then finally, on your North America business, we've seen the paperboard prices continue to go up. But we're also hearing that given the wider cost inflation environment, people have been able to pass through pricing a little bit easier, all those negotiations are framed with everyone knowing that prices are rising. How are you finding those negotiations in North America?

[Thomas Geust, Chief Financial Officer]

So let me see if I captured all of them, but I will start and then Charles will complement. So first of all, from a contract point of view, there's not really any difference in the cases where we have contracts between the different markets. So it's very much the same mechanism as -- so we have a raw material and especially in -- on the polymer side, it's quite easy to follow specific indexes. We are negotiating the prices with our suppliers and the indexes are basically moving then accordingly. Then it's more on the customer contract side where we will have the deviations and that comes from the length of the contract. So how long it takes for us to pass on the movements, that has not really been an issue, the timing as such when the movements are not as hefty as they are this year. But I would say the pass-through contracts, in some cases, in emerging markets are on a longer trajectory than in some of the mature markets. And then the other element is that, for instance, India is more on a spot-based level when it comes to customer contracts. However, also, the raw material movements are clearly moving quicker and in a more volatile way than in some of the other markets, especially now currently. So I would say the main difference is the volatility of the market, not the structure of the contract as such, to summarize on that one. What's the second question? Guidance on Elif. So from that point of view, you have roughly, I believe, an understanding of the annual net sales levels, which are roughly EUR 200 million on Elif. The other guidance we have been giving on that one is that the acquisition was more on the top of our traditional 8 to 10x multiple. So if you take those 2 parameters into account, then I believe we will be able to come to a relatively good assumption on the impact of the business. I hope that helps. And then on the North America side and the commodity prices there. That is a highly inflationary market. And I would maybe highlight another part also of the raw material things. One of the key reasons for actually the inflation is the availability of material. So I would highlight that part of it. And I think it is well understood throughout the value chain that there is an issue of availability in many of the commodities, not only in our industry. And I would say the success of getting prices through is then more related to whether the end customer perceives the product to be critical. With this said, I would conclude that the situation in North America, we were early movers in pricing, as Charles was saying. We will continue to do the work and communicate to our customers what the situation on the raw material side is. Anything you want to complement to any of the questions?

[Charles Heaulme, CEO & President]

You were very complete. The only thing to say is because I believe that the slight reduction of our margin in the U.S. plus the comments I made on Q4 may make you think that we are not as capable as passing through as some other players that you suggest. It's not the case. The problem we have is timing. Because as Thomas was saying, we have been early movers in the passing through. Our price increases were already impacting positively in Q1 than in Q2. Therefore, with the timing of the impact of the input cost into our cost of goods sold, we are seeing a lower net-net in Q3 and in Q4 than we have seen in the first semester. That's the situation in the U.S. But we don't have any issue in the U.S. on the pass-through. The only issue we have or challenge we have in passing through is in emerging markets where it's been much more complex, linked as well to the structure of customers, much more smaller customers, for instance.

[Operator]

And our next question comes from the line of Jutta Rahikainen at SEB.

[Jutta Rahikainen, Country Head of Finland Research and Analyst]

Some of my questions were already exhausted, but a few more. Getting back to the question Robin had at the beginning on this net impact of raw materials or input costs, broadly speaking, and pricing. So double checking here, you are saying that input cost inflation will accelerate towards Q4, but so will your pricing actions. Is that the outcome or the way to read it?

[Charles Heaulme, CEO & President]

It's a very good summary, in other words, of my answer to Robin, Jutta. So the -- I mean our pass-through has been more than 95%. So we are on a high scale. But the input cost increase is very, very significant. And the net-net of higher input cost, because now it's going to be in Q4 in all P&Ls, all geographies and all commodities which are increasing. So it's everywhere. But as well, our pass-through is -- has gained effect fully in Q4. So net-net, it will be more or less the same as in Q3 in euro terms.

[Jutta Rahikainen, Country Head of Finland Research and Analyst]

Okay. Good. Just double checking that. And then another one on North America. We covered a lot of it already. But regarding the product mix. And earlier, you said that the sort of COVID times, meaningless foodservice and more of the other sales has been good for profitability. And now you refer that foodservice is kind of rebounding, which makes a lot of sense. But still, your profitability was really good, I have to say, in the quarter, at least better than I expected. So would you say that the sales mix now in this quarter was, so to say, normal? Or do you still have a COVID mix gains, so to say, in the profitability? If you could just describe that a bit.

[Thomas Geust, Chief Financial Officer]

So Jutta, I would say it this way, that the foodservice hasn't fully recovered yet. So if you look at the top line development, as I have been saying so many times earlier, when the top line comes through even higher, then you will see the mix thing. We had a very favorable fiber mix in the quarter still here. So fiber consumption and the branded plates are continuing on a very high level through the quarter. And then if you think about the return of school consumption and similar, that's coming in now then later in the year.

[Charles Heaulme, CEO & President]

Yes. In other words, we were certainly a little bit concerned that 2021, the product mix would be, of course, back to pre-pandemic, and it's not the case so far because the retail tableware is double-digit growth versus 2020 when it was already very strong quarter after quarter. So that is supporting our margins. But we are monitoring this very closely.

[Thomas Geust, Chief Financial Officer]

So consumption with disposables seems to be something which people got used to.

[Charles Heaulme, CEO & President]

Yes. The convenience way of life is there to stay. That's our understanding, not only for the U.S. but across the world.

[Jutta Rahikainen, Country Head of Finland Research and Analyst]

Okay. That's clear. And then the last one for India. What was the local currency growth for Q3 quarter-on-quarter -- sorry, year-on-year?

[Thomas Geust, Chief Financial Officer]

Let me come back to that one. Let me see. So India, you said year-to-date growth?

[Jutta Rahikainen, Country Head of Finland Research and Analyst]

Well, actually, both are good to hear, but I was asking about the quarter. Maybe if you have year-on-year data, happy to hear that as well.

[Thomas Geust, Chief Financial Officer]

It's very low single-digit growth in India.

[Jutta Rahikainen, Country Head of Finland Research and Analyst]

And that's for Q3 and...

[Thomas Geust, Chief Financial Officer]

For the year-to-date and negative -- slightly negative in the quarter.

[Jutta Rahikainen, Country Head of Finland Research and Analyst]

Good. That's clear. No other questions for me.

[Operator]

And we have one other person in the queue so far. That's Henri Parkkinen from OP Finance.

[Henri Parkkinen, Senior Analyst]

I have 2 questions. My first question is related to freight availability. I wonder if you had some, let's say, sales delays from -- for example, from third quarter to fourth quarter because of low freight availability. And then second one is related to competition status. How is competition developing at the moment? Because some of your competitors, they have a stronger, let's say, financial capability and then, in some cases, they may have faced quite several issues regarding this recent cost inflation.

[Charles Heaulme, CEO & President]

So the freight availability is very clearly [ upfront ], but I would say it's not just the freight. It's as well some commodities, particularly paper bond in -- especially in geographies like U.S. and Europe. So does it have an impact on sales delay? I mean when you consider some commodities, the increase -- the very strong increase of the lead time, take aluminum has tripled the lead time in this period of time. Paper bond availability is an issue. I would say, yes, we have a slight lost opportunity of further growth during this period. Whether it's going to compensate in Q4, well, Q4 continues to be disrupted as we see it. So maybe it's more Q1 next year, let's say, when things probably hopefully normalize. But there is a slight delay. Is it significant in terms of percentage? No, but there is an impact. And then the competition status. So to your point about whether our competition would be stronger, I don't think so. So it's a very diverse situation. Yes, there are some bigger competitors in certain markets like in North America, or if you think of Flexible Packaging, but we are -- remember that we have a large part of our business, which is in emerging markets where we are a very big competitor compared to our local competition. And there, our muscle is actually stronger. So it's a balanced picture, let's say. At this point in time, everyone is on the same situation with the availability challenges as well as the extraordinary inflation.

[Operator]

And we have a further question. This comes from the line of Justin Jordan at Exane.

[Justin Joseph Jordan, Analyst]

I've just got 2 quick questions. Firstly, for Thomas on Elif. Thank you for the guidance you've given. I just wanted to understand, I suppose 2 specific impacts from Elif. When you talk about its revenues being in hard currencies, I'm just aware that the Turkish lira has depreciated significantly against many currencies in 2021 year-to-date. Has that been beneficial for the operating margins of the business? And secondly, with regard to Elif, is there any particular seasonality quarter-to-quarter within the business within the year? Just regarding the EUR 200 million revenue that you've guided to, is that something we should just think about being uniform through the quarters? And then just completely differently, I guess, also for you, Thomas. Clearly, CapEx in the first 9 months has been EUR 27 million higher in the first 9 months of 2021 versus 2020. Can you help us understand what guidance you might be thinking about for CapEx for 2021 overall with a calendar year? And clearly, when you think about the growth opportunities and the inclusion of Elif, should we be thinking about 2022 CapEx being higher than 2021 and going forward like that?

[Thomas Geust, Chief Financial Officer]

So if I start, it was a bit difficult actually to hear over the line, unfortunately. But you just ask again if we miss something. On the CapEx side, CapEx is, we believe, will be on a higher level than previous year. So the trend which we have year-to-date is expected to continue. We will stay below EUR 300 million. That's for sure. Then CapEx is going into 2022. There, we are in the middle of the budgeting process. So obviously, from that point of view, we have -- we do not have a final conclusion on what kind of levels we would be landing at. However, as we have been indicating, we are a company now going on a mixed growth execution, which is CapEx based for the categories where we believe we have a strong internal capability of doing something better than through acquisitions. And then we have the acquisition part. So I would expect the CapExes to remain on high levels also in 2022. So minimum the level we will be coming in, in 2021 and likely above. Then on Elif -- then on Elif seasonality. My understanding is that there is no significant variation between the quarters in Elif. They are on quite standardized products, which is supporting that one. So it's not like ice cream coming in, in the summer or similar. So they are mass producers to multinational brands in continuous consumption categories, if we say it that way. Then I think you had a question around the currency-related things to Elif. So yes, they are working in both purchases as well as sales in hard currency. So from that point of view, we don't see any significant upside of currency fluctuations as such.

[Operator]

And we have one further person in the queue. That's Anders Knudsen of SEB.

[Anders Knudsen, Portfolio Manager]

I was interested in the R&D comment that you had, Thomas, in terms of that you spent EUR 4.5 million more in Q3. So point one, how much money have you actually spent in absolute level in terms of R&D? And then obviously, we are seeing, as you also highlighted, Charles, more product coming out from you. This higher R&D intensity, does that give you an opportunity to increase your margins on your products? If you can elaborate a bit further on this R&D spend, please?

[Thomas Geust, Chief Financial Officer]

Just a small correction. The EUR 4.5 million higher than previous year is year-to-date, not quarterly. So that's just if there was a misunderstanding from how I presented it in the earlier one. Our R&D is currently on EUR 19.5 million versus EUR 15 million previous year. So that gives a ratio, I believe, 0.75% while it was 0.6% previous year. So that's the kind of levels we are talking about still with regards to R&D. Our R&D has traditionally and is still very much related to the parts similar to my comment on CapEx, where we believe we have strong in-house capabilities. So we are talking a lot about the fiber technology development. So that's where a big part of our spend is going. Of course, we are talking...

[Anders Knudsen, Portfolio Manager]

[indiscernible] the numbers, right?

[Thomas Geust, Chief Financial Officer]

Yes. And of course, we are talking then new product categories and as, in many cases, new product categories, at least. But the initial part has a margin profile, which is favorable.

[Operator]

As there are no further questions at this time, I'll hand back to our speakers for the closing comments.

[Calle Loikkanen]

All right. Thank you, operator. Thank you very much for the questions and the active participation. On behalf of the Huhtamaki team, we thank you for participating and wish you a really good rest of the day. Thank you.

[Charles Heaulme, CEO & President]

Thank you.

[Thomas Geust, Chief Financial Officer]

Thank you from my side as well.