Huhtamaki Oyj

OMXH:HUH1V

Earnings Call Analysis

A Gradual Improvement Amidst Challenges

In the third quarter of 2024, Huhtamaki reported a slight upturn in market conditions, though variations existed across different regions and product lines. The overall sales figures remained flat compared to last year, but there was a positive signal in increased volumes, suggesting a gradual recovery. The demand for food packaging, particularly in on-the-go categories, however, remained subdued due to lasting inflation effects and geopolitical tensions, impacting brand performance.

Strong Profitability and Positive Adjusted EBIT

Huhtamaki achieved an adjusted EBIT of €102 million for the quarter, marking a 2% increase from the previous year, sustaining a healthy adjusted EBIT margin of 10%. Year-to-date numbers showed consistent performance, with a 14% margin, highlighting effective cost-saving measures implemented since 2023, aimed at improving profit margins amid challenging inflationary pressures.

Cost Efficiency and Strategic Savings Program

The company is actively pursuing a cost efficiency savings program aimed at achieving €100 million over three years, initiated in late 2023 with a one-time setup cost of €80 million. As of Q3, progress has exceeded expectations, indicating the program is ahead of its linear savings trajectory. So far, costs related to this program have totaled €18 million, with significant savings across procurement and manufacturing processes. The management emphasized that proactive cost control has positively influenced profitability amidst volume underperformance.

Segment Performance Highlights

Sales performance varied markedly across segments. In the Foodservice packaging segment, demand was negatively affected by prolonged inflation, reflecting a year-on-year price inflation around 10%. North America exhibited a promising growth trajectory, with reported sales growth of 3%, driven mainly by improvements in local brands. This positive trend in North America was contrasted against softer performances in the Middle East and Africa due to regional geopolitical disruptions.

Adaptations and Projections within Flexible and Fiber Packaging

The Flexible Packaging segment saw an uptick in demand in Q3, albeit with substantial regional discrepancies, particularly underperforming in the Middle East and India. The adjusted EBIT margin here improved slightly to 7.3%. In the Fiber Packaging area, growth in egg packaging demand was seen, supported by increased capacity. However, profitability remained below expectations due to a 50% increase in recycled paper prices impacting input costs. Anticipated pricing adjustments are expected to rectify margins in the upcoming quarter.

Navigating Currency Fluctuations

Throughout the quarter, Huhtamaki faced currency headwinds, particularly with significant depreciation against the USD, resulting in a 6% negative translation effect. Despite this, net debt position reflected an improving trend, reporting a net debt to EBITDA ratio of 2.0, positioning the company favorably within its financial strategy.

Looking Ahead: Market Recovery and Strategic Focus

Management expressed cautious optimism regarding future performance, linking potential volume growth to improved market conditions and effective promotional campaigns. The emphasis remains on cost control while preparing for expansion with a focus on sustainability in packaging. For the immediate future, the company aims to stabilize pricing pressures and improve capacity utilization, particularly in response to consumer trends post-inflationary periods. Expected actions will involve continuing to leverage cost efficiencies while driving volume-growth initiatives.

Earnings Call Transcript 2024-Q3

[Kristian Tammela, executive]

Good morning, all, and welcome to Huhtamaki's Investor Call for Third Quarter of 2024. My name is Kristian Tammela, VP of IR.

Following our normal procedure, we will start with presentations by our President and CEO, Charles Heaulme, and our CFO, Thomas Geust. And after that, we will have a Q&A session. With that, let's get started, and handing over to Charles.

[Charles Héaulmé, executive]

Thank you, Kristian. Good morning to all of you, and thank you for joining our session today for the Q3 2024 results where we are delivering a solid profitability in a gradually improved market.

So I'll jump straight ahead on the summary for the quarter, starting with a few comments on the market trends, where we have seen market conditions improving, improving slightly, however, with differences between geographies and categories. We'll come, of course, back to this point.

For instance, the -- we have seen improvement in the categories on-the-shelves, while we have seen that the on-the-go categories for food packaging have remained relatively subdued with impact remaining from the high inflation accumulated over the last years and the last year since the pandemic, but also the more longer-term perspective. Also in this on-the-shelf -- on-the-go category, we have seen a continued impact from the indirect implications of the Middle East crisis, with boycotts to the international brands.

From a financial performance in the third quarter, we see our sales being comparably to last year flat, with however this quarter slight volume growth, which is the good sign where we are seeing gradual improvement on the market. And we continue to see the same pricing pressure, which is a lot linked to the environment of a lower volume or demand.

From a profitability point of view, our adjusted EBIT is improving versus last year, plus 2%, reaching or actually remaining at the H1 level, so year-to-date September, 10%, which is for the quarter but also year-to-date, after 9 months. And this is a lot driven by the cost savings actions that we have implemented since the latter part of 2023. We have also reduced our investments compared to last year. We will come back to that point. And that supports a good cash flow, a solid cash flow delivery for the third quarter, but also obviously year-to-date.

So, as I said, the cost savings are significantly improving our result in 2023 and are so far above the linear trajectory of our program. So, a couple of words on the third page about this efficiency program that is contributing to profitability improvement. You may remember that we announced that program for a savings, or cost efficiency savings of EUR 100 million over 3 years, from 2024 to 2026. This program comes with a one-time cost also of EUR 80 million. That's what we have announced at the end of 2023. And it covers basically all input costs aspect, particularly procurement, manufacturing practices through waste reduction, labor productivity and also footprint optimization.

So where are we in the delivery of that program at the end of the third quarter 2024? We can say that the program has generated savings significantly above the linear saving trajectory. So if we would take EUR 100 million saving over 3 years, this linear trajectory we are well above. And so far, the program-related costs have accounted for EUR 18 million. The savings are basically consistently delivered across all the different streams. And I would like to highlight, particularly on the bottom of the page, the footprint optimization, where we have gradually announced a number of decisions. We have closed, and already completed the closure of 2 Foodservice factories in China and 1 in Malaysia. We have also consolidated -- closed 1 factory in UAE, consolidating 3 factories into 2 facilities in UAE. And that project is still ongoing, but will come to closure this year.

Looking now at our business performance in more detail, and starting with the sales for the third quarter. Our sales decreased. Reported sales decreased by 1%. This is affected by a minus 1% of currency, meaning that the flat comparable, the comparable size are actually flat for the third quarter, with, as I said before, a negative pricing and a slight -- a positive growth of our volume.

This is when we look at the year-to-date 9-month. This is showing that Q3 is delivering a better trend than the first semester, because year-to-date, our net sales reported decreased by 2% with comparable net sales decreasing 1% with volume being relatively flat. So as I said, in Q3 the volume is delivering a positive growth. So this is showing a better trend. And we see the same currency impact year-to-date as in the third quarter.

On the P&L -- on the breakdown, sorry, of the sales by segment, we see that the Foodservice packaging demand has remained soft during the third quarter and during all the quarters of the year for the key reason of the inflation. We'll come back to a bit more explanation on this.

In North America, the demand has improved in basically all categories, with the exception of ice cream consumption, therefore ice cream packaging. The demand for flexible packaging has also improved, but with significant differences between the different markets or regions. And then, last but not least, fiber, particularly for egg packaging, Fiber Packaging sees the volume improving, growing quarter-after-quarter. And this is, however, slightly offset, this very solid growth on the egg packaging, it is slightly offset by the stable food on-the-go products like the cup carriers delivered to the Foodservice sector.

Going to the P&L with the net sales at minus 1%. We see the adjusted EBIT at plus 2%, reaching EUR 102 million for the quarter three, and the margin of 10.0 points (sic) [ 10.0% ] at the adjusted EBIT margin level. Also the EPS conversion is pretty solid, 9% growth versus last year. And we see also Q3 in line with the first semester, where we are reducing the CapEx, the investments by roughly 30% in the quarter and year-to-date. And this is obviously supporting the cash flow. Thomas will come back to that in a few minutes.

Looking now at, on the slide 10, at the more granularity on by segments, and I'm starting with the Foodservice Europe-Asia-Oceania. Well, as I said before, the consumption remained soft in the third quarter, in line with the first semester. The demand remains soft, particularly very affected by the high inflation. The inflation in that sector has reached, in average, year-over-year 10% over the last basically 5 years. But also when we look more long term, 10 years, in many areas of that sector, we're talking about a 10% inflation year-over-year. So this has started to impact the demand. And we see that most of the brands are conscious of this and taking action on the market with a reduction of prices, but also promotional activities in order to push the, further the consumption.

There is also something that we said since the beginning of the year, the impact of the war in the Middle East that is causing boycotts of a number of large international brands. And that means also an impact on our sales. The net sales decreased, particularly in the Middle East and Africa, but overall, across the board, in all the markets. I'll come in a minute to North America. To the exception of North America, where we are seeing a revamp of the consumption growth, which is maybe a good sign for overall that sector.

From a P&L point of view, we are supported by a paperboard prices which have decreased if we compare Q3 '24 to Q3 2023. And that has supported, together with our savings our adjusted EBIT profitability. However, this profitability is of course subdued by the lack of volume in the year.

Moving on to North America, in the next page. In North America, we see that the demand has improved in the third quarter. And that's basically in all categories, particularly in Foodservice, that's really good news. Not in all the brands, but in basically more the local brands in the market. And that is supporting good results in this North America segment for the third quarter, with reported sales growth of 3%, comparable growth also of 3%, so no major impact from currency in the quarter. And we have only the exception of ice cream packaging that is still relatively stable and not yet growing.

The pricing continues to be a headwind. However, thanks to all the actions for cost efficiency that we have across all the segments, but also in North America, we are able to continue delivering a very solid profitability for the quarter at 13.8% adjusted EBIT margin, and year-to-date a very healthy 14%.

Moving on to Flexible Packaging on the next slide. Flexible Packaging has seen also better news with an overall demand improved in the segment in the third quarter, however with significant variations by market. So, better situation in Europe and Asia than in, for instance, Middle East or in Turkey and in India.

The adjusted EBIT margin has also increased slightly, not probably to the level we would like it to be, but gradually also within the quarter. So September was within the quarter a stronger month. So this is showing to us that the actions that we are taking are starting to unfold into a better situation. And overall, the margin of the quarter was 7.3%, adjusted EBIT margin 7.3% compared to 7.2% last -- a year ago.

And Fiber Packaging, as I said, better situation from a volume point of view, we've seen the overall demand for fiber-based egg packaging improving across all regions, basically, and also this is the result of the additional capacity that we have put in the market and that we continue to put in the market with, for instance, new lines under installation in, 2 new lines in, under installation in South Africa that will provide further growth. We have seen higher prices also. But the pricing has not in the quarter been yet adjusted according to the raw material price increases. The fiber, the recycled fiber has increased in the market very recently, during the third quarter, significantly, And that explains why the profitability is temporarily subdued in the Fiber Packaging as we see 9%, 9-plus plus percent, which is not to the level of our expectation. And that will come back to a much better, much more healthy margin level within short, just a time lag due the pass-through pricing of these higher raw material costs.

With this, moving on to the financial review with Thomas.

[Thomas Geust, executive]

Thank you, Charles. And jumping immediately into the more detailed P&L. I would highlight maybe, though it's still disappointing to see the net sales declining all in all, Charles highlighted that we have a slight uptick in volumes, and then a negative on pricing. And then, obviously, what you see here is a all-in-all movement of minus 1%, which is then currency-driven mainly. The disappointment comes mainly from Foodservice, I would highlight that one, where the customers are still struggling with finding the medicine to recover the volumes after the steep price increases over the last years.

Campaigns and other are expected to, at one point, start helping them to recover, to get back into growth. And then we hope also to see our volumes in Foodservice recovery. If you look at the profitability development, that's obviously well-supported now by the cost-out initiatives, although it's not fully visible as a net impact in the results. That's obviously partly driven by the still lack of volume growth and then also due to continued high inflation in, for instance, labor. Still a good managed profitability in this still, I would say, partly subdued top line environment.

It is also clear that we, in the quarter, are having tailwind on a comparison level when it comes to other activities. I think we have roughly EUR 7 million lower costs on that level in -- or lower impact on that row in our results. That's mainly driven by timing of incentive accruals, but also partly driven by a very high level of accrual base in 2023. So, in 2023, we increased accruals already in Q3.

When it comes to the tax rates, you will find that the tax rate is roughly on the previous year's level when it comes to the adjusted tax rate. And then obviously, on reported tax rates, we have this comparison rate with regards to high inflation countries. And then, if I would take the adjusted EBIT margin, the adjusted EBIT margin has roughly 0.3% point impact from the IACs. So, if I would take out the IAC, it's roughly 0.3% lower. It's on the same level as we had IAC impact in previous year.

And then the financial items, you see that they are starting to trend more positively now in Q3 as the net debt is improving and as also we haven't seen any negative impacts of the high-inflation countries when it comes to the currency side.

If you look at the currency, all in all, it is continuing to trend negatively. Starting with the USD. As you see in the closing rates, we have a negative minus 6%. Fortunately, I would say, from our point of view, from a translation point of view, the latest USD-euro rate is roughly $1.08. So again, trending more favorably in -- when it comes to translation. Indian rupee, as you see, is worsening, while then the Brazilian real is also strongly worsening versus the average rate. And then other currencies, to always keep an eye on, is the development of the Turkish lira and the Egyptian pound.

On the net debt to EBITDA, you can see that we are now at 2. It's the same level as in previous quarter. If I would use more decimals, we would be slightly improving. Maybe a few comments out of this one. We have roughly EUR 112 million of lease liabilities in the number. And sorry, we are deleveraging roughly EUR 112 million from previous year, and our lease liabilities are up roughly EUR 10 million, up to EUR 163 million. So deleveraging roughly 8.5% in total net debt. And if I take out the lease liability, roughly 10% versus previous year. Gearing improving. So all in all, we are continuing on the positive trend when it comes to deleveraging.

On the loan maturity side, we have extended our EUR 125 million term loan to May 2026. So therefore, moving into long-term debt. And then we actually repaid the EUR 100 million bond visible in the column for 2024 here in October. Maybe also to point out that the second and final installment of the dividend has been paid now in early October.

Looking at the cash flow graph, it's clear that we are still seeing positive development out of the EBITDA development. The change in working capital looks quite dramatic. That's more a looking at how the working capital was at the end of the year. You will find that we are actually improving in working capital versus Q3 previous year, and we are also improving in days of working capital by roughly 10% versus previous year. So this is more our -- a timing-related working capital impact for the company. And then, as you can see, the capital expenditure is on a significantly lower level versus previous year. We predict that we will be on a significantly lower level also with regards to CapEx this year versus previous year on full year numbers.

Jumping into the financial positions. So here, you can see that -- see what I just mentioned on the working capital, down from previous year. Net debt also, as mentioned, down from previous year. On the equity and noncontrolling interest, we have a negative impact of currency of roughly EUR 20 million in the EUR 1,952 million, which you see on this page. Otherwise, the numbers trending favorably. And then, if we look at the long-term ambition, we have now, as you recall, in previous quarter, we had already a 10% adjusted EBIT margin. That one converted now to a, also year-to-date 10% adjusted EBIT margin. So we are currently in the lower corridor of our profitability ambition on the comparable net sales, as highlighted, trending far below our ambition level. And then the return on investments are slowly, slowly trending towards the lower corridor of our ambition.

Net debt to EBITDA is at 2, so really on the low end of what we have stated as an ambition level for that one. And then as mentioned, the dividend was paid out in October. We have no changes to our outlook, neither to the short-term risks.

And with that one, we would be ready to open up for Q&A.

[Operator]

[Operator Instructions] The next question comes from Gaurav Jain from Barclays.

[Gaurav Jain, analyst]

So I have 3 questions. One is on the potential margin improvement. So yes, there is margin improvement to 10%, but it is still much below your long-term target. And in particular, while you have consolidated footprint and shut down some factories, there seems that the administration costs, the line item that you report in your P&L, that is deleveraging. So is there any plans to control the administration costs as well? So that's my first question.

[Thomas Geust, executive]

So you want us to take question by question, then --

[Gaurav Jain, analyst]

Sure.

[Thomas Geust, executive]

Yes. Okay. So maybe on the potential margin improvement, if I start with that one, I would say the additional triggers we are needing is definitely the growth. So in our company, when we have strong volume growth, we would also get the leveraged impact on our profitability. So I would say that's the #1 factor as we have now been quite diligent, I would say, on all the cost-out items. The administration line as such, I would say it's a moving line, which has also significant impact of, for instance, accruals related to various incentive programs. So it's a difficult line to compare. But obviously administration is also part of the focus areas when it comes to cost management.

[Gaurav Jain, analyst]

Sure. My second question is on your CapEx. So clearly this year it seems it is coming much below what we had expected. And in future years CapEx, like how should we think? Because if your volumes are lower than expected this year, then clearly, the capacity utilization is lower. So should we expect that CapEx remains at low levels for maybe the next couple of years?

[Charles Héaulmé, executive]

So maybe I can start with the question, and then Thomas, you can complement. So yes, you're spot on and giving basically the answers to the question. We have invested in the last years, we have invested both in capacity and in innovation. The demand has been subdued in 2023 and '24 compared to expectations. And that's the result of inflation, this recession we've seen last year. Therefore, we have a utilization situation where we believe that we can grow more than the investment we will put in now in the company. Therefore, to your question, what should you expect? Well, 5 years ago, we were investing around EUR 200 million per year. We -- at the point, we have increased to EUR 300 million for the reasons I explained, capacity and innovation. A good average in between is what you should expect going forward.

[Gaurav Jain, analyst]

And my last question is just on margin improvement as we look into '25 and '26. And I'm not looking for a guidance here for '25. But should we expect that -- because clearly volumes are uncertain, but should we expect like 50 basis point kind of margin improvement in '25 or lower than that, higher than that based on what you see today in terms of demand?

[Charles Héaulmé, executive]

So I think Thomas gave a good part of the answer before. It is all linked to volume, okay? So we will continue harvesting efficiencies and savings, but we cannot make cost savings our core business. Our core business is to produce packaging and particularly sustainable packaging and therefore also innovate. Volume is of essence in order to use our capacity and absorb our structural cost and organizational cost. So that's the key going forward. And if we get the volume as we would expect, the recovery after a declining year 2023 and a flat year 2024, then probably you are in a good assumption in the number that you were assuming for 2025.

[Operator]

The next question comes from Maria Wikstrom from SEB.

[Maria Wikstrom, analyst]

This is Maria Wikstrom from SEB. I as well have 3 questions. I'd like to start with the margin improvement in the Flexible segment. We saw the Indian business numbers yesterday, which were not that impressive on the profitability. So, I kind of would like to dig a little bit deeper on the margin, the sources of margin improvement in Flexible segment, please.

[Charles Héaulmé, executive]

Thanks, Maria. So the margin in -- I said at the beginning that in Flexible Packaging, it's relatively improved in terms of demand, but with significant variations between geographies, and that's exactly what you are pointing out. So India, disappointing. However, we have a solid plan. And in India specifically, our volume growth is positive. We have a relatively good volume growth in Q3, not, however, in line with our expectations, particularly from a contribution. What do I mean is Indian market is under very fierce price competition. And that means that driving for volume growth means accepting the pricing pressure and therefore low margins. And this is -- so therefore we need to continue in India, not only selling better our portfolio, but also reducing our cost to be as competitive as possible. So to your question, where is then the improvement coming from? Well, if we would not have the -- at this point, the disappointment from the Indian numbers, I would say, in the -- it would show at segment level solid performance because in Europe, for instance, we have -- except in Turkey, we have very good results from a profitability point of view. And also, we are growing double digit and with a very solid margin in Asia. So that's basically, in a nutshell, the balance of what I meant with the significant variations. India being the issue, Istanbul being -- Istanbul, meaning Turkey, being late in delivering the turnaround that we are expecting. And then strong solid results in Southeast Asia, Oceania and in Europe.

[Maria Wikstrom, analyst]

Yes. And then my second question would be a little bit more on the outlook in Foodservice Europe-Asia-Oceania. I think you nicely pointed out that you see that the consumer demand for Foodservice and especially on the second tier in the U.S. is coming back. But then given that we had such a weak trend in Europe-Asia-Oceania, what are your expectations there? And then, if you could give more color if there are variations between like food or -- fast food and coffee on-the-go?

[Charles Héaulmé, executive]

So yes, we would like to read the trend in North America as a positive signal for the world overall because the problem with Foodservice is across the board, worldwide, the same. There has been too much inflation in that sector. And we see consumers basically diverting from big brands to eventually more smaller brands, local brands, or simply consuming more at home. That, by the way, is visible with the egg consumption. There is egg demand, strong demand basically across the market. So that's a very clear signal. But the revamp of growth in North America is a good signal for the rest of the world. What are the expectations in -- for our demand in the rest of the world, particularly in Europe? It's at this point in time difficult to say when the recovery will start. We believe that it will come because all the brands, the big brands are conscious of the problem and driving competitive actions, promotional actions and so on. Second, there is a clear need to work also towards the small, maybe cheaper local brands that may be winning in this inflationary environment.

[Maria Wikstrom, analyst]

Yes. And then my final question comes on the Fiber Packaging segment where the profitability came down from both Q2 and Q1 this year. And we've seen quite substantial price hike in recycled paper in Europe. So, do you think you can reprice this price hike in recycled paper? And if you can, I mean, when we should expect that to happen?

[Charles Héaulmé, executive]

Yes. That's a very good and clear question. So the margin in Q3 is clearly disappointing, but clearly also temporary. We have suffered some operational issues in Q3, which are resolved. And also, as you know well, the recycled paper market, which is very much a spot market, unlike paperboard or other virgin material, this spot market is fluctuating very quickly depending on the worldwide demand of e-commerce and other variables. The price increase of the recycled paper has been in the range of 50% in Q3 as bad as this. So the recycled paper, so our raw material. And we have not been in a position to react immediately. There is a time lag in pricing pass-through, sorry. And to your question, when are we going to see, well, immediately in Q4, we're going to see the impact of the pricing measures. Should be expecting a very different margin for the 2 reasons, yes.

[Operator]

The next question comes from Calle Loikkanen from Danske Bank.

[Calle Loikkanen, analyst]

It's Calle Loikkanen from Danske Bank. I also have 3 questions, if you don't mind. And starting with North America. And the top line or the organic growth has been surprisingly good in Q3. And I was just wondering that have your customers been taking market share in the U.S.? Or has the overall market been stronger?

[Charles Héaulmé, executive]

Good morning, Calle. I would say that in North America, we are benefiting from the slight restart of the market and also not our customers gaining market share, we gained market share with smaller brands, cheaper brands, smaller players in foodservice, particularly, where we've been able to develop very good commercial relationship and bring our volume up. So there is, on the contrary, us gaining market penetration.

[Thomas Geust, executive]

And on top of that, the Foodservice recovery of the -- has been quicker now in North America with the campaigns hitting in earlier. So that's also helping.

[Charles Héaulmé, executive]

Yes, THE promotional campaigns we are actually starting in the U.S. For instance, the -- let's give a brand name, the McDonald's $5 menu started back in July and it started in the U.S., not in Europe. So that's why to Maria's previous question I was saying, we want to see North America revamp growth as a good signal for the rest of the world.

[Thomas Geust, executive]

Yes. I would maybe like to complement still on Maria's question on the coffee and QSR. I would say the high-end coffee chains have a tougher time than the QSR chains to recover market share from the point of view that they sell a product which is significantly higher priced than in the low-end sellers. So it's a difficult play as such. In the QSR space, the big players can always play with a wide portfolio and therefore, attract customers into the shop easier than a high-end coffee chain.

[Charles Héaulmé, executive]

Yes, thanks. Thanks for adding. I had forgotten that part of Maria's question, yes, yes.

[Calle Loikkanen, analyst]

All right. That's very clear and helpful. And then I was wondering about the EBIT margin improvement year-to-date, so almost 1 percent point higher than in last year for the 3 first quarters. And I was wondering that how much of this improvement has actually come from tailwind from raw material prices, how much has come from the efficiency program? And then of course you have had some headwind from inflation as well. But could you perhaps break down the margin improvement slightly into various components?

[Thomas Geust, executive]

Yes. So I would say the main contribution comes on the value-add line, and therefore it's really driven by the raw material side. And on the raw material side, it's a strong combination of tailwind of the market and the cost out -- additional cost-out activities related to that one. When it comes to the other lines, I would say we are mainly compensating for the inflation on those lines. So we don't really have a tailwind as such on what I call conversion cost and not on the SG&A side either. But if you look on our overall SG&A from an absolute point of view, we are on a pretty similar level as previous year. And therefore, it's mainly the top line drag which is impacting the relative numbers.

[Calle Loikkanen, analyst]

So did I understand correctly that most of the margin improvement that we see now in the numbers is from raw materials?

[Thomas Geust, executive]

Correct. On raw material activities and cost-out activities related to those items. We also have benefits in cost-out items in the nontraditional raw materials, so also on consumables, which, to some extent, are explaining the relatively strong performance on SG&A despite us adding capabilities and despite having a strong labor inflation across the company.

[Calle Loikkanen, analyst]

Okay. Got it. Got it. And then lastly, about your own capacity utilization currently. Obviously there's probably a lot of variation between businesses and markets and so on. But kind of on an overall level, where are your capacity utilization currently?

[Charles Héaulmé, executive]

Well, we can't give one number linked to -- for the company linked to the diversity of our portfolio and technology. We cannot swap one technology to the other one, as you imagine. But yes, we have underutilization linked to 2 years of clear -- creating a clear positive gap, if I may say positive, versus the investments that we have -- the assets that we have and the investments that we have implemented. So this is a great opportunity going forward when the market is recovering and return to consumption growth. I would expect roughly overall a 10% potential volume growth without changing or without adding further capacity. And in addition, we have capacity coming on like the egg packaging in the U.S., the folded carton in the U.S., egg packaging in South Africa and a few more additions that we are providing in the world between '24-'25. So that is creating potentially a positive trajectory for the company, again, when the consumption is returning to growth.

[Thomas Geust, executive]

Maybe to still tighten that answer a bit. In the legacy products, we have capacity. And in the new categories, we are adding as demand is increasing. So to be very explicit.

[Calle Loikkanen, analyst]

The next question comes from Miika from DNB Markets.

[Miika Ihamaki, analyst]

This is Miika Ihamaki from DNB. Can you give us an update on the flexible strategy? Now we saw -- seen a margin improvement. But in particularly, how are your new products gaining traction in the region? And when should we expect to then start contributing positively to your Flexibles figures?

[Charles Héaulmé, executive]

Okay. So the update on the Flexible strategy, 3 things. Number one, our flexible blueloop portfolio, which stands for recyclable monomaterial structures deployment, that's number one and absolutely paramount to our strategy. Number two, turnaround of our currently underperforming areas, which have to do with, as underlined earlier, India, but also Turkey, where the macro economy in Turkey is not helping us, but we are hopeful of this market revamping to growth. So that's the second aspect. And third is continue our continuous improvement program with, number one, the cost efficiency, but also driving better practices from a commercial management point of view. So those are the 3 big pillars to drive success in our Flexible Packaging, and we are very hopeful with the evolution going forward. You asked about how the deployment is going of our recyclable packaging. It is with hundreds of tests at all customers very positively received. It takes, obviously, in the food industry, in the health care industry, it takes quite some time to qualify new structures, which have to be adapted to the existing assets. But we're going to see more and more positive benefits unfolding, particularly as the legislation in Europe is pushing all companies to have a sustainable packaging by 2030. So we will see an acceleration in the second part of the decade.

[Operator]

The next question comes from James Perry from Citi.

[James Perry, analyst]

So I'd just like to ask about the cost savings program. You mentioned that you're above the linear savings trajectory. So just to be clear, does that mean we should expect savings below the linear trajectory in the coming quarters? Or should we expect linear in future still and that the overall savings could be above EUR 100 million? And secondly, on the end-markets, you mentioned the importance of promotional activity. Would you say that this has stimulated much of a volume response so far? And do you think that any extra volumes will actually be sufficient to offset the pricing pressure for you?

[Charles Héaulmé, executive]

Can you take the first one?

[Thomas Geust, executive]

Yes, I can take the first one. So on the cost saving program, I would say we are seeing a continuous addition of the pipeline. From a timing point of view, it is quite difficult to at this stage say whether we will keep up the pace exactly in line with what we have today, which is, as mentioned, clearly about the linear. There is a number of negotiations during the fall time, which will bring confidence to how the program is continuing. So I would propose that we get back to that more in detail in during the last quarter.

[Charles Héaulmé, executive]

Second question regarding the way we approach the end market and our commercial practices, what benefits we would see, including on the volume. Well, we have communicated extensively since a year about cost efficiency program. I'm always saying cost efficiency is not the end goal. The end goal is to sell and to sell value in order to create more value for the company. So the cost efficiency as one objective is to make us more competitive. And we will continue, linking to your first question, we will continue. We're not going to just stop activities because we are in -- ahead of the plan. However, we will come back to what does that mean for the next quarters, not just Q4, but for the -- for 2025, 2026. When it comes to the cost competitiveness as such, once we are becoming more competitive, we need to have -- to drive our organization, our sales forces to sell better than competitive position, and that's the whole concept of this commercial excellence initiative that we're launching in order to drive and sell more value to the market, more value, thanks to our innovation, but also thanks to the improved competitiveness in order to gain market share also on the environment or the markets where there is much more price competition.

[Operator]

The next question comes from Lewis Merrick from BNP Paribas Exane.

[Lewis Merrick, analyst]

Three, if I may, and I'll take them sequentially. One of your tableware competitors in the U.S. has just recently opened and is ramping up quite a large-scale facility. I'm just wondering how the market and competitive dynamics of that niche industry that you have in the U.S. is responding to that extra capacity. And is that perhaps one of the reasons why you've seen a bit of price softness in the North America division?

[Thomas Geust, executive]

Yes. So yes, they are ramping up. I think it's officially a EUR 400 million investment we are talking about not mentioning the name here. But I think in a way one should always read into the fact that people are investing that there is a reason for investing. No one is throwing capital into a market which wouldn't be attractive. So that would be my first comment to that investment. Obviously the retail has been progressing quite well in the U.S. over a long time. Secondly, we have the conversion going on from foam to paper-based products. And then maybe as the third element, all kind of speculation around tariffs into the country are things which, in my view, are supporting investments in the U.S. for us and for other companies. That would be my reply.

[Lewis Merrick, analyst]

And pricing within the Foodservice EAO division turned negative during the quarter. As we approach year-end and more contracts come up for repricing, how should we think about that pricing effect evolving as more costs are now a tailwind for you on a year-over-year basis?

[Charles Héaulmé, executive]

So pricing is -- the pricing pressure in the Foodservice sector has been not just an annual cycle, it has been much more coming up with lots of tender processes during the year because of lower demand. The way we see it is the name of the game back to something we have said several times already is volume. Consumption increasing will mean more volume, more volume demand in a sector where there is today too much capacity because of the lower demand. The time the demand restarts, then we are in a much better position, and that will help us to leverage our structure, our capacity, but at the same time, stabilize the pricing that is today under pressure due to these obvious reasons.

[Lewis Merrick, analyst]

And the other activities line has generally had a smaller impact to EBIT during the year. Can we just dig a bit further into the driver of that? You mentioned timing of incentives. So should we expect this to increase back to historical levels? Or has there been some actions taken to structurally reduce that going forward?

[Thomas Geust, executive]

No, it's basically a timing thing, but we will not have, in my view, a as big deviation on the other activities line as what we had in the year-to-date numbers in Q4. So Q4 should more normalize or even be slightly above previous year. That's my current view on it.

[Kristian Tammela, executive]

Thank you all for attending. There seems to be no more questions. So thank you for your time, and we wish you a great day. Thank you.

[Thomas Geust, executive]

Thank you.