CEO’s Review 2018
“Our net sales developed well with growth accelerating towards the end of the year”
2018 was a year with many faces. We took several important steps to boost our future growth and to become the first choice in food packaging. Demand for our products was positive throughout the year despite uncertainties related to political decision making and currency swings in certain markets like the UK and some emerging markets. Cost inflation accelerated throughout the year, particularly with distribution costs in North America reaching new heights.
In general, cautiousness within the global economy characterized the latter half of the year, as did the uncertainty around trade tariffs. In Europe, plastic solutions for food packaging started to experience stronger headwinds during the year as sustainability concerns grew.
Our net sales developed well with growth accelerating towards the end of the year. Comparable net sales growth met our target and was 5%. The organic growth investment cycle that we initiated in late 2016 is now starting to bring benefits to our top line, and we expect this to contribute to our profitability improvement in 2019 and beyond.
Acquired growth in 2018 was 3%. We closed three deals, all during the second quarter. The largest of them was Tailored Packaging in Australia, a company that distributes foodservice consumables and allows us to access many new customers in the country.
Our financial performance did not meet our ambitions, and we aim to improve it in 2019. Profitability was below our expectations and long-term ambitions, having deteriorated from the record level achieved in 2017. Adjusted Earnings per share was EUR 1.70, down from EUR 1.90 in 2017.
The main reasons for the decline were currency headwind, cost inflation which our price increases did not yet offset, and the start-up of new facilities. During the third quarter, we launched a profitability improvement program with an action plan that gets us back on track to achieving our long-term profitability ambition of EBIT 10%+ and ROI 15%+. Despite continued investments in organic growth and acquisitions, our financial position remains solid.
Our continued efforts in developing workplace safety brought results, and we are proud to report improved figures. The Lost Time Incident Rate (number of incidents leading to absence per million hours worked) was 1.8 (2.4 in 2017) and the severity rate (lost hours per million hours worked) was 368 (639 in 2017).
We launched our Corporate Responsibility program, Packaging for Good, in 2018 with specific targets to be achieved by 2020, which is the year of Huhtamaki’s 100th anniversary. This program and its four themes – People, Packaging, Supply Chain, and Operations – are detailed in our separate Corporate Responsibility report that will be published in April.
We had two major information systems initiatives in 2018. We implemented a human resources system that allows us to improve our talent management. At the same time we digitalized our essential global HR processes. To support smooth global teamwork and information sharing, we implemented new and enhanced collaboration tools. Both initiatives contribute to the foundation of a global work environment where teams want to collaborate efficiently in real time and avoid unnecessary travel.
Innovation in food packaging is accelerating as consumers and customers seek and favor solutions based on renewable raw materials that are easy to recycle. The war against plastics, recycling initiatives, and reduction of litter are all topics that help reinvent food packaging solutions and contribute to changing consumer behavior. Using multiple raw materials, we help our customers serve food in a safe and convenient way with ever better performing and increasingly more sustainable solutions that meet consumers’ preferences.
In 2018, we focused on developing paper and fiber alternatives to plastic food-onthe-go solutions and recyclable flexible packaging solutions. The most visible example is Fresh, a compostable ready meal tray made from renewable materials. This product is in pilot marketing phase in the UK and aims to replace black plastic trays.
During our strategy review in 2018, we confirmed that the focus on food packaging brings sizable business opportunities and an exciting innovation environment. The good underlying demand growth offers possibilities for both organic and acquisition actions, as well as consolidation prospects. In 2020, Huhtamaki will turn 100 years old. The evolution from a local candy business established by Heikki Huhtamäki on the west coast of Finland to a global company whose vision is to be number one in food packaging is a remarkable journey that calls for exciting new chapters and destinations.
We are grateful for the support and recognition our employees, customers, suppliers, shareholders, and other stakeholders gave us throughout 2018.
Jukka Moisio
CEO
