Huhtamäki Oyj (HUH1V) Earnings Call Transcript & Summary

Ladies and gentlemen, a very warm welcome to Huhtamäki's Strategy Update. My name is Calle Loikkanen, and I'm Head of Investor Relations. Originally, we had planned to organize a Capital Markets Day in Helsinki today. Considering the situation with COVID-19 and as the health and safety of all our stakeholders is our #1 priority, we have decided to host a shorter strategy update over the phone lines and as an audio test. We want to thank you for taking the time and attending this event. And we are very happy to be here to give you an update on where we are. We have indeed very interesting presentations lined up for you today. Firstly, Huhtamäki's President and CEO, Charles Héaulmé, will talk about how Huhtamäki is shaping a sustainable future. After that, we will continue with financials and how they are supporting our strategic priorities. That part will be presented by CFO, Thomas Geust. At the end, Charles will summarize our strategy and where we stand. And at the end, there will be time for Q&A. Instructions on how to ask questions will come later. But without further introductions, let's begin the presentation. So let me hand over to Charles.

Thank you, Calle. Hello, everyone, and thanks a lot for joining us today. I'm extremely pleased to share with you today the headlines of our renewed strategy and why we are confident about Huhtamäki's successful future. We will speak about our strategy going forward. But before that, I would like to actually give you an update on the COVID-19 status and implications as we see them today for Huhtamäki's business. And first, let me share with you that these unprecedented times remind us of our beliefs and reinforce our commitment to our priorities, which are: to protect people, to protect food, to protect the planet. As you would expect from Huhtamäki as a responsible company in an emergency situation like the one we are going through, we have taken all the required measures with a special focus on our employees. We keep, of course, ourselves tightly informed of all the developments going on and the regulations with all the governments and authorities in the countries where we are operating. And we have put in place all necessary actions, protecting our employees, all of this being coordinated by a global crisis management team relayed obviously by crisis teams in each of our business segments and then in our local units. In addition, we have taken further measures to safeguard our business continuity. We focus specifically on 3 main areas. Product safety, and that includes increased hygiene and sanitization procedures across all our operations. Secondly, we are focusing on how to manage production processes in these critical times. That includes contingency plans, obviously. And this is, from a business point of view, extremely critical in order to offset any production interruption or supply chain limitation that we may see during these difficult times. The third focus is on our daily cash management as well as all necessary actions that we need to take in order to reduce our costs as well as reprioritize our investments in this period of time. Regarding the situation of our operations until today, I'd like to emphasize a couple of things. First of all, that in real terms, and if I may put it like this, given our scale, we have a minimal impact to date on our employees. We have had so far 3 cases in the total of our 18,589 employees. And all 3 cases are in safe isolation at home with absolutely no serious health concern on them at this point, and measures have been taken to contain them. Secondly, from an operations perspective, we have 2 sites that have been temporarily closed down, according to and following, complying with the local regulations. And even in those 2 cases, our contingency plan has worked immediately. We have managed to produce all the orders from other facilities. All the other sites are running normally to date. And I'll give just one, as an example, the situation in China, where, for instance, we are back on operations since end of February, early March with running our 3 factories. We are running right now above 90% of our capacity. So to conclude on this short update on COVID-19, the situation, its implication. I'd like to say that we have the right systems and crisis management process in place. Important to understand about our business structure that we have a business resilience embedded in our portfolio. We make about 40% of our sales in packaging for food-on-the-go. And the majority of our sales is actually packaging for food-on-the-shelf, which is all the products we are having for retail tableware, for consumer goods packaging, for flexible packaging and fiber packaging. All this represents more than 50% of our business. Our packaging for food-on-the-go is certainly affected temporarily by the closures of quick service restaurants. That's obvious. However, the purchases through food delivery and drive-through at the QSRs, which convert basically in most of our countries in the world. From restaurants to kitchen-only, the purchases are actually for food delivery and drive-through increasing, which is mitigating or partly offsetting the impact. On the other side, this resilient part of our business, more than 50% of our packaging being for food-on-the shelf, that is resilient and we do not see any slowdown on the demand. Almost on the contrary, as the crisis started, we saw more of an increased demand. So as we can see today, we will manage through this crisis. It's very difficult times for the entire society, for the whole world, for our employees. But we have a healthy balance sheet and it allows us to continue a critical investment for growth and efficiency and activities. We are obviously holding a lot of activities which are not critical for growth and efficiencies on the short term. But we are confident about our way of managing through this crisis in 2020. This is what I wanted to share with you as we start and before moving into -- looking into a more longer-term perspective on our company and explaining our overall strategy going forward under the headline Shaping the Sustainable Future. So for the next 30 minutes or so, I would like to present you where we are coming from, first of all. Second, the business context and transformation which we see will influence the industry in the next years. In this context, what is our ambition and strategic priorities? And then as well, I will give you in the end some comments about each of our business segments in the absence today of our business presidents. So when reflecting about where we are coming from, one thing comes to mind. We have achieved fast growth during the last decade, and we have actually exceeded the market growth. Huhtamäki has grown fast into a large global player in food packaging, reaching EUR 3.4 billion revenues in 2019 with an adjusted EBIT margin of 8.6%, operating in 35 countries. We have 81 manufacturing units and running the operations with 18,598 employees. We have a complementary business portfolio that I was suggesting a bit before about the resilience it creates in front of a temporary crisis like the one we're going through. This business portfolio is serving food-on-the-go and food-on-the-shelf. We are serving through the different channels to consumers, namely the QSRs, the quick service restaurants, the food delivery, FMCG and the retail. Important for the consumers is that we -- our products offer many attributes to them in the modern lifestyle: convenience; food safety, that is extremely important; food availability; and food waste reduction, something that we often don't speak enough about. And we will come back to that point later in the presentation as sustainability is taking so much importance. Our portfolio is based on 3 key technologies and packaging types: paperboard conversion for foodservice packaging, molded fiber packaging and flexible packaging. We are operating over the last years with 4 empowered business segments: Fiber and Foodservice North America, Foodservice Europe-Asia-Oceania, Fiber Packaging and Flexible Packaging. We are announcing today that we are planning the integration in 2020, effective 1st of June 2020 after all the required consultations, of our 2 segments, Foodservice Europe-Asia-Oceania and Fiber Packaging, into one single segment, Fiber and Foodservice Europe-Asia-Oceania. The rationale for this project is, number one, to improve customers' access to combined fiber and paperboard technology. Second, to leverage synergies, both on the organization as well as on the growth opportunities that, for instance, plastic substitution is offering in those years to come. And thirdly, to benefit from the financial benefit that of synergies and synergies from -- in a cost point of view but as well from revenues point of view are going to create. Important to note that we will continue to report the whole year 2020 according to the current structure, so with the usual 4 business segments, in order to allow a full comparability to previous year 2019. I'm pleased to introduce as well our global executive team, who will drive our strategy and operations going forward. Pleased as well to say that the team has gained in diversity, first of all, in gender diversity, with 3 women part of the global executive team. But we have gained as well in geographic diversity with 5 nationalities in total for the 10 members of the GET. And I'm very pleased to specifically underline -- welcome and underlying the capabilities of our new members of the GET: Arup Basu, the President of Flexible Packaging; Marina Madanat, EVP, Strategy and Business Development; Antti Valtokari, EVP, IT and Process Performance; and Thomasine Kamerling, EVP, Sustainability and Communications. When reflecting again about the couple of past years, we have, as I said before, achieved fast growth. And if we look at the last 5 years, our sales have actually grown by 52% from 2014 to 2019. In the same period of time, we have increased our adjusted EBIT by 67% whilst increasing our free cash flow by 248% and continuously increasing our dividend payout, which over the 5 years has increased from 2014 to 2019 by 48%. And we were brought here by a list of very important strength of the company. First of all, by being customer-centric. And this is a clear view from our customers that Huhtamäki is a very reliable partner in quality, particularly, and in delivering incremental innovation. Second, we have been developing a global footprint, scaling up our capabilities in the U.S. and in Europe, in particular, but as well increasing our presence in emerging markets. We have built the knowhow in our 3 core technologies and packaging types: molded fiber, foodservice and flexible packaging. And we have introduced new sustainable materials and products. Interesting -- important to say that we have a great foundation for sustainability with close to 70% of our raw materials being renewable, with our fiber packaging being based on recycled content and as well with regular launch of new sustainable solution. And in that sense, 2019 was a year with quite many highlights about new innovations, sustainable innovations launched on the market. During the same period of time, in 5 years, we have invested EUR 1.5 billion in growth globally across the world, which has particularly allowed us to successfully scale up in North America and Europe as well as strengthen our position in emerging markets. We have expanded our portfolio of sustainable products and we have expanded as well to new complementary business models in order to tap into the new diverse customer base that changes in the world are offering. So in summary, reflecting on where we are coming from, a legacy of growth with a diversified packaging portfolio. Going forward, it's very important that we recognize that the world of packaging as well as the world of food are facing important transformative trends. And this will need to be analyzed and anticipated in the design of our business strategy. This is what we have focused on in the last couple of months. So what are those transformative trends that we are highlighting? There are basically 4 trends that we see as great influence to our packaging -- food packaging industry, representing challenges but mainly opportunities. Those 4 are: the next billion consumers, the future consumer, digitalization and sustainability. So I'll take a couple of minutes, if you allow, to elaborate on what we see as the most relevant changes going forward in those 4 aspects in each of those transformation that may represent changes in the way we are doing business going forward. The first transformation is the next billion consumers. And the next billion consumers are where the middle class is growing. This is basically our big target consumers. To start from the top demographic perspective of the world, the global population and the urbanization are growing. Nothing new. During the next 10 years, from 2020 to 2030, the demography in the world is expected to increase by 1.2 billion people from 7.3 billion to 8.5 billion people. However, at the same time, and very interestingly, when looking with more granularity at the society evolution, it is planned that the middle class will actually increase much more rapidly. It will increase by 1.8 billion people in the next 10 years. So it increase much more rapidly than the overall demography. This 1.8 billion middle-class consumers, additional consumers, will come entirely in the next 10 years from the big region of Asia, from China first, by far, the biggest growth; second, India; and third, Southeast Asia; and then in the long run, probably more 2030 going forward, from Africa, but really in the next 10 years, China, India, Southeast Asia. It means that the demand for access to food will grow rapidly. It needs to be affordable. It needs to be every day available and it needs to be safe. So being as a packaging leader, being able to provide cost competitive packaging at local scale will become even more critical than before. The second trend and very much linked to it is what we call the consumer of the future. The future consumer is this second transformative trend that we see happening already today but accelerating going forward. What we mean with this is that all consumption patterns are changing rapidly. It's all about what we eat, when we eat, where we eat and how we order and get supplied the food that we are eating. This will have a lot of impact on the types of packaging to supply. The consumer of the future values convenience and self-expression. The consumer of the future is conscious, much more than before, of personal and environmental well-being. And in this context actually, that's one of the reasons why we see new, in certain brands coming up and being relevant, doing business differently and proposing new innovations. And that will arise to serve this changing consumer. All this will require packaging to be innovative, individual and sustainable. Those are important transformative trends. Digitalization is the third transformative trend for the packaging industry, specifically food packaging industry. It will influence the way we do our business. Digitalization will primarily happen in our core business, in the operations as well as in the sales management, in the way we go to market. But digitalization, maybe more visibly, will touch directly packaging in what we call smart packaging. And that's an important development for the next decade. Smart packaging will offer, as we see it, 3 main values that we could clusterize in the following. First of all, it will allow our customers, the brands, the retailers, to engage directly with consumers on a much more proactive and interactive manner. It will allow, secondly, consumers to have a trustworthy traceability of the product, something that the consumer of the future is requiring much more today and even in the future. Thirdly, and we often don't speak too much about this, but it will become very relevant. It will allow a much more efficient management of the end-of-life cycle of packaging, meaning what happens to packaging after the consumption, meaning in terms of recollection and recycling. We'll come back to those aspects. So digitalization is going to shape the evolution of the business models. And the fourth one, for sure, by far, not the least and certainly the most transformative trend and the most immediate trend that we need to consider, is sustainability. Sustainability of our planet is nonnegotiable. The consumer sentiment and regulation are spreading fast globally. It started very strongly in the EU in 2018 but is spreading all over the world in different forms in all countries. The demand for solutions in circularity and plastic substitution, we see it already in the end of 2019 and starting 2020, is growing fast. It will drive innovation, collaboration through the entire value chain. And it will certainly dictate some of our priorities. It will require us to innovate together with our customers and partners. And together is important because we don't think that any company do it only by itself. So the whole value chain is going to get together to create these solutions. It will require us to think much more in terms of circularity. That means, number one, renewable materials, and as I said before, we are very well positioned on this, as well as collection and recycling of the packaging after consumption. Since this is such a very important trend, I would like to spend a couple of more minutes on recognizing what it means for the packaging industry. And first of all, it's probably important to make an acknowledgment. And because we are a leading industry player, and it's important that we recognize the fact that addressing the problem of packaging waste is absolutely critical for the future. Couple of facts to highlight and without the ambition to be fully complete here, obviously. But 40% of the plastic produced globally enters in the contribution of packaging. And the reason we are mentioning this here is because generally when we speak about the word plastic, it drives to negative conclusions. However, whilst we need to manage the packaging waste, it's very important to remember always that plastic have specifications and properties that, in many cases, other alternatives can't replace. So we need to look carefully at the facts when deciding which packaging types to take for the future. Second point, the littering is not an even picture in the world. Few countries account for the majority of the littering, which indicates where we should act as a priority. And third important point is when we are looking at the diversity of the products that constitute the littering, it is clear that the entire industry has a role to play. But not only the industry, as well as the consumers. Because the real problem, which is often said packaging is the problem, the real problem is not so much the packaging itself. It is what we do with the packaging after consumption. In the -- in this context, what we would like to underline is the importance to understand value versus cost. It is important to give the full picture of the climate impact when we are talking about packaging. In that sense, we consider that with facts. We consider that packaging for food is the right solution in a broader sustainability context. I will explain. There are very important considerations to keep in mind. And mainly three: food safety, food availability and food waste. What we mean with this is that packaging plays a very important role in securing food safety, in preserving the food original properties. Secondly, packaging enables food and products to be available everywhere in the world. And with what we explained before about the rise of the global population, it's extremely important to keep this fold of making food safe but as well available everywhere in the world. Thirdly, and this is something we need to remind facts about, extremely important is the food waste prevention. Packaging helps prevent food waste. Let's remember that food waste is by far the biggest impact on the environment in the overall food systems. Packaging waste is actually 1/3 of all the food produced in the world. So this is the biggest impact in the food systems to the environment. It represents actually 8% of the total global greenhouse gas emissions in the world. So reducing food waste is the key value. And what is the best thing to reduce food waste if not packaging of the right specification, right properties and the right sizing? So the -- as you see, the value of packaging is extremely high. The challenge is what do we do with packaging post consumption? And this is where it is key that all in the society, all, we cooperate. We are committed as Huhtamäki, no question about this. And we will outline this further in our strategic priorities. Commitment is necessary from all actors of the industry, our suppliers, our customers, the regulators across the world, the communities, consumers, in order to promote and create a responsible lifestyle. This will require actions to innovate for circularity, making products or packaging, sorry, recyclable or compostable or reusable. It will require actions to promote renewable materials that we speak still too little in the world about. Third, it will require developing collections and recycling infrastructure. It will be very important to invest much more in education. And then all in all, everyone will have to behave responsibly. So in light of our legacy that I tried to summarize and our strength as well as in light of these transformative trends, which are relevant for our industry, what is our ambition and strategic priorities going forward as Huhtamäki? We see our role in shaping the sustainable future of everyday life to offer well-being, convenience and a responsible lifestyle to billions of people around the world. Our strategy is focusing on growth, competitiveness and talent while embedding sustainability in everything we do. The execution of our strategy will be led by our empowered business segments and through a world-class management program that will raise performance and capabilities across all our businesses and functions. Our high-performance culture and strong values, Care, Dare, Deliver, will drive the expected behaviors to drive our business going forward. I would like to take a couple of minutes now to give you a bit more granularity in each of our 4 strategic priorities: growth, competitiveness, talent and sustainability. First priority, growth. We will grow with the following main actions. First of all, pursuing scale in our core business through organic investments and M&A. We will further expand in emerging markets. Third, we will develop sustainable solutions both to replace fossil-based plastics as well as, where possible, implementing mono structures for recycling. We will develop packaging for food delivery, and we will step up our long-term innovation. And we'll pursue venturing in new business opportunities that the new evolving lifestyle is creating going forward. Second priority, competitiveness. We will improve our competitiveness by pursuing mainly a world-class operational performance as well as process performance at global level. We will scale and create efficient structures and we will digitalize primarily our operations as well as developing the digitalization of our packaging but focusing first on our operations and modernization of our IT system and infrastructures. Third priority, developing talent. We will develop talent, which is key for our success in the future, by developing the required strategic capabilities, answering the transformation I was mentioning before, such as digital, business intelligence, long-term innovation. We will promote a high-performance culture. We will develop something that we believe is extremely important in this time and in the world is a zero-accident safety culture. And we will embed our values in the way we work every day, all the time across the entire organization. And fourth priority, certainly, as I said before, the biggest change, that's sustainability. We will embed -- I will certainly spend a little bit more time on it -- we will embed sustainability in everything we do and in all our business decisions. We will particularly focus on becoming world-class in ESG. We will prioritize innovation for sustainable products. We will increase further the use of renewable materials, even though we are already at 68% today. We will improve our operations carbon impact and we will drive circularity. So specifically outlining our ambition for -- that we are planning for year 2030, for the next 10 years, in terms of sustainability. And first, probably important to mention that we're not starting from scratch. As I said before, we are starting with very good assets or foundations like the 68% renewable materials. We have a very good track record over the past years. But we want to raise now our ambitions, our ambition and the achievements that we will do and achieve and reach in the next 10 years. Our ambition for 2030 is to have 100% of our products will be designed to be recyclable, compostable or reusable. Second, more than 80% of our raw material will be from renewable or recycled source. 100% of our fiber will come from recycled or certified sources. And more than 90% of our industrial waste will be recycled or composted. 100% of our electricity will come from renewable source. And our production operations will be carbon neutral by 2030. Our ambitious strategy will be supported by a winning culture. In working as a team and with our partners, customers, stakeholders, we will behave according to our strong core values. Care, we care for each other, our customers, partners, for the planet. Dare, we dare to innovate, grow and have an impact. Deliver, we commit and deliver solutions to our customers. We are ambitious and strive for high performance. When we execute all these strategic priorities and live by and through our core values, we are confident to deliver on our long-term ambitions to be, first of all, the first choice in sustainable food packaging; growing 5%-plus our net sales; reaching an adjusted EBIT margin of 10%-plus; keeping our ratio net debt over EBITDA in the corridor between 2 and 3; and maintaining our dividend payout ratio between 40% and 50%. Those are our long-term financial ambitions. Let me now give you a few words about this strategy in our business segments. And starting with Foodservice Europe-Asia-Oceania, where our ambition is to grow 5% to 7% per year and to reach 9% to 11% adjusted EBIT margin. Global key accounts are key to our success in Foodservice. They represent approximately half of our business. And we see a room to grow with our key accounts in 2 fronts, from the geographical perspective in existing markets but as well in new geographies. And in second fold is on the product portfolio expansion as they are looking more and more for solutions, not just products. Second, we believe that we are well positioned to expand in emerging markets. The other 50% of our business in Foodservice serves distribution and small accounts. We will further develop innovation to serve their needs. As the lifestyle is evolving, there are new needs in certain brands, for instance. This will require an agile model for mass customization, for combining short run and long run, for sourcing and distribution capabilities as well. And this is a great platform, as we see it, to build a stronger food delivery packaging business. One thing extremely important to mention for Foodservice is plastic substitution is a mega trend driving growth in the future. We are the only company in the world to combine 2 technologies, which are critical for the plastic substitution: paperboard conversion and molded fiber. The world needs more fiber solutions, and we are very well positioned to provide that. And we have a large global footprint, serving our key accounts that we can leverage fast to scale the new fiber solutions. Packaging. There, our ambition is to grow our business between 3% and 5% per year and to reach 13% to 15% adjusted EBIT margin. Our core business is in -- core is in eggs and food protection. And that business is going to drive growth through conversion from plastic. We see it already happening in the second half of 2019 and going forward, accelerating. We have opportunities to expand geographically within the product categories where we are playing and as well, taking advantage of the plastic substitution in protective packaging. As I said before, our unique combination of paperboard and molded fiber conversion will allow us to develop end-to-end circular models, where we are reusing actually our paperboard waste, actually not only the post-industrial but as well the post-consumer as the raw material for the molded fiber operations. So we believe that molded fiber technology will be key going forward and offer growth. Plastic substitution in FMCG, QSRs as well as grocery retail is going to drive demand for more complex molded fiber applications. The new technology is promising. However, it still requires further development to achieve industrial competitive scale. And our molded fiber technology and application development capabilities is really positioning us well to capture the opportunity that is arising in the world. Moving to North America. Our ambition is to grow 3% to 5% per year and to reach 9% to 10% adjusted EBIT margin. In North America, we are present in 3 business channels: retail tableware products for indoor retail, foodservice, consumer goods. The on-the-go lifestyle and aspiration to convenience that is very present and even growing in the U.S. is driving growth for our business. In the retail, private label is particularly growing rapidly, driven especially by the pressed plates. At the same time, we see a high loyalty remaining on our China brand that is the premium offering in the market of retail tableware. In Foodservice, we see food delivery and takeaway service being the growth and fast growth drivers in the market in the U.S. And there is additionally a room for us to expand in growing sustainable categories with, for instance, folded cartons, molded fiber and private label plates. We have a unique set of capabilities to capture that growth. First of all, the national network that we have now implemented with the last factory that we built 1.5 years ago that allow us to offer the right products to the right market to the right customers. We have clear know-hows in different aspect of the technology: ice cream system, paperboard technology, molded fiber technology. And we have as well in the U.S., a strong track record in sustainability. So we are very well positioned in the industry to continue growing. Flexible packaging. The ambition in flexible packaging for us is to grow 6% to 8% per year and to reach 9% to 11% adjusted EBIT margin. There is something I want to highlight. There is a strong demand for flexible packaging across the world. But particularly, the strong underlying demand for FMCG products is driven by emerging markets, where we are the leader in emerging markets and we have an extensive footprint already established. Flexible packaging remains a superior solution for modern retail supply chain. And at the same time, in parallel, we clearly see the need to innovate for circularity as sustainability sentiment and regulation is increasing everywhere and globally. The keys to the success in the flexible business, as we see it, will be competitiveness, agility and sustainability. All solutions, including sustainable packs need to be affordable on because the growth will be in emerging markets. So it's key that we improve our operations to best-in-class in order to drive improvement in competitiveness and in profitability. And sustainability actions in circularity, advocacy, innovation will enhance our leadership position in that industry. So let me now hand over to Thomas for giving us more granularity on our financial ambition.

Thank you, Charles. As stated, Huhtamäki has grown into a large global player in food packaging over the last years. And therefore, I will, in the coming slides, highlight some of the things that has taken us there and also talk about the focus areas as well as the ambitions going forward. We have been able to establish an excellent position in a favorable market over the last years. And this has been achieved by making a number of choices, adapting a number of opportunities. Some of these choices I will be opening up later with the presentation as well. As we believe, our market will be attractive but also in the long term and therefore, we have decided to remain with our 3 main building blocks. Those building blocks are growth, profitability and cash flow. I highlight that by delivering on these building blocks is essential for our ability also to invest back into the business. Investing back into the business will then again allow the building blocks to grow further. It's also important for us to have these building blocks delivering money for dividends for our shareholders going forward. Next, I will in more concrete terms, give insights into the activities we will have to conduct in order to deliver on these building blocks. I will also give some ideas on recent historic performance and highlight what kind of activities can take us towards the ambition. So starting off with the first building block, that's growth. Over the last years, that's 2014 to '19, you can see that we have a compound average growth rate of a total of 6%. That is FX-adjusted. Of that growth, 4% comes from organic activities, so investing and building on that, while then 2% comes from acquisitions. But you will also see from the graph that the growth has not been linear, and this is due to both internal as well as external limitations. As an example of an internal limitation, we have the buildup of capacity in North America. This meant that our growth in North America in 2017 was only 2%. Then when we started to have capacity available, we were back to a 5% growth in 2018. And then in 2019, when a big chunk of the investment capacity was released, we were able to deliver 9% growth. This is very typical in an industrial company where you are going through an investment program as such. Also on segment level, the flexible emerging market growth was hampered by 2 reforms in the Indian market, which limited the growth in 2017 before then getting back to a strong growth in 2018. Those reforms were demonetization as well as a Goods and Services Tax that was introduced in the country. Going forward, our ambition is to deliver 5% growth with additional upside from M&A. So our strategy as such remains the same. The growth will be phased both in the prepack arena as well as on the global market. And in concrete terms, that means that we will be scaling up our business. That means following our customers to new markets and developing our portfolios together with them as well as investing in growth products and solutions. And that's very much then again in the sustainable arena as well as various innovations but also partnering. So to summarize, this means we will pick the best options available, be it then CapEx, be it M&A or partnering, in order to capture the available growth. The second building block, profitability, will be key for our competitiveness and ability to generate money for growth. We have set a continued ambition to reach 10% EBIT margin. And let me open up a bit on the history as well as the elements that we believe will take us towards this ambition. So in the chart on the left, you would see that in 2016 already, we reached 9.4% of margin. That was in a year at the back end of the previous investment curb in North America as well as in a pretty favorable market condition. Still in 2017, we were able to deliver good returns, 9% EBIT. But then already, the market was partly hampered by the reforms I earlier mentioned in India. The 8.1% returns in 2018 came in a very challenging market environment. We had the start-up costs in North America from the investment program, but also the global commodity costs were on a very high level as well as transport costs. But then coming out of that one in 2019, you can see how the onboarding of capacity in North America contributes to the profitable growth, getting back from 8.1% to 8.6%. In North America, the delivery was quite strong. They were close to 10% margin. That is getting back to the levels -- almost to the levels of 2016 and '17, so a very typical ramp-up case in an industrial-scaled company. Going forward, the profitability levels will be quite a lot of the same as the ones we have had over the previous years. So first, we need to make sure that we are relevant for our customers. We need to offer them good availability, deliver quality and innovate. We naturally also need to improve our operational performance to the traditional levers of utilizing scale. The company is obviously quite much more sizable than 5 years ago, getting out the manufacturing efficiencies and eliminating waste. On top of that, we need to make sure that our treatment base takes -- stays competitive. On top of all of this, we believe that there's still some room for optimizing and leveraging better our footprint. So talking a bit more about the competitive machinery. And similar for an industrial company, growth and profitability improvement can only be reached if you invest and build production capabilities. We have, since 2014, spent between EUR 1.6 billion and EUR 1.7 billion on CapEx and M&A. That includes 19 acquisitions in total. And with these investments, we have been able to generate EUR 1.2 billion of more revenue. Highlighting again that CapEx is obviously time to market delayed. With the capital that we have put down, we have improved our market position, expanded geographically, and that very much including emerging markets and then also expanding our product portfolio. On the left side of the chart, you will see some of the details of the project. I will not go into them in more detail. Going forward, we will continue with our strict discipline selection of growth avenues, which means basically choosing between CapEx, M&A and partnering. We will be more flexible in what avenue we are taking. The main key is to really utilize our balance sheet as efficiently as possible. So therefore, our main driver is to optimize our net debt-to-EBITDA ratio in an efficient way going forward. On the CapEx side, we continue to focus on growth investments and sustainable innovations and then investments into productivity and automation. M&A side, we expect to continue in the same manner as we have done before, that is expanding to new geographies, look for new capabilities and expand our product portfolio. So to summarize CapEx, M&A support our growth, and we have a strict discipline in choosing which avenue we take to achieve that growth. Our third building block, cash flow, is obviously essential for any company. Our cash flow development has been good despite that we have been investing heavily over the years. Again, I will go back a little bit, looking at the history. So as you see the cash flow development in 2017, '18 is a good example of a period when we went through heavy infrastructure investment. We had a lot of capital tied up, first in CapEx, without delivering top line and profits. But then in 2019, as we started to release, the outcome on cash flow is quite evident. To continue good cash flow generation, we need to deliver profitable growth, continue to improve working capital and obviously be disciplined on our capital allocation. In addition to this, we need to have access to the financial market and manage our liquidity through various financing alternatives and securing both good maturity and cost levels. As a result of the profitable growth and also due to operations in high-tax jurisdictions, you have seen our tax rate moving upwards. And we still believe there's a pressure towards that upward movement. However, we're managing all of these elements, and as I just mentioned, good cash flow control and investments and tighter capital. We will have a controlled net debt-to-EBITDA level in the range of 2 to 3. And with that, it allows us to invest and even go temporarily up to a covenant level of 3.5, should there be attractive targets available. On the lower side of the chart, in the right lower corner, you see some facts about our current capabilities, not to go into those in details. Our growth and cash flow development has been reflected also in the dividends paid. On this slide, you will see the track record over the last 10 years as well as the dividend proposal for 2019. The current proposal would make this the 11th consecutive year on growth in dividends and would also, if allocated, have increased our dividend by -- with 160% since 2008. And that would correspond to a CAGR of approximately 9%. So to summarize and tie everything together, we have an excellent market position that we continue to build on. We focus on capturing growth, improving profitability and generating cash flow. And then if and when and if we are able to achieve these ones, we can continue to finance prioritized investments as well as pay dividend to our shareholders. A bit of repetition, this translates into the following long-term financial ambitions. So repeating the 5% comparable growth ambition, then above 10% adjusted EBIT margin ambition, a net debt-to-EBITDA level of 2 to 3, in a corridor of 2 to 3, and then a dividend payout ratio of 40% to 50%. So with this, I conclude my part and hand over back to Charles for conclusions.

Thank you, Thomas. Thank you. And for me, couple of maybe 2 minutes to just wrap up in summary what we have seen. Our business plan that we are projecting to you today will deliver sustainable profitable growth. We will focus, as explained before, on 4 strategic pillars: growth by scaling our core business, by investing in emerging markets, by investing in plastic substitution and developing packaging for food deliveries. Those are the 4 main building blocks for growth. Second strategic pillar, competitiveness. We will do or improve our competitiveness by driving world-class operations, by achieving scale and structural efficiencies and by digitizing our operations. Third strategic pillar, talent. And we will develop our talent by focusing and developing new strategic capabilities, nurturing a high-performance culture and developing a zero-accident safety culture. And sustainability, as explained before, we are raising our ambition. We will focus on innovation for sustainable products. We will improve operations towards carbon neutrality. And we will partner for circularity. We believe that we have the strength to deliver on this ambition, on these strategic priorities and to embrace the transformative trends that our industry is facing. Those trends are mainly our global footprint, our presence in emerging markets, our fiber and paperboard expertise, our manufacturing scale and our innovation and execution culture. So in summary, we have a high ambition to be the first choice in sustainable food packaging. We have strong values, and we want to shape the sustainable future of everyday life to offer well-being, convenience and a responsible lifestyle to billions of people around the world. Thanks a lot for your attention. And I am now handing over to Calle, who will be coordinating the Q&A session. Calle?

All right. Thank you, Charles. Thank you, Charles and Thomas, both for the presentation. And now let's continue with Q&A. So operator, please, let me hand over to you for the practicalities relating to the Q&A.

[Operator Instructions] And our first question comes from the line of Maria Wikstrom of Danske Bank.

I have a couple of questions, which the first one is quite short term and then we can talk about the long-term aspirations after that. So if you could a little bit touch upon, I guess, the demand impact of the COVID-19 in China. We talked about the factories being closed a bit longer. But then in order really to get a sense, I mean, what could happen in Europe and the North America, I think China could be a good proxy that what happened in the demand side. So if we could start on that one, please.

Okay. Thank you for the question. So maybe, first of all, I will answer on China, obviously, which is your question. But globally, important to repeat that the -- it's important to understand the granularity under the different portfolios we have because the answer is different or is going to be different depending on the different businesses that we have. And as we have explained before, this is a global crisis. In our different portfolio, it affects -- it's going to affect differently. The -- and all of the actuality and news that we are seeing every day are showing that products on the shelf, everything which is FMCG, is actually seeing an increased demand. For how long, we don't know, but an increase in demand that we see in our -- therefore, as well as an indirect implication on our Fiber Packaging as well as Flexible Packaging. Foodservice is obviously more directly affected because the stores are getting closed temporarily by authorities in many different geographies. However, as said before, there is a mitigation effect because people continue obviously to eat and drink. And actually, food is the last thing that is usually affected during a crisis. And we see that there is mitigation through the food delivery, the demand on food delivery and drive-thru in the QSRs. Specifically, your question on China, we have very little time window of experience because the crisis in China, if I may put it like this, has been fairly shut. It has been basically a shutdown of the economy during 4 weeks, which included the planned shutdown for the Chinese New Year. And then the following 3 weeks have been shut down, both in terms of demand but as well in terms of production facilities for obvious reasons. There, we have seen a contraction of the demand, largely double digit, in the range of 30%, specifically during the month of February. However, as I said before, back on almost full capacity in the supply, in the supply chain, in the production already since end of February, beginning of March. Whilst the demand -- I'm talking here about capacity production, real production. Whilst the demand is ramping up, it's not yet at 90%, but between -- evolving between 60% and 80% as we see it in those weeks. That's the experience we have made in China.

If I may -- this is Thomas. If I may very briefly, also maybe continue on that one, I think just to highlight the fact that in China, we are completely in foodservice, just to remind everyone on the call. And then a second thing, even with regards to the foodservice, that will be very dependent on what market you're operating and whether the restaurants' drive-in channels as a single would be kept open or not. So it's very early days to estimate from this day forward how the impact on foodservice will be.

Okay. That was really helpful. Then I wanted to touch upon the North American margin ambition, which was this 9% to 10%. And it's the same margin ambition that you gave back in 2016. And I think when that was given in 2016, you guys knew about the Goodyear investment. And I think the -- you said at the time that it will take 1 percentage point of the -- of that division margin, I mean, on the margin aspirations. So therefore, I'm just wondering that, I mean, are you looking to add another large-scale foodservice factory here while the margin aspiration or target seems to be quite on the low side, what I would say, for the North America?

Maybe I can answer first. And then Thomas, you, of course, jump in and complement. First of all, about the margin in North America and its evolution, the track record is very good, for instance, in 2019, in terms of margin improvement. Very important to understand the dynamic in North America, where there is a strong growth of retail brands that likely is slightly lower margin than the branded products. And it's a very competitive market in the U.S. To your question, new capacity, we are well set. I mean we are one of -- this strategy has been answering very well the fact that we are covering the entire country now with this investment. So it's more than building a new factory. It's about further investing with equipment into the facilities that we have, making sure that we are utilizing at full scale the different locations, knowing that now with Goodyear, we are as well supplying. And this has been a very successful factor in 2019. And for the growth in 2020, we are supplying all the west part of the country, where there was a lack of direct supply, therefore, a problem of logistics from all the players. And that has helped us take in market share. So it's more about now building on the assets that we have and as well not only investing but working further on our OE, on our overall equipment effectiveness in order to improve the capacity available. Thomas, anything you want to add?

I think that was a good summary, really highlighting that in our view today, there will not be a need for a blank greenfield. It will be, as Charles said, more expanding within or extending the current facilities. So it's not the same kind of margin dilution of a startup. However, of course, as long as you are investing, it has a dilutive effect on margins.

But wouldn't you -- if there is something structurally different, I mean, why wouldn't the margin then be higher than the 9% to 10% bracket that you are now giving for a longer term?

As I was saying before, the -- there is a product mix as well as brand mix that is evolving in the market. So it's not just about our profitability or our competitiveness and how we improve our profitability. We have to as well be competitive vis-à-vis the market, where private labels are growing very fast, much faster than brands. And that's on consumer goods, on retail tableware, on basically all products we see that in the U.S., that's a quite important trend as well as the market in the U.S. is very competitive because there are -- it's a consolidated market. So it's competitive amongst 5, 6 big players.

Yes. I think the conservative part of this one, I would say, is mainly related to that movements in the commodity side have typically bigger impact in North America than in many of the other segments. So this point includes also the commodity type of sensitivities.

Our next question comes from the line of Justin Jordan of Exane BNP Paribas.

I've got, if I'm being daring, three separate questions. Firstly, thank you for sharing your experience in foodservice in China, clearly encouraging that it's getting back to something like normalization. Can you give us as real time as you can some sort of update on specifically food-on-the-go in foodservice in Europe, whether it's in Spain, Italy, Germany, wherever, and just what you're seeing on the ground today as it were as best you can? And secondly, many of your QSR, your quick service customers, they're already discussing with national governments and other sort of local governments across Europe in terms of potentially being reimbursed for the salaries or rents if they're closing facilities so that clearly the financial impact of any closure on the business may be hopefully mitigated. Are Huhtamäki working on similar plans if you have to shut facilities across Europe? And thirdly, can we just talk about other sort of potential leverage that you could pull? I just want to check, at this point, are you still reiterating guidance of CapEx being stable year-over-year in 2020 over 2019? I'm assuming, clearly, if you're aiming to hold the AGM later this month, then you're clearly aiming to pay your calendar '19 dividend. I'm just wondering, are there any other sort of levers that you could potentially talk about on working capital or other issues that we should think about as scenario planning over the next perhaps 3 to 6 months?

Thank you. So I'll take back your questions in the order. So the impact, your first question was around the impact on foodservice food-on-the-go, specifically in Europe. I mean there, as we said, early days to mention about China, so as you imagine, very early days in Europe. The question mark is -- I mean all the -- the certainty is clear that with a complete shutdown of the countries or lockdown of the countries across Europe, obviously foodservice is affected. The big question mark, which is a positive question, is how much the food delivery is going to -- and the drive-thru, to a certain extent, even though it's not as developed as in the U.S., how much is it going to mitigate or to offset that negative impact? During -- if we may take the risk of a prevision, during the specific time of the crisis, of the lockdown in the countries, we're talking certainly about a double-digit reduction of the foodservice demand. However, until now -- and therefore, it's very difficult to answer to you in full transparency and -- I mean not transparency, but knowledge today, so far, the demand has been same as normal. So it's yet to see the repercussion in the supply chain. But as I said, it's pretty easy to anticipate a double-digit decline of the foodservice. But let's put it like this and not panic about it during the lockdown time. As soon as the people will be free again to go around, the consumption is going to restart full scale. That's our conviction. So it's really -- we are in a period of time where we have to be very conscious of managing the cost, but at the same time, keeping everything ready and agile to run as soon as the crisis is over or at least that the lockdown is finished. I'm sorry, I can't give a more precise answer on this. But that's all we can see and know at this point in time. Your second question about -- I think it was about QSRs asking for compensation to governments and what is Huhtamäki's position. I'll be very clear. Our -- this crisis is on since now 2 months because we started managing the crisis already end of January when it started in China. However, the acceleration is very recent. And all our days, okay, and I'm talking [indiscernible] is the whole management is -- and the local management of Huhtamäki has been dedicated to safeguarding our people, safeguarding the capacity in order to produce what is all the orders that are in the pipeline. This has been our entire focus before going and claim anything to anyone. So there is time for different things. But for the time being, for us, it's the human part, the caring part. It's about preserving absolutely our employees, our capacities and as well managing our cash situation. This has been our absolute focus every single day. To your third question -- and then Thomas, you jump in if you want to complement. But in your third question about different actions, and I understood your question being forward-looking but as well as looking at what are we doing today, so working capital, CapEx, dividend and so on. So first of all, I think you mentioned something around any additional opportunities. Well, obviously, we think that 2 big opportunities are part of the ones mentioned in our strategy paper is food delivery is something that is a trend that is -- can only accelerate when people start being afraid of being too much mixed in communities and social gathering. That's number one, and that's happening as we speak. The reason is it's difficult to gauge the dimension of it. That's the very important part we are thinking about right now. The second aspect is how to take opportunity as well of the further demand on all the products on the shelf, where our flexible packaging, our protective packaging with fiber is very much demanded. To your questions on short-term actions, what are we doing on CapEx and working capital. So immediately, we have taken actions in what I would call reprioritization at this point in time. So rather than restructuring or cutting, it's reprioritization. We hold back everything which is not a positive impact on 2020, either with growth or with efficiencies. That has to do with costs, direct expenses, events, whatever activities as well as investments, okay? So all this, we hold back. But we don't want to hold back on investment that will have a positive impact as soon as all this is over, if I may speak like this. And working capital is, of course, a major concern in the daily cash management. It's very important that the entire value chain remains stable because it's -- everybody is depending on each other in such a period of time. And that's where the diversity of our customer base but as well supplier base is helping us to remain fairly optimistic. When it comes to -- I think you had a question about dividend, and tell me if I forgot one of the questions eventually. The dividend is -- has been proposed by the Board of Directors to the AGM. At the end, the shareholders are deciding for the dividend. So it's not for -- it's not the responsibility of the management we have in line to comment on possible changes. What we are doing as management is managing the best we can the short- to mid-term cash situation of the company, provide, if need be, information to our Board of Directors of the current development in order to facilitate their decisions in the next weeks.

Okay. Apologies, clearly a fantastic long-term strategy plan has been completely overwhelmed by COVID-19. But I'm sorry to labor the point, but just on Slide 7, just specifically with regard to the closures in Sacramento and Malaysia, how exactly are you -- are you still supplying customers that would have been supplied from those factories? Or what exactly is happening on the ground here for those customers?

Yes. We have -- I mean fortunately, if I may put it like this, those 2 factories are relatively small-sized. So most of the orders, if not all, have been redirected to other factories. For instance, in China, when it comes to the Malaysian factories and Sacramento in Western California is -- it's not a very big factory, so doesn't affect much. And we have been able to implement a contingency plan that fortunately as soon as this crisis was foreseen, we had put in place in each of our business segments. Such a contingency plan is, of course, not -- has limitations because if more factories would be closed down, that will become a much bigger issue. But at the same time, what we understand is one has been closing down, for instance, in Malaysia, is up to the reopened by the authorities. So it's very much -- our factory in Italy, Tortona, which is a small flexibles factory that has been shut down for 1 day by the authorities. Immediately, we claim to the authorities that this is packaging for food, so it is essential for the population. And the government immediately gave back the authorization to reopen. So it's a moving target by the day. It requires to be very agile to be -- to have good connections and to advocate immediately something very important that food is essential for people. And therefore, packaging is essential for people because it brings food everywhere to people but as well it brings food safely.

Charles, Thomas, look, I wish you every success in the coming months. Clearly, I have no issues with the long-term strategy you're planning today. It's incredibly sensible and very measured. But clearly, your focus in the moment is on short-term challenges. But I wish you every success in the coming months.

Thanks a lot. Thank you.

If I may add just a few comments to this point, so first of all, just to highlight that the Malaysia factory is already back into operations as one example, so time to market on these ones. It's a living document, if we say it that way. And then when it comes to reimbursements, I agree completely with what Charles says, there's a time to reimburse and other stuff. And furthermore, accessibility and understanding of what actually is available is quite limited at this point of time.

Thanks, Thomas, for correcting my information. You were more updated. It was this morning, yes? Thank you.

Our next question comes from the line of Carl-Oscar Bredengen of Berenberg.

This is Carl. I just had a question on the consolidating foodservice and, let's see, the fiber-based packaging division. Are we -- given the process you've already now in the outlook provided 2 separate guidance for the company, what should we look at as sort of a blended growth rate and margin assumption? And what should we expect in terms of costs related to potential redundancies being taken and long-term financial synergies coming from this combination?

So if -- I mean I'm not sure. Please correct me later if I didn't get entirely your question because the line, at least from my end, was not entirely clear, but I believe I understood your question. You're asking about the return we're expecting from the integration of the 2 segments, Fiber and Foodservice Europe-Asia-Oceania. The reality is that it's a very positive restructuring decision in the sense that it is not specifically linked to making savings from a cost base but more generating value creation for growth because we see, linked to the -- something that we have explained quite extensively in the strategy paper, linked to the plastic substitution, the demand from the retailer, from FMCGs, from QSRs for more sustainable solutions, which often, not always, but often drive to plastic substitution, those 2 technologies go together, fiber and paperboard conversion. Therefore, it was -- it appeared very quickly to us that it was very ineffective to have 2 business segments, 2 streams going to basically the same customers. We need to be easy doing business with our customers and offering them the entire portfolio that makes our unique value proposition. That -- so therefore, that's a very positive -- actually, that's why when we announced yesterday to our organization, this was taken extremely positively as the natural move for considering our technologies and our expertise in those 2 domains. It will, of course, entail as well some synergies of organization that I mentioned before. So we are talking about a EUR 5 million to EUR 10 million value creation in the 2, 3 years coming -- starting from the year 2020, when we implement mid of the year.

If I -- maybe I continue from that. One thing to point out is that we are already operating in a similar environment in North America. And we have found that to be quite successful. That's maybe one point. And then when it comes to the long-term ambitions, as stated here, we will continue to report them, at least for now, separately. So going forward, I assume, should they be combined at one point of time, your question on a blended outcome is most likely quite close to the truth.

Okay. I just have another follow-up question in terms of the -- are you seeing a supply issue chain -- with distribution cost per headwind sort of similar now in certain end markets due to the corona outbreak? This was sort of a headwind in 2018. And I just wonder if this is now becoming a recurring theme due to labor shortage.

So I -- go ahead, Charles.

No, I was going to say the same thing as you had. I didn't get the question. The line is pretty difficult. And from my end, it was difficult to understand. What I understood is something around the supply chain linked to the coronavirus. But that's all I really captured, so -- but go ahead, Thomas, if you understand better the question.

I'll follow up with an e-mail later.

Okay. We will answer. I'm sorry for that.

Our next question comes from the line of Pasi Väisänen of Nordea.

Yes. This is Pasi Väisänen from Nordea Bank. Firstly, I mean regarding the sustainability targets, so you kind of want to be a carbon neutral company in 10 years' period. So could you actually please explain how this is going to happen in flexibles operations, where the materials are more or less still kind of plastics and probably will be? And secondly, would it be actually possible to see, for example, some 20% prolonged declines in the second quarter in the U.S. market because of this corona-related issues? And maybe lastly, the third one, so if there's going to be kind of a global downturn, do you still expect that demand in foodservice will come back to the ordinary levels after this corona effect?

Okay. Thanks. So three important questions. So the first one, your question about sustainability on flexible and how do we, should I say, reach operations to be carbon neutral. It is important that -- to understand, we are being very specific in the wording of our ambition. We don't want to offer dreams that our management will not be accountable to deliver. That's why you don't find anything in this paper that says, "We will be carbon neutral overall by 2050," for instance, okay? Because we feel that we should have ambitions that we, current management, have the responsibility and the accountability to deliver. That's why we are looking at 2030. And when we're looking at 2030, to be fully carbon neutral is just not feasible. What we are saying is our operations, our production will be carbon neutral. That means not specifically our products. We're going to work on our products, but that's a different aspect. Our operations, it means that we will drive, first of all, Science Based Targets that we have applied for in January this year already. And that will be in the scope 1 and scope 2 in order to make sure that we have carbon neutrality in our operations in the time frame of 10 years. What are we going to do? And that's valid for flexibles, like for fiber and foodservice, all our operations. We will work on twofolds. One is energy efficiency improvement, which is probably not the biggest impact but still very important because doing it reduces, at the same time, the cost. So obviously, we are very interested with this first priority. That has an impact on our cost competitiveness, at the same time, on our sustainability profile. The second one is -- which may have an impact on the cost as well, but it's early days, is transfer from current energy to renewable energy. And in particular, we have 2 big types of energies in our businesses, gas and electricity. We see it very, very practical and competitive to do with electricity more than with gas. And that's the way we're going to make our production carbon neutral. Again, not specifically about flexible but all our operations, our production, and therefore, not counting on the product type. Many things -- you could ask another question about what are we going to do on the product types to make them more flexible? So there was another question on projecting, if I remember, the U.S. potential downturn, 20% in the second semester. I mean almost impossible to answer. We have very little visibility, as explained before, on the current crisis what it's going to impact. Let's remember that foodservice food-on-the-go is 1/3 of our business in the U.S. It's not the entire business, okay? We have consumer goods packaging. We have -- and we have a retail tableware, sorry, that are -- on the contrary, we see booming, the demand on retail tableware. But we're not mentioning it because it's -- what we see in 1 to 2 weeks of crisis doesn't say for sure what's going to happen in the next 4 to 8 weeks. Now saying 20% overall in the second semester, I want to believe that this is not going to be the case, I mean, on a full year basis extrapolated. Then your last question, which was, I think, related was about if there is really a global downturn. And yes, certainly, there is, at least for a period of time. What do we think will be the foodservice demand after? To the risk of sounding naive, but I don't think we are, I think foodservice, like all the other businesses, are going to come back to the same reality as before the crisis because it's part of some of the reasons I explained in our strategy paper, the demography, the middle class, the growth that there is in the world but as well because it's part of a convenience lifestyle that is not going to decline. There may be tweaks and changes and more food delivery than food in the restaurants. But overall, we believe that everything will come into place. And we are not concerned. We're concerned about the downturn within 2020, within this specific period of time, not the after, specifically.

Our next question comes from the line of Kalle Karppinen of Nordea.

Kalle from Nordea Asset Management here. Three questions from me, if I may. First one is on the food delivery side. You've talked several times mentioning growth opportunity in food delivery. Can you be a little bit more specific what you are doing there, what channels you are targeting? Is it the food delivery companies who could be the aggregators for packaging choices here? Or how do you think about this opportunity? Second question is your readiness to move on potential M&A here in the short term if valuations become -- or if it's distressed sale or something that could be valuable now, are you ready to move financially very short term? And then third one is on Flexible Packaging targets, they are unchanged, as I see, but they are at levels which you have not reached for, I think, regarding profitability ever. So can you give a little bit of a picture of what specifically are you doing in Flexible Packaging to ensure that you can get to 9% to 11% EBIT margin there? So those were the three I had.

Okay. Thank you. So quickly, and again, right into the answer, Thomas, jump in if you want. Food delivery, what we are doing in channels. That's an interesting question because, yes, food delivery is a bit of a generic wording and we didn't enter into the details. There are different channels. There are mainly 2: one is the existing QSRs, the McDonald's and others of the world; and the other one is the emerging ecosystem of food delivery companies. Those are the 2 main streams for food delivery. We believe that because -- and that's what we are saying in our strategy paper and saying there is so much room for us to grow with our global key account-wide. And that's the safe way is to -- it's a packaging type where we have a lot to develop but a lot to learn as well because it's very new and expanding. And we believe that the safe way and the best way is to do it with our key strategic partners because the -- if we would invest too much and too rapidly with lots of different delivery platforms, that would be more risky. What I mean with this is that the food delivery ecosystem is extremely fragmented. Many companies are actually not profitable. And therefore, we can expect quite some consolidation going on. Therefore, we believe it's the first steps, and I'm not saying what we'll do in 5 years, okay, I'm saying what we are going to do now is to work on this with our big global accounts. To your second question, anything you want to add, Thomas, on this?

I think that covers it quite well.

Okay. So on the M&As, we have, as always, a pretty solid pipeline of M&As that we are looking at with all the different criteria or objectives that Thomas was outlining in his presentation. Whether -- of course, the situation nowadays is possibly opening some opportunities. However, Huhtamäki is not a predator, okay? We're not -- we are in this crisis focusing on, again as I said before, our people, our operations, our customers, on safeguarding everything that we have built. And time will come, of course, if there are opportunities that are popping up, not as being a predator but more at saving potentially some small businesses that otherwise would potentially disappear. That could be as well interesting, but early to say and nothing additional to comment. I don't know, Thomas, if you have anything you want to add on this.

I think from our point of view, as stated, our balance sheet is quite good. But obviously, we are very, very much looking on the cash flow side currently and also the liquidity side, ability to do smaller acquisitions and taking on those, I strongly believe, in also during this crisis.

And then your question -- thank you, Thomas. Your question about flexible targets. And I may give an answer that is going to be valid as well for other segments but specifically on flexibles. First of all, India represents about 30% of our flexible business today. In India, we still have a clear improvement of profitability to deliver. We have made the big part of it in 2019. But we still have, through portfolio decisions as well as manufacturing decisions, we have still some improvements to drive. Second, and as valid for the overall flexible segment as well as for others, we are implementing a methodology of total productive manufacturing that is specifically dedicated to focus on reducing manufacturing waste, so basically eradicating manufacturing losses. And here, mainly, we're talking about waste reduction and improving that has an impact as well on sustainability. And that's why we are focused as well on it as well as on improving our OEE, so all the equipment -- overall equipment effectiveness in order to drive more production, more capacity on the existing assets, what I would call, in a pretty prosaic wording, sweating the assets.

One small addition from my side, also. For the confidence of flexibles, we do have single units in the system who are already providing within the ambition frame.

Can I still follow up here? Is it -- I mean you mentioned India already, that you have room to improve in India. But more than that, is it Europe or the Germany sites where you think you have the biggest upside to do these efficiency improvement measures?

Yes. You obviously know the company very well. So that's -- those are the 2 main aspects where we are working on, India and the German operation. That is extremely critical for us from a size -- from a scale point of view but as well from development of our technology. So that's the second axis of improvement, yes.

Our next question comes from the line of Jutta Rahikainen of SEB.

I did have one COVID-19 question, which you partly answered. But I'll still ask about the potential profitability impact, meaning your agility in production and sourcing in this case. So if we -- or when we play with the idea that you will have a significant drop in foodservice sales, at least for some times, what exactly will you be able to do on your staff in the factories, on your raw materials and perhaps any other costs? And do you think it's fair to assume that, that will have a significant negative impact on profitability? Or do you think actually that you will manage with the, say, smaller margin dip in such a scenario? That's the first one. I'll take them one-by-one, if that's okay.

Thanks, Jutta. The -- it's a very difficult question. It would be foolish and not correct to say there won't be any impact. Of course, there will be because it's difficult. It's difficult to reduce the cost proportionally to the extent of this temporary crisis and at the same time, dream of being ready with the right capacity as soon as everything will ramp up again. And then there is another aspect and without being -- trying to be humanist, we have to be very careful and care for our people who are doing an amazing job to safeguard the production of the company in those days. And cutting immediately in order to compensate or reduce cost for a month, for 4 weeks or 6 weeks would be a bit detrimental to the loyalty of those people that we will need tomorrow morning when everything restarts. So we're trying to be very balanced and human at the same time as we have to run a profitable and sustainable business. We have started with the things that -- all the things that don't affect people, then it goes to -- yes, some aspects that affect people, but not permanently. So we have, of course, taken out all the temporary staff that we have in the company across geographies. We have turned down to 0 overtime everywhere. And then we have frozen all recruitments, so better not recruit than affect the people that we have in place. So all the recruitments, unless absolutely business-critical, has to be authorized up to the CEO, then nothing is possible anymore now. All the travel is banned since now, I think, 1.5 months, if not 2 months. I don't remember precisely, but since it started in China, basically. What else -- everything I said before in the presentation, everything, which is not absolutely critical for growth and efficiency, so -- which will not help us savings cost, we are not doing anymore. So we are trying to -- and then unpaid vacations is as well pushed in some geographies. But I want to be careful in not giving too general answer because in this kind of situation, we all depend and play according to legislation of each country. So in some countries, where you have very good unemployment solutions and funds, then it's not a big harm for people to have a temporary unemployment. At least they keep their job for after. Otherwise, it's unpaid vacations. There are lots of different solutions. We are meeting, as a management team, every day, every single day in the afternoon, Europe afternoon, in order to have our Business President, Clay Dunn, on the phone as well. We are meeting every day to review all the actions, the situation, the evolution, the new regulations, everything in order to taking the most responsible decisions but never forgetting the care that we need to have to our people.

Okay. Then the second question is on the financial targets. Now you flagged 4 of them. And previously, you had a list of, I think, 8 or was it even 9 financial ambitions. And I know that you, for example, now don't talk about the return on investment or return on equity. So is this just for you to simplify it in the communication? Is it IFRS 16? Or is there a single value to this somehow that return on investment is, I wouldn't say maybe less important, but still it's not on that list of 4 financial targets that you provide?

Maybe I'll take this one. I think, first of all, it's a lot about streamlining. You hear us talking a lot about the net debt/EBITDA level instead of some of the other ones, partly for the reasons that we really want to focus on delivering the best kind of solutions for the growth, for the profitability rather than limiting ourselves to very specific targets. So that's one of the main reasons of both scaling down the number of targets. The other one -- or ambitions. The other one is that we believe the ambitions we have now put in place will also automatically drive to both good returns also on capital employed and similar. So we believe those ambitions are good ambitions to work around with to optimize the overall profit and loss and balance sheet.

Okay. And then I have a last one, and that's a tricky one I know, about your market shares. And this, of course, varies from country to product. And I guess there is a broad range of market positions you have. But it would be helpful if you -- maybe if I ask it this way. In which of your segments/markets would you say that you have the strongest market position? And if so, how big roughly would the market share in that position be? And then the other way around, where do you feel that you are sort of an underdog when it comes to the market share and maybe pricing power and why, if you understand my thinking here? Any comments on this would be very useful.

Yes. It's a very difficult question because with our diversified portfolio, there isn't a comparable company with exactly the same businesses. And then we are in so many different geographies from very concentrated markets, like U.S. or as well the foodservice in Europe, versus very fragmented markets like Asia overall but flexibles in general as well, except in Europe. So it's a very complex answer to give to that question. But to try to give a little bit of granularity to what you ask, in North America, we are -- so you ask where are we really in a very strong position? I think very clearly, in fiber, there are 2 very relevant companies in the world of fiber and Huhtamäki is 1. So we are the leader globally in fiber, and we believe that we're in the right geographies. If you look at the U.S., this is a market, as I said before, with 5, 6 very relevant companies, highly competitive. So we're not the #1, but we have a relevant position as well. Maybe without getting into the statistics that would take a lot of time to go -- to break down by business and geography, maybe more important to say that our ambition, that in the last years, we have grown more than the market. It means that we have gained market share. And our strategy is, especially with the ambition of 5-plus percent per year, is actually much more than the underlying market growth. So we are planning to grow market share. And because of different aspects of our strategy, we can name a few again. But I guess it came across pretty clearly, we are going to gain market share in the different business segments where we are particularly in emerging markets, and thanks as well particularly to the plastic substitution to paperboard and fiber.

Okay. And the U.S., you say you had a good position. But is there -- as that was one of the more concentrated markets, would you say that in the foodservice segment number, what roughly would you be?

In the U.S. specifically, food -- I don't know what's echoing now. So in the foodservice business, specifically in the U.S., we're probably #5. But we are a much more -- if we're looking at the retail tableware business, we are very relevant, especially leading with our Chinet brand that is the reference in the market, with all the growth we have on our private label volume as well. So again, it depends really on the different businesses. It can be taken -- foodservice and U.S. cannot be translated at being our position for the U.S.

Our next question comes from the line of Robin Santavirta of Carnegie.

So if I go one-by-one, and maybe this is for Thomas, could you comment on what kind of level is the fixed cost in the foodservice business, so we can understand the leverage from the likely volume decline? I understand your gross margin is something. But I guess, you have some fixed costs also reported in the -- above that line.

Yes. Again, this is a pretty difficult question as such. First of all, you need to take out the depreciation. That one, we don't get away with so that's fixed. Then we do have some production overhead. But also there, part of that would be flexible. And then below the gross margin level, we will have a lot of personnel cost. So basically, the way to think about it all in all is that we have a number of elements which make up a very big part of our overall cost level. So raw material, which is very flexible, that's around half of the total. Then we have the depreciation around -- company level of around EUR 160 million in total, which is obviously fixed. And then we have a total personnel cost of around EUR 600 million, EUR 700 million in total, which is partly fixed, partly -- but to a large extent, variable. So getting into more details on that one at this specific point is not maybe worth it, especially given Charles' comment earlier that in some countries, the ability to take down the cost of personnel is different to other markets. It's such a big part of the overall cost.

All right. But maybe is it just fair to assume that there's a bit more fixed cost than reported OpEx because you report the depreciation and some personnel cost above the gross profit line?

Yes. Yes, correct.

Yes. Then in terms of raw material price, I assume the availability for you guys have -- has been fairly good so far. But what are you seeing in terms of prices at the moment? And given that the oil price has declined this March, I remember last time this happened, you -- I guess, in 2008, you needed to profit warn because of an inventory write-down, followed then by 2 extremely good quarters margin-wise. Is this something that could happen now? And what are the dynamics with raw materials at the moment?

So again, on raw materials, you're right, that plastic prices are -- sorry, the oil prices are significantly down. But it doesn't immediately affect the polymer prices, so they are not fully following the oil price reduction. It has a lag and so on. And furthermore, some markets are more isolated. So I don't see a very heavy drop currently in the plastic side. The other point to compare us against 2008, when we were almost a complete plastic company, is not anymore in that sense relevant. So we are approximately 1/3 on a global scale when it comes to volume consisting of plastics today. And Charles, you want to add?

No, I think you have been pretty comprehensive in this one.

Good. That is clear. Then just could you roughly provide -- it's clear that the foodservice or maybe not all of that, but rather the quick service business will be hurt to possibly a large extent now short term. But could you sort of -- if we omit that and you said that demand in some areas have been, so far, extremely good because of the hoarding or what this is called, how much of your businesses is sold in a supermarket or the client outlet? Because I assume sort of even though this would go on for a long time, everything almost sold in a supermarket is almost unaffected or then FMCG. Or just make it simple, how much is sold in the supermarket?

Yes. We would say that approximately more than 50% -- almost 60% is -- of our products are for food sold on the shelf, what you call supermarket, but it may not be supermarket in all geographies in the world so that's why we call it on the shelf. And that is correct. It's not affected by the crisis short term. On the contrary, there is more demand for obvious reasons that the populations are kind of stressed and almost panicking and overbuying in those days. And in this business, the main risk is countries' regulations for shutting down production facilities for a certain period of time. But as we see it, it's not happening because all economies, all governments are conscious that if you start stopping the supply chain, then it's an even more disastrous impact on the economy. So that is not happening and food is essential for consumers. So yes, to your question, it's -- more than 50% is on the shelf.

And I think you were mentioning, Robin, the hoarding part of it. I think the other part of it is with the hygiene and food safety part, people are turning more and more towards prepacking in these times.

Sure. And can I just -- finally, I don't know, you might have commented, I might have missed it, but again, maybe more for Thomas. What is your refinancing need? I understand the net debt-to-EBITDA is okay, the covenants, the revolver you have. But any kind of major refinancing need now short term for this year?

Well, we have several hundred million that is maturing in one or another way. So we are currently looking into the financing alternatives and have already taken some actions to secure it -- actions to secure it.

And can I just ask, how is the market working now during these times?

Well, as usual, the first instrument to go was the commercial papers, which we had plenty of outstanding at the time. We had fortunately refinanced a significant bond at the end of last year so that gives us some leeway. I think that financing is available. The question is really on how and how much.

Right. And then finally, just so I understood it correctly, is it right to assume that so far, the business in -- as of basically last week, the business in Europe and North America has been unaffected by this crisis? Was it that what you, Charles, sort of alluded to?

Yes, we can summarize it like this. Now the tough part -- in the geographies that you are mentioning, the tough part is starting now. And for the time that -- and the lockdown in the different societies is going to happen, whether it's going to be 3 weeks, 4 weeks, 6 weeks, 8 weeks, who knows. That's the big question mark, that this crisis is difficult to visualize in terms of size, structure and ending point. So that's the big question mark for us. So yes, your summary is correct but only correct to date.

I understand that. But can I ask you this, how much of -- do you have an idea how much of your quick service restaurant clients' businesses is takeaway in normal? I understand in some cases, it now increases. In some cases, the outlet cafe or restaurant is closed, so you cannot sell anything. But before this crisis, roughly how much of your quick serve restaurant customers' sales are from takeaway?

To be fully transparent, I mean, I don't have the -- it's a good question. I don't have the full average number across the -- all customers in the foodservice, but the situation ranges from being 50% -- 30% to 50% up to, in some cases, 80%. And I won't give names of brands, but they are pretty sizable global brands. Their sales are already -- before the crisis, 80% full delivery. So now is it a reason big enough to be optimistic about the crisis? No. There will be an impact that's obvious during this lockdown period.

For sure, that what I might protect it for at least the time being.

Our next question comes from the line of Maria Wikstrom of Danske Bank.

I'll just limit myself to one last final question, which was on the Chinese market. And I think, I mean, on the strategic update, you said that one of the opportunities is to grow in the Chinese market, where you see the sizable growth in the middle class. But if we look at the previous figures, I mean, we think your clients have grown much faster in Chinese markets than actually Huhtamäki has grown. So my question is that, what is it that you guys are going to do differently in the coming years in order to capture higher growth from the Chinese market going forward?

Yes, that's a very good question. So I won't give you a fully comprehensive answer now in the given time. But -- so it's a very relevant question and you're right. It's been in the radar screen of our strategy. However, it was not the #1 priority. And now because of what we're seeing -- the evolution we're seeing for the next 10 years in the food and therefore, food packaging industry, it's extremely relevant. China is driving lots of the convenience lifestyle in the world after the model of the U.S., but they are driving it very fast. The food delivery is driven and growing -- it's almost booming, if I may say, in China. To give you just a number, and then I come to specifically your question, to give you a number in 2019, there were 40 million orders of food per day for delivery. And the projection of the food delivery is that in 2023, this will be 70 million, so almost twice as much in 3 years, okay? So it gives the magnitude of what's happening in -- on top of the demography and the middle-class growth. So China is almost an obvious direction. It's not an easy one. So we've been analyzing, benchmarking companies, what other companies are doing in order -- multinationals are doing in order to be successful in China. And of course, scale is extremely important. You have to be -- you can't go there just as one very small player. You have to be relevant. You have to have scale. And scale can be driven by M&A and/or organic, obviously, with a different time lag for it. It's as well about where do you position China in your organization? What are the capabilities that you are building in order to drive the business in China? And all these things we have been analyzing in order to make it a priority for the company going forward. Of course, this situation with the coronavirus has been kind of a little bit hampering the very short-term actions we were planning to take, but it's only a short delay.

And there are no further questions on the line, so I'll hand back to Calle for closing comments.

All right. Thank you, operator. This then concludes the call for today. Thank you very much for participating. If you have any further questions, then please don't hesitate to reach out to Huhtamäki's Investor Relations. Yes, have a really good rest of the day. Thank you very much, and speak to you soon.

Thank you.