Huhtamäki Oyj (HUH1V) Earnings Call Transcript & Summary

Good morning, and thank you for joining us. I'm Thomasine Kamerling, EVP, Sustainability and Communications, and I'm happy to welcome you to our Q4 and Full Year 2021 Results Update. With me today, I've got Thomas Geust, who's going to be taking the lead and going through the presentation. And then as usual, we will be opening up for Q&A through our monitor. So with that, over to you, Thomas.

Thank you, Thomasine. We will start from the beginning of the presentation with the operating environment we are going through. So currently, we can be happy, first of all, to say that we delivered a very strong 2021, given the challenging environment we are in. We have, in the topline in the growth, we have a positive impact from acquisitions, obviously. We did two acquisitions, as you recall. We have been doing pricing actions and then obviously, we also have the recovery in Foodservice against a quite soft 2020. When it comes to the environment, as for all businesses, the environment is quite challenging. It's mainly the supply chain, which has been disrupted. We still see places in the world where production is not up to the speed where we used to be prior to the post-COVID. Furthermore, the transport chains are disrupted. So transport from Asia to Europe, as an example, are extremely expensive at the moment, obviously, then causing inflation also into the prices. We are happy to have launched quite a few innovations this year from the pipeline we continuously have ongoing. Some of them we consider even to be breakthrough innovations, and I will have some more details on that one on the upcoming slides. So nothing more for now. Then we have done really good progress also on the sustainability side. As you remember, we incorporate sustainability in everything we do. We have had science-based targets validated, an extremely important step. We have launched the Global Sustainability Index. And then we have improved on ratings in three of the key ESG rating indices. Unfortunately, however, we have our CEO out for an expected first quarter. He's going through a medical treatment, and we hope to see him back in full speed in the second quarter. When it comes to the innovation part, I will not go through all of them, but I will highlight a few ones just to give you some insight into what kind of innovation we are doing. In the Fiber Foodservice space, we have been talking a lot about the capabilities of replacing plastic or coming up with alternative products for the plastic side. So obviously, a lot of the innovation there is on the fiber side. If you look at the first example here, which is the McDonald's Sundae cup and cold cup lid, that's a fiber-based lid, which is completely plastic coating-free and 100% plant-based. So one example of how we are addressing the customers' needs with real solutions for making sure that our product and their business will be successful going forward as well. Then we have for the paperboard side in North America, there we have a good progress by introducing yogurt cups. That's 80% paperboard-based, which is then bringing in a differentiation towards what other players have the possibility to offer into the range. So this is an entry into the FMCG space in the dairy -- on the dairy side in North America. And then on flexible side, what you see here is the Push Tab paper, as we call it, and that's an industry first. This is the traditional blister pack solution, which typically are metalized and with this paper solution, we then obviously have a better recyclability possibility in our products. The other products are also quite innovative and quite interesting. I'm not downplaying them at all, but we can talk about them more in the Q&A if you have further questions around them. Looking at the business performance. So we have acceleration in growth in the fourth quarter. You can see that the net sales grew a strong 23% in the quarter. One can, of course, assume from that one that it has elements which are not completely organic. So you see the growth from acquisitions is a strong 8%. And then within the comparable -- and then we have a positive translation from the currency, but also in the comparable growth, you can see a strong 12% growth. You will realize later on when we look at the profit and so on that a big part of this one is pricing and mix-related. So that has really been the theme now for the -- especially last quarter to really look to mitigate the cost inflation. In the emerging markets, there's obviously a strong recovery in Foodservice all in all, against the lower comparisons, strong growth in markets like Russia, Poland. China is also growing versus previous year. And then in flexible market, I would say we commented in the previous quarter that, for instance, the markets of Vietnam were down due to closures, they are now recovering versus the trend we saw earlier. India also grew strongly, but that was against a very weak comparison of 2021 in the quarter. The story for the full year is quite similar. The main difference here is that we do have a negative currency impact in the full year. I will have more details on that one when we go later. As usual, I have my currency table presented. But then the growth from acquisitions is around 2%. So you can see that the contribution of Elif is completely in the fourth quarter. And then on the organic growth, you see it slightly lower and comparable growth as well. So from that perspective, the real step-up happened in Q4. If we look at a bit of the growth by businesses, so first of all, if we take Foodservice, here you can see really the soft sales in Q4 2020, now with a strong comparable growth of 12% in the quarter and 11% for the full year, obviously above the ambition, but there we should, of course, think about it against the soft 2020 as well. We are now slightly above 2019 levels when it comes to overall Foodservice delivery. The trend is a bit different. It's moving more and more against pickup and takeaway, while earlier, we were obviously more on the in-store dining type of business. North America, a very similar picture to last year, then boosted further by the fact that we started to see the Foodservice come back, more on that one a bit later, but very similar picture to previous years, so also explaining the strong performance in North America, all in all, which you will see later on. Flexible Packaging, having gone through a bit of volatility in our numbers over the year, you can see that now we are delivering 12% growth, and you will see it also in the Flexible numbers a little bit later. All in all, the market, I would say, has remained quite stable. However, we have the normal fluctuations market-by-market, which I partly already highlighted here earlier. On the Fiber side, the egg packaging has softened. It is against the very strong demand in 2020, but we are happy to say that on-the-go products, so the cup carriers and similar, are still booming or actually growing quite nicely in the category. If we take the next slide, so that's on the overall situation, I'm happy to say that this is the highest net sales EBIT and adjusted EPS of at least the last 20 years of the company, I would say, it is the historically high for the company. So very happy to see that coming through. We have a good development, as you can see on the EBIT in the quarter, so growing 13% in the quarter versus 4% in the full year. However, you can see also that the margins are below previous year's level, and that is very much coming from the fact that the pricing is eating into the margin. This is something I've been communicating throughout the fall and the story is as follows. My estimation on full year basis is that the pricing element has a rough -- maybe 0.4%, 0.5% point impact on the margin. The CapEx's are high as communicated. That really comes with the fact that we are investing into the future into new solutions. We are doing more on our organic side than we have done earlier and the investments are very much related to Fiber investments with longer lead time execution. Then if we take the next slide, which is on sustainability, a very important dashboard for us all in all. Looking at the trend of these ones, we have two of the KPIs having a deterioration with very good explanations behind it. If we take the renewable and recycled materials as we took on Elif, which has plastics in its content, it influences the index negatively. And we obviously expect that to also continue at least into next year, although there are, of course, also on the plastic side, efforts going on to increase the renewability of -- recyclability of the content. Then the other element going down is the certified fiber side, and that is more a minor change, and I would explain it more with the fact that there is year-on-year fluctuations. Then on the renewable electricity, there we have done quite good progress and happy to say that things like solar installations and then also the possibility to, in some places, purchase from the green grid has brought benefits into the Index. And then on the greenhouse gas emission side, there have a 7% decrease versus our baseline. In our science-based targets, I think we are targeting roughly 5%. So we are ahead of that progress. Then on the waste side, we have improved. So there we have positive things like first site of non-landfill deliveries through the year. And then we have on the health and safety side, which is obviously an extremely important metrics progress, although, as always, work to be done. Water management plan, there again, also progressing favorably. Then if we take the Foodservice side, going into the businesses, the businesses, as already highlighted here earlier, Foodservice is doing a great recovery out of 2020 with businesses coming back in most of the markets. There are still a few markets which are a bit subdued, mainly Southeast Asia. The other markets are going quite well. But there is, as I said, already shifting categories towards more to takeaway and it's also shifting categories partly away from the traditional cups as still cafeterias are closed down, and the commute traffic in big cities is subdued. But that has been compensated then by sustainable products as well as the takeaway categories. Further to highlight on this slide is, of course, the profit improvement. You can see here also that they have improved above net sales growth on the absolute EBIT, although the margin is still below the long-term ambition for the segment, but mainly for the reason I said earlier, which is the pricing effect into the topline. Then you also see that the CapEx's are continuing to be high also in this segment. And -- but if you look at the operating cash flow, the story for us -- for this segment and the other segments is very much related to the drag of operating working capital, where we have the main effect actually coming out of the pricing into inventory. North America continues a strong delivery, being double-digit also on margins. I have been highlighting throughout the year that the second half of the year on margin level will be a bit more stretched. You can also see that despite this, they grew the absolute adjusted EBIT beyond the year-to-date EBIT growth. And that's explained partly by the fact that we got additions of categories, so the foodservice category and catering categories coming back. And and then we have still the pricing coming through quite nicely despite the lower margin. The challenge here, as in other segments, is on raw material availability and freight and that challenge leading into the prices, but also, to some extent, limiting full capability of delivery against demand. If we look on the CapEx, they are almost spot on, on previous year and the operating cash flow slightly compressed versus previous year or 20% compressed, not slightly, but explained by the same elements as for Foodservice. Flexible Packaging, here, I would point out the change in EBIT recovery versus full year. So if you look at the quarterly EBIT, we are up 36%, which is in line with net sales growth. And then if you look on the year-to-date, we are actually down minus 1%. So this is indicating that the pricing actions started to have effect only in the last quarter and therefore having a bit of a better traction here. Obviously, we also had the markets being more open in the last quarter, supporting a more stable operating environment as such. But here again, profitability impacted by high costs. So that is the story, and it will remain the story also in 2022. Looking at Fiber Packaging. Fiber Packaging already mentioned here that egg demand is softer than 2020. It is also some fluctuations between markets, Brazil, as an example, quite low-ish at the moment. We didn't bring on the similar amount of new capacity -- the converting capacity as we did in 2020. So we didn't have that effect contributing to the same level as previous year either. As you remember, traditionally, we have been -- had a very good track record when we bring on a new machine, we almost always fill it from almost day one. Looking here on the CapEx's, the CapEx's are significantly higher compared to previous year. This is investments in technology also going into the Foodservice segment. Moving over to the financial review. In the financial review, obviously, a lot of the same elements as highlighted in the previous slides. Here, I would highlight the elements of margins a bit further. We have a compression on the margins from the reasons explained earlier. So the pricing element of the item, operationally, we are actually doing quite fine. We have been able to improve on our operational efficiencies. So from that perspective, we are well positioned. We have a better utilization rate of the machinery, obviously, in 2021 versus 2020. So that's also then supporting the operational side. So really, the story comes from the inflated costs, be it then raw material, be it transport, but especially on then -- and then in the future, most likely also more on the labor side. Our financing costs remain basically on previous year's level, so it doesn't yet reflect the impact of the acquisitions, which will obviously be driving up the financing costs going further. And then on the tax side, we are on a flat 23% effective tax rate. That is a level we believe is on the low side going forward, but it always also has the annual adjustments in it. Then highlighting here the EPS. So the EPS up 6%, but you will also see that the reported EPS is actually up even more. So last year, we took more IACs compared to this year. And in the last quarter, we actually had positive IACs coming out of our reporting. Moving into the currencies. A new currency introduced on the table as it has become a relevant currency for us. It's the Turkish lira. The Turkish lira, as most of us have -- are aware of, has been going through quite a turmoil and you can see that if you compare the full year rate versus previous year closing rates, it's down 63% in value. So quite a heavy deflation of the currency there. You can also see that the average rates of the year are 30% down, so the ones we are using for the income statement. Other currencies, there we have a movement mainly in the USD in our case, from a translation point of view, towards a positive turn. Q4 was positive for us when it comes to North America, all the other quarters were negative. If we take segment by segment, Flexibles also had a negative currency translation, except for the last quarter, while Foodservice were positive to flat throughout the year. But here again, volatility, also in currencies volatility in basically everything, I think that's the theme of the financial environment of today. Net debt to EBITDA is increasing. So this 3.1 doesn't include the pro forma impact of Elif. With Elif in, we would be slightly below 3 on the net debt to EBITDA. However, obviously, this is how we are reporting it. So we are on the top of the corridor, obviously, also burdened by our cash flow, which I will get back to on the next slide. If we look on the gearing, it's also on an increase versus previous year, a slight drop versus last quarter, but trending more on the high side versus where we want to be on a long term. Cash and cash equivalents at the end of the year were EUR 179 million and the net debt, as indicated, at a EUR 1.5 billion level. Within those, we have a EUR 176 million of lease liabilities. The debt maturities highlighted on this slide, I will not repeat what I've been saying in previous quarter about what we have been doing. But to highlight here that we do have a bridge financing for Elif. So at one point, we will obviously be looking into refinancing that one. And then you can also see that we have maturities, both in 2022 and then coming up in 2023. The free cash flow story is very much in connection with what I already said. We do make a improvement in our profitability. If you take out the EUR 20 million of EBITDA impact from Laminor, which we had in last year, we have improved clearly on the profitability side. Then the real burden here is the change in working capital, where the pricing makes up quite big portion of the drop in working capital. We also do have a unfavorable proportion between trade receivables and payables. Taxes, from a timing point of view and due to some true-ups, were on a high level in taxes paid in 2021, where on a high level, the normal level is lower than this [ 83 ], which we are now -- we were paying in 2021. And then obviously, the higher CapEx is also burdening the cash flow. So cash flow is one of the themes for 2022, one of the major themes for us to improve on cash flow, but that doesn't mean that we would stop doing the investment programs that we are looking for. So efficiencies in other areas and also some reprioritization of other CapEx's are likely in order to improve on this cash flow. But the trend with the increasing raw materials are and will have a continued drag on the cash flow going forward. Looking at the finance position, we are increasing on the assets, of course, with the Elif addition here impacting it also quite significantly. Looking at the equity level, on equity, we had a positive currency translation of -- in this year. So we had roughly EUR 100 million positive. That's roughly the same as we paid in dividend. So quite a good progress, therefore, in the equity versus previous year. The other items I have already highlighted, but positive development also on the return on equity. The Board of Directors are, as usual at this time of the year, announcing their proposal for dividend. Our dividend policy is, as you are aware of, 40% to 50% payout. The evaluation of the Board is that the financial capacity is sufficient to continue on a growth trajectory when it comes to the dividends. So the proposal for 2021 is a EUR 0.94 per share payout of dividend. And that would put the payout ratio at 45%. It would also mean that it's the 13th consecutive year of continuous growth in dividend for the company. And with that one, since 2008, it gives a compound average growth rate of 8% per year. On the ambition side, growth -- we are back on growth. So there we are overshooting the ambition. Obviously, a big part of that is -- bigger than normal part of that is related to pricing. So from that perspective, still work to be done also in that area. In the adjusted EBIT margin, the burden of the pricing mentioned earlier is slightly dragging down the margin. However, we are still below the 10%-plus even with that one. And then on the net debt to EBITDA, we are on the high end of the corridor and continuing the dividend payout, 45%, so just in the middle of the payout ratio. And just to remind you that the ambitions were set in the beginning of the pandemic, so in March 2020. And I think that is also highlighting how we look at the 2030 strategy that despite market volatilities, we believe we have the capability to put the company in a position that we actually can deliver on the strategic ambitions going forward. Outlook remains unchanged, and so does the short-term risks and uncertainties, and then highlighting that AGM will be held on April 27. And with that one, we open up for Q&A.

[Operator Instructions] Our first question comes from the line of Justin Jordan at Exane.

I guess I've got really one big question, which is, I suppose, just trying to counterbalance cost inflation versus margins. Clearly, you've had a very strong Q4 in terms of comparable sales growth. And I know you normally don't split out the comparable sales growth between volume and price. But can you give us some sense of just at a group level or potentially at a divisional level, where you see cost inflation trending through Q1, Q2, 2022? And clearly, the flip side of that is the hard actions that you're taking across each division in terms of price recovery as it were. And how you see Group EBIT margins developing as we go through the early quarters of 2022.

Yes. So to the last one, I will give a theoretical answer for the Group EBIT margin. So depending on how strong the inflation on cost is, you can always assume it from the point of view that, let's say, raw materials would go up 20%, we would need to increase prices by 10%, and then you have a impact of the delta into your margin. It's too early for me to say how much the commodities are accelerating at the moment. And there are always also the positive sides of inventory revaluation impacting on the margin. But all in all, my statement that we will be compressed on the margin remains. So I wouldn't be expecting the 10%-plus margin at least coming through in 2022. When it comes to cost inflation, the -- each of the segments were facing quite heavy cost inflation through previous year. So we are talking well above EUR 100 million, one could say even close to EUR 200 million on raw material alone on raw material inflation. There was a deviation in acceleration of it. And I would say the paperboard and paper side is the one where one can see the trend accelerating more currently. I think we all have read about the scarcity of the supply. So many of the paper suppliers are quite full when it comes to demand. And then also on the plastic side, there still seems to be maintenance issues and other things disrupting the supply chain. So this early in the year, guiding more on that one for the coming year is a bit early, if we say it that way. But our efforts are now to take into account, beyond raw material which we always have, also labor, energy and transport when we are doing our pricing activities. Then just to highlight, so on the volume increase -- sorry, the sales growth increase there, there -- the last quarter saw only very low-single-digit growth when it comes to volume growth. The rest is pricing and mix.

I've just got one quick follow-up just on, I guess, your free cash flow bridge on Page 21. Two questions really. Firstly, in the change in working capital, the minus EUR 139 million. Can you give us some sense of how much of lease is in that number? And secondly, I suppose when we think about stressed supply chains globally and they impacting Huhtamaki, should we think about in the short term needing to hold additional stocks of raw materials and finished goods just to continue to frankly operate and continue to service customers? And secondly, any sort of initial thoughts or guidance on 2022 CapEx in relation to the EUR 259 million in 2021?

The last one I didn't get, but I'll answer the two other ones first. So first of all, on the free cash flow, the inventory side and the change in working capital, that's to the largest extent, driven by inventory. I think it's around EUR 105 million inventory increase. And of that one, almost everything is price-driven. So that maybe answers also your second question, which was, do we try to build safety stocks and similar. I think the full industry would love to build safety stock. However, you hear from that one already that the availability is such that it's almost going into the converting machines immediately when we get it. There is always -- you will realize that we do have stock because we have plenty of stock, but it's mainly going into delivery as in the normal time phase as always. The last question I didn't get.

Sorry, so my final question was just around initial thinking on CapEx for 2022. Clearly, you need to continue to invest to support growth. So I'm just thinking in relation to the EUR 259 million in 2021, what's your initial sort of guidance on 2022 CapEx for the Group, please?

So my initial guidance would be that we will still see continued acceleration in the CapEx. And with this one, I also use my normal comment on that. The way we are looking at this now is managing the net debt to EBITDA level, which means that we then balance between M&A and CapEx as well as possible in order to have the best availability of firepower for both of these categories going forward. It means that if we -- and as we are targeting to grow the company, we are more likely to stay on the upper end of the net debt to EBITDA ratio.

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

I have a question related to the Flexible Packaging division and the Elif acquisition. You have a quite significant uptick in the both topline and also in the adjusted EBIT for the Flexible Packaging segment. Could you provide any kind of sort of information how much was the impact, top and bottom line, of Elif in Q4? And what is the outlook when we look at 2022 for Elif results?

Okay. So first of all, as you all realized or many of you most likely realized, we introduced a new way of accounting treatment, how we treat our IACs as well. So we introduced the amortization of PPA for major acquisitions into the amount. So what I'm commenting now is more on the operational level, so purely how we see the business. I would say the topline of the business is between EUR 50 million and EUR 60 million roughly. So not giving the exact number, but around those numbers. And from a profit point of view, we are above Group level margins when it comes to adjusted EBIT.

And is that also something we should expect in 2022 sort of as a base case? I know there's a lot of moving parts, but...

Yes, Robin, I think that the uncertainty here is obviously the Turkish economy as such, with all the impact maybe from the currency that we might see going forward. We think that the business is healthy. We think the operations are quite healthy, so we are not concerned about that one. We also see that the demand comes in, so topline-driven growth, quite confident about where we will land on profit. I think we will have a good profit, but how good it will be, a bit too early to comment. But we hope to see something similar that I referred to here with the Q4 numbers.

And another question I have is on pricing activity, quite significant increases in Q4. I assume we should expect continued increases in average sales prices for you guys now when we start the year of 2022. Is that right?

That's what we will have to do in order to keep our profit growing.

Good. And then final question I have, there's a bit of a sort of new -- I know you have a new strategy and you have communicated that you want to grow, whether it's more capacity or [ M&A ], but this is truly what you now sort of expect to do in the -- should we expect coming years? And is that sort of related to taking market share? Or is this related to your segment simply growing your capacity utilization close to full or what is it related to?

So in the categories -- the traditional categories that continue to grow, we plan to invest in the portion which our customers are needing. So we are investing based on demand in those categories, be it cups or be it anything similar. Plastics in Europe, well, there we haven't had really any investments for understandable reasons over the last years. And then the full effort we have is more on, I would say, new categories. So we are not -- there's actually not that much of a market share to grab even in some of the categories where we are putting money in. To some extent, it's cannibalization, of course, with regards to, for instance, plastic lids to fiber lids, but then in some of the other fiber categories or within the paper straw business we introduced, there we are not really taking market share from existing market shares we are entering from -- with new products in new categories. A complicated way to answer it, but that's in reality what we do.

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

I'd just like to focus on Foodservice EAO. When you think about the folding boxboard or paperboard prices, you have fairly good visibility, given that your contracts are kind of annual contracts. How are you able to negotiate those with customers, given good visibility on where paperboard is going and the market is tight? Have you been able to really push through those prices with your customers with a good lead time is the first question and any color around that. And then secondly, just following up on a statement you made, I may have misheard it, but did you say that you expect pricing to benefit margin by about 50 basis points next year, your current actions? Or did I miss here something?

I'll answer the first one. So the 50 basis points were referring to what burden, I believe, we have had on the margin in 2021, so for the reason of the pricing element in, so indicating that on a comparable basis, our margins would have been better. But that's, of course, just a theoretical play with numbers type of thing. Numbers are what they are, and we have reported 8.8%, and that's the level where we are. So that's the first one. On the paperboard side, the scarcity in the full supply chain is different to any other time. So that, I would say, is the key element for the pricing structure of today. So to your question, do we get prices through? I think prices -- it's always a supply-demand game in the full value chain. If there is a demand and if there's scarcity of products and you want to use those products, it needs to be a shared profit throughout the value chain. And answering the question with that, I believe we will have a capability to adjust our prices in accordance with the increased element. Then to your comment on that, we would have really good visibility into the paperboard prices. To some extent, it is true, but we do also purchase quite a lot on the spot market, especially in Asia. And then second of all, as we want to fulfill the demand of our customers, we will also be looking for capacity on spot market throughout the year and then, of course, given that we can do it profitably.

And then just kind of following on that, if you get the annual price increases for your contract volumes at the beginning of the year, are you able to price it up with customers to kind of match that time? So I'm wondering, do you only get the price benefit from the second quarter? Or you see it already coming through in the first quarter?

So this varies obviously between businesses again. So we have the businesses where we really do the annual contract reviews and the prices. We stick with those ones regardless of if the costs go up or not. So we make -- in some cases, we make a bet or in some cases, we have some fixed cost elements. So for those ones, adjusting later on will always be almost a force majeure type of discussion, again, related to whether you can -- whether they have a big demand of it. For the other categories, we are working from -- on anything from continuous pricing updates to sticking to the quarterly adjustments which we have in the escalation thing. I have always said that we have a contract term of delay of 3 to 6. We have been working more and more over the last year of making that escalation period shorter. So we are moving more towards the quarterly update on this one.

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

Two questions left on my behalf. The first is on North America. Could we talk a bit about that now? Is Q4, in your mind, a sort of normal semi post-COVID type of quarter? Or was it still exceptional? And linked to that, when we estimate the '22 sales and profitability for North America specifically, how would you -- what sort of should we consider when doing those estimates? Because you've been trending above profitability for quite some time, just to make sure we don't miss anything on that dynamic and sales mix impact. So that was the first one.

So on North America, last quarter, from a demand point of view and from a product mix point of view, starts to look more and more similar to what we expect the business to be. We have been happy to see that the categories we were slightly afraid of that, would be temporarily up, like the home consumption on disposables has continued even after the high point of the pandemic to be buoyant. So we believe it will continue, and we believe that we will be capable of adding throughput in our fiber-based side, especially on the private label retail side and similar. So demand-wise, I think that's the position where we are. When it comes to profit growth, I would say, we will have absolute profit growth, and that's the part which you need to look at. And then we will need to be looking very carefully on the volume growth. The reason why I'm saying it this way is that our scenario currently is expecting that we have a more significant price increase in North America than in the other markets. And from that perspective, we will have a more challenging time to keep up the margin. But absolute EBIT, we want to continue to grow.

All right. I see. Good. And then my second question, it's still on the input cost/pricing dynamic, plenty of angles already on that. But if I simply ask it like this, looking into Q1, which is now pretty much halfway, would you say that the sort of pressure from -- or the net impact, if you call it that, from input costs and pricing, is that still sort of accelerating and its more challenging now? Is it flat like it was in Q4? Or is it perhaps easing?

So first of all, I think we currently have, in the early days of the year, some of the benefits of having done the price negotiations on the back end of the year. So to the earlier question here that some of these are matched to the current price environment or the early -- more on the lower end of the pricing element. And then if it continues to grow, some of the categories will be burdened, then we will have some of the categories where you are playing the catch-up game. So total dynamic, let's say, half year is still a bit difficult to estimate. The beginning of the year, I think, has the benefits of inventory revaluation and the elements I just described.

All right. So in a way, but one should maybe not say or declare that Q1 was the weakest quarter from this point. If I hear you right, you think that H1 still will be quite challenging or?

I would say that the pricing activities, in my view, have been active and we have been doing the things we have been saying that we are doing. And consequently, the beginning of the year we'll be stating some of the success of that one. I would wait until Q1 to be -- or at least so that we have a few months in the traction before stating how I believe that the first half will look. We have always also said that Q1 is -- it's great to have a good start to the year, if we say it that way, but Q1 will not necessarily stable the full year as such.

All right. I see it's complicated. And just on that dynamic, I mean the plastics and metals, from your point of view, have sort of peaked, but then the board -- fiber game is now sort of picking up if you simply split the categories and I guess energy is trending up as well.

That's a pretty good summary. So the one where we are having the biggest headwinds currently is definitely on the Fiber side, but not necessarily for the reason that the dynamics would be different, but really the adjustments which are always coming more on annualized basis there. The plastic side has been now flattening more, but there is, as I indicated here earlier, also on the plastic side, discussions around lack of capacity and similar. Whether that is continuous or not remains to be seen. They are doing the maintenances in some of the sites, and that is always one way to drive up the cost.

Our next question comes from the line of Michele Filippig of Jefferies.

I have two but I'll take one per time. The first one is another one on North America profitability. Despite the price rally in U.S. paperboard prices, you managed to keep the EBIT margin for the quarter to 11%. What factor contributed to that? Is it there a bit of raw material inventories acting as a sort of cushion for profitability or maybe fixed contracts with suppliers? Do you have a strategy in place for this? And are we going to see some margin pressure in the first half of 2022 because of this?

North America, as I said, it was on a -- continued on a partly higher level than I had myself expected it to continue on margin level for the reasons we said earlier. I would say the main contributors here came from the fact that we got businesses recovering nicely on the Foodservice side. So we've got the uptick of that business, which has the elements of school lunch trays and catering type of things. So that's one contributor. The other contributor is that the demand was very strong in the retail categories, which also means that the need to do campaign type of things was low.

Okay. And then the last question is on innovation that you mentioned at the beginning of the presentation. Can we expect any substantial step-up in revenues or profitability from any of them? Or are they generally aligned with the division's target and organic growth?

Yes. So innovation, obviously, in many cases, it's not like you are switching a big machine -- a big product line one to one from day one. So most of the innovation will need to go through the CapEx life cycle, which means that we are -- you do the innovation, you need to put capabilities on the floor. And that always has a ramp-up element. If you think about the first -- the margins of them, when you have only small volumes, typically, the margins are on a different level. Then when you are mass producing, the margin level goes down, but the absolute profitability is obviously more significant and truly contributing to the company.

And our final question comes from the line of Calle Loikkanen of Danske Bank.

My question is around India. You mentioned that India grew strongly against a weak quarter, but how does it compare to the kind of pre-pandemic levels? And then also, how do you see the situation in India currently? And kind of what should we expect going forward into 2022 from India?

Yes. So on pre-pandemic level and the last quarter, so last quarter was, as I said, versus an extremely strong -- not extremely, but low Q4. We were delivering strong double-digit growth in India, similar to the overall emerging market growth. That's the quarterly growth. If you look at -- if I commented pre-pandemic, which I assume is 2019, which was a strong year for India, we had a very strong beginning to the year. We are roughly on 2019 levels when it comes to overall sales. The current progress in India, we are looking at it more optimistically. Of course, it's easier to look more optimistically when you start from a business which has gone through a quite turmoil year. But the last quarter was already better. And obviously, the focus we have put on the company, we believe, will bring fruit in 2022. So thank you, Calle, and welcome to the other side of the table.

And on seeing no further questions at this time, I'll hand back to our speakers for the closing comments.

Thank you.

Thank you all for your time today. And as stated earlier, the annual report will be issued in the week of February the 28th, and have a lovely day. Thank you from here.