A successful year in a challenging environment

Despite a challenging year in a volatile economic and business environment in many parts of the world, we are pleased to report that the Tetra Laval Group had a successful 2019. The Group’s net sales amounted to €14.0 billion, which is a nominal increase of 2.5 per cent compared with 2018. At comparable exchange rates, sales increased by 1.0 per cent. All industry groups successfully grew their service sales while DeLaval also increased equipment sales. The Group reported a slight increase in operating profit, mainly attributable to positive currency effects and lower raw material costs. The Group generated a very strong cash flow, thanks to a number of improvement activities.

I want to express my gratitude to our dedicated personnel for their commitment during a challenging year.

Service present significant opportunities

Service, the theme of this year’s Annual Report, presents significant growth opportunities regardless of where we are in the business cycle. Digitalisation and remote monitoring enable us to help improve the operational efficiency of our customers. A higher portion of preventive maintenance will also facilitate a more efficient utilisation of our service engineers, since they will spend less time ‘on the road’. In recent years we have substantially increased the number of employees working in service, and by utilising technology like virtual reality we can deliver service offerings of higher quality and with enhanced efficiency.

Geographical development

Asia Pacific and North America continued to deliver growth and a new packaging material plant in Vietnam became operational in mid-2019 to support the growth. Europe stabilised after a decline in recent years and had a positive trend towards the end of the year. The uncertain business environment in the Middle East and parts of South America subdued sales in those regions.

Tetra Pak continued to grow in a year of transition

Total Tetra Pak sales grew 0.5 per cent, excluding currency effects, in a challenging market. In Packaging, capital equipment sales grew while Processing declined slightly from the previous year’s record level. We also successfully extended the offering to lease Tetra Pak’s equipment to new geographical markets.

Sales of packaging material grew slightly for the first time since 2015, driven by the growth of additional materials like caps and closures. The number of packages sold grew by 0.6 per cent to 191 billion. Sales of additional material grew as the successful deployment of new packaging formats continued. The positive trend in service sales in recent years continued, with a growth rate of 4.5 per cent. Service sales now account for 15 per cent of total sales.

Profitability increased somewhat thanks to positive currency effects, higher gross profit and lower restructuring expenses.

We became the first in our industry to announce full colour digital printing on carton packages. In addition, we launched the Connected Packaging platform, which will transform cartons into interactive channels and full-scale data carriers to the benefit of producers, retailers and consumers. There was a significant ramp up in our development efforts together with customers, especially in the protein drinks, drinking yogurts and water product categories.

Sustainability is top of the agenda and we significantly increased investments in product development and responsible sourcing. We launched the first paper straws for carton packaging in Europe, which is an important step in our vision to deliver a package made entirely from plant-based packaging materials that contribute to a low-carbon circular economy. We surpassed the cumulative 500 billion FSC^™ labelled package mark, reinforcing the company’s commitment to promote responsible sourcing. We also launched Planet Positive, a programme that urges industry stakeholders to take a broader view of sustainability, ensuring that the total sum of our activities has a positive impact on the planet.

Strategy 2030 was rolled out during the year, which is based on four pillars. Firstly, deliver food safety and the best quality. Secondly, lead the sustainability transformation in our industry. We are committed to improve the recyclability of our packaging and reinforce the benefits of a low-carbon, circular economy. Thirdly, integrate and optimise customer operations, and finally bring innovative products with new consumer value for customer growth.

Looking ahead, we expect continued growth for Tetra Pak during 2020.

DeLaval – innovation drives another record year

Sales excluding currency effects grew 6.6 per cent. We increased market share in a declining capital goods market thanks to an innovative range of capital goods and aftermarket products combined with a dedicated organisation.

Our successful launches in 2018 bore fruit in 2019. The world-leading DeLaval VMS^™ V300 milking robot is the main driver behind our growth. At a time when farmers in many countries are finding it increasingly difficult to recruit the right staff, the efficiency benefits of automatic milking are highly relevant for farmers all around the globe. As a follow up in 2019, we launched a new upgraded milking robot, which includes DeLaval RePro that automatically detects when cows are on heat or pregnant during the milking process. The order intake for this innovation has been very satisfying. Products and services for animal welfare were also in high demand.

DeLaval In Service^™ All-Inclusive is growing rapidly. The service gives the farmer a fixed-rate subscription to cater for all the required consumables on the farm, 24/7 support and the regular servicing of all machinery.

The newly created digital services organisation is developing new business models to better meet the future needs of our customers. With our ability to collect data on the farm, we can gather and analyse information – with the farmer’s permission – to provide more accurate recommendations that help them improve both food safety and farm profitability.

As for 2020, sales are expected to decline slightly following two years of excellent growth.

Sidel – excellent year in aseptic PET

Sidel’s sales grew by around 0.3 per cent, excluding currency effects with stable capital equipment sales and a slight growth in service sales. Sidel made progress in a number of ways during 2019. Our PET equipment order intake was quite strong, mainly driven by investments in non-alcoholic beverage lines in Asia, Oceania and Africa.

In Service, sales of spare parts and maintenance solutions developed well. However, our moulds and line conversions businesses have been impacted by a wait-and-see trend among liquid food producers based in Europe as they wait to see how the EU Single Use Plastics (SUP) Directive will translate into local regulations.

The new generation of filling equipment for can and glass has been very well received in the market and we expect good growth in 2020.

Sustainable solutions is a key feature of our customer offering. We translate our commitment to sustainable packaging into three areas. Firstly, we optimise current packaging with our Right Weight^™ programme to ensure that the package’s weight is minimised but still maintains its technical properties and high consumer appeal. Secondly, we are designing to recycle, for instance, by working with our customers to increase the recycled content in their packages. PET is the only plastic packaging material that can be recycled bottle-to-bottle. This is why we expect growth to be progressively captured by recycled PET, which can be brought back into the value chain as a valuable resource.

We expect 2020 to be a year of further improvement for Sidel.

Growth, sustainability and innovation – our focus for 2020

Several of our customers are struggling with subdued growth and profitability due to changing consumer behaviour. Our commitment is to support our customers to introduce more innovative products at competitive prices – to ultimately generate growth for them. Indeed, innovation is the foundation for our long-term success in our industries. Through our expertise, we also contribute to improving our customers’ operational efficiency. Finally, the Group’s initiatives within sustainability, be it the increased recycling of packaging material, light-weighting of PET bottles for reduced plastic consumption or more efficient milk production for lower CO₂ emissions, will help our customers to outperform their competition.

Internally, efficiency improvements are launched to adapt costs to prevailing market conditions and foreseen structural changes in customer demand.

We are used to political and macroeconomic challenges and quickly adapt to them but this year we are facing a new unknown – the COVID-19 virus. The full impact is yet to be seen, but the virus has already had a significant effect on 2020 as it disrupts consumption, value chains and the short-term investment climate. Our three industry groups are closely monitoring the severe development of the pandemic and its effects on their businesses. They are adapting their operations accordingly by focusing on the health and well-being of our employees while continuing to serve our customers with as little disruption as possible. In this way, we can help them to continue maintain food supply to communities around the world.

Finally, in 2019 I had the pleasure of welcoming Adolfo Orive and Monica Gimre as the new CEOs of Tetra Pak and Sidel respectively. They have quickly got settled and are well on their way to make their respective industry group more competitive.

 

Lars Renström