COMMENTS BY THE CHAIRMAN OF THE BOARD
All industry groups delivered growth
2017 was a year when all three industry groups delivered growth. Tetra Laval Group’s net sales amounted to €13.9 billion, a nominal increase of about 1 per cent compared to 2016. At comparable rates, sales increased by 1.7 per cent. The reason for the increased sales was that both capital equipment sales and service sales grew for all industry groups. Driving factors were increased demand and an attractive customer offering. However, the strengthening of the euro versus the USD negatively impacted sales. Operating profit improved in absolute terms and remained unchanged in relative terms. The main contributor was sales growth, as well as the on-going transformation programmes in all industry groups that made significant contributions. I want to express my gratitude to our dedicated personnel for their outstanding achievements during the year.
We are also pleased that we successfully expanded our ability to offer leasing of capital equipment through external banks specialised in this field. This will improve both our own and our customers’ cash flow.
As for many other companies, digitalisation and cyber security is high on the company agenda. Digitalisation is highly prioritised and significant investments are being made in all industry groups. A good example is digital printing of codes on products to enable our customers to communicate efficiently with consumers. Another is a system for the traceability of the product throughout the value chain.
As for cyber security, several activities were put in place to reduce the risk of cyber attacks. This includes comprehensive online training that is compulsory for all employees.
Improving growth prospects in large markets
In our largest market, China, sales stabilised after last year’s decline. We also saw a gradual improvement of the market conditions in Brazil and Russia. In the US, sales grew thanks to a general positive investment climate. Sales in Southeast Asia and Oceania continued to grow at a steady pace. Excellent growth in Japan was attributable to innovative products and favourable market conditions. In order to further support the growth in the region, decisions were taken to invest in a new Tetra Pak packaging material plant in Vietnam. Furthermore, Tetra Pak expanded its caps and closures manufacturing plant in Thailand, driven by the rapid growth of new packaging formats. In the Middle East, the volatile geopolitical environment and the impact of low oil prices affected sales negatively for the first time in several years.
Tetra Pak back to growth in a challenging market
Total sales of Tetra Pak grew 0.5 per cent in a challenging market. Growth of capital equipment sales in both Packaging and Processing contributed with 14 per cent and 3 per cent respectively. Service sales success of recent years continued with a growth rate of about 6 per cent. Profitability grew in line with sales. Packaging material sales declined slightly due to competitive pressure and macro-economic instability, particularly in the Greater Middle East. The number of packages sold globally amounted to 188 billion in 2017.
The successful deployment of new packaging formats continued. Around half of the packages now sold by Tetra Pak come from its advanced portfolio, with attractive looks and excellent functionality boosting consumer appreciation. With the growth of advanced formats also comes expansion of additional materials like caps and closures. The growth of capital equipment, additional materials and service compensates well for the slight decline in packaging material sales. Strong order intake of capital equipment during the year contributed to a good backlog for Tetra Pak at the start of 2018.
The expanded product portfolio in Processing contributed to favourable growth. During recent years the product offering has been strengthened in categories like cheese, ice cream and milk powder.
We expect to see continued growth for Tetra Pak for 2018.
Strong demand for DeLaval
Order intake grew by 10 per cent and net sales by 5 per cent for DeLaval. The improvement of milk prices that occurred in 2016 continued during 2017, enabling double-digit growth in order intake for capital equipment and mid-single-digit aftermarket growth. As a consequence of the strong order intake, DeLaval entered 2018 with a solid backlog.
The strongest demand was in robotic milking, which experienced a broad-based increase. Animal Health and Milk Quality had a similar development. The improved profitability was attributable to the on-going transformation programme as well as increased sales.
Investments in R&D were at an exceptionally high level and several innovative products will be launched during 2018 to improve efficiency for dairy farmers. Furthermore, there was significant build-up of resources in the growth areas of Chemicals and Data Management, respectively. New types of customers in these areas have become an interesting business opportunity for DeLaval.
We expect to see continued good growth for DeLaval in 2018.
Improving PET demand for Sidel
For Sidel, order intake increased by 3 per cent thanks to improved market share in a slightly declining market for PET equipment as well as continued growth in service. Profitability also improved, but is still not at the target level. The improvement is explained by cost reductions from the current transformation programme. A large number of important product launches and innovations were presented at the Drinktec exhibition and they were very well received. The SuperCombi® launch is a milestone for Sidel, reducing floor space requirements and providing more efficient PET-line operation. The new can and glass fillers are other highlights that created a lot of interest.
Two PET areas with very positive development are Aseptic as well as Home and Personal Care, in which Sidel has excellent product offerings. Sidel continues to build capabilities and to invest in R&D and facilities for Aseptic Technology both in Europe and China to sustain our competitive advantage in a market where continued growth can be expected.
We expect to see continued good growth for Sidel in 2018.
Growth, efficiency and innovation – our focus for 2018
Global GDP growth in 2018 is expected to reach the best level since the recovery from the financial crisis in 2008. Several of our customers still struggle with subdued growth and profitability due to changing consumer behaviour. Our commitment is to support our customers to introduce more attractive products at competitive prices, thus generating growth. Through our expertise we also contribute to improving our customers’ operational efficiency.
Internally, continued efficiency improvement in all parts of the Group is necessary in a situation where top line growth is challenged. The on-going transformation programmes contribute to that, but this is a perpetual journey. Finally, innovation is in our genes and recent product launches create significant opportunities.
We are addressing these focus areas with speed and determination, and I am confident that the Group will deliver satisfactory results despite somewhat challenging market conditions in 2018.