2016 was not easy. The headwinds that have slowed our progress in recent years grew stronger, hampering sales across many areas of our business and interrupting top line growth. We finished the year with net sales of €11.4 billion, 3.6 per cent lower than in 2015.
It was a year characterised by continued slow global growth and rising economic uncertainty, with further downturns in several important geographies. Of our top 10 markets worldwide, Brazil, Russia and Argentina all saw GDP shrink, while China, Mexico, Spain and the USA each reported further slowdowns in the growth of their economies. Across our five geographic clusters, we achieved year-on-year net sales growth in just two, Greater Middle East & Africa, and South Asia, East Asia & Oceania, both at a slower pace than in 2015. On the plus side, Europe & Central Asia performed better than we had expected, albeit still contracting, with consumer confidence edging higher despite Brexit and other EU-related uncertainties Through the year we faced ever-more aggressive competition, we saw customers shy away from investment, and we watched consumption wilt further in core categories.
Yet despite this, thanks to our continued focus on cost control and resource optimisation, both cash flow and profitability remained strong, ending the year above last year and in line with our long-term ambitions. Given the hostile backdrop, these achievements speak volumes for the professionalism of our employees, the loyalty of our customers and the effectiveness of the strategy that we put in place seven years ago.
Sales of capital equipment, both for processing and packaging applications, were particularly hard hit in 2016. Customers were reluctant to invest and a number of major projects were delayed. Our Packaging business reported equipment sales down 14 per cent year on year, to €770 million, with just 453 filling lines placed, 20 per cent less than in 2015. Processing also saw equipment sales drop, down 4 per cent to €1,170 million, with margins squeezed as tougher competition and cost under-absorption, caused by lower-than-expected sales, took their toll. Orders received by our Processing business in 2016 also came under pressure, ending the year 10 per cent below target, a shortfall that may prove difficult to recover as we move through 2017.
By contrast, our Services business contributed strongly once again in 2016, with yearon- year growth of around 9 per cent in both Processing and Packaging, lifting total sales to €1,300 million. We saw double-digit growth in the sale of Consumables, Expert Services and Equipment Upgrades, with several new offerings gaining strong traction among customers. Since 2011, sales in our Services business have achieved a compound annual growth rate of more than 10 per cent, climbing from €800 million to €1,300 million in five years, whilst also expanding margins.
Despite another increase in packaging material volumes, which climbed from 184 billion packages in 2015 to 188 billion packs in 2016, net sales fell 1.2 per cent, to €8,150 million. In part, the decline was caused by a shift in product mix, from family packs to portion packs, but it also reflected a number of pricing actions designed to further strengthen the competitiveness of our portfolio. Despite this, our market share was again put under pressure, as competitors fought hard to take ground in both the white milk and juice & nectars categories. In response, we continued to drive the deployment of our advanced portfolio, offering customers a range of shapes, closures and materials that bring greater functionality, convenience and differentiation. In 2016, our advanced portfolio accounted for 43 per cent of total packaging material sales, up three percentage points compared with 2015, and 30 percentage points higher than in 2010.
The year also saw us successfully expand the global footprint for Tetra Recart, our retortable carton packaging system for food, which is now widely recognised in Europe and the Americas as the modern, convenient alternative to steel cans and glass jars. Following a strategic review of the business, the product is now being deployed in the Middle East, China and other parts of Asia, where it is mirroring its success in the west. We remain very optimistic about the product’s ability to fulfil its potential, with good traction among consumers, retailers and brand owners, thanks to its convenience, environmental profile and strong branding possibilities.
Through 2016 we again reaped benefit from our focus on accelerating growth in areas beyond the traditional packaging material core of our business.
For example, we picked up several major contracts for end-to-end production facilities, like those awarded to us by Yili in New Zealand, Abbott Laboratories in the USA and Tianyou Dairy in China. We saw continued uptake of our service contracts, including Tetra Pak® Plant Secure, a new offering that is helping customers increase asset utilisation and improve their return on expenditure. There was strong interest in our pilot condition- based monitoring service, through which we are able to remotely track the behaviour of our production lines, enabling us to predict when parts will need to be replaced. And we expanded our Customer Innovation Centres, which are receiving an extremely positive response from our customers.
During the year we also introduced an array of new products, including the world’s highest capacity homogeniser, our next generation Tetra Pak® PlantMaster plant automation system, plus a range of package formats, processing technologies and service offerings. Our long-standing commitment to innovation continues to deliver results, providing a solid platform on which we will drive future growth. For packaging materials, our vitality index, which measures the share of sales coming from products launched during the past five years, stood at 19 per cent in 2016, up from 2 per cent at the start of the decade. For our filling machines and distribution equipment, the index is 15 per cent - up from 4 per cent in 2010.
Beyond the sphere of product and service sales, a number of events stood out in 2016, for different reasons.
Our Gornji Milanovac factory in Serbia became one of only 20 facilities in 40 years to receive the world’s most prestigious award for manufacturing excellence, the Japan Plant Maintenance World Class Total Production Maintenance Award.
We made tremendous progress in field trials of our E3 Hyper Speed filling lines, incorporating the revolutionary eBeam sterilisation technology, which have now produced more than 1 billion packages at rates of 40,000 units an hour.
We completed the acquisition of Laude BV, a market leader in the design, development and manufacture of plastic moulds for cheese production, further strengthening the company’s leadership position in providing complete solutions for this expanding industry. We also announced the go-ahead for a new packaging material factory in Vietnam, where we see significant opportunity for growth, while also facing the tough decision to close two under-utilised facilities in Europe, in Kiev, Ukraine and in Romont, Switzerland.
Also last year, China’s State Administration of Industry & Commerce, SAIC, announced the outcome of its investigation into the business practices of Tetra Pak China. It concluded that, in a limited number of areas, Tetra Pak China has been in breach of the Country’s Anti-Monopoly legislation. It fined the company €91.4 million. Corrective actions have been taken to ensure that all our business practices are in full compliance with the country’s Anti- Monopoly legislation.
During the year we took further strides in our sustainability journey. At one level, our decision to sign the Paris Pledge for Action at COP21, our invitation to join the Circular Economy 100 and our commitment to secure all of our electricity needs from renewable sources by 2030 made clear our determination to steer the right course. At another, milestone achievements like delivering 65 billion packages with the FSC logo, extending our use of bio-based polymers and securing the highest possible ratings from the Carbon Disclosure Project for our Climate and Forestry reporting, showed that it’s not just words, it is also actions. In 2016 we also made further progress on the recycling front, with more than 47 billion packs recycled across the globe, or 25 per cent of our annual sales.
As we move through 2017, with the global economy entering its sixth year of stagnation and showing little sign of respite, the challenges seem set to continue. But we are confident of our ability to restore the company’s growth trajectory, raising the bar of our performance as we drive our strategic agenda.
One area of specific focus through the year ahead will be digitalisation. With new technologies and data-driven applications emerging all the time, we see this as an area of huge opportunity, not just when it comes to enhancing productivity, but also in terms of driving business growth.
Our starting point is strong. We already have a range of industry-leading activities under way in the digital arena; we have put in place a single shared platform on which we run our entire global business; and we have lean and modern IT operations in many areas that provide a solid foundation on which to use information as a strategic asset. With a dedicated programme now in place to advance digital opportunities with speed, agility and appropriate capability, we see tremendous potential across many different areas to deliver digital products, solutions and services that will help fuel our future success.
“One area of specific focus through the year ahead will be digitalisation. With new technologies and data-driven applications emerging all the time, we see this as an area of huge opportunity, not just when it comes to enhancing productivity, but also in terms of driving business growth.”