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2021-11-04

HKScan Oyj: HKScan's EBIT stable, profit improvement continued in Finland and Sweden

HKScan Corporation, January-September Interim Report, 4 November 2021 at 8.30 a.m. Finnish time

HKScan's Interim Report 1 January - 30 September 2021 

HKScan's EBIT stable, profit improvement continued in Finland and Sweden

July-September 2021

  • HKScan's net sales totalled EUR 446.8 (438.3) million. Clear growth in retail sales of own branded products continued. Sales clearly increased particularly in the product categories with higher added value, such as meals and meal components. Food service sales increased as a result of the gradual removal of restrictions related to the Covid-19 pandemic. 
  • The Group's EBIT was EUR 7.6 (7.7) million and comparable EBIT EUR 7.7 (8.2) million. 
  • Good profit development continued in HKScan's largest markets Finland and Sweden. 
  • Finland's comparable EBIT improved by EUR 1.7 million and Sweden's by EUR 1.0 million. 
  • In the Baltics, price pressure continued due to meat imports. Holding the market position and significantly risen feed and energy prices weakened EBIT.
  • Avian flu in Denmark and the resulting restrictions on exports outside the EU continued to have a clear negative impact on EBIT. Strategy implementation progressed as planned, and the sales increase was particularly clear in ready-to-eat poultry products. 
  • Exceptionally high energy price increases raised HKScan's costs in all its home markets.
  • Cash flow from operating activities was EUR -15.6 (2.8) million due to normal variation in the amount of trade payables and other non-interest-bearing payables.  

January-September 2021

  • HKScan's net sales totalled EUR 1,323.6 (1,308.1) million. Growth in retail sales of own branded products continued. Sales clearly increased in the strategically important products with higher added value, such as meals and meal components. Food service sales recovered and sales were on the comparison period's level. Exceptionally challenging market conditions in the Baltics decreased sales. In Denmark, the negative impact of avian flu on exports outside the EU was significant.
  • The Group's EBIT improved by EUR 6.4 million to EUR 10.2 (3.8) million. Comparable EBIT improved by EUR 2.3 million to EUR 7.2 (4.9) million. 
  • In Finland, EBIT improved by EUR 10.6 million and comparable EBIT by EUR 7.6 million. 
  • In Sweden, comparable EBIT improved by EUR 2.5 million. 
  • In the Baltics, a significant increase in feed and energy prices and price pressure due to oversupply of pork in Europe led to a clear decline in profitability. 
  • Avian flu, affecting business in Denmark throughout the year, and the resulting restrictions on exports outside the EU have had a significant negative impact on EBIT. A strategic shift in sales focus from low margin product categories to products with higher added value clearly reduced the negative impact of avian flu.
  • Cash flow from operating activities was EUR 12.5 (23.3) million, the change was due to normal variation in the amount of short-term payables. 
  • Interest-bearing net debt was EUR 333.3 (323.1) million and net gearing 102.5 (103.2) percent.

The figures in parentheses refer to the comparison period, i.e. the same period in the previous year, unless otherwise mentioned. The figures in this report are unaudited. 

Outlook 2021 

HKScan estimates that the Group's comparable EBIT in 2021 will improve compared to 2020. 

KEY FIGURES, NET SALES

(EUR million) 7-9/2021 7-9/2020 1-9/2021 1-9/2020 2020
Net sales 446,8 438,3 1 323,6 1 308,1 1 781,0
    Finland 188,9 190,0 562,5 563,4 772,4
    Sweden 170,8 162,2 503,6 477,6 662,1
    Baltics 43,2 44,1 125,8 132,0 175,0
    Denmark 44,0 42,0 131,6 135,1 171,5

KEY FIGURES, EBIT

(EUR million) 7-9/2021 7-9/2020 1-9/2021 1-9/2020 2020
EBIT 7,6 7,7 10,2 3,8 21,3
 - % of net sales 1,7 1,7 0,8 0,3 1,2
Comparable EBIT 7,7 8,2 7,2 4,9 17,0
 - % of net sales 1,7 1,9 0,5 0,4 1,0
    Comparable EBIT, Finland 3,1 1,4 3,3 -4,3 6,0
    - % of net sales 1,6 0,7 0,6 -0,8 0,8
    Comparable EBIT, Sweden 6,9 5,9 14,2 11,7 19,0
    - % of net sales 4,1 3,6 2,8 2,5 2,9
    Comparable EBIT, Baltics -0,9 1,8 -0,7 3,8 4,0
    - % of net sales -2,1 4,2 -0,5 2,8 2,3
    Comparable EBIT, Denmark 0,1 1,0 -1,0 1,7 1,1
    - % of net sales 0,2 2,3 -0,8 1,3 0,6

KEY FIGURES, OTHER

(EUR million) 7-9/2021 7-9/2020 1-9/2021 1-9/2020 2020
EBITDA 23,5 24,0 54,5 53,1 78,1
Profit/loss before taxes 5,4 5,6 1,5 -2,9 12,3
 - % of net sales 1,2 1,3 0,1 -0,2 0,7
Profit/loss for the 3,6 3,7 -2,1 -6,4 4,8
period
 - % of net sales 0,8 0,9 -0,2 -0,5 0,3
EPS, EUR 0,03 0,03 -0,06 -0,10 -0,01
Comparable EPS, EUR 0,03 0,03 -0,09 -0,09 -0,05
Cash flow from operating -15,6 2,8 12,5 23,3 63,7
activities
Cash flow after -23,9 -5,2 59,9* -47,9* -21,4*
investing activities
Return on capital 5,1 0,1 3,9
employed (ROCE) before
taxes, %
Net debt 333,3 323,1 299,6
Net Gearing  % 102,5 103,2 91,0

* Year 2020 includes the investment to the plot of the Vantaa unit EUR 37.7 million.
1-9/2021 includes the sale of Vantaa property (land and buildings) with EUR 76.1 million.

HKScan's CEO Tero Hemmilä

HKScan's July-September EBIT was stable in relation to the comparison period. The company's key market areas Finland and Sweden clearly strengthened their EBIT whereas Denmark and the Baltics were clearly down from the comparison period in a very exceptional market situation. The company's EBIT was EUR 7.6 million, while in the comparison period it was EUR 7.7 million. Comparable EBIT was EUR 7.7 million and EUR 8.2 million in the comparison period. The rolling 12-month comparable EBIT was EUR 19.4 million at the end of the review period whereas in the comparison period it was EUR 10.6 million. During the Turnaround programme, our comparable EBIT has improved cumulatively by almost EUR 66 million.

In July-September, our net sales were stable although slightly up on the comparison period. As restrictive measures due to the Covid-19 pandemic were gradually removed, food service sales recovered with an improvement of more than 5 percent from the comparison period. We did well with our own branded products. Our sales strengthened especially in processed meat products, meal components and meals, which has also clearly decreased the need for more cyclical and less profitable exports.

The profit development within the Group was two-fold and the reasons for this are clear. I am pleased that HKScan's key home markets Finland and Sweden continued their positive profit improvement in line with our targets. In Denmark and in the Baltics, we were not able to improve profitability in a very exceptional market situation. The development in Denmark and in the Baltics was not satisfactory and the performance of the review period was disappointing, as expected. We have initiated corrective actions to improve the situation.

In Finland and Sweden, the increase in the added value of products and sales growth of branded products secured the good development. This development also represents value creation in line with our strategy. Sweden has been able to improve its comparable EBIT for 14 consecutive quarters in relation to comparison periods. In this development, the most significant factor is the differentiating added value built in our product portfolio through the Scan brand, but also excellent productivity improvements in our production processes. 

In Finland, we have been able to improve cumulatively our comparable EBIT by over EUR 49 million during the Turnaround programme. In Finland, we have a strong position in processed meat products, meal components and poultry products as well as a clear target to further grow in poultry products, meals and snacks. Our strategic target is to be increasingly strong and appealing to both consumers and retail, supported by HKScan's own strong offering and that of our subsidiaries, Kivikylän, Tamminen and Boltsi. Profit improvement in the poultry business continued and our Rauma production unit's operational development progressed. I am pleased with the strong sales growth of our partner and associate company Mäkitalon Maistuvat's ready-to-eat salads over a short period of time and with the excellent welcome the products have received from our customers and consumers. 

During the review period, we created the capability in Finland to enter the consumer market with restaurant-level fresh meals. Meal sales started in pilot stores with the Vietävä meal concept in October. We are also preparing the investment in the production of snack products decided in the summer, which will provide opportunities to grow in Finland in the profitable snack product market. 

In Sweden, after the review period, we signed a commercial cooperation agreement related to the Maten é klar meal concept. The implementation of the agreement will start early next year. The basic idea behind the Maten é klar concept is to provide consumers with healthy, high quality meals.

In Denmark, the avian flu situation affecting the whole industry and companies as well as the resulting restrictions on sales outside the EU continued to have a clear negative impact on our performance. For other parts, our strategy has progressed as planned and we will continue to focus on strengthening our market position in Denmark and Sweden with fresh and ready-to-eat poultry products as well as processed poultry products. 

The market situation is exceptional in the Baltics, challenging our long local value chain. The overproduction of pork in Europe has strongly reduced market prices, also lowering the value of biological assets tied up in our business. At the same time, the rapid and significant rise in feed and energy prices has been very exceptional. However, the market will recover as the supply and demand balance stabilises. The resulting market situation has significantly reduced the profitability of our Baltic business in July-September. On the other hand, the profitability of our Baltic poultry business and processed meat products is better than in other product categories.

The value chain of HKScan's meat business is facing some major questions. Particularly the economic situation of the farms in meat production is in severe crisis due to the surplus in the European pork market, the sharp rise in feed prices and the scarcity of feed crops on the farms. The increase in prices for feed, and also for other production inputs, both on farms and in HKScan's own operations, is widely reflected across the business, increasing costs. The price of meat raw material will rise to ensure the profitability of m...

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