HK RUOKATALO GROUP'S INTERIM REPORT FOR 1 JANUARY TO 31 MARCH 2007
HK Ruokatalo Group Oyj STOCK EXCHANGE RELEASE 27 Apr.2007, at 11am
HK RUOKATALO GROUP'S INTERIM REPORT FOR 1 JANUARY TO 31 MARCH 2007
* FINANCIAL PERFORMANCE DEVELOPS AS ANTICIPATED IN Q1
* MUCH EFFORT AHEAD IN SWEDEN TO IMPROVE PROFITABILITY
The group's net sales for the first three months of the year came to
EUR 498.6 million (EUR 455.8m, Q1 pro forma in 2006). Net sales
increased in all market areas. Operating profit came to EUR 9.2
million compared to a pro forma figure of EUR 4.7 million a year
earlier. An operating loss of EUR 1.9 million in Sweden is included in
the comparison figure for 2006. In the Baltics, operating profit came
to 7.9 percent of net sales while the figure in Finland was 3.8
percent and in Poland 2.2 percent.
The result for the period includes non-recurring charges of EUR 0.9
million relating to restructuring in Finland. Comparable operating
profit thus came to roughly EUR 10.1 million.
Operations in Sweden were just barely in the red. The modest
profitability of Swedish operations was anticipated and is emblematic
of the need for substantial performance improvement measures in Sweden
in the coming years.
The Pozmeat operations launched in Poland showed a loss as expected.
Business was once again most profitable in the Baltics.
Inventories held by group companies have increased in most markets in
the first quarter of 2007. Besides seasonal preparation, another
reason underlying the rise in inventory levels is marketdeterioration,
especially in the export sales of pork. However, inventories at the
end of the current year will not reach the levels seen at the end of
2006.
During the period under review, three-year collective agreements for
the sector were signed in both Sweden and Finland.
MARKET AREA: FINLAND
Net sales in Q1 in Finland came to EUR 155.5 million, an increase of
EUR 17.8 million or 12.9% on the comparable period in 2006. Operating
profit came to EUR 5.9 million, an increase of EUR 2.6 million or
80.1% from a year earlier. Operating profit amounted to 3.8% of net
sales (2.4% for Q1 of 2006).
On the whole, business was on target in Finland in the first months of
the year, especially with regard to the poultry and processed meat and
convenience food businesses. Much remains to be done in the meat
business, where profitability remains inadequate. The trend in
business development in Finland is nonetheless correct.
Customer deliveries were backed up at times in February and March due
to occasional problems with the logistics systems deployed in the
early part of the year. Addressing these problems is an issue of
considerable urgency, as delivery reliability is a critical
competitive factor for a seller of fresh produce.
The new products launched on the market in early 2007 exceeded
commercial targets and represent an important first step in the long-
term development of our product range.
Exports from Finland remained brisk throughout the first quarter but
failed to reach the level of profitability enjoyed in autumn 2006 due
to lower export prices. Increased foreign supply has pushed down
prices in Russia as well.
The industrial restructuring programme launched in Finland in January
2006 has reached midpoint. When implemented, it signals the closure of
production in Turku and Tampere and the relocation of operations
mainly to Vantaa and Forssa. The programme is progressing as planned.
Statutory employer-employee negotiations under the Act on Cooperation
within Undertakings were completed in Turku in April, after the end of
the period under review.
MARKET AREA: SWEDEN
In Sweden, net sales in Q1 were EUR 264.5 million, up by EUR 22.2
million (+9.2%) on the corresponding figure in Q1/2006. Operating
profit came to EUR -0.3 million (EUR -1.9m for Q1 of 2006). EBIT in Q1
thus came to -0.1% of net sales.
The rise in net sales is mainly explained by Scan AB acquisition SLP
Pärsons AB being consolidated into Scan's figures in June 2006 and
thus not yet being included in the comparison figures from Q1 of 2006.
The changeover from cooperative Swedish Meats to Scan AB put into
progress in January 2007 also marked a revision of the company's brand
strategy, where greater emphasis in the form of increased visibility
in marketing and business in general will be given to the Scan brand.
Margins remain slim in processed foods and there has been no change in
sales volumes from a year earlier. However, Scan has also launched new
premium products with higher margins, and demand for premium products
is rising in Sweden.
In March 2007, Scan joined Ugglarp Slakteri AB in a Skåne-based joint
venture seeking to capitalise on Ugglarp's local slaughterhouse in the
slaughtering of beef cattle and sheep. When implemented, the
cooperation will improve Scan's cost-effectiveness in southern Sweden
while also allowing the company to avoid increasing its excess
industrial capacity.
Improving profitability is the key concern and also the most
challenging task in Sweden for the near future. The efficiency
measures already decided at Scan and the restructuring currently in
progress will result in cuts in the number of locations. A cutting
plant in Visby and the Malmö unit specialising in consumer-packed
meats were closed down during Q1. The decisions are essential to the
achievement of financial and business objectives.
MARKET AREA: THE BALTICS
First-quarter net sales in the Baltics improved from the EUR 28.6
million in 2006 to EUR 31.8 million (+11.2%). Operating profit came to
EUR 2.5 million, an increase of EUR 1.0 million or 63.6% from the
comparable period a year earlier. EBIT thus came to 7.9% of net sales
(5.4% in Q1 of 2006).
Q1 in the Baltics was a continuation of the previous quarters'
consistently sound group performance. Three main factors accounted for
the good early part of the year: (1) increased sales by Rakvere and
Tallegg and especially Rigas Miesnieks in Latvia, (2) retained margins
thanks to price increases corresponding to the rise in costs, and (3)
the success of the winter season's product range.
Costs have risen in the Baltics at a considerable rate. For example
fixed wages are up by 15 percent and transportation costs by 28
percent from early 2006. There have been some indicators of the rate
of increase normalising; yet rigorous cost discipline remains a key
success factor.
The summer season is important also in the Baltics, and customer
response to summer products will provide indications as to full-year
performance in 2007.
MARKET AREA: POLAND
Half of Sokolów's Q1 revenue, i.e. EUR 51.9 million, was consolidated
into HK Ruokatalo Group, an increase of EUR 2.9 million or 5.8% from
Q1 in 2006. Operating profit came to EUR 1.1 million (EUR 1.8m for Q1
of 2006) and equalled 2.2% of net sales (3.7% in Q1 of 2006).
Price competition in Poland came to a head in autumn 2006, pushing the
industry to adopt unhealthy pricing practices in places. Despite
Sokolów's decision to refrain from the extremes of the predatory
competition, the market situation along with the embezzlement
discovered in August 2006 brought a temporary halt to the company's
long-running earnings development.
The rapidly changing market situation in Poland notwithstanding,
Sokolów successfully increased both sales volume and sales value in
the first quarter of the year. The company also returned to the growth
track in “modern retail”, which presented challenges in the last
quarter of 2006.
The operations of Pozmeat S.A. acquired in autumn 2006 in the vicinity
of the city of Poznan were launched in early 2007. Q1 performance in
Poland was eroded by the losses of roughly EUR 0.9 million incurred in
starting up the Pozmeat production facilities. Were it not for this
negative impact, Sokolów's operating profit would have come to ca. EUR
2.0 million.
CAPITAL EXPENDITURE AND FINANCE
The acquisition of Swedish Meats was completed on 29 January 2007. The
purchase price of Scan AB shares inclusive of transaction costs, i.e.
EUR 163.3 million, is included in the figures for Q1. Goodwill in the
amount of EUR 52 million was recognised on the acquisition. Allocation
of the purchase price is underway. The current view is that purchase
price will be allocated to intangible assets under brands.
The group's ordinary gross investments totalled EUR 22.2 million (EUR
14.6m during Q1 of 2006). The sum breaks down as follows in production-
related investments: market area Finland EUR 13.4 million, market area
Sweden EUR 4.5 million and market area the Baltics EUR 2.4 million. In
Poland, Sokolów's investments were EUR 3.6 million, of which HK
Ruokatalo Group's contribution was EUR 1.8 million.
The Group's interest-bearing debt stood at EUR 477.2 million at 31
March 2007, compared to EUR 196.7 million a year earlier. As part of
the Swedish business acquisition, the group assumed liability for
interest-bearing debts in the amount of EUR 188 million which switched
over from Swedish Meats to Scan AB. The cash consideration of EUR 76
million for the deal was financed through a loan of corresponding
value.
The group's equity ratio only came to 30.6 percent at 31 March 2007
(44.8%) owing to the lower equity ratio of the acquired company and
the additional indebtedness arising from the transaction. The equity
ratio in the pro forma calculations at 31 December 2006 stood at 31
percent.
In the period under review, the company's commercial paper programme
was converted into a principal lenders' joint programme valued at EUR
100 million.
INCREASE IN SHARE CAPITAL
The Board of HK Ruokatalo Group decided on 29 January 2007 to exercise
the authorisation granted to it by the Extraordinary Meeting of
Shareholders on 22 December 2006 and effected the directed issue of
4 843 000 Series A Shares to Swedish Meats as part of the Swedish
Meats business acquisition. The subscription period was 29 January
2007 and the issue price was EUR 15.55 per share. The company's share
capital was increased by EUR 8 233 100.00 to the current EUR
66 820 528.10. The increase was entered in the Trade Register on 5
February 2007. The new shares are first entitled to full dividend for
the 2007 financial year.
NOTICES REGARDING CHANGE OF OWNERSHIP PURSUANT TO THE SECURITIES
MARKETS ACT
On 8 February 2007 Danish Crown announced that its holding in HK
Ruokatalo Group was diluted to 8.89 percent of the shares and 2.46
percent of the votes as a consequence of the increase of HK Ruokatalo
Group's share capital.
Swedish Meats announced on 15 February 2007 that the conditional
agreement notified by it on 13 November 2006 had been executed.
Swedish Meats' holding in HK Ruokatalo Group was thus confirmed at
12.32 percent of the shares and 3.41 percent of the votes.
The holding of Danish Crown in HK Ruokatalo Group was reduced to 1.00
percent of the share capital and 0.28 percent of the votes as a result
of the sale of shares to institutional investors on 7 March 2007.
EMPLOYEES
The group employed an average of 7 680 persons during the first
quarter of 2007 (4 301 in Q1 of 2006). The increase is attributable to
the inclusion of Scan AB and its subsidiaries. The average number of
employees in each market area was as follows: Finland 2 373, Sweden 3
462 and the Baltics 1 845. In addition, Sokolów had an average of 4
908 employees.
EVENTS TAKING PLACE SINCE 31 MARCH 2007
The Annual General Meeting held on 20 April 2007 resolved to change
the company's business name to HKScan Oyj.
Marcus H. Borgström, Markku Aalto, Tiina Varho-Lankinen and Heikki
Kauppinen were reappointed to the Board of Directors along with new
Board members Johan Mattsson and Karsten Slotte. Mr Borgström and Mr
Aalto were reappointed as chairman and deputy chairman respectively.
The AGM authorised the Board to decide on acquiring a maximum of
3 500 000 Series A shares as treasury shares, equal to ca. 8.9% of
total registered shares and ca. 10.3% of total A Shares.
Treasury shares may only be acquired using unrestricted shareholders'
equity. The company's own shares may be purchased for a price quoted
in public trading on the purchase day or for a price otherwise
determined by the market.
The Board of Directors shall resolve upon the method of purchase.
Among other means, derivatives may be utilised in purchasing the
shares. The shares may be purchased in a proportion other than that of
the shares held by the shareholders (directed purchase). The
authorisation is valid until 30 June 2008.
In addition, the AGM authorised the Board of Directors to resolve on
an issue of shares, options as well as other instruments entitling to
shares as referred to in Chapter 10, section 1 of the Companies Act.
The Board was authorised to resolve on the issue of a maximum of
5 500 000 A Shares, corresponding to ca. 14.0% of all registered
shares in the company.
The Board may resolve upon all the terms and conditions of the issue
of shares and other instruments entitling to shares. The authorisation
to issue shares shall cover the issuing of new shares as well as the
transfer of the company's own shares. The issue of shares and other
instruments entitling to shares may be implemented as a directed
issue. The authorisation is valid until 30 June 2008.
The Board of Directors has decided on the share incentive scheme's
criteria for performance in the 2007 earning period. The number of
shares under the scheme, which concerns some 20 key employees, shall
not exceed 180 000 A Shares in HK Ruokatalo Group.
THE FUTURE
The company retains its estimate presented in the financial statement
bulletin of expecting the group's operating profit to improve in
Finland, Sweden and Poland. Operating profit enhancement in Poland is
hampered by costs relating to the start-up of Pozmeat. In the Baltics,
the company seeks to retain profits at the good level enjoyed in 2006.
The following figures are derived from group accounting and do not
include pro forma information.
The accounts of Scan AB and its subsidiaries have been consolidated
into the financial statements as of 1 January 2007.
CONSOLIDATED INCOME STATEMENT
(EUR mill.)
1-3/2007 1-3/2006 1-12/2006
---------------------------------------------------------------------
Net sales 498.6 213.5 934.3
Operating profit 9.2 6.6 40.4
- % of net sales 1.8 3.1 4.3
Share of associates' results 0.5 0.3 0.0
Financial income and expenses -4.2 -1.7 -6.8
Profit before taxes 5.5 5.2 33.6
Taxes -1.5 -1.0 -5.8
Profit for the period 4.0 4.2 27.8
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Attributable to
Shareholders of parent company 3.5 3.9 27.2
Minority interests 0.5 0.3 0.6
Total 4.0 4.2 27.8
Earnings per share (EPS),
undiluted, EUR 0.09 0.11 0.79
EPS, diluted, EUR 0.09 0.11 0.79
CONSOLIDATED BALANCE SHEET
(EUR mill.)
31.3.2007 31.3.2006 31.12.2006
----------------------------------------------------------------------
ASSETS
Non-current assets
Intangible assets 18.4 4.0 4.0
Goodwill 105.3 46.7 53.9
Property, plant and equipment 444.3 272.4 294.5
Financial assets 28.2 5.7 5.8
Deferred tax assets 2.6 1.9 2.2
Other long-term receivables 10.1 4.3 4.0
Total non-current assets 609.0 335.0 364.4
Current assets
Inventories 139.4 70.3 58.4
Trade and other receivables 256.8 104.4 114.7
Cash and bank 23.0 11.0 12.1
Total current assets 419.2 185.8 185.1
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TOTAL ASSETS 1 028.1 520.8 549.5
EQUITY AND LIABILITIES
Equity attributable to
holders of the parent 311.6 222.7 236.4
Minority interests 3.0 10.8 0.6
Total shareholders' equity 314.6 233.6 237.1
Non-current liabilities
Deferred tax liability 16.5 12.7 12.2
Long-term liabilities,
interest-bearing 194.6 83.6 87.1
Long-term zero-interest liabilities 8.0 - -
Pension obligations 5.2 4.2 5.2
Non-current provisions 9.2 0.0 0.0
Total non-current liabilities 233.5 100.4 104.4
Current liabilities
Current liabilities, interest-bearing 282.6 114.2 109.6
Trade payables and
other current liabilities 196.7 71.9 97.7
Current provisions 0.7 0.7 0.6
Total current liabilities 480.0 186.8 208.0
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TOTAL EQUITY AND LIABILITIES 1 028.1 520.8 549.5
CASH FLOW STATEMENT
(EUR mill.)
1-3/2007 1-3/2006 1-12/2006
---------------------------------------------------------------------
OPERATING ACTIVITIES
Cash flow from operating activities 22.4 13.6 70.4
Change in net working capital -14.5 -21.1 6.3
Financing items and taxes -5.8 -2.7 -12.3
Net cash flow from operating activities 2.1 -10.2 64.4
Investing activities
Net cash flow from investing activities -86.3 -12.8 -76.2
Financing activities
Change in loans 95.1 21.2 20.4
Dividends paid - - -9.3
Share issue - - -
Net cash flow from financing activities 95.1 21.2 11.1
Change in liquid assets 10.9 -1.8 -0.7
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ANALYSIS BY SEGMENT(EUR million)
Net sales and operating profit by main market area
1-3/2007 1-3/2006 1-12/2006
------------------------------------------------------------
Net sales
-Finland 155.5 137.7 608.0
-Sweden 264.5 - -
-The Baltics 31.8 28.6 130.8
-Poland 51.9 49.0 203.6
-Between segments -5.1 -1.8 -8.2
Total 498.6 213.5 934.3
Operating profit
-Finland 5.9 3.3 21.8
-Sweden -0.3 - -
-The Baltics 2.5 1.5 12.6
-Poland 1.1 1.8 6.0
-Between segments 0.0 0.0 0.0
Total 9.2 6.6 40.4
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STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
(EUR million)
Share Share Hedg- I Other Transl. Re- Tot.
capital premium ing U res. diff. tained
reserve re- E earnings
serve F*)
----------------------------------------------------------------------
SHAREHOLDERS' EQUITY
1.1.2007 58.6 72.9 0.1 0.0 8.9 5.4 90.5 236.4
Cash flow
hedging
Amount transferred
to shareholders' equity
during the period 2.0 2.0
Change in translation
difference -5.2 -5.2
Other change 0.0
Transfers between items1.1 -1.1 0.0
----------------------------------------------------------------------
Net profit/loss recognised
directly in
shareholders' equity 1.1 2.0 -5.2 -1.1 -3.2
Profit for the period 3.5 3.5
----------------------------------------------------------------------
Total profits
and losses 1.1 2.0 -5.2 2.4 0.3
Dividend distribution 0.0
Share issue 8.2 67.1 75.3
Share-based
Transactions
payable in equity -0.4
-0.4
----------------------------------------------------------------------
SHAREHOLDERS' EQUITY TOT.
31.3.2007 66.8 74.1 2.1 67.1 8.9 0.2 92.5 311.6
----------------------------------------------------------------------
*) IUEF= Invested unrestricted equity fund
Share Share Hedging Other Transl. Retained
Tot.
capital premium reserve reserv. diff. earnings
reserve
----------------------------------------------------------------------
SHAREHOLDERS' EQUITY
1.1.2006 58.6 72.9 1.0 8.6 4.8 73.2 219.1
Cash flow
hedging
Amount transferred
to shareholders' equity
during the period 0.5 0.6
Change in translation
difference -0.7 -0.7
Other change -0.1 -0.1
----------------------------------------------------------------------
Net profit/loss recognised
directly in
shareholders' equity 0.5 -0.8 -0.3
Profit for the period 3.9 3.9
----------------------------------------------------------------------
Total profits
and losses 0.5 -0.8 3.9 3.6
Dividend distribution 0.0
----------------------------------------------------------------------
SHAREHOLDERS' EQUITY TOT.
31.3.2006 58.6 72.9 1.5 8.6 4.0 77.1 222.7
----------------------------------------------------------------------
KEY INDICATORS 31.3.2007 31.3.2006 31.12.2006
EPS, diluted 0.09 0.11 0.79
Equity per share at 31 March, EUR 1) 7.93 6.46 6.86
Equity ratio, % 30.6 44.8 43.7
Adjusted average
number of shares 37 422 786 34 463 193 34 463 193
Gross capital
expenditure, EUR million 22.2 14.6 82.6
Employees, end of month
average 7 680 4 301 4 418
1) Excluding minority's share of equity.
CONSOLIDATED CONTINGENT LIABILITIES
(EUR mill.)
31.3.2007 31.3.2006 31.12.2006
Debts secured by
pledges or mortgages
- pension plan loans 0.0 0.0 0.0
- loans from financial institutions 51.9 65.9 50.4
Given as security
- real estate mortgages 53.6 33.8 47.9
- pledges 13.5 12.0 13.5
- floating charges 13.8 4.7 10.6
For associates
- guarantees 3.6 4.0 3.6
Security for debts
- guarantees and pledges 12.7 19.9* 8.3
Other contingencies
Leasing commitments 6.1 4.1 1.1
Other liabilities 0.0 0.0 0.0
Derivative instrument liabilities
Nominal values of derivatives
Foreign exchange derivatives
- forward exchange contracts 8.9 1.6 4.2
Commodity derivatives
- electricity derivatives 6.2 4.3 6.5
Interest-rate derivatives 107.0 0.0 0.0
Fair values of derivative instruments
Foreign exchange derivatives
- forward exchange contracts -0.1 0.0 0.0
Commodity derivatives
- forward electricity contracts -0.1 2.2 0.2
Interest-rate derivatives 0.0 0.0 0.0
*) Includes guarantee for debts of participating interests
The figures in this report are unaudited
The group's financial reporting has been IFRS-compliant since the
start of 2005. This interim report and comparison information has been
prepared in compliance with IFRS recognition and measurement
principles except for IAS 34, which has not been observed in full.
Vantaa, 27 April 2007
HK Ruokatalo Group Oyj
Board of Directors
Kai Seikku
CEO
Further information is available from CEO Kai Seikku. Please leave any
message for him to call with Marjukka Hujanen, tel. +358 (0)10 570
6218 or Katja Backman, tel. +358 (0)10 570 2428.
DISTRIBUTION:
Helsinki Exchanges
Main media
www.hkruokatalo.fi
