HKSCAN GROUP'S FINANCIAL STATEMENT BULLETIN FOR 2007
HKScan Corporation STOCK EXCHANGE RELEASE 26 February 2008 at 8am
HKSCAN GROUP'S FINANCIAL STATEMENT BULLETIN FOR 2007
* EBIT GROWTH OFFSET BY COSTS OF FINNISH RESTRUCTURING IN LATTER HALF OF 2007
* DIFFICULT PORK MARKET SITUATION PRESENTS CHALLENGE IN EARLY 2008
THE YEAR 2007
- Net sales came to EUR 2 107.3 million (EUR 934.3 million in the 2006).
- EBIT from operations exclusive of non-recurring items came to EUR 65.2 million
(EUR 41.8 million in 2006). Reported EBIT inclusive of non-recurring items,
which came to a substantial EUR 9.9 million and mostly concerned Finland, stood
at EUR 55.3 million (EUR 40.4 million).
- Earnings per share were EUR 0.72 (EUR 0.79). The Board proposes a dividend of
EUR 0.27 per share (EUR 0.27).
- The company acquired the entire capital stock of Sweden's largest meat
business Scan AB in January 2007. The allocation of the purchase price is
discussed in the financial statement portion of this bulletin. - The figures
reported in this financial statement bulletin are derived from Group accounting
and contain no pro forma information. Scan AB and its subsidiaries have been
consolidated into Group figures since the beginning of 2007.
- Non-recurring expenses in the net amount of EUR 9.9 million were recognised in
2007. These mainly had to do with the restructuring of the Finnish business.
Non-recurring additional labour costs in Finland came to EUR 2.9 million and
additional transfer and logistical costs to EUR 7.6 million, i.e. a total of EUR
10.5 million.
- The deterioration of the international pork market which started in late 2007
continued in early 2008. It will significantly erode the profitability of the
meat business and influence the entire company's performance in all markets,
especially in Finland and the Baltics. The Group's Q1 EBIT will fall below the
2007 level. Full-year 2008 comparable EBIT in line with the previous year is
projected, provided that the company's estimate of the pork market evening out
in the latter half of the year is realised.
Q4/2007
- Net sales in the fourth quarter came to EUR 552.2 million (EUR 242.8m).
- EBIT from operations stood at EUR 17.5 million. Excluding non-recurring items
(totalling EUR 6.0 million) that mainly have to do with industrial restructuring
in Finland, the figure was EUR 11.5 million.
- Industrial restructuring in Finland has reached the home stretch. The goals
for 2008 are to ramp up the new logistics centre and to leverage the revised
structure to achieve functional benefits.
- Business in Sweden developed as planned. Fourth-quarter EBIT came to EUR 7.7
million and full-year EBIT to EUR 23.0 million.
- Impairment was recognised on biological assets (living animals) in the Baltics
and Poland in Q4 due to the pork market situation. These items weakened
profitability in both markets. Writedowns of EUR 1.5 million in the Baltics and
EUR 0.9 million in Poland are included in the respective EBIT figures.
CEO KAI SEIKKU:
“The year 2007 was HKScan's first year of operations with the new Group
structure in place. The challenges of the integration of the Swedish business
and industrial restructuring in Finland were joined by a historically strong and
rapid global rise in the price of feed grain in the latter half of the year.
This resulted in a violent increase in raw meat material production costs, which
could not fully be passed on to consumers at the same rate; certain price
increases could only be implemented after the turn of the year.
The Group's capital expenditure stood at an exceptionally high level due to the
bulk of industrial restructuring expenditure and of investments relating to the
purchase of the Swedish Meats business, incorporated into Scan AB, falling on
2007. In future, capital expenditure will settle at a lower level and our aim is
to put cash flow on a sound footing.
The consolidation of the Finnish business also took place in the latter half of
the year, resulting in planned as well as unplanned expenditure in the run-up to
the busy Christmas season. The logistical issues and inadequate delivery
dependability experienced throughout the year in the Finnish business were
moreover negatively reflected in the development of our market standing in many
key product groups. This long-running problem will be fully resolved in the
first quarter of 2008.
Earnings development in Poland was depressed by the slower than anticipated
start-up of Pozmeat, acquired in 2006, and its costs.
In the plus column stands the development in line with plan of the Swedish
business in 2007, although profitability still remains far short of longer-term
targets. Targets were also reached in the Baltics despite a slowdown towards the
end of the year.
The company continues to seek cost savings. The consolidation programme
initiated by Swedish Meats back in 2006 was followed by a significant efficiency
programme announced in May 2007.
Several new products were given a massive roll-out in 2007. Though the year saw
both hits and misses, the new launches on the whole reached the desired level of
margin. We intend to build on these experiences and retain our focus on
launching new products, as these are essential with regard to our long-term
targets.
The company finds itself in the middle of a difficult international pork cycle
with too much of a gap between the market prices of raw materials in our home
markets and the reference prices in the European market. The operational
investments we have made will improve our competitiveness in the long term, yet
a correction of the imbalance in the pork market plays a key role in respect of
our performance in 2008.”
HKSCAN CONSOLIDATED INCOME STATEMENT, Q4 and the entire year
(EUR million)
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| | 10-12/07 | 10-12/06 | 1-12/07 | 1-12/06 |
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| Net sales | 552.2 | 242.8 | 2 107.3 | 934.3 |
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| EBIT | 11.5 | 13.7 | 55.3 | 40.4 |
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| - % of net sales | 2.1 | 5.7 | 2.6 | 4.3 |
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| Share of associates' result | 0.4 | -0.4 | 0.4 | 0.0 |
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| Financial income and | -5.0 | -1.9 | -19.4 | -6.8 |
| expenses, net | | | | |
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| Profit before taxes | 6.9 | 11.5 | 36.3 | 33.6 |
--------------------------------------------------------------------------------
| - % of net sales | 1.2 | 4.7 | 1.7 | 3.6 |
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| Income taxes | -0.9 | -2.3 | -6.8 | -5.8 |
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| Profit for the period | 6.0 | 9.2 | 29.5 | 27.8 |
--------------------------------------------------------------------------------
| - % of net sales | 1.1 | 3.8 | 1.4 | 3.0 |
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| Profit attributable to: | | | | |
--------------------------------------------------------------------------------
| Equity holders of the parent | 5.6 | 9.3 | 27.8 | 27.2 |
--------------------------------------------------------------------------------
| Minority interests | 0.4 | -0.1 | 1.7 | 0.6 |
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| Total | 6.0 | 9.2 | 29.5 | 27.8 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EPS, undiluted, EUR | 0.14 | 0.27 | 0.72 | 0.79 |
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| EPS, diluted, EUR | 0.14 | 0.27 | 0.72 | 0.79 |
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MARKET AREA: FINLAND
(EUR million)
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| | 10-12/2007 | 10-12/2006 | 1-12/2007 | 1-12/2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net sales | 176.3 | 162.9 | 674.3 | 608.0 |
--------------------------------------------------------------------------------
| EBIT | 3.3 | 10.9 | 22.8 | 25.4 |
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| EBIT margin | 1.9 | 6.7 | 3.4 | 4.2 |
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| EBIT from operations | 9.3 | 10.0 | 33.3 | 27.4 |
--------------------------------------------------------------------------------
| Operative EBIT | 5.3 | 6.1 | 4.9 | 4.5 |
| margin | | | | |
--------------------------------------------------------------------------------
Net sales in Finland saw year-on-year growth of EUR 66.3 million attributable to
increased trading and outsourcing. Profitability was again unsatisfactory,
partly due to the restructuring of production underway. The transfers of
production gave rise to higher than anticipated start-up costs. In addition, the
extended ramp-up of the production lines transferred to the Vantaa plant
resulted in delivery problems and loss of sales in the run-up to the crucial
holiday season.
Non-recurring additional labour costs arising from the restructuring came to EUR
2.9 million and non-recurring additional logistical costs to EUR 7.6 million.
Production efficiency at Vantaa has improved in early 2008 and delivery problems
will be resolved in full in Q1. The new logistics centre, which comes online in
spring, will bring the company's delivery reliability to a competitive level.
The profitability of the meat business was eroded in autumn by the rapid rise in
feed raw materials, which markedly increased the costs of primary meat
production. The higher costs could only be passed on to consumers in the retail
period commencing at the start of 2008, however.
The processed meat and convenience food business was informed by the
restructuring of production in Finland. This restructuring, which is among the
most wide-ranging ever undertaken by the company, involved substantial
investment in production facilities and automation in Vantaa. The investments
and arrangements will serve to improve the as yet inadequate profitability of
the processed meat and convenience food business.
The poultry business gained momentum from an intense spike in consumption. In
chicken, the rise was nearly 15 percent and demand for fillets in particular
grew substantially. Demand for fresh turkey meat, on the other hand, has been
flatlining. Higher production volumes resulted in expansion and modernisation of
the carcass quick freezer at the Eura production plant and ongoing enhancement
of the degree of automation in the various functions.
The closure of the Tampere facility, set to follow completion of the Vantaa
project, is currently slated for April 2008.
As the Group expanded, managing director of HK Ruokatalo Oy Kai Seikku focused
on his duties as the CEO of HKScan Corporation. Executive vice president of the
company's meat business Esa Mäki was appointed managing director of HK Ruokatalo
Oy effective 1 March 2007. He was replaced as managing director by executive
vice president of the company's poultry business Jari Leija on 7 December 2007.
MARKET AREA: SWEDEN
(EUR million)
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| | 10-12/2007 | 10-12/2006 | 1-12/2007 | 1-12/2006 |
--------------------------------------------------------------------------------
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| Net sales | 295.7 | - | 1 111.9 | - |
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| EBIT | 7.7 | - | 23.0 | - |
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| EBIT margin | 2.6 | - | 2.1 | - |
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| EBIT from operations | 7.7 | - | 23.0 | - |
--------------------------------------------------------------------------------
| Operative EBIT | 2.6 | - | 2.1 | - |
| margin | | | | |
--------------------------------------------------------------------------------
The mergers and acquisitions in the Swedish meat sector in 2007 spelled a major
consolidation of the entire industry. Besides consolidation, the arrangements
also resulted in the Swedish meat industry, earlier intensely oriented to the
national market, linking into wider networks. Scan AB joining the HKScan Group
is also an expression of this internationalisation.
On the whole, business in Sweden developed as planned in 2007, although there
still remains much room for improvement in terms of profitability, especially
with longer-term targets in mind.
In May, Scan announced that its earlier consolidation efforts would be followed
by an efficiency programme extending until 2009, in which annual savings of EUR
18-22 million are sought. Investments of approximately EUR 20 million will be
made into modernising production technology and working methods. Restructuring
costs and writedowns on PPE in the amount of EUR 23 million resulting from the
consolidation and efficiency programme have been taken into account when
allocating purchase price. The allocation also involved a remeasurement to fair
value of production plants affected by the programme. The revaluation has no
impact on the consolidated income statement for 2007.
An extensive revamping of Scan's product concept was launched in early 2007. The
number of brands and their concepts were pruned and the brands were re-grouped
according to distinct consumer segments.
In September, Scan's meat business and processed meat and convenience food
business were divided into separate divisions. The purpose was to increase
customer orientation and reap the benefits of consolidation. It also involved a
retooling of the marketing and sales organisation.
Ground was broken on the new logistics centre in Linköping in November.
Operating at full capacity in 2010, the national centre will allow greater
efficiency and flexibility in logistics for Scan.
Scan AB officially launched operations on 29 January 2007. Former managing
director of Swedish Meats Magnus Lagergren was appointed managing director of
the company.
MARKET AREA: THE BALTICS
(EUR million)
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| | 10-12/2007 | 10-12/2006 | 1-12/2007 | 1-12/2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net sales | 37.6 | 33.2 | 145.3 | 130.8 |
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| EBIT | 0.9 | 3.2 | 10.7 | 12.6 |
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| EBIT margin | 2.3 | 9.6 | 7.4 | 9.6 |
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| EBIT from operations | 0.9 | 3.2 | 10.1 | 11.2 |
--------------------------------------------------------------------------------
| Operative EBIT | 2.3 | 9.6 | 6.9 | 8.6 |
| margin | | | | |
--------------------------------------------------------------------------------
The year 2007 was clearly divided in two in the Baltics. Good performance in the
first three quarters of the year turned problematic in Q4 with the rising price
of feed grain and the ensuing sharp rise in pork production costs at a time when
pork prices were falling across Europe due to oversupply.
Business was on the projected track until September and sales grew in all three
Baltic States. Costs continued to climb as before; wages rose by 15 percent and
transportation costs by nearly 30 percent, for example. This was anticipated,
however, and the rise in costs could be passed on the consumer, meaning that
margins remained solid and profitability in line with target.
The prices of feed grain more than doubled from the previous year in Estonia in
the fourth quarter, which raised the costs of producing pork also in the
production chain of Rakvere Lihakombinaat. Pork was in ample supply due to the
international market situation and prices remained low. The supply glut has
continued into 2008.
The discovery of Newcastle disease at a Tallegg shell egg farm in autumn
necessitated the destruction of the farm's egg chickens. The costs were borne by
the state of Estonia. The production gap thus arising was bridged with temporary
measures and the ensuing financial losses remained minor. Production is
estimated to return to normal in summer 2008. Tallegg's egg production accounts
for 3.5 percent of the Group's net sales in the Baltics.
All in all, Q4 was weaker than anticipated. A writedown of EUR 1.5 million was
moreover taken on biological assets (living animals) due to the difficult
situation in the pork market. The full-year result furthermore includes EUR 0.6
million in non-recurring gains on disposal.
Market standing in the Baltics remained good, with even some strengthening in
evidence. With its 32% share, Rakvere Lihakombinaat leads the market in Estonia.
In Latvia, Rigas Miesnieks bumped its market share from 18 to 20 percent, which
makes it the clear market leader. Tallegg's share of all fresh poultry meat
sales in Estonia climbed to 70 percent. In Lithuania, Klaipedos Maistas retained
its earlier standing as a relatively small market player (Source: A.C. Nielsen).
MARKET AREA: POLAND
(EUR million)
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| | 10-12/2007 | 10-12/2006 | 1-12/2007 | 1-12/2006 |
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| Net sales | 54.8 | 49.5 | 220.9 | 203.6 |
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| EBIT | 0.1 | 1.0 | 3.7 | 6.0 |
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| EBIT margin | 0.3 | 2.0 | 1.7 | 2.9 |
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| EBIT from operations | 0.1 | 1.0 | 3.7 | 6.0 |
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| Operative EBIT | 0.3 | 2.0 | 1.7 | 2.9 |
| margin | | | | |
--------------------------------------------------------------------------------
The year 2007 was a divided one for Sokólow in terms of operations. The core
business, i.e. the manufacture and sales of meat and processed meats in the
Polish market, performed on target with year-on-year growth of some ten percent,
while subsidiary Pozmeat fell clearly short of targets.
The full-year result in the Polish market fell below that of 2006, as
anticipated. This was mainly due to the costs arising from the longer than
estimated start-up stage at Pozmeat. HKScan's share of Pozmeat's losses in 2007
came to EUR 3.2 million. These start-up costs are included in full in EBIT from
operations. Pozmeat is estimated to break even in the second quarter of 2008.
The difficult market situation due to the international pork cycle necessitated
writedowns of EUR 0.9 million on biological assets (living animals) in the last
quarter. The writedowns are included in full in EBIT.
The historically fragmented business structure of Sokólow was streamlined by
increasing the degree of specialisation among the company's seven production
plants in a bid to achieve cost benefits and operational efficiency. The move is
warranted, as the intense consolidation in modern retail presents suppliers with
challenges.
The meat industry in Poland is marked by fragmentation: a large number of mostly
small companies. Measured by net sales, Sokólow is the second largest player in
the industry. Its market share is estimated at 17 percent in processed meats and
nine percent in meat produts.
ACQUISITION OF SCAN AB
The company acquired the business of Swedish Meats, the largest meat company in
Sweden, by virtue of an agreement executed on 9 November 2006. Under the
agreement, Swedish Meats incorporated its business into the limited company Scan
AB, whose entire capital stock was acquired by HKScan on 29 January 2007. Scan
AB became a wholly owned subsidiary of HKScan Corporation.
The deal was financed through a directed issue of 4 843 000 A Shares to Swedish
Meats and payment of a cash consideration of EUR 76 million (SEK 692 million).
In addition, HKScan assumed liability for Swedish Meats' debt amounting to a net
value of some EUR 171 million or SEK 1.6 billion. The sum of some EUR 7 million
(ca. SEK 66 million) will be paid over the next five years in additional
purchase price, conditional however on the repayment to Scan AB of certain
Swedish Meats' membership loans of equivalent value. Enterprise value according
to share prices and currency exchange rates at the time of execution thus came
to approximately EUR 329 million (SEK 2 988 million).
The expansion of operations to Sweden and larger company size will strengthen
competitiveness and market standing in the long run in the Baltic region. We
will now be able to provide even more diverse and efficient service to retail
and consumers. The Group is active in nine countries and sells the leading
brands in all its major markets.
EFFECT OF SCAN ACQUISITION ON FINANCIAL REPORTING AND INDICATORS
The accounts of Scan AB and its subsidiaries have been consolidated into the
Group's figures as of 1 January 2007. In reporting, Sweden was added to the
Group's previous principal geographical segments of Finland, the Baltics and
Poland.
The consolidation of Scan has significantly altered financial indicators, which
must be taken into consideration when making comparisons.
INVESTING ACTIVITIES
The purchase price of the Scan AB shares inclusive of transaction costs came to
EUR 161.7 million. The deal was financed with a directed issue to Swedish Meats
valued at EUR 75 million and a cash consideration of EUR 76 million.
The Group's production-related gross investments in 2007 totalled EUR 129.3
million (EUR 82.6m). Breakdown of investments by market area: Finland EUR 69.7
million, Sweden EUR 33.2 million and the Baltics EUR 12.9 million. In Poland,
HKScan's share of Sokolów investments was EUR 13.5 million. Gross investments in
the comparison year included buyouts of minority interests in Sokolów and
Rakvere totalling EUR 17.7 million.
Major production-related investments in Finland included expansion of the Vantaa
production facility to enable it to assume the production and logistics
functions transferring from Turku and Tampere. In Sweden, the emphasis was on
production technologies to boost competitiveness, such as a new pâté line and
new slicing lines as well as the deployment of robotics at the Linköping
processed meat plant and a Marel line in Skara to optimise beef cutting. In
Estonia, a new slaughtering line was completed at the Rakvere Lihakombinaat
plant to replace the original line of 17 years' standing. Construction on a new
frankfurter department began at Rakvere in October. This Rakvere's largest
individual investment ever will be completed in August 2008.
FINANCING ACTIVITIES
The Group's interest-bearing debt totalled EUR 514.5 million (EUR 196.7m) at the
end of the financial year. Interest-bearing debt in the net amount of EUR 171
million transferred to the company along with Scan AB. The cash consideration of
EUR 76 million for the deal was financed through a loan of corresponding value.
Investments especially in modernising the business structure in Finland have
increased the company's gearing.
In June, HKScan signed a EUR 550 million multi-currency financing agreement with
an international syndicate of banks. The loan facility comprises a EUR 275
million seven-year amortising term loan and a EUR 275 million five-year credit
limit. This arrangement refinanced most of HKScan's loan portfolio and it
supports the company's future financing needs. The loan is subject to ordinary
covenants. The financial covenants are gearing ratio and ratio of net debt to
EBITDA.
In order to reduce the amount of assets tied up as working capital, the company
sold trade receivables worth some EUR 25 million in the Finnish business in Q3.
At the end of the period under review, the equity ratio was 29.3 percent
(43.7%). Increasing the equity ratio and strengthening cash flow are key tasks
for the near future.
RESEARCH AND DEVELOPMENT
Practically all research and development in the HKScan Group concern involves
normal product development, meaning the development of new products over a span
of one to two years and the updating of products already on the market. A total
of EUR 15.6 million (EUR 8.5m) was spent on R&D in 2007.
AMENDMENT TO THE ARTICLES OF ASSOCIATION
20.4.2007 The Annual General Meeting held on 20 April 2007 approved the change
in the company's business name from HK Ruokatalo Group Oyj to HKScan Oyj. The
name in Swedish is HKScan Abp and in English HKScan Corporation. The re-naming
had to do with the substantial expansion of the Group's international business.
In addition, the AGM adopted the amendments to the Articles of Association
mainly resulting from the new Companies Act, which entered into force on 1
September 2006. The change in business name and the amended Articles of
Association entered into force on 30 April 2007.
SHARE CAPITAL
HKScan Corporation's registered and fully paid-up share capital at the balance
sheet date was EUR 66 820 528.10. The share capital breaks down as follows:
A Shares 33 906 193
K Shares 5 400 000
Total 39 306 193
Under the company's Articles of Association, each A Share conveys one vote and
each K Share 20 votes. The K Shares are held by LSO Osuuskunta and Swedish
Meats. Each share gives equal entitlement to a dividend. The shares had a
nominal value of EUR 1.70 each until nominal values were abandoned on 30 April
2007.
The company's shares joined the book-entry securities system on 31 October 1997.
At the end of the period under review, HKScan had 7 768 shareholders, of whom 11
were nominee registered.
INCREASE IN SHARE CAPITAL
On 29 January 2007, the Board resolved to exercise the authorisation granted to
it by the Extraordinary General Meeting of 22 December 2006 and directed an
issue of 4 843 000 A Shares to Swedish Meats. The issue was executed as part of
the acquisition of the business of Swedish Meats (Scan AB). 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.
STOCK EXCHANGE LISTINGS
HKScan's A Share has been quoted on OMX Nordic Exchange since 6 February 1997.
During the year under review, 17 841 862 of the company's shares were traded for
a total of EUR 292 234 851.
The highest price quoted was EUR 21.02 and the lowest EUR 12.22. The middle
price was EUR 16.54 and the year-end closing price was EUR 14.04. The share
price fell by 3.2 percent on the year while the index for the Consumer Staples
sector (HX302020) declined by 10.8 percent or 20.6 points on the year.
The company's market capitalisation (A and K Shares) at the balance sheet date
was EUR 551.9 million, having stood at EUR 449.7 million a year earlier.
HKScan has in place a market making agreement with Glitnir Bank Ltd which meets
the requirements of OMX Nordic Exchange's Liquidity Providing (LP) operation.
TREASURY SHARES
Pursuant to an authorisation granted by the Annual General Meeting on 20 April
2007, the company acquired 100 000 of its own A Shares in public trading on OMX
Nordic Exchange in May. At year-end, the company held a total of 40 024 of its A
Shares. These had a market value of EUR 0.6 million and accounted for 0.10% of
all shares and 0.03% of all votes. The acquisition cost of EUR 0.73 million
reduces the Group's equity.
ASSIGNMENT OF TREASURY SHARES
On 19 December 2007, pursuant to an authorisation granted to it by the AGM of 20
April 2007, the Board of HKScan decided on a directed bonus issue in order to
implement an incentive and commitment scheme for key employees in the HKScan
Group. The issue involved assignment of a total of 59 976 A Shares held by the
company as treasury shares to key employees in HKScan Corporation's Share
Incentive Scheme 2006 as payment of incentive bonus for the 2006 earning period.
TRADING IN THE COMPANY'S K SHARES
The company's largest shareholders LSO Osuuskunta cooperative and Swedish Meats
executed on 28 August 2007 a stock swap in which Swedish Meats transferred
665 000 A Shares in HKScan to LSO Osuuskunta and received in return from LSO
Osuuskunta the same number of K Shares in HKScan. LSO Osuuskunta and Swedish
Meats had agreed on the swap on 13 December 2006.
The Board gave its consent required under the Articles of Association to the
transfer of K Shares.
The holdings of LSO Osuuskunta and Swedish Meats after the stock swap and
Swedish Meats' notification of the same date, 28 August 2007, are as follows:
A Shares K Shares % of shares % of votes
LSO Osuuskunta 8 838 113 4 735 000 34.53 72.96
Swedish Meats 4 231 000 665 000 12.45 12.35
NOTICES OF CHANGES IN OWNERSHIP
During 2007, the company received the following notices regarding changes in
holdings pursuant to Chapter 2, section 9 of the Securities Market Act.
On 8 February 2007 Danish Crown's holding in HKScan was diluted to 8.89 percent
of the shares and 2.46 percent of the votes as a consequence of the increase in
HKScan'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
HKScan was thus confirmed at 12.32 percent of the shares and 3.41 percent of the
votes.
The holding of Danish Crown was reduced to 1.00 percent of the share capital and
0.28 percent of the votes as a result of a sale of shares to institutional
investors on 7 March 2007.
On 20 June 2007, Julius Baer International Equity Fund clarified its earlier
announcement stating that its holding in HKScan Oyj now amounted to 5.13 percent
of the shares and 1.42 percent of the votes. In addition, Julius Baer Investment
Management LLC (the fund company of the Julius Baer International Equity Fund)
held 3.09% of the shares and 0.86% of the votes in HKScan on behalf of its
clients.
On 28 August 2007, Swedish Meats announced that subsequent to the stock swap
between it and LSO Osuuskunta agreed on 13 December 2006, it now held 12.45
percent of the shares and 12.35 of the votes in HKScan.
BOARD OF DIRECTORS' EXISTING AUTHORISATIONS
The Board holds the authorisation granted by the AGM on 20 April 2007 to decide
on acquiring a maximum of 3 500 000 Series A shares as treasury shares,
equivalent 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. In
accordance with the Board decision of 7 May 2007, the company acquired 100 000
of its own A Shares between 14 May and 28 May in public trading on OMX Nordic
Exchange. The authorisation is valid until 30 June 2008.
The Board of Directors also holds an authorisation to resolve on an issue of
shares, share options as well as other equity instruments as referred to in
Chapter 10, section 1 of the Companies Act. This authorisation concerns 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 equity instruments. 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 equity instruments may be implemented as a directed
issue. The authorisation is valid until 30 June 2008. On 19 December 2007, the
Board resolved to assign 59 976 A Shares to key employees in the share incentive
scheme as incentive bonus for the 2006 earning period.
The authorisations were granted to provide the company's Board with flexibility
in deciding on capital market transactions necessary to the company, e.g. to
secure its financing needs, to execute mergers and acquisitions or to provide
personnel incentives. A directed acquisition of own shares or directed share
issue can only be executed for reasons of weighty financial consequence to the
company and the authorisation cannot be exercised in violation of the principle
of shareholder equality.
EMPLOYEES
The Group had an average workforce of 7 840 employees (4 418). The increase is
attributable to the inclusion of Scan AB and its subsidiaries as of the
beginning of 2007. The average number of employees in each market area during
the year under review was as follows: Finland 2 517, Sweden 3 449 and the
Baltics 1 874. In addition, Sokolów had an average of 5 172 employees.
The HKScan Group is active in nine countries. Executive management in each
country ensures that Group companies have regard to the legislation and
agreements governing employment, remuneration and other terms of employment, and
occupational safety in their respective countries.
Employees by country at year-end
2007 % 2006 % 2005 %
Sweden 3 050 41.6 - - - -
Finland 2 236 30.5 2 328 56.0 2 525 58.6
Estonia 1 630 22.2 1 580 37.9 1 550 36.0
Latvia 219 3.0 201 4.3 178 4.1
Poland(Scan) 100 1.4 - - - -
Denmark 45 0.6 - - - -
Lithuania 43 0.6 51 1.2 51 1.2
UK 5 0.1 - - - -
Russia 5 0.1 5 0.1 5 0.1
---------------------------------------------------------------
HKScan total 7 333 100.0 4 165 100.0 4 309 100.0
---------------------------------------------------------------
Sokolów 5 419 - 4 968 - 5 028 -
INCENTIVE SCHEME FOR KEY PERSONNEL
The company has in place a share incentive scheme for the years 2006-2008. The
purpose of the scheme is to foster the commitment of key personnel to the
achievement of the company's strategic and financial targets while also making
them long-term shareholders in the company.
The incentive scheme consists of three earning periods of one calendar year
each: the years 2006, 2007 and 2008. The Board decides on the key personnel
included in the scheme for each earning period and on the maximum bonus payable
to them.
Any bonuses under the scheme are tied to Group net sales and return on capital
employed. A maximum of 528 000 A Shares and cash in the amount needed to
reimburse the key employees for taxes and fiscal charges arising at the time of
transfer of the shares will be granted on the basis of the entire scheme. The
bonuses will be paid after the end of each earning period partly in shares and
partly in cash. The cash element is used to cover any taxes and fiscal charges
arising from the shares. The persons shall hold on to the shares earned for at
least three years from the end of the earning period.
The share element of the bonus payable to designated key employees for the first
earning period (2006) came to 59 976 A Shares in HKScan. These were assigned to
their recipients in December 2007. In the 2007 earning period, the scheme
concerns 20 key employees and the number of shares shall not exceed 180 000 A
Shares in HKScan.
RISKS AND UNCERTAINTY FACTORS
The most significant risks in the near future faced by the HKScan Group involve
the development of the price of raw materials and pork in particular in all
market areas, the success of the pending transfers of production in Finland and
Sweden, increasing the logistical reliability of deliveries in Finland and the
success of the efficiency programme in Sweden. The possibility of animal
diseases can also never be fully excluded in the food industry.
HKScan and its business units in Finland, Sweden, the Baltics and Poland
constantly assess the risks relating to their business at both the operative and
owner administration levels. Assessment also takes into account whether or not
the risk management means are appropriate in terms of quality and scope.
The monitoring and analysis of any factors of uncertainty is part of the normal
operations of the company's management system. In the meat industry, factors of
uncertainty may arise from fluctuations in the price and availability of raw
meat material and, in the long term, changes in the EU's common agricultural
policy (CAP) and decisions by the WTO in world trade issues. Changes in consumer
preferences may also constitute a factor of uncertainty if not identified in
time. Changes in retail structure and internationalisation are set to continue
and will maintain intense competition in the meat industry in all markets.
HKScan's financial risks comprise foreign exchange risk, interest rate risk,
credit risk and liquidity risk, which are hedged against in accordance with the
principles defined in the Group's risk management policy.
ENVIRONMENTAL MANAGEMENT
The Group operates on the principle of causing minimum environmental impact
during production. This principle is put into practice in Finland, Sweden, the
Baltics and Poland, taking into account existing regulations and certification
processes at the local and EU level. Executive management in each market area is
responsible for ensuring the appropriate organisation of environmental
management.
Environmental management is a key component in the Group's enterprise system and
environmental concerns are catered for at every stage of the core process. The
company has in place an ISO 14001-certifed environmental management system at
all HK Ruokatalo production plants in Finland, the Rakvere Lihakombinaat plants
in Estonia and six Scan plants in Sweden. Other Scan facilities apply the BAS
system, in which environmental efforts are managed by a local steering group
responsible for setting environmental targets for plants and monitoring
compliance. In Poland, the Sokólow plants operate according to good production
practice under the ongoing supervision of the Polish veterinary authority.
In addition, all plants in the HKScan Group have in place an ISO 9001-certifed
quality management system.
Environmental indicators and environmental benchmarking are currently being
harmonised at the Group level in order to enhance environmental management. The
first stage will concern Sweden and Finland.
THE FUTURE
The deterioration of the international pork market which started in late 2007
continued in early 2008. It will significantly erode the profitability of the
meat business and influence the entire company's performance in all markets,
especially in Finland and the Baltics. The Group's Q1 EBIT will fall below the
2007 level. Full-year 2008 comparable EBIT in line with the previous year is
projected, provided that the company's estimate of the pork market evening out
in the latter half of the year is realised.
DIVIDEND RECOMMENDATION
The parent company's distributable equity is EUR 79.8 million, which sum
includes EUR 66.7 million held in the reserve for invested unrestricted equity
(RIUE). The Board of Directors recommends that the company pays a dividend of
EUR 0.27 per share for 2007, i.e. a total of EUR 10.6 million.
There have been no material changes in the company's financial standing since
the end of the year under review. The company maintains good liquidity and the
recommended distribution of dividend will not in the Board's estimation
compromise the company's solvency.
CHANGE TO PUBLICATION DATE OF Q1/2008 INTERIM REPORT
HKScan is changing the publication date of the interim report on the first
quarter of 2008. The Q1 report will be released on 7 May 2008 instead of 6 May
2008. Other publication dates remain unchanged: Q2 interim report on 8 August
2008 and Q3 interim report on 4 November 2008.
ANNUAL GENERAL MEETING
HKScan Corporation's Annual General Meeting will be held in Terrace Hall at
Finlandia Hall in Helsinki, on Tuesday, 22 April 2008 at 11am. Address:
Mannerheimintie 13 e, 00100 Helsinki. To be eligible to attend the Annual
General Meeting, shareholders should be registered by 11 April 2008 in HKScan
Corporation's share register maintained by the Finnish Central Securities
Depository Ltd (APK). Notice of the Annual General Meeting and the agenda will
be published later.
Vantaa, 26 February 2008
HKScan Corporation
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS 1 JANUARY - 31 DECEMBER 2007
CONSOLIDATED INCOME STATEMENT 1 JANUARY - 31 DECEMBER
(EUR million)
--------------------------------------------------------------------------------
| | 2007 | 2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| NET SALES | 2 107.3 | 934.3 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Change in inventories of finished goods and | 1.6 | -1.4 |
| work in progress | | |
--------------------------------------------------------------------------------
| Work performed for own use and capitalised | 1.8 | 0.6 |
--------------------------------------------------------------------------------
| Other operating income | 9.7 | 8.5 |
--------------------------------------------------------------------------------
| Share of associates' results | 1.5 | 0.0 |
--------------------------------------------------------------------------------
| Materials and services | -1 461.4 | -617.6 |
--------------------------------------------------------------------------------
| Employee benefits expenses | -319.0 | -150.1 |
--------------------------------------------------------------------------------
| Depreciation and amortisation | -52.4 | -29.0 |
--------------------------------------------------------------------------------
| Impairment | 0.8 | -1.5 |
--------------------------------------------------------------------------------
| Other operating expenses | -234.5 | -103.3 |
--------------------------------------------------------------------------------
| EBIT | 55.3 | 40.4 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Financial income | 9.1 | 1.9 |
--------------------------------------------------------------------------------
| Financial expenses | -28.5 | -8.7 |
--------------------------------------------------------------------------------
| Share of associates' results | 0.4 | 0.0 |
--------------------------------------------------------------------------------
| PROFIT/LOSS BEFORE TAX | 36.3 | 33.6 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Income taxes | -6.8 | -5.8 |
--------------------------------------------------------------------------------
| PROFIT/LOSS FOR THE FINANCIAL YEAR | 29.5 | 27.8 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Equity holders of the parent | 27.8 | 27.2 |
--------------------------------------------------------------------------------
| Minority interests | 1.7 | 0.6 |
--------------------------------------------------------------------------------
| Total | 29.5 | 27.8 |
--------------------------------------------------------------------------------
Earnings per share calculated on profit attributable to equity holders of the
parent
--------------------------------------------------------------------------------
| EPS, undiluted, continuing operations, | 0.72 | 0.79 |
| EUR/share | | |
--------------------------------------------------------------------------------
| EPS, diluted, continuing operations, EUR/share | 0.72 | 0.79 |
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER
(EUR million)
--------------------------------------------------------------------------------
| | 2007 | 2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Intangible assets | 65.5 | 4.0 |
--------------------------------------------------------------------------------
| Goodwill | 85.1 | 53.9 |
--------------------------------------------------------------------------------
| Property, plant and equipment | 476.6 | 294.5 |
--------------------------------------------------------------------------------
| Investments in associates | 20.3 | 5.5 |
--------------------------------------------------------------------------------
| Trade and other receivables | 18.0 | 4.1 |
--------------------------------------------------------------------------------
| Available-for-sale investments / Other | 11.4 | 0.3 |
| long-term investments | | |
--------------------------------------------------------------------------------
| Deferred tax asset | 8.3 | 2.2 |
--------------------------------------------------------------------------------
| NON-CURRENT ASSETS | 685.1 | 364.4 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Inventories | 140.2 | 58.4 |
--------------------------------------------------------------------------------
| Trade and other receivables | 244.9 | 112.1 |
--------------------------------------------------------------------------------
| Income tax receivable | 2.5 | 2.5 |
--------------------------------------------------------------------------------
| Other financial assets | 3.7 | 0.0 |
--------------------------------------------------------------------------------
| Cash and cash equivalents | 53.2 | 12.1 |
--------------------------------------------------------------------------------
| CURRENT ASSETS | 444.5 | 185.1 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| ASSETS | 1 129.6 | 549.5 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Share capital | 66.8 | 58.6 |
--------------------------------------------------------------------------------
| Share premium reserve | 73.4 | 72.9 |
--------------------------------------------------------------------------------
| Treasury shares | -0.7 | 0.0 |
--------------------------------------------------------------------------------
| Fair value reserve and other reserves | 80.6 | 9.0 |
--------------------------------------------------------------------------------
| Translation differences | 3.0 | 5.4 |
--------------------------------------------------------------------------------
| Retained earnings | 105.5 | 90.5 |
--------------------------------------------------------------------------------
| Equity attributable to equity holders of the | 328.5 | 236.4 |
| parent | | |
--------------------------------------------------------------------------------
| Minority interest | 2.9 | 0.6 |
--------------------------------------------------------------------------------
| SHAREHOLDERS' EQUITY | 331.5 | 237.1 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Deferred tax liability | 34.0 | 12.2 |
--------------------------------------------------------------------------------
| Interest-bearing liabilities | 421.6 | 87.1 |
--------------------------------------------------------------------------------
| Zero-interest liabilities | 6.9 | 0.0 |
--------------------------------------------------------------------------------
| Pension obligations | 4.7 | 5.2 |
--------------------------------------------------------------------------------
| Provisions | 0.0 | 0.0 |
--------------------------------------------------------------------------------
| NON-CURRENT LIABILITIES | 467.2 | 104.4 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Interest-bearing liabilities | 92.9 | 109.6 |
--------------------------------------------------------------------------------
| Trade payables and other liabilities | 236.6 | 96.7 |
--------------------------------------------------------------------------------
| Income tax liability | 0.1 | 0.9 |
--------------------------------------------------------------------------------
| Provisions | 1.3 | 0.6 |
--------------------------------------------------------------------------------
| CURRENT LIABILITIES | 330.9 | 208.0 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EQUITY AND LIABILITIES | 1 129.6 | 549.5 |
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
(EUR million)
--------------------------------------------------------------------------------
| | Shar | Shar | Fair | R | Trea | Oth- | Trans | Ret. | Tot. |
| | e | e | value | I | sury | er | l | earn-i | |
| | cap- | pre- | res. | U | shar | res. | diff. | ngs | |
| | ital | mium | | E | es | | | | |
| | | res. | | | | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| SHAREHOL | 58.6 | 72.9 | 0.1 | 0.0 | 0.0 | 8.9 | 5.4 | 90.5 | 236.4 |
| DERS' | | | | | | | | | |
| EQUITY | | | | | | | | | |
| 1.1.2007 | | | | | | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Cash | | | | | | | | | |
| flow | | | | | | | | | |
| hedgings | | | | | | | | | |
| : | | | | | | | | | |
--------------------------------------------------------------------------------
| Gains | | | 2.9 | | | | | | 2.9 |
| and | | | | | | | | | |
| losses | | | | | | | | | |
| recognis | | | | | | | | | |
| ed in | | | | | | | | | |
| sharehol | | | | | | | | | |
| ders' | | | | | | | | | |
| equity | | | | | | | | | |
--------------------------------------------------------------------------------
| Translat | 0.0 | 0.0 | 0.0 | | | 0.0 | -2.4 | 0.0 | -2.4 |
| ion | | | | | | | | | |
| differen | | | | | | | | | |
| ce | | | | | | | | | |
--------------------------------------------------------------------------------
| Other | | | | | | | | -0.3 | -0.3 |
| changes | | | | | | | | | |
--------------------------------------------------------------------------------
| Transfer | 0.0 | 0.0 | 0.0 | | | 1.7 | 0.0 | -1.7 | 0.0 |
| s | | | | | | | | | |
| between | | | | | | | | | |
| items | | | | | | | | | |
--------------------------------------------------------------------------------
| Net | 0.0 | 0.0 | 2.9 | | | 1.7 | -2.4 | -2.0 | 0.2 |
| gains | | | | | | | | | |
| and | | | | | | | | | |
| losses | | | | | | | | | |
| recongis | | | | | | | | | |
| ed | | | | | | | | | |
| directly | | | | | | | | | |
| in | | | | | | | | | |
| sharehol | | | | | | | | | |
| ders' | | | | | | | | | |
| equity | | | | | | | | | |
--------------------------------------------------------------------------------
| Profit | | | | | | | | 27.8 | 27.8 |
| for the | | | | | | | | | |
| period | | | | | | | | | |
--------------------------------------------------------------------------------
| Total | 0.0 | 0.0 | 2.9 | | | 1.7 | -2.4 | 25.8 | 28.0 |
| gains | | | | | | | | | |
| and | | | | | | | | | |
| losses | | | | | | | | | |
--------------------------------------------------------------------------------
| Dividend | | | | | | | | -9.3 | -9.3 |
| distribu | | | | | | | | | |
| tion | | | | | | | | | |
--------------------------------------------------------------------------------
| Share | 8.2 | | | 66.7 | | | | | 74.9 |
| issue | | | | | | | | | |
--------------------------------------------------------------------------------
| Purchase | | | | | -1.8 | | | | -1.8 |
| of | | | | | | | | | |
| treasury | | | | | | | | | |
| shares | | | | | | | | | |
--------------------------------------------------------------------------------
| Payments | | | | | 1.1 | | | -0.8 | 0.3 |
| made in | | | | | | | | | |
| treasury | | | | | | | | | |
| shares | | | | | | | | | |
--------------------------------------------------------------------------------
| Share | | 0.5 | | | | 0.2 | | -0.6 | 0.0 |
| options | | | | | | | | | |
| exercise | | | | | | | | | |
| d | | | | | | | | | |
--------------------------------------------------------------------------------
| TOTAL | 66.8 | 73.4 | 3.0 | 66.7 | -0.7 | 10.8 | 3.0 | 105.5 | 328.5 |
| SHAREHOL | | | | | | | | | |
| DERS' | | | | | | | | | |
| EQUITY | | | | | | | | | |
| 31.12.20 | | | | | | | | | |
| 07 | | | | | | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| | Shar | Shar | Fair | R | Treas | Other | Trans | Ret. | Tot. |
| | e | e | value | I | ury | res. | l | earn- | |
| | cap- | pre- | res. | U | share | | diff. | ings | |
| | ital | mium | | E | s | | | | |
| | | res. | | | | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| SHAREHOL | 58.6 | 72.9 | 1.0 | - | - | 8.6 | 4.8 | 73.2 | 219.1 |
| DERS' | | | | | | | | | |
| EQUITY | | | | | | | | | |
| 1.1.2006 | | | | | | | | | |
--------------------------------------------------------------------------------
| Cash | | | | | | | | | |
| flow | | | | | | | | | |
| hedgings | | | | | | | | | |
| : | | | | | | | | | |
--------------------------------------------------------------------------------
| Gains | | | -0.9 | | | | | | -0.9 |
| and | | | | | | | | | |
| losses | | | | | | | | | |
| recognis | | | | | | | | | |
| ed | | | | | | | | | |
| directly | | | | | | | | | |
| in | | | | | | | | | |
| sharehol | | | | | | | | | |
| ders' | | | | | | | | | |
| equity | | | | | | | | | |
--------------------------------------------------------------------------------
| Translat | 0.0 | 0.0 | 0.0 | | | 0.0 | 0.6 | 0.0 | 0.6 |
| ion | | | | | | | | | |
| differen | | | | | | | | | |
| ce | | | | | | | | | |
--------------------------------------------------------------------------------
| Other | 0.0 | 0.0 | 0.0 | | | 0.3 | 0.0 | -0.6 | -0.3 |
| changes | | | | | | | | | |
--------------------------------------------------------------------------------
| Transfer | 0.0 | 0.0 | 0.0 | | | 0.0 | 0.0 | 0.0 | 0.0 |
| s | | | | | | | | | |
| between | | | | | | | | | |
| items | | | | | | | | | |
--------------------------------------------------------------------------------
| Net | 0.0 | 0.0 | -0.9 | - | - | 0.3 | 0.6 | -0.6 | -0.6 |
| gains | | | | | | | | | |
| and | | | | | | | | | |
| losses | | | | | | | | | |
| recognis | | | | | | | | | |
| ed | | | | | | | | | |
| directly | | | | | | | | | |
| in | | | | | | | | | |
| sharehol | | | | | | | | | |
| ders' | | | | | | | | | |
| equity | | | | | | | | | |
--------------------------------------------------------------------------------
| Profit | | | | | | | | 27.2 | 27.2 |
| for the | | | | | | | | | |
| period | | | | | | | | | |
--------------------------------------------------------------------------------
| Total | 0.0 | 0.0 | -0.9 | - | - | 0.3 | 0.6 | 26.6 | 26.6 |
| gains | | | | | | | | | |
| and | | | | | | | | | |
| losses | | | | | | | | | |
--------------------------------------------------------------------------------
| Dividend | | | | | | | | -9.3 | -9.3 |
| distribu | | | | | | | | | |
| tion | | | | | | | | | |
--------------------------------------------------------------------------------
| TOTAL | 58.6 | 72.9 | 0.1 | - | - | 8.9 | 5.4 | 90.5 | 236.4 |
| SHAREHOL | | | | | | | | | |
| DERS' | | | | | | | | | |
| EQUITY | | | | | | | | | |
| 31.12.20 | | | | | | | | | |
| 06 | | | | | | | | | |
--------------------------------------------------------------------------------
RIUE = reserve for invested unrestricted equity
CASH FLOW STATEMENT
(EUR million)
--------------------------------------------------------------------------------
| | 2007 | 2006 |
--------------------------------------------------------------------------------
| Operating activities | | |
--------------------------------------------------------------------------------
| EBIT | 55.3 | 40.4 |
--------------------------------------------------------------------------------
| Adjustments to EBIT | -1.6 | -1.4 |
--------------------------------------------------------------------------------
| Depreciation and amortisation | 51.6 | 30.5 |
--------------------------------------------------------------------------------
| Change in provisions | -8.1 | 0.9 |
--------------------------------------------------------------------------------
| Change in net working capital | 50.1 | 6.3 |
--------------------------------------------------------------------------------
| Financial income and expenses | -19.3 | -6.8 |
--------------------------------------------------------------------------------
| Taxes | -6.8 | -5.5 |
--------------------------------------------------------------------------------
| Net cash flow from operating activities | 121.2 | 64.4 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Investing activities | | |
--------------------------------------------------------------------------------
| Gross investments in PPE | -131.6 | -82.6 |
--------------------------------------------------------------------------------
| Disposals of PPE | 15.8 | 6.4 |
--------------------------------------------------------------------------------
| Investments in subsidiary | -70.1 | |
--------------------------------------------------------------------------------
| Loans extended | -4.0 | |
--------------------------------------------------------------------------------
| Repayments of loans receivable | 2.1 | |
--------------------------------------------------------------------------------
| Net cash flow from investing activities | -187.8 | -76.2 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net cash flow before financing activities | -66.5 | -11.8 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Financing activities | | |
--------------------------------------------------------------------------------
| Current borrowings raised | 207.4 | |
--------------------------------------------------------------------------------
| Current borrowings repaid | -310.0 | |
--------------------------------------------------------------------------------
| Non-current borrowings raised | 522.1 | 24.2 |
--------------------------------------------------------------------------------
| Non-current borrowings repaid | -297.1 | -3.6 |
--------------------------------------------------------------------------------
| Change in long-term debtors | | -0.2 |
--------------------------------------------------------------------------------
| Dividends paid | -9.3 | -9.3 |
--------------------------------------------------------------------------------
| Purchase of treasury shares | -1.8 | |
--------------------------------------------------------------------------------
| Net cash flow from financing activities | 111.3 | 11.1 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Change in liquid assets | 44.7 | -0.7 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Cash and cash equivalents at 1.1. | 12.1 | 12.8 |
--------------------------------------------------------------------------------
| Cash and cash equivalents at 31.12. | 56.8 | 12.1 |
--------------------------------------------------------------------------------
FINANCIAL INDICATORS
--------------------------------------------------------------------------------
| | 2007 | 2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net sales, EUR million | 2 107.3 | 934.3 |
--------------------------------------------------------------------------------
| EBIT, EUR million | 55.3 | 40.4 |
--------------------------------------------------------------------------------
| - % of net sales | 2.6 | 4.3 |
--------------------------------------------------------------------------------
| Profit before taxes, EUR million | 36.3 | 33.6 |
--------------------------------------------------------------------------------
| - % of net sales | 1.7 | 3.6 |
--------------------------------------------------------------------------------
| Return on equity (ROE), % | 9.2 | 11.9 |
--------------------------------------------------------------------------------
| Return on investment (ROI), % | 7.2 | 10.1 |
--------------------------------------------------------------------------------
| Equity ratio, % | 29.3 | 43.7 |
--------------------------------------------------------------------------------
| Net gearing ratio, % | 137.0 | 76.2 |
--------------------------------------------------------------------------------
| Gross investments, EUR million | 129.3 | 82.6 |
--------------------------------------------------------------------------------
| - % of net sales | 6.1 | 8.8 |
--------------------------------------------------------------------------------
| R&D expenditure, EUR million | 15.6 | 8.5 |
--------------------------------------------------------------------------------
| - % of net sales | 0.7 | 0.9 |
--------------------------------------------------------------------------------
| Employees, average | 7 840 | 4 418 |
--------------------------------------------------------------------------------
PER SHARE DATA
--------------------------------------------------------------------------------
| | 2007 | 2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Earnings per share (EPS), diluted, EUR | 0.72 | 0.79 |
--------------------------------------------------------------------------------
| Equity per share, EUR | 8.36 | 6.86 |
--------------------------------------------------------------------------------
| Dividend per share, EUR 1) | 0.27 | 0.27 |
--------------------------------------------------------------------------------
| Dividend payout ratio, diluted, % | 37.7 | 34.2 |
--------------------------------------------------------------------------------
| Effective dividend yield, % | 1.9 | 1.9 |
--------------------------------------------------------------------------------
| Price/earnings ratio (P/E) | | |
--------------------------------------------------------------------------------
| - undiluted | 19.6 | 18.4 |
--------------------------------------------------------------------------------
| - diluted | 19.6 | 18.4 |
--------------------------------------------------------------------------------
| Lowest trading price, EUR | 12.22 | 8.35 |
--------------------------------------------------------------------------------
| Highest trading price, EUR | 21.02 | 15.19 |
--------------------------------------------------------------------------------
| Middle price, EUR | 16.54 | 11.02 |
--------------------------------------------------------------------------------
| Closing price on year, EUR | 14.04 | 14.50 |
--------------------------------------------------------------------------------
| Market capitalisation, EUR million | 551.9 | 499.7 |
--------------------------------------------------------------------------------
| Shares traded, 1,000 | 17 841 | 21 389 |
--------------------------------------------------------------------------------
| - % of average number | 53.4 | 73.6 |
--------------------------------------------------------------------------------
| Adjusted number of shares | | |
--------------------------------------------------------------------------------
| - average during the financial year | 38 784 | 34 463 |
--------------------------------------------------------------------------------
| - at end of financial year | 39 306 | 34 463 |
--------------------------------------------------------------------------------
| - fully diluted | 39 306 | 34 463 |
--------------------------------------------------------------------------------
1) Based on Board of Directors' dividend recommendation.
FORMULAE FOR FINANCIAL INDICATORS
Profit before taxes - taxes
Return on equity (%) ---------------------------------- x 100
Total shareholders' equity (average)
Profit before taxes + interest expenses
and other financial expenses
Return on investment (%) ----------------------------------- x 100
Balance sheet total - zero interest
debts (average)
Total shareholders' equity
Equity ratio (%) ----------------------------------- x 100
Balance sheet total - advances received
Net interest-bearing debt - cash and
cash equivalents
Net gearing ratio(%) ----------------------------------- x 100
Total shareholders' equity
Profit for the period attributable
to equity holders of the parent
Earnings per share --------------------------------------------
Average adjusted number of shares
during the financial year
Equity attributable to holders of the parent
Equity per share --------------------------------------------
Adjusted number of shares at end
of financial year
Dividend per share
Dividend per share ------------------------------------
Coefficient of share issues
after the financial year
Adjusted dividend per share
Dividend payout ratio (%) ------------------------------------ x 100
Earnings per share
Dividend per share
Effective dividend yield (%) ------------------------------------ x 100
Adjusted closing price on the last
trading day of the financial year
Adjusted closing price on the last
trading day of the financial year
P/E ratio ------------------------------------
Earnings per share
Market capitalisation Number of outstanding shares at the end of the
financial year x closing price at the last day
of the financial year
No. of employees Average of workforce figures calculated
at the end of calendar months
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING PRINCIPLES
HKScan Corporation's financial statement bulletin for 1 January - 31 December
2007 has been prepared in compliance with IAS 34 Interim Financial Reporting.
The consolidated financial statements have been prepared in compliance with the
International Financial Reporting Standards (IFRS) and the IAS and IFRS
standards and SIC and IFRIC interpretations valid at 31 December 2007.
Application of changes in or interpretations of IFRS as of 1 January 2007
- IFRS 7 Financial Instruments: Disclosures and amendment to IAS 1: Presentation
of Financial Statements. The application of these standards has resulted in the
company expanding and augmenting the Notes to the consolidated financial
statements.
- IFRIC 8 Scope of IFRS 2, IFRIC 9 Reassessment of Embedded Derivatives, IFRIC
10 Interim Financial Reporting and Impairment. These interpretations have not
affected the consolidated financial statements.
The figures reported in the financial statement bulletin are unaudited.
ANALYSIS BY SEGMENT (EUR million)
Net sales and EBIT by main market area *)
--------------------------------------------------------------------------------
| | Q4/2007 | Q4/2006 | 2007 | 2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net sales | | | | |
--------------------------------------------------------------------------------
| -Finland | 176.3 | 162.9 | 674.3 | 608.0 |
--------------------------------------------------------------------------------
| -Sweden | 295.7 | - | 1 111.9 | - |
--------------------------------------------------------------------------------
| -Baltics | 37.6 | 33.2 | 145.3 | 130.8 |
--------------------------------------------------------------------------------
| -Poland | 54.8 | 49.5 | 220.9 | 203.6 |
--------------------------------------------------------------------------------
| -Between segments | -12.2 | -2.8 | -45.0 | -8.2 |
--------------------------------------------------------------------------------
| Total | 552.2 | 242.8 | 2 107.3 | 934.3 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EBIT | | | | |
--------------------------------------------------------------------------------
| -Finland | 3.2 | 10.9 | 22.8 | 25.4 |
--------------------------------------------------------------------------------
| -Sweden | 7.7 | - | 23.0 | - |
--------------------------------------------------------------------------------
| -Baltics | 0.9 | 3.2 | 10.7 | 12.6 |
--------------------------------------------------------------------------------
| -Poland | 0.1 | 1.0 | 3.7 | 6.0 |
--------------------------------------------------------------------------------
| -Between segments | 0.0 | 0.0 | 0.0 | 0.0 |
--------------------------------------------------------------------------------
| -Group admin. costs | -0.4 | -1.4 | -5.0 | -3.5 |
--------------------------------------------------------------------------------
| Total | 11.5 | 13.7 | 55.3 | 40.4 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EBIT from operations | | | | |
--------------------------------------------------------------------------------
| -Finland | 9.3 | 10.0 | 33.3 | 27.4 |
--------------------------------------------------------------------------------
| -Sweden | 7.7 | - | 23.0 | - |
--------------------------------------------------------------------------------
| -Baltics | 0.9 | 3.2 | 10.1 | 11.2 |
--------------------------------------------------------------------------------
| -Poland | 0.1 | 1.0 | 3.7 | 6.0 |
--------------------------------------------------------------------------------
| -Between segments | 0.0 | 0.0 | 0.0 | 0.0 |
--------------------------------------------------------------------------------
| -Group admin. costs | -0.4 | -1.4 | -5.0 | -2.8 |
--------------------------------------------------------------------------------
| Total | 17.5 | 12.8 | 65.2 | 41.8 |
--------------------------------------------------------------------------------
*) The company has reported Group administration costs as a separate item since
Q2/2007, thus improving the comparability of market area profitability. Group
administration costs consist mainly of salary and pension costs as well as
certain notional costs of the management incentive system, among others.
CHANGES IN TANGIBLE AND INTANGIBLE ASSETS
--------------------------------------------------------------------------------
| | 2007 | 2006 |
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| Carrying value at 1 Jan | 352.4 | 317.1 |
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| Increase | 131.0 | 71.4 |
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| Increase (acquisitions) | 209.2 | - |
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| Decrease | -13.6 | -5.2 |
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| Depreciation and impairment | -51.9 | -30.5 |
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| Transfer to other balance sheet item | 0.1 | -0.4 |
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| Carrying value at 30 Sept | 627.2 | 352.4 |
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INVENTORIES
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| | 2007 | 2006 |
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| Materials and supplies | 85.5 | 28.1 |
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| Unfinished products | 10.8 | 4.3 |
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| Finished products | 28.5 | 12.7 |
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| Goods | 0.0 | 0.1 |
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| Other inventories | 3.9 | 1.7 |
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| Prepayments | 0.6 | 0.5 |
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| Live animals, IFRS 41 | 10.9 | 10.9 |
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| Total inventories | 140.2 | 58.4 |
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NOTES TO SHAREHOLDERS' EQUITY
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| | Number of | Share | Share | Reserve for | Treasury | Tot. |
| | outstandin | capital | premiu | invested | shares | |
| | g shares | | m | unrestricte | | |
| | | | reserv | d equity | | |
| | | | e | | | |
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| Share | | | | | | |
| capital | | | | | | |
| and share | | | | | | |
| premium | | | | | | |
| reserve | | | | | | |
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| 1.1.2007 | 34 463 193 | 58.6 | 72.9 | 0.0 | | 131.5 |
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| Directed | 4 843 000 | 8.2 | | 66.7 | | 74.9 |
| issue | | | | | | |
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| Purchase | -100 000 | | | | -1.8 | -1.8 |
| of | | | | | | |
| treasury | | | | | | |
| shares | | | | | | |
--------------------------------------------------------------------------------
| Assignment | 59 976 | | | | 1.1 | 1.1 |
| of | | | | | | |
| treasury | | | | | | |
| shares | | | | | | |
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| 31.12.2007 | 39 266 193 | 66.8 | 72.9 | 66.7 | -0.7 | 205.7 |
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INTEREST-BEARING LIABILITIES
At the end of Q2, HKScan signed a EUR 550 million multi-currency financing
agreement with an international syndicate of banks. The loan facility comprises
a EUR 275 million seven-year amortising term loan and a EUR 275 million
five-year credit limit. This arrangement refinanced most of HKScan's current
loan portfolio and will support the company's future financing needs. It will
extend the average loan period of the Group's loan stock. The loans to be drawn
in this arrangement are subject to variable interest rates. The loan is subject
to ordinary covenants. The financial covenants are gearing ratio and ratio of
net debt to EBITDA.
At 31 December 2007, EUR 164 million remained to be drawn upon. In addition, the
Group had other untapped credit lines of EUR 53 million at the time. The EUR 100
million commercial paper programme had been drawn upon in the amount of EUR 23
million.
FINANCIAL RISKS
Financial risks consist of refinancing and liquidity risk, counterparty risk in
financial contracts, foreign exchange risk, interest rate risk, commodity risk
and credit risk. Financial risks and financial risk management are part of the
Group's treasury policy. The policy observed has been adopted by the Board and
its implementation is centralised to a finance unit led by the Group's CFO. In
Q3, the Board specified the Group's financial risk management principles in
respect of equity hedging. Hedging level targets were set for each currency.
The purpose of capital management in the Group is to support business through an
optimal capital structure by safeguarding a normal operating environment and
enabling organic and structural growth. Capital structure is influenced by
controlling the amount of working capital tied up in the business and through
reported profit/loss, distribution of dividend and share issues. The Group may
vary and adapt the amount of dividends paid to shareholders within the limits of
the dividend policy. The Group may also decide on the disposal of assets to
reduce liabilities.
Financial risks and capital management will be discussed in more detail in the
Notes to the 2007 financial statements.
CONSOLIDATED CONTINGENT LIABILITIES
(EUR mill.)
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| | 31.12.2007 | 31.12.2006 |
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| Debts secured by | | |
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| pledges or mortgages | 36.0 | 50.4 |
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| - loans from financial institutions | | |
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| Given as security | | |
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| - real estate mortgages | 31.4 | 47.9 |
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| - pledges | 19.1 | 13.5 |
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| - floating charges | 10.9 | 10.6 |
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| For associates | | |
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| - guarantees | 7.0 | 3.6 |
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| Security for debts | | |
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| - guarantees and pledges | 9.6 | 8.3 |
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| Other contingencies | | |
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| Leasing commitments | 10.5 | 1.1 |
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| Other rent liabilities | 17.2 | 2.7 |
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| Other liabilities | 2.2 | 0.0 |
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| Derivative instrument liabilities | | |
--------------------------------------------------------------------------------
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| Nominal values of derivative instruments | | |
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| Foreign exchange contracts | 64.9 | 4.2 |
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| Interest swap contracts | 162.1 | 0.0 |
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| Electricity futures | 5.1 | 6.5 |
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| Fair values of derivative instruments | | |
--------------------------------------------------------------------------------
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| Foreign exchange contracts | 0.0 | 0.0 |
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| Interest swap contracts | 0.1 | 0.0 |
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| Electricity futures | 1.1 | 0.2 |
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BUSINESS TRANSACTIONS WITH ASSOCIATES
--------------------------------------------------------------------------------
| | 2007 | 2006 |
--------------------------------------------------------------------------------
| Sales to associates | 38.9 | 1.8 |
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| Purchases from associates | 35.5 | 8.5 |
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| Trade and other receivables | 1.9 | 0.2 |
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| Trade payables and other liabilities | 11.1 | 0.4 |
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BUSINESSES ACQUIRED
The Group expanded significantly with the early 2007 acquisition by HKScan
Corporation of the entire business of Swedish Meats, which was incorporated into
Scan AB prior to the sale. The deal was signed on 29 January 2007 but under the
contract, operations transferred to HKScan Corporation already on 1 January
2007.
The purchase price was paid in part with a directed issue to Swedish Meats:
4 843 000 A Shares in HKScan Corporation. The fair value of the share
contribution was EUR 75.3 million. Fair value is based on HKScan Corporation's
share price at 29 January 2007 (EUR 15.55). The number of shares issued is equal
to ca. 12.3 percent of the share capital of HKScan Corporation and ca. 3.4
percent of votes subsequent to the share issue. Subsequent to the share issue
and the stock swap to be executed with LSO Osuuskunta, communicated in the
release of 13 December 2006, Swedish Meats' holding in HKScan consists of 4 178
000 A Shares and 665 000 K Shares, equal to 12.32 percent of the company's
shares and votes. The directed issue to Swedish Meats resulted in the share
capital of HKScan Corporation rising from EUR 58 587 428.10 to EUR 66 820
528.10. The increase in share capital was entered in the Trade Register on 26
February 2003.
In addition to the share consideration, the purchase price also consisted of a
cash consideration of approximately EUR 76 million (SEK 692 million). A further
element of the deal was HKScan Corporation assuming liability for Swedish Meats'
debt amounting to a net value of some EUR 171 million or SEK 1.6 billion. The
sum of some EUR 7 million (ca. SEK 66 million) will be paid over the next five
years in additional purchase price, conditional however on the repayment to Scan
AB of certain Swedish Meats' membership loans of equivalent value.
Before measurement to fair value of the balance sheet to be acquired, goodwill
amounted to some EUR 50 million. At the time the deal was announced, it was
stated that purchase price would be allocated to intangible assets under brands.
A key rationale for the deal was the acquisition of Sweden's leading meat sector
brand. The purchase price allocation process completed at the end of the year
involved remeasurement to fair value of Scan AB's assets acquired and debts
assumed. In the remeasurement, a value of EUR 46.8 million was allocated to
Scan's brands based on the company's own estimates and external evaluations
commissioned by the company and the seller. The fair values of the production
plants affected by the efficiency programme announced in May 2007 in
continuation of the consolidation programme launched by Swedish Meats back in
2006 were measured at EUR 23.0 million below original carrying values. No
material differences between carrying value and fair value were found in respect
of the other assets acquired and debts assumed. The remaining goodwill of EUR
31.9 million is based on HKScan's stronger position as one of the leading
northern European meat companies and the potential for substantial synergy
benefits i.a. in purchasing, production and marketing.
Allocation of purchase price
The following assets and liabilities have been recognised on the object of
acquisition:
(EUR million)
Fair values recorded Carrying values
on consolidation prior to consolidation
HKScan Group Scan AB
2007 2007
Intangible assets 1. 61.6 14.8
Goodwill (on Scan Group's
balance sheet) 16.7 16.7
Property, plant and
equipment 2. 122.3 145.3
Deferred tax and other
Assets 3. 35.2 28.8
Inventories 61.2 61.2
Trade receivables 146.3 146.3
Cash and cash equivalents 16.7 16.7
TOTAL ASSETS 460.0 429.8
Minority interest 2.5 2.5
Provisions 8.9 8.9
Deferred tax liability 4. 17.4 4.3
Non-current liabilities 106.5 106.5
Current liabilities 178.2 178.2
TOTAL LIABILITIES 313.5 300.4
NET ASSETS 146.5 129.4
Purchase price 157.2 157.2
Expert expenditure 4.5 4.5
Total purchase price 161.7 161.7
Goodwill arising on transaction 15.2
Goodwill shown on Scan's balance sheet 16.7
Total goodwill 31.9
Recognitions:
1. Remeasurement to fair value
of intangible assets 46,8
2. Remeasurement to fair value
of PPE -23,0
3. Deferred tax asset
on remeasurement 6.4
4. Deferred tax liability
on remeasurement 13.1
Cash consideration paid 76.2
Cash and cash equivalents
of subsidiary acquired -16.7
Cash flow effect 59.5
HKScan Corporation
Kai Seikku
CEO
Further information is available from CEO Kai Seikku. Please leave any messages
for him to call with Katja Backman on +358 (0)10 570 2428
With home markets in Finland, Sweden, the Baltics and Poland, HKScan is one of
the leading food companies in northern Europe. HKScan manufactures, sells and
markets pork and beef, poultry products, processed meats and convenience foods
under several well-known local brand names for retail, the HoReCa sector,
industry and export customers. HKScan is active in nine countries and has some
10,000 employees. Annual net sales are in excess of two billion euro.
DISTRIBUTION:
OMX Nordic Exchange
Financial Supervision Authority
Main media
www.hkscan.com
