Second quarter report 2017
- Net sales increased by 8 percent to MSEK 1,621.8 (1,503.5), and by 6 percent at constant exchange rates. All countries contributed to the increase.
- Adjusted operating income* declined to MSEK 70.0 (74.3), corresponding to a margin of 4.3 (4.9) percent. Adjusted operating income* improved in Denmark, Norway and Finland, but declined in Sweden. Adjusted EBITDA* was unchanged from last year.
- The bird flu had a negative impact of approximately MSEK 13 on adjusted operating income* in the quarter, referring to Sweden and Denmark.
- Income for the period declined to MSEK 33.3 (38.8) and earnings per share were SEK 0.56 (0.65).
- Operating cash flow amounted to MSEK -5.3 (33.1), negatively impacted mainly by a less favourable trend in working capital compared to last year. Net interest bearing debt was MSEK 1,618.8 (1,486.6).
- The EGM on 15 August 2017 authorised the share issue required to complete the acquisition of Manor Farm, which is expected to be completed 28 August 2017.
|MSEK||Q2 2017||Q2 2016||Change||H1 2017||H1 2016||Change||LTM||2016|
|Net sales||1,621.8||1 503.5||8%||3,215.6||2,889.9||11%||6,293.1||5,967.4|
|Depreciation and amortization||-53.9||-48.9||10%||-107.4||-96.6||11%||-212.1||-201.3|
|Adjusted operating income*||70.0||74.3||-6%||129.3||142.6||-9%||238.3||251.6|
|Non comparable items||-7.8||-||-9.0||-1.1||-21.3||-13.4|
|Income after finance net||53.1||49.9||6%||92.2||103.8||-11%||-155.3||-166.9|
|Income tax expense||-19.9||-11.1||79%||-29.1||-22.7||28%||-41.9||-35.5|
|Income for the period||33.3||38.8||-14%||63.2||81.1||-22%||113.5||131.4|
|Adjusted EBITDA margin*||7.6%||8.2%||-||7.4%||8.3%||-||7.1%||7.6%|
|Adjusted operating margin*||4.3%||4.9%||-||4.0%||4.9%||-||3.8%||4.2%|
|Earnings per share, SEK||0.56||0.65||-14%||1.06||1.36||-22%||1.41||2.21|
|Adjusted return on capital employed*||9.1%||11.8%||-||9.1%||11.8%||-||9.1%||10.3%|
|Return on equity||23.5%||29.1%||-||23.5%||29.1%||-||23.5%||33.0%|
|Operating cash flow||-5.3||33.1||-||-0.3||68.6||-||37.4||112.7|
|Net interest-bearing debt||1,618.8||1,486.6||9%||1,618.8||1,486.6||9%||1,618.8||1,515.4|
* Adjusted for non-comparable items, see page 4.
Scandi Standard is the largest producer of chicken-based food products in the Nordic region with leading positions in Sweden, Denmark and Norway. The company produces, markets and sells chilled and frozen products under the brands Kronfågel, Danpo, Den Stolte Hane, Vestfold Fugl, Ivars, Chicky World and Naapurin Maalaiskana, as well as for private labels. For more information, see www.scandistandard.com
Net revenues increased by 8 percent in the second quarter compared to the same period last year, totalling MSEK 1,621.8 million. All geographic entities contributed to the growth.
I am pleased to report that adjusted operating income improved by MSEK 10.7 from the first quarter, of which approximately half refers to a less negative impact from the bird flu. Adjusted operating income in the quarter amounted to MSEK 70.0 compared to MSEK 74.3 in the second quarter last year, and MSEK 59.3 in the first quarter 2017. Adjusted EBITDA was in line with the second quarter last year.
Adjusted operating income in the quarter was adversely impacted by bird flu effects of MSEK 13, of which MSEK 11 referred to Sweden and MSEK 2 to Denmark. As a new case of bird flu was detected in a Swedish commercial flock during the second quarter, trade restrictions for Swedish poultry products are expected to remain for some time, with accompanying adverse effects on operating income. However, as restrictions for Danish products have been lifted, we expect the bird flu effects for the Group to decline to about MSEK 3-5 in the third quarter and to gradually decline thereafter.
In addition to the effects of the bird flu, the results for the Swedish operation was negatively impacted by weaker than normal demand for chilled products in the retail channel. This was mainly caused by the attention paid to the higher than normal levels of campylobacter. Operating income amounted to MSEK 34.2 compared to MSEK 51.8 last year. As a result of the efforts aimed at reducing campylobacter levels, I am pleased to report that these are now down to normal levels for the season. We expect demand for chilled products and results in Sweden to gradually improve.
As earlier communicated, we are approaching capacity constraints in Sweden and are continuing to consider options for long-term expansion, either at our main plant in Valla or at a potential new plant in southern Sweden. We expect to revert with more information on this later this year.
We made strong improvements in our Danish operation in the quarter. Adjusted operating income increased by 35 percent from last year to MSEK 29.3. Over the last quarters we have initiated a number of measures to break out of the commoditised market dynamics. Based on the acquisition of Sødam we have introduced a range of both organic and free range chicken under a new brand, De Danske Familiegårde. Heavy consumer marketing and an extension of the product range in the third quarter 2017 will contribute to building consumer preference. Although the initiatives have been well received, the main part of our products in Denmark will still be standard products subject to strong competition.
The operations in Norway continued its strong performance generating a growth in net sales of 6 percent. Adjusted operating income increased by 27 percent from the second quarter last year to MSEK 33.0. The improvement in net sales was achieved through successful product launches in important segments. The improvement in earnings was mainly driven by the significant capex projects implemented over the past 12 months linked to the specialisation of our two main plants, which together with the sharing of best practice allowed for increased efficiency.
In line with the target communicated in connection with the report for the first quarter 2017, we managed to bring losses in Finland below MSEK 10 in the second quarter. Several improvements were carried out in the quarter, including a significant debottlenecking in the packaging capacity. We are fully focused on continuing the improvements quarter by quarter.
Cash flow in the quarter was negatively impacted by a build-up of working capital of MSEK 68.9, mainly related to the issues in Sweden. Capital expenditure was significantly below last year, however, and totalled MSEK 52.6 compared to MSEK 93.8 last year. The dividend of MSEK 80.2 was paid in the quarter. Net debt increased by MSEK 98.0 during the quarter to MSEK 1,618.8.
I am enthusiastic about the Manor Farm deal, expected to be completed on 28 August 2017, which will increase our revenues by approximately 25 percent. With margins in line with our existing operations and scope for improvement through best practice initiatives, I am confident that the entity will become a strong contributor to the Group. The company is well run and is the clear market leader in chicken in the Irish retail market. With its capable and experienced management team, the business can be run with a high degree of autonomy while additional steps, which have been identified, can be taken to capture the benefits of best practice. As many of our risks are country specific, the acquisition is also likely to reduce our earnings volatility through increased geographical diversification.
The deal met our financial criteria in terms of expected earnings per share accretion and an attractive acquisition multiple. Furthermore, the limited upfront cash consideration leaves our leverage ratio largely unaffected by the transaction, which is an important criterion in terms of allowing a competitive direct yield going forward. Finally, the transaction structure secures alignment of interests and clear incentives for the management of Manor Farm to further develop the business. We are looking forward to becoming a part of the Irish food processing industry and to building on the company's strong relationships in that market.
Although operating income for the Group will continue to be negatively impacted by weaker than normal performance in Sweden and continued losses in Finland, I anticipate that we will be able to generate a sequential improvement of operating income and margin for our existing operations in the coming quarters. In addition Manor Farm, which is expected to be consolidated as of 28 August 2017, will contribute positively. Together with measures to reduce working capital, this should generate an improvement of cash flow in the second half of the year.
Leif Bergvall Hansen
Managing Director and CEO
For further information, please contact:
|Leif Bergvall Hansen, Chief Executive Officer||Tel: +45 22 10 05 44|
|Anders Hägg, Chief Financial Officer||Tel: +46 72 402 34 90|
|Henrik Heiberg, Head of M&A, Financing & IR
||Tel: +47 917 47 724|
This interim report comprises information which Scandi Standard is required to disclose under the Securities Markets Act and/or the Financial Instruments Trading Act. It was released for publication at 07:30 CET on 23 August 2017.