Third quarter report 2017
- The Irish company Manor Farm was acquired as of 28 August 2017 and is included in the quarter with net sales of MSEK 165.8 and adjusted operating income*of MSEK 10.0 net of amortization of intangible assets referring to the acquisition.
- Net sales for the Group rose by 16 percent to MSEK 1,824.7 (1,569.9.) Excluding Manor Farm, the increase was 6 percent and referred to Sweden, Finland and Denmark.
- Adjusted operating income* increased by 11 percent to MSEK 84.4 (76.1), corresponding to a margin of 4.6 (4.8) percent. Adjusted operating income* improved in Denmark and Norway, but declined in Sweden and Finland.
- The bird flu had a negative impact of approximately MSEK 9 on adjusted operating income* for Sweden, which was also impacted by a decline in market demand following the attention paid to the campylobacter issue.
- Income for the period amounted to MSEK 46.5 (49.6) and earnings per share were SEK 0.75 (0.83).
- Operating cash flow was MSEK 114.4 (15.1), positively impacted by an improvement in working capital and the income contribution from Manor Farm. Net interest-bearing debt increased to MSEK 1,932.4 (1,542.6), mainly as a result of the acquisition of Manor Farm.
| MSEK | Q3 2017 |
Q3 2016 | Change | 9m 2017 |
9m 2016 | Change | LTM | 2016 |
| Net sales | 1,824.7 | 1,569.9 | 16% | 5,040.3 | 4,459.8 | 13% | 6,547.9 | 5,967.4 |
| Adjusted EBITDA* | 141.8 | 124.8 | 14% | 378.5 | 363.2 | 4% | 466.9 | 451.6 |
| Depreciation and amortization | -57.4 | -49.5 | 16% | -164.8 | -146.1 | 13% | -220.0 | -201.3 |
| Adjusted operating income* | 84.4 | 76.1 | 11% | 213.7 | 218.7 | -2% | 246.6 | 251.6 |
| Non comparable items | -0.5 | -0.7 | - | -9.5 | -1.8 | - | -21.1 | -13.4 |
| Operating income | 83.9 | 75.4 | 11% | 204.2 | 216.9 | -6% | 225.5 | 238.2 |
| Finance net | -25.9 | -12.0 | 116% | -54.0 | -49.7 | 9% | -75.6 | -71.3 |
| Income after finance net | 57.9 | 63.4 | -9% | 150.2 | 167.2 | -10% | -149.9 | -166.9 |
| Income tax expense | -11.4 | -13.8 | -17% | -40.5 | -36.5 | 11% | -39.5 | -35.5 |
| Income for the period | 46.5 | 49.6 | -6% | 109.7 | 130.7 | -16% | 110.4 | 131.4 |
| Adjusted EBITDA margin* | 7.8% | 7.9% | - | 7.5% | 8.1% | - | 7.1% | 7.6% |
| Adjusted operating margin* | 4.6% | 4.8% | - | 4.2% | 4.9% | - | 3.8% | 4.2% |
| Earnings per share, SEK | 0.75 | 0.83 | -10% | 1.82 | 2.19 | -17% | 1.83 | 2.21 |
| Adjusted return on operating capital employed* | 7.8% | 11.4% | - | 7.8% | 11.5% | - | 7.8% | 10.3% |
| Return on equity | 19.4% | 28.0% | - | 19.4% | 28.0% | - | 19.4% | 33.0% |
| Operating cash flow | 114.4 | 15.1 | - | 114.1 | 83.7 | - | 143.1 | 112.7 |
| Net interest-bearing debt | 1,932.4 | 1,542.6 | 25% | 1,932.4 | 1,542.6 | 25% | 1,932.4 | 1,515.4 |
* Adjusted for non-comparable items, see page 3.
The CEO comments on the third quarter
The acquisition of Manor Farm, the largest chicken processor in Ireland, was completed as of 28 August 2017 and the operation is included in the Group from this date. With margins in line with our most profitable segments and scope for improvements through best practice initiatives, I am confident that this acquisition will become a strong contributor to the Group.
The Group’s net sales totalled MSEK 1,824.7 in the quarter, of which MSEK 165.8 originated in Ireland. Excluding Ireland, net sales increased by 6 percent compared to the third quarter 2016. Net sales in Sweden and Denmark rose by 5 percent and 3 percent respectively, while net sales in Norway were unchanged from last year. Net sales in Finland were 70 percent higher than in the third quarter last year, but in line with the average of the first two quarters of 2017.
Adjusted operating income was MSEK 84.4 in the quarter, of which MSEK 10.0 originated in Ireland. Excluding Ireland, adjusted operating income was MSEK 74.4 compared to MSEK 76.1 in the third quarter 2016.
Adjusted operating income for the Swedish operation was MSEK 41.0 compared to MSEK 51.0 last year. Adjusted operating income was adversely impacted by bird flu effects of approximately MSEK 9. 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. We expect the bird flu effects for the Group to be MSEK
2-4 per month in the fourth quarter 2017.
In addition to the effects of the bird flu, the results for the Swedish operation continued to be 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 recorded in the first half 2017. I am pleased to report that the levels in the third quarter were below normal for the season. We expect demand for chilled products and the results in Sweden to gradually improve in the new year.
The Danish operation showed a continued improvement in the quarter. Adjusted operating income increased to MSEK 34.6, compared to MSEK 30.4 last year, corresponding to a margin of 5.3 percent compared to 4.8 percent. The improvement in the quarter was primarily driven by better export prices, efficiency gains and higher net sales of ready-to-eat products. Although the launch of the premium products under the new brand De Danske Familiegårde has been successful, it is a long-term investment and it will take time before these products will account for any significant share of net sales and income. The main part of our products in Denmark will continue to be standard products subject to strong competition.
The operation in Norway delivered the strongest margin in the Group of 7.8 percent also in this quarter. Adjusted operating income increased by 34 percent to MSEK 28.0 compared to MSEK 20.9 last year. The performance was driven by a combination of product innovation and increased plant efficiency. Net sales increased in the retail channel, while net sales in the food-service channel declined as a result of a rationalization of the product range.
When it comes to the operation in Finland, we did not achieve the improvement expected in the quarter. Adjusted operating income was MSEK -12.7, including clean-up costs of approximately MSEK 2, compared to MSEK -11.1 last year. We saw an improvement at the end of the period, however. We changed management in Finland during the quarter. In addition, the number of employees was reduced in production, which did not have a full impact on operating income during the quarter. We continue to implement the measures necessary to reach break-even as soon as possible.
The integration of Manor Farm is progressing according to plan. There is potential for increasing efficiency in a number of areas and several intragroup projects have already been initiated. A number of improvement projects have been identified and are currently being quality assured pending implementation.
Despite a challenging working capital situation in Sweden with high inventories, I am pleased that the measures initiated earlier this year to improve cash flow has started to yield results. Operating cash flow in the quarter was MSEK 114.4 compared to MSEK 15.1 in the third quarter last year. Capital expenditure was lower than last year and equalled 92 percent of depreciation. We remain conservative with investments during the rest of the year and will prioritize projects within the ready-to-eat segment and in Ireland. The initiatives to further improve cash flow will continue and we expect to see a net release during the next quarters.
Leif Bergvall Hansen
Managing Director and CEO
Further information
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 |
Financial calendar
| Fourth quarter and year-end report 2017 | 20 February 2018 |
| First quarter report 2018 | 3 May 2018 |
| Annual General Meeting | 22 May 2018 |
| Second quarter report 2018 | 22 August 2018 |
| Third quarter report 2018 | 31 October 2018 |
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 22 November 2017.
Tags: