Atria had a strong third quarter: the company's net sales and EBIT increased, and profitability was at a good level

Atria Plc, Interim report, 22 October 2020, 8.00 am

Interim report of Atria Plc, 1 January–30 September 2020

Atria had a strong third quarter: the company's net sales and EBIT increased, and profitability was at a good level

July–September 2020
- Consolidated net sales totalled EUR 382.4 million (EUR 366.0 million).
- Consolidated EBIT was EUR 19.0 million (EUR 16.7 million), or 5.0 per cent (4.6%) of net sales.
- All business areas posted a positive EBIT.
- Atria Finland's net sales increased, and EBIT was on par with the previous year. Net sales and EBIT were boosted by pork exports to China.
- Both Atria Sweden and Atria Russia improved their EBIT substantially.
- Atria Sweden's earnings were bolstered by improved management of costs, the strengthening of the Swedish krona and continued growth in the sale of poultry products.
- Atria Russia's earnings improved due to good retail sector and fast food sales.
- Atria Denmark & Estonia's profitability remained good. The good earnings are based on strong growth in sales to the retail sector.

January–September 2020
- Consolidated net sales totalled EUR 1,105.4 million (EUR 1,071.3 million).
- Consolidated EBIT was EUR 25.4 million (EUR 19.1 million), or 2.3 per cent (1.8%) of net sales.
- The Group's net sales increased by over three per cent owing to good sales to the retail sector and exports to China. Sales to Food Service customers were at a notably lower level than in the previous year.
- Consolidated EBIT was boosted by the growth in net sales and the improved composition of sales, as well as increased pork exports from Finland to China.
- Atria Sweden's net sales increased by almost four per cent, thanks in particular to the strong sale of poultry products. Operating loss decreased substantially.
- Atria Denmark & Estonia posted a net sales growth of nearly 15 per cent owing to strong sales to the retail sector.
- Market disruption caused by the coronavirus pandemic has reduced business predictability.

After the review period:
- Atria published a new Group strategy: "Atria is a Winning Northern European Food Company".
- Atria will invest EUR 155 million to expand poultry production in Finland.
 

Juha Gröhn, CEO

"The third quarter of 2020 was strong for Atria, both in terms of growth and earnings. Net sales increased by more than EUR 16 million and totalled approximately EUR 382 million. EBIT improved from below EUR 17 million to EUR 19 million. All business areas posted a positive EBIT, and we reached the Group's EBIT target of five per cent.

Since the beginning of the year, our net sales have increased by more than EUR 34 million and EBIT has improved by about EUR 6 million - at the end of September, the net sales amounted to EUR 1,105 million and EBIT to approximately EUR 25 million.

We have countered the harmful effects of the coronavirus by concentrating on measures to prevent the disease from spreading and by performing our future-oriented activities in the planned timetable to our best capacity. None of our production units have had to cease their industrial operations on account of coronavirus.

Over the summer, our sales recovered from the drop experienced in the spring, and the barbecue season, important to Atria, was a success. In a similar vein, the sales of Food Service products improved from the spring, although we do have ground to cover to attain the volume of sales from last year. Retail trade represents Atria's biggest sales channel and up to this point, the increase in sales to the retail sector has made up for the decrease in Food Service sales. It appears that people have a strong desire to return to their former eating habits, as soon as circumstances allow.

Good customers, diverse product selection, well-known brands, strong market position and the attitude of the personnel towards their work, also support Atria's success at present. Pork exports to China, in particular, have increased and the development of the Chinese market has a substantial bearing on the market situation for pork. About one-fifth of the pork processed by Atria is currently exported to China.

In the coming winter, the effectiveness of the measures to control the spread of coronavirus will have a decisive impact on our operations as well as our earnings. The incidence of the disease, the restrictions placed to prevent the disease from spreading and the measures decided upon independently by companies have a direct impact on the behaviour of people in general, as well as the consumer.

Following the end of the review period, we launched a new Group strategy: "Atria is a Winning Northern European Food Company". Over the coming strategy period, our primary objectives are achieving profitable growth in our Swedish operations, raising the efficiency of our production and delivery chain to a new level and improving the profitability of our red meat business. Furthermore, we will make considerable inputs to achieve growth in our poultry, convenience food and Food Service businesses.

As part of the strategy implementation, Atria made the decision to invest in expanding its poultry production in Finland. We are investing EUR 155 million into our new production plant in Nurmo. The investment will be carried out between 2020 and 2024. Through this investment, we want to do our part in safeguarding domestic food production and also enhance our competitiveness.”

July–September 2020

Atria Group’s net sales for July–September totalled EUR 382.4 million (EUR 366.0 million). EBIT was EUR 19.0 million (EUR 16.7 million). Atria's net sales increased 4.5%, due to increased sales to the retail sector and to Atria Finland's export customers. Sales to Food Service customers were at a lower level than in the corresponding period last year.

All business areas posted a positive EBIT. Atria Finland's EBIT was strong, reaching the level of the corresponding period last year. Costs associated with Atria Finland's brand reform were allocated to the review period. In all business areas EBIT was bolstered through increased sales, high efficiency of operations and improved cost management.

In June, pandemic restrictions began to be lifted. However, although the volume of sales to Food Service customers started picking up, they failed to return to their pre-coronavirus levels by September's end. At production plants, additional expenses were incurred from special arrangements made to prevent the spreading of the coronavirus.

Atria Finland's net sales for July-September totalled EUR 266.1 million (EUR 257.5 million). The increase in net sales was due to increased sales to the retail sector and to export customers. In particular, pork exports to China have grown compared with the previous year, improving profitability. Sales of Food Service products fell below the level of the corresponding period a year ago. EBIT was EUR 15.2 million (EUR 15.3 million). The efficiency of industrial operations was at a good level. Moreover, EBIT was bolstered by the excellent sales success in the barbecue season. In August, Atria launched a revised Atria brand image, which is delivered to consumers in revamped product packaging and marketing communication. Costs relating to the brand reform were allocated to the review period.

Atria Sweden's net sales for July-September totalled EUR 79.4 million (EUR 73.8 million). In the local currency, net sales improved by nearly five per cent year-on-year. Sales to the retail sector increased, but sales to fast food and Food Service customers decreased, as a result of a change in the market caused by coronavirus restrictions. EBIT was EUR 1.4 million (EUR 0.0 million). The improvement in EBIT was due to increased net sales, better management of costs and the strengthening of the Swedish krona.

Atria Denmark and Estonia's net sales for July-September totalled EUR 26.9 million (EUR 24.7 million). EBIT was EUR 2.1 million (EUR 1.7 million). Atria Denmark & Estonia's profitability remained good. The good earnings are based on strong growth in sales to the retail sector. Exports from Denmark fell slightly below the level of the corresponding period last year. In Estonia, Atria's sales to the retail sector increased by nearly six per cent. Net sales were bolstered by the price increases implemented early in the year.

Atria Russia's net sales for July–September totalled EUR 19.6 million (EUR 20.7 million). In the local currency, net sales grew by nearly 12 per cent. EBIT was EUR 0.9 million (EUR 0.4 million). Sales to the retail sector and fast food customers increased considerably over the previous year's corresponding period. In particular, sales of Casademont products experienced strong growth. Sales to Food Service customers began to recover following the lifting of coronavirus restrictions, but nevertheless fell below the previous year's level. The measures carried out at production plants to prevent the spreading of coronavirus continued to incur some additional expenses.

January–September 2020

Atria Group’s net sales for January–September totalled EUR 1,105.4 million (EUR 1,071.3 million). EBIT amounted to EUR 25.4 million (EUR 19.1 million). Atria's net sales in Finland grew thanks to increased sales to the retail sector and exports. In particular, pork exports to China established positively. Atria Finland saw its EBIT improve as a result of increased net sales, better overall productivity and improved composition of sales.

Atria Sweden's net sales, measured in the local currency, grew by 3.6 per cent from the previous year and EBIT was substantially better than last year. Profitability has increased due to improved efficiency, lower costs and the strengthening of the Swedish krona. Atria Sweden's EBIT for the comparable period includes EUR 1.4 million of costs related to employee arrangements.

Atria Denmark & Estonia’s net sales grew by more than EUR  10 million, which was due to an increased volume of sales to the retail sector and higher prices. Throughout this year, Atria Russia's sales to the retail sector have been at a substantially higher level than last year. Sales of Casademont products increased substantially throughout the review period.

The exceptional circumstances caused by the coronavirus pandemic affected Atria's business environment from the end of the first quarter. National restrictions and recommendations related to restaurant operations and public food services had an impact on Atria's business. Restaurant opening hours and customer numbers were restricted. Furthermore, the reductions in travel and leaving the house have reduced food sales in both fast food restaurants and service stations.

The popularity of everyday foods sold to the retail sector rose sharply at the end of March due to preparations for exceptional circumstances. The volume of sales to fast food and Food Service customers decreased significantly in April-May. Following the gradual lifting of coronavirus restrictions, Food Service sales increased, and the market began to recover towards the end of the second quarter, yet failed to return to its pre-coronavirus level by September's end.

The transition to exceptional circumstances in Atria's operations was carried out quickly in order to maintain the company's operational capacity. Ensuring uninterrupted continuation of operations and maintaining reliability of product deliveries were Atria's primary tasks alongside safeguarding the health and working capacity of personnel. New practices were introduced at production plants to prevent the spread of virus infection. The special arrangements continue, and they have incurred additional expenses. However, the switch to remote working and the cessation of business travel have produced cost savings. Atria has succeeded in reaching its objective of safeguarding the health and working capacity of its personnel and maintaining its delivery reliability.

Atria Finland’s net sales for January-September totalled EUR 781.8 million (EUR 762.2 million). The increase in net sales was due to increased sales to the retail sector and export customers. Food Service product sales began to decline at the end of March, and although they revived somewhat over the summer, they failed to return to their pre-coronavirus levels. EBIT rose to EUR 28.7 million (EUR 25.6 million) as a result of increased net sales, improved composition of sales and better overall productivity. The coronavirus pandemic has incurred some additional expenses, but their effect on profit has been mitigated by the reduction in statutory employment pension contributions.

Atria Sweden’s net sales for January–September totalled EUR 222.6 million (EUR 214.8 million). In the local currency, net sales grew by 3.6 per cent year-on-year. After a good beginning to the year and an unstable second quarter, sales recovered in quarter three. Net sales were boosted by strong sales of poultry products. However, coronavirus restrictions have had an adverse effect on the sale of Food Service products and fast foods since the beginning of the year. Sales of Food Service products recovered slightly in the third quarter, yet failed to return to the previous year's level. EBIT was EUR -2.8 million (EUR -5.6 million). EBIT was burdened by a reduction in sales to fast food and Food Service customers. Furthermore, the coronavirus pandemic caused additional expenses, however effect on profit was mitigated by compensation for sick leave, paid by the government. Profitability has increased due to improved efficiency, lower costs and the strengthening of the Swedish krona. EBIT for the comparable period includes EUR 1.4 million of costs related to employee arrangements.

Atria Denmark & Estonia’s net sales for January–September totalled EUR 80.3 million (EUR 70.0 million). EBIT was EUR 3.6 million (EUR 3.3 million). The almost 15 per cent increase in net sales was due to increased sales to the retail sector in both Estonia and Denmark. Net sales were bolstered by the price increases implemented early in the year.

Atria Russia’s net sales for January–September totalled EUR 49.0 million (EUR 54.9 million). In the local currency, net sales fell by 2.4 per cent. EBIT was EUR -1.8 million (EUR -2.0 million). Throughout the year, sales to the retail sector have been at a substantially better level than last year. Sales of Casademont products increased substantially throughout the review period. However, sales of Food Service products have deteriorated, owing to market disruptions caused by the coronavirus pandemic.

Atria aims at a carbon-neutral beef chain – the carbon footprint of Finnish steak meat falls well below the international average

Atria's carbon emission calculations on suckler cow farms that produce steak meat clearly show that the carbon footprint of Finnish steak meat is considerably smaller than the international average. The carbon footprint of Atria's steak meat is approximately 25 CO²e/kg of carcass weight, while the international average is over 60 CO²e/kg of carcass weight (source of reference data: http://www.fao.org/3/i3437e/i3437e.pdf, pp. 24-25). The carbon footprint of Finnish beef cattle is reduced by the practice of grass feeding applied generally in the country. The carbon footprint of beef cattle is also affected by productivity, i.e. a good level of grass crops and a high professional standard of cattle rearing, as well as excellent daily growth and slaughter weight. In Finland, production of suckler cows accounts for approximately 20% of Finnish beef production. Suckler cows that produce steak meat utilise grass to a very high extent. Suckler cows graze on both seeded and natural pastures, thereby maintaining biodiversity.

Events after the review period
 

Atria Plc's Board of Directors has approved the company's renewed strategy for 2021-2025 and updated financial targets, which will take effect on 1 January 2021.

The key goal of the strategy update is to be a Winning Northern European Food Company with
- best in class financial performance
- most desired brands
- preferred partner for the customer
- committed people
- leader in sustainability
- best partner for owner-producers.

The main changes in the operating environment that affected the new strategy are related to consumers' purchasing behaviour. Purchasing decisions place greater emphasis on awareness of responsible food choices and the growing demand for convenience food and especially poultry meat. The popularity of the Food Service channel and Private Label products is also growing. Over the past year, market uncertainty has affected the outlook for the food industry.

Central to achieving the goals is to continue investing in improving commercial excellence, continuous operational efficiency and Atria's Way of Work. In addition to these, it is particularly important that we succeed in the six Ways to Win, which are:
- Win big in poultry
- Expand in convenience food
- Strengthen in Food Service including fast food
- Grow Sweden profitably
- Optimize red meat
- Drive next level Supply Chain efficiency.

The key objective of the new Group strategy for Atria Russia is to complete the study on the development and restructuring of Atria Russia at the beginning of the strategy period. As part of the study, Atria is exploring opportunities to sell Atria's Russian operations.

The financial targets of Atria's new corporate strategy are as follows:
- Growth above market (new target)
- EBIT 5% (no change)
- Equity ratio 40% (no change)
- Return on equity (ROE) 10% (updated target)
- Capital distribution of the profit for the financial year 50% (no change).

After the review period, Atria made the decision to invest in expanding its poultry production. The investment has a value of EUR 155 million and it involves the construction of new slaughtering, cutting and packaging lines at the company's production plant in Nurmo.

Poultry consumption has been increasing rapidly in Finland for several years. The growth was around 4% per year between 2010 and 2019. The growth rate in 2020 has been 3% so far. The new processing plant will help the company meet growing consumer demand, and will strengthen Atria's position as market leader in poultry products. Construction work at the site of the new plant will begin as soon as possible with completion estimated in 2024 at the earliest. This investment will increase Atria Finland’s poultry production capacity by approximately 40%.

Atria Finland Ltd acquired the entire stock of Domretor Oy, a Kauhava-based contract manufacturer in the food business. Ownership and holding of the company were transferred to Atria as from 1 October 2020. Domretor Oy has been an associated company of Atria since 2013, when Atria acquired a 24.9 per cent share.

In business since 1999, Domretor is a contract manufacturer of high-quality convenience foods and semi-prepared foods. The acquisition further solidifies Atria's position in convenience food selections for the retail sector and in the Food Service product market. Domretor operates independently as a separate business, now with better opportunities to harness all of Atria's customer channels. The transaction price has no major impact on Atria's financial position or earnings.  Domretor Oy's production plant is situated in Kauhava, Finland. The company has a staff of 70 year-round, plus some 40 seasonal employees. Domretor Oy's 2019 net sales were EUR 8.8 million.

Outlook for the future

In 2020, Atria Group's EBIT is estimated to be higher than in 2019 (EUR 31.1 million).

Atria operates mainly in the retail and Food Service markets in Finland and Sweden. The strong and rapid changes in the global meat market will have a greater impact on the company's development and reduce predictability.

Consumption of poultry meat is expected to continue to increase, while consumption of red meat is expected to decline slightly. Atria has increased its meat exports, and pork exports to China, for example, are expected to increase during 2020.

The coronavirus pandemic that began in early 2020 has caused strong and rapid changes in the business environment in the food industry. This has further hindered the predictability of the company’s development. Immediate effects related to Atria's business include national restrictions on restaurant operations and public food services, which reduce sales to Food Service customers. During the coronavirus epidemic, the importance of daily food is expected to strengthen.

The possible weakening of consumer purchasing power will also affect food purchases and may shift the sales structure of Atria's products into an unfavorable direction.

Disclosure

Atria Plc complies with the disclosure procedure in accordance with standard 5.2b of the Financial Supervisory Authority and publishes its interim report for 1 January to 30 September 2020 as an attachment to this stock exchange release. The full release is available on the company's website at www.atria.com.

Publication of the interim report

Atria Plc's CEO Juha Gröhn will present the company's half-year financial report in a webcast today, October 22, at 10:00 - 11:00 am. The webcast is available on Atria's website at www.atria.fi/konserni/sijoittajat/ in Finnish language. During the webcast, you can ask questions in writing via chat. The recording of the press conference and the presentation material of the event will be available during the same day at www.atria.fi/konserni/sijoittajat/taloustieto/osavuosikatsaukset/.

For more information, please contact: Juha Gröhn, CEO, Atria Plc, tel. +358 400 684224.
ATRIA PLC
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The interim report is available on our website at www.atria.com.