Atria Plc Interim report, 1 January–30 September 2019: Atria delivered a strong quarter, net sales and EBIT grew

Atria Plc, Interim Report, 23 October 2019, 8:00 am

Atria Plc Interim report, 1 January–30 September 2019

Atria delivered a strong quarter, net sales and EBIT grew

July–September 2019
- Consolidated net sales totalled EUR 366.0 million (EUR 357.1 million).
- Consolidated EBIT was EUR 16.7 million (EUR 12.7 million), which is 4.6 per cent (3.5%) of net sales.
- The sales of Atria Finland increased in all channels, and profitability was at a good level. Exports of pork to China grew substantially.
- The positive development of Atria Sweden’s net sales and EBIT continued in the third quarter. The sale of poultry products increased further.
- Atria Russia enjoyed a significant profit improvement. Increased sales and higher sales prices of Sibylla and Food Service products contributed to the good result.
- After the review period, Atria announced that it would start the planning of a EUR 130 million investment project for expanding poultry production in Finland.

January–September 2019
- Consolidated net sales totalled EUR 1,071.3 million (EUR 1,061.6 million).
- Consolidated EBIT was EUR 19.1 million (EUR 21.5 million), which is 1.8 per cent (2.0%) of net sales.
- During the first half of the year, the development of the Group's EBIT was brought down by higher raw material costs.
- Atria Finland’s EBIT began to increase in Q3.
- Atria Sweden's net sales have improved steadily, especially the sales of poultry products have developed positively.
- Atria Russia updated its strategy at the beginning of 2019. A key goal is the quick revitalisation of business operations in Russia. As part of the strategy project. Atria is also looking into possibilities of selling Atria Russia's business operations.

Juha Gröhn, CEO

"Q3 was a strong period for Atria. Net sales amounted to EUR 366 million, compared with EUR 357 million last year. EBIT improved. Now, it was EUR 16.7 million, an improvement of EUR 4 million over the corresponding period last year. All business areas improved their results.

From the beginning of the year to the end of September, net sales have increased by EUR 10 million compared to the corresponding period last year. EBIT for this period is EUR 19.1 million, and we are EUR 2.4 million behind last year's profit. This year, the first months of the year were modest in terms of profitability. Since then, we have been able to improve our profit level compared to last year.

The basis for improved profitability is in pricing management, product selection renewal and well-functioning industrial operations. The development of working capital improved the cash flow from operating activities by approximately EUR 38 million from the previous year.

Currently, the poultry and convenience food product groups show growth. The increased demand for meat products is focused on higher priced products than before. Even if the sales kilograms do not increase in the market, there is still a good opportunity to increase value. The increasing consumption focus on chicken is visible in the demand for pork and beef. This is a long-term trend. For example, 80% of the increase in total meat consumption on the Finnish market since 1990 is due to increased consumption of chicken.

Increased meat imports by China have changed and continue to change the structure of the global meat trade, both in terms of volumes and prices. In China, pork production has decreased and is forecasted to continue to decrease due to African swine fever. While the disease cannot be transmitted to humans, it is practically incurable in pigs. There is no vaccine against the disease as of yet. Atria's export volumes to China are also increasing, and during 2019 we will export about 12% of our annual pork production to China. It is possible that the export volumes will continue to grow.

After the review period, we announced that we will start the planning of a EUR 130 million production plant investment project for increasing poultry production in Finland. If implemented, the investment would be one of the biggest individual investment projects in Atria's history. The consumption of chicken is increasing, and through this investment, we would secure our capacity well into the future."

July–September 2019

Atria Group’s net sales for July–September totalled EUR 366.0 million (EUR 357.1 million). EBIT amounted to EUR 16.7 million (EUR 12.7 million). Atria Finland's sales grew in all sales channels. Especially exports of pork to China increased. EBIT was strengthened by a better sales structure and higher sales prices than in the previous year. The positive development of Atria Sweden’s net sales and EBIT continued in the third quarter. The sale of poultry products increased further. Atria Denmark & Estonia's EBIT improved year-on-year; a good sales structure and higher sales prices improved EBIT.  Increased sales and higher sales prices of Atria Russia's Sibylla and Food Service products contributed to the significant profit improvement.

The international raw material costs of pork continued to increase during the third quarter, a result of the market disruptions in China, caused by African swine fever, and its effects on the global meat market.

Merja Leino, PhD (Phil.), was appointed Executive Vice President of Sustainability at Atria Group as of 1 September 2019. She is responsible for developing the responsibility of Atria's businesses and carrying out responsibility work. Merja Leino is a member of Atria Group's management team and reports to CEO Juha Gröhn.

Atria Finland's net sales for July–September totalled EUR 257.5 million (EUR 250.1 million). Sales strengthened in all channels, which increased the net sales of the review period year-on-year. EBIT amounted to EUR 15.3 million (EUR 13.6 million). This increase was due to an improved sales structure and higher sales prices than in the corresponding period of the previous year. The commissioning of new production lines for the poultry unit has progressed as planned during the review period. African swine fever in China has increased demand for pork and raised prices. Atria's exports of pork to China have grown. Exports to China are expected to double to around 8 million kilos in 2019, which is about 12 per cent of Atria's annual pork production.

Atria Sweden's net sales for July–September totalled EUR 73.8 million (EUR 72.5 million). In the local currency, net sales grew by 4,3 per cent. The sales and profitability of poultry products increased substantially year-on-year. The negative EBIT for the first half of the year turned positive, with an improvement of EUR 1 million in July–September. EBIT was EUR 0.0 (EUR -1.0 million). Weaker availability of Swedish pork, higher meat raw material prices and the weak krona weighed EBIT down. 

Atria Denmark & Estonia's net sales for July–September totalled EUR 24.7 million (EUR 24.7 million). EBIT amounted to EUR 1.7 million (EUR 1.6 million). In Denmark, increases in sales prices and a more favourable sales structure strengthened net sales and EBIT compared to the beginning of the year. In Estonia, Atria's sales to retail increased by approximately 12% compared to the previous year.

Atria Russia's net sales for July–September totalled EUR 20.7 million (EUR 19.4 million). EBIT was EUR 0.4 million (EUR -0.8 million). Increased sales and higher sales prices of Sibylla and Food Service products strengthened the positive development of net sales and EBIT. Sales to retail decreased compared to the corresponding period of the previous year.

January–September 2019

Atria Group's net sales for January–September totalled EUR 1,071.3 million (EUR 1,061.6 million). EBIT amounted to EUR 19.1 million (EUR 21.5 million). Price increases, stable market shares and increased sales improved the net sales of Atria Finland. In Sweden, net sales in the local currency grew by 3.7 per cent thanks especially to increased sales of poultry products. The Group's EBIT was brought down by higher raw material costs. Atria Sweden's profit was weakened by the costs of the efficiency improvement programme, EUR 1.4 million, which were recognised for the first quarter.

Atria Russia updated its strategy at the beginning of 2019. A key goal is the quick revitalisation of business operations in Russia, which means increasing sales and sales margin as well as turning performance positive. As part of the strategy project, Atria is also looking into possibilities of selling Atria Russia's business operations. At the same time, Atria has investigated the reorganisation of the administrative company structure and the strategic development of the Sibylla fast food operations in all business areas.

In January, Atria Finland launched an efficiency improvement project at the Nurmo pig cutting plant, which aims to improve the profitability and competitiveness of the plant. The collective redundancy consultation related to the restructuring was completed in February. The restructuring will result in annual savings of approximately EUR 1.5 million, which will be fully realised from the beginning of 2020 onwards. The volume of work at the pig cutting plant was reduced by 51 person-years. The adjustments were implemented through internal arrangements and the reduction of fixed-term employment relationships.

In March, Atria Sweden launched a project in line with its revised strategy, which aims to enhance business operations and improve competitiveness in the changed business environment. The collective redundancy consultation related to the plan concerned all salaried employees of Atria Sweden and was finished in June. The efficiency improvement project aims to generate annual personnel cost savings of approximately EUR 3 million. The savings will be partly realised towards the end of 2019 and fully from the beginning of 2020. As a result of the consultation, Atria laid off 40 salaried employees in Sweden and Norway.

Atria Finland’s net sales for January–September totalled EUR 762.2 million (EUR 750.7 million). EBIT amounted to EUR 25.6 million (EUR 27.2 million). Price increases, stable market shares and increased sales improved net sales in January–September. Compared to the previous year, the sales structure was weaker in the first half of the year but improved in the third quarter. The beef market has been weak.

Atria Sweden’s net sales for January–September totalled EUR 214.8 million (EUR 213.8 million). In the local currency, net sales grew by 3.7 per cent. EBIT was EUR -5.6 million (EUR -6.0 million). The result was burdened by the EUR 1.4 million cost of the efficiency measures launched at the beginning of the year and the continued high prices of meat raw materials. The sales and profitability of poultry products have increased compared to the previous year. The sharp rise in raw material costs of pork started during the second quarter, a result of the market disruptions in China, caused by African swine fever, and its effects on the international meat market.

Atria Denmark & Estonia's net sales for January–September totalled EUR 70.0 million (EUR 72.0 million). EBIT amounted to EUR 3.3 million (EUR 4.3 million). In Denmark, the development of sales was weak in the first half of the year but improved in the third quarter. Atria Estonia's sales to retail have increased since the beginning of the year, and market shares have strengthened significantly. The prices of meat raw materials have increased significantly due to the rapid increase in pork exports from Europe to China.

Atria Russia’s net sales for January–September totalled EUR 54.9 million (EUR 55.2 million). EBIT was EUR -2.0 million (EUR -1.4 million).  Net sales remained roughly at the same level year-on-year and EBIT was slightly weaker year-on-year. EBIT was brought down by continued high meat raw material prices and weakened sales to retail.

Atria aims for a carbon-neutral food chain – the carbon footprint of meat production is smaller in Nordic production

Atria’s food production is based on the taste, healthiness, safety, usability and sustainability of raw materials and processed products. Sustainable Atria is part of Atria Group's strategy and includes four focus areas: product, planet, people, and responsible business operations. The goals and development areas for Atria's responsible business operations were updated during the first half of the year.

The key goal of Sustainable Atria is combating climate change and achieving carbon-neutral food production. By 2021, Atria will identify the carbon footprint of its products, understand the cause of emissions, how the emissions can be decreased and how a carbon-neutral food chain is realised. Especially the reduction of the environmental impact of Atria's industrial operations is a key target of the programme. Besides carbon emissions, Atria will pay attention to water and energy consumption and to developing environmentally friendly packaging solutions.

Atria has calculated the carbon footprint of pork, beef and chicken production from the farm to the slaughterhouse gate. The carbon footprint of an Atria example pig is 3.8 CO2e/kg of carcass weight. It is about 40% lower than the international average. Increasing protein self-sufficiency is one of the most important factors in reducing the carbon footprint of pork, according to the calculation. Converting feed for Atria's fattening pigs soya-free has already enabled a 32% reduction in carbon emissions over the entire production chain.

The carbon footprint of an Atria example bovine is 13.4 CO2e/kg of carcass weight. This is about 70% lower than the international average. The carbon footprint of beef on the farm included in the calculation was about 25% smaller than in research projects completed in Finland in 2016 and 2017. The development work carried out on the Atria Beef chain farms in recent years has paid off.

The carbon footprint of an Atria chicken is 3.2 CO2e/kg of carcass weight. It is about 40% lower than the international average. A key factor behind this is the low use of soya and the good health of chickens, which allows Atria's chickens to take full advantage of their feed. Atria's chicken feed is 80% made up of Finnish feed grains – dehusked oat and wheat. Finnish grains have a higher protein content than Central European grains, and low-protein maize is not used at all. Moreover, soya is being increasingly replaced with Finnish peas and broad beans.

The carbon footprint calculation has been carried out with Envitecpolis Oy and Atria Family Farms. Farms representing the average Atria production chain have been selected for the calculation. Envitecpolis uses the international Cool Farm Tool to calculate carbon footprints. Cool Farm Tool specialises in carbon emission calculation for primary production and enables the calculation of a unique carbon footprint based on the farm's own data and functions. The calculation is based on IPCC (Intergovernmental Panel on Climate Change) calculation methods and the latest research in the field. The international average is published in the FAO (United Nations Food and Agriculture Organization) report: www.fao.org/3/i3437e/i3437e.pdf.

Events after the review period

After the review period, Atria announced that it would start planning an investment project for expanding poultry production. According to preliminary studies, the value of the investment totals approximately EUR 130 million. The investment project includes the renovation and modernisation of existing production facilities and the construction of new production facilities and lines at the Nurmo plant. The first step is to initiate the application processes for official authorisations and to complete them as soon as possible. After the planning phase, the implementation of the investment will be decided on. If implemented, the project is expected to be fully completed at the end of 2024 at the earliest.

Outlook for the future

Consolidated EBIT in 2018 was EUR 28.2 million. In 2019, EBIT is expected to be better than in 2018. At comparative exchange rates, net sales for 2019 are expected to grow compared to 2018.

Disclosure

Atria Plc complies with the disclosure procedure in accordance with standard 5.2b of the Financial Supervisory Authority and publishes its half-year financial report for 1 January to 30 September 2019 as an attachment to this stock exchange release. The full release is available on the company's website at www.atria.com.

For more information, please contact: Juha Gröhn, CEO, Atria Plc, tel. +358 400 684224.

Invitation to press conference
A press conference will be held in Finnish today, 23 October 2019, at 9:45 am at Scandic Hotel Simonkenttä, Simonkatu 9, conference room Mansku, 1^st floor, Helsinki. The presentation material will be available on the company's website (www.atria.com) after the distribution of the interim report and as an attachment to this company announcement.

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