HK RUOKATALO GROUP?S INTERIM REPORT 1 JANUARY TO 30 SEPTEMBER 2005
HK Ruokatalo Group Oyj STOCK EXCHANGE BULLETIN, 31 Oct 2005, 10am
HK RUOKATALO GROUPS INTERIM REPORT 1 JANUARY TO 30 SEPTEMBER 2005
HK Ruokatalo Group groups revenue for the first nine months of 2005
rose to EUR 650.1 million, a year-on-year increase of EUR 150 million.
The operating profit was EUR 21.7 million and the pretax profit was
EUR 18.7 million.
REVENUE AND FINANCIAL PERFORMANCE
Consolidated revenue for the first nine months of 2005 amounted to EUR
650.1 million, a year-on-year increase of 30% on the corresponding
figure of EUR 500.1 million last year. This figure includes the
groups business in Finland, the Baltics and Poland. Pre-tax earnings
on operations were EUR 18.7 million (EUR 20.8m). Earnings per share
for the first nine months of 2005 were EUR 0.42 (EUR 0.59).
The groups international business progressed in line with targets
during the first nine months of the year. In our business in the
Baltics, Rakvere Lihakombinaats growth and profitability exceeded our
expectations. We booked additional costs in respect of Tallegg in July
and August. However, by the end of Q3 Tallegg was already virtually
back on track to normal business. In Poland, Sokolóws business
performance and profitability exceeded our targets.
At home, however, we failed to achieve our Q3 targets. Whilst progress
was made with sales, profitability was still not in line with targets.
Greater competition between retail chains in Finland is increasingly
challenging our own competitiveness. Rapid changes in the cost of raw
materials and markedly higher imports call for prompt response and
greater cost competitiveness. Year on year, 25% more meat was imported
into Finland during the first nine months of 2005. Although the
greatest rise was in imports of choice cuts of beef, imports of cheap
foreign broiler fillet also affected the market from HK Ruokatalos
point of view. We provided Finnish poultry meat for Tallegg to
safeguard its own raw meat supplies. This occasionally meant lower
supplies than normal on the home market.
HK Ruokatalo has successfully increased exports from Finland. Demand
and prices have been healthy, especially in Russia.
Saturn Nordic Holding - in which HK Ruokatalo Group has a 50 per cent
stake and which owns 82.5 per cent of the shares in Polands leading
meat production and processing company Sokolów S.A. - has been
accounted for in the HK Ruokatalo Groups consolidated figures using
proportionate consolidation since 1 January 2005.
BUSINESS IN FINLAND
HK Ruokatalo increased its sales volume of processed meats in the
retail trade by 4.3% during the first nine months of the year. This
compares to an increase of 1.7% for the market as a whole over the
same period. Grilling sausages and whole cold cuts in particular
boosted sales volumes. Fierce competition in the retail trade put
pressure on prices. When we compare the increase in volume in terms of
value, HK Ruokatalos sales growth was slightly below market growth as
a whole.
The convenience food market remained brisk, with sales volumes in
Finland up by 16%. Sales of HK Ruokatalos convenience foods rose by
32%. This in turn notched up our share of the market by 1.5 percentage
points in volume and 0.3 percentage points in value. The increase was
attributable to snacks and meal components.
The market for industrially packed meat rose by 10.1%. HK Ruokatalos
own increase in volume was 3.5%, which means our share of the market
declined in this product group. Whilst we successfully increased our
share of the market in minced (ground) meat and beef, sales of pork
remained below market growth as a whole.
The total market volume for poultry meat in Finland was up by 4.2%.
This was mainly in boned poultry meat products, especially fillets,
whereas there was a sharp drop in the sales of on-the-bone products.
HK Ruokatalos poultry meat sales were down by 6.1% in volume during
the first nine months of the year. This was partly attributable to
lower sales of on-the-bone portions on the one hand and a tougher
market caused by imported fillet products on the other.
In the HoReCa sector, the number of meals rose by around 2% during the
start of the year. HK Ruokatalo successfully strengthened its position
in the HoReCa sector, making sales progress in relation to the
increase in the number of meals. Nevertheless, continuing fierce
competition on prices somewhat eroded profitability.
During the summer barbecue season, the Finnish meat industry sold
around 20 million kg of barbecue products, of which almost 14 million
kg were grilling sausages and over 6 million kg industrially packed
barbecue cuts and poultry meat. The greatest increase was in broiler
cutlets, pork cutlets and cold cuts. Growth was more moderate in
grilling sausages and was chiefly in A-class sausages. Total sales
during the barbecue season in Finland were around EUR 104 million. HK
Ruokatalo had clear market leadership, with sales nudging 9 million
kg. HK Ruokatalos sales of barbecue products totalled more than EUR
44 million.
BUSINESS IN THE BALTICS
Rakvere Lihakombinaat and its subsidiaries successfully responded to
market demands and both retained and partly consolidated their market
position. The results of dynamic internal measures taken during the
current year to develop our business in the Baltics are in evidence in
the form of enhanced competitiveness and profitability.
In Tallegg, the start of the year saw us embark on a major strategic
development project to build a salmonella-free poultry production
chain in Estonia. This project is important for the companys future
business. The project has required considerable financial input and
business restructuring. These investments will erode Talleggs
financial indicators for the current year. The impact on the profit
and loss account for the entire year is expected to be around EUR 3
million. Towards the end of Q3, improved hygiene and animal health was
very much in evidence.
Rakvere Lihakombinaat and its subsidiaries improved sales volume and
value during the first nine months of 2005. This was boosted by a
profitable summer, with sales of meat exceeding expectations and good
sales of grilling sausages. Positive progress in the Baltics has been
fostered by Rakveres own competitive supply of pork raw material.
The company has good market positions in traditional product groups,
frankfurters and cooked sausages. Overall, Rakvere enjoys matchless
market leadership in Estonia.
Owing to the development programme at Tallegg, the focus was on
safeguarding our market leadership in the Estonian poultry meat
market. We were successful on this front. There was a marked rise in
sales of cooked products, such as nuggets. In terms of overall volume,
Talleggs sales fall short of last years.
In Latvia, Rigas Miesnieks revamped brand and product profile served
as the momentum to a 28% increase in sales value compared to the first
nine months of 2004. In Lithuania, we increased our share of the
market in cooked sausages and frankfurters to take us into third
place.
BUSINESS IN POLAND
Sokolów is undergoing a repositioning of the division of roles between
the various production facilities in line with the adopted strategy.
This is necessary to enable Sokolów to improve its competitiveness
sufficiently in a changing EU market environment. Year-on-year sales
were up by 16% and the sales structure continues to strengthen
profitability. Exports rose by over 30% and accounted for 25% of
sales. Exports comprise processed meat products and raw meat material
on a 50-50 basis, with the EU and Far East forming the main export
areas. Sokolóws strong position at home is reflected by the fact that
it is the 15th most valuable brand, including international ones, on
the Polish market.
CHANGES IN GROUP STRUCTURE
September 2004 saw a start made on streamlining the legal structure of
the companys business operations in Finland. Streamlining was
completed in two stages. In the first stage, HK Ruokatalo Group Oyjs
fully-owned subsidiaries Broilertalo Oy, Food Kuljetus Oy, Koiviston
Teurastamo Oy and Pouttu Foods Oy merged with and into HK Ruokatalo
Group Oyj on 31 March 2005. In the second stage, the groups Finnish
industrial operations, sales, marketing, logistics and transportation,
as well as the employees concerned, were transferred to a new
subsidiary known as HK Ruokatalo Oy. The business transfer from HK
Ruokatalo Group Oyj to HK Ruokatalo Oy took place on 1 April 2005.
Subsequent to the business transfer, HK Ruokatalo Group Oyj is
responsible for group management, finance and administration.
INVESTMENTS AND FINANCE
During the first nine months of 2005, the gross investments in Finland
were EUR 32.7 million and EUR 4.4 million in the Baltics. Sokolów's
investments were EUR 8.2 million of which HK Ruokatalo Group accounted
for EUR 4.1 million. A year earlier group gross investments, excluding
Poland, were EUR 30.2 million.
Investments to replace the pork slaughtering line and to increase
capacity at Forssa progressed to the equipment installation stage.
This investment will take us to the cutting-edge of efficiency in
Europe. Progress was also made with the freezing plant project at
Forssa as planned.
At the Vantaa site, we are about to embark on the finishing touches to
upgrading the order picking system and increasing the level of
automation in the older part of the terminal.
Group interest-bearing liabilities at 30 September 2005 were EUR 176.8
million, compared to EUR 157.5 million a year earlier. EUR 14.4
million of the increase in interest-bearing debt is a result of
consolidating the debt of joint venture Saturn Nordic Holding Group.
The equity ratio was 45.7% (42.1%).
MANAGEMENT
Kai Seikku MSc (Econ & Bus. Admin.) was appointed managing director of
HK Ruokatalo Oy, which is responsible for the Groups industrial
operations in Finland. Mr Seikku took up his post on 1 September 2005.
He will assume the post of CEO of the entire HK Ruokatalo Group on 1
April 2006, when the present CEO, Simo Palokangas, retires.
BOARD OF DIRECTORS AUTHORISATION TO INCREASE THE SHARE CAPITAL
Meeting on 12 April 2005, the Annual General Meeting of Shareholders
authorised the Board of Directors to decide whether to increase the
share capital through one or more rights issues, whether to issue one
or more convertible bond loans and/or warrants so that in a rights
issue or when issuing convertible bonds or warrants, a maximum of
2,000,000 of the companys new Series A Shares having a nominal value
of EUR 1.70 may be issued and the companys share capital may be
raised by no more than EUR 3,400,000.
The authorisation allows the Board of Directors to disapply the pre-
emption rights of existing shareholders and to decide the issue price
and other terms and conditions of subscription and the terms and
conditions of a convertible bond loan or warrants. To date, the Board
of Directors has not exercised this authorisation.
NEW DEFINITION OF INSIDER HOLDING
Effective from 17 October 2005, HK Ruokatalo Groups insider holdings
have been split into a public register and a company-specific register
in compliance with new insider holding regulations. By law, insiders
included on the public register of insider holdings include members of
the Board of Directors, the companys auditors and CEO. By corporate
decision, the public register of insider holdings also includes
members of the groups Management Team and the chairpersons of the
principal owners Board of Directors and Supervisory Board. There are
23 persons on the companys public register of insider holdings.
By corporate decision, certain members of financial and accounting
clerical staff, communications officers, management secretaries, etc.
have been included in the company-specific register of permanent
insiders. Company-specific insiders are not obliged to declare their
holdings of shares in a public register.
HK Ruokatalo Groups group administration maintains and manages the
register of insider holdings. The actual register is kept in the
Finnish Central Securities Depositorys SIRE system. The information
in the register is available to the public in the NetSIRE online
service provided by the Finnish Central Securities Depository.
EMPLOYEES
The group employed an average of 4,604 persons (4,799) in Finland and
the Baltics during the first nine months of the year. An analysis of
employees by country at the end of September is as follows: Finland
59.4%, Estonia 35.4%, Latvia 3.9%, Lithuania 1.2% and Russia 0.1%.
Sokolów employed around 3,700 persons in Poland.
THE FUTURE
Our encouraging business and financial experience on the international
market strengthens our vision of evolving into one of the principal
European companies in our industry. Making this vision a reality calls
for a deep insight into the markets in our target areas, diverse
partnership solutions and the right timing. This is how HK Ruokatalo
can best serve its international customers.
In future, the relative importance of Finland in the groups business
will decline as the weighting of our international business increases.
However, we remain committed to profitable business at home and to
this end are implementing the required actions to achieve our targets.
Strong brands and good products provide the potential for us to do so.
Our focus points are drawing on the strengths of our brands, investing
in product development, carrying out the required restructuring and
cutting costs. We enjoy a strong position on our home market and
further improvement requires far more effective actions than at
present.
Our investments now nearing completion in the Slaughtering and Cutting
Group and distribution logistics in Finland will deliver considerably
greater cost-effectiveness and operational capacity in the near
future. Further future improvements to competitiveness will also
require us to streamline our production structure at home.
Our strong position in the Baltics will continue to be based on the
good performance of Rakvere and its subsidiaries. Business at Tallegg
will have been restored to normal by the beginning of 2006.
Poland and neighbouring territories continue to hold by far the
greatest potential. This is where growth and profitability have been
developed most.
In our previous interim report, we expected group earnings for 2005 to
fall short of those for last year. The reason for this is more modest
development at home and the costs and temporary loss of revenue owing
to the development project at Tallegg.
The incidents of avian flue in various countries this autumn may, if
they spread, affect the European and Finnish markets. It is impossible
to predict the possible duration or extent of any impacts arising from
this. HK Ruokatalos poultry meat production chain operates in an
isolated environment and in compliance with official precautionary
instructions. To date, the publicity surrounding avian flu has not
greatly affected consumer buying decisions in Finland.
CONSOLIDATED INCOME STATEMENT
(EUR mill.)
7-9/05 7-9/04 1-9/05 1-9/04 1-12/04
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Revenue 226.0 171.3 650.1 500.1 680.4
Operating profit 9.6 9.9 21.7 22.6 35.8
Share of associates results 0.0 0.7 0.8 2.0 2.1
Financial income and expenses-1.3 -1.5 -3.7 -3.8 -5.2
Profit before taxes 8.3 9.1 18.7 20.8 32.7
Taxes -1.5 -2.5 -3.5 -3.7 -6.2
Result for the
accounting period 6.8 6.8 15.3 17.1 26.5
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Attributable to
Shareholders of parent company6.4 6.5 14.5 16.9 26.0
Minority interests 0.3 0.2 0.8 0.2 0.5
Total 6.8 6.8 15.3 17.1 26.5
EPS, diluted, EUR 0.19 0.23 0.42 0.59 0.76
CONSOLIDATED BALANCE SHEET
(EUR mill.)
30 Sept05 30 Sept04 31 Dec 04
ASSETS
Non-current assets
Intangible assets 3.6 3.9 4.0
Goodwill 46.9 27.2 29.0
Property, plant and equipment 258.4 195.9 200.4
Financial assets 5.1 36.3 46.1
Deferred tax assets 0.6 1.3 0.6
Other non-current receivables 4.8 4.1 4.0
Current assets
Inventories 63.2 44.4 44.7
Trade and other receivables 103.4 73.6 86.9
Cash at bank and in hand 13.5 7.9 13.9
ASSETS, TOTAL 499.6 394.7 429.7
EQUITY AND LIABILITIES
Equity belonging to the shareholders
of parent company 217.6 164.3 210.0
Minority interests 10.6 1.8 1.9
Equity, total 228.2 166.1 211.9
Deferred tax liability 10.7 8.9 9.9
Non-current interest-bearing debt 74.7 107.2 82.2
Pension obligations 2.6 5.1 2.3
Long-term provisions for liabilities 1.3 - 0.2
Current interest-bearing debt 102.1 50.3 50.3
Trade and other current payables 80.0 57.1 72.9
EQUITY AND LIABILITIES, TOTAL 499.6 394.7 429.7
CASH FLOW STATEMENT
(EUR mill.)
1-9/2005 1-9/2004 1-12/2004
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Operating activities
Net cash inflow/outflow from
operating activities 40.4 38.9 54.6
Change in net working capital -17.3 -5.4 -5.6
Financial items and taxes -7.2 -8.2 -10.4
Net cash inflow/outflow from
operating activities 15.9 25.3 38.6
Investing activities
Net cash inflow/outflow from
investing activities -41.0 -30.0 -50.7
Financing activities
Change in loans 26.2 4.3 -17.9
Dividends paid -10.0 -7.2 -7.2
Share issue - 3.5 39.2
Net cash inflow/outflow from
financing activities 16.2 0.6 14.0
Change in liquid assets -8.8 *) -4.1 1.9
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*) Taking into account Saturn Nordic Holding Groups opening balance
at 31 December 2004.
ANALYSIS BY SEGMENT (EUR million)
Revenue and operating profit by main market area*)
7-9/2005 7-9/2004 1-9/2005 1-9/2004 1-12/2004
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Revenue
-Finland 148.3 143.8 435.8 420.8 573.6
-The Baltics 29.5 28.0 84.8 81.5 110.2
-Poland 51.0 0.0 135.8 0.0 0.0
-Between segments -2.8 -0.5 -6.4 -2.2 -3.5
-Total 226.0 171.3 650.1 500.1 680.4
Operating profit
-Finland 6.5 7.5 13.8 16.6 29.7
-The Baltics 2.1 2.5 5.1 6.0 6.2
-Poland 1.0 0.0 2.8 0.0 0.0
-Between segments 0.0 0.0 0.0 0.0 0.0
-Total 9.6 9.9 21.7 22.6 35.8
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*) Comparative information for the Polish market for 2004 is shown in
the Income Statement in the item "Share of associates results".
FINANCIAL INDICATORS 30 Sept05 30 Sept04 31 Dec 04
EPS 0.42 0.59 0.76 1), 0.88 2)
Equity per share 30 Sept EUR3) 6.62 6.41 6.15
Equity ratio, % 45.7 42.1 49.3
Adjusted number of shares 34,463,193 28,634,113 34,463,193
Gross investments, EUR mill 41.2 30.2 52.3
Employees, end of month
average 4,604 4,799 4,713
1) Based on number of shares at year-end: 34,463,193
2) Based on average number of adjusted shares during the accounting
period: 29,428,181
3) Includes minority interests
CONSOLIDATED CONTINGENT LIABILITIES
(EUR 1000)
30 Sept05 30 Sept04 31 Dec 04
Debts for which pledges or
mortgages given as surety
- pension loans 14,584 16,426 14,584
- loans from financial institutions 61,646 109,098 79,530
For own debt
- pledges 10,007 10,007 10,007
- real estate mortgages 50,749 86,250 52,928
- business mortgages 21,288 22,186 22,125
For associates
- guarantees 3,985 120 120
For others
- pledges 17 40 17
- guarantees 5,221 5,075 4,868
Other own commitments
Leasing commitments 324 448 399
Other liabilities 30 3,749 3,776
Liabilities arising from derivative instruments
Nominal values of derivatives
Currency derivatives
- forward exchange contracts 1,791 0 0
Commodity derivatives
- electricity derivatives 4,079 4,769 4,655
Market values of derivative instruments
Currency derivatives
- forward exchange contracts -28 0 0
The figures in this report are unaudited
The group switched over to IFRS-compliant financial reporting at the
start of 2005. This interim report and comparison information has been
prepared in compliance with IFRS recognition and measurement
principles. IFRS-compliant comparison information for 2004 was
disclosed on 29 April 2005.
Turku, 31 October 2005
HK Ruokatalo Group Oyj
Board of Directors
Simo Palokangas
CEO
DISTRIBUTION:
Helsinki Exchanges
Internet: www.hk-ruokatalo.fi
