HK RUOKATALO GROUP?S INTERIM REPORT FOR 1 JANUARY TO 30 JUNE 2006
HK Ruokatalo Group Oyj STOCK EXCHANGE BULLETIN, 7 Aug. 2006, 10:45am
HK RUOKATALO GROUPS INTERIM REPORT FOR 1 JANUARY TO 30 JUNE 2006
* INTERNATIONAL BUSINESS PERFORMING STRONGLY
* Q2 RESULT ERODED BY INDUSTRIAL ACTION AND ENSUING NON-RECURRING
CHARGES
HK Ruokatalo Group concerns business operations for the second
quarter of 2006 exceeded targets in the Baltics and were on track in
Poland. Business operations at home missed their targets and
profitability remained unsatisfactory.
HK Ruokatalo Group concerns revenue for Q2 of 2006 rose to EUR 239.4
million, which is EUR 25.9 million up on the figure for Q1 of 2006 and
EUR 12.4 million higher than the corresponding figure a year earlier.
Revenue during the first six months of 2006 totalled EUR 452.9
million, up EUR 28.8 million or 6.8% on the corresponding figure a
year earlier.
EBIT for Q2 rose to EUR 7.0 million (EUR 6.3m), up by 11.1 per cent on
the corresponding figure a year earlier. EBIT for the first six months
of the year was EUR 13.6 million (EUR 12.1m), up by 12.4%. The groups
international business generated over 60% of EBIT. The profit before
taxes was up 1.9% to EUR 10.7 million (EUR 10.5m). Earnings per share
were EUR 0.24, the same as a year earlier.
The earnings include both non-recurring income and charges. Rakvere
Lihakombinaat recorded an additional gain of EUR 1 million on the
disposal of real estate in Latvia. Nevertheless, during the period
under review the domestic EBIT was eroded by non-recurring charges of
EUR 1.7 million of which the most remarkable was a pension charge of
EUR 0.7 million.
At home, earnings were also eroded by employee strikes at Forssa in
May and June. These labour stoppages were a protest against the need
to shed jobs in the wake of the modernisation of cutting operations
under the companys restructuring project. The cost of the strikes is
estimated at around EUR 1.4 million during Q2 of 2006.
Progress was made with the programme to overhaul the groups
industrial structure in Finland. This programme was launched in
January 2006 and lasts until the end of 2007. The restructuring
solutions are expected to deliver annual cost savings in the region of
EUR 15m-20m, making business operations at home more efficient and
more competitive.
MARKET AREA: FINLAND
Net sales at home totalled EUR 156.4 million during Q2, up by EUR 1.7
million or 1.1% on the figure a year earlier. EBIT during Q2 was EUR
1.8 million compared to EUR 3.7 million a year earlier. Net sales for
the first six months of 2006 were EUR 294.1 million, up EUR 6.6
million or 2.3% on the corresponding period a year earlier. EBIT for
the first six months of the year fell to EUR 5.0 million compared to
EUR 7.3 million a year earlier. At home, EBIT amounted to 1.7% of net
sales (2.4% for the first six months of 2005).
- Meat business
The meat business encompasses the handling and value added processing
of pork and beef, the supply of pork and beef in Finland and meat flow
control. The meat business, including primary production, generates
over 40% of the companys net sales in Finland.
Illegal strikes by employees of the Forssa facilities in May and June
weakened the already poor profitability of the meat business during Q2
of the year. Despite the strikes, total sales for the first six months
of the year were higher than budgeted. Sales to the retail trade fell
short of target, but were nevertheless better than a year earlier.
There was a marked rise in the sale of cut meat, although price hikes
in minced (ground) meat led to losses in market share in some places.
Meat exports from Finland were also brisk during Q2 of 2006. This was
particularly true of exports of pork to Russia, where the company
exports not only industrial cuts but also increasing amounts of top
quality, consumer packed fresh cut pork.
Deployment of the investments at Forssa progressed to plan. When
completed, these investments will greatly improve cost-effectiveness
at Forssa.
- Poultry business
The Finnish poultry business encompasses the manufacture of broiler
and turkey meat products and the procurement of poultry raw meat
material from contract producers. The poultry business accounts for
over 20% of our net sales in Finland.
Abroad, the fear of avian flu was reflected in lower demand for
exports, which in turn depressed prices. Nevertheless, the summer
barbecue season improved sales, especially in Russia. Demand in
Finland declined by a few per cent during the early part of the year.
As spring progressed, confidence in Finnish poultry meat was restored
and consumption is now back on the growth track. Consumption is
increasingly focused on value added processed products.
Lower demand for poultry meat in Europe earlier in the year added to
stockpiles across the EU. Since the spring, a slight recovery in
consumption and demand in Russia has led to a small rise in poultry
meat export prices.
Progress was made with improving the profitability of turkey meat
operations when, in June, HK Ruokatalo Oy and Atria Oy decided to
establish a joint-venture, Länsi-Kalkkuna Oy, to produce turkey meat.
The cost savings delivered by the joint venture are expected to
benefit HK Ruokatalo by around EUR 1 million a year. The joint-venture
will be responsible for primary production, slaughtering and cutting
and will start trading in early 2007.
-Processed meat and convenience food business
HK Ruokatalos processed meat and convenience food business
encompasses the production of processed meat and convenience foods.
The processed meat and convenience food business generates around one
third of the companys net sales in Finland.
Sales volumes were on target and the earnings target was met during Q1
of the year. Conversely, earnings were below target during Q2. This
was mostly owing to higher costs, which we were unable to pass on in
full to sales prices. Constantly spiralling energy costs also
contributed to higher production costs. The industrial disputes at
Forssa also had an adverse impact on the processed meat and
convenience food business in the form of higher raw material and
labour costs.
-Commercial Operations
HK Ruokatalo increased its share of the market in the retail sector,
especially in poultry meat. Once the initial fear of avian flu at the
start of the year had abated and the consumption of poultry meat had
begun to rise, HK Ruokatalo strengthened its position. Poultry meat
sales during Q2 of 2006 rose by more than 13%, a considerably much
faster rate than the market as a whole. Moderate, yet profitable
growth was evidenced in the HoReCa sector. Positive progress was made
with exports during Q2.
MARKET AREA: THE BALTICS
Net sales in the Baltics during Q2 of 2006 amounted to EUR 4.8
million, up 16.4% on the corresponding figure a year earlier. EBIT was
EUR 3.7 million, up EUR 2.1 million or 132.9% on the figure a year
earlier. Net sales in the Baltics during the first six months of the
year totalled EUR 62.7 million, up by EUR 7.4 million or 13.4% on the
figure for the first six months of 2005. EBIT in the Baltics rose to
EUR 5.3 million, and amounted to 8.4% of net sales (5.4% during the
first six months of 2005).
The groups business during Q2 performed very much in line with that
of Q1 in all Baltic States. Sales by Rakvere Lihakombinaat were on
line with the target budgeted. The selection of summer products was
successful and likewise profits have remained healthy.
Nevertheless, Rakvere is facing tough pressure on costs. Growing
demand for discounts in the trade, logistics requirements and the
switch by the Rimi chain to using its own transport boxes, for
example, has added to costs. Likewise, higher energy costs and rapidly
rising salaries, more than 17% on the year, put pressure on the
company.
In Latvia, Rigas Miesnieks just missed its sales target but increased
its share of the market. Rigas Miesnieks has successfully switched
over to manufacturing more highly profitable products and increased
sales volume. There is also pressure on costs in Latvia, albeit not
quite as strong as in Estonia. In Lithuania, Klaipedos Maistas has
cumulatively remained in the black, although still not yet adequately
so. Sales have risen step by step and the product mix there is better.
As expected, poultry company Tallegg posted a loss for the first six
months of the year. Earnings continued to be eroded by the corrective
actions taken against salmonella and a market deteriorated by the
avian flu scare. There are some signs of market recovery in Estonia.
In June, Tallegg reported its first profitable result after renovation
work and aims to post at least a break-even result for the year as a
whole. The salmonella situation is under control, and renovation work
and control measures will continue until the autumn.
MARKET AREA: POLAND
Sokolóws performance during Q2 of the year was as expected. HK
Ruokatalo Groups share of Sokolóws net sales rose to EUR 50.9
million, up by 13.4% from EUR 44.9 million a year earlier. Likewise,
its share of EBIT rose to EUR 1.5 million, compared to EUR 1 million a
year earlier. Sokolów performed better than envisaged during the first
six months of the year. After consolidation, HK Ruokatalo Groups
share of Sokolóws net sales was EUR 99.9 million, up by EUR 15.1
million or 17.8% on the figure a year earlier. EBIT rose to EUR 3.3
million (EUR 1.8m), which is equivalent to 3.3% of net sales (2.1% for
the first six months of 2005).
Sokolów has continued to make progress with rationalising production
lines between six different units and with streamlining its range of
products. The company increased sales and prices were also reasonable.
Net sales rose to EUR 199.2 million (EUR 184.5m for the first six
months of 2005). Exports accounted for 27% of sales during the first
half of the year. Exports are being hampered by large exchange rate
fluctuations: at the start of May the exchange rate was PLN 3.81 to
EUR 1, but by the end of June had weakened to PLN 4.10. Exports to
Russia and Ukraine have been on hold owing to disputes between these
countries and the EU.
There was a major upswing in the demand for poultry meat in Poland
after the spring, when the avian flu scare had abated. Demand exceeded
supply in many parts of the country and poultry meat prices are now
recovering after dipping at the start of the year.
The economic climate in Poland continued to develop encouragingly
throughout the first six months of the year. This is reflected in
lower unemployment figures and higher demand. The Polish retail trade
grew by more than 13% in April and May, a trend which has benefited
Sokolów Group companies.
INVESTMENTS AND FINANCE
Gross investments totalled EUR 28.7 million (EUR 13.1m during Q2 of
2005) during the second quarter of 2006. Gross investments totalled
EUR 43.3 million (EUR 25.7m) during the first half of 2006. EUR 21.9
million of this was spent on production projects at home and EUR 4.0
million on projects in the Baltics. Investments in Sokolów were EUR
8.6 million, of which HK Ruokatalo Groups contribution was EUR 4.3
million.
Once the new pork slaughtering line at Forssa was completed, the
company finished off work on the quick carcass refrigeration plant and
animal reception facilities. At a cost approaching EUR 8 million, the
modernised cutting operations came on stream at the end of June. The
freezing plant at Forssa is nearing completion.
A start has been made on the transfers and alterations required in
different locations under the companys industrial restructuring
project in Finland.
Group interest-bearing liabilities at 30 June 2006 were EUR 228.2
million, compared to EUR 186.6 million a year earlier. More loans
owing to an intensive investment programme and the marked increase in
interest rates also reflect on net financing expenses. The equity
ratio fell to 40.2% (44.9%) at the end of June.
ACQUISITION OF SHARES IN POLAND AND ESTONIA
Saturn Nordic Holding AB, a joint venture of HK Ruokatalo Group and
Danish Crown, launched in Poland on 3 April 2006 a public tender offer
whereby it offered to acquire the minority shareholders shares in
Sokolów SA. Saturn Nordic Holding received subscriptions for the sale
of a total of appr. 9.44 million shares, equivalent to appr. 9.3 per
cent of Sokolóws shares. The price was PLN 5.80 (appr. EUR 1.47) a
share, a total of around EUR 13.9 million. After the transactions
Saturn Nordic Holding owned 91.75 per cent of Sokolóws share capital.
On 23 May 2006, Saturn Nordic Holding announced its intention to buy
the remaining 8.37 million shares owned by Sokolóws minority
shareholders by means of a mandatory buy-out. Shareholders were paid
PLN 5.80 (app. EUR 1.47) a share, a total of around EUR 12.3 million,
the fair value at the time. The plan is to take Sokolów off the Warsaw
Stock Exchange during the current year.
On 21 June 2006, HK Ruokatalo Group made an offer to the minority
shareholders of Rakvere Lihakombinaat to buy out the remaining 4.26%
of Rakveres shares. Shareholders were paid fair compensation of EEK
45.40 (app. EUR 2.90) a share, a total of around EUR 4.6 million.
Rakveres Extraordinary General Meeting of Shareholders approved the
takeover on 24 July 2006.
ANNUAL GENERAL MEETING
HK Ruokatalo Groups Annual General Meeting held on 21 April 2006
adopted the accounts and discharged the Board of Directors and the CEO
from liability for 2005. It was decided to declare a dividend of EUR
0.27 per share.
Marcus H. Borgström, Markku Aalto, Tiina Varho-Lankinen, Kjeld
Johannesen and Heikki Kauppinen were re-elected to the Board of
Directors. Mr Borgström and Mr Aalto were reappointed as chairman and
deputy chairman respectively. Authorised public accountants
PricewaterhouseCoopers Oy and Petri Palmroth APA were appointed as the
companys auditors for the 2006 financial year.
The Board of Directors also received authorisation to increase the
share capital and to purchase and transfer treasury shares.
MANAGEMENT
Kai Seikku MSc (Econ. & Bus. Admin.) took over as CEO of HK Ruokatalo
Group Oyj on 1 April 2006, when his predecessor, Simo Palokangas,
retired. Mr Seikku was appointed on 12 April 2005 to succeed Mr
Palokangas and took over the helm of the company from his position as
managing director of HK Ruokatalo Oy, which is responsible for the
groups business operations in Finland. As well as serving as HK
Ruokatalo Groups CEO, Kai Seikku retains his position of managing
director of the groups business operations in Finland.
BOARD OF DIRECTORS AUTHORISATIONS TO INCREASE THE SHARE CAPITAL
The Board of Directors has been authorised by the Annual General
Meeting of 21 April 2006 to decide whether to increase the share
capital through one or more rights issues, one or more convertible
bond loans and/or warrants so that a maximum of 2,000,000 of the
companys new A Shares 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.
The Board of Directors also has authorisation to decide on the
acquisition and transfer of treasury shares. The company may, in
public trading or in a public bid, acquire a maximum of 3,446,319
companys A Shares.
All authorisations are valid until the next Annual General Meeting, or
until 21 April 2007 at the latest. To date, the Board of Directors has
not exercised these authorisations.
NOTICE OF CHANGE IN OWNERSHIP
Under Chapter 2 of the Securities Markets Act, on 16 June 2006,
Osuuspankkikeskus Osk announced that with its subsidiaries and the
mutual funds managed by its subsidiaries, its total shareholding in HK
Ruokatalo Group had fallen to 4.997% of the share capital and 1.257%
of the votes.
EMPLOYEES
The group employed an average of 4,505 persons (4,608 persons) in
Finland and the Baltics during the first six months of the year. The
Sokolów Group employed an average of 5,029 persons (5,028) over the
same period. An analysis of employees by country, excluding Poland, at
the end of June is as follows:
Finland 3,143 63.5%
Estonia 1,571 31.7%
Latvia 181 3.7%
Lithuania 50 1.0%
Russia 5 0.1%
EVENTS TAKING PLACE SINCE 30 JUNE 2006
Under Chapter 2 of the Securities Markets Act, on 13 July 2006, Julius
Baer Investment Management LLC announced that its shareholding in HK
Ruokatalo Group had risen to 5.13% of the share capital and 1.29% of
the votes.
THE FUTURE
HK Ruokatalo retains the view that the comparable EBIT, less non-
recurring items, is expected to improve in all three market areas
during the current year.
The restructuring project at home, which is scheduled for this year
and 2007, will continue to include items of a non-recurring nature. As
stated earlier, a small part of any cost-savings delivered by
restructuring will be in evidence during 2007 and the full impact is
expected to be felt in 2008.
CONSOLIDATED INCOME STATEMENT
(EUR mill.)
4-6/06 4-6/05 1-6/06 1-6/05 1-12/05
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Revenue 239.4 227.0 452.9 424.1 883.3
EBIT 7.0 6.3 13.6 12.1 24.1
Share of associates results 0.2 0.5 0.5 0.8 0.7
Financing income and
expenses -1.7 -1.3 -3.4 -2.4 -4.5
Profit before tax 5.5 5.4 10.7 10.5 20.3
Taxes -0.7 -1.0 -1.7 -1.9 -3.3
Profit for the financial
period 4.8 4.5 9.0 8.5 17.0
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Attributable to
Shareholders of parent
company 4.5 4.3 8.4 8.1 16.0
Minority interests 0.3 0.2 0.6 0.4 1.0
Total 4.8 4.5 9.0 8.5 17.0
EPS, diluted, EUR 0.13 0.12 0.24 0.24 0.46
CONSOLIDATED BALANCE SHEET
(EUR mill.)
30.6.2006 30.6.2005 31.12.2005
----------------------------------------------------------------------
ASSETS
Non-current assets
Intangible assets 4.1 3.7 4.0
Goodwill 53.4 46.4 46.8
Property, plant and equipment 279.5 246.7 266.3
Financial assets 6.2 6.7 5.5
Deferred tax assets 2.1 0.6 2.2
Other long-term receivables 4.3 3.6 3.8
Total non-current assets 349.6 307.7 328.6
Current assets
Inventories 57.0 60.6 65.4
Trade and other receivables 127.9 109.9 107.5
Cash and bank 13.5 15.2 12.8
Total current assets 198.4 185.7 185.7
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TOTAL ASSETS 548.0 493.4 514.3
EQUITY AND LIABILITIES
Equity attributable to
holders of the parent 217.7 210.5 219.1
Minority interest 2.7 11.1 10.8
Total shareholders equity 220.4 221.6 229.9
Non-current liabilities
Deferred tax liability 12.8 10.4 12.2
Long-term liabilities, interest-
bearing 114.4 75.2 84.2
Pension obligations 4.8 2.6 4.5
Non-current provisions 0.0 1.3 0.0
Total non-current liabilities 131.9 89.6 100.9
Current liabilities
Current liabilities, interest-bearing 113.8 111.4 91.9
Trade payables and other current
liabilities 80.9 70.4 91.2
Current provisions 0.9 0.4 0.4
Total current liabilities 195.6 182.2 183.5
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TOTAL EQUITY AND LIABILITIES 548.0 493.4 514.3
CASH FLOW STATEMENT
(EUR mill.)
1-6/2006 1-6/2005 1-12/2005
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Operating activities
Net cash flow from operating activities 28.1 22.4 52.5
Change in net working capital -16.2 -19.0 -15.9
Financing items and taxes -5.2 -4.3 -7.8
Net cash flow from operating activities 6.7 -0.9 28.8
Investing activities
Net cash flow from investing activities -42.3 -21.3 -59.2
Financing activities
Change in loans 52.0 27.4 30.7
Change in receivables -6.6 -0.6 0.2
Dividends paid -9.3 -10.0 -10.0
Net cash flow from financing activities 36.1 16.8 20.9
Change in liquid assets 0.6 -5.4 -9.5
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Saturn Nordic Holding Groups opening balance at 1 January 2005 has
been taken into account in the 2005 cash flow statement.
ANALYSIS BY SEGMENT(EUR million)
Revenue and operating profit by main market area
4-6/2006 4-6/2005 1-6/2006 1-6/2005 1-12/2005
---------------------------------------------------------------------
Revenue
-Finland 156.4 154.7 294.1 287.5 588.8
-Baltics 34.1 29.3 62.7 55.3 113.8
-Poland 50.9 44.9 99.9 84.8 188.3
-Between segments -2.0 -1.9 -3.8 -3.5 -7.5
-Total 239.4 227.0 452.9 424.1 883.3
EBIT
-Finland 1.8 3.7 5.0 7.3 13.9
-Baltics 3.7 1.6 5.3 3.0 6.5
-Poland 1.5 1.0 3.3 1.8 3.7
-Between segments 0.0 0.0 0.0 0.0 0.0
-Total 7.0 6.3 13.6 12.1 24.1
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STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS EQUITY
(EUR mill.)
Share Share Hedging- Other Trans- Retained
Tot.
capital premium- reserve reserves lation earnings
reserve diff.
----------------------------------------------------------------------
SHAREHOLDERS EQUITY
1.1.2006 58.6 72.9 1.0 8.6 4.8 73.2 219.1
Cash flow
hedging
Amount transferred
to shareholders
equity during
the period 0.4 0.4 -1.0 -0.2
Change in translation
difference 0.0 0.0 0.0 0.0 0.3 0.0 0.3
Other change -0.6 -0.6
----------------------------------------------------------------------
Net profit/loss recognised
directly in share-
holders equity 0.0 0.0 0.4 0.4 -0.3 -1.0 -0.5
Profit for the financial period 8.4 8.4
----------------------------------------------------------------------
Total profits
shareholders 0.0 0.0 0.4 0.4 -0.3 7.4 7.8
equity
Dividend distribution -9.3 -9.3
----------------------------------------------------------------------
SHAREHOLDERS EQUITY
TOT. 30.6.06 58.6 72.9 1.4 9.0 4.5 71.3 217.7
----------------------------------------------------------------------
Share Share Hedging Other Trans- Retained
Tot.
capital premium reserve reserves lation earnings
total diff.
----------------------------------------------------------------------
SHAREHOLDERS EQUITY
1 Jan 2005 58.6 72.9 0.0 8.4 2.6 67.5 210.0
Cash flow
hedging
Amount transferred
to shareholders equity
during the period 1.1 0.3 -0.3 1.1
Change in translation
difference 0.0 0.0 0.0 0.0 1.1 1.1
Other change 0.2 0.2
----------------------------------------------------------------------
Net profit/loss recognised
directly in share-
holders equity 0.0 0.0 1.1 0.3 1.1 -0.1 2.4
Profit for the 8.1 8.1
financial period
----------------------------------------------------------------------
Total profits
and losses 0.0 0.0 1.1 0.3 1.1 8.0 10.5
Dividend distribution -10.0 -10.0
----------------------------------------------------------------------
SHAREHOLDERS EQUITY TOT.
30 June 2005 58.6 72.9 1.1 8.7 3.7 65.5 210.5
----------------------------------------------------------------------
FINANCIAL INDICATORS
30.6.2006 30.6.2005 31.12.2005
EPS, diluted 0.24 0.24 0.46
Equity per share at 30 June, EUR 1) 6.32 6.43 6.36
Equity ratio, % 40.2 44.9 44.7
Adjusted number of shares 34,463,193 34,463,193 34,463,193
Gross capital
expenditure, EUR million 43.3 25.7 59.2
Employees, end of month average 4,505 4,608 4,541
1) Excluding minoritys share of equity.
CONSOLIDATED CONTINGENT LIABILITIES
(EUR mill.)
30.6.2006 30.6.2005 31.12.2005
Debts secured by
pledges or mortgages
- pension loans 0.0 14.6 0.0
- loans from financial institutions 63.1 72.9 70.0
Given as security
- real estate mortgages 33.6 50.9 35.4
- pledges 12.1 10.0 12.0
- floating charges 4.7 22.1 4.3
For associates
- guarantees 4.0 0.0 4.0
For others
- guarantees and pledges 6.6 6.5 6.2
Other contingencies
Lease liabilities 4.0 0.4 4.0
Other liabilities 0.0 0.0 0.0
Derivative instrument liabilities
Nominal values of derivatives
Foreign exchange derivatives
- forward exchange contracts 0.4 1.3 1.2
Commodity derivatives
- electricity derivatives 5.3 4.2 4.3
Fair values of derivative instruments
Foreign exchange derivatives
- forward exchange contracts 0.0 0.0 0.0
Commodity derivatives
- electricity futures 2.0 1.2 1.0
ACCOUNTING POLICIES
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.
The figures in this report are unaudited
Vantaa, 7 August 2006
HK Ruokatalo Group Oyj
Board of Directors
Kai Seikku
CEO
DISTRIBUTION:
Helsinki Exchanges
www.hk-ruokatalo.fi
