HK RUOKATALO GROUP?S INTERIM REPORT FOR 1 JANUARY TO 30 SEPTEMBER 2006
HK Ruokatalo Group Oyj STOCK EXCHANGE BULLETIN, 8 Nov. 2006, 10:20am
HK RUOKATALO GROUPS INTERIM REPORT FOR 1 JANUARY TO 30 SEPTEMBER 2006
* INTERNATIONAL BUSINESS PERFORMING WELL
* BUSINESS AT HOME UNDER PRESSURE OF HEAVY COST STRUCTURE
HK Ruokatalo Group concerns third quarter was very similar to Q2: the
international business was as expected or better. Performance at home
is still unsatisfactory. Consolidated revenue for the first nine
months of 2006 was up by 6.4% to EUR 691.5 million and profit before
taxes rose by 18.7% to EUR 22.2 million. Earnings per share were up
from EUR 0.42 to EUR 0.52 (+23.8%) on the year.
Consolidated revenue for Q3 was EUR 238.6 million, the same level as
on the previous quarter and up by EUR 12.6 million or 5.6% from the
corresponding figure a year earlier.
Q3 EBIT was up 36.5% to EUR 13.1 million (EUR 9.6m) compared to the
previous year. EBIT for the first nine months of the year was up by
23.0% to EUR 26.7 million (EUR 21.7m). The groups international
business generated over 50% of EBIT. The profit before taxes was up by
18.7% to EUR 22.2 million (EUR 18.7m).
The result for Q3, July to September includes minor non-recurring
expenses and income, which eroded earnings by EUR 0.2 million net.
Operative EBIT was EUR 13.3 million. Non-recurring items eroding
earnings during the previous quarter amounted to EUR 2.1 million. The
cumulative operative EBIT was EUR 29.0 million.
Progress is being made with overhauling HK Ruokatalos industrial
structure in Finland. The programme is expected to deliver annual cost
savings in the region of EUR 15-20m. It will also improve business
operations and enhance competitiveness.
MARKET AREA: FINLAND
HK Ruokatalos net sales at home for Q3 of 2006 were EUR 151.1
million, up by EUR 2.8 million (+1.9%) on the corresponding figure a
year earlier. EBIT rose to EUR 7.3 million, up by EUR 0.8 million or
12.3% on the figure a year earlier. EBIT amounted to 4.8% of net
sales, which is approaching the groups 5% target. However, at 2.8%,
the cumulative figure since the start of the year was unsatisfactory.
Net sales at home for the first nine months of the year amounted to
EUR 445.1 million, up by EUR 9.3 million or 2.1% on the corresponding
figure for 2005. EBIT was EUR 12.3 million, EUR 1.5 million or 10.9%
less than a year earlier.
- Meat business
Sales to the retail trade developed satisfactorily during Q3. Whilst
good progress was made in the sale of meat joints, consumer-packed
meat fell short of target.
Exports of meat to Russia remained brisk and increased somewhat
compared to the previous quarter. Besides industrial assortments, we
have also exported much fresh consumer-packed joints of pork to
Russia.
Deployment of the new cutting room investment at Forssa in the summer
and autumn went largely as planned. In respect of the slaughterhouse,
September saw the start of statutory employer-employee negotiations
under the Act on Cooperation within Undertakings. These negotiations
relate to deployment of the final stage of the modernised
slaughterhouse.
Partly by reducing costs and partly increasing prices the meat
business profitability for Q3 was formed better than for Q2. However,
it is still on a weak level.
HK Ruokatalos procurement company LSO Foods Oy is to supply pork and
beef to cooperative Järvi-Suomen Portti Osuuskunta, which in September
outsourced procurement and associated services to LSO Foods. Higher
volumes and the elimination of overlaps enhance cost efficiency. The
agreement will increase LSO Foods procurement from 99 million kg to
around 118 million kg a year.
- Poultry business
Consumption of poultry meat in Finland rose during the barbecue season
and has since remained on the growth track. Highly processed fresh
products in particularly are selling well. HK Ruokatalos sales volume
was on target during Q3. Profit targets were achieved and cost
pressure was largely under control.
Lower demand for poultry meat in some parts of Europe earlier in the
year added to stockpiles across the EU and put pressure on consumer
prices. The start of an upswing in consumption evidenced during the
summer and exports to Russia have kept HK Ruokatalos stocks low and
even slightly increased export prices.
Länsi-Kalkkuna Oy, joint venture established by HK Ruokatalo and Atria
on a 50-50 basis, will begin trading at the start of 2007. The joint
ventures remit is to improve the profitability of the turkey
business. HK Ruokatalo is expected to benefit from cost savings of
around EUR 1m a year.
-Processed meat and convenience food business
Compared with targets, Q3 was very much a repeat of the performance in
Q2. Sales of processed meat and convenience foods were on target in
terms of volume. Earnings recovered slightly from the hiccough during
the previous period, but were still off target. Earnings in the
processed meat and convenience food business continue to be eroded by
spiralling costs, especially energy costs.
MARKET AREA: THE BALTICS
Net sales in the Baltics during Q3 of 2006 amounted to EUR 35.0
million, up EUR 5.5 million or 18.6% on the corresponding figure for
Q3 of 2005. The operating profit, EUR 4.1 million, is up by EUR 2.0
million or 95.2% on the figure a year earlier. Net sales during the
first nine months of 2006 totalled EUR 97.6 million, up by EUR 12.8
million or 15.1% on the figure a year earlier. EBIT in the Baltics
rose to EUR 9.4 million, to give an operating profit of 9.6% (6.0% 1-
9/2005).
Group business performed well in all the Baltic States, with extremely
pleasing development on the red meat front. Rakvere Lihakombinaat
achieved its sales targets and was able to maintain a reasonable price
level despite rising costs.
High pressure on prices continues. Wages and energy costs are rising,
retail trade is concatenating and discounts become higher. Most meat
companies in the Baltics are currently making a loss or breaking even.
This situation is forcing smaller companies to merge.
In Latvia, Rigas Miesnieks new management and sales from 2005 have
gone over to manufacturing more profitable products, which has kept
the companys earnings in the black. Likewise investments in
developing the range of products are now evident. In Lithuania,
Klaipedos Maistas has successfully increased sales. This has kept
cumulative earnings on the plus side there, too.
Falling demand and prices experienced in the poultry industry in
Europe in early 2006 also put pressure on Tallegg, which was also
facing hygiene problems in production chain. The situation has now
been restored to normal and the company has been restored to profit
since June. This has taken place on the back of higher demand and
prices and the successful completion of an extensive clean-up
operation. Exports to Latvia have also re-started. Tallegg is expected
to post at least a break-even result for the whole year.
MARKET AREA: POLAND
EUR 54.2 million, or half of Sokolóws Q3 revenue, was consolidated
into HK Ruokatalo Group. This is an increase of EUR 3.2 million or
6.3% on the figure a year earlier. EBIT rose 70.0% from EUR 1.0
million to EUR 1.7 million.
Group share for January to September was EUR 154.1 million, up by EUR
18.3 million or 13.5%. EBIT for the first nine months of 2006 was EUR
5.0 million, equivalent to 3.2% of turnover (2.1% 1-9/2005).
Sokolóws revenue developed more modestly during Q3 than during the
previous quarters. Greater attention to profitability and margins in
severe retail trade competition is being reflected in improved EBIT.
Exports have risen faster than the companys sales otherwise, with
exports generating 29% of sales income throughout the first part of
the year. The great fluctuations witnessed in the spring and early
summer in the exchange rates between the zloty and the euro and US
dollar eased in July, thus facilitating foreign trade. Exports to
Russia and Ukraine have been hampered owing to disputes between those
countries and the EU.
Sokolów considerably strengthens its operating conditions in Western
Poland and in the nearby Berlin economic area by acquiring Pozmeat, a
meat company located outside Poznan, and its factory completed in
2001. The factory has been empty since autumn 2004, when Pozmeat went
into liquidation. Sokolów will gain additional production capacity and
one of Polands best-known, century-old meat brand. The arrangements
are still being completed. Production is scheduled to start up in
Poznan during Q1 in 2007.
Poultry meat consumption in Poland has continued on the growth track
and consolidated the price level.
The general economic climate in Poland has developed encouragingly
during the current year. This has led to a rise in demand and the
retail trade. The availability of skilled labour may be hampered in
the future since Polish meat cutters are in demand in many EU Member
States.
INVESTMENTS AND FINANCE
Gross investments totalled EUR 15.4 million during the third quarter
of 2006 (EUR 15.5m during Q3 of 2005). Gross investments totalled EUR
58.7 million (EUR 41.2m) during the first nine months of 2006. EUR
28.2 million of this was spent on production projects at home and EUR
6.6 million on projects in the Baltics. Sokolóws investments were EUR
12.4 million, of which HK Ruokatalo Groups contribution was EUR 6.2
million.
Once the investment in the Forssa slaughterhouse was complete, work
continued on modernising pre-cutting operations. Part of this
investment came on stream in June, the remainder will be completed
during autumn 2006.
The transfers and alterations required in different locations under
the companys industrial restructuring project in Finland are now
underway.
At 30 September 2006, the group had interest-bearing liabilities of
EUR 214.9 million, compared to EUR 176.8 million a year earlier. The
increase in liabilities is partly explained by HK Ruokatalos intense
investment programme. More loans and the marked increase in interest
rates also reflect on financing expenses. The equity ratio was 41.5
per cent (45.7%) at 30 September 2006.
SOKOLÓW AND RAKVERE NO LONGER LISTED
During May, Saturn Nordic Holding (SNH), the joint venture owned by HK
Ruokatalo Group and Danish Crown, acquired by public offer some 9.4
million Sokolów shares for around EUR 13.9 million. Subsequent to the
deal, SNH owned 91.75% of Sokolów. On 23 May 2006, SNH announced it
would buy out the remaining 8.4 million shares at a total cost of EUR
12.3 million. When the takeover process ended on 20 June 2006,
permission was sought to de-list Sokolów from the Warsaw Stock
Exchange. This took place in mid-August.
In Estonia, on 21 June 2006, HK Ruokatalo Group announced its
intention to buy out the remaining 1.6 million Rakvere Lihakombinaat
shares at a total cost of around EUR 4.6 million. The process ended on
31 August 2006 and Rakvere Lihakombinaat shares were withdrawn from
the Tallinn Stock Exchange at the end of September.
VALID BOARD OF DIRECTORS AUTHORISATIONS
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 A
Shares having a nominal value of EUR 1.70.
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.
NOTICES OF CHANGE IN OWNERSHIP
The company has received the following notices regarding change of
ownership pursuant to Chapter 2, Section 9 of the Securities Market
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.
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.
EMPLOYEES
The group employed an average of 4,488 persons (4,604 1-9/2005) 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 2,396 57.5%
Estonia 1,526 36.6%
Latvia 190 4.6%
Lithuania 50 1.2%
Russia 5 0.1%
Sokolów employed around 4,970 persons.
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
particularly in 2008.
CONSOLIDATED INCOME STATEMENT
(EUR mill.)
7-9/06 7-9/05 1-9/06 1-9/05 1-12/05
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Revenue 238.6 226.0 691.5 650.1 883.3
EBIT 13.1 9.6 26.7 21.7 24.1
Share of associates results -0.1 0.0 0.4 0.8 0.7
Financing income and
expenses -1.5 -1.3 -4.9 -3.7 -4.5
Profit before tax 11.5 8.3 22.2 18.7 20.3
Taxes -1.8 -1.5 -3.5 -3.5 -3.3
Profit for the financial
period 9.6 6.8 18.6 15.3 17.0
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Attributable to
Shareholders of parent
company 9.5 6.4 17.9 14.5 16.0
Minority interests 0.1 0.3 0.7 0.8 1.0
Total 9.6 6.8 18.6 15.3 17.0
EPS, diluted, EUR 0.28 0.19 0.52 0.42 0.46
CONSOLIDATED BALANCE SHEET
(EUR mill.)
30.9.2006 30.9.2005 31.12.2005
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ASSETS
Non-current assets
Intangible assets 3.9 3.6 4.0
Goodwill 55.7 46.9 46.8
Property, plant and equipment 283.6 258.4 266.3
Financial assets 6.0 6.8 5.5
Deferred tax assets 2.1 0.6 2.2
Other long-term receivables 4.3 3.2 3.8
Total non-current assets 355.7 319.5 328.6
Current assets
Inventories 55.4 63.2 65.4
Trade and other receivables 121.1 103.4 107.5
Cash and bank 19.3 13.5 12.8
Total current assets 195.7 180.2 185.7
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TOTAL ASSETS 551.4 499.6 514.3
EQUITY AND LIABILITIES
Equity attributable to
holders of the parent 228.4 217.7 219.1
Minority interest 0.6 10.6 10.8
Total shareholders equity 229.0 228.2 229.9
Non-current liabilities
Deferred tax liability 12.9 10.7 12.2
Long-term liabilities, interest-
bearing 114.1 74.7 84.2
Pension obligations 4.7 2.6 4.5
Non-current provisions - 1.3 -
Total non-current liabilities 131.7 89.3 100.9
Current liabilities
Current liabilities, interest-bearing 100.8 102.1 91.9
Trade payables and other current
liabilities 88.9 79.6 91.2
Current provisions 1.0 0.3 0.4
Total current liabilities 190.7 182.1 183.5
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TOTAL EQUITY AND LIABILITIES 551.4 499.6 514.3
CASH FLOW STATEMENT
(EUR mill.)
1-9/2006 1-9/2005 1-12/2005
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Operating activities
Net cash flow from operating activities 49.7 40.4 52.5
Change in net working capital -5.9 -17.3 -15.9
Financing items and taxes -8.4 -7.2 -7.8
Net cash flow from operating activities 35.4 15.9 28.8
Investing activities
Net cash flow from investing activities -57.7 -41.0 -59.2
Financing activities
Change in loans 38.7 25.4 30.7
Change in receivables -0.5 0.8 0.2
Dividends paid -9.3 -10.0 -10.0
Net cash flow from financing activities 28.9 16.2 20.9
Change in liquid assets 6.5 -8.8 -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
7-9/2006 7-9/2005 1-9/2006 1-9/2005 1-12/2005
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Revenue
-Finland 151.1 148.3 445.1 435.8 588.8
-Baltics 35.0 29.5 97.6 84.8 113.8
-Poland 54.2 51.0 154.1 135.8 188.3
-Between segments -1.6 -2.8 -5.4 -6.4 -7.5
-Total 238.6 226.0 691.5 650.1 883.3
EBIT
-Finland 7.3 6.5 12.3 13.8 13.9
-Baltics 4.1 2.1 9.4 5.1 6.5
-Poland 1.7 1.0 5.0 2.8 3.7
-Between segments 0.0 0.0 0.0 0.0 0.0
-Total 13.1 9.6 26.7 21.7 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 0.6 0.4 -1.0 0.0
Change in translation
difference 0.0 0.0 0.0 0.0 0.7 0.0 0.7
Other change
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Net profit/loss recognised
directly in share-
holders equity 0.0 0.0 0.6 0.4 0.7 -1.0 0.7
Profit for the financial period 17.9 17.9
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Total profits
shareholders 0.0 0.0 0.6 0.4 0.7 16.9 18.6
equity
Dividend distribution -9.3 -9.3
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SHAREHOLDERS EQUITY
TOT. 30.9.06 58.6 72.9 1.6 9.0 5.5 80.8 228.4
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Share Share Hedging Other Trans- Retained
Tot.
capital premium reserve reserves lation earnings
total diff.
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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 1.0 0.2 1.9 -0.2 2.9
Change in translation
difference 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other change 0.2 0.2
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Net profit/loss recognised
directly in share-
holders equity 0.0 0.0 1.0 0.2 1.9 0.0 3.1
Profit for the 14.5 14.5
financial period
----------------------------------------------------------------------
Total profits
and losses 0.0 0.0 1.0 0.2 1.9 14.5 17.6
Dividend distribution -9.9 -9.9
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SHAREHOLDERS EQUITY TOT.
30 Nov. 2005 58.6 72.9 1.0 8.6 4.5 72.1 217.7
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FINANCIAL INDICATORS
30.9.2006 30.9.2005 31.12.2005
EPS, diluted 0.52 0.42 0.46
Equity per share at 30 Sept, EUR 1) 6.63 6.32 6.36
Equity ratio, % 41.5 45.7 44.7
Adjusted number of shares 34,463,193 34,463,193 34,463,193
Gross capital
expenditure, EUR million 58.7 41.2 59.2
Employees, end of month average 4,488 4,604 4,541
1) Excluding minoritys share of equity.
CONSOLIDATED CONTINGENT LIABILITIES
(EUR mill.)
30.9.2006 30.9.2005 31.12.2005
Debts secured by
pledges or mortgages
- pension loans 0.0 14.6 0.0
- loans from financial institutions 57.4 61.6 70.0
Given as security
- real estate mortgages 29.6 50.7 35.4
- pledges 12.1 10.0 12.0
- floating charges 4.7 21.3 4.3
For associates
- guarantees 4.0 4.0 4.0
For others
- guarantees and pledges 6.9 5.2 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 0.8 1.8 1.2
Commodity derivatives
- electricity derivatives 5.6 4.1 4.3
Fair values of derivative instruments
Foreign exchange derivatives
- forward exchange contracts 0.0 0.0 0.0
Commodity derivatives
- electricity futures 2.4 1.1 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, 8 November 2006
HK Ruokatalo Group Oyj
Board of Directors
Kai Seikku
CEO
Further information is available from:
CEO Kai Seikku and CFO Matti Perkonoja. Please leave any messages for
them to call with Marjukka Hujanen on +358 10 570 6218
HK Ruokatalo Group concern is an international food company that
produces, sells and markets meat products, poultry meat, processed
meat products and convenience foods for consumers and industry in its
market area and for export. The group has business activities in
Finland, Estonia, Latvia, Lithuania, Russia and Poland. The Group had
a 2005 revenue of EUR 883.3 million and employs around 4300 people in
Finland and the Baltics. In addition, Polish associate Sokolów has
some 5000 employees.
DISTRIBUTION:
Helsinki Exchanges
www.hk-ruokatalo.fi
