HK RUOKATALO GROUP?S INTERIM REPORT FOR 1 JANUARY TO 31 MARCH 2006
HK Ruokatalo Group Oyj STOCK EXCHANGE BULLETIN 28 April 2006, 10.45am
HK RUOKATALO GROUPS INTERIM REPORT FOR 1 JANUARY TO 31 MARCH 2006
* INTERNATIONAL BUSINESS PERFORMS STRONGLY DURING START OF YEAR
* PROFITABILITY REMAINS UNSATISFACTORY AT HOME, RATIONALISATION
CONTINUES
HK Ruokatalos business continued to perform well in the Baltics and
Poland during the early part of the year. Net sales were up and
earnings improved in both market areas. At home, profitability of
fresh meat and the poultry business remained below target and was as a
whole unsatisfactory. Conversely, the processed meat and convenience
food business performed in line with expectations.
HK Ruokatalo Group concerns revenue for the first quarter of 2006
rose by 8.3% to EUR 213.5 million (EUR 197.1m for Q1 of 2005).
Sokolów, the groups associate in Poland, accounted for EUR 9.1
million of this increase. The operating profit was up 14% to EUR 6.6
million (EUR 5.8m) and the profit before taxes was up 4% to EUR 5.2
million (EUR 5.0m). Group operating profit for the first quarter of
2006 was 3.1% (2.9%) of revenue. Earnings per share were EUR 0.11, the
same as a year earlier.
January 2006 saw the company embark on a two-year programme to
overhaul the industrial structure in Finland. Vantaa is to form the
focus of processed meat production and logistics and Forssa the focus
of fresh meat processing. These structural solutions are part of a
programme to make business at home more efficient and enhance cost
competitiveness.
Scheduled for 2006-2007,the programme will signal the closure of
operations at the Turku processed meat factory, the Tampere meat
processing plant and the Tampere distribution terminal. Together with
efficiency measures already announced earlier, the plan will affect an
estimated 500 jobs in Finland by the end of 2007. The actions will
deliver annual cost savings in the region of EUR 15-20 million.
In January, chef Jyrki Sukula was appointed Creative Director of HK
Ruokatalo and a member of the Management Team in Finland. HK Ruokatalo
also acquired Sukulas VIA line of products in the same context.
MARKET AREA: FINLAND
Net sales in Finland during the first quarter of 2006 were EUR 137.7
million, up by EUR 4.9 million or 3.7% on the corresponding figure a
year earlier. Nevertheless, the operating profit at home fell to EUR
3.3 million compared to EUR 3.6 million a year earlier, amounting to
2.4% (2.7% for Q1 of 2005) of net sales.
- Meat business
The meat business is responsible for the handling and value added
processing of pork and beef, the supply of pork and beef in Finland
and for meat flow control. The meat business, including primary
production, generates over 40% of the companys net sales in Finland.
Although the meat business achieved higher sales than budgeted during
the first three months of the year, profitability remained poor. Our
share of the fresh consumer-packed meat market is currently too low
and we intend to considerably increase our market share in the
foreseeable future.
Deployment of the new slaughtering line at Forssa went as planned.
Likewise, replacement of the meat cutting plant progressed to plan.
The completion of these investments will considerably improve cost-
effectiveness at Forssa.
- Poultry business
The companys poultry business in Finland includes the manufacture of
broiler and turkey meat products and the procurement of poultry raw
meat material from contract producers. The poultry business accounts
for around one fifth of the companys net sales in Finland.
Low market prices at home and export prices were the main reason why
the poultry business missed its performance target. At home, prices
were also depressed as a result of price competition from imported
fillet products. The fear of avian flu has affected export demand and
prices. In Finland, demand fell by just a few per cent and confidence
in Finnish poultry meat was already regaining strength towards the end
of the period. Actions in the industry and measures taken by the
authorities have proved to be sound and appropriate.
HK Ruokatalo and Atria are still exploring the feasibility of working
together in the turkey business.
-Processed meat and convenience food business
HK Ruokatalos processed meat and convenience food business includes
the production of processed meat and convenience foods. The processed
meat and convenience food business generates over one third of the
companys net sales in Finland.
Sales during the first three months of the year were better than
targeted in both processed meats and convenience foods. This was owing
to higher sales volumes, especially in whole-meat cold cuts, and the
fact that to a certain extent the company successfully passed on
increased costs to prices. More expensive energy in particular has led
to a marked rise in costs. At an annual level, the actual rise in
energy costs translates into around EUR 200,000 in the processed meat
and convenience food industry and around EUR 370,000 in the companys
other operations in Finland.
Efforts were made to maintain production efficiency despite production
stoppages caused by the companys announcement in January to close the
meat processing factory in Turku. All in all, the Finnish processed
meat and convenience food business achieved performance targets.
-Commercial Operations
A new organisation model has been built in line with restructuring of
the companys commercial management at the start of 2006.
Restructuring saw product development and marketing being merged to
form a new unit, where product development reports directly to product
group managers in different business areas. Likewise, the company have
strengthened consumer and customer marketing expertise through
recruitment. These actions seek to reinforce the role of consumer
marketing at HK Ruokatalo.
Competition for shelf space in the retail trade is intensifying as
supply increases and distribution channels become fewer. For its own
part, HK Ruokatalo lives in keeping with the situation and offers
chains in the retail trade and HoReCa customers products and services
to meet their own concepts and also private labels if required.
MARKET AREA: THE BALTICS
Net sales in the Baltics were EUR 28.6 million, up by EUR 2.5 million
or 9.8% on the figure for the first quarter of 2005. The operating
profit rose by 12.8% to stand at EUR 1.5 million. The operating profit
in the Baltics rose to 5.4% (5.2% for Q1 of 2005) of net sales.
Rakvere Lihakombinaat and its subsidiaries performed well during the
first quarter of 2006 and much better than the corresponding period
last year. Sales in all three countries rose, whilst costs were
successfully kept in line with the budget.
Sales in Estonia were as expected. Good progress was made with meat
sales. Frankfurter campaigns were successful and sales of whole meat
products rose.
Rakvere Group improved earnings on the back of good performance by
Rakvere Lihakombinaat and Ekseko, which produces raw pork material.
Furthermore, Rigas Miesnieks in Latvia and Klaipedos Maistas in
Lithuania are now back on a positive earnings track. In Latvia, this
improvement was helped by higher sales, a revamped product range and a
new sales team. In Lithuania, sales rose largely as a result of a
revamped product range and new distribution channels.
As expected, poultry company Tallegg posted a loss for the first three
months of the year. Earnings were still affected by cleaning up
measures following the discovery of salmonella in spring 2005 and the
fact that the avian flu publicity has made the market slightly more
jittery than in Finland. Although the salmonella situation is now
fully under control, the measures put in place and ensuing non-
recurring charges are like to spill into the following two quarters.
Tallegg aims to break even in 2006.
Fear of avian flu in the Baltics has eroded prices by some 15%.
Poultry meat consumption has also declined in the same context. The
situation is best in Estonia, where prices remain reasonable.
Talleggs main objective is to get summer products into all chains and
thus improve margins. Whilst higher, more profitable sales are
expected to restore earnings to profitability in the summer, the
impact of avian flu is difficult to predict.
Good performance on the red meat front led to improved earnings in the
groups business in the Baltics compared to the first quarter of 2005,
which was also good.
MARKET AREA: POLAND
Sokolóws performance during the first quarter of the year exceeded
expectations. After consolidation, HK Ruokatalo Groups share of
Sokolów net sales was EUR 49.0 million, up by EUR 9.1 million or 22.7%
on the figure a year earlier. At EUR 1.8 million, the operating profit
more than doubled year-on-year and now accounts for 3.7% of net sales
(2.2% for Q1 of 2005).
Investments to improve productivity, the rationalisation of production
lines between industrial units currently under way, a streamlining of
the product range and, despite a strong zloty, good export progress
have contributed to Sokolóws good performance. Since it manufactures
considerable volumes of cooked poultry-based processed meat products,
Sokolów can also be said to have benefited from lower raw poultry meat
prices following avian flu publicity.
Macroeconomic conditions in Poland were favourable for Sokolów groups
companies. The economy kept developing quicker than expected and
industrial production increased highly, in particular in March. The
general positive progress were backed up with increase of income,
consumption demand and brisk increase in retail trade.
INVESTMENTS AND FINANCE
Gross investments totalled EUR 14.6 million (EUR 12.6 million) during
the first quarter of 2006. Of this sum, EUR 9.6 million was spent on
projects at home and EUR 2.3 million on projects in the Baltics.
Additionally, investments in Sokolów were EUR 5.4 million, of which HK
Ruokatalo Groups contribution was EUR 2.7 million.
Following completion of the new pork slaughtering line at Forssa, the
company switched its focus to the replacement of the quick carcass
refrigeration plant and animal reception facilities and changes to the
primary cutting of carcasses on the cutting side. Work on the new
refrigeration plant at Forssa is nearing completion, as is
modernisation of the old part of the delivery terminal at Vantaa.
Group interest-bearing liabilities at 31 March 2006 rose to EUR 197.7
million, compared to EUR 166.4 million a year earlier. Interest-
bearing liabilities have increased by EUR 21.6 million since the start
of the new financial year. The increase in loans was largely
attributable to accelerated investment programmes and a growth in the
net working capital requirement. More loans and the recent marked
increase in interest rates also reflect on net financing expenses. It
should also be noted in the change that net financing expenses for the
comparison year 2005 include considerably more financing income. The
equity ratio at 31 March 2006 was 44.8% (46.8%).
MANAGEMENT
Kai Seikku MSc (Econ. & Bus. Admin.) took over as CEO of HK Ruokatalo
Group Oyj on 1 April 2006 following the retirement of his predecessor,
Simo Palokangas. The companys Board of Directors appointed Kai Seikku
on 12 April 2005 to replace Simo Palokangas.
BOARD OF DIRECTORS AUTHORISATION TO INCREASE THE SHARE CAPITAL
At 31 March 2006, the Board of Directors had an authorisation given by
the Annual General Meeting held on 12 April 2005 to decide whether to
increase the share capital, to issue a convertible bond loan and/or
warrants so that a maximum of 2,000,000 of the companys new A Shares
may be subscribed and the companys share capital may be raised by no
more than EUR 3,400,000. The authorisation allowed 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. The authorisation was not exercised and expired
accordingly on 21 April 2006.
EMPLOYEES
The group employed an average of 4,301 persons (4,367) in Finland and
the Baltics during the first quarter of the year. An analysis of
employees by country at 31 March is as follows:
Finland 2,542 58.7%
Estonia 1,561 36.0%
Latvia 174 4.0%
Lithuania 50 1.2%
Russia 5 0.1%
Sokolów employed over 4,700 persons in Poland.
EVENTS TAKING PLACE SINCE 31 MARCH 2006
Saturn Nordic Holding AB, the joint venture owned by HK Ruokatalo
Group and Danish Crown, plans to de-list meat processing company
Sokolów from the Warsaw Stock Exchange. On 3 April 2006, Saturn Nordic
Holding made a public tender offer in Poland to buy the remaining 17.8
million Sokolów shares still owned by minority shareholders for PLN
5.80 (appr. EUR 1.47) per share. The subscription period is from 12
April to 11 May 2006.
The Annual General Meeting held on 21 April 2006 adopted the parent
companys and consolidated financial statements and discharged the
members of the Board of Directors and the CEO from liability for 2005.
The Meeting decided to declare a dividend of EUR 0.27 per share for
2005 in line with the Board of Directors recommendation.
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 Annual General Meeting authorised the Board of Directors to decide
whether to increase the share capital through rights issues,
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 was also authorised 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.
THE FUTURE
The operating profit is expected to improve in all three market areas
during the current year and group operating profit to be better than
during 2005. As has been the case in previous years, good performance
at home during the summer sales period is key to earning. Actions
contributing to business profitability in Finland in 2006 are
intensified sales and, in particular, improvements in process- and
cost-effectiveness in the meat business.
According to current knowledge avian flu may bring uncertainty to 2006
earnings but the company, however, retains confidence in the
impenetrability of its own production chain and in the judgment of
Finnish consumers. Previous experience has also shown that demand is
directed towards other types of meat, thus increasing their demand and
possibly prices, too.
Strong progress in Poland and the Baltics seems likely to continue
throughout 2006.
Recognition of non-recurring charges in relation to the restructuring
programme announced in January may be taken in 2006. Work is currently
under way on a more detailed plan of the programme. The charges relate
mainly to employee solutions and, once they have been ascertained, the
non-recurring costs thereof will be written down in full during the
current financial year.
CONSOLIDATED INCOME STATEMENT
(EUR million)
1-3/2006 1-3/2005 1-12/2005
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Revenue 213.5 197.1 883.3
Operating profit 6.6 5.8 24.1
Share of associates results 0.3 0.3 0.7
Financing income and expenses -1.7 -1.1 -4.5
Profit before tax 5.2 5.0 20.3
Taxes -1.0 -1.0 -3.3
Profit for the financial period 4.2 4.0 17.0
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Attributable to
Shareholders of parent company 3.9 3.8 16.0
To minority interests 0.3 0.2 1.0
Total 4.2 4.0 17.0
EPS, diluted, EUR 0.11 0.11 0.46
CONSOLIDATED BALANCE SHEET
(EUR million)
31.3.2006 31.3.2005 31.12.2005
----------------------------------------------------------------------
ASSETS
Non-current assets
Intangible assets 4.0 3.9 4.0
Goodwill 46.7 46.9 46.8
Property, plant and equipment 272.4 240.0 266.3
Financial assets 5.7 6.4 5.5
Deferred tax assets 1.9 0.6 2.2
Other long-term receivables 4.3 3.7 3.8
Total non-current assets 335.0 301.6 328.6
Current assets
Inventories 70.3 64.1 65.4
Trade and other receivables 104.4 100.2 107.5
Cash and bank 11.0 16.3 12.8
Total current assets 185.8 180.6 185.7
----------------------------------------------------------------------
TOTAL ASSETS 520.8 482.2 514.3
EQUITY AND LIABILITIES
Equity attributable to
holders of the parent 222.7 216.0 219.1
Minority interest 10.8 9.7 10.8
Total shareholders equity 233.6 225.7 229.9
Non-current liabilities
Deferred tax liability 12.7 9.6 12.2
Long-term liabilities,
interest-bearing 83.6 88.7 84.2
Pension obligations 4.2 2.8 4.5
Non-current provisions 0.0 0.9 0.0
Total non-current liabilities 100.4 102.0 100.9
Current liabilities
Current liabilities,
interest-bearing 114.2 77.7 91.9
Trade payables and other
current liabilities 71.9 76.8 91.2
Current provisions 0.7 0.0 0.4
Total current liabilities 186.8 154.6 183.5
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TOTAL EQUITY AND LIABILITIES 520.8 482.2 514.3
CASH FLOW STATEMENT
(EUR million)
1-3/2006 1-3/2005 1-12/2005
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Operating activities
Net cash flow from operating activities 13.6 10.1 52.5
Change in net working capital -21.1 -15.7 -15.9
Financing items and taxes -2.7 -2.1 -7.8
Net cash flow from operating activities -10.2 -7.6 28.8
Investing activities
Net cash flow from investing activities -12.8 -11.5 -59.2
Financing activities
Change in loans 21.2 14.8 30.9
Dividends paid - - -10.0
Share issue - - -
Net cash flow from financing activities 21.2 14.8 20.9
Change in liquid assets -1.8 -4.3 -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
1-3/2006 1-3/2005 1-12/2005
------------------------------------------------------------
Revenue
-Finland 137.7 132.8 588.8
-Baltics 28.6 26.1 113.8
-Poland 49.0 39.9 188.3
-Between segments -1.8 -1.7 -7.5
-Total 213.5 197.1 883.3
Operating profit
-Finland 3.3 3.6 13.9
-Baltics 1.5 1.4 6.5
-Poland 1.8 0.9 3.7
-Between segments 0.0 0.0 0.0
-Total 6.6 5.8 24.1
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STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS EQUITY
(EUR million)
Share Share- Hedging- Other Trans- Retained
capital premium reserve reserv lation earnings
total diff. Tot.
----------------------------------------------------------------------
SHAREHOLDERS EQUITY
1 Jan 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 0.5 0.5
Change in translation
difference 0.0 0.0 0.0 0.0 -0.7 0.0 -0.7
Other changes -0.1 -0.1
----------------------------------------------------------------------
Net profit/loss recognised
directly in share-
holders equity 0.0 0.0 0.5 0.0 -0.8 0.0 -0.3
Profit for the
financial period 3.9 3.9
----------------------------------------------------------------------
Total profits
and losses 0.0 0.0 0.5 0.0 -0.8 3.9 3.6
Dividend
distribution 0.0 0.0
----------------------------------------------------------------------
SHAREHOLDERS
EQUITY TOTAL
31 March 2006 58.6 72.9 1.5 8.6 4.0 77.1 222.7
----------------------------------------------------------------------
Share Share- Hedging- Other Trans- Retained
capital premium reserve reserv lation earnings
total diff. Tot.
----------------------------------------------------------------------
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 0.6 0.6
Change in translation
difference 0.0 0.0 0.0 0.0 1.5 0.0 1.5
----------------------------------------------------------------------
Net profit/loss recognised
directly in share-
holders equity 0.0 0.0 0.6 0.0 1.5 0.0 2.1
Profit for the
financial period 3.9 3.9
----------------------------------------------------------------------
Total profits
and losses 0.0 0.0 0.6 0.0 1.5 3.9 6.0
Dividend
distribution 0.0 0.0
----------------------------------------------------------------------
SHAREHOLDERS
EQUITY TOTAL
31 March 2005 58.6 72.9 0.6 8.4 4.1 71.4 216.0
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FINANCIAL INDICATORS 31.3.2006 31.3.2005 31.12.2005
EPS, diluted 0.11 0.11 0.46
Equity per share at
31 March, EUR 1) 6.46 6.27 6.36
Equity ratio, % 44.8 46.8 44.7
Adjusted number of shares 34,463,193 34,463,193 34,463,193
Gross capital
expenditure, EUR million 14.6 12.6 59.2
Employees, end of month average 4,301 4,367 4,541
1) Excluding minoritys share of equity.
CONSOLIDATED CONTINGENT LIABILITIES
(EUR mill.)
31.3.2006 31.3.2005 31.12.2005
Debts secured by
pledges or mortgages
- pension loans 0.0 14.6 0.0
- loans from financial institutions 65.9 75.3 70.0
Given as security
- real estate mortgages 33.8 52.9 35.4
- pledges 12.0 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 19.9* 6.7 6.2
Other contingencies
Lease liabilities 4.1 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 1.6 1.0 1.2
Commodity derivatives
- electricity derivatives 4.3 4.4 4.3
Fair values of derivative instruments
Foreign exchange derivatives
- forward exchange contracts 0.0 0.0 0.0
Commodity derivatives
- electricity futures 2.2 0.6 1.0
*) Includes guarantee for debts of participating interests
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.
Vantaa, 28 April 2006
HK Ruokatalo Group Oyj
Board of Directors
Kai Seikku
CEO
DISTRUBUTION:
Helsinki Exchanges
Internet: www.hk-ruokatalo.fi
