HKScan Group’s Half Year Financial Report 1 January–30 June 2019: Result improved clearly – successful share issue enables balanced implementation of the turnaround programme

HKScan Corporation             HALF YEAR FINANCIAL REPORT 18 July 2019        at 8:00 EEST

HKScan Group’s Half Year Financial Report 1 January–30 June 2019: Result improved clearly – successful share issue enables balanced implementation of the turnaround programme

APRIL–JUNE 2019 IN BRIEF

• Net sales in April-June were EUR 439.4 (433.5) million. In comparable currencies, net sales were EUR 443.9 million.

• EBIT was EUR -6.6 (-16.7) million, and the EBIT margin -1.5 (-3.8) per cent.

• Comparable EBIT was EUR -2.5 (-16.6) million. The corresponding EBIT margin was -0.6 (-3.8) per cent. There was no material impact on the EBIT from changes in currency rates.

• Cash flow before investments was EUR 20.9 (11.1) million and before debt service EUR 12.8 (2.3) million.

• Poultry business performance of market area Finland continued to improve clearly and was the main contributor to the Group EBIT improvement.

• The directed share issue was completed successfully, raising gross proceeds of approximately EUR 71.9 million. As a result, the Group’s capital structure strengthened and net gearing ratio lowered to 88.0 per cent.

JANUARY–JUNE 2019 IN BRIEF

• Net sales in January–June were EUR 841.2 (844.5) million. In comparable currencies, net sales were EUR 852.4 million.

• EBIT was EUR -21.2 (-35.0) million, and the EBIT margin -2.5 (-4.1) per cent.

• Comparable EBIT was EUR -12.5 (-34.6) million. The corresponding EBIT margin was -1.5 (-4.1) per cent. There was no material impact on the EBIT from changes in currency rates.

• Cash flow before investments was EUR 5.6 (-28.9) million and before debt service EUR -13.5 (-97.5) million.

• Net debt was EUR 304.7 (360.8) million and net gearing stood at 88.0 (117.3) per cent including IFRS16 impact of approximately 14 percentage points.

• Poultry business performance of market area Finland improved clearly and was the main contributor to the Group EBIT improvement.

• The successful directed share issue generated gross proceeds of approximately EUR 71.9 million and strengthened the Group’s capital structure.

  The figures in parentheses refer to the comparison period, i.e. the same period in the previous year, unless otherwise mentioned. Financial information presented in this report is unaudited.

As of 1 January 2019, HKScan has adopted the new IFRS 16 Leases standard using the full retrospective method. Quarterly and full-year Group and Market Area financial information for 2018 has been restated accordingly. Additional information about the impact is disclosed in the accounting policies.

OUTLOOK 2019 (Unchanged)

Global meat consumption is projected to increase during the coming years. Within HKScan’s home markets, consumption growth is estimated to be led by poultry and meal categories, while demand in other categories is expected to remain stable. HKScan expects its improvement programmes and other corrective actions to start recording results in 2019 and the company’s comparable EBIT is expected to improve clearly from the previous year.

KEY FIGURES, Q2

TERO HEMMILÄ, HKSCAN’S CEO

HKScan’s second-quarter comparable result was still slightly negative but improved clearly from the comparison period. The result is not on a satisfactory level, but the direction during the first half of the year has been correct. Although the comparable EBIT for the first half of the year was still negative, it improved by over EUR 22 million from last year.

The share issue carried out during the second quarter succeeded well. The issue was oversubscribed and the authorisation of the Board of Directors for utilising the Upsize Option was used. The company received a total of approximately EUR 71.9 million in gross proceeds, which significantly improves the company’s financial position and enables controlled balancing of the company’s financials. After the reporting period, we concluded negotiations with our financing banks, securing us longer loan maturities than previously.

The cost savings and development actions started and stepped up after the beginning of the year started to show results. The most significant factor affecting the improved financial performance during the second quarter continued to be the result of our Finnish poultry business. The positive development in the Rauma unit has continued, and the improved delivery capability has resulted in clear sales growth. The EBITDA of the Finnish poultry business continued to be positive during the second quarter. Positive development is also supported by the strong position of the Kariniemen® brand. Moreover, successful operational efficiency improvement actions and firm cost reduction measures in all market areas contributed to the result together with improved sales margins. The Group’s cash flow also improved clearly.

Pork export from Finland to China proceeded according to plan and the targets for the first year of export have been met, being though still marginal on Group figures. The strong reduction of pork production in China caused by African swine fever has increased the demand of pork in the global market and has a positive impact on the price level of export sales. The exceptional pork situation in China also affects, to an extent, the demand and price level of other meat categories.

The new Group Management Team has continued to drive the implementation of short-term corrective measures as well as renew the Group strategy. The Management Team has prepared a three-year turnaround programme for the company, aiming to restore its profitability to the level of leading companies in the industry. The content of this profitability improvement programme and the company’s updated strategy will be communicated in the latter part of the year. Efficiency improvement programmes that have been stated earlier will be incorporated in the new turnaround programme.

As stated earlier, we strengthen the market area level profit responsibility and management in the entire meat value chain. More clearly defined responsibilities facilitate decision making and significantly improve the productivity of our operations. Developing the management model is also a central part of renewing the company strategy.

We see that the strategic, long-term growth directions of HKScan’s business are in poultry and meals businesses. In red meat, we will have an active development approach related to sustainability and responsibility aspects. This will be an important starting point in red meat category development together with responding to consumers’ other expectations related to new and interesting products. We are also openly and more widely examining our role and share in the consumer’s diet and are actively assessing our business portfolio.

We highlight the role of meat as part of a responsible and healthy diet, as well as the significance of Nordic domestic animal production as part of national food security on the domestic markets. We do determined sustainability related work along the entire value chain and in all the main areas of our corporate responsibility programme, where Animal health and welfare and Environmental responsibility are key focus areas. We take the discussion related to meat production and its effects on the climate seriously and continue to develop our corporate responsibility work.

Domestic meat production and its environmental effects must be examined holistically as part of the global climate discussion, as the amount of food required on account of global population growth will be multiplied during the coming decades. We see responsible domestic food production as part of a solution for preventing the negative effects of global climate change.

The direction of our profit development during the second quarter and the whole first half of this year has been correct. The successful share issue and loan refinancing provide HKScan time to continue the ongoing, determined work towards correcting the company’s financial performance. Our goal is to develop HKScan to become an interesting company that rewards its owners and belongs to key food-industry players on the market.

PRESS CONFERENCE FOR ANALYSTS AND MEDIA

An information meeting related to HKScan Corporation’s Half year report for analysts, institutional investors and media will be organised at HKScan Vantaa unit (address: Väinö Tannerin tie 1, 01510 Vantaa, Finland) at 10 a.m. on 18 July 2019.

The Half year report will be presented by Tero Hemmilä, CEO, and Jyrki Paappa, CFO. The event will be held in Finnish.

Conference calls in English will be arranged upon separate request. Those interested in the calls, kindly contact HKScan Communications, communications@hkscan.com (phone +358 10 570 5700) to make an appointment.

HKScan Corporation

Board of Directors

Further information: HKScan Media Service Desk +358 (0)10 570 5700 or email: communications@hkscan.com

HKScan is a Nordic meat and meals company. We employ close to 7 200 professionals in striving to serve the world´s most demanding consumers, maintaining quality throughout the full chain of operations, From Farm to Fork. HKScan produces, markets and sells high-quality, sustainably produced pork, beef, poultry and lamb products, as well as charcuterie and meals, with strong consumer brands, including HK®, Scan®, Rakvere®, Kariniemen®, Rose®, Pärsons® and Tallegg®. Our customers are the retail, food service, industrial and export sectors, and our home market comprises of Finland, Sweden, Denmark and the Baltics. We export to close to 50 countries. In 2018, HKScan had net sales of EUR 1.7 billion.

DISTRIBUTION:

Nasdaq Helsinki

Main media

www.hkscan.com

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