HKScan’s annual comparable EBIT turned positive

HKScan Corporation      Interim Report   7 May 2020 at 8:00 a.m. EET

HKScan’s annual comparable EBIT turned positive
 

January–March 2020

• HKScan’s net sales increased by 6.8 per cent and were EUR 428.9 (401.8) million.
• EBIT improved by EUR 10.8 million to EUR -3.9 (-14.7) million.
• Comparable EBIT improved by EUR 6.2 million to EUR -3.9 (-10.1) million.
• On an annual level (rolling 12 months), comparable EBIT turned positive and was
  EUR 3.9 million.
• Commercial successes and growth of sales volumes as well as operational efficiency measures were the most significant factors strengthening the EBIT.
• Cash flow from operating activities improved by EUR 10.2 million to EUR -7.3 (-17.5) million.
• Interest-bearing net debt was EUR 298.0 (364.7) million and net gearing 96.8 (119.8)
  per cent.
• HKScan has implemented numerous special actions to ensure consumer and customer satisfaction, the safety of its personnel and the continuity of its production during the exceptional circumstances caused by the Covid-19 epidemic in all its market areas. In March, HKScan’s retail sales increased significantly but sales in the food service channel decreased clearly. Due to increased costs, the total impact on EBIT was minor.
• After the review period, HKScan announced that it had purchased the plot of land on which its production unit is located in Vantaa, enabling the company to continue operations in the current location for a long time. The purchase price was approximately EUR 36 million.

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.

Outlook 2020

HKScan estimates that the Group’s comparable EBIT in 2020 will improve compared to 2019.

Key figures, net sales

Key figures, EBIT

Key figures, other

HKScan’s CEO Tero Hemmilä

HKScan’s Turnaround programme proceeded according to plan. The Covid-19 epidemic caused unexpected changes in all our market areas and the first quarter ended in a rather exceptional situation. I want to thank all HKScan’s employees, our contract farmers and other partners for their good work in the exceptional circumstances. Appreciation for domestic food production has increased significantly. The strategic importance of HKScan’s long value chain, from farms to consumers’ food moments every day of the year, is increasing in all of our home markets.

Characteristically for the industry, the first quarter is challenging profit-wise. However, HKScan’s net sales increased by almost 7 per cent. In comparable figures, growth was seen in all the market areas and in all the key product categories. As a whole, I am pleased with HKScan’s profit improvement of EUR 6.2 million in the first quarter although the performance of all business units was not satisfactory. Our comparable EBIT was still EUR -3.9 million negative. On an annual basis, rolling 12 months, the company's comparable EBIT turned positive already in January and was EUR 3.9 million positive at the end of March. I am very pleased that we have, in just over a year, improved our comparable EBIT by over EUR 50 million from 2018. There is still a long way to go to reach the target level of profitability, but the direction is right.

Denmark, Sweden and the Baltics achieved their targets and clearly improved their comparable EBIT. Improvements were seen in all areas of business. Finland fell slightly short of its goals in some areas of business. We have identified the reasons and initiated corrective actions. The Finnish poultry business continued to improve its performance. In Rauma, the process is stable, but in order to meet a faster than expected consumption growth and to secure both supply reliability and productivity improvement, we decided to invest in the poultry unit’s slaughtering process in January.

Meeting the sudden changes in demand caused by the Covid-19 epidemic resulted in additional costs. The strongly growing retail sales and the demand focusing on basic home cooking products in poultry, pork, beef and processed meat secure the company’s sales also in exceptional circumstances. Weakening demand in the food service channel is hampering our operations, but our strong position in the retail trade compensates for this. We estimate that retail sales and demand for meat and processed meat products will continue positive over the coming months. Online food sales and deliveries directly to consumers’ homes have also clearly increased. Both are likely to have a stronger role in the market even after the epidemic. 

The Covid-19 epidemic has also impacted our exports to China. Planned export volumes to China were not fully achieved, but exports increased from the comparison period. Exports to China returned close to the target level at the end of the quarter. We directed sales to other export markets, which compensated the challenges seen with China at the beginning of the year. The situation has led to higher costs in export logistics. As a result of the epidemic, volatility in the international meat market is expected to continue. We will continue to work closely with the authorities in our home markets to obtain export licenses also for poultry and beef in China.

In this exceptional situation, it is extremely important for us, as a company, to take care of the health of our employees and consequently, the operation of our production units. In terms of hygiene, particularly in production and logistics, the focus has been on precautionary measures that have been even tighter than usual. We have also instructed our contract farmers to take preventive measures.

The company's strategy has been resolutely taken forward. During the first quarter, our focus has been to lead the Turnaround programme and to implement the Group’s new profit centre-based operating model. HKScan’s strategic target is to grow profitably into a versatile food company. In our strategy and its implementation, we take into account the potential impact of the epidemic on consumer behaviour.

At the beginning of April, HKScan purchased the plot of land of our Vantaa production unit from LSO Osuuskunta. The arrangement was conducted in a good understanding with our financing banks. The purchase of the land was important for us to be able to secure the continuation of our operations in the current location for a long time as the techno-economic life of the Vantaa production unit and logistics centre, serving the entire Finnish food market, will continue until the 2030s. To further develop the land, our goal is to expand the ownership base to meet the future needs. 

HKScan’s profit improvement and continued strengthening of cash flow will provide the company with a solid basis to continue the ongoing profitability improvement and to build the conditions for growth. With some 7,000 employees, nearly 20 production units and thousands of farms producing domestic meat raw materials, HKScan has a key role in the food supply and food security in all of its home markets. That is our position today, as it has been during our over 100-year history. We do our utmost to secure the company’s operations under the exceptional circumstances. Food is needed every day and HKScan has a key role in this in all of its home markets. HKScan’s strategic foundation is to resolutely develop the entire value chain from farms to consumers' food moments and to generate strengthening shareholder value as a versatile food company.

Information meeting for analysts and media

An information meeting related to HKScan Corporation’s January–March 2020 interim report for analysts, institutional investors and media will be organised as a webcast on 7 May 2020 at 10 a.m. via https://hkscan.videosync.fi/q1-2020-tulokset. The interim report will be presented by CEO Tero Hemmilä and CFO Jyrki Paappa. The event will be held in Finnish.

Conference calls in English will be arranged upon separate request. Kindly contact Marjukka Uutela-Hujanen, phone +358 10 570 6218, to make an appointment.

Vantaa, 7 May 2020

HKScan Corporation

Board of Directors

For further information           

Tero Hemmilä, CEO, tel. +358 10 570 2012
Jyrki Paappa, CFO, tel. +358 10 570 2512
Heidi Hirvonen, SVP Communications, tel. +358 10 570 6072

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

HKScan’s target is to grow into a versatile food company. With over 100 years of experience, we make tasty, healthy and responsibly produced food responding to the needs of consumers and customers. For us at HKScan, responsibility includes the development of food production throughout the value chain, from farms to consumers. Our home markets cover Finland, Sweden, Denmark and the Baltics. Our nearly 7,000 HKScan professionals ensure tastier life - today and tomorrow. Our diverse product portfolio includes poultry, pork and beef, as well as meat products and meals. Our strong brands are HK®, Kariniemen®, Via®, Scan®, Pärsons®, Rakvere®, Tallegg® and Rose®. In 2019, net sales of the publicly listed HKScan totalled EUR 1.7 billion.

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