HKScan's improved EBIT driven by Finland and Sweden

HKScan Corporation, Half Year Financial Report 2021, 16 July 2021 at 8.30 a.m. EET

HKScan’s Half Year Financial Report 1 January – 30 June 2021 

HKScan's improved EBIT driven by Finland and Sweden 

April-June 2021

• HKScan’s net sales totalled EUR 449.3 (440.9) million. Food service sales increased significantly from the comparison period as a result of the gradual removal of restrictions related to the Covid-19 pandemic but were still clearly lower than in 2019. The impact of the Swedish exchange rate was clearly positive.
• EBIT improved by EUR 3.6 million to EUR 3.7 (0.1) million. 
• Strategic investments in new product categories raise the Eura production unit’s utilisation rate and an impairment reversal of EUR 3.0 million was recorded as a result of the improved outlook. 
• Comparable EBIT was EUR 0.7 (0.6) million.
• Strong profit improvement continued in Finland. EBIT improved by EUR 6.0 million and comparable EBIT by EUR 2.9 million. 
• Good development in Sweden continued and comparable EBIT improved by EUR 0.6 million. 
• The avian flu situation in Denmark and the resulting restrictions on exports outside the EU had a significant negative impact on EBIT, although other parts of the business in Denmark developed as planned.
• As a market area, the Baltics is sensitive to import price pressure, and defending the market position as well as the challenges faced by primary production clearly weakened the EBIT. Corrective actions have been initiated to turn the profit development.
• Cash flow from operating activities remained at a good level of EUR 24.9 (27.8) million. The working capital released from inventories was lower than before.

January-June 2021

• HKScan’s net sales totalled EUR 876.8 (869.8) million. Growth continued in retail sales of the branded products. Food service sales started to recover towards the end of the review period, but sales were still lower than in the comparison period. The impact of the Swedish exchange rate was clearly positive.
• EBIT improved by EUR 6.4 million to EUR 2.6 (-3.8) million. 
• Comparable EBIT improved by EUR 2.9 million to EUR -0.5 (-3.4) million.
• Strong profit improvement continued in Finland. EBIT improved by EUR 8.9 million and comparable EBIT by EUR 5.9 million. 
• Sweden continued its good performance, improving its comparable EBIT by EUR 1.4 million. 
• In Denmark, the strategy implementation continues as planned, but the avian flu detected in the country and the resulting restrictions on exports outside the EU had a significant negative impact on EBIT.
• In the Baltics, EBIT weakened clearly and the causes have been identified. Corrective actions have been initiated to turn the profit development. 
• Cash flow from operating activities improved by EUR 7.6 million to EUR 28.1 (20.5) million. 
• Interest-bearing net debt was EUR 298.5 (315.0) million and net gearing 92.8 (101.2) per cent.

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

Outlook 2021 

HKScan estimates that the Group’s comparable EBIT in 2021 will improve compared to 2020. 

Key figures, net sales

Key figures, EBIT

Key figures, other

* Year 2020 includes the investment to the plot of the Vantaa unit EUR 37.7 million. 
1-6/2021 includes the sale of Vantaa property (land and buildings) with EUR 76.1 million.

HKScan’s CEO Tero Hemmilä

April–June

Although our review period EBIT is better than the comparison period EBIT, we still have a lot of room for improvement. The April-June EBIT increased to EUR 3.7 million, from the comparison period’s EUR 0.1 million. Comparable EBIT was EUR 0.7 million, while it was EUR 0.6 million in the comparison period. The rolling 12-month comparable EBIT was almost EUR 20 million at the end of the review period. The review period’s cash flow after investments improved by more than EUR 38 million to EUR 14.3 million. The comparison period’s cash flow was weakened by the acquisition of the Vantaa plot of land, but even after adjustment, cash flow slightly improved. The company’s balance sheet strengthened and net gearing decreased to 92.8 per cent.

In April-June, our net sales increased by some 2 per cent, although the main part of the increase was due to the exchange rate effect of the Swedish krona. Food service sales started to gradually recover during the review period and were clearly better than in the comparison period, but still well below the pre-pandemic level. We did well in our own branded products, especially in meat products and meal components, which has also decreased the need for more cyclical exports. 

I am pleased that HKScan’s largest markets in Finland and Sweden performed well. The situation is not satisfactory in Denmark and the Baltics, the result was clearly disappointing. We have initiated corrective actions to turn the profit development.

We have identified the factors affecting the review period’s profit development. The development in Finland and Sweden as well as the good development in sales of our own branded products had a significant impact on the review period’s performance. In Denmark, the avian flu situation affecting the whole industry and resulting restrictions on exports outside the EU had a significant negative impact on our performance. Avian flu has still been detected in Denmark, but it is possible that exports outside the EU will resume in the autumn, provided that no new cases of avian flu emerge. For other parts, our strategy has progressed as planned in Denmark and we will continue to focus on strengthening our market position in Denmark and Sweden with fresh and added-value poultry products. In the Baltics, the market price has weakened as a result of lower import prices, and defending our market position weakened the performance. At the same time, particularly in Estonia, the entire retail market declined in the product categories we are present during the review period, affecting clearly our sales. The situation caused by the difficult Covid-19 pandemic, especially in Estonia, resulted in higher production costs. In Finland, strategic investments supporting profitable growth were made in new product categories, resulting in a reversal of a previously recorded impairment of fixed assets. This had also a significant impact on EBIT. 

The impact of the Covid-19 pandemic on our business remained clear and resulted in additional costs as well as structural variation in consumer demand. Through the strong commitment of all our employees, we ensured that our production units and entire supply chain operated without significant disruption. We will continue to follow the company’s own preventive restrictions across our operations. 

January–June

EBIT for the first half of the year improved by EUR 6.4 million to EUR 2.6 million while it was still negative in the comparison period. Our comparable EBIT was still EUR 0.5 million negative, but EUR 2.9 million up from the comparison period. Finland and Sweden were the clear profit drivers. Finland’s EBIT was even EUR 8.9 million and Sweden’s EUR 1.5 million better. EBIT weakened in Denmark and the Baltics. 

Cash flow from operating activities strengthened from the comparison period by EUR 7.6 million thanks to efficient working capital management. Cash flow after investments improved exceptionally by EUR 126.6 million as the Vantaa plot acquired in the comparison period was sold together with the buildings during the review period. Cash flow, property sales adjusted, improved by EUR 12.8 million. 

Strategic investments in growth

During the review period, we made strategic investment decisions to strengthen our position in growing and profitable food moments and product categories and to use new raw materials. We aim to grow in snack products and are investing in related new manufacturing technology in Finland. In addition, we are investing in new technology at our Vantaa production unit, which enables growth in fresh meals in service counters and as packaged products. 

During the review period, Mäkitalon Maistuvat Oy joined our partnership network, launching in April ready-to-eat salads in a strongly growing product category. To complement the sales and distribution partnership, HKScan acquired a minority share of about 25 per cent in Mäkitalon Maistuvat at the end of June, which strengthens our position in plant-based meals. 

On a journey into a versatile food company

HKScan’s three-year Turnaround programme is ending at the end of 2021. It can already be said that the company has risen from a deep financial crisis to a situation where its financial base is more stable. During the Turnaround programme, the company’s comparable EBIT has already improved cumulatively by over EUR 66 million and cash flow from operating activities by almost EUR 86 million from 2018. The initial profit improvement target of our Turnaround programme has not been fully reached. The Covid-19 pandemic and animal diseases have had a considerable impact, slowing down the planned profit improvement. Comparable EBIT has improved in each quarter in relation to the comparison period. The improvement in net gearing has also brought flexibility on the balance sheet. 

However, it is clear that the company's balance sheet and profitability have not developed to a sufficient level in any market area. In the coming years, we will continue to focus on improving profitability in our core business. Commercial success built on strong customer relationships, customer insight and branding as well as improved productivity and cost efficiency in our core business is essential, which will eventually create the financial and operational basis for business expansion and diversification.

In line with its long-term strategy, HKScan is growing into a versatile food company. Implementing the strategy requires both new competences and financial flexibility. It is therefore essential that we diversify our skills while continuing the determined and continuous development of our activities. We are also looking for new profitable growth and, within our financial resources, we are actively pursuing new business opportunities that implement our strategy to grow into a versatile food company. The partnership strategy plays a significant role in this. Through partnerships, we can move into new business areas quickly and flexibly. We aim to scale up even small new businesses, taking advantage of the company's extensive commercial platform. With our partnership strategy, we have made the fastest progress in the Finnish market. Examples of partnerships are the long-standing Kivikylä and Tamminen and the latest, Hes-Pro, Boltsi and Mäkitalon Maistuvat. 

HKScan needs a stronger balance sheet to complete a more significant food company transformation as we build new food businesses and ways to face market changes alongside our existing core businesses in the future. We are constantly evaluating the position of our different businesses as part of the Group and its strategy. The ending Turnaround period will be followed by a phase in which improving the profitability of our core business will remain a priority. In addition, we will actively strengthen the company’s balance sheet in various means to enable a clearer and more impressive food company transformation.

Advanced corporate responsibility work is serving as a solid foundation for the whole business. It is the new normal in the operating environment, driving the company's performance and balance sheet. HKScan's systematic development of responsibility work has been recognised by independent international sustainability rating companies; we improved our performance in the annual ESG (Environment, Social, Governance) ratings. In addition, HKScan was the only food company in the Baltic Sea region to be included in the Financial Times’ list of Europe’s Climate Leaders published in May. 

HKScan Group continues its goal-oriented climate work through its Zero Carbon programme aiming at a carbon-neutral food chain by the end of 2040. In addition to our own production activities, we have this year focused on climate issues in primary production and on building scalable ways to reduce emissions and increase carbon sinks together with our contract farmers and partners.

For over a year now, our personnel, contract farmers, customers and other partners have been experiencing a very special time. Thank you all for your cooperation during this exceptional period.

We are developing HKScan’s business comprehensively and with the Turnaround achieved, we will be moving forward on a stronger basis. Our clear target is to grow into a versatile food company creating strong shareholder value.

Key events in April–June 2021 

HKScan strengthening in plant-based meals and acquired a minority share in Mäkitalon Maistuvat Oy

At the end of June, HKScan acquired 24.9 per cent of the share capital of Mäkitalo Maistuvat Oy, which supports HKScan’s strategic target to grow in meals and plant-based products. Mäkitalon Maistuvat is also an example of HKScan’s partnership strategy to grow quickly and flexibly in its strategically important business areas. The collaboration between HKScan and Mäkitalon Maistuvat started in April 2021 with a sales and distribution partnership, which expanded HKScan's product range in Finland to include ready-to-eat salads. 

Sales targets for the first months of the ready-to-eat salads sold under the Mäkitalon Farmi brand were clearly exceeded. Annual growth in sales of ready-to-eat salads in Finland is around 15 per cent, and already more than 20 million salad meals are sold each year according to HKScan’s Insight & Foresight analysis. 

The salad production is being developed to meet the growing demand. In June, a new packaging line was installed in Eura unit producing salads, which will not only increase capacity, but also enable new types of products and expansion into new categories. 

HKScan strengthening its position in consumers’ food moments by investing EUR 5.4 million in premium fresh meals and snacks 

In autumn 2021, a new production technology will be completed at HKScan’s Vantaa unit, enabling production of fresh meals to be sold in service counters and as packaged products. Premium meals will have high nutritional quality and genuine flavours. Consumers’ need for convenient, nutritionally high-quality and delicious ready meals has further strengthened during the Covid-19 pandemic. The novelties will be in groceries this autumn. 

In addition, HKScan decided to invest in new manufacturing technology that will enable strengthening in the growing snack product category. The investment will be completed in summer 2022 at HKScan’s production unit in Eura where already today, the company's poultry products are packed and Mäkitalon Farmi’s ready-to-eat salads are produced. 

The combined value of investments is nearly EUR 5.4 million. They contribute to HKScan’s strategic target to have a stronger presence in consumers’ various food moments and to diversify the product portfolio. 

Denmark progressing as planned with the strategy implementation 

In Denmark, the strong focus on adding value in selected product categories was reflected in a clear sales increase. HKScan has been able to successfully shift sales from low margin frozen export products to fresh and higher added-value products. Increasing the level of added-value is in line with HKScan's strategy. Denmark has a lot of potential in its home market and the Swedish export market.

A strategic shift in sales focus from low margin exports to higher added value products will partially reduce the negative effects of avian flu. In the first half of the year, the negative impact of avian flu on the profitability of HKScan's Danish business was still significant. 

Covid-19 pandemic has slowed down HKScan’s profit improvement 

The pandemic has slowed down HKScan’s profit improvement as food service sales have been significantly lower than normal throughout the pandemic. In the review period April-June 2021, food service sales increased with the gradual removal of restaurant restrictions but were still clearly below the 2019 level. HKScan’s service level has remained at good levels throughout the pandemic.

HKScan’s employees' response to the exceptional situation, lasting more than a year, has been exemplary. The company’s key goal has been to safeguard the health and safety of its employees and to ensure business continuity throughout the food chain. The commitment of all personnel and uncompromising compliance with the company’s own preventive restrictions has been crucial to the success. 

After the summer holiday period, HKScan will assess a gradual removal of its preventive restrictions in its operations. The pandemic situation and vaccination coverage in the company's main home markets will play a key role in this respect. In the autumn, the company will also launch a new Group-wide working guidelines. 

Webcast for analysts and media 

In connection with its January–June 2021 Half Year Financial Report, HKScan will hold a webcast in Finnish for analysts, institutional investors and media on 16 July 2021 at 10 am, Finnish time. You can follow the Finnish webcast at: https://hkscan.videosync.fi/2021-q2-tulos. HKScan’s CEO Tero Hemmilä and CFO Jyrki Paappa will present the result.

Investor calls in English will be arranged on request. To agree on the date and time, please contact SVP Communications Heidi Hirvonen, tel. +358 10 570 6072 or via e-mail heidi.hirvonen@hkscan.com.

Financial reports 

January–September 2021 Interim Report will be published on 4 November 2021.

Turku, 16 July 2021

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

At HKScan, we make life tastier – today and tomorrow. Our strategic target is to grow into a versatile food company. Our responsibly produced, delicious products are part of consumers’ varied food moments – both every day and on special occasions. We have some 7,000 HKScan professionals applying more than 100 years of experience to make locally produced food. For us at HKScan, responsibility means continuous improvements and concrete actions throughout the food chain. As part of our Zero Carbon programme, we are targeting a carbon-neutral food chain from farms to consumers by the end of 2040. Our home markets cover Finland, Sweden, the Baltics and Denmark. Our strong product brands include HK®, Kariniemen®, Via®, Scan®, Pärsons®, Rakvere®, Tallegg® and Rose™. Through our strategic partnerships, we are also known for Kivikylän®, Tamminen® and Boltsi brands. HKScan is a publicly listed company, and in 2020, our net sales totalled nearly EUR 1.8 billion.

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