HKScan’s net sales growth continued, but profitability weakened by sharply higher energy prices

HKScan Corporation, January-September Interim Report, 3 November 2022 at 8.30 a.m. EET

HKScan’s Interim Report 1 January - 30 September 2022 

HKScan’s net sales growth continued, but profitability weakened by sharply higher energy prices

July-September 2022

• HKScan’s net sales increased by 16.6 per cent to EUR 520.8 (446.8) million. Increased costs due to high inflation were increasingly passed on to sales prices. Net sales increased in all sales channels and in all HKScan’s home markets. Especially food service sales showed a clear increase. 
• The Group’s EBIT totalled EUR 2.7 (7.6) million.
• The Group’s comparable EBIT was EUR 3.8 (7.7) million. The company clearly improved the balance between high cost inflation and sales prices, but the sharp rise in energy and logistics costs in the review period had a significant negative impact on comparable EBIT. 
• Cash flow from operating activities was EUR -6.2 (-15.6) million. 

January-September 2022

• HKScan’s net sales increased by 10.6 per cent to EUR 1,463.7 (1,323.6) million.
• The Group’s EBIT totalled EUR -20.5 (10.2) million. The goodwill write-down carried out in the second quarter in the Baltics amounted to EUR -15.6 million. In Finland, EBIT for the comparison period included a positive item of EUR 3.0 million affecting comparability.
• The Group’s comparable EBIT was EUR -3.2 (7.2) million. Due to a structural delay in pricing, HKScan’s sales price increases and operational efficiency improvements did not fully compensate for the strong cost inflation of the early part of the year, but the situation balanced out gradually towards the summer. During the third quarter, the sharp rise in energy and logistics costs were the main drivers of the deviations in the Group’s comparable EBIT.
• Cash flow from operating activities was EUR -18.2 (12.5) million. In addition to EBIT below the comparison period, cash flow was weakened by a strong increase in working capital and especially in inventory value, mainly due to cost inflation.
• Interest-bearing net debt was EUR 362.5 (333.3) million and net gearing 114.8 (102.5) per cent.

The figures in parentheses refer to the same period in the previous year, unless otherwise mentioned. The figures are unaudited. 

Outlook for 2022

The Board of Directors of HKScan Corporation decided to lower the company's financial guidance for 2022 on 29 September 2022.

The updated guidance for 2022

HKScan's comparable EBIT is expected to decrease from the comparison year, but remain positive. It has been decided to lower the financial guidance due to the significantly changed situation on the energy market. The uncertainty in the energy market affects all of HKScan's home markets and will impact the Group's EBIT despite hedging measures. 

The previous guidance for 2022 published on 10 February 2022

HKScan estimates that the Group’s comparable EBIT in 2022 will improve compared to 2021. Early 2022 comparable EBIT is expected to be weaker than the comparison period due to inflation, which strongly affects the company's profit development, and significant imbalances in the international meat and grain market. The full-year profit development will be significantly affected by the development of the international meat and grain market.

KEY FIGURES, NET SALES

KEY FIGURES, EBIT

KEY FIGURES, OTHER

* Includes a goodwill write-down of EUR -15.6 million for the Baltic Business Unit.
** Includes the sale of Vantaa property (land and buildings) with EUR 76.1 million.

HKScan’s interim CEO Juha Ruohola 

HKScan’s third quarter was twofold in the operating environment characterised by exceptionally high cost inflation. On the positive side, the company's net sales increased by more than 16 per cent due to sales price increases, an improved sales mix and sales volume growth. Despite the growth, the company’s comparable EBIT was clearly below the comparison period mainly due to the historically strong rise in energy prices. The negative impact of the exceptionally high third-quarter increase in energy and logistics costs on the company's EBIT could not be offset by sales price increases and cost savings during the period. 

Due to high inflation and a sharp rise in production costs caused by the unstable geopolitical situation in Europe, HKScan’s operational focus is now on short-term measures to improve profitability. We are doing everything possible to minimise the negative impacts on the company’s performance and to ensure the targeted profit improvement. During the coming winter, we will focus on the overall cost management, increasing productivity in our production, commercial activities and on passing on still strong cost increases to sales prices. 

We covered sharply increased costs by raising sales prices in all our home markets. Sales price increases have been unavoidable due to sharp increases in meat raw material prices and production costs. Food service sales showed a clear increase in value and volume. Retail sales decreased slightly in volume, but increased clearly in value. HKScan was able to respond well to the change in consumer behaviour, as the company also has a strong position in basic foods with its familiar consumer brands.

The third quarter was twofold for our business units as well. Sweden and Denmark continued their strong performance and improved their comparable EBIT. In Finland, the comparable EBIT was positive, but the sharp rise in energy prices exceeded all forecasts and weakened the EBIT. In the Baltics, the loss deepened from the comparison period, driven mainly by a strong increase in energy and feed prices. In the Baltics, retail sales volume in our own branded products was at the comparison period’s level despite the clear increase in sales prices and very high inflation. 

The unstable geopolitical situation is strengthening demand for domestic raw materials and familiar products. Food prices will continue to rise, affecting both retail selections and consumer demand. Particularly the industry and retail sector will be required to react quickly to cost changes. This will support continuity in the production and availability of food based on domestic raw materials. 

The effective use of the potential of our core business and the development of a sustainable, local food chain are crucial to HKScan's success. Profit improvement in these economically challenging times and in a rapidly changing operating environment requires commitment, competence and drive from us all at HKScan - and I am sure we have it. 

Key events in July-September 2022 

Tero Hemmilä left his position as HKScan’s CEO, Juha Ruohola started as interim CEO

The Board of Directors of HKScan Corporation and CEO Tero Hemmilä jointly agreed that Hemmilä will leave his position as HKScan’s CEO on 29 September 2022. HKScan’s Board of Directors appointed Juha Ruohola as interim CEO of the company as of 29 September 2022. As a member of the Group Executive Team, Juha Ruohola has been responsible for the Business Unit Baltics, the Polish business, the Group's meat balance and for exports and imports. 

Reijo Kiskola, Chairman of HKScan’s Board of Directors, in the stock exchange release on 29 September 2022: 
“At HKScan, urgent measures are needed to improve the profitability of the core business and to strengthen the balance sheet in a rapidly changing operating environment. In the longer term, the strategic change from a meat company into a versatile food company opens up new opportunities for growth."

Energy saving programme launched and preparing for exceptional situations continues

Uncertainty and significant price volatility in the energy market concern all HKScan’s home markets. HKScan continues to prepare for possible exceptional situations and secures the energy supply to its production units by increasing the flexibility of its energy solutions. In August, a Group-wide energy saving programme was launched, which has led to clear improvements in energy efficiency. By analysing energy consumption data for each production unit and equipment, numerous measures have been identified to reduce energy consumption. HKScan is also implementing investments to improve energy efficiency during the autumn and winter. 

Via Kasvimaa products renewing the offering of fresh vegetable products

After the review period, Kasviskonttori Oy, a joint venture founded by HKScan and Vihannes-Laitila in April 2022, launched Via Kasvimaa products in Finland in early October. These are ready-to-use and ready-to-cook vegetable products that renew the offering of fresh vegetable products and add value to vegetables. Via Kasvimaa products meet growing consumer demand and on top of that, the use of vegetables as part of a varied diet becomes easier. Via Kasvimaa products made from fresh, trusted raw materials complement HKScan’s product portfolio consisting of a wide variety of meat products, snacks and meals. The new products are made at HKScan’s production unit in Eura.

HKScan improving profitability of its Finnish poultry business

HKScan’s statutory negotiations in the Rauma and Eura production units of its Finnish poultry business ended in July. The measures are aimed at improving the profitability, competitiveness and cost-efficiency of the poultry business by increasing production efficiency, reorganising operations and renewing ways of working. As a result of the statutory negotiations, 55 jobs will be reduced at HKScan's Rauma unit and substantial changes in the terms of employment will affect over 100 jobs. The changes aim at annual savings of more than EUR 3 million for 2023.

HKScan’s development investment in Forssa improving competitiveness and cost-efficiency

HKScan will carry out an investment of more than EUR 5 million in the meat packing and shipping departments of its Forssa production unit in Finland to improve the unit’s cost-efficiency and competitiveness. The statutory negotiations conducted during the review period were concluded with an agreement between the parties. A total of 23 jobs will be reduced at the Forssa unit and changes in employment will affect nearly 100 jobs. The investment will include reorganisation of operations, personnel adjustments and renewal of ways of working. With the investment and related development activities, HKScan aims to achieve total annual savings of more than EUR 2 million, which are expected to realise after completion of the investment in 2024 at the latest.

Events after the reporting period 

Media release 28 October 2022: HKScan planning to streamline the operating model for Group functions in Finland

HKScan is planning to streamline and further clarify the operating model for Group functions in Finland. The plan includes changes to the operating model and Group organisation, including possible adjustments to staffing levels. Through the change in the operating model, HKScan is seeking to reduce its annual costs by around EUR 3 million. The savings are expected to be achieved after the first quarter of 2023.

The plans to clarify the operating model for Group functions will be discussed at the statutory negotiations under the Co-operation Act that will begin on 2 November 2022. The negotiations concern a total of approximately 40 persons in the Group functions in Finland. According to initial estimates, the statutory negotiations may lead to the termination of nine (9) employment relationships and changes to duties in three or four employment relationships at HKScan Corporation. The goal is to complete the negotiations during November 2022.

Turku, 3 November 2022

HKScan Corporation
Board of Directors

Webcast

In connection with its January-September Interim Report 2022, HKScan will hold a webcast in Finnish for analysts, institutional investors and media on 3 November 2022 at 10 am EET. You can follow the Finnish webcast at https://hkscan.videosync.fi/2022-q3-tulos and the recording will be available at www.hkscan.com later during the same day. HKScan’s interim CEO Juha Ruohola and CFO Jyrki Paappa will present the Interim Report.

To arrange investor calls, please contact executive assistant Julia Hautamäki, tel. +358 40 846 7156 or julia.hautamaki@hkscan.com 

Financial reports

HKScan Corporation will publish its Financial Statements Bulletin for 2022 on Thursday 9 February 2023.

HKScan will publish the following financial reports in 2023: 

• Interim Report for January-March 2023 on Wednesday 10 May 2023, at about 8:30 EET
• Half-Year Financial Report 2023 on Wednesday 9 August 2023, at about 8:30 EET
• Interim Report for January-September 2023 on Wednesday 8 November 2023, at about 8:30 EET

For further information

Juha Ruohola, interim CEO, tel. +358 400 647 160
Jyrki Paappa, CFO, tel. +358 50 556 6512
HKScan Media Service Desk tel. +358 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, Denmark and the Baltics. Our strong product brands include HK®, Kariniemen®, Via®, Scan®, Pärsons®, Rose™, Rakvere® and Tallegg®. Through our strategic partnerships, we are also known for Kivikylän®, Tamminen® and Boltsi brands. HKScan is a publicly listed company, and in 2021, our net sales totalled over EUR 1.8 billion.

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