HKScan’s profitability improved, but January-March EBIT slightly negative

HKScan Corporation, January-March Interim Report, 10 May 2023 at 8.30 a.m. EET

HKScan’s Interim Report 1 January – 31 March 2023

January-March 2023 

• HKScan’s net sales from continuing operations increased by 15.6 per cent to EUR 457.6 (395.9) million. During the review period, sales prices were significantly higher than in the comparison period as higher costs due to strong inflation had been passed on to sales prices during 2022.
• The Group’s EBIT from continuing operations totalled EUR -0.1 (-4.4) million. 
• The Group’s comparable EBIT from continuing operations was EUR -1.8 (-4.0) million. The exceptional cost inflation, which accelerated in 2022, continued at high levels in January-March. The particularly sharp rise in energy and logistics costs in autumn 2022 levelled off towards the end of the year, but the resulting costs were higher than in the comparison period. Sales price increases carried out during 2022 covered the increase in costs. Profitability improved due to production efficiency improvements and cost saving measures.
• The Business Unit Finland’s comparable EBIT was EUR 0.1 (-1.2) million. 
• The Business Unit Sweden’s comparable EBIT was EUR -0.2 (0.2) million.
• The Business Unit Denmark’s comparable EBIT was EUR 1.2 (0.5) million.
• The comparable EBIT of the Business Unit Baltics reported as a discontinued operation was EUR -1.6 (-4.5) million.
• Cash flow from operating activities was EUR -5.7 (-34.4) million. Cash flow improved from the comparison period due to significantly lower working capital growth. 
• Interest-bearing net debt was EUR 367.7 (355.0) million and net gearing 138.3 (108.8) per cent.

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

As of 1 January 2023, HKScan has changed accounting policy for spare parts inventory retrospectively. This change has an impact on the inventory value and equity on the balance sheet and key figures (Return on capital employed and Net gearing). Quarterly and full-year financial information for 2022 has been restated accordingly. Additional information about the impact is disclosed in the accounting policies. 

Outlook for 2023

HKScan's guidance for 2023 remains unchanged.

In 2023, HKScan expects the Group’s comparable EBIT from continuing operations to improve compared to 2022. The full-year performance will be significantly affected by inflation and the development of consumer purchasing power in the company’s home markets. On the other hand, in the beginning of 2023, energy and logistics costs are on a more moderate level than in the peak of 2022.

KEY FIGURES, NET SALES, CONTINUING OPERATIONS

KEY FIGURES, EBIT, CONTINUING OPERATIONS

KEY FIGURES, OTHER

HKScan’s CEO Juha Ruohola

HKScan’s net sales from continuing operations increased by 15.6 per cent in January-March 2023 as a result of sales price increases. HKScan’s net sales from continuing operations totalled EUR 457.6 (395.9) million. Net sales increased in all home markets and in all sales channels. Growth was particularly strong in the food service channel, where sales increased by more than 20 per cent. In Denmark, sales of value-added products continued to grow. For example, ready-to-eat chicken sales growth was 44 per cent in the first quarter. The value of retail sales increased in Finland and Sweden as well. 

The Group’s EBIT from continuing operations improved from the comparison period to EUR -0.1 (-4.4) million and comparable EBIT was EUR -1.8 (-4.0) million. Despite the improved performance, the profitability of HKScan’s continuing operations is not satisfactory. Improving profitability is one of our top priorities in 2023.

The instability in Europe caused by Russia’s invasion of Ukraine has sharply increased production costs and interest rates. As market interest rates have risen, costs for consumers and the entire value chain have increased. The inflation trend has continued in January-March, despite the stabilisation of energy prices. Cost levels are also pushed up by the wage settlements in spring 2023, which have increased costs in all of HKScan's home markets.

Rising housing and interest costs have continued to hold back overall consumer spending. This has affected consumer demand for HKScan’s products and our sales mix. The change in consumer demand weakened EBIT, especially in Finland and Sweden. The particularly steep rise in energy and logistics costs in autumn 2022 levelled off towards the end of the year, but costs were still higher than in the comparison period. 

During the first months of the year, we have continued our determined efforts to improve the profitability of our operations. HKScan’s measures to improve cost efficiency and save costs improved the EBIT in the review period. In addition, several investments and development measures already decided will bring annual cost savings of around EUR 12.6 million once completed over the period 2023-2024.

To increase financial flexibility, the company continuously assesses the position of each business within the Group. In December 2022, we reported that HKScan had signed an agreement to sell its Baltic business to the Estonian AS Maag Grupp. The divestment of the Baltic business will improve HKScan's profitability and strengthen its balance sheet, while contributing to the company's ability to improve production efficiency and implement its long-term strategy. The transaction is expected to close at the end of September 2023 at the latest and it is subject to approval by the competition authorities in Estonia and Latvia. Competition authorities in Latvia have already approved the deal.  

In early 2023, we have advanced our responsibility programme in our businesses. The objectives of the programme relate to the wellbeing of nature and people: to climate, packaging, biodiversity and the safety and wellbeing of employees. We work in a goal-oriented way to improve safety at work and aim for zero accidents at work in line with the Safety First principle. In particular, we want to promote a proactive safety culture and continuous improvement. We achieved good results in this respect in January-March: our staff recorded one fifth more safety observations than in the previous year and more than half of our employees completed the online training course on Blue Rules safe working guidelines, which was launched at the beginning of the year.

The effective use of the potential of our core business and the development of a sustainable, local food chain are important to HKScan's success. As previously stated, our focus at HKScan this year will be on improving the profitability of our core business, with the aim of minimising any negative impact on the company's profit development and ensuring that it develops in line with our objective. We have done this work successfully in the early part of the year and the key focus across the Group will continue to be on tight cost control, increasing productivity in production, optimising the product portfolio in response to changing consumer demand and our commercial activities. 

Key events in January-March 2023

Juha Ruohola as HKScan’s CEO

On 2 March 2023, HKScan’s Board of Directors appointed Juha Ruohola (57), Master of Agriculture and Forestry, eMBA, as CEO of HKScan Corporation. Ruohola served as HKScan’s interim CEO from 29 September 2022. Prior to this, Ruohola was HKScan’s SVP responsible for the Baltic Business Unit, the Polish business and the Group's exports and imports, and he has held management positions in several other food companies. Markku Suvanto EVP, Administration and Legal, serves as Deputy to the CEO of HKScan.

HKScan’s development investment in the Rauma poultry unit to improve profitability and competitiveness

The statutory negotiations at HKScan's Rauma unit, initiated in March, were concluded earlier than planned in April after the review period with an agreement between the negotiating parties. Following the statutory negotiations, HKScan decided to implement a development investment of approximately EUR 4.6 million in the Rauma unit’s poultry cutting department to improve the profitability and competitiveness of the unit.

The investment will include reorganisation of operations, staff adjustments and renewal of operating methods. The Rauma unit’s poultry cutting department will reduce up to 35 jobs and changes will affect up to 200 jobs. With the investment and related development measures, HKScan aims to achieve total annual savings of around EUR 3 million in Finland, which are expected to be realised after the completion of the investment in the second half of 2024 at the latest.

The regulatory process for the sale of the Baltic businesses progressing

On 13 December 2022, HKScan announced that it had signed an agreement to sell its Baltic business to Estonian AS Maag Grupp. The debt-free purchase price is EUR 90 million, of which EUR 20 million is conditional on the combined performance for 2024-2026 of the separately defined meat business subject to transaction and Maag Grupp's Baltic meat business.

The transaction is expected to be closed at the end of September 2023 at the latest and it is subject to approval by the competition authorities in Estonia and Latvia. The Latvian competition authority approved the transaction in February. Further information on assets and liabilities held for sale and discontinued operations can be found in Note 7 to the Interim Report.
 

Turku, 10 May 2023

HKScan Corporation
Board of Directors

Webcast

In connection with its January-March Interim Report, HKScan will hold a webcast in Finnish for analysts, institutional investors and media on 10 May 2023 at 10 am EET. You can follow the Finnish webcast at https://hkscan.videosync.fi/q1-2023 and the recording will be available at www.hkscan.com later during the same day. HKScan’s CEO Juha Ruohola and CFO Jyrki Paappa will present the January-March result.

To arrange investor calls, please contact executive assistant Marja Säkö, tel. +358 50 576 7130 or marja.sako@hkscan.com.

Financial reports

HKScan will publish the following financial reports in 2023: 

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

For further information

Juha Ruohola, 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

With 110 years of experience, we at HKScan make life tastier – today and tomorrow. Our strategic target is to grow into a versatile food company. Our home markets are Finland, Sweden and Denmark, where around 5,400 of our professionals make responsible and locally produced food for consumers’ varied food moments. Our well-known brands include HK®, Kariniemen®, Via®, Scan®, Pärsons® and Rose®. We are developing a more climate-friendly way of producing food and our Zero Carbon target is a carbon-neutral food chain by the end of 2040. HKScan is a publicly listed company, and in 2022, our net sales from continuing operations totalled over EUR 1.8 billion. www.hkscan.com

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