HKScan’s Q2 comparable EBIT positive

HKScan Corporation, Half Year Financial Report, 16 July 2020 at 8.00 am Finnish time

HKScan’s Half Year Financial Report 1 January–30 June 2020

HKScan’s Q2 comparable EBIT positive

April–June 2020

• HKScan’s net sales were EUR 440.9 (439.4) million.
• EBIT improved by EUR 6.7 million to EUR 0.1 (-6.6) million.
• Comparable EBIT improved by EUR 3.1 million to EUR 0.6 (-2.5) million. 
• On an annual level (rolling 12 months), comparable EBIT rose to EUR 6.9 million.
• EBIT improved by commercial successes and strong growth in retail sales. Food service channel sales were significantly lower than in the comparison period due to the Covid-19 pandemic. Pandemic clearly slowed down the Group’s profit improvement.
• In the exceptional circumstances caused by the coronavirus pandemic, HKScan successfully carried out special measures to ensure consumer and customer satisfaction, the health and safety of its personnel and the continuity of its production in all of the company’s market areas. 
• Cash flow from operating activities improved by EUR 8.4 million, totalling EUR 27.8 (19.4) million. 

January–June 2020

• HKScan’s net sales increased by 3.4 per cent, totalling EUR 869.8 (841.2) million.
• EBIT improved by EUR 17.4 million and was EUR -3.8 (-21.2) million negative.
• Comparable EBIT improved by EUR 9.1 million, totalling EUR -3.4 (-12.5) million.
• EBIT was improved by commercial successes and strong growth in retail sales. Food service channel sales were significantly lower than in the comparison period due to the Covid-19 pandemic.
• Cash flow from operating activities improved by EUR 18.6 million, totalling EUR 20.5 (1.9) million.
• Interest-bearing net debt was EUR 315.0 (304.7) million and net gearing 101.2 (88.0) per cent.

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

* Includes the investment to the plot of Vantaa EUR 37.7 million.
 

HKScan’s CEO Tero Hemmilä

During the review period, the company was successfully implementing its strategy despite the impact of the Covid-19 pandemic on our business. Business growth and the positive development of profitability continued during the review period. In the second quarter, we achieved a positive comparable EBIT of EUR 0.6 million. The improvement from the comparison period was over EUR 3 million. On an annual basis, rolling 12 months, comparable EBIT rose to nearly EUR 7 million. The Group’s April-June net sales were at the comparison period level, but net sales increased in comparable figures. Cash flow from operating activities strengthened by EUR 8.4 million from the comparison period.

Turnaround programme, which is at the core of our strategy, proceeded with a comprehensive change of the company, as planned. The cumulative improvement of the quarterly comparable EBIT, achieved during the programme, was over EUR 53 million. The company’s cash flow from operating activities has improved cumulatively by over EUR 92 million during the same period. Net gearing is at a level that allows a controlled implementation of the Turnaround programme.

The coronavirus pandemic, however, affected our performance in all our market areas during the review period. The pandemic weakened net sales, in addition to which we estimate that the immediate impact of the pandemic on our comparable EBIT was some two million euros in April-June. In addition, the indirect effects of the pandemic weakened our EBIT through the market price changes. However, we have been able to keep the supply chain operations on a good level with no disruptions in the exceptional situation. I want to thank all our employees, our farmers and other partners for their good work in the exceptional circumstances. The appreciation of domestic food production has clearly increased in all our home markets.

In retail, consumer demand was strong in the second quarter while the demand in the food service channel weakened in all our home markets. The strongest impact was seen in Finland but was clear also in our other home markets. With the pandemic, consumer demand was as a whole more focused on products with less added value. This had a clear negative impact on the company's performance. Demand in the food service channel began gradually to strengthen in June but is still clearly below the pre-pandemic level.

Of our business units, Denmark, Sweden and Finland improved their comparable EBIT from the comparison period. During the first half of the year, especially Denmark and Sweden have shown strong development. The development in Sweden is significant for the Group as it represents a considerable part of the Group’s business. In the Baltics, comparable EBIT weakened due to the indirect effects of the pandemic. In Europe, the price level of pork fell and decreased the value of biological assets related to our Baltic business. In the Baltics, we have otherwise made strong progress with successful commercial and operational measures. With these measures, other indirect and also direct effects caused by the pandemic have been compensated.

In Finland, the profit improvement was mainly due to the continued positive performance in the poultry business although the pace of profit improvement slowed down. The strengthened performance creates a financially stable basis for the execution of the investment, decided in early 2020, to improve the efficiency, reliability and raw material yield of the Rauma production unit’s slaughter process. Due to the impact of 
the pandemic, the schedule of equipment deliveries will be somewhat postponed from the original. Implementation of the investment will be started as planned in late 2020 and will largely continue in early 2021.

The Group’s positive profit improvement was based on commercial and operational improvements and on cost control in all our business units.

The pandemic continued to affect our exports to China. However, our export volume to China clearly increased from the comparison period and were almost at the target level. We directed sales to other export markets. As a result of the pandemic, volatility has increased in the international meat market and is expected to continue during the rest of the year. In Europe, the market price level of meat has decreased since the beginning of the year due to the increase in stocks, causing indirect pressure on the price levels in our home markets. The level of meat prices in Europe is significantly dependent on the development of Asian export markets. Changes in Asia are rapidly reflected in Europe and our home markets.

HKScan’s continued profit improvement gives the company a solid foundation to continue implementation of the strategy. The company’s strategic target is to grow into a versatile food company. The coronavirus pandemic has changed consumer behaviour and thus our operations. As the situation normalises, it is quite unlikely that we will fully return to the pre-pandemic operating environment. In the big picture, there is no need to change the Group’s strategy but other aspects raised by the pandemic will be assessed and changes implemented. A clear change is seen in the online food sales that multiplied compared to the pre-pandemic time. As the growth in online sales continues and strengthens, it will clearly change the way to operate in the market.

The pandemic has cleared HKScan’s role as a major food company in its home markets. We do our utmost to secure the company’s operations under the continuing exceptional situation. As a major player, we recognise our responsible role which includes healthy and safe food, food security and development of our operations to meet consumer needs.

Webcast for analysts and media

In connection with its Half Year Financial Report for January–June 2020, HKScan will hold a webcast in Finnish for analysts, institutional investors and media representatives on 16 July 2020 at 10 am, Finnish time. You can follow the Finnish webcast at: https://hkscan.videosync.fi/2020-q2-tulokset. HKScan’s CEO Tero Hemmilä and CFO Jyrki Paappa will present the Half Year Financial Report.

Investor calls in English will be arranged on request. To agree on the date and time, please contact Marjukka Uutela-Hujanen, tel. +358 10 570 6218.

Financial reports

The January–September 2020 Interim Report will be published on 5 November 2020.

Turku, 16 July 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 over 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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