Interim Report Q1/2024: Net sales and EBIT from HKScan’s continuing operations improved

HKScan Corporation, January–March 2024 Interim Report, 8 May 2024 at 8.30 a.m. EEST

HKScan’s Interim Report 1 January–31 March 2024 

January–March 2024

• On 2 May 2024, HKScan signed an agreement to sell the shares of its Danish subsidiary HKScan Denmark A/S to the Dutch Plukon Food Group B.V. The transaction is expected to close during 2024 and is subject to approval by the Danish competition authorities. The transaction changes HKScan’s structure and financial key figures. The Danish business will be presented as a discontinued operation, and HKScan's financial reporting will focus on continuing operations. The valuation of the Danish assets and liabilities at the estimated purchase price including transaction costs resulted in an impairment of EUR 11 million.
• HKScan’s net sales from continuing operations increased by 4.9 per cent to EUR 228.7 (218.0) million. Sales increased due to good consumer demand and successful commercial activities. Political strikes in March had a negative impact on exports. 
• The Group’s EBIT from continuing operations totalled EUR 1.2 (-0.4) million.
• The Group’s comparable EBIT from continuing operations was EUR 1.4 (-2.3) million. 
  Cost levels remained high between January and March. Domestic consumer demand in Finland continued at the good level of the previous period and was stronger than in the weak comparison period. HKScan strengthened its position in the Finnish market through successful commercial measures, which reduced the need to export less profitable meat relative to the comparison period. Better sales mix, increased production efficiency and cost savings improved profitability in January–March 2024.  
• The comparable EBIT of the Business Unit Finland was EUR 3.4 (0.5) million.
• Cash flow from operating activities was EUR 1.8 (-5.7) million. Cash flow improved significantly from the comparison period as a result of better working capital development and a stronger EBITDA.  
• Interest-bearing net debt was EUR 208.0 (372.7) million and net gearing 93.8 (139.6) per cent.
• Net interest-bearing debt excluding IFRS16 lease liabilities was EUR 114.8 (258.2) million.
• The sale of the Swedish business was completed on 27 March 2024. 
• Due to the sale, the Annual General Meeting approved the change of the company name from HKScan Oyj to HKFoods Oyj. The parallel company names of the new name are HKFoods Plc (in English) and HKFoods Abp (in Swedish).

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

Outlook for 2024

In 2024, HKScan estimates that the Group’s comparable EBIT from continuing operations will improve compared to 2023.

KEY FIGURES, NET SALES, CONTINUING OPERATIONS

KEY FIGURES, EBIT, CONTINUING OPERATIONS

KEY FIGURES, OTHER

HKScan’s CEO Juha Ruohola

HKScan’s major restructuring continued in the first quarter of the year. On the positive side, the company's net sales and EBIT improved. HKScan’s net sales from continuing operations for the first quarter of 2024 increased by 4.9 per cent to EUR 228.7 (218.0) million. The Group’s EBIT from continuing operations totalled EUR 1.2 (-0.4) million and comparable EBIT was EUR 1.4 (-2.3) million. 

Sales increased as a result of good consumer demand and successful commercial measures, which strengthened HKScan's position in the Finnish market and reduced the need to export less profitable meat relative to the comparison period. Cost levels remained high between January and March. Improved sales mix, increased production efficiency and cost savings improved profitability in the review period. Inflation pressures continued to ease early in the year, but market interest rates remained high, which has increased costs not only for the whole value chain but also for consumers.

The investments in Forssa and Rauma, which we reported earlier, progressed as planned. We also announced that we will centralise our poultry packaging activities from Eura to Rauma and Forssa and that we will make an investment of approximately EUR 8 million in the manufacture of ready-to-eat products at our Eura unit. These investments and other development plans are expected to generate total annual cost savings of around EUR 6 million. We expect these savings to be realised once the investments are completed from Q3/2024 until the end of Q2/2025. 

Positive profit development is great. We have achieved this in cooperation with our own staff as well as our contract farmers and other partners. Our profitability is not satisfactory. In order to achieve our targeted profit development and improve profitability, we will continue to tightly manage costs, improve production efficiency, optimise our product portfolio in the face of changing consumer demand and carry out our commercial efforts.     

Over the past year and a half, we have been assessing the position of our businesses within the Group in order to increase financial flexibility. We have improved HKScan’s profitability and strengthened our balance sheet through the sale of the Baltic business, which was completed in August 2023. The sale of the Swedish business was closed at the end of March 2024. At the beginning of May, we announced that we signed an agreement to sell our Danish subsidiary HKScan Denmark A/S to the Dutch Plukon Food Group. The transaction is expected to close during 2024 and is subject to approval by the Danish competition authorities. Following the decision to sell the Danish businesses, we have now completed our assessment of the position of the company's various businesses. 

The divestments have changed and will change HKScan’s structure and financial key figures. Therefore, in this Interim Report the company’s financial reporting focuses on continuing operations, i.e., our business in Finland. The Polish unit’s figures are reported as part of the Business Unit Finland. 

The business divestments have strengthened HKScan’s balance sheet, and the proceeds have been used to repay the company's loans. Cash flow improved significantly from the comparison period as a result of better working capital development and a stronger EBITDA. The company’s net debt decreased by EUR 164.7 million from the comparison period and by EUR 79.9 million from the year-end to EUR 208.0 (372.7) million. HKScan’s net gearing ratio was 93.8 (139.6) per cent.

During January–March 2024, HKScan has commenced negotiations to refinance the debt maturing in January–March 2025, and the negotiations on the details of the refinancing instruments will continue in spring 2024. The company’s management estimates that the refinancing negotiations will result in a positive outcome that will ensure HKScan’s ability to continue as a going concern.

The divestments allow us to better focus on our remaining businesses and implement our long-term strategy of growing into a versatile food company. We will continue to operate as a fundamentally strongly Finnish yet internationally operating listed company. Our market position is significant, and our brands are strong. We now focus on improving the competitiveness of our core business and the profitability of our operations. We will also continue to implement our long-term strategy towards a more versatile food industry.   

As a result of the sale of the Swedish business, HKScan’s Annual General Meeting decided on a new name, which will be HKFoods Plc (HKFoods Oyj). The name will be introduced in stages once it is registered in the Trade Register, which is estimated to take place in May 2024.

At the heart of our responsibility programme are employee wellbeing and safety, which we promote through the Group-wide Better Together programme and our Safety First programme. These programmes are part of the implementation of HKScan's strategy and corporate responsibility programme in line with the company's values - Inspire, Care, Lead and Deliver. Our key target is to be a safe workplace for our employees and partners working in our units. 

In the first quarter, we continued to prepare for the EU Sustainability Reporting Directive (CSRD) and updated the climate emissions calculation, climate target and timeline of our responsibility programme to better align with international climate work guidelines, calculations guidance and reporting standards. HKScan Group’s revised climate target is to reach net zero for all greenhouse gas emissions by 2050.

With our revised emissions calculation and climate target, we contribute to the goals of the Paris Agreement and meet the new requirements for the land use sector. HKScan’s climate work is guided by a comprehensive set of measures. It consists of dozens of measurable climate emission reduction actions defined by our Business Units. We are moving towards net zero climate emissions together with our contract farmers and other partners.

As a result of the significant structural and operational measures taken, our future looks brighter. We will continue our determined work towards a versatile food company. 

Key events in Q1 2024

Sale of the Swedish business completed 

On 27 March 2024, HKScan sold the shares in its Swedish subsidiary HKScan Sweden AB to Lantmännen ek för. The transaction was preceded by the approval of the Swedish authorities in February 2024 regarding foreign direct investment (FDI) control and the approval of the arrangement by HKScan's Extraordinary General Meeting. On 7 March 2024, the EU Commission announced its approval of the arrangement, and the transaction was completed on 27 March 2024. 

The purchase price for the shares in HKScan Sweden AB amounted to approximately EUR 60 million in cash as well as 6,869,750 A shares and 665,000 K shares in HKScan held by Lantmännen. In addition, Lantmännen repaid an intragroup loan between HKScan and HKScan Sweden AB to the amount of approximately EUR 50 million. HKScan also reduced its off-balance sheet factoring financing by approximately EUR 55 million and IFRS 16 leasing liabilities by approximately EUR 13 million. A prepayment of EUR 25 million of the purchase price was made upon the signing of the agreement, with the remainder being paid after the completion of the transaction. 

With the transaction, HKScan's ownership of its Swedish businesses ended.   

Details of the transaction have been disclosed in the following releases: 29.12.2023, 28.2.2024, 7.3.2024 and 27.3.2024.

Development investment in the Eura unit of ready-to-eat products improves profitability and competitiveness

In January 2024, HKScan announced plans to improve the efficiency of its production operations by centralising the poultry packing activities in the Eura unit to the company's production units in Rauma and Forssa. The change negotiations, concluded in February, involved 19 persons in Eura, for whom HKScan was able to offer jobs within the company. Through the efficiency measures, HKScan aims to achieve annual savings of around EUR 1 million as from the third quarter of 2024. 

After the statutory negotiations, HKScan decided to invest approximately EUR 8 million in a production line for ready-to-eat products at its Eura unit. With this strategic investment, HKScan will improve its profitability by increasing the added value of its products and operational efficiency and respond to the growing consumer demand for quick and easy cooking. The new products will be launched during the first quarter of 2025. HKScan’s Eura unit currently produces HK^® and Via^® pizzas, for example. In addition, the Eura unit has operations of Mäkitalon Maistuvat and Kivikylän Kotipalvaamo. 

Details on the matter have been provided in a release: 11.1.2024, 5.3.2024 and 14.3.2024  

Finnish pork products approved for export to South Africa 

In January 2024, HKScan announced the launch of pork exports from Finland to South Africa. The exports are expected to start in the first half of 2024. 

Strikes affecting international transport hampered HKScan's exports 

A significant proportion of exports were undelivered due to strikes affecting international transport, leading to an increase in stocks.  

The company name will change

The Annual General Meeting approved the change of the company name from HKScan Corporation (HKScan Oyj) to HKFoods Plc (HKFoods Oyj). 

Details on the matter were provided in the following releases: 15.3.2024 and 18.4.2024 

HKScan revised its climate emissions calculation and target 

HKScan has updated the climate emissions calculation, climate target and timeline of its responsibility programme to better align with international climate work guidelines, calculations guidance and reporting standards. HKScan Group’s revised climate target is to reach net zero for all greenhouse gas emissions by 2050.  

Details on the matter were provided in a release: 25.1.2024

Events after the reporting period

HKScan to sell its Danish business

On 2 May 2024, HKScan signed an agreement to sell the shares of its Danish subsidiary HKScan Denmark A/S to the Dutch Plukon Food Group B.V. The debt-free purchase price is EUR 44.6 million. The transaction is expected to close during 2024 and is subject to approval by the Danish competition authorities. Following the decision to sell the Danish business, the assessment of the position of the company's various businesses has now been completed.
Details on the matter have been provided in the 7 March 2024 and 2 May 2024 releases.

Turku, 8 May 2024

HKScan Corporation
Board of Directors

Webcast

In connection with its January–March 2024 Interim Report, HKScan will hold a webcast in Finnish for analysts, institutional investors and media on 8 May 2024 at 10 a.m. EEST. You can follow the Finnish webcast at https://hkscan.videosync.fi/q1-2024/ and the recording will be available at www.hkscan.com later on the same day. HKScan’s CEO Juha Ruohola and CFO Jyrki Paappa will present the January–March 2024 result.

To arrange investor calls, please contact executive assistant Suvi Oksava, tel. +358 44 554 4231 or
suvi.oksava@hkscan.com.

Financial reports

HKScan will publish the following financial reports in 2024:

• • Half-Year Financial Report 2024 on Wednesday 7 August 2024, at about 8:30 EEST
  • Interim Report for January–September 2024 on Wednesday 6 November 2024, 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 and Denmark, where around 3,600 of our professionals make responsible and locally produced food for consumers’ varied food moments. Our well-known brands include HK^®, Kariniemen^®, Via^® and Rose^®. We are developing a more climate-friendly way of producing food. HKScan is a publicly listed company, and in 2023, our net sales from continuing operations totalled nearly EUR 1.2 billion. www.hkscan.com

The brands mentioned in this report – HK^®, Kariniemen^®, Via^® and Rose^® – are registered trademarks of HKScan Group.