HKScan Group’s Interim Report 1 January–31 March 2019: The company's loss decreased clearly – balancing finances started

HKScan Corporation             INTERIM REPORT               8 May 2019               at 8:15 EEST

HKScan Group’s Interim Report 1 January–31 March 2019: The company's loss decreased clearly – balancing finances started

JANUARY–MARCH 2019 IN BRIEF

  •  Net sales were EUR 401.8 (411.0) million.
  •  EBIT was EUR -14.7 (-18.3) million, and the EBIT margin -3.6 (-4.4) per cent. Danish asset prices were depreciated by 4,5 million after impairment testing.
  •  Comparable EBIT was EUR -10.1 (-18.1) million. The corresponding EBIT margin was -2.5 (-4.4) per cent.
  •  EPS was EUR -0.33 (-0.31).
  •  Cash flow before investments was EUR -15.3 (-39.9) million and before debt service EUR -26.3 (-99.8) million.
  • Net debt was EUR 364.7 (358.0) million and net gearing stood at 119.8 (109.1) per cent including IFRS16 impact of 14.5 percentage points.
  • Poultry business performance of market area Finland improved significantly and contributed to the Group EBIT improvement.

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.

As of 1 January 2019, HKScan has adopted the new IFRS 16 Leases standard using the full retrospective method. Quarterly and full-year Group and Market Area financial information for 2018 has been restated accordingly. Additional information about the impact is disclosed in the accounting policies.

OUTLOOK 2019 (Revised on 8 May 2019)
Global meat consumption is projected to increase during the coming years. Within HKScan’s home markets, consumption growth is estimated to be led by poultry and meal categories, while demand in other categories is expected to remain stable. HKScan expects its improvement programmes and other corrective actions to start recording results in 2019 and the company’s comparable EBIT is expected to improve clearly from the previous year.

Outlook for 2019 (Previous)
Global meat consumption is projected to increase during the coming years. Within HKScan’s home markets, consumption growth is estimated to be led by poultry and meal categories, while demand in other categories is expected to remain stable. HKScan expects its improvement programmes and other corrective actions to start recording results in 2019.

KEY FIGURES, Q1

(EUR   million) 1-3/2019 1-3/2018 2018
Net sales 401.8  411.0  1,715.4 
EBIT -14.7  -18.3  -48.3 
- % of net sales -3.6  -4.4  -2.8 
Profit/loss before taxes -17.4  -20.7  -58.5 
- % of net sales -4.3  -5.0  -3.4 
Profit/loss for the period -16.9  -16.7  -51.3 
- % of net sales -4.2  -4.1  -3.0 
Comparable EBIT -10.1  -18.1  -46.3 
- % of net sales -2.5  -4.4  -2.7 
Comparable profit/loss before taxes -12.8  -20.5  -56.5 
- % of net sales -3.2  -5.0  -3.3 
EPS, EUR -0.33  -0.31  -1.00 
Cash flow before investments -15.3  -39.9  -3.4 
Cash flow before debt service -26.3  -99.8  -95.4 
Cash flow before financing activities -27.9  -101.4  -104.1 
Return on capital employed (ROCE) before taxes, % -6.1  -7.5  -6.7 
Net debt 364.7  358.0  335.6 
Net gearing % 119.8  109.1  103.3 

TERO HEMMILÄ, HKSCAN’S CEO

HKScan’s first quarter result was negative but improved clearly from the comparison period. We are not satisfied with the results reported today, but we see the root causes of the weak financial performance and continue to implement the agreed resolute actions for correcting our financial performance.

The cost saving and development actions started and boosted after the beginning of the year, together with the actions begun last year, started to record results. The most significant factors affecting the improved financial performance were the positive development of our Finnish poultry business and the related Rauma operations. Moreover, successful operational efficiency improvement actions in all market areas and firm cost reduction measures contributed to the result. The improved performance of the Finnish poultry business was visible in the improvement of both cash flow and EBIT. The EBITDA of the Rauma unit turned positive during the first quarter.

Pork export from Finland to China proceeded according to plan and the targets for the first year of export will be met. The strong reduction of pork production in China caused by African swine fever has increased the demand of pork in the global market and has a positive impact on the price level of export sales.

After the reporting period we announced changes in the composition of the Group Management Team. The changes became valid immediately. In accordance with the goals presented earlier, the Management Team has been strengthened with meat and food industry expertise.

The new Group Management Team has taken the helm in driving the implementation of short-term corrective measures as well as in renewing the Group strategy and related strategic focus areas. The work will continue during the spring and summer. The new Management Team is preparing a three-year programme for the company, aiming to restore its profitability to the level of leading companies in the industry. The content of the profitability improvement programme and the company’s updated strategy will be communicated in late summer at the latest. Efficiency improvement programmes that have begun earlier will be incorporated in the new result improvement programme.

As stated earlier, we continue to strengthen the market area level management of both the entire meat value chain and the product portfolio. When it comes to product development we will shift the emphasis from the group-level centralised way of working towards country and market area based responsibilities, which takes better and faster into account consumers’ and customers’ expectations. We assume the shift to become visible in the perceived attractiveness of our products as well as in sales development. With this change we ensure customer and consumer orientation of our business. Increasing net sales and improving productivity and cost efficiency will remain as our key focus areas when building a more solid foundation for our business. Our ambition is to restore our brand leadership position in selected categories and concentrate on developing and growing these categories. We will further increase our efforts in our sustainability work as a key part of the foundation of our business. Participation in the climate change related dialogue will increase in importance for us.

We see the poultry and meals businesses as the strategic long term development growth directions. In red meat we want to have a strong development approach and proactively respond to consumers sustainability related potential concerns. We are also openly and more widely examining our role and share in the consumer’s diet and are actively assessing our business portfolio.

We are planning a share issue to secure our financial position and to strengthen our capital structure. The planned share issue would provide a strong foundation for balancing the Company’s financial situation and for building future growth.

By stabilising our financial situation we develop HKScan to become an interesting company that rewards its shareholders and belongs to key food-industry players on the market.

PRESS CONFERENCE FOR ANALYSTS AND MEDIA

Information meeting related to HKScan Corporation’s first quarter result for analysts, institutional investors and media will be organised at Hotel Haven’s auditorium (address: Eteläranta 16, Helsinki, Finland) at 10 a.m. on 8 May 2019.

The first quarter result will be presented by Tero Hemmilä, President and CEO, and Jyrki Paappa, CFO. The event will be held in Finnish.

Conference calls in English will be arranged upon separate request. Those interested in the calls, kindly contact HKScan Communications, communications@hkscan.com (phone +358 10 570 5700) to make an appointment.

HKScan Corporation
Board of Directors

Further information: HKScan Media Service Desk +358 (0)10 570 5700 or email: communications@hkscan.com

HKScan is a Nordic meat and meals company. We employ close to 7 200 professionals in striving to serve the world´s most demanding consumers, maintaining quality throughout the full chain of operations, From Farm to Fork. HKScan produces, markets and sells high-quality, sustainably produced pork, beef, poultry and lamb products, as well as charcuterie and meals, with strong consumer brands, including HK®, Scan®, Rakvere®, Kariniemen®, Rose®, Pärsons® and Tallegg®. Our customers are the retail, food service, industrial and export sectors, and our home market comprises of Finland, Sweden, Denmark and the Baltics. We export to close to 50 countries. In 2018, HKScan had net sales of EUR 1.7 billion, making us one of Europe’s leading meat and meals companies.

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www.hkscan.com

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About Us

HKScan is a Nordic meat and meals company. We employ over 7 300 professionals in striving to serve the world ìs most demanding consumers, maintaining quality throughout the full chain of operations, From Farm to Fork. HKScan produces, markets and sells high-quality, sustainably produced pork, beef, poultry and lamb products, as well as charcuterie and meals, with strong consumer brands, including HK®, Scan®, Rakvere®, Kariniemen®, Rose®, Pärsons® and Tallegg®. Our customers are the retail, food service,industrial and export sectors, and our home market comprises of Finland, Sweden, Denmark and the Baltics. We export to close to 50 countries. In 2017, HKScan had net sales of EUR 1.8 billion, making us one of Europe’s leading meat and meals companies.www.hkscan.com

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