HKScan’s EBIT stable, profit improvement continued in Finland and Sweden

HKScan Corporation, January-September Interim Report, 4 November 2021 at 8.30 a.m. Finnish time

HKScan’s Interim Report 1 January – 30 September 2021 

HKScan’s EBIT stable, profit improvement continued in Finland and Sweden

July-September 2021

• HKScan’s net sales totalled EUR 446.8 (438.3) million. Clear growth in retail sales of own branded products continued. Sales clearly increased particularly in the product categories with higher added value, such as meals and meal components. Food service sales increased as a result of the gradual removal of restrictions related to the Covid-19 pandemic. 
• The Group’s EBIT was EUR 7.6 (7.7) million and comparable EBIT EUR 7.7 (8.2) million. 
• Good profit development continued in HKScan’s largest markets Finland and Sweden. 
• Finland’s comparable EBIT improved by EUR 1.7 million and Sweden’s by EUR 1.0 million. 
• In the Baltics, price pressure continued due to meat imports. Holding the market position and significantly risen feed and energy prices weakened EBIT.
• Avian flu in Denmark and the resulting restrictions on exports outside the EU continued to have a clear negative impact on EBIT. Strategy implementation progressed as planned, and the sales increase was particularly clear in ready-to-eat poultry products. 
• Exceptionally high energy price increases raised HKScan's costs in all its home markets.
• Cash flow from operating activities was EUR -15.6 (2.8) million due to normal variation in the amount of trade payables and other non-interest-bearing payables.  

January-September 2021

• HKScan’s net sales totalled EUR 1,323.6 (1,308.1) million. Growth in retail sales of own branded products continued. Sales clearly increased in the strategically important products with higher added value, such as meals and meal components. Food service sales recovered and sales were on the comparison period’s level. Exceptionally challenging market conditions in the Baltics decreased sales. In Denmark, the negative impact of avian flu on exports outside the EU was significant.
• The Group’s EBIT improved by EUR 6.4 million to EUR 10.2 (3.8) million. Comparable EBIT improved by EUR 2.3 million to EUR 7.2 (4.9) million. 
• In Finland, EBIT improved by EUR 10.6 million and comparable EBIT by EUR 7.6 million. 
• In Sweden, comparable EBIT improved by EUR 2.5 million. 
• In the Baltics, a significant increase in feed and energy prices and price pressure due to oversupply of pork in Europe led to a clear decline in profitability. 
• Avian flu, affecting business in Denmark throughout the year, and the resulting restrictions on exports outside the EU have had a significant negative impact on EBIT. A strategic shift in sales focus from low margin product categories to products with higher added value clearly reduced the negative impact of avian flu.
• Cash flow from operating activities was EUR 12.5 (23.3) million, the change was due to normal variation in the amount of short-term payables. 
• Interest-bearing net debt was EUR 333.3 (323.1) million and net gearing 102.5 (103.2) percent.

The figures in parentheses refer to the comparison period, i.e. the same period in the previous year, unless otherwise mentioned. The figures in this report are unaudited. 

Outlook 2021 

HKScan estimates that the Group’s comparable EBIT in 2021 will improve compared to 2020. 

KEY FIGURES, NET SALES

KEY FIGURES, EBIT

KEY FIGURES, OTHER

* Year 2020 includes the investment to the plot of the Vantaa unit EUR 37.7 million.
1-9/2021 includes the sale of Vantaa property (land and buildings) with EUR 76.1 million.

HKScan’s CEO Tero Hemmilä

HKScan’s July-September EBIT was stable in relation to the comparison period. The company’s key market areas Finland and Sweden clearly strengthened their EBIT whereas Denmark and the Baltics were clearly down from the comparison period in a very exceptional market situation. The company’s EBIT was EUR 7.6 million, while in the comparison period it was EUR 7.7 million. Comparable EBIT was EUR 7.7 million and EUR 8.2 million in the comparison period. The rolling 12-month comparable EBIT was EUR 19.4 million at the end of the review period whereas in the comparison period it was EUR 10.6 million. During the Turnaround programme, our comparable EBIT has improved cumulatively by almost EUR 66 million.

In July-September, our net sales were stable although slightly up on the comparison period. As restrictive measures due to the Covid-19 pandemic were gradually removed, food service sales recovered with an improvement of more than 5 percent from the comparison period. We did well with our own branded products. Our sales strengthened especially in processed meat products, meal components and meals, which has also clearly decreased the need for more cyclical and less profitable exports.

The profit development within the Group was two-fold and the reasons for this are clear. I am pleased that HKScan’s key home markets Finland and Sweden continued their positive profit improvement in line with our targets. In Denmark and in the Baltics, we were not able to improve profitability in a very exceptional market situation. The development in Denmark and in the Baltics was not satisfactory and the performance of the review period was disappointing, as expected. We have initiated corrective actions to improve the situation.

In Finland and Sweden, the increase in the added value of products and sales growth of branded products secured the good development. This development also represents value creation in line with our strategy. Sweden has been able to improve its comparable EBIT for 14 consecutive quarters in relation to comparison periods. In this development, the most significant factor is the differentiating added value built in our product portfolio through the Scan brand, but also excellent productivity improvements in our production processes. 

In Finland, we have been able to improve cumulatively our comparable EBIT by over EUR 49 million during the Turnaround programme. In Finland, we have a strong position in processed meat products, meal components and poultry products as well as a clear target to further grow in poultry products, meals and snacks. Our strategic target is to be increasingly strong and appealing to both consumers and retail, supported by HKScan’s own strong offering and that of our subsidiaries, Kivikylän, Tamminen and Boltsi. Profit improvement in the poultry business continued and our Rauma production unit’s operational development progressed. I am pleased with the strong sales growth of our partner and associate company Mäkitalon Maistuvat’s ready-to-eat salads over a short period of time and with the excellent welcome the products have received from our customers and consumers. 

During the review period, we created the capability in Finland to enter the consumer market with restaurant-level fresh meals. Meal sales started in pilot stores with the Vietävä meal concept in October. We are also preparing the investment in the production of snack products decided in the summer, which will provide opportunities to grow in Finland in the profitable snack product market. 

In Sweden, after the review period, we signed a commercial cooperation agreement related to the Maten é klar meal concept. The implementation of the agreement will start early next year. The basic idea behind the Maten é klar concept is to provide consumers with healthy, high quality meals.

In Denmark, the avian flu situation affecting the whole industry and companies as well as the resulting restrictions on sales outside the EU continued to have a clear negative impact on our performance. For other parts, our strategy has progressed as planned and we will continue to focus on strengthening our market position in Denmark and Sweden with fresh and ready-to-eat poultry products as well as processed poultry products. 

The market situation is exceptional in the Baltics, challenging our long local value chain. The overproduction of pork in Europe has strongly reduced market prices, also lowering the value of biological assets tied up in our business. At the same time, the rapid and significant rise in feed and energy prices has been very exceptional. However, the market will recover as the supply and demand balance stabilises. The resulting market situation has significantly reduced the profitability of our Baltic business in July-September. On the other hand, the profitability of our Baltic poultry business and processed meat products is better than in other product categories.

The value chain of HKScan’s meat business is facing some major questions. Particularly the economic situation of the farms in meat production is in severe crisis due to the surplus in the European pork market, the sharp rise in feed prices and the scarcity of feed crops on the farms. The increase in prices for feed, and also for other production inputs, both on farms and in HKScan’s own operations, is widely reflected across the business, increasing costs. The price of meat raw material will rise to ensure the profitability of meat production and the availability. The situation is also creating clear pressure for higher consumer prices for meat products.

As vaccination coverage has strengthened, the negative impact of the pandemic on our business has decreased, but the situation in the Baltic countries and Poland remains difficult. Through the strong commitment of our employees, we have ensured that our production units and the entire supply chain have operated without significant disruption. However, the pandemic is not over yet. While the company's own preventive restrictions have been gradually removed, we will still continue to follow them on a case-by-case and site-by-site basis. 

In January-September, HKScan’s EBIT improved by EUR 6.4 million to EUR 10.2 million. Comparable EBIT improved by EUR 2.3 million to EUR 7.2 million. Finland and Sweden were the clear profit drivers. Finland’s comparable EBIT was EUR 7.6 million and Sweden’s EUR 2.5 million better than in the comparison period. EBIT for Denmark and the Baltics clearly declined for the reasons mentioned above. 

HKScan needs a stronger balance sheet to complete a more significant food company transformation as we build new food businesses and ways to face market changes alongside our existing core businesses in the future. We are constantly evaluating the position of our different businesses as part of the Group and its strategy. The ending Turnaround period will be followed by a phase in which improving the profitability of our core business will remain a priority. In addition, we will actively strengthen the company’s balance sheet in various means to enable a clearer and more impressive food company transformation.

HKScan Group continues the goal-oriented climate work through its Zero Carbon programme aiming at a carbon-neutral food chain by the end of 2040. In addition to our own production activities, we have this year focused on climate issues in primary production and on building scalable ways to reduce emissions and increase carbon sinks together with our contract farmers and partners.

The operating environment has been and continues to be very challenging, even exceptional, with sharp increases in the prices of feeds, energy and other production inputs. The situation requires determined efforts from the company to achieve commercial improvements, to improve the efficiency of industrial operations and to manage costs. The aim of this work is a clear improvement in profitability. The company and all its employees are committed to this. 

We are developing HKScan’s business comprehensively and with the Turnaround achieved, we will be moving forward on a stronger basis. Our clear target is to grow into a versatile food company creating strong shareholder value.

Key events in July-September 2021 

HKScan strengthening its position in consumers’ food moments with new premium fresh meals 

A modern restaurant-level kitchen has been completed in HKScan’s Vantaa unit where chefs prepare premium fresh meals. Sales of Vietävä concept fresh meals, developed by chef Kape Aihinen, will be launched in pilot stores in phases during the rest of the year. The fresh meals kitchen will be fully operational in early 2022. New delicious fresh meals of high-quality will be sold at retail service counters and as packaged products. 

Consumer need for convenient, nutritionally high-quality and delicious ready meals has further strengthened during the Covid-19 pandemic. New premium fresh meals support HKScan’s strategy to grow profitably in consumers’ food moments. 

Sweden’s renewed commercial organisation driving the strategy implementation 

At the beginning of September, a renewed commercial organisation started in HKScan’s Business Unit Sweden. The main goal of the renewal is to promote the company’s strategy-based growth and transformation into a versatile food company. 

The renewed commercial organisation will enhance the focus on the development of core business and customer relationships. It will also utilise strong commercial expertise to increase profitability, efficiency and agility. Furthermore, the organisation will accelerate adaptation to changes in the operating environment and utilisation of new business opportunities that support the strategy. The new organisation also has a New Business Team to ensure a strategy-based expansion into new product categories and sales channels as well as growth through partnerships. 

New logistics centre in the Baltics improves customer service and reduces environmental footprint 

HKScan’s new logistics centre was taken into use in August and the first orders were delivered to customers in September. The new logistics centre is located in Estonia, near Tallinn. The centre serving the entire Baltic market area provides customers with faster and more flexible service. HKScan centralises the operations of its assembly centres in Rakvere and Riga in the new logistics centre. The centre employs more than 100 people. 

The modern logistics centre will bring savings in storage and distribution costs and significantly reduce the environmental footprint. Solar panels installed on the roof of the centre will reduce energy emissions by some 30 percent. In addition, carbon dioxide emissions will be significantly reduced as transport will be cut by about 400,000 kilometres per year. 

In Denmark, the strategy implemented by raising the added value

In Business Unit Denmark, HKScan’s strong focus on adding value in poultry products could be seen in a clear sales increase. HKScan has successfully shifted sales from low-margin frozen export products to fresh, ready-to-eat poultry products. There is still a lot of potential in Denmark’s home market and Sweden’s export market. 

A strategic shift in sales focus towards higher added value products has partly reduced the negative effects of avian flu on business profitability.

An information meeting for analysts and the media 

HKScan will organise an information meeting related to the Interim Report for analysts, institutional investors and the media in the auditorium of the Hotel Haven (address: Eteläranta 16, Helsinki, Finland) on 4 November 2021 at 10 am. The event will be held in Finnish. The Interim Report will be presented by Tero Hemmilä, CEO, and Jyrki Paappa, CFO.

To arrange an investor call in English, please contact Heidi Hirvonen, SVP Communications, tel. +358 10 570 6072 or by email heidi.hirvonen@hkscan.com. 

Financial reports 

HKScan’s Financial Statements Bulletin for 2021 will be published on 10 February 2022.

Turku, 4 November 2021

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 

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, the Baltics and Denmark. Our strong product brands include HK®, Kariniemen®, Via®, Scan®, Pärsons®, Rakvere®, Tallegg® and Rose™. Through our strategic partnerships, we are also known for Kivikylän®, Tamminen® and Boltsi brands. HKScan is a publicly listed company, and in 2020, our net sales totalled nearly EUR 1.8 billion.

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