HKScan’s Interim Report 1 January–30 September 2019: HKScan’s EBIT was turned positive in the third quarter − EBIT improved in all market areas

HKScan Corporation             INTERIM REPORT 6 November 2019        at 8:05 EET

HKScan’s Interim Report 1 January–30 September 2019: HKScan’s EBIT was turned positive in the third quarter − EBIT improved in all market areas

JULY–SEPTEMBER 2019 IN BRIEF

• HKScan’s net sales increased by 5.6 per cent and were EUR 439.4 (416.2) million. In comparable currencies, net sales were EUR 443.4 million.

• EBIT was EUR 4.5 (-9.8) million, and the EBIT margin 1.0 (-2.4) per cent. Comparable EBIT was EUR 4.5 (-9.8) million. There was no material impact on the EBIT from changes in currency rates.

• Cash flow before investments was EUR 12.5 (-9.4) million and before debt service EUR 6.6 (-19.8) million.

• Profitability improved across the business and in all market areas thanks to improved commercial performance and operational efficiency as well as good cost control. The clear improvement of the poultry business performance in Finland continued and was one of the most significant factors strengthening the Group’s EBIT and cash flow.

• HKScan’s new Group strategy was published after the reporting period. In addition, the company announced its plan to renew the Group’s operating model to support the strategy’s implementation.

JANUARY–SEPTEMBER 2019 IN BRIEF

• HKScan’s net sales increased by 1.6 per cent and were EUR 1,280.6 (1,260.7) million. In comparable currencies, net sales were EUR 1,295.9 million.

• EBIT was EUR -16.7 (-44.8) million, and the EBIT margin -1.3 (-3.6) per cent.

• Comparable EBIT was EUR -8.0 (-44.4) million. The corresponding EBIT margin was -0.6 (-3.5) per cent. There was no material impact on the EBIT from changes in currency rates.

• Cash flow before investments was EUR 18.1 (-38.2) million and before debt service EUR -7.0 (-117.3) million.

• Net debt was EUR 308.8 (352.0) million and net gearing stood at 90.1 (103.8) per cent including an IFRS16 impact of approximately 14 percentage points.

• The clear improvement of the poultry business performance in Finland continued and was the most significant factor strengthening the Group’s EBIT and cash flow. Improvement was also seen in commercial performance, operational efficiency and cost control.

• In June 2019, the company raised gross proceeds of approximately EUR 71.9 million in a successful directed share issue, strengthening the Group’s capital structure. Gross amount included EUR 14.9 million conversion of hybrid bond.

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.

KEY FIGURES, NET SALES

KEY FIGURES, EBIT

KEY FIGURES, OTHER

OUTLOOK 2019 (Unchanged)

HKScan expects its improvement programmes and other corrective actions to record results in 2019, and the company’s EBIT is expected to improve clearly from the previous year.

Global meat consumption is projected to increase during the coming years. Within HKScan’s home markets and in categories, in which HKScan is present, consumption growth is seen in poultry and meal categories. Demand of processed meat is expected to remain stable, while the consumption of red meat is estimated to face a slight decrease.

TERO HEMMILÄ, HKSCAN’S CEO

The turnaround programme initiated at the beginning of 2019 has proceeded according to plan. HKScan’s EBIT for the third quarter was positive and improved by EUR 14 million from the comparison period.

In January–September, we have cumulatively improved our comparable EBIT by over EUR 36 million compared to last year’s corresponding period. We are on the right path and are improving our financial performance as planned. The EBIT is clearly not on a satisfactory level yet, but our entire personnel has done an excellent job improving our financial performance and achieving a positive EBIT. We continue target-oriented and systematic work for profitability improvement.

The main contributors to the performance improvement in the third quarter were the positive development of the poultry business in Finland, driven by improved productivity and delivery capability of the Rauma unit together with the strong Kariniemen® brand. Commercial actions, cost management according to the set targets as well as operational efficiency measures in all market areas were also strong contributors to improved financial performance. The company’s cashflow before financing activities in July-September was positive and improved by almost EUR 29 million from the comparison period, even though the net working capital increased.

HKScan’s net sales increased by nearly 6 per cent during the reporting period, and the company achieved growth in all market areas. The reported net sales figures include a transfer of close to EUR 4 million of sales responsibility from Sweden to Denmark, so Sweden also saw growth in adjusted net sales. HKScan’s red meat sales value increased by over 5 per cent from the comparison period in the third quarter despite the sluggish market. Sales volumes of red meat increased, as well. In Finland, the sales of HKScan’s poultry business increased by over 15 per cent. During summer 2019, HKScan became the market leader in the Finnish poultry category and the Kariniemen® brand the market leader in branded products. There was growth in all main product categories of the company.

In the third quarter, all market areas improved their EBIT from the comparison period. All market areas, excluding Denmark, have also cumulatively improved their EBIT from the beginning of the year. Denmark succeeded in improving its profitability significantly in the third quarter after a weak beginning of the year.  

Pork export from Finland to China increased and the volumes developed according to plan. Demand in China is expected to continue strong also in the coming months. We are working in close collaboration with the authorities in our home markets in order to attain export licences to China for poultry and beef as well. The exceptional pork situation in China, caused by the African swine fever, also affects, to a certain extent, the demand and world market prices of other meat categories.

In Finland and Sweden, consumer demand for meat in retail continued steady during the first three quarters of the year, as the increased poultry consumption has compensated the decreased consumption of red meat. We estimate that the consumption of poultry will continue to increase clearly also in the coming years.

We highlight the role of meat as part of a healthy diet, as well as the significance of sustainable Nordic animal production as part of national food security on the domestic markets. Meat is a natural source of many important nutrients as part of a healthy diet. We are doing long-term and determined sustainability work across all areas of our value chain. Animal welfare and environmental responsibility are our key focus areas. We take the discussion related to meat production and its impact on climate seriously and are building an ecosystem together with our partners that will cover our entire value chain and improve our productivity and sustainability footprint.

Today on 6 November, we published HKScan’s new Group strategy. At its core is a turnaround programme for the years 2019-2021 launched in early 2019. The programme aims to improve the company’s profitability. HKScan’s strategic target is to grow profitably into a versatile food company, to have stronger presence in the consumers’ food moments and to strengthen the company’s market position in evolving markets together with its customers. Strong partnerships are part of our strategy and provide an important basis for reaching our targets. The Group’s poultry product portfolio as well as meals and meal components are our growth drivers. Meat and meat products will continue to play a major role in the future. As the key part of the strategy, HKScan is investing in strengthening its position in evolving retail and growing food service channels with new commercial concepts and digital solutions. In addition, our goal-oriented sustainability work is positioned more firmly as the foundation of HKScan’s business and consumer brands.

We are also planning a renewal of our Group-wide operating model to strengthen the company’s market area-level profit responsibility and management as well as customer- and consumer-driven way of operating.

HKScan’s strongly improved financial performance, the successful share issue in summer 2019 as well as loan refinancing give us time to continue the ongoing, systematic work to improve profitability and build foundation for growth. The systematic implementation of the turnaround programme continues, and the new strategy sets the guidelines for the company’s development and profitable growth. Our goal is to develop HKScan to become an interesting company that rewards its owners and belongs to key food-industry players on the market.

PRESS CONFERENCE FOR ANALYSTS AND MEDIA

An information meeting related to HKScan Corporation’s January−September 2019 interim report for analysts, institutional investors and media will be organised in the auditorium of Hotel Haven (address: Eteläranta 16, Helsinki) on 6 November 2019 at 10–11 a.m. EET.

The interim report will be presented by Tero Hemmilä, 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

FOR FURTHER INFORMATION

Tero Hemmilä, CEO, tel. +358 (0)10 570 2012

Jyrki Paappa, CFO, tel. +358 (0)10 570 2512

Keijo Keränen, VP Treasury and IR, tel. +358 (0)10 570 2196

Heidi Hirvonen, SVP Communications, tel. +358 (0)10 570 6072

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

HKScan Corporation is a publicly listed meat and food company with over one hundred years of experience in responsible Nordic food production for customer and consumer needs. HKScan’s sustainable way of operating spans the entire value chain, from farm to consumer. Our nearly 7,200 professionals ensure our promise of high-quality products that taste good. Our home markets cover Finland, Sweden, Denmark and the Baltics. Our diverse product selection includes poultry, pork, beef, and lamb products as well as charcuterie and meals. The company’s strong consumers brands are HK®, Kariniemen®, Via®, Scan®, Pärsons®, Rakvere®, Tallegg® and Rose®. In 2018, HKScan’s net sales were EUR 1.7 billion.

DISTRIBUTION

Nasdaq Helsinki

Main media

www.hkscan.com

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