Fourth quarter and year-end report 2016

28 February 2017

Fourth quarter 2016

• Net sales increased by 10 percent to MSEK 1,507.6 (1,376.0), and by 7 percent at constant exchange rates, as a result of strong growth in Norway and Finland as well as in chilled products in Sweden.
• Operating income was negatively affected by approximately MSEK 40 due to the bird flu and declined to MSEK 21.3 (47.7). The effects of the bird flu refers to Sweden, Denmark and to some extent Finland.
• Adjusted operating income* declined to MSEK 32.9 (68.2), corresponding to a margin of 2.2 (5.0) percent. Adjusted operating income declined in Denmark, Sweden and Finland but increased in Norway.
• Income for the period declined to MSEK 0.7 (28.2) and earnings per share were SEK 0.01 (0.47).
• Adjusted operating cash flow* amounted to MSEK 40.6 (39.5).
• Two new five-year credit facilities totalling MSEK 2,200 were established in the quarter, at more favourable terms than the Group's previous financing.

Full year 2016

• Net sales increased by 10 percent to MSEK 5,967.4 (5,422.9), and by 10 percent at constant exchange rates. The increase refers to all countries.
• Operating income declined to MSEK 238.2 (259.5). The effects of the bird flu had a negative impact in the fourth quarter, see above.
• Adjusted operating income* declined to MSEK 251.6 (291.5), corresponding to a margin of 4.2 (5.4) percent. Adjusted operating income declined in Denmark and increased in Norway and Sweden.
• Income for the period declined to MSEK 131.4 (163.9) and earnings per share were SEK 2.21 (2.73).
• Adjusted operating cash flow* declined to MSEK 126.1 (324.2) due to higher capital expenditure and an increase in working capital driven to a large extent by the growth in net sales.
• The Board of Directors proposes a dividend for 2016 of SEK 1.35 (1.80) per share.
       
  

*) Adjusted for non-comparable items in Q4 2016 of MSEK -11.6 (-20.5) in EBITDA and operating income and MSEK -8.9 (-15.9) in income for the period, and for the full year 2016 of MSEK -13.4 (-32.0) in EBITDA and operating income and MSEK –10.5 (-24.8) in income for the full year 2016. See page 4.

    
CEO Statement 

The results for the fourth quarter were materially negatively impacted by the bird flu. Direct and indirect effects of the disease, including lower prices, costs for personnel reductions as well as inventory write-downs at year-end, had a total negative impact of approximately MSEK 40 on operating income, of which MSEK 11.2 are reported as non-comparable items. The impact of the bird flu refers to Sweden, Denmark and to some extent Finland. Adjusted operating income declined to MSEK 32.9 from MSEK 68.2 in the fourth quarter of 2015.

The underlying trends in adjusted operating income in the different countries were the same as in the previous quarters 2016 with a strong performance in Norway and Sweden and a continued weak performance in Denmark and Finland.

The prevalence of the bird flu was detected across most of Europe during the year and from November also in Denmark, Sweden and Finland. Although the disease was not found among any of Scandi Standard’s suppliers or in our supply chain, we were indirectly impacted by the trade bans imposed by some export markets that we rely on for selling feet as well as our surplus of wings and legs. Several markets in Asia as well as South Africa automatically ban import of poultry products from countries with bird flu. As a number of other European countries are also subject to the same temporary export restrictions, the market has been impacted by oversupply and a pressure on prices.

Despite the bird flu, Group net sales showed continued strong growth in the quarter and rose by 7 percent at constant exchange rates. The increase refers to Norway and Finland as well as to chilled products in Sweden. Overall, Group net sales of chilled products grew by 14 percent at constant exchange rates, driven by recently launched innovative products developed in line with our vision to inspire Nordic consumers to eat chicken once more per week.

Net sales for the Swedish operation showed continued good growth in chilled products, but decreased in frozen products. The adjusted operating income declined due to the effects of the bird flu. During the quarter unusually high levels of campylobacter were registered in Valla, our main facility in Sweden. The main cause was found to be an installation error in our new cleaning system for trays used for transport of the birds to the facility. Recent tests show that the level of campylobacter has now declined.

Our Danish operation has a large share of sales related to exports and has thus been badly hurt by the bird flu. The domestic market for generic poultry products remains price driven. Our new management in Denmark has initiated a strategy to build more value in the category, and we expect to gradually see positive effects from these measures towards the end of the year. Both our further processed products and organic/free range chicken performed well during 2016.

The operation in Norway showed continued strong growth in net sales and the adjusted operating margin improved in the fourth quarter. Deliveries to Coop Norway increased from last year and sales under our new contract with NorgesGruppen developed very well. The new Premium product range, which was launched in the third quarter, was well received in the market and contributed to the growth. Our market share in Norway was significantly strengthened from last year both in the quarter and for the full year.

We made substantial progress during the year in building our position in Finland. Net sales for the Finnish operation increased substantially in the quarter as a result of new and extended customer contracts. The adjusted operating income remained negative due to continued costs for inefficiencies in production and one- time costs for reduction of inventory.

Capital expenditure was unusually high in 2016 due to the expansion of capacity in our plant in Sweden and efficiency investments in Norway and Finland, which had a negative impact on cash flow. In order to mitigate some of the negative impact from the bird flu, our priorities will be on margin and cash flow improvement measures. We will be conservative with our investments in the beginning of the year and continuously evaluate the situation.

During the quarter we completed the refinancing of our bank loans and established two new 5-year credit facilities totalling MSEK 2,200. The new facilities will provide us with an interest margin reduction of about 55 basis points per annum and increased flexibility through more generous covenants. We have thereby secured a robust and flexible long-term financing tailored to match our ambitions for organic and strategic growth.

Following the initial one-time effects and implemented mitigating activities, we estimate that the bird flu will have a monthly negative impact on operating income of MSEK 4-8 until the trade bans are lifted and trading patterns are normalized. Temporary bans like these are typically imposed for a period of up to 12 months following the last detection.

Despite the ongoing challenges, we remain confident in the strength of the Group's business model and earnings capacity. We continue to strengthen our market positions and are building a platform for growth, margin improvement and a strengthened financial position.

              
Leif Bergvall Hansen
Managing Director and CEO

   
Further information 
For further information, please contact:

Leif Bergvall Hansen, Chief Executive Officer                              Tel: +45 22 10 05 44
Henrik Heiberg, Head of M&A, Financing & IR                           Tel: +47 917 47 724 

     
Financial calendar

•  Annual Report 2016 to be published on the Group's web site: week 13, 2017
•  Annual General Meeting: 25 April 2017
•  Report for the first quarter 2017: 11 May 2017

  
This interim report comprises information which Scandi Standard is required to disclose under the Securities Markets Act and/or the Financial Instruments Trading Act. It was released for publication at 07:30 CET on 28 February 2017.

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