Scandi Standard AB (publ) interim report January - September 2021
Improvement program to address significant challenges
July – September 2021
- Net sales amounted to MSEK 2,632 (2,621) in the third quarter 2021. At constant exchange rates net sales increased by 1 percent.
- Operating income (EBIT) decreased by 74 percent to MSEK 30 (116), corresponding to a margin of 1.1 (4.4) percent. Adjusted operating income (adj. EBIT)1) decreased by 71 percent to MSEK 43 (147), corresponding to a margin of 1.6 (5.6) percent.
- Income for the period amounted to MSEK 4 (78). Earnings per share amounted to SEK 0.04 (1.21).
- Operating cash flow was MSEK 112 (240).
January – September 2021
- Net sales amounted to MSEK 7,666 (7,548) in the first nine months of 2021. At constant exchange rates net sales increased by 4 percent.
- Operating income (EBIT) decreased by 35 percent to MSEK 192 (295), corresponding to a margin of 2.5 (3.9) percent. Adjusted operating income (adj. EBIT)1) decreased by 36 percent to MSEK 210 (326), corresponding to a margin of 2.7 (4.3) percent.
- Income for the period amounted to MSEK 99 (187). Earnings per share amounted to SEK 1.49 (2.84).
- Operating cash flow was MSEK 278 (499).
Significant events in the quarter
- Significant input price increases on many of the group’s input factors, a continued challenging price situation in export markets, severe under manning in Ireland due to Covid-19 and by production challenges in Sweden and Ireland, plus continued large losses in Ready-to-cook Denmark has contributed negatively to the quarterly results.
- At the beginning of the quarter, a group-wide improvement program was initiated with the aim to return to profitability in line with previous years as soon as possible and to lay the foundation for long-term sustainable and profitable growth and returns.
Significant events after the close of the quarter
- The Board of Directors of Scandi Standard has decided to appoint Jonas Tunestål as new managing director and CEO. Jonas Tunestål is currently CEO of KLS Ugglarps and Executive Vice President of Danish Crown. Interim managing director and CEO Otto Drakenberg will remain with Scandi Standard until Jonas Tunestål joins the company at the latest 1 May 2022.
- Bird intake to production is reduced temporarily with about 8-10 percent in Sweden and Ireland during the fourth quarter 2021 to address production challenges and facilitate the process of ensure operational delivery in the Swedish and Irish operations.
- In order to create further financial flexibility, the Board has resolved not to propose a second dividend during 2021.
Key metrics
| MSEK | Q3 2021 | Q3 2020 | Δ | 9M 2021 | 9M 2020 | Δ | R12M | 2020 |
| Net sales | 2,632 | 2,621 | 0% | 7,666 | 7,548 | 2% | 10,059 | 9,940 |
| EBITDA | 126 | 201 | -37% | 474 | 552 | -14% | 621 | 699 |
| Operating income (EBIT) | 30 | 116 | -74% | 192 | 295 | -35% | 248 | 351 |
| EBITDA margin % | 4.8% | 7.7% | -2.9ppt | 6.2% | 7.3% | -1.1ppt | 6.2% | 7.0% |
| EBIT margin % | 1.1% | 4.4% | -3.3ppt | 2.5% | 3.9% | -1.4ppt | 2.5% | 3.5% |
| Non-comparable items1) | -13 | -31 | -58% | -17 | -31 | -45% | -45 | -59 |
| Adjusted EBITDA1) | 139 | 232 | -40% | 491 | 583 | -16% | 664 | 756 |
| Adjusted operating income (Adj. EBIT)1) | 43 | 147 | -71% | 210 | 326 | -36% | 293 | 410 |
| Adjusted EBITDA margin1) % | 5.3% | 8.8% | -3.6ppt | 6.4% | 7.7% | -1.3ppt | 6.6% | 7.6% |
| Adjusted EBIT margin1) % | 1.6% | 5.6% | -4.0ppt | 2.7% | 4.3% | -1.6ppt | 2.9% | 4.1% |
| Income after finance net | 10 | 101 | -90% | 132 | 227 | -42% | 165 | 260 |
| Income for the period | 4 | 78 | -95% | 99 | 187 | -47% | 120 | 208 |
| Earnings per share, SEK | 0.04 | 1.21 | -97% | 1,49 | 2.84 | -47% | 1.82 | 3.16 |
| Return on capital employed % | 5.8% | 8.8% | -3.0ppt | 5.8% | 8.8% | -3.0ppt | 5.4% | 8.4% |
| Return on equity % | 6.3% | 12.2% | -6.2ppt | 6.3% | 12.2% | -6.2ppt | 5.5% | 11.5% |
| Operating cash flow | 112 | 240 | -53% | 278 | 499 | -44% | 255 | 476 |
| Net interest-bearing debt | -1,891 | -1,929 | -2% | -1,891 | -1,929 | -2% | -1,891 | -1,933 |
| NIBD/Adj. EBITDA | -2.8 | -2.5 | -14% | -2.8 | -2.5 | -14% | -2.8 | -2.6 |
| Feed efficiency (kg feed/live weight) | 1.51 | 1.52 | -0% | 1.52 | 1.53 | -1% | 1.52 | 1.52 |
| Lost time injuries (LTI) per million hours worked | 40.2 | 36.6 | 10% | 37.8 | 31.6 | 20% | 35.6 | 31.0 |
1) Restated non-comparable items. see note 6 and 8.
CEO Comments
During the third quarter of 2021, Scandi Standard’s net sales amounted to MSEK 2,632 (2,621), in line with the previous year. Operating income amounted to MSEK 30 (116), in line with the previous trading update.
The Ready-to-cook segment has been affected by a number of external and internal challenges during the quarter. Net sales amounted to MSEK 1,942 (1,983) and the operating income for the segment declined substantially to MSEK 7 (105). The operating income was, among other things, negatively affected by significant price increases on several input factors, a continued low-price situation in export markets, significant under manning in Ireland due to Covid 19 and by the previously announced production challenges in Sweden. The Ready-to-cook in Denmark continue to make major losses and reported a negative operating income of MSEK -60 over the quarter, including a cost for settlement of supplier contracts of MSEK 17.
The Ready-to-eat segment reported net sales for the quarter of MSEK 589 (532), an increase by 11 percent, and a slightly improved operating income, driven by a continued sales increase in the Foodservice sales channel. The increase is explained by the gradual easement of pandemic related restrictions. To meet increased demand, we will therefore increase the capacity of our operations in Denmark through optimized staffing.
Scandi Standard’s assessment is that the significant price increases for many of the input factors which have had a negative effect on the operating income during the third quarter will continue over the fourth quarter. In addition, general cost increases are expected for, among other things, energy, transport and insurance.
Improvement program
At the beginning of the quarter, a group-wide improvement program was initiated with the aim to swiftly return Scandi Standard to a profitability in line with previous years as well as to lay the foundation for long-term sustainable and profitable growth and returns. Scandi Standard is following a detailed action plan to significantly improve both commercial and operational efficiency on all markets. In the short-term, focus is on price adjustments in all countries, measures to improve profitability within Ready-to-cook in Denmark, addressing the production challenges in Sweden and Ireland as well as cost reductions in the entire Group.
Price adjustments
The work on negotiating and implementing price adjustments to compensate for the price and cost increases is ongoing intensively in all countries. Due to a delay in effect, the negative price impact on the operating income is expected be greater during the fourth quarter compared to the third quarter, however the negative price impact is expected to be temporary. Scandi Standard’s business model, which generally enables fluctuations in raw material prices to be carried over to end customers, provides a good basis for compensating for price and cost increases over time. In a market characterized by price increases on food products, demand tends to shift towards more affordable food products, such as chicken products.
Improve profitability within Ready-to-cook Denmark
In order to improve the profitability in Ready-to-cook Denmark, the work on price adjustments has the highest priority together with review of the strategy for slow growing birds. An extensive analysis of staffing has been carried out, which will result in significant staff reductions during the first quarter of 2022. In addition, the flexibility in the value chain has increased through updated contracts which is expected to lead to lower surplus volumes. As an additional step, a significant reduction in the number of products will be implemented, which is expected to have full effect in the third quarter of 2022. In order to ensure that the changes are implemented in the best possible way, the commercial organization is simultaneously being restructured.
Addressing production challenges in Sweden and Ireland
As part of the improvement program, Scandi Standard has decided to temporarily reduce the intake of birds to production with approximately 8–10 percent in Sweden and Ireland during the fourth quarter in order to address production challenges and to ensure good operational capability. The reduced volume has a short-term negative impact on the operating income but will at the same time enable a more rapid implementation of desired operational improvements. This also entails a downsizing of staff in both Sweden and Ireland, primarily through temporary employments not being renewed.
Cost savings
A reorganization has been carried out at group level, which entails savings of MSEK 15 in 2022 compared to 2021, and further structural cost savings are being planned.
Additional measures related to the improvement program will be implemented on an ongoing basis and an update of the expected commercial, operational and financial effects will be announced at the latest in connection with the publication of the year-end report for 2021.
In order to create financial flexibility and to ensure full focus on the improvement program, the investments for 2021 will be around MSEK 330, compared to the previously communicated investments of MSEK 400. Investments to address deviations in productions and quality processes on relevant markets are prioritised. As a natural consequence, the Board has resolved not to propose a second dividend during 2021.
In conclusion
In addition to addressing the short-term challenges that Scandi Standard is facing, a continuous high ambition within the sustainability area is necessary in order to consolidate our position as a leading sustainable chicken producer in the markets where we operate. Compliance with internal policies and zero tolerance for deviations is a must in order to sustainably meet an increased demand for tasty, healthy and environmentally friendly chicken products.
Although the underlying operating income in the fourth quarter is expected to be lower than in the third quarter due to cost increases, I am confident that the work we are now carrying out will improve the situation in 2022. Price adjustments combined with strong operational measures, are expected to lead to a gradual return to profitability in line with previous years. We will build and strengthen our business by hard and goal-oriented work. I and the Board of Scandi Standard are confident that we will tackle the current challenges, and that the improvement program that is now being implemented will create shareholder value in line with the company’s long-term potential.
Stockholm, 12 November 2021
Otto Drakenberg, Interim managing director and CEO
Conference Call
A conference call for investors, analysts and media will be held on 12 November 2021 at 8.30 AM CET.
Dial-in numbers:
UK: 020 3936 2999
Sweden: 010 884 80 16
US: +1 646 664 1960
Other countries: +44 20 3936 2999
Slides used in the conference call can be downloaded at www.scandistandard.com under Investor Relations. A recording of the conference call will be available on www.scandistandard.com afterwards.
Further information
For further information, please contact:
Otto Drakenberg, Interim managing director and CEO
Tel: + 46 70-864 55 04
Julia Lagerqvist, CFO
Tel: +46 72 402 84 02
Henrik Heiberg, Head of M&A, Financing & IR
Tel: +47 917 47 724
Financial calendar
| Interim report for Q4 2021 | February 11, 2022 |
| Interim report for Q1 2022 | April 29, 2022 |
| Interim report for Q2 2022 | August 25, 2022 |
This interim report comprises information which Scandi Standard is required to disclose pursuant to EU market abuse regulation and the Securities Markets Act. It was released for publication at 07:30 AM CET on 12 November 2021
About Scandi Standard
Scandi Standard is the leading producer of chicken-based food products in the Nordic region and Ireland. The company produces, markets and sells ready to eat, chilled and frozen products under the well-known brands Kronfågel, Danpo, Den Stolte Hane, Manor Farm and Naapurin Maalaiskana. Eggs are also produced and sold in Norway. We are approximately 3,000 employees with annual sales of more than SEK 9 billion.
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