Scandi Standards AB (publ) interim report January - June 2021
Growing net sales, unsatisfactory result April – June 2021
- Net sales amounted to MSEK 2,564 (2,448) in the second quarter 2021. At constant exchange rates net sales increased by 7 percent.
- Operating income (EBIT) decreased by 28 percent to MSEK 75 (105), corresponding to a margin of 2.9 (4.3) percent. Adjusted operating income (adj. EBIT)1) decreased by 24 percent to MSEK 79 (105), corresponding to a margin of 3.1 (4.3) percent.
- Income for the period amounted to MSEK 41 (73). Earnings per share amounted to SEK 0.61 (1.19).
- Operating cash flow was MSEK 57 (166).
January – June 2021
- Net sales amounted to MSEK 5,033 (4,926) in the first half of 2021. At constant exchange rates net sales increased by 5 percent.
- Operating income (EBIT) decreased by 9 percent to MSEK 163 (179), corresponding to a margin of 3.2 (3.6) percent. Adjusted operating income (adj. EBIT)1) decreased by 7 percent to MSEK 167 (179), corresponding to a margin of 3.3 (3.6) percent.
- Income for the period amounted to MSEK 95 (108). Earnings per share amounted to SEK 1.44 (1.70).
- Operating cash flow was MSEK 166 (260).
Significant events in the quarter
- During the second quarter, Johan Bygge was elected as new Chairman of the Board and Otto Drakenberg was appointed interim managing director and CEO of Scandi Standard.
- Scandi Standard experienced deviations from company standards linked to animal welfare and food safety in the Swedish production facility in the second quarter, which contributed to reduced sales in June by 7% in Ready-to-cook Sweden. The main part of deviations identified in the Swedish operations have been rectified during the summer. A group-wide investigation is initiated with the intention of developing an action plan to prevent and handle deficiencies in our production and quality processes in all our markets.
Significant events after the close of the quarter
- During August, an increasing number of cases of Covid-19 were registered in the production site in Ireland, which has led to significant disruptions in production. These are expected to continue throughout the third quarter. The health and safety of employees has the highest priority, and the management is implementing measures to reduce the extent of the infection and at the same time guarantee the highest possible animal welfare.
- Disruptions in production and delivery as a result of the heat wave in Sweden during July caused reduced revenues within Ready-to-cook Sweden of 12 percent in July.
Key metrics
| MSEK | Q2 2021 | Q2 2020 | Δ | H1 2021 | H1 2020 | Δ | R12M | 2020 |
| Net sales | 2,564 | 2,448 | 5% | 5,033 | 4,926 | 2% | 10,048 | 9,940 |
| EBITDA | 167 | 192 | -13% | 348 | 351 | -1% | 695 | 699 |
| Operating income (EBIT) | 75 | 105 | -28% | 163 | 179 | -9% | 334 | 351 |
| EBITDA margin % | 6.5% | 7.8% | -1.3ppt | 6.9% | 7.1% | -0.2ppt | 6.9% | 7.0% |
| EBIT margin % | 2.9% | 4.3% | -1.3ppt | 3.2% | 3.6% | -0.4ppt | 3.3% | 3.5% |
| Non-comparable items1) | -4 | 0 | - | -4 | 0 | - | -63 | -59 |
| Adjusted EBITDA1) | 171 | 192 | -11% | 352 | 351 | 0% | 756 | 756 |
| Adjusted operating income (Adj. EBIT)1) | 79 | 105 | -24% | 167 | 179 | -7% | 397 | 410 |
| Adjusted EBITDA margin1) % | 6.7% | 7.8% | -1.2ppt | 7.0% | 7.1% | -0.1ppt | 7.5% | 7.6% |
| Adjusted EBIT margin1) % | 3.1% | 4.3% | -1.2ppt | 3.3% | 3.6% | -0.3ppt | 4.0% | 4.1% |
| Income after finance net | 51 | 85 | -40% | 123 | 127 | -3% | 256 | 260 |
| Income for the period | 41 | 73 | -44% | 95 | 108 | -12% | 195 | 208 |
| Earnings per share, SEK | 0.61 | 1.19 | -48% | 1.44 | 1.70 | -15% | 2.90 | 3.16 |
| Return on capital employed % | 7.9% | 9.3% | -0.5ppt | 7.9% | 9.3% | -1.4ppt | 7.9% | 8.4% |
| Return on equity % | 10.1% | 12.8% | -2.8ppt | 10.1% | 12.8% | -2.8ppt | 10.1% | 11.5% |
| Operating cash flow | 57 | 166 | -66% | 166 | 260 | -36% | 383 | 476 |
| Net interest-bearing debt | -1,967 | -2,058 | -4% | -1,967 | -2,058 | -4% | -1,967 | -1,933 |
| NIBD/Adj. EBITDA | -2.6 | -2.8 | -6% | -2.6 | -2.8 | -6% | -2.6 | -2.6 |
| Feed efficiency (kg feed/live weight) | 1.52 | 1.52 | 0% | 1.52 | 1.53 | -1% | 1.52 | 1.52 |
| Lost time injuries per million hours worked (LTI) | 39.5 | 32.5 | 22% | 36.3 | 31.1 | 17% | 34.6 | 31.0 |
1) Restated non-comparable items. see note 6 and 8.
CEO Comments
Scandi Standard reports another quarter of growth as net sales increased by 5 percent to MSEK 2,564 (2,448), equivalent to 7 percent growth in local currency. Profitability is unsatisfactory, particularly due to negative result in our Ready-to-cook business in Denmark and continued effects from bird flu. Raw material prices for feed are at historic high levels in the whole Group. The general approach we have with clients to adjust product prices for changes in feed raw material prices forms a good hedge to the largest cyclical driver for our industry, although there are some phasing effects. In addition, costs relating to management changes impacted the result negatively. Adjusted operating income (adjusted EBIT) decreased to MSEK 79 (105), implying a margin of 3.1 (4.3) percent.
My assessment of Scandi Standard after the first weeks as interim managing director and CEO of Scandi Standard is that the company has strong growth potential, based on both external and internal factors. From an external perspective we experience a market which shows strong opportunities for development and our products match increasing preference for tasty, healthy, sustainable, and affordable products. Internally, the company possesses many of the prerequisites required to take full advantage of these opportunities, including financial resources and high industry competence within the organisation. The financial result in the quarter does not live up to its potential and has been negatively affected by a number of organizational and leadership shortcomings. We are now in the process of resolving these and I am confident that Scandi Standard will capitalize on the dynamic opportunities in our markets and therefore be able to deliver significant improvements in growth and profitability.
One of the challenges during the quarter is the deviations from company standards linked to animal welfare and food safety in the Swedish production facility. The public attention around these deviations, contributed to reduced sales in June by 7 percent within Ready-to-cook Sweden. The main part of deviations identified in the Swedish operations have been rectified during the summer. Our goal is for deviations from the company’s standards to be at the lowest possible levels. This is a central part of our continuous improvement work. The deviations from the company's standards are a failure that we take very seriously. After having thoroughly investigated the deviations, I am confident that they never threatened consumers health and safety. Also, no increase in complaints has been recorded during the period.
A group-wide investigation was initiated in June with the intention to develop an action plan to prevent and handle deviations in production and quality processes in all our markets. Even if some of these measures may have a short-term impact on results, I am confident that this will put us in a better position for profitable growth in the longer term.
During August, an increasing number of cases of Covid-19 were registered in the production site in Ireland, which has led to significant disruptions in production. These are expected to continue throughout the third quarter. The health and safety of employees has the highest priority, and the management is working on an action plan to reduce the extent of the infection and at the same time guarantee the highest possible animal welfare. Further, the heat wave in Sweden during July caused disruptions in production and delivery, leading to reduced revenues within Ready-to-cook Sweden of 12 percent in July.
I am confident that a structured and open approach to continuous improvements within sustainability will reinforce consumer confidence and form a competitive advantage for Scandi Standard over time.
The Ready-to-cook business in Denmark continued to struggle, largely due to increasing costs for purchase of live birds combined with stock clearance at low export prices in a difficult export market, The Ready-to-cook business in Denmark reported a negative adjusted EBIT of MSEK -35 (-23) in the quarter and a number of measures have been implemented to start restoring profitability.
I am pleased to see that our Ready-to-eat business reports a significant improvement in both sales and operating income. The improvement is mainly driven by increased sales within the Foodservice sales channel, as restrictions related to the Covid-19 pandemic have been eased.
Given the overall unsatisfactory financial performance, we are working hard at designing a broad, group wide improvement program aimed at creating shareholder value through profitable growth, improved efficiency, and returns. The ambition is to revert with details on the program including expected financial effects during the second half year of 2021. At this time, the Board will also come back to the question of a second dividend that was announced in the report for the first quarter of 2021.
Scandi Standard has a strong balance sheet, a solid financing, and significant available liquidity. Our capital investments amounted to MSEK 89 (78) for the quarter and our estimate for 2021 is MSEK 400. Focus for the 2021 investments are a combination of maintenance, efficiency, capacity and ESG investments.
I and the Board of Scandi Standard are confident that we will tackle the current challenges, and that the improvement program that is now taking shape and being implemented will create shareholder value in line with our potential over time. The strong competence inherent in our organisation, coupled with re-enforced clear leadership bodes well for successful execution of the actions and changes required over the coming months. Although our short-term focus will be directed on the current challenges, it is our clear ambition to reap the full potential we see in the market environment.
Stockholm, 25 August 2021
Otto Drakenberg, Interim managing director and CEO
Conference Call
A conference call for investors, analysts and media will be held on 25 August 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 replay 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 Q3 2021 |
November 12, 2021 |
| Interim report for Q4 2021 | February 11, 2022 |
| Interim report for Q1 2022 | April 29, 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 25 August 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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