Scandi Standards AB (publ) interim report January - March 2022
Uncertain world drives further price focus
January – March 2022
- Net sales amounted to MSEK 2,793 (2,469) in the first quarter 2022. At constant exchange rates net sales increased by 10 percent.
- Operating income (EBIT) decreased by 58 percent to MSEK 37 (88), corresponding to a margin of 1.3 (3.5) percent.
- Income for the period amounted to MSEK 10 (54). Earnings per share amounted to SEK 0.10 (0.84).
- Operating cash flow was MSEK 6 (109).
Significant events in the quarter
- The war in Ukraine contributes to increased uncertainty regarding food supply in Europe. Scandi Standard is also affected by the situation, where the unrest creates a continued strong upward cost pressure on input goods such as feed, frying oil, packaging material as well as energy and transport, which is expected to continue during the second quarter.
Significant events after the close of the quarter
- Jonas Tunestål joined the company as managing director and CEO on 1 April 2022.
- On April 6, 2022, Scandi Standard's Ready-to-eat facility in Denmark experienced a fire incident. Efficient fire detection systems and procedures enabled staff and local fire authorities to control and extinguish the fire. As a result, the damages to the plant were limited and nobody was injured. The financial consequences for Scandi Standard are limited to the company’s deductible of MSEK 20.
- On May 3, a binding loan agreement was signed with four lenders on the main terms regarding sustainability linked credit facilities totaling MSEK 2,090 and with a term of five years.
Key metrics
| MSEK | Q1 2022 | Q1 2021 | Δ | R12M | 2021 |
| Net sales | 2,793 | 2,469 | 13% | 10,424 | 10,101 |
| EBITDA | 136 | 180 | -24% | 554 | 598 |
| Operating income (EBIT) | 37 | 88 | -58% | 172 | 222 |
| EBITDA margin % | 4.9% | 7.3% | -2.4ppt | 5.3% | 5.9% |
| EBIT margin % | 1.3% | 3.5% | -2.2ppt | 1.6% | 2.2% |
| Non-comparable items1) | - | - | - | 9 | 9 |
| Adjusted EBITDA1) | 136 | 180 | -24% | 545 | 589 |
| Adjusted operating income (Adj. EBIT)1) | 37 | 88 | -58% | 162 | 213 |
| Adjusted EBITDA margin1) % | 4.9% | 7.3% | -2.4ppt | 5.2% | 5.8% |
| Adjusted EBIT margin1) % | 1.3% | 3.5% | -2.2ppt | 1.6% | 2.1% |
| Income after finance net | 16 | 71 | -77% | 85 | 140 |
| Income for the period | 10 | 54 | -82% | 59 | 103 |
| Earnings per share, SEK | 0.10 | 0.84 | -88% | 0.86 | 1.60 |
| Return on capital employed % | 4.0% | 8.4% | -4.4ppt | 4.0% | 5.2% |
| Return on equity % | 2.8% | 11.9% | -9.1ppt | 2.8% | 5.5% |
| Operating cash flow | 6 | 109 | -95% | 244 | 347 |
| Net interest-bearing debt | 2,034 | 1,941 | 5% | 2,034 | 1,980 |
| NIBD/Adj. EBITDA | 3.7 | 2.5 | 49% | 3.7 | 3.4 |
| Lost time injuries (LTI) per million hours worked | 28.0 | 31.8 | -12% | 38.1 | 39.2 |
| Feed efficiency (kg feed/live weight) | 1.50 | 1.53 | -2% | 1.51 | 1.52 |
1) Restated non-comparable items. see note 6.
CEO Comments
Scandi Standard’s net sales net sales during the first quarter 2022 were MSEK 2,793 (2,469). The growth of 13 percent was mainly driven by the price adjustments that were made to compensate for cost increases, and positive currency rate changes. At constant exchange rates, the growth amounted to 10 percent Slaughter volumes decreased by 3.6 percent during the quarter. The operating income was MSEK 37 (88).
The significant decrease in earnings during the quarter was mainly driven by the continued challenging situation within the Ready-to-cook segment, where net sales amounted to MSEK 2,046 (1,938) and the operating income amounted to MSEK -2 (70). As expected, the earnings were negatively affected by lead times for the price adjustments related to the cost increases on input goods and energy and transport. Ready-to-cook segment in Denmark continued to report significant losses, with a negative operating income of MSEK -51 (-50) for the quarter.
The Ready-to-eat segment reported a continued improvement, with net sales increasing by 45 percent to MSEK 643 (444) and operating income increasing by 34 percent to MSEK 35 (26) during the quarter. The development was driven by increased sales in the Foodservice sales channel following the removal of pandemic related restrictions, combined with continued high demand in the Retail sales channel. To address demand, Scandi Standard invests to further increase the capacity at the company’s largest production plant for Ready-to-eat products in Farre, Denmark.
During the quarter price increases were implemented on all markets in order to balance the significant cost increases on input goods during the second half of 2021, which continued into 2022. In general, price adjustments have historically only been made once or a few times per year. However, customer dialogues during recent quarters have paved the way for a more flexible approach towards price adjustments, which is positive in a market that continues to be impacted by rapid cost increases and high volatility.
The war in Ukraine is a strong contributing factor to the increased uncertainty regarding food supply in Europe. Scandi Standard is affected by the situation through continued cost increases on input goods as well as energy and transport, from levels that are already high. Customers have in general shown that they understand that the situation requires additional significant price increases in order to ensure a long-term domestic food production and a sufficient supply of chicken products in our home markets going forward. The work with implementing additional significant price increases in order to compensate for the cost inflation has the highest priority in the organisation.
Chicken provides for significantly higher meat volumes per kilo of feed than pork and beef, meaning that the price increases that are required to maintain profitability in a situation where prices of feed increases are significantly lower for chicken. The fact that chicken has a lower price point from the outset is also a clear competitive advantage going forward despite significant increases in consumer prices.
The export business continued to have a negative effect on earnings during the first quarter of 2022. However, export prices are increasing driven by a reduced chicken production in Europe and an increased demand from the food service business across the world.
Ready-to-cook Denmark reported an operating income of MSEK -51 (-50) during the quarter. The negative outcome is mainly related to the implementation of the former strategy for slow growing birds and the above-mentioned cost increases. In close collaboration with the company’s customers, extensive changes are now being implemented to the strategy for slow growing birds in order to meet consumer demand, which is expected to increase within both Danish retail and food service. The positive effects of these efforts are expected primarily during the second half of 2022.
During the recent quarters, Scandi Standard has carried out extensive work to address production challenges and ensure a good operational capability by strengthening the company’s production and quality processes, and a majority of the identified deviations have been remedied. The company now also has a structured process for early discovery and remediation of potential future deviations in the production plants. An area that showed clear improvement during the quarter is lost time injuries (LTIs), measured as work-related injuries with absence per million hours worked. The result for the quarter is 28.0, which is the lowest reported number in two years.
In the beginning of April, there was a fire incident on Scandi Standard’s Ready-to-eat facility in Denmark. Efficient fire detection systems and procedures enabled staff and local fire authorities to control and extinguish the fire. As a result, the damages to the plant were limited and nobody was injured. The financial consequences for Scandi Standard are limited to the company’s deductible of MSEK 20.
Due to continued low earnings and highly volatile situation, the company continues to focus on financial flexibility. This means the investment plan for 2022 of approximately MSEK 330 remains, where the company prioritises investments for profitable growth within Ready-to-eat, which also creates long-term scale advantages for Ready-to-cook in Denmark, and the first phase of a three-year rollout of a new ERP system with an investment of MSEK 100 during 2022.
As newly appointed managing director and CEO my immediate focus is to ensure that Scandi Standard navigates through the ongoing volatile situation in our markets with the least possible impact on our earnings. Although chicken is first mover on pricing in the protein space, we are well positioned for successful implementation as market leaders in the Nordic region and Ireland. We will also continue to streamline our operations and develop our business.
Through a new five-year bank financing agreement, we have secured a stable but at the same time flexible financial basis for the next leg of our journey. Given that we are in the middle of a challenging phase with unprecedented cost inflation, we appreciate our banks’ trust in our ability to regain momentum in our business.
I look forward to leading the work with the further development of Scandi Standard’s potential, where a robust work with sustainability, quality and animal welfare is of the utmost importance. I am thus particularly pleased that the company has addressed a number of internal challenges and started the formation of a stable foundation for the next steps in the development. The review of the company continues, and we will come back with more information on the way forward.
Stockholm, 4 May 2022
Jonas Tunestål, Managing director and CEO
Conference Call
A conference call for investors, analysts and media will be held on 4 May 2022 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:
Jonas Tunestål, Managing director and CEO and Julia Lagerqvist, CFO
Tel: +46 10 456 13 00
Henrik Heiberg, Head of M&A, Financing & IR
Tel: +47 917 47 724
Financial calendar
| Annual General Meeting | May 4, 2022 |
| Interim report for Q2 2022 | August 25, 2022 |
| Interim report for Q3 2022 | October 28, 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 4 May 2022.
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 10 billion.