HKScan Corporation, January–September Interim Report, 5 November 2020 at 8.00 am Finnish time
HKScan’s Interim Report 1 January – 30 September 2020
HKScan's profit improvement continued, the third quarter comparable EBIT was the best quarterly result in five years
- HKScan’s net sales totalled EUR 438.3 (439.4) million.
- EBIT improved by EUR 3.2 million to EUR 7.7 (4.5) million.
- Comparable EBIT improved by EUR 3.7 million to EUR 8.2 (4.5) million.
- All market areas achieved a positive comparable EBIT.
- The Covid-19 pandemic slowed down the profit improvement; the strongest impact was seen in Finland.
- Comparable EBIT was HKScan’s best quarterly result since the last quarter of 2015.
- On an annual level (rolling 12 months), comparable EBIT rose to EUR 10.6 million.
- Cash flow from operating activities decreased by EUR 5.9 million to EUR 2.8 (8.7) million.
- HKScan’s net sales increased by 2.1 per cent to EUR 1,308.1 (1,280.6) million.
- EBIT improved by EUR 20.5 million to EUR 3.8 (-16.7) million.
- Comparable EBIT improved by EUR 12.9 million to EUR 4.9 (-8.0) million.
- EBIT was strenghtened by commercial improvements seen in all the market areas. Retail sales clearly increased due to the pandemic while the food service sales were significantly down from the comparison period.
- Cash flow from operating activities improved by EUR 12.7 million to EUR 23.3 (10.6) million.
- Interest-bearing net debt was EUR 323.1 (308.8) million and net gearing 103.2 (90.1) per cent. The figures include the Vantaa plot of land investment of EUR 37.7 million.
The figures in parentheses refer to the comparison period, i.e. the same period in the previous year, unless otherwise mentioned. The figures in this report are unaudited.
HKScan estimates that the Group’s comparable EBIT in 2020 will improve compared to 2019.
Key figures, net sales
|Net sales||438.3||439.4||1 308.1||1 280.6||1 744.4|
Key figures, EBIT
|- % of net sales||1.7||1.0||0.3||-1.3||-1.3|
|- % of net sales||1.9||1.0||0.4||-0.6||-0.1|
|Comparable EBIT, Finland||1.4||1.3||-4.3||-4.3||-1.7|
|- % of net sales||0.7||0.7||-0.8||-0.8||-0.2|
|Comparable EBIT, Sweden||5.9||3.6||11.7||5.6||12.0|
|- % of net sales||3.6||2.3||2.5||1.2||1.8|
|Comparable EBIT, Baltics||1.8||1.7||3.8||3.5||5.1|
|- % of net sales||4.2||3.8||2.8||2.8||3.0|
|Comparable EBIT, Denmark||1.0||-0.1||1.7||-4.3||-5.3|
|- % of net sales||2.3||-0.3||1.3||-3.6||-3.5|
Key figures, other
|Profit before taxes||5.6||1.8||-2.9||-25.6||-34.5|
|- % of net sales||1.3||0.4||-0.2||-2.0||-2.0|
|Profit for the period||3.7||0.4||-6.4||-26.9||-37.5|
|- % of net sales||0.9||0.1||-0.5||-2.1||-2.2|
|Comparable EPS, EUR||0.03||-0.01||-0.09||-0.29||-0.26|
|Cash flow from operating activities||2.8||8.7||23.3||10.6||59.2|
|Cash flow after investing activities||-5.2||3.2||-47.9*||-13.8||27.6|
|Return on capital employed (ROCE) before taxes, %||0.1||-2.6||-3.1|
|Interest-bearing net debt||323.1||308.8||275.8|
|Net gearing, %||103.2||90.1||84.8|
* Includes the investment to the plot of Vantaa EUR 37.7 million.
HKScan’s CEO Tero Hemmilä
HKScan’s July-September 2020 comparable EBIT was the company’s best quarterly result since the last quarter of 2015. Prior to July-September 2020, a better comparable EBIT for the third quarter was achieved in 2012. I am pleased with the company‘s performance, taking into account how markets have been affected by the very serious, ongoing Covid-19 pandemic and African swine fever detected in Germany at the end of the review period. Our profitability is, of course, at an insufficient level and we continue our goal-oriented work to significantly improve it.
In July-September, the Group’s net sales were at the comparison period level and the comparable EBIT was EUR 8.2 million, which is nearly EUR 4 million higher than in the comparison period. Due to the temporary increase in stocks, cash flow from operating activities decreased by EUR 5.9 million from the comparison period.
In January-September, the Group’s net sales increased by over 2 per cent and the comparable EBIT improved by nearly EUR 13 million from the comparison period. Cash flow from operating activities strengthened by EUR 12.7 million. On an annual basis, rolling 12 months, comparable EBIT rose to nearly EUR 10.6 million at the end of September.
All our Business Units managed to improve their comparable EBIT during the third quarter from the comparison period, although both direct and indirect impacts of the pandemic weakened our EBIT through the changes in demand and market prices. Sweden and Denmark were the best profit improvers. In the Baltics, our operational business showed strong development. In Finland, the performance slightly improved from the comparison period. The key factors for the moderate profit improvement in Finland were the change in sales structure caused by the pandemic and continued challenges seen in the Rauma poultry unit. We have seen progress in Rauma but as a whole, we have not reached the target level, which underlines the need for the previously decided investment in the front end of the process. The investment in Rauma will largely be realised in the early part of 2021. All the Business Units managed to keep the direction of profit improvement right through commercial measures, improved production efficiency and good control of costs.
In January-September, the strong growth in retail sales of HKScan’s poultry products continued. In addition, our sales strengthened in the categories of red meat and meat products. Growth has been moderate in the ready meals category and we have not yet reached the targeted growth level. The company has expanded into new product categories through partnerships. Boltsi Oy established with Leivon Leipomo and the cooperation agreement signed with Hes-Pro (Finland) Oy in plant-based protein products create the basis for growth in new product categories and new raw materials.
During the third quarter, consumer demand in retail remained strong, while demand in the food service channel continued to be weaker than normal in all our home market areas. Regulatory restrictions on food service companies resulting from the coronavirus pandemic clearly affected our sales, and thus also the review period’s net sales and cumulative gross margin. The strongest impact was seen in Finland but our other home markets were clearly affected as well.
At the end of the quarter, African swine fever detected in Germany led to a sharp fall in the pork market prices in Europe and had an immediate indirect effect on the profit due to the impairment of biological assets of our Baltic operations. In addition, the decrease in European pork prices affected our net sales due to lower industrial sales prices.
Export volumes to China clearly increased from the comparison period and nearly reached the target level. As a result of the pandemic, and now also African swine fever, volatility has increased in the international meat market and in Europe. In Europe, particularly the market price level of pork has fallen. Due to African swine fever, exports from Germany to China have been suspended for the time being, and German pork remains on the European market. This indirectly affects the price level in our home markets.
In these exceptional times of the pandemic, we have been able to keep the operations of our supply chain at a good level with no disruptions. For this, special thanks to all our employees. I would also like to thank our farmers and other partners. The appreciation of domestic food production has clearly increased in all our home markets, which can be seen, for example, in a strong increase in the share of domestic meat in relation to total meat consumption.
The Turnaround programme at the core of our strategy was launched at the beginning of 2019. The pandemic changed the sales structure and led to additional costs, which slowed down the progress of the programme. The cumulative improvement in the comparable EBIT achieved through the Turnaround programme was already close to EUR 57 million at the end of September 2020. The company’s cash flow from operating activities improved cumulatively by over EUR 86 million during the same period. Net gearing is at a level that allows a controlled implementation of the Turnaround programme.
As part of our strategy implementation, we are establishing a new Food Solutions unit. Its goal is to develop new concepts and create added value to our current product and category based business. The development of commercial digital solutions is an integral part of the Food Solutions unit's responsibilities.
The pandemic will have a profound and likely long-term impact on the way the food market operates. This accelerates the need to implement changes in line with our strategy on our way towards a versatile food company. Renewing ways and channels of food production and supply, combined with increasing digitalisation, strengthen our need to renew our operations in a controlled and result-oriented manner.
Our operating environment in the middle of the pandemic is challenging and African swine fever is causing instability in the European meat market. We have successfully implemented preventive precautionary measures to ensure the health of our personnel and thus the continuity of our operations during the pandemic. This work continues, and we do our utmost to secure the company’s operations under the exceptional circumstances.
HKScan’s continued profit improvement gives the company a solid foundation to continue working in line with the strategy.
Webcast for analysts and media
In connection with its Interim Report for January-September 2020, HKScan will hold a webcast in Finnish for analysts, institutional investors and media representatives on 5 November 2020 at 10 am, Finnish time. You can follow the Finnish webcast at: https://hkscan.videosync.fi/2020-q3-tulokset. HKScan’s CEO Tero Hemmilä and CFO Jyrki Paappa will present the Interim Report.
Investor calls in English will be arranged on request. To agree on the date and time, please contact Marjukka Uutela-Hujanen, tel. +358 10 570 6218.
HKScan’s Financial Statements Bulletin for 2020 will be published on 4 February 2021.
Turku, 5 November 2020
Board of Directors
For further information
Tero Hemmilä, CEO, tel. +358 10 570 2012
Jyrki Paappa, CFO, tel. +358 10 570 2512
Heidi Hirvonen, SVP Communications, tel. +358 10 570 6072
Media contacts: HKScan Media Service Desk +358 (0)10 570 5700 or email: email@example.com