HKScan Corporation, January-March Interim Report, 6 May 2021 at 8.30 a.m. Finnish time
HKScan’s Interim Report 1 January – 31 March 2021
HKScan’s tenth consecutive profit improvement
- Comparable EBIT has improved for ten consecutive quarters year on year.
- HKScan’s net sales totalled EUR 427.5 (428.9) million.
- Clear sales growth of the branded products continued in the retail channel. Food service sales decreased significantly due to the Covid-19 pandemic, but the fall started to level off at the end of the period.
- EBIT improved by EUR 2.8 million to EUR -1.1 (-3.9) million. There were no items affecting comparability during the review period and the comparison period.
- EBIT was improved by a clear increase in retail sales of the branded products and a stronger emphasis on the demand of products with more added value. Despite the pandemic, production efficiency improvements continued.
- Cash flow from operating activities improved by EUR 10.6 million to EUR 3.3 (-7.3) million.
- Interest-bearing net debt was EUR 308.0 (298.0) million and net gearing 95.6 (96.8) per cent.
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 2021 will improve compared to 2020.
KEY FIGURES, NET SALES
|Net sales||427.5||428.9||1 781.0|
KEY FIGURES, EBIT
|- % of net sales||-0.3||-0.9||1.2|
|- % of net sales||-0.3||-0.9||1.0|
|Comparable EBIT, Finland||-0.5||-3.5||6.0|
|- % of net sales||-0.3||-1.9||0.8|
|Comparable EBIT, Sweden||2.4||1.5||19.0|
|- % of net sales||1.5||1.0||2.9|
|Comparable EBIT, Baltics||0.7||1.0||4.0|
|- % of net sales||1.7||2.2||2.3|
|Comparable EBIT, Denmark||0.0||0.6||1.1|
|- % of net sales||-0.1||1.2||0.6|
KEY FIGURES, OTHER
|Profit/loss before taxes||-5.7||-6.5||12.3|
|- % of net sales||-1.3||-1.5||0.7|
|Profit/loss for the period||-6.2||-6.9||4.8|
|- % of net sales||-1.5||-1.6||0.3|
|Comparable EPS, EUR||-0.07||-0.08||-0.05|
|Cash flow from operating activities||3.3||-7.3||63.7|
|Cash flow after investing activities||69.6*||-18.5||-21.4*|
|Return on capital employed (ROCE) before taxes, %||4.3||-1.4||3.9|
|Net Gearing %||95.6||96.8||91.0|
* 2020 includes the investment to the plot of Vantaa EUR 37.7 million.
Q1/2021 includes the sale of Vantaa property (land and buildings) with EUR 76.1 million.
HKScan’s CEO Tero Hemmilä
HKScan’s profit improvement continued during the first quarter of 2021 and we have already improved our comparable EBIT for ten consecutive quarters year on year. From the comparison period, EBIT improved by an average of approximately one million euros per month and by almost three million euros for the review period. The comparable EBIT was the best first-quarter result in six years. Comparable EBIT, rolling 12 months, rose to nearly 20 million euros at the end of the review period.
The value of HKScan’s profit improvement is increased by the fact that in the comparison period, the Covid-19 pandemic did not yet affect our business in January-February, but the situation with the pandemic was difficult during the review period. Restrictive measures continued to affect especially the food service channel, where the situation was quite difficult. With the strong commitment and contribution of all personnel, we were able to ensure our production without significant disruptions and our customer deliveries and customer satisfaction.
Of our Business Units, Finland and Sweden showed clear profit improvement. In Denmark, our strategy to increase the added value of retail products proceeded as planned. However, comparable EBIT decreased due to the sector-wide ban on exports to non-EU countries caused by avian flu in the Danish market. In the Baltics, comparable EBIT was weakened by lower-than-planned production volumes and higher operating production costs due to the difficult pandemic situation. During the review period, the low market price of European meat put pressure in prices especially in the industrial sales channel, weakening our financial performance in the Baltics.
The Group’s January-March net sales were at the comparison period level and rolling 12-month net sales continued to strengthen. During the review period, Easter increased sales from the comparison period. In March last year, the onset of the pandemic caused a demand peak of equal amount. The strong sales growth of the company's own brands was pleasing. We did well in processed meat products and food components, which allowed us to build added value to our meat balance in the home markets and to reduce the need for exports to balance the use of our raw material base. Our subsidiaries with a strong position in the consumer market also support our strong position in high-quality meat, processed meat products and meal components.
During the review period, in addition to the development of operational business, we focused strongly on stabilising our financial position and implementing the significant investment in our Rauma poultry unit announced earlier. The financial measures taken enable us a situation where we can more comprehensively focus on the company’s strategic renewal and operational development of the business in the coming years. With the Rauma production unit investment, the Finnish poultry business will be able to make better use of the market potential in poultry products.
At the beginning of February, HKScan sold the land and buildings of its Vantaa property. With the property transaction, the amount of the company’s interest-bearing bank loans decreased significantly. A lease agreement signed in connection with the transaction allows HKScan to continue and develop its business in Vantaa for the following 20 years. The agreement also includes an option for additional years. The Vantaa production unit is located in the middle of the growing consumer concentration in Finland’s capital region, providing excellent opportunities to develop new ways of food production and customer service. We can take advantage of the techno-economic life of our Vantaa unit in accordance with our targets.
HKScan also extended its market-based bond financing. We renewed a significant part of our bond maturing in 2022 with a new bond that will mature in 2025.
The investment in the renewal of the Rauma poultry unit’s slaughter process decided in January 2020 was successfully completed in March 2021. It was known already in advance that this type of investment would be very demanding to implement and the pandemic presented additional challenges. I would like to give special thanks for a successful performance to everyone involved. With the investment, the Rauma unit is more prepared to increase its productivity and efficiency and to meet the growth of the poultry market with increased capacity. Our poultry brand, Kariniemen®, holding the number one position in the market and the entire poultry range provide a very strong foundation for growth.
HKScan has continued to systematically develop the activities related to corporate responsibility and defined the measures and management system related to the targets of its responsibility programme. Responsibility is the basis of the company's strategy and with the leading of the Turnaround programme, very high on the top management’s agenda because responsibility work is of high importance and will be emphasised in the leadership of the company’s performance and balance sheet in the future. We believe that our long-term and goal-oriented responsibility work, the basis of the company’s operations, leads to the right development of the business and is reflected positively in the company’s results.
The company’s strategic target is to grow into a versatile food company creating strong shareholder value with its advanced responsibility work. We are a company whose responsibly produced meat and other products are valued by consumers and whose products are an important part of diverse nutrition. We are growing into a company whose goal-oriented and advanced responsibility work is recognised and valued among our stakeholders. In the responsibility work, our target is to be among the absolute top in our industry.
As a whole, the third year of the Turnaround programme started as planned and clearly better than the comparison period. I am pleased with the performance of the company and our employees in the market situation that was remarkably difficult due to the pandemic and animal diseases. The company’s top management and personnel are ready to take HKScan towards a versatile food company that rewards its shareholders.
Key events in January–March 2021
HKScan sold the land and buildings of its Vantaa property to Sagax Finland Asset Management
In February 2021, HKScan Group announced that it had sold the land and buildings of its Vantaa property to a real estate investor Sagax Finland Asset Management Oy. The transaction price was EUR 76.1 million. The transaction has no significant impact on HKScan’s result for the current year.
New ways of food production as well as customer deliveries close to the growing consumer concentration in Finland’s capital region are important to HKScan. The lease agreed in connection of the transaction allows HKScan to continue and develop its business on a long-term basis in Vantaa for the following 20 years. The agreement also includes an option for additional years. Furthermore, Vantaa’s logistic location and ability provide an interesting platform for partnerships with other food companies.
HKScan’s Vantaa unit makes some 50 million kilos of meals and meat products annually. Nearly 120 million kilos of products are delivered annually to customers through the logistics centre located in the area. Close to 700 food industry professionals work in the Vantaa unit.
Investment launched to improve the entire process of Rauma poultry unit
HKScan’s investment of some EUR 6 million in the new slaughter process of Rauma’s poultry unit was successfully taken into use at the end of March 2021. The investment enables the unit to significantly improve its raw material yield, productivity and operational reliability and provides a good basis for the further development of the whole process.
HKScan’s Rauma poultry unit produces nearly half of the poultry products in Finland. With the investment, HKScan responds to the strong demand growth for responsibly produced Kariniemen® poultry products.
Expansion of HKScan’s financing base promoting the company’s strategy implementation
In March 2021, HKScan issued a new unsecured bond of EUR 90 million. The four-year bond will mature on 24 March 2025. The company used the proceeds from the bond for the partial repurchase of fixed-rate, unsecured notes due on 21 September 2022.
In connection with the Vantaa property transaction, HKScan repaid in full the EUR 74.3 million bank loan maturing in 2022.
Steps taken by HKScan diversify the company’s financing base and contribute the strategy implementation in the coming years.
HKScan’s service level has remained good throughout the Covid-19 pandemic, personnel commitment has played a crucial role
Since the beginning of the pandemic, HKScan has approached the matter with the utmost seriousness. With the over year-long pandemic, HKScan has managed well as a company without significant operational disruptions. However, the pandemic has slowed down the company’s profit improvement, which is seen particularly in the food service sales.
The personnel has played a crucial role in the company’s success throughout the pandemic. All employees have done uncompromising and committed work in line with the company’s Covid-19 instructions. Through extensive special arrangements, HKScan has sought to secure the health and safety of its employees and partners throughout the food chain and to ensure the uninterrupted continuity of its operations.
HKScan is a significant company in all of its home markets in the Baltic Sea region and present in the daily life of consumers seven days a week. The company’s service level has remained at good levels throughout the pandemic.
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HKScan’s Half Year Financial Report 2021 will be published on 16 July 2021. January–September 2021 Interim Report will be published on 4 November 2021.
Turku, 6 May 2021
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: firstname.lastname@example.org