HKScan Corporation, Half Year Financial Report 2022, 20 July 2022 at 8.30 a.m.
EET
HKScan's Half Year Financial Report 1 January - 30 June 2022
HKScan's comparable EBIT strengthened in the second quarter
April-June 2022
· HKScan's net sales increased by 13 per cent to EUR 505.7 (449.3) million.
Net sales increased in all sales channels and categories and in all HKScan's
home markets. Costs increased as a result of strong inflation and the company
was able to increasingly pass on the costs to sales prices during the review
period. Food service sales increased clearly.
· The Group's EBIT totalled EUR -14.3 (3.7) million. Goodwill in the Baltic
business unit was written down by EUR -15.6 million following an impairment
test. In the comparison period, Finland's EBIT included a positive item of EUR
3.0 million affecting comparability.
· The Group's comparable EBIT was EUR 1.5 (0.7) million. In the review period,
HKScan gradually improved the balance between high cost inflation and sales
prices. Comparable EBIT improved as a result of better sales mix and production
efficiency.
· Cash flow from operating activities was EUR 22.4 (24.9) million.
January-June 2022
· HKScan's net sales increased by nearly 8 per cent amounting to EUR 942.9
(876.8) million.
· The Group's EBIT totalled EUR -23.2 (2.6) million. The goodwill write-down
of the Baltic business was EUR -15.6 million.
· The Group's comparable EBIT was EUR -7.0 (-0.5) million. Negative
performance in the Baltics caused the biggest deviation in the Group's EBIT.
· Strong cost inflation has pushed up the prices of energy, grain and other
production inputs to record high levels in all of HKScan's home markets. To
secure the availability of domestic meat raw material central for the business,
the company has increased producer prices.
· Due to a structural delay in pricing, HKScan's sales price increases and
operational efficiency improvements did not yet compensate for the strong cost
increases in production inputs, but the situation began to balance out gradually
towards the end of the review period.
· Cash flow from operating activities was EUR -12.0 (28.1) million. Cash flow
was weakened by a lower EBIT than in the comparison period and a strong increase
in working capital particularly in the first quarter.
· Interest-bearing net debt was EUR 346.3 (298.5) million and net gearing
109.6 (92.8) per cent.
The figures in parentheses refer to the same period in the previous year, unless
otherwise mentioned. The figures are unaudited.
Outlook for 2022
HKScan's guidance for 2022 remains unchanged.
HKScan estimates that the Group's comparable EBIT in 2022 will improve compared
to 2021. Early 2022 comparable EBIT is expected to be weaker than the comparison
period due to inflation, which strongly affects the company's profit
development, and significant imbalances in the international meat and grain
market. The full-year profit development will be significantly affected by the
development of the international meat and grain market.
KEY FIGURES, NET SALES
(EUR million) 4-6/2022 4-6/2021 1-6/2022 1-6/2021 2021
Net sales 505.7 449.3 942.9 876.8 1 815.3
Finland 213.4 193.8 396.0 373.7 772.3
Sweden 185.4 171.1 349.4 332.9 700.4
Denmark 57.4 42.2 106.8 87.6 172.7
Baltics 49.4 42.2 90.6 82.7 170.0
KEY FIGURES, EBIT
(EUR million) 4-6/2022 4-6/2021 1-6/2022 1-6/2021 2021
EBIT -14.3* 3.7 -23.2* 2.6 17.9
- % of net sales -2.8 0.8 -2.5 0.3 1.0
Comparable EBIT 1.5 0.7 -7.0 -0.5 14.5
- % of net sales 0.3 0.1 -0.7 -0.1 0.8
Comparable EBIT, Finland 1.4 0.7 0.2 0.2 8.5
- % of net sales 0.7 0.4 0.1 0.1 1.1
Comparable EBIT, Sweden 4.9 4.9 5.1 7.2 22.9
- % of net sales 2.6 2.9 1.4 2.2 3.3
Comparable EBIT, Denmark 0.3 -1.1 0.8 -1.1 0.0
- % of net sales 0.5 -2.6 0.7 -1.3 0.0
Comparable EBIT, Baltics -2.2 -0.5 -7.1 0.2 -5.1
- % of net sales -4.4 -1.1 -7.8 0.2 -3.0
KEY FIGURES, OTHER
(EUR million) 4-6/2022 4-6/2021 1-6/2022 1-6/2021 2021
EBITDA 15.9 16.3 21.7 31.0 78.1
Profit before taxes -14.8 1.8 -25.5 -3.9 6.6
- % of net sales -2.9 0.4 -2.7 -0.4 0.4
Profit for the period -16.1 0.5 -26.9 -5.7 -1.2
- % of net sales -3.2 0.1 -2.9 -0.6 -0.1
EPS, EUR -0.18 -0.01 -0.30 -0.08 -0.06
Comparable EPS, EUR -0.01 -0.04 -0.13 -0.11 -0.10
Cash flow from operating 22.4 24.9 -12.0 28.1 54.6
activities
Cash flow after 15.2 14.3 -23.3 83.9** 81.2**
investing activities
Return on capital 0.0 5.1 3.6
employed (ROCE) before
taxes, %
Net debt 346.3 298.5 314.5
Net gearing % 109.6 92.8 95.2
* Includes a goodwill write-down of EUR -15.6 million for the Baltic Business
Unit.
** Includes the sale of Vantaa property (land and buildings) with EUR 76.1
million.
HKScan's CEO Tero Hemmilä
HKScan strengthened its comparable EBIT in the second quarter in a very
difficult operating environment marked by strong cost inflation. In April-June,
the company's comparable EBIT improved by 0.8 million euros to 1.5 million euros
positive. The EBIT improvement started in the second half of the quarter.
Finland, Sweden and Denmark reported positive comparable EBIT, while the Baltics
continued to be negative. The goodwill write-down of the Baltic business unit
led to a clear loss in the Group's EBIT.
In April-June, HKScan's net sales increased by 13 per cent, mainly due to sales
price increases, but also to better sales mix. Food service sales grew strongly
following the removal of pandemic restrictions. Successful sales price increases
covered partly the sharp rise in production costs. The EBIT improvement was
driven by commercial added value in line with the strategy, better sales mix,
production efficiency and overall cost management.
Exceptionally high increases in sales prices have been necessary as the prices
of meat raw material and other production inputs have risen sharply. We have had
constructive discussions with customers about the situation and the measures
required. Prices paid to farmers have increased clearly from the comparison
period, but the sales price increases made are not yet sufficient to ensure the
continuity of domestic meat production and the availability of meat raw material
at current cost levels.
In the second quarter, Denmark continued to show strong performance and clearly
improved its EBIT. The good performance is the result of the determined strategy
implementation and strong demand for poultry meat in the current market
situation. Denmark has also been able to clearly decrease its dependence on
exports to non-EU countries. This has been a significant strategic change in the
Danish business. Finland clearly improved its comparable EBIT, with a
particularly good performance towards the end of the quarter. Sweden also showed
strong profit development towards the end of the quarter. The early spring was
challenging in Sweden, and as a result the EBIT was at the comparison period
level. In the Baltics, comparable EBIT weakened and was negative. The challenges
in the Baltics were related to very strong overall cost inflation and our
business model in an exceptional market situation. Our determined measures have
paid off and in June the comparable EBIT for the Baltics was already at the
comparison period level.
The continued unstable geopolitical situation is increasing business challenges
and changing the market in a way that strengthens the role of domestic raw
materials and familiar products in consumer demand. Consumer food prices have
already risen clearly and the rise will continue, affecting both retail offering
and consumer demand. Consumer demand will become increasingly polarised over the
rest of the year. At the same time, the market is evolving. For their
international supply chains, major food players are seeking increased
cooperation with local players to ensure reliability and security of supply. In
this context, HKScan has a very good position in its home markets and the
situation creates new opportunities for the company.
A major short-term risk in our home markets is related to the availability of
meat raw material in the coming years as the value chain for primary production
is long also in terms of time. It is expected that the volatility of commodity
prices on world markets will continue to be higher also in the coming years.
Food chain players, especially industry and trade, will be required to react to
cost changes, as their speed and magnitude could threaten the operation of the
whole food chain and domestic food production through their negative impact.
This transformation has been well understood and the scale of the financial
changes required has already been exceptional.
There is still a long way to go to reach a producer price level at which farm
profitability is sustainable with current cost developments. For the rest of the
year, price developments for grain and other inputs will have a significant
impact on the situation. For this reason, active discussion with customers about
the situation and the measures required will continue to play an important role
also over the rest of the year. This will create continuity in the production of
domestic meat raw material and food, as well as in the availability of raw
material. I am confident that all food chain players understand the seriousness
of the situation and are ready to take decisions that will not break the basis
for domestic food production but strengthen it in all our home markets. This is
also in the interests of consumers who value domesticity in the unstable
geopolitical situation.
In the second half of the year, strong cost inflation will continue to create
uncertainty in the operating environment. This also applies to production inputs
to the food industry. As a company, we are prepared for the risks related to
energy availability and we have drawn up plans that are well underway. Cyber
risk preparedness has been high on our agenda for quite some time. With the war
in Ukraine and the unstable geopolitical situation, HKScan's business focus has
been shifted to short-term measures to minimise the negative impact on
performance and to ensure profit development in a rapidly changing operating
environment. This includes determined efforts to pass costs up the chain to
sales prices, while emphasising systematic cost management.
In 2022, the focus of the business management is on sales pricing and cost
management. Ensuring positive profit development requires an immediate response
to changes in order to manage their potential negative impact. Our business is
based on HKScan's strategy to become a versatile food company with the focus on
well-managed renewal. An example of this is Kasviskonttori Oy, which started
operations in Finland in April. The company will focus on the growing trend of
vegetable consumption by introducing new vegetable products to the market this
year.
The Finnish poultry business conducted statutory change negotiations, which will
improve the cost efficiency of the poultry business by some 3 million euros per
year. The Finnish poultry business has significantly higher profit potential
through the commercial and production measures that will be implemented over the
next years. HKScan is one of the largest players in the poultry market in the
Baltic Sea region, and the market growth creates possibilities for good profit
development in the company's home markets.
In the current situation, it is difficult to accurately predict changes in the
operating environment. Nevertheless, we are confident in our ability to
strengthen our profit development over the rest of the year. The second quarter
of 2022 already demonstrated our ability as a company to meet the exceptionally
tough challenge of the operating environment. Food always matters, especially in
unstable times. Our strategic target is to grow into a versatile food company
that creates strong shareholder value.
Key events in April-June 2022
New bank facility to repay a bond maturing in September 2022
In September 2017, HKScan issued a EUR 135.0 million 2.625 per cent fixed-rate,
unsecured and senior bond maturing on 21 September 2022 (FI4000278536) with a
current outstanding amount of EUR 39,516,000. In June 2022, HKScan agreed on a
new EUR 39.5 million unsecured bank facility to repay a bond maturing in
September 2022.
Statutory negotiations
In May, HKScan started statutory negotiations in the Finnish poultry business at
the Rauma and Eura units in accordance with the Act on Co-operation. The aim of
the negotiations was to improve the profitability, competitiveness and cost
efficiency of the poultry business by improving production efficiency,
reorganising operations and renewing operating methods. The negotiations ended
after the review period.
HKScan expanding into the growing market of value-added vegetable products
In April, HKScan and Vihannes-Laitila founded a joint venture to renew the
supply of fresh vegetable products and meet growing consumer demand. During this
year, Kasviskonttori Oy will launch ready-to-use and ready-to-cook fresh
vegetable products with higher added value. The partnership provides an
excellent platform to create added value for vegetable products, develop the
selection and drive growth.
For HKScan, partnership with Finland's leading vegetable trading company
Vihannes-Laitila is a natural part of the company's strategy to expand into new
raw materials and product categories. Fresh vegetable products made from trusted
raw materials will complement HKScan's product portfolio consisting of a wide
variety of meat products, snacks and meals.
Events after the reporting period
Media release on 7 July 2022: HKScan to improve the profitability of its poultry
business in Finland
The statutory negotiations started in HKScan's Finnish poultry business at the
Rauma and Eura production units in May have been concluded. As a result of the
negotiations, 55 jobs will be reduced at HKScan's Rauma unit and substantial
changes in the terms of employment will affect 105 jobs. The changes will be
implemented after the summer holiday period in August-September 2022. With the
measures, HKScan aims to achieve annual savings of more than EUR 3 million. The
savings are expected to be realised during 2023.
The negotiations aimed at improving the profitability, competitiveness and cost
-efficiency of HKScan's Finnish poultry business by improving production
efficiency, reorganising operations and renewing operating methods at the Rauma
and Eura units. The statutory negotiations concerned blue-collar employees as
well as the white-collar employees in the maintenance organisation at the Rauma
and Eura units. 600 employees were in the scope of the negotiations.
Turku, 20 July 2022
HKScan Corporation
Board of Directors
Webcast
In connection with its Half Year Financial Report 2022, HKScan will hold a
webcast in Finnish for analysts, institutional investors and media on 20 July
2022 at 10 am EET. You can follow the Finnish webcast at
https://hkscan.videosync.fi/2022-q2. HKScan's CEO Tero Hemmilä and CFO Jyrki
Paappa will present the Half Year Financial Report.
To arrange an investor call in English, please contact Heidi Hirvonen, SVP
Communications, tel. +358 10 570 6072 or by email heidi.hirvonen@hkscan.com.
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
Financial reports
Interim Report for January-September 2022 will be published on Thursday 3
November 2022.
At HKScan, we make life tastier - today and tomorrow. Our strategic target is to
grow into a versatile food company. Our responsibly produced, delicious products
are part of consumers' varied food moments - both every day and on special
occasions. We have some 7,000 HKScan professionals applying more than 100 years
of experience to make locally produced food. For us at HKScan, responsibility
means continuous improvements and concrete actions throughout the food chain. As
part of our Zero Carbon programme, we are targeting a carbon-neutral food chain
from farms to consumers by the end of 2040. Our home markets cover Finland,
Sweden, Denmark and the Baltics. Our strong product brands include HK®,
Kariniemen®, Via®, Scan®, Pärsons®, Rose™, Rakvere® and Tallegg®. Through our
strategic partnerships, we are also known for Kivikylän®, Tamminen® and Boltsi
brands. HKScan is a publicly listed company, and in 2021, our net sales totalled
over EUR 1.8 billion.
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