Net sales from HKScan’s continuing operations increased and EBIT improved clearly in 2023

HKScan Corporation, Financial Statements Bulletin 2023, 9 February 2024 at 8.30 a.m. EET

HKScan’s Financial Statements Bulletin 1 January–31 December 2023

October-December 2023

• On 29 December 2023, HKScan Corporation signed an agreement to sell the shares of its Swedish subsidiary HKScan Sweden AB to the Swedish Lantmännen ek för. The transaction is expected to be closed in the first half of 2024 and is subject to clearance by the EU Commission and the Swedish competition authorities on foreign direct investment (FDI) controls. The transaction will change HKScan’s structure and financial key figures. HKScan reports the Swedish business as a discontinued operation, and the company’s financial reporting will focus on continuing operations, i.e., businesses in Finland and Denmark. The transaction does not include the Polish bacon unit, which is reported as part of the Business Unit Sweden. The Polish unit’s figures will be reported as part of the Business Unit Finland going forward.
• HKScan’s net sales from continuing operations decreased by 1.4 per cent to EUR 302.0 (306.3) million.
• Sales prices were at the comparison period’s level. Sales volumes increased in the retail channel, while food service sales remained at the comparison period’s level. Sales volumes fell as planned in the export and industrial channels, leading to a small decline in overall volumes.
• The Group’s EBIT from continuing operations totalled EUR 3.0 (1.7) million.
• The Group’s comparable EBIT from continuing operations was EUR 2.8 (-0.2) million. Production costs remained at a high level. Personnel and external services costs increased from the comparison period, but energy prices were significantly lower. Consumer demand remained at the level of the previous quarter. Improved sales channel mix, increased production efficiency and cost savings improved profitability.
• The comparable EBIT of the Business Unit Finland was EUR 6.3 (1.6) million.
• The comparable EBIT of the Business Unit Denmark was EUR -0.1 (0.4) million.
• Cash flow from operating activities was EUR 33.1 (37.1) million. Cash flow weakened from the comparison period due to lower working capital release and higher financing costs, although EBITDA improved significantly.

January-December 2023

• HKScan’s net sales from continuing operations increased by 6.0 per cent to EUR 1,163.2 (1,097.5) million. In early 2023, sales prices were significantly higher than in the comparison period. Sales prices in the last quarter were at the comparison period level.
• The Group’s EBIT from continuing operations totalled EUR 17.4 (-2.6) million.
• The Group’s comparable EBIT from continuing operations was EUR 14.9 (-2.9) million. 
  The cost level remained high in January-December. The cost increase was covered by the sales price increases implemented during 2022. Energy costs were lower than in the comparison period, particularly in July-September. Commercial measures and slightly improved consumer demand in the spring in the company's home markets reduced the need for meat exports versus the comparison period, which improved profitability towards the end of the year. In 2023, profitability improved as a result of increased production efficiency and cost savings.
• The comparable EBIT of the Business Unit Finland was EUR 20.5 (4.3) million.
• The comparable EBIT of the Business Unit Denmark was EUR 3.3 (1.4) million.
• Cash flow from operating activities was EUR 50.6 (18.9) million.
  Cash flow improved significantly from the comparison period due to a reduction in working capital and stronger EBITDA.
• Interest-bearing net debt was EUR 287.9 (353.1) million and net gearing 121.0 (123.7) per cent.
• The divestment of the Baltic business unit was closed on 31 August 2023.
• The Board of Directors proposes to the Annual General Meeting that no dividends be paid for 2023.

The figures in parentheses refer to the same period in the previous year, unless otherwise mentioned. The figures are unaudited.

As of 1 January 2023, HKScan has changed its accounting policy for spare parts inventory retrospectively. This change has an impact on the inventory value, equity and deferred tax liabilities on the balance sheet and key figures (Return on capital employed and Net gearing). Quarterly and full-year financial information for 2022 has been restated accordingly. Additional information about the impact is disclosed in the accounting policies.

Outlook for 2024

In 2024, HKScan estimates that the Group’s comparable EBIT from continuing operations will improve compared to 2023.

KEY FIGURES, NET SALES, CONTINUING OPERATIONS

(EUR million)	10-12/2023	10-12/2022	1-12/2023	1-12/2022
Net sales	302.0	306.3	1,163.2	1,097.5
Finland	249.7	251.9	933.0	877.2
Denmark	52.2	54.3	230.2	220.4

KEY FIGURES, EBIT, CONTINUING OPERATIONS

(EUR million)	10-12/2023	10-12/2022	1-12/2023	1-12/2022
EBIT	3.0	1.7	17.4	-2.6
- % of net sales	1.0	0.6	1.5	-0.2
Comparable EBIT	2.8	-0.2	14.9	-2.9
- % of net sales	0.9	-0.1	1.3	-0.3
Comparable EBIT, Finland	6.3	1.6	20.5	4.3
- % of net sales	2.5	0.6	2.2	0.5
Comparable EBIT, Denmark	-0.1	0.4	3.3	1.4
- % of net sales	-0.3	0.8	1.4	0.6

KEY FIGURES, OTHER

(EUR million)	10-12/2023	10-12/2022	1-12/2023	1-12/2022
EBITDA, continuing operations	12.2	8.3	52.7	30.1
Profit before taxes, continuing operations	-4.1	-4.6	-9.0	-13.3
- % of net sales	-1.4	-1.5	-0.8	-1.2
Profit for the period, continuing operations	-7.4	-5.8	-15.6	-16.0
- % of net sales	-2.5	-1.1	-0.8	-0.9
EPS, EUR, continuing operations	-0.10	-0.08	-0.22	-0.22
Comparable EPS, EUR, continuing operations	-0.10	-0.10	-0.25	-0.22
Cash flow from operating activities, incl. discontinued operations	33.1	37.1	50.6	18.9
Cash flow after investing activities, incl. discontinued operations	40.2	13.6	73.3	-21.9
Return on capital employed (ROCE) before taxes, %, incl. discontinued operations			3.0	-6.4
Interest-bearing net debt			287.9	353.1
Net gearing %			121.0	123.7

HKScan’s CEO Juha Ruohola

HKScan’s net sales from continuing operations increased by 6.0 per cent to EUR 1,163.2 (1,097.5) million. The Group’s EBIT from continuing operations totalled EUR 17.4 (-2.6) million and comparable EBIT was EUR 14.9 (-2.9) million. The comparable EBIT showed a clear improvement. The improvement came particularly from Finland, where a turnaround occurred in May after a weaker start to the year, but also from Denmark, where HKScan achieved its best full-year result in more than ten years.

HKScan's efforts to improve production efficiency and save costs continued throughout the year. This improved both EBIT and profitability. In Finland, the investments made in commercial activities during the year have also paid off.  We have previously reported on the investments and other development plans which we expect to generate annual savings of around EUR 12 million. Half of this was realised in 2023 and we expect the remaining six million to be realised from Q3/2024 until the end of Q2/2025.

Inflation pressures eased towards the end of the year, but cost levels remained high throughout the year. We were able to cover the cost increases with the sales price increases implemented during 2022. Market interest rates also remained high, which has brought additional costs not only to the entire value chain but also to consumers.

I am pleased that our determined work, together with our contracted producers and other partners, is paying off. Although the EBIT has clearly improved, our profitability is not satisfactory. In 2024, we will continue to tightly manage costs, improve production efficiency, optimise our product portfolio in line with the changing consumer demand and carry out commercial activities to achieve our target performance and to improve profitability. 

At HKScan, we have continuously assessed the position of the different businesses within the Group in order to increase our financial flexibility. Important steps in improving HKScan's profitability and strengthening its balance sheet included the completion of the divestment process of the Baltic businesses in August 2023 and the agreement we reported at the end of December on the sale of the Swedish businesses. The Baltic businesses was acquired by the Estonian company AS Maag Grupp, and for the sale of the Swedish business we have reached an agreement with the Swedish company Lantmännen ek för. We expect the sale of the Swedish businesses to be closed in the first half of 2024. Its closing is subject to approval by the EU Commission and the Swedish authorities regarding foreign direct investment (FDI) controls. 

The transactions have changed and will change HKScan’s structure and financial key figures. The company’s financial reporting will focus on continuing operations, i.e., businesses in Finland and Denmark. The Polish unit’s figures will be reported as part of the Business Unit Finland. 

The business divestments will strengthen HKScan’s balance sheet, and the proceeds will be used to repay the company’s loans. At the same time, they allow us to better focus on our remaining businesses and implement our long-term strategy of growing into a versatile food company. Due to the divestment of the Swedish businesses, the poultry’s share of our net sales will increase, which is one of our strategic targets along with the increasing added value.  We will continue to operate on our foundations as a strongly Finnish but internationally operating listed company. Our market position is significant, and our brands are strong. 

Our responsibility work continues with determination, and we have promoted our responsibility programme in our businesses throughout the past year. The wellbeing and safety of our employees are at the heart of our responsibility programme. We will continue to promote employee wellbeing through the Group-wide Better Together programme and safety work through the Safety First programme. These programmes are part of the implementation of HKScan's strategy and corporate responsibility programme in line with the company's values – Inspire, Care, Lead and Deliver.

In 2023, we continued to prepare for the EU’s Corporate Sustainability Reporting Directive (CSRD) by, for example, updating the responsibility materiality analysis and completing the company’s climate emissions calculation to comply with the latest GHG Protocol calculation model. During the process, we identified the need to update the climate emissions calculation, climate target and timeline of our responsibility programme to better align with international climate work guidelines, calculation guidelines and reporting standards. Our new climate target is to reach net zero for all greenhouse gas emissions by 2050. With our revised emissions calculation and climate target, we contribute to the goals of the Paris Agreement and meet the new requirements for the land use sector. HKScan’s climate work is guided by a comprehensive set of measures. It consists of dozens of measurable climate emissions reduction measures defined by our Business Units. We are moving towards net zero climate emissions in cooperation with our contract farmers and other partners.

At the end of 2023, HKScan received SBTi approval for its near-term and land-related climate targets as the first food company in Finland and Denmark. 

Overall, 2023 was a year of improved performance and restructuring of the company. HKScan's future now looks much brighter, although more work and challenges still lie ahead.

I would like to thank our personnel, contract farmers, customers, and other stakeholders for the great cooperation in 2023.

Key events in 2023

Juha Ruohola took over as CEO on 2 March 2023

On 2 March 2023, HKScan’s Board of Directors appointed Juha Ruohola, Master of Agriculture and Forestry, eMBA, as CEO of HKScan Corporation. Prior to that, Juha Ruohola served as HKScan’s interim CEO from 29 September 2022.

HKScan sold its Baltic businesses to the Estonian AS Maag Grupp on 31 August 2023

On 31 August 2023, HSKcan sold its Baltic business to the Estonian AS Maag Grupp, subject to the approval of the Estonian competition authorities in July 2023. The Latvian Competition Authority approved the transaction unconditionally in February 2023.

The transaction involved the shares of AS HKScan Estonia, AS HKScan Latvia and UAB HKScan Lietuva, the subsidiaries constituting HKScan's Business Unit Baltics. The debt-free purchase price was EUR 90 million, of which EUR 20 million is conditional on the combined performance of the separately defined meat business subject to the transaction and Maag Grupp's Baltic meat business in the following years. Of the EUR 70 million fixed purchase price, EUR 55 million was paid at the closing of the transaction and the remaining part will be paid over the next three years. With the transaction, HKScan's ownership of the Baltic business ended. The divestment of the Baltic business improved HKScan's profitability and strengthened its balance sheet. 

Details of the transaction have been previously disclosed in press releases on 13 December 2022, 24 July 2023 and 31 August 2023: 13.12.2022, 24.7.2023 and 31.8.2023.      

On 29 December 2023, HKScan signed an agreement to sell its Swedish businesses

On 29 December 2023, HKScan Corporation announced that it had signed an agreement to sell the shares of its Swedish subsidiary HKScan Sweden AB to the Swedish Lantmännen ek för. The transaction is expected to be closed in the first half of 2024 and is subject to clearance by the EU Commission and the Swedish authorities with regard to foreign direct investment (FDI) controls.

The purchase price for the shares in HKScan Sweden AB amounts to approximately EUR 60 million in cash as well as the A shares (6,869,750) and K shares (665,000) in HKScan Corporation held by Lantmännen. Lantmännen will also repay an intragroup loan between HKScan Corporation and HKScan Sweden AB to the amount of approximately EUR 50 million. HKScan Corporation will also reduce off-balance sheet factoring financing of approximately EUR 55 million and approximately EUR 13 million of IFRS 16 leasing liabilities. A prepayment of EUR 25 million of the purchase price was made upon signing of the agreement.

Details of the transaction have been previously disclosed in press release on 29 December 2023: 29.12.2023.

Investing in profitability and adding value

In addition, HKScan continued to make investments to improve profitability and increase added value in several of its production units in Finland and Denmark. 

HKScan’s Near-term and land-based climate targets approved by SBTi

HKScan is among the first Nordic food companies to have specified the near-term targets both for industrial energy usage and for the land sector (Forest, Land and Agriculture =FLAG).

According to the near-term climate targets that have been approved by SBTi, HKScan commits to reduce its absolute Scope 1 and 2 GHG emissions for energy and industrial by 42 per cent by 2030 from a 2022 base year. HKScan also commits to reduce its absolute Scope 3 emissions from specific categories by 42 per cent within the same timeframe. The target also includes land-related emissions from bioenergy feedstocks.

In addition, HKScan commits to reduce land-based absolute Scope 3 FLAG GHG emissions by 30.3 per cent from a base year 2022. HKScan also commits to no deforestation across its primary deforestation-linked commodities.

Details of the SBTi approval is behind this link.

Extraordinary General Meeting

After the reporting period, on 29 January 2024, HKScan convened an Extraordinary General Meeting that will be held on 28 February 2024, in Turku, Finland.

Information on the Extraordinary General Meeting has been published in a press release on 29 January 2024: 29.1.2024. 

Board of Directors’ proposal on the distribution of profit

The parent company's distributable equity is EUR 195.6 (265.4) million, including the reserve for invested unrestricted equity of EUR 216.2 (216.0) million and the profit for the financial year 2023 of EUR -69.9 million. The Board of Directors proposes to the Annual General Meeting that no dividends be paid for 2023.
The remaining distributable assets will be retained in equity.

Annual General Meeting 2024

HKScan’s Annual General Meeting is planned to be held in Turku on Thursday, 18 April 2024.
The invitation will be published later.

Turku, 9 February 2024

HKScan Corporation
Board of Directors

Webcast

In connection with its Financial Statements Bulletin 2023, HKScan will hold a webcast in Finnish for analysts, institutional investors and media on 9 February 2024 at 10 am EET. You can follow the Finnish webcast at  https://hkscan.videosync.fi/2023-tilinpaatos and the recording will be available at www.hkscan.com later on the same day. HKScan’s CEO Juha Ruohola and CFO Jyrki Paappa will present the 2023 result.

To arrange investor calls, please contact executive assistant Suvi Oksava, tel. +358 44 554 4231 or
[email protected].

Financial reports

HKScan will publish the following financial reports in 2024:

• • Interim Report for January–March 2024 on Wednesday 8 May 2024, at about 8:30 EET
  • Half-Year Financial Report 2024 on Wednesday 7 August 2024, at about 8:30 EET
  • Interim Report for January–September 2024 on Wednesday 6 November 2024, at about 8:30 EET

For further information

Juha Ruohola, CEO, tel. +358 400 647 160

Jyrki Paappa, CFO, tel. +358 50 556 6512

HKScan Media Service Desk tel. +358 10 570 5700 or email [email protected]

With 110 years of experience, we at HKScan make life tastier – today and tomorrow. Our strategic target is to grow into a versatile food company. Our home markets are Finland and Denmark, where around 3,600 of our professionals make responsible and locally produced food for consumers’ varied food moments. Our well-known brands include HK^®, Kariniemen^®, Via^® and Rose^®. We are developing a more climate-friendly way of producing food. HKScan is a publicly listed company, and in 2023, our net sales from continuing operations totalled nearly EUR 1.2 billion. www.hkscan.com

The brands mentioned in this report – HK^®, Kariniemen^®, Via^® and Rose^® – are registered trademarks of HKScan Group.