Scandi Standards AB (publ) interim report January - June 2022
Operational improvements and price increases
April – June 2022
- Net sales amounted to MSEK 3,056 (2,564) in the second quarter of 2022. At constant exchange rates net sales increased by 19 percent.
- Operating income (EBIT) decreased by 44 percent to MSEK 42 (75), corresponding to a margin of 1.4 (2.9) percent.
- Income for the period amounted to MSEK 7 (41). Earnings per share amounted to SEK 0.07 (0.61).
- Operating cash flow was MSEK 135 (57).
January – June 2022
- Net sales amounted to MSEK 5,848 (5,033) in the first half of 2022. At constant exchange rates net sales increased by 16 percent.
- Operating income (EBIT) decreased by 52 percent to MSEK 79 (163), corresponding to a margin of 1.3 (3.2) percent.
- Income for the period amounted to MSEK 17 (95). Earnings per share amounted to SEK 0.18 (1.44)
- Operating cash flow was MSEK 141 (166).
Significant events in the quarter
- The result is negatively affected by write-downs of fixed assets in Ireland of MSEK 26, costs related to the fire incident in Farre of MSEK 10 and a provision for compensation linked to an old contract dispute in Finland of MSEK 19.
- The war in Ukraine has continued to contribute to uncertainty regarding food supply in Europe, where Scandi Standard is primarily affected by increased prices for input goods as well as energy and transport. During the quarter, further price increases have been implemented and have now largely compensated for the cost inflation the company faced. In combination with previously initiated measures, this has resulted in a clear improvement in the operational result.
- In May 2022, a binding loan agreement was signed regarding sustainability-linked credit facilities totaling MSEK 2,090 with a term of five years.
Significant events after the close of the quarter
At the extraordinary general meeting on August 22, Paulo Gaspar was elected as new board member. Paulo Gaspar represents Grupo Lusiaves, which is Scandi Standard's second largest shareholder.
Key metrics
| MSEK | Q2 2022 | Q2 2021 | Δ | H1 2022 | H1 2021 | Δ | R12M | 2021 |
| Net sales | 3,056 | 2,564 | 19% | 5,848 | 5,033 | 16% | 10,915 | 10,101 |
| EBITDA | 172 | 167 | 3% | 308 | 348 | -11% | 559 | 598 |
| Operating income (EBIT) | 42 | 75 | -44% | 79 | 163 | -52% | 138 | 222 |
| EBITDA margin % | 5.6% | 6.5% | -0.9ppt | 5.3% | 6.9% | -1.6ppt | 5.1% | 5.9% |
| EBIT margin % | 1.4% | 2.9% | -1.6ppt | 1.3% | 3.2% | -1.9ppt | 1.3% | 2.2% |
| Non-comparable items1) | 0 | -4 | -100% | - | -4 | -100% | 13 | 9 |
| Adjusted EBITDA1) | 172 | 171 | 0% | 308 | 352 | -12% | 545 | 589 |
| Adjusted operating income (Adj. EBIT)1) | 42 | 79 | -47% | 79 | 167 | -53% | 125 | 213 |
| Adjusted EBITDA margin1) % | 5.6% | 6.7% | -1.1ppt | 5.3% | 7.0% | -1.7ppt | 5.0% | 5.8% |
| Adjusted EBIT margin1) % | 1.4% | 3.1% | -1.7ppt | 1.3% | 3.3% | -2.0ppt | 1.1% | 2.1% |
| Income after finance net | 18 | 51 | -65% | 34 | 123 | -72% | 52 | 140 |
| Income for the period | 7 | 41 | -82% | 17 | 95 | -82% | 25 | 103 |
| Earnings per share, SEK | 0.07 | 0.61 | -88% | 0.18 | 1.44 | -88% | 0.34 | 1.60 |
| Return on capital employed % | 3.2% | 7.9% | -4.6ppt | 3.2% | 7.9% | -2.0ppt | 3.2% | 5.2% |
| Return on equity % | 1.1% | 10.1% | -9.0ppt | 1.1% | 10.1% | -4.4ppt | 1.1% | 5.5% |
| Operating cash flow | 135 | 57 | 136% | 141 | 166 | -15% | 322 | 347 |
| Net interest-bearing debt | 1,949 | 1,967 | -1% | 1,949 | 1,967 | -1% | 1,963 | 1,980 |
| NIBD/Adj. EBITDA | 3.6 | 2.6 | 37% | 3.6 | 2.6 | 37% | 3.6 | 3.4 |
| Lost time injuries (LTI) per million hours worked | 28.4 | 39.5 | -28% | 28,2 | 36.3 | -22% | 35.1 | 39.2 |
| Feed efficiency (kg feed/live weight) | 1.50 | 1.52 | -1% | 1.50 | 1.52 | -1% | 1.52 | 1.52 |
1) Restated non-comparable items. see note 6.
CEO Comments
The second quarter of the year was also influenced by the instability in Europe and volatile prices on input goods, however, we can conclude that Scandi Standard has managed to handle the development well. During the recent quarters, price adjustments have been implemented in order to meet the strong cost inflation. Our earnings have previously been significantly affected by the lead times for these adjustments, however, during the end of the second quarter, the price increases have largely compensated for the cost inflation the company faced. In combination with previously initiated measures, this has resulted in a clear improvement in the operational result.
The war in Ukraine will continue to be the single largest uncertainty factor when it comes to cost inflation. Considering the volatility in the market, we have adjusted the periodicity of our negotiations, and discussions that previously took place once or twice a year now occur more frequently. This is positive for a well-functioning price development, which reduces the risk for us, our growers, customers as well as the end consumer. Monitoring the development and ensuring the right price levels on our products will continue to be of the highest priority going forward.
As expected, we see a positive trend during the quarter where several of the measures that were previously initiated are starting to yield results. Scandi Standard’s net sales during the quarter were MSEK 3,056 (2,564). The 19 percent growth was primarily driven by the above-mentioned price adjustments and by improved export prices. Slaughter volumes have been temporarily reduced as planned, and at the same time, inventory was reduced during the quarter. The operating income was MSEK 42 (75).
Net sales in the Ready-to-cook segment amounted to MSEK 2,199 (1,943) during the quarter, corresponding to a growth of 13 percent. Despite implemented price increases, operating income decreased by MSEK 81 to MSEK -16 (65), negatively affected by write-downs of fixed assets and a reservation for compensation linked to an old contract dispute, in total MSEK 45.
The improvement in the Ready-to-eat segment continued and net sales increased by 40 percent to MSEK 748 (536) and operating income increased by 46 percent to MSEK 51 (35) during the quarter, despite the fire incident in April in the segment’s largest production facility. As previously, the development was driven by increased sales in the Foodservice sales channel following the removal of pandemic related restrictions as well as by successful product launches and a continued high demand in the Retail sales channel. Investments to further increase the production capacity at the company’s largest production plant for Ready-to-eat products in Farre, Denmark is ongoing.
During the second quarter 2022, export prices continued to improve, driven by reduced chicken production in Europe and increased demand within the restaurant industry worldwide.
Ready-to-cook Denmark reported an operating income of MSEK -30 during the quarter, an improvement compared to previous quarters. Increased export prices are one driving factor. In parallel, the work on implementing a new strategy for slow growing birds with the goal of meeting existing demand with improved profitability is ongoing and includes among other things a revised mix of slow growing and conventional birds and an adjusted cost base. Given the current challenging market conditions, we might not see further material financial benefits until 2023. It is pleasing to see that the total operation in Denmark, including Ready-to-eat, is now delivering positive results for the first time in seven quarters.
Despite the low result, operating cash flow during the quarter was MSEK 135 (57), including capital expenditure of MSEK 44. Net interest-bearing debt (NIBD) was MSEK 1,949 by the end of the quarter, a reduction of MSEK 84 from the first quarter.
Scandi Standard follows the lower investment plan for 2022 of approximately MSEK 330, as previously communicated. We prioritise investments for profitable growth within the Ready-to-eat segment as well as the first phase of a three-year rollout of a new ERP system. The new five-year credit facilities agreement entered into during the second quarter secures a stable financial foundation for the future.
The sustainability indicators antibiotics usage and foot pad score point in the wrong direction during the quarter, mainly linked to an external supplier in Ireland. A number of measures have been initiated to regain the previous improvement curve.
For Scandi Standard, sustainability is not a separate strategy, but part of our DNA. Therefore, it was particularly pleasing to receive the new research results from the research institute RISE and the Swedish industry organisation Svensk Fågel, which shows that the climate footprint from Swedish chicken has decreased by almost 20 percent over the past ten years. As part of Scandi Standard’s systematic climate work, we also collaborate with the climate specialist the Carbon Trust in order to map the climate impact of our own products on all our markets in detail. As a market leader, it is important to lead the way for a development towards increased transparency that makes it easier for end consumers to make informed decisions. The mapping is now completed and certified and constitutes a solid knowledge base for our continued efforts within the climate area.
Over the past few months, I have had the privilege of getting to know our business in depth. I am convinced that, despite the prevailing macro situation, the company has good opportunities to deliver on a return to normalised profitability during the second half of 2022. There are several factors in the market working in favour of Scandi Standard and our healthy and climate-smart protein. Chicken has a shorter production cycle and cost increases have hence been realized at a faster pace than for example beef and pork. As the cost increases also affect other protein sources, we expect a market tailwind due to more favourable competitive conditions. At the same time, price awareness among end consumers is expected to increase as the effects of the ongoing price inflation impacts households even stronger.
In the longer term, there is a great potential in increasing the value per bird processed. It will be essential to establish a new stable level of earnings beyond the margins reported during 2015–2020. The transition requires additional focus on the right culture, governance and leadership, on efficiency throughout the entire value chain, on developing the product portfolio in order to improve the yield from our input materials as well as on our positioning, where sustainability is an important common denominator. The work within these four strategic focus areas has already been initiated, but change takes time. I chose Scandi Standard because I saw the company’s inherent possibilities. These first months as CEO have strengthened my belief that we have a positive journey ahead of us.
Stockholm, 25 August 2022
Jonas Tunestål, Managing director and CEO
Conference Call
A conference call for investors, analysts and media will be held on 25 August 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
| Interim report for Q3 2022 | October 28, 2022 |
| Interim report for Q4 2022 | February 9, 2023 |
| Interim report for Q1 2023 | May 3, 2023 |
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 25 August 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.