FINLAND: HKScan Q1 marked by weak demand
- "Dissatisfying result performance" - CEO Hannu Kottonen
- Q1 sales fall to EUR465.4m (US$648.2m), down from EUR507.1m
- EBIT loss of EUR17.5m, compared to a loss of EUR6.5m
HKScan losses mount
HKScan has booked a drop in first-quarter operating earnings as cost savings failed to offset weak demand and price pressure.
The group said EBIT fell by almost 170%, dropping to a loss of EUR17.5m from a loss of EUR6.5m in the comparable period of last year.
CEO Hannu Kottonen said that the "dissatisfying result" showed that cost-savings were unable to offset margin pressure from lower prices and sales volumes. Total sales value was down 8.2% in the three months to end-March.
The company did however stress that progress is being made on its turnaround initiatives. During the period HKScan restructured some of its sourcing agreements and established a group structure and brand identity.
HKScan Group’s interim report 1 January — 31 March 2014: Restructuring advances – quarterly result disappointing
- Net sales were EUR 465.4 (507.1) million.
- Reported EBIT was EUR -17.5 (-6.5) million. EBIT excluding non-recurring expenses was EUR -7.1 (-3.4) million. The corresponding EBIT margin was -1.5 (-0.7) per cent.
- Cash flow before debt service was EUR -23.7 (-27.2) million.
- Profit/loss before taxes was EUR -16.3 (-6.7) million.
- EPS was EUR -0.23 (-0.08).
- Net financial expenses were EUR -4.5 (-5.6) million.
- Net debt was EUR 363.0 (448.7) million, and net gearing 92.3 (112.1) per cent.
- Outlook for 2014 (unchanged): HKScan expects the operating profit (EBIT) margin excluding non-recurring items to be 1 – 2 per cent, and anticipates that the last quarter will be the strongest. In 2013, the corresponding operating profit (EBIT) margin was 0.5 per cent.
Hannu Kottonen, HKScan’s CEO, comments on the first quarter of 2014:
“The year started with low market demand. This unfavourable trend was further exacerbated directly and indirectly by pork export limitations from the EU to Russia. The weak market situation led to the tough sales price competition in all market areas deteriorating the business even further during the first quarter, which typically is the most challenging one. As a result, net sales and EBIT performance were clearly disappointment in the first quarter. The decrease in net sales was attributable both to low sales volumes and sales prices. Positive cost development failed to offset the deficit in sales margins, with comparable EBIT decreasing from the previous year. HKScan’s best- performing market area was the Baltics, which recorded a positive EBIT result. Sweden maintained up its profit improvement trend. Another of the first quarter’s few highlights was that frozen stock was kept well under control despite disadvantageous market circumstances. In the face of dissatisfying result performance, numerous business improvement actions were taken during the first quarter. Good progress is being made with the Group profitability development programme for 2014. Restructuring of production and pig sourcing agreement setups in Sweden were initiated to enhance competitiveness. The announced actions will finalise the Group’s strategic review in Sweden. HKScan signed an agreement to sell its stake in its Sokolów joint venture to create a stronger foundation for future business development in all home markets. The deal will generate a significant capital gain and clearly strengthen the Group’s capital structure. The divestment is subject to the approval of the competition authorities. The relevant regulatory process with the EU Commission has been started by the buyer. The new Group identity was officially launched in line with the harmonised Group structure. The brand strategy was also sharpened during the first quarter to clarify and strengthen the Group brand portfolio and to update the brand offering. HKScan became a member of the Round Table on Responsible Soy Association (RTRS) and is now committed to an ethically responsible soy supply chain. In April the Group announced that HK Rypsiporsas® rapeseed pork will be completely GMO-free as of September.”
Original source: HKScan
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