Finnish meat firm HKScan has reported widening half-year losses and reiterated its warning that annual EBIT will fall this year.
In the six months to the end of June, net losses amounted to EUR5.1m (US$6.3m) compared to a net loss of EUR1.7m last year. EBIT declined to EUR4.9m from EUR8m.
The company said business in Sweden had continue to be "extremely challenging" in the period and the drop in group profits was a result of negative EBIT in the country.
Sales in Sweden dropped 0.3% to EUR513.9m. HKScan recorded an operating loss of EUR9.7m compared to EBIT of EUR4.3m last year.
Group sales, however, climbed 2% to EUR1.25bn.
HKScan said its 2012 outlook is unchanged due to the "weak development of business in Sweden", reiterating its previous warning that group EBIT for 2012 will come out below its 2011 operating profit of EUR39.6m.
HKSCAN GROUP'S INTERIM REPORT 1 JANUARY - 30 JUNE 2012:
Challenging first half of the year - slight recovery during the second quarter
- Group net sales in January-June 2012 totalled EUR 1 250.4 million (EUR 1 223.3 m for the corresponding period in 2011), growing by 2 per cent. After eliminating changes in currency rates, growth stood at 3 per cent.- Group EBIT came to EUR 4.9 million (EUR 8.0 m).
- EBIT decreased compared to the corresponding period in 2011 due to the negative EBIT of the business in Sweden. The focus for the development programme is to improve profitability in the market area of Sweden.
- Business in the market areas of Finland, the Baltics and Poland performed as planned and their EBIT improved.
- The production break caused by the fire in early June at the Vinderup plant in Denmark interrupted positive business operations in April-May by disturbing and delaying the manufacturing of fresh products being developed according to company strategy.
- Net financial expenses stood at EUR -16.0 million (EUR -12.9 m). Higher loan margins were the main reason for the increase.
- According to its strategy, defined in the summer, the Group will particularly concentrate on delivering profitable performance.
- HKScan keeps unchanged the 2012 outlook given in the January-March interim report: due to the weak development of business in Sweden, there is a risk that the Group's EBIT for 2012 will come out below the level of 2011.
GROUP OVERVIEW: APRIL–JUNE 2012
The HKScan Group's business in the second quarter of 2012 developed mostly as planned despite the rainy beginning of the summer. Finland, the Baltics and Poland all improved their EBIT levels. Business in Sweden continued to be extremely challenging in the second quarter and the EBIT remained still clearly in the red.
A fire on 6 June caused a production break, interrupting poultry slaughtering, as well as production, packing and delivery operations at the Vinderup plant in Denmark. Some lines of the production plant could be restarted to a certain degree soon after the fire by temporarily reorganising the operations and by increasing the slaughtering and production volumes at the Skovsgaard plant within its capacity.
According to plans, full production will be restarted, phase by phase, in December at the latest. The insurance policies are estimated to cover both the material damage and that caused by the interruption of the business.
The scarcity of meat raw materials was troubling in all the Group's market areas during April-June. There is a lack of Swedish meat raw material in particular. Production volumes have continued to fall, procurement prices have increased and Group slaughtering volumes have remained low. The further strengthened Swedish krona has increased meat imports and made it difficult to increase the price of products based on Swedish meat raw materials.
At the beginning of April, the Group reported that it will launch an extensive development programme which will be implemented until the end of 2013. The aim is to achieve annual performance improvements exceeding EUR 20 million and a considerable reduction in invested capital. During the second quarter, a management model and an organisation have been created for the development programme, and its progress is being closely monitored. The programme covers the Group's operations in Finland, the Baltics, Sweden and Denmark.
HKScan has redefined its strategy. According to the new strategy, the Group will concentrate in particular on improving profitability by building up brand value and demand, by improving operational efficiency, by actively managing the dynamics of future business and by developing its capital structure and Group reporting.
As part of the strategy, HKScan will reform the Group's management and operating model in order to harmonise, simplify and enhance internal processes and cultures. The businesses involved in the new operating model are responsible for sales and marketing, product development, in addition to the order-supply chain and production. They are: 1. Consumer (Finland, the Baltics, Sweden and Denmark),
2. Away from Home (AFH) Business, and 3. Sokolów and other joint ventures. The other Group functions supporting the businesses are Technology and Operations Development, HR, Legal & Administration, Finance, Treasury, Communications as well as Strategy and Strategic Projects.
In addition, the company will also reform the Group reporting to better support the businesses, the new operating model, the organisation and Group management. HKScan will introduce the operating model gradually by the end of 2013. The work for building up Group functions has already begun. The reform will not affect the Group's external reporting. The reform of the operating model and organisation has been described further in a stock exchange release published on 10 August 2012.
A plan concerning restructuring of the business in Sweden was published on 10 August 2012. The plan aims to achieve an annual performance improvement of approximately EUR 10 million. The changes are planned to be implemented by the middle of 2013. The plan is discussed in more detail under "Market area Sweden" later in this report.
