HKScan’s Q2 comparable EBIT positive
August 3, 2020 - During the review period, the company was successfully implementing its strategy despite the impact of the Covid-19 pandemic on our business. Business growth and the positive development of profitability continued during the review period. In the second quarter, we achieved a positive comparable EBIT of EUR 0.6 million. The improvement from the comparison period was over EUR 3 million. On an annual basis, rolling 12 months, comparable EBIT rose to nearly EUR 7 million. The Group’s April-June net sales were at the comparison period level, but net sales increased in comparable figures. Cash flow from operating activities strengthened by EUR 8.4 million from the comparison period.
Turnaround programme, which is at the core of our strategy, proceeded with a comprehensive change of the company, as planned. The cumulative improvement of the quarterly comparable EBIT, achieved during the programme, was over EUR 53 million. The company’s cash flow from operating activities has improved cumulatively by over EUR 92 million during the same period. Net gearing is at a level that allows a controlled implementation of the Turnaround programme.
The coronavirus pandemic, however, affected our performance in all our market areas during the review period. The pandemic weakened net sales, in addition to which we estimate that the immediate impact of the pandemic on our comparable EBIT was some two million euros in April-June. In addition, the indirect effects of the pandemic weakened our EBIT through the market price changes. However, we have been able to keep the supply chain operations on a good level with no disruptions in the exceptional situation. I want to thank all our employees, our farmers and other partners for their good work in the exceptional circumstances. The appreciation of domestic food production has clearly increased in all our home markets.
In retail, consumer demand was strong in the second quarter while the demand in the food service channel weakened in all our home markets. The strongest impact was seen in Finland but was clear also in our other home markets. With the pandemic, consumer demand was as a whole more focused on products with less added value. This had a clear negative impact on the company's performance. Demand in the food service channel began gradually to strengthen in June but is still clearly below the pre-pandemic level.
Of our business units, Denmark, Sweden and Finland improved their comparable EBIT from the comparison period. During the first half of the year, especially Denmark and Sweden have shown strong development. The development in Sweden is significant for the Group as it represents a considerable part of the Group’s business. In the Baltics, comparable EBIT weakened due to the indirect effects of the pandemic. In Europe, the price level of pork fell and decreased the value of biological assets related to our Baltic business. In the Baltics, we have otherwise made strong progress with successful commercial and operational measures. With these measures, other indirect and also direct effects caused by the pandemic have been compensated.
In Finland, the profit improvement was mainly due to the continued positive performance in the poultry business although the pace of profit improvement slowed down. The strengthened performance creates a financially stable basis for the execution of the investment, decided in early 2020, to improve the efficiency, reliability and raw material yield of the Rauma production unit’s slaughter process. Due to the impact of the pandemic, the schedule of equipment deliveries will be somewhat postponed from the original. Implementation of the investment will be started as planned in late 2020 and will largely continue in early 2021.
The Group’s positive profit improvement was based on commercial and operational improvements and on cost control in all our business units.
The pandemic continued to affect our exports to China. However, our export volume to China clearly increased from the comparison period and were almost at the target level. We directed sales to other export markets. As a result of the pandemic, volatility has increased in the international meat market and is expected to continue during the rest of the year. In Europe, the market price level of meat has decreased since the beginning of the year due to the increase in stocks, causing indirect pressure on the price levels in our home markets. The level of meat prices in Europe is significantly dependent on the development of Asian export markets. Changes in Asia are rapidly reflected in Europe and our home markets.
HKScan’s continued profit improvement gives the company a solid foundation to continue implementation of the strategy. The company’s strategic target is to grow into a versatile food company. The coronavirus pandemic has changed consumer behaviour and thus our operations. As the situation normalises, it is quite unlikely that we will fully return to the pre-pandemic operating environment. In the big picture, there is no need to change the Group’s strategy but other aspects raised by the pandemic will be assessed and changes implemented. A clear change is seen in the online food sales that multiplied compared to the pre-pandemic time. As the growth in online sales continues and strengthens, it will clearly change the way to operate in the market.
The pandemic has cleared HKScan’s role as a major food company in its home markets. We do our utmost to secure the company’s operations under the continuing exceptional situation. As a major player, we recognise our responsible role which includes healthy and safe food, food security and development of our operations to meet consumer needs.