HKScan Sees Sales Grow

FINLAND - Finnish pig and poultry meat processor HK Scan's group net sales grew in the third quarter of the year by 16.2 per cent and were €618.1 million compared to €532.4 million last year.
calendar icon 7 November 2011
clock icon 8 minute read

EBIT came in at € 14.0 million compared to €18.8 million a year ago.

In Finland, profitability improved clearly compared with the early part of the year. EBIT stood at €4.8 million compared to €6.8 million a year ago.

In Sweden, EBIT was €5.4 million compared to € 6.6 million. EBIT from operations was better than last year, when non-recurring items for the comparison year are taken into account.

In Denmark, profitability fell short of the targets and EBIT was in the negation at -€1.3 million. In Denmark, performance in the period was eroded by the business development programme.

In the Baltics, EBIT rose substantially to €3.4 million compared to €2.5 million.

In Poland, business developed according to plan and EBIT came in at €3.4 million compared to € 4.3 million last year.

CEO Matti Perkonoja said: “HKScan’s third quarter in 2011 went as planned and the Group's profitability strengthened after a difficult start to the year.

"In spite of the uncertainties relating to trends in the global economy in the near future, consumer demand for the company's products has remained stable.

"The wide range of the Group’s product offering balances sales volumes in economic downturns too. By far the most challenging part of HKScan’s operations is control of the pork-based business, especially in the Group's main market areas.

"Hardest hit during the past year by the challenges of overproduction in Europe and low price levels in international export markets has been production within the sphere of international competition.

"Recovery of the pork export market in the Far East during the autumn and the positive development in profitability it achieved will be reflected in HKScan’s performance in the next few months.

"In Finland, the ongoing transfer of pork production to more controlled and longer-term contract production will facilitate significantly management of the business, control of sales volumes and streamlining of operations.

"The difficulty in forecasting price trends of the main cost items in meat production, feed and energy, will continue.

"The basis in the development of the production chains and products of HKScan's business units is formed by the expectations of the various consumer groups: overall quality and taste of products, product safety, transparency of operations and welfare of production animals and the environment.

"Consumer trends becoming stronger: local aspects, organic aspects and deliciousness, are based on the aforementioned expectations. The HKScan Group develops its overall service and product offering on the basis of these consumer expectations.”

In Finland, net sales grew by 11.2 per cent and in the third quarter totalled € 199.0 million (€ 179.0 million). Of growth in net sales, approximately half was due to Järvi-Suomen Portti Oy's merger with the Group at the beginning of the year. EBIT in the quarter came in at € 4.8 million, (€ 6.8 million).

The profitability of the business continued to be modest due to the protracted challenges in pork production and low sales prices in the domestic and export markets. Production management has been streamlined, prices have been increased, and the export markets are gradually recovering.

Consumer demand for HK Rapeseed Pork, launched in February, has remained excellent. With the success of rapeseed pork, consumption of Finnish pork has risen to a new level. The total consumption of pork in Finland has grown by about five per cent during the current year (TNS Gallup, Meat Barometer).

Commercial success in Finland during the summer was good, and HK Ruokatalo's share of the total market grew.

HK Ruokatalo's productivity programme has proceeded according to plan. During the past quarter, pork cutting activities have been concentrated in the Forssa production plant.

In the autumn, Järvi-Suomen Portti Oy strengthened its development programme for the near future in which the efficiency of the production plant located in Tikkala in the town of Mikkeli will be improved, functions will be reorganized and overlaps between the functions of HKScan Finland and Järvi-Suomen Portti will be dismantled.

The most significant operational change in the near future will be the transfer of the logistics operations in Mikkeli to HK Ruokatalo’s plant in Vantaa early in 2012. The annual overall benefit of the efficiency programme is estimated to be approximately € 2 million.

In Sweden, net sales grew by one percent and in the third quarter totalled € 254.7 million (€ 249.8 million) and EBIT € 5.4 million (€ 6.6 million). Net sales in krona were at the same level as the previous year. EBIT from operations was better than last year, when non-recurring items for the comparison year in the net amount of +€3.3 million are taken into account.

Growth of the grocery business in Sweden has come to standstill and stores have strongly increased the share of own-brands in their ranges. In spite of this, Scan AB's barbecue season was successful.

In November, Scan AB will launch in Sweden a product range based on imported meat raw material under the Hansa brand. The aim is to provide an alternative to stores’ own brands. Meat for Hansa can be imported, taking into account the HKScan Group's meat balance sheet, price level and exchange rates, from other areas within the Group too.

Only Swedish meat will be sold under the Scan brand, in the future too. In developing the brand, there has been strong focus recently on responsibility and local aspects which are based on Swedish primary production.

The competitiveness of production based on Swedish meat raw material is still poor. Scarcity in the supply of Swedish beef and pork continues to place pressure on the purchase prices of local raw material. On the other hand, the strong krona has contributed to an increase in the volumes of imported raw material. Imported beef accounts for more than 50 per cent of total consumption. With respect to the primary production of pork, production volumes are continuing to fall.

The implementation of the beef cutting line investment in Linköping, which was part of Scan’s efficiency programme, was completed in the third quarter.

In Denmark, Rose Poultry’s net sales in the third quarter amounted to € 60.4 million. EBIT was -€1.3 million. Rose Poultry has in the period under review implemented a business development programme which has given rise to additional costs in the company's operations.

With respect to product sales prices, the price of chicken leg quarters, especially, has been poor both in the EU market and in the Middle East, which is important for Rose Poultry. Low export prices have weakened Rose Poultry’s overall profitability. In Denmark, as in HKScan’s other market areas, broiler feed and consequently producer prices rose in the early part of the year.

The measures to centralize and increase the efficiency of Rose Poultry’s operations have continued at the plants in Vinderup and Skovsgaard. Discontinuation of poultry slaughtering at the Padborg facility reduced the number of employees in the company by 50.

In line with its strategy, Rose Poultry is developing a fresh product range in its home market in Denmark and, in particular, in Sweden. During the period under review, the company launched in Denmark, among other products, fresh minced broiler meat. In the Swedish market, Rose Poultry has made a significant opening with exports of fresh corn-fed broilers. Organic broiler, which is part of Rose Poultry’s product range has been received positively in the market.

In the Baltics, net sales grew by 7.1 per cent and in the third quarter was € 44.9 million (€ 42.3 million) and EBIT to € 3.4 million (€ 2.5 million). The merger of AS Jelgavas Galas Kombinats with the Group on 1 July 2010 has contributed to the cumulative growth in net sales.

Sales of Rakvere’s and especially of Tallegg’s summer season products succeeded well. In the Baltics, consumption of cheaper poultry products is growing strongly, while consumption of higher-priced pork - and beef - has fallen somewhat.

In order to be able to meet growing demand, the poultry company Tallegg has developed its products and modernized its production processes and lines.

In the Baltics, recovery of the economy and escalating inflation has increased the prices of raw materials and other inputs. Pressure to raise personnel costs too continues. Despite these challenges, business operations in the Baltics have adjusted to the prevailing market situation well.

In Poland, Sokolów’s net sales in the third quarter were € 77.5 million, at the level of the comparison period (€ 76.9 million) and EBIT € 3.4 million (€ 4.3 million).

Deterioration of the profitability of pork in Poland has continued because of the growth in production costs. Transferring rises in costs to consumers poses a challenge. The worst hit by the situation have been small and medium-sized companies specializing in slaughter and meat cutting. Larger companies have coped with the situation better and Sokolów’s sales improved as planned, both in modern and in traditional retail chains.

Sokolów's two largest investments and development projects were the cold cuts plant Sokolów Podlaski, which will increase the annual volume of cold cuts production to 36 million kilos, and the beef slaughtering line in Tarnów.

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