HKScan's Interim Report 1 January - 30 September 2023

• HKScan's net sales from continuing operations decreased by 1.7 per cent to EUR 459.9 (467.9) million.
• The negative effect of the exchange rate change of the Swedish krona on net sales was EUR 18.4 million. At comparable exchange rates, net sales from continuing operations grew by 2.2 per cent. 
• Net sales were boosted by higher sales prices than in the comparison period. Sales volume increased in the retail channel, remained at the comparison period level in the food service channel, and decreased in the export and industrial channels, leading to a decrease in total volumes versus the comparison period.
• The Group's EBIT from continuing operations totalled EUR 13.3 (6.3) million.
• The Group's comparable EBIT from continuing operations was EUR 12.8 (7.3) million. Production costs remained at the comparison period level. Personnel and external services costs increased on the comparison period, but energy prices were significantly lower. Consumer demand remained at the level of the previous quarter. Improved sales mix, increased production efficiency and cost savings improved profitability. 
• The comparable EBIT of the Business Unit Finland was EUR 7.6 (1.9) million.
• The comparable EBIT of the Business Unit Sweden was EUR 5.0 (7.2) million.
• The comparable EBIT of the Business Unit Denmark was EUR 1.1 (0.2) million.
• Cash flow from operating activities was EUR 3.5 (-6.2) million.

• The divestment of the Baltic business was closed and HKScan's ownership in the Baltics ended on 31 August 2023.

• HKScan's net sales from continuing operations increased by 5.4 per cent to EUR 1,391.2 (1,320.1) million. In the first half of 2023, sales prices were significantly higher than in the comparison period. Towards the end of the review period, the impact of the higher sales prices diminished due to the sales price increases made in 2022.
• The Group's EBIT from continuing operations totalled EUR 21.7 (5.0) million.
• The Group's comparable EBIT from continuing operations was EUR 19.3 (6.6) million. Cost levels remained high in January-September. The cost increase was covered by the sales price increases implemented during 2022. Energy costs were lower than in the comparison period, particularly in July-September. Our commercial measures and the slight improvement in consumer demand in the spring in the company's home markets reduced the need for meat exports versus the comparison period, which improved profitability at the end of the review period. Profitability improved in the review period as a result of increased production efficiency and cost savings.
• The comparable EBIT of the Business Unit Finland was EUR 12.5 (2.1) million.
• The comparable EBIT of the Business Unit Sweden was EUR 8.9 (12.3) million.
• The comparable EBIT of the Business Unit Denmark was EUR 3.4 (0.9) million.
• Cash flow from operating activities was EUR 17.6 (-18.2) million.

• Interest-bearing net debt was EUR 327.8 (362.5) million and net gearing 124.8 (112.6) per cent.

The figures in parentheses refer to the same period in the previous year, unless otherwise mentioned. The figures are unaudited.

As of 1 January 2023, HKScan has changed its accounting policy for spare parts inventory retrospectively. This change has an impact on the inventory value, equity and deferred tax liabilities on the balance sheet and key figures (Return on capital employed and Net gearing). Quarterly and full-year financial information for 2022 has been restated accordingly. Additional information about the impact is disclosed in the accounting policies.

Outlook for 2023

HKScan's guidance for 2023 remains unchanged.

In 2023, HKScan expects the Group's comparable EBIT from continuing operations to improve compared to 2022. The full-year performance will be significantly affected by inflation and the development of consumer purchasing power in the company's home markets. On the other hand, in the beginning of 2023, energy and logistics costs were on a more moderate level than in the peak of 2022.

KEY FIGURES, NET SALES, CONTINUING OPERATIONS

(EUR million) 7-9/2023 7-9/2022 1-9/2023 1-9/2022 2022
Net sales 459.9 467.9 1 391.2 1 320.1 1 833.8
    Finland 227.9 221.8 677.2 617.9 868.3
    Sweden 174.5 186.9 536.1 536.3 745.1
    Denmark 57.5 59.2 178.0 166.0 220.4

KEY FIGURES, EBIT, CONTINUING OPERATIONS

(EUR million) 7-9/2023 7-9/2022 1-9/2023 1-9/2022 2022
EBIT, Continuing operations 13.3 6.3 21.7 5.0 10.1
 - % of net sales 2.9 1.3 1.6 0.4 0.5
Comparable EBIT, continuing 12.8 7.3 19.3 6.6 9.7
    - % of net sales 2.8 1.6 1.4 0.5 0.5
    Comparable EBIT, Finland 7.6 1.9 12.5 2.1 3.4
    - % of net sales 3.3 0.8 1.9 0.3 0.4
    Comparable EBIT, Sweden 5.0 7.2 8.9 12.3 16.6
    - % of net sales 2.9 3.9 1.7 2.3 2.2
    Comparable EBIT, Denmark 1.1 0.2 3.4 0.9 1.4
    - % of net sales 2.0 0.3 1.9 0.6 0.6

KEY FIGURES, OTHER

(EUR million) 7-9/2 7-9/2 1-9/20 1-9/2022 2022
023 022 23
EBITDA, continuing operations 25.2 18.3 57.1 41.0 55.8
Profit before taxes, continuing 6.1 4.4 1.3 0.9 -0.9
operations
 - % of net sales 1.3 0.9 0.1 0.1 0.0
Profit for the period, continuing 4.8 2.7 -2.1 -2.2 -4.9
operations
 - % of net sales 1.0 0.6 -0.2 -0.2 -0.3
EPS, EUR, continuing operations 0.04 0.02 -0.06 -0.05 -0.11
Comparable EPS, EUR, continuing 0.03 0.03 -0.08 -0.03 -0.11
operations
Cash flow from operating activities, 3.5 -6.2 17.6 -18.2 18.9
incl. discontinued operations
Cash flow after investing activities, 34.9 -12.1 33.1 -35.5 -21.9
incl. discontinued operations
Return on capital employed (ROCE) before 0.0 -0.5 -6.4
taxes, %, incl. discontinued operations
Interest-bearing net debt 327.8 362.5 347.2
Net gearing % 124.8 112.6 121.6

HKScan's CEO Juha Ruohola

In the third quarter, HKScan's net sales from continuing operations decreased by 1.7 per cent to EUR 459.9 (467.9) million. The Group's EBIT from continuing operations in July-September totalled EUR 13.3 (6.3) million and comparable EBIT was EUR 12.8 (7.3) million. The comparable EBIT improved particularly in Finland and Denmark but was below the comparison period in Sweden. 

In January-September, HKScan's net sales from continuing operations increased by 5.4 per cent to EUR 1,391.2 (1,320.1) million as a result of the sales price increases in 2022. The Group's EBIT from continuing operations clearly improved from the comparison period and amounted to EUR 21.7 (5.0) million. The comparable EBIT also improved and stood at EUR 19.3 (6.6) million. 

The inflation trend continued in January-September, although energy prices have fallen year-on-year. The sharp rise in the cost of raw materials, services and other inputs has been ongoing for almost two years. The rise in costs was also influenced by the spring 2023 wage settlements in all of HKScan's home markets. Market interest rates continued to rise. This has brought additional costs not only to the entire value chain but also to consumers. Despite the improvement in consumer demand, the situation has continued to have a negative impact on the consumer demand and sales mix for HKScan's products particularly in Sweden.

HKScan's measures to improve cost efficiency and save costs have continued throughout the year. The result of the measures taken can be seen in the improved third quarter EBIT. I am pleased that the results of our determined efforts are starting to show. We have done this work together with our partners, including committed contract farmers. Also in Finland, the investments made in commercial activities during the year have paid off. We expect annual cost savings from our previously reported investments and other development measures to total approximately EUR 12.6 million when completed during 2023 and 2024.

Although the EBIT has moved to the right direction, we must continue our efforts to improve profitability, as it is not satisfactory. We will continue to ensure that our profit development reaches our target. The focus is on tight cost control, increasing production efficiency, optimising the product portfolio in response to the changing consumer demand and commercial activities.  

To increase financial flexibility, HKScan constantly assesses the position of each business within the Group. An important step in improving HKScan's profitability and strengthening its balance sheet was the completion of the divestment process of the Baltic business in August 2023, when HKScan sold its Baltic business to the Estonian AS Maag Grupp. The proceeds of the sale were used to repay the company's loans.

Throughout the year, HKScan has advanced its corporate responsibility programme in its businesses. Employee wellbeing and safety are at the core of the programme. We promote the wellbeing of our staff through the Group-wide Better Together programme. It is part of the implementation of HKScan's strategy and corporate responsibility programme in line with the company's values - Inspire, Care, Lead and Deliver. We were awarded the prestigious CSR People Prize 2023 in Denmark for our significant work in promoting diversity and inclusion in the workplace. In Denmark, we have for many years employed people whose employment is challenging for various reasons. This was a great recognition of the work of our Danish team.

In the third quarter, we continued to prepare for the EU's Sustainability Reporting Directive (CSRD), including updating our responsibility materiality analysis and completing the company's climate emissions calculation to comply with the GHG Protocol calculation model.   

In addition, we are in the process of seeking formal SBTi endorsement of our climate targets in late 2023. During the process, we identified the need to update the climate targets and timeline of our current sustainability programme to better align with international climate work guidelines and reporting standards. We will publish the updated targets in early 2024.

Key events in July-September 2023

HKScan sold its Baltic businesses to the Estonian AS Maag Grupp on 31 August 2023, following the approval of AS Maag Grupp by the Estonian competition authorities in July 2023. The Latvian Competition Authority approved the transaction unconditionally in February 2023.

The transaction involved the shares of AS HKScan Estonia, AS HKScan Latvia and UAB HKScan Lietuva, the subsidiaries constituting HKScan's Business Unit Baltics. The debt-free purchase price was EUR 90 million, of which EUR 20 million is conditional on the combined performance of the separately defined meat business subject to the transaction and Maag Grupp's Baltic meat business in the following years. Of the EUR 70 million fixed purchase price, EUR 55 million was paid at the closing of the transaction and the remainder will be paid over the next three years. With the transaction, HKScan's ownership of the Baltic business ended. The divestment of the Baltic business improved HKScan's profitability and strengthened its balance sheet. 

Details of the transaction have been previously disclosed in press releases on 13 December 2022, 24 July 2023 and 31 August 2023: 13.12.2022 (https://www.hkscan.com/en/newsroom/stock-releases/2022/12/inside-information-hkscan-to-sell-c4426037/), 24.7.2023 (https://www.hkscan.com/en/newsroom/stock-releases/2023/07/inside-information-estonian-competition-c4593573/) and 31.8.2023 (https://www.hkscan.com/en/newsroom/press-releases/2023/08/the-divestment-of-hkscans-baltic-c4617195/).      

Turku, 8 November 2023

HKScan Corporation
Board of Directors

Webcast

In connection with its January-September Interim Report 2023, HKScan will hold a webcast in Finnish for analysts, institutional investors and media on 8 November 2023 at 10 am EET. You can follow the Finnish webcast at https://hkscan.videosync.fi/q3-2023 (https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fhkscan.videosync.fi%2Fq3-2023&data=05%7C01%7Cjenni.laine%40hkscan.com%7C3caa4e09dd664203ffb908dbca5311f1%7Cbede92472ee64171b66eada66bc7873b%7C0%7C0%7C638326230358329481%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=s9h8Hva4nN%2FSYAkIdbhRrBm80n6mxgCmbTQoE%2BOupIc%3D&reserved=0), and the recording will be available at www.hkscan.com later during the same day. HKScan's CEO Juha Ruohola and CFO Jyrki Paappa will present the Interim Report.

To arrange investor calls, please contact executive assistant Suvi Oksava, tel. +358 44 554 4231 or
suvi.oksava@hkscan.com.

Financial reports

HKScan Corporation will publish its Financial Statements Bulletin for 2023 on Friday 9 February 2024.

• Interim Report for January-March 2024 on Wednesday 8 May 2024, at about 8:30 EET

• Half-Year Financial Report 2024 on Wednesday 7 August 2024, at about 8:30 EET

• Interim Report for January-September 2024 on Wednesday 6 November 2024, at about 8:30 EET

For further information

Juha Ruohola, CEO, tel. +358 400 647 160
Jyrki Paappa, CFO, tel. +358 50 556 6512
HKScan Media Service Desk tel. +358 10 570 5700 or email communications@hkscan.com