HKScan pre-tax profits rise as Q3 sales drop

HKScan’s net sales dropped from €474.9m in Q3 2015 to €465.9m in the third quarter of 2016 (to 30 September 2016). Driving the decline was the lowly financial performance of HKScan’s biggest market, Sweden. Here, a rise in beef prices, mixed with higher raw material costs and a decline in volume sales created headwinds.

Pre-tax profit increased from €7.3m last year to €8.1m in Q3 2016. XTB analyst David Cheetham said this would be “warmly greeted​” by investors, as HKScan posted “strong results​” despite the net sales drop.

“While the results are reasonably strong, CEO Aki Laiho notes in his accompanying comments that the Nordic meat market remains challenging and the performance in Sweden in particular – which represents the firm’s largest market – over the first nine months of the year was disappointing, in a statement that should keep any over exuberance in check.​

“The stock has tested shareholders’ resolve so far this year, with a decline of more than 10%, but despite the negatives in the latest report there are some signs that a corner has been turned and higher prices may lay ahead.​

“While margins remain tight in an industry that is well-known for small mark-ups, the firm has reported a positive earnings per share for the most recent quarter after a challenging first six months of 2016 and investors will hope that this improvement marks a shift in momentum going forward.​”

Sweden ‘a disappointment’​

HKScan said the markets in Sweden​ and Denmark​ grew, while its markets in Finland and the Baltics continued to decline.

“The performance of our biggest market area, Sweden, was a disappointment,​” admitted HKScan deputy CEO Aki Laiho in a press statement on 2 November.

“The result was eroded by the lower net sales, and higher purchase prices of beef raw material, as well as the shortage of it. Due to this, we changed our full-year outlook after the reporting period, and estimate the comparable operating profit to remain at or below the previous year’s level.​”

Sales fall in Denmark​

HKScan’s stark profit warning​ came to light in October, when the business claimed it was not expecting full-year profits for 2016 to eclipse the €9.6m reported last year.

Despite a rise in the consumption of poultry meat across Sweden, coupled with strong demand for private-label meat products, HKScan reported pre-tax profit in Sweden of $5.3m versus €7.2m in Q3 2015. This was compounded by the a loss of €2.1m reported in Denmark, where net sales dropped sharply and tight competition put pressure on national poultry prices, despite overall growth in the Danish retail market.

HKScan’s Laiho also bemoaned the troubles the business has had to grapple with in what was, and still is, a difficult period for the meat processor.

“Throughout the whole year, challenges in animal raw material sourcing have affected our business performance negatively. Low beef raw material availability and rapidly increasing purchase prices were seen also on the other markets. In Sweden, the prices have remained on an exceptionally high level during the third quarter of this year. In Finland, pork supply volumes stabilised as a consequence of our ongoing special actions.​”

These actions include HKScan’s work with regional pork producers to balance pork supplies which, as Laiho said, have stabilised since the disruption caused by Russia’s 2014 meat ban.

HKScan​ will publish its full-year trading figures for this year on 8 February 2017.