Scandi Standard AB (publ)
STO:SCST
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
54.2495
87.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Scandi Standard AB (publ)
You don't have any saved screeners yet
Ladies and gentlemen, welcome to today's Scandi Standard interim report for the first quarter of 2019. My name is Jake, and I'll be today's coordinator. [Operator Instructions] And I would like to hand over to today's host, Leif Bergvall Hansen, to begin. Leif, please go ahead.
Thank you. Good morning, everybody. So -- and welcome. So on the front page I just want you to have a brief look on, to the left, on the table there where you can see that over the last 5 years, we have shown a strong stable annual growth, around 7%, and relatively stable margins. If you go on to Page 3 and go further into Q1, the quarter where we delivered, strong growth in both sales and earnings, exceptionally strong growth in revenues of 16%. And there will be a further breakdown on the following page. EBIT is up with SEK 28 million, which is equivalent to 34% in the size of around SEK 10 million, and then there's been change in depreciation that amounts to approximately SEK 9 million. EPS is up 72% in this quarter. And there's a dividend proposal of SEK 2 compared to SEK 1.80 per share of last year. And just to remind you that the IFRS 16 changes have been implemented fully retrospectively. Going on to Page 4, you see the breakdown of this exceptionally strong top line growth in the quarter. The important part is really that we delivered 9% underlying revenue growth coming from strong performance within the Chilled Ready-to-cook segment and also within the Ready-to-eat segment. In addition to those 9%, we saw -- we delivered a contingency order to a European Ready-to-eat client that represents about 2% of additional sales, which can demonstrate our capability of this expanded Farre plant that we just expanded towards the end of last year and then it's also a way to enforce our relationship with this client. It's also -- the top line is also driven by the consolidation of Rokkedahl Food represented by 3 percentage points and then the 3 percentage points of currency. Going on to Page 5, see that the raw material cost increases more than offset by price increases is positive. There's some volume growth representing SEK 26 million and then that volume growth is achieved across the group. The price increases and mix effect have already more than offset the significant raw material increases that we saw during the second half of last year. However, in Ireland, it was still lagging the implementation of these price increases.We have also experienced an increase in OpEx. We decided to spend about SEK 10 million more in marketing, so OpEx is dragging down with about SEK 14 million. And in addition, the reduced depreciation have an impact of SEK 9 million coming from this alignment of economic life of our asset base that we carried out towards the end of last year. Going on to Page 6. We see earnings improvement in all countries except Ireland. Sweden, positive development after a challenging period. Denmark earnings driven very much by its very strong top line growth. Norway, best-in-class margins continued. And in Ireland, a soft performance due to temporary open exposure to the raw material price increases. And Finland is another step in the right direction. Going on to Page 7. Giving you a breakdown of product categories and sales channels. We have seen a very strong growth within the Chilled Ready-to-cook category and within Ready-to-eat. The Chilled Ready-to-cook segment delivered a very strong growth across the group, altogether coming in, and we saw an underlying growth within the Ready-to-eat category of 25%, so the difference to the 36% you see in the chart to the right is this contingency order I just talked about. You see a decline in the less profitable Frozen and Export segments, and we have seen a impressive growth in both Retail and in Food Service. On Page 8, we have made the breakdown of this Ready-to-eat segment that is increasing in importance for the group. And you can see that in 2005, it represented about 9% of revenue, and it's now approaching 20%. Going on to Sweden on Page 9. We see a positive development after a challenging period. We delivered a 7% increase in net sales in a retail market that grew with a bit less than that. We lifted EBIT with 35%. And that has been the significant price increases we have implemented to compensate for the higher raw material costs. We've seen strong growth in the Ready-to-eat segment, could be sausages, meatballs and similar products. And we have increased marketing investment to the size of about SEK 4 million to SEK 5 million in this quarter. Margin have been affected positively by the reduction in depreciation. And we do expect some incremental improvements in the second half of the year. Denmark on Page 10, exceptionally strong growth, with a 35% revenue growth in a market that's just growing, the Chilled market in Denmark, retail market grew with about 4% in the same period. Very strong underlying growth of 16%. And the other components making the balance up to the 35% is the consolidation of Rokkedahl Foods, this contingency order with the new Ready-to-eat segment and then the 5 percentage point of currency. We improved the underlying profitability, however, this contingency order is margin dilutive. We have seen a continued positive development for the new brand, the Danish Family Farms, and we continue to see relatively low price realization on export markets. We also want to guide on a lower quarter-on-quarter growth in coming quarters compared to what we have achieved in Q1. Going on to Page 11 for Norway. Another quarter with strong performance. We had 11% revenue growth, 7% in local currency, which is more or less in line with market, but it is extraordinarily strong quarterly growth. We have seen very solid margins achieved through improved product mix and also increased efficiency within production. It's our most profitable geographical segment and mainly the result of very successful investment, a lot of best practice transfer and we have, over the last few years, really strengthened our product offering in Norway quite significantly. Going on to Ireland on Page 12. 7% revenue growth, 2% in local currency, which is more or less in line with market. There's a delay in implementing the price increases we have talked about, the price increases that are relevant to mitigate the increased raw materials costs. We just want to remind you of this rather significant investment that we have planned for 2019, and those are to improve cost efficiency, animal welfare and food safety, and there's also some debottlenecking in certain part of the operation that will come out of that. Finland on Page 13. We have seen a quarter with further improvements. 6% revenue growth, 2% in local, which is more or less in line with market. We saw an EBITDA margin of around 6% coming out of a improved product mix and higher sales of branded or value-added products. There's a strong focus on further improvements both in terms of mix and innovations, on manufacturing yields and also on our cost base. With that, I'd like to hand over to Anders for the income statement.
Thank you, Leif. May we just stop a bit on this IFRS 16 implementation, where we have used the full retrospective method, which means that all the prior year data has been restated, i.e., all the numbers on this income statement are comparable. You see the effect from IFRS 16 was SEK 22 million on EBITDA, SEK 2 million on EBIT and SEK 2 million lower net income, and it's the same effect in both '18 and '19. For more details on IFRS 16, you're welcome to look up our Note 31 in our latest annual report for 2018. Looking at depreciation, as Leif already mentioned, that is down by SEK 9 million due to the alignment of asset lifetime we did last year. So all in all, summarizing the income statement, EBIT is up by 34% compared to last year, and net income is up by 71%. Moving on to Page 15, statement of our financial position, where you can see that return on capital employed remains largely flat whereas return on equity improves compared to quarter 1 last year. Equity-to-asset ratio improves slightly, and again, a few more IFRS 16 effects were capital employed has increased by SEK 421 million due to IFRS 16, and our net debt has increased by SEK 461 million. Moving on then to Page 16, working capital, where we see a smaller working capital increase in quarter 1 this year compared to where we landed the year. That is driven by this strong revenue growth in the quarter, but we are up from an exceptionally low working capital at year-end '18. And this 6.2% working capital as percentage of sales is still low, historically, and also when you compare it to the same quarter last year when it was 7.8%. Moving on to the cash flow where we report an improved OCF primarily driven by higher EBITDA and lower CapEx. And that CapEx of SEK 72 million in the quarter represents just below 20% of our full year estimate for 2019, which is the SEK 380 million we have talked about before. We had a bit of higher paid financial expenses in the quarter, and that is driven by expenses for the extension of loan facilities that we have paid in the quarter. All in all, net debt is increasing by SEK 42 million and the big chunk of that is coming from currency. Flipping page to Page 18, cash flow guidance. This is the same as the previous quarters, so I won't go into details on all of them. But a few things worth highlighting, the first one is the dividend, which we proposed to be SEK 2 per share, up from SEK 1.80 last year and which we believe allows a reasonable balance between investing in growth opportunities and direct yield to our shareholders. Also reminding everyone about the continued liabilities relating to the Manor Farm acquisition where the first of 3 earnout tranches is payable now later in Q2, and that first tranche is estimated to SEK 125 million. Then flipping page, where we talk about our sustainability work labeled under The Scandi Way, and in this quarterly report, you can read more about our antibiotics vision and how we work towards our 0% antibiotics vision. And in the Nordics, we are almost there already where we have been below 0.5% the last couple of years. And with that, over to you, Leif.
Thank you. And just summarizing this Q1, very strong growth in the quarter both in revenue and also in earnings. You see market being driven by secular trends supporting poultry products both in terms of tasty convenience, also their very attractive nutritional and health profile compared to alternatives, a very solid sustainability profile that are increasing in importance. And we also see convenient innovative products and also thanks to a lot of brand developments across the group, we do see a positive outlook going forward. And we do continue to follow structural opportunities very closely. And as I'm sure you have picked up, the dividend proposal is SEK 2 per share. With that, we would like to take any kind of questions. Thank you.
[Operator Instructions] The first question today comes from Mikael Löfdahl from Carnegie.
Yes. Few questions from me. First, in Sweden, could you -- is it possible to quantify 2 things? First of all, the increased marketing investments. Could you quantify them in krona here, what it did year-on-year, quarter-on-quarter? And whether or not these are sort of recurring higher levels of marketing spend? And secondly on Sweden also, what do you mean by incremental improvements expected in the second half of 2019? How should we look at that? Is it sequential, year-on-year? Or -- and what will it come from?
We have seen -- marketing investment, we have increased versus the same quarter last year with about SEK 4 million to SEK 5 million in this quarter, and that's to facilitate further growth opportunities. And it also a reflection that we over the last 1.5 year where we have had some issues that we have coped with in the Swedish market we have got back on our marketing investment. And with the Kronfågel as the absolutely strongest [ egg ] brand in the market. We want to cement that position and further develop it, and that's why we decided to, let's say, spend a bit more than what we have done in the 1.5 year prior, so about SEK 4.5 million up versus same quarter last year. In terms of the other part of the question about the improvements going forward, we do anticipate further improvements in Sweden to take place. We do particularly see them to pick -- be picking up in the second half of the year. So that being said, again, Q2 that are similar, but we see an uplift in the second half of the year.
Okay. And then regarding the marketing, is it only in Sweden or would have got them on a group level?
Well, we increased the total marketing investment for the group in this quarter with SEK 10 million versus the same quarter last year. And nearly half of that were in Sweden and then the other components were in Denmark and in Norway.
Okay. And you are expected to remain at these sort of levels going forward on a quarterly basis in the other countries? Or...
Yes.
Moving to Norway, you didn't predict or specify in your sort of adjusted underlying growth numbers for any extraordinary volumes in Norway, but you say that it was an extraordinarily strong quarter. Maybe we shouldn't extrapolate the organic growth in Norway going forward, but is it possible to say something. What made it so exceptionally strong, the growth?
Well, we had a couple of very strong campaigns coming through in this quarter. And also if you sort of look historically in Norway, this is a very exceptionally high growth in this quarter. So we just wanted -- we just want to, let's say, let you be aware that we don't expect that high growth levels there going forward. So yes.
But it wasn't any extra deliveries on any contracts or something like that?
No, there were some additional campaign activity that uplifted revenue and were part of why we landed at 7% top line.
Okay. And in Ireland, could you say something about the price increases or the delayed price increases how that process is progressing? You previously said that there would be a pressure on margins in the first half and then you would recover that hopefully with price increases. Where are you in that?
We are working very, very hard on it. And we do -- we are fully committed to get these well justified raw material increases compensated. We are a few months delayed compared to what we have previously anticipated. So you're right in saying that there will be a lack of this compensation in the first half of the year. We do anticipate to close the gap later on in the year.
But is your guidance unchanged here or -- because already in connection with the Q4 report, you say that there was delayed effects from price increases. So is that reiterated, that from the second half we should have better margins in Ireland because that was...
We do -- no, no. We do anticipate that we will have the compensation. And we are working very hard in getting it. We would have anticipated to get some of the compensation in Q2, but it's probably more to -- relevant to look at it it to be implemented or with effect from the second half of the year.
Okay, good. Just final from me also on Sweden. Just to be clear, there were no -- I mean the clearance of the inventory was completed in Q4. So there was nothing that was sort of lifted over and affected also Q1 in terms of margins in Sweden?
Very minor, that's not a driving force.
Okay. So you say that the year-on-year margin, the increase on an EBITDA level is more a matter of well, we have partly the IFRS effect maybe on that, but...
Well, there is the increased marketing investment yes, and increased marketing investment is also a factor.
[Operator Instructions] The next question comes from Daniel Schmidt from Danske Bank.
I missed the beginning of the call, so I assume that you touched upon it, but I just want to ask you then for me at least for some clarification for me. The exceptional strong sort of top line growth, you're saying that it's partly due to large contingency order within Ready-to-eat. Could you say how big that order was and what it exactly relates to? And is there any chance that this is going to be a repeat order or is it one-offs? Or could you shed some more light on that?
Absolutely. If you missed the Page 4, I think that's probably -- it's probably the best way of getting some breakdown of [ OpEx factor there ]. So of the 16% of growth we achieved in this quarter, which is exceptionally high as you know, about 2% of that relates to this contingency order to one of our European Ready-to-eat clients. And it is something that we did in Q1 that we will not do in Q2.
And is it sort of usually the case that profitability on those orders are a bit on the low side? Or what would you say?
Yes. Absolutely. No, they are on the low side and for a number of reasons. One thing is that it's something that comes in, you get basically no notice. That's how it is a lot of the time, and we can ship and so forth. But we have also -- it is also been a way for us to, let's say, run this additional investment -- additional capacity that we build in our Farre plant to see the full impact of that. So that has been margin dilutive, this contingency order.
Is that -- is the same true also when it comes to Rokkedahl Food when it comes to margin dilution?
It is similar.
[Operator Instructions] The next question comes from Florent Thy-Tine from Midcap Fund.
Just 2 question on my side. The first one in Finland, can you give us some colors on the lower growth we see in the Q1? And what is your expectation for the Q2 and the H2? And my second question on raw material, can you give us some color on the impact to expect for the next quarter?
Yes. In terms of the revenue growth in Finland, we do anticipate similar growth rates as what you see here in the coming quarters. So more growing in line with market would be our anticipation, but then working on improving profitability gradually. So in terms of raw material, we have implemented quite successfully the raw material inflation in our -- basically in 4 out of our 5 markets, in Sweden and Denmark and Finland and in Norway. And we are still struggling or working hard on getting it through in Ireland. One also have to be aware that historically in the Nordic markets, we have developed models where we are adjusting prices quite openly when raw material is going up and it's going down. It is a system that we are -- that we, things are working quite well. But it is a system that hasn't been practiced in Ireland to the same degree and that is also why we are working hard on getting the same or similar model introduced into Ireland. So that will have a bit of an impact on the profitability coming into Q2. So we do anticipate sort of incremental improvements during the year, but particular in the second half of the year. So relatively, relatively in absolute terms, relatively similar profit coming into Q2. But then with a lower top line growth, significantly lower top line growth compared to what we have, this exceptionally high one we had in Q1 impacting margins.
[Operator Instructions] We have no further questions, so I'll hand it back over to you Leif.
All right. Thank you, everybody. Thank you, and have a great day. Bye-bye.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.