Scandi Standard AB (publ)

STO:SCST

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to today's Scandi Standard Interim Report for the First Quarter of 2021. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Leif Bergvall Hansen to begin. Leif, please go ahead.

[Leif Stig Hansen, CEO, President & MD]

Thank you, and good morning, everybody. Welcome to the Scandi Standard Q1 presentation.The Q1 is the quarter where we delivered a stable development in a challenging environment. We delivered an underlying 3% growth. The retail business showed a resilient performance and a low demand for our food service sector. Adjusted EBIT comes in at SEK 88 million versus SEK 75 million in the same quarter of last year. It's a quarter where we introduced a new segment to support value creation for the group going forward. It's also the quarter where we introduced a new sustainability reporting, and we will be going more into details to that also. It's -- also, I want to be clear that we are going through a full review of Ready-to-cook business, and we're going to talk a bit more about that also [indiscernible].So flipping page, looking at the total business over time, we show a strong and resilient track record, with a net sales CAGR of 7% over the last 5 years, stable EBITDA margins of the -- within the region 7% to 8% and also stable returns on capital employed within the region of 10% to 11%.Looking at the quarter, stable Q1 in terms of margins and returns, given this current environment mainly impacted by COVID-19 and bird flu effects that impact food service and export sales. And then we have got challenges in the Ready-to-cook business in Denmark.Going on to the next page, here, we introduce amongst a long list of sustainability KPIs that we follow and track internally. We have identified these 6 that we think give a good impression on how we are performing within this key area. One we will be looking at is -- and report externally, and Julia will come back to how we actually perform the CO2 emissions. We will be looking at the well-being of our employees, the lost time within injuries. We'll be looking at the use of antibiotics in the value chain. We'll be looking at the feed efficiency, how much feed goes into producing 1 kilo of bird. We'll be looking at the animal welfare that these birds are living under, and we will also be looking at critical factors, and more about that later.Going on to the next page. You see a very strong drivers for the substitution towards chicken. The CO2 impact of chicken is about 10x lower than that of red meat, quite remarkable when you think about it. And chicken has a similarly low climate impact as fish and plant-based, as you can see from this chart. In addition, healthy and affordable, we see a clear untapped potential in our domestic market versus more developed geographies that you can see to the right of this page, consumption level versus other geographies.Talking about the growth potential on the next page. Drive organic growth, this is one of our 3 pillars for value creation, really, to continue to have a very high focus on strong innovations across the group, also taking best practice within this field. That, coupled with improved product efficiency and reduced costs through the entire value chain and then also to look to which degree we can explore this into other companies.Looking on to Page 8, giving a little snapshot at Scandi Standard, we see our 5 domestic markets. Our presence in those markets give us a diversified country-specific risk. We see strong local brands in each of these geographies, Ready-to-cook being the core of the business. We are well represented in all 5 geographies, where we have had a CAGR over the last 5 years of 5%. And looking at Ready-to-eat, there we are represented with significance in Sweden, Norway and in Denmark. And within this area, the CAGR over the last 5 years is more than 30%. Market-leading positions in 3 out of 5 geographies, #2 in one and #3 in the last one.And flipping page, you can see how our strategy execution for growth looks like, focusing on best practice sharing, product development, driving scale advantages through the value chain and also trying to export this to other companies. And to the right, you see the areas in which we are constantly trying to find -- finding the right balance and finding which efforts to be shared across the group.Going on to Page 10, giving you a little bit of background to the new segment reporting, something that has been prepared for a couple of years to make sure that we are prepared, have the historical data in place and so forth. You will be aware that our Ready-to-eat category have grown organically from a bit less than SEK 0.5 billion now to SEK 2 billion. And you can see to the right that if it hadn't been for COVID-19 in 2020, we would have delivered a clear increase in net sales also in 2020.So this category represents a bigger growth potential. It, as you will also see later, reports clearly higher margins. And we believe growth in this area will also have a positive impact on our trading multiple over time. It now represents 19% of group sales, and that development have accentuated the rationale for the separate follow-up of Ready-to-eat and Ready-to-cook. It's largely different skill sets. It's different production processes, different production lines that are making these products. And we believe this is a better way to identify and create the best practice to form a basis to continue to grow and to improve margins also.We will be having 2 reportable segments. It reflects how we manage and monitor the business. We will have -- we have restated the financial information that's presented in the press release from the 30th April. And there's more -- particularly more details on note 2 of that press release.Having said that, the dedicated country organizations remain unchanged within the matrix organization, the organization of Scandi Standard. Just to remind you, within the Ready-to-cook area, we have got 5 main production sites, one in each country. And Ready-to-eat, we've got 3 production sites across the group.Going on to the next page, Page 11. You see the segment breakdown that -- of this quarter. 78% is Ready-to-cook, and 18% is Ready-to-eat. To the right, you see how these 2 segments have contributed to the EBIT development, Ready-to-cook having -- have impacted with an improvement of SEK 2 million, whereas Ready-to-eat have impacted with SEK 13 million [ during the quarter ]. On the bottom of this page, you see how these segments are broken up and how they all add up to the group total.Looking more into Ready-to-cook. This product area delivered 5% growth in fixed currency, 2% in reported; adjusted EBIT being at SEK 69 million, the same level as last year; and margins also at the same level. And within these numbers, we have taken a hit of SEK 19 million relating to bird flu in this quarter. And if it hadn't been for that, that represent actually about 1 percentage point of margin. You also see here, we've seen a positive development in animal welfare metrics, although this quarter is seasonally more challenging due to the cold weather. We've seen stable development in injuries, and there's been no critical complaints in this quarter.Going on to Page 13. The 5% underlying growth within Ready-to-cook, can be broken into geographies, where Norway, Denmark and Finland have majority of the growth. In Sweden, we have been focusing on less activities -- on campaign activities, margin. And we have had flat development in Ireland in this quarter. Of this growth of the 5%, 4% that comes from the retail area. That represents, all in all, about 80% of all sales of Ready-to-cook, and we've had a positive development from COVID-19. And the growth in chilled drive [indiscernible]. Food service sales dropping with 12% as we continue to see restrictions on out-of-home consumption across Europe.Within the export area, you see we have sold less. We have realized really exceptionally below export prices firstly due to the COVID-19, but there's an oversupply of food service market in Europe, and that has been further accelerated by bird flu outbreak and the restrictions to the sale of surplus products into [ Asia ].Going a bit more into Ready-to-cook. Looking at the breakdown of Ready-to-cook products into retail and into food service, we see a relatively stable 4% to 8% growth on a quarter-by-quarter basis with the retail, while food service is down with about 12%. It also shows, when you look at the bottom graph, that once the food service outlets are announced to reopen that we will see a clear coming back to growth development in total [indiscernible]. If we then look into the EBIT bridge for Ready-to-cook, we see altogether a stable adjusted EBIT in a challenging environment and positive volume development, driven by growth in Norway and Finland. It's also impacted by quite significant inventory sellout in Denmark. We've had negative price/mix, mainly driven by very low export prices, as mentioned. And we have seen an increased cost of goods sold, mainly relating to feed prices increasing in Ireland and also reduced production costs in Norway driving that number. And improved OpEx partly related to the strategy project that we did in Q1 of last year. Going into the key priorities within Ready-to-cook on Page 16. It's clear that Ready-to-cook business in Denmark continued to struggle. This part of the Danish business delivered a negative EBIT of SEK 50 million in the quarter, driven mainly by a lot of stock clearance in a very difficult export market, also high cost -- high-product costs. And this is my primary focus to make sure that we have find a sustainable turnaround for this business.Also bringing you awareness to the fact that we see historic high increases in feed costs. And as we are milling the feed ourselves in Ireland, we initially get the impact there. We are in the process of ensuring that we get the selling prices adjusted accordingly, and we do anticipate a high level of compensation due to this relationship model that we have been working to over many years. There might be a bit of phasing for a few months, but otherwise, we anticipate good compensation.Another area I would like to draw your attention to is the very systematic yield improvement program that we have underway, initially implemented in Norway and also now being introduced in Sweden and we'll roll out into other plants within the coming year or 2.Going from Ready-to-cook to Ready-to-eat on Page 17. Within this area, we saw a 7% decrease in reported sales and 3% decrease in local currency, driven by the lockdowns in Northern Europe. Adjusted EBIT coming in at SEK 26 million from a low quarter we had last year, and in these numbers, we have taken a hit of SEK 9 million due to the fact that we have had Ready-to-eat production lines closed in part of this quarter. That closure have impacted numbers with about SEK 9 million. And if were to [ learn ] -- to those fact, this part of the business actually delivered more than 10% EBITDA margins, in line with our financial target. Employee injuries is below our 12-month rolling, and we will see a large drop in critical complaints.Going on to Page 18, look a bit further into the Ready-to-eat area. We delivered a 19% growth in those products sold into retail. So of the 3% decline in fixed currency, we've seen good growth in Sweden and in Norway, markets where there is a very high domestic and retail exposure. You've seen a COVID-19-related decline in Denmark due to these temporarily low activities, particularly in the quick service restaurant area in Northern Europe. With the channel sales altogether, the retail growing by 19%, as mentioned, and it kind of shows the high demand for these convenience products, also now really coming through the retail food service dropping by 16%, where we are confident that once these outlets reopen that we will see a strong bounce back from this area.Looking on to the EBIT bridge for Ready-to-eat. EBIT coming in at SEK 26 million, partly impacted by reduced volume, mainly driven by this quick service restaurant area in Northern Europe. We've seen a clear positive price/product mix, with a positive mix from higher share of high-margin products. We also had a benefit from the low prices on third-party raw material purchase that impacts positively into this area and also some positive development from OpEx improvements.Going on to the next page, looking at the breakdown into retail and food service of Ready-to-eat. You see a strong demand within retail. We have referred to that and, of course, food service being down. But it's also clear when you look at the numbers to the bottom of this graph that once food service reopen, you will see quite a significant close of those gaps which will be realized. So as we're all aware, these restrictions largely will be still in place, and we anticipate that they will be gradually lifted during the course of the second half -- second quarter of the year, and we'll reach some good bounce back [ probably ] into the second half of the year.Looking at the other parts with that -- the other -- the remaining area is basically ingredients and also some group costs, and you can see that on Page 21.Going into the last area I'll talk a little bit about is, as part of our sustainable protein offering, we're really gearing up our plant-based product activities. Initially, we introduced the plant-based products that are branded. We have launched those in April in a couple of markets across Europe. We now have confirmed listings for the second half of the year in Norway for a branded concept, a branded concept that we have developed over a few years, now representing about 50% of all RTE sales in Norway, where we now will be extended that range with plant-based products.Looking at our now SEK 2 billion Ready-to-eat. That's clearly an ideal platform to roll out these and several other plant-based concepts. Similar brands, same brands, I think, product development skills. These products are produced at the same production lines, same customers, same logistics setup, and it's basically the same brand where we can extend into this area. It's a very low or, let's say, low-risk strategy to build this step-by-step over time.With that, I would like to hand over to Julia for more numbers.

[Julia Lagerqvist, Chief Financial Officer]

Thank you, Leif. Yes, more numbers.So on Page 24, we're coming back to the overall P&L. And as we've been mentioning, we've done quite a lot of changes to our reporting in this quarter. We also have to do the format of the report. We implemented these new reportable segments. And the group has also implemented a new stricter definition of items affecting comparability. To be able to compare between the years, we have also restated the years 2020 and 2019 for this. You can find more information about these in the notes in the quarterly report. So what you can see is in this quarter now, we have no noncomparable items, and same for the restated Q1 of 2020, there's no noncomparable items. Looking at the margins, they are improved versus last year, but they are coming from a low base. And looking at the finance net, it is low compared to last year. This is mainly driven by the fact that we had quite a high negative currency effects last year, but we also have a bit of reduced interest rate costs in this quarter compared to the previous year. It's a quite high tax rate of around 24% in this quarter. This is mainly driven by a negative adjustment due to last year's expenses, around SEK 3 million. So without that, it would have been more in the area where they normalize of 19% to 20%. Overall, the income for the period and the adjusted EPS are improving, again, from a low base, but we're still seeing improvement.Moving on to Page 25. Looking in here at the sustainability targets there with the results and the targets that Leif was mentioning before across these 6 KPIs that we are measuring now. Also worth noticing that these targets are part of the management team's bonus schemes since 2020 and now also in 2021.Looking first at the CO2 target. Here, we are actually -- our emissions are increasing by 2%, which was not ideal. Our target for the year is to decrease by 10%. It's an ambitious target. We have been trying to put a lot of new efforts here, was initiated together with the Science Based Target initiative.Looking at the lost time injury, the way we measure the safety in our plants. Here, also we've seen an increase of 8% versus the same quarter last year. Obviously, it's not where we want to be, but also, the target is to reduce by 10% versus last year. And also here, we're putting in measures in place to be able to reach these targets.Looking at the use of antibiotics. Here, we see a continued decrease. We're down 16% versus the same quarter last year. Also here, we're expecting to be putting a target to reduce it even further for the full year, and we're hoping to reach this.Looking at feed efficiency, so the kilo feed needed for 1 kilo of live weight. This is relatively stable compared to the last year, the same quarter. We do have an overall target of decreasing this even further, and we are hopeful to reach this as well. Looking at the animal welfare indicator that we're mentioning. We are using, what we call, a foot score. This is also improving versus the same quarter a little bit, 5%. As Leif was mentioning, this number is quite heavily impacted by the climate in the first quarter. We have an ambitious target of coming down to 8%. We also have targets in place to be able to reach this. It's mainly driven within the Irish and Swedish farmers to come to the target.Then we can finally look at critical complaints. We had only 1 this quarter compared to 6 in the same quarters, so it's a quite hefty reduction. Also ambitious target for the year was to be at 0, maybe a little bit more of a visionary target, but it's still what we are aiming for.Worth noting overall here is, I mean, we are starting with this. So now we're showing you what we -- we are measuring internally, but we do expect to refine these measures over time, as example here, with the Science Based Target initiative.Moving on to Page 26, looking at our returns. We are seeing improved returns versus same quarter last year despite increase in both capital employed and equity. Now the adjusted return on capital employed is at 9.8%, and the adjusted return on equity is at 11.9%. And the equity ratio continues to improve at 1% up versus last year. It's now at 29.8%.Moving to Page 27, looking at our working capital situation. We still see a continued low level of working capital, obviously helping our overall cash flow situation. We're still slightly negative actually in this quarter. There's a bit of positive contribution from postponed tax payments related to COVID-19 state aid of SEK 17 million. We do also have reduced inventory. As we talked about, we had some sellouts in this quarter, quite similar big reductions versus last year and also at this end of 2020. And there are quite low receivables in this quarter as we've had less export shipments, has long payment terms.So all in all, we're coming to our working capital to sales ratio of 0.1% -- minus 0.1%. If I were to adjust this for the contribution from state aid, we would have been plus 0.1%, still very low. Also, if I would adjust it for the financing elements that we do have in our -- in here in terms of factoring, et cetera, it will be up at 5.5%, so still below where we ended last year but sort of in line with the target level of being at 6% working capital to sales ratio.Looking at our cash flow overall on Page 28. We do see a fairly strong operating cash flow despite the challenging environment we had. As said, we have a help from lower working capital with a lower inventory level. On the opposite, we've had quite a bit of slight front-loaded CapEx spending in this quarter. The paid taxes in this one -- this quarter is quite high. It's again affected by adjustment related to preliminary tax payments in Ireland a little bit too low last year.In terms of the other items, we have done a repurchase of share of SEK 32 million this year. There was no activity last year. And the other items in -- and the other point in other items is net -- related to net leasing and negative currency effects on the NIBD. So overall, we have a change in the NIBD of minus SEK 8 million. I would still say overall, we have a robust balance sheet, and leverage was at 2.5, and we have a strong liquidity still in the company.Moving on to the Slide 29 and our cash flow guidance. There's basically no change versus last time. The capital expenditure for 2021 is still estimated to be around SEK 400 million, up from SEK 355 million in 2020, driven by our combination of efficiency investments, capacity and ESG investments on top of the normal going maintenance. The paid interest is estimated to be at 3% to 3.5% of average NIBD and the blended tax rate to be around 19% to 20%.We do still have our continued liability in the shape of the Manor Farm acquisition. As you know, there has been 3 earn-out tranches, one for 2019, 2020 and '21, so the last tranche is now due in 2021.Looking at the dividend. The Board is, in today's AGM, proposing a dividend of 2.25 -- SEK 1.25 per share, and we expect this to go through. The Board also intends to call for an EGM in the second half to propose an additional dividend over SEK 1.25 per share. So overall, we added to -- we have a dividend yield closing in on 4%. Maybe just want to remind you that our dividend policy is to be at around 60% of net earnings over time.And with that, I'd like to hand back to you, Leif.

[Leif Stig Hansen, CEO, President & MD]

Thank you, Julia.As you -- I think you all got the impression that Q1 delivered a stable result in a challenging environment, impacted mainly by continued COVID-19 impact but also topped up with bird flu.We do see a full review of the Danish Ready-to-cook business underway. New management has been put in recently. We have identified a number of building blocks that we are following through very clearly.Overall, we see price adjustments will be expected to absorb the effects of the raw material increases. The new segment focus that we are implemented or have implemented, we are confident they will support performance and value creation, giving even more focus on particularly RTE but also on Ready-to-cook.We have a strong dedication to focus even more on improving our already leading sustainability position. We will be reporting much more clearly on this on ongoing basis. We will be calling for an ESG Day, inviting you for an ESG Day later on in the year, where we will be excited to talk a bit -- much more about this exciting area.Hopefully, also, you saw here that we are quite excited about our plant-based initiatives and the way they are progressing. We do expect a gradual improvement in the market conditions in the second half of the year. And to be more specific, when it comes to COVID-19 effects, we do anticipate the reopening gradually impacting food service sales during the course of Q2 but with full effect more into the second half of the year.And the Board intends to call for an EGM in the second half of the year to propose an additional dividend of SEK 1.25 per share.With that, we'd like to take any kind of questions. Thank you.

[Operator]

[Operator Instructions] We have a question from Daniel Schmidt of Danske Bank.

[Daniel Schmidt, Research Analyst]

Yes. A couple of questions from me. And you write in the report and you also commented on last -- on the last slide, Leif, regarding the cooking business or Ready-to-cook business in Denmark. You write in the business that you're looking to find a sustainable, long-term solution for the Danish Ready-to-cook business. And I think you mentioned lastly, building blocks, and you said new management, if I'm correct, if I heard you right. But is there also -- are you guys also contemplating selling this business?

[Leif Stig Hansen, CEO, President & MD]

I mean, we are -- we're looking at all options, but it's clear that we have identified a number of building blocks that we will implemented, and also that we are confident that we will the performance improving. But this is, as mentioned, a key priority for us to make a turnaround of this business.

[Daniel Schmidt, Research Analyst]

But are you saying that turnaround is the sort of the #1 priority? And if that doesn't pan out the way you expect, then you would be considering divesting? Or are you pursuing both at a sort of at an equal focus?

[Leif Stig Hansen, CEO, President & MD]

We have a focus on improving the performance of the Danish business and are not ruling out any scenarios. But as mentioned, the new management have identified a lot of the improvement opportunities, which we will be implementing, and we will also see a clear improvement in performance coming into Q2 and also later on.

[Daniel Schmidt, Research Analyst]

And can you say anything about those building blocks?

[Leif Stig Hansen, CEO, President & MD]

No, but they are quite -- we all -- I do realize that we're coming from a low base in Q1. But it is -- we will see a clear improvement in the performance in Denmark and in particularly in the Ready-to-cook area in Q2 and also in the quarters after that. Better balance on the volume we take in to what we sell is one of the building blocks. We're also looking at other areas in addition, too.

[Daniel Schmidt, Research Analyst]

Okay. But just coming back to the possibility to divest these entities. Is that a difficult exercise to sort of untangle? Or is it very intertwined with the rest of your operations, if you look at it on a stand-alone basis?

[Leif Stig Hansen, CEO, President & MD]

But I mean, if you look at all our businesses, our Ready-to-cook and Ready-to-eat business in all our markets, they are linked together in the sense that there are some raw material sourcing, but they also -- we're also sourcing from third parties. It is a different manufacturing setup in all other markets. That's also why we are making this, let's say, new segment approach to it, so we can ensure even more focus. So it's more -- there's some sourcing synergies. There are some commercial synergies. But otherwise, it is step on manufacturing setup and so forth no matter whether you look at Denmark or in all of our markets.

[Daniel Schmidt, Research Analyst]

All right. Okay. So you're basically saying that you're pursuing both avenues, but it sounds like you are seeing improvements already in Q2 versus what you saw in Q1 from an operational perspective at least.

[Leif Stig Hansen, CEO, President & MD]

Yes.

[Daniel Schmidt, Research Analyst]

Yes. And then sort of coming to raw material, as you mentioned, being a synergy between the different entities. And you've seen rising raw material costs, of course, and most of that is pass-through if you look at the Nordic business, but maybe some delay when it comes to the Irish business, and you mentioned some phasing effects of a couple of months. Could you quantify that a bit more what the sort of the short-term impact could be when you look at Q2?

[Leif Stig Hansen, CEO, President & MD]

When we -- as you rightly -- In Ireland, we are buying in the feed raw material ourselves as we are milling the feed and sending it to the farmers within our own operation. So there, we get the cost inflation hit our own purchases quicker. And there, we are in the market with price increases. So there, we have seen a -- some delay, but for the time we have to, let's say, buy more expensive raw materials until we get the selling prices adjusted. So there is a bit of phasing there, a little bit of it coming already realized in Q1 and a bit of it coming into Q2.When you look at the Nordic region, traditionally, the phasing effect have been very small, basically aiming to implement the price increases on the birds on the same day as we get the price increases from our customers. Sometimes not 100% on the same day, but it is. And as you well know, our track record in this field is good. So that is generally a good understanding that feed initiated raw material inflation that we get compensated for, and we also compensate when feed prices are going down. So it's a two-way road.

[Daniel Schmidt, Research Analyst]

It works both ways.

[Leif Stig Hansen, CEO, President & MD]

Yes.

[Daniel Schmidt, Research Analyst]

But if I heard you correctly, you said that you already had some negative impact from phasing in Q1, and there will be some in Q2. Will they be of equal magnitude, and this will be sort of behind us? If we look at spot prices today, you should be through this effect as you get into Q3. Is that how we should look at it?

[Leif Stig Hansen, CEO, President & MD]

Yes, that's what we anticipate. Of course, the feed prices are going a lot, and you we know as well, there's also some fundamental speculation going into this area. So it is relatively volatile, the feed price, the feed market at the moment. So our main focus is to ensure that we get compensation in the market and that we are confident we will get.

[Daniel Schmidt, Research Analyst]

Yes. But the impact on Q2 is not going to be significantly higher than in Q1. Is that correct to say?

[Leif Stig Hansen, CEO, President & MD]

Yes.

[Daniel Schmidt, Research Analyst]

Okay. All right. And then on the bird flu, and you write in the report that given that we had additional outbreaks in April in Denmark and Sweden, sort of the export ban is prolonged until August. You did have sort of extra cost for it in Q1, of course, and in Q4 last year. Are you seeing those costs fading in any way in terms of export prices? Or is this still going to be sort of a similar impact in Q2 as you see it and maybe also during the summer?

[Leif Stig Hansen, CEO, President & MD]

I think the bird flu effect is going to be relatively similar in Q2 as we have seen more outbreaks coming up. When it comes to export prices, one has to keep in mind that it's very exceptionally lower export prices that we have seen basically all through last year or since the COVID-19 impact and also into this year. It is mainly driven by the pandemic.The way the food service market in Europe is underwater, that meant that there is a surplus of chicken product from -- not so much from ours, but we also have a bit. But it's mainly from a lot of Continental European players. Some of them are, let's say, 80% food service and industrial related in the client portfolio, so of course, a lot of these volumes come out at very, very low prices.So as we see the impact of that reduced, we also -- I think we can say that we can see some improvement in export prices in Europe. It is from a very low price -- very, very low base, but we have seen some Continental European players actually seeing volume down. So there has been a little bit less pressure on the supply and demand situation. So some improvement there. Whether as to the bird flu impact, we are more into August until we will see that coming through in these [ Asian ] markets because we are depending on them actually reopening.

[Daniel Schmidt, Research Analyst]

Yes. But that also assumes that there's not going to be any additional breakouts during the summer. Is that correct?

[Leif Stig Hansen, CEO, President & MD]

Yes. I want also to say that it's quite a number of years back we had it last time. And usually, these outbreaks, it's very rarely to see them over the summer.

[Daniel Schmidt, Research Analyst]

Yes. They usually die down with the heat, basically.

[Leif Stig Hansen, CEO, President & MD]

Yes. Exactly, exactly. These cases that were here in March and April, that's really unusually late. It comes with the migrating birds, and by that time, the birds should have migrated, but maybe some of them have been a bit late.

[Daniel Schmidt, Research Analyst]

Yes, yes. Okay. All right. And you also said that sort of, of course, we've seen the reopening in Northern Europe, to some extent, when it comes to easening restrictions on the food service or HORECA business in some markets. Any reflections on sort of Denmark or Finland or Benelux or whatever in recent weeks where you've seen easening restrictions?

[Leif Stig Hansen, CEO, President & MD]

We can see the effect -- positive effect, but also bear in mind that we are now sort of comparing with same with last year when the lockdowns were already taking place. So one has to be careful what you compare with [indiscernible]. So -- but...

[Daniel Schmidt, Research Analyst]

Yes. But if you compare on a sequential basis, if you compare it to sort of March, are you seeing any difference now in the middle of Q2?

[Leif Stig Hansen, CEO, President & MD]

Yes. We do anticipate gradual improvement, and we already see the first signs of it. It is a bit different from market-to-market. But it is clear that these restaurants, out-of-home office, they are increasingly seeing a large reopening with less and less restrictions. So that is clearly possible.

[Daniel Schmidt, Research Analyst]

And if we, which everyone, of course, expects and hope, see a recovery in HORECA and food service gradually through Q2 and maybe getting into some bit of a more normal world as we enter H2, do you still think that sort of retail could be equally strong? Or do you see a backlash when it comes to retail?

[Leif Stig Hansen, CEO, President & MD]

If you look over time, retail -- our retail sales have grown with about [ 60% ] on average per year. It's more or less where we have been through this also. The fundamentals of -- or the preference for chicken is exactly the same. It's not even strengthened as far as we see it. The importance of the sustainable protein, that's even further enhanced by [indiscernible] comes out very well. So we anticipate a continued, good demand within retail.And one thing you also have to bear in mind that our Ready-to-eat, so within retail is really gaining ground. And there, we are quite confident that consumers have now tried these much more convenient ready-to-eat product, and they are very good quality, and we see repurchase going on. So whether there's pandemic or not, we're quite confident that consumers will continue to buy these products because they offer high-quality convenience that a lot of consumers are really able to get.

[Daniel Schmidt, Research Analyst]

Yes. All right. Okay. Maybe a final question regarding the reporting structure. And you make sort of a quite substantial change from country-based to product-based, and it's sort of taking place just before basically half of the Board has changed out. What sort of made you take the decision to do it before the new Board is onboard?

[Leif Stig Hansen, CEO, President & MD]

Well, this is something that has been underway for at least 2 years, where a lot of preparation have been going through to ensure that we have historical numbers solid, so we can compare before solid, solid numbers. So this has nothing to do at all with any changes that takes place to the Board. And so this is something we are -- we have firm belief is right for the business going forward.And as the business further develops, we believe this will increase in the right ways to the right lens kind of to look into the business. And it -- also bearing in mind that we dedicated -- the country focus remains. That's where the farmers are. That's where our customers are. That's where the local operations are. So that is fully intact. So this is another lens to kind of look into the business that we are keen on.

[Daniel Schmidt, Research Analyst]

Yes. Okay. But does it still require sort of country managers to be part of top management now that you've changed the structure?

[Leif Stig Hansen, CEO, President & MD]

Yes, yes.

[Operator]

[Operator Instructions] We have no further questions on the phone line, so I'll hand back.

[Leif Stig Hansen, CEO, President & MD]

All right. Thank you, everybody. It took a bit longer, but we wanted to make sure that this was fully explained. But thank you for your time, and thank you for your engagement. Have a super day. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.