Scandi Standard AB (publ)

STO:SCST

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Scandi interim report for the third quarter 2024 conference call. I am George, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Jonas Tunestal, CEO. Please, go ahead.

[Jonas Tunestål, executive]

Thank you, and welcome to this presentation of Scandi Standard's results for Q3 2024. My name is Jonas Tunestal, and I'm the CEO and Managing Director of Scandi Standard.

By my side, I have Fredrik Sylwan, our CFO, and I'm pleased to have him by my side today. I'm also glad to report a significant volume and profit growth in the quarter.

So next slide, please. Next slide, please. We see a strong demand and profit growth, and we have increased the volumes with 3% in the quarter. We've increased our EBIT with 11% to SEK 153 million compared to SEK 139 last year. And our EBIT margin improved from 4.2% to 4.6% in the quarter.

And if we look at our adjusted EBIT, it's an increase with 18%. And the improvement was driven by a strong progress in both Ready-to-cook and Ready-to-eat, and that is supported by a strong demand, and we also see our country improvement programs are progressing well.

And then in the -- there's a continued normalization in the rendering prices. And rendering business is an important part of our total ingredients business. So we have a strong balance sheet and a positive OCF and net cash flow.

So next slide, please. And the reason why we see a strong demand, it's related to these 3 value drivers for chicken, responsible, safe, and nutritious, and it's convenient, versatile, and tasteful, and affordable because it's sustainable.

The next slide, please. And here, you can see the strong historical and ongoing consumer trend for chicken. And on top of increased consumption, chicken is also benefiting from a long-term substitution from other proteins.

Then we can move to next slide, please. And one of the major reasons why it's benefiting from other proteins is because it's sustainable and affordable. So price has always been important for consumers and customers, and the focus has increased even more in the current environment of high food prices. So chicken is affordable in all segments, and it gives us further opportunities to drive long-term value and volume. So we see further opportunities to drive more value out of the chicken due to its affordability.

The next slide, please. And this is an important slide. On this slide, we want to present our EBIT per kilo measure. So EBIT per kilo is a good measurement of value creation for our business. And as you can see in the figure to the right, our momentum is positive. Our Q3 EBIT per kilo is SEK 2.15 and it's an increase of 8% compared to Q3 2023. And in the different colors in the diagram, you can see the development in the different segments. We see strong performance in Ready-to-cook on rolling 12 and a decline in Ready-to-eat rolling 12 due to the missed contract last year. But the progress since it bottom out in December is very positive.

This means that when we are now ramping up volume in Farre and when we see effects from our action taken in Farmfood, and Farmfood is the company that take large volumes of ingredients from Sweden and Denmark, we should expect to continue the positive development towards 2027 and our targets of SEK 3 per kilo and above.

Moving to next slide, please. And this slide is to remind you on our strong market position in all our 5 home markets, and the countries are highly consolidated. So these markets have large hurdles for new entrants. They can individually be regarded as semi-closed markets due to its strong consumer preference for domestic produce. And due to our strong market position, our own supply decisions have a meaningful impact on market balance, which has helped us in the recovery process from inflation. But note that each market, however, also includes consumer segments less sensitive to provenance, which leads us into the rationale for acquisition presented on next slide.

So with that, we can move into the next slide. This is an important slide as well, our acquisition in Lithuania. So to fully utilize the potential in our existing markets and clients, it's important to include a low-cost hub into Scandi Standard. So after a long period of searching, we now found what we think is the ideal target in Lithuania, and it will produce about 20,000 to 25,000 tonnes real weight, and it's a state-of-the-art processing plant and in one shift, with a best-in-class cost position. So it is right-scaled facility for our current needs, but it also have a potential to scale up. And we have the ability to put in double shifts if we see that the demand is as expected.

So the intention is to build a fully-integrated hub that will allow us cost control. It will allow us animal welfare control and food safety control. And so it will meet our high Scandi standards, and those standards we have in the group, but also it's important for our existing clients and new clients that we're onboarding.

So as an example of where we can produce this -- send these products to, it's a segment in our existing markets, we're already told, but it's also an important raw material provider into our Ready-to-eat factory, mainly in Farre, and then, of course, our value-adding export clients, both existing ones, but also new ones that we have and will add on to this business. And I can also proudly present that the plant produce is already sold, and we will commence production from idle state in Q4 2024. And our medium target will be well above SEK 3 per kilo.

So then we move into next slide, please. And here, you can see our production plants, our Ready-to-cook plants. We have 3 major plants, one in Sweden in Valla, another one in Shercock in Ireland, and the third one Aars in Denmark. And then we have our Norwegian plant and also our Finnish plant in Lieto. And now we have also included our Lithuanian plant, Joniskis. And as you can see on the volumes beneath the picture, it's in the same size as our Finnish business in Lieto.

So if we move to next slide, please. And this table shows the reconciliation of our segments. We see a strong positive contribution in both Ready-to-cook and Ready-to-eat. We see the decline in others, as expected, compared to Q3 2023. And when we look at development of net sales per country, there's a general underlying growth with the exception of Ready-to-eat Denmark, which I will revert to. But sales has also been impacted by price reductions driven by lower costs for feed and currency headwinds. But we want to remind you of that the category Other includes both ingredients business and corporate costs.

So next slide, please. And then when we look into our Ready-to-cook segment, we have an increase in net sales of 4% and a volume growth of 3%, represented EBIT of SEK 111 million compared to SEK 105 million last year. And that's a strong improvement driven by increasing demand in several markets and with improved product and channel mix. And also due to that, our country improvement programs are progressing well.

We also see improvement in our animal welfare metrics, mainly driven by Ireland, but we see a negative development in personal injuries also in the quarter, mainly driven by deviations in Denmark. It's isolated to one business unit, and we will have full focus to recover the numbers.

So next slide, please. And here, you can see the historic track record of strong growth and stable margins. We see a solid recovery in Ready-to-cook with a Q3 EBIT per kilo of SEK 1.56 compared to SEK 1.39 per kilo last year. And as explained before, forceful actions has secured our successful turnaround, and we have a clear road map to significant EBIT per kilo increase. So I'm pleased by the strong improvement, but I'm also confident in our ability to extract additional potential, which is required to reach our financial targets.

So then we can move into next slide, please. And here, you can see our realized export prices were almost -- they're almost flat in Q3 compared to the same period last year. And we are focusing on building more solid export business with value-added international retail and foodservice customers. And the aim is to be less exposed to the commodity market, which has and will have a positive impact on our export business. And if we look into the future, we see a positive trend in the export prices, even though the uncertainty is still high due to the macro factors.

Then we can move into next slide, please. And here, we can see, after a long period of increase in feed prices, we're now seeing more normalized markets. There are still uncertainties, and we need to be prepared for further volatility. But our model has most of the input costs linked to our top line. That's also why you can see a correction in our top line when the feed prices fall back.

But now when feed prices have been stable for a couple of quarters, we once again see the top line growth in our business. Even though the feed price is slightly lower, we have been able to mitigate that by higher better sales mix.

We also want to highlight that the feed cost is 1/3 of our cost base. That's important. It's a huge impact to our business and the short production cycle compared to other proteins enable us to be more agile in our supply chain.

And when we look at other costs as packaging, energy, and so on, we see the cost on a more stable level. So we are hedging a majority part of our electricity exposure, but also there are uncertainties, and we need to be prepared for further volatility.

Next slide, please. And on this slide, you can see the channel development more in detail, and through these details, you can notice that the increase in all channels in the quarter. We see a slight decrease in net sales in Ireland, and that's due to FX and lower sales price linked to feed, which is mostly mitigated by better sales mix. So in general, we have been seeing a strong demand growth in several of our markets in the quarter.

Next slide, please. When we look at Ready-to-eat, net sales is down 8% due to loss of contracts in Central Europe, but represent an EBIT of SEK 44 million compared to SEK 32 million last year. We are still impacted by lower plant utilization, but due to our cost control and sales improvement, we have been able to increase the EBIT, both the total EBIT and the margins compared both to last quarter and quarter 3 2023. We don't see an adverse development in lost time injuries for the second quarter, and corrective action is taken to prevent reoccurrence.

So next slide, please. And here, we continue to rebuild our Ready-to-eat orderbook after loss of Breda contract. The high volume and low-margin business phased out and the volume and EBIT has bottomed out in Q4 2023. The lost business has made room for new opportunities with a more long-term diversified and profitable portfolio.

We have a good traction in replacing lost business. Retail sale is the main contributor so far, and we have historically seen a strong but uneven demand, and we expect continuous growth over time. Growth in this segment comes in sequences, and we have a lot of potential customers in the pipeline. So we are prepared to take on significant growth opportunities here in this segment.

So next slide, please. And this slide is a reminder of the strong historic organic growth, and so I'm confident that we will continue that trend going forward.

So we can move into next slide, please. And here, you can see the figures. It's, of course, very encouraging to see continued growth in retail, Ready-to-eat. However, the development in food service channels is declining due to the reasons mentioned in former slides. But Ready-to-eat will be an important long-term tool for us to develop EBIT per kilo, i.e., increasing the value of our protein. So that is an important part to reach our targets and an important part of our strategic pillar, increase the value of our protein.

So with that, I hand over to Fredrik for more deep dive in the financials.

[Fredrik Sylwan, executive]

Many thanks, Jonas, and good morning, everyone.

Next slide, please. As Jonas mentioned, Q3 was strong, actually our strongest third quarter ever with improved profitability and strengthened margin.

Net sales is above last year, and the increase is mainly driven by higher volume and improved product mix, though the overall result has been partly offset by unfavorable foreign exchange movements. But adjusting for currency, top line is up 4%.

EBIT has increased with 11% from SEK 139 million last year, which indicates improved operational efficiency. This is also reflected in the strength in margin, which is up 40 basis points. Last year, there was a onetime positive impact of SEK 8 million from the divestiture of Rokkedahl. With this, the underlying EBIT improvement would be even more apparent, up 18%.

Finance costs have risen due to the timing of depreciation related to the upfront fee from the previous financing arrangement. A more solid financing solution is now in place during Q3, which gives us comfort to fuel the momentum further and fund both organic and inorganic growth.

Tax expenses are up due to Ireland and Sweden mainly. Sweden is up driven by earnings, Ireland as well, but on top, there is a higher corporate tax rate.

Feed efficiency, which is a key performance indicator in animal protein industries, remained at a strong and stable level, reflecting operational stability.

Jonas mentioned adverse incidents linked to employee safety, and this is and will remain a focus area for improving workplace safety going forward.

Next slide, please. Our return on capital employed and return on equity continued the positive trend, and we have significantly improved versus last year. The main drivers are increased profitability and increased equity. At the same time, our solidity or equity ratio has improved further.

Next slide, please. We continue to see strong operating cash flow, which underscores the robustness of our core business. This healthy cash flows allows us to comfortably reduce our net interest-bearing debt. Our capital expenditures came in lower than expected for this period, primarily due to timing. This does not reflect a reduction in the long-term ambition, but rather a shift in execution.

We have experienced an increase in finance costs, directly related to the new financing structure we implemented. While this has increased cash outflows temporarily, the strategic moves strengthen our long-term financial position by providing more stable and favorable terms.

As mentioned, our tax payments have risen primarily due to higher taxable income in Sweden and Ireland on top of higher corporate tax rates in the latter. This is reflective of our improved performance in that region and the increased profitability we're seeing in key markets.

We're pleased to report a reduction of SEK 100 million of net interest-bearing debt during the quarter. Despite paying a dividend of SEK 75 million, we managed to reduce our debt burden, which speaks to our effective cash management and solid financial discipline. It's important to notice this that the lower CapEx also helped the reduction during the period, which gave us more flexibility to reduce debt.

As mentioned earlier, our CapEx this year is below last year, which again is a result of timing. These investments are not canceled, but rather postponed, aligning better with our strategic growth plans.

And lastly, we are committed to returning value to our shareholders as demonstrated by the SEK 75 million dividend paid during the quarter. And this dividend reflects the confidence in the company's financial strength and long-term growth potential.

Next slide, please. We made significant progress in reducing inventory levels compared to year-end. This reflects our focus on optimizing stock levels and improving efficiency in our supply chain, aligning inventory levels with current demand. We still have work to be done going forward.

Our receivables have increased compared to year-end, and this price is directly linked to the strong sales performance. The growth in sales has naturally led to higher receivables, but we're confident on our ability to manage these and maintain a healthy cash conversion cycle.

There has been a slight increase in payables and other liabilities versus year-end, which is consistent with the overall growth in operations. This also reflects increased spend to support sales.

Our target for working capital in relation to sales over the last 12 months, adjusted for financing, remains at 6%. And this target helps us to ensure that we're managing our capital efficiently, particularly in the growth business environment.

I'm pleased to report that for Q3, our working capital as a percentage of sales adjusting for financing elements was 5.3%, which is below our target. And this is partly driven by timing where receivables came in stronger than expected, which will impact Q4.

Next slide, please. This slide shows our inventory development, and you can see that it's under control. But of course, this remains a clear focus area going forward. And we are, for example, working on optimizing the sales and operations planning to make sure we produce right products, and we use the export channel for surplus sales, not to interfere with the domestic pricing.

Next slide, please. CapEx is estimated to be around SEK 500 million full year. And priorities are, for example, the RTE expansion in Norway to meet the demand with an approximately 30% capacity increase. We also increased the deboning capacity in Ireland and Denmark as well as Finland to climb further up the value ladder.

We also invest in product differentiation in Ireland as well as increasing efficiency. And we also have our ERP implementation, where we successfully went live with our first country in Q2 this year. And we're pleased to announce the successful completion of the Lithuanian acquisition occurring beginning of this month, expanding our footprint in the region, and we're excited about the opportunities it brings for further growth.

The purchase price was EUR 23.5 million on a debt and cash-free basis. And this ensures that we -- that the acquired entity comes with a clean balance sheet, allowing us to immediately focus on operational ramp-up, integration, and growth.

The deferred payment of EUR 1.5 million is expected to be settled in the beginning of next year. This structure gives us some flexibility in managing the financial outlay while facilitating the ramp-up of the business. In terms of start-up investments and working capital, we're planning an initial amount of around between EUR 5 million to EUR 7 million, and these funds will be used to bring the acquired operations up to full capacity, and ensure the necessary resources are in place for a time-efficient integration.

The blended effective tax rate going forward is expected to be around 19%, which reflects a favorable tax position that we will continue -- that will continue positively to our consolidated forecast -- financial forecast.

We also paid a SEK 2.3 dividend, equating to SEK 150 million, split over 2 installments, in second and third quarter. This reflects our ongoing commitment to delivering value to the shareholders, while maintaining the financial flexibility to pursue strategic opportunities like this acquisition.

I also want to take the opportunity to remind you that our dividend policy is to return about 60% of our net profit to the shareholders. And looking at our financial targets, we aim to deliver a substantial increase in the -- to the shareholders during the coming years.

The interest rate on bank financing is approximately 5% per annum. But if we add on the IFRS interest cost components like leasing and factoring as well -- and vendor financing, the paid financing cost is estimated to be around 8% of our net interest-bearing debt.

Next slide, please. We're pleased to have a highly competent bank group supporting our financial strategy. Their expertise and partnership have been instrumental in securing favorable terms in our new financing arrangement. And this comes with a 5-year tenure, providing us the long-term stability and flexibility to execute on our growth plans without the immediate pressure of refinancing.

The size and structure of the financing package gives us the flexibility we need to support both organic growth as well as strategic initiatives, and this will allow us to invest in key areas of the business and seize opportunities as they arise.

We have increased the total financing by more than 50%, bringing it up to approximately SEK 3.2 billion. This significant uplift ensures we have the necessary resources to fund our ambitious growth plans. Additionally, we have negotiated an accordion option up to SEK 1.5 billion, which provides further flexibility to expand the facility as needed, giving us the room to maneuver for future acquisitions of major projects.

Our main covenants remain unchanged. So net interest-bearing debt over EBITDA should be below 4x, and we have our internal target of 2.5x, and interest coverage should be above 3.5x.

What's particularly noteworthy is that this financing arrangement includes a strengthened link to our ambitious sustainability targets. We are aligning our financial strategy with our commitment to sustainability, ensuring that we grow and we continue to drive the environmental and social progress.

Next slide, please. And back to you, Jonas.

[Jonas Tunestål, executive]

Thank you, Fredrik. Next, I would like to talk about one of our cornerstones in license for us to operate. And there are these 3 key areas that we'll come back to when it comes to creating trust for what we do. It is responsible animal welfare, it is safety for consumers and employees, and it is nutritious products. And this has a close link to our sustainability scorecard.

So if we move into next slide, please. Here, you can see continuous improvements in antibiotic results in Q3. So I'm proud of the progress that has been made during the year, including meaningful reduction of antibiotics use and our main animal welfare indicator, the foot pad score.

We have seen a setback in LTI, as mentioned before, latest 2 quarters. It's mainly isolated to Denmark and some of it is isolated to a single accident, but we have a strong focus to get back on track.

And during 2024, we will continue refining our road map towards 2030, including development of our climate transition plan as well as implemented the EU Corporate Sustainability Reporting Directive, it's CSRD. The implementation of CSRD will further strengthen the integration of sustainability in our strategy, value chain, and operations, and facilitate comparability and further transparency. So it is an important part for us in our strategy.

So if we move into next slide. And we have presented this before, so some of you will recognize these pillars. And these are our 4 strategic pillars, and they are really important for us. And the 4 pillars will support us achieving our goals. And it is, the first one is increasing the value of our protein. The second one is ramp up efficiency end-to-end. And all of this, we need to do with sustainable means in every step of the way and as one company that make us constantly better together. So those 4 things is super important, and it amplifies the collective effort, shared goals, and team cooperation, and that leads to improved performance and outcomes. This is a fundamental base for what we do in Scandi Standard.

So next slide, please. And here, at the right-hand side, you can see our 2027 targets. We are expecting strong growth over the coming years. We have set a target for 2027 of 5% to 7% net sales growth annually. In the short term; however, our top line remain impacted by inflation retraction, which is also stimulating demand, but we have talked about that before, the link between the feed and the top line.

We target an EBIT margin in excess of 6% by 2027. We're also measuring the progress in terms of EBIT per kilo, for which we have a supporting target that is SEK 3 per kilo, and we want to reach above that. But we have talked about that in former slides as well.

So if we move into next slide, please. We also want to remember about this slide. Here, you can see our structured efforts and resulting in recognition in forms of improved ESG ratings. And as an example, we have an A- in our CDP rating and an A rating that is only a few companies within the food industry that had obtained that. So once again, sustainability is an important part of our business, and we want to look at it in a structured way. And that's why this measurement is so important for us.

So if we move into next slide. This is also an important slide. And in order to reach our target for EBIT margin, we need to increase our EBIT per kilo from our current SEK 1.82 to above SEK 3 per kilo. And if we look into this specific quarter, it's SEK 2.50. But here are some examples of actions to accomplish this.

And one other thing, we've talked about it before, is our ERP system. That will give us a common scalable platform to utilize best practice in Scandi Standard, and it also enable us to take new sites as the one that we have done in Lithuania. And we have started that process. We have finished the implementation in Sweden, and now we're moving into Norway, and we will take it step-by-step, country-by-country.

And we also have a current strong focus to enhance new business in Ready-to-eat, and that has yielded surprisingly good results in retail sales. And that -- but it illustrates really much our capability in convenience products and that they can be utilized. So we will have an important super focus on building more RTE business.

Then we have the investment in [indiscernible] to support the local growth in our Norwegian RTE segment, and the new capacity will be in production during Q4, and that allows us to increase the sales and margins in Norwegian business, i.e., climb the value ladder. But that's also investment in our Ready-to-eat business. For example, we've talked about before our leg deboning capacity. We have that in several countries, but we're investing in more countries. So we have invested in Ireland and Denmark, and we are now optimizing the sales and the efficiency in that process, and that will be yielded in 2025. So that's just a few examples of what we do to reach our goals in 2027.

If we move into next slide, please. And this is also important to achieve our goals. We're building a robust vehicle to serve our home markets and beyond. And we are launching this SEK 2 billion investment program in the period.

And the investment program aims to support, first, Ready-to-cook investment to support a 2% increase in throughput in our plants, but also to support a better utilization in our facilities. It will support the ramp-up in our ingredients business. It will prepare for significant growth in Ready-to-eat. And as a part of this as well, we have earmarked investment of more than SEK 200 million to meet our sustainability goals. And as you all know, sustainability and efficiency is linked together. It's only different measures of how you can use resources in a more efficient way.

So if we move into the last slide, and summarize it all. So we have had an 18% increase in adjusted EBIT compared to last year. It is another clear step towards reaching our financial targets. We see strong consumer trends in favor of chicken production or chicken products, and we see that our country improvement program are progressing well. We have management resources and systems available to integrate new entities. We see a large potential in our acquired Lithuanian business. And we have a new robust financing in place.

So all in all, we summarize a strong quarter, and we have good -- a decent traction going forward.

So with that, we will open up for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Daniel Schmidt, Danske Bank.

[Daniel Schmidt, analyst]

Just a couple of questions from me then. Starting with Ready-to-eat, I think you wrote and maybe you also said it, Jonas, that you should grow from here. And I guess, we're also annualizing the lost contract situation. So that makes it easier. But sort of could you shed some more light on what kind of volumes that you have been able to replace the lost contract with? You mentioned higher profitability, but what kind of pace are we coming into Q4 when you're sort of more comparing apples-to-apples? And -- yes, what do you see basically in terms of growth and profitability from here on?

[Jonas Tunestål, executive]

We see -- we will see continuous growth in the -- maybe in the same pace as we've seen before in terms of how we put on volumes. But we must remember that Q3 is a strong quarter for us always, seasonally. But going on forward, we will onboard more customers, and have a lot of things in the pipeline for 2022 -- 2025, sorry. But it will come in steps, as I said before. So it's not easy to say exactly what will come in, in Q4, but we will see the trend continue.

But what I can add in this is that we see, also in the Ready-to-eat with high feed prices, we see some differences as what type of products we are onboarding and what type of raw material that we have in the products. So that's why we sometimes can see a better volume growth and also good margin growth, but the top line growth is a little bit more flattish due to different raw material in the products. But that will also come in sequences and the trend will change a little bit from time to time.

So to summarize it, we will see the growth. It will come in steps. Quarter 4 is always a little bit weaker than quarter 3, but we will see the continued growth going forward. And we have a good pipeline into 2025.

[Daniel Schmidt, analyst]

Okay. But could you say anything about sort of what you've been able to build up if you lost -- I think you started to lose volumes already in Q3 last year, right? And then it was completely gone, correct me if I'm wrong, as we entered Q4. And that's a year from -- that's a year ago. What you sort of -- with those volumes out, let's assume that was 100, how much of that 100 have you been able to build up again coming into the last quarter of this year?

I appreciate that the mix might be a bit different and not everything is just a straight line. It's a bit lumpy. I understand that.

[Jonas Tunestål, executive]

Yes. But let's put it like this. If you say 100 and the volumes are replaced by maybe 30 or 40, but it's different compared to what we -- it was one customer that left us in -- with some different -- in different quarters. And then we've replaced that with other types of customers, as we said, more retail customers, a little bit more products with slice products and whole muscles, that will take volumes a little bit down. So it's not that comparable. But there are plenty of room to fill up to have our total RTE business filled up.

[Daniel Schmidt, analyst]

But I'm just thinking you lost that entire contract. And now, of course, we're -- probably we're analyzing that and we're going into the last quarter of this year with new volumes, not as much as you lost, but better quality, it sounds like. Is that a fair assessment?

[Jonas Tunestål, executive]

Yes, that it.

[Daniel Schmidt, analyst]

And does that higher quality of volumes that you've been able to build up, is that taking on more resources in terms of capacity than the volumes that you lost?

[Jonas Tunestål, executive]

It would -- it changes a little bit, the production type. And we have, as you know, 4 different lines in Farre, and it's a little bit -- they are producing little bit different things. So it's not -- you cannot compare it in total. But if you put it like this, the volumes that we're in now is a little bit less volume, a little bit more margins out of them than before it was more formed products, to be more technical in what we are doing.

[Daniel Schmidt, analyst]

And you think that more will come given what you see in terms of customers that you are currently working to bring soon to onboard?

[Jonas Tunestål, executive]

Absolutely. But I must say it comes in steps, and it can be some quarters where -- it is now flattish and then there comes a step up, but trend both in medium term and long term is the same trend as you've seen in the slides that we presented.

[Daniel Schmidt, analyst]

Then maybe jumping to the acquisition in Lithuania. And I think you said that you've already filled planned production for this year with orders. Was that -- did I get that right?

[Jonas Tunestål, executive]

Yes. That's right.

[Daniel Schmidt, analyst]

And of course, that's good, but this year, there's not that many days left. So it has to be a fairly sort of modest amount of produced chickens compared to what you want to get to. And how's the pipeline looking like when you look into 2025 or the start of '25?

[Jonas Tunestål, executive]

Yes. We see a sign of demand going forward as well. And I -- it's more about that when we now done this acquisition, we put customers in place. And of course, it's always the most work in the beginning to get our customers up and running with the new plant and the new certificates and so on that needs to be set in place. But as we said, we have prepared it well. And even though we started 12th November, we have the products sold, and we see a good continued pipeline going forward as well.

We will use this as explained both for our internal use to Farre and growth there, but also to our more value-adding export customers and customers within our already existing markets, where the domestic preference or the prominence not that high. So the -- it's a good fit for Scandi Standard's Lithuanian business.

[Daniel Schmidt, analyst]

Is it normal that you only signed up for a month ahead in terms of production, or sort of the commitment is longer than that?

[Jonas Tunestål, executive]

Pardon? One more time, Daniel.

[Daniel Schmidt, analyst]

I'm just trying to get -- you're saying that it's -- that's good, of course, that the planned production for this year is already sold. But is it normal that you only sign up for the coming weeks of planned production? It sounds like a very short period. I would have thought that it would have stretched into next year.

[Jonas Tunestål, executive]

All Ready-to-cook business is -- it's a huge difference between Ready-to-eat business and Ready-to-cook business. Ready-to-eat business typically sign contracts for longer term, Ready-to-cook business in all countries is a fast on moving flow where you have continuous discussions with your customers. And the change of demand and you adjust as we have talked about the caucus balance between the customers and so on.

So the thing with Ready-to-cook is that you have your customers who work together with them and then you optimize the flow down because it's a really fast-moving flow where the volumes is different compared to the demand and which type of products that they buy. So it's more about commitment together with customer. So it is in all Ready-to-cook business in all [indiscernible].

[Daniel Schmidt, analyst]

And could you say anything about -- I hear you when you say that part of it is sort of internal demand and part of it is external demand. And if you look at the external side, is that several customers? Or is it one customer? Can you say anything about sort of the customer base that you've been able to build up so far?

[Jonas Tunestål, executive]

Yes. I would say it's several customers. I would say that most of them is customers that we already know and that already buy this type of products from other clients, maybe. But in -- but it's also new customers in -- because we haven't been in this segment before that we're entering. But I would say that there are several customers, but a couple of customers that are the anchors in this business. And that is important for us. We have a clear strategy of how to move into different customer segments during this ramp-up. So the customer base will change a little bit in some of the production during time.

[Daniel Schmidt, analyst]

And sort of, is it a 50-50 split when you look at the very short-term what you have now being committed until year-end between internal and external?

[Jonas Tunestål, executive]

In broad terms, yes.

[Daniel Schmidt, analyst]

Yes. And should we expect, given what you see in the pipeline and what you have done so far and what you aim to do in terms of approaching new customers in the coming weeks and months, should we see sort of a fairly good ramp-up of this at the start of next year?

[Jonas Tunestål, executive]

We are confident in the ramp-up, but it is -- will explain like this. We have a clear plan how to ramp up, and it will start with low volumes in Q4, and then we will ramp up the volumes. So for us, it's more about having control of the production process, both in terms out in the sheds and in the - in our own production and with our external suppliers. And that's why we have put up this ramp-up process. And then we want to onboard some new suppliers along the time. And then when we're up at full capacity, we will see the business turn profitable. But we -- and that is why we have put this, as we said, 6-month ramp-up period. So it's more about a controlled ramp-up for us than it is about getting the product sold.

[Daniel Schmidt, analyst]

But beyond 6 months from the 3rd of November, you think that you will reach breakeven basically?

[Jonas Tunestål, executive]

Yes. We have said in -- at that run rate, and of course, that's -- once again, it's hard to be precise on the exact month, but we have a clear plan to do that ramp-up. And we are expecting that the run rate will be [indiscernible]. Yes.

[Daniel Schmidt, analyst]

And medium term then, if you are able to fill that factory with the capacity that you think that's sort of ideal, was it 25,000 tonnes or something like that, is there any reason to believe that this entity will have sort of lower profitability or higher or where -- sort of what do you envision?

[Jonas Tunestål, executive]

As we said in the presentation, medium term with fill-up factory, we have the ambition that this will contribute to our EBIT per kilo above SEK 3 per kilo.

[Operator]

[Operator Instructions] There are no more questions over the phone.

I would now like to turn the conference back over to Jonas Tunestal for any closing -- excuse me. We have a last minute registration from [ Olive Michelle ] from [ TPA Cap ].

[Unknown Analyst]

I have 3 questions from my side. So the first one is, can we have some details, some more details on the client in Lithuania regarding countries and type of clients? Is it food service, retail clients?

And the second one is what price effect can we expect in Q4? And can we expect growth in Q4 on Ready-to-eat business in Denmark?

[Jonas Tunestål, executive]

If I start with the first one, about what type of clients, it is both retail and food service clients. And it is, I would say, European and Nordic clients. That is -- and of course, some part of it is exported outside Europe as well for the parts that's not valuable in Europe. That was the first question.

And the second question about the growth in RPE, in Ready-to-eat. And as I said, quarter 3 is our strongest quarter, and we always seasonally have a little bit slower quarter 4. But compared to last year, we are expecting to continue the journey that we're on.

But I also must say, once again, that the growth in our Ready-to-eat segment comes in sequences. So it can be one quarter where we onboard a couple of customers, another quarter where we're not onboarding for -- to onboard new ones third quarter. So it will come in sequence as the growth, and it's hard to exactly predict. That's why we're not guiding on that one. But we are aiming for continuous growth in Farre, and we have a positive momentum, and we have a lot of things in the pipeline for 2025.

Does that answer, or did I miss some question?

[Unknown Analyst]

Maybe the one in Denmark -- regarding Denmark.

[Jonas Tunestål, executive]

Regarding Denmark, in total, or Denmark…

[Unknown Analyst]

Yes.

[Jonas Tunestål, executive]

If it's about -- we're not commenting country by country. We have our segments Ready-to-eat and Ready-to-cook. But talking about Denmark Ready-to-cook, we have had historical challenges. We said that we have taken this one out because we are at a breakeven level, and we are working according to plan now to take it above that level, and that also goes a little bit from quarter-to-quarter. But we have this -- our firm plan to increase the value and the EBIT in Denmark as well going forward.

[Operator]

As there are no more questions, Mr. Tunestal, back over to you.

[Jonas Tunestål, executive]

Thank you very much, and thank you for listening, and thank you for good questions to make everything even more clear. So thank you for everyone that participated, and goodbye.