Scandi Standard AB (publ)

STO:SCST

Earnings Call Analysis

Scandi Standard's Q4 Performance Rises

In the fourth quarter, Scandi Standard boasted significant earnings improvements, with a 12% volume increase and improved margins. Despite a slight net sales drop due to lower input prices, mostly feed prices, there was strong demand, reduced net interest-bearing debt, and increased adjusted EBIT by 6% to SEK 105 million, alongside a solid cash flow. The growth was driven by a strong quarter in Ready-to-cook, while Ready-to-eat and ingredients were weaker, as anticipated. With a stronger balance sheet, a dividend of SEK 2.30 per share was proposed, doubling last year's dividend. The company expects growth, having lost and replaced volumes, and is focusing on developing a diversified, profitable portfolio. Growth is acknowledged as sequential, with many potential customers in the pipeline. Financial stability provides strategic flexibility, as demonstrated by the 40% organic growth in Ready-to-eat in 2022 and capital expenditures planned for expansions and efficiency improvements.

Continued Improvement and Strategic Acquisitions in Q4

Scandi Standard has reported earning improvements in the fourth quarter, with a notably increased adjusted EBIT of 6% amounting to SEK 105 million, bolstered by strong demand and an uptick in Ready-to-cook volumes by 12%. Despite a slight net sales decline resulting from lower input costs, mainly feed prices, the company exhibited improved margins and a robust cash flow. An acquisition of a business in the Ready-to-eat segment in Finland also marked an expansion of its market presence.

Optimistic Outlook on Poultry Consumption Growth

Based on a 36% rise in poultry consumption from 2010 to 2022 and expectations of an additional 15% growth by 2030 according to Rabobank, the company anticipates strong growth. The growth drivers are responsible, safe, and nutritious consumption, as well as affordability stemming from sustainable practices, which positions the company well for future demands.

Pivoting in the Ready-to-Eat Segment

The company is rebuilding its Ready-to-eat order book following the termination of a high volume, low-margin breaded contract. Ready-to-eat volumes and EBIT have likely bottomed out in Q4 2023, paving the way for a more diversified and profitable portfolio. Despite strong historic demand, the company acknowledges that growth will occur in sequences. This period of lower activity is being utilized to enhance site standards and prepare for future expansion, considering Ready-to-eat an integral aspect of their strategy to meet financial targets.

Robust Financial Health and Enhanced Cash Flow

Scandi Standard delivered impressive Q4 performance with increased profitability, margin enhancement by 30 basis points to 3.5%, and a significant jump in net income by 20% to SEK 66 million. The company credits this success to improved working capital management and reduced finance costs. The net interest-bearing debt decreased by SEK 107 million, while leverage improved to 1.8 from the third quarter. Strong cash flow from Q4 is leading to improved strategic flexibility and a stable financial position.

Investment and Expansion Plans

The company has announced significant investment plans for 2024, with capital expenditures estimated at roughly SEK 500 million. This includes a 30% capacity expansion in Norway's Ready-to-eat facility, and increased value add through deboning capacity in both Ireland and Denmark. Investments will also enhance product differentiation, efficiency, and an upcoming ERP system launch. Furthermore, the proposal to double the dividend to SEK 2.3 per share reflects the company's strong operational performance and commitment to shareholder returns.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to the Scandi Standard Interim Report Fourth Quarter 2023. My name is Alex, and I'll be coordinating the call today. [Operator Instructions]I'll now hand it over to your host, Jonas Tunestal, to begin. Please go ahead.

[Jonas Tunestål, executive]

Thank you very much, and good morning, everyone, and welcome to this presentation of Scandi Standard Results for Q4 2023. My name is Jonas Tunestal, and I'm the CEO and Managing Director of Scandi Standard. With me, I have Fredrik Sylwan, our CFO, and I'm pleased to have him by my side today. But I'm also glad to report continuing margin improvements and a strong cash flow in the fourth quarter.Next slide, please. The earning improvements for Scandi Standard continued in the fourth quarter, with improved margins and a strong cash flow. We see strong demand at slightly lower prices. We have increased our volumes with 12%. However, net sales are slightly down due to lower input prices and that's mainly due to feed prices, but we see encouraging demand in several markets. We increased our adjusted EBIT to 6%, and delivered an adjusted EBIT of SEK 105 million and a strong cash flow. And the improvement, they were driven by a strong quarter in Ready-to-cook and as presented before, Ready-to-eat and ingredients was, however, weaker, and that was expected and as communicated.We have a strong cash flow, and the NIM was reduced by more than SEK 100 million in the quarter. And during the quarter, we acquired a business in Ready-to-eat business in Finland, and I'm pleased that we now have an integrated Ready-to-eat business in all our countries except Ireland. So in light of the strength of profitability and a positive future outlook, the Board will propose a dividend of SEK 2.30 per share, and that is a doubling compared to the previous year, SEK 1.15.So next slide, please. And here on this slide, you can see that we are proud to have passed a successful turnaround process and recovered our earnings after a tough period for Scandi Standard. And the actions we have been taking is forceful volume contraction to support required price increases. The new course is implemented in Ready-to-cook Denmark, and balance sheet is strengthened through capital discipline and divestments.So with recovered earnings and a stronger balance sheet, we have now entered the next stage in our journey. And once again, I want to give credit to the organization for the resolute handling of our challenges over the past years, and I look forward to develop Scandi Standard further in the strategy period, together with all stakeholders.So next slide, please. And we have also seen a long period of sharply increasing input costs, which have necessitated radical price increases to consumers. Market conditions are now starting to normalize, but key input costs are trending downwards. And as presented on the first page, input cost has a link to our top line. But although we see calmly waters, we, however, need to be prepared for further volatility and there is a high uncertainty going forward in that part. We are encouraged to see demand is increasing strongly in many of our markets and in parallel with consumer spending coming under pressure. So, chicken require far less resources and feed, that is compared to pork and cattle. So, we are proud to offer high-quality, affordable products to our clients.So if we move to next slide. And here you can see that price has always been important for customers and the focus has increased even more in the present inflationary environment. Chicken is affordable in all segments, from high-end to low-end segments and fillets that is even competitive in the low-end cuts. So, we see further opportunities to drive more value out of the chicken due to its affordability.We can move into next slide, please. And this slide will show this a couple of times. And this slide is to remind you on the strong market position in all our 5 home markets and that the countries are highly consolidated. So, these markets have high-entry barriers and they can individually be regarded as semi-closed markets. And that is due to the strong consumer preference for domestic produce. And due to our strong market position, our own supply decisions have a meaningful impact on the market balance and that has helped us in the recovery process from inflation.We can move into next slide, please. And this slide shows the continuous growth in consumption. So, we are expecting strong growth in consumption, and we have seen a 36% growth in poultry in period from 2010 to 2022. And Rabobank, they're expecting 15% growth until 2030.We can move into next slide. And here, you can see the reason for that. And as we explained in detail during the Capital Markets Day, the drivers for this growth are the details and these three areas. So it is responsible, safe and nutritious. It is convenient, versatile and tasteful. And the last one, a really important one, is they're affordable because it's sustainable.We can move into next slide, please. And this table shows the reconciliation of segments. And as you can see, we see strong positive contribution in Ready-to-cook. And we see the reclining in Ready-to-eat and Others as expected compared to Q4 2022. And as we also mentioned, we want to remind you of the category Other, that includes ingredients business and our corporate costs.We can move into next slide, please. And then if we look into our Ready-to-cook segments, there we have increased net sales of 5% and we have a volume growth of 20%. So the difference is driven by lower input cost, the export prices and the change in breed in Denmark. So, we present an EBIT of SEK 77 million compared to SEK 31 million last year, and that is strong improvement driven by turnaround measures and increasing demand in several markets.We also see the improvement in our animal welfare metrics, and that is mainly driven by Ireland. And that is 2 things, mainly that is food pad scores and the lower antibiotic use. We also see a strong focus on our LTI performance, and they are increasing in a really good way and we have, as a company, a strong focus on improving those numbers and be better on that every day.If we move into next slide, please? And if we look into Ready-to-cook over time, I can see that we are now on a journey for profitable volume growth in most of our countries. And as you can see in this slide, we have been able to recover our earnings turnover per kilo. We see some downward adjustments in net sales per kilo and that is reflecting our lower input cost, as mentioned before. We also see normalization of ingredients earnings, and that normalization will continue into Q1. And we are, through increased value upgrade, somewhat mitigating that trend. And that is a strong focus for us in the coming years to extract the value potential and it will represent a substantial opportunity for us. And that focus to live and harvest more on our ingredients, that is really important when we see tougher commodity markets.We'll move into next slide, please. This is the export slide, and we've seen 2% decrease of export prices in the quarter. And we are focusing on building more solid export business with strategic international retail and food service customers. And the aim is to be less exposed to the commodity market, which has a positive impact on our export business.So, we are focusing on broadening our export permits, as well to the most attractive export market in order to get more value out of the bird. When we have this anatomic balance, it's important for us to set the right SKUs or the right data in the right market. We see continued uncertainty in export prices during the first quarter and that high uncertainty is, of course, due to the cost of input prices and so forth.If we move into next slide, please? And then we look into our Ready-to-cook Denmark. And we have now completed the process of reversing the unsuccessful radical, slow growing bird strategy. The bird mix is now more aligned to demand, but there will be an ongoing adjustment to meet the changes. We are expecting continuous sequence improvements and we're gradually changing our product offer to be more aligned with demand. It's not only the bird, it's about having the right offer to the customer in all places. And compared to other countries, Denmark is exposed to the export market. So to mitigate this, we are in the process of increasing our integration with our Ready-to-eat business, which also will be more possible changeover to higher proportional conventional goods. So with that said, the measures to turn Ready-to-cook Denmark into net contributor to Scandi Standard, that will continue with full force in 2024.Next slide please. On this slide you can see the channel development more in detail. Through these details, you can notice the increase in all channels in the quarters, which is driven mainly by volume. We have been seeing a strong demand growth in several markets in the quarter, particular Ireland and Finland.Moving to next slide, please. And now we move into Ready-to-eat segment. And as mentioned before, we have a temporary reduced activity level. Net sales are down with 21%, and that contributed an EBIT of SEK 22 million compared to SEK 53 million last year. And that is due to the loss of contract in Central Europe, and the margin drop that is driven by plant utilization. But we will see the lowest volume here in Q4. We also have an adverse development in lost time injuries, and we have taken corrective actions to prevent reoccurrence. Continuous work to ensure preventive measures have been made. So, we're working hard in that. Most of the people are in our Ready-to-cook business. So, a few numbers will have a big impact in the Ready-to-eat segment.Moving to next slide. Now, this is a more important slide. We continue to rebuild our Ready-to-eat order book after this loss of the breaded contract. So the high volume, low-margin business is phased out now and volume in EBIT is likely to have bottomed out now in Q4 2023. For the loss business, the positive thing, it has made room for new opportunities with more long-term diversified, profitable portfolio and we have a good traction in replacing lost business.We have historically seen a strong but uneven demand, and we expect that to continue growth over time. Growth in this segment, though, comes in sequences and we have a lot of potential customers in the pipeline, but it will come in steps. So, we're using this period of lower utilization to upgrade and maintenance to meet the highest standards and prepare for future expansions. And Ready-to-eat will be and is an important cornerstone in our strategy to meet our financial targets.Moving to next slide, please. And here, you can see the figures and it is, of course, very encouraging to see that our continuous growth in retail in Ready-to-eat. However, the development in food service channel is declining due to the reasons mentioned in former slides. So, growth in this segment will be a priority for me in the coming years. We are confident that we will replace the lost volumes with other more profitable volumes over the coming periods, and we have already slowly started to fill up with new orders and that will continue for the coming periods. Ready-to-eat will be an important tool in developing the EBIT per kilo, or i.e., increasing the value of our proteins.We move into next slide, please. And here, you can see our Ready-to-eat sites. So in Scandi Standard, we have 4 sites, processing sites to make Ready-to-eat products. We have Stokke in Norway. We have Valla in Sweden, and now we also have Honkajoki in Finland. And all those 3 are producing pre-cooked and fried products for the home market. And then in Farre, we produce breaded products for both domestic, but especially for international markets with a primary focus on Europe. And there in Farre, we focus on fewer, bigger, better concepts where we streamline and scale the production with a sharply defined product assortment and customer base. And also to mention, we're investing for a 30% expansion in Norway that will happen later this week.We can move into next slide, please. Here, you can see the growth over time and I'm not very concerned about recovery. We recently lost volumes over the coming periods. We have seen historically strong, but uneven demand and we expect continuous growth over time. And growth in each segment, as mentioned, before comes in sequences and the trends for that as presented before as well. It is two main types. It's integrated, local breaded business and it is international breaded business. And also to mention, our Ready-to-eat business yields a significantly high return on capital compared to Ready-to-cook. So, I would like to highlight a strong organic growth in this segment, including 40% growth in 2022.So with that, I will hand over to you, Fredrik, for a more deep-dive in the financial.

[Fredrik Sylwan, executive]

Thank you. So many thank you, Jonas, and good morning, everyone.As Jonas mentioned, Q4 was strong with improved profitability, strength and margins and strong cash flow, despite sales coming in lower than previous year. So, net sales for this period is slightly below previous year with 2%. This is primarily due to the RTE contact and the other business that is almost fully offset by the RTC performance. EBIT is up 6% to SEK 105 million and margin strengthened 30 basis points to 3.5%.Our finance costs have decreased compared to previous year. This reduction is mainly attributed to increased interest income linked to interest-bearing receivables and lower interest costs. This has resulted in net income increasing 20% to SEK 66 million. And from an operational side, some highlights are; despite some challenges in sales, our feed efficiency remains stable at a very strong level. And as a reminder, feed efficiency is measured as kilo feed needed for 1 kilo live weight. Our chicken has one of the lowest levels for animal proteins. In Q4, our feed conversion ratio was at 1.49. We've also made notable improvements in employee safety as evidenced by decreased lost-time incidents or LTIs.Next slide, please. Our return on capital employed and return on equity continue the positive trend and we significantly improved versus previous year. We are now back to historic levels, and main drivers are increased profitability in combination with lower capital employed. At the same time, our equity ratio has improved further to 36%, both versus the third quarter and versus previous year. This is mainly related to reduced balance sheet from the divestment of Rokkedahl and lower inventory.Next slide, please. Here, we have our cash flow overview. And as said, Q4. we had very strong cash generation, mainly driven by improved working capital, driven by accounts receivables. Same as last year, we have a large portion of the full year CapEx in the last quarter, but we also made payments for the Finnish acquisition in the fourth quarter. Paid tax is positive, driven by the refund of 2022 preliminary corporate tax. Our net interest-bearing debt decreased in the quarter with SEK 107 million and our leverage is now at 1.8, which is slightly lower than Q3. Our financials are now stable, which is giving us improved strategic flexibility going forward.Next slide, please. Our working capital has significantly improved, driven by lower inventory, reduced receivables and increased holiday debt. As previously announced, target level for working capital to sales, excluding financing items, remains around 6% and recurring debt 4%. Focus going forward is to closely monitor developments and, of course, optimizing it.Next slide, please. Looking at our inventory level, it has increased in Q4 versus Q3, but decreased versus previous year. Change in mix is the main driver for both comparables. As a result of the lost RTE contract, we have realized the opportunity to reduce safety stock, which is partly offset with our seasonality effects where we usually build inventory in the fourth quarter. Inventory, of course, remains a clear focus area going forward and we, for example, work on optimizing the sales and operations planning to make sure we produce right products and we use the export channel for surplus sales to not interfere unnecessary with the domestic pricing.Next slide, please. Capital expenditures for 2024 is estimated to be around SEK 500 million, which is a substantial increase versus 2023 and it's also a key element to reach the recently revised targets. The priorities are, for example, the RTE expansion in Norway to meet the demand, with an approximately 30% increase of capacity. Increase in deboning capacity in both Ireland and Denmark is also a priority where we aim to climb the value add. We also invest in product differentiation in Ireland, as well as an increase in efficiency, both from a value-added perspective, for example, adding new packaging lines. We also have our ERP implementation, where we will go live with the first market in the second quarter this year.Interest paid on bank financing is approximately 5.5% annually. And if we add the IFRS interest cost components of leasing and factoring, then the paid financing cost is estimated to be around 8% of net interest income. Our dividend proposal is SEK 2.3 per share, which is twice the previous dividend and this is close to 60% of net earnings over time.Next slide, please. Over to you, Jonas.

[Jonas Tunestål, executive]

Thank you, Fredrik.And next, I would like to talk about one of our cornerstones and a license for us to operate and all these 3 key areas where it comes to creating trust for what we do. So, it is about responsible animal welfare, safety for consumers and employees and nutritious products. And this has a close link to our sustainability scorecard.If we move into next slide, please. And we can see the sustainability scorecard here. And I'm proud of the progress that has been made during the year, including meaningful -- improving the lost time injury frequency rate, antibiotics use and our main animal welfare indicator foot score. So during 2024, we will continue refining our roadmap towards 2030, including development of our Climate Transition Plan, as well as implementing the EU Corporate Sustainability Reporting Directive and that is called CSRD. The implementation of CSRD will further strengthen the integration of sustainability in our strategy. And it will be a part of our value chain and operation, and it will facilitate comparability and further transparency. That will be an important part of our work.If we move into next slide. And on this slide, you can see our structured effort is resulting in recognition in forms of improved ESG ratings. And as communicated yesterday, we climbed to A-minus in the CDP rating. And that is a rating that only a few companies within the food industry have obtained. But we also score high on other ESG ratings. As you can see on the right side on this slide, for example, Sustainalytics, where we are top 10 out of 360 companies in packaged foods globally. And in our sustainability work, we are focused on the whole value chain from farm to fork. And that would do with data collection, target setting and reduction initiatives. It's an important part in our strategy.If we move into next slide, please. So here, you can see our strategic pillars that we also present in our Capital Markets Day. And these are the 4 strategic pillars that would support us achieving our goals. And it is; increase the value of our protein, it is ramp up our efficiency and quality end-to-end. And all of this, we need to do with sustainability means in every step of the way, as one company, making us constantly better together. And better together, that is the belief in the practice we strive for to make us more effective, successful and impactful when we collaborate, work as a team and leverage each other's strengths. And it's empathized that collective effort, shared goals and team cooperation lead to improved performance and outcomes. So, these 4 strategic pillars are important for us to achieving our goals.And if we move into next slide, we will take a look at our financial and sustainability goals that were presented before. And we want to create a Scandi Standard to be proud of, trusted by everyone and where people can develop. And with this comes earnings. And with earnings, you earn a right to grow. And at the right side, you can see our financial targets for 2027 and our sustainability targets for 2030. And we are expecting strong growth over the coming years. We set the target for 2027 of 5% to 7% net sales growth. But we need to be aware of that we're coming from a high inflation with high feed cost, and that will affect the net sales for 2024 as it has done in Q4. And as I mentioned before, our business has typically a high exposure to cyclical raw material prices as feed. But due to our dynamic pricing model, with more than 80% of our sales linked, we have the ability to pass through feed cost.During 2024, we expect feed to come down, which will affect us in our 2024 net sales numbers, but that will not affect our volume and EBIT per kilo expansion in 2024. And in addition to these financial goals and sustainability targets, we have another important supporting target. And that is the target of our SEK 3 EBIT per kilo weight. And this is what we mentioned as grill weight. And that is what we consider to be the most valuable target when we look into how much value we can take out of our protein. And that is something that we will focus on.So if we move into next slide, you can see it in the graph on the right and there, you can see the essence of our clear roadmap to achieve SEK 3 EBIT per kilo target. And we see a large potential to climb the value ladder and we also see a large potential to set up better efficiency in our value chain and to be more concrete on what we actually do. So if we look into this climb-the-value ladder, it is about balancing supply to domestic fillet demand. We don't want to overproduce to export. We always take out the most valuable protein locally in products like fillets. Then it is about value creation through increased consumer convenience. And that can be through how we look into more deboned legs, It can be how we look into more convenience products in terms of how we can upgrade the wings or other parts of the bird as well.It is about differentiation and branding opportunities. And it is to utilize further part of the potential in our ingredients business. And that is in terms of volume, 50% of our volume. So, we have a large potential to harvest more and upgrade the value in our ingredients business. Then we see large efficiency potential in our value chain. And it is about optimized utilization at advantage of sustainability metrics. It is the organizational performance, build this scalable platform and a structured collaboration.We're talking about have this local accountability of 5 P&Ls. But taking the advantage of being a group one Scandi Standard and have a structural scalable platform. We're looking into standardization and optimization in production. We want to standardize the supply chain even more and digitalize the platform even more. And we want to increase the collaboration in the value chain because we see this is a long, complex value chain, but it also gives great possibilities to take out more value in that chain.If we move into next slide, please. To achieve our goals, we are building this robust vehicle to serve our home markets and beyond. And that's why we're launching this SEK 2 billion investment program in the period. And the investment program aim to support Ready-to-cook investment, the 2% increase in throughputs in our plants and support better utilization in our facilities. It will support our ramp-up of our ingredients business. It will take out more value out of that. It will also be preparing for a significant growth in Ready-to-eat throughout the strategy period. And we have also earmarked investment for more than SEK 200 million for meeting our sustainability goals. And as you all know, sustainability and efficiency is linked together. It's only different measures on how you can use your resource in a more efficient way.And then if we move into next slide, and that slide will summarize it all. So if we look into this period in Q4, we have improved our margins. We have a strong cash flow, and we're expecting a continued profitable growth in Ready-to-cook. We have a strong focus and disciplined replacement in our Ready-to-eat business. We see this large potential in climbing the value ladder, and I really think that we're now well positioned to reach our long-term goal with a strong balance sheet and a clear roadmap. We have a clear investment program for the future to reach our goals. And with this, increased a good period behind and a future positive outlook, we have the dividend proposal of SEK 2.30 and that is a double dividend proposal compared to dividend last year of SEK 1.15.That is the last slide. And then I think that we move on and open up for Q&A. We can move into next slide, please.

[Operator]

[Operator Instructions] Our first question from today comes from Simon Brun of ABG Sundal Collier.

[Simon Skaland Brun, analyst]

Yes. On Sweden, in Ready-to-cook segment, we've seen negative growth there for 3 consecutive quarters. You say it's still at 85% of where I guess you want it to be. Can you say something about what drives this trend and what must happen to sort of turn it around? Yes, I guess that's my first question.

[Jonas Tunestål, executive]

We took an active choice to take down the volumes in all our markets to secure that we could pass through the price increases when we have this radical inflation coming years. Now, we see that the volume come back in other countries. And in Sweden, we have this 85% utilization and there is a growth potential to take up the volumes. And as I said, in other countries, we've already seen this pickup in volume. But Sweden is lagging a little bit behind. But there's a potential going forward. But we will never compromise with getting the right price and the right margins. So it was an active choice, and we see really good progress in many countries where we already picked up the volume. And Sweden is lagging a little bit behind. But there's potential going forward in that. We have the capacity to take up the volume when we can have a secure margin and profitable growth.

[Simon Skaland Brun, analyst]

And the second question on the Ready-to-eat segment. Your comment on good traction in replacing the lost volumes there. Should we think of that as a gradual recovery? Or is it more back-end loaded towards the second half of the years? And will higher margins on these volumes be enough to offset sort of the negative impact short term on margins? Or should the margins be sort of similar to what we saw in '23 for the full year?

[Jonas Tunestål, executive]

We will see a gradual growth, but it's hard to say because this segment, the growth come in sequences. And at the moment, the growth is a little bit slower in global QSR, but it will pick up again during the period. And I think that we have a really good plan for filling up other. And there will be this strong, but an uneven growth in demand. So little bit slow in total QSR global at the moment. We have a good plan, and it will come a little bit in sequences. That is the answer on that question.

[Operator]

[Operator Instructions] Our next question comes from Daniel Schmidt of Danske Bank.

[Daniel Schmidt, analyst]

On that topic, when it comes to lost volumes in RTE, if you try to stack that up against the recovery that you're seeing in your Danish RTC business, where you're clearly sort of making strides towards the breakeven and profitability, it sounds like in 2024. Do you think that those 2 trends, the loss of this contract versus the sort of recovery that you've done in RTC, will they even each other out at the start of '24?

[Jonas Tunestål, executive]

We will not guide, David, but we will say like this, we will see a continuous improvement in RTC Denmark. We have done this so-called normalization or putting the right birds up the demand, and then we will see continuous improvement. We will see this continuous improvement in RTE during the period as well. But, of course, the volumes and the effects in related to Denmark in terms of volumes and turnover has a greater impact, if we are able to get a good balance there.

[Daniel Schmidt, analyst]

Okay. If I heard you correctly, we'll be sort of a net negative at the start of the year. Is that what you said?

[Jonas Tunestål, executive]

What I said was that we have hit the bottom in Q4 and in the coming period now, we will fill up Farre. And that will come in sequences, and we see a little bit slow growth in QSR. But we see in Ready-to-cook Denmark, we see a good progress going ahead that we will move continuous throughout. But we will see continuous improvement in both of them throughout the time.

[Daniel Schmidt, analyst]

Yes. But you will still have QSR down year-over-year in Q1.

[Jonas Tunestål, executive]

Yes.

[Daniel Schmidt, analyst]

And you will have Ready-to-cook Denmark up, I assume. And you're not sort of telling us what the net effect will be, is that what you're saying?

[Jonas Tunestål, executive]

Yes.

[Daniel Schmidt, analyst]

But the rate of improvement in RTC -- in Ready-to-cook Denmark then, is this sort of a linear, gradual improvement that you see in '24? Or is it back-end loaded? Are we sort of at the stage now where we are at breakeven, but it's going to take some time to show profitability? Or is it sort of steadily moving into profitability month by month?

[Jonas Tunestål, executive]

I will phrase it like this, that in Ready-to-eat business, the growth in Ready-to-eat business, they are a raw material buyer from Ready-to-cook. So, there will be a link between those two. So, of course, when we see growth in Ready-to-eat, that will contribute to our Ready-to-cook profitability as well because we want to integrate those type of businesses more.

[Operator]

[Operator Instructions] We have a question from Simon Brun of ABG Sundal Collier.

[Simon Skaland Brun, analyst]

Yes. Just a quick question on Ready-to-cook. Jonas, you touched upon this in the outlook statement, I guess. But in terms of prices now coming down into '24, you say that this will have a negative impact on the top line. But how certain are you that costs and the mix effect could offset this and that margins will improve in '24? Do we have to see costs sort of coming more down than it is now? Or do we have to see something extraordinary in terms of mixed improvements? Or could you just elaborate on that?

[Jonas Tunestål, executive]

We have seen on the late 2023 that feed prices have come down, both in terms of the wheat price and the soy price. And of course, that's a lag of that drop when it comes to implementing price reductions in the market. So, we will see a top line part of that. But also going forward from now and going forward, it's very hard to predict whether wheat prices will end. For a month ago, they predict that it will be more stable, but we have seen a little bit further drop. But now they're talking about stabilization, but it's just predictions. So to summarize, answer to your question is that there's a delay from the drop in feed prices that will affect the [ net supplies ] in the coming quarters.

[Operator]

At this time, we currently have no further questions. So, I'll hand back to Jonas for any further remarks.

[Jonas Tunestål, executive]

I want to thank you, everyone, for listening in. And with that, we end the presentation. Thank you very much.

[Fredrik Sylwan, executive]

Thank you very much.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.