Scandi Standard AB (publ)

Good morning, everyone, and welcome to this presentation of ScandiStandard's results for Q4 2023. My name is Jonas Sturnestad, and I'm the CEO and Managing Director of ScandiStandard. With me, I have Fredrik Sullivan, our CFO, and I'm pleased to have him by my side today. I'm also glad to report continued margin improvement 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 with 6% and delivered an adjusted EBIT of 105 million SEK and a strong cash flow. And the improvement, they were driven by a strong portal in ready-to-cook. And as presented before, ready-to-eat and ingredients was however weaker, and that was as expected and as communicated. We have a strong cash flow and NILD was reduced by more than 100 million in the quarter. And during the quarter, we acquired a 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 2.30 SEK per share, and that is a doubling compared to the previous year, 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 action we have been taking is forceful volume contractions to support required price increases. A new course is implemented in Ready to Cook Denmark. And balance sheet is strengthened through capital discipline and divestment. So, with recovered earnings and a stronger balance sheet, we are now entering 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 developing Scandi Standard further in this budget 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 calming 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 spendings 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 the 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 buy more value out of the chicken due to its affordability. You can move into the 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 five whole 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 decision had a meaningful impact on the market balance. And that has helped us in the recovery process from inflation. Moving to the 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 the period from 2010 to 2022. And Rabobank, they're expecting 50% growth until 2030. Next slide. And here you can see the reason for that. And as we explained in detail during the capital market 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 the affordable because it's sustainable. We can move into the 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 the next slide, please. And then if we look into our ready-to-cook segments, there we have increased in excess of 5%, and we have a volume growth of 20%. So the difference is driven by lower input costs, the export crisis, and the change in greed in Denmark. So we present an EBITDA of 77 million SEK compared to 31 million last year. and there is strong improvement driven by turnaround measures and increasing demand in several markets. We also see the improvement in our animal welfare metrics, that is mainly driven by Ireland, and that is two things mainly, that is footpath scores and the lower antibiotic use. We also see a strong focus on our LPI 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 the 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 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 upgrades, somewhat mitigating that trend. And that is a strong focus for the coming years to extract the value potential. And it will represent a substantial opportunity for us. And that focus to lift and harvest more on our ingredients, that is really important when we see tougher tomato tomorrow. Moving to the 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 customer. 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 markets 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 SQs or the right data in the right markets. We see continued uncertainty in export prices during the first quarter. And that high uncertainty is, of course, due to the cost of import prices and so on. If we move on to the 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 burge strategy. The bird mix is now more aligned to demand, but there will be an ongoing adjustment to meet the changes. We're expecting continuous sequel improvements, and we're gradually changing our product offer to be more aligned with demand. It's not only the bird, it's about handing 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 a higher proportion of conventional birds. So with that said, the measures to turn ready-to-eat Denmark into net contributor to the Scania 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, particularly Ireland and Finland. Moving to the next slide, please. And now we move into ready-to-eat segments. And as mentioned before, we have a temporary reduced activity level. Net sales are down with 21%, and the company is at an EBIT of 22 million SEK compared to 53 million SEK last year. And that is due to the loss of contract in central Europe. And the margin draw, that is driven by plant utilization. But we will see the lowest volume here in Q4. We also have an adverse development in last-time injuries, and we have to take corrective actions to prevent recurrence. Continuous work to ensure preventive measures has been made, so we're working hard with that. Most of the people are in our ready-to-cook business, so a few numbers will have a big impact in . Moving to the next slide. That is the 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 and aided is likely to have bottomed out now in Q4 2023. So the lost business, the positive thing, it has made room for new opportunities with more long-term diversified 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 to grow 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 low utilization to upgrade and maintenance to meet the highest standards and prepare for future expansion. And ready-to-eat will be and is an important cornerstone in our strategy to meet our financial targets. Moving to the 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 and ready-to-eat, however, the development in food service has been declining due to the reasons mentioned in the former slide. So growth in this segment will be a priority for 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 ones, and that will continue for the coming years. Ready-to-eat will be an important tool in developing the ABIT per kilo, i.e. increasing the value of our protein. If we move into the next slide, please. Here you can see our ready-to-eat sites. In Scandi Standard, we have four processing sites to make ready-to-eat products. We have Stokke in Norway, Valla in Sweden, and Honka Jokk in Finland. All three are producing precooked and fried products for the whole market. In Farve, we produce breaded products for both domestic and international markets, with a primary focus on Europe. And there, in Faro, 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 year. Move into the next slide, please. You can see the growth over time and I'm not very concerned about recoveries and lost volumes of the common 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, is integrated local ready business and it is international ready business. And also to mention now ready to eat business yields a significant high return on capital compared to ready to cook. So I would like to highlight the strong organic growth in this segment, including further 40% growth in 2022. So with that, I will hand over to you, Fredrik, for more detail in the financial. Thank you.

So many thanks Jonas and good morning everyone. As Jonas mentioned Q4 was strong with improved profitability, strengthened 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 contract and the other business that is almost fully offset by the RTC performance. EBIT is up 6% to 105 median CX and margin strength from 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 66 median CX. 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 one kilo mile away, where 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 LPIs. 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 avoid. 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 Rokkidal 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 payment for the finished 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 107 million SEK, 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, the target level for working capital to sales excluding financing items remains around 6% and we are currently at 4%. The focus going forward is to closely monitor development 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 stop, which is partly offset because we have seasonality effects where we usually build inventory in Q4. 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 unnecessarily with the domestic pricing. Next slide please. Capital expenditures for 2024 is estimated to be around 500 million SEK, 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. Increasing deep de-boning capacity in both Ireland and Denmark is also a priority where we aim to climb the value ladder. We also invest in product differentiation in Ireland, as well as an increase in efficiency, both from a value added perspective, for example, adding a new packaging line. We also have our ERP implementation. We will go live with the first market in the second quarter this year. Interest rate 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 that interest rate. Our dividend proposal is 2.3 Swedish crowns per share, which is twice the previous dividend. This is close to the policy of 60% of net earnings over time. Next slide, please. Over to you, Jonas.

Thank you, Fredrik. And next I would like to talk about one of our cornerstones and the license for us to operate. And all these three 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 the 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, antibiotic use, and our main animal welfare indicator, food 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 operation, and it will facilitate comparability and further transparency. That will be an important part of our work. Moving to the next slide. And in 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 an 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. You can see on the right side on this slide. For example, Sustainalytics, where we are top 10 out of 360 companies in packaged food globally. And in our sustainability work, we are focused on the whole value chain from farm to fork. And that would be 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 market days. And these are the four strategic pillars that will 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. That's one company making us constantly better together. And better together, that is the belief and 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 empathizes that collective efforts, shared goals, and team cooperation lead to improved performance and outcomes. So these four strategic pillars are important for us to achieving our goals. And if we move into the next slide, we will take a look at our financial and sustainability goals that we have presented before. And we want to create the Scandi standard to be proud of, trusted by everyone and where people can develop. And with this comes earnings, and with earnings, you earn your 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 that we're coming from a high inflation with high feed costs, 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 leaked, we have the ability to pass through feed costs. In 2024, we expect feed to come down, which will affect us and our 2024 net sales number. But that will not affect our volume and 80 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 three SEC EBIT per kilo weight. And this is what we mentioned as real 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 project. And that is something that we will focus on. So if we move into the 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 basic EBIT per kilo targets. 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 deep bone leads. 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 lot of potential to harvest more and upgrade the value in our ingredients business. Then we see a large efficiency potential in our value chain. And it is about optimized utilization at advantage of sustainability metrics. It is the organization of performance to build this scalable platform and structured collaboration. We're talking about having this local accountability of five P&Ls, but taking the advantage of being a group, one standard, and have a structured and 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 the 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 2 billion investment program in the period. And the investment program aims 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. We'll take out more value out of that. It will also prepare for significant growth in ready-to-eat throughout the strategy period. And we have also earmarked investment for more than 200 million SEK 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. Then if we move into the 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 continual 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 valley 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, increase a good period behind and a future positive outlook. We have the dividend proposal of 2.36. And that is a double dividend proposal compared to the dividend last year of 1.50. That is the last slide. And then I think that... We move on and open up for Q&A. We can move into the next slide, please.

Thank you. As a reminder, if you'd like to ask a question, you can press star or float by one on your telephone keypad. If you'd like to remove your question, you may press star or float by two. Please limit yourself to two questions at a time. Thank you. Our first question from today comes from Simon Brunn of ABG Sandal Collier. Your line is now open. Please go ahead.

Yes, thank you. Good morning, Jonas. Good morning, Fredrik. On Sweden in ready to cook segment, we've seen negative growth there for three consecutive quarters. 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? Yeah, I guess that's my first question.

We took an active choice to take down the volumes in all our markets and secure that we could pass through the price increases when we have this radical inflation coming in. Now we see that the volume will 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 pick up the 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 markets. So it's an active choice, and we see really good progress in many countries where we've already picked up the volume, and Sweden is lagging a little bit behind. But there's potential going forward. We have the capacity to take up the volume, but we can have a secure margin as well.

Thank you. And the second question on the ready-to-eat segment. You 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? Will higher margins on these volumes be enough to offset the negative impact short-term on margins, or should margins be similar to what we saw in 2023 for the full year?

We will see gradual growth, but it's hard to say because this segment, the growth comes 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 further. And there will be this storm, but an even growth in demand. So a 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.

Thank you. That's all for me.

Thank you. As a reminder, if you'd like to ask a question, that's staff led by one on your telephone keypad. Our next question comes from Daniel Schmidt of Danske Bank. Your line is now open. Please go ahead.

Thank you, operator. Good morning, Jonas and Fredrik. 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 break-even and profitability, it sounds like in 2024. Do you think that those two trends the loss of this contract and versus the sort of recovery that you've done in RTC, will they even each other out at the start of 24?

We will not guide and hate it, 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 after demand and then we will see continuous improvement. We will see this continued improvement in RTE during the period as well, but of course the volumes and the effects in Denmark in terms of volumes and turnover has some greater impact if we are able to to get a good bounce back.

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

What I said was that we have hit the bottom in Q4 and in the coming period now we will fill up further and that will come in sequences and we see a little bit slow growth in QSO but we see in ready to cook Denmark we see a good progress going ahead that we will move continuous throughout the year. We will not have a net effect, but we will see continuous improvement in both of them.

You will still have QSR down year over year in Q1? Yes. And you will have ready to cook Denmark up, I assume. And you're not telling us what the net effect will be, is that what you're saying? Yeah. But the rate of improvement in RTs in ready-to-cook Denmark then, is this a 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 break-even, but it's going to take some time to show profitability? Or is it sort of steadily... moving into profitability month by month.

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. Okay.

okay thank you uh that's all for me thank you as a reminder if you'd like to ask a question that's star fled by one on your telephone keypad okay at this time we currently oh my apologies we have a question from simon lebrun of abt sundale collier The line is now open. Please go ahead.

Yeah, thank you. 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 do something extraordinary in terms of mixed improvements, or can you just elaborate on that?

We have seen on the late 2023 that the feed prices have come down both in terms of the wheat price and the soil price and of course there'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 peak prices will end. For a month ago, they predicted that it will be more stable, but we have seen a little bit of a drop. But now, they're talking about stabilization but it's um it's just predictions so to summarize uh answer uh to your question is that there's a there's a delay from from the drop in feed prices that will affect the net supplies thank you guys thank you this time we currently have no further questions so i'll come back to jonas for any further remarks i want to thank you everyone for for listening and with that we we end the presentation thank you very much thank you very much