Scandi Standard AB (publ)

Good morning, everyone, and welcome to this presentation for Scandi Standard's result in Q4. My name is Jonas Thunestad, and I'm the CEO and Managing Director of Scandi Standard. By my side, I have Fredrik Sylvan, our CFO, and I'm pleased to have him by my side. And I'm also glad to report a strong quarter and structural growth. So moving to the next slide, please. And here we see a 5% growth in net sales and increasing volumes. And that is supported by strong consumer trends. Need to remark that Q4 is always our seasonal weakest quarter. But we have a strongest quarter in Q4 in Scandinavian standards history. And that is even if we had the startup cost of the newly acquired ready-to-cook platform in Lithuania. And the startup cost our 40 million SEK in the quarter. So there's a strong underlying improvement in EBIT. And that is due to that our country improvement programs are progressing well. And you can also see a strong performance in our ready-to-eat business. Then after the period, we have the an acquisition of a ready-to-eat plant in Oosterwalde in the Netherlands. And that plant holds two of Europe's most efficient breaded poultry lands, which will provide a solid platform for the future for us. And that means a 90% increase in capacity for frozen breaded products, which will be a fantastic growth platform for us for many years. And then at last, We have a dividend proposal of 2.50 compared to 2.30 last year, and that's an increase of 9% compared to last year. And that reflects the good track that we're on to deliver our financial results. So if we move into next slide, please. And here's the reason why we see a strong demand. It's related to these three value drivers for chicken. It is responsible, safe and nutritious. It is convenient, versatile and tasteful. And it is affordable because it's sustainable. And we move to the next slide, please. And here you can see the strong historical and ongoing consumer trend for chicken. On top of the increased consumption for chicken, it's also benefiting from a long-term inflow from other proteins. We can move into the next slide, please. And one of the major reasons why it's benefiting from other protein is because it's sustainable and affordable. And as you know, price has always been important for consumers, and the focus has increased even more in the current environment of high food prices. And chicken is affordable in all segments. And it gives us further opportunities to drive long-term volume and value creation. So we see future opportunities to drive more value out of the chicken due to its affordability. And we move into next slide. And on this slide, we want to present our 80 per kilo measure. And 80 per kilo is a good measure of our value creation in our business. And as you can see on the figure to the right, momentum is positive. And in the year, we have significant increase from 1.69 to 1.82. And Q4 is our seasonal weakest quarter. And in the different colors in the diagram, you can see the development in the different segments. So we see a strong performance in ready to cook and rolling 12 and a decline in ready to eat rolling 12 due to the missed contract last year. But the progress since it bottomed out last December is positive. And you can see that in the quarter numbers, not at least in this quarter. And in spite of the start of cost in Lithuania, also Q4 EBIT per kilo was higher than last year in Q4. And our focus is to climb the value ladder and that is progressing well. So moving to the next slide. And this slide reminds you of our strong market position in all our five home markets, and the countries are highly consolidated. The market had large hurdles for new entrants. They can individually be regarded as semi-closed markets due to the strong consumer preference for domestic produce. And due to our strong market position, our own supply decision have a meaningful impact on market balance, which has helped us in the recovery process from inflation. But also note that each market, however, also includes consumer segments. We're less sensitive for problems. Next slide, please. And now the startup of our acquired low cost ready to cook platform in Lithuania. And the reason is to fully utilize the potential in our existing markets and clients, it's important to include a low cost and high quality hub into Scandi Standard. So after this long period of searching, we have found the ideal target in Lithuania in Q4 and started ramping it up. It is a factory, state of the art factory that can produce 20 to 25,000 tons in grill weight. And the plant is best in class when it comes to quality and cost. And the plant also is right scale for our current needs and the potential to scale up as needed. And it also have a good fit into the acquisition that we've done in Ostervold that we'll talk about later. And the intention is to build a fully integrated hub. That will allow us cost control, animal welfare, food safety, and all the high standards that are needed for us to find the right customers and also provide them with the right raw material to the right market. And as an example, to sell these high-quality products is the segment in the existing markets, less sensitive to provenance, but it's also a raw material provider to our ready-to-eat plants, And we're also entering new and increasing our business with existing export clients. And on medium term, the target, a bit per kilo target will be well above three sec per kilo. So now we're wrapping it up and I'm really proud of the first quarter ramp up and we will continue that ramp up in quarter one. So next slide, please. And here's a picture of our main ready to cook plants. And note in the right side corner, there are these 11 million chickens in Lithuania, but that's just one shift. If market has a positive momentum, we have the possibility to scale up with another shift and double the production. Next slide, please. And now we're moving to ready to eat. And this slide is a reminder of our strong historic organic growth in our real estate business. And I'm confident that it will continue the trend. And there are two main types of business. There are this three-quarter breaded products, a European market. And one-third of this is integrated local business in Sweden, Norway and Finland. And it has a high return on capital employed, and we also have a high EBIT margin, and the margin is around 6% for the last five years. And as you remember, we lost some continental contract in 2023, but since last December in 2023, we have growth quarter by quarter with new better margin business, which is reflected in our ready-to-eat result in this quarter. Then we can move into the next slide. And here we want to present that there are market players that are divided into different tiers. There are European players, there are regional players, and there are local players. And Scandi Standard has been a large local player with its 36,000 ton product weight in 2024. And that is about 5% European market share. But the production platform, that is not competitive in the top tiers, typically a mid-tier competition. And we also see and have seen a stagnated market after COVID-19 and inflation. So there are some European overcapacity. But this gives us the possibility to acquire this plant. And we see and our prognosis is that it will grow. And we've also seen that it started to grow now in 2025. And the market expectation is that it will grow 60,000 tons until 2029. Let's move into the next slide, please. And if we look into the acquisition that will move us into top tier in terms of production facilities, this is a plant which holds two of European largest and most efficient bread and product lines. In this factory C, you can see up in the right corner. And it is one of the few with this advanced phone product capability. And it was impacted by a fire 2023. So the total investment that we will do there is 28 million euro. And that includes the acquisition price and the required investment we need to do. But it is in our... plan replacing a 30 million euro investment in Denmark. And that 30 million investment in Denmark has only given us 20% increase in production capacity. And as I said in the first slide, this will increase our capacity with 90% to lower price and more efficient. And it is a plan that is tailor-made to meet the criteria of the largest clients. And that's also another important thing. And it is that now we have two site operation, and that is to satisfy the contingency criteria that is needed. And the operation is planned to start in Q3 in 2025. And that will, of course, come from startup costs and have low utilization in the beginning. But we will continue to fill this factory up. So if we move into next slide. So now we have talked about the acquisition in Lithuania and acquisition in Netherlands. So if we look at it in a more holistic perspective, our Lithuanian business is a low cost and high quality end-to-end hub in combination with the state of the art credit capability in Netherlands and Faroe that will give us feed efficiency, low labor costs, efficient logistic together with a scalable platform. And with this together, With our strong position in our home market, it gives us very competitive combined offers to our clients. And this gives us a competitive strength to be able to grow in the market and take market share. But typically, it has long lead times in supplier switchovers. So we need to be patient to onboard the full value chain business with customers. But meanwhile, Lithuania has secured strong customers in orders in the fresh meat business. Let's move into the next slide, please. And now we're moving over to our segments. And the table shows the reconciliation of our segments. And adjusted for startup customers in Lithuania, we see a strong positive contribution in both ready to cook and ready to eat. And as always, we want to remind you of the category other that includes the ingredients business and our corporate costs. Moving to the next slide, please. And now we're looking into ready to cook. And we see strong growth, 5% increase in net sales, 1% increase in volume. So that's a positive mix effect as well. Adjusted average is 63 compared to 77 last year. but that includes the startup cost in Lithuania. We do see some increased last-time injury frequency that increases from 25.6 from 22.9 last year. And we are taking actions to return to the long-term positive momentum. We have a really good long-term positive momentum, but the latest quarter, it has been challenged by these high numbers of injuries. But we have a clear focus to get those numbers down again. But we're proud of our animal welfare indicator that are well below target. And that ends on 9.8. Next slide, please. And here you can see our historical development. And we're proud to say that we've now surpassed the historical peak with a combination of a 4% increase in volume. And there are historical track records, strong growth and stable margins. But during this period of COVID-19 and an unsuccessful differentiation strategy in Denmark that pressed our margins for a while. But we have forceful actions and secured a successful turnaround, as you can see. And we have a clear roadmap to significant EBIT per kilo increase. Next slide, please. And we're moving into export prices and we see a positive trend in realized export prices. There's still continued uncertainty, but we see a more stable increase and we're also implementing good progress there. And that is due to that we're looking into working more and more with our strategic clients. We are better at S&OP process, the sales and operation planning. We are increasing the flexibility with increased ready-to-eat so we can move raw material from the market into our own business and vice versa. And we're also reducing our exposure to the export market. And then we're always working with broadening our export permits from all countries. Moving to the next slide, please. And after a long period of increase in feed prices, we now see a more normalized market. There are still uncertainties and we need to be prepared for further volatility. But our model have most of the input cost linked to our top line. And we also want to state that we have no or limited trade with US and China in this area. We also want to highlight that feed cost is one third of our total cost base. So the feed costs are important input costs for us. And the short production cycle compared to other products enable us to be more agile in our supply chain. When we look at other costs as packaging energy, we see the cost of more stable level. We're hedging the majority part of our electricity exposure. Let's move into the next slide, please. And on this slide, you can see the channel development in more detail. And through this detail, you can notice an increase in all channels in the quarter. We now see a slightly decrease in net sales in Ireland. But in general, we have been seeing strong demand growth in several of our home markets in the quarter. Next slide, please. And when we come to ready to eat, we see a strong performance. And we have talked a lot about ready-to-eat in this presentation, but we want to state that we are presenting a strong quarter within the segment. Net sales are up 7%, driven by a combination of existing and new clients. EBIT is 40 million compared to 22 million last year, and the EBIT margin is 6.2. And the expanded capacity in Norway is now finalized in late Q4, so the contribution will come from Q1 and forward. We see a stagnating QSR market after COVID-19 and inflation, but we're expecting the market to grow and materialize during 2025. And also our last time injuries are down compared to Q4 last year. And next slide, please. And here you can see the figures. And it is, of course, very encouraging to see the continuous growth of retail in ready-to-eat. However, the development in foods of the channel is declining due to the regions mentioned before. And ready-to-eat, it will be an important long-term tool to develop ABA per kilo. And IE that is increasing the value of our protein. So with that, I will hand over to Fredrik to take a deep dive in the financials. Thank you, Jonas. Good morning, everyone.

As Jonas mentioned, Q4 was a strong quarter. Next slide, please. In fact, our strongest fourth quarter ever. We do see positive development, where top line was driven by both RTC and RT, supported by strong underlying EBIT growth adjusted for Lithuania. For FinanceNet, the quarter included exceptional costs, partly due to timing effects and one-time expenses, Additionally, higher interest rate costs were a result of increased debt levels and greater availability of liquidity from the refinancing, as well as the expiration of favorable interest rate swaps. Regarding tax was the increase entirely driven by Sweden, as last year's tax level was unusually low. This year's rate is more representative of what to expect going forward. So in summary, we saw exceptionally high finance net costs, while the tax level is now more in line with expectations. Next slide, please. Our return on capital employed continues its positive trajectory, showing a significant improvement compared to the previous year. Meanwhile, return on equity is slightly below last year, primarily due to higher finance net and increased tax expenses, as previously discussed. At the same time, our equity ratio remains relatively stable, despite the investment in Lithuania and the acquisition of Jären, reflecting a balanced capital structure and continued financial resilience. Next slide, please. We delivered strong operating cash flow supported in part by lower CAPEX, which should be viewed in conjunction with business combinations. Finance costs increased, reflecting both structural factors and certain exceptional costs incurred during the quarter, as previously mentioned, and paid taxes rose primarily due to higher payments in Ireland and Sweden, and Sweden's tax refund last year, which created a comparative impact. Our net interest-bearing debt increased by close to 240 million SEK in the quarter, with the acquisition in Lithuania accounting for 270 million of this increase. Next slide, please. Working capital remains at a solid level. Inventory increased by 2% year-over-year driven by higher operational inventory and live animals, partly offset by a reduced level of finished goods. Receivables remain stable. Payables and other liabilities increased marginally, primarily due to timing effects. Our target for working capital as a percentage of rolling 12 months of sales adjusted for financing is 6%. In the fourth quarter, this metric stood for 4.4%, including financing adjustments. But as noted earlier, Q4 is our season of the weakest quarter, which is also reflected in the lower than average working capital level. Next slide, please. For this year, total CAPEX is estimated at approximately 550 million SEK, which includes the necessary investments related to the recently announced acquisition in Osterwalde, in addition to the acquisition price. Blended effective tax rate expected to be approximately 20%. And as Jonas mentioned earlier, the proposed dividend of 2.5 SEK per share amounting to 163 million, an increase of 9% versus last year, will be payable in two installments during the second and third quarter. Next slide, please. And back to you, Jonas.

Thank you, Fredrik. So next, I would like to talk about the corner store and license to play for us. And there are three areas when it comes to creating trust for what we do. And that is responsible animal welfare, it is safety for consumers and employees, and it is nutritious products. And this is really closely linked to our sustainability scorecard. So if we move to the next slide, please. And continuous improvements in antibiotics results in Q4, 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 footpath score. We have seen a setback in LTI measures the latest quarters and we have a strong focus to get back on track. So the result in 2024 was not good enough and we're working hard by implementing routines and measures to improve our results in 2025. The next slide, please. And the ones of you that have followed us for a while have seen this pillar before. These are the four strategic pillars that will support us in achieving our goals. And it is increasing the value of our protein. That links really much into the acquisition in Osterwalder, where we can increase our ready-to-eat business and process more and more and take more value out of our chicken. But it's also linking in to ramp up our efficiency part, where we now are investing in an efficient value chain from farm to fork. And all of this we do with sustainable means in every step we take, and we do it as one company and working better together. And that emphasized the collective effort of shared goals and team cooperation And that leads to improved performance and outcomes. If we move into next slide. And this slide, we want to remind you once again of our 2027 targets. And here at the right hand side, you can see the targets. We are expecting strong growth over the coming years. We set target for 2027 of five to seven percent net sales growth. We're targeting an EBIT margin in excess of 6% by 2027. And we're also measuring the progress in terms of EBIT per kilo, for which we have a support and target of 3 sec as presented in the former slides. And then we want the reduction of our CO2 emission and low antibiotic use and a really high focus on the employee welfare metrics. So if we move into next slide, please. And as a reminder, on this slide, you can see that our structured effort is resulting in recognition of the form of improved ESG ratings. And I can proudly announce now that we have achieved an A in the CDP rating, and that is published today. And that's a few companies that have achieved A- ratings. but an even smaller group with an A rating. So the high scores reflects our standards and the sustainable nature of our business. So that we're really proud of. And if we move into the next slide. So in order to reach our EBIT margin, we need to increase our EBIT per kilo from the current 182 to about three sec per kilo. And I will, say some actions that we are example of actions that we are taking. It is an investment in our ERP system and roll that out in all countries. So we get a scalable platform and a transparent platform where we can measure all between the different countries. We have a strong focus on hunting new business in ready to eat and that has yield a surprisingly good result in retail sales so far. And it illustrates our capabilities in our convenience product that can be utilized. And now we also have acquired a new platform in Netherlands. The investment in Stokke to support the local growth in Norwegian RTE segment, the new capacity will be in production late Q4, as we said, and it will yield in Q4 and online. And then we're investing in leg deboning capacity in different countries. And we have lately invested, as you know, as we said before, in Ireland and in Denmark, and we're looking into in which countries we can debone even more legs. And that's also part of what we're doing in our Lithuanian business and ramp-up plan. So if we move into next slide, please. And this is the summary and outlook. So we have the strongest fourth quarter in Scandinavia's history, and that is supported by strong consumer trends across all segments. We're taking material step to our financial targets in 2024, and we're planning for another significant step that is expected in 2025. We see large potential in our newly acquired business. And at last, we have a dividend proposal of 2.50 compared to 2.30 last year, and that is a 9% increase. And that summarizes the fourth quarter presentation. We'll move into the next slide and open up for Q&A.

Thank you. If you would like to ask a question, please press star fold by one on your telephone keypad now. If you change your mind, please press star fold by two to withdraw your question. When preparing to ask your question, please ensure your phone is unmuted locally. We have our first question from Eric Sanstert from Kepler.

Hi there, thanks. A few questions, if I may. Firstly, on this target by 2027, the 3 krona per kilo, just a few questions around that. I mean, we saw a pretty steep increase in 2022 and 2023, but now a somewhat slower growth rate in 2024. You still seem pretty confident about this target, Should we expect it to be back and loaded or rather a gradual improvement every year towards 2027?

You will see a gradual improvement in terms of our improvement in the business year by year. But of course, now when we're ramping up business in Q4 and Q1 in Lithuania and acquisition in Osterwalde, that will come with some ramp up costs that will move it and make it a little bit more backloaded. But that is also the fundament for building this long-term growth in EBIT per kilo. So we feel confident about EBIT per kilo, but of course, it's a little bit impacted by the ramp up we do in the business. But the underlying business, there will be an improvement in line with year-on-year expectations.

Yeah, thanks. Also, in terms of this target, do you see other leading industry peers being at that target already, so to speak? I'm just trying to get a feel for the reachability of it, whether there already are peers being at a similar level with a similar mix.

Yeah, there are both in terms of... Other competitors in Europe that we can see are at that level, but it's also proven internally in our business, the ability of reaching the three sec per kilo. So we feel about that number.

Yep. Good, thanks. Then also a few detailed more financial questions relating to the quarter here and 2025. I'm not sure if you mentioned it, but could you say something about startup costs for the Dutch acquisition in terms of magnitude and timing?

We will get back to more exact in May, the startup costs there. But it will be... We are now, as you said, there's 28 million in total investment. So we will now get that plant up and ready. And then, of course, in the later quarters, there will be some ramp-up costs. But we will get back on that in May. But they are quite modest. It's not a material cost in that ramp-up.

Okay. And then also in terms of financial expenses, there were some pretty big non-recurring items on financial expenses in this quarter, and you alluded to it, but how should we think about that going forward? Do you have any feel for that in the coming quarter?

Yes, and I would say that half of the increase is driven by more debt, and the favorable interest rate swaps that has expired during 2024. And the other half is driven by FX and one-time items in Q4.

Okay, and then finally on tax rates, I think you guide for 20% tax rate in 2025. Is that also what to expect for Q1, given that it was very high now in Q4? Yes. Perfect. Thank you very much.

Thank you.

Thank you. We have our next question from Simon Brown from ABG.

Yes. Thank you. Congratulations on another year of growth. My first question is on the margins in . even when adjusting for the restructuring cost in lithuania uh the ebit margin is down year on year and i know there's there are some seasonality effects in q4 specifically and so on but more in general terms how should we think of of the timing of the next step up in margins and read the cook do we have to wait for lithuania to be fully up and running uh to see this and i know you um that you're back to sort of like pre pandemic levels, but I just wondered if you can give some reflections on where you are on initiatives that you mentioned on the CMD, such as deboning and shifting volumes into higher margin countries and so on.

Thank you. Yeah. In Ready to Cook, we're on this journey by increasing the margins and as you said, deboning more, but what we're talking about, taking more value out of the protein. That journey will continue during these years. Of course, as I said, it's reflected by the startup cost in Lithuania, but it's also in Q4, when we see these strong margins in ready-to-eat, it's typically that they're moving a little bit between ready-to-cook and ready-to-eat in one single quarter. But the underlying trend for us is to increase the margin in ready-to-cook as well. So we have a lot of initiatives there to keep that trend. So it's not only about our margin increase will come with more process. We're also focusing on getting more efficient process in our ready-to-cook business. And I think that the underlying trend is good there as well, even though, as you noted, ready to cook, even if we take away the 40 million, is slightly lower. But on the other hand, it's a huge increase in ready to eat. And we see that movement from quarter to quarter. But the long trend is that we take more value out of it than ready to cook. And we see that we have a lot of initiatives to continue that trend going forward.

Thank you. And the second question is on Lithuania. Can you say something about the volume ramp up there? Will it be dependent on sort of the operations in Netherlands, or could that function as a standalone business fully until that is up and running? And how is demand there in 2025? You mentioned last quarter that you had the demand for the small quantities in the end of 24, but can you comment a bit on the Lithuania standalone business?

Yeah, we see a really strong market and we're actually a little bit surprised of the timing and onboarding customers. So what we're now doing is ramping up the business and that is taking time, but it's going a little bit faster than we planned. But it is about some investment that we do. and also onboarding farms to be able to ramp it up. Lithuania should be seen as a standalone business in terms of a business case. That's how we've calculated it. And we see it as a three plus AB per kilo business without Osterwalder. So they are not linked into each other in that sentence. But on the other hand, we see it as a really good full value chain thing when we're able to actually have the growth capacity, having a slurring business and at the same time increase the value by doing RT business. And the size of our Lithuanian business, full scale, together with... Osterwold is a good fit, but it should not be seen as we're waiting for ramping up our retail business. Lithuania is a good, strong, standalone case, and we are selling a lot of our products to our strategic partners, but also internally to our fire business today.

Yep, sounds good. The final question from me is on the Netherlands market. Can you say something about the critical mass you need in the facility? Is the current capacity in Lithuania sufficient to supply that solely, or do you need to fill up with external volumes to reach critical mass? And when do you see positive, good profitability from the Netherlands?

I think that it's divided into two different pieces, and we need to get back to it in May, the presentation of our ramp-up. But in broad terms, I can say that I think that we will supply with our own raw material always as the first choice, but we'll also, even today, of our business buying in externally and that's an optimized snop optimization that we do we can sell things to higher price externally we do that and then we buy raw material from our certified partners but we're trying to optimize our internal value chains as much as possible When it comes to volumes or critical mass in Osterwalde, it should be seen as we will already now in some segments, we have grown out of capacity in Farre. So in those segments, we will start putting business into our Osterwalde factory when it's ready and up and running. On other segments, it's about continuous things today, and we're onboarding long-term customers. And in those segments, it will take time to onboard those type of customers. That's why we say that it's really much a long-term platform for us to grow. I think it will take time. take years to have full capacity, but we will start by getting it filled up with a business where we have already run out of capacity already late this year. So it should be seen as a plant integrated with father in that terms when it comes to balance the production capacity.

Okay. Thank you. Thank you, guys.

Thank you. As a reminder, to ask any further question, you can press star vote by one on your telephone keypad now. Thank you. Thank you. We have our next question from Daniel Smith from Banks Bank.

Thank you. Good morning, Jonas and Fredrik. Just to follow up on the morning, on the capacity expansion in the Netherlands, which is giving you almost twice as much capacity versus the 20% that you were planning for. And I hear what you say in terms of transferring production already at the start of once you take over in the Netherlands from Farre, which has reached sort of its full capacity and needs to be expanded. But given that you acquire and add so much new capacity, isn't there a risk that there will be an underabsorption of fixed costs for quite a long time coming from the Netherlands?

What we see is when we look into this acquisition, it is a really good opportunity that occurred for us because getting this type of business to the price that we're in, it will give us long-term competitiveness. That's... That's about the timing. And that's also about the low cost out of it. And then we have the ability to actually ramp it up. If we were building a new house to a much higher price, then it will be much tougher business case for us to ramp it up. So I really think that now we have the ability to have the contingency. We have the ability to grow on this platform. And in some segments we're already filled up so we can move that to Osterwalde. And it is, and it should be stated as two different, two separate lines that actually can be driven separately. So it's not about manning up and having a lot of costs operating at low volume. It's different lines that we can drive in different segments. And the first line, one of the lines will be ramped up earlier than the other one. So I think it's a good opportunity for us to actually grow organically without having this massive overhead cost.

Okay. So you're not going to come back to us in a year's time and say that you grasped for too much?

No. i think that we are good we have your word on that yeah yeah you will okay that's all for me thank you thank you we can confirm that there is no further questions and i will pass over the management team for any closing remarks thank you very much thank you very much and thank you for listening in