Scandi Standard AB (publ)

Hello everyone and welcome to Scandi Standard's interim report for the second quarter 2025. My name's Lydia and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions. If you'd like to participate in the Q&A, you can do so by pressing star followed by one on your telephone keypad. I'll now hand you over to Jonas Tunstall, CEO of Scandi Standard, to begin. Please go ahead.

Thank you very much and good morning everyone and welcome to this presentation of Scandi Standard's results for Q2 2025. My name is Jonas Thunestad and I'm the CEO and Managing Director of Scandi Standard. By my side I have Fredrik Sulvan, our CFO and I'm really pleased to have him by my side and I'm also glad to report a strong growth and result in the quarter. So next slide please. And we see solid growth and improved performance in the quarter. We have 6% growth in net sales and increase in volumes. And it's supported by business across countries, channels and segments. And the sales are supported by continuous strong underlying demand. So there's a strong European demand for chicken, both long term and especially now. We see a strong improvement in our EBIT performance. We're delivering continuous steps toward our financial targets that were set in 2027. And when we look into the RTE in specific, we're in the process of passing through the price increases. But I will come back to that later. Our Lithuanian operations underway with a positive EBIT impact. And that is our first milestone achieved. and a bit positive within six to 12 months. And as we previously communicated, and as you can see, we're on the early part of those six to 12 months.

Farms are ongoing.

And that is important for us to have this backward integration in Lithuania. And at the same time, we're preparing for the newly acquired RTE plant for the startup in Q4. And at last, our first dividend installment were paid of 1.27 SEK per share. And the final installment due in September to the same amount of 1.25 SEK per share. So next slide, please. And this is the reason why we see this strong demand. And these are repetitive slides that we show in every quarter presentation. But it's important for us to show the drivers behind the long-term strong momentum in chicken. And it is. It's convenient, versatile and tasteful. And it is responsible, safe and nutritious. And at last, it's affordable because it's sustainable. And I will get back to that later in the presentation. But these three drivers is important for the growth and the long term growth in chicken. So next slide, please. And here you can see the strong historical and ongoing consumer trend for chicken. And on top of increased consumption, chicken is benefiting from a long term inflow from other proteins. So we see a change, a long-term change where we see growth in poultry and they take a lot from other proteins, especially pork. But now we see high prices on beef as well. And that makes the trend move over to more poultry from beef as well. So we can move into next slide, please. And one of the major reasons why it's benefited from other proteins is because it's sustainable and affordable. And I mentioned before, price has always been important for consumers and the focus has increased even more in the current environment of high food prices. And beef prices are increasing and becoming more and more expensive, which chicken is benefiting from. but also the long-term trend of switching protein from red to white meat. Moving to the next slide, please. And on this slide, we want to present our AB per kilo measure. And AB per kilo is a good measurement of value to creation for our business. And Q2 2025 abit per kilo is 1.88 compared to 1.83 in Q2 2024. And even though mentioned before that Lithuania is abit positive, it still contributed negatively to our abit per kilo measurement. So if we exclude the startup cost in Lithuania, abit per kilo is 1.92. Lithuania and Östervalde will be good contributors for us reaching our 2027 goals and we're expecting to make material aero per kilo steps later in 2025 and onwards. In the different colors in the diagram on the right hand side you can see the development in the different segments and the RTC color includes to ramp up coastal Lithuania. So in spite of the start of custom Lithuania, also Q2 every per kilo was higher than last year and focused the climb the ladder is progressing. And this is also a slide that we have shown before. And this slide is to remind you of the strong market position in all our five home markets and that the countries are highly consolidated. And these markets have 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 the market balance, which has helped us in the recovery process in the inflation before, but also now when we see that the strong demand for chicken is increasing the prices on boats. But note that each market, however, also includes consumer segment less sensitive for problems. So next slide, please. And this is to show our new startup in Lithuania. And it will be a 20 to 25,000 tons grill weight state-of-the-art processing plant. and it will be best in class cost position. That's why it's important for us to be in and make the setup in Northern Lithuania. And our intention is to build a fully integrated hub and that will allow us control of both cost, animal welfare and food safety. And now the recent acquisition of farms accelerating that process. And we're also planning to see how we can continually build capacity within this market. So with that, we're well positioned to serve high quality products to segments less sensitive for provenance. And also to our own ready to eat plant and our strategic export customers. And for Lithuania, we're targeting the medium term AB per kilo well above three sec per kilo. So if we move into next slide.

Next slide.

And here, you can see our different plants. And the three big plants that we have is Valla in Sweden, Sjokok in Ireland, and also in Denmark. And then we have a medium-sized plant in Norway, and two smaller plants in Lithuania, in Janiskis, and Lieto in Finland. So if we move to the next slide. And this slide is a reminder of the strong historic organic growth in the ready to eat business. And I'm confident that that trend will continue. And it's divided into a different type of business. Third is breaded products and European market. And one third of this is an integrated local business that we have in Sweden, Norway and Finland. And in the ready to eat, we have a high return on capital. and our average abc's margin is above six percent and low capital employed compared to our ready to cook segment if we move into next slide please and the market is divided into tiers we have the european players and then we have the regional players and we have the local players And we have been a regional player with 36,000 tons product weight in 2024. And that is about 5% of European markets. And now with the new production platform, we will move into being a European player. So with that, we move into next slide, please. This is the acquisition in Östervolde that we're ramping up and that will give us 48,000 tons annual capacity in this plant. So it is a 90% increase in production capacity. And it's also one of the few with this advanced way of highly efficient producing formed products and whole muscle products. And as we said before, it was impacted by fire and our total investment down here will be 28 million euros and that will replace an investment in five or 30 million euros. And operations are planned to start in Q4 2025 and it looks promising keeping that plan and the startup cost will of course affect with low utilization in the startup in the beginning. But that we have communicated before. And then we will grow in volumes. So if we move into the next slide. So if we take a look at it from a holistic value chain view, we are well positioned to gain market share because we have this low cost and high quality end to end. When it starts with a low labor and storing costs, we have quality control of ready-to-cook value chain, efficient logistics, and then we have a state-of-the-art breaded capabilities in Holland. So we start with the farms in Lithuania, the process in Lithuania, and then the breaded production in the Netherlands. And that combination will be a very competitive offering to our customers. So if we move to next slide. And now we're moving over to our segments. And this table shows the reconciliation of our segments. We have strong net sales growth in Sweden and Denmark. Lower net sales in Finland. Due to that, we have exit the loss-making contract. So it will affect the top line here, but not the EBIT level. And also when you read this chart, it's important to remind you that the category other includes ingredients business and our corporate cost put together. We move into next slide, please. And here we see our ready to cook, where we have strong growth and improved performance. We have 6% increase in net sales. And we have 6% increase in chicken process, so both in net sales and volume. We have the EBIT of 150 million SEK compared to 98 million last year. And that is an improved margin from 3.8 to 4.2. And we're also proud of that we have really low LTIs this month. And I think that that's an effect of our long-term focus and structurally work to reduce our injuries in the factories. We have stable animal welfare indicators and we have antibiotics below our short-term target.

Next slide, please.

Here we take a look at the feed prices and we see stable feed prices after a long period of increase in feed prices. But however, we need to be prepared for further volatility. We don't know where it will end, but what we can foresee now is a stable, slightly decreasing prices. And our model have most of the inputs cost linked to the top line. and we have no limited trade with US and China. So we are really much a pure European player. We also want to highlight and that is important that the feed cost is one third of our cost base. And the short production cycle that we have compared to other proteins enable us to take a more agile decisions in our supply chain. When we look at other costs as packaging, energy, we see costs on a more stable level and we are hedging the majority part of our electricity exposure. Next slide, please. And take a look at our export prices. We see that realized export prices approach historical heights. We have a 3% increase compared to Q1 2025. And our expectation is that, and our forecast is that the export prices will continue to rise in the coming periods. And that is due to two things. It is a strong market that we are talking about, but it's also our structural approach to find the right export customers. So long-term partnership, we prioritize customers. We're optimizing the sales and operation planning, the S&OP planning. And also we have enhanced the flexibility between export and our ready to eat. And that is super important that we can move volumes between those segments due to the cost of raw material prices. And we have also reduced our exposure to the volatile spot markets. So if we move into the next slide, please. And on this slide, you can see the channel development in more detail. And here you can notice an increase in our retail sales and a slightly decrease in the food service. And that is mainly due to the prioritization that we need to do and where we are prioritizing big customers that we need to provide with raw material and ready to eat when there are such a high demand. Moving to next slide, please. And now we're moving to ready to eat. And we are, as explained earlier in this presentation, we are in the process of passing through high prices. We see a growth in net sales of 4%. So we have growth in both net sales and volumes. So we see that this segment is recovering. Of course, that is driven by increased export and retail performance. However, we see a weaker EBIT performance of 23 million compared to 38 last year. And that is the negative impact from the rising chicken prices. But we're recapturing the margins in the coming quarters. And that is a natural step when we see that the price goes up from the L6 to chickens to our ready to cook segment where we sell fresh products. And then we're putting through the prices and ready to eat. And they have a little bit more structure lead times that we need to pass, that we need to respect. But we are in the middle of passing those prices through at the moment. If we move into next slide, please. And here you can see the figures and we see a solid growth and we see a growth in our retail segment. And we're also really glad that the food service is flattening out here in Ready to Eat. And we are linking back to the loss of contract that we had last year and recovery that we have communicated since then to get back growth in Ready to Eat. And we can see that we've We are growing this quarter compared to last quarter and the food service flattening out. So overall, we have a positive view on our ready-to-eat business and see the growth. Now it's just a push through the price increases, but that's a natural step with this raw material price increases. So with that, I hand over to Fredrik Solon for the C4 comments.

Great. Many thanks Jonas and good morning everyone. Next slide please. As Jonas mentioned, the second quarter was a strong one. In fact, it was our strongest second quarter ever. We see a positive development where top line was driven by both RTC and RTE, supported by strong underlying EBIT growth in RTC, partly offset by RTE, which, as Jonas said, is normal when bird or raw material prices are increasing. The RTE profitability is expected to be built back and recovered during the coming quarters. In total, EBIT is up 9% in the quarter with a 10 basis points margin improvement, and the ramp up of Lithuania is going well, and it showed positive EBIT in the quarter, which is ahead of plan. Finance net is reduced, and the cost for increased bank loans is close to offset by lower EBO rates. We also have a positive currency impact and partly offset by a reduction of the positive impact from the interest rate swaps that we have talked earlier. Tax is in line with previous year and feed efficiency remains stable and strong. And we also see a significant reduction in injuries. Next slide, please. Our return on capital employed continues its positive trajectory, showing improvement compared to the previous year. Meanwhile, return on equity is slightly below last year, which is primarily due to the ramp-up cost for Lithuania. The equity ratio decreased from 36 to 34%, primarily driven by increased investment activity. While the decline is modest, the company remains well capitalized and within our targeted capital structure. and we continue to monitor our leveraged position to ensure financial stability and maintain flexibility for future investments. Next slide, please. Our operating cash flow was negative 150 million in the quarter, primarily due to the timing of trade receivables and increased capex linked to the acquisition of poultry farms in Lithuania that amounted to 200 million SEK. Other operating items are driven by exchange gains on accounts receivable and accounts payable, as well as revaluation of the provision for pension. Paid tax is in line with previous year, and as mentioned earlier, the first installment of the dividend was paid in May, and the second one will be paid in September. Other items are negatively impacted by FX on interest bearing debt in the quarter. So in total, the change of net interest being deducted was 341 million, mainly driven by the poultry farms acquisition and dividend. Reap order leverage landed at 2.4, which is below our internal aim of 2.5.

Next slide, please.

Working capital remains low in the quarter. We see a 13% inventory decrease versus year end and a 5% reduction versus Q2 last year. It's driven by lower level of finished goods, partly offset by live animals. Our target for working capital as a percentage of sales, rolling 12, adjusted for financing is 6%. And in Q2, this metric stood at 4.6, including financing adjustments, meaning that we are at an efficient and low working capital level for the quarter, despite the ramp-up effect in Lithuania. Next slide, please. For 2025 in total, the CAPEX is estimated at approximately 550 million SEK. which includes the necessary investments related to the acquisition earlier this year in Oosterwolde in addition to the acquisition price. Meaning that the acquisition in Netherlands earlier this year and Lithuania in the quarter total amounting to approximately 330 million SEK will come on top of the 550 million. The blended effective tax rate is expected to be approximately 20%. And as I said, dividend will be paid out in September. In total, the dividend is up 9% versus last year.

Next slide, please, and back to you. Thank you, Fredrik.

And next, I would like to talk about one of our cornerstones and actually license for us to operate. And there are three key areas when it comes to creating trust for what we do. And it is responsible animal welfare. It is safety for consumers and employees. And it is nutritious products. And those three are super important for us. And of course, one of our license to play, but also a really important focus for us to actually be the responsible player in the poultry industry. And that is important for Scandi standard. So if we move into next slide, please. That's why we have a sustainability scorecard where we show and being transparent of our different measurements about sustainability measures. And we are the only poultry producer that we know that shows this every quarter in such a transparent way. And if we look at our LTIs, they are down low in this quarter and the last quarter as well. And we see a long-term positive trend in improving our LTI performance. So we're really proud of the results of this month. But we also know that we have much more to do. If we look into our use of antibiotics, we are below our short-term targets. And of course, when we're entering a new business with other ways of producing chicken, we are putting in our Scandi standards and transforming to our way of working and lowering the antibiotic use over time. And that will affect the numbers now when we're entering new areas for Lithuania, as an example. We also see our animal welfare indicator, food pad score, at a low level this quarter. So if we move into the next slide, please. And this is also a slide that we've shown before, but we think it's super important for us to state our four important strategic pillars. And it is to increase the value of our protein, And that is about taking out more and more value out of the bird and defining the right product, the right markets, but also taking care of the total carcass. And then we have a ramping up the efficiency. And that is also an important focus of not only the efficiency in the plant, but the efficiency in the whole value chain. And that we can see examples how we're actually taking control both in the live operations with good measurements and good cooperation with our farmers, but also how we can create high efficiency in our plants. And then we have the integrated sustainability and that is important in our total business that we work with sustainability in all means. And the fourth one is better together. And that's the way we're working. Because we are in five different whole markets with strong local preference. But when we are optimizing things together and utilize the best practice all around, that will scan the standard benefit from the local players. And if we move into next slide, please. And this slide, we want to remind you of our 2027 targets. And on the right-hand side, you can see the targets. And we are expecting a strong growth over time and over the coming years. So therefore, we have set the target of 5% to 7% net sales growth. We have an EBIT target in excess of 6% by 2027. We're also measuring the progress in terms of a bit per kilo that we have presented in the slides before. And that is above three sec per kilo. And that's a supported target for all our other targets. And we will have a rose above 15%. And then we will reduce our CO2 emissions with 42%. So it's bold goals, but we see that we're moving in that direction and we feel confident that we will reach the targets in 2027. So if we move into next slide. And this is also a reminder for you about the structured approach of receiving recognition in our sustainability focus areas. So we have on the right hand side you can see the ESG ratings. And we are proud of the achievements. And of course, the CDP achievement and being an A in CDP, I think it's only 15 listed companies, if I remember right, that has the CDP A writing. And I think it's only two in the food industry in Sweden. And if we move into the next slide, please. And this is the clear roadmap to reach our three sec per kilo target. And that is mainly two things. It's about what we say, climb the value ladder or increasing the value of our protein. And that is about balance in supply and demand. It's about value creation. It's about differentiation. But it's also about utilize further parts of the chicken. It's not only breast, fillet and legs that makes the profit. So a lot of more. And we are focusing that. And that is our ingredients business. And then we see large efficiency potential in the value chain. and optimizing that from farm to nugget so if we move into next slide please so to summarize it all we see strong growth and performance delivered in the quarter all-time high a bit for both the second quarter and for the first half we're moving steadily towards our financial targets and we're expecting further improvements in the second half 2025 We remain highly focused on the startup of acquired entities. And as mentioned before, Lithuania delivering positive EBIT, which is ahead of our plan. Netherlands are on track for starting Q4 2025. And our final dividend installment due in September of 1.25 SEC per share. So that's all from us in the presentations and we move over to the Q&A session.

Thank you. Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally. If you change your mind, please press star followed by the number two to remove yourself from the queue. We have a question from Daniel Schmidt with Danske Bank. Please go ahead, your line is open.

Yes, good morning, Jonas and Fredrik. Just wanted to follow up on the comments regarding ready to eat. And I think, Jonas, you said that you are in the middle of In the middle of passing through price increases that has sort of a structural lag, what are you sort of implicitly saying there? Does that mean that you will have some lagging effects also in Q3 and then you'll be fully catched up as we get to Q4? Is that how we should interpret it?

Yeah, that's how it should be. But also we should mention that we still see increasing prices in the third quarter as well in Reddit Cook. So it's more about that. It's always a little bit delay when we're passing prices through. So it should be seen as positive when we are increasing the prices in our value chain where Reddit Cook is is our strongest foothold. But of course, when the price is rising, there are delay in the price implementation. But most of those discussions is already done with the customers and then they're implemented in Q3 and Q4. But of course, if we still see continued increase, that will pass it further on.

Yeah. But it also means that you will be benefiting on the RTC side from increasing prices, but you will be hurting on the RTE side. But the net effect is still positive, you think?

Absolutely. Yeah. RTC is our big pot.

Yeah. And when it comes to the Netherlands, When you bought it, you mentioned sort of late Q3 and then you changed it to early Q4. If I remember correctly, now you're saying Q4. Is it still early Q4 that you plan to be ramping up or start the production?

Yeah, it's still early Q4.

And what do you expect in terms of startup costs as we get into the late part of Q3 and early Q4?

Yeah, we will get back to that later in the coming quarter when we are ramping up. So we will not get an exact numbers in this quarter. But we have a positive momentum in ramping up Osterwalder and we will ramp it up sequentially. So we will start line by line and actually one of One of the reasons for not having even more growth in ready-to-eat is that we have on some SQs capacity constraints that actually will help us when we are starting up the new line in Osterwalde. So that's why we're confident when we're moving up things sequentially that we will have the orders in the book on the SQs that we start from the beginning. But of course there will be low amount of volumes in the start and that will of course have an overhead effect, but we will get back on that.

But is that a much bigger operation compared to what we saw in terms of startup costs in Lithuania? Is that fair to say?

No, not in terms of how we look at the effects when we're ramping up things. Lithuania is more of a value chain ramp up with bigger effects when we're starting. But on the other hand, Osterwalde is a production capacity that we will grow in. As we have said from the beginning, we're increasing our capacity with 90%. So it will not be fully up and running. Of course, that will take a long time because it's a plant that will grow within. But the cost of it will come sequentially and not at the same amount on short term as Lithuania.

Okay. Okay. Good. And just maybe a very detailed question, maybe to Fredrik. Depreciations are lower in RTC this quarter compared to last year, and they've all divided these acquisitions. At least Lithuania is clearly up and running. Is there any other parts of sort of

assets that have been fully written off is that the reason um did you hear correctly about it was about depreciation yeah it's a very detailed question uh it's actually lower now in rtc compared to last year it's um uh i would say it's mainly linked to No, let me get back to you on that specific question.

Yeah. Another question for Fredrik, maybe. Did I get you right when you said that the capital expenditures is 550 for the sort of guidance for 25 and then on top of that, the 330, is that correct?

Yes.

And is that... still to come, is that correct? Part of that 330 is also still to come this year. It hasn't been sort of cash out yet.

No, the 330 has been paid. So it's... All of that is already sort of in the cash flow. Yes, in the first and second quarter.

And in terms of maintenance capacity, so how to put it, the 550, how much of that has already been sort of in the cash flow and how much is to come in the second half?

About almost 200 has been impacted in the first half year. The rest is the second half.

It's important to state that it's not the maintenance capex. That is super important. It's regular caps that we're developing in our home markets. The other ones are linked to the acquisitions.

Yes, I'm preparing the factory in Netherlands for production.

Yeah. Thank you. That's all from me, guys.

Thank you.

Thank you. And just as a reminder, please press star followed by one if you'd like to ask a question. We have no further questions in the queue, so I'll hand the call back over to the management team for any closing comments.

Yes, no further comments from us. We want to thank you all for listening in to this call and hope you have a good day. Thank you very much for joining. Many thanks.

Thank you. This concludes our call. Thank you very much for joining. You may now disconnect your line.

Thank you.

Cheers. Bye.