A sketchy review of Atria's business areas' earnings in recent years

Atria's Q3 interim report will be released on November 1^st and now it is the right time to look at the results from recent years.  The chart below illustrates Atria's quarterly EBITs starting from 2009.  The readings are highly unofficial. Large write-offs (Atria Baltic 2009-Q4 about € 7 million and Atria Russia 2010-Q3, about € 10,5 million) are excluded.  

Figure: Quarterly earnings before interest and taxes by year in Atria's business areas, large write-offs excluded.

All in all, the figures tell, that the current year so far has been neither good nor bad.  When compared to the last year, the result is much better in Finland and in Russia but worse in Scandinavia and in the Baltics.  Largest dispersion between the last few years (if quarters are pooled) can be seen in Finland and to a lesser extent in Russia and largest dispersion between quarters (if years are pooled) is recorded in Finland and to a lesser extent in Scandinavia. At present, Finland and Russia undoubtedly are the key areas, when evaluating the success of Atria Plc.

In parallel with the chart, it may be interesting to look at what analysts think of Atria's immediate future.  Reuters brings together analysts' forecasts and other company information.  Atria's forecasts are available through this link.  If I get it right, which by the way, is not at all a sure thing, estimated 2012-Q3 earnings per share are in the range of 0.13 - 0.20 euros.  However, when browsing on the pages, one can find that the Q4 estimates look just the same.  Consequently, I am not sure what to think about these estimates but let’s play with them for a while.  We obviously do not know the arguments of the analysts, but we can speculate on what kind of business area specific results these estimates could be based on.  Now let’s see what we can discover in the charts above and what analysts may have thought.

Atria Finland

Quite neatly, the annual lines illustrating Atria Finland’s quarterly EBITs do not intersect.  They follow roughly the same pattern.  But what is more important to note, is that the trend from 2009 to 20111 has been uniformly downwards.  Thanks to the moderate H1, this year’s result overall will most likely be better when compared to the last year, which was really bad.  But whether the trend has reversed, is a different matter.  As we noted four weeks ago, Atria Finland’s near-term problems are huge.  General economic conditions in Finland are getting worse and farming costs are on the rise.  Moreover, rainy summer didn't favor barbecuing at all, and it certainly has had a negative effect on Atria's net sales and earnings, when compared to a normal season.  The case is that third quarter has always been a terribly important quarter for Atria.  If the usual good result does not come, it will be a small disaster.  Soon we shall see, but Q3 EBIT about € 10 million could now be close to what analysts have predicted for Atria Finland. 

Atria Scandinavia

Atria Scadinavia’s this year’s performance has been weak.  It has brands in all product categories and price ranges.  It has, for instance Lithells’ sausages for everyone, Ridderheims’ delicatessen products for those who value luxury food and it also governs the popular fast-food chain Sibylla.   In addition, Atria Scandinavia does not have the burden of primary production, but uses mainly imported meat.  Then, one could expect, that it will show proper results quarter after quarter and especially now when the Swedish krona is strong.  This has not happened.  However, during the recent years, H2 has been almost satisfactory and much better than H1, and Q3 EBIT of about € 4 million has been routine.  It is possible that some or many analysts have ended up with it.

Atria Russia

Atria Russia's H1 went fine.  Now Campomos has launched a new family of minced meat products and has been and still is running a major campaign.  In the near-term it means extra costs and it is quite likely that Atria Russia will stay in red at least for some time.  Personnel cuts have been made and other cost reductions have been implemented to the extent that Atria itself estimates annual savings of € 7.5 million, so nearly € 2 million per quarter.  Then, just looking at the recent years’ Q3 figures, analysts may have come to the conclusion that the current year’s Q3 EBIT could be something around € -2 million. 

Atria Baltic

It seems that it is not difficult to predict the result of Atria Baltic, but one never knows.  Anyway, it is likely that Olle Horm, the new Executive Vice President of Atria Baltic, has not yet had time to change anything.  If that is the case, then a similar EBIT result as before, about € -1 million, might be expected by analysts.

So what?

Total of these guesses about what the analysts might have thought, is € 11 million.  We must now make a few subtractions, using the past few quarters’ readings as guidelines.  Some minor subtractions or additions are ignored.  Subtracting unallocated costs about € 1 million, finance cost about € 3,5 million and taxes (tax rate 24,5%) roughly € 1,5 million, we get the final reading of around € 5 million.  The number of shares is about 28,3 million.  Consequently the earnings per share would be about € 0,18.

Hence it turns out, that our guess falls in the analyst’s range of € 0,13 - € 0,20.  Practically speaking it means simply that analysts really are neither expecting a splendid nor a miserable quarter.  If Atria’s result does not surprise, positively or negatively, the greatest interest in the interim report relates to future prospects. In particular, the situation in Russia is of interest. It is reasonable to expect some information on the plans to abandon the primary production in Russia and views of how well the sale of new products has taken off in Moscow would be greatly appreciated.  

We will talk about Atria’s businesses again later but on Friday, November 9^th we are going to focus on HKScan.  But before that, on Thursday, November 1^st and on Tuesday, November 6^th we will take a brief look at just then released third quarter interim reports of Atria and HKScan respectively. 

Summer-time (Directive 2000/84/EC of the European Parliament and of the Council of 19 January 2001 on summer-time arrangements) will soon be over. Days are darkening gradually.                              

Not funny, just d      a            r                        k                                               - 

This is Artoparto and here is my Disclaimer.  Please read it. 

Disclaimer:  All content provided on this site is for entertainment purposes only.  This site does not provide any investment advice and content on this site should not be construed as recommendation to buy or sell any financial instruments.  Please consult a qualified financial adviser before making any financial decision.  I make no representations as to the accuracy, completeness, suitability, or validity, of any information on this site or found by following any link on this site.  I will not be liable for any errors, omissions, or any losses, injuries, or damages arising from displaying or using any content provided on this site.  I am not responsible for users' comments.  I reserve the right to update or delete any content on this site for any reason.

HKScan’s new management and strategy plan

There have been many changes this year in HKScan’s top management.  The HKScan Group's new CEO Hannu Kottonen started in February.  He has previously worked in the field of consumer packaging, Huhtamäki Plc, and most recently in the business of consumer papers, Metsä Tissue Plc, where he got, this kind of guidance when starting as CEO: ..."besides running the daily operations Hannu Kottonen's responsibility is to ensure the implementation of company's efficiency programme". 

Implementation! That sounds very good.  Unfortunately there is no such determination in HKScan, see page 26. Chairman of the Board Juha Kylämäki is hoping for consolidation, harmonizing, development and integration and Kottonen himself has stated that it is time to take the advantage of synergies to improve productivity and cash flow.

So, synergies and a more efficient package are hoped for in unison.  However, everyone can see where the problems are. They are in Finland and in Sweden and they are huge.  Synergies is not the word, efficient package will not help.  Implementation would be the correct word.  Of course Kottonen first needs a plan but it should not be a big problem.  Namely HKScan has done convincing efficiency plans during every quartal, but apparently they have worked on paper only.  

These most simple and basic figures above illustrate, in my opinion, the situation very clearly.  Such large problems cannot be solved by creating some synergies. (Please note, that non-recurring items are included and Denmark is not shown.)

HKScan’s target, 5% of net sales, those dashed lines, tell that also Poland and Baltics have increased their sales steadily and still they have achieved good EBIT results.  One could of course deny their success by saying that it is easy to do well with small net sales.   However, one must first note, that Poland’s figures show only the part consolidated to HKScan (50%).  Sokolow’s actual figures are twice as high.  Secondly and more importantly, in the same way, as  HK Ruokatalo in Finland and Scan in Sweden, also Sokolow, Rakvere Lihakombinaat and Tallegg operate nationwide, and the have products for all consumer groups in all price ranges.  They are not skimming the cream but simply their market is smaller or their market share is lower due to tighter competition, when compared to Finland and Sweden.

Wishing for implementation of some specific plans?  Not a hope?  In August we got a release about HKScan’s strategy update.  The aim is to increase profits.  Fine, but the means include mostly some double Dutch, like “actively managing the dynamics of future business”.   Perhaps these releases are not even meant to mean anything. What may matter is that HKScsan has been tinkering with a group-wide operating model.  But is it just a mess?

HKScan will introduce the operating model gradually by the end of 2013.  No wonder that it takes some time.  Core businesses are divided into four sectors which are:  Consumer Finland and the Baltics, Consumer Sweden and Denmark, Away from Home, and the fourth is Sokolów and other joint ventures.   Originally Consumer sector was one entity as such, but now it is split into two country blocks, only reflecting the current management situation.   Otherwise the split is artificial and it may weaken the company’s performance.  AFH sector is just a mixture of businesses from food service to export.  The best part of the model plan is that Sokolow has been left alone.  It really does not need the HKScan Group at all.

Hannu Kottonen, the new CEO did not come alone.  He brought with him a bit of forestry and a couple of his old workmates.  AFH business will be headed by Jukka Nikkinen.  He has experience in international and export tasks, few year periods around the millenium for instance in Leaf Group at the time when Kottonen worked in Huhtamäki Plc, which suggests, that they were already familiar with each other.  

Tuomo Valkonen has been appointed Chief Financial Officer of HKScan and member of the management team.  Like CEO Kottonen himself, also Valkonen has been working in forest sector, Kyrö, Metsäliitto and Savcor.  The former CFO Irma Kiilunen, HKScan’s long-time executive, will continue as Group Treasurer but she is now out of the management team.  

In December, Marja-Leena Dahlskog will start as HKScan’s new Director of Communications.  She comes straight from Kottonen’s latest employer, Metsä Tissue.

Anne Mere, the upcoming CEO of the whole HKScan Group?

Overall, the management team has changed a lot.  There is one new person, full of promise, fully proven to achieve results.  Anne Mere, HKScan’s only hope, an Estonian.  She has been employed with the company since 2004, and the last four years as the CEO of Rakvere Lihakombinaat, Estonia, where despite the recession, the entire Baltic Group's profit was higher than HKScan’s target level.

What did she do?

"Consumers were moving to less expensive products, therefore cost reductions and product mix adjustments were needed. Costs were monitored very closely, among other things we cut the salaries. In addition, we reduced marketing support and negotiated firmly with all suppliers. The focus was on the basic assortment" Mere recalls, see page 27.  Absolute management!

Unfortunately, now as the CEO of HKScan Finland, her job is defined as something like “to intensify cooperation between market areas and to allow for more ways such as cost savings and better use of knowledge” and so on.   Rubbish.

But we will see Mere’s practical implementation of market areas’ closer cooperation, and especially such cooperation, which will lead to cost savings.  Is it about primary production or what?  What does it mean that Mere has also been appointed a member of HK Agri’s Board of Directors?  We will be talking about Anne Mere later and at the latest after only a couple of years, when she, like I assume, is the CEO of the whole HKScan group.

Teet Soorm - Meat King of Estonia

The new CEO of Rakvere Lihakombinaat, following Mere, is Teet Soorm, 42 year old, Estonian, who started in the company as early as 1994, before privatization.  He will also continue as the CEO of Tallegg and Ekseko.  So, he is a man of primary production, even cited as Estonian Meat King, plays in a punk band.  And there is much more about him in Eesti Päevaleht’s interview.

Some citations and interpretations of the interview:  Teet Soorm, a true Mr. Meat, 100% involved and committed, knows the meat industry in detail.  But he appears to be quite reluctant or sour, when the interviewer asks very simple questions, those that consumers are interested in, questions something like these: when will Rakvere or Tallegg have a family of organic products and why there is less meat and more brine in meat products today.  His answers are something like these:  organic food is a niche, nothing for us, not possible, no organic feed available, brine adds value, our products are of good quality. These kind of answers are simply unnecessary, especially since he says, that when reaching retirement, he himself will be an organic farmer.  A great plan, indeed. 

But there is still something else in the interview. Soorm talks generally about management and emphasizes that the companies are run by people, not by any written strategies. So, this suggests that in the end he really does not worry too much about HKScan's new strategy plans. Which is a good thing. Currently Soorm is only a member of HScan’s extended managing group, but I suppose that one day he will join the managing group, no doubt in fact.  There is an urgent need for a primary production professional.

We will be viewing HKScan’s businesses again later but on Friday, October 26^th we are going to look at Atria Plc.  I am waiting for summer, but does it mean that first I have to wait for winter?  Yes.  I have to wait also for these.  My sad life.

This is Artoparto and here is my Disclaimer.  Please read it.

Disclaimer:  All content provided on this site is for entertainment purposes only.  This site does not provide any investment advice and content on this site should not be construed as recommendation to buy or sell any financial instruments.  Please consult a qualified financial adviser before making any financial decision.  I make no representations as to the accuracy, completeness, suitability, or validity, of any information on this site or found by following any link on this site.  I will not be liable for any errors, omissions, or any losses, injuries, or damages arising from displaying or using any content provided on this site.  I am not responsible for users' comments.  I reserve the right to update or delete any content on this site for any reason.