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.

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