Atria Plc back on track?

Atria’s Q3 result was fine, and especially Atria Russia's good performance was the one that made ​​the audience go wild. But let’s look first at the number of employees in Atria’s different business areas.  Admittedly it is not much of an indicator to anything. Nonetheless, since Atria Plc has in recent years repeatedly announced personnel reductions as a part of austerity measures, we will now shortly look at the number of employees by business area over the last five years.

Figure:  Atria’s number of employees by business area over the last five years*

*The data is taken from Atria’s quarterly reports, but possible errors and misunderstandings are mine.  If I have got it right, quarter specific readings, at least in most cases, refer to the average number of employees from the beginning of the year up to the end of the quarter.

The trend is downward in all business areas.  However, during the last two years, the decline has been minimal in Scandinavia and Baltic, and Finland shows actually only seasonal variation. In Atria Scandinavia, the acquisition of Sardus AB in 2007 increased the personnel by about 1000 and the largest layoffs were made during the year 2009.  In the Baltics, the acquisitions of AS Wõro and AS Vastse-Kuuste in 2009 increased the number of employees, but after rapid and heavy layoffs the current number is below the 2008 level. In Russia the acquisition of OOO Campomos in the second half of 2008 increased the number of employees by some 800 and no less than two years the number remained unchanged.  But finally it began to happen.  Last year's and this year's reductions in Russia are even tougher than 2009 reductions in Scandinavia and in the Baltics.  Consequently the number of employees in Atria Russia is nearly the same as it was during the pre-Campomos years.

All in all, Atria Plc may well be back on track.  Staff costs have been cut harshly.  In a way, these savings are permanent, costs don’t return in the short term.  But it does not mean that Atria would not be able to come up with new costs, which completely destroy these savings.

Atria's outlook by business area

Atria Finland - The relatively good Q3 result was reported to be due to improved meat market conditions, improved sales structure and higher sales prices and - surprisingly mentioned only after those three - efficiency measures. Cattle slaughter rationalization and Nurmo plant development program, are creating annual savings of € 10 million.  Completion of the new bovine slaughterhouse at Kauhajoki early next year should bring even more of these cost savings.  Ongoing extension of Atria’s incubation facilities indicates strengthening in demand for chicken products and may suggest also Atria’s rising market share. It seems that Atria Finland’s machine is running just fine. 

But there are doubts.  Farmers have reduced meat production and Atria’s all main raw materials, pork, beef and poultry are more and more expensive.  Unavoidable weakening of general economic conditions in Finland will worsen the situation in the very near future.   Is there overcapacity, after all?  The new Kauhajoki cattle slaughterhouse will be one of the largest in Europe.  Even more overcapacity?

A Finnish newspaper, Maaseudun Tulevaisuus, paints the darkest colors.  According to its recent article, meat production is in crisis. Empty pig farms, half-empty cattle farms. Meat industry is running inefficiently and with poor profitability.  Also there is expressed quite an extreme opinion according to which, provided that the crisis continues, there will eventually enter a foreign player and take the possession of major Finnish meat processing companies.

Atria Russia - Few people could expect a positive Q3 result.  But at the same time, I think only few people are sure that the result will remain positive in the near future.  Improved cost structure was said to be one reason for the good result. The chart above also shows it clearly. Layoffs have been made in part due to an increased automation and in part due to closing of units and reductions in product mix.  In fact, Atria’s profitability improvement programme 2010-2011 it is now fully carried out in Russia (annual savings target € 7,5 million, see Annual Report 2011, page 7). It seems to have been successful.

What’s more, in the Q3 report it was announced, that Atria Russia has launched a new programme in order to improve production efficiency at the Sinyavino and Gorelovo plants. Annual savings are estimated to be about € 2 million.  Therefore the results should still improve.

However, the Q3 report does not say a word about Dan-Kub farm’s huge African Swine Fever problems.  Furthermore, Atria still not confirmed its plans to discontinue the primary production in Russia.  Most importantly, Atria completely failed to tell anything about the success of new product launches in Russia.  Some positive words in the report would have been nice.

Atria Scandinavia - Small changes, more centralization and automation, that's Atria Scandinavia's recipe, "lite bättre".  All surprises would be ... surprises.  Lönneberga campaign has been helpful, market share is said to be strengthened.  The brand uses only domestic meat and it is entitled to use the “Svensk kött” symbol, which was introduced last year.  Currently Lönneberga is a valuable brand for Atria Scandinavia, and so is the Danish brand 3-Stjernet, which also was reported to be successful.  Both of these brands came with Sardus AB in 2007.  Then, if we just forget the Lätta Måltider brand, could it be that the acquisition was not at all as bad as commonly thought?

Atria Baltic - Will Atria Baltic be a chronic loss-maker?  In August, the management has been changed once again. The new managing director, Executive Vice President of Atria Baltic, Olle Horm has previously worked for many Estonian meat processing companies, Atria's toughest competitor included. 

In his search for savings, Horm evidently had ended up with their factory outlet in the city of Valga.  A regional newspaper Valgamaalane became interested in the case, and asked whether or not the outlet will be closed. Not to be closed – this year, Horm replied, but apparently he was hovering between different options and just could not or did not want to rule out any of them. Shortened service hours currently, but anyway the shop is running, which is truly a good thing.  There are image benefits which may well overcome all the direct financial losses.  Perhaps the outlet should even be renovated and re-branded.  Atria Baltic’s headquarters are situated in Valga, and the home ground is important. And this leads us to news which tells, that Horm has signed a sponsorship agreement with the local basketball club. I’m not trying to argue, that factory outlet money would have been needed for this, but who knows.  Sponsoring too is a good thing and incidentally the partners form a perfect couple.  The team, Max & Moorits, named after Atria Baltic’s precious brand, has not yet achieved great success and Atria Baltic of course, has quite much the same problem.  Let’s hope that Horm has a brilliant playbook and thumbs up for the team too. 

We will take a look at Atria again later but on Friday, December 7^th we are going to study HKScan. To my disappointment the sun has been traveling a low path in recent weeks. I hope that it will take a little more height when the summer comes again.

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 Sweden’s absurdly bad H1 and recovery during Q3

Future is important, history not so much.  So let’s first look at HKscan’s own future prospects.  This is what HKScan Group tells about them in the Q3 interim report:

Prices of meat raw material are difficult to predict under cost pressure in primary production. The Group will improve its profitability through its development programmes, and passing raw material price increases to sales prices. Rectifying the performance level of the business in Sweden will have a significant impact on the Group during the end of the year.

HKScan maintains the outlook for 2012 which stated that due to the weak development of business in Sweden, there is a risk that the Group’s EBIT will come out below the level of 2011. However, including the estimated non-recurring income of fire insurance compensation is very likely to improve the reported EBIT compared to 2011.

Last year was not a good year for HKScan and it is obvious that the company aims to do better now.  The company reckons that the result in Sweden is crucial. In addition, the company anticipates that fire insurance compensation – the fire took place in Vinderup’s plant in Denmark last June - will help HKScan to improve the result when compared to the last year.

The figures below support the company's views.  Finland, Baltics and Poland all are on their way to a good annual result, Sweden evidently has passed the rock bottom and Denmark may avoid losses this year.  Please note that the chart shows the cumulative EBITs.

Figure: Cumulative earnings before interest and taxes by quarter and year in HKScan’s five market areas and the whole HKScan Group. 

Now a bit of history - but only for a couple of quarters back

There is no way to assess the company's fire insurance issues in Denmark but we are able to recall the stated reasons for the exceedingly weak H1 in Sweden.  The motive for this ultra-unscientific excursion to interim report piles and files is that HKScan Sweden's massive losses during Q1 and Q2 seemed to come unexpectedly, almost out of nowhere and today the troubles seem to be cured without actually doing much of anything.  Let’s look first at HKScan’s Q1 interim report.

According to it, one of the reasons was decline in primary production partly due to changes in state’s subsidy policy.  As a consequence, prices of domestic beef and pork rose.  This in turn increased import, which was further intensified due to strengthening currency. In addition to these, increased share of private label products was mentioned as one reason for bad results.

Citation #1:  In the area of primary production, the changes in subsidy policy for beef production have weakened the profitability of production. This has further weakened the availability of Swedish beef, thus making room for exports. Consumer demand in beef has increased as a whole.

Citation #2:  “Performance in the quarter was particularly affected by the decline in pork and beef primary production in Sweden, as well as by the high procurement price of Swedish beef and lower beef slaughter volumes. The strong Swedish krona has significantly increased meat imports and made it difficult to raise the price of products based on Swedish meat raw material, especially in retail. Price increases and cost adjustment have been made in Sweden, but the measures have been inadequate so far both in terms of timing and scope. A further challenge in retail is the growing share of private labels.”

In HKScan’s Q2 interim report (See pages 1-4) the reasons for the bad Q2 were reported to be practically the same as those above, with the addition of lower demand due to rainy weather in June.   However, in the report it was also stated, that the bottom was passed at the beginning of the second quarter.

Many of those reasons mentioned in both interim reports suggest substantial reductions in sales.  However, Q1 net sales reduced only by € 5,4 million or 2,1% compared to Q1 in 2011, and it is amazing to note that Q2 net sales even increased by € 4,0 million, when compared to Q2 2011.

Perhaps the company stubbornly tried to keep its market share, and cost control failed to the full.  But who knows, if there were some entirely other sudden events.  Poor management, pressure from producers, bad luck, whatever the principal reason, the reduction in EBIT during H1, also illustrated in the chart above, was simply monumental.  It may also indicate that the company is extremely prone to exogenous shocks. 

Some of the reasons mentioned in the interim reports look just strange. 

Reports' statement that the strong Swedish krona has significantly increased meat import is true as such but the fact is also – if I get it right – that the Swedish Krona has not been particularly strong during the first half of the year.  It certainly strengthened in December 2011 but during H1 this year it has been at about the same level where it was for instance in the beginning of the year 2011 (one SEK about € 0,11 or slightly higher).  Also, the private label growth has long been 100 percent clear to everyone and it cannot be the principal reason for suddenly deteriorated results. One can also quite safely assume that growth in meat imports was not any kind of a surprise to the company.  The thing is, that HKScan Sweden had already taken steps to improve its competitiveness against private labels by introducing in November 2011 its new low or medium price brand Hansa based on imported meat.  In addition,  HKScan’s subsidiary Annerstedt Flodin AB has launched a new premium concept Chosen by Farmers, a brand using imported high quality beef and mutton. 

What about Q3?

What does the latest Q3 interim report tell us in addition to the future prospects above?  Pork production was reported to decrease further and rainy weather was reported to reduce sales.   Interestingly no more mention of currency rate changes although during Q3 SEK really was strong – for instance throughout August it was as high as 0,12 or more.  There is no more mention of private label products.  Where did they go?  There is one significant announcement, namely that the price of imported meat rose rapidly, supporting also HKScan’s sales price increases.  Perhaps we still should not conclude that the mighty HKScan Sweden is  just a price follower.

It is also interesting to note that now, despite the fact that prices were raised, net sales decreased by € 6,0 million compared to last year’s Q3.    Also HKScan’s Q3 EBIT decreased to € 3,2 million from last year’s corresponding figure of € 5,4 million.  Bad summer, of course, is part of the explanation but volumes decreased to the extent that also earnings went down.

Nevertheless, as illustrated in the chart above, situation turned better in the third quarter, and it is the main thing.  However, the first half performance was exceptionally weak, and in my opinion it is not possible to know the real principal reasons. The recovery was rapid but one gets the feeling that the improvement came without doing almost anything but just following others by raising prices.

We will go into HKScan’s businesses again later but on Friday 23^rd November we are going to scope out Atria Plc’s topical matters.  Some 200 long days to summer. I’m not sure but I think it is anyway less than a year.

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 Q3 was reasonably good

Overall, HKScan’s interim report raises hopes.  Currently Sweden is the key area, and HKScan Sweden’s Q3 EBIT is not bad at all after the absurdly poor H1.  On the other hand, HKScan Finland’s EBIT is only something like low average.  EBIT in Baltics is as good as ever and also Poland performed well.  HKScan Denmark is returning to normal after the fire in June.  Earnings per share € 0,11 is reasonably good.

Figure: Quarterly earnings before interest and taxes by year in HKScan’s market areas.

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.

Atria’s Q3 result is good

Just a few lines here about Atria’s Q3 result.  Overall, the result is good.  At present, Finland and Russia undoubtedly are the key areas, when evaluating the success of Atria Plc, and they performed well.  Atria Finland’s EBIT € 12,5 million is good and Atria Russia’s EBIT € 0,6 million really is an excellent result after years of losses.  Atria Scandinavia’s EBIT € 4,4 million is a routine result, not bad and Atria Baltic’s EBIT € -0,4 million is a normal result, not good.  Earnings per share € 0,31 is a great result indeed.

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

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.