About HKScan’s subsidiaries and associates - part 1

The mighty Scan in Sweden is poorly profitable year after year.  In 2011 Scan’s net sales were about € 763 million, EBIT about € -4,5 million and profit about € -4,4 million.  The entire HKScan Sweden instead was in 2011 slightly profitable, net sales € 1045,7 million and EBIT € 17,2 million.  So, it would be worthwhile to study, where the profits are made.  We will try. This is the first attempt, and studying will continue later without any schedule.

HKScan, in its annual report back in 2007, stated as follows:

A hallmark of Scan’s business is that much of it is carried out in subsidiaries and associates. Subsidiaries SLP Pärsons AB and Annerstedt Flodin AB and associate Nyhléns & Hugosons Chark AB are worthy of particular mention in this context.

This is how it is yet today.  All those mentioned, and still a few companies further are important to Scan and HKScan. Today we will take just a skin-deep look at those three companies plus two other, namely Siljans Chark AB and Svenskt Butikskött AB.  The sad fact is that none of these companies is highly profitable.

Before looking at these companies, one remark must be made.  It is about Daka a.m.b.a., which is a Danish animal by-product company. Daka was the most profitable of Scan’s subsidiaries and associates in 2011.  Its net sales were € 140,9 million and its profit about € 21,6 million.  Scan's stake in the company was 33.9%. Now it seems very much, that Scan has sold a significant proportion of its shares in the summer of 2012.  If this holds, then I must have missed the Group’s announcement completely.  But let's examine this issue in April at latest, when the Group’s annual report comes out. Daka’s 2010/2011 annual report is here, and here is Daka’s announcement of the new alliance (in Danish). Here is a bunch of official papers, and here is the corresponding press release, these two last from The Brussels. But now back to our five selected companies.

Nyhléns & Hugosons Chark’s (the whole subgroup) net sales in 2011 were about € 60 million and profit about € 0,4 million.  However, there has been successful years, and for example, in HKScan’s 2009 annual report its success was noticed also in the text.  At that year its profit was close to € 2 million.

Mikael Hugoson owns 51% of the company and Scan owns the rest 49% and the company used to be classified by HKScan as an associate.  HKScan however announced in its 2009 annual report that the status of Nyhléns & Hugosons Chark AB has changed from an associate to a subsidiary.  In the same report, HKscan gives the following definition of a subsidiary.

Subsidiaries are companies over which the Group exercises control. Control arises when the parent company either directly or indirectly holds over half the voting rights or otherwise exercises control, for example through agreements concluded with principal owners. Control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Perhaps the Group is in control, but in the eyes of the public this company in northern Sweden with a broad product range is just Hugoson’s company.  For instance in a nationwide paper, Land Lantbruk & Skogland, an ordinary article about company’s result is entitled: Hugoson’s slaughter empire.  Scan is only mentioned once in the text as an “also-owner”. On company’s net pages, managing director Magnus Nilsson completes the company presentation in about this way: Thank you for choosing our northern Swedish alternative! It is quite clear that the other alternative is Scan.  Really these two companies don’t look like close partners but like close competitors.

                         

Siljans Chark’s net sales in 2011 were about € 19 million and profit about € 0,4 million.  In 2010 the result was roughly the same.

The company is owned by farmers, employees and Scan, whose ownership percentage is 39,3%.  Siljans Chark is classified by the Group as an associate.  Unfortunately, the partnership has not been a walk in the park.  In 2011 Scan was about to increase its ownership to over 50%, but all of the farmers did not accept it.  Instead there was formed a group which persuaded Scan to sell its newly acquired shares to the group.  No doubt, a great majority of the province was with the group and Scan had better to retreat. In a regional newspaper, an article about the operation and the group was entitled: They saved Siljans Chark.  One may wonder if there is room for any true collaboration between Scan and Siljans Chark.

Group’s name, something like “Love Locally”, illustrates well the reasons that led to the operation.  The group members felt that they must defend local industry in middle Sweden.  The problem with Siljans Chark is that its products’ most important sales argument to consumers is local origin.  It has a broad range of products but its product range looks very much the same as Nyhléns & Hugosons’ and Scan’s.  That’s why all three companies look like each other’s competitors.

Svenskt Butikskött’s (and Gotlands Slagteri’s) net sales in 2011 were about € 45 million and profit about € 0,4 million.  In 2010 the profit was even € 1,2 million.

Svensk Butikskött continues the activities which Scan, as a part of its rationalization program, ceased in Gotland a couple of years ago. As early as the autumn of 2009 Scan was planning some kind of a collaborative model and in the end, Scan became the co-owner (25%) of Svensk Butikskött.

Svenskt Butikskött’s market is the whole Sweden but the company draws heavily from the local origin.  The company says that Gotland with its strong food tradition and uniqueness is even comparable to Parma, Italy.  Svensk Butikskött specializes in fresh quality meat and may well find its place in the market and also in Scan's palette.

Annerstdt Flodin’s net sales in 2011 were about € 45 million and profit about € 0,3 million.  In 2010 net sales were slightly less than € 40 million and the profit was close to € 0,4 million.

Annerstdt Flodin also is a quality oriented company. It is Scan’s subsidiary and fully owned by Scan. It imports quality meat from all over the world. It is quite sensitive to economic cycles and dependent on changes in meat production, exchange rates, etc.  Clearly the company has chosen its product strategy and it is a natural part of Scan.  Like an apt pupil, in fact.  Just look at the company’s presentation, so thorough and so nice: the Group is introduced before the company itself. Too kind?

Pärsons is the largest of these five companies.  Its net sales in 2011 were about € 90 million and profit about € 1,9 million.  In 2010 net sales were about the same and the profit was about € 2,7 million.

Pärsons is Scan’s subsidiary and fully owned by Scan.  It is firmly focused on cold cuts and a few other sandwich toppings.  Its products are sold nationwide and also exported to Denmark. HKScan has developed and streamlined Pärsons with determination and the brand it is of enormous importance for Scan.  Of these five, it is the major money-making machine.

Cold cuts are not the sexiest products, but believe or not, there is one interesting family of cold cuts in Pärsons assortment:  Mediterranean. In the product description there reads among other things:

Here we have reduced the proportion of saturated fat significantly and instead added Extra Virgin Olive Oil from Crete.

The thing is that the olive oil very likely has been added with the technology supplied by a Greek food company, Creta Farm S.A. Following excerpt is from their pages:

Our vision is to change diet on an international scale through the “En Elladi” patented production process replacing—where possible—animal fat with extra virgin olive oil, a process that intensifies the flavor of traditional local deli meats.

According to the company’s web pages, sometime in 2010 they were planning to enter in two years the market in Sweden, Denmark, Finland, Estonia, Latvia and Lithuania via a joint venture with Pärsons.

Today the co-operation of these companies is not yet wide, their associate company Creta Farms Nordic AB (50% for both) showed  in 2011 net sales of about € 0,7 million and profit of about the same but negative, € -0,7 million. It is probable that the cooperation does not expand very significantly.  Scan has its own "oil project”, namely, the use of rapeseed oil for pig feed and corresponding products perhaps are in their way to success, so Scan will invest on them instead. It can also be assumed that currently any Greek raises no great enthusiasm, at least not in Finland.  However, the development of cooperation is worth watching.

That’s it for today.  There are more subsidiaries and associates in Sweden, not even mentioned here and of course many more in Finland and in the Baltics.  We will look at them some day.

We will be back in HKScan later but on Friday, January 18^th we are going to look at Atria’s businesses.  Before the summer finally comes, we will see all sorts of snowmen.  They are even not nice.  Here is one.  And what is this? Another evil snowman, right?

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