Artoparto's Blog: April 2013

Friday, April 26, 2013

HKScan’s Q1 2013 - Analysts’ expectations are fairly high

HKScan’s Q1 2013 Interim Report will be released on early May and now is the right time to look at analysts’ expectations. Reuters brings together analysts' forecasts and other company information and some HKScan’s forecasts are also available. Q1 2013 EPS estimates range from €0,04 to €0,07.

At the first sight expectations look modest but it appears that even EPS of €0,04 requires a good or even an excellent result. It is true that in 2010 Q1 was as much as €0,06 but net financial costs were only €2,6 million and taxes close to zero. Last year’s Q1 result instead was €-0,09, net financial costs €8,0 million and taxes €2,5 million.

In order to reach EPS of €0,04, the entire Group's Q1 EBIT should perhaps be approximately €11 million. First adding the share of associates' results perhaps some €0,5 million, then subtracting net financial expenses perhaps about €7 million, then continuing guesswork and subtracting taxes about €1 million and finally subtracting profit attributable to non-controlling interests, perhaps about €1 million, we end up with the sum of €2,5 million. The number of shares is approximately 55 million. Then, Q1 EPS would be just above €0,04, reaching the analysts’ range, namely EPS from €0,04 to €0,07. Clearly, analysts are expecting a fine quarter. Let's look briefly at HKScan’s market areas.

HKScan Finland needs to reach a good Q1 result, preferably better than those achieved in recent years. Last years’ Q1 EBIT was only about €3 million and the company said that the quarter went according to the plan. Now this kind of result is not enough. What is needed is a result comparable to 2009 Q1, which the company said to be a strong quarter. But the analysts, so it seems, perhaps think that EBIT of €5 million is achievable.

HKScan Sweden is surely not expected to show anything like last years’ catastrophic Q1. It may be reasonable to wait for something like in previous years. Then Q1 EBIT of €2 million does not sound impossible. In the 2012 Annual Report there is a great deal of talk about the launch of rapeseed pork products. Unfortunately there is nothing much about actual results but only talk about a couple of prizes, talk about many positive comments and even talk about how the launch resulted in a lot of talk in social media. It looks that the whole concept is not a marked success, at least not yet.

HKScan Denmark’s Q1 2013 result (possible non-recurring income excluded) should be mildly positive. Production in Vinderup has been restarted in early December. Then Q1 EBIT of €1 million is within the realms of possibility.

HKScan Baltics is, as noted many times also here, in a good shape and one can expect a good Q1 result, something similar to those in recent years. Then Q1 EBIT of €1 million is undoubtedly possible. However, one should recall, that last year’s Q4 quarter was in fact weak. It was due to increased costs, energy prices for instance, not particularly due to reduced sales. The ongoing energy saving program perhaps helps.

HKScan Poland needs a result close to its Q1 in 2010, which the company said to be its best Q1 result ever. However, one must repeat here what Boguslaw Miszczuk, president of Sokołów, has said. In a recent journal article he points out a rather pessimistic view something like this: The deteriorating economic situation in Poland may limit the consumption of foods, including meat and dairy products – it may be expected that consumers are increasingly interested in lower-priced products. Hard speech. So 2013 Q1 EBIT of €4 million may be slightly optimistic.

The sum of those country-specific figures is €13 million. Subtracting Group administration costs, perhaps some €2 million, we end up with the needed figure of €11 million. Overall, analysts’ Q1 EPS estimates ranging from €0,04 to €0,07 are modest but even this kind of result looks hard to achieve and one decisive fact is that HKScan is burdened by enormous financial expenses.

We will discuss HKScan later but on Friday, May 10^th, we are going to look at Atria’s businesses. Summer is not coming in a hurry. I’m afraid it means that it will go away in a hurry. Sad.

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Atria’s Q1 2013 was below expectations

Atria Russia failed badly again. Atria Scandinavia didn’t improve and missed expectations. Atria Finland improved but, non-recurring income excluded, the result however was somewhat under expectations. Atria Baltic improved mildly and exceeded expectations. We will look at the results later next month.

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

Friday, April 12, 2013

Atria Plc expectations - FY 2013 very high, Q1 relatively low

Atria's Q1-2013 Interim Report will be published on April 26^th and now 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.

Together with the chart, it may be interesting to look at what analysts might think Atria's immediate future. Bloomberg summarizes analysts' forecasts and other company information. Analysts’ FY-2013 EPS (pre-exceptional) consensus for Atria is €0,68 (individual estimates ranging from 0,41 to 0,80 euros). Their corresponding Q1 consensus is €0,00 (from -0,05 to 0.04 euros). Let’s play with these 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.

In the chart below, actual EBITs are indicated by solid lines. Dashed circles show a set of reasonable country-specific Q1 EBIT figures, which could lead to EPS of €0,00 which in turn is the same as analysts’ Q1-2013 EPS (pre-exceptional) consensus.

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

Overall, the first impression is that the analysts’ full financial year 2013 consensus EPS of €0,68 looks difficult to achieve. We must recall that in 2012 EPS was €0,35. On the contrary, Q1 consensus EPS of €0,00 does not look challenging at all. Let’s go now very briefly through the country-specific figures presented on the chart, just to find out what kind of results analysts’ consensus of Q1-2013 EPS €0,00 might be based on.

Atria Finland – Q1 2013 EBIT of €6 million could be a reasonable guess although it is even better than last year’s corresponding EBIT of €5 million which was considered a good result. When times are good, this kind of results are chicken feed, but general economic conditions in Finland are worsening. Food in general has low elasticity of demand but there are substitutes in the sense that consumers are prone to switch to cheaper imported products and lower priced product groups. It is more than possible that Atria’s success in Finland will later this year be worse than in recent years. That could even ruin the whole Group’s result.

Atria Scandinavia – Q1 2013 EBIT of €1 million is a pure guess. The latest result, last year’s Q4, was such a horrible letdown that now the result is not at all easy to predict. The guess may be overly optimistic although there were spending cuts which are fully realized as of the beginning of the year, centralizing ham and cold cut production to Malmö is mentioned in the Financial Statement Release 2012. Ridderheims is considered an important part of Atria Scanidanvia. However, Ridderheims’ key figure trends are partly worrisome. It seems that net sales have fallen a lot. To be a significant part of the Group, Ridderheims should increase net sales, mainly export I suppose, and still stay profitable. My guess is that the company will try to do it in Russia.

Atria Russia - Q1 2013 EBIT of €-2 million may be a reasonable guess. EUR 2 million improvement to the latest result, namely last year’s Q4, could be achieved due to decrease in marketing expenses. The latest Q4 was really a huge disappointment. The company launched a new product group – minced meat ready meals - and evidently the launch was a failure. Campaigning was strong and expectations were certainly high. Quite unexpectedly, to say the least, the Board of Directors only mention the launch in the 2012 Financial Statement but deny that it would have been the most significant.

An entirely new product category – pre-cooked minced meat products – was introduced in Russia. Skinless frankfurters in resealable packages were last year’s most significant launch.

The only interpretation is that the minced meat ready meal campaign was a total failure. Overall, it seems that Atria Russia’s potential is fading away, leaving only up to some €150 million turnover and consequently only some €6 million to €8 million yearly EBIT at most.

Atria Baltic – Q1 2013 EBIT of €-1 million is a pure guess. In the 2012 Financial Statement Olle Horm, head of Atria Baltic, says that they are seeking rapid growth in fresh and marinated meat. On the other hand, somewhat contradictory in relation to that, they intend to focus on further processed products. Meat sales are going well already but boosting the sales of processed products under their most valuable brand Maks & Moorits may be troublesome. Anyway, the Group rather stubbornly wants to succeed in higher-end products also in the Baltics. It may mean just marketing costs.

Some more guesses – Total of those guesses about what the analysts might have thought, makes €4 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 €2 million and taxes roughly €1 million, we get the final reading of around €0 million. Then of course also earnings per share would be about €0,00, which is the same as the analysts’ consensus.

We will look at Atria later but on Friday, April 26th, we are going to look at HKScan’s businesses. But just before that, also on Friday April 26th, we will take a very brief look at just then released Atria's first quarter interim report.

Summer will come one day, so sure about that! In the meantime it may be helpful to take a short pop-punk introduction to the subject matter.

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