Artoparto's Blog: May 2013

Friday, May 24, 2013

HKScan - turn for the better is not yet in sight

In the Q1 2013 Interim Report’s Group Overview Hannu Kottonen CEO HKScan comments on the first quarter broadly. He is neither particularly satisfied nor totally disappointed. Utmost cheap is this understatement: “The best performing of the market areas was Poland.” If I remember right, the other market areas, Baltics excluded, have rarely been anywhere near Poland’s level and apparently this seems to be hard to admit.

One of Kottonen’s comments is this: “Cross-border knowledge is also being utilised, e.g. by sharing the best product concepts and preparing for group-wide product launches later this year.” At least I am eagerly waiting what does this mean in practice, not the “sharing of concepts” and other abracadabra but especially those group-wide product launches.

Kottonen’s comment on the cooperation with producers turns out to be extremely interesting. He says (underlining is mine): “In Finland, a model for cooperation with producers was developed during 2012 and its implementation started in the first quarter.” We must recall, that in March this year, in the Annual Report, there was said: “The introduction of the new producer cooperation model will continue in 2013 especially in Finland, but also in Sweden.” What’s more, still a little earlier, in the Financial Statement 2012, released in February this year, there reads: “To improve competitiveness of the primary production, a new cooperation model for producers was planned and introduced both in Finland and Sweden.” It is possible that the case proceeds only in Finland while HKScan Sweden’s project HKScan Partner is badly stuck.

Brief remarks on the Q1 report by marketing area

In Finland “the total market volume decreased during the quarter”, the report says. That’s gloomy indeed. The trend likely will continue. Hence, if the profit is to improve, it will be due only to personnel adjustments and efficiency development. Price competition hardens.

In The Baltics, a number of cost increases were encountered during the first quarter: feed, grain, personnel, energy and transportation. But, the report also says, “efficiency improvement projects and the implementation of Group’s operating model continued in the market area neutralising the cost impact.” So, HKScan Baltics, in a practical way once again, reacted to rising costs immediately.

In Sweden, the report declares: “Actions within the development programme have taken effect, and can be seen in the improved results. Nevertheless, EBIT still remained in the red. The development programme measures and actions continue.” Yes, there was improvement compared to last year’s super-trashy Q1. Nothing else. Everyone is waiting for the breakthrough of Rapeseed Pork products and of course some positive news about those “measures and actions”.

In Denmark, the report interestingly tells: “Preparations for the re-launch and sales of fresh poultry products on the Swedish market under the Pärsons brand were made with good initial listings.” Why not under the Rose Poultry brand? These new products are chicken breast and thigh fillets. On the pages of Pärsons there is said something like this: For many Swedes Pärsons is synonymous with Thin Slices, Sweden's most popular toppings that made grand entrance at the counters in 1999. It seems that this will be quite a brand extension.

In Poland, according to the report: “The performance improvement was attributable to successful product-mix management, active meat sourcing and production cost control.” Would it be simply attributable to better business management compared to other HKScan’s market areas? And one more statement in the Q1 2013 report regarding the Polish market area: “Export volumes stayed at a low level.” This sounds peculiar, because the 2012 financial statement says as follows: “Export sales were strong, though the strengthened Polish currency continued to reduce margins.” Should one conclude that the Group does not know much of anything about Sokołów’s businesses activities. But it would not be a bad thing, in my opinion.

Summer has come. Who would have believed! But after three months, on Friday, August 30^th we will look at Atria’s businesses.

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

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Thursday, May 9, 2013

Atria's performance does not inspire hopes

Atria’s Q1-2013 really does not give any clear indication that the EBIT target of 5% could be achieved soon. Reported new and still ongoing savings might help, at least in Finland and Russia.

Instead of the quarterly report, let’s look a little bit the Annual Report 2012. The Board of Directors says for example: “The strongest growth potential in Atria’s area of operation is in Russia.”

It’s about growth not about profits but it is evident that Atria is not intending to come home from Russia for a long time. It means continuing losses, if primary production is not abandoned.

Top management is happy with the company's situation

CEO Atria Plc, Juha Gröhn seems pleased with last year. His interview in the Annual Report is titled as follows: “We succeeded well in strengthening the basis”. Gröhn also says: “At Atria, our absolute focus in all operations has been on improving profitability, even at the expense of growth.”

Yes, it improved certainly but EBIT of 2,2% is still modest, to say the least.

The EVP’s seem to be mostly confident or pleased as well. Atria Finland’s EVP Mika Ala-Fossi admittedly notes that the challenge is to improve profitability or even maintaining current level but he is looking for growth across a broad front, across all product groups and he describes the current situation by the term “post-recession market”.

Personally I would say that the correct term is pre-recession.

Atria Scandinavia all right? The Annual Report also tells that in Atria Scandinavia, only in four years, the number of plants has been cut from 18 to 8, productivity has increased and the cost structure has lightened. Company’s position in cold cuts in Sweden strengthened, Atria 3-Stjernet brand in Denmark showed more rapid growth than the market overall and there are many other positive news about Atria Scandinavia in the Annual Report.

But why these improvements do not show in the last line?

According to Jarmo Lindholm EVP Atria Russia, the company really tries to be permanently profitable in the latter half of the year and after that the target is to grow profitably. It should be noted that he says also as follows: ”We will continue to improve profitability, but most of the corrective measures have now been taken.”

Not much of anything no longer needed? But the fact is that Atria Russia is not yet profitable. We also know that Pit Products market share already is tremendous, about 25% in Saint Petersburg. Why does it not show in the last line?

Olle Horm EVP Atria Baltic wants rapid growth and thinks that they have appropriate product groups to achieve this but he says also: ”But I want to stress that growth can only happen if markets recover.”

That’s very likely a realistic approach.

Number of employees once again – any savings?

Last November we looked at the number of employees in Atria’s different business areas. We saw, that the trends are downward. We thought that it would mean a lot of savings. The chart is now updated and the trends continue.

However, now the series of Salaries and Benefits is added to the chart. These yearly figures are marked by white solid squares. No downward trend in personnel costs. No savings at all?

Figure: Atria’s number of employees by business area over the last five years*(left axis) and yearly Salaries and benefits € million (right axis).

*The data is taken from Atria’s quarterly reports, but possible errors and misunderstandings are mine. Quarter specific employee 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.

We will discuss Atria later but on Friday, May 24^th, we are going to look at HKScan’s businesses. Summer visited here. Three days only. Sad. (But the rich Swedes are of course thrilled also about short summer.)

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

Tuesday, May 7, 2013

HKScan’s Q1 2013 was a clear disappointment

Alarmingly HKScan Finland did not meet expectations. Also HKScan Sweden was a big disappointment, although it achieved a better result compared to the last year's exceptionally bad Q1. HKScan Denmark was in the red again, though only mildly. HKScan Baltics performed in line with expectations. HKScan Poland’s quarter was a great success once again, über good in fact. We will look at the results later this month.

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