HKScan’s Q1 2014 - Minor loss expected by analysts

HKScan’s Q1 2014 Interim Report will be released on early May, so let’s look at analysts’ expectations.  Bloomberg brings together analysts' forecasts and Q1 2014 EPS estimates range from €-0.05 to €-0.02.  Consensus EPS is €-0.04. Last year’s Q1 EPS was €-0.08, hence a smallish improvement is expected. 

In order to reach EPS of €-0.04, the entire Group's Q1 EBIT should be approximately €3 million.  Let's look briefly what kind of country-specific results the Group might need.

Figure: Quarterly earnings before interest and taxes by year and by market area.  All non-recurring items are excluded.  Figures are highly unofficial.

Actual EBITs are indicated with solid lines.  Dashed ovals show a set of reasonable market area specific 2014 Q1 EBIT figures, which could lead to the whole Group’s Q1 EPS of about €-0.04, which corresponds to analysts’ consensus. 

 

HKScan Finland needs a positive Q1 result, something comparable to those achieved in recent years. The analysts, so it seems, perhaps think that EBIT of €2 million is achievable.  That’s not much.

However, immediate future looks better, at least interesting. Namely HKScan’s stock exchange release on April 10th is big news.  According to it, Finnish rapeseed pork will be GMO free already from September.  Soy will be replaced by domestic protein sources. Evidently feeding systems are ready.  This will be the real beginning of the rapeseed pork product line’s boom.  The biggest rival has been absolutely stubbornly uninterested in GMO free feed but Snellman, a medium sized rival, already has such beef products.  It is clear, that these two players will ensure that very soon consumers are taking GMO free products for granted when it comes to high or medium priced products.  HKScan’s biggest rival will be in trouble and possibly they have to make considerable changes in their brand new feed plant in order to keep up with the consumer’s new requirements.

                                                                                        

HKScan Sweden has to improve to meet the expectations.  However, analysts are likely not expecting but a slight loss. Then Q1 EBIT of €-1 million is a good guess.  

A new, but well-known (together with Annerstedt) Swedish brand Flodins will be launched on all Group’s markets.  It is meant to be a brand for traceable, trendy, easy-to-use, easy-to-prepare products.  It must mean also new product lines and of course in the short run it means only costs.  The other news, not as good, is that HKScan Group has become a member of the Round Table on Responsible Soy Association and HKScan Sweden is at the forefront.  But supposedly in consumers’ minds GMO free soy is the key, and this membership does not all require it.  Just to mention one other member of the association:  Monsanto.

HKScan Denmark’s Q1 2013 result should not be negative, and Q1 EBIT of €0 million is reachable. 

A salmonella contamination incident at Vinderup plant in early April may have a negative effect on results later this year.

          

HKScan Baltics should also reach Q1 result something similar to those in recent years.  In an interview this week, Teet Soorm, head of HKScan Estonia, pointed out that labor costs are rising but noted also that warm winter has reduced energy costs. Then Q1 EBIT of €1 million is undoubtedly possible.

HKScan Poland needs a result close to its Q1 in recent years and EBIT of €4 million is probably expected by analysts.  During the quarter, HKScan sold its stake of Sokołów.

The transaction is expected to be approved by the authorities quite soon. This means that in the short run HKScan’s revenues and especially earnings will decrease dramatically, of course.

The sum of those country-specific figures is €6 million. Subtracting Group administration costs, perhaps some €3 million, we end up with the needed figure of €3 million.

This EBIT of €3 million might indeed result in the analysts’ consensus Q1 EPS of €-0.04. Namely first adding the share of associates' results perhaps some €0.5 million, then subtracting net financial expenses perhaps about €5 million, then continuing guesswork and subtracting taxes about €0.5 million and finally subtracting profit attributable to non-controlling interests, perhaps now close to €0 million, we end up with the sum of €-2 million.  The number of shares is approximately 55 million, which means that Q1 EPS would be €-0.036 which is close to the analysts’ consensus EPS of €-0.04.

We will discuss HKScan later but on Friday, May 9^th, we are going to look at Atria’s businesses.  But even before that, we are going to look very briefly at both companies' Q1 reports as soon as they are released.  Okay, just some poetry here: Earnestly urging earnings urgently.

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