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.

Atria’s near-term concerns in Finland and new products in Russia

Atria’s costs are rising and general economic conditions in Finland are worsening

Atria Finland’s near-term concerns are not small.  Producer prices are too low to cover the feed price increases that already have taken place. Prices should be raised immediately and after a while most likely even more because rise in feed prices threatens to continue. USA's poor soybean harvest due to record drought is one factor and Russia is expected to impose restrictions on grain exports for the similar reasons.  Moreover, all cost increases have not yet been added even to the feed prices, so they will rise in any case. 

Summer was bad, weather did not favor barbecuing but much worse can be expected in the future.   General economic uncertainty turns consumers sparing, the most valuable cuts do not sell.  A vitally important retail customer Kesko anticipates increasingly gloomy winter and is indeed preparing for it by extensive layoffs.  Atria's ever a poor negotiating position will hardly be now any better.  In fact, Kesko bluntly calls for innovation and better productization.  It just wants products that add value to the whole production chain.

The market shares are changing.  Many smaller food companies fare well and meat imports inevitably continues to expand.  Atria is strongly committed to domestic meat whose superiority is no longer recognized among consumers.  No wonder. 

Namely once again it was revealed that food is not anywhere near what it is said to be.  This time is was minced beef, which was made of lower-value cuts than stated on the label.  Business as usual was the explanation of all the companies, we just follow other companies’ practices, they said.  And to the question about its true content, Atria’s executive Matti Perälä said (in Maaseudun Tulevaisuus, Sep 21^st, printed version) only that it is our recipe and we don’t want to make it public.  The problem is that in this kind of cases consumers’ critique will be directed mainly to large companies, such as Atria.  It is clear that in Finland the rejection will not happen straight away en masse but there is a risk, that it takes place here and there, one by one. 

There is yet another thing that angers many: Atria is burning money in Russia.

New products and campaign in Russia - Time for yourself

Pit-Product’s new plant in Gorelovo, Lenoblast, company owned by Atria, is currently running at a 60% capacity utilization rate, CEO Atria Plc Juha Gröhn has noted in public last July.   Company's market share is high and perhaps it will be hard to get them higher.  So, under their KampoMos brand, Atria Russia has now launched a family of minced meat products in convenience food category:  ready-to-eat meatballs, steaks and kebabs.  They believe that chilled products, no thawing, suitable as snacks also, will displace frozen products in Russia, as they have done elsewhere in Europe. 

The products are targeted especially to Moscow market where Atria already has one popular product, pizza Royal Fresca.  It seems that these new products are marketed by using Fresca’s high awareness among consumers.

Atria’s ads are never soft and this campaign, “Time for yourself”, in June, planned by Leo Burnett Moscow, did not make an exception.  TV ad, the pizza version embedded above, is not exactly a happy family stuff.  Clearly it says and shows boldly, that cooking belongs only to some babushkas, but every young, independent woman instead will take time for herself.  

African swine fever (ASF) indeed has hit Atria’s farm in Krasnodar.  The case was speculated in this blog on Aug 31^st but as a matter of fact it has been reported widely in newspapers as early as mid-August although Atria itself has not officially informed about it.

But now I asked Hanne Kortesoja, Atria Corporate Communications and IR Manager, if the news, also covered on Aug 31^st, about abandoning primary production in Russia is true.  In her kind reply she first of all wrote that when announcing Atria’s Q2-report, they told that in Russia pig farming is not their core business and that their current plan is to abandon it.  About the reasons she mentioned Russia’s WTO membership and state’s investment subsidies for new pig farms.  She concluded that competition between farms will intensify, and Atria’s farms are too small to be competitive.  She further noted  that availability of pork improves and for Atria it is not essential to keep their own pig farms.  Lastly she reminded that concrete decisions are not yet done.  She didn’t mention the ASF incident at all.

This current plan of abandoning pig farming in Russia surely is totally unexpected, but thinking it over, perhaps it is not a terribly bad idea.  Total dependence on imported meat would not be wise but if the supply of domestic pork truly can be ensured, the plan looks little better.  If I get it right, the plan is also consistent with Atria Russia’s aim to narrow its product range.  Atria has of course done its homework.  Last December they presented a set of estimates which tell, that the domestic pork production in Russia grows steadily and nearly reaches the pork consumption by the year 2020, Ruohola’s 2011 presentation, page (3/8).

There are still two tables presented on Atria’s pages which I have been wondering quite a lot, Lindholm’s 2011presentation, pages (17/27) and (19/27). There are shown ratings of Russian meat product manufacturers by product categories, ratings based on consumers’ opinions.  In St. Petersburg, the table tells, Atria’s brand Pit-Product is on top position in most categories.   KampoMos fares quite well in St. Petersburg and in Moscow it is near the top in some categories.  Not bad at all.  But Atria Russia’s earnings have been in the red over and over again.  When will the popularity of its products be shown on the bottom line?  Interim report Q3 should show some signs of turnaround and the launch of new products should be reflected, if not otherwise, at least in Atria Russia's net sales.

We will delve into Atria’s businesses again later but on Friday, October 12^th we are going to explore HKScan Plc.  According to Vivaldi, there are four seasons at least.  Summer is the best and it will come soon.  Presto.

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.