HKScan’s Q4 2013 - analysts' expectations are considerably high

HKScan’s 2013 Financial Statement will be released on early February.  Let’s look at analysts’ expectations.  FT brings together analysts’ forecasts, and HKScan’s whole FY 2013 EPS estimates range from €0,18 to €0,26.  Consensus is €0,2267.  Current Q1 to Q3 EPS is €0,06.  Hence one might conclude that Q4 EPS estimates range from €0,12 to €0,20.

Q4 EPS of €0,20 seems extremely challenging. Let’s find out what kind of market area specific results could lead to analysts’ lower limit of €0,12. In the chart below, there is one such scenario illustrated. Non-recurring items are excluded.

Actual EBITs are indicated with solid lines.  Dashed circles show a set of reasonable market area specific 2013 Q4 EBIT figures, which could lead to the whole Group’s FY-2013 EPS of €0,12.

 

Quarterly earnings before interest and taxes by year in HKScan's market areas,

large write-offs excluded.

HKScan Finland’s Q3 was a failure.  Biggest competitor has increased its market share.  Demand has shifted to less expensive meat products. Compared to Q4 2012, revenues and EBIT likely will decrease.  While the biggest competitor campaigns domestic meat, HKScan concentrates on streamlining its meat import.  HKScan’s brand redesign whatever seems to be a dud.  Simplify! is CEO Kottonen’s new slogan.  Interestingly, this pic from HK Agri’s producer seminar from January this year, Samuli Eskola, EVP HKScan Finland speaking, may suggest that the biggest rival Atria is in his mind day and night. Rapeseed pork products don’t seem to sell too much.  Apparently the company thinks that the products need some kind of a power campaigning.  New mannequin is here. Analysts perhaps expect Q4 EBIT of €4 million, which would of course be a bad result.

HKScan Sweden’s Q1 was just bad. Q2 and Q3 have gone okay, but not quite overtaking the level of best years. EVP Göran Holm visited the above mentioned seminar and emphasized the importance of differentiation and benefits of advertising.  This means increasing marketing costs but in terms of revenues, Sweden is the biggest part of the Group and perhaps now it is the time when it will permanently become the number one in terms of earnings as well.  Analysts may think that Q4 EBIT of €7 million is reasonable.

HKScan Denmark has just announced a nearly €7 million investment to increase capacity and productivity in Vinderup.  Danes are optimists. Analysts likely are not.  Q4 EBIT of near €-1 million might be a good guess.

                          

HKScan Baltics’ Q3 was a positive surprise after the extremely weak Q2.  So, what will be the Q4 result?  Analysts may predict even a superb result.  Perhaps EVP Teet Soorm, punk-souled meat king from Viljandi, is steering the company to results that beat even the truly great achievements of the company’s former EVP Anne Mere. Q4 EBIT of €4 million is a brave but perhaps a reasonable estimate.

 

HKScan Poland’s Q3 was fairly nice but still a disappointment.  Let us once again repeat what Boguslaw Miszczuk, president of Sokołów, said early last  year: 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. Hence Q4 EBIT of €3 million, may be close to what analysts expect.

The sum of those country-specific figures is €17 million. Subtracting Group administration costs, perhaps some €3 million, we get the whole Group’s estimated Q4 EBIT of €14 million.

Then, continuing guesswork and adding the share of associates' results perhaps some €0,5 million, then subtracting net financial expenses perhaps about €6 million, then subtracting taxes about some €1,5 million and finally subtracting profit attributable to non-controlling interests, perhaps about €0,5 million, we end up with the sum of €6,5 million.  The number of shares is approximately 55 million.  Then, Q4 EPS would be about €0,12 which is the same as the lower limit of analysts’ expectations.

All in all, HKScan Finland is dropping, HKScan Sweden is picking up, likely taking the lead, HKScan Denmark believes in itself, HKScan Baltics keeps going fine and in Poland … I guess that HKScan’s stake of Sokołów or a part of it will be for sale this year.

We will discuss HKScan later but on Friday, February 14^th, we are going to look at Atria’s businesses.  Poetry In Motion.

Update 2014-02-04  As usual, in addition to the above-mentioned, we will very shortly look also at the Statements as soon as they have been released, HKScan on Wednesday 12th February and Atria on Thursday 13th February.

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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.

HKScan - nothing's well

Having served as EVP of HKScan’s Consumer Business in Finland and the Baltics and as HKScan Finland’s General Manager about one and a half year, Anne Mere has now been appointed Chief Marketing Officer of HKScan Group.  Practically speaking, she has got fired. Perhaps she was too professional and sought effective solutions of a kind producers’ cooperative or Finnish workers did not accept. It is HKScan’s problem, not Mere’s.  I guess she receives a dozen of great job offers every day, while still taking care of some HKScan’s meaningless strategy issues whatever.  In a newspaper Äripäev’s interview Mere tells, that the new position does not require residence in Finland and she decided to move back to Estonia.

In fact, the case seemed clear already in last March, and even on this blog we observed that nothing had changed, no significant renovations were made.  At that time is was a big disappointment considering what was written on this blog last October: Overall, the management team has changed a lot.  There is one new person, full of promise, fully proven to achieve results.  Anne Mere, HKScan’s only hope, an Estonian.

I will stay with the statement until otherwise proven.  HKScan does not have any hope.  Maybe it is an exaggeration, maybe not.  One must note that the company has a long, long history and it is almost necessary to add here a link to a video which outlines HKScan's 100-year journey. The documentary itself won awards at the 18^th Aurora Awards international film competition in the United States in August.

Hannu Kottonen, CEO HKscan, has been crying poor results.   And he has found lots of reasons:  expensive feed, private labels, low demand, aging population, recession, surplus of meat and also lack of meat, for instance. Now he has reacted: the Group’s earnings targets were lowered, amusing indeed.

In an interview in the magazine Kotitilalta 2/2013 Kottonen complains HKScan’s cultural mosaic, its local companies with local practices.  But elsewhere in the same interview, he says, that he wants to try to ensure that the Group is perceived as a local food company. There is still one specifically alarming comment in the interview. Kottonen hopes that rapeseed pork will be a success.  Isn't it already a success?  As far as I understand, HKScsan has praised the popularity of the whole rapeseed pork product family both in Finland and in Sweden.

One positive thing there is, namely the price of feed may be decreasing.  The harvest is expected to be good in many important production areas, the magazine says.  One can conclude that it is very important for the producers, because Kotitilalta 3/2013 tells us that in meat production feed costs account for 40 to 65 percent of total costs.

Matti Murto, producers' co-operative, chairman of the board, has in turn said in the newspaper Maaseudun Tulevaisuus, that Southern Finland’s 141 subsidies are terribly important because for many farmers they are what you are left with after costs. If I get it right, vast majority of the HKScsan’s pork producers locate in the 141 area.  Negotiations on the future of the whole Article 141 are currently in progress. Reductions are now likely and within a few years these subsidies will be discontinued.

We will discuss HKScan later but on Friday, September 27^th, we are going to look at Atria’s businesses.  Words like birds / go away / here I stay.  Yes, DIY again. I’m awfully sorry.

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.

HKScan's 2012 – nothing has changed

One would not believe that HKScan has made, for example in Sweden,  ​​all kinds of efficiency measures for several years.  Yes it really has, but the money just is lost somewhere. Streamlining  does not show up in the earnings.  To me it seems as if the company had potential but the actual result is always a disappointment.  I wonder if my logic goes like this:  Tomorrow HKScan will be good because today it is bad.

HKScan’s quarterly EBITs starting from 2009.  Q4-2012 non-recurring items are excluded. The readings are highly unofficial and possible errors are all mine.

In its 2012 financial statement report the HKScan once again tells about new efficiency measures, particularly in Sweden and Finland.  The company talks about development, reorganization, restructuring, functions, operations, “actively managing the dynamics of future business”. Nonsense all the way, but it takes time and effort to write such text, no wonder that Group administration costs rose about 13% compared to 2011.  In my opinion, managing group should make money, not take.  Most worrying is if Anne Mere, new Managing Director of HKScan Finland, left her practicality to Estonia.  Or perhaps the case is that the corporate culture maintained by cooperative owners prevents all real renovations.

In Estonia practicality is still honored.  HKScan Baltics' several projects aimed at improving efficiency are truly carried out, for instance energy-saving projects.

In Denmark, the company earned due to fire only.  HKScan’s organizational reform may go wrong especially in Rose Poultry, company’s sales director, having plenty of experience in the export trade, left the company.  One person only but may be an indication of wider dissatisfaction with HKScan’s new Away from Home business sector, which really seems to be an artificial mixture of businesses from food service to export.

One big disappointment is that the new rapeseed pork product line in Sweden was mentioned in the report but no specific details of its success.  Evidently it has not been a true success.

Sokołów goes well.  Annual turnover increased by approximately 15%, EBIT by nearly 25%.

We will discuss HKScan later but on Friday, March 15^th we will look at Atria’s businesses. Go skiing if you wish but get back before the snow melts.  Summer is coming.

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.

HKScan’s new management and strategy plan

There have been many changes this year in HKScan’s top management.  The HKScan Group's new CEO Hannu Kottonen started in February.  He has previously worked in the field of consumer packaging, Huhtamäki Plc, and most recently in the business of consumer papers, Metsä Tissue Plc, where he got, this kind of guidance when starting as CEO: ..."besides running the daily operations Hannu Kottonen's responsibility is to ensure the implementation of company's efficiency programme". 

Implementation! That sounds very good.  Unfortunately there is no such determination in HKScan, see page 26. Chairman of the Board Juha Kylämäki is hoping for consolidation, harmonizing, development and integration and Kottonen himself has stated that it is time to take the advantage of synergies to improve productivity and cash flow.

So, synergies and a more efficient package are hoped for in unison.  However, everyone can see where the problems are. They are in Finland and in Sweden and they are huge.  Synergies is not the word, efficient package will not help.  Implementation would be the correct word.  Of course Kottonen first needs a plan but it should not be a big problem.  Namely HKScan has done convincing efficiency plans during every quartal, but apparently they have worked on paper only.  

These most simple and basic figures above illustrate, in my opinion, the situation very clearly.  Such large problems cannot be solved by creating some synergies. (Please note, that non-recurring items are included and Denmark is not shown.)

HKScan’s target, 5% of net sales, those dashed lines, tell that also Poland and Baltics have increased their sales steadily and still they have achieved good EBIT results.  One could of course deny their success by saying that it is easy to do well with small net sales.   However, one must first note, that Poland’s figures show only the part consolidated to HKScan (50%).  Sokolow’s actual figures are twice as high.  Secondly and more importantly, in the same way, as  HK Ruokatalo in Finland and Scan in Sweden, also Sokolow, Rakvere Lihakombinaat and Tallegg operate nationwide, and the have products for all consumer groups in all price ranges.  They are not skimming the cream but simply their market is smaller or their market share is lower due to tighter competition, when compared to Finland and Sweden.

Wishing for implementation of some specific plans?  Not a hope?  In August we got a release about HKScan’s strategy update.  The aim is to increase profits.  Fine, but the means include mostly some double Dutch, like “actively managing the dynamics of future business”.   Perhaps these releases are not even meant to mean anything. What may matter is that HKScsan has been tinkering with a group-wide operating model.  But is it just a mess?

HKScan will introduce the operating model gradually by the end of 2013.  No wonder that it takes some time.  Core businesses are divided into four sectors which are:  Consumer Finland and the Baltics, Consumer Sweden and Denmark, Away from Home, and the fourth is Sokolów and other joint ventures.   Originally Consumer sector was one entity as such, but now it is split into two country blocks, only reflecting the current management situation.   Otherwise the split is artificial and it may weaken the company’s performance.  AFH sector is just a mixture of businesses from food service to export.  The best part of the model plan is that Sokolow has been left alone.  It really does not need the HKScan Group at all.

Hannu Kottonen, the new CEO did not come alone.  He brought with him a bit of forestry and a couple of his old workmates.  AFH business will be headed by Jukka Nikkinen.  He has experience in international and export tasks, few year periods around the millenium for instance in Leaf Group at the time when Kottonen worked in Huhtamäki Plc, which suggests, that they were already familiar with each other.  

Tuomo Valkonen has been appointed Chief Financial Officer of HKScan and member of the management team.  Like CEO Kottonen himself, also Valkonen has been working in forest sector, Kyrö, Metsäliitto and Savcor.  The former CFO Irma Kiilunen, HKScan’s long-time executive, will continue as Group Treasurer but she is now out of the management team.  

In December, Marja-Leena Dahlskog will start as HKScan’s new Director of Communications.  She comes straight from Kottonen’s latest employer, Metsä Tissue.

Anne Mere, the upcoming CEO of the whole HKScan Group?

Overall, the management team has changed a lot.  There is one new person, full of promise, fully proven to achieve results.  Anne Mere, HKScan’s only hope, an Estonian.  She has been employed with the company since 2004, and the last four years as the CEO of Rakvere Lihakombinaat, Estonia, where despite the recession, the entire Baltic Group's profit was higher than HKScan’s target level.

What did she do?

"Consumers were moving to less expensive products, therefore cost reductions and product mix adjustments were needed. Costs were monitored very closely, among other things we cut the salaries. In addition, we reduced marketing support and negotiated firmly with all suppliers. The focus was on the basic assortment" Mere recalls, see page 27.  Absolute management!

Unfortunately, now as the CEO of HKScan Finland, her job is defined as something like “to intensify cooperation between market areas and to allow for more ways such as cost savings and better use of knowledge” and so on.   Rubbish.

But we will see Mere’s practical implementation of market areas’ closer cooperation, and especially such cooperation, which will lead to cost savings.  Is it about primary production or what?  What does it mean that Mere has also been appointed a member of HK Agri’s Board of Directors?  We will be talking about Anne Mere later and at the latest after only a couple of years, when she, like I assume, is the CEO of the whole HKScan group.

Teet Soorm - Meat King of Estonia

The new CEO of Rakvere Lihakombinaat, following Mere, is Teet Soorm, 42 year old, Estonian, who started in the company as early as 1994, before privatization.  He will also continue as the CEO of Tallegg and Ekseko.  So, he is a man of primary production, even cited as Estonian Meat King, plays in a punk band.  And there is much more about him in Eesti Päevaleht’s interview.

Some citations and interpretations of the interview:  Teet Soorm, a true Mr. Meat, 100% involved and committed, knows the meat industry in detail.  But he appears to be quite reluctant or sour, when the interviewer asks very simple questions, those that consumers are interested in, questions something like these: when will Rakvere or Tallegg have a family of organic products and why there is less meat and more brine in meat products today.  His answers are something like these:  organic food is a niche, nothing for us, not possible, no organic feed available, brine adds value, our products are of good quality. These kind of answers are simply unnecessary, especially since he says, that when reaching retirement, he himself will be an organic farmer.  A great plan, indeed. 

But there is still something else in the interview. Soorm talks generally about management and emphasizes that the companies are run by people, not by any written strategies. So, this suggests that in the end he really does not worry too much about HKScan's new strategy plans. Which is a good thing. Currently Soorm is only a member of HScan’s extended managing group, but I suppose that one day he will join the managing group, no doubt in fact.  There is an urgent need for a primary production professional.

We will be viewing HKScan’s businesses again later but on Friday, October 26^th we are going to look at Atria Plc.  I am waiting for summer, but does it mean that first I have to wait for winter?  Yes.  I have to wait also for these.  My sad life.

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.