Scandi Standard AB (publ) (SCST) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Scandi Standard's Interim Report for the Second Quarter 2025. My name is Lydia, and I'll be your operator today. [Operator Instructions] I'll now hand you over to Jonas Tunestal, CEO of Scandi Standard to begin. Please go ahead.

Thank you very much, and good morning, everyone, and welcome to this presentation of Scandi Standard's results for Q2 2025. My name is Jonas Tunestal, and I'm the CEO and Managing Director of Scandi Standard. By my side, I have Fredrik Sylwan, our CFO, and I'm really pleased to have him by my side. And I'm also glad to report strong growth and results in the quarter. So next slide, please. And we see a solid growth and improved performance in the quarter. We have a 6% growth in net sales and increase in volumes, and it's supported by business across countries, channels and segments, and the sales are supported by continued strong underlying demand. So there's a strong European demand for chicken, both long term and especially now. We see a strong improvement in our EBIT performance. We're delivering continuous steps toward our financial targets that we set in 2027. And when we look into the RTE in specific, we're in the process of passing through the price increases, but I will come back to that later. Our Lithuanian operations underway with a positive EBIT impact, and that is our first milestone achieved an EBIT positive within 6 to 12 months. And as we previously communicated, and as you can see, we are on the early [ path ] of those 6 to 12 months. So [Technical Difficulty] farms are ongoing, and that is important for us to have this backward integration in Lithuania. And at the same time, we're preparing for the newly acquired RTE plant for the start-up in Q4. And at last, our first dividend installment were paid of SEK 1.27 per share and the final installment due in September to the same amount of SEK 1.25 per share. So next slide, please. And this is the reason why we see this strong demand, and these are repetitive slides that we show in every quarter presentation, but it's important for us to show the drivers behind the long-term strong momentum in chicken. And it is it's convenient, versatile and tasteful. And it is responsible, safe and nutritious. And at last, it's affordable because it's sustainable. And I will get back to that later in the presentation. But these 3 drivers is important for the growth and the long-term growth in chicken. So next slide, please. And here, you can see the strong historical and ongoing consumer trend for chicken. And on top of the increased consumption, chicken is benefiting from a long-term inflow from other proteins. So we see a change -- a long-term change, where we see growth in poultry and they take a lot from other proteins, especially pork. But now we see high prices on beef as well, and that makes the trend move over to more poultry from beef as well. So we can move into next slide, please. And one of the major reasons why it's benefit from other protein is because it's sustainable and affordable. And I mentioned before, price has always been important for consumers and the focus has increased even more in the current environment of high food prices. And beef prices are increasing and becoming more and more expensive, which is chicken is benefiting from, but also the long-term trend of switching protein from red to white meat. Moving to next slide, please. And on this slide, we want to present our EBIT per kilo measure and EBIT per kilo is a good measurement of value creation for our business. And Q2 2025, EBIT per kilo is SEK 1.88 compared to SEK 1.83 in Q2 2024. And even though mentioned before that Lithuania is EBIT positive, it still contributed negatively to our EBIT per kilo measurement. So if we exclude the start-up costs in Lithuania, EBIT per kilo is NOK 1.92. And Lithuania and Oosterwolde will be a good contributor for us reaching our 2027 goals, and we're expecting to make material EBIT per kilo steps later in 2025 and onwards. And in the different colors in the diagram on the right-hand side, you can see the development in the different segments and the RTC color includes the ramp-up cost in Lithuania. So in spite of the start-up cost in Lithuania, also Q2 EBIT per kilo was higher than last year and [Technical Difficulty] ladder is progressing. And this is also a slide that we have shown before. And this slide is to remind you of the strong market position in all our 5 home markets and that the countries are highly consolidated. And these markets have large hurdles for new entrants, they can individually be regarded as semi-closed markets due to the strong consumer preference for domestic produce. And due to our strong market position, our own supply decision had a meaningful impact on the market balance, which has helped us in the recovery process in the inflation before, but also now when we see that the strong demand for chicken is increasing the prices on those. But note that each market, however, also includes consumer segment less sensitive for provenance. So next slide, please. And this is to show our new start-up in Lithuania, and it will be 20,000 tonnes to 25,000 tonnes grill weight state-of-the-art processing plant and it will be best-in-class cost position. That's why it's important for us to be in and made a setup in Northern Lithuania. And our intention is to build a fully integrated hub, and that will allow us control of both cost, animal welfare and food safety. And now the recent acquisition of farms accelerating that process. And we're also planning to see how we can continually build capacity within this market. So with that, we're well positioned to serve high-quality products to segments less sensitive for provenance and also to our own ready-to-eat plant and our strategic export customers. And for Lithuania, we are targeting a medium-term EBIT per kilo well above SEK 3 per kilo. So if we move into next slide -- next slide. And here, you can see our different plants. And the 3 big plants that we have is Valla in Sweden, Shercock in Ireland and Aars in Denmark. And then we have a medium-sized plant in Norway and 2 smaller plants in Lithuania in Joniskis and Lieto in Finland. So if we move to next slide. And this slide is a reminder of the strong historic organic growth in the Ready-to-eat business, and I'm confident that, that trend will continue. And it's divided in 2 different type of business, 3/4 is breaded products and European market and 1/3 of this is an integrated local business that we have in Sweden, Norway and Finland. And in the Ready-to-eat, we have high return on capital and our average EBIT margin is above 6% and low capital employed compared to our Ready-to-cook segment. If we move into next slide, please. And the market is divided into tiers. We have the European players, and then we have the regional players, and we have the local players. And we have been an regional player with 36,000 tonnes product weight in 2024, and that is about 5% of the European market. And now with the new production platform, we will move into being a European player. So with that, we move into next slide, please. And this is the acquisition in Oosterwolde that we're ramping up, and that will give us 48,000 tonnes annual capacity in this plant. So it is a 90% increase in production capacity. And it's also one of the few with this advanced way of highly efficient producing formed products and whole muscle products. And as we've said before, it was impacted by fire and our total investment, then it will be EUR 28 million, and that will replace an investment in Farre of EUR 30 million. And the operations are planned to start in Q4 2025, and it looks promising, keeping that plan. And the start-up cost will, of course, affect with low utilization in the start-up in the beginning, but that we have communicated before, and then we will grow in volumes. So if we move into next slide. So if we take a look at it from a holistic value chain view, we are well positioned to gain market share because we have this low-cost and high-quality end-to-end -- when it starts with a low feed labor and soaring cost, we have quality control of Ready-to-cook and value chain, efficient logistics and then we have a state-of-the-art breaded capabilities in Holland. So we start with the plant in Lithuania, the process in Lithuania and then the breaded production in the Netherlands. And that combination will be a very competitive offering to our customers. So if we move to next slide. And now we're moving over to our segments, and this table shows the reconciliation of our segments. with strong net sales growth in Sweden and Denmark, lower net sales in Finland due to that we have exited a loss-making contract. So it will affect the top line here, but not the EBIT level. And also when you read this chart, it's important to remind you that the category other includes ingredients business and our corporate costs put together. We move into next slide, please. And here, we see Ready-to-cook, where we have strong growth and improved performance. We have 6% increase in net sales. and we have 6% increase in chicken process, so both in net sales and volume. We have the EBIT of SEK 150 million compared to SEK 98 million last year, and that is an improved margin from 3.8% to 4.2%. And we're also proud of that we have really low LTIs this month. And I think that, that's an effect of our long-term focus and structurally work to reduce our injuries in the factories. We have stable animal welfare indicators, and we have antibiotics below our short-term target. Slide please. Here we take a look at the feed prices. And we see stable feed prices after a long period of increasing feed prices. But however, we need to be prepared for further volatility. We don't know where it will end, but what we can foresee now is a stable, slightly decreasing prices. And our model have most of the input costs linked to the top line. And we have no or limited trade with U.S. and China. So we are really much a pure European player. We also want to highlight, and that is important that the feed cost is 1/3 of our cost base. And the short production cycle that we have compared to other proteins enable us to take a more agile decisions in our supply chain. And when we look at other costs as packaging, energy and so on, we see costs on a more stable level, and we are hedging the majority part of our electricity exposure. If we move into next slide, please. and take a look at our export prices. And we see that realized export prices approach historical heights. We have a 3% increase compared to Q1 2025. And our expectation is that -- and our forecast is that the export prices will continue to rise in the coming periods. And that is due to 2 things. It is a strong market that we are talking about, but it's also our structural approach to find the right export customers. So long-term partnership with prioritized customers. We're optimizing the sales and operation planning to S&OP planning. And also, we have announced the flexibility between export and our Ready-to-eat. And that is super important that we can move volumes between those segments due to the cost of raw material prices. And we have also reduced our exposure to the volatile spot markets. So if we move into next slide, please. And on this slide, you can see the channel development in more detail. And here, you can notice an increase in our retail sales and a slightly decrease in the foodservice. And that is mainly due to the prioritization that we need to do and where we are prioritizing big customers that we need to provide with raw material on Ready-to-eat when there are such a high demand. Moving to next slide, please. And now we're moving to Ready-to-eat. And we are, as explained earlier in this presentation, we are in the process of passing through high prices. We see a growth in net sales of 4%. So we have growth in both net sales and volumes. So we see that this is -- this segment is recovering. Of course, that is driven by increased export and retail performance. However, we see a weaker EBIT performance of SEK 23 million compared to SEK 38 million last year, and that is the negative impact from the rising chicken prices. But we're recapturing the margins in the coming quarters. And that is a natural step when we see that the price goes up from day-old chicks to chickens to our Ready-to-cook segment, where we sell fresh products. And then we're putting through the prices in Ready-to-eat. And they have a little bit more structural lead times that we need to pass -- that we need to respect. But we are in the middle of passing those prices through at the moment. If we move into next slide, please. And here, you can see the figures, and we see a solid growth, and we see a growth in our retail segment, and we're also really glad that the foodservice is flattening out here in Ready-to-eat, and we are linking back to the loss of contract that we had last year and the recovery that we have communicated since then to get back growth in Ready-to-eat. And we can see that we are growing this quarter compared to last quarter and the foodservice flattening out. So overall, we have a positive view on our Ready-to-eat business and see the growth. Now it's just to push through the price increases, but that's a natural step with this raw material price increases. So with that, I hand over to Fredrik Sylwan for the [ CFO comments ].

Great. Many thanks, Jonas, and good morning, everyone. Next slide, please. As Jonas mentioned, the second quarter was a strong one. In fact, it was our strongest second quarter ever. We see a positive development, where top line was driven by both RTC and RTE supported by strong underlying EBIT growth in RTC, partly offset by RTE, which, as Jonas said, is normal when bird or raw material prices are increasing. The RTE profitability is expected to be built back and recovered during the coming quarters. In total, EBIT is up 9% in the quarter with a 10 basis points margin improvement. And the ramp-up of Lithuania is going well, and it showed positive EBIT in the quarter, which is ahead of plan. Finance net is reduced and the cost for increased bank loans close to offset -- is close to offset by lower EBO rates. We also have a positive currency impact and partly offset by a reduction of the positive impact from the interest rate swaps that we have talked earlier. Tax is in line with previous year, and feed efficiency remains stable and strong, and we also see a significant reduction in injuries. Next slide, please. Our return on capital employed continues its positive trajectory, showing improvement compared to previous year. Meanwhile, return on equity is slightly below last year, which is primarily due to the ramp-up cost for Lithuania. The equity ratio decreased from 36% to 34%, primarily driven by increased investment activity. While the decline is modest, the company remains well capitalized and within our targeted capital structure, and we continue to monitor our leverage position to ensure financial stability and maintain flexibility for future investments. Next slide, please. Our operating cash flow was negative SEK 150 million in the quarter, primarily due to the timing of trade receivables and increased CapEx linked to the acquisition of poultry farms in Lithuania that amounted to SEK 200 million. Other operating items are driven by exchange gains on accounts receivable and accounts payable as well as revaluation of the provision for pension. Paid tax is in line with previous year. And as mentioned earlier, the first installment of the dividend was paid in May and the second one will be paid in September. Other items are negatively impacted by FX on interest-bearing debt in the quarter. So in total, the change of net interest-bearing debt was SEK 341 million, mainly driven by the poultry farms acquisition and dividend. Reported leverage landed at 2.4, which is below our internal aim of 2.5. Next slide, please. Working capital remains low in the quarter. We see a 13% inventory decrease versus year-end and a 5% reduction versus Q2 last year. It's driven by lower level of finished goods, partly offset by live animals. Our target for working capital as a percentage of sales rolling 12 is adjusted -- adjusted for financing is 6%. And in Q2, this metric stood at 4.6%, including financing adjustments, meaning that we are at an efficient and low working capital level for the quarter despite the ramp-up effect in Lithuania. Next slide, please. For 2025 in total, the CapEx is estimated at approximately SEK 550 million, which includes the necessary investments related to the acquisition earlier this year in Oosterwolde in addition to the acquisition price, meaning that the acquisition in Netherlands earlier this year and Lithuania in the quarter, total amounting to approximately SEK 330 million will come on top of the SEK 550 million. The blended effective tax rate is expected to be approximately 20%. And as said, dividend will be paid out in September. In total, the dividend is up 9% versus last year. Next slide, please, and back to you, Jonas.

Thank you, Fredrik. And next, I would like to talk about one of our cornerstones and actually a license for us to operate. And there are 3 key areas when it comes to creating trust for what we do. And it is responsible animal welfare, it is safety for consumers and employees and it is nutritious products. And those 3 are super important for us and of course, one of our license to play, but also a really important focus for us to actually be the responsible player in the poultry industry, and that is important for Scandi Standard. So if we move into next slide, please. That's why we have a sustainability scorecard where we show and being transparent of our different measurements about sustainability measures. And we are the only poultry producer, what we know that shows this every quarter in such a transparent way. And if we look at our LTIs, they are down low in this quarter and the last quarter as well, and we see a long-term positive trend in improving our LTI performance. So we're really proud of the results of this month, but we also know that we have much more to do. If we look into our use of antibiotics, we are below our short-term targets. And of course, when we're entering new business with other ways of producing chicken, we are putting in our Scandi Standard’s and transforming the -- to our way of working and lowering the antibiotic use over time. And that will affect the numbers now when we're entering new areas for Lithuania as an example. We also see our animal welfare indicator foot pad score at a low level this quarter. So if we move into next slide, please. And this is also a slide that we've shown before, and -- but we think it's super important for us to state our 4 important strategic pillars. And it is to increase the value of our protein, and that is about taking out more and more value out of the bird and defining the right product to the right markets, but also taking care of the total [ crackers ]. And then we have ramping up the efficiency, and that is also an important focus of not only the efficiency in the plant, but the efficiency in the whole value chain. And there we can see examples how we're actually taking control both in the live operations with good measurements and good cooperation with our farmers, but also how we can create highly efficiency -- high efficiency in our plants. And then we have the integrated sustainability, and that is important in our total business that we work with sustainability in all means. And the fourth one is better together, and that's the way we're working because we are in 5 different home markets with strong local preference, but when we are optimizing things together and utilize the best practice all around that will Scandi Standard benefit from the local players. And if we move into next slide, please. And this slide, we want to remind you of our 2027 targets. And on the right-hand side, you can see the targets. And we are expecting a strong growth over time and over the coming years. So therefore, we have set a target of 5% to 7% net sales growth. We have an EBIT target in excess of 6% by 2027. We're also measuring the progress in terms of EBIT per kilo that we have presented in the slides before, and that is above SEK 3 per kilo, and that is a supportive target for all our other targets. And we will have a ROCE above 15%. And then we will reduce our CO2 emissions with 42%. So [ bold ] goals, but we see that we're moving in that direction, and we feel confident that we will reach the targets in 2027. So if we move into next slide, -- and this is also a reminder for you about our structured approach of receiving recognition in our sustainability focus areas. So we have -- on the right-hand side, you can see the ESG ratings, and we are proud of the achievements and of course, the CDP achievement and being an A in CDP. I think it's only 15 listed companies, if I remember right, that has the CDP A rating. And I think it's only 2 in the food industry in Sweden. And if we move into next slide, please. And this is the clear road map to reach our SEK 3 per kilo target on EBIT. And that is mainly 2 things. It's about what we say, climb the value ladder or increasing the value of our protein. And that is about balancing supply and demand. It's about value creation. It's about differentiation, but it's also about utilize future further parts of the chicken. It's not only [ breast fill and leaks ] that makes the profit. There are a lot of more, and we are focusing on that, and that is our ingredients business. And then we see large efficiency potential in the value chain and optimizing that from farm to Nugget. So if we move into next slide, please. So to summarize it all, we see strong growth and performance delivered in the quarter, all-time high EBIT for both the second quarter and for the first half. We're moving steadily towards our financial targets, and we're expecting further improvements in the second half 2025. We remain highly focused on the start-up of acquired entities. And as mentioned before, Lithuania delivered positive EBIT, which is ahead of our plan. Netherlands are on track for starting Q4 2025 and our final dividend installment due in September of SEK 1.25 per share. So that's all from us in the presentation, and we move over to the Q&A session.

[Operator Instructions] We have a question from Daniel Schmidt with Danske Bank.

Just wanted to follow up on the comments regarding Ready-to-eat. And I think, Jonas, you said that you are in the middle of passing through price increases that has sort of a structural lag. What are you sort of implicitly saying there? Does that mean that you will have some lagging effects also in Q3 and then you'll be fully catched up, as we get to Q4? Is that how we should interpret it?

Yes, that's how you should see. But also, we should mention that we still see increasing prices in the third quarter as well in Ready-to-cook. So it's more about that it's always a little bit delay when we're passing prices through. So it should be seen as positive when we are increasing the prices in our value chain, where Ready-to-cook is our strongest foothold. But of course, when the price is rising, there are delay in the price implementation. But most of those discussions is already done with the customers and then they are implemented in Q3 and Q4. But of course, if we still see continued increase, that will pass it further on.

Yes. But it also means that you will be benefiting on the RTC side from increasing prices, but you will be hurting on the RTE side, but the net effect is still positive, you think?

Absolutely.

Yes. And when it comes to the Netherlands, when you bought it, you mentioned sort of late Q3 and then you changed it to early Q4, if I remember correctly, now you're saying Q4. Is it still early Q4 that you plan to be ramping up or start of production?

Yes. It's still early Q4.

And what do you expect in terms of start-up costs as we get into the late part of Q3 and early Q4?

Yes. We will get back to that later in the coming quarter when we are ramping up. So we will not guide on exact numbers in this quarter. But we have a positive momentum in ramping up Oosterwolde, and we will ramp it up sequentially. So we will start line by line. And actually, one of the reasons for not having even more growth in Ready-to-eat is that we have on some SKUs, capacity constraints that actually will help us when we are starting up the new line in Oosterwolde. So that's why we're confident on when we're moving up things sequentially that we will have the orders in the book on the SKUs that we start from the beginning. But of course, there will be low amount of volumes in the starts, and that will, of course, have an overhead effect, but we will get back on that.

But is that a much bigger operation compared to what we saw in terms of start-up costs in Lithuania? Is that fair to say?

No, not in terms of how we look at the effects when we're ramping up things. Lithuania is more a value chain ramp-up with bigger effects when we're starting. But on the other hand, Oosterwolde is a production capacity that we will grow in. As we have said from the beginning, we're increasing our capacity with 90% -- so it will not be fully up and running in -- of course, that will take a long time because it's a plant that will grow within. But the cost of it will come sequentially and not at the same amount on short term as Lithuania.

Okay. Good. And just maybe very detailed question, maybe to Fredrik. Depreciations are lower in RTC this quarter compared to last year, and they all -- you've added these acquisitions, at least Lithuania, it's clearly up and running. Is there any other parts of sort of assets that have been fully written off? Is that the reason?

Did I hear it correctly about it? It was about depreciation.

Yes, it's a very detailed question. It's actually lower now in RTC compared to last year.

It's -- I would say, it's mainly -- let me get back to you on that specific question.

Yes. Another question for Fredrik, maybe. Did I get you right when you said that the capital expenditures is SEK 550 million for the sort of guidance for '25. And then on top of that, the SEK 330 million, is that correct?

Yes.

And is that still to come? Is that correct? Part of that SEK 330 million is also still to come this year. It hasn't been sort of cash out yet?

No, the SEK 330 million has been paid. So it's...

All of that is already sort of in the cash flow.

Yes.

And in terms of maintenance CapEx or how to put it, the SEK 550 million, how much of that has already been sort of in the cash flow and how much is to come in the second half?

About almost SEK 200 million has been impacted in the first half year. And the rest is in the second half.

It's important to say that it's [ got a ] maintenance CapEx. So that is super Important.

Regular CapEx.

Yes, it's regular CapEx that we're developing in our home markets. The other ones are linked to the acquisitions.

Yes, and preparing the factory in Netherlands for production.

[Operator Instructions] We have no further questions in the queue. So I'll hand the call back over to the management team for any closing comments.

Yes. No further comments from us. We want to thank you all for listening into this call, and hope you have a good day. Thank you very much for joining.

Many thanks.

Thank you, this concludes our call. Thank you very much for joining. You may now disconnect your lines.

Thank you.