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

Good morning, everyone, and welcome to this presentation of Scandi Standard's result for Q3 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 pleased to have him by my side today. I'm also glad to report a strong growth and result in the quarter. So next slide, please. We have 11% growth in net sales and increase in volumes, and that is supported by growth across countries, channels and segments, and sales are supported by continued strong underlying demand. We have the highest EBIT ever, up 21%, delivering continuous steps towards our financial targets. We see strong improvement across Ready-to-cook. Our new integrated business in Lithuania, which was started up earlier this year, is already contributing with a solid EBIT per kilo. Ready-to-eat segment bottomed out in the quarter as price increases to compensate higher input cost will be implemented in the coming quarters. And then when we go to Netherlands, we have successfully started up our first production line in our newly acquired RTE plant in Netherlands, and that is earlier than expected. So -- and now we are preparing our main products line for start-up in the first half 2026. So next slide, please. And this is the reason why we see strong demand. It's related to these 3 value drivers for chicken, responsible, safe and nutritious, convenient, versatile and tasteful and affordable because it's sustainable. Moving to the next slide. And here, you can see the strong historical and ongoing consumer trend for chicken. On top of the increased consumption, chicken is also benefiting from a long-term inflow from other proteins. So next slide, please. And one of the major reasons why it's benefiting from the other protein is because it's sustainable and affordable. So, price has always been important for consumers and the focus has increased even more in the current environment of high food prices. So, beef prices are increasing and are becoming more and more expensive, which chicken is benefiting from, but also the long-term trend of switching protein from red meat to poultry. So chicken is affordable in all segments. You can see that on the top right side, and it gives us further opportunities to drive long-term volume and value creation. So, we see further opportunities to drive more value out of the chicken due to its affordability. We can move into next slide. And on this slide, we want to present our EBIT per kilo measure. EBIT per kilo is a good measurement of our value creation for our business. So Q3 2025 EBIT per kilo is SEK 2.36 compared to SEK 2.15 last year. And that is an increase of 10%. Our home markets together with Lithuania are contributing well and Oosterwolde in Netherlands will be a good addition for us reaching our 2027 goals. So, we are expecting to take another material step in 2026. And in the different colors in the diagram, you can see the development in the different segments. So next slide, please. And now we're moving over to our segments. So, this table shows the reconciliation of our segments. Strong net sales growth in nearly all markets, lower net sales in Finland, and that is due to our exiting loss-making contract. And we also want to remind you of the category other that includes both ingredients and our corporate costs. So next slide, please. And here, you can see our summary of our sustainability scorecard. We are transparent on multiple parameters, and I'm glad to show that most of them shows a positive results. But what stands out in the quarter is the critical complaints, which are linked to a specific plant, and we have addressed the problem and expect it to be solved shortly. Next slide, please. And now we move into Ready-to-cook. And that's a 13% increase in net sales, 10% increase in chicken processed, and we have this positive mix effect. EBIT is up a staggering 33% to SEK 159 million, and EBIT margin is 5.5% compared to the 4.4% last year. We have low quarterly injury, our LTI rate that is 16.4% compared to 37.1%, and that's a reduction of 44%. And this is an effect of our effort focus during the last quarters. But sadly, we had a fatal accident during the quarter in one of our newly acquired farms in Lithuania. So formal investigation has been initiated, and it's receiving our highest level of attention. So, next slide, please. So let's move into feed. So, we are now seeing fairly stable feed prices for some quarters. In quarter 3, the prices declined slightly, but there are still uncertainties, and we need to be prepared for further volatility. But our model have most of the input costs linked to our top line. We also want to mention where we have no or limited trade with U.S. or China. We also want to highlight that feed costs are 1/3 of our cost base. And the short production cycle compared to other proteins enables us to be more agile in our supply chain. When we look at other costs as packaging and energy, we see costs are more at a stable level, and we are hedging the majority of our electricity exposure. So next slide, please. So, let's move into the export prices. And our realized export prices reached historical heights, expectation of increased prices reflecting higher bird prices in Europe, and we are forecasting continued elevated prices. But we're also working strategically to improve our market performance and so we have this long-term partnership with prioritized customers in focus, optimized S&OP, our sales and operation planning that is super important for us, enhanced flexibility between export and Ready-to-eat and reduced exposure to volatile spot markets. And at the same time, we're working to broaden our export permits from all countries. Next slide, please. And on this slide, you can see the channel development in more detail. Through these details, you can notice the increase in retail in the quarter. We see a minor decrease of net sales in the food service, though, but that is due to prioritization from our side to the more profitable local retail segment. So, in general, we have been seeing a strong demand growth in several of our markets in the quarter. Next slide, please. And this slide is to remind you on our strong market position in all our 5 home markets and the countries are highly consolidated. 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 from inflation. So, note that each market, however, includes consumer segments less sensitive to provenance. Next slide, please. Now we'll move into Lithuania. This is a reminder of our successful start-up of our acquired low-cost ready-to-cook platform in Lithuania. It's a fully integrated business model, allow control of cost, welfare and food safety. The recent acquisition of Farms accelerating this process. We're also planning to build additional farm capacity in 2026. Well positioned to serve high-quality products to segments in our existing markets less sensitive to provenance, but also to our own Ready-to-eat plants and to our strategic export clients. And we are targeting medium-term EBIT per kilo well above SEK 3 per kilo. So, let's move into next slide, please. And this is -- here, you can see our Ready-to-cook plants. Note that 11 million chickens in Lithuania is just one shift. If the market has a positive momentum, we have the possibility to scale up with another shift and double the production. So next slide, please. And Ready-to-eat, we have a strong net sales. They are up 5% and a 15% growth in retail sales. We have reached the inflection point for our foodservice after a weak period. EBIT suffered from increased input costs, though. Lead time is passing them through to customers. We see sequential improvements expected in the coming quarters. So, we have bottomed out this quarter, and you will see sequential improvements. We also had the successful start-up of the plant in the Netherlands. Our Kebab processing line started in Q3, that was earlier than expected when we're also seeing limited start-up costs. And now during the first quarter 2026, we will start up our main products lines in what we call factory C in Oosterwolde. So next slide, please. And here you can see it in figures. And it's, of course, very encouraging for us to see growth in foodservice Ready-to-eat, where we believe that we have hit an inflection point after 2 years of stagnation. Growth in retail channel continues hitting a 5-year high during the quarter. And Ready-to-eat will be an important long-term tool in developing our EBIT per kilo, more specifically to increase the value of our protein. So next slide, please. And this slide is a reminder of the strong historic organic growth in Ready-to-eat business, and I'm confident that it will continue this trend. Two main type of business, 3/4 breaded product for the European market and 1/4 integrated local business in Sweden, Norway and Finland. And it gives us a high return on capital and the average EBIT margin of 6% last 5 years in the quarter. This quarter, we only had 2.4%, which shows the potential going forward and low capital employed compared to our Ready-to-cook business, which makes us an interesting for us growing segment. And as you remember, we lost some continental contract in 2023. But since December 2023, we have growth quarter-by-quarter. Next slide, please. And we're also expecting healthy market growth in the future. Marketplace is divided into these 3 different tiers, European players, regional players and local players. And Scandi Standard has been a large regional player, 36,000 tons of product weight in 2024, about 5% of European market share, but a production platform that is not competitive in the top tier. If we move into next slide and that's the reason why this acquisition in Netherlands takes Scandi Standard branded activities to the top tier. So, Oosterwolde plant that was acquired in Q1 2025 in idle state, and that was due to a factory -- a fire in Factory B in -- for the previous owner. Now we plan for start-up in Factory A in Q3 after refurbishment. We have increased the capacity for our popular cable products that we are producing in Farre today and now also in Oosterwolde with a start-up in this quarter. Factory C being prepared for the first half 2026 start-up. And Factory C has 2 of Europe's largest and most efficient breaded lines and with an annual capacity of 50,000 tons. And it also has one of the few with advanced form product capability, and it's tailored to meet the criterias of our largest clients. And we will see a significant growth in Scandi Standard here in the future, and this is the platform for that. Next slide, please. And this is our main processing plants. And as you can see, the 2 big plants are Farre in Denmark and Oosterwolde in Netherland, which have an combined capacity of 100,000 tons. So next slide, please. So, if we look at this in a more holistic perspective, our Lithuanian business is a low-cost and high-quality end-to-end hub in combination with the state-of-the-art breaded capability in Netherlands and Farre. That gives us feed efficiency, low labor costs and efficient logistic together with a scalable platform. With this, together with our strong position in our home markets, it gives us very competitive combined offers to clients. And that gives us competitive strength to take market shares. But there are typically longer lead times in supplier switchovers, so we need to be patient to onboard a full value chain business with customers. But meanwhile, Lithuania has secured strong customer orders in fresh meat. And with that, I will hand over to Fredrik Sylwan, our CFO.

Great. Next slide, please. And thank you, Jonas, and good morning, everyone. As Jonas mentioned, Q3 was a strong quarter. In fact, it was our strongest quarter ever. We see positive development where top line is driven by both Ready-to-cook and Ready-to-eat, supported by strong underlying EBIT growth in Ready-to-cook, partly offset by Ready-to-eat, which is normal when bird or raw material prices increase. The ready-to-eat profitability is expected to recover during the coming quarters. In total, EBIT is up 21% in the quarter with a 40 basis points margin improvement. The ramp-up of the Lithuanian business is going well, and it showed strong positive EBIT for Q3, which is ahead of plan. Finance net is on par with last year. Cost for increased bank loan is close to offset by lower interest rates. And as we talked before, we had seen positive impact from interest rate swaps previously that now has expired. Tax rate is at 18%, which is in line with previous year. And feed efficiency remains at a stable and strong level. Next slide, please. The returns are quite stable compared to last year in spite of the large investments in Lithuania and the Netherlands, which are both start-up businesses. 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. We continue to monitor our leverage position to ensure financial stability and maintain flexibility for future investments. Next slide, please. We are approaching an EBITDA of close to SEK 1 billion, rolling 12, which is a milestone. Operating cash in the quarter landed close to SEK 190 million, primarily driven by strong results, partly offset by increased capital expenditures linked to both efficiency and capacity. Other operating items were driven by exchange losses on accounts receivable and accounts payable amounting to SEK 3 million. And paid tax is below previous year due to timing of payment in Ireland of EUR 1.4 million linked to the 2023 result. The first installment of the dividend was paid in May and the second and final now in September to a total amount of SEK 163 million, which is an increase of 9% versus last year. Other items are mainly FX effect on interest-bearing debt. And the change of net interest-bearing debt was a reduction of close to SEK 100 million in the quarter, driven by the above. And leverage landed at 2.2, which is below our internal aim of 2.5. Next slide, please. Our working capital remains low in the quarter. We see a 10% inventory decrease versus year-end and a 4% reduction versus Q3 last year, driven by lower level of finished goods, partly offset by live animals. Also, Lithuania was not in base last year, which makes the decrease even more positive. Our target for working capital as a percentage of sales rolling 12 adjusted for financing remains at 6%. In Q3, this metric stood at 4.5%, including the financing adjustments, meaning that we are at an efficient and low working capital level for the quarter. We should expect a more normal level in Q4. Next slide, please. Total capital expenditures for this year is expected to amount to around SEK 450 million, which is a reduction from previously indicated SEK 550 million, as some planned investments in the Netherlands have been deferred to the beginning of next year. Moreover, the acquisition carried out in the Netherlands and Lithuania earlier this year will be in addition to the SEK 450 million. As we ramp up the Factory C, we expect increased working capital, which will start in the middle of the first half of next year. The blended effective tax rate is expected to be approximately 20%. Next slide, please. And back to you, Jonas.

Thank you, Fredrik. So next, I would like to talk about one of our cornerstones and license for us to operate. And there are 3 key areas when it comes to creating trust for what we do. It is about responsible animal welfare. It's about safety for consumers and employees, and it is nutritious products. And this is closely linked to our strategic pillars. So, if we move into next slide, please. And they can look pretty simple, but this is what it's really all about. And those of you who have followed us for a while have seen these pillars before. These are 4 strategic pillars that will support us achieving our goals: increase the value of our protein, and this is about optimizing our business and taking more value out of every chicken. It is ramp up efficiency end-to-end to actually create efficiency in the whole value chain from the very beginning to the consumer. And it is about integrated sustainability, so we're doing sustainability in all means of our business and doing this as better together, leveraging being one Scandi Standard and let the best practice travel all around. So, it's empathize the collective effort, shared goals and team cooperation that leads to improved performance and outcomes. So, if we move into next slide, please. And on this slide, we want to remind you of our 2027 targets. And here at the right hand, you can see these targets. We're expecting strong growth over the coming years, and we have set the target for 2027 of 5% to 7% net sales growth. We target an EBIT margin in excess of 6% by 2027. We're also measuring the progress in terms of EBIT per kilo for which we have supporting target of SEK 3 as presented in the former slides. And we are progressing as planned. Next slide, please. And as a reminder, on this slide, you can see that our structured effort is resulting in recognition in form of improved ESG rating. So next slide, please. And in order to reach our target for EBIT margin, we need to increase our EBIT per kilo from current rolling 12 of SEK 1.89 to above SEK 3 per kilo. And here are some examples and action to accomplish this. It is the investment in our ERP system that gives a common scalable platform to utilize the best practice in Scandi Standard. Our current strong focus on hunting new business in Ready-to-eat has yielded surprisingly good result in retail sales. This illustrates how capabilities in convenience products can be utilized. Then we have investment in stock to support the local growth in our Norwegian RTE segment. The new capacity will be in production, and we are producing in full speed at the moment. We're also investing in new leg deboning capacity and the latest investment in leg deboning will come here in the coming quarters in Finland. And all of this together, utilizing more of the bird, investing in efficiency that makes us our ability to climb on this EBIT per kilo ladder. And in this quarter, we are at SEK 2.36. So, if we move into next slide, please. So to summarize it all, this is another step on the value ladder. We have a record EBIT in seasonally highest quarter, solid substitution to our chicken products, convenient, versatile and tasteful, affordable because it's sustainable, responsible, safe and nutritious. We are developing a top-tier European RTE platform with high-quality, low-cost meat input from Lithuania, state-of-the-art processing plant, and we're expecting material progress in Q4 and 2026. So with that, we open up for Q&A. So next slide, please. Any questions?

[Operator Instructions] We currently have no questions via audio line. You may continue.

Okay. If there's no questions to the report, I want to thank you everyone for looking in, listening in to this webcast. And thank you very much from us.

Indeed, many thanks.

Thank you, everyone. That concludes the Scandi Standard Interim Report for the third quarter 2025. Thank you for your participation. You may now disconnect your line.