Scandi Standard AB (publ)

STO:SCST

Ladies and gentlemen, welcome to the Scandi Standard interim report for Q1 2025. My name is Geri, and I will be coordinating your call today. [Operator Instructions]

I will now hand over to Jonas Tunestal, CEO of Scandi Standard to begin. Please go ahead.

Good morning, everyone, and welcome to this presentation of Scandi Standard's result for Q1 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 in the quarter.

Next slide please. We've a solid growth and improved performance. We see a 7% growth in net sales and increase in volumes, and that is supported by strong consumer trend and driven by substitution from red meat. It is also supported by strength and convenience offering. We can see that the chicken is a convenient product where we are deboning more and more, and get the products more convenient.

We also have the start-up of Lithuania low-cost platform according to plan, and that has an EBIT impact of minus EUR 17 (sic) [ SEK 17 million ] in the quarter. And we have also done the acquisition of farm and that will accelerate the backward integration. So without that, we see this strong improvement in underlying EBIT and making continual steps to our financial targets. But as communicated before, we're also preparing our newly acquired Ready-to-eat plant in Netherlands in Oosterwolde for start-up in quarter 4, 2025.

We also see improved performance in our key sustainability KPIs and the dividend proposal for us is SEK 2.50 compared to SEK 2.30 last year per share.

Next slide, please. And this slide shows why we have this growth and our value driver for this, and that is because it's responsible, safe and nutritious. Chicken is convenient, versatile and tasteful, and it is affordable because it's sustainable.

So next slide please. And we see a strong consumer trend and that is in favor of chicken products. So we have seen a strong poultry growth in the Nordics and Ireland, and it is a 44% poultry growth from 2010 to 2023. And we're expecting a 13% poultry growth from 2023 to 2030 and that is 1.7% annual growth. And chicken is benefiting from consumer switching over from other proteins and that is mainly from red meat. And Scandi Standard has increased our harvest volume by 4% in 2024.

And next slide, please. And one of the major reasons why it's benefiting from other proteins is because it's sustainable and affordable. And price has always been important for our consumers and the focus has increased even more in the current environment of high food prices.

So beef prices are increasing and they're becoming more expensive which chicken is benefiting from, but also from the long-term trend of switching proteins from red meat to poultry.

So chicken is affordable in all segments and that gives us further opportunities to drive long-term volume and value creation. And we see future opportunities to drive more value out of the chicken due to its affordability.

Next slide, please. And on this slide, we want to present the EBIT per kilo measure which is a good measurement of our value creation for our business. So Q1 2025, EBIT per kilo is SEK 1.73 compared to SEK 1.74 in Q1 2024. It's slightly lower, but if we exclude the start-up cost in Lithuania, EBIT per kilo is SEK 2.05 and that's an increase of 18% versus Q1 2024. And Lithuania and Oosterwolde in Netherlands will be good contributors for us reaching our 2027 goals and we're expecting to make material EBIT per kilo steps in 2025.

And in the different colors in the diagram, you can see development in the different segments and the RTC color includes the ramp-up cost in Lithuania. And in spite of that, the start-up cost in Lithuania, EBIT per kilo is higher than last year.

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 individual be regarded as semi closed markets due to the strong consumer preference for domestic produce.

Due to our strong market positions, our own supply decisions have a meaningful impact on the market balance which has helped us recover the process from inflation. Note that each market, however, also includes consumer segment less sensitive for provenance.

So next slide please. And here we're talking about Lithuania and to fully utilize the potential of our existing markets and clients, it's important to integrate the low-cost and high-quality hub into Scandi Standard. And now we're in the start-up process and the ramp-up process of our Lithuanian platform, and it will reach 20,000 tonne to 25,000 tonne grill weights. It will be a state-of-the-art processing plant and best-in-class cost position.

Our intention is to build a fully integrated hub and that allows us cost control, animal welfare and food safety. And we have also done recent acquisitions of farm and that will accelerate the process. And for the long-term being, we're planning to build an additional farm capacity from 2026 and onwards.

So with that, we're well-positioned to serve high quality products to segments of existing markets less sensitive of provenance and also into our Ready-to-eat plant and export clients. And we are targeting medium-term EBIT per kilo well above SEK 3 per kilo.

Next slide please. And if we're looking into our total picture of our Ready-to-cook plants, so you can see them here, all our plants, and note that down in the right corner, 11 million chickens in Lithuania is just one shift. If market has a positive momentum, we have the possibility to scale up with another shift and double the production.

Next slide, please. Now we're moving into Ready-to-eat and chicken is becoming the preferred convenience choice. And this slide is a reminder of a strong historic growth in our Ready-to-eat business. And I'm confident that it will continue the trend.

And there are 2 main type of businesses, the 3/3 (sic) [ 3/4 ] of breaded products European market that is 75%, and 25% of the market is integrated local business in Sweden, Norway and Finland. And we see a high return on capital employed and an average EBIT margin of 6% in the last 5 years. And it's also low capital employed compared to Ready-to-cook.

And as you can see in this graph, the last 2 years we have declined a little bit and the growth come in an even step, and that is the last of European breaded contract in the second half of 2023. But we have a positive momentum on replacing that -- those orders and get growth again in our Ready-to-eat and it looks promising.

So next slide please. And if we look at the market in total, we see healthy market growth expected in European breaded market. And there are 3 different type of players. They are the European players and other regional players and the local players. And Scandi Standard has been regional -- large regional player with 36,000 tonne product weight in 2024 and that is about 5% of European markets.

The market has been stagnant after COVID-19 and there are also some European overcapacity. But we expect growth and that growth is about 60,000 tonne until 2029.

Next slide please. And this is why we do the acquisition in Oosterwolde and that is to take Scandi Standard breaded activities to the top-tier and there are 2 of Europeans most efficient breaded products lines in the Factory C that you can see in the top right corner on the picture, and it will give us 48,000 tonnes of annual capacity. And it is one of the few with advanced form production capability.

And as explained and talked about before, the total investment is about EUR 28 million and that will replace a planned investment of EUR 30 million in Denmark. And it is tailored to meet the criteria of the large client. And the operation is planned to start in Q4 2025.

So next slide, please. So if we look at that a more holistic perspective, our Lithuanian business is a low-cost, 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 cost and efficient logistics with a scalable platform. With this together, with our strong position in our home market, it gives us a very competitive combined offer to our clients. And that gives us competitive strength to take market shares. But it has typically long lead time in suppliers switch over. So we need to be patient to onboard full value chain business with customers. Meanwhile, Lithuania has secured a strong customer's orders for fresh meat.

So next slide, please. And now we are moving with our segment and the table shows the reconciliation of our segments. Adjusted for start-up costs in Lithuania, we see a strong positive contribution in both Ready-to-cook and Ready-to-eat. And we also want to remind you of the category of Other includes our Ingredients business and our corporate cost.

Next slide, please. And if we look into Ready-to-cook specific, we see a strong growth and improved performance; 6% increase in net sales, 2% increase in processed grill weight and a positive mix effect.

The adjusted EBIT is SEK 93 million compared to SEK 96 million last year, but that includes the Lithuanian start-up cost of SEK 17 million. We have a lower LTIs injury frequency rate. It's 13.3 compared to 23 last year, and that's a reduction of 42%. And that has an effect of the focused efforts during the last quarters. The animal welfare indicator is 8.5, which is well below target and in line with last -- in quarter 1 last year.

Next slide, please. Then we move into the feed prices. So after a long period of increase in feed prices, we've now seen a normalized market for a while. There are still uncertainties, and we need to be prepared for future volatility. But our model have most of the input costs linked to our top-line. And we have no or limited trade with U.S. and China. We also want to highlight that feed cost is 1/3 of our cost base and the short production cycle compared to other proteins enable us to be more agile in our supply chain.

So next slide, please. And we are moving into export prices. And as you can see, they are down 3% compared to Q4 2024, but prices -- increased prices more than offset by FX and mix. So we see a strong development in export prices, and we are also seeing a strong increase in the coming quarter. But that is also due to our effort to improve our market performance. So we are looking into more strategic client relationships, improved sales and operation planning, or increased flexibility between Export and Ready-to-eat, and we have also reduced exposure to spot markets.

Next slide, please. And on this slide, you can see the shallow development more in detail. Through these details, you can notice the increase in retail in the quarter. We see a slightly decrease in sales in food service though. But in general, we have been seeing strong demand growth in several of our home markets in the quarter.

So next slide please. And in Ready-to-eat, we have a strong growth and improved EBIT with the net sales with that is up 9%, and that is driven by, as you saw on the last slide, by strong retail demand. EBIT is SEK 31 million compared to SEK 25 million last year and it has a slightly negative impact from our stock expansion start-up. The QSR market is flat, but we're expecting it to improve later in 2025.

We see a really good progress in our preparation of our Oosterwolde plant. We have a really positive market feedback and we are preparing and investing for the Q4 start-up. And also in this segment, we see a reduced number of injuries.

And if we're looking into the segment in Ready-to-eat, so we see a strong retail growth also in Ready-to-eat, and the food service is still slow. But Ready-to-eat will be an important long-term tool on developing EBIT per kilo, i.e., increasing the value of our protein.

So with that, I will hand over to Fredrik for a more deep dive in the financials. Fredrik?

Great. Next slide, please. Thank you, Jonas, and good morning, everyone.

Next slide, please. As Jonas mentioned, Q1 was strong. In fact, it was our strongest first quarter ever with a top-line growth of 7% and a fixed FX, 8% top-line growth.

EBIT grew 2%, which includes the impact from the Lithuanian ramp-up cost of SEK 17 million that has been mentioned earlier. Very positive was to see that the top-line was driven by both RTC and RTE.

Our finance net is higher due to less favorable impact from interest rate swaps and higher net interest bearing debt due to the acquisitions during last year and beginning of this year. Tax is in line with previous year and feed efficiency remains at a stable and strong level. And we also see a significant reduction of injuries.

Next slide, please. Our return on capital employed is continuous, its positive trajectory, showing improvement compared to the previous year. Meanwhile, return on equity is slightly below last year, primarily due to higher finance net and the ramp-up cost for Lithuania. At the same time, our equity ratio remains relatively stable despite the acquisitions, which reflects a balanced capital structure and continued financial resilience.

Next slide, please. We delivered strong operating cash in the quarter, supported by higher EBITDA, but also improved accounts receivables and inventory. CapEx is up mainly driven by acquisition of the RTE factory in Oosterwolde in Netherlands.

Paid taxes is up primarily due to Sweden's tax refund last year which created a comparative impact. Paid tax is now on a more normal level.

Other items are positively impacted by FX on interest bearing debt, and our net interest-bearing debt increased by SEK 13 million in the quarter driven by the above. And as you can see, the reported leverage is well below our internal threshold of 2.5x EBITDA.

Next slide, please. Our working capital remains exceptionally low in the quarter. Inventories decreased 5% year-over-year, driven by lower level of finished goods, partly offset by live animals.

Receivables were well below last year despite increased top-line, and accounts receivable are expected to come up to more historic levels during the second quarter. Payables and other liabilities increased marginally, primarily due to timing effects.

Our target for working capital as a percentage of the rolling 12 sales adjusted for financing remains at 6%. And in Q1, this metric stood at 4.7%, including the financing adjustments.

Next slide please. During 2025, we have large investments. So the acquisition of Oosterwolde was closed and paid during the first quarter. The Lithuanian farms is expected to be fully paid during the second quarter. And then we have capital investments amounting to SEK 550 million, which includes the preparation of Oosterwolde for the Q4 production start, and the efficiency and capacity investments in our existing factories as well as the roll-out of the BPE system.

We are expecting an increase of working capital due to the ramp-up in Lithuania and Oosterwolde. We also expect the effective tax rate to be at roughly 20%, and the proposed dividend of SEK 2.5 per share amounts to SEK 163 million will be paid in 2 installments during the second and third quarter. And this is an increase of 9% versus the 2024 payout.

Next slide, please, and back to you, Jonas.

Thank you, Fredrik. 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 of what we do, and that is: responsible animal welfare; it's safety for the consumers and employees; and it is nutritious products.

And this is closely linked to our sustainability scorecard. So if we move to next slide, please. Here, you can see the really positive traction in our LTI performance on the top left corner. We have a really good Q1, and we have a focus to reduce our lost time injuries, and we can see that it started to perform well.

When it comes to the antibiotic and footpad scores, we are at well below target at a good level. There are some seasonal increase in Q1 2024, but we see a stable and good progress. And when we are entering new countries, we are putting in our standards and ways of working, and that is an important thing for us and one important cornerstone for Scandi Standard.

So if we move into next slide, please. And the ones of you that has followed us for a while have seen these pillars before. These are the 4 strategic pillars that will support us achieving our goals and that is: increase the value of our protein; ramp-up our efficiency; integrated sustainability; and better together. And all of these emphasize the collective effort, shared goals and team cooperation and that will lead to improved performance and outcomes.

So if we move into next slide, please. And with these 4 strategic pillars, we have also, as you know, our 2027 targets. And this slide shows them. And on the right-hand side, you can see the targets. And we are expecting strong growth over the coming years. So we have set a 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 and for which we have supported targets of SEK 3, and that has been presented in the former slides. And that is an important target for us to 2027 and our aim to achieve the SEK 3 per kilo.

So if we move into next slide. I also want to show you this, our structured approach of receiving better ESG targets. And we can see, and I told you that last quarter as well, that we have achieved an A in the CDP rating and there's only a few companies that has achieved A-rating, and that we're really proud of. So we are working in a structural way to improve our ESG rating and our total work with ESG.

So if we move into next slide, please. And this in order to reach our target for our EBIT margin, we need to increase our EBIT per kilo. And as you can see, in target for 2027 is to reach above SEK 3. We are at SEK 1.82 now in 2024 and our underlying EBIT per kilo, if we take away the Lithuanian start-up cost, is SEK 2.05 in quarter 1, and we are seeing a stronger quarter in the future.

So next slide, please. So to summarize all this, we see a strong quarterly growth and performance. We're moving steadily towards our financial targets and we are expecting another significant step in 2025 in terms of EBIT. And we are well positioned in a turbulent macro environment. And our focus now is to start-up of our acquired entities and those acquired entities will perform later in 2025. And our dividend proposal is SEK 2.5 compared to SEK 2.3 per share. And we are really confident in the way that we are progressing this business.

And with that, I want to open up for Q&A. So next slide, please. Any Q&A?

[Operator Instructions] We will now take our first question from Erik Sandstedt from Kepler.

A couple of sort of detailed financial questions to start off with. And I actually joined the call a bit late, so sorry if you have covered this already. But I'm wondering, firstly, how we should think about start-up costs for the Lithuanian operations in coming quarters?

We have stated out that we will ramp-up Lithuania, and we have said that there will be ramp-up costs within 6 to 12 months. And we see that we're progressing well. We're not guiding for the future, but the progress in Lithuania start-up is progressing well. And we have said 6 to 12 months. But we still expect that we will succeed to get break-even in the early part of the 6 to 12 months.

And then in terms of currency movements, we've seen some pretty volatile currency fluctuations here lately, particularly the strengthening of the Swedish krona. What kind of impacts do you foresee on your business in the coming quarters?

We see a fairly limited impact when it comes to the P&L effect since we have most of the cost in local currency as well as the income. So we are naturally hedged there.

But no sort of translational impacts when you convert your P&L back into SEK?

It's -- yes, we do see that if the SEK remains at this level, then there is a negative effect since we have sales in other currencies, mainly in euros. But as said, the majority of the effect is naturally hedged.

And then coming back to this EBIT per kilo target of SEK 3 by 2027. I know you've elaborated on it already, but I'm wondering, other than the Lithuanian operations, could you maybe just share some thoughts again on what will be the sort of the key drivers to that target? And is it fair to assume that it will be back-end loaded, although we saw a pretty good underlying development here in Q1, but you're still somewhere below the SEK 3?

Yes, as you say, we see a good underlying improvement in this quarter. What will drive the 2 main drivers of EBIT per kilo is, of course, leverage of our RTE because then we are not adding more kilos, we're adding more value into the business. So that is -- will be one key, and that is back again to the growth in our QSR market and our RTE and the ramp-up in Oosterwolde. And that's why we're preparing for having good expansion capacity in that segment. And we also see a long-term growth in that.

The other part will be the efficiency part in Ready-to-cook, but also the convenience part in Ready-to-cook that I talked about on the first slide. The more we can debone the easier we can do it for consumer, the more margin we can take out in the Ready-to-cook segment. And on top of that, now when we're investing and using our, for example, SEK 550 million this year, and part of that is efficiency investment. So we are reducing cost and actually adding more value also in the Ready-to-cook.

So those will be the 2 main things and back again, utilize more of the protein. So ramping up the value, both in Ready-to-cook, but also by growing Ready-to-eat. And then never forget our Ingredients part that is really important for us to utilize more of the whole bird. And that we're also looking into strategies to take out more value in the Ingredients business, but as an ongoing positive effect month-by-month on harvesting more and utilizing more Ingredients.

So 2 main Ready-to-eat and Ready-to-cook and then utilize our Ingredients business even more. And we will see a big step in this -- during this year, and you've also seen it in quarter 1 underlying that we're investing in ramping up new businesses.

We will now next take Florent from TPICAP.

Just one question on my side regarding the price effect. The feed prices are quite stable. So, can you elaborate more why the price effect is still high? We have plus 4%, 5%. And do we have to expect the same effect in the coming quarters?

Are you talking about the feed prices? Why the feed prices are still high?

No, no. I mean the feed prices are quite stable, but it seems that the price effect on your revenues is quite high, 4%, 5%. So can you elaborate a little bit on that?

The main drivers of top-line are actually both favorable mix as well as price and volumes were up in the quarter as well. So it's a price mix effect, if that answers your question.

And in general, we see a strong demand in poultry. That's no doubt about it. And also, we are increasing our convenience part. And that, of course, drives top-line and takes out, as I said on the last question, take out more value on the protein. So convenience is not only in terms of increasing our Ready-to-eat, it's also about taking out more value and debone more and get it more convenience in the Ready-to-cook and that is driving top-line. But we also see a strong demand for poultry and both in this quarter and when we're looking in the coming quarters.

And maybe just a follow-up regarding the start-up cost in Lithuania. Do we have to expect the same amount, SEK 17 million in Q2?

We have -- as we've said, we are saying that we will have start-up cost in -- when we acquire it 6 to 12 months, but we are expecting to get break-even in the earlier part of this 6 to 12 months, and we started up in the mid-Q4. So we have a strong and good improvement in our start-up in Lithuania.

What has need to be mentioned is that we have a strong European market and that has, of course, been linked to the live bird prices in the first quarter, but we will see improvement in Q2, and we are aiming for getting the start-up as planned. And we are pretty confident in that we are holding the plan that we set from the beginning.

[Operator Instructions] We will next have Simon Brun from ABG.

Well done, another quarter. Just starting with a question on Ready-to-cook. Sweden continues to grow very, very well. Any comments on this and the sustainability of this strong growth level just relative to other regions where we see maybe more stable or even negative growth. So any comments on the sort of like the different dynamics per market would be useful?

Yes. If I'm going to comment Sweden in specific, we have the former quarters in our presentations, we have talked about that we are -- we took down the volumes in Sweden and securing the level and when the growth comes back in the market, we are increasing the levels. And now we're actually seeing a good improvement in Sweden. And therefore, we are having this positive progress. And of course, we're expecting a further positive progress as a part of our reaching our 2027 goals. We see a strong demand in several of our markets and underlying demand. But of course, we see a good performance in Sweden and a good demand in this quarter. So yes, we are expecting strong demand going forward. That's a part of our 2027 goals.

And on Ready-to-eat, can you say something about the magnitude of the financial impact from the sort of the ramp-up, not issues, but sort of the ramp-up in stock? And should we expect margins fairly quickly coming back to the levels we see sort of in the second half of '24 around 6%? And is that sort of the level we should expect until volumes pick up either from new contracts at Farre or the other ramp-up in the Netherlands?

Yes. We will -- when talking stock specific, we are now up and running in stock. Yes. So of course, we expect that to be normalized. We also said that we have a stable QSR market that we're expecting to be stronger in the later part in 2025. And in Q4, we will start up Oosterwolde that will, of course, have an impact. But in general, we see a Ready-to-eat market where we actually are investing a lot and see a really good progress. And of course, it's an expectation for us to have those kind of margins and that is what we see going forward. But there will, of course, be quarters when we are ramping up things or when we are -- when we see this uneven growth that we've talked about before. So it's hard to say quarter-by-quarter, but we see a really strong long-term, medium-term trend and margins in Ready-to-eat.

We will now next have Daniel Schmidt from Danske Bank.

Just maybe following up on your latest comment there, Jonas, when you say that you will have sort of quarters with uneven growth and you write a little bit about some weakness in QSR in the report, but you do expect that demand to pick up later this year. What is the reason for that belief?

That we see the long-term convenience trend. And if you be specific at some of our customers in QSR, they have had some challenges and that has, of course, short-term effect. We've also seen [ on ] latest years an increased price from a lot of QSR customers that has had a little bit setback on the growth, but we see the long-term trend of the QSR. And we also see that the QSR customers are getting back in some segments. So that's why we have the belief.

And what do you refer those sort of difficulties to when it comes to QSR customers in Q1? What does that relate to?

That's -- without talking about specific customers, there has been some media attention to different customers in different countries. And there has been also this, as I said, this price -- historical price increases that has impacted the growth a little bit and a perception that it has been a little bit expensive, but we see it's getting back again. So that's why we do not see any break in the long-term, and we also see some interesting signals going on forward. But it's hard to say...

So you're not seeing sort of the -- yes, you're not seeing sort of adverse behavior towards U.S. food retail chains getting worse in Q2 than it was in Q1 basically?

No. We do not see that.

And then a second question, when it comes to FX, does that have any impact the strength of the Swedish krona when it comes to export prices and the translation effect of what's being exported?

Yes, that is a little bit what you're seeing in that graph because we see strong demand for European poultry. But most of -- a little bit refer to what Fredrik is talking about. Our export, most of the export is out of Denmark and it's out of Lithuania. And then, of course, we have put out to the other countries of products that is not preferred by the local customers, but most of the exports are out from Denmark and Lithuania. So therefore, there's no direct impact of the strength of krona. But of course, when we translate that back to the net sales in Swedish krona, it has an effect, and that is what you see in that graph. But you also see a little bit delay in -- from market in export. Actually, that is not shown in Q1. So it's translation effect, not margin [ effect ].

And speaking about delays, when you announced the acquisition in the Netherlands, you said that you aim to start operations in Q3. Now you're saying Q4. Has that something changed dramatically, or is this just a couple of weeks of delay or?

Yes. That's -- nothing has changed dramatically. It actually -- when we say Q3, it has been in the borderline between Q3 and Q4, and we're saying Q4 now for being secure of our start-up. So there's no major change.

[Operator Instructions] We currently have no further questions. I will now hand back to Jonas for any closing remarks. Thank you.

Thank you very much. And I really want to say thank you to everyone listening in to our presentation of Q1. So with that, we close the meeting. Thank you.

Thank you.