Ladies and gentlemen, thank you for joining us on the Scandi Standard fourth quarter and year-end report 2018. My name is Chach, and I'll be the coordinator for this conference. I'd now like to hand over to Leif Bergvall Hansen to begin the presentation. Leif, please go ahead.
Thank you. Good morning, everybody. Hope you have had a good start to the day. Just to give you some highlights on Q4, the quarter with 5% revenue growth, where we are now as a group approaching 9 billion SEK worth of sales. We saw strong growth in Sweden. Growth rates in other places were positively impacted by some currency effects. EBIT came in at SEK 102, which is down from SEK 116 same quarter of 2017. Quarter with good performance in Norway, very good performance in Ireland and also in Finland. We saw some margin pressure coming through in Sweden and in Denmark. In the quarter, we managed to reduce net interest-bearing debt, 180 million SEK, mainly driven by working capital release, but also by a relatively low CapEx in that quarter.
Earnings per share came in 24% up, and the board has decided to recommend a dividend of 2 SEK per share, which is up from 1.80 SEK the year before. Flipping page, looking at page four, looking at the quality development for the group, seeing some quite large movement in terms of price and cost. Stable volume development across the group. We have seen our ability to implement price increases to our clients to cover for the significant raw material increases that we have seen coming through following the drought in the second half of last year. We have reached a relatively high acceptance of those price increases, but also that there are still a bit that we are in the process of implementing, and I'm going to come back to that. Just for comparison, in Q4 2017, we had some third-party compensation. You can see that in the bridge.
Also in this quarter, we have implemented an adjustment at lifetime that have an impact. You also see that in the bridge, and we're going to come back to that also later. Going on to page five, looking at the quality development by country. Sweden came in a bit better than the year before. We've seen normal market dynamics being reinstated. We have a negative impact from clearance of stock that we have built earlier, that we also have communicated, that is now sold. Denmark came in soft as a consequence of some low price realization on exports, but also a continued market investment, sales marketing investment in building a new brand. Norway came in very strong with all-time high margins. Ireland came in also with a very strong quarter, and Finland delivered a good, strong underlying development also in this quarter.
We have some large one-off compensations that we had in Q4 2017 that also impact the comparison, as you can see from this bridge. Flipping page to page six, looking at product categories and sales channels. We have seen strong growth coming through both in chilled and in ready-to-eat categories. The ready-to-eat category now accounts for 18% of group revenue, which is represented, it has doubled its share over the last four years. It's positive to see that we continue to have very strong order intake in this area. This new dedicated plant that we invested in Denmark to enable us to produce even more of these products, we already see strong order take for that. We have seen a decline in the less profitable frozen segment and also in the less profitable export segment. We've seen growth in both retail and in food service.
We see strong momentum in chilled within retail, and we see strong momentum within food service, in particular with the ready-to-eat categories. Going on to page seven, talk about Sweden. The quarter was, as we have indicated, negatively impacted by quite significant stock clearances, but also that we have seen a continued solid market coming through. Revenue went up with 6% in the quarter, and the underlying chilled market is now fully recovered and grew 8% in this quarter. Continued strong growth in the ready-to-eat segment. Consumers continuing to substitute from red meat products into chicken, particularly sausages, meatballs, and other similar categories. We have seen margins being impacted negatively by the inventory clearance that we implemented in this quarter, and that we have now managed to get inventory down to more normal levels.
The quarter was impacted by SEK 8 million of non-recurring items that relate to a restructuring of our premium bird operations in Sweden. Just to summarize, we see a solid market outlook for 2019. Our markets are back to normal, and we have cleared the overhang of stock that we have had with us. Going on to page eight. To Denmark. The quarter was impacted by continued significant market investments and also cost pressure. We delivered a 4% revenue growth with a relatively weak quarterly earnings performance following investments in new sales force and the marketing of the new concept. We have realized a relatively low prioritization on exports, mainly our frozen products. We continue to see a positive development of the new brand, The Danish Family Farms, of whom we have continued to support it. This new brand already has a market share in the entire Danish market of 8%.
We do expect that from this year we will see a positive contribution to this investment in this new concept. We continue to see strong growth in the ready-to-eat segment, but we also do continue to see export markets to remain relatively challenging. Norway, very strong performance, 3% revenue growth on the underlying market. We have seen strong margins coming through, all-time high, coming from a combination of improved product mix. We have rationalized our food service range. That has had a negative impact on top line, but a positive impact on profitability. It's clearly coming through as our most profitable geographical segment, coming from a combination of very successful investments in various parts of operations in Norway, following the transfer of best practice from other parts of the group into a relatively isolated market.
Having the benefit of a strengthened product offering, a strong innovation effort that has taken place in Norway over the later years as we see those contributing positively to the profitability in the Norwegian segment. Going to Ireland, strong quarter. I'm happy to say that the integration is going according to plan. 5% revenue growth, strong quarterly margin, seeing significant investments that we have announced that we have planned for 2019, mainly to take out costs as a component that are deemed to improve animal welfare, improve safety. There's also some capacity constraints that some of these investments will deal with. We want to make you aware that we anticipate a delay in Ireland in obtaining the compensation for the cost increases.
We are working hard to get that through, we do anticipate that here at the beginning of the year, there will be a negative impact coming from that. Going to Finland, a quarter where we have seen further improvements, continues to be cash generative, 6% top line growth, a good underlying quarterly performance coming mainly from better product mix commercially, also by better yields being achieved in the operation. The quarter was negatively impacted by SEK 4 million of exceptional costs that we took in this quarter, despite that, the positive EBITDA and positive operational cash flow. We continue a strong focus on improving product mix yields and costs, we do anticipate 2019 to be EBIT positive. With that, I'd like to hand over to you, Anders, for the income statement.
Thank you, Leif. Starting with the depreciation amortization, as Leif mentioned, we've had low quarter depreciation due to this review and alignment we have done across the group of the estimated lifetime of our assets. Going forward, one should assume depreciation per quarter of around 45 million SEK. We also have some non-recurring items in the quarter of SEK 13 million relating to reduction of premium bird processing in Sweden, transaction costs in Denmark relating to the Rokkedahl acquisition, partly offset by depreciation effects that I referred above, which relate to previous quarters that have been taken as a non-comparable. The lower net financial items relates to a positive swing on currency, the very low tax in the quarter is due to the deferred tax liabilities have been revalued for lower corporate tax rates in Sweden and in Norway.
Moving on to the next page, looking at our financial position. With that, we see that return on capital employed and return on equity is largely in line with Q4 2017, we also see a slight improvement in equity to assets ratio. We also see the quarter return on equity is now at 13.3%. We have a section in the report and in the presentation on the IFRS effects from IFRS 16 effects that will now start from Q1. In summary, net debt will increase by SEK 470 million, EBITDA will increase by SEK 99 million, EBIT will increase by SEK 12 million, net profit will decrease by SEK 5 million. As I said, there's more details about in the appendix.
Moving on to the next page, talking about working capital, where we've seen a very good working capital release in Q4, primarily driven by a reduction in trade receivables and an increase in trade payables. We have seen an increase in inventory in the quarter despite the reduction of inventory in Sweden that we've been talking about. In Q4 we had an increase, which is primarily related to the increase of stocks in Denmark. Overall, we can see that we've been above 7% for the last five quarters in terms of working capital percentage of sales, but we are now below 6% in Q4. Moving on to the next page, looking at the cash flow.
As Leif already mentioned, we reduced net debt by SEK 180 million in the quarter. That is primarily related to the working capital release we just talked about and also the low quarterly investment that we also have been talking about during the last quarterly report. Moving forward to cash flow guidance. The proposal is to have a dividend of two krona per share, which is 11% up on the SEK 1.80 last year. This will equate to just above SEK 130 million in terms of dividend payments, if approved at the AGM. We reiterate the dividend policy of 60% of net income over time. Paid interest is estimated to be 3%-3.5% of net debt. The effective tax rate somewhere between 20%-21%. As we said before, we estimate to invest around SEK 380 million CapEx in 2019.
The biggest chunk of that will go to the projects in Ireland that Leif mentioned before. We also in 2019 have the first tranche of the earn out payment related to the Manor Farm acquisition. That is estimated to SEK 125 million. Again, there are more details for that in the appendix. Moving page, talking about our efforts in the whole sustainability area and The Scandi Way. In this report, we are highlighting what we are working on in terms of sustainable packaging, where we are targeting it to have 100% renewable packaging by 2023, or to be more specific, 100% from a renewable source or from recycled plastic. I think Leif.
Thank you. Just to try to summarize. We see a solid outlook coming through in 2019 in Sweden as the market is now fully recovered. We have covered the overhang of inventory. We see strengthened margins demonstrated in Norway, in Ireland, and in Finland. We do expect positive results coming through in Finland in this year. Denmark is a bit of a mixed outlook. Positive contributions from this brand initiative, that's progressing well. Still with an export market that remain challenging. We expect continuous strong growth from the Ready-to-eat segment. That's supported by the investment in additional capacity, as we talked about. We do continue to follow structural opportunities very closely. The board recommend a dividend up to two krona per share for this year. With that, we'd like to take any kind of questions. Thank you.
Thank you, gentlemen. To ask your questions, please press star 451 on your telephone keypad now. If you change your mind and wish to withdraw your question, please press star 452. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question today, gentlemen, comes from the line of Axel Nycander of DNB. Axel, please go ahead.
Yeah, hi. Two questions. In terms of your changed depreciation rates for useful life, what's now the useful life of your assets? Which segments have you changed? Secondly, also for the cost increase and the price increase, I think you mentioned Ireland, you're still struggling to get compensation, but do I understand correctly that Sweden and Norway, it's working fine, but Ireland is a challenge? Is that correct?
Shall I take the first question relating to depreciation? This is part of our, let's say, overall ambition, getting the basics right and aligning things across the group when it comes to some of these basics. This is something we've done now in the second half of 2018, where we have basically gone through all the assets in the group and aligned across the countries, but also then reviewed what is the actual estimated lifetime of our assets. We've gone from, I would say, just below seven years average depreciation to just below 10 years. It's an increase of around three years in terms of depreciation. I would say that we have been a bit too aggressive in the past in terms of depreciation rate.
If I just follow on the cost recovery. As we're all aware, there was a kind of serious drought during last summer that impacted grain prices in the second half of the year, and we have been working very dedicated in getting those price increases implemented in the market. I think we have so far the grip
We have managed also, I suppose, as a reflection of the way we work with our clients, we have managed to get compensation in Finland, in Norway, in Sweden. We have got part compensation in Denmark, and we are working very hard in getting full compensation also in Ireland. In Ireland, as we are producing the feed there ourselves in our own feed mill, means that we get the negative impact a bit earlier than what we manage or have been able to manage to implement that with our clients. You're right in picking up that we do anticipate a delay in getting full compensation in Ireland, and we do anticipate a negative impact from that in the first quarter and sort of a gradual implementation in the following quarter. That's how we see it today.
Okay, good. Just to follow up on total depreciation again. In your 2017 report, you have buildings depreciated over 25-30 years, property fixtures from 10-25 years, plant and machinery from 5-20 years. Which of these have you made the biggest changes? It seems to be quite normal depreciation levels that you're quoting here. I'm just wondering where were you too aggressive in the past?
I would say since these are not being done aligned across countries, you can't answer that question with the one answer for the group. I would say we have been through all our assets, and internally we look at 27 different asset classes, and we basically have been through all of them and reviewed and updated the depreciation rates. It's across the whole portfolio of assets.
Okay. Final question from me, just on the CapEx. Including the earn-outs, you're looking at SEK 505 million in CapEx or cash outflow; is that correct?
Yeah, that is correct. SEK 380 CapEx, SEK 125 in earn-outs, on top of that, of course, also the dividend.
Yeah. Okay. Thank you.
Welcome.
If you'd like to ask any additional questions, please press star followed by 1 on your telephone keypad now. Our next question on the line comes from Aleksandra Brzozowska of Nordea. Aleksandra, please go ahead.
Yes, hello. I have some questions on margins, particularly maybe in Sweden and Denmark then. Maybe just what do you see the outlook for 2019 for Sweden? As your margins have been a little bit lower there for a bit more than a year now, as well as Denmark, since you are increasing your marketing efforts, for how long are we supposed to see them, so to speak? Thank you.
Aleksandra, if you talk about Sweden first, this quarter, we came in with an EBIT margin of 6.4%, last 12 months, 5.1%, and 2017, 5.9%. If you go back, the previous year, I think, was 6.5%-7%. We see now the dynamics are back to the historic level. We would anticipate that the margin levels that we achieved back in 2016, 2017, that we should be able to get to that sort of 6%-7%. We see things are normalizing in Sweden.
Good. Denmark?
Denmark, we had a challenging quarter, as mentioned. We have decided, I mean, you say that's a bit proactive to really put so much effort behind establishing a new brand. We have seen very good consumer acceptance of it. We launched it about a year and a half ago, now having 8% market share. We anticipate that during the course of this year, we will see positive earnings contributions on this investment. We still have positive margins coming through for the growth in the Ready-to-eat segment, but also having some challenging export situation. If you look at the outlook going into this year, we see margins will be coming up. If you would think about Q1 delivering an EBIT profit as similar to the year before, you are probably not way off.
We see a gradual improvement coming through in Denmark from a relatively low level that we achieved towards the end of last year.
Also a question on your M&A plans. I think you don't read out your net to EBITDA, an updated one, because I think your leverage has come down a little bit since then. What are sort of your thoughts on that going into coming year? I think you mentioned that you're still looking at the sector and that you're following it. Given this sort of, what are your thoughts on the M&A agenda for the coming year?
Yeah, we are looking. We are analyzing various cases, what you see is a market that across Europe is the individual countries are relatively concentrated. Three, four, five players are kind of usually about 80% of the total industry. We do believe that there are a number of synergies of having strong players in different countries aligning. We see this industry going from being very much a local play to become more of an international play with some scale advantages. I think the acquisition in Ireland very clearly demonstrates that there are such benefits of joining a group. We would like to do more similar activities, and are looking at various cases, but we haven't got anything just to report on that.
Okay. That's it for me.
As a final reminder, to ask any further questions, please press star 401 on your telephone keypad now. We have a third question lined up from Daniel Schmidt of Danske Bank. Daniel, please go ahead.
Hello, good morning. I just wanted to ask you about the compensation in Ireland. You said it's going to be a bit delayed. Could you shed some more light on that in terms of the profile going into 2019?
We do anticipate that we will get full compensation for this raw material inflation, also in Ireland, as we have managed to get it in other places. As mentioned, as we are producing the feed there ourselves, we do get the negative impact already here from 1st of January. We are working very sort of focused on getting the price increases implemented in the market. We do anticipate that will impact us negatively in Q1. We do anticipate that during the course of Q2, we will have those price increases implemented. We're not fully there. That's the situation. This is very well justified price increases. We have seen, general, as I said, good acceptance with, by far, the majority of our clients across our geographies. Now we just want to get Ireland over the line, so to speak, fully.
All right. Thank you. That was it for me.
You're welcome.
We have no further questions on the phone lines, gentlemen, so I'll hand back to you.
All right. Thank you. Thank you, everybody. Thank you for your time.
Thank you
Have a great day.
Have a good day. Bye.
Ladies and gentlemen, thank you for joining us today. You may now disconnect your lines and enjoy the rest of your day. Thank you.