Hello, welcome to today's Scandi Standard Interim Report for the first quarter, 2023. My name is Bailey, I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Jonas Tunestål, CEO. Please go ahead.
Good morning, everyone, and welcome to this presentation of Scandi Standard's results for Q1, 2023. I'm Jonas Tunestål, CEO and Managing Director of Scandi Standard. With me, I have Julia Lagerqvist, our CFO, and I'm pleased to have her by my side today to report a strong result in a challenging market. Next slide, please. On this slide, you can see this is another step towards full recovery. We have had 18% growth, and we have compensated for part of the inflation. We also deliver strong export markets. We have delivered an EBIT of SEK 93 million, and it's a strong EBIT improvement compared to last year, but still a material gap to be closed. We have also decided to change sequencing of our RTE investments. I will come back to that later.
It's also important to state that we take earnings before growth. On macro level, we see declining input costs due to lower price on the commodities. The board has proposed SEK 1.15 dividend to the AGM. Next slide, please. This slide present a positive trajectory after inflation downturn. As you can see in the graphs, we have a history of strong growth and stable margins. The sudden inflation broke our trend over some quarters, and we are now gradually recovering our margins. I'm optimistic that we will take further steps towards full recovery over the coming periods, and focus will be to close the remaining gaps. Next slide, please.
If we look into how the inflation impacts, we see that the consumer demand is sensitive at current price levels, hence encouraging to see a declining input costs, although still at very high levels. We also see that the labor negotiations are to be set, and they seem to be manageable for us. As you can see in the graph in the right-hand corner, chicken is well-positioned in the current environment. We also see that pork prices are starting to increase. If we go to next slide, you see the strong macro drivers for growth in poultry. I am enthusiastic about the long-term opportunities in our industry, we see very strong historic growth in our consumption.
The trends for poultry, they're expected to continue, driven by versatility and health trends, sustainability metrics, and not least in this environment, affordability. Next slide, please. This slide presents Scandi Standard's very strong market position in all our five markets, and each country is highly consolidated. These markets have large entry barriers, and they can individually be regarded as semi-closed markets due to the strong consumer preference for domestic produce. Due to our strong market position and our own supply decisions have meaningful impact on the market balance, which has helped us in the recovery process from inflation. We have adjusted the volume and to recover for the inflation. Next slide, please. This slide present the export prices, and we see continuing increasing export prices within the quarter.
We think that we will see more stable prices into Q2. We also focus on building more solid export business with European and Southeast Asian retail and food service customers. We are focusing on broadening our export permits to the most attractive export markets in order to get more value out of the bird. Next slide, please. This table just shows the reconciliation of our segments. We see positive contribution from all areas compared to Q1 2022. To explain the other, that includes ingredients business and our corporate costs. Next slide. We go and look into our segments. In our RTC segments, we are on a journey towards full recovery, and we present an EBIT of SEK 31 million compared to -2 last year, and that's a strong improvement.
We also see strong improvement in our LTI performance, but we are still challenged in our antibiotic use in Ireland, but we're improving quarter for quarter. Next slide, please. This slide, here you can see that we've been able to increase our sale prices significantly. In spite of the massive price increases implemented, our EBIT is still 0.64 below 2,090 level. We're proud of being able to increase the prices, but there's still a gap to be closed to our level in 2019. At the same time, you can see that our ingredients business, which is reported under other, is more profitable than earlier than ever also. It's closing some of the gap in our total RTC business. Next slide, please.
Ready-to-Cook Denmark, and as we explained before, we're in the process of reversing an unsuccessful full implementation of slow-growing bird strategy. The peak of the slow growing is in Q4 and Q1. Now in Q2, we're expecting sequential improvement, and we're gradually changing our product offer to be more aligned with the demand. We're going to take down the amount of slow-growing birds and increase the roast part and get more in balance of the consumer demand in total. That is an important step that we take, and that start in Q2. Next slide, please. On this slide, you can see the channel development in more detail. Through these details, you can note a strong increase in food service channels in the quarter, which is driven by both price and volume.
We see somewhat slower development in retail, which is due to price elasticity in this channel. Next slide, please. When we go into Ready-to-Eat, we can gladly present another strong quarter. We have an increase of 90% in net sales, we can present an EBIT of SEK 45 million compared to SEK 35 million last year. We have increased our margin from 5.5%- 5.9%. We see a strong traction now in Ready-to-Eat business. If we go to next slide. Our Ready-to-Eat business has experienced exceptional organic growth, trend drivers are particularly strong for convenience products. Our two main type of business, it's breaded business, we have our integrated local business. Our Ready-to-Eat business yields a significantly higher return on capital employed compared to Ready-to-Cook.
After 40% growth in 2022, we are now experienced reduced orders for breaded QSR products for some of our European markets outside the Nordic region and Ireland. As our existing capacity will therefore suffice over the next periods, we have decided to front-load investment into our RTE business in Norway instead in 2023. We take Ready-to-Eat investment in Norway before [I Q], and then we will look into expanding our RTE business. The planned expansion in our breaded business society is still being prepared and can be initiated on short notice when required. Next slide, please. Here you can see in the figures, it's of course, very encouraging to see that Ready-to-Eat is growing and outperforming pre-pandemic sales. The development is driven by increased sales in food service channel.
During the quarter, we also see that RTE is growing in retail segments. Growth in this segment will be priority for me the coming years. Ready-to-Eat will be an important tool of developing the EBIT per kilo. I.e. increasing the value of our protein. With that, I will hand over to Julia for more deep dive in the financials.
Thank you, Jonas. Going to page 17, we come back to the overall P&L. As you've seen, the quarterly performance showed a clear improvement versus the previous year, with an EBITDA at SEK 196 million and an EBITDA margin at 6%. There were no non-comparable items booked in the quarter, nor for the entire year of 2022, and the EBIT landed at SEK 93 million in Q1. Finance costs are increasing with the higher base rates as seen in previous quarters. All in all, the net income for the period landed at SEK 44 million, which was far above last year and indicating an earnings per share of SEK 0.83 for the quarter. Looking at feed conversion ratio or feed efficiency, this is measured as the kilo of feed that is needed to produce one kilo live weight.
Here, chicken has one of the lowest levels for animal proteins. In Q1, it was at 1.51 kilo and has been stable for the last year. Coming to page 18, we look at our return measures. Return on capital employed was 7.8% for the last 12 months, which is an increase versus the previous low year. It is also an improvement versus the previous quarter, so we are on a positive trend. Looking at the annualized return based on the Q1 result, the return on capital employed would have been at 8.4%, another step towards getting back to historic levels. At the same time, our equity ratio has improved to 33% from 30 last year.
This mainly related to retained earnings and exchange rate differences related to translation to our foreign operations. Moving to the next page, we have our cash flow overview and EBITDA, as I said, improving versus previous years. We have an increase in working capital, and I will come back to this in the next pages. We kept the investments low in the quarter. Paid financing items are increasing, driven by the increased base rates, as previously mentioned. We see high tax payments in this quarter. This is the same last year, and it's related to tax for last year as per regulations in some local markets where they only pay two times per year. All in all, our net interest-bearing debt at the end of the quarter was at the same level as in year-end of 2022. Coming to page 20, we have our working capital overview.
The inventory has increased versus the same period last year and versus last quarter. This is an important focus area for us, and I will share some more details on the next slide. Payables and receivables both increased versus last year and mainly driven by cost and price increases. We also see an increase in receivables versus the last quarter, driven by increased sales in countries with longer payment terms. Further, we have also paid some yearly customer bonuses in Q1. This leads us to a working capital to sales ratio of 0.9% in the quarter. Our target level for working capital to sales, excluding financing items, remains to be around 6%, and we are currently somewhat above this level. Looking at our inventory values on page 21, they are increasing versus previous periods.
Both values and volumes are increasing, this mainly is related to compensation for a factory closure during Easter, and the volumes are still slightly below the end of 2021. Inventory remains, of course, a clear focus area going forward. We try to use the flexibility in bird intake to balance supply and demand. We always work to optimizing the sales and operations planning to make sure we produce the right products, and we also use the export channel for surplus sales to not interfere unnecessarily with domestic prices. We, of course, continue to monitor closely our inventory levels going forward, and we are ready to take forceful measures if needed. We do not speculate in our inventory as we know that the first loss is normally the least loss. On page 22, you have our cash flow guidance.
Our CapEx for 2023 is still estimated to be around SEK 400 million versus 311 in 2022. What we have, as Jonas was explaining, deprioritized our RTC investment in Denmark in favor of expanding our RTC plant in Norway and also investing in efficiencies in RTC in Finland and Ireland, where we expect to see quicker returns. In addition, we also have our ERP implementation on top of global maintenance. Paid financing cost is estimated to be around 6%-7% of the average net interest-bearing debt. This includes interest payments, leasing and factoring and vendor financing. The blended tax rate is expected to be around 21%. Finally, the dividend proposal from the board to the AGM is at 1.15 SEK per share, which is closely in line to the policy of 60% of net earnings over time.
Coming to page 23, you have our sustainability KPIs. In the table to the left, you see our Q1 performance compared to last year and targets. We are currently working on making our new 2030 goals operational and breaking them down by years, the targets shown here are still the old targets. As Jonas previously mentioned, we are pleased to see that the LTI, which is the lost time related to injuries in our factories, keep decreasing through targeted efforts. The use of antibiotics, which is mainly driven by the Irish performance, is starting to come down. The added group resources here to address the issues are taking effect, the focus is to continue this work throughout 23, which is reflected in the 23 targets. As reported in the last quarters, we have had unacceptably high figures for our Animal Welfare Indicator footpad score.
This is also mainly driven by Ireland. Here we have further work to do, focusing group resources on the issue. CO2 intensity is slightly up. Among other things, this is driven by the fact that we had to use some more oil as a gas burner was malfunctioning for a week. We need to set additional projects to reach the ambitious target for 2023. We're happy to report that we had zero critical complaints in Q1, which is a good step towards the ambitious target of zero complaints for the full year. Feed efficiency, as I talked, is somewhat increasing but is a stable level. The target is to improve slightly in 2023. With that, I hand back the word to Jonas.
Thank you. On page 24, this presents the four strategic pillars, which is important for us for building the fundamentals of Scandi Standard and bringing the company to the next level. It's about building the winning culture, ramp up our efficiency end to end, and increase the value of our protein and a future-proof company. Going more in detail, we can look at the areas of large potential on next slide. Slide 25. This slide presents the six areas where we see large potential. The first one, match domestic supply and demand, it's so important for our business. An agile S&OP process for optimizing the domestic supply and demand is crucial because we have this strong preference for the local produce.
When we go to the next value of the whole bird, it is our focus to utilize as much value as possible from the whole bird. You can see it in our ingredients business where we're trying to step up and take out more value, but it's also an important part of our RTC business to increase the EBIT per kilo. That is an important measure for us. Another important thing, area is the Ready-to-Eat potential. We see medium and long-term large potential in increasing our Ready-to-Eat business, and we are focusing on building business and building profitable business there. We will see change throughout the years in our Ready-to-Eat business to find the right setup to increase the value even more of the bird.
The quality and production processes, and that is the part of the efficiency end to end. It's important for us in the FMCG segment to have the right quality and production processes to be as efficient and good quality as possible. We are focusing also in Scandi Standard. We have the statement that we are five P&L and one Scandi Standard. The important thing of being one Scandi Standard is using these cross-border activities. We actually can take benefits of the best practice in the different countries, but also when you look down in the last area, export business, we can gain the benefit of being one Scandi Standard when we're exporting to the international markets and actually collecting the different products from the different markets and using that as one export channel.
All these six areas is important for taking us to the next level in Scandi Standard, and we are working with them continuously for continuous improvement in all areas. With that said, we can say next slide. To summarize, we can say we take another step towards full recovery. We have a positive outlook for the future. Our primary focus on regaining EBIT per kilo in Ready- to- Cook. We're expecting demand support from increasing pork prices. See the potential to reduce input costs and increase our efficiency. We're expecting sequential improvements in Ready- to- Cook Denmark. We're also preparing for profitable growth in our Ready- to- Eat segment. We have our overall ambition to increase the value per bird processed over the coming years.
At last, we have a dividend proposal of SEK 1.15 per share to the AGM. With that, we open up for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure to unmute locally. Our first question today comes from the line of Daniel Schmidt from Danske Bank. Please go ahead. Your line is now open.
Yes. Good morning, Jonas and Julia. Hope you can hear me. A couple of questions from me. You say that you have compensated some part of the cost inflation, and at the same time you're alluding to energy and feed prices, moving from a headwind to a tailwind as we go into the spring and the summer, is my interpretation at least. Should we read that as you guys getting close to full compensation for cost inflation as we go into Q2 and onwards?
We will continuously improve, both in terms of we. I agree with you. We will see lower input costs. We, but we also have a delay in those input costs. We are focusing on increasing our EBIT per kilo. As we presented, we have this 0.64 in gap, and we will try to close it quarter by quarter, and it will be supported by lower input prices. There's a delay in that. Due to that, we always are hedged in feed and then we have our indirect costs with price for the bird where we don't have the feed. You will see a sequential increase of closing that gap.
Yeah. Could you maybe shed some more light on the hedging? How much do you hedge and when you apply new hedging and sort of what is the step change in that? Are you seeing that now, or is that something that you will see towards the end of Q2 and into Q3?
It's both indirect. Mostly, it's indirect through what we pay for our live birds. We also gradually hedge our feed, and that is particular to our Irish business, where we have our feed mill, and that we buy in advance. In a half a year ahead, we always can plan for our price to the customers. We have different from different countries, so it's a complex picture, and I can't go into every country and present that. You will see and gradually that we will catch up and if the input costs will be more stabilized.
Yeah.
It's different [crosstalk] as we have direct exposure or indirect.
Just to maybe. Sorry for the detailed question here, but on feed and it does relate to wheat prices, correct me if I'm wrong, and they have continuously moved down quite a bit in the past year. I think they've halved and still sort of moving south. Do you think that that could sort of be an even bigger tailwind as we get into the second half of this year, or is there anything else that we should need to consider in that sort of equation?
Yeah. The feed prices, they're more complex than wheat. It's soy as well, and then there's a currency thing, and then there's the GMO thing. It's those parameters. The wheat price has come down, and you will... Now stabilized on a lower level, but there's a lot of insecurity in that. We have seen, for example in Sweden, an exchange rate that has been a little bit challenging and that, together with the GMO free soy, delays the feed prices a little bit. It's an, it's a complex mix and then we are... Then it's indirect in most of the countries.
You can see the feed prices on the slide.
Yeah
... four.
Yeah, I saw it.
Yeah. Yeah.
... thinking ahead a bit given where the wheat price is now.
Yeah.
Sure. Okay. Good. As you stated before, we should see improvements when it comes to Ready-to-Cook Denmark. I assume you mean more meaningful improvements from Q2 and onwards.
Yeah
as you make changes to the balance when it comes to, sort of your output in terms of slow-growing versus conventional birds. I think you've mentioned, and correct me if I'm wrong again, that, you expect and hope this business to be at break even at the start of 2024. Is that still sort of valid?
What we have stated is that we will change. The change from slow growing into a more balanced way, that one will be during 2023. Then we will be in that balance at the end of the year. That is what we have that's what we have said, but we are not guiding on the results.
No, I hope that being at that balance is that you're targeting to be not loss making.
The thing that is important is that we have had the highest rate of slow growth in Q4 and Q1, and we are starting this change in Q2, and that is a major change for us. That will be changed throughout the year. It's more complex than just the bird, as we are also changing the how many days we produce and so on. We have start the bigger change in Q2, and we will see a more balanced between the races at the end of the year.
Yeah. I still assume that the target of doing these changes is to get to a situation where you're not losing money.
Yeah. Yeah. Yeah. We're not guiding on the results, but of course, we are, we want to do profitable business in all our markets.
Okay. All right. Maybe I missed it, Jonas, but the reason why you're redirecting the investments away from Ready-to-Eat in Denmark for the time being, at least, even though you're ready to do those investments, and focusing on Finland, Norway, and Ireland instead, where you see a quicker return on investment, what was the reason for that again?
We have seen this tremendous growth in 2022 of 40%. That has of course challenged our supply chain of how we produce. Now we see that the demand in some QSR markets is flattening out. Then we have increased our how long a series we produce, so the efficiency in that plant has gone up a bit. Then we see a little bit flattening in growth, then we see that the capacity will for the coming short term be enough. It's important because we have a long list of good investment that we want to do.
We move those investment, and one of them is an RTE investment in Norway, and the other one is, as you said, two RTC investments in Finland and Ireland. We take them before in the queue, and we're still preparing for this investment in Farre so it can be ready when we see that we are reaching the roof once again.
Okay. Okay, good. There has been reports when it comes to bird flu outbreaks in Denmark, yeah, I think it was in January and March, and now also in April. I know that, sort of, the way that this is conducted has been moving in the right direction in the sense of regionalization of the outbreaks. Can you state or give an estimate of how much this has impacted your export business during the quarter and what your, sort of what the current impact is, even though it's probably much less?
Yeah, not at all, from Denmark and Sweden. As we said, we're trying to get more countries approved, to export and some of those countries, for example, Ireland, and there is an in delay for improvement. That we're trying to catch up now so we can get approved from more country. That has some reason of the bird flu. In the countries that we are approved and recognized, there is no impact at all.
Okay. Is that implicitly meaning that the outbreaks that we've had in Denmark, are not really close to where you source your birds?
Yeah. Exactly.
Yeah. All right.
They're not-
Okay
T o any of our farmers or the slaughterhouse.
Okay. Maybe just coming back to sort of compensation for cost inflation and also discussion that we had on Ready- to- Cook in Denmark and the statements that you've had in terms of getting back to basically above the profitability that you have between 2015 and 2020, striving towards that at least. Is that something that sort of you see in the near future, i.e., a year from now or a bit more maybe?
What we have said is that we want to recover our earnings. Also we have stated that we see our 4% margin that we're going for. This is a journey towards that road, and we see that there has been stronger EBIT per kilo in 2019. Of course, the cost inflation that hit us hard. Even though we have increased the prices on really much, we are still SEK 0.64 behind. That is an important KPI for us to follow this EBIT per kilo. That's why we're presenting it, because we're trying to get back to this SEK 1 per kilo.
I will not guide on when we will achieve that, we will try to recover our margins and then get back to growth again and grow the volume. As we stated in the beginning.
Yeah. No, but it, yeah
The value is more important than volume.
Yeah. No. It sounds like you're sort of on the path for stability, profitability, and then growth.
Yes.
good. Do you think that anything has changed in the competitive landscape that is gonna make it more difficult for you to get back to closing this gap versus 2019 in EBIT per kilo?
No, I don't see that. The thing that we talk about is of course that we see there's some bigger price sensitivity among the consumer. Of course now that challenges us with import of low-cost products and of course the balance. I also think that on the other hand, we see that the highly efficient protein as poultry is strong in this market. I think that we as a company in Scandi Standard are getting our hands on the market how to play that right. Of course, we have a long journey of things to do.
I think, I really think that we're on the right track to get back to a better profitability than where we have come from.
Yeah. Because I think you mentioned that pork prices are moving up now. I guess that's something that you've been waiting for.
Yes. We really see that the latest month there's been a movement in pork prices in Europe. We don't see that on so much yet on the domestic pork prices in our home market. The big if we call them the big trading prices or the commodity prices of pork in Europe, there we're seeing an increase mainly linked to Germany.
Has there been historical lag between continental Europe and the Nordics?
Yeah. That can be. They are a little bit more stable. The domestic meat is a little bit more stable than the trading or trading meats, I would say.
Thank you. That's all for me.
Thank you very much.
Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from the line of Christian Nordby from Kepler. Please go ahead. Your line is now open.
Good morning, all. I have a question on the cost base. You report on chart four that the personnel cost is 17% of total cost, you also talk about the changes in the feed price, packaging, and energy costs. What's the share of the total cost base for feed, packaging, and energy?
It's, In rough numbers, the feed is 25% our cost base and the energy, of course, is due to what the energy prices is, but about 3%-4%.
Packaging?
Well, the packaging number, I don't have them from my heart because it differs so much due to what type of products we have, but I can get back to you on that one.
What I'm basically alluding to is we know that personnel costs are coming up, but... and we see that feed prices, packaging, and energy are coming now down. If we assume that the price of the chicken is gonna be stable from current levels, how much lower do the feed, packaging, and energy prices need to go for your EBIT per kilo to become one?
Ooh. Yeah, that's some, that we need to get back to, to exactly answer that question. You see, we have, it's a little bit complicated because we both have a direct link, but even more an indirect link and between our both our cost base. Then it's, of course, different in our total tonnage on to what EBIT per kilo will be. Then I need to calculate that one because there are too many variable parameters.
No worries. Are you worried that the price of the chicken will come down with lower energy prices and feed prices? Or do you think they're gonna stay quite flat as things look for the moment?
The price of the live bird?
Yeah.
Our sales price?
Yeah. No, just the commodity, the live bird.
Yeah. I think that it's also different from country to country. Where we have the feed, I think that the rest of the cost base of the bird is such a small part that will be stable. Where we control the feed, we will see decreasing. I also think that we will see decrease in price on the bird in the different markets. That's of course a delay when there's one middleman between us and the feed price. We will see lower price in the bird. That's in most our markets, if I shouldn't say in all our markets.
All right. Thank you.
Thank you. As a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. There are no additional questions waiting at this time. I'd like to pass the conference back over to Jonas Tunestål for any closing remarks.
Yeah. Thank you very much, everyone for calling in. With that, I think we close the conference call. Thank you very much.