Good morning, ladies and gentlemen. Welcome to the Scandi Standard Quarter One Results call. My name is Nandija, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star one on your telephone keypad. I will now hand over to your host, Mr. Leif Bergvall Hansen, to begin. Mr. Hansen, please go ahead.
Thank you. Good morning, everybody. I want to initially give you the highlights of the Q1 report. We saw on a pro forma basis a 5% growth in revenues. We saw strong growth in Denmark, in Ireland, and in Finland. A quarter with stable sales in Sweden and a moderate drop in revenue in Norway. On EBIT, we delivered a 7% growth in adjusted EBIT on a pro forma basis. Delivered by improvements in Norway, Ireland, and in Finland. We delivered weaker margins in Sweden, stable Denmark, and also stable for the group, coming in with a pro forma EBIT margin of 3.8% versus 3.7% last year. The investment in Farre, in our Ready-to-Eat plant, is going according to plan.
It was a quarter where that debt increased, mainly driven by currency and a little bit by extraordinary high investments in this quarter. Going on to page four, we are bringing in a bit of new information in this report, a couple of new bridges, and a couple of pie charts. We're going to spend a little bit more time than what we've been tending to going forward just to make sure that it is clear, the information we are trying to provide here. If you look at the first bridge on page four, it gives a little flavor of how our margin performance, profit performance are being delivered. Sweden still struggling with some price pressure. Denmark impacted by large market investments. I'm going to come back to that. Norway delivered a quarter with best-in-class margins, but with reduced revenue, as mentioned.
Ireland, strong improvements in a number of different areas. Finland, another significant step towards break-even. At group level, additional costs, mainly driven by an upgraded sustainability effort and also more investment. Looking at the second bridge on the page four, to see what are the drivers between the margin improvement or the profit improvement volume as one component mainly delivered from Ireland and from Finland. Positive mix development coming from a number of different areas. Cost of Goods Sold coming off slightly and the fixed costs, as mentioned before, are also up slightly in the quarter, but that's the breakdown. Going on to page five. This is to give you a little bit of an explanation to a product and channel breakdown that we're going to look at the actual numbers on the following page.
If you look at our actual product offering, you can split it into a number of categories. One is Ready-to-Cook or raw chicken. That can either be chilled or frozen, and that can obviously be sold in a number of different formats. Another category is Ready-to-Eat, where the product is cooked, and that we sell either frozen or chilled, then there's another category. That's the product group breakdown that we're going to give you some more information on the following page. Sales channel, I think that's pretty straightforward. Retail, foodservice, export, we define as what we sell outside of our domestic market and then some Yeah, that's export. Ingredients, that's industrial sales and some pet food sales as well. Other being in the main day-old chicks and some hatching eggs.
If you then look at the actual numbers, I suppose that's the most interesting part. Looking at the top one on page six. Sales mix is changing towards higher value categories. We saw a strong growth in the chilled category, growing 9%. Chilled all in all represented 56% of sales for the group. The less profitable frozen segment continues to decline, in this quarter, going down with 11% and representing now 19% of group revenue. We saw a continued strong growth in the Ready-to-Eat category. A category, as you will recall, that we have put a lot of effort into growing over a number of years, and this quarter we grew with 21% versus the same quarter last year. Going into the sales channels. The second pie on the same page. Retail increased with 4%.
Foodservice clearly outperforming other channels with a growth of 20%, ingredients with smaller value increased by 3%. Export with a bit of a decline. Going into the market on page seven. Starting with Sweden. Sweden are still facing some challenging market conditions in this quarter. We have adjusted throughput to meet these temporary challenges. There's some oversupply in the market on the producer side, leading to an inventory overhang, and we have seen an adverse sales mix more skewed towards frozen sales. The bird flu effect is becoming marginal. We report SEK 6 million as the impact in the quarter and anticipate that into Q2, there will be an impact of SEK 1 million-SEK 3 million per month. We see some encouraging signs of improving market. Some growth now coming into the market.
After a number of quarters where we haven't seen that, we also see some signs of a better market balance. With that, we will anticipate the market gradually to normalize during the second half of the year. In other words, Q2, we'll anticipate to be a bit more of the same. The adjusted EBIT margin in the quarter was 4.8% versus 5.4% in the same quarter last year. Going on to page eight, talking about Denmark. It was a quarter with strong focus on differentiation and also on our capacity expansion project. We deliver a 9% revenue growth, driven both by retail sales but also by this Ready-to-Eat category. Margins came in slightly below Q1 2017, at 3.5% versus 3.6% the same quarter last year. Then the main driver behind that was some significant market investment that's impacting our cost in the quarter.
Investment in both marketings but also in additional sales force to drive this premium concept that we call Danish Family Farms, that we are now working hard to establish further in the market. Probably we call this a concept with a slow-growing breed. It has at the barn and it's raised completely antibiotic-free. We want to fuel that further, hence the additional cost that we are taking here initially. The whole point of that is to decommoditize and drive profitability of the Danish business over time, and we anticipate this investment to impact margins in a similar way also in Q2, but with a positive impact in the meantime. The investment in the ready-to-eat plant in Denmark of about 150 million DKK is on time and is developing according to plan, and we will be in operation just after the summer break.
Going on to page nine, you can see some pictures of that expansion. As you can see, it's quite a big capacity expansion that we are on the way. Going on to page 10. Sorry about Norway. Another quarter with strong performance. Limited underlying growth, but still a bit. Saw 5% decline in revenue in local currency. If you break that down, retail sales were in line with market, but the rationalization of our food service range that we have talked about as part of our factory efficiency program, is the driver that have taken revenue down in this quarter. Best-in-class margins continues. We improved margin from 7% to 7.2%, driven by a strong product portfolio and some successful efficiency investments that are paying off also in this quarter.
Looking a little bit ahead, we see limited scope for growth within the existing contract structure. We anticipate to develop in line with the market revenue-wise going forward. Flipping page to page 11, talking a bit about Ireland. A quarter with a strong performance, where the integration is developing according to plan. 10% revenue growth, driven by volume but also driven by currency, about half and half. Strong margins, up to 4.3% in the quarter versus 3.8% in the same quarter last year, driven by improved yields. We've seen a number of cost improvements in a number of areas. We're also seeing the first impact of some of the integration projects that we are working on with the IFC.
We have been running a separate integration governance structure since the acquisition end of August last year. We are now so far advanced in that process that we are swapping to the normal structure so that Vincent Carton, the Managing Director for the Irish business, is now part of group management and the business is now fully integrated into the group. Going on to page 12, talking about Finland. Another quarter with a significant step towards breakeven. Not quite there yet, but coming close. Strong growth in revenues. Revenue up with 50% in the quarter versus the same quarter last year. 17% growth versus Q4 of last year. It was mainly driven by increased sales in the main segment in Finland, which is chilled retail, with some positive mix effects. Margins coming in at -4.8% versus -18% in the same quarter last year.
Still see a solid market growth, also in the first quarter of the year. We achieved the first milestone of a positive EBITDA. Small, but still there. It's driven by better product mix and improved yields. Looking ahead, we obviously continue strong focus on improved product mix, yield, and cost to get to the next milestone of a positive EBIT. With that, I would like to hand over to Anders for the income statement.
Thank you, Leif. Flipping page to page 13. As Leif already alluded to, we have stable margins in the quarter compared to last year. If we compare versus the two quarters, the reported numbers for the two quarters, most of the increases are related to Manor Farm. That is the case for depreciation and amortization. The higher net financial items is a result of a higher net debt, again, related to the acquisition of Manor Farm. We see a positive development in EPS growth driven by the Manor Farm acquisition. Taxes in the quarter of SEK 11 million is 20% of earnings before tax. Moving on to the next page 14. A couple of return measures there. Very similar story on both return on capital employed and return on equity.
Marginal improvement Q1 2018 versus full year 2017, and a very significant improvement Q1 2018 versus Q1 2017. We also see a strengthening of equity to assets ratio improving almost two percentage points. Flipping page to working capital, page 15. You will see that there's an increase in working capital as a percentage of sales. If you look at the underlying working capital, it's largely stable, as most of the increase in the working capital is related to currency. We've had a working capital release in Sweden, Ireland, and a fairly substantial one in Finland. We see some increases, they are driven by seasonal inventory decrease, sorry, increase in Norway, and also inventory increase related to the Farre expansion in Denmark. We still have too high inventories in Sweden, which need to, and which will come down further into the second half of 2018.
Flipping page to page 16. Cash flow. Maybe just starting with the fact that we did have a positive operating cash flow, and that improved compared to last year. As you can see, the net debt has increased by SEK 63 million, and that is, again, primarily related to currency. There's a SEK 41 million reported on the other items that relates to currency retranslation. Moving to the next page 17. A couple of outlooks with regards to some cash flow parameters. Dividend policy. Our policy is, as you know, to have 60% of net income over time. We expect, as we said before, capital expenditure for 2018 to be SEK 350 million, and just with the caveat that we are looking into an investment program for Ireland, but the SEK 350 million is equivalent to 143% of depreciation.
We expect paid interest to be in the range of 3%-3.5% of net debt, the blended tax rate somewhere in the range of 20%-21%. Also not to forget, when it comes to cash flow, we have continuing liabilities related to the Manor Farm acquisition, which is the three earn out tranches, which are payable in the beginning of 2019, 2020, and 2021. With that, over back to you, Leif.
Okay. Thank you. Going on to page 18. Give you a flavor of some of the group-wide priorities that we are working on. A lot of effort is going into developing our already leading position within the premium segment. An example of that is the Danish Family Farms concept that we are fueling as much as we feel makes sense. We see some further innovations and a lot of focus to further deliver higher penetration of the Ready-to-Eat category. Just to give you a flavor, that's products that are unbreaded, skewers, meatballs, sausages, and so forth. We work on strengthening our position within foodservice. That's both within our domestic market by sharing best practice, but it's also working very closely with some international quick service restaurant chains to develop our position there further.
We are taking a number of measures to improve profitability in Sweden and also in Finland. The integration process in Ireland is developing well. We have a number of work streams that run in parallel, there are a number of learnings that go both ways, which is very encouraging to see. The investment program will be announced in the second half of the year. We haven't done that before. A lot of projects are still continuing to improve yield within the group, efficiency, and some cost-cutting projects as well within operation and within procurement as the two main examples. We established a dedicated ingredients division in the second half of last year, dedicated to expand the value creation within a number of side streams, we already see the first positive impacts of the efforts within that group of people.
Last but not least, we are working on strengthening our sustainability focus even further. If you're going onto the next page, you can just give you a little bit of the headlines of what we're working on there. Define The Scandi Way, not the Scandinavian way, but The Scandi Way.
Yeah.
To focus and to align the way we work to make a difference promoting health and wellbeing for people, whether it's consumers or employees, for the chickens and for our planet. Further into this page, you can see our nine dedicated focus areas, but I'm not going to go further into that at this call. Going on to the last page 20, summarizing the Q1 outlook. All in all, a satisfactory quarter during the weak situation in Sweden. Solid performance in Norway and in Ireland. We are very encouraged by the strong sequential improvements that we experienced in Finland, also continuing into this quarter. We see the effects from bird flu in Sweden becoming insignificant, but still with an impact into Q2 of SEK 1 million-SEK 3 million a month.
The market investment in Denmark that I have referred to, expected to have an impact on results also in Q2 of this year. We anticipate the market to become into more of a balanced situation, in Sweden during the second half of the year. In other words, Q2, we anticipate to be more of the same as what we have seen in Q1. We are following a number of structural opportunities within Europe very closely. All in all, we have a general positive outlook for the second half of the year. Okay. With that, we would like to answer any questions you may have. Thank you.
Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your questions, please ensure that your phone is unmuted locally. Our first question comes from Michael Lundahl from Carnegie. Michael, your line is open now.
Yes. Hi, good morning. A couple of questions if you could testify, perhaps. In Denmark, we know about the investment and the cost that you are taking. Is it possible to be a bit more specific on these and how long they will linger before having a positive effect? If we saw any positive effects in Q1 on sales from these initiatives.
Thank you. We are definitely seeing a positive sales development since we launched the concept in the summer of last year. Increased penetration, a number of new products being received well. That's also the reason why we have decided to fuel it further with some additional marketing investments and also with an increased retail sales force, working on the presentations and the penetration within the market. We are not giving an actual number for the investment, but it has a drag on margins in Q1. We do anticipate a drag also in Q2. We will anticipate that these initiatives will at least starting paying for themselves, so to speak. We anticipate this to have a positive impact in the second half of the year.
We will continue those activities, we will anticipate that the sales and margin development delivering from this concept will start paying for the actual investment in the second half of the year.
Also, could you comment on how we should think about Easter, being in Q1 this year and what in Q2 last year and the impact on your sales and margin?
We haven't really gone into the Easter breakdown because it is a little bit of a mix back. It has a negative impact on revenues in Norway and have a little bit of a positive impact in Sweden. It's always very difficult to estimate the Easter impact. As Easter is just in the end of the quarter, we have actually said that it's probably on balance, not having a huge impact for the group, but it does impact Norway negatively revenue-wise in the quarter.
Okay. This investment program in Manor Farm, do you have any ballpark of how much we should expect from this?
No. That's exactly what we're working on. First of all, also to find is that is what should be phase 1, what should be phase 2. We are not in a position to give a number right now.
Okay. The final question from me then. Regarding Finland, you are now obviously close to cash flow breakeven, at least. It seems it's very much up to the top line. Is there anything more to do on the cost side? You are mentioning that you are implementing further measures, but nothing specific. Is there more to do on the cost side or is it a pure revenue play from here?
No, it is a number of different initiatives. Also, as we are now coming closer, that's not one big thing we need to fix. There's a number of work streams on a number of different areas. We were actually cash flow positive also in the quarter. We're still with a negative EBIT margin, as mentioned. We will still anticipate to see some growth. That will be one component. We also clearly see an opportunity of some further mix improvements and more branded sales, relatively more retail and food service and less export and less industrial sales, will also be a component in getting into black EBIT numbers in Finland.
The Finnish market as such, we saw HKScan reported it this morning as well, they are ramping up production on the poultry side. Where do you see this market in the coming years? I guess you've had an opportunity now to gain market share because of perhaps a bit of capacity constraints among competitors. How do you see this developing in the coming years?
If you look back a number of years and look on the average growth rate in the Finnish market five years back, it has been between 7% and 8% per year. It has been a market with very solid annual growth. If you just look at the first three months of the year, market in Finland was actually up with 12%, in spite of any capacity issues that might have been in the quarter. Still, 12% volume growth is a very healthy growth rate. We probably don't anticipate 12% growth going forward, but high single digits we would anticipate. One still have to keep in mind that Finland is the country within Europe that are eating the least amount of chicken per capita. There is still a huge opportunity in Finland to drive the white meat transformation.
We are not concerned about the growth prospects in the Finnish market.
Okay. Thank you.
Welcome.
As a reminder, ladies and gentlemen, please press star one to ask questions. Gentlemen, we have no more further questions on the line.
All right. Thank you everybody. Have a great day.