Ladies and gentlemen, welcome to today's Scandi Standard Interim Report for the first quarter of 2019. My name is Jake, and I'll be today's coordinator. If you'd like to ask a question on today's call, you may do so by pressing star followed by one on your telephone keypad. I'd like to hand over to today's host, Leif Bergvall Hansen, to begin. Leif, please go ahead.
Thank you. Good morning, everybody. Welcome. On the front page, I just want you to have a brief look to the left on the table there, where you can see that over the last five years, we have shown a strong, stable annual growth around 7% and relatively stable margins. If you go on to page three and go further into Q1, the quarter where we deliver strong growth in both sales and earnings, exceptionally strong growth in revenues of 16%, and there will be a further breakdown on the following page. EBIT is up with SEK 28 million, which is equivalent to 34% in the size of around SEK 10 million. There's been change in depreciation that amounts to approximately nine million SEK. EPS is up 72% in this quarter, and there's a dividend proposal of two SEK compared to SEK 180 per share of last year.
Just to remind you that the IFRS 16 changes have been implemented fully retrospectively. Going on to page four, you see the breakdown of this exceptionally strong top-line growth in the quarter. The important part is really that we deliver a 9% underlying revenue growth coming from strong performance within the Chilled Ready-to-cook segment and also within the Ready-to-eat segment. In addition to those 9%, we delivered a contingency order to a European Ready-to-eat client that represents about 2% of additional sales, which can demonstrate our capability of this expanded Farre plant that we just expanded towards the end of last year. It's also a way to enforce our relationship with this client. The top line is also driven by the consolidation of Rokkedahl Food, represented by three percentage points, and there's three percentage points of currency.
Going on to page five, see that the raw material cost increases, more than offset by price increases. It's positive. There's some volume growth, representing SEK 26 million, and that volume growth is achieved across the group. The price increases and mix effect have already more than offset the significant raw material increases that we saw during the second half of last year. However, in Ireland, we're still lacking the implementation of these price increases. We have also experienced an increase in OPEX. We decided to spend about SEK 10 million more on marketing, OPEX is dragging down with about SEK 14 million. In addition, the reduced depreciation have an impact of nine million SEK coming from this alignment of economic life of our asset base that we carried out towards the end of last year. Going on to page six, we see earnings improvement in all countries except Ireland.
Sweden, positive development after a challenging period. Denmark, earnings driven very much by its very strong top-line growth. Norway, best-in-class margins continued. In Ireland, a soft performance due to temporary open exposure to the raw material price increases. Finland is another step in the right direction. Going on to page seven, giving you a breakdown of product categories and sales channels. You are seeing a very strong growth within the Chilled Ready-to-cook category and within Ready-to-eat. The Chilled Ready-to-cook segment delivered a very strong growth across the group, altogether coming in. We saw an underlying growth within the Ready-to-eat category of 25%. The difference to the 36 you see in the chart to the right is this contingency order I just talked about.
We have seen a decline in the less profitable frozen and export segments, and we have seen an impressive growth in both retail and in food service. On page eight, we have made a breakdown of this Ready-to-eat segment that is increasing in importance for the group. You can see that in 2005, it represented about 9% of revenue, and it is now approaching 20. Going on to Sweden on page nine, we see a positive development after a challenging period. We delivered a 7% increase in net sales in a retail market that grew with a bit less than that. We lifted EBIT with 35%, and there has been some significant price increases we have implemented to compensate for the higher raw material cost. We have seen strong growth in the Ready-to-eat segment. Could be sausages, meatballs, and similar products.
We have increased marketing investment to the size of about SEK 45 million in this quarter. Margins have been affected positively by the reduction in depreciation, and we do expect some incremental improvements in the second half of the year. Denmark, on page 10, exceptionally strong growth with a 35% revenue growth in a market that is growing. The chilled market in Denmark retail market grew with about 4% in the same period. Very strong underlying growth of 16%. The other components making the balance up to the 35 are the consolidation of Rokkedahl Food, this contingency order within the Ready-to-eat segment, and then there is 5% as point of currency. We have improved the underlying profitability. However, this contingency order is margin dilutive. We have seen a continuous, positive development for the new brand, The Danish Family Farms.
We continue to see relatively low price realization on export markets. We also want to guide on a lower quarter-on-quarter growth in coming quarters compared to what we have achieved in Q1. Going on to page 11, for Norway. Another quarter with strong performance. We had 11% revenue growth, 7% in local currency, which is more or less in line with market, but it is extraordinarily strong quarterly growth. We have seen very solid margins, achieved through improved product mix and also increased efficiency within production. It is our most profitable geographical segment and mainly the result of very successful investments. A lot of best practice transfer, and we have, over the last few years, really strengthened our product offering in Norway quite significantly. Going on to Ireland on page 12. 7% revenue growth, 2% in local currency, which is more or less in line with the market.
There is a delay in implementing the price increases we have talked about, the price increases that are relevant to mitigate the increased raw material costs. We just want to remind you of these rather significant investments that we have planned for 2019. Those are to improve cost efficiency, animal welfare, and food safety. There's also some debottlenecking in certain parts of the operation that will come out of that. Finland on page 13. We have seen a quarter with further improvements. 6% revenue growth, 2% in local, which is more or less in line with the market. We saw an EBITDA margin of around 6% coming out of an improved product mix and higher sales of branded and value-added products. There's a strong focus on further improvements, both in terms of mix and innovations, on manufacturing yields, also on our cost base.
With that, I'd like to hand over to Anders for the income statement.
Thank you, Leif. May we just stop a bit on this IFRS 16 implementation, where we have used the full retrospective method, which means that all the prior year data has been restated, i.e., all the numbers on this income statement are comparable. You see the effect from IFRS 16 was SEK 22 million on EBITDA, SEK 2 million on EBIT, and SEK 2 million lower net income. It's the same effect in both 2018 and 2019. For more details on IFRS 16, you are welcome to look up our Note 31 in our latest annual report for 2018. Looking at depreciation, as Leif already mentioned, that is down by SEK 9 million due to the alignment of asset lifetime we did last year. All in all, summarizing the income statement, just EBIT is up by 34% compared to last year. Net income is up by 71%.
Moving on to page 15, statement of our financial position, where you can see that return on capital employed remains largely flat, whereas return on equity improves compared to quarter one last year. Equity to asset ratio improves slightly. Again, a few more IFRS 16 effects where capital employed has increased by SEK 421 million due to IFRS 16 and our net debt has increased by SEK 461 million. Moving on then to page 16, working capital, where we see a small working capital increase in quarter one this year compared to where we landed the year. That is driven by this strong revenue growth in the quarter. We are up from an exceptionally low working capital at year-end 2018.
The 6.2% working capital as a percentage of sales is still low historically, and also when you compare it to the same quarter last year where it was 7.8%. Moving on to the cash flow, where we report an improved OCF, primarily driven by higher EBITDA and lower CapEx. That CapEx of SEK 72 million in the quarter represents just below 20% of our full year estimate for 2019, which is the SEK 380 million we have talked about before. We had a bit of higher paid financial expenses in the quarter, and that is driven by the expenses for the extension of loan facilities that we have paid in the quarter. All in all, net debt is increasing by SEK 42 million, and a big chunk of that is coming from cash. Flipping page to page 18, cash flow guidance.
This is the same as the previous quarters, I won't go into details on all of them, but a few things worth highlighting. The first one is the dividend, which we propose to be SEK 2 per share up from SEK 1.80 last year, and which we believe allows a reasonable balance between investing in growth opportunities and a direct yield to our shareholders. Also reminding everyone about the continued liabilities relating to the Manor Farm acquisition, where the first out of three earnout tranches is payable now, later in Q2. That first tranche is estimated to SEK 125 million. Flipping page, where we talk about our sustainability work labeled under The Scandi Way. In this quarterly report, you can read more about our antibiotics vision and how we work towards our 0% antibiotics vision.
In the Nordics, we are almost there already, where we have been below 0.5% the last couple of years. With that, over to you, Leif.
Thank you. Just summarizing this Q1, very strong growth in the quarter, both in revenue and also in earnings. We see market being driven by secular trends, supporting poultry products, both in terms of taste and convenience, also, a very attractive nutritional and health profile compared to alternatives. A very solid sustainability profile that are increasing in importance. We also see convenient innovative products and also thanks to a lot of brand developments across the group. We do see a positive outlook going forward, we do continue to follow structural opportunities very closely. As I'm sure you have picked up, the dividend proposal is SEK 2 per share. With that, we would like to take any kind of questions. Thank you.
Ladies and gentlemen, to ask a question, press star followed by one on your telephone keypad. If you'd like to retract your question, you may do so by pressing star followed by two. When preparing to ask your question, please ensure your lines are unmuted. The first question today comes from Mikael Löfdahl from Carnegie. Mikael, please go ahead.
Yes. Hi, good morning. A few questions from me. First, in Sweden, is it possible to quantify two things? First of all, the increased marketing investments, could you quantify them in SEK here, what it did year-over-year, quarter-over-quarter, and whether or not these are sort of recurring higher levels of marketing spend? Secondly, on Sweden also, what do you mean by incremental improvements expected in the second half of 2019? How should we look at that? Is it sequential, year-over-year, and what would it come from? Thanks.
All right. Thank you. We have seen marketing investment, we have increased versus the same quarter last year with about SEK 4 million-SEK 5 million in this quarter, that's to facilitate further growth opportunities. It is also a reflection that we, over the last year and a half, where we have had some issues that we have coped with in the Swedish market. We have cut back on our marketing investment. With Kronfågel as the absolutely strongest chicken brand in the market, we want to cement that position and further develop it. That's why we decided to, let's say, spend a bit more than what we have done in this one and a half year prior. So about SEK four and a half million up versus same quarter last year.
In terms of the other part of the question about the improvements going forward, we do anticipate further improvements in Sweden to take place. We do particularly see them to be picking up in the second half of the year. That being said, I get Q2 that are similar, but we see an uplift in the second half of the year.
Okay. Regarding the marketing, is it only in Sweden or should it get on a group level?
Well, we increased the total marketing investment for the group in this quarter with SEK 10 million, versus the same quarter last year. Nearly half of that were in Sweden, then the other components were in Denmark and in Norway.
Okay. You are expecting to remain at these sort of levels going forward on a quarterly basis in the other countries, correct?
Yeah.
Moving to Norway, you didn't really specify in your sort of adjusted underlying growth numbers for any extraordinary volumes in Norway, you say that it was an extraordinarily strong quarter. Maybe we shouldn't extrapolate the organic growth in Norway going forward. Is it possible to say something, what made it so exceptionally strong, the growth?
Well, we had a couple of very strong campaigns coming through in this quarter. Also, if you sort of look historically Norway, this is a very exceptionally high growth in this quarter. We just want to, let's say, let you be aware that we don't expect that high growth levels going forward.
It wasn't any extra deliveries on any contracts or something like that?
No, there was some additional campaign activity that uplifted revenue and were part of why we landed at 7% top line.
Okay, thanks. In Ireland. Could you say something about the price increases or the delayed price increases, how that process is progressing? You previously said that there would be a pressure on margins in the first half, and then you would recover that hopefully in price increases. Where are you in that?
We are working very hard on it, we are fully committed to get these well-justified raw material increases compensated. We are a few months delayed compared to what we had previously anticipated. You're right in saying that there will be a lack of this compensation in the first half of the year. We do anticipate to close the gap later on in the year.
Is your guidance unchanged here? Because already in connection with the Q4 report, you said that there was delayed effects from price increases. Is that reiterated that from the second half you should have better margins in Ireland?
We do. No, we do anticipate that we will have the compensation, we are working very hard on getting it. We would have anticipated to get some of the compensation in Q2. It's probably more relevant to look at it to be implemented with effect from the second half of the year.
Okay. Good. Just final from me also on Sweden, just to be clear, the clearance of the inventory was completed in Q4. There was nothing that was sort of lifted over and affected also Q1 in terms of margins in Sweden?
Very minor. It is not a driving force.
Okay. You would say that the year-on-year margin decrease on an EBITDA level is more a matter of, well, you have partly the IFRS effect maybe on that.
No, that is the increased marketing investment. Yeah. Increased marketing investment is also a factor.
Okay. Thank you.
All right. You're welcome.
As a reminder, it's star one to ask a question. The next question comes from Daniel Schmidt from Danske Bank. Daniel, please go ahead.
Yes, good morning. This is Daniel Schmidt from Danske. I missed the beginning of the call, so I assume that you touched upon it, but I just want to ask you then, for me at least, for some clarification for me. The exceptional strong sort of top-line growth, you're saying that it's partly due to large contingency order within Ready-to-eat. Could you say how big that order was and what exactly relates to? Is there any chance that this is going to be a repeat order or is it one-offs? Could you shed some more light on that?
Absolutely. If you missed page four, I think that's probably the best way of getting some breakdown of exactly that. Of the 16% of growth we achieved in this quarter, which is exceptionally high as you know, about 2% of that relates to this contingency order to one of our European Ready-to-eat clients. It is something that we did in Q1 that we will not do in Q2.
Is it usually the case that profitability on those orders are a bit on the low side, or what would you say?
Yes, absolutely. No, they are on the low side. For a number of reasons, one thing is that it's something that comes in, you get basically no notice. It is a lot of overtime and weekend shifts and so forth. It's also been a way for us to, let's say, run this additional capacity that we build in our Farre plant to see the full impact of that. That has been margin dilutive, this contingency order.
Is the same true also when it comes to Rokkedahl Food when it comes to margin dilution?
It is similar.
All right. Okay. I think that was the only clarification that I needed. Thank you.
All right. Thank you.
As a reminder, it's star one to ask a question. The next question comes from Florent Taine from Midcap Partners. Please go ahead.
Hi, good morning. Just two questions on my side. The first one in Finland. Can you give us some colors on the lower growth we see in the Q1, and what is your expectation for the Q2 and the H2? My second question on raw material, can you give us some color on the impact you expect for the next quarters? Thank you.
Yeah. Thank you. In terms of the revenue growth in Finland, we do anticipate similar growth rates as what you see here in the coming quarters. More growing in line with the market would be our anticipation, working on improving profitability gradually. In terms of raw material, we have implemented quite successfully the raw material inflation basically in four out of our five markets, in Sweden and Denmark, in Finland and in Norway. We are still struggling or working hard on getting it through in Ireland. One also have to be aware that historically in the Nordic markets, we have developed models where we are adjusting prices quite openly when raw material is going up and it's going down. It is a system that we think are working quite well.
It's a system that hasn't been practiced in Ireland to the same degree, that is also why we are working hard on getting the same or similar model introduced into Ireland. That will have a bit of an impact on the profitability coming into Q2. We do anticipate incremental improvements during the year, particular in the second half of the year. In absolute terms, relatively similar profit coming into Q2, with a significantly lower top-line growth compared to what we have, this exceptionally high one we had in Q1 impacting margins.
Okay. Thank you.
Welcome.
As a reminder, it's star one to ask a question. We have no further questions, I'll hand it back over to you, Leif.
All right. Thank you, everybody. Thank you, and have a great day. Bye-bye.
Bye.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your line.