Thank you very much, and good morning, everyone, and welcome to this presentation of Scandi Standard's results for Q4 2023. My name is Jonas Tunestål, and I'm the CEO and Managing Director of Scandi Standard. With me I have Fredrik Sylwan, our CFO, and I'm pleased to have him by my side today. I'm also glad to report continued margin improvement and a strong cash flow in the fourth quarter. Next slide, please. The earnings improvements for Scandi Standard continued in the fourth quarter with improved margins and a strong cash flow. We see strong demand at slightly lower prices. We have increased our volumes with 12%; however, net sales are slightly down due to lower input prices, and that's mainly due to feed prices, but we see encouraging demand in several markets.
We have increased our adjusted EBIT with 6% and delivered an adjusted EBIT of SEK 105 million and a strong cash flow. The improvement they were driven by a strong quarter and Ready-to-cook , and as presented before, Ready-to-eat, and ingredients was, however, weaker and that was as expected and as communicated. We have a strong cash flow, and NIBD was reduced by more than SEK 100 million in the quarter. During the quarter we acquired a Ready-to-eat business in Finland, and I'm pleased that we now have an integrated Ready-to-eat business in all our countries except Ireland. In light of the strength of profitability and a positive future outlook, the Board will propose a dividend of SEK 2.30 per share, and that is doubling compared to the previous year, SEK 1.15. Next slide, please.
Here on this slide you can see that we are proud to have passed a successful turnaround process and recovered our earnings after a tough period for Scandi Standard. The action we have been taking is forceful volume contractions to support required price increases. A new course is implemented in Ready-to-cook Denmark, and balance sheet is strengthened through capital discipline and divestment. With recovered earnings and a stronger balance sheet we are now entered the next stage in our journey. Once again I want to give credit to the organization for the resolute handling of our challenges over the past years, and I look forward to developing Scandi Standard further in the strategy period together with all stakeholders. Next slide, please. We have also seen a long period of sharply increasing input costs, which have necessitated radical price increases to consumers.
Market conditions are now starting to normalize, but key input costs are trending downwards, and as presented on the first page, input cost has a link to our top line. Although we see calming waters, we, however, need to be prepared for further volatility, and there is a high uncertainty going forward in that part. We are encouraged to see demand is increasing strongly in many of our markets, and in parallel with consumer spending is coming under pressure. So chicken requires far less resources and feed than is compared to pork and cattle, so we are proud to offer high-quality, affordable products to our clients. So if we move to the next slide. Here you can see that price has always been important for customers, and the focus has increased even more in the present inflationary environment.
Chicken is affordable in all segments, from high-end to low-end segments, and fillets that is even competitive in the low-end cuts. So we see further opportunities to drive more value out of the chicken due to its affordability. You can move into the next slide, please. This slide we'll show this a couple of times, and this slide is to remind you of the strong market position in all our five whole markets and that the countries are highly consolidated. So these markets have high entry barriers, and they can individually be regarded as semi-closed markets, and that is due to the strong consumer preference for domestic produce. Due to our strong market position, our own supply decisions have a meaningful impact on the market balance, and that has helped us in the recovery process from inflation. You can move into the next slide, please.
This slide shows the continuous growth in consumption. We are expecting strong growth in consumption, and we have seen a 36% growth in poultry in the period from 2010 to 2022. Rabobank, they're expecting 50% growth until 2030. Moving to the next slide. Here you can see the reason for that, and as we explained in detail during the Capital Market Day, the drivers for this growth are the details and these three areas. It is responsible, safe, and nutritious. It is convenient, versatile, and tasteful. The last one, a really important one, is affordable because it's sustainable. You can move into the next slide, please. This table shows the reconciliation of segments, and as you can see, we see strong positive contribution in Ready-to-cook, and we see the declining in Ready-to-eat and others as expected compared to Q4 2022.
As we also mentioned, we want to remind you of the category other. That includes ingredients business and our corporate costs. We can move into the next slide, please. If we look into our Ready-to-cook segments, there we have increased a net sales of 5%, and we have a volume growth of 12%. So the difference is driven by lower input costs, the export prices, and the change in breed in Denmark. So we present an EBIT of SEK 77 million compared to SEK 31 million last year, and that is strong improvement driven by turnaround measures and increasing demand in several markets. We also see the improvement in our animal welfare metrics, and that is mainly driven by Ireland, and that is two things, mainly, that is footpad scores and the lower antibiotic use.
We also see a strong focus on our LPI performance, and they are increasing in a really good way, and we have as a company a strong focus on improving those numbers and be better on that, every day. If we move into the next slide, please. If we look into Ready-to-cook over time, so I can see that we are now on a journey for profitable volume growth in most of our countries, and as you can see in this slide we have been able to recover our earnings per kilo. We see some downward adjustments in net sales per kilo, and that is reflecting our lower input costs, as mentioned before. We also see normalization of ingredients earnings, and that normalization will continue into Q1.
We are, through increased upper value upgrade, somewhat mitigating that trend, and that is a strong focus for us the coming years to extract the value potential, and it will represent a substantial opportunity for us. That focus to lift and harvest more on our ingredients, that is really important when we see tougher tomorrow tomorrow. We move into the next slide, please. This is the export slide, and we've seen a 2% decrease of export prices in the quarter. We are focusing on building more solid export business. We're a strategic international retail and food service customer, and the aim is to be less exposed to the commodity market, which has a positive impact on our export business.
So we are focusing on broadening our export permits as well, to the most attractive export markets in order to get more value out of the bird. So when we have this anatomic balance, it's important for us to set the right SKUs or the right ETA in the right markets. We see continued uncertainty in export prices during the first quarters, and that high uncertainty is, of course, due to the cost of input prices and so on. So if we move into the next slide, please. And then we look into our Ready-to-cook Denmark, and we have now completed the process of reversing the unsuccessful radical slow-growing bird strategy. The bird mix is now more aligned to demand, but there will be an ongoing adjustment to meet the changes.
We are expecting continual sequential improvements, and we are gradually changing our product offer to be more aligned with demand. It's not only the bird, it's about handling the right, right offer to the customer in all places. Compared to other countries, Denmark is exposed to the export market, so to mitigate this we are in the process of increasing our integration with our Ready-to-eat business, which also will be now a possible changeover to higher proportional conventional birds. So with that said, the measures to turn Ready-to-cook Denmark into a net contributor to Scandi Standard that will continue with full force in 2024. Next slide, please. On this slide you can see the channel development more in detail, and through these details you can notice the increase in all channels in the quarters, which is driven mainly by volume.
We have been seeing a strong demand growth in several of our markets in the quarter, particularly Ireland and Finland. Move into the next slide, please. Now we move into Ready-to-eat segment, and as mentioned before we have a temporary reduced activity level. Net sales are down 21%, and that completes an EBIT of SEK 22 million compared to SEK 53 million last year, and that is due to the loss of contract in Central Europe. The margin drop, that is driven by plant utilization, but we will see the lowest volume here in Q4. We also have an adverse development in lost time injuries, and we have taken corrective actions to prevent reoccurrence. Continuous work to ensure preventive measures has been made, so we're working hard on that.
Most of the people are in our Ready-to-cook business, so a few numbers will have a big impact in the Ready-to-eat segment. Move into the next slide. And that is the more important slide. We continue to rebuild our Ready-to-eat order book after this loss of the breaded contract. So the high-volume, low-margin business is phased out now, and volume in EBIT is likely to have bottomed out now in Q4 2023. So the lost business, the positive thing is it has made room for new opportunities with a more long-term diversified profitable portfolio, and we have a good traction in replacing lost business. We have historically seen a strong but uneven demand, and we expect that to continue to grow over time. Growth in this segment, though, comes in sequences, and we have a lot of potential customers in the pipeline, but it will come in steps.
So we're using this period of lower utilization to upgrade and maintenance to meet the highest standards and prepare for future expansion. Ready-to-eat will be and is an important cornerstone in our strategy to meet our financial targets. If we move into the next slide, please. And here you can see it in figures, and it is, of course, very encouraging to see that our continuous growth in retail and Ready-to-eat; however, the development in food service channels is declining due to the reasons mentioned in the former slide. So growth in this segment will be a priority for me the coming years. We are confident that we'll replace the lost volumes with other more profitable volumes over the coming periods, and we will have already slowly started to fill up with new ones, and that will continue for the coming periods.
Ready-to-eat will be an important tool in developing the EBIT per kilo, so i.e., increasing the value of our protein. If we move into the next slide, please. Here you can see our Ready-to-eat sites. In Scandi Standard we have four sites, processing sites to make Ready-to-eat products. We have Stokke in Norway. We have Valla in Sweden, and now we also have Honkajoki in Finland. All those three are producing pre-cooked and fried products for their whole markets. Then in Fårevejle, we produce breaded products for both domestic but especially for international markets with a primary focus on Europe. There in Fårevejle we focus on fewer, bigger, better concepts where we streamline and scale the production with a sharply defined product assortment and a customer base. Also to mention, we're investing for a 30% expansion in Norway that will happen later this year.
If we move into the next slide, please. Here you can see the growth over time, and I'm not very concerned about recovering the recently lost volumes over the coming periods. We have seen historically strong but uneven demand, and we expect continuous growth over time. Growth in this segment, as mentioned before, comes in sequences, and the trend for that has presented before us well. It is two main types. It's integrated local breaded business, and it is international breaded business. Also, to mention, our Ready-to-eat business yields a significantly higher return on capital compared to Ready-to-cook. So, I would like to highlight the strong organic growth in this segment, including 40% growth in 2022. So with that, I will hand over to you, Fredrik, for a more deep dive in the financials.
Thank you. So many thanks, Jonas, and good morning, everyone.
As Jonas mentioned, Q4 was strong with improved profitability, strengthened margins, and strong cash flow despite sales coming in lower than previous year. Net sales for this period is slightly below previous year with 2%. This is primarily due to the RTE contract and the other business that is almost fully offset by the RTC performance. EBIT is up 6% to SEK 105 million, and margin strengthened 30 basis points to 3.5%. Our finance costs have decreased compared to previous year. This reduction is mainly attributed to increased interest income linked to interest-bearing receivables and lower interest costs. This has resulted in net income increasing 20% to SEK 66 million. From an operational side, some highlights are despite some challenges in sales, our feed efficiency remains stable at a very strong level.
As a reminder, feed efficiency is measured as kilo feed needed for one kilo live weight, where chicken has one of the lowest levels for animal proteins. In Q4, our feed conversion ratio was at 1.49x. We've also made notable improvements in employee safety, as evidenced by decreased lost time incidents or LTIs. Next slide, please. Our return on capital employed and return on equity continue the positive trend, and we significantly improved versus previous year. We are now back to historic levels, and main drivers are increased profitability in combination with lower capital employed. At the same time, our equity ratio has improved further to 36%, both versus the third quarter and versus previous year. This is mainly related to reduced balance sheet from the divestment of Rokkedahl and lower inventory. Next slide, please. Here we have our cash flow overview.
As said, Q4 we had very strong cash generation, mainly driven by improved working capital, driven by accounts receivables. Same as last year, we have a large portion of the full-year CapEx in the last quarter, but we also made payment for the finished acquisition in the fourth quarter. Paid tax is positive, driven by the refund of 2022 preliminary corporate tax. Our net interest-bearing debt decreased in the quarter with SEK 107 million, and our leverage is now at 1.8x, which is slightly lower than Q3. Our financials are now stable, which is giving us improved strategic flexibility going forward. Next slide, please. Our working capital has significantly improved, driven by lower inventory, reduced receivables, and increased payables. As previously announced, target level for working capital to sales, excluding financing items, remains around 6%, and we are currently at 4%.
Focus going forward is to closely monitor development and, of course, optimizing it. Next slide, please. Looking at our inventory level, it has increased in Q4 versus Q3 but decreased versus previous year. Change in mix is the main driver for both comparables. As a result of the lost RTE contract, we have realized the opportunity to reduce safety stock, which is partly offset that we have seasonality effects where we usually build inventory in the fourth quarter. Inventory, of course, remains a clear focus area going forward, and we, for example, work on optimizing the sales and operations planning to make sure we produce right products, and we use the export channel for surplus sales to not interfere unnecessarily with the domestic pricing. Next slide, please. Capital expenditures for 2024 is estimated to be around SEK 500 million, which is a substantial increase versus 2023.
It's also a key element to reach the recently revised targets. The priorities are, for example, the RTE expansion in Norway to meet the demand with an approximately 30% increase of capacity. Increase in deep deboning capacity in both Ireland and Denmark is also a priority where we aim to climb the value ladder. We also invest in product differentiation in Ireland as well as an increase in efficiency, both from a value-added perspective, for example, adding a new packaging line. We also have our ERP implementation where we will go live with the first market in the second quarter this year. Interest rate on bank financing is approximately 5.5% annually. If we add the IFRS interest cost components of leasing and factoring, then the paid financing cost is estimated to be around 8% of net interest-bearing debt.
Our dividend proposal is SEK 2.3 per share, which is twice the previous dividend. This is close to the policy of 60% of net earnings over time. Next slide, please. Over to you, Jonas.
Thank you, Fredrik. Next, I would like to talk about one of our cornerstones and the license for us to operate. There are these three key areas where it comes to creating trust for what we do. It is about responsible animal welfare, safety for consumers and employees, and nutritious products. This has a close link to our sustainability scorecard. If we move into the next slide, please. We can see the sustainability scorecard here, and I'm proud of the progress that has been made during the year, including meaningful improvement in Lost Time Injury Frequency Rate, antibiotic use, and our main animal welfare indicator, Footpad Score.
So during 2024, we will continue refining our roadmap towards 2030, including development of our climate transition plan as well as implementing the EU Corporate Sustainability Reporting Directive, and that is called CSRD. The implementation of CSRD will further strengthen the integration of sustainability in our strategy, and it will be a part of our value chain and operation, and it will facilitate comparability and further transparency. That will be an important part of our work. If we move into the next slide. On this slide, you can see, our structured effort is resulting in recognition in forms of improved ESG ratings. As communicated yesterday, we climbed to an A- in the CDP rating, and that is a rating that only a few companies within the food industry had obtained. We also score high on other ESG ratings.
You can see on the right side on this slide, for example, Sustainalytics, where we are top 10 out of 360 companies in packaged food globally. In our sustainability work, we are focused on the whole value chain, from farm to fork, and that we do with data collection, target setting, and reduction initiatives. It's an important part in our strategy. If we move into the next slide, please. Here you can see our strategic pillars that we're also presenting on our Capital Market Days. These are the four strategic pillars that will support us achieving our goals. It is increase the value of our protein. It is ramp up our efficiency and quality end to end. All of this we need to do with sustainability means in every step of the way. That's one company making us constantly better together.
Better together, that is the belief and the practice we strive for to make us more effective, successful, and impactful when we collaborate, work as a team, and leverage each other's strengths. It emphasizes that collective effort, shared goals, and team cooperation lead to improved performance and outcomes. These four strategic pillars are important for us to achieving our goals. If we move into the next slide, we will take a look at our financial and sustainability goals that were presented before. We want to create a Scandi Standard to be proud of, trusted by everyone, and where people can develop. With this comes earnings, and with earnings, you earn your right to grow. At the right side, you can see our financial targets for 2027 and our sustainability targets for 2030. We are expecting strong growth over the coming years.
We set a target for 2027 of 5%-7% net sales growth. But we need to be aware of that we're coming from a high inflation with high feed costs, and that will affect the net sales for 2024 as it has done in Q4. And as I mentioned before, our business has typically a high exposure to cyclical raw material prices as feed. But due to our dynamic pricing model with more than 80% of our sales linked, we have the ability to pass through feed costs. So in 2024, we expect feed to come down, which will affect us and our 2024 net sales numbers. But that will not affect our volume and EBIT per kilo expansion in 2024.
In addition to these financial goals and sustainability targets, we have another important supporting target, and that is the target of our SEK 3 EBIT per kilo weight. This is what we mention as grill weight. That is what we consider to be the most valuable target when we look into how much value we can take out of our protein. That is something that we will focus on. So if we move into the next slide, you can see it in the graph on the right. There you can see the essence of our clear roadmap to achieve SEK 3 EBIT per kilo target. We see a large potential to climb the value ladder, and we also see a large potential to set up better efficiency in our value chain.
To be more concrete on what we actually do, so if we look into this climb the value ladder, it is about balancing supply to domestic fillet demand. We don't want to overproduce to export. We always take out the most value of our protein locally in products like fillets. Then it is about value creation through increased consumer convenience. And that can be through how we look into more deboned legs. It can be how we look into more convenience products in terms of how we can upgrade the wings or other parts of the bird as well. It is about differentiation and branding opportunities. And it is to utilize further part of the potential in our ingredients business. And that is in terms of volume, 50% of our volume. So we have a large potential to harvest more and upgrade the value in our ingredients business.
Then we see a large efficiency potential in our value chain. And it is about optimized utilization at advantage of sustainability metrics. It is the organizational performance, build this scalable platform, and structured collaboration. We're talking about have this local accountability of five P&Ls but taking the advantage of being a group, one Scandi Standard, and have a structured and scalable platform. We're looking into standardization and optimization in production. We want to standardize the supply chain even more and digitalize the platform even more. And we want to increase the collaboration in the value chain because we see this is a long, complex value chain, but it also gives great possibilities to take out more value in that chain. So if we move into the next slide, please. To achieve our goals, we are building this robust vehicle to serve our home markets and beyond.
That's why we're launching this SEK 2 billion investment program in the period. The investment program aims to support Ready-to-cook investment, the 2% increase in throughputs in our plants, and support better utilization in our facilities. It will support our ramp-up of our ingredients business. We'll take out more value out of that. It will also prepare for significant growth in Ready-to-eat throughout the strategy period. We have also earmarked investment for more than SEK 200 million for meeting our sustainability goals. As you all know, sustainability and efficiency is linked together. It's only different measures on how you can use your resource in a more efficient way. Then if we move into the next slide. That slide will summarize it all. So if we look into this period in Q4, we have improved our margins. We have a strong cash flow.
We're expecting a continual profitable growth in Ready-to-cook. We have a strong focus and disciplined replacement in our Ready-to-eat business. We see this large potential in climbing the value ladder. I really think that we're now well positioned to reach our long-term goal with a strong balance sheet and a clear roadmap. We have a clear investment program for the future to reach our goals. With this increase and good period behind and a future positive outlook, we have the dividend proposal of SEK 2.30 . That is a double dividend proposal compared to the dividend last year of SEK 1.50 . That is the last slide. Then I think that we move on and open up for Q&A. So we can move into the next slide, please.
Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please limit yourself to two questions at a time. Thank you. Our first question from today comes from Simon Brun of ABG Sundal Collier. Your line is now open. Please go ahead.
Yes. Thank you. Good morning, Jonas. Good morning, Fredrik. On Sweden in Ready-to-cook segment, we've seen negative growth there for three consecutive quarters. You say it's still at 85% of where I guess you want it to be. Can you say something about what drives this trend and what must happen to sort of turn it around? Yeah, I guess that's my first question.
We took an active choice to take down the volumes in all our markets to secure that we could pass through the price increases when we have this radical inflation coming years. Now we see that the volume come back in other countries. In Sweden, we have this 85% utilization, and there is a growth potential to take up the volumes. As I said, in other countries, we've already seen this pickup in volume, but Sweden is lagging a little bit behind. There's a potential going forward. We will never compromise with getting the right price and the right margins. It was an active choice, and we see really good progress in many countries where we already picked up the volume, and Sweden is lagging a little bit behind.
There's a potential going forward in that we have the capacity to take up the volume when we can have a secure margin and profitable growth.
Thank you. The second question on the Ready-to-eat segment, your comment on good traction in replacing the lost volumes there. Should we think of that as a gradual recovery, or is it more back-end loaded towards the second half of the years? And will higher margins on these volumes be enough to offset sort of the negative impact short-term on margins, or should margins be similar to what we saw in 2023 for the full year?
We will see gradual growth, but it's hard to say because this segment, the growth comes in sequences. At the moment, the growth is a little bit slower in global QSR, but it will pick up again during the period. I think that we have a really good plan for filling up further. There will be this strong but uneven growth in demand. So a little bit slow in total QSR global at the moment. We have a good plan, and it will come a little bit in sequences. That is the answer on that question.
Thank you. That's all from me.
Thank you. As a reminder, if you'd like to ask a question, that's star followed by one on your telephone keypad. Our next question comes from Daniel Schmidt of Danske Bank. Your line is now open. Please go ahead.
Thank you, operator. Good morning, Jonas and Fredrik. On that topic, when it comes to lost volumes in RTE, sort of if you try to stack that up against the recovery that you're seeing in your Danish RTC business, where you're clearly sort of making strides towards break-even and profitability, it sounds like, in 2024, do you think that those two trends, the loss of this contract versus the sort of recovery that you've done in RTC, will they even each other out at the start of 2024?
We will not guide and date it, but we will say we will say like this. We will see a continuous improvement in RTC Denmark. We have done this so-called normalization or putting the right words after demand, and then we will see continuous improvement. We will see this continuous improvement in RTE during the period as well. But of course, the volumes and the effects in Ready-to-cook Denmark in terms of volumes and turnover have some greater impact if we are able to get a good balance there.
Okay. If I heard you correctly, it will be sort of a net negative at the start of the year. Is that what you said?
What I said was that we have hit the bottom in Q4. In the coming period now, we will fill up further. That will come in sequences. We see a little bit slow growth in QSR. But we see in Ready-to-cook Denmark, we see a good progress going ahead that we will move continuous throughout the year. We will not.
But I'm just thinking.
Have a net effect, but we will see continuous improvement in both of them throughout the time.
Yeah. But you will still have QSR down year-over-year in Q1.
Yes.
You will have Ready-to-cook Denmark up, I assume. You're not sort of telling us what the net effect will be. Is that what you're saying?
Yeah.
Yeah. But the rate of improvement in Ready-to-cook Denmark then, is this sort of a linear, gradual improvement that you see in 2024, or is it back-end loaded? Are we sort of at the stage now where we are at break-even but it's going to take some time to show profitability, or is it sort of steadily moving into profitability month by month?
I will phrase it like this, that in Ready-to-eat business, the growth in Ready-to-eat business, they are a raw material buyer from Ready-to-cook. So there will be a link between those two. So of course, when we see growth in Ready-to-eat, that will contribute to our Ready-to-cook profitability as well because we want to integrate those type of businesses more.
Okay. Okay. Thank you. That's all from me.
Thank you. As a reminder, if you'd like to ask a question, that's star followed by one on your telephone keypad. Okay. At this time, my apologies. We have a question from Simon Brun of ABG Sundal Collier. Your line is now open. Please go ahead.
Yeah. Thank you. Just a quick question on Ready-to-cook. Jonas, you touched upon this in the outlook statement, I guess. But in terms of prices now coming down into 2024, you say that this will have a negative impact on the top line. But how certain are you that costs and the mix effect could offset this and that margins will improve in 2024? Do we have to see costs sort of coming more down than it is now, or do we have to see something extraordinary in terms of mixed improvements, or could you just elaborate on that?
We have seen in late 2023 that feed prices have come down, both in terms of the wheat price and the soy price. Of course, there's a lag of that drop when it comes to implementing price reductions in the market. We will see a top-line part in part of that. Going forward from now and going forward, it's very hard to predict where the feed prices will end. A month ago, they predicted that it will be more stable, but we have seen a little bit further drop. Now they're talking about stabilization, but it's just predictions. To summarize or answer to your question, is that there's a delay from the drop in feed prices that will affect the net surprise in the corn crop.
Thank you, guys.
Thank you. At this time, we currently have no further questions. I'll hand back to Jonas for any further remarks.
No. I want to thank you, everyone, for listening. With that, we end the presentation. Thank you very much.
Thank you very much.