Scandi Standard AB (publ) (SCST) Earnings Call Transcript

Good morning, everyone, and thank you for joining us on today's Scandi Standard Interim Report for the Third Quarter 2026. My name is Drew, and I'll be the operator on the call today. [Operator Instructions]. [indiscernible] handover to Jonas Tunestal, CEO to begin.

Thank you, and good morning, everyone, and welcome to this presentation of Scandi Standard's results for Q3 2026. My name is Jonas Tunestal, and I'm the CEO and Managing Director of Scandi Standard, and I'm pleased to have Fredrik Sylwan, our CFO, by my side today. I'm also glad to report a strong growth and result in the quarter. So next slide, please. In Q3 2026, we see strong progress toward our financial targets. We see 8% growth in net sales and strong demand. We see an 18% increase in adjusted EBIT, and that gives us a margin of 5.4% and that is due to that. We continue to climb the value ladder in ready-to-cook. That is our main business, but we also see a strong underlying improvement in our ready-to-eat business. And it's a result of our improvement programs that are continuing with full force. But I also want to remind you all of that Q3 is the seasonal strongest quarter. Then during the period, we have made a ready-to-eat acquisition of Glenhaven Foods, and we brought it for SEK 1.4 billion and that will strengthen our European position with in breaded products. The Glenhaven Foods has a focus on the Irish and the U.K. retail clients and it's partly financed by an oversubscribed capital increase of around SEK 400 million. So next slide, please. And before going further into the results of the quarter, I'd like to spend a minute on Glenhaven Foods. We completed the acquisition in the first half of October. So it's not in the Q3 figures. Glenhaven builds on a strong retail position of Scandi Standard in Ireland and provide some bridgehead into the U.K. retail market. We are the ready-to-cook market leader in Ireland today, and this gives us the ready-to-eat leadership in Ireland as well. The acquisition [indiscernible] capacity headroom is almost 50%. We bought it at around 8.2x EBIT, and we expect the deal to add more than 10% of EPS on a 2025 basis. And that included the impact of the capital increase and finance costs. So we are very pleased to welcome the Glen then team to scan the standard, and we look forward to driving the business further. Next slide, please. So moving back to the quarterly results and the reason why we see a strong demand. It's related to these 3 value drivers for chicken, responsible, safe and nutritious, convenient, versatile and tasteful and affordable because it's sustainable. So next slide, please. [indiscernible] benefiting from substitution from other proteins like pork and beef. And as you can see, we're estimating a 3% volume CAGR in the Nordics and Ireland. So next slide, please. And one of these 3 value drivers is affordability and it is benefiting from other proteins just because it is sustainable and affordable. Surprise has always been important for consumers, and the focus has increased even more in the current environment of high food prices. So beef prices are at a high level and are expensive, which chicken is benefiting from, but also the long-term trend of switching protein from red meat to poultry. So chicken is affordable in all segments, and that gives us further opportunities to drive long-term volume and value creation. So we see further opportunities to drive more value out of chicken due to its affordability relative to peers. And as you can see on the right-hand side in the diagram. Next slide, please. And on this slide, we want to present our EBIT per kilo measure and EBIT per kilo is a good measurement of value creation for our business. So Q3 2026, adjusted EBIT per kilo was SEK 2.72 compared to SEK 2.36 last year, which is an increase of 15%. In Q3, as mentioned before, is seasonally our strongest quarter, but we have a positive momentum towards reaching our 2027 targets. And it is in the different colors, you can see in the diagram, you can see development in the different segments and note the increased significance of ready-to-eat. The next slide, please. And this table shows the reconciliation of our segments. Strong net sales growth in most of the markets, strong EBIT contribution from ready-to-cook and note the improved results from ready-to-eat. And as always, we want to remind you of the category other includes our ingredients business and our corporate costs. Next slide, please. And here, you can see a summary of our sustainability scorecard [indiscernible] improvement. The slightly higher CO2 emissions was impacted by the use of supplementary energy sources at some of our production sites, repass of our most efficient equipment as well as the ramp-up of activity in some of our new sites. And for LTI, this is an area with continuing high [indiscernible]. Now we're moving to ready-to-cook. [indiscernible] demand across geographies and channels. We have a 3% increase in chicken produced, what we call the [indiscernible], 7% increase in EBIT. That gives us an EBIT of SEK 170 million compared to SEK 155 million. We're also well prepared to tackle the increased feed prices. So organization is a high a lot. Regular price adjustment to retailers to adjust for changes in input costs is now something that we have good processes for. And we're also hedging our input cost in our internal feed production. So next slide, please. And this shows the development in feed. So we have been seeing a rising feed prices for some quarters. We're also seeing increased prices of feed raw material, which will gradually lead to further increased feed prices to our farmers. The expected volatility is driven by the Ukraine war. There's also uncertainty about fertilizer from components from [indiscernible] well prepared to tackle this through price increases to our customers. And we also, as always, want to highlight that feed cost is 1/3 of our cost base and also that the short production cycle compared to other proteins enabled us to be more agile in our supply chain. And also an important thing to remind you of is that poultry is the most efficient [indiscernible]. Next slide, please. And when we move over to export, we see strong performance in our export markets. We see fairly stable price achievement during 2026 despite this reduced chicken commodity prices, and they are reduced due to increased supply of poultry, especially in Poland, and that's putting the spot prices down. We also see, on the other hand possible mitigation to the current EU import restrictions on Brazilian chicken. So the import is closed at the moment, and let's see [indiscernible]. We also have an internal, and this is our aim to further decommoditize our export sales. So that is having the long-term partnership with customers. And it's about optimized S&OP, sales operational planning and also [indiscernible] and make a benefit of our raw material in ready-to-cook into our ready-to-cook plant. Next slide, please. And on this slide, you can see the shell of development in more detail. And through this detail, you can notice the increase in both retail and foodservice in the quarter. So in general, we are seeing a strong demand in most of our markets in the quarter. Next slide, please. This slide is to remind you on the strong market position in all our 5 home markets and the countries are highly consolidated. These markets have large hurdles for new entrants they can individually regarded the same close market due to the strong consumer preference for domestic produce. Due to our strong market position, our own supply decision had a meaningful impact on the market balance, which has proven to be a strong instrument and [indiscernible] also includes consumer segments less sensitive to provenance. [indiscernible] plants. We want to set out a note that 11 million chickens in Lithuania is just 1 shift. If the market has a positive momentum, we have a possibility to scale up with another shift and double the production. Next slide, please. So now I'll move over to ready-to-eat and we see further improvement and positive seasonal impact. We have 25% growth in net sales, driven by demand in both foodservice [indiscernible] impact. We have a sum of commercial initiatives that have exceeded our expectations in foodservice. And now with the acquisition of Glenhaven, we have a program to take advantage of the strong skill set from Glenhaven into our total business. And we also have a cost efficient start-up of Factory the Netherlands during Q4. I will get back to that later. So next slide, please. And here, you can see it in figures, peak demand, in ready-to-eat in the previous years and the growth in the retail channel continue also to be very strong. So ready to eat will be an important long-term tool on developing EBIT per kilo, more specifically to increase the value of our protein. Next slide, please. And this slide is a reminder of this [indiscernible] product, European market and 1/3 is an integrated local business in Sweden, Norway and Finland. And it gives us a high return on capital employed. And throughout the latest years, an average EBIT margin is about 6%. And now in the quarter, we have 6.2%, and that shows the potential of actually getting the margins back and increase them from that. It has a low capital employed compared to ready-to-cook. And also important to note, as you all remember, we lost some continental contract in 2023. But as you can see in this graph, we are now above the historical peak of 2022 on a rolling 12 month basis. So next slide, please. And we are expecting a healthy market growth in Europe over the coming years, and there are marginal players and the local players. And Scandi Standard has been a large regional player with 36,000 tonnes of product weight in 2024, about 5% European market share. But the production platform has not been competitive to the top tier. And we saw some stagnant market after COVID-19 and the inflation, and we also saw some European overcapacity. But we see now close to 100 tonnes market growth that is expected to 2030. Next slide, please. And that's also the reason why we could get the possibility to buy the Ostwald plant that was acquired in Q1 2025 in idle state [indiscernible] our fire in Factory D under previous ownership, but we started the production in Factory A in Q3 2026 [indiscernible] for our kebab products that has a really good [indiscernible]. To be pretty clear, we are doing our first commercial production this week on the first big line. It's small amount of volumes to get all the certificates, but we are growing commercial now in Factory C. And Factory C, they had 2 of Europe's most largest and most efficient credit product line with a capacity of 50,000 annual tonnes. And it is one of the few with advanced form product capability of the largest clients. So together, we have filled up [indiscernible] and now with production capacity in Ostewald and Glenhaven Foods with room for increased capacity, that represents a significant growth platform for Scandi Standard for the future. So next slide, please. And this slide shows our processing plants. And as you can see, there are divided into 2 different sections. We have the plans that are focused on European frozen bread market, the big plants. And then we have the plants that are focused on convenient products for our home market. So next slide, please. And I will hand over to the CFO, Fredrik Sylwan.

Thank you, Jonas, and good morning, everyone. Q3 was another strong quarter with continued growth in both sales and profitability. Q3 was actually our strongest quarter ever. Net sales increased to 5.4%. The improvement in [indiscernible] ready-to-eat. Noncomparable items amounted to SEK 15 million and related to transaction costs for the Glenhaven Foods acquisition. So reported EBIT is therefore SEK 205 million. Finance net was broadly stable at SEK 38 million, higher interest expense on increased debt was offset by FX. Income for the period increased to SEK 131 million and adjusted earnings per share rose by 20% to SEK 219 million. Fee deficiency remained stable at a strong 1.48. And the LTI rate was 24.6%, so up 0.2% versus last year. And LTI remains an important [indiscernible], but we had not yet settled the upfront payment for the acquisition of Glenhaven, which was 2/3 of the transaction value, which took place on October 9. Average capital employed increased to almost SEK 5.6 billion from SEK 4.7 billion, reflecting acquisitions and continued investments in capacity and efficiency. So even with this increase, adjusted return on capital employed improved by 130 basis points to 13.1%. Average equity increased just north of SEK 3 billion from SEK 2.6 billion. The rights issue added almost SEK 400 million to equity after transaction costs and supports the financing of Glenhaven Foods while preserving financial flexibility. Return on equity improved by 270 basis points to 14.7%, supported by stronger earnings generation. The equity ratio strengthened to 37.3% from just shy of 34%, mainly driven by the rights issue, partly offset by the second installment of the dividend distribution. Overall, the figures demonstrate the continued balance between growth investment, improved returns and capital discipline. [indiscernible] million, so up from SEK 189 million last year, supported by SEK 66 million working capital inflow. Net CapEx at SEK 170 million focused on capacity and efficiency. Main drivers [indiscernible]. The rights issue was successful and strengthened our financial flexibility with almost SEK 400 million, as said earlier. Leverage was reduced to 1.7, which is well below the 2.5 target [indiscernible]. Next slide, please. The higher working capital versus [indiscernible] and Q3 last year was primarily driven by our strong organic growth and acquisitions of farms year-on-year, driven by seasonality, increased activity and acquisitions. Receivables are up [indiscernible] 8%, indicating continued disciplined collections. The decrease in other [indiscernible] comes mainly from VAT and other recruited expenses. Adjusted working capital landed at 5.4% of rolling 12-month sales, which is below the 6% target. As always, we have continued focus on inventory optimization and cash conversion. Next slide, please. We expect CapEx of about SEK 680 million during 2026 during the purchase of the former lease processing plant, Bala in Sweden during the second quarter, leaving approximately SEK 130 million for the fourth quarter. The main -- we expect working capital to increase during the fourth quarter, including the addition of Glenhaven Foods into the group's capital base following consolidation from October 9 as well as the ramp-up of Factory C. This will be partly offset by the release of [indiscernible] costs. The reported net debt is expected to be [indiscernible] within net debt. Following our refinancing earlier this year, we have an attractive interest rate on bank debt of approximately 4%, including the effect of our interest rates [indiscernible] approximately 20%. Next slide, please. And during the quarter, we finalized the 5-year sustainability-linked financing package with our 4 existing relationship banks. The total committed facilities increased from approximately [indiscernible]. The agreement also includes an option to increase the facilities up to another EUR 150 million, providing additional flexibility for organic and strategic growth. Commercial terms improved while the covenant structure remains prudent, leverage below 4 and ICR about 3.5, and the leverage covenant includes flexibility for a temporary increase in connection with acquisition and steps down to 3.0 from the fourth anniversary. The refinancing extends our maturity profile, strengthens liquidity and retains our ambitious sustainability linked framework. So overall business [indiscernible] and pursue future growth opportunities. Next slide, please, and back to you, Jonas.

[indiscernible] cornerstones and our license to operate. And you have seen this before, it is -- these 4 pillars about increasing the value of our protein [indiscernible] and with that, we mean that we want to take out the most value of the fantastic protein that we have, and we call it climbing the poultry ladder, and it is about having the right yield, the right customers and the right products on the market [indiscernible] to actually have efficiency throughout the whole value chain. And that actually starts with the parent stock, the feed, the birds, the farmers and also how we're able to process it as efficient as possible. And if we combine those 2 and doing good work there, we will -- it can sound very simple, but for us, these 4 cornerstones are super important in our daily work. [indiscernible] everything we do because we know that great sustainability and great efficiency are tightly linked together, and we do [indiscernible]. And on this slide, we are expecting strong growth over the coming years, and we have set the target to 5% to 7% of net sales growth and an EBIT margin of 6% and return [indiscernible] emissions of 42% and have an antibiotic use below 1%. And then our lost time injuries below 15 and employer satisfaction above 75. And these targets is something that we have [indiscernible] and as a reminder, on this slide, you can see that our structured effort is resulting in recognition in the form of improving ESG ratings. So we have an A in [indiscernible] rating. So these high scores reflects our standards and the sustainable nature of our business. So next slide, please. And on this slide, we once again want to show our EBIT per kilo and EBIT per kilo is good measurement of the value creation in our business. And there is a clear road map to reaching our 2027 goal of SEK 3 per kilo, and that is by climbing the value [indiscernible] consumer convenience. It is about utilizing our branding opportunity and it is about utilizing further potential in our ingredients business. And this, together with other pillar, we increased the efficiency in our value chain, and that is optimized sustainability metrics [indiscernible] and supply chain standardization and increased collaboration in the value chain because it is a value chain that is linked together. So if we move [indiscernible] ready-to-cook is climbing the value ladder, ready to eat [indiscernible] to reach our EBIT per kilo target of SEK 3 in 2027. So with that, I hand over to Q&A. Thank you very much.

[Operator Instructions]. Our first question today comes from Daniel Schmidt from Danske Bank.

A couple of questions from me. And given the volatility that we've seen in soft commodities and you mentioned it yourself, of course, when it comes to the feed prices the importance of that, but it also sort of adjusting prices related to feed. Could you give any example, any sort of that's much more part of your daily discussions with customers [indiscernible] it sounds like. Could you give any examples what you really sort of [indiscernible].

Yes. And there are different ways of working in different countries. But if we take where we have our own feed mill, it is about hedging the raw material into our feed plans. So we actually have the length of the hedge at the same length. So we will never speculate and have short hedging [indiscernible] and our own feed production, it's more about linking and have this discussion with the retailers and the farmers. So we link that discussion together. So -- we -- for example, we can look at the feed prices in September for the coming quarter and then the farmer can decide if he want to hedge or if he want to go on spot. And if we want to go on spot then he's ups and downs or she's her -- but we say the prices in September and then we agree that with the customer and put those prices in. So we neutralized the feed prices up and down. That is an example of how we work. I think that it's hard to predict and it's hard to do anything about in terms of efficiency. That's why we want to have this as transparent as possible.

[indiscernible] and the situation where you've been wanting to raise prices, but it's been a lead time until those have been [indiscernible].

[indiscernible] for transparent and easy to change or easy, but it's more transparent to the feed prices in ready to cook than it is in ready-to-eat. [indiscernible] one of the reasons why you see the margin recovery in ready to eat in this quarter. As I say, the 10,000 [indiscernible] question, it's hard to know where the feed prices go. But if you ask me to guess, we see so much uncertainty. So in the short term, we see that there will be feed price increases for the coming quarter and forward. But on the other hand, and that is due to Ukraine war that are not that much grain that comes out of Russia and Ukraine, laying in Ukraine and Russia. So if the war continues or not, no one knows. So that will have a huge impact of where the feed prices will go. Another thing is about what will the effect be of the upcoming effects of the El Nino. We don't see that much yet. On the other hand, there's the discussion about the fertilizer price that has increased [indiscernible] will the farmer use less fertilizer and that will have an effect of that, that the grains will yield less or will they change type of production from wheat to soy because you need less fertilizer on soy than you need of wheat. So then maybe soy price will go down and wheat will go up. But our most important focus is that when we see the [indiscernible] protein with the best conversion rate of feed. So for us, [indiscernible] our focus to not being squeezed.

And talking about affordability, you have [indiscernible] Q2 '25, if I read the slide correctly. Could you give some -- sort of shed some light on what you think about sort of affordability in '26 versus other proteins.

[indiscernible] that it has widened further when it comes to beef prices were seen beef prices gone through the roof. We've also seen high pork prices. Lately, though, we have seen pork prices [indiscernible] high beef prices, maybe a slightly decrease, but continues high. So we will update this one in [indiscernible].