HKFoods Q2'24 flash comment: Profitability did not improve as we expected

Translation: Original comment published in Finnish on 08/07/2024 at 9:34 am EEST

HKFoods reported its results for April-June 2024 this morning (Q2). Revenue was largely in line with our expectations and growth was influenced, e.g. by growth in reporting of external revenue in Poland and commercial successes in Finland. Profitability was weaker than expected due to tight cost levels and, e.g., weak demand for beef cuts. The company reiterated its guidance. We feel the overall picture of the report is slightly negative, as comparable profitability fell short of our forecasts.

Revenue grew in line with expectations

HKFoods' Q2 comparable revenue was 254.6 MEUR, up 9% year-on-year. Revenue exceeded our estimates by 1%. The company’s revenue consists of only one reporting unit, HKFoods in Finland. However, we estimate that part of the growth was caused by external growth of the bacon business in Poland, as the business was transferred from the Swedish unit to the Finnish unit in connection with the Swedish divestment. The impact of Poland is not reported, but we estimated in the preview that the growth impact will be just under 6 percentage points. HKFoods reports that it has strengthened its position in the Finnish market thanks to successful commercial measures. However, caution is still observed in consumer purchasing behavior, as demand for beef cuts was, for example, weaker than in the comparison period.

Profitability fell somewhat short of expectations

HKFoods' adjusted EBIT was 4.4 MEUR (1.7% of revenue) in Q2, which was slightly better than in the comparison period in absolute terms (4.2 MEUR, 1.8% of revenue). According to the company, profitability was affected by the still high level of costs, e.g., in external services and wages. Low demand for red meat cuts also had a negative impact on profitability. Reported EBIT was 3.1 MEUR and decreased from the comparison period (4.4 MEUR). Costs affecting comparability (total 1.3 MEUR) included termination costs of 0.7 MEUR and costs related to write-downs from assets of 0.6 MEUR. Net financial expenses were 4.9 MEUR and thus higher than our forecast (3.5 MEUR), which was affected by a 1.5 MEUR cost related to the redemption of an old convertible bond in June. Thus, the reported net result per share was EUR -0.03 (we predicted a zero result). Operating cash flow (including discontinued operations) was 13.1 MEUR.

Guidance unchanged

The company reiterated its guidance that 2024 comparable EBIT from continuing operations will improve compared to 2023 (2023: 11.6 MEUR). Since H1, the adjusted EBIT has improved by a total of 3.8 MEUR year-on-year, so the starting point for achieving the guidance is still good, even though Q2’s profitability fell short of our expectations. During the first half of the year, the company has completed efficiency-enhancing investments, the impact of which supports profitability in H2.