Scandi Standard Q4 2017 Presentation 20 February 2018
Highlights Q4 2017 8% revenue growth ex. Manor Farm - 7% on a proforma basis MSEK 65 improvement in Adj. EBIT ex Manor Farm - Sweden still challenging but relieved by third party compensation - Strong performance in Denmark and Norway - Significant improvement in Finland Exceptionally strong Q4 for Manor Farm Strengthened balance sheet in the quarter - NIBD reduced by MSEK 47 Financial highlights MSEK Q4 2017 Q4 2016 Change Net sales 2,060.6 1,507.6 37% Adj. EBITDA 180.5 88.4 104% Adj. EBIT 115.5 32.9 251% Non comparable items -25.0-11.6 115% EBIT 90.5 21.3 325% Net income 58.3 0.7 EPS*, SEK 0.89 0.01 Op. cash flow* 99.1 29.0 241% NIBD 1,885.6 1,515.4 24% Adj. EBITDA % 8.8% 5.9% Adj. EBIT % 5.6% 2.2% SEK 1.80 per share dividend proposed to AGM - 33% increase from 2016 2
Sweden - Adversely impacted by bird flu and soft demand 5% growth in net sales In spite of current campylobacter levels being at historic low, negative effects of 2017 issue remain - Continued supply demand imbalance leading to price pressure in Q4 - Soft chilled market to remain for some time Improved adj. EBIT - Bird flu effects MSEK 6 (MSEK 14) - Third party compensation of MSEK 12 - Additional MSEK 15 accounted for at Group level - No further compensation expected MSEK Q4 2017 Q4 2016 Change 2017 2016 Change Net sales 615.3 583.9 5% 2,556.7 2,391.9 7% Adj EBIT 40.8 27.5 48% 151.3 174-13% Non comp. items -20.7 - -35.3-1.1 EBIT 20.1 27.5-27% 116.0 172.9-33% Adj. EBIT margin 6.6% 4.7% 5.9% 7.3% Bird flu effect to remain similar in Q1 2018 Non-comparable items mainly linked to shift from free range to organic production and plant adaption Valla Confident in normalisation during 2018 Note: Amortisation included on group level only 3
Denmark Good performance Stronger than normal growth and result - Exceptional orders from ready to eat client - High export prices Good momentum in premium concept under the brand of Danish Family Farms - Field sales team in place from January 2018 - Combined with increased marketing investments MSEK Q4 2017 Q4 2016 Change 2017 2016 Change Net sales 670.7 550.2 22% 2,529.3 2,332.0 8% Adj EBIT 34.6 13.6 154% 120.6 94.5 28% Non comp. items -4.0-11.2-4.0-11.9 EBIT 30.6 2.4 1174% 116.6 82.6 41% Adj. EBIT margin 5.2% 2.4% 4.8% 4.1% Strong growth in sales of ready to eat products with further opportunities - Investment project to expand capacity Majority of products remain subject to strong competition Weaker export prices in Q1 2018 Note: Amortisation included on group level only 4
Norway Another strong quarter 2% net sales decline in local currency - Increase in retail sales - Rationalised food service product offering Continued strong performance - Strong and innovative product portfolio - Improved production efficiency MSEK Q4 2017 Q4 2016 Change 2017 2016 Change Net sales 360.9 388.1-7% 1,483.0 1,433.7 3% Adj EBIT 30.1 27.8 8% 122.0 94.9 29% Non comp. items - - - - EBIT 30.1 27.8 8% 122.0 94.9 29% Adj. EBIT margin 8.3% 7.2% 8.2% 6.6% Growth expected to be in line with market in coming periods New listing of ready to eat products Note: Amortisation included on group level only 5
Ireland Exceptionally strong fourth quarter Stronger than normal result - Exceptionally strong margin in Christmas season Best practice initiatives initiated - Live operation - Procurement Investment programme to be defined during 1H 2018 MSEK Q4 2017 Q4 2016 Change 2017 2016 Change Net sales 430.5 424.6 1% 1702.4 1,576.6 8% Adj EBIT 24.2 15.6 55% 101.5 93.5 9% Non comp. items - 18.6 - - 18.6 EBIT 24.2 34.2-29% 101.5 112.1-9% Adj. EBIT margin 5.6% 3.7% 6.0% 5.9% Expecting moderate growth profile going forward Note: Amortisation included on group level only, pro-forma figures for 2016 6
Finland Material improvement 29% growth in net sales Adj. EBIT improved by MSEK 12.3 from Q4 2016 and MSEK 4.6 from Q3 2017 - Staff reduction - Better efficiency and yields - Improved product mix Approaching cash flow break even - High depreciation/sales ratio due to low utilisation rate - Low investments required at current level of utilisation MSEK Q4 2017 Q4 2016 Change 2017 2016 Change Net sales 91.0 70.8 29% 328.5 172.7 90% Adj EBIT -8.1-20.4 60% -43.0-52.4 18% Non comp. items - - - - - EBIT -8.1-20.4 60% -43.0-52.4 18% Adj. EBIT margin -8.9% -28.8% -13.1% -30.3% Strong focus on moving towards EBIT break even Note: Amortisation included on group level only 7
Income statement Strong growth in 2017-9% both exclusive Manor Farm and on proforma basis 20% improvement in adj. EBIT ex. Manor Farm in 2017-18% improvement on pro-forma basis Depreciation increasing following high investments in 2016 Higher amortisation mainly due to Manor Farm acquisition Non-comparable items - MSEK 19.2 Shift from free range to organic production and plant adaption Valla - MSEK 1.5 Org. restructuring Sweden - MSEK 4.0 Fire related costs Denmark MSEK Group Q4 2017 Q4 2016 2017 2016 Net sales 2,060.6 1,507.6 7,100.9 5,967.4 Adj. EBITDA 180.5 88.4 559.0 451.6 Depreciation -55.4-48.6-202.2-180.9 Amortisation -12.1-6.6-30.3-20.4 Income from associates 2.5-0.3 2.5 1.3 Adj. EBIT 115.5 32.9 329.1 251.6 Non comparable items -25.0-11.6-34.4-13.4 EBIT 90.5 21.3 294.7 238.2 Finance costs (net) -17.0-21.6-71.1-71.3 Taxes -15.2 1.0-55.7-35.5 Income for the period 58.2 0.7 167.9 131.4 8
Cash flow Strong operating cash-flow Working capital increase Capital expenditure below depreciation MSEK Q4 2017 Q4 2016 2017 2016 Opening balance NIBD -1,932.4-1,542.6-1,515.4-1,313.0 EBITDA 180.6 76.8 559.0 438.2 Change in working capital -31.8 19.1-147.1-60.1 Capital expenditure -49.7-66.9-198.8-265.4 Operating cashflow 99.1 29.0 213.1 112.7 Paid interest -12.6-18.7-59.0-59.3 Paid income tax 13.0-5.8-3.1-25.1 Dividend 0.0 0.0-80.2-107.3 Acquisition 0.0 0.0-274.1 0.0 Other -52.7 22.7-167.0-93.2 Closing balance NIBD -1,885.6-1,515.4-1,885.6-1,515.4 9
Working capital and equity Working capital remains higher than normal - Particularly in Sweden Increased working capital in Manor Farm Excluding Manor Farm, NWC remained flat compared to Q3 2017 - NWC/Sales 7.5% (6.7% excluding Ireland) MSEK 31 december 2017 31 december 2016 Inventory 720.5 603.2 Receivables 1,163.7 560.0 Payables -1,268.0-811.0 NWC 616.2 352.2 as % of sales 7.5% 5.9% Equity 1,454.6 972 Equity/assets ratio 28.2% 27.8% 10
Summary Strong improvement in 2017-9% Net Sales growth and 18% growth in adj. EBIT (pro-forma) Strong earning improvement in Q4 - Third party compensation for underlying challenges in Sweden - Profitable one-off order in ready to eat plant in Denmark combined with strong export prices - Continued strong performance in Norway and exceptionally strong Christmas sales mix in Ireland - Encouraging development in Finland approaching cash flow break even Market conditions to remain challenging in Sweden no further third party compensation expected Reduced export prices and investments to support premium range in Denmark Strong development in ready to eat segment - MSEK 150m in expansion of Danish ready to eat facility (Farre) Total investment plan of SEK 350 million in 2018 targeting working capital reduction SEK 1.80 per share dividend proposed (33% increase compared to last year) 11
Appendix I Bird flu, segments, pro-foma figures and noncomparable items 12
Continued impact from Birdflu Reduced impact from bird flu - MSEK 6 in the quarter - Q4 2016: MSEK 40m, Q1 2017: MSEK 18m, Q2 2017 MSEK 13m, Q3 2017: MSEK 9 Expecting EBIT effect of SEK 1-3m per month in Q1 2018 - Diminishing effects thereafter Background - Detected in Sweden, Denmark and Finland from Nov. 2016 - Corresponding detections in large parts of Europe - 10 years since last outbreak - No direct impact on Scandi Standard s extended value chain - Important export markets mechanically ban import - Scandi Standard dependent on these markets for feet and surplus legs/wings - Set-back in Sweden due to new detection during Q2 - Trade restriction hence expected to remain for some time 13
Segment information by quarter Group (MSEK) Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Sales 1,302.9 1,358.9 1,252.0 1,309.6 1,341.3 1,396.1 1,376.0 1,386.3 1,503.5 1,569.9 1,507.6 1,593.8 1,621.7 1,824.7 2,060.6 Sales growth 1% 3% -4% -3% 3% 3% 10% 6% 12% 12.0% 10% 15% 8% 16% 37% EBIT (Adj) 76.3 66.5 79.6 67.6 77.0 71.7 68.1 68.3 74.3 76.1 32.9 59.3 70.0 84.3 115.5 EBIT margin 5.9% 4.9% 6.4% 5.2% 5.7% 5.1% 5.0% 4.9% 4.9% 4.8% 2.2% 2.2% 4.3% 4.6% 5.6% Sweden (MSEK) Sales 524.9 543.8 488.0 530.9 564.4 572.5 571.5 563.9 618.6 625.4 583.9 647.5 636.1 657.8 615.3 Sales growth 17% 15% 3% 6% 8% 5% 17% 6% 11% 9.0% 2% 5% 3% 5% 5% EBIT (Adj) 30.6 29.8 33.9 33.0 43.3 39.2 37.5 43.7 51.8 51.0 27.5 35.2 34.2 41.0 40.8 EBIT margin 5.8% 5.5% 6.9% 6.2% 7.7% 6.9% 6.6% 7.7% 8.4% 8.2% 4.7% 5.4% 5.4% 6.2% 6.6% Denmark (MSEK) Sales 523.0 584.9 554.3 584.8 570.5 589.1 539.2 548.8 596.3 636.7 550.2 579.7 625.1 653.7 670.7 Sales growth 1% 9% 8% 7% 9% 1% -3% -6% 5% 8% 2% 6% 5% 3% 22% EBIT (Adj) 23.7 24.4 32.3 32.8 35.3 38.0 34.2 28.7 21.8 30.4 13.6 22.1 29.3 34.6 34.6 EBIT margin 4.5% 4.2% 5.8% 5.6% 6.2% 6.5% 6.3% 5.2% 3.7 4.8% 2.5% 3.7% 4.7% 5.3% 5.2% Norway (MSEK) Sales 307.0 309.3 278.8 275.7 280.4 200.5 321.8 331.9 353.0 360.7 388.1 388.1 373.6 360.4 360.9 Sales growth -22% -18% -28% -26% -9% -3% 15% 20% 26% 20.0% 21% 17% 6% 0% -7% EBIT (Adj) 28.1 24.3 25.0 13.2 9.6 16.0 21.6 20.1 26.1 20.9% 27.8 31.0 31.9 28.0 30.1 EBIT margin 9.2% 7.9% 9.0% 4.8% 3.4% 5.3% 6.7% 6.1% 7.0% 5.8% 7.2% 8.0% 8.8% 7.8% 8.3% Finland (MSEK) Sales - - - - - 19.6 15.9 20.7 34.0 47.2 70.8 69.8 87.4 80.3 91.0 Sales growth - - - - - - - - - 141% 345.0% 237% 157% 70% 29% EBIT (Adj) - - - - - -8.9-11.7-9.2-11.7-11.1-20.4-12.5-9.7-12.7-8.1 EBIT margin - - - - - -45.4% -73.6% -44.4% -34.4% -23.5% -28.8% -17.9% -11.2% -15,8% -8.9% Ireland (MSEK) Sales - - - - - - - - - - - - - 165.8 430.5 Sales growth - - - - - - - - - - - - - - - EBIT (Adj) - - - - - - - - - - - - - 12.1 24.2 EBIT margin - - - - - - - - - - - - - 7.3% 5.6% 14
Pro-forma figures by quarter (Scandi Standard excl. Ireland) Historic accounts (MSEK) Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 (excl IE) (excl IE) Net Sales 1,386.3 1,503.5 1,569.9 1,507.6 1,593.8 1,621.8 1,658.9 1,630.1 Adj. EBITDA 115.1 123.4 124.8 88.5 112.8 123.9 127.3 150.4 Depreciation -42.3-44.7-43.9-49.0-48.1-48.6-47.6-47.1 EBITA 72.8 78.7 80.9 39.5 64.7 75.3 79.7 103.4 Amortisation -4.5-4.4-4.8-6.6-5.4-5.3-5.3-5.3 Adj. EBIT 68.3 74.3 76.1 32.9 59.3 70.0 74.4 98.1 Non-recurring items -1.1 0.0-0.7-11.6-1.2-7.8-0.5-25.0 EBIT 67.2 74.3 75.4 21.3 58.1 62.2 73.9 73.1 Net financial items -13.2-24.5-12.0-21.6-19.0-9.1-25.9-16.6 EBT 54.0 49.8 63.4-0.3 39.1 53.1 48.0 56.5 Tax -11.6-11.1-13.8 1.0-9.2-19.9-11.4-11.2 Net income 42.4 38.7 49.6 0.7 29.9 33.2 36.6 45.3 Number of shares 59.6 59.6 59.6 59.4 59.4 59.4 59.4 59.2 EPS 0.71 0.65 0.83 0.01 0.50 0.56 0.62 0.76 EPS excl. Amortisation (1) 0.79 0.72 0.91 0.12 0.59 0.65 0.71 0.85 EBITDA margin 8.3% 8.2% 7.9% 5.9% 7.1% 7.6% 7.7% 9.2% Adj. EBIT margin 4.9% 4.9% 4.8% 2.2% 3.7% 4.3% 4.5% 6.0% 15
Pro-forma figures by quarter (Ireland only) Ireland (MSEK) Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Net Sales 372.7 391.9 387.4 424.6 422.5 426.1 423.3 430.5 Adj. EBITDA 26.9 33.1 35.6 22.3 29.0 34.4 33.0 30.1 Depreciation -5.3-6.7-5.7-6.7-6.4-6.5-6.2-5.9 EBITA 21.6 26.4 29.9 15.6 22.6 27.9 26.8 24.2 Amortisation -6.7-6.8-6.6-6.7-6.7-6.8-6.7-6.8 Adj. EBIT 14.9 19.6 23.3 8.9 15.9 21.1 20.1 17.4 Non-recurring items 18.6 EBIT 14.9 19.6 23.3 27.5 15.9 21.1 20.1 17.4 Net financial items -0.7-0.7-0.6-0.4-0.6-0.6-0.1-0.4 EBT 14.2 18.9 22.7 27.1 15.3 20.5 20.0 17.0 Tax -2.2-2.8-3.1-3.9-2.9-3.7 0.1-4.0 Net income 12.0 16.1 19.6 23.2 12.4 16.8 20.1 13.0 Number of shares 65.6 65.6 65.6 65.4 65.4 65.4 65.4 65.2 EPS 0.18 0.25 0.30 0.36 0.19 0.26 0.31 0.20 EPS excl. Amortisation (1) 0.29 0.35 0.40 0.46 0.29 0.36 0.41 0.30 EBITDA margin 7.2% 8.4% 9.2% 5.3% 6.9% 8.1% 7.8% 7.0% Adj. EBIT margin 4.0% 5.0% 6.0% 2.1% 3.8% 5.0% 4.7% 4.0% 16
Pro-forma figures by quarter (Scandi Standard incl. Ireland) Proforma (MSEK) Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Net Sales 1,759.0 1,895.4 1,957.3 1,932.2 2,016.3 2,047.9 2,082.2 2,060.6 Adj. EBITDA 142.0 156.5 160.4 110.8 141.8 158.3 160.3 180.5 Depreciation -47.6-51.4-49.6-55.7-54.5-55.1-53.8-53.0 EBITA 94.4 105.1 110.8 55.1 87.3 103.2 106.5 127.6 Amortisation -11.2-11.2-11.4-13.3-12.1-12.1-12.0-12.1 Adj. EBIT 83.2 93.9 99.4 41.8 75.2 91.1 94.5 115.5 Non-recurring items -1.1-0.7 7.0-1.2-7.8-0.5-25.0 EBIT 82.1 93.9 98.7 48.8 74.0 83.3 94.0 90.5 Net financial items -13.9-25.2-12.6-22.0-19.6-9.7-26.0-17.0 EBT 68.2 68.7 86.1 26.8 54.4 73.6 68.0 73.5 Tax -13.8-13.9-16.9-2.9-12.1-23.6-11.3-15.2 Net income 54.4 54.8 69.2 23.9 42.3 50.0 56.7 58.3 Number of shares 65.6 65.6 65.6 65.4 65.4 65.4 65.4 65.2 EPS 0.83 0.84 1.05 0.37 0.65 0.77 0.87 0.89 EPS excl. Amortisation (1) 1.00 1.01 1.23 0.57 0.83 0.95 1.05 1.08 EBITDA margin 8.1% 8.3% 8.2% 5.7% 7.0% 7.7% 7.7% 8.8% Adj. EBIT margin 4.7% 5.0% 5.1% 2.2% 3.7% 4.5% 4.5% 5.6% 17
Non-comparable items Non-comparable items in EBITDA and operating income Q4 2017 Q4 2016 2017 2016 Staff reduction costs 1) -1.5-4.5-1.5-4.5 Write down of inventories 2) - -6.7 - -6.7 Cancelation of production 3) -19.2 - -19.2 - Costs related to fire in Södam 4) -4.0 - -4.0 - Transcation costs 5) -0.4-0.4-24.9-2.2 Revaluation of contingent consideration 6) 0.1-29.8 - Cancelation of leasing contract 7) - - -14.6 - Total -25.0-11.6-34.4-13.4 1) Costs for staff reductions in Seden Q4 2017 and Denmark Q4 2016. 2) Write down of inventories in Denmark fourth quarter 2016. 3) Cancelation and change of production in Sweden. 4) Costs related to fire in Sødam, Denmark. 5) Costs related to acquisition of Manor Farm. 6) Revaluation of contingent consideration for acqusition of the last 20 percent of shares in danish company Sødams Øko Fjerkræslagteri ApS. 7) Cost for cancelation of leasing contract 18
Appendix II Acquisition of Manor Farm 19
Acquisition of Manor Farm Largest chicken processor in the Republic of Ireland - 2016 Net revenues of EUR 164 million, EBITDA of EUR 13 million (*) Enterprise value EUR 94m(**) with settlement in; - 6m Scandi Standard shares (9.99% of current share capital) (34%) - Earn out mechanism (27%) - Cash and settlement of outstanding interest bearing debt (39%) Completion of transaction 28 August 2017 - Approved by Scandi Standard EGM 15 August 2017 Financing of cash payment and transaction costs - Combination of available cash and existing bank facilities 20
Irish poultry market Dynamics very similar to those in the Nordic markets Well consolidated with three domestic players of scale Market share of about 50% Fresh chicken products sold through retail in Ireland. - Fresh segment is well developed Similarities to existing Nordic markets - Strong preference for domestic produce in the retail channel - Importers distribute mainly to food service, butchers and industrial segments - The consumer market in Ireland is similar to the Nordic markets in terms of size, population and GDP 21
About Manor Farm Sources and processes approximately - 50% of all fresh chicken sold in the Irish retail market - 25% of all chicken consumed in Ireland - Employs approximately 850 people Diversified customer base Processing plant in Shercock in County Cavan - ~130 farmers contracted as growers - ~43 farmers contracted as breeders Owns and operates a feed mill - Revenues of approximately EUR 80 million - Produces solely for its contracted growers - Feed revenues are eliminated from Manor Farm s net revenues 22
Strong management Very experienced management team with a strong track record Five members of the management team currently own 100% of Manor Farm Will continue to lead and develop the business in alignment with the rest of the Group Vincent Carton and Justin Carton currently hold 85% - Intend to remain as Scandi Standard shareholders over the longer term - Vincent Carton has agreed to join the Board of Directors of Scandi Standard if proposed by the Nomination Committee and elected by the General Meeting 23
Transaction rationale Profitable and well-run operations Clear leader in a market with strong preference for local produce Capable and experienced management team with a strong track record Tangible best practice opportunities identified Significant EPS accretion Attractive EV/EBITDA acquisition multiple Post transaction leverage ratio unchanged Risk diversification through new geographic presence 24
The transaction The deal values Manor Farm at EUR 94 million(*) (Enterprise Value) Settlement is agreed to consist of - The Consideration Shares, equivalent to 9.99% of the current share capital of Scandi Standard; - Four earn-out tranches which have a nominal aggregate base amount of EUR 25.4 million; - The balance, EUR 36.3 million, in the form of cash payments and settlement of outstanding interestbearing debt. Completion of the transaction is subject to customary conditions - Including approval of the Consideration Shares at an Extraordinary General Meeting of shareholders of Scandi Standard. The transaction was completed 28 August 2017 The vendors of Manor Farm have agreed to a 12-month lock-up on the Consideration Shares commencing from their first day of trading ** Based on closing price 26 June 2017 25
Earn-out mechanism The first earn-out tranche of EUR 0.4 million will be paid if 2017 EBITDA exceeds EUR 13 million The three later earn-out tranches - Nominal aggregate base amount of EUR 25 million - Subject to adjustment based on the actual EBITDA performance in each of the earn-out years 2018, 2019 and 2020 as compared to the 2016 EBITDA - For the calculation of each earn-out payment, a sliding EV/EBITDA multiple scale is applied, ranging from a minimum multiple of zero to a maximum multiple of 9 - The earn-out tranches will be paid upon availability of audited accounts for the relevant year, verifying EBITDA The agreement includes a provision whereby the vendors would be eligible for a minimum of the base earn-out amount at maturity of each of the remaining earn-out tranches if there is a change of control in Scandi Standard. 26
Accounting issues Transaction costs are estimated to a little over 2% of EV - Including 1% stamp duty Identified improvement potential is partly reliant on - Capital expenditures - Certain measures to align operations with industry best practice The phasing of such investments and measures will be resolved on a case by case basis within the general planning framework of the Scandi Standard Group, and be communicated and accounted for accordingly 27
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Disclaimer This presentation contains various forward-looking statements that reflect management s current views with respect to future events and financial and operational performance. The words believe, expect, anticipate, intend, may, plan, estimate, should, could, aim, target, might, or, in each case, their negative, or similar expressions identify certain of these forward-looking statements. Others can be identified from the context in which the statements are made. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the Company s control and may cause actual results or performance to differ materially from those expressed or implied from such forward-looking statements. These risks include but are not limited to the Company s ability to operate profitably, maintain its competitive position, to promote and improve its reputation and the awareness of the brands in its portfolio, to successfully operate its growth strategy and the impact of changes in pricing policies, political and regulatory developments in the markets in which the Company operates, and other risks. The information and opinions contained in this document are provided as at the date of this presentation and are subject to change without notice. No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein. Accordingly, none of the Company, or any of its principal shareholders or subsidiary undertakings or any of such person s officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document. 29