Scandi Standard Q3 2017 Presentation 22 November 2017
Highlights Q3 2017 Successful acquisition of Manor Farm (Ireland) - Market leader in Ireland representing ~¼ of group Net Sales and strong margins - Consolidated from 28 August 2017 6% growth in Net Sales (ex. Irland) - Largest contribution from Sweden and Denmark Gradually recovering margins - Adj. EBIT MSEK 74.4 (ex Ireland) - MSEK 94.5 on a proforma basis - Diminished bird flu effect (MSEK 9) - Finland still challenging MSEK Q3 2017 Q3 2016 Change Net sales 1,824.7 1,569.9 16.2% Adj. EBITDA 141.8 124.8 13.6% Adj. EBIT 84.4 76.1 10.9% Non comparable items -0.5-0.7-32.7% EBIT 83.9 75.4 11.2% Net income 46.5 49.6-6.2% EPS*, SEK 0.75 0.83-10.0% Op. cash flow* 114.4 15.1 659.3% NIBD -1,932.4-1,542.6 25.3% Adj. EBITDA % 7.8% 7.9% Adj. EBIT % 4.6% 4.8% Strong effect from cash flow measures 2
Sweden adversely impacted by bird flu and soft demand Price pressure affecting margins - Bird flu effects of MSEK 9 - Temporary reduced domestic demand - Campylobacter related Partly compensated by cost reduction Successful product innovations - Chicken steak and meatballs MSEK Q3 2017 Q3 2016 Change LTM 2016 Change Net sales 657.8 625.4 5% 2,525.2 2,391.9 6% Adj EBIT 41.0 51.0-20% 137.9 174-21% Non comp. items -14.6 0.0-14.6-1.1 EBIT 26.5 51.1-48% 123.4 172.9-29% Adj. EBIT 6.2% 8.2% 5.5% 7.3% Expectation of weak Q4 2017 - Seasonally weak quarter - Bird flu effects of MSEK 2-4 per month in Q4 - Continued price pressure Plans for capacity expansion put on hold Market conditions expected to gradually improve in the new year Note: Amortisation included on group level only 3
Denmark Good performance Encouraging development over the last quarters - Growth within higher margin segments - Improved export prices - Efficiency gains in production Succesfull launch of premium concept under the brand of Danish Family Farms MSEK Q3 2017 Q3 2016 Change LTM 2016 Change Net sales 653.7 636.7 3% 2,408.8 2,332.0 3% Adj EBIT 34.6 30.4 14% 99.6 94.5 5% Non comp. items - -0.7-11.2-11.9 EBIT 34.6 29.7 16% 88.4 82.6 7% Adj. EBIT 5.3% 4.8% 4.1% 4.1% Strong growth in sales of ready to eat products with further opportunities Majority of products remain subject to strong competition Note: Amortisation included on group level only 4
Norway Another strong quarter Improved margin - Investments in plant spacialisation deliver higher efficiency - Reduced SKU s withins food service - Strong product portfolio and sales mix Launch of ready to eat range at additional 800 stores MSEK Q3 2017 Q3 2016 Change LTM 2016 Change Net sales 360.4 360.7 0% 1,510.2 1,433.7 5% Adj EBIT 28.0 20.9 34% 119.8 94.9 26% Non comp. items - - - - EBIT 28.0 20.9 34% 119.8 94.9 26% Adj. EBIT 7.8% 5.8% 7.9% 6.6% Growth expected to be in line with market in coming periods Note: Amortisation included on group level only 5
Ireland Consolidated from 28 August 2017 9% growth in net sales - Driven by retail key clients EBIT margin of 6.3% Integration well underway Best practice initiatives initiated Ireland - Pro forma MSEK Q3 2017 Q3 2016 Change LTM 2016 Change Net sales 423.3 387.4 9% 1709.4 1,589.5 8% Adj EBIT 26.8 29.9-10% 112.0 112.6-1% Non comp. items - - - 19.2 19.2 EBIT 26.8 29.9-10% 92.8 93.4-1% Adj. EBIT 6.3% 7.7% 6.6% 7.1% - Processing - Live operation - Procurement Investment programme to be defined during 1H 2018 Note: Amortisation included on group level only 6
MSEK Adj. EBIT margin Ireland Historical pro-forma figures Step up in Net Sales from Q4 2016 - Expecting moderate growth profile going forward Average EBITA margin of 6% 460.0 440.0 Development in Net Sales and margin 9.0% 8.0% 7.0% - Fairly large variation across quarters 420.0 6.0% - Q4 seasonally weak due to Christmas 5.0% 400.0 4.0% 380.0 3.0% 2.0% 360.0 1.0% 340.0 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 0.0% Net Sales Adj. EBIT margin Average margin Note: Amortisation included on group level only 7
Ireland Manor Farm s comprehensive product portfolio 8
SEK Accretion Ireland Impact on EPS Manor Farm transaction highly accretive on EPS - Based on pro-forma figures Average 46% first three quarters 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 EPS Accretion (Incl. amoritsation) 45% 40% 35% 30% 25% 20% 15% 0.20 10% 0.10 5% 0.00 Q1'17 Q2'17 Q3'17 0% EPS SCST Stand Alone EPS Proforma Accretion/(Dilution) % Note: EPS calculations amended 8 January 2018 9
Finland 25% reduction in employees during the quarter Quarterly result below managment expectations One-offs of MSEK 2 Major changes carried out during the quarter - Strong focus on measures to reach break even as soon as possible MSEK Q3 2017 Q3 2016 Change LTM 2016 Change Net sales 80.3 47.2 70% 308.4 172.7 79% Adj EBIT -12.7-11.1 14% -55.3-52.4-6% Non comp. items - - - - EBIT -12.7-11.1 14% -55.3-52.4-6% Adj. EBIT -15.8% -23.5% -17.9% -30.3% Improvements observed towards the end of the quarter and into Q4 - However, negative profits to remain during the next quarters Note: Amortisation included on group level only 10
Income statement Depreciation increasing following high investments in 2016 Higher amortisation mainly due to Manor Farm acquisition Finance costs increasing primarily due to currency Group Q3 2017 Q3 2016 LTM 2016 Net sales 1,824.7 1,569.9 6,547.9 5,967.4 Adj. EBITDA 141.8 124.8 466.9 451.6 Depreciation -49.9-44.8-195.2-180.9 Amortisation -7.5-4.7-24.8-20.4 Income from associates 0.0 0.8-0.3 1.3 Adj. EBIT 84.4 76.1 246.6 251.6 Non comparable items -0.5-0.7-21.1-13.4 EBIT 83.9 75.4 225.5 238.2 Finance costs (net) -25.9-12.0-75.6-71.3 Taxes -11.4-13.8-39.5-35.5 Income for the period 46.5 49.6 110.4 131.4 11
Cash flow Strong operating cash-flow Working capital release Conservative capex - 92% of depreciation Increased paid interest MSEK 274.1m effect of Manor Farm acquisition MSEK Q3 2017 Q3 2016 LTM 2016 Opening balance NIBD -1,618.8-1,486.6-1,542.6-1,313.0 EBITDA 141.2 124.1 445.8 438.2 Change in working capital 19.1-50.8-86.7-60.1 Capital expenditure -45.9-58.2-216.0-265.4 Operating cashflow 114.4 15.1 143.1 112.7 Paid interest -16.2-10.7-65.1-59.3 Paid income tax -4.6-1.9-21.9-25.1 Dividend 0.0 0.0-80.2-107.3 Acquisition -274.1-8.8-274.1-30.2 Other -133.1-49.6-91.6-93.2 Closing balance NIBD -1,932.4-1,542.6-1,932.4-1,515.4 Other mainly relate to Manor Farm net debt 12
Working capital and equity Inventories remain high - Particularly in Sweden Excluding Manor Farm, NWC has increased by 55 MSEK compared to Q3 last year Excluding Manor Farm, NWC was 6.5% of sales - Reduction of 0.7% compared to Q2 2017 MSEK 30 september 2017 30 september 2016 Inventory 733.6 547.1 Receivables 1,069.9 587.1 Payables -1,223.7-772.8 NWC 579.8 361.4 as % of sales 7.2% 6.2% Equity 1,352.0 970.0 Equity/assets ratio 26.3% 28.0% 13
Q3 2017 Summary Results impacted by issues of temporary nature - Challenges will remain in Sweden and Finland in Q4 - Q4 seasonally weak quarter due to Christmas season Strong operating performance in Norway and Ireland Encouraging development and value added opportunities in Denmark Focus on capturing best practice opportunities in Ireland Cash flow measures expected to continue to yield results in Q4 Positive outlook for 2018 14
Appendix I Bird flu, segments, pro-foma figures and noncomparable items 15
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 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 Sales growth 1% 3% -4% -3% 3% 3% 10% 6% 12% 12.0% 10% 15% 8% 16% 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 EBIT margin 5.9% 4.9% 6.4% 5.2% 5.7% 5.1% 5.0% 4.9% 4.9% 4.8% 2.2% 4.8% 4.3% 4.6% 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 Sales growth 17% 15% 3% 6% 8% 5% 17% 6% 11% 9.0% 2% 5% 3% 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 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% 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 Sales growth 1% 9% 8% 7% 9% 1% -3% -6% 5% 8% 2% 6% 5% 3% 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 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% Norway (MSEK) Sales 307.0 309.3 278.8 275.7 280.4 200.5 321.8 331.9 353.0 360.7 388.4 388.1 373.6 360.4 Sales growth -22% -18% -28% -26% -9% -3% 15% 20% 26% 20.0% 21% 17% 6% 0% 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 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% Finland (MSEK) Sales - - - - - 19.6 15.9 20.7 34.0 47.2 70.8 69.8 87.4 80.3 Sales growth - - - - - - - - - 141% 345.0% 237% 157% 70% EBIT (Adj) - - - - - -8.9-11.7-9.2-11.7-11.1-20.4-12.5-9.7-12.7 EBIT margin - - - - - -45.4% -73.6% -44.4% -34.4% -23.5% -28.8% -17.9% -11.2% -15,8% Ireland (MSEK) Sales - - - - - - - - - - - - - 165.8 Sales growth - - - - - - - - - - - - - - EBIT (Adj) - - - - - - - - - - - - - 12.1 EBIT margin - - - - - - - - - - - - - 7.3% 16
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 (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 Adj. EBITDA 115.1 123.4 124.8 88.5 112.8 123.9 127.3 Depreciation -42.3-44.7-43.9-49.0-48.1-48.6-47.6 EBITA 72.8 78.7 80.9 39.5 64.7 75.3 79.7 Amortisation -4.5-4.4-4.8-6.6-5.4-5.3-5.3 Adj. EBIT 68.3 74.3 76.1 32.9 59.3 70.0 74.4 Non-recurring items -1.1 0.0-0.7-11.6-1.2-7.8-0.5 EBIT 67.2 74.3 75.4 21.3 58.1 62.2 73.9 Net financial items -13.2-24.5-12.0-21.6-19.0-9.1-25.9 EBT 54.0 49.8 63.4-0.3 39.1 53.1 48.0 Tax -11.6-11.1-13.8 1.0-9.2-19.9-11.4 Net income 42.4 38.7 49.6 0.7 29.9 33.2 36.6 Number of shares 60.1 60.1 60.1 60.1 60.1 60.1 60.1 EPS 0.71 0.64 0.83 0.01 0.50 0.55 0.61 EPS excl. Amortisation (1) 0.78 0.72 0.91 0.12 0.59 0.64 0.70 EBITDA margin 8.3% 8.2% 7.9% 5.9% 7.1% 7.6% 7.7% Adj. EBIT margin 4.9% 4.9% 4.8% 2.2% 3.7% 4.3% 4.5% 17
Pro-forma figures by quarter (Ireland only) Ireland (MSEK) Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Net Sales 372.7 391.9 387.4 424.6 422.5 426.1 423.3 Adj. EBITDA 26.9 33.1 35.6 22.3 29.0 34.4 33.0 Depreciation -5.3-6.7-5.7-6.7-6.4-6.5-6.2 EBITA 21.6 26.4 29.9 15.6 22.6 27.9 26.8 Amortisation -6.7-6.8-6.6-6.7-6.7-6.8-6.7 Adj. EBIT 14.9 19.6 23.3 8.9 15.9 21.1 20.1 Non-recurring items 18.6 EBIT 14.9 19.6 23.3 27.5 15.9 21.1 20.1 Net financial items -0.7-0.7-0.6-0.4-0.6-0.6-0.1 EBT 14.2 18.9 22.7 27.1 15.3 20.5 20.0 Tax -2.2-2.8-3.1-3.9-2.9-3.7 0.1 Net income 12.0 16.1 19.6 23.2 12.4 16.8 20.1 Number of shares 66.1 66.1 66.1 66.1 66.1 66.1 66.1 EPS 0.18 0.24 0.30 0.35 0.19 0.25 0.30 EPS excl. Amortisation (1) 0.28 0.35 0.40 0.45 0.29 0.36 0.41 EBITDA margin 7.2% 8.4% 9.2% 5.3% 6.9% 8.1% 7.8% Adj. EBIT margin 4.0% 5.0% 6.0% 2.1% 3.8% 5.0% 4.7% 18
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 Net Sales 1,759.0 1,895.4 1,957.3 1,932.2 2,016.3 2,047.9 2,082.2 Adj. EBITDA 142.0 156.5 160.4 110.8 141.8 158.3 160.3 Depreciation -47.6-51.4-49.6-55.7-54.5-55.1-53.8 EBITA 94.4 105.1 110.8 55.1 87.3 103.2 106.5 Amortisation -11.2-11.2-11.4-13.3-12.1-12.1-12.0 Adj. EBIT 83.2 93.9 99.4 41.8 75.2 91.1 94.5 Non-recurring items -1.1-0.7 7.0-1.2-7.8-0.5 EBIT 82.1 93.9 98.7 48.8 74.0 83.3 94.0 Net financial items -13.9-25.2-12.6-22.0-19.6-9.7-26.0 EBT 68.2 68.7 86.1 26.8 54.4 73.6 68.0 Tax -13.8-13.9-16.9-2.9-12.1-23.6-11.3 Net income 54.4 54.8 69.2 23.9 42.3 50.0 56.7 Number of shares 66.1 66.1 66.1 66.1 66.1 66.1 66.1 EPS 0.82 0.83 1.05 0.36 0.64 0.76 0.86 EPS excl. Amortisation (1) 0.99 1.00 1.22 0.56 0.82 0.94 1.04 EBITDA margin 8.1% 8.3% 8.2% 5.7% 7.0% 7.7% 7.7% Adj. EBIT margin 4.7% 5.0% 5.1% 2.2% 3.7% 4.5% 4.5% Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 EPS SCST Stand Alone 0.71 0.64 0.83 0.01 0.50 0.55 0.61 EPS Proforma 0.82 0.83 1.05 0.36 0.64 0.76 0.86 Accretion/(Dilution) % 16.6% 28.8% 26.8% 3008.1% 28.6% 37.0% 40.8% Notes: (1) Excluding tax effect (2) Figures amended 8 January 2018 19
Continued impact from Birdflu Reduced impact from bird flu - SEK 9m in the quarter - SEK 40m in Q4 2016, SEK 18m in Q1 2017 and SEK 13m in Q2 2017 Expecting EBIT effect of SEK 2-4m per month in Q4 2017 - 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 20
Non-comparable items Non-comparable items in EBITDA and operating income Q3 2017 Q3 2016 LTM 2016 Staff reduction costs 1) - - -4.5-4.5 Write down of inventories 2) - - -6.7-6.7 Transaction costs 3) -15.5-0.7-24.9-2.2 Revaluation of contingent consideration 4) 29.6-29.6 - Cancellation of leasing contr. 5) -14.6 - -14.6 - Totalt -0.5-0.7-21.1-13.4 1) Staff reduction costs in Denmark in the fourth quarter 2016. 2) Write down of inventory in Denmark in the fourth quarter 2016 due to the bird flu. 3) Deal fees related to the acquisition of Manor Farm. 4) Revaluation of contingent consideration in connection with the acquisition of the remaining 20% of the shares in Sødams Øko Fjerkræslagteri ApS in Denmark. 5) Costs for cancellation of a leasing contract and project costs. 21
Appendix II Acquisition of Manor Farm 22
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 23
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 24
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 25
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 26
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 27
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 28
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. 29
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 30
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. 31