CEO's review

HKScan’s business landscape was challenging in 2016. The EU witnessed ongoing political and economic instability owing to unpredictable developments such as possible impacts of Brexit and the massive influx of asylum-seekers in Europe. After a long period of economic decline, consumer confidence slightly recovered and began to strengthen towards the end of the year. HKScan’s home markets will hopefully gain fresh traction from new export opportunities harnessed as a joint effort with the industry, decision-makers and other stakeholders in the food value chain.

Competition grew tougher in the retail as a growing number of international retailers have widened their operations to our markets. This, among other factors, has resulted in fierce price competition. Online commerce and other digital services are shaking up established rules of play in the retail segment, the HoReCa business, and the entire food value chain. Digitalization is challenging the actors in the chain to answer to consumer needs with faster real-time service and greater transparency. The digital revolution is steering the food industry to critical re-evaluate their operating models and efficiency.

Consumers continued to show interest in responsibly produced, healthy food, which strengthened the status of domestic meat. Vegetarianism, veganism and alternative protein sources were highly visible topics in the media and consumer forums. The media has also recently spotlighted the environmental impacts of meat production. Overall, the media, the food industry and consumers alike are showing a growing interest in food and cooking, with emerging food trends providing fresh inspiration for new ideas.

FARM-TO-FORK RESPONSIBILITY AS A COMPETITIVE ASSET

HKScan is responding to the challenges and opportunities of today’s business landscape by adopting a more consumer-driven approach, whilst continuing to uphold high standards of quality and corporate responsibility with a zero-compromise mindset. We are also making a dedicated effort to upgrade our efficiency and competitiveness.

We are working hard to stay one step ahead of the game in product development by anticipating new trends in consumer values, attitudes and lifestyles. We are also committed to more transparently sharing information about our products, nutrition and our production methods. We strive to provide customers and consumers with easy access to all the facts about our raw material sourcing by sharing information on the continual improvement efforts undertaken by our contract producers. We are committed to continuous improvement in line with our corporate values – Inspire, Lead, Care – and I am confident that our products will retain an established place on consumers’ plates as part of a healthy, well-balanced diet.

GOING GLOBAL WITH STRONG LOCAL ROOTS

Despite prevailing economic and political instability, we are confident about the various opportunities and market drivers in our current business environment that are adding positive momentum to our growth and development. Global meat consumption is rising steadily, particularly with emerging markets enjoying a high level of disposable income. Poultry products are in growing demand, as are convenience meals and semi-cooked products making daily life easier for consumers. Our key strengths on all our home markets are our leading, well-known brands and our pure, responsibly produced Nordic ingredients, which are gaining appreciation among consumers worldwide.

BUILDING PROFIT THROUGH INVESTMENT IN RAPIDLY GROWING PRODUCT CATEGORIES  

HKScan witnessed a year-on-year decline in net sales in 2016. Our performance on all market areas except Finland fell short of the previous year. The Group’s comparable EBIT likewise witnessed a decrease on the previous year. The challenges in performance correlate with common market trends and various other external factors. The overall market in Finland saw a steady decline during the first three quarters, coinciding with a contraction also on the Baltic market. We nevertheless maintained a good inventory balance on those markets. The Swedish and Danish markets witnessed overall growth, but our profit suffered due to the scarcity of beef in Sweden. The Danish team’s good performance on the domestic market was overshadowed by challenges in exports.

STRONG BALANCE SHEET

Despite our unsatisfactory result, we maintained our strong financial standing. HKScan’s balance sheet is among the strongest in the industry, which will enable us to continue investing resources into improving our competitiveness.

We are currently taking measures on numerous fronts to improve our profitability. First of all we plan to strengthen our market position in Sweden and improve our financial performance by focusing on consumer-driven exports. Meanwhile, we will also invest in rapidly growing product categories and new concepts. We are in the process of building a wholly new production facility specializing in poultry products in Rauma, Finland. Additionally, we are expanding our bacon plant in Swinoujscie, Poland. The investments will improve our product offering and quality, as well as our cost efficiency and streamline our production structure. We will continue to extract synergy gains through closer collaboration and productivity enhancements.

We have identified potential for expansion on our export markets and we plan to push our export business in a more demand-driven direction. We officially launched our Asian business in Hong Kong at the beginning of 2016.

STRATEGIC REVIEW TO BE INITIATED

HKScan will initiate a strategic review in spring 2017. The results of this work will be published later in the year. In future, HKScan will be a more unified, innovative and competitive food company. We are committed to responding to the expectations of consumers and customers with a tasty, responsibly produced offering of products, services and solutions that add joy, inspiration and convenience to everyday dining and special occasions.  

THANKS FOR YOUR COOPERATION – LET’S CONTINUE BUILDING OUR STRENGTHS TOGETHER

I would like to express my warmest thanks to our personnel, who have showed exemplary dedication through a year of many changes. You have worked hard to bring multiple projects to a successful outcome and have thus ensured the continuity of our business. I also owe a debt of gratitude to all the consumers, customers, partners, producers and shareholders who have worked by our side and supported our efforts in championing the cause of responsibly produced food.

Let us continue working together to foster our home markets’ strengths and to continue bringing joy from food to consumers’ tables and prosperity to all stakeholders in the meat value chain throughout the Nordic region and our export markets.

 

Jari Latvanen
President and CEO