CEO’s review H1/2021

CEO’s review H1/2021

Esa Mäki, CEO:

“Apetit Group’s net sales declined and profitability decreased year-on-year due to the continued weakening of the Grain Trade segment’s result. Oilseed Products continued its strong profit performance in the second quarter. The result of Food Solutions improved year-on-year but was slightly in the negative due to the seasonality of operations. On a positive note, the profit performance of Apetit’s processing businesses was good for the entire first half of the year.

In Food Solutions, retail demand remained strong in the second quarter, with sales being boosted particularly by the mixed vegetable products launched in the spring and targeted at the barbecue season. A clear recovery from the effects of the corona pandemic has also been seen in the Food service channel. It is particularly pleasing that profitability improved substantially in all sales channels.

In May, we announced we will invest approximately EUR 2 million in a new frozen pizza production line at our Pudasjärvi plant. The investment covers the modernisation of the entire production equipment in the existing building. The investment will bring about significant improvements to Apetit’s range of frozen pizzas, particularly with regard to taste and texture: we want to offer Finnish consumers even more delicious pizza made from ingredients with as high a degree of domestic sourcing as possible. The redesigned range of pizzas will be launched next year.

Retail sales in Sweden continued to grow in line with our targets throughout the first half of the year, and we have recently also seen a slight recovery in the Swedish professional food service segment. The value of food exports grew by a third and amounted to approximately EUR 2.5 million in January–June.

The demand for oilseed products remained strong in all product groups in the second quarter, with end product prices increasing substantially due to higher raw material costs. Towards the end of the review period, demand in the food service channel also returned to the pre-pandemic level. The excellent result was attributable to demand as well as the strong refining margin.

Our focus in the development of our rapeseed ingredient has been on the commercialisation of the product development project. We will begin test production of the ingredient at a subcontractor’s premises in August–September. The produced rapeseed ingredient will be delivered later in the year for production testing by customers as well as to be sold. In the initial stage, the end product use of the ingredient will be focused on plant protein products and gluten-free baked goods. Our aim is to start commercial scale production in 2022.

The Kantvik bioenergy plant was commissioned at the beginning of August. It significantly reduces the Group’s CO2 emissions and energy costs. Milling rapeseed to produce vegetable oil is the Group’s most energy-intensive production process.

The result of Grain Trade was negatively affected by the difficult market conditions in the international wheat trade and the unsuccessful response to unpredictable market changes. After a peak in supply caused by the export tariffs imposed by Russia, the international demand for wheat was very weak in March–April. Consequently, the large wheat reserves in the Baltic countries were delivered in their entirety to customers in May–June at a significant loss. In addition, Finnish grain exports in the first half of the year were lower than usual due to the previous year’s small harvest.

Exceptional arrangements related to the COVID-19 pandemic continue in Apetit Group. We are actively monitoring the situation and will react to any changes. Throughout the pandemic, we have successfully achieved our goal of ensuring the health and safety of our employees and ensuring undisrupted operations throughout the food supply chain.

The current cultivation season has been primarily characterised by hot and dry weather conditions. Autumn oilseed plants have nevertheless thrived. The total area under cultivation for domestic oilseed plants this year grew by nearly a third compared to last year and the harvest outlook is positive. Apetit’s systematic efforts to increase the cultivation area of oilseed plants and interest in oilseed plant cultivation are continuing: the contract farming of oilseed plants has nearly doubled from last year. The domestic grain harvest is expected to be weaker than average. In the Baltic countries, the harvest is expected to be fair, but substantially lower than the record harvest last year. The harvest of outdoor-grown vegetables, excluding peas, is expected to be moderate.

Corporate responsibility is an integral aspect of Apetit’s business throughout the value chain, from field to fork. As an example of this, we continuously develop our existing products as well as new products that respond to growing consumer demand for sustainable food choices. This autumn, we will strengthen our local fish strategy by expanding our product range with Baltic Sea fish fingers made from delicious herring caught in the Baltic Sea. Increasing the consumption of domestic fish has a significant impact on the health of Finland’s inland waters and the Baltic Sea: for example, the roach we used in 2020 saw us remove phosphorus from lakes in an amount that would otherwise have led to the growth of 60,000 bucketfuls of blue-green algae. Our sustainable food choices are meaningful.”

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CEO's review Q4/2020

Esa Mäki, CEO:  “We determinedly continued to improve our profitability in the last quarter of the year. Annual profitability improved by nearly EUR 9 million. Profitability improvement is mainly attributable to strong demand for the Apetit brand products in retail trade, improved efficiency in our own operations and commercial successes both in Finland and in export trade. In the grain trade, we have focused on developing our trading ability, in line with our strategy: we have largely succeeded with this goal, although towards the end of the year, the outlook of grain price development had a negative impact on profitability.  In the fourth quarter, the impacts of the COVID-19 pandemic could still be seen most strongly in the Food Service channel of the Food Solutions business, where net sales decreased year-on-year in spite of a partial recovery of sales during the second half of the year. The sales of frozen products grew year-on-year in other channels, especially in retail trade and exports. In Oilseed Products and Grain Trade, the impacts of the COVID-19 pandemic still remained minor.   One of Apetit’s strategic focus areas is to strengthen the Swedish market as the primary focus area of food exports. We have made progress towards our goal in the Swedish retail trade and in November, we signed an agreement on the Food Service product sales with a local partner in Sweden. The cooperation started at the beginning of February. We will systematically continue to increase exports in selected markets. In 2020, the value of food exports was EUR 5.3 million.   In December, the European Commission granted a novel food authorisation for Apetit’s rapeseed ingredient, the BlackGrain from Yellow Fields rapeseed powder. The novel food authorisation is the culmination of the BlackGrain product development work we have been doing for years. It also enables us to continue the development of new rapeseed-based ingredients. In addition, we promote to assess options related to the commercialisation of the ingredient.  The commissioning of the bioenergy plant under construction in conjunction with the Kantvik vegetable oil milling plant will be further delayed due to reasons related to an equipment supplier. We are currently assessing different options for completing the construction work. The bioenergy plant is already at an advanced stage of construction and we are aiming to commission it during summer 2021.  In order to ensure the availability of domestic rapeseed raw materials, we are continuing our determined work to increase oilseed plant cultivation area and harvest levels. In December 2020, the Finnish Safety and Chemicals Agency (Tukes) granted a special permission for the spring 2021 regarding a preparation used in treating oilseeds. The possibility of treating oilseeds will support the cultivation of domestic rapeseed, thereby increasing harvest levels from their current low point. In addition to being in good and stable demand, oilseed plants offer a profitable opportunity to increase versatility of crop rotation. The renewed oilseed plant campaign for 2021 started at the beginning of February: we offer contract growers new benefits and tools for oilseed plant cultivation.  The planning for the coming cultivation season is in full swing also for field vegetables. In the coming growing season, we will seek a record harvest in peas as its demand in the export markets continues to be strong. We are also constantly conducting research on new crops at our Räpi experimental farm and promoting the development of domestic vegetable-based proteins: an example of this is the broad bean, which we will again be growing at the experimental farm after an interim year. The harvest will be processed into products later in the autumn.  Apetit published its updated strategy in May. We have proceeded effectively in all strategic focus areas: Optimising core business functions, Strong foothold in Sweden, Growth from plant-based added value products, Developing farming partnerships and Sustainable actions. In light of the 2020 results, we are well on track to reach our financial objectives by the end of the strategy period.” 

CEO's statement Q3/2020

Esa Mäki, CEO: “Apetit Group’s positive profit performance continued in the third quarter: all of our businesses improved their profitability year-on-year. We can be satisfied with our profit performance to date. The remainder of the year involves uncertainties related to the COVID-19 pandemic, for example. We keep our profit guidance for 2020 unchanged: the full-year operating profit is expected to improve year-on-year and to show a profit. The impacts of the COVID-19 pandemic in the third quarter were mainly seen in the Food Service channel of the Food Solutions business, where net sales decreased year-on-year in spite of a partial recovery of sales. Sales grew year-on-year in the other channels of the Food Solutions business. In Oilseed Products and Grain Trade, the impacts of the COVID-19 pandemic were minor. In the challenging operating environment, it has been essential that our employees have stayed healthy and we have been able to maintain normal operations. I want to take this opportunity to express my warmest thanks to all of Apetit’s personnel. The harvest of outdoor-grown vegetables for this harvest season will be normal. The varying weather conditions in the early summer were challenging, with the cool spring, dry early summer and hot June having a negative impact on the growing season of peas in particular. The difficult growing season meant that we fell short of our target for peas by 1.3 million kilograms. Peas represent a significant share of Apetit’s food exports and, unlike in the previous year, pea exports fell entirely in the third quarter. One of Apetit’s strategic objectives is to strengthen food exports, particularly to Sweden. Our total food exports doubled year-on-year by the end of September. In the spring, eight products sold under the Apetit brand were added to the product selection of ICA, the largest retail chain in Sweden. Six new Apetit products were subsequently added to ICA’s selection this autumn. Continuing to strengthen our position in Sweden is a clear goal for us. In addition to retail, we are also seeking growth through the Food Service channel through local cooperation. Natural Resources Institute Finland estimates that the Finnish grain crop this year will be 3.4 million tonnes, which is about 15 per cent lower than last year. The relatively small grain crop will reduce Finland’s export surplus compared to the previous year. The oilseed harvest will be exceptionally low due to the declining area under cultivation and the low expectations of yield per hectare. However, the grain crop and oilseed harvest in the Baltic countries is excellent, which particularly compensates for the exceptionally weak oilseed harvest in Finland. At Apetit, we are continuing our systematic efforts to increase the willingness to cultivate oilseed plants in Finland to increase the area under cultivation and crop yields. The commissioning of the bioenergy plant under construction next to the Kantvik oil milling plant will be delayed to January–February 2021 due to reasons related to an equipment supplier. The bioenergy plant was originally scheduled to be commissioned at the end of 2020. When completed, the bioenergy plant will significantly reduce the energy costs of the Kantvik oil milling plant and the Group’s carbon dioxide emissions as a whole. Based on current information, the decision on the novel food marketing authorisation for Apetit’s rapeseed ingredient is expected before the end of the year. This autumn, we decided to invest in small-scale production equipment located on a subcontractor’s premises. Starting small-scale production will enable us to test the rapeseed ingredient more extensively with potential customers. Our work on developing new ingredients has progressed as planned. We are also continuing to assess alternatives related to the commercialisation of the rapeseed ingredient.     We are systematically executing our strategy with the aim of making Apetit a successful Finnish company focusing on plant-based food products.”

CEO's statement H1/2020

Esa Mäki, CEO: “We achieved a positive turnaround in profits as all of the Group’s businesses improved their profitability in the second quarter: the operating profit of continuing operations improved by EUR 4 million year-on-year. In the Grain Trade business, the previous profitable quarter was in 2017. The positive profit performance of the Group was driven primarily by commercial successes in the domestic market as well as exports, the flexible adjustment of production in exceptional circumstances, the recovery of trading ability in the grain trade and improvements in efficiency in everything we do. The impacts of the COVID-19 pandemic vary between the Group’s businesses. In Food Solutions, sales in the retail segment remained at a high level in the second quarter, even if the uptick in demand levelled off compared to the early days of the exceptional circumstances. Food service sales saw a partial recovery in the early summer but were significantly below the reference period. The sudden change in the sales mix caused additional costs in production. In the Oilseed Products business, the demand for vegetable oils grew particularly in the retail segment. In the Grain Trade business, the impacts of the pandemic have been minor, aside from market fluctuations being slightly larger than usual. The COVID-19 pandemic has required extra effort in every stage of the food supply chain, but Finnish food production has proved its resilience and functionality even under exceptional circumstances. This has led to a marked increase in the visibility and appreciation of domestic food. I want to take this opportunity to thank our stakeholders and Apetit’s personnel for their flexibility and ability to work under challenging circumstances. The cultivation season got off to a slow start as the cold springtime weather delayed sowing and the start of the growing season. In June, the hot and dry conditions posed challenges, particularly for pea cultivation. The earliest pea varieties suffered from the hot and dry weather and the size of the total pea harvest will fall short of the targets. In general, the harvest of outdoor-grown vegetables is expected to be moderate. The area under cultivation of oilseed plants was at a record low and the domestic oilseed harvest is expected to be the worst in decades. The total harvest of domestic grains is likely to be substantially weaker than in the previous year. In the Baltic countries, the harvest outlook is good for grains as well as oilseed plants. The European Food Safety Authority (EFSA) issued a verdict in late July in favour of granting a novel food authorisation for Apetit’s rapeseed ingredient. This is an important step in the long process that developing an entirely new food product entails. The final decision on the novel food authorisation is expected at the beginning of 2021 at the latest. In May, Apetit published its new strategy for 2020–2022. The five strategic focus areas are Optimising core business functions, Strong foothold in Sweden, Growth from plant-based added value products, Developing farming partnerships and Sustainable actions. In accordance with the strategic focus areas, Apetit focuses on improving its performance in all of its operations, strengthening its market position in Sweden particularly in the food segment, pursuing growth from new plant-based added value products, developing and expanding farmer partnerships in all of the company’s businesses and continuously improving the sustainability of operations through practical actions. The turnaround in profitability that we have achieved puts us in a good position to implement our new strategy and accomplish the targets set in it. In line with our vision, we aim to make Apetit a successful Finnish company focusing on plant-based food products.”