CEO’s review Q3/2021

CEO’s review Q3/2021

CEO Esa Mäki, July–September 2021:

“Apetit Group’s net sales in the third quarter declined while profitability improved slightly year-on-year. In Oilseed Products, the exceptional and rapid increase in raw material prices has reduced the refining margin since the summer. In the Grain Trade segment, net sales declined substantially due to lower volumes caused by the poor harvest, with profitability being slightly lower than in the comparison period. In Food Solutions, profit performance has remained strong.

Retail demand in the Food Solutions segment was at a good level. The Food Service channel has also continued its recovery from the low level seen during the pandemic. The Baltic Sea fish stick, launched in Finnish schools and kindergartens on Baltic Sea Day, significantly increased the channel’s sales as a single product. In addition, exports to Sweden, in particular, have continued to grow. Increased prices in logistics, energy and packaging materials are creating pressure for increases in sales prices. 

Preparatory work, such as planning and orders of equipment and components for the pizza production line in Pudasjärvi, has progressed on schedule. The investment covers the modernisation of the entire production equipment in the existing building. At the same time, we are moving forward with product development to renew our range of products: our aim is to provide consumers in Finland with even more delicious frozen pizza made using domestic ingredients to the greatest possible extent. The redesigned range of pizzas will be launched next year.

Enhancing the efficiency of production is a key aspect of our operations and the improvement of profitability. In Säkylä, we have invested in the processing of raw materials by upgrading the equipment used to wash vegetables. The new brush scrubbers significantly reduce water consumption. The investment is also significant from the perspective of raw material efficiency: the improved washing means that more of the vegetables are left to be processed for production.

We are upgrading how peas are received at the start of the production line by investing in cleaning and processing equipment to increase capacity. Peas need to go from field to freezer within two hours, which naturally limits the cultivation area to the surroundings of the production facility, but the process is also directly dependent on the capacity of the production function to process peas quickly. Peas are Apetit’s most significant export product, with Italy and Sweden being the key markets. The investment supports our potential to increase pea exports in the future.

The retail sales of our food products in Sweden have developed in line with our expectations. This autumn, we are launching on the Swedish market wok vegetables and a new vegetable mix. In addition to ICA, we have gained a foothold in other retail chains in Sweden this year. The value of food exports grew, amounting to EUR 4.4 (3.9) million in January–September in spite of pea exports being significantly lower than last year.

The indications are that the overall harvest of field vegetables will be moderate. The harvest of early vegetables, such as peas and spinach, suffered from the hot and dry summer.

In Oilseed Products, raw material prices have increased with exceptional speed – approximately 70 per cent in one year. The rate of price increases has been the highest since the summer. The profitability of Oilseed Products is decreased not only by the high raw material costs but also increasing freight costs. Raw material and freight costs are not expected to decrease in the near future, which weakens the outlook of the Oilseed Products segment for the remainder of the year.

The start-up of small-scale production of the rapeseed ingredient to test the equipment at a subcontractor’s premises began in September. The start of small-scale production makes higher volumes possible and also allows our customers to test the ingredient in their products. In addition to making deliveries to customers, we will continue our own testing of end uses for the ingredient and the potential expansion of the product family. The ingredient will also be used in Apetit’s vegetable balls to be launched for the professional kitchen segment at the beginning of 2022. At the same time, we are planning the start of production on the commercial scale.

According to our most recent harvest estimates, the rapeseed harvest will grow by just over a third. For autumn rapeseed, the area under cultivation increased compared to the previous harvest season, which can be considered good news: autumn oilseed plants yield higher harvests than spring oilseed plants and they are more resilient to pests. We are also pleased to have achieved our goal of increasing the number of contract growers and the area under contract cultivation.

For grains, the harvest in Finland will be weak and the harvest in the Baltic countries will also be substantially smaller than last year. There are even clear shortages of certain grains. Grain prices have increased sharply both in Finland and the global market, especially since the late summer.

The exceptional arrangements related to the COVID-19 pandemic have been discontinued in Apetit Group in accordance with the national recommendations. 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.”

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CEO's review Q1/2021

Esa Mäki, CEO:   “Apetit Group’s first quarter was one of contrasts: the record-breaking profit performance of Food Solutions and Oilseed Products was very pleasing, but the result of the Grain Trade business was a big disappointment.   Throughout the first quarter, the sales growth of Food Solutions was the highest in the retail and export segments. The strong retail sales were supported by the increase in eating at home due to the COVID-19 pandemic as well as attractive new products and commercial successes. Our strategically important exports to Sweden have also seen strong growth in line with our targets: the year-on-year increase was 31 per cent. The Food Service channel continues to suffer from the restrictions related to COVID-19, such as the reduced scale of operations in school meal services and lunch restaurants. Our delivery reliability has been very high. Our employees have also largely remained healthy in spite of the prevailing COVID-19 situation.   The market situation in the Grain Trade business remained very challenging throughout the first quarter. The profitability of Grain Trade was reduced by unforeseen market changes in the international wheat trade. The export duties introduced by Russia, which gradually entered into force in February–March, increased the supply of wheat in particular in February, leading to a rapid decrease in prices. After the sharp increase in supply in the spring, international demand has declined and a substantial write-down was recognised on the value of Apetit’s wheat inventories in the first quarter. Finnish grain exports have also been lower than usual due to the small harvest. The situation in the Grain Trade is not expected to improve before the next harvest.  The total sales of rapeseed oil increased significantly. The strong growth of retail sales supports our strategy of increasing value added. The demand for rapeseed expeller has also been at a good level. The rising market prices of the products improved the refining margin in the first quarter. We are continuing our efforts related to the commercialisation of the rapeseed ingredient. The first customer deliveries for product application testing and test sales will begin in the late summer.  Apetit has continued the construction of the Kantvik bioenergy plant with a new contractor starting from the beginning of March. The updated estimate is that the bioenergy plant will be fully operational in summer 2021. The change in supplier and the delay to the original schedule will not have a material impact on the project’s total cost. When completed, the bioenergy plant will reduce the Group’s energy costs and significantly decrease carbon dioxide emissions.  Apetit has continued its purposeful efforts to increase the cultivation area and harvest size of oilseed plants in Finland. We have been active in signing cultivation agreements for the next autumn’s harvest and we are making good progress towards achieving the 50 per cent growth target set for increasing the domestic contract cultivation area for the upcoming cultivation season as a whole. The prices of oilseed plants are high, which has increased interest among farmers in the cultivation of oilseed plants.  In the field vegetables category, our target for contract growing is the previously established level of just over 30 million kilograms of domestic vegetables. In addition to the cultivation of the familiar varieties we are accustomed to, we are involved in a project to study the development of the cultivation of cauliflower and various legumes, such as chickpeas, to satisfy the needs of the food industry. Our utilisation rate of domestic ingredients is already very high. Developing the production of cauliflower and legumes will give us access to even more domestic plants. As nitrogen-fixing plants, legumes also have considerable potential in crop rotation.  Apetit published its updated corporate responsibility programme and related targets in March. One of our most significant and impactful targets is to achieve a 75 per cent reduction in carbon dioxide emissions by 2025. This will be accomplished by transitioning to renewable energy and improving our energy efficiency. Food-related consumption habits and choices play a significant role in promoting sustainable development and thereby reducing environmental impacts. As a food industry company, we have an excellent opportunity – and an obligation – to have an impact on the world. Our sustainability targets are comprehensively linked to the various stages of our value chain, from field to fork.  Apetit will continue the systematic execution of its strategy with the primary goal being the improvement of profitability.” 

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.”