CEO’s statement H1/2020

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.”

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CEO's review Q1/2022

Esa Mäki, CEO: “The significant increase in the prices of production inputs had a negative effect on the profit performance of continuing operations in the first quarter. The profitability of Food Solutions was reduced in particular by higher energy costs. The profitability of Oilseed Products was weighed down by the high costs of raw materials and logistics. Both businesses will continue to transfer the higher costs to sales prices. At the end of December, we announced that Apetit had signed an agreement to sell the Baltic operations of the Grain Trade business to Scandagra Group. The sale concerned the business operations of Avena’s companies in Estonia and Lithuania. The transactions for both companies were completed as planned in March. In connection with these divestments, we decided to close our Latvian company. The Latvian company primarily provided logistics support for wheat and oilseed plants sourced in Lithuania. In March, we announced the sale of the Finnish operations of the Grain Trade business to Berner Ltd. The transaction will be carried out as a business transfer including Avena’s Finnish grain trade business, as well as its grain stocks and port operations in Finland. The transaction is expected to be completed in the second quarter. The completion of the sale is subject to approval by the competition authority. Once completed, the divestment of the Grain Trade business will improve Apetit’s profitability and allow Apetit to focus on the growth and development of its processing businesses, namely the Food Solutions and Oilseed Products businesses. The operating environment and competitive landscape in the Grain Trade business has changed drastically during the past few years. The operating conditions have continuously become increasingly challenging for a company that operates purely as a grain seller. In the upcoming cultivation season, our target for contract growing is the previously established level of just over 30 million kilograms of domestic vegetables. In addition to contract farming, we will continue to implement a number of projects at our experimental farm to seek ways to improve soil fertility and water economy, for example, and to develop the cultivation of various legumes, such as chickpeas, to correspond to the needs of the industry. This will present us with the opportunity to further increase our degree of domestic origin and our self-sufficiency with regard to specialty plants. We will continue our efforts to increase the cultivation area and harvest size of oilseed plants in Finland. Due to the significant increase in the prices of oilseed plants, the profitability of cultivation is at an attractive level from the farmer’s perspective, and there is certain demand for oilseed plant raw material in the Finnish food industry. Highquality rapeseed oil is valued and in high demand in all sales channels: industry, professional kitchens and retail. The BlackGrain rapeseed ingredient, which is currently in small-scale production, responds to the need to increase the availability of plant-based proteins. Our development efforts are focused on moving the production to an industrial scale. Apetit’s corporate responsibility programme sets a target of reducing the CO2 emissions from Apetit’s own operations by 75 per cent by 2025. The most significant emission reductions are achieved from the bioenergy plant completed at the Kantvik vegetable oil milling plant, which became operational last year, and the new energy solution to be deployed in Säkylä. The energy solution at the Säkylä frozen foods plant will use heat-capturing technology and renewable energy to reduce the plant’s CO2 emissions by as much as 80 per cent. The new energy solution is scheduled to be deployed in the second quarter of 2023. To date, we have reduced the Group’s emissions by over 50 per cent compared to the baseline year specified in our corporate responsibility programme. Phasing out the use of fossil fuels and having a fixed price for electricity will also significantly reduce the Group’s energy costs in the next few years. In general, Apetit has successfully achieved its goal of ensuring the health and safety of employees and undisrupted operations throughout the food supply chain during the COVID-19 pandemic. However, sicknessrelated absences caused by the pandemic have significantly increased during the early part of the year. Apetit will continue to promote sustainable food supply chains in a profitable manner.”

CEO's review Q4/2021

Esa Mäki, CEO: “Apetit Group’s net sales in the fourth quarter were at the same level with the comparison period but profitability declined. Towards the end of the year, profitability was weakened especially by the rise in energy costs and the increase in the price of oilseed plant raw materials that had continued since the summer. At the annual level, our operating profit was lower than in the previous year due to the weak profitability of the Grain Trade business. The profitability of the Oilseed Products segment was burdened by the record-high raw material price and increased logistics costs. With regard to the refining margin, the situation will remain challenging early in the year. In Food Solutions, development has been, for the most part, very positive. The retail demand for food remained strong until the end of the year. Demand in the Food Service channel also continued to recover. In food exports, we strengthened our position especially in the Swedish retail sector with new customer relationships. Although the pea harvest fell significantly short of the target, which reduced export volumes towards the end of the year, the total annual value of exports increased by 5 per cent. Profitability improved in all sales channels. Our delivery reliability has also remained at an excellent level. In the Oilseed Products business, we continued our systematic work to commercialise the new rapeseed-based plant protein during the year. The small-scale production of the BlackGrain from Yellow Fields plant protein started in October 2021. The small-scale production enables customers to test BlackGrain in their own product development. At Apetit, BlackGrain was used for the first time in a commercial product in early 2022 as Apetit Vegetable Ball was launched for the HoReCa market.  The Kantvik bioenergy plant was commissioned towards the end of the year. The plant significantly reduces the Group’s CO2 emissions and energy costs. In the bioenergy plant, we can also make full use of production side streams, such as the straw that comes with seeds. The side streams account for about 10 per cent of the total fuel amount. The total value of the investment was approximately EUR 7 million. We have succeeded in improving production efficiency throughout the Kantvik vegetable oil milling plant: records were achieved both in rapeseed milling and in oil refining. Increasing the cultivation of domestic oilseed plants in line with our goal supports our efforts to improve the profitability of the Oilseed Products segment in the new harvest season. In December, Apetit Group’s subsidiary Avena Nordic Grain agreed on selling the Baltic operations of the Grain Trade business to Scandagra Group, which is a leading agriculture company in the Baltic countries. This business transaction is in line with our strategy and will make the Grain Trade business significantly healthier. The transaction is expected to be completed during the first quarter of the year. The changing COVID-19 situation has required us to act flexibly and competently in implementing various exceptional arrangements. Regardless of this all, we have successfully achieved our goal of ensuring the health and safety of our employees and ensuring undisrupted operations throughout the food supply chain. For this, I would like to thank our personnel warmly. In the corporate responsibility programme published in spring 2021, Apetit set targets for every stage of the value chain. An important goal is to reduce the climate impacts of our own operations. In this area, we have identified the impacts of energy consumption as essential. Significant investments in both Kantvik and Säkylä in the use of renewable energy and the development of energy and material efficiency reduce our climate impacts considerably. Put together, they will propel us towards our goal of reducing our own direct CO2 emissions by 75 per cent by 2025.”

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.”