HKFoods: More ambitious financial targets

Translation: Original published in Finnish on 8/27/2025 at 7:48 am EEST.

HKFoods announced a new updated strategy on Tuesday. The financial targets were updated to be slightly more ambitious than before, reflecting the company's successful structural change in recent years, including a profitability turnaround and balance sheet strengthening. Operationally, the strategy is based on a familiar continuum from previous years, emphasizing growth in poultry products and convenience foods such as ready meals and snacks.

Profitability target was raised

In its new strategy, HKFoods targets an operating profit margin of over 5%, compared to the previous target of over 4%. Raising the profitability target is logical in the sense that the company has succeeded in significantly improving its EBIT margin due to the structural change in recent years and the increase in the profitability level of Finnish operations. The EBIT margin was 2.8% in 2024 and is estimated to rise to 3.2-3.3% in our 2025-26 forecasts, whereas in 2020-23 the EBIT margin varied between 0.6-1.5%. Our forecasts do not include a significant improvement in profitability compared to the realized level of the last 12 months, as we estimate that the impact of the most significant production efficiency measures is already reflected in the realized figures. In addition, for example, the rising price of beef may weigh on the industry's profitability. On the other hand, the company's latest investments in convenience foods and cooked meat products enable growth in categories with stronger margins, in addition to which China's poultry exports support the overall margin level. The company also continues to streamline and optimize its operations with several small measures following the restructuring. If profitability were to rise to the company's target level of 5%, there would be strong upside potential in the earnings forecasts. Among competitors, Atria Finland's and Snellman's EBIT margins were 4.7% in 2024, which is quite close to HKFoods' new, higher target level. Of these competitors, Atria in particular has also invested more in its operations in recent years than HKFoods.

HKFoods kept its ROCE target unchanged (over 12%), which measures return on capital employed. The target setting may be affected by the fact that the 2024 ROCE baseline is still weak (0.9%) due to the impact of discontinued operations on the ratio. We expect the company's potential earnings growth to be capital-intensive, as is typical for the industry, which limits value creation. We estimate the company’s ROCE to be 8.6% for 2025.

Strengthened balance sheet reflected in targets

HKFoods also made changes to its balance sheet and dividend policy targets. The company previously aimed for a net gearing of less than 100%, while the new strategy tightens the target level to less than 80%. The company’s net gearing was 76% at the end of June 2025, and we estimate it will remain within the target range in the near future. However, in the medium term, the balance sheet must be strengthened with internal cash flow so that the company can redeem the hybrid bond (earliest in 2028) and maintain net gearing at the level of the new target. The company aims to pay out over 50% of net profit as dividends in the future, which is largely in line with the dividend policy of its listed competitor Atria. HKFoods already distributed funds to investors as a return of capital in spring 2025, even though the previous year's result was still negative. The simultaneous realization of a tightened net gearing target and a higher dividend distribution target is barely possible with our current profitability forecasts, but the situation would be eased if profitability continued on an upward trend in line with the company's target.

Operationally, the strategy follows familiar lines

The four focus areas of the strategy are growth in selected food moments, operational excellence, competent and healthy personnel, and a sustainable value chain. The company continues to operate in familiar categories, emphasizing growing products that enable high volume and offer high added value. Growth is thus focused on poultry products, meals and meal components, although other red meat and processed meat products will also remain a key part of the business. In our view, market trends influencing the strategy include the relatively stable demand for familiar meat products and, on the other hand, the increasing emphasis on convenience in consumer choices, which increasingly favors ready-made and more processed products.