HKFoods Q4'24 flash comment: Strong operating result was expected

Translation: Original published in Finnish on 02/14/2025 at 09:24 am EET

HKFoods released its Q4 financial statements bulletin today. The strong comparable result was already known as the company released preliminary data in January. Net profit fell short of our expectations due to higher taxes and non-recurring items. The company plans to pay shareholders a capital return of at least EUR 0.09 per share. The guidance for 2025 is rising relative to 2024, which was quite expected, although our latest forecast assumes a fairly stable result. Net debt decreased clearly, but 10 MEUR less than we expected. Further information on the hybrid bond redemption schedule may be given in the earnings call.

Foodservice drove organic growth

HKFoods' revenue in Q4 was 267 MEUR, an increase of 7% year-on-year. Sales increased in all channels except industrial sales. According to the company, consumer demand was at the level of the comparison period but focused on cheaper products. Sales in the foodservice channel developed strongly and HKFoods has gained market share there. The growth fell short of our forecast (11%), but we do not interpret it as a failure on the company's part. We estimate that a significant portion (half or more) of the realized growth came through accounting changes in the Polish bacon business, so the reported growth is not fully organic.

Operating profit improved clearly, but net profit suffered from various factors

Following the preliminary data released in January, the adjusted EBIT (10.3 MEUR) was already largely known. Profitability improved clearly from one year ago, when the adjusted EBIT was 3.0 MEUR. EBIT falling 7% short of our estimate is not material in our view, but rather indicates that our depreciation forecast was too high. The reported Q4 EBIT (6.5 MEUR) was depressed by asset write-downs and one-off expenses related to the termination of employment. Higher-than-expected taxes also weighed on EPS. Interest-bearing net debt at the end of the year was 150 MEUR (we expected 141 MEUR), meaning free cash flow was slightly weaker than our forecast. Net gearing decreased significantly (2024: 70%, 2023: 121%). Net debt relative to the EBITDA of continuing operations in 2024 was still highish at 2.7x.

The Board proposes a capital return of EUR 0.09 per share to shareholders and that the Annual General Meeting authorize the Board, at its discretion, to decide on an additional capital return of up to EUR 0.05. The financial statement release does not comment on the repayment of the hybrid bond, but the company will likely disclose more on this in the earnings call.

Increased earnings guidance for 2025

According to the company's guidance, HKFoods estimates that the Group's 2025 comparable EBIT will grow from 2024. We do not find the guidance surprising, even though our forecast for Q1'25 is 27.7 MEUR, i.e., stable compared to 2024. We consider especially the investments already made by the company and those to be completed later as positive drivers that support both growth and profitability. At the same time, we note that last year was by far the best in the company's history, and the operating environment involves uncertainties, such as wage pressure, new nutritional recommendations and the development of consumer demand in a weakening employment situation.