Food is trendier than ever. Food industry, retail and HoReCa business are going through an interesting transformation, which offers unique opportunities for renewal. Our business is impacted by global megatrends such as population growth, urbanization, the digital revolution, and growing concern about global warming. We are also affected by shifts in the global economy and politics. After a long period of recession, 2017 finally saw an upswing in demand and growing consumer confidence in economic recovery on HKScan’s home markets. Consumers also showed growing interest in healthier, responsibly produced food products. This trend added further momentum to the efficient execution of HKScan’s strategy.
While consumer demand picked up appreciably, competition at the customer interface continued. The retail industry in HKScan’s home markets is facing challenges from international competition, e-commerce and digitalization, and new trends in the HoReCa sector. Consumers are dining out more often, shopping for food through digital channels, and buying takeaway meals directly from restaurants.
These new trends make it imperative for all parties in the food supply chain to respond to changing consumer needs more directly, more transparently and in real time. This is why we at HKScan are critically re-evaluating our ways of working, our efficiency, and our performance in corporate responsibility.
WE ARE COMMITTED TO PROMOTING SUSTAINABILITY
As a leading food company, HKScan plays an important role in mitigating climate change, the responsible use of natural resources, and the advancement of human rights and social responsibility. Our work to promote sustainability has national significance, as our business impacts the national economies of our home markets by stimulating exports, providing jobs and safeguarding a viable future for domestic agriculture.
Embracing corporate responsibility is a cornerstone of HKScan’s strategy. We have defined our strategic corporate responsibility focus areas and the responsibility themes that we regard as holding key importance to our business.
One of our key corporate responsibility goals is to reduce our environmental footprint. We are committed to improving our energy efficiency, investing in renewable energy, reducing our industrial waste and striving to reduce food waste generated by our customers and consumers. We also strive to efficiently harness our raw material side streams as part of the circular economy.
We will continue improving our corporate responsibility performance in 2018 by fine-tuning our short-term, medium-term and long-term goals and by defining the related actions we plan to take. In doing so, we hope to deepen our dialogue with our stakeholders and further increase the transparency of our operations.
FROM FARM TO FORK – ROLLOUT OF OUR NEW STRATEGY
Last August we announced the launch of our renewed ‘From Farm to Fork’ strategy, which places a strong focus on the consumer. We are striving to proactively lead and renew the food value chain all the way from farm to fork. In doing so, we also aim to improve our competitiveness, profitability and performance in all fields of corporate responsibility. By executing this strategy, we hope to consolidate HKScan’s position as a responsible pillar of Nordic society and advocate of sustainability.
HKScan’s From Farm to Fork strategy is a tangible expression of our mission. Our primary goal is to make daily life tastier for consumers and customers – both today and tomorrow. Our vision is to offer sustainably produced, high-quality, nutritionally sound foods that serves the most demanding fork in the world.
To accelerate and efficiently execute our strategy, we have simultaneously initiated all five of our must-win battles: Focus on meat; Leadership in poultry; Continue growing meals business; Cooperate with our farming community; and Drive efficiency and cost competitiveness. As part of our strategic renewal, we have also updated our customer segments and brand strategy.
By prioritizing high quality and corporate responsibility in all our operations, we hope to gain a competitive edge both on our Nordic home markets and international export markets. We drive our business forward in line with our corporate values – Inspire, Lead, Care – and we are confident that our products will retain their popularity as part of the healthy, well-balanced diet of tomorrow’s consumers.
SYSTEMATICALLY DRIVEN CHANGE
In 2017 we initiated various measures to sharpen our strategic direction and support our long-term profitability. We updated our operating model and streamlined our organization. We renewed our Group Leadership Team and invested in new competences to support the execution of our strategy. The new operating model will strengthen our capacity for renewal and enhance our efficiency in working together as a Nordic team.
Today we are still at the start of our strategic transformation process, and our performance is not yet at its target level. We are nevertheless already seeing positive signs of growth on our home markets and in our strategic product categories. Last year we increased our market share in Sweden, which is our biggest market. We made positive headway in the meals business, with encouraging growth in sales and margins reported across all our home markets throughout 2017. Branded products and novelties accounted for a growing proportion of our sales in the competitive retail segment, where retailers’ private label brands have been rapidly gaining ground.
In 2017 we launched a programme to upgrade the operational efficiency of our production units and to improve our capacity utilisation. The results of the first pilots in Vantaa have been very promising. The programme is being rolled out simultaneously in numerous units across our home markets.
We have already improved our profitability in numerous areas, but there is a still a considerable amount of further work to be done. Improving our profitability remains our number one goal in 2018.
INVESTMENT IN GROWING PRODUCT CATEGORIES STRENGTHENS OUR PROFIT POTENTIAL
In 2017 HKScan took the most ambitious and strategically significant step in its entire history by investing in a wholly new production plant in Rauma which will specialize exclusively in poultry products. The project progressed on schedule, but the launch of full-scale production proved more challenging than anticipated, which had an adverse impact on our profits. In the long run, however, the Rauma unit will significantly upgrade our efficiency and competitiveness and enable us to launch innovative new concepts in the poultry category.
One of our strategic goals is to expand our presence in the attractive and growing meals business. High-quality, read-to-eat meals and semi-prepared convenience meals are rapidly gaining popularity. We are responding to this trend by expanding our premium meat offering, by pioneering locally produced artisanal products, and by developing novel meal concepts. We plan to continue expanding our meals range on all markets, and we have decided to invest in expanding our meal production capacity in Rakvere, Estonia.
OUR WORLD-CLASS FARMING COMMUNITY IS AN INCOMPARABLE COMPETITIVE ASSET
Our long-term work to enhance the quality and responsibility of the domestic food value chain was rewarded when the Chinese and Finnish food authorities signed an agreement on the launch of exports from Finland to China. Our Forssa plant has been granted permission to begin exporting pork meat to China, and we are currently preparing to start the export of pork meat grown on Finnish family farms in the first half of 2018.
In 2017 we and our contract farmers collaborated in the rollout of various strategic measures to safeguard the continued availability of responsibly produced, high-quality domestic meat across our home markets. These projects included a long-term development programme aiming to increase beef production in Finland. We also launched a new, unique hatching concept which enables chickens to be born on the farm where they are reared. We have additionally developed new 100% antibiotic-free pork, poultry and beef products. Our antibiotic-free production method is a significant competitive asset also in the export arena.
FOOD IS TRENDIER THAN EVER BEFORE
We see plenty of promising opportunities for continued growth in the future. Consumers are taking a growing interest in culinary trends, and food is becoming a more important part of our lives than ever before. For many of us, our dietary choices, cooking, and gathering around the table to enjoy a good meal with our loved ones has become an important part of our identity. The food we choose to eat is an expression of our values, attitudes and lifestyle. Today’s consumer preferences support growth in demand for responsibly produced, high-quality foods.
We are confident that we can strengthen or brands and boost the growth of our categories by developing innovative new products. We want to be change-leaders in the food industry and drive the business in a more dynamic and sustainable direction.
I would like to express my warm thanks to the entire personnel for actively contributing to the successful execution of HKScan’s important strategic changes over the past year. I am also grateful to all the customers, consumers, partners, producers and shareholders who joined us on our shared journey from farm to fork last year. May we together savour the pleasure that wholesome, uniquely Nordic food expertise can bring.
President and CEO