HKScan Oyj

Investor Presentation • Apr 11, 2019

A review of HKScan's year 2018 and balancing of financial situation

Tero Hemmilä, CEO HKScan Annual General Meeting, Turku

Year 2018 Financials

HKScan's year 2018

• EBIT improved in Sweden despite of weaker Swedish Krona
• Negative impact related to the Rauma poultry unit challenges decreased towards the year end
• Sales of meals and meal components growing
• HKScan's export of pork from Finland to China started

• Challenges related to the Rauma unit had a negative impact on result
• Sales of red meat decreased in Sweden and in Finland. In Sweden BBQ ban (caused by the draught), weakened demand
• Higher raw material costs eroded performance in Denmark
• Cost increases and low European pork prices burdened the performance in Baltics

HKScan Group 2018

EUR million	2018	2017
Net Sales	1 715,4	1 808,1
EBIT	-49,5	-40,3
- % of net sales	-2,9 %	-2,2 %
Profit/loss for the period	-51,2	-39,5
Comparable EBIT	-47,5	-17,6
- % of net sales	-2,8 %	-1,0 %
EPS,EUR	-1,00	-0,79
Return on capital employed (ROCE) before taxes, %	-7,4 %	-6,3 %
Comparable ROCE before taxes, %	-7,1 %	-2,4 %
Net gearing, %	88,6 %	59,3 %
Personnel, end of month average	7 179	7 292

Financial summary

Funding base and maturity structure

Maturity of Group's interest-bearing debt (EUR million)* Interest-bearing debt

*EUR 40 million hybrid bond is treated as equity (early redemption option in Sept. 2023)

HKSCAN AGM 11.4.2019

From balancing finances towards profitable growth

HKScan is a significant Nordic food company

Over one hundred years of experience in responsible meat production and consumer behaviour

• A team of more than 7000 professionals serving the world's most demanding consumers
• The company markets and sells high-quality, responsibly produced poultry, pork, beef and lamb, as well as meat products and meals under its strong brands
• HKScan's customers include the retail, food service, industry, and export sectors
• Home markets are Finland, Sweden, Denmark, and the Baltics, and products are exported to almost 50 countries

HKScan market areas

Operating profit development in the sector

Operating profit, MEUR

HKScan has lost its market leader position, which has led to weak financial development – the root causes are mainly internal

HKScan's goal is to return to the level of leading players on the market

Note: HKScan's operating profit figures are reported; they don't include a separate adjustment for the 2014 Sokolów S.A. divestment

Root causes of negative result

• The company's "From Farm to Fork" strategy continues to provide a relevant framework for operating in an environment where the significance of responsible operations and transparency is emphasised
• The focuses in implementing the company's strategy haven't been accurate and that has led to the weakening of the business foundation and a spiralling loss
  • Food, and especially fresh food, are local – market-specific special attributes must be identified and acknowledged
  • Product portfolio development as a whole hasn't been balanced– premium has been overemphasised at the expense of volumes and meat balance management
  • The core of the entire meat business, efficient management of the value chain, has not received enough focus
  • The matrix organisation used in business management has been heavy and expensive. Also roles and profit responsibility have been unclear
  • Mistakes have been made in the Rauma poultry unit investment, which has led to a delay and failure in the commissioning

Profitable growth through balancing finances

HKScan's new Management Team

Tero Hemmilä

CEO (as of 4 February 2019) M.Sc. (Agr. & Econ.), born 1967

Key employment history:

• Yara International, Commercial Director of the Nordic area 2015–2018
• Yara Suomi Oy, Country Manager 2010–2015
• HKScan Corporation, SVP, strategy and development 2009–2010
• HK Ruokatalo Oy, SVP in charge of the meat business 2008–2009
• LSO Foods Oy, executive positions 1997–2008
• Member of the HKScan Corporation Board 2011–2016

Jari Leija EVP Market Area Finland

Sofia Hyléen Toresson

EVP Market Area Sweden

Anne Mere EVP Market Area Baltics

Jukka Nikkinen

Mika Koskinen

EVP Market Area Denmark & International

Esa Mäki EVP Meat Balance & Supply Chain

Chief Operating Officer (COO) leading Operations and Technology functions

Markku Suvanto EVP Administration (HR and Legal)

Turning loss into profit (1/2)

Changes related to management and ways of working

• Changes in the Board of Directors and in company management
• Towards new ways of working in 2019:
  • From a matrix organisation towards clear roles emphasising country-level profit responsibilities, efficient leveraging of Group synergies
  • Streamlining Group management
  • Significant reduction in number of white-collar employees
  • Goal is for a flatter organisation and competent, proactive, well-performing teams per market area and per function
• Strengthening "meat expertise" in management and in key positions
• New Management Team to support balancing of finances
• Supplementing the Management Team's expertise as needed for the Group's development phases

Turning loss into profit (2/2)

Changes related to business operations

• Controlled price increases
• Efficient local management of the meat value chain, meat balance, and yields
• Balanced management of product portfolio and product development, while taking into consideration the entire meat balance
• Restoring brand leadership in selected categories, market leader focus on category development and growth
• Putting customer collaboration at the core of activities in all markets

Redefining HKScan's strategy and strategic focus areas

Business focus

• Special focus on poultry as a growth driver
• Strengthening sustainability aspects in red meat
• Growth targets in meals
• Export opportunities for sustainably produced and pure meat
• HKScan's position as part of the consumer's diet, and assessing new product categories

Redefining strategic focus areas

• Focus on short-term corrective measures while identifying long-term targets
• Key strategic assessments are related to direction of the company's growth and structure in the long-term
• Positioning of different markets as part of the Group's business
• Strategy work advancing during spring and summer

Product categories

Meat consumption by meat type in EU countries (kg/person/year)

Source: EU Agricultural outlook, for markets and income, 2018-2030

Global meat consumption is estimated to grow by about 1.3% annually for the next decade 2)

Poultry and pork are estimated to make up about 70% of the meat consumption growth in the near future 2)

HKScan has started exports to, among others, the steadily growing Chinese market, which is one of the world's biggest markets for pork meat

2) OECD-FAO Agricultural Outlook 2018–2027 1) Kantar TNS Agri, Natural Resources Centre

Poultry as a driver for growth

Poultry is a significantly growing category

• Poultry consumption in Finland increased by more than 36% in 2010-20171)
• Healthiness, ease-of-use, sustainability and export opportunities are driving growth
• The position and appreciation of HKScan's strong brands among consumers offer a foundation for building market leadership

Potential of Rauma poultry unit is significant

• Production efficiency and delivery reliability are developing in the right direction – improving efficiency still requires work, investments in new special expertise have been made
• Improving yields and productivity, price increases, insourcing of previously outsourced functions, and exports create potential

Strengthening the sustainability aspects in red meat

Pressures are targeting the consumption of red meat and meat products. HKScan is proactively responding to them.

Sustainability, quality, and a transparent way of operating form the foundation for the competitiveness of our products

• Proactively respond to sustainability issues related to red meat and to animal welfare issues
• Rypsiporsas® (Omega-3 pork) is a unique differentiating factor for HKScan
• Export opportunities for sustainably produced meat
• Our brand portfolio reaches numerous different consumer segments
• HK®, Scan®, Rakvere®, and Kivikylän® and Tamminen® brands provide an opportunity to maintain a strong market position

Meal market growth in Finland and Sweden

Examples of growth of subcategories, Finland

• Convenience meals (fresh): growth 42 MEUR, +31%
• Convenience meals (frozen): growth 16 MEUR, +22.5%

Examples of growth of subcategories, Sweden

• Convenience meals (fresh): growth 9 MEUR, +9.6%
• Convenience meals (frozen): growth 16 MEUR, +4.8%

Source: Nielsen, MAT ending Oct Source: Nielsen ScanTrack, MAT ending May

HKScan strengthening its position in the growing meal category

• We are continuing to expand our meal selection in all our markets, and we are currently investing in expanding the meal production capacity in our Rakvere unit in Estonia
• The investment will improve the Rakvere unit's productivity and increase capacity. Modern technology will enable the launch of new innovative products and ecological packaging solutions
• The project strongly supports HKScan's sustainability targets
• The success of the Via product family in Finland is a good example of the potential that the category offers

HKScan's exports to China advancing:

Rypsiporsas ® (Omega-3 pork) products to Alibaba's esteemed Hema chain

• Exports to China of pork raised on Finnish family farms started from our Forssa unit in April
• The target for the first year is to sell about three million kilos and to triple the volume by 2020
• We established a joint venture in China. The goal is to commercialise, sell and market Finnish premium category pork products in China
• HKScan is the first Finnish meat industry company to get its products in Alibaba's esteemed Hema chain
• The pure taste of Rypsiporsas® (Omega-3 pork), the healthier fat content, and the Arctic origin impressed the chain

Demand for responsibly produced products is growing globally

Responsibility is built-in in everything we do

Advantages of domestic food production

Clean nature - air, water and soil

Less environmental impacts

Healthy animals

Antibiotics are used only when needed, not to promote growth. No hormones.

Job creation Verified and transparent production chain Safe products

Security of supply

From a meat company towards a strong food company

Thank you