HKFoods’ Polish production unit continues as part of the Group

Translation: Original published in Finnish on 07/04/2025 at 07:49 am EEST

HKFoods announced on Thursday that it had completed the assessment of the future of the Polish production unit. The unit will continue to operate as part of the Group and will therefore not be divested. The outcome has no impact on our estimates, and thus the impact on the value of the stock remains neutral, in our view.

The strategic assessment of the Polish production unit has been completed

The company announced originally in April, that it had launched preliminary investigations to assess the future of its production unit in Swinoujście, Poland, which also included a possible divestment of the unit. According to a release published yesterday, the assessment has been completed, and the unit will continue as part of the Group.

We believe the profitability of the Polish business is clearly higher than the Group average. We believe the decision is at least partly explained by the fact that the estimated transaction prices obtained from the unit were not attractive enough relative to its earnings level. The Polish unit is operationally important for HKFoods and has generated stable cash flow in recent years. For this type of business, the company has likely had a clear price expectation, which the received estimates have not aligned with.

With the decision, the redemption of the hybrid bond is still scheduled for next year in our forecasts

The outcome has no impact on our estimates, and thus, in our view, the impact on the share price remains neutral. HKFoods has an expensive hybrid bond of some 26 MEUR on its balance sheet (annual interest 16%), and we believe that repaying it would be important from a value creation perspective. We estimated that the potential divestment of the Polish unit could have offered HKFoods a way to redeem the hybrid bond as early as September 2025. 

As the Polish unit continues as part of the group, the redemption of the hybrid bond will increasingly depend on the company's operational development and the strengthening of the balance sheet. Debt covenants have so far prevented the redemption of the hybrid bond; in addition, the AGM's decision to distribute a capital return of at least EUR 0.09 per share to shareholders makes the situation even more challenging. In our forecasts, the redemption of the hybrid bond is still scheduled for September 2026. We also consider a redemption possible this year if the company's profitability continues to develop favorably and its financial position allows it.