HKFoods: Contingent consideration for Baltic operations does not appear to materialize

Translation: Original published in Finnish on 9/29/2025 at 9:14 am EEST.

In our view, the weakening outlook for the conditional purchase price receivable has a small negative impact on the fair value of the share (receivable written down by 5% of the share price). We will lower the cash flow forecasts related to the receivable no later than in connection with the Q3 report. However, the write-down does not immediately necessitate a change in recommendation, as its significance for the overall equity story is minor. In our view, the sale of the Baltic businesses still appears to be a successful measure, as the fixed purchase price was already high relative to the weak earnings level of the sold business.

HKFoods writes down contingent consideration receivable

HKFoods announced on Friday that it would write down a contingent consideration receivable related to the sale of its Baltic businesses. The fair value of the contingent consideration was estimated to be 6.9 MEUR at the end of June 2025. The write-down is based on HKFoods' assessment of the buyer's future earnings performance. The outlook for the buyer's (Estonian Maag Grupp) earnings development has weakened, and according to HKFoods' release, this is influenced by factors such as the discovery of African swine fever in Maag Grupp's largest pork production unit. The write-down has no impact on HKFoods' comparable EBIT and no immediate cash flow effect. In HKFoods' reporting, the write-down is allocated to the Q3 results of discontinued operations. HKFoods had previously lowered its estimate of the contingent consideration by 3.6 MEUR in Q2 2025, but with the latest write-down, no contingent consideration remains on the balance sheet.

Minor negative impact on the fair value of the share

The 6.9 MEUR contingent consideration, previously on the balance sheet, was approximately EUR 0.077 per share, which corresponds to 5% of the company's share price (closing price on September 26). We had included the receivable in our cash flow forecasts for 2026-28. The probable loss of the contingent consideration thus slightly decreases the fair value of HKFoods' share and weakens the share's expected return. We do not consider the contingent consideration a key factor for the anticipated strengthening of the balance sheet, which is mainly dependent on the continuation of the company's earnings turnaround. We will revise down our cash flow estimates for the contingent consideration no later than in connection with the Q3 earnings report.

The sale of the Baltic operations can be considered an overall successful move

Despite the probable loss of the additional purchase price, we consider the divestment of the Baltic business to be a successful measure for shareholders overall, as the fixed purchase price received by HKFoods was, in our view, good given the weak profitability of the divested business. HKFoods agreed to sell its Baltic businesses to Estonian AS Maag Grupp in December 2022, and the transaction was completed in August 2023. Revenue of the Baltic operations in 2022 totaled 196 MEUR, and adjusted EBIT fluctuated on both sides of zero in 2020-2022. The fixed transaction price for the divestment was 70 MEUR. HKFoods was also originally entitled to a contingent consideration of up to 20 MEUR (payments 2025-28), the final amount of which depends on the buyer's and the sold business's earnings development. The contingent consideration has now been fully written down from HKFoods’ balance sheet.