Danish Crown: Difficult market where inflation challenges consumption
Over the past 18 months, high inflation has increased Danish Crown's costs for energy, transport, packaging and wages by approximately DKK 2.5 billion ( 1 DKK = 0,13 EUR). At the same time, the demand for Danish pork from the normally attractive markets in Asia has been subdued, and that combination has cost Danish Crown competitive power, when you compare the settlement for the unit owners' pigs with the settlement in the rest of Europe.
"It has really been a challenging six months. In an exceptionally difficult market, both the earnings and the result are at an acceptable level in isolation, but our competitiveness has not been sufficient in a European perspective to maintain the unit owners' deliveries of fattening pigs in Denmark. Therefore, the half year overall does not live up to our expectations", says Jais Valeur, Group CEO of Danish Crown.
Even though the settlement for the unit owners' pigs has been lifted by more than 40 percent per kilos compared to the first half of the financial year 2022/23, there is a decrease of 13 percent in the supply of pigs to Danish Crown's slaughterhouses in Denmark in the same period.
Nevertheless, it has succeeded in raising the group's total revenue by 15 percent from DKK 30.0 to DKK 34.5 billion. The generally increased costs, as well as a smaller export of Danish pork to the high-priced markets outside Europe, are reflected in the operating earnings, which are down from DKK 1,396 million to 1,208 million kroner. The result for the period comes to DKK 902 million, which is 18 percent lower than the same period last year, but corrected for the decline in the supply of slaughter animals from the cooperative owners, this corresponds to a fall in earnings of five percent per kilo.
"The tougher market conditions require action to ensure our competitiveness going forward. Therefore, during the first half of the year, we adapted our plant structure in Germany by closing our factory in Boizenburg and consolidating the activities at the slaughterhouse in Essen. We have reduced the complexity of our organization, where the number of white-collar workers has been reduced by 150 employees. Finally, after the end of the six months, we have decided to close the slaughterhouse in Sæby. These are necessary decisions that make us stand significantly stronger at the end of the financial year", says Jais Valeur.
Danish Crown Beef continues to get closer to both consumers and customers. The settlement for the owners' cattle remains at a high level, and stability also characterizes the earnings in the two German cattle slaughterhouses and the hide company Scan-Hide, which in parallel continues the development of Nordic SPOOR, which sells high-quality leather primarily to the furniture and fashion industry.
The group's portfolio companies deliver overall satisfactory earnings. In DAT-Schaub, slightly weaker demand has slowed the growth in earnings in recent years. The same applies in Swedish KLS, but both companies continue to deliver at a high level. Despite global unrest, ESS-FOOD raises earnings, on the other hand, earnings in Sokolów are pressured by the high inflation in Poland and do not live up to expectations, but are on a par with last year.
"The earnings from our processing activities are generally under pressure due to inflation, but we are broadly maintaining our market shares. The higher prices that we have to bring home in order to have a profitable value chain make consumers hold back when they stand at the refrigerated counter, and this primarily affects the refined products. However, this does not make us change our goal of an increased degree of refinement, because we are convinced that we will see a normalization of consumer behavior as inflation subsides and consumers' purchasing power is strengthened again", says Jais Valeur.
An important tool for securing earnings going forward is a continued focus on sustainability. At the beginning of the half year, the group's 2030 reduction target for greenhouse gases was approved by Science Based Targets (SBTi).
"It is an incredibly important step that we have had our climate goals validated and approved by SBTi. This will ensure that our climate efforts lead to absolute reductions in greenhouse gas, and at the same time it is an important parameter, because many of our large customers are themselves working to get their climate targets in place right now. We actually have several examples of customers reaching out to us now because we can report and document our climate action very precisely", says Jais Valeur.
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