Danish Crown: Operations improved in a challenging half-year
Completely in line with the strategy, in the first half of the financial year 2023/24, Danish Crown has increased sales to European customers within retail and foodservice. Market shares have been won, and at the same time earnings have improved through efficiencies in production.
However, the progress in the core business is diluted by rising interest costs and a decline in earnings in DAT-Schaub. After a number of years of massive growth, DAT-Schaub is hit by a depressed market for pig and lamb casings for sausage production, because due to inflation, consumers have largely bought cheaper sausages that are produced in artificial casings. At the same time, the prices of heparin for the pharma industry have fallen because healthcare systems around the world are reducing their stocks on the back of COVID-19.
"It is an account in which very much points in the right direction. Work is focused on delivering improvements. Our efficiency plan Horizon contributes with just over half a billion kroner at the moment, so we still need to raise around one billion kroner - or the equivalent of approx. one crown per kilos of pork - over the next 18 months. It is a pity that DAT-Schaub is facing headwinds right now, because together with the higher interest costs, it prevents us from taking a significant step forward", says Jais Valeur, Group CEO of Danish Crown.
The fall in inflation means that costs for packaging and energy are falling compared to the same period last year. On the other hand, labor costs have increased significantly, but Danish Crown has still managed to raise operating earnings (EBIT) by two percent.
Revenue falls from DKK 34.5 billion to 33.5 billion DKK compared to the first half of 2022/23. The lower turnover is mainly due to a decrease in deliveries of slaughter animals from the unit owners, as measured per kilo share, operating earnings have actually risen by 11 percent in the period.
The financial costs increase by 54 percent to net DKK 338 million and the tax payments are, after a reversal of a tax provision of DKK 80 million last year, back at a normal level. Therefore, the net profit is down from DKK 902 million to DKK 764 million.
"Despite the progress in our core business, our competitiveness is still not where it should be when it comes to paying the unit owners a competitive price for their pigs. However, this does not change the fact that we have received confirmation that the strategic direction is not only right, but also necessary for Danish Crown", says Jais Valeur.
In Danish Crown Beef, there is continued progress in sales to retail and foodservice. On the other hand, there is sharp competition on the German market, where Danish Crown operates two cattle slaughterhouses, and this costs earnings. At the same time, the global market for high-quality leather is affected by a slowdown, which affects Scan-Hide, which is among the world's leading suppliers of premium hides for the leather industry.
Swedish KLS delivers a stable result and in Polish Sokolów there are more positive trends towards the end of the half year with falling inflation and improved purchasing power among Polish consumers. However, earnings are still not satisfactory and were negatively affected during the period by a major factory fire in November. In the trading company ESS-FOOD, things are going well. A clear strategy of working purposefully with the best customers ensures stable earnings.
"When we look ahead, it is positive for our business that inflation has peaked. However, this does not change the fact that we must continue to improve efficiency in order to raise earnings, which is illustrated by the decision to close the slaughterhouse in Ringsted after the end of the six months. We don't have to keep our arms crossed, but the start-up of our new bacon factory in Rochdale, England, is proceeding as planned. We have heavy UK customers on board and will be at full capacity before Christmas. We are also looking forward to a summer when the football European Championship in Germany and the Olympics in Paris are expected to stimulate the consumption of our products and, at the same time, there are signs of an improvement in our exports to the high-priced markets outside Europe, so all in all there is reason for restraint optimism", says Jais Valeur.
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