Positive outlook for Danish Crown, as China starts importing meat
The last weeks of fiscal year 2018/2019 have changed the outlook for Danish Crown operations, as China's meat imports are growing significantly. In just a few months, the company has gone from a weak market and a partial stop for exports to China to a total profit from continuing operations before special items of almost 1.1 billion DKK (€147.3 million).
"All in all, it is an acceptable result, but it has been a challenging six months. The first quarter was weak, and we, therefore, presented a comprehensive cost-cutting plan which will reduce costs by 385 million DKK (€51.5million) across the group. We are now beginning to see the results of this, and following the recovery of the market, things are finally moving in the right direction", says Jais Valeur, Group CEO of Danish Crown.
Despite lower raw material prices for both pork and beef, Danish Crown’s revenue increased by 1.5 per cent from 30.1 to 30.6 billion DKK (€403 million to €409 million). This is explained by a number of acquisitions, the largest of which are in Denmark, the Netherlands and Poland, and which all, as expected, are making positive contributions to earnings.
Our UK business Tulip Ltd still presents the biggest challenge. Following capacity adjustments and an extreme cost focus, the business is now moving in the right direction.
"We still have a long hard journey ahead of us to get the UK business back on track, but the plan we devised over the summer and autumn of 2018 has the desired effect. Our focus is now on staying on course and winning new business to ensure that Tulip Ltd can once again start contributing positively to earnings in Danish Crown", said Jais Valeur.
Since the end of the first half-year, the pig price has increased by 25%, and Danish Crown expects the payment per kg paid to farmers to increase further over the summer.
A spike in pork prices is good for the producers but is going to increase the competition in the retail, especially in the mid-range segment, where the discount chains are going to be act aggressively.
The cattle price peaked in summer 2018, after which prices saw a declining trend in the first half-year 2018/19. Compared to the prior-year period, cattle are being traded at an average price of almost 2 DKK less per kg, which corresponds to a decrease of 8%.
The strategic decision to pool procurement across the group is contributing as planned despite external price increases for energy and transport, among other things. Based on our experience, there is money to be saved from implementing such initiatives across the group. Therefore, the Executive Board now includes a Chief Operating Officer (COO) who will focus on continuing this work as well as on realising Danish Crown’s sustainability strategy towards 2030.
"Unfortunately, we are falling some way short of our strategic target of delivering a settlement price to our owners that is 0.60 DKK (€0.08) better than the EU index. However, this does not change the fact that we have set a clear course for Danish Crown", added Valeur. Nonetheless, operating profit for the full year is expected to be above last year’s result.