Danish Crown: Stable financial performance despite strong headwinds
The supply crisis brought on by the war in Ukraine, COVID-19 and very high inflation set the agenda for Danish Crown throughout the 2021/22 financial year. Prices of energy, transport and packaging were historically high, and with overall costs rising DKK 1.5 billion, the focus throughout the year was on raising prices on all of the group’s products.
Revenue was up 10 per cent from DKK 58.3 billion to DKK 64.2 billion. Operating profit (EBIT) rose from DKK 2.82 billion to DKK 2.89 billion, but due to an increase in interest expenses and higher tax expenses, the net profit for the year landed at DKK 2.18 billion, against DKK 2.26 billion in the 2020/21 financial year.
"We achieved stable results in a year of great challenges and a historically difficult business environment. Before we had fully recovered from COVID-19, inflation hit us far harder than anticipated, so against that background our overall result is in fact quite acceptable," says Jais Valeur, Group CEO of Danish Crown.
Most of Danish Crown’s profits are distributed to its owners – the Danish farmers – as supplementary payments for their supplies of pigs and cattle. The Board of Directors proposes a supplementary payment on a level with last year, which means the return of DKK 1,7 billion to the cooperative owners.
The supplementary payment for pigs will be DKK 1.30 per kg and DKK 1.10 per kg for sows, while cattle suppliers receive a supplementary payment of DKK 1.35 per kg. In addition, DKK 214 million will be deposited in the cooperative owner accounts. For an owner supplying 10,000 pigs annually, this equates to about DKK 1.5 million.
"We have been working really hard to raise the price of our products. We have managed to raise prices by a fair deal, but not enough to balance farm finances as inflation has also weighed heavily on their operations. Sales to our important high-price markets outside Europe have been challenged by a large supply of pork worldwide, so there is a need for further price increases and a continuing tight cost focus," says Jais Valeur.
Danish Crown Beef had a really good year. A low supply of beef in Europe helped ensure high prices, and the company has optimised operations of the core Danish business, the two abattoirs in Germany and Scan-Hide, which processes cattle hides for the leather industry.
DAT-Schaub, which processes parts of the pig for food ingredients and raw materials for the pharmaceutical industry, delivered a record-strong financial result, continuing its impressive growth rate. During the year, the business consolidated its operations by acquiring the outstanding shares in its US and Spanish subsidiaries. Based on a strong position in their domestic markets, KLS in Sweden and Poland-based Sokołów performed at a high level, while the trading company ESS-FOOD once again improved its performance, delivering a historically strong financial result.
Throughout the year, pork prices were squeezed by a massive slump in exports to China and general consumer restraint. Consequently, Danish Crown failed to deliver on its strategy target of a settlement price for pork that is DKK 0.60 above the European index.
"We need to rectify that through strict cost management and by staying focused on our core markets. With inflation currently eroding the purchasing power of consumers, private label and discount products account for a greater share of overall sales, and we do not expect that situation to change. We benefit from being a well-invested business with a reputation for high-quality products, but we also know that we can do even better, and we need to deliver on that potential," says Jais Valeur.
Working closely with its cooperative owners, Danish Crown is dedicated to reducing its climate footprint from pork, veal and beef. Concurrently with these efforts, in early 2022 the group launched its first major range of plant-based meat alternatives in the Danish market. Sold under the brand Den Grønne Slagter, the products quickly gained a foothold in the market. Although inflation has squeezed the sales of many niche products, sales of plant-based meat alternatives continue to develop as expected before the products were launched. Similarly, Danish Crown has in recent years built strong positions in plant-based food through KLS in Sweden and Sokołów in Poland.
"We have witnessed strong developments in many parts of our group and should not forget that COVID-19 continued to set the agenda during the first half of our financial year. This was a period characterised by a truly extraordinary effort by our employees, who took thousands of rapid antigen tests and kept our production running. The fact that our employee satisfaction analysis rose to an all-time high during that period goes to show that Danish Crown’s employees have a cooperative spirit also in difficult times," says Jais Valeur.
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