Denmark

Danish Crown will deliver 11 million pigs this year

Pork

Danish Crown's shareholders have confirmed that they will deliver approximately 11 million pigs in the coming year. Based on that figure, the business must now be sharpened and competitiveness restored.

Posted on Aug 21 ,00:10

Danish Crown's competitiveness has been under increasing pressure since spring 2022. The settlement for pigs in Denmark is currently far behind the rest of Europe. So even though the current listing for pigs is close to a record high, Danish Crown's settlement is far too far behind both the European average and the settlement in Germany.  

Therefore, it has not been sufficiently attractive for Danish farmers to fatten pigs for slaughter in Denmark, so over the summer the management has worked purposefully on a plan to simplify and renew Danish Crown's core business. It is ready now. The business must be made more efficient so that earnings are lifted by a minimum of DKK 1.5 billion ( 1 DKK = 0,13 EUR ) within two years - and preferably sooner. At the same time, sales efforts must be segmented and focused to a greater extent on those customers who either prioritize Danish pork and products from Danish Crown or want a business partner who works purposefully with sustainability.   

"I would like to praise our owners for supporting the Danish value chain from farm to table, because it makes it possible to manage production much more tightly and at the same time carry out an imperative simplification and renewal of our business model. Despite the headwinds of the past year, we have actually succeeded in maintaining our market shares in products for the retail trade and food service. Now we must gain volume, and in that way move our entire business over time", says Group CEO Jais Valeur. 

The plan has been named Horizon and the goal is to move Danish Crown from a slaughterhouse with large-scale operations as a focal point to a modern food company. The main features of the plan are: 

• The administration and support functions must be made more efficient so that the costs on an annual basis are reduced by a minimum of DKK 250 million.  
• An improved utilization of the capacity at slaughterhouses and factories as well as a more streamlined and high-tech setup must reduce production costs by at least DKK 500 million.    
• Sales efforts must be focused on core customers within retail, foodservice and industry, so that partnerships are built with customers who demand data-driven traceability and sustainability, so that earnings increase by DKK 500 million. 
• The profitability of the German slaughterhouse activities and at the processing factory in China, together with the completion of the investment in the new bacon factory in Great Britain, will contribute to DKK 250 million.  
• Additional opportunities have been identified for savings on purchases and potential for increased earnings in the group's subsidiaries, which can potentially contribute up to DKK 500 million. 

The efficiency plan comes at a time when the majority of the Danish Crown group has actually developed positively over a number of years, but the core business, which is organized in what is called BU Danish Crown, and which is responsible for the slaughter of pigs in Denmark and Germany as well as the processing of primarily pork, is challenged. 

The pressure on that part of the business is primarily triggered by an unusually long and deep dip in exports to key markets such as China, Japan, the USA, Australia and South Korea. In the past, Danish Crown has always been able to find alternative sales channels outside Europe if one or more of the attractive export markets failed for a period. But when the prices of frozen pork on the world market are significantly below the prices of fresh pork in Europe, Danish Crown cannot maintain its competitiveness, because the costs due to the high Danish wage level for slaughtering, cutting up and deboning pigs in Denmark are over 1 kroner higher per kilos than in countries such as Germany, Poland and Spain. 

Danish Crown must therefore sell more in an already competitive European market with a broad preference for local products. The solution is to redefine the business model and focus all efforts on producing and selling products that can be sold at a sufficiently high price to compensate for the higher production costs in Denmark, otherwise Danish pork will always be just another choice compared to local products with a lower selling price and our higher production costs. 

"We cannot solve our challenges with savings and efficiencies alone, as this is also a matter of business model, but we owe it to our shareholders to cut to the core in the current situation. It will initially help to close part of the gap to the other European countries. At the same time, it is a fact that efficiency and maximum utilization of production facilities is the way to make money in the food industry. This is not new for us, but after we combined our pig slaughterhouses and processing activities into one business unit two years ago, we have not been sharp enough, so we are rectifying that now", says Jais Valeur. 

As a consequence of the streamlining plan, a number of significant changes in the management and organization of BU Danish Crown will take place with immediate effect.  

"We have a number of talents who already know our company in detail. Now they - flanked by a number of experienced colleagues - are given more responsibility, and I have no doubt that the team will go down in Danish Crown's history as the ones who moved Danish Crown from being a slaughterhouse to be a value-creating, modern food company for both customers and consumers", concludes Jais Valeur. 

Comments

Similar articles