The satisfaction with the best-ever first-half results in Danish Crown’s history, which included strong improvements in bottom-line figures and settlement prices for our owners’ pigs, has not played a big role in recent weeks. More or less simultaneously with the end of the first half of our 2019/20 financial year, the corona crisis began to impact settlement prices for the company’s owners.
“We’ve had a very strong first half with broadly based progress, building on a combination of continuing strong sales of pork to China, the divestment of Tulip Ltd. in the UK and, not least, overall strong Group performance. No one can take that away from us, but right now we’re dedicating all our resources to steering Danish Crown safely through the corona virus crisis,” said Jais Valeur, Group CEO of Danish Crown.
Revenue was up 18% from DKK 26,987 million in 2018/19 to DKK 31,834 million driven especially by an increase in the pork price. Operating profit increased by 43% from DKK 1,220 million to DKK 1,750 million, while the net profit rose 46% from DKK 960 million to DKK 1,391 million. During the six-month period, the company’s owners received an average settlement price of DKK 13.72 per kg for their pigs, against DKK 9.40 per kg in the same period of last year – a 46% increase.
Overall, Danish Crown delivered a result that is above the 4WD strategy target of paying DKK 0.60 more per kg relative to the EU index, which Danish Crown uses as its benchmark. Assuming unchanged supplementary payments, Danish Crown’s settlement prices for the owners’ pigs were DKK 1.12 per kg higher than the EU index in the first half of the 2019/20 financial year.
At the end of the six-month period, the Group’s ratio of its net interest-bearing debt to EBITDA (financial gearing) was 2.7. This is considerably lower than at the same time last year, when the financial gearing was 3.7.
“Obviously, our improvement is driven by our exports to China, but the platform we’ve built over the course of the years is starting to prove its worth. The breadth of our business and product portfolio is historically strong, and we are more diversified geographically as well as in terms of product categories than previously. This is important as it will ensure attractive settlement prices for our owners going forward,” said Jais Valeur.
In broad terms, Danish Crown Foods has succeeded in passing on the rising prices of pork to its selling prices. On the respective domestic markets in Sweden and Poland, KLS Ugglarps and Sokolow have witnessed strong demand for local products, consolidating their market positions. Improving its sales to the pharmaceuticals industry, DAT-Schaub contributed to continued revenue and earnings growth.
Unfortunately, the market for beef and veal remains challenged with prices remaining stable, but at a low level. While Danish Crown Beef generally experienced operational improvements, the outbreak of COVID-19 has caused greater uncertainty, putting on hold otherwise buoyant developments in, among others, Scan-Hide, the hides producer.
The public lockdowns in most parts of the world in response to COVID-19 will impact on Danish Crown’s earnings in the second half of the year – not least the loss of sales to restaurants and other foodservice market players, which affects large parts of the food sector and causes market volatility.
Toward the end of the first half, beef prices were the first to be hit, and prices of pork were quick to follow. The pace of markets re-opening, especially in Europe, will determine when the markets will start to recover.
During the initial months of the COVID-19 crisis, Danish Crown’s production staff in particular have made an extraordinary effort in looking out for each other and in maintaining production to provide food for consumers.
“Navigating in a turbulent market requires high flexibility and adaptability. These are core competencies throughout our organisation, so despite the turmoil we maintain our strategy of strengthening our domestic market positions, continuing our global focus on selected categories and pursuing our goal of ensuring sustainable production,” said Jais Valeur.