A setback in exports of Danish pork to high-price markets outside Europe, high inflation, rising interest rates and one-off costs for adjusting production capacity left a mark on Danish Crown's financial results for 2022/23. Nevertheless, revenue increased by five per cent from DKK 64.2 to DKK 67.6 billion, and the average settlement price for the cooperative owners’ supplies of pigs was the highest in almost 40 years.
“We were hit by a toxic cocktail, but our response was firm, and we made the necessary decisions. Our financial results are not satisfactory, but it is important to emphasise that the price we were able to pay our cooperative owners for the slaughter animals supplied did, after all, secure them a reasonable income. However, that does not change the fact that our settlement prices for pigs were not competitive in a European context, and that is something we need to rectify,” says Danish Crown CEO Jais Valeur.
In the black and a boost to settlement prices
Danish Crown reported a drop in EBIT from DKK 2,885 million to DKK 2,398 million. In addition, interest expenses increased by DKK 310 million, and the closure of two plants in Sæby, Denmark and Boizenburg, Germany involved costs of DKK 200 million. Partially offsetting this effect is a DKK 286 million reduction in taxes paid, leading to net profit of DKK 1,469 million, compared to DKK 2,180 million in the 2021/22 financial year.
The Board of Directors proposes a supplementary payment of DKK 1.10 per kilo for pigs and sows, and of DKK 1.30 per kilo for cattle, meaning that Danish Crown will return more than DKK 1.2 billion to its cooperative owners. For a farmer supplying 10,000 pigs annually to Danish Crown, the supplementary payment will amount to about DKK 1.0 million.
The settlement prices paid to our owners including the proposed supplementary amounts have increased by 24% for pigs, 56% for sows and by 2% for cattle compared to the 2021/22 financial year.
However, the supply of pigs to Danish Crown’s Danish abattoirs has dropped 17 per cent compared to the previous year. As a consequence of the declining raw materials base, as well as a targeted adjustment and simplification in everything from production to sales efforts to administrative services, Danish Crown will by the end of calendar year 2023 have said goodbye to about 1,500 employees in production and more than 200 salaried employees in the core business, BU Danish Crown.
“We’ve launched a savings and efficiency-enhancement programme that over a two-year period is expected to increase earnings by DKK 1.5 billion. This has had the unfortunate consequence that we’ve had to let more than 1,700 colleagues go in our core business over the past year. However, we are already seeing significant improvements, which is good both for Danish Crown’s owners and for the Group’s more than 25,000 employees. We are very grateful for their efforts in what has been a year of turmoil. I deeply respect the commitment they bring to work every day,” says Jais Valeur.
Danish Crown Beef delivers stable revenue and earnings from the sale of beef and veal. The business unit has successfully developed strong concepts, including the one used for Burger BOOST for the Danish domestic market. The unit also generates satisfactory earnings at its two cattle abattoirs in Germany and from the hides producer Scan-Hide, which continues to develop the Nordic SPOOR brand, selling top-quality leather mainly to the furniture and fashion industries.
Difficult market puts pressure on portfolio company results
The Group’s portfolio companies were also affected by the extraordinary market conditions:
- DAT-Schaub is seeing a slowdown in demand following several years of explosive earnings growth, but performance remains strong.
- Measured in local currency, Swedish KLS is doing well, but due to the weakened Swedish krona and a change in consumer behaviour, its contribution to the Group’s bottom line is smaller than in the preceding year.
- Due to the high inflation in Poland, impacting both the company’s costs and consumer purchasing power, Polish-based Sokolów delivered disappointing financial results.
- The trading company ESS-FOOD successfully delivered on its strategy with continued earnings growth.
“Earnings in our portfolio companies were generally squeezed by lower consumer spending due to inflation. Overall, we nonetheless managed to retain or in some cases expand our market share. The trend turned in the final months of the financial year, and we expect consumer behaviour to continue to normalise in the coming months and to lift our earnings,” says Jais Valeur.
High climate ambitions
Danish Crown obtained approval of its climate targets by the UN-backed Science Based Targets initiative in November last year and has prepared an ambitious science-based timetable for a more sustainable future towards 2030.
Overall, Danish Crown intends to reduce its global emissions by 42 per cent in Scopes 1 and 2 and by 20 per cent in Scope 3. This corresponds to an estimated reduction of 2.5 million tonnes of CO2 in the period from 2020 to 2030 alone. By way of comparison, Denmark as a nation must reduce emissions by 20 million tonnes of CO2 from 1990 to 2030 to meet the Danish parliament’s ambition of reducing emissions by 70 per cent.
“Our climate ambitions are a central tool in our efforts to consolidate our position as one of the leading food companies in Europe. We must help our customers reduce their environmental footprint, and we are currently negotiating partnerships with several multinational customers based on our climate ambitions and detailed reporting,” says Jais Valeur.
For the first time, Danish Crown is publishing an integrated annual report covering both financial statements and ESG reporting for 2022/23.