May 11, 2011

Danish Crown's good interim results show financial stability

Danish Crown good results for the first half of FY 2010/11 reflect its financial stability.

The outcome of the huge efforts made in the food group in recent years is reflected directly in the results.

The group posted revenue of DKK24.7 billion (US$4.8 billion) in H1 against DKK21.8 billion (US$4.2 billion) last year. Net profit in H1 was DKK742 million (US$143.5 million) compared with DKK661 million (US$127.8 million) last year.

The competitive prices have meant an increased supply of slaughter animals, a major contribution to higher revenue and increased volume.

"Danish Crown's current stability is extremely valuable to the group, and the results meet our expectations, when factoring in the acquisitions made in the past year," said Kjeld Johannesen, CEO in Danish Crown, who explained that Danish Crown is currently slaughtering 21,000 pigs more a week in Denmark than during the same period last year, and this contributes to reducing direct costs in the Danish companies.

Johannesen pointed out, however, that challenges are expected in the short term.

"We need to continue our hard work to ensure competitive prices for our owners, and the rising prices in the market may pose challenges for the company's processing activities, which make up 40% of revenue," he said.

Although the processing companies generated good results in H1, the increased raw material prices may temporarily put a damper on earnings in H2, explained Flemming Enevoldsen, CEO of Tulip Food Company.

"Like virtually all other food production companies, we have seen significant price increases in respect of raw materials as well as packaging and transport in 2011. Together with a strong Danish krone, this will result in higher consumer prices, which will add to the pressure on Danish food production," Enevoldsen said.

Tulip Food Company's acquisition of the processing plant in Germany last year contributes to the positive results for the first six months.

Almost all parts of the group return satisfactory results. Both pork and beef processing, and trade are posting the expected results, while DAT-Schaub is reporting excellent results. In Sweden, on the other hand, earnings were weaker in H1.

During the period, Danish Crown acquired Germany's fourth-largest pig slaughterhouse, and the results from the first months there serve as a modest boost to consolidated results.

H1 also saw marked growth in DC Beef. During the period, prices rose by 13%, which also means an increasing number of slaughterings, which saw a 12% increase.

"It is highly positive that Danish Crown constitutes an attractive choice for Danish cattle producers. In our line of business, volume is crucial for satisfactory cost levels, and the increase in prices we have been seeing reflects the current market," said Lorenz Hansen, Managing Director of DC Beef.

Being an international business, Danish Crown is constantly affected by external events, which may pose challenges and thus affect results.

"We are operating in a sensitive market, and it is therefore important that we continuously adapt our expectations to the actual conditions. Right now, for example, we are seeing exchange rate fluctuations which, in the longer term, may impact results, but we will not be seeing the effect of this until after the end of H2," said Johannesen.