Soaring UK livestock prices hit Vion’s profits

Turnover increased 7% to euro 9,490M, largely as a result of increased costs.

Describing the figures as “disappointing”, chairman Uwe Tillmann, said: “The uncertain economic situation clearly affected consumer buying behaviours, Consumers were keen on low-priced special offers on meat, meat products and food.”

In the UK, where Vion is the largest fresh meat processor, the high cost of pigs, cattle, lamb and chicken “placed great pressure on business activities”. Chicken sales performed particularly badly and are likely to be hit further by the loss of Vion’s Sainsbury contract next spring.

The results highlighted systemic problems across the UK meat industry, Tillmann added.

“Although the purchase prices for pigs and cattle rose strongly in 2011, there continued to be pressure on sales prices and, as a result, on the economic balance of the primary sector,” he said. “This is a point of concern, as without a sound economic perspective, the primary sector will not be able to invest enough in its position in the market.”

Overcapacity in pork

Meanwhile, changing retail strategies were adding pork processing capacity to a sector, “already burdened with overcapacity”, the board warned.

Only two months ago, Morrisons announced it was ramping up throughput with a £21M investment in its pork abattoir at Colne in Lancashire.

While not as severely affected as the UK, Vion’s other core food markets in The Netherlands and Germany also struggled.

“Vion is going to consolidate its position in its key markets, while the BRIC [Brazil, Russia, India and China] countries offer good prospects for both Vion Food and Vion Ingredients,” the company said.

Global strategy needed

Nick Hood, an analyst with risk monitor Company Watch, said a global strategy was needed.

“Like a lot of meat and food suppliers, Vion runs a low margins business and small fluctuations in price can make a big difference,” he said.

“It is interesting that, across the whole supply chain, seven out of 10 of the most vulnerable companies in the UK are food companies supplying major retailers. It shows that the pain is being transferred down the supply chain while at the same time they are suffering from an upward pressure on the supply base.
 
“There is no doubt that looking at export markets is a common feature now and I would applaud that strategy. Everybody is recognising that the UK market is doomed to be, at best, dull. The difficulty is that Europe, with some exceptions, is worse. Going to America is fraught with difficulty, so we are looking at emerging companies like the BRICs and the Pacific Rim countries. But I would sound a note of caution about how that will stretch Vion’s management skills.”