Vion accelerates strategy and aligns capacity with the market

Vion launched a “Change that Matters” improvement programme in 2022, aimed at aligning its production capacity with the market, accelerating its strategy to achieve more sustainable and regional meat production and boosting performance.

In 2022, Vion was forced to cope with a number of global market dynamics such as the coronavirus pandemic, export restrictions due to African swine fever, a significant decrease in available livestock in Germany and a tight labour market. The energy crisis that followed the invasion of Ukraine fuelled inflation, which had already started to increase in 2021. Price increases in the supply chain were absorbed before being passed on to the consumer. Although this boosted turnover, it had a negative impact on margins and earnings.

KEY MESSAGES

1. Normalised EBITDA increased from EUR 40 million in 2021 to EUR 47.8 million in 2022. Normalised EBIT for 2022 reflected a loss of EUR 23.5 million (a EUR 4.7 million improvement compared to 2021). We also included EUR 63.4 million as expenses for impairment and restructuring. Investments were sustained, totalling EUR 85.4 million (2021: EUR 60.8 million). Liquidity and solvency figures were adequate.
2. The negative results were recorded mainly for the German Pork and Retail operations. The Netherlands Pork Business Unit and the Business Unit Beef performed as expected, while the Food Service Business Unit performed excellently due to its chain strategy.
3. In 2022, Vion launched its Change that Matters programme, which aims to:
   1. Improve operational performance by approximately EUR 150 every year by 2025 and ensure future-proof operations with a more regional and sustainable footprint;
   2. transform its organisational organisation to a country-specific structure for Germany and Benelux in Q4 2023, and
   3. accelerate its strategy for developing sustainable regional chains.
4. The Change that Matters programme enabled Vion to once again generate a positive result.
5. African swine fever has caused structural overcapacity in German abattoirs.
6. Farmers in the Netherlands and Germany face insufficient perspective. We see a structural decline in livestock numbers as a result.
7. Vion has now adjusted its production capacities in Germany to the market by implementing reorganisations at its Emstek, Holdorf and Landshut sites and by closing its Bad Bramstedt (beef) site. Acting primarily in response to these decisions, Vion recognised additional impairment and restructuring expenses of EUR 63.4 million in depreciation and amortisation of fixed assets.
8. In 2022, Vion again expanded its sustainable supply chain strategy by, among other things:
   1. investing in a large, modern pre-packaging plant in Altenburg;
   2. the acquisition of a cattle distribution centre in Bavaria;
   3. expanding freezing capacity through the acquisition of Vriesoord in ‘s-Hertogenbosch;
   4. establishing a regional role for the Landshut site in southern Germany;
   5. the launch of “Der Grüne Weg”, an all-German organic pork supply chain;
   6. establishing “The Bavarian Ox”, a regional quality ox meat, high animal welfare programme in collaboration with VVG Oberbayern-Schwaben in Germany;
   7. investing to achieve goals of the Science Based Targets initiative (SBTi) and promote climate protection and biodiversity, such as appointing an energy team;
   8. substantially expanding its position in plant-based products, and
   9. appointing a Science and Sustainability Officer to its Executive Committee in 2023, to underscore the importance of sustainability.

Adjusting slaughter capacity to market dynamics

In 2022, Vion faced a series of external factors that affected its operations. In February 2022, the outbreak of war in Ukraine drove up the prices of animals and livestock feedstuffs. This was further exacerbated by the subsequent energy crisis, which aggravated inflation at all levels. These conditions resulted in higher costs for Vion and the industry as a whole, which were eventually passed on to consumers in order to restore margins. This energy crisis together with inflation created consumer uncertainty, putting pressure on consumer spending. The overall uncertainty and higher prices also depressed sales volumes.

Added to that, the outbreak of African swine fever in Germany has once again caused a significant decline in the country’s pig population. Exports from Germany to Asia remain blocked. Since 2018, pig production in Germany has fallen by about 25%. This has created significant overcapacity in abattoirs, forcing them to pay high pig prices to meet their capacity needs. Vion is now bringing its German slaughter capacity in line with the current market situation, enabling regional branches in the country to serve the market optimally. Although the Netherlands was forced to deal with the same external factors, but not African swine fever, capacity for both beef and pork is in line with the market, thus saving the country from having to take drastic measures.

CEO Ronald Lotgerink said: “Market developments in Germany have been faster than we anticipated due to African swine fever, and we have therefore reduced and consolidated a significant portion of our slaughter capacity in that market. By contrast, the German Food Service operations again performed strongly due to the chain strategy pursued. Dutch capacity is in line with the market, although we continue to keep a sharp eye on this with the view to building a foundation for long-term sustainable growth and further consolidating our close partnerships with our farmers and customers in the supply chain.”

The Change that Matters improvement programme is ahead of schedule

Current and future trends in both Germany and the Netherlands are expected to result in further declines in both pig and cattle populations. Vion anticipated these developments and has integrated them into its strategy. However, these market developments are moving faster than expected, particularly in Northern Europe, which is why Vion decided to accelerate its strategy in 2022 with the Change that Matters programme.

Change that Matters envisions improving performance by EUR 150 million every year by 2025. Vion aims to achieve this improvement by adjusting its production footprint and implementing operational improvements, cost savings and commercial initiatives. Having been fully implemented by early 2023, this programme is already ahead of schedule with adjustments at the Emstek, Holdorf and Landshut sites and the closure of the Bad Bramstedt (beef) site. Vion expects a significant improvement for this year.

The programme also includes a transition to country-based organisations, with operations of the Pork, Beef and Retail business units due to be merged in both the German and Benelux organisations. This will put Vion in a better position to serve its customers, with the establishment of a single point of contact and farmers having closer links to customers throughout the chain. The Change that Matters improvement programme is ahead of schedule.

Sustainability is a cornerstone of Vion’s strategy. In addition to the Scope 1 and Scope 2 targets (own consumption and suppliers), special attention is being devoted to Scope 3 (the supply chain). Vion believes that sustainability goals with regard to the climate, animal welfare, biodiversity and organic products can only be achieved by improving cooperation between farmer and customer in the supply chain. That is why the Change that Matters programme also provides for speeding up the implementation of sustainable chains, giving farmers a future and customers more choices, whatever their budgeting capacity.

According to Ronald Lotgerink, “Building sustainable chains continues to be a key aspect of our strategy. They reduce food waste, improve animal welfare and improve efficiency by, for example, guaranteeing product integrity using DNA traceability. We remain committed to the Science Based Target initiative (SBTi), thus actively reducing our CO2 emissions. We achieve this by supporting regional and circular food systems in our supply chains.”