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Danish Crown is on target after the first quarter since the launch of DC Future. This was explained by the company management at a meeting of the Board of Representatives today.Since Danish Crown launched its nine-point DC Future plan in May this year, we have focused on cutting costs in the group.
The overall target is a reduction in costs of DKK 1.3 billion over a 6 to 18-month period. On top of this comes the removal of political burdens amounting to DKK 300 million.
- As regards the first seven points of the plan, we are either on target or ahead of target, and this shows quite clearly how seriously we are tackling this. The last two items require collaboration with both employees and politicians, and we are seeing a lot of good will and constructive dialogue with these parties, says CEO Kjeld Johannesen.
- We are working with a time-frame of 6-18 months because it sometimes takes a while before decisions fully impact the bottom line. For example, it is only now that we are beginning to see the effects of the many redundancies among our salaried employees earlier in the year; also the closure of facilities and new partnership agreements take time to translate into financial gains. But what we can safely say is that we are on track, says Kjeld Johannesen.
In the coming year, DC Future will continue to direct the decisions made by the group.
1. Savings and improvements in the slaughter divisions
The plan, which covers both the pork and beef divisions, includes significant reductions in direct and indirect costs at the slaughterhouses and at head office, improved logistics and purchasing as well as increased ‘flagging-out’ of production.
Preparations have been made so that capacity costs can quickly be adjusted to any changes in the supply of raw materials.
Within areas such as packaging, workwear, technical spare parts, accessories, washing, cleaning and logistics, streamlining measures and improved resource utilisation have resulted in savings running into two-digit millions.
Since the launch of DC Future, the parent company has said goodbye to 65 salaried employees. During the same period, the subsidiary Tulip Food Company has made 30 salaried employees redundant.
At the end of the summer holidays, steps were taken to cut 350 jobs in the Danish departments of the Danish Crown Pork Division. Some of these cuts have been implemented with a notice period of just one week.
Two departments in the Beef Division have been closed.
2. Improved earnings in processing companies and other joint companies
Action plans which focus on costs and competitiveness are being launched in all the companies, and will significantly boost the subsidiaries’ combined contributions to DC’s earnings.
Danish Crown’s subsidiaries have also launched a number of measures aimed at improving the overall competitiveness of the group. And results are already materialising.
Streamlining and earnings improvements have now been realised which are markedly ahead of the plan. A generally improved level of competitiveness in the subsidiaries is fuelling expectations that we will be ahead of the DC Future targets for the year. However, Danish Crown’s experience and knowledge of the market show that the competition will take a cut of this improvement, but it will still be ahead of the plan.
3. Savings via joint administration and function sharing in Denmark
Savings and simplification via the setting-up of joint administrative functions and sharing a number of specialist functions across the Danish companies in the group.
The parent company and the subsidiaries have left no stones unturned and cut right to the bone. In several areas, joint administration and sharing specialist functions have already been introduced. Together, it means that we are in line with the planned cost cuts in this area.
4. Cutting investments and production capacity in Denmark
The investment budget in the group’s Danish companies is being cut to an absolute minimum, and one or two further factories at least will be closed during the period.
Danish Crown has put a general brake on investments in Denmark. Very few and only the most important investments will be implemented. With a view to strengthening competitiveness and making optimum use of production capacity, it has been decided that the factory in Sdr. Borup will be closed in December.
5. Establishing pig slaughterhouse capacity in Germany
DC will obtain access to pig slaughterhouse capacity in Germany – focusing on local production and benchmarking as the starting point.
Danish Crown is currently analysing the possibility of establishing slaughtering capacity in Germany. However, for reasons of competition, it is not possible to go into details about this until a final agreement is in place.
6. Cost cuts for DC’s organisations at Axelborg
Savings through simplifying and streamlining DC’s services at the organisational level.
A new structure has been introduced at Axelborg with the setting-up of the Danish Agriculture and Food Council; new tasks and how the tasks are distributed have resulted in a marked reduction in the number of employees. For Danish Crown, the savings amount to approx. DKK 30 million.
7. New and market-oriented settlement concept
DC is offering pig producers a new market-based settlement concept which allows optimisation for both large and small suppliers. The aim is to ensure a broader supply of raw materials for the joint business, for the benefit of all members.
On 5 October, Danish Crown will be introducing a new settlement concept, the DC Settlement System. The purpose of the system is to strengthen the company’s competitiveness vis-à-vis its major competitors, while also increasing flexibility and manoeuvrability around the kitchen table for individual pig producers, regardless of the size of their business. The new settlement model is attracting considerable interest from all types of members, and several new suppliers have made enquiries.
8. Reducing Danish payroll costs
Danish pay levels constitute the biggest single challenge on the costs front. Payroll costs must be cut by 20 per cent, partly by scrutinising the current collective agreement, and partly by thinking about the collective agreement in new ways together with the employees.
Input from the work councils and a detailed review of routines and the existing agreements have reduced payroll costs by 4-5 per cent so far. However, the agreed target remains of overall payroll cost cuts of 20 per cent as set out in DC Future.
9. Removal of political competitive handicap
Danish Crown is demanding the removal of unreasonable political burdens which threaten the company’s supplies of raw materials and competitiveness.
At a meeting with Kjeld Johannesen, CEO of Danish Crown, and Asger Krogsgaard, Chairman of the Danish Bacon and Meat Council, in May this year, Eva Kjer Hansen (Danish Liberal Party), the Danish Minister for Food, promised to remove some of the costs borne by the slaughterhouses, for example the costs incidental to meat inspections. We have received a great deal of attention from politicians in recent months - most recently in the form of visits by Lene Espersen (Conservative People’s Party), Villy Søvndal (Socialist People’s Party) and Prime Minister Lars Løkke Rasmussen (Danish Liberal Party) to different slaughterhouses in the same week.
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