Vion invests in supply chain innovations and plant based meat in a challenging market

Date: 25-03-2021

Boxtel, 25 March 2021

“Vion faced a challenging year, along with the rest of society. It was tough, not only from a business perspective but also for society as a whole. However we were able to adapt successfully to the new circumstances and became more resilient while delivering a stable financial result. We spent more than €90 million in production locations like Boxtel, plant-based meat and new blockchain technologies, in order to create transparent supply chains. Our Building Balanced Chains (BBC) strategy is the right direction for a sustainable and healthy future,” says CEO Ronald Lotgerink.

Core messages:

  • Successful start of the execution of the Building Balanced Chains (BBC) strategy, providing a sustainable and solid basis for our livestock farmers and consumers.
  • The plant-based start-up ‘ME-AT’ got off to a good start in its first year of business.
  • The BBC concept ‘De Groene Weg’ achieved substantial turnover growth in the organic meat segment and announced its intention to expand its activities in Germany.
  • Vion successfully completed the takeover process of the Adriaens cattle abattoir in Belgium in February 2021.
  • Smart cameras, which were developed in close cooperation with Dierenbescherming, Eyes on Animals and Deloitte, are a next step in Animal Welfare measures.
  • Introduction of a DNA integrity system and Vion Pork Chain VISION, a blockchain connecting the supply chain to a ‘digital highway’.
  • Despite the major impact of COVID-19 on our operations, people, suppliers and customers alike, Vion was able to respond effectively.
  • Vion embraces the changes of the amendment to the German Governmental Act and welcomed its flex workers as employees at 16 German locations in January 2021.
  • Vion shifted the export to third-party countries from the German locations to the Dutch locations, when African Swine Fever (ASF) affected the export for Germany in 2020.
  • Operational expenses included extra costs (over € 15 million) related to all measures Vion had to take in relation to COVID-19, which have been partly offset through operational excellence projects.
  • Normalised EBITDA was € 122.3 million thanks to strong positive developments of both Business Units Beef and Retail, which compensated the effects of the lockdown at Food Service and the lower results at Pork compared with the excellent year 2019.
  • Net profit increased to € 52.9 million, impacted by an increase of the deferred tax asset (€ 14 million) and badwill related to acquisitions (€ 3 million). Both elements are non-cash items resulting from application of IFRS.
  • At the end of the third quarter of 2020, Vion successfully obtained a working capital facility of € 250 million, which is also linked to the sustainability targets. The company will use this to refinance its existing facility.

COVID-19

CEO Ronald Lotgerink: “The start of the year was quite promising, until the alarming signs of COVID-19 reached all of us. The food business was recognised as a crucial sector for society, so we had to keep producing food products for consumers and ensure that food supply chains would not be disrupted. The closure of the restaurants led to a very sharp decline in catering products. From the early phase of the pandemic, Vion implemented dedicated teams to safeguard the health of our employees, the continuity of our business and the company’s cashflow. Stringent corona measures, collaboration with universities and authorities, and lots of testing formed the basis for preventing the spread of the virus.”

Strategic focus on supply chains for specific market demand

Vion continued to work on a sustainable food supply involving themes such as food safety, animal welfare, product integrity and traceability, plant-based products and safe working conditions. The increased focus on these themes underlines the importance of corporate social responsibility to the company. At the beginning of 2021, Vion announced the introduction of a supply chain with DNA traceability for better transparency in this chain. Together with the animal welfare organisations Dierenbescherming, Eyes on Animals and Deloitte, Vion introduced the use of artificial intelligence in camera surveillance to improve animal welfare.

Results of the Business Units

The Business Unit Pork faced highly volatile conditions not only as result of COVID-19, but also as result of the discovery of African Swine Fever (ASF) in wild boars in Germany. This caused significantly higher costs due to the measures taken, and a drop in pig prices. During the year, the outbreak of ASF in Asia in 2018 still had a positive effect on the demand for pork meat, although less significantly than in 2019. Innovations were launched for the Good Farming Star pork concept, i.e. a DNA integrity system and Vion Pork Chain VISION, a blockchain connecting the supply chain to a ‘digital highway’. BBC concept ‘De Groene Weg’ achieved substantial turnover growth in the organic meat segment, also through expansion to Germany. The planned integration of the operations of Scherpenzeel into the production facility in Boxtel is well on track and is expected to be finalised in 2021.

The Business Unit Beef was also affected by the COVID-19 pandemic, due to the closing of restaurants and out-of-home consumption in multiple countries. As a result, sales of luxury beef products declined. The Dutch market was more stable in 2020 compared to 2019. In February 2021, Vion successfully acquired Beef producer Adriaens in Belgium, after a period of intensive collaboration. Vion will be operating in the Belgium market, as one of its home markets in Western Europe.

The lockdown has consequences for the Food Service Business Unit: Restaurants, hotels and other catering facilities were closed in Europe because of the pandemic. After the first lockdown, sales gradually recovered to a reasonable level. Vion successfully launched a market restart campaign, focused on helping restaurants to get their business back up and running effectively. Unfortunately, a second lockdown followed after a rise in the number of infections, which again had an impact on the Food Service Business Unit’s activities, but the effects were not as great as during the first lockdown.

The new Business Unit Retail had a good first year. Sales volumes increased and its vegan products are rapidly establishing a prominent position at leading retailers, such as supermarkets. Sales volumes of pre-packed meat showed significant growth, partly driven by increasing demand from retailers as a result of increased at-home consumption during lockdowns.

Doubling of Vion workforce in Germany

In 2020, the German government passed the new Occupational Health and Safety Act for the meat industry. Flex workers at 16 German Vion locations received permanent contracts as of 1 January 2021.

“We are convinced that this is the right way forward and a good development for our industry in Germany. We look forward to working closer with our new permanent colleagues. The objective of this new legislation should be an industry-wide agreement to create a level playing field for all companies in our industry.

Expectations

This year will also be challenging for Vion. It will take time before everyone is vaccinated against COVID-19 and we can return to normal operations. We are also seeing a lot of unrest in the market among our customers and consumers. The hospitality sector is still experiencing lockdowns, so we are constantly adapting our activities. In Germany, African Swine Fever and the new Occupational Health and Safety Act will require our attention. In dealing with these challenges we will be flexible and agile and adapt to the circumstances, as we did in 2020. We see that the core elements of our ‘Building Balanced Chains’ strategy are relevant and successful, and we will make good use of them in the coming year,” concludes Ronald Lotgerink.

Financial Results and Financial Position

Consolidated key figures

(in millions of euros) 2020 2019
Revenues

Normalised EBITDA from continued operations

Earnings before interest and taxes

Profit for the year

Net cash flow from operating activities

Net cash flow from investment activities

Net debt

Solvency

4,901

122.3

52.6

52.9

271.7

-73.5

6.9

46.0%

5,060

113.2

36.4

26.6

-30.1

-51.8

178.7

38.1%

  • Revenue slightly decreased by 3.1% to € 4.9 billion, while the sales volume is stable compared to last year. The decrease in Revenues is driven by the lower sales prices for both Pork and Beef and its related products, as a result of the volatile markets during the year.
  • Gross margins increased due to further optimisation of valorisation initiatives.
  • The normalised earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by € 9.1 million to € 122.3 million. The Food Service Business Unit was seriously impacted by the lockdown of the out-of-home market. The Pork Business Unit saw its exports to China decrease compared to its exceptionally high exports in 2019. These effects were compensated by a successful start of the new Retail Business Unit and a recovery of the performance of the Beef Business Unit, which suffered from challenging conditions in previous years.
  • Depreciation and amortisation costs increased by € 3.0 million to € 62.4 million due to investments made in recent years. Furthermore, Vion recognised additional impairment charges of € 4.9 million for the write-off of fixed assets following the company’s strategic re-orientation and the announcement of the closure of certain production locations.
  • Profit for the year amounts to € 52.9 million, compared to € 26.6 million in 2019. The higher net result is mainly driven by the higher normalised EBITDA and the strong increase of the deferred tax assets.
  • Financial income and expenses decreased by € 2.8 million to € 4.5 million in 2020. This decrease can mainly be attributed to the lower interest expense on the working capital facility.
  • Due to lower sales prices during the year, a solid operating result and a continuous strong focus on cash flow, Vion was able to strongly decrease the use of the working capital facility by € 178.7 million.
  • In 2020, € 73.5 million was invested in further optimising the company’s footprint and improving the efficiency of the various production locations.
  • At year-end 2020, Vion had a positive liquidity position of approximately € 49.0 million. Thanks to the strong net cash flow, no funds were drawn under the € 250 million working capital facility.
  • In 2021, Vion will issue a dividend payment of € 17.5 million (€ 344.59 per issued share) for the year 2020.

2020 Annual Report and CSR report

Vion’s 2020 Annual Report and CSR report is available on its website.