corporate strategies in the global market place by richard brown

8/3/2019 Corporate Strategies in the Global Market Place by Richard Brown.

1/33

1 Gira 2009

Corporate Strategies in the Global

Market PlaceAHDB Outlook Conference

February 3rd 2009

Richard Brown01323 870 144 [email protected]


2/33

2 Gira 2009

Giras key multi-client projects ... in meat, now focused on areas of change

CONCEPT PROPOSAL PRODN COMPLETE

Meat Company Panoram

Romania: Pigmeat Ops

World Meat Marketslong term trends

Meat in Retail EU25

Russia MeatOpportunities

Top 25 EU Red meat Processors.

Global - Differentiation

FPPoultry markets.BSE 01.& 96

Italian Beef Imp.

EU Pigmeat.Poultry Ingredients

Po

tential/P

riorityHigh

Medium

GMC 08-09

n.b. only includes key current projects

5th Quarter

ValorisationGlobal impact

of Bio-Fuels

China Meat Markets

Meat in Catering: EU27

FP Poultry markets EUSustainability

in Meat

Meat PackagingCoop Strategies

Organic

S.American

meat SWOTin Europe

Long termGlobal

meat marketsafter the crash

Stage of Project Development

EU27 ProcessedMeat Markets


3/33

3 Gira 2009

1. Global meat market background for 20092. European meat industry developments

3. Global industry context4. Concluding points on UK

Agenda


4/33

4 Gira 2009

Global economic slump dominates the 2009variables for the meat sector

Economic downturn and credit crunch dwarfs the impact of othervariables and forces a pausein long term global developments

S/T Demand downturn, liquidity problems in everything!, Pilgrims/USA,

stronger USD, commodity price/cost downturn, pause in meatco M&A

Feed & energy cost volatility Trade obstruction from domestic lobbies

EU for Brazil in BF (poor precedent for PK); Russia blocking imports

Disruptive political developments

Russia resumes historic norms, Thailand, War on Terror knock-on, AR, USelections but new push on WTO to avert period of protectionism

Climate change: major impact on SH trade, and limits BF

S/T: drought SE Australia, NZ, Middle East, AR, western US

Disease: lessdisruptive than normal

PPRS/China; BTV/EU FMD and HPAI restrictions easing (for now)

Food safety and standards: expensive & disruptive

Melamine, e-coli dioxin

Worldwide retailer power: Price pressure on suppliers


5/33

5 Gira 2009

2008 was a year of two parts, with 4Q08 hiatusstretching into a steep global downturn in 09

Global markets overheated in 1-3Q07 Commodity price boom included meats until:

4Q08 credit crisis, with dramatic reversal for meat sector

demand hit by current economic meltdown & volatility

Trade volume decline (and blockages): with price impact

dramatic changes to global competitiveness: currency, feed cost etc.

2009 demand downturn: trading down in quality and/or volume with lower priceimpact (HD growth) but coinciding with production fall for many meats (but not inall countries), which should help to restore supply:demand balance, and underpin

prices and producer profitability PK: big production decreases in US, EU, BR in response to 08 losses:

but uncertainty about producer profit optimism from falling feed prices

BF: small production fall in most global regions due to general desire tore-build herds coinciding with short term decline in cattle price

SH: desire to re-stock after drought in NZ/Au. Demand and trade decline

PY: careful growth after the 2007/08 boom in many countries (in spite ofthe steep fall in feed costs)

Weak stlg underpins UK producer prices


6/33

6 Gira 2009

so only tiny increase in global meat consumptionforecast for 2009 (negative if CN excluded)

Developments in World Meat Consumption 2004-2009

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

260,000

2004 2005 2006 2007 2008 2009

('000tc

we) Poultrymeat

PigmeatSheepmeat

Beef & Veal

Source: Gira


7/33

7 Gira 2009

Global trading in meat will decline in 09, partly inreaction to the strong growth in 08

2008: +1.6 mio tcwe (+7%); 2009: -1.4 mio tcwe (-6%)

Developments in Meat & Live Trade 2004-2009

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

2004 2005 2006 2007 2008 2009

('00

0tcwe)

Poultry

Pigmeat

SheepmeatBeef & Veal


8/33

8 Gira 2009

70

90

110

130

150

170

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Expendi

tureindex1997

Beef & veal

Pigmeat

Poultry

Sheep

TOTAL

EU meat demand decline in 2009 except forpigmeat (due to price increase)

EU Meat Expenditure Index - 1997 - 2009

BSEBSEBSEBSE

HPAIHPAIHPAIHPAI

AI in the NLAI in the NLAI in the NLAI in the NL

FMDFMDFMDFMD

Note : wholesale prices for poultrymeat and producer prices for other meats

Source: Gira


9/33

9 Gira 2009

2. European meat industry developments & strategies


10/33

10 Gira 2009

Strong forces for change on EU (and global) meat

industry structures

Forces forChange on

European meatproducers &

processors

COST reductions,

re-organisation& strategicMARKETING

CUSTOMER alignment, FORWARD & HORIZONTAL integration & COST pressure

PRICE pressure,SEGMENTATION,

& MARKETING

Lower domestic VOLUMES,Fewer domestic SUPPLIERS

Multi-sourcing with imports

NPD & marketing

at ALL levels

Hedging & RISK MANAGEMENTIncreased EFFICIENCY

and higher PRICES needed L/T

WHOLE-CHAINSECURITY

Retailer concentration& internationalisation

Retail driven supplychain rationalisation

Meat in Hard Discount& Retail Branding

catalysed by recession

Low growth, but moreconsumer segmentation convenience demand etc.

Risingfeed, labour, fueland regulatory costs:aggravated by currency

Political & pressures:CAP Reform, WTO Rising imports

Horizontal & verticalconsolidation ofslaughter groups

Diseases & scandals:"Zero risk" attitudeby retail & consumers

2. Executive Summary


11/33

11 Gira 2009

500 1,000 1,500 2,000 2,500 3,000

VION (incl. GCFG) (NL)

Danish Crown (DK)

ABCS (FR)

Tnnies (DE)

Westfleisch (DE)

Veronesi (IT)

Doux Europe (FR)

LDC (FR)

Glon-Sanders (FR)

HK Scan (FI)

Total meat production ('000 t cwe)

Source: Gira compilation and estimates

The top EU primary processors are very large andactive but there is a (very) long industry tail

Top 10 EU 27 meat companies by meat production volume ('000 t cwe) -2005/06 (updated for subsequent M&A)


12/33

12 Gira 20090

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Germany Spain France Poland Denmark

Netproduction('000

tcwe)

Other producers

N5 producer

N4 producer

N3 producer

N2 producerLeader

Source: Gira estimates

The EUs pig processing industry is concentrating,mainly nationally, quite quickly Vion forcing the pace

Production by operator in the top 5 productioncountries ('000 t cwe) 2005/06

TiCanOthers

Danish Crown

Tnnies

Others

VION

WestfleischGausepohl

D&SCooperl

Others

Socopa

GlonSanders

Cecab ABCS

Primayor

Others

Vall

Companys -

Frimancha

El Pozo

Jorge

Batalle - Juia

AnimexOthers

Sokolow

Duda

Lmeat Lukow

Tulip

Others

George Adams

and Sons

Bowes of

Norfolk

Cranswick

Country Foods

Grampian

Source: Gira

VION M&A stream with needfor subsequent restructuring toachieve scale economies

DE: overcapacity &competitor reaction

NL >60% of pig kill: efficient

UK: GCFG restructure

Danish Crown: live export, UK& Se/Po/Dk investment

Increasing concentrationwithin most countries (cf. FR)

Lower kill, cost pressure

Selectively X-border

Latest M&A (change to 06 sitn) VION acqd Grampian (UK)

Tulip (DC) acqd Adams

ABC (FR) : Socopa (FR) merger Primayor (ES) broken up

Groupe Smithfield / Campofrio


13/33

13 Gira 2009

Top 10 pigmeat companies hold 32% of EUproduction VION is now first

Top 10 pigmeat companies in volume ('000 t cwe) 2005/06

Top 10 pigmeat companies in share in EU 25 production (%)

2005/06

VION and Danish Crown lead the way but withTnnies & Westfleisch growing faster in DE

Big volumes much bigger than BF and PY

More forward integration

More international

Leaders need to achieve lowest cost status

After the top 4 players, there is a long tail

Coops still important

Smithfield also active in separate primary and furtherprocessing ventures

5.3 Production etc. - Pigmeat

500 1,000 1,500 2,000

VION (incl. Grampian) (NL)

Danish Crown (DK)

Tnnies (DE)

Westfleisch (DE)

ABCS (FR)

Cooperl (FR)

Smithfield Europe (PL)

D&S Fleisch (DE)

Glon-Sanders (FR)

HK Scan (FI)

Pigmeat production ('000 t cwe)


VION Danish Crown

Other EU-25HK Scan

Glon-Sanders

D&S Fleisch

Smithfield Europe

Cooperl

Westfleisch

ABCS

Tnnies



14/33

14 Gira 2009

0

200

400

600

800

1000

1200

1400

1600

1800

France Germany Italy UnitedKingdom

Spain

Netproduction('000

tcwe)

Other producers

N5 producer

N4 producer

N3 producer

N2 producerLeader


The leading beef processors are pulling away fromthe long tail of this traditionally fragmented industry

Leaders' market share in the top 5 production countries('000 t cwe) 2005/06

fragmented, nationally oriented industry,with no genuinely multi-national players except JBS's stake in Inalca

VION M&A in DE catalyses concentration and reaction, and now UK (GCFG)

France has concentrated BF&V sectorwith the new EU leader, ABCS

Long way to go in ES and IT

Industrial case ready, declining cattlesupply, imports & HD are the hot topics

VION

OthersWestfleisch

GausepohlMllerFleisch Frber

AIBP

OthersGrampian

Foyle

DawnWoodhead

Bros.

ABCS

Others

SocopaSVA

Kermn

Terrena

Norteos-Gypisa

Others

SAT Fribin

El Encinar

de Humienta

Vials

Soler

Merca-

Carne

InalcaOthers

Unipeg

Colomberotto

BuginF.lli Schellino


15/33

15 Gira 2009

Europes top 10 beef & veal processors hold 27% ofEU production: ABCS (FR) is now first

Top 10 beef & veal companies in volume ('000 t cwe) 2005/06

Top 10 beef & veal companies in share in EU 25 production(%) 2005/06

ABCS is new leader on French market (Alliance,Bigard and Charal - ABC) and Socopa. It ownsthe only real fresh red meat brands in France.

VION major player in DE & UK, + NL

entry threat of Tnnies in beef.

Mixture of private and coop ownership

Irish with EU market interests

very long tail ... with overcapacity

5.2 Production etc. - Beef

100 200 300 400 500 600 700

ABCS (FR)


AIBP Group (IE)

Dawn Group (IE)

Van Drie Group (NL)

Inalca (Cremonini/JBS) (IT)

SVA (Intermarch) (FR)

Terrena (FR)

W estfleisch (DE)

Unipeg (IT)

Beef & veal production ('000 t cwe)


AIBP Group

Van Drie Group

Dawn Group

Inalca (50:50

Cremonini:JBS)

SVA

(Intermarche)

Terrena

WestfleischUnipeg

Other EU-25

VIONABCS



16/33

16 Gira 2009

Poultry industry concentration generally high withineach national market

Production by operator in the top 5 productioncountries ('000 t cwe) 2005/06

concentrated industry but on anational basis

In FR, IT and DE, the top 5 companieshold more than of production

No multi-nationals present

PHW

Velisco

Rothktter

Heidemark

Others

Stolle

Others LDC

Unicopa

Terrena

Glon

Doux

UveDoux

Pavo y

Derivados

COREN

Others Sada

Moy Park

OthersGrampian

2 Sisters

Bernard

Matthews

Faccenda

0

200

400

600

800

1000

1200

1400

1600

1800

2000

France United

Kingdom

Germany Italy Spain

GIPproduction('000tcwe)

Other producers

N5 producer

N4 producer

N3 producer

N2 producer

Leader


Aia (Veronesi)Others

Amadori

Arena Fresh

Agricola

Berica

Fileni Simar

Latest M&A (change to 06 sitn (data)) VION acqd Grampian (UK)

Mafrig acqd Moy Park (UK, Fr)

Terrena (FR) acqd Unicopa (FR)


17/33

17 Gira 2009

Top 10 poultrymeat companies hold 30% of EU 25production Doux is still the leader

Top 10 poultrymeat companies in volume ('000 t cwe) 2005/06

Top 10 poultrymeat companies in share in EU 25 production(%) 2005/06

PY much more backward integrated than theother species (but similar concentration)

Problems in Further Processing

Mainly private very few coops, linked to feed

Doux Europe, is retrenching in Europe, but

expanding in Brazil, Doux Frangosul, (ca. 50% ofgroup volume) in PY & PK

5.4 Production etc. - Poultrymeat

100 200 300 400 500 600

Doux Europe (FR)

Veronesi Group (IT)

LDC (FR)

PHW Gruppe (DE)

Grupo Sada (Nutreco) (ES)

Moy Park (Marfrig) (UK)

Amadori (IT)

Gebr. Stolle (DE)

Two Sisters (UK)


Poultrymeat production ('000 t cwe)


LDC

Grupo Sada PA

SA (Nutreco)

PHW Gruppe

Moy Park (Marfrig)

Amadori

Gebr. Stolle

Two Sisters

VIONOther EU-25

Veronesi GroupDoux Europe



18/33

18 Gira 2009

More EU meat industry concentration in the future, butcontradictory developments in vertical integration

Feed ingredients

Breeding

Feed compounding

Farming

Slaughter &

cutting

Further processing /Retail packing

Retail / Foodservice

FutureEU meat value chains

Pigmeat Broilers TurkeyBeef & Lamb


19/33

19 Gira 2009

Much of the consolidation is to achieve better scaleand better capacity utilisation

The objective of size is scale economies in everything: Many different answers to optimalsize, depending on:

Processing: depends on automation / technology, labour cost,standardisation

Marketing: meat: depends on customer demands. 5

th

Qtr: gains Purchasing: depends on proximity & availability of livestock: reactions

of others & intensity of local competition

Degree of forward integration

UK and European plants are much smaller than US

per week p.a carcass

wt kg

Vol t.p.a. Many contradictions to the

'rule'

Broilers 1,000,000 50,000,000 2 100,000 Faccenda 2x this size, recent

Sun Valley acq'n 1/4Turkeys 100,000 5,000,000 15 75,000 Depends of bird breed, sex

etc.Pigs 20,000 1,000,000 80 80,000 DC Horsens 4x, no Belgian

plantCattle 2,000 100,000 325 32,500 Tonnies new plant 5x, ABP

'model' 1/2Lambs 30,000 1,500,000 20 30,000 Many smallerSource: Gira estimates

'Optimal' primary processing plant size


20/33

20 Gira 2009

Structural change : a new model in EU supply chains,making retail more accessible to imports

Very different models

Different motivations

The UK model is unusual in

EU today but is spreading: AH in NL

ICA in Sw

Tesco in Irl, Pol ..

Hard discounters

Knock-on effect to competing

retailers in these countries Opens more retail markets to

S.Americans than the prior

reliance on catering

Traditional :Disassembly for farmers

Kill & Cut& someRetail

PackFarmers

PU

SH

PUSH to

broad market& customer

portfolio

UK - New : Assembly for retailers

K&C

K&C

K&C

K&C

Farmers Retail

PULL

Secondarycut & retail

pack

Source: Gira Meat in Retail: Winners & Losers report


21/33

21 Gira 2009

UK red meat sector has emerged as aseries of (almost) mutually exclusive chains

Similar for allretailers

Short chain

Dedicated plantsOnly limited

overlap

Corporate

alliancesVertical control

Dominated by retail

Secondary cuttingis almost like toll-processing forretail

Easy import access

UK red meat chain model

2 cut & RPABP, Dungannon, Crans

K&C

2 cut & RPHilton, St Merryn, Tulip

K&C

K&C

K&CFarmers TESCO

PULL

K&C

K&CK&C

F

armers

SAINSBURY

PULL

2 cut & RPABP, Dawn, WCF, GCF

K&C

K&C

K&C

K&C

Farmers ASDA

PULL

2 cut & RPWoodhead, WCF, GCF

K&C

K&CK&C

Farme

rs

MORRISONS

PULL

2 cut & RPABP, RWM, Dawn, Tulip

K&C

K&C

K&CFarmers

SOMERFIELD

PULLK&C


22/33

22 Gira 2009

The fragmented FP industryis explained by regionalconsumption variations

Restructuring has started,

but is still slow: family businesses

local operators providing added-value

regional productsNew ownership

Top 2

Some forward integration

Impact of new raw materialsourcing strategies

PK mightrepeat PYexperience

European further processing industry structure is alsofragmented but is slowly concentrating

6. Suppliers' strategies Industry structure

PM production of the main European producers 2007(in volume and in % of total EU-9 industrial production)

0 50 100 150 200 250 300 350 400 450 500

Bell (CH)

Madrange (FR)

Grandi Salumifici Italiani (IT)

Fiorucci (IT)

Cranswick (UK)

Intermarche (FR)

El Pozo (ES)

Sokolow (PL)

Kemper (DE)

Westfleish (DE)

Edeka plants (DE)

Kerry Foods (UK)

Nestl-Herta (CH)

Animex (PL)

Zwanenberg (NL)

Tonnies (DE)

Zur Mhlen Gruppe (DE)

Danish Crown (DK)

Campofrio Food Group (ES)

Vion (NL)

Source: Gira estimates PM production ('000 tpw)


23/33

23 Gira 2009

UK is the largest EU importer of processed meat (largelybacon). German labour cost advantage over neighbours

9 Top EU countries FP trade balance - 2007

Note: the product coverage may differ for each countryexplaining differences between trade expressed in

country balance tables and in the Eurostat analysis

2. Market overview - Trade

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

DE ES IT F PL UK BE NL DK

Trade('000tpw)

Export

- Import

Net trade

- Imports

Note: Poultrymeat based PM & salted fats includedSource: Gira from country reports balance tables

Exports


24/33

24 Gira 2009

3. Global meat industry perspectives


25/33

25 Gira 2009

US meat industry is muchmore integrated, vertical &horizontal, driven by scale and they are internationalising

Feed ingredients

Breeding

Feed compounding

Farming

Slaughter &

cutting

Further processing /Retail packing

Retail / Foodservice

USmeat value chains

Pigmeat Broilers TurkeyBeef

C ill ll d t d t i iti l t


26/33

26 Gira 2009

Cargill well adapted to grow in positive longtermdemand conditions, with managed risk, globally

Other names to watch:

Tyson-IBP, NAFTA

Slow outreach

Smithfield: integrate

EU Br & Bf exit

Sadia, Perdigao JBS and other

Brazilians

Vion Danish Crown

Trading

Animal feed

Slaughter

Farm supplies

Retail packing

Milling & crushing

Verticalintegration Industrial farms

Grains

Biofuels

Steel

MeatsPk, Bf, Ch, Tu

Financial services

C

omplimentarysectors

Geographic roll out

Rapid recent expansion of these large-corporates to exploit scale

& global opportunities forcing reaction from incumbents

Branding

CARGILL global, strategic, agribiz. strength

US Global

L t i t t h b t l it L/T


27/33

27 Gira 2009

Large corporate investment has been to exploit L/Tglobal demand growth and globalisation

50 000

100 000

150 000

200 000

250 000

300 000

350 000

2005 Poultry Pigmeat Beef Sheepmeat 2015

'000 t cwe

Source: GIRA

+24 426

+21 415

+7 982+2 147

259 780

315 153

0

0.5

1

Sheepm

eat

Beef

Pigm

eat

Poultr

y

Sheepmeat

BeefPigmeat

Poultry

Meat consumption by species - 2005/2015

Previouspositive long term global GDP forecasts drive +20% consumption in 10years great agribusiness opportunity, but straining feed and production resources

.. But the global economic outlook has seriously deteriorated: meaning weakershort term meat demand growth (CN dependent)

Gira is updating it's Long Term world meat forecasts in 2009

Th B ili h h d t th ld t d


28/33

28 Gira 2009

The Brazilians have charged onto the world stage: armedwith BR cost advantage, profit, new capital & ambition

Brazilian MeatCo Share Prices

0.0

3.0

6.0

9.012.0

15.0

18.0

21.0

24.0

27.0

30.0

33.0

Jan/06

Mar/06

May/06

Jul/06

Sep/06

Nov/06

Jan/07

Mar/07

May/07

Jul/07

Sep/07

Nov/07

Jan/08

Mar/08

May/08

Jul/08

USD

.

0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

B

RL/USD

.

JBS SADIA Perdigao Marfrig Minerva BRL/USD

Source: Bovespa

Stock Market

1. PY integrators lead bySadia& Perdigao2. JBS leading the BF processors

Si ifi t t M&A hi h k th bi t


29/33

29 Gira 2009

Significant recent M&A which makes the biggestfirms bigger, more global, and more BR

Top Global Meat Company

Primary Production Volume estimate '000t cwe

0 2000 4000 6000 8000 10000 12000

Tyson Foods

JBS

Cargill Meat Solutions

Pilgrims Pride

Smithfield Foods

Vion

Danish Crown

Sadia

Perdigao

Doux

Next 10

Bf

PkPy

Source: Gira estimates (LTM + Panorama, updated for M&A)

Bf Pk Py TOTAL

Kill share of top 10 25% 10% 17% 16%

Kill share of 2nd 10 3% 5% 1% 3%

E en agrib siness stocks ha e pl mmeted forcing a


30/33

30 Gira 2009

Even agribusiness stocks have plummeted forcing apausein strategic developments probably not for long

Pilgrim's Pride$30 to $0.31 !!

Smithfield Foods$32 to $7

Tyson$19.50 to $7

and BR share prices have fallen very sharply as well


31/33

31 Gira 2009

and BR share prices have fallen very sharply as wellsince 3Q08 undermining investment potential

Brazilian MeatCo Share Prices

0.0

3.0

6.0

9.0

12.0

15.0

18.0

21.0

24.0

27.0

30.0

33.0

Jan/06

Mar/06

May/06

Jul/06

Sep/06

Nov/06

Jan/07

Mar/07

May/07

Jul/07

Sep/07

Nov/07

Jan/08

Mar/08

May/08

Jul/08

Sep-08

Nov-08

USD

.

0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

2.7

BRL

/USD

.

Perdigao Marfrig JBS SADIA Minerva BRL/USD

Source: Bovespa StockMarket


32/33

32 Gira 2009

4. Some concluding points applied to UK

The decline of the UK livestock industry presents a


33/33

33 Gira 2009

The decline of the UK livestockindustry presents aworrying precedent processors and for EU27

Self sufficiency ratios illustrate thedecline of the UK meat sector

Production fall facilitated by de-coupling and low confidence

Ease of import access: NZ in lamb

S.America and Ireland in beef

Denmark & NL in pork

Animal disease crises

Regulatory burden

Low investment and weak supplychain relationships

Retail domination

Precedent even for UK milk Precedent for EU27

but stlg decline hugely helps

New leadership after 07/08 commodity

boom? Sustainability?

UK Self Sufficiency in Meat

0%

20%

40%

60%

80%

100%

120%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007f

GIP/Con

sumptioncwe%

Sheepmeat

Poultry

Beef

Pigmeat

Source: GIRA Meat

Club

forecasts, Dec 06,

based

on Eurostat historic

UK Raw Milk availability scenarios

0

2000

4000

6000

8000

10000

12000

14000

16000

2000

2001

2002

2003

2004

2005

2006

2

007e

2

008f

2

009f

2

010f

2

011f

RawMilk(m

illionlitres)

Production

OptimisticProductionPessimisticProductionLiquid

Manufacture

OptimisticManufacturePessimisticManufactureNet exports

Source: Gira forecasts based on Defra historic

corporate strategies in the global market place by richard brown

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