USA Group management confirmed expansion plans – Long-term strategy – Income under pressure
The world’s largest pork products supplier, Smithfield Foods, is still focussing on growth. The Americans want to extend their business, particularly in Europe. Long-term this is the right way to go, said CEO Joseph W Luter III at the presentation of the 2006 business results.
“We are in the middle of a growth phase both in the USA and in Europe,” Luter said. This can have a short term negative impact on the profits, but we are convinced that in the long run the efforts in Romania and Poland and the planned purchase of the European meat business from conglomerate Sara Lee will bring the company advantages.
The integration of the Sara Lee business will bring Smithfield a turnover increase of around USD 1.1 billion and provide access to strong brands such as Aoste and to a comprehensive distribution network. For the accounting year 2006, which ended on April 30, the Smithfield turnover was USD 11.4 billion compared with USD 11.2 billion the previous year.
However the profit was under pressure. The net profit at USD 172 million was significantly less than the previous year’s value of USD 296 million. A downright profit slump took place in the fourth quarter with a net profit of USD 1 million compared with USD 85 million the previous year.
High raw material prices
The company attributes this downturn primarily to the increased pressure on margins in the pork products business and the lower prices for livestock. So that although 6 per cent more pork products were sold, the average price dropped by around 9 per cent. The operating profit in the complete pork products business was more than halved from USD 53 million to USD 22 million.
In the accounting year 2006 the international business particularly in Poland and France suffered from high raw material costs. Another negative impact on the books was consumer reluctance to buy poultry products from the Polish subsidiary Animex because of bird flu.
After the operating profit of USD 11.7 million for 2005, Smithfield showed a loss of USD 15.6 million for 2006, against the background of a turnover in the international business of USD 1.1 billion (USD 1.0 billion last year).
The US meat concern started to takeover selected companies in Europe in 1988. The Polish Animex group has belonged to Smithfield since 1999 and in 2003 the meat products producer Morliny, also Polish, was bought. In 2003 three French companies were bought and combined into the SBS group. In 2004 SBS took over the French meat products producer Jean Caby SA. In Spain Smithfield is a part owner of the meat products producer Campofrio.
Smithfield sees Eastern Europe as the main focus for investment. It wants to invest USD 850 million in Romania in the next five years to build up an integrated production site ranging from fattening to slaughter and butchery.
“Romania will be the centre of our European strategy,” announced Smithfield’s Vice-president Richard Poulsen at the beginning of the year. In 2004 Smithfield bought the country’s largest pork products producer, Comtim, the meat products producer Agrotovis and a refrigerated storage and distribution company.