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Long drought provided challenges in an otherwise good year

13/02/2019

The long, drawn-out drought from April to August provided challenges for Danish Agro group in what was otherwise a good 2018 for Danish Agro.

Financially, the group performed well in ten months of the year, but experienced problems in August and September because of the drought. It meant that pre-tax profit for the year landed on EUR 60 million, EUR 22 million down on the preceding year. Adjusted for the effects of the drought, 2018 was a satisfactory year according to Group CEO Henning Haahr: 

"The drought hit many farmers and the Danish Agro group hard in 2018. We have tried to alleviate the worst effects through more focus on cost control and have helped farmers with a number of initiatives, including relaxing trading terms. We did very well in 2018 with the exception of the two months when the drought hit hardest," he says.

But Haahr also believes that group activities were strengthened in 2018. 

"Despite the drought, turnover reached EUR 4.4 billion, which is EUR 0.2 billion higher than the preceding year – an increase of 5%. Higher prices can take some of the credit, but increased levels of activity throughout the group were also responsible. The group's companies have generally increased market share, which is very satisfying," he concludes.

Enhanced position
The Danish Agro group has improved its position in 2018 via a series of structural moves. 

The branch structure in Denmark was further adjusted to allow more branches to be open in the spring and during harvest, when activities are at their peak. Danish Agro invested in digital specialist FieldSense in 2018, a partnership which allows the group to offer a range of digital solutions to Danish farmers, with weather stations in particular achieving success. 

We strengthened our presence on the international markets through the acquisition of agribusiness companies in Finland, Sweden and Latvia. Those acquisitions have consolidated our presence on these three markets, and made us a stronger partner for the farmers there. Considerable progress was made in Germany with the implementation of Ceravis AG's turnaround plan, despite the challenges of the drought. The fact that Ceravis still managed to increase turnover by 6% in a difficult market is very positive. 

Within the group's food activities, hatcheries group DanHatch and a Belgian partner acquired three French hatcheries – Goasduff S.E, Josset and Avi Loire. The joint venture now has a market share in France of 25%. DAVA Foods achieved organic growth of 5%, which is well done. The company scored a success with concept development within protein products, To-Go solutions with eggs, and new packaging types. Consequently, DAVA Foods increased its profits with an operating result of EUR 8 million. 

The Danish Agro group also improved its position within machinery sales, achieving turnover of EUR 473 million, which is EUR 122 million more than the preceding year.

"We worked hard on machinery activities in Denmark, Norway and Sweden last year, making considerable progress in building the structure we ultimately want to have. And in May, we reached agreement on the acquisition of the remaining 55% shareholding in our Baltic machinery companies, which also represent CLAAS. That means we will now represent CLAAS in seven different countries, with machinery activities in a total of nine countries," states Henning Haahr, Group CEO of Danish Agro. 

The Chairman of the Supervisory Board, Jørgen H. Mikkelsen, is very satisfied with the way the problems caused by the drought in 2018 were tackled:

"The board and I are extremely satisfied with the way Danish Agro worked so professionally with the difficult conditions caused by the drought. A healthy balance was struck between helping farmers, cutting overheads and the continued growth of the group. The drought was an event that we cannot do anything about and has to be taken seriously. But we also need to ensure that Danish Agro is ready to support and service farmers to the utmost, when we look forward to what will hopefully be a more normal harvest in 2019. We believe that the management and employees of Danish Agro managed to achieve the right balance in the best possible way. And that's very positive," says Mikkelsen, adding:

"I am also delighted that we can still provide satisfactory returns to our members in the form of higher dividends. Being able to do so is a goal in itself when the right economic circumstances are present, given that we are a cooperative,” he concludes.

Targets for 2019
The Danish Agro group sets high financial targets for 2019. According to Haahr, the existing business will of course have primary focus, and the group will seek to utilize every synergy possible from existing activities to ensure overall market strength is improved. 

"The effects of the drought will extend into the first six months of 2019, and we will be adjusting our financial targets accordingly. Within agribusiness activities in Denmark and abroad, we will continue to focus on ensuring that we are a competitive partner for farmers. We will keep a close eye on trends within primary farming and concentrate on being efficient, utilizing more synergies between our companies and offering expertise and service that farmers need. We will also seek further progress within machinery sales," says Haahr before adding:

"The group's long-term objective is to make our premix and vitamin activities into a more global business and build on the company's excellent results in 2018. We will therefore also be analysing opportunities for future growth on the international markets in 2019, including Asia. Our food companies will focus on integration and utilizing the synergies within their existing businesses, including integration of acquisitions and rationalising operations," he says.

According to Haahr, Danish Agro's objective is to realise the following financial targets in 2019: