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Richard Brown
01323 870 144 rbrown.gira@btinternet.com
Gira 2009
Giras key multi-client projects ... in meat, now focused on areas of change Stage of Project Development CONCEPT High Potential / Priority
5th Quarter Valorisation
Global impact of Bio-Fuels
China Meat Markets Meat in Catering: EU27 FP Poultry markets EU Sustainability in Meat Meat Packaging Coop Strategies Organic
PROPOSAL
PRODN
COMPLETE
S.American Meat Company Panorama meat SWOT EU27 Processed in Europe Meat Markets Romania: Pigmeat Ops World Meat Markets Long term GMC 08-09 long term trends Global meat markets Meat in Retail EU25 after the crash Russia Meat
Opportunities
Top 25 EU Red meat Processors. Global - Differentiation FPPoultry markets. BSE 01.& 96 Italian Beef Imp. EU Pigmeat. Poultry Ingredients
Gira 2009
Medium
n.b. only includes key current projects
Agenda
1. Global meat market background for 2009 2. European meat industry developments 3. Global industry context 4. Concluding points on UK
Gira 2009
Global economic slump dominates the 2009 variables for the meat sector
Economic downturn and credit crunch dwarfs the impact of other variables and forces a pause in 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 Russia resumes historic norms, Thailand, War on Terror knock-on, AR, US elections but new push on WTO to avert period of protectionism S/T: drought SE Australia, NZ, Middle East, AR, western US PPRS/China; BTV/EU FMD and HPAI restrictions easing (for now) Melamine, e-coli dioxin
Gira 2009
2008 was a year of two parts, with 4Q08 hiatus stretching 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 price impact (HD growth) but coinciding with production fall for many meats (but not in all 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 to re-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 of the steep fall in feed costs) Weak stlg underpins UK producer prices
Gira 2009
so only tiny increase in global meat consumption forecast for 2009 (negative if CN excluded)
Developments in World Meat Consumption 2004-2009
260,000 240,000 220,000 200,000 180,000 ('000 t cwe) 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2004 2005 2006 2007 2008 2009 Source: Gira Poultrymeat Pigmeat Sheepmeat Beef & Veal
Gira 2009
Global trading in meat will decline in 09, partly in reaction to the strong growth in 08
Developments in Meat & Live Trade 2004-2009
28,000 26,000 24,000 22,000 20,000 18,000 ('000 t cwe) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2004 2005 2006 2007 2008 2009 Poultry Pigmeat Sheepmeat Beef & Veal
2008: +1.6 mio tcwe (+7%); 2009: -1.4 mio tcwe (-6%)
Gira 2009
EU meat demand decline in 2009 except for pigmeat (due to price increase)
EU Meat Expenditure Index - 1997 - 2009
170
Beef & veal Pigmeat Poultry Sheep TOTAL
150
HPAI
AI in the NL FMD
130
110
90
BSE
70 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note : wholesale prices for poultrymeat and producer prices for other meats Source: Gira
Gira 2009
Gira 2009
NPD & marketing at ALL levels Rising feed, labour, fuel and regulatory costs: aggravated by currency Hedging & RISK MANAGEMENT Increased EFFICIENCY and higher PRICES needed L/T
10
The top EU primary processors are very large and active 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)
HK Scan (FI) Glon-Sanders (FR) LDC (FR) Doux Europe (FR) Veronesi (IT) Westfleisch (DE) Tnnies (DE) ABCS (FR) Danish Crown (DK) VION (incl. GCFG) (NL) 500 Source: Gira compilation and estimates
Gira 2009
1,000
1,500
2,000
2,500
3,000
11
The EUs pig processing industry is concentrating, mainly nationally, quite quickly Vion forcing the pace
Others TiCan
VION M&A stream with need for subsequent restructuring to achieve scale economies
Danish Crown
Others Grampian Bowes of Norfolk George Adams and Sons Cranswick Country Foods
Others
Tnnies Others
Animex
DE: overcapacity & competitor reaction NL >60% of pig kill: efficient UK: GCFG restructure
Sokolow
VION
Danish Crown: live export, UK & Se/Po/Dk investment Increasing concentration within most countries (cf. FR)
Lower kill, cost pressure Selectively X-border
Gausepohl
D&S
Westfleisch
Cecab
ABCS
Primayor Others
12
VION and Danish Crown lead the way but with Tnnies & 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 further processing ventures
Top 10 pigmeat companies in share in EU 25 production (%) 2005/06
VION Danish Crown Tnnies
Gira 2009
13
The leading beef processors are pulling away from the long tail of this traditionally fragmented industry
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 sector with the new EU leader, ABCS Long way to go in ES and IT Industrial case ready, declining cattle supply, imports & HD are the hot topics
Leaders' market share in the top 5 production countries ('000 t cwe) 2005/06
1800
Other producers
Mller Fleisch
Others ABCS
Others
Gira 2009
France
Source: Gira estimates
Germany
Italy
United Kingdom
Spain
14
Europes top 10 beef & veal processors hold 27% of EU production: ABCS (FR) is now first
Top 10 beef & veal companies in volume ('000 t cwe) 2005/06
Unipeg (IT) W estfleisch (DE) Terrena (FR) SVA (Intermarch) (FR) Inalca (Cremonini/JBS) (IT) Van Drie Group (NL) Dawn Group (IE) AIBP Group (IE) VION (incl. Grampian) (NL) ABCS (FR) 100 Source: Gira compilation and estimates 200 300 400 500 600 700
ABCS is new leader on French market (Alliance, Bigard and Charal - ABC) and Socopa. It owns the only real fresh red meat brands in France. VION major player in DE & UK, + NL
Unipeg
Other EU-25
Gira 2009
15
Grampian
2 Sisters
Others PHW
concentrated industry but on a national basis In FR, IT and DE, the top 5 companies hold more than of production No multi-nationals present
Heidemark
Rothktter
Stolle Velisco
Others
LDC
Glon
Terrena Unicopa
Doux
Aia (Veronesi)
Fileni Simar
Others Sada
Arena Fresh
COREN Pavo y Derivados Uve
Amadori
Doux
Gira 2009
United Kingdom
Germany
Italy
Spain
16
Top 10 poultrymeat companies hold 30% of EU 25 production Doux is still the leader
Top 10 poultrymeat companies in volume ('000 t cwe) 2005/06
VION (incl. Grampian) (NL) Two Sisters (UK) Gebr. Stolle (DE) Amadori (IT) Moy Park (Marfrig) (UK) Grupo Sada (Nutreco) (ES) PHW Gruppe (DE) LDC (FR)
Doux Europe Veronesi Group
PY much more backward integrated than the other species (but similar concentration)
Veronesi Group (IT) Doux Europe (FR) 100 Source: Gira compilation and estimates 200 300 400 500 600
Gira 2009
17
More EU meat industry concentration in the future, but contradictory developments in vertical integration
Turkey
18
Much of the consolidation is to achieve better scale and better capacity utilisation
'Optimal' primary processing plant size
per week Broilers Turkeys Pigs Cattle Lambs
Source: Gira estimates
carcass Vol t.p.a. Many contradictions to the 'rule' wt kg 1,000,000 50,000,000 2 100,000 Faccenda 2x this size, recent Sun Valley acq'n 1/4 100,000 5,000,000 15 75,000 Depends of bird breed, sex etc. 20,000 1,000,000 80 80,000 DC Horsens 4x, no Belgian plant 2,000 100,000 325 32,500 Tonnies new plant 5x, ABP 'model' 1/2 30,000 1,500,000 20 30,000 Many smaller
p.a
The objective of size is scale economies in everything: Many different answers to optimal size, depending on: Processing: depends on automation / technology, labour cost, standardisation Marketing: meat: depends on customer demands. 5th 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
Gira 2009
19
Structural change : a new model in EU supply chains, making retail more accessible to imports Traditional : Disassembly for farmers
Kill & Cut & some Retail
Pack
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 ..
Farmers PUSH
Hard discounters Knock-on effect to competing retailers in these countries Opens more retail markets to S.Americans than the prior reliance on catering
20
Farmers
Retail PULL
UK red meat sector has emerged as a series of (almost) mutually exclusive chains UK red meat chain model
K&C
Farmers
2 cut & RP
Hilton, St Merryn, Tulip
TESCO PULL
SAINSBURY
Farmers
2 cut & RP
ABP, Dungannon, Crans
Farmers
2 cut & RP
ABP, Dawn, WCF, GCF
Dominated by retail
Secondary cutting is almost like tollprocessing for retail
Farmers
2 cut & RP
Woodhead, WCF, GCF
PULL
SOMERFIELD
Farmers
2 cut & RP
ABP, RWM, Dawn, Tulip
PULL
Gira 2009
European further processing industry structure is also fragmented but is slowly concentrating
The fragmented FP industry is explained by regional consumption variations Restructuring has started, but is still slow: family businesses local operators providing added-value regional products New ownership Top 2 Some forward integration Impact of new raw material sourcing strategies PK might repeat PY experience
6. Suppliers' strategies Industry structure
50
100
150
200
500
Gira 2009
22
UK is the largest EU importer of processed meat (largely bacon). German labour cost advantage over neighbours 9 Top EU countries FP trade balance - 2007
DE
500
ES
IT Exports
PL
UK
BE
NL
DK
- Imports
Note: Poultrymeat based PM & salted fats included Source: Gira from country reports ba lance tables
23
Gira 2009
24
US meat industry is much more integrated, vertical & horizontal, driven by scale and they are internationalising
Beef
Broilers
Turkey
25
Cargill well adapted to grow in positive long term demand conditions, with managed risk, globally CARGILL global, strategic, agribiz. strength Geographic roll out Other names to watch: US Global Tyson-IBP, NAFTA
Complimentary sectors
Trading
Ve Farm supplies rt i ca Milling & crushing li Meats Animal feed nt Pk, Bf, Ch, Tu eg Slaughter ra tio Industrial farms Biofuels n
Grains
Retail packing
Slow outreach
Smithfield: integrate
EU Br & Bf exit
Branding
Rapid recent expansion of these large-corporates to exploit scale & global opportunities forcing reaction from incumbents
Gira 2009
26
Large corporate investment has been to exploit L/T global demand growth and globalisation Meat consumption by species - 2005/2015
'000 t cwe 350 000 +7 982 300 000 259 780 250 000 +21 415 +24 426 +2 147 315 153
200 000 Gira is updating it's Long Term world meat forecasts in 2009 150 000
1
0.5 0
t ee f m ea ig m ea ltr y t
100 000
he ep
Previous positive long term global GDP forecasts drive +20% consumption in 10 years great agribusiness opportunity, but straining feed and production resources .. But the global economic outlook has seriously deteriorated: meaning weaker short term meat demand growth (CN dependent)
Gira 2009
ou
27
The Brazilians have charged onto the world stage: armed with BR cost advantage, profit, new capital & ambition
Brazilian MeatCo Share Prices
33.0 30.0 Source: Bovespa Stock Market 2.4 2.1 1.8 1.5 1.2 15.0 12.0 9.0 6.0 3.0 0.0 0.3 0 0.9 0.6
21.0 18.0
Nov/06
Nov/07
Jul/06
Jul/07
Jan/06
Jan/07
May/06
May/07
Jan/08
JBS
SADIA
Perdigao
Marfrig
Minerva
Gira 2009
May/08
Sep/06
Sep/07
Mar/06
Mar/07
Mar/08
BRL/USD
Jul/08
BRL/USD
USD .
1. PY integrators lead by Sadia & Perdigao 24.0 2. JBS leading the BF processors
27.0
28
Significant recent M&A which makes the biggest firms bigger, more global, and more BR
Top Global Meat Company Primary Production Volume estimate '000t cwe
Next 10 Doux Perdigao Sadia Danish Crown Vion Smithfield Foods Pilgrims Pride Cargill Meat Solutions JBS Tyson Foods
Source: Gira estimates (LTM + Panorama, updated for M&A)
Bf Pk Py
2000
4000
Bf 25% 3%
6000
Pk 10% 5%
Gira 2009
29
Even agribusiness stocks have plummeted forcing a pause in strategic developments probably not for long
Pilgrim's Pride
$30 to $0.31
!!
Smithfield Foods
$32 to $7
Tyson
$19.50 to $7
Gira 2009
30
and BR share prices have fallen very sharply as well since 3Q08 undermining investment potential
33.0 30.0 27.0 24.0
USD .
May/06
May/07
May/08
Perdigao
Marfrig
JBS
SADIA
Minerva
Gira 2009
Sep-08
Sep/06
Sep/07
BRL/USD
31
Nov-08
Jul/06
Jul/07
Nov/06
Nov/07
Jan/06
Jan/07
Mar/06
Mar/07
Jan/08
Mar/08
Jul/08
BRL/USD
18.0
1.5
21.0
Gira 2009
32
The decline of the UK livestock industry presents a worrying precedent processors and for EU27 Self sufficiency ratios illustrate the decline of the UK meat sector Production fall facilitated by decoupling and low confidence Ease of import access:
NZ in lamb S.America and Ireland in beef Denmark & NL in pork
UK Self Sufficiency in Meat
120% GIP/Consumption cwe % 100% 80% 60% 40% 20% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007f
Sheepmeat Poultry Beef Pigmeat
Source: GIRA Meat Club forecasts, Dec 06, based on Eurostat historic
Animal disease crises Regulatory burden Low investment and weak supply chain relationships Retail domination Precedent even for UK milk Precedent for EU27 but stlg decline hugely helps New leadership after 07/08 commodity boom? Sustainability?
Gira 2009
Production Optimistic Production Pessimistic Production Liquid Manufacture Optimistic Manufacture Pessimistic Manufacture Net exports
33