Vion Food Group

Analysis Pigs

Why Vion is in such dire financial straits

29 October 2024 - Wouter Baan - 1 reaction

In 2025 it will be exactly one hundred years ago that the predecessor of the current Vion started slaughtering pigs. A century later this should be a reason for an anniversary, but the question is whether there is also room for a party at the group in crisis. 2025 will be the year for the truth, because Vion will then have to be refinanced. The question is whether this will succeed, because there are increased financing risks. Something that Vion itself must also openly acknowledge.

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- In the anniversary year 2025, Vion will have to be refinanced, and the prospects are certainly not favorable
 

- The transition process is behind schedule

At Vion, more money is structurally going out of the organization than it is coming in, which according to the meat company is largely due to higher purchase prices and wage inflation. Last week, already known that the company suffered a major loss of over €90 million last year. And the annual report published this week shows that there is also a negative cash flow of €2023 million at the end of 25,5. This is a significant deterioration compared to a previous financial year (2022), when there was still a positive cash flow of €39,7 million. If the current situation continues, this could lead to payment problems.

Extra working capital has a price
For the time being, Vion can still avert acute liquidity problems quite easily by tapping into additional working capital. For this purpose, Vion has a credit facility of €250 million with an umbrella organization of banks, including ABN Amro, Deutsche Bank and Rabobank. In addition, Vion has an additional credit facility of €75 million in Germany. Of the €250 million, €145,9 million had been used by the end of last year. This is an increase of no less than €94,6 million compared to the previous financial year. However, using additional working capital is not without risks and also has a price. The interest charges have increased considerably as a result of increased Euribor rates, on which the loans are based. The interest rate rose last year by more than 3 percentage points to an average of 4,69%. According to Vion, the interest rate risk on this loan is partly covered by an unknown interest ceiling.

Just above the danger zone
Due to the additional working capacity, the group equity evaporated by €94,8 million last year to €276,4. The company's solvency has further deteriorated to 26%, which is just above the danger zone. These are figures that are very worrying for the company. Vion itself also indicates that there are risks regarding continuity. This is mainly due to the refinancing of the debts. The credit facility of €2025 million expires in December 250. In principle, this can be extended with the above-mentioned banking association, as also happened in 2020. However, the risks will then be re-examined. Three factors are important in this regard: the company's financial position, the market prospects and the reputation.

The refinancing process will start in early 2025. Vion seems to be completely dependent on external lenders, as shareholder ZLTO does not seem to have enough capital to play a significant role. This means that Vion must quickly find more stable waters to prevent worse. It is not the case that Vion has not taken any action to turn the tide. As is known, the company wants to leave Germany in phases, where costs have been exceeding benefits for years. According to the current management, Vion is limiting the risks regarding refinancing with this step.

Ahead or behind schedule?
It is striking that Vion indicated in last week's press release that the transformation process is on track. However, in the annual report, Vion reports that the transformation is actually lagging behind the forecasts. In addition, the annual report also states that a further reduction in the livestock population will continue to put pressure on future results, which is a bad sign for the figures in the current financial year. Not only in Germany, but also in the Netherlands, Vion is struggling with overcapacity in the slaughterhouses, while a further reduction in the pig population is imminent. In other words: if Vion has closed the door in Germany, the problems will not be solved all at once. Especially since African swine fever also poses a very real threat in the Netherlands.

For a stable future of Vion, the refinancing process is a crucial factor. Next year – when Vion celebrates its centenary – this will be by far the most important task for the new management that has taken office, although no new blood is flowing into the organization. The current CFO Tjarda Klimp promoted to CEO. The advantage is that she knows the problems like no other and can therefore act quickly. Although haste is required, Vion seems to be mainly dependent on the leniency of banks. In any case, the high debts will continue to haunt Vion in the coming years. 

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