ANNUAL REPORT
Original perspective

MORE TO BE STRATEGY

Intro duction to the casing market

Casing is a soft, cylindrical covering used to hold fresh or processed cold meat mixes. Casing may be made from natural or customized materials. 

The Viscofan Group is the world leader in customized casing for the meat industry, also called artificial casings due to the traditional use of natural casings for this type of product (mainly intestines and bladders) that meat processors use to stuff meat

Mankind has been casing meat in animal casings since Ancient times, but customized casing started in the early 20th century, when difficulties in obtaining natural casings, price volatility and problems in industrialising cold meat products led to the search for alternatives to natural casings in different countries depending on the different materials available to produce sausages and other cold meats. This change implied a significant qualitative leap for meat processors, achieving better quality, productivity and safety in food standards.

Today, meat producers have a wide range of technological alternatives when it comes to producing cold meats, depending on the product and production characteristics, combining a better range of casing with significant productive savings.

The casing market has an estimated value of €4.300 million, and it is the meat processor who decides the casing used, either animal casings (around half the market) or customized casing which in turn can be made from different materials depending on the production characteristics and the desired product, combining a better range of casing with significant productive savings.

Casing offers many properties, providing shape and appearance, and furthermore, quality casing can lengthen the lifespan of the product, improve food safety conditions and allow for greater productivity, automation, a reduction in fixed production costs and offer a wider range of customisation in exchange for a truly competitive costs, given that in overall terms its cost represents between 5% and 20% of the costs of the cold meat depending on the cost structure and the quality of the materials used in the meat processing. As such, the greater the production demand, and the more sophisticated the meat processors, the greater the trend to use customized casing as opposed to natural casings. 

Casing may be made from natural or synthetic materials:

Customized natural origin casing::

Cellulose: : Approximately 11-12% of the total casings market. This is a casing created using natural cellulose as a raw material. It is mainly used to produce industrially cooked sausages (Frankfurt, Vienna, hot-dogs, etc.).

In most cases, the casing acts merely as a cooking mould, and is generally peeled off by the manufacturer before sale to end consumers.

In the productive process, via a complex treatment, the cellulose molecules are de-polymerised using a chemical and mechanical rupture process, and later they are re-polymerised in a cylindrical or tubular shape, as requested by the client.

Fibrous: They represent 5% of the casing market. Fibrous casing is a cellulose casing that is reinforced with Manila hemp, which gives the casing a high level of both resistance and calibre uniformity. Fibrous casing is mainly used for high-calibre sliced meats such as mortadella, cured hams, pepperonis, etc.

Collagen: 24-25% of the total market. This is a casing created using collagen as a raw material. This collagen is obtained from the cow and pig hide, by which a complex treatment is employed for its posterior processing and casing formation.

It can be classified into two main types: low-calibre collagen, or edible (e.g. Fresh sausages, bratwurst, etc.) and high-calibre collagen, or non-edible (e.g. Salami, bierwurst, etc.). The main difference between both types of collagen is in the thickness of the casing wall and the treatment the collagen undergoes during the process, to be able to resist a variety of stuffing conditions and the weight of the meat filling.


Synthetic origin CUSTOMISED Casing:

Plastic: 11-12% of the market. Plastic casing uses different plastic polymers as a raw material, offering properties as a barrier, mechanical resistance, thermo-shrinkage, thermoresistance, etc. depending on the application needs of the product.

Over time this market has proven to be positively correlated with the population and its growth, with the evolution of population eating habits and the sophistication of meat processors, that are able to decide whether to use natural gut or customized casing in their production processes. The growth of between 3% and 5% is down to these factors, which on historical average holds the casing market.


Analysis of the casing sector growth factors

Analysis of the casing sector growth factors

Evolution of the population

The human population grows each year by an average of 1%. It is currently estimated that in 2015 there were over 7,349 million people in the world, a year in which growth was 1.2%, a pattern that the FAO believes will continue over the coming years, and which will take us to a global population of around 7,700 million people in 2020.

The main contributors to the growth in 2015 were Asia, with over 50% of the total, and Africa, with over 35%. By geographical area, Asia has grown by 1.0%, Africa by 2.6%, Latin America by 1.0%, North America by 0.9%, and Europe has remained practically unchanged, meaning that around 83% of the world’s population lives in emerging areas from the continents of Asia, Africa and Latin America. 

Eating habits

In global terms, the world demand for meat is growing at a sustainable rate of 2% per year, but this speed varies depending on the region. In Europe and the USA, the biggest meat producers in the 20th century, consumption growth has slowed moderately. However, it is the emerging areas that are leading this global growth.

Animal protein, particularly meat, is an increasingly prevalent part of the global daily diet, especially among populations in developing countries. An increase in consumption, favoured by a certain globalisation in eating habits, the increase of purchasing power among middle classes, and a population growth in cities, has also been boosted by migration from rural areas to urban areas. In this respect, in 2015 the 54% of the urban population was concentrated in urban hubs, a percentage that is expected to reach up to 56% in 2020 according to FAO estimates. 


TECHNOLOGICAL DEVELOPMENT AND THE SOPHISTICATION OF MEAT PROCESSORS

Over recent years, consumer demands have evolved significantly. Access to information and the diversity of the offer, have meant that consumers can enjoy more alternatives when choosing cold meats, and therefore they demand more attributes, among which food safety and convenience are key requirements.

Yet in turn, meat processors need greater customisation and flexibility to adapt to new tastes and the dynamism of the environment, which includes the volatility of production input costs, the growing workforce, the requirements in the quality/price ratio imposed by distribution chains, regulatory development, globalisation itself and the size of meat processing companies, which make it increasingly necessary to produce more quickly, with stable quality parameters, seeking more automation and less productive waste.

In this respect, the development of customized casing has proven to be a great competitive advantage, particularly in European and North American regions, where the use of casing is more extensive, with a per capita amount of nearly one € per person each year, compared to the €0.5 in Latin America and the €0.1 in Asia.

Positioning of Viscofa n within the casing market

The Viscofan Group is the world leader in casing, with an estimated market share of 15% and 30% in the customized casing segment. A leadership position that corresponds with a vision of becoming “the global leader in the casing market” and that naturally implies the implementation of a unique and differentiated value proposal for our interest groups.

Among other issues, this global vocation involves a marked international character, with sales in over 100 countries around the world, that are distributed from our productive centres and commercial offices in Spain, Germany, the Czech Republic, Serbia, the United Kingdom, Russia, China, Thailand, the United States, Mexico, Canada, Brazil, Uruguay and Costa Rica. A productive and commercial presence that in Viscofan is mainly guided by proximity to market principles and a well-adjusted balance between implementation costs and service.

Being global is not just limited to our geographical diversity, but also because we are the only producers that can offer global customized casing solutions to all our clients thanks to our very own cellulose, fibrous, plastic and collagen technology. Noteworthy are the important differences in the know-how of each technology that prevent significant synergies (different raw materials, machinery, qualified personnel, etc.), as well as the high customisation of the casing, an apparently simple product, but one which in 2015, Viscofan sold over 10,300 product references.

These characteristics make Viscofan “The Casing Company”, the sector leader with a market share of 15%. Likewise, they allow Viscofan to adopt an ideal position to very efficiently capture growth opportunities that arise in this market.

2016-2020 “MORE TO BE” STRATEGY

The casing market has sound annual growth fundamentals of around 3 and 5%, that correspond to the mid to long-term growth observed in the casing sector.

During the 2012-2015 strategic period, the casing market experienced a radical transformation, in part led by the acceleration in growth of the market, resulting from the rapid expansion of emerging countries, and in part due to the response offered by casing producers to this growth, which has led to the implementation of productive capacity in new countries, among which investments made by Viscofan are particularly noteworthy, with new collagen casing factories in China and Uruguay, which have consolidated the company’s leadership in this market.

With the closure of this strategic period, the Viscofan Group has established new growth targets, basing its expectations on the strong market growth fundamentals, where it is hoped that the growth rate will be within the long-term historical average in volumes of between 3 and 5%.

The new 2016-2020 Strategic Plan, entitled “MORE TO BE”, has the clear target of continuing in the same strategic direction as the preceding plans, incorporating the MORE initiatives (Market, Optimisation, Return, Excellence) within the Viscofan Group culture, which now frames its initiatives in a triple target: leader in service, leader in technology, leader in costs.

This triple leadership emerges from the conviction that a global leader creates value if it is productive for its interest groups, whilst in turn being sustainable in the long-term. Ultimately, value is created if it is competitive in the long-term.

“MORE TO BE” Strategy in the current macro-economic context

The general consensus among economists forecasts a deceleration of global economic growth in 2016. There is a high degree of economic uncertainty and its effect on monetary policies, and the impact on trading currencies, in the formation of the price of raw materials and energy, as well as all the geopolitical changes that may have an influence upon the way the company is organised, and the regulatory changes that always accompany these change processes.

Regardless of this short-term macro-economic uncertainty, mid-term casing market trends remain well established: a growing population, mainly urban population, with better access to animal protein and a greater concern for food safety and sustainability.

The demands of a growing world in an increasingly uncertain or perhaps more dynamic, environment, in which market conditions change more rapidly, increasingly require companies to think in the long-term, seeking out more cost-efficient structures, using the best available technology, and offering a product and service range that stands out from the rest. A triple vision that leaves a shrinking space for intermediate positions: the challenge for leading companies is to combine short-term productivity with long-term sustainability. 

“MORE TO BE” vision: To be a true global leader, “The Casing Company”



The new strategy implies taking another step forward in the path that started out with the Be ONE Strategic Plan (2009-2011). In this Strategic Plan, following the acquisitions undertaken, it was decided that operations should be restructured, with the undertaking of a management model that would allow us to make better use of economies of scales that the Viscofan Group has previously not possessed. This focus transformed Viscofan into a highly ef cient company, whose greatest strength lay in cost optimisation.

Once this target was reached, the Be MORE Strategic Plan (2011-2015) aimed for greater development. The technological improvements introduced, without forgoing the competitive advantage of costs, gave us a more global positioning in collagen and in other branches, allowing us to reach more markets and to reach a new scale.

But if we truly wish to become the global leader, we need to lead our main markets. An objective for which we need to keep making progress in our costs, our technology, and naturally, take another step forward in our level of service.

And this is precisely what has guided the Viscofan Group towards its new vision: to be a true global leader.

This vision means that:

  • THE CASING COMPANY focuses its efforts on creating sustainable value for SHAREHOLDERS.
  • THE CASING COMPANY is the global leader in all the technologies of meat casing and actively promotes the development of NEW MARKETS. 
  • THE CASING COMPANY is our CUSTOMERS’ preferred option, and the most sought-after among competitors.
  • THE CASING COMPANY is the sector BENCHMARK in efficiency and productivity in all the casing technologies.
  • THE CASING COMPANY has the BEST TEAM IN THE MARKET, it attracts and retains talent and develops their capacities.
  • THE CASING COMPANY leader in SERVICE, COST and TECHNOLOGY.


MORE TO BE AND VISCOFAN GROUP COMPETITIVE POSITION

When a meat producer decides to manufacture sausages, one of the most important decisions is the type of casing that will be used: basically either animal tripe or customized casing that can adapt to the product requirements.

Despite there being customized casing that can adapt more effectively than others depending on the product type, in overall terms meat processors are not a priori inclined to choose one type of technology over another, they always prefer the one that best adapts to a specific need. However, casing producer capacities are not as interchangeable as the casing need itself, generating a high specialisation among casing producers with a fragmented market vision, and with a higher risk of product diversification by the end client. 

This is perhaps one of Viscofan’s differential points: our transverse knowledge of casing allows us to share the market vision with our clients, as well as having a larger available and objective market (approximately 4,300 million euros, of which 2,300 million euros correspond to customized casing), and a higher market share than that of our main competitors, some 15% of the total market.

A benefit of this transverse nature is also that over 50% of our sales come from clients that buy casing from all the technologies we offer. This trend will continue to increase as our clients grow, and also continue to have a greater customised offer for consumers.


This technological expanse is accompanied by a wide geographical positioning, allowing us to capture growth opportunities that continue to emerge in our sector. Less than 50% of market casing turnover is located in the most populated regions with the greatest meat production. Africa, Asia and Latin America are the regions with the greatest long-term growth potential, whilst Europe and North America are the markets with the highest level of sophistication, and therefore, where added value will continue to be most significant.

With the exception of Africa, where the market is still very much emerging (less than 2% of the total volume), Viscofan has 14 production centres in all these regions: Asia, Latin America, Europe and North America, and undertakes specific initiatives under the lines of service, technology and costs in all of them with the objective of improving its positioning in the market in 2020.

MAIN STRATEGIC INITIATIVES BY REGION

Europe

Service axis

  • Construction of a fibrous plant in Cáseda
  • Product support and development centre

Technology axis

  • Improved cellulose technology
  • Incorporation of fibrous technology in the centre of excellence
  • Improved highcalibre collagen technology
  • Incorporation of Nanopack and improved technology in plastics
  • Cost axis

    • MIncreased productive capacity in Serbia
    • Improve productivity in Spain, Germany and the Czech Republic

    North America

    Service axis

    • Plastics in Mexico
    • Improve the plant reliability
    • Fibrous. Free up capacity for the local market

    Technology axis

  • New products: “BTC” plastics, specialities
  • Improved fibrous technology
  • Cost axis

    • Productive consolidation of the new plastics plant in Mexico

    Latin America

    Service axis

    • Product development. New alternative concepts to animal casing
    • Stability of plants in Brazil

    Technology axis

  • New collagen extrusion machinery
  • Pleating technology
  • Cost axis

    • n Increased productive capacity in Uruguay

    Asia

    Service axis

    • Self-sufficiency in Asia
    • Availability, quality and sophistication of the productive offer
    • Cellulose proactive drive forward

    Technology axis

  • Consolidate the operation
  • Improve productive flexibility
  • Cost axis

    • Raw materials and search for new suppliers
    • Better use of operative leverage
    “MORE TO BE” strategic projects 2016

    Within the established targets for the “MORE TO BE” period is the objective of reaching a leading position in technology. In this respect, the Viscofan Group is undertaking strategic projects that will allow it to strengthen this position in fibrous and plastic technology, where its importance has traditionally been less significant.

    Project for competitive improvement in plastics

    Over recent years, casing sales based on plastic technology have grown by the accumulated compound rate of 5% in the Viscofan Group. This growth has been implemented from the plants in the Czech Republic and Brazil, which were originally centres used to reduce productive costs in plastics for a more common type of casing or with less added value.

    However, the market development in North America, the results of R&D, and the Viscofan team’s ambition, have led to a greater investment in improving the Viscofan Group’s positioning in this type of product.

    On the one hand, in Spain we wish to make use of the new technology acquired following the purchase of Nanopack Technology & Packaging S.L. and install productive capacity of plastics in the Viscofan grounds in Cáseda. This involves an investment of around six million euros, and would improve the service offered to European clients.

    The Czech Republic has become the centre with the vocation of technologically leading this productive family, and driving forwards the transfer of know-how to the other facilities.

    To improve the North American service, modular productive capacity is installed in Mexico, meaning it can adapt to the growing needs of the North American market.

    Project for competitive improvement in fibrous

    The growth of the Viscofan Group fibrous technology based casing during the Be MORE Strategic Period, has been around 5.7% annually.

    This significant growth has been concentrated in the Group’s only plant capable of producing this type of casing: United States.

    This situation is exceptional within the Viscofan Group, it is the only technology where the productive risk is in just one centre, with a model that furthermore makes real global growth difficult in terms of market response times, faced with European demand peaks, or even in the internal market given that from the United States the whole world must receive the same attention.

    This situation will change forever in the second half of 2017, when Cáseda will inaugurate the new fibrous production plant with an investment of around 20 million euros in its first phase, including the civil works.

    The choice of Cáseda as a productive centre will enable a better use of the local team’s know-how in raw materials and cellulose production technologies, as well as making use of all the additional facilities for environmental protection available on this production centre site. Furthermore, Spain is in a logistically advantageous position to meet market targets in Germany, Italy, the United Kingdom and Eastern Europe.

    OUTLOOK FOR 2016

    Just as with the preceding strategic plans, the first phase is characterised by intensive operative activity. In the “MORE TO BE” Plan, this enhanced operative activity is accompanied by a new drive of investments, with an expected level of around 75 to 80 million euros. Of these investments, around 43% will be designated to increasing productive capacity, some 26% to improving processes, 9% to EHS projects for environmental, health and safety improvements, and 22% to other recurring investments.

    In a less favourable forex situation than in 2015, the Viscofan Group hopes to continue to maintain a growth in revenues of around 2% to 4% up to 755-770 million euros, a 4% to 6% in EBITDA, with 222 to 227 million euros and 6% to 8% in the net result of continuing operations, which would reach 127 to 130 million euros.

    The baseline hypothesis for these objectives involves a scenario of 1.10US$/€ and 4.20BRL/€.


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