Controlling costs with an iron hand and upping sales prices has helped Danisco's ingredients division towards Q1 growth, against an overall profit dip as a result of ongoing sugar reform.
The ingredients firm reported overall revenue of DKK4,672m (€627m), down from DKK4,866 (€653m) for the same three months of last year. Operating profit was down to DKK599 (€80.4m), from DKK635m (€85.2m). For ingredients, revenue was up 1.3 per cent to DKK3127m (€419.6m), and operating profit four per cent to DKK461m (€61.9m). The EDIT margin was 14.7 per cent, up 0.4 percentage points year on year.
"Our ingredients margin expansion was driven by advances in both bioingredients and texturants and sweeteners thanks to strict cost discipline and our decision to improve our average selling price at the expense of short term value," said the Danish company. Price increases were introduced for emulsifiers and pectin, and the benefits of these started to come through towards the end of the quarter. The full effect is likely to be seen in the second half of the year.
All things considered, however, the company said its sugar division got off to a good start, with lower costs and a better sales mix. Although sales for Q1 were still down to DKK1606m (€215.5m) from DKK1847m (€247.8m), these two factors meant that the expected dip was not as bad as it could have been. At its AGM at the beginning of this month, the company's board revealed that it is considering a demerger of the sugar and ingredients divisions. This would enable shareholders to target their investment, and give both business areas the best opportunity for development.
However it said that such a move would not be right just now, while the sugar industry is still in a state of flux following sugar reform. The board expects the dust to settle within two years, and it will bring back the possibility to the table at that time. As for ingredients, Danisco has been doing some serious refocusing. For instance, it sold off its flavours division to Firmenich in July, which will enable it to channel more financial and managerial resources into its other two ingredient divisions - bioingredients (cultures and Genencor) and texturants & sweeteners.
During the quarter, which ended July 31, the expanded xylose plant in Lenzing came on stream. This is enabling stocks to be rebuild, and is instrumental in solving last year's issue over short supply, which caused customers to delay launches for use alternative sweeteners. A new enzyme plant in Wuxi, China, opened.
"We continue to upgrade our R&D and production platform or cultures and enzymes," said the company. Danisco has taken heart from the quarter's results that its 'unfolding the potential' strategy, unleashed a year ago, is on the right track.
It is has upgraded its 2007/8 revenue guidance to share-based payments from the previous level of over DKK1,300m (€174.5m) to DKK1,350m (€181.2m).
All of the Q1 2006/7 figures have been restated to take account of the flavours divestment.