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Danisco ingredients suffer from low demand and high prices

By Laura Crowley , 25-Jun-2008

Danisco's emulsifiers sector is getting back on track after being affected by rising cost prices, but global supply issues have impacted heavily on its sweeteners division.

The Danish company released its financial results this week, which showed its texturants and sweeteners group brought in revenue of DKK 6,786m (€910m) down from DKK 6,891m (€924m) the previous year. As with most ingredients companies, Danisco suffered under increasing raw material and energy costs. These have been blamed on dwindling supplies, increased demand, competition for the grain from biofuels, and competition from other producers arising from emerging markets. "The soaring raw material prices hurt our emulsifier business particularly hard," said the company. It managed to offset price increases by seeking compensation for cost increases, leading to solid double-digit growth rates for its emulsifiers towards the financial year. It also built customer relations by helping to find more cost-efficient solutions for manufacturers through reformulation. The strong growth in emulsifiers contributed to 1 per cent organic growth for its texturants and sweeteners business, which was also helped by moderate growth in its gums and systems operations. The sector suffered under negative growth for sweeteners, with xylose production placed under pressure following last year's supply crisis. However, its Litesse sweetener performed well as a result of an improved regulatory environment, including FDA approval. Xylitol sales hurt by declining demand Xylitol is a cariostatic bulk sweetener, which is used as a sugar substitute and recognised for its unique dental benefits. It has experienced remarkable growth since its commercialisation in the early 1970s, particularly due to its inclusion as a key ingredient in sugar free chewing gum with its cool refreshing taste and dental benefits. To develop its xylitol business globally, Dansico expanded its xylose factory in Austria last December, enabling it to increase production by 50 per cent while improving sustainability. However, demand has decreased for the sweetener because there was a global supply crisis last year, leading some customers to delay launches using the product or to reformulate out of xylitol. At the same time, Danisco said it saw more capacity emerging from Chinese competitors. The company said: "Our xylitol volumes remain under pressure on a Y/Y basis, but xylitol runs at a satisfactory level of profitability. We maintain our confidence in the long term earnings potential of the business even though we acknowledge that we are facing challenges ahead." Geographical performance Sales for ingredients grew most in North America, where the company experienced a 7 per cent rise. This was mainly due to the company's Bio Ingredients growing at double digit rates, both in cultures and in Genecor. However, its texturants and sweeteners reported low single-digit growth.


In Europe, the ingredients sales grew by 3 per cent, negatively affected by a slight decline in texturants and sweeteners. In Asia-Pacific, the sector grew by 2 per cent. The company has increased its investment in R&D by 6 per cent for the ingredients sector. A key landmark in its focus on innovation was the inauguration of its new Shanghai Research Centre in Asia, to bring together a wide range of R&D, sales and innovation activity.


Across the board, Danisco reported full year revenue of DKK18778m (€2517.4) for the year, compared to DKK 18802m (€2521m) for the year before. EBITDA before special items was DKK 3198m (€428.8m), compared to DKK 3078m (€412.7m).

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