Texturant competition squeezes Danisco

- Last updated on GMT

Related tags: Cent, Danisco, Goldman sachs, Flavor, European union

Price competition in texturants puts the pressure on Danisco
ingredients results for the first quarter of 2003/2004.

Price competition in texturants puts the pressure on Danisco ingredients results for the first quarter of 2003/2004 but flavours and a long, hot summer go some way to boosting the underlying performance.

Net sales growth for the Danisco group slipped by 5 per cent from the same period in 2002/2003 to DK4,041 million (€544.1m) and operating profit EBITA fell 13 per cent to DK559 million, down from DK639 million for the first quarter of 2002/2003.

The results fell under analysts' expectations who had forecast a more optimistic set of figures. Last week Goldman Sachs predicted first quarter EBITA for the group of DK619 million, representing a fall of 3 per cent, this compares to the figures released today that show a 13 per cent fall.

Ingredients and sweeteners​ Texturants - emulsifiers, textural ingredients and functionalsystems - at Danisco continue to feel the negative effect of price competition. The results for the first quarter show a 5 per cent drop in texturant sales for the period to DK1,014 million, down from DK1,062 million for the same period in 2002/2003.

Despite this, Danisco remains upbeat, underlining in a statement this week that volume growth for the texturant products segment was close to 6 per cent for the period, compared with the same period last year. In light of current global market growth for the ingredients industry pitched at between 2 - 4 per cent, 6 per cent is respectable.

The ambitious management team behind the flavours division, that is driving to place Danisco within the top five flavours club, carried off stable results for the period, beating figures from 2002/2003. Sales for the quarter ended 31 July 2003, rose six per cent to DK828 million, up from DK784 million for the same period in 2002/2003.

As raw material prices continue to put pressure on the margins of ingredients companies, the Danisco flavours division, led by president Stephen Catling, reported this week that 'better forward hedging of raw materials, including vanilla' contributed to the quarterly flavour figures.

Both texturant and the flavours division benefited from the warm weather conditions in Europe this summer. Texturant products and flavours to the ice cream and beverageindustries in the period, in particular flavour sales for ice cream and beverages.

Net sales for the sweeteners division at Danisco dropped by just over 2 per cent to DK411 million for the first quarter of 2003/2004, down from DK421 million for the same period in 2002/2004.

But according to the company, the figures for sweeteners were on the back of an organic growth of 7 per cent for the period, boosted in particular by a rise in volume growth for a range of product groups, including a drive in sugar-free products on the Americanmarket, which increased demand for its lactitol product.

Sugar​ Sales in Danisco's sugar division fell by 9 per cent to DK1832 million for the period, down from DK2008 million for the same period in 2002/2003. A fall was in line with expectations, reflecting lower sales of quota sugar.

A major concern for investors and companies involved in sugars and sweeteners, are the imminent changes to the EU sugar regime. A recent report from Goldman Sachs warned that reforms to the EU sugar regime - likely to be more radical than estimated - could slice millions off the sugar profits for Associated British Foods (ABF), the owner of British Sugar, and Danisco next year.

While Danisco has indicated that proposals for the renewed sugar regime could lead to a 30 per cent reduction in EU sugar prices and a 10 per cent reduction in beet volumes, analysts at Goldman Sachs believe that ABF and Danisco could be in for a rough ride if this scenario occurs, forecasting a decline in sugar profits of close to 60 per cent for ABF and 40 per cent for Danisco.

Pressure to change the EU sugar regime is derived from a number of sources keen to see full trade liberalisation in the trading of sugar. In Europe the regime is subsidised, allowing EU sugar to trade at higher prices than the world market but, by the end of the year the European Commission will have to present comments, and proposed changes, on the EU sugar regime to the council of ministers.

Earnings per share fell 2 per cent to DK 4.84 for the period, down from DK 4.95 for the same period in 2002/2003.

At 16.00 CET on 22 September 2003 shares in Danisco had fallen by 4.61 per cent to DK248.50.

Related topics: Markets

Related news

Follow us

Webinars