Margins squeezed for Danisco

Related tags High raw material Raw material prices Dkk United states dollar Danisco

Mirroring the state of play for ingredients companies operating
into today's climate, price pressures put the squeeze on third
quarter margins for ingredients giant Danisco.

Citing the weak US dollar and high raw material prices, the Danish firm warned the long-term target of an EBITA margin of at least 15 per cent will not expected this year, narrowing its outlook for consolidated profit to DKK 925-975 million. Consolidated net profit was unchanged at DKK 721 million Danish (€96.8m) in the period May to January 31 2004.

"Danisco continued to win market shares in a difficult market for ingredients and sweeteners. The continued weakness of the US dollar, high raw material prices and price pressure were contributory factors, "​ said Danisco in a statement.

The company that has adopted a one-stop supplier strategy remained bullish yesterday, confirming that it is well positioned to benefit from the opportunities offered by the difficult market conditions. One such example is the agreement announced last month to buy the food ingredients arm - expected in the first quarter of 2004/2005 - of French chemical firm Rhodia.

"The acquisition will strengthen Danisco considerably both technologically and product wise,"​ said the company, commenting on the purchase that brings Rhodia's top probiotic culture position into the stable.

Costs synergies in the texturant area and sales synergies in the culture area are anticipated. With total sales of DK1.6 bn, Rhodia's business represents an increase of some 19 per cent in Danisco'singredients sales. s.

Recording an organic growth of 4 per cent for the group in the first nine months of the year the Danish firm said it had gained market share, notably in the American markets where the current low-carb fad helped fuel growth in sweeteners and fat replacers, although it impacted bakery consumption where sales for Danisco are traditionally high.

'The properties of Litesse as a fat replacer and lactitol as a sweetener are attractive in connection with low-carb product launches,'​ said Danisco, helping the market in the US to hit organic growth of 8 per cent in the third quarter, up 3 per cent on the previous quarter.

Despite volume growth close to 5 per cent, sales for texturant products - emulsifiers, stabilisers and functional systems - were hit by price pressures, falling 4 per cent on the same period in the previous year from DKK 924m to DKK 883m.

Flat sales for speciality products - including flavours, bio and feed ingredients - came in at DKK736m, a fall of 3 per cent from DKK 756m. Organic growth of 3 per cent was mainly driven by flavour growth, said the company.

Danisco's sugar business was adversely affected by lower prices for C-sugar and molasses and lower sales of quota sugar. Sales for the third quarter hit DKK 1,845 million, down 2 per cent on DKK 1,879 million last year.

Looking ahead for the rest of the year Danisco lowered 2003/04 EBITA expectations for ingredients and sweeteners. Total sales are expected to be in the range of DKK 16.0-17.0 billion and ingredients and sweetener sales around the DKK 8.5-9.0 billion mark.

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