Danisco reshuffles ingredients ahead of sugar split
market trends like health and wellness more closely, and deal with
issues that have been affecting parts of its portfolio.
The Danish company is in the throes of a major strategic shift. In 2007 it sold its flavours business to Firmenich, and following changes to the EU sugar regime has announced plans to spin off or sell its sugar business. This was originally planned for 2010, but a more positive outlook for sugar has prompted Danisco to accelerate the process and have a resolution by the end of this year. The reorganisation of ingredients is not unexpected. Danisco said in December 2007 that it was reviewing the strategic direction and priorities of its core ingredients business, as a result of the sugar de-merger decision. The announcement was made as part of Danisco's Q3 financial results report. The new structure Danisco reached certain conclusions following its ingredients review process, which underlie the new structure. As of May 1, Genencor will function as a separate division from food ingredients. In food ingredients, one of the main issues it identified was that the relative size of the texturant & sweeteners unit created an "unbalanced" organisation now that flavours has been sold and sugar is to be split or sold. In addition, textures & sweeteners has not delivered in line with expectations. The texturant & sweeteners unit will, under the new structure, cease to exist. Rather, the food ingredients business will now be sub-divided into 'enablers' and 'bioactives'. Enablers will house the emulsifiers and gums & systems segments, and bioactives will house sweeteners and cultures. The bioactives group will "bring together our health claim ingredients (eg pre and probiotics) under one umbrella," the company said, "allowing us to generate further growth synergies from their joint strategic platform". Ingredients under pressure The ingredients division recorded operating profit (EBIT) of DKK335m (c €44.9m) for the quarter ended January 31 - up from DKK334m (c€44.8m) for the prior year period. Revenue grew 2 per cent to DKK2986m (c €400.2m). The company said all segments contributed to this, with the exception of sweeteners, which was impacted by supply issues for xylitol resulting in the loss of a major client who chose to reformulate away from this ingredient. However, Danisco said that the pressure on its ingredients margins is increasing - partly because of higher raw material costs and partly because of "competitive pressure in certain areas keeping our operating environment tough". Rising raw material costs are estimated to have added DKK175m (c €23.5m) to the cost base for texturants and sweeteners so far this financial year. While it does not expect the situation to ease in the short- to medium-term, it is dealing with them by controlling costs. It will inevitably have to initiate some price increases as it is "determined to defend [its] profits also in the coming year". With an eye on the long term, it is also building its R&D platform - although Genencor is a major focus for this, with the hiring of new staff so as to help make the most of bioethanol opportunities. Across all its divisions Danisco reported revenue of DKK4642m (c €622.1m) for Q3 2007/8, and total operating profits of DKK479m (c €64.2m).