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Nestlé deal saves day as core profits drop 30% at Swedish probiotics supplier

By Shane Starling , 08-Feb-2013

Core activity profit fell 30% in 2012 at Swedish probiotics supplier BioGaia – although a cash-rich, five-year licensing deal with Nestlé kept overall figures high even as that very deal simultaneously destroyed margins in its cultures business.

Operating profit dipped 30% from 103.2m Swedish krona to SK72.1m on Nestlé-excluded revenues of SK289.2m (SK315m in 2011).

With Nestlé data in the picture, revenue came in at SK645.2m compared to SK315m in 2011, with profit jumping SK324.9m from SK103.2m to SK428.1m.

President Peter Rothschild said he was not concerned about a 48% drop in its cultures business (“components”), as its drop was a side-effect of the Nestlé deal to license a probiotic strain, so revenues shifted that way.

“We expected cultures to go down due to the deal we have done with Nestlé, where we received all profits up front.”

The firm has previously said its business is not being affected by the clamp down on probiotic health claims in the European Union.

All about Nestlé

As to when the ‘extraordinary’ nature of the figures may return to something more normal, Rothschild said, “it really depends on what they [Nestlé] do.”

“Because they have the right to manufacture themselves but we don’t know when and if they are going to do that. And it is also totally dependent on their demand … it’s not directly related to their sales – it’s much more of a stock keeping situation. It’s very difficult to predict.”

“As it is now we would prefer for them to manufacture themselves because it is just destroying our margins.”

“But we will try to do is rebuild our sales in this business with margins.”

“Exceptional”

In a statement, with the overall figures in mind, Rothschild called the results, “exceptional”.

“We signed several major agreements with our customer Nestlé that both gave us substantial license revenue and opened opportunities to extend our collaboration with Nestlé in several areas,” he said.

“It also gives us financial freedom to pursue additional projects. All in all, I would say that 2012 was a fantastic year.”

Rothschild said it had invested in manufacturing facilities in Sweden and was seeing greatest growth in BRIC nations and the US. Oral health solutions were its primary research focus.

The Nestlé deal

The Nestlé deal signed at the beginning of 2012 saw the food behemoth invest €50.8m to license BioGaia's Lactobacillus reuteri probiotic strain for use in its infant nutrition products.

Nestlé paid 80% up front with €10.8m, “paid and accounted for on achievement of certain milestones.”

The deal was exclusive to Nestlé infant formula products although there was an option for extension into other areas such as intestinal health.

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