Dairy progress relieves margins

Related tags North america

Stronger sales in North America and developments in the dairy
industry helped beat the impact of dollar-euro currency conversions
in the first three months of the year. Weak growth in Europe, South
America and Asia saw overall earnings slip for the Danish enzymes
group Chr. Hansen.

Revenue for the group - food ingredients and ALK-Abelló - Allergy Vaccines combined - fell 3 per cent to DKK 1.15bn for the period 30 September 2003 to 30 November, down from DKK 1.18bn for the same period last year. Resulting in a 14 per cent dip in operating profit for the first quarter that saw DKK 142m drop to DKK 122m.

A glance at organic growth for the ingredients slice of company over the past year reveals a general global downturn, a situation repeated across the ingredients industry. Strong revenue rises in North America - 7 per cent in this quarter- were offset by smaller rises elsewhere, 2 per cent for Europe, South America and Asia.

Boosted by strong growth for cultures and human health products partly driven by developments in the dairy industry, as well as rises for colours and flavours, sales for the ingredients division came in at DKK 836 million, a fall of over 3 per cent on last year's figures of DKK 867 million.

South American sales, an emerging market for the ingredients suppliers, fell well below expectations, dropping 7 per cent from DKK 58 million to DKK 54 million.

'The major economic problems in Brazil and Argentina continued to affect sales in the region. This reduced buying power and consequently had an adverse impact on the production of industrially produced food products,'​ said Chr. Hansen, who emphasised that keeping a steady ship, rather than looking for sales rises, was the main priority for the company in the region.

Disappointing results from Japan and Korea although overall sales for Asia/Pacific/Middle East rose by 5 per cent from DKK 74 million to DKK 78 million, based on a 3 per cent organic growth.

'Sales of rennet, cultures and natural colours continued to increase in almost all markets in the region. In particular, performance in Australia, New Zealand and China was satisfactory,'​ commented the Danish company.

A growing North American market, with an improved 7 per cent growth in local currency terms, was severly knocked by a total fall in the US dollar exchange rate of 16 per cent, with sales dropping in DKK-terms to DKK 300 million from DKK 335 million last year. Competition in colours with competitors biting into market share also contributed to the fall in results, but cultures again boosted the bottom line.

'Sales of cultures for the dairy industry continued the positive trend, resulting in rising market shares. Within colours, revenue remained at the same level as last year due to a sharp increase in competition,'​ said Chr. Hansen.

Looking ahead for the rest of the year, the downturn in revenue for the group is reflected in a 17 per cent drop on previous expectations with group profit estimated at DKK 115-145 million, compared to DKK 140-170 million predicted in the end of year results in 2003, and against DKK 139 million for 2002/03.

A leading global supplier of the troubled Italian dairy and food group Parmalat, Erik Sørensen, the CEO ofChr. Hansen yesterday reassured shareholders : 'In connection with the international dairy group Parmalat's recent financial collapse, it should be noted that our receivables from Parmalat companies across the world total approximately DKK 3 million as of today. No write-down has been charged to the income statement for the period.'

In an interview this month Chr. Hansen told FoodNavigator.com that when the news broke on Parmalat, the enzymes and cultures group immediately started negotiations with the Italian company. "We insisted on cash payments,"​ said Jan Hansen, a director of the Danish ingredients maker.

Chr. Hansen has since relaxed its demands for cash following talks with Parmalat's management, and now argues it is vital that suppliers co-operate in supporting the company through its crisis.

Underlying the Danish company's willingness to support a client it supplies across the world - from Europe to South America, Canada and Africa - are financial guarantees that it believes make the risks sufficiently palatable.

"We have been given the necessary assurances so that we can co-operate with them and help to see them through the crisis,"​ said Hansen.

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