'Value-added' the way forward for Aarhus

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Expecting a higher uptake of vegetable fats by European chocolate
manufacturers following the new '5 per cent' chocolate rule, Danish
oils and fats supplier Aarhus United sees a drop in income for
2003, compounded by currency conversions, a decline in bulk oil
sales and millions lost after pulling out of Maritex joint venture.

Group revenue slipped by 8 per cent for the year, coming in at DKK4.4bn (€602m) down from DKK4.88bn (€655m) in 2002. The fall knocked profits down by 40 per cent to DKK87.8m in 2003, compared to DKK144.4m for the year before.

"This unsatisfactory outcome is the result of several circumstances. Among them is the DKK 23 million loss after tax following Aarhus United's withdrawal from its commitment in Maritex in Norway. Lower than expected volume sales, particularly of bulk vegetable oils, due to the economic downturn and the very hot summer in Europe also had a negative influence onchocolate consumption and, consequently, sales of some of our vegetable speciality fats,"​ said Aarhus CEO Erik Højsholt in a statement yesterday.

But despite the downturn, the results show that the company is facing the problems head on with figures displaying a reduction in production overheads, distribution costs, administrative expenses and crucially, raw materials.

« The year's unsatisfactory financial result has increased our focus on efficiency and costs. In 2004, we expect earnings to improve marginally and a good, positive development is expected in the longer term,"​ added the CEO.

The group, that in 2003 changed its 130-year-old company name from Aarhus Oliefabrik to Aarhus United, reported that while volume sales in Denmark of vegetable speciality fats for thechocolate industry were 'not quite as big as expected, largely because theEU's so-called 5 per cent rule, which permits the use of vegetable speciality fats in chocolateproducts, was not introduced by manufacturers as quickly as anticipated.'

The situation was exacerbated by an 'unusually hot European summer' that dampened the demand for chocolate products, added Aarhus. But the group remains optimistic that the demand will rise for vegetable speciality fats in the EU in the years ahead as the pace of uptake picks up.

The European Union's new chocolate law - enforced in August 2003 - sets in stone that up to 5 per cent of the cocoa butter in chocolate may be replaced by vegetable fats and still qualify as chocolate. A move that has opened up the market for CBE(Cocoa Butter Equivalents) sold by companies like Aarhus United and Swedish firm Karlshmans.

Aarhus had clearly anticipated stronger sales for its CBE's, particularly because vegetable fats are cheaper to use than cocoa butter and manufacturers can slice a considerable sum off production costs when replacing the cocoa butter thereby pitching their prices to the consumer below pure cocoa competitors.

The Danish firm is also optimistic that demand for vegetable speciality fats for chocolate will grow outside Europe. In Brazil, for example, a law allowing the use of these vegetable speciality fats in chocolate was passed in 2003, said the group this week.

Turning to bulk vegetable oils for the rest of the food industry in Denmark - margarine, bakery products - the company said that sales had declined, 'primarily due to the economic downturn.' In the UK, the company reported continued pressure on margins and a reduced sales volume contributed to declining income for the bulk oils segment.

The same picture was repeated at the company's Mexican subsidiary where 'very tough price competition on the Mexican market for vegetable oils' knocked income.

Wiping DKK323 million from the 2003 accounts, Aarhus pulled its 44 per cent stake out of Maritex, the DNA salts manufacturer it jointly owns with dairy company Tine Biomarin.

Looking ahead to 2004, the group said it expects 'earnings to improve marginally and a good, positive development in the longer term' on the back of improved efficiencies, the development of 'value-added' products and improvement in 'our competitive ability in a pressurised market.'

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