Danisco full year feels impact of price rises

Related tags Danisco Gums E number

The less than sparkling, but stable, full year results for Danish
ingredients giant Danisco mirror the current state of play for
ingredients companies in today's market marked by squeezed margins,
higher raw material prices and ongoing price competition.

In a year marked by acquisitions - notably the purchase of the food ingredients arm of French chemical business Rhodia for €300m - Danisco saw operating profit for the ingredients and sweeteners segment fall by 10 per cent from DKK1.5bn (€0.14m) in 2002/03 to DKK954m in 2003/2004.

Sales for the segment were on a par with the year before, DKK8.653bn compared to DKK 8.651bn, lifted by a 5 per cent rise in overall sales in the last quarter of the fiscal year.

In recent years the market has put pressure on Danisco to hit the acquisition trail in light of imminent reform to the European sugar regime that is slated to slash the bottom line of the company - a leading sugar producer - by as much as 40 per cent. Observers expect to see Danisco consolidating its position in the higher margin ingredients such as flavours, rather than expand capacity in more traditional and low value added segments.

With the acquisition of Rhodia (that generated around €211m in sales in 2003) - closed earlier this month - Danisco extended its reach in cultures, hydrocolloid and food safety product operations.

Late last year the firm announced a new joint venture for xanthan gum in the burgeoning emerging market of China. Building on the one-stop-supplier philosophy, Danisco linked up with one of the largest xanthan gum suppliers in China, the Henan Tianguan group.

The Danish ingredients group is looking to substantially strengthen its global share of the xanthan gum market - currently dominated by hyrocolloid leader CP Kelco. Rhodia's slice of the hydrocolloid market - xanthan gum, guar gum and locust bean gum - will re-enforce its ambitions.

Signs that the full year results would be flat were highlighted in the third quarter - traditionally weak - when investment bank Goldman Sachs said that this year in particular, Danisco's EBITA margin was down.

"While Danisco's long-term target for top-line growth in ingredients remains 3 - 6 per cent (50 per cent above an estimated market growth of 2 -4 per cent), we remain cautious and forecast 3 per cent top-line growth from 2005 to 2011,"​ said the bank. We conservatively assume margins of 14.8 per cent in 2005, as we continue to believe that the company's pricing power remains limited in the majority of Danisco's ingredients portfolio, added the bank.

Looking forward to 2005 and without disclosing details Danisco announced this week that it intends to launch a 'restructuring programme' in its ingredients and sweeteners business. "After implementation over the next 12 months, annual savings are expected to reach around DKK 75 million. This is on top of the synergies expected from the Rhodia acquisition,"​ the firm said in a statement.

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