Danisco, the Danish food ingredients company, reported this week that consolidated profit exceeded expectations for the first quarter from May 1 to July 31, 2001. Consolidated profit reached DKK281m, compared to a forecast of DKK225-275m (Euro30.23-37m). Net sales in Danisco's main business areas, Ingredients, Sweeteners and Sugar, grew to DKK4.3bn (Euro577.76m), up 12 per cent on the first quarter of last year. The Ingredients and Sweeteners segment reported an 8 per cent growth. The sugar segment was up 15 per cent primarily due to expedited sales as a result of favourable world market prices and actions taken to compensate for the changes in the EU's sugar regime. Earnings (EBITA) in the main business areas increased to DKK667m (Euro89.62m), up 23 per cent. The Sugar segment accounted for the greatest improvement, up 46 per cent on the same period of last year. Earnings (EBITA) for Ingredients and Sweeteners rose 7 per cent, to DKK387m (Euro52m). Net sales in North America advanced 11 per cent in DKK terms, of which 4 per cent was due to the acquisition of Florida Flavors. Net sales in South America showed an increase of 6 per cent on Q1 2000/01 in DKK terms. The cyclical movements in this region impacted negatively on the sales performance. In Europe, the sales efforts changed from being country-focused to industry-focused have had the desired effect, as sales grew 5 per cent in DKK terms compared with Q1 2000/01. The breakdown of this increase was uneven, as sales in Western Europe rose 6 per cent, while declining 5 per cent in Eastern Europe. Sales growth in Asia-Pacific is sustained with an increase of 11 per cent in Q1 2001/02 relative to the same quarter of last year. The Chinese and South Korean markets remain buoyant and show satisfactory growth rates. The Japanese market is still characterised by uncertain economic prospects. Sales of Texturant Products were up 6 per cent compared to the same period last year. Sales of functional systems to the baking and dairy industries showed healthy growth. The acquisition of Germantown on 15 August 2001 has provided Danisco with unique market coverage in Australia and New Zealand. The acquisition has added additional functional systems capacity. The integration of Germantown will be consolidated from the second quarter of 2001/02. Raw material prices for texturants showed a rising trend during the quarter. Efforts are being made to offset this cost increase through efficiency enhancement and price adjustments. Sales of Speciality Products, including flavours, bio- and feed ingredients, showed an increase of 9 per cent on the first quarter of 2000/01. Asia-Pacific and parts of Europe saw healthy growth rates in the flavour segment. Florida Flavors, acquired in May 2001, has contributed special know-how on flavours to the fruit juice industry. Integration of the business is proceeding according to plan. Sales in the Sweeteners segment were up 11 per cent on the same quarter of last year. A major part of this increase results from the continuously strong sales performance of xylitol in Asia-Pacific, particularly in South Korea where Danisco has captured a significant market share. Sales of other naturally based sweeteners remained on a par with Q1 2000/01. Earnings (EBITA) were positively affected by Danisco's currency hedging of JPY against USD in December 2000. Compared with 1999/2000 the total sugar output in the EU fell from 18.2m tons to 15.8m tons in 2000/01, which means there has been a reduced supply of C sugar, which has led to an improved world market price. Further, Danisco has been able to market considerably larger sales volumes of C sugar relative to the same period of last year. Expedition of sales resulted in an earnings improvement (EBITA) of DKK55m (Euro7.39m) in the first quarter, which will impact negatively on earnings in the rest of the year. Currently Danisco Sugar expects an overall production well above the quotas specified by the EU, but lower than the record production of recent years. Danisco Foods (fruit and condiments) performed to expectations, whereas Danisco Pack UK under-performed because of sustained low demand for corrugated board in the UK resulting from the recession-like situation in the UK manufacturing industry. Income from associated undertakings, Genencor and Amcor Flexibles Europe, amounted to minus DKK5m (Euro671,815). In conjunction with the acquisition of Cultor, Danisco established a divestment programme. With the sale of Danisco Pack UK this programme has almost been completed and with a satisfactory result. Work on divesting the remaining activities (Danisco Foods) will continue. Danisco continues expansion through organic growth as well as acquisitions, like the recent acquisition of Germantown. The consolidation of Germantown will, as announced, affect the consolidated profit negatively in the year of consolidation due to increasing costs relating to amortisation of goodwill and interest expenses. The acquisition is expected to meet Danisco's financial target of a return on investment exceeding the weighted average cost of capital in the 3rd full financial year after the acquisition, at the latest. In the Ingredients and Sweeteners segment, the acquisition of Germantown has led to an upward adjustment of our forecast, and Danisco expects full-year earnings (EBITA) to exceed DKK1.4bn (Euro188.1m). The Sugar segment is still expected to see full-year earnings of DKK1.1bn (Euro147.8m). The consolidated profit for 2001/2002 is expected to be DKK900-975m (Euro120.92-131m) against Danisco's previous estimate of DKK0.9-1.0bn (Euro120.92-134.36m), thereby narrowing its forecast by DKK25m (Euro3.36m) due to the sale of Danisco Pack UK and dilution effect from the acquisition of Germantown. The second quarter of 2001/02 should see a consolidated profit of DKK175-225m (Euro23.51-30.23m). The above expectations for the future are inherently associated with uncertainty and risks, which may imply that actual results will deviate from forecasts.