Sales fall at Degussa's food ingredients unit in 04

Related tags Degussa Flavor

Soon-to-be-sold ingredients unit at Degussa, Germany's third
largest chemical company, fails to impress in 2004 with sales
falling by 4 per cent, contributing just under 5 per cent of total
sales to overall €11.2 billion turnover for the group.

The company reported sales of €526 million for its ingredients arm that supplies flavours and texturants, deeming the 4 per cent fall in figures as "mainly due to exchange rates."

Full-year core sales rose 3 per cent to €11 billion, and the company recovered to a net profit of €298 million against a loss of €261 million in 2004.

Citing insufficient leverage to match the performance of larger commercial players, in October last year Degussa announced the sale of its food ingredients arm.

Degussa told at the time that the ingredients division is "too small to be able to attain a leading market position on its own"​. A position reaffirmed today by the company when announcing the 2004 results: "The unit lacks the profile required to become a global leader on its own"​.

A sale is likely to be imminent. Speaking to last month, the German firm confirmed that "intensive preparations are underway internally" for disposing of the unit.

The Degussa move marks new opportunities for food ingredients players looking to bump up their market position in flavours, food thickeners and health ingredients.

The break up of the unit has already begun. At the end of last month, Degussa announced that private US firm Speyside Equity has agreed to buy, for an undisclosed price, the fruit systems arm of Degussa that pulled in €64 million in sales last year.

Furter reports in Financial Times Deutschland​ in February claim that Swedish financial investor EQT, that acquired flavour firms Haarmann & Reimer and Dragoco in 2002 to form Symrise, indicated shortly after these acquisitions its interest in taking over the Degussa flavourings division.

Ambitious ingredients firm Danisco could also be interested in the flavour unit.

The Danish firm has voiced its ambitions to be one of the top five global flavour companies - currently around ninth - and the bolt-on acquisition of Degussa's flavours unit could help it on the way.

Dominated by a small number of industry players, the hydrocolloids sector - in which Degussa plays a strong position through xanthan gum - is consolidating, notably as shrinking margins and consolidation hit their international customers.

As such the texturant unit at Degussa could interest a number of top tier global suppliers of hydrocolloids such xanthan, pectin and carrageenan - all in Degussa's portfolio - including FMC Corporation, acquisitive Irish firm Kerry Group and even US firm JM Huber, which last month bought the number one pectin player, CP Kelco.

Degussa is also a key player in health ingredients, such as phospholipids and amino acids, and one of the main European suppliers along with DSM of creatine, an ingredient enjoying decent growth on the back of the burgeoning sports nutrition market. These products are sold under the bioactives unit, recently absorbed into the texturant arm.

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