Sweeteners still a bitter pill for Danisco margins

By Jess Halliday

- Last updated on GMT

Related tags: Dkk, Locust bean gum, Dental caries, Danisco

Margin pressure in its sweeteners and Genencor business divisions has caused Danisco to lower its bottom-line outlook and take a long hard look at its production set-up for xylitol and other products.

The Danish firm today reported group sales of DKK 3348m (€449.6m at today’s rates) for Q2, up from DKK 3002m (€403.1m) for the same period of last year. EBITDA before special items was DKK 456m (€61.2m), down from DKK 550m (€73.8m).

Consequently, its EBIT outlook for 2008/9 is now DKK 1.3bn (€0.17bn), down from DKK 1.4bn (€0.19bn); Profit after tax and before share-based payments are pitched at around DKK 950m (€127.5m), rather than DKK 1bn (€0.1bn).

The Sweeteners business, which falls under Bio Actives, reported a 9 per cent decline in organic terms in the financial year to date, due to on-going problems with the xylitol market. Dansico expanded its xylose factory in Austria last December by 50 per cent. However since then demand has decreased because of a supply crisis last year that led some customers to delay launches using xylitol or to reformulate to use other options. More capacity has also come on board from Chinese suppliers.

At the time of its Q3 results in September it said it had set up a task force to identify new application areas for the sweetener – but in the meantime daily production was reduced “in order to stop further inventory build ups”.

Despite the potential afforded by the approval of a health claim for xylitol’s ability to reduce the risk of dental caries, it looks like longer-term production changes could be on the cards.

Danisco said today that it is reviewing the production set-up for xylitol “in view of the dramatically changed operating environment”. ​Although it has given no details of the options, it did hint that special item costs may be booked at some point next year, although “the lion’s share will likely be of a non-cash mature”.

Genencor pressure

Pressure has also come from the Genencor enzyme business for a number of reasons, including higher input costs that could not be off-set, and a negative shift in product mix as customers trade down, especially in fabric and household care.

Genencor’s production site in Rochester, USA, is to end enzyme production and instead switch over to cultures. This is said to capitalize on the businesses’ synergies and their joint fermentation technology.

It curbs the outlay of capital to meet increasing demand for cultures, while at the same time reducing Genencor’s production.

Other consolidations and closures

However Danisco has also unveiled some consolidation plans affecting other aspects of the business.

On the Iberian peninsula it is in the process of closing down its Faro site, which produces locust bean gum for the Gums & Systems. The Faro operations are being merged in with facilities in Valencia.

There are also plans afoot to shift enzyme production from Grinstead to Bruges in Belgium, “in order to optimise production flows and costs”​. Danisco has said this is only possible because of product development, which has allowed it to move from surface to submerged fermentation.

The combined effect of the reorganization is expected to result in special item costs of around DKK150m (€20.1m). Details of job losses have not been disclosed.

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