Grim outlook prompts sweetener action from Danisco

By Jess Halliday

- Last updated on GMT

Related tags: Xylitol, Hydrogenation, Danisco

Danisco reducing its production of xylitol in China and mothballing its xylose facility, as its sweeteners division is implicated as one of the causes of lower earnings expectations.

The Danish ingredients group, which has just closed the sale of its sugar business to Nordzucker, said it has seen a slowdown in activity for most of its ingredient segments and geographies – but that sweeteners and enablers are particularly slow.

As a result, it is now expecting group revenue of DKK 13bn (around €1.74bn at today’s exchange rates) for 2008/9 (down from DKK 13.3bn (c €1.79bn) previously stated), and group earnings (EBIT) of DKK 1150m (€154.37m) (down from DKK 1300m, c €174.5).

The news is accompanied by a slate of measures designed to save costs, CEO Tom Knutzen has indicated.

On the sweetener side, this means “mothballing” ​production of xylose (a monosaccharide that turns into xylitol on catalytic hydrogenation) in Anyang, China, and reducing production of the xylitol at the same plant.

The scale of the production cut back has not been communicated, but it will mean a write-down of DKK 100m (€13.72m) on the facility – and a goodwill write down of DKK 460m (c €61.75) on the profitability of xylitol within sweeteners.

The resignation of Nicholas Dunning, EVP for sweeteners, has been agreed.

However the action is not just limited to sweeteners, but ranges across internal projects and procedures. Cost saving initiatives include a salary freeze for 2009 and new recruitment restrictions. These are understood to come on top of initiatives that were already being put in place, including the loss of 200 jobs across Europe and North America.

Downturn

The Danisco has attributed the grim news for 2009 to impact of the economic downturn on global sales.

It believes the lower activity has been caused by a combination of destocking and caution in the value chain, as the downturn makes end user demand “sluggish”.

“So far, we are seeing no indication that the trend is abating,”​ said Knutzen.

The situation has also not been helped by unfavourable currency fluctuations.

Xylitol squeeze

The measures Danisco is taking over xylitol come as no great surprise. Dansico expanded its xylose factory in Austria in December 2007 by 50 per cent, but since then demand has decreased because of a supply crisis 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.

In September 2008 Danisco 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”.

The company is nonetheless remaining upbeat about future prospects for the sweetener, which has received a positive health claims opinion from the European Food Safety Authority for reducing the risk of caries in children.

“We are confident that we can restore profitability to over 10 per cent medium term, in a market estimated to grow 3 to 5 per cent per annum,”​ said the company.

This is based on its advanced production platform and process technology for xylitol, and communication of new applications for xylitol through the global sales and marketing set-up.

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