Danisco sweetener sales leave a bitter mark on profit forecasts
For the second quarter ending October 31, Danisco reported a 3.2 per cent drop in reported revenues to DKK 3.2bn, caused largely by a 16 per cent decline in sweetener sales.
The continued poor performance in the sweeteners division has prompted Danisco to book a goodwill write-down of DKK 700m in sweeteners for Q3. This will lower its invested capital to around DKK 1.4bn for the sweeteners segment.
Poor sales of Xylitol in China lie at the heart of the Danisco sweetener problems. Chinese competitors took business from the Danish ingredients company following delivery problems caused by the Katrina hurricane in 2005.
Danisco has struggled to reestablish itself in the Chinese sweeteners market and in Q4 last year the company announced the mothballing of its Xylitol production plant in China.
Meanwhile, Danisco has been working to find new application for Xylitol, and says it remains competitive in the North American and European markets.
Nevertheless, in its Q2 results statement, published yesterday the company said: “This will not counter the substantial loss of volume in traditional applications for the foreseeable future.”
Other Danisco divisions recorded much stronger performance in the second quarter. In organic sales terms, enablers fell 4 per cent, cultures rose 7 per cent and the Genencor division recorded a 2 per cent increase.
Conversion from bulk starter to DVI technology has driven the strong sales of cultures. According to Danisco, DVI technology enables cultures to be added to products more precisely and more efficiently.
Despite this success story, Danisco has lowered its revenue outlook for 2009/2010 to DKK 13.25bn from its previous estimate of DKK 13.5bn. Unfavourable currency fluctuations and continued modest revenue growth were blamed for the reduced forecast.
Profit forecasts have also been lowered. Danisco has cuts its expected profit for the year to above DKK 200m from DKK 700m, because of the goodwill writedown in sweeteners and adjustments of deferred taxes.
For the second quarter, cost saving initiatives helped the company to record a 25 per cent increase in operating profit to DKK 379m. Group EBIT (before Bio Chemicals Projects (BCP)) also increased 25 per cent year-on-year to DKK 407m. On this basis, Danisco has upped its EBIT forecast for the year to DKK 1,450-1,500m (after BCP).