Danisco stays upbeat despite eyeing raw material hikes

By Jess Halliday

- Last updated on GMT

Related tags Raw material Profit Income

Danisco has nudged up its full year outlook after a strong Q2, and is cautiously positive that mitigation measures will protect its enablers division from the raw material hikes on the horizon.

The Danish ingredients group saw revenue increases across all four of its divisions (enablers, sweeteners, cultures and Genencor) in the quarter ended 31 October adding up to a total income of DKK 3826 – up 18 per cent on the same period last year. Operating profit was up 57.7 per cent.

Tom Knutzen, CEO, said: “We can now confidently say that our Sweeteners division is on track to recover profitability. It is also evident that we have established a new earnings level for Genencor and Cultures. And earnings will remain strong for Enablers, even if we are now entering a different phase of the business cycle due to substantial raw material price hikes.”

“We are ready for a new chapter of investing into our future growth platform while maintaining earnings progression.”

On the back of the results set Danisco is expecting group revenue for the whole year to be around DKK15.3bn, compared to an earlier prediction of DKK15bn. This would mean a growth rate of 6 per cent.

Profit for the group is expected to around DKK1.3bn, compared to an earlier outlook of DKK1.2bn.

Protecting enablers

Danisco is fully expecting that higher raw material costs will have some impact on the fortunes of its enablers division – indeed, the whole food industry is currently facing steep increases.

But it expects it will be able to defends its margins, largely because it has already put systems in place by negotiating shorter and more flexible contracts with its customers. It also took steps to mitigate risk with customers, for example with novel product solutions.

Sweeter story

Sweeteners have posed a challenge for Danisco in recent years due to slower demand than expected after the company ramped up its production capacity in 2007. It has since restructured it production to reduce production at some sites and increased efficiency – measures that led to some staff reductions.

The company said it is currently seeing an improvement in its cost competitiveness due to positive currency development – and to Chinese competitors struggling to cope with higher costs.

New investment

Knutzen did not give precise details of how the company’s plans for investing in its future growth platform, but just this week the European investment bank announced the award of a €120m loan to Danisco to part finance its R&D until 2014.

In the EIB statement Knutzen said: “Danisco is more dedicated than ever to addressing global challenges through research and development.”

“The dramatic increase in the world's population is far reaching in terms of food reliability, access to reliable energy supplies and climate change complexities. We need to adopt a more sustainable way of life and this loan supports Danisco's efforts to bring new products and solutions to the market.”

In recent years its R&D spend has outstripped the food industry average of 3 per cent. In 2009/10 it was around DKK880m, about €118m at today’s exchange rates – over six per cent

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