Danisco Lowers Expectations on Enablers and Sweeteners, to Cut 200 Jobs

The initiatives are planned to lead to a reduction of around 200 positions in Western Europe and North America. Danisco is lowering its FY 2008/09 Group profit outlook from around DKK 950 million to a break-even result.

03/03/09 Danisco has lowered its expectations for 2009 after noting that their short-term earnings outlook has also been influenced by around DKK 20 million relating to unfavourable currency movements. “On that basis, we now expect group revenue of around DKK 13 billion (previously DKK 13.3 billion), corresponding to expected organic growth for the full year of approximately 4%. We expect group EBIT (before share-based payments but including corporate costs and central R&D) of around DKK 1,150 million compared to the estimate of around DKK 1,300 million that we published in connection with our Q2 2008/09 results in December 2008”, Danisco CEO Tom Knutzen said in a statement.

As a result of these developments, management has announced wide-ranging internal measures targeting existing projects and procedures and launching cost savings initiatives including a salary freeze for 2009 and hiring restrictions across the organisation. These measures should be seen in context with ongoing restructuring initiatives already being implemented. The initiatives are planned to lead to a reduction of around 200 positions in Western Europe and North America. Danisco is lowering its FY 2008/09 Group profit outlook from around DKK 950 million to a break-even result.

In summary, the reduction in profit is caused by three main factors:
• Ordinary earnings outlook impacted by lower business activity in 2009 – (DKK 150 million)
• Non-cash writedown on goodwill and fixed assets in Sweeteners – (DKK 560 million)
• Impact from closing the sale of Danisco Sugar A/S – (DKK 200 million)

Knutzen said that in light of the recent weakening of xylitol results and need to promptly improve the overall profitability in Sweeteners, we are taking the following actions:
• Alignment of xylitol production capacity to demand by mothballing the xylose plant and reducing xylitol production at the company’s facilities in Anyang, China.
• Non-cash writedown of xylitol fixed assets by DKK 100 million and by DKK 460 million relating to goodwill
• Change of divisional management

Sales in Sweeteners for the financial year 2008/09 are expected to be around DKK 1.5 billion corresponding to negative organic growth of almost 10%. Profitability has slipped to an EBIT margin of slightly over 5% against historical levels of over 15%. The decline is primarily related to a xylitol price decrease and some volume losses, caused by new entrants and fierce price competition.

Sweeteners, including xylitol, are a strategic part of Danisco’s product offering. “ We are confident that we can restore profitability to over 10% medium term, in a market estimated to grow 3-5% p.a, Knutzen said.

This expectation is based on:
• Best-in-class xylitol production platform and process technology
• Capacity reduction by mothballing the xylose plant in Anyang, China, and reducing the production of xylitol at the same site
• Increased success for new xylitol applications using our global sales and marketing organisation
• Capitalising on the synergy potentials of our Bio Actives cluster and general cost savings

The reduced production capacity at the Anyang plant means a writedown of DKK 100 million on the facility. The new long-term outlook for the profitability of the product area xylitol in Sweeteners will require a writedown of goodwill of DKK 460 million. Non-cash writedowns in Q3 will thus total DKK 560 million. With the inclusion of expected cash costs of DKK 15 million needed for the restructuring of the business, special costs booked in Q3 will be DKK 575 million from the Sweeteners area.

Meanwhile Danisco A/S has closed the sale of Danisco Sugar A/S to Nordzucker AG. The sale of the sugar activities is a decisive step towards transforming Danisco into a focused, bio-based and marketdriven ingredients provider.

The sale of Danisco Sugar was concluded at a sales price of DKK 5.45 billion based on a normalized working capital to which should be added an amount receivable from the EU of DKK 0.37 billion. Danisco temporarily retains sugar at a value of DKK 0.6 billion, grants credit of DKK 0.5 billion to Nordzucker and has now received DKK 4.9 billion, or DKK 6.0 billion in total. In addition, Nordzucker will, according to the agreement, take over debt and obligations such as deferred tax, pension provisions and minorities of DKK 0.8 billion, corresponding to a total gross acquisition price of DKK 6.8 billion.

Part of the cash received will be used for payment of DKK 150 million to beet growers as well as payment of selling costs. As a result of the price reduction agreed in the final phase (DKK 149 million) and a loss on energy purchase agreements at fair value related to the 2009 campaign, which is to be paid by Danisco in accordance with the sales agreement, an accounting loss of around DKK 200 million on the sale is now expected. An operating profit after tax and interest of around DKK 140 million is expected for the period up to 28 February 2009 resulting in an estimated loss from discontinued operations of around DKK 60 million. The sale of the sugar activities will be booked in Q3 2008/09.

In connection with the sale of Sugar, Executive Vice President Mogens Granborg has resigned his position as CEO of Danisco Sugar A/S and will retire from the Executive Board of Danisco A/S at the end of April 2009. Subsequently, the Executive Board will consist of CEO Tom Knutzen and CFO Søren Bjerre-Nielsen. Mogens Granborg will be making his services available until 31 August 2009, when he retires in accordance with his contract.