Danisco Reports Overall Strong Q1

18 Sep 2008

18/09/08 Danisco recorded 9% organic growth Y/Y in the first quarter 2008/09, well ahead of long-term targets. Genencor, Enablers and Cultures saw solid top-line momentum. In spite of a disappointing Sweeteners performance, EBIT was in line with expectations. The company is upgrading group profit estimates on the back of an after-tax gain of around DKK 100 million from divesting their venture company Direvo.

CEO Tom Knutzen commented “Q1 has been another eventful quarter for Danisco as we continue to implement our strategy. We have found an attractive buyer for Sugar, we have announced another exciting collaboration in the field of industrial biotech – namely with Goodyear – we are accelerating growth in most of our businesses, and we have been given the go-ahead to acquire Abitec, thus further strengthening our market leadership within food ingredients. We feel confident we are moving in the right direction.”

Danisco said that based on an overall strong Q1 performance and the acquisition of Abitec, revenue estimates are being lifted to DKK 13.0 billion (previously DKK 12.6 billion). EBIT outlook for the Group, excluding Sugar for 2008/09 is being maintained. Bio Chemicals Projects estimates are also unchanged, as are underlying assumptions regarding Sugar.

In Q1 2008/09, Danisco’s Food Ingredients segment posted 7% organic growth Y/Y, thus exceeding long-term targets for this segment. Top-line performance came in ahead of expectations in all major business areas aside from Sweeteners. At 14.8%, Food Ingredients recorded an EBIT margin expansion of 0.9 percentage points Y/Y despite a challenging input cost environment and notably lower profitability in Sweeteners.

Danisco’s Bio Actives cluster – encompassing the company’s Cultures and Sweeteners activities – posted flat organic sales exclusively due to the challenges we are facing in Sweeteners. The EBIT margin came in at 16.3% against 16.9% in Q1 2007/08 despite good advances in Cultures.

Cultures grew organically at high single-digit rates, with particularly strong momentum in North America and in the ASPAC region. Both price and volume contributed well to the continued solid momentum in Cultures. Growth was fairly broad-based across the product areas although dietary supplements grew especially well over the quarter. In August 2008, Cultures announced that it had partnered with Stonyfield Farm, the world’s largest organic yoghurt producer, to supply probiotics.

Sweeteners, on the other hand, saw an equally large drop in organic growth. Good momentum was reported for Litesse polydextrose, which won FDA approval in 2007, thus supporting our Health & Nutrition strategy. Fructose sales declined due to increased competition, but the sizeable decline in Sweeteners’ top line was primarily due to the xylitol situation. The 17% decline in xylitol revenue had a significant negative impact on our earnings for the division and was driven by a combination of price and volume decline. Danisco said however that the underlying market drivers for xylitol remain attractive. “We expect the market to continue to grow, offering continued opportunities for our xylitol business even if we have recently conceded market share. Our cost structure remains the most efficient in the industry allowing us a still-acceptable margin even at lower prices, which confirms our confidence in the long-term outlook for our xylitol business despite the current headwind that we are facing,” the company said. An internal task force is focusing on identifying new areas of application and is starting to see the initial positive results of its efforts. Meanwhile, we have reduced our daily production levels in order to stop further inventory build-ups.

The company reiterated that in August, Danisco’s shareholders approved the Board of Directors’ proposal to divest Sugar to Nordzucker. The process of filing for approval with competition authorities is in its concluding stage.