Danisco Sugar Recovers but Pressure Accelerates on Ingredients

27 Mar 2008

27/03/08 Danisco has reported that Q3 2007/08 witnessed a welcome acceleration of topline growth in the company’s Ingredients business. Organic growth averaged 6%, driven by double-digit growth in both Cultures and Genencor, a rebound for Texturants but weakness in Sweeteners. Ingredients margins remain under severe pressure particularly from rising input costs. Sugar performed ahead of our expectations, and the process of demerging Sugar is now well on track.

Danisco said that they are upgrading their outlook for profit for the year to at least DKK 1.6 billion (previously around DKK 1.5 billion) driven by Sugar.

CEO Tom Knutzen comments: “The rebound in revenue growth in Ingredients has been largely broad-based, and we remain optimistic regarding our revenue outlook. However, soaring Ingredients costs show no signs of abating. It will therefore remain a challenge for us to defend our profits in Ingredients, but we will continue to do so through cost containment efforts, insistence on further price increases, and other value enhancing measures. We will be adjusting our Ingredients organisation as per 1 May 2008, thus aligning our platform with the ongoing strategy process.”

Ingredients recorded organic growth of 6% for Q3, up from 3% in H1 2007/08. Most major business segments contributed well to this performance, with Sweeteners being the notable exception due to xylitol challenges. Bio Ingredients grew organically by 12% driven by double-digit advances in both Cultures and Genencor.

The pressure on the company’s Ingredients margins is accelerating. Danisco’s reported EBIT margin came in at 11.2% in Q3 2007/08 against 11.4% last year (12.8% adjusted for a negative one-off item). Sugar delivered ahead of expectations in Q3 driven by stronger volumes.

Danisco said that the recent European Commission announcement has facilitated greater clarity regarding the EU sugar market. As a result, the company have lifted their long-term targets for Sugar and formally commenced the process of demerging Sugar by the end of calendar-year 2008.

For the Group, Danisco now expects an EBIT of above DKK 2.0 billion (previously at least DKK 1.95 billion). They adjusted their EBIT outlook for Ingredients to around DKK 1,575 million (previously around DKK 1.6 billion).

For Sugar, EBIT has been upgraded by DKK 100 million, to around DKK 600 million, after satisfactory operating performance as well as one-offs of around DKK 60 million.

For the Group, Danisco now expects to report profit for the year before share-based payments of above DKK 1.6 billion (previously DKK 1.5 billion).