Ingredients Key to Danisco Growth

20/03/06 Danisco reported revenue of DKK 15,573 million year-to-date, which corresponds to revenue growth of 20%, mainly driven by Ingredients. Sugar (37% of group revenue) grew 1% in the period while Ingredients (63% of group revenue) grew 35%.

Growth in Ingredients can be broken down into 5% organic growth, 26% acquisition growth and 4% currency translation effect. Gross profit rose 25% to DKK 5,246 million year-to-date, representing a gross margin of 33.7% versus 32.5% in the same period last year. Danisco said that this positive trend has to some extent been driven by the consolidation of Genencor.

EBITDA before special items and share-based payments grew 13% to DKK 2,615 million year-to-date, which represents progress in Ingredients mainly from the consolidation of Genencor and the expected setback in Sugar. Including sharebased payments EBITDA grew 9% to DKK 2,467 million. The EBITDA margin was 16.8% against 17.9% in the year-prior period. The margin decline may be ascribed to the performance in Sugar and rising energy and raw material costs in Ingredients, which have not yet been fully offset through price increases. The Ingredients business was also impacted by rising R&D spending.

Danisco said that it maintains expectations for consolidated profit for the financial year 2005/06 of DKK 1.2-1.3 billion. However, the rising energy and raw material prices have caused a downscaling of operating profit expectations for Ingredients, as it has taken longer than expected to implement compensating price increases. Revenue is now expected to be around DKK 21 billion against previously in the range of DKK 20.5-22.0 billion (DKK 17.8 billion). Revenue in Ingredients is now expected in the range of DKK 13.0-13.5 billion against previously DKK 12.5-13.5 billion (DKK 9.9 billion). Expectations for Genencor are maintained unchanged at around DKK 2.4 billion. Revenue in Sugar is expected at around DKK 8 billion against previously in the range of DKK 8.0-8.5 billion (DKK 8.2 billion).

Ingredients including Genencor recorded 35% revenue growth year-to-date with 5% organic growth, 4% currency translation and 26% from acquisitions – Genencor and RFI (the latter only consolidated for 11 months in 2004/05). In terms of products, texturant products and sweeteners continued to record the strongest growth in both Q3 and year-to-date. North and Latin America as well as Asia-Pacific were the primary growth drivers, while Europe fluctuated a great deal. Genencor added revenue of around DKK 1.9 billion, representing 9% organic growth in Q3 and 8% year-to-date (Genencor's entire revenue is shown under acquisitions).

The logistics restructuring was started in Grindsted and will now be implemented throughout the European organisation. So far the project is progressing according to plan, and the earlier announced cost efficiencies of DKK 30-40 million and inventory reduction of DKK 100 million will be effected in the 2006/07 financial year.

Texturant products cover three divisions - Emulsifiers, Textural Ingredients and Functional Systems, representing 37% of the ingredients business. All three divisions contributed to the strong revenue performance year-to-date. The slightly lower growth in Q3 can mainly be attributed to weak markets in parts of Western Europe and Rest of World.

Dairy, ice-cream along with fruit and jam were the strongest growth segments within applications, while margarine and oils had difficult trading conditions. The first major commercial contract for GRINDSTED SOFT-N-SAFE has been obtained, which is an important milestone showing that the product also in practice works well as an excellent alternative to the existing plasticisers. As a consequence, we have decided to invest in more capacity and are planning to have it on stream in about one year.

Speciality products cover five divisions – Flavours, Specialities (food enzymes etc.), Cultures, Animal Nutrition (feed enzymes etc.) and Genencor (technical enzymes), representing 51% of the ingredients business. The flavours division recorded modest organic growth in Q3, and the
extensive rationalisations through the last two years have resulted in a stabilised operating margin. However, these rationalisation measures will not be completed until some time in the next financial year. Year-to-date, the division has recorded a slight, negative organic growth rate.
The cultures division stemming from the Rhodia Food Ingredients acquisition continued to develop excellently, recording strong organic growth again in Q3. This has called for new investments in production plant and product development. The three main enzyme segments – technical, food and feed – continued the strong growth trend, in particular Genencor, recording 9% organic growth in Q3 and 8% year-to-date, Danisco reported.

Sweeteners chiefly comprise two product areas: Xylitol (natural sweetener) and Litesse (fibres), which together represent 12% of the Ingredients business. The largest product area, Xylitol, reported accelerated revenue growth in Q3 with 9% organic growth, mainly driven by Eastern Europe, Latin America and Asia-Pacific.