Corn Products International on track
improved earning for the first nine months of 2004, though as the
company had previously forecast, the second half of the year is
proving more challenging.
The starch and sweetners firm reported an increase in net sales of 16 percent in the third quarter of 2004, compared to the same period last year, up from $541 million to $587 million. Net income also grew from $20 million to $24 million.
"I am pleased to report that our results continued to improve during the third quarter and are in line with our 2004 targets," said Sam Scott, chairman, president and CEO of Corn Products. "Our forecast of accelerated earnings growth during the first half of 2004, followed by a good but less robust second half, is proving to be correct, as projected higher raw material and energy costs affected results in the third quarter."
As for results in North America, Scott offered some muted praise, concluding that: "we know we have more work to do."
In this region, volume grew by 4 percent and net sales were $371 million, up from $344 million in 2003.
"Higher volumes in the North American region, favorable pricing and a stronger exchange rate on the Canadian dollar helped to offset expected higher raw material and energy costs experienced during the quarter," said the company.
In June, the company took the decision to try and defend its market position by taking root in China and linking up with Shandong Juneng Electric Power Group Golden Corn Development company to manufacture modifed corn starch.
"Establishing what we expect will be our initial manufacturing presence in China is aligned with our company's strategy of growing businesses in new, high-growth regions," said Scott at the time.
China is drawing in more ingredients players as their international food maker clients move into this fast growing region to gain a slice of the $275 billion spent annually by the 1.3 billion Chinese consumers.
Eager to defend existing markets and carve out new positions, Danish ingredients giant Danisco, for example, last year linked up with one of the largest xanthan gum suppliers in China, the Henan Tianguan group.
Again in the area of gums, US agri-giant Cargill is expanding its gum manufacturing capabilities in China. Working with its joint venture partner Shandong Huanghelong Group, the company recently announced a significant capacity increase at its Zibo production facility in Shandong province.
In a recent bolt on acquisition, US firm Hercules bought Quantum Hi-Tech, a Chinese CMC producer. CMC - carboxymethylcellulose - is an ingredient sourced from cellulose fibres and used by the food industry in a wide variety of applications including ice cream, yoghurt and bakery products.
Last year cultures leader European firm Chr Hansen cut the ribbon on a new cultures facility in Beijing. The company claims to have captured more than 40 percent of the market for dairy cultures in China and expects continued growth, also within cultures for wine production.
According to investment bank Goldman Sachs, this defensive move by companies to protect, and build on, market share is crucial to the ingredients industry as China steadily increases its exports, threatening profitability in many product areas - notably for ingredients.
For the food companies China has not been so problematic, as food production tends to be domestically based. However, we are beginning to see a threat in ingredients, claimed the report.
"If China's ingredient industry expands at the breakneck speed of the rest of the economy then we might expect further margin pressure from this area," warned the report, referring to the current squeeze food manufacturers and retailers are imposing on their supplier base.
