RFI acquisition lifts Danisco 1H

Related tags Organic growth Danisco

The bolt-on acquisition of Rhodia Food Ingredients earlier this
year helps boost sales for Danish ingredients and sugar group
Danisco in an otherwise challenging 2004/05 first half.

The performance at the €2.2 billion food ingredients firm was modest with organic growth of 1 per cent for the period in the ingredients division, compared to analysts' estimates of 2 per cent.

Leapfrogging into the number two cultures slot and the number three enzymes position in June this year, Danisco closed on the €320 million buy-out of leading French ingredients supplier RFI.

Integration is on track with the Danish firm reporting a better than expected performance from Rhodia - 20 per cent organic growth in cultures and double digit organic sales growth in Latin America and China.

Danisco reported a first half EBITA of DKK1147 million (€154m) with a DKK718 million slice from the ingredients and sweeteners business and DKK529 million from sugar.

Poor weather in Europe knocked figures for the ingredients segment, particularly hitting flavour sales to the beverage industry. "Organic growth of 1 per cent was strongly influenced by weak markets in Europe where sales to beverage and ice cream producers disappointed on account of the cold summer,"​ said the company in a statement this week.

Sales of functional systems also suffered, due to lower sales to ice cream producers. Sales volumes for the texturant unit fell by 2 per cent, after the RFI acquisition.

"This testifies to our continued focus on EBITA margins rather than growing market shares,"​ said Danisco.

"As a result of slipping margins in the last eight quarters during the financial year 02/03, that saw average growth of 5 to 6 per cent, we decided to try to get better prices and improve cost efficiencies,"​ Alf Duch-Pedersen, CEO of Danisco told FoodNavigator.com earlier this year, lending weight to the figures this week.

The CEO said that a number of commercial decisions and internal cost decisions had led to lower growth.

For the sweeteners division organic growth came in at 1 per cent, with volumes down by nearly 2 per cent. The firm confirmed it is planning its own production of its sweetener brands xylitol and xylose to 'achieve further cost optimisation and accommodate the ever-rising demand'. This will take the form of a joint venture, with Danisco the majority shareholder, slated to be in place by spring 2005.

There are signs that the low carbohydrate fad diet in the US may have reached its peak with food makers aware of a slow down in a market that at its peak attracted some 300 million followers.

The Danish firm reports that sales of its sweetener Litesse for low-carb food products 'did not achieve last year's very high levels'.

Danisco is likely to be part of further consolidation in the food ingredients industry. Investment bank Goldman Sachs predicts possible areas of expansion include Europe, and flavours and functional systems.

"The group indicated that it may also expand in markets which may help reduce the seasonality of the business,"​ reports the bank.

All other elements being equal, management estimates a funding capacity of DKK4-5 billion for deals, adds Goldman Sachs.

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