EU directive boosts sales for Karlshamns

Long term sustainable growth is the key aim for a far-reaching development process at Swedish fats and oils company Karlshamns, the company confirmed recently when it announced its first half results for 2002.

The group, organised into three business areas - Oils & Fats, Technical Products and Feed Materials - reported a SEK 6 million (€0.65m) increase in operating profit to SEK 102 million in the first six months of 2002, compared to the same period last year. Profits improved to SEK 53 million in the secondquarter, a slight increase of SEK 4 million over the first quarter of 2002 and the second quarter of 2001.

The Karlshamns​ business area Oils & Fats, divided into three sectors, chocolate & confectionery fats, edible oils and lipids for care, reported a reduction in operating profit by SEK 3 million to SEK 68 million in the first half of 2002. This less satisfactory result was largely attributed to an increasingly competitive situation on the Nordic and westernEuropean markets where the demand for less advanced oils and fats throughout the vegetable oil industry has had negative effects on both volumes and margins.

The company added that rising cocoa bean prices have been pushing prices of cocoa butter upwards since early 2002.

According to Karlshamns the global market for the chocolate and confectionery industry totals 5.6 million tones and grows by some 3-4 per cent each year. Along with rising cocoa butter prices, the developinginterest to replace cocoa butter with vegetable fats in the wake of the 5 per cent rule [A new EU directive that allows other vegetable fats to replace up to 5 per cent of cocoa butter in products marketed as "chocolate" within the EU. New regulation will come into full force in the autumn of 2003] contributed to highercontribution margins as well as increasing volumesin the Cocoa Butter Alternatives (CBA) segment. Karlshamns Cocoa Butter Alternatives are comprised of CBE(Cocoa Butter Equivalents), CBS (Cocoa Butter Substitutes) andCBR (Cocoa Butter Replacers).

Karlshamns warned that the effect of rising cocoa butter prices takes some nine months to materialise, because CBE sales are always based on long-term contracts. However, CBE margins have been negatively affected by rising shea nut prices. Volumes in the first six months of 2002 increased over the same period last year, despite thecontinued decrease in sales volumes of less advanced speciality fats (CBS).

The world market for vegetable oils amounts tosome 85 million tonnes, with an annual growth rateof 3-4 per cent. Sales volumes in the edible oils sector decreased inthe first half of 2002 compared with the same periodlast year - the main reason, once again, being the increasinglycompetitive situation on the Nordic and westernEuropean markets. On a more positive note the company added that sales of higher value-added products continue to progress, with the growth rate in thesecond quarter of 2002 surpassing the first quarter. Volumes of less advanced oils and fats showed a smaller decrease in the second than in thefirst quarter of 2002.

From the fourth quarter of 2001 onwards, the company noted that demand for fatty acids on the European market has been decreasing due to the general recession.

A further reflection of an increasingly competitive European marketplace for fats and oils was witnessed earlier this month when we reported stable, but by no means astonishing, results from Danish fats and oils company Aarhus​. Aarhus attributed a downward adjustment of its expected operating income to reduced bulk oil sales as a result of intensified price competition.