Trying times for Karlshamns, 2004 brighter?

Swedish oils and fats company sees profit slip as the weight of tighter margins, increased competition and a strong Swedish kroner bears down.

Profit for the group dropped a whisp to SK106 million (€11m) from SK 109 million for the first nine months up until 30 September 2003. Diluted earnings slipped to SK4.95 in 2003, from SK4.84 for the same period in 2002.

"The negative impact of external factors totalled some SK70 million to date,"​ said Jerker Hartwall, president of Karlshamns​.

Composed of Oils and Fats, Technical Products and Feed Materials business areas, the company reported that the former was particularly hit with operating profit slipping by 8 per cent from SK114 million in 2002, to SK109 million for the first nine months up to September 2003.

Hardening competition, particularly from across the Atlantic, has seen US giants moving further into the European market for oils and fats. Earlier this year the world's number one oilseed processor US Bunge acquired​ French rival oilseed processor Cereol - the parent of ingredients company Central Soya in a move that gave it access to key operations in Europe.

"Hardening competition in the vegetable oil industry had negative effects on the Oils & Fats contribution margins,"​ said Hartwall.

Although sales figures for the nine month period were up slightly by 1.2 per cent, gross contribution from the Oils & Fats division to the group dropped from SK505 million in 2002 to SK494 million for the period.

The division, clearly coming to terms with the loss of Carlshamn Mejeri's - one of the group's largest customers in terms of volumes that moved its entire production operations to Finland in the second quarter of 2003 - has instigated strategies to balance the loss.

"Sales to the Central and Eastern European markets developed well all through the third quarter, whereas volumes to the Nordic market decreased due to diminishing sales to Carlshamn Mejeri,"​ confirmed Hartwall.

"Productivity improvements have been achieved at all three of the business area's production plants, partly through continuous upgrades, partly by means of a specific programme initiated to offset the negative effects of the sizeable volume drop caused by Carlshamn Mejeri,"​ he added.

There are signs that strategies to push value-added products could be paying off. Karlshamns reported that for the edible oils side of the Oils & Fats, volumes of value-added products - notably to bakeries and large-scale catering - are on the up, whereas those of standard products have dropped.

Increasing competition in the cocoa butter replacer market continues to put pressure on margins, said Karlshamns.

"It remains difficult to estimate the time frame for the implementation of the 5 per cent rule within the chocolateindustry,"​ added the president. In 2000 the EU cleared the controversial directive allowing other vegetable fats to replace up to 5 per cent of cocoa butter in products marketed as 'chocolate' in the EU. The new rules are due to come into full force in the autumn of 2003 and the impact should logically be felt by suppliers of cocoa butter replacers.

The Karlshamns of 2003 has quite evidently been marked by the loss of one of its largest customers. But strategies to encourage the value-added product side of the business to blossom, as well as streamlining production operations, may well bear fruit in 2004.