Aarhus 3Q shows promise
fats and oils supplier Aarhus United has turned the corner with
improved growth in the third quarter, helped by a strategy to focus
on the core market of speciality fats, writes Lindsey
Partos.
In the shadow of an impending sale slated for January 2005, the Danish firm saw profit for the three months to September rise by over 50 per cent on the previous year to DKK39.2 million (€5.27m) from DKK 24.8million (€3.33m).
A drive into the speciality fats market is starting to pay off. Esben Vibe, CFO for Aarhus United said to FoodNavigator.com that the firm has "worked hard on this market and gained market share."
Hit by a cut in demand from the food industry for bulk oils, declining exchange rates that shaved margins and higher raw material prices, the firm reported lower than expected earnings for 2003 but on Monday.
The firm was also knocked by a disappointing take-up for chocolate butter equivalents following the amendments to chocolate rules in Europe.
The European Union's new chocolate law - Directive 2000/36/EC of the European Parliament and of the Council of 23 June 2000 relating to cocoa and chocolate products intended for human consumption - enforced in August 2003 - sets in stone that up to 5 per cent of the cocoa butter in chocolate may be replaced by specified vegetable fats and still qualify as chocolate.
A move that opened up the market for CBEs such as palm oil and shea, non-lauric vegetable fats rich in symmetrical monounsaturated triglycerides that are miscible with cocoa butter.
"The 5 per cent rule helped figures, as did new markets gained in other parts of the world, such as Brazil that in 2004 passed into law a rule that up to 10 per cent of cocoa butter in chocolate could be replaced," commented Vibe.
In June this year Aarhus linked up with a new partner, Compania Oleaginousa Uruguaya in Uruguay, aiming to increase its market share of the vegetable fat business in Latin America, particularly Brazil.
Following swiftly on from the European example, in the last 12 months Brazil has amended the legislation to allow vegetable fats to replace up to 10 per cent - compared with the EU's 5 per cent - of cocoa butter.
The partnership did mean some investment from Aarhus - a first for the firm in South America - in the 'low end, two digit millions', according to Esben Vibe.
Prior to the change in rules, these vegetable replacers were not allowed in chocolate-labelled formulations.
We have also witnessed a general increase in speciality fat demand in Australia and Asia, added Vibe.
The gain in market share for this product segment across different geographical zones is also attributed to competitive prices from the Danish firm, although they have left margins heavily squeezed.
"In the current situation when we are anticipating a change of ownership, I am pleased that the Aarhus United group is able to demonstrate its position in the market place and show that our products are competitive and in great demand," said Erik Højsholt, the CEO of Aarhus.
Sales for the group - speciality fats, bulk oils (still undergoing bullish prices), foodservice and healthcare - rose by over 9 per cent in the quarter to DKK1.27billion, compared to DKK1.16 billion for the same period in 2003.
The majority shareholder in Aarhus, United International Enterprises Limited (UIE), recently announced it will sell its 46 per cent slice in the firm, slated to be completed by January.
Under Danish law, whoever buys the UIE majority chunk will have to bid for the remaining shares and so in reality the entire company is up for sale. A pension fund owns over 10 per cent, a fund with 5 per cent, while private investors make up the remaining approximate forty per cent.
Potential buyers are open and could range from another plantation firm like UIE to an ambitious industry player such as Cargill, or fellow speciality firm Karlshamns, to an equity group.
