Danisco confident xylitol will pick up

17-Sep-2008 - Last updated on 18-Sep-2008 at 12:23 GMT

Danisco has charged an internal task force with identifying new applications for xylitol, as the sweetener continues to blight its otherwise positive financial results – but has reduced production in the meantime.

To develop its global business for the cariostatic sweetener, Dansico expanded its xylose factory in Austria last December, enabling it to increase production by 50 per cent. However demand has decreased because there was a global supply crisis last year, leading some customers to delay launches using xylitol or to reformulate to use other options.

At the same time, Danisco said it saw more capacity emerging from Chinese competitors.

Ingredients

In food ingredients, Danisco reported 7 per cent organic growth in revenue, to DKK2274m compared to the prior year period. EBIT was DKK336m, up from DKK311.

All business areas aside from sweeteners, beat expectations. The xylitol problems meant that sales in the Bio Actives cluster were flat, even though cultures saw high single digit growth.

Sweeteners saw a large drop in organic growth, with xylitol revenues falling by 17 per cent.

However Danisco says “the underlying market for xylitol remains attractive”. It expects the market to grow and for there to be more opportunities for Danisco, even if it has conceded market share.

The task force it has put in place to identify new application areas for the sweetener has reported initial positive results. In the meantime, however, daily production has been reduced “in order to stop further inventory build ups”.

On the up-side, since Litesse received approval in the US in 2007 that sweetener has reported good momentum.

Enables (including emulsifiers, gums and systems) also did particularly well in Q1, despite raw material costs. Price increases are expected to be implemented in the coming months.

An eventful quarter

Danisco has reported good overall growth for Q1, the period in which it agreed to sell its sugar business to Nordzucker. Revenues of DKK3235m, up from DKK3127m, and EBIT of DKK403m from DKK448m.

It has been marked by some major announcements, including the news that the sugar division will be sold to Nordzucker. The transaction was given the go-ahead by the board in August.

Other big news was the competition approval to acquire Abitec, Associate British Foods’ emulsifiers business – a deal CEO Tom Knutzen said is “further strengthening” the company’s food ingredients position. In addition, it recently announced a collaboration with Goodyear to develop a renewable alternative to petroleum-derived isoprene.

Post sugar predictions

Rumour have also circulated that Danisco could be bought by a private equity firm. Analysts have remarked that, unburdened by sugar and with a light-weight ingredients division (now lacking flavours, which were sold to Firmenich), it could present an attractive proposition.

However as a public company Danisco would be required to report any offers it should receive to its shareholders – and there has been no news on that front to date.

For now, the company has said it will initiate a DKK1bn share buy-back programme once the sugar transaction is closed. After that, it will review its capital structure.