Danisco on track after structural change

All ingredients divisions recording an EBIT margin improvement in Q3 on last year. The company said that Xylitol capacity is on track to be gradually expanded during 2007, while Sugar is also on track with earnings expectations for 2006/07. "Revenue is expected at around DKK 20.75 billion against previously around DKK 21 billion, with Ingredients now expected to record revenue slightly under DKK 13.75 billion as the increased focus on the profit margin has resulted in slightly lower organic growth,"​ reported the company. "Sugar revenue is expected at slightly over DKK 7.0 billion due to lower export sales. EBITDA before special items and share-based payments is maintained at around DKK 3,300 million." ​ These results have been impacted by the organisational changes carried out as part of the 'Unfolding the potential' initiative. This took effect from Q3 2006/07. In connection with the usual strategy and budget process in the second half of the financial year, the divisions have evaluated efficiency opportunities with regard to reaching the targets for the EBIT margin as well as tied-up capital at division level. So far three plant closures have been announced. The product area Gums & Systems (stabilisers and functional systems) presently has 20 plants globally, but to optimise the global production structure, it has been decided to close down three plants, which will lead to the reduction of 65 staff. And in connection with the ongoing integration of Genencor, it has been decided to consolidate the European R&D structure in order to optimise the use of resources. Consequently, the R&D department for enzymes in Copenhagen will be closed in the course of the next few months. Furthermore, in connection with 'Unfolding the potential' sales and application activities were gathered in one organisation responsible for all customer-related activities within food ingredients. The integration process is progressing satisfactorily, said the company. "This process has focused on simplifying the management structure and making work processes more effective, which has implied staff adjustments,"​ said the company. "On an operational level, a more effective customer segmentation, including resource allocation, is being implemented. These initiatives are to reduce resource consumption and ensure a more efficient use." ​ In terms of results, EBITDA in Ingredients has been reduced by DKK 25 million to around DKK 2,525 million due to a DKK 40 million provision relating to the Spezyme Ethyl patent dispute, while EBITDA in Sugar is adjusted from around DKK 900 million to around DKK 950 million. The outlook for consolidated profit before share-based payments and after special items is changed from around DKK 1.0 billion to slightly over DKK 1.0 billion. Year-to-date 2006/07, Danisco recorded revenue of DKK 15,220 million against DKK 15,573 million the year before, with 66 per cent in Ingredients and 34 per cent in Sugar. In Ingredients, revenue is made up of 5 per cent organic growth (3 per cent in Q3 2006/07) and a negative currency impact of 2 per cent. As expected, revenue in Sugar fell 11 per cent or DKK 637 million as a result of the EU sugar reform. Gross profit in the first three quarters fell 1 per cent or DKK 32 million to DKK 5,214 million, which corresponds to a gross margin of 34.3 per cent against 33.7 per cent for the same period last year. This reflects continued margin improvement in Ingredients in the third quarter as well as for the first nine months.