Fat and oil manufacturer AarhusKarlshamn (AAK) yesterday announced an increase in interim net sales, but the recently merged firm says it is still working on streamlining its operations.
Denmark's Aarhus and Sweden's Karlshamn, which supply speciality fats and oils for a wide range of products including bakery, confectionery and dairy goods, joined forces in October last year.
"The first six months of operations for the new group, since October 2005, have been characterised by a rapid integration process whereby the strategy has been laid down, the synergy program has developed according to plan and the organisation has been further aligned," said the company's president and chief executive officer Jerker Hartwall.
"Today, AAK is operationally strong," he added.
The company posted total net sales for its first half of SEK 2.8bn (€300m), a 13 per cent increase from the pro forma figures published by the company for last year.
Operating profit amounted to SEK 114m (€12m), compared to last year's SEK 119m (€12.8m), reduced by SEK 15m (€1.6m) related to restructuring and integration costs, including the planned modification of the Danish crushing facility, which the company says is now fully commissioned.
"The new group shows strong growth and improved margins but the group result continues to be affected by restructuring costs", said Hartwall.
The company was also hit by around SEK 20m (€2.1m) in higher energy costs, but said most of these were passed on to customers.
AAK said growth in the first quarter of the year was particularly strong for specialty products such as non-trans fats in the US. This pushed up volumes for its food ingredients division by 3 per cent, despite reduced sales of standard products in Europe.
Growth in specialty products is expected to continue, including non-trans fats solutions and dairy fat alternatives, said the company.
"Our goal is to have an efficient and streamlined AAK by 2008 with strong market positions," it said.
On its formation last year, the new company, which currently employs 2,500 staff, forecast a turnover of around SEK 10bn (€1bn).
The merger reflects a trend among businesses in today's archly competitive food industry climate to consolidate for strength.
The rising power and ongoing growth of the multiple retailers is putting constant pressure on ingredients companies to keep up with the pace, deliver products at competitive prices and guarantee supplies.
A gain in critical mass through consolidation, and economies of scale, are two of the only routes open to them, providing sufficient leverage to meet the challenge.
"The strategic rationale behind combining the companies has long been evident as it offers prospects to capitalize on a stronger platform, thereby improving the market positioning vis-à-vis competitors," said AarhusKarlshamn on its formation.
"The combined entity is believed to be able to achieve substantial synergies both in terms of improved utilisation of the existing plants and equipment, but also in terms of opportunities for improved capital expenditures," it added.