Bulk oil margins eat into Aarhus bottom line

Related tags Denmark

Danish oils and fats company Aarhus United saw third quarter profit
falling by over 50 per cent as reduced margins, lower exchange
rates, a decline in bulk oil sales and heightened competition, ate
into the bottom line.

Despite a marginal lift in revenue for the first three quarters - up nearly 2 per cent to DKK3,546 million from DKK3,486 million for the same period in 2002 - profit for the company came in at DKK37 million, compared to DKK77 million for 2002.

Wiping DKK30 million from the 2003 accounts, Aarhus pulled its 44 per cent stake out of Maritex, the DNA salts manufacturer it jointly owns with dairy company Tine Biomarin.

Food industry demand for bulk oils dropped in the first three quarters of the year, sending total bulk oil net margins falling DKK 44 million below the margins gained in the same period last year.

"Half of this decline was attributable to the lower exchange rates applied for the translation of net margins in foreign currencies into Danish kroner,"​ said Erik Hojsholt, CEO of Aarhus United in a statement this week.

"We believe that we have maintained our market share and that the dramatic decline in demand for certain products was due to the extremely warm weather in Europe this year and severe competition, in general, within this segment,"​ added the CEO.

But signs were in evidence that the company's efforts to concentrate on core business - chocolate and other confectionery fats - could offer stronger returns in the near future, if not in the present.

Although declining exchange rates shaved margins for the area, the company reported that sales and net margins in the speciality fats sector improved, but figures revealed underlying growth with a slight lift in volumes. For the three quarter period, speciality fats came in at DKK285 million, compared to DKK297.2 million for the same period in 2002.

Looking ahead to the full year, the company warned that it expects lower net margins in bulk oils to continue. Consolidated post-tax profits are likely to come in at DKK70-90 million, compared to DKK140 million for the previous year.

A ray of light is expected to come from the speciality fats segment, as well as the foodservice sector. But, the company remains vulnerable to raw material prices and falling exchange rates.

"Expectations are based on a full year turnover at the same level as in 2002, namely in the region of DKK4.9 billion. The turnover, will, to a signficant extent, depend on the raw material price level and the rates of exchange,"​ concluded Kjeld Ranum, chairman of Aarhus United.

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