In light of the recent weakening of our xylitol results and need to promptly
improve the overall profitability in Sweeteners, we are taking the following
actions:
•Alignment of xylitol production capacity to demand by mothballing the xylose
plant and reducing xylitol production at our facilities in Anyang, China
•Non-cash writedown of xylitol fixed assets by DKK 100 million and by DKK 460
million relating to goodwill
•Change of divisional management
Our sales in Sweeteners for the financial year 2008/09 are expected to be
around DKK 1.5 billion corresponding to negative organic growth of almost 10%.
Profitability has slipped to an EBIT margin of slightly over 5% against
historical levels of over 15%. The decline is primarily related to a xylitol
price decrease and some volume losses, caused by new entrants and fierce price
competition.
Structural initiatives
Sweeteners, including xylitol, are a strategic part of Danisco's product
offering. We are confident that we can restore profitability to over 10% medium
term, in a market estimated to grow 3-5% p.a. This expectation is based on:
•Best-in-class xylitol production platform and process technology
•Capacity reduction by mothballing the xylose plant in Anyang, China, and
reducing the production of xylitol at the same site
•Increased success for new xylitol applications using our global sales and
marketing organisation
•Capitalising on the synergy potentials of our Bio Actives cluster and general
cost savings
Writedown of assets and impairment test of goodwill
The reduced production capacity at the Anyang plant means a writedown of DKK
100 million on the facility. The new long-term outlook for the profitability of
the product area xylitol in Sweeteners will require a writedown of goodwill of
DKK 460 million. Non-cash writedowns in Q3 will thus total DKK 560 million.
With the inclusion of expected cash costs of DKK 15 million needed for the
restructuring of the business, special costs booked in Q3 will be DKK 575
million from the Sweeteners area. Please see our stock exchange notice no.
04/2009 of today for more information about management's group outlook for
2008/09.
Change of divisional management
It has been agreed that Nicholas Dunning, Executive Vice President, Sweeteners
will resign. His replacement will be announced shortly.
Yours faithfully
Tom Knutzen
CEO
