Raisio to refocus on nutrition

Related tags Profit

Finland's Raisio group is preparing to build a new strategy around
health foods, it revealed yesterday, using capital from the planned
sale of its chemicals unit to fund growth in its ingredients

The chemicals unit has been the most profitable of the group's activities over the past year but Raisio cannot afford to operate across so many industries. And although the group reported a small increase in turnover over 2003 (up 2.1 per cent to €860.5m), profit was significantly worse than predicted, falling to €-26.7 million from €5.4 million.

"There will be increasing consolidation going on in the paper chemicals area and we don't have the funds to be a major driver in this trend,"​ Taru Narvanmaa, executive vice president of investor relations, told NutraIngredients.com.

The group is currently in discussion with chemicals companies and hopes to find a buyer by the summer. Without such a sale, investing in food operations will be limited. Although a major restructuring action on the Nutrition unit is underway in an attempt to improve performance, each area of the segment saw declines in turnover and profit during 2003, apart from animal feeds.

Raisio will also sell off the loss-making grain starch activities and strengthen the Nutrition unit's activities in eastern Europe, following on from the recent opening of a margarine plant in Russia.

The new strategy, based on growing interest in health foods, would in addition see this unit cooperating closer with the ingredients business to develop functional foods, said Raisio, concentrating on Finland, the Baltic area and Eastern European markets for finished products.

There could also be new ingredient launches from the business, said Narvanmaa. Currently Raisio's only ingredients are cholesterol-lowering plant sterols and stanol esters, sold under the Benecol brand. Slow, non-uniform regulatory approvals in different countries this year reduced income and operating profit fell to €-5.4million over the year after a short profit-making period in 2002 (€0.5m).

But 13 new approvals in the last quarter, including new markets like Spain, Portugal and Austria, lifted revenue in the final three months and should boost volume sales and profits in 2004. Heavy marketing input, which further weakened profitability of ingredients, should begin to produce results this year.

"We didn't want to be so dependant on a few key clients so have tried to expand our customer base,"​ said Narvanmaa.

Despite these signs of promise, the company is likely to see increased competition however, with Europe recently giving favourable opinions on phytosterol-based ingredients produced by Forbes Medi-Tech and compatriot firm Teriaka, who says its Diminicol is cheaper to manufacture than Benecol.

"We still feel that the consumer knows little about functional foods. Even if there is tougher competition, more companies on the market will raise consumer awareness. Our biggest challenge is to get consumers to understand what we do,"​ claims Narvanmaa.

The recently acquired diagnostics business, Diffchamb, will also play a role in the new 'well-being' strategy, as the food industry becomes increasingly concerned with safety issues. It has been included along with ingredients under the Life Sciences unit, mainly due to a similar global customer base and international reach, compared to the Nutrition unit's focus on markets nearer to home.

Global expansion and rapid growth are being sought in both ingredients and diagnostics. Although diagnostics is not expected to make significant profits in its first year, this sector is growing at 10-20 per cent annually.

Improvements in capital management may also help the group back to profit in coming months. The amount of capital tied up in inventories has been reduced by €35.9 million, thanks partly to changes in purchasing policy, said Raisio, and the volume of working capital is down by €50.7 million. Cash flow from operations came to €77 million, up from €45 million the previous year.

There are improvements in sight, according to Narvanmaa. A focus on health could prove to be a healthier option for the company too.

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