Wessanen bears costs of US shake-out

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Royal Wessanen, the Dutch health food producer, suffered a
turbulent 2003, as it set about restoring the fortunes of the US
Tree of Life business that now makes up two-thirds of the group's
sales.

Forced to abandon a key IT system and to shake up its accounting procedures, the group unveiled a new drive to secure "the re-establishment of high-quality business processes and optimal service levels" after losing several key contracts in the US, and additionally in Europe.

The costs of its re-engineering, and of the lost business, saw the group reverse its operating profits of €125 million in 2002 to losses of €51.2 million in 2003.

Sales fell by 14.7 per cent to €2.4 billion, from €2.8 billion, depressed additionally by the disposal in late 2002 of the Leerdammer cheese business to Fromageries Bel.

Meanwhile, costs were inflated by €57.1 million in exceptional charges, relating almost entirely to the North American Tree of Life unit that has long been Wessanen's weakest.

The group took a write-off of €28m against its troublesome ERP (Enterprise Resource Planning) computer system, introduced in 2002.

"After a computer analysis in the second quarter of 2003 we decided that we would write off the ERP software that had been causing us difficulty since its introduction in 2002. Wessanen has dealt with the problem and expects no further negative impact on forthcoming quarters,"​ said Wessanen's communication manager Alttla Van Stee.

The investigation of Wessanen's accounting practices, instigated after a €14 million adjustment to the balance sheet in the second quarter, cost the group a further €5.5 million, while costs related to Operation Phoenix, the new restructuring programme which has already led to the loss of 300 jobs in the US, reached €28 million.

On the sales side, Tree of Life NA lost contracts with supermarket chains Albertson's and HEB, and saw its agreement with health food retailer Wild Oats cancelled in October.

The European business fared somewhat better, despite losing a contract to supply GNC stores and feeling the effects of a price war in the retail market. Its resilience was due in part to the consolidation into the European Tree of Life business of Natudis, a Dutch health foods distributor - following the increase of Wessanen's stake in Natudis from 41 to 70 per cent in January 2003.

However, the company reported that moderate growth in Europe and the restructuring of its US operations would now have a positive impact on its results for 2004.

Wessanen's restructuring drive, Operation Phoenix, is set to generate over €100 million in annualised cost savings by the end of 2004.

At the same time, the company will focus increasingly on strengthening its position in those health markets where the growth prospects were strongest, the company's new chief executive Ad Veenhof told Wessanen shareholders late last year.

This would involve a renewed emphasis on the group's branded business and the introduction of premium ranges, he said.

Wessanen's​ brands include Bjorg, Gayelord Hauser and Tartex, as well as Tree of Life. These are now expected to account for 50 per cent of total sales by 2007.

The company also said yesterday it had appointed Alec Covington, a former chief executive of Americold Logistics, to head Tree of Life in the US, replacing Rick Thorne, who is retiring.

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