These are turbulent times at Dutch wellness foods group Wessanen, after a lengthy period of restructuring which has seen the group sell off its dairy and cereals businesses. But the restructuring is far from over, with the group today announcing plans for a major cost cutting programme as it slipped into the red for the first half of 2003.
Even excluding results from the Leerdammer cheese unit and the Telford Foods breakfast cereals business sold in 2002, first half sales were down by 4.6 per cent to €1.2 billion, and Wessanen said that it had also been affected by adverse exchange rates. At constant exchange rates, sales would have risen by 7.2 per cent, driven by good turnover at the Tree of Life health food businesses in Europe and the US.
But it was at the profit level that the group really suffered in the first six months of the year, with net profit after exceptionals and amortisation of goodwill slumping from €17.5 million to minus €24 million. Even before the exceptional items, profits were badly hit, dropping by 94 per cent to just €1.2 million.
The Tree of Life business in Europe posted a 13.4 per cent rise in sales for the first half, despite continued difficult circumstances in the German market and the loss of business to GNC in the UK, which was recently sold to NBTY rival retailer.
In the US, TOL sales dropped by 14 per cent during the half to €791 million, with the weak dollar to blame for the decline. This unit in particular has been a thorn in the side of Wessanen's attempts to turn its business around, and it is still hamstrung by inefficiencies and high cost levels.
The workforce there has already been reduced by 300, resulting in annual savings of $10 million, and a return to profitability is now the top priority for TOL's management in the US.
The cereal division posted a slight decline in sales for the half to €111.6 million, with an extensive reorganisation programme at the UK-based Dailycer business boosting results in the second quarter in particular. The decline in turnover was due entirely to the weakening of the pound against the euro, Wessanen said.
The convenience food business saw its sales rise marginally to €82.1 million during the half, despite difficult market conditions in Germany. The acquisition of the Luckhardt Tiefkühlprodukte group in April was the main reason for the improvement.
Wessanen's troubles over the last few years have already cost the job of its chairman, Mac Zondervan, and his replacement Ad Veenhof has already instigated plans to resurrect the ailing company. Operation Phoenix, as the programme is called, is designed to help reduce costs and increase growth. The first phase, due to be completed by the end of 2004, will cut down the number of management levels, improve efficiency and create further synergies in a bid to reduce the company's spiralling cost base. These savings will then be reinvested in the business as part of the growth phase.
Exactly how these cost-cutting targets will be achieved will not be revealed until the company reports its third quarter results in November, but analysts and shareholders alike will want to see some concrete measures after several years of decidedly ineffective restructuring attempts, particularly at TOL in the US.
Veenhof at least is confident of an improvement, starting in the final quarter of the current year, when results are expected to improve substantially and exceed last year's fourth quarter result of €2.4 million.