Wessanen hit by exceptionals but confident of turnaround

Royal Wessanen, the Dutch wellness foods producer, had a turbulent
year in 2003, with results shifting from profit to loss. But the
company claims that moderate growth in Europe and the restructuring
of its US operations will have a positive impact on 2004 sales

Net sales for the year fell by 14.7 per cent to €2.4 billion, down from €2.8 billion the previous year due to the loss of a number of important contracts and the sale of the Leerdammer cheese business to Fromageries Bel in late 2002.

Meanwhile, operating profits plummeted from €125 million in 2002 to losses of €51.2 million in 2003, due mainly to exceptional losses of €57.1 million. These exceptionals came almost entirely from the Tree of Life NA unit - perennially the weakest unit for Wessanen - and related to a number of different items.

The write off of the ERP (Enterprise Resource Planning) computer system alone accounted for €28 million of this total, but at least allows the company to draw a line under the troublesome system which it introduced in 2002 to supposedly facilitate operations.

"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.

An 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.

The cancellation of an agreement with health food retailer Wild Oats in October took its toll on TOL NA sales and profits, as did the loss of two other contracts, with supermarket chains Albertson's and HEB.

The loss of a contract to supply GNC stores also affected business at TOL Europe, as did a price war in the retail market but this was offset by the consolidation of the Natudis business, a Dutch health foods distributor, following the increase of Wessanen's stake from 41 to 70 per cent in January 2003.

Wessanen has been struggling to keep its head above water for several years now, but last year's launch of Operation Phoenix has left it confident that the worst is now behind it - notwithstanding the less-than-sparkling 2003 performance.

Operation Phoenix is designed to help Wessanen​ generate over €100 million in annualised cost savings by the end of 2004, but this will do little to improve its performance unless it can get to grips with improving the nuts and bolts of its business.

The first indication that new chief executive Ad Veenhof understands this necessity came late last year, when he told​ Wessanen shareholders that the company would focus increasingly on strengthening its position in the health and wellness market, one with particularly strong growth prospects.

To acheive this, Wessanen will focus on creating a strong brand identity for its products, expanding its presence in both the US and European health food markets, reducing costs through better use of its supply chain, introducing more health food products, including a premium range, and improving the quality of service at its specialist store operations to improve competitiveness, Veenhof said.

Wessanen's branded business, which includes products such as Bjorg, Gayelord Hauser and Tartex, as well as Tree of Life, is now expected to account for 50 per cent of total sales by 2007.

The more pressing concern, however, is a return to profitability in 2004, and the company said that the effects of Operation Phoenix - and "the re-establishment of high-quality business processes and optimal service levels"​ at TOL NA (the very least its customers should expect and a reflection of just how badly the US arm has been managed in recent years) - should at least ensure that this occurs.

Related topics Suppliers

Related news

Follow us


View more