Cognis fails to turn higher sales into profit growth

By Guy Montague-Jones

- Last updated on GMT

Escalating raw material prices have prevented Cognis from
translating its strong first quarter sales increases into profit
growth.

The ingredients provider posted an increase of 7.1 per cent in net sales to €953m for the first three months of the year helped in particular by its largest division, care chemicals. Turnover increases across divisions​ Rising demand for its personal care ingredients pushed up organic sales in care chemicals by 9.6 per cent to €398m. Cognis is targeting the 'sustainability' and 'wellness' trends and in personal care this has driven the company to focus on natural oil-based ingredients and the sensory features of its products. Meanwhile, in nutrition and health, Germany-based Cognis reported a 7.8 per cent increase in sales to reach €91m, which it attributed to its innovative products in the functional foods and dietary supplements. Raw material headaches ​ Despite achieving these strong growth figures in the context of adverse currency fluctuations, the company had difficulties containing its costs. Although lower restructuring costs helped Cognis post an EBIT increase of 6.1 per cent for the quarter, its operating result (adjusted EBITDA) was down 1.9 per cent to €109m as cost of sales rose 9.5 per cent. Raw material price increases have been particularly crippling for natural product manufacturers. For instance, Cognis had to pay out 90 per cent more in the first quarter for the important natural raw material lauric oil than it did in the same period last year. Furthermore, the company does not expect the situation to improve as the company looks forward to the remainder of the year. "As 2008 continues, we expect the market environment to stay challenging,"​ said Cognis CEO Antonio Trius. "We are confident that further price increases and stringent cost management will support us to remain on track and to achieve our target."

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