Karlshamns saw operating profit in the oils and fats business area drop to SEK134 million (€14.8million) for 2003, down from SEK146 million on the previous year.
The Karlshamn-based firm said this week it is looking to save some SEK100 million from 2006 onwards through the cost cuts, essential due to 'fierce competition.'
"We have maintained an acceptable profit level throughout 2004, but the external pressure on our contribution margins remains strong. It is thus vital to take action in good time," said Jerker Hartwall, CEO of Karlshamns.
The Swedish oils and fats firm, which supplies confectionery and chocolate producers, said at the end of last year it would be looking to focus on high-margin, value-added products to kick back the bottom line. As such last month the company acquired UK flaked fats company Kelanco, and with it a drive into value-added speciality fats for the booming UK convenience food market.
The deal gives Karlshamns-based its first production facility for flaked fats, adding to the flaked fatty acids and flake feed materials currently in the Swedish company's portfolio.
"We already have a plant for powdered fats, the Kelanco purchase and its UK production base complement this," a spokesperson for Karlshamns told FoodNavigator.com at the time.
The firm hopes the acquisition - the UK business has an annual SK15 million turnover - will generate much needed profit in 2004. Hardening competition, particularly from across the Atlantic, has seen US giants eating into the European market for oils and fats. Last year the world's number one oilseed processor US Bunge acquired French rival oilseed processor Cereol - the parent of ingredients company Central Soya in a move that gave it access to key operations in Europe.
"Hardening competition in the vegetable oil industry had negative effects on the oils and fats contribution margins," commented the president of the firm, Jerker Hartwall, last year.
The oils and fats business area of Karlshamns, that also includes technical products and feed materials divisions, has recently had to come to terms with the loss of Carlshamn Mejeri - one of the group's largest customers in terms of volumes but which moved its entire production operations to Finland in the second quarter of 2003.
At the time of the move Karlshamns said it would instigate strategies to balance the loss, adding that volumes of value-added products - notably to bakeries and large-scale catering - were on the up, whereas those of standard products had dropped.
Increasing competition in the cocoa butter replacer market has pressurised margins for Karlshamns, despite new EU rules that were expected to open up the market for vegetable fats in chocolate. The new rules came into full force in the autumn of 2003, but so far suppliers of cocoa butter replacers -among them Karlshamns that said this week 40 to 50 jobs will go out of the 757 force - have been disappointed by sales.