Aarhus United A/S

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Aarhus United A/S

PO Box 50
Aarhus C
DK-8100
Denmark
Telephone: +45 87 30 60 00
Fax: 45 87 30 60 12
Web site: http://www.aarhusunited.com

Public Company
Incorporated: 1871 as Aarhus Palmekaernefabrik
Employees: 1,711
Sales: DKK 4.48 billion ($748.4 million) (2003)
Stock Exchanges: Copenhagen
NAIC: 311225 Fats and Oils Refining and Blending

Aarhus United A/S is a leading producer of vegetable oils for the food, confectionery, cosmetics, and healthcare industries. The Aarhus, Denmark-based company produces specialty fats and oils, as well as oleochemicals, derived primarily from palm oils supplied by partner company United Plantations Berhad in Malaysia. Aarhus has played a leading role in developing new oil varieties, such as cocoa butter equivalents (CBEs) and cocoa butter replacements (CBRs), used to reduce the cocoa butter content in chocolate preparations; and oils and margarine with reduced or no trans-fatty acid content. The company also produces bulk oils, a byproduct of its food- and pharmaceutical-grade production. A globally operating company with subsidiaries in 14 countries, Aarhus carries out its own refining operations at its factories in Denmark, Mexico, the United States, the United Kingdom, and in Uruguay. These plants produce more than 800,000 tons of oil per year. Aarhus and its subsidiaries adopted the name Aarhus United in part to unify its operations, and in part to highlight its longstanding relationship with United Plantations Berhad. Aarhus holds a 23 percent stake of United Plantations, which in turn owns 43 percent of Aarhus. In 2003, Aarhus posted revenues of nearly DKK 4.5 billion ($750 million).

Oil Business in the 1870s

Aarhus United's origins lay in the late 19th century, when the Aarhus Palmekaernefabrik was established in 1871. The company's earliest product was cattle feed, in the form of cakes produced using the oil from palm kernels. For the next decade, the young business focused exclusively on cattle feed. Yet in the early 1880s, the construction of another factory in the town of Aarhus—for producing margarine—led the feed cake company to change its direction. In 1883, Aarhus Palmekaerne-fabrik began refining its palm oil imports as food-grade vegetable oil in order to supply the margarine factory.

Vegetable oils rapidly became the company's focus, leading to the change in name to Aarhus Oliefabrik in 1892. From the start, Aarhus Oliefabrik distinguished itself by a willingness to invest in research and development, which in turn enabled the company to capture a leading share of the Danish vegetable oils market. Leading this growth was Frederik Lausen, who took over as the company's manager at the age of 25. Lausen built a new, modern facility for the company, which then expanded its operations to include the refining of oils from a variety of sources, including sesame, copra, peanuts, and others.

Aarhus rapidly turned to the international market, expanding its reach into the wider Scandinavian market before expanding throughout much of Western and Eastern Europe in the years leading up to World War I. Acquisitions formed a significant part of this expansion, bringing the company to Germany, Russia, and the United Kingdom, and then farther afield, to the United States.

Aarhus's commitment to technical development played a major role in the company's international success. Much of the company's development was attributed to technical manager M.C. Holst, who joined the company in 1896. Under Holst, Aarhus developed a new method for refining coconut oil, eliminating the unpleasant smell and taste from the oil and making it suitable for a variety of foods applications. The new coconut oil made possible the development of the first all-vegetable oil margarine in 1909. Over the next decade, the company added raw materials purchasing subsidiaries in the oil crop producing markets of Southeast Asia and Africa. In this way, the company was guaranteed a steady supply of coconut, palm kernels, and the like, for its steadily growing production levels.

Holst also led the development of another highly significant product for the company, CEBES, in the late 1920s. This was the company's first foray into specialty fats and oils, which became the company's core activity throughout the rest of the century. CEBES represented a breakthrough as one of the first successful cocoa butter substitutes. The new substance, much less expensive than cocoa butter itself, enabled Aarhus to achieve strong growth in the 1920s and 1930s, despite the Depression era. By 1937, Aarhus's raw materials processing levels had topped 300,000 tons annually. The company also had emerged as one of Denmark's largest and most successful enterprises.

Building the Lead in the 1960s

Aarhus continued developing its specialty fats expertise. In the 1950s, the company's attention turned toward the development of a cocoa butter equivalent (CBE) capable of replacing part or even all of the cocoa butter needed for the preparation of chocolate. Supporting this effort was the construction of a modern production facility in the mid-1950s. By 1960, the company had succeeded in developing its first CBE, called Kawex. The new substance represented not only a significant cost savings to chocolate manufacturers, it also offered a greater flexibility for the production of new types of chocolates than cocoa butter itself.

Aarhus then began working with its customers to refine its CBE technology, and by the end of the 1960s had developed its hugely successful ILLEXAO. The success of its efforts led the company to continue its expansion and modernization of its production facilities, including the construction of a continual fractionation plant by the end of the 1970s.

During this period, also, Aarhus rapidly expanded its product range, adding salad oils, frying oils, baking fat and butter replacements, confectionery fats, and other specialty food oils and fats. The company also recognized an extension of its fats technology into nonfood categories, such as oils, lotions, and creams for the cosmetics industry as well as for the pharmaceutical industry. The company developed a range of technical oils for use in the printing and paper industries, as well as for industrial applications, such as hydraulics systems and lubricants. Aarhus's commitment to technical development helped it gain the global leadership in the specialty fats market by the end of the decade.

That period marked a new era of international activity for Aarhus. For one, the end of the 1970s had seen the beginning of a new level of partnership with Malaysia-based United Plantations Berhad. United had been founded at the beginning of the 20th century by a Danish entrepreneur, and had grown into Malaysia's largest oil palm plantation group. Danes remained in control of United despite Malaysian nationalization programs in the 1970s. In the late 1970s, Borge Bek-Nielsen, then head of United, saw strong potential in forming a partnership with Aarhus. In 1978, United acquired a major stake in Aarhus, which remained at 43 percent through the end of the century.

Cementing their relationship, Aarhus then bought a stake in United's holding vehicle, International Plantations and Finance, in 1981. Aarhus later bought a stake in United itself, acquiring 32 percent in 1991. The company later reduced its position to 23 percent.

International Expansion in the 1990s

Aarhus's relationship with United Plantations ensured its supply of raw materials. The company then turned to its own international expansion, adopting a new policy of installing production facilities close to its principal foreign markets. A first step in this strategy was achieved in 1982 with the creation of Anglia Oils Ltd. in the United Kingdom. That company launched production the following year.

The United States became the company's next growth market, with the installation of a new production facility in Port Newark, New Jersey, in 1990. That plant was specialized in the production of lauric oils. In 2002, the U.S. subsidiary began an expansion of the site, building a new and separate production system for the production of nonlauric oils.

Soon after entering the United States, Aarhus turned to Mexico as well, establishing a new production subsidiary there called Santa Lucia. Other international markets followed, including a production facility in Malaysia. By the mid-1990s, Aarhus counted six oil production plants outside of Denmark, including sites in Egypt and Norway, as well as a seventh facility, in Sri Lanka, dedicated to the production of dessicated coconut. In 1996, the company began a new $35 million expansion of its Aarhus site in order to meet the boom in demand for its specialty oils and fats.

Through the 1990s and into the 2000s, Aarhus rapidly expanded its network of purchasing and sales and marketing subsidiaries. As such, the company established offices in such markets as Australia, Hong Kong, Benin, Croatia, Poland, Ghana, and elsewhere.

The year 2000 marked a new opportunity for Aarhus. In that year, the European Commission adopted new rules that enabled manufacturers to include up to 5 percent of CBEs in their recipes and still label their products as chocolate (previous rules in some countries had allowed only the use of 100 percent cocoa butter in chocolate). The new directive promised a boom in the purchase of CBEs, and Aarhus ramped up its production capacity accordingly. After some heel-dragging, the new chocolate directive became enforced in 2003. Yet the market saw little change in the first year after the adoption of the new rules, in part as manufacturers proved reluctant to change their chocolate formulas.

Company Perspectives:

We supply customers on selected world markets with vegetable oils processed using advanced technology and formulated to meet specific needs. Within the framework of this mission, we continue to explore a series of opportunities that can lead to growth and an increased income for the group. This has, over the years, taken us into areas regarded as complementary to our main activities.

Nonetheless, CBEs remained a promising market for Aarhus. In 2003, Brazil became another country to loosen the ingredients requirement on chocolate, permitting the use of up to 10 percent of approved CBEs in a chocolate recipe. Aarhus quickly moved to position itself in that market, setting up a partnership with Uruguay's Compania Oleaginousa Uruguaya in 2004 in order to gain a foothold in the region.

In the meantime, Aarhus adopted a new identity for the new century. In 2003, the company chose to change its name—and that of its international subsidiaries—regrouping the entire company for the first time under the Aarhus United banner. The name change also underscored Aarhus's longstanding and close relationship with United Plantations. Yet Aarhus remained true to its tradition of technical innovation. In 2004, the company debuted a new range of oils with zero trans-fatty acids. With nearly 135 years of history behind it, Aarhus United had proven itself as a world leader in specialty oils.

Principal Subsidiaries

Aarhus United; Aarhus United Asia-Pacific; Aarhus United Australia; Aarhus United Bénin; Aarhus United Côte d'Ivoire; Aarhus United Croatia; Aarhus United Ghana; Aarhus United Hongkong; Aarhus United Latin America; Aarhus United Mexico; Aarhus United Poland; Aarhus United UK; Aarhus United USA; Aarhus United ZAO (Russia); BSP Pharma (50%); Ceylon Trading Co. (Sri Lanka); Frank Fontannaz (U.K., Malaysia, and Holland); United Plantations (Malaysia; 23%).

Principal Competitors

Itochu Corporation; Cargill Inc.; Unilever PLC; Conopco Inc.; Archer Daniels Midland Co.; Sungai Budi Group; Palmindustrie S.A.; Madhvani Group; Hayel Saeed Anam Group of Cos.

Key Dates:

1871:: Aarhus Palmekaernefabrik is founded in Denmark to produce feed cake from palm kernels.
1873:: The company begins production of vegetable oil for a local margarine factory; vegetable oils become the company focus.
1892:: The company changes its name to Aarhus Oliefabrik and builds a new factory specialized in refining oil.
1909:: The company develops a method for refining coconut oil.
1930:: The company launches its first specialty fat, CEBES, a cocoa butter substitute.
1960:: The first successful CBE, Kewax, is launched.
1978:: United Plantation Berhad acquires a stake in Aarhus.
1982:: Aarhus opens its first international subsidiary, Anglia Oils, in the United Kingdom.
1990:: Aarhus establishes a U.S. production subsidiary in Port Newark, New Jersey.
1991:: Aarhus acquires a direct stake in United Plantation.
1996:: International expansion gives Aarhus seven production facilities outside of Denmark.
2000:: The European Commission adopts new rules governing the use of CBEs in chocolate.
2003:: Aarhus changes its name to Aarhus United.
2004:: The company begins a partnership in Uruguay in order to increase penetration into the South American market.