Natraceutical, a spin-off of Spanish food group Natra-Zahor, has unveiled ambitious expansion plans, spurred on by growth in the functional foods market. With such high levels of interest in healthy foods, the company has high hopes for its functional food ingredients, including cacao and olive-oil extracts, as Ivan Castano found out.
Natraceutical’s production facilities in the blue-collar town of Quart de Poblet on the outskirts of Valencia, Spain, are known for enchanting visitors with the chocolate-flavoured scent stemming from its cacao-grinding machines. In fact cacao is one of a slew of functional-food ingredients that Natraceutical hopes will sweeten the road to its ambitious future growth plans.
The firm, a spin-off of Spanish food group Natra-Zahor, is forecasting operating profits to soar 237% to €16m (US$20.7m) by 2007 and nutraceutical-product turnover to grow ten-fold to €100 by 2010. Production is expected to reach 8,000 tonne/year from 5,000 tonne/year in the medium term, boosting the company’s goal to control 10% of Europe’s nutraceuticals market in five years.
Natraceutical hopes to achieve these targets through organic growth and new product development to transform its nutraceuticals business into its cash cow, says finance director Federico Gregori.
Investing in R&D
The company’s business is divided in three main areas: purified caffeine, nutraceutical products (mostly for food but also for the drugs and cosmetics industry) and third-party research activities. It is working around the clock to streamline its nutraceuticals portfolio and launch seven new references by 2006. It has also patented five new products, surpassing prior targets.
“Right now caffeine accounts for 82% of sales and functional foods 18%. We expect that equation to turn around in five years,” Gregori says, adding that Natraceutical hopes to have 1,000 clients from 400 currently, in the next few years.
Natraceutical also plans to invest €22m by 2010. The investment will go to modernise production facilities, pursue new product research and development (R&D), and build its image around the world.
Nutraceutical, which exports 90% of production, also hopes to drive growth form international expansion. The company is already present in Europe, the US and Japan and hopes to enter the booming Chinese market next year.
“We are doing pretty well in Europe and in the US and we want to expand in the Asian market,” says general manager José Vicente Pons Andreu. “We are approaching China cautiously because it has a very different culture [from the West] but we already have contacts to enter the market in 2006.”
Pons is confident that a booming functional foods market (expected to reach €550bn by 2010) will power Natraceutical’s growth engine. The US and Europe’s nutraceuticals market should grow 7-8% and 15% annually in the medium term, as food and drink multinationals work to meet a growing global health-foods craze, he says.
Natraceutical develops its references from natural products in the Mediterranean Basin and Africa. The bulk of them stem from cacao and olive-oil extracts containing high levels of polyphenols, flavonoids and oleic acids said to prevent cancer, cholesterol and cardiovascular-related ailments. Its cocoa-bean powder and soluble fibre references are used to make “good for you” cookies, pastries and energy bars while its olive powder and rosemary extracts form the base of low-carb potato chips, pizza and pasta products. Its purified caffeine and other ingredients flavour and enhance soft drinks in the beverages industry.
Natraceutical won’t reveal its clients’ names but says they represent the “Coca-Cola and Nabiscos” of the world. The company is reportedly a big supplier of Coca-Cola in Brazil, where it has production facilities.
“Not worried” about competitors, but clients get tough
Pons says that Natraceutical is currently researching new extracts from tomatoes, grapes and dry fruits to continue to grow the business and beat the competition, which he assures is not a problem so far.
Vincent Lladó Juanós, Pons’ right hand, says that compatriot archrival Puleva Biotech and the plethora of franken food companies proliferating around the world are not a threat to the company.
“Puleva sells most of its products to parent Ebro Puleva and does more third-party research, while we sell our entire portfolio to outside clients,” not to parent Natra-Zahor, which recently merged to create a big European chocolate company.
Natra-Zahor, which owns 75% of Natraceutical, expects operating profits to reach €25m by 2007 and to deliver sales of €260m by that time. The company will centre its growth around the chocolate mini-bar market where it already ranks as Europe’s fourth-biggest producer, Pons says.
“The functional foods industry is very big and diverse so there is room for everyone,” Lladó adds. “Cacao has 500 different substances and many of them have functional properties. We have chosen to focus on its fibre and antioxidant qualities.”
However, Pons acknowledges that Natraceutical is facing increasing challenges from clients who are demanding deeper product-quality research.
“Our research is becoming more multidisciplinary,” says Pons, because clients are demanding more proof that a specific functional ingredient benefits health at the final-product level and not only at the active-principle stage required before.
Pons adds that some of the company’s investment funds will have to be used to finance these types of studies.
Natraceutical floated its shares on the Spanish Stock Exchange in 2002 and has a €160m market capitalisation. Apart from Natra-Zahor, Spanish porcelain maker Lladró is a big investor with a 3% stake.
Analysts mixed about future prospects, valuation
Madrid-based investment brokerage Ibersecurities has a buy rating for Natraceutical’s shares, saying they could rise 15% to €0.97 by year-end. The company’s growing pipeline, aggressive patenting activities, and low debt levels (company says all liabilities were paid in a recent €20m share offer) will help it meet targets.
However, other observers caution that the stock has a volatile nature and that it might be overvalued.
“This company has a pretty big product range but that doesn’t mean that all of them will go into food products that will eventually succeed in the market,” notes Pablo Saez, a researcher with the Euromonitor market research firm in London. “There is always a valuation risk with these companies.”
An analyst with Madrid-based Bestinver says that while the brokerage firm has shares in Natra-Zahor it is waiting to make a sweep on Natraceutical. “This company is still very young and you can’t really make any bets until the business develops further.”