ABF buys up edible oils
British Foods are key to reducing dependency of group profits on
ABF's leading revenue source British Sugar. This week the company
signs a deal with Unilever to buy the Anglo-Dutch company's food
oils brands in Mexico.
The $110 million (€88m) cash deal announced on Tuesday sees Capullo bottled canola oil, Mazola edible oil and Inca white fat, that had combined sales of $124 million (€100m) in 2003, falling into the ABF stable through its US subsidiary ACH Food companies.
The purchase builds on the ACH acquisition in 2002 of Unilever's Mazola corn oil brand in the US. "ACH plans to leverage its knowledge and marketing capabilities in the oil category in order to grow the Capullo and Inca brands in much the same way it has grown the Mazola brand in the US," said ACH in a statement yesterday.
In light of imminent reform, due in 2006, to the European sugar industry that will slice into profits for the company's sugar giant British Sugar - a key revenue source for ABF - the food firm is under some pressure to spend a slice of its estimated €1 billion cash pile on new acquisitions.
In 2003 the food and agriculture division of ABF, of which British Sugar is a part, pulled in the highest operating profit for the full year for the group rising by nearly 5 per cent to £176 million on the back of a £1.6 billion turnover.
Investment bank Goldman Sachs last year estimated that the impending sugar reform could reduce cash flow at ABF by as much as 10-20 per cent from 2006/07 if the EU implements a quota/price cut of 30 per cent/10 per cent respectively, which is still a possible outcome.
The EU's 35-year-old sugar system - not included in this year's CAP reform - has been long criticised by observers. principally because it helps keep internal sugar prices at more than three times those on the world market.
However, changes to the current artificially buoyant internal market would cut heavily into the margins and revenues of key sugar companies, such as ABF and Danisco, in Europe today. In September the European Commission tabled three possible reform scenarios for the EU's sugar sector which are currently under discussion. The Commission is expected to draw up proposals in June 2004.
Together with food ingredients and speciality oils, ABF makes the UK's popular Allinson and Kingsmill bread brands as well as Ryvita crispbread and Twinings teas.
