Abf Snaps Up Hovis Despite Sales, Profit Pressures In Uk Bread

Credit: Hovis Facebook page.

Associated British Foods (ABF) is to get nan Hovis breadstuff business from UK headquartered private-equity patient Endless.

ABF confirmed nan woody coming (15 August), ending months of speculation complete nan UK-listed company’s plans for its ain breadstuff division, Allied Bakeries, nan Kingsmill and Sunblest marque proprietor put up for reappraisal successful April.

However, alternatively than opting to waste Allied Bakeries aft ABF said successful April that nan section was facing a “very challenging market”, nan London-listed institution is combining it pinch Hovis to “create a profitable UK breadstuff business that is sustainable complete nan agelong term”.

Those comments came from ABF’s CEO George Weston, who added successful a statement: “Supporting nan Hovis and Kingsmill brands pinch well-invested and businesslike operations will besides alteration invention and growth.

“This solution will create worth for shareholders, supply greater prime for consumers and summation efficiencies for customers.”

Financial position for nan transaction were not disclosed by ABF arsenic it said it had “reached an statement to get Hovis”, taxable to regulatory approval. Endless bought nan business successful 2020.

At nan time, Hovis was 51%-owned by US finance patient The Gores Group and UK nutrient institution Premier Foods, nan proprietor of nan Mr Kipling cakes brand. Jefferies International estimated nan woody worth astatine £75m ($101.6m astatine today’s speech rate) successful position of what it deemed successful 2020 arsenic “implied gross proceeds”.

Endless had not responded to Just Food’s petition for remark astatine nan clip of writing.

When ABF revealed nan reappraisal of Allied Bakeries successful April successful its financial results briefing for nan 24 weeks to 1 March, nan Primark clothing stores proprietor said nan bakery section had added to nan group’s operating losses amid “lower” volumes and sales.

ABF added much commentary today: “Profitability astatine Allied Bakeries has been progressively challenged successful caller years by a diminution successful request for pre-sliced, packaged breadstuff and a nonaccomplishment of standard successful Allied Bakeries’ nationwide distribution web serving nan awesome retailers pinch regular transportation of breadstuff and bakery goods.”

However, it added: “The acquisition [Hovis] will harvester nan accumulation and distribution activities of nan 2 businesses, driving important costs synergies and efficiencies…

“The mixed business will beryllium amended placed to compete efficaciously and to found a unchangeable level for merchandise invention successful nan segments of nan UK bakery class that are increasing arsenic a consequence of changing user tastes and needs.”

James Watson, a UK partner astatine consultancy Argon & Co., said: “The Hovis-Kingsmill merger is simply a clear motion of nan pressures facing nan UK bakery sector. With ostentation driving up costs and breadstuff depletion successful dependable decline, consolidation was ever a mobility of when, not if.

“The woody gives ABF a caller marketplace leader pinch 41% share, overtaking Warburtons’ 34%. But down nan header is simply a reliable reality: some businesses person been making unsustainable losses. The existent prize present is ratio – rationalising overlapping bakery networks and cutting costs successful procurement, logistics, and manufacturing.”

ABF said nan guardant plans for nan mixed business see nan “improvement successful existing products and description into caller merchandise ranges”.

Allied Bakeries besides produces nan Allinson’s breadstuff and flours brand. The section of ABF besides supplies UK retailers and supermarkets pinch private-label breadstuff products.

ABF does not break down nan financial capacity of Allied Bakeries aliases for different nutrient brands wrong its market reporting unit, which includes Twinings beverage and nan Patak’s and Blue Dragon sauces lines.

Group results for nan 24 weeks to 1 March showed a 2% diminution successful income to £9.51bn, while adjusted operating profit dropped 12% to £835m. Profit earlier taxation fell 21% to £692m pinch an EPS alteration of 8% to 83.6 pence.

Shares successful ABF were small changed astatine 2,270 pence successful London coming pursuing nan Hovis announcement.

Watson astatine Argon added: “Execution will beryllium everything. Disrupting existing customer relationships now, while some brands are losing share, would consequence compounding nan problem.

“Longer term, nan situation is to extremity managing diminution and commencement building momentum. That intends addressing structural issues successful nan breadstuff marketplace and responding faster to shifting user trends – whether that’s health, speciality products, aliases premium lines.”