“this Is A Merger Out Of Distress, Not Progression” – Can Abf-hovis Deal Bolster Uk Bread Businesses?

ABF’s beingness successful nan UK breadstuff marketplace has been a taxable of statement for overmuch of nan past 2 decades. Will nan group’s move to bargain Hovis put nan businesses connected a much unchangeable footing?

Leaf done astatine slightest nan past 10 years of Associated British Foods’ yearly reports and it’s clear nan UK breadstuff marketplace has been nary cakewalk for nan food, ingredients and unit group.

There person been years successful which ABF has reported year-on-year gross maturation from its Allied Bakeries limb successful nan UK but nan past decade has been mostly 1 of sluggish income and of striving to move a profit.

Discover B2B Marketing That Performs

Combine business intelligence and editorial excellence to scope engaged professionals crossed 36 starring media platforms.

Find retired much

A Hovis soft achromatic sliced loaf of breadstuff connected 1 February 2024 successful Leigh connected Sea, United Kingdom. Credit: John Keeble/Getty Images

ABF’s struggles successful UK breadstuff person agelong begged questions astir its early successful nan category. Back successful 2019, past finance head John Bason, aft reporting nan 3rd consecutive twelvemonth successful which Allied Bakeries had made an operating loss, told Just Food nan institution remained committed to nan marketplace and ruled retired a sale.

And nan statement stretches backmost astatine slightest arsenic acold arsenic this analogous has covered nan nutrient sector. In ABF’s 2008 financial year, nan Kingsmill breadstuff marque proprietor said Allied Bakeries had performed “poorly” successful nan look of rising commodity costs and fierce title successful nan UK breadstuff marketplace (it was ever thus). Some City analysts had begun asking whether ABF should stay successful bread, a business cardinal to nan commencement of nan institution successful nan 1930s.

Fast-forward 5 years to 2013 and location was speculation ABF mightiness swoop for Hovis, past owned by UK shaper Premier Foods. Robert Lawson, nan managing partner astatine European consultancy Food Strategy Associates, remembers nan other transaction was mooted erstwhile he was astatine Premier successful nan precocious 2000s.

“The synergies were significant – consolidation of factories and of nan 2 businesses’ expensive direct-store-distribution systems delivering connected a regular basis, rationalisation of nan guidance teams moving nan businesses, consolidation of mills and procurement synergies. On top, location was besides nan opportunity to rejuvenate Hovis’s aged bakery network, which moreover past was overmuch older than ABF’s,” Lawson says.

This week, a woody did travel to walk – and was thing of a astonishment to immoderate manufacture watchers. When ABF announced successful April it was putting Allied Bakeries up for strategical review – and, days later, said it was in talks pinch Hovis’s owners, nan private-equity patient Endless – galore onlookers assumed nan group was group to time off nan UK breadstuff market.

“Getting bigger successful breadstuff is astir apt not what investors want to see,” Barclays analysts covering ABF said successful a statement to clients connected Friday (15 August). “No uncertainty investors would person preferred ABF to person exited UK breadstuff altogether but this wasn’t really a realistic action fixed nan building of nan manufacture pinch marketplace leader Warburtons family-controlled and Hovis owned by backstage equity.”

City analysts estimate ABF has mislaid hundreds of millions of pounds successful nan over-supplied and stagnant UK breadstuff marketplace successful caller years. Demand for sliced breadstuff has been soft for a number of years, while Kingsmill and Hovis, pinch their merchandise ranges mostly centred connected accepted fare, person faced a trio of competitory threats: backstage label, much artisan products for illustration sourdough and nan spot of nan privately owned Warburtons, which has built nan largest branded business connected coagulated trading and innovation.

“We reckon that Allied has mislaid anyplace betwixt £500m ($673.4m) and £750m complete nan past 15 years successful UK bread,” Shore Capital expert Clive Black tells Just Food. “If it hadn’t been for nan letter cover of ABF, [Allied Bakeries] would person been astir apt closed immoderate clip ago. Those numbers are nan accumulated trading losses, nan redundancies, restructuring and impairments that person taken place. At nan moment, we would propose it’s losing connected an annualised ground location betwixt £25m and £40m a year.”

UK title scrutiny

ABF believes nan mixed Allied Bakeries and Hovis business tin beryllium a much robust operator. “This transaction will create a UK bakeries business that is some profitable and sustainable complete nan agelong term. Supporting nan Hovis and Kingsmill brands pinch well-invested and businesslike operations will besides alteration invention and growth,” George Weston, ABF’s CEO, said connected Friday. “This solution will create worth for shareholders, supply greater prime for consumers and summation efficiencies for customers.”

The completion of nan transaction is taxable to nan support of nan UK’s Competition and Markets Authority, which will apt look intimately astatine a woody bringing together 2 of nan largest branded players successful nan country’s breadstuff market.

Shore Capital’s Black believes nan CMA should fto nan transaction through, pointing to nan prime presented by backstage label, by location manufacturers for illustration Roberts Bakery and Jackson’s Bakery and, of course, by Warburtons. “This is simply a merger retired of distress, not retired of progression,” he says. “If it doesn’t return place, I deliberation location will beryllium very substantial, perchance irrational, rationalisation. If it does return place, past a basal evil will astir apt occur. I don’t deliberation it is detrimental to nan UK shopper’s interest.”

When Lawson was astatine Premier, nan mooted costs benefits of an Allied Bakeries-Hovis operation made nan thought of a woody “compelling”. He adds: “The position past was that [competition approval] was unlikely. Today, Kingsmill is simply a much-diminished beingness connected support truthful retailers nary longer person nan aforesaid expertise to punish nan consolidation pinch marque rationalisation – and location is constricted replacement to retailers of branded suppliers, truthful nan synergies whitethorn hold.”

Hovis breadstuff connected waste successful a Tesco store, Sidcup, United Kingdom, 18 August 2025. Credit: Just Food

ABF does not disclose elaborate income and profit numbers for Allied Bakeries. In nan group’s 2024 fiscal twelvemonth (the 12 months to 14 September), Allied Bakeries saw a “much-reduced operating loss” amid what ABF called “improved income and operational performance”.

However, erstwhile nan Sunblest marque proprietor announced its results for nan first half of nan company’s existent financial twelvemonth successful April, it appeared Allied Bakeries was again uncovering nan going tough. “Our UK-focused businesses declined overall,” nan Ryvita crispbread and Jordans granola shaper said. “As expected, this was chiefly owed to little volumes and income successful Allied Bakeries, which resulted successful an accrued operating loss. Allied Bakeries continues to look a very challenging market.”

Endless snapped up Hovis from Premier and US investor Gores Group successful precocious 2020. Companies House, nan UK business register, has 2 afloat years of financial results since nan alteration of ownership. The astir caller group of numbers screen nan 52 weeks to 28 September 2024, erstwhile gross stood astatine £446.8m, down almost 9% connected a twelvemonth earlier, an operating nonaccomplishment of £2.9m (compared to 1 of £3.2m nan erstwhile year) and a nett nonaccomplishment of £4.7m (against 1 of £3.6m).

“The group has achieved affirmative financial advancement contempt continued reliable trading conditions,” commentary alongside nan figures reads, highlighting improved EBITDA. “These results item our attraction connected managing nan costs guidelines successful a highly competitory marketplace and demonstrating bully advancement during nan year, which will proceed into 2025.”

Cost synergies to beryllium captured

Should nan CMA clear nan deal, really mightiness ABF spell astir creating that semipermanent “profitable and sustainable” UK bakery business its CEO touted past week?

Barclays’ analysts judge nan synergies ABF mightiness extract from nan woody “could beryllium very significant”. They reason nan £50m successful costs savings suggested by unnamed manufacture sources to Sky News “could beryllium conservative”, adding: “The acquisition will harvester nan accumulation and distribution activities of nan 2 businesses, driving important costs synergies and efficiencies pinch nan purpose of creating a sustainable and profitable UK breadstuff business successful nan agelong term. It could free up money to put successful nan much absorbing parts of marketplace – high-protein breads, meal goods. If ABF could move a £30m nonaccomplishment into a £20-30m profit connected a two- to three-year position and salary astir £75m for nan business, that would beryllium an charismatic payback.”

At Shore Capital, Black is sceptical astir nan imaginable of important gross synergies but says ABF could look crossed nan business, from nan C-suite, done manufacturing and distribution and onto merchandise ranges, successful bid to find efficiencies.

“Once they’ve worked retired nan assortment, starting to put nan accumulation scheme together, which yet whitethorn lead to nan closure of bakeries aliases nan rationalisation of lines,” he suggests. “Then, possibly nether nan radar, but astir significantly, combining nan distribution model. Like milk, breadstuff is 1 of nan fewer products that is still delivered to shop and combining distribution pinch materially improved conveyance utilisation intends saved costs. From nan centre correct done to nan distribution process, removing duplication, going to a azygous business exemplary and taking a batch of costs. Whether this woody really does make for much invention successful merchandise and for nan improvement of brands successful revenue-based synergies remains to beryllium seen. I’ve been astir excessively agelong to spot revenue-based synergies.”

Now it’s complete to nan CMA wherever title officials will sift done nan financials of some businesses. Warburtons will beryllium watching closely. “It is difficult to reason that manufacturers person nan whip manus complete retailers fixed nan standard of manufacture losses,” Barclays adds.