Speculate to accumulate pays off for UB

Related tags Marketing

Increased marketing expenditure to back the relaunch of the
flagship McVities brand helped United Biscuits increase its sales
in 2002. But it is the possible future of the company - and the
likelihood of a bid from minority shareholder Kraft - which is
likely to dominate 2003.

Increasing its marketing expenditure in 2002 appears to have paid off for privately owned biscuits and snacks group United Biscuits (UB). The British company reported sales of £1.3 billion, up 3.1 per cent, for 2002.

Without the private label and contract production work, sales were up 3.8 per cent to £1.1 billion. No profit figures were given, but the company said that operating margins rose to 14 per cent from 11.6 per cent in 2000.

The increase in sales came on the back of increased marketing expenditure (of around 15 per cent) to support the relaunch of the flagship McVities brand, and sales rises for 2003 are likely to be lower as a result.

The improved sales figures come at the start of what could be a very important year for UB. March sees the end of a two-year period which has prevented the company's owners from selling the company, and analysts are already letting their imaginations run wild.

UB is currently owned by three private equity groups - Paribas Affaires Industrielles, Cinven and DB Capital - and the US food group Kraft, but with the company successfully turning itself around since they took over the reins in 2000, any number of potential bidders could be waiting into the wings.

Not least of these, of course, is Kraft itself, which may look to increase its share in the company, whose brands include also Hula Hoops and Penguin. Kraft is still underrepresented in Europe, and upping its stake in UB would give it an excellent platform from which to launch an assault on the market. The US group, which also owns the Nabisco biscuit and snack group, currently has 25 per cent of UB.

With an agreement also obliging any departing shareholder to first offer its shares to the remaining owners, any radical change of ownership is unlikely, but analysts have already mentioned France's Danone as a potential buyer - though it would face significant competition problems, especially in markets such as Spain.

In the meantime, UB will continue with its cost-cutting programme, which has already seen it close a number of production facilities, and pursue its strategy of new product innovation.

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