Yeast acquisitions hold up profit for UK ABF

Related tags Burns philp Yeast Bread

Despite a warning in April that raw materials and currency would
have an impact on second half earnings, the UK ingredients firm
Associated British Foods, which in July laid down €1 billion for
leading yeast supplier Burns Philp, said today that operating
profit is on track for growth.

The group, that has just snapped up Australian yeast and bakery ingredients firm Burns Philp for €1 billion, said today that its operating profit growth in its second-half will be similar to the first-half despite adverse impacts of currency and higher raw material prices, notably corn and soy.

"Despite these pressures, our businesses have performed well and we now expect second half operating profit growth to be similar to that achieved in the first half,"​ said the owner of British Sugar. For the first six months, ABF operating profit rose 10 per cent to £224 million on the back of a five per cent rise in group sales to £2.3 billion.

Through the Burns Philp purchase announced in July this year, the maker of the Twining and Ryvita brands gained the number three yeast position for Europe and with it, strong potential earnings.

"The global yeast market is growing at three to four per cent with particularly strong growth in developing countries - in China the market is moving at a 10 per cent pace,"​ a spokesperson for ABF told a press conference at the time.

In addition, the firm gains the number two slot for US herbs and spices, and becomes a market leader in bakers' yeast in North America, Latin America and Asia.

"The combination of accretive acquisitions, continued growth in the core businesses and declining growth elsewhere has positioned ABF towards the upper end of the earnings growth tree,"​ commented investment bank Goldman Sachs, flagging up the Burns Philps assets as the 'most important' acquisition.

ABF said it sees strong growth in the yeast market, currently topping 2.3 million tonnes and worth US$1.5 billion annually, with key drivers for growth being a rise in population, bread consumption and 'westernisation'.

"Growth is at one to two per cent in developed countries but much higher in developing countries driven by the changes of diet which result from increased affluence. Use of yeast, an essential non-substitutable ingredient used in bread making, increases with the move towards large scale bread production,"​ explained a spokesperson.

Yeast brands acquired through the Burns Philp acquisition include Mauri, Fleischmann and Calsa.

On the bakery ingredients side, the buyout gives ABF bread improvers, conditioners, mixes and fats and oils. The current ABF business is limited to the US, UK and Australia and has focused on high value bread improvers, conditioners, concentrates and enzymes supplied to plant bakers. The combined business will have sales of over €244 million.

Yeast extracts and US herbs and spices also come into the ABF fold. With sales of US$2 billion, the purchase lifts ABF into the number two herbs and spices slot behind market leader McCormick.

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