Individual Case Analysis: Associated British Foods Krista Haswell MGT 685

Transcription

Individual Case Analysis: Associated British Foods Krista Haswell MGT 685
Individual Case Analysis:
Associated British Foods
Krista Haswell
MGT 685
9/27/12
Primary Question
Can well diversified ABF capitalize on its
strengths and the opportunities for growth in its
five operating areas in the face of financial
investment restrictions, increasing competition,
and a volatile global food market?
Sub-questions
• How do ABF’s core competencies align with global trends? Which of
these trends will have the most impact on each of ABF’s divisions?
• What is ABF’s current position in each of its segments and how will
that position be impacted in the future? Where are the current
opportunities for growth in each segment? Which segments are
best positioned to expand globally?
• What is the financial position of each segment? How will ABF
continue to fund its growth? Where should the limited investment
dollars be allocated?
• Can ABF remain well-diversified? Should any segments be divested?
Can/should the firm continue its growth through acquisition
strategy?
Company Overview
Divisions
Growth
State
Mode of
Growth
-Retail
-Grocery
-Sugar
-Agriculture
-Ingredients
Rapid,
Aggressive
Acquisition Strong,
and Joint
Stable
Venture
Focus on
long term
Financial Global
Position Position
-Based in UK
-Global in each
division, most
(45.6%)
revenue from
the UK
Management
-Privately
controlled
-Autonomous
divisions
-Funds
allocated
among
divisions
Core Competencies: Food system knowledge, diversity, stable leadership, ability to capitalize quickly on opportunities
-Company expects growth in all divisions, but aggressive growth is catching up in
terms of available finances…can aggressive growth continue?
-Has aggressive growth impeded the firm’s ability to fund the new/better
opportunities?
-Heavy reliance on the UK…where are best opportunities for global expansion?
ABF Financial Ratio Analysis
2010
2009
2007
2005
2003
2001
Net Sales (Revenue)
10167
9255
6800
5622
4909
4418
Gross Profit Margin
25.70%
29.28%
25.62%
27.89%
25.20%
22.41%
Operating Margin
8.06%
6.75%
8.18%
9.78%
7.84%
6.29%
546
359
369
379
326
243
5.88%
3.97%
5.29%
6.24%
6.92%
6.21%
Asset Turnover
1.09
1.02
0.97
0.93
1.04
1.13
Operating Income
819
625
556
550
385
278
EBIT
839
573
543
664
425
327
5.37%
3.88%
5.43%
6.74%
6.64%
5.50%
(52)
151
151
(226)
26
32
11.53%
9.00%
10.24%
9.16%
10.69%
7.61%
Net Income
Return on Assets
Profit Margin
Net Change in Cash
Cash Flow Margin
***Strong Position
-Cash flow is typically positive. In 2010, negative change in cash was affected by high dividend payout and an increase in
investment activities. By selling assets or divesting, ABF can generate additional cash and further invest in cash generating activities
-Asset turnover is low so profit margins are high
-ROA is increasing after decrease in 2009; shows effective use of assets
-Operating margin is healthy and stable; in 2010 ABF made $0.08 for every dollar of sales
-Free cash flows are expected to increase through 2013
ABF Division Comparison
Industry/
Products
Geographic
Markets
Growth
Strategy
% of Revenue
(2010)
Retail
Primark-high
fashion/low end
clothing stores
Operates stores in UK
and Ireland with some
expansion into W.
Europe
Acquisition
26.3%
Grocery
Foods and ingredients
for consumers and
food service customers
Different brands in
different global
markets
Acquisition
33.1%
Sugar
Raw sugar- production
and refining
Facilities in UK, Spain,
China, South Africa
Acquisition, joint
ventures, internal sales
19.8%
Agriculture
Animal feed, grain
trading, various
marketing ventures
Operations in China
and UK; sells in over 43
countries
Joint venture, merger
9.6%
Ingredients
Enzymes, food
toppings, oils, flavors,
and food colorings
Facilities in 26
countries
Acquisition, internal
sales
11.3%
-Internal sales must be also be a factor in analysis of each division’s potential for growth and profitability
-Retail business in only non-food division---reduces risk of volatile food market, but not as knowledgeable about industry
-Aggressive growth through acquisition ---can this continue and at what rate?
-Are agriculture and ingredients divisions too diversified or does the diversification reduce risk within each? Which areas of
each generate profit?
RETAIL-PEST Analysis
Factor
Implication
Recession
Opportunity for the high
fashion/low cost market
Threat to profitability
Political/Legal
Economic
Rising commodity prices
and taxes
Sociocultural
Technological
-Even post recession, Primark’s target market demands low cost/high fashion…this market
will continue to exist and is expected to grow over the next five years , increasing
Primark’s revenue and profit
-Competition in this market could increase as retailers affected by the recession lower
prices and drive down prices industry wide
RETAIL-Industry Analysis
-Much of W. EU is mature market–
rivalry over existing customers
-Consolidation trend increases
intensity– greater control by fewer
retailers
-Rivalry in E. EU may increase as
competition increases with the
expectation of growth
Threat of
Substitutes
LOW
Consumers demand low
prices
Supplier
Power
Intensity
of Rivalry
Buyer
Power
LOW
HIGH
HIGH
***Industry conditions are favorable.
Primark has been a leader in the UK
and also profitable in this industry for
the past five years….in a growth
position. They intend to keep prices
low. If ABF can provide the funds to
expand to new markets and continue
growth through acquisition, Primark
should remain profitable.
Threat of
New
Entrants
LOW
Each individual buyer
has limited power, but
group is powerful
High barriers to entry to establish
presence in new markets
Lower barriers to entry for those in similar markets
(i.e. Wal-Mart, traditional clothing retailers)
RETAIL-Competitive Landscape
Company
Total Sales $ mill % Growth
(Rank)
(Rank)
Primark
3146 (6)
18.1 (1)
TJ Maxx
2659 (8)
9.6 (2)
H&M
12,222 (1)
8.9 (3)
Deichmann
2597 (9)
5.6 (4)
C&A
7742 (2)
4.9 (5)
Kik
1614 (10)
4.5 (6)
P&C
3027 (7)
3.4 (7)
Next
3655 (4)
0.5 (8)
Zara
5426 (3)
-1.1 (9)
New Look
1603 (8)
-1.5 (10)
Benetton
3146 (6)
-1.8 (11)
*2009-2010, EU fast fashion market
-Primark is growing at almost
twice the rate of its nearest
competitor despite not being an
investment priority for ABF
-C&A (2nd highest revenue) has
been selling stores …is this an
opportunity for Primark or a sign
of a saturated market?
-Fast fashion market is also facing
competition from large discount
chains in the face of the recession
-Primark controls 9.3% of W. EU
fast fashion sector…there is room
for growth outside of UK, where it
has focused and dominated
.
RETAIL-Market Analysis
Germany
E. Europe
Total industry
=1.7% per year
High Growth
Potential
(geographic)
Increasing
Consolidation
Growth
Potential
(volume)
Wal-Mart
Zara
Tesco
Takko
Increasing
Competition
EU
Clothing
Market
H&M
C&A
Price
Conscious
Consumers
***Market is favorable for Primark. Their success in W. EU market, potential for growth in E. EU
suggest market development and market penetration growth strategies. Increasing consolidation =
opportunity if ABF can fund expansion. Historically, ABF has not taken away investment dollars from
its other divisions to fund Primark.
GROCERY-PEST Analysis
Factor
Implication
Economic
Recession
Minor Threat- Food is a
necessity and less affected by
the recession. Competition
among brands may become
more price based
Sociocultural
-Migration to cities/Growth
in pre-packaged foods
Threat- ABF has no presence
or global brands in this area
-Increased focus on food
safety and traceability in
foods
Opportunity-ABF has been
noted for its knowledge on
food safety practices. They
also have some integration in
their supply chain to ensure
the safety and traceability of
their brands.
Political/Legal
Technological
GROCERY-Industry Analysis
Many other brands and
alternative products
Drives down prices and
decreases profitability
At the mercy of suppliers
unless firms rely on vertical
integration
Supplier
Power
HIGH
***ABF has no real power in the
industry. Market is consolidating ,so
large brands and retailers are squeezing
the market. To compete, ABF must keep
prices low enough to attract loyal
consumers and must continue to engage
in expensive marketing. Further growth
may require acquisition of successful
brands in a “buy or be bought” market.
ABF can’t compete on low cost/high
volume due to limited brands in each
geographic market and lack of retailer
relationships.
Threat of
Substitutes
HIGH
Consolidation trend- Few large
retail chains dominate …
requires strong relationships
with them and consumers
Intensity
of
Rivalry
Buyer
Power
HIGH
HIGH
Threat of
New
Entrants
LOW
Bargaining power
can be increased
by brand loyalty
High barriers to entry due to the high
cost of marketing dollars required to
have a presence
Brand loyal buyers
Mass market entry requires established
relationships with grocery retailers
GROCERY-Market Analysis
Potential to expand
brands to emerging
markets
High Growth
Potential
(geographic)
Increasing
Consolidation
High Growth
Potential
(volume)
Global
Grocery
Market
Most growth is in prepackaged foods, growing 78% per year
Growing demand as population
grows
Retail
Distribution
***Market is not favorable to ABF brands. It has no presence in pre-packaged foods, but could supply
ingredients instead of purchase brands. The market suggests market development and product development
strategies for growth, but requires sizeable marketing investment.
GROCERY-Offerings vs. Opportunities
Opportunity
Threats
• Industry is growing
through acquisition
as large firms build
up brands
• Growing global
demand
• Future success will
require strong
relationships with major
retailers consumers
• Increased competition
from traditional brands
and new firms in
developing countries
High potential
of finding
buyer for its
collection of
diverse global
brands
Grocery
Division has
demonstrated
profitability
and a strong
financial
position
SUGAR-PEST Analysis
Political/Legal
Factor
Implication
Chinese government
opening up to foreign
investors
Opportunity to capitalize
on sugar beet market; ABF
has unique knowledge and
manufacturing capabilities
Trend toward health foods
Threat to revenue
Changing diets in
developing nations
Opportunity to enter a
quickly growing market
demanding sugar
Growth of bio-plastics
Opportunity to
differentiate and enter new
markets; also to supply to
these growing markets
Economic
Sociocultural
Technological
Increase in ethanol usage
as fuel
SUGAR-Industry Analysis
Limited land, volatile price
Threat of
Substitutes
Only 25% of market freely
traded
MEDIUM
Alternative
sweeteners in
developed nations
Supply and price often
determined by government
Self-supplied
Supplier
Power
Intensity
of Rivalry
Buyer
Power
LOW
HIGH
LOW
***ABF is the world’s second
largest supplier. It is unlikely that
new competitors will enter and be
competitive with them, despite a
continuous growth in demand.
The industry is expected to grow
and suppliers will compete for
land and the available free market
trade.
Threat of
New
Entrants
LOW
High barriers to entrydifficult to est. scale,
often controlled by
government
Price affected by
surplus or deficit
SUGAR-Market Analysis
Increase in demand from
developing countries, but
requires low/stable prices
Sugar Cane
vs. Sugar
Beet
Growing
Demand
Sugar consumption and production
growing at 2% per year since 1989
Price
fluctuations
Fuel prices
Demand for food
Surplus vs. Deficit
Fuel (ethanol)
Energy
Bio-Plastics
China
Africa
Brazil
Key
Geographic
Markets
Global
Sugar
Market
New
Market
Potential
***AB Sugar faces a favorable market. It’s core competencies in the knowledge, cultivation and
processing of sugar can capitalize on growing demand and opportunities for joint ventures in China,
who needs sugar beet expertise. As the world’s second largest sugar supplier, it should supply to the
growing ethanol market rather than produce it. Since joint ventures have proven the most successful
way for them to enter new geographic markets, AB should continue to build these relationships as it
expands. Strategy= market development and penetration.
Global Sugar Production vs Use
Deficit or Surplus
AB Sugar Presence
Africa
Deficit
Six South African Nations -sugar
processing; source from self and
independent farmers
Asia
Deficit
China -sugar beet, sugar cane,
processing
Central America
Surplus
W. Europe
Deficit
E. Europe
Deficit
Middle East
Deficit
N. America
Deficit
S. America
Large Surplus
UK -process entire supply of sugar
beet; Joint venture to produce
ethanol; seed technology company
Spain -processed sugar cane and
sugar beet
-AB Sugar operates in deficit markets…deficits supplied by large surplus in S. America (Brazil)
-Firm sells mostly to food industry, also to energy generation and bioethanol fuel. With demand growing and new
uses, ABF will need to increase production to meet sugar needs…opportunity for Chinese and African expansion
AGRICULTURE-PEST Analysis
Factor
Implication
Increased safety
regulations in China
Opportunity-Land is
available in China and ABF
has extensive knowledge
on safety
Sociocultural
Increasing population
Opportunity-Growing
demand for agriculture
products
Technological
Rise of biotechnology
Opportunity-Application of
technology to crops and
their products can improve
quality and output, thus
increasing profitability
Environmental
Climate volatility
Threat-Unpredictable
conditions threaten
reliability of harvest and
revenue
Political/Legal
Economic
AGRICULTURE-Industry Analysis
Threat of
Substitutes
LOW
Competition often price based with
limited land; competitive advantage
gained through efficiency
Growing market
Favorable to ABF,
self-supplied
Supplier
Power
Intensity
of Rivalry
Buyer
Power
LOW
HIGH
HIGH
***The agriculture industry is
competitive and offers a low
profit margin. Prices must be
kept low to compete. A
competitive advantage would
come from better efficiency in
crop production and/or
processing.
Threat of
New
Entrants
High barriers to entry-large investment
needed to gain presence and scale
LOW
New entrants would likely have little
effect
AGRICULTURE-Market Analysis
High volume/low price
through better use of
limited existing land
Safe, traceable
products
Means of
Profitability
Differentiation
Positions
Ownership of limited land; using land
productively
Growing
Global Market
Increasing
population requires
more nutrient rich
food
Needs
knowledgeable
partner
Fragmented,
many small
rural farmers
Chinese
Market
Global
Animal
Feed
Market
Influenced by
Global Food
System
***Market is somewhat favorable for ABF. They are positioned for continued growth in China with a
differentiated position due to extensive knowledge and early presence. Profit margins are low in agriculture, so
ABF should focus on leveraging knowledge to decrease costs or increase productivity. ABF should capitalize on
strengths found in other operational areas to benefit the company as a whole.
AGRICULTURE-Offerings vs.
Opportunities
Animal feed,
pet and
livestock
nutrition
Potential for joint ventures with
developing nations/markets
Grain
trading
Joint venture
with Cargill
Use enzyme technology
from ingredients group to
increase crop production
Increasing demand
Sales and
Marketing
from other
ABF products
Poultry
marketing
Consulting
***Success in the future will require application of biotechnology to crop production (genetics,
seed enhancement/protection). ABF can rely on their “knowledge” strength and succeed by
investing in biotech research or acquiring a biotech firm, as they already have a global presence in
the agriculture market.
INGREDIENTS-PEST Analysis
Factor
Implication
Migration to cities and
Increasing population
Opportunity to supply
ingredients to a growing
market demanding
processed foods
Opportunity for ABF
Ingredients, which self
sources from agriculture
division
Political/Legal
Economic
Sociocultural
Demand for higher quality
and safer foods
Technological
Increase in biotechnology
Opportunity for AB
Enzymes group to supply
to own agriculture division
to improve food output
Opportunity to develop
new biotechnology
applications
INGREDIENTS-Industry Analysis
Most food ingredients are commodity
like rivalry is high. There are a wealth
of producers. New/differentiated
ingredients enjoy less competition and
rivalry is lower.
Ingredients requiring
special inputs are at the
mercy of their suppliers.
Supplier power is often
lessened through level of
vertical integration in
supply chain.
Threat of
Substitutes
Threat exists for some food
ingredients (oil), but not for others
(enzymes) .
MEDIUM
Supplier
Power
Intensity
of Rivalry
Buyer
Power
?
HIGH
?
***Degree of control in this industry is
determined by the type of ingredient
produced. Commodity type ingredients are
highly competitive and price sensitive
whereas innovative ingredients (such as
enzymes) enjoy a greater level of power.
ABF Ingredients has ingredients on both
sides of the industry so each wield a
different level of power.
Threat of
New
Entrants
WEAK
Again, power is
dependent upon the
type of ingredient.
Buyers of with
commodity type
ingredients have
more power than
non-commodity
types.
High barriers to entry due to high
investment costs to achieve scale.
Industry growth and innovation
could increase the threat.
INGREDIENTS-Market Analysis
Demand for enzymes
expected to rise 6.3%
annually through
2013
Higher Demand
for Ingredients
to Improve
Health
New
Geographic
Markets
Entrance of developing
countries as consumers
Increasing
Competition
Global
Ingredients
Market
Entrance of developing
countries as producers
Influenced by
Global Food
System
Agriculture/suppliers affect
profitability
***Market is favorable to ABF. Ingredients that improve the health of humans and animals expected to have
growing importance…ABF is positioned to capitalize on trends through both ingredients and agriculture divisions.
With the entrance of developing countries as both ingredient consumers and producers, ABF should focus on
what those nations cannot do (application of biotechnology) to differentiate and grow
INGREDIENTS-Offerings vs.
Opportunities
Group
Offerings
Market
AB Mauri
Baking colorings, flavorings,
ingredients, oils, fillings, toppings,
mixes for breads/cakes/donuts
Bakery
AB Enzymes
Enzymes
Animal feed, foodservice, textile,
paper and pulp
Abitec
Lipids
Ohly
Yeast extracts
Foodservice, personal care,
pharmaceuticals
PGP International
Proteins, flours, lactose, and
other ingredients
Other ABF companies
*Ingredients poised for future growth include those needed for pre-packaged
foods, enzymes, and those that will improve human and animal health
-If ABF divests grocery division, baking ingredients (potential for vertical supply) is less critical
-Further analysis is needed to determine which ingredients are in demand for pre-packaged
market as compared to current products
-AB Enzymes is positioned to capitalize on increased demand…increased production could be
funded by divestment of ingredient groups/products not aligned with future growth strategy
Financial Ratio Analysis by Operating
Area
Grocery
Sugar
Agriculture
Ingredients
Retail
Int. Rev as % of Total
0.12%
4.34%
0.40%
6.57%
0.00%
Total Revenue ($)
3427
2049
991
1171
2730
Operating Income ($)
229
244
33
104
341
Operating Margin
6.7%
11.9%
3.3%
9.1%
12.5%
Net Profit Margin
6.1%
10.8%
3.6%
7.1%
12.5%
Total Assets ($)
2,581
2494
288
1386
1892
Operating Ret on Assets
8.9%
9.8%
11.5%
7.5%
18.0%
Asset turnover
1.33
0.82
3.44
0.84
1.44
-Operating and net profit margins are significantly lower (also demonstrated by high asset
turnover)than the other areas, but still positive.
-Retail and agriculture provide the highest operating return on assets…suggest increased
investment in assets if opportunity exists
-Sugar and Ingredients have a small reliance on internal revenue by selling to other
areas…this can be increased, especially with the growing need for enzymes in the agriculture
sector
% of Total Revenue vs. % of Total
Operating Income
Total Revenue by Division
Grocery
33%
Retail
26%
Ingredients
11%
Agriculture
10%
Sugar
20%
Total Operating Income by
Division
Grocery
24%
Retail
36%
Sugar
26%
Ingredients
11%
Agriculture
3%
-Despite 33% of total revenue, the grocery division only accounts for 24% of profits.
-Retail and sugar profit margins are high as operating income percentages are significantly greater than revenue
percentages.
- Agriculture accounts for the least revenue and operating income.
Current Return on Assets vs. Operating
Profit Growth Projections
Operating Profit growth
projections
30.00%
Return on Assets
20.0%
2010-2013
25.00%
18.0%
16.0%
14.0%
20.00%
12.0%
15.00%
10.0%
8.0%
10.00%
6.0%
4.0%
5.00%
2.0%
0.00%
0.0%
Sugar
Agriculture Ingredients
Grocery
Retail
Sugar
Agriculture
Ingredients
Grocery
-Large growth in sugar, grocery, and retail profits projected…Grocery return is lowest in portfolio
-Agriculture profits expected to remain stable with fair return
-Sugar offers greatest profit growth
-Retail offers highest return on assets + market is expected to grow and be profitable = good investment option
Retail
SWOT Analysis by Operating Area
Strengths
Weaknesses
Opportunities
Threats
Retail
-UK market
-Low cost/high fashion clothing
-High profitability
-Investment dollars
-Industry knowledge
-E. European market
-Recession
-Rising commodity prices
and taxes
-Competition from
discount big box retailers
Grocery
-Profitability
-Strong financial position
-Global brands
-Supply chain integration
-No relationships with
major retail chains
-No brand identity
-Growing market
- Large brand owners
looking to make
acquisitions
-Industry consolidation
-Largest growth expected
in pre-packaged foods
Sugar
-Industry knowledge
-Sugar cultivation and
processing
-Market leader
-No presence in major
Brazil market
-Chinese and African
markets
-Ability to share expertise
and grow through joint
ventures
-Supply to new market
areas
-Volatile price
-Volatile supply
Agriculture
-Food safety
knowledge/application
-Existing relationship with
Chinese market
-UK animal feed market
-Low profit margins
-Diversity of agriculture
portfolio…does not play to
core competencies
-China and emerging
markets
-Increasing
demand/population
-Biotechnology
applications
-New competition from
developing nations
-Climate Volatility
Ingredients
-Enzymes
-Vertical integration in supply
chain ensures safety
-Global presence
-Some reliance on volatile
agriculture industry
-Lack of focus in portfolio
-Biotechnology
applications
-Increasing population
-Source to other ABF
divisions and agriculture
firms
-Increasing demand for
healthy foods
-Increasing competition
from developing nations
Summary by Operating Area
Growth
potential
Profitability
Competition
Favorable
market?
High
High
Increasing
Yes
Medium
Medium
Increasing
No
Sugar
High
High
Minimal Effect
Yes
Agriculture
High
Low
Minimal Effect
Yes
Ingredients
High
Medium
Increasing
Yes
Retail
Grocery
-Grocery sector faces an unfavorable market, increasing competition, and only a mid level
opportunity for profitable growth
-Despite ABF’s lack of knowledge in the clothing market, Primark is a growing cash generator
-Low profit margins of agriculture sector may be helped by its potential relationship with the
sugar and ingredient divisions
-By increasing combining technology and unique food system knowledge, ABF will be uniquely
positioned in the marketplace
How can operational groups work
together?
Ingredients
Supply to brands
Grocery
Enzymes
Seed
Protection
This is one example of how
ABF could increase internal
revenue and build upon
strengths of other divisions,
but would require more
communication and joint
strategy planning than is
currently done
Agriculture
Sugar
Internal Analysis- BCG Matrix
Grocery
Sugar
Ingredients
High
Retail
Industry
Growth
Rate
STAR
Agriculture
QUESTION MARK
Low
CASH COW
High
DOG
Low
Market Share
***Retail generates investment cash for ABF…they treat it as a cash cow, but it’s potential for growth makes it a star that will require
investment. Sugar is a market leader in a growing market. Grocery, Ingredients, and agriculture face challenges that require an invest
or divest decision. Ingredients and agriculture offer the best opportunities for growth in the future whereas Grocery’s increasing
marketing dollars will start to drain finances, despite profitability.
Internal Analysis-Directional Policy
Matrix
Competitive
Capability
Prospects for
Profitability
Result
Recommended Action
Retail
Strong
Attractive
Leader
Invest
Grocery
Weak
Attractive
Double or
Quit
Quit- Possibility of
finding a quality
buyer is high
Sugar
Strong
Attractive
Leader
Invest
Agriculture
Strong
Average
Growth
Use competitive
advantage
(knowledge) for
growth
Ingredients
Strong
Average
Growth
Focus on ingredients
that align with core
competencies and
trends
(biotechnology,
safety)
Conclusions
• With competition in the global food system increasing from developing
countries and demand growing, ABF’s overall strategy here should be to
capitalize on its unique industry knowledge by applying technology to
increase efficiency and revenues.
• ABF is well aligned with most global trends and well positioned in most of
its areas of operation. Despite some financial restrictions, the company
should continue to pursue a growth through acquisition strategy.
• In the past ABF, has been successful by realizing when its portfolio has
become too diverse and divesting those businesses not core to their
strategy. The agriculture and ingredient areas have reached this stage and
certain businesses in these sectors should be sold.
• ABF should continue to invest globally to reduce risk of heavy reliance on
UK market.
Recommendations
• Retail-Primark total revenue and total assets have increased over the past
five years. Net profit margin increased 1.6% over the past year. High
profit margins and a strong return on operating assets, along with the
possibility of increased market share through acquisition and geographic
expansion, indicate Primark should be able to continue to grow profitably.
Primark has traditionally been a cash cow for ABF, but they should invest
in expansion into E. Europe to ensure the generation of investment dollars
for future opportunities in ABF
• Grocery- Operating and net profit margins have remained strong as total
assets have increased. Increased competition lowers profit margins due to
necessary marketing costs. Marketing is not a core strength of ABF.
Further growth in the industry will also require strong relationships with
key retailers, which ABF does not wish to develop. The ABF grocery
brands are an attractive purchase for larger firms wishing to grow through
acquisition. ABF should sell its grocery division.
Recommendations
• Sugar- AB Sugar should continue its expansion into China and Africa
through joint venture and acquisition. This division is projected to have
the highest profit growth. They are uniquely positioned due to their
processing expertise, especially for sugar beets.
• Agriculture- The division is a small part of revenue and achieves low profit
margins, but value of the division is really their knowledge, which can’t be
sold and will be a strength in light of market trends. ABF should invest in
research/biotechnology applications that will increase production
efficiency, focus on its strength in animal feed and pet/livestock nutrition,
and continue acquisitions in China. The division can sell of those
businesses not directly involved in this future growth strategy.
Recommendations
• Ingredients-AB Ingredients is facing many opportunities in the growing
global food system. As demand for safe foods and biotechnology use
increases, the division can supply to both the agriculture and grocery
industries. AB Enzymes is well positioned to grow. More analysis is
required to determine the future growth businesses within the division.
Which can supply to the growing pre-packaged foods sector? Some
groups, perhaps AB Mauri, should be sold to fund core ingredient
functions.
• Use cash generated from grocery divestment to fund growth in Retail,
Agriculture, and Ingredients divisions. Further cash will come from selling
those businesses within the ingredient and agriculture divisions unrelated
to core strengths and future growth.

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