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Associated British Foods (UK)

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Associated British Foods (ABF) is a diversified conglomerate with significant interests in food products, fashion retail and ingredients manufacturing. For much of the second half of the 20th century, it was Britain's biggest food company, before being overtaken by international rivals. Nevertheless, it remains a substantial business, best-known in the UK for a small but influential portfolio of packaged grocery products, including Kingsmill bread, Silver Spoon sugar and Twinings tea, but also for the extraordinarily successful clothing chain Primark which has in a comparatively short space of time become an important rival to local market leaders Top Shop and Next. ABF also has operations in Australia and North America. Although a large proportion of its shares are publicly owned, the company is controlled by the Weston family, who also have other extensive interests, including Canadian retail giant Weston's, and upscale department stores in the UK including Fortnum & Mason, Selfridges and Heal's.

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Brands & Activities

Associated British Foods operates in four main sectors of groceries, retail, sugar & agriculture and ingredients through a network of separate companies which generally operate as standalone units. The business for which it is best known in the UK is grocery products. The company manages a comparatively small but extremely powerful portfolio of branded grocery products, with combined sales of £3.18bn in the year ending 2015.

Subsidiary Allied Bakeries is the UK's second largest manufacturer of branded bread, with 12 production sites spread across the country. Its main packaged loaf brand is Kingsmill, with support from Allinson and Burgen. Kingsmill, launched in 1989, was the country's first premium sliced bread, and remains one of the top three brands behind Premier Foods' Hovis, and market leader Warburtons. It has introduced a succession of new products, including 50/50 half white half wholemeal loaves, and "Secretly Seeded", both designed to appeal to families who want to eat better but don't want the "bitty" texture of traditional healthier bread. In 2011, the brand teamed up with frozen fish marketer Young's to offer Kingsmill breaded coatings. Nielsen (in The Grocer) estimated retail sales of £313m for the Kingsmill brand in the year to Jan 2016 (some way behind Warburtons but slightly ahead of Hovis). Allinson and Burgen added around another £23m between them. This was despite a decision by Tesco to delist Kingsmill's sliced loaves for four months in Spring 2015. Allied continued to supply Tesco with private-label products as well as Allinson and Burgen. For accounting purposes, Allied Bakeries is now a division of ABF Grain Products Ltd. Reported revenues for ye 2015 were £804m.

The group acquired a minority holding in organic breakfast cereal and cereal bar manufacturer Jordan's in 2007, and converted this into majority control by injecting Ryvita crispbread, which it had owned since the late 1940s, into Jordan's in 2008 to form what is now the Jordans & Ryvita Company. Although the Jordan family had been involved in flour milling since the mid-19th century, the current branded consumer foods business was only established in the early 1970s. The combination of Ryvita and Jordan's has led to the introduction of a number of spin-off Ryvita products, such as Ryvita Minis low-fat snack chips and Ryvita Thins dipping sticks. In May 2014, the group added to its cereals portfolio with the acquisition of Dorset Cereals. The price was undisclosed but is thought to be around £50m. For the year ending Oct 2015 (Nielsen, The Grocer), Jordans & Ryvita was the country's #5 cereal maker. Dorset Cereals was the overall #13 cold cereal brand with sales of £25m ahead of Jordans Crunchy (£23m) and Jordans Country Crisp (£21m). Combined share by value was around 6%. Revenues for ye 2014 were £148m. For accounting purposes, the business is now part of ABF Grain Products Ltd alongside Allied Bakeries.

ABF's key brand in the hot beverages sector is premium tea and coffee range Twinings, exported to more than 100 countries, supported by Jacksons of Piccadilly and Options hot chocolate. It acquired malted drink Ovaltine from Novartis in 2002. Twinings is now #2 in the UK tea market behind PG Tips, having overtaken Tetley in 2014. IRI (in The Grocer) estimated sales of £108m for the year to Jun 2016. In addition to traditional teas such as English Breakfast and Earl Grey, the range includes a large collection of herbal, green and fruit blends. Main UK unit R Twining & Company reported revenues of £197m in ye Aug 2015. Twinings Ovaltine is reported to be the single most profitable business within the groceries group. In France, the Twinings brand and other ABF foods are marketed by sister company Foods International.

ABF is also the market leader in branded sugar through The Silver Spoon Company, whose packaged brands include Silver Spoon refined sugar and sweeteners (Nielsen recorded UK sales of £123m in 2013, ahead of main rival Tate & Lyle), Billington's unrefined sugar, Crusha milkshake mixes (acquired 2001) and Askey's ice cream wafers and toppings. In 2012, the company launched the UK's first sweetener made from stevia leaf extracts under the Truvia brandname.

The group has also assembled a collection of culinary products, mainly through the acquisition in 2003 of speciality company G Costa. First established in the late 1800s, Costa was originally an importer, and was the first company to introduce brands such as Knorr, Buitoni, Hero, Uncle Ben's and Amoy to the UK, prior to their acquisition by multinational groups. It began to develop its own lines in the 1970s, and achieved its greatest success with the Chinese cuisine range Blue Dragon (sales of £25m ye Oct 2015, Nielsen, The Grocer), as well as Rajah Indian spices. ABF acquired Indian foods range Patak's in 2007 (sales of £28m ye Oct 2015, Nielsen, The Grocer). First established in the UK in 1957 by the Pathak family, Patak's manufactures, markets and distributes an extensive range of Indian cooking sauces, curry pastes, chutneys and other meal accompaniments, with combined sales of around £70m. Following that deal, the Patak team took over management control for Blue Dragon and ABF's other ethnic brands. The two businesses were merged under the banner of AB World Foods. In addition to its own brands its distributes various other specialist food products including Krisprolls, Skippy peanut butter, Tabasco sauce, Geo Watkins sauces and Patum Peperium Gentleman's Relish and Maille, Grey Poupon and French's mustards in the UK and parts of Europe under contract. Combined sales for AB World Foods were £142m in the yeat to Sept 2015. A separate unit, Westmill Foods, is a leading wholesale supplier of ethnic food products.

In North America, ABF's ACH Food Companies subsidiary owns top-selling premium corn oil Mazola and Argo corn starch (both acquired from Unilever in 2002), Karo corn syrup, as well as a collection of spices and seasonings marketed under the Tone’s, Spice Islands and Durkee brands, and various private label and foodservice products. There is also a joint venture with ADM under the name of Stratas, producing private label oils, food service and speciality ingredients.

In Australia, the group's George Weston Foods subsidiary is one of the country's leading grocery products companies. Its bakery products include the country's best-selling grocery brand Tip Top bread, as well as Top Taste cakes, Golden crumpets and others. Its Watsons Foods unit controls a number of regional cold meat and dairy suppliers including Watsonia, Don Smallgoods (acquired in 1999), Chapmans and Melosi.

Associated British Foods' fastest-growing division, and also perhaps its most surprising diversification, is fashion retail. Since the mid 2000s, Primark has emerged as one of the UK's most successful high street chains, now the country's second largest clothing retailer by volume according to TNS, and the single largest in the value sector, having overtaken Asda's George in 2007. Primark contributed revenues of £4.35bn in 2015.

ABF also has an extensive presence in trade manufacturing and agriculture. Its Sugar & Agriculture division is the world's second largest producer of sugar, with extensive operations in the UK, where its British Sugar subsidiary is the sole processor of the country's sugar beet crop. It acquired leading Spanish producer Azucarera Ebro in 2008 for E385m. There are also sugar refining operations in Southern Africa - local subsidiary Illovo, now wholly owned by ABF, is Africa's biggest producer - and China. Other group units are involved in animal feed and seed processing. It is the UK's leading supplier of animal foodstuffs, and the world's largest seed enhancement company. Sugar contributed revenues of £1.82bn in 2015; Agriculture added an additional £1.21bn. The group's two specialist ingredients subsidiaries, AB Mauri and ABF Ingredients, have operations in more than 30 countries, supplying bakery ingredients including yeast, emulsifiers, lactose and other products on a trade-only or wholesale basis. Combined revenues were £1.25bn in 2015.

Financials

Associated British Foods has grown steadily over the course of the past decade, with revenues climbing from £5.6bn in 2005 to a high of £13.32bn for the year to September 2013. Since then, however, there has been a slow decline, partly as a result of currencies. Revenues dipped 3% in ye 2014, and then by another 1% in the year to Sept 2015 to £12.80bn. The increase at constant rates would have been 2%, and 1% the year before. However pretax profits slumped 30% to £717m, partly as a result of a large impairment against one of its sugar joint ventures. Around 44% of revenues were generated in the UK.

Although ABF's shares are publicly held, a majority stake of around 54% is held by Wittington Investments, the holding company for the British branch of the Weston family. Wittington is in turn controlled by The Garfield Weston Foundation, a charitable trust which is one of the UK's biggest private donors. The family also have some direct holdings in ABF, giving them an overall stake of around 62% of the equity. ABF pays out an annual dividend in excess of £11m to the ten or so trustees and directors of ABF and Wittington.

Other members of the Weston family have considerable business interests in North America. George Weston Ltd of Canada is now Canada's biggest company by revenues. It controls a number of leading bakery brands in Canada as well as retail chains Loblaw and Shoppers Drug Mart.

The Canadian branch of the Weston family has its own charitable organisation, The W Garfield Weston Foundation. Separately, the family also own several chains of upscale department stores. The Canadian Westons own the Holt Renfrew chain in Canada, Brown Thomas in the Republic of Ireland, and Selfridges of London. The British Westons own UK retailers Fortnum & Mason and Heal's.

Management

George Weston is the latest generation of his family to run Associated British Foods. He is the middle son of Garry Weston, and was appointed as CEO in 2005. His is also a director of family holding company Wittington Investments, which is chaired by his older brother Guy Weston, also chairman of the Garfield Weston Foundation. Their younger brother Garth was managing director of the Ryvita Company until 2008. Two of Garry Weston's three daughters run Fortnum & Mason; the third works alongside Guy Weston at the Foundation.

W Galen Weston, the uncle of George and Guy Weston, is a director of Associated British Foods, as well as executive chairman & president of Weston's of Canada, and also chairman of Selfridges.

Background

As an enterprising teenager, the first George Weston purchased a bread delivery route in his native Canada in 1882, and used this as the platform to establish a number of small bakeries in the city of Toronto. He became a millionaire when he sold the business in 1911, then started a biscuit factory, made another fortune, and then another when he resumed his baking interests. His son Garfield Weston was born above the shop in 1898. After an undistinguished education, Garfield Weston served in the British Army during World War I, but reportedly spent his army leaves visiting English bakeries to learn more about the business in which he had grown up. After the war, he further expanded the family company, taking over the business entirely in 1924 after his father's death. He floated the company, George Weston Ltd, in Canada and used the proceeds to establish a presence in the US, acquiring several other bakeries.

The Wall Street crash of 1929 came close to wiping out the family's wealth altogether. During the economic depression which followed, Weston saw the opportunity to make a fresh start elsewhere, initially by exporting Canadian wheat. Leaving what remained of the North American business in the hands of managers, he moved with his family to the UK in 1932. Three years later he acquired seven separate bakeries spread across the UK and united them under the umbrella of a new company, which he named Allied Bakeries. That company was the first to introduce wrapped, sliced loaves to the British market (an idea imported from Weston's North American bakeries, where Wonder Bread had been the first mass-produced sliced bread). He continued to expand the footprint of the business over the next four years, acquiring another ten British bakeries for Allied, as well as four biscuit factories, merged to create Burton's Gold Medal Biscuits. The outbreak of World War II put a temporary end to this growth in the UK, although the North American company continued to expand, snapping up other bakeries in North America. Weston himself remained in Britain, becoming Conservative Member of Parliament for the Macclesfield constituency.

The expansion of the UK group continued from 1946, and Garfield Weston was increasingly assisted in the business by two of his three sons, Garry and Galen Weston. (Their elder brother Grainger played only a limited role in the business, settling instead in the US where he started a Texas cookie company and later moved into ranching and property development). In 1947, having previously concentrated mainly on manufacturing or processing, Weston moved the company aggressively into retailing, acquiring an initial stake in Canadian grocery chain Loblaws. A trusted manager, George Metcalf, was put in charge of the group's North American operations and began buying up a string of other businesses on Weston's behalf, many of then controlled privately or even secretly to avoid alerting competition regulators.

From his base in the UK, Weston made a string of other purchases, including two Australian bakeries, merged to form Tip Top Bakeries; and a collection of different retail interests in Ireland. In 1949, the family acquired The Ryvita Company, which had originally been founded in 1925 in England to produce an unusual but tasty Scandinavian-style crispbread. Garry Weston was installed as the new head of Ryvita in 1950 - he always claimed that the appointment was a pure accident because he happened to be passing his father's office just as Garfield Weston fired the previous managing director. However, he had already proved his ability at Burton's Gold Medal Biscuits, where two years earlier Garry Weston had come up with the idea for a new biscuit brand, combining two traditional round biscuits with a layer of marshmallow inbetween, which he named Wagon Wheels. That product, launched at the 1948 Olympia Food fair proved to be an extraordinary success. At Ryvita, the younger Weston devised the strategy of marketing Ryvita as a slimming aid ("Makes you fit - keeps you slim"), and sales soared.

Later Garry was sent to Australia to manage the groups operations there, while younger brother Galen took charge of the family interests in Canada and then in Ireland. During the course of the decade it continued to expand in Australia and Canada and established a presence in South Africa, diversifying into areas such as commodities, flour milling and seed production and distribution. In England, it acquired the the Aerated Bread Company's chain of ABC tea shops as well as an initial shareholding in upmarket department store Fortnum & Mason. By mid-decade, the group controlled around 55 bakeries and biscuit factories around the world, as well as a growing portfolio of retailers. Its reputation was so widespread that in 1958 the announcement of plans to start a supermarket chain in West Germany caused near-panic among local grocers fearing for their livelihoods.

In 1960 the main food group, still known as Allied Bakeries, was renamed as Associated British Foods. Subsequent purchases included the Hemmings chain of more than 200 retail bakeries in London (1961), British supermarket group Fine Fare (1963), and tea merchant Twining Crosfield (1964). By 1967, the group was the world's third largest food company, with sales in excess of £1.5bn. Its huge spread of interests included the UK's biggest supermarket business, as well as similar chains in Canada and Germany, as well as Canada's biggest fish processor and drugstore chain. It was at the time the biggest business group ever assembled by one man, and that prominence led to a series of regulatory investigations which prompted Weston to restructure the labyrinth of different holdings.

At the same time, Garry Weston was called back from Australia to become chairman of the group's British interests. Further expansion followed during the 1970s, but the death of Garfield Weston in 1978 came as something of a blow to the business. A bitter family conflict ensued between his sons Garry and Galen over who would take over ultimate control of the group. Eventually, they agreed to split it, with Garry Weston taking control of the British and Australian interests, while Galen inherited the North American businesses. Nevertheless, the row caused a significant rift in the family, with the result that the two brothers refused to speak to one another for many years.

In the 1980s, the group began to restructure its interests, selling off its South African milling business, as well as Fine Fare, which was absorbed into Gateway supermarkets (later Somerfield). Galen Weston and his family, who had lived in Ireland for several years, moved back to Canada permanently mid-decade after an attempt by the IRA to kidnap him. (Deterred in a gun battle with the Gardai police force in the grounds of Weston's Irish estate, the IRA made a second kidnap attempt three months later, successfully kidnapping a senior executive of the group's Irish supermarkets business). In the 1990s ABF moved heavily into commodities. Its most spectacular coup was a deal in 1991 to acquire the UK's sugar monopoly British Sugar after a bidding war with Tate & Lyle and Hanson. It also acquired a variety of speciality ingredients businesses. The British retail bakeries chain, by now consolidated as Baker's Oven, was sold to Greggs in 1994. Three years later, ABF disposed of most of its Irish retail interests, selling all but the Penneys clothing chain to Tesco for £630m. During that decade, Garry Weston's sons began to play significant roles in the business, taking management roles in different subsidiaries. Following a stroke, Garry Weston himself retired from the company in 2000, and he died two years later.

The group has continued to restructure its portfolio since 2000 with a series of acquisitions and disposals. The most significant sale so far this decade was the disposal in 2000 of its underperforming British biscuits business Burton's Gold Medal to private equity group Hicks Muse Tate & Furst.

Last full revision 24th June 2016

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