A2 Milk Co. in New Zealand purportedly on radar of Nestle
An Australian newspaper has spurred speculation today (16 August) that A2 Milk Co. could be the target of a takeover, with Nestlé purportedly an interested party.
The Australian reported unspecified industry sources as saying the world’s largest food company ‘has a close eye’ on New Zealand-headquartered A2 Milk, although they said no further development is expected before the company publishes its annual results on 26 August.
Fresh milk and infant-formula producer A2 Milk has seen pressure emerge on its financial performance of late, particularly from China where demand for baby-milk products has waned as birth rates decline. The company cut its annual revenue and profit margin forecast in May – it also took similar action in February – citing the same China issue along with regulatory changes in the Asian country and the impact of Covid-19 on its business.
However, A2 Milk is not alone, as Nestlé itself has experienced pressure on its infant-formula sales in China as people have fewer children and more mothers choose to breast feed.
Responding to The Australian report, an A2 Milk spokesperson told Just Food the company “does not comment on market speculation or rumour”. It was a similar response from the Swiss business, with a spokesperson saying, “Nestlé does not comment on market rumours”.
A2 Milk noted in a May stock-exchange filing that the “trading dynamics in the China infant-nutrition market have been and continue to be challenging”.
At the time, the company cut its annual revenue forecast to a range of NZD1.2bn (then US$875.7m) to NZD1.25bn, from a revised estimate in February of NZD1.4bn. Last November, the company had envisaged a print of NZD1.8-NZD1.9bn.
The revision to the revenue outlook in February was instigated because of pressure on sales in China through the daigou channel, where traders outside that country buy products for customers to be shipped back to the market, and also its cross-border e-commerce (CBEC) business.
A2 Milk also lowered its EBITDA margin outlook in May to 11% to 12%, from the revised forecast of 24-26% made in February. Back in November, it had envisaged a rate of 31% for fiscal 2021.
It added then: “The company recognises that the China infant-nutrition market structure is changing rapidly. While the premiumisation trend is continuing, market growth is being impacted by a more pronounced decline in birth rates. It is also clear that the daigou/reseller channel has been cyclically impacted by Covid-19, regulatory and other structural factors.”
Reports in UK national newspapers suggest the army is on standby to help stock UK supermarket shelves.
The suggestion that army drivers should be brought in to help deliver food to UK supermarkets has received a less than enthusiastic response from industry bodies.
Reports in UK national newspapers – as yet unconfirmed by the government – suggest the army is on standby to help stock grocers.
The Daily Mail reported on Sunday (8 August) that up to 2,000 heavy goods vehicle (HGV) drivers from the Royal Logistics Corps are on a five-day notice to deliver food and essentials to supermarkets.
There is a drastic shortage of truckers due to a number of factors including drivers departing the country following Brexit and the Covid crisis and a blockage in the system that has resulted in thousands of prospective hauliers still waiting for their HGV tests.
In June, the Road Haulage Association warned that there was a shortage of 100,000 lorry drivers in the UK, hampering deliveries of food from warehouses to supermarkets.
“The haulage industry is still short over 60,000 drivers so 2,000 HGV drivers from the army won’t make a dent in the problem.
“Our members continue to experience severe shortages of labour in all areas of production and logistics and it’s rapidly strangling the industry’s ability to operate.”
Fellow industry body The Food and Drink Federation (FDF), meanwhile, is urging the government to seek solutions for both the short and long term.
Mark Harrison, its economic research and employment policy manager, said: “The FDF is working closely with other representative bodies impacted to find ways to mitigate the effects of labour shortages. These include temporary solutions which will ease the pressure on the labour market, such as a short-term visa for HGV drivers, but also ensuring medium- and long-term measures are effective to increase domestic training and recruitment such as Restart and the Lifetime Skills Guarantee.
“Given that the solutions industry proposes are likely to have long lead-in times, we urge the government to begin implementing them as soon as possible to ensure capacity is available in advance of Christmas demand ramping up from the autumn.”
Just Food has sought clarification from the UK’s Ministry of Defence on the media reports.
The newspaper said the government is expected to make a formal request to the military for help “imminently” to cope with a crisis that has left some supermarket shelves bare and industry bodies calling on the government to take immediate action before things get worse.
But industry bodies suggest that if the stories are correct it is not a viable solution.
A spokesperson for the British Meat Processors Association (BMPA) said: “As far as the driver crisis goes, it’s steadily getting worse but nothing much has really changed in the government response.
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Italy’s Newlat swoops for UK manufacturer Symington’s
Newlat, the Italy-based food group that had been looking to make an acquisition in the UK, has announced a deal to buy local manufacturer Symington’s.
Under the terms of an agreement unveiled today (4 August), bakery, pasta and dairy manufacturer Newlat will pay GBP53m (US$73.7m) for Symington’s, a supplier of branded and own-label food.
Last autumn, Newlat had gone public with its interest in Hovis and wanted to hold exclusive talks over a possible deal to buy the UK bakery group.
Hovis was ultimately sold to private-equity firm Endless but Newlat was open about its interest in making acquisitions. The company told Just Food in March it was eyeing five possible targets in “complementary sectors” across Italy, Germany, France and the UK.
In February, Symington’s, which had UK investment fund Intermediate Capital Group as its majority investor, said it had hired advisors “to scope the market for opportunities” to allow the company “to invest and grow”. The statement came after a media report suggested Symington’s could be put up for sale.
Angelo Mastrolia, Newlat’s chairman, said: “This is an interesting business with high potential for growth and we deem it to be a perfect fit into our strategic plan. We see a number of synergies between our businesses as we both produce complementary but different categories of products.
“Not only will there be significant cost synergies but, also, this acquisition allows us to enlarge and diversify our product range and our geographical reach. This opportunity enables us to set foot into the UK and thus consolidate our position in this extremely relevant market. We are ready to invest in the business and to support its international expansion.”
The Symington’s product range includes pasta, soups, noodles and cooking sauces. The company’s brands include Mug Shot, Naked, Ilumi, Chicken Tonight and Ragu. Own label accounts for 48% of Symington’s business, according to the company’s latest results filing with Companies House. Some 47% of the group’s sales come through its brands, with the remainder from business-to-business and the firm’s new direct-to-consumer service.
In the year to 30 August, Symington’s generated turnover of GBP114.2m, up 4.2% on the previous 12 months. The company posted an operating profit of GBP2.8m, versus an operating loss of GBP2.9m a year earlier. After-tax profit was GBP2.9m, compared to a loss of GBP3.1m the previous year. Outside the UK, the company’s sales were GBP8.6m, versus GBP4.9m a year earlier, helped by listings with Walmart.
David Cox, a former director at the UK firm Fox’s Biscuits, became Symington’s CEO last autumn, succeeding former Associated British Foods director John Power, who spent three years at the helm.
Cox described the sale to Newlat as “fantastic news for us”. He added: “Newlat wants to invest in our business and our brands. It provides long-term security for our business with an international ambient and dairy food player operating in mutually beneficial categories and is an exciting time for us both.
“By bringing together both businesses we can combine our strengths, accelerate our growth and increase our global footprint. Symington’s provides a strong springboard for Newlat’s brands into the UK market and Newlat gives us further opportunities for us to grow our brands internationally where Newlat has operations – in Italy and Germany.”
Newlat has 1,500 employees across 14 production plants in Italy and one in Germany. Symington’s has manufacturing and distribution centres spread over two locations in Leeds, one in Bradford and another in Durham.
PepsiCo extends restructuring programme
PepsiCo is extending its “productivity plan” – announced in 2019 and designed to lead to US$1bn in annual savings – through to the end of 2026.
Two years ago, the Lay’s and Quaker owner set out a range of measures in manufacturing, distribution and information systems to “simplify” its processes and organisation.
In 2019, the measures led to more than $1bn in what PepsiCo called “productivity savings”. PepsiCo said in that year’s annual report the plan was to “deliver this amount annually through 2023”.
Yesterday (13 July), alongside the publication of the company’s first-half financial results, the US giant said it would look to continue the programme for another three years.
“The expansion of the programme reflects further initiatives to leverage new technology and business models to further simplify, harmonise and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; and simplify our organization and optimise our manufacturing and supply chain footprint,” PepsiCo said in a statement. “As a result, we are extending our target to deliver at least $1bn in annual productivity savings through 2026.”
Just Food has asked for further details for what the continued push in savings could mean for jobs and for PepsiCo’s manufacturing network.
Speaking to analysts after PepsiCo published its second-quarter results, CFO Hugh Johnston said: “Part of what we’re trying to do is shape the company for the future. And in doing so, we’re obviously taking cost out in certain places and then we’re investing in certain places, like digitalising the supply chain and making our interactions with customers and consumers much more efficient than they were in the past.”
In the 24 weeks to 12 June, PepsiCo’s net revenue rose 14.1% to $34.04bn, or by 8% on an organic basis.
Organic sales from Frito-Lay North America were up 4%, with volumes rising 0.5%.
Quaker Foods North America saw its sales drop 7% on an organic basis. Volumes were down 12%.
PepsiCo’s half-year operating income increased 28% to $5.44bn. On an underlying basis, it was up 15%.
Reported group net income was $4.01bn, compared to $2.98bn a year earlier.
“Given the strength of our results, we now expect our full-year organic revenue to increase 6% and core constant currency earnings per share to increase 11%,” chairman and CEO Ramon Laguarta said.
PepsiCo had previously forecast “mid-single-digit growth” for annual organic revenue and “high-single-digit growth” for core, constant-currency EPS.
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