Billion euro ingredients purchase for British Sugar owner

Related tags Yeast Abf

With impending sugar reform set to slash the bottom line for the
owner of British Sugar, UK food and ingredient group Associated
British Foods, the company is driving further into the ingredients
business with the decision to buy the yeast, bakery ingredients and
US herbs and spices businesses from Australia's Burns Philp,
writes Lindsey Partos.

In a deal worth £730 million (€1bn), the maker of the Twining and Ryvita brands, as well as baking and confectionery ingredients, enzymes and yeasts, will acquire 45 plants in 24 countries. Positions gained include the number two slot for US herbs and spices, the market leader in bakers' yeast in North America, Latin America and Asia and the number three yeast position for Europe.

"The global yeast market is growing at 3 to 4 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 this morning.

Long-awaited changes to Europe's heavily subsidised sugar regime are on the way after the European Commission tabled​ a new set of rules earlier this month that will hit sugar processors and suppliers such as ABF and Danish ingredients and sugar giant Danisco.

Danisco and Associated British Foods, which owns British Sugar, stand to be hit by the reform as their stocks have the biggest profit exposure to EU sugar: Danisco with 46 per cent and ABF with 34 per cent.

UK sugar and sweeteners supplier Tate & Lyle is also vulnerable, although less exposed because it produces its sugar from imported cane at a lower cost; currently Danisco and ABF use EU grown sugar beet, according to investment bank Goldman Sachs​.

Change to the sugar regime was inevitable and the firms have already made moves to soften the blow on the bottom line, confirmed by ABF's billion euro acquisition this week.

ABF 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 1 to 2 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,"​ added the spokesperson.

Yeast brands acquired through the Burns Philp acquisition include Mauri, Fleischmann and Calsa. According to ABF, a further appeal for the purchase is the Australian firm's yeast strain bank in Sydney. "This business has its own parent yeast strain bank at its technology centre in Sydney and this is important to us,"​ said the UK firm. "Strains are supplied to the 37 yeast and extracts plants worldwide which ferment commercial quantities. The main market for bakers' yeast is plant and artisanal bakers and there is a smaller retail yeast market for home baking. It is sold in two main forms: fresh [the dominant market] - and dry."

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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