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Associated British Foods SWOT & PESTLE Analysis

ID : 52409453| Aug 2018| 19 pages

COMPANY PROFILE -Associated British Foods

Business Sector :Grocery, Ingredients, Agriculture, Sugar and Retail

Operating Geography :United Kingdom, Europe

About Associated British Foods :

Associated British Foods was founded by W. Garfield Weston in 1935 with its headquarters in London, the United Kingdom. The group operates through five strategic business segments: Grocery, Agriculture, Sugar, Ingredients and Retail.

Grocery segment consist of consumer-facing businesses which manufactures and markets a variety of food brands in national and international markets. The brand Twinings Ovaltine sells premium teas and malted beverages in more than 100 countries. Agriculture segment supplies products and services to farmers, processors, retailers and food manufacturers. The company supplies crop inputs to and buys grains from the farmers through its joint venture with Frontier Agriculture. Sugar segment operates in 10 countries with 24 factories that have the capacity to produce 4.5 million tn of sugar and 600 million lt of ethanol per year.

Ingredients segment focuses on high-value ingredients for food, pharmaceutical, feed and industrial applications. Its customers are spread in more than 50 countries covering food and non-food manufacturers. Retail segment consist of Primark which is one of the largest clothing retailers in Europe offering latest fashion at value prices. Primark’s range includes women’s wear, lingerie, menswear, child wear, hosiery and home ware, footwear and accessories.

Associated British Foods Revenue :

£15.4 billion as of 2017 ( y-o-y +15% )

Competitive Analysis of Associated British Foods

SWOT
PESTLE
The SWOT analysis for Associated British Foods is presented below:
Strengths
Weaknesses
1. Diversified Business Segments and Markets
2. Growth of Primark in Retail Segment
3. Strategic Turnaround of Sugar Business along with Policy Changes
4. Positive Trend for Ingredient Segment with Research Capabilities
1. Decline in Bakery Business
2. Low Presence in Emerging Markets
Opportunities
Threats
1. Potential Opportunities in Agriculture segment after EU Referendum
2. Growing Demand for Twinings Brand in Global Markets
1. Movement in Exchange Rates and Inflation
2. Failure to Respond Appropriately to
Health and Nutrition Concerns
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Detailed SWOT Analysis of Associated British Foods

 

Strength

1. Diversified Business Segments and markets: The Company is operating in five business segments across United Kingdom, Europe & Africa, The Americas, Asia Pacific. More than 60% of the profits and sales are from the regions apart from UK. For the Grocery segment Twinings and Ovaltine are the international hot beverage brands. In Europe Silver Spoon and Billington’s sugars, Kingsmill and Jordans and Dorset cereals are the prominent brands. Mazola in the US is the leader in corn oil and Capullo is selling premium canola oil in Mexico. In Australia KRC brands sells Ham, bacon and Tip Top Bakeries produces breads and baked goods. Revenue grew to £3,381m in 2017 from £3,097m in 2016.In the sugar segment factories in UK produce over 1MT of beet sugar annually whereas Azucarera in Spain has a capacity of 0.4MT annually. Illovo is the largest producer of sugar in Africa with production facilities in six countries. Revenue grew to £2,174m in 2017 from £1,636m in 2016. The segment’s operating profit increased to £223m in 2017 from £35m in 2016. Agri Business of British Foods operates at the agriculture industries heart and make use of its experience to add value to the supply chains of the food, drink and bio-fuel industry. Revenue grew to £1,203m in 2017 from £1,084m in 2016. It is the only business segment which registered a decrease in the operating profit from £58m in 2016 to £50m in 2017.Ingredients segment focuses on ingredients for food as well as non-food applications. The company manufactures enzymes, extracts, yeast, lipids and cereal specialties with facilities in Europe and the US. The Company operates in yeast and bakery ingredients production globally through AB Mauri and uses technology for dough conditioners and bakery mixes. Revenue grew to £1,493m in 2017 from £1,294m in 2016.

2. Growth of Primark in Retail Segment: Primark is a retail group of British Foods operating in the value fashion sector with over 315 stores in eleven countries. The company provides its customers high quality fashion at value prices, its tagline, “Amazing Fashion, Amazing Prices”. The company sources its fashion items internationally to reflect the season’s key fashion trends. Primark’s range includes women’s wear, menswear, lingerie, children’s wear, footwear, hosiery, accessories, and home ware. Primark is continuingly expanding its selling space and sales were particularly excellent over the summers leading to an increase in the market share. Due to the fall in sterling against the US dollar the manufacture and input cost increased but the cost to customers was not increased which provided best value in the high-end market. The merchandising and buying teams reduced the impact of the fall in sterling and therefore the profit margins reduced by less than expected. Through its store design, location, stock availability and on-trend fashion Primark constantly delivering values to its customers. It has added 1.5 million square feet of space across nine countries with a net addition of 30 new stores. Social media is being increasingly used to develop deeper relationship with its customer by providing awareness about the products. Total social media following is 10.7 million customers and Instagram reached a milestone of 5 million followers.

3. Strategic Turnaround of Sugar Business along with Policy Changes: Associated British Food Sugar business has over the last few years taken various steps to transform. It has sold its cane sugar operations in South China in 2017 as well as taken full ownership of its Illovo plant and undertaken various performance improvement programme over the years. The performance improvement programme consisted of business development achieved by improving production efficiencies, increasing capital investment and procurement activities. The company also keeps a track of the changing customer need and also those of the end consumers to serve them better. Illovo has initiated an accelerated programme for commercial development of its plant as well as to further increase the production efficiencies. It is also establishing itself as a low-cost business that is positioned to take advantage of the market opportunities as well as the freedom to export. The company sold its cane sugar business in south China to focus on operations in other plants Due to an increase in sugar prices and removal of the sugar quotas in EU it could mean substantial increase in the Sugar profits subsequent years putting the company at an advantage. It has also entered into multi-year contracts with UK beet growers. In the EU market its business is being positioned to exploit low cost market opportunities following the sugar quotas abolition in October 2017.

4. Positive Trend for Ingredient Segment with Research Capabilities: The revenues and the adjusted operating profits increased by 15% and 34% compared to last year respectively. The strong growth in sales and profits was driven by higher revenues from premium markets. Associated British Foods Mauri yeast and bakery ingredients showed significant improvement in growth. In North America new bakery ingredient product was successfully launched in an already competitive market. It also participated in the International Baking Industry Exposition having participation from 100 countries where it promoted its baking technology. The acquisition of Speciality Blending, Cedar Town, Iowa was completed in January 2017. The plant has multiple blending lines which are capable of handling concentrates of whole-grain bread and sweet goods. It is also capable of handling ancient and organic blends. The company has made improvements in doughnut and cake mixes with the application of ingredients’ technologies. Abitec in North America, company’s speciality lipid business has shown significant upward trend in the nutritional application of beverages and food as well as those of branded and generic pharma drugs. The protein business has also benefitted from the healthy snacking trend.

Weakness

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Opportunity

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Threat

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TABLE OF CONTENTS
DELIVERY AND FORMAT
WHY CHOOSE US?
References used in Associated British Foods Analysis Report

1. Associated British Foods Annual Report 2017: https://www.abf.co.uk/ar2017/dist/documents/ABF_Annual_Report_2017.pdf

2. Review of interim results for 24 weeks ended 3 March 2018: https://www.abf.co.uk/documents/pdfs/2018/2018-interim-results-presentation.pdf

3. Diversity is the spice of life for Associated British Foods: https://www.ft.com/content/714f63e6-84a2-11e5-8e80-1574112844fd

4. Associated British Foods : Primark owner encouraged by first U.S. stores: https://www.marketscreener.com/ASSOCIATED-BRITISH-FOODS-9583547/news/Associated-British-Foods-Primark-owner-encouraged-by-first-U-S-stores-26365054/

5. ABF expects annual retail profit growth as Primark expansion continues: http://www.proactiveinvestors.co.uk/companies/news/188511/abf-expects-annual-retail-profit-growth-as-primark-expansion-continues-188511.html

6. Difficulties in AB Foods’ sugar business to offset better-than-expected profits at Primark: http://www.proactiveinvestors.co.uk/companies/news/200168/difficulties-in-ab-foods-sugar-business-to-offset-better-than-expected-profits-at-primark-200168.html

7. Brexit Presents Unforeseen Challenges to ABF Finance Chief: https://blogs.wsj.com/cfo/2017/04/28/brexit-presents-unforeseen-challenges-to-abf-finance-chief/

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Associated British Foods SWOT and PESTLE analysis has been conducted by Karan Mahajan and reviewed by senior analysts from Barakaat Consulting.

Copyright of Associated British Foods SWOT and PESTLE Analysis is the property of Barakaat Consulting. Please refer to the Terms and Conditions and Disclaimer for usage guidelines.

Associated British Foods SWOT & PESTLE Analysis
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