ABF ingredients division's weak link doesn't break strong chain

The ingredients division of the Associated British Foods (ABF) is covered by ABF Ingredients, under four distinct and separate businesses covering enzymes, yeast extracts, lipids, whey proteins and cereals, along with independent sister operation, AB Mauri.

Stephen Catling, CEO of ABF Ingredients, said the trading announcement​ revealing weak profitability, mostly refers to the difficult conditions in the yeast and bakery markets, much of which is covered by AB Mauri.

Catling said that the yeast market has been a “trouble area”​ overall, as it is “extremely competitive.”​

However, by contrast, the remaining segments of ABF’s ingredients division have been performing well.

“The strengths of ABF Ingredients are the enzymes and yeast extract businesses… The bio fermentation ingredients sector is certainly our strongest,” ​Catling told FoodNavigator.com.

Increased customer usage of these ingredients is ensuring growth potential in both areas, he noted, and in terms of investment and future growth these are two core focus areas.

There is terrific market demand for yeast extracts and “we have more of a global footprint in this area and therefore a stronger business,”​ he said.

“The enzymes market also continues to grow… and this is the area of ABF Ingredients that holds the strongest growth potential and is receiving the biggest capital funds,” he said.

In 2007/2008, €25m was injected into a plant expansion for the enzymes business, Catling said, and capital investment in this sector area has reached around €50m over a five year period.

Challenges going forward​

Challenges over the last few years have been in understanding when and how customer spending has changed, he said.

“Right now, the challenge in the Eurozone is to follow closely and be really careful in the difficult markets in this region,”​ he noted, and ensure companies within struggling markets can pay for supplies.

“There is also the challenge of currency volatility and movement in commodities,”​ he said.

ABF Ingredients buys agri-commodities such as rice, whey and fats and oils, and keeping on top of price and availability in these areas is key and so hard work is put into procurement, the CEO said.

He added that the hedging the division tends to do is on currencies rather than commodities.

ABF Ingredients is putting a much stronger focus on customer understanding, and “this year there will be enormous focus on sales organisation, with more training and development that ever before,”​ Catling said.

“Where we see our best business being achieved, is with true insight into customer needs and what they are trying to do,”​ he added.

Driving future growth​

“Without question, we will continue to look at opportunities for acquisitions,” ​he said, confirming previous analysts predictions.

Joint venture opportunities have also been considered, “but it’s not always our preferred route,” ​he said, as acquisitions enable more control and development.

The Asian markets offer promise for business, he said, with growth far stronger and faster than Europe, despite core markets for bio ingredients still within the EU.

“While the market remains fairly difficult and competitive… it is clearer in terms of growth and opportunity… [and] more buoyant now. 2012 will hold more opportunities,”​ Catling said.