European Business News – Week ending December 20, 2010

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European Business News – Week ending December 20, 2010

December 20
10:26 2010

The announcement that Arla Foods is about to extend its interests in Germany by merging with Hansa-Milch, completes a year of expansion by the Scandinavian dairy co-operative. Following a period of restructuring and cost reduction in 2009, Arla Foods increased its investment budget for 2010 to DKr1.84 billion (Eur250 million) in a bid to increase annual turnover by 2-3% to DKr47 billion.

Peder Tuborgh, chief executive of Arla Foods.

In addition to marketing expenditure to drive sales growth, the investment budget earmarked almost DKr920 million – double the 2009 figure – for significantly expanding capacity and ongoing efficiency improvements.

Milk Price

The central aim of Arla Foods’ expansion strategy is to deliver the best milk price for its co-operative farmer owners. Formed in 2000 through the merger of two dairy co-operatives – Arla of Sweden and MD Foods of Denmark – Arla Foods has production facilities in 12 countries and its products are sold globally, although its two main markets are Scandinavia and the UK.

While it continues to focus on developing its traditional markets and becoming the leader in Denmark, Sweden and the UK, and number two in Finland, Arla Foods has also added Germany and Poland to its core markets and aspires to be among the top three dairy companies in both countries. The merger with Northern Germany-based dairy co-operative Hansa-Milch is in line with this expansion strategy and will serve to further enhance the dairy farmers’ co-operative movement in Europe.

Move to Strengthen Milk Producers

Last week, the European Commission also moved to strengthen the financial position of milk producers by increasing their bargaining powers in dealing with the major dairy processors, in order to rebalance the supply chain. The measures stem from the recommendations issued by the High Level Experts’ Group on Milk, which was created following the 2008-09 dairy crisis with a view to looking at medium and long term measures for stabilising the market and producers’ income and enhancing transparency.

Food and Pharmaceutical

Andrew Witty, chief executive of GlaxoSmithKline.

The distinction between the food and pharmaceutical/healthcare industries continues to be blurred. GlaxoSmithKline, one of the top global pharmaceutical groups, has expanded its Nutritional Healthcare division with the £162 million acquisition of Maxinutrition, a UK company that manufactures protein-enhanced functional nutrition products.

With a turnover of £851 million in 2009, the Nutritional Healthcare division is only a small part of GSK, which has group sales of over £28 billion. Indeed, a few years ago, GSK was believed to be considering selling off the business, centred around the Lucozade, Ribena and Horlicks brands, but it is now a key element of group strategy to create a global and diversified business.

Brewing Consolidation

The world’s top ten brewers have increased their share of the global beer market from 38% to 61% during the past ten years, while the top four players – AB InBev, SABMiller, Heineken and Carlsberg – have more than tripled their volume sales and opened up a clear lead over other rivals. Although beer consumption globally has increased by over 3% per annum since 2000, growth is being fuelled by markets in Asia, Eastern Europe, South America and Africa, while volume in the developed markets of North America and Western Europe has remained static.

The big four brewers have been pursuing similar development strategies by using acquisitions to grow volumes and so benefit from economies of scale. However, as acquisition targets have been gobbled up, prices have escalated. A new report by Rabobank, examining value creation in the beer sector through M&A activities, concludes that the acquisition strategy of the top four brewers not only improved their margins, but also led ultimately to value creation.


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