Food and Drink Business Europe

November 2011

A year of major achievement for Nestle in the UK

Food & Drink Business Website:

www.fdbusiness.com

C o n t e n t s

- 33 M EAT P ROCESSING

- 2 M ERGERS & A CQUISITIONS

Tulip to grow further capacity.

Coverage of British and international deals.

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- 6 D ISTILLING

Peder Tuborgh, ceo, Arla Foods.

- 39 B AKERY World leading baker enters European market.

P AGE 9

Paul Grimwood, ceo, Nestle UK & Ireland.

Scotch whisky exports soar.

R EGULARS Bottling & Packaging . . . . . . . . . 19, 26-30

- 6 R ETAIL M ARKET UK convenience market to be woth £42 billion by 2016.

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Kevin Lane, ceo, Irish Dairy Board.

Logistics & Distribution . . . . . . . . . . . . . 25 PAGE 2

Indra Nooyi, ceo, PepsiCo.

Materials & Ingredients . . . . . . . . . 31 & 41 Food Ingredients Europe 2011 Preview . . . . . 41-47

Processing & Manufacturing . . . . . 35 & 37 Energy & Environment. . . . . . . . . . . . . . 48

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Steven Howarth, md, Adams Food Ingredients

- 9 C OVER STORY A year of major achievement for Nestle in the UK.

Managing Director: Colin Murphy Editor: Mike Rohan Sales Director: Ronan McGlade Advertising: Susan Doyle. Senior Sales Executive: Paul Lees

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- 15 D AIRY

Stephen Glancey, ceo designate, C&C Group.

Production Manager: Susan Doyle

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Irish Dairy Board adds new ingredients to UK business.

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- 21 S UPPLY C HAIN E FFICIENCY

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GS1 – Driving efficiency throughout the supply chain.

Patrick Coveney, ceo, Greencore.

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FOOD & DRINK BUSINESS EUROPE, NOVEMBER 2011

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M E E R R G G E E R R S S M EU Approves Arla’s German Acquisition The EU’s competition authorities have given the go-ahead for Arla Foods’ acquisition of Allgauland-Kasereien in Southern Germany. AllgaulandKasereien has an annual turnover of Eur307.8 million and is supplied by 1,338 milk producers. It operates four production plants, primarily producing cheese and butter, and employs 306 people. The German business also has a 30% co-ownership of the whey joint venture Milei (70% owned by a Japanese partner), and owns 50% of Bergland (a joint venture with Bayernland).

Germany is one of Arla’s core markets. Indeed, the Danish cooperative aims to become one of Germany’s leading dairy companies. The first key step towards achieving this ambition was taken at the beginning of the year through the merger with the North German HansaMilch, which produces fresh products and butter. With the acquisition of AllgaulandKasereien now in place, Arla will also be present in the southern part of Germany.

Peder Tuborgh, chief executive of Arla Foods.

Dunbia Extends Pork Business British and Irish meat processor Dunbia has expanded its operations through the purchase of English pork business Heathfield Foods. The deal increases the total number of processing facilities in the Dunbia Group to ten throughout the UK and Ireland. Jim Dobson, managing director of Dunbia, comments: “The strategic location of the Heathfield Foods facility cou2

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pled with its strong pork supply base positioned it as a perfect fit for the Dunbia Group. By dovetailing into the existing business operations and infrastructure of Dunbia, the site will further increase our overall pork processing capabilities.”

PepsiCo Enters Strategic Alliance in China PepsiCo has agreed to form a strategic alliance with Tingyi Holding, one of the major food and beverage companies in China. Tingyi's beverage

Indra Nooyi, chairman and chief executive of PepsiCo.

subsidiary, Tingyi-Asahi Beverages Holding (TAB), will become PepsiCo's franchise bottler in China. TAB, whose product offerings include ready-to-drink tea, bottled water and juice beverages, is one of the leading beverage manufacturers in China.

PepsiCo currently operates its China beverage business through 24 company-owned and joint venture bottling operations. Upon approval of the transaction, PepsiCo will transfer its indirect equity interests in the bottlers to TAB, and will receive as consideration a 5% indirect equity interest in TAB. PepsiCo will also have an option to increase its indirect equity interest in TAB to 20% by 2015, when China is projected to become the world's largest liquid refreshment beverage market.

“To win globally, we need to have absolutely the best business partners locally,” says PepsiCo's chairman and chief executive Indra Nooyi. “Tingyi

has a history of successful partnerships with other companies, and we believe this proposed alliance will combine Tingyi's superb distribution reach with PepsiCo’s innovation prowess, significantly enhancing our beverage business in China in the near term while maximizing PepsiCo’s future growth potential in the fastest growing beverage market in the world.”

Hain Celestial Acquires Daniels Group For $230 Million Organic food and drink producer Hain Celestial Group is acquiring Daniels Group in the UK from Singapore Airport Terminal Services for $230 million. Daniels is a major manufacturer of natural chilled foods in the UK with three leading brands - New Covent Garden Soup Company, the leading fresh chilled soup brand; Johnson’s Juice, the fresh squeezed orange juice brand; and Farmhouse Fare, a range of traditional hot eating desserts.

Daniels also offers fresh prepared fruit products and chilled ready meals. Daniels' products are sold at all major supermarkets and select food service outlets throughout the UK. Daniels manufactures its products in six facilities in the UK and is headquartered in Leeds. The group generated sales of approximately $280 million in its last financial year.

Go Ahead For Arla’s Swedish Merger The Swedish Competition Authority has approved the merger of the two dairy cooperatives, Arla and Milko.

The decision paves the way for maintaining milk production in a large area of Sweden. The

FOOD & DRINK BUSINESS EUROPE, NOVEMBER 2011

Swedish Competition Authority has stipulated, however, that Arla must sell certain Milko brands and the Milko dairy at Grado in Dalarna (the Dalcarlia region).

Coca-Cola Tightens Grip on North American Bottling The Coca-Cola Company is further tightening control over its North American bottling operations with the acquisition of Great Plains Coca-Cola Bottling, the fifth largest independent bottler in the US, for $360 million. The move follows last year’s $12.3 billion acquisition of the North American bottling operations of CocaCola Enterprises, which sell approximately 80% of The Coca-Cola Company’s bottle and can volume in North America.

Unilever Sells North American Food Brands Unilever has agreed to sell its Culver Specialty Brands division, in the US and Canada for $325 million (Eur230 million) in cash to B&G Foods. Culver Specialty Brands, which came to Unilever with the acquisition of The Alberto Culver Company, generated revenue of approximately $90 million for the twelve months ending September 30th, 2011.

$2.4 Billion Pringles Acquisition Delayed US-based snack foods group Diamond Foods is delaying its acquisition of Pringles from Procter & Gamble. The $2.35 billion deal was agreed in April 2011 and was expected to close in December 2011 but has now been deferred until the first half of 2012, following the decision to investigate an accounting irregularity at Diamond Foods.

Pringles is the world's largest potato crisp brand with sales in over 140 countries and manufacturing operations in the US, Europe and Asia. The combination with Pringles will more than triple the size of Diamond's snack business and

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PepsiCo Expands in Brazil Reflecting its strategy of expanding in emerging markets, PepsiCo is reported to have acquired Mabel, one of Brazil’s leading biscuit manufacturers, in a deal worth between 800 million and 900 million reals ($460-517 million). PepsiCo is believed to have outbid international food group Bunge and Mexican bread maker Grupo Bimbo to secure Mabel.

Mabel operates five plants across Brazil and produces 1.5 million packs of biscuits a day.

The Brazilian biscuit and cracker market was worth about 6.6 billion reals in 2010.

Grupo Bimbo Completes $959 Million Acquisition of Sara Lee’s North American Business Grupo Bimbo has just completed the acquisition of Sara Lee’s fresh bakery business in North America. The deal, which has an enterprise value of $959 million (Eur696 million), was originally announced in November 2010.

Grupo Bimbo is also in the process of moving into the European market for the first time by acquiring Sara Lee’s fresh bakery business in Spain and Portugal for Eur115 million.

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Winery, for a cash consideration of up to Eur20 million ($27.5 million). The deal makes C&C the second ranked cider company in the US with an estimated 20% share of a rapidly growing category. The US long alcohol drinks (LAD) market is one of the largest in the world with significant growth potential for cider – cider’s current share of LAD is estimated to be 0.2%.

Hornsby’s complements C&C’s Magners Irish cider brand in the US market.

Magners is primarily an ontrade and East Coast brand, whereas Hornsby’s is primarily an off-trade and West Coast brand. C&C will also benefit from a broader portfolio through the combination of a US domestic cider brand with strong brand equity and a premium imported craft Irish cider brand. The deal also presents a significant opportunity for C&C to invest in and grow Hornsby’s volumes in the US and the potential to develop export led growth of the brand.

In the year ended 31st December 2010, Hornsby’s volumes were 61,000 hectolitres and net revenue was $11.7 million. The business is currently delivering low singledigit revenue and volume growth.

According to Stephen Glancey, C&C’s chief executive designate, the acquisition of Hornsby’s “represents a significant step towards the development of the group’s interna-

Heineken and Coca-Cola Hellenic Extend Stake in Macedonian Joint Venture Heineken and Coca-Cola Hellenic are acquiring 41.2% of the shares in Pivara Skopje, their joint venture beverage company in the Former Yugoslav Republic of Macedonia (FYROM). The shares are currently owned by various minority shareholders. The total consideration for the transaction is Eur79.1 million, to be equally divided between Heineken and Coca-Cola Hellenic.

Following the closing of the transaction, Heineken and Coca-Cola Hellenic will together own 96.5% of the shares in Pivara Skopje. Pivara Skopje is the leading beverage company in the country - producing, marketing and distributing various beer and soft drink brands, most notably Skopsko and Coca-Cola.

Heineken and Coca-Cola Hellenic acquired their initial 55.3% stake in the company in 1998.

It acquired Brakes, the leading supplier to the food service markets in the UK and France in 2002. Before disposing of the business in 2007, CD&R helped Brakes to increase EBITDA by approximately 70% through a series of initiatives to improve margins, reduce costs, restructure operations and integrate acquisitions, all of which developed Brakes into one of Europe’s leading food service distributors. CD&R also owns US Foods, the second largest broadline food service distributor in the US, which was acquired in 2007.

Earlier this year, CD&R appointed Sir Terry Leahy, former chief executive of Tesco, as a senior adviser.

Greencore is a key supplier to Tesco. Greencore has still to realise the benefits of its recent £113 million acquisition of Uniq, which will strengthen its standing in the food to go and chilled desserts sectors of the UK food market.

Of course, Greencore had earlier in the year failed in its attempt to merge with UK convenience food group Northern Foods in an all share deal of equals to create Essenta Foods, a £1.7 billion turnover business. Boparan Holdings, controlled by Ranjit Singh Boparan, who is head of major British chicken processor 2 Sisters Food Group, spoiled Greencore’s plans with a successful £342 million cash bid for Northern Foods.

US Private Equity Firm Eyes Greencore

C&C Group Acquires Number Two US Cider Brand UK and Irish beverages producer C&C Group has acquired Hornsby’s, the number two domestic US cider brand, from E. & J Gallo

tional, cider-led strategy.” He adds: “The Transaction more than doubles our volume in a growing market; broadens the scope of our cider portfolio; and, presents significant opportunity to develop the Hornsby’s brand throughout North America.”

C&C estimates that annual US sales of cider are currently 400,000 to 500,000 hectolitres. US cider category volumes are growing at approximately 20% per annum.

Stephen Glancey, chief executive designate of C&C Group.

US private equity firm Clayton Dubilier & Rice is reported to have made an approach to buy Greencore, one of the leading convenience food processors in the UK. CD&R specialises in investing in market-leading companies that are typically underperforming. CD&R has experience of owning large food businesses in both the UK and US.

FOOD & DRINK BUSINESS EUROPE, NOVEMBER 2011

Patrick Coveney, chief executive of Greencore.

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I DISTILLING

Scotch Whisky Exports Soar cotch whisky exports grew strongly, S defying global economic uncertainty, in the first six months of 2011. Global ship-

£219.5 million.

Emerging markets are becoming increasingly important to Scotch whisky producers.

Growth in Asia and South America was very strong.

Shipments to Central and South America reached £214.4 million in the first six months of the year, a 49% jump on the same period in 2010. Exports to Asia increased by 33% to £422.5 million.

Taiwan is now a top five market for Scotch Whisky, with shipments growing to £70 million from £48 million.

Shipments to Brazil rose by 56% to £44.8m.

The volume of shipments grew in line with increased value. The equivalent of around 569 million bottles was exported in the first six months, an increase of 19% to the end of June. On an annualised basis – July 2010 to June 2011 - volume was up almost 5%. This figure reflects the slowdown at the end of 2010 due to eco-

ments of Scotch whisky between January and June 2011 reached £1.8 billion, up 22% on the £1.47 billion achieved in the first half of 2010, according to figures released by the Scotch Whisky Association (SWA).

The US remains the top export market by value for Scotch with shipments hitting £268 million, up from £233.7 million - an increase of around 14%. France, the second most valuable market, rose by 13% to

nomic uncertainty, followed by a growth in confidence among producers bolstered by increased demand from emerging markets.

Gavin Hewitt, chief executive of the Scotch Whisky Association, comments: “While traditional export markets remain important, we are making excellent headway in other regions. Consumer confidence is strong. Recent breakthroughs in trade relations will help further. A Free Trade Agreement with South Korea and better legal protection for Scotch whisky in India and Turkey give optimism for further growth.” J

I RETAIL MARKET

UK Convenience Market to be Worth £42 Billion by 2016 he UK food and grocery conveT nience sector is set to grow to £42.2 billion in five years’ time, according to the latest figures by IGD. This means the sector will have increased in value by more than a quarter from its current value of £33.6 billion in 2011.

Convenience’s share of the overall food and grocery market is expected to increase to 22.9% by 2016, compared to 21.4% by the end of this year.

Shoppers are seeing increasing benefits from using the convenience sector – IGD ShopperTrack research found: • If fuel prices continue to rise, 50% of shoppers said they will use shops nearer to them to save on petrol costs; • 46% of convenience store shoppers stated 6

that the ability to walk to a store from home was a key factor when choosing a convenience store; • Convenience store shoppers use the format on average three times a week.

“The convenience sector is doing well in

challenging conditions and outperforming the wider grocery market,” points out Nick Everitt, director of retail insight, IGD. “The convenience market’s success is down to a number of factors, including an ability to adapt to the changing demands of the UK population. Shoppers are, for example, increasingly favouring a ‘little and often’ approach, and convenience operators are responding by offering a wider range of product choices, including more fresh and chilled foods, such as fruit and vegetables.”

He adds: “Convenience stores are also reaping the benefits of people cutting down on their car usage due to high petrol prices and so preferring to shop locally.” J

FOOD & DRINK BUSINESS EUROPE, NOVEMBER 2011

COVER STORY

A Year of Major Achievement for Nestle in the UK Nestle is currently celebrating the 75th anniversary of its Quality Street brand in what has been a year of major achievements for the business in the UK.

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reated by the Mackintosh company in Halifax, northern England, in 1936, Quality Street changed the way confectionery was manufactured and sold. The brand harnessed new technology, such as the world’s first twist-wrapping machine, to make chocolates affordable for mass consumption.

Quality Street is now the world’s number one selling boxed chocolate assortment; exported to 70 countries. Quality Street is still produced in Nestle UK & Ireland’s confectionery factory at Halifax.

Nestle has extended its Aero chocolate bar into the biscuit sector in the UK and Ireland with the launch of Aero Biscuit.

To mark the milestone, Nestle UK & Ireland has created a new chocolate bar. Called ‘My Purple Bar’, the chocolate bar is based on the ‘Purple One’; the most popular sweet in the Quality Street assortment. Each sweet contains a whole hazelnut, which is surrounded by caramel and coated with milk chocolate. The new bar is made of four Purple One sweets joined together. Nestle has also created a collectable tin; designed to reflect Quality Street’s history and reputation for providing high quality but affordable confectionery.

UK and Ireland Business Nestle UK & Ireland employs approximately 7,000 people across 20 sites. The business comprises: Nestle UK (Food & Beverage and Nestle Confectionery), Nestle Ireland, Nestle Professional, Nestle Purina Petcare, Nestle Waters, Cereal Partners UK (a joint venture with General Mills) and Lactalis-Nestle Chilled Dairy (a joint venture with Lactalis). In addition to its famous confectionery the portfolio of well-known brands produced in the UK includes Nescafe soluble coffee, Shredded Wheat cereal, Buxton water, Nestle Pure Life water, Ski yogurt and Friskies pet food. Nestle is also one of the UK food industry’s major exporters, selling in excess of £260 million worth of products each year to 50 countries around the world. With annual turnover in excess of £1.4 billion, Nestle UK is one of the largest food processors in Britain.

The Quality Street anniversary, following Kit Kat’s 75th birth-

day in 2010, caps an eventful year for Nestle’s UK confectionery business. The factory at York, which produces famous brands such as Kt Kat, Aero, Yorkie, Milky Bar and Polo has installed a new sugar silo and a second new wafer manufacturing line, following the opening of the Nestle is currently celebrating the 75th first £5 million line anniversary of its Quality Street brand. last December. Nestle is also in the process of expanding its global Product Technology Centre for confectionery, also based in York.

Brand Extension Earlier in the year, Nestle extended its Aero chocolate bar into the biscuit sector in the UK and Ireland with the launch of Aero Biscuit. It is one of series of new innovations to the Aero range, which the company is backing with the biggest media spend in the brand’s 75-year history.

Of course, Nestle’s iconic Kit Kat brand, which like Aero was 75 years old in 2010, owes much of its success to being able to bridge the chocolate bar and biscuit categories. The introduction of Aero Biscuit reflects the current trend for new product innovation within the food industry to centre on the extension of well established

Pictured at the launch of the new wafer line at Nestle’s York plant last December were: (left to right): Francois Pointet, category technical manager; Magdi Batato, group technical and production director; Jas Scott de Martinville, wafer production manager; Paul Grimwood, chairman and chief executive of Nestle UK & Ireland; and David Rennie, managing director of Nestle Confectionery UK & Ireland.

FOOD & DRINK BUSINESS EUROPE, NOVEMBER 2011

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Congra to Nes tulations 75th A tle on the nniver of Kit sar y Kat!