Associated British Foods - Corporate Structure, Parenting and Portfolio Management - Case Study Example

Business Table of Contents Associated British Foods Plc. 3 Frameworks assessing diversification of Associated British Foods 3 Sugar 3 Strategies for the business 4 Agriculture 4 Operation of the business 4 Retail 5 Strategies for the business 5 Grocery 5 Ingredients 6 Portfolios 6 2. Nature of corporate parent company 7 Role of the ABF 7 Interaction between parent and operating companies contributing to the success of group 7 3. Inclusion of Primark in the ABF portfolio 8 4. Development of Associated British Foods according to the discussion by Goold and Luchs (1993) 8 Reference List 10 1. Associated British Foods Plc. Associated British Foods (ABF) is a “diversified group of foods, ingredients and retail bunnies operating in more than 47countries worldwide” (Associated British Foods Plc., 2014a). The business is diversified into five main segments: Sugar, retail, agriculture, grocery and ingredients. The range of activities, which are provided by the company, comes in form of technology, product and market scope. The portfolio of the business consists of operations with the capability to earn good revenue, profit and encounter significant growth in the business (Associated British Foods Plc., 2014c). The company provides its customers with value-for-money, high quality clothing and food, which are desired by every person. So, the company aims at achieving a sustainable position by undertaking acquisition of new business and maintaining a highly efficient operational system. The business operates in five segments, which centre industry expertise, market intelligence and operational capability. The operational decisions are developed locally, since the company believes that persons who understand the market are able to communicate it better. The corporate culture of the company intends to provide the framework, where business leaders have the freedom to make decisions on their own and authority to pursue several opportunities, which come with entrepreneurial flair. The total revenue earned by the company is £ 13.3 billion and the adjusted profit after tax is £ 1,096 million, as per the annual report of the company in 2013 (Associated British Foods Plc., 2014a). Frameworks assessing diversification of Associated British Foods The diversifications in operations of the company are placed under the following segments: Sugar Ingredients Retail Agriculture Grocery Sugar The total revenue earned from this segment amounted to £ 435 million in 2013. The sugar factories are situated in different parts of the world, which includes Europe, China and Southern Africa. The beet sugar factories in UK are responsible for producing one million tons of sugar per annum. The sugar factory in Spain produces 400,000 tons per annum and has the capacity of refining cane sugar up to that limit. The sugar factory in China raises 900,000 tons of sugar annually. The annual production of sugar in Southern Africa is 1.8 million tons. AB Sugar operates 31 plants all over the world, among which the above three are major ones (Associated British Foods Plc., 2014a). Strategies for the business To improve performance of the company, it concentrates on increasing the utilization of assets and reducing costs. Several programs were undertaken by the company, which identified major initiatives and tailored capital expenditure for strengthening performance and also, escalating co-products activities. Different programs were held by the company to manage the factories in different locations of the world. AB Sugar China had commissioned Zhangbei factory and the factory achieved a throughput average of about 4,200 tons per day (Associated British Foods Plc., 2014a). Agriculture AB Agri has established an important business in United Kingdom (UK) with increasing operation globally. The segment concentrates on providing technology based products and feeds to farmers and food manufacturers. Theses segment has performed extensively since its inception. It has performed well in 2013, compared to the previous years. It has earned about £ 1,410 million in 2013, which added to the profit of the whole group. Operation of the business The following are operations of the segment: 1) AB Connect was recently created by the segment to establish a feed business, which supplies food to the UK community and farmers. 2) AB Vista was established, which is regarded as world’s leading supplier of feed ingredients and technical services. 3) Premier Nutrition is a high quality supplier of vitamin/ mineral, starter feed and also, micro ingredients. They are also responsible for supplying best quality nutrition. 4) AB Sustain was established by the segment and is a specialist in developing, designing and delivering sustainable agricultural supply chain solutions for their customers. 5) AB Agri China has two regionally based businesses, ABNA and ABCA. ABNA is regarded as the best quality feed manufacturer for pigs, ruminants and poultry sectors. However, ABCA is regarded as the segment for marketing co-products and feed business (Associated British Foods Plc., 2014a). Retail Primark is regarded as one of the largest retailer for clothing in Europe. It owns around 257 stores and employs about 48,000 people in Republic of Ireland, Spain, UK and Portugal. There has been an enormous increase in revenue of the stores, during last few years. Nonetheless, the revenue of Primark is 22% ahead of that in 2012. There has been tremendous growth in sales for the full year, which is recorded to be 5% more than the previous year. The segment has incurred £4,273 million in 2013, which is mostly achieved from sales in Europe and Spain (Associated British Foods Plc., 2014e). Strategies for the business The strategies undertaken by the segment to increase sales are the following: 1) 19 new stores will be established across Republic of Ireland, Spain and UK. 2) The segment has a target to invest more, so as to achieve full efficiency in their business and increase their capacity of further expansion across continents. 3) The new stores will be more fashionable and customers will enjoy shopping since arrangements will be made for all, irrespective of gender and age (Associated British Foods Plc., 2014a). Grocery ABF sales a wide range of branded and non-branded grocery products worldwide. The well-known household brands comprise Ovaltine, Tip Top, Ryvita, Twinings, Silver Spoon, Mazola, Kingsmill and Spice Islands. The George Weston Foods have penetrated 75% of the market in Australian households; whereas, Tip Top is regarded as the leading food brand of the country. The segments has earned about £3,840m in 2013, which have created a strong business for the parent company (Associated British Foods Plc., 2014a). Ingredients This segment of ABF comprises ABF Ingredients and AB Mauri. AB Mauri has created global presence in the world of bakers’ yeast. It has successfully penetrated markets of Europe, Americas and Asia. It leads in undertaking the best technology that is to be used for manufacturing the ingredients. The bakery ingredients have 52 plants in 26 countries. ABF Ingredients concentrates on marketing lipids, enzymes, cereal specialties and yeast extracts worldwide. The revenue earned by the sector in 2013 is £1088 million and thus, hold an important position in the parent company (Associated British Foods Plc., 2014a). Portfolios The share price of the company has been increasing over the time and has performed better than FTSE 100. The following figure elaborates performance of the share price: (Red line: Share price movement of ABF, Blue line: FTSE 100) (Associated British Foods Plc., 2014e): Figure 1: Share price movement: FTSE 100 VS ABF (Source: Associated British Foods Plc., 2014b) 2. Nature of corporate parent company The corporate company that supervises the five segments mentioned is Associated British Foods Plc. The company belongs to the consumer goods industry, which majorly diversified its segment, from where the profit is extracted. Role of the ABF The main function of the parent company is supervising functions of the five segments and monitoring their performances. The main group is regarded as the largest food company in Europe, which produces a wide range of brands and non-branded products internationally. The company has prominent exposure to advanced technology and research, which have helped them to face challenges in the dynamic world. The successful European retail textile market has aided the company to build segments in such a way, that it fetches high profit in the coming years (Associated British Foods Plc., 2014a). The parent company manages the balance sheets of the segments, so as to achieve long-term stability. The capital funding for the segments are available through returns that are fetched from the same. The parent provides limited services, where operation of the same ensures cost effective delivery. It also extends assistance to the segments, where the level of expertise is absent for efficient working. The parent also provides with incentive, insurance and pension plan to employees. Besides that, the former gives investors the opportunity to invest in stocks of the company. The company follows ethical standards and expects the same from employees, who are working in the five segments. The company encourages honest and open culture, which is to be maintained by employees during the deals. The customers are to be dealt with honesty in order to convince them into buying their products. Interaction between parent and operating companies contributing to the success of group The management of ABF interacts with the operating companies regularly in order to receive the sales figure. The business contains different teams which are local in origin, since they can understand the market better than others. The company nurtures and harnesses talents and extends them the opportunity to polish their capabilities. The women employees in the company are devoid of the senior management levels, which should be dealt by the company, so as to eliminate gender discrimination. The employees are given the responsibility to work in rotation within the five segments. These keep them aware of the conditions that are prevalent in all the five segments. The information collected from the five segments facilitates better connection of an employee with the group management. The employees can even seek higher position in the management level. The remuneration policy of the company is based on performances of the employees in each of these segments. The management incentives are so designed that it encourages decisions taken in interest of long-term survival of the company. The company provides competitive remuneration to employees, as compared to the industry average. The company has earned a huge profit in 2013 from the AB Sugar segment and the market is responding quite well to the adjusted regimes of fall in price of sugar. The borrowing of the company has been lower as compared to previous years and thus, is expected to provide higher earnings per share, owing to reduced interest rate charges of the company. 3. Inclusion of Primark in the ABF portfolio Primark, forming a part of the ABF group, is regarded as the largest clothing retailer in Europe and the segment operates around several stores all over the world, besides employing around 48,000 people in Spain, UK, Portugal and Germany. It offers its customers high quality products of up-to-date fashion at a value for money rate. The segment owns 257 stores and has 9 million sq. ft. of retail selling space available for them. The inclusion of Primark in the portfolio of ABF group has added value to the profit of the latter. ABF with the four segments: sugar, agriculture, ingredients and grocery, has encountered success in the business process. According to the Annual Report of the company, it is observed that the retail segment have earned about £4,273 million (Yahoo! Inc., 2014). The revenue has, however, increased by 22% at the actual exchange rates. The sales growth of the segment increased by 5% for the year 2013 and with opening of new stores, the sales also increased to a considerable level. 4. Development of Associated British Foods according to the discussion by Goold and Luchs (1993) According to Goold and Luchs (1993), the following are developments undertaken by ABF: Since its inception in November 1935, ABF has concentrated on nurturing general management skills for expansion of its business. The company aimed to open new sections, after they had achieved success in the food business. The company had then diversified its business by making an extension plan to open AB Sugar in 1970s. Yet, the diversification was not very fruitful for the company, since they lacked in formulating appropriate strategies for the segment. The company was well-known for its food items and the sudden diversification was not well-embraced by customers (Associated British Foods Plc., 2014d). Gradually through a large number of acquisitions, the company expanded in international markets to such an extent that there products were available everywhere in Europe by the end of 2000. Further extension of the business segments, like, in agriculture, grocery and retail, has led to success of the company. With addition of these segments, problems had sprung up while allocating resources for segments, which had compelled the management to balance the portfolio. For balancing the portfolio, restructuring was needed and thus, the company shifted its belief to value based planning. By developing core competencies, the company has stepped up the ladder of success (Goold and Luchs, 1993). Reference List Associated British Foods Plc., 2014a. Annual Report 2013. [online] Available at: < http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCgQFjAA&url=http%3A%2F%2Fwww.abf.co.uk%2Fdocuments%2Fpdfs%2F2013%2F2013_abf_annual_report_and_accounts.pdf&ei=g6P0UpfGC8Pv0gWn5oHYBw&usg=AFQjCNG3OxpOiv22VdwSDXe4-CmHoDjgMg&bvm=bv.60799247,d.bGQ > [Accessed 7 February 2014]. Associated British Foods Plc., 2014b. Performance. [online] Available at: < http://www.abf.co.uk/investorrelations/share_price_information/performance > [[Accessed 7 February 2014]. Associated British Foods Plc., 2014c. Our Business. [online] Available at: < http://www.abf.co.uk/about_us/our_group/our_businesses > [Accessed 7 February 2014]. Associated British Foods Plc., 2014d. Our History. [online] Available at: < http://www.abf.co.uk/about_us/our_history > [Accessed 7 February 2014]. Associated British Foods Plc., 2014e. Share Trades. [online] Available at: < http://www.abf.co.uk/investorrelations/share_price_information/share_trades > [Accessed 7 February 2014]. Associated British Foods Plc., 2014f. Financial Performance. [online] Available at: < http://www.abf.co.uk/investorrelations/financial_performance > [Accessed 7 February 2014]. Goold, M. and Luchs, K., 1993. Why diversify? Four decades of management thinking. Academy of Management Executives, 7(3), pp. 7-26. Yahoo! Inc., 2014. Primark Props Up Sales At AB Foods As Sugar Slumps. [online] Available at: < http://finance.yahoo.com/news/primark-props-sales-ab-foods-071813733.html > [Accessed 7 February 2014]. Read More