The just-food interview - Ebro Foods chairman and CEO Antonio Hernandez Callejas
Ebro Foods' chairman and CEO Antonio Hernandez Callejas
Ebro Foods, the Spanish food group, has changed dramatically in just a decade. No longer in the two sectors that defined the business in 2000 - sugar and dairy - the company has expanded into new categories and geographies and, speaking to Michelle Russell, chairman and CEO Antonio Hernandez Callejas says that will continue.
The corporate history of Ebro Foods over the last decade shows a transformation in the Spanish food group.
Ebro's origins are in the sugar industry but the start of the company we know today essentially began in 2000 when sugar co-op Azucarera Ebro Agricolas merged with local dairy group Puleva.
Since then, Ebro has moved into other categories, including rice and pasta, jettisoned its dairy business and expanded internationally. Much of the change has been led by chairman and CEO Antonio Hernandez Callejas, who has been in charge of the company since 2005. Some of the changes, including Ebro's first acquisition in the US in 2004, came before Callejas took the reins but the company has continued to evolve.
Now, Ebro is a global operator producing pasta, rice, sauce and now frozen foods for European, US, Asian and African markets. Spain accounts for just 10% of turnover. It can lay claim to being the world's largest trader and miller of rice and second-biggest producer of pasta, mantles reached through organic growth and acquisitions, including the 2004 purchase of US firm Riviana Foods and the 2006 transaction that saw it snap up US pasta manufacturer New World Pasta Co.
After a year of improving profits, Ebro plans to continue to expand. Last month, Callejas told the Consumer Analyst Group of Europe investment conference that the company would invest in more new concepts, as well as continue to make acquisitions and expand its geographic reach.
Speaking exclusively to just-food earlier this month, Callejas said Ebro has room to grow in geographies beyond its two biggest markets of Europe and North America.
"This year we are growing in new places like Romania where we have launched pasta sauce and rice, and we are growing sales in South America where we have just opened an office in Argentina. Possibly an investment may follow there," Callejas says. "The same thing is applicable to India - one of the countries in which we will establish ourselves - possibly with a plant, possibly during 2012".
The geographic expansion Ebro is looking for, Callejas adds, may be achieved through acquisitions.
"At the moment we are exploring some possibilities, but we don't have a firm commitment to any of them. We are not looking at huge businesses but some potential acquisitions on what we would call medium-sized businesses that will be a nice addition to our geography."
As for potential targets, Callejas suggests the company is eyeing a number of South American companies, and that it has an interest in entering Brazil and Mexico in particular.
"These are countries that we have always looked at as potential targets in the medium term," he tells just-food.
One firm that slipped through the net, however, was Australia's Ricegrowers Ltd. Ebro's A$600m offer failed to win over Ricegrowers', which also trades as SunRice, shareholders and so the company was left to weigh up its options for expanding into Australia.
Callejas told just-food the decision by SunRice shareholders to reject the offer was "quite disappointing" in principal, given how important a target it was for Ebro.
"We offered a very good price, but the growers decided they wanted to keep the company for themselves and not sell. Although 67% voted in favour of the sale, we needed a 75% vote to sell the company, so the growers made it impossible for us to acquire the company."
However, on reflection and given a turbulent past 12 months in the global economy, Callejas believes Ebro is in a better position for losing the purchase.
"Since we lost the agreement, the world has changed a lot and the [economic] crisis has gone further in many economies ... so the idea of keeping the EUR600m that we were going to pay for the business makes our position very comfortable.
"We are debt free in a market where access to credit has become increasingly difficult, so we didn't buy the company but we still have the money, and today you can probably buy more with that money than you could last March," Callejas tells just-food.
As for returning to the table with SunRice, the chairman says "not for the time being".
"When you make an offer like we did last year, the thing is not just to go back to the table in 12 months. Who is to say never again, I will never say that. We are good friends, we have good relations with them, but it will take some time."
Ebro, with its positions in rice and pasta, also has to deal with continued volatility in commodity costs. In March, the company recorded a 2% increase in EBITA for 2011 on the back of a lift in sales. EBITA from the group's rice business increased by 10%. Ebro's pasta division, however, only saw a 2% rise.
Callejas put the performance of its pasta division down to its exposure to extreme volatility in durum wheat prices, which almost doubled during the year.
"Last year it was a very complex year in pasta ... and we found ourselves with EUR100m of cost of goods to solve. But I think it was very very good that we could resolve that enormous increase in cost of goods and still make a higher profit versus the previous year."
This year, however, Cellejas believes the trend is different, with a less volatile durum wheat market.
"Now it is a more relaxed situation and the durum is a lower price than the peaks we experienced at certain points last year when it went up to nearly $6 per bushel. We expect less pressure this year and for the trend to come down. We don't see prices peaking again at those levels.
"The planting intentions in Canada and the US are good, and the only potential risk would be a drought in the Mediterranean, which could have an affect on European prices," Callejas says.
As for rice, Callejas says the industry has been affected by some droughts in the US and South America, but that India's position as a main exporter of rice means any gaps are being filled.
"India is really taking an important role in the world rice market and has helped in the stability of prices."
This may go some way to explaining why Ebro has started branching out into sauces and now frozen foods.
While North America accounts for the lion's share of Ebro's business, the company has seen an opportunity for growth in the region, with the launch of its frozen and ready meals through its US subsidiary New World Pasta.
"This is an important innovation for us, it is very different to what our competitors are doing," Callejas tells just-food. "We are working with a company producing frozen products on a long-term strategy ... so our Minute Rice is a very good brand to host this new concept. Also, we will start looking at other propositions like increasing our fresh sauce business in the US and Canada. Those are the areas where we are trying to grow."
Callejas is keen to emphasise, however, that the company is not abandoning its fresh pasta staple, which he says remains strong in Europe.
"In pasta we are entering into other categories, but in France we continue to be strong in fresh pasta. We have made an investment of EUR40m in a new plant in Lyon and so our focus is fresh in Europe and frozen dinners in the US."
Ebro has changed a lot in the last decade, from a company focusing on sugar and dairy to one on rice and pasta and, now, increasingly on other categories like frozen food.
Its has expanded around the world. North America now accounts for 50% of Ebro's business and Europe, including Spain, only 38% as of last year. Regions like Asia and north Africa are on the checklist to becoming important parts of the company's geography.
As for the future look of Ebro's portfolio, Callejas says: "We are in rice, pasta, sauces, ready meals, frozen products...you will see more of that."
Companies: Ebro Foods
- Comment: Paying the price for eating healthily
- M&A Watch: Emmi shareholders should consider sale
- Focus: Will Danone return to growth in dairy?
- Why Nestle is relaxed about the China "drag"
- Focus: Why French retail deals could hit suppliers
- Nestle organic sales fall on Asia, Europe
- Heinz jobs in Australasia to go in restructuring
- Danone "eyes acquisition of Mead Johnson"
- Nestle "disappointed" as ASA bans toddler milk ad
- Sanitarium launches oat-based breakfast drink