Ebro expects FY profit drop

Ebro expects FY profit drop

Ebro Foods, the Spanish rice-to-pasta group, has warned of an expected decline in full-year profits.

Higher advertising spending, the sale of rice brand Nomen and foreign exchange dented Ebro's nine-month earnings and prompted the revised forecast.

Ebro said that its EBITDA in the first nine months of the year fell 6% to EUR195m after a 17% increase in marketing investment and the sale of the Nomen brand, which contributed EUR5m to the year-ago result. Net profit was down almost 10%, dropping to EUR99.5m

Sales dipped 1.3% to EUR1.5m, due to the sale of Nomen and "other smaller brands" - a condition imposed by Spain's competition authority as a condition of the acquisition of the former Deoleo rice business.

Looking to the full year, Ebro said it anticipates a 10% drop in net profit and a 6.6% decline in EBITDA on flat sales.

Kepler analyst Inigo Egusquiza was upbeat on the group's strategic development, highlighting "good potential for growing organically/through acquisitions" and "increasing exposure to meal solutions".

However, Egusquiza cut his full-year estimates by 5% following the third-quarter result. "The 2013 cut is mainly explained by a lower contribution from rice business (Basmatic rice price increases, Texas droughts and Morocco)."

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Ebro posts net turnover of €1,499 million Ebro posted a turnover of €1,499 million in the first nine months of 2013, down 1.3% year on year as a result of the change in its scope of consolidation following the sale of the Nomen and other smaller brands, a condition imposed by the Spanish antitrust authorities to allow the acquisition of the SOS rice business.

After the sale of Nomen, which had contributed €5 million to the 2012 accounts, the foreign currency translation effect and a 17% increase in investment in advertising, which was raised to €62 million in the nine-month period, the group EBITDA totalled €195 million, 6% less (€13 million) than in 9M 2012. Of this €13 million, €9 million corresponds to the increase in advertising and €3.7 million to the foreign currency translation effect. Therefore, on like-for-like terms of consolidation, currency and advertising, EBITDA would have been greater than that of the same period of 2012.
In this context and with smaller extraordinary items, the company has posted a net profit of €99.5 million, a year-on-year drop of almost 10%.

The company's final debt totalled €259 million, 12.3% less than at 30 September 2012, incorporating the investments made to purchase a plant in India and 25% of the Italian company Riso Scotti.

Core businesses

Owing to a number of factors external to the business development as such, this year is proving very complicated for the rice division and the satisfactory progress of its brands in both Europe and the United States, which have increased their market shares and achieved excellent shelf positioning with a broad array of new launchings, is not reflected in its accounts. These external factors included mainly the massive default of contracts in India for the supply of Basmati, the severe drought in Texas and the diminished yield of the business in Morocco as a result of large-scale smuggling of rice into the country.

Against this backdrop, the division has posted a turnover of €825 million and EBITDA of €99 million.

With stable durum wheat prices, this division is on an upward trend and is starting to reap the first benefits of the change of strategy implemented in the United States in the first half of 2012.

In Europe, in a scenario of strong growth of private label brands and constant promotions by rivals, our brands have managed to preserve both market shares and yield. In the United States, thanks to the new strategy, profit margins have started to improve and the new gluten-free products and sauces launched in Canada are doing very well. The future consolidation of Olivieri will considerably boost the potential of this division on the other side of the Atlantic.

The division turnover for the period is €709.3 million and its EBITDA €102 million.

Full-year 2013 outlook
Ebro expects to reach a turnover of €2,048 million in 2013, more or less on a par with 2012. Its EBITDA, hampered by the factors mentioned earlier, will deteriorate by around 6.6% to €280 million and a net profit of €143 million is expected, approximately 10% down on 2012, which included the extraordinary gains from the sale of Nomen.

Original source: Ebro Foods