Kellogg is investing US$420m to boost its interest in a joint venture with packaged foods manufacturer Tolaram Africa Foods as the US-based firm seeks a bigger contribution to growth from emerging markets.
The joint venture with the West African company was formed back in 2015 when Kellogg also entered into an agreement whereby it had a right to secure a stake in Tolaram Africa Foods in the future. The Special K maker is now exercising that option, giving it a stake in what it says is a ”leading Nigerian food manufacturer”.
Kellogg made the announcement in its first-quarter results presentation today (3 May), which showed reported sales were up 4.7% from a year earlier at $3.4bn. On an organic basis, sales climbed 0.6% to $3.27bn.
However, the size of the stake in Tolaram Africa Foods or the financial terms were not disclosed.
Tolaram Africa Foods is part of the Singapore-based conglomerate Tolaram Group and a holding company of a manufacturer of packaged foods in Nigeria and Ghana. Its products are distributed by Multipro, in which Kellogg has held a 50% stake since 2015.
The earnings release stated: ”Kellogg’s recently increased investments not only further cements the company’s position in this overall business, enabling the pursuit of further growth opportunities, but, together with other factors, also results in the consolidation of the distributor’s sales and profit results into those of Kellogg.”
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Kellogg and Tolaram also own a joint venture set up in 2016 – Kellogg Tolaram Nigeria – which markets and distributes breakfast and snacks brands in West Africa, and noodles across Africa.
Steve Cahillane, who was installed as Kellogg’s new chief executive last year, commented: “Expansion in emerging markets is an important element of our growth strategy. Africa offers incredible growth opportunities, and our experience partnering with Tolaram over the past couple of years have confirmed that we have a strong relationship, attractive brands, local expertise, and a proven business model.
”Our additional investment is a statement of confidence in this venture, and the consolidation of Multipro’s results means that investors will now have visibility into its strong growth.”
As a result of the transaction, Kellogg updated its 2018 earnings guidance, but affirmed its previous estimates for the base business.
On a currency-neutral basis, Kellogg expects sales growth of 3% to 4% in 2018 (2.2% in the first quarter) to reflect eight months of net sales from Multipro.
Outside of the just-announced deal, the company said its October acquisition of US firm RXBAR protein bar maker Chicago Bar Company should contribute about 1-2 percentage points to growth.
However, in organic terms, Kellogg sees sales declining 1-2%, with a one-percentage-point slice of that coming from the impact from the U.S. Snacks’ direct store delivery transition, including its list-price adjustment and the rationalisation of SKUs. The remainder of the business is still projected to be flat to down 1%, an improvement from 2017.
Kellogg predicts adjusted operating profit growth at 5% to 7% on a currency-neutral level, with Multipro adding more than one percentage point.
