Condiments giant H. J. Heinz Company has outlined its expected transformation on the back of its 13 June merger and spin off agreement with Del Monte Foods Co.
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William R. Johnson, chairman, president and CEO of the Pittsburgh-based firm, explained in a 2002 annual report: “We are building on our achievements and addressing our challenges aggressively.”
Johnson added that importantly, Heinz is strengthening its portfolio for improved performance through the Heinz/Del Monte transaction, in which Heinz will spin off its US and Canadian pet food and pet snacks business and its US tuna, infant feeding, retail private label soup and gravy and College Inn broth businesses and merge them with Del Monte Foods.
“This has the potential to create a “win-win” for not only Heinz shareholders, but also for our employees and the communities in which we operate,” he said.
The transaction will greatly simplify Heinz and refocus its US businesses against two highly profitable categories (Ketchup, Condiments & Sauces and Frozen Foods) and two strong channels (retail grocery and foodservice), where Heinz has a proven track record and a pipeline of exciting innovations.
Johnson said the firm will be more transparent, with a sharper focus on two strategic food platforms: Meal Enhancers (ketchup, condiments and sauces around the world) and Meals & Snacks, both frozen and ambient, for all ages. Additionally, the transaction should unlock significant shareholder value as it removes businesses that have experienced negative trends and whose margins are lower than Heinz’ post-transaction core.
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By GlobalDataA major element in Heinz’ growth strategy, Johnson notes, is the investment of more than US$100m in incremental marketing spending in FY 2003. As part of its transformation initiative, Heinz will adjust its dividend beginning April 2003 to free up substantial cash flow to help underwrite additional marketing and/or pay down debt. “We believe that investing some of these resources in faster growth will provide Heinz shareholders greater, more tax-efficient value in the long run,” Heinz’ chairman said. Although the company expects to reduce its dividend 33%, its payout ratio after the adjustment is expected to be slightly better than the peer group average and in the top quartile of the S&P 500.
The transaction “should immediately improve Heinz’ debt position,” he adds, reducing debt by about US$1.1bn on the date of closing, Johnson said.
This is a powerful initiative, Johnson maintains, that is designed to benefit both sides as it infuses Del Monte with outstanding new talent from Heinz and adds new businesses with superior margins and returns versus Del Monte’s present portfolio.
Heinz transformed
Heinz’s FY 2002 report elaborates on the expected transformation that will result from the historic transaction. The report lists five key elements to its transformation strategy.
First, Heinz is expected to have a stronger growth platform focused on its Meal Enhancers and Meals & Snacks segments, each of which comprises a powerful array of number-one and number-two brands around the world. Secondly, the report points to the strengthening of the company’s winning portfolio, which will be concentrated on top-selling, high-margin brands.
Third, Heinz will be able to focus more resources and expertise on a powerful pipeline of innovative products and packaging to drive growth. The report cites such new ideas as the Heinz Easy Squeez upside-down ketchup bottle, the Heinz SmartChoice Pump dispenser for foodservice customers and the UK launch of microwaveable Heinz Soup Cups.
Fourth, the Heinz/Del Monte transaction should have a strong bottom-line impact as it is expected to significantly enhance Heinz’s ability to deliver margin improvement and consistent earnings growth. Heinz’ refocused portfolio also should see improved cash flow and returns, with a major emphasis on working capital reduction.
Fifth, Heinz’ transformation includes initiatives to attract, develop, reward and retain the best people. The company is revising its compensation plans to encourage balanced performance against a range of growth goals, as well as realigning its organization to simplify the corporate structure and leverage experienced leadership.
“The Heinz/Del Monte transaction furthers Heinz’ vision of being the world’s premier food company,” Johnson concludes. “This is an exciting time for Heinz, and we look forward to delivering on the great promise and potential that we see before us in the coming years.”
