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United Kingdom Food and Drink Report Q1 2010
Business Monitor International, Dec 2009, Pages: 90
The United Kingdom Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the United Kingdom's food and drink industry.
For the UK, BMI has now revised down its 2009 real GDP growth forecast to -4.7% from -4.2%. This has come on the back of a poor Q309 number and a slower than expected recovery being in the offing. The indications are that the UK did not move out of recession at a time when the US, France, Germany and most of Britain's developed world peers did. This implies a protracted downturn in the UK and quite probably a slow upturn as well.
The UK's economy is highly reliant on the service industry and has a fairly small manufacturing base to benefit from the devaluation in sterling. The country's large and diversified food and drink sector is one exception to this rule, and rising exports will have helped boost economic growth at a time when many other industries are struggling. At the end of October, new figures from the Food and Drink Federation (FDF) suggest that UK food and drink exports continued to grow at a rapid rate in 2009, but that growth slowed as the year progressed. The FDF reported that in the first half of 2009 exports were up 10.2%, with growth of 14.8% in the first quarter and 5.4% in the second quarter. However, these figures can still be viewed positively against the wider economic backdrop, with total UK exports dropping by 13.4% in Q209.
The major event in the food and drink sector over the last quarter must surely be the move by US-based food giant Kraft on UK-based confectionery producer Cadbury. In early November Kraft formalised its takeover offer with the same terms as originally proposed to Cadbury's board two months previously. The move, which turns the takeover attempt hostile, means that Cadbury's shareholders have three months to decide whether to accept the bid. The US packaged food giant has offered GBp300 and 0.2589 new Kraft shares for every Cadbury share. Kraft's share price and the current exchange rate make this offer worth about GBp717 (on November 10 2009), which is down from a value of GBp745 when the offer was originally proposed.
In BMI’s assessment, Kraft has already raised US$9bn in bridge financing that would allow it to significantly increase the cash component of its bid – a major sticking point for many UK investors that do not wish to be landed with US stocks. Meanwhile, with a significant sum already invested in the process Kraft will be very reluctant to let Cadbury slip through its fingers, and CEO Irene Rosenfield's credibility will surely take a knock if the firm fails to land the much smaller UK business. When added to the general attractiveness of Cadbury, which as a pure play confectionery firm has delivered impressive revenue growth in both mature and emerging markets, the publisher expects Kraft to do whatever it takes to land the business and see the initial bid more of a way of managing the expectations of Cadbury's investors rather than an indication of where Kraft's final offer might be positioned. Whatever the outcome many in the industry feel that the Kraft bid for Cadbury is likely to trigger another round of industry consolidation after what has been a fairly quiet period of M&A activity in the food sector.
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