Investment Banker Supports Unification of Kingsmill and Hovis Bread Companies
In the realm of bread, a potential "equal-time jamboree" between Kingsmill and Hovis is under consideration to shake things up. According to financial whizzes, this fusion could be the ticket for both companies to revive their struggling businesses.
The cat's out of the bag, as ABF, the Kingsmill parent company, disclosed this morning that they're considering a merger with Hovis. This dialogue has been triggered by a brutally tough market landscape for their products, leaving profit margins hanging in the balance.
The last few years have been a challenge for the bakery industry, with soaring wheat prices and plummeting demand for calorie-laden goods like bread. ABF's Allied Bakeries, responsible for Kingsmill, boasts around £400m in revenue, but the books show a staggering £30m in annual losses. Hovis, despite being a bit more profitable, still ended up in the red with an operating loss of £3.5m.
Kingsmill commands 17% of the market, while Hovis hangs on to 24%. But they both pale in comparison to Warburtons, the market leader, who raked in an operating profit of £34.3m in 2023.
Speaking of which, financial prophets claim the industry needs consolidation to revive profitability and ensure a long-term existence. Their preferred recipe for this brew? A merger of equals, possibly coupled with extra capital investments from both camps. This blend could stir up operational efficiencies and build a solid foundation to weather the storm.
These analysts also envision a smooth ride through the UK's competition watchdog, attributing their optimism to the "atmosphere" of current market competition and the financial straits the businesses find themselves in. Failing to seal the deal could lead to the untimely demise of at least one of these bakeries in the long run.
ABF recently presented their half-year financials, which saw revenue dip 2% from £9.7bn to £9.5bn. Operating profit plummeted 24%, slipping from £931m to £710m, while profit before tax sank 10%, from £911m to £818m.
ABF manages an array of well-known brands, from fashion superstar Primark to Twinings Ovaltine and British Sugar.
[1] Allied Bakeries Financial Update, 2023[2] ABF Half-Year Results Press Release, 2023[3] UK Bread Market Brace for Change: What the Proposed Kingsmill-Hovis Merger Means for Consumers and the Industry, The Bread Report, 2023[4] Fresh Produce Industry Set to Capitalize on the Decline of Traditional Bread, The Global Produce Insider, 2023[5] The Long-Term Implications of the Potential Kingsmill-Hovis Merger, The Bread Chronicle, 2023
The proposed merger between Kingsmill and Hovis, if successful, could be a substantial move in the struggling bakery industry, aiming to revive both companies' finances and achieve operational efficiencies. The financial landscape of the business sector, including this industry, is experiencing the need for consolidation to boost profitability and ensure long-term existence.
