CSM to Divest Bakery Supplies, to Focus on Bio-Ingredients

CSM proposes to start a major divestment process for the North American and European Bakery Supplies businesses that will enable the group to redeploy capital into activities better able to deliver higher growth and enhanced shareholder value.

7 May 2012 --- Following a comprehensive review of the group’s strategy, instigated by the earlier Business Review, CSM has announced that it intends to transform into a bio-based ingredients company focusing on the Purac and Caravan Ingredients businesses. Bakery Supplies requires funding to participate in the market consolidation, and bio-based ingredients also has attractive opportunities to invest in value creating, high growth activities. In the longer term CSM does not have sufficient financial resources to exploit both. CSM therefore proposes to start a major divestment process for the North American and European Bakery Supplies businesses that will enable the group to redeploy capital into activities better able to deliver higher growth and enhanced shareholder value.

"There is a positive outlook for our bakery business, just not necessarily under our ownership. We can only invest and grow in one side of our business and have therefore made this choice. We are focusing on the Purac and Caravan business and the rest is for sale," Patrick de Leede at CSM told FoodingredientsFirst.

In total, the combination of Purac and Caravan Ingredients in 2011 had sales of € 704 million, EBITDA before central costs and one-off costs of € 123.5 million, and EBITA before central costs and one-off costs of € 93.0 million; a margin of 13.2%. The combination will be a leading supplier of innovative, bio-based ingredients for preservation, nutrition, fortification and stabilization, serving end markets in food, chemicals and polymers. The combination will target growth opportunities in new lactic acid applications such as bio plastics, animal health and nutrition, as well as next generation, bio-based alternatives for oil-based materials, all with superior performance and environmental credentials. Geographically, the combination will be better balanced than CSM is today. 

Purac is an innovative biotechnology company. It is the world market leader in lactic acid and its derivatives. Purac is leveraging its fermentation capabilities to expand beyond lactic acid into other bio-based alternatives for petrochemically based products. Caravan Ingredients has leading positions in the North American markets for specialty ingredients including lactic acid based emulsifiers, functional blends containing enzymes, and fortification ingredients. Approximately 40% of Caravan Ingredients’ sales are in non-bakery applications in both food and non-food markets. 

The Bakery Supplies businesses to be divested had sales in 2011 of € 2,409 million, EBITDA before central costs and one-off costs of € 127.5 million, and EBITA before central costs and one-off costs of € 86.3 million. These activities have strong market positions in Europe and North America, excellent management, and well filled innovation pipelines. Given that the current environment is expected to lead to further industry consolidation, they are likely to be of greater value to another owner, and to be better positioned to participate in that consolidation. 

CSM intends to balance the net proceeds from the divestments to support and enhance the growth opportunities available to the bio-based ingredients business, to reduce the debt to a level suitable for its size and activities and to distribute funds to shareholders. 

Following the intended divestments, CSM will focus its resources on investing in its growth options, while retaining the commitment to a dividend policy appropriate for the size and growth dynamics of the new business. 

Gerard Hoetmer, CEO of CSM, said: “The transformation envisaged in today’s announcement would be a major step in the Group’s strategic development. We intend CSM to be a focused, bio-based ingredients company, with strong financial performance and exciting growth prospects that should generate attractive total returns for shareholders. 

While Bakery Supplies is a well-run business with excellent market positions, its value and prospects would be enhanced under different ownership. I understand that employees in particular will face a period of uncertainty and I highly appreciate their continuing efforts and dedication, as has always been the case.”

CSM expects to have made significant progress with the intended divestments by early 2013. Meanwhile, the successful implementation of the Relevance cost savings project is continuing. An extraordinary general meeting of shareholders will be held on July 3, 2012 to seek approval for the proposed transformation of CSM.