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CEO: investors don't understand food operations

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Needs to explain food businesses with "more purpose"

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Targeting more bolt-on acquisitions in food

By James Davey

LONDON, May 7 (Reuters) - Primark owner Associated

British Foods ( ASBFF ) has not done a good enough job of

explaining to investors the strategic logic, growth potential

and value of its food businesses and must do better, its chief

executive told Reuters.

As well as owning the fashion chain, the FTSE 100 group is

one of Britain's biggest owners of grocery brands and also runs

major sugar, ingredients and agriculture businesses. It operates

in 55 countries, employing 133,000.

While over half of the group's annual sales of 20 billion

pounds ($25 billion) are generated by the food businesses, they

receive disproportionately little attention from investors and

the media whose focus is trained on Primark.

George Weston, CEO since 2005, said going forward he would

place a greater emphasis on communicating the importance of the

food businesses as investors lacked a good understanding of the

portfolio, and he plans to say more this year. He is also

looking to make more acquisitions.

"It's seen as being a rag-tag collection of unrelated food

businesses. It's not. There's a lot more method to it than I

think parts of the outside world would understand," he said in

an interview.

"We have to start explaining it with a bit more purpose."

Weston said that with AB Foods predominantly covered by

retail analysts, the stock market's focus on Primark was

understandable.

"If you've been trying to value ABF as a stock since COVID

started (in 2020), so much of it has been about Primark's

prospects, from being shut down to not having online capability

to supply chains to inflation," he said.

"The big delta (risk metric) in peoples' valuation model is

what you thought about Primark."

Weston said he hoped a return to relative stability in

supply chains and inflation as well as less perceived

uncertainty about Primark's future meant investors would now

look more closely at the food businesses, especially as half

year results, published last month, showed them all performing

well.

"The stars aligned in this first half better than they ever

have before," he said, highlighting profit growth of 39% in

grocery.

AB Foods' shares are up 12% so far this year.

CONNECTED BUSINESSES

Weston said the food portfolio was made up of varied but

connected businesses which all tapped into common themes.

AB Foods owns what Weston calls "long duration growth

businesses", such as Twinings and Ovaltine hot drinks, Mazzetti

balsamic vinegar, Patak's and Blue Dragon cooking products, as

well as enzymes, yeast extracts and pharmaceutical ingredients.

These were complemented by "cash generators" such as its

Mazola consumer oils business and its retail bakery ingredients

business in the United States.

All of the food businesses, Weston said, tapped into the big

global consumer trends of increased demand for wellness

products, alternative sources of flavour and so called

"premiumisation".

Weston said that AB Foods was looking to grow its foods

portfolio with small to medium sized acquisitions in the fast

moving consumer goods sector in the U.S "where prices have been

stupid for 20 years but aren't now," in Australia, and in the

speciality ingredients area.

Better engagement may require management to be more

transparent, but there are limits, he added.

"I don't want to tell Walmart what the margins in Mazola

are."

($1 = 0.7967 pounds)