China - Bright Food Looks to Build Developed Market Presence through Manassen Foods31 Aug 2011 • by Natalie Aster
China-based food and dairy producer Bright Food Group recently agreed to acquire a 75% stake in Australian food producer and distributor Manassen Foods as it diversifies internationally. Bright Food's expansion in the developed world tie into one of our core views that a balanced geographical footprint is important for stability and that emerging market (EM)-based firms will take a greater interest in developed market assets going forward.
Bright Food's acquisition of a 75% stake in Manassen Foods, which produces and distributes brands in the confectionery, cookies and cakes, perishables, frozen foods and dry groceries such as bread and noodles, is reportedly valued at around AUD400mn (US$416mn). The deal is still awaiting regulatory approval from China and Australia.
Bright Food has a big appetite for overseas exposure. Big names such as French dairy producer Yoplait, US-based retailer of food supplements GNC Holdings, Australian industrial company CSR's sugar unit Sucrogen and UK confectioner United Biscuits are some of the companies that have in the past been linked with Bright Food. These assets, together with Manassen Foods, clearly underline the Chinese company's penchant for developed market assets.
Bright Food's desire to build up its scale in the developed world ties in well with one of core views that it is important for consumer goods players to strike a geographical balance between developed markets and EMs to achieve a greater stability in earnings. While EMs provide very dynamic long-term growth prospects due to their relative lack of market maturity and rapidly-rising consumer affluence, developed markets, with their existing high consuming levels, in theory offer consistent sales and low earnings volatility.
Very Exciting Prospects
China: LHS: GDP per capita (US$) and RHS: Per capita food consumption (US$)
f=BMI forecast. Source: Trade Press, National Bureau Of Statistics
Given that China remains one of the most dynamic consumer markets worldwide, the biggest motivation for Bright Food to acquire a majority interest in Manassen Foods is clearly the prospect of a better-rounded portfolio. Bearing out the attractive growth potential of the Chinese consumer market, Bright Food recorded an impressive revenue growth of 22% to CNY61.8bn (US$9.6bn) and profit growth of 45% to CNY3.2bn (US$499.2mn) for the year ending December 2010. Bright Dairy and Food, the subsidiary of Bright Food Group, meanwhile, posted a compound annual average growth rate of 14.1% between FY2008 and FY2010.
Against the backdrop of such strong domestic growth, Bright Food's plans to lift the proportional contribution of overseas sales to overall revenues from the current 5% to 30% within the next five years could therefore be viewed as a move to diversify its geographical presence and reduce the exposure of its headline growth to demand fluctuations in China. According to Wang Zongnan, the Chairman of Bright Food, potential targets on the company's expansionary agenda could include European or Australian companies in the sugar and food distribution industries.
Besides reaping the benefit of lower volatility in earnings, Bright Food could also leverage on its strong distribution capabilities in China and further strengthen its domestic market foothold by acquiring foreign brands. As in the case of Manassen Foods, Bright Food plans to import the Australian distributor's brands into China and broaden its local consumer base.
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