March 5, 2021

Antonio Hernández (Ebro Foods): "We fit buy Pastas Gallo if the price is right" | Economy

Antonio Hernández (Ebro Foods): "We fit buy Pastas Gallo if the price is right" | Economy

Antonio Hernández Callejas, Tudela 1955, economist, is Navarrese of birth, Soriano of origin and Sevillian of adoption in the shadow of Herba rice, then owned by the family. After a period of adviser, since 2005, as the first shareholder, he is president of Ebro Foods where he has carried out an intense investment and divestment policy. This strategy involved the sale of leading companies in its sector in Spain such as Azucarera and Puleva for 526 and 630 million respectively, as they did not have a route. On the other hand, in the last decade, except for the purchase of SOS rice in Spain for 200 million euros, it made purchases of companies abroad for another 2,100 million euros, which made the group like world leader in the rice market and the second place in pastas and sauces. With a turnover of more than 2,500 million euros, Ebro Foods is the first Spanish food company.

Since 2016 he has maintained a discreet foray into the organic products sector where he will continue to invest, although he finds it more difficult to achieve leadership positions in the large multinational sector. He never believed in the oil sector because of its low profitability and sold his participation in the current group Deoleo. Its growth strategy via purchasing has always been based on acquiring companies by price and, above all, by its capacity to grow. Faced with the difficulties to operate in markets with mature products such as pasta or rice, has always opted for innovation in supply, products with greater added value and also with health as an argument. It does not renounce the Spanish market, but more than 90% of its sales are made worldwide.

Question. Next week they will present the annual results for 2018. What will the accounts be like? Do they maintain the forecasts of last October when they estimated a growth of 5.1% for sales and a fall of 32.8% in the case of net profit?

Answer.We expect slightly better results than the estimates we gave in October. 2018 was a positive year, but our most important and profitable division, the rice cooker in the US, suffered something like a perfect storm. The price of rice went up a lot, which translated into an increase in costs. In addition, in this market we had increases in the logistic prices and in the workforce due to the lack of qualified workers due to the high labor turnover in a country with full employment.

Q. Have you already solved the cost problem? How is 2019 presented for Ebro?

"In the United States we will leave unprofitable businesses, such as white label activities"

R.The situation in the US is being corrected. We have taken a series of measures to recover the profitability of our subsidiary Riviana, as the rise in the price of aromatic rice. In addition, we will get out of those less profitable activities, specifically we will abandon some white label businesses. That will mean having less income, but in return we will recover the margins.

Q. Do you think they will return to operating margins of 14% as they had in 2017?

R.In the US rice division, the margins were even higher and we aspire to surpass them. In the group as a whole, our goal is to return to margins between 14% and 15%. I think that in the USA, when we let go of activities that brought a lot of volume but little benefit, we will come up with the great profitability that premium brands have in this market.

Q.Despite the fall in profit in 2018, they maintain the dividend per share at 0.57 euros. Why? Have you not considered adjusting the pay to the lower profits?

R.Our remuneration policy is quite defined and the company's financial situation allows us to maintain the dividend.

Q. He talks about the good financial situation, but the company's debt has practically doubled in the last two years and already means 2.3 times the EBITDA. Are you comfortable with this ratio or are you looking to lower your leverage?

R.The increase in debt is due to several factors. The first one is of an exclusively accounting nature since from this year we are accounting as debt for the puts that we would have to pay if we bought their part from the partners of those companies in which we entered the capital but we do not have the majority, something that today is not in our forecasts. We are talking about a non-enforceable debt exceeding 150 million. In addition, the leverage has risen because at the beginning of 2018 we acquired Bertagni. On the other hand, we are making a considerable investment effort to grow organically as it is difficult to find inorganic growth at reasonable prices.

"The rise in debt has been due to accounting factors and organic investment"

Q. At the meeting they said that before the end of 2018 they would close another purchase. However, this has not materialized. Ebro Foods has been characterized by a trail of acquisitions in recent years (Bertagni, Olivieri, Garofalo, Celnat, Geovita, Vegetalia …). Discard any corporate operation in the medium term?

R.We are quite selective and do not feel pressured to buy a company every year. We will only bid for what fits us strategically and also has a reasonable price. We had to give up some things; for example, in the sauces segment in the US, because companies have been sold at such a valuation that we did not see profitability.

Q. The family that owns Pastas Gallo has put the "sell" sign. Are you interested in the company?

R.We would fit in if the price was adequate and the company offered good growth prospects. This last one seems difficult to me because the management of Pastas Gallo has been great and it is difficult for someone from outside to come and do it better. In these cases, operations become fundamentally a matter of price.

Q. And at what price would the numbers come out in this case?

R.As you will understand that information, I will not give it to you. We are in an open competition and if I told others how much I am willing to pay I would be doing my company a disservice if we finally had an interest in this company and participated in the bid.

"The 2018 accounts will be slightly better than the forecast we gave in October"

P.Pero could come to present an offer for Rooster Pastas, right?

R.We are going to study the possibility of making an offer, and if we find an interesting angle, well … But I remind you that in Spain we are in a great position with Garofalo, which is growing at double digits. Pastas Gallo has a more traditional approach and we are betting on premium brands. I see a lot of travel to high quality pasta.

Q. Why is the Sepi still in the capital of Ebro if it is not a strategic company?

R.That has to ask the Sepi. We are comfortable with your presence. They are a loyal partner. If some day they decide that they want to invest in other sectors we will understand it, but for the moment they are welcome.

P.This year they have to present a new strategic plan. What will be the guidelines?

R.It is a bit risky to give data because it has not yet been presented to the council. There will be no big surprises regarding what we were already doing. In the food business it is difficult to see big shocks.

Q. Do you want to return to the oil business in the future?

R.The problem with oil is that it is in the hands of Spaniards. While it is controlled by local groups, cooperatives and small producers who are willing to charge the value chain to the first offer that comes from a foreign distributor, it will be a business with a lot of glamor but little margin.


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