The Baking Products division consists of three segments: Industrial and Bakery Flours, Bakery Ingredients Group (BIG), and End Consumer Brands.

 

The Industrial and Bakery Flours segment brings together eight mills, creating Germany's second largest provider of milled products with a total output of roughly 1.1 million tonnes of grain. The focus of the activities is the profitable and needs-based supply of (growth) customers in all relevant market segments. A uniform quality management concept is applied, which is continuously further developed in consultation with our business partners.

 

The BIG segment produces and sells retail brands used for the professional production of baking products. The special products from the areas of bakery improvers, doughs, fillings and toppings are sold throughout Europe by a total of 11 companies to commercial bakers, pastry cooks and large industrial customers. The brands Diamant (Austria), Gb Plange (Europe) and Plange (Germany) have established themselves on the market through first-class product quality, a market-oriented product range, creative bakery ideas, and expert customer-service skills. The development of the neighbouring Eastern European markets as well as specific acquisitions to strengthen certain segments are key elements of our strategy in this business line. W have more accurately aligned our offer of goods and services with the requirements of large bakeries and industrial producers, thereby furthering especially our national market penetration, and will continue on this path to success.

 

The End Consumer Brands segment is built around flours and baking mixtures. The innovations and superior quality offered by the Diamant^® and Goldpuder^® brands have firmly established their market position in the face of trade brands.

 

Internationalization strengthens competitive position

The Baking Products division is divided into three product segments – Industrial and Bakery Flours (IBM), Bakery Ingredients Group (BIG), previously referred to as Bakery Convenience, and End Consumer Brands (EVM). IBM, which has the highest sales of the three segments, processes soft wheat, rye, and durum (hard wheat) into quality flours, semolina, and wholegrains. IBM is one of the leading producers and distributors of industrial and baking flours in Germany. The BIG segment markets specialist bakery ingredients through a total of eleven companies to commercial bakeries, confectioners, and industrial customers across Europe. Its key sales markets are Germany, the Benelux countries, Italy, Spain, Portugal, France, the UK, Austria, as well as the new member states of the EU. This means that BIG is a major supplier of bakery ingredients products in Europe. The EVM segment distributes flours, semolina, bread, and baking mixes for food retailers under the Goldpuder and Diamant brands as well as a range of trademarks, making it one of the leading suppliers of branded flours in Germany.

 

As in previous years, the Baking Products division is characterized by a competitive environment. Structural adjustments on the supplier side continued, if at a slower pace than in previous years. EU and global market influences continued to dominate events both on the procurement and sales markets for grain products.

 

Price volatility and price risk have thus been on the rise for a few years now. All segments of the Baking Products division were also confronted with steadily increasing food safety requirements across Europe.

 

Although sales for the IBM segment are below the level of the previous year due, among other things, to the lower export volume and food retail brands business, sales for the other segments have been maintained (EVM) or slightly increased (BIG). This development and declining commodity prices led to a fall in sales across the division of 25 % to € 365 million. The operating result lay below the excellent level achieved the previous year. The total result was further pressured by an unscheduled depreciation of goodwill.

 

In the German baked goods market, the development of the industry has been determined by the ongoing structural changes such as the decline in craft bakers, growth in store bakers, concentration on industrial bakeries, as well as the establishing of bake-off stations at discount stores. The market environment of the IBM segment was also characterized by altered consumer behavior in 2009 due to declining disposable income as a result of the economic crisis. Although the volumes of bread and baked goods consumed remained stable, there was a move towards cheaper breads and baked goods. This development benefited the discount food retailers and the industrial bakeries and strengthened the competitive intensity in the sector. As a result of the intensive market and price pressure, the IBM segment recorded a decline in operating results compared with the success of the previous year.

 

In Germany, a mill newly constructed at the premises of a customer came on line, thereby laying the foundation for a sustainable partnership.

 

As part of the expansion strategy in eastern and southeastern Europe, a state-of-the-art mill came on line in Croatia, in which the division has a 40 % holding. The division also has participations in mill companies in Hungary (20 %) and Poland (40 %).

 

Reference is made to the progress of the competitive legal proceedings in the IBM segment in the presentation of the results.

 

The entire European market for bakery ingredients products stagnated or even declined in some segments, causing the competition to further increase. The potential in non-industrial customer segments such as craft bakers varied between stable and declining. Their numbers fell across Europe. Concentration trends continued amongst bakery chains and industrial customers. Nevertheless, the earnings contribution from the BIG segment was considerably above that of the previous year. The restructuring in Belgium, France, and the Netherlands had a positive effect on the results, as did the turnaround in the German BIG business.

 

The EVM segment recorded a slight growth in sales. This was due to a reluctance to eat out and an increase in baking and cooking at home. Conventional food retailers continued to lose ground in household flour, while the discounters increased their market shares again. In this difficult market environment, the Diamant and Goldpuder brands were able to achieve slight gains and significantly expand their market shares in the brands business. Despite the price pressure in food retailing, the EVM segment was able to match the good results it recorded in 2008. The continual growth amongst the discounters has prompted the Baking Products division to increase its focus on this sales channel.

 

In 2010, the Baking Products division will continue to consistently implement its strategic alignment. This will include further focusing on key account management in association with customer-oriented quality concepts, efficient production flows and cost structures, as well as the accelerated use of synergies and internationalization. Nevertheless, the effects of the economic crisis will still be felt in business development this year. Significant fluctuations in sales volumes are not expected, but the difficult economic situation will place high pressure on margins. The IBM segment will continue to pursue its eastern European expansion strategy in 2010. The establishing of a chain of bakeries in China will be one of the most important strategic projects for BIG in 2010. Over the course of the year, EVM will continue its focused distribution strategy. Overall, the division expects to see growth in its earnings.