For Subscribers

Get the complete article now!

This interview is a small excerpt from a comprehensive interview published in The Wall Street Transcript as part of the Consumer Sector, available at (001-212-952-7433) or http://www.twst.com/sectors/consum.html

TWST: Could we begin with an overview of CSM including a quick historical sketch of the company?

Mr. Vink: If I look about five years back then CSM was a company with turnover of about EUR 1.4 billion and half of our business was in the Netherlands mainly in sugar and in food. The other 50% was bakery ingredients, a little bit of sugar confectionery and our lactic acid business. CSM has changed quite a bit during the past five years. We have sold our food division. The total business has grown from EUR 1.4 billion to about EUR 3.4 billion. We have expanded quite extensively in bakery ingredients and in sugar confectionery, to a large extent through acquisitions. Our lactic acid business has grown autonomously with an average of about 15% per year.

TWST: What was the rationale behind this repositioning of the company?

Mr. Vink: CSM has a history of 25 years of uninterrupted net profit growth on a cumulative basis of about 12%. That has always been a balance between let’s say 3% to 4% organic growth, about 6% of acquired growth, and another 3% through improvements of the acquired businesses. Since we are in the food business, depending to a degree on how large you are, you will be growing organically in line with the growth of the population or close to it. Through this mix, we have been able to grow much faster. This meant that our cash flow got bigger and bigger, and that we had to do larger acquisitions. We started looking for large markets with a low degree of consolidation where we would not run into the large players -- the Unilever's or the Nestle’s of this world -- and where we could build a defendible market position. We started that strategy in North America with our bakery ingredients business. Although we have about 1 billion business there now we still only have 6% market share. Pillsbury, another player in that market -- I am talking about their bakery ingredients business – has about 7% or 8%. We are number two in the market which shows that this is a huge market that we have plenty of room to grow in. The same applies to Europe. In 1999, we acquired a German bakery ingredients business and a year-and-a-half ago we acquired Unilever’s bakery supplies business in Europe. We are by far the largest player in Europe with a market share of about 12%. We followed a similar strategy in sugar confectionery in Europe, which is also a large market with a low degree of consolidation -- a lot of family-owned, local companies. There, we have grown from a small position in the Netherlands in 1997 to now sharing the number one position in sugar confectionery in Europe. I would like to talk briefly about two other activities. Sugar is a regulated business in Europe. There is a quota per country and a quota per company, which means that unless you do acquisitions you have no opportunity to grow. This is a profitable and very stable cash flow generating business. It is the origin of the company.25 Years ago CSM was just a sugar company that started on it’s diversification at that time. Our other activity is lactic acid. We are in fact the largest producer in the world with a market share of about 70%. Lactic acid derivatives are used in food products but also in a large range of non-food applications. Lactic acid is a product that we all produce in our body. It is a safe chemical that breaks down in a natural way. This is a very successful product. In the US now there is an enormous demand for food safety reasons as a preservation agent in meat products.

TWST: What is your long-term vision for CSM?

Mr. Vink: We will continue to grow in the lactic acid business organically at around 15% per year. In the bakery supplies business and in the sugar confectionery business we will continue to grow organically and through acquisitions. It is always a little difficult to make exact predictions when you depend to certain extent on acquisitions because it takes two to tango. So sometimes we will go a little faster in bakery supplies and then at other times we are a little faster in sugar confectionery. But, in general that will be the direction we will continue to grow.

TWST: When you have a chance to talk to investors, what are the three or four summary points you give for them to take a close look at CSM and consider an investment?

Mr. Vink: First that we are a very stable company, growing year after year for a very long period of time and we are very well positioned to continue to do that. Next, that we have a real cash flow. Finally, we have strong market positions in our various businesses. In bakery supplies, we are number one in the world; in sugar confectionery we have a shared number one position in Europe; in lactic acid we are clearly number one in the world. In the areas where we want to grow through acquisitions, we still have ample opportunity.