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Deoleo has its eye on the markets again

Vidal Maté. Journalist

With revenues of close to 800 million euros and a sales volume of almost 300,000 tons, Deoleo (Carbonell-Koipe) remains a leader in the olive oil industry. Buying its way to a leading global position in early 2000 and with debt that almost led to its demise.

Following a tough round of layoffs and the reorganization of its activities and debt, with private equity firm CVC Capital Partners as the new majority shareholder, the company is now back at cruising speed. With earnings that are very closely linked to the markets and with the company still fixing problems and negatively affected by its past performance, it is now focusing simply on sales, maintaining its share of the Spanish market and, above all, committing to international markets, and in particular the US, which stands out in terms of volume, and especially prices and profit. Spain is currently the worst market for brand names, given the notable pervasiveness of private label products at supermarkets, where they account for more than 62% of sales, and the supply prices to which oil is permanently subject.

Italian acquisitions

Deoleo's current situation also requires an analysis of the oil market and a look back to 2001, when SOS Arana, owned by the Salazar brothers, acquired Kiope and believed they had discovered a hitherto unknown "gold mine" in the olive oil business. In 2003, they took the first steps towards creating the global company, merging SOS and Koipe, and implemented a growth policy based on acquisitions, spending a total of more than 900 million euros at the stroke of a pen. The Salazar brothers' goal was to become a leader in the global olive oil market, and especially in North America. They tried to enter that market with their rice distribution network, SOS, but they soon realized that the best way in was by acquiring Italian brands already operating in that market. So they got to work.

They paid above-market prices to acquire Minerva in 2004, Sasso and Carapelli in 2005, Friol in 2007 and Bertillo in 2008, which cost the most: 630 million euros. They shelled out 900 million euros in total, which plunged the company into debt of almost 1.5 billion euros and almost put it out of business.

The Salazar brothers were able to turn the group into a global olive oil leader, but its debt almost led to its demise. A real crisis, which was coupled with the fact that the brothers diverted an estimated 240 million euros and the case is expected to go to trial in 2016. The company is suing the Salazar brothers for 211 million euros and the judge has set bond at 360 million euros.

Crisis, adjustments and CVC

The shareholders deposed the Salazar family from the group. Caja Madrid, one of the shareholders that was hit the hardest, took over management and then, in 2011, Jaime Carbó was named CEO by Ebro Foods. Carbó was responsible for getting the company back on track financially so that it would function with a debt of 1.5 billion euros. This resulted in a downward adjustment in sales, from 370,000 to less than 300,000 tons, a greater selection of markets, the reduction or elimination of sales of bulk products, a focus exclusively on proprietary brands, asset divestments to raise cash, and layoffs, from a workforce of more than 2,000 to around 800.

After completing the main adjustments, the company, which is listed on the Madrid Stock Exchange, set out make changes to the shareholder structure in 2014. Following a discussion about whether or not the company should be controlled by a Spanish group, the only offer on the table was from Dcoop, which already had a stake of almost 10%, which it received in exchange for the Hojiblanca brand and a packaging plant.

The cooperative, helmed by Antonio Luque, did not have enough public or private support. CVC initially obtained 29.9% of the group after acquiring the following stakes: 16.5% from Bankia, 4.85% from Mare Nostrum and 8.6% from Dcoop and, after acquiring shares, currently owns 50.01%. Other shareholders include CaixaBank, with 5.28%; Unicaja, with 10%; Kutxabank, with 4.2%; and Daniel Klein, with 3%.

CVC provided 600 million euros in funding in three tranches, as a function of debt payment commitments, which kept the group afloat, and appointed ASAJA Chairman Pedro Barato as a member of the Board of Directors. In 2015, Carbó stepped down as CEO and was replaced by Manuel Arroyo, who has held executive posts in several multinationals, including Coca Cola.

The markets as a main focus

Last year, Deoleo obtained revenues amounting to 773 million euros, mainly from sales of brand name products, having practically stopped selling products in bulk due to the lack of profitability, with a volume of less than 300,000 tons. Debt has been reduced to around 480 million euros.

Of the group's business, 75% comes from outside Spain, mainly the US, which accounts for 150 million euros and has a market share of 17%. Points-of-sale increased by 13,000 in the last year. In Italy, sales amounted to 273 million euros, with a market share of 23%, and Spain provided 164 million euros in sales and accounted for 19% of the market. The main objective of the group's new managers is to develop markets where there is the greatest scope for growth and profitability.

As regards this goal, Spain is not the most attractive market, especially given the notable presence of cheap private label brands due to prices and the trivialization of products by super- and hypermarkets where margins, if any, are very small. In contrast, the US is a source of high sales and margins, as are emerging Third World countries, Asia, and northern Europe.

The group reported a loss of 74 million euros in 2014, still burdened by the need to fix past financial problems, the roll out an olive oil campaign with very high prices, and a corporate income tax hike, to 28% in 2015. Nevertheless, EBITDA amounted to 81 million euros.

With past problems behind it, Deoleo is once again focused on the markets.

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24/05/2017