Burns, Philp & Company Ltd

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Burns, Philp & Company Ltd.

Level 23, 56 Pitt Street
Sydney
NSW 2000
Australia
Telephone: 292591111
Fax: 292473272
Web site: http://www.burnsphilp.com

Public Company
Incorporated: 1882
Employees: 14,000
Sales: AUD 1.88 billion ($1.41 billion) (2003)
Stock Exchanges: Australian
Ticker Symbol: BPC
NAIC: 311423 Dried and Dehydrated Food Manufacturing; 325411 Medicinal and Botanical Manufacturing; 424490 Other Grocery and Related Product Merchant Wholesalers

Long a part of Australia's corporate establishment, Burns, Philp & Company Ltd. has reinvented itself at the beginning of the 21st century as a leading supplier of yeast, yeast extracts, and other baking and food ingredients, including the Fleishmann yeast brand, and also as one of Australia's top branded food products groups—the latter in large part through the company's 2003 acquisition of Goodman Fielder Ltd. and its Meadow Lea and Uncle Tobys. In 2003, also, the company acquired the South American Fleischmann operations from Kraft Foods. Altogether, Burns, Philp maintains a manufacturing presence of 114 facilities in 28 countries, with sales in more than 60 countries. After an extended financial crisis during the late 1990s, the result of an ill-fated attempt to enter the spices and seasonings market, Burns, Philp has refocused and returned to profitability by shedding a number of its holdings, including much of its longstanding shipping terminals operation, its North American industrial vinegar division, and even its historic headquarters. At the same time, the group has been selling off its spices and seasonings operations, a process that neared completion at the beginning of 2004 with the announcement of its impending sale of Tone's, the group's North American herbs and spices division. The company's turnaround, and especially its purchase of Goodman Fielder, has boosted its revenues to nearly AUD 1.9 billion ($1.4 billion) in 2003.

Founding an Australian Business Empire in the 19th Century

Scottish-born James Burns was just 16 years old when he joined his older brother and immigrated to Australia in 1862. While John Burns founded a retail business in Brisbane, James Burns went to work as a jackaroo in the Australian outback—it was there that Burns recognized a number of retailing and wholesaling principles that enabled his later success. In 1867, Burns returned to Brisbane and became a partner in his older brother's business. The discovery of gold in Gympie led Burns to set up a branch store supplying miners. That store was followed by several others; yet Burns shrewdly sold off these stores in 1869, before the end of the first gold rush.

With the money earned from the sale, together with a family loan, Burns moved to Townsville to establish his own retail and wholesale business in 1872. Two years later, Burns hired another Scottish immigrant, Robert Philp. The pair hit it off, and before long established a partnership together. Philp took over operation of the Townsville store, while Burns moved to Sydney in order to build on a growing interest in shipping. From then on, Burns and Philp rarely saw each other, yet remained loyal and dedicated business partners.

Townsville quickly developed into Queensland's major port city, connected by rail to such primary industries as the mining, ranching, and sugar industries. Burns and Philp expanded their investments and operations to include a wide range of business interests, and expanded their retailing and shipping operations to new ports, including Normanton, and to the outlying islands. In 1882, Burns and Philp decided to convert their partnership to a full-fledged corporation, creating Burns, Philp & Company Ltd. with a capital of £150,000.

Burns, Philp grew into a major force in the eastern Australian trade regions, with shipping interests extending throughout much of the South Pacific. Through Robert Philp, the company then became involved in the so-called "blackbirding" trade, that is, the illegal transport of forced labor from the Pacific Islands into Australia. Yet the company ended its involvement in "labor trading" in 1886. Instead, the company began opening branch stores on the islands. As a complement to its shipments to the islands, the company began exporting goods as well, such as oil-rich copra.

By the end of the century, this shipping business had become the company's largest, supported by a fleet of some 60 ships. The company's more or less organic growth led it into a variety of new business areas. A major example of the group's ability to pursue offshoots of its core operations came in 1886 when the company backed the founding of the North Queensland Insurance Company in Sydney, which later grew into QBE Insurance. Burns, Philp was to retain its stake in QBE into the early 1990s.

Failed Diversification in the 1970s

Through the first half of the 20th century, Burns, Philp grew into one of Australia's leading corporations, listing on the Australian Stock Exchange where it became a blue-chip mainstay. Through the 1960s, the company's strategy was characterized as conservative. The company continued to seek out new business opportunities, however, such as the ownership of copra plantations, even though the company exited that activity, for the most part, following World War II. Nonetheless, the company's growth centered mostly on its three core operations of retailing, shipping, and insurance and other financial services. Through this period, the Burns family remained in control of the company, providing it leadership.

The late 1960s and early 1970s, however, saw the emergence of a new breed of corporate conglomerates—giant companies investing in wide-ranging and extremely diversified businesses. Burns, Philp's management caught conglomerate fever in the early 1970s, launching a buying spree that lasted for nearly a decade. By the early 1980s, Burns, Philp had been transformed into a sprawling, internationally operating empire of more than 200 companies involved in some 100 separate industries, including toy manufacture, perfumes, automobile sales and rentals, production of penicillin and other antibiotics, and an extension of retail operations into the hardware segment through the Australia-based BBE Hardware store chain.

The attempt at diversification severely strained the company, all the more so because nearly all of the group's diversified operations were losing money. Attempts to rein in costs, in large part by emphasizing a centralization of management control, only tended to make matters worse. Despite its huge array of businesses and expanding revenues, Burns, Philp barely managed to scrape out more than AUD 5 million in profits at the beginning of the 1980s.

In response, Burns, Philp brought in a new CEO, Andrew Turnbull, in 1984. Turnbull, the first from outside the Burns family to head the company, quickly began to restructure the group, selling off most of its smaller operations. Turnbull then rebuilt the company around a new core composed of its retail hardware stores and one of its most recent activities—food ingredients.

In 1982, Burns, Philp had made its first food products purchase, acquiring Australia's Mauri Bros., a leader in the production of yeast, with operations in the United Kingdom, Malaysia, and Indonesia as well as in Australia. The company backed up that acquisition with another, Thompson Limited, which brought it into the European yeast market as well. Burns, Philp quickly added a number of other yeast- and fermentation-related purchases, and by the mid-1980s had already become one of the world's leading providers of yeast and fermentation technologies.

In 1986, the company claimed leadership in its new core area when it bought up RJR Nabisco's North American yeast business, trading under the Fleischmann's name, the leading North American producer of consumer yeast, and a top producer of baker's yeast. The Fleischmann acquisition also gave the company its market-leading branded and industrial vinegar production.

The Fleischmann purchase not only boosted the weight of yeast production in Burns, Philp's overall operations, it made the group the world's dominant yeast and vinegar company. Yet this position left the company with little room for further significant growth.

Into the late 1980s, Burns, Philp once again turned toward diversification for its expansion. Yet, eager to avoid repeating its mistakes of the previous decade, the company now sought to diversify into an area more closely related to its now core yeast and vinegar businesses. Turnbull and the other members of Burns, Philp's management soon identified the herbs and spices market, which they considered a natural extension of their existing food products business.

In 1988, Burns, Philp, through Fleischmann, agreed to acquire Specialty Brands Inc. from then parent United Biscuit Holdings Plc. That acquisition gave Burns, Philp control of the Spice Islands brand of herbs and spices, then touted as the leading gourmet brand of herbs and spices in North America. Yet that purchase was to lead the company into head-to-head competition with McCormick and Company, which in fact dominated the U.S. herbs and spices consumer market with a more than 40 percent market share.

Company Perspectives:

Our products have been well accepted in markets where we operate and are often exported to other neighboring markets.

Our global operations are supported by an extensive and diverse team of approximately 14,000 employees at 114 production facilities in 28 countries. The company has developed a strong reputation for reliable sales and technical support services.

Burns, Philp moved to build up its international herbs and spices wing, investing massively to acquire a number of regional players around the world, with an emphasis on European markets, such as Germany, The Netherlands, France, and the United Kingdom. In its push to build up scale, the company paid handsomely for its acquisitions, driving up its debt.

In 1992, the company returned to the United States, paying Reckitt-Colman nearly $90 million to acquire the Durkee-French spices and seasonings group. While that acquisition added a wide range of products, it firmly established Burns, Philp as the number two producer of spices and seasonings in the North American market. Nonetheless, Burns, Philp had only just begun this new leg of its herbs and spices expansion, purchasing Germany's Ostmann in 1994, then The Netherlands' Euroma, and, finally, Iowa-based Tone's in 1995.

This last acquisition brought Burns, Philp into full head-to-head competition with McCormick and exposed the company's lack of understanding of the international spices market, and especially in its differences with the yeast market. Tone's had long been McCormick's chief rival on the important wholesale spices market, fighting for essential supermarket slotting contracts.

Burns, Philp was unprepared for the response from McCormick, which rushed to protect its lead, inaugurating a price war and effectively knocking Burns, Philp off many of the market's leading supermarket shelves. Meanwhile, the company was forced to sell off a number of assets in an effort to pay for the debt incurred by its expansion effort. In 1993, the company sold off its 45 percent stake in QBE Insurance as well as its BBC Hardware chain at what were described as "fire sale" prices.

Turnaround for the New Century

By the mid-1990s, Burns, Philp's failed foray into herbs and spices was draining the company, which saw its profits drop drastically. Turnbull retired in 1995, taking up the company chairmanship, but was replaced by longtime protégé and friend Ian Clack, who, like others on the company's board, refused to call into question Turnbull's decision to enter the herbs and spices market. As the price war with McCormick intensified, Turnbull became ill with cancer, reducing the company to a degree of inaction.

Turnbull's death in 1997, followed by Clack's resignation, signaled a new start for the company, which announced its intention to sell off its herbs and spices operation. Now with Thomas Degnan in place as company CEO, Burns, Philp began seeking buyers for its herbs and spices business. Yet, when the company proved unable to find a buyer, it was forced to slash the value of its assets. As a result, the group's share price plummeted in 1998—from a market capitalization of more than AUD 1.5 billion, the group's value fell to just AUD 150 million. Burns, Philp appeared on the verge of collapse and unlikely to make it to the next century.

Yet along the way, Burns, Philp had picked up a new major shareholder, New Zealand's Graeme Hart, who had acquired nearly 20 percent of the company just months before its share collapse. With his own investment gone awry, Hart stepped in to help the company pick up the pieces. As Degnan led a new divestment drive, shedding much of the group's herbs and spices division, while also exiting a number of other businesses, including the last of the group's shipping holdings and even its former Sydney headquarters, Hart convinced the group's bankers to renegotiate its debt.

These efforts gave Burns, Philp the breathing room to rebuild itself around its core yeast operation, which accounted for more than half of the group's revenues. As it returned to profitability, posting more than AUD 82 million in 2000, the company began scouting for new growth prospects. By 2003, the company had found its new direction with the acquisition of bakery products and branded consumer foods group Goodman Fielder Ltd.

Key Dates:

1862:: James Burns arrives in Australia from Scotland at the age of 16.
1872:: Burns opens store in Townsville and begins retail and wholesale business.
1874:: Burns hires Robert Philp, also from Scotland, who later becomes Burns's partner, taking over the store as Burns moves to Sydney to pursue shipping interests.
1882:: The company incorporates as Burns, Philp & Company Ltd.
1973:: Burns, Philp begins diversification program, acquiring some 200 companies in 100 separate businesses.
1982:: The company acquires Mauri Bros., a leading producer of yeast, in Australia, and Thompson Limited, which produces yeast in the United Kingdom.
1984:: Andrew Turnbull is appointed CEO, leading the company on a restructuring that refocuses it around a core of foods and retail hardware operations.
1986:: The company acquires Fleishmann yeast and vinegar from RJR Nabisco.
1992:: The company acquires Durkee-French from Reckitt Colman.
1994:: The company acquires Ostmann of Germany and Euroma of The Netherlands.
1995:: The company acquires Tone Brothers, Inc., based in Iowa, sparking an intense price war with McCormick and Company.
1997:: After Turnbull's death, the company announces its intention of selling off the herbs and spices business.
1998:: The company launches a restructuring, shedding a number of holdings, including the last of its shipping line, and corporate headquarters.
2000:: The company returns to profitability, posting AUD 86 million in net profits.
2003:: The company acquires Goodman Fielder Limited for AUD 2 billion; Fleishmann in South America is acquired from Kraft Foods.
2004:: Plans to sell off the remaining Tone's herbs and spices unit are announced.

That acquisition, which cost the company AUD 2 billion, boosted the group's sales by more than AUD 600 million, and extended the company's operations to include 114 manufacturing facilities in nearly 30 countries. It also gave the company a new range of branded products, chiefly under the Uncle Toby's and Meadow Lea brand names. Following the integration of Goodman Fielder, Burns, Philp prepared to complete its exit from the herbs and spices market. In March 2004 the company announced its intention to sell off its North American holdings, by then grouped under the Tone's name. In the meantime, the company had achieved new growth for its yeast business, buying up the Fleischmann business in South America that had been owned by Kraft Foods. The transformed Burns, Philp now looked forward to smoother sailing in the new century.