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Global consumer products industry shows glimmer of hope despite renewed market turbulence, according to Deloitte report

Singapore, 14 April 2014 – Despite a slowdown in the global economy, the world’s 250 largest consumer products companies generated sales in excess of $3.1 trillion in fiscal 2012 (which encompasses fiscal years ended through June 2013). This resulted in an average company size of $12.5 billion. This is according to the 7th annual Global Powers of Consumer Products report issued by Deloitte Touche Tohmatsu Limited (DTTL).

The report provides an outlook for the global economy, an analysis of market capitalisation in the industry, a look at M&A activity in the consumer products sector, and a discussion of major trends affecting consumer products companies.

“The turbulence in the global economy took a toll on the growth prospects for consumer products companies. In both mature markets and export-dependent economies, the industry’s overall rate of growth was much more subdued in 2012 compared with 2011 and 2010,” said Dr. Ira Kalish, DTTL’s Chief Global Economist. “On the other hand, it is reassuring to see that profitability strengthened—despite rising prices for raw materials. Of the 224 companies that disclosed their bottom-line net profits, only 19 operated at a loss in 2012.”

2014 shaping up for increased consumer M&A activity

Despite a fragile global economic recovery, the report found that well-funded investors have continued to seek merger and acquisition (M&A) opportunities that strengthen their strategic positions. In 2012, there were 1,298 deals completed by consumer products companies, up from 1,274 in 2011 and 1,117 in 2010. For 2013, 1,182 deals had been reported as of February 22, 2014. Deal activity was found to be stimulated by improved credit availability, low interest rates, rejuvenated capital markets, and, in some cases, companies’ sizable cash reserves. Private equity has shown a renewed interest in consumer products. In one of the largest acquisitions in the food business, H.J. Heinz was taken private in June 2013 by Berkshire Hathaway and Brazilian investment firm 3G Capital in a $28 billion buyout. 3G and Berkshire are equal equity partners in Heinz.

“It is, perhaps, somewhat surprising that the volume of deals in the global consumer products industry has increased in recent years given the slow tempo of the global economy. However, as concerns over economic uncertainty begin to recede, 2014 is already shaping up to be a big year for M&A activity in the consumer products industry as companies look for growth either by expansion in to new markets or by rationalizing their corporate portfolio,” said Jack Ringquist, Global Consumer Products Lead, DTTL.

“The real challenge facing consumer product companies these days is to survive in a globally connected, consumer -driven world. In order to manage and grow profitably, companies must learn to meet consumer’s demands from any part of the world, through any channel. New approaches that must be embraced include end-to-end global supply chains, virtual market entry, direct-to-consumer channels, and more investment in consumer insights. A more connected consumer is a more powerful consumer, and that is the frontier consumer products companies now face.”

In Southeast Asia, due to the high degree of market concentration, firms looking to enter the market through acquisitions or joint ventures will find limited options available to them. Eugene Ho, Deloitte Southeast Asia’s Consumer Business Leader, commented, “Regional companies have been expanding aggressively, snapping up key marquees and locking up subsegments of the market. As a result, viable targets are both scarce and expensive.”

“Taking the beverage sector as a key example, companies looking to acquire local firms will likely have to contend with regional heavyweight Thai Beverage. In the last few years, Thai Beverage has shored up its position in the region. In addition to its dominant market position in Thailand, it has acquired a significant chunk of the soft drink market share in Malaysia and Singapore, with plans to penetrate the Cambodia and Myanmar markets,” added Eugene.

Regional trends

The report measured year-over-year composite growth rates by region for fiscal year 2012, with Africa/Middle East (16.9%); posting the highest gains, followed by Latin America (16.8%) and Asia/Pacific (5.6%).

Companies in this region—especially in Japan—were severely impacted by the March 2011, Great East Japan Earthquake, so a recovery in 2012 was to be expected. In Southeast Asia, two food and beverage giants, Indonesia’s PT Indofood Sukses Makmur Tbk and Thailand’s Thai Beverage Public Company Limited, posted encouraging growth rates of 10.4% and 35.5% respectively, a reflection of a broader trend within the region.

“Consumers in the region’s emerging market are increasingly looking towards “affordable luxury”, for example, premium versions of everyday goods such as coffee, as well as shopping at outlets and second-hand stores. While these consumers aspire to consume luxury products, they have become more subtle and conspicuous about it as showing off has become “bad taste”,” commented Eugene.

In contrast, growth rates in the North American region dropped to 4.0 percent. However, North American companies continued to enjoy robust profitability. The 12.3 percent composite net profit margin in 2012 was up from an already-strong 10.4 percent result in 2011. Within Europe, French companies year-over-year growth (6.6 percent), outpaced their German (6.2 percent) and British (4.8 percent) counterparts.

Electronic products rebound after dismal 2011

After a dismal year in 2011 for manufacturers of consumer electronics, 2012 saw the sector bounce back. A moderate recovery among the Japanese companies following the disruption caused by the 2011 earthquake and tsunami, coupled with consumers’ increasing desire for connected devices, pushed revenues up nearly 10 percent. Profits followed suit: the sector’s composite net profit margin nearly tripled to 7.2 percent in 2012 from 2.6 percent in the prior year.

Top 10 consumer products companies

2012 net sales rank Company name Country of origin Product sector 2012 net sales
(US$mil)
2012 net sales
growth*
1 Samsung Electronics Co. South Korea Electronic Products 178,982 21.9%
2 Apple Inc. United States Electronic Products 156,508 44.6%
3 Nestlé S.A. Switzerland Food, Drink & Tobacco 98,372 10.2%
4 Panasonic Corporation Japan Electronic Products 88,367 -6.9%
5 The Procter & Gamble Company United States Personal & Household Products 84,167 0.6%
6 Sony Corporation Japan Electronic Products 68,864 3.0%
7 Unilever Group Netherlands and United Kingdom Personal & Household Products 66,007 10.5%
8 PepsiCo, Inc. United States Food, Drink & Tobacco 65,492 -1.5%
9 The Coca-Cola Company United States Food, Drink & Tobacco 48,017 3.2%
10 LG Electronics Inc. South Korea Electronic Products 45,354 -6.1%

Source: Published company data

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