CSM N.V.

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CSM N.V.

Nienoord 13
1112 XE Diemen
P.O. Box 349
1000 AH Amsterdam
Netherlands
Telephone: +31 (0)20 590 69 11
Fax: +31 (0)20 695 19 42
Web site: http://www.csm.nl

Public Company
Incorporated: 1919
Employees: 13,800
Sales: EUR 3.48 billion ($4.13 billion) (2003)
Stock Exchanges: Euronext Amsterdam
Ticker Symbol: CSMN
NAIC: 311423 Dried and Dehydrated Food Manufacturing; 311211 Flour Milling; 311212 Rice Milling; 311312 Cane Sugar Refining; 311313 Beet Sugar Manufacturing; 311330 Confectionery Manufacturing from Purchased Chocolate; 311421 Fruit and Vegetable Canning; 311422 Specialty Canning; 311930 Flavoring Syrup and Concentrate Manufacturing

CSM N.V. is a leading food ingredients company with operations focused in four core areas: Bakery Supplies; Sugar Confectionery; Biochemicals; and Sugar. Although CSM's beet-sugar based refining division represents the company's historical core, it produced just 7 percent of the group's annual sales of nearly EUR 3.5 billion ($4.1 billion) in 2003. Since the late 1990s and early 2000s, CSM has instead transformed itself into a major bakery supplies company—the company's Bakery Supplies Europe and Bakery Supplies North America divisions combine to generate 63 percent of CSM's sales and hold the number one position in Europe and the number two position in North America. The company's baking supplies division operates under such subsidiary and brand names as Bakemark, American Ingredients, Henry & Henry, and Carpro, including Caravan Products and HC Brill Company, acquired in 2003. CSM also produces sugar confectionery, and rivals Germany's Haribo for the top position in the European candy market—the company is already the number one candy producer in the Benelux and Scandinavian markets. Most of CSM's candy brands are regional names, including Venco, Red Band, Sportlife, and XyliFresh in The Netherlands; Jenkki and Tupla in Finland; Lutti in France; Dietorelle and Sperlari in Italy; Hops in Poland; Malaco, Bilar, and Läkerol in Scandinavia; and Chewits in the United Kingdom. CSM also controls the Leaf brand in the Benelux, Scandinavian, U.K., Italian, Asian, and other markets. The company's last division is its CSM Biochemicals division, which produced 7.8 percent of the group's sales in 2003 and operates under the Purac name. Purac is the world's leading producer of lactic acid, lactates, and gluconates, which are produced through the fermentation of sugar. CSM is listed on the Euronext Amsterdam Stock Exchange. Europe remains the group's largest market, accounting for nearly 65 percent of sales, more than 15 percent of which was generated in The Netherlands. North America adds 33.5 percent to the group's sales, with the rest of the world adding the remainder.

Merging Beet Sugar Producers in the 1920s

CSM's history begins in the late 19th century with the growth of the beet sugar industry in The Netherlands. Among the earliest and largest sugar producers in the country was Van Loon & Co., founded in 1871. Despite ups and downs in the market, notably in 1888 when the beet sugar market in Europe all but collapsed amid a wider financial crisis, Van Loon and a growing number of competitors prospered. Part of the sugar producers' success came from the rapid growth in demand for sugar and sugar products, which in turn stimulated the development of the sugar refining industry in the country.

By the end of the 19th century, The Netherlands boasted more than 30 beet sugar producers, and many more sugar refiners, including Wester Suikerraffinaderij, founded in Amsterdam in 1882, and NV Beetwortelsuikerfabrik De Mark, founded by Joannes Petrus van Rossum and two partners in 1890. Many of the country's sugar producers went on to join together in the formation of cooperatives, which later evolved into the Suiker Unie. Wester and de Mark, on the other hand, remained privately controlled companies.

Government subsidies for the sugar producers and refiners had encouraged the development of the sugar industry in The Netherlands. Refiners began adding to their production capacity, building new factories around the country. As a result, production capacity came to outstrip supply of raw sugar. At the same time, the government abolished the subsidies that had supported pricing on refined sugar. The situation forced a number of mergers among refiners, including De Mark, which merged into NV Algemeene Suiker-Maatschappij, or Asmij, in 1908. Van Rossum emerged as a director of Asmij, and ultimately its head.

Asmij became one of the first to turn to the United Kingdom for beet sugar imports, encouraging farmers there to begin sowing the crop. Asmij then opened its own refinery in England, in Cantley. Yet this facility, hampered in part by a reluctance to allow a foreign competitor to enter Britain's sugar market, was doomed to failure. By 1915, Asmij had been forced to shut the Cantley plant, and Asmij itself, further hit by the difficult market during World War I, was acquired by Wester Suikerraffinaderij.

Van Rossum became a prominent part of Wester's direction, and in 1918 was named the company's commercial director. Van Rossum then played a driving role in the consolidation of the Dutch beet sugar industry, focusing especially on the country's privately held producers. In 1919, Van Rossum's efforts paid off, when Wester agreed to merge with Hollandsche Fabriek van Melkproducten en Voedingsmiddelen, a producer of condensed milk and sugar products and other food ingredients, founded, like Wester, in 1882. Joining these companies in the merger was Van Loon & Co., as well as a number of other privately held and cooperative sugar refiners.

The new company became known as Centrale Suiker Maatschappij, or CSM. Following the September 1919 merger, the new sugar giant—countered only by the cooperative sugar movement in The Netherlands—restructured its holdings, shutting down four of its factories and streamlining distribution for the entire group under a single operation.

Van Rossum and J.A. van Loon were nominally simply members of the company's board of directors but soon emerged as the true leaders of the larger company. Together they led CSM into an internationalization effort. After adding a plant in Lillo, in Flemish-speaking Belgium in 1920, CSM turned to the United Kingdom, where the British government had begun offering subsidiaries in order to stimulate its beet sugar industry. Using the cash and equipment from its shuttered factories, CSM began building plants in Ely and Ipswitch in 1924. The company then bought a sugar refiner, Sankey Sugar Company, based in Liverpool, and opened a third sugar plant, in King's Lynn, in 1927.

In the meantime, CSM had begun expanding elsewhere in Europe. Starting in the early 1920s, the company began buying plants in Poland, spending some 12 million guilders and acquiring seven factories in that country before the end of the decade. Van Rossum also sought to expand CSM into France and Germany, with plans to establish new companies, which would then acquire equipment unused by CSM itself.

Yet the economic crisis of the early 1930s, and the collapse of the sugar market, cut short CSM's expansion. The company was forced to restructure its operations. By 1934, the company had sold off its British holdings, then disposed of its Polish plants the following year. In that year, also, CSM completed its reorganization, and Van Rossum, who died at the age of 83 in 1943, was forced to take a more minor role in the company. CSM by then was reduced to just six sugar plants—in 1941, in a deal negotiated by Van Rossum, the company sold much of its unused equipment to the Nazis, who hoped to establish a beet sugar industry in the fertile Ukraine region.

Diversification in the 1970s

The smaller CSM made a first attempt at diversification in the late 1930s, when it acquired Taminiau te Elst, a family-owned company, in 1937. That purchase gave CSM operations in the production of jam and other conserves. During World War II and the Nazi occupation of The Netherlands, CSM was hit by the lack of resources, raw materials, and replacement parts for its machines, and the difficulties of transporting its goods and maintaining its workforce. Then, immediately following the war, much of the country's beet crop was needed as food for the population and for livestock.

CSM made a fresh attempt at diversification at the end of the war, launching a research and development wing in order to develop new sugar-based products. In 1950 the company established a test factory that was used to produce the vitamins B and B12. The project ended without success, however. Then, in 1958, CSM abandoned its conserves operation as well. Nonetheless, CSM continued developing sugar-derived products in a small biochemicals division.

Company Perspectives:

CSM aims to create value for its shareholders and the other stakeholders in the group.

CSM strives to attain, retain and further develop strong market positions in food ingredients and sugar confectionery in order to create a healthy basis for realizing growth in earnings per share. Both autonomous and acquisition-led growth play a part in this process. Growth must be realized whilst maintaining a healthy financial position.

Autonomous growth takes top priority at CSM, alongside efficiency and cost-effectiveness. Successful R&D programs are essential in this context.

CSM positions itself as an internationally operating company engaged in the development, production, sale and distribution of food ingredients and sugar confectionery.

By the 1960s, production of sugar in The Netherlands had reached a strong level, and threatened to outpace demand. At the same time, the company faced little prospect of selling its sugar products on an equally saturated export market. In 1964, therefore, the company shut down its Wester factory in Amsterdam. In that year, also, the company was approached by a number of sugar cooperatives in The Netherlands with an offer of a merger. When CSM refused, the cooperatives went on to form the Suiker Unie in 1966.

The Netherlands adopted European Community regulations in 1968, further limiting the growth prospects of the sugar industry in the country, and CSM's prospects of expanding into the export markets. While sugar remained a profitable activity for CSM, its hopes increasingly turned toward diversification.

A first step toward expanding the group's business base came in 1968, when the company merged its biochemicals division with Schiedamse Melkzuurfabriek, a key maker of lactic acid and other products derived from sugar fermentation. The new operation was renamed Chemie Combinatie Amsterdam, or CCA, but later took on the name of Purac after CSM bought up full control of the company. That division then grew into the world's leading producer of lactic acid and related products.

During the 1970s, CSM sought new diversified outlets for growth. After rejecting another merger proposal from the Suiker Unie, the company decided to move into the larger food ingredients market in the late 1970s. The company's first step in this direction came in 1978, when it acquired Koninklijke Scholten Honig (KSH), which owned the Honig brand name. A steady stream of acquisitions followed through the 1980s and into the 1990s, with the company principally targeting a number of smaller Netherlands-based companies, such as Koninklijke De Ruiter, Venz BV, and HAK BV.

Yet the move into food ingredients brought CSM into direct competition with such global giants as Kraft and Nestlé, forcing a rethinking of the group's strategy. In the mid-1980s, the company's next expansion move came closer to its sugar base, as it began acquiring noted confectionery brands, such as Red Band Venco, a maker of chewing gum and licorice based in The Netherlands, acquired in 1986. The company remained in The Netherlands for its next acquisitions, which included Droste chocolates and Tonnema peppermints in 1990.

Meanwhile, CSM had been completing an overhaul of its sugar refinery operation, shutting down its smaller refineries between 1979 and 1991, and concentrating its production at two modern automated facilities in Breda and Vierverlaten.

Adding Bakery Supplies for the New Century

CSM began phasing out its food ingredients unit toward the end of the 1990s, and at the same time refocused its confectionery division to concentrate on the European sugar confectionery market in the late 1990s. As part of that effort, CSM sold off the Droste chocolate operation in 1997. Instead, it picked up Malaca, a leader in Scandinavia, in 1997, followed by Leaf's European operations, one of the largest in the market in 1999. The following year, the company acquired Belgian-French group Continental Sweets, active in France, Belgium, The Netherlands, and the United Kingdom, for EUR 110 million.

Key Dates:

1871:: Van Loon & Sons sugar producer and refinery is funded.
1882:: Wester Suikerraffinaderik in Amsterdam and Hollandsche Fabriek van Melkproducten en Voedingsmiddelen (Hollandia) are founded.
1890:: NV Beetwortelsuikerfabrik De Mark is founded by Joannes Petrus van Rossum.
1908:: De Mark merges into NV Algemeene Suiker-Maatschappij (Asmij).
1915:: Wester acquires Asmij and Van Rossum is named the commercial director.
1919:: Wester leads a three-way merger with Van Loon and Hollandia to create CSM.
1920:: The company acquires a refinery in Belgium and begins buying refineries in Poland.
1924:: CSM builds two factories in England and acquires a sugar refinery in Liverpool.
1927:: CSM adds a third factory in England.
1935:: The company undergoes restructuring, including the sale of all foreign operations.
1937:: The company acquires the Dutch-based jam and conserves company, Taminiau te Elst.
1946:: A research facility is established for developing sugar-based chemicals and products.
1958:: Taminiau te Elst is sold.
1968:: The biochemicals division is merged with Schiedamse Melkzuurfabriek, which forms the basis of the later Purac division.
1978:: The company acquires Koninklijke Scholten Honig (KSH) as part of its diversification into food ingredients.
1979:: The company begins a restructuring of its sugar refinery operations, shutting down its smaller refineries.
1986:: The company begins a new diversification into confectionery, starting with the purchase of Red Band Venco.
1990:: Droste chocolates is acquired.
1993:: The company begins to acquire bakery supplies companies.
1997:: The company restructures confectionery to focus on sugar-based confectionery and sells Droste; Scandinavia's Malaca is acquired.
1999:: Leaf Europe is acquired.
2000:: Continental Sweets is acquired; Unilever's European Bakery Supplies Division is acquired.
2003:: The company acquires Unilever's Hungarian Bakery business, parts of Friesland Coberco's bakery division, and Carpro (Caravan Products and HC Brill).
2004:: The company announces plans to refocus its European confectionery brands in order to create a smaller number of international brands.

In 2001, the company acquired Socalbe, based in Italy, giving it several strong brands in that country, including Dietorelle and Sperlari. As the company approached the mid-2000s, its confectionery wing had grown into one of Europe's top two candy makers, running neck and neck with Germany's Haribo. The company was the clear leader in a number of markets, including the Benelux countries and Scandinavia.

Yet by then, CSM had transformed itself into a world player in the bakery supplies market, with operations spanning North America as well as Europe. By 2004, CSM had gained the number one spot in this market in Europe and the number two place in the United States, a process accomplished by a long stream of acquisitions through the 1990s. These included Arizona Bakery Sales in the United States in 1994; Kirkland & Rose and Lafave & Sons, both of Canada, in 1995; Belgium's ReNa and Kwatta in 1996; Credit Valley Foods in the United States in 1998; and St. Louis Bakery, also in the United States, in 1999.

A major step in CSM's bakery supplies strategy came in 2000 when it agreed to pay EUR 700 million to buy Unilever's European Bakery Supplies Business. Following that acquisition, CSM restructured its operations, creating two new divisions, Bakery Supplies Europe and Bakery Supplies North America, which together came to account for more than 60 percent of the group's total sales. The company continued to add to its Bakery Supplies operations, buying Unilever's Hungarian bakery business and part of Friesland Coberco's bakery operations in The Netherlands, as well as the United Kingdom's Readi-Bake Ltd., part of Country Home Bakers in the United States, in 2003. Meanwhile, the company solidified its position in the United States with the purchase of Carpro, Inc., which added HC Brill Company and Caravan Products Company for $302 million.

In 2004, CSM announced its intention to continue expanding its operations through acquisitions. But the company expected to complete only smaller, bolt-on acquisitions in the near future. At the same time, the company announced its plan to snare the number one position from Haribo by restructuring its range of predominantly regional confectionery brands to develop a smaller number of international brands. CSM seemed to have a sweet tooth for growth into the new century.

Principal Subsidiaries

American Ingredients Company (U.S.A.); Arkady Craigmillar; BakeMark Danmark; BakeMark Deutschland; BakeMark Finland; BakeMark Hellas; BakeMark Ingredients (Canada); BakeMark Ingredients (East); BakeMark Ingrédients (France); BakeMark Ingredients (West); BakeMark International; BakeMark Italia; BakeMark Magyarország; BakeMark Polska; BakeMark Portugal; BakeMark Sverige; Baker&Baker; Bender-Iglauer Backmittel; Besser Service; Braims Italia; Carels Goes; Continental Sweets; CSM Suiker; Délices de la Tour; Dreidoppel; Express Croex; Lachaise; Lamy Lutti Belgium; Lamy Lutti France; Leaf Finland; Leaf Italia; Leaf Poland; Leaf United Kingdom; MalacoLeaf; Margo-BakeMark Schweiz; PGLA-I (50%); PURAC America; PURAC Asia Pacific; PURAC Biochem; PURAC Bioquímica; PURAC China; PURAC Deutschland; PURAC France; PURAC Glucochem; PURAC Hungary; PURAC Japan; PURAC Korea; PURAC Polska; PURAC Production USA; PURAC Russia; PURAC Sínteses; PURAC UK; RBV Leaf; Unipro Benelux.

Principal Competitors

Nestlé Suisse S.A.; Coca-Cola Co.; Orkla ASA; Pepsi-Cola Co.; MacAndrews and Forbes Holdings Inc.; Hershey Foods Corporation; American Ingredients Co.; Monsanto Co.; McCormick and Company Inc.; Cerestar.