Hard cheese

PISANG AMBON is an acquired taste. Like its glutinous yellow sister, Bols Advocaat, the syrupy liqueur “based on an old Indonesian recipe” tends to languish on the top shelf, ignored until a barman decides to venture on a flashy new cocktail. For BolsWessanen, the Dutch food and drink firm that makes both brands, obscurity punctuated by ill-advised mixing has produced a distinctly woozy result.

On June 17th the firm gave warning that its first-half net profits would be 15-20% lower than the 79.8m guilders ($39.5m) it earned in the same period in 1997. Besides booze, the firm makes cheese, cornflakes and curries, and runs a delivery service to American supermarkets. For investors, the mix has proved unappetising, and BolsWessanen's shares trade at a price-to-earnings ratio 40% below that of other food-and-drink firms in the Dutch stockmarket. Now the firm is making a belated attempt to regain a steady footing.

As with many a recovery programme, the first step is to forswear drink. In April the firm sold its French wine business, which had 1997 sales of 370m guilders ($190m), to the division's management. The spirits business, with a further 460m guilders of sales last year, is to be sold this summer. Although at an operating margin of 10.5%, almost twice the 5.6% of the group as a whole, the drinks business was BolsWessanen's most profitable operation, it does not fit alongside the rest of the firm's activities. By admitting as much in March, when the company announced its intention to sell the booze business, BolsWessanen confirmed the doubts of those who questioned the original merger that formed the conglomerate five years ago.

That 1993 merger combined Wessanen, a wholesaler of cocoa, flour and edible oils that had branched into consumer foods, and Bols, a spirits firm with a few strong Dutch brands. The steady cash flow from liquor would fund new food aquisitions, to be guided by Bols's brand expertise. In fact Bols required several years of financial nursing before it started to generate decent profits. The lessons of a sleepy Dutch spirits market were inapplicable in, say, the cut-throat world of frozen yogurt. There were few synergies even in distribution, since a Dutch law that prevented food retailers from selling spirits was slower to change than the new firm had hoped.

Even with the drinks business gone, BolsWessanen will remain a disparate affair. Its biggest business is dairy products, which accounted for 2.55 billion guilders of sales in 1997, almost half of the total. But this is not quite what it seems. In Europe, where the firm does roughly 40% of its business, “dairy products” means cheese. Its Leerdammer brand is the market leader in northern Europe, while in Britain this year the firm is demonstrating its mastery of what it calls “cheesemanship” by launching Maidwell, a new species of cheddar. However, in America, which accounts for most of the rest of its sales, “dairy products” means all sorts of drinkable milk, as well as yogurt and ice cream and even fruity drinks for children. (There's a bit of cheese, too—from its Heluva Good Cheese subsidiary in Sodus, New York.)

A further quarter of last year's sales were from an entirely different sort of business—food distribution to American stores, through the Tree of Life company, which specialises in “natural” food such as frozen organic spinach. The rest of its sales were divided between breakfast cereal across Europe and frozen snacks in Belgium and the Netherlands, along with a smattering of convenience-food joint ventures in Central Europe. And like a boozer who can't quite kick the habit, BolsWessanen retains a quiet drinks interest through a 35% stake in Campari, an Italian maker of vermouth and exotic spirits.

Mac Zondervan, BolsWessanen's chairman, acknowledges that this is too many things in too many places. But he finds equally good things to say about most of the businesses, remarking for instance that profit margins on branded cheese turn out to be very close to those on private-label cereals. So ruthless paring may come too slowly to satisfy investors. Most of the businesses are doing well enough (though convenience food had a bad year because of problems with freezers in a new factory); but they add little to each other.

Darrell Duthie, an analyst at Mees Pierson, a Dutch bank, points out that only a few of the businesses—the American distribution chain and Europe's cheese in particular—are big enough to enjoy economies of scale in their own right. Convenience food pits BolsWessanen against monsters such as Nestlé, without offering any special advantage to a smaller operator. Mr Duthie has calculated that the break-up value of BolsWessanen is the equivalent of at least 40 guilders a share—20% higher than its price in recent weeks. But no unfriendly takeover is possible, given the Dutch system of trading in non-voting certificates rather than shares with voting rights. Radical surgery would need to wait for the willing participation of BolsWessanen's management.

Disposals will generate cash—following gains from this year's divestiture of drinks and a few small sales last year, such as a Dutch confectioner. Shareholders might want to see some of this money themselves, but Mr Zondervan dislikes the idea of a share buy-back—because of its tax implications in the Netherlands, but also because he would rather spend the money. That will make investors uncomfortable, given BolsWessanen's patchy record, and the news in January that a joint venture was underway with Golden Poultry International in Bangkok. Maybe the distiller of pisang ambon has not yet got the whiff of “exotic spices” out of its system.