High raw material prices pressures CSM margins

By Karen Willmer

- Last updated on GMT

Related tags: Raw materials, Material, Chief executive officer, Raw material, Csm

Netherlands-based CSM said profit margins were affected by the
increase in the price of raw materials, in its first half 2007
report.

Margins increased to 5.8 per cent from 5.5 per cent in the same period last year, however CSM said the high price of raw materials meant this was below its potential, particularly within the Purac business. "We are disappointed at not having been able to create more momentum for reasonable price increases, which would have been justified in view of the strong rise in the prices of raw materials,"​ said chief executive officer Gerard Hoetmer. Net sales for continuing operations increased to €1206.5m from €1204.1m the previous year, however the company said the higher selling prices did not cover the rising price of raw materials and this cost the company €7m. Net sales within the bakery supplies business decreased from €1,053.7m to €1,049.1m. The company put this decrease down to the increase in raw materials prices and expects the high prices to continue in the second half of the year. CSM reorganised its bakery supplies business in Europe earlier this year in order to focus upon its core segments. Focussing upon artisan bakers, industrial bakeries and frozen and bakery products, the company said this will have a positive effect on results within the second half. This reorganisation and focus includes the acquisition last week of Kate's Cakes in the UK premium cakes market and the acquisition of Titterington's in the US earlier this year. "This provides us with an opportunity to become a worldwide partner in this market for the leading companies that are active in this sector,"​ CSM said yesterday. Net sales increased to €722.5m from €663.4m in 2006 for the bakery supplies business in North America. Margins increased to 7.4 per cent from 6.5 per cent, and the company expects to see further increases in the second half of 2007 through its recent acquisitions of CGI desserts, ADM and Titterington's. Margins for Purac, CSM's lactic acid business, decreased to 6.9 per cent from 8.9 per cent during this period, which it said was down to the inability to increase its prices sufficiently to cover the raw materials costs. The company said it hopes the sale of the US gluconic acid segment in June will help focus the Purac business as this segment did not form part of its core activities. CSM also said the lactic acid factory in Thailand is due to open in early 2008, which has increased the company's costs for this first half. Despite the restructuring going to plan, the company said the increase in raw materials costs has meant it expects targets to be reached in 2009 rather than the planned 2008.

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