CSM warns on raw material costs as it posts 3rd quarter gains

By Jane Byrne

- Last updated on GMT

Dutch bakery ingredients supplier CSM posted an increase of sales of €149.2m for the third quarter, but notes a substantial hike in commodity costs and reports that it has taken some steps to offset this through higher prices.

Sales for the third quarter of this year were € 783.7m compared with € 634.5m in 2009 said the ingredients giant.

EBITA for the period, it added, excluding one-off integration costs, amounted to €56.7m, which was up € 9.1m compared with the same period in 2009.

Volume growth and cost controls at its European bakery supply unit offset higher raw material prices, but higher commodities costs impacted earnings before interest, taxes and amortisation (EBITA) at its Purac lactic acid unit, said the leading bakery ingredients supplier.

“The sharply increased raw material market prices have not been fully absorbed yet by increased selling prices or reformulations of our products. We are working diligently to address this,”​ said the company.

But CSM added that it remains cautiously optimistic for the fourth quarter of 2010, expecting investments in the organisation and further innovation to continue to create growth opportunities.

CSM said that contributors to the positive third quarter sales picture included positive currency effects and organic growth within all its divisions.

“In Europe the strategic investments in frozen products are delivering increased volumes. Together with cost management, these higher volumes contributed to the improvement in EBITA,”​ reported the company, adding that sales in bakery supplies in that market increased in the 3rd quarter by € 5.2m - 2 per cent - compared to last year.

Organic growth in Europe was 1 per cent, driven it said by higher volumes in frozen products.

“Higher volumes and cost control were the main contributors to the improved performance,”​ noted the company and it said that currency effects, due to a stronger pound sterling, also had a positive effect on sales of € 2.7m at 1 per cent.

In its North American bakery supplies market, it said the focus has been on swift integration of Best Brands, allowing CSM to maximize its combined potential as soon as possible.

“We have put our focus and energy on integrating the commercial organization to best serve our customers and enabling revenue synergies. In parallel, we are integrating our operations to deliver on our cost synergies. Our focus is on achieving long term synergies and getting the fundamentals right, rather than focusing on short term gains.

Best Brands proves to be a perfect strategic fit and we see the integration effects becoming more visible, on which we will give an update in the presentation of our full year 2010 results.”

CSM said that in terms of bakery ingredients, its objective is still to deliver return on sales (ROS) targets of 8 to 10 per cent and above market growth.

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