CSM to Increase Prices on Bakery Supplies
CSM is increasing its product prices by 10-20% to offset the impact of higher input costs. “These price increases are unprecedented but absolutely necessary. A lagging price increase effect cannot be avoided" – Hoetmer.
17/10/07 CSM estimates the impact of increasing raw material costs for Bakery Supplies to be approximately EUR 190 million, but expects to offset these costs by product price increases in 2007 and 2008 while staying focused on achieving the 2008 targets for Bakery Supplies.
At an investors meeting in Amsterdam, Gerard Hoetmer, CEO of CSM said: “It is not our normal procedure to give market updates outside our normal reporting periods. However, given the unprecedented rise in the costs of many raw materials that we have seen over 2007, I want to take this opportunity to clarify the impact this has and will have on our business.”
“We are increasing our product prices by 10-20% to offset the impact of higher input costs,” Gerard Hoetmer continued. “These price increases are unprecedented but absolutely necessary. As we indicated during the presentation of our half year results, a lagging price increase effect cannot be avoided, impacting CSM adversely in 2007. We estimate that the 2007 results will be impacted by EUR 8 million (first half year: EUR 3 million).”
In 2006 CSM spent approximately EUR 1 billion on raw materials (excluding distribution and PURAC). Total cost increases compared to 2006 amount to approximately EUR 190 million. Centralized procurement has protected CSM so far from the full effect of the commodity price increases through hedging activities and savings of approximately EUR 10 million. Consequently most of the impact of higher raw material costs will have effect in 2008. It is expected that further savings of around EUR 10 million will be realized in 2008 to offset the impact on our results.
Gerard Hoetmer: “Although we do not expect any impact on our positive EBITA trend for Bakery Supplies in 2008, the developments will have an impact on our ROS ratio. An average 10% increase in raw material costs will lead to an increase in sales of 10% at a stable EBITA, thus artificially decreasing ROS by 10%. The ROCE targets are only impacted by increased working capital due to pricing. Nonetheless, we remain fully focused on our aim to achieve the financial targets for 2008 normalized for inflation in our selling prices. Our confidence is based on the fact that our markets are aware of the increase in raw material costs and the need to raise our product prices.”
