Recessionary Buying Effects CSM Baking Supplies Business

The company said that down trading and downscaling is affecting Bakery Supplies volumes, but particularly so in Europe where volumes fell by 6% in the third quarter.

03/11/08 CSM has reported in a trading update that recessionary trends have accelerated in terms of consumer spending, hitting their Bakery Supplies volumes. “In our first half-year results statement we indicated that our Bakery Supplies markets had started to be influenced by recessionary pressures and that customer behaviour was being affected by the price increases that had followed from the unprecedented rise in raw material costs,” the company said in a statement. “These trends have intensified during the third quarter and we anticipate a challenging environment in the periods to come as demand weakens in our markets”, CSM noted.

The company said that down trading and downscaling is affecting Bakery Supplies volumes, but particularly so in Europe where volumes fell by 6% in the third quarter. CSM is responding by adapting to the changing consumer environment by accelerating the launches and offering of value for money products.

Organic sales growth for the year-to-date was 9.5%, driven by pricing growth of 11.5% and volume decline of 2%. Currency movements and divestments had a negative impact of 6.5%.
Organic sales for Bakery Supplies North America in the first nine months was 14.4%, driven by pricing growth of 15.4% and volume decline of 1%. Currency movements and divestments had a negative impact of 12.6% and 0.3% respectively. Organic sales for Bakery Supplies Europe in the first nine months was up 4% driven by pricing growth of 10% and volume decline of 6%, which is influenced by the planned discontinuation of unprofitable business. Acquisitions added 2.3% to turnover, whilst currency movements had a negative impact of 2.4%. Organic sales growth of our continuing business at PURAC was 11.6% in the first nine months broadly in-line with the performance of the first-half and reflecting volume growth of 6% and pricing growth of 5.6%. Currency movements and divestments had a negative impact of 4.7% and 0.8% respectively.

CSM said they expect PURAC to make substantial progress with its full year results for 2008.
They are accelerating moves to drive efficiency improvements including headcount reduction. Sales for the first nine months were €1,886.7 million (2007 €1,833.6 million). Organic growth was 9.5%, driven by pricing growth of 11.5% and volume decline of 2%. EBITA for the first nine months is €95.7 million (2007 €104.8 million) with €27 million generated in the 3rd quarter (2007 €35 million). Currency translation has a significant impact on our reported results. On a constant currency basis our EBITA for the nine months would have been €103.9 million, with €28.8 million generated in the 3rd quarter.

The company expects EBITA before exceptional items for the full year to be 10 –15% below the €153.7 million delivered in 2007. Approximately half of the decline in EBITA is due to currency
movements.

Commenting on the third quarter results, Gerard Hoetmer, CEO of CSM, said: “At our first half year results statement we indicated that we would be affected by the developing recessionary environment. We see evidence of downscaling and down trading by customers as well as de-stocking effects. Our pricing power has helped us to deliver an organic sales growth of 9.5% in the year to date. We see raw material prices weakening significantly over the last few weeks, which due to timing differences with our existing cover positions is likely to negatively affect our results in the 4th quarter. We believe that CSM is continuing to gain share in many of our markets, but clearly we have to cope with negative economic trends. The Bakery Supplies businesses particularly in Europe in Germany and the UK are facing difficult market conditions; in these countries consumer confidence has fallen sharply. Consequently, profitability in the third quarter has been below the level achieved in the corresponding period in 2007 and we expect a similar pattern in the fourth quarter.

“We are taking measures to react effectively to the current market situation. We have accelerated our launches of innovative new products to respond to the changes in consumer behavior. We are adapting our product portfolio including more value for money propositions reflecting the changing trends. In most of our markets we do expect to further increase market shares as a result of our more customer orientated organisation and increased innovation power. We are continuing our cost reduction programmes with closures and efficiency improvement steps, leading to a reduction in 200 (FTE) employees in various locations (Germany, France and US) by the end of 2008. This drive for improved efficiency will continue in 2009. The purchasing savings programmes also continue to deliver improvements, these cost savings will accelerate in 2009 and beyond as we speed up the process of driving efficiency improvements,” he concluded.