On the money: Saputo eye remains on Australian market

By Michelle Russell | 10 June 2010

Saputo said it remains ready to make more purchases

Saputo said it remains ready to make more purchases

Canadian dairy group Saputo said it remains ready for another acquisition, with the Australia market still on its radar screen.

Speaking as the firm released its annual results yesterday (9 June), Saputo CEO Lino Saputo Jr. told analysts that the recent North American acquisitions of Neilson Dairy and F&A Dairy were both adding value to the company.

However, he said the company remained ready to make more purchases.

“We’re always ready for another acquisition,” Saputo Jr said. “We normally have two or three files on our table that we continue to look at. We need to make sure that we continue to be responsible as we look at price and strategic value …but from our human resources perspective, our team is ready to take on other acquisitions.”

The Saputo chief added that Australia remained an "attractive" market for the company.

Recent reports had linked Saputo to Australian dairy firm Warrnambool Cheese and Butter Factory, which has seen off a takeover bid from local rival Murray Goulburn. An unnamed party had also been interested in WCB, although Saputo had never been publicly confirmed as a suitor for the business.

“Australia is still on our radar screen, we’ve talked about Australia now going on probably five to seven years and it still is a very interesting platform for us, only because of the milk pricing based on international market factors, as well as bi-lateral agreements. There are some favourable ones that make it very easy to trade dairy products, so Australia still is very attractive for us,” he said.

The company yesterday reported net profits for the year to the end of March of C$382.7m (US$369m), an increase of 37.2% on 2009.

Consolidated revenues edged up to C$5.81bn, an increase of 0.3% on fiscal 2009, while EBITDA amounted to C$692.1m, an increase of 26.3% on the prior year.

Asked about the possibility of entering the fluid milk market outside of its home ground of Canada, Saputo Jr said its focus remains on the growth of its cheese business.

“There are opportunities in other geographies but the economics have to make sense,” Saputo Jr told analysts. “In the US, you have one major player with a lion's share of the market, and unless we were equivalent in size, it would almost be very difficult to compete.

He added: “I think there is still a quite a bit of opportunity to grow our base on the cheese side so that really is where our focus is. If we look at the Argentinean market, the economics really don’t make sense to be in fluid milk, not because we don’t have the expertise but because of how milk is priced and the government intervention on milk. It’s really not a market we want to be in. We wouldn’t exclude it all together but the economics really would have to make sense for us to participate in milk outside of Canada.”

Looking ahead, Saputo Jr said 2010 had been a “successful” year for the business but he warned that challenges will remain in certain markets.

“We’ve had some very good volume growth and on an overall basis we’re very stable," he said. “In Canada, we will continue to invest in capex projects increasing capacity in manufacturing facilities.

“But in Europe we anticipate a challenging year, obtaining milk supply at prices competitive with the selling price of cheese will remain a priority,” Saputo Jr said. “Our main challenge will be to navigate through the increasing costs of milk as raw material while remaining competitive with the selling price in the export market.”

However, he added: “In fiscal 2010 we faced the economic downturn head on and overcame many difficulties. We will draw on this inspiration to keep on finding new ways to optimise our activities, to create value and improve overall efficiencies. While we do this, we will pursue our objective in a responsible and strategic manner, to produce high quality products as we continue to grow both internally and through acquisitions.”

Sectors: Dairy, Financials, Mergers & acquisitions

Companies: Saputo, Warrnambool Cheese and Butter Factory, Murray Goulburn

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