Blog: Dean BestInput costs key talking point at CAGE conference

Dean Best | 29 March 2011

Much like at the recent CAGNY conference in the US, input costs have been a key point of discussion at CAGE, the European analyst conference that started yesterday (28 March).

CSM, the Netherlands-based bakery supplies group, Spanish rice-to-pasta maker Ebro Foods and Premier Foods plc, the UK's largest food maker, were all either asked about how commodity costs were affecting their business - or volunteered the information.

The three companies presented to analysts yesterday and, during CSM's briefing, the company said its raw-material costs are expected to increase by EUR200m (US$281.6m) in 2011.

However, the business, which makes products like muffins and donuts for the likes of Wal-Mart Stores and Starbucks, said it would use price increases and reformulation to offset the impact on its results.

CSM said it had already upped the prices on its bakery products by 2.5% in the fourth quarter of 2010 but investor relations manager Ian Blackford said that policy would continue. "We will continue to increase prices through 2011," he told analysts.

Ebro Foods, meanwhile, has seen rising wheat prices in recent months and raised prices in the second half of last year.

In 2010, Ebro's pasta business generated an EBITDA margin of 18.7% but chairman and CEO Antonio Hernandez Callejas said it could be "difficult" to maintain the same percentage in 2011.

As MF Global analyst Andy Smith noted today: "The company expects to increase prices again in FY11, given recent further moves in the price of wheat – which remains a 'volatile area of concern'."

Premier Foods plc chief executive Robert Schofield repeated his statement in February when the Hovis bread maker issued its 2010 results that rises in commodity costs were "manageable".

However, Smith pointed out in a note to investors that Premier had "revised up [its] cost-of-goods-sold inflation from 5-6% to 5-7% since the last set of results", although the analyst said the company seemed "confident it will be able to take sufficient price to offset this".

Tomorrow, just-food will be running coverage of appearances at CAGE from the likes of Unilever, Danone and Kerry Group.


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