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Saputo to pull plug on European dairy operations over profitability issues

By Mark Astley , 26-Feb-2013

Saputo to pull plug on European dairies over profitability issues

Saputo intends to pull the plug on its European operations after just seven years on the continent – citing a lack of “short to mid-term opportunities” to ensure profitability.

Yesterday, the Quebec-based dairy processor announced the closure of its cheese manufacturing facility in Heiden, Germany and the beginning of a 30-day consultation period regarding the closure of its cheese manufacturing plant in Newcastle Emlyn, Wales.

Saputo’s Heiden plant manufactures Italian speciality cheeses for retail, while the firm’s UK facility mainly produces mozzarella for the food service market.

The German and British plants, which were acquired in 2006 and 2007 respectively, account for Saputo’s total processing presence in Europe. Around 140 jobs will be affected by the closures, Saputo has claimed.

In a statement announcing the pull-out, Saputo described its attempt to penetrate the European market as “challenging.”

European penetration a “challenging experience”

“Since acquiring the businesses, Saputo has aimed to penetrate the European market and get a better understanding of its realities and dynamics. The past few years have been a learning and challenging experience,” said the statement.

“Today, the Saputo European business does not have sufficient critical mass to be profitable and the Company does not see short to mid-term opportunities to ensure such profitability.”

The company has claimed that the closures will allow it to “further concentrate efforts and resources in its current platforms and other markets.”

Closure-associated costs from both plants are expected to total CDN$15m ($14.6m, £9.65m, €11.2m) after taxes, said the company. It added, however, that anticipated operating losses will also be avoided.

"If both facilities close, a loss of approximately CDN$1.5m in annual earnings before interest, income taxes, depreciation and amortisation related to the European business should be avoided,” said the company.

DairyReporter.com approached the Heiden and Newcastle Emlyn plants for comment in regards to Saputo’s plans. No reply was forthcoming from either plant prior to publication.

European milk supply “challenges”

Saputo’s Dairy Products Europe business garnered very little mention in the company’s financial results for the three months ended 31 December 2012.

In the document, Saputo did not reveal specific figures for its European business, but admitted that it was struggling to remain competitive amidst high raw milk prices in the region.

“The Dairy Product Division (Europe) continues to face challenges with respect to obtaining milk supply at prices competitive with the selling price of cheese,” said Saputo.