Saputo’s restructuring of its UK operations is yielding positive results, enhancing margins in Europe; however, the dairy giant indicated that historical margin levels may not be achievable.
In discussions regarding fourth-quarter and full-year results with analysts last week, president and CEO Carl Colizza remarked that the most significant input-cost inflation pressures affecting the Cathedral City cheese brand are likely behind them.
Though Saputo does not disclose the specific breakdown of its European operations by market, the UK remains a crucial territory for the company after acquiring Dairy Crest in 2019. That deal included key brands such as Cathedral City, Clover, and Country Life, generating approximately £457m ($619.6m at current rates) in revenue in 2018.
Saputo’s European division reported an adjusted EBITDA margin of 8.9% for the 12-month period ending March 31, an increase from 6.9% in fiscal 2024. Colizza noted that there is potential for further growth in the years ahead, notwithstanding a caution regarding the extent of recovery.
“One of the things that we need to keep in mind is historical EBITDA margins were 18-plus percent. What would be more normal for a European sector at this point is going to be more in the low-teens to mid-teens as an ongoing benchmark for the business,” Colizza stated to analysts.
He continued, stating, “Our European sector, and our team in the UK specifically, have navigated through significant inflationary pressures over the last several years. Many of these input costs could not be recouped from the marketplace, thus pressuring margins.”
Colizza mentioned that “optimisation initiatives” are beginning to yield positive changes in Saputo’s UK operations.
In April, Saputo announced job cuts at its Davidstow Creamery, planning to halt the manufacturing of specific ingredients for infant formula in Cornwall, south-west England.
In January, the closure of the Kirkby Malzeard site in North Yorkshire was announced, where Wensleydale cheese is produced, with production being transferred to its dairy facility in Nuneaton, Warwickshire, following a substantial investment.
The challenges in the UK market also led Saputo to record an impairment charge of C$674m ($492.7m today) during the third quarter. This was attributed to a “slower-than-expected cadence of margin recovery” for its UK unit.
Colizza emphasized last week that consolidating its cut-and-wrap cheese capabilities at the Nuneaton site is “three quarters of the way” to completion. “We believe that margin will continue to recover as these initiatives take effect,” he explained in terms of the European EBITDA margin.
He added regarding the UK market: “We feel we’re in a strong position, balancing our branded offerings and what we provide in the private-label sector.” He noted, “There’s also greater stability in overall pricing related to more stabilized inflation.”
Europe contributed C$106m ($77.5m) to Saputo group’s adjusted EBITDA in the last year, an increase from C$75m in the previous 12 months. Revenue for the division rose by 9% to C$1.19bn.
For Saputo overall, adjusted EBITDA grew by 3.7% to C$1.57bn, while revenue climbed by 9.9% to C$19.06bn.
