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Saputo bailing out of European cheese market

Canada’s biggest dairy processor plans to cut its losses and exit the European market, shutting its German cheese plant and proposing to close its mozzarella plant in Wales.

Montreal-based Saputo announced Monday it will close the former Spezialiteten-Kaserei De Lucia plant it bought in 2006 at Heiden, Germany, 50 km north of Essen. The plant makes Italian cheeses such as mozzarella, ricotta and mascarpone, sold at retail in Germany under the Saputo brand.

U.K. legislation, meanwhile, requires Saputo to provide a 30-day "consultation period" for the proposed closure of the former Dansco Dairy Products plant it bought in Wales for $12 million cash in 2007.

The plant at Newcastle Emlyn, about 70 km northwest of Swansea, mainly makes mozzarella and blends with other cheeses for sale to the foodservice market under the Danscorella brand.

Since it bought the plants, Saputo said Monday, it "has aimed to penetrate the European market and get a better understanding of its realities and dynamics" but since then has found the operations to be "a learning and challenging experience."

What Saputo has learned is that its European business "does not have sufficient critical mass to be profitable" and it "does not see short- to mid-term opportunities to ensure such profitability."

Specifically, the company has said in its recent quarterly financials that its European dairy products division "continues to face challenges with respect to obtaining milk supply at prices competitive with the selling price of cheese."

As recently as November, the company had said the European division would nevertheless "work towards increasing sales volumes."

Instead, publicly-traded Saputo said Monday, the company plans to "further concentrate efforts and resources in its current platforms and other markets."

The two closures are expected to affect about 140 employees, who can expect severance and help finding other employment "where redundancies are confirmed."

If the Welsh plant closes, the costs of both plant closures are expected to run up to about $15 million after taxes, included a writedown on fixed assets of about $15 million and cash costs of about $7 million, offset by tax recovery.

If both plants close, Saputo said, it expects to avoid losses of about $1.5 million in annual earnings before interest, income taxes, depreciation and amortization (EBITDA) on its European business.

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