27/06/2008 (Bloomberg) - CSM NV, the world's largest supplier of lactic acid and ingredients to bakeries, said raw-material costs may exceed its initial estimate for this year and last after the price of palm oil and wheat increased.

The expenses will be ``at least the amount we indicated in 2007,'' CSM Chief Executive Officer Gerard Hoetmer said in an interview June 25. The company in October projected its additional raw-material costs at about 190 million euros ($299 million). The estimate is a ``number you make at a certain point in time.''

Raw materials and packaging account for more than half of costs at CSM, which sells bread mixes to bakeries and muffins to restaurants including Starbucks Corp. Prices of rice, corn and wheat have reached record levels this year and the price of palm oil has increased by almost a third since October, according to data compiled by Bloomberg. Corn prices have almost doubled and wheat prices have risen by more than a third.

``We expect to pass on a large part, if not the full amount, of these commodity prices increases,'' Hoetmer said. ``We succeeded well in doing this in 2007 and we also strive for that in 2008.'' The company is raising bakery prices by an average of 10 percent. Hoetmer declined to say by how much 2008 profit would be hurt by the increased costs.

CSM rose 1 cent, or 0.1 percent, to 21.90 euros in Amsterdam trading. The stock has dropped 5.2 percent this year, giving the Diemen, Netherlands-based company a market value of 1.52 billion euros.

Market Growth

CSM expects to post growth as much as 2 percent above the market at its bakery ingredients units this year and a return on sales of as much as 10 percent. The market is growing in line with inflation, Hoetmer said, without giving a more specific forecast. CSM's bakery ingredients unit generates about 90 percent of sales.

The company will this year complete a savings program which started in 2005 and expects to exceed its target of generating 110 million euros in savings, Hoetmer said, declining to elaborate further.

CSM's roots date back to 1919, when the company started making sugar from sugar beets. At the end of the 1960s the company produced its first lactic acid, which is used as a flavoring and preservative in food and beverages. In the 1980s, it entered the Bakery Supplies market, according to its Web site.

Last year it sold its sugar unit to Royal Cosun NV after the European Union restricted exports of the sweetener.