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Our U.S. frozen bakery business has lagged behind, affected by increased warehousing and distribution costs related
to higher fuel prices, high flour costs and some operating challenges. On the plus side, we grew volumes and rationalized
a large number of small product lines to improve plant capacity utilization. We are acting to improve profitability in
this business, where we believe we have excellent assets and strong market share. This may require new investments to
consolidate our position in key markets, improve our asset network, and reduce freight and distribution costs.
In the past five years, we have grown our U.K. bakery business from a small bagel operation to one of the leading
specialty bakeries in the United Kingdom. Through a major investment in our Rotherham bagel plant, the acquisitions
of our Walsall bakery and more recently, the French Croissant Company, we have broadened our offerings to include
bagels, hand-held snacks, in-store bakery products and croissants. In 2007, we are integrating our four relatively
independent bakery companies into one, focused U.K. bakery organization.
Overall, we expect capital expenditures in 2007 to rise 30% to $220 million compared with $170 million in 2006. Investing
in our asset base will be critical to reducing our manufacturing costs and bringing them in line with our U.S. competitors.
Major projects include the Simply Fresh line of chilled meal products, wastewater upgrades and expansion at our Brandon
pork processing plant, a new Western Canada distribution system, and capacity expansions to support growth in our U.K.
bakery business.
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