Barry Callebaut: announces solid volume growth and strong free cash flow in the first half

Zurich / CH. (bc) Swiss Barry Callebaut Group, the world’s leading manufacturer of cocoa and chocolate products, in April announced its financial results for the first six months of Fiscal Year 2015/2016, that ended on February 29. Highlights:

• Sales volume up +4.5 percent
• Broad-based sales volume growth in chocolate, significantly outperforming the market, while intentionally phasing out less profitable contracts in cocoa
• Ebit CHF 200.7 million, stable (-0.3 percent) in local currencies (-8.4 percent in CHF), impacted by weak cocoa products market
• Focus on cash generation paying off: Free cash flow of CHF 220.4 million, net working capital down -11.8 percent, net debt down -14.1 percent
• Mid-term financial targets confirmed

Antoine de Saint-Affrique, CEO of the Barry Callebaut Group, said: «We have achieved solid results despite very challenging market conditions. Our volume growth shows a consistent, strong performance. Our bottom-line reflects the predicted negative impact of the weak cocoa products market and a significant negative currency translation effect. Our focus on «smart growth» is gaining traction. This is all very much in line with our expectations».

Group Key Figures for the first half of Fiscal Year 2015/2016

		Change in local currencies	Change in CHF	H1 up to 2016-02-29	H1 up to 2015-02-28
Sales volume	Tonnes		4.5 %	933’327	893’437
Sales revenue	million CHF	11.7 %	5.6 %	3’424.3	3’244.2
Gross profit	million CHF	4.7 %	(1.9 %)	437.9	446.2
Operating profit (Ebit)	million CHF	(0.3 %)	(8.4 %)	200.7	219.2
Free cash flow	million CHF	(246.7 %)	(254.3 %)	220.4	(142.8)
Ebit per tonne	CHF	(4.5 %)	(12.4 %)	215.0	245.3
Net profit	million CHF	(12.5 %)	(18.5 %)	107.9	132.4

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During the first half of fiscal year 2015/2016 (ended February 29, 2016), the Barry Callebaut Group – the world’s leading manufacturer of chocolate and cocoa products – increased its sales volume by 4.5 percent to 933’327 tonnes, significantly outperforming a slightly improving but still weak global chocolate confectionery market. This volume growth was driven by the chocolate business across all Regions. All key growth drivers contributed positively. In the Global Cocoa business, sales to third parties were intentionally reduced and less profitable contracts are being progressively phased out.

Sales revenue grew by 11.7 percent in local currencies (5.6 percent in CHF) to CHF 3’424.3 million, driven by higher cocoa bean prices compared to last year and increased sales of higher value products.

Gross profit increased by 4.7 percent in local currencies (-1.9 percent in CHF) to CHF 437.9 million, largely in line with volume growth as the negative impact from the combined cocoa ratio was compensated by a good development on margins and a better product mix in the Group’s chocolate business due to the strategic focus on this area.

Compared to the strong comparison base from last year, operating profit (Ebit) was almost flat at CHF 200.7 million (-0.3 percent in local currencies and -8.4 percent in CHF, due to a significant negative currency translation effect of CHF -17.9 million resulting mainly from the strength of the Swiss franc against the Euro and some emerging market currencies). As anticipated some restructuring costs related to the Cocoa Leadership project and additional investments in Sales and Marketing also had a negative effect.

Net profit was down -12.5 percent in local currencies (-18.5 percent in CHF) to CHF 107.9 million, affected by higher financial expenses, income taxes, and foreign exchange effects.

Net working capital decreased by 11.8 percent from CHF 1’566.6 million in the prior year period to CHF 1’382.3 million despite the Group’s growth. This is mainly the result of the Group’s working capital initiative leading to significantly lower volume in inventories and an increase in trade payables and other current liabilities.

Net debt amounted to CHF 1’538.2 million, down by 14.1 percent from CHF 1’790.6 million in the prior year period. The decrease was mainly driven by lower financing needs related to working capital and capital expenditure.

As a result, free cash flow significantly improved to CHF 220.4 million whereas the prior year period resulted in an outflow of CHF -142.8 million.

Outlook – Continued challenging market environment; mid-term targets confirmed

CEO Antoine de Saint-Affrique on the outlook: «As forecast, the year will remain challenging from a profitability point of view due to the current cocoa products market. We will continue to focus on putting «smart growth» into action and on transforming our cocoa business in order to restore its Ebit per tonne. We are pleased to see that our actions are beginning to bear fruit. We confirm our mid-term guidance».

Strategic milestones in the first 6 months of fiscal year 2015/2016

• Expansion: Barry Callebaut closed the acquisition of the commercial beverages vending activities of FrieslandCampina Kievit, making it a leading supplier of vending powder mixes. Barry Callebaut also signed outsourcing agreements with two local players in Eastern European markets, proving the potential of outsourcing in emerging markets.
• Innovation: Barry Callebaut “crafted and co-created” the chocolate experiences of tomorrow with its customers at the important trade shows FIE in Paris/France and ISM in Cologne/Germany and presented three product novelties: Caramel Doré (premium Belgian caramelized chocolate), Choc37.9 (heat-resistant) and Happy Chocolate (with proven health benefits).
•  Cost Leadership: Barry Callebaut completed the announced downsizing of its cocoa manufacturing footprint in Asia (Thailand and Malaysia) as part of the Cocoa Leadership project and continues to bundle transactional activities across Europe in its Shared Service Center (SSC) in Lodz/Poland and to further expand it.
• Sustainable Cocoa: In response to growing customer demand for sustainable and traceable ingredients, Barry Callebaut switched the production of Crema dell’Artigiano™ and Tintoretto™, two of its most popular fillings for bakery and confectionery products, from RSPO mass balance to RSPO fully segregated palm products as of January 2016.

Regional / segment performance

Region EMEA – Significantly outpacing the market: Chocolate confectionery markets across Europe decreased by -2.2 percent. Barry Callebaut’s sales volume in Region EMEA (Europe, Middle East, Africa) increased by 6.5 percent to 411’881 tonnes. In Western Europe, sales volume growth was particularly strong in the Food Manufacturers business and as well in Gourmet where there was an acceleration in the second quarter. In Eastern Europe, sales volume grew double-digit, from a low base in the prior year. Sales revenue went up 10.7 percent in local currencies (2.5 percent in CHF) to CHF 1’405.0 million mainly due to higher raw material prices. Operating profit (Ebit) increased +1.3 percent in local currencies (-8.1 percent in CHF) to CHF 144.4 million.

Region Americas – Outstanding performance in a challenging market: Chocolate confectionery markets in the Americas declined by -3.7 percent. Barry Callebaut’s sales volume in Region Americas grew by 13.4 percent to 251’151 tonnes. Growth was driven by Food Manufacturers with both national and global accounts, mainly from outsourcing and additional market share gains. Gourmet showed a very strong performance with double-digit growth across all countries in the Region. Sales revenue in Region Americas increased by 11.9 percent in local currencies (9.5 percent in CHF) to CHF 817.4 million, somewhat lower than volume, due to the product and customer mix. Operating profit (Ebit) rose by 4.3 percent in local currencies (4.6 percent in CHF) to CHF 70.4 million.

Region Asia Pacific – Very strong above-market growth: Chocolate confectionery markets across Asia Pacific declined by -1.7 percent. Barry Callebaut’s sales volume in Region Asia Pacific grew strongly by 12.6 percent to 40’888 tonnes. Growth in the Food Manufacturers product business accelerated, achieving a double-digit increase, with business performing particularly well in China, India, Indonesia and Malaysia. Double-digit growth in the Gourmet business was largely supported by markets such as China, India and Korea. Sales revenue grew 11.2 percent in local currencies (10.4 percent in CHF) to CHF 161.8 million, due to a good product mix and higher cocoa bean prices. Operating profit (Ebit) rose by 20.7 percent in local currencies (17.2 percent in CHF) to CHF 18.4 million.