Barry Callebaut – Half-year results, fiscal year 2012/13

• Strong, broad-based volume growth, significantly outperforming the global chocolate market¹: sales volume +7.8%, fueled by strategic growth drivers outsourcing, Gourmet and emerging markets
• Product margins improved; gross profit up +4.9% in local currencies (+5.5% in CHF) despite an unfavorable combined cocoa ratio². EBIT decreased by 2.4% in local currencies (-2.1% in CHF)
• Closing and integration plan for Cocoa Ingredients Division acquisition from Petra Foods well on track
• Growth targets confirmed³
• Fernando Aguirre and Tim Minges nominated for election as new Board members 

Juergen Steinemann, CEO of Barry Callebaut said: “We continued to deliver strong volume growth, significantly outperforming the global chocolate market. We grew in all Regions and Product Groups thanks to our strategic growth drivers outsourcing, Gourmet and emerging markets. We were able to improve our product margins. Our EBIT was impacted by the unfavorable combined cocoa ratio as well as additional factory and supply chain costs due to our strong growth in some regions causing capacity constraints. We continued to invest in the expansion of our global footprint, structures and processes.”

Group key figures for the first half of fiscal year 2012/13 – from continuing operations

		Change in %
		in local currencies	in CHF	6 months up to Feb 28, 2013	6 months up to Feb 29, 20124
Sales volume	Tonnes		7.8	745,256	691,061
Sales revenue	CHF m	(2.6)	(2.4)	2,391.6	2,449.6
Gross profit	CHF m	4.9	5.5	357.3	338.8
Operating profit (EBIT)	CHF m	(2.4)	(2.1)	173.8	177.6
EBIT per tonne	CHF	(9.5)	(9.3)	233.2	257.0
Net profit	CHF m	(7.7)	(7.4)	116.4	125.7

In the first six months of fiscal year 2012/13 (ended February 28, 2013), Barry Callebaut – the world’s leading manufacturer of high-quality cocoa and chocolate products – strongly increased its sales volume by 7.8% to 745,256 tonnes, significantly outpacing the global chocolate confectionery market1. Top-line growth was broadly based, driven by long-term outsourcing agreements and strategic partnerships, Gourmet and emerging markets. All Product Groups and Regions contributed to this growth.

Sales revenue: Based on its cost-plus model, Barry Callebaut passes on raw material prices to customers for 80% of its business. The lower average prices for cocoa ingredients (cocoa beans, cocoa butter, and cocoa powder) compared to the previous year translated into lower sales revenue. As a result, sales revenue went down by 2.6% in local currencies (-2.4% in CHF) to 
CHF 2,391.6 million despite the volume growth.

Gross profit increased by 4.9% in local currencies (+5.5% in CHF) to CHF 357.3 million, driven by higher volume and improved product margins, partly offset by the effect of a lower combined cocoa ratio2. In addition, the strong growth in some regions caused capacity constraints, which led to additional factory and supply chain costs.

Operating profit (EBIT) was impacted by ongoing investments in structures, processes and people to accommodate future growth. Additionally, the Group increased its marketing activities for the global Gourmet brands, and incurred first costs related to the acquisition of Petra Foods’ Cocoa Ingredients Division. Consequently, EBIT declined by 2.4% in local currencies (-2.1% in CHF) to CHF 173.8 million.

Net profit for the period from continuing operations decreased by 7.7% in local currencies (-7.4% in CHF) to CHF 116.4 million, mainly as a result of the lower EBIT in combination with an increase in net financial expenses and taxes.

Outlook – Continuation of robust growth, delivering on targets³

CEO Juergen Steinemann on the outlook: “Based on our four strategic pillars, Expansion, Innovation, Cost Leadership and Sustainable Cocoa, we will continue to deliver robust volume growth. The focus on product margins will remain important. We expect cocoa processing results to increase in the second half of our fiscal year. Our cost base will grow at a slower pace than volume, except for non-recurring costs related to the closing and integration of the acquisition of the Cocoa Ingredients Division from Petra Foods. Considering all this, we are confident of delivering on our mid-term guidance.”

Strategic developments – Closing for Cocoa Ingredients Division acquisition from Petra Foods well on track

In December Barry Callebaut announced its intention to acquire the Cocoa Ingredients Division of Petra Foods in order to support the further growth of its chocolate business. This transaction will boost Barry Callebaut’s presence in fast growing emerging markets to almost one-third of the Group’s sales volume and enable the company to capitalize on the attractive growth rates in these markets for cocoa powder-based applications in beverages, compound chocolates, fillings, bakery products and ice cream. In addition, the acquisition will strengthen Barry Callebaut’s current and future partnership agreements as there is a trend towards combined contracts (cocoa and chocolate products). It will also add Asia as a strong sourcing base next to West Africa. Deal close activities are well on track. A joint integration taskforce has started developing an integration masterplan 
to be implemented upon the closing of the transaction, which is expected to take place in summer 2013.

As expected, the acquisition of Petra Foods' Cocoa Ingredients Division led to a recent rating action by Standard & Poor’s which assigned a BB+ rating to Barry Callebaut AG, down from BBB-.

Barry Callebaut is currently preparing the financing of the acquisition to cancel the bridge loan facility and replace it by issuing a combination of new equity for an equivalent amount of 
USD 300 million and a USD 600 million Rule 144A/Reg S USD bond offering.

In January Barry Callebaut strengthened its leadership position in Scandinavia through the acquisition of ASM Foods AB in Sweden from Danish Carletti A/S. With ASM Foods, Barry Callebaut is enhancing its portfolio of higher-margin products such as specialty compound chocolates, fillings and inclusions for both its industrial and Gourmet business. In the same transaction, Carletti A/S became Barry Callebaut’s first outsourcing partner in Scandinavia. In addition, the Group signed its first outsourcing agreement in South America with Arcor Group in Chile.

In terms of geographic expansion, four factories are currently under construction: A chocolate factory in Eskişehir, Turkey, a cocoa factory in Makassar, Indonesia, both going on stream in fall 2013, as well as two chocolate factories in Santiago de Chile and in Takasaki, Japan, scheduled to be operational in the first half of 2014.

The completion of the sale of the Dijon factory in November 2012 marked the final step in the disposal of all consumer activities.

Regional / Segment performance

Region Europe⁵ – Solid growth, both top and bottom line

European chocolate confectionery markets grew by 2.0%. Growth in Western Europe was +1.4%, markets in Eastern Europe went up 3.4%¹.

Notwithstanding the still challenging market environment – especially in Southern Europe – Barry Callebaut achieved solid growth in Region Europe: Overall sales volume moved up strongly by 5.8% to 377,458 tonnes. Growth in Western Europe was driven by higher sales of both standard (chocolate and compound) and specialties products (fillings, decorations, nut products) in the Food Manufacturers Products business. Despite the difficult market environment, the Gourmet business achieved good, single-digit growth, supported by the company’s Belgian Gourmet brand Callebaut^®. Volumes in the Beverages division picked up.

The industrial business in Eastern Europe, Middle East and Africa (EEMEA) grew double-digit in Russia, the Middle East and Turkey. Here, the Gourmet & Specialties Products business continued to record double-digit volume growth thanks to a particular strong performance of Callebaut® in Russia.

Overall sales revenue in Region Europe increased by 3.1% in local currencies (+3.0% in CHF) to CHF 1,186.2 million. Operating profit (EBIT) development even exceeded the good volume and sales revenue development: EBIT rose 8.1% in local currencies (+8.6% in CHF) to CHF 127.5 million) as a result of improved margins.

Region Americas – Continued double-digit top-line growth, strong bottom-line performance

The chocolate confectionery market in the U.S. decreased by 1.3%; Brazil was at -0.7%¹.
Barry Callebaut maintained the double-digit growth pace in Region Americas. Sales volume increased by 13.6% to 200,434 tonnes. In North America, growth was mainly driven by the company’s global accounts in the Food Manufacturers Products business. The Gourmet business continued to grow double-digit in North America and sales volume in South America was again substantially higher. Mexico was a strong performer, doubling volumes compared to last year. Sales revenue in the Region went up 1.6% in local currencies (+3.6% in CHF) to CHF 567.2 million as result of lower raw material prices. Volume growth positively influenced the regional operating result: Operating profit (EBIT) rose by 8.7% in local currencies (+10.4% in CHF) to CHF 49.8 million.

Region Asia-Pacific – Double-digit volume growth

Chocolate markets in Asia grew by 11.6%, again outperforming the growth in other world regions, although still from a lower base⁶.In Region Asia-Pacific, Barry Callebaut continued to grow double-digit. Overall sales volume increased by 11.9% to 30,915 tonnes. Growth was driven by strategic partnerships in the Food Manufacturers Products business. In the Gourmet & Specialty Products business, Callebaut® achieved broadly based, double-digit volume growth; overall growth was also strongly supported by well performing local brands. Both in the industrial and the Gourmet business, China was the best performing country.

Due to lower average raw material prices compared to last year, sales revenue in the Region increased by 0.3% in local currencies (+1.0% in CHF) to CHF 118.1 million. Operating profit (EBIT) was negatively impacted by a higher cost base as a result of ongoing expansion: EBIT decreased by 2.5% in local currencies (-1.3% in CHF) to CHF 15.0 million.

Global Sourcing & Cocoa⁷ – Combined cocoa ratio2 affected profitability

Cocoa terminal market prices traded above the GBP 1,700 threshold early September due to uncertainties with regard to the development of the main crop and the implementation of the Cocoa Reform in Côte d’Ivoire. In the following months, prices continuously retreated and closed at GBP 1,429 at the end of February. The downward move was mostly caused by the liquidation of funds’ long positions and, more recently, by good prospects for the size of the upcoming mid-crop, starting in May.

The sugar crop 2012/13 was very good; the world market closed the 3rd year in a row in a surplus. After peaking last October, world sugar prices steadily declined. Funds going short put additional downward pressure on prices. By the end of February, world market prices for sugar were at a two-year low. In the EU, special measures were taken to supply the sugar market by increasing the import quota. EU sugar prices stayed at the same, still rather high levels.

Milk powder prices in Europe remained flat, but on high levels, due to balanced supply and demand. In contrast, world market prices increased and reached EU levels at the end of February due to lower overall supply in the market and in anticipation of a drier season in New Zealand, which would lead to less supply in the near future.

The segment Global Sourcing & Cocoa expanded its total third party sales volume by 4.9% to 136,449 tonnes, despite a downturn in powder demand in the U.S. and Europe. Compared to last year, sales prices for cocoa ingredients (cocoa butter, cocoa liquor, and cocoa powder) were significantly lower. Therefore, sales revenue declined by 17.2% in local currencies (-18.0% in CHF) to CHF 520.1 million. As expected, the combined cocoa ratio² had a negative effect on cocoa processing profitability and as a result operating profit (EBIT) dropped by 37.5% in local currencies (-40.4% in CHF) to CHF 19.8 million.

Proposals to the Extraordinary General Meeting of Shareholders (EGM)

Authorized capital increase
As announced on March 27, 2013, the Board of Directors of Barry Callebaut has called for an Extraordinary General Meeting of Shareholders (EGM) on April 22, 2013 proposing to create authorized share capital for the purpose of partly financing the acquisition of the Cocoa Ingredients Division from Petra Foods.

Election of two new members to the Board of Directors
Furthermore, the Board of Directors also proposes to the EGM the election of Fernando Aguirre and Timothy E. Minges as new members of the Board of Directors of Barry Callebaut for the current term of office until the next ordinary General Meeting on December 11, 2013.

Fernando Aguirre served as the Chairman and CEO of Chiquita Brands International Inc. from 2004 until 2012. Presently Mr. Aguirre is a consultant to Chiquita and a Director of Levi Strauss & Co. as well as a Director at Aetna Inc.

Timothy E. Minges is currently Chairman of PepsiCo Greater China Region and a member of PepsiCo’s Executive Committee. Mr. Minges also serves on the Board of Tingyi-Asahi Beverage.

(see separate CVs for further details)

***

¹ The global chocolate confectionery market grew by 1.5% in volume in the period September 2012 until January 2013. Source: Nielsen.

² Combined sales prices for cocoa butter and cocoa powder relative to the cocoa bean price. For cocoa processors, profitability depends on the ratio between input costs (price of cocoa beans) and output prices (price of cocoa butter and powder).

³ Mid-term growth targets for 2011/12-2014/15: On average 6-8% volume growth and average EBIT growth in local currencies at least in line with volume growth – barring any unforeseen events.

⁴ Restated figures due to the divestiture of the consumer business.

⁵ Including Western Europe, Eastern Europe, Middle East and Africa.

⁶ China (+4.1%) and India (+16.3%); Source: Nielsen, September 2012 until January 2013.

⁷ The figures reported under “Global Sourcing & Cocoa” include all sales of cocoa products to third-party customers in all Regions while the figures shown under the respective Region show all chocolate sales.

***

Barry Callebaut
With annual sales of about CHF 4.8 billion (EUR 4.0 billion / USD 5.2 billion) for fiscal year 2011/12, Zurich-based Barry Callebaut is the world’s leading manufacturer of high-quality cocoa and chocolate – from the cocoa bean to the finest chocolate product. Barry Callebaut operates out of 30 countries, runs more than 45 production facilities and employs a diverse and dedicated workforce of about 6,000 people. Barry Callebaut serves the entire food industry focusing on industrial food manufacturers, artisans and professional users of chocolate (such as chocolatiers, pastry chefs or bakers), the latter with its two global brands Callebaut^® and Cacao Barry^®. Barry Callebaut is the global leader in cocoa and chocolate innovations and provides a comprehensive range of services in the fields of product development, processing, training and marketing. Cost leadership is another important reason why global as well as local food manufacturers work together with Barry Callebaut. Through its Cocoa Horizons initiative and research activities, the company engages with farmers, farmer organizations and other partners to help ensure future supplies of cocoa and improve farmer livelihoods.

***

Group key figures for the first half of fiscal year 2012/13 – from continuing operations

		Change in %
		in local currencies	in CHF	6 months up to Feb 28, 2013	6 months up to Feb 29, 20124
Group
Sales volume	Tonnes		7.8	745,256	691,061
Sales revenue	CHF m	(2.6)	(2.4)	2,391.6	2,449.6
EBITDA	CHF m	1.8	2.1	220.1	215.6
Operating profit (EBIT)	CHF m	(2.4)	(2.1)	173.8	177.6
Net profit	CHF m	(7.7)	(7.4)	116.4	125.7
Net profit (incl. discontinued operations)	CHF m	22.0	22.4	110.3	90.1
By Region
Europe
Sales volume	Tonnes		5.8	377,458	356,888
Sales revenue	CHF m	3.1	3.0	1,186.2	1,151.4
EBITDA	CHF m	8.5	9.0	143.1	131.3
Operating Profit (EBIT)	CHF m	8.1	8.6	127.5	117.4
Americas
Sales volume	Tonnes		13.6	200,434	176,446
Sales revenue	CHF m	1.6	3.6	567.2	547.4
EBITDA	CHF m	13.7	15.1	60.7	52.7
Operating profit (EBIT)	CHF m	8.7	10.4	49.8	45.1
Asia-Pacific
Sales volume	Tonnes		11.9	30,915	27,639
Sales revenue	CHF m	0.3	1.0	118.1	116.9
EBITDA	CHF m	0.7	1.6	18.2	17.9
Operating Profit (EBIT)	CHF m	(2.5)	(1.3)	15.0	15.2
Global Sourcing & Cocoa
Sales volume	Tonnes		4.9	136,449	130,088
Sales revenue	CHF m	(17.2)	(18.0)	520.1	633.9
EBITDA	CHF m	(21.3)	(23.6)	34.9	45.6
Operating Profit (EBIT)	CHF m	(37.5)	(40.4)	19.8	33.2
By Product Group
Sales Volume	Tonnes		7.8	745,256	691,061
Cocoa Products	Tonnes		4.9	136,449	130,088
Food Manufacturers Products	Tonnes		8.8	524,738	482,336
Gourmet & Specialties Products	Tonnes		6.9	84,069	78,637
Sales Revenue	CHF m	(2.6)	(2.4)	2,391.6	2,449.6
Cocoa Products	CHF m	(17.2)	(18.0)	520.1	633.9
Food Manufacturers Products	CHF m	1.9	2.6	1,455.1	1,418.3
Gourmet & Specialties Products	CHF m	4.5	4.8	416.4	397.4

Barry Callebaut increased sales volume.