Barry Callebaut reports results for first six months of fiscal year 2006/07

Barry Callebaut AG, the world’s leading manufacturer of high-quality cocoa and chocolate products, today published its results for the first six months of fiscal year 2006/07 ended February 28, 2007. Growing twice as fast as the global chocolate market, Barry Callebaut’s sales volumes increased by 6.3% percent to 588,125 tonnes in the first semester of the current fiscal year. Sales revenue[1] rose 4.1% to CHF 2,307.2 million, while operating income (EBIT) increased to CHF 190.0 million, representing a 7.3% rise. The EBIT improvement was achieved despite the earlier communicated deterioration in the combined (cocoa) ratio[2], which had a negative impact of approximately CHF 10 million on operating income at the Cocoa unit. The Consumer Products North America business unit, which is currently under review as part of the group’s strategic repositioning in that region, also had a negative impact on EBIT. These effects were compensated by a good operational performance at the other business units, Food Manufacturers, Gourmet & Specialties and Consumer Products Europe. Net profit (PAT) rose by 11.1% to CHF 125.2 million.

 

Patrick De Maeseneire, CEO of Barry Callebaut, said: “Our businesses with industrial and artisanal customers continued to deliver strong results, and our European consumer business is doing well. I am pleased with our results for the first six months of our current fiscal year, especially in light of the adverse impact of the lower combined (cocoa) ratio and an unsatisfactory business development in our North American consumer business. With an additional 30,000 tonnes of sales at Food Manufacturers, the outsourcing trend within the chocolate industry was confirmed. We have firmly established ourselves as the outsourcing partner of choice, enabling us to further accelerate our profitable growth.”

  

The global chocolate confectionery market is valued at around USD 74 billion (approx. CHF 90 billion) and is estimated to grow by 2.9% in 2006/07, according to data provided by Euromonitor International. Fastest growth is seen in emerging markets, driven by an increasingly affluent consumer base in countries such as Russia and China. In Western Europe and North America the market for standard chocolates is mature and growth can be attributed mainly to premium products such as origin, organic, health enhancing and fair trade chocolates. The market is growing both in the premium and the value-for-money categories. Product innovation and cost leadership are essential for future success within the chocolate industry. Meanwhile, an increasing number of food manufacturers are moving to outsource their chocolate needs to specialized partners. This trend is expected to accelerate as more integrated companies shift their focus towards sales and marketing and seek to source industrial chocolate from third parties.

 

With its global presence from the bean to the shelf in all market segments, Barry Callebaut is uniquely positioned to benefit from all the above mentioned market trends while its innovative strength will allow it to keep pace with changing consumer demands.

 

Region Europe, which accounts for about two thirds of group sales, recorded a sales volume growth of 8.3% to 392,030 tonnes. Sales revenue1 increased by 5.7% to CHF 1,607.8 million. Operating income went up by 10.2% to CHF 171.1 million in Europe.

 

The improvement in the operational performance of the region was driven by a remarkable volume growth in the Food Manufacturers business unit, which was fuelled by new outsourcing volumes with key accounts in various countries as well as solid growth with large and mid-sized industrial customers. The Gourmet & Specialtiesbusiness unit saw particularly good demand from artisanal customers in the Mediterranean region and in Eastern Europe. The Consumer Products Europe business unit significantly improved its profitability owing to strong seasonal product sales, cost savings, systems integration and the termination of unprofitable contracts. The termination of these contracts led to a decrease in volumes. This impact is expected to phase out in the course of the current fiscal year.

 

The planned agreement with Nestlé to acquire the cocoa liquor and liquid chocolate production facility at the chocolate factory in San Sisto/Italy as well as a chocolate factory in Dijon/France together with a long-term agreement with Barry Callebaut for the supply of 43,000 tonnes of liquid chocolate and the production of some Nestlé consumer products would add around CHF 150 million to Barry Callebaut’s annual sales in fiscal 2007/08. It is expected that the final agreement will be signed in summer 2007.

 

Sales volumes in the region Americas went up by 0.6% to 155,549 tonnes, compared to 154,662 tonnes in the same prior-year period. Sales revenue was affected by a weaker U.S. dollar versus the group’s reporting currency, Swiss franc, and a lower sales revenue from consumer products and came in at CHF 532.8 million (-4.5%), resulting in an EBIT of CHF 28.1 million (-8.0%). Excluding the Consumer Products North America business, which is currently under review, volumes increased by 6.8% while sales revenue rose by 4.0% and operating profit in the region went up by 18.4%.

 

The performance at the region’s business units developed in opposite directions. On the one hand, the Food Manufacturers business unit recorded solid growth as a result of a changed market approach and subsequent market share gains, and the Gourmet & Specialties business unit strengthened its presence by increasing its direct sales force. On the other hand, the strong performance in those two business units was offset by weaker sales at the Consumer Products North America’s business.

 

Region Asia & Rest of the World registered a 10.5% rise in sales volume to 40,546 tonnes, while sales revenue1 increased by 21.4 % to CHF 166.6 million. Operating income rose by 19.2% to CHF 20.9 million, despite the weak performance of the African consumer business. The African consumer business consists of three entities in Cameroon, Ivory Coast and Senegal and is no longer considered a core activity. Chocosen in Senegal was sold to the local management on February 28, 2007. 

 

Food Manufacturers saw strong growth, driven by deliveries to China and South Africa, starting, of course, from low levels. Gourmet & Specialties did particularly well in the premium product range, especially in Japan.

 

EUROPE		Change (%)	Six months up to Feb 28, 2007	Six months up to Feb 28, 2006
Sales volume	mt	8.3	392,030	361,825
Sales revenue 1	CHF m	5.7	1,607.8	1,520.9
Operating profit (EBIT)	CHF m	10.2	171.1	155.3

 

AMERICAS		Change (%)	Six months up to Feb 28, 2007	Six months up to Feb 28, 2006
Sales volume	mt	0.6	155,549	154,662
Sales revenue	CHF m	-4.5	532.8	557.7
Operating profit (EBIT)	CHF m	-8.0	28.1	30.6

 

ASIA/RoW		Change (%)	Six months up to Feb 28, 2007	Six months up to Feb 28, 2006
Sales volume	mt	10.5	40,546	36,709
Sales revenue 1	CHF m	21.4	166.6	137.2
Operating profit (EBIT)	CHF m	19.2	20.9	17.5

The Industrial business segment focuses on selling cocoa and chocolate products to industrial food processors and consumer goods manufacturers worldwide.

 

Sales volumes were 407,190 tonnes, which represents an organic growth of 11.4% from 365,679 tonnes in the same prior-year period.

Sales revenue1 recorded in the industrial business segment rose 9.9% to CHF 1,300.1 million compared to CHF 1,183.5 million in the year-ago period. Including the impact of above-average physical bean sales in the same prior-year period, revenue would have declined by 1.2%.

Operating profit (EBIT) for the industrial business segment rose 8.5% to CHF 118.8 million in the six-month period ended February 28, 2007. This improvement was achieved despite the afore-mentioned adverse effect in the amount of approx. CHF 10 million stemming from the decline in the combined (cocoa) ratio.

 

The Food Service/Retail business segment serves a broad range of customers, from local craftsmen (such as chocolatiers, pastry chefs, bakers, hotels, restaurants, caterers) to global retailers.

Sales revenue decreased slightly to CHF 1,007.1 million, down 2.4% from CHF 1,032.3 million recorded for the same period in 2005/06.

 

Operating profit (EBIT) rose by 7.9 % to CHF 101.3 million, driven by a strong increase in profitability at Consumer Products Europe and Gourmet & Specialties. EBIT was affected by an additional CHF 3 million amortization charge for the European IT platform subsequent to the integration of the European Consumer Products business as well as non-recurring restructuring expenses at the Consumer Products North America business unit of CHF 3.5 million.

 

INDUSTRIAL		Change (%)	Six months up to Feb 28, 2007	Six months up to Feb 28, 2006
Sales volume	mt	11.4	407,190	365,679
Sales revenue 1	CHF m	9.9	1,300.1	1,183.5
Operating profit (EBIT)	CHF m	8.5	118.8	109.5

 

FOOD SERVICE/ RETAIL		Change (%)	Six months up to Feb 28, 2007	Six months up to Feb 28, 2006
Sales revenue	CHF m	-2.4	1,007.1	1,032.3
Operating profit (EBIT)	CHF m	7.9	101.3	93.9

Looking ahead, CEO Patrick De Maeseneire said: “The combined (cocoa) ratio will continue to have a negative effect on profitability in the second half of the current fiscal year. This negative effect will, however, phase out by the next fiscal year. Raw material prices have increased considerably and Easter is one week earlier this year. Nevertheless, our portfolio with industrial customers looks strong and we expect continued good volume growth in the second half of the current fiscal year. We are on track to reach our 3-year financial targets for the period 2005/06 through 2007/08*, and our exciting new outsourcing projects make us confident that we can confirm these. This, as always, barring any major unforeseen events.”

 

*These targets are on average: annual top-line growth of 3-5%, EBIT growth of 8-10% and PAT growth of 12-15%.

 

 

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1)	For comparison reasons the prior year sales revenue has been adjusted for extraordinary bean sales. Reported sales volumes only include processed goods. Therefore physical bean sales are not included in the reported sales volumes whereas they are included in reported sales revenue.
2)	Operating profit (EBIT) + depreciation of property, plant and equipment + amortization of intangible assets
3)	Net profit + depreciation of property, plant and equipment + amortization of intangible assets
4)	Based on profit for the period attributable to the Group (PAT)