Barry Callebaut Sales Volumes Outperform Chocolate Market
Barry Callebaut increased its sales volume in Region Europe by 4.1% to 753,011 tonnes. In local currencies, sales revenue outperformed volume growth at 4.8%, but was hit by adverse currency effects; in CHF it decreased by 0.5% to CHF 3,042.0 million.
Nov 4 2010 --- Barry Callebaut AG, the world’s leading manufacturer of high-quality cocoa and chocolate products, reported strong results for fiscal year 2009/10 (ended August 31). With a sales volume growth of 7.6%, Barry Callebaut significantly outperformed the global chocolate confectionery market which was basically flat at a growth rate of 0.3%. All regions contributed to this growth. It was particularly strong in those regions where Barry Callebaut had made major investments in the past years: Americas (+15.6%), Asia-Pacific (+15.5%) and Eastern Europe (+11.1%). In terms of Product Groups, Gourmet & Specialties Products managed to accelerate their fast growth pace, recording a sales volume increase of 17.3%.
The strong Swiss franc – Barry Callebaut’s reporting currency – had an unfavorable impact on sales revenue, operational profit (EBIT) and net profit. In local currencies, sales revenue grew strongly by 11.3% (+6.8% in CHF) and reached CHF 5,213.8 million, driven by a higher sales volume and higher average raw material prices. Further operational efficiency gains, an improved capacity utilization as well as tight cost management programs could more than compensate for the anticipated unfavorable combined cocoa ratio, the adverse currency translation effect and fewer one-off gains than in the prior-year period. Operating profit (EBIT) growth in local currencies was 7.9%; in CHF, the increase was 5.6%, up to CHF 370.4 million. As a result of lower financing costs, net profit grew even faster than EBIT; it rose to CHF 251.7 million, or +13.5% in local currencies (+10.9% in CHF).
Juergen Steinemann, CEO of Barry Callebaut, said: “We have managed to deliver top results. Market conditions were challenging with a still rather fragile world economy, a flat global chocolate market, high raw material prices and important currency fluctuations. Our growth strategy based on the three pillars of expansion, innovation and cost leadership, together with our robust business model, have allowed us to cope well with all these market challenges. The main highlights of the past fiscal year were the successful negotiations of a major long-term global supply agreement with Kraft Foods signed in early September 2010, confirming the trend towards outsourcing and strategic partnerships; the opening of our chocolate factory in Brazil, the first one we have in South America; and the gratifying results of our increased focus on our Gourmet & Specialties business.”
The global chocolate confectionery market
Until April 2010, the global chocolate confectionery market was flat in volume terms. Thereafter, it began to recover in some regions but, with a slight plus of 0.3%, it still has not returned to its previous long-term average growth rate of 2-3% per year. However, some markets recorded attractive growth rates, such as the United States (+2.7%), Brazil (+3.5%) and China (+8.2%), while growth in Western Europe was still low (+0.9%) and Eastern Europe continued to suffer (-5.3%).
Overview of performance by region in fiscal year 2009/10
Region Europe – Strong performance amidst challenging market conditions
After bottoming out by the end of calendar year 2009, the chocolate confectionary markets in Western Europe saw a stagnating first semester followed by a second half with slightly increasing consumption – Eastern Europe still shows negative growth rates, especially Russia.
Barry Callebaut increased its sales volume in Region Europe by 4.1% to 753,011 tonnes. In local currencies, sales revenue outperformed volume growth at 4.8%, but was hit by adverse currency effects; in CHF it decreased by 0.5% to CHF 3,042.0 million. Operating profit (EBIT) strongly rose to CHF 268.7 million, up 8.3% in local currencies (+6.3% in CHF), as a result of efficiency gains, slight margin improvements and strict cost control.
Eurogran, the Danish vending mix specialist acquired in summer 2009, as well as Spanish compound and chocolate maker Chocovic, acquired in December 2009, have now been fully integrated into the Barry Callebaut Group and made a positive contribution to sales volume, sales revenue and EBIT. In the factory in Lodz, Poland, a second chocolate production line went on stream in October 2010.
Region Americas – Substantial growth in a mixed market environment
The mature economies of the United States and Canada slowly returned to positive GDP growth after being hit hard by the financial crisis. However, consumer confidence softened and the economic recovery stalled in the second half of the fiscal year. In contrast, the developing regions of Brazil and Mexico showed consistent strength. Chocolate consumption in the United States dipped to low levels in early 2010 but rebounded strongly in the third quarter of fiscal year 2009/10. Overall, the chocolate market in the U.S. grew by 2.7% while the Brazilian chocolate market increased by 3.5%.
In this mixed market environment, Barry Callebaut’s Region Americas achieved a strong sales volume growth of 15.6% to 291,399 tonnes, driven by long-term outsourcing and supply agreements with key Corporate Accounts as well as through broad-based growth in the Gourmet business. Sales revenue went up to CHF 998.2 million, corresponding to an increase of 15.7% in local currencies (+10.8% in CHF). Operating profit (EBIT) rose considerably by 6.3% in local currencies (+7.2% in CHF) and came in at CHF 92.5 million, positively influenced by the volume growth in both Food Manufacturers and Gourmet & Specialties Products business, partly offset by infrastructure investments to support the ongoing growth, including the start-up costs for the new chocolate factory in Brazil, inaugurated in May 2010. This factory which will primarily manufacture Gourmet products is now operational.
Region Asia-Pacific – A strong growth story continues
In 2009 economic growth ratesin Asia-Pacific were mixed, ranging from a GDP decline of 5.2% in Japan to an impressively resilient growth rate of around 9.0% for China. In 2010, GDP growth in the region is expected to range between 4.5% and 9.5%, with the exception of Japan. However, the general growth dynamics in Asia did not translate into higher chocolate consumption across all markets in fiscal year 2009/10. While some chocolate markets, such as China, India, Indonesia and Malaysia showed significant growth, Japan – one of the major markets – was flat.
In Region Asia-Pacific, Barry Callebaut increased its sales volume by 15.5% to 47,984 tonnes. Sales revenue went up by 23.2% in local currencies (+21.4% in CHF) and came in at CHF 211.1 million. Key drivers for this strong growth were higher demand for quality chocolate, including the company’s imported European Gourmet products, and market share gains. Due to the disposal of the Asian consumer business in the previous fiscal year, operating profit (EBIT) decreased by 27.4% in local currencies (-28.4% in CHF) and amounted to CHF 20.9 million. Without this one-off effect, EBIT grew 87.6% in local currencies (+85.0% in CHF).
Global Sourcing & Cocoa - Creating value through core ingredients
In fiscal year 2009/10 cocoa prices were very volatile and reached new historical highs driven by fears of a poor crop and heavy speculative buying. Prices jumped aggressively in the initial months, reaching a 33-year high at the London terminal market in July 2010, but then fell back to close at GBP 1,954 per tonne on August 31, 2010, around last year’s level. While the world sugar price has shown a significant upside move due to a deficit production for the second crop in a row, the sugar price in the regulated EU region, where Barry Callebaut sources the majority of its sugar supplies, was stable, even somewhat declining. Prices for skimmed milk powder went up considerably in the first half of the fiscal year to then stabilize at a relatively high level.
Global Sourcing & Cocoa strongly increased the volume of cocoa products sold to third-party customers by 8.2% to 212,886 tonnes. North and South America were the top performers, with both showing double-digit growth. Sales revenue came in at CHF 962.5 million, a significant increase in local currencies of 29.9% (+28.5% in CHF), due to both higher cocoa bean prices and higher volumes. There was high demand for cocoa powder since the market segments using cocoa powder as an ingredient – mainly the bakery, ice cream and beverage industries – did not suffer as much from the global economic crisis as the chocolate confectionery market where cocoa butter is used to a great extent. Due to the stagnation in the global chocolate market, cocoa butter stocks further increased. As a result the (forward) combined cocoa ratio was under pressure because the high cocoa powder prices could not compensate for the low cocoa butter prices. The combined cocoa ratio showed a recent improvement but it is too early to say whether this will last. Operating profit (EBIT) grew to CHF 54.5 million, +5.4% in local currencies (+3.9% in CHF).
Development by product group in fiscal year 2009/10
Food Manufacturers Products increased its sales volume by 8.3% to 830,849 tonnes, driven by solid growth in all regions, the further implementation of previously signed outsourcing contracts and strong sales of decorations, as well as compounds and fillings. While growing 9.6% in local currencies, sales revenue growth in CHF was 4.3% due to negative currency translation effects; sales revenue was CHF 2,716.7 million.
Operating profit (EBIT) for the Industrial Products Group (Cocoa Products and Food Manufacturers Products) stood at CHF 290.6 million, up 7.5% in local currencies (+6.3% in CHF), as a result of higher volumes, efficiency gains and continuous improvements.
Gourmet & Specialties Products managed to accelerate their fast growth pace as a result of a stronger focus on the business with artisanal customers, strengthened distribution, an adjusted product range and market share gains in all regions. With more at-home consumption than prior to the global economic crisis, for example in North America, the business in the bakery, pastry and confectioners segments was holding up while the Hotel/Restaurant/Catering (HORECA) segment was generally still soft. Sales volume grew significantly by 17.3% to 133,048 tonnes, partly supported by scope effects resulting from the recent acquisitions of Eurogran in Denmark and Chocovic in Spain. In the beverage business, Barry Callebaut is now the market leader in Europe. Sales revenue amounted to CHF 707.6 million, up 19.4% in local currencies (+14.3% in CHF).
Consumer Products underwent a change in scope due to the divestment of the Asian consumer business in the previous year and reclassification of certain Food Manufacturers Products into Consumer Products in line with the segment reporting changes introduced this year. This had an impact on sales volume, sales revenue and operational profit (EBIT). Consumer Productsmanaged to grow its international sales and to improve its country portfolio. Sales volume overall declined by 5.7% to 128,497 tonnes. Sales revenue amounted to CHF 827.0 million, a decrease of -4.6% in local currencies or -8.8% in CHF.
Operating profit (EBIT) for the Food Service/Retail Products Group (Gourmet & Specialties and Consumer Products) was CHF 146.0 million, up 1.9% in local currencies (-0.8% in CHF). Excluding the one-off gain of CHF 17.9 million related to the aforementioned sale of the Asian Consumer business in the prior year, EBIT went up 16.0% in local currencies and 12.9% in CHF.
Fine-tuning Barry Callebaut’s growth strategy
The past two challenging years confirmed the validity of Barry Callebaut’s growth strategy based on the three pillars geographic expansion, innovation and cost leadership. However, the strategic pillar “geographic expansion” needed some fine-tuning because, apart from geographic expansion, there are also opportunities to expand in scale, breadth and depth.
First, Barry Callebaut intends to further strengthen the global leadership position of its Gourmet & Specialties business by managing it as a unit that is ‘independent from but interdependent with’ its industrial business. This means that dedicated management teams have been appointed for the Gourmet & Specialties businesses in Western Europe and North America, the biggest markets, who will get their own profit and loss responsibility within the region to even better steer the implementation of the Gourmet strategy. The better segmentation of the different customer groups and markets will allow Barry Callebaut to adapt its product range and service offering to meet their specific needs. At the same time, the Gourmet & Specialties business will remain interdependent with the Group’s industrial factories and benefit from their scale and manufacturing efficiency. Beyond this, the international gourmet brands Callebaut and Cacao Barry will be developed into global brands and marketing activities will be built around them.
Second, when looking at the business with industrial customers, Barry Callebaut will take a three-pronged approach: 1) driving the current market consolidation and strengthening the position in the mature markets of Western Europe and North America; 2) achieving the full potential in the recently entered emerging markets, such as Russia, China, Japan, Mexico and Brazil; 3) carefully analyzing the entry to other emerging markets. Implementing existing outsourcing volumes and strategic partnerships as well as securing further outsourcing deals with regional and local food manufacturers will remain an essential part of Barry Callebaut’s business strategy.
