Barry Callebaut to Restructure European Consumer Products Business

The restructuring move comes against the backdrop of the weak development of the German and other Western European economies and in order to realize additional cost savings.

08/07/05 Chocolate giant Barry Callebaut AG, has announced results for the nine-month period of fiscal year 2004/05 ended May 31, 2005. Sales volumes went up 4%, of which two-thirds were organic growth. Sales revenue declined by 2.5% as a reflection of lower cocoa bean prices and adverse currency effects. Operating profit before amortization (EBITA) increased by 2% to CHF 197.3 million. Net profit (PAT) jumped by 29% to CHF 101.8 million, partly due to a change in IFRS accounting standards. On a like-for-like basis the increase was a strong 7%, in constant currency terms the increase was 10%.

"We are pleased that our traditional businesses with industrial and artisanal customers continue to do very well in a highly competitive environment. They have contributed overproportionately to the Group's operating profit”, Patrick De Maeseneire, CEO of Barry Callebaut said. “Our European consumer business, on the other hand, is still suffering from difficult market conditions, an unfavorable business mix and price pressure. This situation, together with the opportunity to realize additional cost savings, led us to intensify the current restructuring program in Germany. The goal is to make our consumer business the cost leader and to prepare it for profitable growth as of 2006/07, especially in Customer Label Solutions", he added.

Against the backdrop of the weak development of the German and other Western European economies and in order to realize additional cost savings, the Board of Directors of Barry Callebaut AG decided to intensify the current restructuring program in the Consumer Products Europe business unit.

A restructuring provision of CHF 49 million will be set aside to cover the cash expenses related to measures already initiated or upcoming, including costs for logistics improvements, systems optimizations and employee severance payments. In Europe, the majority of people affected have already been notified. For any additional measures – once determined – consultation with the respective social partners will be initiated without delay. The plan does not foresee any factory closures.

In addition, some fixed assets (such as buildings and idle machines) and some current assets (such as packaging material and various small raw material positions) will be partly/fully impaired in the total amount of CHF 45 million.

Barry Callebaut reported that the total restructuring amount of CHF 94 million will be charged to the current year's accounts. The cash-out related to the restructuring expenses will be fully financed from internal resources. The cost savings and improvements in the gross margin as a result of the restructuring program are expected to reach between CHF 40 to 50 million in year three and recurring thereafter. Barry Callebaut is convinced that these cost savings, together with the comprehensive growth plan that is ready for implementation, will turn  Consumer Products Europe into a profitable business in fiscal year 2005/06 and make it fit for growth as of fiscal year 2006/07.

The primary focus is on bringing the European consumer business onto the same SAP platform that is successfully in operation at the Group's other European chocolate businesses. This will allow the integration of the Consumer Products Europe business unit's key processes and functions into the Barry Callebaut Group with the goal of achieving the envisaged cost leadership in the Group's consumer business. This can now be done faster because Stollwerck is a wholly-owned subsidiary of Barry Callebaut after the squeeze-out of the minority shareholders. The head office of Consumer Products Europe with the key functions in sales, marketing and administration will remain in Cologne, Germany. The business unit will continue to focus on Customer Label Solutions, the Sarotti brand for innovations and co-manufacturing services for branded consumer goods companies and other third parties, such as Genuport, the new distribution partner for the Gubor business.

As part of the Group's continuous program to drive efficiency, some measures will also be completed in the 4th quarter in the Consumer North America business unit as well as in the African operation.