In its past fiscal year 2011/12 ended August 31, 2012, Barry Callebaut AG, the world's leading manufacturer of high-quality cocoa and chocolate products, accelerated its growth pace and achieved strong volume growth in all Regions. Sales volume grew by 8.7 percent to 1,378,856 tonnes. All Product Groups contributed to this growth. Barry Callebaut's growth was significantly higher than the global chocolate market growth. It was driven by the company's core business, the Food Manufacturers Products business, including long-term partnership agreements. Specialties products and emerging markets also supported growth. Barry Callebaut's Gourmet business considerably outpaced the respective local market growth.
Sales revenue increased 11.5 percent in local currencies (+8.3 percent in CHF) to CHF 4,829.5 million. In order to support current and future growth, Barry Callebaut invested significantly in structures, factory expansions, the Gourmet business, ramp-ups related to strategic partnership agreements, and "Sustainable Cocoa".
An accelerated demand as well as capacity constraints in some areas resulted in higher operating and supply chain costs. All these factors affected the company's operating profit (EBIT): EBIT increased 1.0 percent in local currencies (-2.5 percent in CHF) to CHF 353.2 million. A lower EBIT (in CHF), higher financing costs as well as a less favorable tax mix led to a decrease in net profit from continuing operations (-5.2 percent in local currencies, -8.5 percent in CHF) to CHF 241.1 million. Net profit for the year including discontinued operations amounted to CHF 142.6 million, compared to CHF 176.8 million in prior year.
Outlook - Positive on company's performance despite challenging environment
"Despite the current, rather difficult economic environment, especially in Western Europe, we remain positive on delivering on our strategy and reaching our targets. Therefore, we have renewed our mid-term guidance of on average 6 to 8 percent growth in volume and EBIT until 2014/15," said Juergen Steinemann on the outlook. "Our main priority for the next fiscal year is to finalize the various investments in capacities and structures. This will create a sound basis for profitable growth. Other priorities are managing our continued growth through long-term partnerships, Gourmet and emerging markets as well as further increasing our operational efficiency with project "Spring" in Western Europe. We also aim to bring additional innovations to the market and further invest in our sustainability initiative "Cocoa Horizons."
Strategic developments/highlights along the four strategic pillars
Barry Callebaut recently signed long-term agreements with Unilever, Grupo Bimbo (Mexico), Morinaga (Japan) and Arcor (Chile). The company entered into a joint venture with P.T. Comextra to build a new cocoa processing plant in Indonesia. Through capacity expansions at existing factories and the addition of new factories, Barry Callebaut significantly expanded its manufacturing footprint. To further develop its geographic presence in emerging markets, Barry Callebaut announced the construction of a new factory in Turkey last month. Supporting the acceleration of its Gourmet business, the company also acquired Spanish la Morella nuts and the American decorations company Mona Lisa Food Products, Inc. Focusing on business-to-business activities, Barry Callebaut announced its intention to sell its last remaining consumer chocolate factory in Dijon (France) to Chocolaterie de Bourgogne.
Barry Callebaut was the first company to receive a positive Scientific Opinion from the European Food Safety Authority (EFSA) on a health claim on cocoa flavanols in July. The company was able to provide evidence that the intake of a defined amount of cocoa flavanols positively influences blood circulation in the human body. In addition, Barry Callebaut also received awards for two of its recent innovations, the Terra Cacao(TM) chocolate based on the company's patented Controlled Fermentation method, as well as for a special chocolate for a new Magnum® ice cream.
Overall manufacturing costs per tonne of activity decreased on a like-for-like basis by 3 percent (target: -2 percent). Strong volume growth supported by technology and process improvements increased both capacity utilization for liquid chocolate and the cocoa processing capacity utilization rate.
After the sale of the Consumer Products business, Barry Callebaut started a comprehensive reengineering project called "Spring", mainly focused on Western Europe. The company aims to improve customer service, boost speed-to-market, reduce internal complexities, as well as increase overall efficiency and services to the other Regions.
With "Cocoa Horizons", Barry Callebaut started the most comprehensive sustainability program in its history, based on its long-time commitment in this area. The focus is on direct and effective investments in the early stages of the cocoa supply chain. Over the next 10 years, Barry Callebaut will invest CHF 40 million in the most important origin countries. Last year, the company mainly funded training of cocoa farmers in Good Agricultural Practices (GAP), as well as in preparing them for certification. In addition, Barry Callebaut started to build a Center of Cocoa Excellence in Côte d'Ivoire and conducted more than 500 Farmer Field Schools during the past fiscal year.
Regional / Segment performance
Region Europe - Strong growth in partly difficult markets
The European chocolate confectionery markets grew by 1.4 percent. Western Europe slightly decreased (-0.6 percent) while Eastern Europe recorded attractive, above-average growth at 5.2 percent, driven by Russia, Turkey and Poland.
Region Europe achieved strong volume growth given the challenging market conditions, especially in Southern Europe: sales volume increased by 6.9 percent to 688,203 tonnes.
After a slow start, the Food Manufacturers Products business in Western Europe gradually increased sales volume growth with an exceptionally strong fourth quarter. Growth was driven by outsourcing agreements and specialty products, as well as overall market share gains. The Gourmet business showed a good performance in the light of difficult markets in some of the key countries, including Southern Europe. Sales volume at the Beverages division declined slightly due to weather conditions and customer destocking.
In Eastern Europe, both Food Manufacturers Products and the Gourmet & Specialties Products businesses continued to grow at double-digit rates, to which Russia and Poland delivered the biggest contributions.
Overall sales revenue grew by 5.1 percent in local currencies (+0.2 percent in CHF) to CHF 2,150.6 million. Ramp-up costs related to outsourcing agreements, higher factory and supply chain costs, and investments in adapting structures as well as Gourmet impacted operating profit (EBIT). It decreased by 1.7 percent in local currencies (-5.1 percent in CHF) to CHF 232.2 million.
Region Americas - Continued double-digit growth - top and bottom-line
The U.S. chocolate market decreased by 2.0 percent, whereas the market in Brazil slowed down its growth pace to +4.7 percent.5 Barry Callebaut grew significantly faster than the local chocolate markets.
Overall sales volume increased strongly by 15.3 percent to 361,819 tonnes in Region Americas. Both the Food Manufacturers and Gourmet & Specialties Products businesses continued to grow by double-digits. In North America, Corporate as well as National Accounts showed double-digit growth rates driven by new volumes from outsourcing agreements and market share gains. Barry Callebaut was able to more than double its local volumes with industrial customers in Brazil; the business in Mexico also reported a strong performance, increasing its business volumes double-digit. Our leading imported brands, Callebaut® and Cacao Barry®, contributed significantly to the strong Gourmet growth.
Sales revenue increased by 13.1 percent in local currencies (+13.5 percent in CHF) to CHF 1,111.8 million. Operating result outpaced the strong volume and revenue development to a large extent thanks to positive mix effects - particularly supported by the strong performance of the Gourmet business - as well as an overall positive margin development and improved capacity utilization: Operating profit (EBIT) rose by 25.4 percent in local currencies (+25.6 percent in CHF) to CHF 90.2 million.
Region Asia-Pacific - High, profitable growth
Chocolate markets in Asia continued their solid growth pace at +5.5 percent.
In Region Asia-Pacific, Barry Callebaut sustained its double-digit volume growth trajectory of recent years despite some capacity constraints that limited growth opportunities early in the year. Sales volume rose by 10.3 percent to 57,815 tonnes. The Food Manufacturers Products business increased its sales volume double-digit, particularly driven by strategic partnerships. In the Gourmet business, the company further strengthened its leadership with the global Gourmet brands Callebaut® and Cacao Barry®.
On the basis of lower average raw material prices compared to last year, sales revenue rose by 4.1 percent in local currencies (+4.7 percent in CHF) to CHF 232.4 million. Operating profit (EBIT) outpaced volume growth with a strong growth of 20.9 percent in local currencies (+19.3 percent in CHF) to CHF 29.7 million, partly as a result of increased capacity utilization and partly from positive margin developments.
Global Sourcing & Cocoa - Investments in future growth
After continuously moving downward until the end of 2011, cocoa prices were range-bound between GBP 1,400 and 1,600 per tonne. Dry weather in Africa and uncertainties about the next main crop as well as the cocoa reform in Côte d'Ivoire put some slight upside pressure on prices end of July.
Prices on the world sugar market corrected significantly downwards whereas EU sugar prices stayed at historically high levels. Milk powder prices initially declined, followed by a strong surge due to the drought in the U.S. Milk powder prices closed at the rather high previous year's level.
Capacity expansions at existing factories and higher internal cocoa powder demand impacted Global Sourcing & Cocoa's growth in the first half. Early 2012, external demand started to pick up, driven by Barry Callebaut's strategic partners. Overall sales volume rose by 4.7 percent to 271,019 tonnes. The segment reported continued strong revenue growth: Sales revenue increased by 23.8 percent in local currencies (+20.1 percent in CHF) to CHF 1,334.7 million due to high cocoa powder prices at the time the business was contracted.
After an initial downward correction, the combined cocoa ratio increased later in the year; overall, it had a neutral effect on Barry Callebaut's profitability. In addition, the positive volume growth was unable to fully offset increased costs from the ramp-up of strategic partnership agreements including related supply chain and logistic costs as well as from investments in sustainability. Consequently, operating profit (EBIT) declined by 8.9 percent in local currencies (-15.7 percent in CHF) to CHF 65.2 million.