Barry Callebaut today said profits for the first half of the year remained stable as high input and expansion costs offset overall sales volume increases for the Switzerland-based firm.
For the period ending 29 February, operating profit increased by only 1.3 per cent to CHF 200.4m, the company said.
The company blamed the stagnation in part on expansion costs. During the period the company opened two new factories in emerging markets, integrated four new production sites in North America and Europe and drew up three large outsourcing contracts, said chief executive officer Patrick De Maeseneire.
The company said that the results were also impacted by "exceptionally high and volatile raw material prices", during the six months. The cost of cocoa, in particular, surged by almost 50 per cent between September and February, the company added.
What's more, the price of milk powder is still higher than long-term averages, even if they have decreased since reaching a record high in August, the company said.
Barry Callebaut has now increased costs for branded consumer products, but the company stressed that these price hikes did not come into place until 1 January 2008 in accordance with German law, limiting the positive impact on margins.
Overall, the cost of goods increased 25.6 per cent to CHF 2,207m, offsetting the net sale increase of 21.1 per cent to CHF 2,585m.
Operating profit in this region fell 17.1 per cent to CHF 17.3m, attributed by the company to an "unsatisfactory performance" by its African consumer business, as well as capacity constraints at its Singapore-based food production facility.
However, the company still stressed its desire to push further into the Asia-Pacific region, citing its recent acquisition of Kuala LK Berhad, a Malaysia-based chocolate manufacturer. During the six-month period the firm also completed its acquisition of Japanese company Morinaga and inaugurated a manufacturing plant in Shanghai.
Europe and the Americas fared better during the period, with increases in operating profit of 0.6 per cent and 12.1 per cent respectively.
The industrial business segment, which focuses on selling cocoa and chocolate products to industrial manufacturers, said that the acquisition of the Malaysian firm, combined with the expansion of manufacturing plants in France and the Ivory Coast, had a "positive" impact on the company.
Net sales in this segment increased 30 per cent to CHF 1,678.3m, while operating profit went up 2.7 per cent to CHF 122.1m.
The food service and retail division, on the other hand, experienced a 1.2 per cent decrease in operating profit to CHF 107.8m. Barry Callebaut blamed the drop primarily on the aforementioned delay in passing on high raw material costs.
Last November, Barry Callebaut increased its targets for the four year period leading up to 2011, predicting annual top-line growth of 9-11 per cent, operating profit growth of 11 - 14 per cent, and net profit growth of 13-16 per cent.
The company today confirmed these growth ambitions, "barring any unforeseen events", and despite the likelihood of continued high raw material prices.
"Despite the economic and exchange rate uncertainties and the much lower volume growth expected in the third quarter due to the very early Easter, we are confident that we will reach our mid-term financial targets," De Maeseneire said.