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Callebaut outpaces market but profits hit by partnership and supply chain costs

By Oliver Nieburg , 02-Apr-2012

Barry Callebaut has outshone the global chocolate market in its six month results, but profits were stunted by recent partnership-related costs and supply chain investments.

The company recorded 10.4% sales growth to €2.05 (CHF 2.5bn), while the global chocolate market remained flat, according to data from Nielsen.

However, operating profit fell 5.5% to €145.4m (CHF 175.1m).

Supply deals stunt short-term growth

Barry Callebaut CEO Juergen Steinemann said: “After an anticipated slow start in Q1, we regained momentum in Q2, in all regions and across all product groups.”

“Several major new partnership deals were signed, confirming an important part of our business model. In the last six months, we initiated selective investments in our future growth. This temporarily affected our bottom-line results.”

During the six-month period Barry Callebaut entered into two major chocolate supply deals with Unilever and Latin American food giant Grupo Bimbo.

Costs from these partnerships and investments in capacity expansion harmed profits with Europe the worst hit (profits down 12.2%).

Supply chain investment aimed at W.Europe

To improve its fortunes in the European marketplace, Callebaut will spend €30m over the next two years in a supply chain initiative it calls Project Spring.

The company said the focus will be to streamline internal processes and create competitive cost advantage with a focus on Western Europe.

Callebaut forecasts potential annual savings from this initiative to be in the region of €10m, effective from 2014.

Expansion possibilities

The company’s results were strong in South America and Asia-Pacific.

Volumes tripled in South America, which led to a 19.9% rise in operating profit for the region.

Callebaut hinted at further investment in South America to foster growth.

Profits also grew in Asia-Pacific by 21.1%, but capacity constraints hindered the full growth potential for this region.

The company said future capacity expansions could help harness the full potential of the region.

Commodity costs

Barry Callebaut expects cocoa prices to remain in the GBP 1,400 to 1,600 per tonne price bracket for the next few months.

It also anticipates sugar prices to remain volatile until the new Brazilian crop enters the market in May.

Outlook

Steinemann said: “The economic environment in Western Europe and North America remains fragile.”

However, he added that the company was confident of increasing both its volumes and profits by 6-8% by the year end compared to 2009/10 levels.

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