Restructuring delay contributes to Barry Callebaut slump

Related tags Barry callebaut Cocoa bean United states dollar Revenue

Barry Callebaut, the world's leading supplier of chocolate to the
confectionery industry, has reported a 6 per cent fall in first
quarter sales revenues to CHF1.15bn (€0.79bn) as squeezed margins
bit into its bottom line. The company's move into consumer
products, which boosted sales a year earlier, failed to lift its
performance this year as the group struggled to integrate its new

Despite a 3 per cent rise in sales volumes, lower profits in its consumer products business unit, adverse exchange rates and tighter margins on semi-finished products hit overall results, which slid 3 per cent to CHF55.2m for the first quarter ending 30 November.

The firm also cited lower underlying cocoa bean prices as impacting sales revenue for third quarter, due mostly to the political instability in the Ivory Coast, where Barry Callebaut has three processing facilities.

The dour figures arrive just a few months after the Swiss firm delivered a strong profit for 2004 on the back of sales which topped the CHF 4 billion (€2.6bn) barrier for the first time.

But the company had expected the poor performance. "We knew that the margins on semi-finished products would be lower and that the cost savings resulting from the restructuring initiated in Consumer Products Europe at the beginning of the fiscal year would only start taking effect in the second half of the fiscal year,"​ said Patrick De Maeseneire, CEO of Barry Callebaut.

Barry Callebaut has moved steadily to reduce its dependence on raw materials and ingredients in recent years, buying up a number of finished product manufacturers such as Stollwerck, Brach's and Luijckx. These acquisitions helped boost last year's first quarter performance by 16 per cent, although a favourable currency effect also boosted the 2003/04 figures.

But with range rationalisation at Stollwerck taking longer than expected, and the cost of integrating the various acquisitions yet to be offset by synergy benefits, the first quarter 2004/05 performance from this division was particularly poor.

Sales of consumer products were down by 11 per cent to CHF396.4 million, with negative currency effects and an unfavourable business mix (referring to the large number of low margin products inherited as part of the Stollwerck acquisition) cited as the principal reasons.

The company has increased its prices in Germany, where most of Stollwerck's low margin businesses were, but said that some 10,000 tonnes of low-price chocolate products would have to be discontinued if the increases could not be sustained.

The decision to focus on premium chocolate products in particular - as shown by the acquisition of Luijckx - was vindicated by an excellent first quarter performance from the gourmet business unit. Sales increased by 2 per cent to CHF158.2 million, with Europe and Asia in particular performing well.

With the cost savings from restructuring the consumer products business unlikely to be seen until the second half, the remainder of the first half could be equally as difficult. However, a good performance in the all-important pre-Christmas period should get second quarter sales off to a good start, and with the return of stability to the Ivory Coast, cocoa prices are expected to remain more stable.

Related topics Markets Outsourcing