Half-year results

Barry Callebaut outperforms chocolate market but cocoa business troubled

By Oliver Nieburg contact

- Last updated on GMT

Barry Callebaut has recorded volume growth in all regions, while the overall chocolate market declined. But profits for its cocoa arm have been hit by weakening demand.
Barry Callebaut has recorded volume growth in all regions, while the overall chocolate market declined. But profits for its cocoa arm have been hit by weakening demand.

Related tags: Chocolate confectionery, Chocolate, Cocoa solids, Barry callebaut

Barry Callebaut has outgrown the chocolate confectionery market in its half-year results, but its cocoa ingredients arm continues to be hampered by low cocoa ratios.

The company today announced sales for its first six months of fiscal 2014/15 were up 11.6% to CHF 3.2 bn ($3.3bn), while net profit rose 10.7% to CHF 132.4 ($136m).

Sales volumes were also up, by 2%, to 893,437 metric tons. This contrasted to the overall chocolate confectionery market, which declined 1.5% in volume over the same period (September 2014 – February 2015), according to Nielsen.

Outpacing the market

Barry Callebaut CEO Juergen Steinemann, who will step down in September, said: “As forecasted, we had a good second quarter after a slow start to the year. Our volume growth accelerated, much in contrast to the currently weak global chocolate confectionery market.

Nielsen data shows chocolate confectionery volumes fell across the globe during the period: in Western Europe (-1.1%), Eastern Europe (-1.2%), North America (-1.3%), South America (-5.9%).

But Barry Callebaut grew volumes by 2.1% in Europe, 1.9% in the Americas and 5.8% in Asia-Pacific.

This was driven by growth by all segments. Sales volumes from outsourcing agreements with companies such as Hershey, Grupo Bimbo, Morinaga, Mondelēz and Arcor rose 5% and Sales volumes in the company’s gourmet’s business also grew, by 6%.

Cocoa division concerns

However, volume growth in Barry Callebaut’s Global Cocoa segment – which comprises cocoa butter and powder sales and the Petra Foods ingredients division -  was up just 1.2% and operating profit (EBIT) dropped 39.6% to CHF 20.6m ($21.2m).

Company CFO Victor Balli said in an earnings call: “Given the still challenging, I would even call it very weak market environment for cocoa products, we did not push sales.”

cocoa ratio in europe
Source: Barry Callebaut Media presentation

Historic lows for combined cocoa ratio

The company was hit by the combined cocoa ratio - the price of cocoa butter and cocoa powder relative to the futures price for cocoa beans – which impacts profitability for cocoa processors

Balli said: “The combined ratio has been on the decline since two years, which is negatively affecting our cocoa profitability. In Asia the ratio is as low as 2.5 – this is the result of significant additional capacities being built up especially in Asia during the past years. At the same time demand for cocoa products has dropped as a result of sluggish global chocolate demand and rather soft demand from emerging markets. So we are faced with a temporary unbalanced supply and demand situation.”

“…We had not expected this trend to last so long and go so deep, which is also seen as very unique and exceptional by industry experts.”

But he said he expected demand for chocolate confectionery to rise in Asia, which will help balance supply and demand for cocoa.

“This gives us confidence to expect some upside potential for the combined ratio in the next year.”

Related topics: Ingredients, Chocolate, Cocoa & Sugar

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