ZURICH, Switzerland – The Barry Callebaut Group – the world’s leading manufacturer of high-quality chocolate and cocoa products – saw an acceleration in sales volume growth in the second quarter (+3.1%), leading to a +2.4% increase in sales volume to 1,046,695 tonnes in the first six months of fiscal year 2018/19. Sales volume in the chocolate business grew by +3.5%, which was partly offset by an anticipated decline of -1.7% in Global Cocoa.
The increase in the chocolate business was on top of a strong prior-year base and well above the underlying global chocolate confectionery market, which was growing by +1.5% according to Nielsen4. Region Americas (+5.8%) continued its healthy growth in the first six months of this fiscal year.
Sales volume growth accelerated in Region Asia Pacific (+5.7%), as well as in Region EMEA (Europe, Middle East and Africa) (+2.0%), where sales volume picked up strongly in the second quarter.
Sales revenue increased by +6.0% in local currencies (+3.5% in CHF), at a higher rate than volume growth, to CHF 3,672.7 million, for a large part related to rising raw material prices and a better product mix.
Gross profit amounted to CHF 584.8 million, up +8.5% in local currencies (+5.7% in CHF). This increase above volume growth was driven by a supportive market environment and an improved product mix.
Operating profit (EBIT) improved by +12.4% in local currencies (+8.9% in CHF), well ahead of volume growth, and amounted to CHF 301.4 million, mainly due to increased gross profit and improved cost management. As a result, EBIT per tonne grew by +9.8% in local currencies (+6.4% in CHF) to CHF 288.
Net profit for the period was up +18.8% in local currencies (+15.1% in CHF) to CHF 199.1 million. This was due to the strong increase in EBIT and lower income tax expenses, partially offset by higher net finance costs. Adjusted for the one-time effect on income tax expenses of CHF 10.1 million in prior year, related to tax reforms in Belgium and the US, the net profit increase in the first half of the current fiscal year was +12.3% in local currencies (+8.7% in CHF).
Net working capital increased from CHF 1,087.7 million in the prior year to 1,762.1 million. This was partly the result of the first time adoption of IFRS 155 that required the recognition of cocoa beans at an earlier stage of the value chain in inventories. This led to an adjustment of CHF 336.1 million in the opening balance sheet as of September 1, 2018 and consequently had no cash flow effect.
The remaining increase of net working capital is largely due to higher inventories of CHF 273.7 million compared to prior year. This increase in inventories was partly due to the earlier arrival of the main crop in West Africa, which led to increased cocoa bean inventories. Together with the build-up of required additional inventories, this will allow the Group to fuel its anticipated volume growth in the second half of the fiscal year and to prepare for potential Brexit scenarios.
Net debt amounted to CHF 1,769.6 million compared to CHF 1,208.4 million in the prior year. The increase in net debt related to the higher financing needs for the working capital and is partly due to the impact of the first time adoption of IFRS 15. In addition, the Group paid the dividend amounting to CHF 131.5 million earlier than last year, when the payable amount of CHF 109.8 million was still included in net working capital. Taking into consideration the cocoa beans inventories as readily marketable inventories (RMI), Adjusted net debt amounted to CHF 837.7 million (February 28, 2018: CHF 743.3 million).
Free cash flow for the six-month period under review amounted to CHF –140.6 million, compared to CHF 39.0 million in the prior half year. This is mainly due to the increase in Net working capital as a seasonal effect of the build-up of required additional inventories explained above that is expected to normalize by the end of the fiscal year. When adjusted for the effect of cocoa beans considered as RMI, the Adjusted Free cash flow amounted to CHF –31.4 million.
Outlook – Expecting further acceleration in sales momentum
Looking ahead, Antoine de Saint-Affrique, CEO of the Barry Callebaut Group said: “We have good visibility in our portfolio and expect a further acceleration in sales momentum. This makes us confident we can deliver on our current mid-term guidance. Going forward, we remain committed to achieving consistent above-market volume growth and enhanced profitability, which is why we renewed our mid-term guidance6 for the coming three fiscal years.”