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Barry Callebaut reports results for fiscal year 2006/07: Continued strong sales and profit growth

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November 06, 2007
Overview

Annual Report, Letter to shareholder, Presentations

Documentation
  • Sales volumes rise 8.5% to 1,059,200 tonnes
  • Sales revenue1 increases 10.6% to CHF 4,106.8 million
  • Operating profit (EBIT) up 9.8% to CHF 324.0 million 
  • Net profit from continuing operations up 9.1% to CHF 207.0 million
  • Sale of Brach’s has been signed; Brach’s therefore classified as discontinued business
  • Increased 4-year financial targets: annual top-line growth of 9-11%, EBIT growth of 11-14% and net profit growth of 13-16%
  • Board of Directors proposes a payout of CHF 11.50 per share, up from CHF 10.50
 
Zurich/Switzerland, November 6, 2007 – Barry Callebaut AG, the world’s leading manufacturer of high-quality cocoa and chocolate products, today published its results for fiscal year 2006/07 closed as of August 31, 2007. Following the signing of an agreement to sell Brach’s in the U.S., the business has been classified as discontinued business and prior-year figures have been restated accordingly. To eliminate distorting effects on key figures, physical bean sales are excluded from sales revenue1, which only shows processed goods sold.
 
In fiscal year 2006/07, the company’s sales volumes rose strongly by 8.5% to 1,059,200 tonnes, with all regions contributing to the increase. Region Europe registered the strongest volume growth with a 10.1% increase. Group sales revenue1 grew significantly by 10.6% to CHF 4,106.8 million, driven by a strong performance in the Food Manufacturers business unit. Operating profit (EBIT) increased to CHF 324.0 million, or a 9.8% rise, reflecting a good performance of all regions and business units. The EBIT improvement was achieved despite the earlier communicated deterioration of the combined (cocoa) ratio and a challenging raw material cost environment, which together had a negative impact of approximately CHF 30 million on the company’s operating result. However, Barry Callebaut’s business model allowed it to compensate the major part of higher raw material costs. Net profit from continuing operations went up 9.1% to CHF 207.0 million.
 
Patrick De Maeseneire, CEO of Barry Callebaut, said: “I am pleased with our results and our achievements in fiscal year 2006/07. We grew more than twice as fast as the global chocolate market. Food Manufacturers continued to be the driving force for volume gain and the Gourmet business had a very strong second semester. Our cost environment will remain challenging amid high raw material prices, but we have responded to these pressures by optimizing our cost structure and increasing sales prices. The major long-term supply agreements with 3 of the top 5 global confectionery makers have clearly positioned us as the outsourcing partner of choice in the food industry.”
 
Group key figures for fiscal year 2006/07
 
 
 
Change (%)
 12 months up to Aug 31, 2007
12 months up to
 Aug 31, 2006
Sales volume
tonnes
8.5    
   1,059,200
     976,661
Sales revenue1
CHF m
    10.6
 4,106.8
   3,713.2
Operating profit (EBIT)
CHF m
    9.8
   324.0
      295.0
EBIT /Tonne
CHF
1.3
305.9
302.0
Net profit from continuing operations
CHF m
    9.1
   207.0
     189.7
  
Market environment
 
The global chocolate confectionery market grew by 3.5% from 2006 to 2007 and is valued at around CHF 90 billion, according to Euromonitor International. The fastest growth was seen in emerging markets like Russia and China. In Western Europe and North America the market for standard chocolates is mature and growth can be attributed mainly to premium products, such as origin, organic, health-enhancing and fair-trade chocolates. Consumer preferences are clearly shifting towards dark chocolate as consumers seek a more intense taste experience and become increasingly aware of the health benefits of the cocoa bean.
 
Overview of business performance per region for fiscal year 2006/07
 
Region Europe: Increased market leadership
 
Region Europe, which accounts for more than 70% of group sales, recorded a sales volume growth of 10.1% to 738,983 tonnes. Sales revenue increased by 12.2% to CHF 3,048.4 million. The growth in Region Europe was driven by a combination of a higher market share, rising demand in Eastern Europe and increased demand for high-quality dark chocolate. Operating profit (EBIT) went up by 7.6% to CHF 290.2 million in Europe. Despite cost pressures from higher raw material prices, the strong top-line performance led to an operating profit increase.
 
New outsourcing agreements with key customers in various countries and solid growth with large and mid-sized industrial customers led to an impressive growth in the Food Manufacturers business unit. The Gourmet & Specialties business unit saw particularly good demand from artisanal customers in the Mediterranean region, the U.K. and in Eastern Europe. In Alicante, Spain, Barry Callebaut started producing premium frozen desserts created by one of Europe’s greatest pastry chefs, Paco Torreblanca. The joint venturehas proven very successful and production will be increased in the current fiscal year. In the Consumer Products Europe business unit, a focus on streamlining measures led to a substantial increase in operating profit, while sales revenue was virtually flat as a result of discontinued unprofitable contracts. The unit could also enlarge its co-manufacturing business.
 
During fiscal year 2006/07, Barry Callebaut signed long-term supply contracts with the world’s largest food company Nestlé S.A. and with Europe’s leading confectionery maker Cadbury Schweppes. The two outsourcing agreements will increase sales volumes by approximately 60,000 tonnes over the next 2 years. As part of the agreement with Nestlé, Barry Callebaut acquired a chocolate factory in Dijon/France and cocoa liquor and liquid chocolate production equipment at the Nestlé chocolate factory in San Sisto/Italy. In line with its geographic expansion strategy, Barry Callebaut opened a new state-of-the-art chocolate factory in Russia, where the company aims to triple its sales volumes over the next three years.
 
Region Americas: Taking the lead
 
Sales volumes in Region Americas went up by 4.8% to 242,696 tonnes, while sales revenue increased by 4.2% to CHF 756.8 million. Operating profit (EBIT) surged by 18.3% to CHF 67.1 million, as a result of a higher sales revenue, tight cost controls, an optimized operational set-up and an adjusted organization.
New supply contracts with industrial customers and market share gainsdrove growth in Food Manufacturers. The Gourmet & Specialties business unit strengthened its market presence by increasing its direct sales force. A targeted marketing campaign underlined the unit’s focus on premium and specialty products.
   
Barry Callebaut has completely transformed its operational footprint in the region. The strategic partnership with The Hershey Company, signed in July 2007, will make Barry Callebaut the No. 1 industrial chocolate supplier in North America. The agreement consists of a major long-term supply agreement and the acquisition of production equipment. In addition, Barry Callebaut is constructing a new factory in Mexico and increasing capacity in existing plants to be able to cater for the increased demand from Hershey’s and other customers. In October, the company also announced plans to buy a cocoa-processing factory near Philadelphia. Barry Callebaut is now well positioned to further gain market share and to assume a leadership role in supplying chocolate to industrial and artisanal customers in the Americas.
  
As announced in September 2007, Barry Callebaut signed an agreement to sell its U.S. sugar-candy subsidiary Brach’s to Farley’s & Sathers Candy Company, Inc., which will allow Barry Callebaut in the future to fully concentrate on its core business, chocolate. The transaction is expected to close by the end of November 2007. In the past fiscal year, Brach’s had moved from being a break-even business to generating an operating loss of more than CHF 12 million. Together with an impairment on assets of CHF 46.7 million and other costs and expenses related to the sale, the non-recurring net loss related to the sale of Brach's amounts to CHF 83.0 million. Barry Callebaut retained tax losses carried forward in the U.S. in excess of USD 200 million that it will be able to benefit from in the future. Net profit after the one-off items related to the Brach’s sale stood at CHF 124.1 million.
 
Region Asia & Rest of World: Capturing growth opportunities
  
Region Asia & Rest of World registered a 5.0% rise in sales volumes to 77,521 tonnes, while sales revenue increased by 11.6 % to CHF 301.6 million. Operating profit (EBIT) rose by 3.8% to CHF 32.9 million. Excluding the African consumer business, which had an unsatisfactory performance during most of fiscal year 2006/07, the region registered a sound double-digit volume, revenue and operating income growth. The African consumer business consisted of three entities in Cameroon, Ivory Coast and Senegal. Chocosen in Senegal was sold to the local management earlier this year and the rest of the African consumer business has been put under review.
 
Intensified sales efforts resulted in rapid volume growth in the Food Manufacturers business unit. In the Gourmet & Specialties business unit, sales force and marketing resources were deployed in China, Japan and South East Asia to assure market penetration and participate in the industry growth in the region. The unit did particularly well in the premium product range, especially in Japan.
  
In the Asia-Pacific region, Barry Callebaut has strengthened its foothold in key target markets. The company is constructing a new factory in Suzhou near Shanghai in China, which is expected to be operational by the end of 2007. The company will open a sales office and a Chocolate Academy in Mumbai, India, later this year. The agreed strategic alliance with Morinaga, one of Japan’s leading confectioners, marks an important step in Barry Callebaut’s geographic expansion strategy and strengthens its position in this premium market. The transaction consists of a long-term supply agreement and the acquisition of production equipment and is expected to be finalized by the end of 2007.
In West Africa, Barry Callebaut is expanding its cocoa processing activities in Ivory Coast to secure future supply of cocoa liquor and cocoa butter.
 


Key figures by regions for fiscal year 2006/07
 
EUROPE
 
Change (%)
12 months up to
Aug 31, 2007
12 months up to
Aug 31, 2006
Sales volumes
tonnes
10.1
738,983
671,172
Sales revenue
CHF m
12.2
3,048.4
2,716.8
Operating profit (EBIT)
CHF m
7.6   
290.2
269.7
 
AMERICAS
 
Change (%)
12 months up to
Aug 31, 2007
12 months up to
Aug 31, 2006
Sales volumes
tonnes
4.8
242,696
231,652
Sales revenue
CHF m
4.2
756.8
726.2
Operating profit (EBIT)
CHF m
18.3  
67.1
56.7
 
ASIA/RoW
 
Change (%)
12 months up to
Aug 31, 2007
12 months up to
Aug 31, 2006
Sales volumes
tonnes
5.0
77,521
73,837
Sales revenue
CHF m
11.6
301.6
270.2
Operating profit (EBIT)
CHF m
3.8   
32.9
31.7
 
Development of business segments in fiscal year 2006/07
 
Industrial business segment
 
The Industrial business segment focuses on selling cocoa and chocolate products to industrial food processors and consumer goods manufacturers worldwide.
Sales volumes were 796,458 tonnes, which represents a growth of 11.3% up from 715,505 tonnes.
  
  • Sales volumes of Cocoa products sold to third-party customers amounted to 142,062 tonnes, which is a plus of 10.7%. Volumes were pushed to compensate for the margin decline caused by the deteriorating combined (cocoa) ratio.
      
  • Sales volumes in the Food Manufacturers business unit were 654,396 tonnes, an 11.5% increase compared to the previous fiscal year. Key drivers were increased outsourcing volumes from existing and new customers and good business with mid-sized industrial customers.
Sales revenue recorded in the industrial business segment rose 15.0% to CHF 2,574.2 million compared to CHF 2,239.1 million in the previous year.
  
  • Sales revenue in the Cocoa business unit rose 13.3% to CHF 453.6 million.
      
  • The Food Manufacturers business unit increased sales revenue by 15.3% to CHF 2,120.6 million, thanks to higher sales volumes and improved sales mix and helped by a favorable exchange rate effect.
Operating profit (EBIT) for the industrial business segment rose by 3.9% to CHF 230.8 million in fiscal year 2006/07. The result was affected by the afore-mentioned adverse effect from the decline in the combined (cocoa) ratio.
  
Food Service/Retail business segment
 
The Food Service/Retail business segment serves a broad range of customers, from local craftsmen (such as chocolatiers, pastry chefs, bakers, hotels, restaurants, caterers) to global retailers.
 
Sales revenue rose 4.0% to CHF 1,532.6 million, mainly driven by a good performance in the Gourmet & Specialties business unit.
 
  • Sales revenue in the Gourmet & Specialties business unit increased by 9.0 % to CHF 590.7 million, thanks to a focus on innovation and successfully launched innovative products. Premium products, such as single origin chocolate, also proved to be very popular among artisanal users.
        
  • Sales revenue in the Consumer Products business units increased by 1.1 % to CHF 941.9 million.
Operating profit (EBIT) for the Food Service/Retail business segment rose by 17.2 % to CHF 159.4 million, driven by an increase in profitability in both business units Gourmet & Specialties and Consumer Products Europe.
 
Key figures per business segment fiscal year 2006/07
 
INDUSTRIAL
 
Change (%)
12 months up to
Aug 31, 2007
12 months up to
Aug 31, 2006
Sales volumes
tonnes
    11.3
   796,458
715,505
Sales revenue
CHF m
    15.0
 2,574.2
2,239.1
Operating profit (EBIT)
CHF m
    3.9
 230.8
222.1
 
 
FOOD SERVICE/
RETAIL
 
Change (%)
12 months up to
Aug 31, 2007
12 months up to
Aug 31, 2006
Sales revenue
CHF m
    4.0
 1,532.6
1,474.1
Operating profit (EBIT)
CHF m
    17.2
   159.4
136.0
 
Proposals to the Annual General Meeting
  
The Board of Directors proposes to the Annual General Meeting of November 29, 2007 to increase the payout to shareholders from CHF 10.50 last year to CHF 11.50 per share, representing a payout ratio of 28.6%. Instead of a dividend payment, the Board of Directors proposes to reduce the share capital of the company through the reduction of the par value per share from CHF 73.70 to CHF 62.20. The par value reduction of CHF 11.50 will be paid out to shareholders free of cost and net of withholding tax in March 2008.
 
Filip De Reymaeker to become Vice President Eastern Europe and Member of the Management Team
 
Eastern Europe, in particular Russia, is a key growth region for the company. Therefore, it was decided to split management responsibility for Europe and to create the new position of Vice President Eastern Europe at the level of the Management Team. Filip De Reymaeker, currently Vice President Food Manufacturers, has been appointed to this position as of December 1, 2007, reporting directly to the Group CEO. Onno Bleeker, member of the Senior Management Team, will continue to assume his responsibility as President Western Europe.
 
Increased financial targets for the 4-year period 2007/08 through 2010/11
 
With four major outsourcing agreements and the acquisition or construction of additional production capacities in Western Europe, Russia, North America, China and Japan, Barry Callebaut has entered a phase of accelerated growth. The company has therefore increased its mid-term performance targets significantly. The revised target for top-line growth is twice as high as the previous target. Operating profit (EBIT) and net profit will also increase faster despite significant investments, start-up costs and additional depreciation related to the additional production capacities. The increased targets for the 4-year period 2007/08 through 2010/11 are on average: annual top-line growth of 9-11%, EBIT growth of 11-14% and net profit growth of 13-16%.
 
Outlook
 
Looking ahead, CEO Patrick De Maeseneire said: “With four major long-term supply agreements, a completely transformed manufacturing footprint in the Americas and a targeted geographic expansion into high-growth markets, we have built a strong basis for accelerated growth in the future. This is why we have increased our financial targets for the 4-year period 2007/08 through 2010/11. Despite a challenging cost environment amid high raw material prices and uncertainties from the currency and financial markets, I am confident that we will continue to outpace the global chocolate market and further improve our performance. This, of course, barring any major unforeseen events.”
 

[1] Sales revenue consists of the net sales turnover of processed goods and related services and excludes the trading of raw materials (e.g. beans). For comparison reasons, prior-year figures have been restated accordingly.
 
* * *
 
For more detailed financial information see Barry Callebaut’s “Letter to Investors”  
 
* * *
 
Barry Callebaut (www.barry-callebaut.com):
With annual sales of more than CHF 4 billion for fiscal year 2006/07, Zurich-based Barry Callebaut is the world’s leading manufacturer of high-quality cocoa and chocolate – from the cocoa bean to the finished product on the store shelf. Barry Callebaut is present in 23 countries, operates 37 production facilities and employs approximately 8,000 people. The company serves the entire food industry, from food manufacturers to professional users of chocolate (such as chocolatiers, pastry chefs or bakers), to global retailers. It also provides a comprehensive range of services in the fields of product development, processing, training and marketing.
 
* * *
 
Contacts
for investors and financial analysts:

for the media:    
Daniela Altenpohl, Head of IR
Barry Callebaut AG
Phone: +41 43 204 04 23
daniela_altenpohl@barry-callebaut.com
Gaby Tschofen, VP Corp. Communications
Barry Callebaut AG
Phone: +41 43 204 04 60
gaby_tschofen@barry-callebaut.com
 
* * *
 
Financial calendar for fiscal year 2007/08 (September 1, 2007 to August 31, 2008):
 
Annual General Meeting 2006/07:
November 29, 2007, Zurich
3-month key sales figures 2007/08:
January 22, 2008
Half-year results 2007/08:             
April 3, 2008, Zurich
9-month key sales figures 2007/08: 
July 1, 2008
Year-end results 2007/08:                
November 6, 2008, Zurich
Annual General Meeting 2007/08:
December 4, 2008, Zurich


Media conference of Barry Callebaut AG (in English)
 
Date:
Tuesday, November 6, 2007
Time:
from 10:00 a.m. to approx. 11:00 a.m. CET
Location:
Widder Hotel, Room ‘Widder Saal’, Rennweg 7, 8001 Zurich, Switzerland
 
If you’d like to follow the conference by telephone, please dial:
+41 91 610 56 00 (for callers from Europe)
+44 207 107 0611 (for callers from the UK)
+1 (1) 866 291 4166 (for callers from the US)
You will then be asked to give your name and the name of your publication.
 
To access the live audio web cast streaming, please follow this link. Participants are advised to log on to the web cast and register their details 10 minutes prior to its commencement. A slight delay between the sound heard and slide changeovers may be experienced. You may therefore want to download your own copy of the presentation from our website.
 
An audio replay of the conference will be available as of November 6, 2007, (12.30 p.m.) for 72 hours under the following phone numbers: +41 91 612 43 30 (Europe); +1 (1) 866 416 2558 (US); and +44 207 108 6233 (UK) - Code ‘732’ (followed by the # sign).
 
If you need assistance, please contact Ms Susanne Baur (phone: +41 43 204 0462 or
e-mail: susanne_baur@barry-callebaut.com).
 
* * *
  
Analysts’ and Institutional Investors’ conference of Barry Callebaut AG
 
Date:
Tuesday, November 6, 2007
Time:
12:00 to approx. 13:30 CET
Lunch:
A light lunch will be offered during the conference, followed by a dessert buffet
Location:
Widder Hotel, Room ‘Widder Saal’, Rennweg 7, 8001 Zurich, Switzerland
 
If you’d like to follow the conference by telephone, please dial:       
+41 91 610 56 00 (for callers from Europe)
+44 207 107 0611 (for callers from the UK)
+1 (1) 866 291 4166 (for callers from the US)
You will then be asked to give your name and the name of your company.
 
To access the live audio web cast streaming, please follow this link. Participants are advised to log on to the web cast and register their details 10 minutes prior to its commencement. A slight delay between the sound heard and slide changeovers may be experienced. You may therefore want to download your own copy of the presentation from our website.
 
An audio replay of the conference will be available as of November 6, 2007, (02.00 p.m.) for 72 hours under the following telephone numbers: +41 91 612 43 30 (Europe); +1 (1) 866 416 2558 (US); and +44 207 108 6233 (UK) - Code ‘716’ (followed by the # sign).
 
* * *
Key Figures for Barry Callebaut
 
 
Change (%)
FY 06/07
FY 05/06
 
Income Statement
 
 
 
 
Sales revenue
   in local currencies
CHF m
 
10.6
7.6
4,106.8
3,997.1
3,713.2
Sales volume
tonnes
8.5
1,059,200
976,661
Gross profit
   in local currencies
CHF m
6.9
              4.6
653.8
639.7
611.8
 
EBITDA (1)
   in local currencies
CHF m
8.8
6.6
427.1
418.4
392.5
 
Operating profit (EBIT)
   in local currencies
CHF m
9.8
7.6
324.0
317.4
295.0
 
EBIT per tonne
   in local currencies  
CHF
1.3
-0.8
305.9
299.6
302.0
 
Net profit from continuing operations
   in local currencies
CHF m
9.1
7.0
207.0
203.0
189.7
 
Net loss from discontinued operations
CHF m
n/a
-83.0
-6.1
Net profit of the year
CHF m
-32.4
124.1
183.6
Cash flow (2)
CHF m
16.9
406.8
347.9
Ratios
 
 
 
 
Economic Value Added
CHF m
16.6
122.9
105.4
Return on invested capital (ROIC)
 
4.4
14.3%
13.7%
Return on equity (ROE)
 
3.0
19.5%
19.0%
Shares
 
 
 
 
EBIT per share
 in local currencies
CHF
9.8
7.6
62.7
61.4
57.1
 
Basic earnings per share (3)
CHF
9.3
40.2
36.7
Diluted earnings per share (3)
CHF
9.9
40.0
36.4
Balance Sheet
 
 
Aug 31, 2007
Aug 31, 2006
Total assets
CHF m
13.3
3,186.7
              2,811.8
Net working capital
CHF m
-4.0
883.94)
920.9
Non-current assets
CHF m
2.2
1,211.3
1,184.9
Net debt
CHF m
2.6
930.2
906.9
Shareholders’ equity
CHF m
6.0
1,059.1
999.2
Others
 
 
 
 
Employees
 
8.0
7,592
7,028
 
1)
Operating profit (EBIT) + depreciation of property, plant and equipment + amortization of intangible assets
2)
Operating cash flow before working capital changes
3)
Based on net profit from continuing operations attributable to the shareholders of the parent company
4)
Excluding discontinued operation. In line with IFRS 5 prior-year figures for the balance sheet have not been restated.
Key figures by region and by business segment
 
 
Change (%)
FY 06/07
FY 05/06
Sales by region
 
 
 
 
Europe
 
 
 
 
Sales volume
tonnes
10.1
738,983
671,172
Sales revenue
CHF m
12.2
3,048.4
2,716.8
EBITDA
CHF m
7.5
363.2
337.9
EBIT
CHF m
7.6
290.2
269.7
Americas
 
 
 
 
Sales volume
tonnes
4.8
242,696
231,652
Sales revenue
CHF m
4.2
756.8
726.2
EBITDA
CHF m
16.7
83.7
71.7
EBIT
CHF m
18.3
67.1
56.7
Asia/Rest of the world
 
 
 
 
Sales volume
tonnes
5.0
77,521
73,837
Sales revenue
CHF m
11.6
301.6
270.2
EBITDA
CHF m
-0.2
42.2
42.3
EBIT
CHF m
3.8
32.9
31.7
Sales by business segment
 
 
 
 
Industrial Business Segment
 
 
 
 
Sales revenue
CHF m
15.0
2,574.2
2,239.1
   - Cocoa
CHF m
13.3
453.6
400.2
   - Food Manufacturers
CHF m
15.3
2,120.6
1,838.9
Sales volume
tonnes
11.3
796,458
715,505
   - Cocoa
tonnes
10.7
142,062
128,384
   - Food Manufacturers
tonnes
11.5
654,396
587,121
EBITDA
CHF m
4.5
287.8
275.4
EBIT
CHF m
3.9
230.8
222.1
Food Service/Retail Business Segment
 
 
 
 
Sales revenue
CHF m
4.0
1,532.6
1,474.1
   - Gourmet & Specialties
CHF m
9.0
590.7
542.0
   - Consumer Products
CHF m
1.1
941.9
932.1
EBITDA
CHF m
14.1
201.3
176.5
EBIT
CHF m
17.2
159.4
136.0