Barry Callebaut profits from outsourcing trend

By Jess Halliday

- Last updated on GMT

Related tags Chocolate Barry callebaut

The trend towards food manufacturers outsourcing their chocolate
ingredient needs translated into impressive volume and sales growth
for Barry Callebaut's industrial business segment for the first six
months of the fiscal year.

The division, which is made up of the cocoa business unit and food manufacturers business unit, reported 11.4 per cent organic growth in sales volumes for the six months ended February 28, to 365.679 tonnes.

Sales revenue rose 9.9 per cent to CHF 1,399.1m (€823.4m), and operating profit was up 8.5 per cent to CHF118.8m (€73m).

In food manufacturing, increased outsourcing volumes were attributed to increased outsourcing volumes from existing and new customers.

The company said that there is a trend towards manufacturers outsourcing their chocolate needs to specialised partners - and this is expected to accelerate as more integrated companies shift their focus towards sales and marketing and source from third parties.

One big deal for Barry Callebaut is its planned agreement with Nestle to acquire the cocoa liquor and liquid chocolate production facility at the chocolate factory in San Sisto, Italy and a chocolate factory in Dijon, France.

The agreement also includes a long-term agreement to supply some 43,000 tonnes of liquid chocolate and produce some of Nestle's consumer products.

All in all, the arrangement, which is expected to be finalised in the summer, would add around CHF150m (€92.2m) to Barry Callebaut's annual sales.

CEO Patrick De Maesneire said that the new outsourcing projects are giving the company confidence that it will achieve its 3-year financial targets through to 2007/8 - annual top-line growth of 3 to 5 per cent, EBIT growth of 8 to 10 per cent, and net profit growth of 12 to 15 per cent.

For the cocoa business unit, volumes increased by 13.8 per cent during the reporting period; volumes were pushed in a bid to compensate for margin decline caused by deteriorating combined (cocoa) ratio - that is, combined sales prices for cocoa butter and cocoa powder relative to the cocoa bean price.

De Maesneire said that the combined (cocoa) ratio is expected to continue having a negative effect on profitability in the second half of the fiscal year, whereafter it will phase out.

For the company overall, including its Food Service/Retail Business Segment, net profit was up 11.1 per cent to CHF 125.2m and operating profit up 7.3 per cent to CHF190m (€116.8m).

The US was a notable detracting factor, reporting an eight percent drop in operating profit to CHF28.1m (€17.26m).

While the Food Manufacturers and Gourmet and Specialties units performed well, this was offset by weaker sales from Consumer Products North America.

The company is currently reviewing its consumer products business in the region.

Despite raw material process increasing considerably and the early timing of Easter this year, De Maesneire said: "Our portfolio with industrial customers looks strong and we expect continued good volume growth in the second half of the current fiscal year."

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