Chocolate maker Barry Callebaut today (1 April) insisted that profits from cocoa processing will improve this summer after high cocoa costs dented group earnings in the first half of its fiscal year.
A lower “combined cocoa ratio” – or the relationship between the combined sales price for cocoa butter and cocoa powder relative to the cost of the cocoa bean – was a factor in the Swiss firm posting a 4.5% fall in first-half EBIT this morning.
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Weak demand for chocolate and higher cocoa costs hit Barry Callebaut’s combined cocoa ratio, leading profits from its cocoa processing to fall by around CHF23m (US$21.9m).
The strength of the Swiss franc and the fact that Barry Callebaut was lapping a gain from last year’s disposal of a business in Asia also depressed EBIT. However, speaking to reporters in Zurich, the company’s management emphasised that cocoa-processing profits would improve this year.
“The combined cocoa ratio has shown an improvement since early February … and we expect the improved cocoa combined ratio to have a positive feed through to the group’s profitability after the summer,” CEO Juergen Steinemann said.
Barry Callebaut’s first-half turnover was up 4.5% to CHF2.66bn on the back of “ongoing strong” volume growth. Volumes rose 7.8% and the company said it had seen volumes grow in “all regions” as demand improved in Europe during the period.
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By GlobalDataHowever, Barry Callebaut saw its biggest percentage jump in volumes come from the Americas and Asia.
The company’s volumes in emerging markets – the Americas, Asia and Eastern Europe – account for just 17% of its group volumes but Steinemann reaffirmed the group’s commitment to expanding in these markets. He pointed, for example, to next month’s opening of a chocolate factory in Brazil.
“We all know that further growth in the traditional chocolate markets of Western Europe will only be limited,” Steinemann said. “We will have to get our volumes from Eastern Europe, Asia and the Americas.”
The Barry Callebaut boss also insisted that the consumer-facing chocolate makers were likely to continue to outsource their production.
A growing proportion of Barry Callebaut’s sales volumes comes from outsourcing deals with the likes of Hershey. Steinemann said a desire among brand-owners to focus on sales, marketing and distribution will see more outsourcing deals struck in the industry.
“The trend in outsourcing is clear and will continue,” Steinemann said. “If I was in consumer chocolate and I had a competitor who did not have the backward integration in chocolate, the competitor has both hands free and eyes on where the consumer is – marketing, distribution and consumer understanding. If I need to manage my chocolate production and sourcing, I have only one eye and one arm.”
He added: “We have a good pipeline. I’m confident. I have talked to customers in the last three weeks about outsourcing. We will grow through outsourcing further.”
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