Barry Callebaut has insisted the investments it made during the first six months of its financial year have provided it with a “good base” for future growth after it reported a fall in half-year profits.
The Swiss chocolate maker yesterday (2 April) booked an 18% slide in net profit to CHF121.8m (US$134.88m) and EBIT dropped 12.5% to CHF175.1m as the company invested in initiatives to “support further growth”. Barry Callebaut said it incurred “ramp up” costs on recent outsourcing deals and charges from increases in production capacity.
Speaking on the company’s earnings call, CFO Victor Balli told analysts that targeted investments are expected to “provide the platform for future growth”.
“We had CHF30m of additional costs in the first six months. Some of course are related to build-up structures which will benefit us into the future. Other costs were related to some inefficiencies we had, especially in Western Europe and also some in the cocoa segment. The third element is really one-time costs … and more long-term investment in sustainable cocoa,” he said.
Balli said the firm’s Spring project, which has focuses on western Europe, will enable it to be “best in class” in this region. He said the company is confident of achieving annual cost savings of CHF10m by 2013.
“Through this [project] we aim to streamline all of our customer related services, increase speed to market and create the next level of cost competitiveness. Spring will focus on streams such as pricing, sales and operations planning and new product introduction processes. We will spend about CHF30m over the next two years achieving annual saving of CHF10m effective as of year three,” he said.
The chocolate maker, which supplies the likes of Kraft Foods, Nestle and Hershey, is also looking to expand further in Eastern Europe, Balli said.
“In Eastern Europe we have had second discussions with a team that is working on that [area], so we will come back with more details in November about the strategy,” Balli said. “I don’t want to give more juice to this right now, but I see a lot of things coming there.”
In Asia, Balli said the company aims to triple its turnover and make “a clear jump” in EBIT.
“Where are we here? One point is about making a next step in China, so we are. We designed a factory that is much cheaper because you focus a lot more on labour and not automation. We are working on defining where we want to make our next step. We want to have a step in India too … we have started by having somebody there working on the thought process for us to see how local production goes.”
However, shares in Barry Callebaut fell yesterday in the wake of the results, which Kepler Capital Markets analyst Jon Cox put down to profit not meeting expectations.
“Ahead of the figures, consensus operating profit [for the full year] was close to CHF380m, obviously that needs to go down to CHF350m, so I think that’s why the stock has reacted quite negatively,” he said.
However, Cox added the company’s outsourcing contracts may have a positive effect on earnings.
“The new contracts tend to be dilutive to their margins, it takes time to ramp up and as a result they are having an impact, so further down the road, maybe in one or two years time the operating profit should reverse and you might find the operating growth is then running ahead of the sales growth. But I think the disappointment today is that EBIT was worse than expected and the company has said it will take time,” he added.
This article was originally published on 2 April. It has been re-published due to a hardware failure that affected the site between 18:00 and 21:30 that day. All original articles are currently unavailable but we are working to fix the problem.