Barry Callebaut expects its deal to buy Petra’s cocoa ingredients business – first announced in December – to close this summer.
Since the US$950m transaction was announced, Petra has reported a slump in annual profits. Petra booked a 57% fall in earnings on the back of one-off costs related to the deal with Barry Callebaut and to excess capacity in the local cocoa ingredients sector.
Presenting at the Consumer Analyst Group of Europe conference in London yesterday (20 March), Barry Callebaut was quizzed about Petra’s numbers and the shape of the cocoa ingredients sector in Asia.
At the time the deal was announced, some analysts expressed concern about the price Barry Callebaut had agreed to pay for Petra’s cocoa ingredients assets.
However, speaking at the Cage conference, Barry Callebaut CFO Victor Balli said the company was aware of Petra’s performance when it analysed whether to buy its assets and knew about the build up of capacity in the region.
“We of course did a whole strategic analysis of the sector and the attractiveness of the cocoa semi-finished products. That picture doesn’t change from one day to another,” Barry Callebaut CFO Victor Balli told analysts at CAGE. “If you track that market over the last 20 years, there was always 20-25% excess capacity in that market. In the past, there are a lot of Asian players who have put in capacity that don’t have the knowhow and don’t really fill up their factories. That’s created volatility in profitability in that segment. We were factoring that in.”
At the time of the deal, Barry Callebaut said the Petra assets had lower margins that its own and would mean it misses its EBIT margin per tonne target for two financial years.
Vontobel analyst Jean-Philippe Bertschy said Barry Callebaut was “securing a number one position in the fast growing emerging markets, however at a high price”. Jon Cox, an analyst at Kepler Capital Markets , said the acquisition made sense strategically but could “disappoint” investors “with a shorter time horizon”.
Barry Callebaut defended the price it paid by pointing to Petra’s assets being an “excellent strategic fit” and said cost savings meant its EBIT per tonne target would be reinstated by the 2015/16 financial year.
At CAGE, Balli insisted Barry Callebaut was looking at the “value” of the acquisition over many years.
“In a competitive acquisition, we don’t value for one year, we value actually a long-term average of performance and potential,” he said. “We are not surprised by the results as we knew them through the due diligence. When you analyse the results, there are quite a lot of one-offs related to the acquisition. You have to deduct that. If you take the ongoing result, it’s exactly within our business plans.”