Barry Callebaut sets the course for sustainable profitable growth and higher cash generation

At its Capital Markets Day in London, Barry Callebaut Group reveals a strategy update and long-term growth plan, with further details on its BC Next Level strategic investment program. In addition, the company presents its full year results for the fiscal year 2022/23.

"Our purpose is to create the world's best chocolate solutions for our customers - now and in the future. As the leader in the attractive, growing chocolate ingredients market and given our strength in sustainability and innovation, we are ideally positioned to outgrow the market. Our strategic growth priorities in combination with our BC Next Level investment program set the course for sustainable profitable growth and higher cash generation. We will deliver to our customers better value, service, quality and sustainability and make Barry Callebaut a much more resilient and profitable business, creating long-term value for all our stakeholders," Peter Feld, chief executive officer of Barry Callebaut Group.

Four strategic growth priorities to drive Barry Callebaut's ambitions

BC Next Level will fully unlock the Group's leading position in the chocolate ingredients market in pursuit of four strategic long-term growth priorities:

• Deepen outsourcing partnerships: Barry Callebaut is uniquely positioned as the global partner of choice to the most important customers in the Fast Moving Consumer Goods (FMCG) sector who want more sustainable and innovative chocolate solutions. Barry Callebaut will deepen these partnerships, leveraging its innovation capabilities to create better chocolate solutions for customers. In the coming years, Barry Callebaut aims to win two thirds of outsourcing partnership volumes expected to come to the market.

• Launch Gourmet 2.0: Barry Callebaut will move closer to markets and customers to better serve foodservice and artisanal customers and chains by broadening the focus across premium and mainstream market segments, simplifying its brand portfolio and modernizing its routes to market. Barry Callebaut’s ambition is to increase its value market share in the Gourmet market globally and deliver growth at double the underlying market growth rate.

• Scale up Specialties: Barry Callebaut’s ambition is to double the size of its core Specialties business by increasing the penetration of its highly differentiated specialty offerings in high growth areas such as gluten-free, vegan, single origin and other specialty chocolates. To achieve this, Barry Callebaut will continue to evolve its product offering to focus on the most scalable market segments and launch a dedicated customer-focused innovation capability. The company will also enhance its route to market by leveraging its deepened outsourcing partnerships. The growth of Specialties will support the continued premiumization of Barry Callebaut’s Food Manufacturing and Gourmet businesses.

• Move to “fair" market share in the region Asia-Pacific (APAC): Barry Callebaut’s ambition is to double the size of its APAC business to deliver value market share in line with the wider Group. Barry Callebaut will put into place localized strategies built around the new country clusters to offer solutions tailored to local markets, with optimized distribution leveraging the digital enhancements delivered by BC Next Level. Both strong demographic trends and investments from leading FMCG players support Barry Callebaut’s ambition in APAC.

These growth priorities will be underpinned by Barry Callebaut’s new streamlined, and tech-enabled organizational capabilities following the BC Next Level measures. Barry Callebaut’s commitment to best-in-class sustainability will further drive the implementation of the growth priorities. The company aims to inspire modern cocoa farming practices and therewith create the future of sustainability for the industry. The company sees execution against its own industry-leading sustainability ambitions as a key commercial differentiator and as a key source of alignment between itself, its customers and the end consumer.

BC Next Level: Unlocking growth and creating a step-change in profitability and cash generation

In total, the investment program BC Next Level will position Barry Callebaut for sustainable profitable growth: the measures will move the company closer to customers and markets and digitalize the front and back ends. By optimizing its portfolio, go-to-market strategy, supply chain, and manufacturing, Barry Callebaut aspires to deliver the most sustainable and high-value solutions to customers.

The program will bring Barry Callebaut to a higher profit margin and cash generation level and subsequently allow for a more attractive financial profile in the medium-term.

As previously announced, BC Next Level includes a strategic investment of net CHF 500 million (funded from existing financial resources) in areas most relevant for customers and will in turn unlock CHF 250 million of cost savings, of which 75% are expected to flow-through to the bottom line and will deliver a one-time step-function improvement in profit margin supporting the Group in building towards a 10% EBIT margin ambition.

Long-term profitability and growth plan to deliver value for all stakeholders

Barry Callebaut expects a 24-month transition period as it undertakes the actions necessary to create the profitable growth platform that delivers long-term value.

For the fiscal year 2023/24, Barry Callebaut sees flat volume, reflecting positive underlying growth, partially offset by BC Next Level actions, such as product rationalization and distributor optimization. In addition, Barry Callebaut guides towards flat EBIT on a recurring basis (in local currencies and without BC Next Level one-time costs), reflecting first modest impact of permanent BC Next Level benefits, offset by product rationalization, distributor optimization and pricing actions taken to increase the value delivered to Gourmet customers.

In the fiscal year 2024/25, the Group expects to grow volume and EBIT modestly on an underlying basis (without BC Next Level one-time costs and permanent benefits), delivering a stronger EBIT growth including permanent benefits.

The company will deliver its long-term growth objective from the fiscal year 2025/26 onwards with Low Single-digit Plus to Mid Single-digit volume growth, and Mid Single-digit Plus to High Single-digit EBIT growth1.

During the transition period, Barry Callebaut's dividend per share will not be lower than prior year.

1  _{FY 2025/26 still includes BC Next Level one-time costs and permanent benefits}

Barry Callebaut Group – Full-Year Results, Fiscal Year 2022/23

Barry Callebaut also released its fiscal year 2022/23 results. The full results report can be found in the Annual Report 2022/23. A shortened overview of the Group Key Figures for the fiscal year is listed in the section below.

The Barry Callebaut Group saw a slight sales volume decline of -1.1% to 2,280,925 tonnes in fiscal year 2022/23 (ended August 31, 2023). Volumes were negatively affected by the prior year's salmonella incident in Wieze which continued to impact results in Q1 2022/23, as well as by the weaker customer demand and increasing raw material prices. 
The chocolate business reported a decline of -2.0%, with the global chocolate confectionery market declining -1.0%⁶.

While EMEA volume declined in the first half of the year, recovery of +3.2% growth in the second half resulted in flat performance of -0.4% in the year. Asia Pacific and Americas both continued to see softer customer demand amid challenging markets, declining -2.0% and -4.6% in the year respectively.

In terms of the key growth drivers: Outsourcing (strategic partnership) volumes grew +1.7% (+4.8% in Q4). Gourmet & Specialties declined -4.8% due to lower demand and temporary stock unavailability earlier in the year due to the Wieze incident, but gradually recovered and ended the final quarter positive at +0.2%. Emerging Markets were broadly flat at -0.2%. Sales volume in Global Cocoa increased to 467,877 tonnes, a year-on-year increase of +2.4%. 

Sales revenue amounted to CHF 8,470.5 million, up +9.7% in local currencies (+4.7% in CHF). The increase was driven by high raw material price increases and the overall inflationary environment.

Gross profit exceeded volume performance and amounted to CHF 1,348.5 million, up +16.0% in local currencies (+10.8% in CHF), as the inflationary environment was well managed through the company's cost-plus pricing model.

Operating profit (EBIT) amounted to CHF 659.4 million, up +12.2% in local currencies (+5.6% in CHF) compared to prior-year EBIT recurring⁴, well ahead of volume. Performance improved in comparison to the softer prior year, which was heavily impacted by the Wieze incident in the final fiscal quarter, leading to lower volumes and related Operating profit (EBIT) recurring⁴. In addition, the strong result in the Global Cocoa business contributed to the year-on-year increase. EBIT per tonne improved to CHF 289, up 13.4% in local currencies (+6.7% in CHF), compared to EBIT recurring⁷ per tonne in the prior year of CHF 271. EBIT reported amounted to CHF 659.4 million vs. CHF 553.5 million in the prior year. 

Net profit amounted to CHF 443.1 million, up +9.6% in local currencies (+3.4% in CHF) compared to prior-year net profit recurring⁷. The net finance costs slightly increased to CHF -124.1 million, up from CHF -121.8 million in prior year, as a result of higher interest benchmark rates. The income tax expense amounted to CHF -92.1 million in 2022/23, corresponding to an effective tax rate of 17.2% (16.4% in prior year).

Net working capital increased to CHF 1,466.2 million, compared to CHF 1,293.1 million in prior year. The increase was driven by the net effect of higher raw material prices on receivables, inventories and derivatives.

The adjusted Free cash flow⁸ decreased to CHF 251.8 million, compared to CHF 358.5 million in the prior year. Before the adjustment for cocoa bean inventories regarded by the Group as readily marketable inventories (RMI), cash flow generation declined to CHF 113.0 million, compared to a strong prior year (CHF 266.2 million). Free cash flow was heavily impacted by increases in raw material prices, particularly cocoa, which strongly affected net working capital.

Net debt increased to CHF 1,308.7 million from CHF 1,199.0 million in the prior-year period as working capital requirements expanded following raw material price increases. Taking into consideration the cocoa bean inventories regarded as readily marketable inventories (RMI), adjusted net debt decreased to CHF 41.1 million compared to CHF 349.8 million in the prior-year period.

⁴ _{Refer to appendix (on page 10 of the PDF) for the detailed recurring results reconciliation.}
⁵ _{Free cash flow adjusted for the cash flow impact of cocoa bean inventories regarded by the Group as readily marketable inventories (RMI).}
⁶ _{Source: Nielsen volume growth excluding e-commerce – 26 countries, September 2022 to August 2023, data subject to adjustment to match Barry Callebaut’s reporting period. Nielsen data only partially reflects the out-of-home and impulse consumption.}
⁷  _{Please refer to appendix (on page 10 of the PDF) for the detailed recurring results reconciliation.}
⁸ _{Free cash flow adjusted for the cash flow impact of cocoa bean inventories regarded by the Group as readily marketable inventories (RMI).}