Shares in Barry Callebaut hit an all-time high after the chocolate
giant unveiled better-than-expected earnings, besides a recovery in cocoa processing
margins, which bodes well for profits ahead.
Shares in the Swiss-based group - which makes chocolate for the
likes of Mondelez and Arcor, and processes one-quarter of the global cocoa crop
– touched SFr1,353 before easing back to SFr1,345, a loss of 0.2% on the day.
The gain followed the release by the group of results showing
earnings of SFr141.2m for the September-to-February half, a gain of 33% year on
year, well ahead of the SFR121m result that investors had expected.
The increase came despite shrinkage of 2.1% in the world chocolate
confectionery market during the period, according to data from analysis group
Nielsen, with the North American market contracting by 3.4%.
"Markets are difficult everywhere, particularly in
confectionery in the US," said Antoine de Saint-Affrique, the company's
Barry Callebaut's sales by volume rose by 1.4% to 946,782
tonnes, helped by the acquisitions of a vending business from dairy giant
FrieslandCampina, and a Belgian chocolate factory from Mondelez, which owns chocolate
brands such as Milka and Cote d'Or.
Revenues gained 2.5% to SFr3.54bn as the impact of the extra
volumes was enhanced by a "better product mix", while margins gained a boost
from the results of a company shake-up which has seen it focus on more
lucrative operations and contracts.
In the group's cocoa business, "the intentional phase-out of
less profitable contracts has now been completed," helping the division achieve
a 77% jump in operating profits to SFr19.7m, despite a drop of 5.0% to 217,975
tonnes in sales volumes.
Cocoa price 'collapse'
Barry Callebaut also highlighted the boost to cocoa
processing margins from a "collapse" in bean prices, which last month touched
$1,881 a tonne in New York, the lowest for a spot futures contract since
"Fundamentally, the price drop reflects good weather
conditions which will lead to a record crop in Ivory Coast and a big surplus in
the 2016-17 cocoa season overall," the group said.
Marex Spectron this week estimated the world cocoa output
surplus at an all-time high of 400,000 tonnes.
The drop in bean prices has supported grinding margins, a
trend also enhanced by relatively tight market stocks of the processing
products – cocoa butter and cocoa powder – after a spell of weak profitability
The so-called "combined ratio", which compares the value of cocoa
butter and powder with the cost of raw beans, "has further improved over the
first half of the current fiscal year due to a tight product supply situation
and lower cocoa bean prices", Barry Callebaut said.
Indeed, the margin recovered last month to a three-year high
of 3.5, company data showed.
The comments came as the European Cocoa Association revealed
that European cocoa processors ground 339,485 tonnes of cocoa beans in the
January-to-March period, a rise of 1.1% year on year,
The figure tallied with market expectations of a small rise
in volumes, although some commentators foresee bigger gains ahead as the impact
of the recovery in the combined ratio feeds through.
Barry Callebaut added that it was standing by its mid-term
guidance of raising volumes by 4-6% in the three years to 2017-18, growth which
it pledges to exceed in raised operating profits.
"Whilst markets remain volatile, we have built a healthy
chocolate portfolio and expect the good momentum to continue," Mr de