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Customers will foot bill for Cote d'Ivoire, Ghana cocoa levy, says Barry Callebaut


Barry Callebaut, which makes chocolate for the likes of Kraft and Nestle, said that its customers would ultimately foot the bill for the levy that top producing countries are putting on to beans to support their cash-strapped growers.


The Swiss-based group, unveiling results which disappointed some investors, acknowledged the so-called “living income differential” of $400 per tonne which Cote d’Ivoire and Ghana, which combined produce about two-thirds of the world’s cocoa, intend to add on to the price of beans from 2020-21.


However, Barry Callebaut highlighted that it operates through so-called “cost-plus” contracts, which pass on to its customers changes in commodity prices, thus protecting its own margins.


“We have a cost-plus model so we transfer the movements of commodities to our customers,” said. Antoine de Saint-Affrique, the group’s chief executive.


Remco Steenbergen, the Barry Callebaut chief financial officer, noting that Cote d’Ivoire and Ghana represent “about 70% of the market”, said that rival cocoa origins would likely follow their example


“We expect the other countries to also raise prices and take the advantage,” he said.


‘Healthy ratio’

The group added that currently cocoa processing margins stood at a “healthy level”, estimating the benchmark combined cocoa ratio – which compares the total value of processing products butter and powder with the cost of raw beans – at 3.5 in Europe on a six-month forward basis.


That is up marginally from the ratio of 3.4 times that the group reported two months ago, and among the highest level of the past decade, although below the peak of 3.7 times reported a year ago.


Powder prices in particular had shown recent strength.


The group’s commodity division, global cocoa, reported an 18.9% rise to SFr100.8m in operating profits for the year to the end of August.


The division’s sales rose by 7.9% to SFr1.95bn, reflecting in the main “increased cocoa bean prices”, with volume growth at 2.4%.


Growth target

At a group level, Barry Callebaut reported earnings of SFr368.7m, growth of 10.4% year on year when excluding the impact of an early bond repayment.


Revenues rose by 5.2% to SFr7.31bn, backed by volume growth of 5.1%.


“Sales volume in the chocolate business grew by 5.9%, well above the growth rate of the global chocolate confectionery market,” which Nielsen puts at 1.8% for the year to August.


Mr de Saint-Affrique said the group had achieved “another set of strong results, with profitable growth and good cash generation”, which meant that it had exceeded its mid-term guidance for the four years to 2018-19 of 4-6% volume growth, and operating profit above volume growth in local currencies.


“On average, we have achieved above-market volume growth of 4.5% and [operating profit] growth in local currencies of 13.9% per year,” he said


Market reaction

Mr de Saint-Affrique said that “good growth momentum, a strong innovation portfolio and discipline in execution make us confident of delivering on our renewed mid-term guidance”, of an average of 4-6% volume growth and operating above volume growth in local currencies over 2019-20 to 2021-22.


However, Barry Callebaut shares nonetheless fell back 3.7% to SFr2006 in morning deals, with some investors seeing signs of slowdown in the results.


Sales growth, in local currency terms, was lower for the full year than at the nine-month stage in all three operational regions, Europe, Americas and Asia Pacific.


Baader Helvea analysts said that Barry Callebaut growth had “normalised” in the fourth quarter of its financial year after a very strong previous three-months, adding that while the chocolate maker was still an “attractive long-term story”, it was gradually losing upside potential.


However, at Kepler Cheuvreux, analyst Jon Cox said that Barry Callebaut had reported “a solid set of figures with excellent free cash flow and a dividend ahead of expectations”.

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