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Cocoa grinding at its most profitable in three years, says Callebaut

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Margins for cocoa bean processors have recovered sharply to their highest in three years, Barry Callebaut said, after a year when "historically low" profitability dragged the chocolate giant into a profits fall.

The Swiss-based group said that there were "signs of recovery" in the so-called combined ratio – the value of the two main processing products, cocoa butter and powder, compared with the cost of the raw beans – albeit with "regional differences" in the extent of revival.

In fact, the headline combined ratio, at 3.39, was its highest level since late 2013, driven by an improvement in returns from butter, after a poor 2015-16 crop in both quality and quantity terms in Cote'd'Ivoire, the top cocoa producing country.

Antoine de Saint-Affrique, the group's chief executive, flagged "some recent recovery in the cocoa products market".

A strong iteration of the dry Harmattan wind, which blows into Cote'd'Ivoire from the Sahara, left the country in particular with a plethora of smaller beans containing weak butter concentrations.

'Challenging market'

The combined ratio has recovered from "historically low" levels, which fell below 1.8 last year, and left Barry Callebaut's cocoa division swallowing a 60% drop to SFr17.7m in operating profits in the 12 months to the end of August.

"The challenging market environment for cocoa products, and the historically low combined cocoa ratio, had a significant negative impact on profitability", the group said.

Indeed, the division landed Barry Callebaut with a 5.1% drop to SFr219.0m in group earnings for the year, despite an improved performance in the chocolate making operations, reflected in a 7.0% rise to SFr1.83bn in group sales.

"We delivered strong growth in our chocolate business across all regions… despite a sluggish global chocolate confectionery market," Mr Saint-Affrique said.

Rising sales

In the key Europe, Middle East and Africa chocolate division, revenues rose by 6.8% to SFr2.74bn, won a 6.6% rise in volumes, which defied a 1.2% drop in the European chocolate confectionery market, as measured by Nielsen.

Operating profits were flat at SFr289.5m.

In the Americas, sales rose by 76.6% to SFr1.62bn - again on volume growth which, at 8.8%, contrasted with shrinkage of 3.0% in the overall market.

Sales of the group's higher value, gourmet products "significantly outperformed the market, and reached double-digit growth, largely drive by new products and market share gains", Barry Callebaut said, reporting a rise of 12.6% to SFr147.2m in operating profits for the region.

In Asia - where the group reported a growth of 13.7% in revenues and 10.8% in sales volumes, outperforming a flat regional market – the company reported that "growth momentum continues to pick up in China and India".

The group, noting the revival in cocoa products, added that it was standing by its target of growing volumes by an average of 4-6% a year, and operating profits at a greater pace, in the three years to 2017-18.

Barry Callabeaut shares stood up 0.7%, at SFr1,236.00, in afternoon deals.

By Tanya Ashreena and Mike Verdin

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