Barry Callebaut AG

Good morning, everyone, and welcome to Barry Calabelt's half-year 23-24 financial results presentation. My name is Sophie Lang, Head of Investor Relations, and it's my pleasure to welcome those of you in person with us today at the Sixth Convention Centre, and also to welcome those of you joining online via webcast. Our session today will be hosted by our CEO, Peter Felt, and our CFO, Peter Vanesta, and we're going to cover off the half-year results, as well as an update on BC Next Level, and an update on the cocoa market environment. Before I start, I'd like to draw your attention to the disclaimer. I won't go through it in detail, but please do take note of it. And I'd also just like to remind you that today's session is being recorded. And with that, I'd like to hand you over to our CEO, Peter Phil.

Thank you very much, Sophia. Ladies and gentlemen, good morning, everybody. Thank you very much also from my side for attending the half-year results conference of Bari Kalibao. Since we met the last time six months ago on the 1st of November, we've made solid steps forward, both in delivering on our Bari Kalibao next level investment program, as well as rebuilding the commercial momentum in the group. While we're progressing well with our plans, you know that the world has changed since the 1st of November radically. Literally, cocoa prices have increased to record levels and supply has become a problem for several players in the market. The China consumer sentiment, it is the lowest ever level at this point in time, and we have two major geopolitical challenges underway. In that environment, and benefiting from the global presence that we have for our customers, and most importantly, in the bean sourcing regions and countries, Barik Kalibau has delivered a solid performance in the first half year, with volume up 0.7%, and net profits up 0.8% in this first half year. We're also starting to execute on our four long-term growth strategies that we mapped out to you, and I'll speak to that in a minute. Thirdly, Our Barikalibau investment program next level is well on track across all different work streams. So with that, and being careful in this environment, we are reiterating our 23-24 guidance of a flat volume in EBIT, whilst cautiously navigating these unprecedented COCOA pricing and supply situations. So let me start saying a few words to the four growth scenarios. strategies that we mapped out to you earlier so first on gaining two of three outsourcing and partnership deals with the packaged goods customers we're progressing very well we have positive outsourcing growth in the first half year already with new incremental deals secured the second pillar is the non-packaged goods side the gourmet side on that you've seen in the report we're growing double digits The third pillar is scaling up our specialties, and in that element, specifically not just the specialties and decorations products, but all the specialties we're offering to our customers, like, for example, vegan products. And in that, we're happy to report that we see increases in customer penetration of specialties in a majority of our country clusters. Last but not least, and that's certainly hold back by the China consumer sentiment situation, in all countries outside of China and Indonesia and Asia, we're actually growing close to double digit, which is good progress from the team there. On our investment program next level, we're tracking well across all different levers. First, you remember we had two different legs that we have based our program on. First, we go closer to markets, which is actually where Barry Kalibaugh came from. And then secondly, simplify and digitize how we work with our customers, but also how we work internally as an organization. So on closer to customers on market, the new operating model is in place since January on the top level management and the investments in manufacturing infrastructure and especially quality are well underway. A cross-functional team that we've established to work on traceability and segregation in order to advance our sustainability competencies also into the next decade is positively underway here, and we're very certain that we will deliver the EUDR requirements by the end of this calendar year and then actually go beyond that with the full traceability and segregation capabilities for the company. The other leg, simplify and digitize Barik Halibaut. We are delivering as a consequence of working smarter, and that is important. As a consequence of working smarter in the group, we are delivering 15% cost savings outside of the raw material. We've announced that in September. We have further detailed that, especially also to our social partners by the end of February, and the discussions with our social partners are well underway. You may have seen in the press that we just settled a discussion we had on the manufacturing side in Belgium yesterday with positive outcome, and so we're progressing step by step to go through this very complicated transformation in Mari Kalibao. The SKU reductions in order to simplify our portfolio and to focus on the product categories and segments that matter most to our customers is also progressing. We have already 10% of our SKUs reduced. We are well on track to actually deliver the 30% that we've committed to in the group. And then very excited about Amr Arafa, who joined us as chief digital officer in January to help us really create an agile, tech-enabled organization. Amr has been the chief data officer for IKEA over the past four years, and he has been with Mondelez in a period before. So he knows chocolate very well, and we can see that already. very clearly coming to work as he really understands our business well and applies a new mindset for really applying technology and data management in an effective way into Bari Kalibar. So more to hear on that side. Cocoa environment is amazing. You've heard me talk about that already in November the 1st. Since then, the price went vertical. There's literally supply reasons behind that initially. We know that the weather obviously was impacting the crop volume in Cote d'Ivoire as well as in Ghana significantly in the main crop last fall. That was probably the first element. The second element that led to these price spikes were driven by large industrial players ordering very late, actually very, very late. And that whole situation then got amplified on top by hedge fund activity that actually played on top. So the thing went vertical. We're now in a period of probably eight days where it's pretty flat. So we'll see where it goes. We believe that what goes up fast comes down fast at one point in time. And we're preparing for that. That's also why we're cautious on all the steps that we're taking going forward. But it is a very unprecedented situation as when you track back on cocoa prices, we've never seen something like that before. On Baricaliba, what that means is we're well covered with beans. That is probably the biggest message that I give to the global CEOs that I'm seeing frequently. That's the most important message. We have a clear competitive edge in sourcing, but importantly on having thousands of employees in the sourcing countries on the ground. And that is a strength that obviously our customers are looking for, and that's a confidence that we can build in the long-term relationships as well as in the short-term support that we are giving to our customers. There remains clearly more uncertainty because we don't know what the mid crop will come. I can share with you that both in Ghana as well as in Cote d'Ivoire, we believe that the mid crop will be in levels as it was the year before, and certainly not as bad as the main crop last fall. But everybody is looking in terms of volume for the main crop to come in fall 24, which we obviously will only know by summer to have first indications from the pot counts. So we really can give an indication what is happening with these crops. On the demand side, we see obviously a very good resilient performance in volume for Barri Kalibao was 0.7% up in the first half year. Quarter two was a slight acceleration even versus quarter one. We see a mixed shift from food manufacturers or branded food manufacturers into private label. You know we're serving both customer segments and that obviously helps. And then the gourmet business, the non-packaged goods business is less impacted than the packaged goods side. The financials, the cost plus model obviously is helping us in this situation. The team with Peter have done a great job to secure finances. In January, you're aware of the Swiss bond that we've raised. That obviously helps us navigate this environment as we have literally one billion plus more cash out than we had in the previous time to fund the beans. You know it's readily marketable inventory, so there's a great opportunity for us to secure and help our customers here as we go forward. So with that, let me just hand over to Peter. Thank you.

All right. Good morning, everybody. Happy to see you and talk to you in my first results presentation at BC. And let me start by doing that and looking at the walking you through the H1 performance on our financials. four key messages i would like you to retain first of all peter said it resilient volume performance with 0.7 percent up in a challenging market with a strong momentum on gourmet second point we protected our profitability supported by our cost plus model this is reflected in the recurring net profit increase by 0.8 percent which is in line with our volume evolution And we're executing next level as planned with related one-off expenses that impact the reported EBIT and reported net profit. Most or 60% of these expenses are non-cash. It's important to keep that in mind, and I'll come back to it later. Fourth, the bean price increased over the half year by 75%, so from 2,900 to 5,200 over that half year, which has been increasing our working capital and reducing our free cash flow with about 1.1 billion, driven by this long cycle that we and the industry have between the moment of contracting the beans in West Africa, to take that example, and the moment that we sell the beans to our customers. That's in a nutshell where we are landing. Now, before getting into more detailed numbers and bridges, let me summarize in one page how such an extreme bean price movement impacts our financials. And I'll start at the right-hand side of this page on the free cash flow because that's where we have the biggest and the main impact. As just mentioned, the 1.1 billion in the previous chart because of the long cycle I explained. We have been addressing that with financing. I will talk about that a bit more later on. Our net debt therefore increased by 2.6 billion, so by a bit more than a billion. However, when you look at our adjusted net debt, which factors in the very much increased value of our bean inventories, the RMI, then actually that adjusted net debt is actually lower now than it was last year, again showing that the real, you know, what's happening of the bean is sitting in our inventories. So that's by far the biggest impact on our financials. Second one I want to call out is profit. Profit is helped by our mix for sure this half year, but certainly also supported by our cost plus model. Recurring net profit, and I'll talk a few times about recurring net profit this time and maybe more than regularly because our interest cost has gone up. So I do focus on that line certainly now as well. Reporting recurring net profit has been stable per ton in line with and again up 0.8 in line with volume as I said. And on the volume side we are operating in a declining market minus 2% Nielsen. Now this is looking mainly at to be compared mainly at the food manufacturing side of our business. But RBC volumes have held up well, and because of the diversified model we had, we benefited from that. We took that shift from A brands to private label side, and on top of that, a good growth, strong growth continued in Gourmet. Now, looking at volume by customer segment first. Overall, we've seen a sequential growth improvement in Q2 to plus 1% after 0.4 in the first quarter, which is ahead of an overall declining market. in the largest segment food manufacturers we've been broadly flat in a declining market soft consumer demand through the inflationary environment impacted especially the fast the large fast-moving consumer goods customers that we have gourmet specialties continued its strong momentum into q2 supported again with also with the with the additional focus that we're adding with the next level organization and country leaders cluster leaders across the main geographies Global cocoa saw a slightly negative growth, impacted by lower demands for butter and liquor. Again, linked back to this bean price evolution, and of course in the context of these prices. So that is by customer segment. If we look at this from a different angle for the chocolate regions, growth has been positive, as you can see in the third and fourth column. has been positive for most regions in the second quarter and was ahead of the markets in all the regions. Western Europe has seen some softness on the large branded customer side, but also captured the private label slip from that and also recorded strong growth in Gourmet. In Central and Eastern Europe, we also saw a robust performance. Food manufacturers recovering in the second quarter, led especially by Turkey and Southeast Europe. And here also a solid momentum in Gourmet. In Latam, we've seen an acceleration in the second quarter led by Gourmet in Brazil. North America has been softer for us and for the market, for sure, in the context of an overall market contraction and the weaker consumer sentiment really impacting food manufacturers, which have a strong share in that region. Asia, Middle East, Africa was impacted by challenging consumer and inflation environment, especially as a market, China and Indonesia. BC, as Peter said, has grown double digit in most markets, except in those two markets which have been offsetting the double digit in the others. So that's in a nutshell on the chocolate region evolutions. If we now look at the EBIT bridge, and starting from the left to the right, of course, recurring EBIT grew at plus 7.9% in local currencies. This is reflecting a positive mix, of course, some volume, but also and especially a positive mix of our business with the strong growth in Gourmet. but also that we were able to pass through financing costs as part of our Cost Plus model. Again, we have a long cycle between contracting and the sales, so carrying that working capital for our customers, for the industry, is part of our business model, and that's part of our Cost Plus model. So that pass-through is visible in the blue bar of gross profit. The cost of that is visible, it's actually not visible in this chart, it's below EBIT. That's the financing cost, and I'll come back to that in the next page. So here you see the plus of passing through, you don't see the minus in the cost of financing. Reported EBIT, if I go from the middle to the right, reported EBIT has been significantly impacted by two things. Next level one-offs, and secondly Forex. One-offs were at 161 million Swiss, about 60% of that, 91.5 million to be specific, were non-cash write-downs and impairments related to the two planned factory closures. Next to that, and then we're getting into the cash area, 54 million restructuring costs, 24 million transformation and program costs. Those were partly offset by some tax benefit credits in Brazil. Next to that, a very important forex impact. Remember in the capital markets, they were talking about 30 million. You know, we're not that good in forecasting the strength of the Swiss francs, if you look at it now. But we have 37 million on the reported EBIT year to date. Again, of course, with the strength of the Swiss francs. So that leads to the 178 reported EBIT for the half year. This bridge shows the development of recurring EBIT to net profit for the half year. You can see on the left what I just explained, the 7.9% increase in recurring EBIT. which is then offset in the middle of the chart by the higher financial costs. You can see 72 million versus last year, 60. This is net expenses minus incomes on the financials. This is both driven by higher debt and by higher interest rates, so that's both driving that. Recurring net profits therefore increased by 0.8%. As I mentioned already before, this is in line with the volume evolution and again shows that in this very extremely inflationary environment, we're able at least to keep at the bottom of the P&L to keep our profit in sync. Cash. It's an interesting topic these days. So if you move to cash flow, we've seen in H1 a 1.1 billion Frits Franks cash out, which is much more outflow than half year last year. This is the first bar on this chart. You see we've split this chart in three areas. One is the operational free cash flow, excluding bean price effects. It's more about the days of receivables and those kind of things. Then the investment in CapEx and Next Level. So the old CapEx investment plus the add-on CapEx one-offs on Next Level. And then there's the bean price effect. So as you can see in the dark box, the dark one is that essentially the whole evolution of the free cash has been driven by the impact of the beans on our working capital, which is also about 1.1 billion. Now maybe it's good to walk you through a few moving parts on that. I already mentioned this big cycle, long cycle in our industry, meaning that these African countries especially, they contract the beans well ahead of the delivery. So once we enter into a contract, we short futures to hedge the long-term exposure. And if the market for cocoa beans then increases, the value of our short position goes down. The reverse happens, of course, when the bean price decreases. These futures, they protect our P&L, as you've seen also as one of the drivers in the previous pages. We get the margin calls as the prices move up, and that negatively impacts our cash flow. And that's why we see a mechanical impact on our cash flow pretty rapidly, even before it hits our inventories. And of course, overall, the value of our inventories, the value of our receivables goes up with the pricing of the beans. Next to that, that's the brown part in the chart. We are investing in next levels in areas like quality. There's quite some investments we added this year. And this is offsetting, these two things are offsetting the positive evolution of the operating working capital, so our number of days in terms of receivables, payables, inventories are moving in the right direction, but of course it's outshadowed by the extreme increase of the bean price. we are actively working obviously to improve our operational pre-cash flow as we are moving forward we have a diligent program on cash conversion cycle we strongly believe in the opportunity of what we're doing with next level and how that will play into working capital what we're planning to do with the footprint what we're doing and are going to do with sku reduction The whole setup that we have with an end-to-end operational ownership with our COO is going to help our forecasting end-to-end reliability of the supply chain. So all of that will have its impact on the operational free cash. I'll come back to that a little bit more later. So that's on the cash flow. I hope I clarified that a bit. Now, if we then translate that into the debt, it's obvious that in the evolution of the net debt, you do find back that one billion working capital swing, which is again what you see on the left part of this chart. So we have the dividend payments, of course, this half year, but then the 1.1 billion impact of the free cash flow I was just explaining. Now, however, when we look to the right hand of the chart, when we adjust our net debt, which is what we every time also report, when we adjust our net debt for readily marketable inventories, so these are our bean inventories, and the value of those obviously has gone up very significantly with the bean price evolution times two. You can see that our adjusted net debt, which is the 246 million in the one but last bar in this chart, is actually lower than the level that we had last year. Again, showing that the impact of the bean price is the dominant factor in everything I've been talking about in the last five to ten minutes. And then also largely showing that the value of that sits in our inventory positions these days. And with the long cycle that we carry from contracting to the sale. So that's on that front. And maybe one to conclude before I hand back to Peter. In the context of this steep bean price increase and increased volatility, we've been proactively anticipating some of that development, not all of that, but some of that, to secure obviously our operational flexibility, secure our ability to continue to invest in the next level program, because we don't want to put a brake on that. And also in line with our prudent financial policy, to have sufficient headroom and liquidity, and our liquidity today is still healthy because of those interventions that we did. Peter talked about the Swiss bond that we did successfully a few months ago. We've extended our RCF from 900 million to 1.3 billion. We're still not using up the RCF. It's more a backstop for others. We have an interim loan that we added of about 260 million euros. So all of that has allowed us to navigate through all the changes that we've seen. It's obvious that we continue to monitor and track this. I don't even have to say this with the current bean evolution. We are in a good position, but of course, we need to watch very closely what the bean price is continuing to do going forward. And on that note, I will hand back to Peter to discuss a bit more about the next level program.

Thank you very much, Peter. So just a few updates on where we are. I already told you through the two legs, really closer to customers and markets, appreciating that food is local and appreciating that the go-to-market strategy has to be different between, for example, Italy and Poland. And so that's why this closer to markets is important. On the other side, simplifying digitized B.C. to the customers as well as internally to Barik Kalibaut. As one of the examples where we progress significantly is we've implemented country cluster managing directors in all locations. We have 25 country cluster general managers that report up in five regions. As one example, we have now somebody running Canada. Before that, business was run from Chicago let me say on a Friday afternoon, while the country obviously has a very different background, a different appreciation for food, and obviously requires local leadership to pull this off. Same thing is happening in Poland, same thing is happening in Italy, same thing is happening in Spain, same thing is happening in Germany, and the same thing is happening in Belgium. And so we have now leaders on the ground that really steer the ships that are close with our customers and oversee the entire portfolio from packaged goods all the way to the small bakeries around the corner by country cluster centrally we are though giving more guidance and so we're focusing with our global commercial excellence teams on establishing clear guidelines on pricing on the portfolio management that we would like to see and the ways we look at the market on the channels that we want to operate in and making it transparent which channels we want to operate in I'll give you just one example. Luckin Coffee in China today is a massive business, obviously something we ought to call on, obviously something to partner with. That's just one of the examples where we need to be clear on, are we having the right penetration in channel and are we focusing on the right things per channel? And then marketing, really taking the marketing that historically has been a lot of bespoke local activation to a uh lead uh engagement where we really go digital with the way we market our products and importantly we go to the end customer be it the small bakery or the chocolatier also in the non-packaged goods side so a lot of work still happening here on the global commercial excellence side but the structure was a country cluster general managers well established Peter already talked about the organization of Clemens Werle, who now heads up the entire global end-to-end supply chain for Bari Kalibao, including R&D. And the reason why that is important is because we must drive professionalism and standardization throughout the respective things that we have in this global supply chain, be it the way we operate our factories, be it the way what we install in our factories, so engineering, be it the way how we do quality, be it the way that we do our planning and logistics, or be it the way that we do our health, safety and environmental work for that entire engine. And importantly, as I mentioned before, also on innovation. We invent great things historically in countries like Brazil, where we have a fantastic chocolate compound product that Asia never heard about. With a global organization, we now have the opportunity to scale that much faster, and that's the work that we're actually doing here under Clemens Wöller's leadership. The second element I wanted to give you because I keep on reminding our organization that our mission is to really increase the net promoter score for our customers. We need to start establishing the tracking for that, but we're clear that there's four elements that will drive the net promoter score. So the reputation that Baricalio about has across all the customers. First, it's the right value to the customers. We need to create the right price. We need to create the right innovation for our customers. The second thing is we need to have the right service for our customers. And here for me, we've just had a conference in Malaga with 250 commercial leaders where I reminded everybody on creating an Amazon-like customer service experience. The customer would like to understand that we've received the order, they would like to understand the order has been loaded on the truck, they would like to understand that in two hours the truck will arrive at the factory, and thank you very much for the deal. That's the process we are all used to as consumers, if you want, so our customers expect the same thing. That's what we're investing in with the Next Level program. But we're also, and importantly, investing into quality, as Peter has mentioned before, and we're investing into the fourth element that will feed on that promoter score, which is sustainability. And here we clearly make a leapfrog in traceability and segregation. And that's a work that goes far beyond the necessity that we have for EUDR. that we will absolutely complete by the end of this calendar year but we're also implementing full certified and verified cocoa and ingredients in all of our products traceable to the farm level by 2030 and that work is well underway we now have one person heading up all of esg and sustainability in the group and nicolas mona is driving that forward as we speak On simplify and digitize Barikalibao, we obviously now have implemented the first management level structure in a new simpler standardized operating model. And the way that we're building that is that we have looked at all the work process and defined the roles and responsibilities for various areas and how they interact with each other. And in consequence of that, we will have a increased headcount efficiency. We will be clear what roles will be centralized in GBS locations where we create a 24-7 service mindset across all of the enabling functions that will be in the global business service areas. But we also already progressed, as Peter also mentioned, with our optimized manufacturing footprint. We have done a significant network study and we're completing that as we speak. where we have announced two factories that will go out of the network, one in Port Clang in Asia and the other one in Nordestadt in Germany, and probably a few to follow. So on that side, we're making good progress here on simpler standardized operating model and operate footprint and seamless digital ways of working. As I mentioned before, we're very happy that Amre Arafat has joined our leadership team, really propels our digital capabilities forward and thinks about how to manage all the data that we have in Barik Kalibao that sit in isolation in certain applications, bring it together and make it available both for us internally in Barik Kalibao, but importantly also for the customers or for the NGOs who also have a need for information and understanding. and that work is starting is the work that will really create a sustainable data-centric end-to-end connected value chain from cocoa farms all the way to our customers so with that thank you very much first here and give back to peter thank you

Still on next level, we are on track with the program. We're on track to realize the cost savings as we were planning them already in November. Let me take you a little bit to a closer look also to the phasing. For the current fiscal year, we are on our way to reach 15 to 20% of the total savings as a run rate in the last quarter. So it's a ramp up, of course, within the year. With some of the measures that Peter has just been talking about, that starts to result in the first savings. On top of that, we are well on track and well prepared with the GBS implementation. As we discussed in November, 75% of the savings are planned to flow through to the bottom line as we balance the investments in growth. And 80% of our cost-saving initiatives will be actioned by the end of March 2025 with a run rate EBIT impact occurring from that close to that extent by the end of the fiscal year. So that's what you see on the right hand side, you know, the run rate savings as we plan them to see end of this fiscal year, end of next fiscal and end of August, the fiscal after that. So in line with what we're planning and working hard for. Now, let me show you a bit more granularity, especially also for this year on the next level operating expenses on this page and also on the CapEx on the next page. The total program OPEX, as a reminder, I think you've seen that is 290 million Swiss over 23 to 26. 260 million of that is one-off costs. 30 million is recurring OPEX. The majority of those are related to establishing the new operating model, including manufacturing footprint, headcount efficiency, GBS, end-to-end operations. And next to that, there's program costs, including significant amount of quality assurance costs, build-up costs, investment in some selected strategic area where we feel we need to ramp up investments, and IT costs as well. This 260 million is excluding non-cash items. And I'm saying it also referring back to H1, because in H1, we saw 169 million, one of expenses related to next level. I already said 91.5 million of that non-cash in impairments and write downs. These non-cash impairments were not included in the 110-130 range that was given as a one-time OPEX at the Capital Markets Day in November. That was the cash side of the whole program. Also, some of those areas were not yet clear at that point in terms of non-cash write-offs. Without the non-cash, we have booked 78 million in half year one that has or will have a cash out. So you need to compare that 78 with that range of 110 to 130 that we gave at the Capital Markets Day. We are reiterating that outlook of 110 to 130 for this fiscal year, excluding again the non-cash items that we have booked. be it probably at the upper end of that range, as we are trying to accelerate as much as we can, of course, on the program. That's on the OPEX. If you look at the CAPEX expenditures and benefits, there's 210 million net capital investments, which exist over 490, almost 500 million CAPEX, again, over that period that I talked about, cumulative. and 280 million capital benefits, cumulative till fiscal 25, 26. As you can see on the right-hand side of the chart, a bit more detail where this is going into, the majority of the investments are in our footprint optimization. That's the red box that you can see in the first bar. By adding capacity and investments to new sites as well as quality, and that's the brown bar that you see on that same chart, quality investments that already we started doing now and that we're continuing as we go forward. Next to that, we're adding investments, strategic investments in sustainability, traceability, obviously now with that being very important for the whole industry and us certainly with our sustainability strength playing a big role. Operational excellence and digitization are the other areas that enter in that split of the 490 CapEx. Capital benefits, the next bar, 280 million, is essentially driven by working capital improvements in more in fiscal 24, 25, and 25, 26 than this fiscal year. They will be fueled by the NL initiatives I talked about, Peter talked about. So, I mean, the SKU, the footprint, planning excellence, there's some initiatives in indirect spend, productivity improvements, all of that are leading up to this this 280 million, obviously with the current bean price, the absolute amounts of the reduction of a day are higher than what we're talking about six months ago. So we are confident that we can get these levels. For this fiscal year, again, we've been guiding on this range of 90 to 110 million Swiss francs of CAPEX. We are still into that, although we expect we are certainly going to ramp up in the second half year of this calendar year because we had to, of course, start up a lot of things after the Capital Markets Day. We probably might be a bit on the lower end of that range, but there's certainly a step up to come in H2. Okay, now having talked about next level, having talked about the half year one results, let me take back some of the points that Peter touched on in the beginning. And I'm going to try not to duplicate too much, but it's good to go a little bit deeper in both the supply side and the demand side of what's happening right now and how we look at that and how it's evolving to first of all frame and acknowledge the short-term pressure, uncertainty and volatility that we are working in. But at the same time, also highlighting the midterm perspective that we see for ourselves for supply, the solid category fundamentals that we're in, and last but not least, the fundamental strengths that BC has to navigate very well and successfully through such a market disruption. There's always an opportunity in a disruption, and I think we're well positioned to go through that. So first, The bean supply side. Short-term supply has been very challenged with disappointing harvest in West Africa. El Nino, weather fluctuations have seriously reduced the harvest in the main crop. Also some underinvestment in plant stocks, which is of course critical for the long-term supply. Farmers do not yet benefit, again in West Africa, do not yet benefit, it's different in other markets, but not yet benefit from the higher bean prices that are very visible in the in the markets but that is something that will evolve um and that will have its importance and importantly as well Peter mentioned it uh we have we're happy with the way we secured the beans this year uh and that's where again the sourcing strength of uh of by colorball certainly plays In terms of short-term uncertainty, of course, we still have the unpredictable weather. But at this point, we see mid-crops developing more normally, which is a positive sign. We're not out of it completely yet, but at least at this point, it looks reasonable. The EUDR is a big theme, of course. We're well ahead in preparing for all of that. We're making major steps forward to be ready when that hits at the end of the year. Looking a bit further out, we do believe that these supply pressures will ease in West Africa. These high prices that will get through to farmers will encourage farmers to invest more in fertilizers, will invest more in replacement of agent fees in productivity and so on. And in the other markets like Ecuador, for instance, we see that already rising in prominence. It's obvious that the appeal of a higher bean price makes their cases different. There's more available lands, sometimes the diseases that you see in West Africa not being present there. So all of these areas will make that, what we sometimes say, you know, high prices cure high prices, so that those elements will put, you know, more supply into the market that basically make a correction on the price in the midterm. Some of these things can go pretty fast, like fertilizers. Some other things will take a bit of time because you need to have a tree that grows. As mentioned a few times, we believe that BC has certainly a competitive strength already today to navigate through all of that. And we do see a clear opportunity at the same time as being cautious that there's many moving parts today. And we are certainly a catalyst in this midterm supply environment. We continue to invest there. We have planted seven and a half million trees last year. We're providing labor support and fertilizers to West Africa. We're investing in innovative agricultural practices in our farm of the future in Ecuador to improve the yields, tree health and so on. So that's something that certainly now is more relevant than ever. And we continue to invest. Jumping over to the demand side. Before looking at the short term, I will look at the short term as well, but it's important to keep in mind the long term resilience of the category. If you look at grinding volumes over the past 15 years, this is the red line, you can see a consistent positive trend in cocoa IUs. Despite sometimes very significant cocoa price fluctuations, Despite crises and wars and all kinds of things that happened over this exact timeline. The pricing is the black line by the way. So we are in a high engagement resilient category with consumers who are very dedicated with a product that is applied in more subcategories and more applications. Now, having said that, I don't want to ignore a short-term risk on demand. It's also clear that especially steep price increases can have an impact on short-term demand. If we look at the chocolate confectionery category over the last 10 years, which is the chart to the left here, 10 years, we see that steep price increases have had short term impacts on demand. So it's also why, you know, we now as we look forward now in the short term, there will be some more pricing to come. Obviously, if you look at the bean price evolution just until not eight days ago, but before the eight days ago, there will be some more hitting the market, which can have a short term impact on demand clearly. this tends to impact the large fast-moving consumer goods more as we've seen also in the resulting impact that's the chart on the right with an increasing private label share in the chocolate confectionery market and again we as our presence is in both segments we cover both segments there but it is clearly a trend as consumers then down trade to value brands in the short term Now, looking at the last two years, there has been quite some pricing already in chocolate. And that's the picture on the left. This is on chocolate products in an environment more triggered by a large general inflation than this is not about the recent bean price spiker. This is the large general inflation of the last few years. And there's been 20% pricing in chocolate over 21 to 23. And in that period, we've seen volumes category holding very well. So there is some resilience to it. Again, more pricing will come from the bean. I'm not ignoring that, but there's a resilient category. And this is what happened the last two years. Now we have a bit more of a balanced exposure in all of this because we do have a significant businesses beyond the chocolate confectionary in pastries, in biscuits, in ice cream, where price increases are likely to be a bit lower because the cost translation of the cacao component in the end product is lower in those categories. It's lower also in gourmet. So that's why our portfolio is a little bit more balanced than straight on chocolate. In conclusion, with the recent bean price movements, there will be some more pricing to come, as I said. So far, we are managing well as a company, as you've seen in the half-year results. We do believe we have fundamental strengths to navigate really well into this environment, not just with the balanced portfolio I just talked about, but with the cross. And from those strengths, while navigating to the short term, we are working closely with our customers to help them also navigate through that.

and peter will come back on that a little bit more in in the last section thank you very much peter so then really looking forward um i mean as peter was just saying i mean obviously we have the right assets in this environment and customers turn to us we had some some pre-discussions here already i mean i'm literally every week with a large customer or small customer ceo I keep on doing that. I think it's important that I feel that market dynamic going on. And it's very obvious that customers look for us to be the expert in chocolate in this price environment, but also as the regulators have made operating in cocoa and chocolate so much more complicated. I mean, the complexity that the EUDR is actually bringing massive in terms of technology capabilities we can handle that and so people turn to us to look at that so we clearly have the right assets here to go into that situation our global scale for our end customers helps significantly we're having many discussions around the world where people are literally getting informed about the new factories that we're building in Canada, in Brentford, as well as in India, and the opportunities that we have on a global scale to serve our customers. But more importantly, the presence and the physical presence that Barik Kalibao has since decades in the origin countries, in the sourcing countries, is really an asset for us that plays to the global scale benefits. We also, and that's the other discussion we have with customers, have massive projects underway to reformulate. We have created products that actually leverage cocoa powder more effectively into certain products and customers are turned to us to actually see how they can actually benefit from those opportunities. And we're also proactively selling those products and offering those products in the market. So innovation reformulation is a big topic as we're working short-term through the challenges that Peter just mapped out. And then, last but not least, the financial stability and the strength of the balance sheet of Barik Kalibao is obviously unparalleled in this situation. So, having said that, we are at the same point in time driving our investment program forward, as I mapped out to you with BC Next Level, that will really unlock the full potential in the long run for Barik Kalibao. So with that, we're reiterating our 23-24 guidance in the context of this unprecedented volatility we see in the market. We are cautious. We are going day by day. But on the other side, we have no reason to change the forecast that we have given to you before, the guidance that we have given to you before, which is flat volume growth for the end of the year, as well as flat EBIT growth on a recurring basis in constant currency. And in that, we're obviously looking at the bean supply uncertainty. We're looking at the price volatility in cocoa and the customer environments and the impacts that this whole situation will have to our customers. So concluding results, you've seen that solid performance in the first half year in a challenging market environment. We're executing and starting to really make progress on all four growth elements that we have mapped out to you in November the 1st. We're on track to deliver our Barik Kalibao next level investment commitments, and we're cautiously navigating this unprecedented environment that we are currently in. So we're reiterating our 23-24 guidance, flat volume, flat EBIT on a recurring basis. With that, thank you very much. We'll take a little moment to get a table here, if that's okay for you, and then I'm very happy to take questions from the group here in the audience as well as from the people online. So thank you.

Thank you. So, yes, we're ready for questions. We'll start in the room before we go to webcast. If I could just ask you to please limit yourself to no more than two questions. Please go ahead. Mike should be coming to you very shortly. Daniela, just at the front here.

Thank you. Two questions, please. Jan from UBS. The first one would be, please, on your second half EBIT outlook. You mentioned cost savings are coming through. Around 15% of your cost savings would be initializing in fiscal year 24. So this would come on top to the underlying EBIT performance for the second half. So is there any reason really to believe that at the end of the day, second half EBIT should be below the first half, also considering these cost savings? And the second question would be, please... And you are guiding for fiscal year 25 for low single digit volume growth or modest volume growth. I mean, do you still feel comfortable with this guidance looking on the price increases the chocolate industry is likely facing over the next 12 months? Thank you. Do you want to take the first?

Yeah. Well, I'll take the first question on EBIT for the full year. It's true that we have good momentum on EBIT as we just presented in the half year one results. There's some next level savings coming in. At the same time, we are operating in a market with vertical bean pricing, which can have an impact on the demand side. So we prefer in this kind of context, and actually the whole bean has an impact and is a higher risk environment for the whole ecosystem around us. And that's why we prefer to be cautious in what we are looking forward to the second half of the year.

Yeah, in terms of volume forecasts, you're probably looking at the packaged goods side, right? So on the packaged goods side, as I mapped out on the 1st of November, we saw this first cycle that came from the price hikes in the inflationary environment, 22 specifically, leading into 23. We were actually at that point in time in November saying that we think this will be over by this time or maybe a little later this summer. With the increases as Peter mapped it out in bean pricing now, we obviously anticipate that packaged goods customers will have to ask for certain price increases. That differs by category between 3% to 8% is roughly the estimates between the categories that we've mapped out to you. So not as significant as some of the price hikes that we've seen in the inflationary environment. I think that The retailers are also playing their role there. You know that there were various delistings of large customers and brands when that happened two years ago, 18 months ago. We anticipate the same disruption now. But there will be shifts. There will be players who operate more effectively in this business. And you know that, especially the very large customers that we operate with, we only do less than 10% of their supply chain. And so they're also having to think through how do they actually deal with the supply shortage that we currently see in this moment. So I think we're well positioned here, and that's why we retain what we've told you earlier.

Thank you. Pascal, please. Sorry.

No, no. Sophie, come join us here.

Please. Yes, good morning. First question is on the midterm guidance. I mean, visible alpha is for 2027, so that's the year where all savings come in, 100%, at 850 million. If I take 75% of 250 million cost savings on the 660 million EBIT from last year, I also get to 850 plus minus. Is that still a number you're comfortable with? Or does the current environment will have an impact that will last also for 27? That's the first question. Okay.

Oh, sorry, I'll take it. It's easier for us as well. Yeah, we absolutely stand by the improvement in the profitability and in the margin that we've been talking about in the capital markets today. We absolutely think that also in current environment, in the midterm, in the timeline that you're describing, this is absolutely feasible. The first step with that is going to be realizing what we've been discussing in the next level program, so the 250 million in the phasing and the timings that we set. The second step with that is by doing that and by doing all the interventions, making ourselves stronger for the growth in the next 5, 10, 20 years and growing in the mix in Gourmet, the outsourcing initiatives. So that's obviously the second thing. The third thing probably to add is hey, it's with the current disruption in the market, it is a strategic opportunity to gain share by Callebaut if we play our strengths well. And that's why we absolutely stick by the ambitions that we put forward in terms of EBIT in the midterm.

Okay. So the half-year results are per end February, and you said that's on a COCO price of 5,300 versus 2.9 the year before, and that costs you a billion Swiss franc on the balance sheet. We are now at 8,000. So we just add, what, another 1 to 2 billion? At the half year, so if the bean price would stay for the next 12 months, we just add another one to two billion on the balance sheet. And is that even manageable with your RCF? Does your RCF is still in place in 12 months? Yeah. Or do we have to be concerned on the balance sheet? And then I have one last one.

Okay. Believe me or not, I was anticipating that question. We obviously had, yes, the 1 billion impact on the bean price increase, and I explained the whole long cycle. I think I hope that was clear. Yes, since the end of the half year where the bean price was at 5.2, it's now at 8.3. So you can expect a similar order of magnitude impact on the inventory value on the working capital as well. by which I'm not saying all of it is going to fall in the second half here because we do have some liquidity swaps in place that help us to face those outflows closer to our business cycle. So not all of that necessarily falls into the second half. But everything, of course, everything I'm saying right now really depends on what the bean price is going to do over the next few months. And we've seen that that can be surprising sometimes. On the RCF and today, you know, we are, as I said, we're, of course, monitoring very closely what's happening. Today, we are OK on liquidity. We are still not using up our RCF. So we That's in line with our prudent financial policy to create, to offer, to be able to absorb shocks that might be there short term. We don't intend to use it. And yes, again, it depends on what happens and at what price the bean stays, the bean price stays. We might add some financing if we think it's needed. So that's what we're monitoring. The very short term, you know, we're absolutely okay. So we're tracking the bean price.

Okay, and the last one. If I remember correctly, you postponed talking about ROIC at the Capital Markets Day. Now we're six months later. Of course, given where the bean price is, this is significant change. impact on invested capital, but where is your position on the potential midterm ROIC target at the moment?

Thank you very much. We're still not guiding on that right now. It's one of the many things that's honestly on the list, and we will come back on that, but at this point, we don't have any further guidance. On that front, it's, as you say, it's, of course, impacted by everything that's happening. But we're now more focused first on the moving targets and navigating through that. We'll come back to that in due time.

Maybe we go back to Pascal since we...

Thank you. Pascal Ball from Stifel. Peter, you mentioned before that retailers and also food manufacturers are playing their game. Now, coming to your cost plus model, I acknowledge that you can pass on the costs. However, is there a certain threshold where maybe also your customers ask you to share some of the burden?

I mean, these discussions may come. I can tell you that we have, you know, weathered the situation very well with our teams. We have many discussions today that go about supply rather than about price, and that's actually very positive for us. But I think that, you know, when you really look at the dynamics of the increasing demands on the cocoa supply chain with sustainability, traceability, really understanding the UDR requirements that are coming there, customers are looking to us to actually help them in that situation and they appreciate that that comes with a price.

So you believe you will be able to pass on all the costs you incur?

That's a job we need to do every day.

Then on the cost savings, in a recent interview you said that you're gonna cut around 20% of the workforce going forward. How much of that should we expect to contribute to the 250 million in cost savings? And since you already now announced that a few months ago, when should they actually materialize?

Yeah, as we've mapped out earlier to you, we would like to see all the activities from next level hardwired, is the term I used on November 1st, by the end of March 2025. And what that means is that we need to have announced any factory that needs to be shut down, We need to be clear with every employee if they lose their job or if their job goes into the GBS. I would like to also say that the 19% reduction that you mentioned is the gross reduction because we're obviously staffing up in other locations in GBS, for example, in India and other places. But that is indeed the situation. So we're preparing that carefully because we obviously have to have those social dialogue discussions which are well underway. You may have seen this morning in the press in Belgium that the factory is fully back up on a half percent utilization and that's obviously very important for us as we go through this period.

Maybe one further question on outsourcing. As you don't disclose the outsourcing component separately anymore, can you maybe give us some more granularity on the deals you secured in H1 because you're mentioning that you have secured some incremental ones, maybe in terms of size, kind of outsourcing deal and geography?

Let me do that when I'm allowed to do it. There's certain reasons of various different reasons why we're holding back with calling it out who it is. And we will do that in the next reports that we give to you. Thank you.

Just go straight there. Make it easy.

I have two follow-ups. You mentioned the big consumer companies just have to increase prices three to eight percent.

It's not more? No, that's the guesstimate that we have right now. Look, it's the estimation from what we saw in the past going into the future and the percentage of chocolate impact to the respective categories. Obviously, when you think about a plain bar of chocolate, you have a very big impact. You still have a lot of other products in that chocolate, but that's a big impact. If it is just chocolate crumbles in a cookie, it's much less. If it is ice cream, again, it is a very different percentage of the total end product that will be sold to a consumer. So that's why we say 3% to 8%, depending on which category that we're actually talking about. It's still an impact because people have already, as Peter was showing, taken quite a price increase in the inflationary environment, and they were trailing back now. Now the trend is going in the other direction again, but it is far less excessive, as we assume, versus what it has been in the past.

Thank you. And a follow-up also for the other Peter. Regarding net debt, at the moment you stand at 2.9 times. You mentioned there's no covenant. If I hear you, this multiple can maybe go up to four times, right? You think this covenant discussions will start?

First of all, we have indeed no covenants linked to that metric. We have other covenants in terms of profitability per ton and interest cover on which we are way ahead of any potential breach. So that's all fine. There's two ways to look at this as well. Our leverage has gone up from 2 to 2.9 because of everything I've explained. If you take into account the RMI, so the adjusted net debt, our leverage is 0.4 because of that value that sits in our inventories, which is an additional sign point to keep in mind. Of course, it's something that we monitor and that we have discussions on, but it's not something I'm overly worried about at this point. Thank you.

Here to Samantha at the back. Hi, Sam from Berenberg. I've got a few questions for you. Just going back to that 3% to 8% price increase, what timeline were you referring to for that? Is that in 2025 that you're expecting that price increase?

It depends on the region. So when you look at North America, specifically U.S., you probably have a three or two, three months time lag between the realizing that the bean price went up and they need to implement something with retailers. In Europe, that is a much longer period that you're talking, probably six months to a year. So it depends really by region of how fast this will be materialized in the different markets.

It is a moving target. Again, bean price moves every day. So the important point is that, as it looks right now, it's below what has been priced in the last two years.

Okay, and then I think you already answered this question, but I just want to double check. The passing on the higher costs to your customers, does that include all of the costs associated with the higher working capital, or is there anything that could be missed?

Yeah, so the working capital cycle that we follow is something that has been there for a very long time. I mean, sourcing the beans 12 to 18 months ahead of the sale, it's part of the business model, it's part of how we made the agreements with customers. So it's part of the cost plus. So that impact is factored in. Now, there's different ways how it's factored in, which I'm not going to go into. But overall, yes, it's factored into the cost plus model of one of the costs of doing business.

Okay, and then, sorry, one more question. We've been hearing a lot about large industrial players struggling to actually procure enough cocoa, especially with Ghana defaulting. Just wondering, have you already seen some impacted people coming to you at the last minute, kind of desperate for supply, or is that something you're expecting to happen in the next three months or so?

It's very, very obvious that that is happening. People have just already in December started to hold back with securing additional volumes. Peter was talking earlier about the long supply chain that we manage. We go 12 to 18 months pre-purchase into the market. We're taking that very carefully, building up the volumes that we need for the year to come. Some other players have not done that. And of course, they're turning to us to figure out what to do. Now, we feel that we need to do it in the right way. Where we can help, we will help. but we also have obligations to other customers who have long-lasting partnership agreements on volume with us that obviously we need to service first.

That's great. Thank you.

Okay, if we don't have any more in the room, maybe now's a good time to check if we have any on the webcast. Moderator, could you please go ahead with the first question from online, if there is one, please?

Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally.

Okay, it doesn't seem like we have any online. Oh, sorry, there is one more coming in, I think. Go ahead, please.

We have a question from Manuel Peter with HelpBitch T-Bank. Your line is open. Please go ahead.

Yes, hi, thank you for taking my question. I would like to come back to this cacao price situation and ask you if you probably could provide us with some kind of scenario analysis. For example, what would happen if the cacao price would double from today's level again? What would that mean for profits and free cash flow? And then maybe also the other way around. So what would happen to profits and free cash flow, which the price suddenly drops to a more normal level again?

Yeah. Thank you for the question. Well, first of all, the biggest impact and the most immediate impact is on free cash flow, which we have seen already in the half year one, and that's essentially what you would see up and down if it moves a certain direction going forward from where we are today. It's, again, first very quickly visible for us through the margin claims, but at the end of the day, it increases the value of our inventories, our receivables, and our payables. So working capital is the direct effect. I've talked about that a bit already. So you would see, again, up and down quite fast if it happens. Second area of potential impact is on volume because it's the short term impact that the market can have. Again, we're not worried about the long term, but if there's big peaks on pricing in the short term, you can expect that there is a short term correction on the market until everybody has all the players, consumers, customers have reestablished a promotion plan, have digested all of that. So there's a bit of a bump potentially that and of course, depending on how we navigate in that environment. That can have an impact. And on profit, as we mentioned before, I mean, we have a well-established cost plus structure that works up and down. And that's what we have been using and that we will continue to use with our customer base. So that should secure our profit from that front.

Maybe if I can build on that, Peter, you know, I mean, I don't want to speculate where the price will go, but there is no technical reason for the price to be where it is today. I think the industry has learned. There was a question earlier, have people sourced too late? Yes, they have. So people have learned from that experience already, painfully. Hedge funds have massively left the playing field. So, I mean... when you look at those different variables, it would be surprising to see another doubling of the bean price, right? Unless speculators come and crazy things.

And as we're building, I think also you just look at the forward prices, right? That's what we base our look on as well. Forward prices are lower than the really short ones, the third, fourth positions. And that's at the end of the day where we see the price is stabilizing at a higher level than it was six months ago or that's that I'm not going to deny. But because there's going to be some at least short term, some still some pressure on the price up because there is, you know, inventories and stocks need to replenish. But but it's as Peter said, there's no clear reason why it's going to be that high. Just look at the forward prices. So we do expect some coming down and stabilizing at at the lower level than it is today, but higher than what it was.

And I think we're running up on time, so I think we conclude the Q&A session there, and maybe, Peter, you'd like to make some closing remarks.

Well, thank you very much here in the room and online for joining us today in this conference, and look forward to having you here in the room for a little drink and some food outside. So thank you very much for your attention. Thank you.