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.