Barry Callebaut AG

Good morning, everyone, and welcome to Barry Calabelt's full year results presentation for 2024-2025. I'm Sophie Lang, Head of Investor Relations, and today's session will be hosted by our CEO, Peter Feld, and our CFO, Peter Van Ester. Following the presentation, we'll have a Q&A session for analysts and investors. Please do limit yourself to no more than two questions. Before we start, please take note of the disclaimer on slide two. And I'd also like to inform you that the webcast and conference call today is being recorded. With that, I'll hand you over to our CEO, Peter Feltz.

Thank you very much, Sophie. Good morning, everyone, and welcome to our fiscal year results presentation for 24-25. Today, we will also be sharing a strategic update covering the actions we have taken and are taking to build a more resilient Barrikalabout, delivery on our next-level objectives, and how we are unlocking future growth and shareholder value. Let me start with a few key messages. As you will hear in more detail from Peter Farnese shortly, in H2, we returned to cash generation and made strong progress on our deleverage agenda. This was supported by actions we've been taking on our BC Next Level journey and to step up resilience to market volatility. As we look to the year ahead, we have three clear focus areas. De-leverage to less than three and a half times net debt to EBITDA and delivering strong cash generation. Preparing for a return to growth with clear focus on customer experience, competitiveness and unlocking new innovative solutions for our customers. And third, relentlessly addressing optimization opportunities for the new environment. With that, I will hand over to Peter Farnesse to talk to the results. Thank you, Peter.

And good morning, everybody. Let me walk you through the full year performance in a bit more detail now. Starting with a short summary. After significant cocoa bean price increase and volatility in half year one, the market has stabilized in half year two and we have been taking decisive actions to reduce working capital, enabling strong cash generation and deleveraging. At the same time, the cocoa market turbulence created a challenging B2B environment and we took some prioritization decisions within cocoa, both of which impacted our volume development at minus 6.8%. When it comes to profitability, recurring EBIT growth of 6.4% in constant currency was supported by pricing through the increasing cost of financing and mix. After major pressure on net profit in half year one, half year two net profit benefited from the further cost pass-through actions we have taken. Let me go into more details. starting with leverage. We delivered major progress in the second half of the year, enabled by our working capital actions, which I will talk more about in the next slide. Back in half year one, we saw a step up to 6.5 times net debt over EBITDA, as higher prices during the peak harvest meant that we needed to finance significantly higher inventory value. For the full year, our intentional actions enabled us to land at 4.5 times leverage, significantly progressing towards our ambition of being below 3.5 times by the end of fiscal 26. Our leverage adjusted for cocoa beans, or RMI, is actually today at 2.7 times. But in fact, if we also adjust it for cocoa inventories as well as beans, so only cocoa, not even excluding chocolate and other stocks, our adjusted leverage is below one time. But actually you can see that on the right hand side of this slide, and it's important to realize that our net debt of 4.3 billion is actually fully backed by high quality inventory at 4.7 billion value. When it comes to reducing our net debt going forward, we have very intentionally established a balanced debt maturity profile with around 700 million Swiss falling due in the next five years on average every year, enabling repayment with our strong liquidity position. So going through those working capital actions in more detail, we have been diversifying our sourcing with increased purchases from origins like Brazil and Ecuador, which do have significantly shorter cash cycles and reduce our forward contracting. This goes hand in hand with our actions to step up our bean blending capabilities so that we can optimize recipes for our customers. Next to that, we've also been optimizing our purchase timing and inventory levels and reducing forward contracting. For example, when it comes to safety stocks where we have been somewhat overcautious in the past. At the same time, we also took action to enhance the flexibility of our financing options with the introduction of a letter of credit facility last August. And this allows us to replace futures margin call cash outflows with a letter of credit, benefiting from both liquidity and agility in volatile times. It delivered 200 million operational cash inflow now, but it's especially an important buffer in case of potential future bean spikes and volatility. The next level focus on improved planning and logistics processes with better end-to-end coordination also had an important impact on our inventories. And finally, of course, the increase of EBITDA is also contributing to our good progress on the leverage through the pricing through of the higher cost of capital, delivery of the next level savings and prioritizing higher return segments within global COCO. So what does that mean for free cash flow? Free cash flow declined by 312 million Swiss for the fiscal year, with a return to a strong cash inflow of 1.8 billion in half year two. When we look there at the moving parts, let's maybe start with the brown box, which is the cocoa bean price impact. This had a negative 1.1 billion cash impact for the year, with 664 million positive inflow in half year two. The bean price did close at a similar level at year end versus the start of the year, which was around 5,300 British pounds, but with much higher prices, of course, and higher volatility during the year. We saw a negative impact from the bean price for the fiscal year still for two reasons. One, liquidity swaps, and two, some phasing. Now, as you might remember, in fiscal 23-24, we had taken significant liquidity swaps to better allocate our cash flows to our business cycle. And this has postponed margin co-payments in the range of several hundreds of million Swiss francs into fiscal 24-25, so this fiscal year. And this has been the main driver of this. Secondly, also, our long cycle of business between the bean contracting and the customer sales And given the much higher prices a few months ago, there's also a bit of a phasing impact when the bean price comes down. So we do expect some further benefit to come if the bean price, of course, stays stable at the lower level. Moving to the green boxes, which is the operational free cash flow, we see here a positive contribution of 1.2 billion for the fiscal year, of which 1.4 billion in the second half of the year. Here we see the major operational benefits from the next level actions on working capital reduction and financing flexibility that I just described in the previous page. Finally, looking at the yellow box, we invested 388 million for the fiscal year behind investment in CapEx and BC Next Level. Looking ahead with all of this, given the harvest timing and a typical H1, H2 cash trajectory profile, half year one of this fiscal year, the coming fiscal year, is expected to see negative free cash flow before we see further strong progress in half year two. Moving to the market disruption now that we have seen over the past year. I will only talk briefly here as Peter will also go into more detail. But we all know, of course, that the bean prices have increased significantly in the first half of the year. In response to that, the strength of our cost plus business model allowed us to successfully pass these higher prices through to our customers, driving 56% pricing for the fiscal year and even higher at 85% on our cocoa business. We saw our peak pricing in quarter two with pricing remaining high though in half year two, but a bit lower sequentially. At the same time, it does take our customers some time to price through to the end consumer. So we have been impacted by a challenging B2B market as they manage that transition and adjust to the higher prices. And in particular, our customers have been reducing pack sizes and reformulating in some cases, certainly also adjusting their stock levels and their forward cover, calling off orders sometimes later. And finally, a few of our very large customers who also produce chocolate in-house have been prioritizing their own capacity as they saw temporarily lower demand. Nevertheless, our customers have also taken significant pricing with Nielsen data showing chocolate prices in the market that are around 30% higher than what they were before the bean price increased. Within the next few months then, we know that it will still be challenging, but we do expect market dynamics to improve because of this, and also given the recent decline that we've seen in the bean price. We therefore expect our customers to take only limited further pricing, and we have seen customers willing again to contract further out in light of these lowering prices. On top of the market dynamics, there's also been a number of BC specific factors for the decisive actions we took in this environment. In global cocoa, we sharpened our return focus to prioritize volumes within cocoa and also towards chocolate, where we see the higher returns in the context of higher bean prices and now the leverage agenda. The impact is expected to continue into half year one of fiscal 26. In North America, the intervention in our Toluca Mexico factory at the start of the fiscal year saw a residual impact as we worked through all of that to get customers back and re-qualified. And finally, our SKU rationalization efforts, which are now complete, impacted volumes for Goumet, especially in Western Europe. At the same time, we did focus our strategic direction on the growth platforms, which have shown resilience. Cacao Coatings, which we used to call a compound business, saw positive growth overall, particularly driven by high single-digit growth in Western Europe and double-digit growth in Latin America, where we have supported our customers with innovation and reformulation. In specialties, we saw particularly strong growth in our inclusions business. And finally, in AMEA, the region was impacted by the China microclimate, but we saw double-digit growth in key geographies like India, Indonesia, and the Middle East, supported by innovations, actions to delay our route to market, and portfolio segmentation. These market dynamics have led to 5.3% decline in chocolate volumes, and for the group, we saw a decline of 6.8%. So the group decreased more than chocolate, as global cocoa declined by 12.8%, with a strong impact from the negative market demand to the higher prices on the one side, but also due to the prioritization reasons that I outlined before. I will therefore focus this slide on global chocolate, first by region and then by segment. Starting by the regions, to the left of the page, Western Europe saw a 6.6% volume drop as the demands there continue to be impacted by higher prices and the knock-on effects of all of that on customer behavior, as well as some effect of SKU rationalization. Central Eastern Europe declined by 4.4%, with a very challenging customer environment, particularly for food manufacturers that are local. North America saw a decrease of 6.7% as new customer wins were offset by the difficult market environment and the impact of the Toluca intervention I talked about. Latin America saw a strong growth of plus 6%, driven by innovative customer solutions, particularly for cacao coatings, again, compound. And finally, AMEA saw slightly negative growth as the demand pressures in China and the developed markets offset the double-digit growth I just discussed for India, Indonesia, and the Middle East. By segment, to the right of the page, Goumet has been more resilient as growth in AMEA, Latin America, and CEE was offset by the challenging environment we saw on that in Western Europe and North America, again here impacted by the SKU reduction and the Toluca intervention. Meanwhile, the food manufacturer segment was impacted by customer behavior shifts in this context of volatility and significantly higher prices as we've seen across the whole market, and as I talked about earlier. Moving to profits, and first recurring EBIT, later I'll talk about net profit. Recurring EBIT was 703 million Swiss, increasing by 6.4% in constant currencies. Looking at it per ton, we saw a 14% increase, showing that the impact from the lower volumes was significant. Now, EBIT benefited from mix, as the higher profit segments like gourmet, specialties and cacao coatings saw better growth than the overall group. Importantly also, the Cost Plus model enabled us to successfully pass on the higher financing costs of this high bean price environment, with a strong improvement in pass-through in half year two, after some gaps we had seen in half year one, as it does require time in a forward-selling business to pass this through. Third, delivery of the BC Next Level cost savings also benefited EBIT. At the same time, we've also seen a number of offsetting costs, some temporary, some structural. In particular, unprecedented market disruption costs, especially in half year one, such as the impact of steep backwardation on rolling costs and high market prices that are raising carry costs of our inventories. These already improved significantly in half year two. Also, we saw an impact of the lower volumes on the fixed cost base and inflation. And finally, we made some structural investments in customer experience and internal capabilities. For example, digital investments, supply chain investments, such as enhancing our bean blending flexibility and capabilities, people investments, and some other cost inflations, partly due to the cocoa environment, like higher insurance costs on the much higher value of the beans that we are transporting around. Closing this section on recurring net profit, net profit was at 250 million Swiss or 267 at constant currency, down 36% in local currencies. However, it's very important to distinguish between half year one performance of minus 69% and half year two performance, which was flat versus last year. Half year one net profit was heavily impacted by the speed and the magnitude of the bean price increase and the corresponding working capital impact and the time it takes to fully pass through this higher cost in a forward selling business. Half year two, however, we did see a strong improvement to being flat versus last year, showing the strength of our actions with around three times as much profit generation versus half year one. Driven by further actions to price through higher cost of financing, our cost of financing increased sharply with 170 million year on year. in sync with the higher working capital needs that we had throughout the year and the additional funding we raised for that. And we took actions to price through those financing costs, which further took effect in half year two. Second, a bit of market stabilization with significant easing of the backwardation in the cocoa market. And this means that the gap between the near term, the more expensive prices, has been narrowing versus the long term, less expensive prices. So that has been helping in half year two. And third, the impact of our end-to-end value chain projects and planning improvements. With that, I will hand over back to Peter, who will talk more about the actions that we take to enhance the resilience of BC and make us an even stronger leader in this industry.