Swiss chocolate giant Barry Callebaut admits that sales volumes for its Gourmet segment have been impacted by the spread of Covid-19, with the company tapping a EUR1 billion credit facility as a result.

Barry Callebaut has outlined that Gourmet sales volumes are currently being impacted by government restrictions on the access to shops and restaurants.

CEO, Antoine de Saint-Affrique outlined that although large customers are all paying on time, the company has to help some smaller gourmet customers get through these difficult times.

As a result, the chocolate maker has tapped a EUR1 billion revolving credit facility to shore up liquidity, signaling the worst impact may yet come.

"Due to the uncertainty in the financial markets, Barry Callebaut has taken the precautionary decision to draw the full amount of its Revolving Credit Facility (RCF), in total EUR1 billion with a tenor of six months, to create an alternative to the Group's Commercial Paper Program and to increase access to liquidity. Barry Callebaut has had the RCF in place for many years, as a fallback option in case the commercial paper market ceases to offer the required liquidity", it explained.

However, the company has to date not experienced any major disruption to its production operations or supply chains, though admitted that the transport of goods was getting more difficult. Barry Callebaut also highlighted that Food Manufacturers and Global Cocoa were being less affected, adding that there are signals of a strong demand recovery in China.

But overall, the progression of the Covid-19 pandemic remains volatile and still difficult to predict, the company warned, with de Saint-Affrique adding, "Covid-19 is a major unforeseen event. While we have put in place precautionary measures to support the continuation of our operations, its impact on business growth and profitability cannot be quantified at this stage as it depends on the duration and severity of the pandemic."

6-month sales rise

Meanwhile, in the company's half-year results, except for China, little impact was registered since only figures up until then end of February are taken into account. Easter sales were also omitted from the results.

Company sales volume increased by 5.4% to 1,103,728 tonnes in the first six months of fiscal year 2019/20. Higher than last year's 2.4% increase, but lower than its 8.4% rise seen in its 3-month results back in January. Sales volume in the chocolate business grew by 5.2%, above last year's 3.5% rise, though not above January's 7.5% boost. Overall sales revenue also increased by 5.8% in local currencies to CHF3,761.8 million.

Growth was supported by all Regions, it said, and key growth drivers included: Outsourcing (+1.8%), Emerging Markets (+10.6%) and Gourmet & Specialties (excluding Beverage, +3.6%). Sales volume in Global Cocoa grew 6.5% in line with expectations, to 242,315 tonnes in the first six months of the fiscal year. Sales revenue for Global Cocoa increased by 5.5% in local currencies (+0.5% in CHF) to CHF1,023.5 million, though lower operating profit (EBIT), at CHF55.3 million, reflected the "more challenging environment" it said.

Price developments of the most important raw materials also impacted the company's results with cocoa, dairy and sugar all increasing on average.

During the first six months of the current fiscal year, cocoa bean prices fluctuated between GBP1,734 and GBP2,045 per tonne (closing at GBP1,955 per tonne on February 29, 2020). On average, cocoa bean prices increased by 13.6% versus the prior-year period.

The company indicated that although global bean supply and demand remained balanced, the market was still very volatile, with no specific hedging linked to Living Income Differential (LID).

Sugar prices in Europe also increased on average by 18.4% compared to the prior-year period, mainly due to a poor crop, it said. World sugar prices on average increased by 3.0%.

For dairy, prices also rose on average by 43.0% compared to the same prior-year period on the back of weak milk supply and ongoing strong demand, it said.

Regional growth

Meanwhile, sales volumes in Region EMEA (Europe, Middle East and Africa) increased by 5.5% to 507,177 tonnes. Organic growth was 2.4%, again well above the growth of the underlying chocolate confectionery market (+0.4%), while Food Manufacturers continued its solid growth in Western Europe and EEMEA, it said.

Gourmet growth accelerated in the second quarter, while Beverage volume was negative, but measures have been implemented to get it back on a growth trajectory, the company indicated.

In Region Americas, sales volume grew by 2.2% to 287,482 tonnes, achieving steady growth in an overall declining chocolate confectionery, it said. Volume growth was supported by Food Manufacturers in North America, and by Gourmet posting solid growth in South America.

For Region Asia-Pacific, this continued its strong growth, despite the impact of Covid-19 in the Chinese market in the second quarter, the company added. Volume growth was double-digit in the first six months, up 16.7% to 66,754 tonnes.

"Due to the Covid-19 pandemic, the Nielsen data on the underlying market growth in Region Asia Pacific was incomplete. China was the first country to be impacted by the COVID-19 pandemic and this led to a sharp slowdown in Gourmet in February 2020, particularly in the high-end segment," said Barry Callebaut.

Expansion

Meanwhile, in March 2020, Barry Callebaut commenced the construction of its first chocolate factory in Southeastern Europe.

The facility, located in Novi Sad, Serbia, will have an initial annual production capacity of over 50,000 tonnes and serve as a regional hub to address the rapidly growing chocolate markets of Southeastern Europe, the company added.

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Posted 17 April 2020 by Sandra Boga, Senior News Analyst, Food and Agricultural Commodities, S&P Global Commodity Insights

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.