Hello, and welcome to the Barry Callebaut Focus for Growth Action Plan media call, which will be hosted by CEO Hein Schumacher and CFO Peter Vanneste . My name is Nadia, and I will be coordinating the call today. If you would like to ask a question, please press star followed by one on your telephone keypad. I will now hand over to your host, Hein Schumacher, CEO, to begin. Please go ahead.
Thanks, Nadia, and good morning to everyone. I hope that you all had an opportunity to watch our on-demand presentation earlier this morning. As you've seen with Focus for Growth, we are making some clear choices in the company. We are strengthening our fundamentals, which is something that we've been on since the start of my tenure. We're focusing our resources behind fewer priorities, and we are stepping up our positioning as a solutions provider whilst making a clear shift to more premium segments. With all that, and I can talk about it for a long time, of course, but we are very much looking forward to your questions and discussion. Please, handing it back to you, Nadia, to get us started on the questions that may be there.
Great. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star followed by two. We ask you please limit yourselves to two questions. We have a question from Paolo Laudani of Reuters. Paolo, please go ahead.
Hi. Good morning. Thanks for taking my question. Thanks for organizing the call. I had two questions. The first one was regarding El Niño, and I wanted to understand if you could give us at least a ballpark estimate on how you think this will affect the price of cocoa beans and, more broadly, global crops when it actually hits. The second question is regarding products with our reduced cocoa content, and I was curious to hear if you will keep producing this product, even if the price of cocoa for the time being is getting down, is getting cheaper. Again, thanks a lot for your time.
Thanks, Paolo. First of all, on El Niño, over the last couple of years, you're undoubtedly aware of the incredible spike that we've seen in cocoa prices a few years ago. That wasn't solely caused by El Niño, but it was certainly an important part of that. Clearly, there is a high correlation there. For this year, we're seeing a strong El Niño, but we need to await the impacts, and usually by the end of June and July, you sort of know what that's going to lead to. What happens after a strong El Niño, we would see much higher than normal rainfall in areas where we source, for example, in Ecuador, and we would see much higher temperatures in, for example, West Africa, and that's still an area where roughly 60% of the beans are coming from.
This is something that we are very cautiously observing. We're very careful.
This call is being transcribed.
We're very careful. When we talked, for example, about our volume predictions for next year, we're taking this one into account. We don't expect prices to shoot up to the extent that we've seen over the last couple of years. That is not the prediction, an El Niño could have an effect that could lead to a few thousands per ton. We're just careful about it, you can't draw a straight line between El Niño and bean prices, there is certainly a significant impact. I think your second question, let me try to understand if I got it right, was around cocoa replacements and non-cocoa solutions. Correct? Paolo?
Yeah. Can you hear me?
Yeah, I can hear you well.
Okay, great. Yeah, I was just wondering, the question was about whether you will keep producing products with a reduced cocoa content, even if the price of cocoa is going down, and what is the appetite for this type of product?
Yeah. Thanks for the question. I'm not sure if you've seen the presentation of this morning, but we want to be actually very explicit about it. In our ambition, our overall ambition as a company, we are very keen to offer a full portfolio of what I would call chocolatey solutions. That means everything chocolatey, which is chocolate in itself and cocoa butter solutions, but also cocoa coatings, powder solutions, as well as non-cocoa solutions. Non-cocoa solutions have two components to it in the way I look at it. One is more near-term, and to that extent, we have a partnership with Planet A Foods that there were a number of partnerships that we had, but we made a bet and a clear choice for this one, which is that it replaces cocoa beans with sunflower seeds.
We believe that from a taste perspective, as well as from a manufacturing perspective, that is as good as it gets, so to say, and we are already delivering the first volumes for that. It's not massive in terms of our total of the volume for those replacements versus the total that we supply, but we believe that it can be meaningful over time, and we just need to be ready for it, and we want to be that provider offering that full portfolio. In addition, and I've talked about that in the presentation, we want to offer specialties to offer full solutions to customers. It's very important that we play sort of the whole chocolatey piano here.
Besides the short-term plan on cocoa replacing sunflower, I believe that in the long term, like for many crops or food ingredients, there may be cell culture solutions. To that extent, we are also working with a few startups, by now scale-ups, to see what does that cell culture look like. I believe that is promising, but it's not something that is near in. It will take a number of years to mature and there's a lot of development needed, but we are keeping our eyes very open to that. We certainly don't want to be lagging this. We want to be leading here, but we're not doing it alone. We're working with others to give us the necessary expertise and experience that they've gained so far.
Great. Thank you very much.
The next question goes to Anthony Myers of Cocoa Radar. Anthony, please go ahead.
Okay, thanks. Hi. Fine, thank you. Thank you for taking the question. A couple of very short questions. One on the gourmet category. Results were down 3.4% in April, your last financial results. My question is, how are you going to redefine gourmet positioning beyond fixing the price? Can you confirm that you have a new VP of gourmet? Is it Dhruv Bhatia? Then I have a second question. I was at Sweets & Snacks just last week, last month, and I saw the two new innovations, Cacao Max, ChoViva, and I spoke to your team there. I just wondered if you have plans, Barry Callebaut has plans to attend ISM in Cologne in 2027.
Thanks a lot, Anthony, for your questions. First of all, on gourmet. Just, Anthony, before I go, I want to add something, and I think this is important for those who are still listening on the previous question. My apologies for doing that, but I want to take the opportunity. We talked about cocoa replacers, and it was a question on whether we see that growing in terms of, given the price dynamics of the beans. I just wanted to add, the reason why we're pursuing multiple solutions on cocoa offerings is not just a price matter. Price is one part of it, but it could be over time sourcing opportunities, it could be sustainability opportunities, it could be cost opportunities. I think there are multiple reasons for us to look at that whole portfolio.
It's not just a matter of price, per se. I just wanted to add to that. I think, Anthony, on your question on gourmet, we have a new person leading that for us globally, Dhruv. I mean, he came from Japan, was the recently Managing Director of that area, has great experience and has helped us a lot to shape the strategy on the Focus for Growth for gourmet. I'm really excited about that. I do want to make sure that in going forward as a company, we will steer the business through regions. Yes, we have someone looking after gourmet on a global basis and, for example, looking after innovation opportunities and so forth. The business is conducted in the regions, and that's where the accountability sits.
Now, on gourmet, which is about 14% of the volume of the group, we do have some clear, some new priorities. First of all, how do we position it? I think what's really important for us is the brand architecture. I talked about this at the end of the second quarter as well. Obviously, we're not a branded company, but we do have propositions. Within our gourmet offerings, we have more super premium type offerings. Think of Cacao Barry. Think of the signature range under Callebaut. We have a more mainstream offering. Think of the Callebaut range in itself, the eight series, as we call it. Of course, there are the regional offerings, such as Van Houten in Asia, to give you one example.
We just want to be sure on how we position price points and what type of customers that we address. That's number one. Number two, we are actually prioritizing gourmet, and more intentionally. When it comes to capital and expenditure, for example, and we're having those discussions with the region, we want to make sure that we prioritize this part of the portfolio. Third, we felt that our inventory levels over the last year, they were a bit on the low side, so we haven't always been able to provide the customer service that I think we should, and therefore, we've decided to increase on this particular segment, to allow for more safety stocks to drive a better service overall. Finally, on gourmet, and I think this is really important.
We want to be a thought leader globally. I want to be super explicit about that. Being a thought leader means we need to provide that recipe inspiration, both offline through the Chocolate Academy. We have 20, as you know, but it's a good global network, but also online. That means AI-type driven things, but also our chefs being very active online as well. Here we have an opportunity, I think, where I think the sector overall is a bit underdeveloped. I think there's a lot of opportunity to drive conversion to e-commerce sales, more directly to some of the customers that we have, as well as in cooperation with our main distributors. I think the online part, that's something that we want to invest in.
I hope I've given you a bit of a flavor on that gourmet was important, will be important, but we're more intentional about it, and we're making clear choices behind our brands, our propositions, our channels. Yeah, our inventory levels to drive service. On Cologne. I wasn't there, but I don't think we have been present in there for the last couple of years. We know this is an important event, and we're currently looking at our attendance for next year. More to come on that.
Right. Okay. Thank you, Hein. Thank you so much for that.
Thank you.
It's very brilliant. Thank you. Have a good day.
The next question goes to Henning Hölder of The Market NZZ. Henning, please go ahead.
Yes. Hello. Thank you very much. I have two questions, if I may. First one, in the media release, you're speaking of a relentless focus to deliver a step change in customer service. In the transcript you say that you, as a group, faced execution challenges, which led to some volume shift in-house by certain large customers. That sounds like many things went wrong in the past. Can you a little bit elaborate what went wrong in terms of customer proximity and customer relationships in the past? Second question is, according to your media release, your assumptions are based on Oh, sorry. No, this question was already asked. The question is, in the past, Barry Callebaut has guided a medium-term EBIT margin of 10%.
I did not see a reaffirmation of this target in your presentation. Does this target still stand? Thank you.
Thanks, Henning, for the question. As you said, as we said on customer service, I think if I look back on the announcement that we've made by the end of the second quarter, I feel that our customer service was simply not at the right level. In many cases it was around or even below 80% on time and full deliveries. I'm not looking back to the past on what went wrong or whatsoever. I would say there were a lot of initiatives going on in the company related to Next Level with all the right intention. I think it was a bit much in combination with some quality issues that we had in our main factory. For example, in Wieze a couple of years ago, but also in Saint-Hyacinthe in Canada.
If you have some quality incidents and at the same time pursuing a giant transformation. Then, of course, we have the volatility in demand given the high cocoa price volatility. Yeah, the combination of that is pretty tough to manage. That, I think, overall has led to a lower customer service than our customers should expect from us. This is something that I feel customer centricity has to be priority number one, two, and three for us. Therefore, I already hinted to slightly higher safety stocks in gourmet. We're also investing in capacity and in the right capacity here, as well as we're investing in our core processes that I talked about. We can only do so many things, but our core processes around planning and around service deserve the highest attention.
This is not something that will improve to the highest level overnight. Absolutely determined to get this right in the years to come, and that we can be that reliable partner that everyone will be looking for. That's it, I think, about relentless focus. Secondly, on the EBIT margin, I am tempted to give that question to Peter.
Sure
Because he's the right person to answer.
Thanks for the question. We have indeed expressed this 10% ambition in terms of EBIT. The main thing to remember behind that is that we are very convinced, and we still are, that there's an important step change that we can make with this company, building on volume growth, building on premiumization, building on cost leadership. You might have noticed we've been a bit less explicit about the percentage as such, mainly because of our cost-plus model. Because it's a percentage of a net sales. We used to be a CHF 8 billion net sales company, and then we became a CHF 15 billion net sales company simply by pricing through all these commodities.
You can imagine that CHF 700 million profit out of CHF 8 billion is a very different number percentage than CHF 700 million out of CHF 15 billion. The percentage has gone down over the last few years, percentage EBIT over net sales. It will go back up significantly as the bean prices are normalizing, as our pricing is normalizing. We went back to 6% over the last year. We will climb back up. I'm not going to quote a specific percentage for the plan because, again, that really depends on the actual bean price and the net sales number. I hope that clarifies.
All right. Thank you very much.
The next question goes to Isabelle Demetz of Bloomberg. Isabelle, please go ahead.
Hi. Good morning. Two questions from me as well. The first one is, when do you expect a rebound in consumption in chocolate demand, and how does that play into your revised guidance, also taking into account potential Middle East disruptions? The second one is, you've mentioned that you're planning capacity expansion. You've gave an example of your plans in North America. I was curious to hear more about your plans in emerging markets, where that is happening. If your capacity expansions there are also focused on expanding your premium businesses. Yeah, that's it. Thank you.
Thanks, Isabelle. Look, I think on the market and on the rebound, a few points to that. First of all, we've guided for this year on our volume development, that in the second half, that for us starting in March that we will actually be growing. So far, obviously, I can't comment on the third quarter, even though it ended for us on Friday. We are certainly on track on that. We do expect some recovery already in the market. It's somewhat in the market this year, but I think we can grow ahead of that to some extent. For next year, we expect 1% to 3% growth overall. We've set it in, I think, the press release as well, and we believe there is a 2% to 4% growth for us in the medium term.
Now, that's not the market. To exactly your question, we expect chocolate confectionery to grow 1% to 2%, but initially more around the 1%. There's some uncertainty around that. For example, prices have gone up by 50% over the last three years. To what extent will cocoa bean prices, will that translate into lower prices to the consumer? To what extent does the consumer have disposable income? Think about all the fuel increases right now, and how are they going to spend their money? We see, overall, we see a trend towards strong premiumization globally. In some markets that's, for example, driven by GLP-1 in the U.S., and some other markets, it's just a disposable income matter. When people premiumize, that's a great revenue opportunity, but it can subdue volumes a bit, and that's okay for us.
I think it's not just a volume play. I think we as a company, we need to look at both. Obviously, volume is helpful, but at the same time, we want to make sure that we drive value accretion as well. Yeah. The second point, to the overall volume development, as I said, 1%-3% for us, but the overall chocolate confectionery market, 1%-2%. We believe, though, that chocolate is used not just in chocolate confectionery, but also in adjacencies. Think of protein bars or think of ice cream. Think of other snacking opportunities. We see those adjacencies where chocolate is used as a meaningful ingredient. We see those areas growing faster. Think of ice cream, it's usually around 2%-5%-- Sorry, 2%-4%. We see energy bars and proteins even above 4%.
We just need to make sure that we get the right solutions for those type of market segments as a company, and that's really what we're focusing on. I think on the Middle East, wanted to add a few words. Look, the Middle East, partially it's a market for us, so we're seeing lower demand in the last couple of weeks, but that's not having a material impact on the group. That's just because of tourism coming down and so forth. Although we're seeing activities in the UAE, for example, getting back to some extent, but not to the level that we've seen before. I think the main impact from the Middle East, without a single doubt, is the fuel impact.
That has a direct impact on our operations and an indirect impact, as I said, on demand and so forth. I think that's probably the main worry for us when we look into FY27 when it comes to the cost level overall. That's something that we need to look at to what extent we can offset that and want to offset that. Of course, on your question on capacity and emerging markets. Here we just need to be very choiceful. I love the opportunity in some of the emerging markets, having great experiences with it, but you can't boil the ocean here, so we need to be very choiceful. What we've said earlier this morning, that in the mix of our 10 key countries in which we want to invest globally and that have the first call on resources.
That's around two-thirds of our volume, those 10 countries, and more than two-thirds of our profit. Brazil, Indonesia, China, India, they are, I would say, the four emerging markets. They are very big ones that we want to call out and where you can expect us to make investments in the near term. We will be mindful therefore and be very judicious on that. It's those four countries that I am really keen. Beyond that, we want to be careful.
Understood. Thank you.
Thank you. We have no further questions. I'll hand back to Hein, CEO, for any closing comments.
Thanks everyone for joining today and we look forward to more exchanges in the weeks to and months to come. Really appreciate your interest in our company. Thanks a lot.