Barry Callebaut AG (BARN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is your conference call operator. Welcome to the media and analyst conference call of the Barry Callebaut Group. The topic of the call is the half year results of the 2019-'20 fiscal year. As a reminder, the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Claudia Pedretti, Head of Investor Relations of Barry Callebaut.

Good morning, ladies and gentlemen, and welcome to our first fully virtual analyst and media conference on Barry Callebaut's half year results for the fiscal year 2019-'20. I'm Claudia Pedretti. I'm Head of Investor Relations. Speaking to you today are our CEO, Antoine de Saint-Affrique; and our CFO, Remco Steenbergen, who will present to you our results, which ended on February 29, 2020. Please be reminded that the information given during this conference contains some forward-looking statements, which reflect the best of our current knowledge. Actual results may be different. Furthermore, we would like to inform you that this conference is being recorded. On the agenda slide, you will see that Antoine will start first with an update on the COVID-19 pandemic, before he will present to you the highlights of the first 6 months of our fiscal year. Remco will then walk you through the financial review, then we go back to Antoine, who will share with you his remarks on strategy and outlook in face of the COVID-19 pandemic. After that, we will open up the lines for question and answers. Please note that you have to dial in by phone to answer questions at the end of the presentation. You will find dial-in details on our website or the press release and receive instructions at the end once more from the operator. And with that, I hand over to Antoine. [Presentation]

I was -- ladies and gentlemen, sorry for the glitch. This is where the virtual conference has some unexpected things. As I was saying, first, let me start wishing all the best to each and every one of you and to your loved one. I hope that you are well, and I hope that you stay safe. We are in extraordinary times in many ways. Extraordinary, as they are deeply changing the way we work. This is the first virtual half year results meeting, with Remco, Claudia and I calling from 3 different locations with technical glitch as you see a video that should be played in the middle. They are extraordinary times as well as they do bring out the very best in our people. We see that every day at Barry Callebaut with our employees, with our suppliers and with our customers. I will come back with more details towards the end of this presentation on how we handle the impact of the pandemic, but I couldn't start this meeting without paying tribute to all Barry Callebaut employees. To those that are working every day in our factories and our warehouses, to the crisis management teams who are doing, for many weeks now, a world-class job, to all the people who switched overnight to work remotely whilst ensuring 100% continuity. I think there is no better testimony to their work than the fact that our operations have, to date, not experienced any major disruption and that we keep serving our customers every day. As you know, our cocoa and chocolate products can be found everywhere, in breakfast products, in energy bars, in our cookies, all products which are foods essential. We contribute every day to keep the food chain going and this gives all of us all the energy in the world. Now let's go to the results over the first 6 months of this fiscal year. You will have seen that this time again, it is a strong set of results. This being said, please bear in mind that with the exception of China for the month of February, our results over the first 6 months were not yet materially impacted by the COVID pandemic. As I was just saying, and I'm now on Chart 6, we delivered a strong set of results for the first half of the year. Our volume was up 5.4%, outpacing yet again the underlying growth of the chocolate confectionery market, which was flat according to Nielsen. Our growth was profitable, with our recurring EBIT outpacing volume at 6.7%. Our recurring net profit, excluding the onetime cost of CHF 8 million for the closure of our cocoa factory in Makassar, was up 11.6%. Obviously, COVID-19 is a major unforeseen event for all of us. While we have put in place precautionary measures to support the continuation of our operations, the impact of COVID on business growth and profitability cannot be quantified at this stage as it depends on the duration and the severity of the pandemic. In the meantime, we remain committed to our midterm guidance for the period ending fiscal year '21-'22. We believe that our global footprint, strong innovation pipeline, diversity in customers and channel in combination with our diligent execution of our proven small growth strategy gives us a sound basis to overcome the current pandemic. You are all familiar, I'm sure, with this graph on Slide 7. It shows you the growth per quarter for cocoa and chocolate and is a great illustration, and I will keep repeating it. To the fact that while we have some quarter-by-quarter volatility, we have a good long-term consistency. This is exactly why we have a midterm guidance, and this will prove, I'm sure, even more relevant in the current circumstances. As you see, both chocolate at plus 5.2% and cocoa at plus 6.5% recorded very solid volume growth in the first half of the year. And as I also just said, we keep consistently outpacing the market. Our growth continues to be broad-based across all our strategic drivers. Emerging Markets grew double-digit at 10.6%. And excluding cocoa, it even grew by 11.2%. It keeps progressing, and it is accounting now for 36% of the total volume of the group. Long-term Partnership and Outsourcing grew at 1.8% as some of last year's Outsourcing deals are now in debates. We have a very healthy pipeline of projects, so we look confidently in the future. Gourmet & Specialties, when you exclude Beverage, grew at 3.6% in volume, partly impacted by China, partly also as we had a disappointing quarter in North America. Beverage, as expected, was negative, but we now see some encouraging signs of recovery. I'm now moving to Slide 9. Looking back at the first 6 months of the fiscal year, we had an extraordinary broad set of milestone activities, which are important building blocks for our future. I could obviously talk again of whole food chocolate, but talking without tasting is a bit of a shame, so I will pass. You know that we got all the temporary marketing permits from the FDA for Ruby in the U.S., which is a very important milestone for us. We keep expanding our CHOCOLATE ACADEMY network with the opening of a totally revamped academy in England. We will also soon open, actually, they should have been opened if it wasn't for the lockdown, academies in Moscow and Athens, and we have more in the works. We keep expanding our industrial footprint. Right before confinement, I was in Serbia where we laid the first stone of a new greenfield factory, which will serve the Balkans but also way beyond. Importantly, we keep getting recognized for the sustainability. Barry Callebaut was awarded the edie Business of the Year Award. It is the most prestigious U.K. sustainability award. And on top of it, the same notch, we also received the award for the leading employee engagement program. We keep growing our own people, and I'm very proud of that, bringing a new generation of home-grown talent into our leadership team. And last, but not least, we keep bringing groundbreaking innovation to the market with the launch of our 3D printing studio, actually, I should say, our printing farm. With this, we can do designs that nobody could do before. It opens all kinds of new opportunities for the world of restaurants and catering. You've seen the video as an opening, but hopefully, we will be able to play it again. So please play the video. [Presentation]

I can tell you this is really, really cool. I mean we got a number of top chefs putting their hands on it. They are extraordinarily excited with the unlimited creativity potential it opens to them. Difficult to see just on a video. I promise you that next time we see each other, you will have the opportunity to experience the kind of shape or shapes we can create, and as importantly, test it for yourself. It is real chocolate, and it is super good. And this is one of the many examples where you see the power of our innovation, but obviously, and as you well know, there are obviously others. Confinements and weather permitting, you should see we'll be everywhere in the coming months, with, for instance, the broad launch of our Magnum Ruby. We made a huge splash at the beginning of the year at the ISM with the launch of 100% dairy-free M_lk Chocolate, which is part of a broader plan craft range. It is another one I would like you to taste next time we are together. We're also, and that's very important, bringing Callebaut to the next level of traceability, making the bean-to-bar experience as simple as reading a QR code, which brings you back straight to the farming communities where the cocoa comes from. So I could go on and on, but I'd rather show you one picture to finish my first part of the presentation. This year, Valentine's Day was true Ruby day in many places, and in particular, in Japan, and this illustrates that. And on that colorful note, I gladly hand over to Remco for the financial review. Over to you, Remco.

Thank you, Antoine. Good morning, ladies and gentlemen. It's quite a difficult situation that we are all in. Towards the end of our first half year, the world has changed quite rapidly due to the COVID-19 pandemic. This has also impacted our business over the past 2 months, and Antoine will provide more information on how we're dealing with the situation later on in this presentation. For our first half year results, we are only impacted by the COVID-19 pandemic in China in February, the last month of our first half year. Having said that, we can report another strong set of numbers for the first half of 2019-'20. Before continuing, please let me make you aware on how we have applied IFRS 16, the new leasing accounting standard. The group applied IFRS 16 using the modified retrospective approach under which the cumulative effect of the initial application is recognized in retained earnings at the 1st of September 2019. Therefore, the financial statements of prior years have not been restated. However, to ensure comparability of our performance, we present prior year numbers as pro forma IFRS 16 adjusted, unless stated differently. For more information, please refer to our half year report in the section, accounting policies. And with that, let's have a look at the results. We have achieved a strong volume growth of plus 5.4% in the 6 months under review, well ahead of the flat underlying confectionery market. It was a smart growth, driving gross profit up by plus 6.1%, with improved mix, while the cocoa market environments were slightly deteriorating. Our operating profit EBIT included an CHF 8 million one-off cost for the announced closure of our cocoa factory in Makassar, Indonesia. Our recurring EBIT, excluding this one-off cost, increased by plus 6.7% in local currencies, ahead of our volume growth and ahead of our gross profit. Please note that the CHF 311.5 million recurring EBIT included a strong negative currency translation effect of minus CHF 11 million compared to the prior year period. The net profit, also excluding the cost of the closure of the cocoa factory in Indonesia, increased by plus 11.6% in local currencies, mainly due to higher operating profit and lower finance expenses. Taking into consideration the cash flow effect of cocoa beans and inventory, considered by the group as readily marketable inventories, the adjusted free cash flow of the first half year '19-'20 was roughly stable at minus CHF 18 million compared to the same prior year period. Please note that the higher average cocoa bean price did not only affect RMI, but also had a negative impact on the remaining inventories and trade receivables. Excluding this impact on the remaining working capital, the adjusted free cash flow improved by approximately CHF 110 million. On Slide 15, we show you the performance by region for the first half year 2019-'20. As you can see, all regions supported the growth. In our largest region, EMEA, good volume growth continued and reached plus 5.5% in the half year under review. Excluding Inforum, our acquisition in February 2019, the organic growth amounted to plus 2.4% and was well above the underlying chocolate confectionery market, which was about flat. The Food Manufacturers business continued the solid growth in Western Europe and EEMEA. Gourmet growth accelerated in the second quarter, while Beverage volumes were still negative. Operating profit EBIT was up plus 7.2% in local currencies, outpacing volume growth and reflecting the improved product mix. The impact of the COVID-19 pandemic in the region is yet to be seen in the coming months. Region Americas showed strong profitability and steady volume growth of plus 2.2%, which must be seen in the context of an overall decline underlying chocolate confectionery market. Operating profit increased strongly to plus 7.4% in local currencies, also reflecting an improved product mix. Sales volume in the region Asia Pacific continued its strong growth despite the impact of the COVID-19 in the Chinese market in the latter part of the second quarter. Volume growth continued to be double digit at plus 16.7% for the first half, well above the underlying market. Please note that the market number from Nielsen is excluding China and Indonesia as the data could not be obtained due to COVID-19. Our Food Manufacturers business kept growing double digits, mainly supported by regional accounts, while Gourmet & Specialties also achieved high single-digit volume growth. China was the first country being impacted by the COVID-19 pandemic. This led to a sharp slowdown of our Gourmet business in February 2020, particularly in the high-end segment. This has impacted operating profit EBIT which still grew with plus 4.4% in local currencies, but less than volume growth. In our Global Cocoa business, volume growth normalized in the second quarter, resulting in an increase of plus 6.5% for the first 6 months. The operating profit was affected by the cost of the closure of the cocoa factory in Makassar, Indonesia. Excluding this effect, the recurring EBIT increased by plus 3.6%, reflecting the more challenging market environment. Going back to group level, let's now look at the gross profit bridge. The volume growth as well as the product mix had a positive impact on the gross margin. As mentioned before, the results of our cocoa business have slightly deteriorated, reflecting the more challenging market environment. Altogether, our gross profit increased by plus 6.1% in local currencies. Please note that currencies had a strong negative translation impact of minus CHF 17 million. As you know, the cocoa combined ratio shows the relationship between market prices of cocoa butter and powder in relationship to the underlying cocoa bean price. This is a forward-looking curve. Results are normally seen over a 6 to 9 months period. Please note that the cocoa bean prices have increased during the first half of our fiscal year and remains at a high level of volatility. Currently, the bean crop supply and demand predicts a balanced year. On face value, the combined ratio, which gives an indication of the trends of the cocoa prices and profitability, has roughly remained stable. However, I would like to remind you that certain variables, like, for example, the country differentials, which increased during the last 9 months, are not reflected in this ratio. Also, please note that the living income differential, which will be implemented as of the 2021 crop starting in October 2020, which can be seen in additional tax, will also not be reflected in the ratio. Let's now look at the operating profit for the first half of our fiscal year. Our recurring EBIT, which is excluding the cost for the cocoa factory closure in Indonesia, increased with plus 6.7% to CHF 322 million in local currencies. Our smart growth contributed with CHF 36 million additional gross profit. Our cost increase are very limited and is focused on investments to support continued volume growth. This bridge on Slide 19 shows you the developments from EBITDA to net profit for the first half year. Financial items improved with CHF 5 million, thanks to the positive impact of the refinance activities undertaken last year. The effective tax rate of 19.6% includes the effect of the enactment of the Swiss Tax Reform at Cantonal level, which is effective as of the 1st of January 2020. Adjusted for this nonrecurring impact, the effective tax rate of 19.2% was about stable compared to last year. This resulted in a net profit of CHF 204 million. Excluding the one-off cost for the factory closure and the negative currency translation effect, recurring net profit increased with plus 11.6% to CHF 220 million. Let's look at the long-term development of our key raw materials. The cocoa bean price, our most important raw material, continued to be volatile and fluctuated between GBP 1,700 and GBP 2,100 per tonne. On average, cocoa bean prices increased by plus 13.6% compared to prior year period. Global bean supply and demands remain balanced. Sugar prices in Europe increased by plus 18.4% due to a poor crop. And world sugar prices also advanced, but much less, on average by plus 3.0%. Dairy prices on average increased by plus 43% on the back of weak milk supply and ongoing strong demand. Based on our cost plus model used in the majority of our business, the volatility of these raw material prices normally does not affect our profitability, however, it has an impact on our working capital. We continue to focus on improving our cash flow discipline, and we believe that this has paid off in our cash flow results. Our adjusted free cash flow amounted to minus CHF 18 million versus minus CHF 10 million in the prior year period. The higher average cocoa bean price versus prior year not only resulted in a higher amount of readily marketable bean inventories, but also increased our other inventories and trade receivable. Excluding the latter, our adjusted free cash flow has improved by approximately CHF 110 million versus the prior first half year. Interest and income taxes paid of CHF 73 million remained at around the same level as in prior year period. Capital expenditure of CHF 148 million was slightly higher than last year, as expected. The net debt increased due to the first-time adoption of the accounting standard IFRS 16 with CHF 205 million. This is an accounting change. On a pro forma basis, our net debt remained about stable at CHF 1,981 million. Taking into consideration the cocoa beans and inventory as readily marketable inventories, the adjusted net debt decreased by CHF 161 million to CHF 882 million in February 2019 (sic) [ 2020 ]. As said before, the group has adopted the IFRS 16 standard as of the 1st of September 2020. To ensure comparability of our performance, we are presenting pro forma IFRS 16 adjusted figures for prior periods. Now let's have a look at the balance sheet and its performance ratios. Our working capital was about stable at CHF 1,838 million compared to February 2019. This, despite higher inventories, mainly relates to the increased cocoa bean prices, which were offset by improvements in other parts of our working capital. Our adjusted net debt decreased to CHF 882 million, and an adjusted net debt-to-EBITDA ratio further improved to 1.1x compared to last year February and August. The shareholders' equity also remained stable at CHF 2,403 million. Our ROIC on a recurring basis was stable at 11.4% compared to February 2019 despite the negative currency translation effects on EBIT and the impact of the increased bean price components on invested capital. Our ROE on a recurring basis further improved to a very healthy level of 17.0% despite the further appreciation of the Swiss franc. And with that, I give the word back to Antoine.

Many thanks, Remco. Let's look at our strategy, at our COVID-19 management and at our outlook before we open the line for questions. I'm now moving to Slide 25. As you know, we are extremely consistent in our strategy, whilst evolving our execution to try and stay ahead of the curve. The current pandemic doesn't change this, and if anything, it invites us to be even sharper in the execution of our strategy. We will continue to focus on our 4 pillars of expansion, innovation, cost leadership and sustainability. Each of them, in their own way, actually gains even more relevance in the current context. It is obvious for cost leadership. I hope it is as obvious, if not more obvious, for sustainability. But also paradoxically, we believe that the current pandemics could open new expansion opportunities as some businesses are likely to further review their business model. It will also create a need for more innovation as some consumer behaviors will certainly evolve. Obviously, for over 2 months now and probably for a little while longer, we have spent quite some time managing the impact of the COVID-19 pandemic on our business. Let me first share with you in more details how we have organized ourselves to manage it. The basis of what we do can be summarized in 2 sentences. It is about ensuring the safety of our employees, of our partners and contributing to the safety of the communities in which we live or upon which we depend. And it is about ensuring business continuity allowing what our essential food products to be found in the stores regardless of the pandemic. As you know, we have a strong footprint in Asia and in particular in China. This has allowed us to capture early on some understanding of what could happen and organize ourselves accordingly. We have rapidly put in place our dedicated teams at global and at regional level. Those teams are on the routine of daily calls for 2 months now. Early on, we instituted travel and risk tracking, team segregation in our offices and in factories, active cleaning and sanitation between shifts in our factory. This certainly enabled for better continuity. We instituted self-distancing and self-isolation anytime we had a suspicious case. We also organized ourselves and moved relatively early on to remote working for office staff. We upgraded some of our IT capacity such as our VPN to ensure flawless connection when working remotely. And we also moved to a very, very tight and fast-paced governance with our daily executive committee calls. I must say this very tight, very high-touch, very fast-paced way of managing the business has so far served us well. Obviously, as the pandemic continues to develop, it is too early to assess its full business impact. This being said, we can already see a number of things. To date, we have not experienced any major disruption to our production operations. We have seen temporary closures of some of our factories in Asia Pacific due to government-mandated lockdowns, but we were able to restart. In some places, we had to slow production as demand declines. But in some others, we are working around the clock. In our supply chain, we are not, to date, experiencing any major disruption, although obviously, everything that revolves around transportation and exportation is becoming more difficult. We have contingency plans in place, and we will continue to review and adapt them in permanence as the situation evolves. Luckily, in some ways, the main cocoa season in Africa is behind us, which is making our life easier. In terms of impact on volume, Food Manufacturers and Global Cocoa are, for the moment, less affected. We expect Gourmet & Specialties volume to be particularly impacted as countries going into lockdown have shut down all restaurants, the confectioners and most of the out-of-home activity. The impact cannot be quantified at this stage as it depends on the length and the severity of the pandemic. However, we do expect to have a better understanding of the overall impact of COVID-19 on the company by the time of our 9-month sales publication in July. Last, but not least, all the hard work done over the course of the last years in the frame of small growth by deleveraging the company and by strengthening our balance sheet are putting us on the solid ground to face the current situation. As you know, we have strengthened our financing over the course of last year, and the next maturity of our fixed-term debt comes in 2023. You will have read that we took the decision to draw the entirety of our RCF CHF 1 billion facility. We only did that as a precautionary measure. This RCF facility has been in place for years, amongst others, as a fallback option in case the commercial paper market ceases to offer the required liquidity. I'm now on Slide 28. Although, as we said, it is too early to quantify the impact of the pandemic on our business, and although the China example cannot be extrapolated globally, we thought that it may be worth sharing with you some of the things we experienced in China since February. As you know, we have a large factory there and a pretty sizable business. Let me first remind you of the sequence of events. On January 23, the Chinese government placed the city of Wuhan under quarantine, followed the next day by another 12 cities. January 25 was the Chinese New Year. By February 13, all of China was locked down. We saw immediately a sharp slowdown of our Gourmet business and our factory, like the vast majority of Chinese factory, couldn't restart production until February 20. After the reopening, it took us about 3 weeks to get back to normal factory utilization. We now see a buoyant market recovery in both FM and Gourmet. We also see, by the way, the acceleration of the shift to online sales, which had already started a while ago. Whilst we cannot predict if and when the example of China can be extrapolated elsewhere, we certainly keep it in mind to make sure that we are well prepared to serve our customers as soon as the situation improves as this day will obviously come. So let me summarize before we open to questions. We come out of a strong first half year of growth and profitability. The current COVID-19 pandemic is a major unforeseen event, the impact of which we cannot yet quantify at this stage as it depends on the duration and the severity of it. In the meantime, we remain committed to our midterm guidance for the period ending with fiscal year '21-'22. Our global footprint, our strong balance sheet, the strength of our innovation pipeline, the diversity in customer and channels in combination with the diligent execution of our proven smart growth strategy give us a sound basis to navigate the current weather. And with this, I'll give it back to the operator. Please open the lines for questions and instruct the participants.

[Operator Instructions] The first question comes from Jörn Iffert from UBS.

Can you hear me?

Yes, loud and clear.

We can hear you very clear.

Two to 3 ones, please. The first one is on liquidity. And assuming in a scenario the lockdown or consumer street traffic, they continue to be down, what we have seen in the last couple of weeks for the next 3 to 6 months, can you tell us what is your cash burn and how much liquidity would have left as a buffer? And second question would be, please, on tackling the cost base, what is your strategy here? Do you maintain all your employees right now also in Gourmet, and you say, okay, look, I take the margin hit for the next 6 to 9 months? Or have you some room to maneuver on the cost side with temps, et cetera? And the last question is, please, investments. Looking on the product lineup for Christmas, on the product lineup for '21, are there still very close discussions with customers right now? Or is it more on hold? And what is the strategy, you continue to invest in R&D and new product lineups for 2021? Or also taking some projects on hold here?

Good. So let me take the innovation we do on the cost base, and Remco will take the liquidity. On the -- on our innovation with our customers, we keep actually actively working and engaging. Believe it or not, some customers being home have more time to engage. Our R&D people actually are doing amazing things. So they have created -- or some of them have created studio academies in the kitchen, and they are doing virtual meetings and demonstration with customers. So the show doesn't stop, and if anything, we are intensifying the work. Obviously, people cannot taste the product. We ship some samples still. But the show hasn't stopped, to the contrary, actually we are intensifying the customer relationship. And this leads me to what do we do on the cost base. Obviously, we are extremely short on our cost base. All travels have stopped very early. Our people working from home, we have cut a large number of cost. Whenever activity is going down or whenever activity is not relevant anymore, we have asked people to, where it was possible, take their holidays, take their partial times. We are leveraging also everything that our government allows. This being said, we also make sure that people are focusing on the day after. So take, for instance, some of our Gourmet salespeople. Obviously, our restaurants are closed, they cannot visit the restaurant. They are engaging with our distributors to look at what is the range, how do we restart on day 1, what are the special program. They are reaching out to our new customers to be able to enlarge the customer base. So we leverage the time. And we have switched, by the way, some of the incentive of the sales force to leverage that, to make sure that we come extremely strong out of the day after, and we turn the crisis into an opportunity. But maybe, Remco, you want to say more.

Yes. On just -- and on the other question. In parts where we cannot contain certain investments in our factories or improvements we're doing simply because we cannot sever those parts will, of course, stop. Now some parts are handled by tokens, which then would phase out and replace also from other projects where you can still execute upon with our own people. We think that it's extremely important that this common time we built these on the longer -- this is also an opportunity to further strengthen and to make -- to come out of this even stronger than we came in. From an employee perspective, Antoine has already described it, they're almost fully locked. There are some places that we have some temporary unemployment. We are quite committed to hold the salaries for our employees, at least as we see it now with the length of the performance effects, as it's going on. On the liquidity side, as we said in the beginning, and Antoine said, right, this is a precautionary measure. So I've explained before, the net debt numbers, which are outstanding there, those net debt numbers have not changed. We do have more cash, refinanced part of our commercial paper and the rest sits on the bank account. If this lasts a few months, you can do the math on what it means for our EBIT, which can also means that IFRS profit should be in and keep growing. So no -- at this point in time, in the current situation, we don't foresee any reason why it took before [ housing ] as you can never be sure, and we have to make sure that if something unforeseen would happen in the capital markets or elsewhere that we can keep on running as we think it's important. We believe in middle and long term as a company and we prepare for that.

The next question comes from Jon Cox, Kepler Cheuvreux.

Jon Cox, Kepler Cheuvreux. A couple of questions for you. On that Gourmet business, obviously, we know it's 12% of volume. I'm just wondering if you can give us a breakdown in terms of the Horeca sort of share of that business, so into restaurant, hotels, et cetera, which is obviously now part of the close down. So just trying to get an idea of the -- how much of that volume is being impacted. Because I guess, things like your cocoa powder, a lot of that's being sold in grocery, in bakeries. Bakeries are still open in many parts of the world. Just if you can give us any granularity on the sort of split in terms of the channels, that would be -- that would obviously be very useful. You mentioned Gourmet coming back in China buoyant. Are you saying that Gourmet now is back to where it was, so it's running more or less as it was a year ago most recently? And then just as an add-on, I wonder if you can just give us a rough idea on your Gourmet business overall, where you were in March. You obviously have the figures in front of you. I'm just wondering what sort of -- what was the volume decline in March. Obviously, anything you can provide in terms of granularity on this issue would be very useful.

Yes. So Jon, we'll do probably a duet there with Remco as well. The -- I'm afraid I won't be able to provide as much granularity as you would like for one very simple reason, which is the closures, the type of closures, the speed of the closure market-by-market are very, very different. So we will have, and that's what we said, probably better visibility at due time of the quarter 3 results. This being said, I can give you a couple of examples. To your point on China, yes, China is back to literally normal. So we had very, very good sales in -- after the crisis, the distributors are back to normal. You see as if basically very little had happened. If you look at what's happening country by country, it varies enormously because it varies enormously depending on the overall structures of the market. I mean the street Horeca versus not Horeca is one that, in some ways, is not going to be very helpful because the reality is confectioners are being closed everywhere. Half of the bakeries are closed and the bakeries that are opened are not selling the same thing. So the impact on Gourmet is really, in some ways, a blanket impact, but varying a lot country by country. So Italy, in the worst months, the volumes were about half of what they were normally. But the figures were very different in different places. Remco, anything you want to complete, add or change? Hello?

I think we lost him. I wonder if I could just follow-up then. Just as a rough rule of thumb, for these very difficult months, March, April, May, we should be assuming that volume is halved, more or less, in Gourmet?

Listen, as you know, we don't give our yearly guidance, we don't give quarterly guidance. And that's why -- and there, Jon, I'm afraid you'll have to bear with us. I don't want to make prognosis at this point. When we have more transparency, I will provide more transparency. But let me take a very simple example. Germany announced this morning that they will reopen the stores under 800 square meter on the 3rd of May. But there is no clarity on whether in those stores, the restaurants are going to be comprised or not. And there is no clarity on when they are going to reopen the restaurants. Smaller stores have reopened in Spain, not yet in Italy. So it's a moving field. So rather than giving a prediction at this point, which will be anyway wrong, I'd rather share more information when I have it, which is going to be in the quarter 3 results.

Okay. I want to...

Hello, Antoine, can you hear me again?

Yes, we hear you again, Remco.

Okay. Yes. I tried to answer, but didn't come through. I have nothing to add on what you said. So I think this is the guidance we can give, and that we come back in July with more information.

I wonder if you can just tell us how much the revolving credit facility will cost you in additional finance charges this year. That's one question. A second question, just on the LID and the cocoa surcharge being introduced. I think you sort of indicated around Q1 that potentially the introduction of that taking you by surprise, some contracts potentially mispriced, and that could weigh on your margin towards the end of this financial year and into the start of the next one. Do you have any more update on that and how the surcharge is impacting your business? Or now are you comfortable, everything is back to being back-to-back hedged and the rest of it?

Antoine, will I start?

Yes, please go.

So first, on the RCF, you talk about a very low single-digit million Swiss francs. So it's not a lot [indiscernible].

Remco, the line is very bad. We are losing you. [Technical Difficulty] Okay, Jon, sorry for -- I mean, sorry for that. Remco will come back. But it's very small digits on the RCF. On the LID, what we said exactly is, obviously, it is a tax that comes on the price of cocoa beans. It is a principle, by the way, we support or if it's executed in a way that enables more sustainability with the farmers. It obviously increases the price of cocoa. So it obviously creates discussions around the price of product. This being said, the impact from a consumer standpoint is relatively limited. And it's probably about 1% for a typical milk chocolate bar. It's probably -- I mean a portion of -- a small portion of that for an ice cream. So it takes the time to drip in into the market and to the market to adjust to what is becoming a new normal. But there is no -- I mean there is no specific issues when it comes to -- I mean specifically when it comes to hedging as you are mentioning. The market in cocoa is -- remains very, very volatile. And we've seen the market going up to over $2,000 extremely and down to, I mean, $1,750 and it varies a lot literally day by day. It's also an inverted market, but it doesn't prevent us to having pretty decent bookings. Remco, you're back?

Yes. Can you hear me?

Yes, much better.

Okay. Super.

So RCF maybe for Jon.

So Antoine, I could -- very difficultly hear you.

Sorry for that. Could you get the gist of what I said?

No, not really. [Technical Difficulty] Shall we go to the next question? Antoine is there a question you -- still needs an answer from me?

No. I think Jon wanted to -- the answer on the cost of the RCF because...

Okay. I thought you could still hear, but clearly, it was not. Jon, apologies from my end. The cost of the RCF is only a few million. And don't forget as well that partly, we refinance our commercial paper, which otherwise would also cost some money. So it's very minimal.

The next question is from Arthur Reeves of Barclays.

It's still about COVID. But on the positive side, are you seeing an uplift in food manufacturing volumes as retail sales increase? That's the first part of my question. The second question is, I think that seasonal products, Easter eggs, haven't sold at all well. Do any of your customers ever come back to you to say that they've used your chocolate in Easter eggs, and they'd like you to help with discounting in the retailers? They are my 2 parts of the question.

Thanks, Arthur. So to your -- I mean, to your question, we see huge splits and huge volatility in the volumes. We see some of our customers are selling a lot. You see that in the biscuit categories. We see other customers slowing, and we see quite a bit of volatility. So there is no one size fits all. We don't have at this stage, and without revealing any secret, we don't have the kind of commercial discussions that you mentioned with customers. And probably for one good reason, which is we keep our factories running and we keep delivering in times where it's extraordinarily difficult for each and every one. So our customers are actually highly appreciative of the fact that we can do so. We do that with lots of reactiveness. So actually, the -- we get very encouraging, very positive formal letters of my CEO counterparts.

That's good to hear. So really, the margin will be on the Gourmet & -- the margin pressure will be on Gourmet Specialties? Are you having a lot more costs in all your factories? Or is it really just a mix effect because of the slowing Gourmet Specialties sales?

Well, there are 2 -- and Remco will help me on that. There are 2. I mean, obviously, there is the -- there will be probably a mixed impact linked to Gourmet. Whenever we are slowing down volumes in some factory, we do our very best obviously to contain the cost. What is the magnitude of it, I cannot tell you at this time. But maybe, Remco, you want to give a different answer?

Yes. I think you have to look a bit different at that, Arthur. As Antoine already explained before that our FM business is largely intact, correct, not at full, but largely, with a clear mix of some customers needing more and also some customers where they are impacted and closed, which goes the other direction. There you have also the margins in your models you could use on the Gourmet, yes, on the -- Antoine explained as well that Gourmet is much severely impacted, really depending on the severity and the length of the closedown and the country, and that carries another margin. As we said before, hey, the people in our factories, they're on our payroll, and those costs continue, including depreciation, and the majority of our factories is fully up and running. Now there are certain costs where we can reduce. Antoine also explained that before. But that will give you, let's say, a rough framework of understanding where we are.

The next question comes from Alain Oberhuber of MainFirst Bank AG.

This is Alain Oberhuber, MainFirst. I have 3 questions. The first question is regarding Outsourcing. Obviously, we have seen deceleration of the growth in Outsourcing in Q2, which is now just up by 90 basis points. Have you experienced any easier or tough negotiations with potential Outsourcing customers? And secondly, do you think there could be midterm a strong Outsourcing trend given the current situation? The second question is, again, regarding Gourmet Specialties. Could you give us a little bit more granularity regarding the exposure of Gourmet & Specialties in -- within the regions like India, Americas and rest of the world? And also within that, more granularity, how much of that Gourmet Specialty business is with hotels, restaurants and catering and bakeries? That would clearly help us to do some assumptions as well. And the third question is regarding China again. It looks like you had a nice recovery there. But in volume, how large is China today or prior to this crisis, how large was China in volume terms for the group?

So thanks, Alain. I'll take the Outsourcing question, I'll leave the Gourmet and China one to Remco. Listen, on Outsourcing, the -- first, every Outsourcing negotiation is a negotiation. So we keep talking. We haven't seen a fundamental change in the quality of the negotiation. If anything, I am convinced that as people come out of the crisis, it will be an incentive for them to relook at their business model and to challenge assumption that they were considering as not challengeable before. We have a number of discussions going on. We also have contracts that are signed that we cannot publicize, but that will come into fruition in the second half of the year. So the pipeline is moving nicely. As you know well because you've been following us for a long time, when it comes to Outsourcing, it doesn't come like a Swiss clock. Sometimes you don't have a new contract for a while, and suddenly, you have a number of new contracts coming at the same time. So it's not -- it doesn't fall regularly. But a number of very exciting discussions are ongoing. The pipeline is moving nicely. And I'm actually pretty confident that the current crisis will open new opportunities because some people will have to reconsider some aspects of their business model. Remco, do you want to take the next 2 questions?

Yes, of course. Alain, on the Gourmet exposure, correct, you're asking a few questions which -- on topics we don't disclose for competitive reasons. But let me give you the best possible insight, having said that. On the Gourmet by region, as you know, EMEA is by far our largest region, correct? So you can imagine as well that from a Gourmet perspective, that is the biggest, followed then by Americas, followed by China, to be said about -- if we talk about Asia Pacific and to be followed with Asia Pacific. That of course, the growth in Gourmet there is probably the highest among our regions. The exposure really relates to the level of lockdown, but you've seen lockdowns all around the world, correct? Whether it's in Brazil to a certain extent now as well in North America that's come in place in many of the European countries, et cetera. So in that sense, the exposure is in all the regions where we are busy with Gourmet, with China now coming up again. For the channels in Gourmet, what we can say that in a full lockdown, say, the majority of our channels in Gourmet are impacted. So that impacts -- that effects indeed Horeca and catering. Some of the bakeries are open. That is correct. But it's a smaller part of our total portfolio. China, how big it is in the total is something we do not disclose. I'm sorry, Alain. I can't say that for competitive reason.

The next question comes from Andreas von Arx from Baader-Helvea.

Yes. First question is also as previously on Outsourcing, maybe a bit more number oriented. If I look at the first half, I think that's around 6,000 tonnes additional Outsourcing, equaling 1.8%. I mean if I do that then for the full year, that's going to be a bit more than 10,000, if you don't have significant additional contracts coming in, which is way below the 30,000 to 50,000 Outsourcing contracts you have coming every year in the last few years. Is that correct? Or are you still confident to hit that implied guidance you had in the past of 30,000 to 40,000 tonnes coming from Outsourcing? Second question, again, food manufacturing. If I look at growth that is coming not from Outsourcing and also not from acquisition, I would note a significant slowdown as well first quarter to second quarter from, let's say, very high single digit to low single digit. I mean why is that not -- why should that not be seen as a trend of a clear slowdown in the normal FM business also globally in the quarters to come? And then the third question is on price discussions you are having at the moment with customers. I mean given the living income differential, you should rather talk to clients increasing prices, which I suspect is quite difficult at the moment given the lockdown. Are you worried that this could have a temporary negative impact as you might be unable to pass on the higher cocoa prices with new innovations in the coming quarters? And then Remco, just quickly on minorities. Can you make a sentence on the jump we have seen or on the minorities change we have seen year-over-year in the first half?

Good. So we'll do a duet with Remco. Let me start with Outsourcing. Our guidance, as you know, is a 3 years guidance. What we said is our Outsourcing over the period should be on average 30,000 to 40,000 tonnes. You will remember also that some years, we have 50,000 tonnes and some years, we have less. We have new contracts coming on stream, so I'm confident that the number will keep growing. But there, we don't give, obviously, in the year guidance. But as I said, we are confident that the 30,000 to 40,000 tonne per year on average during the period of the guidance, we will deliver. Once again, the pipeline is pretty healthy. On the price discussion, let me be very simple and straightforward. I mean the living income differential is a tax, okay? It is a tax that is put on top of market price by the Ivorian and Dalian government. So taxes are passed on, plus we have a cost-plus model. So there the -- I mean, the answer is pretty straightforward, if I may. What you have seen probably at the beginning of the year is some of the consumer goods company have taken a price increase, partly to cater for that, and you saw that in particular in the U.S. But yes, it's a fact of life, and it's part of our cost-plus model. On your FM volume question, we'll do a duet with Remco, but I wanted to start it with one point, which is, you cannot exclude Outsourcing from our growth in FM. The main thing is in being -- I mean, Outsourcing is part of our model and is one of the key elements on which we base our growth by, I mean, basically taking a captive market into the open market. So that's a very -- and that is a very important point, and we have been consistent now for a long, long time about that. Remco, do you want to complement on this question and the minorities one?

Yes. So just also a step back, Barry Callebaut has quite a few drivers for growth, correct? And yes, Outsourcing is one of them. Innovation is another one. The geographic expansion is another one. We have also increases in volume, which were not following under the definition of Outsourcing, where with customers who started up from nothing, we keep on further growing. There's also some deals we cannot announce because we are not allowed to announce. This is not a quarterly thing. That's why we have, and I repeat again, a midterm guidance because 1 year can be a bit higher, a little bit lower. You have seen over the last years the volatility on quarter-by-quarter. In Q1, everyone was extremely excited on the high number. We said, hey, don't get excited. We stick to the 4% to 6%. With Q2 at 2.5%, we are below. That's the way we run it. We don't run it as a quarterly business, and we are confident on the pipeline. The minorities is actually a very simple explanation, Andreas. As we explained, the closure of the cocoa factory in Indonesia has cost us CHF 8 million in terms of write-off and cost related to that. That factory was in a joint venture. So the minority part is actually the share of our joint venture partner in that CHF 8 million. So on an -- say, on an equity impact level, the impact is less than CHF 8 million, but accounting requires us to take 100% in the P&L. And then below the net income and the split between minority and on equity, it's actually split. That explains the move versus last year.

The next question comes from Graham Hunt of Morgan Stanley.

Just a couple from me. Maybe on your supply chain, you could give some color on some of the actions you've taken to protect some of your suppliers who might be under more pressure from a cash perspective at the moment, whether that's in terms of working capital or maybe cost going into the P&L? And then secondly, if I could just push a little bit on the China comments in terms of recovery. I think you said that's back to normal now. But I just want to understand what you're seeing in maybe the hotel and travel channels. And how you think about the travel channel in the context of Gourmet maybe going further into the more medium term and what your expectations are there? I think general sense is that travel is likely to be down overall, even beyond lockdown. So I'm just trying to understand your -- how you can shift your Gourmet business a little bit in that specific channel.

Good. We'll do a duet there as well. Listen, on China, the -- we'd also have to be honest, the quantitative detail on which customers sells in which channel. So what I'm going to give you is more an impression of where our volumes -- and our volumes are pretty healthy lately in China, where our volumes are going. We see a further acceleration of everything, this is online sales. I -- in the last call, I spoke to you about one of my favorite companies ever, a company called Blue Cake, and it's a lady that is doing online sales of chocolate cake across China. Those type of business are going extremely fast. You see also a rebound of the catering and of the patisserie activity after a time we're closed and there were a depletion in inventories. So would you see a shift from one place to the other? Yes, probably so. Will you see an acceleration of our Internet-related sales? Yes, certainly so. I'm totally unable to quantify that for you. On the supply chain part, let me give you a bit of color first on what we do internally, and then Remco will help me with our suppliers. I think I told it to you, we managed to have almost all our factories, I think, all except one, and the one for one specific reason, running. So we kept an amazing business continuity. We had some temporary closures when the Malaysian government or the Indian government were putting everybody under closedown. But we are able to restart very rapidly, partly because -- or essentially because we are a key element into the global food chain. By the way, partly with the support of some of our customers, which feel that we are very important elements of their own supply chain. So there, the team has done an absolutely amazing job at keeping the factories running. And that's also because -- and I said it because we started very early in segregation, sanitation, positive equipment, in keeping our people safe and working hand-in-hand with trade unions. And there, our -- the teams did an amazing job to keep the food chain going. So great job. As part of that also, we do partner with our suppliers, making sure that we have the real impact materials that we need in our factory to run our factories. Whatever help we get, we also make sure that we do leverage them. But Remco, you may want to give some color on that.

Yes. Thank you, Antoine. Want keep in mind that, a, our suppliers -- we have the beans, correct? And the majority of the bean season is past. So we have those beans in. Of course, in the sourcing countries, we try to help the farmers as much as we can with the ongoing business and to keep it running because to keep it running means there keeps on being cash for them. And a lot of the milk and sugar, of course, is sourced locally. What's for us there is very important is that we have it sufficiently available and sums with the cross-border transfers taking longer. We need to make sure that we have sufficient stock available to keep production going. So far with suppliers, that seems okay. But you have to imagine there are other kinds of material needed. So packaging is, for example, needed. And that was a little bit more difficult to get that organized, and I have to say our suppliers have been absolutely fantastic in this regard, and we help each other here. To keep in mind, the other side of the supply chain is, of course, our customers. Our large customers, we see them paying all on time and correctly, so that is many thanks for that. On the Gourmet side, you have also to understand that we have quite a portfolio. And some of the smaller Gourmet customers and then think about countries like Italy, et cetera, we will try to help them to get through this difficult times and, as much as possible, ensure that also after this, they can -- help to start them up again. Of course, it's their -- first and foremost, their own responsibility, but whatever we can do to help in that in a financially sound way, we do everything we can.

Maybe to get on one other you said, Remco, you heard something we are super proud of is we are helping the farmers, the cocoa farmers. The guys that are doing sustainability in the fields are now also doing all kinds of prevention and litigation work. We are working with some of our customers to distribute -- and with the CCC in Côte d’Ivoire to distribute soap. So we are standing by the origin countries and by the farmers because we are in the business for the long term. And that is a source of -- that's the right thing to do, but it's also a source of energy and pride for the team.

There are no more questions so far in the queue.

Good. Well, listen, then if there are no more questions, first, again, a huge thank you to each and every one of you for having joined this conference. It is the first one that we do fully virtual. Nothing replaces seeing each other, eating some chocolate together and exchanging about that. So we are very much looking forward to seeing you, hopefully, in July in a world that hopefully will have changed. In the meantime, be safe, take care of yourself, take care of your loved ones. If you have any follow-up questions, you know where to find us. Obviously, Remco, Claudia and I will talk to a number of you as we hold our online roadshows in the coming days. So on that, a big, big thank to each and every one of you. Once again, be safe, wash your hands and by all means, eat a lot of chocolates.