Barry Callebaut AG (BARN) Earnings Call Transcript & Summary

This is your conference call operator. Welcome to the Media and Analyst Conference of the Barry Callebaut Group. The topic of the webcast is the full year results of the 2019, 2020 fiscal year. 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 full year results for 2019 and '20 and the media and analyst webcast. My name is Claudia Pedretti, and I'm speaking to you today with our CEO, Antoine de Saint-Affrique; and our CFO, Remco Steenbergen. 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. And this is the agenda of today. Antoine will present to you the highlights of the full year 2019/'20, then Remco will walk you through the financial review and then hand back to Antoine for his remarks on strategy and outlook. We will finish the webcast with opening the lines for questions. So please note that you have to dial in by phone to ask questions. You will get instructions from the operator once more at the end of the presentation. And with that, I hand over to Antoine.

Thank you, Claudia, and good morning, ladies and gentlemen. Welcome to our full year '19/'20 media analyst conference. I hope you are all are healthy. I hope you all stay safe. I wish we would be together in our academy eating chocolate and discussing numbers, but we have decided to stick to our strict precautionary measures, the ones we put in place at Barry Callebaut very early on, and we are, therefore, presenting via our webcast. I truly hope that we will see each other in person again soon. But for now, we have to remain vigilant, which I'm sure you will appreciate. Next slide, please. Before I do anything else, let me start by thanking my good friends and our aspiring partner, Remco. You will have seen from the press release this morning, that Remco will be leaving us to take on a much more formidable challenge than simply selling chocolate. He will leaving us having done the job is signed for and having helped make our company much stronger. So Remco, a big, big thanks to you and although you're still with us until the end of the year. I am also delighted to welcome Ben De Schryver as our new CFO. A number of you know Ben from our last Investors Day, Ben has been successfully heading our Asia Pacific over the last years and comes with a very strong business and financial background. He has been CFO of 2 of our regions. It is also a great testimony to the pool of homegrown talents we have been able to develop over the past years. You will have plenty of time to get to know Ben. Next slide, please. Let me also say a few words about some changes in the Board of Directors. Suja Chandrasekaran, Board member and member of the Nomination and Compensation Committee will not stand for reelection at the upcoming Annual General Meeting. All the Board members and myself are thanking and expressing our sincere gratitude to Suja for many contribution. All other board members will stand for reelection for another term office of 1 year. The Board of Director proposes to elect Yen Yen Tan as new member of the Board. Yen brings deep insights into the digital and tech sector and into the Asian markets, our fastest-growing region. As Singaporean National, Yen has built experience by serving over 30 years in the range of senior level executive positions in the tech and telecom sectors in multinational company. Her last executive role was President Asia Pacific at the Vodafone Group. Now let's have a look at the results on the next slide. I must say, I am proud of the solid set of results and of the strengthened balance sheet, which we were able to deliver in what is unprecedented times. The adoption of our strict precautionary measures early on during the pandemic, and our focus on care, continuity and cash has served us well. We tried to safeguard to the best we could, the health of our people and our communities to stand by our customers and serve them well and to enhance the financing of our company. Overall, our sales volume in fiscal year '19-'20 declined by 2% in volume. In the fourth quarter, our sales volume showed progressive recovery from double-digit decline in quarter 3 to mid-single digits in the fourth quarter. Our operating profit was impacted by the volume decline, in particular in our gourmet business and declined by 13.8% in local currencies. We continue to strengthen our balance sheet and generated a strong free cash flow of CHF 317 million. Although markets are still volatile and the COVID crisis is not over, we have learned a lot over the past months on how to handle and keep servicing our customers and innovating for them. This, together with our strong innovation pipeline and our solid financial basis underpins our confidence in our midterm guidance. Next slide, please. The management of the COVID pandemic has been a major challenge for all of us who had to adjust to what is the new normal of social distancing, remote working and our travel restrictions. The resilience and the dedication of our employees to secure business continuity and a high level of customer service have been just incredible. Their creativity, their passion to find new and innovative ways of doing business has also helped us to open up new opportunities, new ways of working, more digital, new business fields, addressing regions or customers, which were underserved, higher quality and safety standards as we had to protect ourselves from the pandemic. So I want to start by thanking our over 12,000 employees and telling them how proud and how grateful I am. As I told you last time we met, our COVID-19 management is built on 3 pillars: care, continuity and cash. Our cash, as we want to protect the health of our employees, their families and our communities; continuity as we want to make sure our customers keep getting the service and innovation they expect from us even in crisis time. And obviously, cash for reasons I do not need to explain. Next slide, please. You are all familiar with the graph on Slide 9, showing the volume growth per quarter for cocoa and chocolate. You certainly remember that our third quarter was significantly impacted by COVID, as you can see here. And we saw quite some recovery in quarter 4. Volume in the chocolate business declined by 2.1% in the year, supported by a solid recovery of food manufacturers, which ended the year with flat volumes. The gradual reopening of sales channels also helped the recovery in our Gourmet business, but as we anticipated at a different pace. Gourmet ended the year with a minus 14% volume decline. This is also what you see reflected in the Nielsen number, which focus, as you know, essentially on the mass retail outlets. The cocoa business volume declined in line with the chocolate business by 2% in the year under review. Now let's take a look at our key growth driver on the next slide. Emerging markets volumes remained stable during the year. Some countries like China showed a rapid recovery and are now back to normal. But some others like Brazil or India were heavily impacted later on and are only starting to recover. Long-term partnership and outsourcing returned to positive growth in the fourth quarter. Importantly, We signed new outsourcing contracts in EMEA as well as in region, APAC in the midst of the pandemic, which shows if it was needed, the relevance of our business model even more so in crisis time. And as you know, there is still plenty to go for. Gourmet & Specialties was particularly impacted by the closure of the majority of its outlets in quarter 3 when the entire world went into lockdown. The speed of our recovery in quarter 4 was rather encouraging, knowing that some channels like our travels and hotels and some geographies were still closed. This translates the efforts of the teams to expand our customer and geographic footprint or to create new ways of working like our online chocolate academies. Obviously, the situation remains somewhat unpredictable, and recovery there will remain progressive. Let's move to the next slide. Looking back at the fiscal year, we laid out a couple of important milestones for the future. We further strengthened our footprint, laying the ground for future growth. Right before the travel restriction kicked in, I was in Serbia laying the first tone of our new greenfield facility, which will serve the Balkans, but obviously way beyond the Balkans. In July, we completed the acquisition of GKC Foods, a producer of chocolate, coating and filings in Australia. With this acquisition, we are not only producing now on 5 continents. But it opened to us now what is a large and sophisticated chocolate market. And we further deepened our presence in Latin America by laying the foundation stone for a new cocoa sourcing facility in Ecuador, which as you know, is the #3 cocoa producing country in the world and where we are so far only a modest presence. We didn't really work on our footprint. We also worked on our customer base, bringing or signing significant new outsourcing contracts in EMEA as well as in Asia Pacific, as I just mentioned. In region EMEA, we signed an agreement with a large chocolate confectionery manufacturer in Eastern Europe precisely for the long-term supply of compound and chocolates, deliveries are starting as we speak. In Australia, we entered into a long-term agreement with a leading Australian stacking company, supplying them with 100% sustainable chocolate from Cocoa Horizons 1 of our key sustainability programs. We also kept making progress on the sustainability front, which will be even more important as a result of the current crisis. This year, again, Sustainalytics gave us a top ranking Forever Chocolate being recognized as the #2 sustainability strategy in the entire foods industry. And we obviously don't stop there. All our global brands are now using 100% sustainable cocoa. Our Swiss gourmet chocolate made Carma is now made of 100% sustainable ingredients. Next slide, please. We also kept making strong inroads on the innovation front. We have strong expertise there, and we believe our customers will need it moving forward more than ever. We keep going with Ruby, which you probably have seen this summer on many ice cream and which you will see soon in our new applications. But innovation is not only about that. It is about being at the forefront on a number of key trends. The plant-based trends, which we address in a number of different ways through our Plant Craft range, with products such as 100% dairy-free milk chocolate, it is just incredible. I wish you could taste it. I can hardly feel the difference. With cocoa fruit experience, which we shared last year, and which is about fully exploiting the richness of the cocoa fruit. We just, as part of it, introduced our new brand, Callebaut Natural under which we will sell and we started selling actually. A range of ingredients based on using the whole cocoa fruit juice, the concentrate, the pulp. I wish there also we would be together, the taste of it is absolutely incredible. Personalization trends with the launch of our Mona Lisa 3D studios. I mean the chefs, the caterers, yourself, if you order in big enough quantity it can create incredible signature chocolate through our 3D printing technology that is proprietary to us. And obviously, we're making road in everything that goes around transparency and traceability consumer more and more and also as a result of this pandemic, want to know where ingredients are coming from, how they are sourced. Callebaut has taken traceability and transparency to a whole new level literally by empowering chefs to and the artisan to trace through a simple unpack cure code where their beans are coming from but rather than me explaining it to you, let's watch the video. Please roll the video. [Presentation] That is pretty amazing, isn't it? I mean it's really cool stuff and it's both about digital and sustainability. So it's something we love and something that is only the start of our journey there. And with that, I hand over to Remco, which will share with you our key financial figures, so Remco, stage is yours.

Thank you, Antoine. And also from me, good morning, ladies and gentlemen. I'm pleased to walk you through a solid set of numbers for the fiscal year 2019/'20, which was facing unprecedented challenges due to the COVID-19 pandemic. This has impacted the second half of the year. But 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 annual report in the section accounting policies. With that, let's have a look at the results on Slide 15. We have achieved solid results in face of the COVID-19 pandemic. As Antoine mentioned before, due to COVID-19 precautionary measures across the globe, sales have been impacted starting in our third quarter. As anticipated, we have seen a progressive recovery in the fourth quarter. For the full year 2019, '20 the sales volume declined with minus 2.0%. This was the first volume decline in the financial year for Barry Callebaut since more than a decade. And we are convinced that this will remain an exception. The volume impact was stronger in our Gourmet & Specialty business, which led to an adverse mix effect on profitability. Our recurring operating profit EBIT was CHF 491 million, which means a decline of minus 13.8% in local currencies compared to the prior year. This CHF 491 million recurring EBIT included a strong negative currency translation effect of minus CHF 29 million. Reported EBIT amounted to CHF 483 million, down minus 15.1% in local currencies compared to prior year. The recurring net profit amounted to CHF 390 million, down minus 13.3% in local currencies. Reported net profit for the year amounted to CHF 312 million. The saying Cash is king became even more relevant during the crisis. And therefore, I'm very proud that we continued this year again with a strong free cash flow generation of CHF 370 million. Taking into consideration the cash effect of cocoa beans inventory considered by the group as readily marketable inventories, the adjusted free cash flow even increased to CHF 404 million compared to CHF 291 million in the prior year. Next slide, please. On Slide 16, we show you the performance by region for the full year 2019/'20. As you can see, the COVID-19 pandemic had an impact across all regions in the second half of the year, but with different intensities. In region EMEA, we saw a steady volume recovery in the fourth quarter, leading to an overall volume decline of minus 3.6% in the year under review. Food manufacturers rapidly recovered volumes in the fourth quarter based on solid business with large customers. The precautionary measures related to COVID-19 pandemic in particularly affected our Gourmet & Specialty business, which is strongly rooted in the region. As distribution channels gradually reopened, gourmet specialty volumes started to recover in the fourth quarter. The adverse mix was visible in the operating profit, EBIT, which declined by minus 20.8% in local currencies. Region Americas delivered a resilient performance. Sales volume declined by minus 1.4% in the full year under review. Based on solid volume recovery in food manufacturers in the fourth quarter. This was supported by large corporate accounts, while customers serving the out-of-home channel were still affected by COVID-19 measures. On the back of the robust volumes and the resilient product portfolio, the operating profit, EBIT in the region could even be improved by plus 1.8% in local currencies. The sales volume increase of plus 7.4% in Region Asia Pacific in light of the COVID-19 pandemic is a good result. As you remember, the COVID-19 pandemic started in January 2020 in China and from there spread over the globe. While we have seen a fast recovery and a more resilient performance in China, other parts of Asia Pacific were strongly impacted by the precautionary measures. This had a negative effect on our Gourmet business, which started to recover since the third quarter but remained below prior year for fiscal 2019/'20. In contrast, food manufacturers showed good resilience and continued to grow double digit in the year under review. The operating profit EBIT was marked by the adverse mix effect and declined by minus 17.2%. Sales volume of global cocoa saw similar impact as the chocolate business and the glide by minus 2.0% in the year under review. The recurring operating profit, so excluding the cost for the closure of the cocoa factory in Makassar, Indonesia, declined by minus 1.5% in local currencies, in line with volume. Next slide, please. Going back to group level, let's now have a look at the gross profit bridge on Slide 17. The volume decline in the second half of the year due to the COVID-19 lockdowns had obviously an adverse impact on volume. The mix was impacted by the negative product mix of gourmet and food manufacturers and to a lesser extent, by additional costs related to COVID-19, for example, additional transportation costs, protective equipment, and additional sanitization. Despite an ongoing challenging market environment, the results of our cocoa business have remained stable. Overall, our gross profit decreased by minus 6.8% in local currencies. Please note that currencies had a strong negative translation impact of minus CHF 53 million. Next slide, please. As you know, the cocoa combined ratio shows the relationship between market prices of cocoa butter and powder in relation to the underlying cocoa bean price. This is a forward-looking curve, Results are normally seen over a 6 to 9 months period. Furthermore, this is only the European ratio, while it's still the most relevant as we run a global business. Please note that the cocoa bean prices have increased during the fiscal year and remained at high levels of volatility. Currently, the bean crop supply and demand remain balanced. On face value, the combined cocoa ratio, which gives an indication of the trends of the cocoa processing profitability has remained roughly stable. However, please be reminded that certain variables like the country differentials or since October 1, 2020 introduced living income differential of USD 400 are not reflected in this ratio. Next slide, please. Let's look in more detail at the operating profit development of this year. We had a good level of profitability in the first half of the year. As explained before, our second half of the year was impacted by the COVID-19 pandemic. Our very strict cost control, particularly in the second half of the fiscal year led to full year flat SG&A expenses versus prior year. Therefore, our recurring EBIT in local currencies declined by minus 13.8%. Including the cost for the closure of the cocoa factory in Makassar, Indonesia, and a strong negative currency effect of minus CHF 29 million, the reported operating profit EBIT amounted to CHF 483 million. Next slide, please. The bridge on Slide 20 shows you the development from EBITDA to net profit for the full year 2019, 2020. Due to the first-time adoption of IFRS 16, our depreciation and amortization level increased more than CHF 30 million, which is also reflected in the prior year pro forma comparative. Thanks to the improved financing actions that we have taken over the last years, the net recurring financial expenses reduced by CHF 15 million versus prior year. Income taxes amounted to CHF 69 million, with a further reduced effective tax rate of 18.2% compared to 18.6% in prior year. This resulted in a reported net profit for the year of CHF 311 million. Excluding the one-off cost for the factory closure and the negative currency translation effect, the recurring net profit amounted to CHF 390 million, a decline of minus 13.3%. Next slide, please. On Slide 21, you can see the long-term development of our key raw materials, the cocoa price, our most important raw material continue to be volatile and fluctuated between GBP 1,560 and GBP 1,762 per tonne. On average, cocoa bean prices increased with plus 6.3% compared to the prior year period. Global bean, supply and demand were balanced. Sugar prices in Europe increased on average by plus 7.6%, mainly due to a poor crop and the reduction in capacity induced by low prices in prior years. The world market price for sugar increased on average by plus 4.1%. Dairy prices increased during the fiscal year 2019/'20 on average by plus 21% on the back of weak milk supply and strong demand in the first 6 months of the fiscal year. Due to COVID-19, demand has slowed down as of the third quarter. 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. Next slide, please. As part of our smart growth strategy, we continued to focus on improving our balance sheet and free cash flow generation. So I am very glad that we are able to strengthen both in this unprecedented time. Let's look at the bridge in more detail. Our working capital improved by CHF 108 million as a result of good working capital management across the board and lower receivables due to the COVID-19 impact on volumes, which more than offset the impact of higher inventories mainly due to rising cocoa bean prices. Interest and income taxes paid amounts to CHF 249 million, a reduction of CHF 50 million compared to prior year, mainly due to the improved financing structure and lower taxable income. Capital expenditure of EUR 281 million remained stable compared to prior year. The impact of COVID-19 is regarded as temporary, and therefore, we maintained our focus on investment that best support our smart growth for the years to come. This has resulted in a strong adjusted free cash flow of CHF 404 million compared to CHF 291 million in the prior year. Including the effect of cocoa beans regarded as readily marketable inventories, reported free cash flow amounted to CHF 370 million, compared to CHF 324 million in the prior year. Please note that the latter includes the CHF 33 million one-off cost for the early bond repayment. Next slide, please. Our comparable net debt decreased with minus CHF 144 million. Taking into consideration the cocoa bean and inventory as readily marketable inventories, the adjusted net debt decreased even more. with minus CHF 233 million to CHF 594 million at the end of August 2020. Due to the uncertainty in the financial markets caused by the COVID-19 crisis, and to assure access to liquidity, we drew as a precautionary measure, the full EUR 1 billion revolving credit facility in March 2020. This RCF was fully repaid in July 2020 using available cash as well as the proceeds from the CHF 450 million so China laying issued in the same month. Next slide, please. As said before, the group has adopted the IFRS 16 standard as of the first of September 2020. To ensure comparability of our performance, we are presenting pro forma IFRS 16 adjusted figures for the prior year. All numbers are in Swiss francs. With that, let's have a look at the numbers and the ratios. Our net working capital decreased to EUR 1,292 million compared to EUR 1,363 million in August 2019, thanks to overall good working capital management and lower receivables due to the COVID-19 impact on volumes. This has more than offset the impact of higher inventories, partly due to increased cocoa bean prices. Our ROIC and ROE declined to 10.3% and 13.2%, respectively, due to the adverse product mix effects, due to COVID-19 on our operating profit. However, with good working capital management, we could partly offset this decline. Keep in mind that our returns continue to stay at about 2x above the weighted cost of capital. The adjusted net debt decreased to CHF 594 million from CHF 817 million, and therefore, the adjusted net debt-to-EBITDA ratio further decreased to 0.9x from 1.2x in the prior year. Lastly, Barry Callebaut, underlying business model is stronger than ever. And with this further strengthened balance sheet, we're able to further grow and create more value. Next slide, please. The Board of Directors will propose to the Annual General Meeting of Shareholders a dividend of CHF 22 per share, which corresponds to a stable payout ratio of 39%. To protect the health of our shareholders and employees, this year's Annual General Meeting of Shareholders will take place without physical presence. Voting rights can be exercised electronically or in writing. And with that, I give the word back to Antoine.

Thank you, Remco. And if we move to the next slide, please. So now let's have a look at how our strategy plays out in these special times. And let me give you a sense on how we plan to handle COVID moving forward. Next slide, please. Our what some thought was sprints, I'm talking obviously, of the COVID pandemic is clearly turning to be a marathon. You just have to look at the recent development across Europe. We are in this context, in a rather good shape in more ways than one. First, we didn't relax any of our discipline at any time, focused remain on care, continuity and cash. Crisis teams stayed in place. We maintained strict health and safety protocol most of the time stricter than people around us. We have been very considerate in the way we adjust upwards and downwards or precautionary measures. And we also maintain a very strict cost discipline. But as importantly, we structurally integrated learnings as they were becoming available into our business model to make us better equipped to grab new opportunities. Our supply chain has become stronger, more resilient. We found new ways of working with customers more digitally. We also found new opportunities to try to make up for some customers, which will be slower to recover. And importantly, we kept moving forward on sustainability. Next slide, please. If anything, I must say that our strategy is proving very relevant in Remco said it what remains unprecedented times. Our model is being tested in a storm, and it is proving to be very resilient. Tech expansion, as I said earlier, we kept driving our new outsourcing and bolt-on acquisition during the crisis. We had also to reinvent some of the ways we do business, uncovering in the process new opportunities, deepening our reach. As some players, they consider the business model, we will obviously be there to help them. I just talked about innovation. Innovation opens new spaces to us and to our customers. And with some like Callebaut Natural, we are only at the very beginning of the journey. Cost leadership is obviously more important than ever. Remco shared with you what we have done both in terms of financing, but also in terms of cost and cash discipline. We now have an extremely strong basis and this journey and the discipline will continue under ban. And if anything, this crisis is a crisis of sustainability. We have been pioneering there, and this has served us well so far. But the journey to sustainable chocolate is far from over, and we will keep driving it. Next slide, please. So let me illustrate with a few points. Amidst the pandemic, we certainly continue to expand. I briefly talked earlier about the acquisition of GKC in Melbourne. GKC is really large company with a fantastic knowledge in gourmet in specialty chocolate. And I must say a very, very strong team. This is a great add to Barry Callebaut. And it actually gives us in this part of the world, a ready-to-go footprint. As I said earlier, we also signed during the crisis new outsourcing contracts, which are starting to ramp as we speak. We also keep or building for the future, and that's important. In '21, our new global distribution center in Lokeren, Belgium will be operational as well as our new chocolate factories in Novi Sad, Serbia to serve Balkans and beyond and in the very important geography of India. On innovation already showcased a number of example of our unparalleled innovation capabilities. We are there in innovation consistently pushing the boundaries of what is exciting of what is technologically possible and of what is on trend. Next slide, please. As also said, we have and we will keep our future proof in our business. We have strengthened our balance sheet and are put in place cost-efficient processes, but the journey obviously never stops and doesn't stop here. We are pursuing the digitization of the company, the streamlining of our processes and the expansion, the growth of our shared service center. And we will obviously continue to focus on cash generation. Cost leadership remains obviously a key success factor for us as a big B2B company and during the crisis. The same is true for sustainability. On December 3, and you'll have to wait a little bit, we will publish our fourth fever chocolate progress report, providing a full overview of the progress we are making and progress we make. We continue to drive scale. We contribute to drive impact. I told you about our Sustainalytics and the Sustainalytics ranking, which we are extremely proud of. We have also reached new milestones in providing even greater transparency and traceability in our cocoa supply chain. We have publicly been disclosing our direct cocoa suppliers in Côte d’Ivoire, Ghana and Cameroon, all publishing with our partner, Quantis the carbon footprint assessment for our cocoa supply chain. And as I said earlier, all our global Gourmet brands Callebaut, Cacao Berry and Carma, are now made with 100% of sustainable chocolate. Next slide, please. So we all know that there is still some degree of volatility and uncertainty in the short term as the COVID crisis is not over yet. But we have learned a lot over the past months and we see the opportunities that derive from it. We have a proven long-term strategy. We have a solid financial basis, and we have obviously a great team. And this, together with our strong innovation pipeline underpins our confidence in our midterm guidance. Next slide, please. I couldn't close this webcast before going to the question, without going back to where I started, and mentioning and thanking once again the teams at Barry Callebaut. The pandemic required a high level of resilience from all the employees worldwide. I think their resilience, their creativity, their entrepreneurship, their dedication are just incredible. They made our corporate values shine, highlighting, by the way, far beyond the company into cocoa farmers into suppliers, into our customers and into the communities we operate in. So once again, a huge thank to each and everyone of the BC team. We are incredibly grateful and incredibly proud. And next slide, please. And on that, ladies and gentlemen, I want to conclude the presentation and open the line for questions. So operator, could you instruct the participant on the line, and then we'll take some questions.

[Operator Instructions] The first question is from Jon Cox from Kepler Cheuvreux.

And yes, sorry to see Remco moving on. But just a couple of questions for you. Just on the sort of phasing of what we should expect into the new financial year. Obviously, it's going to be pretty bumpy. And we've got fresh lockdowns. I think October volumes were pretty weak. Certainly, IRI data is talking about that. So just wondering, should we think Q1 is going to be maybe a little bit more similar to Q3? Because obviously, Q4, you had a decent bounce back and what you think going forward, just on the phasing of the figures this year because obviously, you're still guiding for 5 to 7. I assume you think you're going to be pretty decent double digit towards the latter part of the new financial year. But probably in the first couple of periods, your volume is going to be down or certainly pretty weak. So that's actually, the first question. Second question, just on the cash flow. Fantastic figure. But I'm just wondering how do you think that could be maintained that working capital improvement? Or do you think that would be unwind and it was an extraordinary situation because clearly, if your business slowed down, Then in terms of the sort of receivables, that's going to go down, of course. And obviously, that's clearly what happened. So I guess as business improves, again, the receivables go up. And that cash flow will probably not look so good. And aligned to that, just on the did end and the fact that I know you've maintained this ratio, but it seems that given that cash flow situation. I'm surprised you cut your dividend. And is it really because actually you think that the accounts receivable, the improvements there will unwind as business starts to improve again.

Jon, I'll take the first question, and Remco will take the last 2. As you know, I mean, we have a 3-year guidance. So we don't give in year guidance, we don't give quarterly guidance of any sort. This being said, maybe to help a little bit there. What we've said very openly also in the last quarter is in general, the recovery in foods manufacturing is faster than the recovery in gourmet. In general, gourmet will be back totally to normal when there is wide availability of vaccine or a cure. So that's the first -- I think that's the first element. I think the second element is obviously that -- yes, they are lockdowns. The nature of the lockdowns is slightly different from what happened last time around. Last time around the entire world was in lockdown. There, you have more rotating lockdowns, the constraint or a different level. So it's too early to assess, but the nature of the lockdowns is slightly different from what from what it was before. So that's probably what I can tell you. We're obviously a brilliant first quarter last year, you'd remember. So we are also on a tough comparator. But all in all, we stand by our midterm guidance. And one of the reason why we have a midterm guidance is also to cater for some kind of volatility. Remco?

Yes, Jon, on the cash flow, the company over the last years focused more and more on the cash flow generation and on the working capital management. And I expect also in the band that, that will continue. So in that sense, I wouldn't expect any deterioration in the performance or in the cash flow. In the results, as we have also said in the press release, there's about CHF 100 million impact of receivables ending lower in August, which we expect by August next year to come back. But if you think about an adjusted free cash flow of CHF 400 million and you deduct CHF 100 million from that still CHF 300 million, which is then with a lower EBIT still comparable to the prior year. As you have probably also seen, the payables are in line with the prior year. Normally, with lower volumes, you would expect that also to come down. So I think there, we have also done a good job, and I expect that to continue. The dividend payout is not related to the financing discussion. I think the balance sheet is very healthy. But also in the logic of holding to a stable payout ratio of 39%. We proposed at CHF 22. We think that is the right thing to do in a continuation It also means that in years where the company improves and goes much better if you have seen over the last years, we also have hold to that 39%. So there's nothing more behind that, Jon.

Next question, please.

Just a quick follow-up on...

Sorry, go on, Jon.

Yes, I was just going to say on the Sustainalytics. So am I right in saying that you were ranked #1 company and Forever Chocolate was ranked #2 strategy? Or are you saying that you're ranked #2?

No. We're ranked #2 company of 182, I think, of food and beverage company. We are #1 in the foods. But there is 1 beverage company ahead of us, but we are ahead of all other foods companies, which makes me very proud.

Congratulations.

Next question, operator?

The next question is from Jean-Philippe Bertschy from Vontobel.

Congrats from my side to this strong set of results and very sad as well to see Remco leaving. The first question is related to the Americas. I was really surprised to see the very strong development of the EBIT, knowing that basically in food manufacturing, we had probably a stronger growth at our global customers which have lower margins. So if you can put some color on that, especially as well when putting in comparison the elastic region with very significant EBIT decrease. And the second 1 would be on outsourcing or long-term contracts, which was robust as well. Have you seen some of the -- your global accounts outsourcing more volume, which would be maybe a reason for this strong development.

Thanks, JP. Let me take the second one, and we'll do a duet probably on the first 1 with Remco. On the outsourcing, we have plenty of discussions that are going on. As I said probably last time, the -- I mean, turmoil in the markets, in the economy is prone to relooking at your business model. So we do discuss with a number of people. We've signed a few contracts. We have a number of discussions that are going on. When those discussions will come to fruition is not clock work you know that. But there is -- I mean, there is certainly an opening to recon business model in terms of crisis. And there is still -- the majority of the market is still captive. So there is still plenty to plenty to go for. So we keep going there and we keep going literally in each and every year or in each and every region. So hopefully, more to come. Remco.

JP, on the Americas, as you know, over the last years, the market also in Americas is further developing. And what the team in Americas has done is extremely well is within the portfolio to work on the product mix. As you have seen from month 1, there's quite some innovation in our product portfolio and have been able to increase that share as part of the American sales. And that helps, of course, significantly in the profitability. So therefore, with a slight decline on the volume, they have been able to move the EBIT slightly up. For Asia Pacific, I think you have to remember that the average margin per tonne in Asia Pacific is significantly higher than the other regions. And growth in Asia Pacific, therefore, even when it's at a slightly lower margin is still accretive to the total group. Why is the margin overall higher than the overall group is because gourmet is a relatively larger part of the portfolio, which also explains that, say, in the downturn with gourmet coming down, it's proportionately a little bit hit more. I think the very positive thing in Asia Pacific is that FM has done extremely well, and we expect that also to continue. We really expect APAC to be a formidable growth factor in the years to come. And again, when COVID has been faded out, and I hope really, really soon, We expect also gourmet to come back. And then also with the same speed that the EBIT in APAC will recover to the pre COVID levels and further above that level.

Operator, next question?

The next question is from Mr. John Ennis from Goldman Sachs.