Barry Callebaut AG (BARN) Earnings Call Transcript & Summary

Hello, and welcome to the Barry Callebaut 9 Months Key Sales Figures, Fiscal Year 2024 to '25. My name is Kenneth, and I will be moderating your call today. [Operator Instructions] I will now hand you over to your host, Sophie Lang, the Head of Investor Relations, to begin. Please go ahead.

Thank you, and good morning, everyone. Welcome to Barry Callebaut's 9-Month Key Sales Figures Conference Call for 2024-2025. I'm Sophie Lang, Head of Investor Relations, and today's meeting will be hosted by our CEO, Peter Feld; and our CFO, Peter Vanneste. As usual, at the end of our presentation, we'll have a short Q&A session for analysts and investors. I'd like to remind you that today's session is focused on our volume and sales update, and we'll keep the Q&A session focused on discussion of those key figures. Before we get started, please take note of the disclaimer on Slide 2, and I would also like to remind you that the webcast and conference call are being recorded. With that, I will hand you over to our CEO, Peter Feld.

Thank you very much, Sophie, and good morning, everyone. Thank you for joining us for our 9 months results presentation. We are all aware of the challenging environment of the past 18 months. The cacao market continues to experience historic volatility. These unprecedented conditions have become the new normal and have fundamentally impacted the entire industry and value chain. Despite all of this, Barry Callebaut is holding up well and remains healthy. And we continue progressing our next level transformation. Let me emphasize this once again. We play to win. We are leveraging our cost-plus pricing model. We have successfully priced through the cacao price increases to our customers much faster than the market can absorb at retail with a 63% price increase year-to-date and significantly increased with that revenues by nearly 57%. Additionally, our strategic decision to prioritize high return segments in cacao and chocolate speaks to our mission to deliver the world's best chocolate solutions as well as our financial ambition to deliver sustainable profitable growth. Although the market disruption led to a volume development of minus 5% year-to-date for chocolate and due to changes in strategic priority for cacao, a group volume of minus 6%. This is mainly driven by the B2B headwinds as customers slow their buying, ordering and importantly, call-offs. This has led to an unexpected overswing reaction in demand in addition to our strategic choices for cacao. These developments underscore the importance of BC Next Level where we are delivering ahead of plan. Through BC Next Level, we are building the capabilities that are needed to succeed in this environment, becoming more agile, scaling for better and faster and operating with a leaner cost base. At the same time, we are strengthening our financial model, and we've already started to take concrete actions to reduce our leverage and insulate our business model from these bean price spikes, setting us up well for future growth. In summary, Barry Callebaut is resilient. We're building for the future and our transformation is gaining momentum even in these challenging times. We are laser-focused on unlocking sustainable profitable growth for our next decade to drive higher returns and position Barry Callebaut as an even stronger leader. Let me start with a few highlights on the cacao market. The price backdrop remains elevated and at highly volatile, increasing 43% in the year-to-date period. Back in May, we saw yet another spike. But relevant to note the futures market has self-corrected several times now as it is forced to reconnect with the reality of the supply situation. From a supply perspective, the expectation for a slight surplus in the past harvest remains. Going forward, we're seeing encouraging cacao productivity improvements, but it will take time to see the benefits here. In the short term, we believe the higher farmgate prices in Ivory Coast will help the outlook here. This market volatility creates ripple effects that our whole industry is adapting to. We operate in a very attractive part of the value chain, but it also leads to an amplification of these ripple effects in the short term. As customers adjust behavior at the same time, consumers are getting used to higher prices. Our cost-plus model enables us to price through in near real time, the volatility of the terminal market. You can see we have been successfully passing along these higher prices with revenue moving up in lockstep with bean prices. Down the value chain, our customers must negotiate with retail partners without perfect visibility into how the cacao price will develop further or how consumers will respond. As a consequence, they must make assumptions and take actions in anticipation of consumer reaction that they continuously adapt, which then again has an impact on us further up the value chain. Ultimately, Nielsen is just a lagging indicator reflecting the consumer customer reaction of the terminal market price. What we can see now is that Nielsen is reflecting the cocoa price spikes. While significantly higher bean prices will, of course, create a short-term market demand impact, we can see the category remains very resilient compared to other food and beverage categories. As we look beyond the top line figures to our strategic growth pillars, there are several things that I would like to highlight. First, we continue to deepen our outsourcing partnerships with customers. The pipeline of opportunities continues to grow, and we can see that especially in this volatile environment. My conversations with CEOs continue to reinforce this opportunity. Second, Gourmet was impacted this quarter by a high comparison base, but continues to show strong resilience. We have delivered strong growth in EMEA and in Latin America, while continuing to reshape the way we go to market, including digital route to market showing very promising signs. Third, specialties is creating the intended positive mix effects with positive growth with the end customers, which is capitalizing on the demand for products that appeal to consumers in the context of higher bean prices, particularly in categories like ice cream and biscuit. Fourth, in Asia, we've launched our Neemrana factory in India to take advantage of the growth opportunity in that market. We are scaling up our compound Center of Excellence in Singapore. And here, we've signed a strategic collaboration in the region to accelerate sustainable chocolate innovation geared to the consumers in this region. All discussed changes in market dynamics underpin the rationale for our Next Level investment program. The organization in Barry Callebaut continues making very solid progress to improve our capabilities to deliver better customer experience by being closer to markets while simplifying and digitizing Barry Callebaut. We made progress scaling our new operating model for our product supply environment with BCOS and continue to develop best-in-class food safety capabilities. Our new GBS network is well underway with 93% of knowledge transfers completed to date. We are rolling out various new digital tools that will deepen the partnerships with our customers and also enable us internally in Barry Callebaut to operate faster and far more effective. And last but not least, we're seeing nice acceleration in bringing our organization along in Barry Callebaut with results of our last culture survey significantly up versus just 6 months ago. So with that, let me hand over to Peter.

Thank you, Peter, and good morning, everyone. Let me dive in our volume performance in a bit more detail now. Sales volume has been down 6.3% in the 9 months and 9.5% in quarter 3. Now within this, it is important to distinguish between Global Chocolate, which decreased by 5.1% in the 9 months, 6.2% in the quarter and Global Cocoa, which was at 11.3% in the 9 months down and 22.6% down in the quarter. Now starting with chocolate. Food manufacturers have remained under pressure with 5.8% volume decrease, driven from the challenging pricing environment and amplified by the U.S. tariff uncertainty as we talked about. Still, performance improved sequentially in Q3 versus Q2. Gourmet also decreased, yet was more resilient at minus 1.7%, led by EMEA and Latin America. The Q3 volume in Gourmet was impacted by the high base of comparison last year, and we also see an increased inter-quarter volatility given the specific timing of the price list increases, so a softer Q3 after a stronger Q2. In Global Cocoa, we saw a significant decline in our third-party sales as we made intentional decisions to prioritize chocolate supply in a supply constrained market and to focus on the more profitable segments within cocoa. The business also saw significantly lower market demand, especially in areas like EMEA and CEE, impacted by the high pricing and given the more commoditized nature of this part of the business. Moving now to the chocolate regions. Volume development in Western Europe was heavily impacted by customer behavior that Peter also talked about in reaction to the higher prices like supply phasing, destocking, price pack architecture. The effect of the SKU rationalization also played a role over the full year in Western Europe, specifically also in Gourmet. In Central and Eastern Europe, we saw negative growth as the market with lower volumes for several large regional and food -- and local food manufacturer customers triggered again here by the price increases, but also an intensified competitive environment, especially in Turkey. In North America, volume remained impacted by temporary volume pressure triggered by pricing for the large food manufacturers, the ongoing efforts to fully ramp up customers in Toluca in Mexico after our quality intervention we had there. And in the third quarter, North American volumes further deteriorated as the challenging U.S. tariff environment created customer uncertainty. Latin America continued to see strong volume growth. Brazil was the key contributor to growth with a particularly strong momentum in Gourmet and compound products. And finally, in Asia and Middle East and Africa, volume growth was positive, but much stronger when we exclude Greater China, where we and the rest of the industry continues to be very challenged by the overall economic slowdown. Now we're working with a lot of focus on our action plan to deleverage from 6.5x net debt over recurring EBITDA that we reported at the half year 1 results to a level of 3.5x. The plan is focused on 3 areas. It's first, reducing our net working capital cycle, especially on inventory. Inventory is where we see the biggest impact of the bean price and the debt step-up that we have seen. And in this area, we've also made most progress so far with the end-to-end value chain projects and views that we are working on to improve demand planning, reduce inventory levels. But next to that, we're also further leveraging our flex blending capabilities. We're diversifying into origins with shorter cash cycles and also further assessing the contracting flexibility that we have. Second area is obviously on increasing EBITDA and here also particularly pricing for the higher financing costs that we are carrying. In some of those segments, we have already increased prices to cover this and continue to monitor our competitiveness on that closely. We also have task forces in place with some of our largest customers on how we can jointly avoid certain costs for the industry by adjusting practices across both of our value chains. And obviously, we continue to focus on delivering the next level cost savings agenda. And thirdly, initiatives around the funding mix and structure, so how we finance it. So one area is evaluating instruments that are less cash consuming in those peak bean moments. You've seen in the charts before those high peak volatility with high peaks and leveraging instruments that are less cash consuming in those areas are certainly going to help to reduce our financing costs. We're also making more use of inventory-linked financing solutions to reduce the dependency on this immediate fluctuations. And also on that front and across the different levers, we are making good progress. Discussions are ongoing, and we will be sharing more with you at a later stage when we report more specifically also outlooks at the end of the year. Overall, we expect to take around 12 to 18 months to see the full impact from all of these deleveraging actions. Some are fast, some are a bit slower, but we do expect the first good step already at the end of this fiscal year. And on that note, I will hand back to Peter to share the outlook and to conclude.

Thank you, Peter. So with the recent swings driven by unparalleled market volatility that we've just talked about and our internal decisions for cacao, we are revising our '24-'25 outlook to mid-single-digit volume decrease in cacao and double-digit decrease in cocoa with the result overall in minus 7% volume decrease for the group. And with EBIT recurring expected to see a mid- to high single-digit increase in local currency. So let me just sum up. As the entire industry is in a new normal now, we are continuing to drive decisive actions to enhance resilience and agility. One, in pricing, leveraging our cost-plus model; second, with our clear focus on our 4 key strategic pillars: outsourcing, Gourmet, specialties and Asia and importantly, creating better customer experience and enhancing agility, scalability and cost efficiency. We are confident and continue implementing the right steps to build a stronger, more resilient Barry Callebaut for our customers, our employees and our shareholders, especially in this new environment. Thank you very much and handing back to the operator.

[Operator Instructions] We have our first question from Ed Hockin from JPMorgan.

My questions are both actually on pricing, please. So number one, pricing in the short term, obviously, in H1, the pricing that you took was not able to fully compensate for your higher net financial costs. I think it was about 50% coverage, if I remember correctly. Can you comment on how that pricing coverage has evolved in Q3, please? And my second question, more kind of mid- to long run is on your action plan for the next 12 to 18 months. I see the wording looks to have slightly changed since H1 and H1, the #1 topic was pricing for the higher cost of capital requirements and adjusting the cost-plus model. I'm wondering, please, can you elaborate on how those discussions with your customers are going? Are you seeing much in the way of pushback and when we might start to see that adjustment to the cost pass-through model coming through?

Yes. Thanks for your question. Let me start and then maybe Peter can take the second part of your question. So indeed, I mean, in Q1, obviously, with this, how you said, an extremely strong slope or increase in bean prices in the November, December period, we obviously already in Q1 priced through very significantly at that point in time. I think we said that in H1, we priced about [ CHF 3 billion of CHF 3.1 billion ] which is pretty unseen in the industry. But indeed, as you said, there were a few delays, especially in long-term contracts, where we're bound to long-term agreements with customers. Since then, we've made strong progress, and Peter talked about it before, both in working with our customers, how we can reduce jointly the cash cycle. But secondly, we're obviously tailoring and going further in making sure that we drive our cost-plus model into the market. Technically, as you may know, we have 3 ways we go to market. We have partnership agreements, which are long-term contracts that are literally going in real time in pricing unless there's additional cost -- cash cycle discussions happening. Secondly, in the closed book arena, which is mainly for the FM customers and then certainly in Gourmet and Gourmet, you have technical delays simply because we are legally bound to certain periods of pre-announcements such as, for example, in France, where it just takes some time to implement pricing into the market. I think as you've seen in the second or third slide that I was sharing, we have really ramped up very significantly in, as I call it, price through in near real time into the market to a significant level of 63% year-to-date, which is quite amazing when you think about it. Peter, maybe you take the second part.

Yes. I'm making the bridge from your first question to the second one. Of course, we're working both on regarding to those finance costs and those extra costs that we carry in the disruption. We're working both on the pricing as on avoiding some of those costs. So those are the -- and this is also what we -- to explain in this one page, and I heard you refer back to the H1 communication we had on that. Essentially, it's the same levers. Admittedly, there a little bit differently structured this time around. But let me elaborate a bit on that and give you a bit of a status. But the same levers, they -- of course, they evolve. Some of them, we see more potential, some of them we face a bit. But we have not lost traction or belief since half year 1. We're just being more specific and making progress. So we do have those end-to-end value chain projects in place, right? When do we buy the beans, how fast in advance, which kind of cost can we avoid by buying later, what are the consequences on the way we produce on the value chain with that so -- and to what extent, of course, that also helps to reduce the inventory levels, including origins, which origins do we buy beans from because some origins have lower cycles than others. We can be flexible around that. Our flex blending capabilities are being stepped up, so we can get to the same and strong quality results with different bean sources. We're assessing the flexibility and that, of course, we do together with customers, flexibility that we allow and have in our contracts in terms of when customers take off. Customers have challenges, obviously, for themselves as well in the market. So they need to have some flexibility. Of course, this flexibility in this disruptive market might have a cost. So we're working on that. We're obviously pushing our internal program. I didn't emphasize this in this time around in the communication, but we have our internal Cash is King program where based on strong reporting KPIs, we work on the different levers on the cash conversion cycle, inventory, payables and receivables. So that's one area. The other area, of course, is EBITDA. Pricing comes in, as Peter talked about, not just the straight bean pricing, but also pricing through carry costs, switch costs, all the costs that are related to operating in this volatile environment. Also there, we have task forces in place with key customers to see how we can either price or avoid some of those things, which is more of a win-win even than pricing it through. And then the other levers, of course, on the cost savings side, which is the next level agenda of cost savings and next to that -- next to the next level also cycling out gradually some of those extra costs that we are carrying that also impacted H1 that we're carrying in a disruptive market. Think about pricing frequency that we stepped up, to some extent, still is manual. The shifts of the bean origins create some complexity in our factory network. So all these things we're working on to reduce that, which will also step up our EBITDA and therefore, also reduce our leverage. And then the third element, I'm not going to repeat it, I said in the presentation, is more around the financing and the funding inventory-based solutions, other types of financing that are less susceptible immediately to short-term fluctuations in the bean price. I hope that answers your question.

We have our next question from Jörn Iffert from UBS.

The first question would be, please, on the volume outlook. I mean you mentioned there's some temporary in-sourcing happening, some SKU rationalizations on the customer side. And also in cocoa, you're focusing more on higher-margin products. I mean, for how long do you think these things outside of the consumer price elasticity will impact your volumes? So in other words, when roughly do you expect volumes to turn to positive territory again? This would be the first question. And the second question, please, on the competitive environment. You mentioned in Turkey, it's quite competitive. Do you observe some customers not fully priced rising financing costs, et cetera? Is it irrational pricing happening? And also what we call, it seems the government is increasingly partnering up with Chinese players to invest in grinding capacities. Do you expect this to impact your business? And yes, this would be the second question, please.

Thank you, Jörn. Just let me answer the questions quickly. So on volume outlook, look, I think the main things that I would point to is really the market volatility and disruption that we've seen in the last 18 months, combined with the -- obviously, North America with, as Peter was mentioning, with the disruption we saw with the new administration taking measures on tax and tariffs. And then our internal decision on cacao in line with our focus on cash, that obviously is paramount. So the way that we see that is that -- and you see me pivoting far more to really making sure that we look at the chocolate solutions going forward, which really is the essence and the purpose for the company. And so with that, we will -- I believe that we will see less volatile pricing, but at a higher level, as we have said before. And I do think we can see that in the latest spike that went far less up than before. But I must say that we will continue to be in a volatile environment, needless to say, going forward. I think for us, internally, we're having far more end-to-end discussions about cacao into chocolate and how we actually really drive that synchronization of activities that we have in chocolate for cacao far more effectively, far more efficient, as Peter was also outlining with the different bean plans and the mechanisms that we put in place. So that's to the first part. In the competitive environment on Turkey, I think that there's a quiet market where we have been cautious in the past given the currency volatility that was in Turkey. Hence, we have a strong program in place locally. We have literally developed our business very nicely, but at a lower market share level than in comparison to the rest of Europe, simply by the fact that we've been cautious on investing in Turkey versus the currency and the devaluation that was going on some years ago. So that's a little bit the situation there. There's local competitors, which in turn then obviously operate locally, and that's creating the competitive environment that we see in Turkey.

Okay. And the Chinese partnering up with the government and what we call is something which is concerning you regarding the...

No, I wouldn't say that I was just -- no, I wouldn't say that. I was just 3 weeks ago in Ghana. In fact, I met with the ambassador of China in Ghana because obviously, the Chinese government is very active in infrastructure development projects. And when you think about that we need to get fertilizer to the farms, roles matter, and that is why it is obviously important for us to engage, and that's what we're doing. But I don't think that, that is a, let's say, a significant amount of activity to the opposite, I think we're far more seeing activities in infrastructure investments and other things.

We have our question from Alex Sloane from Barclays.

First one, just on volumes. I mean you show in the presentation Barry Callebaut's performance versus Nielsen. You've shown that for the last kind of decade or so. I mean when I look at the sort of the 9-month numbers and the comparison, I can't remember a period of such stark underperformance. And I mean, specifically in North America, the delta of your volume performance versus that Nielsen has really widened materially. I mean, in that context, should we not be concerned that Barry Callebaut appears to be losing market share? Or is this just entirely about differences between kind of sell-in versus sell-out? And if it is the latter, could you maybe update us on sort of where you see inventory levels at customers and retail today? That would be the first one. The second one, just going back to the sort of finance cost and the pass-through of that in pricing. I didn't fully get the answer there. But I think you've historically guided -- I mean, you had guided at H1 to the finance cost being around CHF 350 million for the year. Is that still the right guidance? And can you tell us how much within your updated EBIT guidance you're assuming is passed on in terms of higher financing costs year-over-year, obviously, quite an important variable.

Thank you, Alex, for your question. Let me refer back to Page 5, which I deliberately put out there. I know that BC has for the past decades, always referred to Nielsen as the best proxy of what's happening in the -- on our customer side. But what it is important to understand is in this short-term disruptive environment, Nielsen is a bad proxy to look at. And the reason that we're showing both slides here is because there's a 9-month delay between what happens in the consumer offtake and the reporting that Nielsen is doing, which also has a lag compared to when customers actually order with Barry Callebaut. And so it's paramount for us, and we're pivoting. We've actually -- I think I can share that we just fielded a B2B study because we need to have a proxy for B2B environment and give far better accuracy on market shares in the B2B environment that we're focusing on. So I think absolutely, there's a decoupling here that we see in Nielsen and the lag, the time lag of 6 to 9 months versus purchasing activities and call-off activities of business in Barry Callebaut. Now that said, we're having eyes very clearly on the ball here in North America because, obviously, we took a major intervention last year that you will remember with Toluca in Mexico, 100,000 tonne chocolate factory that we deliberately took out for 2 months and where we're reconnecting very nicely now. But that obviously had an impact because customers had to find interim solutions elsewhere. And that is being returned and reversed at this point in time, but obviously, it will take some time to get back fully into the numbers. Peter, maybe you take the financing.

Yes. So the financing cost and pass on, we believe we're going to land the year. I'm not going to give a very specific guidance because this is, of course, about volume, but we believe we're going to be somewhat above the CHF 350 million that we mentioned at the half year. So that's going to be a bit higher. Obviously, as the bean price comes down and as we are making our progress on deleveraging, we are, of course, going to be gradually reducing that as we get the maturities of some of the debt or we reduce some of the open debt that we can do immediately. So that will go down, but end of year will be a bit higher than what we guided in the middle of the year. And then on the impact and the pass on, I mean, we obviously -- we will have -- we had an exceptional impact on half year 1, right, because of the speed of the increase that we saw then happening. So H2 will be significantly better. Our net profit because it's -- I'll talk a bit about -- more about that in that context because net profit is, of course, a key KPI, right, that we have very high metrics on internally. As I mentioned in my previous answer, we were both on pricing through those interest costs, but also in avoiding some of those. So that helps. We will have a significantly better net profit results in H2 than what we have seen in H1, be it that it will still be slightly negative, most probably and certainly the full year will be. So we're making very strong progress in passing on everything that needs to be passed on. But next to that, of course, we have a bit of volume pressure and some of those extra costs related to the disruption.

We will take our next question from Liu Danping Liu from Citi.

I have 2. The first one is on financing. So I'm just very curious that whether more financing will be needed in the short term. So if I remember correctly, at H1, you had about CHF 1.6 billion cash and nearly CHF 2 billion RCF, which was not drawn out. And then you had at that point, the short term -- the current liabilities of the both about CHF 2.5 billion. So it looks like the liquidity you had at that point was just about to cover the short-term debt. So my question is, under what scenarios in the short term, will you need more financing? And specifically, since the -- I think the procurement of the main season cocoa beans is about to start in the summer. Will you need more financing to procure if everything stays as it is today? So that's my first question. And then my second question is just a quick one on tax. I remember at H1, we had some extraordinary tax charges, and that was to do with some less favorable mix of profit before tax and then some nontax effective losses in some countries. So now we are 3 months past into H2. Directionally, do you expect any sort of exceptional tax expenses in the second half? Or just any additional color on that would be very helpful.

All right. Let me take those. I'll say a high level, of course, because it's a bit detailed for a volume update. But if I -- to your first question on liquidity, of course, that's at any update important. Just one thing to say on your -- part of your answer is that we always have kept, including in the months where the bean prices were very high, we also have kept sufficient liquidity buffer to make sure that we can absorb any peaks that could come on top of whatever peak -- the prices are. That's a very important point. It's like a very basic thing. Our liquidity today is ample. So we have -- we certainly have enough today. We have raised, as you are well aware, within Jan, Feb with the Eurobond, with the Swiss bond, additional liquidity. We keep our RCF and an additional RCF that we have completely open. So we're not tapping into that. So we have a very significant buffer that can protect us. On top of that, as I mentioned, we are developing and concluding instruments that keep us less exposed to short-term peaks if they might come and they might come, there might be some volatility. We don't expect bean prices to stay very high for very long. You've seen it in the past, but we could have peaks, and we're using different elements to do that. But even without that, I think we are -- I am very comfortable with the financing that we have, liquidity that we have and I'm not anticipating that we need to raise more over the next months or even year. And then you had a point about the tax. I mean, yes, you explained it well what happened in half year 1, which was exceptional for the reasons that you mentioned. In half year 2, we expect an improved tax rate versus H1. It will still be a bit above the usual that you've seen in the past of 17% to 22%, but a significant improvement versus what we've seen in H1 and no major exceptional things to mention.

We will take our next question from Antoine Prevot from Bank of America.

So 2 for me, please. First one on global cocoa. So maybe could you split a bit the performance between, let's say, powder, liquor and butter, please? Because I mean, global powder price has been improving, and there's probably some okay demand there, whereas butter is really down a lot. So I guess, demand more weakish. And so maybe splitting a bit the performance there. And how should we think about this business, let's say, going forward? You said you want to focus a bit on higher -- on better mix type of products. So what does that really mean in terms of like the term of different subcategories? And the second question is maybe on compounds. I mean you said momentum, I think, remains strong. But with cocoa butter coming down and cocoa powder going up, would not the price differential means compound is becoming less interesting technically to use compared to normal cocoa powder -- butter sorry?

Thanks, Antoine, for the question because it goes to the heart of you could say the transformation of how we manage the portfolio and how we look at cacao really being the supplier for chocolate, right? I mean when you think -- when you go back to our November '23 presentation, we already said that we are the chocolate solutions company, and we're the best in the world. And that's what we're driving at. And so cacao needs to have the clear role that actually creates a competitive advantage for our chocolate business and the chocolate solutions we're driving. That's the whole setup, right? Now as we're transitioning into that environment, we're obviously looking very detailed at, okay, how do we further grow our compound business. You may know that we have roughly 65% in chocolate, 35% in compound. We're the largest compound company in the world when you think about it. We barely have spoken about it, but it's a very strong capability in Barry Callebaut that we're now even amplifying with the innovation center in Singapore and the collaboration that we actually have established there. And in fact, I'm next week in Singapore for that reason. So I think that's a very important element for us to really think more through how do we leverage cacao relentlessly and get every bean to the complete utilization in Barry Callebaut. That's a key underlying strategy in the group and has been since November '23. Now when you think about third-party sales, what we're doing there is we have obviously taken measures early in the year to think about the end-to-end needs in chocolate and hence, have deliberately taken action as the bean price was exploding to actually mitigate the cash impact in the right way. And with that, we're obviously now seeing cacao because there's obviously a delay between when you buy beans and when you then actually call off the volume into customers, we've seen the erosion that we were talking about to a large degree, self-designed. So Peter, do you want to comment on that? Any other thoughts that you have?

No, I think you talked about powder -- powder and liquor and butter, I think powder is, of course, the majority of what we're selling into cocoa. I mean it's a good business, right? So -- and the powder prices have strengthened. But we've seen -- so it's a profitable business, but we've seen, again, the demand pressure that Peter talked about in terms of destocking, some substitutions, take customers, taking some less cover. And as I mentioned in the presentation, this category is more commoditized than the chocolate products that we're selling. So some of those pricing impacts are simply more amplified.

We have our next question from Andreas von Arx from Baader.

First question is on the dividend. Given your new shareholder structure, I mean, could there be a change in dividend policy given that maybe your new shareholders do not need, let's say, a constant payout. So maybe you could lower the dividend payout in order to strengthen the balance sheet. That will be the first question. And then second question would be on the tariffs. You also mentioned that they have an impact. Could you elaborate a bit more in detail what you expect for North America, let's say, given the current news flow, what to expect of impact if additional tariffs would come?

Let me start with your first question, and then I'll hand over to Peter for the second one. On the dividend, yes, I mean, we confirm that half year -- in the half year communication that we would maintain the dividend during the transformation at the level that it has been last year. So that was what we have confirmed at that time. I have the comfort that we can get to our leverage agenda without needing to intervene on that. What shareholders might think about that is not really not up to me to judge that. I'm focused on the deleveraging plan, and I'm working within that framework to get that done.

And maybe on tariffs in the U.S., I mean, you know that, that has an impact on the industry as a whole, not just chocolate industry. I do think, and I want to reiterate what I said in H1 presentation, we are actually very local with our business. We have operations in the U.S. We have operations in Canada. We have operations in Mexico. So we can actually pivot to actually navigate this environment in the right way. But in the short term, it has significant impacts. And Peter alluded to that in the markets -- the market developments that we had in Q3 as we obviously had like 2 announcements for 25% taxes between Canada and the U.S. and our customers as a consequence, we're simply extremely confused and worried about what is happening. And when you think about our customer base, we're not just having the big FMCG companies, but we have like more than 1,200 midsized family-owned businesses that obviously are vastly worried about the announcements and the uncertainty that was created in that. So it's less a lasting impact on taxes. It's more a -- people are just worried about what is coming. And that is fundamentally different, I think, for us in Barry Callebaut versus, for example, the car industry because we are already very local with multiple operations and factories in the U.S. as well as in Canada as well as in Mexico, and that is true for cacao and for chocolate.

We have our next question from Tom Sykes from Deutsche Bank.

So just firstly, on customer behavior. You obviously said there's kind of a lag between what you see in buying and what comes out through Nielsen. But what are you seeing in terms of cocoa content, the chocolate content and products that people are producing? And is that something that you expect sequentially is going to put pressure on the amount of chocolate in product in aggregate? Or are we cycling now some of the effects of what we've seen over the last 6 months? And then just on -- and any differences in type of between manufactured gourmet, et cetera, would be interesting. And then just on stock levels, I mean, you mentioned destocking. How much do you think destocking is an impact on your volumes at the moment? And where are industry stock levels at different points, perhaps where your larger customers, where are their stock levels versus history, do you think?

Yes. Let me take the first one, Tom, and then we can see what we do in rest there. I think on customer behavior, we already today are the largest compound company in the world. And so we have -- there's somehow an echo. I don't know if we can reduce that. There's clearly a lot of innovation underway. And frankly, we've already implemented many projects into the market with our customers and won new business with customers as we're driving those innovations for them in what we call the super compound area and the compound area and other things. But we also see the different angle. And depending by brands, our customers are selective in deciding what they actually do in this environment. We can -- I can tell you that we have just had discussions with a very large customer of ours who's actually pivoting to more innovation in chocolate for respective brands because that is what consumers are expecting to see. So we see a whole array of that. But I think that is underpinning the strength of Barry Callebaut's business model to literally be the, you could say, the engineer for our customers and become the adviser for the brands of our customers to really unlock growth for them. And I think that's the strength that we're driving there. I would say that this situation has just unlocked an array of innovation opportunities for Barry Callebaut, and we're aggressively going after that because obviously, we have the capability globally in our R&D centers around the world and with our academies around the world to excite our customers with new innovation that is actually helping them to navigate through this environment. So I don't see a lasting issue. I, in fact, would say that crisis usually triggers innovation, and that's good for Barry Callebaut. So that's the first message there. On the destocking, Peter, do you want to take that?

Well, maybe just to pick up on what Peter said. I mean, at the end of the day, we're still in a very resilient end consumer preferred taste. And the biggest shift we're going to see is to compound or even non-cocoa-based solutions, which, by the way, both have a very positive cash effect. So we're going to see some shifts in that front. But we've seen that historically that through price increases and so on, you have temporary impacts, but consumers do go back to their preferred tastes. On the destocking, I mean, it's difficult to give you specific numbers. We've seen, first of all, and we reported on that in half year 1, that customers reduced their cover, first of all. We've also seen with that customers keeping less stock again, with high bean prices waiting for and hoping for a lower price, but also at the same time, of course, they see they have similar working capital impacts as we have, right? So they also have their CFOs and their cash focus. So it's certainly at a lower stock levels than what we have had historically, which obviously has an impact on what we have been selling out.

I'll now hand back over to Peter Feld for any closing remarks.

Well, thank you very much for joining us this morning and looking forward to seeing you in person at the next conference. Thank you very much.