Barry Callebaut AG (BARN) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Barry Callebaut's Full Year Results Presentation for 2025 to 2026. I'm Sophie Lang, Head of Investor Relations, and today's meeting will be hosted by our CEO, Hein Schumacher; and CFO, Peter Vanneste. As usual, at the end of our presentation, we'll have a Q&A session for analysts and investors. Before we get started, please take note of the disclaimer on Slide 2. I'd also like to inform you that the webcast and conference call is being recorded. With that, I hand you over to our CEO, Hein Schumacher.

Thank you, Sophie, and good morning, everyone, and thank you for joining us for our full year results presentation. I hope that you enjoyed the Flavourcode video at the start. It's our latest innovation, and I'll come back to it a little later. Now let me start with the agenda for today. I'll begin with the key messages for the year. Peter will then take you through the financial performance in more detail. And I'll then come back to update you on the progress that we are making with our Focus for Growth action plan before closing with our outlook and guidance for the new year. Now let me start with the key messages from the year. Importantly, we returned to volume growth in the second half, delivering 2 consecutive quarters of growth with volumes up 5.7% in both Q3 and Q4 and well ahead of the declining chocolate confectionery market. Within this, I'm particularly encouraged by the momentum in our 10 priority markets identified under Focus for Growth. These markets delivered volume growth of 7% in H2, outperforming the rest of the business and providing some early evidence that our focused approach is beginning to deliver results. Another highlight was Gourmet in the fourth quarter, where we saw a strong customer response to pricing actions, resulting in double-digit volume growth. From a profitability perspective, EBIT declined during the year, which Peter will discuss in more detail. However, I am pleased that through significantly lower financing costs, we were able to recover around 2/3 of the EBIT decline at the profit before tax level. And we also continued to progress on the balance sheet through improvements in our working capital cycle and actions to enhance our resilience to cocoa bean price volatility. We generated CHF 2 billion of free cash flow and further reduced leverage to 2.9x. Underpinning all of this is our Focus for Growth action plan. We are still in the early stages of the journey, but we are seeing encouraging signs of progress across customer focus, commercial execution and regional empowerment. And with that, let me hand over to Peter to walk you through the financial performance in more detail. Peter?

Thank you, Hein. And good morning, everyone. Before turning to our financial results, let me briefly put the year into a broader market context. While chocolate demand has been challenging this year, we're seeing a number of encouraging signs that demand pressures are easing. First, industry grindings have returned to growth. Global Cocoa grindings increased by 14% in the third quarter. This is the second consecutive quarter of positive growth. Particularly encouraging was Europe, where grindings were up 3%, the first quarter of positive growth in almost 2 years. Second, consumer pricing is beginning to moderate. After an extended period of significant price increases across the category, recent Nielsen data show that prices in Western Europe declined by 0.7% over the last 2 months. More broadly, we're seeing our customers reengage in category growth initiatives, increasing promotional activity, investing in innovation and supporting their brands through marketing campaigns. As a result, while chocolate confectionery volumes remain negative, the pace of decline is improving. Nielsen market volumes declined by 3.2% globally in the last 3-month period, representing a meaningful improvement compared to the declines we saw earlier. So while the market remains challenging, they are becoming progressively more supportive for the industry and for us. With that context, let's now turn to our volume performance by quarter. In quarter 4, we delivered 5.7% volume growth for the second quarter in a row now. This is significantly ahead of the chocolate confectionery market that remained in decline as I have just been showing. There have been several drivers behind the quarter 4 momentum. First, Gourmet. Gourmet delivered a strong quarter with volume growth of 13.6%. As you may remember, our price lists earlier in the year were set shortly before cocoa market prices declined very strongly, which impacted our competitiveness. Since the summer, we've been adjusting pricing across markets, and the fourth quarter reflects the positive response from customers on these actions. Second, food manufacturers in Western Europe delivered exceptionally strong growth. While there is underlying improvement in customer demand and commercial execution, a significant portion of the growth was driven by contracts we closed during the period of increased industry overcapacity earlier this year. We expect some of these lower value contracts to be phased out progressively through this fiscal year. As with our focus for growth, we focus on more profitable value-added opportunities in priority markets and segments. Next to these 2 factors, we also saw continued momentum in both EMEA and Global Cocoa, which brings me to the next page with our full year volume performance per region. Over the full fiscal year, we saw for the group, a volume decrease of 0.7%. When we look to the left of the chart, we see that food manufacturers volumes decreased slightly. The challenging market environment with large customers adapting behaviors in the context of high prices was partly offset by better momentum for regional food manufacturers. Gourmet volumes increased by 0.8% over the year, supported by a strong quarter 4, as I just said. Global Cocoa declined as a result of negative market demand in the first half of the year. Growth, however, was double digits in the second half with a low base of comparison, but also an increased market demand, especially for cocoa powder. To the right of the chart, you see that globally, our chocolate volumes declined by 0.5% for the year, and that's well ahead of the minus 4.3% decline of the market as reported by Nielsen. Western Europe saw a 0.2% volume growth, driven by the strong Gourmet and food manufacturing dynamics in Q4 that I talked about before. Central and Eastern Europe grew by 1.1% ahead of the market with strong Gourmet growth and continued momentum for both local and regional accounts. North America decreased by 6.1%, impacted by the declining market as well as network supply disruptions we've seen in the first half of our fiscal year. In contrast with other regions, this market remains to see negative momentum. Nielsen market volumes in North America declined by 6.7% in the last 3 months, so worse than the 5.8% in the full year. Our volumes in North America declined by 1.4% in the fourth quarter, so we have been recently outperforming this challenging market. Latin America increased by 1.2% as a result of a strong fourth quarter, especially in Gourmet. And finally, our volumes in EMEA grew by almost 10%, driven by momentum with key customers in India, market share gains in China and additional business we managed to secure in Australia. Now moving to EBIT now. Recurring EBIT in constant currency decreased by 14.1% to CHF 604 million. The EBIT bridge on this page shows the respective moving parts. Cocoa saw a strong profitability in half year 1, given the more favorable margin environment and the market volatility, which we were able to capture. This was offset by the negative impact from a temporary Gourmet long position. As a reminder, the Gourmet business typically operates with price lists that are fixed several months in advance. Earlier in the year, cocoa prices declined at a very fast pace after we had already established our pricing. This temporarily left us with price lists that were out of sync with the market conditions at that time, and that created a need for commercial investments. Now this has been a short-term dynamic and is now behind us since the summer. We also saw a meaningful negative impact on EBIT from the lower year-on-year pass-through of finance costs, given that this pass-through effect comes in the revenue line, so above EBIT and the offsetting cost reduction only comes below EBIT. So it negatively impacts EBIT without impacting the PBT at the bottom line. Finally, we experienced higher operating costs related to supply disruptions, particularly during the first half of this year. An important note to this EBIT evolution is that our actions to strongly reduce financing costs have enabled us to recover about 2/3 of the absolute EBIT decrease at the profit before tax level. And that you can clearly see on this chart. Our recurring EBIT decreased by CHF 109 million, while our recurring profit before tax decreased by CHF 40 million. The CHF 60 million -- CHF 69 million recovered between the 2 represents the year-on-year reduction in net financial costs. This improvement was driven by a series of actions to strengthen our balance sheet and to reduce our debt. Over the course of the year, we repaid approximately CHF 1.5 billion of debt across multiple instruments. That includes term loans, Schuldschein, Swiss bonds and the EUR 849 million bond buyback that we completed in June. And we also reduced outstanding commercial paper and bilateral facilities. Turning now to free cash flow. Free cash flow was very strong at CHF 2 billion during the fiscal year, reflecting both favorable cocoa price dynamics and structural actions we have taken to improve our working capital efficiency. Let me break this down in 3 components, as you can see on the slide. Starting with the brown box, the cocoa bean price impact. This had a positive CHF 1.5 billion impact on free cash flow for the fiscal year. The bean price closed in August at a relatively similar level as the August before at GBP 4,859 at the end of August '26 versus GBP 5,300 at the end of August '25. But we did see a significant free cash flow inflow at lower prices in half year 1, where the bean prices decreased significantly. This benefited us during the peak buying period, particularly in non-West African origins, which do not have the same forward contracting model. Moving to the green box, which is operational free cash flow. This had a positive effect of CHF 0.9 billion for the fiscal year. Here, we saw major operational benefits from actions on cash cycle reduction on which I will come back in the next slide. And finally, looking at the yellow box, we invested CHF 336 million in our manufacturing footprint and capabilities. Looking ahead to fiscal '27, there will be a delayed impact on working capital from the higher cocoa bean prices in the last months of fiscal '26 in the range of a few hundred million Swiss francs. However, we expect this to be offset by structural actions that we continue to improve the cash cycle and support our ongoing deleveraging agenda. Translating this into leverage, we saw a strong reduction to 2.9x at the end of August from the peak of 6.5x in February last year and also well below the 3.9x we reported at the half year. This reflects a reduction of net debt of more than 40% over the course of the year. It's also worth putting a bit of focus on the fact that the reported leverage is different if we adjusted for our relatively marketable cocoa bean inventories. At that moment, our leverage would be 1.5x. And importantly, when we do that, this adjustment only excludes cocoa beans. It does not adjust for cocoa products or chocolate inventories. This progress has been supported by the actions we have taken to make this business structurally more resilient to cocoa bean price volatility. Operational, first, we have broadened our geographical sourcing flexibility. We've increased the use of our bean blending capabilities. We took actions to structurally reduce inventories. We're also improving demand and inventory planning, and we're optimizing contracting across the value chain. On the financing side, we've strengthened both on flexibility and liquidity. We implemented a letter of credit facility to provide less cash-intensive solutions when we are facing margin calls, and we established a CHF 2 billion borrowing base facility, which provides additional flexibility through periods of prolonged cocoa price volatility. We will continue these actions through fiscal '27 with the objective to further strengthening the resilience of the balance sheet and to continuing our deleveraging agenda. With that, let me hand back to Hein to take you through the progress on Focus for Growth.

Thank you, Peter. I'm encouraged by how we are progressing since we launched Focus for Growth in June. Focus for growth is about stronger fundamentals, clear portfolio choices and accelerated growth in value-added cocoa and chocolate solutions. We are making 2 clear and deliberate shifts from our existing foundation. First, we are evolving towards a more solutions-oriented business, scaling targeted specialties in attractive, faster-growing segments, where we can differentiate and create more value for our customers. Second, we are becoming much more deliberate about where we want to grow, shifting more decisively towards premium segments and accelerating the growth of our Gourmet business, and we are making progress. Importantly, across a number of key indicators and thanks to the work of our teams, our fundamentals are improving and moving in the right direction. First and foremost, our people. Focus for Growth was developed with significant input from our teams, and it's encouraging to see the organization increasingly engaging behind the direction that we have set. Since February, our office employee Net Promoter Score has improved by 7 percentage points. And this is an important step forward and an early indication that the changes that we are making are gaining traction across the organization. Second, quality and safety. During fiscal year 2025-'26, we recorded 0 critical quality incidents and 0 product recalls. And we continue to strengthen our network, processes and quality culture to sustain this performance over time. We are also seeing encouraging improvements in service levels, including on-time in full in North America, where restoring consistent execution is an important priority. Third, sustainability and traceability. We are ready for EUDR. Over the course of the year, we have further strengthened traceability, geolocation and due diligence capabilities across our sourcing activities, and this has included improving data quality and working closely with suppliers, customers and other partners across the entire value chain to prepare for implementation. And finally, customer centricity, which sits at the heart of focus for growth. Here, too, the early indicators are encouraging. Our customer Net Promoter Scores improved by 8 percentage points in Western Europe and 9 percentage points in North America compared with the prior year. Now we have more to do, but the direction of travel is clear and the fundamentals of the business are strengthening. We are also progressing well with our commercial growth agenda. The organization is more commercially focused, more disciplined and better equipped to deliver on our commitments. And let me share more detail on each of our 5 growth priorities. Starting first with our global accounts. Here, our ambition is to deepen these strategic relationships by delivering consistently strong service by co-creating innovation with our customers, developing joint sourcing programs and becoming an even more important solutions partner, particularly in specialties. And we're mobilizing more consistent global account management models. The global account teams will set the standard for how we engage with strategic customers around the world, drawing on the right functional expertise from innovation to procurement and cocoa. And this will help us enhance customer experience and move from managing individual opportunities to developing the full potential of each customer relationship. Let me just share 2 examples of how we are strengthening these important relationships. The first is Ice Cream, one of our focus segments. And with the Magnum Ice Cream Company, we are now working side-by-side on product innovations in a joint innovation office inside Colworth Science Park in the U.K. The second example is with Mondelez. Earlier today, we announced our landmark future farming partnership in Brazil. Future farming initiative, it is very important to us because this partnership is truly unique in the industry. It establishes the operating model and capabilities to scale high-tech cocoa farming commencing in Brazil and spanning 15 years. And the benefits are clear. A higher productivity per hectare, greater geographic diversification, improved supply and price predictability and of course, a fully traceable deforestation-free sourcing. And importantly, this model is scalable. And as customers increasingly look for deeper, longer-term partnerships around cocoa supply, we see the potential to expand this approach over time. It's a powerful example of how we can use our scale and our unique capabilities to create more value for our customers. Now moving to regional food manufacturers. Here, we have deliberately focused our commercial growth agenda on 10 priority markets where we believe we have the strongest opportunities to win. And as I shared earlier, these markets are already outperforming the group with volume growth of around 7% in H2. And that is encouraging early evidence that greater focus and stronger regional ownership are translating into results. Greater commercial focus also means being more intentional and evolving where required to focus on the more profitable value-added growth. Here, I wanted to highlight a few examples. First, we are becoming more targeted internally to pursue opportunities specifically in segments where we want to win, meaning faster growth, higher-margin segments such as Ice Cream and, for example, Bakery. Second, in Western Europe, some contracts were secured during the period of heightened industry overcapacity earlier in the fiscal year. And we expect to progressively phase out some of this lower value volume throughout fiscal 2026 and '27 as we redirect our capacity and the resources towards more attractive opportunities. Finally, the transition with Hershey, which I will come to on the next chart. At the same time, we are taking action across our manufacturing footprint to ensure we have the right capacity in the right markets to support our ambitions. Now let me talk about our evolving partnership with Hershey. We began our collaboration with Hershey in 2007 under a long-term agreement with an initial term of 15 years, subsequently extended to the end of calendar year 2027. And over nearly 2 decades, the partnership has supported the growth of both companies in North America. Since then, strategic priorities have evolved and with the current partnership agreement expiring at the end of its term, we are working together to finalize the future scope of our commercial relationship. What is clear is that this will have a significant volume impact in North America, reflecting the historic scale of the relationship. For this fiscal year '26-'27, we expect an impact of around 1% at group level with any further volume impact dependent on the future commercial arrangements. Importantly, though, there is no impact on profitability in fiscal year '26-'27 and beyond. So while the volume impact is meaningful, there will not be a corresponding impact on profitability. And strategically, we will also have more flexibility going forward since the historic agreement included certain restrictions on who we could serve in North America. And this aligns with focus for growth. We will use this increased flexibility to prioritize our resources behind differentiated, more profitable and value-added growth opportunities. The volume effects that we are describing here are already reflected in our FY '26-'27 guidance, which I will come back to later on in the presentation. We are advancing targeted investments and reducing complexity to create a more flexible and efficient manufacturing network. In North America, we are expanding our state-of-the-art facility in Brantford, Canada to increase cocoa coatings capacity and strengthen customer service. And at the same time, we are simplifying our network by consolidating production into larger, more efficient sites, including the proposal to close the Hendersonville facility in the U.S. and the beverages manufacturing site, Chester in the U.K. during the second quarter of 2027. In beverages, this will further strengthen our hub in Sweden. And importantly, we are also investing for future growth. Indonesia is one of our priority emerging markets, and I am pleased to announce that our Board has approved a new greenfield facility in Karawang, near Jakarta. This will expand our local manufacturing capacity and provide a platform to support our growth ambitions across ASEAN with commercial production planned for the first quarter of 2029. And these actions will support improved asset utilization, greater operational flexibility and a more efficient cost base. Now moving to Gourmet, where we see significant potential to accelerate premium growth. And as Peter already highlighted, we saw a strong momentum return in the fourth quarter with Gourmet volumes up around 14%. And we are now building on that momentum with a much clearer strategy around our brands, innovation and customer experience. First, on brands. We've sharpened the roles within our portfolio. And with Callebaut, we recently launched our new global taste starts with you campaign around our 5 iconic 1911 chocolates, putting chefs and their creativity at the heart of the brand and using recipes, inspiration and digital content to drive greater engagement and usage. But at the same time, Cacao Barry has a distinct role as our technical expert brand, building on its heritage, its expertise and strong relationships with professional chefs. And then finally, innovation. I just returned from Antwerp in Belgium, where we launched Flavourcode at our inaugural Innovation Summit alongside the World Chocolate Masters Competition, a wonderful event. And Flavourcode is a proprietary approach to cocoa fermentation, and that allows us to create distinctive intense flavor profiles truly outstanding and to produce them consistently entirely from cocoa. The first commercial expression is Callebaut Flavourcode01, developed initially for Gourmet across applications, including Pastry, Confectionery and Ice Cream, but this opportunity goes beyond Gourmet. The technology has the potential to be applied more broadly, including in food manufacturers, opening up further opportunities for differentiated value-added solutions. And this is exactly the type of innovation that we want to accelerate on the focus for growth, proprietary, differentiated and with the potential to scale. We have talked about solution selling of specialties already. And to back this, we are releasing additional capacity for filled and baked inclusions across the global network. For example, one new baked inclusions line in India has just come operational in October. And at the same time, we are strengthening export capabilities and warehousing to support our global customers. And this is just one example and more to come. We see a lot of growth potential with specialties. Demand for premium cocoa powders remains high, and we see continued growth potential. Short term, the focus is on freeing up capacity across the network to produce more. And midterm, we will invest to increase production. Last week, we announced a new functional cocoa powder replacer in partnership with Planet A Foods, a high-end fiber EU-sourced and produced allergen-free and cost-effective solution. So as you can see, we are continuing to innovate also in cocoa powders. Alongside our growth agenda, we are also building a more scalable and efficient cost structure. And over the last 5 years, our fixed cost base has increased, and we need to change that trajectory and establish a stronger culture of productivity, of cost discipline and of accountability across the organization. We have already taken initial actions, including tighter discipline around areas such as consulting and travel but the opportunity goes much further. And following the implementation of our new organizational structure on September 1, we are reviewing how we can operate more effectively and efficiently to accelerate the execution of focus for growth. And we are, therefore, launching 2 productivity programs. First, on the operational side, we see opportunities across material usage, factory support and maintenance efficiency, in short in our supply chain. And second, in SG&A, we are looking at how we can simplify structures and streamline decision-making, reduce duplication and ensure that our resources are focused on our strategic priorities. Now the work on these priorities is underway, and we will share more as we progress throughout the year. Our priorities for this fiscal year are therefore clear. We continue to strengthen our fundamentals. We will drive our commercial growth agenda. We will focus and invest behind our 10 priority markets, and we're commencing an enterprise-wide productivity program ultimately to accelerate our financial performance. This brings us to our guidance and outlook for this fiscal year. But before we go there, let me first share our perspective on the cocoa market as we enter the '26-'27 crop season. For the new crop, we are seeing a later start to the harvest, and we are closely monitoring weather developments and the potential impact of a stronger El Nino. The important point, however, is that the market is starting from a very different position than it was 2 years ago. Because at that time, weather disruption came on top of successive supply deficits with very limited buffer in the system. And that significantly amplified the impact on cocoa prices. Now today, the market is considerably more resilient. We are entering the season following 2 years of surplus and industry coverage is healthy and terminal stocks are increasing. The value chain has also adapted. Customers have increased forward coverage. Procurement planning has improved, and we estimate that cocoa prices of around GBP 5,000 per tonne have largely been reflected in consumer pricing. So while we currently expect a deficit in the '26-'27 crop year, the cumulative 2-year position should remain in reasonable surplus. And that gives the market a much stronger starting point from which to absorb any potential weather-related volatility. And based on what we see on the ground, we continue to believe that a bean price in the range of roughly GBP 3,000 to GBP 5,000 per tonne represents a sustainable level over the medium term. Of course, cocoa markets will always experience periods of volatility and weather and climate will remain an important factor, but stability is also visible in the futures curve, which is relatively stable as we look ahead. Now moving to our outlook for fiscal year '26-'27, starting with volume. We reiterate our commitment to deliver growth of 1% to 3% for the year. And we expect growth to be weighted towards the first half with a strong start to the year, expected in the first quarter. In the second half, we face both a higher comparison base and the deliberate contract prioritization that we discussed earlier, particularly for Western Europe. On profit, we expect recurring EBIT growth of 3% to 5% in constant currency, supported by improved operating performance and productivity. At the profit before tax level, we expect significantly stronger growth of around 30% in constant currency, reflecting both the EBIT growth and the substantial reduction in financing costs. We expect to be below CHF 240 million. We currently expect approximately CHF 25 million of nonrecurring operating expenses, primarily related to manufacturing network simplification and site consolidation, alongside accelerated fixed cost productivity that I talked about and organizational effectiveness measures. Turning to cash and leverage. We remain firmly focused on deleveraging, and we expect free cash flow of CHF 200 million to CHF 300 million. And the delayed working capital impact from higher cocoa bean prices in H2 '25-'26 should be offset by the operational actions we are taking to further reduce the cash cycle. As a result, we expect net debt to recurring EBITDA to remain at or below 2.9x with capital expenditure of approximately CHF 350 million. Our outlook assumes an average cocoa bean price of GBP 4,000 per tonne. Taken together, '26-'27 should be a year of delivering on our commitments. Continued volume growth, increased mix, improved operating leverage, a significant step-up in profit before tax and further discipline on the balance sheet. Thank you for listening, and we will now move to the Q&A. Operator, please go ahead.

[Operator Instructions] Our first question comes from Matteo Lindauer from Vontobel.

First of all, congrats on the numbers. My first question is on the Hershey contract and outsourcing in general. Could you remind us of which factories would be affected and the implication for these factories? And secondly, do you still see the trend for a return of outsourcing volumes from 2028 onwards? Or did the Hershey event change your view? And my other question is on the targeted investments under the focus for growth strategy. Could you please quantify the required CapEx for the new greenfield in Indonesia and the expansion project in Canada?

Thanks, Matteo. Very clear. First of all, on Hershey and on outsourcing. On the particularities around that, around the termination of the current contract and subsequent business after the termination of the contract when the contract comes to expiry by the end of 2027. At the moment, we're discussing that. So I don't want to go in too much detail yet in terms of what sites are impacted and so forth. These discussions are progressing. And I think I just wanted to underscore that we're very confident that it will not have any profit impact for us in '26-'27 nor beyond '27 regardless of the outcome of those discussions. So we feel very confident about that. And we will, of course, keep you very much updated if and when we come to that final agreement, which we expect in the next couple of weeks. When it comes to outsourcing, I don't think this particular contract, and again, this was a contract that was started 20 years ago. It had a clear expiry date by the end of '27. That's a reality that we live with. It has really helped us to build the business in North America, and it has helped Hershey as well. We've had a good cooperation and strategic priorities are, of course, always evolving. And if you look at the outsourcing market in general, I said that '27, 20, I expect it to bottom out, and that's still where we are. So what we said in June is very much where we are today. And in fact, what we're seeing is that there is a renewal on outsourcing coming through a couple of reasons. First of all, the market is stabilizing. So overcapacity will come down a little bit because of in-sourcing decisions that have been taken. Secondly, we are innovating, of course. And that's something that I'm very keen to do because that will always help us. Third, there is a lot of capital, of course, required in this business and particularly when we look at the whole chain, and this is where we're really making quite a bit of progress. So I feel that it will become a growth lever again, but it will bottom out next year, as we said before, but it will contribute to our medium-term volume guidance that we have given you in June. On the CapEx side, just 1 or 2 remarks. Look, I mean, we're guiding towards CHF 350 million of CapEx max. That includes IT. Supply chain will be approximately CHF 300 million to CHF 320 million for this year. That includes the new site in Indonesia, and that includes the expansion in Canada. We won't give you precise numbers for each of those projects, but we're really keen now to progress on supporting volume growth in our priority markets. In Indonesia, you can expect further news on Brazil in the months to come. And of course, we want to continue to solidify our network in North America, both from a service and a quality perspective, and we're excited about the progress that we're making in Brantford. So this really fits the strategy. And I just want to refer back to the CHF 350 million guidance on CapEx overall.

Our next question comes from Ed Hockin from JPMorgan.

My first one is on volumes, please. So could you help us a bit on some more of the building blocks to your volume guide of 1% to 3%? Because I presume in Q1, you still -- and you alluded to have very easy comparatives. So I presume a strong quarter in Q1. You talk of this 1% drag from the Hershey transition and as well these Western Europe contracts fading out. Are you able to quantify the impact from those food manufacturer contracts in Europe on the volumes? And then also, it looks as though end market volumes are still tracking down low single digits towards the end of your fiscal year. So what assumption do you have for the end market volumes progression in FY '27? And then my second question, please, is on productivity that you mentioned. Are you able to give us some guardrails on the magnitude of these productivity savings yet? Or maybe to put it another way, I think in the last 2-3 years, you've had some significantly higher operating costs during the cocoa supply disruption, higher processing costs, new bean origins. I guess the question is how much of these higher operating costs are sticky and how much of this you expect to manage through this year and over the coming years with these productivity initiatives?

Thanks a lot, Ed. Two very clear questions. I'll start off and then hand over to Peter for some more detail. But let me -- first, on the volume picture, you are right. As we said that the first half will be a bit stronger in terms of the percentage growth than the second half. And that's amongst other because of last year, we had -- we were impacted by some service issues. And of course, we've had 2 consecutive quarters now in quarter 3 and 4 of 5.7% growth. So the comparable will be a bit stronger. But we're also entering the year with a bit more confidence, of course, well, a bit more confident. We're having decent run rates on our Gourmet proposition. So that all helps. But it is weighted towards the first half with the second half being somewhat lower in the comparable. But when we look at the absolute numbers quarter-by-quarter, we expect a fairly even year. Peter will get you some of the building blocks in a second. On productivity, like you said, on productivity, we've seen increases over the last few years, and we're keen to -- the first focus that we've given in June on focus for growth was really to strengthen the fundamentals, restore the fundamentals, quality, service, planning. That for me was the focus as well as the return to growth. Now we're seeing that happening. And of course, we need a bit more time. It's now time to also add productivity to focus for growth and making sure that we leverage the P&L. So with the volume growth that's going to happen, we need to make sure that, that fixed cost increase trend will stabilize and will essentially flatten and plateau for this year and over time that we create more and more leverage to drive that profitable growth and margin accretion. So the magnitude of what you're thinking of is, first, I would say we want to make sure that we drive flat costs in this fiscal year and then the fiscal year beyond. I'm not guiding yet towards a huge reduction. We're working our way through, and we'll come back to you in January with a bit more news on the specifics. But flat fixed cost is what we're going to shoot for.

Yes. Maybe just a few more notes on the volume. As Hein said, we're heading into a good start in the first quarter, which we're obviously happy about. We see some of the momentum on Gourmet and on Western Europe continuing into that quarter. If I go a bit deeper, what we expect next year for the volume buildup is that the regions, APAC and LatAm are likely to lead the growth. We expect fairly strong, especially H1 Western Europe and CEE and the more -- probably the fifth region would be North America. You've seen in the presentation that the market in North America is still very much under pressure. Prices have not yet come down. So that will be somewhat more challenged than some of the others. If I look at segments as such, Gourmet is going to be a strong year for us with the new prices and the new approach that -- and other initiatives that we set in a few months ago. Food manufacturing, especially on the large customer side, we expect still a bit of pressure. Again, back to the market still -- I mean, improving, but still being in negative territory. And cocoa, we believe it's going to be positive considering that, again, the underlying demand momentum is picking up. In FM, as we said, we do include -- and that's included in the guidance, an impact on Hershey, which is 1% on the overall company growth.

Maybe one last remark on that end market. I think that it's important, about 45% of our sales in chocolate is on the chocolate confectionery market. And there, we're still seeing a market that's overall a bit in decline in North America, in particular, Europe getting a little better and then the emerging markets in a plus. The remaining 55% of our business is -- and this is something that we're -- as you know, we're very focused on is where chocolate is an ingredient, but where we feel that there is a good market momentum. And that includes ice cream, that includes bakery, particularly in emerging markets, by the way. That includes the health and wellness side, so think of protein bars, but also granola type of products that are seeing increased chocolate momentum. So 45% is traditional confectionery. But with the focus for growth strategy, we want to make sure that we continue to win in those adjacent segments that are a bit more attractive.

Our next question comes from Jorn Iffert from UBS.

The first one would be, please, on the market trends you are seeing. What you're observing with your market intelligence going forward regarding private label versus premium global brands versus smaller brands. Where do you expect the trends to be set here over the next 2 to 3 years? And how are you indexed to these trends at this point in time, i.e., how much work do you have to do to adjust to the new market dynamics? And the second question would be, please, on Gourmet, strong momentum. You have lowered your price points. I mean the HoReCa channel seems challenged across the board for many companies. I mean what is the strategy here from your point of view for the next 1 or 2 years? Do you lower your price points like competitors? Are margins more under pressure versus the history? Or is it more a little bit on the margins, profitability that you are having the run rate of the historic, i.e., are you sacrificing margin for growth at the end of the day?

Thanks, Jorn. A few points on the market and on the trends. I think overall, and this is something that we said last time as well, but we see a bifurcating market, right? So you are right that particularly on consumer, we're seeing strong gains of private label. And we're working as one of the segments that is an important one for us, for example, in Western Europe, we're working with a number of retailers on that. And often, that is more affordability oriented. But to be very honest, also in private label, we see increasing premium type concepts. And that's something that we're working with. We're seeing that mainstream is a bit under pressure for sure. But at the same time, premium continues to perform -- to outperform the overall market trend. So again, bifurcation, premium on the rise, but also some of the affordability projects. And on affordability, we are increasing our capacity, for example, in Brantford and Canada to be ready for compound solutions because the U.S. has switched in many cases to compound solution. In Europe, it's much more cocoa butter oriented and therefore, premium oriented for us. And then if you think about it, our Gourmet segment, yes, we moderated our prices a bit to make sure that we're competitive, hence, the 13.6% growth. But that is also helping us now into the new year with the long position that we had on the cost side, which is expiring to keep the customers with us and to be part of their recipes going forward. So I feel very strong about the move that we have made in June and keep that market momentum. On Gourmet in itself, like you said, I think there's a few points that I wanted to make. If you look at Gourmet globally, for us, that is not just the high end or the premium side that food manufacturers use. Gourmet is used in markets in many different ways. Let me give you an example of a big market for us, which is Brazil. There, our Gourmet is almost entirely focused on home baking concepts. And we're seeing home baking increasingly taking off in some other emerging markets as well. Gourmet in Europe is primarily for the independent chocolate, chocolatiers, restaurants, hotels, as you say. And actually there, we're seeing quite a strong momentum at the moment. Our Gourmet business in the U.S. is growing yet low single digit, but we believe that with GLP-1, and I talked about this in the Focus for Growth strategy, which has a volume impact of approximately 0.5% that's what we can see, but we're seeing a premiumization trend in the U.S. for those particular chocolate moments. And therefore, we expect Gourmet to accelerate in the course of the year in North America as well. So the word Gourmet is for us a certain channel. Yes, it's more premium, but the usage of chocolate is pretty local and has its own local dynamics. And I think we're very fortunate to have strong bases in -- around the world. And with that priority country concept that we've taken with 4 big emerging markets where we're investing in, we believe that Gourmet will have its own role to play, albeit a bit different than what we've traditionally seen in Western Europe. A bit of a longer answer, but I hope that -- I wanted to give you a bit of context on Gourmet overall.

And if you allow me, just one follow-up to the first question, which was potentially missing. In terms of the global brands versus smaller local upcoming brands, according to your market intelligence, where would you expect more growth to come for the next 2 to 3 years?

I want to be a bit careful here because it's not one-size-fits-all. We're seeing some global brands doing really well, and we're excited. And I think Peter said it as well in his part. that we're seeing more innovation coming. Together with our global accounts, for example, the top 7 accounts being approximately 30% of our total turnover, we've really resumed joint innovation programs. I talked about our joint program that we're doing with Magnum and Colworth. But without mentioning particular names, I see an increased appetite for innovation. So that's something, of course, that I'm really excited and happy about that we can again play that role and then be a reliable service provider to those accounts. So I just want to be a bit careful to sort of give a one-size-fits-all answer on this one.

Our next question comes from Jon Cox from Kepler.

I have a question just on the -- more going into FY '27. I think you said previously that it will be maybe a year of transition, volumes are still under pressure, a lot of people sort of in-sourcing for a while until the factories are full up. But when I look at the dynamics of your business, 4% growth in food manufacturers in Q4, double-digit growth in volumes in Gourmet. I'm just trying to work out what the drivers are? And is it share gains? Or why is it when we can see that volumes for the overall chocolate market are under pressure that your volumes are doing a bit better? As part of that, the second question would be, well, if your Gourmet business is growing so quickly, your manufacturing business is at the moment around 4% and you're talking about good momentum into the first quarter. Why is your guidance for EBIT -- recurring EBIT only 3% to 5% when if you're growing 1% to 3% with all the mix impacts of Gourmet, particularly, you would think your EBIT would be growing actually faster even if you have other things going on? So that was the 2 questions, if I can. And then just a technical question on the Hershey contract. You mentioned no impact on EBIT. Is that because it was a very low margin contract and you've just got a little bit of -- you can do a little bit of operational improvements to offset that low single, whatever it may be in the EBIT? Or are you saying that actually the EBIT contribution of the Hershey contract is 0 in terms of Swiss franc for you?

Thanks, Jon. Very clear. Let me go first on the volume side and some of the comparables, then hand over to Peter on the EBIT, particularly versus profit before tax because I think that's very important to continue to see those in conjunction, but Peter will give you a bit more details on that, and I'll come back on Hershey. So first of all, on FY '27, a few points. Are we gaining share? Answer, yes. We are. So -- and I think it's very important. We talked about this in June. I felt that -- when we would get back to better delivery, better service, ensuring a consistent quality, this company can definitely perform. And so we are taking share. So that's number one. Secondly, the comparable, certainly in the last quarter of our previous fiscal and the first 2 quarters of the next fiscal is a bit easier. And of course, we're going to see those comps in -- of 5.7% growth and 13.6% growth in Gourmet in the second half of the next fiscal year. So we're benefiting a bit from that. And the third reason is, if you think about it, and I mentioned this before, 45% is traditional confectionery. So you related to the chocolate market, but 55% of chocolate sales in itself is to adjacent markets. And you've seen probably the volume growth of some of the large ice cream companies in the last couple of weeks when it comes to the results that they have reported on. And of course, that's something that we benefit from as well. The same goes, by the way, on Bakery Solutions in emerging markets. We're seeing positive developments on that in India. We're seeing very strong growth in China on that. And that -- so our sales, as I said, you really need to look at the combination of different categories and not just at the confectionery category. Peter, on EBIT?