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Investing.com -- S&P Global Ratings has affirmed the ’BBB-’ long-term issuer credit rating of Barry Callebaut AG, a Swiss cocoa and chocolate manufacturer, but revised the outlook to negative from stable due to elevated headwinds to debt deleveraging.
The first half 2025 results for Barry Callebaut AG showed weaker than expected cash generation and credit metrics, primarily due to higher price volatility in cocoa beans and increased operating and financing costs. This led to significant working capital outflows and higher debt levels.
The company’s cash generation was negatively impacted by high price volatility in cocoa beans between September 2024 and February 2025, resulting in a 17% drop in EBITDA to CHF 403 million ($437 million) and a large negative free operating cash flow (FOCF) of CHF2.1 billion ($2.3 billion). During this period, the company’s adjusted debt increased to CHF6.9 billion ($7.5 billion), more than double the previous year.
Barry Callebaut AG has taken measures to improve profitability and increase cash conversion in the business, some of which may take 12-18 months to materialize. Despite the challenges, the group remains well funded for the next 12 months and retains good access to bank and capital markets financing. The company issued €1.75 billion ($2 billion) long-term senior notes in February 2025 and CHF300 million ($326 million) in January 2025. It also increased its committed revolving credit facility from €1 billion ($1.1 billion) to about €1.9 billion ($2.2 billion), which was fully undrawn as of the end of February 2025.
The negative outlook reflects increasing downside risks that Barry Callebaut AG’s cash flow and credit metrics may not be restored to below 4.0x adjusted debt leverage and FFO to debt above 20% within the next two years.
S&P Global Ratings expects the company’s operating performance and cash flows to gradually improve in the next years supporting improved credit metrics. The ratings agency forecasts adjusted debt leverage of 4.0x-4.5x and FFO to debt of 15%-20% by fiscal 2026, and adjusted debt leverage of 3.3x-3.8x and FFO to debt of 20%-25% by fiscal 2027.
The company plans to continue its capital expenditure spending, estimated to be about CHF250 million ($272 million) annually, with a focus on North America and Asia to capture growing long-term demand for chocolate products in emerging markets. The group does not plan to cut cash dividends, projected at CHF150 million ($163 million) annually, as it believes that it will largely improve its financial performance by fiscal 2026.
S&P Global Ratings will monitor whether the group is able to make tangible progress over the next two years to maintain its competitive advantage in the industry and improve its vertically integrated and working capital intensive business model. The ratings agency could lower the rating on Barry Callebaut AG if adjusted debt-to-EBITDA remains above 4.0x and FFO to debt remains substantially below 20% on a sustained basis. Conversely, the outlook could be revised to stable if there is a faster-than-anticipated improvement in internal cash flow generation and lower-than-anticipated debt levels.
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