Juergen Steinemann - CEO Victor Balli - CFO

Good morning, ladies and gentlemen. You'll see me with a slight smile on my face and I think it's because our sales volumes pick up strongly in the second quarter.

I think it's also because we significantly outperformed the global chocolate confectionery markets and I think it's clearly also because we achieved a very strong EBITDA net profit increase, together with our CFO, Victor Balli, I would like to welcome you to Barry Callbeaut's half year conference. Please be reminded that the information given during this conference contains some forward-looking statements which reflect the best of our current knowledge.

Actual results might be different, further more we would like to inform you that this conference is recorded. Following our agenda today, I will first present the highlights of the past six months, then Victor will guide you through the financial review.

I will conclude the strategic update and as always we will then come to a question and answer session. Let me now start with the highlights of the last six months.

As I said our group achieved a solid volume growth and a very strong profit increase. As forecasted, our sales volume picked up significantly with 3.9% in the second quarter after slow start of the year and came in with plus 2% for the first six months of the fiscal year, we clearly outperformed the global currently weak chocolate confectionery market which declined by 1.5% for the same period.

All regions and all growth drivers contributed to our volume growth. Our business performed particularly well in our main markets Western Europe and Americas.

Our continued focus on Specialty product and Gourmet as well as the tight cost control resulted in a significant profit increase. Both our operational and net profit went up at double digit rates in local currency.

As you can see, our volume was fueled by region Europe, particularly like I said Western Europe and Region Americas. These two regions outperformed the underlying chocolate confectionary market by far.

In both regions the pace accelerated into Q2. Our solid volume increased across all regions very much contrast with the current weak global chocolate confectionary market as per Nielson.

The global market declined with as I said 1.5%, but improved in the second quarter driven by Western Europe and North America. That said, all our growth drivers showed positive growth and particularly outsourcing and partnership agreements with 5% as well as our Gourmet business with 6%.

1.7% volume growth in emerging market might look rather low, it is due to temporary slowdown of some countries. Let us press now look more in detail into the recent developments of our growth drivers.

Different emerging markets show a very different picture, we recorded a very strong double digit growth in South America particularly in Brazil, that market by the way shrank in the six months by 7%. On the other hand our business in region EMEA was affected by difficult market environment in Russia, Victor and I were there last week, it's really bad what happens in Russia.

In Asia Pacific, business growth somewhat slowed down as a result of an overall sluggish market demand, nevertheless our growth was well above the market. On outsourcing and strategic partnerships we gained additional volumes from current partners such as Mondelez, we signed some agreements with regional leaders around the world and together with this we are ramping up additional volume from for example Arcor in Chili or Morinaga in Japan or Grupo Bimbo in Mexico.

Our third growth driver Gourmet and Specialties also significantly accelerated in volume from 3.8% in Q1 to 8.6% in Q2. All region contributed to this strong performance in particular Western Europe and NAFTA.

We significantly outperformed the market which grew in the same period with 2% of the fiscal year. How did we achieve such remarkable growth?

Well, we innovated and renovated the core of our two global brands Cacao Barry and Callebaut, this built the basis for further market share gains especially in emerging markets. We achieved additional market penetration through stronger cooperation with distributors and more direct sales.

We also invested in education platforms by expanding our academies. And we are setting the trends of tomorrow by leveraging our global ambassador and expert network.

Some other highlights in the past six months. In South America we inaugurated our factory in Chili, in India we opened our factory in Pune.

Overall we have expanded the production capacities at 15 existing factories, we are adding around 200,000 tonnes of chocolate production capacity by the end of this fiscal year. We signed a new outsourcing agreement with world's finest chocolate in Chicago by acquiring its facility, we complemented our footprint in the Mid-West.

Recently we inaugurated three new chocolate academies one in Dubai, one in Koln Germany and last week Victor and I were together for the inauguration in Moscow. Next one on the agenda will be Tokyo in June.

All together we then operate 19 academies around the world training 38,000 chefs every year. With this I would like to handover to Victor.

Thank you, Juergen. Good morning, ladies and gentlemen.

Here as usual some further details on our performance for half year. This is all real, it’s not a 1st April joke I am going to present here.

So, let me start with the highlights from our income statement. As Juergen said, our sales volumes accelerated in the second quarter and we achieved overall a 2% volume growth for the half year.

Thanks to a strong product mix and our focus on margins and costs the profitability improved at all levels. The EBIT went up by 13% in local currencies.

From January the strong Swiss franc started to have an important impact on the translation of our results back into the Swiss franc currency. Therefore the EBIT growth in Swiss francs was lower at 8.7%.

This impact is expected to continue and as current rates may reach flows to minus CHF30 million for the full year at EBIT level. Finally, our net profit improved by 16% in local currencies and 11% in Swiss franc, a very remarkable result.

[About] the performance of our various regions, in region Europe the volume increased by 2.1% driven by an excellent development in Western Europe which offset a volume decline in EMEA. In Eastern Europe growth was affected by the difficult current political and the economic environment in many countries.

Following the implementation of project spring you remember in Western Europe we increased our focus on margins and better product and customer mix. This resulted in a great margin improvement.

Overall, in Europe, the EBIT grew by 15.8% in Swiss francs supported by both industrial and the Gourmet business. Region Americas reached volume growth of 1.9% after a flat performance in the first quarter especially the local industrial customers and Gourmet did well while growth from global accounts was subdued.

In South America both industrial and Gourmet business showed double digit growth. The EBIT rose strongly by 12.4% in Swiss franc due to the better margins across all businesses as well as very good cost management.

In region Asia Pacific volumes grew well above the market with 5.8% on the background of an overall sluggish demand and rather weak corporate accounts. After a negative performance last year Gourmet sales regained momentum supported with strong growth from the two global brands.

The EBIT also grew nicely at 7% in local currencies albeit affected by continued investments into this growth region. In our global cocoa business, the sales volumes increased by only 1.2%.

Given the still challenging or I will it call it even weak market environment for cocoa products we did not push sales. As announced this difficult market with low market price levels strongly affected our operating result and as a result our EBIT in cocoa declined by 39.6% in Swiss francs.

Here now some more explanation for this cocoa market development. As you can see on the black line the combined ratios has been on a decline since two years, which is negatively affecting our cocoa profitability.

In Asia, this ratio is currently at low at 2.5. This is a result of significant additional capacity being built up in Asia during the past years.

At the same time demand for cocoa products dropped as a result of a sluggish chocolate market and rather soft demand from emerging markets. We are phased -- so we are phased temporary with an on balance supply demand situation and to make matters worse, the high cocoa bean prices had also a negative effect on these ratios.

All this has brought the combined ratio down to historic levels. In the last six months how the prices started to slightly recover but they are still low and at the same time [butter] ratios came down.

We have not expected this trend to last so long and to go so deep. In the first six months the effects from this combined ratio was minus CHF15 million at the EBIT.

This was partly compensated by additional synergies and operational efforts. When you look at the picture you can see that this deteriorating market environment is actually continuing and will affect also our second half.

I expect the impact to be around minus CHF25 million for this period. Will be further continued, we currently see a substantial reduction in grinding capacities by most players in the industry, in particular in Asia.

This together with an expected acceleration of the demand for chocolate and cocoa products will help to balance demand and supply hopefully further supported by lower cocoa bean prices. This gives us some confidence to expect upside potential for the combined ratio in the next year.

Coming back to the Group performance, here is the evolution of our gross profit for the first-half. We had a positive volume, but much more important was our improvement from the product and customer mix side.

We have the strong growth in specialty product, in innovation and also our Gourmet business generated an important positive contribution. This strong positive effect from product mix was partly offset by the negative cocoa result as just explained.

Negative currency translation effects were almost minus 60 million at gross profit level purely from translating our local results into Swiss francs. Overall our gross profit grew by almost 10% in local currencies.

In our operating result, the EBIT versus prior year, the positive gross margin development was partly offset by additional investment into sales and marketing structure. While we froze cost in most part of our business, we allowed for specific investment into growth areas such as Gourmet, specialty products and emerging markets.

Overall, the EBIT grew with a very impressive certain percent in the first-half year in local currencies. As you can see the negative currency effect was almost 9 million, let me repeat that this comes purely from translation of foreign results into Swiss franc.

As you know operationally our company is very limited affected by the strong Swiss franc. And now this importantly indicates that our profitability is development of our EBIT per tonne you have seen this curve since many years.

As you can see on the red line in constant currency it continues to improve the EBIT per tonne during the reporting period. We are guiding to reach the pre-acquisition level of CHF256 in the year ‘11/’12 per tonne again by the year 2015/’16.

With the latest half year result, we are well on track to reach this guidance. Our assumption assumes however no over proportional negative impact from the currency translation effects.

However, our core ingredient prices developing, don’t forget they make up for almost 80% of our cost. But as you know, our cost loss models, thanks to our cost loss model we are not strongly affected by such volatility.

But this brand developments are of course still important for our industry. Last fiscal year, we saw a significant increase in the cocoa bean price.

At the beginning of this year it started to come down but only slightly. Rumors about low harvest in Africa supported the price levels.

More recently we saw however that for this season, we’re trying to expect a slight surplus in this cost of the supply of cocoa beans versus demand. Therefore, we expect cocoa bean prices to come further down in the near future.

Other raw material prices were generally lower than in the prior year, although we have seen quite similarity especially in dairy prices. Here is the comparison of the net working capital versus February, so 12 months last year.

As you can see on the chart, the increase of 4.3% was mainly driven by the increase in cocoa bean prices, partly of course offset by the Swiss franc impact. Some analysts wrote this morning that the working capital development was still somewhat disappointing, but don’t forget that due to the seasonality of our business, we always see a strong increase in working capital from August to February.

What I see that on the 12 months comparison like-for-like we start to see the impact from declining bean prices. We rather had a 300 million to 350 million working capital price increase when we looked at it in August, now this bean price impact is only around 200 million, so we see a slowdown or improvement of the working capital from the decline in bean prices.

Let's look on before you forget something, we focus of course, continue to focus on the working capital. Aside of the raw material prices which are not in our hand, we tend to improve all order indicators, in particular we try to keep our volume in the supply chain flat or even decrease it despite the growth of the company.

Let's look at the balance sheet and some key financial ratios that explain we have a higher working capital driven by the higher cocoa bean prices which can also translate into somewhat increased next debt levels. Of course all figures have although been affected by the strong Swiss franc.

And as a result some ratios improved and others declined. The return in invested capital is still below our objective of for 15% and for the return on equity we target to get back to a level of 20%.

And to conclude my part of the presentation here in the slide we see available credit lines, we have some bankruptcy as well. As you can see we carry significant unused line in order to be prepared to cope with the growth of the Company and with swings in raw material prices in particular in cocoa.

The actual use of this line is at only 55% leaving ample room to maneuver. Recently, we have strengthened the amount of committed lines by adding the new term loan of €175 million plus a loan from the Jacobs Holding AG for CHF150 million.

There is no immediate need to change this structure or to add additional financing. Nonetheless we are of course constantly monitoring the capital markets for good opportunities.

And with this I give the word back to Juergen

Thanks Victor, I now would like to give you an update on our strategy going forward and some words on the outlook. We believe that part of our success is the continued implementation of our four pillar strategy based on expansion, innovation, cost leadership and sustainable cocoa.

When it comes to expansion our three growth drivers emerging markets, outsourcing and strategic partner as well as partnerships as well as gourmet continues to offer significant opportunities to further develop our business. Starting with outsourcing and partnerships.

With half of the volume or 3 million tonnes still produced in house the industrial chocolate market offers a lot of outsourcing potential. By the way we have a good pipeline also looking forward which will result in another important volume in the second half year.

In emerging markets the long-term prospects remain strong. We're well prepared to capture growth with our incomparable footprint well ahead of our competitors.

I said to you last time six months ago, you compare our footprint in emerging markets between today and six years ago, six years ago we had one factory in Asia now we have nine, six years ago we had one factory in Latin America now we have seven. None of our competitors has more than one if not zero.

In Gourmet, we will continue to accelerate our growth through the activities that I presented earlier. As you know, we are in addition pursuing acquisitions in emerging and developed markets.

Coming to innovation, our structured funnel allows us to help our customer grow their business through differentiation while meeting consumer needs for today but more importantly for tomorrow. It also helps us to focus on those fundamental R&D projects where we expect a significant profit contribution in the future.

We just completed a very promising project concerning the further development of our controlled fermentation methods. With increasing demand for chocolate products in hot climate countries we launched new chocolate recipes with higher thermo tolerance.

Another example of our R&D leadership is a new patent for processing of fad reduced chocolate. Our fast growth and our increasingly global customer base required continued adaptation.

As you know we started projects spring in Western Europe in 2011, this project is now almost completed. Next we want to make our transactional activities in Europe more standardized and more efficient.

For this we intend to bundle transactional activities across Europe in Shared Service Center in Lodz, Poland. We have already initiated the information and consultation process with our social partners.

We have chosen Lodz because we have here a strong presence for almost 20 years through our factory that we’re operating since them. We know the market very well.

Our intention is to start with a nucleus of our 65 positions some transferred from across Western Europe to the new center some insourced or newly created. This nucleus is expected to deliver €2.5 million recurring cost savings per annum as of year three.

Our vision is to grow the center to up to 200 employees at the same saving rates we estimated double digits million euro amount of recurrent cost savings. In the recent past, our industry has made significant steps to increase the use of sustainable cocoa between now and 2020.

Many of our big customers have accelerated their efforts with dedicated programs. With cocoa action, we now have also an unprecedented industry strategy led by the world foundation.

CocoaAction and shows the alignment of all the different program and initiatives on the ground. As a founding partner of CocoaAction and the initiator of ChocoVision, we play a leading role to address issues in the industry such as sustainable cocoa.

In addition to this, we are expanding our own sustainability program called quality partner program to Ghana to Indonesia and to Brazil. We also will further roll out our direct sourcing program Biolands to Ghana.

Looking ahead, we see our market to further grow and many opportunities are rising. For this we have a proven strategy that will serve us as the platform for our future expansion.

Together with our 9,381 colleagues we have all capabilities to continue to outperform the global chocolate and cocoa confectionary -- the global chocolate markets. Based on this we confirm our midterm guidance.

Ladies and gentlemen, thank you so much for your attention so far Rich and I are happy to answer now questions that might in room or on the phone operator would you please now instruct participants on the phone.

Thank you for taking my questions the first on what’s on the first half gross profit margin and can you confirm that the gross profit margin improvement was kind of equally from Gourmet the liquid chocolate business? And second question would be as you expect accelerating outsourcing volumes in the second half.

If you can give us some flavor as to what extent you expect that you will turn to 6% to 8% in the second half and also how the margin mix is looking here? And then the last question on the EBIT bridge just maybe to this cuts and details here and where am I thinking could be wrong.

If you start at the core EBITDA for 26 for fiscal year 2014 excluding the 10 million one off payments for the management then you have maybe 10% underlying EBIT growth coming 470, 480, you deduct the 25 million combined ratio minus 30 million from the FX and still add 10 million from the [pay doesn’t achieve] you should come up at around 430 and just to check if I have some bigger mistakes in this calculation.

Okay, yes. First of all on the gross profit margin, very generally yes it was very broadly based, so of course the different businesses have a bigger different performance.

So when you look at the industrial business first there we said it’s between the lines over the basis that we kind of had relatively weak corporate accounts performance which tends to be the larger greens which tends to be the low marginal greens whereas we have the strong performance with the smaller accounts and with a very strong performance with specialty products, innovative products all coming with higher margins, so you saw a clear margin improvement from the products from the client mix in the industrial business which I think is sustainable but of course you will hopefully also see an acceleration of the corporate accounts into the future. When you look at Gourmet, we have the decision of the global brands which carry an extremely high margin and there it’s less about increasing that margin but keeping the margin and pushing these brands so that their share in the overall portfolio is gaining and that’s what happened over the past years and its continued to [have invested] the growth we've seen in Gourmet more coming from a high value brand especially internationally and also but to a less extent from the local brands which carry a much lower profitability.

So that is what's broad based we can say that.

Second half year outsourcing like I said we have quite a nice pipeline which we are implementing in the second half I mentioned different customers, those are not mainly the big global guys but more the regional champions. So the volumes of each single outsourcing deal that we are implementing is smaller, therefore you could calculate not with reduced margins I would say, Victor is that fair?

So I was careful that was your -- yes, okay. If you talk about the volumes I think I wouldn’t -- I don’t know do we get guidance on the volumes on outsourcing?

No. Okay, we don’t give guidance on the outsourcing volumes in the second half but you see me smiling so there we contribute.

I told him to be cautious. Sorry I am not going to do your homework Juergen, I’ll make him to calculate, I know he will try very hard, and you're an intelligent guy, so it’s not wrong what you're saying just one point and didn’t listen carefully.

We had in the cocoa side a 15 million negative impact of first half for the second half and [indiscernible] we have a 25 so with my math total impact this year from cocoa is minus 40, that’s pretty significant. Not in line with what I said six months ago but you’ve seen the curve.

I never expected the cost to go at where it’s went.

You mean like minus 40% for the full year [combined] ratio so 15 in H1 and 35 in H2, then with regard to the net working capital I think you gave us a rule of thumb that’s a change of the cocoa price of 100 pounds like an outflow in the working capital. Based on the current cocoa price that had an impact in the current year of 125 pounds, is that correct that you expect [indiscernible] working capital of 100 million to 230 million for the full year so therefore positive inflow in the second half is…

Yes, I think again in principal you’re right, so I fully support what you’re trying to saying. There are always two [inference] in fact, first of all when I look at the average underlying price in our portfolio there are a size of the spot market price, there are lots of other impacts, what were the beans from, what are the differentials to it.

So it’s not totally that easy but indicative wise it’s totally correct. The second priority is that generally the shift through the balance sheet goes over months, so you always have the [fixed to] even more months delaying effect but yes I agreed trend is clearly -- now the bean price you know until two weeks were still almost 1950 not really much low, but now today they were below 1900s, so we’re seeing the impact.

But that little [indiscernible] goes to our balance sheet but yes that’s why I feel comfortable that working capital will be reduced in a like-for-like basis releasing actually the cash flow.

And for the follow up on the EBIT per tonne because if I exclude the currency impact and the combined cocoa ratio, it’s probably up 20% it’s showed the improvements year-on-year, can you put some color on where we had some massive improvements because it’s really impressive the improvement in the EBIT per ton on maybe some quarter in Europe and I guess if we assume flat Gourmet & Specialties EBIT per tonne year-on-year, so I guess in local currency the food and manufacturing EBIT per ton was up 20%, so it’s 2% volume growth it’s an massive improvement that we have seen?

Yes, I haven’t made [indiscernible] I assume that it is right, yes it’s what we all said, we see a margin improvement in chocolate, I'm talking chocolate across the whole board it’s in every region. We get out of some chart of regions with losses now also getting into profit that's just economy of scale effecting on, but there is a country like that.

Then we see margin improvement across the product with the customer mix I explained that already. We see Gourmet driving strongly with the volume across with high margin but that’s healthy and what we certainly did started to do well this year is to really freeze the cost in markets where we don’t grow too much.

We have allowed and that was okay for cost increase because we grew so much in the past and we haven’t added structure, so we needed the last two years to add structures to cope with the growth. Now [indiscernible] so we freeze the cost but as I mentioned or we mentioned, we invested into Gourmet, we invested into innovations, we continue to invest into emerging markets.

So we didn’t say that above the cost increases, that would be wrong with such [a gimmick] so this came all together, I say all the worse things come together in cocoa and probably all the best things come together in chocolate.

Luckily the chocolate is the pig and cocoa is the piglet, we are a chocolate and cocoa company.

Coming back to the same topic I mean can you give any rough indication of the EBIT improvement, how much came from these cost saving activities and how much came basically on the underlying volume growth and I am thinking about projects payments alone and has there been any let’s say impact that you basically you book certain profits let’s say more into food manufacturing and less in to cocoa products now with the integration of [indiscernible] that is going to be also impact and then a question for me to Steinemann since I get it, if you lost half year results…

Did you read the last press release? I decided to stay.

I mean looking at cocoa product EBIT per tonne which at the half year is below CHF83, even if I adjust for the cocoa combined ratio I think it’s around CHF150 if I am not mistaken. I mean this is I think really weak and also looking in general at how your business is developing in Asia Pacific, I mean would you still see that Petra Foods acquisition delivering the financial targets you’ve then have set out especially given the time of the deal, I mean some people have criticized already back then a relatively high price point at low return on invested capital and the economics have not improved since.

Many questions.

Shall I start with the second question?

Yes, you start maybe with the Petro one.

So, I like the question, the strategic rationale is undoubted. We’ve mentioned some reasons, one was we wanted to make sure that we have enough cocoa in house integrated to support our further chocolate growth.

Second is we wanted by that also to get more cocoa powder to support our global partnerships where the customers do not only want to buy chocolate but also cocoa ingredients. Third thing is we said we want to be more in emerging markets.

Fourth thing is we want to have a better source in Asia where we weren't represented with sourcing cocoa. And the fifth thing is more cocoa powder centric activities, so to merge with somebody or to buy somebody who knows how to better make added value from cocoa powder, because we were in the past always cocoa butter centric because that's what we want for our chocolate.

I think all of the five reasons hold, there is no doubt about it. Now Victor and I were in Singapore last week, we had two days session also on that subject.

The underlying structure -- what is the underlying issue, the underlying issue is twofold, A, Indonesia has four years ago decided to go for an export tax in order to attract more processing within the country. So, there came basically all the international ones like Cargill and us or we didn't do a big thing, we did a small thing but we went there through the acquisition of Petra and then there are three Asian guys, who are purely Asian, Indonesian, Malaysians who invested in cocoa processing.

So basically you see an overinvestment in capacity drilled by the export tax dimension. Second is the cocoa product or the cocoa growing in Indonesia in the last three years went down, thereby not enough cocoa to process from Indonesian cocoa beans.

You can also contribute a certain part to a cocoa product market or cocoa powder market that didn't grow that strong, that was anticipated, I have no doubt to believe that this will come back but the market is still growing and then clearly sluggish cocoa butter/chocolate confectionary market with minus 5% which is also very unusual, normally the market grows over the years, they also follow us for long time, the chocolate market grows always between 1% to 2.5%. So all these things together is if you want to see which go towards the wrong direction, now if this structure we don't see it, will grow out one over with the additional demand which we will come, which we will see demand will pick up in emerging markets, demand will pick further up in chocolate confectionary.

We believe the second half of this year you should increase in numbers from [New Zealand], that's what the Hershey's, that's what the Mondeleze, that would all decide to explain us because one of the reasons why the chocolate market went down was that last year the chocolate confectionary industry increased double digit the prices in order to cope with the increased raw material prices. On their experience of the past it takes nine months for the retail and for the consumer to adapt so this is the whole scenario we're in.

Victor mentioned also one way out of this dilemma will be in accelerated growth, the other part out of dilemma is and what Victor said already, a lot of especially the Indonesian and Malaysian three competitors, who are only in cocoa products, no chocolate, nothing else, are really in troubled some situation and all over the industry has reduced capacity, I think Victor you said the numbers, right, 17% in Asia, I think 7% in Europe, 2% in North America. So I would say that these negative scissors will be opened up again and then you can speculate about the time and the effort which has taken place there.

So I think this will correct itself, it went deeper than foreseen. I think, we all need to consider that.

But I see this solving itself, in that sense I'm nervous about to say the short term dimension of it, I'm not nervous about the structured in the future.

More comments. One following both Asian cocoa exactly at the same valuation in the mix of the prices.

So, doesn’t mean that cocoa business market is difficult that the prices for companies come down. Just imagine we wouldn't have done the deal with our growth in chocolate we would have either to buy from competitors, from direct competitors like Cargill or Olam or we would have to put up our own capacity even adding to the problem that already exists.

So also from that end I absolutely don't see any reason not to do the deal. But of course we did it so we defend it.

I still believe, perhaps to add on the price, I think it's a fair point you make. I think the price was okay, we said it was a full-fledged price but it was not over paid, I'll give you another example.

I think we are a disciplined company in that sense. You might have read that last month there was a sale of Harald, the biggest chocolate producer in Brazil.

Now I can tell you here that we have participated full-fledged in the whole process, we have done full due diligence everything. But we took our hands off when the price came to 21 times EBITDA, we just think I mean, we are not angry to pay up mark for strategic acquisition in a fast growing market.

But we think, no we didn't go over that one because we thought we could have had it for the same price by the way, but we decided not to have it. So I'm mentioning that as an example because I still believe that we are disciplined.

Maybe to your first question, not entirely an easy one, first of all you talked about cost savings, we are not saving cost, we are freezing cost so we're keeping them stable. Overall actually the fixed cost still grew faster than the volume which is actually not what you want in the first half, but that's partly and quite significantly driven by additional depreciation and amortization.

Now that decision was a year ago when we invested CapEx of 260 million, so you now see the depreciation coming through. This year, we are much more disciplined, we told you, we're going to investment maximum 200 million and looking at where we stand we’re not going to reach that number so we also there, we start to show discipline, but we don’t believe it's so much on cost savings a lot.

You’ve mentioned spring is a very good example. When you look at spring which among other things also meant we go more decentralized in our commercial decisions and pricing activities which meant actually that we put additional people into the European markets so we added cost, so if you look purely at cost [indiscernible] the cost go up, but it’s one of the reasons why the margin so much improved because we are much more astute how are the various customers performing and we guide our salesforce much better with these more people.

So you have a tradeoff between additional cost and better margins, which if you put together the margins way out weighs what the additional cost we have, so we have to be careful sometimes in this comparison.

Just maybe an add-on on the cocoa product, I mean the profitability has been weak for the top plan, the volume growth has accelerated in the second quarter. Can you give maybe a better outlook of where we should see the growth level in the second half?

Again what we report to you is the sales of cocoa to the outside world, a significant part of our cocoa products we produced we use internally and you don’t see that. Now when you see volume growth for third parties, this has various elements either we want to grow market share, we push which countries [indiscernible] but it also has a function of how much internally absorb, so sometimes because our chocolate business grows quite less we do need more and more internal cocoa products which means that we may have less available to sell to third parties; however, sometimes we say let’s sell the [butter] to third parties, generate [indiscernible] because we can buy cheaper [butter] from third parties [indiscernible] chocolate on that place.

So it’s not that easy as it sometimes may have been.

One question relating to maybe sales volume versus margins, significantly going into your cost plus model, it seems to me that your cost plus model has reduced from around 80% to around 70% and is that what’s the underlying reason for that and is that like maybe a strategic shift and if that's so should we maybe become accustomed to see your margins more elastic and related to that what’s the impact of this lower use of your cost model maybe in the way that you’re manage your working capital?

I don’t know where you have your numbers from but there is no structural change in our business model. When I look at the industrial chocolate business, this is pure and pure a cost plus model.

This is not changing and we have changed. Then we look at the gourmet business, the gourmet business is a priced list model.

That doesn’t mean we are not in the pricelist try to reflect the movement of underlying raw material so the next pricelist may come out for July will reflect the changing of the raw material and we will hedge accordingly. So yes we don’t call it cost plus model but for me it’s to a large extent still a cost plus model, but that’s one of these in your 20% or 30% and the third element is a cocoa.

The cocoa business is in principal to a large extent not a cost plus model, but it’s still somehow related of course to the bean prices, so that’s I can only answer it like that it’s not that we shift any business model or we are changing our approach, it’s just coming from the change of our various businesses. And this doesn’t have any impact in that sense from the working capital at all that’s a different story.

Thanks and just a very basic but important follow-up, can you give us an update where you stand in terms of the search for a new CEO and what is the potential timeline? Thanks very much.

Our communication goes such and it’s the same what I would tell you now is that I am available until the 31st of August midnight. There is no change in intensity until then.

We just came out of a board meeting last Monday Tuesday. The process is very well on speed, so we will -- I think I should only say one thing as this company will not without captain for more than one second.

And is it still the case that both [estimated] external resolutions and internal resolutions?

Yes, we come from a -- if you want we come from a broad selection on a global base, we have now turned into let’s say if you went into the final phase of the external evaluation and that evaluation will then be merit against the internal evaluation. We’re looking for a lady below 45, lived in five continents, having a super track record.

Might be an internal candidate. No, it's running well, so I feel completely comfortable about it.

And I'm participating as a member of the supervisory board.

I'm trying again with your good profitability and I'm looking at it as long term, which was slightly above 256 EBIT and I think we're guiding from an EBIT of between 60 and 70 million for Petra, let`s say for the cocoa division an EBIT 120 million for '16 or '17 but that is an assumption is the case and it would be well above 256 in spite of headwinds of 30 million this year and 40 million for combined cocoa ratio. What were you underestimating back then?

Because I'm still struggling to understand this fantastic EBITDA improvement and I think you're like well below those targets in fact, when you're guiding the market.

Again first of all, currency briefly, which of course we need to somehow take, I haven't even made my own calculation what it means. And by the way when I see this 30 million for the full year, this is not the end, we will see some impact next year as well because from September to Jan you still have another impact.

So, I haven’t made that map, it doesn't stop. Secondly, yes we are very confident with Petra to achieve this synergy, we know we will get there and this integration really went well, you can elaborate it but we did not foresee this significant negative impact from the combined ratio which is putting that expected result at the moment in jeopardy.

Now I see what, because I always persist when we said we want to achieve 70 - 80 million for Petra, assuming a normalized migration which we are far away from with this metric. And on the chocolate business, yes we have a very strong performance and I don’t want to sell now, don't calculate with setting to the future but I told you also that the big deals would be like accelerate again, which will be EBIT at lower mark.

So I don't wanted to be negative, we certainly performed extremely well and I also there will be years when not everything goes perfect like it did this year.

I mean, we have decided internally to stop with the work integration, I think that's done. Again Victor and I were in Singapore last week, we had seen -- and when I'm talking about the Petra acquisition I'm mainly thinking about Asia because Brazil, Mexico, Germany, France, all these are very much integrated into the culture so that is really done, there is nothing left.

Our eye and sensitivity still goes to Asia with the different culture but the leadership team is very strong, it's still there, it’s the combination of let's say 30 years' experience in Petra with one of our best CFOs we have in the group coming from outside with a very experienced American commercial guy, we put there. Customers still all in place, our people in place we specifically, I had a lot of pleasure seeing in the extended [indiscernible] ladies all from Petra 35 to 40 years old extremely strong so I really feel very strong about that acquisition and the additional Asian knowledge we gathered there so that makes me very comfortable.

But still I tend to overdo with my carefulness in order not to be caught negatively, that's not the issue. The issue is the migration with this specifically hits us in Asia because this I think there was 90% more capacity built in the last three years and mainly in Asia, one competitor added something and I recourse but that's in Asia so that's the epicenter where we need to correct it.

Like I said, partly will be corrected by the growth in the market and Asia is mainly powder market and the butter from Asia will flow into the world like always. So as soon as chocolate picks up and as said second half year we expect what our customers tell us that the chocolate confectionary markets will pick up.

I'm also very hopeful that powder consuming Asian markets are picking up so that will solve part of the issue, the other part will be sourced by lesser grinding rates. And again, Victor stopped me -- I can't stop to say, when we start thinking about this company we should think about the chocolate business, the cocoa business is an add-on to the chocolate business.

So the EBITDA generation, a potential of our chocolate business is key and then on Friday afternoon I think about the combined ratio. I don't think about combined ratio Monday morning.

But this combined ratio at this stage is -- our Asian colleagues will be hired in, who came with Petra to us who are 30 years in the industry, they said we have never had that. But it will end itself because, and I said before those who are only in cocoa, it just takes a little longer, will fade out.

So it will clear itself. Other questions?

Questions on the phone? No question on the phone then I would like to finish with the sort of summary, like we always do.

Last six months, we were significantly outperforming global chocolate confectionery markets, our volume growth accelerated in second quarter and let me add we foresee for the second half to have a bigger growth then in the second quarter. I think that’s the guidance I will like to give.

All growth drivers contributed to the growth specially outsourcing and gourmet. I also see that going forward and from a regional perspective growth and our main regions Western Europe and the America was particularly good.

I like that Europe is back on track because in the last 12 months we had to talk about non-availability of capacity and internal planning mistake that is corrected, so having a 50% market share in Western Europe doesn’t mean we cannot grow, we always grew and we will continue to grow I am extremely positive about that. And also our machine our big chocolate machine in the America we go on.

On top of this we achieved the significant profit increase benefiting from a several product mix and thanks to tight cost control, we will keep our hands on that as well. We reached it despite the challenging and we’ve talked about at cocoa products market and negative currency translation effect.

So in that sense, I like you all being astonished and I see that a complement. This is also why we confirmed our midterm guidance.

And with that I would like to thank you for the applause. I think it fits perfectly.

With that, I would like to invite you for coffee and the snack. Thank you very much.