15 Dec Petra selling cocoa division for US$950m

PHOTO: 15 Dec Petra selling cocoa division for US$950m
Above photo is Mr John Chuang.

SINGAPORE - Singapore Exchange-listed Petra Foods is selling its cocoa ingredients division to Zurich-based Barry Callebaut for US$950 million to focus on growing its branded consumer division.

Petra shares, in which trading was halted for part of the day yesterday pending the announcement, shot up to a high of $3.40 before closing the day at $3.31, up 56 cents or 20.4 per cent.

Petra's cocoa ingredients division manufactures and sells cocoa ingredients such as cocoa powder, cocoa butter and cocoa liquor under its "Delfi" brand to more than 30 countries, making it Asia's biggest supplier of cocoa products.

The divestment will include its seven factories in Asia, Europe and Latin America as well as sales offices in Singapore, the Netherlands and the US.

Petra chief executive officer John Chuang, who was named Businessman of the Year at the 2012 Singapore Business Awards, said at a press conference yesterday that while informal talks had been ongoing, things started "getting serious" over the last year or so.

Industrial supplier Barry Callebaut sells to businesses across the food industry, from consumer goods manufacturers such as Cadbury and Hershey's to chocolatiers, pastry chefs and bakers.

Aside from becoming the largest cocoa processor in the world, Barry Callebaut will be able to count Asia as a strong cocoa sourcing base in addition to existing operations in West Africa, amid industry-wide concerns of scarcity.

It expects its sales volume in emerging markets such as Asia and Latin America - where demand for chocolate is on the rise - to jump 65 per cent to account for nearly one third of the group's total sales volume.

"At the same time, it allows us to become a leader in cocoa powder," said Juergen Steinemann, CEO of Barry Callebaut, adding that the market for cocoa powder will grow 2-5 per cent on a global basis.

Under a long-term agreement, Barry Callebaut will supply Petra with cocoa products for its branded consumer business, covering 75 per cent of its total needs.

Petra said the net sales proceeds will be used substantially to reduce the company's debt facilities, while the balance US$300 million will go towards building its consumer business, which manufactures and distributes chocolate confectionery brands.

The company is also looking at possibly distributing part of the proceeds back to shareholders.

Petra is expected to realise a gain on disposal of about US$106 million.

One analyst, who declined to be named, said that the move took him by surprise, given that Petra is one of the dominant cocoa players in Asia.

"Looking closely at it, it's a gamble," he said, though he reckons the gamble will pay off."

Petra is essentially betting on its consumer business, where margins are higher and growth prospects appear bright in the long term.

In its results for third quarter ended Sept 30, 2012, Petra noted that the global cocoa ingredients industry is facing significant headwinds which is expected to eat into profit margins for the division this year and next.

While it is expected to bounce back by 2014, the business is capital-intensive, with low margins.

"They had to make a decision which segment deserved more resources and time," the analyst added.

For the full year ended Dec 30, 2011, revenue contribution from the ingredients division outpaced the consumer business, though the two divisions were nearly evenly matched in terms of ebitda contribution. 

Petra's ingredients business and consumer business contributed US$66.3 million and US$63.3 million in Ebitda (earnings before interest, tax, depreciation and amortisation) respectively in FY11, while the ingredients business contributed US$1.27 billion to topline and the consumer business, US$425.8 million.

Petra is looking to grow its branded consumer business in other markets as well.

"The big markets for chocolates, confectionary and so forth (are) China and India. We need partners to work on this," Mr Chuang said. Its major markets currently include Indonesia and the Philippines."

The sale is subject to the approval of Petra shareholders at an extraordinary general meeting to be convened.

Mr Chuang and his wife Lim Mee Len have a combined controlling stake of about 51 per cent stake in the company.

The purchase is expected to be completed by mid next year.