Lotus Bakeries: 2016 half-year report

Lembeke / BE. (lbbv) Lotus Bakeries Group announced its financial results for the first half 2016. The company reported a 31 percent turnover growth to EUR 256 million. Recurrent operating result grew by almost 50 percent to EUR 43.8 million. Internal growth was very strong and the contribution of Natural Foods lead to record growth in turnover and profitability.

1. Half Year 2016 Results

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2. Management explanation

2.1 Turnover

In the first half of 2016, the consolidated turnover of Lotus Bakeries Group grew by 31.1 percent, of which 14 percent internal growth, to EUR 256.4 million. This growth is almost entirely due to the continuing international growth of original caramelised biscuits («Lotus Biscoff»), Lotus Biscoff spread and the contribution of Natural Foods. Natural Foods is defined as the category of healthy snacking, in which Lotus Bakeries is active with the Nakd, Trek, BEAR and Urban Fruit brands. Compared to last year, the turnover for Natural Foods has seen further organic growth of well over 25 percent.

Internationally, Lotus original caramelised biscuits are marketed under the brand name Lotus Biscoff, an abbreviation of «Biscuit with coffee». The consistently implemented strategy to internationalise Lotus Biscoff has proved highly successful, particularly in the United States, the Middle East and Europe. The US is now Lotus Bakeries’ largest market for Lotus Biscoff, with an expected annual volume of almost one billion biscuits.

Lotus Biscoff spread has also grown very strongly in the home markets of Belgium, the Netherlands and France, and has experienced exponential growth in the Middle East, where Lotus Biscoff is a highly popular taste and where Lotus Biscoff spread is used in many ways, including: on bread, as a topping or in desserts.

As of last year, Lotus Bakeries also became an active player in natural and healthy snacking. Firstly, with the brands Nakd and Trek, offering 100 percent natural bars and snacks made from unprocessed cashew nuts and dates and secondly, with the brands BEAR and Urban Fruit. BEAR is the market leader in the UK for pure fruit snacks for children.

Nakd remains the strongest growing snack within healthy snacking in the UK and BEAR Yoyos are by far the most popular snack for children’s lunchboxes.

In May, the first steps were taken towards further internationalisation through the launch of Nakd bars in the Netherlands, which received very positive feedback from consumers and retailers. In the second half of this year, BEAR Yoyos will also be launched in the Netherlands. Preparations are well under way for launching both brands in Belgium.

2.2 Operating result

The recurrent operating result and recurrent operating cash flow increased by more than EUR 14 million compared with last year, to EUR 43.8 million (plus 49 percent) and EUR 52.6 million (plus 39 percent) respectively.

The increase in the operating result is due to strong growth in turnover for Lotus Biscoff, Lotus Biscoff spread and for Natural Foods.

The volume growth for Lotus Biscoff and Lotus Biscoff spread also means that the plant in Lembeke is operating at full capacity. In order to continue to support future growth, the construction of two new production lines and a third production hall at Lembeke was announced at the end of last year. These investments are progressing fully to plan. One production line went into service in July and the second will be operational in March 2017, together with the new production hall.

Investments in promotional activities at point of sale and marketing campaigns have been consistently pursued, along with building strong local management teams who implement Lotus Bakeries’ strategy thoroughly and consistently.

The non-recurrent operating loss amounts to EUR 0.4 million and is mainly due to the amortisation of the Wieger Ketellapper brand and restructuring costs in South Korea. The acquired distribution partner is currently being reoriented towards an efficient sales and marketing organisation focusing on the expansion of Lotus Biscoff and the commercialisation of a few other brands.

The financial result of EUR minus 1.4 million is mainly made up of interest expenses amounting to EUR 1.1 million and negative exchange rate results.

The tax expense amounts to EUR 11.1 million or 26.5 percent of the profit before tax, which is in line with the tax percentage at the end of 2015.

The net result for the first half of the year is up by EUR 9.3 million (plus 43 percent) compared with 2015 and stands at EUR 30.8 million.

2.3 Investments

In the first half of 2016, the sum of EUR 16.5 million was invested, primarily in the expansion of production capacity.

The main investments took place in the Lotus Biscoff plant in Lembeke, representing an all-out investment for the future. In May, additional production capacity was put into use for Lotus Biscoff spread and in July, a new production line became operational for Lotus Biscoff.

In addition, preparations are also well under way for the installation of two new production lines at the waffle plant in Courcelles. These will be operational from the second half of the year.

2.4 Net financial debt

Thanks to the strong operating cash flow, the net financial debt decreased by EUR 34.1 million to EUR 129.8 million over the last six months, despite cash outflow for investments totalling EUR 15.8 million and the payment of the dividend for the 2015 financial year.

3. Conclusion

In the first half of 2016, Lotus Bakeries managed to generate an impressive turnover growth of over 31 percent, more than 14 percent of this from organic growth. Profitability grew even more strongly, with recurrent operating cash flow up by 39.3 percent to EUR 52.6 million and a net profit of EUR 30.8 million.

These impressive results are mainly due to the strong performance of Lotus Biscoff and Lotus Biscoff spread. Convinced of the further growth potential for Lotus Biscoff, the company is investing in additional production capacity, along with in-house sales and marketing teams and promotional and marketing campaigns based on a well proven strategy. A global network of commercial partners, together with a reinforced internal team, aim to introduce more and more new consumers and markets to Lotus Biscoff.

In 2015, the strategically important decision was made to invest in the category of healthy snacking. The Nakd + Trek and BEAR + Urban Fruit brands continue to experience very strong growth in their home market (the United Kingdom). The first steps have also been taken towards an international roll-out. Since launching these brands in totally new markets requires considerable investments in sales and marketing, the initial contribution to profit is low.

Both the Management and the Board of Directors of Lotus Bakeries are convinced that the right strategy and a good basis are in place for continuing, profitable, long-term growth.

CEO Jan Boone is delighted with the results and developments in the period under review: «The results for the first half of the year have exceeded even my own expectations. I’m especially proud that we continue to grow so strongly with our core product, the «Lotus Biscoff biscuit», with which it all started for my grandfather over 80 years ago. We’re already present in many countries with Lotus Biscoff, but I’m convinced that we can win over many more consumers around the world with our unique taste. Growth like ours doesn’t just happen overnight. Besides outstanding products, Lotus Bakeries has a passionate team of employees who give their best every day. Together, the quality of our products and our people are the key to sustainable growth and success».