Lembeke / BE. (lbbv) Lotus Bakeries Group announced its 2017 annual financial results. The Group surpasses the record year of 2016 after a strong second half 2017, the company said in a statement as follows.
1. Management explanation
The historic year of 2016, during which Lotus Bakeries Group’s turnover passed the half-a-billion mark, was followed in 2017 by a further increase in turnover of more than 3 percent to EUR 524 million. After a slower start in the first few months of 2017, the Group saw its turnover increase month by month, culminating in growth of more than 3 percent for the year as a whole and twice as much, i.e. 6 percent, for the second half of the year
The 6 percent growth in the second half of the year is impressive given the strong Euro, which continued to affect turnover in the US (USD) and the UK (OBP), two major markets for Lotus Bakeries. When the exchange rate effects are neutralized over the whole year, turnover increased by 5 percent in 2017.
In 2017, Lotus Bakeries Group achieved its biggest growth in natural snacking Nakd, TREK and BEAR. The continued internationalization of Lotus original caramelized biscuits, under the Biscoff brand name, and sales of Lotus waffles also had a very positive impact on turnover.
Under the brand names Nakd, TREK and BEAR, the natural snacking category experienced double-digit growth. This is due to strong growth in the UK combined with the successful launch of the brands in other countries. The launch of Nakd and TREK in the Netherlands was highly successful, especially in a country where the ‘healthy snacking’ category already occupies a significant place on supermarket shelves. Further launches in Belgium and France in 2018 will intensify this trend.
BEAR’s healthy fruit snacks grew significantly in 2017. This growth can be attributed to higher visibility at the point of sale in the UK and the successful launch of the new flavour range BEAR Yoyos Sours. From the beginning of 2018, the first national BEAR TV commercial is also being shown in the UK. Excellent progress was made in the US as well. Several months ago, an agreement was signed with a major chain, so that BEAR will be available in more than 4’000 coffee shops in the US.
The internationalization of Lotus Biscoff remains another major growth driver. Since 2016, the US has been the biggest country for Lotus Bakeries’ original caramelized biscuits and in 2017 Lotus Biscoff continued to conquer the continent. Biscoff is becoming a firm favourite for more and more American families and distribution via supermarket chains is expanding accordingly. This trend confirms the decision to build a new factory in the US. Lotus Biscoff also grew very strongly in Europe, especially in the UK, the Netherlands, Scandinavia, the Czech Republic, Switzerland and Austria.
Sales of Lotus waffles continue to grow in France and Belgium. In both countries, the category was supported by national TV campaigns, combined with point-of-sale promotions.
In the gingerbread category, the success of Peijnenburg Zero, a tasty no-added-sugar version, continued. In just two years, Peijnenburg Zero gingerbread has become the trendsetting, go-to brand in this category.
It is impossible to calculate the precise impact of the Fipronil crisis on turnover. In any case, Lotus Bakeries reacted swiftly and resolutely, immediately withdrawing all affected bakery products from sale in Belgium and France.
1.2 Operating result
The recurrent operating result (EUR 89.3 million) and recurrent operating cash flow (EUR 104.3 million) increased by EUR 5.4 million and EUR 2.7 million respectively year on year.
Growth in turnover and more efficient use of the available production capacity form the basis of the improved operating result.
Additional investments were also made in international growth for Lotus Biscoff by strengthening the sales teams and substantial investments were made in the natural snacking category as well.
Lotus Bakeries has continued to invest consistently in promotional activities at the point of sale and marketing campaigns. In both the US and the UK, Lotus Biscoff had a TV presence for the first time – in regions with a high market penetration.The results of these targeted lotus Biscoff campaigns, combined with a strong presence at points of sale, were highly positive.
The non-recurrent operating result is low at EUR -0.1 million. Last year, the non-recurrent operating result was positive (EUR 4.5 million), due to the compensation received for the Meise waffle factory, which was destroyed by a fire.
The financial result of EUR -2.2 million is largely made up of interest expenses.
The tax expense is EUR 22.4 million or 25.7 percent of the result before taxes. The tax expense fell by 1.5 percent due to the positive impact on deferred taxes (non-cash) of future rate reductions in a couple of countries, in particular in Belgium and the US.
The net result increased by EUR 2.2 million (+35 percent) compared with 2016 to stand at EUR 64.6 million. The net result rose in line with turnover thanks to the disproportionate increase in the recurrent operating result.
1.3 Main projects and investments
In 2017, Lotus Bakeries once more mainly invested in the expansion of capacity. Investments totalled EUR 28.2 million. Investments in the new factory in the US have been modest so far, but will be the largest investment in 2018. Here is an overview of the main projects:
- New Lotus Biscoff manufacturing facility in the United States:The excellent growth of Lotus Biscoff in the United States in 2017 represents further confirmation that building an original caramelized biscuits factory in the US was the right decision for Lotus Bakeries – ecologically, economically and strategically. An experienced project team combining expertise from within the Group with local know-how leads this ‘milestone’ investment, which will result in Lotus Biscoff being made on a different continent for the first time.
In 2017, a piece of land was purchased in Mebane, North Carolina. The design of the factory and the production lines has been finalized. Meanwhile, the levelling of the site has already begun, to be followed by the commencement of the building works. The factory is scheduled to go into operation in 2019. Meanwhile, local procurement of ingredients and packaging is also being put in place.
- Further expansion of Lotus Biscoff manufacturing facility in Lembeke: Following the commissioning of a third production hail at the end of 2016, further Large investments were made in Lembeke in 2017. An additional production line for Lotus Biscoff has been operational since March. An extra warehouse for storing packaging and equipment has also been completed, together with new facilities for staff.
It was recently decided to invest in an extra line in the third production hall. This investment is intended to be operational by the summer of 2018 and is necessary so as to continue to be able to satisfy the rising demand for original caramelized biscuits efficiently in future.
- Waffle Production at Courcelles: Since the end of 2016, all waffle production has been centralized at the factory in Courcelles. As a result, the volume produced by this factory has more than doubled. In order to be able to produce these extra volumes and to increase capacity, two extra production lines have been added. These investments are fully completed and the focus now lies on making further improvements in productivity.
- Upgrade of cake factory in Enkhuizen (the Netherlands): The cake factory in Enkhuizen has been fully upgraded. The first phase, in which two new warehouses have been erected, is almost complete. During the second phase, the offices will be refurbished.
- Offices at Lembeke: Creating an optimal and pleasant working environment for our employees is important and, in view of this, several new offices have been opened in the last few years. It was recently decided to also upgrade the offices in Lembeke into a modern, state-of-the-art office for sales, marketing, IT, Procurement, Quality and R+D. The offices will officially come into use at the end of 2019.
1.4 Net financial debt
The net financial debt amounted to EUR 57.2 million as at 31 December 2017, representing a decrease of EUR 36.9 million compared with the end of the previous financial year. The decrease was due to a very strong operating cash flow, after investments amounting to EUR 28.2 million in 2017.
Following the acquisitions in 2015 and the investments exceeding EUR 65 million in the last two years, at the end of 2017, Lotus Bakeries Group once again had a strong balance sheet with a net financial debt over REBITDA ratio of 0.55.
2. Results for 2017 confirm that Lotus Bakeries’ strategic pillars are sound
Lotus Bakeries’ mission is to be able to offer consumers delicious, high-quality snacks for all times in the day in the category of biscuits, cakes and pastries as well as in the natural snacking category. The Group’s sound strategic pillars are based on:
- Investment in the internationalization and global growth of Biscoff, both the biscuit and the spread;
- Launch and rollout of natural snacking (Nakd, TREK and BEAR) in Europe and the US;
- Focus on hero products in the waffles, cakes and gingerbread category in home countries.
Within our basic range of biscuits and cakes, the emphasis is on enjoyment, but with a constant Focus on a healthy balance between enjoyment and health. In the natural snacking range, the primary focus is on health, but with the aim of offering healthy, natural products which are also really tasty. ‘Lotus Bakeries wants to make «tasty» as healthy as possible and «healthy» as tasty as possible’.
We aim for clear communication with the consumer, we concentrate on smaller formats and we develop new products such as Peijnenburg Zero. Within the healthy snacking category, we aim for a small number of pure, unprocessed basic products that are healthy and tasty at the same time.
Lotus Bakeries believes very strongly that the existing portfolio of brands and products, along with the associated investments in the expansion of capacity, form a sustainable basis for continued organic growth.
3. Conclusion and prospects
After the historic year of 2016, Lotus Bakeries succeeded in raising the bar once again in 2017, in terms of both turnover and profitability. The turnover of EUR 524 million in 2017 is more than 3 percent higher than in 2016, despite the strong Euro, and the recurrent operating result rose by more than 6 percent. The increase in turnover was particularly impressive in the second half of the year, due to natural snacking, the continued internationalization of Lotus Biscoff and the growth of Lotus waffles.
In 2017, natural snacking under the Nakd, TREK and BEAR brands achieved double-digit growth, driven by the UK and the Netherlands. The first successful steps were also taken for these brands in several other European countries and in the US. In the US and Europe, excellent growth was once again achieved with Lotus Biscoff.
In 2017, further investment was made in the expansion of production capacity, in both Belgium and the US.
In 2018, Lotus Bakeries plans to continue the momentum of 2017. The packaging for Lotus Biscoff will be totally redesigned and a new range of cakes will shortly be launched. Nevertheless, the evolution of the Euro will remain a key factor affecting turnover and profits, with the continued weakening of the USD having a significant impact. The level of investment will remain high this year, in terms of both investment in additional capacity and efficiency and ongoing support for brands through media campaigns.
The management and the Board of Directors of Lotus Bakeries are convinced that the current strategy is the right way to continue to grow in a sustainable and profitable manner in the long term.
CEO Jan Boone is delighted with the results and developments in the period under review: «After the record growth and achievements in 2016, I was hoping for this result For 2017. It merely strengthens our belief that our strategy is solid. Our major and other shareholders share the vision of continuing to invest in sustainable and profitable future growth. They believe very strongly in our strategic long-term objectives. We consider it crucial for a fair dividend to be linked to this long—term commitment and therefore have always intended to distribute roughly one third of net profits to shareholders. Profits have grown so rapidly in recent years that we have decided to allow the dividend to increase more gradually. For 2017, we propose to increase the gross dividend to EUR 19’5 or 25 percent of net profits, a clear signal to our shareholders and also a sign of confidence in the long-term Future of the company» (Table: Lotus Bakeries).