Lotus Bakeries: announces annual results 2015

Lembeke / BE. (lbbv) Lotus Bakeries Group announced its financial results for the full year 2015. The company reported a turnover growth of 18.3 percent, mainly due to very strong organic growth of over 13 percent. Recurrent operating cash flow increases very strongly by 15.6 million EUR to 82.6 million EUR. Net result up 8.8 million EUR to 45.6 million EUR. Proposed gross dividend of 14.2 EUR per share in 2015. Strategic move into the healthy snacking category, through the acquisition of Natural Balance Foods and Urban Fresh Foods.

1. Full Year 2015 Results

2. Management explanation

2.1 Turnover

In 2015 the consolidated turnover of the Lotus Bakeries Group grew by 18.3 percent to 411.6 million EUR. Internal growth, amounting to 46.4 million EUR or 13.3 percent, comes almost entirely from branded products. Most of this relates to the international growth of Lotus original caramelized biscuits («Lotus Biscoff») and Lotus Biscoff spread, with Lotus Dinosaurus and Lotus waffles also experiencing significant growth. The impact of the acquisitions on turnover amounts to 17.3 million EUR.

The continuing internationalization of Lotus Biscoff made a significant contribution to growth in 2015. Further expansion of distribution was achieved in both the US and the UK, resulting in Lotus Biscoff becoming available and familiar to more and more people. By combining this with appropriate support at points of sale and targeted promotional campaigns, we managed to achieve sustainable, very strong growth. Other countries such as China, France, Germany, Switzerland and our network of international commercial partners also presented good growth in Lotus Biscoff.

In line with the growth of Lotus Biscoff, we are also seeing very strong growth of Lotus Biscoff spread. This success is due to a variety of factors including the new packaging, which makes the link with the biscuit stronger, support from TV campaigns in various countries and the continuing success of Lotus Biscoff spread as an ingredient in a variety of desserts including ice cream, yoghurt and cakes. Growth is not confined to a small number of countries, but is generalised; within Europe and beyond, appreciation of Lotus Biscoff spread is growing.

Lotus Dinosaurus remains another major growth driver. In our home markets of France and Belgium, growth mainly comes from the successful launch of «Dinosaurus filled», the typical Dinosaurus biscuits filled with a layer of real Belgian chocolate or vanilla. Thanks to further distribution gains, improved shelf impact and strong in-store activation, the basic range also experienced strong growth. Good progress was also made in internationalizing Lotus Dinosaurus, both in the Netherlands, where the launch was strongly supported both at the point of sale and on television, and in other new markets such as the Czech Republic, Sweden and Israel. Since launching Dinosaurus in totally new markets requires considerable investment in sales and marketing, the initial contribution to profit is low.

Last year’s relaunch of Liège waffles in France, with new packaging formats, point-of-sale promotions and the support of a national TV campaign, continues to generate strong growth in turnover. The rebranding to «Lotus Suzy» in the Belgian market was also a success, supported by a new commercial, presence at events and support at points of sale.

In August 2015, «Peijnenburg Zero», a new variety gingerbread with no added sugar was launched. This innovation met with an enthusiastic reception from retailers and consumers alike and generated further growth in sliced gingerbread. Lotus Bakeries continues to invest in gingerbread, with the introduction of new stay fresh packaging and a new TV campaign «Lekker thuis met Peijnenburg» («Home’s best with Peijnenburg»), although the category as a whole remains under pressure.

2.2 Operating result

The recurrent operating result (EUR 64.8 million) and recurrent operating cash flow (EUR 82.6 million) increased by 15.3 million EUR (31.0 percent) and 15.6 million EUR (23.2 percent) respectively compared to last year.

The increase in the operating result is due to strong growth in turnover. It also allows us to invest more in our brands in the various countries, in terms of marketing, our sales organizations and promotion at the point of sale. As far as marketing is concerned, Lotus was omnipresent on television in 2015, in Belgium, France and the Netherlands. We invested in a new commercial for Lotus Biscoff and spread. In Belgium, Lotus Frangipane, Lotus Madeleine, and Lotus Dinosaurus were constantly supported through TV campaigns and, for the first time, we invested in a pre-Christmas commercial for Sinterklaas (St Nicholas’ Day). In France, we advertised Lotus Biscoff and Lotus Biscoff spread and Lotus waffles on TV. Meanwhile in the Netherlands, there were TV commercials for gingerbread, Lotus Biscoff and Lotus Dinosaurus. We also recruited several new colleagues to join the sales and marketing departments at our sales offices in amongst others France, the UK, Central Europe, the US and China.

The very strong growth for both Lotus Biscoff and Lotus Biscoff spread, as well as Lotus Dinosaurus, meant that the Lembeke factory worked at maximum capacity. Investments in past years have created increased operational efficiency and flexibility and the guarantee of superior product quality. These investments also continue to make a significant positive contribution to profitability.

The non-recurrent operating loss as at the end of 2015 amounts to 1.7 million EUR and is mainly due to acquisition costs and the amortization of the Wieger Ketellapper brand.

Financial charges in 2015 consisted almost entirely of interest charges and amounted to 0.8 million EUR.

The tax expense is 16.6 million EUR or 26.7 percent of the result before taxes.

The net result increases by 24 percent compared with 2014 to stand at 45.6 million EUR.

2.3 Investments

In 2015 we invested a total of 16.1 million EUR, mainly to expand capacity. The waffle factory in Courcelles and the Lotus Biscoff factory in Lembeke will each be expanded with two new production lines, to become operational in 2016/2017. We made further investments in increasing efficiency in 2015, including the installation of a new packaging robot for Lotus Madeleine, and a new oven and improved cutting process for the gingerbread facility in Sintjohannesga (the Netherlands).

2.4 Net financial debt

The net financial debt amounts to 163.9 million EUR as at 31 December 2015, representing an increase of 143.7 million EUR compared with end 2014. This increase is mainly due to the acquisition of the two pioneers of healthy snacks in the UK, Natural Balance Foods and Urban Fresh Foods and the South Korean distributor at the beginning of the year. In addition, 16.1 million EUR were invested in the factories and these investments were offset by a very strong operating cash flow.

3. Strategic step in the healthy snacking category: Natural Foods

In the past, Lotus Bakeries’ main focus was on the traditional biscuits segment, in which we continue to grow strongly and where there remains a great deal of potential for our products and brands internationally. However, there is growing global demand for healthy and tasty alternatives. As a Group, Lotus Bakeries wants to be able to offer high-quality, tasty products to all consumers, in the form of more traditional biscuits and bakery products as well as healthy snacks.

Since we believe in strong brands and want to respond to growing demand for healthy snacks, we have invested strongly in the Natural Foods category in the past year.

First of all, this summer, a strategic partnership was announced with Natural Balance Foods, famous for the Nakd and Trek brands, who offer bars and snacks made of cashew nuts and dates, unprocessed and with 100 percent natural ingredients. The Nakd brand continues to experience strong growth in the UK, where it currently stands at number 5 in the healthy snacking category.

At the end of the year, our offering in this category was strengthened by the acquisition of 100 percent of the shares in Urban Fresh Foods, adding the BEAR and Urban Fruit brands to the natural range. The BEAR brand is the market leader in the UK for fun and healthy pure fruit snacks for children. Under the Urban Fruit brand, the company offers a range of 100 percent fruit snacks aimed at young adults.

Following these acquisitions, Lotus is now «Category Captain» in the healthy snacking category in the UK and we are able to offer healthy and tasty alternatives to all consumers, with the right product for each age group.

The results of Natural Balance Foods are included in the consolidation as from 1 September 2015. Urban Fresh Foods will be consolidated as of 1 January 2016.

4. Fire at waffle factory in Meise

On 3 June 2015, the waffle factory at Meise was totally destroyed by a major fire. The factory in Meise mainly produced waffles for the French market. The waffles for the Belgian market are mainly produced in the Courcelles factory.

Following a thorough evaluation of the various options, it was announced in September that the factory in Meise would not be rebuilt. The production volumes involved will be fully integrated into the waffle factory at Courcelles in the course of 2016. For this purpose, two new production lines will be installed, to allow the production of all waffles and galettes to be housed in a single large and efficient facility.

Following very constructive discussions with the social partners, by the end of October 2015, a social plan was agreed with the former employees of the factory in Meise.

5. Conclusion and prospects

In 2015, Lotus Bakeries was able to produce an attractive turnover growth of over 18 percent, more than 13 percent of this being internal growth. Profitability grew even stronger, with recurrent operating cash flow up 23.2 percent to 82.6 million EUR and a net result of 45.6 million EUR.

The internal turnover growth, linked to the consistent application of the Lotus Bakeries commercial and marketing strategy, also contributes significantly to profitability. Furthermore, in 2015, Lotus Bakeries invested significantly more in marketing and sales than in previous years because we strongly believe that this is a «must have» for future growth.

2015 was not only a record year for internal growth, but also in terms of production volumes of Lotus Biscoff, Lotus Biscoff spread and Lotus Dinosaurus. Lotus Bakeries is convinced of the growth potential for our iconic Lotus Biscoff biscuits and has decided to invest in a third production hall in Lembeke to support future growth. The new production hall will have sufficient capacity for a maximum of four production lines. The first Lotus Biscoff line in this facility will go into operation in the first half of 2017.

Volumes are also growing strongly in the US, where there is huge potential for Lotus Biscoff. We have therefore decided, in addition to investing in additional capacity in Belgium, to invest in a totally new Lotus Biscoff factory in the USA. The first step will be to decide the precise location. The factory is currently scheduled to go into operation in 2019.

2015 was also the year in which the strategically important decision was made to invest in the natural and healthy snacking segment. The new Nakd & Trek and BEAR & Urban Fruit brands complement our current product and brand portfolio and ensure that Lotus has something to offer to everyone. Lotus aims to grow these brands further in the UK and also put them on the map internationally. Lotus Bakeries’ experience in the internationalization of consumer products, combined with our international network of sales offices and commercial partners will act as a powerful lever for launching these products in new markets and among new consumers.

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: «2015 was a really special year for Lotus Bakeries. With many highlights such as the very strong international growth of Lotus Biscoff and spread as well as moving into new markets, both geographically with our new offices in South Korea and China, and in terms of our product range with the strategic investment in Natural Foods. Naturally, I am proud of all staff of Lotus Bakeries, who have managed to achieve this growth as a team and are passionate about supporting Lotus as a brand and as a company».