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Lotus Bakeries: Announces Half-Year Report 2017

Lembeke / BE. (lbbv) Lotus Bakeries Group announced its financial results for the first half 2016. The greatest growth in the first half of the year was seen in the natural snacking category, the company said.

1.1 Turnover

In the first half of 2017, the consolidated turnover of Lotus Bakeries Group grew by EUR 2.5 million to EUR 259 million. Like for like, ignoring exchange rate effects, turnover grew by almost 3 percent.

The greatest growth in the first half of the year was seen in the natural snacking category with the brands Näkd, Trek, BEAR and Urban Fruit. The Lotus waffles category also continues to grow strongly and the internationalization of Lotus Biscoff and Lotus Biscoff spread is progressing (the word Biscoff is a contraction of «Biscuit with Coffee»).

Last year, Lotus Biscoff achieved historic growth in the United States. Lotus Biscoff spread has also grown very strongly and experienced clear exponential growth in the Middle East. Turnover in these regions was sustained in absolute terms in the first half of 2017. Lotus Biscoff continues to experience gLobal growth. In the first half of this year, this was primarily in the UK, South Korea, Switzerland and the Netherlands.

The turnover for Lotus waffles (LiCge, vanilla and filled) keeps growing in France and Belgium. In both countries, the category was supported by national TV campaigns, combined with point-of-sale promotions.

Since the end of 2015, Lotus Bakeries has also been active in the natural snacking market. In 2017, this category has again grown strongly in the UK. The distribution of the Näkd, Trek and BEAR brands was successfully expanded in the Netherlands and initial launches of the brands have taken pLace in Belgium.

The Näkd brand, under which natural bars made of cashew nuts and dates are offered, has become the number three brand for natural snacking in the UK in the last twelve months. Along with Näkd, the Trek brand has also continued on its growth path and become a Top15 brand in the UK in the same category. Both brands continue to perform well in the Netherlands, where they were launched during 2016.

BEAR’s healthy fruitsnacks, especially BEAR Yoyos, grew significantly in the first half of the year. This growth is mainly attributable to increased visibility at the point of sale. The new range of flavours for BEAR Yoyos, «BEAR Yoyos Sour», was received very positively by retailers and consumers in the UKwith excellent distribution established from the start. This further improved the shelf impact of BEAR Yoyos in general.

1.2 Operating result

The recurrent operating result (EUR 46. 7 million) and recurrent operating cash flow (EUR 53.7 million) increased by EUR 2.8 million and EUR 1.1 million respectively compared to last year.

Growth in turnover and more efficient use of the available production capacity form the basis of the improved operating result.

Additional investments have also been made in international growth for Lotus Biscoff by adding to the sales teams in Europe and Asia and substantial investments have also been made in the new natural snacking category, both in the UK, where the marketing teams and field sales teams have been increased and in the new sales teams in Europe and America.

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 has had a TV presence for the first time – in regions with a high brand penetration. The initial results of these targeted Lotus Biscoff media campaigns, combined with a strong presence at points of sale, were highly positive.

The non-recurrent operating result amounts to EUR -1. 1 million and mainly consists of reorganization costs at the gingerbread factory in Sintjohannesga (Netherlands). Further automation and process improvements will enable gingerbread production to be organized even more efficiently. As a result of this automation, thirty-five employees will be let go during the second half of 2017. The social plan for this is complete.

The financial result of EUR -1.6 million is mainly made up of interest expenses amounting to EUR 1 million and negative exchange rates results.

The tax expense is EUR 12.1 million or 27.5 percent of the profit before tax. This is in line with the tax burden at the end of 2016.

The net profit for the first half of the year increases by 3.3 percent compared with 2016 and stands at EUR 31.9 million.

1.3 Net financial debt

Net financial debt decreased by EUR 10.1 million to EUR 84 million over the last six months, despite cash outflow for investments totalling EUR 12.1 million and the payment of the dividend for the 2016 financial year.

1.4 Main projects and investments

Further investments were made in the first half of 2017, primarily in the expansion of the capacity of the Lotus Biscoff factory in Lembeke and the construction of a new Lotus Biscoff factory in the United States. Hereis an overview of the main projects:

1.4.1 Expansion of Lotus Biscoff factory in Lembeke

In the second half of 2016, construction started on a third production hall in Lembeke, in which an additional production line has been installed. This line has been fully operational since March this year. An extra warehouse for storing packaging and equipment has also been completed. Finally, the new staff facilities have also come into service very recently.

1.4.2 New Lotus Biscoff factory in the United States

Last year, it was decided to build a Lotus Biscoff factory in North Carolina, USA. The United States is now Lotus Bakeries’ biggest market for Lotus Biscoff. In view of the current volume and potential, it is the right decision ecologically, economically and strategically to build a Lotus Biscoff factory specifically for this important market.

Lotus Bakeries has now acquired a piece of land in Mebane, North Carolina, and is busy finalizing the design of the factory and production Lines. The first steps have been taken towards sourcing ingredients and packaging. Recruitment of the firstAmerican staff for this new Lotus Biscoff factory will also begin shortly.

Building a factory on a new continent is a challenging project involving many aspects and specialisms. The existing internal expertise of Lotus Bakeries’ management in Belgium, combined with local know-how, are crucial to the success of the project. A project team has been set up comprising various disciplines including Plant Design, Procurement, R+D and Human Resources. This team is overseen by a project Management team, which reports to the members of Lotus Bakeries’ Executive Committee every two weeks. Construction will begin shortly and will last for two years.

1.4.3 Upgrade of cake factory in Enkhuizen (Netherlands)

The cake factory in Enkhuizen will be fully upgraded. The first phase, in which two new warehouses are being erected, has begun and should be completed by the end of the year. During the second phase, the offices will be refurbished.

1.4.4 Waffle factory in Courcelles

Since Last year, all waffle production has been successfully centralized at the factory in Courcelles. Because of this, output of this factory has more than doubled. In order to be able to produce these additional volumes and increase the capacity, two additional production lines were installed. The next phase will focus on further improvements in productivity of this expansion.

1.4.5 Relaunch of Zebra cake range

In 2017, Zebra, a light cake with crunchy iced topping, was relaunched on the Belgian market. As well as a new packaging design, Zebra products are now individually pre-packaged and the range has been expanded. There are now three varieties: Zebra Original, Zebra Chocolate and Zebra Double Chocolate, There launch met with a positive reception from consumers.

2. Conclusion and prospects

In the first haLf of 2017, Lotus Bakeries managed to sustain the historically high turnover of 2016, while still achieving organic growth of almost 3 percent. Profit ability remains very high and the net result stands at EUR 31.9 million, representing a 3.3 percent increase.

Following the achievement of record growth in absolute terms in 2016 – thanks to unparalleled growth in the Middle East and the United States – the Management and the Board of Directors are satisfied that both turnover and the profitability have been sustained.

The weaker Pound Sterling following last June’s Brexit result is having a significant impact on the consolidated turnover. During 2017, price increases have been initiated in the UK. The positive effect of these measures will mainly be felt in the second half of the year.

Establishing Natural Foods teams and sales offices in several countries in Europe as well as the United States has required time and effort. Launching the new Näkd, Trek, BEAR and Urban Fruit brands in these various markets involves investing in people together with sales and marketing support. The continued growth of natural snacking in the UK and the first international successes confirm Lotus Bakeries’ potential for future, sustainable growth in this area.

Lotus Bakeries continues to invest in additional production sites. The new production hall at the Lotus Biscoff factory in Lembeke became operational in 2017. The project team working on establishing the first Lotus Biscoff factory in the United States is fully mobilized. Lotus Bakeries has now acquired a site in Mebane, North Carolina, on which the first Lotus Biscoff factory outside Belgium will be built.

One of the fundamental pillars for the achievement of the strategic objectives for Lotus Biscoff is an intense focus on the continued expansion of household penetration in the various countries and markets. We want to further support these long term objectives by significant investment in sales and marketing, which will give the brand a strong foundation in the longer term. For instance, TV campaigns have been launched for Lotus Biscoff for the first time in the US (Atlanta) and the UK. These are excellent examples of countries or specific regions that – after years of successful groundwork – have reached a sufficient level in terms of distribution and household penetration to be able to move on to the next phase of marketing support, TV commercials and online advertising. At the other end of the spectrum lie many countries and markets in Africa and Asia, for example, where little or no turnover is generated for Lotus Biscoff as yet. The intention is to launch sales of Lotus Biscoff there too in the next few years. For example, a distribution agreement has been signed with a partner in India. Belief in Lotus Biscoff’s potential for further growth in a number of countries is great, but it has to happen gradually – accompanied by commercial investment appropriate for the phase reached by Lotus Biscoff.

CEO Jan Boone is pleased with the results and developments in the period under review: «2017 is a year of consolidation following record growth in 2016. We continue to build on the foundations in order to realize our Long-term international ambition – For Lotus to be present in more and more families worldwide and to gradually internationalize the Natural Foods brands. To this end, as a company, we are prepared to continue to make the necessary investments in our production sites and in sales in our various markets».