Lotus Bakeries NV reports internally generated turnover growth of 12 percent in 2008

The Lembeke-based baked goods company Lotus Bakeries has announced a consolidated turnover growth during the past year by 14% to EUR 256.7 m. Internally generated growth amounted to 12%, due primarily to the introduction of caramelized biscuit spread in Belgium and the Netherlands, the continuing strong international growth of caramelized biscuits, the significant growth in sales of waffles in France, and increased gingerbread sales in the Netherlands and Belgium. The results of Anna’s Pepparkakor have been consolidated since 1 December 2008. This means that just one month of Anna’s results (December) are included in the consolidated annual results for 2008. The Spanish company López Market, taken over in the beginning of 2008, has been consolidated since 1 February 2008.


Current operating result (REBIT) grew significantly in absolute terms from EUR 28.7 m to EUR 34.0 m. REBIT as a percentage of turnover was slightly higher in 2008 (13.3%) than in 2007 (12.8%). Current operating cash flow (REBITDA) for 2008 amounted to EUR 45.7 m. At 17.8%, REBITDA as a percentage of turnover was slightly higher than in 2007 (17.3%). 2008 confirmed the strong REBIT and REBITDA percentages of the previous year. The launch of caramelized biscuit spread in the Netherlands and Belgium was supported by a strong TV campaign in autumn 2008. The marketing efforts mean that the REBIT(DA) percentages of the second half are slightly lower than in the first half of 2008.


The financial result amounted in 2008 to a cost of EUR 6.9 m on an annual basis. This is EUR 3.0 million higher than in 2007. This rise is almost entirely due to the fall in the "marked to market" value of the interest rate hedges of this financing produced by the application of IFRS rules. In 2008 this cost was around EUR 2.6 m higher than in 2007, mainly a non-cash cost. Net result amounts to EUR 20.2 m compared with EUR 20.7 m in 2007. In 2008 the operating result was up strongly compared with the previous financial year. In 2007, however, the net result was flattered by EUR 2.2 m owing to the reduction in deferred tax liabilities as described above. In addition the valuation allowances on interest hedging were around EUR 2.6 m lower in 2007. Net cash flow rose by 22.9% from EUR 29.7 m in 2007 to EUR 36.5 m in 2008.


In 2008 Lotus Bakeries was able to realize two acquisitions, that of Anna’s Pepparkakor Group and that of the Spanish company López Market. During the year, major expansion investments were also undertaken, mainly at the Lembeke caramelized biscuits plant. It should also be mentioned that in the first half of the year a one-off cash-out was taken in order to re-hedge the financial hedging instruments relating to the financing structure to give a fixed interest rate (interest rate swap). Despite these expenditures, strong operating cash flow brought net financial debts down from EUR 42.3 m at the end of 2007 to EUR 40.4 m at the end of 2008. The ratio net financial debts versus the recurring EBITDA evolves positively from 1.1 at the end of 2007 to 0.88 at the end of 2008.


In 1999 Lotus Bakeries and Harry’s founded a joint venture, Harry’s Benelux NV, to sell pre-packaged bread products and morning goods in Belgium. Harry’s, which is part of Italy’s Barilla Group, produces the products which Lotus Bakeries markets through its sales organization under the Harry’s brand. Lotus Bakeries has decided to sell its 40% share in Harry’s Benelux to the Harry’s Group. The agreed takeover price, which will be paid to Lotus Bakeries at the end of May 2009, is based on a value of EUR 5.6 m for 100% of Harry’s Benelux NV. This divestment will allow Lotus Bakeries Belgium’s commercial organization to focus fully on its own Lotus brand products. Total sales in 2008 of Harry’s products amounted to EUR 6.5 m. The marketing, sales and logistics of Harry’s products in Belgium will be integrated into the Barilla Group, so this turnover will no longer be included in the Lotus Bakeries consolidated accounts from the beginning of 2009.


It has already been announced that McVities Cake Company, a part of United Biscuits, has decided to manufacture its Jaffa Cake Bars itself in future. It has now been agreed that Lotus Bakeries will produce these McVities cake bars until August 2009. The production of McVities Jaffa Cake bars represents, on an annual basis, a turnover of around EUR 6.5 m and an EBIT and fixed cost coverage of around EUR 1.8 m.


Lotus Bakeries UK was founded in 2005 as a joint venture between Lotus Bakeries and Mr. John Bowmer. Lotus Bakeries has used in the beginning of 2009 its call option to acquire John Bowmer s remaining 25% shareholding for GBP 300,000. In this way Lotus Bakeries has become the 100% owner of Lotus Bakeries UK.


2008 was an outstanding year for the Lotus Bakeries Group. First of all the Group achieved a high internal growth of 12% combined with very good profitability. The past year also featured the exceptionally successful launch of caramelized biscuit spread in Belgium and the Netherlands. The acquisition of Anna’s is of major strategic importance. As well as gaining a strong brand and product, this will provide further growth in North America and the Nordic countries. By acquiring López Market at the beginning of 2008, the Lotus Bakeries Group has gained a sales organization which can focus on the further marketing of Lotus products in Spain.


The board of directors and management are convinced that, during the present macro-economic circumstances, a clear focus on the Group’s core business and consumer communication are of vital importance. The termination of the marketing of Harry’s products by Lotus Bakeries and the end of the agreement on McVities Jaffa Cake Bars will negatively impact turnover and profitability in the short term. In the longer term, however, this enables us to focus fully on marketing the brands of the Lotus Bakeries Group. The decision to acquire all the shares of our joint venture partners in the United States (Corona-Lotus Inc.) and in the United Kingdom (Lotus Bakeries UK) and the takeover of Anna s also fits into this strategy of focusing on the Group’s core mission. Lotus Bakeries also believes that in times of crisis it is important to communicate even more with consumers so as to confirm and even increase confidence in our brands.


It should also be noted that the strong euro parity against the pound sterling is having a negative effect on profitability in the United Kingdom. The sharp fall in the South Korean won is also placing a brake on further growth in this specific market. The present uncertain economic times make it difficult to give specific forecasts for 2009. Lotus Bakeries remains confident, however, that the fundamentals exist for further growth in sales and profitability.