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Christophe Barnouin – CEO Wessanen: Good morning everyone, thanks for joining us this
morning. I would like to give you an update together with one of next year about our full year
results.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 1
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On page 2 of this presentation you see is that it is a year in which we have grown totally like
10%, improved the profit by 30%, reduced the net debt to less than 1-time EBITDA, and
maintained quite decent return on capital employed.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 2
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If we go into the detail a bit on page 3, we see that 10% growth we see that with own brands
is 85% of what we do at 100% of what we care for. That is growth of 7.7%.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 3
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We have moved the EBITE this year versus last year by roughly 130 basis points. This is
fundamentally out of a good execution of our strategy both on growth as well as on
operations. I am going to give you an update on that now.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 4
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The improved growth and profit are coming from the good progress on our priorities for 2017
because we have put and continue to put a nice focus on our own brand and the core
categories – that is what we care for – and we have continuously reduced either distribution
brands or private label. So, we some distribution brands in the portfolio but the one we did
not like, or we would believe we could do better ourselves, we do ourselves.
We had a very big program in term of upgrading our operation. You will remember that one
year ago we had a restructuring plan to conduct and execute in Germany. That has been
very well managed, the business had been well restructured and we have now the factories
that are the right size and the team has re-launched as well as the brands in drugstores and
supermarkets in Germany. We have extended our facility to facilitate the insourcing. We did
that in Germany, in the UK, and in Italy and we continue to move in term of key operation
processes like sales and operations planning.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 5
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Part of the strategy is to really continue to build a green, very efficient and quite attractive
company. We are measuring that in a couple of ways. We are progressing on our agenda to
become more organic; So, organic food is 78% of what we do. We have been certified earlier
this year for first operating company on the B Corp, which is a very high standard in
sustainability certification. We joined the UN Global Compact. And what I am going to talk
slightly more about in a few minutes, is that we have committed more on our purpose and
sharpened our purpose for the next years to come.
What kept us busy as well in 2017 was the good integration of our last acquisition. I will
spend a few words on that.
How do we structure growth? We structure growth by focusing on the key core categories for
us. I give you an example in page 6 on Dairy Alternative. There, the consumer will have seen
it or may not have seen it everywhere in Europe. that we have expanded our ranges in in
Spain, in the Benelux, and in Germany. I will give you some results of those launches in a
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 6
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few moments. We have continuously developed new mix and ingredients, So, we are really
better in product expertise.
We have expanded the Dairy Alternative factory in Italy, which is a very good factory. And for
those who have been there, a few years ago, if you walk into the factory it is a different one
today, because we expanded and that has allowed insourcing of volumes that were out at
the beginning at a decent margin, which explains partly why our profit is going into the high
direction. Now as a result of it, we build stronger brands in France. In Dairy Alternative we
have Bjorg at number 1. Bonneterre our number 1 in what we call HFS, which is the organic
shops. Isola Bio, an Italian brand, is now number 3 in France on organic shops as well. In
Italy we have the number 1 brand with Isola Bio and we are launching Bjorg in the
supermarkets.
In the Netherlands Isola Bio is now the number 3. We have launched it twelve months ago
and Zonnatura has expanded into Dairy Alternative with exactly the right recipes of Isola Bio
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 7
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and has captured even now the leadership in organic Dairy Alternative in the supermarkets.
We are quite happy with that. And we launched as well in Germany with Allos and now Allos
is the number 2 brand there. That is one example when we are talking about driving growth
through category focus to the benefit of the brand.
It is the same story on tea. We are busy rolling out Clipper as well as continuously improving
our product expertise. I will give you an example. You may want to have a nice tea bag, but
you would prefer it without bleach, So, in organic and fair trade we have increased the
capacity and we are increasing the capacity as we speak of our factory in the UK and that is
allowing the in-sourcing of Alter Eco tea, Bjorg tea, of Piramide tea, and of Bonneterre tea.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 8
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That helps us to reinforce the brand strengths all over Europe. In the UK we have a strong
historic position, in France we are now the number 2 with Clipper in organic tea, in the
Netherlands we are the number 1 and the number 2 brand in organic, and Piramide is the
number 1 brand in The Netherlands in the organic sector. We have a very, very fast start in
Germany, in the drugstore and supermarket area, with Clipper.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 9
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At the end of the day we continue to roll out our brands on top of category management and
Clipper now is 60% of the sale out of the U.K., Isola Bio 70% out of Italy, and Whole Earth
has been launched in the Netherlands, mostly on peanut butter and is now 20% of the sales,
which are done out of the UK. So, that gives you some examples of how we structure growth
for today and for tomorrow.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 10
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A few years ago and a few months ago we spent some money a few years ago on
acquisitions. We have been very busy with the integration of our portfolio. With Piramide, the
portfolio has been simplified. Growth has been achieved within the organic channel, and we
have changed the design. We have insourced that product into the Clipper factory.
We have a new packaging for Destination. We want to in-source that for the - we have the
new packaging, we have in-sourcing, we want to in-source more coffee into the factory and
we are preparing the international roll out in the related countries.
We acquired Mrs Crimble’s a year and half ago. We completely changed the marketing mix
that has been a driver for good growth turnaround in Q4.
And in Biogran, we basically have done a very simple thing. There are two brands called El
Granero for the organic shops and Ecocesta for supermarkets. We have given them the best
products on different categories that we are driving [no sound]. That is how we integrate the
business in reality.__________________________________________________________________
13th February 2018
FY and Q4 2017 Results Analyst Meeting 11
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Now if we move into the operation part. As you may have noticed we have spent some time
in term of in-sourcing equipment and value improvement and factory extension. We have
spent a lot of time in restructuring well and fast our German factory [sound fading] That was
very good. We are working on – but we are not there yet – sales and operation planning,
because the more integrated we are, the better synergies and profit improvement we will
have [ sound fading]
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 12
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We have made good progress on our green agenda, which is very important for us. We have
a certified B Corp and we plan to have more companies certified B corp in the future because
it is very high standard in terms of sustainability, but that will help us to get […] and stay
ahead of the game.
We joined now the UN Global Compact since last year and we have promoted some organic
start-ups as well. There are a lot of ideas that are coming through start-ups, and we are on a
little programme for them to incentivise them to have more organic initiative.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 13
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We are sharpening our purpose, because we believe strongly that a sharp purpose drives to
a better performance at the end of the day. We really believe that if we are in this business, it
is to provide food and to connect people with nature. There are four long-term commitments
behind that that will help us in everything we do. We provide food that is as intended by
nature, So, more organic, more vegetarian, being slightly better in terms of resource-
sufficiency, So, carbon neutral, carbon compensation and less waste organic, for nature but
as well as for our own economy saving on waste. We continue to be very diverse and very
agile. That is one of the fundamental values this year. The agility is that we capture business
opportunities but also the way we are mobile, how we use our own people and how diverse
we [sound fading]. Again, a strong integration in our eco-system is good for the purpose, it is
good for the performance. In our world, we need to really know where our key raw materials
come from, So, we want to trace and to have full sustainable suppliers are now key for
organic raw materials, and we continue on the fair trade.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 14
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That is an important thing internally and I am a strong believer that […] gives a clear direction
and in the end will facilitate performance.
Now I will hand over to Ronald with the financial part.
Ronald Merckx – CFO Wessanen: Thank you, just a few slides as usual and a bit more
colour on the numbers.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 15
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If you look at the fourth quarter in isolation, you can see there is a little bit of a contribution
there still in terms of M&A from the acquisition we did in December 2016 of Biogran. Then
6% autonomous growth on our own brands and good high single digit growth in a number of
brands and also a slightly weak performance in one or two other brands.
In previous quarters we have also seen the effect of both decline in private label and the loss
of sole agency brands, which particularly was the Dr. Schär brand in France that we have
talked about in previous quarters. That is the total picture and currency in the quarter did not
have much of an effect anymore. The pound has been fairly stable.
If we then take it to the full year, you know there's significant impact there from M&A relating
to all the acquisitions we did in 2017.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 16
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Good growth of 7.7% on our own brands and again about 20% dilution from private label.
The sole agency was there basically from 1st January 2017 post the contract in the beginning
of the year. The private label losses are many related to the fact that we said goodbye to a
number of private label contractors as a result of the restructuring in Germany and there
were some contracts that we said goodbye to in Italy. But that happened more towards the
back end of the first half.
For the full year, due to the weakness of the year of the pound early on in the year, that
effect is a little bit different. But overall, 10% growth reported for the full year, and the
breakdown as just discussed.
If you then look at the EBITE-margin development, you can see 130 basis points
improvement here. If you split that between autonomous and M&A it is about 50-50, So, 60 –
65 basis accretion from the M&A that we have done in 2016 within effect in 2017.
And then the other is along all the lines of the P&L: you see here an increase in gross
margins as you can see from the P&L. We also see in warehousing and transportation. We
are getting some operating leverage. For instance, in Germany, we went from 2 to 1
distribution centres and that drives a little bit of benefit.
And also in SG&A you can see some benefits. Broadly A&P was in line with the prior year as
a percentage of sales.
So, a good and credible performance in terms of EBITE going forward.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 17
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Let me give a little bit of extra colour on some of the financials. One of the first lines is the
exceptional item that we booked in Q4. That relates to our distribution centre for HFS in
France, in Rungis near Paris, a place where we have been active for a number of decades,
but due to the growth we now need to leave that facility and move to somewhere else. We
have taken a provision for that. It will make the business more efficient going forward.
As for net financing cost, we had more debt due in 2017 than we had in 2016.
Those costs have gone up a little bit. On the other hand, we had lower translation effects on
forex contracts So, that has offset that a little bit.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 18
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And then the third element in Q4 is that we have seen some positive changes in the one-offs
in tax. There are a couple of items there. First of all, you will have all read that in France the
tax rate is going down at some point in the near future – 2022 – but what that has done is
that we have a number of deferred tax liabilities in France related to acquisitions that we
have done and as a result of the reduction in the tax rate the liabilities are reduced. That has
a positive effect on the tax line.
In Italy, we have been able to use a notional tax credit on the equity that we invested there
after the acquisition of Abafoods which we this year or 2017 now been able to value and that
has had a positive impact.
We have also had some tax carry-forward losses in France, particularly relating to the
acquisitions of Alter Eco [no sound]. The same goes for the Netherlands, partially offset by
the fact that in Germany we still have some unrecognised income tax losses that we have
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 19
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not valued as yet. That basically drove the total tax from 30% underlying to 23% reported for
the full year.
Taking the last slide, we have seen a very positive development in terms of our net debt. So,
a strong operating cash flow. Working capital was flattish despite that overall growth in the
business.
Provisions of EUR 12 million outflow is related to two things. There is about EUR 7 million to
EUR 8 million there in cash […] in long-term incentive plans that we paid out […] and also
cash outflows relating to the tax income.
The restructuring provision we took last year in Germany. EUR 14.7 million interest in tax;
the interest is a little bit over EUR 1 million, So, most of that is [sound fading].
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 20
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CapEx, we really invested in our tea factory in Beaminster So, about just over half of that
CapEx actually was in that base. Then we paid a dividend and then finally we sold all our
Treasury shares that we were holding to be able to settle the equity-shared LTIP. Basically,
what we have done for the whole company is that we have changed all the cash-settled LTIP
to equity-settled plans. As a result, we had a cash inflow from selling these shares.
Going forward, we also reduced the of some of these LTIPs, accounting from cash-settled to
equity-settled, So, going forward that will take out some of the volatility. Also, in terms of
cash outflow it will be a little bit more pleasant for us.
That leads to a net debt of leverage ratio of just under 1 time, which is [no sound].
Over to you Christophe for the last part.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 21
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Christophe Barnouin – CEO Wessanen: We plan to grow, we plan to grow with our own
brand first we plan to further valuation of the private label, partly because we disconnected
some private label in the course of the year. So, we had the effect of that.
We believe that we can continue to generate an improvement of the EBITE percentage, as
we have done over the past years. We are going to have a net financial cost of around EUR
1.5 million to EUR 2 million tax rate […] 40%. We spent a bit of money on capital expenditure
but not very different than what we have done in the past, So, in the range of EUR 11 million
to EUR 13 million and there will be a […] component of around EUR 10 million. But the
priorities for next year to deliver this objective is really fundamentally the same story; we do
have the business within that work and we are trying to get more leverage out of that.
So, the focus is on core categories to help with the complexity of the business, focus on our
own brand, continuously reducing the private label business by working hard on factory
extensions, process improvement in the operations where we are not super happy about
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 22
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where we are today, execute our plan on our 2025 commitment on […] and roll our B Corp,
because it is quite a good stimulation for everyone.
On M&A we continue actively to look for anyone who would like to join us.
So that is it. Let’s open for any questions.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 23
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QUESTIONS AND ANSWERS
[sound fading]
Fernand De Boer – Degroof Petercam
I have a couple of questions. If you look at the working capital […] and the second thing quite
a big outflow for provisions So, cash generation [….].
And then another question. You stated that the market quote has been at the high end of the
5% to 7%. I then look at the organic growth rate for the full year of 7.7%, taking into account
all that you do […] guidance you gave last year […] we expect […] are you then be happy
with the organic growth rate of 7.7% […]?
Ronald Merckx – CFO Wessanen: Yes, on the first two: on working capital 7% we will
continue to work on projects particularly when it comes to sales […] planning where we have
a project running but in the long run that will help to drive down stocks whilst maintaining
customer service level. But when you look at creditors and debtors I do not think […] also
with creditors particularly relating to […] and fair-trade element. Fair trade cannot really […]
fair anymore.
We also try with a number of suppliers to develop longer-term relationships […] through
resources rather than trying to squeeze the working capital. I am quite pleased with that goal.
In terms of provisions, as I have said, a significant outflow of that EUR 12 million was related
to LTIP and because we have now changed it from a cash to equity-settled the overall cost
will […]. The other point is we had the cash outflow from the restructuring in June. We have
announced that we are going to HFS warehouse in France. So, I expect to see some cash
outflow there in 2018, but as was in the announcement of that EUR 3.6 million, EUR 1.1
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 24
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million was in impairment of a building so, that's not a cash outflow. So, yes, you are looking
at EUR 2.5 million to EUR 3 million max on cash outflow for that restructuring.
Christophe Barnouin – CEO Wessanen: On your question on growth. So, the
fundamentals have no changed. We plan to grow 5%-7% of our own brands broadly in line
with the market. Markets fluctuate, and we see a deceleration of the organic shops all over
Europe, but we see a good acceleration in the organic grocery business all over Europe. It
has […] in both sides, so what we lose on one side we […]. We have plan to grow 5% to 7%
of our own brand whether it will be 7%, 5%, 6%, I have no clue. But we plan, and we allocate
the resources to fundamentally gain share in certain areas, mitigate some waste in others
and at the end of the day we have plan to grow 5% to […]. I understand the question
because the 5% is different than 7% and 8% is different than 6% in terms of models but I do
not know. So, I know the plan we have put in place and in the long run we commit on 5% to
7% sometimes it is more is like in profit we are committed to 30 to 50 basis points year-on-
year and this is what you have seen over the past four years. Sometimes it is more,
sometimes it is less but for us this is the plan So, growth should be in the range that we have
always […] 5% to 7%.
Ronald Merckx – CFO Wessanen: Maybe just one small addition there is. I have seen in
some of your notes this morning as well, that the ‘anniversary effect’ of particularly the
private label decline in 2017. That is why I said what we should not forget is the fact that sole
agency, the big contract in France we lost in January, in that respect is basically and
therefore our expectation is that if everything stays as it is in terms of the contracts there will
not be a significant effect there.
On the private label however, because we lost those contracts during 2017, as I said in my
introduction that closer towards the end of the first half you will therefore – particularly in the
first half 2018 – everything else being still an anniversary effect of decline in those private
label […] and Italy. We are broadly happy with where that is as it relates to our own brands. I
have taken into account the effect that private label and the effect for the full year.
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 25
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Fernand De Boer – Degroof Petercam: But to come to that, the lost Dr. Schär in France
also gave you a good opportunity to drive your own sales that was part of the […].
Christophe Barnouin – CEO Wessanen: Yes, we continue to under the […] We have
launched that quite successfully So, we have lost Dr. Schär which is a gluten-free proposal
which was sub-party bound and instead we have launched Bjorg and all the organic gluten-
free, which is trading the market. That works well, so we are quite happy and we will continue
to do that.
John David Roeg – NIBC:
I have four questions, firstly on Carrefour. Is that your prime customer in France? In view of
Carrefour's new strategy whereby they have said that they want to grow – and this is
worldwide – organic food sales from EUR 1.3 billion to EUR 5 billion in a couple of years,
how do you think to benefit from that new strategy?
Secondly on the Q4 numbers it is mentioned in the press release that marketing expenses
were lower. What was the impact of that on underlying EBITE improvement?
And then there was also a comment that they were partly lower because of lower share-
based payment expenses. So, that is probably retailers not reaching certain volume targets
and as such you do not have to pay these margins or bonuses to these retailers. Is this
structural or what has happened here?
I forgot my last question So, perhaps I come back to that later.
Christophe Barnouin – CEO Wessanen: We are very happy that Carrefour understands
that if they want to grow, why do not they push something that is good for the planet and
good for their growth and profit? Carrefour is our first customer with Leclerc and after that we
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 26
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have been for the past three years in very good cooperation with them and we continue to do
so.
So, we have a kind of collaboration in which we have engaged with them, showing them the
importance of the organic versus conventional food, the importance of Bjorg, Alter Eco,
Clipper and the private label and we are on good terms with them. So, we have developed a
plan together to grow. So, we are quite busy despite that they have announced that they are
going to push that even further because that could mean at the end of the day a larger share
of organic food.
So on Q4, I understand the question but again, it is quite difficult for us to manage A&P by
quarter and because we have a yearly plan. Ronald, to my memory Q4 was the strongest in
terms of spend of A&P of the year and we are preparing projects on Natura, on Bjorg and
Clipper. in the natural, we are preparing project on Bjorg.
I do not know the answer to your other question, because […] structural impact in what we
do.
Ronald Merckx – CFO Wessanen: The comment actually relates to our long-term
incentives share plan. In Q4 we had about 40-50 basis points effect of the fact that the cost
relating to the still cash-settled LTIP plans is much lower than it was in Q4 last year. It is one
of the reasons why we have also gone to equity steps because if you look at the full year, the
impact of LTIP has actually been zero, because the cost in 2017 have been the same as in
2016 but by quarter it has been quite volatile because of different moves and relative to
share prices quarter-on-quarter and year-on-year.
John David Roeg – NIBC: So, some feeling about the impact year-on-year the difference in
marketing spending – sorry for the misunderstandings, which is share based I thought the
market shares.
Ronald Merckx – CFO Wessanen: If you look at the total margin in Q4 there is about 240
basis points […] like for like basis. We know that has been the impact of the lower share-__________________________________________________________________
13th February 2018
FY and Q4 2017 Results Analyst Meeting 27
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based payments and the rest of it is split between as in terms of gross margins as a
percentage, although Christophe already said, in absolute terms was actually the highest.
[…]
John David Roeg – NIBC: Thank you. I remember my last question. It is the comment in the
press release on the slowdown in the health food store channel; is this taking place in
countries like France and Germany? Is it a material slowdown or is it just going from 7% to
5% or so?
Christophe Barnouin – CEO Wessanen: There is a shift all over Europe - the more organic
as it collides and penetration the more people will shop in their main store. So, we are
moving from a digital structure or pattern that we have identified for a long time. There is less
growth in Europe in organic food in specialised trade, but we are compensated by the
acceleration in the growth division. And […] touched a year and a half ago in Germany; in
France it has maintained a very high growth rate last year in organic shops for the year and
less so in the last quarters. But again, a good growth in total.
Karel Zoete - Kepler Cheuvreux
I have a couple of questions. The first is with regards to the tax rate. If you look at where you
generate profits and the nominal tax rate, what are you expecting in terms of meeting your
tax guidance? 30% seems a bit […]
My second question is on the equity-settled compensation plans. Do you expect to buy back
those shares issued? Is there time to afford dilution?
The last question is on the French market and the changes to the region environment there
with the fixed mark-up in due time. Your category is not extremely promotional but what is
your expectation here with regard to your […]?__________________________________________________________________
13th February 2018
FY and Q4 2017 Results Analyst Meeting 28
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Ronald Merckx – CFO Wessanen: If I can answer the first question, on the tax rate. You
know that France is on 60% turnover of our business. The rate as it is, is still 34%. They will
come down to 25.8 in 2020, so gradually we will see that tax rate going down. That is
absolutely right.
We are quite comfortable with the 30% because that is if we take out all these one-offs that
we have seen this year that is the underlying rate and that will gradually come down towards
[…].
In terms of LTIP, the dilution effect of issuing shares to settle the equity-settled LTIP is
minimal. It is less than 0.1%. It is a nice plan, but it is not like we will own 10% of the
company in the next few years.
Christophe Barnouin – CEO Wessanen: And on your last question on the fixed market; So,
there has been over the past five year a price war between retailers in France, which is
value-distracting for them but not only for them. What they do not make at margin they come
back and say that this is the bill because they have lowered your price, and will you please
pay it for them. Specifically for the small companies that do not have strong brands it is quite
difficult to [register]. The idea was to impose a fixed mark-up of 10%.
There is no bill; there is no project or flow, there is no law that has been applied. I am telling
you because we are in the middle of the negotiation which the French retailers, as we speak,
and we are close to a final agreement at the end of Feb. This is not a part of this year’s
negotiation at all; it is a project and I can tell you that they do not have that in mind, but it is
usually a question of why are we in business with them, what is their margin they need to
take more margin out of us we do get in return? That is the normal conversation that we are
used to.
Karel Zoete - Kepler Cheuvreux: You can no longer say we do not do these ‘buy one get
one free’?
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13th February 2018
FY and Q4 2017 Results Analyst Meeting 29
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Christophe Barnouin – CEO Wessanen: No because our category is not heavily […] the
category in food goes above 30% of what we call promotional pressure, so volume sold over
this. By the way above 20 over or above 25 the incremental impact is nil. But it is not our
case, So, we are less than 10% [sharing] our category […] promotion to for Bjorg for instance
but […]
Robert-Jan Vos - ABN AMRO
I have a couple of questions. For the year, your EBITE margin was 130 basis points higher
and Ronald, you said that around 50% is M&A related and that the other half is supported by
the LTIP and also A&P, which is lower as a percentage of sales. Concerning your guidance
for 2018 is it fair to assume that your margin improvement for the year will be less than these
65 basis points, like half of the 130?
Then on HFS. You mentioned that in several countries you see a slow-down. Is it possible to
name the countries where that is particularly the case, and can you remind me what currently
your sales exposure is to this channel, to HFS, versus the supermarket channel?
The gross margin increased 40 basis points in the year; is that also roughly 50-50 M&A and
other? Can you confirm that or correct? Speaking of M&A, 2017 is one of the first years since
many that you have not done any M&A; what can you say about the pipeline and your
ambitions for that going forward?
Ronald Merckx – CFO Wessanen: You talked about 160 basis points but the total is 60-65
basis points M&A. There was no impact on the LTIP for the full year; there was a bit of an
impact in the fourth quarter. So, underlying the autonomous improvement, the gross margin
was the largest part of it, a slightly lower SG&P and A&P is basically […]
The split of the gross margin between M&A and autonomous is, I think, mostly […]
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FY and Q4 2017 Results Analyst Meeting 30
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Christophe Barnouin – CEO Wessanen: On HFS, roughly, the exposure we have is one
third of the total sales in the organic specialised trade and one third is in the supermarkets.
That is why I am not super stressed […] the slow-down in the organic shops. Where we were
taken by surprise in Germany two years ago, where most of our business was in organic
shops, we moved quickly into getting some good base out of the supermarket and drugstore
channel. Again, it is growing 5% to 10% in France, the organic shops. It is still slightly
growing in Spain, it is declining in Italy and flattish in Germany. But this channel is not going
to disappear. It is not that I need to decline because the channel does not give me growth.
Take for example Germany. We have managed to significantly move on Allos because we
launched new products and new categories. It is our job to gain some market share at the
end of the day. But we still have to do that.
Regarding the M&A by […] our priority was to integrate the previous. We believe that this
takes time because integration is not simply consolidating numbers but distracting value year
after year. We are showing the progress of what we do. Yes, there is a pipeline in M&A. We
were in a couple of due diligence exclusivity this year that we dropped, because the quality of
the asset to be planned did not actually exactly what people have told us, or what people
wanted to do with it. So, we absolutely want to resist to the pressure of making deals for the
sake of making deals.
Henk Veerman – Kempen & Co
My first question is a follow up on the tax rates. In Q4 there was a tax gain and we saw the
same one year ago in Q4. And Ronald, we certainly had a discussion also on the amount of
unrecognised tax losses you still have. So, my question is how much is there still? And do
you expect for the current growth rate and profitability further recognition of those?
Ronald Merckx – CFO Wessanen: No, it is all detailed in the previous annual accounts as
well. We are still sitting in The Netherlands on significant unrecognised tax losses. Now we
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can only value those to the extent that we generate enough profit in The Netherlands. And
we are doing that as much as we can. That is why you have seen that in value to start the
value some tax losses but not to the extent that we can use up that whole EUR 100 million,
but business is not static. Things may happen, and we will try and use those up as we can.
Henk Veerman – Kempen & Co: My follow-up question relates to the A&P costs and what
we should think of 2018 in terms of percentage of sales? Would it be a bit similar or do you
still believe in a step-up in terms of […]?
Related to your comments on M&A: it looks like that the market remains quite competitive
and that prices remain quite high. What if in 2018 that scenario remains? Would you also
consider maybe a more aggressive sort of A&P strategy to push your growth beyond the
market growth, also to make sure you have a favourable position in some of the early growth
markets?
Christophe Barnouin – CEO Wessanen: First, our plans are always done without M&A. So,
we never factor our M&A in anything we do. Fundamentally, we need to do more of what we
have. That is the fundamental mindset. So, that the plan has to be paid with what we have
without betting on the future or closing a deal. So, that is a fundamental. There is no trade-off
between internal money, internal investment. That is just M&A. That is why the plan is not
dependent on an internal factor like M&A. And then the multiple of the target maybe high or
low, but it does not say that the value we can create by purchasing the business. […] Yes,
and we grow, we do not […]. Again, I have seen that the history of does not mean we can
have that.
Reginald Watson – ING
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To come back to the top line again, not HFS this time but grocery: you have mentioned the
acceleration in grocery several times. Is it actually accelerating or is it staying at a high level?
The press release talks about grocery channel continuing to […]
Related to that, when we look at your sales and aggregate, you are still outperforming the
wider market as a whole, but I perceive that outperformance has come down slightly this
year versus previous years. How do you feel about that going forward?
Christophe Barnouin – CEO Wessanen: It is a good question Grocery has performed more
or less the same as previous years, as a percentage. Of course, they may have been years,
we capture the move from one channel to their benefit. But in that sense, it is not a
maximisation in percentage but as a share for that, that will be […]
Reginald Watson – ING: And the typical out-performance of [...] versus the wider market?
Christophe Barnouin – CEO Wessanen: The strategy differs by country. What we have
observed is fundamentally that we incentivise our team on market share gain. […] We are
very good if you want you can read of it in France. […] So, surely Bjorg's gain.
Reginald Watson – ING: When you look at the trends in market share gain, how do you see
that?
Christophe Barnouin – CEO Wessanen: Year-on-year it is stability plus. Again we are very
well developed. So, if we grow with the market […]
Reginald Watson – ING: Okay. I mean it is certainly one of the defining characteristics of
Wessanen. You highlighted earlier in your presentation pack that you can take grand
portfolios and move around Europe, you can take production portfolios around Europe and
that is for out-performance versus the wider market.
Christophe Barnouin – CEO Wessanen: Yes, it helped us a lot in the fundamentals which
are that we are in the business making a better product. As the market gets bigger, we need
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to make better products at an affordable price and that is what we do by our best for taking
product market. […]
Question
I have a remaining question on your sales, let's say the distribution and price label brands.
Ronald you explained that it will be less than the roughly 20% decline then in 2017 but it will
not decelerate extremely because of the reasons you mentioned. But in general. if a
customer for distribution knocks on your door, what do you say then? Or in other words, have
you not gained any new contracts in 2017 or do you still do that business if there is an
opportunity?
Christophe Barnouin – CEO Wessanen: So, again roughly 85% of what we do is our own
brand. So, regarding the last 15%, is 5 and 10: 5 is private label, and 10 is roughly sole
agencies. Sole agencies need to fit in the portfolio. Sometimes they do, and they are
partners and we have good cooperation unless we have a better idea like we had with Dr.
Shar. In the private label we think we do not actively seek volume contracts. When
somebody knocks at the door, we look at the margin and we look at the situation of that […]
coverage of a fixed cost into dedicated factory and say yes or no. Fundamentally, we prefer
to do our own brand. We never do capital expenditure related to a third-party contract. But
again, we are not the enemy of our own interest. In some areas we do, but no one has an
incentive on that on the contract.
Ronald Merckx – CFO Wessanen: So, we do not actively go out and hunt. We by and large
develop our own.
Question: And in 2017 have you obtained any new contracts in that?
Ronald Merckx – CFO Wessanen: No, because strategically [...].
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I have a question about Belgium. How will that move forward?
The second question is about [out-]sourcing. […] brands?
Christophe Barnouin – CEO Wessanen: Belgium is a very disputed territory between
France and the Netherlands. That could be the definition of the country. That is more or less
the case in our own brands. First, the presence is very limited and that is one of the
frustration. We can do more, and we are doing more on that side. We are using the merger
of […] backdoor. So, our Flemish customers have more ‘culture’ -- meaning ‘are closer’ – to
the Dutch and the trading facilities and the customer base as well, for Zonnatura. To make it
very simple we have three big retailers, Colruyt, Delhaize and Carrefour. We do business
with Carrefour on Bjorg, but we are looking for Zonnatura as well. Progressively, we are
growing over there. But we never […] So, it is not high on our agenda, but it is a nice
opportunity. What we do today is on a marginal basis. Again, if I build a strong team in
Belgium because I want to be in Belgium, I lose money for the next three years. For the
moment, we see customers. We do have three account managers based in Belgium now and
we do that. We are present in the organic channel as well both in the north and the south, but
we are quite pleased that you noticed our presence. I hope you are not the only one.
Ronald Merckx – CFO Wessanen: Yes, on the in-sourcing your question it is now about
45% of our own brand and in-source by 5% third-party. The key thing that we have done is in
Italy and that is we tested to allow that to happen […] big project going on there and in fact
we will have to acquire if more […] machines to support the long-term growth that we see.
What we now also do after the restructuring we have done in Germany is that we have
started to in-source some of our in-house.
Fernand De Boer – Degroof Petercam: Can you say anything about […]
Christophe Barnouin – CEO Wessanen: So, the base is growing well and is growing very
fast close to each other. But that is the first fundamental. We have managed some good
growth on the organic shops, which was and then we are expanding as fast as we can. For
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Ecocesta the market is growing quite fast and it is just starting. So, with that we needed to
take bigger orders and higher stakes in Dairy Alternatives and get them on the Spanish
team. We are also preparing the launch of Clipper in Spain. There was a distribution contract
with an agent until the end of last year and if we do good business with […] there is more to
come.
Ronald Merckx – CFO Wessanen: Operator, can you please check whether there are any
questions from the conference call?
Anna Patrice – Berenberg
I have a couple of follow-up questions as the line was not always very good. First on the
margin. On the gross margin there is very little expansion besides double-digit decline in
private label contract parties. So, what should be the underlying gross margin expansion
going forward?
Another question is on EBITE margin expansion of 130 basis points. Before you were talking
about roughly 100 basis points So, 50-50 you state underlying and some M&A So, where
does the surprise comes from and what should we expect as a sustainable EBITE margin
expansion going forward? So, should it be 50 basis points, or should it be a bit more, should
it be 70 basis points or 100 basis points?
What I did not understand is where the organic EBITE margin expansion comes from. You
say that the marketing expense has gone flat year-over-year so, there is a decline in
percentage of sales. Should we expect it the same in 2018 or should we expect some
increase in […] expense can also increase as a percentage of sales?
I was surprised to see that Opex were flattish year-over-year while you have an […]
personnel and the gross margin [...] end margin I would expect for example. So, should we __________________________________________________________________
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also expect going forward flattish Opex given that you leverage on stable SG&A, on stable
marketing expenses?
And then last but not least, can you explain the one-off in France? I am not sure that you
talked about the optimisation due to HFS plant with Q3 update, So, when will you decide to
do it, what was the catalyst and what exactly did you do? And should we expect some further
one-offs in 2018?
Christophe Barnouin – CEO Wessanen: Can you repeat the last one on the organic
channel in France? We did not …
Anna Patrice – Berenberg: So, there was one-off expense because of the […] you said
right in HFS?
Christophe Barnouin – CEO Wessanen: Yes.
Anna Patrice – Berenberg: And so, what was exactly this? Should we still expect something
in 2018 and what has triggered this decision, because I am not sure I remember it from the
Q3 update that there will some reorganization?
Christophe Barnouin – CEO Wessanen: I understand. So, let me explain what we are
doing in France. In France, we have a distribution centre that delivers to stores or to the main
retail chain for the Bonneterre business. That is very simple. We have grown over the past
year and our warehouse is becoming too small. So, we need to change warehouse. We will
relocate people. It is close to Paris. We will move some back-office people and bring them
back to Lyon on the back-office side and we will move the warehouse. Under the labour law
in France, that triggers a restructuring project to find simply a larger warehouse but if it is
further than 15 kilometres you are obliged to propose a redundancy to people. They are not
obliged to follow you.
So that is the fundamental project is we are growing on Bonneterre, the warehouse is too
small, we need another one, which will be in another location and we take that move in terms
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of merging teams in Lyon instead of Paris. That explains what you have seen that whole
provision of which EUR 1 million is a non-cash item. So, that is the idea and whether there
should be more in 2018, no: we will use that provision to execute the project.
Ronald Merckx – CFO Wessanen: I mean in France when you do this sort of stuff you have
to go through all kinds of legal hoops and negotiations with trade unions, workers councils
and what have you. At the announcement or the trading update of Q3 we were not in a
position to go public with it.
Maybe it was due to the quality of the sound here, but a lot of your questions were a little bit
difficult to understand but I will try and answer some of them.
In terms of gross margin you said you would have expected to see more because of the
lower effect or mix effect of a sole agency and private label. On sole agency actually the
gross margins are relatively okay, with private label you are right, but we should not forget is
that there is a whole other mix of things that plays into the total gross margin. In particular,
the fact that we have seen a softening of our gross margins due to the effect of the weaker
pound. We have increased prices later on in the year to protect gross profit but in terms of
margins there has been some dilution there. Those are the key things that play into that.
In terms of sort of going forward you had a question about the organic improvement in
EBITE. We have guided 30 to 50 basis points year-on-year improvement and we are still
comfortable with that.
Then you had a question about Opex whether that should stay relatively flat going forward.
What we should not forget that in those Opex numbers in our P&L on various lines there are
the exceptional items include […] restructuring that we talked about earlier on. But part of
that 30 to 50 basis points improvement in margin will come from operating leverage and that
will also be there for the SG&A line, so, for the Opex line but that will play an element.
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Anna Patrice – Berenberg: And these margins of 100 basis point in 2017, it seems that it
came above the initial guidance of roughly 100 basis points. So, what was the positive
surprise what went better versus initial expectations?
Ronald Merckx – CFO Wessanen: As I said, half of that it is from M&A and the other one as
we have seen as I said earlier both in gross margin improvement we have seen SG&A
improvements and warehousing and transportation. In the early discussion – and that is also
related to the 30 to 50 basis points improvement going forward – it is on all the P&L lines that
you see 10, 20 basis points improvement as you grow because you do get efficiencies in
your warehousing and transportation. Christophe in answer to the question from Karel or
Henk has already said that in terms of A&P you do get some operating leverage as well and
that is what we seen in 2017 as well. That is maybe the level of precision that can swing 10
or 20 basis points one year or the other, but 30 to 50 basis points is what we see longer
term. If you add back 60 to the top end of that range, you are almost at sort of the level of
improvement that you have seen in 2017.
Anna Patrice – Berenberg: Okay. And the marketing spends in 2018 would you expect
similar levels as in 2017 in absolute terms or there will be an increase as a percentage of
sales in 2018?
Ronald Merckx – CFO Wessanen: It will be similar. That is what Christophe already said,
yes.
Anna Patrice – Berenberg: It is similarly in absolute terms
Ronald Merckx – CFO Wessanen: Yes, no, percentage terms, I mean as we grow
percentage it will be little bit higher in terms of absolute numbers but in percentage terms it
would be broadly in line.
Anna Patrice – Berenberg: Okay, and then my last question. Christophe was talking about
the organic growth of own brands, slightly above […] market and private labels then certified
in France […] best part of brands will still decline but that's to the same extent as in 2017, __________________________________________________________________
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right? You said that from the second half of 2018 there should be some easy comparison
basis. So, we should not see significant declines. Does that mean that on the reported top
line growth we should see roughly 5% to 7% top line growth, so high growth at own brands
and [...] slightly by third-party and private labels? Would that be correct?
Ronald Merckx – CFO Wessanen: That is absolutely correct. We will see a slightly bigger
effect of that in the first half of 2018 because most of those private label contracts were still
there in the first half of 2017. So, your conclusion is correct.
Anna Patrice – Berenberg: Thank you very much.
Christophe Barnouin – CEO Wessanen: As there are no further questions, thank you for
having attended this conference. We hope to see you soon!
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End of call
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