Chocoladefabriken Lindt & Sprüngli AG

Good morning and welcome to the presentation of the Lind & Sprüngli Full Year Results 2020. Martin Huck, CFO of the group, and me are very pleased to provide you in the next 30 to 40 minutes with a detailed insight into our business activities in the highly challenging past year. First of all, I'm happy to present to you our group management members that have been again highly instrumental in achieving the presented results. In years as 2020, it becomes even more important to count on the insights and fast actions of a very strong and highly experienced management team that is unchanged to previous years. I'm very happy to count on Jennifer as General Counsel, the three country market responsibles, Adalbert, Alain, and Rolf, Guido in Operations, and of course, Martin as CFO at my side today. Today's agenda. First, we will give you an overview of the results. Then we follow on in the details of individual markets. the financials, sustainability as a big theme nowadays, and of course the outlook into the next two, three years. The key figures and achievements in 2020 is the next chart. The sales performance with a total of 4 billion sales and an organic achievement of minus 6% already has been published in January. I'm very pleased to report that thanks to measures, initiatives, quick reaction in place, we achieved an EBIT of $420 million with a margin of 10.5%. Net income is $320 million with a margin of 8%. Those results are fully in line with the forecast we have given in July. Very positive in our view is the development in operating cash flow and mainly in the free cash flow where we reached 470 million or 11.8%. Equity ratio suffered somewhat from the U.S. dollar development that declined strongly by roughly 10%, but the ratio still is very positive with a 57%. Further achievements during the year include strong gains in market shares in most countries, improvement in the U.S. organizational setup and performance, the doubling of our e-commerce business, and the acquisition of our minority partner in Brazil as well as the franchise partner in Italy. Another very important fact for me is the reach of the target to supply 100% traceable verified cocoa beans and last but not least, not to neglect an increase of the ordinary dividend by 4.8% or 50 Swiss francs to a total of 1,100 Swiss francs. Now, let's get to the most important one that accompanied us last year. That is, how did we respond to the pandemic? And if we look at what happened last year, then the fact of the pandemic closures Easter just hit us some weeks after last year's press conference. First of all, we had to make sure at that time to apply all protecting measures for our employees, what is definitely a big challenge in our factories. making sure that we can maintain the supply chain without disruptions, that we can supply raw material, pack material, and as well to control the logistics in and out of the factories. That was a huge challenge. Fortunately, we are well stocked. We were well stocked last year, and we had processes in place that needed quick decisions for adjustments, what we finally well achieved. First reaction in finance was clearly to make sure we minimized costs in all areas and optimized cash management. Net-free cash, for example. Important to know, we did not save in R&D, we did not save in marketing nor advertising in order to make sure we can assure continuous future growth. In all those efforts, our frontline employees in factory, logistics, purchasing have been key to make sure our product get to the consumers. My great thanks go to them all. Now let's move to the next part of our presentation, that is to give you some market insights into the individual geographies. First, I show you the overall split of sales. The Europe last year performing best with only a minus of 2.9% versus previous year. North America minus 6.8% and therefore it is dropping below 40% of the total share of sales. And the rest of the world area was heavily hit. Duty-free was the main reason, but as well developments in emerging markets as Brazil and South Africa that were weak. Before we go now into the individual markets, I would like to give you an overview of where we were hit and what happened indeed due to the COVID-19 impact in the individual businesses. Now if we go into the channels and let's go for the channels then of course the positive part was we were clearly increasing in our online sales channels. Online was doubling last year to a total of roughly 5% of our sales. At the same time as well, we were doing very well in wholesale. We were growing in most of our markets heavily in market shares. If we look at the negative side on the channels, then of course we were clearly hit by the fact that we have roughly 500 stores. Now, those 500 stores, depending on the country, depending on the market, was closed. They were closed. during the most important Easter season, but as well during the rest of the year, it was a little bit on and off depending on the lockdowns in each individual market. You can imagine that was hitting us quite heavily. If we go into the categories, the product categories, the most positive one is that we were growing with our clear focus products, that is Lindor and mainly as well Excellence. And Excellence was growing close to double digit. Where we were hit in products was Easter and Christmas. Christmas and with that the whole business in seasonal where Lindt is as a premium producer very strong. Now, going finally to geographies. In geographies, the positive part is that we were growing in markets, in big markets in Europe like Germany. We were growing in the UK. We are growing in Nordics. You see it on the chart. So we have a lot of products and markets where we had good growth. Ghirardelli baking was as well a very exceptional performance. Now, on the negative side of the geographies, we have emerging markets that were hit heavily in the whole economy. We had as well, on top of all that, we had clearly duty-free because, as you can imagine, in duty-free, no traffic at airports and duty-free is a big business for Lind and Springly. That gives you an overview of what generally happened. You can say that Stores were hit, duty-free was hit, and last but not least as well, I didn't mention Lindt Italy that is heavily dependent as well on the so-called traditional stores that are little independent shop owners that of course as well were unfortunately hit very much last year. Now let's go to the individual markets. We have the market split Europe. And if we look at Europe, the single biggest market is clearly Germany by France and then followed by UK. Now, UK overtook Italy in 2020 for the first time. Then Switzerland is ranking number five in this European group. And included in the rest of Europe are Spain and Austria, taking rank number six and seven, and as well performing quite well last year. If we go to the highlights in Europe, the good news are market shares. We made good progress across all markets, gaining in the universe of Nielsen in grocery. The COVID impact is seen via closures of owned stores, missing tourism, and lockdowns during the seasonal business. As I said, the biggest hit we had in Italy due to the very big Easter business we have in that country. On the product side, we last year successfully launched Hello Vegan in Germany. And Lindt squares in Switzerland are just hitting now the market. Both products are doing very well according to the first reading of sell-out results. Other achievements to mention include the opening of the biggest Lindt stores here in Kirchberg at the Home of Chocolate and as well the acquisition of the Lindt store network of Selectrade, our franchise partner in Italy. Now, To lighten a little bit the presentation, I am pleased to show you a TV spot that is actually just aired in Switzerland for the launch of our Lindt Squares. Now let's get to North America and the market split. In combination, there are three countries. It is Canada, USA, and Mexico. And this geographic segment reached a total of 1.5 billion Swiss francs. Clearly, the leading market is the U.S. with the three companies, Lindt, Ghirardelli, and Russell Stover, followed by Lindt Canada and Mexico. The three U.S. brands are complementary with the Lindt product or the Lindt company being a European specialty brand. highly premium. We have second Ghirardelli with a San Francisco domestic U.S. heritage. And last but not least, Russell Stover covering assorted and seasonal pralines, mainly as well as During the main seasons they are very strong in Valentines, they are very strong in Easter and last but not least as well in the assorted products during the Christmas period. Now all three companies they reach a weight of roughly one-third of global linked sales. Now let's get to the highlights in North America. And as in other markets, as I said before in Europe, the store closures, seasonal gifting, Easter, Christmas, and the Ghirardelli food service were impacted most. The good news again are that the market share gains we achieved are very substantial with all brands in all three North American markets. To be mentioned on the positive side is as well that the Ghirardelli baking division benefited from the fact that the in-home food preparation, including baking, increased strongly in the market. Now, the last two, three years, we reported on needed streamlining of our operations in North America. I'm very proud that I can further report now positive news from our ongoing projects for improvements of the U.S. business, be it in structure and as well processes. Number one, logistics, combining logistics among the three companies. That project in the meantime has been completed successfully. If we talk about production, we unfortunately had to close one of our Russell Store factories. That as well is completed. The project started in June 2020. Now the next one is that we as well streamlined our retail store network among the three companies. And last but not least as well, we outsourced our merchandising force. In combination, all those measures clearly will strengthen our U.S. network among the organization. Now let's get to the rest of the world segment. And as I already told you, The duty-free and emerging markets sales with own lend units and distributors suffered economically. The duty-free business came after a good start in the first two months in 2020 practically to a halt. On the positive side, we have two markets doing very well. It is China and Japan with over 10, respectively, 7% of sales increases. Despite the short-term complex business environment, we look definitely forward via an unchanged strengthening of the store network in Japan and Brazil. And in Brazil, we in addition last year could acquire the minority share of our joint venture partner. Now again, to give you a little bit of an insight into our activities in China, a huge market in chocolate and as well clearly with a lot of potential. And I show you the TV spot that was broadcast via digital channels on the occasion of the Chinese New Year 2020. The TV spot is starring the well-known Chinese actress Xin Xilei, who supports our advertising activities in China.

Last but not least, in my presentation of the actual 2020, I would like to

Look at the e-commerce and digital performance last year. We started in 2018 actively to strengthen our e-sales by developing and afterwards implementing a OCR omnichannel retailing strategy. This includes the sectors, the own e-commerce, our stores, global platforms like for instance Amazon, and the so-called click-to-mortar customers, that is our customers like Coopronto or Tesco.com where as well they are strengthening their efforts in that area. We are happy to have reached 5% of our sales in 2020. We gained further experience to strengthen business even more in the future. We expect increasing our sales via the newly launched Lint e-com websites, where we already started in five, six countries in the meantime, and will be rolled out to all our countries during 2021. Among the many creative initiatives, I want to mention our online METRA courses in South Africa and the UK. Now, how did it work? I think you can inscribe yourself in advance for a METRA Chocolatier course. you get a full box of ingredients, and then afterwards you can participate via the web with a digital meter giving instructions on how you have to cook, on how you have to bake, and at the end, of course, on how you can enjoy your delicious meals. So with that you see what we had to do last year is in a lot of countries a little bit out of the extraordinary. We were forced, we were as well pushed to become creative and I think that will stay in our organization for the next years. And with that, I conclude my part of the overview of the result 2020. And I would like to hand over to Martin that will give you more insight and details into the financial performance.