FINANCIAL YEAR 2015
Chairman's Report
DEAR SHAREHOLDERS
Despite the challenging market environment over the past financial year, I am delighted to report that the Lindt & Sprüngli Group once again achieved excellent results in 2015, continuing its solid growth pattern. We were able to extend our leadership further in the attractive premium chocolate segment and expand our share in all the strategically important markets. Once again, our Group continues to grow at a faster pace than the overall chocolate market.
This strong performance was achieved despite a series of exceptional challenges in 2015: The first was the Swiss National Bank's decision in January 2015 to abandon the exchange rate floor between the euro and the Swiss franc, resulting in another sharp currency appreciation that had noticeable consequences for the Swiss economy. On top of that, a series of negative factors weighed on global consumer sentiment: record-high raw material prices (especially for cocoa beans), the recession in oil-exporting countries, the unsettling effects of terrorist threats, and concerns about deflation and unemployment in the mature economies. A very hot summer followed by an extremely mild start to winter intensified this development. This lead to a sluggish demand in the overall chocolate market.
“Our company's success continues to be built upon high quality standards, a rapid pace of innovation, as well as the long-term orientation of our business strategy.”
Given this backdrop of uncertainty and weak growth, the results achieved by Lindt & Sprüngli in 2015 are all the more impressive, and prove that our durable business model is holding up well in a difficult market environment. The Lindt & Sprüngli Group achieved consolidated sales of CHF 3.65 billion, which equates to impressiv sales growth of 13.5 % in local currencies. Sales growth in Swiss francs came to 7.9 %. Overall, the Group achieved organic sales growth of 7.1 % and therefore is within the long-term target range of 6 % to 8 %. This positive trend was supported by all the major markets, as well as the constantly growing contribution from Global Retail. Our company's success continues to be built upon high quality standards and a rapid pace of innovation, as well as the continuity and reliability of our management and workforce, and the long-term orientation of our business strategy.
Organic growth in the Europe segment amounted to 5.4 %. Our UK business once again reported particularly strong double-digit growth, while the figures achieved by Germany and France, the Group's biggest European subsidiaries, were also much better than the market average. Performance in the domestic market of Switzerland was also strong, despite a decline in the Swiss chocolate market as a whole.
One of the year's highlights in Italy was Expo 2015 in Milan, for which Lindt & Sprüngli Italy acted as official sponsor. Lindt & Sprüngli played a prominent role in the event, from May 1 to October 31, by showcasing a “virtual chocolate factory”. Our LINDT Master Chocolatiers were daily on hand to sweeten the experience of around one million visitors.
Our clear focus and systematic approach in realizing strategically important acquisitions are paying off. In North America, we concentrated our efforts in 2015 on integrating the traditional American chocolate manufacturer Russell Stover into the Lindt & Sprüngli Group. The integration is progressing according to plan. Despite the necessary process adjustments and restructuring, we were able to maintain our momentum and increase our sales compared with the previous year, as well as expand our presence in North America. We were able to achieve organic sales growth of 7.9 % in the NAFTA region. With this result we strengthened our no. 3 position in the world's biggest chocolate market and our no. 1 position in the premium segment. This makes Lindt & Sprüngli a strong partner for the retail trade. In future, Lindt & Sprüngli will continue to benefit from its role as market leader in premium chocolate products and play a key role in the rapid development of this expanding market segment.
“The Rest of the World” segment reported organic growth of 11.4 %. Subsidiaries in Australia, Japan, and Russia made particularly good progress, recording double-digit sales growth. In Latin America, Lindt & Sprüngli is concentrating on the strategically important market of Brazil, which is also enjoying double-digit growth. Our joint venture with the CRM Group supports this dynamic development. At the same time, our general approach in the emerging markets is still very cautious, in order to minimize risks.
Lindt & Sprüngli is one of the few chocolate makers that have complete control over every step of the production chain, from the selection of the finest cocoa beans through to the finished product. This is one of the fundamental criteria for a sustainable, transparent, and traceable cocoa supply chain. This was also the rationale behind the launch of the Lindt & Sprüngli Farming Program in Ghana in 2008, which ensures the traceability and verification of the cocoa beans and also helps to support the cocoa farmers and their local communities.
“Our goal is to be the world's leading retailer of premium chocolate by 2020.”
2015 marked Lindt & Sprüngli's 170th anniversary. Even though there were no official celebrations, we are fully aware of the significance of our unique corporate success story. Our investments in innovative products and the steady expansion of our subsidiaries, over the past 20 years are definitely bearing fruit. We now have 12 production sites, 24 subsidiaries and over 100 independent distributors in more than 120 countries. Furthermore, we are constantly adapting to ever-changing market conditions and reinventing ourselves. Lindt Global Retail plays a key role in this success story, as it continues to make inroads in all regional markets, opening up new sales channels in the process. We first developed and implemented our Global Retail concept back in 2009. It has been very well received by consumers and has a big impact in strengthening the public image and recognition of the LINDT brand. Our own retail outlets certainly provide the best environment for promoting our brand and allow consumers to experience first-hand the world of the “Master Chocolatiers”. We now have over 300 shops communicating LINDT's core brand values such as top quality, tradition, product diversity, and a commitment to sustainability, sending out a clear and consistent global message to our consumers. The key success factors in this concept include the prime location of our shops and the close collaboration of the Global Retail Division teams with our subsidiaries. Thanks to the popularity and familiarity of our brand, as well as the quality of our service, we are now being offered most attractive locations for opening new LINDT shops. Furthermore, a number of products are exclusive to our own shops, so they attract loyal consumers who cannot buy them elsewhere.
Our goal is to be the world's leading retailer of premium chocolate by 2020. To achieve this, we plan to open between 20 and 30 new shops every year. We even exceeded this goal in 2015, expanding our global network by another 50 attractive new stores. In Brazil alone, 16 Lindt boutiques opened during 2015. Other highlights included the opening of a new store in Tokyo and also in Zermatt, where an exclusive LINDT shop opened its doors at a prime location in June 2015, just in time for the celebration marking the 150th anniversary of the first ascent of the Matterhorn.
The sales generated by Lindt & Sprüngli's own retail network now account for more than 10 % of overall Group sales. This great success shows that Global Retail is enjoying rapid and profitable growth, as well as making a significant contribution to the Group's financial performance. The division also plays a key role in supporting the company's goal in new growth markets. Lindt Global Retail reported sales growth of approximately 20 % in 2015. Today our Global Retail network contacts over 80 million consumers. On top of that, there are still many markets offering huge potential where we can – and will – implement our concept.
In 2015 the Group's operating profit (EBIT) rose by 9.4 % to CHF 518.8 million (previous year: CHF 474.3 million). The improvement in the operating margin to 14.2 % shows the reliability of our revenue forecasts. Net income increased by 11.2% to CHF 381.0 million (previous year: CHF 342.6 million), amounting to 10.4% return on sales. Operating cash flow stands at CHF 488.9 million (previous year: CHF 308.2 million). The balance sheet is still very solid.
The stock market has acknowledged Lindt & Sprüngli's strong performance. The price of our registered shares and participation certificates clearly outperformed the SMI growth rate (–1.8 %), recording an annual gain of 30.5 % and 26.8 % respectively. This confirms investors' confidence in our structural strength and excellent positioning for future success.
In view of the strong result achieved in the past financial year, the Board of Directors will be proposing to the 118th General Meeting scheduled for April 21, 2016, a dividend of CHF 800.– per registered share (CHF 400.– from the approved capital contribution reserve (agio) and CHF 400.– from available retained earnings) and CHF 80.– per participation certificate (CHF 40.– from the approved capital contribution reserve (agio) and CHF 40.– from available retained earnings). This is equivalent to a dividend increase of 10.3 %. We are delighted that our shareholders can once again benefit from the success of their company.
In August 2015 we received the sad news of the unexpected death of Dr Franz Peter Oesch, a long-serving member of our Board of Directors. Dr Oesch first joined the Board of Lindt & Sprüngli back in 1991 and was Chairman of our Audit Committee. We have lost a competent and exceptional personality who helped to shape the company with great commitment and made a significant contribution to the positive development and success of Lindt & Sprüngli.
During the reporting year, our dedicated and motivated employees in every country have once again worked extremely hard to help us achieve our goals. On behalf of the Group Management and the Board of Directors, I personally wish to thank them all for the enormous commitment and enthusiasm they have contributed towards the success of the Lindt & Sprüngli Group. I would also like to take this opportunity to thank our business partners and suppliers who support us, and last but not least our shareholders who give us their loyalty and trust year after year. We are of course also grateful to all our consumers, who eagerly buy and enjoy our premium chocolate products.
OUTLOOK
In 2016 we will continue the successful integration of Russell Stover into the Lindt & Sprüngli Group. We also expect high prices for our key raw materials, together with the strong Swiss franc, to be significant negative factors in our ongoing trading environment. At the same time, we are confident that our uncompromising commitment to quality, rapid pace of innovation, and clear market positioning in the premium chocolate segment will pay off, backed up by investments in the LINDT brand, the expansion of our locations and new technologies. We will direct all our efforts to use this platform for further growth, overcome the current challenges, and achieve the strategic goals set for the Lindt & Sprüngli Group in 2016.
A vision is gradually taking shape: the Chocolate Competence Center at our headquarters in Kilchberg. The charitable foundation “Lindt Chocolate Competence Foundation” submitted the relevant planning application to the local building authority in December 2015. The plan is to offer the public and interested consumers a multimedia “chocolate experience” which includes a chocolate museum, shop and café, as well as a “Chocolateria” and a pilot plant that can be used for research and educational purposes. The Center's prominent national and international profile will reinforce Switzerland's enduring reputation as a center of excellence for chocolate production.
Ernst Tanner
Chairman and Chief Executive Officer
