1 Annual Report 2010
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3 1 D(#&H9)0*())&7027%0276) Wessanen Piet Hein Merckens started as CEO on 1 June 2010 Focus on organic food as the core business of the Company Development of roadmap to guide strategy Divestments of Tree of Life, Inc. and PANOS Brands completed Wessanen Europe Grocery and Wessanen Europe HFS Organic food grew around 2% in 2010 in markets where we are active Autonomous revenue growth Grocery amounted to 3.4% Autonomous revenue growth HFS amounted to (3.5)% Investments in advertising & promotion, ICT and sales force to further strengthen our operations Frozen Foods Revitalisation of the Beckers brand progressing well Beckers successful with innovations American Beverage Corporation (ABC) Successful turnaround with improved operational efficiency Contents Introduction Key business highlights 1 Key financial highlights 2 Wessanen at a glance 4 Letter from the CEO 6 Strategy Our organic food, 9 your natural choice Market review The world around us 12 Business review Wessanen Europe Grocery 14 Wessanen Europe Health Food Stores 14 Frozen Foods 18 American Beverage Corporation 20 Discontinued operations 22 Report of the Executive Board 23 Financing 28 Principal risks and uncertainties 30 Sustainability 35 Employees 38 Governance Corporate governance Including 40 biographies and management structure Report of the Supervisory Board 49 Remuneration report 53 Financial statements Consolidated financial statements 60 Company financial statements 102 Other information Dividend proposal 106 and subsequent events Independent auditor s report 107 Additional information Financial summary Shareholder information 112 Cautionary statements 116 Introduction Business review Governance Financial statements Additional information
4 2 Key financial highlights Revenue 1 Operating result (EBIT) m 2009: 702.5m 5.3m 2009: m Net result 2 Cash flow from operating activities 1-6.1m 2009: m 34.3m 2009: 11.9m Revenue per segment 1 Net debt at year end (in EUR million)! Wessanen Europe Grocery 233.1m!" Wessanen Europe HFS 282.6m!" Frozen Foods 115.8m!" ABC 92.8m FTEs per segment (average) 1 Leverage ratio (net debt/ebitdae)! Wessanen Europe Grocery 437!" Wessanen Europe HFS 815!" Frozen Foods 505!" ABC 458!" Corporate Continuing operations only 2 Attributable to equity holders of Wessanen
5 3 Introduction In EUR millions, unless stated otherwise Income statement Revenue Operating result (EBIT) (44.4) Profit for the period attributable to equity holders of Wessanen (6.1) (219.7) Cash flow Cash flow from operating activities Cash flow from investing activities 1 (14.5) (10.6) Cash flow from financing activities (168.1) (37.6) Statement of financial position Average capital employed Shareholders equity Net debt Ratios Operating result (EBIT) as a % of revenue 0.7% (6.3)% Return on average capital employed (ROCE) 1 2.0% (14.3)% Leverage ratio (net debt/ebitdae) at year end Return on average shareholders equity (3.5)% (72.9)% Share price information (in EUR/share) Equity attributable to equity holders of Wessanen Profit for the period attributable to equity holders of Wessanen 1 (0.06) (1.94) Dividend 0.05 Highest share price Lowest share price Share price at year end Average number of outstanding shares (in thousands) 73,229 67,609 Number of shares outstanding at year end (in thousands) 74,819 67,616 Market capitalisation at year end (in EUR million) Other key data Average number of employees (in FTE) 1 2,276 2,261 Number of employees at year end (in FTE) 1 2,222 2,139 1 Continuing operations only
6 4 Wessanen at a glance $*1&"67(:&)((1).=&S:"9*1&NUNM&06&0*6:"193(1&06)&V:)6& G$)&10)60*290)7(1&G067&67(&606%(&!"#$%&0*&NUNW= Wessanen Europe The European organic food business includes the operations in France, the Benelux, the UK, Germany and Italy. These companies market and distribute a wide range of organic brands, which are marketed via supermarkets, grocery stores, health food stores and other food and catering outlets. In Germany we have two factories for i.a. vegetarian spreads, cooking essentials, honeys, cereals, bars and cookies. In Italy we own a soya milk factory. Besides this, our organic products are sold in other countries through Export as well. As of the fourth quarter 2010, the reporting of Wessanen Europe has been split into Wessanen Europe Grocery and Wessanen Europe Health Food Stores (HFS) to provide clearer focus on these two sales channels, which show different market developments, have different brands and commercial approaches. Channel Country Wessanen Europe Grocery Revenue 233.1m 2009: 223.2m Key brands Wessanen Europe Health Food Stores Revenue 282.6m 2009: 279.5m Key brands France Benelux UK Germany Italy Export
7 5 Introduction Frozen Foods Leading positions in core countries Kallo Foods Hagor-Bioservice/ Foodprints Belgié Bonneterre/Biodistrifrais Tree of Life UK Foodprints Natudis Wessanen Deutschland Allos De Rit Naturfeinkost Tartex/CoSa Naturprodukte Bio Slym Our European Frozen Foods business comprises the activities of Beckers Benelux and Favory Convenience Food Group. These companies manufacture and market a wide variety of frozen convenience food products, ranging from the traditional Dutch frikandel to spring rolls. These products are available at supermarkets and in the out-of-home channel in the Netherlands and Belgium. Revenue 115.8m 2009: 119.6m Distriborg Groupe Allos Bio Slym Bonneterre/Biodistrifrais De Rit Naturfeinkost Distriborg Groupe Foodprints Hagor-Bioservice/Foodprints België Kallo Foods Natudis Tartex/CoSa Naturprodukte Tree of Life UK Wessanen Deutschland Drebber Viadana (MN) Paris Rees Lyon Zeist Wijgmaal Camberley, Surrey Harderwijk Freiburg Newcastle-under-Lyme Bremen American Beverage Corporation (ABC) ABC is one of the leading producers of non-carbonated bottled fruit drinks and cocktail mixers in North America. The company manufactures and markets leading brands of juice drinks and cocktail mixers within both the on- and off-premise channels, including supermarkets, mass merchandisers, convenience stores, liquor stores, bars and restaurants. Revenue 92.8m 2009: 89.7m
8 6 Letter from the CEO LMNM&G$)&$&#($:&";&0*+()64(*6)&6"&)6:(*267(*& $*1&:(+06$%0)(&"9:&3":(&H9)0*())=&P7(&4$0*&6$)<& ;":&'())$*(*&G$)&6"&3"*+(:6&67(&)6:$6(203&37"03()& )(6&$6&67(&(*1&";&LMMU&0*6"&3"*3:(6(&$360"*)&$*1& 0*060$60+()&$3:"))&67(&H9)0*())=!"#"$%&'$&$()*&+$,-$./0*'12*/1'3$ 1,$'1+*/415*/$$ &/6$+*0.1&7.'*$$,8+$9,+*$:8'./*'';< Piet Hein Merckens Chief Executive Officer In 2009 Wessanen took an extensive look at its strategic options for the future. We decided that the most promising area of operations was the European organic food sector where the Company already had a strong presence in the various markets and business channels. However, when I joined Wessanen in April, it became clear to me that the set strategy required refinement, deepening and focus in order to achieve flawless execution. The primary task in that process was to define the roadmap for Wessanen Europe as a whole and for the individual countries. This was crucial in the progress. Because if you do not know where you are going, you will not get there. We strengthened the foundations of the European business and defined our pockets of strengths, knowledge and skills. Moreover, the organisation s structure was adjusted to be better equipped for the transitional phase the Company is going through. The set strategy prompted a number of actions in 2009 and We sold Tree of Life, Inc. and PANOS Brands as well as some smaller operations in We intend to divest ABC, in principle in Exit from the North American marketplace will enable us to focus on our European operations. As we move into 2011, I can see that our strategy is starting to gain traction. Clear pockets of strength are emerging within Wessanen. It is vital that we expand these pockets by deploying our wide-ranging skills and knowledge to best effect. This will help us to exploit the initiatives that will reap the commercial and financial rewards we are seeking. There is still a great deal of work to be done, but I am convinced that the combination of committed people and a clear sight of our objectives will ensure that we will make good progress during the year. Financial performance Our financial performance reflected the main market developments and the investments to revitalise our business in 2010, with revenue rising by 1.4% to EUR 712 million to deliver an operating result of EUR 5 million. The macro-economic environment did not do us any favours, as it depressed consumer confidence across Europe. In these market conditions, the key is to show even more clearly to our consumers the added value that our brands and products offer. On the one hand, costs rose as we increased our spending on marketing, hired more sales people and invested in SAP systems. On the other hand, organic growth was disappointing at (1.3)%, showing the need to drive up volumes. Consumer demand has remained subdued, resulting in lower market growth and fierce competition.
9 7 In 2010, we strongly reduced our debt financing as a result of the divestments of Tree of Life, Inc. and PANOS Brands, as well as through net cash generation. We also issued up to 10% of new shares in March 2010 to strengthen the balance sheet. =,$2&>*$,8+$,+4&/.9$ Introduction Organic food is a growth market Organic food is at the core of our business. It has clear consumer benefits, including the absence of GMO, food additives and artificial pesticides and fertilisers. Its ingredients are pure. Local and European labelling guarantees sustainability throughout the value chain, from seeding through to the moment of consumption. In addition, we work hard to ensure that our organic products are even tastier as well as healthy and affordable. The market for organic food in Europe has been growing strongly for ten years up to Originally, it appealed to a small but loyal group of long-term consumers. Today, organic food is being sold in most supermarkets as mainstream consumers recognise its wide range of benefits. Wessanen has been serving this market for many years and these levels of knowledge and experience give us a strong competitive advantage. Our passion for brands is key. We fully believe that Wessanen is best placed to make our organic brands most desired in Europe. Wessanen Europe: Grocery and HFS During 2010, we developed a clearly defined roadmap which lays out the strategic objectives driving the progress of Wessanen Europe. We will focus primarily on our top-line with the objective of generating sales growth and building market share in our core categories and brands. We will also improve operating margins by increasing gross margins via central sourcing savings, by reducing overhead costs and by putting our strategic plans into action. In addition, we will enhance operational performance and operate an efficient cross-country organisation to leverage our scale and capabilities. For me, Wessanen s future success is built on six important building blocks, which I call our permission to win. They are: Passionate people Pioneering brands Customer partnerships and multichannel approach Network of strategic supplier partnerships European scale Unique expertise and industry authority. Each of these elements has the potential to give us a significant competitive advantage in the marketplace. In addition, we have been active in the various channels for a very long time. The knowledge we gained over the years, in combination with the clear strategy, will help us to get where we are heading for. We are already well on the way to achieving our goals, thanks to the hard work of our people. For example, we have made good progress on brand harmonisation, enhanced brand awareness, centralised sourcing and SAP implementation. But we are travelling on a long road and there is still much work to be done. We need to increase our success rate with innovations, fine-tune our go-to-market approaches, become more efficient in our back office operations and accelerate our sales growth. The strategy is in place and we have a roadmap to guide us. Now, to make our organic brands the most desired in Europe, we must concentrate on a consistent and disciplined execution of the strategies and plans that lie before us. A)$2,2*/1$B$282$:8)'$2*$
10 8 Letter from the CEO Frozen Foods Although 2010 was a challenging year for Frozen Foods, I witnessed numerous positives, like successful new innovations such as Mammoet and Bicky Royal, increased brand awareness and greater efficiencies in the production and supply chain. For 2011, we are working hard on further enhancing both brand awareness and operational excellence. ABC I am very pleased to report that ABC was restored to profitability after a difficult year in The new management team succeeded in improving key business processes and I believe there will be further improvements in the future as advertising and promotions enhance consumer engagement with our brands and products. We are expanding distribution across customers, channels and regions. Our people Since my arrival, I have been tremendously impressed by the spirit of Wessanen s people particularly their entrepreneurial and inspiring zeal and their willingness to co-operate. I share their enthusiasm and belief that we are on the right track. Personally, 2010 has been a special year for me. I joined Wessanen in April, being attracted by the challenge to develop further its organic strategy, the growth of the organic food markets, its Dutch heritage as well as my affinity with organic. After familiarising myself with the Company, the brands and products as well as with numerous suppliers, customers and industry players, we worked hard on refining the strategy during the summer. We made clear choices whilst starting to revitalise the business. I continue to enjoy the enthusiasm and dedication of our people. I would like to thank Frans Koffrie for his valuable contributions as interim CEO. He has been, in close cooperation with the Supervisory Board, the architect of the new group structure and our focus on organic. I am very pleased that he has rejoined the Supervisory Board. His experience and enthusiasm for Wessanen are important assets to us all. Looking ahead Although we are certainly not there yet, I can see real progress. Organic food used to be an ideology, a way of life. Now it is mainstream and poised for further growth. For Wessanen, that is a great opportunity. We enter 2011 as a stronger, more focused business. In my view, this is going to be the year of the breakthrough the year in which Wessanen will show its stakeholders the first positive signs of our potential and how we are going to bring it to fruition. For me, Wessanen is not simply a company with a long and illustrious history going back 245 years. It is also a business with a long and great future ahead of it. Piet Hein Merckens Chief Executive Officer Royal Wessanen nv A)$2,2*/1$B$*/E,)./4$ &$1&'1)$:+*&>-&'1D< Cereals with a distinctive character Our cereals are appreciated for the additives of quinoa and amaranth. These Mexican grains are used in our German Whole Earth breakfast assortment, bars and cookies. Quinoa and amaranth are well-known for the high quality of proteins and as gluten-free ingredients.
11 Strategy Our organic food, your natural choice 9 >:2$*03&;""1&0)&$6&67(&3":(&";&'())$*(*=&'(&1(V*(1& 670)&)6:$6(203&10:(360"*&0*&LMMU&$*1&G(&:(V*(1&$*1& ;"39)(1&06&%$)6&#($:=&'(&*"G&7$+(&$&3%($:&:"$14$5&& 0*&5%$3(&6"&4$<(&"9:&+0)0"*&-6"&4$<(&"9:&":2$*03& H:$*1)&4")6&1()0:(1&0*&89:"5(.&:($%06#=&E6&0)&$%%&& $H"96&$&3"*)0)6(*6&(B(3960"*&";&670)&)6:$6(2#= Introduction We focus on organic food and conduct three business models; brands in Wessanen Europe Grocery and brands as well as wholesale organised in Wessanen Europe HFS. These are managed by a matrix structure. In addition, we have two other segments, ABC and Frozen Foods. ABC s objectives are to build equity of core brands and expand distribution across customers, channels and regions. In 2011, ABC will continue to concentrate on growing sales by improving the brand positioning and visibility, and to further optimise its operational cost structure. In line with our strategic choice to focus on organic food in Europe, we intend to divest ABC, in principle in At Frozen Foods, we are aiming to increase brand awareness and operational excellence. We continue to work on improving sales growth and realising higher operating margins and we believe this segment has potential to improve in these areas. Ultimately, we intend to sell Frozen Foods, although we have yet to decide on a timescale for the divestment. Following a comprehensive review of market opportunities in 2009, Wessanen decided that the Company s future would be on the European organic food market. Accordingly, steps were taken to scale down all of the North American operations. Liberty Richter was sold late in 2009, followed by Tree of Life, Inc. and PANOS Brands in During 2010 we refined the strategy to better align it with developments in the organic food market. This resulted in a focused roadmap which will drive our agenda for the future. An evolving marketplace Historically, organic food has been a niche market, characterised by a relatively small but fiercely loyal group of consumers. Now the picture is changing rapidly. Organic food has reached the mainstream consumer via supermarkets and grocery outlets. The breadth and depth of the organic goods displayed at grocery chains is continuing to grow. Organic is moving from a niche shelf in the store to an image builder for grocery retailers. In the past, organic certification was a differentiator, while it is now becoming more of a table stake. A European logo was introduced in July 2010, next to local certification. The next generation organic products will have to deliver clear consumer benefits instead of being copies of mainstream non-organic products. Pricing will increasingly be based on the perceived value and consumer benefits. In contrast to the past when price sensitivity was low, private label is increasingly becoming the key reference point. Our vision and mission We believe we have a strong proposition for consumers: Organic food is good for you, our living planet and the next generation. By adopting an organic approach, we give our customers and the consumer the opportunity to experience all the benefits of organic food. While the food is made from ingredients that originate from sustainable sources, the supply chain complies with social and ethical standards. Moreover, the products are nutritionally pure and rich in flavour. To be fully successful, we need to make organic food affordable for consumers. Our brands are pioneering and prominent organic brands across Europe, offering a variety of relevant products. Focus is on the growing number of organic mainstream consumers as well as our core consumer base. Strategic objectives Top-line growth Market share gains in core categories and brands Add-on acquisitions Improve EBIT margins Increase gross margins Central sourcing savings Richer product mix Increase capacity utilisation own plants Manage non-core brands for cash Reduce overhead costs Grow our export business and aim to establish footprint in other European countries Improve operational performance / Establish cross-country organisation Raise overall talent bar / Increase employee engagement
12 10 Strategy Our organic food, your natural choice Our vision combines all the above mentioned: To make our organic brands most desired in Europe. Our mission is to make Our organic food, your natural choice. Our business models We conduct three business models: brands in grocery, brands in HFS and HFS wholesale. The grocery channel involves the sourcing, development, marketing and selling of our own brands to grocery retailers. We deliver our products both to distribution centres and directly to stores. Our brands include Bjorg, Whole Earth, Kallo, Zonnatura and Biorganic. We report these activities in the Wessanen Europe Grocery segment. The HFS channel involves the sourcing, development, marketing and selling of our own brands to health food stores. Distribution is either via wholesalers (in Germany) or direct to the stores (France, the Netherlands). Our brands include Bonneterre, Evernat, De Rit, Molenaartje, Ekoland, Allos and Tartex. Wholesale involves the sourcing, category management, sales and distribution to HFS. Focus is on a full-range product portfolio and a high share of products per store. Our operations include Biodistrifrais and Kalisterra in France, Dutch market leader Natudis and fresh distributor Kroon (acquired in April 2010) as well as Hagor in Belgium and Tree of Life in the UK. Brands in HFS and wholesale are reported under Wessanen Europe HFS. Strategic direction chosen In 2009 we defined our strategic direction that would enable us to achieve our goal of becoming the Organic+ food champion. It goes beyond organic certified products and copies of conventional products. Its success depends on delivering clear consumer benefits that differentiate the products in the marketplace. The chosen markets are our core countries today: France, Benelux, UK, Germany and Italy. The strategy focuses on capturing the growing number of organic mainstream consumers, while nurturing the existing core consumer base and building leadership positions on the dedicated shelf and in specialty channels. It also includes building, acquiring and leveraging leading organic brands. Lastly, we aim to become the organic authority towards consumers, trade partners, suppliers and other relevant stakeholders. In 2010 we refined the strategic direction with the decision to concentrate on organic brands in both grocery and health food stores. The playing field is determined by four consumer benefit platforms: Nutrition Taste-indulgence Taste-cooking Basics F8+$2,2*/1$B$%&195./4$C5,7*$?&+153$G+'1$H+.1.'5$10$9,22*+9.&7D< These consumer benefit platforms will focus on several core categories. This brand-platform-category map will be leading in executing our strategy towards suppliers, customers and consumers. Strategic objectives The combination of a focused roadmap, our building blocks and the strategic choices means that we now have a set of initiatives that we need to execute to put our plans into action.
13 11 Four European Consumer Platforms Consumer Platforms Point of differentiation Consumer motives Consumption moments Introduction Organic Nutrition Best nutrition from organic ingredients Daily nutrition Breakfast, lunch, in-between Organic Taste Indulgence Rich and exciting taste from organic ingredients Indulge and reward Breakfast, in-between Organic Taste Cooking Taste closest to fresh prepared organic meals Complete organic cooked meal Lunch/dinner meal occasions Organic Basics A strategic platform to enter the Dutch grocery market Alternative to grocery private label Breakfast, lunch, in-between First, focus will be on top-line growth to realise sales growth and gain market share in our core categories and core brands. We also need to accelerate growth through acquisition of organic brands with strong management in place. Second, we have to improve EBIT margins by increasing gross margins via savings realised through central sourcing and a richer product mix. We will manage non-core brands for cash. We have to increase the capacity utilisation of our own factories in Germany and Italy, and we are to reduce overhead cost. Third, we are to grow our export business in selected countries and we aim to establish our footprint in other European countries. Fourth, we will also improve operational execution, operate an efficient cross-country organisation, and leverage our scale and capabilities. Last, we will raise the overall talent bar and are aiming for initiatives to further increase engagement of our employees. With this strategy we aim to achieve, over the medium term, a return on capital employed in excess of our weighted average cost of capital (presently estimated around 12-13% pre-tax) and hence create economic value. The group will be capatilised according to a target net debt level below 2.5 EBITDA excluding exceptionals. Organic expertise In order to stimulate the exchange of knowledge and experience that is widely available within the Company, the Organic Expertise Centre (OEC) was established in Specialists will join forces and will work on pan-european issues, such as the sourcing of sustainable palm oil. Organisation Wessanen has four segments. All operating companies have a profit & loss account responsibility and they are the basic building blocks for the organisation. For Wessanen Europe, there is a strategic coordinator for both the Grocery and HFS channel. Their role is to oversee the strategic direction and development of Wessanen Europe s Grocery and HFS channel businesses in the various countries, to champion the portfolio development and to coordinate and supervise all channel activities. By doing so, we are to create synergies and to streamline the cooperation between the countries for each channel. In addition, Wessanen Europe Grocery and Wessanen Europe HFS have an Executive Management Group (EMG) consisting of the strategic coordinators, country managing directors, senior corporate staff and the Executive Board, chaired by the CEO. The EMG is a platform for discussing actions and initiatives, taking cross-country decisions and deploying resources. The aim is to coordinate and direct the implementation of the strategy. It means a greater operational involvement for the Executive Board, and a greater degree of involvement and responsibility for the individual country managers. To exploit Wessanen Europe s potential, we need to strengthen our central steering capability and adapt our organisational and governance models. We therefore intend to transition our corporate headquarters role from that of a strategic architect to a strategic orchestrator. The nature of corporate guidance will therefore shift from strategic guidelines to strategic development and the degree of business integration will be moving from stand-alone businesses to shared business systems. We will set tailored operational targets for each operating unit, using a dedicated framework and proactive intervention. We will also establish focused lead or coordination roles in functions that have a genuine European scale such as sourcing, innovation, brand alignment, supply chain, operations, IT, organic expertise and export. 5*&6J8&+1*+'$ 1+&/'.1.,/./4$ -+,2$&$ '1+&1*4.9$ &+95.1*91$1,$ &$'1+&1*4.9$,+95*'1+&1,+;<
14 12 Market review The world around us '())$*(*&0)&"*(&";&67(&%($10*2&5%$#(:)&0*&67(&89:"5($*& ":2$*03&;""1&4$:<(6=&P70)&4$:<(6&0)&$66:$360+(&$*1& 2:"G0*2&$*1&06)&2:"G67&5"6(*60$%&0)&)02*0V3$*6=& ";&":2$*03&$*1&06)&)9)6$0*$H%(&5:"19360"*&4(67"1)=& P7(#&$55:(30$6(&67(&7($%67&H(*(V6)&$*1&:037&6$)6(= of consumers. In recent years organic food has become a common feature in grocery stores and supermarkets. The continuously increasing engagement of mainstream consumers, allied to grocery retailers tactics of enhancing margins via private label products has broadened the assortment of organic food on display at grocery chains. We expect most of the future market growth to emerge from the mainstream grocery channel, although specialist health food stores will remain an important channel for many consumers. A)$2,2*/1$B$95,,'./4$,+4&/.9$ -,,6$.'$&$7.-*'1)7*$95,.9*D< The organic market is attractive and has significant potential. In 2010, the European market grew an estimated 3% to EUR 19 billion. This growth was in line with 2009 (3.7% growth) with both years clearly impacted by the economic recession. The countries we are active in grew an estimated 2% to EUR 14 billion. Over the past decade up to 2008, consumer demand for organic food has been rising consistently with historical growth in Europe in that period running around 10% per year. Per capita consumption is still low although on the rise. This rise is supported by organic food also engaging mainstream consumers nowadays. Organic makes up 2.6% of the total spending on food and beverages in the countries we are active in, representing only a small, but growing fraction of the total market. This percentage varies between 1.7% for the UK and 3.3% for Germany and Italy. Historically, organic food was a niche market, largely confined to specialist health food stores. Volumes were low, attracting a relatively small but fiercely loyal group When is organic organic? To be allowed to be called organic, products have to meet strict criteria. For example, they must be demonstrably free from GMO content (genetically modified organism), antibiotics and growth hormones. Production methods also have to be sustainable and the products must not contain food additives. A European logo and national logos safeguard the uniqueness of organic. The predicate organic therefore does not specifically relate to one or more categories of products, but it applies to all food and beverages, if produced and processed in line with these principles. Organic market size in 2010 (in EUR billions)! 2008! 2009! 2010 estimate 3.0 0% 3.0 France % 5.8 Germany % 2.4 Italy % 0.6 Netherlands % 0.3 Belgium % 2.0 UK Source: Organic Monitor; Wessanen growth %
15 13 Breakdown by channel (2009)! Grocery chains 57%!" Health Food Stores 26%!" Catering and Food Services 5%!" Other 12% Breakdown by category (2009)! Fruit/vegetables 28%!" Meat products 13%!" Dairy products 13%!" Beverages 9%!" Other 37% Introduction EUR 19 billion EUR 19 billion Source: Organic Monitor Source: Organic Monitor Per capita consumption of organic food (in EUR per year) France 48 Belgium 34 Germany 70 Italy 41 The Netherlands 40 UK 33 Ambient organic food At Wessanen, our main focus is on ambient food, meaning it has been processed to be stored safely at room temperature for a usefully long shelf life. We are also active in the distribution of vegetables, cheese and fresh fruit in the Netherlands (via Kroon) and in France (via Biodistrifrais). In general, we prefer to brand our products to differentiate ourselves from competition, which is more difficult for fresh produce. Much of the growth in the organic market in recent years has been attributable to non-ambient produce. Emotionally, consumers place ambient lower in the hierarchy than fresh produce. HFS Organic products reach the market through two primary channels: dedicated health food stores and retail grocery stores. To a greater or lesser degree, owners of dedicated health food stores pursue an ideological agenda: they want to sell and promote organic food giving consumers a clear, healthy and tasty alternative. Many of these stores are small or medium-sized, but generally offer a full range of ambient products as well as vegetables and fruits. Many health food stores retain their independence, while an increasing part belongs to a chain, such as Alnatura or Dennree in Germany, Biocoop in France or Natuurwinkel or GooodyFooods in the Netherlands. Those stores belonging to a chain are either company-owned or part of a franchise chain like we operate with both Natuurwinkel and GooodyFooods. In Europe, there are about 5,000 stores in total. Independent health food stores have sourced their products from wholesalers on a store-by-store basis. HFS chains, which are on the rise, tend to go more often to suppliers directly. Grocery retail chains For mainstream grocery retailers, organic has become a small but important segment that functions as an image and margin builder. It enables them to promote their image as a company that cares about the environment and about the ethical and social sensitivities of its consumers. Market growth has been stimulated by broadening the range of organic products, adding new categories and by dedicating more shelf space to the organic proposition. Organic food products are sold either on the mainstream or dedicated shelves. The mainstream option displays the offerings per category, such as tea or cooking aids, bearing the risk that organic is insufficiently visible due to its still small scale. Various surveys and research conducted show that while a consumer expects to find organic at the mainstream shelf, in reality that same consumer finds it hard to locate the organic products in-store. The dedicated shelf has the strong benefit that it jointly groups all organic ambient products offering a one-stop shopping. To the consumer it offers a clear, grouped offering. The grocery chain benefits from directing consumer traffic towards these dedicated shelves enabling them to benefit and fuel growth of organic. Consumer perceptions Today, most consumers are aware of the relevance of organic and its sustainable production methods. They also perceive organic food as an attractive proposition that offers health benefits, rich taste and good product quality. But in many cases consumers do not act on that perception. There is a significant gap between what consumers say and what they actually do. The single largest barrier is awareness, as many consumers do not understand the organic proposition and are confused by the terminology. For example, they find it difficult to differentiate between concepts such as natural, Fair Trade, sustainable, local and organic. Other barriers include lack of choice, low availability and high prices relative to non-green options. An important task for Wessanen in the years to come is to convince consumers of the attractiveness and uniqueness of organic food and to help them translate this positive perception into more frequent buying of organic food. The remedy to all these barriers lies in demonstrating that organic has clear benefits for consumers. Single European organic logo A single European certification system for organic products was introduced in July 2010, including the obligation to use the EU logo on all pre-packaged organic products that have been produced in any of the EU member states. This is in addition to the various national logos which are all governed by strict certification systems as well.
16 14 Business review '())$*(*&89:"5(&F:"3(:#&$*1&'())$*(*&89:"5(&X?K '(&;"39)&"*&":2$*03&;""1&H(0*2&)"%1&+0$&6G"&37$**(%)Y& F:"3(:#&$*1&X($%67&?""1&K6":()&,X?K/=&'(&$:(&$360+(& +0$&"G*&"5(:$60"*)&$*1&0*&*94(:"9)&"67(:&3"9*6:0()& +0$&(B5":6= Key objectives 2010 Achieve revenue growth Create solid platforms across countries Invest in/harmonise brands Reorganise/centralise supply chain Establish Organic Expertise Centre Key achievements 2010 Four consumer benefit platforms developed to guide strategy towards suppliers, customers and consumers Spending on advertising and promotion increased Start of centralised sourcing Establishment of Organic Expertise Centre progressing, to be fully operational in 2011 Key objectives 2011 Achieve revenue growth and gain market share Improve operating margins through focus on core brands and strengthening of brand equity Improve operational excellence We conduct three business models: brands in Wessanen Europe Grocery and brands as well as wholesale organised in Wessanen Europe HFS. These are managed by a matrix structure. Both segments have a strategic coordinator in place who is responsible for ensuring cross-border exchanges of best practice, aligning innovations and deploying strategies and tactics. Each of our country operations is responsible for its profit and loss account and we consolidate these in our management reports along the two business segments. Cross-border functions, such as sourcing, supply chain, innovation, marketing and ICT are increasingly coordinated centrally and include strategic planning and shared business systems. Execution continues to occur at local management level. The playing field is determined by four European consumer benefit platforms, which focus on core categories, representing three-quarters of our brands. This European map describes the relation between platforms, categories and brands. It will be leading in executing our strategy towards suppliers, customers and consumers. Market developments at Wessanen Europe Grocery In 2010, most of our markets were impacted by low consumer confidence, particularly in HFS, while grocery markets fared better. Grocery markets in general are characterised by retailers increased interest in organic food, additional shelf space and retailers expanding their private label offering. Many of those retailers are also searching for the best way to deal with the organic shelf. Examples of initiatives on our side are category management and the development of a one-stop shopping organic shelf in the Netherlands. A)$2,2*/1$B$%+.1./4$ %5.7*$*/E,)./4$1*&$$ %.15$9,,>.*';< Cross-border category management Our chocolate cookies from Bjorg are a big hit in France. This success inspired us to introduce the product across Europe. Today, consumers in the Netherlands and in Germany are able to enjoy the fourré choc as well. A great example of getting the best to the rest!
17 15 In France, growth of the organic grocery market decelerated during the year as a result of ongoing private label competition among the major retailers. Sales of our brands via the grocery channel showed a modest increase, with our key brand Bjorg showing continued growth and market share gains. Innovations such as meals and chilled also contributed to growth. During the year we gradually started to reap the benefits of our extended sales force, resulting in increased distribution volumes. Key figures Wessanen Europe Grocery In EUR millions, unless stated otherwise Revenue Autonomous revenue growth 1 3.4% EBITDA Operating result (EBIT) 7.0 (7.2) EBIT margin (as a % of revenue) 3.0% (3.2)% Cash flow from operating activities ROCE 10.6% (8.7)% The dietetic market stabilised in the first half of the year and showed some growth in the second half. Revenues from the dietetic brand Gayelord Hauser were below last year. Ethnic products performed well. The UK market remained broadly stable. Grocery captured some growth at the expense of smaller stores while grocery remains a highly competitive market. After nearly a decade of strong growth for organic produce, for the last few years consumers in the UK have become confused about the benefits of organic and its relation towards fair trade and local sourcing. This resulted in depressed growth numbers in the UK organic market. The Benelux grocery market showed double-digit growth, driven by increased interest at several retail chains, a growing private label assortment and A-brands introducing organic line extensions. Dairy, coffee and tea, meat and dry grocery have been growing fastest. Zonnatura volume was stable due to increased distribution at several retailers, offset by the effects of a large grocery chain which adjusted its speciality food shelf concept, resulting in some Zonnatura products those without functional claims being relocated to the mainstream shelf. Biorganic was up and we introduced the Schär range of gluten-free products. The grocery market in Germany was up, while our revenue showed strong growth, due to the success of Whole Earth. Increased distribution and higher volumes, on the back of three successful City campaigns, were the main drivers for this success. Our private label sales declined due to weak sales at discounters, and our de-emphasising. In Italy, we have started to build the presence of our Bjorg and Efficance brands in the grocery channel following in-sourcing in Spring 2010 of distribution previously handled by a third party. We will continue to invest in weighted distribution and brand support. For 2011, the expectations are mixed, but overall we expect market growth in this segment. For France, we expect the market to be flat, for the UK, Germany and Italy low to mid single-digit growth, while the Benelux is expected to enjoy double-digit growth. Market developments at Wessanen Europe HFS In 2010, most of our markets were impacted by low consumer confidence, particularly in HFS. Key figures Wessanen Europe HFS In EUR millions, unless stated otherwise Revenue Autonomous revenue growth 1 (3.5)% EBITDA Operating result (EBIT) EBIT margin (as a % of revenue) 1.5% 1.6% Cash flow from operating activities ROCE 4.6% 4.4% 1 Third party revenue In France, the HFS market was weak in 2010, which was in contrast to the growth seen in This weakness manifested itself particularly in the chilled sector. However, we were able to gain some market share with especially Bonneterre showing gains. The HFS market in the UK remained weak with smaller independent traders particularly affected. Consumer confidence remains low. Our volumes declined, although at a slower pace than the HFS market in general. Our UK HFS business, Tree of Life UK, is reported as held for sale. We are reviewing strategic options for the business in light of an increasing focus on brands and high valueadded activities. The Dutch HFS grew modestly, showing a mixed underlying performance. As a general trend also evidenced in the grocery channel smaller shops are struggling while larger, more innovative stores achieve higher sales. Natudis is well-positioned to benefit from this trend. Our Benelux sales were up as a result of the acquisition of Kroon, the No 2 perishables supplier in the HFS channel. This strengthened our position, allowing us to distribute a wider product range to our customers. Natuurwinkels continued to perform well. A second GooodyFooods store has been opened with new ones planned for The German HFS market grew low to mid single digit. Several of the larger HFS chains continue to perform well, whereas reform-houses saw lower volumes. Our revenue was slightly lower with sales to health food stores growing, while export was lower. Production at our Allos and Tartex plants was stable. For 2011, the expectations are mixed for market growth in the various HFS markets across Europe. Market growth is expected to be flat in general, with the UK and France expected to be negative and the Benelux and Germany to be up. Rice crackers with guts Kallo extended its rice crackers assortment with delicious new flavours, such as mature cheese & chives. Packed in sensational black bags, even men can t resist our rice crackers nowadays! Rice crackers are ideal for lunch or as guilt-free snack, are full of fibres and made from wholegrain brown rice. Business review
18 16 Business review '())$*(*&89:"5(& F:"3(:#&$*1&'())$*(*& 89:"5(&X?K Natuurwinkel and GooodyFooods are Dutch franchise chains operated by Wessanen. Natuurwinkel offers a wide assortment with honest and organic products in a modern and inspiring store environment, while GooodyFooods stands for organic, tasty, good and fresh. This retail concept is built around the idea that feeling good is closely connected to enjoying good food. Taste, sustainability and wellness are at the core of this brand new store concept. Operational developments: Grocery and HFS In 2010, a large proportion of our management focus was applied to centralising our sourcing functions, harmonising and supporting our brands and investing in ICT and process improvements. We continue our investments in enhancing capabilities (e.g. market research, innovations and category management) and improving the overall quality of the organisation. Last year, we successfully introduced SAP ERP systems in the grocery part of our French business, in our Dutch HFS business and in part of our French HFS business. For 2011, we plan to introduce these systems in the grocery part of our UK business, and to prepare the roll-out to the remainder of the French HFS business and in Germany. Towards the end of the year, both the French and Dutch HFS businesses have been restructured to adapt the organisation and reduce overhead costs. In the Netherlands and the UK we also made changes in the management team. We centralised and professionalised sourcing. We created a single way of working, increased the expertise in raw materials, bundled volumes and reduced complexity. The aim is to lower the cost of goods sold, while creating strategic partnerships with suppliers. We fine-tuned the four European consumer benefit platforms, focusing on core categories. This European brand-platform-category map will guide the execution of our strategy in relation to suppliers, customers and consumers. Despite the introduction of ample new products, further improvement is required in the innovation process. Currently, there are too many me too introductions. Another area of improvement is to learn from successful products in other countries. Therefore, the top 100 list of bestsellers has been reviewed and we are looking at the feasibility of introducing a number of these products in other countries under local brand names. Advertising and promotional spending was up last year to support and build our brands. The four consumer benefit platforms and chosen core categories are instrumental in deciding on the efforts to be put behind any brand. We also continue to focus on trade discounts, ensuring that in return for that spending our brands receive additional support. A)$2,2*/1$B$&$6.//*+$-877)$ :&'*6$,/$,+4&/.9$./4+*6.*/1'D< Some of the marketing highlights include a range of Bjorg advertisements in French newspaper Le Monde highlighting the health effects of organic, the Whole Earth City campaigns in Germany and the first ever TV commercial for Whole Earth in the UK. The German Whole Earth additional City campaigns took the brand to Hamburg, Munich, Cologne and Berlin. In a set period, a mix of promotional activities like local media and outdoor advertising, product sampling and raffles were used to support the roll-out.
19 17 Financial performance at Wessanen Europe Grocery Revenue amounted to EUR million. Autonomous third party revenue growth equalled 3.4%. Growth was recorded in Germany as a result of the successful further roll-out of Whole Earth, in France due to increased volumes and market share gain at Bjorg and in the UK due to innovations, such as Kallo rice cakes and Whole Earth peanut butter. EBITDA was stable at EUR 12.4 million, while operating profit strongly improved to EUR 7.0 million, representing an operating margin of 3.0%. Last year s operating profit was impacted more heavily by impairment of intangible assets, while in 2010 we recorded increased costs for advertising and promotion, SAP roll-out in several operating companies and an enlarged French sales force. Non-recurring costs mainly include the impairment of a brand of EUR 4.5 million and severance costs of EUR 1.5 million. Business review Operating cash flow was EUR 18.8 million (2009: EUR 7.9 million), driven by improved working capital as a result of lower inventories and trade receivables. Capital expenditure amounted to EUR 2.3 million versus EUR 1.1 million in Financial performance at Wessanen Europe HFS Revenue increased to EUR million, supported by the inclusion of Kroon since April. Autonomous third party revenue growth was (3.5)% driven by sales declines in the UK and to a lesser extent the Benelux and France. German sales were modestly up. EBITDA was lower at EUR 10.7 million. Operating profit was EUR 4.4 million, in line with 2009, despite a poorer margin mix, increased ICT costs in relation to SAP implementations and higher administrative expenses. Non-recurring costs mainly include severance costs of EUR 1.1 million and a goodwill impairment of EUR 4.2 million in relation to the classification as held for sale of Tree of Life UK. Operating cash flow was EUR 3.5 million (2009: EUR 12.9 million). Working capital increased mainly as a result of higher accounts receivables and lower accounts payables, partly offset by lower inventories. Capital expenditure amounted to EUR 1.7 million (2009: EUR 2.7 million). Sustainability Organic food is all about pure ingredients which have been farmed and processed in a sustainable and environmentally friendly way. To safeguard the quality and organic nature of our ingredients and products, we put much emphasis on the quality and transparency of our supply chain. In addition, we continue to implement sustainability more and more in our daily operations. Our Organic Expertise Centre, which was founded in 2010, bundles the expertise of our own people to inform, train and activate our employees and external stakeholders about organic. Children love it! Young parents are very much aware of the well-being of their children. Nothing is more important than happy and healthy kids. Bjorg, Zonnatura and Ekoland market kids food solutions that are fun, tasteful and are irresistibly yummy. All of these products are based on well-balanced recipes; we looked at the amount of fibre, salt and sugar and the size of the portion. Ideal for parents who want to treat their loved ones in a nutritious and nice way. Wessanen s children s assortment contains fruit pouches, cookies, cereals, juices and fruit gums, although this may vary per brand.
20 18 Business review?:"j(*&?""1)?:"j(*&?""1)&5:"193()&$*1&4$:<(6)&;:"j(*&)*$3<& 37$**(%)&0*&67(&A(*(%9B&$*1&+0$&(B5":6&6"&"67(:& 89:"5($*&3"9*6:0()= Key objectives 2010 Revitalise the Beckers brand Continued focus on production costs Key achievements 2010 Beckers brand awareness increased; new innovations like Mammoet and Party mixes Bicky brand awareness and customer penetration increased Key objectives 2011 Increase relevance of Beckers and Bicky brands for our customers and consumers Improve operational efficiency by continuously improving quality of processes, systems and production We continue to work to improve sales growth and realise higher operating margins over the medium term. At some point in time, we expect Frozen Foods to be divested. Frozen Foods has strong market positions in the Benelux and its markets are relatively resilient in an economic recession. It comprises Beckers Benelux and Favory Convenience Food Group. Beckers Benelux has its offices in Breda (NL) and production locations in Katwijk (NL) (spring rolls) and Deurne (NL) (bread snacks). It focuses on the production and sales of strong brands like Beckers and Bicky in the out-of-home, grocery and foodservice channels in the Benelux. Favory, in which Wessanen has a majority stake of 64.1%, has its offices in Deurne and production facilities in Bocholt (B) (meat snacks) and Deurne (meat and breadcrumb snacks). It produces the basic snack assortment for Beckers and it produces for and sells private label products to major retailers and out-of-home wholesalers. In 2010, the strategic emphasis at Beckers was to revitalise the existing brands after discontinuing some 25 products at the end of The brand awareness of Beckers increased as a result of advertising and promotional spending will be a year of innovations. These are expected to add considerable value given that the current offering is not extensive. It is not about the number of introductions, but each innovation should strengthen the existing product range. A)$2,2*/1$B$2*$ &/6$2)$:,)-+.*/6$ 2&>./4$6.//*+;< At home In Katwijk (NL), we produce 700,000 spring rolls daily in a fully automated process, while retaining the element of craftsmanship. The product range includes different flavours such as meat, fish and vegetable and different cooking methods such as microwaving and deep-frying - and you can enjoy these as an appetizer or as a meal.