Belgium: Lotus Bakeries - Half Year Report

31 August 2007

1.Results 2007

2.Explanation



2.1General



As the results of Koninklijke Peijnenburg are consolidated only from 1 July 2006 onwards, the half-yearly results for 2006 do not include those of Koninklijke Peijnenburg.



Apart from this press release, additional figures, including the balance sheet, income statement and cash flow statement as prescribed by IAS 34, can be found on our website.



2.2Turnover



Turnover in the first half of 2007 rose by more than 40 %. Obviously the most of this significant growth is explained by the fact that Koninklijke Peijnenburg's turnover was not yet included in the first half of 2006.It is important, however, to note the 7% “pure” internal sales growth of Lotus and Peijnenburg brand products, on a like-for-like basis, duringthe first half of this year. This growth is due mainly to strong sales ofcaramelized biscuits, of gingerbread in the Netherlands and of waffles in France. Turnover of private label products fell slightly.



In May 2007 our caramelized biscuits were introduced onto the Dutch retail market under the Peijnenburg “Koffieleutjes” brand name. In Belgium various gingerbread concepts were launched in June.Initial results from both introductions are positive.



2.3Operating result



The current operating result (REBIT) doubled from EUR 6.4 million in the first half of 2006 to EUR 12.8 million in the first half of 2007, increasing also from 8.5% to 12.0% of turnover.



Current operating cash flow (REBITDA) reached 16.6 % of turnover, up from just 13.6 % in the same period in 2006. The main explanation for this increased ratio, apart from the strong margins at Koninklijke Peijnenburg, is the growth of sales under the Lotus and Peijnenburg brands.



The non-current operating result was kEUR 627. These costs stem mainly from a reorganization in Enkhuizen.



2.4Financial result



Net financial debts fell by EUR 22.5 million over the 12 months to 30 June 2007. The significant debt reduction is due to the higher profitability and also the relatively limited investments in tangible assets during the first half of 2007.



The financial result amounted to EUR -2.2 million, up almost EUR 2 million on 2006. This is explained by the external financing of the acquisition of Koninklijke Peijnenburg and by the writing down to market prices, under IFRS rules, of the financial instruments used to hedge the interest rates on this financing.This latter accounting requirement negatively impacts pre-tax results by almost EUR 0.9 million.




2.5Taxes



Tax charge during the first half of 2007 amounted to EUR 167,000.



At the end of 2007 the tax rate in the Netherlands was lowered from 29.6% to 25.5%. As a consequence the deferred tax liabilities on the “purchase price allocation” need to be reduced by more than EUR 2.3 million. This reduction in deferred tax liabilities runs via the income statement and explains the low tax charge in the first half of 2007.



2.6Global result



Net profit rose by 142% to EUR 9.9 million as against EUR 4.1 million in the first half of 2006. The main reasons for this significant increase, apart from the inclusion of Koninklijke Peijnenburg in the consolidation scope, are the strong increase in operating results, where we can point to the doubling of REBIT, and the reduction in deferred taxes.



Net cash flow rose by 54.2 % from EUR 8.5 million in the first half of 2006 to EUR 13.1 million in the same period in 2007.





3. Cooperation with McVities



For a number of years, Lotus Bakeries has produced a number of products for the McVities Cake Company, which is a part of United Biscuits.Much of this production consists of the Jaffa Cake Bar, which is produced in the Oostakker plant.Having recently acquired a production line from a bankruptcy, McVities has decided that in future it will produce these Jaffa Cake Bars itself. Lotus Bakeries will continue to produce the products for McVities until at least the end of March 2008. On an annual basis the production of Jaffa Cake bars represents a turnover of around EUR 5.5 million and an EBIT and coverage of fixed costs of approximately EUR 1.5 million.





4. Prospects



The integration of Koninklijke Peijnenburg is proceeding to plan.After the closing of the Lotus Bakeries Netherlands sales office, all administrative services have been centralized at Peijnenburg’s head office in Geldrop (NL). In this way the commercial and administrative organizations of Lotus Bakeries Netherlands and Koninklijke Peijnenburg have been integrated at Geldrop. In 2008 the Peijnenburg organization will also be switching to the same ERP platform as the Group.



As already mentioned, investment levels will be higher in the second half of 2007 than in the first.



Lotus Bakeries expects sales to move just past EUR 200 million in 2007, with the further growth of sales under the Lotus and Peijnenburg brands partly offset by a continuing fall in sales under distribution brands.



It is not impossible that profit margins will fall slightly in the second half of 2007 compared with the second half of 2006 for the following reasons:



§Recent months have seen sharp rises in the cost of various basic raw materials like flour, fats, chocolate, syrups and packaging. These have required Lotus Bakeries to announce a significant price increase, which will become effective only in the course of the 4th quarter.

§The introduction of Lotus gingerbread in Belgium will be supported by a major TV campaign running from the end of August to December 2007.