Wessanen's (KJWNF) CEO Christophe Barnouin on Q4 2016 Results - Earnings Call Transcript

| About: Wessanen N.V. (KJWNF)

Wessanen N.V. Koninklijke (OTC:KJWNF) Q4 2016 Earnings Conference Call February 15, 2017 4:00 AM ET

Executives

Christophe Barnouin - Chief Executive Officer

Ronald Merckx - Chief Financial Officer

Analysts

Christophe Barnouin

[Call Starts Abruptly]

As a result of the addition of the strategy as most of you may know. And I'm going to detail that in the following pages the results of that. So Page 3, what you will see that really [indiscernible] growth of 9% and EBIT growth of 18.7%, but as well we have non-financial KPI which are important for us, which is the share of the organic food in what we do plus 2% after three quarters of the revenue and the fact that we use nearly [indiscernible].

So if I move to Page 4, we have the strong growth of 9% in 2016 and 9.6% growth on the Q4. In Page 5, if we look on our own brand growth and I will detail that. The full-year is 8.5% and revenues growth of the quarter was only 6.6%.

Now let's go to Page 6, the Page 6 gives you a detail, because between the bond we acquire [indiscernible] and the rest of what we call non-own brand. So we basically have 80% of what we do is own brand about 20% is not our own brand it's split between private label and [indiscernible] distributors brand.

So what you see here in Page 6, is we have the positive effect of the acquisition that is the key. But on our own brand we go 6.6% and we declined on basically private label mostly, so what has happened around this year's specifically in Dairy Alternatives [indiscernible] Dairy Alternatives, in our own factory. We have let go some of that's non-profitable lower revenue that we had from private label to make space for our own brands.

If you go Page 7, you have that exact same chart, but on a full-year basis. When you see you can find that the effect of the acquisition €25 million, the effect of our own [indiscernible] €36 million and a gross of 8.5% and a reduction of 2.9% of our [indiscernible] that u will notice that the effect of the private label affects more the second half of the year.

What you can notice in the full-year is that in terms of turnover there is a [indiscernible] effect which is mostly down to the flat effect which is accelerating H2 since [indiscernible]. So that's basically how the turnover and gross structure in detail.

In Page 8, we have been growing but we have been growing as well our EBITE is moving from 6.6% to 7.2% which is a gross of 18.7% despite all what needed to be done to accelerate the growth, and so we continue to grow and to grow our marketing investment.

In Page 9, I would like to give you some highlight on the key things that works very well for us. Clipper is a brand we acquired five years ago. We have grown 52% since the acquisition, it is a very good success in all over Europe. [indiscernible] France and Germany and now it's picking up very fast as well in the UK. So we are going in UK we are going into the export system. So we are as well investing to in our capacity because we have a very nice of course return of that investment and that partially explains what you see in the presentation a little bit later and an increase in capital expenditures.

Moving to Page 10, our largest category is the Dairy Alternatives. So we acquired the company two years ago which is Abafoods which is one of the best production unit and as well as R&D units in New York for Dairy Alternatives. And we are leveraging that all over Europe, so for instance in Germany we just entered with the brand Allos on our own [indiscernible] recipes, the organic channel and it helped a lot brand Allos at the beginning of the year as well. And we are innovating overall gains and as well expanding the [indiscernible] this year.

If we go to Page 11, just as a reminder, but our first brand is Bjorg, it has a phenomenal growth this year based on better products so we have clear focus on the product innovation, strong investment in the brand, on system nutrition policy and a lot of promotion installs. Last but not least, of course you will notice that we have done four acquisitions in 2016, we acquired Piramide, which is a leader in the organic [indiscernible] and it strengthens our portfolio because we have no one of the first supplier of organic shops with our own brand in the Netherlands.

We bought Destination, we are the number one [indiscernible] in organic coffee in organic [indiscernible] which is growing very fast when we look at supply chain synergies with some of our categories in the near future. We have been acquiring a leader in the gluten-free biscuits in the UK and we are preparing for the re-launch of that in 2017. And the last acquisition which was in December is we have acquired one of the best brands in Spain with El Granero which is a leader in Spain for organic food and organic channel as well as a leader with the grocery store [indiscernible] in the supermarket emerging and high growing business in Spain.

So that was the four acquisitions, that’s basically what happened for us this year. I will hand you over to Ronald Merckx.

Ronald Merckx

Thank you Christophe. Yes, just a couple of very brief slides I think just to highlight a sec again that we are on a trajectory to contingently increase our EBITE and I think it’s a very critical performance adding another 60 basis points of margin, as we have always said at least 50 basis points and I think we are delivering against that and that is despite an ongoing investment in marketing to fuel that growth further.

I think in terms of a couple of things below EBITE, as you all have seen from the announcement in the quarter, we have actually taken a restructuring charge for our business in Germany where we are restructuring one of the plans to make it more cost competitive and set up for the future. In terms of income tax and you have also seen that in the guidance we had a very low tax rate in 2016 which included a lot of DTA deferred tax assets and therefore created a low rate.

The 30% that we have seen for the full-year is closer to what we would expect going forward as well and then of course in the P&L in 2015 still effect both in the full-year and in the quarter 2015, quarter four of the bottom sale of ABC and few settlements in the fourth quarter 2015 of course. Since we are now a pure player, normal that has happened in this quarter.

And then the other big change from a year ago is of course the fact that we moved from a net cash position of 70 million to a net debt position of just over 80 million, I think the operating cash generation was good despite the significant growth to working capital was basically flattish, but of course good inflow in the fourth quarter and then we spend 140 million on acquisitions and [indiscernible] include the debt, which is here listed on the other 7 million that we acquired in the businesses, so just over 120 million.

We are at 1.5 times EBITDA, so still well within the rate that we feel comfortable with ourselves, which is sort of 2.5 and of course under our bank convenience we can go up a little bit further than that even. I think that in terms of - sort of a little bit of additional financial color on the numbers. And then in terms of our expectations for 2017, this was in the announcement low-double-digit growth we expect for the full-year, strong growth of our own brands more in line with 8.5% or there about that we see for the full-year.

Of course, it will be an acquisition effect in there as well. And we will see further decline on both private label and sole agency basically taking the number down again. EBITE above 8% I think started from the 7.2% in order to about 50 basis points underlying we think about 40 to 50 at the M&A effect. So slightly above the 8%.

Net financial costs 2 million to 2.5 million, now that we are at 80 million plus, debt we will start to pay a little bit of interest, but still relatively cheap. Debt rate is 30% it’s being coming down over the last few years predominantly driven by the fact that of course the French tax rate has come down and the mix from a perspective is improving as well.

The biggest change I think in terms of guidance is also on the CapEx, I think for those of you who were at our Capital Markets Day. We have shown you couple of projects particularly in our tea factory in the UK and also some of the in-sourcing that we are doing other foods factory and definitely those projects will be up a little bit more cash in CapEx in 2017 depreciation and amortization still around 8 million to 9 million.

So that’s completes the presentations for me.

Christophe Barnouin

To conclude the presentation. So our priorities for 2017 again in regards to the strategy have been so far, for the focus of own brand growth. Which means as well that we will not look significantly at private label and distribution brand. We continue to reduce private label and distribution brand, the basic is that we like them, [indiscernible] for distribution brand at a decent margin [indiscernible].

If it’s about keeping that to maintain fixed cost, we don’t do that so much, okay. So that you should expect in 2017, more or less on what happened at the end of the year. In terms of operations, we will be focusing on further in Korea operations [indiscernible] which is we are going, so the simple reconsideration has the demand and the supply forecasted is something difficult, so we can improve on that. We continue factory extension that is two for Italy, and two for England.

We are executing [indiscernible] in Germany. We will look as well in the such strategy in holding out the new standard and sustainability called [indiscernible] I’m not going to expand on that, but it's very nice and interesting new sustainable standards that [indiscernible] few years ago, and we will do that, we will hold that out [indiscernible]. And in 2017, of course we will make sure that we integrate well in 2016 acquisition as well as managing an activities of target in case if they want to join us.

So that concludes the presentation on our side. And we are very pleased to have any questions from your side.

Question-and-Answer Session

Q - Unidentified Analyst

Hi, this is [indiscernible]. Thanks for taking my questions. A couple of actually and maybe just start off with [indiscernible]. You said in Q4, you have seen a decline in organic sales growth, despite your efforts to sort of streamline the business again. Do you expect the decline in 2017 or do you expect to stabilize in the slide growth?

Christophe Barnouin

What is happening in our German business is actually we have a channel shift, so we use to basically fully rely on [indiscernible] the market on the organic shop and then the supermarket and the product line where we did very fast. And we have fixed cost issued in one factory. So, the fixed cost issue that’s exactly what is the plan that we are putting in place in the per share type of factory. And the channel shift, we have started mid last year by [indiscernible] so that we can get a higher goal. So [indiscernible] supermarket channels, not so much in the organic shops with innovation. And we did Allos on the organic shop and we extend Allos for instance in non dairy drinks so Dairy Alternative and which is as I said good success so far. So, how we will finish you know I don’t know, how we start the year I know and its [indiscernible].

Unidentified Analyst

Okay. Thank you. And then a follow-up on that, when I assume sort of your long-term guidance for 5% organic sales growth and think the midpoint and then referring to your previous comment that 20% of your sales is still in decline which is the private label on the third-party. That sort of implies a, I mean a sort of 9% organic sales of your core brands. And when I assumes sort of the 10% of debt is Allos and Tartex. I mean are you then comfortable with that growth especially since taking the past few quarters we have seen relatively lowest organic sales growth that’s for the..

Christophe Barnouin

Yes, we are yes so you [indiscernible] and the answer is yes, it is close to - that’s what we expect on our own brands to grow high significant effect. And it's made of [indiscernible].

Ronald Merckx

Yes just one point also you know Tartex and Allos don't make up [indiscernible] 10% to total portfolio and far less than that.

Unidentified Analyst

Okay. And then maybe a last question on your marketing costs, what you see in terms of marketing cost. I know you are not willing to sort of give the percentage of sales, but do you see an increase in marketing cost and then also maybe increase in as of sense sales or is that sort of stable now?

Christophe Barnouin

How should I answer that Ronald?

Ronald Merckx

No I think it's as I said in my slide about the long-term development of EBITE margin, I mean the quality of that result is also that year-on-year we do keep investing more. I think for 2017 the plan is to increase the AMP spend a little bit further also as a percentage of sales. But I think as explained as the capital market there I mean for a number of brands we do start to get sort of a synergetic effect where you don't need to continue to increase at the same rate to get the growth and it also depends on the market growth.

So again as we said earlier on, the growth in 2016 of our own brands has been a little bit ahead of the market. The market is also growing a little bit faster than that 5% to 7%, so you don't need to overspend in AMP either. That's also relative to share of voice, share of market what are your competitors doing. But in itself, we want to continue to invest a little bit more.

Unidentified Analyst

Okay. Thank you guys for all my questions.

Unidentified Analyst

[indiscernible]. A couple of questions on Germany as well and one on Europe. Regarding Germany, can you give us more details on the return you expect on restructuring and this year you spent was 6.6 million on restructuring of your German business which is around 10% of the turn off, so nearly two years [indiscernible] profit for that business. What is the return we can expect in terms of related that interest?

Christophe Barnouin

I mean the return on those interests is basically is four to five year payback.

Unidentified Analyst

Okay. And ultimately it will be about as it seems just something in your Northern German plant as Southern German has already announced. What has going to happen there, what is the money spend on?

Christophe Barnouin

On the money?

Unidentified Analyst

On the other restructuring you're announcing the merger with

Christophe Barnouin

What we are trying is to make we have two factory in Germany, the factory in Northern Germany was producing mostly to make it simple mostly for the brand Allos in six categories of it. And a lot of that is to use for a limited turnover. So we are exiting every category where we can’t be cost competitive so that’s what we do. So we out stopped let's say honey production and get production where we can't be competitive. We keep and improve our crop business which cereals and produce only that. And we reproduce as well in this factory jams in regard to jam. That have some synergy with our South Germany factory in [indiscernible] where we are going to move that food in a jar category. Next to the [indiscernible] we do produce basically vegetables for jar. So we have synergies there, so we consolidate and improve the core of the fiber business and we focus on the core in the dry business in [indiscernible]. So that does improving, it does improve the fixed cost. So that’s what we are doing with it, that’s where the money is used for. Some for this CapEx will be transferred to fiber, and some of these improvement on the newest business.

Unidentified Analyst

All right, that’s very clearly, then obviously a follow-up question on that is you already mentioned that start of the year in Germany looks better than the end of the year but it obviously this is early days. These things take time.

Christophe Barnouin

I can’t comment because we are talking [indiscernible].

Unidentified Analyst

But it will take time for you for kind of execute the restriction of this, the other into channel shift. Can you highlight what at this point is the exposure to new channels between [indiscernible] start of 2016. So basically your exposure to the slowing - you form houses. How is that deflated in 2016?

Christophe Barnouin

It was most of [indiscernible] until nine months ago, most of it. We are going very fast and then there is no point in your number that would change in your graph because you are going very fast that is new and we have lot of interest of the trade for our innovations on tactics as well. So that’s early days but it is slightly above on the expectations of our.

Unidentified Analyst

Okay. And that interest is that you launched two big product stores but those also are quite relevant for supermarkets I reckon.

Christophe Barnouin

Exactly but the [indiscernible] larger retailer. In Germany, it’s better that you push yourself successfully before rolling out on a national basis a decline before there is high cost. So it is doing well.

Unidentified Analyst

Okay, that’s clear. Then a question on part of the business which is doing fairly good this year. Europe, maybe you talk about creating a makeup bands in organic that seems a nuance but still get something with regards to this mindset. It takes up a bit more of.

Christophe Barnouin

[indiscernible] now to give you an example, like on the chart by the way its [indiscernible] financial result which is a sign of we are coming into the daily life of people. So that’s great, because this is where we critical mass a bit direct on the investment that we do. Its lowering the risk as well because we have a stronger brand you can go, but you can’t be decline that, it gives us some stability [indiscernible]. So that’s without giving you a member of one quarter after financial results which is why we are becoming [indiscernible] fast in consumer goods in food.

Unidentified Analyst

So, that’s something why you continue to spend more of this?

Christophe Barnouin

[Multiple Speakers] of course because its marginal EBIT that we get out of that is very interesting.

Unidentified Analyst

Okay, and then a final question with regard to the margin guidance you prefer is there anything that we are trying to highlight in terms of facing of market investments in H1, H2?

Ronald Merckx

No, I think when we look at our current plans this second half, so the first half will be higher in marketing spend and the second half a little bit low. So profit why that would expect in the second half to be more second half weighted here. We are also taking into account the first half of 2016, particularly in Q1 is very strong with needed 10% EBIT margins.

Unidentified Analyst

Good morning. [indiscernible] a couple of questions. CapEx, you explained that there are some special projects. But what should we expect after 2017, will you move back to let’s say 1%, 2% of sales, that’s my first question. And on the guidance, you gave a guidance for sales growth, which includes everything, so currencies, acquisitions, et cetera. What is your few contribution from the acquisitions based on what you know today obviously . Then on Germany, big exceptional charge in the fourth quarter, do you expect more in 2017 or is this it. My final question, I’m a little bit confuse by what you said in the dividend. Can you explain the change you put through or putting through the dividend policy?

Ronald Merckx

Yes. On the CapEx, I think the specific investments in 2017 are supporting the growth of some of Clipper and some of the tea in-source that we doing in our factory in [indiscernible] that’s where probably 60% step-up of CapEx is coming from. Part of it is the investment in [indiscernible] that Christophe just talked about and the third leg is basically the expansion of Abafoods that you have seen [indiscernible].

I think after that it depends a lot, if we continue to see that accelerated growth at Clipper and also Dairy Alternatives we will of course free of cash to invest. But what I see today in 2017 and that’s an exceptional year that I would expect to drop back to lower levels again between 8 million to 10 million that we have see in the past. But again, if we do continue to see strong growth in some of these areas, we may want to free up cash and invest further of course.

In terms of sales growth, I think what you have seen quarter-on-quarter in the number that we report in terms of the M&A effect is around 8% to 9% in 2017. Currency, I don’t know, because, I don’t know what the pound is going to do. And then I think there are other two other constituent part is of course in the one hand our own brands, where I think as Christophe said high-single-digit growth in-line more or lesser or what we have seen this year 8.5% to 9% that we expect.

And then the rest is made up basically of decline in both sole agency and private label. And I think going forward, you will see that shifting from 20%, closer to like 15% of the total. So the makeup of the business is shifting more and more towards being a branded. Part of that also has to do with the fact that in June, of course because restructuring, we will say good bye to some private label business that we still have in that factory. Then you had a question on Germany which is now escape me.

Unidentified Analyst

Its, is it or do you expect more.

Ronald Merckx

Yes. No, we plan for this to be it. And then of course, I think as Christophe said, hopefully this will help to turn the business around, I think to some tracking innovation good growth in a number of new channels and therefore that should put it on the right foot for the future. And then in terms of dividend, I think we have sort of owed the past maybe constrained ourselves a little bit by giving quite a narrow guide range of 35% to 45%.

And I think when we look at the business now, I think we have got a number of special acquisitions that gives shareholders a good return we see investments in CapEx that we can do. So, I think we want to really move and say look it’s a stable or growing dividend as we look back it was $0.10, $0.11, in 2015 and then $0.12 for 2016.

So, sign of confinement growing dividend, but I would like it to be able to tailor it more to the needs of the business rather than have a straight jacket of 35% of 45%. To be honest, I think most of the shareholders and investors I talked to they don’t buy this for the dividend. So, we would like to just a little bit more levy and freedom. And I think that this is the right moment to communicate.

Unidentified Analyst

And the reason I ask is that you specifically said it can be cut or you can skip that is quite obvious.

Ronald Merckx

That’s like a in a way of Safe Harbor kind of statement, because the intention I think it’s a stable or growing, but without that straight jacket of 35% to 45%.

Unidentified Analyst

[indiscernible] ING. A couple of questions first one on your - position at year-end. It’s a similar revenue percentage as the last year whereas you can out fully integrated and recently your balance sheet to buy an acquisition and I take it from official diesel improved also somewhat due to the acquisition. Can you talk me a bit through that process?

And second also just coming on your growth guidance on the previous question a bit as well. If the acquisition impact is already 8% and 9% then the low maybe this is semantic that low double-digit, I would rather say that is mid double-digit rather than the low double-digit, but that can be a bit semantic on my side. Can you elaborate a bit on those numbers.

And probably bit on your operational leverage guidance for the 2017, we speak of a 100 bps, improvements 50 bps from acquisitions and 50 bps from your operations. If I look at last year, it was it would be less from your operations I think and that could be impact of Germany. And can you help me this through what you expect still from Abafoods and Clipper to come in 2017 as such. Thanks.

Ronald Merckx

Okay. In terms of working capital Biogran with only one month as an have a huge impact. And in fact the total working capital days for Biogran are in line with the average for the total group, so that hasn’t had a big impact. So, we have seen a bit of the push positive push on working capital in Q4 underlying actually there is more of an increasing trend because of [indiscernible] which source global sort of organic coffee quite high long lead times and higher inventories that something that we are looking at. So, that actually is an underlying push up which of course we are trying to sort of through other projects offset in terms of working capital.

In terms of the growth guidance, no I think the impact of the private label and the sole agency is basically making up the delta to get from your 15 to a number that is low double-digit growth. So that’s a quite a bit of a decline there. And then in terms of operational leverage, as I said the one of the big things of course is the acquisition of Biogran which we done in December. And as you know of all the acquisitions at the relatively highest impact in terms of margin. And then the other ones like [indiscernible] and Mrs. Crimble's of course were already for six months to a large part in the number and don't want to drive the rest as sort of 50 bps organic growth.

Unidentified Analyst

Yes. And if I compare to your increase this year as far as the acquisition driven and margin increase and operational leverage increase. It seems that

Ronald Merckx

And increase in 2016 from acquisitions isn't huge. That there are also some integration cost for instance. So now we are comfortable with that and let's say that 80 to 100 basis points on this year.

Unidentified Analyst

Thanks.

Unidentified Analyst

[Indiscernible]. I have couple of questions from my side. Firstly I thought that over the last year private label business was at 20% of sales. So could you interpret me on that along that you said I think sounds good. And then on the gross margin, and what I don't understand particularly is that if your own production is at least I don’t know private label down so much, and your gross profit margin hardly moved. And you also say something about the impact of the British Pound that maybe you could quantify a little bit and how should we see that going forward.

And then Biogran in Spain, maybe what I also asked in the conference call when you announced the acquisition, but the margins of Biogran very high. And I think as a company it's in the early phase and remark that this is in early phase so the margins looks already - high for me. Could you elaborate a little on that how you would correct that going forward?

Christophe Barnouin

Starting on the private label it may be early 2017 when it is given last year that's no, in 2016 it was 20%. And going forward to 2017 we see that dropping to 15 the combination of so we will wait and see and on private label.

Unidentified Analyst

What I saw private label maybe 20% in 2016.

Christophe Barnouin

No, there is a little bit high. Yes, and you have got to be around that some [Multiple Speakers] to see activity.

Unidentified Analyst

Okay. That's make additional profit.

Christophe Barnouin

So to your question on Biogran on the margin, we don't see a fundamental top of margin for given in 2017. Because it's still at the still early stage development and we will remain as such in 2017. But I think it will going to consolidate in such a way that we would need to avoid much higher trading terms or much higher marketing spend its early days. So we don't see any fundamental change in 2017.

Unidentified Analyst

Okay. On the gross margin.

Ronald Merckx

Yes, the gross margin of course in the way that’s certainly reported is only raw and so what you don’t see there is the effect of sort of operational leverage or deleverage for instant in the case of Germany with holding of volumes in terms of private label and some of our own brands that basically that negative leverage you don’t actually see in the gross margin but if you look at sort of on the one hand our pricing.

We haven’t been very aggressive in terms of that and in terms of raw and back we haven’t seen huge shift either so can expect it does not really a big impact on the gross margin and in terms of the pound that is really all coming in 2017 because you have basically hedged up until so that the early part of 2017.

So that will start, on the one hand hit in 2017 will be of course there are price increase programs in place and being aggressively issued by the UK team, which maybe not in margin terms but in absolute profit offset that impact.

Unidentified Analyst

Okay. Then on the cost line, the restricting charges is that primarily personnel? And is that an effect of this and if you then look at the other expenses in the second half, I think you have calculations, they are also up by around 10 million in the second half, while in first half, they will flip. Is that primarily the explanation of the higher marketing expense or is something else in that?

Ronald Merckx

The marketing expense was of course the acquisition effect. It was all the acquisitions we are done in the second half. So, you see that the speaking for any of Bio and Mrs. Crimble's because they will purchase at the mid-year, basically those cost our all in that line I was well and of course we came that in those business in the first half so they weren’t in the - because this is all done on a reported basis, not like-for-like of course.

Unidentified Analyst

And then last question actually is you still felt successful with Clipper fee, while some of one of the big tea companies also wanted to get more information in fair tray of that getting and they claim a lot of success, but what do you notice?

Christophe Barnouin

For the moment we have a very high demand on Clipper, even more than what we anticipated. So we don’t see any further on the consolidation to Clipper. I can’t see that having an effect on our business in 2017. It’s been the consumer demand is down, we have a very good mix with this made of good product, organic paid, upon getting bigger with price point not too expensive and we have a decent margin on that and a great design. So that combination that leads is very well laid which is bigger and the demand for consumer is very high on that. And as we speak, it’s very, very high [indiscernible].

Unidentified Analyst

Thanks.

Unidentified Analyst

Good morning, [indiscernible] from NIBC. Just a quick question there, if you take out the performance revenues on 2015, you reported 517 if we take into account all the acquisitions, what numbers pro forma revenue of deals to put in 2016?

Christophe Barnouin

So if we take out this?

Unidentified Analyst

If you include the pro forma revenue at the acquired businesses in 2016.

Ronald Merckx

So that was in the first slide I think [Richard] (Ph). So for the full-year, the acquired business that affects 25 million on a like-for-like basis.

Unidentified Analyst

Yes. But it’s all the business is were in 2015 or in the 2016 revenue. What kind of number again up?

Ronald Merckx

If we had all the businesses, but the total return would have been.

Unidentified Analyst

Yes. It was on a full-year basis. If you had all these businesses in 2016 on a full-year basis.

Ronald Merckx

It would been about 30 million high I think. Because it was mostly acquired at the mid-year and then Biogran which is one month, which is a small effect and Piramide was small.

Unidentified Analyst

Again looking for declines in agency and private label of over 5% in 2017, because that seems to be [Multiple Speakers].

Ronald Merckx

Yes. That’s right.

Unidentified Analyst

That was it. Thanks.

Unidentified Analyst

Thanks very much to taking the call. I have one follow-up also related dividend. I mean, you did four acquisitions last year and then as talking about your net debt EBITDA is now 1.5 times. At the same time, I assume we probably be buys with including Biogran into your sort of including that into the group. Why have you been now sort of change in dividend policy instead of weekend sort of, we do not the dividends, if we can sort of achieve the returns of the group. And related to that what do you see there in the market in terms of acquisitions and what you expect in 2017?

Ronald Merckx

I think the intention is not to sort of tuck the dividend, I think the take away for anybody should be, we want a stable or increasing dividend, but I think I can explained, we felt that the current quite narrow range is a bit of straight jacket and we like a little bit more flexibility. Also because we think the shareholders will be pleased, if we see opportunities to invest that money in the company and get a better return that they will support that.

And then your bridge to M&A, I think we have done four acquisitions in 2016. Sometimes these things are a little bit like London buses, you wait for half an hour none comes and then three and one go. So we continuously are engaged in discussions with people, but you can’t really force these things. So it’s right and we will act prominent and if there is nothing there, there is nothing there. I think Christophe explained all the four pillars, we have achieved, there is still a lot do as well and in particularly with in relation to M&A, we need to make sure that solidly integrate all those businesses. But yes, if there are opportunities we will look at those and act.

Unidentified Analyst

Okay. Thank you. And my last question would be on your in-sourcing. I think what I assume sort of, now have your product is currently in-sourced and at the same time, you continue to develop recopies in your other foods factory, you acquired the Biogran. What can we sort of expect from an in-sourcing perspective also now that u acquired Biogran, do we see the number moving up or?

Christophe Barnouin

Slightly but not significantly, we recorded 40% plus [indiscernible] that would be a maximum for the year to come. So, Yes [indiscernible]. If there is a better capital allocation in certain categories we will exhaust normally in the high stage, we are relying on large external producer and the small part to Biogran but we will not - if it makes no sense to do that ourselves rather have the valuable across somewhere else.

Unidentified Analyst

Okay. Thanks.

Unidentified Analyst

[indiscernible] on the dividend policy. I think this is kind of intriguing comment that you are making, not so much that you want to have a little bit more flexibility, but given the cash flow generation of the business and the guidance that you have given basically for the underlying EBITDA for 2017 also you have quite a levy for doing acquisitions.

If there would be more acquisitions as you indicated that could any point of time be the case like the lower numbers. Is this small cash flow saving on your dividend going to make it or even actually thinking about doing an equity issue for - in case those acquisitions combine. And then the thinking then is, why then change the dividend policy if the impact is so minimal on the amount to be spent?

Ronald Merckx

Yes. I think the impact is going to grow bigger going forward, that at least what we are planning for. And then the numbers do become a little bit more substantial if you look at that. And I think this all automatic setting of the dividend as a percentage of net profit without actually looking at the need of the business be it CapEx, be it M&A, be it share buybacks or whatever.

I think that was just a little bit too formulaic we just want to look at maybe the more holistic way about different levers are grown to that 2016 it doesn’t make the biggest difference, but going forward actually it does start to head up. And we would just like to have that flexibility. And as I've said, I think that supported by most of our investment and shareholders who are not looking at this from the dividend perspective.

Unidentified Analyst

[Indiscernible] couple of questions. One is, can you say something about that sort of [indiscernible] in the Netherlands because actually when I look at the sales listed in the market in the Netherlands and I receiving that Dr. [indiscernible] is actually more permanent on the shells than maybe a year ago in the expense of the unit And could you comment on that one. And maybe if [indiscernible] could you comment. That’s one question.

And then on second one, in with regard to your M&A strategy and you keep on acquiring very nice companies but also a number of brands, small brands niches is actually increasing which in my view means that there is going to be more difficult to manage and all sort of increase to wish accidents maybe this point that we have seen in Germany. How are you going to manage or actually move forward with more acquisitions higher than also retaining new strategy or maybe consolidate some of the banks we have currently in your portfolio.

Christophe Barnouin

Okay. And on the Zonnatura, what we have sale are in the [indiscernible] is an interest in the organic market made for from the consumer side. So we see a lot of people moving in, starting with the private label of largest customers of course. So that the key things in there if and it's a classic game of one quarter did we have the highest innovation to move out of commodity [indiscernible], when we see the big private label company didn't come faster into improving as a driving as an important product.

And what you see is fair which lately a huge not so much from Shah, but mostly from the let's say private label [indiscernible] they lot of important for them. And it's a strategic category for them, [indiscernible] they are happy that is on the chart and they want to have that private label. So we are deploying so on the year one they are deploying the private label we have that in hosted sometimes ago it's that difference.

Okay, now on the M&A and the number of brand and what we do really is. So we are gaining cash flow on the number of brands, so we don’t planned to keep brands that we are just pointed out. We don't trying to multi-players under our brand category. If you look we want to have - what do we want to do we need to have a one brand which is a leader in a category and a channel over the two or three categories essential. Of course we would like to keep it on because keeping our competitor do well in business all lines.

And but we need certification indication how do we reduce the complexity, it's more like ability taking a product, ability to minimizing the member of SQUs and bundling volumes on the key sellers in our portfolio to and to brought to the new ones. As we speak we are listening with the El Granero and [indiscernible] which is brand in organic short and brand in the super market in Spain by ability which is for that. These will be priority for Spain.

Behind that we will use the same ICP that we will be using on some other [indiscernible] we launched. But I will give you an example, on Allos okay we have used the recipe of [indiscernible] to go into organic shop in Allos brand since November. And so that's the fundamental way for us to reduce complexity and to take control of our business.

The control of the business it's a European business by category of products. This is where we see maximum value, and in terms of consumer, the consumer they prefer on their own brand. So when we believe we have too many brands like for the moment we ended a process on European looking at a portfolio in Spain for instance. We make priority each type for one large brand in each channel.

Unidentified Analyst

Okay Yes thanks.

Ronald Merckx

Operator, can we check whether there are any questions from the conference call? Hello operator can you hear me?

Christophe Barnouin

Okay. [indiscernible] session then. Thank you for coming here. Thank you very much.

Ronald Merckx

Thank you.

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