Chocoladefabriken Lindt & Sprüngli AG (LDSVF) CEO Dieter Weisskopf on Q4 2019 Results - Earnings Call Transcript

Chocoladefabriken Lindt & Sprüngli AG (OTCPK:LDSVF) Q4 2019 Results Conference Call March 3, 2020 8:00 AM ET

Company Participants

Dieter Weisskopf - CEO

Martin Hug - CFO

Conference Call Participants

Alain Oberhuber - MainFirst

Patrik Schwendimann - Zürcher Kantonalbank

Jon Cox - Kepler Cheuvreux

Jean-Philippe Bertschy - Vontobel

Dieter Weisskopf

So welcome, and good afternoon for our this year's investor presentation. And I'm very happy you followed us and you came. And I know some of your colleagues, unfortunately, due to travel bans, had to stay at home.

But nevertheless, as well, we will report this event and the presentations on the digital media, so that will allow as well for everybody to have a review or as well to follow it again. Now it's 175 years of Lindt & Sprüngli, and I'm very happy that, of course as well in this year, I can present to you the results, and we will get back to the 175 years in a second, not in a second, but in about 40, 45 minutes when we talk about the invitation that you will receive as well for our Chocolate Competence Center.

Now looking at the results is one thing, but looking at the management and the team that is behind the results. And here, there are just some of them. I will be supported today by Martin, who you all well know. Then we have Rolf Fallegger, Rolf is responsible for marketing, international, the function of marketing and at the same time as well responsible for North America, for the area. Then we have Alain, Alain is responsible for sales, for the sales function and responsible for numerous countries, mainly rest of the world, but as well, UK, France and Italy, so the Latin countries. Then we have Mr. Lechner, Adalbert is responsible exec for CEO Germany and as well for the Eastern and Northern European countries that is Nordics, that is Czech Republic, Slovak Republic, including as well Russia. Guido Steiner is operations, production, logistics, planning. And Jennifer Picenoni has been announced in December as our new Group Management Member, but of course, she is already for about 8 years responsible in our area for the function of the compliance and legal. And as you look around, you see it not only with banks, you see it as well in the food industry, legal compliance is getting more and more critical, if I just mentioned, labeling issues and labeling loss that we will be faced and are faced in Europe and as well in the USA.

With that, I go to the agenda. And in the agenda, I go through the financials and markets. Handing over to Martin, that will do the financial figures and sustainability update, and I'll come back with the outlook and the question and answers.

Now let's get into the financial year 2019. You have received this morning already the annual report or parts of the annual -- the whole annual report on Internet. But nevertheless, I would like to go through the confectionery landscape that we were facing the last year. Number one, we have an ongoing topic that is the changing trade environment. Now changing trade environment, we have our grocery partners that are under pressure. On the one hand, by discounters, hard discounters, where we are not present. And on the other hand, they are as well under pressure by less frequency of the consumers going to stores. And last but not least, they are pressured by as well the online sales partners. So as you can imagine, they react and one reaction is forming international buying groups that even go and try to go cross country. They have as well the whole initiatives they have themselves on e-commerce.

Trade conflicts, you know more than me, that is not helping. But I have to say, it is not affecting us. I think it did affect us between the US and Canada, when the two were starting to play tic tac a little bit. I tariff that one and the other one tariffs another product. In the meantime, because the two signed it, that's gone. We had a little bit negative in the last year. And then we get to the chocolate markets overall. If you look at chocolate markets and you look at grindings, I think I always go -- when I look at volume growth, then I start with what is the grinding of cocoa. And once you know the grinding, it gives you an idea, some -- in one or the other way, it ends up in a chocolate, maybe a little bit cosmetics, but that's the first indicator. If we look at that, then it's slightly positive, flattish to slightly positive.

If you look at markets and global markets, and global markets from a value point of view, slight development positive, but that is as well a mix between emerging markets, where we have some inflationary value up and we have -- on the other hand, we have the already developed markets, where it is more or less flattish as well from a value point of view. If I say flattish, I mean, 1%, 1.5%, 2% we have in most countries, but most of you have as well access to Nielsen. So you know what the markets do.

Then one thing that as well we realized last year is kind of more and more it is not sustainability from a point of view that you say you have to make sure you get traceability out of the countries to your production. It goes much further. We are talking about -- now about the issue. Deforestation is a big issue. We talk about the whole sustainability in packaging. And last but not least, of course, as well, the carbon output that we have to follow, and we have to make sure. So I think that whole area is -- was, in my view, always very important, at least for Lindt, but now it became as well, if you look at consumers, this is even more serious issue. And the good news is we are well positioned in there. If you look at North America, then GDP growth positive. We have trade partners that are still suffering from less frequency in their stores. It's mainly the drug stores, mostly in the city and mostly now as well in competition for their subscription drugs by other companies and other trade partners even online that take over a little bit their frequent consumers.

Then price pressure. Now we have a government of New Hampshire, for instance, where we have one of our factories, that has increased the minimum wage of 10% per year over the next or the last year and the next 3 years. We will have logistics, we have trade -- price pressure, trucking getting more expensive. You see through the whole North America, you see basically an increase in prices that has not yet led to an inflation. Even that, of course, we were getting last year to the 1.5%, 2%, even as our overall inflation figure. But nevertheless, we are exposed to that with wage, with logistics and with other services.

If we go to Europe, moderate growth in GDP, supportive consumer, that was okay. And of course, what we have is all those separation efforts of different areas of the EU. Not an easy situation. Sometimes, at least if we look at Spain or if we look at as well the U.K.

Rest of the world, as usual, very volatile. I'm mentioning that, maybe for the first time, I'm very happy that we have lots of countries in there. And the more countries you have, as you know as well, the one or the other is really sky high. The other one is diving. And at the end, it's balancing out. Again, from currency, from political issues, from GDP, that was the case again. The big mass is somehow then balancing.

With that, I get to the figures. First line already published in January 15, and the second line is indicated on the 15th of January. So that means 6% EBIT growth, EBIT margin 20 basis points before one-off effects. Net income margin before and after net income effect is 11.4% and CHF 512 million. And the good news, I'm sure you have seen this morning, is we have a very good free cash flow, CHF 529 million that easily then as well is financing the anniversary dividend that we have announced. It is 175 years. It's CHF 175 for a PC. Somehow, it was an obvious one, always assuming we get the cash, but that was still the question. And then we get the employees and the boutiques or the stores. We have roughly 500 at the end of the year.

Then I advanced already some words on the US and that streamlining where we -- I'm sure you're interested in that what happens here. I think the first important thing to understand is that we have 3 companies, Russell Stover came in '14. Now having those 3 companies, it is -- was critical that we start getting the synergies between the 3. And I think getting the synergies, one obvious as well is logistics. Now you can imagine each one had their own 3 warehouses, each one had their own transportation company. And each one as well was delivering from warehouse to the trade in full truck, half truck, 2 pallets or 1 pallet. And I think here, what we did last 12, 18 months is we brought that logistics together. We have now common 5 warehouses that are, of course, much bigger. We go from warehouse to trade with full truck as much as we can, of course. And that at the end is now, first, good for the climate; and second, hopefully then as well, once we have now finished that reorganization will be positive for our bottom line. Now this means we have now some of those old warehouses, we don't need anymore. We still have the one or the other lease contract that is open, and we have 2 excess capacity, and we just had taken the opportunity and said, okay, we now close those warehouses. We get out of the contract, and then we focus in making sure that the new setup is working.

The next one is production footprint. The Russell Stover had 4 factories or has 4 factories. And the oldest one is in Colorado. Now Russell Stover still has, and I'm sure you know, a lot of employees, and there's a lot of employees is because mainly as well there is a lot of hand labor involved in it. One way we have to go, and there is no way out of it is we have to automize the production, and we are already automizing the production. That means there is 1 location to many. So that means we have, again, announced that we will close this oldest factory. And I have to say, definitely not very proud, we cannot be proud, it's really -- we hesitate and said, is there a chance to avoid such a move because it's the first time in the 25 years I'm with Lindt that we have to close a factory. But I think if you look at investments, if you look at CapEx, that is needed to maintain and on the other hand that we have less and less labor needed and we cannot do the automation in 4 factories, we had to select 3 of them. So that's this reason.

Here, again, that will help us to go for more efficient production. Retail stores is another one. And now given what I said before, we have online sales increasing. We have as well locations, and that is something that anybody that is in the US and is doing retail, and I'm now for 25 years in that and always, you open, you say that's the right location. Unfortunately, that right location over time may turn into not such a good location because environment is changing, population is changing, behavior is changing. So here, again, there are definitely not that many, but we as well have to reorganize the store network in the sense that from Russell Stover, maybe 5, 6, we will close this year. We have some 2 -- up to about 5, 6 that we are running out in Ghirardelli and Lindt. That means they stay open, but we said we already -- we'll close them in about half a year, 1 year or 1.5 years and had to build some provisions for that.

Last but not least, here, again, it is all 3 companies maintain a merchandising force. I'm sure you're aware of what that means. It is half time, full-time employees that are visiting stores. They are visiting and making sure that displays are built, they are making sure that as well the product that is listed is on shelf. And last but not least, we don't have out of stock and well arranged because the image that we leave in a store is more and more critical for a consumer. When you get in, attention has to be a little bit like here. If you buy a product, you grab the Lindt product. So there were a total of 300. And now these 300, they have a, let's say, high time during Valentine's, Easter and Christmas and we don't need them so much in the rest of the period.

During Valentine's, Christmas and Easter, you have to visit each store at least once a week. During the rest of the year, maybe twice a month is okay. So we want to become more flexible and you get more flexible if you get an outside service partner that has maybe 10,000 or 20,000 of those functions getting out to the stores. So that is a help for us that we can put more weight during the seasons and take out a little bit more weight during the rest of the year, again, helping us to make sure that we have the right pressure and push during the season. So all that, of course, will make us fitter, will make us more profitable and as well will make available funds, we can invest to growth. Now -- and as you all know, and we will see afterwards, the whole operating profit of US needs as well some improvement and that measure definitely will help.

Now let's get to the market insights and there, I can be a little bit quicker. If you get the next one. So here is the group sales split, more or less the same as we had in the past. And the growth rate 5.4% North America, 6.2% Europe and 7.6%, but I'm sure you have seen that. Now let's go to the next one, that is market split in Europe. The remark I made here is that, again, here for 25 years, it's the same ranking.

Now I think it will become a little bit tight for Italy next year. So the U.K. is behind. U.K. was growing 10% and Italy is lower. So I think Italy can take over. So we will -- U.K. will take over. So Switzerland, here, again, as in the last years, it's the green one, 3.7%, but I get to the growth rates on the next one. And here, we have the figures by country. Of course, Germany has the biggest one, growing 6.5%. That was a very important pillar for the whole growth for the group. France, 3.7%; U.K. 10%, as I mentioned; Switzerland happy about 2%; Austria another 10% Nordics 9% and then, of course, Eastern Europe and here, we are talking about Russia, Slovak, Czech Republic and Poland, they were all double digits.

Now we opened a subsidiary in the Netherlands, March -- April last year, started well. And looking at the whole market, there is definitely potential there. Then Excellence Supermilk is a product we introduced in 3 countries; that's Germany, France and the U.K. Now what is this?

You realize yourself as well that going right away to the 70%, 85% cocoa. Some of you, I'm sure, it's too bitter. It's not really that you say, I go for a whole 100-gram bar in one go. So we have to find a way to make it easier to enter the high end of cocoa. And I think that's this product sought for. So it has a high cocoa content, look at the 65%. It has as well a higher milk content, and it has a low or lower sugar content. At the same time, it comes a little bit in the way or in the trend to less sugar, but more cocoa and more milk in that case. So works well, then Lindor with pistachio and, of course, the usual seasonal performance that was going very well, mainly for Christmas last year in Europe.

Now the next one, we go to Switzerland, just 2, 3 words to that, 2% sales. Store in Interlaken we opened. So that's, in the meantime, we follow the tourists that are actually a little bit missing, but I'll come to that later. And now we have Interlaken, we have Jungfraujoch and we have the airport. So basically, there is no way around us. And I think at the back here, there will be this museum. So there will be airport, museum, Interlaken and Jungfraujoch, and hopefully then latest everybody bought some chocolate. Then we had a Christmas market here in Kilchberg. We have innovations. It's mainly the Excellence Passion. That's a very dark packaging, you have it over there, that we launched in Switzerland successfully. And I would like to show you a short TV movie on the Landesmuseum [indiscernible] or whatever the name is and...

[Audio/Video Presentation]

Dieter Weisskopf

[Indiscernible] our brand and at the same time, it has been, with light shows, you can do things that maybe 10 years ago were basically impossible, but I think it's great. Now going through next area, North America. Here, you see the split between the 3 basically markets, USA 33%, Canada 5.6% and Mexico still small with 0.4%. The whole market was growing 5.4%. And if we get to the individual markets, then you have on the next chart, the split between Lindt, Ghirardelli and Russell Stover.

And as you can imagine, we are very, very happy that finally, Russell Stover, that was decreasing over years, finally made progress, and that progress is made on the base of new products, a relaunch of the bowline, we call them, that's the assorted praline box. It is on top the sugar-free range that is growing double-digit already for the second year. They definitely as well are very innovative in new products they bring to the market. And so we are definitely hopeful that we now have seen the bottom, and with all the other measures we have in place, Russell Stover will increase. But as well, the other companies, you see 6.5% in Ghirardelli and 6.1% in Lindt were doing very well. And Lindt has 30 years of celebration, 30 years. We created it in 1989. We were starting to build the factory and created a company.

Now what I would like to show you here is now the first ever spot for Russell Stover. It has been out and aired in December. And here, again, in time of Valentine, will come back in Easter, always adopted. The one you will see is now the Christmas one and I think it's, as well, in a certain way, a milestone that we came in and as well now make efforts to increase the value of the brand with the US consumer, that has been fading away a little bit over the last let's say, 10 years.

Now, let's see.

[Audio/Video Presentation]

Dieter Weisskopf

First one we would like to stress the point of gifting. So Russell Stover, the big sales is still in the assorted praline box, number one. And of course, the heart at Valentines. And at the same time as well, Easter is a lot of gifting. So there are different occasions of gifting. You have seen some of them. Take your time, think about your beloved ones and think about Russell Stover next time you are shopping. Idea behind, there is a good start. We can improve, but definitely I think it's something we will build on.

Now let's get to the rest of the world, and the rest of the world is 13.3%. Now 13.3% for the rest of the world. If you take now Europe and the US out, that is, of course, still lots of potential behind. Reason is that we have a total of 45% is the world market share of rest of the world because Europe and the US in combination are roughly 55%. So I think there is still a lot to do. The good news is we had last year double digit Brazil, China and Japan. We were doing okay in South Africa. We definitely had a good year in distributors worldwide. We were as well growing nicely in some other Asian countries with that. Duty free was last year more or less flattish given as well already some issues in Latin America with supply chain and as well with demand. But overall, we got to the 7.6%. And now you will say, why only, I can't give you a hint, the single biggest country in here is Australia. And in Australia, we had to increase the prices. And if you look at the Australian dollar today and you imagine that the product is coming from Europe, we had to do something. And with the increase in pricing, we had some retaliation from trade that definitely they was not very enthusiastic about going up in the pricing. So that was 1 year where we had a little bit to suffer. I think it was not negative, but it was not as positive as we had it in the past.

Now lots of news here as well. But definitely, the focus in those countries is always Lindor and Excellence. That we want to establish before we introduce lots of other products. Now I would like to show you a campaign. We continued or we started with a new member of our ambassadors that is with Roger Federer. So we found that the combination of our Chinese actor together with our ambassador, Roger Federer, that could be a good idea. And as you know, China is storytelling. Storytelling, it's digital, it's not TV. It's a little bit longer in the story. And I think we made 3 campaigns, total all 3 in combination were seen by roughly 500 million consumers or shoppers. Of course, you have to -- maybe the same guys looking at it, so you maybe have to divide it by 3. But nevertheless, I think it was a good success and definitely one way of making sure that the brand is known in China.

[Audio/Video Presentation]

Dieter Weisskopf

So if you look at the story, maybe I'll just bring it back. I as well have to think a little bit. The two get to know each one on an elevator. He invites her to come to Kilchberg in the Chocolateria. They are together, she goes home to China. Think about in her dreams of the Jungfraujoch and the Chocolateria and then he is ringing at the door. So you can say, if you have another idea for next time, please come forward. And we learned in the meantime that he is very, very good in Chinese, not only French and English, German Chinese anyway.

So that's the way we try to open that market. Now given as well the recent issues and topics we have in the market, given as well the fact that here, it's not that you can assume that the culture of eating chocolate is basically just kind of mushrooming, I think it takes time. But I think we are well positioned. We are coming in, we were growing nicely, but still on a very low volume, but I think this is a way in combination culture is different, product is great, but you have to make sure that as well, how to find a way to get to that consumer. And that is not necessarily the same one as we have here in Europe with TV still the big media and as well, of course, the fact that the brand is already known. And here there, we start with 0, so we might need some help of some people that have a higher awareness in the country.

1, 2 words on global retail here, 11.8% sales growth, CHF 600 million. Now we had 80 million visitors again last year. In our stores, we have store counts installed. So we know how many come in. We know the conversion rates, how many of those that are coming in are buying and so on and so forth. And those are measures we follow closely, and we make sure that we improve step by step. Now numerous openings. I mentioned Interlaken, we are now in Moscow, Strasbourg, Boston, Frankfurt, just to name some of them. Frankfurt in the main city. Maybe next time you are there, have a look in there. It started, well, in November, December, I think, last year. So that's it from retail.

Now I hand over to Martin.

Martin Hug

Good afternoon as well from my side. Welcome. And of course, I look forward to presenting you the numbers of 2019. Starting maybe just with a few key figures. Some of the most important KPIs, organic growth, of course, we have seen 6.1%. We've already seen it in January. Acceleration here coming from the 5.1% in 2018. So really good news here. EBIT margin before one-off effects of 15.0%. I'm going to talk about this a bit later on as well in detail.

Net income margin, I think it's great to see that we have made progress here as well, 10 basis points. We should bear in mind here, and I'm sure you have seen that in other companies' as well financials, the leasing IFRS 16 actually because of its front-loading effect impacted our net income margin by 20 basis points. So if you include that, our progress was even 30 basis points like-for-like compared to 2018. I think that's an important one to bear in mind when you look at these 10 basis points here. Then free cash flow, I'm sure this is also when you looked at the numbers this morning was a positive surprise, hopefully, at almost 12% free cash flow as percent of sales. We are coming 3, 4 years back from 6%. So that's a nice progress here. And the net debt as a result of it, good free cash flow generation. And despite the fact that we had a share buyback of CHF 330 million in 2019, we have been able to improve the net debt position by about CHF 100 million. So I definitely think these 5 key figures, definitely a very nice set of numbers.

Dieter talked about the streamlining for growth initiatives in the US and what we have done there. Now what was the impact? And I've presented this already or gave you already some indication when we had a conference call in January. So we had CHF 59 million impact net of tax. CHF 82 million impact in terms of EBIT margin. We had 3 positive effects on the tax side. This tax reform step-up there created a deferred tax asset. Then we had also a Swiss Federal Court decision. So we got back on flat-rate tax credits and then there are also some other tax benefits in 2019. So this also resulted in about CHF 60 million. Now, of course, this was between EBIT and net income. So overall, it meant -- our EBIT margin actually came down by 180 basis points, but our net income was untouched, so was our net income margin, our earnings per share and also our free cash flow.

On the next part, you also see some details. You can actually also find this on our income statement. So about -- the biggest impact came really from depreciation and impairments, CHF 52 million. Of course, a lot of it coming from the closure of Montrose, depreciation of that asset. Some of those are coming from our assets in logistics and from the retail stores.

Personnel expenses was also CHF 10 million, severance payments that we were already booking in 2019 and then the rest is about CHF 20 million. So CHF 675 million is our EBIT before one-off effects and slightly short of CHF 600 million, CHF 593 million after the one-off effects, as shown in the annual report.

Shareholder return. You heard about the special dividend of CHF 700. So this brought our total dividend to CHF 1,750 for the share and for the PC CHF 175. Dividend yields as a consequence of it 2.0%. So up from the last years where it was always between 1% and 1.5%. The payout ratio is well up from last 5 years on average 50%, now above 80%.

Share buyback, I mentioned, we bought back 120 million in 2018, 337 million last year. And market cap actually at the end of the year was almost CHF 20 billion. So we increased it by about CHF 3 billion. I think when you compare this with peers or also with other indexes, you will surely see that this was quite a good performance last year.

Organic sales growth 6.1%. Again, here, when you look back the last 5 years, with the exception of 2017, we were always in the range of 5% to 7%. You should also bear in mind that in each single year other than 2019, Russell Stover had a decline in sales. In 2017, it was double-digit minus. Now good news that in 2019, we had this good result of above 5%. And of course, it had also positive impact on the group sales, 6.1%, which is within our expectations, and I think it was a solid performance.

In Swiss francs, on the other side, of course, the Swiss franc has strengthened against the euro and against the pound sterling. This resulted in 160 basis points lower sales in Swiss francs at 4.5%.

When we analyze our sales numbers, also price, mix and volume, I think it's really good news that we have been able to push through price increases in the US, especially. So our price/mix was positive almost 2%. Dieter also mentioned Australia. So in -- not in all markets, but in some selected markets, we have really been able to push through price increases. Strategically, it was also necessary. And then, I think, also good to see that our volume grew by 4%. So 2/3 of the organic sales growth is coming from volume. That also shows us that we have been able to push market shares in terms of driving penetration further.

Segment information, you've seen these numbers. I think the highlights are really in Europe. The acceleration coming mainly from the UK, Germany, again, great results. Then Eastern Europe, Russia and also the other Eastern European markets growing double digit, and Austria, you also saw double digit. So I think those are the highlights in Europe.

North America, you have seen that all the 3 US brands grew somewhere between 5% and 7%, which was a good result and really also an acceleration, almost doubling our sales ratio there.

Now for the Russell Stover performance. You should bear in mind, I mentioned that actually in last July when we looked at half year, we had an extraordinary kind of positive impact from Easter in Russell Stover, you may remember that. So if you take that off, the Russell Stover sales organically, excluding this extraordinary Easter effect, would have been around 3%. So that's just something to bear in mind also when you look now at 2020.

Rest of the world, also Dieter has mentioned it, very good results in our strategic home markets, Brazil, China and Japan. Australia was a bit on the slower side, also very hot summer there during the Christmas period, of course. And then you also had a few markets like Latin America, like Hong Kong, that from a political side, were not the most stable markets and had also, of course, some sort of impact there. But overall, 7.6% is in our guidance for rest of the world, and a good result.

Now moving from the sales to the costs. So those numbers, of course, you have seen them first time this morning. When we look at the material cost as a percent of sales, we are at 33.6%. Again, if you look at the average over the last 5 years, it's slightly better than the average. So still, I would say, a low level, it's still a good year from a material cost perspective, despite the fact that cocoa has increased -- cocoa prices have increased. Cocoa butter ratios have come slightly down but because it also -- the cocoa future price has a big impact on the price of 1 ton of cocoa butter, cocoa butter prices in ton -- per ton did not really come down. We also had high sugar -- increasing sugar prices. We had increasing hazelnut prices. We had slightly increasing packaging material prices. So I think in that context, the 33.6% was a good result. We have been able to buy cocoa to secure cocoa bean prices relatively early, which was, I think, a good move and resulted in this 33.6%.

Now when we look forward, I think packaging material may slightly -- may come down slightly in 2020. Hazelnuts will still be high, hazelnut prices, sugar prices will remain high. And you see here the cocoa bean price has come up by about 15% since February 2019. It was at GBP 1,700 roughly, it's now close to GBP 2,000. That does not take into account the living income differential for Ghana and Ivory Coast. This is just the future price. So the future prices come up, as you can see here, by around 15%. And then on top of that, for '21, there will also be this living income difference of $400 per ton. So that's another 15-ish percent higher costs for '21. I'm not talking about '20, I'm talking about '21.

So I think in '20, we are still okay. We will maybe see a slight increase in material expense ratio. And then '21, I think the whole chocolate industry will be under pressure from a cocoa bean price perspective, obviously. And it's at least possible or likely that we will see some price increases in general in chocolate in '21 at the latest. Then personnel expenses. Again, here, if you look, the development since 2015 is slightly positive, came down. And we should bear in mind that retail -- our retail business, of course, is a very personnel-intensive business. So this is -- we have been able to offset that by more efficiencies in our supply chain, more efficiencies in logistics, in production, also in administration. So thanks to that, we have been able to bring this ratio slightly down over the years. You see that also the number of employees in 2019 basically stable compared to 2018, despite the fact that we have opened another 40-ish retail -- own retail stores. And operating expenses, that there are different things in here. Advertising is in here, logistics is in here, fixed costs in our sales department are in here as an example.

Now here, it starts getting a bit more tricky when explaining numbers because we have 2 impacts here. We have -- in the past, we also had the lease expense here, lease of our retail stores. Now the lease of the retail stores in the new IFRS 16 accounting, they're split between depreciation and financial expenses. So it's not in here anymore. So that's out. And what is also impacting this is these one-off effects. So the 2 effects together are 150 basis points. So to do a real like-for-like comparison, you have to add this back, and you're at an 26.2% versus the 26.5%. So that's a real like-for-like comparison. So it means that this expense ratio came down by 30 basis points. On the one hand, we have spent more money in advertising. On the other hand, we got efficiencies out of logistics. We got efficiencies out of planning -- supply chain planning as an example. So we had really those 2 effects. And obviously, the efficiencies were higher than the increased advertising spend and so that basically brought us this benefit here of 30 basis points.

Depreciation. So here, you see the other effect now as well. Here, you see now the increased depreciation coming from leasing. CHF 76 million increased depreciation coming from leasing for this new standard, IFRS 16. And then we also have CHF 52 million effect negative from this depreciation I showed you before from these one-off effects. So that brought the depreciation and impairment line to CHF 323 million. So if you exclude those 2 effects to compare it against 2018, we would be at CHF 195 million compared to the CHF 180 million. And this CHF 195 million is 4.4%. So we see a slight increase because our CapEx is about -- between CHF 230 million and CHF 250 million. So against -- in the old world, against this CHF 180 million depreciation, if you spend more CapEx than the depreciation, over time, will go up and get closer to the Capex, right? So I think as well over the next years, we will see this. As well in the new world, if you exclude even the one-off effects, we will see a slight increase in depreciation over time.

So this brings us to the EBIT of CHF 675 million. That's 6% higher than last year before one-off effects and is basically growing faster than our sales in Swiss francs, which grew at 4.5%. You can also see here, since 2015, a constant increase of 20 basis points. So from that viewpoint, we have been quite predictable in the last 5 years from an EBIT margin perspective.

Now let's break this down, and let's look at the different segments and start in the middle here with North America. I think this is one of our concerns. Of course, we are doing our utmost to improve our EBIT margin in the US as part of the overall EBIT margin improvement in the group. And when we look at this, before one-off effects in the US, we have been able to increase our profitability in the US from 7.8% to 9.0%, so 120 basis points. And I think this is really good news.

We have also been able to keep Europe at a high level, flat, which is also good news. And same on Rest of the World, we have been able to keep it at a high level of almost 18%. You should bear in mind that as part of this Rest of the World, we have countries where we grow fast, where we grow double digit, where we invest in this growth, so of course, it's great to see that, despite that, we have been able to keep it at a high level.

EBITDA going up by CHF 100 million to CHF 916 million. That's 12.2%. Now again, this is hopefully the last chart where I have to explain these one-off effects and leasing, has an impact of CHF 50 million. So I think, again, to compare it like for like, you have to take this off again, and then you are at CHF 865 million, which is 19.1%, still a nice improvement of 20 basis points like for like versus 2018.

And then the free cash flow, before 2017, average about between CHF 230 million, CHF 280 million, so about CHF 250 million between 6% and 7% of sales. '17 and '18, we got to CHF 400 million roughly free cash flow, and that was around -- between 9% and 10% of sales. And now last year, we got to CHF 530 million, an increase of 34%, close to 12%. We have achieved that thanks to good net working capital management, so good generation of operating cash flow and also a relatively low CapEx actually, that CHF 235 million. So we have been able to keep CapEx still at the level below CHF 300 million despite the fact that we are -- have started the project in New Hampshire. You may remember that, over the next 3 years, we will invest above CHF 200 million in our factory in the United States in the Lindt factory. And of course, that will have, over time, an impact on CapEx, but in 2019, the impact was not so big yet.

And you see the number here. So pretty much on average, 2019 was CHF 235 million. Now sooner or later, of course, this investment will come. 2020, 2021, I expect this number to go up because of the US investment at the end of the day, this build-out of the New Hampshire factory. So I expect this to be around CHF 300 million going forward, 2021-'22. And that will then also have an impact on our free cash flow, of course, which may come slightly down. We are still to see exactly what it may come slightly down because of the higher CapEx.

The tax rate, you saw these 3 impacts of CHF 60 million -- of CHF 59 million in tax. That has an impact on our tax rate, so the tax rate was 8.8%. Now again, if you take this out, the tax rate would be at 21.0% in 2019. Going forward, I think it will remain somewhere in the bracket between 21% and 22% tax rate. We have higher taxes in Switzerland on the one side with the -- after the tax reform because the holding is -- this holding privilege is no longer valid. And then in the US, the more money we will make in the US, the higher the tax rate will be because in the US the combination of federal tax and state tax is 27%. So that will -- over time will -- means that the tax rate will -- may go slightly up. But for the next 2, 3 year, I expect it to be at 21% to 22%.

The net income, I've mentioned, 5.1% growth here, so again, growth slightly higher than the growth -- in top line Swiss franc growth. And I think the important piece to understand here is this 20 basis points negative impact from the leasing, which means that, in reality, organically, we have grown net income by 30 basis points.

And then net financial position, we have improved it by CHF 100 million coming from CHF 529 million. Now this is also -- if you compare it, how this was done in the past, we also had a negative impact here from the lease accounting because we have now the leasing in the balance sheet. And for us, this is about CHF 500 million. It's part of this. In the old world, you will be debt free now because you have to add -- you would have added back now this CHF 500 million. Now it's part of the new world, right? So we are showing like this. So improvement of CHF 100 million, we had this positive free cash flow on the one side.

And then we have paid back CHF 570 million -- more than CHF 570 million to the shareholders in the form of the dividend last year and also the share buyback. So I think in this context of a share buyback of CHF 330 million, it's good to see that we have improved our net debt by CHF 100 million. If you compare this actually with our EBITDA of CHF 900 million, we are leveraged 0.5x. So I think we are still in quite a good position from that viewpoint when you look at our liquidity. Of course, we are trying to avoid negative interest on the liquidity side. Therefore, that's also part of the reason, of course, why we are paying out a special dividend going forward now in 2020 for 2019.

And we want to keep a sound equity ratio as well, which we will see on the next chart. We are still at close to 60% equity ratio. I'm showing you here 2018, in the new world with the CHF 500 million leasing, how it would have looked. So you can see we are relatively flat in terms of the equity ratio with close to 60%.

So this is a brief summary on the financials. I will now also give a couple of thoughts here about sustainability and where we stand with sustainability. It's a growing concern as well of the financial community. I get more and more questions around it, so I thought it's also good in this forum to show you where we stand here.

So starting with cocoa. You should bear in mind that part of our DNA is to be into bar production. So we actually control all the production processes from the reception of the cocoa beans, the roasting of the cocoa beans, the production of cocoa liquor, the production of chocolate mass and then also the molding and the packaging. So we control the whole process, which is different to most of our competitors who buy the chocolate mass in general, most of them.

So as part of this bean to bar concept for us, the sustainability program in cocoa beans and in general in cocoa is very important. We are -- have started with that more than 10 years ago. We are focusing on 5 origins. You can see here the biggest cocoa origin is actually Ivory Coast. We are not sourcing cocoa beans from Ivory Coast. Our biggest origin is in Ghana, then followed by Ecuador. And then there are 3 smaller origins: Dominican Republic, Madagascar and Papua New Guinea. Our goal is by 2020 to get to 100% traceable and externally verified cocoa beans sourcing. In 2019, we were above 90%, so we are well on track to achieve 100%.

And we also track, okay, where are we including cocoa butter and powder, and we are close to 60% in 2019 all in. And you will see later on that our goal is by '25 -- by 2025 for all the cocoa products, we want to be at 100%. So for the beans, 100% by 2020 in terms of sourcing trace from our programs, traceable, verified and by 2025 for all the cocoa categories, 100%. We have workers of more than 80,000 farmers, and we spend more than CHF 10 million per year on the programs.

Now on the next -- we will now show you 3 films from our cocoa farming program in Ghana, 1 around water supply. Water, of course, is drinking water -- fresh drinking water is one of the issues, and we have invested there. The second one about schools and the building of infrastructure. So then if you want to fight against child labor, it's important that the kids are not on the farm but in the school. So we're investing there. And then the third one is also about productivity. We are training the farmers. We're working together with the farmers trying to really improve their productivity, which then again will lead to better high living income. Okay.

[Audio/Video Presentation]

Martin Hug

So I hope this gave you a bit of an insight of what we're doing in Ghana as well in the sourcing of cocoa. Apart from the sustainability in cocoa, we also work in other areas of sustainability. It's not just around sourcing of raw materials. When you think about sustainability and over the last 12 months, we've basically worked on new strategy for sustainability. And we have worked on 11 commitments for better tomorrow. And we call this our Lindt & Sprüngli Sustainability Plan. And as you can see here, we are working on 4 different areas: improving livelihoods, contributed to an intact environment, performing together and delighting consumers. And I'm not going to read out all the 11 commitments. I'm just maybe picking 3 that, just as an illustration here, first, what I mentioned before, by 2025, the first one, all the cocoa products will be sourced from a -- through our sustainability programs, so traceable and also verified from a third party. So that includes cocoa beans. That includes cocoa butter. That includes powder also.

The second one in the area of contributing to an intact environment, of course, CO2 emission is an important one for us. And the current goal is, by 2020, 10% less CO2 emissions than in 2015, and we should be able to achieve that. Now we are also working right now on a longer-term commitment, and we will publish this as soon as we have it, which should be in the next few months.

And then performing together, one, of course, that this is also very important at Lindt is the diversity. And one of the parts of diversity is of course having more women in senior leadership positions in Kilchberg but also in the subsidiaries. And you know our goal by 25% is to be at 40% in terms of the management teams, so 40% women in senior leadership. We are currently above 30%, close to 1/3, so we're also confident that we should achieve that.

So that's a summary on sustainability. If you want to know more about it, we always publish a report on sustainability in April. So also this April, you will find a new sustainability report. And then also on our website, you will find or can find more if you're interested on the corporate website on the sustainability, you can read much more this very important topic.

So with that, I will now hand over to Dieter, who will talk about the outlook. Thanks a lot for your attention.

Dieter Weisskopf

Thank you. We get now to the last charts and then question and answers. And if we go to the outlook, the question that you will have, I already advanced before we get to the rest of it, and that is what impact do you think will have the actual virus outbreak. Now I think, here, I already advanced and say, basically, we are -- it's early in the stage. And if there is one thing that is insecure, then it's this one. So I can give you some hints.

Now the first hint is that the sales in the most affected areas in our portfolio are relatively low. As you know and as you have seen, Rest of the World is 13%. If we take out or extract Asia, it is, I say, still minimal, even that we were growing in China, 35%, but it's still on a low base. So from a sales point of view, in the most effective areas, if we take South Korea, if we take China and if we have Asia as a whole, this is not really having a big impact on our sales, of course as well again, depending on the duration of this whole topic.

Now if we get to the question of production and supply chain, we are not a car manufacturer. We don't need tools. We need raw materials. We need milk. We need sugar, and we need cocoa. And here, I can assure you that, in all our factories, and those factories are in Europe and in the USA, we do have stock. We do have enough that we can go on producing. So that's basically, from a sales, on production side of you. It's the answer.

Now if we get to the sales areas that are, for the last 2, 3 weeks, affected that is wherever there are tourist streams. And tourist streams is duty free. So if you look at duty free, over the last 2, 3 weeks, we have a decline in traveling. Now if all the fact, companies like us as well like the big multinationals, like the banks in the U.K., there is a stop and ban of traveling, of course, it's much less traveling in the airports and, at the same time, much less tourists. I think that is definitely an area that is suffering from less frequency. And I think that will have as well an impact sooner or later on our sales in that area.

Here again, duty free is not -- if you look at the CHF 4.5 billion. That is -- whether that is now 2, 3 months, a little bit more or less, that doesn't really impact us in a big way. I think the big concern is mainly our employees. We want to make sure they are safe, and so for that reason, we as well have the usual safety measures that is travel; that is meetings; that is hygiene; that is if feeling sick, stay at home. Make sure that you can recover. Don't put your colleagues into danger as well. All those measures are definitely impact -- introduced and as well implemented in our group. I think that may be as a first saying to you as regards on how we approach the situation.

Now if we get to the outlook, from today's point of view, we are still confident to get into the 5%-7% bracket for 2020 in sales. And here, again, on the 20-40 basis points on the bottom line. And for that reason, there is not much more I can say on that one. You will have to watch it. We watch it. And I think from today's point of view, we believe that this is still a valid target.

Now if we get to the next chart, I just come back on what I said on the 175 years. 175 years, here, you have the 2 gentlemen here. Mr. Liechti, by the way, is as well the one out there I think that is helping us with those presentations already for lots of years.

Now the good news is that we have here as well not only 175 years but as well we have the opening of this Home of Chocolate, as it is called. It is a foundation -- charitable foundation that is independently managed from our Lindt Group. And the grand opening will be on the 10th of May. That is Mother's Day. And I think we are really looking forward to that opening that will as well mark a very big milestone in the Lindt & Sprüngli history and mainly as well it is really coincidental that we have it in 175 years and this Home of Chocolate.

With that, I thank you very much, and I -- we both get now to questions. We get a mic.

Question-and-Answer Session

Q - AlainOberhuber

Alain Oberhuber, MainFirst. I have two questions. The first is regarding pricing. When could we expect that the chocolate industry as well as you are going to increase prices? Are you still waiting for Hershey to do so in order to compensate for the living income differential next year? And the second question is regarding US and product innovation. Could we see Whitman's new product coming out this year? Because you mentioned that last time. Or do we see anything else in US in Russell Stover for this year?

Dieter Weisskopf

I think the first one is the increase in pricing. And I cannot tell you when that will happen and how it will happen, but rather sooner than later is my impression. At the end, it always be -- depends on the coverage of the individual market participants. Now short coverage means you have to go, I would say, after Easter, and if you have a better coverage, you rather go kind of October-November for the new year. That's basically the time horizon I see. The degree of increase depends a lot on the product. Of course, if you have a 70% to 99% cocoa, it's a different 1 than if you have a milk product, but we will see what happens. But definitely, the whole industry will go up because there is no way around paying that living income differential. So that's the one thing.

The other one that, if I understood well, is mainly the question on the newness innovation in the US I think if you look at Russell Stover, they definitely will build out their sugar-free series they have out there. They will go as well into baking. They will go into chips. They will go into no sugar added. That's a little bit another product, and they see definitely there growth opportunities. That is the one thing I see on Russell.

We -- if we go into Lindt, it's the focus on Lindor and Excellence. And I don't know even, I think they as well will launch the Supermilk because their basic milk offering, that's milk, milk, not milk raisin, is working quite well in the market. So they see an opportunity by as well extending that range not under Excellence but under milk range and go into a little bit higher cocoa content. I think that's one of their big launches for the current year.

And if we are going to Ghirardelli, I have to be very open. I wouldn't even know now what's in the range for this year, but I think they have enough to focus on. I think the Square business, more gifting mainly for the Christmas period, that is definitely one thing they will focus on.

Patrik Schwendimann

Patrik Schwendimann, Zürcher Kantonalbank. What's the share of sales with tourists on a worldwide level, just a rough estimate?

Dieter Weisskopf

The share of...

Patrik Schwendimann

Sales with tourists, so duty free and other tourists? And also other tourists, I mean the guys, the Chinese, which go to the Bahnhofstrasse for example.

Dieter Weisskopf

I think you usually just kind of take that as an indication, I think duty free is around 2%. Is that right?

Dieter Weisskopf

Yes, duty free 2%, and then you can add maybe the highly exposed locations like Jungfraujoch, Paris, Downtown, Interlaken now as well that are really just there because of tourists. Maybe you get to CHF 90-something million, CHF 90 million to CHF 100 million in total.

Martin Hug

2% to 3%.

Patrik Schwendimann

2% to 3%. Okay. And also, I mean you mentioned coronavirus also even in the Italian market, which is quite a large market for you. You didn't have -- had any impact yet.

Dieter Weisskopf

No, we don't see an impact. I think it's -- as long as you have here in Zurich, we don't have tourists going shopping in that market here. I think it's not that we depend on them. If they are coming some, that's okay, but I think it's not that this is now vulnerable to that.

Patrik Schwendimann

Okay. Perfect. And regarding the price/mix, which was 1.9% last year, what's your best guess for the current year? And what's split between price and mix?

Martin Hug

You mean price/mix last year?

Patrik Schwendimann

Yes and also for your best guess for the current year.

Martin Hug

It's roughly 50-50 last year, price/mix, and for this year, we will see a similar number, I think, somewhere between 1.5% and 2% price/mix.

Patrik Schwendimann

Okay. And last question regarding dividend payout ratio. You had the anniversary dividend. What should we expect for the future in terms of payout ratio?

Dieter Weisskopf

I think that is a good question. At the end, it depends on the decision of the Board of Directors. But I think the point is that we assume that the free cash flow will continue at a relatively high level as well for the coming years. So that means, at the end, we will have cash available, and the question is what to do with it. And you know the usual answer is you make an acquisition. You make a dividend payment or, at the end, you make a buyback. And if you look at buyback, then if the stock exchange stays where it is, it probably doesn't make that a lot of sense. So we have 2 left, to degree how much and whether yes or no, that's always a decision by the Board.

Patrik Schwendimann

So probably no dividend decrease next year then.

Dieter Weisskopf

From where?

Patrik Schwendimann

From CHF 175?

Dieter Weisskopf

CHF 175, a decrease? Yes, I think if we wouldn't have to say jubilee or special dividend, it is a special dividend. So assume that we go back on a base of CHF 150, that would have been the payment this year. And then comes the question, what more on CHF 150, but I wouldn't take the CHF 175 as a base.

Jon Cox

Jon Cox, Kepler Cheuvreux. Just a couple of questions really on North America and the US specifically. What are you thinking about the growth for the overall US market this year? And I'm asking this because, obviously, you're going through a quite major restructuring with the factories. And how confident are you about maintaining production and logistics? When you're closing warehouses, you're going to close a factory there. And you mentioned heavy staff numbers in the factory network in Russell Stover, so I guess we can assume the number of staff in the factory network is about half of the total. And of the 4 factories, we can just split that 4 ways to just get a feeling of what will happen to staff numbers overall. So that's the first question really about the US, what your thoughts are in terms of growth and being able to maintain growth while you're doing quite a big restructuring plan.

And then, sorry, just to come back to the whole coronavirus thing, and I know it's early days, you're saying that of the $600 million sales or the 500 shops that only $100 million is really impacted by tourism because I was under the impression that at least half of your network is in high-transit tourist locations, Fifth Avenue or wherever it may be. And obviously, then if that's the case, we're looking at more a $300 million impact if we see a drop in travel and tourism, which seems to have been the case in Asia. And it looks pretty obvious. This is coming in Europe and North America over the coming weeks.

Dieter Weisskopf

I think on the last one, at the end, I mentioned it. It's a question of timing. It's duration and impact. And that is something, it's just very difficult to predict nowadays given the situation we are in.

Coming back on the point, how many are in tourist areas. If you look at the number of stores, the -- we're talking about Japan. It's not tourist areas. We're talking about Brazil. Both with at least Japan and Brazil are more than 100 in total. If we go then further and say Germany is another big market, and then Germany, this is not tourist dependent. It's -- we are getting up to quite a big number of stores and countries. South Africa, you can discuss definitely as well, another area where we are operating stores. Canada, it's not that when I look at the portfolio that I say, oh, there's lots of tourists coming there. It's lots of low-cost domestic clients, and we are addressing, too. Switzerland, here, again, I mentioned the 2, 3 that we have definitely depending on Asian tourism. That is clear. But it's not that we made now a calculation and pinpointed on the track which ones are most affected and which not, but we will see. But you might have -- might be right that instead of maybe 2% or 2.5%, it's 3.5%. I just don't know yet.

Now that is the one thing. And then the US operations, definitely, they have a big load in accomplishing all the changes that they have as a burden now the running here. The good news is it's not one function. It's the logistic function. And there, it's mainly optimizing the warehouse network, and they're pretty optimistic. You know that this is working well, and that shouldn't interrupt the rest of the businesses.

Then we will have the closure of the factory that will happen in spring '21. That as well shouldn't have an impact on the old year, '20. That is another, let's say, process. The change of the merchandising force already happened on the 6th of January, so we have now already now an outsourced merchandising force is in place. So that's basically done. It has to be optimized. Mainly if you have direct store sales or whatever, I think there, we are still working on. But basically, I'm optimistic there.

One thing I can tell you as well, we will have -- Russell Stover is changing to a SAP IT system, again, something that was needed, necessary, and that will happen in April. So if you take that, I think I have more respect of that change than maybe of production or logistics or merchandising I think. But that is something that has been prepared over the last 2 years, and let's hope it runs.

Jon Cox

Best guess for growth in the US this year different periods?

Martin Hug

I think it will be the same ballpark as in 2019. If you take Russell Stover's growth as I indicated, I think you have to -- excluding Russell Stover this Easter effect, so don't take the 5.4%. Take the base of 2% to 3% for Russell Stover. So if you take it to -- calculate it that way, it will be somewhere between 4% and 5%.

Jean-Philippe Bertschy

Jean-Philippe Bertschy, Vontobel. To come back on the free cash flow, Dieter, and the cash situation, you said you're expecting still a strong free cash flow in the coming years, but you're investing like 25% or 30% more. If you can share with us our views -- your view on that, if you're expecting a decrease of the net working capital for instance. In that context as well, I think you have to repay or to refinance CHF 500 million bonds this year. What are your view on that, if you want to repay it or refinance it? And the second one would be on Ghirardelli. Were you benefiting from some issues at one competitor in the baking segment? Or if you can split the growth of 6.5% between baking goods and the rest of the business.

Dieter Weisskopf

I think I take the one with the Ghirardelli. It's a relatively easy one. And the complicated, I leave up to Martin afterwards. I think Ghirardelli, they had some business with a customer in baking, and that customer, I can tell you even the figure. We had a gross profit of 7% on that business, and so we decided, okay, we stop that. I think that was a good thing to do. So we got rid of that relatively big. It was one of those, how you call it, where you have to pay the Costco type.

Martin Hug

Club channel.

Dieter Weisskopf

Yes, it hasn't been -- Costco has been another one, and there are not a lot left. But anyway, I think we stopped that business. And that was the reason. I think for this year, if you exclude that movement, we should be okay. As well, we increased prices in that area, and that was as well something where our competitors came in and offered the one or the other good promotion. I think, as you know, on the baking, the chips is the biggest. And chips is Toll House and Toll House is Nestlé. So that's basically it but...

Martin Hug

I think your other question, one, was it about the bond that we will do with the CHF 500 million in October? We have CHF 1 billion in bonds still outstanding. CHF 500 million is expiring now in October. It's 1 with 0.5% coupon, so it cost us CHF 2.5 million in interest rates per year -- in interest cost per year. Look, we have not decided yet what we will do with that one. It depends a bit on many other things, right, because we do not have to decide until June, July. Of course, it depends what happens with the interest rate environment, what happens with the economy in general. We certainly have the cash to pay back. But it really depends what else we will do, so it's not something we can decide in isolation.

Then your other question was around free cash flow generation. I said CHF 530 million. But if you look back the last 5 years, we are coming from CHF 250 million, right, from 6% of sales. Then we increased it to CHF 400 million in 2 years. That was about 9% of sales. Now we go to CHF 530 million. This is almost 12% of sales. Can you now expect 12% of sales for the next 3 years? I mean I would put the question mark behind that because, as I mentioned, New Hampshire, we have to build it out. That's about above CHF 200 million over the next 3 years in total, so about CHF 70 million per year. So I would expect still a very positive and good free cash flow generation next years but not necessarily 12% of sales because of this higher CapEx potentially. So expect something around CHF 450-ish million.

And then, of course, we are doing our utmost to improve our net working capital management, especially on the inventory side, where there are a lot of efforts in supply planning. The better you plan, the less stock you need to hold, and of course, that gives you a positive impact on your net working capital apart from other positive impacts between destructions and less waste, et cetera, et cetera. So I think we will continue to have a strong performance but maybe not quite as good as in 2019.

Dieter Weisskopf

Maybe there is another word of caution and the reason is inventory. We talked about cocoa beans. We will hold cocoa beans inventory as well for security reasons. We need a certain stock, and that stock will have a higher value and absorb part of that cash. Something to happen. So that's the reason we are a little bit dampening expectations here.

Unidentified Analyst

I thought -- I have a few questions. One is a follow-up on the working capital. Can you maybe specify whether you think that the working capital level relative to the sales, where it stands for last year, whether that's sustainable? Or whether you think -- because of the inventory will go up or maybe whether you can decrease it further? Then the second question is regarding Amazon. What is your strategy there? Do we work with them directly? Are third-party customers of yours allowed to resell on Amazon? And what do you think, in general, Amazon does to your brand? Then the next question is, when you think about mature markets, are you still able to gain shelf space there? Or is that something which is broadly stable or maybe even declining? And then the last question will be on the number of stock keeping units, both for group and then for Russell Stover. Is this something where you think that you're at a good level? Or do you think you can do further streamlining there?

Dieter Weisskopf

Okay. I -- again, if you can take over the cash one, I take the stock level one. I think if you ask any fast-moving consumer goods company whether they are happy with the stock -- the SKU level, I hope that you get always the answer. No, it's too many. And I think that's as well the case with us. If you ask me, is it the correct figure, no, it's way too much. But if you look at it and you say you have consumers, that's going into a direction of personalization. You have trade partners that want to differentiate themselves from other trade competitors, and they want to be special starting from a display to a final product. So the demand from the trade of being diverse, I need something else. Here, look at the gold bunnies. And I better don't tell you how many bunnies we have. That is 10 grams, 50 grams, 100 grams, 200 grams, 400 grams, 1 kilo and the whole thing in white, dark and milk. And to finish it, we go into the flower bunnies. And I don't know whether you have them on your desk here, but there are some. Then this is just kind of finally the wrapper.

But at the end, we wouldn't do it. If not, at the end, the consumer wouldn't demand and as well, the consumer wouldn't be enticed in buying those bunnies. They have different occasions. Can be the table decoration. Can be a gift. Can be a small gift, whatever. At the end of the day, it's not that we really, by pure fun, invented. It is needed. I think that's an important one.

Now that was this one. And then you have to -- Amazon was another one. The Amazon one, we have, if we look at the whole online sales or the whole sales platforms or sales channels, we have the typical grocery. We have grocery doing e-commerce on their own. We have the e-commerce platforms. That's the Amazons, Alibabas and the Tencent and whatever is around there. We have our own stores, and we have as well our own e-commerce. And the buzzword of that nowadays and for the next years will be omni-channel retailing. I think that is a network that all belongs together and is interacting one with the other in one or the other way.

And the platform, you mentioned Amazon belongs to that. Sooner or later, they get even more cross country. And we have to be aware of that, and we have to work with them and as well find a way on how we build those platforms into this omni-channel environment. And I think we are working on that one and that other third parties are offering in their own stores within Amazon the goods. That is a fact, and we have to find a way and as well working with them, with Amazon on how we can manage this.

Then the third question slipped me. I think -- what was that?

Unidentified Analyst

Shelf space in mature markets.

Dieter Weisskopf

Shelf...

Martin Hug

Space in mature markets.

Dieter Weisskopf

Shelf space in mature markets, I would say, at the end, limited to slightly increasing if you really bring an innovation. If you have something that differentiates us from the rest of the crowd, and we say, "Hey, come, this is a special offer. Please give us the space," then we get in. If we bring, let's say, now I think the next level of Lindor balls with a new filling, in all likelihood, the trade will tell us, "Great. I try it out, but take out an old one." I think so there will be relatively limitations.

Martin Hug

I think the other question was around net working capital, if you can further improve it. I think inventory, of course, is a question of 2 things, probably, one, planning. Can we get better in planning? I would say, yes. Like most companies, we are not perfect and can get better. The better the planning, the higher the sales forecast accuracy. The lower you can go into inventory. And the second one is also capacity. The higher the capacity, the closer to the delivery can we produce. And as an example, we are expanding our capacity in the US as I mentioned. It's not ready yet of course, but over the next years, if we have again a bit more capacity, we can also keep less stock. So I mean, to answer your question, yes, of course, we can still continue to improve our net working capital management.

Unidentified Analyst

The first one is are you planning a production site in Asia in the next 3, 4, 5 years? Is that something which makes sense from a capital allocation point of view? And the second question, as it seems, you can make your group EBIT margin with North America alone. But what is happening to the European margin going forward? Why exactly was it down in 2019? And what you are looking for in the future here?

Dieter Weisskopf

I think the second one, if you say, watering down, maybe what is it, 0.1 or 0.2?

Martin Hug

Yes, it's flat basically. It's -- yes.

Dieter Weisskopf

Yes. I think it's a little bit maybe exaggerated. If we look at it, we are good in planning and as well try as well to be credible and that you trust obviously, but I think this is now not anything where I could say that or the other thing is the reason. I think what you have to consider as well is, being and staying for the type of business we are in food, at a level of 20%, it's not that bad. So that can be fluctuation between one and the other year.

So that's the one thing. And then the other one, the Asian factory, yes, if you have a certain volume, then you can definitely look at planning something like that. But if you look at us, we are years away from this because the volume we have in Asia is still too low in order to justify building a factory. Definitely would help in planning and supply chain, but it's not yet justified to build up.

Okay. Thank you very much. Then, as always, there is a opera outside. I thank you once again in those troubled times that we are now in, that you took the time to come to us and hope that we could give you here again an insight into what's happening in Lindt. And I'm sure you're on closer contact with Martin. Any question, you can ask any time. Thank you very much.