Lucas Bols N : Half year results Lucas Bols 2021/22

Half-year results 2021/22 (1 April 2021 - 30 September 2021)

18 November 2021

Strong recovery: revenue up 70%

Sharpened brand, market and cocktail focus to capture growth momentum

Highlights first half-year 2021/22

• Revenue came in at € 45.6 million, nearly on par with pre-COVID-19 H1 2019/20, and a strong year- on-year growth of 70%, mainly as a result of the continued reopening of the on-trade, positive brand momentum across key markets and a favourable comparison base
• Excellent performance in the US: revenue tripled vs. the same period last year and showed an accelerated growth of 59% vs. H1 2019/20 (pre-COVID-19)
• Strong recovery was reported in most markets, except for Japan and Southeast Asia, and in Travel Retail, where restrictive measures continued to negatively impact performance
• Depletions (sales by distributors) were up 33% compared to H1 2020/21 (+6% vs. H1 2019/20), reflecting a strong in-market performance of our Global Cocktail Brands: Bols Cocktails, Passoã and Galliano
• The gross margin was 56.6%, in line with last year
• Operating profit more than doubled to € 11.5 million (€ 5.3 million in H1 2020/21), while net profit came in at € 7.7 million (€ 1.9 million in H1 2020/21). Targeted structural overhead cost savings were achieved
• Continued focus on cash management resulted in a strong free operating cash flow of € 11.4 million, enabling an important net debt reduction of € 8.9 million to € 83.5 million as at 30 September 2021
• Management implemented a sharpened brand, market and cocktail-focused operating model, and consequently increased the revenue growth target for the Global Cocktail Brands to 4-5% per annum
• The company launched Bols Ready-to-enjoy Cocktails in the US and the Netherlands in October to leverage the in-home cocktail consumption trend. The signature Bols cocktails come in innovative Bols Cocktail Tubes and multi-serve bottles
• With the start of Maxxium BeLux in October, Lucas Bols now controls the distribution of around 40% of its global revenue

Huub van Doorne, CEO of Lucas Bols: "Although we continue to operate in an uncertain environment we are pleased to see that the underlying in-market performance is back to - and in a number of key markets even ahead of - pre-COVID-19 levels. The revenue growth of 70% versus last year underpins the strong rebound. As the on- trade gradually reopened and our enhanced retail performance was sustained, our brands experienced strong consumer demand, as demonstrated by robust depletion trends. The growing popularity of cocktails and mixology, including the accelerating trend of in-home cocktail consumption, are right at the heart of our Global Cocktail Brands proposition.

The Passoã brand is delivering beyond expectations in many key markets: its performance has been spectacular. Substantial growth is also noted for Bols Cocktails and Galliano. The US market is performing exceptionally well across these brands: a true testament to the strength of our distribution platform there.

To fully capture the growth momentum, we increased our strategic focus on our Global Cocktail Brands: Bols Cocktails, Passoã and Galliano. In addition, we further tailored our market approach to the maturity of the cocktail culture in each respective market. This ensures optimal in-market execution of our growth strategy.

We intensified our direct-to-consumer focus along with bartender engagement. The company's online presence and retail proposition are key elements of that focus. I am very proud of the recent launch of our Bols Ready-to- enjoy Cocktails: a new proposition that will inspire consumers by bringing home the magic of cocktails.

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Our innovative Bols Cocktail Tubes enable us to tap into the rapidly-growing category of ready-to-serve cocktails in a unique way.

We have also learned lessons from the COVID-19 pandemic. Our disciplined focus on costs and cash remains in place, resulting in high cash generation and a substantial reduction in net debt.

We are confident that our leading brands on the international cocktail market will capture the momentum to drive long-term sustainable growth."

Strategy update - Fit for Growth

To step up growth, management implemented Fit for Growth: a revised operating model that accelerates a shift in focus that was already initiated before COVID-19.

Even more focus on cocktails, brands and innovation

Under Fit for Growth, Lucas Bols redefined its brand portfolios from Global Brands and Regional Brands to Global Cocktail Brands and Regional Liqueurs & Spirits. Included in the Global Brands portfolio were Bols Cocktails, Passoã, Galliano, Damrak Gin, Vaccari and Nuvo, whilst the Regional Brands portfolio consisted of all other brands.

The new Global Cocktail Brands portfolio comprises of Bols Cocktails (Bols Liqueurs, Bols Genever, Bols Vodka, Bols Ready-to-enjoy Cocktails), Passoã and Galliano, and is set to increasingly benefit from the continuing increase in popularity of cocktails and mixology, increased in-home cocktail consumption and the premiumisation of brands and products. Resource allocation (including towards innovation, product development and Advertising & Promotion ("A&P")) will be focused on accelerating the growth of the Global Cocktail Brands. Within the Global Cocktail Brands, A&P spend is shifting more towards direct-to-consumer and digital marketing.

Our other brands, which are now clustered in the new Regional Liqueurs & Spirits portfolio, will continue to either pursue their growth strategy in specific markets (for example Henkes, Damrak Gin, Pisang Ambon, Nuvo and Vaccari) or maintain their competitiveness, protect profitability and focus on cash generation.

By establishing a separate innovation team and allocating additional resources, Lucas Bols is investing in product development to set and address relevant trends.

Tailored market approach based on cocktail culture maturity

Lucas Bols also redefined the way in which markets are clustered. Markets used to be clustered mainly based on their geographical location, resulting in four regions: Western Europe, Asia-Pacific, North America and Emerging Markets.

Under the Fit for Growth programme three market clusters have been established which allows us to tailor the market approach to the maturity of the cocktail culture in each respective market: Sophisticated, Developed or Emerging. In the Sophisticated Cocktail Markets, comprising North America, the cocktail culture is fully mature, both in and out of home. Western Europe, Japan and Australia/New Zealand are considered Developed Cocktail Markets, displaying a well-developed cocktail culture that is widespread and growing in-home cocktail consumption. Other markets make up the Emerging Cocktail Markets cluster where the cocktail culture is either growing (Eastern Europe and Asia) or in an early stage of development (Latin America and Africa/Middle East).

This tailored market approach helps us focus on those markets that are key for organic growth - both now and in the future. One of our key markets is the United States. The aim there is to expand the business by accelerating organic growth of our Global Cocktail Brands and Nuvo and by adding more brands to complement the portfolio, either through long-term distribution contracts of brands like Pallini (added late 2020) or acquisitions.

Expanded control over route to market

To further solidify consistent and effective in-market support for our brands, Lucas Bols strengthened its control of the route to market of its products. With the creation of Maxxium BeLux, a 50-50 distribution joint venture with Edrington for Belgium and Luxembourg, Lucas Bols now controls the distribution of approximately 40% of its revenue.

Agile and efficient organisation

We also changed our way of working under Fit for Growth. Teams are now fully integrated, which supports agility and efficiency and ensures swift and decisive execution of our global strategy. This helped in achieving important overhead savings, which contribute to improved operational leverage and accountability. Management remains

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focused on embracing the entrepreneurial, inspirational and ambitious Lucas Bols culture throughout the organisation.

Fit for Growth value proposition

With the renewed focus and targeted A&P investments behind the Global Cocktail Brands in a cocktail market that continues to grow globally, the ultimate objective of Fit for Growth is to achieve an annual revenue growth of these brands of 4-5% (previously 3-4%) at high and sustainable profit margins. For the Regional Liqueurs & Spirits we aim to stabilise revenue by growing the international brands in specific markets to compensate for the decline in the domestic brands.

Strong cash generation and conversion have already led to a reduction in net debt, and we aim to achieve a net debt / EBITDA ratio that is well below 4.00x in the coming years. This provides additional opportunities to leverage our scalable production and distribution platform through acquisitions or partnerships.

Key figures

	30 September		30 September		30 September
in € million unless otherwise	2021		2020		2019
stated, for the half year ended			% change	% change	% change
	reported	reported	reported	organic1	organic1
Revenue	45.6	26.8	70.2%	70.4%	0.9%
Gross margin	56.6%	56.7%	-10 bps	-20 bps	-160 bps
Operating profit	11.5	5.3	116.4%	112.9%	-6.7%
Operating profit margin	25.3%	19.9%	540 bps	500 bps	-200 bps
EBIT2	12.1	4.3	179.5%	175.3%	-5.1%
Net profit	7.7	1.9	297.8%	288.3%	-21.1%
Free operating cash flow3	11.4	9.6	19.3%
Earnings per share (in €)	0.62	0.16	287.5%	300.0%	-21.1%

Business review

Brands

Global Cocktail Brands

Bols Cocktails

With the gradual reopening of the on-trade Bols Cocktails saw a continuation of the recovery that started in the fourth quarter of last year. This was particularly the case in the US (depletions almost doubled versus last year and grew significantly versus 2019/20), where Bols Liqueurs with natural botanicals have been rolled out successfully. The number of outlets and menu listings is expanding rapidly. Depletions of Bols Cocktails in China and Eastern Europe are also exceeding pre-COVID-19 levels. The performance of Bols Cocktails is still adversely impacted by COVID-19 in Japan, South-East Asia and a number of more on-trade driven European markets.

Passoã

Passoã is continuing to grow and is exceeding expectations, even after a strong 2020/21. Performance is well ahead of pre-COVID-19 levels. The primary growth drivers are the UK, the Netherlands, the US and Puerto Rico. The popularity of the Passoã Star Martini is rapidly spreading outside of the UK. Distribution is expanding with new markets and retail channels being exploited, benefitting from the increased trend toward in-home cocktail consumption.

Galliano

The turnaround of the Galliano brand recorded in 2020/21 continued in the past half year when further revenue growth was achieved. The brand was once again able to achieve strong results in Australia and New Zealand. The 'The Original Galliano Hot Shot' signature serve ritual is boosting the brand's performance in Scandinavia, while the increased popularity of the Espresso Martini cocktail is supporting demand for Galliano Ristretto, particularly in the US.

1. Organic: at constant currencies
2. EBIT is net profit before net finance costs and income tax expense. Thus, EBIT is defined as operating profit plus share of profit of joint ventures
3. Free operating cash flow is net cash from operating activities minus cash used for the acquisition of property, plant and equipment and intangible assets

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Regional Liqueurs & Spirits

A number of brands are performing very well within the portfolio of Regional Liqueurs & Spirits. Our retail-oriented brands Nuvo and Pisang Ambon are showing promising growth while Pallini is performing according to plan and proving to be a valuable addition to the portfolio in the US. On the other hand, the Dutch genever and vieux portfolio, a category which has been in decline for several years, saw its performance deteriorate further as a consequence of the introduction of restrictions on price promotions imposed by the Dutch Government.

Market clusters

Sophisticated Cocktail Markets (US, Canada, Puerto Rico)

In North America the strong recovery that started in the fourth quarter of 2020/21 continued in the first half of 2021/22, mainly on the back of increasingly buoyant consumer demand and the reopening of the on-trade. Depletions were up 73% compared to the same period last year and up 52% compared to pre-COVID-19 2019/20. Revenue was up 226% (+52% compared to the first half of 2019/20). The growth achieved substantiates the strength of the Lucas Bols USA platform, including the addition of the Pallini brand. In addition, Passoã showed substantial, sustainable growth in Puerto Rico.

Although it varies state by state, most on-trade outlets in the US are now open for business again, leading to a significant increase in consumer demand. The in-home consumption trend that accelerated during the COVID-19 lockdowns continued despite the reopening of the on-trade. The ongoing roll-out of the Bols Cocktails proposition, including the successful relaunch of the Bols liqueurs with natural botanicals, resulted in a strong increase in the number of outlets and menu listings. Another clear growth driver is the Passoã brand on the back of large distribution gains. Importantly, Galliano, Nuvo and the addition of Pallini also contributed to the growth in the US.

Developed Cocktail Markets (Western Europe, Japan and Australia/New Zealand)

Revenue in the Developed Cocktail Markets grew 28% compared to the first half of 2020/21, mainly because of continued strong performance in Australia and New Zealand. Moreover, certain key markets in Western Europe (including the UK) performed well, supported by a gradual improvement of Bols Cocktails and double-digit growth of Passoã. Recovery has been slower in other, mainly Southern European, markets where there is a higher dependence on the on-trade. The Japanese market remains very challenging while the COVID-19 lockdown measures are in place. Travel Retail is also still very much impacted by the COVID-19 restrictions. Consequently, performance is still lagging behind pre-COVID-19 levels, also impacted by the decline of the Dutch genever and vieux portfolio.

Emerging Cocktail Markets (Eastern Europe, Asia (excl. Japan), Latin America and Africa/Middle East)

The Emerging Cocktail Markets achieved a significant improvement in revenue compared to the first half of 2020/21 (+155%). Eastern Europe and China were able to bounce back in a meaningful way, with depletions even ahead of the first half of 2019/20. Markets in South-East Asia are still very much impacted by lockdown measures and the related lack of tourism. Markets in Latin America and Africa/Middle East are recovering, albeit slowly. Promising performance was achieved by the Henkes brand (Western Africa), Vaccari (Mexico) and Nuvo (Latin America).

Commercial initiatives

Lucas Bols actively continued to invest in its brands, increasingly leveraging social and digital campaigning. The focus on retail, ready-to-serve propositions and do-it-yourself cocktail packs accelerated, driven by factors including the launch of Bols Ready-to-enjoy Cocktails in October. This newest addition to the Bols Cocktails portfolio features five signature cocktails available in 200 ml Cocktail Tubes and multi-serve bottles. Substantial (digital) media spend is being directed into the launch of Bols Ready-to-enjoy cocktails in the Netherlands and the US to drive revenue in the second half of the year.

Following the gradual lifting of the lockdown measures and reopening of the on-trade, brand activations and engagement events have been restarted to engage with bartenders and consumers alike.

Depletions

Depletions in H1 were up 33% versus 2020/21 and up 6% versus 2019/20. In line with the outlook provided, shipment volumes followed depletion volumes in the first half-year, demonstrating that we started the year with healthy in-market stock levels.

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Depletions (value)	% change vs	% change vs
H1 2021/22	H1 2020/21	H1 2019/20
Total	33%	6%
Brands
Global Cocktail Brands	31%	6%
Regional Liqueurs & Spirits	41%	6%
Regions
Sophisticated Cocktail Markets	73%	52%
Developed Cocktail Markets	15%	-5%
Emerging Cocktail Markets	65%	-5%

Financial review

Revenue

Lucas Bols' revenue for the first half of 2021/22 came in at € 45.6 million, up 70% compared to last year due to the continued reopening of the on-trade, positive brand momentum across key markets, the first-time contribution from Pallini and favourable comparative figures. The net effect of currencies on revenue was € 0.1 million positive.

Compared to 2019/20 (pre-COVID-19), revenue for the first half-year was down 2%, reflecting the ongoing impact of the pandemic in certain markets during the period.

Revenue of the Global Cocktail Brands was up 77% (to € 33.8 million) while the Regional Liqueurs & Spirits reported a 54% increase (to € 11.8 million).

The Sophisticated Cocktail Markets were the main revenue growth driver, largely on the back of excellent performance in the US market. Although at a slower pace, the Developed and Emerging Cocktail Markets recorded growth too.

Gross profit

Gross profit for the first half of 2021/22 increased to € 25.8 million (H1 2020/21: € 15.2 million), reflecting the increase in revenue. Gross profit as a percentage of revenue came in at 56.6%, virtually the same as the gross margin in the same period last year (56.7%) despite a strong increase in input costs. Currencies had a positive impact of € 0.1 million on gross profit. The gross margin of the Global Cocktail Brands increased by 60 bps while the gross margin of the Regional Liqueurs & Spirits decreased by 330 bps as a result of a different shipment mix, mainly the addition of Pallini, with lower margins given the distribution nature of the contract.

Operating profit

Operating profit for the first half of 2021/22 came in at € 11.5 million, a significant increase compared to € 5.3 million in the same period last year. Currencies had a positive impact of € 0.2 million. A&P, including commercial A&P, was considerably scaled up by 44% (to € 6.2 million) to support the recovery and growth of our brands following the reopening of the on-trade and the increased focus on retail. Overhead costs excluding government support are at the same level as last year. Consequently, overhead costs are below H1 2019/20, reflecting continued disciplined cost management and structural overhead cost savings.

The reported operating profit margin came in at 25.3% in the first half of the financial year compared to 19.9% a year ago.

Share of profit of joint ventures

The share of profit of joint ventures came in at € 0.5 million (H1 2020/21: € 1.0 million loss) and is completely attributable to Maxxium Nederland's performance. Avandis' production is fully operational and at significantly higher levels than last year.

EBIT

EBIT for the first half of 2021/22 was € 12.1 million: an increase of € 7.8 million compared to the same period last

year (€ 4.3 million). This implies an EBIT margin of 26.4% (H1 2020/21: 16.1%).

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