Ladies and gentlemen, it is my pleasure to welcome you to the Lindt & Sprüngli telephone conference on the occasion of our half year results 2021. During the presentation, I will provide some additional comments on the charts that were uploaded this morning to our website and where a transcript of my speech is also available.

I will guide you through the slides via webcast. The presentation will take approximately 30 minutes.

Following the presentation, I will hand over to the operator, who will then manage the question-and-answer session.

Yes, Patrik Schwendimann, Kantonalbank, and congrats for the excellent results. I have two questions from me.

H1 '21 was already 2% ahead of H1 '19 in terms of sales. As a best guess, if the environment doesn't change, would this be a fair assumption to say that H2 '21 could also be slightly above the H2 '19 level?

Or is there anything different we should keep in mind? That's my first question.

Second question, you are on track for a double-digit organic growth for the full year. Bearing this in mind, the margin outlook seems to be conservative.

Is your margin outlook for '21 just a prudent guidance or is there anything you have to be aware?

Yes, thanks for the question. Look, with regards to the growth rate in the second half, we have to bear in mind that we have really fast-growing chocolate markets in the first 6 months or actually in the last 12 months, started roughly in the second half of 2020.

Therefore, I really expect to see a slowdown in the chocolate markets, which will impact everybody. We have seen chocolate market in the U.S.

growing between 6% and 8% over the last 12 months. I think this will slow down to low single digit or even come to a standstill.

Therefore, we will have an impact there, I think. We have, of course, benefited a lot from in-home consumption.

And people now, in the second half, we expect them to go out more again to restaurants, et cetera, therefore the slowdown in the chocolate markets. I still believe within the slowdown of the chocolate market, we will outpace the overall market because we see the trend to premiumization continuing.

Yes, I expect the second half to be slightly higher than the second half of 2019, but just really low single digit. With regards to the question on the EBIT margin, I don't think it's conservative.

We will see in the second half also a relatively slow Global Retail business. Our stores -- lots of our stores, especially in inner city locations, in shopping malls, as well locations that are in touristic areas, they don't see a lot of footfall.

Therefore, of course, retail compared to 2019 is still quite slower. And as you also know, retail has a lot of fixed costs.

That's why that will still weigh on our profit margin in the second half. That's number one.

Number two, as I mentioned, we'll of course try to continue to invest behind our brands. Also in the second half, we have a lot of growth potential in the medium to long term.

Therefore, I don't think it's conservative. I think we will be at the higher end of 13% to 14%, but I'm not expecting it to be higher than that.

The first one would be, please, on your CapEx and capacity plans. When you have a CapEx run rate of around CHF 300 million, is it fair that you're roughly adding 5% additional volume capacity per year?

This would be the first question. The second question would be, please, Russell Stover.

What does it really need to bring the brand towards group margins? And will it be, for example, a 30% increase in sales?

Would this be a fair assumption? And the third question is you mentioned that cocoa butter prices in '22 should be somewhat below '21.

Is this a statement you are making on spot prices? Or is this a statement you made on your hedge prices for '22 versus '21?

Yes, thanks for the questions. With regards to the CapEx of CHF 300 million, look, I don't think it's just a math to say it's so much more volume because some of the CapEx is related to, first of all, to nonproduction, right?

Some of it is linked to IT systems. For example, in the next years, we will also upgrade our SAP systems next 6 to 8 years.

Some of it is linked to efficiency improvements. So we invest in getting actually more out of our factories in terms of efficiencies, et cetera.

And some of it is pure capacities or additional lines. So it's really difficult to make this clear statement, it's 5% or it's 2% of volume.

As you know, for -- our biggest investment in the last couple of years and also in the next 2 years will be the build-out of the New Hampshire factory. And there, we will definitely be able to satisfy our volume growth for the next 6 to 7 years once we have finished the build-out of the New Hampshire factory in the U.S.

With regards to Russell Stover group margin by when will that be on average, for sure, additional sales is one trigger of that and one important one. But then, of course, there are many other areas where we are working on.

We have implemented SAP in Russell Stover, we have gone live last year, 1 year ago. So new systems, new processes bring additional efficiency, additional transparency as well.

We can have much better access information, faster access to information, that ultimately leads also to improve efficiency. So it's really a combination of additional sales plus an improved efficiency through lots of adaptive processes, et cetera.

With regards to '22 cocoa, very difficult to make a prediction on the cocoa market as such. Depends a lot on the speculators, but also on the production, let's say, on -- in the origins.

So my statement about what I expect was more based on what we see here and what relates to our material costs. So we think we will, based on the current levels and based on what we have done already, we're not expecting material costs to go through the roof next year despite the fact that actually packaging costs are going up.

But we have definitely a positive development on the butter side, which helps. And then, yes, and we have some negatives as well on some other raw materials.

But overall, I'm not expecting material costs overall to be hugely above '21. Slightly above '21, but not hugely above '21.

If I may quickly follow up on the cocoa butter. I mean in particular, going into premium chocolate, which is strongly recovering, U.S.

leader. You see it in your volumes.

I saw that with rising demand and more or less unchanged supply, the butter prices could strongly increase again. But yes, I see your comments.

Is there anything else I need to consider regarding additional capacity for butter coming to the market, what you are seeing at the moment?

No. I mean the butter is actually not right now -- there's a lot of demand for powder.

And if there's a lot of demand for powder, they press more beans and that means that somehow there is almost an abundance of butter. That is what has happened in the last 6 months.

Now difficult to say if this will continue, but in a crisis you oftentimes have companies that use more powder because it's cheaper, and therefore, there's an increased demand for powder. So that has happened.

That's the reason why the butter ratios come down, and they are still down right now at roughly 2.20. So they have not really increased a lot so far.

Yes, we will see what happens in the next few months. But overall, I'm positive that we should have a benefit from that side.

Yes, a couple for you. You mentioned -- maybe just on the overall market, you mentioned the U.S.

may be growing 6% to 8% slowing down. Just wondering if you can just give us your outlook or where you think the sort of the Rest of the World business is.

And also where you think the premium part, is it just a couple of points above the mainstream market? So just so we can sort of like try and get an understanding of the potential market share gains you had with 17% organic.

That's the first question. The second question, just on your own retail and also Travel Retail, which obviously is not functioning as it was in 2019.

Can you tell us where your sales were in H1 just compared to 2019 roughly? I guess Travel Retail was maybe around 20% of 2019, but your own retail was probably back up to 80%, 85% or something like that.

And then just a last question, back on the raw materials, there's a lot of market chatter about this. You don't seem overly concerned because of maybe the positives on the cocoa and the cocoa butter side of the equation.

Just wondering on the sort of like logistics, energy and packaging, is that you think the way things are going, that will be a double-digit increase next year? And obviously, then that's been offset by the coffee part of -- sorry, the cocoa part of the equation.

Okay, let me start with your last question on raw materials. So we definitely see a massive inflation, especially on packaging.

And depends a bit still what will happen in the next few months. But definitely, on the packaging side, we will probably see close to double-digit increase in costs.

We also see a big inflation, especially in the U.S. on labor.

There's really a -- it's difficult to find labor, and therefore, of course, costs go up. So we definitely see quite a, let's say, some pressure on the cost side.

Yes, let's say, in our particular situation, we have an offset, to some extent, at least coming from cocoa butter. And to some extent, also, let's say, from cocoa beans, which are still at attractive levels, let's say, compared to the last years.

So our main raw material is really not going up massively, right? So that helps a lot, obviously.

But still, overall, I'm still expecting overall material expenses to go slightly up. So we may -- as our competitors, we may also have to think about price increases, et cetera.

I mean that's still something we are working on. And I'm sure our competitors as well.

But there's definitely a lot of cost pressure. I don't want to leave here the impression there is no cost pressure, so there is cost pressure from everywhere with the exception of cocoa basically right now.

With regards to your second question, yes, Global Retail was in that ballpark. You mentioned 80% to 85% compared to 2019.

And Travel Retail is down by roughly 70% to 80%. That is also correct.

So definitely still some pressure there. And if you look at retail, of course, it depends on the location of the stores, it depends on the country.

I think the ones that probably work best are outlet malls, which are, let's say, have outside space where people can walk outside from one store to the next one. And the most difficult ones are, for sure, the ones that are in very touristic locations.

And then there are many others in the middle, let's say, between those 2 extremes. And then your first question around market share gains.

As you have seen in North America, we have grown around 15% to 17%, depending on the subsidiary. And the market has grown around half that.

So definitely, we have benefited from the market growth, but also from the fact that we have seen quite some nice premiumization happening. So we have definitely gained market share in the U.S.

And in North America, 20, 30 basis points or so. And Rest of the World was actually the area where, compared to 2019, we have not seen a full recovery yet.

In Rest of the World, we have the entire Travel Retail, we already talked about that, but we also have 2 relatively big countries with Japan and Brazil, which are quite retail focused. So there.

And first of all, it's not part of the market share. So it's difficult to say.

In Nielsen, it's not captured, so it's difficult to say exactly what that meant for the overall market. But yes, so Rest of the World, some gains, but difficult to measure or to see it really exactly in Nielsen.

Okay. And to just come back on the price component in the first half, 6 points, should we assume a similar level in the second half of the year?

I guess that will be the case just because you can annualize those price increases. And then, I guess, we will still see some next year, and then you'll take a further decision whether to do a bit more, pending what happens on the raw material side.

So -- and as part of that, how difficult are you finding it talking to the retailers to increase prices? Or are they pretty -- the fact you've managed to put on 6 points pretty easily, this is the biggest figure, I think, in at least a decade when I'm looking back through the file.

How easy is it to actually do this with retailers?

It's difficult to do price increases always. Depending on the countries -- in some countries, it's more difficult than in others.

But in general, it is difficult. Bear in mind that, let's say, a lot of the first half benefit price/mix is coming from the mix as well, where we have lost last time massively because of the channel mix, right, more retailers recovered versus '20.

So that's a big important part of the price/mix. So it's not necessarily pure price increases.

Let's say, if you look at the full year, where we are guiding for low double-digit growth, about half of that. So 50% of the percent of the growth rate will be coming from price/mix, I think, right now.

So if the growth rate was 10%, price/mix would be around 5% and volume around 5% for the full year. That's currently the estimate.

And then for next year, I think if you talk about price increases, right, you have different ways of doing price increases. You can really increase the list price to the retailer, or you can change your promotional price, you can change your promotional mix, you can change the volume on deal, you can -- you have different ways of doing that, right?

So the goal is really to increase the average price. You don't necessarily need to do list price increases to do that.

But list price increases are, in general, difficult. I think it's a bit easier in this environment, which is very inflationary and lots of other consumer goods companies are also increasing prices.

So it may be slightly easier. What definitely is easier for us is a premium player that a price increase is more accepted by the consumer because it's more difficult to exchange the Lindt product against another brand.

I think that's definitely an advantage, the acceptance by the consumer.

And so the price component, that would be maybe 3 or 4 points, something like that?

Next year would be...

This year. This year.

Ah, no, this year? So far, year-to-date, it's really low single digit.

The majority of the positive impact is coming from mix. I'm expecting the price increase this year to be relatively a small one and for the full year also.

And then into next year, maybe that price component will be a bit higher.

Be a bit more, yes.

Okay. Great.

Well done on the figures. Great set of figures.

Thank you.

So you said that you've continued to increase advertising and brand investments during the pandemic so that you could sort of emerge as the structural winner. So what's actually a long-term payoff of this if you're leaving your longer-term guidance unchanged?

And then my second question is you obviously had a great performance in e-commerce, how do you see it evolving as the rest of your channels like owned stores and Travel Retail open up?

Sorry, I didn't understand the second question. Can you repeat it, please?

Sure, sorry. So you've obviously done really well in e-commerce, but how do you see this evolving as the rest of your channels open up, like Travel Retail and the owned stores?

Do you think that this can have an impact on e-commerce? Or do you think it can kind of continue on this current trajectory?

Okay, so let me start with the long-term payoff of advertising. I mean that's always a good question, right?

Because yes, it's obviously more difficult to measure one-to-one the impact of, let's say, $1 spent in advertising compared to $1 spent in promotion, it's more difficult to measure that. But let's say, for you as an investor, I think it's -- to grow 5% to 7% in the medium term, it's very important to spend a certain amount of money behind our brands, of course.

Now you have seen in 2020 where we did kind of a countercyclical thing where we have it up, advertising, while starters probably put on the break. I think we see now the impact of that.

So we also believe that if we were able, for example, in the second half, thanks to efficiencies, et cetera, to have own advertising investment, to hopefully be not a 5% growth but at 6% or 6.5% in the future, do you know what I mean? So let's say, if you're saying 5% to 7%, there's still a relatively wide bracket of 2 percentage points.

So obviously, we are trying not to be at 5%, but higher than that. So the idea is really that, to accelerate, and so that's really the payoff.

And then on e-commerce, again, I would say, here, Travel Retail probably not a big impact. On retail, it depends a bit.

Again, here, I would say, in touristic locations or also factory outlet malls or general outlet malls, not such a massive impact depending on the location. Sometimes you can, of course, have an impact, let's say, in your normal grocery channel, right?

If you are on tesco.com with Lindt and somebody buys you on tesco.com, you may lose that sale to some extent at least in wholesale. But if you look in the channel itself, right, in the brick-and-mortar.

But if you look at the U.K. numbers -- and U.K.

is the country with the highest e-commerce percent, let's say, in Europe in our business, and I think, in general, in food. If you look at our performance in the U.K., it proves actually that e-commerce is, for us, rather accelerated than the contrary in terms of the growth trajectory, right?

Because in the U.K., despite the fact that over the last 5 years the consumers are buying more and more online, our numbers still look very good. Market share numbers, our sales numbers, we have grown double digit over the last years in this environment.

So I actually think it's not slowing us down for sure. To what extent it accelerates our overall numbers, I could not give you the exact answer to that.

But I personally think it's rather positive than neutral. For sure not negative.

I have two questions relating to the margin. First of all, concerning the U.S.

business, there, the margin was heavily impacted by the restructuring in the last few years. Now with the progress in the restructuring and with the high sales growth, should we expect there a significant improvement for the full year?

And secondly, looking a little beyond 2021, now you start with the high growth from a higher base in terms of sales and you still confirm the 15% EBIT margin. Should we, yes, expect there an update soon as, yes, due to operational leverage and other effects?

So first question, U.S. margin.

Yes, you have seen that year-to-date, we are roughly at a profit of -- profit margin of 0. So we are more or less breakeven there.

I expect for the full year to be at around 10% in North America EBIT margin. So definitely getting into a positive momentum.

I think the streamlining for growth initiatives that we launched 2 years ago are definitely paying dividends, plus all the good work, I think that the local teams do in terms of streamlining the supply chain, streamlining the merchandising force, streamlining IT, streamlining procurement. We have currently a project in the U.S.

where we look at all our costs really and renegotiate contracts, et cetera. So a lot of really good work is being done locally.

That leads us to lease around 10% EBIT margin in North America in 2021 full year. Then for future EBIT margin, no, I'm not expecting to give soon a higher guidance than 15% for next year.

As I mentioned earlier, I think we would rather accelerate, try to accelerate growth, try to accelerate even advertising, consumer promotion and really try to invest in the long term rather than showing a higher EBIT margin.

A couple of questions from me. Firstly, just on the margins, and you've talked about accelerating advertising expenditure and marketing spend a couple of times.

Could you give us some indication of the size of the increases that we're seeing year-on-year, maybe in terms of percentage of sales, so we get an idea of just how big this increase has been and might expect it to be going forward? And also, you mentioned the restructuring efficiencies in the U.S.

and your 10% U.S. margin target.

But how much of that is coming now -- do you expect to come from the efficiency savings? And then just a quick follow-up on the chocolate growth -- chocolate market growth.

I wonder if you could just give us a figure for what you think the European chocolate market was growing in H1 and if you expect to see the similar slowdown as in the U.S. in H2.

Yes. Look, I -- we don't publish numbers with regards to advertising, so I can unfortunately not answer your first question.

We don't give out these numbers. With regards to the chocolate market growth, I expect for the second half Europe to also be, let's say, flat to low single digits, similar to the U.S.

So we definitely expect a slowdown for the second half as well for next year. So very similar picture in North America as in Europe for that.

And in terms of the U.S. cost efficiencies?

Yes. Look, it's -- at the end of the day, it's a combination, right?

A lot is also leverage, right, operating leverage. But let's say, for the efficiencies -- and we also said that we did -- 2 years ago, we announced these initiatives of a restructuring cost of about CHF 80 million, and then we said the payback is about 5 years.

So it means that about CHF 15 million, 1-5, per year is coming from those efficiency projects. So that would be roughly against the original base would be roughly 100 basis points per year.

Okay, so there's no change in that expectation.

No. No change.

And if I could just come back on the brand investments. I know you don't give the potential sales or the absolute level.

But if you could maybe -- is there anything you can tell us about in terms of the magnitude of the increase year-on-year?

No. Really on this one, many things we give guidance or numbers.

But on advertising, I can unfortunately not tell you.

The first one is to come back on the pricing, you were saying it was at low single digits. How does it compare to your competitor?

And a similar question related to pricing, are you not benefiting, as you have like a higher proportion of cocoa butter versus your competitors, with palm oil? The second one will be on ESG.

Nice to see your increased efforts. And the question is how much are you investing towards 2025 in order to reach those targets?

And the last one would be 3 in 1. Basically, if you can give us a feedback on your launch of you HELLO Vegan in Germany.

How is baking developing, was it still positive versus a very strong compare? And last but not least, China, where you had, I think, your first TV advertising.

What is the feedback on that one?

Okay. Look, pricing of competitors, I mean, sometimes of course you can read that Hershey or whoever has increased prices.

And oftentimes, these articles, they refer to list price increases. So if you then go one level lower and you check in Nielsen, for example, usually, the overall price impact is less than what, let's say, is announced in, let's say, in advance, because oftentimes then there are spend back on promotions and things like that.

So competitors, overall, look very similar to us in 2021. I'm expecting an acceleration of this.

So I'm expecting definitely in general food companies to increase prices in the next 6 to 9 months. So I definitely expect a higher number going forward also, not only list price increase, but really implemented price increases.

Cocoa butter, yes, to some extent, we are benefiting there more than others, for sure, because palm oil or coconut oil has actually increased a lot in price. So I cannot speak for the others, of course.

But if you have less cocoa butter in your recipe but more palm oil, for sure your cost of goods will increase by more than what I mentioned in our case. And now, of course, this can quickly change and cocoa butter may also go up.

I mean we have been lucky from that side. And I'm expecting it to go back up at some point in time again.

So definitely would agree with you that we are benefiting there more than others. Sustainability costs overall for the next 5 to 10 years, it's probably going to be overall somewhere between 2% and 2.5% of sales overall, right?

Not in one go, but little by little increasing to a number like that by 2030. We still -- and a lot of that is actually coming from the greenhouse gas initiative and those net zero targets, right?

And because we are working on that in the next 2 years and we publish in '23 what the goal is, it's very difficult to exactly know over what period this will build up and how the road map will look like and how quickly the cost will kick in. But I'm expecting something like that in the next 10 years to come our way, right, somewhere between 2% and 2.5% of sales on sustainability overall.

Then another question was vegan, around vegan. That's going well so far.

It was a relatively small range of products in the bars area, chocolate bars, and it has gone well. We are looking at extending that range because there was really a very good answer from consumers, mainly in Germany so far.

But I think -- look, I think it's also, in the future, going to be kind of a niche market for sure, but a niche market which I think can make sense to try to explore and to test, right? So we definitely are working on that.

Then I think another question from your side was baking. If I understood it correctly, you had a question on baking.

Baking was fantastic last year. Everybody in the U.S.

-- because our baking business is especially big in the U.S., I mean lots of people staying at home, baking at home, so the demand for baking chocolate went up a lot, plus 30% or so. But if you look at the current Nielsen data, the baking market is really going down, the same that it went up last year.

So yes, basically back to where we were in '19 with regards to the market. So it was really just a temporary increase, which we also expected.

So definitely down in baking in the Ghirardelli this year because of that, but still on a good trajectory overall if you look at the long-term run rate. And then China.

Yes, I mean China, we have had advertising not on TV but in just online digital advertising, and that's going well. I mean we have we have seen a very positive momentum in China.

Actually, also last year, China has almost -- our business in China has almost been unfazed by COVID. So we've always been able to grow double digit despite the fact that, especially in the beginning of 2020, the virus hit quite hard in China.

So really happy with the business in China, the good performance there.

So no more questions, so thanks a lot to everybody. Yes, it was a pleasure to present those numbers.

As you have seen, I think we have had a very good first half. Now we are all focused on the second half, of course, to try to make this forecast happen.

And I wish you all a wonderful day and a very nice rest of the summer. Thanks a lot.