Dear Shareholders:

It is my pleasure to present to you, in my capacity as President of the Board, my comments on the company’s Financial Statements and significant events relating to the financial year ended 31 December 2015.

2015 was a positive year in terms of financial results. This was despite increased taxes due to 2014’s tributary reforms, high inflation that influenced our profit margins and finance costs, and price increases in some of our key raw materials.  Other highlights included the successful integration of Frutos del Maipo into our group operations, and the 90% increase in profit margin from our company Vitvinícola, thanks to the implementation of measures to improve internal efficiencies, a favorable exchange rate, and increased sales in Asia. 

Our sales for the year totaled 386,209 million pesos, representing an increase of 11.9% compared to 2014. This figure includes sales from Frutos del Maipo of 40,200 million pesos; a company that became a subsidiary in November 2014. 

The group’s operating profit reached 39,309 million Chilean pesos, representing an increase of 18.3% compared to the 33,244 million pesos achieved in 2014.  This result represents 10.2% of net sales, therefore in line with our objective of profitability.    

The group’s non-operating losses increased by 2,115 million pesos with respect to the prior year. The primary difference is due to increased net finance costs of 1,465 million pesos, representing interest on a loan of 33,000 million pesos taken out in November 2014 to finance the purchase of Frutos del Maipo.

Other losses suffered an increase of 1,179 million pesos compared with the prior year; this can be explained principally due to a loss of 415 million pesos on sale and revaluation of fixed assets, and 254 million pesos on reclassification of energy consumption costs retroactively charged by energy companies on a national level. 

Our financial indicators show important improvements in profitability, debt indicators and financial expense coverage, as shown in the charts that accompany this report. 

The group’s operating profits in 2015 reached 23,475 million pesos; 1,837 million pesos more than in the prior year, representing an increase of 8.4% with respect to 2014. This result is highly satisfactory and in line with the company’s profitable growth strategy.

Commercially, focus was maintained on strengthening our brands and key categories; continuing support at consumer as well as point of sale level allows us to achieve our target market shares in all market segments in which we participate. More details of this can be found in the main body of this report. 

With regards to new consumer trends and market dynamism, we have fast-tracked our schedule of innovations; by doing this, we are able to continue to develop products that meet modern demands. Highlights amongst this year’s innovations and product launches include the following products and brands: Wasil creams and prepared meals in Tetra Recart packaging; Chef ready-made sauces and balsamic vinegar; Watt’s nectars in new 330ml prism format and Selection Orange Nectar.  In the dairy category, highlights include the Loncoleche brand high protein yoghurt “Protein Shot”, Calo with growth 1+ and 4+, in both liquid and powder format, and Yogu Yogu 330ml prism format.

In operations, a project to convert the Frutos de Maipo production plant in Linares and increase frozen storage capacity was successfully implemented.  This project involved an investment of US$ 10.6 million, and aims to directly increase profitability of this company through increased efficiencies.  

With the aim of sustaining our future growth and improving levels of customer service, during 2015 we continued the implementation of the world-class software JDA.  This will allow us to improve the planning and coordination of our entire supply chain; including production, logistics, and commercial operations.  Results have already started to manifest this year.

Regarding our constant concern for our staff, and the necessity that work contributes to and aids their personal development; we introduced the “Survey on Working Environment.”  Participation amongst staff was high at 95%; well above the 75% average participation in similar surveys. The fact that our workers chose to share their opinions demonstrates their great commitment to helping us continue to improve. With regards to the results of this survey, 67% of respondents were favorable; also above industry standard. 

In relation to our group operations overseas, Laive in Peru achieved sales of 495 million Peruvian soles (equivalent to US$ 131 million), representing an increase of 4.8% compared to the prior year.  Gross profit was 9.1 million soles; 33.3% less than prior year, due to increased advertising costs and exchange rate losses.  EBIDTA was 34.6 million soles; 8.5% lower than in 2014. 

Our subsidiary Vitivinícola Viña Santa Carolina has shown positive results relating to its profitable growth strategy in developing markets.  Sales were 50,921 million pesos, representing an increase of 17.3% compared to 2014.  Operating profit reached 6,167 million pesos, compared to 3,029 million pesos in 2014.  Net profit was 3,452 million, compared to 1,816 million pesos in 2014.  Alongside Viña Santa Carolina’s positive financial results, it was awarded the prize for the best New World wine by the prestigious American publication “Wine Enthusiast”.

To conclude this message, I would like to congratulate, on behalf of the Board, and myself, the personnel of Watt’s S.A. and subsidiaries, without whom, our long-term strategy and the positive results it provides year in year out would not be possible.

Fernando Larrain Peña
President Watt´s S.A.