This quarter became the fifth consecutive quarter showing growth within branded packaged products. Operating profit, adjusted, improved slightly driven by growth in branded packaged products and cost efficiency.
Confectionery market during the quarter
The packaged confectionery market declined somewhat in Sweden, Finland, Norway and the Netherlands. In Denmark, the market increased. No complete market statistics are available for pick & mix, but according to our own estimates, the pick & mix markets grew in all markets during the quarter, except for Sweden where volumes decreased driven by the timing of Easter.
Cloetta’s sales for the quarter decreased by 0.2 per cent, of which organic growth accounted for –3.0 per cent and exchange rate differences for 2.8 per cent. In Norway, the majority of the sales that had been lost in December 2018 ahead of the lower sugar tax in 2019 were regained during the quarter.
Branded packaged products
Sales of branded packaged products grew by 0.6 per cent, which is good given the Easter effect. Sales increased or remained unchanged in Sweden, Denmark, Finland, Norway, the Netherlands and the UK. Sales declined in Germany and in International Markets.
By using the marketing investments more effectively, we have been able to increase our working media investments by approximately 10 per cent. This supported Cloetta in taking market shares in 10 out of 16 categories in our core markets.
Pick & mix
Pick & mix sales declined by 11.4 per cent. Almost the entire decline comes from Sweden where the main impact is due to a tough Easter timing comparator. In addition, the previously announced lost contract in Sweden was discontinued during the first quarter of last year and is thus in the comparative period.
Sales of pick & mix increased or remained unchanged in Finland, Denmark and Norway and declined in Sweden and the UK.
Cloetta’s operating profit, adjusted for items affecting comparability, amounted to SEK 166m (164) and the operating profit margin, adjusted for items affecting comparability, was 10.6 per cent (10.5). Operating profit amounted to SEK 164m (166). The improvement in operating profit, adjusted, is primarily driven by branded packaged products growth and cost efficiency offset by changes in exchange rates.
Improved cash flow and stable net debt/EBITDA
Cash flow from operating activities amounted to SEK 154m (–29). The net debt/EBITDA ratio was 2.4x (2.4).
Focus on profitable growth, pick & mix profitability and cost efficiency
As presented at our Capital Market Day in March, my key focus continues to be on branded packaged products growth, pick & mix profitability and on cost efficiency.
I am pleased to see that we have now been able to organically grow the branded packaged business, which has a margin above 14 per cent, for five quarters in a row.
The increased demand in branded packaged products and insourcing of Candyking volumes makes it necessary for us to invest to be able to grow. By investing SEK 100m in additional drying capacity in two factories we will add 10 per cent capacity to the moulding factory network in 2020.
Several activities have been initiated to improve profitability in the loss-making pick & mix business in Sweden. We have recently announced price increases from which we expect the impact to be seen during the second half of this year.
To improve efficiency and create less waste, we have during the quarter launched improvement activities in two of our largest factories. To further drive cost down, we have launched our Value Improvement Program Plus.
We have all the building blocks in place to drive both growth and profitability, and in the medium term this will drive Cloetta’s operating profit margin to 14 per cent.
Henri de Sauvage-Nolting
President and CEO