Confectionery market during the quarter
The packaged confectionery market grew in Sweden, Finland, Denmark and the Netherlands.
In Norway, volumes decreased due to increased sugar tax. No complete market statistics are available for pick & mix, but according to our own estimates, the pick & mix markets grew somewhat in all markets during the quarter, except for Norway where volumes decreased.
Cloetta’s sales for the quarter increased by 0.2 per cent, of which organic growth accounted for –3.2 per cent and exchange rate differences for 3.4 per cent.
Branded packaged products
Sales of branded packaged products grew by 1.4 per cent driven by Sweden, Denmark, Finland, The Netherlands and Germany. Sales declined in Norway, the UK and in International Markets. Cloetta gained market shares in 9 out of 16 categories in our core markets. During the quarter, marketing investments increased to support brand and campaign activities. Once again, this demonstrates that our focus on improved and sharper marketing activities is paying off.
Pick & mix
Pick & mix sales declined by 13.5 per cent, mainly due to the previously announced lost contract in Sweden and extremely weak sales in Norway. In December, sales of pick & mix in Norway declined by more than 50 per cent. The decline in Norway in December is due to de-stocking in trade ahead of the decrease in sugar tax in 2019. Most of the lost sales in December are expected to return in the first quarter of 2019.
Cloetta’s operating profit (EBIT), adjusted for items affecting comparability, amounted to SEK 174m (206) and the operating profit margin, adjusted for items affecting comparability, was 10.6 per cent (12.5). Operating profit amounted to SEK 159m (171).
The decline in operating profit is driven by higher marketing investments, significantly lower sales in Norway and, as communicated in the third quarter report, higher production costs due to additional shifts. The extra shifts are temporary and needed in order to be able to handle a higher utilization in the production of moulded products due to growth in branded packaged products and Candyking insourcing.
Stable cash flow and net debt/EBITDA
Cash flow from operating activities amounted to SEK 288m (305). The net debt/EBITD ratio was 2.31 (2.39).
Candyking integration and pick & mix
Candyking synergy savings during 2018 were in line with expectations. This means that still more than half of the total synergies of SEK 100m remains to be realized during 2019 and 2020, as planned.
Operationally, integration of Candyking will be fully implemented during the summer of 2019 when the last Candyking market has implemented Cloetta’s business enterprise system. Insourcing of Candyking volumes are progressing according to plan and necessary investments to further increase insourcing will be fully implemented during 2020. Once the investments are in place, we will be able to realize the full Candyking synergy savings towards the end of 2020.
Over time, pick & mix should become a growth driver for Cloetta. In the short-term, the priority is to improve the EBIT margin, especially in Sweden. This might mean increased prices in certain contracts, and that we might sometimes need to exit unprofitable contracts. This is a key priority for 2019.
Focus on profitable growth, cost efficiency and investments
For 2019, my focus continues to be on profitable growth, but also on cost efficiency and investments. We continue to focus on strengthening our brands through more and efficient marketing support and innovation to be able to continue to grow branded packaged products. The negative sales development within pick & mix needs to be turned around and the EBIT margins within this area needs to improve. We will increase investments in the factories substantially in order to be able to handle both Candyking insourcing and the growth within branded packaged products. Finally, we will continue to cut cost in order to be able to both invest and improve profitability.
I am also happy to say that for the third year in a row we have achieved the target of 2.5 x net debt/EBITDA. In combination with improved profitability and a good cash flow, this enables the Board to propose an increased ordinary dividend of SEK 1.00 (0.75) per share. This demonstrates that Cloetta stands strong.
Henri de Sauvage-Nolting
President and CEO