Confectionery market during the quarter
The packaged confectionery market declined in Sweden, Denmark and the Netherlands due to the warm weather. In Finland, the market remained unchanged and in Norway the market grew driven by the increased sugar tax, but volumes decreased. No complete market statistics are available for pick & mix, but according to our own estimates, the pick & mix markets declined substantially in all markets during the quarter driven by the warm weather, which impacted buying behaviour.
Cloetta’s sales for the quarter increased by 2.2 per cent, of which organic growth accounted for –3.6 per cent and exchange rate differences for 5.8 per cent.
Branded packaged products
Sales of branded packaged products grew by 1.6 per cent driven by Sweden, Denmark, Germany and International Markets. Sales declined in Norway, Finland and in the Netherlands.
Although the confectionery market declined in many countries, Cloetta succeeded in taking market share in 14 out of 16 categories in our core markets. This demonstrates that our focus on improved and sharper marketing activities is starting to pay off. During the quarter, pure media investments increased by approximately 10 per cent.
Pick & mix
Pick & mix sales declined by 15.6 per cent, mainly due to the previously announced lost contract in Sweden and weak development in Norway due to the increased sugar tax and the absence of campaigns, but also an overall weak development in many markets.
Increased operating profit
Cloetta’s operating profit (EBIT), adjusted for items affecting comparability, amounted to SEK 194m (169) and the operating profit margin, adjusted for items affecting comparability, was 12.6 per cent (11.2). Operating profit amounted to SEK 180m (169) and includes the negative impact of remeasurement of the contingent earn-out consideration for Candyking of SEK 6m.
The improvement in operating profit is primarily due to cost efficiency and higher production volumes. Marketing costs were at the same level as last year, although pure media investments was a larger part of the total marketing spend.
Improved cash flow and net debt/EBITDA
Cash flow from operating activities amounted to SEK 250m (135). The net debt/EBITDA ratio was 2.48 (2.63).
Candyking integration in line with plan
Since May, the former Candyking markets in the Nordic countries have been part of Cloetta’s business enterprise system and the merchandising organisations are integrated on all markets. However, a number of activities are still outstanding before the integration is fully finalized. When the activities are implemented, we will be able to realise the full Candyking synergy savings of SEK 100m by 2020.
Drive profitable growth of pick & mix
Pick & mix is a large and important part of the Nordic confectionery market. Cloetta has the expertise and the resources to further develop and grow the pick & mix business. Having full transparency of the now integrated Candyking operation, enables us to shape the pick & mix business for competitive growth in the markets, where the priority is to improve the EBIT margin even if this means that we sometimes have to exit unprofitable or low-margin contracts. In addition, our pick & mix business gives us the platform to work on improving the profitability both through supply, procurement, costs as well as sales and marketing activities.
Invest to grow
The rapid insourcing of Candyking products and the increased demand in branded moulded products versus plan, is creating a higher utilization of the moulding network sooner than anticipated. In the short term, this creates extra cost when additional shifts have been added in some factories. As previously communicated, investments are needed in the existing factories to be able to insource more volumes. The first investment to increase capacity in in two of our factories, mainly in drying chambers, is now being prepared.
I am happy to see that branded packaged products grew for the third consecutive quarter. It bodes well for the future. We will continue to focus on strengthening our brands through more and efficient marketing support and innovation. Year to date, we have been able to increase pure media investments by being more effective in our marketing spend, but for the fourth quarter I am excited to see some innovations and marketing activities coming to the markets, leading to an absolute increase in our marketing spend.
2018 has developed well in terms of EBIT improvement and growth of branded packaged products. Our focus on cost, synergies from Candyking and increased media investments have brought about this improvement. Therefore, my focus continues to be on driving growth up and cost down.
Henri de Sauvage-Nolting
President and CEO