Strong quarter for Branded packaged products while Pick & mix was still negatively impacted by Covid-19, despite stronger Easter sales.
It has now been more than a year since the full force of the Covid-19-pandemic hit. I am proud that we as a team have navigated these challenging times with a strong focus on health and safety whilst keeping up momentum on the execution of our strategy. We have increased our emphasis on e-commerce and sustainability as changes have been further catalysed by the pandemic. Our enhanced approach to consumer-focused innovations also ensures that we align with evolving consumer trends. The restrictions introduced in various countries to reduce the spread of the virus continued to have an impact both on our sales channels and consumer behaviour during the first quarter. Nonetheless, our strong innovations and successful marketing investments enabled us to grow Branded packaged products. Furthermore, the sales of Pick & mix improved during the end of the quarter driven by stronger Easter sales. While there are promising signs that society will start to open up during this year, we recognise the uncertainty that still exists due to the pandemic.
First quarter development
Sales for the quarter decreased by 7.9 per cent, of which organic growth accounted for –4.2 per cent and exchange rate differences for –3.7 per cent. Sales of Branded packaged products increased organically by 2.5 per cent, driven by successful marketing and innovation, and further fuelled by increased distribution for Red Band on the German market. Sales of Pick & mix declined organically by 22.9 per cent during the quarter due to lower in-store activation and lower consumer demand. Overall, sales were favourably impacted by the timing of Easter compared to the prior year. The decrease in the adjusted operating profit is attributable to the lower volumes, unfavourable mix with less refreshment sales, under-absorption of costs due to lower production and increased marketing investments. The negative operating profit impact was partly offset by actions taken to improve Pick & mix profitability and continued tight cost control. To further increase the transparency of the performance of the business, we will disclose net sales and profitability for Branded packaged products and Pick & mix separately going forward.
Strong focus on marketing and innovation
Product development is one of the key drivers of the strength of our brands. During the quarter we launched several innovations within Branded packaged products in response to important consumer trends, such as a focus on plant-based and natural ingredients. As an example, we launched Kexchoklad Vegan, a non-dairy version of our Kexchoklad, Sweden’s most popular chocolate wafer bar. Our fruitbased candy is now also available on the shelves. Fruitbased candy, containing 50 per cent fruit, is a major 2021 initiative that is being launched across markets under our existing local candy brand portfolio. We will continue to drive innovations as well as increase investments in our brands and capabilities, enabling us to strengthen our competitive position for the future. For Pick & mix we continued efforts to re-build volumes during the quarter and made progress on our journey to bring profitability to the segment. In Finland, we successfully launched the revamped CandyKing concept offering consumers an enhanced pick & mix shopping experience. For selected stores we introduced a differentiated premium offer, “CandyKing – The premium mix” with a unique assortment and visual execution. For Easter, we also launched a digital activation platform for CandyKing in Sweden, achieving more than 165,000 visits in four weeks. The platform offers services such as recipes and product information and enables consumers to interact with Candy-King in a fun and engaging way. We continued to drive our sustainability agenda during the quarter, making progress on the roll-out of PlantPack into more brands as well as starting our pilot project with the Rainforest Alliance. We are finalising our commitment to the Science Based Target initiative, which is expected to be completed during the second half of this year. I am pleased to see that our ongoing VIP+ cost program is delivering according to plan, with several new initiatives taken during the quarter. For instance, we have now centralized our administrative processes for general ledger accounting to a Global Shared Service Centre in the Netherlands and we have started doing the same thing for accounts payable from our manufacturing site in Slovakia. Cash flow during the quarter was healthy, with positive free cash flow despite the lower operating profit. After the end of the quarter we refinanced the Group through our existing banking group for up to four years. As part of our strategic agenda in relation to the Perfect Factory program we have decided to invest approximately SEK 130m in carton packaging technology phased over 2021 and 2022, in addition to the regular capex. I am deeply impressed by and proud of how our employees continue to show commitment, perseverance and flexibility during this unprecedented time. For me it confirms that we have the right culture to support our strategy. Combined with our strong brands and market presence, this makes me confident that Cloetta stands strong.
Henri de Sauvage-Nolting
President and CEO