The first quarter showed good EBIT development and positive organic growth. This means that our focus on cost-efficiency in all areas and growth in both the packaged branded business and pick & mix is starting to generate results.
Confectionery market in the quarter
The packaged confectionery market grew in Sweden, Finland and Norway during the quarter, partly driven by Easter. In Denmark, the market declined and in the Netherlands, the market was unchanged.
Cloetta’s sales for the quarter increased by 27.8 per cent, of which Candyking accounted for 24.5 per cent, organic growth for 1.1 per cent and exchange rate differences for 2.2 per cent. The organic sales growth was driven by Cloetta’s packaged branded business, which grew by 2.4 per cent. Pick & mix sales declined by 3.3 per cent, primarily driven by Norway.
Cloetta’s sales increased in Sweden, Finland, the Netherlands, Denmark and Germany. We saw declining sales in Norway, the UK and on International markets. The robust growth for both packaged branded products and pick & mix in Sweden was driven by a better in-store presence for our packaged business and the Easter sales for pick & mix, which was partly neutralized by the loss of the major Coop pick & mix contract that was gradually discontinued during the quarter. Sales in Denmark were positively affected by increased listings for our branded business and continued growth for pick & mix, as all existing Candyking pick & mix contracts in this market have now been renewed. In Norway, sales were down substantially, particularly in pick & mix, due to the increased sugar tax and the fact that the grocery retail trade decided not to conduct any Easter campaigns.
Increased operating profit
Cloetta’s operating profit (EBIT), adjusted for items affecting comparability, amounted to SEK 164m (114) and the operating profit margin, adjusted for items affecting comparability, was 10.5 per cent (9.3). Operating profit amounted to SEK 166m (97).
Overall, the improvement in operating profit has been driven by growth in many markets, effective cost control and higher production volumes.
The weakening of the Swedish krona had some negative impact in the quarter, and given the recent steep drop in the Swedish krona rate, we will need to raise prices in Sweden to mitigate these effects. However, it will take some time before we are able to implement the price increases.
Cash flow and net debt/EBITDA
Cash flow from operating activities was affected by the Easter sales, which this year was in the first quarter, leading to higher receivables than in the previous year. Cash flow from operating activities amounted to SEK –29m (155). In addition, the comparative figure includes the divested Cloetta Italy which had a strong cash flow in the first quarter coming from the seasonal sales in the fourth quarter. The net debt/EBITDA ratio was 2.42 (2.34), which is in line with the target.
Candyking integration in line with plan
The integration of Candyking is progressing in line with plan. In the second quarter, the former Nordic Candyking units will implement Cloetta’s ERP system, further boosting efficiency. The various Cloetta and Candyking units have started to work as a single joint organization, with integrated sales and merchandising forces.
Insourcing is progressing well and will gradually increase during the current and coming years.
The new Chief Pick & mix Officer took up duties on 1 April and is building a small but strong central team. He will develop and drive the business with the goal of offering the best shopping experience based on customer and consumer needs, utilizing scale benefits across the pick & mix markets.
Focus on growth and costs
For 2018, my main focus is on driving growth up and costs down. Our ambition is to continue expanding our branded packaged business, just as we succeeded in doing in this quarter. This is also contributing positively to our EBIT delivery. The aim is to strengthen our pick & mix business across the main markets, although pick & m
x growth will remain negatively impacted by the previously announced lost Coop contract in Sweden and the increased sugar tax in Norway.
Growth should come when we sharpen the focus on our core brand positions and strengthen them through more targeted and efficient support. We are currently implementing a program to use our marketing spending more efficiently. At the same time, some of our cost savings will be used to increase brand support.
sts are expected to decrease as we integrate Candyking, realize our Lean 2020 program and continue to insource volumes from Candyking, while at the same time driving various cost saving initiatives throughout the Group.
Although a great number of activities need to come together in order to maintain profitable growth, I believe we have come far in building a foundation that will, over time, advance us towards our 14 per cent EBIT margin target.
Henri de Sauvage-Nolting
President and CEO