Confectionery market in the quarter
The packaged confectionery market declined on all key markets during the quarter. The market was particularly weak in May. For pick & mix, no full market statistic is available but according to our own estimates, the pick & mix markets declined substantially during the quarter, partly driven by a strong Easter comparator in the second quarter of 2017.
Cloetta’s sales for the quarter increased by 4.1 per cent, of which the acquired Candyking accounted for 5.4 per cent, organic growth –4.9 per cent and exchange rate differences for 3.6 per cent.
Sales of branded packaged products grew by 0.6 per cent. Pick & mix sales declined by 19.4 per cent, of which Candyking accounted for approximately one third of the decrease. Isolated, Candyking decreased by 12.1 per cent. The decline in pick & mix is due to the previously announced lost contract in Sweden, weak development in Norway due to the increased sugar tax and the absence of campaigns and a strong
comparator due to Easter falling in the second quarter of 2017.
Sales of branded packaged products grew or was largely unchanged in Sweden, Finland, Denmark, Norway and The Netherlands. Pick & mix grew in Denmark, the UK and the Netherlands, but declined in all other markets. In total, Cloetta’s sales grew or was largely unchanged in Finland, Denmark and the Netherlands. Sales declined in Sweden, Norway, Germany, the UK and in International markets.
Increased operating profit
Cloetta’s operating profit (EBIT), adjusted for items affecting comparability, amounted to SEK 145m (115) and the operating profit margin, adjusted for items affecting comparability, was 9.9 per cent (8.1). Operating profit amounted to SEK 155m (90) and includes a positive impact of remeasurement in the contingent earn-out consideration for Candyking of SEK 19m.
The improvement of operating profit is primarily driven by cost control including synergies from Candyking and higher production volumes. Marketing costs were also lower in the quarter.
Stable cash flow and net debt/EBITDA
Cash flow from operating activities amounted to SEK 119m (117). The net debt/EBITDA ratio amounted to 2.77 (2.77), which is somewhat higher than target due to pay-out of dividend during the quarter.
Candyking integration in line with plan
The integration of Candyking is progressing in line with plan. During the quarter the former Nordic Candyking markets came onto Cloetta’s business enterprise system.
Although the various Cloetta and Candyking units are integrated and have started to work as a joint team, there are still many projects – including the integration of the business enterprise system in the UK – that need to be finalised before the integration is fully completed.
Insourcing is progressing well and will gradually increase during the second half of this year and 2019–2020.
Continued focus on growth and efficiency
For 2018, my focus continues to be on driving growth up and cost down. From a growth perspective, it is pleasing to see that branded packaged products grew also this quarter. This means that branded packaged products had a growth of 1.5 per cent during the first half of the year. The declining sales in pick & mix is of course a disappointment, although the previously announced lost Cloetta contract in Sweden and the increased sugar tax and absence of campaigns in Norway is a large part of the decline.
We will continue to focus on our core brand positions and strengthen them through more and efficient marketing support. Therefore, we will increase marketing support during the second half of 2018 compared to previous year.
The production line in Turnhout, Belgium, that was destroyed by a fire last year, is now replaced with a new line that is producing according to plan.
Frans Ryden was recently appointed CFO starting later this year. With his appointment, my new Group Management Team is completed. The new leadership structure focuses on the countries besides the focus on branded packaged products and pick & mix.
We still have a lot to do to improve and drive our pick & mix business, but I believe we now have the fundament in place. The first half of 2018 has developed well in terms of EBIT-improvement and growth of branded packaged products, thereby being one step on our journey to grow the whole Group organically and achieve our 14 per cent EBIT-margin target.
Henri de Sauvage-Nolting
President and CEO