The first quarter of the year was both rewarding and challenging. Rewarding since the merger between Cloetta and LEAF was successfully completed, and challenging mainly due to the soft market conditions and continued higher raw material costs.
In the past six months, our primary focus has been on completing the merger between Cloetta and LEAF and planning for the new joint company. In addition, we executed a rights issue as part of the merger and announced a proposal for a supply chain restructuring programme. These activities have been very time-consuming and demanded significant management attention. Having completed the transaction, the organisation can once again focus entirely on driving the business and realising synergies made possible by the merger.
We have now initiated a process to integrate the two companies in order to realise synergies, primarily in Sweden. This work is proceeding according to plan and I am convinced that the merger will create a stronger and more competitive company. The first positive effects of the integration should be visible on the EBITA level at the end of the year.
On 8 March 2012 we announced a proposal to close three factories in Sweden and Finland. The key driver for this is the existing overcapacity currently found in the Group’s production structure. Given that we are active in a highly competitive and mature market, we must constantly strive for improved cost-effectiveness.
In total, the communicated synergies from the merger and savings from the proposed fac¬tory closures will generate cost savings of SEK 210m. The integration and restructuring plans are proceeding according to plan. This also means that the merger and the rationalisation of our production structure will be a top priority.
The overall market conditions remained soft in almost all of our key markets. However, the market for chocolate products in Sweden grew somewhat during the quarter, and the confectionary market in Finland improved as it recovered from last year’s introduction of the confectionary tax.
The somewhat weaker market development impacted our sales performance. Underlying net sales fell by 1.8 per cent, while reported net sales increased by 3.9 per cent, attributable to the reverse acquisition of Cloetta. Our reported sales performance was affected by the divestment of our distribution business in Belgium and the termination of a third-party brand distribution agreement in Italy. The divestment of our distribution business in Belgium is in line with our strategy to focus on our core business. The new owners of the distribution company will continue to sell our brands in Belgium.
We have been able to implement price increases during the quarter to offset higher raw material costs, but not all have reached full effect yet. This, in combination with lower underlying net sales, led to a drop in underlying EBITA by 32.3%. In all essential aspects, our results for the quarter are in line with expectations. In addition, reported operating profit declined as a result of several non-recurring costs that are mainly related to the divestment of the distribution business in Belgium and costs connected to the factory closure in Denmark.
Regardless of how the market conditions will develop, we have an ambitious synergy and restructuring plan that will create value for the shareholders going forward. And with the merger between Cloetta and LEAF completed, we can once again solely focus on driving the business.
President and CEO