After a relatively weak first half of the year, the third quarter shows that we are on the right track. Earnings for the period were positive although underlying profit was down somewhat compared to the previous year.
For Cloetta, this meant that underlying sales in the third quarter declined by 3.2 per cent compared to the same period last year. Sales in Italy fell sharply during the quarter as a result of the economic challenges in the country. As in the previous quarter, Norway showed a decrease in sales which is primarily explained by a difficult market situation for us. A drop in sales was also seen for the products that are handled by third-party distributors in Finland, Denmark and Norway. On the other hand, sales increased in Sweden, Finland, the UK and in countries outside our main markets. It is particularly satisfying to see that sales are growing in Sweden, our largest market, with the new commercial organisation is in place.
Raw material costs remain at a historically high level and although individual raw materials’ prices fluctuate during an individual quarter, we have not seen a decrease in our total raw material costs.
Our pricing strategy, to balance higher raw material costs with increased prices, stands firm. However, we are experiencing a difficult market situation with relatively low or even negative growth, which has contributed to higher promotion and consumer pressure. Therefore, we have invested in the market to a large extent in order to defend our market shares. This has naturally had an impact on earnings in the short term.
The Scandinavian integration process is proceeding according to plan and, as previously communicated, we formed a joint sales and marketing organisation in Sweden since the beginning of the autumn. We have already noted certain positive signs as a result of the new organisation, such as for example accelerated sales. We have also taken over sales responsibility from a third-party distributor in the Norwegian market and are planning the takeover in the Finnish and Danish markets at year-end. In addition, new joint purchasing agreements for raw materials have been negotiated and will go into effect successively in the coming quarters. In the factory in Ljungsbro, we have begun insourcing a number of chocolate products that were previously manufactured by third-party producers. The first tangible example is the Finnish chocolate product Royal for which production will start this month. As a result of the integra¬tion we will, as previously communicated, be able to realise synergies of at least SEK 65m.
With regard to our factory restructurings, the facility in Alingsås has ceased all manufacturing of products. The aim is to leave the premises around year end. The factory in Aura is still manufacturing products, which is according to plan, but the majority of products have been prepared for production in the receiving factories. In the Gävle factory, which we do not intend to close until the beginning of 2014, efforts are focused on continuing production while simultaneously preparing the transfer of products. The overall factory restructuring is a large-scale project in which approximately 40 per cent of all products will be transferred in less than two years. This is obviously an ambitious undertaking that has impacted our production efficiency and costs in the short term. However, we remain convinced that we will be able to complete the restructuring and realise cost savings of SEK 100m towards the end of 2014, as previously communicated.
Our underlying EBITA has been affected by lower volumes as well as higher promotion and consumer pressure and has decreased in relation to the same quarter of last year. However, the decrease is less than in the two preceding quarters and there is some gain of momentum.
The third quarter was a clear step in the right direction. We are executing our plan and I am convinced that the integration process and factory restructurings will generate significant cost savings, something that will create an even stronger company in the longer term.
Bengt Baron, President and CEO