Cloetta again shows organic growth, driven by very strong pick & mix sales and branded packaged growth. The quarter showed an improvement in operating profit, adjusted, driven by growth in branded packaged products and cost efficiency.
Confectionery market during the quarter
The packaged confectionery market increased in all markets. No complete market statistics are available for pick & mix, but according to our own estimates, the pick & mix markets grew in all markets during the quarter, driven particularly by Easter in Sweden.
Sales for the quarter increased by 7.5 per cent, of which organic growth accounted for 5.7 per cent and exchange rate differences for 1.8 per cent.
Branded packaged products
Sales of branded packaged products grew by 1.4 per cent. Sales increased or remained unchanged in Sweden, Denmark, Norway, Finland, the Netherlands, Germany and in International Markets. Sales declined in the UK. Growth was driven by fewer but bigger innovations and was particularly strong in Sweden. Cloetta took market shares in 8 out of 16 categories in our core markets.
Pick & mix
Pick & mix sales increased by 18.1 per cent. Sales increased or remained unchanged in Sweden, Denmark, Norway, Finland and the UK. Sales were particularly strong in Sweden and Norway, driven by Easter sales. During the first half of 2019, pick & mix sales grew by 1.6 per cent.
Operating profit, adjusted for items affecting comparability, amounted to SEK 161m (145) and the operating profit margin, adjusted for items affecting comparability, was 10.2 per cent (9.9). Operating profit amounted to SEK 159m (155). The improvement in operating profit, adjusted, was primarily driven by branded packaged products growth and cost efficiency.
Cash flow and net debt/EBITDA
Cash flow from operating activities amounted to SEK –3m (119). Cash flow from operating activities was in the quarter affected by the timing of Easter. For the first half year 2019, cash flow from operating activities amounted to SEK 151m (90). The net debt/EBITDA ratio was 2.7x (2.8).
Focus on branded growth, pick & mix profitability and cost efficiency
We have three key focus areas that supports us in reaching our financial targets.
The first focus area is branded packaged growth. We are working with fewer but bigger innovations and we are increasing our marketing investments that are visible to the consumers. This has resulted in six consecutive quarters of growth in branded packaged products, a category that has a profit margin above 14 per cent.
Secondly, we are addressing the loss-making pick & mix business in Sweden with the ambition of turning it around towards the end of next year. Loss-making or low-margin pick & mix contracts, representing about half of the volumes in Sweden, have been renegotiated during the quarter. Price increases have been accepted on most of the contracts with an effect as of the second half of 2019. The renegotiations for the other contracts representing half of the volumes, which include some large contracts, are expected to be completed towards the end of the year. In addition, and equally important, activities to reduce cost for warehousing and distribution, merchandising efficiency and assortment harmonization have been initiated but are not yet fully implemented.
Thirdly, several cost efficiency activities have been initiated. “Perfect Factory” is aimed at creating higher efficiency and less waste in our factories, thereby increasing capacity and decreasing cost. Our Value Improvement Program Plus is centered around zero-based budgeting in order to address and reduce indirect spend.
Our new strategy and ways of working have started to deliver results. Growth is returning, and costs are decreasing. This makes me confident to say that we are on track to reach our financial targets in the medium term.
Henri de Sauvage-Nolting
President and CEO