Cloetta AB (publ)

Welcome, and thank you for joining us on the Q4 conference call for Cloessa. My name is Nathalie Redmo, and I'm head of Investor Relations. I'm here today with our CEO, Henri de Sauvage, as well as CFO, Friance Houdin. Henri and Friance will take you through our fourth quarter results, and we will then move on to a Q&A session. And I will then hand over to you, Henri.

Thank you, Nathalie. So good to have you here again. A few key points. The things we really believe are important for you to know. And, of course, very happy to say that the branded sales was really great during the quarter. I mean, nearly double digits, and that doesn't happen so often in a northern European market. based company, I would say. And it is also now that we are again above the 2019 level. So where we left it, you could say before the pandemic, we're over that in absolute amount. A lot of strong marketing, both on the innovation, but of course, also on the continued journey to support our brands in a competitive way. A lot of margin enhancing initiatives, which we of course already started before the pandemic, but we kept on going through the pandemic. And now of course, volumes also recovering on the pick and mix business, including with pricing to cover for cost. We now see that the total pick and mix business is close to break even for the full year, which of course we were planning to do, but also very pleased to say that now the Swedish pick and mix business since the acquisition of Candy King is at break even levels in quarter four. And that's quite important for us because we first want to have profits before we are going to grow, pick and mix. As said, marketing investments exceeding last year's average quarter by around 25 million. It was a strong marketing spent quarter in Q4 compared to the quarters before. Of course, that needs to be funded and the VIP cost program is also delivering and we have increased the full year savings on that program. It's also really good to see. And then for those of you who remember our our strategy and our initiatives to get to our financial goals. We have now added a new element, which we're planning to do after the VIP savings initiative was embedded, and that is the Net Revenue Management Program. I'll talk a little bit more through that in the strategic update. We're on track to mitigate the current known headwinds on the input costs for 2022. A lot of pricing going on in all the markets. And yesterday, the board decided on a dividend proposal of one sec per share, which is back to where we were before the pandemic. So great sales, a lot of marketing initiatives and support to fuel that, which is all Completely in line with the strategic agenda which we have with Cloetta. So 14% in total. Very good. 9% of growth in brands. And as I said, now above 2019 levels. So you could say we keep on going from where we left when the pandemic broke out in 2020. in quarter two, 2020 is a really good to see. And then of course, pick and mix now, another quarter of strong recovery. From the top of my head, we're around now at index 85 versus the 2019 base. And I'll talk you through a little bit what else is going to potentially happen in order to bring that up further. Mobility, very important for us, for our business. It's a tale of two stories. I mean, Q4 was better than the previous year, so versus Q4 2020. But we're still below the baseline of 2019, which is the year where there was no COVID impact. And we could see towards the end of the quarter with restrictions like in the Netherlands and Denmark that in some areas it started to be impacted a little bit downwards again. So you can see the retail and recreation, which of course is an important one. It worsened a bit compared to Q3 21, but still better. than 2020. And the transit and workplaces, you should maybe look more together. That is a little bit different picture. Also worsened on the transit stations, that of course traveling to work, but also traveling into the city for shopping or recreation, a little bit worsened versus Q3. and then on the workplaces, an improvement, and that is quite important to keep tracking and keep on taking action on insights we develop over there, in particular for the refreshment category. Yeah, we then look at the branded business. We've updated now the channel split. You can see there's not a lot of change, so it's still 75% in food and 25% in other channels. Market data, interesting, of course. Let me say again, this is mainly food retail. So all the other channels are more or less out. And we see pastels and gums going up. So that's positive. We see candy bags going down. And that is all basically explained with the mobility figures we just looked at. So... What we are doing is a lot of attention for pastels and gums because it's above average profitability. And of course, getting consumers back into that habit when they are traveling to work, when they're going out again into restaurants after restrictions are lifted is important. And we see a little bit of different behavior between the two categories where pastels are going up faster than Then gum in general, we also can see that within pastels as a category that the cold care is coming back as a consumer need because now we have also a flu going on in most of the markets, whereas last year that was completely absent. Yeah, pick and mix continues to develop in the right direction. Channels are still all open. Not so much change on consumer activation, although we had planned for for more consumer activation, in particular, promotionally in most of the markets, but with the developments that didn't completely come through, but we expected that will now happen this year, and that will be a nice addition to the The volumes, because in some of these market promotions are playing an important role, and you see consumer demand keeps on going upwards and also no early signs of the fourth wave now having an impact on the consumer confidence. So we executed the SF Anytime campaign, which went really well. The efficiency program is delivering, and we have some constraints with third parties delivering and not being able to keep up with our increased sales, but we will manage that.

And then we go to Frans for the financials. Thank you. So as usual, I'll start with a bit more details around the net sales. So as Henry mentioned, we can report very strong growth across both our segments. And for branded packet sales, again, growth not only on prior sales, but also on top of the pandemic or pre-pandemic. So that's very nice. Overall organic growth up 13.8%, almost double the 7.5% we grew in Q3 2021. And this means that our Q4 sales, and here I talk about branded and pick and mix combined and on a constant currency basis, were just about back in line with 2019 sales, just down by 0.3%. So total portfolio back to pre-pandemic levels. Now this phenomenal recovery was again driven by both branded and packaged products on the back of strong investment in our brands, and more about that later, and by pick and mix. And for the full year, organic sales were up 8.4% versus last year. Now for branded packaged sales, growing 9.3% in the quarter, close to double digits, as Henry mentioned. Now, that means that the sales, again, on a constant currency basis, were up, again, 5% versus pre-pandemic 2019. And on the full year, we grew 5.8% in the branded package. That means that we're up almost 3% full year versus pre-pandemic. Now, we know that part of that growth is cannibalization from pick and mix, But the branded package growth is coming shoulder to shoulder with pick and mix growing 32.4% in the quarter and 18.4% on the full year. And that brings pick and mix in Q4 to an index of 85 versus pre-pandemic and an index of 78 on the full year. So it's a great rebound, but I'd like to think that there remains room for more growth still. So then looking at this segment over time, starting with the branded package sales by quarter on the top row. So this is the fourth quarter of growth and with the strongest growth coming in the last two months. And I'm also pleased to say that within the branded package segment, sales of pastels and gums again grew in the quarter, supported by the strong advertisements and sales activities, with the easing of COVID restrictions, at least at the beginning of the quarter. So clearly, The concerns around COVID then picked up again. So it's too early to say that we have, let's say, turned a corner on refreshment. But maybe it would be fair to say that the reaction to the lower restrictions at least show that there is life at the end of the tunnel. So that said, while growing, the refreshment growth was not at the level of the rest of the branded package portfolio. So there is still an unfavorable mix within the segment, and you can see that in the gross margin. But similar to what I mentioned for pick and mix, that also means that there remains some room for a nice upside. Then looking at the lower half of the slide and the pick and mix business, at over 32% growth, that is again great. And as mentioned, gets us to an index of 85, up from an index of 83 in Q3, and an index of 75 in Q2. So it's a steady improvement. Now, importantly, this growth is also a lot more profitable than it was pre-pandemic. So let's look at that. So looking then at the profits in the quarter, on the 13.8% organic sales growth, we grew our operating profit adjusted by more than the double, over 35%. So that is obviously very nice. Margin was up 9.4%, so it was 9.4%, up by 150 basis points versus last year, and of a very high quality. And I want to say high quality because this increased profit was primarily driven by volume and margin-enhancing initiatives in pick and mix. And despite a repeat of the strong push on marketing spend we did at the end of 2020 to bring the consumers back in. And Henry mentioned this, that marketing spend, it was up a little bit on top of last year, which was at that time our highest spend quarter ever. Now versus what we spent in Q3, marketing, of course, was up significantly. But importantly, if we look at the quarterly run rate that we had between Q4 2020 until Q3 2021, this quarter spend is up by about $25 million. Now, clearly, that spend helped drive the strong growth, including some growth in refreshment. And it will also help mitigate the impact that we see in Q1 2022 with Omicron and also help with the pricing, of course. But momentarily, at least, it does suppress the operating margin. Now, on a full year basis, our operating profit adjusted is also growing almost twice the rate of the top line. It's up 15% while sales are up 8.4%. Now, with respect to what is driving that, it's very similar to the quarter with the growth coming from volume, margin-enhancing initiatives, partly offset by increased marketing spend. And on the full year, it is a clear increase, but also partially offset by increasing other indirect costs to enable the continued growth. And I'll cover that on a separate slide. Now, before looking at the profit by segment, Let me clarify what you do not see in this bridge, and that are the significant increases of input costs, which are reported on daily in the media. Nor do you see any supply chain challenges. Now, for the increased input costs, given our contracts and inventories, the impact is still limited, and we are committed and confident in our ability to offset the full absolute impact of all the currently known costs within 2022. And as for supply disruption, Some of our third party manufacturers have struggled a bit to keep up, but our own team are doing a phenomenal job in keeping our supply chain running free of material disruption, which frankly speaks to one of the advantages of owning your own supply chain as we do. So let's look at operating profit by segment. So for the branded package business on the top row, the key takeaway here is that for both the quarter on the left and the full year on the right, is that unfavorable mix due to lower refreshment saves keep suppressing the operating profit. And hence our strong focus on addressing that. And Henry already spoke some of that. Now versus 2020, the comparator is tough because of the lower SG&A, which I'll detail separately. But it's worth noting here that in Q4, we again lean forward on marketing spend. And at the lower average quarterly spend that we've had previously, our Q4 operating profit would have been at about the 14% we normally quote for the branded package segment. Now, if you look at pick and mix at the bottom, in Q1, we said we would get back to profit without all the volumes back. And Q4 is now the third quarter where we are just about or even above breakeven, showing that the recovery of profitability is really sustainable. And even on a full year basis, we are just about back to break even. I also mentioned before, and I want to repeat here, that this result does include pick and mix, having first absorbed its fair share of common costs in headquarters, IT, supply chain, etc. So the segment does provide a favorable contribution beyond the reported profits. And of course, this is not where we stop. We will keep improving on this through fairer pricing, reducing costs, et cetera. And before moving on to SG&A, I want to mention that in the material for this session, I have included a table that I promised in Q3 that details the impact of the new guidelines on accounting for software as a service or cloud computing services. So our report and numbers now reflect that. And the 2021 impact is 30 million, which is about half a percent EBIT that we're down on the full year as a result of this accounting change. Now for the quarter, the impact is only 3 million and you'll have all the details in the presentation and also in the report. Looking then at sales, general and admin costs. So there's three drivers of this increase. First, where we are turning spend back on because that helps drive the rebounding growth. I mentioned that before, and these are good cost increases such as for higher merchandising or for fixtures, et cetera, to get the pick and mix, which is now more profitable back up again. And SG&A at the percent of sales, as you see is down from 29.3% to 27%. So the effect of that should be clear. Secondly, Last year benefited from certain one-time cost avoidances. That includes there was no incentives at all. And you may recall that we detailed that out in Q3 2020. And that, of course, also impacts the quarter and the full year. And thirdly, we have continued to invest in marketing and marketing capabilities. And I already mentioned the step up on the spend there. And all of this is partly offset by increased efforts on our VIP Plus program. And I have a separate slide on that to show you what happened over the last two years. So when we closed 2020, I was happy to report that the program had delivered 1% EBIT savings. Actually, the program had enabled 130 million in savings, but we said about half of that, 65 million, were dependent on COVID and lower volumes, and was expected to start to come back, leaving the other $65 million being sustainable savings. Now, to give you an update on where we are, the below bridge looks at the SG&A we reported on the left-hand side in 2019. So both indirects covered by the VIP Plus program and marketing spend, which of course is funded by the profit from the sales that it drives. And then on the right-hand side, you have our 2021 reported SG&A. So within here, I'm pleased to say that the sustainable savings we brought from 65 million to 85 million through transition of our ERP system to cloud, through the Finance Shared Service Center, and through reorganization in the Swedish organization and many other initiatives. At the same time, And I mentioned also that we're turning spend back on to drive the rebounding growth. So out of the total 65 we had saved last year, some of that has come back. So a net 120 million savings delivered as where we stand now. And from these savings, we have continued to invest and strengthen our marketing and e-commerce capabilities. And we have, of course, also funded annual salary increases for our organization. bringing the net savings to 60 million and the one percent that you see on the top now beyond that other movements in sgna is unrelated to vip plus but important to understand they are largely offsetting for that plus 11 that you see but that includes a step up in advertisement it includes of course the restatement for cloud computing and also forex benefits looking then at cash We had, again, a healthy free cash flow in the quarter, delivering $313 million, which is, and there is a theme emerging here, more than double the profit after tax for the quarter. And this strong result is driven by operating profit, but also very strong working capital reduction built on top of already really strong progress when we closed Q3 year to date. But part of the strong delivery comes from a reduction of finished goods inventories from third parties mostly. As I mentioned, they struggled a bit, but also on account of high payables on the high marketing spend. However, this working capital delivery is also despite a huge amount of progress on the implementation of the new European UTP directive, which I flagged in Q3. Now, as we close the year, days inventory on hand are down another five days in the quarter. We had said we would reduce inventories. We did end a little bit lower, as mentioned that we had hoped for. But nonetheless, overall conversion is down 14 days versus last year, which is significant. For the investment in property and plants and equipment and intangible, it was 55 million in the quarter and just below last year. Now, here I want to call out that the cost for the new carton packaging technology is reflected in these numbers, but as I had also slide in Q3, less than the 40 million we thought we would spend this year has been spent, only about 18 million on account of restrictions in traveling that have impacted the rollout. It leaves about 112 million yet to be spent, of which we think about two-thirds will be spent in 2022. but we also believe that the startup of the packaging line will remain as originally planned for Q2 2023. Now, on the full year, our free cash flow delivery is $664 million, which is the highest we've delivered the last five years, and it's almost $300 million more than what we delivered in 2020. Which brings me to my last slide, on our leverage and net debt, where on the back of the strong cash flow, we closed the year with net debt over EBITDA at 2.0 and well below our internal target of 2.5. And our net debt is at an all-time low since the Clueta-Lease merger in 2012 of only 1.7 billion. You can also see from the bar chart on the right that we have additional unutilized credit facilities Commercial papers not yet on the market of 0.6 billion and 0.9 billion. And we held 0.7 billion Swedish kronors in cash as we closed the year. So in summary, very strong double-digit top-line growth, bringing total sales just about back to pre-pandemic level, with profit growing twice as fast as sales, despite heavy marketing investment, and with free cash flow generation at more than double the profit, brings leverage down to 2.0 and net debt to an all-time low. So we're pleased that the board decided to propose a dividend of one krona per share back to pre-pandemic level and at the upper end of the targeted 40 to 60% of profit after tax. And on that positive note, over to you, Henry.