Cloetta AB (publ)

Thank you for joining us on the Q2 conference call for Triveta. My name is Nathalie Liedmo, and I'm Head of Investor Relations. I'm here today with Henri de Sauvage, CEO of Triveta, and Fiance Vivian, CFO. Henri and Fiance will take you through our results for the second quarter, and we will then move on to a Q&A session. And I will now hand over to Henri.

Thank you, Natalie. So this is the normal agenda. We start with the quarterly update from me. So what are the key messages? That we had a lot of growth as I think we all expected. So high organic growth and also continued profit improvement that makes us proud of these results. So strong growth in the branded business of 14.8% organic and also a favorable mix from higher margin products. That's also quite important. Pick and mix, having volume growth, which is really good. And on top of that, of course, 22.4% organic growth in total. So really positive to see. I'll show you a few initiatives we're doing on pick and mix when we come to these strategic updates. The higher adjusted operating profit reflected last year our pricing was only partially offsetting the cost inflation. Remember that we always have this lag in pricing after input costs are going up. Last year, we were lagging. Now we are on top of that. So that's quite an important one if you judge the results. We're also looking and executing a lot of things in the factories, and one of the things is that we are stepping up the efforts in the portfolio rationalization. We were actually doing that before, but we're doing this now faster also to contribute to lower costs in order to compensate for our own internal costs, which are going up and that is difficult to price through. to the uh to the customer so we're taking out cost but we're also at the same time then creating capacity for further growth on the greenfield project will come a little bit more specific but the the big last union negotiation outstanding in belgium was finalized and also the city council in rosendal has published the intent to sell this piece of land to cloetta Net debt remains below our target, and Frans will also talk a bit more about the loan facilities, which are now extended in order to finance the Greenfield project. So, Frans, if you elude a little bit more in detail on the financials.

Yes, thank you. So, as Henry mentioned, we are, again, pleased to report strong double-digit organic net sales growth of 16.7%, and when including the effect of currencies, growth is 22.9%. And it takes us the closest we have been to report 2 billion Swedish kronors in sales in a single quarter at really just shy at 1,998,000,000 Swedish kronors. And so that milestone is still out there ahead of us. And let's see when we will get there. Now the 16.7% growth is a bit lower than the growth we reported in Q1. But of course, as we progress in the year, we will face a tougher and tougher comparable given the ramp up that we had in pricing last year. Now, I will come back to a couple of things more than once in this presentation. One of those is the strong organic growth in an environment where consumers are increasingly under pressure from rising inflation, our fair pricing to offset our own rising input cost, and also the stronger euros effect on our sales and the profit generated outside of Sweden and Norway, but also that it leads to a challenge when materials for the Swedish and Norwegian markets are purchased outside. Firstly, though, I want to say, and you've heard me say this before, unlike energy and food, et cetera, the consumer is completely free to decide if they want to buy our products or not. And despite the inflationary environment, many are continuing to buy Cloetta products. We are, of course, very happy with this, but we're also proud because neither the customers or the customers' customers, as in the consumers, accept higher prices by default. And that our products have this pricing power is the result of many years of effort to strengthen the quality of the product, the quality of our brands, and also the organization that actually carries out the work across functions and markets. So moving then over to net sales by segments and started with the branded package sales on the top. It accounts for close to three quarters of our sales, and it's growing organically by 14.8%. And this is the 10th quarter of growth. So we continue the streak post-pandemic, and we extend the lead of our pre-pandemic record of eight consecutive quarters of growth. This is also the highest sales we've had of branded packaged products since we started with segment reporting and likely also before that, with the prior record actually being Q1 earlier this year. Now, the growth, as mentioned, is driven by pricing, but also some favorable mix within the portfolio and between markets, including, as we have ramped up, and Henry mentioned this, the effort on product portfolio rationalization to create space for more profitable products and more strategic growth, as well as we've had to step away from sales when our fair pricing has not been accepted. Now, despite this, with respect to the branded package volume, I would argue, and I also did this in Q1, that our underlying branded package volume, and by that I mean the consumer's willingness to buy our product, are just about holding versus last year. Here I'm talking about volumes. If I, however, include volumes where we've had to walk away from when customers are not willing to accept our fair pricing, then our volumes for branded packaged products are down somewhat, and that is in line with the overall market. In the pick and mix segment, however, which is also growing top line, organically 22.4%, that is primarily driven by pricing, but there we also have volume growth, as Henry mentioned. Now, Q2 2023 is now the ninth consecutive quarter of growth with profit in pick and mix. And this is despite a tougher competitor than what we had in Q1, including as a result of that there is more Easter sales that happened in Q1 this year than what it was in the last year. So let's then move on to the profit. So we are pleased to report a very strong quarter where our pricing has offset the higher input cost in line with our stated ambition. Now, on this slide, what really stands out is also that for the first time can we see a net favorability comparing price versus cost. So in 2022, we were lagging in our pricing versus the steep increase in cost. And now in Q2 2023, we have caught up. And I've even added a small insert here from a presentation last year to sort of help illustrate this. Now, at the same time, and also since last year, and we have shared that we would work on all the other tools at our disposal to manage the increase in cost, including premiumization, mix, efficiencies, cost control. And as such, the favorable balance of pricing net of cost in Q2 this year is a reflection of fair pricing next to the other efforts on our side. Now, as we progress into the second half of 2023, I think it's also important to recall that we will need a stiffer and stiffer comparable. As we ramped up and started to catch up on pricing last year, and also all these other offsetting actions were starting to take hold. You can also see here an unfavorability for volume and mix. That is correct, but The underlying volumes are pretty much holding, but with a decline due to our principled approach to fair pricing. And then you also have an unfavorable mix because the pick and mix segment is doing, from a volume point of view, better than the branded side. Now, while profit in Swedish kronors is improved compared to last year, we continue to see the effect of the compression from pricing with respect to the profit margin. So adjusted, it's just shy of double digit at 9.6%. However, as costs eventually start to come down, we will see an equal and opposite positive effect on our margins. And yes, energy costs have come down, but sugar costs are very high, and we also have a very negative currency effect in Sweden and Norway. So we are not yet at a point where pricing should be lowered. Nonetheless, let's look at the two segments separately. So the overall drivers are those that I mentioned, but it's clear here that the pricing is offsetting cost, and there's a strong improvement versus last year, given the lag in pricing during 2022. Also similar to last quarter, the branded has a favorable mix, and pick and mix is growing in volume, although both are less accentuated now than in Q1, given the tougher comparator. Now, despite the growth in profit, the compression is very clear here and is holding branded package margins stable to last year. For pick and mix, it's actually slightly down. But then we have to also remember that this result is despite the increase in costs. And that's sort of the result of all of our efforts of building profitability in pick and mix. So I don't want to see this as a stagnation, but rather as holding to what we've said. Then moving on to sales, general and admin. So with the rising top line, there is a significant drop in spend at percent of sales from almost 26% to just below 23%. So that's the same compression effect that we see on the profit margin. Now, SG&A excluding some minor items affecting comparability is up. And half of that increase relates to the translation of costs incurred in euro to the Swedish result. And the other half relates to salary inflation relating to our own workforce, but also those of suppliers of various services where contracts are often indexed. As we saw in the earlier bridge, we have been able to offset these costs, and we will continue to work very hard on doing so. Looking then at cash, as is the case for our business, we tend to generate our cash in the back half of the year after investing in working capital in the first half. And our Q2 free cash flow aligns to that at only 2 million Swedish kronors for the quarter and slightly negative year to date. However, I'm pleased to report that that is nonetheless 138 million better than in quarter two 2022, despite the continued inflation of our input costs and our commensurate pricing. As you know, higher input costs per kilo does mean higher payable, but that savable impact on working capital is more than negated by the effect on inventory values and the higher receivables on account of the necessary higher price we have to charge. So an improvement of the free cash flow versus last year, despite that effect, is quite good. Now, the driver of the stronger working capital in the quarter is the improved focus on receivables, as we have increased the full organization's effort in this area, but we're also helped by the timing of Easter. The improved free cash flow is also despite somewhat higher investment in property, plant, and equipment this quarter. where the increase relates to investment in folding boxes, as used, for example, in Lekkerol, which will allow us to harmonize packaging sites and also reduce costs, as well as investment in new bag packaging to more fully utilize production capacity. There is also a couple of million Swedish kronors here related to capitalized engineering support for the technical design of the greenfield, but as previously shared, capex for the greenfield will not materially impact this year, but rather be initiated in 2024. On the natural greenfield, we have again provided the details on items affecting comparability in the report and also in what I hope is a helpful bridge at the end of this presentation. And each quarter, we review the accounting for the greenfield for any necessary updates, including on timing or the outcome, as is now on the finalized negotiations. And overall, we remain within the range of numbers previously communicated. Not reflected in the cash flow are the high net financial items in the quarter, given that, similarly to quarter one, those are mostly unrealized exchange differences, which are not part of the operating cash flow, but they do form part of the exchange differences. Now, interestingly, had we closed the quarter yesterday with the current Forex rate, we would have had a gain on net financial items, so 80 million kroners better than we have now correctly reported. Nonetheless, we didn't close yesterday, so they do have an effect, and that is also on the net financial position. So that takes me to my last slide. I would argue that our financial position remains strong. We have strong growth. We have improved operating profits. We have better free cash flow, and we have access to additional credit facilities and commercial papers plus cash on hand, for 3.6 billion Swedish kronors. Our leverage is 2.3, which is below our long-term target of 2.5, and it is lower than our leverage in Q2 last year. It is higher than Q1 this year, including due to the effect of these unrealized exchange differences. But I would also say it is primarily higher than Q1 on account of payment of one krona per share dividend done during this quarter. And on the positive note of paying dividend, over to you, Henry.