Cloetta AB (publ)

A warm welcome and thank you for joining Cloetta's Q3 interim report presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO Katarina and CEO Frans will first go through our results, after which we will move to the Q&A, where you either have the possibility to dial in and ask questions live or alternatively post your questions through the chat. The chat will open up for questions when the Q&A starts. Over to you, Katarina.

Thank you, Laura. This is my first complete quarter as CEO of Cloetta. And today I am proud to present a strong quarter with both continued organic growth and strengthened profit. So, but first over to the agenda. Today it looks as following. I will start with a brief company overview and then move to our Q3 highlights. Then our CFO, Frans, will walk you through both our Q3 and year-to-date financials. After that I will highlight a few things related to our strategic priorities and as always we wrap up with a Q&A. So in case of our new shareholders have joined the call I would like to provide a brief description of Cloetta. We are a leading confectionery company in Northern Europe and we are proud how our loved brands and products bring joy to memorable occasions. We are convinced that our consumer focus is the basis for us to grow and our leading brand to flourish. I have more than 2,600 colleagues at Cloetta and we have sales in more than 60 countries. Sweden, where I was area president before assuming my current role, is our largest geographical market, followed by Finland, the Netherlands and Denmark. In terms of product categories, candy is our most significant one, followed by chocolate. Pastel and chewing gum stands for a bit less, 15% of the portfolio, but our important category as they continue and contribute to our profitable mix. We focus on developing leading brands. Ten of our brands account for over 50% of our net sales, and we have two reporting segments. Branded package products is what the name implies. All are packed branded products. Pick and mix is candy and natural snacks that are picked by the consumers and are primarily sold through our Candy King brand and concepts. As previously mentioned, we had a strong quarter. We continued organic growth and strengthened profit. And I like to highlight some key takeaways. Our organic growth continues, and in Q3, we delivered 2.2 billion Swedish kronor in net sales, which is equal to 5.7% organic growth, while we also continue to strengthen the profit. The total volumes were stable, whereas pick and mix grew faster than the branded products. As mentioned in Q2, pick and mix as a category is the fastest growing confectionery segment in the Nordics. And talking about profit, I am super happy that our rolling 12 months adjusted operating profit was the highest one ever. The profit was improved versus Q3 last year, and this was primarily driven by continued margin-enhancing activities in pick and mix. We flagged in the Q2 report of the potential impact of the historically high cacao price during the second half of this year, but the cacao price did not significantly impact this quarter. I'm happy to also share that net debt over EBITDA is again well below our long-term target and landed at 1.6%. Now it's already time for the financials and I'll hand over to Frans who will walk you through both our Q3 and year-to-date financials.

Thank you, Katarina. So for the quarter, as Katarina mentioned, again, we're delivering growth and a very significant 5.7% organic net sales growth. on the back of continued solid 1.4% branded package growth, which is well in line with our long-term target of 1% to 2%, and pick and mix for almost 19%. Now, I'm going to comment on the pick and mix growth when we look at the segments in detail, but I want to point out that our total growth is not against a weak comparator of Q3 2023. Q3 2023 was actually the first quarter for Clueta to deliver above 2 billion in quarterly sales. So this is growth on top of that. So this is the fifth consecutive quarter with sales above 2 billion. And this 2 billion 196 million is actually our highest quarterly net sales ever, beating the prior record, which was the fourth quarter last year. Before looking at the segments, I want to comment on the effect of the sale of the Nutisol brand. So in Q2 this year, we had two months of Nutisol in the quarter, and now we have none. So the record net sales I mentioned is despite the loss of that. And then to understand how our continued business is doing, when I say organic growth, I mean our ongoing business excluding Nutrisol. In accordance with the relevant accounting standards, comparable numbers have not been restated for the sale of the brand. And going forward, you will also continue to see that we report sales on the nuts category, given that we will continue to sell nuts as part of the pick and mix assortment. Now let's look at the segments. So on the top, as mentioned, branded package sales grew organically by 1.4%. And again, that growth is coming on stable underlying volumes. I think we're down maybe 100 ton on almost 22,000 tons sold. And again, we're seeing the power of our great brands that people love and trust. We have continued to invest in our core brands while securing fair pricing and the stable volumes are one effect of that. And I'll come back to the investment. With the pick and mix segment on the lower half of the slide, 18.6% growth is driven by strong volume growth and continued margin enhancing initiatives. And on top of that growth, as a result of the absence of last year's negative one-timer, when our large retail customer Wilco in the UK went into administration. So that gives this year's net sales growth versus last year a boost in comparison. But the key takeaway here is that we are reporting our highest absolute sales ever for pick and mix. Looking then at the profit, and regardless if we're looking at the quarter or the year-to-date number, there is a strong step up on the operating profit in absolute terms for the quarter to 238 million. Now, 238 million Swedish kronors is one of the highest quarterly profits ever. And as Katarina mentioned, with this quarter, we are delivering the highest rolling 12 months profit, and we're doing that hands down. Now, the quarterly profit step up is driven by margin enhancing initiatives in pick and mix on top of the strong growth I mentioned. Full stop. That explains the step up. And as we always do on the next slide, and I'm not going to move there quite yet, when I show the results by segment, it will be really clear. But before going there, there's four comments I want to make on this overall picture that I think will be helpful. First, I mentioned the solid volumes, but here in the graph on the left hand side, the volume slash mix block looks flattish or even negative. Now, that is the effect of pick and mix outgrowing the branded package sales and that we have a continued challenge on the pastels and gum categories. This is, of course, an area where we will continue to focus and with further potential upside going forward. Because this is an upside that is not requiring us to reach some never-before-seen levels, but rather to continue to reduce the gap to where we have been in the past, which is obviously more attainable. Secondly, we are still working through the details with the long-term supplier related to the isolated case of a raw material quality deviation, which we spoke of in both quarter one and quarter two. So the quarter three results are not aided by our supplier making good on that. Thirdly, in Q3, we have seen cost inflation stabilize, although we also flagged earlier that the higher COCO price levels would affect us in the back half of the year. We do have some of that effect in the quarter, but we will only see the full effect of those higher costs in our results in quarter four. Mitigating action is ongoing and we have taken further pricing at the end of quarter three. But those higher costs will make delivering a third consecutive 10 plus percent margin quarter difficult. In Q4, let's call it a good challenge for us, including with the compression effect of a fair pricing approach. And with respect of the fair pricing or compression, which is my fourth point, the margin remains compressed as a result of the input cost increase. And I've illustrated this before and I'll do it again. So if we have a product that's produced for 50 and we sell it for 100, we get 50 in profit and a 50 percent margin. Now, if the cost goes to 70 and as a result, we take the selling price to 120, the profit will remain 50, but the margin drops to 42. And that effect is still in our numbers as we have price for cost. But if you look at the middle column here, where it says price versus cost, it actually looks very, very favorable at plus 42 million. And that's why we need to look at the next slide with the segments separated. So in this slide, this is what illustrates what I mentioned. So for the branded packaged products on the top row, we're just about holding the profit staples. So while we did take further pricing in the quarter and we did see some of the effect of higher COCO prices I mentioned, there is obviously no pricing here above fair pricing. Instead, the variance to last year does include this year's step up in investments behind our core brands. I mentioned in Q2 that we would add 10 to 20 million. And we landed at the higher end of that range. Now, that investment helps protect the volumes in the quarter. And it adds to our brand strength also long term. But we're, of course, not content with lower profitability. And we will continue to work hard on rebuilding that through growth, mix, portfolio rationalization, net revenue management, cost control, you name it. Now, looking at the lower row, it is clear here that the total Clueta step up In profit in the quarter came from pick and mix. Here we deliver yet another quarter in line with our margin target of 5% to 7% adjusted. We worked hard. For a long time, really hard on correcting the profitability and pick and mix. And for an equally long time, almost, a lot of that was not visible externally due to the increasing input cost. But now we have three consecutive quarters with profitability in the range of the targeted five to seven. Given all our margin enhancing activities like pricing, volume growth, efficiencies in merchandising, product assortment, fixtures, etc., Now, the variance versus last year is also helped by the absence of last year's Wilco bad debt that I mentioned. But that is just a variance. The absolute profit this quarter and the profitability, that is what it is. And that is not helped by last year's issue with Wilco. If anything, this quarter's good result is despite that we lost Wilco a year ago. So we are very, very pleased to report these numbers for this segment. So let's move then to... sales general and admin. So the increase, as it has been for a number of quarters, is driven by general salary inflation relating to our workforce and also the same effect for our suppliers, including where contracts often are indexed. But also importantly, the planned higher marketing spend that I mentioned. Overall, we are managing to offset the higher cost in the rest of the P&L And importantly, the spend as percent of our sales is lower now in Q3 than it was in the first half of the year. Nonetheless, this is an area where we are also further increasing our focus to ensure we spend only where it matters the most and that we can get the most bang for our bucks. With respect to the marketing spend, Given the step up now in Q3 and as investments were already strong in Q4 last year, I can flag that we do not see a need for a similar year-over-year increase in the coming quarter as we did for this quarter or for the prior quarters this year. On the longer term, while we are happy with the strong growth, well-deserved profit. We are not taking our eyes off the need to continue to drive also operating profit margin. And as pleasing as it is to report another quarter of double-digit profit, and despite the Quite significant compression effect that I mentioned. There is some way to go before our target of 14%. Now, with pick and mix solid in green, we continue to work on our other opportunities. And given the decision to put the green field on hold and reassess the project and the alternative options, we will, of course, come back in due course in quarter one 2025 on that. Now, there is a seasonality to our cash flow where historically most of the cash is generated in the back half of the year. But as we exited quarter two, we were already year to date 148 million better than last year. So I'm really pleased to report that our Q3 free cash flow of 211 million is also stronger than last year, bringing the year to date total to 236 million better. As mentioned in Q2, these numbers do not include any of the proceeds from the divestment of the Nutasol brand, and that comes on top. Part of the improvement is due to the efforts to increase the focus on cash generation across our organization, and part is due to the inflation having slowed down and with working capital not increasing despite the increased sales. On the capex, 38 million is on the lower side of our normal due to several contributing factors, including phasing of spend and to some extent driven by the preparation for the green field, given that the investment there would or will also help us avoid or rather displace the need for other capex in other plants. Nonetheless, for my final slide, I'm really, really pleased and proud of our team that on account of the strong cash flow we closed the quarter with a net debt vida of 1.6 well below our target of 2.5 and for those who do the detailed match the leverage is actually ever so slightly below 1.6 so even lower than it was in q1 this year and then looking at the graph on the bottom left That red line there is our leverage. And as you can see, it has consistently been trending downwards to improve position the last three years. And the bumps are Q2 when dividends are paid. But even so, for Q2 this year, the bump was hardly discernible, which puts us in a gradually better place quarter after quarter after quarter. Finally, we currently have access to additional unused credit facilities, commercial papers and cash on hand of 4 billion Swedish kronors, of which less than half, 160 million euro, are facilities made available for the green field, which is now on hold. So for yet another quarter, I conclude that our financial position is strong. And with that, back to Katarina.