Cloetta AB (publ)

A very warm welcome to Sonny's Stockholm and thank you for joining Kloetta's Q1 interim report presentation. I'm Anna Lidlom, the Director of Communications and Investor Relations. Our CEO, Katarina, and CFO, Franz, will first go through our results, after which we will move to the Q&A, where you, as per usual, either have the possibility to dial in and ask your question live, or alternatively post your question through the chat. The chat is already now open for questions.

Over to you, Katarina. Thank you, Laura. I'm pleased to present the quarter with exceptionally strong profitability improvement driven by our broad portfolio. But first over to the agenda. Today, it looks as following. I will start with Kloetta in a brief, followed by our new strategic priorities and updated long term financial target that we also shared at our investor day at the end of March. And then I will move over to our Q1 highlights. After that, our CFO, Franz, will take you through our Q1 financials. And as always, we wrap up with a Q&A. It's a pleasure to share the incredible journey of Kloetta. Today, Kloetta is Northern Europe's leading confectionery company and has been creating joy through our iconic brands for over 160 years. And our plan is, of course, to continue to do that for at least another 160 years. Founded in 1862, Kloetta has grown from a small confectionery business to first a Nordic and now a North European powerhouse in the industry. Our success is built on a foundation of a deep commitment to spreading joy. We believe in the power of true joy, and this belief drives everything we do. We have what we call 10 super brands. They are our most scalable brands, and they account for more than 50 percent of our total sales. We have operation in 11 countries and have around 2600 colleagues in Kloetta. In 2024, our net sales reached 8.6 billion Swedish crowns and with an operating profit margin of 10.6 percent. Kloetta is committed to sustainability, and we have joined the science-based targets initiative, and our ambition is to reduce our carbon footprint by 46 percent by 2030. This spring, we launched Kloetta's vision, and it is to be the winning confectionery company inspiring a more joyful world. This vision is a commitment to excellence, innovation and the joy we bring to our consumers every day. We believe in the power of true joy, and this vision reflects our dedication to this purpose. We have also started to take concrete steps to enable this vision. At the end of April, we also shared a plan to create a more efficient operating structure through changes in our commercial and group level function. And I will talk more about that later on. Kloetta continues to play in two business segments, is the branded packed products, which is our products packed in branded bags. The second segment is pick and mix, a confectionery experience where shoppers choose from a wide variety of candies and create their own individual mix. As individualization is a consumer trend, the whole pick and mix category is currently growing a bit faster than a confectionery market in general. One of our key strengths is our broad portfolio within all confectionery categories. We are the only major company present in all categories, which means we are active in candy, chocolate, pastel, gum and pick and mix. Having a broad portfolio gives us flexibility to adapt to different solutions, situations and trends. So, for example, with the current high chocolate prices is, of course, beneficial to be in other categories as well. Our core markets are five markets. There are Sweden, Finland, Netherlands, Denmark and Norway. In all our core markets, our brands have been loved by generations. And we have all have market leading positions. Eighty one percent of our turnover comes from our core markets, and 90 percent of our sales come from outside our core markets. Clouetta is among the top three players in our Nordic markets. Interesting fact is that the three top players actually differ per country. So in Sweden is Clouetta, Fatso and Mondelez. And in Finland, it's Clouetta, Fatso and Åkla. In Denmark, it's Clouetta, Haribo and Tom's, while in Norway, it's Clouetta, Mondelez and Åkla. But as you hear, Clouetta is actually the only company that stands on the podium in all markets. We also have the market leading position in Sweden, Finland, Norway, Denmark and the Netherlands. And unlike the other players, we are strong in many categories. In candy, which is also our largest category, we are number one or two in all core markets. In chocolate, we are very strong in Countline chocolates. And in Sweden, we are number two and in Finland, number three. In pastels, we are the leader in Sweden, Finland and Denmark. And we are in gum in Finland and Netherlands. And there and there we are number one and two. And we have a clear leading position, as you can see in Picken Mix in the Nordics. And that's in a nutshell is Clouetta. Now I'll proceed to give you a brief update, overview of our new strategic priorities and financial targets. For more detailed information, please view the recording of our Investor Day that is available on our website. Sorry. So after I was appointed CEO, I approached the assignment through four steps. First, setting the vision, then the strategy. Thirdly, to review the structure and finally to execute the plans. In June, when I started, I started talking and listening to as many internal and external stakeholders as possible. This was the start to create the vision. In the end of March, we launched the updated strategies and to support the implementation of our new strategies. We have now also reviewed our organizational structure. Our aim is to establish a framework to ensure Clouetta becomes a more focused and efficient company with improved speed and agility. This restructuring will result in a leaner organization with up to 100 fewer positions in Europe. Additionally, this change will support our journey towards profitable growth as it will yield savings of 60 to 70 million Swedish crowns. To make our plans clearer and easier to understand, we have created a strategic framework. We start, of course, with our vision that we want to be the winning confectionery company, inspiring to a more joyful world. Then it comes to our strategic focus areas. And it is actually very much about focus. We need to make choices to create scale. Our first strategic priority is to increase focus on our 10 super brands in our core markets. This approach will help us seize new opportunity and achieve scale. Our second strategic priority is to grow beyond our core markets. We have identified three markets with nice potential, which are United Kingdom, Germany and North America, where we will have greater focus going forward to ensure stronger growth. Our third strategic priority is to excel in marketing and innovation. As we operate in an evolving market, we continuously need to be active and responsive, responsive to market development. The last year, we have focused on organic growth. We have not done any significant M&A in the last seven years. We are now open to explore M&A's that fit our strategic goals and make good business sense. If we do M&A, we will accelerate for strategy. There is no M&A included in the plan to reach our long term financial targets. To deliver on strategic priorities, we need, of course, some enablers. One is an operating model, including the organizational structure that is straightforward and efficient. And of course, what is a company without our people and culture? A black book. This is the fundamental of our company. And our aim is to continue to build strong and efficient team players. Linked to our strategic priorities and vision, we have updated our financial long term targets with the great plans we have. We have we are stepping up our long term organic growth target and move from one to two percent to three to four percent. Our long term adjusted EBITARGET will remain at 14 percent, but we are committed to reach at least 12 percent by 2027. Historically, our net debt target has been around two point five. Considering our consistent achievement of this target in recent years, we have now set a new net debt target, and that is below one point five. However, should a compelling acquisition opportunity arise, we may temporarily exceed this, provided there is a clear path to the leverage. But and then last but not least, our dividend policy have moved from a payout without without. So without within a range of 40 to 60 percent to minimally 50 percent of the profit off the taxes. So a summary of Cluetha today and what we also presented at the investor day, we are the Northern Europe's leading confectioner company with a vision to be the winning confectioner company, inspiring a more joyful world. We act on a non cyclical market with stable consumer demand, outgrowing underlying fast moving consumer goods. We have market leading position in our core market and we have iconic brand across diverse categories with a strong and diversified customer base, where we have steady sales in traditional retailers and double digit growth in incremental channels where ensuring a broad market reach and resilience. We are on top of the changing consumer market dynamics. In this rather turbulent times in the financial market, we offer investors a resilient stock in a non cyclical market. And now back to the quarterly update. As previously mentioned, we had a quarter with exceptionally strong profitability improvement driven by our broad portfolio. And I like to highlight some key takeaways. So thanks to our broad portfolio, we had another quarter, a better profit. And this was achieved despite high continued raw material cost. The profit improved even though Easter was later an effective sales in this quarter. Q1 was down due to facing of Easter. But we expect clear profit growth in the first half of the year. And the second half of the year to be close to our new long term target of three to four percent sales growth. Adjusted profit is 11 percent, and that is up one point eight percent from last year. And we are reaching another successive all time low net over a bit down well below our new long term target of one point five. And now it's time for the financial and I hand over to France who will talk you through the Q1.

Thank you, Katarina. So for the quarter, we delivered our seventh consecutive quarter with sales about two billion, although for the first time in four years, a quarter without organic sales growth and the last time this happened was in Q1 2021 when the largely pre pandemic quarter one, twenty twenty. So the organic sales are down one point one percent. And there are a couple of contributing factors which I'll break down for you when we look at the sales by segment. But the one single key takeaway is that sales are lower than last year due to the later celebration of Easter this year. Those sales came back in quarter two and we expect continued organic growth for the first half of this year, as Katarina mentioned. Now, beyond organic growth, the quarter was also affected by the sale of the Nutisal brand in early June last year, as well as the strengthened Swedish Krona. So the two billion in sales overall is actually despite those drivers. So moving then to the sales by segment and in the top half here, the branded packaged. So sales were down three point four percent. And it is the first time, as you can see on this slide, where we have a negative number. So let me spend a bit of extra time on this. So the decline is driven by primarily two things in part by the Easter facing, although not to the same extent that it affected Pick and Mix. And secondly, in line with our strategy and as also shared in the investor day end of March, we have continued to optimize our product portfolio by taking out lower margin skews, including discontinuing certain contract manufacturing. Now, towards the end of the quarter, there were also, to maybe a lesser extent, two other things that affected this. And firstly, which is also in line with our strategy, is that we held firm on our fair pricing and as a result saw some lower sales with an important customer towards the end of the quarter. But and that has also been the case in the past. That situation has since been resolved. And finally, with all the food price inflation across retail the last couple of years, it is affecting consumption. And we mentioned here earlier, I think, Katerina mentioned, especially in chocolate. And that also did affect our sales, especially towards the end of the quarter. But then for Pick and Mix, Pick and Mix grew a healthy four point six percent. And that is despite the Easter facing. And you can actually, if you look, you can see the Easter effect on the slide. In twenty twenty four, Easter was fully in quarter one. And as a result, you see that quarter two was quite soft. And now, now in twenty twenty five, Easter is back in quarter two. And then just to be clear, in twenty twenty six, Easter will be in the very beginning of April. So most of our sales for Easter next year will come again in quarter one. So this is really just something that's shifting back and forth. Overall, though, for the first half of the year, eliminating the effect of the facing, we therefore expect continued profitable organic growth. And on the note of the profit, let's look at this exceptionally strong step up versus last year in the quarter. So we're very pleased with 11 percent operating profit adjusted. Now, I should say on a reported basis, excluding the adjustment for comparability, the profit was much, much stronger, over 17 percent operating profit margin and over 40 percent gross margin. When you look at the numbers now, this is due to the accounting effect of the decision to not proceed with Greenfield project. That discontinuation resulted in and we mentioned this in our press release in February. It resulted in a one time non cash net gain on account of released provisions. Reversed impairments, partially offset by some impaired capitalized projects and other borrowing costs, but net 125 million gain recognized in items affecting comparability and nine million recognized as a cost in the net financial items. So at the back of this presentation, we have and we've done this before as well, added a table that bridges the report and an adjusted results to make it super clear. Nonetheless, on an adjusted basis, our 11 percent operating profit was a clear improvement versus last year's 9.2 percent. So up 180 bits now, 11 percent places us just about last year's full year average, which was 10.6 percent. So the improvement is also versus a softer Q1 last year. So you couldn't really assume now that we made a permanent step up of one to two percent EBIT margin just because we shared a new strategy at the end of March. That would have been quite fantastic, but of course it will take a little bit longer time than that to implement it. Now, so the lower EBIT margin last year, as you may recall, was largely on account of the rising COCO input cost and the inevitable lag that we can get in our pricing. Now, the comeback here is then thanks to our continued work with our total portfolio, including the mix. And we do have had the ability to take COCO pricing, given our strong brands and leverage the breadth with respect to categories and across markets. Now, in the quarter profitability was further helped, of course, by the effect of having continued to optimize the portfolio as part of our net revenue management efforts, but also lower promotional spend on account of the later Easter in the sense that a lot of those activities moves now into Q2 together with the sales. And with respect that some promotion activities was on hold end of Q1 pending the pricing negotiation that I mentioned that affected the sales at the end of the quarter, but which have now been resolved. So importantly, the step up in profitability is not due to any reduction in the investments in our brands. On the contrary, that continued investment enabled our comeback and continued pricing. Let's look at the two segments separately. So on the top, the branded package profit is driven by all the factors mentioned on net revenue management contributing to that. Now, that said, the branded package segment profit is, of course, up versus last year, but it's not back to where it once was. And we will continue this work. We presented that also during the investor day, how we will drive this. And actually in the quarter, the expansion of the Minton brand, the Pastels across the Nordic is one example of that effort. And actually, from a volumes point of view, our Pastels volumes grew in the quarter. And both Pastels and Gum together outperformed the other categories with respect to volume. Now, on the bottom half, Pick and Mix continued strongly here. Now, with the phasing of trade spent to quarter two coming on top of the continued journey to strengthen the profitability, that, of course, gave a bit of an extra boost, getting us to almost double digit margins in the quarter. But importantly, I think this shows why we during the investor day also raised the margin target from Pick and Mix from the prior five to seven percent to a new seven to nine percent. Now, the SG&A, that is up versus last year, and that is in part due to that we actually held back on a lot of discretionary spending in Q1 last year to support the bottom line. The total spend of 484 million is coincidentally exactly in line with the average spend the last eight quarters. But then, of course, that also includes items affecting comparability. Nonetheless, Q1 last year was low. And at the time, I spoke about using all the levers to our disposal. So that's what we did. Now we have another year of general salary inflation for our employees and both in services. That's together with the investment in our core brands drives the increase. Now, we also said in Q4 that this was an area where we would now also further increase our focus. And, of course, last week we announced changes to our organizational structure to better align to the new strategy and also with the result of creating a more effective organization. And that will, of course, help with the cost within a fairly short time. Coming down to our cash flow, we are again reporting a very strong quarter. We delivered 199 million of free cash flow, which is just about double of what we did in Q1 2024. The main driver for this improvement is that we've been able to hold working capital fairly stable, even a little bit favorable, whereas last year working capital increased with a much more significant surge in inflation we had then. On the capping side, 32 million is on the lower side of our normal spend due to a number of factors. But this is also in line with what we presented during the investor day, where we've held back on some activity, pending out setting the new strategy, but where this figure will rise over the next five years to secure the growth and the profit. Now, on the very left-hand side of the graph, if you wonder with the increased operating profit adjusted and the one-time gain in net items affecting comparability, why is cash flow before changes in working capital higher last year? And the answer is because, first of all, the one-time gain, as I mentioned, was non-cash in nature, so it doesn't affect this. And also last year, we benefited from a favorable timing on income tax payments. So the underlying result this year is truly better. And of course, the favorable timing on the income tax payments, the taxes have been paid because, as we all know, there's only two things, certainly in life, and paying taxes is one of them. Which brings me to my final slide, where we have again, close to quarter with net debt over EBITDA well below our target, which is, as Katarina mentioned, to now be below 1.5. And we've done so with a new best ever of 1.1. Now, this leverage benefited both from the higher EBITDA but also from lower net debt, which is also at an all-time low of 1.3 billion Swedish kronor. Finally, as we close to quarter, we have plenty of access to additional unused credit facilities, commercial papers, and cash on hand, including about 1.6 billion in credit facilities related to the greenfield. Now, since then, actually it was on April 14, we completed the cancellation of those greenfield facilities. And if I reduced the quarter and unutilized access to cash with that amount, we still close to quarter with a very healthy access to another 2.7 billion Swedish kronor, as shown in the table on the right. So again, I conclude that our financial position continues to be very strong. And with that, back to Katarina.

Thank you very much, both Franz and Katarina. It is now time to open the Q&A. Moderator, do we have any questions from the line?

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. Anyone who has a question may press star and one at this time. Once again for your questions, star and one. At the moment, there are no questions registered.

Thank you. Then we will take the ones from the chat. So the first one is from Stefan Scharnholm at Handelsbanken. Less contract manufacturing had a negative impact on sales in Q1. Was this a temporary impact or can we expect an impact also in the coming quarters?

Yeah, if I take that one. No, it's not a temporary impact. This is basically overseeing the contract manufacturing agreements and noting that the profitability was not at the level that we expect and we have exited those contracts. So that will carry through for sure. Unless we would get much more profitable contract manufacturing offers, that is.

Very good. Then can you quantify the negative Easter impact on sales in EBIT in Q1?

Yes. Actually, we did this once before. The last time where we had this kind of a shift, except when it happened during the pandemic years when the numbers were very difficult to read, that was in 2019 when it shifted this far. At that time, we talked about basically up to 40 million. Now, of course, we've seen a lot of growth since then. So we're talking about around 40 to 50 million now in Swedish kronor. That shifted between the quarters. I'm giving you range because it's exact science how much that is. But what we can say with confidence is that it is a facing and that for the first half of the year, we will see continued, clear, profitable growth.

Very clear. Thank you. And the last one from Stefan, we know that on group level, sales in the US is fairly limited, but can you comment on your development and growth in the country in Q1?

Yeah, as said, it's confirmed. It is still very limited. And we can't really comment on it because it's still small. But we are actually, last week, we were setting up our first store with candyking and the pick and mix concept. And now we're going to see how that develops. And if it goes very well, we will, of course, continue to roll this out. But the demand is still there from the Swedish candy in North America.

Very good. Thank you, Katarina. And then, operator, I think we have Adrian Elmud from Nord-Ea on the line. Yes, please go ahead,

sir. Hi, and good morning to you. Can you hear me?

Loud and clear.

Very good. Happy to see the results. I have a couple of questions here. Firstly, could you elaborate on the reduction of SKUs that you have done? Does this mainly affect packaged products? Or what does the split here look like? Is this also something that we can continue to expect in the coming quarter?

Okay, I'll take that one. So I think there's two types of reduction. When we talk about reduction of SKU here, we're predominantly talking about the on the packaged rather package side that we're cleaning that up. But obviously, within pick and mix, there is a constant revision of the assortment. And that has always been part of the journey to drive profitability there. But here, when we talk about rationalization, it's on the branded package side. But of course, all of these actions also take place keeping an eye on if there's an effect from the pick and mix side.

Right. And is there more to come, sort of say?

Yes. I mean, as any good FMCG, this is something that you should do as part of your regular maintenance. Now, of course, what we've said with the new strategy, stronger focus on the super brands, stronger focus on specific markets outside the core markets, etc. We are intensifying the work here, both to get a rationalized portfolio, but also to harmonize more across it, which drives its own efficiencies and reduces complexity in supply chain, which increases your capacity to produce volume. So there's a lot of aspects of this and we will continue to pursue that.

Right. Right. Okay. You also mentioned some increased marketing costs in the quarter. Is it possible for you to quantify this increase? And how should we think about marketing costs throughout the rest of the year?

Yeah. So actually, when we closed Q4, I did flag that we were going to step up on the marketing expenses and we did that. I don't think I actually gave a number for it. But as you can see on the SG&A increase, a fair chunk of the 30-odd million increase there relates to marketing. Let's say somewhere between a third and half of that. We will continue to support our brands in an important way, specifically as there is an effect on consumers, on multiple years of rising prices. It's not just for Cluetta, it's across the marketing category. And then we see that investing in the brands drives consumer preference, that drives sales, that helps our customers, the retailers, and that then generates sales for us. So that's definitely something that we will continue to do.

Okay. Thanks. Then another question here on production capacity. Could you remind us the plan that you have for investing in capacity and in your factories, contra perhaps outsourcing production? When are you feeling bottleneck, et cetera? How should we think about that going forward?

So yes, the first thing, of course, when we announced the decision not to continue with the Greenfield project, we also shared that we had identified a number of different options to solve for both capacity and savings and sustainability, which was, let's say, the three things that the Greenfield project aimed to solve for. And that includes then a mix of investment in our own production facilities, as well as using contract manufacturing. When we had the investor day, I pointed to that over the last five years, our spend on CapEx as a percent of NSV was around 3% with the Greenfield. Over the next five years, it would have gone to eight. But now based on the assessment we've done, we're saying that it will be between 4% to 5% of NSV the next five years. And then it will drop down to, let's say, more normalized 3% to 4% going forward. Now, exactly what the options are and which is our preferred options, that is not something that we are ready to disclose yet.

Okay, fair enough. That was all for me. Thank you for taking my questions. Thank you, Adrian.

Thank you very much. We do not have any questions in the chat, no new ones. Do we have any new questions from the lines operator? There are no more questions from the chat at the moment. Thank you very much. That then concludes our event today. And we now take the opportunity to remind everyone of our upcoming IR events. Our next report, Q2, is published on the 17th of July. But before that, quite a lot is happening. You can meet us physically at Handelsmancken's Nordic Small and Mid-Cap Seminar in Stockholm in the beginning of June. And then on the 12th of June, DNB Carnegie is hosting a planned visit to Jumusbror in Sweden. Before we meet again, we of course hope that you get the chance to enjoy many of our products during joyful and memorable occasions. Thank you very much. Thank you. Thank you.