Transcription Q3 report 2018 1 Transcription: Q3-report 2018 Title: Cloetta Quarterly Report Q3 2018 Date: 26.10.2018 Speakers: Henri de Sauvage Nolting and Jacob Broberg Conference Ref. No: EV00080384 Duration: 40:22 Presentation Jacob Broberg Thank you very much. Welcome to a warm and sunny day in Stockholm and the Cloetta Q2 report, as usual I have Henri de Sauvage Nolting our CEO with me and also Danko Maras, the CFO and Henri you will start. Please go ahead. Jacob Broberg Thank you, operator. Jacob Broberg, Head of Investor Relations here, and today I have Henri de Sauvage Nolting, our CEO, with us. We don't have a CFO today; the new CFO will start as of mid- November. So as of Q4 you will meet and hear more from him. But with that, I hand over to Henri. Please go ahead, Henri. Henri de Sauvage Nolting Yes, thank you, Jacob. Welcome, everybody to the Q3 results. If we look on the highlights, we can see that with the FX effect, we ended up in positive growth, but of course the organic growth is much more interesting, and how we are managing the business, so we saw a decline of -3.6%, all coming from the pick & mix business. And it was good to see that the branded business did actually grow, with 1.6%. Due to a lot of factors, but one of the main ones is the production volumes, we could see the operating profit adjusted going up to SEK 194m. And that also then comes through into the profit for the period at 132 million SEK versus last year. Cash flow, I'll come back to. There's an Italy effect in there, and the net debt over EBITDA was at 2.48, so again, within the target we have on debt parameter. If we look at the markets, we could see that, in particular, July and August – that we could see that markets declined in most of our core markets. Those are the markets we can measure, which is measured by Nielsen and IRI/GfK, 2 to 5%-ish points, but very good to see that we grew. Our market shares, we'll come back to that. Pick & mix, where there are no external data available, we estimate actually a slightly larger effect of market decline. I said we had a negative -3.6%, driven by pick & mix. Brands, which is again where our EBIT is generated for the time being, grew with 1.6%. In such a market, it's important to see what is our competitive growth. And in 14 out of the 16 category core markets combination – so, let's say, chocolate in Sweden or gum in Holland – we have been growing market shares. And that is of course a good signal that we're getting more competitive in the markets. Then the pick & mix declined with 15%. The main thing is still the lost contract in Sweden, the non- promotion policy in Norway due to the sugar tax and the PR over there, and also the marketing itself, and the fact that we're also preparing the pick & mix business for future growth by integrating, restructuring, and working on improvement of the EBIT.
Transcription Q3 report 2018 2 If we then look at the strategic focus areas, it's simple. It's growing the base business, growing the branded products, which we are doing. A lot of focus on strengthening the brands, coming with relevant propositions, coming with innovations, but also just the base business in distribution, pricing, promotion. And starting to get results. We're also increasing the so-called pure media investment, so this is the money we are investing which the consumer is actually seeing. So it's not the money which goes to agencies to develop campaigns or doing market research, this is really the money which is effective, because that's the money which gives the results. So we're on our journey to increase the pure media. And then, quite some good core innovations, so innovations on our core business. Again, really important, because on the core brands and the core business, that's where we have our areas of strength and competitive advantage. So we're developing that, and we can see in particularly quarter 4 there's a number of really big activities and innovations coming to the market, which we'll also support consequently. Then our cost and margin, really important for the funding and for the EBIT development. So the cost efficiency programme is in full swing, and will continue also in the coming years. We have had the Swedish Krona weakening. We've taken pricing to mitigate that, but that is always a few months later then when it comes in. And also the insourcing is actually going really well – that's the insourcing of the Candyking products and some other third-party production. And we can see that we're ahead of plan, and coming to the levels of production utilisation which are very favourable. And we now need to – as communicated before, in the Candyking integration project, we're going to invest in some extra drying capacity in order to do even more insourcing. So that's then the last important area – the capacity investment which we are planning for 2019, as previously announced when we did the Candyking integration. We have now in the – in the Nordics, put the former Candyking business into our ERP system, which also gives us a lot of insights on how to structure and start to get the EBIT up, costs down. And then next year we'll do the same in the UK business. And then, last but not least, looking at the EBIT in the former Candyking business, now the combined pick & mix business, how are we going to get a better commercial margin in all the markets. And quite some differences between the – between the markets on that, and we're taking steps to improve the EBIT margin to a better commercial margin in all the markets. So those are the three main areas. If you then look at a little bit what we're doing, I took three things out which I think are interesting to talk about. So, as I said, more pure media. Like for like, we can see that we get 10% more bang for our bucks, you could say. 10% of the money going more to consumers is very positive. If we then look at Venco, which is the number-one liquorice brand in the Netherlands, had not been supported for eight to ten years. And now we're on TV, on social media, on outdoor, reclaiming the territory which this brand is owning, and strengthening the – yeah, the key difference between this brand and its competition. So we're going to see what will happen in Q4. In Sweden, we've taken our very famous local Plopp brand into the tablets market, by introducing Plopp with a taste from our candy and other chocolate brands also. Initially really good results, and as we discussed before, we keep on expanding the Choice For You programme, where we're giving people, next to the original products, a choice with 30% less sugar and no sugar. And that's going into Sweden and Norway, again with a combined campaign where we're leveraging scale. That will happen in Q4, which also means I'm really pleased to see that – now that we have higher efficiency on the media budget, that we're also going to increase the absolute media budget in Q4, as we already communicated that we would have higher absolute investment in the second half of this – of this year.
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