ANNUAL AND SUSTAINABILITY REPORT 2016 Contents This is Highlights of 2016 1 Words from the President 2

Goals and strategies Long-term financial targets 4 Long-term sustainability targets 5 Strategies and activities 6 Cloetta’s value chain 8

The confectionery market 10 Market strategies for growth 13 Brand development 14 Strategic product development 17 New markets, initiatives and concepts 20 Cloetta’s leading brands 21

Cloetta’s main markets 25 Supply chain 32 Factories 37 Raw material costs 40

Sustainability 42 Core values 42 Long-term sustainability 43 Stakeholders and materiality issues 45 Sustainability goals 47 Sustainable sourcing 48 Responsibility for consumers well-being 52 Reduced environmental impact 54 Employees 56

Share and shareholders 60 Financial performance 66 Net sales and profit 66 Financial position 69 Comments on the cash flow statement 71 Future outlook. Environmental impact 72 and environmental management

Risks and risk management 73 Letter from the Chairman 77 Corporate governance report 78 Remuneration to the Group Management Team 84 Internal control over financial reporting 86 Board of Directors 88 Group Management Team 90

Financial information, contents 92 Consolidated profit and loss account 93 Consolidated statement of comprehensive income 94 Consolidated balance sheet 95 Consolidated statement of changes in equity 96 Consolidated cash flow statement 97 Notes to the consolidated financial statements 98 Parent Company financial statements and notes 133 Proposed appropriation of earnings 141 Auditor’s report 142 Nine-year overview 145 Key ratios 146 Reconciliation of alternative performance measures 147 Definitions and glossary 149

GRI index 151 Membership of organizations 153 Auditor’s limited assurance report on sustainability report 154

Shareholder information 155 History 156 The audited annual report for Cloetta AB (publ) 556308-8144 consists of the administration report and the accompanying financial statements on pages 1–4, 6–7 and 66–141. The summary sustainability report consists of pages 1–9, 42–59 and 151–153. The annual report is published in Swedish and English. The Swedish version is the original. This is Cloetta

• A leading confectionery company in the Nordic region, the and . Founded • Listed on Nasdaq Stockholm. by the three Cloetta brothers in 1862.

Cloetta’s strengths • Strong brands and market positions. • Excellent availability in stores enabled by a strong and effective sales and distribution organization. • Good consumer recognition and loyalty. • Innovative product and package development. • Efficient production with high and consistent quality.

Vision To be the most admired satisfier of Munchy Moments Mission To bring a smile to your Munchy Moments The vision, together with the goals and strategies, expresses Cloetta’s business concept 2,530 employees in 14 countries. Ljungsbro

Helsingborg

Dublin Sneek Roosendaal Turnhout

Production at Levice

12 factories in Cremona Gordona 6 countries. San Pietro in Casale Silvi Marina

Cloetta’s net sales by category Cloetta’s net sales by country

Other Sugar confectionery 17% u t t 54% 31%

The Netherlands Nordic 14% u Other countries 43% 57%

Other 5% u Italy Nuts 4% u t Chocolate 17% 12% u t Chewing gum 6% p 17% 4% p p Pastilles 14% p 5%

Categories where Cloetta is the market leader

Sweden Norway Denmark Netherlands Finland Italy Sugar confectionery Pastilles Pastilles Pastilles Pastilles Seasonal products Chocolate countlines Sugar confectionery Sugar confectionery Sugar confectionery Chewing gum Sweetener Pastilles Chewing gum Sugar confectionery Sugar confectionery Chocolate bags Highlights of 2016 Cloetta [

Highlights of 2016 ANNUAL AND SUSTAINABILITYREPORT Q1 Q2 Q3 Q4

w Cloetta took over the w Lilian Fossum Biner w Cloetta was named “Listed w Henri de Sauvage Nolting pick & mix contracts for was elected Chairman of company of the Year”. was appointed President ÖoB and Bergendahls in the Board at the Annual w Danko Maras was and CEO, and took up duties Sweden. General Meeting. appointed as Interim on 15 February 2017. w A dividend of SEK 0.50 President/CEO after w Cloetta decided on a new per share was paid out, David Nuutinen resigned. palm oil policy. representing 37 per cent w A new loan agreement w Impairment related to of net profit. was signed and the senior Cloetta Italy of SEK –771m. secured notes were w The Board proposed a redeemed. dividend of SEK 0.75.

Examples of new launches 2016 ]

Red Band Smikkels and Smullers Crispy Bite Red Band 30% Less Sugar Gott & Blandat Ahlgrens bilar Fruit Salad Modell A16

Tupla Protein

Tupla Roasted Corn Aakoset Emoji Sperlari Liquorice AKO Fruit Nutisal Dry Roasted Peanuts and Cashew Nuts

Net sales Cash flow from operating activities Operating profit, adjusted SEKm SEKm SEKm 2,000 500 300

250 400 1,500 200 300 1,000 150 200 100 500 100 50

0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 n 2015 n 2016 n 2015 n 2016 n 2015 n 2016

Key ratios

SEKm 2016 2015 2014 2013 2012

Net sales 5,852 5,674 5,313 4,893 4,859 Operating profit, adjusted 758 690 632 585 432 Operating profit margin, adjusted, % 13.0 12.2 11.9 12.0 8.9 Operating profit/loss (EBIT) –82 671 577 418 125 Operating profit/loss margin (EBIT margin), % –1.4 11.8 10.9 8.5 2.6 Profit/loss before tax –256 493 338 210 –140 Profit/loss for the year –191 386 242 264 –73 Profit/loss for the year excl. impact of impairment loss 403 386 242 264 –73 Earnings per share, basic and diluted, SEK –0.67 1.35 0.84 0.92 –0.26 Net debt/EBITDA ratio, x 2.44 3.03 3.97 4.19 4.90 Cash flow from operating activities 889 927 500 131 330 For definitions, see page 149.

1 Words from the President Cloetta [

ANNUAL AND SUSTAINABILITYREPORT Cloetta continues on the right path

2016 2016 Improvement in sales and adjusted operating profit, ] net debt/EBITDA ratio target met

2016 was an excellent year for Cloetta. All in all, sales were up by 3.1 per cent, of which 0.5 per Strategic review of Cloetta Italy cent was organic growth. Operating profit, adjusted for items affecting comparability, improved Economic development in Italy has been to SEK 758m (690), which is mainly due to high efficiency in the supply chain and good cost weak for some time, which has led to a drop control. The corresponding operating profit margin was 13.0 per cent (12.2). We are thus well on in both sales and earnings for Cloetta Italy in our way to meeting our target of an underlying operating margin of 14 per cent. At the same time, the past few years. We have therefore found it our cash flow remained solid. necessary to initiate a strategic review of these operations to evaluate the best way forward. Strong cash flow, net debt/EBITDA ratio on target and higher share dividend The review is being undertaken in order The year’s cash flow from operating activities amounted to SEK 889m (927) despite one-off to improve growth and margins for the Cloetta expenses for the refinancing. This again demonstrates the strength of Cloetta’s cash-gen- Group, and could potentially include a sale of erating ability. As a result of the robust cash flow, combined with higher earnings, we have the Italian business. succeeded in meeting our target for the Group’s net debt/EBITDA ratio. This means that we now Due to negative development in the Italian have a sound balance between debt and equity and no longer need to reduce our debt, so that we operations, we have been forced to recog- can instead focus on potential acquisitions and continued share dividends. In line with this, the nize a sizeable impairment loss on goodwill Board of Directors also proposes that the dividend be raised to SEK 0.75 (0.50) per share. and trademarks attributable to the Italian business, which has had a negative impact on Cloetta’s operating profit for the full year 2016. However, since the impairment is a “For the third consecutive year, non-cash item and Cloetta has a strong cash-generating business, our ability to Cloetta succeeded in growing its distribute dividends and make acquisitions sales organically.” has been completely unaffected. Strategic initiatives to promote profitable growth Nordics driving Cloetta’s growth Cloetta has performed well in recent years. Stable market development is contributing to making the confectionery market attractive. But as a company, we can never allow our- Although growth is relatively low and individual markets can show a downturn in sales for an selves to stand still. We must continuously isolated month or quarter, over time the confectionery market normally grows by 1 – 2 per cent strive to develop and become better. For this annually. reason, we have launched an effort to initiate For the third consecutive year, Cloetta succeeded in growing its sales organically. This strategic activities that can promote profitable growth has been driven primarily by the Nordics and the export markets, while Italy in particular growth. This essentially consists normal de- has shown a continued decline in sales. The Group’s sales have risen mainly for chocolate and velopment work that is being pursued to adapt nuts, but new pick & mix contracts have also added to the increase in sales. Aside from organic to a changing world and live up to the demands sales growth, the acquisition of Lonka, carried out in July 2015, also contributed some acquisi- of our customers and consumers. With our tion-driven growth during the year. Munchy Moments strategy we have an excel- lent platform for realizing new initiatives that Refinancing reduces costs drive more profitable growth. In the past year Cloetta entered into a new term and revolving facilities agreement with a group of four banks and redeemed the previously issued senior secured notes. Interest in taking part in Sustainability work enhanced Cloetta’s financing was keen, which has contributed to improved terms and thereby lower costs Cloetta’s goal is to build long-term sustainable for Cloetta. values by growing as a company while at the The new financing structure will ensure Cloetta’s scope to maintain adequate financial same time ensuring that both people and the flexibility for complementary acquisitions and future share dividends. environment are positively impacted. Cloetta’s

2 Words from the President Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

sustainability commitment is focused on three direction. Most of our environmentally-relat- behind our successes. This strengthens both central areas; greater well-being, reduced ed key ratios have improved or are unchanged the employees and myself in the belief that environmental impact and sustainable sourc- in relation to earlier years. Cloetta is on the right path. ing. For all prioritized areas, there are action In order to enhance our communica- plans, targets and key ratios in place. tion about sustainability issues, the year’s Stockholm, March 2017

Danko Maras “I am both proud and delighted Interim President and CEO that we have been able to deliver until 14 February 2017 another outstanding year.”

Already in 2009 Cloetta joined the United sustainability report (included in this annual Nations’ Global Compact and ratified its report) has been reviewed by the auditing principles. Cloetta continues to support the 10 firm of KPMG. As it is our ambition to meet principles in the UN’s Global Compact, which international standards, our sustainability have been incorporated into Cloetta’s Code of report has been prepared in accordance Conduct and thus provide a solid foundation with the Global Reporting Initiatives (GRI) for our sustainability work. guidelines. In the area of sustainable sourcing, Cloetta has prioritized a number of raw Cloetta on the right path materials. All cocoa and chocolate that we I am both proud and delighted that we have purchase are UTZ-certified, which means that been able to deliver another outstanding we provide opportunities for cocoa growers year for Cloetta. Despite changes in man- to develop sustainable farming. We have a agement, during my leadership in the second policy for palm oil that is aimed at combatting half of 2016, we have been able to continue destruction of rainforest and in 2016 we made developing and advancing our business. This a decision to change over segregated palm oil is clearly visible in the fact that in the past according to RSPO (Round Table of Sustain- year we achieved both an increase in sales able Palm Oil) principles, thereby improving and an improvement in underlying operating the traceability of our palm oil. We have also profit. decided to eliminate the amount of palm oil Thanks to our positive development in found in Cloetta’s glazes. This means that 2016, we have met our financial target for the vast majority of Cloetta’s products will be the net debt/EBITDA ratio. This means that free from palm oil by the end of 2017, which is we now have the financial flexibility for both something that many customers and consum- acquisitions and dividends, which has been ers have asked for. realized in a proposed 50-per cent increase Cloetta’s long-term environmental goals in the dividend and the recently announced extend until 2020. It is therefore highly satis- acquisition of Candyking. fying that in 2016, just as in 2015, we were able Interest, support and appreciation for to see that our efforts to reduce the company’s Cloetta remain powerful among shareholders, environmental impact are moving in the right customers and consumers, and are key factors

3 Long-term targets Cloetta Long-term financial targets [

ANNUAL AND SUSTAINABILITYREPORT

Organic sales growth Sales SEKm 6,000 Cloetta’s long-term target is to increase organic sales at least in line with market growth. 5,000

4,000 Comment on the year’s outcome Historically, total annual growth in the markets where Cloetta is active has been around 3,000 1–2 per cent. In 2016 Cloetta achieved sales growth of 3.1 per cent, of which organic growth 2,000 accounted for 0.5 per cent.

1,000

2016 2016

0 2012 2013 2014 2015 2016 ]

EBIT margin EBIT and margin, adjusted SEKm % 800 14 Cloetta’s target is an EBIT margin, adjusted, of at least 14 per cent. 700 12

600 Comment on the year’s outcome 10 500 Due to higher efficiency in the supply chain and good cost control during the year, 8 the EBIT margin, adjusted, improved during the year to 13.0 per cent (12.2). 400 6 300 4 200

100 2

0 0 2012 2013 2014 2015 2016 nn EBIT, adjusted EBIT margin, adjusted, %

Net debt Net debt/EBITDA SEKm 3,500 Cloetta’s long-term target is a net debt/EBITDA ratio of 2.5x. 4.90 3,000

2,500 4.19 Comment on the year’s outcome 3.97 In 2016 Cloetta met its long-term target for net debt and reduced the net debt/EBITDA 2,000 ratio from 3.03x to 2.44x. During the year, Cloetta also entered into a new term and 1,500 revolving facilities agreement to refinance the existing bank loans and to redeem the 3.03 senior secured notes. 1,000

500 2.44

0 2012 2013 2014 2015 2016 nn Net debt, SEKm Net debt/EBITDA, x

Dividend policy

Cloetta’s long-term intention is to have a dividend payout ratio of 40–60 per cent of profit after tax.

Comment on the year’s outcome The net debt/EDITDA ratio has decreased markedly in the past few years and in 2016 Cloetta met its long-term target of a net debt/ EBITDA ratio of around 2.5x. In view of this, the Board proposes a dividend of SEK 0.75 per share for 2016, which corresponds to 53 per cent of profit after tax excluding the impact of impairment losses. The ambition is to use future cash flows for payment of dividends and to provide financial flexibility for complementary acquisitions. In 2016, SEK 144m was distributed to the shareholders.

4 Long-term targets Cloetta Long-term sustainability targets [

ANNUAL AND SUSTAINABILITYREPORT

Greater well-being Days between occupational accidents Complaints, feedback per million sold (number of days between accidents leading to consumer units Employees >1 day of absence) Days Number The number of days between occupational 30 Goal 2017 8 Goal 2017 >24.3 <5.7 accidents with >1 day of sickness absence 7 will exceed 24.3 days in 2017. 25 Great Place to Work – improved Trust 6 20 Index compared to the previous survey. 5

15 4 Consumers – Complaints/feedback 3 The number of complaints about Cloetta 10 products from consumers will not exceed 2

5 2016 5.7 ppm (number per million units sold) in 1 2017. 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 ] No artificial colours or flavours Comments on the year’s outcome Comments on the year’s outcome Cloetta is committed to increasing the share After several years with a steady decrease in oc- The result for 2016 was a clear improvement cupational accidents, the trend was broken in 2016 compared to last year. This was achieved of natural ingredients. Cloetta’s product and the target was not met. A new safety standard through an increased focus on Cloetta´s product portfolio will contain no artificial flavours was therefore drawn up for immediate implementa- quality management system, which will continue by 2018 at the latest, and no artificial tion in all factories during 2016. This will continue to to be a prioritized area in 2017. colours by 2019. be a priority in 2017. Roosendaal Borchwerf has not been included. Read more on page 32.

Reduced environmental impact Energy consumption Waste Carbon dioxide emissions

Reduce energy consumption in relation Reduce the volume of waste in relation to the Reduce CO2 emissions from production in to the produced volume (MWh/tonne) by produced volume (kg/tonne) by 25 per cent relation to the produced volume (kg/kg) by 5 per cent by 2020. by 2020. 5 per cent by 2020.

Energy consumption Waste Carbon dioxide emissions MWh/prod. tonne Kg/prod. tonne Kg/prod. kg 2.5 Goal 2020 80 Goal 2020 0.40 Goal 2020 <1.83 <49.3 <0.33 70 0.35 2.0 60 0.30

1.5 50 0.25 40 0.20

1.0 30 0.15

20 0.10 0.5 10 0.05

0.0 0 0.00 2014 2015 2016 2014 2015 2016 2014 2015 2016

CO2 equivalents are linked to the Group’s The base year for the three 2020 targets is 2014. use of different energy types. Transports are excluded.

Sustainable sourcing Responsibility for raw material producers Comments on the year’s outcome w Sustainability programmes will be implemented for all prioritized raw w Sustainability programmes have been materials. implemented for cocoa and palm oil. For w By 2020 at the latest, Cloetta’s suppliers of oils and fats must have a shea butter and raw sugar, sustainability fully traceable pipeline of palm oil fractions back to known plantations. programmes are under development. w 100 per cent of all cocoa and chocolate purchased by Cloetta must be w 100 per cent of the cocoa purchases were UTZ-certified. UTZ-certified. w By the end of 2017, Cloetta will have implemented RSPO-segregated w In 2016 Cloetta decided to improve the palm oil throughout the product portfolio. traceability of the palm oil that is found w By the end of 2017, Cloetta’s glazing agent will be free from palm oil. in parts of the product range and started efforts to formulate a new palm oil policy.

5 Strategies and activities Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

Strategies and activities

In connection with the merger between Cloetta and Leaf in 2012, the Group formulated its strategies for profitable long-term growth. Since then, net sales have risen by around 26 per cent through both organic and acquisition-driven growth. Cloetta’s adjusted operating profit has increased significantly in recent years. The improvement in earnings is mainly attributable to higher efficiency in the supply chain and good cost control.

Strategies

Focus on margin expan- Focus on cost-efficiency Focus on employee sion and volume growth development

• Improve the strong brands with local • Improve internal processes and • Develop Cloetta’s culture based on traditions. systems. the results of the employee survey • Strengthen the strong position in • Improve cost-efficiency. “Great Place to Work”. the Nordic market. • Implement a programme for opera­ • Attract, develop and retain competent • Widen and expand the product tional excellence (“Lean 2020”) in employees. portfolio geographically. the supply chain. • Develop leadership and teamwork. • Launch and acquire new products • Increase breadth in production tech- and brands. nology to create flexibility in product • Implement strategic pricing. development.

6 Strategies and activities Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

• New vision for the Group • New Group Management Team • Merger between Cloetta and Leaf • New organization 2012 • New financial targets • New strategy

• Factory restructuring programme was carried out 2013 • The credit facility was renegotiated and senior secured notes were issued • New vision, mission and values were communicated in the organization

• Factory restructuring programme was completed 2014 • Nutisal and The Jelly Bean Factory were acquired • New sustainability goals were formulated

• Delivered improved profitability with support of LEAN and new ERP system 2015 • New pick & mix concept and the acquisition of Lonka • The first sustainability programmes for prioritized raw materials was introduced

• Improved profitability 2016 • Refinancing Growth Cost-efficiency Sustainability • New pick & mix contracts in Sweden • Operational excellence programme • New targets set for the palm oil that Cloetta uses. and Finland. Lean 2020 in the supply chain. New palm oil policy under development. •  Organic sales growth, primarily for • Synergies from the acquisition of • Sustainability report on which limited assurance chocolate and nuts. Lonka. procedures have been performed by external • Lonka, which was acquired in July 2015, • Good cost control. auditors. also contributes to acquisition-driven • Refinancing of the existing bank loans • Clear goals set for elimination of artificial growth during first half of the year. and repayment of senior secured notes. colours and flavours.

7 Cloetta’s value chain Cloetta Cloetta’s value chain [

ANNUAL AND SUSTAINABILITYREPORT

Cloetta’s ambition for creating value is »To bring a smile to your Munchy Moments«. Through innovative product development, efficient purchasing and high-quality production, as well as good relations with the trade and marketing that strengthens the brands, Cloetta creates economic value. At the same time, Cloetta strives to have a positive impact on people and the environment.

2016 2016 ]

1 Product development 2 Purchasing 3 Production Value creation • Product development is driven by a • Cloetta’s total purchasing costs • Cloetta had 2,530 employees during combination of consumer needs/pref- amounted to SEK 3,607m, of which 2016 and total personnel costs amount- erences, innovation and possibilities in SEK 2,152m refers to raw materials ed to SEK 1,304m. the existing production structure. and consumables. Of these, packaging • Cloetta’s 12 factories had 1,825 materials are the largest cost item and employees. account for around 22 per cent. The • During the year, Cloetta produced three main raw materials in terms of 120 thousand tonnes of confectionery, purchasing costs are sugar, cocoa and chewing gum and nuts. milk powder. Sustainable corporate responsibility • A long-term programme, NAFNAC, • Suppliers to Cloetta’s production are Environment is being conducted to offer a portfolio subject to an approval process in which • Development of more energy-efficient both product safety and corporate of products that contain No Artificial processes and lower CO2 emissions. Flavours, No Artificial Colours. In 2016 responsibility are evaluated. • Waste is sent to material recycling and the project resulted in setting of clear • Cloetta promotes sustainable produc- energy recovery. goals for elimination of artificial colours tion of prioritized materials: cocoa, • Systematic environmental management and flavours from Cloetta’s product palm oil, cane sugar and shea butter, in all production units. portfolio. read more on pages 48–51. Occupational Health and Safety (OHS) • Focus on personal safety. • OHS activities with systematic monitoring and follow-up. Product Safety • Product safety system. • Focus on measures to prevent serious product complaints. Read more on pages 5 and 35.

8 Cloetta’s value chain Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

Investments A large share of the capital that is generated is normally reinvested in operations, for example through invest- ments in activities aimed at strength- ening competitiveness and creating long-term value for the Group and its

stakeholders. 2016 ] Repayment of borrowings

4 Customers 5 Consumers Loss for the year, • Total net sales amounted to • We satisfy Munchy Moments. SEK –191m SEK 5,852m. Cloetta’s largest • Feedback about complaints and Profit for the year excl. impact of impairment loss SEK 403m. customer category is the grocery viewpoints. retail trade. The service trade is also a very important customer group.

Shareholders A certain share of non-restricted equity is distributed to Cloetta’s shareholders in • In general, the customers require • Products of a high quality that are the form of dividends, after the opera- BRC or ISO certification. marketed responsibly. tions have been provided with the capital • Unnecessary transport packaging is • Offer consumers a wide range of natural necessary for development. For 2016 avoided and transports are optimized. products. the Board has proposed a dividend of All packaging can be sorted at source. SEK 0.75 per share, equal to a total of SEK 216m, to be paid in 2017. In 2016, SEK 144m was distributed to the share- holders.

Economic impact Production and sales of Cloetta’s products generate economic values that benefit the stakeholders.

Generated value Distributed value* Creditors, from customers qShareholders financial partners 3%q 3% Employees SEK t 25% 5,852m Other suppliers 28%u

Cloetta’s Code of Conduct is the basis for all relation- ships within and outside p Suppliers of raw materials the company and consumables 41% * Excluding amortization/depreciation and impairment losses, tax income and profit/loss for the year and including paid dividends and net financial items, total SEK 5,229m.

9 The confectionery market Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 The confectionery market ]

The confectionery market is traditionally divided into Competitive market The global market for confectionery is domi- sugar confectionery, chocolate confectionery, nated by international companies like Mars/ pastilles and chewing gum. Cloetta is active in all these Wrigley, Mondelez, Nestlé, Ferrero, Perfetti, categories, as well as nuts. Haribo, and Lindt & Sprüngli. But in the local markets these meet tough opposition from Cloetta’s main markets are Sweden, Finland, Norway, Denmark, the Netherlands and Italy. The players with locally established brands such as total market for confectionery in Cloetta’s main markets amounts to approximately SEK 94bn. Cloetta, Fazer, Orkla and Toms. No player has The markets where Cloetta is active account for around 67 percent of Western Europe’s total a strong position across all European markets. confectionery consumption. Consolidation of the confectionery indus- try is taking place gradually. The industry as Mature market such has a long history and the rate of techno- The confectionery market is relatively insensitive to economic fluctuations and shows stable logical change is low. growth that is driven primarily by population trends and price increases. The market recession is affecting Cloetta mainly through general price pressure from the retail trade and increased The nut market competition from the trade’s own private labels. However, private labels account for a relatively Since 2014 Cloetta is also active in the nut small share of confectionery compared to other grocery products. market following the acquisition of Nutisal. Because growth takes places almost exclusively through the development of existing strong The total market is worth around SEK 5bn in confectionery brands, the continuous launch of new flavours and products is a key success factor. the Nordic region and is growing by 5–8 per In terms of value, sugar confectionery accounts for around 24 per cent, chocolate confection- cent annually in Western Europe. The retail ery for around 57 per cent, pastilles for around 10 per cent and chewing gum for around 9 per cent trade’s private labels account for around one of the total market in Cloetta’s home markets. third of the total market.

Consumption patterns Market development Per capita confectionery Confectionery is one of the most impulse- in Cloetta’s main markets, 20151 consumption driven categories in the retail trade. With over EURm Kg per person in 2015 80 per cent of purchasing decisions made at 8,000 20 the point of sale, brand, availability and prod- 7,000 uct placement are significant success factors. The European confectionery market is 6,000 15 characterized by strong consumer loyalty to 5,000 local brands. The main aspects when buying 4,000 10 are brand, flavour, quality and curiosity about new products. 3,000 Consumption patterns and taste pref- 2,000 5 erences vary between the different markets. 1,000 Compared to the rest of Europe, for example, the Nordic region has lower per capita con- 0 0 2000 2005 2010 2015 SwedenDenmarkNorwayFinlandNetherlandsUK GermanyItaly sumption of chocolate but significantly higher u Chocolate u Sugar confectionery consumption of sugar confectionery than the u Pastilles u Chewing gum rest of Europe. 1) Includes Sweden, Finland, Norway, Denmark, The graph refers to sugar confectionery and chocolate the Netherlands and Italy. in the countries where Cloetta is active. Source: Datamonitor and Mintel Source: Datamonitor and Mintel

10 The confectionery market Cloetta Cloetta’s sales channels [

Grocery retail trade Service trade Other sales channels ANNUAL AND SUSTAINABILITYREPORT

Increasingly fewer and larger stores, Generous opening hours, centrally locat- These include movie theatres, building which is leading to greater efficiency and ed in the form of convenience stores, but supply stores, airports and arenas. This

2016 2016 strength. Typically covered by central also filling stations. An increasingly wide channel often requires support in devel- agreements at the national level. range of snack alternatives. oping its confectionery sales. ]

Pantone 485 (Red) 100m 100y

Pantone 116 (Yellow) 15m 100y

Pantone 301 (Blue)

Pick & mix trade have decreased, primarily due to fewer sales in the industry. This figure is significant- The pick & mix category has a very strong filling stations, but also because the service ly lower in Sweden. The typical online shop- position in the Nordic countries and accounts trade has developed its own snack alternatives pers are families with small children, in urban for a high share of total confectionery con- that compete with confectionery. and suburban areas. In 2016, use of mobile sumption, while consumption of pick & mix is devices for retail e-commerce surpassed that considerably lower in Central Europe where New sales channels of laptop and desktop computers. packaged sugar confectionery and chocolate Because availability and a strong brand are The fast-moving consumer goods industry have a stronger position. two key factors for impulse-driven purchases, has taken several initiatives to strengthen its Cloetta continuously evaluates new types of e-commerce presence. Unilever has acquired Traditional sales channels sales channels to ensure availability where the Dollar Shave Club (shaving products for Cloetta’s foremost sales channels in all consumers are found. consumers), and Wal-Mart has both acquired markets are the grocery retail trade and the Other sales channels include those where JET.com (an online discount platform, service trade. confectionery has been offered for many years, including confectionery) and increased its The grocery retail trade has undergone including ferry lines, movie theatres, airports holding in JD.com, a major Chinese online extensive consolidation and restructuring and arenas, but also channels that have not retailer that also offers food products. In over the past ten years, and the number of been traditionally associated with confection- the Netherlands, Albert Heijn has acquired stores has decreased at the same time that ery sales, such as building supply stores, hotels BOL.com, a local competitor to Amazon. floor space per store has grown larger. Con- and bars. Read more about Cloetta’s development in centration in the grocery trade is high in the One key success factor is to develop differ- e-commerce on page 15. ent packaging solutions to help customers in majority of European markets, which means Market size, by region, that the channel can place high demands on the different channels display the products. Cloetta’s main markets, 2015 its suppliers. At the same time, as a leading SEK billion supplier Cloetta has the opportunity to E-commerce 35 E-commerce is continuing to grow globally in develop partnerships that benefit both parties. 30 Strong brands and high-quality products that all types of industries, including food products are attractively priced and can be effectively and confectionery. Historically, the consumer 25 displayed and marketed are therefore of major goods industry has not been a leader in the 20 importance. e-commerce segment, but forecasts indicate Finland is the most centralized of that half of growth in the next five years will be 15 Cloetta’s markets and the Italian grocery driven by online sales. Research shows that in 10 trade is the most fragmented, which among 60 countries, a full 17–30 per cent of consum- other things demands a bigger sales organi- ers are already buying groceries online and 5 zation. over 50 per cent say they are willing to do so in 0 A large share of everyday consumption of the near future. Sweden Finland Norway DenmarkNetherlandsItaly confectionery has traditionally taken place The UK is the most mature market, close- via the service trade, i.e. filling stations and ly followed by and the Netherlands. convenience stores, kiosks, etc. Over the past In the Netherlands, e-commerce already u Chewing gum u Sugar confectionery incl. pastilles u Chocolate decade, confectionery sales to the service accounts for around 5 per cent of total grocery Source: Datamonitor and Mintel

11 The confectionery market

Cloetta 6 distinct consumer trends [

ANNUAL AND SUSTAINABILITYREPORT Genuine raw materials Treating ourselves On-the-go

2016 2016 ]

There is a continued interest in natural Many people live stressful lives and need More and more often, we are eating and genuine raw materials. Additives of an occasional break to take a moment outside the home on our way to and from various types and artificially produced for themselves, be happy, enjoy and treat different activities. Greater availability substances are being questioned in favour themselves to something special. and different solutions allow consumers of natural materials. E numbers are being There is also a clear trend towards to satisfy their needs immediately. replaced with the name of the additive in more indulgent and sophisticated prod- plain language. Natural sugar or stevia ucts. are preferred over artificial sweeteners.

Responsibility for the environment and Health and functional E-commerce and social working conditions confectionery/snacks media gaining importance

E-commerce is growing rapidly across all sectors, including the grocery retail trade. Both grocery retailers and food producers are building up their own e-commerce capacity to sell their One key trend is an interest in the effects People are increasingly seeking raw ma- goods online, and new players are also of food production on the environment terials with positive health effects. capitalizing on the powerful growth of and social conditions. Suppliers and Cloetta’s product range includes online sales. Alongside e-commerce, retailers have responded to consumer de- nuts, which are rich in vitamins and min- direct communication with consumers mand for information, above all about the erals. Xylitol, which is found in chewing via the social media is emerging as one of raw materials’ origins, quality and culti- gum and chewy pastilles, is good for the most important channels for further vation methods by introducing different dental health. developing the brands’ personalities and types of labeling and certification. capturing trends.

12 Market strategies for growth Cloetta [

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New markets, initiatives and concepts

• Acquisitions

Strategic product development

• Innovation • Development of package • New initiatives/business concepts sizes and prices

• Supplement the range where needed Brand development • Line extensions • Wider distribution • Geographical expansion • New geographical markets • Effective marketing • Sales and in-store campaigns • Seasonal products • Renewal of packaging • Relaunch of brands

Development of a successful Drive organic New development market-leading position growth opportunities

Brand development is the core of Strategic product development New markets, initiatives day-to-day activities Through various strategic initiatives based on and concepts Cloetta’s wide brand portfolio is the Group’s the Group’s existing brands and production When good opportunities arise, Cloetta will most valuable asset. Nurturing and developing structure, Cloetta can drive organic growth. widen its territory through acquisition of new these brands is therefore in constant focus brands, expansion into new geographical for both the sales force and the marketing Read more on page 17 markets or new initiatives/business concepts. departments. Read more on page 20 Read more on page 14

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Brand development

Confectionery is the most impulse-driven category in The most important part of the sales force’s day-to-day work consists of helping the the retail trade, which means that good availability and individual retailers display Cloetta’s products visibility in stores, alongside strong brands with high to achieve higher turnover rates and margins in the store. Through the sales organization’s recognition and loyalty, are critical drivers for confec- category knowledge and strong in-store pres- tionery sales. Cloetta’s continuous brand development ence, Cloetta can reach out with campaigns, and strong sales force are therefore of vital importance. monitor local compliance with centrally ne- gotiated listings and distribution agreements and ensure good visibility on the store shelves, Planned brand management in the checkout lines and in other places. Read more on page 16. Cloetta’s ten largest brands account for around 60 per cent of the Group’s sales. Read more about the leading brands on pages 21–24. For each brand there is an individual development plan to continuously contemporize and Marketing develop the brand. The primary tools are line extension, package development, sales develop- Effective and well planned marketing, from ment and effective marketing. traditional tools such as outdoor marketing and advertisements to activities in the social New flavours media, combined with in-store promotion, The regular launch of new and attractive product variants or flavours, in segments where there is stimulates consumer awareness of and de- consumer demand, strengthens Cloetta’s offering to both customers and consumers. mand for Cloetta’s products. An exciting product innovation or seasonal product is mainly aimed at reminding consumers Cloetta’s marketing is primarily local in of the brand. Since successful innovations inspire trials of both the new product and often also nature and is tailored to each brand’s strategy the original product, good seasonal products and innovations normally generate incremental sales. and position. Cloetta’s marketing is character- ized by image-creating brand advertisements Package development in the mass media, sponsorship and events An important part of brand management consists of package development. The packaging mate- directed to selected target groups. rial must perform several functions, such as protecting the product on its way to the consumer, A large share of Cloetta’s advertising enabling easy handling of the product, providing product information and communicating the budget goes to advertisements on online brand. Package development also includes retail packaging for the various sales channels. channels such as Facebook, Instagram and YouTube. Visibility in stores One decisive success factor for consumer sales is good exposure in the store, which means that it Media meets the trade is crucial how new products and innovations are received by the retail trade. The customers must Data handling is of increasing importance see the products as being needed, easy to handle and profitable for the trade. for marketing and advertising. So-called Cloetta has a large, trendsetting and innovative sales force in its main markets. Through programmed advertising is being used at a good relations with the trade and extensive knowledge about the industry, market and products, growing rate in the grocery retail industry to Cloetta can present attractive sales solutions that support the customers’ business objectives and gather data and activate the right marketing. create added value for both Cloetta and the customer. With the support of this technology, the brand

14 Market strategies for growth Cloetta message, advertisement and e-commerce can Online sales can have various impacts on Cloetta further work together to deliver a better customer impulse-driven goods like confectionery and develops its brands [

Cloetta must learn more about this together experience and more relevant advertising for ANNUAL AND SUSTAINABILITYREPORT each recipient. In the grocery trade, adver- with partners in the grocery trade. Cloetta will tisements were previously focused mainly on focus on increasing its knowledge about online Recognition and loyalty conveying the brand message. Now there are confectionery sales. clear examples where the ad itself drives sales. Availability With so-called shoppable ads, consumers Social media Development are confronted with advertisements on their Cloetta’s goal is to increasingly communicate mobile phones featuring “buy now” buttons in the social media as a means of developing to steer them to the closest sales outlet, which consumer loyalty to the brands, but also to Strong could be online. facilitate interaction with consumers and brands gather valuable feedback. Through the social Sales-promotional activities media Cloetta can: Cloetta typically combines marketing activ- • Gather knowledge on consumer thoughts Development ities with in-store campaigns. New products and ideas about different products

Tools to strengthen 2016 are normally given effective sales support through so-called Candy Portals, i.e. online • New flavours and seasonal products. through campaigns, events, in-store activities consumer panels.

• Package development. ] and advertisements to reach consumers as • Answer questions incoming online via quickly as possible. various media and pass on these viewpoints Challenges in the organization. • Coordination of development be- E-commerce • Cooperate with consumers, among other tween markets and brands. Like many food producers, Cloetta is in things by asking direct questions. Availability the process of organizing its e-commerce Tools to strengthen capabilities recruiting the right expertise and To capture attention in the social media, • Large and competent sales force. opening online stores directly to consumers. the content must be interesting and based • Complete product range in stores. Cloetta defines the collaboration with the re- on stories and experiences. tail trade in order to deliver a better shopping Challenges experience for the consumer and gain a better Measurement tools • New channels to reach consumers. understanding of digital retail. Effective marketing is dependent on contin- • New sales solutions adapted to Cloetta aims to achieve online growth uous monitoring and analysis of changes in different customer categories. in line with its market shares. Online sales of consumer patterns. In-depth knowledge about Recognition and loyalty confectionery are lower than for other catego- consumers and trends is essential for success- ries, but are expected to catch up in the next ful product development and marketing. Tools to strengthen few years. Although the share of confectionery Marketing activities online and in the • Increase consumer awareness sold online is still very low, the growth rate social media are targeted and followed up via through advertising, PR and among consumers who have started to buy two tools: DSI (Digital Sentiment Index) is sponsorship. groceries online is around 30 per cent. The a metric that summarizes the brands’ online Challenges average online shopper also spends two to presence and NPS (Net Promotor Score) • Continue to improve use of social three times longer on the purchase than they continuously measures different aspects of the media. do in the store. customer and consumer experience linked to • Be visible where consumers are Cloetta is testing its way forward and loyalty and recommendation. The purpose of found through planned effective learning from various initiatives. In the web these tools is to quickly track the success of marketing and in-store sales shop www.jellybeanfactory.com, consumers individual activities in the various markets. campaigns. can buy personalized candy gifts with differ- Thanks to the DSI and NPS measurements ent messages, such as birthdays greetings. The the Group can see how marketing initiatives, consumer can write a personal digital message have contributed to enhancing both the image Examples of new and the gifts are delivered by mail. In Sweden of and loyalty to these brands. flavours during the year Cloetta has an online merchandise shop, www.cloettashop.se. During the year Protection of intellectual Cloetta also opened a web shop on Tmall property rights (cloetta.tmall.hk), the Chinese marketplace To prevent infringement of its intellectual from Alibaba, where consumers can buy a property rights, Cloetta uses a special selection of Cloetta’s products from Sweden, monitoring service that provides alerts about Italy and Finland. applications for registration of brands, both nationally and internationally, that are iden- tical to or can be confused with Cloetta’s key brands. For example, Kexchoklad’s chequered pattern has been design protected for many years and the name Kexchoklad has been trademarked since 2004.

• Ahlgrens bilar Modell A16 • Venco Tikkels Sweet & Sour and Sweet & Fruity • Halloween Mix • Läkerol Ginger Lime • Cloetta Sprinkle Ice Cream Waffle • Saila Jelly Licorice • Gott & Blandat Fruit Salad

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Cloetta Success factors for the sales organization [

ANNUAL AND SUSTAINABILITYREPORT

The right products Good relations with Good visibility for to the right customer customers at the central Cloetta’s products and local levels

2016 2016 ]

Selling the right products to the right Through good relations with the retail High visibility in stores, and particu- customer generates profitability for both trade and in-depth knowledge of the larly at the checkout stands, is vital for Cloetta and for the customer. Cloetta’s industry, market and products, Cloetta growth in sales. In order to maximize the sales force is large and effective, which can present attractive sales solutions visibility of Cloetta’s products, the sales provides good opportunities for a pres- that support each customer’s business force also works actively to increase the ence in many different sales points. objectives. number of display points in the stores.

Effective sales campaigns Ensure compliance with Boost sales in cooperation with the central agreements with customers the retail trade

Marketing campaigns are typically com- The sales force ensures compliance with By being where consumers are found, it bined with sales promotional activities in central agreements and that the agreed is possible to increase sales. The task for the stores. The sales force helps retailers range of products is found in the stores. Cloetta’s sales organization is to contin- to display these. uously seek new non-traditional sales points for selected parts of the product range, but also to increase display space and sales in existing stores.

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Strategic product development

Through strategic product development, Cloetta Strategic product develop- utilizes its strong brands and its flexible production ment during the year organization to drive and maximize organic growth.

Some examples of strategic initiatives are brand extension, new geographical markets, the relaunch of brands and pure innovations. Strategic initiatives also include price strategies and the related changes in packaging sizes.

Innovation and trends Product development is a key driver behind Cloetta’s brands and enables differentiation in the market. Cloetta’s innovation work and optimization of the product development process create the conditions for future new product launches and relaunches. Fashion and trends are found in all areas, even in the confectionery industry, where they are primarily related to colours, packages, flavours and ingredients. The ability to identify the trends that could be influential for Cloetta is of major importance. Knowledge about trends in the mar- ket and consumer behaviour is necessary for the development of successful product innovations. Market analysis, trend monitoring and interaction with consumers in the social media provide the marketing department with valuable data for analysis of changes in consumption patterns. Natural ingredients and consideration to environmental and ethical aspects are factors that are affecting the confectionery market to a growing extent. Cloetta continuously reviews all products and questions their ingredients. For example, sweeteners and fruit flavourings have been replaced with stevia and fruit juice in Dietorelle. Stevia is used in Läkerol and xylitol is used in Läkerol DentaFresh.

Product development process An effective product development process is decisive for profitable growth. Product development is steered by the way in which market trends and consumer behaviour can be optimally combined with existing brands. The biggest costs in product development arise in the product launch phase and are primarily associated with marketing activities, but also with ensuring efficient production. • Fudge/Bonbon/Toffee Cloetta drives category projects in sugar confectionery, chocolate, pastilles, chewing gum • Nutisal Dry Roasted Peanuts and Cashew Nuts and nuts. Within this framework, Cloetta has developed a product development process that • Red Band Less Sugar • Müsli Bite combines consumer demand and needs with the possibilities found in the existing production structure and the innovation activities being carried out within the Group, see next page.

17 Market strategies for growth Cloetta The path to a new product [

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Launch

Consumer panel on the Internet

New product Market – consumer-driven Product development – innovation

2016 2016 Idea – concept Product solution • Evaluation • Product development

] 3 3 • Market surveys • Packaging • Packaging solution Consumer Technical solutions • Needs 2 2 • Function in existing production lines • Preferences • Exchange between the factories • Ideas • Feelings Target group Trends • Who? 1 1 • Internal and external data collection • Why? • Collaborations • When? • Technical development • What?

Tools for idea and concept generation and ready for launch normally takes around one In recent years, the British brand Chewits continuous follow-up create the conditions for year, but can be accelerated with the use of has been launched in several markets that are Cloetta to be an even more innovation-active focused resources. new for the brand. company. Launches in new markets Package size A focus on taste A product that is successful in one market can Aside from tasting good and being reasonably Packages and marketing can tempt consumers be launched in another market under an ex- priced for the consumer, a new product must to try a new product, but if the taste doesn’t isting local brand. For Cloetta, with its many be commercially attractive to the retail trade. measure up there is rarely a second purchase. brands in different markets, scale economies Its weight, package and distribution are It is therefore critical that the new products in production can be utilized effectively by adapted for their respective sales channels launched by Cloetta meet consumer require- matching brands. Some examples: and markets. With the right packaging, many ments and expectations. The focus is on taste • Läkerol Dents in Finland have become of the products that are strong in one market when Cloetta develops new products. Before a Läkerol DentaFresh in Sweden and Norway can also secure a good position in new mar- product is launched, it undergoes both internal and King chewmints in the Netherlands. kets. and external taste tests via consumer panels • Sportlife Mints from the Netherlands are Package sizes are often associated with that among other things assess its flavour, sold as Mynthon ZipMint in Finland and price strategies for different customer catego- consistency and overall impression. under the Saila brand in Italy. ries and markets. Changing a package size is To systematically gather consumer • Läkerol pastilles from Sweden and Norway therefore a strategic decision for how a brand feedback, Cloetta uses a consumer panel that are sold as King Chewmints in the Nether- can be further developed to reach new custom- regularly provides feedback and ideas on the lands. ers and thereby also new consumers. Internet after receiving product samples to • Polly from Sweden has been sold for many their homes. The ideas that have come up have years as Pops in Norway, and Norwegian Travel Retail been highly valuable for Cloetta’s innovation Pops Puffar are sold as Polly Puffar in For many years Cloetta has had substantial work. Sweden. sales to ferry lines, charter tour operators and Without approval by the consumer panel, • Dietorelle from Italy is sold as Red Band airports, so-called Travel Retail. the product will not be released on the market. Sweet’n Pure in the Netherlands. Well known brands and unique packages A large data base of earlier tests and reference • Lonka Bonbons are sold as Bonbon, Malaco in terms of both appearance and size are two values facilitates the necessary assessment. in Sweden and Fudge Toffee, Klassikkohyvä of the most important competitive tools. The process from concept to a product in Finland.

18 Market strategies for growth Cloetta Attention-getting campaigns [

ANNUAL AND SUSTAINABILITYREPORT Ahlgrens bilar Modell A16 Aakkoset Emoji KING Krijt

2016 2016 ]

In 2016 a new model of Sweden’s most Aakoset emoji was launched to target Prior to Kingsday, the king’s birthday in fun and delicious car was rolled out in teenagers through the most successful the Netherlands, consumers were given Swedish stores – Ahlgrens bilar Modell Facebook campaign of all time in the a piece of chalk in a King wrapper when A16. The launch was supported by com- Nordic region according to Facebook. they purchased a package of King. The munication that used humour to highlight The campaign is about how adults chalk was meant to be used for marking the enormous popularity of Ahlgrens misunderstand or misinterpret the emojis out spots at the “Kingsday markets” that bilar among the Swedish people. And the young people send, which is something are held throughout the country. The name? Modell A16 simply stands for the most teens have experienced. “Sometimes campaign was supported on the radio new 2016 model of Ahlgrens bilar. it’s just better to eat the emojis”. and in the social media.

Mynthon Sportlife in a jar Kexchoklad

Mynthon chewing gum was launched a few years ago in Finland based on the concept of “ultimate freshness”. The In 2016 Sportlife was launched in a jar. Kexchoklad snack stations are part of the year’s multichannel campaign was a The launch was made through a humorous popular “Kexchoklad Hunt” ski race in the parody inspired by perfume ads, with the TV ad with Ukrainian ice hockey players, mountains. Kexchoklad is also featured in theme of “always ready”, and shows how and the campaign was supported on the connection with major running races such to boost your self-confidence by chewing Internet and through in-store activities. as Göteborgsvarvet and Midnatts­loppet. Mynthon. The spot got over 1 million The market share for chewing gum in jars All participants deserve a Kexchoklad bar views online. was doubled during the year. after crossing the finish line.

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New market, initiatives and concepts

In 2015 Cloetta acquired Locawo B.V. (Lonka) – a Dutch Cloetta’s recent company that produces and sells fudge, nougat and acquisitions chocolate. The acquisition has strengthened Cloetta’s 2013 position in the Netherlands and given the Group a wider Goody Good Stuff range that can also be launched in other markets. Annual sales at acquisi- During the year, new pick & mix concepts also rein- tion, SEK 10m. Access to a new technol- forced Cloetta’s position in Sweden. ogy and brand in natural gummy candy.

Lonka – a significant acquisition Lonka produces and sells fudge, nougat and chocolate products. Around 50 per cent of sales are 2014 branded and 50 per cent consist of pick & mix sales and contract manufacturing. At the time Nutisal of acquisition, the products were manufactured at two factories in the Netherlands – one in Annual sales at acquisi- Roosendaal and one in Dieren. In 2016 the factory in Dieren was closed down and its production tion, SEK 200m. Access to a whole new was transferred to Levice, . Prior to acquisition, Lonka had annual sales of around category, nuts. SEK 300m, of which the Netherlands accounted for roughly half. The Nordic countries and the UK are other important markets, especially for pick & mix. The Jelly Bean Lonka is a well known brand that has significantly strengthened Cloetta’s position in the Factory Dutch market. The acquisition has also expanded Cloetta’s product range into new technologies Annual sales at acquisi- and categories, including the Dutch chocolate market. In the past year a number of Lonka prod- tion, SEK 100m. ucts also changed brand to other brands that are better known in the respective markets, such as Premium offering in sugar confectionery and Malaco in Sweden and Klassikkohyvä in Finland. stronger presence in the UK. Development of the pick & mix concept In the autumn of 2014 Cloetta signed an agreement with Coop Sweden to provide them with a whole new pick & mix concept starting in 2015. This means that Cloetta is responsible for the 2015 product range, racks, merchandising, etc., in Coop’s 700 stores. For many years Cloetta has suc- Lonka cessfully driven a similar concept, Karkkikatu, in Finland. Pick & mix is estimated to account for Annual sales at acquisi- around 30 per cent of the total volume in the Swedish confectionery market. tion, SEK 300m. Strengthens Cloetta’s po- The agreement with Coop was the starting shot for a new pick & mix concept that includes sition in the Netherlands around 150 articles. Since 2016 Cloetta also provides pick & mix concepts for Bergendahls and and provides access to a ÖoB. new category. In addition, Cloetta has launched a pick & mix concept for natural snacks at Coop.

20 Market strategies for growth Cloetta Cloetta’s leading brands [

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Cloetta is the name and symbol of the Nordic region’s oldest confectionery company, with a very strong local heritage. Cloetta’s brands fulfil the mission »To bring a smile to your Munchy Moments«.

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Ahlgrens bilar Bridge is a fruit-flavoured foam that a large majority of is a candy mix that was created in 1966 the Swedes love and enjoy. The original taste when some employees were playing bridge and elegant design have been unchanged since and ate a a mixture of different tasty prod- 1953, when Ahlgrens’ candy factory decided ucts that were made at the factory. One day to try to produce marshmallows. The result someone came up with the idea of launching was not as expected; instead it was small foam this mix of various delicious flavours in a pieces of candy in the shape of a car. Sweden’s bag. Bridge is the mature candy mix where best tasting car was born! everyone can find their favourite. New car models have been launched since then, Sold in: Sweden, Norway, Denmark. in flavours such as salty liquorice and sweet & sour. Sold in: Sweden, Norway, Denmark, Finland, the USA, China, Malta, , Poland.

Center Chewits has been around since 1941 when the roll was first launched in Sweden. was launched in the UK in 1965 as a kids Center is the tasty roll at the centre of attention – just unroll a piece and chewy sweet. The original flavours consist- enjoy! ed of strawberry, blackcurrant and orange, Sold in: Sweden, Norway, Denmark, , Cyprus, Poland. which have now developed to include fruit salad and xtreme sour apple. “Chewie the Chewitsaurus” is the brand mascot who features on all packs and encompasses the brand values for both children and adults. Sold in: the UK, Norway, Finland, Italy, the Baltics.

Cloetta chocolate Dietor In 2014 a new chocolate concept was launched in Finland under the has been synonymous with sweeteners in the Italian market since 1975. Cloetta brand. Cloetta chocolate offers inspiring chocolate experi- Dietor guarantees its consumers the best ences through exciting combinations of taste and texture, presented solution for a sweet taste with less calo- with a twinkle in the eye. The current portfolio consists of delicious ries. Dietor is available as a powder, in liq- filled chocolates and countlines and is targeted toward the young and uid form, as tablets and also stevia-based open-minded who cherish time together with friends and family. products. Sold in: Finland. Sold in: Italy, , the Czech Republic, Bulgaria, Greece, South Korea.

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Dietorelle Galatine was launched in 1977 and has a leading position in the Italian market is a hard pastille that consists of up to around 80 for sugar-free confectionery. The brand, a world of per cent milk and was launched in 1956. Galatine is natural pleasure, stands for flavour, fun and colour today the single most sold candy and one of the most and is a natural choice thanks to stevia and fruit loved brands in Italy, with a high level of reassurance juices. among parents and a strong appeal to children and Sold in: Italy, Finland, Germany, China, South young adults. The Galatine family also includes Korea, , , Spain, , Chile, Choco for an adult target group, an indulgent Morocco, Panama, Bulgaria, the Czech Republic, chocolate-coated bean with a unique taste. France, Malta, South Africa, Poland, Ukraine. Sold in: Italy, Germany, the USA, Singapore, China, South Korea, Spain, Denmark, Panama, Bulgaria, Malta, Ukraine.

2016 2016 ]

Goody Good Stuff The Jelly Bean Factory This tasty gummy candy range was launched in offers 36 different flavours of gourmet jelly beans, the UK in 2010. The range pioneers a plant-derived made from 100 per cent natural flavours and fruit bio-gum technology that eliminates the need for juices. Free from gluten, gelatine, and nuts. The Jelly animal-based gelatine, which makes the candy Bean Factory was established in 1998 in Ireland. suitable for vegetarians. To make the range acces- Every day over 12 million gourmet jelly beans are sible to an even bigger user-group, the range is also produced at the factory in Dublin, packaged in a wide free from artificial colours and flavours, gluten and range of playful formats. The most juicy, mouthwatering lactose, and is Halal- and Kosher-certified. jelly beans on the planet. Sold in: the Netherlands, the UK, Sweden, Norway, Sold in: around 60 countries worldwide, mainly in the UK, China, Germany, Canada, the United Arab Emirates, , Germany, Switzerland, Estonia, France, Malta, Greece. the Netherlands, Denmark, Sweden, Austria, New Zealand, Australia, South Korea, Poland, Singapore, , Ireland.

Jenkki Juleskum is the market-leading chewing gum brand in Finland, is the original that has become a natural part of where it was originally launched in 1951. Since 1975 the Swedish Christmas traditions. Cloetta started the brand has been sweetened with the dental making marshmallow Santas as early as the innovation xylitol, and has thus become a smart 1930s. Each year a limited edition is released, tooth-friendly habit for Finns: as a breath refresher this year with the taste of Santa’s Christmas or an enjoyable treat after each meal. porridge with cinnamon and vanilla. Although Sold in: Finland, Estonia, China. Juleskum is only sold for a limited period around Christmas, it is the fourth best-selling candy bag in Sweden on an annual basis. Juleskum Original is a fluffy, two-coloured marshmallow Santa with a taste of strawberry. Sold in: Sweden, Norway, Denmark.

Kexchoklad King was launched as early as 1938 and is one of Cloetta’s active Swedish The De Vries family started producing peppermint classics. Sweden’s best tasting between meal snack. Three layers of in 1902, and from 1922 under the brand name King. crispy, chocolate-covered filled wafers make Kexchoklad a snack for Over time, the brand has evolved from a simple throat active people who need to quickly refill their energy. lozenge into a modern breath freshener. Today, after Sold in: Sweden, Denmark, Estonia, Latvia, Lithuania, Russia, the USA, more than 90 years, it still contains the same secret France, Guinea, Cyprus, Poland. peppermint blend that makes King loved by many Dutch consumers. Sold in: the Netherlands, Latvia, Lithuania, Canada, the USA, Germany, Belgium, Suriname, Israel.

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Lonka Läkerol At Lonka, it’s all about soft and delicious sweets is a classic brand and the tastiest refresher for all occasions. The first made with passion and high quality. Since the first box was sold in 1909. Läkerol is available in a variety of flavours and is Lonka factory opened in 1920 in the Netherlands, effective when you want to soothe your throat, refresh your breath or Lonka has been providing consumers with traditional just fancy something tasty. Läkerol makes people talk. favourites like caramel, fudge, soft nougat and choc- Sold in: Sweden, Norway, Denmark, Finland, Germany, Switzerland, olate. With Lonka products, consumers make their the USA, Singapore, China, Indonesia, Lebanon, Lithuania, Belgium, coffee and tee moment more indulging. South Africa. Sold in: more than 40 countries, mainly Benelux, Sweden, Denmark, Norway, the UK, Spain, Germany, Israel, China, South Korea, Japan, the USA, Brazil, South Africa.

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Läkerol Dents/ Läkerol DentaFresh Malaco is the world’s first, in Finland market-leading and in Sweden and Norway offers a wide variety of sugar confectionery new, xylitol pastille with 50 per cent xylitol, and is available in several products. The name Malaco comes from the flavours. Take two tablets after every meal to stop acid attack and first letters in the company name Malmö Lakrits strengthen your teeth. Läkerol Dents is the most delicious way to take Compani, founded in 1934. Over the years, care of your teeth. Läkerol DentaFresh – a smart habit for stronger many new products have been launched under teeth. the brand, such as Gott&blandat, TV MIX, Sold in: Läkerol Dents in Finland. Läkerol Aakkoset, Familie Guf, Lagerman Konfekt and DentaFresh in Sweden, Norway. Kick. Quite simply – Saturday all week. Sold in: Sweden, Finland, Norway, Denmark, Belgium, Canada, the USA, Germany, Thailand, Israel, the Baltics, France, Cyprus, the UK, Ireland, Poland.

Mynthon Nutisal is the leading pastille brand in Finland, where it was launched in 1976. is the Group’s nut expert as of 2014. The business started in a shop in Fresh and effective is Mynthon’s brand essence. The product range , Lebanon. There, back in 1948, a unique ‘dry roasting’ method consists of chewy, hard and compressed pastilles in a variety of fresh was developed for roasting without oil. Nutisal took this technology flavours. In 2012, chewing gum was also launched under the brand. to Europe and created a range of dry roasted Sold in: Finland, Norway, the Baltics, Hungary. mixes that was launched in 2007. Because no oil is used in the process, the consumer can enjoy the genuine taste of nuts. Sold in: Sweden, Denmark, Finland, the Netherlands, Switzerland, Germany, Spain, Estonia, Latvia, Greece.

Plopp Polly is the mini-bar for indulging yourself or someone close to your heart. was launched in 1965 and is the leading brand of bagged chocolate on Originally introduced in 1949, Plopp is personified by the little mini-bar the Swedish market. It’s impossible to eat just one. Polly is delightfully that stands for nostalgia, fun and playfulness. Plopp consists of won- chewy foam drops, covered with chocolate. The original is flavoured derful milk chocolate filled with soft toffee. with vanilla, arrack and butter toffee. Polly is also Sold in: Sweden. the candy that surprises, for example Polly with a taste of Ahlgrens bilar. Sold in: Sweden, Finland, Denmark, Poland.

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Red Band Saila has roots going back to 1928. Since the start, the was launched in Italy in 1937 and is now one of Italy’s best known and Red Band brand has built up a leading position leading brands of pastilles. After becoming part of Cloetta’s portfolio in the Dutch and German sugar confectionery in 2007, Saila has emerged as a star in the pastilles market thanks to markets with a promise to deliver fun, quality and its unique beans and liquorice products. Saila’s pleasure. The classic Winegum Mix, the original slogan is uniquely essential refreshment. Drop Fruit Duo’s and Pret Mix are some of the Sold in: Italy, Germany, the USA, Indonesia, well-known products that are sold under the Red Lebanon, Spain, Belgium, Bulgaria, France. Band brand. Sold in: the Netherlands, Switzerland, Belgium, Canada, the USA, Austria, Germany, Palestine, Thailand, Israel, the Baltics, the United Arab Emirates, Saudi Arabia,

2016 2016 Kuwait, , Iraq, Spain, Portugal, the Czech Republic, Malta, Suriname, Cyprus, Poland, Hungary. ]

Sisu Sperlari is a liquorice pastille flavoured by a secret Sisu-aroma that was in the form of traditional Italian nougat – il Torrone – Sperlari was launched in Finland in 1928. Sisu is named for the true nature of the launched by Enea Sperlari back in 1836. The secret behind Spelari’s Finnish people – the word ‘sisu’ means guts, endurance or relentless success lies in the combination of tradition and courage. For the Finns, the Sisu brand is part of the Finnish spirit that modernity, old recipes that meet new flavours, no other brand can replace. With Sisu, you can do it. Sisu is available the finest ingredients and a passion for the craft. in several flavours packaged in boxes. Since 2013 Sisu chewing gum is Sperlari is a cherished Christmas tradition, and also available. the range includes a wide offering of nougat and Sold in: Finland. chocolate, as well as sugar confectionery. Sold in: Italy, Germany, Switzerland, Canada, the USA, Lebanon, Israel, Latvia, Belgium, Australia, Colombia, Denmark, Nicaragua, Panama, Croatia, France, Malta, the UK, Ireland, Albania, Slovenia, Ukraine.

Sportlife Sportlunch was launched in the Netherlands in 1981 as the first chewing gum in is a crispy wafer generously coated with pure milk chocolate in easy- “blister” packaging. Since the start, Sportlife has been a leader in the to-break pieces. Sportlunch was launched in Sweden in 1937, under Dutch market and also has a strong position in Belgium. Sportlife is the name “Mellanmål” and changed name to Sportlunch in 1996. based on the brand essence of unexpected freshness and has an inter- Sold in: Sweden, Norway, Estonia, Lithuania. national brand profile. In 2015 Sportlife launched the core flavors in jars. Sold in: the Netherlands, Switzerland, Belgium, Suriname.

Tupla Venco was launched in 1960 and is the number one chocolate countline in Venco was launched as early as 1878 and is Finland. Tupla means ´double´ in Finnish and Tupla original countline the leading liquorice brand in the Netherlands. always contains two pieces that are filled with energy and easy to Venco has ‘a passion for liquorice’, which is share. The original Tupla countline has a cocoa nougat filling covered delivered in a wide range of unique, iconic and with milk chocolate, with a twist of saltiness and roasted almond crush. top-selling items like chalk and honey liquorice. The taste and texture of Tupla is fuel for the body and attitude. Tupla is When the Dutch think of liquorice, they think available in different flavours and sizes, and since 2015 also as a sport of Venco. bar. Sold in: the Netherlands, Germany, Italy, Israel, Sold in: Finland, the Baltics. Belgium, Suriname, South Africa.

24 Cloetta’s main markets Cloetta [

Cloetta’s main markets ANNUAL AND SUSTAINABILITYREPORT

Cloetta’s main markets are the countries where the Group has its own sales and distribution organization, and consist of Sweden, Finland, the Netherlands, Italy, Denmark and Norway.

2016 2016 Main markets – countries where Cloetta • has a national sales organization. ] Countries where Cloetta’s products • are sold primarily through distribution agreements. Sweden • Share of Cloetta’s sales. 31% Finland Norway 17% 4%

Denmark 5% The Netherlands 14%

Italy 12% Other markets 17%

25 Cloetta’s main markets

Cloetta Sweden [

ANNUAL AND SUSTAINABILITYREPORT Sweden is the largest single market in the Nordic region, with around one third of the region’s total confectionery consumption. In 2016 the total market showed positive development.

Share of Cloetta’s Market size: Cloetta’s presence sales: Consumer sales of approx. Sugar confectionery SEK 15.8bn Chocolate confectionery Pastilles Chewing gum

2016 2016 31% Nuts CAGR 2011– 2015: Pick & mix ] Sweeteners Cloetta’s largest customers: Population: Axfood, Coop, ICA, 10 million 2.8% Bergendahls and Privab Source: Datamonitor

Cloetta’s sales and competitors The service trade is a vital sales channel . Cloetta has previously only been a supplier In Sweden Cloetta is the market leader in In recent years, alternative sales channels like to various pick & mix resellers. Through the sugar confectionery and pastilles, Mondelez building supply stores, movie theatres, arenas, contract with Coop and new contracts with re- (including the Marabou brand) in chocolate etc., have become increasingly important. tailers like Bergendahls and ÖoB during 2016, and Wrigleys in chewing gum. Overall, Cloetta Cloetta has moved up as the market leader in is the second largest player in the Swedish E-commerce pick & mix. market of packaged confectionery, with a Online grocery sales in Sweden grew by over share of around 24 per cent (24). Mondelez has 30 per cent during 2016. Around 20 per cent of Nutisal approximately 31 per cent (31) of the market. Swedish households bought groceries online Since 2014 Cloetta also sells dry roasted nuts The retail chains’ private labels have a share of at least once. Convenient meal kits started to under the Nutisal brand. Nutisal is the market around 5 per cent (5) of the Swedish market. change consumer behaviour and have con- leader in the service trade and currently Pick & mix, an important category that tributed to moving grocery sales online. Now, commands 10 per cent (10) of the Swedish nut accounts for 30 per cent of the total market, is online grocery purchases exceed those for market. not included in the market shares above. meal kits. So far, sales of confectionery have been relatively low. Sales channels The Swedish grocery retail trade is concen- Sales organization trated and increasingly centrally steered, but There are a total of around 200 employees in with good opportunities for influence at the the sales organization and at the Scandinavian local store level. The task for Cloetta’s sales head office in Malmö. force is to ensure distribution as well as place- ment and space in the stores in compliance Pick & mix with central agreements, but also to provide In 2015 Cloetta launched its own pick & mix the trade with support in implementing cam- concept in the Coop grocery chain under the Top-selling brands: paigns and launches. name Godisfavoriter (Candy favourites). Malaco, Kexchoklad, Läkerol, Ahlgrens bilar, Polly, Center, Nutisal, Juleskum, Plopp and Sportlunch Categories, Sweden Largest players, Sweden Confectionery market Confectionery market Chewing gum 10% q Sugar confectionery incl. pastilles Others Cloetta t 43% 38%u t 24%

#2 Mondelez t 31%

Chocolate 47%p Source: Datamonitor Fazer 7%p Source: Datamonitor

26 Cloetta’s main markets Cloetta Finland [

ANNUAL AND SUSTAINABILITYREPORT Finland is the third largest market in the Nordic region, with around one fifth of the region’s total confectionery consumption. The Finnish market was largely unchanged in 2016.

Share of Cloetta’s Market size: Cloetta’s presence sales: Consumer sales of approx. Sugar confectionery SEK 8.9bn Chocolate confectionery Pastilles

Chewing gum 17% 2016 Nuts CAGR 2011– 2015: Pick & mix ] Sweeteners Cloetta’s largest customers: Population: SOK, Kesko and Tuko 5.5 million 3.1%

Source: Datamonitor

Cloetta’s sales and competitors Sales channels Cloetta is the second largest player in the The Finnish grocery retail trade is dominated Finnish market, with a share of around 25 by large players and is the market with the per cent (25) of packaged confectionery. The most centralized purchasing in the Nordic market leader is Fazer, with approximately region. Thanks to centralized purchasing, new 42 per cent (42) of the confectionery market. products can achieve wide distribution and The retail chains’ private labels have a share become quickly available to consumers. of around 8 per cent (7) of confectionery sales In 2016 Finland’s second largest grocery in the Finnish market. chain, Kesko, merged with the fourth largest Cloetta is the undisputed market leader in chain, Suomen Lähtikauppa. Kesko has thus pick & mix, which is not included in the market strengthened its market share to number two figures above. in the grocery trade and number one in general The confectionery tax in Finland has stores. been abolished as of 2017. As a result, retailers reduced their inventories in Q4 2016 and sales Sales organization by confectionery producers declined during In Finland there are around 195 employees at Top-selling brands: the fourth quarter. the office in Turku and in the sales organiza- Malaco, Jenkki, Mynthon, Läkerol, Sisu and Tupla tion.

Categories, Finland Largest players, Finland Confectionery market Confectionery market Sugar confectionery incl. pastilles Others Cloetta Chewing gum 6% q t 40% 28%u t 25%

#2 Fazer Mondelez t 42% 5% u

Chocolate 54%p Source: Datamonitor Source: Datamonitor

27 Cloetta’s main markets

Cloetta The Netherlands [

ANNUAL AND SUSTAINABILITYREPORT The Netherlands is the sixth largest market in Western Europe, with just over 4 per cent of the region’s confectionery consumption. The Dutch confectionery market showed slightly negative development in 2016, mainly in pastilles and chewing gum, where Cloetta has a strong position.

Share of Cloetta’s Market size: Cloetta’s presence sales: Consumer sales of approx. Sugar confectionery SEK 15.2bn Chocolate confectionery Pastilles Chewing gum

2016 2016 14% Nuts CAGR 2011– 2015: Pick & mix ] Sweeteners Cloetta’s largest customers: Population: Albert Heijn, Superunie, Jumbo 16.9 million 0.5% Supermarkten and Maxxam Source: Datamonitor

Cloetta’s sales and competitors the Netherlands than in any of Cloetta’s other Cloetta is the second largest player within the main markets, and in 2016 accounted for an total confectionery market. In the sugar con- estimated 5 per cent of total grocery sales. The fectionary market Cloetta is also the second hard-discount retail chains with a high pro- largest player with a, with a share of 22 per portion of private labels have increased their cent (21). The market leader is Perfetti with market shares during the year. Cloetta is not around 26 per cent (26). represented in the hard-discount segment. The retail chains’ private labels have a share of around 9 per cent (9) of total sugar Sales organization confectionery sales in the Dutch market. Cloetta has around 55 employees at the office in Oosterhout and in the sales organization. Sales channels The grocery retail trade is concentrated Acquisition of Lonka around a few major players. With primar- In July 2015 Cloetta acquired the Dutch com- ily centralized purchasing, it is possible to pany Lonka, which has significantly strength- achieve wide and rapid distribution of the ened Cloetta’s position in the Dutch market. Top-selling brands: new products that are launched. Online In 2016, the designs, packages and mar- Sportlife, XyliFresh, King, Lonka, Red Band and grocery shopping has a stronger position in keting for Lonka’s products were improved. Venco

Categories, the Netherlands Largest players, the Netherlands Confectionery market Confectionery market Sugar confectionery incl. pastilles Others Chewing gum 8% u t 39% 70%u Cloetta t 10%

#2 Mondelez t 9%

Perfetti t 11% Chocolate 53%p Source: Datamonitor Source: Datamonitor

28 Cloetta’s main markets Cloetta Italy [

ANNUAL AND SUSTAINABILITYREPORT Italy is the fourth largest market in Western Europe, with close to one tenth of the region’s total confectionery consumption. In 2016 the Italian confectionery market decreased for the second consecutive year.

Share of Cloetta’s Market size: Cloetta’s presence sales: Consumer sales of approx. Sugar confectionery SEK 34.2bn Chocolate confectionery Pastilles

Chewing gum 12% 2016 Nuts CAGR 2011– 2015: Pick & mix ] Sweeteners Cloetta’s largest customers: Population: Auchan Group, Coop, 61.7 million –0.1% Esselunga, Carrefour Group and CONAD Source: Datamonitor

Cloetta’s sales and competitors in the Nordic countries and the Netherlands. Cloetta is the second largest player in the Aside from the more modern grocery stores, Italian market for sugar confectionery and most sales take place via a very large number pastilles, with a share of around 11 per cent of small shops and are handled among other (12). The foremost competitors are Perfetti things by sales agents that act as distribution and Ferrero. Perfetti has a market share of units and work for several suppliers. around 24 per cent (27) and Ferrero 9 per cent (10). Sales organization The retail chains’ private labels have a In Italy Cloetta has around 140 employees at market share amounted to around 13 per cent the office in Cremona and in the sales organ- (13) of sugar confectionery sales in the Italian ization. market.

Sales channels In Italy, the grocery retail trade is more frag- mented than in the Nordic and Dutch markets. The three largest grocery retail chains have a Top-selling brands: significantly lower share of Cloetta’s sales than Sperlari, Dietor, Saila, Dietorelle and Galatine

Categories, Italy Largest players, Italy Confectionery market Sugar confectionery Sugar confectionery and pastilles market incl. pastilles q Cloetta 11% q 23% Others 56%u Chewing gum 10% u

#2 Perfetti t 24%

Chocolate p 67% p Ferrero 9% Source: Datamonitor Source: Datamonitor

29 Cloetta’s main markets

Cloetta Denmark Norway [

ANNUAL AND SUSTAINABILITYREPORT Denmark accounts for around one fourth Norway is the smallest market in the of the Nordic region’s total confectionery Nordic region, with just under one fifth consumption. The confectionery market of the region’s total confectionery con- grew during the year. sumption. The Norwegian confectionery market grew in 2016.

Share of Cloetta’s Share of Cloetta’s sales: sales:

2016 2016 5% 4% ] Cloetta’s largest customers: Population: Cloetta’s largest customers: Population: Coop, 5.6 million Coop, NorgesGruppen 5.1 million Dansk Supermarked and Rema and Dagrofa

Market size: Cloetta’s presence Market size: Cloetta’s presence Consumer sales of approx. Sugar confectionery Consumer sales of approx. Sugar confectionery SEK 10.7bn Chocolate confectionery SEK 9.4bn Chocolate confectionery Pastilles Pastilles Chewing gum Chewing gum CAGR 2011– 2015: CAGR 2011– 2015: Nuts Nuts Pick & mix Pick & mix 2.2% Sweeteners 3.1% Sweeteners

Source: Datamonitor Source: Datamonitor

Cloetta’s sales and competitors Cloetta’s sales and competitors Cloetta is the second largest player in the Danish market for sugar Cloetta is the third largest player in the Norwegian confectionery confectionery and pastilles, with a market share of around 18 per cent market, with a market share of 10 per cent (10). The market leaders are (16). The market leaders are Haribo with around 28 per cent (30) and Mondelez with 39 per cent (39), Nidar (owned by Orkla) with 22 per Toms with approximately 16 per cent (18). The retail chains’ private cent (22) and Brynild with 6 per cent (6). In the market for sugar confec- labels have a market share of around 5 per cent (4) and 2 per cent (1), tionery, Cloetta is the leading player with a market share of 22 per cent. respectively, of the Danish pastilles and sugar confectionery markets. In pastilles, Cloetta holds the number two position with a market share of 22 per cent. The retail chains’ private labels have a share of around Sales channels 5 per cent (3) of confectionery sales in the Norwegian market. The grocery trade in Denmark is moving towards greater centrali- zation, but with a combination of centrally-driven chains and a more Sales channels decentralized approach than in the other Nordic countries. Extensive The Norwegian grocery retail market is consolidated, with three efforts at the individual store level are therefore required to achieve dominant chains. distribution and sales of in-store display racks. In Norway the market is significantly more driven by product in- novations compared to Sweden and Denmark. Norwegians want to try Sales organization new products, which means that product innovation and relaunches are In Denmark there are around 35 employees at the office in Brøndby and crucial for achieving better commercial positions. in the sales organization. Sales organization In Norway Cloetta has around 40 employees at the office in Høvik and in the sales organization.

Top-selling brands: Top-selling brands: Malaco, Läkerol, Nutisal, Center and Juleskum Malaco, Läkerol, Pops and Ahlgrens bilar

30 Cloetta’s main markets Cloetta Other markets [

ANNUAL AND SUSTAINABILITYREPORT All in all, other markets accounted for 17 per cent (16) of Cloetta’s total sales in 2016, with Germany and the UK as the largest markets.

Share of Cloetta’s sales: Cloetta’s products are sold in more than

17% 2016 50

countries ]

Other markets consist primarily of sales to External distributors handled by agents. In the UK, the Baltics and countries outside Cloetta’s main markets, a to- In Germany Cloetta has a small organization Singapore, Cloetta has a few employees but tal of more than 50 countries. The two largest that takes care of both customer contacts and handles sales and distribution through exter- markets are the UK and Germany. brands, while distribution of the products is nal distributors.

Top-selling brands: Chewits, Red Band, Läkerol, Sportlife, Sperlari, The Jelly Bean Factory, Galatine and Tupla.

31 Supply chain Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ] Supply chain

At year-end 2016 Cloetta had 12 factories in Sweden, Italy, the Netherlands, Belgium, Slovakia and Ireland. Cloetta All in all, Cloetta produced approximately 120 thousand produced approximately tonnes of confectionery in 2016. 120,000 Cloetta’s supply chain is responsible for production, purchasing, planning, logistics, quality, tech- tonnes of confectionery nology and safety. The top priorities during the year have been to implement and drive the Lean in 2016 2020 programme in order to increase efficiencies and to integrate the factory in Roosendaal, the Netherlands, that came with the acquisition of Lonka. In 2016 the factory in Dieren, the Nether- lands, was closed.

Production rationalizations and transfers Between 2012 and 2014 Cloetta implemented a factory restructuring programme in which After a couple of years of steady decreases in three factories were closed and production was insourced from third-party suppliers. Moving a occupational injuries, the trend was broken production line is a complex process that requires extensive documentation, careful planning, in 2016 and the target of 28 days between knowledge transfer, technical adaptations and fine-tuning. Added to this, a physical relocation accidents was not met. The number of days of machinery is often required. In total, the restructuring programme meant that 40 per cent of fell from 26 in 2015 to 18.3 in 2016 (between the total volume in the Group was transferred in some way. In 2016 further transfers between the occupational accidents with >1 day of sickness factories were carried out in order to optimize utilization of our factory network. absence). Seven of the accidents took place in At the end of 2016 the factory in Dieren, the Netherlands, was closed as part of the synergy connection with different types of machine programme related to the acquisition of Lonka and its production was transferred to the factory interventions, which is normally prevented in Levice, Slovakia, which has been expanded in connection with this. The transfer has also made through robust LOTO procedures (lockout- it possible to insource additional production to the factory in Levice. tagout). As a result of the accidents, a new safety standard was drawn up for immediate Occupational safety implementation in all factories during 2016. Employee safety is fundamental and is the top priority in every production facility. Continuous This will continue to be a priority in 2017. risk assessments and increased reporting of near misses contribute to greater knowledge about When factories are acquired, the histor- the causes of accidents in the workplace, which contributes to making preventative measures an ical data for LTAs is recalculated. For this integral part of day-to-day operations and minimizes the risk for accidents. The key elements of reason, the figures for 2012-2015 may differ these activities are discussions and workshops that are held in the various workplaces to promote from the previously reported outcome. safety awareness and influence behaviour.

32 Supply chain Cloetta The eight principles of Lean [

ANNUAL AND SUSTAINABILITYREPORT

1 Have a long-term, sustainable customer focus that is shared by all employees.

2 Maintain a continuously even process flow from raw material to customer de- livery, with the lowest possible invento- ries and waiting times.

3 Have standardized processes to maxi- mize safety and quality and to create op- portunities for continuous improvement.

4 Encourage people to do things right the first time, i.e. have a culture where the individual operator immediately stops a

machine or process that is not working 2016 correctly in order to find the root causes

of problems. ]

5 Have operators and teams that under- stand the processes and the company’s values, who grow in their jobs and teach others.

6 Have a culture in which each individual identifies how problems arise and what improvements can be made. Decisions shall be based on observations.

7 Develop a learning-driven and empow- ering organization and utilize reflections Lean 2020 and follow-up to optimize operations.

8 Make fact- and team-based decisions Cloetta works constantly to decrease costs In 2016 Cloetta continued its journey to after weighing different possibilities, but and reduce waste. Key success factors in the move from building capabilities to utilizing implement decisions quickly. Focus on production process include long-term and day- them in order to meet these targets. A Lean discussing how, not whether, to improve. to-day efforts to achieve continuous improve- Leadership programme was organized and ments and create a learning-driven culture. 40 key people in Supply Chain were trained This is conducted through a systematic focus in Lean Leadership. This year a new concept on lean processes and value engineering. The was also added to the Lean programme, production strategy has been shaped into a Repetitive Flexible Supply, a concept that will long-term vision – “Lean 2020”. enable Cloetta to further reduce inventories This vision is based on benchmarking and maximize flexibility and reliability in the against world class production with the aim of Supply Chain. achieving operational excellence. To clarify In 2016 the Lean programme clearly this ambition, clear targets have been set drove improvements in the areas of inventory for areas such as machine efficiency, energy and waste reduction and increased efficien- consumption and reduction of inventories. cies. The targets will be met through lean processes and tools.

Roadmap to Lean 2020

Increase reliability Improve the flow Deliver according to Goal and flexibility • Achieve base stability demand (pull) • Improve resource-efficiency • Learn to improve and eliminate (continued improvement in • Achieve balanced delivery per line the root causes of problems machine efficiency and output) • Reduce dependency on external • Reduce waste • Faster and more flexible • Value stream mapping: parties through training and • Improve energy-efficiency changeovers reduce bottlenecks support of operators so that they • Lower inventory levels • Better understanding and • Provide operators with ongoing do things right the first time to a • Balance between direct maintenance of machinery training and give them greater greater extent and indirect costs • Reduce waste responsibility • Be a world class producer • Shorter lead times and increased frequency 2020

33 Supply chain

Cloetta Changes in the production structure 2012–2016 [

ANNUAL AND SUSTAINABILITYREPORT 2012 2016

Gävle Aura

Ljungsbro Ljungsbro Alingsås

Helsingborg

Dublin Sneek Sneek Dieren Roosendaal Roosendaal Turnhout Turnhout

2016 2016 Levice Levice

] Gordona Gordona Cremona Cremona San Pietro in Casale San Pietro in Casale Silvi Marina Silvi Marina

Existing factory New factory through acquisition Closed factory

Closure of four factories: Acquisition of four factories: Insourcing Alingsås, Sweden in 2012, Aura, Finland in 2012 Nutisal, Helsingborg, Sweden in 2014, The Jelly Insourcing of chewing gum to Sneek, the Nether- and Gävle, Sweden in 2013. Closure of the factory Bean Factory, Dublin, Ireland, in 2014, Lonka, lands, and Tupla to Ljungsbro, Sweden. in Dieren, the Netherlands, in 2016. Transfer of Roosendaal and Dieren, the Netherlands, in 2015. production from these factories primarily to Levice, Slovakia, and Ljungsbro, Sweden.

Management systems Quality and product safety Cloetta has a central management system to Cloetta places rigorous demands on quality ensure standardized working methods in its and product safety. First class raw materials operations. Each production unit has a locally and correct treatment and processing methods adapted management system that is linked to are essential for manufacturing of high quality the central system. Central policies, goals and confectionery. procedures are broken down and implemented Continuous efforts are made to ensure at the factory level. that the products meet the requirements and The management systems cover occu- expectations of consumers and retailers. pational health and safety, quality, product For each product there is a quality specifica- safety and the environment. These systems tion describing the required flavour, aroma, are based on international standards (BRC appearance, consistency and package. No azo Global Standard for Food Safety, ISO 14001 food colourings are used in Cloetta’s products. and OHSAS 18001), recurring risk assess- All of Cloetta’s factories are certified ments and continuous improvements. according to the BRC Global Standard for One important aspect of this working Food Safety. BRC is a standard for assurance method is a systematized meeting structure of product safety and quality, and is one of the for monitoring of results against targets, to cornerstones of Cloetta’s quality management. detect both positive and negative deviations. The Group’s product safety work is based Goals and results are visualized for example on the HACCP method (Hazard Analysis on displays in the facilities to provide Critical Control Points). With the help of knowledge about the current situation, which the HACCP method it is possible to analyze contributes to promoting awareness and en- potential risks to the consumer. This provides gagement among the employees. Action can be a basis for steering and control of the entire taken immediately in the event of deviations process, from purchasing of raw materials to and systematic follow-up creates scope for delivery of finished products, in order to elim- proactive improvements. inate and minimize all conceivable consumer Read more about Cloetta’s environmental risks. work on pages 54–55. Both the BRC standard and EU food product legislation require traceability of raw materials and products. This traceability has

34 Supply chain Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

been assured and is tested regularly. Cloetta mental requirements. Suppliers to Cloetta to consumer and customer feedback. In case has a detailed action plan to enable rapid recall are evaluated and approved before they are of possible quality defects, Consumer Service of a product from the market if needed. permitted to deliver raw materials to the always contacts the factory in question. The factories. The process varies depending on affected factory then uses the information Planning and logistics the type of supplier and the type of material provided by the consumer to systematically Effective production planning leads to lower delivered. Certain suppliers are physically find the root causes of any defects and thereby capital tied up in the form of inventories of audited at regular intervals by Cloetta. eliminate them. Many of the complaints are both raw materials and finished products, at Cloetta collaborates closely with its largest related to the mixing of products in the bags the same time that it increases the service raw material suppliers, among other things and damaged packaging. level. Delivery reliability is one of the most through automated order and delivery Complaints, feedback per million sold critical parameters for the retail trade. Cloetta processes that are adapted to raw material consumer units has a well developed planning system that consumption in each factory. Number integrates the entire value chain from supplier Cloetta’s range includes products that are 8 Goal 2017 to production and final customer. The system produced by other manufacturers. External <5.7 7 also integrates financial planning and prices. production is outsourced only to manufactur- Cloetta works continuously to optimize ers following approval by Cloetta, according 6 its flows and working methods, both internally to the same high quality standards that apply 5 and externally, together with customers and to production in Cloetta’s own factories. Ex- 4 suppliers. ternal manufacturers are evaluated and tested regularly. 3

Purchasing 2 Cloetta’s largest cost items in production, ac- Consumer and customer feedback counting for around 60 per cent of total costs, Feedback from individual consumers is 1 are raw materials and packaging. extremely valuable in Cloetta’s pursuit of 0 2012 2013 2014 2015 2016 Raw materials are purchased only from continuous improvements. The result for 2016 was a clear improvement suppliers that can be verified against Cloetta’s Each market has a Consumer Service compared to last year. This was achieved through ethical, quality, product, safety and environ- unit that receives, investigates and responds an increased focus on Cloetta´s product quality management system, which will continue to be a prioritized area in 2017. 35 Supply chain

Cloetta Success factors for production [

ANNUAL AND SUSTAINABILITYREPORT

Engaged employees Employee safety Flexibility

2016 2016 ]

Good communication about processes A safe working environment is a funda- A production line is often used for several and goals creates engaged employees who mental right for each employee. Being different products. Rapid changeovers understand the business and how their and feeling safe on the job is essential in and cleaning are vital for high machine work contributes to the Group’s total order to develop and perform well in the capacity utilization. Flexibility also results. workplace. means that each employee is able to work on more than one line.

High and consistent quality Delivery reliability Cost-efficiency

The goal is to always deliver safe products Good production planning is decisive for Cloetta’s sales are based on large with the right flavour, appearance and effective production and low warehousing volumes. Cost-efficiency is necessary in consistency according to their respective costs, but also for delivery reliability to order to stay competitive. specifications. the customers.

36 Supply chain Cloetta Factories [

ANNUAL AND SUSTAINABILITYREPORT

Ljungsbro

Helsingborg

Dublin Sneek

Roosendaal 2016 2016 Turnhout ] Levice

Cremona Gordona San Pietro in Casale Silvi Marina

During the year, the factory in Dieren, the Netherlands, was closed and its production was transferred to Levice, Slovakia. Overview of factories

Levice, Slovakia Production volume 2016: 27,000 tonnes Number of plant employees Approx. 660 Number of machine lines: 10 production lines, 31 packaging lines Largest brands: Malaco, Red Band, Läkerol, Chewits, Venco, Läkerol, Mynthon Manufacturing methods: Starch moulding, extrusion, coating, hard- & soft-boiled candy, toffee Certifications: BRC Global Standard for Food Safety

Ljungsbro, Sweden Production volume 2016: 23,500 tonnes Number of plant employees Approx. 300 Number of machine lines: 12 production lines with in-line packing, 3 separate packaging lines and 1 chocolate production center Largest brands: Kexchoklad, Ahlgrens bilar, Center, Polly, Plopp, Sportlunch, Juleskum, Tupla Manufacturing methods: Chocolate moulding, starch moulding, coating, wafer production Certifications: BRC Global Standard for Food Safety and ISO 14001

Roosendaal (Spoorstraat), the Netherlands Production volume 2016: 17,000 tonnes Number of plant employees Approx. 150 Number of machine lines: 5 production lines, 10 packaging lines Largest brands: Red Band, Malaco, Venco, Lakrisal Manufacturing methods: Starch moulding, Coating and Compression of pastilles Certifications: BRC Global Standard for Food Safety

Turnhout, Belgium Production volume 2016: 14,000 tonnes Number of plant employees Approx. 115 Number of machine lines: 2 production lines, 4 packaging lines Largest brands: Malaco, Red Band Manufacturing methods: Starch moulding Certifications: BRC Global Standard for Food Safety and ISO14001

37 Supply chain Cloetta

[ Production by factory in 2016, tonnes

ANNUAL AND SUSTAINABILITYREPORT

t Ljungsbro, Sweden, 23,500 tonnes

Levice, Slovakia, 27,000 tonnes u t Roosendaal,1 the Netherlands, 17,000 tonnes

Silvi Marina, Italy, 1,000 tonnes u Helsingborg, Sweden, 2,000 tonnes u San Pietro in Casale, Italy, 2,000 tonnes u Dublin, Ireland, 2,600 tonnes u Gordona, Italy, 6,000 tonnes u t Turnhout, Belgium, 14,000 tonnes

2016 2016 Cremona, Italy, 6,000 tonnes p Sneek, the Netherlands, 6,500 tonnes p pRoosendaal,2 the Netherlands, 9,000 tonnes ]

1) Spoorstraat 2) Borchwerf

Roosendaal (Borchwerf), the Netherlands Production volume 2016: 9,000 tonnes Number of plant employees Approx. 80 Number of machine lines: 7 production lines, 14 packaging lines Largest brands: Lonka, Red Band Manufacturing methods: Toffee, fudge and nougat manufacturing Certifications: BRC IFS GMP and Global Standard for Food Safety

Sneek, the Netherlands Production volume 2016: 6,500 tonnes Number of plant employees Approx. 100 Number of machine lines: 5 production lines, 14 packaging lines Largest brands: Sportlife, Jenkki, XyliFresh, King Manufacturing methods: Chewing gum, coating, hard-boiled candy and lozenge manufacturing Certifications: BRC Global Standard for Food Safety, IFS and ISO 14001

Cremona, Italy Production volume 2016: 6,000 tonnes Number of plant employees Approx. 105 Number of machine lines: 8 production lines, 23 packaging lines Largest brands: Sperlari, Galatine, Zanzibar, Dietorelle, Extra Starka, Läkerol Manufacturing methods: Hard-boiled candy, compressed milk candies and nougat manufacturing Certifications: BRC Global Standard for Food Safety, ISO 14001 and OHSAS 18001

Gordona, Italy Production volume 2016: 6,000 tonnes Number of plant employees Approx. 70 Number of machine lines: 4 production lines, 6 packaging lines Largest brands: Sperlari, Red Band, Kick, AKO, Hopea, Tsinuski Toffee Manufacturing methods: Starch moulding and toffee manufacturing Certifications: BRC Global Standard for Food Safety, ISO 14001 and OHSAS 18001

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ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

Dublin, Ireland Production volume 2016: 2,600 tonnes Number of plant employees Approx. 75 Number of machine lines: 1 production line, 10 packaging lines Largest brands: The Jelly Bean Factory Manufacturing methods: Starch moulding and coating Certifications: BRC Global Standard for Food Safety

San Pietro in Casale, Italy Production volume 2016: 2,000 tonnes Number of plant employees Approx. 90 Number of machine lines: 4 production lines, 10 packaging lines Largest brands: Bentasil, Dietor, Dietorelle, Läkerol, Fruttil, Sisu Manufacturing methods: Sweetener manufacturing and starch moulding Certifications: BRC Global Standard for Food Safety, IFS Food Standard Version 6, ISO 14001 and OHSAS 18001

Helsingborg, Sweden Production volume 2016: 2,000 tonnes Number of plant employees Approx. 30 Number of machine lines: 6 production lines, 4 packaging lines Largest brands: Nutisal Manufacturing methods: Dry roasting, frying, coating of nuts Certifications: BRC Global Standard for Food Safety

Silvi Marina, Italy Production volume 2016: 1,000 tonnes Number of plant employees Approx. 50 Number of machine lines: 4 production lines, 9 packaging lines Largest brands: Saila, Sportlife, Läkerol Manufacturing methods: Compression of pastilles, coating, liquorice production Certifications: BRC Global Standard for Food Safety, ISO 14001 and OHSAS 18001

39 Supply chain Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

Raw material costs

Raw materials and packaging account for around 61 per Suppliers Cloetta uses several suppliers for the majority cent of total production costs. In terms of value, the most of its raw materials, but significant consoli- significant raw materials are sugar, glucose syrup, dations have taken place among the suppliers polyols, cocoa, nuts and milk powder. Although the and this has sometimes made it difficult to find alternative suppliers. The ten largest suppliers purchase prices for several of Cloetta’s raw materials of raw materials and packaging account for changed during 2016, the total cost was largely on par around 35 per cent of the total purchasing volume. with the previous year. Suppliers to Cloetta are evaluated and approved before they are permitted to deliver to the factories. Read more on page 35. The prices of Cloetta’s most important raw materials are set on the international European commodities exchanges, either directly as in the case of cocoa or indirectly as for glucose syrup, Cost trend whose price is mainly determined by the price of wheat and corn. This means that Cloetta’s pur- Sugar chasing costs for these items are dependent on market pricing. Aside from the production volume, After somewhat declining prices in 2014 and the total cost for raw materials is also affected by more efficient use in the factories. 2015, sugar prices have steadily increased Cloetta has a central purchasing unit that can carry out more effective purchasing both by during 2016. The main reasons for higher sug- consolidating and by exploiting local purchasing opportunities. As a rule, the central purchasing ar prices are low stock in Europe and higher unit pre-purchases the most important raw materials so that they are accessible for a period world-market prices due to a poor crop. equal to 6–9 months of production. This also creates predictability in prices and financial out- The EU consumes some 16 million tonnes comes, since cost changes affect Cloetta’s purchasing costs at a certain delay. By doing so, Cloetta of sugar annually, but produces only around can most often avoid temporary price swings in the commodities market. 13 million tonnes that are permitted for use in manufacturing of food products. The deficit is Agricultural policy an effect of the partial deregulation and quota The prices of most of Cloetta’s raw materials are affected by agro-political decisions regarding system that have applied in the EU. subsidies, trade barriers, etc. The EU’s new agricultural policy reform, which was passed in 2013, will among other things end the current system of sugar quotas with effect from 2017. Cocoa The prices of agricultural commodities are naturally also affected by supply and demand, The price of cocoa fell during 2016. The cocoa i.e. the size of the harvest and consumption of food products. In recent years, speculative trading price is often subject to sharp fluctuations that of agricultural commodities has increased dramatically, which has contributed to greater price are partly explained by the fact that the cocoa volatility. exchange is comparatively small and therefore of interest for speculation. The cocoa price is naturally also dependent on the level of

40 Supply chain Cloetta [

Breakdown of raw material and packaging costs ANNUAL AND SUSTAINABILITYREPORT

Others Packaging 33%u t 22%

Sugar t 14% Milk powder/ milk products 5%u

Polyols (sweetener) 5% p t Cocoa 10% Gelatine 5% p p Glucose syrup 6%

2016 2016 ]

supply, i.e. the harvest and trends in demand. Almonds and hazelnuts Cocoa beans Furthermore, the cocoa bean price has been Cost trend Cost trend affected by a long-term deficit perspective, the EUR/Tonne EUR/Tonne Ebola threat and El Niño risk in Côte d’Ivoire, 15,000 3,500 from which most of Europe’s cocoa is sourced.

12,000 3,000 Milk powder After a substantial price decrease in 2015 due to stock surplus, the Russian embargo, as well 9,000 2,500 as the abolition of the European quota system, milk powder prices have increased substan- tially during 2016 due to lower availability and 6,000 2,000 fresh milk prices going up.

3,000 1,500 Nuts 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 Nut prices are affected mainly by supply/ u Almonds u Hazelnuts Source: Data Commodity Source: Data Commodity demand, the harvest (weather conditions) and exchange rates, since most of the nuts are quoted in US dollars. The cost of nuts, particu- larly hazelnuts and almonds, has decreased Sugar Milk powder during 2016 while cashew nuts increased Cost trend Cost trend significantly due to high demand from the US EUR/Tonne EUR/Tonne and China and no export out of India. 800 3,500

Other raw materials and packaging 700 3,000 The price of wheat and corn has a powerful influence on the price of glucose syrup. Supply and demand of glucose has been balanced 600 2,500 during 2016 leading to minor price move- ments. The price of polyols (sweetener) is less affected by grain prices. 500 2,000 Purchase costs for packaging materials have been stable or slightly down. 400 1,500 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016

Source: Data Commodity Source: Data Commodity

41 Sustainability Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ] Sustainability

Core values Cloetta has four core values that guide the way of working and acting, both within and outside the company. These core values are Focus, Passion, Teamplay and Pride.

Focus Passion is about doing the fundamentals with self-confidence, is about “going the extra mile”, ambition and a “will do” attitude. being positive and having fun.

Teamplay Pride is about mutual responsibility, is about being proud of our company, our brands, doing your part and supporting each other. our products and our personal contribution.

42 Sustainability Cloetta Long-term sustainability [

ANNUAL AND SUSTAINABILITYREPORT

Cloetta’s overall goal for corporate respon- order to continuously improve our corporate This means that aside from taking re- sibility is to build sustainable long-term responsibility work. sponsibility for the aspects that are under the value. For Cloetta, sustainable value is about Cloetta’s goals for 2020 are shown under company’s direct control, Cloetta also takes growing as a company while at the same time the respective headings; Greater well-being, a certain responsibility for indirect aspects ensuring that the people and environments Reduced environmental impact and Sustain- outside of its direct control, i.e. from raw mate- that are affected by Cloetta’s operations or able sourcing. rial supplier to the recyclability of the product products are positively impacted. packages. Sustainability every day Steered by Code of Conduct Cloetta’s continuous striving for sustainable Sustainability and Cloetta’s and core values development is daily focused on respect for the overall strategies Cloetta’s work with corporate responsibility employees’ health and development, control of Cloetta’s sustainability commitment supports is steered by the Group’s Code of Conduct. raw materials and first line suppliers, manu- and is firmly grounded in the company’s over-

The Code of Conduct is a set of guidelines and facturing safe products, handling complaints/ all strategies: 2016 principles for the way in which the company returns effectively and reducing the Group’s conducts operations and the employees’ environmental impact. Focus on margin expansion ] actions in relation to consumers, customers, Measures to achieve day-to-day sustain- and volume growth suppliers, shareholders and colleagues. They ability are described in this report within the By creating sustainability programmes for the are based on Cloetta’s core values; Focus, targeted areas, such as product safety in the prioritized raw material groups and communi- Passion, Teamplay and Pride. Supply Chain section and efforts to create a cating these programmes on Cloetta’s packag- good working environment in the Employees es, the brands are further strengthened among Long-term undertaking and Production sections. customers and consumers. UTZ-certified Cloetta’s sustainability commitment is a long- cocoa and palm oil certified according to the term undertaking. Cloetta has therefore Scope Roundtable on Sustainable Palm Oil (RSPO)’s formulated­ a number of goals that extend until Cloetta’s sustainability work primarily covers principles are two such examples. 2020. the company’s own operations, meaning However, the journey to a sustainable so- Cloetta’s direct impact on the environment Focus on cost-efficiency ciety will not end in 2020. Cloetta is therefore and people. However, Cloetta’s commitment Efforts to continuously reduce the company’s working continuously to evaluate the achieved to corporate responsibility is integrated environmental impact go hand in hand with results and improve its working methods in throughout the entire value chain. lower costs. Lower energy use and waste vol-

Cloetta’s Code of Conduct

From raw materials Cloetta’s commitment to cherished brands to product content Cloetta works with responsibility throughout When it comes to product content and the supply chain, from raw material to finished quality, Cloetta is subject to a number of product. Cloetta supports the relevant ILO national and international laws and rules. conventions and complies with the laws However, Cloetta wishes to take its re- and rules in the countries where it conducts sponsibility further and is a forerunner in operations. The same requirements are placed developing the content of the products. For on the suppliers, and in order to become an example, Cloetta is conducting an internal approved supplier to Cloetta, the supplier long-term programme called NAFNAC must undergo an approval process and accept (No Artificial Flavours, No Artificial Cloetta’s general supplier requirements. Colours), which is aimed at offering a port- The Code of Conduct covers the entire folio of products that contain no artificial value chain, from raw material to consumer, Cloetta – every day flavours or colours. and applies to all activities in all markets Cloetta has clearly defined guidelines for and countries where Cloetta is represented. mutual respect and a shared set of core values. Cloetta’s environmental impact The principles in the Code of Conduct are Cloetta has joined the UN Global Compact Systematic environmental management consistent with: and works to promote its ten principles in provides a foundation for Cloetta’s efforts • The UN’s Declaration of Human Rights the communities and environments where to minimize its environmental impact. • ILO conventions the company conducts business. Cloetta’s environmental work is aimed • Organisation for Economic Co-operation Special emphasis is placed on: at complying with the applicable laws and Development (OECD) guidelines for • Equality and non-discrimination and rules, engaging the employees and multinational enterprises • Freedom of association and collective focusing on continuous improvements in • The ICC framework for responsible bargaining the environmental area. Cloetta’s foremost marketing of food and beverages • Occupational health and safety environmental impact arises through • European Brand Association • Working hours water and energy consumption, wastewater emissions, waste and transports.

43 Sustainability

Cloetta umes from the factories contribute to greater functions as a spokesman for issues related mental projects driven within the framework cost-efficiency. to corporate responsibility and is responsible of Cloetta’s sustainability work and projects to

[ for identifying prioritized areas, acting as the promote an active and healthy lifestyle.

ANNUAL AND SUSTAINABILITYREPORT Focus on employee development stakeholders’ link to the management and sup- Cloetta works determinedly to create an porting the implementation of Cloetta’s corpo- Community engagement attractive workplace for all employees and rate responsibility strategy. Environmental The local commitment to sustainable develop- promotes the development of a high-perform- and occupational health and safety managers ment is aimed at strengthening the surround- ing organization by continuously developing are found in all factories. ing community but also Cloetta’s brand both and training its staff, designing competitive within and outside the company. This engage- remuneration systems, upholding an inspiring Independent verification ment is mainly focused on consideration to the corporate culture and building a clear corpo- and assurance local environment where Cloetta’s production rate identity. Cloetta has commissioned KPMG to make a facilities are based, but can also consist of limited review and assure the sustainability other activities. Cloetta maintains an ongoing Organization for sustainability work report. The independent review focuses on the dialogue with local authorities in the locations The overall strategies for Cloetta’s corporate most significant aspects of sustainability, as where it has factories, as well as with the responsibility work are adopted by the “Group well as assurance that the report satisfies re- media and schools/universities, among others.

2016 2016 Management Team” and are controlled and porting criteria in line with Global Reporting monitored through business planning process- Initiative (GRI) G4. See page 154. Whistleblower service

] es at several levels in the company. Ultimate Cloetta’s whistleblower service that gives all responsibility for corporate responsibility lies Cloetta supports Cloetta employees the opportunity to report with Cloetta’s President/CEO. Cloetta is involved in projects primarily in its concerns about conduct that is not in line with Cloetta’s sustainability work is overseen local markets but also takes part in initiatives the company’s values or ethical principles. As by the Director Corporate Responsibility, who at the global level. These can include environ- a first course of action, Cloetta’s employees are encouraged to contact their manager. If an Strategic components employee feels unable to openly disclose the Policy and prioritized areas Cloetta’s overall strategy and operational policy. Code of Conduct. information, Cloetta offers an opportunity to Responsible marketing. Materiality analysis and Cloetta’s sustain­ report their concerns anonymously. ability commitment. All reports are treated confidentially. Goals and KPIs Overall financial targets. Goals and KPIs have been defined for each part of Cloetta’s sustainability commitment. Personal data relating to violation of laws is Data See entire sustainability report. handled only by key persons or individuals in Management systems, pro- Lean 2020, IFRS. Cloetta’s leadership platform. BRC, ISO 14001, management positions. grammes and certifications UTZ and RSPO. External statutes or initiatives UN Global Compact and other relevant ILO conventions. EWC (European Works Council). Anti-bribery and -corruption policy

During 2016 Cloetta adopted a new pol- icy on anti-bribery and -corruption. The policy is closely related to Cloetta’s Code of Conduct and together they intend to ensure compliance with applicable anti-bribery and corruption control principles. The policy applies to all of our activities in all markets and the principles outlined in this document apply to our relationships with employees, customers, consumers, suppliers, competitors, offi- cial authorities and Non Governmental Organisations (NGO). The policy summarizes key features of anti-bribery and corruption control principles in order to prevent bribery and corruption within Cloetta. It explains compliance procedures to be followed by all Cloetta employees, along with information about applicable report- ing and record keeping, and penalties for non-compliance with the policy. It applies to Cloetta, all of its employees, and all persons engaged to perform work for Cloetta, including temporary agency personnel, contractor personnel, and non-employee agents acting on its behalf.

44 Sustainability Cloetta Stakeholders and materiality issues [

ANNUAL AND SUSTAINABILITYREPORT The areas that are prioritized in Cloetta’s sustainability commitment have been defined through a materiality analysis. Every year, Cloetta performs a materiality analysis based on the sustainability issues that have been identified in discussions with Cloetta’s stakeholders.

Cloetta’s primary stakeholders are custom- The issues that are classified as being of Cloetta’s stakeholders ers, consumers, employees, shareholders/ critical importance from both a stakeholder investors, business partners/suppliers and the and impact perspective are those that have local communities. These groups are directly the highest priority for Cloetta. It is these 2016 organizationsUnion critical for Cloetta’s long-term survival. In sustainability issues and areas that are Consumer addition, there are a number of other impor- defined in Cloetta’s sustainability organizations ] organizations tant stakeholders. These are shown in the commitment. Industry ees Sup oy pl illustration at right, in the outer circle. Cloetta pl ie m rs has a continuous, open dialogue above all with Cloetta listens E

the primary stakeholders based on the expec- In 2016, more and more customers Government s s

tations and requirements of each stakeholder and consumers demanded in- r r e e

universities

m

group. creased traceability for the palm Schools/ m u

o

s t

The methodology behind Cloetta’s mate- oil that is used in some of Cloetta’s n s o u

riality analysis is aimed at classifying different products. For that reason, Cloetta C C

types of sustainability issues on the basis of made a decision during the year to L Non-profit o s c r organizations two parameters: change over to segregated palm oil a e l c d o ol • The stakeholder perspective – i.e. what according to the RSPO’s principles mm eh unity Shar importance a specific issue has for Cloetta’s and to replace the small amount of Media

stakeholders. palm oil used in Cloetta’s glaze with Stockholm • The impact perspective – i.e. the direct im- other vegetable oils. Based on the same Banks/ financial stock exchange pact a specific issue can have on Cloetta from decision, efforts were also started to formulate players a financial perspective, goodwill, etc. a new long-term palm oil policy.

Materiality analysis

Fulfil Prioritize • Follow the health-related issues surrounding sugar. • Social, environmental and economic challenges in • Follow the health-related issues surrounding artificial developing countries for prioritized raw materials Very important ingredients. (sustainable sourcing). • Laws and conventions. • Environmental impact in Cloetta’s operations. • Employee safety and well-being. • Product safety and quality.

Administrate Monitor and supervise • Charity. • Combat corruption and fraud. • Local community engagement. • Social, environmental and economic challenges in • Tax issues. countries of origin for other raw materials. • Responsible marketing. • Ensure diversity. Importance for Cloetta’s stakeholders Cloetta’s for Importance Important High Very high

Impact on Cloetta

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The stakeholders’ key sustainability issues

Stakeholder Key issues – sustainability Communication and cooperation

w Product safety and quality. w With consumers via annual surveys and via websites w Clear declaration of ingredients. and social media. w Eco-friendly packages. w With customers through personal customer and sales meetings Customers/ w Cloetta takes responsibility for the environment on a tertial basis and via customer surveys, but also collaborative Consumers and working conditions. initiatives for eco-friendly transports. w Ethical issues in general. w Efficient transports to the retail trade.

w Good and stimulating working conditions. w Daily meetings to discuss occupational health and safety w A safe working environment. in the factories. w Health and fitness activities. w Annual performance reviews with all employees. Employees w Ethical issues in general. w Systematic skills development activities. w Good financial development for the company. w Up-to-date information provided monthly, e.g. via managers, the intranet and union representatives. w Employee survey “Great Place to Work” every other year.

Shareholders and w Sustainable long-term financial value growth. w Annual report, website, analyst and investor meetings, interim investors w Ethical issues in general. reports and annual general meeting.

w Ethics and business codes in procurement. w Collaborative projects for sustainability. w Product safety. w Annual supplier evaluations, sponsorship evaluations and Suppliers w Sustainable long-term development. development projects. w Support of human rights among raw material producers.

w Cloetta takes responsibility for the environment and working w Continuous contact with the local communities/municipalities conditions as far as possible. around Cloetta’s factories with regard to the local environment. w Laws, regulations and standards. w Continuous contact with public authorities in areas related to Local communities, w Cloetta makes a positive contribution to development of occupational health and safety, environmental and product the public/society society, including the local environment. responsibility, schools and universities. w Annual audits by Certification bodies for ISO and BRC. w Continuous contact with key opinion leaders.

46 Sustainability Cloetta Sustainability goals [

ANNUAL AND SUSTAINABILITYREPORT

Cloetta has defined three central areas for sustainability work that provide guidance in its sustainability commitment. All prioritized issues related to Cloetta’s sustainability work are encompassed in these three areas.

2016 2016 Implement sustainable sourcing Goal

By incorporating sustainability and ethical • Sustainability programmes implemented for all prioritized ] aspects into the company’s purchasing strat- raw materials. egy, Cloetta creates a platform for ensuring • By 2020 at the latest, Cloetta’s suppliers of oils and fats must the supply of high quality raw materials to the have a fully traceable pipeline of palm oil fractions back to factories while at the same time improving known plantations. the opportunities for growers in the countries • 100 per cent of all cocoa and chocolate of origin to develop sustainable farming. purchased by Cloetta must be UTZ-certified. • By the end of 2017, Cloetta will have implemented RSPO- segregated palm oil throughout the product portfolio. Read more on 48–51. • By the end of 2017, Cloetta’s glazing agent will be free from palm oil.

Reduced environmental impact Goal Systematic environmental management • Reduce energy consumption in relation to the produced provides a foundation for Cloetta’s efforts to volume (MWh/tonne) by 5 per cent by 2020. minimize its environmental impact. Cloetta’s • Reduce the volume of waste in relation to the produced environmental work is governed by the Code volume (kg/tonne) by 25 per cent by 2020.

of Conduct, which states that the applicable • Reduce CO2 emissions from production in relation to laws and regulations shall be followed, that the produced volume (kg/kg) by 5 per cent by 2020. Cloetta’s environmental impact shall be min- imized and that continuous improvements shall be made in the environmental area. Read more on 54–55.

Greater well-being – Employees Greater well-being – Consumers Cloetta is driven by a conviction that value Cloetta’s responsibility for consumer is created by the employees, and that the well-being includes high and consistent ability to attract, retain and develop the best quality, correct and detailed content label- and most competent people is crucial for the ling and responsible marketing. Cloetta also company’s success. It is also of the utmost strives to take responsibility for the consum- importance that the safety of our employees ers’ well-being through an increased number is continuously improved. All of Cloetta’s of natural products. factories adhere to the same mantra: “Safety first”. Goal • Cloetta’s consumers should know that the Goal products are safe and of a high quality. The • The number of days between occupational number of consumer complaints in 2017 accidents with >1 day of sickness absence will not exceed 5.9 ppm (number per sold Read more on about will exceed 24.3 days in 2017. million). employees on page 56–59 • Great Place to Work – improved Trust • Cloetta is committed to increasing the and about consumers on Index compared to the previous survey share of natural ingredients. Cloetta’s page 52. (2014: 52%). product portfolio will contain no artificial flavours by 2018 at the latest, and no artifi- cial colours by 2019.

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Sustainable sourcing

Sustainable sourcing in Cloetta’s supply chain is a Evaluation methodology prioritized area. By incorporating sustainability aspects into the company’s purchasing strategy, Cloetta creates In prioritizing Cloetta’s raw materials a platform for ensuring the supply of high quality raw portfolio, the following aspects have been taken into account: materials to the factories while at the same time • What are the sustainability challenges improving the opportunities for growers in the countries for each raw material? • What types of sustainability initiatives of origin to develop sustainable farming. have been defined? • Is this a strategic raw material for Supplier controls Cloetta? First of all, sustainable sourcing at Cloetta is about having control one step back in the supply • How large are the volumes purchased chain, i.e. to the first line of suppliers. Raw materials are purchased only from suppliers that can by Cloetta? be verified against Cloetta’s requirements for quality, product safety and sustainability, including • What scope does Cloetta have to create human rights. Suppliers to Cloetta are evaluated and approved before they are permitted to deliv- sustainability projects independently? er to the factories. The process varies in relation to the risks, type of supplier involved and which • What are the delivery and quality raw material is delivered. Certain suppliers are evaluated and tested by Cloetta’s employees via risks? visits according to an established schedule.

Challenges Secondly, sustainable sourcing at Cloetta is about directly addressing different types of social, Cloetta had environmental and economic challenges that are found in the value chain beyond first line suppliers of specific raw material groups. Cloetta’s sustainable sourcing programme is based on a total of external certifications and/or verification according to the guidelines defined in Cloetta’s Code of Conduct. 463 Cloetta has evaluated all raw material groups and prioritized them based on the existing suppliers to sustainability challenges and Cloetta’s opportunities to address these challenges. Cloetta has defined sustainability programmes for a number of raw materials and the long- production in 2016 term goal is to have sustainability programmes in place for all prioritized raw materials by 2020.

48 Sustainability Cloetta Sustainable cocoa farming through UTZ [

Cocoa is produced by around 5 million farmers and employs ANNUAL AND SUSTAINABILITYREPORT some 40 million people, of whom 70 per cent are found in West Africa, primarily Ghana and Cote d’Ivoire.

Challenge: Leads to: at the same time that Through UTZ the cocoa farmers are given • Training in new farming methods. • aging trees • lower yields demand for cocoa • Support to buy better plants, which leads to • diseases in the cocoa trees • lower income has been rising higher yields. • reduced soil fertility • lower quality of life steadily for 100 years • UTZ-certified cocoa farmers produce more than growers who are not affiliated with UTZ.

Greater knowledge results in UTZ-certified cocoa growers produce more higher quality crops • UTZ-certified cocoa farmers in Cote d’Ivoire Cocoa farmers in Cote d’Ivoire Cocoa farmers in Ghana have higher knowledge levels than those

UTZ-certified UTZ-certified who are not UTZ-certified, and 83% have 2016 shared this knowledge with their families, kg/hectares kg/hectares their employees and others. 453 444 ] Not UTZ-certified Not UTZ-certified 329 kg/hectares 405 kg/hectares In Cote d’Ivoire, 98% of UTZ-certified farmers In Cote d’Ivoire, 37% of UTZ-certified farmers say that their cocoa beans meet the cooperatives’ feel that the quality of their cocoa beans has quality standards. improved since joining the UTZ programme.

Cloetta has programmes in place for cocoa and tal challenges, of which low productivity on oil. As a result, in April 2014 Cloetta adopted a palm oil. Sugar cane sugar and shea butter are the farms is one of the most critical. Limited new palm oil policy that is aimed at preventing two other prioritized raw materials. knowledge about how to grow high quality destruction of rainforest in the countries of or- cocoa in an efficient manner is a root cause igin and increasing the traceability of the palm Sustainable cocoa behind the farmers’ low productivity. The oil that Cloetta uses indirectly. In order to Since 2014 Cloetta buys only sustainable co- farmers are also struggling with aging cocoa take further steps toward traceability, Cloetta coa from UTZ-certified farmers. This means trees and declining soil fertility at the same has worked during 2016 to update the policy that all cocoa and chocolate that is delivered time that they often lack the means to finance from 2014. Read more on the next page. to Cloetta’s factories is UTZ-certified. For investments in new plants, fertilizers, etc. Palm oil is a high-yield crop that is one of Cloetta it is vital to address the challenges the most traded vegetable oils in the world. facing the cocoa growers in West Africa. By UTZ-certified cocoa – for a better future Malaysia and Indonesia account for around switching to sustainable cocoa from UTZ- With UTZ-certified cocoa, the growers are 90 per cent of total global palm oil production, certified farmers, Cloetta creates a platform assisted in building a better future with and if cultivated in a sustainable manner it for securing a supply of high quality cocoa to sustainable farming practices. Through the can be an important source of income and the factories while providing better possibili- UTZ programme, they are provided with economic development in these countries. ties for West African cocoa growers to develop training in better farming methods, improved However, there are a number of environ- sustainable farming. working conditions and sustainable growing. mental and social challenges associated with The farmers are also given support to buy production of palm oil, such as deforestation Sourcing of cocoa better plants. All in all, this generates more in environmentally sensitive areas, that have a West Africa accounts for around 70 per cent income and creates better prospects for the negative impact on the entire ecosystem. of the total global harvest of cocoa beans. individual farmers while better safeguarding Due to the urgency of combating the long- There, cocoa is cultivated by three million the environment. term negative effects of palm oil production, smallholder farmers, and each farm consists To earn UTZ certification the farmer must Cloetta has decided to formulate a sustain- of an average of 2–4 hectares of land with an meet strict requirements, which are closely able plan that contributes to preserving the average yield of 1–2 tonnes of cocoa beans per monitored by an independent third party. rainforests for future generations. Conse- year. Local intermediaries then distribute These requirements include better farming quently, in its palm oil policy Cloetta declares the raw materials to the international cocoa methods and farm management, safe and a commitment to not contribute to destruction wholesalers and exporters, after which the healthy working conditions, the abolishment of rainforest. cocoa is sent to Europe. Every year, Cloetta of child labour and protection of the environ- Some of Cloetta’s products contain small buys approximately 3,000 tonnes of cocoa ment. Read more about UTZ certification at amounts of palm oil. However, Cloetta does in the form of cocoa liquor, cocoa butter and www.utz.org. not buy pure palm oil but only oils and fats that cocoa powder from suppliers in Europe. contain derivatives of palm oil to a varying Palm oil extent. Low productivity for cocoa farmers From a sustainability perspective, there are a All palm oil (part of the content in an oil The West African cocoa farmers face a number of problems surrounding cultivation or fat) that was purchased by Cloetta in 2016 number of economic, social and environmen- and production of palm oil and palm kernel is covered by GreenPalm certificates in

49 Sustainability Cloetta Goals for sustainable sourcing [

ANNUAL AND SUSTAINABILITYREPORT

Goal 2020 Responsibility for raw material suppliers: • Sustainability programmes implemented for all prioritized raw materials. • By the end of 2020, Cloetta’s suppliers of oils and fats must have a fully traceable pipeline of palm oil fractions back to known plantations. • 100 per cent of the cocoa and chocolate purchased by Cloetta will be UTZ-certified.

Outcome 2016 Responsibility for raw material suppliers:

2016 2016 • Sustainability programmes for two new raw materials, sugarcane and shea butter, are under development. ] • Efforts to formulate a new palm oil policy started. • Cloetta decided to change over entirely to RSPO-segregated palm oil and to remove the amount of palm oil used in Cloetta’s glaze. • All cocoa that Cloetta purchased was UTZ-certified.

accordance with the Roundtable on Sustain- from sticking together, for example in a bag. will give Cloetta the opportunity to better able Palm Oil (RSPO). Purchases of Green- This means that the great majority of Cloetta’s understand the challenges found in the sugar- Palm certificates in 2016 have not yet been products will be free from palm oil by the end cane industry. audited. This will take place in the spring of of 2017. 2017. This means that for each tonne of palm The reason for this decision is that at pres- Shea butter oil that is used in production, Cloetta pays a ent is difficult to achieve a traceable pipeline Shea butter is a vegetable oil that is found in premium to palm oil producers that work ac- back to the mills and plantations for the small some of Cloetta’s chocolate products. The oil cording to the RSPO standard. Today, RSPO amount of palm oil contained in the glaze. comes from the nuts of the shea trees that grow is the most widely supported method for wild in central Africa, which are collected achieving sustainable palm oil production. Sugarcane and dried in small villages on the savannah. To address the sustainability challenges found The shea industry has nearly doubled over the Cloetta’s palm oil policy in the sugarcane industry, Cloetta has become past ten years and currently employs around – from 2017 and onwards a member of Bonsucro – a global non-profit 16 million poor rural women in 21 African At the end of 2016 Cloetta decided to update organization that fosters sustainability in the countries. Shea butter is an important ingredi- its palm oil policy. One central part of the new sugarcane industry. ent in food products, cosmetics and pharma- policy is an ambition to improve traceability There are a number of sustainabili- ceuticals around the world. back to known mills and plantations. In order ty challenges in the sugarcane industry. But there are a number of major challeng- to maximise traceability, Cloetta will change Deforestation to prepare the land for new es for the shea industry in Africa. One primary over to 100% RSPO-segregated volumes in sugarcane plantations is one of the most seri- problem is the declining quality of the shea 2017. Unlike GreenPalm certificates, after ous problems, but other problems related to nuts that are collected from year to year. An- implementation Cloetta will be able to guar- the rights of indigenous peoples and the work other problem is that the women who collect antee that only RSPO-certified palm oil is environment also exist. shea nuts have been largely alienated from the found physically in Cloetta’s products. At the Most of the sugar purchased by Cloetta is rest of the market, and are thereby prevented same time, Cloetta will know which mills, and of European origin and comes originally from from receiving adequate compensation for related plantations, the palm oil comes from. sugar beets. As a result of the current market their harvest. Furthermore, the number of Furthermore, Cloetta’s palm oil policy dynamics in Europe, Cloetta also buys sugar shea trees is decreasing continuously, which goes beyond that which is currently required derived from sugarcane. For a long time the indicates lower volumes in the future. in the RSPO standard. By the end of 2017, European sugar market has been regulated, To overcome the sustainability challenges Cloetta’s suppliers must accept Cloetta’s which has made Europe a net importer of in the shea industry, Cloetta has joined the requirement not to permit palm oil extrac- sugar. Today, Europe imports 3 million tonnes Global Shea Alliance (GSA). The GSA is a tion in primary forest, peatlands, areas with of sugarcane-based sugar annually. non-profit organization that promotes sustain- protected forest or areas where slash and burn With more than 400 members from ability in the shea industry. The GSA’s mission farming is used in plantation operation. 32 countries that represent all parts of the is to design, develop and propose strategies In 2016 a decision was made to replace the delivery chain, Bonsucro is an organization that provide a foundation for a competitive amount of palm oil that is found in Cloetta’s that has the resources to realize its vision: “A and sustainable shea industry worldwide, and glaze. Confectioner’s glaze is used in most sugarcane sector that is continuously improv- to support and empower the rural African of Cloetta’s products to create a shiny and ing and verified as sustainable”. In addition to women and their communities. protective surface that prevents the products support Bonsucro’s vision, this membership

50 Sustainability Cloetta Sustainable shea through Sustainable palm oil through RSPO Global Shea Alliance [

ANNUAL AND SUSTAINABILITYREPORT

Where is palm oil produced?

Others 15% u Indonesia t 53%

Malaysia 32%p

Around 85% of all palm oil comes from Malaysia and Indonesia.

2016 2016

RSPO-certified

Others ] 82% u palm oil 16 million t 18% women support themselves on shea

• Nearly 2 billion shea trees grow naturally on parklands in 21 African countries, from Senegal to South Sudan. 16 million women in rural How do cultivation and production of palm oil impact communities support themselves by collecting the fresh fruit and the environment? processing the kernels. From the shea kernel, a healthy vegetable oil is In certain regions, cultivation of palm oil has caused and continues to extracted, also known as shea butter. Shea butter is also used in some cause destruction of rain forest. of Cloetta’s chocolate products. • The GSA’s sustainability programme has been developed in consulta- 8 principles that growers must respect tion with women’s groups, non-profits, food and cosmetics brands and 1. Commitment to transparency. international suppliers of oils and fats based on four guidelines: 2. Compliance with laws and regulations. 3. Commitment to long-term economic and financial viability. Promote women’s empowerment 4. Use of appropriate best practices by growers and millers. 5. Environnmental responsibility and conservation of natural resources Decent working conditions and biodiversity. Development of local communities 6. Responsible consideration of employees, and of communities and individuals affected by growers and mills. Protection of ecosystems 7. Responsible development of new plantings. 8. Commitment to continuous improvement in key areas of activity. Conservation of the savannah ecosystem is critical to ensure a sustaina- ble future for the shea industry. What is RSPO-certified palm oil? By respecting eight key principles, it is possible to reduce the negative impacts of palm oil cultivation Read more at: www.globalshea.com on the environment and communities.

Bonsucro certifies for sustainable sugarcane production

Over 470 800,000 hectares members are certified according to Bonsucro’s standard

Worker wages are The average yield on average per certified hectare is 26.5 per cent 3.4% higher than minimum wage higher than for (at farms and mills) non-certified Bonsucro’s global standard for sustainable sugarcane is based on 1. Legal compliance. 2. Biodiversity and environmental impact. 3. Human rights. 4. Production and processing. 5. Continuous improvements.

51 Sustainability Cloetta Responsibility for consumer well-being [

ANNUAL AND SUSTAINABILITYREPORT

Fewer calories with stevia Nuts – Dental benefits with xylitol loaded with nutrients

2016 2016 ]

In order to offer products with a reduced Nuts are a natural source of many vital Production of the sweetener xylitol, calorie content, stevia plays a key role for nutrients and also contain antioxidants. which has fewer calories than natural Cloetta’s products. Stevia is a plant native Cashew nuts are rich in iron, folic acid sugar, was originally started in Finland in to South America whose leaves con- and zinc. Peanuts (which are actually the 1970s through extraction from birch tain an intense and natural sweetness. seeds) are rich in protein and contain sap. Xylitol is found in several of Cloetta’s Cloetta uses stevia extract in products high levels of Vitamin B3. Almonds chewing gum products, such as Jenkki, such as Läkerol, chewing gum, Dietor and (which are actually seeds) are rich in Mynthon, DentaFresh and Toy. Dietorelle. Vitamin E and pistachios are very rich in antioxidants.

Natural raw materials Clear declaration High quality and of ingredients product safety

High quality and product safety are Goody Good Stuff and The Jelly Bean vital in food production and are strictly Factory are two examples where Cloetta adhered to in every step of Cloetta’s has implemented the idea of 100 per cent production processes, from inspection of natural ingredients. All artificial colours raw materials to finished products. First and flavours have been replaced by natu- class raw materials, correct handling ral fruit and plant extracts and all other and processes according to the recipes food additives have been removed. Cloetta works continuously to develop create the right flavour, appearance and New goal as of 2017 increase the share of responsible and clear information about consistency and eliminate any risks to natural ingredients. The aim is for Cloetta’s the contents of the products via packages the consumers. product portfolio to be free from artificial flavours by 2018 and artificial colours by 2019. and the website. Goal and outcome for complaints/returns, see page 35.

52 Cloetta gets involved Sustainability Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

Läkerol Let’s Talk Läkerol’s language training app “Let’s Talk” to help new arrivals learn Swedish has been downloaded by more than 32,000 people. The goal of Läkerol Let’s Talk is to exemplify the brand and while the same time contributing to integra- tion in Sweden – to Make People Talk for real.

Let´s Talk is a language training app from a language is to use it as often as possible in Integrated campaign Läkerol that brings together people who speak everyday life. Many new arrivals to Sweden across different media fluent Swedish with those who need to practice have trouble finding a way to do that, at the Let’s Talk was launched through a major inte- their skills. The app matches users on the basis same time that there are many established grated campaign with a focus on social media of common interests, making it easier to find Swedes who are eager to help. That makes such as Facebook and Instagram, but also topics of conversation. Over 32 ,000 people Let´s Talk an excellent alternative. through mobile, search word and banner ads. have downloaded the app and registered them- Läkerol has collaborated with people who The campaign also collaborated with various selves as users since the launch in September have in-depth integrity and credibility when podcast profiles. In addition, the campaign 2016. The share of “teachers” and ”students” it comes to integration issues. These include was supported by more traditional media such is evenly distributed between the app users. stand-up comedian Kristoffer Appelquist as outdoor ads, radio and the daily press. To Around 900,000 chat messages have been and hip hop artist Jason “Timbuktu” Diakité, ensure contact with all target groups in Swe- sent and a large number of voice and video who has taught Swedish to the world famous den, the campaign was translated to a total of conversations have been held, of which the Egyptian singer Ramy Essam. The ambas- seven different languages. longest lasted a full 128 minutes. sadors took part in many different videos to Let’s Talk has helped to make ”Läkerol create attention for Let’s Talk that have been Makes People Talk” relevant in our time, for Language, the fastest path viewed a total of around nine million times on both existing and new consumers. to integration YouTube, Unruly, Facebook and Instagram. Read more about Let’s Talk at Language is one of the fastest and easiest www.lakerol.se/letstalk. The app can be paths to integration, and the best way to learn downloaded from App Store and Google Play.

53 Sustainability Cloetta Reduced environmental impact [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 In 2016, the Paris Agreement was signed within the UN’s Central environmental management system

] Framework Convention on Climate Change. The Paris To ensure the use of a structured and sys- Agreement shows a pathway and direction not only for tematic approach to Cloetta’s environmental governments but also for companies around the world. issues, a decision was made in 2014 to imple- ment a central environmental management It also sends a signal that it is urgent - we must act now system encompassing the entire Group. to avoid serious climate change for future generations. The goal is to develop and integrate the environmental management system with The focus in Cloetta’s climate change work is on the following areas: Cloetta’s central ERP system. A fully integrat- • reduction of greenhouse gases, ed methodology creates better potential to live • increased energy-efficiency, and up to the Code of Conduct and deliver results • reduction of waste. in line with Cloetta’s production policy. At present, our efforts are mainly focused on the Group’s production units. In a longer per- spective, Cloetta aims to widen the focus to also include the environmental impact arising from Environmental goals 2020 raw material production. Continuous reduction of the company’s For the current scope, Cloetta has defined goals, strategies and action programmes for the environmental impact is a central component period until 2020. of Cloetta’s sustainability management. One Cloetta works to reduce its environmental impact through systematic environmental man- important part of this work is the formulation agement. Cloetta complies with the statutory environmental requirements and the Group is not of long-term goals and action programmes party to any environmental disputes. Environmental initiatives are an integral part of Cloetta’s with clearly defined roles and responsibilities operations and environmental aspects are taken into account when making decisions. Frequent in order to meet the targets. For this purpose, evaluation and follow-up of measures increase awareness about the effects of different working Cloetta has defined three long-term envi- methods on the environment. ronmental goals that extend until 2020, see graphs below. Environmental work in the factories All of Cloetta’s factories conduct systematic environmental management that includes action Working methods plans and monitoring in a number of different areas. Seven of the 12 factories are certified accord- Every year, Cloetta carries out an assessment ing to the ISO 14001 standard. of environmental aspects to identify the Since 2015, all production units that already have ISO 14001 certification will be added to existing risks and opportunities. Cloetta has Cloetta’s multi-site certificate. The factories that are not yet certified will be added to Cloetta’s an action plan that defines and governs the multi-site certificate successively. activities to be carried out in order to reduce the company’s environmental impact. Energy consumption Waste Carbon dioxide emissions MWh/prod. tonne Kg/prod. tonne Kg/prod. kg 2.5 Goal 2020 80 Goal 2020 0.40 Goal 2020 <1.83 <49.3 <0.33 70 0.35 2.0 60 0.30

1.5 50 0.25 40 0.20

1.0 30 0.15

20 0.10 0.5 10 0.05

0.0 0 0.00 2014 2015 2016 2014 2015 2016 2014 2015 2016 Outcome 2016 Outcome 2016 Outcome 2016

• Energy consumption in relation to the produced • The volume of waste in relation to the produced • CO2 emissions in production in relation to the volume increased by 3.1 per cent. volume decreased by 3.0 per cent. produced volume increased by 3.0 per cent.

54 Sustainability Cloetta Environmental key performance indicators Energy sources [

2016 2015 2014 ANNUAL AND SUSTAINABILITYREPORT Gas Electricity Total energy consumption, GWh 213 208 209 41%u t 37% Energy consumption per produced tonne, MWh 2.02 1.96 1.98

CO2 per produced kilo, kg 0.36 0.35 0.36 Wastewater per produced tonne, m3 2.7 2.9 2.9 COD* per produced tonne, kg 14.1 17.6 16.6 Total Waste per produced tonne, kg 66 67 66 213 GWh Recycled waste, % 83 81 80

For energy consumption, energy consumption per produced tonne and for CO2, Dublin and Helsingborg are included as of 2014. For wastewater, COD, waste and recycled waste, Dublin and Helsingborg are included as of 2016. p Steam Roosendaal Borchwerf is not included in the figures. Oil 3% p 13% Pellets 2% p p District heating 4%

Environmental impact and priorities volume of production-related and other waste. costs and CO2 emissions, Cloetta uses stacka- 2016 Environmental impact in the confectionery A decrease in raw material waste has a positive ble pallets for transports between the factories industry arises among other things from impact on both the environment and the and warehouses. Furthermore, Cloetta choos- ] water and energy consumption, wastewater Group’s total costs. At present, 83 per cent (81) es transporters that have two-level trailers and emissions, waste and transports. Certain is recycled. The volume of hazardous waste is extra-long bodies and that use a combination environmental effects are also caused by very minor and consists of fluorescent tubes of road/rail/water transports, when possible. coolants, other chemicals, noise and particles. and similar. If viable, without jeopardizing product quality, Outside Cloetta’s direct influence, there is also refrigerated transports are avoided. significant environmental impact connected Emissions to production of raw materials and packaging. Alongside efforts to reduce energy consump- Wastewater The priorities for Cloetta’s environmental tion, Cloetta is also working to choose energy The volume of wastewater was 2.7 m3 (2.9) per work have been set based on how the direct types with the smallest possible negative produced tonne. operations impact the environment, the scope impact on the environment. For that reason, In addition to the three prioritized goals, of Cloetta’s impact as a whole, the probability the total amount of energy used is converted Cloetta is working to improve the wastewater of unplanned environmental events occurring, to the amount of CO2 equivalents generated by quality. Cloetta rates this quality among other the requirements of public authorities and the chosen energy types. things in terms of COD (Chemical Oxygen De- other stakeholders and, finally, the extent to In 2016 Cloetta had emissions of 0.36 kg mand), which measures the amount of oxygen which Cloetta can influence development. The CO2 per produced kg (0.35). CO2 emissions consumed in complete chemical decompo- prioritized areas for Cloetta’s environmental within scope 1 (direct emissions) amounted sition or organic compounds in water. There work are: to around 21,500 tonnes in 2016, while the are several projects in progress to improve the • energy consumption, corresponding figure for scope 2 (indirect quality of the wastewater. • waste volume, type and recycling, emissions) was 16,500 in 2016. Cloetta pur- • reduction of carbon dioxide emissions. chases renewable electricity for some of the Packaging

factories, and assumes 0 kg in CO2 emissions The packaging materials must perform several Energy consumption for this power. functions, such as protecting the product on its The Group’s aggregated energy consumption way to the consumer, enabling easy handling during the financial year was 213 GWh (208). Transports of the product and communicating the brand.

Since 2014 Cloetta calculates CO2 emissions The most common method for consumer Waste management from transports that Cloetta is responsible packaging is so-called “flexibles”, a material

All of Cloetta’s production units pre-sort their for. In 2016, 45 kg of CO2 were released per that can be recycled or incinerated. waste. The goal is to continuously develop produced tonne including Roosendaal (Borch- waste management and reduce the total werf), the Netherlands. To reduce both freight

Recycled waste Wastewater COD* % M3/prod tonne Kg/prod tonne 100 3.0 20

2.5 80 15 2.0 60 1.5 10 40 1.0 5 20 0.5

0 0.0 0 2014 2015 2016 2014 2015 2016 2014 2015 2016 * COD (Chemical Oxygen Demand), is a measure of the amount of oxygen consumed in complete chemical decomposition or organic compounds in water. 55 Sustainability Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

Employees Total number of employees in 2016 Cloetta is driven by a conviction that value is created by the employees, and that the ability to attract and retain 2,530 the best and most competent people is decisive for the company’s future. Great place to work Cloetta works determinedly to create an attractive workplace for all employees and promote the development of a high-performing organization by continuously developing and training its staff, designing competitive remuneration systems, upholding an inspiring corporate culture and building a clear corporate identity.

Employee survey – Great Place to Work To create an attractive workplace for all employees, it is essential that there is a genuine interest in understanding how the employees see their place of work, i.e. what they appreciate and what they find lacking or are simply dissatisfied with. Great Place to Work® helps organizations in all industries and of all sizes to evaluate and de- According to Great Place to Work, the best workplaces are built through day-to-day relation- velop their workplace cultures. With the help of ships. From the employees’ perspective, a good workplace is one where you: an employee survey, GPTW offers benchmarks with other workplaces from a base of 10 million • trust the people you work for, employees in 50 countries and approximately • have pride in what you do, and 7,000 organizations worldwide. Cloetta has • enjoy the people you work with. worked with GPTW since 2013.

56 Sustainability Cloetta During the year Cloetta conducted the Relationship between the company the risk for accidents. All incidents and recurring employee survey “Great Place to and the employees injuries are followed up and reported. The

Work” in the commercial units. The response Lean method is used to prevent and reduce [

Cloetta strives to uphold a relationship of ANNUAL AND SUSTAINABILITYREPORT rate was high, with 95 per cent of the employ- mutual respect and trust between the com- production-related occupational injuries. ees participating, and Cloetta achieved a total pany and its employees. This also steers the Managers are responsible for preventing Trust Index of 73 per cent. Denmark, Norway, company’s way of working with the European occupational illnesses and accidents through the Netherlands, Finland and Sweden all Works Councils, local company councils and monitoring and active measures. Cloetta’s HR have a trust index of between 75–90 per cent. trade unions organizations. Cloetta complies department has developed a tool that makes Sweden, the Netherlands and Finland have with the applicable laws and regulations in it possible, together with managers that have maintained the same high level since the the countries where the Group is active and staff responsibility, to detect early signals that previous survey in 2013. The Trust Index for respects local norms and values. In addition, can be caused by illness and thereby indicate a Norway and Denmark improved by 14 and 11 the Group’s principles are consistent with the risk for long-term sickness absence. percentage points, respectively, to a level of 83 relevant International Labour Organization After several years with a steady decrease and 90 per cent. However, Italy and the Inter- (ILO) conventions. in occupational accidents, the trend was national Sales unit (Cloetta’s export business) Cloetta encourages a good balance be- broken in 2016 and the target was not met. A with offices in Italy have had a tougher journey, tween professional and personal life. It is im- new safety standard was therefore drawn up with a lower result than previously, leading to portant to help both men and women combine for immediate implementation in all factories 2016 a Trust Index of 50 per cent. the demands of their jobs with responsibility during 2016. This will continue to be a priority

for home and family. The Group therefore in 2017. ] Follow-up supports flexible work arrangements like flex- In 2017 projects will be initiated to high- In 2016 Cloetta analyzed the results of time and part-time hours, when possible. light the importance of maintaining the right “Great Place to Work” for each country and Cloetta’s whistleblower service gives all balance in life. The projects include activities, department in greater detail. In the majority of Cloetta’s employees the opportunity to lectures and training with a focus on exercise, of Cloetta’s teams, the main focus has been report, either anonymously or via a manager, diet and sleep as key components for achieving on improving communication between the concerns about conduct that is not in line with a healthy work/life equilibrium. management and employees, and between de- the company’s values or ethical principles, partments. How we can ensure a good working read more on page 44. Diversity environment despite a high working pace has Cloetta aims to be a workplace where diversity been another focus area in the follow-up. A good and safe working and the different qualities, knowledge and In 2017 the “Great Place to Work” em- environment skills of all employees are respected regardless ployee survey will be carried out in the supply Efforts to improve and develop the working of gender, religion, ethnic background, age, chain. The target is to improve the Trust index environment are a natural aspect of operation- race and sexual orientation. Questions about compared to the previous survey (2014: 52%). al development and the goal is to create a good whether anyone feels that they have been har- To optimize handling and communication physical working environment and a healthy assed or discriminated against are included in related to the survey and to maintain the working climate where each individual can the employee survey “Great Place to Work”. focus on ongoing improvement initiatives, the feel secure and pursue personal development. survey will be conducted every other year in In production, employee safety is always the the commercial units and every other year in top priority and all of the factories perform the supply chain. continuous risk assessments to minimize

Average number of employees and sickness absence

The Employees Slovakia Sweden Italy Netherlands Finland Belgium Ireland Norway Denmark Germany Other Total

Average number of employees 705 547 423 392 193 102 80 39 36 9 4 2,530 – of whom, women 474 251 171 133 153 22 35 18 19 3 2 1,281 Sickness absence, %, 6.3 5.3 5.0 5.4 1.8 6.5 2.7 7.7 2.0 2.8 0.0 5.2

Employees by country Age distribution Number of employees 800 Slovakia 28% u t Sweden 22% 700

600

500

400 Denmark 1% u Norway 2% u t Italy 17% 300 Ireland 3% u 200 Belgium 4% u 100 Finland 8%p 0 p Netherlands 15% <25 25–34 35–44 45–54 55–64 65>

57 Sustainability

Cloetta The right expertise against which the candidates’ performance is Cloetta’s Leadership Dimensions Cloetta is committed to continuously renew- measured, in combination with analysis of the • Visionary Leadership

[ ing and utilizing the Group’s aggregated ex- various tests and interview material. • People Leadership

ANNUAL AND SUSTAINABILITYREPORT pertise. Competent employees that are given In 2016 an internal survey was conducted • Entrepreneurial Leadership scope to realize their full potential create the with questions about why people have chosen • Structured Leadership conditions for Cloetta to maintain its position to work at Cloetta and what makes them want • Committed Leadership as an attractive and innovative partner not to stay. People who have been employed by • Trusted Leadership only for the employees but also for customers, Cloetta for no more than one year were invited Each dimension is briefly described with the suppliers and business partners. A learn- to take part. The results show that a major- help of several competencies and behaviours ing-driven organization that works in project ity of employees feel they have been given that are tied together with Management form and the use of interdisciplinary team- far-reaching personal responsibility and scope Drives. By combining the concepts in Man- work in day-to-day activities are important to work independently. agement Drives with Cloetta’s Leadership components of Cloetta’s skills development. With the help of feedback from the Dimensions, the company has created a set of All skills development is designed to support internal survey, Cloetta has initiated a joint concepts that show who Cloetta’s employees Cloetta’s strategies, to be business-oriented platform for communication about Employer are and what type of leaders and employees and to promote the individual’s professional Branding, which will be launched in 2017. Cloetta wants to be. Good leadership is es-

2016 2016 interests and needs. sential in inspiring maximum motivation and The main focus areas are to develop the Cloetta’s leadership performance in the various teams and is a vital

] right people for the right jobs and to contin- As a leader, it is vital that you dare to trust in part in realizing Cloetta’s vision and goals. uously clarify and improve roles, responsi- both your own leadership and in others. It is In 2016 some 65 managers were trained bilities and working methods throughout the also essential to understand each other and in Cloetta’s Leadership Dimensions at the organization. In recent years there has been why different individuals act differently in central level, where the Group Management a major initiative, primarily in production, similar situations. Team also took part. In the second half of the to work according to Lean. Read more on For some time Cloetta has worked with year the local rollout continued in a number of page 33. the leadership tool Management Drives, which countries. In addition to the follow-up carried is based on the use of a questionnaire that out by the managers in their own teams fol- Employer branding among other things identifies the drives for lowing the course, several follow-up meetings Cloetta strives to be an attractive employer each employee, what energizes them and what are held for those who have completed the in the markets where the company is active drains them of energy. By using this leadership training. In 2017 the training will continue and thereby retain valuable employees. All tool, both managers and employees are made within the organisation. recruitment takes place locally with the sup- aware of their own profiles and thereby which port of centrally developed tools that include working methods suit them best. In 2016 the Framework for remuneration both skills tests and self-assessment tests. For company further developed its leadership tool One major factor in how employees perceive all positions, the selection is based on a job through the launch of Cloetta’s Leadership the attractiveness or their workplace is the description with specific set of competencies Dimensions. feeling that they are fairly paid and that there

Gender distribution 31 December 2016

49% 51%

Employee categories 31 December 2016

Blue-collar White-collar workers workers

56% 44%

58 Sustainability Cloetta is a well designed salary structure in the Flat organization for shorter company. decision-making processes Goals for greater well-being

For several years Cloetta has been work- [

Cloetta has employees in 14 countries who

Employees ANNUAL AND SUSTAINABILITYREPORT ing closely with one of the major consulting are active in sales and marketing, production, • The number of days between occupa- companies to develop an optimized frame- innovation and support functions. Cloetta’s tional accidents with >1 day of sickness work and strategy for Cloetta’s remuneration/ head office is located in Stockholm. absence will exceed 24.3 days in 2017. salary structure. All positions at Cloetta have Cloetta is organized according to function been evaluated and plotted on a matrix where and its commercial activities are organized • Great Place to Work – the Trust Index comparable jobs are ranked similarly regard- separately from the supply chain organization. will be in line with or exceed the pre- less of company or function. This has then Human Resources, finance and administrative vious year’s high level. In Sweden, the been supplemented with a salary structure units are found in each main market and serve Netherlands and Finland it was in line that is benchmarked against other consumer as support functions for both the local sales with the previous year’s high level and goods companies in each country. The results and marketing organization and for produc- in Norway and Denmark it exceeded provide an excellent basis for upcoming salary tion. Responsibility for business development, the year-earlier level. The country reviews, where the existing salary level and the corporate communications, business control, that showed a lower score compared to year’s performance are key parameters in the marketing strategies, HR and certain financial earlier was Italy. framework that has now been established. activities like tax, financial administration, 2016 insurance and financial control are handled by Days between occupational accidents Number of employees central staffs. (number of days between accidents leading to ] The average number of employees in 2016 was >1 day of absence) Days 2,530 (2,583). 72 per cent of the employees 30 Goal 2017 are covered by collective agreements. The em- >24.3 ployees at Cloetta’s factory in Levice, the only 25 factory not covered by a collective agreement, are instead covered by a separate agreement. 20 Of the average number of employees, 56 per cent are employed under collective agree- 15 ments and 44 per cent are salaried employees. 10 In production there are certain periods with a higher workload, such as the spring 5 run-up to Easter and the autumn run-up to Christmas, when extra staff is hired. Other ar- 0 2012 2013 2014 2015 2016 eas of operation also use temporary and extra staff. Temporary staff accounted for approx. After two years of steadily decreasing occupational 9.7 per cent. accidents, the trend was broken in 2016 and the target of 28 days was not met. As a result, a new safety standard was drawn up and immediately implemented in all factories during 2016. This will continue to be a priority in 2017. Roosendaal Borchwerf has not been included. Read more on page 32.

Cloetta’s HR wheel

UPDATE OF JOB DESCRIPTIONS EMPLOYEE EVALUATION and preparations for the upcoming • Individual goals evaluation process • Individual development measures J DEC AN • Employee survey F V E O B SKILLS DEVELOPMENT N TARGET LEVELS ESTABLISHED with a focus on the organization’s M T A challenges for the coming year C R

O

S

E R

P P STRATEGIC PLAN A SALARY REVIEW A U Y G A M J SEMI-ANNUAL FOLLOW-UP UL JUN OF EMPLOYEE EVALUATION

MANAGEMENT REVIEW • Succession planning • Identification of new and follow-up of existing talents Cloetta’s HR work follows an annual cycle of activities aimed at building and raising the level of expertise in the organization. Most of the activities in Cloetta’s HR wheel as described apply primarily to salaried employees.

59 Dec Jan Share and shareholders Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 Share and shareholders ]

Six reasons to invest in Cloetta

Strong local brands Clear strategy to deliver growth Attractive non-cyclical market Cloetta has an extensive portfolio of In order to drive growth, daily activities The confectionery market is relatively strong local brands that are well estab- to broaden the distribution, updating insensitive to economic fluctuations and lished in the minds of the consumers. of packaging, promotional and adver- shows stable growth that is primarily The brands have been cherished for gen- tising activities, line extensions and the driven by population trends and price erations and consumers have a personal launch of seasonal products are the most increases. Historically, annual market relationship with the brands they have important. Added to these are strategic growth has been between 1 and 2 per grown up with. activities such as innovations, geographi- cent. cal roll-outs, brand extensions and brand relaunches. Lastly, acquisitions can also be used to generate growth.

Focus on continued Strong market positions Attractive cash flow generation margin expansion and distribution and dividend Cloetta’s profitability has improved In its core markets, Cloetta has strong Cloetta’s business has a very strong cash substantially over the past few years. In sales and marketing organizations that generating capacity. Low and stable capi- order to drive towards Cloetta’s financial have excellent relations with the retail tal expenditures combined with effective target to reach an EBIT margin, adjusted, trade. The wide portfolio of market lead- management of working capital generate of 14 per cent, there will be a continued ing products creates economies of scale robust cash flows and thereby allow for focus on cost-effectiveness, growth and and the brands are often very important share dividends in accordance with the profitability. for the retail trade. goal to distribute 40-60 per cent of profit after tax.

60 Share and shareholders Cloetta Cloetta’s class B share has been listed on Nasdaq The highest quoted bid price during the period from 1 January to 31 December 2016

Stockholm since 16 February 2009, but Cloetta was was SEK 33.30 on 14 October 2016 and the [

ANNUAL AND SUSTAINABILITYREPORT originally introduced on the stock exchange in 1994 and lowest bid price was SEK 24.10 on 18 February 2016. The share price on 31 December 2016 has been listed in various owner constellations since then. was SEK 28.70 (last price paid). During the The Cloetta share is quoted on the Nasdaq OMX Mid period from 1 January to 31 December 2016, Cap index and the Nordic and Swedish indexes for Food Cloetta’s share price increased by 3 per cent, Producers, Food & Beverage and Consumer Goods. while Nasdaq Stockholm PI rose by 6 per cent. The share’s beta and Shareholders1 standard deviation3 At 31 December 2016 Cloetta AB (publ) had 16,236 (14,164) shareholders, an increase of 15 per The price volatility of an individual share cent since year-end 2015. Of the shareholders, 1,129 were financial and institutional investors compared to the market as a whole is known and 15,107 were private investors. Financial and institutional investors held 91.2 per cent of the as its beta. A beta of greater than 1 indicates votes and 88.6 per cent of the share capital. There were 691 foreign shareholders who held 38.8 that the share price is more volatile than the

per cent of the votes and 50.7 per cent of the share capital. The 15 largest shareholders accounted market average. The Cloetta share’s beta in 2016 for 68.2 per cent of the votes and 58.7 per cent of the share capital. At 31 December 2016, AB 2016 was 0.52 (0.69), which means that the

Malfors Promotor was Cloetta’s largest shareholder with a holding representing 42.3 per cent of Cloetta share was less volatile than the aver- ] the votes and 24.6 per cent of the share capital in the company. The second largest shareholder age on Nasdaq Stockholm. The Cloetta share was Columbia Threadneedle (Ameriprise Financial Inc.), with 4.4 per cent of the votes and 5.8 had a standard deviation of 1.4 per cent (1.6) in per cent of the share capital, and the third largest shareholder was Artisan Partners Asset Man- 2016. Standard deviation is a measure of the agement Inc. with 3.8 per cent of the votes and 5.0 per cent of the share capital. share’s variability from its average value for the measurement period, i.e. how volatile the Share price and trading2 share was during the year. Between 1 January and 31 December 2016, 155,088,223 Cloetta shares were traded on Nasdaq Stockholm for a total of SEK 4,346m, equal to around 57 per cent of the total number of class B shares on Nasdaq Stockholm at the end of the period. Trading on Nasdaq Stockholm accounted for 53.5 per cent, and other markets where the Cloetta share was traded include BATS Europe with 18.2 per cent, BOTC with 14.3 per cent, LSE Group with 5.2 per cent, and others for a total of 8.8 per cent.

Marketplaces, % Trading categories, % 1 January–31 December 2016 1 January–31 December 2016 Auction 9% q t Nasdaq OMX 53.5% t O-book 46% Others 8.8% u Dark 8% u

LSE Group 5.2%u

BOTC 14.3% u

Lit 37% u BATS Europe 18.2%p Source: Fidessa Source: Fidessa

Lit, i.e. buy and sell orders are public. Traditional Share price performance exchange trading. Off-book, stock trades that are executed away from Closing price, SEK No. of shares traded, thousands the exchange and are registered later. 35 70,000 Dark, buyers and sellers trade shares anonymously, without public transparency. Not registered on any 60,000 30 public exchange. Auction, auction trading process on an exchange. 25 50,000

20 40,000

15 30,000

10 20,000

5 10,000

0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 1) Sources: Euroclear and Holdings Cloetta B OMX Stockholm_PI No. of shares traded, thousands per month Source: SIX 2) Sources: Nasdaq Stockholm and Fidessa 3) Source: SIX

61 Share and shareholders

Cloetta Share capital and capital structure the share register maintained by Euroclear from a holder of class A shares, the company Cloetta’s share capital at 31 December 2016 Sweden AB. shall convert the class A shares specified in the

[ amounted to SEK 1,443,096,495. The total request to class B shares.

ANNUAL AND SUSTAINABILITYREPORT number of shares is 288,619,299, divided Articles of Association between 9,861,614 class A shares and Cloetta’s Articles of Association contain a Undertaking by Malfors Promotor 278,757,685 class B shares, equal to a quota Central Securities Depository (CSD) provi- In connection with the merger between Cloetta value per share of SEK 5. According to the sion and its shares are affiliated with Euro- and Leaf in December 2011, Malfors Promo- Articles of Association, the share capital shall clear Sweden AB, which means that Euroclear tor undertook, in relation to Cloetta and Leaf amount to not less than SEK 400,000,000 Sweden AB administers the company’s share Holding S.A. (CVC and Nordic Capital), to and not more than SEK 1,600,000,000, divid- register and registers the shares to owners. convert parts of its holding of class A shares ed between not fewer than 80,000,000 shares Each A share grants 10 votes and each B to B shares so that Malfors Promotor’s share and not more than 320,000,000 shares. share one vote in shareholder meetings. All of the total number of votes in Cloetta after shares grant equal entitlement to the compa- conversion is equal to 39.9 per cent in the first Dividend policy ny’s profits and an equal share in any surplus phase and 33.34 per cent in the second phase. Cloetta’s long-term goal is a dividend payout of arising on liquidation. Should the company Conversion to 40.2 per cent (39.9 per cent 40–60 per cent of profit after tax. Neither the issue new shares of class A and class B through after full exercise of the outstanding option

2016 2016 Swedish Companies Act nor Cloetta’s Articles a cash or set-off issue, holders of class A and programme issued by the three principal share- of Association contain any restrictions re- class B shares have the right to subscribe for holders) was carried out in December 2012.

] garding the right to dividends for shareholders new shares of the same class in proportion Conversion to 33.34 per cent will take place outside Sweden. Aside from any limitations to the number of shares already held on the when Cloetta’s net debt/EBITDA ratio is equal related to banking or clearing activities in the record date. If the issue includes shares of only to or lower than a multiple of 2.7, according to affected jurisdictions, payments to foreign class B, all holders of class A and class B shares the stipulations in the previous loan agreement shareholders are carried out in the same man- have the right to subscribe for new B shares between Cloetta and Svenska Handelsbanken ner as to shareholders in Sweden. in proportion to the number of shares already AB (publ). The stated percentages for Malfors A dividend of SEK 144m was transferred held on the record date. Corresponding rules Promotor’s conversion undertaking apply on a to the shareholders in 2016. The ambition is of apportionment are applied in the event fully diluted basis for the outstanding incentive for future cash flows to be used for invest- of a bonus issue or issue of convertibles and schemes in Cloetta. Furthermore, the shares ments and also complementary acquisitions. subscription warrants. The transference of a that have been acquired by Malfors Promotor For 2016 the Board proposes a dividend of class A share to a person who is not previously after 15 March 2012 (the settlement date for SEK 0.75 per share, which is equal to 54 per a holder of class A shares in the company is the rights issue that was carried out in con- cent of profit for the year excluding the impact subject to a pre-emption procedure, except nection with the merger between Cloetta and of impairment losses. The dividend is resolved when the transfer is made through division Leaf) will not be included in the calculation. on by the Annual General Meeting (AGM) and of joint property, inheritance, testament or The net debt/EBITDA ratio of 2.7x or disbursement is handled by Euroclear Sweden gift to the person who is the closest heir to the lower was realized at 31 December 2016. The AB. The right to a dividend is granted to those bequeather. After receiving a written request conversion of the second phase will be carried persons who are listed as shareholders in out in February 2017.

Shareholder countries, % share of capital Shareholder categories, % of votes 31 December 2016 31 December 2016

t Sweden 49.3% Other countries 6.2% u Germany 1.4%u Luxembourg 2.6% u Legal entities t Private investors 9% The UK 15.5% u 91% u

The USA 25.0%u Source: Euroclear Source: Euroclear

Shareholder countries, % of votes Number of shareholders by size of holding 31 December 2016 31 December 2016 Number t Sweden 61.2% 12,000 Other countries 4.8% u Germany 1.0%u 10,000 Luxembourg 2.0% u 8,000

The UK 11.9% u 6,000

4,000

The USA 19.1% u 2,000 Source: Euroclear

0 1– 501 1001 5,001 10,001 15,001– 20,001– 500 –1,000 –5,000 –10,000 –15,000 20,000 Source: Euroclear 62 Share and shareholders Cloetta Shareholder agreement Silent periods financial reports. During this period, repre- Oy Karl Fazer Ab, Conclo Ab, Oy Cacava Ab Cloetta maintains a silent period of at least 30 sentatives of the Group will not meet with

financial media, analysts or investors. [ and certain private individuals affiliated with days prior to the publication of its quarterly ANNUAL AND SUSTAINABILITYREPORT Oy Karl Fazer Ab have in relation to Hjalmar Svenfelt Foundation (which owns shares in 15 largest shareholders at 31 December 2016 Cloetta through AB Malfors Promotor), pre- % of % of share Total no. of No. of A No. of B viously undertaken to refrain from acquiring, votes capital shares shares shares directly or indirectly, shares in Cloetta during AB Malfors Promotor 42.3 24.6 71,063,560 9,855,934 61,207,626 a 10-year period. The 10-year period starts Columbia Threadneedle 4.4 5.8 16,657,769 – 16,657,769 on the first date of trading for Cloetta’s class Artisan Partners 3.8 5.0 14,429,617 – 14,429,617 B shares on Nasdaq OMX First North on 8 Wellington Management 3.7 4.8 13,829,717 – 13,829,717 December 2008, provided that the Hjalmar Dimensional Fund Advisors 1.9 2.4 7,062,734 – 7,062,734 Svenfelt Foundation does not reduce its direct Carnegie Fonder 1.7 2.3 6,578,358 – 6,578,358 or indirect holding during this period to a level Norges Bank 1.7 2.2 6,292,619 – 6,292,619 of less than 30 per cent of the votes in Cloetta. JP Morgan Asset Management 1.5 2.0 5,754,971 – 5,754,971 Ulla Håkansson 1.3 1.7 5,000,000 – 5,000,000

Individuals with an insider position Franklin Templeton 1.3 1.7 4,775,300 – 4,775,300 2016 Persons discharging managerial responsibil- Vanguard 1.2 1.6 4,496,360 – 4,496,360 ities for Cloetta and persons or legal entities Odin Fonder 1.1 1.5 4,334,866 – 4,334,866 ] closely associated with them are obliged to Transamerica Asset Management, Inc 1.0 1.4 3,956,400 – 3,956,400 notify Cloetta and the Swedish Financial Wasatch Advisors Inc. 0.7 0.9 2,643,927 – 2,643,927 Supervisory Authority of every transaction Olof Svenfelt 0.6 0.8 2,347,330 30 2,347,300 conducted related to changes in their holdings Total, 15 largest shareholders 68.2 58.7 169,223,528 9,855,964 159,367,564 of Cloetta shares once a total amount of Other shareholders 31.8 41.3 119,395,771 5,650 119,390,121 EUR 5,000 has been reached within a cal- Total 100 100 288,619,299 9,861,614 278,757,685 endar year according to the regulation of the Source: Holdings Trustee-registered accounts/shareholders are not included in this list. Current holdings European parliament and of the council on for the 15 largest shareholders can be found at www.cloetta.com market abuse. Listed companies are required to record Size categories at 31 December 2016 a logbook of individuals who are employed or No. of share- Total no. of No. of A No. of B % of share % of contracted by the company and have access to holders shares shares shares capital votes insider information relating to the company. 1–500 10,834 1,554,595 2,098 1,552,497 0.5 0.4 These can include insiders, but also other 501–1,000 1,919 1,657,644 500 1,657,144 0.6 0.4 individuals who have obtained insider infor- 1,001–5,000 2,362 5,972,175 2,400 5,969,775 2.1 1.6 mation. Cloetta records a logbook for each 5,001–10,000 435 3,342,502 525 3,341,977 1.2 0.9 financial report or press release containing 10,001–15,000 131 1,666,412 – 1,666,412 0.6 0.4 information that could affect the share price. 15,001–20,000 93 1,717,478 – 1,717,478 0.6 0.5 20,001– 462 272,708,493 9,856,091 262,852,402 94.4 95.8 Total 16,236 288,619,299 9,861,614 278,757,685 100 100 Source: Euroclear

Shareholders by country at 31 December 2016 Shareholder categories at 31 December 2016

No. of % of % of No. of % of share- % of share Total no. of No. of A No. of B % of share share- share- holders votes capital shares shares shares votes capital holders holders Sweden 15,545 61.2 49.3 142,210,319 9,861,614 132,348,705 Private investors 8.8 11.4 15,107 93.0 USA 102 19.1 25.0 72,148,389 – 72,148,389 Of which, Swedish residents 8.6 11.3 15,003 92.4 UK 75 11.9 15.5 44,727,767 – 44,727,767 Legal entities 91.2 88.6 1,129 7.0 Luxembourg 26 2.0 2.6 7,482,356 – 7,482,356 Of which, Swedish residents 52.6 38.0 542 3.3 Germany 23 1.0 1.4 3,922,851 – 3,922,851 Total 100 100 16,236 100 Other countries 465 4.8 6.2 18,127,617 – 18,127,617 Of which, Swedish residents 61.2 49.3 15,545 95.7 Total 16,236 100 100 288,619,299 9,861,614 278,757,685 Source: Euroclear Source: Euroclear

Development of the share at 31 December 2016

Increase in Increase in no. Year Event share capital Total share capital of shares Total no. of shares 1998 Opening share capital, par value of the share is SEK 100 – 100,000 – 1,000 2008 Non-cash issue in connection with demerger of Cloetta Fazer 99,900,000 100,000,000 999,000 1,000,000 2008 Share split, quota value of the share changed from SEK 100 to SEK 4 – 100,000,000 23,119,196 24,119,196 2008 Bonus issue, quota value of the share changed from SEK 4 to SEK 5 20,595,980 120,595,980 – 24,119,196 2011–2012 Conversion of convertible debenture loan 2,836,395 123,432,375 567,279 24,686,475 2012 Issue in kind 825,934,620 949,366,995 165,186,924 189,873,399 2012 Rights issue 493,729,500 1,443,096,495 98,745,900 288,619,299 Source: Euroclear

63 Share and shareholders

Cloetta Investor relations 2016 Cloetta meets regularly with investors and analysts. In 2016, Cloetta had more than

[ JANUARY

100 individual investor meet- ANNUAL AND SUSTAINABILITYREPORT SEB Nordic Seminar, Copenhagen ings in which the CEO, CFO or IR took part. At least twice a NOVEMBER FEBRUARY year, trips are made to Europe Investor Road Show, EC JAN Year-end report and the USA to meet investors Stockholm, D F and shareholders. In addition, London, New York V E O B Cloetta regularly attends and Boston N major investor club meetings, M MARCH T lunches and evening meetings OCTOBER A Annual report 2015 C Interim report Q3 R organized by banks and the O Swedish Shareholders Asso- ciation (Aktiespararna). S

E R

P P A Analysts SEPTEMBER APRIL Carnegie Small Cap Day A Interim report Q1 U Y G A Investor Road show, Stockholm, The following analysts M London and New York regularly monitor Cloetta’s

2016 2016 J UL JUN AGM development: Berenberg Bank,

] Anna Patrice Carnegie, Mikael Löfdahl Danske Bank, Mikael Holm JULY JUNE Handelsbanken, Nicklas Interim report Q2 Handelsbanken Nordic Mid Cap Seminar Skogman, Peter Wallin Nordea, Stefan Stjernholm SEB, Nicklas Fhärm Share-based long-term incentive plans The table below represents the main characteristics of the share-based long-term incentive plans that have been approved by the AGM. For more information about the incentive plans, see page 76, and Note 24 on page 121.

LTI 2016 LTI 2015 LTI 2014 LTI 2013 AGM approval date 12 April 2016 Dec23 April 2015 29 April 2014 11Jan April 2013 Maximum number of B shares to be allocated 1,524,100 2,000,000 1,773,840 1,920,000 as percentage of total shares 0.5 0.7 0.6 0.7 as percentage of voting rights 0.4 0.5 0.5 0.5 Number of employees offered the opportunity to participate 73 74 66 68 Number of participants at inception date 49 46 49 45 Estimated number of B shares to be allocated, subject to possible recalculation 941,840 500,855 384,945 as percentage of total shares 0.3 0.2 0.1 as percentage of voting rights 0.2 0.1 0.1 Number of participants at reporting date 45 39 38 Vesting date 18 May 2016 Realized performance target, % 12.4 Actual number of matching shares granted on vesting date 166,500 Actual number of performance shares granted on vesting date 61,380

Total number of B shares granted on vesting date 227,880 as percentage of total shares 0.1 as percentage of voting rights 0.1 Number of participants at vesting date 38

Share data

Marketplace Nasdaq Stockholm Date of listing 16 February 2009 Segment Mid cap Sector Food Producers, Food & Beverage and Consumer Goods Ticker symbol CLA B ISIN code SE0002626861 Currency SEK Standard trading unit 1 share No. of shares in issue 278,757,685 Highest price paid in 2016 SEK 33.30 (14 October 2016) IR-Contact Lowest price paid in 2016 SEK 24.10 (18 February 2016) Jacob Broberg Last price paid 2016 SEK 28.70 Senior Vice President Corporate Communication Share price growth in 2016 3 per cent and Investor Relations The share’s beta against SIXGX 0.52 (0.69) Telephone: +46 (0)70-190 00 33 The share’s standard deviation 1.4 (1.6) Mail: [email protected] Twitter: JacobBroberg

64 Share and shareholders Cloetta Frequently asked questions to Cloetta [

ANNUAL AND SUSTAINABILITYREPORT Why don’t you sell product X or Y anymore, and to earlier years. However, we have not set a sugar, i.e. the sugar hidden in everyday food do you have any plans to launch product Z? specific timeline for reaching the target. products like breakfast cereal, yoghurt, bread, If we no longer sell a product, this is unfortu- etc., and to a certain extent also carbonated What is your pricing strategy? nately often due to insufficient demand for the beverages. The discussion should focus on We adjust our prices based mainly on fluc- product in question. In certain cases, it could consumption of these “sugar traps”. Cloetta’s tuations in raw material costs and exchange also be because the product’s profitability has products are among the most honest, since rates. This means that over time, Cloetta will been too low or even negative. The launch of all consumers are aware that they contain hopefully avoid the impact of cost trends for new product types can sometimes be difficult sugar. Furthermore, 30 per cent of Cloetta’s raw materials. Sometimes we also adjust pric- if we lack a brand that can carry them, at the products are sugar-free. So for those seeking es in connection with initiatives such as new same time that the necessary marketing in- an alternative to products with sugar, Cloetta product launches or changes in packages. vestments would be so high that they wouldn’t offers options such as nuts, chewing gum with be profitable. Do you plan to make additional acquisitions, xylitol, pastilles and sugar-free candy.

and if so, in which countries? How will you meet your margin target? 2016 We aim to pursue acquisitions that are con- How big is the risk that various sugar taxes will Profitable growth will contribute to higher be introduced, and how will that affect you? sistent with our Munchy Moments strategy. earnings. Our aim is to grow in line with the In general, we have to reckon with the possibil- ] This means that we acquire companies with market while at the same time focusing on ity that different countries will both introduce impulse-driven brands that are well suited to growth in pick & mix, where we see good and abolish sugar and confectionery taxes our distribution chain. potential. We can also consider additional from time to time. When different taxes are in- acquisitions. We are currently implementing Will you use the strong cash flow for acquisi- troduced it naturally affects our sales, but only the Lean 2020 programme in the supply chain tions, to reduce debt or to pay dividends to the to a fairly minor extent since our products are that will help to boost profitability. Further- shareholders? of a type that consumers want, and can afford, more, we are committed to driving profita- In 2016 we met our targeted net debt/EBIT- to treat themselves to despite price increases. bility in our past acquisitions. Lastly, we have DA ratio of 2.5x and now feel that we have deployed a joint ERP system throughout the the capacity for both acquisitions and share Why do you use palm oil in your products? Group that will create better conditions for dividends. The dividend payout ratio should Our ambition is to eliminate palm oil from strengthening profitability. be 40 – 60 per cent of net profit. However, we all products with the exception of certain see no reason to reduce the net debt/EBITDA chocolate and fudge products during 2018 at When will you meet your 14 per cent margin ratio to a level much lower than 2.5x. the latest. In those products where there is no target for adjusted operating profit? satisfactory alternative to palm oil, mainly In recent years we have successively strength- How is Cloetta affected by the ongoing debates chocolate confectionery, we use RSPO- about sugar, health and childhood obesity? ened our margin and in 2016 achieved a level segregated, GreenPalm-certified palm oil. of 13.0, which is an improvement compared The major challenge in this context is hidden

Share price performance during 2016

Closing price, SEK No. of shares, thousands 33.0 12,000 Cloetta B share No. of shares traded, thousands per week

31.5 10,000

30.0 8,000

28.5 6,000

27.0 4,000

25.5 2,000

24.0 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Source: SIX 22 July 15 December 12 April 21 April New loan 8 September Henri de Sauvage 18 February AGM Interim report Q1 agreement Cloetta named Nolting takes up 9 March Year-end report 15 July 24 August “Listed Com- 27 October duties as Publication annual Interim report Q2 Danko Maras pany of the Interim report Q3 President/CEO on report 2015 appointed as Year” for third 15 February 2017 Interim President/CEO year in a row

65 Financial performance Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ] Financial performance Net sales and profit

Condensed consolidated profit and loss account Net sales Net sales for the full year were up by SEK 178m SEKm 2016 2015 to SEK 5,852m (5,674) compared to the previ- Net sales 5,852 5,674 ous year. Organic growth amounted to 0.5 per Cost of goods sold –3,533 –3,463 cent, acquisition-driven growth was 2.2 per Gross profit 2,319 2,211 cent and changes in exchange rates accounted Selling expenses –955 –949 for 0.4 per cent. General and administrative expense Over half, or 54 per cent (55), of Cloetta’s – Impairment loss –771 – sales consist of sugar confectionery and 17 per – Other general and administrative expenses –675 –591 cent (15) of chocolate. Pastilles account for Total general and administrative expenses –1,446 –591 14 per cent (15), chewing gum for 6 per cent Operating profit/loss –82 671 (7), nuts for 4 per cent (3) and other products, mainly sweeteners, for 5 per cent (5). Net financial items –174 –178 The largest increase compared to the Profit/loss before tax –256 493 previous year was seen for chocolate. Income tax 65 –107 Profit/loss for the year –191 386 Sales in six main markets Cloetta has six main markets, of which Sweden is the largest with around 31 per cent (30) of the Group’s sales. The second largest market is Finland with 17 per cent (18). The Net sales Operating profit, adjusted Netherlands account for 14 per cent (13), Italy SEKm SEKm 2,000 300 for 12 per cent (13), Denmark for 5 per cent (6) and Norway for 4 per cent (4). Sales increased 250 or were unchanged in Sweden, Finland, Nor- 1,500 way, Denmark and in the export markets, but 200 declined in the Netherlands and Italy. In Italy the important seasonal sales 1,000 150 declined.

100 500 50

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 n 2015 n 2016 n 2015 n 2016

66 Financial performance Cloetta Other markets cent (39.0). The improvement in gross margin the impairment of Cloetta Italy accounted for In addition to the main markets, Cloetta’s is mainly explained by higher efficiency in the SEK –771m (–). Other costs are related to the

supply chain. closure of the factory in Dieren, the Nether­ [ products are sold through distributors in some ANNUAL AND SUSTAINABILITYREPORT 40 additional markets. Sales in these markets Raw material and packaging account lands, the remeasurement of contingent grew compared to the previous year and other for 61 per cent (62) of total production costs. considerations and a lost dispute related to markets combined accounted for 17 per cent In terms of value, the most significant raw the closure of the warehouse in Norrköping in (16) of the Group’s sales. The two largest mar- materials are sugar, cocoa, glucose syrup, 2013, for which Cloetta has been ordered to kets are Germany and the UK, both of which polyols, gelatine and milk powder. Overall pay rent retroactively. decreased slightly during the year. raw material costs were largely unchanged for Cloetta during the year, but for both sugar and Employees Price strategies milk there has been a rising tendency after the The average number of employees was 2,530 In Cloetta’s main markets, except in Italy, previously relatively low prices. The price of (2,583) during the year. The decrease is main- grocery trade is very consolidated with few, nuts and almonds fell during the year, while ly related to Cloetta’s closure of the factory in very large retail changes. In total, Cloetta’s ten the price of cashew nuts has increased. In Dieren, the Netherlands, that was included in largest customers accounted for around 43 per addition, exchange rate changes have affected the acquisition of Lonka. cent (40) of the Group’s sales. the purchasing costs for certain products.

Concentration of the grocery retail trade Research and development 2016 has exerted powerful price pressure on all of Operating profit/loss Costs for research and development (R&D) its suppliers. To a large extent, Cloetta has Operating profit/loss was SEK –82m (671). were charged to operating profit in an amount ] handled this through efficiency improvements. This figure includes an impairment loss of of SEK 40m (47) and are primarily attribut- To offset changes in raw material costs and SEK –771m (–) which is non-cash in nature. able to the creation of new product and brand exchange rates, Cloetta’s strategy is to pass Operating profit, adjusted for items affecting varieties as well as packaging solutions within these on by adjusting its prices. comparability, improved to SEK 758m (690). the framework of the existing product range. No expenses for research and development Gross profit Items affecting comparability have been capitalized. Gross profit amounted to SEK 2,319m (2,211), Operating profit/loss includes items affecting which is equal to a gross margin of 39.6 per comparability of SEK –840m (–19), of which

Net sales – change Net sales by country SEKm Other Sweden 6,000 127 28 5,852 17% u t 31% 5,674 23 Organic growth Structural changes Exchange rate changes 5,500 Nordic Netherlands Other countries 14% u 43 % 57 % 5,000

Italy 4,500 12% u t Finland 17% Norway p 4% p Denmark 5% 4,000 2015 2016

Total operating expenses – change Operating expenses, excluding impairment losses including cost of goods sold and excluding impairment losses Other Raw materials SEKm 5,500 18% u t 42%

Transports u 117 5,163 3% Amortization/ 13 9 21 5,003 7 27 –34

5,000 Raw materials Personnel Operating leases depreciation 5%u Maintenance Marketing and amortization Depreciation Other

Advertising/ Promotion 7% u

4,500 Personnel expenses 25%p

4,000 2015 2016

67 Financial performance Cloetta Total operating expenses, excluding impairment losses Cost of goods sold [

Administrative expenses, Distribution and ANNUAL AND SUSTAINABILITYREPORT excluding impairment losses 13% q warehousing 5% q t Cost of goods sold 68% Manufacturing t Raw materials and costs 34% u packaging 61% Selling expenses 19% u

Quarterly data

2016 Q4 Q3 Q2 Q1 2015 Q4 Q3 Q2 Q1

2016 2016 Net sales, SEKm 5,852 1,684 1,448 1,362 1,358 5,674 1,622 1,459 1,280 1,313 Operating profit/loss, SEKm –82 –548 216 142 108 671 239 212 130 90

] Operating profit, adjusted, SEKm 758 258 224 150 126 690 255 194 133 108 Operating profit/loss margin, % –1.4 –32.5 14.9 10.4 8.0 11.8 14.7 14.5 10.2 6.9 Operating profit margin, adjusted, % 13.0 15.3 15.5 11.0 9.3 12.2 15.7 13.3 10.4 8.2

Seasonal variations Net financial items of the capitalized transaction costs of Cloetta’s sales and operating profit are subject Net financial items for the year amounted SEK –19m related to the Group’s previous to some seasonal variations. Sales in the first to SEK –174m (–178). Interest expenses external financing. The interest expense for and second quarters are affected by the Easter related to external borrowings amounted to external borrowings and realized losses on holiday, depending on in which quarter it oc- SEK –81m (–120) and other financial items interest rate swaps in individual currencies curs. In a comparison between 2015 and 2016, amounted to SEK –93m (–58). Net financial were positively affected by the Group’s refi- seasonal variations related to Easter were items were negatively impacted by a one-off nancing in July 2016. Of total net financial limited. In the fourth quarter, sales are usually cost of SEK –49m arising from the refinancing items, SEK –37m (–43) is non-cash in nature. higher than in the first three quarters of the of the Group, of which SEK –19m is non-cash year, which is mainly attributable to the sale in nature. The one-off cost is related to the call of products in Sweden and Italy in connection option fee of SEK –30m for redemption of the with the holiday season. senior secured notes and to full amortization

Net financial items

SEKm 2016 2015 Exchange differences in borrowings and cash and cash equivalents in foreign currencies –8 –1 Unrealized gains on single currency interest rate swaps 16 5 Other financial income 1 1 Interest expenses on third-party borrowings and realized losses on single currency interest rate swaps –81 –120 Interest expenses, contingent earn-out liabilities –10 –13 Call option fee for redemption of senior secured notes –30 – Amortization of capitalized transaction costs –34 –18 Other financial expenses –28 –32 Total –174 –178

Profit/loss for the year Key ratios

Profit/loss for the year was SEK –191m (386), % 2016 2015 which is equal to basic and diluted earnings Gross margin 39.6 39.0 per share of SEK –0.67 (1.35). Income tax for Operating profit/loss margin –1.4 11.8 the year was SEK 65m (–107). The effective Operating profit margin, adjusted 13.0 12.2 tax rate for the full year was 25.4 per cent Return on capital employed –0.9 8.6 (21.7). Profit/loss for the year excluding the Return on equity –4.5 8.9 impact of impairment was SEK 403m (386), which is equal to basic and diluted earnings For definitions, see page 149–150. per share of SEK 1.41 (1.35). The effective tax rate for the full year excluding the impact of impairment was 21.7 per cent (21.7).

68 Financial performance Cloetta Financial position [

ANNUAL AND SUSTAINABILITYREPORT

Condensed consolidated balance sheet Property, plant and equipment amounted to SEK 1,700m (1,698). The year’s invest- SEKm 31 Dec 2016 31 Dec 2015 ments amounted to SEK 155m (138), of which ASSETS SEK 34m (26) referred to land and buildings Non-current assets and SEK 121m (112) to machinery and equip- Intangible assets 5,354 5,948 ment. The year’s investments in property, Property, plant and equipment 1,700 1,698 plant and equipment referred primarily to Deferred tax asset 54 64

continuous efficiency-enhancing and replace- Other financial assets 13 27 2016 ment investments on the existing production Total non-current assets 7,121 7,737

lines and the extension of the Levice factory. ] Depreciation amounted to SEK –203m (–197). Current assets Acquired property, plant and equipment Inventories 780 786 resulting from business combinations totalled Other current assets 1,024 978 SEK 0m (121). Derivative financial instruments 4 1 Cash and cash equivalents 298 246 Current assets Total current assets 2,106 2,011 Assets held for sale 9 11 Current assets amounted to SEK 2,106m TOTAL ASSETS 9,236 9,759 (2,011). The increase is mainly the result of increased tax receivables following the EQUITY AND LIABILITIES resolution of a tax dispute in Italy and higher Equity 4,199 4,344 cash and cash equivalents. The assets held for sale at 31 December Non-current liabilities 2016 are the land and building in Zola Predo- Long-term borrowings 2,666 2,612 sa, Italy for an amount of SEK 9m (11). A sale Deferred tax liability 586 621 agreement with a third party has been signed. Derivative financial instruments 12 44 The property will be transferred in the second Other non-current liabilities – 43 quarter of 2017. Provisions for pensions and other long-term employee benefits 396 378 Provisions 22 10 Equity and liabilities Total non-current liabilities 3,682 3,708 Equity Consolidated equity decreased in 2016 from Current liabilities SEK 4,344m to SEK 4,199m. On the balance Short-term borrowings 2 344 sheet date the share capital amounted to Derivative financial instruments 54 35 SEK 1,443m (1,443). The equity/assets ratio Other current liabilities 1,235 1,271 on the same date was 45.5 per cent (44.5). Provisions 64 57 Total current liabilities 1,355 1,707 Liabilities TOTAL EQUITY AND LIABILITIES 9,236 9,759 Non-current liabilities, consisting mainly of loans from credit institutions, amounted to Assets ness combinations. Of total intangible assets, SEK 3,682m (3,708), which is a decrease of Total assets at 31 December 2016 amounted 98 per cent or SEK 5,225m (5,803) pertained SEK 26m compared to the previous year and to SEK 9,236m (9,759), which is a decrease to goodwill and trademarks at 31 December SEK 518m compared to two years ago. Long- of SEK 523m compared to the previous year. 2016. Goodwill and trademarks are tested at term borrowings amounted to SEK 2,666m least yearly for impairment. (2,612) and consisted of SEK 2,677m (1,625) Non-current assets In the assessment of possible impairment- in gross loans from credit institutions, Intangible assets totalled SEK 5,354m triggering events in the fourth quarter, the senior secured notes of SEK 0m (1,000) and (5,948). The decrease in the year is explained company determined that in light of Italy’s SEK –11m (–13) in capitalized transaction by the impairment loss of SEK –771m (–), the negative economic development and the per- costs. year’s investments amounting to SEK 15m formance of Cloetta Italy, an impairment test Provisions for pensions increased from (23) and amortization of SEK –42m (–34). was to be made at 31 December 2016 for the SEK 378m to SEK 396m, mainly as a result Exchange differences related to intangible CGU Italy/South in respect of goodwill and of changed actuarial assumptions. assets recognized in foreign subsidiaries trademarks. As a result of this, Cloetta record- Current liabilities fell to SEK 1,355m amounting to SEK 197m (–106). Other move- ed an impairment loss of SEK 771m at (1,707), mainly owing to a decrease in short- ments account for in total SEK 7m (183). In 31 December 2016, of which SEK 266m refers term borrowings to SEK 2m, compared to 2015 an amount of SEK 183m was related to to goodwill and SEK 505m refers to trade- SEK 344m in the previous year. Trade paya- acquired intangible assets as a result of busi- marks. bles totalled SEK 569m (541).

69 Financial performance Cloetta Equity Equity/assets ratio Net debt/EBITDA SEKm % SEKm

[ 5,000 3,500

50 ANNUAL AND SUSTAINABILITYREPORT 4.90 3,000 4,000 40 2,500 4.19 3.97 3,000 30 2,000

1,500 2,000 20 3.03 1,000 1,000 10 500 2.44

0 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 nn Net debt, SEKm Net debt/EBITDA, x

2016 2016 ] Refinancing plus an applicable fixed margin for loans in 35 per cent (40) of the fixed applicable In July 2016 Cloetta entered into a new term EUR. The applicable margin at 31 December margin on the unutilized amounts of the credit and revolving facilities agreement with a 2016 was 0.5 per cent for the outstanding revolving loans is paid as a commitment fee. group of four banks, in total amounting to the loans in SEK (2.25) and 1.0 per cent (2.25) equivalent of SEK 3,700m. The new facilities for the outstanding loans in EUR. The senior Change in capital employed have been used to refinance existing bank secured notes bared interest at a rate 3-month The Group’s capital employed during the loans and to redeem the senior secured notes. STIBOR-rate plus 3.10 per cent. year fell from SEK 7,756m to SEK 7,329m, a The facilities agreement bear variable The combined effective interest rate for decrease of SEK 427m. interest at a rate based on STIBOR plus an loans from credit institutions (and the senior applicable fixed margin for loans in SEK and secured notes) was 2.32 per cent (2.76) for the variable interest at a rate based on EURIBOR year.

Net debt

SEKm 31 Dec 2016 31 Dec 2015

Non-current borrowings, gross 2,677 1,625 Current borrowings, gross – 360 Senior secured notes – 1,000 Derivative financial instruments (current and non-current) 62 78 Interest payable 1 1 Gross debt 2,741 3,064 Cash and cash equivalents –298 –246 Net debt 2,443 2,818

Net debt Interest-bearing liabilities exceeded cash and cash equivalents and other interest-bearing assets by SEK 2,443m (2,818). The net debt/ equity ratio on the balance sheet date was 58.2 per cent (64.9).

70 Financial performance Cloetta Cash flow from operating activities Comments on SEKm 500 [

ANNUAL AND SUSTAINABILITYREPORT the cash flow statement 400

300 Condensed consolidated cash flow statement 200 SEKm 2016 2015

Cash flow from operating activities before changes in working capital 813 697 100 Cash flow from changes in working capital 76 230 Cash flow from operating activities 889 927 0 Q1 Q2 Q3 Q4 n 2015 n 2016 Cash flow from investments in property,

plant and equipment and intangible assets –170 –161 2016 2016 Cash flow from other investing activities –152 –206 Cash flow from operating activities Cash flow from investing activities –322 –367 SEKm ] 1,000 Cash flow from operating and investing activities 567 560

Cash flow from financing activities –534 –518 800

Cash flow for the period 33 42 600

Cash and cash equivalents at beginning of period 246 229 Cash flow for the period 33 42 400 Foreign exchange differences 19 –25 Cash and cash equivalents at end of period 298 246 200

0 2012 2013 2014 2015 2016 Operating activities acquisition of Locawo B.V. The cash flow from Cash flow from operating activities before investments in property, plant and equipment Cash flow from investing activities changes in working capital was SEK 813m and intangibles amounted to SEK –170m SEKm (697). The improvement compared to the (–161). Other cash flows from investing activi- 0 prior year is mainly due to the positive effect of ties amounted to SEK 2m (0). adjustments in other provisions profit/loss for items of a non-cash nature, primarily related Financing activities –500 to changes in other provisions of SEK 69m Cash flow from financing activities was and amortization/depreciation of SEK 14m. SEK –534m (–518). Total repayments of loans Operating profit, excluding the impact of the including the senior secured notes amounted –1,000 impairment loss, improved by SEK 18m, which to SEK 3,568m (518). The net proceeds from together with a decrease in corporate income new loans amounted to SEK 3,176m. In addi- –1,500 tax payments by SEK 10m, had a further tion, a dividend of SEK 144m (–) was paid dur- positive impact on cash flow from operating ing the year. Other cash flows from financing activities. Cash flow from changes in working activities amounted to SEK 2m (–). The net –2,000 2012 2013 2014 2015 2016 capital amounted to SEK 76m (230). cash flow was SEK 33m (42), which together with exchange differences of SEK 19m (–25) Cash flow from financing activities Working capital increased cash and cash equivalents to SEK 298m, compared to SEK 246 in the SEKm Cash flow from changes in working capital was 1,500 positively impacted by a decrease in invento- previous year. ries of SEK 30m (87), a decrease in receivables 1,200 of SEK 3m (225) and an increase in payables Cash and cash equivalents 900 by SEK 43m (–82). Cash and cash equivalents and short-term in- vestments excluding overdraft facilities on the 600 Investing activities balance sheet date amounted to SEK 298m 300 Cash flow from investing activities was (246). In addition, Cloetta had unutilized SEK –322m (–367). Settlement of the con- overdraft facilities for a total of SEK 1,150m 0 tingent consideration arising from the option (699). Cloetta’s working capital requirement is –300 agreement with Aran Candy Ltd. and the exposed to seasonal variations, partly result- settlement of the contingent earn-out con- ing from a build-up of inventories in prepara- –600 20121 2013 2014 2015 2016 sideration related to the acquisition of Alrifai tion for increased sales ahead of the Christmas Nutisal AB resulted in a cash outflow of holiday. This means that the working capital 1) In 2012 Cloetta received proceeds from a new share issue of SEK 1,056m in connection with the merger SEK –154m in the year. In 2015 a net cash requirement is normally highest during the between Cloetta and Leaf. In addition, loans from flow from investing activities was included autumn and lowest at year-end. credit institutions were renegotiated, thereby increas- in an amount of SEK –206m related to the ing the loans by a net amount of SEK 356m.

71 Financial performance Cloetta Future outlook [

ANNUAL AND SUSTAINABILITYREPORT

2016 was a good year for Cloetta. All in all, Another of the Group’s long-term targets In view of the strong cash flow the Board sales were up by 3.1 per cent. As a result of this is to reduce the net debt/EBITDA ratio to proposes a dividend of SEK 0.75 per share sales growth, in combination with effective around 2.5x. In 2016 the net debt/EBITDA (0,50), an increase of 50%. The ambition is to cost control, operating profit, adjusted, for the ratio target was met and amounted to 2.44x continue using future cash flows for payment full year reached SEK 758m (690). (3.03) at 31 December 2016. of dividends while also providing financial flexibility for complementary acquisitions. Goal attainment Profitable growth The long-term target of a payout ratio of The Group’s target is an EBIT margin, adjust- The strategy for Cloetta stands firm. The 40–60 per cent of profit after tax remains ed, of at least 14 per cent. In 2016 the EBIT focus in 2017 will be on continued profitable unchanged. margin, adjusted, improved to 13.0 per cent growth, both organic and acquisition-driven,

2016 2016 (12.2). For growth, the target is to increase higher efficiency in the supply chain through Financial outlook sales organically at a rate at least equal to the Lean 2020 initiative, improved growth As in earlier year, Cloetta is not issuing any ] market growth. Historically, annual growth in and cost synergies, new growth initiatives financial forecast for 2017. the market has been 1–2 per cent. In 2016 in pick & mix and more effective internal Cloetta’s organic growth was 0.5 per cent (1.5). processes.

Environmental impact and environmental management

Cloetta works to reduce its environmental factories in six countries. The two Swedish includes action plans and monitoring in a impact through systematic environmental factories in Ljungsbro and Helsingborg are number of areas. Environmental management management. Cloetta’s greatest environ- subject to reporting requirements according is an integral part of Cloetta’s operations and mental impact comes from water and energy to the Swedish Environmental Code. These environmental aspects are taken into account consumption, wastewater emissions, waste permits apply until further notice. There are when making decisions. Frequent evaluation and transports. Viewed over the entire life no injunctions in respect of the Swedish Envi- and follow-up of measures increase awareness cycle of the products, the most significant ronmental Code. about the effects of different working methods environmental impact arises in raw material The manufacturing units outside Sweden on the environment. and packaging production. Cloetta complies adapt their operations, apply for the neces- The Group’s environmental policy and with the statutory environmental require- sary permits and report to the authorities in environmental management are described in ments and the Group is not involved in any accordance with local legislation. more detail on pages 54–55. environmental disputes. At 31 December All of Cloetta’s factories conduct sys- 2016, Cloetta conducted operations at 12 tematic environmental management that

72 Risks and risk management Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

Risks and risk management

Uncertainty about future events is a natural part of all Risk management Effective handling of risks is an integral part business activities. Future events can have a positive of Cloetta’s management and control. Rapid impact on operations through opportunities to create distribution of relevant information is ensured increased value, or a negative impact through risks via the company’s management structures and processes. If possible, risks are eliminated that can have an adverse effect on Cloetta’s business and undesired events are minimized through and results. proactive measures. Alternatively, risks can be transferred for example through insurance or agreements. However, certain risks are not Risks can arise as a result of events or decisions that are beyond Cloetta’s control, but they can possible be eliminated or transferred. These also be an effect of incorrect handling within Cloetta or among its suppliers. are often an active part of business operations.

Organization for risk management Risk overview Cloetta’s Board of Directors is responsible to the shareholders for handling the company’s risk In Cloetta’s risk management process, a management. Decisions regarding risks associated with business development and long-term number of risk areas have been identified. strategic planning are prepared and discussed by the Group Management Team and decisions A selection of these and a brief description of are made by the Board of Directors. how each risk area is handled are presented on The Group Management Team continuously reports to the Board of Directors on risk areas the following pages. The Group’s financial risk such as the Group’s financial status and compliance with the Group’s finance policy. The opera- management is also described in more detail tional risk management that is handled at all levels in the organization is regulated by Cloetta’s in Note 28, on page 126. Code of Conduct and a number of central policies. Pages 86–87 contain a description of the internal control processes and risk assessment Identification of risks aimed at preventing misstatements in the The identification of risks and proactive measures to limit them or prevent them from material- financial reporting. izing and having a negative impact on operations are of fundamental importance for operations Management of risks in the working and are a central part of every manager’s responsibility at Cloetta. Cloetta works continuously environment is described on pages 32 and 57. to assess and evaluate the risks to which the Group is, and can be, exposed. All events that could affect confidence in Cloetta or lead to operating disturbances are vital to monitor and minimize. This takes place among other things through business intelligence and dialogue with various stakeholders.

73 Risks and risk management Cloetta Industry and market-related risks [

ANNUAL AND SUSTAINABILITYREPORT

Cloetta works continuously to assess and evaluate the risks to which the Group is, and can be, exposed. Critical external risks are handled both strategically through business and product development and operationally through day-to-day purchasing, sales and marketing activities.

Risks Management Probability Impact

Financial crises can have a negative impact on consumption From a historical perspective, the confectionery market has patterns. Operations are affected in that Cloetta’s customers been comparatively mildly affected by market downturns are suffering from lower profitability, which leads to price among consumers. This applies to a large extent to Cloetta’s

Market climate 2016 2016 pressure. products, which most people can afford to buy. To support the customers’ business and promote sound price development, Cloetta cooperates with the customers among other things ] through in-store sales activities.

The confectionery market is highly competitive with several Cloetta competes in the market through active pricing, product major players. Furthermore, grocery retailers offer private innovation, product quality, brand recognition and loyalty, labels that compete with certain Cloetta products. This com- marketing and the ability to predict and satisfy customer petition can limit Cloetta’s opportunities for price increases to preferences. Competition compensate for higher raw material costs. It is important that Cloetta’s products are perceived as provid- Cloetta may also need to increase its investments in marketing ing the consumers with greater value added than the cheaper and product development in order to maintain or expand its alternatives. market shares. Cloetta strives for effective marketing.

The European grocery and service trade has undergone a Cloetta’s strong brands and market position, together with process of consolidation leading to the establishment of large, a strong sales force and close cooperation with the trade, sophisticated players with substantial purchasing power. These contribute to its ability to maintain good relations with the retail Retail trade major players are not necessarily dependent on individual trade. Cloetta also works actively with new sales channels. development brands and can hold back price increases and demand higher investment in marketing initiatives. They can also take over Cloetta has a relatively wide and diversified customer base. In shelf space that is currently used for Cloetta’s products for their 2016, Cloetta’s ten largest customers accounted for around 43 own brands. (40) per cent of the Group’s total sales.

Changes in consumer behaviour give rise to both opportunities Health trends have not affected confectionery sales to a great and risks. Health trends and the debate on health, weight and extent, since confectionery is often eaten as a small luxury in sugar can have a negative impact on confectionery consump- everyday life. Cloetta works continuously to satisfy consumer tion. The health trend has also spurred a growing interest in preferences. In addition, Cloetta has an extensive offering of natural raw materials. sugar-free products and products that promote dental health. Consumer trends In the long-term, Cloetta’s goal is for all products to be free Health In view of rapid globalization, individual consumers are from artificial colours and additives (NAFNAC). Social responsibility more aware of how their consumption patterns affect the environment and social/ethical conditions around the world. Cloetta strives to include supplier codes of conduct in all Consumers want to know more about product origins, manu- agreements as far as possible, but as an individual company facturing methods and raw materials. Information that Cloetta, Cloetta is unable to influence international development on its or Cloetta’s suppliers, are not taking adequate environmental or own. Cloetta’s goal is to be open and, through cooperation with social responsibility could damage Cloetta’s brand. other confectionery producers and via various organizations, to identify problem areas and contribute to improvements.

Cloetta conducts operations through companies in a number of Cloetta continuously assesses legal issues in order to predict countries. New laws, taxes or rules in various markets may lead and prepare its operations for possible changes. The introduc- to limitations in operations or place new and higher demands. tion of confectionery taxes and fat taxes often has a short-term Laws and taxes There is a risk that Cloetta’s interpretation of the applicable tax impact on sales. laws, tax treaties and regulations in the different countries is not entirely correct or that such rules will be changed, possibly Provisions for legal disputes, tax disputes, etc., are based on with retroactive effect. an estimation of the costs, with the support of legal advice and based on the information that is available.

Price development for raw materials is steered mainly by Cloetta continuously monitors the development of raw material supply and demand, and is beyond Cloetta’s control. The prices and all purchasing is carried out through a central prices of sugar and many of the other raw materials purchased purchasing function. To ensure access and price levels, Cloetta by Cloetta are also affected by agro-political decisions in the normally enters into supplier contracts that cover the need for EU regarding quotas, support, subsidies and trade barriers, raw materials for a period of 6–9 months forward. If the aver- Raw material prices but also by rising living standards and the activity of financial age raw material prices had been 10 per cent higher/lower at 31 investors on the commodities exchanges. December 2016, profit before tax for the year would have been around SEK 150m lower/higher.

Cloetta’s policy is to compensate for higher raw material costs by raising prices to its customers.

74 Risks and risk management Cloetta Operational risks [

ANNUAL AND SUSTAINABILITYREPORT

Operational risks can often be influenced, for which reason they are normally regulated by policies, guidelines and instructions. Operational risks are part of Cloetta’s day-to-day work and are handled by the operating units. The operational risks include risks related to the brand, relocation of produc- tion, insurable risks and environmental, health and safety-related risks.

Risks Management Probability Impact

Demand for Cloetta’s well known brands is driven by the Cloetta takes a proactive approach to its sustainability respon- Business ethics and consumers’ association of these with positive values. If Cloetta sibility by implementing a Code of Conduct, ethical guidelines brand risks or any of the Group’s partners takes any measures in conflict and routines.

with the values represented by the brands, the Cloetta brands 2016 could be damaged. ]

Cloetta uses several raw materials originating from countries As far as possible, Cloetta strives to include supplier codes of with risks regarding the working environment, social conditions conduct in all agreements. and corruption. In addition, political instability can have a nega- tive impact on costs. Cloetta has evaluated all raw material groups and prioritized them based on the existing sustainability challenges and Cloet- ta’s opportunities to address these challenges. Sustainability risks in the supply chain Cloetta purchases UTZ-certified cocoa.

By the end of 2017, Cloetta will have implemented RSPO- segregated palm oil throughout the product portfolio.

By the end of 2017, Cloetta’s glazing agent will be free from palm oil.

Handling of food products places high demands on traceability, Cloetta works with first-class raw materials and in accordance hygiene and safety. In a worst-case scenario, inadequate con- with international quality standards. Analyses through chemical Product safety risks trol can lead to contamination or allergic reactions. Deficiencies and physical tests are performed on both raw materials and in handling of food products can lead to lower confidence in finished products. Issues of importance for product safety are Cloetta and the Group’s brands. gathered in special policies and there are plans for information or product recalls in the event of deficiencies.

Assets such as factories and production equipment can be Cloetta has an insurance programme, among other things for seriously damaged, for example in the event of a fire or power property and liability risks, and works systematically to reduce Insurable risks outage. Product recalls can give rise to substantial costs, the risk for incidents and to have robust contingency plans in resulting from both direct costs and of damage to Cloetta’s place to limit the effects of any incidents. reputation.

To optimize efficiency, Cloetta continuously monitors capacity Cloetta has an experienced and efficient organization with well Relocation of utilization in production. Moving production from one factory established routines for handling relocation of production lines. production lines to another is a complex process that can result in disruptions and delays in production, which can in turn lead to delivery problems.

To a large extent, Cloetta’s future is dependent on its capacity Cloetta endeavors to continue to be an attractive employer. Access to the right to recruit, retain and develop competent senior executives and Employee development and follow-up plans, together with expertise other key staff. market-based and competitive compensation, contribute to Cloetta’s ability to recruit and retain employees.

Environmental risks arise mainly through water and energy Cloetta sets environmental requirements for its production and Environmental risks consumption, wastewater emissions, raw material and packag- regularly monitors the company’s impact on the environment, in ing waste, production waste and transports. addition to conducting systematic efforts to reduce its environ- mental impact.

75 Risks and risk management Cloetta Financial risks [

ANNUAL AND SUSTAINABILITYREPORT

The primary financial risks are foreign exchange, financing, interest rate and credit risks. Financial risks are managed by the Group’s central finance function according to the guidelines established by Cloetta’s Board of Directors. The objective is to identify the Group’s risk exposure and, with a certain degree of foresight, to attain predictability in the financial outcome and minimize possible unfavourable effects on the Group’s financial results in close cooperation with the Group’s operating units. By consolidating and controlling these risks centrally, it is possible to minimize the level of risk while at the same time reducing the cost of measures like currency hedging. Financial risk management is described in detail in Note 28, on pages 126–127.

Risks Management Probability Impact

2016 2016 Exchange rate fluctuations affect Cloetta’s financial results The objective for Cloetta’s foreign exchange management is to partly in connection with buying and selling in different cur- minimize the effects of exchange rate fluctuations by utilizing

] rencies (transaction exposure), and partly through translation incoming currency for payments in the same currency. If the of the profit and loss accounts and balance sheets of foreign Swedish krona had weakened/strengthened by 10 per cent Foreign exchange subsidiaries to Swedish kronor (translation exposure). Cloetta’s against the Euro, the year’s profit before tax would have been risks presentation currency is the Swedish krona, while a majority around SEK 25m higher/lower. of the subsidiaries has the Euro as their functional currency, for which reason translation exposure is significant. Aside from The Group hedges parts of its translation exposure through SEK and EUR, Cloetta also has some exposure to NOK, GBP borrowing in EUR. In addition, the Group has hedges in USD to and USD. some extent.

Refinancing risk refers to the risk that it will not be possible In 2016 Cloetta met the financial target related to a net debt/ to obtain financing or that financing can be obtained only at a EBITDA ratio of 2.5x. During the year, the Group also refi- significantly higher cost. nanced its entire debt (bank loans and senior secured notes) Refinancing risks and entered into a new term and revolving facilities agreement with a group of four banks. This means that Cloetta now has a favourable situation for access to financing, including that for potential acquisitions, among other things.

Cloetta is exposed to interest rate risks in interest-bearing The Group continuously analyzes its exposure to interest rate current and non-current liabilities. Although some of the risk and performs regular simulations of interest rate move- Group’s bank loans are hedged, there is still exposure to inter- ments. Interest rate risk is reduced by hedging a share of future est rate risk for the parts that are not hedged or when hedges interest payments through interest rate swaps. expire. Interest rate risks If the interest rate had been 1 percentage point higher with all other variables held constant, profit before tax for the year would have been approximately SEK 25m lower. If the interest rate had been 1 percentage point lower with all other variables held constant, profit before tax for the year would have been approximately SEK 35m lower due to some interest rate swaps that do not include a zero-floor clause.

Credit risk refers to the risk that a counterparty to Cloetta will Credit risk in trade receivables is relatively limited in that the be unable to meet its obligations and thereby the other party Group’s customer base is diverse and consists mainly of large causes a loss. customers, and that distribution takes place primarily through the major grocery retail chains. The customers are subject to Credit risks Financial transactions also give rise to credit risks in relation to credit assessments in accordance with the credit policy and financial and commercial counterparties. the receivables balance is monitored continuously.

The Group’s counterparties in financial transactions are banks and credit institutions with good credit ratings (between AA– and A-3).

The Group has a number of assets and liabilities that have been Assets and liabilities are tested for impairment yearly or when Valuation risks valued with the help of various experts. These include goodwill there is an indication that such testing may be necessary. Read and brands/trademarks on the asset side and the pension more in Note 11, Intangible assets on page 110 and Note 33, liability and tax liabilities on the liability side. Critical accounting estimates and judgements on page 131.

76 Letter from the Chairman Cloetta [

Letter from the Chairman ANNUAL AND SUSTAINABILITYREPORT

2016 was a good year for Cloetta. Sales increased, the underlying operating profit improved, cash flow remained strong and the company met its net debt/ EBITDA target.

2016 2016 ]

Lilian Fossum Biner Chairman of the Board of Directors

Corporate governance creates order President/CEO, the Board has focused on the top performer among small to mid-sized and systems supporting the Group Management in its work companies on the Stockholm Stock Exchange. The Board’s foremost responsibility to the to achieve profitable growth and shape the These awards are ample proof that Cloetta shareholders is to ensure that the company is future business strategy. Two special areas provides transparent and engaging commu- managed as effectively as possible in the inter- of attention for the Board were the situation nication for the benefit of both existing and ests of the shareholders, but also that Cloetta in the Italian operations and the refinancing potential shareholders. complies with the rules set out by legislators, that the company carried out during the year. regulatory authorities and the stock exchange. With three new Board members, including the Cloetta stands strong for the future Corporate governance is aimed at creating undersigned, several visits were also made to In the past year Cloetta showed impressive order and systems for both the Board and the gain greater knowledge about activities in the development despite challenges such as the Group Management Team. By having a clear various countries. change of President/CEO and weak perfor- structure, with well-defined rules and pro- mance in the Italian business that forced cesses, we can also ensure that the manage- More and new shareholders us to recognize a sizeable impairment loss. ment and employees are focused on developing In 2016 Cloetta gained nearly 2,000 new It is therefore a major achievement that the the company’s business and strengthening the shareholders and at the end of the year more company has been able to report both a slight company. than 16,000 people owned shares in the increase in sales and an improvement in company. This means that the number of underlying operating profit. This, in combi- Work of the Board shareholders has nearly quadrupled since nation with a continued strong cash flow and At the 2016 Annual General Meeting the 2012. Foreign share ownership also increased the achievement of our target for net debt/ Board gained three new members, of whom I sharply during the year, from one third to EBITDA, has motivated the Board to propose was given the honour of being elected Chair- around half. It is primarily shareholders in a higher share dividend. man. An important part of the Board’s work the USA and the UK who have chosen to raise I would especially like to thank Danko during the year has been devoted to recruiting their stake in Cloetta. It is gratifying that so Maras, who in the capacity of Interim Pres- a new President/CEO to replace David Nu- many are interested in investing in the Cloetta ident/CEO made invaluable contributions utinen, who chose to step down for personal share, and it is the Board’s intention to manage to ensure continuity and development in the reasons. During the recruitment process, this trust well and thereby uphold confidence company during the year. I naturally also Cloetta’s CFO Danko Maras was appointed as in Cloetta among all shareholders. wish to extend my heartfelt gratitude to the Interim President/CEO to ensure continuity management and all employees, including for- and stability in the company’s management. Listed Company of the Year mer and current Board colleagues, for their ex- After a thorough recruitment process with For the third consecutive year, Cloetta was ceptionally good work during the year. Thanks both external and internal candidates, the named “Listed Company of the Year” in a to your efforts, Cloetta continues to move Board appointed Henri de Sauvage Nolting as financial communication competition held by forward as a strong and attractive company. the new President/CEO in December and he Aktiespararna and the consulting company took up duties on 15 February 2017. Kanton, among other things by having the I am very pleased that we have been able best annual report and investor website of all Stockholm, March 2017 to recruit a CEO with a solid background and companies on the Stockholm Stock Exchange. a proven track record from the fast moving In the past year Cloetta also won a prize, consumer goods industry. awarded by PwC, for the best reporting on Lilian Fossum Biner Aside from the search to find a new value creation, where Cloetta was chosen as Chairman of the Board of Directors

77 Corporate governance report Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

2016 2016 ]

Corporate governance report

The purpose of corporate governance is to ensure that the company is managed as effectively as possible in the interests of the shareholders, but also that Cloetta com- plies with the applicable rules. Corporate governance is also aimed at creating order and systems for both the Board and the Group Management. By having well defined structures, rules and processes, the Board can ensure that the Group Management and employees are focused on developing the business and thereby creating share- holder value.

Cloetta AB (publ) is a Swedish public limited For more information about Cloetta’s 1 Shareholders company, with corporate identification num- shares and shareholders, see section “Share ber 556308-8144, whose class B shares are and shareholders” on pages 60–65. The class B shares in Cloetta AB (publ) have traded on the Mid Cap list of Nasdaq Stock- been listed on Nasdaq Stockholm since 16 holm. The company is domiciled in Ljungsbro, February 2009 and are traded on the Mid Cap General meeting Linköping, and its head office is in Stockholm. 2 list since 2 July 2012. However, Cloetta was of shareholders Framework for originally introduced on the stock exchange in corporate governance 1994 and has since then been listed in a num- The general meeting of shareholders is ber of different owner constellations. Cloetta’s highest decision-making body. At a Cloetta’s corporate governance is regulated by The number of shares at 31 December general meeting, all shareholders have the op- external steering instruments that include the 2016 was 288,619,299 of which 278,757,685 portunity to exert an influence over the com- Swedish Companies Act, the Swedish Annual were of class B and 9,861,614 were of class A. pany by exercising the votes attached to their Accounts Act, Nasdaq Stockholm’s Rules for Each class B share corresponds to one vote respective shareholdings. The powers and Issuers and the Swedish Code of Corporate and each class A share to ten votes, although duties of the general meeting are regulated Governance, as well as internal steering in- all shares carry equal entitlement to the com- among other things by the Swedish Companies struments such as the Articles of Association, pany’s assets and profits. Act and the Articles of Association. instructions, policies and guidelines. The number of shareholders at 31 Decem- Cloetta’s financial year runs from Application of the Swedish Code of ber 2016 was 16,236 (compared to 14,164 at 1 January to 31 December. The Annual Gen- Corporate Governance 31 December 2015). On 31 December 2016 eral Meeting shall be held within a period of AB Malfors Promotor was Cloetta’s largest six months after the end of the financial year. In 2016 Cloetta complied with the Code. shareholder, with a holding corresponding to The date and location of the AGM shall be 42.3 per cent of the votes and 24.6 per cent of communicated on the company’s website at the share capital in the company. the latest in connection with publication of the

78 Corporate governance report Cloetta Governance structure 1 Shareholders [

ANNUAL AND SUSTAINABILITYREPORT Vote at the general meeting

Information Annual General Auditor3 2 Meeting 7 Elects the auditor Appoints the nomi- Proposes the Board, auditor and nomi- nation committee nation committee ahead of next AGM

3 Nomination committee1

Elects the Board of Directors

5 Audit committee 2 Board of Directors 4 Information 2016

The members of the Board are appointed by the AGM. ] Employee representatives and deputy representatives are appointed by the employee organizations. The 5 Remuneration committee members of the audit and remuneration committees are appointed by the Board.

Goals, strategies, policies, External steering instruments Reports, steering instruments, Important external steering instruments that provide 8 internal control core values, the framework for corporate governance are: remuneration structure • The Swedish Companies Act • The Swedish Annual Accounts Act 1 The nomination committee prepares proposals • Nasdaq Stockholm’s Rules for Issuers for decision that are presented to the AGM. The • The Swedish Code of Corporate Governance AGM decides on principles for appointment of the 6 President/CEO nomination committee. Internal steering instruments 2 The Board installs the committees and appoints Important binding internal control documents include: their members. • The Articles of Association 3 The auditor is responsible, on behalf of the • The Board’s work plan shareholders, for auditing Cloetta’s annual report, • Instructions for the President/CEO, accounts and the administration of the Board of The Group the audit committee, the remuneration committee Directors and the President/CEO. Reports to the 6 Management Team and financial reporting Board of Directors and the shareholders. • Policies third quarter report. Notice of the AGM shall that a matter should be taken up at the AGM • Appropriation of the earnings of the compa- be given no earlier than six weeks and no later and in such case must submit a written request ny through a dividend of SEK 0.50 per share; than four weeks prior to the AGM through to the Board. In order to be taken up at the • Discharge from liability for the Board of publication in Post- och Inrikes Tidningar AGM, the request must be submitted to the Directors and President/CEO; (the Swedish Official Gazette) and on the com- Board no later than seven weeks prior to the • That the number of Board members elected pany’s website. At the same time, information AGM. In accordance with Chapter 7, 32 §, of by the AGM shall be seven, with no deputies; confirming that notification has taken place the Swedish Companies Act, all shareholders • Re-election of sitting Board members shall be published in Dagens Industri. have the right, at a general meeting of share- Adriaan Nühn, Mikael Svenfelt, Lottie Every shareholder has the right to request holders, to pose questions to the company Knutson and Mikael Norman. Lilian Fossum about the matters that are taken up at the Biner, Hans Porat and Camilla Svenfelt were Attendance at AGMs/EGMs meeting and the financial situation of the elected as new Board members. The AGM company and the Group. elected Lilian Fossum Biner as Chairman of Votes, % 100 the Board. Former Board member Caroline 91.1 86.6 2016 AGM Sundewall and Olof Svenfelt resigned in 80 The latest AGM was held on 12 April 2016 in connection with the AGM. Aside from the 69.4 Stockholm. The AGM was attended by 275 members elected by the AGM, the employee 63.9 59.6 individuals representing 59.6 per cent of the organizations PTK and LIVS appointed an 60 votes in the company. The President/CEO, all employee representative and a deputy repre- 107 174 158 199 275 Board members, the company’s independent sentative each to the Board; 40 auditor, the chairman of the nomination com- • Board fees were set at SEK 620,000 for the mittee, the group’s CFO and SVP Corporate Board Chairman and SEK 285,000 for each 20 Communications and Investor Relations were of the other Board members elected by the also present at the AGM. The AGM approved AGM. Fees for work on the Board com- 0 the proposals of the Board and the nomination mittees were set at SEK 100,000 for each 2012* 2013 2014 2015 2016 committee regarding: member of the audit committee and ● No. of people • Adoption of the balance sheet and the profit SEK 50,000 for each member of the remu- (shareholders, proxies, assistants and guests) * Extraordinary general meetings and loss account; neration committee;

79 Corporate governance report

Cloetta • Fees to the auditor are to be paid according Board and three shall be members appointed Composition of the Board to approved account; by the three largest shareholders in terms of According to the Articles of Association,

[ • Re-election of KPMG AB as the company’s voting power. The members appointed may Cloetta’s Board of Directors shall consist of at

ANNUAL AND SUSTAINABILITYREPORT auditor to serve for the period until the end of themselves appoint one additional member. least three and at most ten members elected by the next AGM; the AGM. The AGM on 12 April 2016 resolved • Rules for the nomination committee; Independence of that the Board shall have seven members • Guidelines for remuneration to the Group the nomination committee appointed by the AGM. Management Team; The majority of the nomination committee’s To serve for the period until the end of • The implementation of a share-based long- members shall be independent in relation to the next AGM, to be held on 4 April 2017, the term incentive plan. the company and its Group Management and AGM on 12 April 2016 elected Board members The complete minutes from the AGM can be at least one of these shall also be independent Lilian Fossum Biner (Chairman), Lottie viewed at www.cloetta.com. in relation to the company’s largest sharehold- Knutson, Mikael Norman, Adriaan Nühn, er in terms of voting power. Of the appointed Mikael Svenfelt, Hans Porat and Camilla 2017 AGM members, all four are independent in relation Svenfelt. In addition, the employee organiza- The 2017 AGM will be held on Tuesday, to the company and its Group Management tion LIVS appointed one employee repre- 4 April 2017, at 4:00 p.m. at Stockholm and three are independent in relation to the sentative to the Board, Lena Grönedal, and

2016 2016 Waterfront Congress Centre, Nils Ericsons company’s largest shareholder in terms of one deputy representative, Shahram Nikpour Plan 4, in Stockholm. The Notice of the voting power. Badr. The employee organization PTK

] Annual General Meeting was published in appointed one employee representative to the February 2017 and contained the Board’s pro- Shareholder proposals Board, Mikael Ström, and one deputy rep- posals. For more information, see section on All shareholders have the right to contact the resentative, Christina Lönnborn. All Board “Annual General Meeting” on page 155 and nomination committee to propose candidates members have attended Nasdaq’s stock market www.cloetta.com. for election to the Board. Proposals shall be training course for board and management. sent to the chairman of the nomination com- The average age of the Board members elected mittee by e-mail to nominationcommittee@ 3 Nomination committee by the AGM was 53 at year-end 2016, and cloetta.com. three of the seven are women. For informa- tion about the Board members’ assignments Work of the nomination committee Meetings of the nomination committee outside the Group and holdings of shares in The task of the nomination committee is to The nomination committee ahead of the 2017 Cloetta, see pages 88–89 and cloetta.com. prepare recommendations to be put before the AGM has held three meetings. No fees have AGM for decisions regarding election of Board been paid for work on the committee. members and the Board Chairman, fees to the Independence of the Board Board of Directors, remuneration for commit- In accordance with the Swedish Code of tee work, election of a chairman of the AGM, 4 Board of Directors Corporate Governance, the majority of the election of auditors, auditing fees and rules for Board members elected by the AGM shall be the nomination committee. Work of the Board independent in relation to the company and its The Board Chairman presents an annual The primary task of the Board is to serve the Group Management and at least two of these evaluation of the Board’s activities during interests of the company and the shareholders, shall also be independent in relation to the the year to the nomination committee, which appoint the President and ensure that the company’s major shareholders. Of the Board’s provides a basis for the nomination commit- company complies with the applicable laws, seven members, all are independent in relation tee’s work together with the provisions in the the Articles of Association and the Swedish to the company and its Group Management Swedish Code of Corporate Governance and Code of Corporate Governance. and five are independent in relation to the Cloetta’s own company-specific requirements. The Board is also responsible for making company’s major shareholders. The nomination committee’s recommen- sure that the Group is suitably structured dations for election of Board members, Board so that the Board can optimally exercise its Instructions and policies fees and auditors are presented in the notice to governance over the subsidiaries and that the attend the AGM and at www.cloetta.com. company’s financial accounting, financial The Board reviews and adopts the following management and financial circumstances in instructions and policies on a yearly basis: Composition of general can be controlled satisfactorily. At • Work plan for the Board • Instructions for the President the nomination committee least once a year the Board shall meet with • Instructions for financial reporting In accordance with the decision of the AGM, the company’s auditor without the presence • Work plan and instructions for the audit Cloetta’s nomination committee shall consist of the Group Management Team, and shall committee of at least four and at most six members. Of continuously and at least once a year evaluate • Work plan and instructions for the remuneration committee these, one shall be a representative of the the performance of the President. • Code of Conduct • Corporate Communications and IR policy • Finance policy • HR policy • Insider policy Nomination committee ahead of the 2017 AGM • Insurance policy • Policy for internal control Share of votes at • IT security policy Member Appointed by Independent1 31 Dec. 2016, % • Mergers and acquisitions policy (anonymous reporting of violation of laws, the Code of Olof Svenfelt, Chairman AB Malfors Promotor Yes/No 42.3% Conduct or other rules at Cloetta) John Strömgren Carnegie Fonder Yes/Yes 1.7% • Fraud and whistleblower policy Johan Törnqvist Ulla Håkanson Yes/Yes 1.3% • Anti-bribery and -corruption policy • Trade control policy Lilian Fossum Biner Board of Cloetta AB Yes/Yes 0% 1) Independent from the company and its Group Management/from the company’s largest shareholder in terms of voting power

80 Corporate governance report Cloetta The Board’s instructions and policies Board meetings bilities of the Board, shall regularly meet with On a yearly basis, the Board reviews and In 2016 the Board held nine scheduled meet- the company’s auditors to stay informed about

the focus and scope of the audit. The compa- [ adopts a work plan for its own activities and ings, of which one statutory meeting, and four ANNUAL AND SUSTAINABILITYREPORT those of the Board’s audit and remuneration extra meetings. The President and the CFO, ny’s auditor shall be invited to participate in committees. The Board also adopts instruc- who is also the Board secretary, take part in the meetings of the audit committee. The audit tions for the President and instructions for the Board’s meetings. Other members of the committee shall meet at least four times every financial reporting. Among other things, these Group Management Team take part as needed financial year. Once a year, the committee regulate the segregation of duties between the as rapporteurs for special items of business. shall meet without the presence of any mem- Board of Directors, the Board Chairman, the ber of the Group Management. All meetings President and the auditor, quorum, conflict of of the audit committee are minuted. The audit interest, the work of the committees, internal 5 Board committees committee shall inform the Board about the and external reporting, routines for notice to matters dealt with by the committee. In 2016 attend general meetings, Board meetings and Audit committee the committee held five meetings. minutes. According to the Swedish Code of Corporate In addition, the Board has issued and Governance, the audit committee shall consist Remuneration committee adopted a Code of Conduct and policies for of at least three members who are appointed The remuneration committee shall have no corporate communications and IR, finance, by the Board on a yearly basis. One of the more than four members who are appointed by 2016 HR, insiders, insurance, internal control, IT members shall be chairman of the committee. the Board on a yearly basis. One of the mem- security, mergers and acquisitions, fraud and In 2016 the Board audit committee consisted bers shall be chairman of the committee. The ] whistleblower, trade controls, anti-bribery of members Mikael Norman (chairman), Hans Board’s remuneration committee consists of and -corruption. Porat and Adriaan Nühn. members Mikael Svenfelt (chairman), Adriaan The majority of the committee’s mem- Nühn and Lilian Fossum Biner. Evaluation of Board performance bers shall be independent in relation to the The majority of the committee’s members The performance of the Board is evaluated company and its Group Management, and at shall be independent in relation to the compa- yearly in order to develop the Board’s working least one of these shall also be independent in ny and its management. Of the remuneration methods and efficiency. The Board Chairman relation to the company’s major shareholders. committee’s members, all are independent in is responsible for carrying out the evaluation At least one member shall be independent and relation to the company and its management. and presenting the results to the nomination have accounting or auditing expertise. Of the The work of the remuneration committee committee. The purpose of the evaluation is audit committee’s three members, all three is regulated by special instructions that are to gather the Board members’ views on the are independent in relation to the company adopted by the Board as part of its work plan. Board’s performance, what measures can be and its management and all are independent in The main tasks of the remuneration commit- taken to improve the efficiency of board work, relation to the company’s major shareholders. tee are to prepare recommendations to the and whether the Board has a well-balanced The work of the audit committee is Board for decision on remuneration princi- mix of competencies. The evaluation provides regulated by special instructions that have ples, remuneration levels and other terms of valuable input for the nomination committee been adopted by the Board as part of its work employment for the Group Management, to ahead of the AGM. In 2016 the Chairman plan. The audit committee is responsible for monitor and evaluate programmes for variable conducted a written survey among all Board ensuring the quality of the financial reporting remuneration completed during the year and members including the employee representa- and the effectiveness of the company’s internal ongoing programmes to Group Management tives. The results of the evaluation have been control and risk management regarding finan- as adopted by the AGM and of the current re- reported to and discussed by both the Board cial reporting. In brief, the audit committee, muneration structures and levels in the Group. and the nomination committee. without affecting the other tasks and responsi- The remuneration committee shall meet at

Board meetings in 2016

DECEMBER Extra Board meeting; preparations for decision about the new President/CEO. Scheduled Board meeting; budget/business plan for the coming year, bonus targets, business strategy. FEBRUARY Extra Board meeting; decision to appoint Henri de Sauvage Nolting as the new President/CEO. Scheduled Board meeting; year-end report, draft annual report, matters ahead of the AGM, report C JA DE N from the auditor, incentive schemes. OCTOBER F V E O B Scheduled Board meeting; interim report N for the period from January to September, MARCH M T Board evaluation, business strategy. A Scheduled Board meeting; annual report, C R notice to attend the AGM. O SEPTEMBER APRIL Scheduled Board meeting; visit to Cloetta’s S E R Annual General Meeting office in Oosterhout, review of the commercial P P Statutory meeting; decision on authorized signatories, A operations in the Netherlands and visit to the adoption of instructions and policies, election of Lonka factory, adoption of two new policies, A the remuneration committee and audit committee, U Y business strategy. G A appointment of a Board representative to the nomi- M AUGUST J nation committee, decision on dates and locations for UL JUN Extra Board meeting; preparations for the possible the upcoming scheduled Board meetings, the AGM resignation of the President/CEO. and reporting dates Extra Board meeting; Danko Maras is appointed Scheduled Board meeting; refinancing of Cloetta, Interim President/CEO, interim report for the period from January to March. JUNE decision on authorized signatories. JULY Scheduled Board meeting; refinancing of Cloetta. Scheduled Board meeting; interim report for the period from January to June. 81

Dec Jan Corporate governance report

Cloetta least twice every financial year. In 2016 the of the Group Management Team, see pages President/CEO and committee held five meetings. 6 90–91. Group Management Team

[ The Group Management Team conducts

ANNUAL AND SUSTAINABILITYREPORT Board Chairman management meetings at regular intervals and The Board Chairman shall be elected by the The President/CEO is appointed by the Board held nine meetings in 2016. The meetings are general meeting of shareholders, and the AGM and supervises operations according to the focused on the Group’s strategic and operative on 12 April 2016 elected Lilian Fossum Biner instructions adopted by the Board and is development and financial performance. In as Chairman of the Board. The Chairman responsible for day-to-day management of the addition to these meetings, the members of the shall supervise the work of the Board and company and the Group in accordance with Group Management Team work in close daily ensure that the Board discharges its duties, the Swedish Companies Act. In addition, the cooperation regarding various matters. and has special responsibility for ensuring that President/CEO, together with the Chair- the work of the Board is well organized and man, decides which matters are to be dealt 7 Auditor effectively executed and for monitoring the with at Board meetings. The Board regularly Group’s development. The Chairman oversees evaluates the President/CEO’s duties and The auditor is elected by the AGM for exami- the effective implementation of the Board’s performance. nation of the company’s annual accounts and decisions and is responsible for ensuring that The President/CEO is responsible for

ensuring that the Board members are supplied accounting records and the administration 2016 2016 the work of the Board is evaluated yearly and of the Board of Directors and the President/ that the nomination committee is informed with the necessary information and decision CEO. The auditors’ reporting to the share- ] about the results of this evaluation. data and presents reports and proposals at Board meetings regarding issues dealt with by holders takes place at the AGM through the Group Management Team. The Presi- presentation of the auditor’s report. dent/CEO regularly informs the Board and Chairman about the financial position and Organization for development of the company and the Group. sustainability work Danko Maras has been Interim President/ CEO of Cloetta since 1 September 2016, when The overall strategies for Cloetta’s corpo- David Nuutinen resigned at his own request. rate responsibility work are adopted by the Group Management Team and are controlled On 15 December 2016 the Board decided and monitored through business planning to appoint Henri de Sauvage Nolting as Presi- processes at several levels in the company. dent/CEO of Cloetta AB. He took up duties on Ultimate responsibility for corporate respon- 15 February 2017. sibility matters lies with Cloetta’s President/ CEO. As per 31 December 2016 aside from the interim President/CEO and CFO, the Group Cloetta’s sustainability work is overseen by Management Team consisted of the three the Director Corporate Responsibility, who regional presidents for Scandinavia, Finland, functions as a spokesman for issues related to corporate responsibility and is responsible Middle/Italy/Rest of the World, the President Tomas Forslund for identifying prioritized areas, acting as the Operations (which includes purchasing and Auditor in Charge. stakeholders’ link to the management and production) and the four heads of the central supporting the implementation of Cloetta’s Auditor for the company since 2015. staff functions Finance, IT, Marketing, HR, corporate responsibility strategy. Environ- Born in: 1965. Corporate Communications & IR and Cor- mental and occupational health and safety Authorized Public Accountant KPMG AB. managers are found at all of the factories. porate Development/M&A. For information Previous auditing assignments: ICA-gruppen, about the President/CEO and other members Kinnevik, Systemair, DGC, Tradedoubler, Feelgood

Organization

President/CEO

Finance/IT HR

Corporate Corporate Development/M&A Communications & IR

Marketing

Middle/ Operations Scandinavia Finland International Italy Markets

82 Corporate governance report Cloetta The AGM on 12 April 2016 re-elected the Group prepares a closing of the books that is Nordic Market Awards certified auditing firm KPMG AB as the com- submitted to the Board and the Group Man- In the yearly IR Nordic Market Awards survey

pany’s independent auditor to serve during agement Team. For each upcoming financial [ conducted by Regi among all analysts, Danko ANNUAL AND SUSTAINABILITYREPORT the period until the end of the next AGM. Au- year, a profit, balance sheet and investment Maras was named best CFO within Investor thorized Public Accountant Tomas Forslund is budget are prepared for the Group and are Relations among all companies on Nasdaq Auditor in Charge. adopted at the scheduled Board meeting in Stockholm and Jacob Broberg was named best December. Investor Relations Officer among all Mid-Cap External financial information is regular- companies on Nasdaq Stockholm. 8 Financial reporting ly provided in the form of: • Interim reports Webranking by Comprend The Board of Directors is responsible for • Annual report Cloetta took first place in Comprend’s ensuring that the company’s organization is • Press releases about important news that are Webranking survey among Sweden’s 100 structured in such a way that the company’s assessed to have a potential impact on the largest listed companies. financial circumstances can be controlled share price Webranking by Comprend is Europe’s satisfactorily and that external financial in- • Presentations for financial analysts, inves- leading survey of corporate websites and the formation such as interim reports and annual tors and the media on the date of publication only global ranking that is based on stake- reports to the market is prepared in accord- of the year-end and interim reports holder demands. Every year, Comprend ranks 2016 ance with the legal requirements, relevant • Meetings with financial analysts and inves- the digital corporate communications of 900 accounting standards and other requirements tors companies around the world, measuring how ] applicable to listed companies. The tasks of well they meet the expectations of their key the Board are to oversee the Group’s financial Awards for financial communication stakeholders – analysts, investors, business development, assure the quality of the Group’s Aktiespararna and Kanton’s Listed journalists and job seekers. financial reporting and internal control and Company of the Year competition regularly monitor and evaluate operations. In the autumn of 2016, for the third consecu- Best reporting about The task of the audit committee is to tive year, Cloetta was the overall winner in the value creation support the Board in assuring the quality of Listed Company of the Year competition fol- For the third consecutive year, PwC named the company’s financial reporting. However, lowing wins in the sub-categories Best Annual the companies listed on Nasdaq Stockholm the audit committee deals not only with the Report, Best IR Website and an honourable that have provided the best reporting about Group’s financial reports and significant mention for Best Interim Report. value creation. Cloetta won the prize for accounting matters, but also matters related The annual Listed Company of the Year smaller companies. to internal control, compliance, material un- competition, which is arranged by Kanton in certainty in reported values, events after the association with the head sponsor Aktiespara- Additional information balance sheet date, changes in estimates and rna, among others, is aimed at promoting At www.cloetta.com, information such as the judgments and other conditions affecting the exemplary financial communication among following can be found: the Articles of Associ- quality of the financial reports. listed companies and is Sweden’s largest ation, the Code of Conduct, information from The President/CEO ensures that the competition in financial communications previous AGMs and corporate governance financial accounting in the group companies is and the most comprehensive competition in reports from previous years. carried out in compliance with legal require- investor relations. The competition consists ments and that financial management is con- of three sub-competitions in which the annual ducted in a satisfactory manner. Cloetta AB’s reports, interim reports and IR websites of all President/CEO is a member of the boards of companies with a primary listing on Nasdaq all operating subsidiaries. Every month, the Stockholm are reviewed.

Press releases 2016

Summary May September February • Giorgio Boggero, President Cloetta Italy, resigns • Cloetta has the stock exchange’s best annual • Year-end report January–December 2015 from Cloetta. report • Proposal by the nomination committee regarding June • Nomination committee appointed the Board of Directors of Cloetta AB • Cloetta extends its current bank credit facility • Cloetta completes early redemption of senior secured notes March July • Notice of the 2016 Annual General Meeting • Interim report January–June 2016 October • Annual report 2015 • Cloetta enters into new loan agreement • Interim report January–September 2016 April August December • Annual General Meeting • Cloetta exercises option to redeem senior • Henri de Sauvage Nolting appointed President • Interim report January–March 2016 secured notes early /CEO • David Nuutinen steps down as President/CEO • Jacqueline Hoogerbrugge President Operations leaves Cloetta

83 Corporate governance report Cloetta Remuneration to [

ANNUAL AND SUSTAINABILITYREPORT Group Management Team

Guidelines for remuneration to Group Management Team Other benefits The current guidelines for remuneration to Group Management Team were adopted by the Other benefits, consist mainly of company car AGM on 12 April 2016. The total remuneration shall be market-based and competitive, and benefits. shall be proportionate to the individual’s responsibilities and powers. In addition to base salary, remuneration to the President/CEO, other members of the Group Management Team and other Pension benefits

2016 2016 executives reporting directly to the President/CEO can include: Pension benefits, vary depending on the agree- ments and practices in the country where the

] Short-term variable compensation individual is employed. Defined contribu- Short-term variable compensation is linked to specific business targets and is derived from the tion plans are strived for, which means that annual business plan approved by the Board of Directors. The short-term variable compensation pension benefits most often consist of defined is delivered through a cash-based bonus program. Short-term variable compensation has three contribution plans for which annual premiums core targets: are paid as a percentage of pension-qualifying – Net sales growth salary up to the age of retirement. In almost – Operating profit all cases, variable salary and benefits are not – Cash flow pension-qualifying. The retirement age is not less than 60 years and not more than 67 years. The short-term variable compensation structure is as follows: The Board has the right to deviate from these principles in individual cases where Short-term variable compensation as a percentage of base salary there is special reason to do so.

Target level Maximum level Termination benefits President/CEO 2016 50% 100% Upon termination of employment on the part Other Group Management Team 2016, average 35% 70% of the company, the notice period shall be no longer than 12 months. Any termination ben- President/CEO 2015 50% 100% efits may not exceed one fixed annual salary. Other Group Management Team 2015, average 35% 70% Due to employment contracts entered into in Leaf prior to Cloetta’s acquisition of the com- Share-based long-term variable compensation pany, there are employment contracts with Share-based long-term variable compensation, consists of the share-based long-term incen- members of the Group Management Team tive plans, which are resolved on yearly by the AGM and is aimed at increasing the value for the granting termination benefits corresponding Group’s shareholders by promoting and upholding the senior management’s commitment to the to 18 monthly base salaries. Group’s development, and thereby aligning the interests of the shareholders with those of the Group Management Team and other key employees in order to ensure maximum long-term value creation. The targets for share-based long-term variable compensation are the compounded annual growth rate and operating profit. Total variable remuneration to Group Management Team incl. the President/CEO and outcome as a % of base salary SEK Thousand % 80 Remuneration to Group Management Team incl. the President/CEO 20,000 2016 Pension benefits 13% u t Base salary 54% 15,000 60

Other benefits 5%u

Share-based long-term 10,000 40 variable compensation 8% u

5,000 20

Short-term variable compensation 20%u 0 0 2012 2013 2014 2015 2016 nn Short-term and share-based long-term variable compensation Percentage of base salary

84 Corporate governance report Cloetta President/CEO in order to ensure maximum long-term value the Swedish Code of Corporate Governance, The retirement age is 65 years. The pension creation. the Board hereby presents the following report

A personal shareholding in Cloetta is on the results of the remuneration commit- [ terms consist of a defined contribution plan for ANNUAL AND SUSTAINABILITYREPORT which annual premiums are paid up to the age required for all participants. See page 64 and tee’s evaluation: or retirement in an amount corresponding to Notes 24, 29 and 31 for more information The variable compensation that is payable 30 per cent of pension-qualifying salary, con- about share-based payment. according to the guidelines is linked to both sisting of base salary. Variable compensation the individual’s responsibility for results and other benefits are not pension-qualifying. The Board of Directors’ report and the Group’s profitability targets, which The President/CEO has a notice period of on the remuneration committee’s contributes to value growth for the company’s six months. Upon termination on the part of evaluation of remuneration to shareholders. the company, the notice period is 12 months. Group Management Team Market surveys are conducted regularly The Board of Directors has set up a remuner- with respect to salary statistics, remuneration Remuneration in 2016 ation committee consisting of three members structures and levels for variable remuner- Total remuneration to the Group Management who prepare recommendations for decision by ation. In the opinion of the remuneration Team including the President/CEO in 2016 the Board regarding remuneration principles, committee, Cloetta’s remuneration structures amounted to SEK 44,581 thousand (52,355) remuneration levels and other terms of em- and remuneration levels have allowed Cloetta including pension benefits and SEK 38,543 ployment for the Group Management Team. to recruit and retain the right personnel to the 2016 thousand (45,623) excluding pension benefits. The recommendations have included the Group Management Team.

Provisions of SEK 446 thousand (590) previ- proportional distribution between base salary Remuneration to the President/CEO for ] ously made for the resigned President/CEO in and variable compensation and the size of any the financial year 2016 has been determined the share-based long-term incentive plan were salary increases. Furthermore, the remuner- by the Board. Remuneration to other members dissolved in 2016. ation committee has discussed pension terms of the Group Management Team and to other and termination benefits. senior executives has been determined by the Share-based long-term incentive plan The remuneration committee is also en- President/CEO. Since the 2016 AGM, the for senior executives trusted with the task of monitoring and evalu- remuneration committee has met on five occa- The Annual General Meeting on 12 April 2016 ating programmes for variable remuneration sions. The proposed guidelines for remunera- approved the Board’s proposal for a share- to the Group Management Team, application tion to Group Management Team in 2017 that based long-term incentive plan, similar to of the guidelines for remuneration adopted by will be presented by the Board to the AGM on previous years. The plan aligns the interest the AGM and the current remuneration struc- 4 April 2017 for approval are identical to the of the shareholders with those of the Group tures and remuneration levels in the company. current guidelines. Management Team and other key employees Pursuant to paragraph 9.1, points 2 and 3, of

Remuneration cost incurred for the Group Management Team

Short-term variable compensation Share-based incurred in the year, long-term 2016 Base expected to be paid variable Other Pension SEK Thousand salary in the next year compensation benefits Subtotal benefits Total

David Nuutinen, President/CEO1 3,516 – –4463 306 3,376 – 3,376 Danko Maras, Interim President/CEO2 (CFO) 1,017 811 280 38 2,146 339 2,485 Other Group Management, 10 persons4 19,550 8,013 3,725 1,733 33,021 5,699 38,720 Total 24,083 8,824 3,559 2,077 38,543 6,038 44,581 Of which, in the Parent Company 14,714 5,173 178 1,168 21,233 2,191 23,424

Short-term variable compensation Share-based incurred in the year, long-term 2015 Base expected to be paid variable Other Pension SEK Thousand salary in the next year compensation benefits Subtotal benefits Total

Bengt Baron, President/CEO5 3,908 – –5907 73 3,391 820 4,211 David Nuutinen, President/CEO6 1,744 961 473 104 3,282 – 3,282 Other Group Management, 10 persons 21,654 11,203 4,618 1,475 38,950 5,912 44,862 Total 27,306 12,164 4,501 1,652 45,623 6,732 52,355 Of which, in the Parent Company 14,701 7,757 1,929 590 24,977 3,204 28,181

1) Resigned on 31 August 2016. 2) Took up duties on 1 September 2016. 3) Refers to the release of the share-based long-term incentive plans for 2015 and 2016. The release had no effect on cash flow. 4) Other Group Management consisted of 10 persons from 1 January 2016 to 1 June 2016. During the period from 1 June to 1 September 2016, other Group Management consisted of 9 persons. As of 1 September 2016 other Group Management consisted of 8 persons. 5) Resigned on 20 July 2015. 6) Took up duties on 20 July 2015. 7) Refers to the release of the share-based long-term incentive plans for 2013 and 2014. The release had no effect on cash flow.

85 Corporate governance report Cloetta Internal control [

ANNUAL AND SUSTAINABILITYREPORT over financial reporting

Cloetta’s internal control over financial Cloetta’s core values that amongst other Central and local financial reporting risks reporting is based on the framework as things govern financial reporting. are assessed with respect to account balance published by the Committee of Sponsoring • The management’s conduct and working assertions such as existence, completeness, Organizations of the Treadway Commission methods based on a clearly defined working rights and obligations, valuation and alloca- (COSO-framework). The key objectives of process described in amongst others the: tion, presentation and disclosure assertions Cloetta’s internal control environment for - Rules of procedures for the Board of and financial impact. The internal control financial reporting are that it is appropriately Directors environment is designed to mitigate risks structured and effective, provides reliable - Instructions for the CFO identified to a level considered acceptable by reports and complies with the applicable - Instructions for financial reporting management. laws and regulations. The Board of Directors - Finance policy, and Certain specific risks, for example risks

2016 2016 defined policies regarding processes and roles - Rules of procedure for and instructions to related to taxes and legal matters and other and responsibilities that are vital for financial the audit committee financial risks, are reviewed proactively on a

] reporting and the internal control environ- • Rules for representations, commitments periodic basis. Risks and risk management are ment of the company. and disbursements towards third parties reported on separately in more detail in the clearly defined in the Group’s authorization annual report, see the section “Risks and risk Roles and responsibilities framework. management”. Tax, legal and other financial The Board of Directors is responsible for • Processes for leading and developing em- risks are reflected based on management’s best establishing fundamental rules and guidelines ployees in the organization and the attention estimate and judgement and in accordance for internal control. The audit committee devoted to these issues by Cloetta’s Board of with the applicable accounting standards in assists the Board with its oversight of the per- Directors. the consolidated financial statements. formance of the company’s risk management function and internal control insofar these Financial reporting competencies Fraud risk affect the company’s quality and integrity of The Group Management Team and local Cloetta’s Group Management Team, local financial reporting. The Board of Directors management teams ensure that the company management teams and the central finance and the audit committee interact directly with has employees with the right competency in team are responsible for addressing the risk of the external auditors. all key (financial) positions and that there are fraud and a continuous assessment of the risk Where the Board of Directors is respon- procedures in place to ensure that employees for fraud with respect to the applicable atti- sible for establishing fundamental rules and in key (financial) positions have the requisite tudes, incentives and opportunities to commit guidelines, the President/CEO is specifically knowledge and skills. fraud. The Board of Directors issued a fraud responsible for the design effectiveness, im- and whistleblower policy with the purpose to plementation and supervision of monitoring Human Resources (HR) prohibit dishonest and/or fraudulent activity of the internal control environment within the The guidelines and processes for management and to establish procedures for reporting Group. The CFO is responsible for the design of human resources play a fundamental role in fraudulent activities to Cloetta’s management and operating effectiveness of the internal Cloetta’s system of internal control and con- and/or audit committee. control environment within the Group. The tribute to ensure the effectiveness of internal In addition to the fraud and whistleblower design and operating effectiveness of the control. Key processes include compensation policy, Cloetta has adopted an anti-bribery internal control environment at a local level and benefits, HR development, recruitment, and -corruption fraud and a trade control is the responsibility of the area presidents and allocation of resources, performance man- policy. The purpose of the policy is to avoid local CFOs. agement and routines for feedback to the bribery and corruption by any employee or employees. third party acting on behalf of Cloetta. Control environment The trade control policy summarizes The foundation for Cloetta’s internal control Risk assessment potentially applicable sanctions and export environment is the company’s corporate Periodically central and local risk assess- control rules, and compliance procedures culture and behaviour. Amongst others these ments are prepared and monitored. In these to be followed by all Cloetta employees. The are reflected in: assessments the likelihood that risks could purpose of this policy is to provide guidelines • Integrity and ethical values, with Cloetta’s occur and the potential impact are assessed. to ensure compliance with all local trade Code of Conduct, fraud and whistleblower Furthermore, the velocity at which a risk could control laws and regulations including coun- policy, anti-bribery and -corruption policy occur is considered. In the risk assessments tries through which shipments or financial and trade control policy as a platform for business risks as well as financial reporting transactions flow. a set of guidelines and principles built on and other risks are considered. Basis for risk assessment

Existence, reported assets Completeness, all transac- Rights and obligations Valuation and allocation, Presentation and and liabilities exist on the tions during the reporting Assets are the rights of all items in the financial disclosure, items in the reporting date. period are recorded and the organization and the li- reporting are reported financial reports are prop- reported. abilities are its obligations in conformity with IFRS erly described, sorted and as of a given date. valuation principles and are classified. correctly calculated and summarized and appropri- ately recorded.

86 Corporate governance report Cloetta Process for financial reporting Monthly [

ANNUAL AND SUSTAINABILITYREPORT

Collection of information Controls Processing and consolidation Reporting Local units report monthly accord- The Group’s reporting system Any corrections are implemented Reporting of operative and ing to an established timeframe contains embedded controls. In in dialogue with the affected par- financial information to the Board in compliance with the applicable addition, the central finance team ties. Reconciliation occurs. of Directors and the Group Man- laws, regulations and account- carries out analytical controls as agement Team. ing practices and the Group’s well controls of completeness and accounting manual. reasonability.

Quarterly

Audit committee External reporting The auditor attends every quarterly meeting. Possible actions are carried Cloetta publicly discloses its interim and year-end reports through press out in respect of the audit report. releases and publication on the company’s website.

2016 2016

Control activities Monitoring and improvement President/CEO, the Group Management ] Control activities are the policies and Cloetta is continuously strengthening its in- Team, the central finance and treasury team procedures that contribute to ensure that ternal control environment by evaluating the and the Group’s various subsidiaries. Every management’s directives are carried out and design and operating effectiveness. During the month, financial reports are reviewed against that the necessary actions are taken to address year procedures are performed to verify the budget and established targets, and the results risks that may hinder the achievement of the design and operating effectiveness in certain of self-assessments in the Group’s companies company’s objectives. Control activities occur areas. These procedures are performed on a are reported annually. This review includes throughout the organization, at all levels central and on a local level and are intended to follow-up of observations that are reported by and in all functions. They include a range of address any weaknesses or inefficiencies in the Cloetta’s auditor. activities as diverse as approvals, authoriza- internal control environment. Internal control The company’s financial situation is tions, verifications, reconciliations, reviews of deficiencies detected through the ongoing discussed at each Board meeting. The Board’s operating performance, security of assets and monitoring activities or separate evaluations audit committee has important monitor- segregation of duties. are reported upstream and corrective actions ing and control duties with regard to loans, Control activities are embedded in are taken to ensure continuous improvement investments, financial management, financial Cloetta’s business processes and play a key of the internal control environment. On a reporting and internal control. The audit role in ensuring effective internal control in quarterly basis the follow up and status of any committee and Board of Directors review the company. Local management is responsi- weaknesses identified by internal procedures and formally approve interim reports and the ble for having all required control activities in or external audits are reported and discussed annual report prior to publication. In addition, place and maintained within their organiza- with the involved persons and members of the audit committee receives regular reports tions. The CFO is responsible for ensuring Cloetta’s Group Management Team. from the independent auditor. that control activities are designed and operat- ing effective and are maintained at the central Reporting routines Communication level. The control environment is based on a An effective system for internal control Internal communication balanced mix of preventive and detective con- requires sufficient, up-to-date and reliable Effective communication ensures the infor- trols and of automated and manual controls. information of a financial and non-financial mation flows in the organization. Separate In addition to a standard set of automated nature. As far as possible, management report- communication channels are used to com- controls embedded in Cloetta’s central ERP ing is directly linked to the financial reporting municate internally, based on what is most system, local management teams are encour- and to the consolidation tool. effective. aged to have as much as possible automated Local management teams report their fi- controls especially for routine transactions. nancial results periodically and in accordance External communication Nevertheless, there are also manual control with the Group’s accounting and reporting It is also important to maintain communica- activities in place to verify that the automated policies. This reporting is the basis for tion about relevant policies with external par- controls are functioning as intended and for Cloetta’s internal and external reporting ties such as customers, suppliers, regulators non-routine transactions. and serves as a basis for legal and business and shareholders. External communication is Continuous reviews are performed by the reviews. The business reviews are carried out carried out in accordance with legal require- Group Management Team and local manage- according to a structure in which sales, earn- ments and the Corporate Communications ment teams to safeguard proper and accu- ings, cash flow and other key ratios and trends and IR policy. rate financial reporting. These reviews are of importance to the Group are compiled incorporated into the business processes and and form a basis for analysis and actions by Evaluation of the need for are an important part of Cloetta’s monitoring the management and controllers at different a separate internal audit function controls. The local management teams are levels. Other important and group-wide com- There is currently no internal audit function at responsible for ensuring compliance with rel- ponents of internal control and reporting rou- Cloetta. The Board has reviewed this matter evant laws and regulations in their respective tines are the annual business planning process and determined that the existing structures areas of responsibility. All identified financial and the monthly and quarterly forecasts. for monitoring and evaluation provide a sat- reporting risks are covered by one or more To ensure the efficiency of internal control isfactory basis for control. For certain special control activities. over financial reporting, reviews are carried audit activities, external resources are used. out by the Board, the audit committee, the

87 Corporate governance report Cloetta Board of Directors [

ANNUAL AND SUSTAINABILITYREPORT

Lilian Fossum Biner Lottie Knutson Mikael Norman

Position: Chairman of the Board Position: Board member Position: Board member 2016 2016 Member of the Remuneration Committee Elected: 2015 Chairman of the Audit Committee Elected: 2016 Born in: 1964 Elected: 2015 ] Born in: 1962 Nationality: Swedish Born in: 1958 Nationality: Swedish Education: Journalism at Stockholm University, Nationality: Swedish Education: M.Sc. Stockholm School of Economics, L’Université Paris IV, Diplôme de culture Francaise. Education: Bachelor of Laws, Stockholm Univer- Sweden. Other assignments: Member of the board of Scan- sity. Other assignments: Board member of Thule dic Hotels, Stena Line, STS Alpresor, Swedavia, Other assignments: Member of the Board of Group, Nobia, LE Lundbergföretagen, a-connect Actic, Careereye and Wise Group. Active as a writer Bygg­max Group AB and Bravida Holding AB. and Givaudan. and advisor within leadership, change and crisis Member of the audit committee of Bravida Previous assignments: Board member Cloetta management. Holding AB. (2013–2014). VP and CFO of Axel Johnson, Senior Previous assignments: Director of Communi- Previous assignments: CFO at Nobia, Group Con- VP and HR Director at Electrolux. cations at the Fritidsresor Group for the Nordic troller at Electrolux, tax lawyer at Price Waterhouse Independence: countries, the SAS Group’s communication´s and as judge at the Administrative Court and Admin- In relation to major shareholders: Yes department, journalist at the Swedish newspaper istrative Court of Appeal in Stockholm. In relation to the company and management: Yes Svenska Dagbladet and communications consultant Independence: Shareholding: Direct: 10,000 class B shares at JKL among others. In relation to major shareholders: Yes Related parties: – Independence: In relation to the company and management: Yes In relation to major shareholders: Yes Shareholding: Direct: 5,000 class B shares In relation to the company and management: Yes Related parties: – Shareholding: Direct: 1,200 class B shares Related parties: –

Adriaan Nühn Position: Board member Previous assignments: CEO and Board chairman Member of the Remuneration Committee of Sara Lee International and has held a number Member of the Audit Committee of assignments within the Sara Lee Corporation Elected: 2012 and Procter & Gamble. Board Chairman of Plukon Born in: 1953 Foodgroup N.V. Board member of Kuoni AG . Nationality: Dutch Independence In relation to major shareholders: Yes Education: M.B.A., University of Puget Sound, In relation to the company and management: Yes Tacoma, Washington, USA and B.A. of Business Administration, Hogere Economische School, Eind- Shareholding: Direct: 198,363 class B shares hoven, The Netherlands. Related parties: – Other assignments: Board Chairman of Sligro Food Group N.V. and Takeaway.com N.V. Board member of Anglovaal Industries Ltd. and WWF the Netherlands.

Composition of the Board

Fees2 Attendance4 Year In­ Board Audit Remuneration Elected by the AGM1 Nationality elected Born in Board fees Committee fees dependent3 meetings committee committee

Chairman Lilian Fossum Biner Swedish 2016 1962 620,000 50,000 Yes/Yes 14/14 5/5 Member Camilla Svenfelt Swedish 2016 1981 285,000 – Yes/No 14/14 Hans Porat Swedish 2016 1955 285,000 100,000 Yes/Yes 13/14 4/4 Lottie Knutson Swedish 2015 1964 285,000 – Yes/Yes 14/14 Mikael Norman Swedish 2015 1958 285,000 100,000 Yes/Yes 14/14 4/4 Adriaan Nühn Dutch 2012 1953 285,000 150,000 Yes/Yes 9/14 3/4 5/5 Mikael Svenfelt Swedish 2008 1966 285,000 50,000 Yes/No 14/14 5/5 1) Education and other assignments are shown on pages 88–89. 2) The fees refer to set amounts during the period from the AGM on 12 April 2016 until the AGM on 4 April 2017. Board fees shall be paid in an amount of SEK 620,000 to the Board Chairman and SEK 285,000 to each other member elected by the AGM. Members of the audit committee shall receive fees of SEK 100,000 each and members of the remuneration committee shall receive SEK 50,000 each. For further details, see Note 6. 3) Independent in relation to the company and its Group Management Team/in relation to the largest shareholder. 4) Attendance refers to meetings during the period from the statutory meeting following the AGM on 12 April 2016 until the publication of this annual report in March 2017.

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Hans Porat Camilla Svenfelt Mikael Svenfelt

Position: Board member Position: Board member Position: Board member 2016 2016 Member of the Audit Committee Elected: 2016 Chairman of the Remuneration Committee Elected: 2016 Born in: 1981 Elected: 2008 ] Born in: 1955 Nationality: Swedish Born in: 1966 Nationality: Swedish Education: B.A., Stockholm University Nationality: Swedish Education: M.Sc. (metallurgy) from the Royal Other assignments: Board member of AB Malfors Education: Marketing and business economist, Institute of Technology (KTH) in Stockholm. Promotor and a deputy board member of the Hjal- Tibbleskolan and law studies, Folkuniversitetet, Other assignments: Board member of Lindab, mar Svenfelt Foundation. Works as an accountant at Sweden. Gränges, DIAB, Ecolean and Chairman i Autoropa. AB Malfors Promotor. Other assignments: CEO and Board member of Previous assignments: President and CEO of Previous assignments: – AB Malfors Promotor. Board chairman of Fjärilshu- Nolato and Gadelius and long experience from Independence: set Haga Trädgård AB. Board member of Fjärilshu- leading positions in ABB and Trelleborg. In relation to major shareholders: No set Haga Trädgård Café AB. Independence: In relation to the company and management: Yes Previous assignments: Senior positions in Nicator In relation to major shareholders: Yes Shareholding: Direct: 60 class A shares and group, Dell Financial Services, GE Capital Equip- In relation to the company and management: Yes 461,485 class B shares ment Finance AB and Rollox AB. Shareholding: Direct: – Related parties: 35,095 class B shares Independence: Related parties: – In relation to major shareholders: No In relation to the company and management: Yes Shareholding: Direct: 25 class A shares and 37,515 class B shares Related parties: –

Lena Grönedal Mikael Ström Shahram Nikpour Badr Position: Employee board member, Position: Employee board member, PTK Ledarna Position: Deputy employee board member, Swedish Food Workers’ Union (LIVS) Elected: 2016 Swedish Food Workers’ Union (LIVS). Elected: 2008 Born in: 1961 Elected: 2013 Born in: 1962 Nationality: Swedish Born in: 1963 Nationality: Swedish Position: Department Manager, Cloetta Sverige AB Nationality: Swedish Position: Factory Operative Cloetta Sverige AB Shareholding: Direct: 32,243 class B shares Position: Factory Operative Cloetta Sverige AB Shareholding: Direct:– Related parties: – Shareholding: Direct:– Related parties: – Related parties: – Christina Lönnborn Position: Deputy employee board member, PTK Unionen Elected: 2016 Born in: 1962 Nationality: Swedish Position: Business Developer, Cloetta Sverige AB Shareholding: Direct:– Related parties: –

Shareholding at 28 February 2017.

89 Corporate governance report Cloetta Group Management Team [

ANNUAL AND SUSTAINABILITYREPORT

Henri de Sauvage Nolting Danko Maras Jacob Broberg

2016 2016 Position: President and CEO Position: Interim President and CEO Position: Senior Vice President Corporate since 15 February 2017 1 September 2016–14 February 2017. Communications and Investor Relations

] Born in: 1962 CFO since 16 February 2012. since 16 February 2012. Nationality: Dutch Employeed by Leaf since 2010. Employeed by Leaf since 2010. Education: M.Sc. in Chemistry, Amsterdam Univer- Born in: 1963 Born in: 1964 sity, the Netherlands. M.Sc. in Chemical Engineer- Nationality: Swedish Nationality: Swedish ing, Technical University of Twente, the Netherlands. Education: B.Sc. in Business Administration and Education: B.A. in Political Science and Postdoctoral studies in Business Administration, Economics, Uppsala University, Sweden. Economics, Lund University, Sweden. University of Leuven, Belgium. Other assignments: Board member of Mr Green & Other assignments: – Other assignments: Board member of Agra indus- Co AB (publ) and Highwood AB. Previous positions: SVP Corporate Communica- trier Norway. Strategic advisor at Arla Foods amba. Previous positions: CFO of Leaf, 2010–2012, tions at Leaf, 2010–2012, VP Corporate Communi- Previous positions: Executive Vice President of CFO/COO at Unilever Nordic, 2007–2010, VP cations at TeliaSonera, 2008–2010, SVP Corporate Arla in Sweden, Denmark and Finland 2013–2016, Finance Supply Chain at Unilever North America, Affairs and Communication at V&S Vin & Sprit AB, and held several positions in sales, marketing 2004–2006, Senior positions within Unilever in 2005–2008, VP Media Relations at Electrolux, and production at Unilever in the Nordics, the Europe between 1992–2003. 2001–2005, and VP Corporate Communications at Netherlands, the UK and China, 1989–2013. His last Shareholding: Direct: 180,290 class B shares Länsförsäkringar, 2000–2001. Various positions, position at Unilever was as CEO of the Nordics. Related parties: – including Head of Media Relations and Information Shareholding: Direct: – for Moderata Samlingspartiet, 1989–2000. Related parties: 27,291 class B shares Shareholding: Direct: 34,165 class B shares Related parties: –

Regina Ekström Johnny Engman Ewald Frenay Position: Senior Vice President Human Resources Position: Senior Vice President Corporate Position: President Cloetta Middle since since 1 January 2015. Development and M&A since 1 May 2012. 16 February 2012. Interim President Cloetta Italy Employeed by Leaf since 2004. Employeed in Cloetta since 2012. since 1 September 2016 and export markets Born in: 1963 Born in: 1977 since 16 June 2016. Nationality: Swedish Nationality: Swedish Employeed by Leaf since 2000. Education: B.Sc. in Business Administration and Education: M.Sc. in Economics and Business Born in: 1963 Economics, Lund University, Sweden. Administration, Stockholm School of Economics, Nationality: Dutch Other assignments: Board member of LI. Sweden. Education: M.Sc. Economics, Erasmus University Previous positions: SVP Human Resources Other assignments: – Rotterdam, the Netherlands. Scandinavia in Cloetta/Leaf , 2004–2014, SVP Previous positions: Director at Nordic Capital Other assignments: – Human Resources Nordic in Findus, 2000-2004, Advisory AB, 2004–2012, where he has worked Previous positions: President Middle at Leaf, HR Manager Sweden/Nordic in Nestlé , 1995-2000, with companies in various sectors, including retail 2011–2012, Chief Marketing Officer and Senior Trainee, Product Manager, Human Resources and fast-moving consumer goods. Management Vice President Sales Rest of the World, 2008–2011. Manager, Marketing Manager in Mars Sweden and Consultant at McKinsey & Company in Stockholm, Member of Leaf Executive Committee, 2008–2012. U.K, 1987-1995. 2001–2004. Board member of Menigo AB, 2006- Vice President Segment Sugar Confection- Shareholding: Direct: 16,706 class B shares 2016, StudentConsulting AB, 2006–2010, Luvata ery, 2005–2007, Marketing Director of Sugar Related parties: – Ltd., 2007–2009 and Saferoad AS, 2008–2013. Confectionery Division, (former subsidiary CSM), Shareholding: Direct: 26,703 class B shares 2004–2005, Marketing Director of RBV Leaf the Related parties: – Netherlands (former subsidiary CSM), 2000–2004. Several marketing and sales positions at Mars Inc., European Franchise Manager for Snickers, 1997–1999, Divisional Sales Manager Snackfood, 1995–1997, Brand Manager roles in Snack and Petfood, 1990–1995. Shareholding: Direct: 26,674 class B shares Related parties: –

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Jacqueline Hoogerbrugge Ville Perho Lars Påhlson Position: President Operations Position: President Cloetta Finland Position: President Cloetta Scandinavia 2016 since 16 February 2012. since 20 July 2015. since 16 February 2012.

Employeed by Leaf since 2010. Employeed by Leaf since 2004. Employeed by Leaf since 2008. ] Born in: 1963 Born in: 1979 Born in: 1959 Nationality: Dutch Nationality: Finnish Nationality: Swedish Education: M.Sc. Chemical Engineering, University Education: M.Sc. Turku School of Economics, Education: B.A. Economics and Marketing, Växjö of Groningen, the Netherlands. Finland. University, Sweden, PED IMD Lausanne, Switzer- Other assignments: Board member of Swedish Other assignments: Co-owner and Board member land. Match AB and IKEA Industries. of Varastoaura Oy. Other assignments: Board member of DLF Ser- Previous positions: Board member of Cederroth AB, Previous positions: Sales Director Cloetta Finland viceaktiebolag, Abdon Mills Group, GS1 Sweden AB 2010-2015, President Operations at Leaf, 2010–2012, 2010–2015, Category Development Manager Leaf and Clear On AB. Vice President Operations at Danone’s Medical 2004–2010, Global Account Manager Lidl Leaf Previous positions: President Scandinavia at Nutrition Division, 2009–2010, and Vice President 2007–2009. Leaf, 2008–2012, President of Campbells Nordic, Procurement at Numico Baby & Medical Food, 2006– Shareholding: Direct: 13,238 class B shares 2005–2008, Senior Vice President Carlsberg 2009. Various positions in engineering, manufacturing Related parties: – Nordic, 2001–2005, Managing Director Falcon and procurement at Unilever 1992–2006, and in Brewery, 1998–2001, Vice President Nestlé Nordic engineering and sales at Fluor Daniel, 1988–1992. Findus, 1996–1998, Marketing Director Nestlé Shareholding: Direct: 27,291 class B shares Sweden, 1994–1996, various positions in sales and Related parties: – marketing at Nestlé Sweden and Nestlé Switzer- land, 1982–1994. Shareholding: Direct: 52,503 class B shares Related parties: –

Erwin Segers Position: Chief Marketing Officer since 1 March 2012. Employeed by Leaf since 2010. Born in: 1967 Nationality: Belgian Education: M.Sc. Business and Economics, Univer- sity of Antwerp, Belgium. Other assignments: – Previous positions: Marketing Director at Leaf Holland, 2010–2012, Senior Marketing Director at Philips, 2006–2010, Marketing Director at Cadbury Netherlands (part of Mondelez), 2002–2006. Sever- al senior positions in marketing and sales at Sigma Coatings, Hero and Maxxium, 1990–2002. Shareholding: Direct: 11,547 class B shares Related parties: –

Shareholding at 28 February 2017.

91 Financial information Cloetta [

ANNUAL AND SUSTAINABILITYREPORT Financial reports Contents Group Parent Company

Consolidated profit and loss account 93 Parent Company profit and loss account 133 Consolidated statement of comprehensive income 94 Parent Company balance sheet 134 Consolidated balance sheet 95 Parent Company statement of changes in equity 135 Consolidated statement of changes in equity 96 Parent Company cash flow statement 136 Consolidated cash flow statement 97

2016 2016 Notes to the consolidated Notes to the Parent Company ] financial statements financial statements

Note 1 General information and accounting and valuation 98 Note P1 Accounting and valuation policies of 137 policies of the Group the Parent Company

Note 2 Breakdown of income 106 Note P2 Breakdown of income 138 Note 3 Amortization of intangible assets, depreciation of 106 Note P3 Personnel expenses and number of employees 138 property, plant and equipment and other changes in Note P4 Audit fees 138 value of non-current assets Note P5 Net financial items 138 Note 4 Expenses by type 106 Note P6 Income taxes 139 Note 5 Personnel expenses and number of employees 107 Note P7 Deferred and current income tax 139 Note 6 Remuneration to the Board 108 Note P8 Shareholdings in group companies 139 Note 7 Items affecting comparability 108 Note P9 Cash and cash equivalents 140 Note 8 Audit fees 108 Note P10 Equity 140 Note 9 Net financial items 108 Note P11 Borrowings 140 Note 10 Income taxes 109 Note P12 Derivative financial instruments 140 Note 11 Intangible assets 110 Note P13 Trade and other payables 140 Note 12 Property, plan and equipment 112 Note P14 Pledged assets and contingent liabilities 140 Note 13 Tax assets and liabilities 113 Note P15 Related party transactions 140 Note 14 Non-current financial assets 114 Note 15 Inventories 114 Note 16 Trade and other receivables 114 Note 17 Cash and cash equivalents 115 Note 18 Assets held for sale 116 Proposed appropriation of earnings 141 Note 19 Equity 116 Auditor’s report 142 Note 20 Earnings per share 117 Nine-year overview 145 Note 21 Borrowings 117 Key ratios 146 Note 22 Derivative financial instruments 119 Reconciliation alternative performance measures 147 Note 23 Other non-current liabilities 121 Definitions 149 Note 24 Pensions and other long-term employee benefits 121 Note 25 Provisions 125 Note 26 Trade and other payables 126 Note 27 Business combinations 126 Note 28 Financial risks and financial risk management 126 Note 29 Fair value measurement 128 Note 30 Pledged assets and contingent liabilities 130 Note 31 Related party transactions 130 Note 32 Operating leases 130 Note 33 Critical accounting estimates and judgements 130 Note 34 Changes in accounting policies 131 Note 35 Events after the balance sheet date 132

92 Financial information Cloetta Consolidated profit and loss account [

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SEKm Note 2016 2015

Net sales 2, 7 5,852 5,674 Cost of goods sold 4, 7 –3,533 –3,463

Gross profit 2,319 2,211

Other income 2 – 0

Selling expenses 4, 7 –955 –949

General and administrative expenses 2016 - Impairment loss 3, 4, 7, 11 –771 – - Other general and administrative expenses 4, 7 –675 –591 ] Total general and administrative expenses –1,446 –591

Operating profit/loss –82 671

Exchange differences on borrowings and cash and cash equivalents in foreign currencies 9 –8 –1 Other financial income 9 17 6 Other financial expenses 9 –183 –183

Net financial items –174 –178

Profit/loss before tax –256 493 Income tax 10 65 –107

Profit/loss for the year –191 386

Profit/loss for the period attributable to: Owners of the Parent Company –191 386

Earnings per share, SEK Basic¹ 20 –0.67 1.35 Diluted1 20 –0.67 1.35

Number of shares at end of period 20 288,619,299 288,619,299 Average number of shares (basic)¹ 20 286,193,024 286,290,840 Average number of shares (diluted)1 20 286,447,465 286,561,607

1) Cloetta entered into forward contracts to repurchase own shares to fulfill its future obligation to deliver the shares to the participants of the long-term share-based incentive plan. The table in Note 22 presents the movements in the contracts as from 1 January 2014.

93 Financial information Cloetta Consolidated statement [

ANNUAL AND SUSTAINABILITYREPORT of comprehensive income

SEKm 2016 2015

Profit/loss for the year –191 386

Other comprehensive income Remeasurements of defined benefit pension plans –17 127 Income tax on other comprehensive income that subsequently will not be reclassified to profit or loss for the period 4 –28

Items that will never be reclassified to profit or loss for the period –13 99

2016 2016 Currency translation differences 225 –124

] Hedge of a net investment in a foreign operation –38 25 Income tax on other comprehensive income that will be reclassified subsequently to profit or loss for the period, when specific conditions are met 7 –5

Items that are or may be reclassified to profit or loss for the period 194 –104 Total other comprehensive income 181 –5

Total comprehensive income, net of tax –10 381

Total comprehensive income for the period attributable to: Owners of the Parent Company –10 381

94 Financial information Cloetta Consolidated balance sheet [

ANNUAL AND SUSTAINABILITYREPORT

SEKm Note 31 Dec 2016 31 Dec 2015

ASSETS Non-current assets Intangible assets 11 5,354 5,948 Property, plant and equipment 12 1,700 1,698 Deferred tax asset 13 54 64 Other financial assets 14 13 27

Total non-current assets 7,121 7,737

2016 2016

Current assets Inventories 15 780 786 ] Trade and other receivables 16 988 975 Current income tax assets 13 36 3 Derivative financial instruments 22 4 1 Cash and cash equivalents 17 298 246

Total current assets 2,106 2,011 Assets held for sale 18 9 11

Total assets 9,236 9,759

EQUITY AND LIABILITIES Equity Share capital 19 1,443 1,443 Other paid-in capital 19 4,124 4,124 Translation difference reserve 19 366 141 Retained earnings including profit for the year 19 –1,734 –1,364

Equity attributable to owners of the Parent Company 4,199 4,344

Non-current liabilities Long-term borrowings 21 2,666 2,612 Deferred tax liability 13 586 621 Derivative financial instruments 22 12 44 Other non-current liabilities 23 – 43 Provisions for pensions and other long-term employee benefits 24 396 378 Provisions 25 22 10

Total non-current liabilities 3,682 3,708

Current liabilities Short-term borrowings 21 2 344 Derivative financial instruments 22 54 35 Trade and other payables 26 1,196 1,216 Provisions 25 64 57 Current income tax liabilities 13 39 55

Total current liabilities 1,355 1,707 TOTAL EQUITY AND LIABILITIES 9,236 9,759

95 Financial information Cloetta Consolidated statement [

ANNUAL AND SUSTAINABILITYREPORT of changes in equity

Foreign Other currency trans- Retained SEKm Share capital paid-in capital lation reserve earnings Total equity

Balance at 1 January 2015 1,443 4,124 268 –1,787 4,048 Comprehensive income Profit for the year – – – 386 386 Other comprehensive income – – –124 119 –5

Total comprehensive income for 2015 – – –124 505 381

2016 2016 Transactions with owners 1

] Reversal of capital contribution – – –3 –81 –84 Forward contract to repurchase own shares – – – –12 –12 Share-based payments – – – 11 11

Total transactions with owners – – –3 –82 –85

Balance at 31 December 2015 1,443 4,124 141 –1,364 4,344

Comprehensive income Loss for the year – – – –191 –191 Other comprehensive income – – 225 – 44 181

Total comprehensive income for 2016 – – 225 –235 –10

Transactions with owners New forward contract to repurchase own shares2 – – – – – Share-based payments – – – 9 9 Dividend – – – –144 –144 Total transactions with owners – – – –135 –135 Balance at 31 December 2016 1,443 4,124 366 –1,734 4,199

1) Reversal of capital contribution relates to the derecognition of the tax indemnity receivable. This reversal is non-cash in nature. 2) The forward contract to repurchase own shares for a total amount of SEK 17,352,142 covering 937,610 Cloetta AB shares for an amount of SEK 18.50678 per share was settled in May 2016. 227,880 shares were granted to participants in the long-term share-based incentive plan 2013 in May 2016. For the remaining 709,730 shares Cloetta entered into a forward contract to repurchase own shares for an amount of SEK 28.50 per share in June 2016.

Total equity is attributable to the owners of the Parent Company.

96 Financial information Cloetta Consolidated cash flow statement [

ANNUAL AND SUSTAINABILITYREPORT

SEKm Note 2016 2015

Operating profit/loss –82 671

Adjustments for non-cash items Amortization/depreciation and impairment of assets and remeasurements of assets held for sale 3, 18 1,026 236 Provisions for pensions –16 –11 Other provisions and other non-current liabilities 29 –40

2016 2016 Interest received 1 1

Interest paid –78 –114 ] Call option fee redemption senior secured notes 21 –30 – Proceeds on derivative financial instruments –20 –19 Income tax paid –17 –27

Cash flow from operating activities before changes in working capital 813 697

Cash flow from changes in working capital Change in inventories 30 87 Change in trade and other receivables 3 225 Change in trade and other payables 43 –82

Cash flow from operating activities 889 927

Investing activities Acquisition of subsidiaries 23 –154 –206 Investments in property, plant and equipment 12 –155 –138 Investments in intangible assets 11 –15 –23 Disposals of property, plant and equipment 2 –

Cash flow from investing activities –322 –367

Cash flow from operating and investing activities 567 560

Financing activities Proceeds from loans 21 3,188 – Transaction costs paid 21 –12 – Repayment of loans 21 –2,568 –518 Repayment of senior secured notes 21 –1,000 – Dividends paid –144 – Other cash flow from financing activities 2 –

Cash flow from financing activities –534 –518 Cash flow for the year 33 42

Cash and cash equivalents at beginning of year 17 246 229 Cash flow for the year 33 42 Exchange difference 19 –25

Cash and cash equivalents at end of year 17 298 246

97 Financial information Cloetta [

ANNUAL AND SUSTAINABILITYREPORT Notes to the consolidated financial statements

Compliance with legislation and accounting standards General information and accounting Note 1 The consolidated financial statements are presented in accordance with and valuation policies of the Group the International Financial Reporting Standards (IFRS) established by the International Accounting Standards Board (IASB) and the in- General information terpretations issued by the IFRS Interpretations Committee (IFRIC) Cloetta AB (publ), corporate identification number 556308-8144, is a which have been endorsed by the European Commission for applica- Swedish-registered limited liability company domiciled in Linköping, tion in the EU, with some supplementary requirements in the Annual Sweden. The company’s head office is in Stockholm with address Kista Accounts Act. The applied standards and interpretations are those that 2016 2016 Science Tower, SE-164 51 Kista, Sweden. were in force and had been endorsed by the EU at 1 January 2016. Fur-

] thermore, the Swedish Financial Reporting Board’s recommendation Financial year RFR 1, Supplementary Accounting Rules for Groups, has been applied. The consolidated financial statements for the financial year from 1 January to 31 December 2016 include the accounts of the Parent Guidelines on Alternative Performance Measures Company and its subsidiaries (collectively the “Group” and individually On 8 December 2015 the Swedish Financial Supervisory Authority Note 1 the “group companies”). (FSA) (“Finansinspektionen”) announced its intention to follow the Note 2 The annual report and consolidated financial statements were ESMA (European Securities and Markets Authority) guidelines on Note 3 approved for publication by the Board of Directors on 8 March 2017. Alternative Performance Measures (APMs). These guidelines are Note 4 The profit and loss accounts and balance sheets of the Group and the applicable for financial statements published after 3 July 2016. In Note 5 Parent Company will be put before the Annual General Meeting on accordance with these guidelines additional information on the use of Note 6 4 April 2017 for adoption. APMs, including explanations of use and reconciliation of the APMs to Note 7 the most directly reconcilable measures in the financial statements, has Note 8 Disclosures regarding changes in group structure been included in these financial statements. APMs presented in these Note 9 Business combinations financial statements should not be considered a substitute for measures Note 10 Acquisition of Locawo B.V. of performance in accordance with IFRS and may not be comparable to Note 11 On 17 July 2015 Cloetta Holland B.V. (a 100 per cent direct participa- similarly titled measures by other companies. Note 12 tion of Cloetta AB (publ)) acquired 100 per cent of the shares of the Note 13 Dutch candy company Locawo B.V. and its subsidiaries, which owns the Note 14 Activities brand Lonka. Note 15 The activities of the Group mainly comprise: See Note 27 for further information. Note 16 • sales, marketing and production of branded sugar and chocolate con- Note 17 fectionery products, pastilles, chewing gum and nuts, and Acquisition of Aran Candy Ltd. Note 18 • trading of sugar and chocolate confectionery products, pastilles, On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remaining Note 19 chewing gum and nuts. Note 20 25 per cent of the outstanding shares in Aran Candy Ltd., resulting in The countries of the European Union and Norway form the most Note 21 the settlement of the contingent consideration arising from the option important markets. Note 22 agreement for an amount of SEK 106m. Note 23 Basis of presentation Note 24 Acquisition of E-out instrument AB Assets and liabilities are recognized at historical cost, except for certain Note 25 On 13 February 2017 Cloetta Sverige AB (a 100 per cent direct partic- financial assets and liabilities that are stated at fair value according to Note 26 ipation of Cloetta AB (publ)) acquired 100 per cent of the shares of the the accounting policies described below. Note 27 Swedish company E-out instrument AB. Unless otherwise stated, all amounts are rounded to the nearest Note 28 million Swedish krona. Note 29 Mergers The preparation of financial statements in conformity with IFRS Note 30 • On 12 February 2015 Leaf Sweden IP AB merged into Cloetta Sverige requires management to use certain critical accounting estimates and Note 31 AB. assumptions that affect the reported amounts of assets, liabilities, Note 32 • On 31 March 2015 Cloetta Produktion Sverige AB merged into income and expenses. The estimates and assumptions are based on past Note 33 Cloetta Sverige AB. experience and a number of other factors that are considered reasona- Note 34 • On 1 March 2017 Locawo B.V., Lonka Sales B.V. and Confiserie Lonka ble under the given circumstances. The results of these estimates and Note 35 Suikerwerkfabriek B.V. merged into Cloetta Holland B.V. assumptions are used to make judgements about the carrying value of assets and liabilities that cannot be readily determined from other Strike-offs sources. Actual results may differ from these estimates and assump- • At 31 December 2016 Cloetta GGS Holding Ltd. was in the process of tions. The estimates and assumptions are reviewed on an ongoing basis. being struck off. Changes in estimates are reported in the period of the change, if the change affects that period only. Changes in estimates are reported in the Liquidations period of the change and future periods, if the change affects both. • On 8 February 2017 FTF Sweets USA Inc. was dissolved. See Note P8 for more information.

98 Financial information Cloetta Note 33 provides a description of judgements made by the com- Subsidiaries pany’s management in the application of IFRS that have a significant The consolidated accounts include financial information for Cloetta

impact on the financial statements, and estimates that can lead to signif- [ AB (publ) and its group companies. Group companies are all entities in ANNUAL AND SUSTAINABILITYREPORT icant adjustments in the financial statements of later years. which Cloetta AB (publ) has a controlling influence. Control is achieved Unless otherwise stated below, the following accounting standards when the company directly or indirectly has the power to govern the for the Group have been consistently applied in periods presented in the financial and operating policies of an entity, generally accompanying a consolidated financial statements. The accounting standards for the shareholding of more than one half of the voting rights, so as to obtain Group have been consistently applied in reporting and consolidation of benefits from its activities. In assessing whether a controlling influ- the Parent Company and the subsidiaries. ence exists, potential voting equity interests that can be immediately exercised or converted are taken into account. As part of the acquisition Segment reporting of Aran Candy Ltd., Cloetta entered into a put/call construction on the An operating segment is an identified part of a group that engages in class A shares in which the exercise price for the put option is the same business activities from which it may earn revenues and incur expenses as for the call option. As a result, the construction is treated as a forward for which discrete financial information is available. An operating purchase of the Class A shares. Aran Candy Ltd. is consolidated without segment’s results are reviewed regularly by the entity’s chief operating non-controlling interests. On 4 July 2016 Cloetta Ireland Holding Ltd. decision maker to make decisions about resources to be allocated to the acquired the remaining 25 per cent of the outstanding shares in Aran segment and assess its short- and long-term financial performance. Op- Candy Ltd., resulting in the settlement of the contingent consideration 2016 erating segments are reported in a manner consistent with the internal arising from the option agreement. All group companies are consolidat- reporting provided to the chief operating decision-maker. The President ed without non-controlling interest from the date on which control is ] and CEO, who is responsible for allocating resources and assessing the transferred to Cloetta AB (publ). Group companies are deconsolidated performance of the operating segments, has been identified as the chief from the date that control ceases. operating decision-maker that makes strategic decisions. The Group applies the acquisition method to account for business Within the Cloetta Group four regions have been identified as the combinations. The consideration transferred for the acquisition of Note 1 Group’s operating segments. The vast majority of sales take place in the a subsidiary is the fair value of the assets transferred, the liabilities Note 2 markets for “Munchy Moments”, i.e. inexpensive cold snacks between incurred to the former owners of the acquiree and the equity interests Note 3 the main meals, in Western Europe, which are comparable. It is the issued by the Group. The consideration transferred includes the fair Note 4 Group’s goal to realize production efficiency through homogeneous pro- value of any asset or liability resulting from a contingent consideration Note 5 duction processes in the different production facilities throughout the arrangement. Identifiable assets acquired and liabilities assumed in a Note 6 Group regardless of their location. The Group has sales mainly in the business combination are measured initially at their fair values at the Note 7 “Munchy Moments” segment, with comparable markets and customers. acquisition date. The Group recognizes any non-controlling interest in Note 8 The Group has an integrated distribution network and supply chain the acquiree on an acquisition-by-acquisition basis, either at fair value Note 9 organization. The identified operating segments are assessed to have or at the non-controlling interest’s proportionate share of the recog- Note 10 similar economic characteristics. nized amounts of acquiree’s identifiable net assets. Note 11 As a result of these consistencies between the different regions, Acquisition-related costs are expensed as incurred. If the business Note 12 for financial statement reporting purposes, the operating segments combination is realized in stages, the acquisition date fair value of the Note 13 are aggregated into one reportable segment. For information about acquirer’s previously held equity interest in the acquiree is remeasured Note 14 the Group’s sales and earnings development and financial position, see to fair value at the acquisition date through profit and loss account. Note 15 the consolidated profit and loss accounts, balance sheet and cash flow Any contingent consideration to be transferred by the Group is Note 16 statement. recognized at fair value at the acquisition date. A subsequent change to Note 17 the fair value of the contingent consideration that is deemed to be a lia- Note 18 Classification bility is recognized in accordance with IAS 32 in the case of the forward Note 19 Non-current assets and non-current liabilities essentially consist of purchase of shares or IAS 39 either in the profit and loss account or as a Note 20 amounts that are expected to be recovered or settled after more than 12 change to other comprehensive income only if it is an asset which is clas- Note 21 months after the balance sheet date. Current assets and current liabili- sified as available for sale. Contingent consideration that is classified as Note 22 ties essentially consist of amounts that are expected to be recovered or equity is not remeasured, and its subsequent settlement is accounted for Note 23 Note 24 settled within 12 months from the balance sheet date. within equity. Note 25 Goodwill is initially measured as the excess of the aggregate of the Note 26 Basis of consolidation consideration transferred and the fair value of non-controlling interests Note 27 Group structure in the net identifiable assets acquired and liabilities assumed. If this Note 28 The company was originally founded in 1862. On 16 February 2012, consideration is lower than the fair value of the net assets of the subsidi- Note 29 Cloetta AB (publ) acquired Leaf Holland B.V. (currently known as ary acquired, the difference is recognized in the profit and loss account. Note 30 Cloetta Holland B.V.) from Yllop Holding S.A. The acquisition has been When the Group ceases to have control, any retained interest Note 31 accounted for as a reverse acquisition for consolidation purposes, where in the entity is remeasured to its fair value at the date when control Note 32 Cloetta Holland B.V. is the accounting acquirer and Cloetta AB (publ) is is lost, with the change in carrying amount recognized in the profit Note 33 the legal acquirer. and loss account. The fair value is the initial carrying amount for the Note 34 On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remain- purposes of subsequently accounting for the retained interest as an Note 35 ing 25 per cent of the outstanding shares in Aran Candy Ltd., resulting associate, joint venture or financial asset. In addition, any amounts in the settlement of the contingent consideration arising from the option previously recognized in other comprehensive income in respect of agreement. All incorporated and acquired companies are as from this that entity are accounted for as if the Group had directly disposed of date as of this date wholly owned directly or indirectly by Cloetta AB the related assets or liabilities. This may mean that amounts previous- (publ) and are consolidated without non-controlling interests from ly recognized in other comprehensive income are reclassified to the the date on which control is transferred. The put/call construction of profit and loss account. Aran Candy Ltd. was treated as a forward purchase of the shares. As Note P8 provides an overview of all subsidiaries consolidated in the of acquisition date Aran Candy Ltd. has been consolidated without consolidated financial statements of Cloetta AB (publ). non-controlling interests.

99 Financial information

Cloetta Transactions eliminated on consolidation All other foreign exchange gains and losses are presented in the Inter-company transactions, balances, income and expenses on trans- profit and loss account within operating profit.

[ actions between group companies are eliminated. Profits and losses

ANNUAL AND SUSTAINABILITYREPORT resulting from inter-company transactions that are recognized in assets Financial statements of foreign operations are also eliminated. The profit and loss accounts and balance sheets of all group companies that have a functional currency currency other than the presentation Foreign currency currency are translated into the presentation currency as follows: Functional and presentation currency • Assets and liabilities for each balance sheet presented are translated Items included in the financial information of each of our entities are at the closing rate at the date of that balance sheet; measured using the functional currency of that entity, which is the • Income and expenses for each profit and loss account are translat- currency of the primary economic environment in which the entity ed at average exchange rates unless this average is not a reasonable operates. The functional currency of foreign entities generally is local approximation of the cumulative effect of the rates prevailing on the currency. The functional currency of the Parent Company is Swedish transaction dates, in which case income and expenses are translated at kronor (SEK), which is also the presentation currency of the Parent the rate on the dates of the transactions; and Company. • All resulting exchange differences are recognized in other comprehen- The consolidated financial statements are presented in SEK. The sive income.

2016 2016 functional currency of the majority of the subsidiaries is euro (EUR). When a foreign operation is disposed of, unrealized exchange The assets and liabilities are translated at the closing rate at the date differences accumulated in currency translation adjustments after

] of the financial statements. Income and expenses are translated at the 1 January 2006 (first-time adoption of IFRS) are are recognized in average exchange rate for the year. profit or loss as part of the gain or loss on the sale. Goodwill and fair val- ue adjustments arising on the acquisition of a foreign entity are treated Transactions and balances as assets and liabilities in the functional currency of the attributable Foreign currency transactions are translated into the functional cur- foreign entity and translated at the closing rate. Note 1 rency using the exchange rates prevailing at the date of the transactions Note 2 or the date of valuation where items are remeasured. Foreign exchange Basis of accounting Note 3 gains and losses resulting from the settlement of such transactions and Except for the changes explained in Note 34, the Group has consistently Note 4 applied the following accounting policies to all periods presented in Note 5 from the translation at the year-end exchange rates of monetary assets Note 6 and liabilities denominated in foreign currencies are recognized in the these consolidated financial statements. Note 7 profit and loss account. Set out below is an index of the significant accounting policies, the Note 8 Foreign exchange gains and losses that relate to borrowings and details of which are available on the pages that follow: Note 9 cash and cash equivalents are presented in the profit and loss account I Net sales Note 10 within exchange differences on borrowings and cash and cash equiva- II Cost of goods sold Note 11 lents in foreign currencies. III Other income Note 12 The Group applies hedge accounting. The Group documents at the IV Selling expenses Note 13 inception of the transaction the relationship between hedging instru- V General and administrative expenses Note 14 ments and hedged items, as well as its risk management objectives and VI Employee remuneration Note 15 strategy for undertaking various hedging transactions. The Group also VII Net financial items Note 16 documents its assessment, both at hedge inception and on an ongoing VIII Income tax Note 17 basis, of whether the derivatives that are used in hedging transactions IX Dividend distribution Note 18 are highly effective in offsetting changes in fair values or cash flows of X Items affecting comparability Note 19 hedged items. To the extent that the hedge is effective, foreign currency XI Intangible assets Note 20 differences arising on the translation of a financial liability designated XII Property, plant and equipment Note 21 as a hedge of a net investment in a foreign operation are recognized XIII Deferred tax Note 22 in other comprehensive income and accumulated in the translation XIV Financial assets Note 23 reserve. Any remaining differences are recognized in the profit and loss XV Impairment of non-current assets Note 24 account within exchange differences on borrowings and cash and cash XVI Derivative financial instruments and hedging activities Note 25 equivalents in foreign currencies. When the hedged net investment is XVII Inventories Note 26 disposed of, the relevant amount in the translation reserve is trans- XVIII Receivables Note 27 ferred to profit and loss account as part of the gain or loss on disposal XIX Current income tax Note 28 and recognized in profit and loss account on the same line where the XX Cash and cash equivalents Note 29 gain or loss of the disposal is accounted for. XXI Offsetting financial instruments Note 30 A monetary item, held by a subsidiary, that is a receivable from or a XXII Assets held for sale and discontinued operations Note 31 XXIII Equity Note 32 payable to a foreign operation, for which settlement is neither planned Note 33 nor likely to occur in the foreseeable future, is in substance a part of XXIV Other non-current liabilities Note 34 the entity’s net investment in that foreign operation. Foreign currency XXV Provisions Note 35 differences are initially recognized in other comprehensive income and XXVI Employee benefits reclassified from equity to profit and loss account on disposal of the XXVII Borrowings net investment. On disposal of the foreign operation, the cumulative XXVIII Borrowing costs amount of the exchange differences relating to the foreign operation, XXIX Trade payables recognized in other comprehensive income is reclassified from equity to XXX Operating leases the profit and loss account on the same line where the gain or loss of the The balance sheet, profit and loss account and cash flow statement disposal is accounted for. include references to the notes. On consolidation, exchange differences arising from the translation of the borrowings and other currency instruments designated as hedges of such investments and the net investment in foreign operations are recognized in other comprehensive income.

100 Financial information Cloetta Recognition of revenue and expenses Termination benefits I Net sales A provision is recognized on the termination of employees as a result of [

Net sales are designated as income from the supply of goods, less either an entity’s decision to terminate employment before the normal ANNUAL AND SUSTAINABILITYREPORT discounts and similar, excluding sales taxes and after elimination of retirement date or an employee’s decision to accept an offer of benefits intra-group sales. Net sales also include royalty income. in exchange for the termination of employment. When the criteria for Net sales are recognized as follows: recognition of a provision for termination benefits are met, the expenses • Sales of goods are recognized when a group company has delivered are recognized either in cost of goods sold, selling expenses or general products to the customer, the risks and rewards of the ownership of and administrative expenses in the profit and loss account. the products have been substantially transferred to the customer and the collectability of the related receivables is reasonably assured; Share-based long-term incentive plans • To a limited extent and applicable to retail channels only, seasonal The cost of the share-based long-term incentive plans, which represent products in Italy are sold with a right of return. Accumulated expe- the grant date fair value of the shares multiplied by the shares vested rience is used to estimate and provide for such returns at the time of and any social security expenses, is recognized in personnel expenses, sale. which are included either in cost of goods sold, selling expenses or gen- Consumer incentive and trade promotion activities are recorded eral and administrative expenses in the profit and loss account. as a reduction in net sales based on amounts estimated as being due to customers and consumers at the end of a period, based principally on VII Net financial items 2016 historical utilization and redemption rates. Financial income and financial expenses are recognized in the profit

and loss account when incurred using the effective interest method. ] II Cost of goods sold Cost of goods sold represents the direct and indirect expenses attribut- VIII Income tax able to sales revenue, including raw materials and consumables, cost of The income tax expense for the period comprises current and deferred work contracted out and other external expenses, personnel expenses tax and is recognized in the profit and loss account. Corporate income Note 1 in respect of production employees, depreciation costs relating to build- tax is calculated on profit before tax in the profit and loss account, Note 2 ings and machinery and other operating expenses that are attributable taking into account non-deductible expenses, non-taxable profits and Note 3 to the production of products. losses and/or temporary differences arising from applicable local tax Note 4 laws and other factors that affect the tax rate, e.g. changes in valuation Note 5 III Other income allowances, adjustments in tax positions changes in tax law, such as Note 6 Government grants and subsidies, other than those related to invest- changed tax rates. Note 7 ments in property, plant and equipment, are recorded at fair value as The current income tax charge is calculated on the basis of the tax Note 8 other income in the profit and loss account in the period in which the laws enacted or substantially enacted at the balance sheet date in the Note 9 related costs are recorded, income is received, or subsidized deficits are countries where the company’s subsidiaries and associates operate and Note 10 recorded. Grants and subsidies are recognized as income when there generate taxable profits. Note 11 is reasonable assurance that all the conditions will be satisfied and it is Note 12 probable that these will be received. IX Dividend distribution Note 13 Gains on disposal of assets are determined by comparing the Dividends paid to the company’s shareholders are recognized as a Note 14 proceeds from disposal with the carrying amount and are recognized in liability in the consolidated financial statements in the period in which Note 15 other income in the profit and loss account when incurred. the dividends are resolved on by the company’s shareholders. Note 16 Discontinuation fees received on cancellation of third-party distri- Note 17 bution agreements are recognized in other income in the profit and loss X Items affecting comparability Note 18 account when incurred. Items affecting comparability are those significant items which are Note 19 separately disclosed in the notes to the financial statements by virtue Note 20 IV Selling expenses of their size or incidence in order to enable a full understanding of the Note 21 Selling expenses comprise the cost of brand support through direct and Group’s financial performance. The items affecting comparability are Note 22 Note 23 indirect advertising, promotional activities, the cost of supporting sales recognized in the profit and loss account. The classification in the profit Note 24 and marketing efforts and amortization of related intangible assets. and loss account depends on the nature of the items affecting compara- Note 25 The company promotes its products through advertising, consumer bility. Note 26 incentives and trade promotions. Selling expenses are recognized in the Note 27 profit and loss account when incurred. Principles of valuation of assets and liabilities Note 28 General Note 29 V General and administrative expenses If not specifically stated otherwise, assets and liabilities are initially Note 30 General and administrative expenses include the costs of general recognized at the amounts at which they were acquired or incurred. Note 31 management, human resources, finance and administration, informa- Note 32 tion technology, and other back office services as well as amortization XI Intangible assets Note 33 of related intangible assets. General and administrative expenses are Trademarks Note 34 recognized in the profit and loss account when incurred. Acquired trademarks are measured at historical cost. In view of the Note 35 history of Cloetta’s trademark portfolio, combined with Cloetta’s VI Employee remuneration commitment to continue supporting these trademarks with advertising Regular payments and promotion resources and continuous product development, the Salaries, wages and social security costs are charged to the personnel useful lives of Cloetta’s trademarks are considered to be indefinite in expenses which are included either in cost of goods sold, selling expens- nature. Trademarks with indefinite useful lives are not amortized, but es or general and administrative expenses in the profit and loss account are subject to impairment testing at least annually or whenever events over the period when the related services are rendered and in accord- or circumstances indicate a risk of impairment. ance with employment contracts and obligations.

101 Financial information

Cloetta Goodwill is measured at cost less accumulated amortization and any accumu- Goodwill arises on the acquisition of subsidiaries and represents the lated impairment losses. The capitalized development expenditure

[ excess of the consideration transferred over the Group’s interest in the is amortized over its expected useful life on a straight-line basis, with

ANNUAL AND SUSTAINABILITYREPORT net fair value of the net identifiable assets and liabilities assumed by the useful lives reviewed annually. Development expenses previously the acquiree and the fair value of any non-controlling interest in the recognized in the profit and loss account are not recognized as an asset acquiree. in a subsequent period. Capitalized research and development expenses For the purpose of impairment testing, goodwill acquired in a are subject to impairment testing at least annually or whenever events business combination is allocated to each of the cash generating units or circumstances indicate a risk of impairment. (CGUs), or groups of CGUs, that are expected to benefit from the syner- gies of the combination. Each CGU or group of CGUs to which the good- Other intangible assets will is allocated represents the lowest level within the Group at which Other intangible assets are capitalized at historical cost and amortized goodwill is monitored for internal management purposes. A CGU is the based on their useful lives, with the useful lives reviewed annually. lowest level to which an asset that generates cash flows independently Expenses previously recognized in the profit and loss account are not from other assets can be allocated. A group of CGUs is not larger than recognized as an asset in a subsequent period. Other intangible assets an operating segment. are subject to impairment testing at least annually or whenever events Goodwill impairment tests are undertaken annually or more or circumstances indicate a risk of impairment.

2016 2016 frequently if events or changes in circumstances indicate a potential For determining whether an impairment charge in respect of any impairment. The carrying value of goodwill is compared to the recover- intangible asset applies, see Note 11.

] able amount, which is the higher of value in use and fair value less cost of disposal. Any impairment is recognized immediately as an expense XII Property, plant and equipment and is not subsequently reversed. Items of property, plant and equipment are valued at historical cost less depreciation and impairment. Historical cost includes direct costs (ma- Software terials, direct labour and work contracted out) and directly attributable Note 1 Where computer software is not an integral part or a related item of overhead costs including interest expenses. Depreciation is accounted Note 2 computer hardware and not integral to the operation of an item of for using the straight-line method on the basis of the estimated useful Note 3 property, plant and equipment, the software is treated as a separate life. Government grants are deducted from the historical cost or the Note 4 construction costs of the assets to which they relate. Note 5 intangible asset. Note 6 Acquired software licenses are capitalized at historical cost and The estimated economic useful lives of property, plant and equip- Note 7 amortized on a straight line basis over their estimated useful lives of ment can be specified as follows: Note 8 3 to 5 years. Buildings 20–50 years Capitalized costs for internally generated software include external Note 9 Machinery and equipment 3–55 years Note 10 direct costs of materials and services consumed in developing or ob- PP&E under construction n/a Note 11 taining the software, and payroll and payroll-related costs for employ- Note 12 ees who are directly associated with and who devote substantial time to The residual values and useful lives of the assets are reviewed, and Note 13 the project. Capitalization of these costs ceases no later than the point adjusted if appropriate, at each balance sheet date. Note 14 at which the project is substantially complete and ready for its intended An asset’s carrying amount is written down immediately to its Note 15 purpose. These costs are amortized over their expected useful lives recoverable amount if the asset’s carrying amount is greater than its Note 16 on a straight-line basis, with the useful lives reviewed annually. Other estimated recoverable amount. Note 17 software related costs that do not meet the above criteria for capitaliza- Gains and losses on disposal are determined by comparing the pro- Note 18 tion are recognized either in cost of goods sold, selling expenses or the ceeds from disposal with the carrying amount and are recognized in the Note 19 general and administrative expenses in the profit and loss account when profit and loss account. The classification in the profit and loss account Note 20 incurred. Development expenses previously recognized in the profit depends on the nature of the gains or losses on disposal. Note 21 and loss account are not recognized as an asset in a subsequent period. Subsequent expenditure is included in the carrying amount of an Note 22 Software under construction is not amortized until the software is asset or recognized as a separate asset, as appropriate, only when it is Note 23 substantially complete and ready for its intended use. Software under probable that future economic benefits associated with the item will Note 24 construction is subject to impairment testing at least annually or when- flow to the Group and the cost of the item can be measured reliably. All Note 25 ever events or circumstances indicate a risk of impairment. other repairs and maintenance costs are charged to the profit and loss Note 26 Amortization of software is recognized in cost of goods sold and account when incurred. The classification in the profit and loss account Note 27 general and administrative expenses in the profit and loss account. depends on the nature of the property, plant and equipment. Note 28 Subsidies and grants related to investments in property, plant and Note 29 Right of free electricity equipment are deducted from the related asset and are reflected in the Note 30 profit and loss account as part of the depreciation charge. Note 31 The indefinite right of free electricity acquired is capitalized at acqui- Note 32 sition cost. In view of the indefinite nature of the right, the right is not Depreciation of property, plant and equipment is recognized in cost Note 33 amortized, but is subject to impairment testing at least annually or of goods sold, selling expenses and general and administrative expenses Note 34 whenever events or circumstances indicate a risk of impairment. in the profit and loss account. Note 35 Research and development expenses XIII Deferred tax Expenses for research are recognized in the general and administrative The tax expense for the period comprises current and deferred tax. Tax expenses in the profit and loss account as incurred. Expenses incurred is recognized in the profit and loss account, except to the extent that it on development projects are recognized as intangible assets when it is relates to items recognized in other comprehensive income or directly probable that a project will generate economic benefits in the future, in in equity. In this case, the tax is also recognized in other comprehensive view of its commercial and technological feasibility, and the costs can income or directly in equity, respectively. be measured reliably. Otherwise the expenses are recognized in the Deferred income tax is recognized on temporary differences general and administrative expenses in the profit and loss account when arising between the tax bases of assets and liabilities and their carrying incurred. Subsequent to initial recognition, development expenditure amounts in the consolidated financial statements. However, deferred

102 Financial information Cloetta tax liabilities are not recognized if they arise from the initial recogni- XV Impairment of non-current assets tion of goodwill. Deferred income tax is not accounted for if it arises Assets that have an indefinite useful life are not subject to amortization

from initial recognition of an asset or liability in a transaction other [ but are tested annually for impairment. On the balance sheet date, the ANNUAL AND SUSTAINABILITYREPORT than a business combination that at the time of the transaction affects Group also assesses whether there are indications of impairment of neither accounting nor taxable profit or loss. Deferred income tax is de- assets that are subject to amortization or depreciation. If there are such termined using tax rates (and laws) that have been enacted or substan- indications, an impairment test is performed. For the purpose of testing tively enacted by the balance sheet date and are expected to apply when impairment, assets are grouped at the lowest levels for which there are the related deferred income tax asset is realized or the deferred income separately identifiable cash flows (cash-generating units). An asset is tax liability is settled. subject to impairment if its carrying value is higher than its recoverable Deferred income tax assets are recognized for unused tax losses, value, where the recoverable value is the higher of an asset’s fair value unused tax credits and deductible temporary differences, only to the ex- less cost of disposal and its value in use. Impairment costs are recog- tent that it is probable that future taxable profit will be available against nized immediately in the profit and loss account. The classification in which they can be used. the profit and loss account depends on the nature of the impaired asset. Deferred income tax assets are recognized on deductible tempo- Non-financial assets other than goodwill that are subject to an rary differences arising from investments in subsidiaries, associates and impairment loss are reviewed for possible reversal of the impairment joint arrangements only to the extent that it is probable the temporary at each reporting date. If it is established that a previously recognized difference will reverse in the future and there is sufficient taxable profit impairment no longer applies or has decreased, the increased carrying 2016 available against which the temporary difference can be utilized. amount of the asset in question is not set higher than what the carrying

Deferred income tax liabilities arise on taxable temporary differ- amount would have been if the impairment had not been recognized. ] ences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liabilities where the XVI Derivative financial instruments and hedging activities timing of the reversal of the temporary difference is controlled by the Derivatives are initially recognized at fair value on the date a derivative Group and it is probable that the temporary difference will not reverse contract is entered into and are subsequently remeasured at their fair Note 1 in the foreseeable future. Generally, the Group is unable to control the value. The method of recognizing the resulting gain or loss depends Not e 2 reversal of the temporary difference for associates. Only where there on whether the derivative is designated as a hedging instrument, and if Note 3 is an agreement in place that gives the Group the ability to control the so, the nature of the item being hedged. The following hedge types are Note 4 reversal, the temporary difference is not recognized. applicable within the Group: Note 5 For the unrecognized deductible temporary differences, unused (a) hedges of the fair value of recognized assets or liabilities or a firm Note 6 tax credits and tax losses carried forward, it is not yet probable that commitment (fair value hedge); Note 7 these may be utilized against future taxable profits or set off against (b) hedges of a particular risk associated with a recognized asset or lia- Note 8 other tax liabilities within the same tax group or tax jurisdiction. bility or a highly probable forecast transaction (cash flow hedge); or Note 9 Deferred income tax assets and liabilities are offset when there is a (c) hedges of a net investment in a foreign operation (net investment Note 10 legally enforceable right to offset current tax assets against current tax hedge). Note 11 liabilities and when the deferred income tax assets and liabilities relate Note 12 to income taxes levied by the same taxation authority on either the same Fair value hedge Note 13 taxable entity or different taxable entities where there is an intention to Changes in the fair value of derivatives that are designated and qualify Note 14 settle the balances on a net basis. as fair value hedges are recorded in net financial items in the profit and Note 15 The positions taken in tax returns with respect to situations where loss account, together with any changes in the fair value of the hedged Note 16 the applicable tax rules are subject to interpretation are periodically asset or liability that are attributable to the hedged risk. The Group does Note 17 evaluated. Provisions are established where appropriate on the basis of not meet the requirements for applying fair value hedge accounting and, Note 18 amounts expected to be paid to the respective tax authorities. as a result, all gains or losses relating to these financial instruments are Note 19 Deferred taxes are not discounted. recognized in net financial items in the profit and loss account. Note 20 Note 21 XIV Financial assets Cash flow hedge Note 22 Note 23 The Group initially recognizes loans and receivables on the date when The effective portion of changes in the fair value of derivatives that are Note 24 they arise. All other financial assets, including assets designated as at designated and qualify as cash flow hedges is recognized in other com- Note 25 fair value through profit and loss account, are recognized initially on the prehensive income. The gain or loss relating to the ineffective portion Note 26 trade date, which is the date on which the Group becomes a party to the is recognized immediately in net financial items in the profit and loss Note 27 contractual provisions of the instrument. account. Amounts accumulated in equity are reclassified to profit and Note 28 Loans, receivables and deposits are non-derivative financial assets loss account in the periods when the hedged item affects profit or loss Note 29 with fixed or determinable payments that are not quoted in an active account. The gain or loss relating to the effective portion of interest rate Note 30 market. They are included in current assets, except for those with swaps to hedge variable rate borrowings is recognized in net financial Note 31 maturities greater than 12 months after the balance sheet date, which items in the profit and loss account. However, when the estimated Note 32 are classified as non-current assets. Loans and receivables are carried transaction that is hedged results in the recognition of a non-financial Note 33 at amortized cost using the effective interest method. asset, the gains and losses previously deferred in equity are transferred Note 34 At each balance sheet date, the Group assesses whether there is from equity and included in the initial measurement of the cost of the Note 35 objective evidence that a financial asset or a group of financial assets is asset. The deferred amounts are ultimately recognized in the profit and impaired. loss account, depending on the nature of the items. The Group does not The Group derecognizes a financial asset when the contractual meet the requirements for applying cash flow hedge accounting and, as rights to the cash flows from the asset are realized, expire, or the a result, all gains or losses relating to these financial instruments are company has relinquished the right to receive the contractual cash recognized in exchange differences on borrowings and cash and cash flows in a transaction in which substantially all the risks and rewards equivalents in foreign currencies in the profit and loss account. of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

103 Financial information

Cloetta Net investment hedge XIX Current income tax Hedges of net investments in foreign operations are accounted for simi- The current income tax charge is calculated on the basis of the tax

[ larly to cash flow hedges. laws enacted or substantively enacted at the balance sheet date in the

ANNUAL AND SUSTAINABILITYREPORT Any gain or loss on the hedging instrument relating to the effective countries where the company and its subsidiaries operate and generate portion of the hedge is recognized in other comprehensive income. The taxable income. gain or loss relating to the ineffective portion is recognized in exchange differences on borrowings and cash and cash equivalents in foreign cur- XX Cash and cash equivalents rencies in the profit and loss account. Gains and losses accumulated in Cash and cash equivalents represent cash in hand and cash at banks. other comprehensive income are included in the profit and loss account Current account overdrafts at banks are included under borrowings when the foreign operation is partially disposed of or sold. The Group under the heading current liabilities. has met the requirement for applying net investment hedge accounting. The fair values of various derivative financial instruments are XXI Offsetting financial instruments disclosed in Note 22. Movements in the hedging reserve in other com- The Group has a Notional Group Account with Svenska Handelsbanken prehensive income are shown in the statement of other comprehensive AB (publ). If the following criteria are met, the cash and cash equiva- income. The fair value of a derivative is classified as a non-current asset lents of participating group companies and the current account over- or liability for the part which exceeds 12 months, and as a current asset drafts at Svenska Handelsbanken AB (publ) are offset and presented in

2016 2016 or liability for the part that will expire within 12 months. the balance sheet as a net amount: The fair value adjustment on interest rate swaps is recognized in • There is a legally enforceable right to offset the recognized amounts;

] unrealized gains or losses on single currency interest rate swaps in net and financial items in the profit and loss account. The fair value adjustment • There is an intention to settle on a net basis or realize the asset and on the forward foreign currency contracts is recognized in the profit and settle the liability simultaneously. loss account. The classification in the profit and loss account depends on the nature of the hedged item. XXII Assets held for sale and discontinued operations Note 1 The contractual payments on single currency interest rate swaps An asset or disposal group is classified as held for sale if its carrying Note 2 are recognized in the realized gains or losses on single currency interest amount will be recovered principally through a sale transaction, rather Note 3 rate swaps in the net financial items in the profit and loss account. than through continuing use. Assets are classified as held for sale when Note 4 Note 5 they are available for immediate sale, in their present condition, subject Note 6 XVII Inventories only to terms that are usual and customary for sales of such assets, and Note 7 Raw materials are valued at the lower of cost or net realizable value. the sale is considered highly probable. Assets held for sale are no longer Note 8 Cost is determined using the FIFO method. amortized or depreciated from the time they are classified as such. As- Note 9 Inventories of semi-finished and finished products are stated at the sets classified as held for sale are measured at the lower of their carrying Note 10 lower of cost or net realizable value. Costs represent the cash equivalent amount or fair value less cost of disposal. Note 11 of the expenditure necessarily incurred to bring the goods acquired to Operations that represent a separate major line of business or Note 12 the condition and location for their intended use. Costs in respect of geographical area of operations, or are a subsidiary acquired exclusively Note 13 work in progress and finished goods include the applicable materials with a view to resale and have either been disposed of or classified as Note 14 and labour costs, other direct costs, a representative share of the fixed held for sale, are presented as discontinued operations in the profit and Note 15 manufacturing overhead costs based on normal operating capacity and loss account. Note 16 variable manufacturing overhead costs based on actual production Note 17 during the period. XXIII Equity Note 18 Net realizable value represents the estimated selling price in the or- Ordinary shares are classified as share capital. Incremental costs Note 19 dinary course of business less directly attributable, applicable variable directly attributable to the purchase, sale and/or issue of new shares are Note 20 selling expenses and less costs of completion of inventory. shown in equity as a deduction, net of tax, from the proceeds. Note 21 The write-downs, additions and releases related to the provision for Note 22 obsolete inventory are recognized in cost of goods sold in the profit and XXIV Other non-current liabilities Note 23 loss account. Contingent considerations Note 24 The fair value of the contingent considerations is calculated using the Note 25 XVIII Receivables income approach and is linked to the financial performance of the Note 26 Trade and other receivables are initially recognized at fair value and are acquired companies. As part of accounting for business combinations, Note 27 subsequently measured at amortized cost using the effective interest contingent consideration is initially recognized. Contingent considera- Note 28 method less provisions for impairment. A provision for impairment tion is discounted using the cost of equity. If the fair value of contingent Note 29 of trade and other receivables is established when there is objective consideration deviates from the carrying amount, the difference is Note 30 recognized in general and administrative expenses in the profit and loss Note 31 evidence that the Group will not be able to collect all amounts due Note 32 according to the original terms of the receivables. Significant finan- account. Note 33 cial difficulties of the debtor, probability that the debtor will enter If the contingent consideration will be settled within 12 months Note 34 bankruptcy or financial reorganization, and default or delinquency in from the balance sheet date, the contingent consideration is presented Note 35 payments (more than 30 days overdue) are considered indicators that as part of trade and other payables. the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of XXV Provisions estimated future cash flows, discounted at the original effective interest Provisions are recognized for legally enforceable or constructive rate. The carrying amount of the asset is reduced through the use of an obligations existing on the balance sheet date, when it is probable that allowance account, and the amount of the loss is recognized in the profit an outflow of resources will be required to settle the obligation and the and loss account within net sales. When a receivable is uncollectible, it amount has been reliably estimated. is written off against the allowance account for receivables. Subsequent Where there are a number of similar obligations, the likelihood that recoveries of amounts previously written off are released in net sales in an outflow will be required for settlement is determined by considering the profit and loss account. the class of obligations as a whole. A provision is recognized even if the

104 Financial information Cloetta likelihood of an outflow with respect to any item included in the same Share-based payments class of obligations is small. Call option arrangement

The initial recognition, subsequent additions and releases to a pro- [ No costs related to share-based payment are recognized, since the com- ANNUAL AND SUSTAINABILITYREPORT vision are recognized in the profit and loss account. The classification in pany has no obligation to settle the transaction. The options have been the profit and loss account depends on the nature of the provision. acquired at fair market value.

Provisions are measured at the present value of the expenditure Share-based long-term incentive plans expected to be required to settle the obligation using a pre-tax rate that The incentive plans qualify as equity-settled share-based payments. reflects current market assessments of the time value of money and The expenses for the plans will amount to the grant date fair value per the risks specific to the obligation. The increase in the provision due to share right times the number of share rights vested, including any ac- passage of time is recognized as other financial expenses in the profit celerated vesting. The expenses are recognized as personnel expenses, and loss account. which are included either in cost of goods sold, selling expenses and If the expenditure to settle an obligation is expected to be recovered general and administrative expenses in the profit and loss account. The from a third party, the recovery is carried as an asset in the balance total expense depends on the number of shares right vested but any sheet if it is virtually certain to be received upon settlement of the changes in the price of Cloetta share after the grant date do not impact obligation. the total expense. In some jurisdictions, social security expenses have

to be paid. The total expense for social security contributions will be 2016 XXVI Employee benefits based on the vesting date fair value of the Cloetta share. Social security

Pension obligations expenses recognized in the profit and loss account will therefore vary ] The liability recognized in the balance sheet in respect of defined bene- with changes in the share price. fit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The de- Forward contracts to repurchase own shares fined benefit obligation is calculated annually by independent actuaries At inception of the forward contract to repurchase own shares, the Note 1 using the projected unit credit method. The present value of the defined agreed consideration to be paid at the termination date, net of any tax Note 2 benefit obligation is determined by discounting the estimated future effects, is recognized as a deduction from equity and as a financial liabil- Note 3 cash outflows using interest rates of high-quality corporate bonds for all ity. The interest costs directly attributable to the forward contract are Note 4 countries in the Eurozone. For the Swedish plans, the discount rate is recognized in the net financial expenses in the profit and loss account Note 5 based on mortgage bonds. For the Norwegian pension plans, in the pre- when incurred. At the termination date, the agreed consideration will Note 6 vious year the market yield on government bonds was used. As of 2015, be paid and the financial liability will be derecognized as its contractual Note 7 the market yield of covered bonds is used for the Norwegian plans. The obligation is discharged and cancelled. Note 8 rates of these bonds are used as equivalent to high quality corporate Note 9 bond rates in countries where there is no deep market in such bonds. XXVII Borrowings Note 10 Remeasurements arising from defined benefit plans also include Borrowings are initially recognized at fair value, being the amount Note 11 the return on plan assets excluding interest and the effect of the asset received taking into account any premium or discount, and less trans- Note 12 ceiling, if any, excluding interest. Remeasurements are recognized in action costs. Borrowings are subsequently stated at amortized cost. Note 13 other comprehensive income when incurred. All other expenses related Any difference between the proceeds (net of transaction costs) and the Note 14 to defined benefit plans are recognized in the profit and loss account redemption value is recognized in the profit and loss account over the Note 15 when incurred, either in cost of goods sold, selling expenses or general period of the borrowings using the effective interest method. Note 16 and administrative expenses. Borrowings are classified as current liabilities unless the Group has Note 17 The interest on defined benefit obligations is recognized in net an unconditional right to defer settlement of the liability for at least 12 Note 18 financial items in the profit and loss account when incurred. months after the balance sheet date, in which case they are classified as Note 19 The defined benefit schemes in industry sector pension funds, non-current liabilities. Note 20 which are held by pension funds that are not able to provide company- When borrowings from a shareholder are extinguished for consid- Note 21 specific or reliable information, are accounted for as though they are eration other than fair value, the difference between the consideration Note 22 Note 23 defined contribution schemes. In the event of a deficit in these pension and the carrying amount of the borrowing is accounted for as an equity Note 24 funds, the company has no obligation to provide supplementary contri- contribution. Note 25 butions, other than higher future contributions. A financial liability is derecognized when its contractual obliga- Note 26 The contributions are recognized as personnel costs, which are tions are discharged, cancelled or expired. Note 27 included either in cost of goods sold, selling expenses or general and Note 28 administrative expenses in the profit and loss account. Prepaid contri- XXVIII Borrowing costs Note 29 butions are recognized as an asset to the extent that a cash refund or a Borrowing costs paid on the establishment of credit facilities are rec- Note 30 reduction in the future payments is available to the Group. ognized as transaction costs for the loan to the extent that it is probable Note 31 that some or all of the facility will be drawn down. In such case, the Note 32 Termination benefits transaction costs are recognized when the draw-down occurs. If it is Note 33 Termination benefits are payable when employment is terminated probable that some or all of the facility will be drawn down, the transac- Note 34 before the normal retirement date, or whenever an employee accepts tion costs are reported as deferred expense and netted against current Note 35 voluntary redundancy in exchange for special compensation. borrowings and amortized over the contract period the facility relates A provision is recognized on the termination of employees as a result of to, using the effective interest rate method. either an entity’s decision to terminate employment before the normal General and specific borrowing costs directly attributable to the retirement date or an employee’s decision to accept an offer of benefits acquisition, construction or production of qualifying assets, which are in exchange for the termination of employment. The expenses related to assets that necessarily take a substantial period of time to get ready for this provision are recognized in personnel expenses, which are included their intended use or sale, are added to the cost of those assets, until either in cost of goods sold, selling expenses or general and administra- such time as the assets are substantially ready for their intended use or tive expenses in the profit and loss account. sale.

105 Financial information

Cloetta Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets, for which Amortization of intangible assets, depreciation Note 3 of property, plant and equipment and other

[ borrowing costs are included in historical cost, is deducted from the

ANNUAL AND SUSTAINABILITYREPORT changes in value of non-current assets borrowing costs that are eligible for capitalization. All other borrowing costs are recognized in other financial expens- es in the profit and loss account in the period in which they are incurred. See Notes 1 (II), (V), (XI), (XII) and (XV) for the accounting policy.

XXIX Trade payables SEKm 2016 2015 Trade payables are obligations to pay for goods or services that have Software 36 30 been acquired in the ordinary course of business from suppliers. Trade Other intangibles 6 4 payables are classified as current liabilities if payment is due within one Land and buildings 18 18 year or less. If payment is expected to be settled after 12 months after Machinery and equipment 185 179 balance sheet date, the payable is presented as non-current liabilities. Total amortization/depreciation 245 231 Trade payables are recognized initially at fair value and are subse- quently measured at amortized cost using the effective interest method. Amortization/depreciation has been allocated by function as follows

Cost of goods sold 176 170 2016 2016 XXX Operating leases Lease contracts for which a significant part of the risks and rewards Selling expenses 7 5 General and administrative expenses 62 56 ] incidental to ownership of the assets does not lie with the Group are recognized as operating leases. Payments made under operating leases Total amortization/depreciation 245 231 are recognized in the cost of goods sold, selling expenses and in the Impairment general and administrative expenses in the profit and loss account on Intangible assets 771 – a straight-line basis over the term of the contract, taking into account Note 1 Property, plant and equipment 7 – reimbursements received from the lessor. Note 2 Total impairment 778 – Note 3 Note 4 The impairment losses on intangible assets have been charged to Note 5 Note 2 Breakdown of income general and administrative expenses. The impairment losses on Note 6 property, plant and equipment have been charged to cost of goods sold. Note 7 See Notes 1 (I) and (III) for the accounting policy. Note 8 Note 9 Note 10 SEKm 2016 2015 Note 4 Expenses by type Note 11 Net sales Note 12 Sales of goods Note 13 SEKm 2016 2015 Sugar confectionery 3,170 3,118 Note 14 Chocolate confectionery 998 881 Raw materials and consumables used including Note 15 change in inventory of finished goods and work Pastilles 824 848 Note 16 in progress 2,152 2,145 Chewing gum 376 378 Note 17 Personnel expenses (See Note 5) 1,304 1,277 Nuts 225 184 Note 18 Depreciation, amortization Other 259 265 and impairment charges (See Note 3) 1,023 231 Note 19 Transportation expenses 160 156 Note 20 Total 5,852 5,674 Operating lease payments (See Note 32) 88 75 Note 21 Advertising and promotion 374 387 Note 22 Other income Selling and marketing 77 98 Note 23 Other – 0 Energy expenses 124 124 Note 24 Total 5,852 5,674 Maintenance expenses 106 97 Note 25 Other operating expenses 526 413 Note 26 Note 27 The breakdown of net sales by country is as follows Total operating expenses 5,934 5,003 Note 28 % 2016 2015 Note 29 The costs charged to the profit and loss account relating to research and Sweden 31 30 Note 30 development amount to SEK 40m (47). Finland 17 18 Note 31 The Netherlands 14 13 Note 32 Italy 12 13 Note 33 Denmark 5 6 Note 34 Norway 4 4 Note 35 Other countries 17 16

Total 100 100

No individual customer accounts for more than 10 per cent of Cloetta’s total net sales.

106 Financial information Cloetta The average number of employees by country is as follows Note 5 Personnel expenses and number of employees 2016 2015 [

Average number of employees: ANNUAL AND SUSTAINABILITYREPORT See Note 1 (VI) for the accounting policy. Sweden 547 553 Personnel expenses are specified as follows Slovakia 705 706 Italy 423 440 SEKm 2016 2015 The Netherlands 392 426 Salaries and remuneration Finland 193 193 Group Management Team Belgium 102 106 – Sweden 27 31 Ireland 80 68 – Other 12 13 Norway 39 35 Of which, short-term variable compensation Denmark 36 38 – Sweden 7 12 Germany 9 7 – Other 2 4 UK 1 6 Other 3 5 Pension costs Group Management Team Total 2,530 2,583

– Defined contribution plans 6 7 2016

Total salaries, remuneration and pension costs 45 51 Of whom, women:

Group Management Team ] Sweden 251 253 Slovakia 474 480 Salaries and remuneration other employees Italy 171 179 – Sweden 244 237 The Netherlands 133 159 – Other 648 604 Finland 153 160 Note 1 Belgium 22 24 Note 2 Pension costs other employees Ireland 35 25 Note 3 – Defined contribution plans 70 65 Norway 18 16 Note 4 – Defined benefit plans 8 10 Denmark 19 21 Note 5 Total salaries, remuneration and pension costs 970 916 Germany 3 3 Note 6 other employees UK – 3 Note 7 Other 2 4 Note 8 Total salaries, remuneration and pension costs all employees 1,015 967 Total 1,281 1,327 Note 9 Social security expenses, all employees 232 238 Note 10 Other personell costs, all employees 57 72 Specification of the gender distribution is as follows Note 11 Note 12 Total personnel expenses 1,304 1,277 % 2016 2015 Note 13 Percentage of women Note 14 The average number of employees is as follows Board of Directors 43 33 Note 15 2016 2015 Group Management Team 18 18 Note 16 Other employees 51 52 Note 17 Average number of employees Note 18 – Group Management Team 11 11 Note 19 – Other employees 2,519 2,572 See page 84 for further details on remuneration to the Group Manage- Note 20 Of whom, women ment Team. Note 21 – Group Management Team 2 2 Note 22 – Other employees 1,279 1,325 Note 23 Note 24 Note 25 Note 26 Note 27 Note 28 Note 29 Note 30 Note 31 Note 32 Note 33 Note 34 Note 35

107 Financial information Cloetta Note 6 Remuneration to the Board Note 8 Audit fees [

ANNUAL AND SUSTAINABILITYREPORT Paid fees 2016 Board Committee SEKm 2016 2015 (SEK 000s) fees fees Total Fee for auditing services 5 5 Board Chairman Lilian Fossum Biner1 413 33 446 Fee for other services Caroline Sundewall2 203 50 253 – Tax advice 0 0 – Audit-related advice 1 0 Board members – Other 0 1 Olof Svenfelt2 93 33 126 Total other services 1 1 Adriaan Nühn 283 117 400 Total audit fees 6 6 Mikael Svenfelt 283 50 333 Mikael Norman 283 100 383 Auditing services refer to the audit of the consolidated financial state- Lotti Knutson 283 – 283 ments, the Parent Company’s statutory financial statements, the statu- Hans Porat1 190 67 257

tory financial statements of its subsidiaries, the accounts and company’s 2016 2016 1 Camilla Svenfelt 190 – 190 administration by the Board of Directors and the President. Total 2,221 450 2,671 For both financial years 2015 and 2016, KPMG was elected as the ] auditor of the Group.

Paid fees 2015 Board Committee (SEK 000s) fees fees Total

Note 1 Board Chairman Note 9 Net financial items Note 2 Caroline Sundewall 607 150 757 Note 3 See Note 1 (VII) and (XVI) for the accounting policy. Note 4 Board members Note 5 Olof Svenfelt 278 100 378 Note 6 Adriaan Nühn 278 50 328 SEKm 2016 2015 Note 7 Mikael Svenfelt 278 50 328 Exchange differences in borrowings and cash Ann Carlsson3 92 – 92 Note 8 and cash equivalents in foreign currencies –8 –1 Note 9 Mikael Norman4 187 66 253 Lotti Knutson4 187 – 187 Note 10 Other financial income, third parties 1 1 Note 11 Total 1,907 416 2,323 Other financial income at amortised cost 1 1 Note 12 Note 13 1) Elected as per 12 April 2016. Unrealized gains on single currency Note 14 2) Resigned on 12 April 2016. interest rate swaps 16 5 Note 15 3) Resigned on 23 April 2015. 4) Elected as per 23 April 2015. Other financial income at fair market value 16 5 Note 16 Note 17 Total other financial income 17 6 Note 18 Note 19 Note 7 Items affecting comparability Interest expenses, third-party borrowings –62 –101 Note 20 Interest expenses, third-party pensions –12 –17 Note 21 Interest expenses, contingent earn-out liabilities –10 –13 See Note 1 (X) for the accounting policy. Note 22 Call option fee redemption senior secured notes –30 – Note 23 Amortization of capitalised transaction costs –34 –18 Note 24 SEKm 2016 2015 Other financial expenses, third parties –16 –15 Note 25 Other financial expenses at amortised cost –164 –164 Acquisitions, integration and factory restructurings –49 –47 Note 26 of which: impairment losses other non-current Note 27 assets –7 – Realized losses on single currency Note 28 Remeasurements of contingent considerations –17 33 interest rate swaps –19 –19 Note 29 Remeasurements of assets held for sale –3 –5 Other financial expenses at fair market value –19 –19 Note 30 Impairment loss goodwill and trademarks –771 – Note 31 Total –840 –19 Total other financial expenses –183 –183 Note 32 Note 33 Net financial items –174 –178 Corresponding line in the consolidated profit Note 34 and loss account: Note 35 Net sales – –4 Cost of goods sold –23 –22 Selling expenses – –12 General and administrative expenses - Impairment loss –771 – - Other general and administrative expenses –46 19

Total general and administrative expenses –817 19

Total –840 –19

See Note 11 for further details on the impairment loss. See page 147 for alternative performance measures. 108 Financial information Cloetta Note 10 Income taxes [

ANNUAL AND SUSTAINABILITYREPORT See Note 1 (VIII) for the accounting policy.

SEKm 2016 2015

Current income tax 28 –15 Deferred income tax 37 –92

Total 65 –107 The year’s income tax expense corresponds to an effective tax rate of, % 25.4 21.7

The difference between the effective tax rate and the applicable tax rate in Sweden is attributable to the following items

SEKm 2016 2015 2016 2016 Profit/loss before tax –256 493 ] Tax calculated at applicable tax rate for the Parent Company 56 –108 International rate differences 9 –4 State and local taxes –1 –4 Result investments/divestments, non-taxable –3 5 Note 1 Expenses not deductible for tax purposes –7 –3 Note 2 Adjustments recognized in the period for tax of Note 3 prior periods 2 6 Note 4 Effect of rate changes –1 2 Note 5 Tax losses for which no deferred income tax asset Note 6 is recognized in the current year –10 –1 Note 7 Tax losses for which no deferred income tax asset Note 8 was recognized in previous years 3 2 Note 9 Other 17 –2 Note 10 Income tax 65 –107 Note 11 Reported effective tax rate, % 25.4 21.7 Note 12 Note 13 Tax rate of Parent Company, % 22.0 22.0 Note 14 Note 15 The applicable tax rate for the Parent Company is based on the enacted Note 16 tax rate, which is the Swedish corporate income tax rate. Note 17 Note 18 The reported effective tax rate is based on the relative proportion Note 19 on the group companies’ contribution to profit before tax and the appli- Note 20 cable tax regulations in the countries concerned. Note 21 Other differences mainly consist of a settlement of the tax claims Note 22 for the years 2005–2011 in Italy. Note 23 Note 24 Note 25 Note 26 Note 27 Note 28 Note 29 Note 30 Note 31 Note 32 Note 33 Note 34 Note 35

109 Financial information Cloetta Note 11 Intangible assets [

ANNUAL AND SUSTAINABILITYREPORT See Notes 1 (XI) and (XV) for the accounting policy.

SEKm Other Historical cost Trademarks Goodwill Software intangibles Total

1 January 2015 Acquisition or production costs 3,520 2,310 249 39 6,118 Accumulated amortization and impairments – –86 –135 –15 –236

Book value at 1 January 2015 3,520 2,224 114 24 5,882

Movements in 2015 Business combinations 121 42 – 20 183 Additions – – 23 – 23

2016 2016 Amortization – – –30 –4 –34 Exchange differences –45 –59 –2 0 –106

] Total 76 –17 –9 16 66

31 December 2015 Acquisition or production costs 3,596 2,291 258 59 6,204 Note 1 Accumulated amortization and impairments – –84 –153 –19 –256 Note 2 Book value at 31 December 2015 3,596 2,207 105 40 5,948 Note 3 Note 4 Movements in 2016 Note 5 Transfers from non-current financial assets – – – 7 7 Note 6 Additions – – 14 1 15 Note 7 Amortization – – –36 –6 –42 Note 8 Impairments –505 –266 – – –771 Note 9 Exchange differences 86 107 3 1 197 Note 10 Total –419 –159 –19 3 –594 Note 11 Note 12 Note 13 31 December 2016 Note 14 Acquisition or production costs 3,682 2,402 281 76 6,443 Note 15 Accumulated amortization and impairments –505 –354 –195 –33 –1,089 Note 16 Book value at 31 December 2016 3,177 2,048 86 43 5,354 Note 17

Note 18 5 years– Note 19 Estimated economic useful life Indefinite Indefinite 3–5 years indefinite Note 20 Note 21 Note 22 Note 23 The carrying amount of software includes an amount of SEK 5m (2) for The most important assumptions in the calculations are the termi- Note 24 software under construction. nal growth rate and the pre-tax discount rate. EBITDA is a key assump- Note 25 The other intangibles consist mainly of capitalized customer lists, tion when establishing the financial budgets. These assumptions reflect Note 26 benefits related to the right to free electricity and a capitalized recipe. and do not differ from prior experience and external information sourc- Note 27 es. EBITDA is determined in the annual budget process. The terminal Note 28 Impairment testing of goodwill and trademarks growth rate is determined by assuming that the business will grow in Note 29 Goodwill and trademarks do not generate cash inflows that are largely line with consumer prices/inflation based on central bank forecasts or Note 30 independent of those from other assets. These are therefore allocated to similar unless stated differently. Discount rates have been determined Note 31 Note 32 the cash-generating unit (CGU) or group of CGUs expected to benefit by applying the capital asset pricing model. The terminal growth target Note 33 most from these assets. A CGU is the lowest level to which an asset that is in line with the Group’s long-term goal for organic growth and the Note 34 generates cash flows independently from other assets can be allocated. management’s judgement. Note 35 A group of CGUs is not larger than an operating segment. These assumptions have been used for the analysis of each CGU The estimated recoverable amount of all CGUs and groups of and group of CGUs in the impairment analysis. The budgeted figures CGUs has been determined based on value in use calculations. These are based on past performance and management’s expectations for calculations use pre-tax cash flow projections based on financial budg- market development. The weighted average growth rates used are con- ets approved by management covering a three-year period, taking into sistent with the forecasts used in the Group. The discount rates used are account asset specific risks. Cash flows beyond the three-year period are pre-tax and reflect specific risks relating to the relevant industry and extrapolated using a terminal growth rate. the risk particularly associated with the asset for which the estimates of the future cash flows have not been adjusted.

110 Financial information Cloetta For impairment testing, the following assumptions have been used Goodwill Terminal growth rate Pre-tax discount rate Goodwill is allocated to a CGU or group of CGUs not larger than an [

operating segment. The allocation has been made to the groups of CGUs ANNUAL AND SUSTAINABILITYREPORT % 2016 2015 2016 2015 that correspond to the operating segments that are expected to benefit South/Italy 1.5 2.0 10.9 9.1 most, which are the commercial organizations of Scandinavia, Finland, Scandinavia/Sweden 2.0 2.0 7.3 7.2 Middle and South. The goodwill related to the purchase price allocation Finland 2.0 2.0 7.4 7.0 for the acquired company Locawo B.V. has been allocated to the CGU Middle/ Middle. The Netherlands 2.0 2.0 7.6 7.4 Group 2.0 2.0 7.9 7.5

The following summary specifies the allocation of goodwill to the different groups of cash-generating units

SEKm Scandinavia Finland Middle South Total

1 January 2015 739 965 259 261 2,224

Business combination – – 40 – 40 2016 Exchange rate differences –18 –24 –8 –7 –57 ] 31 December 2015 721 941 291 254 2,207

Impairments – – – –266 –266 Exchange rate differences 35 42 18 12 107 Note 1 31 December 2016 756 983 309 – 2,048 Note 2 Note 3 Note 4 Trademarks Note 5 For trademarks, the related CGUs are the commercial organizations of Note 6 the countries that own the respective trademarks. The trademark for Note 7 the acquired brand Lonka has been allocated to the CGU the Neth- Note 8 erlands. The products are mainly sold in the countries owning the Note 9 trademarks. If products are sold by group companies in other countries, Note 10 the trademark owner charges royalty fees to the selling party. Note 11 Note 12 The following summary specifies the allocation of trademarks to the different cash-generating units Note 13 Note 14 The Nether- Other (corpo- Note 15 SEKm Sweden Finland lands Italy rate assets) Total Note 16 1 January 2015 1,455 486 770 750 59 3,520 Note 17 Addition – – 125 – – 125 Note 18 Exchange rate differences – –11 –19 –17 –2 –49 Note 19

31 December 2015 1,455 475 876 733 57 3,596 Note 20 Note 21 Note 22 Impairments – – – –505 – –505 Note 23 Exchange rate differences – 21 38 24 3 86 Note 24 31 December 2016 1,455 496 914 252 60 3,177 Note 25 Note 26 Note 27 Note 28 Note 29 The key assumptions on which the cash flow projections for the period Company recorded an impairment charge on trademarks and goodwill Note 30 covered by recent forecasts are included in the table below of SEK 771m (–) related to the CGU Italy and group of CGUs South. Note 31 After recognition of this impairment the recognized goodwill relat- Key assumption used in value in Basis for determining value assigned Note 32 use calculation to key assumption ed to the group of CGUs South is nil and the carrying value of the Italian Note 33 trademarks is SEK 252m. EBITDA External market studies on growth of Note 34 market, historical growth rates in the The group of CGUs South includes the commercial organizations Note 35 period before the recession etc. for the Italian and Italian export business. The impairment arose following lower than expected revenue growth in the Italian market Impairment of goodwill and trademarks and the negative Italian economy as a result of the highly competitive In the assessment of possible impairment triggering events in the fourth environment and challenging market conditions. As a result the initial quarter, the Company determined that fourth quarter sales volumes expectations about sales volume growth and corresponding cash and the initiation of a strategic review in Italy required an impairment flows for the Italian business were lowered. As at 31 December 2016, test to be made at 31 December 2016 for the CGU Italy in respect to the recoverable amount of the entire group of CGUs South being the trademarks and for the group of CGUs South in respect to goodwill. commercial organizations for the Italian and Italian export business As a result of this 31 December 2016 impairment assessment, the excluding the Italian supply chain business, was SEK 415m (723).

111 Financial information

Cloetta The recoverable amount is based on the higher of the fair value less cost rying amount. If the terminal growth rate increases with 0.5%-point, of disposal and its value in use. Both the value in use and the fair value the recoverable amount of the trademarks will increase with SEK

[ less cost of disposal are calculated using cash flow projections based 19m while if the terminal growth rate decreases with 0.5%-point the

ANNUAL AND SUSTAINABILITYREPORT on financial budgets approved by management covering a three-year recoverable amount will decrease with SEK 17m. If the discount rate period, and a pre-tax discount rate of 10.9 per cent (9.1). South’s cash increases with 0.5%-point, the recoverable amount of the trademarks flows beyond the three-year period are extrapolated using a 1.5 per cent will decrease with SEK 20m while if the discount rate decreases with (2.0) growth rate. This growth rate is slightly lower than the long-term 0.5%-point the recoverable amount will increase with SEK 23m. average growth rate for the Italian market. However, management believes that a 1.5 per cent growth rate is reasonable in the light of the Corporate assets market and economy development. Group-wide assets and liabilities, including the right of free electricity For the impairment calculation of goodwill, both the fair value less and software under construction that cannot be directly allocated on cost of disposal and the value in use calculated resulted in an impair- a reasonable and consistent basis to the CGUs or groups of CGUs are ment to nil. For the trademarks the fair value less cost of disposal is classified as corporate assets. A group impairment analysis has been considered to be its recoverable amount. performed where the carrying amount of the total group of CGUs, After the recognition of impairment on trademarks of the CGU including the portion of the carrying amount representing the Group’s Italy, the estimated recoverable amount of the CGU Italy equals its car- corporate assets, is compared with the total recoverable amount.

2016 2016 ]

Note 12 Property, plant and equipment

See Notes 1 (XII) and (XV) for the accounting policy. Note 1 Note 2 Note 3 SEKm Machinery and Assets under Note 4 Historical cost Land and buildings equipment construction Total Note 5 1 January 2015 Note 6 Acquisition or production costs 926 3,173 29 4,128 Note 7 Accumulated depreciation and impairments –371 –2,090 – –2,461 Note 8 Book value at 1 January 2015 555 1,083 29 1,667 Note 9 Note 10 Note 11 Movements in 2015 Note 12 Business combinations – 121 – 121 Note 13 Additions 3 33 102 138 Note 14 Transfers 23 88 –111 – Note 15 Disposals – –1 – –1 Note 16 Depreciation –18 –179 – –197 Note 17 Exchange differences –10 –20 0 –30 Note 18 Total –2 42 –9 31 Note 19 Note 20 31 December 2015 Note 21 Acquisition or production costs 933 3,282 20 4,235 Note 22 Accumulated amortization and impairments –380 –2,157 – –2,537 Note 23 Note 24 Book value at 31 December 2015 553 1,125 20 1,698 Note 25 Note 26 Movements in 2016 Note 27 Additions 3 30 122 155 Note 28 Disposals – –3 – –3 Note 29 Transfers 31 95 –126 – Note 30 Depreciation –18 –185 – –203 Note 31 Impairments – –7 – –7 Note 32 Exchange differences 22 37 1 60 Note 33 Total 38 –33 –3 2 Note 34 Note 35 31 December 2016 Acquisition or production costs 1,005 3,485 17 4,507 Accumulated depreciation and impairments –414 –2,393 – –2,807

Book value at 31 December 2016 591 1,092 17 1,700

Estimated economic useful life Buildings: 20–50 years 3–55 years N/A Land: Indefinite

112 Financial information Cloetta The estimated economic useful lives of machinery and equipment The breakdown of non-current assets other than other financial assets can be further specified as follows and deffered tax assets by country is as follows [

Estimated economic useful life 31 Dec 31 Dec ANNUAL AND SUSTAINABILITYREPORT SEKm 2016 2015 Production lines 5–35 years Packaging lines 5–25 years Sweden 2,606 2,803 Production equipment 3–55 years Finland 1,497 1,429 IT hardware 3–5 years Italy 653 1,373 Furniture 3–20 years The Netherlands 1,511 1,525 Production vehicles 7–20 years Other countries 787 516 Vehicles 5 years Total 7,054 7,646 Other 5–20 years

The impairment losses on property, plant and equipment have been charged to cost of goods sold (see Note 3). At 31 December 2016, the Group had contractual commitments for acquisitions of machinery and equipment for an amount of SEK 20m

(31). 2016 ]

Note 13 Tax assets and liabilities

See Notes 1 (VIII) and (XIII) for the accounting policy. Note 1 Note 2 Tax losses Property, Other current Note 3 carried Unused plant & Intangible Provisions assets and Note 4 SEKm forward tax credits equipment assets (incl. pensions) liabilities Total Note 5 1 January 2015 275 60 –128 –658 71 –19 –399 Note 6 Business combinations and divestments – – –15 –36 0 2 –49 Note 7 Profit and loss account (charge) Note 8 /credit for the year –112 –19 –3 –43 –5 74 –108 Note 9 Return to accrual –3 0 0 0 1 –2 –4 Note 10 Effect of rate changes –11 0 6 18 –2 –10 1 Note 11 Exchange differences/ Other 20 –1 2 22 –28 –13 2 Note 12

31 December 2015 169 40 –138 –697 37 32 –557 Note 13 Note 14 Note 15 Business combinations and divestments – – – – – 2 2 Note 16 Profit and loss account (charge)/ Note 17 credit for the year –36 –14 –4 149 1 –57 39 Note 18 Return to accrual 39 – –1 –40 1 2 1 Note 19 Effect of rate changes –8 – 1 4 0 0 –3 Note 20 Exchange differences/ Other 10 2 –5 –25 6 –2 –14 Note 21 31 December 2016 174 28 –147 –609 45 –23 –532 Note 22 Note 23 Deferred tax assets and liabilities can be broken down as follows The composition of deductible temporary differences, Note 24 unused tax credits and tax losses carried forward is as follows: Note 25 31 Dec 31 Dec SEKm 2016 2015 31 Dec 2016 31 Dec 2015 Note 26 Note 27 Deferred tax assets 54 64 Not Not Note 28 Deferred tax liabilities –586 –621 SEKm Recognized recognized Recognized recognized Note 29 Total –532 –557 Deductible temporary Note 30 differences 84 – 150 – Note 31 Unused tax credits 28 13 40 19 Deferred tax assets refer, among other things, to the difference between Note 32 Tax losses carried Note 33 the tax base of the defined asset or liability and its carrying amount and forward 174 103 169 118 the recognized tax losses carried forward. Note 34 Total 286 116 359 137 Note 35 The amounts are as follows The unused tax credits relate to a tax abatement granted by the 31 Dec 31 Dec Slovakian government. This tax abatement means that a maximum SEKm 2016 2015 amount of around SEK 95m of income tax liabilities will be waived by Deferred tax asset to be realized the Slovakian government during the period from 2009 to 2018. after more than 12 months 35 60 The expiration dates for the tax losses carried forward range from Deferred tax asset to be realized within 12 months 19 4 four years to unlimited.

Total 54 64

113 Financial information

Cloetta Deferred tax liabilities Movements in the provision for obsolete inventory are as follows The deferred tax liability is recognized to account for the taxable tem- SEKm 2016 2015

[ porary differences between the tax bases of intangible assets, property,

ANNUAL AND SUSTAINABILITYREPORT plant and equipment, work in progress, inventories, receivables and At 1 January 11 15 Business combinations – –1 provisions and their carrying amounts. Provision for impairment of inventories 16 14 Inventories written of during the year as obsolete –11 –15 31 Dec 31 Dec Unused amounts reversed 0 –3 SEKm 2016 2015 Exchange differences 1 1 Deferred tax liability to be recovered At 31 December 17 11 after more than 12 months 616 655 Deferred tax liability to be recovered within 12 months –30 –34

Total 586 621 Note 16 Trade and other receivables

Current income tax See Notes 1 (XVIII) for the accounting policy.

31 Dec 31 Dec 2016 2016 SEKm 2016 2015 31 Dec 31 Dec

] Current income tax assets 36 3 SEKm 2016 2015 Current income tax liabilities –39 –55 Trade receivables, gross 929 909 Total –3 –52 Provision for impairment of trade receivables –24 –20

Trade receivables, net 905 889 Note 1 See also Note 33 for further details regarding accounting estimates and judgments in respect to the ongoing tax audits. Note 2 Other receivables 51 56 Note 3 Prepaid expenses and accrued income 32 30 Note 4 Total 988 975 Note 5 Note 6 Note 14 Non-current financial assets Note 7 The individual trade receivables for which provisions were made relate Note 8 See Notes 1 (XIV) and (XV) for the accounting policy. to uncollectible receivables that are not covered by credit insurance. Note 9 Note 10 Movements in the provision for impairment of trade receivables are as 31 Dec 31 Dec Note 11 follows SEKm 2016 2015 Note 12 SEKm 2016 2015 Deposits 5 5 Note 13 Other financial assets 8 22 At 1 January 20 16 Note 14 Provision for impairment of trade receivables 10 14 Note 15 Total 13 27 Trade receivables written off during the year as Note 16 uncollectible 0 –3 Note 17 The fair values of non-current financial assets approximate their carry- Unused amounts reversed –7 –8 Note 18 ing amounts. Exchange differences 1 1 Note 19 None of the different classes of non-current financial assets contain At 31 December 24 20 Note 20 impaired assets. The maximum exposure to credit risk at the reporting Note 21 date is the fair value of each class of receivable mentioned above. The Note 22 The age analysis of the trade receivables for which a provision for Group does not hold any collateral as security. Note 23 impairment has been recognized is as follows Note 24 31 Dec 31 Dec Note 25 SEKm 2016 2015 Note 26 Note 15 Inventories Up to 60 days 1 0 Note 27 60 to 90 days 0 0 Note 28 Over 90 days 23 20 Note 29 See Note 1 (XVII) for the accounting policy. Total 24 20 Note 30 Note 31 Inventories for own use and resale Note 32 The other receivables and prepaid expenses and accrued income do not 31 Dec 31 Dec Note 33 SEKm 2016 2015 contain impaired assets. Note 34 As of 31 December 2016, trade receivables of SEK 166m (174) were Raw materials and consumables 276 266 Note 35 past due but not impaired. These relate to a number of customers for Work in progress 63 62 whom there is no recent history of default. Finished goods and goods for resale 441 458

Total 780 786

114 Financial information Cloetta The age analysis of the trade receivables past due The carrying amounts of trade receivables are denominated in but not impaired is as follows the following currencies [

31 Dec 31 Dec 31 Dec 31 Dec ANNUAL AND SUSTAINABILITYREPORT SEKm 2016 2015 SEKm 2016 2015

Up to 60 days 139 130 Euro 539 568 60 to 90 days 7 16 Swedish krona 247 210 Over 90 days 20 28 Danish krone 43 35 Great Britain pound 36 40 Total 166 174 Norwegian krone 19 20 US dollar 9 5 The carrying amounts are assumed to approximate the fair values of Other currencies 12 11 trade receivables and other receivables. The maximum exposure to Total 905 889 credit risk at the reporting date is the carrying amount of each class of receivable mentioned above. The Group does not hold any collateral as security. The breakdown of prepaid expenses and accrued income is as follows 31 Dec 31 Dec

SEKm 2016 2015 2016 2016 Prepaid IT expenses 10 8

Prepaid rents, insurance and lease charges 9 8 ] Prepaid personnel-related expenses 2 2 Prepaid marketing expenses 2 1 Other prepaid expenses 9 11 Other accrued income 0 – Note 1 Total 32 30 Note 2 Note 3 Note 4 Note 5 Note 17 Cash and cash equivalents Note 6 Note 7 See Notes 1 (XX) and (XXI) for the accounting policy. All cash and cash equivalents are available on demand. Note 8 Svenska Handelsbanken AB (publ) provided the Group with a Note 9 The item cash and cash equivalents in the consolidated cash flow Notional Group Account (NGA). The NGA enables Cloetta AB (publ) Note 10 statement and consolidated balance sheet consists of the following and its subsidiaries to use the funds available as deposited in the bank Note 11 Note 12 31 Dec 31 Dec in one or more currencies for the purpose of efficient liquidity manage- SEKm 2016 2015 ment and daily payments in the ordinary course of business. The NGA Note 13 Note 14 Cash and cash equivalents 298 246 provides the possibility of making withdrawals from accounts held by Note 15 the bank in different currencies and in different countries without the Total 298 246 Note 16 necessary funds being available in the respective currency, provided Note 17 that the corresponding funds are available considering the balances Note 18 on all accounts in the NGA and any amounts available for this purpose Note 19 pursuant to any credit facility and/or intraday revolver facility agreed Note 20 upon separately. The NGA is based on and connects accounts in local Note 21 account structures in different countries in which group companies Note 22 participate as sub-account holders. Note 23 The following table shows the carrying amounts of recognized offsetting of financial assets and liabilities relating to the notional group account Note 24 Note 25 Gross amounts Net amount Related financial Note 26 2016 of financial Set-off in the presented in the instruments that SEKm instruments balance sheet balance sheet are not offset Net amount Note 27 Note 28 Cash and cash equivalents 499 –383 116 182 298 Note 29 Total assets 499 –383 116 182 298 Note 30 Note 31 Loans from credit institutions 383 –383 – 2,668 2,668 Note 32 Note 33 Total liabilities 383 –383 – 2,668 2,668 Note 34 Note 35 Gross amounts Net amount Related financial 2015 of financial Set-off in the presented in the instruments that SEKm instruments balance sheet balance sheet are not offset Net amount

Cash and cash equivalents 158 –115 43 203 246

Total assets 158 –115 43 203 246

Loans from credit institutions and senior secured notes 115 –115 – 2,956 2,956

Total liabilities 115 –115 – 2,956 2,956

115 Financial information

Cloetta Group equity Note 18 Assets held for sale Share capital

[ The number of shares authorized issued and fully paid up at 31 Decem-

ANNUAL AND SUSTAINABILITYREPORT See Note 1 (XXII) for the accounting policy. ber 2016 was 288,619,299, consisting of 9,861,614 class A shares and 278,757,685 class B shares. All shares grant equal entitlement to par- All assets held for sale relate to property, plant and equipment. ticipate in the company’s assets and profits. The quota value (par value) The movements in the year are as follows of the share is SEK 5.00. Should the company issue new shares of class SEKm 2016 2015 A and class B through a cash or set-off issue, holders of class A and class

At 1 January 11 16 B shares have the right to subscribe for new shares of the same class in Remeasurements recognized in profit and loss –3 –5 proportion to the number of shares already held on the record date. If Exchange rate differences 1 –0 the issue includes shares of only class B, all holders of class A and class B shares have the right to subscribe for new B shares in proportion to At 31 December 9 11 the number of shares already held on the record date. Corresponding rules of apportionment are applied in the event of a bonus issue or issue The assets held for sale at 31 December 2016 are the land and building of convertibles and subscription warrants. The transference of a class in Zola Predosa, Italy for an amount of SEK 9m (11). A sale agreement A share to a person who is not previously a holder of class A shares in

2016 2016 with a third party has been signed. The property will be transferred in the company is subject to a pre-emption procedure, except when the the second quarter of 2017. The assets held for sale are categorized at transfer is made through division of joint property, inheritance, testa-

] level 3 of the fair value hierarchy. ment or gift to the person who is the closest heir to the bequeather. After See Note 29 for a total overview of the Group’s assets and liabilities receiving a written request from a holder of class A shares, the company that are measured at fair value. The remeasurement of the fair value is shall convert the class A shares specified in the request to class B shares. recognized in the cost of goods sold in the profit and loss accounts. A conversion of class A shares to class B shares was carried out in 2017 as a result of the undertakings with Malfors Promotor. See page 62 for Note 1 further details. Note 2 Neither Cloetta AB (publ) nor any subsidiary has held any shares in Note 3 Note 19 Equity Note 4 Cloetta during the year. Note 5 See Notes 1 (XXIII) and (XXVI) for the accounting policy. Note 6 Foreign currency translation reserve Note 7 Reserves consist of all exchange gains/losses arising on translation Capital management Note 8 of the financial statements of foreign operations that present their The Board’s financial objective is to maintain a strong financial position Note 9 financial statements in a currency other than that used by the Group. that contributes to maintaining investor, creditor and market confi- Note 10 This includes foreign currency differences on monetary items that are a dence and to providing a platform for ongoing development of the busi- Note 11 receivable from or payable to a foreign operation, for which settlement is ness. Capital consists of total equity. The Board of Directors proposes Note 12 neither planned nor likely to occur in the foreseeable future. dividend to the shareholders. Note 13 The company’s long-term intention is a dividend pay-out of 40–60 Note 14 Retained earnings per cent of profit after tax. In 2015, the primary focus was on reinvest- Note 15 Retained earnings comprise the sum of profit for the year and retained ing the company’s strong cash flow for continued repayment of bank Note 16 earnings from previous years. Retained earnings including other paid- loans, while at the same time allowing for complementary acquisitions. Note 17 in capital represent the amount of non-restricted equity available for In 2016, the ambition was to continue using future cash flows to repay Note 18 distribution to the shareholders. Note 19 debt, to pay dividends and to maximize financial flexibility for comple- Note 20 mentary acquisitions. Changes in equity The Group’s objective when managing capital is to safeguard the Note 21 For disclosures about changes in equity in the Group, see the consoli- Note 22 Group’s ability to continue as a going concern in order to provide re- dated statements of changes in equity on page 96. Note 23 turns for shareholders, benefits for other stakeholders and to maintain Note 24 an optimal capital structure to reduce the cost of capital. The Group Hedge of a net investment in a foreign operation Note 25 monitors capital on the basis of the gearing ratio. This ratio is calculated (Net investment hedge) Note 26 as net debt divided by total assets. The Group applies hedge accounting for the investment in trademarks Note 27 in Aran Candy Ltd., Cloetta Suomi Oy, Cloetta Holland B.V., Confiserie Note 28 Dividend per share Lonka B.V. and Cloetta Slovakia s.r.o. See Note 1 (XVI) for further Note 29 No dividend was paid in 2015. The Annual General Meeting (AGM) on details on the applied hedge accounting. Note 30 12 April 2016 approved a dividend of SEK 0.50 per share, correspond- Note 31 ing to 37 per cent of consolidated profit after tax for the financial year Note 32 Share-based payments 2015. The dividend of SEK 144m was paid in April 2016. Note 33 See Note 24 for further details about share-based payments. The Board of Directors proposes that dividends be paid in a total Note 34 amount of SEK216m, equal to SEK 0.75 per share. Note 35 The Board of Directors proposes that the total earnings in the Parent Company at the disposal of the AGM of SEK 2,650m are to be distributed to the shareholders for an amount of SEK 216m and to be carried forward to new account for an amount of SEK 2,433m.

116 Financial information Cloetta Note 20 Earnings per share [

ANNUAL AND SUSTAINABILITYREPORT Basic earnings per share are calculated by dividing profit for the year attributable to owners of the Parent Company by the weighted average number of shares outstanding. Diluted earnings per share are calculated by dividing profit for the year attributable to owners of the Parent Company by the weighted average number of shares outstanding adjusted for the dilutive effect of potential shares.

The calculation of basic and diluted earnings per share has been based on the following profit attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding

2016 2015

Profit/loss for the year, attributable to ordinary shareholders (in SEKm) (basic and diluted) –191 386

Number of issued ordinary shares at 1 January 288,619,299 288,619,299 2016 2016 Effect of forward contract to repurchase own shares –2,426,275 –2,328,459

Weighted average number of ordinary shares during the year before dilution 286,193,024 286,290,840 ] Effect of share-based payments 254,441 270,767

Weighted average number of ordinary shares during the year after dilution 286,447,465 286,561,607

Basic earnings per share, SEK –0.67 1.35 Note 1 Diluted earnings per share, SEK –0.67 1.35 Note 2 Note 3 Cloetta has entered into forward contracts to repurchase own shares in order to fulfil its future obligation to deliver the shares to the participants in Note 4 the long-term share-based incentive plan. See Note 22 for a table that presents movements in the contracts as of 1 January 2014. Note 5 Note 6 Note 7 Note 21 Borrowings Note 8 Note 9 Note 10 See Notes 1 (XXVII) and (XXVIII) for accounting policies. Note 11 Note 12 On 22 July 2016 the Group has entered into a new term and revolving facilities agreement with a group of four banks, amounting in total to the Note 13 equivalent of SEK 3,700m. The new facilities have been used to refinance the bank financing with Svenska Handelsbanken AB (publ). The new Note 14 facilities agreement includes a bridge loan of SEK 1,000m that was used to redeem the senior secured notes on 19 September 2016. Note 15 Note 16 31 Dec 2016 Remaining term Remaining term Remaining term Remaining term Note 17 SEKm < 1 year 1–2 years 2–5 years > 5 years Total Note 18 Note 19 Loans from credit institutions – 993 1,673 – 2,666 Note 20 Accrued interest 2 – – – 2 Note 21 Total 2 993 1,673 – 2,668 Note 22 Note 23 Note 24 31 Dec 2015 Remaining term Remaining term Remaining term Remaining term Note 25 SEKm < 1 year 1–2 years 2–5 years > 5 years Total Note 26 Loans from credit institutions 343 1,619 – – 1,962 Note 27 Senior secured notes – – 993 – 993 Note 28 Accrued interest 1 – – – 1 Note 29 Note 30 Total 344 1,619 993 – 2,956 Note 31 Note 32 See Note 31 for further details on liabilities to related parties. Note 33 Note 34 Note 35

117 Financial information

Cloetta The following table shows the Group’s contractually agreed cash flows payable under financial liabilities.

31 Dec 2016 Remaining term Remaining term Remaining term Remaining term [

SEKm < 1 year 1–2 years 2–5 years > 5 years Total ANNUAL AND SUSTAINABILITYREPORT

Loans from credit institutions 18 1,017 1,687 – 2,722 Total 18 1,017 1,687 – 2,722

31 Dec 2015 Remaining term Remaining term Remaining term Remaining term SEKm < 1 year 1–2 years 2–5 years > 5 years Total

Loans from credit institutions 402 1,640 – – 2,042 Senior secured notes 31 31 1,022 – 1,084

Total 433 1,671 1,022 – 3,126

The following table shows the reconciliation of movements of liabilities to cash flows arising from financing activities

SEKm Long-term borrowings Short-term borrowings Total

2016 2016

Balance at 1 January 2016 2,612 344 2,956

] Changes from financing cash flows Proceeds from loans 2,663 525 3,188 Transaction costs paid –12 – –12 Repayment of loans –1,699 –869 –2,568 Repayment of senior secured notes –1,000 – –1,000 Note 1 Other changes from financing cash flows –2 – –2 Note 2 Total changes from financing cash flows –50 –344 –394 Note 3 Note 4 Note 5 Other changes Note 6 Capitalization transaction costs –12 – –12 Note 7 Amortization of capitalized transaction costs 34 – 34 Note 8 Interest expenses, third-party borrowings 86 6 92 Note 9 Interest paid –56 –4 –60 Note 10 Call option fee redemption senior secured notes –30 – –30 Note 11 Exchange differences on borrowings 82 – 82 Note 12 Total other changes 104 2 106 Note 13 Balance at 31 December 2016 2,666 2 2,668 Note 14 Note 15 Note 16 Note 17 Note 18 The carrying amounts and fair value of non-current borrowings Loans from credit institutions Note 19 are as follows Credit facility agreement with Note 20 Fair value Carrying amount Svenska Handelsbanken AB (publ) Note 21 At 15 December 2011, Cloetta AB (publ) entered into a credit facility Note 22 31 Dec 31 Dec 31 Dec 31 Dec agreement with Svenska Handelsbanken AB (publ). The agreement is Note 23 SEKm 2016 2015 2016 2015 effective as of 16 April 2012 for the Term A loan and as of 23 May 2012 Note 24 Loans from credit for the Term B loan. On 30 August 2013 Cloetta AB (publ) renegotiated Note 25 institutions 2,666 1,619 2,666 1,619 the terms of the credit facility with Svenska Handelsbanken AB (publ). Note 26 Senior secured notes – 1,031 – 993 The credit facility agreement was terminated at 27 July 2016. Note 27 Total 2,666 2,650 2,666 2,612 Note 28 Note 29 Term and revolving facilities agreement Note 30 The fair value of loans from credit institutions is equal to their carrying with a group of four banks Note 31 amount, as the impact of discounting is not significant, and the credit On 22 July 2016, Cloetta entered into a new term and revolving facil- Note 32 risk has not changed since the loan agreement was signed. ities agreement with a group of four banks, being Danske Bank A/S, Note 33 The fair value of the senior secured notes as per 31 December 2015 DNB Sweden AB, Scandinavska Enskilda Banken AB (publ) and Note 34 was based on the price paid on the last trade in the year which amounted Svenska Handelsbanken AB (publ) in SEK and EUR, amounting in Note 35 to SEK 103.8. total to the equivalent of SEK 3,700m. The new term and revolving The Group’s borrowings are all exposed to interest rate changes facilities agreement is unsecured in nature and was used to refinance and changes in the applicable margin on a quarterly basis. the existing bank financing with Svenska Handelsbanken AB (publ) on 27 July 2016 and to redeem its senior secured notes on 19 September 2016.

118 Financial information Cloetta The Group credit facility at reporting date relates to

Outstanding amount Interest percentage Applicable margin [

SEKm 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 ANNUAL AND SUSTAINABILITYREPORT

Variable EURIBOR + Multicurrency term loan of nominal EUR 175m fixed applicable (approx. SEK 1,677m) 1,677 – margin – 1.00% – Variable STIBOR Single-currency term loan of nominal + fixed applicable SEK 1,000m 1,000 – margin – 0.50% – Variable STIBOR Multicurrency credit revolving loan of EUR 105m + fixed applicable (approx. SEK 1,006m) – – margin – 1.20% – Credit revolving loan of EUR 15m Variable (approx. SEK 144m) – – EURIBOR + 1% – 1.00% – 3-months STIBOR + fixed applicable

Term B loan of nominal SEK 363m – 363 – margin – 2.25% 2016 2016 3-months Term B loan of nominal EUR 253m EURIBOR + fixed (approx. SEK 2,424m) – 1,623 – applicable margin – 2.25% ] 3-months STIBOR Senior secured notes of nominal SEK 1,000m – 1,000 – + 3,10% – 3.10% 1-week EURIBOR + fixed applicable Credit revolving loan of SEK 740m – – – margin – 2.25% Note 1 Total Group credit facility 2,677 2,986 Note 2 Capitalized transaction costs –11 –31 Note 3 Accrued interest 2 1 Note 4 Note 5 Total borrowings 2,668 2,956 Note 6 Note 7 Commitment fee Senior secured notes Note 8 35 per cent (40) of the fixed applicable margin on the unutilized The senior secured notes amounting to SEK 1,000m were redeemed on Note 9 amounts of the credit revolving loans is paid as a commitment fee. 19 September 2016. Note 10 Note 11 Currency Note 12 All borrowings are denominated in euros, except for the single- Note 13 Derivative financial instruments currency term loan of SEK 1,000m (–), part of the Term B loan for an Note 22 Note 14 amount of SEK 0m (363) and the senior secured notes for an amount Note 15 of SEK 0m (1,000). See Note 1 (XVI) for the accounting policy. Note 16 Note 17 Note 18 Effective interest rate 31 Dec 2016 31 Dec 2015 Note 19 The effective interest rate at the balance sheet date for the loans from Note 20 credit institutions and the senior secured notes was 2.32 per cent (2.76). SEKm Assets Liabilities Assets Liabilities Note 21 Non-current Note 22 Security Forward contract Note 23 The new term and revolving facilities agreement is unsecured in nature. to repurchase own shares – 11 – 39 Note 24 The following securities that were pledged to Svenska Handelsbanken Interest rate swaps – 1 – 5 Note 25 AB (publ) and holders of the senior secured notes per Total non-current – 12 – 44 Note 26 31 December 2015 were released on 27 July 2016: Current Note 27 • Shares in the group companies Cloetta Sverige AB, Cloetta Norge AS, Forward contract Note 28 Cloetta Danmark ApS, Cloetta Suomi Oy, Karkkikatu Oy, Cloetta to repurchase own Note 29 Finance Holland B.V. and Cloetta Holland B.V. for an amount of shares – 48 – 18 Note 30 SEK 5,164m; Interest rate swaps – 6 – 17 Note 31 • Floating charges and other pledges on movable assets in Cloetta Forward foreign Note 32 currency contracts 4 – 1 0 Holland B.V., Cloetta Sverige AB, Cloetta Norge AS and Cloetta Note 33 Total current 4 54 1 35 Suomi Oy for an amount of SEK 3,719m; Note 34 Total 4 66 1 79 • Pledge on real estate property (mortgages) in Cloetta Sverige AB and Note 35 Cloetta Holland B.V. for an amount of SEK 2,914m; • Pledges on receivables in Cloetta Holland B.V. without nominal Forward contracts to repurchase own shares amount; Following the introduction of the share-based long-term incentive • Trademark pledges in Cloetta AB (publ), Cloetta Holland B.V., Cloetta plans, Cloetta entered into forward contracts in order to repurchase Suomi Oy and Cloetta Sverige AB for an amount of SEK 2,469m; own shares to fulfil its future obligation to deliver the shares to the • Guarantee by Cloetta AB (publ) as principal obligor to the bank for participants in the share-based long-term incentive plans. The forward the due and punctual performance of all present and future obliga- contracts to repurchase own shares are measured at cost. tions by each of the other obligors, under the Facilities Agreement and the other Finance Documents without nominal amount.

119 Financial information

Cloetta The following table show the movements in contracts as of 1 January 2014

Date Contract 1 Contract 2 Contract 3 Contract 4 [

ANNUAL AND SUSTAINABILITYREPORT Balance at 1 Jan 2014 1,037,610 – – – Roll-forward to new forward contract to repurchase own shares 17 Jun 2014 –100,000 100,000 – – New forward contract to repurchase own shares 17 Jun 2014 – 1,100,000 – –

Balance at 31 Dec 2014 937,610 1,200,000 – – New forward contract to repurchase own shares 20 Jul 2015 – – 430,000 –

Balance at 31 Dec 2015 937,610 1,200,000 430,000 – Shares granted to participants LTI'13 (settlement of forward contract to repurchase own shares) 18 May 2016 –227,880 – – – Roll-forward to new forward contract to repurchase own shares 15 Jun 2016 –709,730 – – 709,730

Balance at 31 Dec 2016 – 1,200,000 430,000 709,730

Price, SEK 18.50678 23.00000 26.40000 28.50000 2016 2016

] See Note 24 for more details about the share-based long-term incentive plan.

Interest rate swaps The Group has entered into several interest rate swap contracts to Note 1 partially cover the interest rate risk on the loans denominated in both Note 2 SEK and EUR. Note 3 Note 4 The following table shows the combined notional principal amounts of the outstanding interest rate swaps Note 5 Notional principal amounts Fixed interest currency rates Duration Note 6 Note 7 SEKm 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 Note 8 STIBOR Interest rate swaps 820 820 1.355% 1.355% Q1 2017 Q1 2016– Q1 2017 Note 9 STIBOR Interest rate swaps1 200 – 0.030% – Q2 2017–Q2 2018 – Note 10 STIBOR Interest rate swaps1 200 – 0.030% – Q2 2017–Q4 2017 – Note 11 STIBOR Interest rate swaps1 200 – 0.030% – Q2 2017–Q3 2017 – Note 12 EURIBOR Interest rate swaps 50 50 0.203% 0.203% Q1 2017–Q4 2017 Q1 2016–Q4 2017 Note 13 EURIBOR Interest rate swaps – 50 – 0.203% – Q1 2016–Q4 2016 Note 14 EURIBOR Interest rate swaps1 40 – 0.156% – Q2 2017–Q2 2020 – Note 15 EURIBOR Interest rate swaps1 50 – 0.156% – Q1 2018–Q4 2018 – Note 16 EURIBOR Interest rate swaps1 35 – 0.156% – Q1 2019–Q4 2019 – Note 17 EURIBOR Interest rate swaps1 10 – 0.156% – Q1 2020–Q2 2020 – Note 18 Note 19 1) Swap includes a zero floor on the floating leg. Note 20 Note 21 Foreign currency exchange contracts Note 22 The Group has entered into forward foreign currency contracts to hedge Note 23 the currency risk for the USD with a maturity of less than one year from Note 24 the reporting date. Note 25 Note 26 The following table shows the notional principal amounts, weighted average exchange rates and remaining periods Note 27 Note 28 Notional principal amounts Weighted average exchange rates Expiry date

Note 29 2016 2015 2016 2015 2016 2015 Note 30 SEK - USD USD 7.1m USD 8.5m 8.5428 8.2598 2017 2016 Note 31 GBP - EUR – GBP 0.8m – 0.7722 – 2016 Note 32 Note 33 Note 34 Note 35

120 Financial information Cloetta For defined contribution plans, the Group pays contributions to Note 23 Other non-current liabilities publicly or privately administered pension insurance plans on a manda-

tory, contractual or voluntary basis. The Group has no further payment [

ANNUAL AND SUSTAINABILITYREPORT See Note 1 (XXIV) for the accounting policy. obligations once the contributions have been paid. The Group has a number of defined benefit pension plans in Swe- Contingent considerations consists of the contingent earn-out con- den, the Netherlands, Belgium, Finland, Germany, Italy and Norway sideration related to the acquisition of Alrifai Nutisal AB (currently that refer to pension and other long-term benefit schemes. known as Cloetta Nutisal AB) and the contingent consideration arising For one defined benefit pension plan, the Group accounts as though from the option agreement for Aran Candy Ltd. The remeasurement this was a defined contribution scheme since sufficient information is movements recognized in the profit and loss account are the result of not available to enable the Group to account for the plan as a defined remeasurements of the financial performance of the acquired compa- benefit plan. Cloetta applies the same accounting policies as other par- nies. On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remain- ticipating employers. Sufficient information is not available, since asset ing 25 per cent of the outstanding shares in Aran Candy Ltd., resulting administration of the fund is not designed to allocate the total assets of in the settlement of the contingent consideration arising from the option the fund to the participating companies. In the event of a deficit in this agreement for an amount of SEK 106m. On 4 October 2016 Cloetta pension fund, the Group has no obligation to provide further contribu- Holland B.V. settled the contingent earn-out consideration related to tions other than higher future contributions. the acquisition of Alrifai Nutisal AB (currently known as Cloetta Monthly premiums are average premiums expressed as a percent- 2016 Nutisal AB) for an amount of SEK 48m. age of the pension calculations basis and should, as a minimum, cover

the cost of the fund. The minimum pension premium is determined in ] Movements in other non-current liabilities are specified as follows accordance with the actuarial and business note of the fund. In case of liquidation of the fund, an amount that is sufficient to cover defined SEKm 2016 2015 benefits will be secured. In case of a deficit in the fund at moment of At 1 January 125 147 liquidation, the defined benefits will be proportionally reduced taking Remeasurements recognized in profit and loss Note 1 into consideration Article 134 of the Dutch Pension Act. Contributions - Unrealized remeasurement on contingent Note 2 to the plan for the next annual year are expected to amount to SEK 33m considerations recognized in general and admin- Note 3 (30). These can be split into employer contributions of SEK 22m (20) istrative expenses 17 –33 Note 4 - Unrealized interest on contingent considerations and employee contributions of SEK 11m (10). At year-end 2016, the Note 5 recognized in other financial expenses 10 12 coverage of the pension fund was 102.7 per cent (106.7). Note 6 Remeasurements recognized in other compre- Note 7 hensive income The main defined benefit plans at 31 December 2016 Note 8 - Unrealized currency translation differences 2 –1 in the Group were: Note 9 Settlements Sweden ITP2 plan: Note 10 - Settlements via balance sheet –154 – The ITP2 plan covers employees born before 1979. Benefits provided Note 11 At 31 December – 125 in the old defined benefit plan include a final pay-based retirement Note 12 pension. This plan is an unfunded defined benefit plan. Note 13 of which remaining term < 1 year – 82 The ITP plan benefit formula provides pension benefits as a Note 14 of which remaining term 1–5 years – 43 percentage of salary. Benefits will be reduced proportionally if the Note 15 Fair value – 125 expected years of service, within the plan and irrespective of employer, Note 16 is less than 30 years. ITP plan benefits vested with former employers Note 17 In 2015, the current portion of the contingent consideration was report- are indexed according to the consumer price index. Note 18 ed in ‘Trade and other payables’, see Note 26. Note 19 Finland Leaf/Merijal plan: Note 20 The plan is an insured voluntary final salary pension plan. It was estab- Note 21 lished on 31 December 2005 when the liabilities and assets of Merijal Note 22 Pensions and other long-term Pension Foundation and Leaf Pension Foundation were transferred to Note 23 Note 24 Note 24 employee benefits Pohjola Life Insurance Company. Note 25 Note 26 See Notes 1 (VI) and (XXVI) for the accounting policy. Norway Note 27 There is one plan, which is insured in a life insurance company. This Note 28 Group companies use various post-employment schemes, including funded plan, together with the national pension scheme, provides an Note 29 both defined benefit and defined contribution pension plans. old age pension of a maximum 66 per cent of final salary. Included is Note 30 A defined contribution plan is a pension plan under which the a widow(er)s pension equal to 60 per cent of the old age pension and Note 31 Group pays fixed contributions to a separate entity. The Group has no children’s pension equal to 50 per cent of the old age pension. Members Note 32 legal or constructive obligations to pay further contributions even if who become disabled will receive a disability pension linked to the old Note 33 the fund does not hold sufficient assets to pay all employees the benefits age pension they would have received with their present salary. Note 34 relating to employee service in the current and prior periods. Defined Note 35 benefit plans define an amount of pension benefit that an employee will Italy – TFR plan receive on retirement, usually dependent on one or more factors such as The Trattamento di Fine Rapporto (TFR) benefit is a deferred compen- age, years of service and compensation. sation plan established by Italian law. Employers are required to pro- The defined benefit schemes in industry sector pension funds, vide a benefit to employees when, for any reason, their employment is which are held by pension funds that are not able to provide company- terminated, i.e. in the case of retirement, death, disability and turnover. specific or reliable information, are accounted for as though they were defined contribution schemes. In the event of a deficit in these pension funds, the company has no obligation to provide supplementary contri- butions, other than higher future contributions.

121 Financial information

Cloetta The total pensions and other long-term employee benefits can be The amounts recognized in the balance sheet are determined as follows determined as follows 31 Dec 31 Dec

[ SEKm 2016 2015 31 Dec 31 Dec ANNUAL AND SUSTAINABILITYREPORT SEKm 2016 2015 Present value of funded obligations 99 87 Obligations for: Fair value of plan assets –82 –72 Pension benefits 395 377 Deficit of funded plans 17 15 Other long-term employee benefits (for jubilee payments) ('OLEB') 1 1 Present value of unfunded obligations 379 363 Liability in the balance sheet 396 378 Total 396 378

Movements in the combined net defined benefit obligations and other long-term employee benefits over the year are as follows

Present value Fair value of

2016 2016 SEKm of obligation plan assets Total

1 January 2015 585 –80 505 ]

Current service cost 10 – 10 Interest expense/(income) 11 –1 10 Remeasurements: - Return on plan assets, excluding Note 1 amounts included in intrest expense/ Note 2 (income) – 3 3 Note 3 - (Gains)/losses from change in demographic Note 4 assumptions –1 – –1 Note 5 - (Gains)/losses from change in financial Note 6 assumptions –90 – –90 Note 7 - Experience (gains)/ losses –39 – –39 Note 8 Total remeasurements –130 3 –127 Note 9 Exchange differences –5 3 –2 Note 10 Contributions: Note 11 - Employers – –19 –19 Note 12 Payments from plans Note 13 - Benefit payments –19 21 2 Note 14 Acquired in a business combination –2 1 –1 Note 15 Note 16 31 December 2015 450 –72 378 Note 17 Note 18 Current service cost 7 – 7 Note 19 Interest expense/(income) 14 –2 12 Note 20 Remeasurements: Note 21 - Return on plan assets, excluding amounts Note 22 included in intrest expense/(income) – –3 –3 Note 23 - (Gains)/losses from change in financial Note 24 assumptions 23 – 23 Note 25 - Experience (gains)/ losses –2 – –2 Note 26 Total remeasurements 21 –3 18 Note 27 Exchange differences 10 –6 4 Note 28 Contributions: Note 29 - Employers – –23 –23 Note 30 Payments from plans Note 31 - Benefit payments –24 24 – Note 32 31 December 2016 478 –82 396 Note 33 Note 34 Note 35 The Group expects to pay SEK 20m (20) in contributions to its defined benefit plans in 2017.

122 Financial information Cloetta The defined benefit obligation and plan assets are composed by country as follows

Present value of obligation Fair value of plan assets Defined benefit obligation [

SEKm 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 ANNUAL AND SUSTAINABILITYREPORT

Sweden 310 295 –16 –18 294 277 Norway 26 22 –25 –20 1 2 Italy 65 66 – – 65 66 Finland 39 37 –30 –30 9 7 Other countries 38 30 –11 –4 27 26 Total 478 450 –82 –72 396 378

The significant actuarial assumptions were as follows The sensitivity of the combined net defined benefit obligations and other long-term employee benefits to changes in the weighted principal 31 Dec 31 Dec assumptions is as follows Weighted average percentage 2016 2015

Impact on defined benefit obligation 2016 Discount rate 2.39 2.73 Expected rate of future salary increases 1.89 1.91 Change in as- Increase in Decrease in Expected rate of future increase SEKm sumptions assumptions assumptions ] for benefits in payment 1.22 1.23 Discount rate 1%-point –17% 19% Expected long-term inflation rate 1.62 1.61 Salary growth rate 1%-point 4% –3% Pension growth rate 1%-point 15% –13% Assumptions regarding future mortality are set based on actuarial Note 1 advice in accordance with published statistics and experience in each No e 2 territory. Increase by 1 year Decrease by 1 year Note 3 in assumption in assumption Note 4 These assumptions translate into an average life expectancy in years for Life expectancy 4.36% 4.33% Note 5 a pensioner retiring at the age of 67 in the Netherlands and 65 in other Note 6 countries The above sensitivity analyses are based on a change in one assumption Note 7 2016 while holding all other assumptions constant. In practice, this is unlike- Note 8 SEKm Sweden Others ly to occur, and changes in some of the assumptions may be correlated. Note 9 When calculating the sensitivity of the defined benefit obligation to Note 10 Retiring at the end of the reporting period: significant actuarial assumptions, the same method has been applied Note 11 - Male 21 24 as when calculating the pension liability recognized in the statement of Note 12 - Female 24 26 Note 13 Retiring 20 years after the end of financial position. Note 14 the reporting period Plan assets for both 2015 and 2016 consist for 100 per cent of Note 15 - Male 41 45 insurance contracts. Note 16 - Female 43 49 Note 17 Note 18 At 31 December 2016 the weighted average duration of the defined Note 19 benefit obligation was 18.36 years (16.12 years). Note 20 Note 21 Note 22 The expected maturity analysis for undiscounted combined net defined benefit obligations and other long-term employee benefits is as follows Note 23 SEKm Less than 3 years Between 3–7 years Between 7–15 years Over 15 years Total Note 24 Defined benefit obligation by expected maturity 0 3 183 292 478 Note 25 Note 26 Note 27 Total pension costs amounting to SEK 20m (20) are included in costs of Note 28 Note 29 goods sold, selling expenses, general and administrative expenses and Note 30 financial income and expenses in the profit and loss account. Note 31 Note 32 Note 33 Note 34 Note 35

123 Financial information

Cloetta Share-based payments Share-based long-term incentive plan Call option arrangement The AGM approved the Board’s proposals for a share-based long-term

[ In 2012, Cloetta’s principal shareholders at that time, AB Malfors Pro- incentive plan to align the interests of the shareholders on the one hand

ANNUAL AND SUSTAINABILITYREPORT motor, Nordic Capital and CVC (through holding companies), issued and Group Management Team and other key employees on the other call options that members of Group Management Team and one key em- hand in order to ensure maximum long-term value creation. ployee have acquired on market terms. Under the call option agreement, To participate in the plan, a personal shareholding in Cloetta is the selected participants were offered the opportunity to purchase required. Following a three-year vesting period, the participants will be options against payment of the fair market value of the options. allocated class B shares in Cloetta free of charge provided that certain The call options have been granted by the principal shareholders in conditions are fulfilled. order to promote commitment to the company’s development. In order for so-called matching share rights to entitle the partici- Options acquired in the first tranche had an exercise period starting pant to class B shares in Cloetta, continued employment with Cloetta is immediately after completion of the merger of Leaf and Cloetta and required and the personal shareholding in Cloetta must be continuously ended on 16 December 2013. The exercise period of the second tranche maintained. For each invested share one matching share will be granted of the options was between 17 December 2013 and 16 December 2014, if above requirements are fulfilled. and the exercise period of the third tranche of the options is between In addition, allocation of class B shares on the basis of performance 17 December 2014 and 16 December 2015. For the first tranche the call share rights requires the attainment of two performance targets, one

2016 2016 options grant the right to purchase class B shares in the company or to of which is related to Cloetta’s EBIT and the other to Cloetta’s net sales receive the equivalent value in cash. For the second and third tranche, value in 2015, 2016, 2017 and 2018, respectively. The share-based long-

] the call options grant the right to receive the equivalent value of class B term incentive plan 2013 vested in 2016. shares in cash. As no service requirements or other vesting conditions With respect to LTI 2014, the target levels set by the Board for are attached, the options acquired in connection with the merger of Leaf the two performance targets were met by 39.4 per cent (of a maximum and Cloetta vested immediately. target fulfillment of 100 per cent). The performance targets were relat- Cloetta is not contributing to the call option scheme and it does not ed to growth in Cloetta’s compounded sales value during 2014–2016 Note 1 have any impact on the Group’s financial statements. The call option and EBITA level during 2016. As a result, Cloetta will, free of charge, Note 2 scheme will not result in any dilution of the current shareholders’ transfer no more than 157,751 shares to participants holding matching Note 3 Note 4 holdings. share rights and no more than 223,786 shares to participants holding Note 5 The options comprise in aggregate 15,251,303 class B shares in the performance share rights. Note 6 company, of which 5,083,761 were exercised during 2013, 5,271,858 Total costs related to the non-vested share-based long-term incen- Note 7 were exercised during 2014 and 4,895,684 during 2015. tive plans are expected to amount to SEK 55m (52) during the total Note 8 The initial exercise price of the options is set at SEK 15.76 for all vesting period. The total costs for the share-based long-term incentive Note 9 three tranches, corresponding to 120 per cent of the volume-weighted plans recognized in 2016 are SEK 10m (13). Note 10 average share price during 10 trading days preceding the date on which See page 64 for further details on the main characteristics of the Note 11 the options were offered under the agreement (“the initial share price”). share-based long-term incentive plans. Note 12 If the share price at the date of the exercise of an option is higher than The forward contracts to repurchase own shares amount to Note 13 180 per cent of the initial share price, a step-up of the exercise price SEK 59m (57). Note 14 amounting to SEK 0.90 for each whole Swedish krona (SEK 1.00) above Note 15 180 per cent of the initial share price will apply. Movements in the number of shares for the share-based Note 16 long-term incentive plans are as follows Note 17 Movements in the number of share options outstanding are as follows Number of shares Note 18 in thousands Note 19 Number of share options in thousands 2016 2015 Note 20 Note 21 2016 2015 At 1 January 1,789 1,188 Note 22 Granted 1,118 1,131 At 1 January – 4,895 Note 23 Vested –228 – Exercised – –4,895 Note 24 Released –851 –530 At 31 December – – Note 25 At 31 December 1,828 1,789 Note 26 Weighted average exercise price during the period – 23.01 Note 27 Personnel expenses are calculated using the number of shares multi- Note 28 plied by the share price at the grant date and taking into consideration Note 29 the expected number of shares to be granted at the end of the vesting Note 30 Note 31 period, consisting of matching and performance shares. The personnel Note 32 expenses are allocated to the profit and loss account over the total Note 33 vesting period of the share-based long-term incentive plan. The Note 34 calculation for 2016 assumes a 70 per cent (62) performance, that Note 35 100 per cent (100) of the participants will be with the company at the end of the vesting period and that the requirement of continuous per- sonal shareholding in Cloetta will be maintained.

124 Financial information Cloetta Note 25 Provisions [

ANNUAL AND SUSTAINABILITYREPORT See Note 1 (XXV) for the accounting policy.

Movements in provisions, excluding pension benefits and other long-term employee benefits, are specified as follows

SEKm Reorganization Sales returns Other Total

1 January 2015 8 55 18 81 Business combinations – – 0 0 Additions 29 39 2 70 Utilizations –17 –48 –6 –71 Unused amounts reversed –1 –7 –3 –11 Exchange differences –1 –1 0 –2

31 December 2015 18 38 11 67 Analysis of total provisions

Non-current 10 2016 Current 57

Total 67 ]

SEKm Reorganization Sales returns Other Total

1 January 2016 18 38 11 67 Note 1 Additions 7 51 23 81 Note 2 Utilizations –17 –44 –1 –62 Note 3 Unused amounts reversed –1 – –2 –3 Note 4 Exchange differences 0 2 1 3 Note 5 31 December 2016 7 47 32 86 Note 6 Analysis of total provisions Note 7 Non-current 22 Note 8 Current 64 Note 9 Note 10 Total 86 Note 11 Note 12 Note 13 The reorganization provision at 31 December 2015 is mainly related sales returns as of 31 December 2016 is expected to be utilized during Note 14 relates to restructuring expenses in the commercial area, restructuring the first half of 2017. Note 15 of the supply chain and merger-related activities. See Note 24 for details about pension benefits and other long-term Note 16 A provision for an amount of SEK 47m (38) has been established employee benefits. Note 17 relating to returns of seasonal products in Italy. The total provision for Note 18 Note 19 Note 20 Note 21 Note 22 Note 23 Note 24 Note 25 Note 26 Note 27 Note 28 Note 29 Note 30 Note 31 Note 32 Note 33 Note 34 Note 35

125 Financial information

Cloetta On 17 July 2015, Cloetta Holland B.V. acquired control of Locawo B.V., Note 26 Trade and other payables by acquiring 100 per cent of the total outstanding ordinary shares and

[ 100 per cent of the voting rights in Locawo B.V. The acquisition has

ANNUAL AND SUSTAINABILITYREPORT See Note 1 (XXIX) for the accounting policy. significantly strengthened Cloetta’s position in the Netherlands and broaden Cloetta’s product portfolio as part of its ‘Munchy Moment’ strategy. 31 Dec 31 Dec SEKm 2016 2015 The total consideration consists of SEK 206m in cash. The goodwill of SEK 45m relates primarily to the potential of new Trade payables 569 541 distribution channels, the workforce, the creation of diversity in Cloet- Other taxes and social securities expenses 132 132 Pension liabilities 5 1 ta’s branded portfolio and new market/sales opportunities in Cloetta’s Contingent considerations – 82 markets. The total goodwill of SEK 45m is not expected to be deducti- Other liabilities 38 32 ble for tax purposes. Accruals and deferred income 452 428 The acquired receivables contain trade receivables of SEK 34m which have been collected in full. The contingent liabilities recognized Total 1,196 1,216 as part of the purchase price allocation amount to SEK 1m. The total transaction costs related to the acquisition amounted to SEK 9m and

Accruals and deferred income are specified as follows 2016 2016 were fully recognized in the 2015 profit and loss account as general and 31 Dec 31 Dec administrative expenses.

] SEKm 2016 2015 Due to the short-term nature of the receivables, the fair value ap- Accrued personnel-related expenses 195 197 proximates the gross contractual amounts. The contractual cash flows Accrued customer bonuses and discounts 127 126 that are not expected to be collected are immaterial. Other accrued expenses and deferred income 130 105 Locawo B.V. contributed SEK 278m to the consolidated revenues of Cloetta as from acquisition date up to 30 June 2016. The accounting for Note 1 Total 452 428 the business combination has been finalized. The goodwill acquired is Note 2 allocated to the cash generating unit Middle. Note 3 See Note 1 for details about changes in the group structure. Note 4 Note 5 Note 27 Business combinations Note 6 Note 7 Acquisition of Locawo B.V. Note 28 Financial risks and financial risk management Note 8 Note 9 SEKm Note 10 Through its activities, the Group is exposed it to a variety of financial Note 11 Consideration paid risks: market risk (including currency risk, fair value interest rate risk, Note 12 Cash paid 206 cash flow interest rate risk and price risk), credit risk and liquidity risk. Note 13 Contingent consideration – The Group’s overall risk management programme focuses on the un- Note 14 predictability of financial markets and seeks to minimise potential Consideration transferred 206 Note 15 adverse effects on the Group’s financial performance. Note 16 Financial risks are managed by the Group treasury department Recognised amounts of identifiable assets and liabilities assumed: Note 17 under policies approved by the Board of Directors. The Group treasury Non-current assets 264 Note 18 department identifies, evaluates and, if applicable, hedges financial Intangible assets (excl. goodwill) 143 Note 19 risks in close cooperation with the Group’s operating units. The Board Property, plant and equipment 119 Note 20 provides written principles for overall risk management, as well as Other non-current assets 2 Note 21 written policies covering specific areas, such as foreign exchange risk, Note 22 interest rate risk, credit risk, use of derivative financial instruments and Current assets 76 Note 23 Inventories 31 non-derivative financial instruments and investment of excess liquidity. Note 24 Trade and other receivables 45 The primary market and financial risks are described in detail below. Note 25 Cash and cash equivalents – Note 26 Market risk Note 27 Non-current liabilities –72 Currency risk Note 28 Borrowings –21 The Group is primarily active in the European Union and Norway. The Note 29 Provisions –2 Group’s currency risk mainly relates to positions and future transac- Note 30 Deferred tax liabilities –49 tions in euros (EUR), Danish kroner (DKK), Norwegian kroner (NOK), Note 31 US dollars (USD) and British pounds (GBP). Note 32 Current liabilities –107 The Group has major investments in foreign operations whose net Note 33 Borrowings –30 assets are exposed to foreign currency translation risk. Note 34 Trade payables –26 Note 35 Based on a risk analysis, the Group’s Boards of Directors has decid- Derivative financial instruments –3 ed to hedge the euro-related currency risk by drawing part of the credit Taxes and social security premiums –6 facility in euros. This hedge covers part of the currency risk in euros. Payables to related parties –27 Hedge accounting (hedges of net investments in foreign operations) Other current liabilities –15 is applied. This resulted in a reduction in the volatility of net financial items caused by revaluation of monetary assets and liabilities as of Total identifiable net assets 161 those dates. The Group’s investment in trademarks in Aran Candy Ltd., Goodwill 45 Cloetta Suomi Oy, Cloetta Holland B.V., Confiserie Lonka B.V. and Consideration transferred 206 Cloetta Slovakia s.r.o. is hedged by a net euro-denominated loan (car- rying amount: EUR 143m (105)) which mitigates the foreign currency

126 Financial information Cloetta translation risk on these trademarks. The fair value of the loan was been approximately SEK 25m lower. If the interest rate had been EUR 143m (105). The loan is designated as a net investment hedge. The 1 percentage point lower with all other variables held constant, profit

effectiveness of the hedge is tested and documented on a monthly basis. before tax for the year would have been approximately SEK 35m lower [

ANNUAL AND SUSTAINABILITYREPORT No ineffectiveness was recognized from the net investment hedge. due to some interest rate swaps that do not include a zero-floor clause. To manage the foreign exchange risk arising from future commer- The analysis considers the effects of interest rate swaps and the impact cial transactions and recognized assets and liabilities, the Group uses of negative interest rates. forward contracts. Foreign exchange risk arises when future commer- cial transactions or recognized assets or liabilities are denominated in a Credit risk currency that is not the entity’s functional currency. The Group entered The Group does not have any significant concentrations of credit risk. into forward foreign currency contracts to hedge the currency risk of The Group’s customers are subject to a credit policy. Sales are subject the USD with a maturity of less than one year from the reporting date. to payment conditions which vary per customer. In addition, receivable See Note 22 for the details of the forward foreign currency contracts. balances are monitored on an ongoing basis with the result that the In the financial year 2016, if the Swedish krona had weakened/ Group’s exposure to bad debts is not significant. strengthened by 10 per cent against the euro with all other variables A provision for impairment of trade receivables is established held constant, profit before tax for the year would have been approx- when there is objective evidence that the Group will not be able to col- imately SEK 25m higher/lower, as a result of the foreign exchange lect all amounts due according to the original terms of the receivables. gains/losses on translation of all euro-denominated trading in Europe Significant financial difficulties of the debtor, probability that the 2016 and foreign exchange losses/gains on translation of euro-denominated debtor will enter bankruptcy or financial reorganization, and default or borrowings. delinquency in payments (more than 30 days overdue) are considered ] The currency risk attached to the transactions in the other curren- indicators that the trade receivable is impaired. The amount of the cies is not significant as the amounts involved are not significant for the provision is the difference between the asset’s carrying amount and the total Group. present value of estimated future cash flows, discounted by the original effective interest rate. The carrying amount of the asset is reduced Note 1 Interest rate risk through the use of an allowance account, and the amount of the loss is Note 2 The Group is exposed to interest rate risk on the interest-bearing recognized in the profit and loss account within selling expenses. When Note 3 non-current and current liabilities (including loans to credit institu- a trade receivable is uncollectible, it is written off against the allowance Note 4 tions). account for trade receivables. Note 5 The Group is exposed to the consequences of variable interest rates Credit terms for customers are determined individually in the Note 6 on liabilities. In relation to fixed interest liabilities, it is exposed to different markets. Concentrations of credit risk with respect to trade Note 7 market values, which is not a significant risk for the Group. receivables are limited, due to the size and diversity of the Group’s cus- Note 8 If the interest rate had been 1 percentage point higher with all tomer base. The Group’s historical experience of collecting receivables Note 9 other variables held constant, profit before tax for the year would have is that credit risk is low across all markets. Note 10 Note 11 Note 12 Note 13 The Group uses several banks (range of most used banks varies between AA- and A-3 rating) and has a revolver facility available Note 14 Cash balances Other loans Note 15

SEKm Rating (S&P) 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 Note 16 Note 17 Svenska Handelsbanken AB (publ) AA- 163 77 –669 –1,986 Note 18 UBI Banca A-3 49 27 – – Note 19 Nordea A-1+ 25 10 – – Note 20 Intesa Sanpaolo A-3 22 17 – – Note 21 Ulster Bank Ltd. A-2 15 25 – – Note 22 Tatra Banka A-2 13 16 – – Note 23 ING Bank N.V. A-2 3 67 – – Note 24 Skandinavska Enskilda Banken AB (publ) A+ – – –669 – Note 25 Danske Bank A/S A – – –669 – Note 26 DNB Sweden AB A+ – – –669 – Note 27 Other banks 8 7 – – Note 28 Total 298 246 –2,677 –1,986 Note 29 Note 30 Note 31 Note 32 Note 33 Note 34 Note 35

127 Financial information

Cloetta Liquidity risk The Notional Group Account (NGA) includes both the Parent Cash flow forecasting is performed in the operating entities of the Group Company and several operating entities. Surplus cash held by oper-

[ and is aggregated by the Group Treasury department. The Group Treas- ating entities included in the NGA is available to the Group’s treasury

ANNUAL AND SUSTAINABILITYREPORT ury department monitors the sources and the amounts of company’s department and is used for the Group’s internal and external financing cash flows, dividend, obligation, loans, actual cash position and rolling activities. Surplus cash held by operating entities not included in the forecasts of the Group’s liquidity requirements to ensure it has sufficient NGA is transferred to the Group’s treasury department and is also used cash to meet operational needs while maintaining sufficient headroom for the Group’s internal and external financing activities. on its undrawn committed borrowing facilities (Note 21) at all times so The table below analyzes the Group’s non-derivative financial that the Group does not breach borrowing limits or covenants on any of liabilities and net-settled derivative financial liabilities into relevant its borrowing facilities and the impact such restrictions had or are ex- maturity groupings based on the remaining period at the balance sheet pected to have on its ability to meet its cash obligations. Such forecast- date to the contractual maturity date. Derivative financial liabilities are ing takes into consideration the Group’s debt financing plans, covenant included in the analysis if their contractual maturities are essential for compliance, compliance with internal balance sheet ratio targets and, an understanding of the timing of the cash flows. if applicable, external regulatory or legal requirements - for example, currency restrictions.

2016 2016

31 Dec 2016 ] SEKm Term < 1 year Term 1–2 years Term 2–3 years Term 3–4 years Term 4–5 years Term > 5 years Total

Loans from credit institutions 18 1, 017 1,687 – – – 2,722 Trade and other payables 1,064 – – – – – 1,064 Total 1,082 1,017 1,687 – – – 3,786 Note 1 Note 2 Note 3 31 Dec 2015 SEKm Term < 1 year Term 1–2 years Term 2–3 years Term 3–4 years Term 4–5 years Term > 5 years Total Note 4 Note 5 Loans from credit institutions 402 1,640 – – – – 2,042 Note 6 Senior secured notes 31 31 1,022 – – – 1,084 Note 7 Contingent considerations – 49 – – – – 49 Note 8 Trade and other payables 1,084 – – – – – 1,084 Note 9 Total 1,517 1,720 1,022 – – – 4,259 Note 10 Note 11 Note 12 Note 13 Note 14 In 2015, the contractual payment for the minimum contingent earn-out Note 29 Fair value measurement Note 15 consideration related to the acquisition of Alrifai Nutisal AB (currently Note 16 known as Cloetta Nutisal AB) was included in the table above. On Note 17 4 October 2016 the contingent earn-out consideration was settled for an Share-based long-term incentive plan Note 18 amount of SEK 48m. The 2013, 2014, 2015 and 2016 AGM approved the Board’s proposal Note 19 relating to the introduction of a share-based long-term incentive plan. Note 20 Capital risk management Under the share-based long-term incentive plans, the entity re- Note 21 The Group’s objectives when managing capital are to safeguard the ceives services from employees as consideration for equity instruments Note 22 Group’s ability to continue as a going concern and thereby provide (shares) of the Group. The fair value of the employee services received Note 23 returns for shareholders and benefits for other stakeholders and to in exchange for the grant of the shares is recognized as an expense. The Note 24 maintain an optimal capital structure as a means to to reduce the cost of total amount to be expensed is determined by reference to the fair value Note 25 capital. The Group’s priority in monitoring capital is to maintain com- of the shares granted: Note 26 pliance with the covenants in the applicable credit facilities agreement. • including any market performance conditions (for example, an entity’s Note 27 Cloetta actively monitors these and other ratios on a monthly basis. Up share price); and Note 28 to 27 July 2016 Cloetta had a credit facility agreement with Svenska • including the impact of any service and non-market performance Note 29 Handelsbanken AB (publ), which included a net debt/EBITDA cov- vesting conditions (for example, profitability, sales growth targets and Note 30 enant, an interest covenant, and an equity/total assets covenant. On remaining as an employee of the entity over a specified time period). Note 31 22 July 2016 Cloetta entered into a new term and revolving facilities See Note 24 for more information. Note 32 agreement with a group of four banks. This new term and revolving fa- Note 33 cilities agreement includes one covenant, relating to the net debt/EBIT- Fair value measurement Note 34 DA ratio. Throughout 2015 and 2016, the Group was in compliance with The only items recognized at fair value after initial recognition are the Note 35 the covenant requirements. interest rate swaps and forward foreign currency contracts catego- rized at level 2 of the fair value hierarchy in all periods presented, the contingent earn-out consideration related to the acquisitions of Alrifai Nutisal AB (currently known as Cloetta Nutisal AB) and the contingent consideration arising from the option agreement for Aran Candy Ltd.

128 Financial information Cloetta initially categorized at level 3, as well as assets held for sale, in cases The assets measured at fair value less cost of disposal at 31 December where the fair value less cost of disposal is lower than the carrying 2016 consisted of the land and building in Zola Predosa, Italy.

amount. On 4 July 2016 the contingent consideration arising from the There are no financial instruments categorized at level 3 of the fair [

ANNUAL AND SUSTAINABILITYREPORT option agreement for Aran Candy Ltd. was settled for an amount of value hierarchy other than the contingent consideration. See Note 23 SEK 106m. On 4 October 2016 the contingent earn-out considera- for movements in contingent consideration. tion related to the acquisition of Alrifai Nutisal AB was settled for an On 4 October 2016 the contingent earn-out consideration related amount of SEK 48m. The fair values of the financial assets (loans and to the acquisition of Alrifai Nutisal AB was settled via balance sheet for receivables) and liabilities measured at amortized cost are approxi- an amount of SEK 48m, resulting in a transfer from fair value hierarchy mately equal to their carrying amounts. The fair value of financial as- level 3 to 2 in third quarter of 2016. No other transfers between fair sets and liabilities for measurement purposes is estimated by discount- value hierarchy levels have occurred during the financial year nor the ing the future contractual cash flows at the current market interest rate prior financial year. that is available to the Group for similar financial instruments. The fair The fair value of financial instruments that are not traded in an value derived is used as the carrying amount. active market (for example, over-the-counter derivatives) is determined The fair value measurements by level according to the fair value by using valuation techniques. These valuation techniques maximize measurement hierarchy are as follows: the use of observable market data where it is available and rely as • Quoted prices (unadjusted) in active markets for identical assets or little as possible on entity specific estimates. If all significant inputs

liabilities (level 1); required to determine the fair value of an instrument are observable, 2016 • Inputs other than quoted prices included within level 1 that are the instrument is included in level 2. The valuation of these instruments

observable for the asset or liability, either directly (that is, as prices) or is based on quoted market prices (price-component), but the underly- ] indirectly (that is, derived from prices) (level 2); ing contract amounts (quantity-component) are based on the specific • Inputs for the asset or liability that are not based on observable market requirements of the Group. These instruments are therefore included data (that is, unobservable inputs) (level 3). at level 2. The fair value measurement of the contingent consideration requires use of significant unobservable inputs and was thereby initially Note 1 The following table presents the Group’s assets and liabilities that are categorized at level 3. Note 2 measured at fair value The valuation techniques and inputs used to value financial instru- Note 3 ments are: 31 Dec 2016 Note 4 SEKm Level 1 Level 2 Level 3 Total • Quoted market prices or dealer quotes for similar instruments; Note 5 • The fair value of interest rate swaps is calculated as the present value Assets Note 6 of the estimated future cash flows based on observable yield curves; Assets at fair value through Note 7 profit or loss • The fair value of forward foreign currency contracts is calculated Note 8 • Assets measured at fair value – – 9 9 using the difference between the exchange rate on the spot date with Note 9 • Forward foreign currency the contractually agreed upon exchange rate; Note 10 contracts – 4 – 4 • The fair value of the asset held for sale is based on valuations by exter- Note 11 Total assets – 4 9 13 nal independent valuators; Note 12 • Other techniques, such as discounted cash flow analysis, are used to Note 13 determine fair value for the remaining financial instruments. Note 14 Liabilities The assets measured at fair value are identified as a non-recurring Note 15 Liabilities at fair value through profit or loss fair value measurement and are related to the assets held for sale. The Note 16 • Interest rate swaps – 7 – 7 assets are valued at fair value less cost of disposal in case the fair value Note 17 Note 18 Total liabilities – 7 – 7 less costs of disposal is below the carrying amount. See Note 18 for the movements in the assets held for sale. Note 19 The contingent considerations were measured at fair value using Note 20 the expected financial performance. Note 21 31 Dec 2015 Note 22 SEKm Level 1 Level 2 Level 3 Total Note 23 Note 24 Assets Note 25 Assets at fair value through profit or loss Note 26 • Assets measured at fair value – – 11 11 Note 27 • Forward foreign currency Note 28 contracts – 1 – 1 Note 29 Note 30 Total assets – 1 11 12 Note 31 Note 32 Liabilities Note 33 Liabilities at fair value through Note 34 profit or loss Note 35 • Interest rate swaps – 22 – 22 • Contingent considerations – – 125 125 • Forward foreign currency contracts – 0 – 0

Total liabilities – 22 125 147

129 Financial information

Cloetta The valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used, can be specified as follows

[ Inter-relationship between

ANNUAL AND SUSTAINABILITYREPORT Significant significant unobservable inputs Type Valuation technique unobservable inputs and fair value measurement

Derivative financial instruments - Interest rate swaps The valuation of the interest rate swaps is calculated Not applicable Not applicable as the present value of the estimated future cash flows based on observable yield curves.

- Forward foreign currency contracts The valuation of the forward foreign currency contract Not applicable Not applicable is calculated as the difference between future cash flows in foreign currencies converted at the spot rate at reporting date and the future cash flows in foreign currencies converted at the contractual agreed upon exchange rates.

2016 2016 See Note 23 for the effect of the measurements regarding contingent consideration liabilities in the profit and loss account or other com- Note 32 Operating leases ] prehensive income and for movements in contingent consideration liabilities. See Note 1 (XXX) for the accounting policy.

Recognized expenses for operating leases amount to:

Note 1 Note 30 Pledged assets and contingent liabilities SEKm 2016 2015 Note 2 Minimum lease payments 88 75 Note 3 Note 4 The Group’s term and revolving facilities agreement is unsecured in Future annual payment obligations for leased Note 5 nature. See Note 21 for the pledged assets at 31 December 2015. assets in the Group are broken down as follows: Note 6 Within one year 69 49 Note 7 Between one and five years 105 92 Note 8 More than 5 years 28 36 Note 9 Note 31 Related party transactions Total 202 177 Note 10 Note 11 All group companies mentioned in Note P8 are considered to be related Note 12 parties. Transactions between group companies are eliminated upon The operating lease commitments mainly consist of the lease of build- Note 13 consolidation. ings and warehouses with an average contract term of approximately Note 14 In the context of this financial report, and aside from the subsidiar- five years and of car lease contracts with an average contract term of Note 15 ies of Cloetta AB (publ), the company regarded as related parties is AB four years. All operating leases relate to minimum lease payments Note 16 Malfors Promotor. In 2015 and 2016 no transactions between Cloetta under non-cancellable operating lease agreements. There are no ma- Note 17 AB (publ) including its subsidiaries and AB Malfors Promotor includ- terial subleases, no material contingent rents, no renewal or purchase Note 18 ing its subsidiaries have occurred. options and escalation clauses nor any restrictions imposed by leasing Note 19 arrangements. Note 20 Transactions with Group Management In December 2015 a decision was made to close the factory in Dier- Note 21 and key employees en , the Netherlands. The factory in Dieren will be closed during 2017. Note 22 For information about salaries and remuneration to the Board of On 31 December 2017 the operational lease agreement for the building Note 23 Directors and Group Management Team, see pages 84–85. The Group will terminate. Note 24 has no receivables from Group Management Team and key employees. Note 25 In 2015 and 2016 share-based long-term incentive plans were approved Note 26 by the AGM. Total costs including social security charges related to the Note 27 Note 33 Critical accounting estimates and judgements Note 28 share-based long-term incentive plans that were recognized amount to Note 29 SEK 10m (13), of which SEK 5m (5) is related to Group Management In preparing the financial statements, the Group Management Team Note 30 Team. Other liabilities to Group Management Team and key employees makes estimates and judgments that affect the reported amounts of Note 31 consist of customary personnel-related liabilities. assets and liabilities, net sales and expenses, and disclosures of contin- Note 32 gent liabilities at the date of the financial statements. The estimates and Note 33 Note 34 assumptions that are associated with a significant risk of causing a ma- Note 35 terial adjustment to the carrying amounts of assets and liabilities in the next financial year as well as critical judgments in applying the Group’s accounting policies are discussed below. The accounting estimates and judgments are believed to be reasonable under the circumstances. The Group Management Team and audit committee have discussed the development, selection and disclosures regarding the Group’s criti- cal accounting principles and estimates. The estimates and judgments made in the application of the Group’s accounting policies are described below.

130 Financial information Cloetta Impairment testing of intangible assets investment and funding decisions made by the Group. For calculation For the purpose of impairment testing, assets are allocated to cash- of the present value of the pension obligation and the net cost, actuarial

assumptions are made about demographic variables (such as mortality) [ generating units when it is not possible to assess impairment on an ANNUAL AND SUSTAINABILITYREPORT individual asset basis. The recoverable amount of an asset is compared and financial variables (such as future increases in salaries). In coun- to the carrying amount to determine if an asset is impaired. An asset’s tries where there is no deep market in such bonds, the market yields at recoverable amount is the higher of its value in use and its fair value less the end of the reporting period on government bonds are used. Changes cost of disposal. The value in use is the present value of the future cash in these key assumptions can have a significant impact on the projected flows to be generated by an asset from its continuing use in the business. benefit obligations, funding requirements and periodic costs incurred. Based on management’s best estimates for the determination of the It should be noted that when discount rates decline or rates of future terminal growth rate, pre-tax discount rate and future cash flows, the salary increase, the pension benefit obligations will increase. For goodwill in South has been impaired to nil and the Italian trademarks details about the key assumptions and policies, see Note 24. The have been impaired to the recoverable amount of SEK 252m. Using carrying amount at the end of reporting period was SEK 396m (378). management’s best estimates in determination of the terminal growth rates, pre-tax discount rates and future cash flows, the estimated recov- Capitalization of development costs erable amounts of the group of CGUs in Scandinavia and Middle and Costs incurred on development projects are recognized as intangible the CGUs in Sweden, Finland and the Netherlands exceed the carrying assets when it is probable that a project will be successful in view of its amounts. commercial and technological feasibility. Group Management Team’s 2016 The carrying amount of the intangible assets at the end of reporting judgement is required in determining when the Group should start period was SEK 5,354m (5,948). capitalizing development costs. In general, the Group Management ] Team has determined that commercial and technological feasibility, Accounting for income taxes in general, is probable when the Group decides to pre-launch a product As part of the process of preparing financial statements, the Group is and the costs can be measured reliably. However, since the develop- required to estimate income taxes in each of the jurisdictions in which ment costs incurred by the Group after the pre-launch of a product are Note 1 the Group operates. There are many transactions and calculations for considered insignificant, the Group expenses all development costs in Note 2 which the ultimate tax determination is uncertain during the ordinary the period when the expenditure is incurred. Consequently, based on Note 3 management’s judgement, no development costs have been recognized course of business. The Group recognizes liabilities for anticipated tax Note 4 audit issues based on estimates of whether additional taxes will be due. as intangible assets in the consolidated financial statements. Note 5 Where the final tax outcome of these matters differs from the amounts Note 6 that were initially recorded, such differences will impact the current Revenue recognition Note 7 and deferred income tax assets and liabilities in the period in which In Italy, the customers of seasonal products have the right to return the Note 8 such determination is made. goods if the goods are not sold to consumers. Based on past experience Note 9 Temporary differences between tax and financial reporting give of similar sales, Cloetta Italia S.r.l. has recognized net sales on these Note 10 rise to deferred tax assets and liabilities, which are included in the transactions with a corresponding provision against net sales for esti- Note 11 balance sheet. The Group must also assess the likelihood that deferred mated returns. Note 12 tax assets will be recovered from future taxable income. A deferred tax Note 13 asset is not recognized if, and to the extent, it is probable that all or some Note 14 portion of the deferred tax asset will not be realized. Note 15 Note 34 Changes in accounting policies Cloetta has been negotiating with the Italian tax authority regard- Note 16 ing a material tax claim for the period 2005–2011. Following these Note 17 negotiations, Cloetta has settled the tax claim. New and amended standards Note 18 and interpretations adopted by the Group Note 19 Provisions The following standards and amendments to standards have been Note 20 By their nature, provisions are dependent on estimates and assessments adopted by the Group for the first time for the financial year beginning Note 21 Note 22 as to whether the criteria for recognition have been met, including on 1 January 2016 and have had an impact on the Group: Note 23 estimates as to the outcome and the amount of the potential cost of Note 24 resolution. Provisions are recognized as an expense in the profit and IAS 1 ‘Presentation of Financial Statements’, the final Standard Disclo- Note 25 loss account when it is probable that a liability has been incurred and sure Initiative (Amendments to IAS 1) includes the following completed Note 26 the amount of such liability can be reasonably estimated. actions: Note 27 Provisions for litigation, tax disputes, etc. for a total amount of Note 28 SEK 86m (122), are based on an estimate of the costs, taking into ac- – A mended guidance on materiality in IAS 1 to clarify that: Note 29 • Immaterial information can detract from useful information. count legal advice and the information currently available. In addition, Note 30 • Materiality applies to the whole of the financial statements. provisions for termination benefits and exit costs involve management’s Note 31 • Materiality applies to each disclosure requirement in an IFRS. judgment in estimating the expected cash outflows for severance Note 32 payments and site closure or other exit costs. Should the actual outcome Note 33 – A mended guidance on the order of the notes, differ from the assumptions and estimates, revisions to the estimated Note 34 including accounting policies to: provisions would be required, which could impact the Group’s financial Note 35 position and results from operations. • Remove language from IAS 1 that has been interpreted as prescribing the order of notes to the financial statements. Accounting for pensions and • Clarify that entities have flexibility about where they disclose ac- other post-employment benefits counting policies in the financial statements. Pension benefits represent obligations that will be settled in the future and require assumptions to project the benefit obligations and fair – Use of less prescriptive wording for disclosure requirements values of plan assets. Post-employment benefit accounting is intended when developing new standards. to reflect the recognition of future benefit costs over the employee’s expected service period, based on the terms of the plans and the

131 Financial information

Cloetta IAS 7 ‘Statement of cash flows’ is amended to improve presentation The Group is currently working on the impact assessment, which and disclosure of cash flows, by requiring disclosures that enable users covers a detailed contract analysis including identification of impact

[ of financial statements to evaluate changes in liabilities arising from on revenue recognition, an evaluation of processes and controls and an

ANNUAL AND SUSTAINABILITYREPORT financing activities, including both changes arising from cash flow and assessment of the IT environment. At this stage, the Group is not able to non-cash changes. The Group has early adopted the disclosure require- quantify the impact of the new rules on the Group’s financial statements ments in Disclosure Initiative (Amendments to IAS 7), on 1 January or to decide on the method of first-time application. 2016, before the mandatory effective date of 1 January 2017. Conse- quently, the Group has provided additional disclosure in relation to the IFRS 16, ’Leases’ is published in January 2016 and supersedes IAS 17 changes in liabilities arising from financing activities for the year ended Leases. The standard is required to be applied from 1 January 2019. A 31 December 2016. Comparative information has not been presented company can choose to apply IFRS 16 before this date but only if it also (see Note 21). applies IFRS 15 Revenue from Contracts with Customers. The stand- ard will affect primarily the accounting for the Group’s operating leases. There are no other IFRSs or IFRIC interpretations that are effective as In conjunction with the implementation process of IFRS 15 Cloetta of 1 January 2016 that have any impact on the Group. initiated a process for the implementation of IFRS 16 and identified the same three phases. Currently the Group is working on the impact New standards and amendments to standards assessment, which covers an assessment of current lease contracts,

2016 2016 not yet adopted an assessment of the processes to obtain required data and ensuring A number of new standards and amendments to standards and interpre- awareness and understanding by the different stakeholders within the

] tations are effective for annual periods beginning after 1 January 2016, Group. At this stage, the Group is not able to quantify the impact of and have not been applied in preparing these consolidated financial the new rules on the Group’s financial statements or to decide on the statements. None of these is expected to have impact on the consolidat- method of first-time application. ed financial statements of the Group, except the following set out below: There are no other IFRSs or IFRIC interpretations that are not yet Note 1 IFRS 9, ‘Financial Instruments’, published in July 2014, replaces the effective that can be expected to have an impact on the Group. Note 2 existing guidance in IAS 39 Financial Instruments, Recognition and Note 3 Measurement. IFRS 9 includes revised guidance on the classification Note 4 and measurement of financial instruments, a new expected credit loss Note 5 Note 35 Events after the balance sheet date Note 6 model for calculating impairment on financial assets, and new general Note 7 hedge accounting requirements. It also carries forward the guidance on Note 8 recognition and derecognition of financial instruments from IAS 39. On 18 January 2017 the Board announced a strategic review of Cloetta Note 9 The new standard also introduces expanded disclosure requirements Italia S.r.l. This review is aimed at enhancing growth and margins of the Note 10 and changes in presentation. These are expected to change the nature Group and might include a potential divestment of the business and its Note 11 and extent of the Group’s disclosures about its financial instruments related production facilities. Cloetta Italia S.r.l. had sales of approxi- Note 12 particularly in the year of the adoption of the new standard. The mately SEK 750m in 2016. A divestment of Cloetta Italia S.r.l. would Note 13 standard is effective for annual reporting periods beginning on or after improve Cloetta’s EBIT margin. Note 14 1 January 2018, with early adoption permitted. The Group is assessing On 17 February 2017 Cloetta signed an agreement to acquire 100 Note 15 the potential impact on its consolidated financial statements resulting per cent of the shares in Candyking Holding AB (“Candyking”) as Note 16 from the application of IFRS 9. The Group initiated a process for the well as 100 percent of Candyking’s outstanding bond and other debt. Note 17 implementation of IFRS 9. The Group is currently working on the Candyking is a leading concept supplier of pick & mix candy in the Note 18 impact assessment, which covers an assessment of current financial Nordic countries and the . The acquisition strengthens Note 19 instruments, and the impact IFRS 9 will have on these. At this stage, the Cloetta’s position within pick & mix and creates substantial synergies. Note 20 Group has not finalized the assessment and is not able to quantify the This is in line with the strategy to grow within the category since it is Note 21 impact of the new rules on the Group’s financial statements. The Group an important and in many countries growing part of the confectionery Note 22 does not intend to adopt the standard before its effective date. market. Note 23 The initial purchase price amounts to SEK 325m on a cash and Note 24 IFRS 15, ’Revenue from contracts with customers’, establishes a debt free basis with a potential additional purchase price of maximum Note 25 comprehensive framework for determining whether, how much and SEK 225m based on the result of Cloetta’s and Candyking’s combined Note 26 when revenue is recognized. It replaces existing revenue recognition sales volume of pick & mix in confectionery and natural snacks in the Note 27 guidance, including IAS 18 Revenue, IAS 11 Construction Contracts Nordic countries, the United Kingdom and Poland during 2018. The Note 28 and IFRIC 13 Customer Loyalty Programmes. The standard is effective seller of the shares is Candyking’s CEO, Dani Evanoff. The majority of Note 29 for annual reporting periods beginning on or after 1 January 2018, the initial purchase price and the potential additional purchase price Note 30 with early adoption permitted. The Group started the implementation will be allocated to the holders of Candyking’s bond loan of SEK 750m. Note 31 In connection with closing of the acquisition, Candyking’s bonds will Note 32 process, in which the following phases have been identified: be delisted from Nasdaq Stockholm. At the same time Cloetta will Note 33 • Phase 1: Impact assessment issue an earn-out instrument to the current bondholders that entitles Note 34 • Phase 2: Implementation Note 35 • Phase 3: Embedding and monitoring to the future potential additional purchase price. The instrument will be registered at Euroclear in order to facilitate the distribution of any additional purchase price to the current bondholders. The transaction is subject to approval from the Swedish Competi- tion Authority.

132 Financial information Cloetta Parent Company [ profit and loss account ANNUAL AND SUSTAINABILITYREPORT

SEKm Note 2016 2015

Net sales P2 100 88

Gross profit 100 88

General and administrative expenses P3,P4 –122 –113

Operating loss –22 –25

Exchange differences on borrowings and cash P5 1 0

2016 2016 Other financial income P5 119 73 Other financial expenses P5 –85 –46 ] Net financial items 35 27

Profit before tax 13 2 Income tax P6 –3 0

Profit for the year 10 2

Profit for the year corresponds to comprehensive income for the year.

Primary activities Cloetta AB’s primary activities include head office functions such as group-wide management and administration.

133 Financial information Cloetta Parent Company balance sheet [

ANNUAL AND SUSTAINABILITYREPORT

SEKm Note 31 Dec 2016 31 Dec 2015

ASSETS Non-current assets Intangible assets 0 0 Deferred tax asset P7 5 8 Shareholdings in group companies P8 4,884 4,884 Receivables from group companies P15 440 415

Total non-current assets 5,329 5,307

2016 2016

Current assets

] Receivables from group companies P15 116 88 Current income tax assets P7 – 1 Other receivables 0 0 Prepaid expenses and accrued income 1 1

Total current assets 117 90 Total assets 5,446 5,397

EQUITY AND LIABILITIES Equity Share capital 1,443 1,443 Share premium 2,713 2,713 Retained earnings including profit for the year –63 62

Equity attributable to owners of the Parent Company P10 4,093 4,218

Non-current liabilities Borrowings P11 999 993 Payables to group companies P15 132 129 Derivative financial instuments P12 0 3 Provisions 1 1

Total non-current liabilities 1,131 1,126

Current liabilities Payables to group companies P15 192 9 Trade payables P13 3 3 Other current liabilities P13 3 3 Derivative financial instuments P12 4 14 Accrued expenses and deferred income P13 19 24

Total current liabilities 221 53

TOTAL EQUITY AND LIABILITIES 5,446 5,397

134 Financial information Cloetta Parent Company statement [ of changes in equity ANNUAL AND SUSTAINABILITYREPORT

Share premium Retained SEKm Share capital reserve earnings Total equity

Balance at 1 January 2015 1,443 2,713 49 4,205 Comprehensive income Profit for the year – – 2 2

Total comprehensive income for 2015 – – 2 2

Transactions with owners

Share-based payments – – 11 11 2016

Total transactions with owners – – 11 11 ]

Balance at 31 December 2015 1,443 2,713 62 4,218

Comprehensive income Profit for the year – – 10 10

Total comprehensive income for 2016 – – 10 10

Transactions with owners Share-based payments – – 9 9 Dividends – – –144 –144

Total transactions with owners – – –135 –135 Balance at 31 December 2016 1,443 2,713 –63 4,093

Profit for the year corresponds to comprehensive income for the year.

Total equity is attributable to the owners of the Parent Company.

135 Financial information Cloetta Parent Company cash flow statement [

ANNUAL AND SUSTAINABILITYREPORT

SEKm Note 2016 2015

Operating loss –22 –25

Adjustments for non-cash items Amortization/depreciation and impairment of assets – 0 Unrealized foreign exchange gains/losses 0 0 Provisions for pensions – 0

2016 2016 Interest received 0 0 Interest paid –71 –45

] Income tax paid 0 0

Cash flow from operating activities before changes in working capital –93 –70

Cash flow from changes in working capital Change in operating receivables 61 61 Change in operating liabilities 178 9

Cash flow from operating activities 146 0

Cash flow from operating and investing activities 146 –

Financing activities Repayment of interest-bearing borrowings –1,000 – Proceeds from borrowings (net of transaction cost) 998 – Dividends to shareholders –144 –

Cash flow from financing activities –146 – Cash flow for the year – –

Cash and cash equivalents at beginning of year P9 – – Cash flow for the year – – Exchange difference – –

Cash and cash equivalents at end of year P9 – –

136 Financial information Cloetta Notes to the Parent Company [ financial statements ANNUAL AND SUSTAINABILITYREPORT

Income taxes Accounting and valuation policies of Note P1 In the Parent Company balance sheet, untaxed reserves are recognized the Parent Company with no division between equity and deferred tax liabilities, in contrast to the Group. Correspondingly, no portion of appropriations is allocated The annual financial statements of the Parent Company are presented to deferred tax expense in the Parent Company profit and loss account. in accordance with the Swedish Annual Accounts Act (1995:1554) and the Swedish Financial Reporting Board’s recommendation RFR 2, Employee benefits Accounting for Legal Entities. The statements issued by the Board with Calculation of the defined benefit obligation differs from the assump- respect to listed companies are also applied. RFR 2 states that in the tions used by the Group in accordance with IFRS mainly in the follow-

2016 2016 report for the legal entity, the Parent Company shall apply all EU-en- ing ways: dorsed IFRSs and statements as far as possible, within the framework - The calculation does not take into account future salary increases; ] of the Annual Accounts Act and with respect to the connection between - The applied discount rate is established by the Swedish Financial accounting and taxation. This recommendation defines the exceptions Supervisory Authority. and additional disclosures compared to IFRS. These financial state- ments include the financial statements of the Parent Company covering Remeasurements arising from defined benefit plans also include the the period from 1 January to 31 December 2016. return on plan assets excluding interest and the effect of the asset Note P1 ceiling, if any, excluding interest. Remeasurements are recognized in Note P2 Changed accounting standards other comprehensive income when incurred. All other expenses related Note P3 Neither revised IFRSs, nor revised RFR 2 (January 2016) effective to defined benefit plans are recognized in the administrative expenses Note P4 from 1 January 2016 has entailed any practical change of accounting in the profit and loss account when incurred. Note P5 standards for the Parent Company. Note P6 Anticipated dividends Note P7 Differences between the accounting policies Anticipated dividends from group companies are recognized in cases Note P8 of the Group and the Parent Company where the Parent Company has full control over the size of the dividend Note P9 The differences between the accounting principles applied by the Group and has decided on the size of the dividend before the Parent Company Note P10 and the Parent Company are described below. publishes its financial reports. Note P11 Note P12 Classification and presentation Borrowing costs Note P13 Note P14 The profit and loss account and balance sheet of the Parent Company In the Parent Company, borrowing costs are expensed when incurred. Note P15 are presented in accordance with the Swedish Annual Accounts Act. The differences compared to IAS 1, Presentation of Financial State- Financial guarantees ments, refer mainly to financial income and expenses, equity and the The Parent Company’s financial guarantee contracts consist primarily presentation of provisions as a separate item in the balance sheet. of guarantees issued on behalf of group companies. A financial guaran- tee contract means that the company has an obligation to reimburse the Shareholdings in group companies holder of a debt instrument for losses it incurs because a specified debt- In the Parent Company, shareholdings in group companies are account- or fails to make payment when due. For reporting of financial guarantee ed for in accordance with the cost method of accounting. The transac- contracts, the Parent Company applies a voluntary exemption that is tion costs are included in the carrying amount of shareholdings in group permitted by the Swedish Financial Reporting Board. The voluntary companies. In the consolidated financial statements, transaction costs exemption refers to financial guarantees issued on behalf group com- are expensed as incurred. panies. The Parent Company recognizes financial guarantee contracts as provisions in the balance sheet when it is probable that an outflow of Group contributions resources will be required to settle the obligation. The costs are recog- Group contributions received are recognized in the net financial nized in the administrative expenses in the profit and loss account. items in the profit and loss account. Group contributions paid to group companies are reported by the Parent Company as an investment in shareholdings in group companies.

137 Financial information Cloetta Note P2 Breakdown of income Note P4 Audit fees [

ANNUAL AND SUSTAINABILITYREPORT The net sales of SEK 100m (88) refer to intra-group services. SEKm 2016 2015 The breakdown of net sales by market is as follows Fee for auditing services 2 2 SEKm 2016 2015 Fee for other services Sweden 41 35 – Tax advice 0 0 The Netherlands 16 16 – Audit-related advice 1 0 Italy 10 11 – Other 0 0 Finland 8 4 Other 25 22 Total other services 1 0

Total 100 88 Total audit fees 3 2

Auditing services refer to the auditing of the Parent Company’s statu- tory financial statements, the Parent Company’s administration by the

2016 2016 Personnel expenses Note P3 Board of Directors and the President and the audit of remuneration to and number of employees Group Management. ] For both financial years 2015 and 2016, KPMG was elected as the Personnel expenses are specified as follows auditor of the Group.

SEKm 2016 2015

Salaries and remuneration Note P1 Group Management Team Net financial items Note P2 Note P5 – Sweden 23 27 Note P3 Note P4 Of which, short-term variable compensation SEKm 2016 2015 Note P5 – Sweden 6 10 Note P6 Exchange differences on borrowings and cash 1 0 Note P7 Other employees Group contributions 87 59 Note P8 – Sweden 0 – Interest income, group companies 19 14 Note P9 Interest income on financial liabilities measured at Note P10 Total salaries and remuneration 23 27 amortised cost 13 – Note P11 Note P12 Pension costs Other financial income 119 73 Note P13 Group Management Team Note P14 – Defined contribution plans 3 3 Interest expenses, third-party borrowings –47 –37 Note P15 – Defined benefit plans 0 0 Call option fee redemption senior secured notes –30 – Total pension costs 3 3 Interest expenses, group companies –6 0 Social security expenses, all employees 7 8 Interest expenses on third-party pensions 0 0 Interest expenses on financial liabilities measured Total pension costs 10 11 at amortized cost – –9 and social security expenses Other interest expenses –2 0 Total personnel expenses 33 38 Other financial expenses –85 –46

See pages 84–85 for details on remuneration to Group Management Net financial items 35 27 Team. The company expenses the pension obligation related to the defined benefit pension plans, which are secured through credit insurance with and administered by Försäkringsbolaget PRI Pensionsgaranti, Mutual in the administrative expenses in the profit and loss account. The average number of employees is 6 (5), of which 2 (1) are women. All employees are employed in Sweden.

The specification of gender distribution in the Board of Directors and Group Management Team is as follows:

% 2016 2015

Percentage of women Board of Directors 43 33 Group Management Team 20 20

138 Financial information Cloetta Note P6 Income taxes Note P7 Deferred and current income tax [

ANNUAL AND SUSTAINABILITYREPORT Deferred tax assets refer to the difference between the tax base of the SEKm 2016 2015 defined asset or liability and its carrying amount as recognized in the Current income tax – – financial statements. Deferred tax for the period was SEK 5m (8) and Deferred income tax –3 0 is considered to be realized after more than 12 months. The recognized Total –3 0 deferred taxes comprise deductible temporary differences of SEK 5m The year’s income tax expense corresponds to an (8) and unutilized tax losses carried forward of SEK 0m (0). There are effective tax rate of, % 22.6 20.2 no unrecognized deferred taxes.

The breakdown between current tax assets and liabilities SEKm 2016 2015 can be made as follows

The difference between the effective 31 Dec 31 Dec tax rate and the statutory tax rate in Sweden is SEKm 2016 2015 attributable to the following items: Deferred tax assets 5 8

Taxable profit from ordinary activities 13 2 2016 2016 Total 5 8 Tax calculated at applicable tax rate ] for the Parent Company –3 0 Expenses not deductible for tax purposes 0 0 Other 0 0

Income tax –3 0

Reported effective tax rate, % 22.6 20.2 Note P1 Note P2 Tax rate in Sweden, % 22.0 22.0 Note P3 Note P4 Note P5 Note P8 Shareholdings in group companies Note P6 Note P7 Note P8 % of capital Carrying amount Note P9 SEKm Corp. ID no. Domicile 2016 2015 2016 2015 Note P10 Note P11 Cloetta Holland B.V. 34221053 Amsterdam, the Netherlands 100 100 4,087 4,087 Note P12 Cloetta België N.V. 0404183756 Turnhout, Belgium 100 100 – – Note P13 Cloetta Suomi Oy 1933121-3 Turku, Finland 100 100 – – Note P14 Karikkikatu Oy 0723577-7 Turku, Finland 100 100 – – Note P15 Cloetta Danmark ApS 28106866 Brøndby, Denmark 100 100 – – Cloetta Norge AS 987943033 Høvik, Norway 100 100 – – Cloetta Deutschland GmbH HRB 9561 Bocholt, Germany 100 100 – – Cloetta Italia S.r.l. CR - 163489 Cremona, Italy 100 100 – – Cloetta USA Inc. EIN 46-2706408 Wilmington, United States 100 100 – – Cloetta Finance Holland B.V. 20078943 Amsterdam, the Netherlands 100 100 – – Cloetta Slovakia s.r.o. 35 962 488 Bratislava, Slovakia 100 100 – – Cloetta GGS Holding Ltd.3 08520582 London, United Kingdom 100 100 – – Cloetta UK Ltd. (formerly known as FTF Sweets Ltd.) 06775890 Heysham, United Kingdom 100 100 – – FTF Sweets USA Inc.4 211476123 Newark, United States 100 100 – – Cloetta Nutisal AB 556706-9264 Helsingborg, Sweden 100 100 – – Cloetta Ireland Holding Ltd. 544426 Dublin, Ireland 100 100 – – Aran Candy Ltd.2 285910 Dublin, Ireland 100 75 – – Locawo B.V.1, 5 20111616 Roosendaal, The Netherlands 100 100 – – Traditional Sweets B.V.1 20024278 Roosendaal, The Netherlands 100 100 – – Chocolade- en suikerwerkfabriek Marandi B.V.1 09065319 Lunteren, The Netherlands 100 100 – – Lonka Sales B.V.1, 5 53765028 Roosendaal, The Netherlands 100 100 – – Confiserie Lonka suikerwerkfabriek B.V.1, 5 20106944 Roosendaal, The Netherlands 100 100 – – Chocolade- en suikerwerkfabriek Donkers B.V.1 09053079 Dieren, The Netherlands 100 100 – – Cloetta Sverige AB6 556674-9155 Malmö, Sweden 100 100 795 795 Cloetta Development AB 556377-3182 Linköping, Sweden 100 100 2 2

Total 4,884 4,884

1) Locawo B.V. and its subsidiaries were acquired as of 17 July 2015. 2) On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remaining 25 per cent of the outstanding shares in Aran Candy Ltd. 3) At 31 December 2016 Cloetta GGS Holding Ltd. was in the process of being struck off. 4) On 8 February 2017 FTF Sweets USA Inc. was dissolved. 5) On 1 March 2017 Locawo B.V., Lonka Sales B.V. and Confiserie Lonka Suikerwerkfabriek B.V. merged into Cloetta Holland B.V. 6) On 13 February 2017 Cloetta Sverige AB acquired 100 per cent of the shares of the Swedish company E-out instrument AB.

See Note 1 and Note 27 for disclosures on changes in group structure.

139 Financial information

Cloetta Accrued expenses and deferred income amount to SEK 19m (24), of Note P9 Cash and cash equivalents which SEK 9m (12) is related to accrued personnel-related expenses

[ and SEK 10m (12) to other accrued expenses and deferred income.

ANNUAL AND SUSTAINABILITYREPORT A Notional Group Account is in place which is held by Cloetta Holland B.V. As a result, no cash is presented for Cloetta AB (publ). See Note 17 for further details. Note P14 Pledged assets and contingent liabilities

Note P10 Equity 31 Dec 31 Dec SEKm 2016 2015 Contingent liabilities Share capital Guarantees on behalf of group companies 796 206 See Note 19 for a description of the share capital of the Parent Company. Guarantee for group loan 1,677 2,557

Non-restricted equity Total 2,473 2,763 Retained earnings

2016 2016 Retained earnings comprise the sum of profit for the year and retained earnings from previous years. Retained earnings including the share The term and revolving facilities agreement is unsecured in nature. The

] premium reserve represent the amount of non-restricted equity availa- shares in the group companies Cloetta Sverige AB and Cloetta Holland ble for distribution to the shareholders. B.V. were pledged to Svenska Handelsbanken AB (publ) and holders of the senior secured notes per 31 December 2015 for an amount of SEK Dividend 4,882m . These pledges were released on 27 July 2016. See Note 21 for No dividend was paid in 2015. The Annual General Meeting (AGM) on the Group’s pledged assets at 31 December 2015. Note P1 12 April 2016 approved a dividend of SEK 0.50 per share, correspond- The company issued a parent company guarantee pursuant to Ar- Note P2 ing to 37 per cent of consolidated profit after tax for the financial year ticle 403, Book 2 of the Dutch Civil Code in respect of Cloetta Holland Note P3 2015. The dividend of SEK 144m was paid in April 2016. B.V. and Cloetta Finance Holland B.V. The company issued a parent Note P4 The Board of Directors proposes that the AGM approves a dividend company guarantee pursuant to section 479A of the Companies Act Note P5 of SEK 0.75 per, (0.50) corresponding to around 53 per cent (37) of 2006 of the Parliament of the United Kingdom in respect of Cloetta Note P6 profit for the year excluding the impact of the impairment loss. GGS Holding Ltd. This means that Cloetta AB declares and accepts, Note P7 The Board of Directors proposes that the total earnings in the under reservation of legal repeal of the declaration, joint and several Note P8 liability for the debts resulting from legal acts of Cloetta Holland B.V., Note P9 Parent Company at the disposal of the AGM of SEK 2,650m are to be Cloetta Finance Holland B.V. and Cloetta GGS Holding Ltd. As the Note P10 distributed to the shareholders for an amount of SEK 216m and to be probability of a settlement is remote, an estimate of its financial effect is Note P11 carried forward to new account for an amount of SEK 2,433m. not practical to be calculated. Note P12 Note P13 Note P14 Note P15 Note P11 Borrowings Note P15 Related party transactions

The Parent Company’s borrowings consist of loans from credit institu- The Parent Company’s holdings of shares and participations in subsidi- tions for a net amount of SEK 999m (0) and senior secured notes for a aries are specified in Note P8. net amount of SEK 0m (993). The senior secured notes were repaid on 19 September 2016. Receivables from and liabilities to subsidiaries are broken down as follows

See Note 21 for the disclosure of the borrowings. 31 Dec 31 Dec SEKm 2016 2015

Non-current interest-bearing receivables 440 415 Note P12 Derivative financial instruments Current interest-bearing receivables – 3 Current interest-free receivables 116 85 Non-current interest-bearing payables –132 –129 The derivative financial instruments comprise single currency interest Current interest-bearing payables –179 – rate swap liabilities amounting to SEK 4m (17) of which SEK 0m (3) is Current interest-free payables –13 –9 non-current of nature. Total 232 365

For the Parent Company, SEK 100m (88), equal to 100 per cent (100) of Note P13 Trade and other payables the year’s net sales, and SEK 45m (50), equal to 37 per cent (44) of the year’s purchases, refer to group companies in the Cloetta Group. The prices of goods and services sold to and purchased from related parties 31 Dec 31 Dec SEKm 2016 2015 are set on market-based terms. At 31 December 2016 the Parent Company’s receivables from group Trade payables 3 3 companies amounted to SEK 556m (503) and liabilities to subsidiaries Other current liabilities 3 1 amounted to SEK 324m (138). Transactions with related parties are Other payables – 2 priced on market-based terms. Total costs related to the share-based Accrued expenses and deferred income 19 24 long-term incentive plan amounted to SEK 10m (13), of which SEK 5m Total 25 30 (6) is related to Group Management Team.

140 Financial information Cloetta Proposed appropriation of earnings [

ANNUAL AND SUSTAINABILITYREPORT

Earnings in the Parent Company at the diposal of the Annual General Meeting 2016

Share premium reserve 2,711,620,366 Retained earnings –71,846,527 Profit for the year 9,841,915

Total 2,649,615,754

The Board of Directors proposes that dividends be paid in a total amount of SEK 216,464,474 equal to SEK 0.75 per share. The Board of Directors proposes that the earnings be disposed of as follows: The earnings are to be disposed as follows:

To be distributed to the shareholders 216,464,474 2016 To be carried forward to new account 2,433,151,280

Total 2,649,615,754 ]

The number of shares at 31 December 2016 was 288,619,299.

The Board of Directors and the President give their assurance that the consolidated financial statements and annual report have been prepared in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002, on the Application of International Accounting Standards and Generally Accepted Accounting Standards, and give a true and fair view of the financial position and results of operations of the Group and the Parent Company. The administration report for the Group and the Parent Company gives a true and fair view of the business activities, financial position and results of operations of the Group and the Parent Company, and describes the significant risks and uncertainties to which the Parent Company and the Group companies are exposed.

Stockholm, 8 March 2017

Lilian Fossum Biner Chairman

Lottie Knutson Mikael Norman Adriaan Nühn Member of the Board Member of the Board Member of the Board

Mikael Svenfelt Camilla Svenfelt Hans Porat Member of the Board Member of the Board Member of the Board

Lena Grönedal Mikael Ström Employee Board member Employee Board member Lena Grönedal Employee Board member

Henri de Sauvage Nolting President and CEO

Our audit report was issued on 8 March 2017.

KPMG AB

Tomas Forslund Authorised Public Accountant

The profit and loss accounts and balance sheets of the Group and the Parent Company are subject to approval by the AGM on 4 April 2017. The information in this report is subject to the disclosure requirements of Cloetta AB (publ) under the provisions in the Swedish Securities Market Act. The information was submitted to the media for publication on 9 March 2017, at 08:00 CET.

141 Auditor’s report Cloetta [

ANNUAL AND SUSTAINABILITYREPORT Auditor’s report T o the general meeting of the shareholders of Cloetta AB (publ), corp. id 556308-8144

Report on the annual accounts Description of key audit matters

2016 2016 and consolidated accounts As of 31 December 2016 the group reported goodwill of SEK 2,048 Opinions million and trademarks of SEK 3,178 million. During 2016, the group ] We have audited the annual accounts and consolidated accounts of recorded an impairment loss on goodwill and trademarks of SEK 771 Cloetta AB (publ) for the year 2016. The annual accounts and con- million. solidated accounts of the company are included on pages 1–4, 6–7 and The carrying amounts were subject to impairment tests which 66–141 in this document. include both complexity and elements of management judgements with In our opinion, the annual accounts have been prepared in accord- a significant impact. Impairment tests were performed for all cash ance with the Annual Accounts Act, and present fairly, in all material generating units and groups of cash generating units. respects, the financial position of the parent company as of 31 Decem- When preparing the impairment tests, management makes judge- ber 2016 and its financial performance and cash flow for the year then ments of the cash generating units and groups of cash generating units ended in accordance with the Annual Accounts Act. The consolidated future internal and external developments and plans. An example of accounts have been prepared in accordance with the Annual Accounts such judgments include prediction of future cash flows, which among Act and present fairly, in all material respects, the financial position other things requires expectations concerning future development and of the group as of 31 December 2016 and their financial performance market conditions. and cash flow for the year then ended in accordance with International Other important assumptions are the parameters and underlying Financial Reporting Standards (IFRS), as adopted by the EU, and the assumptions for the determination of the discount rate to be used in Annual Accounts Act. order to reflect time value of money and particular risks that each cash A corporate governance statement has been prepared. The statuto- generating unit and group of cash generating units is exposed to. ry administration report and the corporate governance statement are There is a risk that the assessments made to form the basis of the consistent with the other parts of the annual accounts and consolidated estimated recoverable amount may have to be changed, which could accounts, and the corporate governance statement is in accordance with directly affect the reported result for the period. the Annual Accounts Act. We therefore recommend that the general meeting of shareholders Response in the audit adopts the income statement and balance sheet for the parent company We have assessed the impairment tests in order to conclude whether and the group. these were performed in accordance with the prescribed method. We have assessed the reasonableness of management assumptions, which Basis for opinions have been derived from all available financial information confirmed by We conducted our audit in accordance with International Standards on the audit committee and the board of directors, concerning future cash Auditing (ISA) and generally accepted auditing standards in Sweden. flows and the discount rates by evaluating management’s written doc- Our responsibilities under those standards are further described in the umentation including future plans. We also interviewed management Auditor’s Responsibilities section. We are independent of the parent and evaluated previous year’s estimates of future cash flows in relation company and the group in accordance with professional ethics for ac- to actual results. countants in Sweden and have otherwise fulfilled our ethical responsi- In order to assess how changes in management assumptions may bilities in accordance with these requirements. affect the recoverable amount we evaluated sensitivity analysis of the We believe that the audit evidence we have obtained is sufficient and recoverable amounts for the cash generating units and group of cash appropriate to provide a basis for our opinions. generating units. We have involved an internal valuation specialist primarily to assess assumptions concerning yield requirements linked Key audit matters to external markets. Key audit matters of the audit are those matters that, in our professional We have also involved an internal accounting specialist to assess judgment, were of most significance in our audit of the annual accounts the accounting effects of the impairment tests performed and also to and consolidated accounts of the current period. These matters were evaluate the accuracy of the disclosures of goodwill and trademarks in addressed in the context of our audit of, and in forming our opinion the annual account and consolidated accounts. thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters. O ther Information than the annual accounts and consolidated accounts Valuation of goodwill and trademarks This document also contains other information than the annual See note 11 in the annual account and consolidated accounts for de- accounts and consolidated accounts and is found on pages 5, 8–65 and tailed information and description of the matter. 145–158. The Board of Directors and the President/CEO are responsi- ble for this other information.

142 Auditor’s report Cloetta Our opinion on the annual accounts and consolidated accounts • Evaluate the appropriateness of accounting policies used and the does not cover this other information and we do not express any form of reasonableness of accounting estimates and related disclosures made [ assurance conclusion regarding this other information. by the Board of Directors and the President/CEO. ANNUAL AND SUSTAINABILITYREPORT In connection with our audit of the annual accounts and consoli- • Conclude on the appropriateness of the Board of Directors’ and the dated accounts, our responsibility is to read the information identified President/CEO’s, use of the going concern basis of accounting in above and consider whether the information is materially inconsistent preparing the annual accounts and consolidated accounts. We also with the annual accounts and consolidated accounts. In this procedure draw a conclusion, based on the audit evidence obtained, as to whether we also take into account our knowledge otherwise obtained in the audit any material uncertainty exists related to events or conditions that and assess whether the information otherwise appears to be materially may cast significant doubt on the company’s and the group’s ability to misstated. continue as a going concern. If we conclude that a material uncertainty If we, based on the work performed concerning this information, exists, we are required to draw attention in our auditor’s report to the conclude that there is a material misstatement of this other information, related disclosures in the annual accounts and consolidated accounts we are required to report that fact. We have nothing to report in this or, if such disclosures are inadequate, to modify our opinion about regard. the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s Responsibilities of the Board of Directors report. However, future events or conditions may cause a company and the President/CEO and a group to cease to continue as a going concern. 2016 The Board of Directors and the President/CEO are responsible for the • Evaluate the overall presentation, structure and content of the annual preparation of the annual accounts and consolidated accounts and that accounts and consolidated accounts, including the disclosures, and ] they give a fair presentation in accordance with the Annual Accounts whether the annual accounts and consolidated accounts represent Act and, concerning the consolidated accounts, in accordance with the underlying transactions and events in a manner that achieves fair IFRS as adopted by the EU. The Board of Directors and the President/ presentation. CEO are also responsible for such internal control as they determine is • Obtain sufficient and appropriate audit evidence regarding the finan- necessary to enable the preparation of annual accounts and consolidat- cial information of the entities or business activities within the group ed accounts that are free from material misstatement, whether due to to express an opinion on the consolidated accounts. We are responsi- fraud or error. ble for the direction, supervision and performance of the group audit. In preparing the annual accounts and consolidated accounts The We remain solely responsible for our opinions. Board of Directors and the President/CEO are responsible for the as- We must inform the Board of Directors of, among other matters, the sessment of the company’s and the group’s ability to continue as a going planned scope and timing of the audit. We must also inform of signifi- concern. They disclose, as applicable, matters related to going concern cant audit findings during our audit, including any significant deficien- and using the going concern basis of accounting. The going concern ba- cies in internal control that we identified. sis of accounting is however not applied if the Board of Directors and the We must also provide the Board of Directors with a statement that President/CEO intend to liquidate the company, to cease operations, or we have complied with relevant ethical requirements regarding inde- has no realistic alternative but to do so. pendence, and to communicate with them all relationships and other The Audit Committee shall, without prejudice to the Board of matters that may reasonably be thought to bear on our independence, Director’s responsibilities and tasks in general, among other things and where applicable, related safeguards. oversee the company’s financial reporting process. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of Auditor’s responsibility the annual accounts and consolidated accounts, including the most Our objectives are to obtain reasonable assurance about whether the important assessed risks for material misstatement, and are there- annual accounts and consolidated accounts as a whole are free from fore the key audit matters. We describe these matters in the auditor’s material misstatement, whether due to fraud or error, and to issue an report unless law or regulation precludes disclosure about the matter auditor’s report that includes our opinions. Reasonable assurance is a or when, in extremely rare circumstances, we determine that a matter high level of assurance, but is not a guarantee that an audit conducted should not be communicated in the auditor’s report because the adverse in accordance with ISAs and generally accepted auditing standards in consequences of doing so would reasonably be expected to outweigh the Sweden will always detect a material misstatement when it exists. Mis- public interest benefits of such communication. statements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected Report on other legal and regulatory requirements to influence the economic decisions of users taken on the basis of these Opinions annual accounts and consolidated accounts. In addition to our audit of the annual accounts and consolidated ac- As part of an audit in accordance with ISAs, we exercise profession- counts, we have also audited the administration of the Board of Direc- al judgment and maintain professional skepticism throughout the audit. tors and the President/CEO of Cloetta AB (publ) for the year 2016 and We also: the proposed appropriations of the company’s profit or loss. • Identify and assess the risks of material misstatement of the annual We recommend to the general meeting of shareholders that the accounts and consolidated accounts, whether due to fraud or error, profit be appropriated in accordance with the proposal in the statutory design and perform audit procedures responsive to those risks, and administration report and that the members of the Board of Directors obtain audit evidence that is sufficient and appropriate to provide a and the President/CEO be discharged from liability for the financial basis for our opinions. The risk of not detecting a material misstate- year. ment resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrep- Basis for opinions resentations, or the override of internal control. We conducted the audit in accordance with generally accepted auditing • Obtain an understanding of the company’s internal control relevant standards in Sweden. Our responsibilities under those standards are to our audit in order to design audit procedures that are appropriate in further described in the Auditor’s Responsibilities section. We are inde- the circumstances, but not for the purpose of expressing an opinion on pendent of the parent company and the group in accordance with the effectiveness of the company’s internal control.

143 Auditor’s report

Cloetta professional ethics for accountants in Sweden and have otherwise • has undertaken any action or been guilty of any omission which can fulfilled our ethical responsibilities in accordance with these require- give rise to liability to the company, or

[ ments. • in any other way has acted in contravention of the Companies Act,

ANNUAL AND SUSTAINABILITYREPORT We believe that the audit evidence we have obtained is sufficient and the Annual Accounts Act or the Articles of Association. appropriate to provide a basis for our opinions. Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby our opinion about this, is to Responsibilities of the Board of Directors assess with reasonable degree of assurance whether the proposal is in and the President/CEO accordance with the Companies Act. The Board of Directors is responsible for the proposal for appropria- Reasonable assurance is a high level of assurance, but is not a guar- tions of the company’s profit or loss. At the proposal of a dividend, this antee that an audit conducted in accordance with generally accepted includes an assessment of whether the dividend is justifiable consid- auditing standards in Sweden will always detect actions or omissions ering the requirements which the company’s and the group’s type of that can give rise to liability to the company, or that the proposed appro- operations, size and risks place on the size of the parent company’s and priations of the company’s profit or loss are not in accordance with the the group’s equity, consolidation requirements, liquidity and position in Companies Act. general. As part of an audit in accordance with generally accepted auditing The Board of Directors is responsible for the company’s organi- standards in Sweden, we exercise professional judgment and maintain

2016 2016 zation and the administration of the company’s affairs. This includes professional skepticism throughout the audit. The examination of the among other things continuous assessment of the company’s and the administration and the proposed appropriations of the company’s profit

] group’s financial situation and ensuring that the company’s organiza- or loss is based primarily on the audit of the accounts. Additional audit tion is designed so that the accounting, management of assets and the procedures performed are based on our professional judgment with company’s financial affairs otherwise are controlled in a reassuring starting point in risk and materiality. This means that we focus the manner. examination on such actions, areas and relationships that are material The President/CEO shall manage the ongoing administration for the operations and where deviations and violations would have according to the Board of Directors’ guidelines and instructions and particular importance for the company’s situation. We examine and test among other matters take measures that are necessary to fulfill the decisions undertaken, support for decisions, actions taken and other company’s accounting in accordance with law and handle the manage- circumstances that are relevant to our opinion concerning discharge ment of assets in a reassuring manner. from liability. As a basis for our opinion on the Board of Directors’ pro- posed appropriations of the company’s profit or loss we examined the Auditor’s responsibility Board of Directors’ reasoned statement and a selection of supporting Our objective concerning the audit of the administration, and thereby evidence in order to be able to assess whether the proposal is in accord- our opinion about discharge from liability, is to obtain audit evidence ance with the Companies Act. to assess with a reasonable degree of assurance whether any member of the Board of Directors or the President/CEO in any material respect:

Stockholm 8 March 2017

KPMG AB

Tomas Forslund Authorised Public Accountant

144 Nine-year overview Cloetta Nine-year overview [

ANNUAL AND SUSTAINABILITYREPORT SEKm 2016 2015 2014 2013 2012 2011 2010 2009 2008

Profit and loss account in summary Net sales 5,852 5,674 5,313 4,893 4,859 4,658 5,019 5,486 5,256 Cost of goods sold –3,533 –3,463 –3,325 –3,081 –3,157 –2,911 –3,058 –3,422 –3,198

Gross profit 2,319 2,211 1,988 1,812 1,702 1,747 1,961 2,064 2,058

Other operating income – 0 5 12 13 1 16 0 5

Selling expenses –955 –949 –892 –850 –888 –915 –992 –1,019 –987 General and administrative expenses - Impairment loss –771 – – – – – – – – - Other general and administrative expenses –675 –591 –524 –556 –702 –473 –471 –503 –567 Total general and administrative expenses –1,446 –591 –524 –556 –702 –473 –471 –503 –567

Operating profit/loss –82 671 577 418 125 360 514 542 509

2016 2016 Exchange differences borrowings and cash and cash equivalents in foreign currencies –8 –1 –11 –12 20 –12 –13 –63 –27 ] Other financial income 17 6 4 24 5 11 5 3 11 Other financial expenses –183 –183 –232 –220 –290 –599 –634 –677 –712 Net financial items –174 –178 –239 –208 –265 –600 –642 –737 –728 Profit/loss before tax –256 493 338 210 –140 –240 –128 –195 –219

Income tax expense 65 –107 –96 54 67 172 –211 22 –83

Profit/loss for the period for continuing operations –191 386 242 264 –73 –68 –339 –173 –302

Result after tax from discontinued operations – – – – – – – – –14

Net profit/loss for the period –191 386 242 264 –73 –68 –339 –173 –316

Profit for the period attributable to: Owners of the Parent Company –191 386 242 264 –73 –68 –339 –173 –316

31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec SEKm 2016 2015 2014 2013 2012 2011 2010 2009 2008

Balance sheet in summary Intangible assets 5,354 5,948 5,882 5,252 5,099 4,811 4,822 5,383 5,646 Property, plant and equipment 1,700 1,698 1,667 1,660 1,611 1,318 1,333 1,623 1,831 Deferred tax asset 54 64 84 73 473 447 207 258 286 Other financial assets 13 27 105 91 88 261 147 45 34

Total non-current assets 7,121 7,737 7,738 7,076 7,271 6,837 6,509 7,309 7,797

Inventories 780 786 853 798 773 640 566 631 726 Trade and other receivables 988 975 1,121 933 951 1,051 1,198 1,313 1,313 Current income tax assets 36 3 3 0 4 2 1 – – Derivative financial instruments 4 1 2 – – – – – – Cash and cash equivalents 298 246 229 167 306 97 220 245 177 Total current assets 2,106 2,011 2,208 1,898 2,034 1,790 1,985 2,189 2,216 Assets held for sale 9 11 16 15 35 15 – – –

TOTAL ASSETS 9,236 9,759 9,962 8,989 9,340 8,642 8,494 9,498 10,013

Equity 4,199 4,344 4,048 3,747 3,326 –385 –1,117 –619 –725

Long-term borrowings 2,666 2,612 2,993 3,096 2,516 6,077 6,826 7,224 7,985 Deferred tax liability 586 621 483 397 824 728 714 789 870 Derivative financial instruments 12 44 56 21 3 0 0 – – Other non-current liabilities – 43 147 2 – – – – – Provisions for pensions and other long-term employee benefits 396 378 505 360 452 250 222 250 252 Provisions 22 10 16 7 11 24 29 28 31

Total non-current liabilities 3,682 3,708 4,200 3,883 3,806 7,079 7,791 8,291 9,138

Short-term borrowings 2 344 423 212 747 747 642 680 333 Derivative financial instruments 54 35 16 2 21 0 0 0 0 Trade and other payables 1,196 1,216 1,152 967 1,264 1,038 975 1,073 1,189 Provisions 64 57 65 79 79 60 78 66 76 Current income tax liabilities 39 55 58 99 97 103 125 7 2 Total current liabilities 1,355 1,707 1,714 1,359 2,208 1,948 1,820 1,826 1,600 TOTAL EQUITY AND LIABILITIES 9,236 9,759 9,962 8,989 9,340 8,642 8,494 9,498 10,013

145 Nine-year overview Cloetta Key ratios [

ANNUAL AND SUSTAINABILITYREPORT SEKm 2016 2015 2014 2013 2012 20111 20101 20091 20081

Profit Net sales 5,852 5,674 5,313 4,893 4,859 4,658 5,019 5,486 5,256 Net sales, change % 3.1 6.8 8.6 0.7 4.3 na na na na Organic net sales, change, % 0.5 1.5 1.0 –1.0 –4.1 na na na na Gross margin, % 39.6 39.0 37.4 37.0 35.0 37.5 39.1 37.6 39.2 Depreciation –239 –227 –198 –175 –167 –115 –125 –144 –127 Amortization –6 –4 –3 –2 –1 –8 –18 –10 –7 Impairment loss goodwill and trademarks –771 – – – – – – – – Impairment loss other non-current assets –7 – – – – – – – – Operating profit (EBIT), adjusted 758 690 632 585 432 565 686 698 670 Operating profit margin (EBIT mar-

2016 2016 gin), adjusted % 13.0 12.2 11.9 12.0 8.9 12.1 13.7 12.7 12.7 Operating profit/loss (EBIT) –82 671 577 418 125 360 514 542 509

] Operating profit/loss margin (EBIT margin), % –1.4 11.8 10.9 8.5 2.6 7.8 10.3 9.9 9.7 EBITDA, adjusted 1,003 921 833 762 600 688 829 852 804 EBITDA 941 902 778 595 293 483 657 696 643 Profit margin, % –4.4 8.7 6.4 4.3 –2.9 –5.1 –3.3 –3.6 –4.2

Financial position Working capital 572 628 819 763 458 586 649 716 806 Capital expenditure 170 161 186 211 269 224 97 107 101 Net debt 2,443 2,818 3,308 3,230 3,056 2,827 3,070 3,812 4,371 Capital employed 7,329 7,756 8,041 7,438 7,066 6,682 6,575 7,543 7,845 Return on capital employed, % –0.9 8.6 7.5 6.1 1.9 5.7 na na na Equity/assets ratio, % 45.5 44.5 40.6 41.7 35.6 –4.5 –13.2 –6.5 –7.2 Net debt/equity ratio, % 58.2 64.9 81.7 86.2 91.9 –734.3 –274.8 –615.8 –602.9 Return on equity, % –4.5 8.9 6.0 7.0 –2.2 na na na na Equity per share, SEK 14.5 15.1 14.0 13.0 11.5 na na na na Net debt/EBITDA, x2 2.44 3.03 3.97 4.19 4.90 na na na na

Cash flow Cash flow from operating activities 889 927 500 131 330 492 379 540 365 Cash flow from investing activities –322 –367 –369 –202 –1,506 –335 –83 –121 –140 Cash flow after investments 567 560 131 –71 –1,176 157 296 419 225 Cash conversion, %3 83.1 82.5 77.7 72.3 55.2 67.4 88.3 87.4 87.4 Cash flow from operating activities per share, SEK1 3.1 3.2 1.7 0.5 1.1 na na na na

Employees Average number of employees 2,530 2,583 2,533 2,472 2,579 2,192 2,275 2,309 2,392

Share data Earnings per share, basic, SEK4 –0.67 1.35 0.84 0.92 –0.26 –0.26 na na na Earnings per share, diluted, SEK4 –0.67 1.35 0.84 0.92 –0.26 –0.26 na na na Dividend per share, proposed for 2016, SEK 0.75 0.50 – – – – – – Number of shares at end of period 288,619,299 288,619,299 288,619,299 288,619,299 288,619,299 262,137,526 na na na Average number of shares (basic)4,5 286,193,024 286,290,840 286,987,990 288,010,947 276,132,021 262,137,526 na na na Average number of shares (diluted)4,5 286,447,465 286,561,607 287,092,780 288,026,408 276,132,021 262,137,526 na na na

Exchange Rates EUR, average 9.4700 9.3445 9.1051 8.6513 8.6958 9.0228 9.5261 10.6165 9.5999 EUR, end of period 9.5804 9.1679 9.3829 8.8630 8.5750 8.9100 8.9700 10.2500 10.9100 NOK, average 1.0200 1.0432 1.0882 1.1071 1.1643 1.1577 1.1905 1.2144 1.1689 NOK, end of period 1.0548 0.9563 1.0439 1.0592 1.1667 1.1467 1.1493 1.2372 1.1161 GBP, average 11.5480 12.8736 11.3118 10.1987 10.7429 10.4057 11.1030 11.9012 12.0936 GBP, end of period 11.1673 12.4835 12.0340 10.6501 10.5215 10.6668 10.4109 11.5493 11.4337 DKK, average 1.2721 1.2529 1.2215 1.1601 1.1682 1.2112 1.2794 1.4258 1.2875 DKK, end of period 1.2888 1.2287 1.2604 1.1882 1.1495 1.1987 1.2035 1.3775 1.4644

1) The key figures per share for the years 2008–2011 are not representative for the current group due to a completely different equity structure before the merger between Cloetta and Leaf. 2) In 2016 the defintion of Net debt/EBITDA has been adjusted to present a key figure over time which is irrespective of the applicable facility agreement. Comparative figures have not been restated as the differences have a limited effect. 3) Comparative figures have been restated due to a change in the definition of the cash conversion. 4) Cloetta entered into forward contracts to repurchase own shares to fulfill its future obligation to deliver the shares to the participants of the long-term share-based incentive plan. The table in Note 22 presents the movements in the contracts as from 1 January 2014. 5) The number of shares for the year 2011 have been restated for the rights issue. 146 Nine-year overview Cloetta Reconciliation alternative [ performance measures ANNUAL AND SUSTAINABILITYREPORT

SEKm 2016 2015 2014 2013 2012 2011 2010 2009 2008

Items affecting comparability Acquisitions, integration and factory restructurings –49 –47 –85 –167 na na na na na of which: impairment loss other non– current assets –7 – – – na na na na na Remeasurements of contingent considerations –17 33 27 – na na na na na Remeasurements of assets held for sale –3 –5 – – na na na na na

Impairment loss –771 – – – na na na na na 2016 Other items affecting comparability – – 3 – na na na na na ] Items affecting comparability¹ –840 –19 –55 –167 –307 –205 –172 –156 –161

¹ Corresponding line in the condensed consolidated profit and loss account: Net Sales – –4 – – na na na na na Cost of goods sold –23 –22 –51 –121 na na na na na Other operating income – – 3 12 na na na na na Selling expenses – –12 –7 –4 na na na na na General and administrative expenses – Impairment loss –771 – – – na na na na na – Other general and administrative expenses –46 19 – –54 na na na na na Total general and administrative expenses –817 19 – –54 na na na na na Total –840 –19 –55 –167 –307 –205 –172 –156 –161

Operating profit, adjusted Operating profit –82 671 577 418 125 360 514 542 509 Minus: Items affecting comparability –840 –19 –55 –167 –307 –205 –172 –156 –161

Operating profit, adjusted 758 690 632 585 432 565 686 698 670 Net sales 5,852 5,674 5,313 4,893 4,859 4,658 5,019 5,486 5,256

Operating profit margin, adjusted, % 13.0 12.2 11.9 12.0 8.9 12.1 13.7 12.7 12.7

EBITDA, adjusted Operating profit –82 671 577 418 125 360 514 542 509 Minus: Depreciation –239 –227 –198 –175 –167 –115 –125 –144 –127 Minus: Amortization –6 –4 –3 –2 –1 –8 –18 –10 –7 Minus: Impairment loss goodwill and trademarks –771 – – – – – – – – Minus: Impairment loss other non– current assets –7 – – – – – – – – EBITDA 941 902 778 595 293 483 657 696 643 Minus: Items affecting comparability (excl. impairment loss goodwill and trademarks and other non–current assets) –62 –19 –55 –167 –307 –205 –172 –156 –161

EBITDA, adjusted 1,003 921 833 762 600 688 829 852 804

Capital employed Total assets 9,236 9,759 9,962 8,989 9,340 8,642 8,494 9,498 10,013 Minus: Deferred tax liability 586 621 483 397 824 728 714 789 870 Minus: Other non–current liabilities – 43 147 2 – – – – – Minus: Non–current provisions 22 10 16 7 11 24 29 28 31 Minus: Current provisions 64 57 65 79 79 60 78 66 76 Minus: Trade and other payables 1,196 1,216 1,152 967 1,264 1,038 975 1,073 1,189 Minus: Current income tax liabilities 39 55 58 99 97 103 125 7 2 Plus: Interest–bearing other current liabilities – –1 – – 1 –7 2 8 –

Capital employed 7,329 7,756 8,041 7,438 7,066 6,682 6,575 7,543 7,845 Capital employed comparative period previous year 7,756 8,041 7,438 7,066 6,682 6,575 7,543 7,845 na

Average capital employed 7,543 7,899 7,740 7,252 6,874 6,629 7,059 7,694 na

147 Nine-year overview Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

Reconciliation alternative performance measures, Continued

SEKm 2016 2015 2014 2013 2012 2011 2010 2009 2008 Return on capital employed Operating profit (rolling 12 months) –82 671 577 418 125 360 514 542 509 Financial income (rolling 12 months) 17 6 4 24 5 11 5 3 11 Operating profit plus financial income (rolling 12 months) –65 677 581 442 130 371 519 545 520 Average capital employed 7,543 7,899 7,740 7,252 6,874 6,629 7,059 7,694 na

Return on capital employed, % –0.9 8.6 7.5 6.1 1.9 5.6 7.4 7.1 na

Cash conversion

2016 2016 EBITDA, adjusted 1,003 921 833 762 600 688 829 852 804 Minus: Capital expenditures –170 –161 –186 –211 –269 –224 –97 –107 –101 ] EBITDA, adjusted less capital expenditures 833 760 647 551 331 464 732 745 703 EBITDA, adjusted 1,003 921 833 762 600 688 829 852 804

Cash conversion, % 83.1 82.5 77.7 72.3 55.2 67.4 88.3 87.4 87.4

Changes in net sales Net sales 5,852 5,674 5,313 4,893 4,859 4,658 5,019 5,486 5,256 Net sales comparative period previous year 5,674 5,313 4,893 4,859 4,658 5,019 5,486 5,256 na Net sales, change 178 361 420 34 201 –361 –467 230 na Minus: Structural changes 127 208 213 na na na na na na Minus: Changes in exchange rates 28 77 158 na na na na na na

Organic growth 23 76 49 na na na na na na

Structural changes, % 2.2 3.9 4.4 na na na na na na Organic growth, % 0.5 1.4 1.0 –1.0 –4.1 na na na na

Profit for the period excluding impact of impairment loss Profit for the period –191 386 242 264 –73 –68 –339 –173 –316 Impairment loss –771 – – – – – – – – Income tax impact on impairment loss 177 – – – – – – – – Profit for the period excluding 403 386 242 264 –73 –68 –339 –173 –316 impact of impairment loss

Average number of shares (basic) 286,193,024 286,290,840 286,987,990 288,010,947 276,132,021 262,137,526 na na na Average number of shares (diluted) 286,447,465 286,561,607 287,092,780 288,026,408 276,132,021 262,137,526 na na na

Earnings per share, basic excluding impact of impairment loss, SEK 1.41 1.35 0.84 0.92 –0.26 –0.26 na na na Earnings per share, diluted excluding impact of impairment loss, SEK 1.41 1.35 0.84 0.92 –0.26 –0.26 na na na

148 Definitions and Glossary Cloetta Definitions [

ANNUAL AND SUSTAINABILITYREPORT

General All amounts in the tables are presented in SEK millions unless otherwise stated. All amounts in brackets () represent comparative figures for the same period of the prior year, unless otherwise stated.

Margins Definition/calculation Purpose Gross margin Net sales less cost of goods sold as a percentage Gross margin measures production profitability. of net sales.

Operating profit margin (EBIT Operating profit expressed as a percentage of Operating profit margin is used for measuring margin) net sales. the operational profitability. Operating profit margin, adjusted Operating profit, adjusted for items affecting Operating profit margin, adjusted excludes the impact of items comparability, as a percentage of net sales. affecting comparability, enabling a comparison of operational profitability. Profit/loss before tax expressed as a percentage This measure enables the profitability to be compared across Profit margin of net sales. locations where corporate taxes differ. 2016

Return Definition/calculation Purpose ] Cash conversion Operating profit, adjusted for items affecting comparability, Cash conversion measures the proportion of profits that are before depreciation and amortization less capital expenditures converted to cash flow. Its use is to analyze how much of the as a percentage of operating profit, adjusted for items affect- profit attributable to shareholders is turned into cash that ing comparability, before depreciation and amortization. could be paid to investors without damaging the business, except for cash flows related to interest and tax.

Return on capital employed Operating profit plus financial income as a percentage of Return on capital employed is used to analyse average capital employed. The average capital employed is profitability, based on the amount of capital used. calculated by taking the capital employed per period end and The leverage of the company is the reason that the capital employed by period end of the comparative period this metric is used next to return on equity, because in the previous year divided by two. it not only includes equity, but takes into account borrowings and other liabilities as well.

Return on equity Profit for the period as a percentage of total equity. Return on equity is used to measure profit generation, given the resources attributable to the owners of the Parent Company.

Capital structure Definition/calculation Purpose Capital employed Total assets less interest-free liabilities Capital employed measures the amount of (including deferred tax). capital used and serves as input for return on capital employed.

Equity/assets ratio Equity at the end of the period as a percentage This ratio is an indicator of the company’s leverage used to of total assets. The equity/assets ratio represents finance the firm. the amount of assets on which shareholders have a residual claim.

Gross debt Gross current and non-current borrowings, credit overdraft fa- Gross debt represents the total debt obligation of cilities, derivative financial instruments and interest payables. the company irrespective its maturity.

Net debt Gross debt less cash and cash equivalents. Net debt is used as an indication of the ability to pay off all debts if these were to fall due simultaneously on the day of calculation, using only available cash and cash equivalents.

Net debt/EBITDA Net debt at the end of the period divided by the EBITDA, The net debt/EBITDA ratio approximates the company’s adjusted, for the last 12 months, taking into consideration the ability to decrease its debt. It represents the number of years annualization of EBITDA for acquired or divested companies. it would take to pay back debt if net debt and EBITDA are held constant, ignoring the impact from cash flows from interest, tax and capital expenditure.

Net debt/equity ratio Net debt at the end of the period divided by equity at the end The net debt/equity ratio measures the extent to which the of the period. company is funded by debt. Because cash and overdraft facilities can be used to pay off debt at short notice, this is calculated based on net debt rather than gross debt.

Working capital Total inventories and trade and other receivables adjusted for Working capital is used to measure the company’s ability, be- trade and other payables. sides cash and cash equivalents, to meet current operational obligations.

Data per share Definition/calculation Purpose Cash flow from operating activi- Cash flow from operating activities in the period divided by the The cash flow from operating activities per share measures ties per share average number of shares. the amount of cash the company generates per share from the revenues it brings in irrespective the capital investments and cash flows related to the financing structure of the company.

Earnings per share Profit for the period divided by the average The earnings per share measures the amount of net profit that number of shares adjusted for the effect of forward is available for payment to its shareholders per share. contracts to repurchase own shares.

Equity per share Equity at the end of the period divided by number of shares at Equity per share measures the net-asset value backing up the end of the period. each share of the company’s equity and determines if a com- pany is increasing shareholder value over time.

149 Definitions and Glossary Cloetta [

ANNUAL AND SUSTAINABILITYREPORT

Definitions, Continued

Other definitions Definition/calculation Purpose EBIT Operating profit consists of comprehensive income before net This measure enables the profitability to be financial items and income tax. compared across locations where corporate taxes differ and irrespective the financing structure of the company.

EBITDA Operating profit before depreciation EBITDA is used to measure the cash flow generated from and amortization. operating activities, eliminating the impact of financing and accounting decisions.

EBITDA, adjusted Operating profit, adjusted for items affecting EBITDA, adjusted increases the comparability of EBITDA. comparability, before depreciation and amortization.

Effective tax rate Income tax as a percentage of profit before tax. This measure enables comparison of income tax across

2016 2016 locations where corporate taxes differ.

Items affecting Items affecting comparability are items such as restructurings Items affecting comparability increases

] comparability and impact from acquisitions. the comparability within the profit and loss account. Net financial items The total of exchange differences on borrowings and cash and The net financial items reflects the company's total costs of cash equivalents in foreign currencies, other financial income the external financing. and other financial expenses.

Net sales, change Net sales as a percentage of net sales in Net sales, change reflects the company's realized top-line the comparative period of the previous year. growth over time.

Operating profit, adjusted Operating profit adjusted for items affecting Operating profit, adjusted increases comparability. the comparability of operating profit.

Organic growth Net sales, change excluding acquisition-driven growth and Organic growth excludes the impact of changes in group changes in exchanges rates. structure and exchange rates, enabling a comparison on net sales growth over time.

Structural changes Net sales, change resulting from changes in group structure. Structural changes measure the contribution of changes in group structure to net sales growth.

Glossary

BRC Global Standards for A leading safety and quality certification programme. Many European and global retailers will only consider business with Food Safety suppliers that have been certified according to the BRC Global Standard. Contract manufacturing Manufacturing of external brands, i.e. insourcing production of products from external parties. GRI Global Reporting Initiative A network-based organization whose founders include the UN. GRI has pioneered the development of a framework for the structure and content of sustainability reporting. ICC International Chamber of Commerce. ILO International Labour Organization, United Nations agency dealing with labour issues. ISO 9001 and ISO 14001 International Organization for Standardization. ISO 9001 addresses quality management and ISO 140001 addresses environmental management. OHSAS 18001 International occupational health and safety management system specification. Polyols Sugar alcohols that resemble sugar and are used as sweeteners. Pick & mix concept Cloetta’s range of candy and natural snacks that are picked by the consumers themselves. UTZ Certified standards for sustainable farming with a number of social and environmental criteria.

150 GRI Cloetta [

GRI index ANNUAL AND SUSTAINABILITYREPORT

Strategy and Analysis Page G4-1 Statement from the most senior decision-maker of the organization 2–3 Organizational Profile G4-3 Report the name of the organization Inside back cover G4-4 Report the primary brands, products and/or services 21–24 G4-5 Report the location organization’s headquarters 59 G4-6 Report the number of countries where the organization operates, and names of the countries where the organization has significant operations 25 G4-7 Report the nature of ownership and legal form 78

2016 2016 G4-8 Report the markets served 25–31

G4-9 Inside front cover, ] Report the scale of the reporting organization 57, 95 G4-10 Total number of employees by employment type, employment contract, region and gender 57–59 G4-11 Report the percentage of total employees covered by collective bargaining agreements 59 G4-12 Describe the organization’s supply chain 8–9, 48–51, 75 G4-13 Report any significant changes during the reporting period regarding the organization’s size, structure, ownership or supply chain 32 G4-14 Report whether and how the precautionary principle is addressed by the organization 54–55 G4-15 List externally developed economic, environmental and social charters, principles, or other initiatives to which the organization subscribes or which it endorses 44, 153 G4-16 List of memberships of associations and national or international advocacy organizations 153 Identified Material Aspects and Boundaries G4-17 List all entities included in the organization’s consolidated financial statements or equivalent documents 152 G4-18 Explain the process for defining the report content and the Aspect Boundaries 45–46, 152 G4-19 List all the material aspects identified 45 G4-20 For each material Aspect, report the Aspect Boundary within the organization 43, 152 G4-21 For each material Aspect, report the Aspect Boundary outside the organization 43, 152 G4-22 Report the effect of any restatements of information provided in previous reports and the reasons for such restatements 152 G4-23 Report significant changes from previous reporting periods in Scope and Aspect Boundaries 152 Stakeholder Engagement G4-24 Provide a list of stakeholder groups engaged by the organization 46 G4-25 Report the basis for identification and selection of stakeholders with whom to engage 45–46 G4-26 Report the organization’s approach to stakeholder engagement 46 G4-27 Report key topics and concerns that have been raised through stakeholder engagement 47, 74 Report Profile G4-28 Reporting period for the information provided 1 January – 31 December 2016 G4-29 Date of most recent previous report 10 March 2016 G4-30 Reporting cycle Calendar year G4-31 Provide the contact point for questions regarding the report or its content 152 G4-32 Report the GRI Content Index in accordance with GRI G4.0 Core requirements and report the reference to the External Assurance Report 44, 151–152 G4-33 Report the organization’s policy and current practice with regard to seeking external assurance for the report 154 Governance G4-34 Report the governance structure of the organization, including committees, and Board responsibility for economic, environmental and social topics 44, 78–83 Ethics and Integrity G4-56 Describe the organization’s values, principles, standards and norms 42–44, 72

151 GRI Cloetta Performance indicators [

ANNUAL AND SUSTAINABILITYREPORT GREATER WELL-BEING – SAFE EMPLOYEES WITH GOOD WELL-BEING Working conditions Scope Comments Page G4-DMA Occupational health and safety 32–33, 42–47, and absenteeism 56–59, 75, 82 G4-LA6 Occupational injuries, lost days, Includes Cloetta ODR, IR, LDR replaced by days 57, 59, 152 and absenteeism between occupational injuries that lead to sick leave and ab- senteeism. Occupational injuries are not reported by region and gender. Absenteeism is reported by gender G4-LA12 Composition of governance bodies and break- The indicator is not reported by 57–59 down of employees by gender and age group minority groups 88–91

2016 2016 GREATER WELL-BEING – CONSUMERS Product reponsibility

] G4-DMA Customer health and safety 32–36, 42–47, 52, 75, 82 G4-PR1 Evaluation of products and services with regard Includes Cloetta’s 32–36, 52 to consumer health and safety customers Own Consumer complaints/returns 35 REDUCED ENVIRONMENTAL IMPACT – FROM OWN OPERATIONS Environment G4-DMA Energy consumption, waste and carbon dioxide 42–47, 54–55, emissions 75, 82 G4-EN3 Energy consumption inside the organization Includes Cloetta 5, 54–55 G4-EN15, Direct and indirect greenhouse gas emissions, Refers to Cloetta and the 5, 54–55 G4-EN16 by weight (Scope 1, Scope 2) supply chain G4-EN22 Total water discharge by quality and destination Refers to Cloetta’s 54–55 supply chain G4-EN23 Total weight of waste, by type and disposal No detailed information about 54–55 method disposal method. Reported in percentage, not weight. Own Recyling of materials 54–55

G4-EN30 Transports Refers to transports within Reported only in kg CO2 per 54–55 Cloetta’s supply chain transported tonne. SUSTAINABLE SOURCING Human rights G4-DMA Supplier human rights assessment 34–36, 42–47, 48–51, 75, 82 G4-HR 10 Percentage of new suppliers that were Refers to Cloetta’s suppliers No percentage available. 48 screened using human rights criteria Own Results of sustainability programmes for Refers to Cloetta’s suppliers 49–51 prioritized raw materials ECONOMIC PERFORMANCE Economic performance G4-DMA Economic performance 42–45, 78–83 G4-EC1 Direct economic value generated and Refers to Cloetta and 9 distributed external stakeholders

Cloetta reports in accordance with the Global Reporting Initiatives (GRI) G4-EN2 has been replaced by the own indicator “Recycling of materials”, since Sustainability Reporting Guidelines, G4, Core. Cloetta’s sustainability reporting the volume of hazardous waste is immaterial. A new indicator is “Results of covers all of its operations unless otherwise stated. The most recent sustainabili- sustainability programmes for prioritized raw materials”. ty report was presented on 10 March 2016. The table of contents above contains all standard disclosures and those indicators that have been identified as the Contact for most relevant in view of Cloetta’s long-term sustainability targets. The indicators sustainability and other contents of the sustainability report have been selected based on information Cloetta’s materiality analysis on page 45. The focus of Cloetta’s sustainability Thomas Wiesgickl work and therefore also the reporting is on the well-being of employees and consumers, reduced environmental impact and sustainable sourcing. The key Director Corporate Responsibility and Special Sales performance indicators have been collected with the help of internal reporting systems. Cloetta’s sustainability report has not been reviewed by an external Telephone: +46 73 026 16 33 party, see page 154. E-mail: Compared to the reports for earlier years, the indicators G4-PR2 and PR4 [email protected] have been replaced by Cloetta’s own indicator “Consumer complaints/returns”.

152 GRI Cloetta Membership of organizations [

ANNUAL AND SUSTAINABILITYREPORT

Cloetta is active in a number of collaborative initiatives aimed at promoting more sustainable cultivation of raw materials and improving the conditions for growers in developing countries. The following collaborations are the most important.

World Cocoa Foundation Round Table on Caobisco (WCF) Sustainable Palm Oil

• The World Cocoa Foundation (WCF) • Caobisco (Chocolate, Biscuit & Confec- • The Round Table on Sustainable Palm 2016 manages a range of programmes aimed tionery Industries of the EU) supports Oil (RSPO) is committed to promoting

at increasing the cocoa farmers’ incomes International Cocoa Initiatives, for exam- the growth and use of sustainable palm ] and promoting sustainable cultivation. ple through the development of control oil worldwide. Examples of initiatives include teacher and certification systems for cocoa training programmes, training in cocoa production. processing, micro loans for cocoa grow- ers and health-related issues.

UN Global Compact UTZ Bonsucro

• The UN’s Global Compact is a strategic • UTZ Certified stands for sustainable • With more than 400 members from policy initiative for businesses that are farming and better opportunities for 32 countries that represent all parts committed to aligning their operations farmers, their families and our planet. of the delivery chain, Bonsucro is an and strategies with ten universally ac- The UTZ programme enables farmers organization that has the resources to cepted principles in the areas of human to learn better farming methods and to realize its vision: “A sugarcane sector rights, labour environment and anti-cor- improve their working conditions and that is continuously improving and ruption. the environment. verified as sustainable”.

Global Shea Alliance

• The GSA is a nonprofit organization that promotes sustainability in the shea industry. The GSA’s mission is to design, develop and propose strategies that pro- vide a foundation for a competitive and sustainable shea industry worldwide, and to support and empower the rural African women and their communities.

Industry organisations

• AIDI (Italian Confectionery Industry). • DI (Danish Chocolate and Confectionery • IBC (Italian Branded Products Industry). Industries). • Bord Bia, Irish Food Board, • ISA (International Sweeteners Association), (Irish industry association). • ETL (Finnish Food Industries’ Federation). Italy. • Chokofa is a Swedish industry association. • FFNLI (The Dutch Food Industry Federa- • VBZ (Association of the Dutch Bakery and tion). Confectionery Industry), the Netherlands. • Choprabisco, Belgium. • HSH (The Federation of Norwegian Commercial and Service Enterprises).

153 GRI Cloetta Auditor’s Limited Assurance Report on [

ANNUAL AND SUSTAINABILITYREPORT Cloetta AB (publ) Sustainability Report This is the translation of the auditor’s report in Swedish.

To Cloetta AB (publ)

Introduction and applying analytical and other limited assurance procedures. We have been engaged by the executive management of Cloetta AB The procedures performed in a limited assurance engagement vary

2016 2016 (publ) to undertake a limited assurance engagement of Cloetta’s Sus- in nature from, and are less in scope than for, a reasonable assurance tainability Report for the year 2016. Cloetta has defined the scope of the engagement conducted in accordance with IAASB’s Standards on

] Sustainability Report on the inside cover in the Annual and Sustaina- Auditing and other generally accepted auditing standards. The firm bility Report 2016. applies ISQC 1 (International Standard on Quality Control) and accordingly maintains a comprehensive system of quality control Responsibilities of the Board of Directors and including documented policies and procedures regarding compliance the Executive Management for the Sustainability Report with ethical requirements, professional standards and applicable legal The Board of Directors and the Executive Management are responsible and regulatory requirements. Consequently, the procedures performed for the preparation of the Sustainability Report in accordance with the do not enable us to obtain assurance that we would become aware of all applicable criteria, as explained on page 152 in the Annual and Sustain- significant matters that might be identified in a reasonable assurance ability Report 2016, that are the parts of the Sustainability Reporting engagement. Accordingly, we do not express a reasonable assurance Guidelines (published by The Global Reporting Initiative (GRI)) that conclusion. are applicable to the Sustainability Report, as well as the accounting Our procedures are based on the criteria defined by the Board and calculation principles that the Company has developed. This re- of Directors and the Executive Management as described above. We sponsibility also includes the internal control relevant to the prepara- consider these criteria suitable for the preparation of the Sustainability tion of a Sustainability Report that is free from material misstatements, Report. whether due to fraud or error. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion below. Responsibilities of the auditor Our responsibility is to express a conclusion on the Sustainability Re- Conclusion port based on the limited assurance procedures we have performed. Based on the limited assurance procedures we have performed, nothing We conducted our limited assurance engagement in accordance has come to our attention that causes us to believe that the Sustainabil- with RevR 6 Assurance of Sustainability Reports issued by FAR. A ity Report is not prepared, in all material respects, in accordance with limited assurance engagement consists of making inquiries, primarily the criteria defined by the Board of Directors and Executive Manage- of persons responsible for the preparation of the Sustainability Report, ment.

Stockholm, 8 March 2017

KPMG AB

Tomas Forslund Torbjörn Westman Authorized Public Accountant Expert Member of FAR

154 Shareholder information Cloetta [

Shareholder information ANNUAL AND SUSTAINABILITYREPORT

Financial calendar

Annual Report Annual General Meeting 9 March 2017 in Stockholm 4 April 2017 2017 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Interim report Q1 Interim report Q2 Interim report Q3 2016 21 April 2017 14 July 2017 25 October 2017 ]

Shareholder contact

JACOB BROBERG, Senior Vice President Corporate Communications and Investor Relations, +46 70 190 00 33, [email protected] or [email protected] DANKO MARAS, CFO, +46 76 627 69 46.

Annual General Meeting The Annual General Meeting of Cloetta AB (publ) will be held on Tuesday, 4 April 2017, at 4:00 p.m., at Stockholm Waterfront Congress Centre in Stockholm.

The Notice of the Annual General Meeting was published on 28 February 2017 and is posted on www.cloetta.com.

Registration

Registration to participate in the AGM must be received by the company no later than Wednesday, 29 March 2017. MAIL: Cloetta AB “Annual General Meeting” Box 7841 SE-103 98 Stockholm, Sweden TELEPHONE: +46 8 402 92 85 WEBSITE: www.cloetta.com

To order the annual report The annual report is published in Swedish and English. The printed annual report can be ordered via the website. It can also be downloaded from www.cloetta.com.

Production: Cloetta in collaboration with Addira Photos: Joakim Folke Printing: åtta45 Translation: Cloetta in collaboration with GH Language Solutions

155 History Cloetta [

ANNUAL AND SUSTAINABILITYREPORT Cloetta’s history filled with legendary brands

The Cloetta brothers In 1862 the three Swiss Cloetta brothers, Bernard, Christoffer and Nutin Cloetta, founded the company

2016 2016 “Brødrene Cloëtta” for manufacturing of chocolate and confectionery in Copenhagen, Denmark. The broth- ] ers later moved their manufacturing to Sweden and the company was owned by the Cloetta family until 1917, when the Svenfelt family took over the majority shareholding in Cloetta via the newly formed Svenska Chokladfabriks AB. The Svenfelt family has major ownership interests in Cloetta to this day.

1800s 1900–1910 1920 1930–1940 1950–1960 JUL 1970 1980 1990 2000 2010–

Cloetta’s oldest brands 1900–1913, industrializa- The roaring twenties The 1930–40s, 1950–60s – an interest date from the 1800s tion can be exploited The confectionery industry launch of strong brands in the USA and cars In 1836 Sperlari is Electrification and railway grows after the war. The Malaco (Malmö Lakrits The chewing gum Jenkki launched in Italy, and in construction accelerate slogan “Choose right – Compani) is founded in (Yankee) was launched in 1878 Venco is launched the pace of industrializa- choose Cloetta” is created 1934 during the period be- Finland in 1951. in the Netherlands. tion, a critical enabler for in 1921. In the Netherlands, tween the two world wars. Ahlgrens bilar – the businesses like the Swed- the pastille brand King is Sportlunch (then called world’s best-selling car, ish companies Ahlgrens launched in 1922. In 1928 Mellanmål) is launched in was launched in 1953 and Cloetta, which are Sisu is launched in Finland, 1937, as was Saila in Italy. with Italian Bugatti as its active in industrial pro- Red Band in the Nether- Kexchoklad is introduced inspiration. duction of confectionery. lands and Tarragona in in 1938 and Center in 1941. In Italy, Galatine is Läkerol is launched in 1909 Sweden. Plopp is launched after launched in 1956 as a and Guldnougat in 1913. WWII in 1949. candy for children. Läkerol is also launched The double countline in Denmark in 1910 and Tupla was launched in Norway in 1912. Finland in 1960. In Sweden, Polly was launched in 1965 and Bridgeblandning in 1966. Chewits were launched in the United Kingdom in 1965. The first marshmallow Santas were also sold in the 1960s.

156 History Cloetta Strong brands with long traditions [

ANNUAL AND SUSTAINABILITYREPORT

1981

1960 1941

1836 1976 1909 1920 1951 2007 År

1934 1937 1965 2016 2016 1878 1913 1928 1949 1956 1977 ® 1922 ]

1975 1998

1938

1953

1800s 1900–1910 1920 1930–1940 1950–1960 JUL 1970 1980 1990 2000 2010–

1970s – 1980s, 1990s – consolidation 2000s – 2010s – Cloetta grows fresh and healthy more chewing gum of the industry new groups formed Cloetta and Leaf are In 1975, the world’s first In 1981 Sportlife is CSM, a Dutch sugar and During the period from merged in 2012. In 2014 chewing gum with xylitol launched as the first food products company, 2000 to 2009, Cloetta is Cloetta acquires Nutisal, is launched by Jenkki in chewing gum in “blister” acquires Red Band in part of the Cloetta Fazer a leading Swedish com- Finland. The Mynthon packaging. In the Nether- 1986. Leaf acquires Ahl- group. After the demerger pany that roasts and sells pastille is introduced in lands, the country’s first grens (with Läkerol and in 2009, the independent dry roasted nuts. Finland in 1976. chewing gum with 100 per Ahlgrens bilar) in 1993, Cloetta is relisted on In the same year In 1977 Dietorelle cent xylitol, Xylifresh, is CSM acquires Malaco NASDAQ OM Stockholm. Cloetta acquires The Jelly launches sugar-free con- launched in 1988. in 1997, Cloetta acquires In 2000 CSM acquires Bean Factory, which pro- fectionery in Italy, and in Candelia (with Polly and Continental Sweets and duces gourmet jellybeans 1979 the sweetener Dietor Bridgeblandning) in 1998 thereby strengthens with the main market in is launched in Italy. and CSM acquires Leaf its position primarily in the UK. In Sweden, the mixed in 1999. Cloetta’s share is France and Belgium, but In 2015 Cloetta candy bag Gott&blandat listed on the Stockholm also in the Netherlands acquired Lonka, a Dutch is launched in response to Stock Exchange in 1994. and the UK. In 2001 CSM company that produces the growing popularity of acquires Socalbe in and sells fudge, soft nou- pick-and-mix. Italy (with Dietorelle and gat and chocolate. Dietor). In 2005 CVC and Nordic Capital acquire CSM’s confectionery division and changes its name to Leaf.

157 Cloetta, founded in 1862, is a leading confectionery company in the Nordic region, the Netherlands and Italy. In total, Cloetta products are sold in more than 50 countries worldwide. Cloetta owns some of the strongest brands on the market, such as Läkerol, Cloetta, Jenkki, Kexchoklad, Malaco, Sportlife, Saila, Red Band and Sperlari. Cloetta has 12 production units in six countries. Cloetta’s class B shares are traded on Nasdaq Stockholm.

Cloetta AB (publ) • Corp. ID no. 556308-8144 • Kista Science Tower, SE-164 51 Kista, Sweden. Tel +46 8-52 72 88 00 • www.cloetta.com