ANNUAL and SUSTAINABILITY REPORT 2016 Contents This Is Cloetta Highlights of 2016 1 Words from the President 2
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ANNUAL AND SUSTAINABILITY REPORT 2016 Contents This is Cloetta 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 Netherlands and Italy. 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 Sweden 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 Finland Chewing gum 6% p 17% Norway 4% p p Pastilles 14% p Denmark 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 Cloetta [ Highlights of 2016 ANNUAL AND SUSTAINABILITY REPORT SUSTAINABILITY AND ANNUAL 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 Cloetta [ ANNUAL AND SUSTAINABILITY REPORT SUSTAINABILITY AND ANNUAL Cloetta continues on the right path 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 once 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.