Good morning, and thank you for joining us on this conference call that we are hosting today following our announcement yesterday evening regarding that we are planning to invest in a new sustainable greenfield facility in the Netherlands and consolidate our manufacturing network. My name is Nathalie Redmo, and I'm head of investor relations. I'm here today with Henri de Sauvage-Nolting, CEO, and Frans Rydén, CFO. Henri de Sauvage-Nolting and Frans will take you through the proposal, and we will then move on to a Q&A session. I will now hand over to you, Henri de Sauvage-Nolting.
Yes. Thanks, Nathalie. I think for quite a while we've been discussing with you that we were doing a review of our manufacturing network and that we want to communicate the outcome of that with you today with our aim to build a world-class food tech manufacturing network. We did conclude we saw, and particularly in the candy category, a strong growth both in the pack but also in the pick and mix business, meaning that we are looking for further capacity expansion.
At the same time, we also were seeing that we needed to invest in upgrading the three relatively old plants in the middle regions of the Netherlands, Belgium, and we also were making our plants ready for our sustainability agenda to see how we could use such an opportunity to also make a big step forward in that area. We looked at a wide range of alternatives. I'll come back to that later on a little bit. In the end, the best proposal, which we're very excited about, is a long-term investment which both will give us growth opportunities, savings, sustainability, and future-proofing the manufacturing network, is to build a greenfield site in the Netherlands and closing the other three plants we have in the middle region, being the two ones in Roosendaal and the one in Belgium in Turnhout.
This is a bit where we are. If you first look at the graph, you can see that we have two plants in Roosendaal and one in Turnhout. It's known mostly candy production, and particularly the plants in Roosendaal and Turnhout are very similar. We want to build one new facility in the neighborhood, so we also can leverage the skills and competencies of the people who are working with us for so many years. We want to upgrade a new facility which will enable further growth, significant cost savings, and also reduce our greenhouse emissions in accordance with the Science Based Targets initiative. We would acquire and then start to build in 2023, and then on a phased overview, we would be operational in 2026.
As said, we're talking about three confectionery factories in Belgium and the Netherlands. The two factories in Roosendaal and Turnhout, which would be closing down. Around 350 employees will be affected, but the majority will be able to get a job in new facilities. Yesterday we started the consultation about this proposal with the European Works Council and also the local unions. Frans, over to you.
Yes. Thank you. Again, this proposal is expected to generate an additional annual EBIT in the range of SEK 160 million-SEK 180 million with a gradual effect starting in 2025 and with full effect from 2026. The savings are driven, you know, by a range of things, but that includes more automation, more efficient line layout, which allows for less operator, but also less white-collar workers as well as blue-collar support functions as a result of consolidating the sites. There will also be cost savings from reduced waste and energy consumption in addition to additional EBIT from the expected growth.
The overall program would, at its completion, have incurred a total cost, including impairment of up to SEK 100 million, net of sales of assets, and the non-recurring cost would be in the range of SEK 300-350 million, of which approximately SEK 250 million would be charged to operating profit in the second quarter 2022 and be recognized as items affecting comparability. Now, here you see a simplified financial timeline, and if you note the last row there on the CapEx. Capital expenditures this proposed investment would incur, including capitalized interest of SEK 2.5 billion, would be spent over the coming four years with the majority in 2023 and 2024.
You see on the one-time cost, the initial charge in 2022, followed by four years including the proceeds from sales of assets in 2026.
Now, in terms of financing, we have several options for financing the investments, including utilizing our current facilities, the commercial paper program we have, as well as strong cash generation. Our business surprisingly generates SEK 2.5 billion, so the same amount over the last five years, and will of course continue to have a strong cash flow over this program. As we announce this, our net debt and leverage is at its lowest ever. Over the near term, we are working closely with our partners to finalize the most optimal way to finance this. Sustainability plays also an important role in this decision. We have signed up for the Science-Based Targets initiative, and of course, both consumers and customers are expecting companies of our size to also start really moving on sustainability.
We looked at one alternative, which was probably the main other alternative we looked at, which was to upgrade the three existing plants. One of the plants, the bigger one in Roosendaal, is a factory which is more than 90 years old. The other ones are more in the area of 40 years, and we really found it difficult to retrofit sustainability measures on these plants without spending serious money as well, and upgrading the plants to be able to work in a modern way again. They're not delivering any capacity, not delivering any savings, and then as said, we did not really calculate the sustainability savings or, let's say, costs we would avoid into this proposal. Building a completely new plant from scratch, building insulated much less energy consumption.
We already are using electricity from renewable sources, and we estimate a serious gas consumption reduction and a possibility to go over to other sources of energy. We'll work with recycling of the heat coming from the drying chambers. That's one of the biggest consumptions of energy in our production process. We have much less transportation because there's a lot of shipments between the plants, particularly between the Roosendaal and Turnhout factories. New processes and systems, there's a lot of new technology, which we cannot retrofit on our old plants, which we could use now, when we build from scratch, and of course, the new building being efficient and also wastewater management and reduced waste involved. There's a lot of positive impacts actually in this proposal for a sustainability agenda of Cloetta.
As said, the financial benefits of this have not been put into the business case because that's not completely possible to calculate other than very concrete like savings of natural gas or reduced waste. Concluding, it's a big decision for Cloetta. I'm really proud to present this today to you because this is a long-term investment into the health and future-proofing of our manufacturing network within the Cloetta group. It would also simplify our business enormously if we would go from three plants to one new one. One more time, it gives us a lot of growth potential for the candy business by also being able to upgrade on the number of shifts in that new factory. It's a lot of savings which are important as well for our journey on EBIT.
It all answers to the sustainability drive, and I said it really also helps us to build a really good food tech company out of the candy business within Cloetta. We looked at alternatives, many other alternatives, but we very quickly saw that investing in old plants to bring them up to standards without being able to give savings or a clear sustainability or future-proofing is not good. We are still lacking the growth potential, which we then would have to buy outside at a serious own cost. That's why we, together with the board, firmly believe that this is a very attractive proposal for the long-term future of this business. Having said that, we'll come back to this probably many times. We will update you when there are decisions on certain parts.
We have to talk with our union members in the local countries, the EWC, and we'll go into finalizing next steps in this process, like buying land or deciding on technologies, et cetera. But that is going to come as a next phase. With having said that, we would like now to open up for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. Thank you for holding until we have our first question. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press zero one on your telephone keypad. Our first question comes from Nicklas Skogman, Handelsbanken. Please go ahead.
Yes. Hello. Good morning.
Morning
My first question would be where you see the net debt EBITDA ratio peaking at what level in what year, roughly?
Niklas, we're expecting that to stay within our long-term target and external covenant. It's sort of it will be hovering in between there over 2023 until 2025, and then coming back down again to the low levels that we have now.
Okay, good. In terms of dividend, there is no change to the dividend policy during this period?
That's correct.
Okay. When you sort of measured this investment against other opportunities, for example, M&A, how did that process look? I mean, I heard what you said about the difficulties about upgrading the old facilities, but looking at the sort of return on the investment, it doesn't look like it's super high.
Yeah, I think we've always said that our strategy is first and foremost to facilitate the organic growth of this business, and this fits completely in line with both the organic growth as well as with the savings coming from this. I understand the background of your question, but I would also take that into account, the risk factor of such an investment. Because this is an investment we fully control ourselves, right? I mean, we build the plant with partners, and we execute the process. The risk factor of such investment is a lot higher for something not working out.
I think we've also seen that on a few of the acquisitions, that it was not always as good as the business case was saying. Here, the risk profile is a lot lower. Again, it really gives us opportunities to keep on growing the candy category further, which is by far our number one category. That's quite some savings out of this. That is something we will be happy with in 10-20 years' time as well, I would say. There are all sorts of additional benefit. The one we're really excited about is that it will also give us a lot of new technology, and many say food tech, and position them in that way.
I mean, we have just launched the Real Fruit products in now nearly all the markets where we have candy brands available. We're the only ones at the moment who can do that within Europe at that high level of fruit puree content. With this new facility, including the R&D people who will work in that new facility, we think we can really step that innovation funnel even further up in the future. It is different than an acquisition, less risky, a lot more on the core brands and the core business. As said, there's still a lot we can gain from expanding the core business and making them more profitable.
Maybe last but not least, that this is also a region with the Netherlands in the middle, of course, but then also our markets in both the U.K. and Germany, where we're talking about, what is it, 160 million potential consumers just over the three markets. The Netherlands alone is nearly as big as the Nordics with the 25 million potential consumers and the 20 in the Netherlands. It also really is a strategic choice to go for organic expansion based on the business and the brands we already successfully are driving there in that region, and to make a further step on that strategy.
Okay. Sounds good. I might have missed it if you said it in the beginning of the call, but does this investment provide additional capacity compared to today in terms of tons and kilos?
Yes. There's about 15,000 tons of potential extra capacity with this investment. We will have a number of new model lines and also existing model lines. These are the lines which are producing the Gott & Blandat kind of products. Then we can even go up in number of shifts to increase the capacity or the potential outputs. That is a big plus in this business case that we can do that. The 15,000 tons, if you put in relation to around 70,000 tons we are selling of those kind of candy related products in total Cloetta.
Yeah, just to clarify that.
Total candy.
Yeah, total candy in-house produced today is a bit over 70,000 tons. If you think about this type wine gum type candy, like Gotebland or Aquafresh in Finland, Red Band, that's around 35,000 tons. Fifteen thousand tons is really material, whether you compare it to total candy produced today or this particular type of products that the plant will be primarily focused on. As mentioned, that is the capacity that comes with this investment, and then there's further room to expand within the site and what we're putting in place there as the investment.
Okay. In percent, in terms of your total production capacity today, we're talking around 15%.
On the total volume, correct.
Yeah.
Yeah. Okay, very good. Those—the 160-180 EBIT uplift, that includes what you will sell based on the increased capacity.
Not quite. We have assumed some growth in the, let's say, the next few years that we have clear visibility on. Beyond that will be further upside to this business case.
Okay. It's almost purely cost savings then, the guidance for EBIT uplift.
Yes, correct.
That's also logic, right? From three locations with three canteens, three changing rooms, three management teams, three workshops, you know, three boiler rooms, or maybe even more, three logistics departments, warehouses, et cetera, et cetera, et cetera. Now you basically go to one big box, where you have the lines standing next to each other and with packing lines behind it, which can be fed from each of these lines, with one management team. It's a bit like the Levice factory we have in Slovakia. A lot of size matters actually in this business. Well, quite often that of course matters. We can also see that what we have done is achievable based on the Levice part. Then we have also more automation in this plant.
Being at the plant, which is then in a Dutch relatively higher labor, of course, than Levice. We have the big volumes in this plant and with the high automation, we can then still reduce the labor cost per kilo quite significantly. I would also say it puts us in quite strategically in a nice place where you then could at Levice, Slovakia is the plant where we're doing a lot more of the complex products or products which require a lot more manual labor, and then the products which are really being produced every week, and the high runners, we produce them in the high automated plant.
We have a bit of how to say that, using the lower labor cost in the east and then the lower cost and automation in the more complex factories in the west. That’s a nice future situation to be in with two plants that for candy and then Ljungsbro. Those will be then the really big plants of Cloetta, with Dublin for jelly beans and the gum factory in Sneek being too much smaller plants. You would have a factory network with three really big plants, which is really fantastic also from a complexity management and further improvements we would be able to make.
Okay, very good. My last question is on the one-off costs of SEK 300 million-SEK 350 million gross, but up to SEK 100 million net. What do you think will be the net cash flow impact from this? i.e., how much is non-cash flow of your guidance for costs and offsetting income?
For 2022, I mean, the big item you see there is obviously impairments. That's non-cash. We will have severances, which are expected, which is also going to be rolled out, of course, when the plants are closing. The 2022 impact now will be, let's say, limited from a cash point of view, in that respect. You have, of course, in 2025-2026. That's when you see severances being paid, but we'll also have the proceeds from the sales of the land. The other thing is just on the CapEx side. The 2022 here, that's a lot of pre-engineering work.
Of course, land purchase is expected, and then it really ramps up in 2023 and 2024, which gives us, let's say there's a bit of a buffer before there is a significant, you know, really significant cash outflow, which is also, you know, good from a timing point of view, I believe, you know, given some of the uncertainties in the world right now.
Okay, good. Now another question has popped up. If you impair the Dutch and Belgian factories now, then you will stop doing depreciation on those already starting now, basically. That will impact your depreciation charge over the coming years. Is that correct?
Yes.
Okay, good. That was all for me. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, as a final reminder, if you wish to ask a question, please press zero one on your telephone keypad. We have no further questions. Henri de Sauvage-Nolting , back to you.
That was it for today. It was a very important intention for Cloetta for our long-term growth journey and focusing on our core business and make that stronger. Thank you for your attention, and for sure, we will be back with more updates around this area. Thank you very much.
Thank you. Bye-bye.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect.