Very warm welcome to sunny Stockholm, and thank you for joining Cloetta's Q1 Interim Report presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina, and CFO, Frans, will first go through our results, after which we will move to the Q&A, where you, as per usual, either have the possibility to dial in and ask your question live, or alternatively post your question through the chat. The chat is already now open for questions. Over to you, Katarina.
Thank you, Laura. I'm pleased to present a quarter with exceptionally strong profitability improvement driven by our broad portfolio. First, over to the agenda. Today, it looks as follows. I will start with Cloetta in a brief, followed by our new strategic priorities and updated long-term financial target that we also shared at our Investor Day at the end of March. I will move over to our Q1 highlights. After that, our CFO, Frans, will take you through our Q1 financials. As always, we wrap up with a Q&A. It's a pleasure to share the incredible journey of Cloetta.
Today, Cloetta is Northern Europe's leading confectionery company and has been creating joy through our iconic brands for over 160 years. Our plan is, of course, to continue to do that for at least another 160 years. Founded in 1862, Cloetta has grown from a small confectionery business to, first, a Nordic and now a North European powerhouse in the industry. Our success is built on a foundation of a deep commitment to spreading joy. We believe in the power of true joy, and this belief drives everything we do. We have what we call 10 super brands. They are our most scalable brands, and they account for more than 50% of our total sales.
We have operations in 11 countries and have around 2,600 colleagues in Cloetta. In 2024, our net sales reached SEK 8.6 billion and with an operating profit margin of 10.6%. Cloetta is committed to sustainability, and we have joined the Science-Based Targets initiative, and our ambition is to reduce our carbon footprint by 46% by 2030. This spring, we launched Cloetta's vision, and it is to be the winning confectionery company inspiring a more joyful world. This vision is a commitment to excellence, innovation, and the joy we bring to our consumers every day. We believe in the power of true joy, and this vision reflects our dedication to this purpose.
We have also started to take concrete steps to enable this vision. At the end of April, we also shared a plan to create a more efficient operating structure through changes in our commercial and group level function, and I will talk more about that later on. Cloetta continues to play in two business segments: the branded packed products, which are products packed in branded bags. The second segment is pick and mix, a confectionery experience where shoppers choose from a wide variety of candies and create their own individual mix.
As individualization is a consumer trend, the whole pick and mix category is currently growing a bit faster than the confectionery market in general. One of our key strengths is our broad portfolio within all confectionery categories. We are the only major company present in all categories, which means we are active in candy, chocolate, pastilles, gum, and pick and mix. Having a broad portfolio gives us flexibility to adapt to different situations and trends. For example, with the current high chocolate prices, it is, of course, beneficial to be in other categories as well. Our core markets are five markets.
They are Sweden, Finland, Netherlands, Denmark, and Norway. In all our core markets, our brands have been loved by generations, and we have market-leading positions. 81% of our turnover comes from our core markets, and 90% of our sales come from outside our core markets. Cloetta is among the top three players in our Nordic markets. Interesting fact is that the three top players actually differ per country. In Sweden, it's Cloetta, Fazer, and Mondelēz. In Finland, it's Cloetta, Fazer, and Orkla. In Denmark, it's Cloetta, Haribo, and Toms, while in Norway, it's Cloetta, Mondelēz, and Orkla.
As you hear, Cloetta is actually the only company that stands on the podium in all markets. We also have the market-leading position in Sweden, Finland, Norway, Denmark, and the Netherlands. Unlike the other players, we are strong in many categories. In candy, which is also our largest category, we are number one or two in all core markets. In chocolate, we are very strong in countline chocolates, and in Sweden, we are number two, and in Finland, number three. In pastilles, we are the leader in Sweden, Finland, and Denmark. We are in gum in Finland and Netherlands, and there we are number one and two.
We have a clear leading position, as you can see, in pick and mix in the Nordics. That, in a nutshell, is Cloetta. Now I'll proceed to give you a brief update overview of our new strategic priorities and financial targets. For more detailed information, please view the recording of our Investor Day that is available on our website. Sorry. After I was appointed CEO, I approached the assignment through four steps. First, setting the vision, then the strategy, thirdly, to review the structure, and finally, to execute the plans. In June, when I started, I started talking and listening to as many internal and external stakeholders as possible.
This was the start to create the vision. In the end of March, we launched the updated strategies. To support the implementation of our new strategies, we have now also reviewed our organizational structure. Our aim is to establish a framework to ensure Cloetta becomes a more focused and efficient company with improved speed and agility. This restructuring will result in a leaner organization with up to 100 fewer positions in Europe. Additionally, this change will support our journey towards profitable growth, as it will yield savings of SEK 60 million-SEK 70 million. To make our plans clearer and easier to understand, we have created a strategic framework.
We start, of course, with our vision that we want to be the winning confectionery company inspiring to a more joyful world. It comes to our strategic focus areas. It is actually very much about focus. We need to make choices to create scale. Our first strategic priority is to increase focus on our 10 super brands in our core markets. This approach will help us seize new opportunities and achieve scale. Our second strategic priority is to grow beyond our core markets. We have identified three markets with nice potential, which are the United Kingdom, Germany, and North America, where we will have greater focus going forward to ensure stronger growth.
Our third strategic priority is to excel in marketing and innovation. As we operate in an evolving market, we continuously need to be active and responsive to market development. The last year, we have focused on organic growth. We have not done any significant M&A in the last seven years. We are now open to explore M&As that fit our strategic goals and make good business sense. If we do M&A, we will accelerate for strategy. There is no M&A included in the plan to reach our long-term financial targets. To deliver on strategic priorities, we need, of course, some enablers.
One is an operating model, including the organizational structure that is straightforward and efficient. Of course, what is a company without our people and culture? A black book. This is the fundamental of our company, and our aim is to continue to build strong and efficient team players. Linked to our strategic priorities and vision, we have updated our financial long-term targets. With the great plans we have, we are stepping up our long-term organic growth target and moving from 1-2% to 3-4%. Our long-term adjusted EBIT target will remain at 14%, but we are committed to reach at least 12% by 2027. Historically, our net debt target has been around 2.5.
Considering our consistent achievement of this target in recent years, we have now set a new net debt target, and that is below 1.5. However, should a compelling acquisition opportunity arise, we may temporarily exceed this, provided there is a clear path to the leverage. Last but not least, our dividend policy has moved from a payout within a range of 40-60% to minimally 50% of the profit after taxes. A summary of Cloetta today and what we also presented at the Investor Day. We are Northern Europe's leading confectionery company with a vision to be the winning confectionery company inspiring a more joyful world.
We act on a non-cyclical market with stable consumer demand, outgrowing underlying fast-moving consumer goods. We have a market-leading position in our core market, and we have an iconic brand across diverse categories. With a strong and diversified customer base where we have steady sales in traditional retailers and double-digit growth in incremental channels, we are ensuring a broad market reach and resilience. We are on top of the changing consumer and market dynamics. In these rather turbulent times in the financial market, we offer investors a resilient stock in a non-cyclical market.
Now back to the quarterly update. As previously mentioned, we had a quarter with exceptionally strong profitability improvement driven by our broad portfolio. I would like to highlight some key takeaways. Thanks to our broad portfolio, we had another quarter of better profit, and this was achieved despite high continued raw material cost. The profit improved even though Easter was later and affected sales in this quarter. Q1 was down due to the phasing of Easter, but we expect clear profit growth in the first half of the year and the second half of the year to be close to our new long-term target of 3-4% sales growth.
Adjusted profit is 11%, and that is up 1.8% from last year. We are reaching another successive all-time low net debt over EBITDA, well below our new long-term target of 1.5. Now it is time for the financial, and I hand over to Frans, who will talk you through the Q1.
Thank you, Katarina. For the quarter, we delivered our seventh consecutive quarter with sales above SEK 2 billion, although for the first time in four years, a quarter without organic sales growth. The last time this happened was in Q1 2021, when the sales met a largely pre-pandemic quarter 1 2020. The organic sales are down 1.1%, and there are a couple of contributing factors, which I'll break down for you when we look at the sales by segment. The one single key takeaway is that sales are lower than last year due to the later celebration of Easter this year. Those sales came back in quarter two, and we expect continued organic growth for the full first half of this year, as Katarina mentioned.
Now, beyond organic growth, the quarter was also affected by the sale of the Nutrisol brand in early June last year, as well as the strengthened SEK. The SEK 2 billion in sales overall is actually despite those drivers. Moving then to the sales by segment, and in the top half here, the branded packaged. Sales were down 3.4%, and it is the first time, as you can see on this slide, where we have a negative number. Let me spend a bit of extra time on this. The decline is driven by primarily two things. In part, by the Easter phasing, although not to the same extent that it affected pick and mix.
Secondly, in line with our strategy, and as also shared in the Investor Day end of March, we have continued to optimize our product portfolio by taking out lower margin SKUs, including discontinuing certain contract manufacturing. Now, towards the end of the quarter, there were also to maybe a lesser extent two other things that affected this. Firstly, which is also in line with our strategy, we held firm on our fair pricing, and as a result, saw some lower sales with an important customer towards the end of the quarter. That has also been the case in the past; that situation has since been resolved.
Finally, with all the food price inflation across retail the last couple of years, it is affecting consumption, and we mentioned here earlier, I think Katarina mentioned, especially in chocolate, and that also did affect our sales, especially towards the end of the quarter. For pick and mix, pick and mix grew a healthy 4.6%, and that is despite the Easter phasing. You can actually, if you look, you can see the Easter effect on the slide. In 2024, Easter was fully in quarter one, and as a result, you see that quarter two was quite soft. Now in 2025, Easter is back in quarter two. Just to be clear, in 2026, Easter will be in the very beginning of April.
Most of our sales for Easter next year will come again in quarter one. This is really just something that's shifting back and forth. Overall, though, for the first half of the year, eliminating the effect of the phasing, we therefore expect continued profitable organic growth. On the note of the profit, let's look at this exceptionally strong step up versus last year in the quarter. We're very pleased with 11% operating profit adjusted. Now, I should say on a reported basis, excluding the adjustment for comparability, the profit was much, much stronger, over 17% operating profit margin and over 40% gross margin when you look at the numbers.
Now, this is due to the accounting effect of the decision to not proceed with the Greenfield project. That discontinuation resulted in, and we mentioned this in our press release in February, it resulted in a one-time non-cash net gain on account of released provisions and reversed impairments, partially offset by some impaired capitalized project and other borrowing costs, but net SEK 125 million gain recognized in items affecting comparability and SEK 9 million recognized as a cost in the net financial items. At the back of this presentation, we have, and we have done this before as well, added a table that bridges the reported and adjusted results to make it super clear.
Nonetheless, on an adjusted basis, our 11% operating profit was a clear improvement versus last year's 9.2%, so up 180 basis points. Now, 11% places us just above last year's full year average, which was 10.6%. The improvement is also versus a softer Q1 last year. You could not really assume now that we made a permanent step up of 1-2% EBIT margin just because we shared a new strategy at the end of March. I mean, that would have been quite fantastic, but of course, it will take a little bit longer time than that to implement it. The lower EBIT margin last year, as you may recall, was largely on account of the rising cocoa input cost and the inevitable lag that we can get in our pricing.
Now, the comeback here is then thanks to our continued work with our total portfolio, including the mix, and we do have had the ability to take cocoa pricing, given our strong brands, and leverage the breadth with respect to categories and across markets. In the quarter, profitability was further helped, of course, by the effects of having continued to optimize the portfolio as part of our net revenue management efforts, but also lower promotional spend on account of the later Easter in the sense that a lot of those activities moved now into Q2 together with the sales.
With respect to that, some promotional activities were on hold end of Q1, pending the pricing negotiation that I mentioned that affected the sales at the end of the quarter, but which have now been resolved. Importantly, the step up in profitability is not due to any reduction in the investments in our brands. On the contrary, that continued investment enabled our comeback and continued pricing. Let's look at the two segments separately. On the top, the branded packed profit is driven by all the factors mentioned on net revenue management contributing to that. That said, the branded packed segment profit is, of course, up versus last year, but it's not back to where it once was.
We will continue this work. We presented that also during the Investor Day, how we will drive this. Actually, in the quarter, the expansion of the Minton brand, the pastilles across the Nordics, is one example of that effort. Actually, from a volumes point of view, our pastilles volumes grew in the quarter, and both pastilles and gum together outperformed the other categories with respect to volume. On the bottom half, pick and mix continued strongly here. With the phasing of trade spend to quarter two, coming on top of the continued journey to strengthen the profitability, that, of course, gave a bit of an extra boost, getting us to almost double-digit margins in the quarter.
Importantly, I think this shows why we during the Investor Day also raised the margin target from pick and mix from the prior 5-7% to a new 7-9%. The SG&A, that is up versus last year, and that is in part due to that we actually held back on a lot of discretionary spend in Q1 last year to support the bottom line. The total spend of SEK 484 million is coincidentally exactly in line with the average spend the last eight quarters. Of course, that also includes items affecting comparability. Nonetheless, Q1 last year was low, and at the time, I spoke about using all the levers to our disposal, so that's what we did.
Now, we have another year of general salary inflation for our employees and bought-in services that, together with the investment in our core brands, drives the increase. We also said in Q4 that this was an area where we would now also further increase our focus. Of course, last week, we announced changes to our organizational structure to better align to the new strategy, and also with the result of creating a more effective organization, and that will, of course, help with the cost within a fairly short time. Coming then to our cash flow, we are again reporting a very strong quarter.
We delivered SEK 199 million of free cash flow, which is just about double of what we did in Q1 2024. The main driver for this improvement is that we've been able to hold working capital fairly stable, even a little bit favorable, whereas last year, working capital increased with a much more significant surge in inflation we had then. On the CapEx side, SEK 32 million is on the lower side of our normal spend due to a number of factors, but this is also in line with what we presented during the Investor Day, where we've held back on some activity, pending our setting the new strategy, but where this figure will rise over the next five years to secure the growth and the profit.
Now, on the very left-hand side of the graph, if you wonder, with the increased operating profit adjusted and the one-time gain in net items affecting comparability, why is cash flow before changes in working capital higher last year? The answer is because, first of all, the one-time gain, as I mentioned, was non-cash in nature, so it does not affect this. Also, last year, we benefited from a favorable timing on income tax payments. The underlying result this year is truly better. Of course, the favorable timing on the income tax payments, the taxes have been paid because, as we all know, there are only two things certain in life, and paying taxes is one of them.
Which brings me to my final slide, where we have again closed the quarter with a net debt over EBITDA well below our target, which is, as Katarina mentioned, to now be below 1.5, and we have done so with a new best ever of 1.1. Now, this leverage benefited both from the higher EBITDA, but also from lower net debt, which is also at an all-time low of SEK 1.3 billion. Finally, as we closed the quarter, we had plenty of access to additional unused credit facilities, commercial papers, and cash on hand, including about SEK 1.6 billion in credit facilities related to the Greenfield. Now, since then, actually, it was on April 14, we completed the cancellation of those Greenfield facilities.
If I reduce the quarter and unutilized access to cash with that amount, we still closed the quarter with a very healthy access to another SEK 2.7 billion, as shown in the table on the right. I conclude that our financial position continues to be very strong. With that, back to Katarina.
Thank you very much, both Frans and Katarina. It is now time to open the Q&A. Moderator, do we have any questions from the line?
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. Anyone who has a question may press star and one at this time. Once again, for your questions, star and one. At the moment, there are no questions registered.
Thank you. We will take the ones from the chat. The first one is from Stefan Stjernholm at Handelsbanken. Less contract manufacturing had a negative impact on sales in Q1. Was this a temporary impact, or can we expect an impact also in the coming quarters?
Yeah, if I take that one. No, it's not a temporary impact. This is basically overseeing the contract manufacturing agreements and noting that the profitability was not at the level that we expect, and we have exited those contracts. That will carry through for sure, unless we would get much more profitable contract manufacturing offers, that is.
Very good. Can you quantify the negative Easter impact on sales and EBIT in Q1?
Yes. Actually, we did this once before. The last time where we had this kind of a shift, except when it happened during the pandemic years when the numbers were very difficult to read, that was in 2019 when it shifted this far. At that time, we talked about basically up to SEK 40 million. Now, of course, we've seen a lot of growth since then. We're talking about around SEK 40-50 million now in Swedish kronor that shifted between the quarters. I'm giving you a range because it's not an exact science how much that is. What we can say with confidence is that it is a phasing and that for the first half of the year, we will see continued clear profitable growth.
Very clear. Thank you. The last one from Stefan. We know that on group level, sales in the U.S. is fairly limited, but can you comment on your development and growth in the country in Q1?
Yeah, yeah, as said, it's confirmed. It is still very limited. We can't really comment on it because it's still small. We are actually, last week, we were setting up our first store with Candy King and the pick and mix concept. Now we're going to see how that develops. If it goes very well, we will, of course, continue to roll this out. The demand is still there from the Swedish candy in North America.
Very good. Thank you, Katarina. Operator, I think we have Adrian Elmlund from Nordea on the line.
Yes, please go ahead, sir.
Hi, and good morning to you. Can you hear me?
Loud and clear.
Very good. Happy to see the results. I have a couple of questions here. Firstly, could you elaborate on the reduction of SKUs that you have done? Does this mainly affect packaged products, or what does the split here look like? Is this also something that we can continue to expect in the coming quarter?
Okay, let me take that one. I think there are two types of reduction. When we talk about reduction of SKU here, we are predominantly talking about the packaged side, that we are cleaning that up. Obviously, within pick and mix, there is a constant revision of the assortment. That has always been part of the journey to drive profitability there. Here, when we are talking about rationalization, it is on the branded packaged side. Of course, all of these actions also take place, keeping an eye on if there's an effect on the pick and mix side.
Right. Is there more to come, sort of saying?
Yes. I mean, as any good FMCG, this is something that you should do as part of your regular maintenance. Now, of course, what we've said with the new strategy, stronger focus on the super brands, stronger focus on specific markets outside the core markets, et cetera, we are intensifying the work here, both to get a, let's say, a rationalized portfolio, but also to harmonize more across it, which drives its own efficiencies and reduces complexity in supply chain, which increases your capacity to produce volume. There are a lot of aspects of this, and we will continue to pursue that.
Right, right. Okay. You also mentioned some increased marketing costs in the quarter. Is it possible for you to quantify this increase, and how should we think about marketing costs throughout the rest of the year?
Yeah, yeah. Actually, when we closed Q4, I did flag that we were going to step up on the marketing expenses, and we did that. I do not think I actually gave a number for it. As you can see on the SG&A increase, a fair chunk of the SEK 30 million-odd increase there relates to marketing. Let's say somewhere between a third and half of that. We will continue to support our brands in an important way, specifically as there is an effect on consumers on multiple years of rising prices. It is not just for Cloetta. It is across the marketing category. We see that investing in the brands drives consumer preference, that drives sales, that helps our customers, the retailers, and that then generates sales for us.
That is definitely something that we will continue to do.
Okay, thanks. Another question here on production capacity. Could you remind us the plan that you have for investing in capacity in your factories contra perhaps outsourcing production? When are you feeling bottlenecks, et cetera? How should we think about that going forward?
Yes, I mean, the first thing, of course, is that when we announced the decision not to continue with the Greenfield project, we also shared that we had identified a number of different options to solve for both capacity and savings and sustainability, which were, let's say, the three things that the Greenfield project aimed to solve for. That includes then a mix of investment in our own production facilities, as well as using contract manufacturing. When we had the Investor Day, I pointed to that over the last five years, our spend on CapEx as a percent of NSV was around 3%. With the Greenfield, over the next five years, it would have gone to 8%.
Now, based on the assessment we have done, we are saying that it will be between 4%-5% of NSV the next five years, and then it will drop down to, let's say, more normalized 3%-4% going forward. Exactly what the options are and which are preferred options, that is not something that we are ready to disclose yet.
Okay, fair enough. That was all for me. Thank you for taking my questions.
Thank you, Adrian.
Thank you very much. We do not have any questions in the chat, no new ones. Do we have any new questions from the lines, Operator?
There are no more questions to add, I guess, at the moment.
Thank you very much. That then concludes our event today. We now take the opportunity to remind everyone of our upcoming IR events. Our next report, Q2, is published on the 17th of July. Before that, quite a lot is happening. You can meet us physically at Handelsbanken's Nordic Small and Midcap Seminar in Stockholm in the beginning of June. On the 12th of June, DNB Carnegie is hosting a plant visit to Ljungsbro in Sweden. Before we meet again, we, of course, hope that you get the chance to enjoy many of our products during joyful and memorable occasions. Thank you very much.
Thank you.
Thank you.