A warm welcome and thank you for joining Cloetta 's Q2 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 either have the possibility to dial in and ask questions live, or alternatively post your question through the chat. The chat has now opened for your questions. Over to you, Katarina
Thank you, Laura. I'm very proud to present a quarter with strong sales growth and improved profitability. This was driven not only by seasonal Easter sales, which fell in the second quarter this year, but also by our continued journey driving profitable growth. First, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief. Then I go through our strategic framework and our updated financial targets. After that, I move over to our Q2 highlights. Our CFO, Frans, will then walk you through our Q2 financials. As always, we wrap up with a Q&A. For any new listeners on the call, let me start to tell you a bit about Cloetta. Today, we are the leading confectionery company in Northern Europe.
We were founded in 1862 and have for over 160 years been spreading joy through our iconic brands, and we're planning to stick around for at least another 160. We have grown a lot since the early days. Now we have operations in 11 countries with about 2,600 full-time colleagues. In 2024, we hit SEK 8.6 billion in sales, and our operating margin was 10.6%. Over half of our sales come from our 10 biggest brands, and we call them our super brands. Despite the current increase in geopolitical uncertainty, our company remains largely unaffected. This resilience is due to several key factors. First, we operate in a non-cyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our strong and trusted brands give us the ability to adjust prices when needed without losing customers' loyalty.
Third, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shifts in consumers' behavior. Finally, our primary focus is on Northern Europe, a region that is generally less impacted by global geopolitical tensions compared to the other parts of the world. Together, these strengths position us well to continue delivering stable performance and long-term value. I will now briefly walk you through how we bring our vision to life through our strategic framework, and then in relation to this, also our updated financial targets. For more detailed information, please view the recording of our Investor Day that is available on our website. Let me start by talking about our vision at Cloetta because it really captures what we are all about. Our vision is to be the winning confectionery company, inspiring a more joyful world.
That is not just a nice phrase on a wall. For us, it's a commitment to excellence, to innovation, and most importantly, to the joy we bring to people every single day. This vision is what guides us, and it's what pushes us to keep improving, to stay curious, and to lead the way in the industry. We have created a clear strategic framework to guide us forward, and r ight at the center is our vision: to be the winning confectionery company, inspiring a more joyful world. Having a vision isn't enough on its own. We can't chase every opportunity or be everyone, everywhere at once. We have made some choices that will help us scale, grow, and make the biggest impact where it matters the most. We have five core markets, and they are Sweden, Denmark, Norway, Finland, and the Netherlands.
Around 80% of our total sales today come from our core markets. Our first strategic priority is to focus on our 10 key brands, what we call our super brands, in our core markets. These are the brands with the biggest potential, and by focusing on expanding strategy, we can unlock new opportunities, grow, and drive scale. Next, we're looking beyond our core markets. We've identified three high-potential markets outside our core markets, and they are U.K., Germany, and North America. By focusing more and making clear choices, we believe we truly can make a difference and achieve strong growth in those markets. Our third priority is to step up marketing and innovation. The market is constantly evolving, and we need to stay ahead, not just reacting on the trends, but helping to shape them as well.
For the past seven years, we focused purely on organic growth, but now we are open to exploring M&A, as long as it fits our strategy and makes good business sense. That said, any M&A would be an accelerator and is not built into our financial target. To make all of this happen, we also need the right enablers in place. That means having a simple, efficient operating model and a structure that supports our goals. During Q2, we announced changes to our organizational structure, including some reduction in positions and updates to our group management team. The goal is to better align with our strategy and move faster, but also to support our profitability journey. People and our culture are, of course, key to our success. Without that, everything else is just a black box.
Our culture is the foundation of everything we do, and we are committed to building a strong, capable, and joyful organization. Now, I'd like to share a few concrete examples of how we are bringing our strategic framework to life. Let's start with our first pillar, Win with Super Brands. One of our key focus areas here is expanding our top 10 brands into new categories, sales channels, and core markets. A great example of this is Tupla. As we mentioned during the Investor's Day, we launched Tupla in a new category last fall, in ice cream tubs. This was done through a licensing partnership, meaning we're not producing the ice cream ourselves. I'm happy to say the launch has been a big success, and Tupla quickly took a leading position in the ice cream tubs category.
Building on that momentum, we introduced Tupla ice cream cones in Q2, also through licensing. I'm really proud to share that the early sales data shows Tupla cones are on track to become one of the best-selling ice cream cones in Finland in 2025. The success we're taking Tupla, a chocolate brand in countline, into ice cream is really a confirmation of the strength of our super brands and how they can expand into new areas. Now let's move on to our second strategic pillar, Grow Beyond Core Markets. I'm very pleased to share that we signed a new global supplier agreement with IKEA. The last year, we have had a local partnership with IKEA in Sweden, but this new global agreement allows us to expand our reach, and it aligns also, of course, very nicely with our second strategic pillar, Grow Beyond Core Markets.
We see great potential in this partnership, especially as we have common values like our Swedish heritage and the passion for spreading joy through our products. Another exciting opportunity is the United States, which is the largest candy market in the world, valued at around SEK 38 billion. In 2024, the U.S. represented just 3% of Cloetta's total turnover, so there is a nice potential for us to grow. We also see that the interest in Swedish candy continues among American consumers, which gives us a unique opportunity to leverage our heritage, brand, and concept strength. We recently launched two Candy King concept pilots just outside Philadelphia. These pilots are helping us better to understand long-term consumer preference in the U.S. market.
It's still early days, but the initial response has been promising, and we continue to see strong potential to grow, both Pick & Mix as well as packed in North America. Linked to our strategic priorities and vision, we have updated our long-term financial 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 our plans show that we should minimally reach 12% by 2027. Historically, our net debt target has been around 2.5%. Considering our consistent achievement of this target in recent years, we are setting our new net debt target below 1.5%. However, should a compelling M&A opportunity arise, we will adjust this ratio accordingly.
Last but not least, our dividend policy has moved from payout within the range of 40%- 60% to minimally 50% of the profit after taxes. Now, a short quarterly update. As previously mentioned, we have a quarter with strong sales growth and improved profitability, and that was on top of the Easter sales. I'd like to highlight some key takeaways. Our broad portfolio continues to be a strategic strength, as we see. There are changes in consumer behaviors. For example, Pick & Mix is growing faster than our packed business because there is a trend that consumers want to make their individual choices. We expect continued profitable sales growth and that we're getting closer to our new long-term target of 3%- 4% organic sales growth with the second half of the year.
To drive margin and creative initiatives, while investing in our super brands continues to be high on our agenda, and during Q2, our adjusted profitability landed on 11.5%. The project to change our operating structure is moving forward as planned. During the quarter, we completed our union negotiations, informed all the affected employees, and announced a new organization and leadership. The transition, including system updates, is ongoing and will be finalized this autumn. Now, it's finally time for the financials, and I hand over to Frans, who is eager to walk you through both our second quarter and first half years. Financials.
Thank you, Katarina. In Q1 , we shared that late Easter would generate strong growth in Q2 and thereby also clear organic growth in the first full half of the year. That is also what we have delivered. For the quarter, organic sales growth reached a very strong 6.5%, which brought the half year to a full 2.6% organic growth, which is obviously above our old target of 1%- 2% growth per annum and closer to our new long-term target to grow 3%- 4% per annum. In the last quarter, I also spoke a bit about, while it's not an exact science, the effect of the Easter phasing and that it was between SEK 40 million- SEK 50 million . That then means, of course, that even if you shave those SEK 40 million- SEK 50 million off from the Q2 results, we would have grown about 4% organically.
A very strong delivery. As you saw and heard, we have reaffirmed our statement that we expect to grow closer to our new higher long-term target of 3%- 4% also in the second half of this year. Beyond the organic growth, we had some forex headwinds, and the growth year- over- year was also affected by the divestment of the Nutty Salt brand in early June last year, which you note there as the structural change. Still, despite that divestment, we nonetheless delivered our eighth consecutive quarter with sales above SEK 2 billion , so we're, of course, also pleased with that. Moving then on to sales by segment and the Branded Package segment on the top.
Sales are up 1%, and that is despite the continued optimization of the product portfolio, including, as previously mentioned, discontinuing certain contract manufacturing, and also confirmed as part of our strategy to drive profitable growth that we shared in the Investor Day end of March. Of course, also a little bit aided by Easter phasing effect here, but not as much as for Pick & Mix. For the Pick & Mix, here we grew a huge 21.3% in the quarter. There you do see the Easter effect come through after good single-digit sales growth in Q1. As you may have noted on the earlier slide for year to date, that brings our first half-year Pick & Mix sales above double digits to 12.7%.
If you look at the lower sales growth in Q2 back in 2024, that was because that year Easter shifted into Q1, which we have now shifted back into Q2. If you wonder about next year, then note that Easter will be in the beginning of April in 2026, which means that most of our sales will shift back again to Q1 , something maybe worth keeping in mind. The last quarter, we didn't only promise clear sales growth in the first half, but clear profitable sales growth. The profit was already very strong in Q1, so let's look at the profit for Q2. As mentioned by Katarina, we are very pleased with 11.5% operating profit adjusted for the quarter. Versus last year, the margin is up 600 bps.
While not the same exceptional improvement we delivered in Q1 this year, do recall the softer Q1 comparator I commented on at the time. Instead, one should think that 11.5% now in Q2 is actually a higher margin than we delivered in Q1. That continued strengthening brings our first half-year margin up to 11.3%. 11.3% is also well above last year's full-year average of 10.6%. That comes on back of the continued work in ensuring fair pricing for our products, but also continued work to optimize our portfolio, which is also part of our net revenue management efforts, as is working on promotional optimization. Importantly, the step-up in profitability is not due to any reduction in the investments in our brands. On the contrary, in Q2, we continued to invest above last year, and that has enabled the comeback and the continued pricing.
Let's look at the profit by the two segments separately. Over and under here, you see that the step-up in absolute adjusted profit is driven by the Pick & Mix segment on the lower half of the page, with a quarterly margin again of 9%, showing why we during the Investor Day raised the margin target for Pick & Mix from the prior 5%- 7% to our new 7%- 9%. Actually, margin is 9.1%, so it's even above the long-term target for this quarter. Last year, margins were around 7%, with a deviation of about a percent between the high and low quarters. The year before that, margins were actually only about 1%, and with the quarters deviating up to 2% from the average, depending on the quarter. Clearly, margins have both improved, and they have also stabilized.
For the Branded Package segment on top, we improved the adjusted operating profit to 12.6%, up from 12.3% in Q2 last year. That is despite the cocoa and input cost inflation, and despite the necessary pricing having affected volumes. Year to date, the profit is also up in the segment, and that is net of the investment in marketing. However, as said before, the Branded Package segment profit is not back to where it was, and we will continue this work as outlined in the Investor Day, including through the focus on our super brands in our core markets and the step-up in the effectiveness of our marketing and innovation. Looking then at sales, general, and administrative costs, and here actually to make sense of these numbers, it's really best to separate the recurring cost from the items affecting comparability.
Starting with the recurring cost, excluding currency effects, costs are up SEK 10 million in the quarter, which is driven by higher marketing spend, which again has enabled the growth and the higher profit and recovered profitability, while annual salary inflation is offset here by other various cost savings and cost avoidances. On the items affecting comparability, which you see at SEK 53 million in lower cost, it's good to understand that that number is the net of the one-time impairment that we had last year on account of the sale of the Nutty Salt brand and provisions we've taken in this quarter related to the change to the organizational structure to benefit our strategy, basically severances. As the provisions we've taken this quarter are smaller than the impairment last year, that comes out as a favorable variance here when we compare year-over-year.
The project to change the structure has progressed according to plan, and as a result, I can confirm that we are also on track to deliver the recurring annual savings of SEK 60 million- SEK 70 million previously shared, with a gradual buildup in the year to go and to be fully realized in Q1 , 2026. I can also confirm that we're staying within the budgeted one-time cost of SEK 60 million- SEK 70 million to be able to do so. Coming then to our cash flow, the first half of this year follows the normal seasonal pattern where we do tend to tie up cash in working capital in the first half and then generate our cash in the second half of the year.
You have that effect also now in Q2 with a free cash flow of - SEK 8 million in the quarter, and that's even a bit steeper than last year. The variance here is driving the working capital increasing more this year than last year. It's mostly a phase in between Q1 and Q2, including less payables as we left the quarter. Now, I can say it is a phasing as year to date we're doing SEK 64 million better in free cash flow than what we did last year, and that's a significant 50% better. If I take another step back and look at SEK 191 million in free cash flow year to date, that is actually the best we've had for many years for the first half of the year. We're happy with this.
For the CapEx in the quarter, SEK 29 million, it's again on the lower side of our normal, and it's due to several contributing factors, but this is in line with what I also presented during the Investor Day, where we've held back on some activity, but where this figure will rise in the future to secure the growth and the profit. Finally, on the right side of the free cash flow, last year we had the proceeds from the divestment of the Nutty Salt brand, but of course, there's nothing equivalent this year. This brings me to my final slide, and that we closed the quarter with a net debt/EBITDA of 1.4%. Again, below our new target to be below 1.5%, but importantly, that is despite paying the increased annual dividend of SEK 1.10 this quarter. 1.4% is also the lowest we've ever been in the dividend-paying quarter.
You can see the trend in the graph to the bottom left, which is the green line, which is our leverage, trending downwards consistently. If I stretch this graph out for another five years going backwards, trending consistently downwards, except for a little bump each Q2 when we pay the dividend. The leverage benefits from both the higher rolling 12 months EBITDA, but also from our lower net debt this year, which is also at an all-time low for a Q2 of SEK 1.7 billion. Finally, as we close the quarter, we had plenty of access to additional unused credit facilities, commercial papers, and cash on hand, totaling about SEK 2.4 billion.
I can also share that we are progressing well with our banks for their refinancing, where in April, we exited the facilities intended for the now canceled greenfield, and we're now working on the facilities maturing in the middle of next year. I feel very good about the response we've had, and I look forward to sharing the outcome of the refinancing during the autumn. Yet again, I conclude that our financial position continues to be very strong. With that, back to you, Katarina, or Laura.
Thank you very much, both Katarina and Frans. It is now possible to either dial in and ask questions live or alternatively post your questions through the chat, and we already have quite many questions in the chat. We will, however, start with the telephone line. Youssef, do we have any questions from the lines?
Yes, we do. 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. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star one at this time. The first question comes from Adrian Elmond from Nordea. Please go ahead.
Hi, and good morning to you. It's Adrian Elmond here from Nordea. Firstly, regarding your global supplier agreement with IKEA, could you perhaps give us any guidance regarding the sort of profitability of this contract and what types of numbers are we talking about here in terms of sales? I assume that IKEA, having a low-cost focus, might pressure on margins, or do you expect volumes to compensate for this?
Thank you, Adrian. It's Katarina here. First of all, I'm really happy about the global supplier agreement. It's really the foundation from the companies that we both have a Swedish heritage, and we have common values like joy and sustainability and so on. Of course, this is in line with our strategic priority to grow beyond core markets. What I have said since I started, what is part of our strategies going forward is really to drive long-term profitable growth, and that has not changed. We will continue to drive the long-term profitable growth, and we are following the plan as we have presented. When it comes to exact numbers, we have as a principle to not share detailed information about any of our customers. Unfortunately, I can't give you more than we are following our plan and what we have communicated previously about driving profitable growth.
Okay, fair enough. Secondly, do you have any comments regarding Fazer's investment into the new chocolate factory in Finland? Do you think this could impact you in competition in the region in any way, shape, or form?
No, we don't want to comment about other players in this area. No.
Okay, fine. Lastly, have you opened any new stores in the U.S. compared to last quarter? If I remember correctly, you had two stores already, right? I didn't really get what you said during the presentation with the U.S. Could you maybe reiterate?
Yes, it is not stores per se we are opening. We are trying our concept, Pick & Mix concept, Candy King, into stores where we are testing the concept versus the American consumer's preferences. So far, the reactions and the data we get is very positive. There are potential, but there are two stores with the concept currently outside Philadelphia.
Right. Lastly, one more question if I may, regarding Pick & Mix, could you perhaps just explain why the margin in Q1 was stronger than this quarter once again?
One of the reasons had to do also with activities relating to the Easter sales. We could basically hold back on some of the promotional things that we were doing. That did affect the margin somewhat. There's also an aspect here of the supply chain cost, which is not exactly the same across the two quarters. I think the main point is that we're at or above 9% now for two quarters straight, which is incredibly encouraging, obviously, as we go forward. We're tracking well towards our strategic target to be between 7% and 9%. Very happy with those margins.
Okay, perfect. Thank you very much for answering my questions.
Thank you.
Thank you. Youssef, do we have any new questions from the lines, or should we move to the chat?
No, there are no questions. You can move to the chat.
Thank you very much. Obviously, the IKEA agreement has sparked quite many questions. We have one from Danske Bank. Will you or could you elaborate if you sell Pick & Mix at IKEA, and is this agreement then for all the IKEA stores?
Yeah, I take this one. Currently, the agreement with IKEA is not including Pick & Mix, but of course, we have just started a global cooperation. There is, of course, different potentials.
Excellent. Thank you very much. Moving on to chocolate, this question comes from Stefan Hermansson at Handelsbanken. Chocolate products are increasing a share of sales both in Q2 and H1. Given the elevated cocoa crisis, have you been able to compensate fully for the higher input costs?
Maybe I'll take this one. It's a bit of a tricky one. Obviously, yes, we're seeing the effect of all the pricing. Of course, the pricing on what we're selling and what the retailers are charging consumers is an effect of what's happening with the cocoa bean. It's almost a little bit dangerous to comment on this because it's changing so fast. I mean, we started this year, the price was about £9,000 per metric ton. It dropped. By now, it's £5,000- £6,000, but in between, it was £8,000. Already this year, it has shifted more between a couple of months than what it did over a number of years before. We also take pricing with our customers subject to the pricing we took last time with them. The pricing is not happening the same for each customer at any point in time.
It's obviously the pricing between two points in time. We have taken some pricing. We will continue to take some pricing. I think that the big difference versus last year is that we were really trailing last year, and you could see that in the results. Now we're much more caught up. This is, of course, something that's moving hugely up and down all the time.
Thank you, Frans. I think the next one will also be for you. Regarding the cost savings, do I understand right that there are no savings in Q2, but 20% is expected to be received in H2? This is also from Stefan at Handelsbanken.
You could say that. There's no material savings in Q2. Obviously, there are a few people here and there that may have left the business, but that's not the big change. We've announced it. We have obviously a transition period ahead of ourselves. What we will see is around 20% on the full year savings in the back half of the year, obviously gradually then building up to full savings by Q1 next year.
Very good. That concludes all the questions from the chat. Do we, Youssef, have any new questions from the lines?
No, we still don't have any questions from the telephone line.
Very good. That concludes our Q&A today. We take the opportunity to remind you of our upcoming IR events. Our next report, Q3, is published on the 5th of November. Quite a lot is happening before that. We have several plant visits coming up, so keep eyes and ears open for those new invitations. The first one will be hosted by SEB and takes place already in August. Before we meet again, we, of course, hope that you get the chance to enjoy our products during many joyful and memorable occasions. We take the opportunity for those of you who plan a cool occasion in Sweden to remind you that we have three stores here. You can find them in a moment: Linköping and Ljungbro. Thank you for today. Have a joyful summer, and see you at the latest in November.