Very warm welcome, and thank you for joining Cloetta's Q3 interim report presentation. I am 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 questions through the chat. It is already possible to add questions in the chat. Over to you, Katarina.
Thank you, Laura. Today, I am proud to present another very strong quarter. We executed fully in line with our strategy, and we also continue to deliver against all four of our long-term financial targets. Today, we also share an important milestone related to our midterm and long-term profitability target.
First, over to the agenda. For new listeners on the call, I will start with a short recap of our strategic framework and our long-term financial targets. After that, I move to our quarterly highlights. This will be followed by our CFO, Frans, who will walk you through the financials, and as always, we wrap up the session with a Q&A. Next, I briefly talk you through our vision, our key strategic priorities, and our long-term financial targets. Our vision is to be the winning confectionery company, inspiring a more joyful world.
This is not just a statement on a slide. It is what drives us every day. It means doing great work, continuing to innovate, and creating joy for our consumers. Our vision helps us to keep improving and stay at the forefront of our industry. To help bring our vision to life, we have a strategic framework that guides where we focus and how we drive growth.
Our strategy is about making clear choices. We want to focus our time, energy, and investment on the areas where we can create the biggest impact. We have five core markets, and that is Sweden, Denmark, Norway, Finland, and the Netherlands. Together, these markets account for around 80% of our sales today. Our first priority is to win with our 10 Superbrands in these core markets. With an expanding strategy, we can reach more consumers, grow faster, and build even stronger market positions.
The second priority is to grow beyond core markets. We have identified three markets with particular strong potential. It is the U.K., Germany, and North America. I will later in this presentation share an update about our progress in this area.
Our third priority is to excel in marketing and innovation. Consumers are constantly changing, so we need to keep listening, stay relevant, offer products that meet their needs. We also look at acquisition opportunities when it fits our strategy and creates value, but it is important to say that M&A is an opportunity, not a prerequisite. Our plans and financial targets do not depend on acquisitions. To deliver on all of this, we need, of course, the right foundation. That means efficient ways of working and an operating model that is set up to support our strategy and growth ambitions.
And finally, none of this happens without great people and a strong culture. They are the heart of everything we do. Our culture shapes how we work together every day, and today, we have a strong team, strong capabilities, and an organization filled with energy, passion, and joy. In March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. Midterm global inflation is still a concern, mainly because of the uncertain political situation. As a result, we expect the focus on food prices to continue throughout the year. Our long-term adjusted EBIT target is 14%, with a midterm goal to reach at least 12% by 2027.
As you can see from our report, we have now reached the midterm target more than a year ahead of time. Our EBITDA net debt ratio remains well below our long-term target, also including the effect of the increased dividend paid this year. As I have stated before, if a strong M&A opportunity appears, we may go above our long-term EBITDA over net debt ratio temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. Finally, our dividend policy. We are targeting a payout above 50% of profit after tax. The already mentioned higher dividend paid out this year was in line with this target. As promised, I will today give you an update on the second strategic priority to grow beyond core markets.
Those of you that attended our investor day in March last year might remember that this is about two things. It is about creating a winning portfolio and expanding distribution. This is done in three markets. It is North America, Germany, and U.K., markets that all have high confectionery consumption per capita and where we can see attractive opportunity for growth. So far this year, we are progressing very well according to plan and have delivered significant milestones. In North America, we are continuing to see strong demand for Swedish candy, where Pick & mix plays an important role. We have therefore done CandyKing pilots and opened a New York flagship store.
Together, these initiatives are helping us build proof of concept for future expansion of CandyKing in the U.S. One important milestone is that CandyKing became the first concept to bring Swedish Pick & mix candy into U.S. retail.
Another highlight is the successful launch of Ahlgrens Bilar in Target. The brand is now listed nationwide, giving us access to consumers across the entire country. In the U.K., we have strengthened the business with a new local management team. At the same time, the work to revamp CandyKing and expand the Chewits portfolio is continuing. In Germany, we have increased distribution of Red Band portfolio through new retail listings, helping us further strengthen our market presence. Looking ahead, we will have five CandyKing pilots running across three different retail chains before the end of the year. Finally, we continue our collaboration with IKEA, which supports our long-term geographical expansion plan. Further updates will be provided as the agreements allows. I now provide an exciting update about the latest news related to our expansion in North America.
In September, we shared that our iconic Superbrand and Sweden's most sold foam candy, Ahlgrens bilar, is launched in U.S. retail. Four taste varieties were launched exclusively and nationwide in Target stores and on target.com. The launch has been very successful, and as you can see on the slide, the launch was supported by integrated marketing activation through both paid and earned media, including influencers partnerships, social media, and retail media. The launch generated strong consumer engagement and visibility. The launch campaign reached around 30 million consumers in the U.S., and we have now generated a meaningful share of voice within the Swedish candy in the U.S. I look forward to sharing more about our geographical expansion in the U.S., also in the upcoming interim report, as we will provide further news related to our geographical expansion around year-end.
In our previous interim report, we shared that we would launch a Superbrand product novelty in our core markets in the second half of the year. I will now move over to share more about that ongoing launch. Under our Superbrand Red Band and Malaco, we are now launching Sprinkled Foamies, a multisensory product range. Most importantly, the launch demonstrates our accelerated innovation in line with evolving consumer trends and behaviors. It also builds on Cloetta's existing portfolio of foam candy, as foam confectionery continues to grow in popularity. We also know that consumers increasingly seek engaging and memorable consumption experiences, and that social media amplifies demand for multisensory candy, highlighting texture, colors, and sound when it's consumed. Both flavor varieties of Sprinkled Foamies bring together multiple textures in one bite.
The launch activation are still ongoing, but we already know that it has delivered strong launch performance for a novelty product. A short quarterly update. In the third quarter, we delivered accelerated volume growth. The 2.3% organic sales growth reflected the positive consumer response of our fair pricing strategy. I am also pleased that we achieved volume as well as sales growth in both business segments.
Looking at our year-to-date performance, we delivered 3.3% organic growth, which is in line with our long-term target. We continue to make progress on all three strategic priorities. We launched Sprinkled Foamies, expanded Ahlgrens bilar in Target in the U.S., and we are on track to have five CandyKing pilots in Germany by the end of the year. We also delivered a strong EBIT margin of 12.7%, supported by volume growth, a good product mix, and strong execution across the business.
Most importantly, we reached our midterm profitability target more than a year ahead of plan, and that is, of course, something we are proud of. With that, let's turn to the financials. I hand it over to Frans, who is already, as always, ready to walk you through our financial performance.
Yeah, thank you, Katarina. I am also very pleased to help present another very strong quarter for Cloetta. This is a quarter which reflects in a great way the effect of the new strategy we launched last year. There are four points that I want to call out.
The first one is continued strong volume growth. As you know, through our broad portfolio and our strong Superbrands, we have, despite the last couple of years of pretty steep but fair pricing, we have been able to protect our volumes. Then in the first half of this year, we accelerated the volume growth, and now in Q3, we are continuing that strong volume growth. You will actually see some of the effects of that in a later chart. That is number one. Number two is the strength of our fair pricing policy.
Our strong profitability uplift these years has been underpinned by our fair pricing, where both our consumers and our customers win with us. Now in Q3, these strong volumes are again supported by that pricing policy, and where we have reduced our prices commensurate with the dip in the price of commodities like cocoa earlier this year. Obviously, our prices do not change the same across categories and markets, as the change depends both on which commodities go into a product and when the last change of pricing happened on that product. Nonetheless, the net sales growth we are reporting is net of such price changes, and the underlying volume growth therefore clearly higher. This means, again, the consumers have enjoyed our products more, and our customers have sold our products more.
The third point, after the volume growth and the fair pricing, is the continued strengthening of our profit margin. As Katarina already mentioned, we are very pleased to confirm that we have now reached, more than a year early, our target of at least 12% operating profit margin. That was a full-year target to be reached by 2027, but with the solid margin now also in Q3, bringing year-to-date to well over 12% and rolling 12 months, et cetera, we are confirming the target as reached. The fourth and final point, we have delivered this solid profit margin while at the same time stepping up investments in the marketing of our Superbrands and in our focused expansion strategy, as we also flagged for earlier this year. This is not a watered-down margin step-up.
Key takeaway is that continued focus on investing in our brands, accompanied by our fair pricing policy, means we are able to deliver stable, organic, volume-driven top-line growth at improved margins. I will come back to the profit, but just first the net sales figures. In the quarter, we delivered volume-driven organic growth of 2.3%, bringing year-to-date to 3.3%, which is well in line with our long-term target. The branded packaged products segment grew 1.8% and year-to-date 2.8%, and Pick & mix grew 3.4% with a year-to-date of 4.3%. Organic, volume-driven growth for the quarter and year-to-date across both segments, and while at the same time, we will continue to step up on what we are doing on geographic expansion in both packed and Pick & mix products, and Katarina mentioned several.
And that creates future growth potential and is part of the strategy we launched and part of the long-term target to reach a growth of 3% to 4% on a stable basis. The reported growth was actually slightly higher than the organic growth in the quarter, a total of 2.6% on account of favorable currency movement. But as mentioned in previous earnings releases, we largely sell our products where we make them, and the currency effect is really a translation effect and has limited, let's say, real effect on our financials. Moving to the regular page showing the segments over time. I think I pretty much covered this already and what is driving the sales growth and the fair pricing that is softening that a bit.
But if I had to call something out, that would be that despite that, and I'm looking at the Branded packaged products segment on the top, with the exception of the very strong first half of this year, Q3 at 1.8% is still the highest growth we've had in the last 10 quarters. Of course, that fair pricing will also affect the next quarter, and if you read Katarina's comments to the result in the report, we also highlight there that quarter four would also be affected by two recent events. One related to an IT incident at one of our customers in Central Europe, and one related to an IT incident with one of our logistics services providers in the Nordics. Similar but separate incidents, and neither having affected our systems.
And actually, we haven't had any notable issues in our systems for as long as I'm aware of, at least since I came in 2018. Still, with continued digitalization and also some of these geopolitical uncertainties, the risk can never be eliminated, only mitigated and reduced. But we're committed to continue to strengthen our resilience here and protect our track record in this area. Nonetheless, the two incidents will have a limited and temporary effect on our sales in quarter four, but didn't in quarter three. So let's then go back to Q3 and a bit more on the profit. So in the quarter, operating profit adjusted 12.7%, and that is in line with what we shared in the quarter two reporting, which was, number one, that the Q2 result was exceptionally strong, and similar should not be expected for the back half of the year.
And two, should also not be expected as we would step up on our investments, both for the geographic expansion and to support our Superbrands with the exciting launch. And this is the result net of investment for that. And I can also reconfirm what we said in quarter two, and that is that the investments will span across both quarter three and in quarter four. So, profitability in any quarter can fluctuate a bit up and down, but with the strong improvements in margin versus last year also in Q3, that is also why we're pleased to confirm having reached the midterm target of 12%. Then, what is driving this strong operating profit margin? Well, it's quite clear here from the table, it's volume and mix, both for the quarter and year to date. And that's what I opened with as well.
This is partially offset by the investments in our business, but we are driving margin not by hiking prices, but on the contrary, we are driving margin by selling products which are well-marketed under iconic brands that consumers love. On the mix side, I can also add that with the strong volume-driven growth, we are even stronger in our Superbrands. Between categories, we are also doing really well in both pastilles and gum segments, which we have shared before that we have spent a lot of time and effort on. We had a novelty Läkerol more launch, and we took Mynthon Zip Mint into new markets, et cetera. Again, our broad portfolio continues to enable our strong results. Naturally, we have continued also to drive operational efficiencies in supply chain.
We have the carryover savings from last year's reorganization, and we have continued the effort by the commercial teams on net revenue management, for example, margin-accretive innovation, and all of this contributes. Looking then at the segments over and under, you can see that both segments are delivering strongly. For the branded packaged segment, the 14.4% is nice, but it is still a bit shy of the exceptional first half of the year, but it is an improvement versus last year, and it is a step closer to the 15% plus pre-pandemic margin levels that we used to generate in the branded packaged segment. For Pick & Mix on the lower half, we do another strong quarter, and it is well within our targeted range of 7% to 9% of margin in Pick & Mix.
As you know, we have at times tipped over and been above 9%, but then we have also said that the 7% to 9% targeted long-term range in margin is the appropriate range to continue to drive profitable growth in the category, as well as the geographic expansion in line with our strategy. We are also pleased to be in line with that range. Moving to SG&A. Looking then at the sales, general, and admin costs, in the quarter, you do see the investments I mentioned, both for the geographic expansion and the support of the Superbrand, including the launches Katarina shared. You then also have to remember that that is an increased cost net of the carryover savings from the reorganization last year. It is a significant amount, just as we flagged for in Q2.
Year to date, the change last year is obviously primarily driven by the absence of repeating last year's provisions for that restructuring. If you ignore that, then we also ignore the upside on the currency effect. The main variance driver is again our investments and the fact that we have continued to invest focus, time, and money behind arguably the broadest portfolio of iconic brands in Northern Europe. Moving then on to the free cash flow. In Q3, we generated SEK 260 million in free cash flow on SEK 283 million in operating profits. We are pleased with that. Q3 last year was actually even stronger, but then that was almost a decade-high quarter. Had a little bit to do with the phasing also of Easter.
If you compare year to date this year to year to date last year, the free cash flows are quite similar, and the variance is largely accounted for by the fact that we have invested more in capex this year. That capex in the quarter, which is SEK 51 million, is the highest we have had the last two years. We are moving up, as communicated earlier, to reach a temporary rise of capex to an average of 4% to 5% of net sales over the five-year period ending 2030, and that will start to be visible in 2027. That said, the capex that we are spending now in 2026 is part of the total expected capex and is part of the implementation of the plans that we have. That takes me to my last slide on financial position.
If we start with the leverage, we closed the quarter with a net debt over EBITDA of 0.7, so well below our target for the leverage to be below 1.5. It is reduced by 0.4 versus last year, and this is of course driven both by the strong cash flow and the improved earnings. 0.7 is pretty close to the lowest ever. Lowest ever was actually in quarter one this year at 0.6. Since then, we have also paid our increased dividend in quarter two, and 0.7 is the lowest we have been for a quarter three. Our net debt is also one of the lowest ever at SEK 1 billion. In the end, we have plenty of access to additional unutilized credit facilities and commercial paper, which together with cash on hand total SEK 3 billion.
I can wrap up and say that for another quarter, we have secured resilience in a changing world, and we do have the financial strength to act on business opportunities. That said, while we do have strategic financial flexibility, we will not change our selective approach to investing in our business or M&A, as described during the investor day last year. On that note, I conclude that our financial position, developing in line with our set targets, remains very strong. I hand back to you, Laura.
Thank you very much, Katarina, and thank you, Frans. It is now possible to either dial in and ask questions live or alternatively post your question to the chat. George, I think we already have questions from the telephone lines. Is that correct?
Thank you, Laura. We will now begin the question and answer session. Anyone who has a question may press star and one at this time. Once again, to register for a question, you may press star and one. Our first question comes from Anton Lund with SB1 Markets. Please go ahead.
Hello, guys. Can you hear me?
Yes, we can.
Very good. Well, congrats to a solid report. Thinking about the recent launches, you've been seemingly active in launching new products. Is it possible that you can give us any sort of indication of how much these launches, let's say, in the past 12 months have contributed to sales or organic growth here in Q3?
Yeah. Well, good morning, Anton. It is not something that we disclose, but I would say like this, that our focus is on our Superbrands in line with the strategy, and these brands are historically growing a little bit faster, and they are also more profitable than the brands on average. That trend certainly has not been diminished with this stronger focus. It is an accretive effort, but disclosing it is not something that we are really doing right now.
Got it. I got a question on the marketing spend ahead. You talked a lot about it in the presentation here. Should we see this level here as a new higher run rate going into 2027, or is it a temporary peak tied to these launches that we are talking about?
Yeah. First of all, we have over time sort of steadily increased what we are spending, both in terms of the efficiency of the spend, so that more cents per dollar, as they say, goes to what actually a consumer sees and not to the production behind. We have also stepped up. But specifically now for the back half of this year, it is a, let us say, one-time step-up that has both to do with the geographic expansion, where you have listing cost and bringing Ahlgrens bilar to Target, et cetera, but also organizational cost, plus this multi-market launch of Sprinkled Foamies and to put enough strength behind that. So, it is a bit of a peak in these two quarters, but it does not mean that we are holding back on the investments going forward.
Got it. One final one from me, please. Sales outside your core markets appear to have been rather flat. How do you see Germany developing as you roll out CandyKing pilots? When should we expect these non-core markets to grow faster than the group? Thanks.
Yes. It is a good question. In general, when we do a pilot, it does not show any significant sales in the beginning. That is really to get the proof of concept. When we have the proof of concept, then we agree with the customers to roll out more stores with the concept. Of course, we are in dialogue with Germany regarding this. Germany, we have the brand Red Band, that is the hero brand, and there we see we are increasing the distribution, especially now later in the year. When it comes to the growth of non-core markets, yes, of course, we are now investing to make it grow on a long term.
We have shared during the investor days in March, one and a half years ago, that the plan is that the core markets in the beginning will grow more than the beyond core, and after a few years, then the beyond core market will grow faster. That is also how we come up with the 3% to 4%. It will start, of course, with the markets beyond core to grow in the coming years. We also see it happening step by step, and we are taking some important milestones also there.
Very good. That is all for me. Thank you.
Thank you.
As a reminder, if you wish to register for a question, you may press star and one. Our next question comes from Nicklas Skogman with Nordea. Please go ahead.
Yes, good morning. How do you see the fair pricing policy impacting Q4 compared to Q3? Will we see a bigger impact from having to pass on some lower prices, or do you think it will be similar to Q3?
Good morning, Nicklas. Thanks for asking your question. So what we also wrote in the CEO commentary is obviously we have stayed true to our pricing policy and our fair pricing policy, and we have taken pricing down during Q3. So all else equal, you would then have a, let's say, full effect of that going into quarter four. But beyond there, we do not want to be price signaling if we are going to change something going forward, and commodities are constantly changing. But you know that always making a change also takes a little bit of time. So, I hope that sort of answers your question within what we have shared.
Yeah.
Yeah. I am just thinking also that prices for plastics and sugar and now cocoa too seem to be moving up, so
Yeah, you are right.
There will be a point where you need to raise prices.
Sorry, Nicklas. I interrupted you there.
I just said, given that many of the raw materials appear to be going up again in price, probably you need to raise prices at some point soon.
For example, cocoa now, I mean, it dropped earlier this year, and then it is already back up about 5,000. Based on our fair pricing policy, when cost goes up, then we also increase our prices. We have shown now in Q4 that, sorry, in Q3, that we also take down the prices when they go in the other direction, and it is part of our trust-building relationship with our customers as well.
Yep. Good. I guess you do not want to comment on this supplier, or not supplier, the logistics and customer IT issues, what the impact will be roughly?
Well, no, we have not given a number for it, but I think I would comment on it just so that it is clear. It was not an issue in our systems. We actually have a really strong track record, and we are going to keep investing in our own resilience and keep that track record. But unfortunately, it was in one case with a customer in Central Europe, and it has been in the media, and how they were affected by cyberattacks. Then the other one was another IT issue relating to a logistics services provider we have in the Nordics that has then, in the end, both affected our shipments in Q4.
We have said it is temporary and it is limited, but we wanted to be transparent about this. Exactly what that one that we do not know, or we do not want to share exactly that right now.
Also on the pricing that you mentioned before, you are right, there is always a lag, right? When commodities move in a certain direction, there is a lag before we can implement the price change, whether that is up or down.
Okay. Thank you.
Thank you.
Thank you.
Thank you very much. I think, George, we do not have any further questions from the lines. Is that correct?
This is correct, Laura.
Thank you. We move over to the chat. The first question comes from Stefan Stjernholm at Handelsbanken. "Is it fair to assume that half of the organic growth year to date is price and half volume?
No, I wouldn't say that. I would say it's closer to say that this is volume-driven organic growth. It's volume-driven growth. Certainly not now after Q3 when we have lowered the prices.
Thank you, Frans. I believe we have a question from one of our private shareholders, a growing investor base for us. "Congrats to a good quarter once again. Any update on the DeCicco pilot in U.S.A. that has been running for three to four months?" Thank you.
Yes. Thank you, Janne. We are testing the proof of concept, and this is important to get the learnings and understanding for further geographical expansion in the U.S. So it's part of the plan. I don't have any detailed updates right now to share, but regarding North America, we will come back by the year end to give you a better update in this area.
Perfect. Should you want to add a question in the chat, please do so now. I'm also checking the conference lines, but it appears we have answered all the questions. Let's see in the chat here. No, it seems that everybody is very happy for today, so it's time to start to conclude our event. But we do take the opportunity, as per usual, to update and remind you of our upcoming IR events. Our next report, Q4, is published on February 3. Ahead of that, quite a lot is happening. Tomorrow, Nordea has kindly invited us for a physical investor roadshow here in Stockholm. Next week, we head to Frankfurt for a roadshow hosted by SEB. On November 17, we attend the digital Berenberg Pan-European Discovery Conference, which is primarily arranged for U.S.-based shareholders and investors.
The day after that, we meet our rapidly increasing private shareholder base and attend the Avanza Investor Day, which is held physically here in Stockholm.
We, of course, continue to update our upcoming events in the IR calendar, which is available on cloetta.com. It's now time to conclude our event. Before we meet again, we, of course, hope that you get the chance to enjoy our very wide portfolio of confectionery products during many joyful occasions. If you are in one of our core markets in Europe, you will be able to get your hands on the Sprinkled Foamies that Katarina already mentioned. Although it's only the beginning of November, I do take the opportunity to remind you of our CandyKing Pick & Mix holiday calendar, which is also available in many of those markets. Thank you for joining us today.