Good morning, and welcome to Cloetta Q1 presentation. My name is Jacob Broberg, I'm Head of Industry Relations, and I have Bengt Baron, CEO, and Danko Maras, CFO, with me. I will leave the floor or the phone to Bengt. Please go ahead.
Thank you, Jacob. Good morning, everybody. It's a pleasure to be able to present the first quarter highlights, and we feel that it's a solid quarter, and we're very satisfied that our focus on profitable growth is generating results. Starting at the top, the income statement, net sales, the growth was 10.1% to SEK 1.3 billion. We've been helped on that line by the FX by 3.4%, and Dan will take you through the details on the organic part of the growth and the structural changes. But double-digit growth, and it drops all the way down to operating profit. That not totally doubled, but went from SEK 52 million to SEK 90 million. And also the underlying EBIT increased by 32%, up to SEK 107 million.
Also very gratifying is that we are post the restructuring process that we're through. We saw already in Q4 of last year a significant increase in the cash flow generation, and that also continued in Q1 of this year as primarily driven by the fact that we collected cash from the Italian seasonal product. So a solid SEK 223 million of cash flow from operating activities. With the result improvements, we also paid off our net debt, so net debt/EBITDA ratio went down to 3.6, so improved further, and as compared to last year, was about 4.5.
Also very, very important in the quarter, very busy quarter, was, of course, the refurbishing and the change of the 700 Coop stores with our new Pick & Mix concept, starting basically from zero in the third week of January, we were ready. We were ready by Easter, and we actually managed to get all of the logistics in place working for the huge Easter peak, which is actually the biggest peak of the year in Pick & Mix. Looking a little bit more in detail on the sales and marketing and sales development, double-digit growth, positive total market developments pretty much across the board, except in Holland. The organic part of the growth was 4.0%, which is the best organic growth quarter we've had.
Sales grew pretty much in all markets, except in Italy, which is a very small quarter. Italy is big in Q4. The first quarter is the smallest, but yet there was still some challenges in that marketplace. In Norway, we also lost a bit of sales, and that was driven by one major customer, and basically flat, slightly down in the Netherlands. Sweden, of course, had a very solid quarter as we rolled out the Pick & Mix. And likewise, Denmark and Finland had very, very strong quarters as well. The brand we acquired last year, the Jelly Bean Factory, continues to do extremely well, and we are very pleased with the development in the core markets, but we're also starting to roll it out into Holland and Germany. With that, I'll hand over to Danko to take you through some of the financials.
Thank you, Bengt, and good morning, everyone. Yes, as Bengt was saying, we feel it was a very solid quarter, and, if I go into page four, you'll see both net sales and EBIT, a couple of more details on that. I'll wait a little bit with sales. I'll go further into in the next chart. But on the underlying EBIT, SEK 107 million being generated in the quarter, relative to the SEK 81 million last year, is a, a nice improvement of 170 points, or a 32% improvement on, year-on-year. Also, EBIT margin going from 6.6%- 8.3%. The key contributor to this is actually in the gross margin.
So for those of you who have the chance to look at the financial statement, you're seeing that our gross margin went from 35.5%- 37.4%. That is 190 basis points improvement over year-on-year. And for that, we feel very comfortable about what we said before on full run rate on our efficiency savings and so forth. So it's really coming through, and for that, we feel very good. If we move down then to the operating profit, you see that it's slightly below the underlying EBIT, with about SEK 17 million. So the operating profit of SEK 90 million is a vast improvement to last year. There's absence of restructuring funds, of course, but we did have some restructuring in the quarter.
As we've already have announced in Italy, approximately SEK 14 million of costs that we took, and we are in negotiations still, but it's been quite a hectic quarter for the Italians in managing the redundancy of approximately 30 people in that quarter. Overall, the execution of that program is going very well, but it's a little bit too early to say that we have landed fully on this one. But approximately SEK 14 million of costs are exceptional in that respect. We also have a residual on a rollout of the Coop Pick & Mix, where we had some specific costs that we consider being extraordinary in the quarter, and we have also booked them on exceptional. So the total net number between underlying EBIT and operating profit is SEK 17 million adverse.
If we then move down, further down to the, by the way, on the operating profit, just one point there, that the gross margin is quite unaffected, and I'll come into that. When you look at the income statement, you see that selling expenses are quite much higher, relative to last year, and that is because we have booked the restructuring costs on the selling expenses, because it relates primarily to the commercial activities in Italy. So you won't see any distortion in gross margin there. And also, the fact that we have rolled out Coop Pick & Mix, we have merchandisers. For those who have seen the selling expenses goes up, that's also a contributing factor to the quarter, why they are actually increasing.
If we move further down on the P&L, the financial items are lower than last year's SEK 48 million versus SEK 50 million. But again, I would like to iterate that we have a table in the quarterly report where we are itemizing what are the actual cash outs on the finance nets, which relates to the borrowing we are having. That is approximately SEK 39 million in the quarter. The rest are various items where we have to book interest charges that are not cash out. And I can spend more time on those, specifically for those who want to know more about them, but we are itemizing them in the table, and they should give you a good indication of what it will look like, also on a go-forward basis. So for us, we think we have good information on that for you.
That yields profit before tax of SEK 42 million versus SEK 2 million last year. And if we take the corporate tax rate there of 22% for the Swedish unit, you can see that it's actually quite a little bit lower than that, at 21%. So a pretty normal quarter on the tax line, yielding SEK 33 million profit for the period, relative to -SEK 12 million last year. And we do have a positive earnings per share in the quarter now, of SEK 0.12 per share.
Then moving on to page five, if we look at net sales, very nice to see organic growth of 4%, of course, exacerbated by the fact that we have introduced the Coop Pick & Mix, but also overall, 4% is a nice number for us. It's perhaps important for me to mention that we have most of our business in our organic growth, but the Jelly Bean Factory was acquired last year in May month, so you will still see some effects of structural changes. We haven't bought any new companies. It is actually the comparator that is affecting it. The Jelly Bean Factory is going well, and the impact of that is 2.7% on the group top line, because there is no comparator from last year.
And the third part, changes in exchange rates, the euro has still strengthened versus last year. It's actually about 5.7%, and our share of euro sales is about 60%. So there you have the forex effect of 2.3%, sorry, 3.4% in the quarter. In total, 10.1% growth in the quarter. If we go to page six, you can also see it visibly depicted. Again, a very good visual on how we are delivering by quarter. As you can see on all three items, we are over-delivering versus prior year, both on sales, operating profit, and underlying EBIT. If I then move on to page seven, Bengt was mentioning a very strong cash flow in the quarter.
Yes, indeed, it's a very strong cash flow in the quarter. Even for me as a CFO, I was smiling on my way home when I got the news on this one. And perhaps it's almost a little bit too good. But I never say no to good cash flow. But we should perhaps remember two things that have happened in the quarter. The cash collection from our seasonal business in the fourth quarter are collected in the first quarter. So we traditionally have a very good cash flow in the first quarter. Our inventory has also actually come down, so we are having an additional impact of that. We are now starting to focus more on our inventory level, and that is yielding a good working capital impact on cash flow in combination with our strong EBIT or EBITDA.
So with those two together, it has a significant cash flow in the first quarter. But please be mindful about this number is a very strong delivery in the quarter. On page eight, again, here I can visualize it a bit more. You see the difference versus last year, that we have a strong cash flow from our results, SEK 66 million, and you can also see SEK 157 million positive cash flow from movement in working capital, yielding the SEK 223 million. The SEK 55 million CapEx, or investment in property, plant, and equipment, relative to last year, actually relates to the Coop Pick & Mix rollout, where we have invested in racks. So it's not an ongoing cost that you will see.
We are actually holding it quite firmly on the 3% of NSV, as we always said. You can also see that we haven't invested in any companies in this quarter, and therefore, last year you saw SEK 107 million. So a very nice delivery on free cash flow, SEK 168 million in total. This has also yielded that we, for the first time, actually have a revolver, which is completely unused. So it's tickling in the fingers on Bengt, but we will see what that will mean for us in the future.
Then the subsequent effect of a very strong cash flow, debt reduction, we amortized SEK 34 million this quarter, and also very strong profit delivery, has the steepness of the curve of the financial leverage, where we started at 4.55 last year, and we are now landing at 3.6x . So we feel very good about the cash generation that we did. And if we look at the continuous trend of this, it's getting closer to the target level that we had issued when we started our company once upon a time in February 2012. So all in all, financially feel solid quarter. And with that, I'll give over the word back to Bengt.
Thanks, Danko. I think that the rollout in the Coop, the Pick & Mix, deserves a little bit of additional attention. It's really easy to get lost in the big numbers. You're talking about SEK 200 million of sales and rebuilding 700 stores. But then when you start digging into the details, you understand what type of planning and execution goes into this. We're talking about approximately 3,000 pallets worth of racks. We're talking about 100 trucks that needs to be delivered in around Easter time, and we need to do the logistics of rebuilding 700 stores in seven or eight weeks.
One by one, planning it, getting the racks into place, getting 100+ SKUs into place at each store at the same time, taking out the old racks. So I think it's a remarkable feat by the team on the Coop side and on the Cloetta side of actually pulling it off, getting it all ready for the peak season at Easter, and also being able to execute during the Easter season with basically no history on the numbers. The previous supplier pulled out a little bit faster than was expected and planned, but together with Coop, we stepped up to the plate, and we managed to get it through. And I think this is a tremendous accomplishment by the team. If you go to the next page, hopefully everybody recognizes.
If not, there's always a Coop store close to you that you can go out and see this in real life, and we're proud with what, what's out there. We are still learning, so it's, I mean, we've just gone through a first quarter, so there is still learning to be done on the Pick & Mix business, and we're learning as we're going. So we will most likely trip once or twice as we go, but we feel good about where we are right now. Going forward, profitable growth. Restructuring is behind us, so now it's all about driving continued drive profitable growth. Accelerate Nutisal, the branded business of Nutisal. We still feel we're going in the right direction.
We have started the rollout, so we've launched in the traditional trade in Italy, for instance, and getting some listings in Holland and moving forward. Also, The Jelly Bean Factory continues to do well in the organic markets. Also there, rolling it out into Holland, beginning slowly but surely in Germany. But things are going extremely well with The Jelly Bean Factory. We're very happy with that acquisition. Raw material and currencies continues to be volatile. Everybody asks us what's the impact on average? The average is very interesting, but we need to stay on the detail level because this is SKU by SKU. As we've said, increases need to be passed on, and decreases need to be passed on.
And if we just do that on average without thinking about what the competitive situation is, we would end up at an average, which means that we'd be too too low in price versus some competitors in some segments and too high versus some competitors in other segments. So we need to go through the nitty-gritty, and this is always a painful process with an extremely consolidated retail trade. So we need to keep on focusing on this and keep on working on this. And then finally, as restructuring is done, we're moving forward into continuous improvement, and we're stepping up our efforts within lean day-to-day improvements in our supply chain.
It's all about continuing to make sure that we deliver on quality, on the service levels, but also going forward as we are focused on profitable growth, to actually release more capacity without having to invest in the CapEx, but actually releasing capacity by improving our efficiencies. Of course, we're staying active in the marketplace. I think there's some interesting launches are worthwhile to point out. On the left, I'm not sure I even am going to try to pronounce it, but the Tsinuskitoffee , which is a follow-up of the Hopeatoffee , which was extremely successful last year. I think the Läkerol DentaFresh, hopefully, you've seen it in store, but also maybe heard some advertising on radio.
This is actually the Läkerol Dent product that is being rolled out and launched in Sweden, and it's an extremely interesting product because it is in between of the gum. It has all the positive effects of gum, including the xylitol, which strengthen your teeth, but also the benefits of pastilles, that you don't have a gum in your mouth that you need to spit out. So it's an interesting combination. Paulig continues limited edition for Easter. Viva Lakrits continue to build the licorice concept. Once again, the product in the pack is just straight out of our Dutch assortment, but packed under the loved Malaco brand, so it works well. And Nutisal, I mentioned before in Italy, jelly beans in Holland, I mentioned before, and Läkerol Salty Caramel has been an extremely successful flavor launch in Kondisbil.
So hopefully, you get a sense of that we are staying active, not only internally, but also in the face of the consumer and in the hands and the mouths of the consumers. So with that, we leave the floor open for any questions.
Ladies and gentlemen, if you'd like to ask a question, please press zero one on your telephone keypad. Zero one. Our first question goes to Mr. Stefan Cederberg from SEB. Please, go ahead.
Yeah, good morning. Start with a question on inventory. I see that inventories are down 5% year-over-year, while sales increased 10%. Have you seen any negative impact from lower production, such as under absorption of fixed cost in the quarter?
Overall, as you recall, it's Danko here. Hi, last year we talked about absorption issues, and the fact that I haven't mentioned it this time is not only because we are having a good quarter and the gross margin is good. We have less of those issues. We are having more of our normalized production level, where our utilization and full run rate is actually coming through. So I wouldn't associate any absorption issues in this year, particularly unless we actually disclose it for you.
Okay. On the Coop Pick & Mix, what kind of revenue did you have from Coop in this quarter in Sweden?
Well, we're still sticking to the number that we have communicated, which is SEK 200 million for the full year, and we're not going to break it down by quarter because it's really bumpy up and down. It's really difficult to interpret because you have the peak for Easter, and then you have the slowdown Q2, and then you come towards Halloween and Christmas, so it's really bumpy. So we're sticking to. And quite honestly, we have a difficulty in relating to last year since we did not, we were not the supplier previously. So we are just sticking to and following plan, and we feel that the SEK 200 million is well within reach.
Okay. On the price impact, did you see a net positive price impact in the quarter versus last year?
Well, as you, as you know, we don't disclose between volume and price, but we do not have either way, positive or negative impact. The key contributor, and I can disclose that, of course, relates to volume in the quarter.
Okay. And on the Easter, I mean, Easter was a bit earlier this year, and I guess you have seen some positive impact on volume from a bit earlier Easter. Is that true?
Very marginal, except for the Pick & Mix, which is the new increment, because before we did not have a big peak on Easter. We're not really active on the Easter egg side and then on the novelties. We're much more active on sort of the year-round business. So yes, there's probably some, but not really material, but the big bump is actually the Pick & Mix.
Okay, thank you.
Our next question comes from Mr. Mikael Holm from Danske. Please go ahead.
Hi. I have a question regarding organic growth. You mentioned the SEK 200 million from Coop, but you also said earlier that you expected Nutisal to contribute SEK 50 million to net sales growth going forward. Is that still valid? So we basically could have SEK 250 million as a base case, excluding any growth in the other parts of the business. Is that correct?
Well, as you know, Mikael, good morning. We don't do forward-looking statements. We feel good about the SEK 200 million. I think that regarding the SEK 50 million, I think we've been clear that we have lost the private label business faster than we thought. We are happy with the branded business. Whether that's going to add up, totally to SEK 50 million this year, I don't know at this point in time. It's too early. We're beginning the rollout. As you heard, we're launching in Italy. There's a little bit of a launch in, beginning also in, in Holland. We are growing the branded business in Sweden and in Finland and in Denmark.
So, we feel, still we feel good about getting to the EPS accretive in 2015, and whether that's going to be based on exactly SEK 50 million, slightly more, slightly less on the top line, I don't know at this point in time.
Okay. And regarding the restructuring in Italy, what kind of savings do you expect from this, and when will it have a full impact on the numbers?
Hi, Mikael, it's Danko here. Again, the restructuring that we're doing in Italy is related to indirect, and it's related to people. So what tends to happen when you do that is that you have fast saving realizations with the fact that people are leaving, but we haven't actually itemized what the total will be on a full year basis. But as we said, we have taken a cost of approximately SEK 14 million in the quarter. That is the impact that we have as a one-off, and that's the information I can give for now, for now.
We also said it impacts about 30 people.
Yeah.
Okay. Thank you.
Our next question comes from Mr. Fredrik Villard from Carnegie. Please go ahead.
Hi, good morning. Two questions, one relating to Danko's comment of itching in bank's fingers, I mean, acquisitions. You've done some successful ones, if you could comment, have prices come up given the environment that we're in, or, I mean, given the situation, if you compare it to a year ago? I know you're not going to say anything about any forward-looking statement, but just comparing now to what it was a year ago, how would you—how is the market for acquisitions, would you say?
Well, I think, I mean, we still believe that there are interesting opportunities out there. When and if we get into sort of specific pricing discussions, we will get to it. I think what we are experiencing is that based on the fact that we were active in the marketplace last year, we are seeing much more incoming ideas and opportunities. So it is less of having to go out and look, it's much more incoming, which means that Johnny and the business development people are active in evaluating. Then at the end of the day, we need to find something that is on strategy, on the pillars that we talked about, within the Munchy Moments, impulse, branded, and all the things we talked about.
Once it's there, then we need to sit down and see if we can negotiate a deal that we believe is value-enhancing to our shareholders. There are very specific cases, so I cannot really comment on whether pricing has gone up and down or down, because I don't have a really good time series, because it's very bumpy, and it's very unique situations every time that we go into this.
Okay, perfect. Thanks. And I mean, follow-up, we've seen the sugar price in the EU coming down. And if you could just comment on how you said any sort of any increase in raw materials must be carried by the end customer at some point, and any decrease, the raw materials is gonna benefit the end customer. When, I mean, when is your next round of price negotiations with the large retailers? Because they must be looking at this situation as well. So, are you gonna have an overlap of sort of is the, is it the same my question is, is it the same sort of push through, sort of time period when you saw, you've seen it raise prices, and now you're gonna probably lower prices to meet the sugar price? Is it the same time frame, or are they more sort of willing to do? Does this go faster when prices go down, basically?
Well, it's our ambition that it should not be, right? I mean, now the game changes. We feel a little bit disappointed that the papers are writing about the fact that sugar prices are coming down, because as you say, everybody knows that. So the price negotiation, it varies by market, so it's pretty much ongoing. Some market it is three times a year, some market is once a year by customer, different times, and some markets is basically twice a year. So it is ongoing. But I think it's a fair assumption that, I mean, the timeline, because we are working on specific windows, is fairly similar, regardless, it goes up and down or down.
Also, again, I mean, people are focused on sugar coming down, but cocoa is remaining at an extremely high level, nuts is at a record high, and also the U.S. dollar and the euro versus the Swedish krona is not helping us either. So in totality, the impact is not really big, but it's very big variations and fluctuations on product-by-product level.
Okay, perfect. Thanks. I just have one more question, and I'll let you go. Norway, you're not worried about the contract that you lost. I mean, and you're sleeping well at night, despite this, right?
No, I mean, it's not a lost contract. It's more sort of leaning a bit heavier on us while we're negotiating. That's unfortunately how it works in a very consolidated trade. At the end of the day, we have very, very strong brands, so I'm sure that the retailer wants to make sure that his consumers can buy our strong brands in his stores as well. So I'm sure it will work itself out as we go forward.
Perfect. Thanks.
A reminder to press zero one if you'd like to ask a question. Our next question comes from Mr. Erik Sandstedt from Handelsbanken. Please go ahead. Mr. Erik Sandstedt, please go ahead.
Yeah. Thank you. Hi there, Erik here, well done. I've got a few more nitty-gritty questions, actually. Firstly, if we start off with net financial expenses, I know you're not gonna give any guidance, and I know it's difficult to sort of have any visibility on the non-cash charges here, but those have created some volatility in the past few quarters, meaning that we have sort of had too low financial expenses in our models. Could you help us out a little bit here to give any kind of indications how we should think about these over the coming quarters?
Yes. Hi, Erik, Danko here. I recognize that there were some questions regarding this, and then I think it was three quarters ago, we started to introduce this table that you can see in the quarterly report on page seven. I think one key point is to look at interest expenses on third-party borrowing. That is the effective interest that we are p aying and extrapolating that on, it's not you could extrapolate it, if you would like to do that. In this specific quarter, we had some extra charges on, which is unusual for us, but the fact that the interest rate is becoming negative, it is incredibly important now for and not only us, I think many companies to manage cash positions in a better way. And please make sure I'm going to talk to your colleagues at Handelsbanken about that. The fact that you have to pay for a surplus position and a negative position makes the cash pooling and the cash management very relevant, and I'm sure one or two other companies have experienced that as well.
So, I would say that some of the excess that you see in the third-party borrowing line versus last year relates to the fact that we are not optimizing our cash surplus positions because we get no interest on that at all, and in some parts, you actually have to pay for it. So this is a focus area for us, but it's a, it's a good extrapolation to look at that on a full year basis.
Yeah.
Yeah.
No, that's great. But if we exclude interest rates here for a moment, because that's relatively easy to sort of c alculate those non-cash charges and the other type of expenses that you have. Will they always be negative, if you like? Or, because you do have some FX-related impacts on interest rate swaps, which of course could go in both ways. But would it be too, let's say one would model those flat going forward and only model the interest rate payments, then we would probably end up with too low financial expenses, I would have thought.
Yeah. No, you're absolutely right. So if I just make it as simple as I can for you, if you look at the earn-out liabilities, it's fairly constant until we don't have any earn-out anymore. So if you consider the fact that we are paying out an earn-out next year, it will reduce itself. This is a non-cash IFRS charge, where you have to discount the earn-out with a discount rate and book it in the finance net. So see that as a constant going forward. The amortization of capitalized transaction costs has already been paid when we set up the credit facility. It's fairly constant over the lifetime of the credit facility arrangements, so that is also an extrapolation.
You are absolutely right that currency interest swaps are moving up and down, and I cannot predict the impact of that because we have to make fair value assessment in line with the IFRS. So that will move. It's relatively low, but it will be an unpredictable item. Other financial expenses are inefficiencies that we are working on and trying to improve as much as we can. But in there, there is a pension charge as well, which is non-cash related, about half of it, and that pension charge is also a reflection of liabilities, which essentially means a reflection that is fairly static . But again, it's actually not something we are paying out from a cash point of view.
Yeah, perfect.
Maybe that will help for you.
No, that will help a lot. I mean, it seems, I'm not gonna ask any more questions on that line, but it seems the, the what you're running at in this quarter is probably a pretty good proxy for, for the coming quarters as well, then, at around sort of SEK 45 million-SEK 50 million, perhaps. I'm gonna leave that for now. A couple of other more nitty-gritty questions. I'm wondering, in terms of profitability in the Nutisal business, could you comment a bit more on that and how that's running versus budget?
Well, I mean, the Nutisal business, we're still sticking to the statement that we gave when we acquired it. The ambition is to make it EPS accretive in 2015, and we're sticking to that. It's no secret, I mean, I told you, nut prices are going the wrong direction, and the dollar, because you buy nuts in dollars, is going the wrong direction. We're staying active in the marketplace, and we still believe that we will get to the EPS accretive this year.
Yeah. Perfect. And then, Danko, I know you elaborated quite a lot on the strong cash flow in the quarter. Still just trying to get a feeling for how much of that we should view as, call it, extraordinary items, in the sense that you have generated a lot of cash here in Q1. Bearing of course in mind that Q1 is, as you mentioned, a seasonally strong quarter.
That's a tricky question, Erik. I'm very happy to see the cash flow, of course. You saw last year when we showed the visual charts. I think that's a good depiction if you take the average of that. But I don't really want to give you an indication p erhaps the first best thing to look at is the cash conversion ratio.
You saw that we had a little bit more of our CapEx this quarter because of the racks that we were investing in Coop Pick & Mix. We should go over 70%, up towards 80%. That is a good indicator for cash generation in the company. We are more and more coming into a normalized pattern on our cash flow delivery and our working capital movement. And even though I really think it's a fantastic delivery on cash, I think we just have to be mindful about if you are extrapolating this and thinking that you will get SEK 1 billion cash flow in the year, I think we are all a bit too optimistic on that one.
Yeah, makes sense. Then finally, not sure if you mentioned it, and I apologize if you did, but do you foresee any more non-recurring expenses for the Pick & Mix business in the coming quarters?
No.
No, we do not.
Perfect. Thank you.
A reminder that if you'd like to ask a question, please press zero one on your telephone keypad. We have no questions on the telephone.
Okay, thank you very much for listening, and speak to you next quarter. Have a good day. Thank you and goodbye.