Good morning and welcome to Cloetta Conference Call. My name is Jacob Broberg, head of investor relations, and I have Bengt Baron, CEO, and Danko Maras, CFO, here with me. So I will leave the floor or the phone to Bengt. Please go ahead.
Thanks, Jacob. Good morning, everybody. Good to have you on the phones around, and we are quite pleased with being able to release our Q4 report. Diving straight into the highlights, I would like to say overall, we are, as I said, quite pleased with the quarter. All key indicators, as far as we can tell, are going in the right direction, starting from the top with the net sales, where we ended up at SEK 1.4 billion sales, which is a 2.6% growth versus last year. Organically is 1.6%, and then we have the help of the foreign exchange of about 1 percentage point. That follows a Q3 of 1.4% organic growth, so it's going in the right direction.
Could also make a comment there that, we have, as we said before, there's some contract manufacturing in there which has been reduced because we lost contracts early in the year. And in fact, if you would take out the negative effect of the reduced contract manufacturing, our growth in the quarter would have been 3.9%, including the FX, organically 2.9%. Our underlying EBIT continues to strengthen, ended up at SEK 231 million, which is about 16%, 16.1% margin, which is, stronger than last year. Items affecting comparability are coming down, as we've said. Danko will talk more about this. And our operating profit, more than doubled versus last year. Cash flows of above SEK 100 million. Danko will go through this later as well. Factory restructurings proceeding according to plan. In fact, we're slightly ahead.
We've all along said that Gävle should be closed during Q1 2014, and we actually closed it down on December 31st, 2013. I'll give you a couple of more highlights in a couple of minutes. We continue to amortize our debt in accordance with our plan, SEK 68 million, and we are continuing our deleveraging, so we're down to 4.2x net debt to underlying EBITDA. Also, I'll come back to it a bit later, but we did complete the acquisition of Alrifai Nutisal on January 8, as anticipated. Looking closer on sales for the quarter, we can say that in Italy, it continues to stabilize. In fact, we had growth in Italy versus the year before for the third quarter in a row. That does not mean that we are totally relaxed.
It's still sort of quite shaky down there, and there are also political developments, as you probably saw yesterday. But we are pleased with at least being able to drive growth. Finland is a little bit up and down during the year, but the market continued a positive growth, and we had a strong performance there as well. Holland continues, in general, to be quite healthy, but the chewing gum market, where we are market leader, is showing headwind, and it's actually contracting and has been doing so for the full year. Looking to our biggest market, Sweden, solid performance, very strong development within chocolate, which is quite pleasing after having brought the two companies together.
In Finland, as I mentioned, we had a few a couple of really good launches and a fantastic launch of Hopea Toffee, which was sort of a bring back of an old traditional product, and it has sold beyond our expectations. In Norway, we experienced less sales, but that was primarily driven by the discontinuation of a third-party brand. Overall, 2.6% growth, excluding contract manufacturing, 3.9% growth in the quarter. With that, I will hand over to Danko.
Thank you very much, Bengt, and good morning, everyone. So continuing a little bit on the growth numbers that you've seen, the 2.6%, we explained there on page 4. The split we have on the 1.6% organic growth, having then the tailwind from the euro strengthening. Please remember that we continue to have a large share of our sales in euro, and the euro has strengthened a bit. And therefore, you see this benefit coming through in the exchange rate. But perhaps going down to the profit line, you can see that our underlying EBIT at SEK 231 million means an EBIT margin of 16.1%. And last year, we had it up to about 14.6%. So we continue to strive to our financial target, which means that we would be at least 14% on a full-year basis, but it's a positive sign that we continue to drive the underlying profitability.
Perhaps even more on the operating profit level, if you look there, you see that we have SEK 175 million versus SEK 82 million last year. And clearly, we are getting benefits coming through on our underlying profitability improvements, but we also have lesser exceptionals that Bengt was just referring to. And that, of course, is converging the underlying EBIT and the operating EBIT in a positive way. So the operating profit is currently at 12.1%. Going further down and looking at the period, profits for the period is SEK 186 million, and that's higher than the operating profit, which means that we are having a tax credit above one-off nature. I'll come more into that when I talk a little bit on the full-year numbers.
So a reflection, if you go over to page five, you can then see that, if we just summarize the full year, it actually yields a full-year growth of 0.7% on a total basis, 4.893. Our underlying EBIT is SEK 591 million. That represents a 12% EBIT margin on a full-year basis, coming back to what I just mentioned about our financial strategy, but an improvement from 8.7% in 2012, or 168 million SEK. On operating profit level, you can see SEK 418 million generated in the year with a margin of 8.5%. So we still have work to do. However, compared to last year, that improvement is about SEK 293 million.
Of course, when we move down to profit before tax, SEK 210 million, but also taking a one-off tax credit that we had in the fourth quarter, we have a profit for the period of SEK 264 million, where in the previous year, you're all aware, we had a negative result of SEK 73 million, and that difference is about SEK 337 million in the year. Different reason for the tax credit, but we are assessing our different positions and the different earning streams. Some of the benefits you can see from actually corporate tax rates going down in Europe as countries are competing a little bit about businesses, we are, of course, also benefiting from that. Overall, we feel good about the fact that we have come up to a profit level for 2013 at SEK 264 million.
That represents an earnings per share, basic and diluted, of SEK 0.92 per share. If I were to just give a reference to what we see as an underlying EBIT, the SEK 591, and then do the calculations on a full-year basis what that means, our earnings per share adjusted would be SEK 1.50. And of course, we are striving to converge more and more the operating results and the underlying EBIT, and we are clear on our communications towards driving the underlying EBIT margin to the financial strategy set of 14%. So with that, I go over to page 6, and it's just a visual.
Here I can just confirm what we have perhaps talked about a few times, that the trend of how our composition of the EBIT is per quarter, but also if you look at the first half of the year, you see quite significant improvements versus the prior year of 2012, but also in Q3 and Q4, but to a lesser degree considering that we're coming into the prior year comparables of the realization of those savings that have started to materialize. If we then move page to page seven, and you can there see that our cash flow for the period from operating activities was SEK 116 million. Of course, very strong cash flow from our operating business. As you can see, we are generating more profit from there, still having a negative working capital.
We are building up inventory, as you know, for the seasonal business in Italy, which has really nothing to do with our manufacturing strategy, just to build it up and then collecting the cash in the first quarter. So this, this positioning that we are having in the, in the end of 2013, we feel is a good position, going in position for 2014. On the CapEx side, you can see the comparator versus prior year that we had SEK 61 million investments done versus SEK 116 million last year. So you can clearly see a down tapering of, our investment intensity and also the lesser restructuring, meaning that we are converging more to normal conditions. Total cash flow from the period is SEK 55 million if you include investing activities as well.
Perhaps one more point, the net debt EBITDA, as you remember when we launched our bond in September, we had 4.7 times net debt EBITDA. The comparator you see is prior year, but it was 4.7. It went down to 4.4 in Q3, and now we are at 4.2. Of course, it's the increase of our EBITDA that is helping a lot, but focus will continue to be on working capital for 2014. With that, I give back the word to Bengt and,
Yes, thank you. Yes, an update on two important initiatives of slightly divergent character. First of all, acquisition of Nutisal, which is totally in line with our ambition to broaden our consumer offering within the Munchy moments. Also, as we said, as we start generating more and more cash, it's going to be focused on paying down debt, but also have the flexibility to make tactical and strategically value-driving acquisitions. We feel Nutisal is one of those. We concluded the deal on January 8 of this year. We feel this is a significant step, also materializing our vision and mission of getting into Munchy moments within our home markets. It is a growing segment. We all know that confectionery is fairly mature, growing around 1%-2%. Nut segment is growing much faster by 5%-8% in our home markets.
On top of that, we feel that Nutisal should be able to benefit as a brand from using our strong route to market in our core geographies. And just an update on that, the ambition is actually to take it on within the existing sales force in the Swedish market, which by far is the biggest Nutisal market today, by April 1 of this year. And we will actually also take it over from external distributors in the Nordic markets. First out will be Finland, where we will actually launch it in the marketplace during the first quarter of this year. Also just reminding, we've talked about SEK 200 million turnover, and we've talked about this being able to drive about one percentage point of growth in the coming three to five years.
Integration is underway, as I mentioned, and, so far, we feel that everything is, going according to plan, and we're excited about seeing, the developments going forward. Moving to the other program that I have updated you on over the past two years, it is the, manufacturing restructuring program, and we are, approaching the end of it. In fact, we closed, Gävle at the year-end of 2013. We are ramping up production in Ljungsbro and in Levice. It will take a couple of months to trim everything and make sure that we get up to full speed. For those of you who have been in our factories, you realize that, things are moving quite fast, and there's not a lot of room for error. So it is a little bit of a tinkering and fixing before everything's at full speed, but, we feel we're going the right direction.
In Gävle, there remains a very small workforce in cleaning out the property, and also we're refurbishing a packaging line that is to be moved down to Levice during the first quarter, to take on the packing of Läkerol. We are still sticking with what we said all along, that we should be able to realize the full savings towards the end of 2014. Another major event in Gävle is, of course, attempting to sell the property, and that is a process underway, and it's too early to tell about the timing and the valuation of it, but it is work underway. Then the final step is the Tupla insourcing. Tupla is a leading bar in Finland. We are insourcing it, and it is expected to be done in Ljungsbro by Q3, so major efforts in Q2 and Q3.
Everything is according to plan to date. I was actually down in Ljungsbro a couple of months, a couple of weeks ago and saw some moving parts and some matching attempts. So I feel good about the activity levels in Ljungsbro on Tupla. So summing up, focus is on profitable growth. We had the second quarter of organic growth. We are driving our key indicators in the right direction, so we feel we are heading towards profitable growth. We are not done yet with the restructuring. We are going to finish off the Gävle, selling the property, and closing down, moving the packing line, and insourcing Tupla. And we're putting plenty of tension on the integration and the acceleration of sales of Nutisal. So, those will be in focus in the coming months. Finally, we're staying active in the marketplace on products.
I don't think anybody missed Juleskum who lives in Sweden. Juleskum Knäck, fantastic product. I hope you've all enjoyed it. We continue to develop our dominant market position when it comes to the absolute best Juleskum in the marketplace. Finland, a couple of line extensions, and I mentioned also Hopea Toffee, which was a hugely successful product. In the Netherlands, under the Red Band, Sweet'n Pure. In fact, that is an example of rolling out existing products from other markets. It is identical to the Dietorelle. We've been quite successful in Italy, the Dietorelle products, with stevia and all natural ingredients. Also, Dietor, new products. And in the rest of the world, we continue to roll out in spots, existing products. So we're staying active, and we feel that we are going in the right direction.
Overall, we feel good about the fourth quarter, and we are thereby open for any questions.
Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. That's 01 to ask a question. Our first question comes from Mr. Peter Wallin from Handelsbanken. Please go ahead, sir.
Thank you, and good morning, and well, congrats to a good report. I would like to start off with the organic growth and if you could get some color on you're saying you've now seen three consecutive quarters with sales growth in Italy, and we all know that last year's Q4 was very weak in Italy. So, I mean, could you try to put, like, this year's sales growth in Italy in perspective in terms of what would be a normal Q4? Are we there already now, or if you would look two years back, are we still behind with what could be considered as a normal sales in Italy?
Morning, Peter. As you as you rightfully remember, we had a very tough fourth quarter last year. I think it was -7% or so that we that we announced. It has stabilized, but it's not growing rapidly. So even though we have had growth three consecutive quarters, we are not back to where we were two years ago. But what we're saying is it is stabilizing and is going in, in, in the right direction. So it's a couple of percentage points growth in the quarter. So yes, we're going the right direction. No, we're not there yet.
Okay, great. Thank you. And then, I'd like to continue there with this conjugation of the third-party brand in Norway. Is it possible to give some kind of estimate of that effect, in terms of your reported sales?
The straightforward answer is no. No, it has a real impact, and it will have, I mean, in comparators for a period of time, but I mean, it will ebb out. So our focus is on driving and turning around Norway to show profitable numbers and black numbers going forward, but we haven't specified specifically on that.
Okay. Great. Thank you. Then I would like to return to the cash flow and the net working capital, where you're saying that it's a very normal seasonal pattern to see receivables going up after strong seasonal sales like these recovering seasonal sales in Italy. But I think that you also have payables going down, but I understand that last year you had unusually high payables. So, the level of payables and net working capital in Q4 this year, should we see that as a normal level of payables, or has, like, your agreement terms for paying changed something?
Well, good morning, Peter. Is that clear? I think, first of all, I think the observation is absolutely right. Last year, we had an unusually high number of payables. Because of the CapEx that you could see in the cash flow report that I alluded to before, we had a lot of payables also being part of the manufacturing strategy. So that is not really the normal, underlying payables position. Without being too specific about it, we also went live on first of January here in Finland with our new business system, and one or two of those payables which we normally would have, we actually made sure that we didn't have any risks in doing that going live.
But it would be fair to say that the going-in position we are having on working capital today is the one I feel confident about, and generating efficiencies out of working capital is precisely what we will do in 2014.
Okay. And then, one final question of mine, for now, would be about, well, assuming that everything works out according to plan in terms of the remaining and restructuring of supply chain, how quickly do you think that you can start to work yourself down towards your long-term target in terms of net working capital in relation to sales?
I think first of all, as Bengt was saying, we closed the factory now in the beginning of January. There's still a lot of work to do to make sure that the flows are working in the right way. So when we start focusing on working capital, it's more likely to be a second-half activity rather than a first-half activity. And as we go along and become more normalized and focus on profitable growth only, the key focus for supply chain, of course, will become a continuous improvement process. So think of it as a full force in second-half of 2014 without being too specific, and then in 2015, it's all hands on deck.
Okay, great. Thank you, guys.
Our next question comes from Mr. Mikael Holm from Danske Bank. Please go ahead, sir.
Yeah, hello. First of all, could you give some update on input costs? It seems like the sugar prices are declining within the EU while cocoa prices are on the rise. What do you see in your negotiations for 2014?
Morning, Mikael. If you're right, there has been some easing of the sugar price within the EU, still remaining at a very high level historically, but there are some easing. At the same time, cocoa's gone through the roof. So, we are still sort of being quite challenged on the input costs, but we feel that it has stabilized, and if anything, it should be slightly easing going forward. Also, we do a lot of forward buying, as we said, between six and nine months on many of these categories. So whatever effects there are, it will be a while before they show up. And at the same time, we have strong retailers that don't want to wait.
There are some interesting negotiations going on on that part, but we feel that at least it's going overall slowly in our favor, but nothing dramatic as some are up and some are down.
And just on the underlying gross margin in the quarter, it I think it's improved by, like, 50 basis points year-over-year. Is this an effect of price mix, or is it savings that is coming through in the gross margin?
I think the materialization of the manufacturing strategy is coming through mostly in the fact that we are realizing lesser costs in the cost method. And as you say, the underlying gross margin, which we're not communicating. We are focusing on the underlying EBIT margin. We drive all the cost elements in the P&L, but the fact is that the realization of our savings program from the manufacturing strategy is the key contributor. Price initiatives was very heavy in 2012, if you remember, and we are just seeing residual effects of that coming through in 2013.
Yeah. And could I also have a clarification on what you said on the working capital? Do you have a specific target there which you have communicated, or is that just an internal one?
We have mentioned benchmark levels of about 10% of NSV. I don't think that is a slam dunk if I can use that expression. You know, we are not the players like the big Unilevers and Procter & Gambles and Unilever who can even drive it to negative working capital. Even smaller players are doing that, but I think we have to have an economic way of looking at it, and currently, we are at 13%-14%. So I think that is a step we will start working towards initially, and then we'll see where we can if we can go further.
That's what is that then what you indicated will be focus in the second half of this year then, basically?
Yeah. Yeah. And perhaps having a full run rate of all of these activities in 2015.
Okay. Perfect. Thanks.
Our next question comes from Ms. Olya Krotchkina from Deutsche Bank. Please go ahead.
Good morning. I have a couple of questions. First, your gross profit margin seems to be lower in the last quarter of the year, and this was also the case in 2012. What is it driven by? And my question is on the underlying EBIT margin. It was 16% in Q4, and how much of this is related to higher sales because of the festive season in Q4? And if you strip this out, what would the margin be? And going forward, what underlying EBIT margin we should assume for 2014? Thank you.
Thank you. I'm starting out on the gross margin for the quarter being lower than the for the full year. That is pure mix effects between categories and between markets. As you see, I mean, we have a significant seasonality on our sales, and it's biggest in Q4, and that also changes the mix. However, compared to the year before, it is a 100 basis points improvement on the gross margin.
Should we always expect a lower gross profit in Q4?
Excuse me?
Should we always expect lower gross profit margin in Q4?
I think that will be for the foreseeable future. It will be lower, but of course, we are attempting to improve it year on year.
Mm-hmm.
Can you just repeat the second question that you had on the underlying EBIT margin for Q4? You said 16.1%, and you wanted us to exclude something to say under?
Yes.
Can you refer again to the question?
Sorry, sorry. You said it was related to higher sales, so as well as emerging synergies. But excluding higher sales, what would the EBIT margin be?
Well, I think our focus lies in ensuring that we are driving towards the 14% EBIT margin on a full-year basis and then incrementally per quarter, making sure that we are driving the underlying EBIT margin better as well. There are many components, as I said. We don't give you an underlying gross margin. We talk only about what the gross profit is or what the gross margin is as an outcome, and instead, we only refer to the underlying EBIT margin. We work on all the cost elements.
We invest in our brands, but we also work on our indirects as much as our cost of goods, and we feel that it's more beneficial to hold it to that level and not go into details and then perhaps having a long discussion about why there is a deviation in one way or the other when the total actually is going in the right direction.
Going forward, our ambition is to converge underlying and reported, so it should be a non-issue, going into 2016, 2017.
All right. Thank you so much.
Our next question comes from Mr. Fredrik Villard from Carnegie. Please go ahead, sir.
Hi. Good morning. I was wondering, the book value of the real estate in Gävle, it's how big is that?
Good morning. You're muted. We are in the middle of negotiating, and we have a lot of interesting discussions at the moment. And even if it's a public number, I prefer not to quote it at the moment. So for those who are very, very curious, give me a call. But in fact, I think we have some interesting negotiations going on at the moment, and I would like to give the team all the rest they can have from us and then making sure that we sell that for a good price.
Okay. I'll call you later then. I have three more questions. I was just wondering, you're above your net debt target, but you've done a notable, an interesting acquisition. Do you feel that your net debt target doesn't restrict you in terms of acquisitions going forward, or does it in your view?
Well, I mean, we will always, as management, bring forward interesting M&A opportunities to the shareholders. And at the end of the day, it's up to the shareholders to balance whether they think it's adding too much risk or not. In this case, notice all, everybody felt that it was strategically correct. It was value driving, and therefore, we got the full support on doing that. We have an ambition to go towards the 2.5, as we said in our financial targets. Quite honestly, we're quite comfortable from a cash flow point of view where we are today, so therefore, we will continue to look for opportunities and continue to put them forward to the shareholders.
Okay. Thanks. And also, I mean, second to final question, how if could please remind us how much of is contract manufacturing right now? Perhaps I missed it in the beginning of the presentation, but is it a significant part of sales, or can you just a number if you're willing to give that?
It's a minor. It's really a minor, and I mean, as we also this year, as we're dropping it rapidly, so it's in the low single-digit % of total.
Okay. So going forward, if there's sort of, we can't expect the difference between sort of ramping down those type of contracts. We can expect it not to have the same impact that it did in this quarter, for example, going forward?
It should converge. I mean, we are asymptotically moving downwards.
Okay. Thanks. And the final questions. I know we've touched it lightly, previously and during the call, and we've touched it during previous calls in history also. Are you gonna give us a split on segments, in any way, shape, or form that you like? I know you don't wanna give geographies, but could we perhaps see it in terms of sugar confectionery, chocolate confectionery, and gums, or pasta going forward? Is that something we can hope that will come in 2015 or 2014?
I think we're doing that once a year in the annual report at the level that you just described, and we're not.
I was wondering if you're willing to give it on a quarterly basis.
Right now, we feel good about the periodicity that we're doing it. I mean, if there is reason to, I mean, as you know, I mean, we've been at this for two years, so I mean, we're learning as we're going. As we go forward, we will continuously evaluate, do we feel that we are sort of exchanging in a very constructive, productive way between analysts and ourselves and the outside world and ourselves. If we feel that that can be improved to the mutual benefit of both parties, we will improve. So, point noted. Let us come back, but don't expect too many more details in the near future.
Very diplomatic answer. Thanks.
I remind you, if you have a question for the speakers, you will have to press 01 on your telephone keypad. That's 01 to ask a question. There are no further questions on the telephone at this time. Please go ahead, speakers.
Great. Thank you very much for listening in and asking questions. Thank you for today, and speak to you later. Thank you, and goodbye.