Cloetta AB (publ) (CLA-B.ST) Q3 2026 Earnings Call Transcript

Laura Lindholm: A very warm welcome and thank you for joining Cloetta's Q3 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 questions through the chat. It's already possible to add questions in the chat. Over to you, Katarina.

Katarina Tell: Thank you, Laura. Today, I'm proud to present another very strong quarter. We executed fully in line with our strategy and we also continued to deliver against all 4 of our long-term financial targets. Today, we also share an important milestone related to our midterm and long-term profitability target. But 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'll 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. So our vision is to be the winning confectionery company, inspiring a more joyful world. This isn't just a statement on a slide. It's what drives us every day. It means doing great work, continue 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 5 core markets and that's 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 our 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 3 markets with particular strong potential; it's 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 and offer products that meet their needs. We also look at acquisition opportunities when it fits our strategy and creates value. But it's 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 organization filled with energy, passion and joy. So 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 to 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. And 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 2 things; it's about creating a winning portfolio and expanding distribution. This is done in 3 markets; it's 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 opening 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 strengthening our market presence. Looking ahead, we will have 5 CandyKing pilots running across 3 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 allow. 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 will 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 Spinked 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 experience 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. And now 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'm 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 3 strategic priorities. We launched Sprinkled Foamies, expanded Ahlgrens bilar in Target in the U.S. and we are on track to have 5 CandyKing pilots in Germany both 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. So 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.

Frans Rydén: Thank you, Katarina. So I'm 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 and there's 4 points that I want to call out. The first one is continued strong volume growth. And 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've 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 and you'll actually see some of the effects of that in a later chart. That's number one. Number two is the strength of our fair pricing policy. So our strong profitability uplift these years have been underpinned by our fair pricing where both our consumers and our customers win with us. So 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 or cocoa earlier this year. So obviously our prices do not change the same across categories and markets as the change depends both on which commodities goes into product and when the last change of pricing happened on that product. But nonetheless, the net sales growth we are reporting is net of such price changes and the underlying volume growth, therefore, clearly higher. And this means again that 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 a 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. And then 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. So this is not a watered-down margin step-up. So key takeaway is that continued focus on investing in our brands accompanied by our fair pricing policy means we're able to deliver stable organic volume-driven top line growth at improved margins. Now I'll come back to the profit, but just first the net sales figures. So 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. Then the Branded packaged segment grew 1.8% and year-to-date 2.8% and Pick & mix grew 3.4% with a year-to-date of 4.3%. So organic volume-driven growth for the quarter and year-to-date across both segments while at the same time, we will continue to step up on what we're 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. Now 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 have limited, let's say, real effect on our financials. Then moving to the regular page showing the segments over time. I think I pretty much covered this already 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 segment on the top; with the exception for 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. Now 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 4 would also be affected by 2 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. And 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 2 incidents will have a limited and temporary effect on our sales in quarter 4, but didn't in quarter 3. 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 2 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 2 and that is that the investments will span across both quarter 3 and in quarter 4. 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 midyear 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. So 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. Now on the mix side, I can also add that with the strong volume-driven growth, we are even stronger in our Superbrands. And between categories, we're also doing really well in both pastilles and gum segments, which we have shared before that we've spent a lot of time and effort on. We had a novelty Lakerol MORE launch and we took Mintec shipment into new markets, et cetera. So 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've 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's still a bit shy of the exceptional first half of the year, but it's an improvement versus last year and it's a step closer to the 15-plus percent prepandemic margin levels that we used to generate in the Branded packaged segment. Then for Pick & mix on the lower half, we do another strong quarter and it's well within our targeted range of 7% to 9% of margin in Pick & mix. And as we've 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. So we're also pleased to be in line with that range. Then moving to SG&A, looking then at the sales, general and admin costs. So in the quarter, you do see the investments I mentioned both for the geographic expansion and the support of the Superbrands, including the launches Katarina shared. But you then also have to remember that that is an increased cost net of the carryover savings from the reorganization last year. So it is a significant amount just as we flagged for in Q2. And year-to-date, the change last year is obviously primarily driven by the absence of repeating last year's provisions for that restructuring. But if you ignore that and you 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 focused time and money behind arguably the broadest portfolio of iconic brands in Northern Europe. Moving then on to the free cash flow. In quarter 3, we generated SEK 260 million in free cash flow on SEK 283 million in operating profit. So we're pleased with that. Now 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. So if you compare year-to-date this year to year-to-date last year, then the free cash flows are quite similar and the variance is largely accounted for by the fact that we've invested more in CapEx this year. And that CapEx in the quarter, which is SEK 51 million, is the highest we've had in the last 2 years. So 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 5-year period ending 2030 and that will start to be visible in 2027. That said, the CapEx that we're spending now in 2026 is part of the total expected CapEx and is part of the implementation of the plans that we have. And then that takes me to my last slide on financial position and if we start with the leverage. We closed the quarter with a net debt over EBITDA of 0.7x so well below our target for the leverage to be below 1.5x. It's reduced by 0.4x versus last year and this is of course driven both by the strong cash flow and the improved earnings. 0.7x is pretty close to the lowest ever. Lowest ever was actually in quarter 1 this year at 0.6x. But then of course since then, we've also paid our increased dividend in quarter 2 and 0.7x is the lowest we've been for a quarter 3. Now our net debt is also one of the lowest ever at SEK 1 billion. And in the end, we have plenty of access to additional unutilized credit facilities and commercial paper, which together with cash on hand totaled SEK 3 billion. So 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. And on that note, I conclude that our financial position developing in line with our set targets remains very strong. And I hand back to you, Laura.

Laura Lindholm: 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. And George, I think we already have questions from the telephone lines. Is that correct?

Operator: [Operator Instructions] Our first question comes from Lund Anton with SB1 Markets.

Anton Lund: Well, congrats to a solid report. I'm 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?

Frans Rydén: It's 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 in average. And that trend certainly hasn't been diminished with this stronger focus. So it's an accretive effort, but disclosing it is not something that we're really doing right now.

Anton Lund: Got it. And then 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 '27 or is it a temporary peak tied to these launches that we're talking about?

Frans Rydén: So first of all, we have over time sort of steadily increased what we're spending both in terms of the efficiency of the spend so that more expense per dollar, as they say, goes to what actually a consumer sees and not to the production behind and we have also stepped up. But specifically now for the back half of this year it is, let's say, onetime step-up that has both to do with the geographic expansion where you have listing cost and bringing bilar to Target, et cetera; but also organizational cost plus then this multimarket launch of Sprinkled Foamies and to put enough strength behind that. So it is a bit of a peak in these 2 quarters, but it doesn't mean that we're holding back on the investments going forward.

Anton Lund: Got it. And then one final one for 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? And then when should we expect these noncore markets to grow faster than the group?

Katarina Tell: Yes. So it's a good question. So in general when we do a pilot, it does not to show any significant sales in the beginning. That is really to get the proof of concept. And when we have the proof of concept, then we agree with the customers to roll out more stores with the concept. So of course we are in dialog 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 noncore markets, yes, of course we are now investing to make it grow on a long term. We have shared during the Investor Day in March 1.5 year 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 and that is also how we come up with the 3% to 4%. So it will start of course with the markets beyond core to grow in the coming years. And we also see it happening step by step and we are taking some important milestones also there.

Operator: [Operator Instructions] Our next question comes from Nicklas Skogman with Nordea.

Nicklas Skogman: 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?

Frans Rydén: Nicklas, thanks for asking a question. So what also we wrote in the CEO commentary. So 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, let's say, full effect of that going into quarter 4. But beyond there, we don't want to be price signaling if we're going to change something going forward and like 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've shared.

Nicklas Skogman: I'm just thinking also the prices for plastics and sugar and now cocoa too seems to be moving up. So that will be a point where you'll need to raise prices.

Frans Rydén: Sorry, Nicklas, I interrupted you there.

Nicklas Skogman: No, 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.

Frans Rydén: So for example cocoa now, I mean it dropped earlier this year and then it's already back up above [ 5,000 ]. And based on our fair pricing policy, when cost goes up, then we also increase our prices. And we've shown now in Q3 that we also take down the prices when they go in the other direction and it's part of our trust-building relationship with our customers as well.

Nicklas Skogman: Good. And I guess you don't want to comment on this supplier -- or not supplier, the logistics and customer IT issues, what the impact will be roughly?

Frans Rydén: Well, no. We haven't given a number for it, but I think I would comment on it just so that it's clear. It was not an issue in our systems. We've actually had a really strong track record and we're 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's been in the media and how they were affected by cyberattacks. And 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've said it's temporary and it's limited, but we wanted to be transparent about this. So exactly what that one that we don't know or we don't want to share exactly that right now. And also on the pricing that you mentioned before, you're right, there's always a lag. When commodities move in a certain direction, there is a lag before we can implement the price change, whether that is up or down.

Laura Lindholm: I think, George, we do not have any further questions from the lines. Is that correct?

Operator: This is correct, Laura.

Laura Lindholm: So 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?

Frans Rydén: 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 and certainly not now after Q3 when we have lowered the prices.

Laura Lindholm: And then 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 DeCicco pilot in U.S.A. that has been running for 3 to 4 months?

Katarina Tell: So 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 details update 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.

Laura Lindholm: Perfect. And now 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 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 the 3rd of February. Ahead of that, quite a lot is happening. Tomorrow, Nordea has kindly invited us for a physical investor roadshow here in Stockholm. And next week, we head to Frankfurt for a roadshow hosted by SEB. On the 17th of November, 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. And 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.