Cloetta : Report (print version) - Annual and sustainability report 2023

Annual and Sustainability Report 2023

Spreading

True Joy

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1. Sweeter Future

Cloetta's sustainability agenda, A Sweeter Future, focuses on ­creating joy and long-­lasting value For You, For People and For the Planet.

The initiatives within the sustainability agenda cover topics all across the value chain where Cloetta has the ­ability to make an impact.

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Sustainability	p. 22
update

Know our consumer

- bring moments of Joy

During 2023, we made further progress within the ­climate action program by improving our data collection process through collaboration with value chain partners for our scope 3 emissions and structured our initiatives to accelerate the reduction of our scope 1 and 2 emissions. We also commenced our double materiality analysis in accordance with the EU Corporate Sustainability Reporting Directive (CSRD).

At Cloetta, consumer centricity is our long-term commitment and passion to ­identify and satisfy

consumer­ needs. Consumer and market insights are

a key source of input for our product development, p. 18 marketing, and branding strategies.

Strategic priorities

Cloetta is a proud provider of joyful moments - our brands and products bring fun and joy to memorable occasions. We are convinced that our consumer focus is the basis for Cloetta to grow and our brands to flourish. We will meet the future as a united organisation - One Cloetta - with a winning culture and passionate way of working.

Lower costs	3	1	Growth leader-
and greater	ship in Branded
efficiency		Sustain­	packaged
		ability	products
		2
			p. 10
	Sustainable value within
	the Pick & mix business

Contents

About Cloetta 2023 in brief

Words from the President Targets & strategy

Long-term financial targets Sustainability targets and ambitions Strategic priorities

New greenfield facility

Market & consumer

The market

Consumer trends and behaviors

Know our consumer - bring moments of Joy

Accelerate brand strength and grow consumer base

Sustainability

Our Agenda

For You

For People

For the Planet

Value chain

2 Main markets

4

Share & shareholders

6 7 reasons to invest in Cloetta

8 Financial performance

1. Net sales and profit
2. Financial position
3. Cash flow statement

12	Future outlook
	Environmental impact and

14	environmental management

1. Statutory sustainability report
   Risks & Corporate Governance18

Risks and risk management

20 Letter from the Chairman Corporate Governance Report

1. Remuneration of the Group Management Team
2. Internal control over financial reporting
3. Board of Directors

1. Group Management Team

36	Financial reports	75
41	Consolidated financial statements	76
Parent Company financial statements	114
41
Proposed appropriation of earnings	123
47	Auditor's report	124
47	Ten-year overview	128
50	Key ratios	130
52	Reconciliation of alternative ­	132
53	performance measures
53	Materiality & other	134
53	Materiality and impact	134
EU Taxonomy reporting	138
54	GRI Content index	143
54	Auditor's Limited Assurance Report	146
59	Glossary	147
60	Definitions	148
66	Our history	150
	Shareholder information	152
68
70
72

The audited Annual Report for Cloetta AB (publ) 556308-8144 consists of the administration report and the accompanying financial statements on pages 47-123.

The Sustainability Report ing accordance with GRI Standards is defined in the GRI Index on pages 143-145 and is limited assured by PwC. The­ ­definition of the statutory sustainability report can be found on page 53. While every care has been taken in the translation of this Annual and Sustainability­ Report, readers are reminded that the

original­ Annual and Sustainability­Report, signed by the Board of Directors or in European Single Electronic Format (ESEF), is in Swedish­. The Annual and Sustainability Report in ESEF is ­published on www.cloetta.com.

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About Cloetta

1862	2,600*	>60	7
Founded in	Employees	Countries	Factories
	*) average 2023
SEK 8.3bn	9.6%		26%*	Pick & mix
*	Branded packaged
2 74%	products
Net sales	Operating profit margin, adjusted	Business segments
			*) of net sales

Cloetta's net sales

By Category	By Country
62%	Candy	30%	Sweden
19%	Chocolate	21%	Finland
10%	Pastilles	15%	The Netherlands
5%	Chewing gum	10%	Denmark
2%	Nuts	6%	Norway
2%	Other	6%	Germany
		5%	The UK
		7%	International
			Markets

Cloetta, founded in 1862, is a leading confectionery company in Northern Europe. Our products are sold in more than 60 countries worldwide with Sweden, Finland, Denmark, Norway, the Netherlands,

Germany,­ and the UK as the main markets. We own some of the strongest brands on the market, such as Läkerol, Cloetta, CandyKing, Jenkki, Kexchoklad, Malaco, Sportlife and Red Band. Cloetta has seven ­production units in five countries and the company's class B-shares are traded on Nasdaq Stockholm.

2	Cloetta Annual and Sustainability Report 2023

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We believe in the Power of True Joy

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2023 in brief

Key ratios

SEKm	2023	2022	2021	2020	2019
Net sales	8,301	6,869	6,046	5,695	6,493
Operating profit (EBIT), adjusted	799	691	571	495	743
Operating profit margin (EBIT margin), adjusted, %	9.6	10.1	9.4	8.7	11.4
Operating profit (EBIT)	735	466	565	442	727
Operating profit margin (EBIT margin), %	8.9	6.8	9.3	7.8	11.2
Profit before tax	570	343	558	383	648
Profit for the period	437	275	472	265	498
Earnings per share, basic, SEK	1.53	0.96	1.64	0.92	1.74
Earnings per share, diluted, SEK	1.53	0.96	1.64	0.92	1.74
Net debt/EBITDA, x	1.7	1.9	2.0	2.8	2.2
Free cash flow	496	305	664	366	538
Cash flow from operating activities	778	519	858	641	724

Q1

• The Board proposed a dividend for 2022's result of SEK 1.00 (1.00) per share.
• The preparatory work for the new greenfield facility in the Netherlands continued. The overall regulatory
  process­ is taking longer than initially estimated.
• CandyKing's spring novelties were recognised in leading Swedish trade and lifestyle media.
• Cloetta continued its climate journey by transitioning to more vegan products and further phasing out raw materials with high climate impact.

Q2

• Dividend of SEK 1.00 per share is approved by the AGM and paid out.
• Cloetta has extended the maturities of its current loan facilities with the existing banking group by one year. The extended loans will mature during 2025-2027.
• Cloetta submitted the Transparency Act Report, including
  disclosures­on human rights and labour practices.
• Cloetta's Norwegian organisation moved to their new office in Lysaker.
• Cloetta continues to develop its e-commerce.

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Net sales
SEKm
2,500
2,000
1,500
1,000
500
0
Q1	Q2	Q3	Q4
2022	2023

Free cash flow

SEKm
400
300
200
100
0
-100
-200
Q1	Q2	Q3	Q4
2022	2023

Operating profit, adjusted

SEKm

250
200
150
100
50
0
Q1	Q2	Q3	Q4
2022	2023

Q3

• Greenfield investment in line with estimates - expected new timeline will not negatively impact Return on Investment.
• Cloetta launched a new financial reporting and consolida- tion system. This bodes well for the upcoming implementa- tion of the EU Corporate Sustainability Reporting Directive (CSRD).
• Cloetta launched the new Skipper's Mini Pipes, offering small, soft liquorice pipes in a generous bag.
• Cloetta's Dutch organisation moved to their new office in Breda.

Q4

• Cloetta reported all-time high net sales and adjusted operating profit and lowest-ever leverage.
• The greenfield project progressed in all work streams, and the technical ability to build and operate Europe's first major candy factory running on renewable electricity
  has been confirmed­ .
• Mikael Norman declined re-election as the Chairman of the Board.

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Words from the President

A year of strong sales and improved profitability

How would you summarise the year 2023?

First of all, it was a year of strong profitable growth. It was also another rather extraordinary year, this time heavily marked by inflation, where we managed to raise our prices to adjust for higher input, raw material, and transportation costs. This was done in a fair and transparent way, and in absolute terms, leading to high customer loyalty and trust. At the same time, we continued to

execute­ on projects that support our long- term strategy and growth. The greenfield

efforts to premiumise our brands, making­ them more clear, innovative, and more

supported,­ are really giving­ results. It is worth reiterating that stronger brands always lead to higher value.

I also see a lot of evidence that we have the right culture and people onboard to develop our business, and I see so many efforts to further develop and contribute.

create­ further savings before the facility is up and running. There is a great pride internally that we are building an emission-free factory, employing people in Roosendaal and that we at the same time can free up capacity for

further­ product portfolio optimisation. During 2024, the main tasks will be to

finalise the permitting process as well as the engineering and contracting of buildings and machines. We will also close the factory in Roosendaal Borchwerf during the year with an in- and outsourcing solution in place.

project progressed according to the revised plan in all workstreams, and the technical ability to operate Europe's first major candy factory running fully on renewable ­electricity has been confirmed. The project is part of our ambitious sustainability agenda, where we during the year made good progress in collaboration with value chain partners for our scope 3 emissions, and structured our initiatives to accelerate the reduction of our scope 1 and 2 emissions.

Cloetta is now in many aspects a leading FMCG company in the Nordics, as we have improved our ways of working in all areas from finance to marketing and sales, as well as through the whole supply chain.

All in all, 2023 was a very successful year, and the first time in history when Cloetta reached SEK 8bn in turnover and close to SEK 800m in adjusted operating profit through organic growth efforts.

What was the most important

achievement­during the year? There are many things to be proud of I believe. First and foremost, I would say that we managed to keep the volumes relatively stable - a result of our strategic agenda to strengthen our brands over the last years and our relentless focus on execution. A big compliment to the teams in all parts of the organisation, who have done a tremendous job to provide the value needed to keep consumers enjoying our products, despite the increased pricing. The added marketing­

2023 was the first time Cloetta­ reached SEK 8bn in turnover and close to SEK 800m in adjusted operating profit.

How is the greenfield project progressing?

The greenfield will create capacity for growth and significantly reduce cost, while reducing our greenhouse gas emissions. Since we announced the investment in 2022, the process develops with the estimate to be fully operational during the second half of 2026. One important decision during the year was when our engineering team con- cluded, in close cooperation with our suppli- ers, that we have the technical ability to build and operate the new factory fully electric. When the new factory is fully operational, it will be the first major candy factory running on renewable electricity in Europe.

We are on time with our revised timeline and are moving the process forward, while involving the project's stakeholders. I am delighted to see cross-functional teams ­coming up with innovative proposals to

Which important steps did you take

within your sustainability agenda? We have identified where the emission savings will come from as per 2030, and together with our suppliers, identified all our savings within the SBT-initiative.As I have said before, it is necessary to make progress and work closely with our custom-

ers, suppliers,­ and other parties in order to reach our targets. We truly believe that our sustainability efforts are strategic. It is in all perspectives good for the company, our culture, our business, and our stakeholders today - and definitely also in the long run. Furthermore, we are in the process of finalising our double materiality analysis,

in accordance with the European Union Corporate Sustainability Reporting Directive (CSRD). The insights gained from this process will further strengthen Cloetta's strategies, policies and actions within our ambitious sustainability agenda.

What are your greatest challenges? Cloetta is in a good place, but a lot of things can still be improved to secure the road to reach our profitability targets. We have to constantly monitor how our operations are relevant and efficient, ensure growth in ­pastilles and chewing gum and grow our international markets business. Given the volume growth expectations, we are also continuously

looking­ at taking out smaller or lower-­ margin products from our portfolio to create ­capacity to produce higher-margin products.

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And your greatest opportunities?

In short; becoming an even more consumer- focused company through continued positioning and strengthening of the brand and product portfolio in all markets. This happens within four areas;

1. Strengthening our brands in core markets
2. Continued volume growth of Pick & mix via premiumisation and penetration
3. Building a stronger position in the UK and Germany
4. Recover profitability in all our markets

What is Cloetta's focus going forward? We will continue to grow our branded business with a high level of innovation, growing Pick & mix in a profitable way, drive cost efficiencies and execute on our sustainability agenda.

We are committed to speed up the pace towards our goals. The last few years have been challenging due to many macroeconomic­ developments but have also given us the opportunity to demonstrate the resilience of our core categories and brands. We have proven our ability to deliver under tough ­circumstances, and we believe that a more balanced environment will give us the opportunity to increase our focus on long-term business development and work with our roadmap of reaching a 14 per cent operating profit margin.

In 2023, we reported all-time high net sales and adjusted operating profit and lowest-ever leverage, and I remain confident for the future, since we have a strong pipeline of strategic initiatives to further strengthen our business. I am indeed proud of our successful pricing execution, and that we continue to take progressive, responsible steps developing our business with high sustainability ambitions. We are looking forward to 2024 and believe in our continued ability to deliver the Power of true Joy to consumers, and customers, and thereby creating shareholder value.

On a personal level, I would like to thank everyone that I have had the opportunity to

work with during my seven years at Cloetta, as I am leaving the company after the summer. I have come to the conclusion that this is the right time to make a smooth transition with as little disruption as possible to the positive momentum that Cloetta has established. I now look forward to

welcoming the new CEO to lead a truly great company with great people!

Stockholm, March 2024.

Henri de Sauvage-Nolting

President and CEO

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Targets

Long-term financial targets

Organic sales growth

Cloetta's long-term target is to grow organically by 1-2 per cent, which is in line with or better than the market.

Comment on the year's outcome: Organic growth was 15.7 per cent, resulting in Net sales for the first time in the company's history exceeding SEK 8 billion. Sales of Branded packaged products increased organically by 14.1 per cent primarily driven by pricing, enabled by the strengthening of our core brands and strong in-store execution. Sales of Pick & mix increased organically by 20.7 per cent driven by premiumisation of the offering, pricing, and increased consumer activation.

Net sales and
organic sales growth
SEKm	%
9,000	18
6,000	12
3,000	6	Target
	0
0	1-2 %
-3,000	-6
-6,000	-12
-9,000	-18

2019	2020	2021	2022	2023
Net sales		Organic sales growth

EBIT margin

Cloetta's long-term target is an adjusted EBIT margin of at least 14 per cent.

Comment on the year's outcome: The adjusted EBIT margin amounted to 9.6 (10.1) per cent. Although the adjusted EBIT was the highest in the company's history, the margin was compressed due to pricing offsetting the increased input cost without generating incremental profit.

EBIT and margin, adjusted

SEKm	%
800	16	Target
700	14
≥14%
600	12
500	10
400	8
300	6
200	4
100	2
0	0

2019	2020	2021	2022	2023
EBIT, adjusted		EBIT margin, adjusted

Net debt

Cloetta's long-term target is a net debt/EBITDA ratio of around 2.5x.

Comment on the year's outcome: In 2023, Cloetta delivered very strong cash flow, resulting in the lowest net debt/EBITDA in the company's history, of 1.7x well below the long-term target of 2.5x.

Net debt/EBITDA

SEKm				x
2,400				3
2,000				Target
			2.5x
1,600				2
1,200
800				1
400
0				0
2019	2020	2021	2022	2023
Net debt, SEKm	Net debt /EBITDA, x

Dividend policy

Cloetta's policy is to have a dividend payout ratio of 40 to 60 per cent of profit for the year.

Comment on the year's outcome: The Board of Directors of Cloetta AB proposes to

distribute­ a dividend to the shareholders of SEK 1.00 (1.00) per share for the 2023 ­financial year, corresponding to 65 per cent (104) of profit for the year, equal to 59 per cent of the profit for the year excluding impact of the impairment and provisions and other items affecting comparability relating to the greenfield facility. The dividend proposal is in line with the Board's previously expressed ambition to continue to propose a stable dividend­

in line with 2022 and is supported by a healthy cash flow and strong balance sheet.

Dividend policy (share of profit)

%

100

80
60				Target
40				40-60%
20
0
2019	2020	2021	2022*	2023*

• Adjusted for items affecting comparability relating to the greenfield facility.

8	Cloetta Annual and Sustainability Report 2023