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

Annual and Sustainability Report 2023

Spreading

True Joy

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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).

A Sweeter

Future

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

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.

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.

Cloetta Annual and Sustainability Report 2023

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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.

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We believe in the Power of True Joy

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2023 in brief

Key ratios

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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

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

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.

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

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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.

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

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.

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

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Sustainability targets and ambitions

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

For You*

• Offer sugar-free, less sugar and options with functional ingredients
• Offer more vegan options
• Supporting dental health with our xylitol products

Comment on the year's outcome: Throughout 2023, we stayed on course with expanding our vegan options. Our vegan candy portfolio has now reached 37 per cent, a significant­ increase compared to the 23 percent recorded at the end of 2022. Our non-sugar or low­ -sugar product range now constitutes 10 per cent of our assortment, reflecting a slight decrease compared to 2022.

10% 37%

Non-sugar Vegan

and less sugar candy products

* The prior target regarding candy and pastilles with non-artificial colors and flavors were accomplished in 2022.

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

For People

• Continue to work towards zero work-related accidents
• Cloetta engagement survey to be in line with the global benchmark by 2025
• All Cloetta markets running a purpose-driven community engagement initiative by 2025
• Maintain existing partnerships and initiate a new collaboration to improve living conditions in our supply chain by 2025

Comment on the year's outcome: During the year we continued to work toward zero accidents. Despite a slight increase in our LTIR, we persist in enhancing our health and safety culture through structural risk reduction and increased awareness.

Lost Time Incident Rate (LTIR)*

Number

8

6

4				Target
2				2024
0
2019	2020	2021	2022	2023

* Number of injuries causing at least 24 hours of

Net debt

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

Net debt/EBITDA

SEKm	x
2,400	3
	Target

absenteeism per million hours worked per year.

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.

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

For the Planet

•	46 per cent absolute greenhouse gas emissions reduction by 2030 compared to 2019 base
	year emissions
•	100 per cent recyclable packaging by 2025
•	100 per cent packaging from renewable sources or recycled ­materials by 2030
•	Engage all key suppliers to set their own emission reduction targets by 2025
•	With palm oil-based vegetable oils continue to source 100 per cent RSPO certified segregated palm oil
•	Maintain 100 per cent Rainforest Alliance certified cocoa

GHG emissions*

tCO₂e (Scope 1, 2, 3)

350,000

300,000

250,000

200,000												Target
150,000												2030

100,000

50,000

0	2020	2021	2022	2023
2019

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.

Comment on the year's outcome: During the year we made further progress within our 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. Total CO₂e emissions have decreased with approximately 10 per cent compared to 2019 (base-year).

Scope 1 Scope 2 Scope 3

Source: CEMAsys.

• tCO2e (metric tons of carbion dioxide equivalent) represents emissions from all greenhouse gases.

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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 with a ­winning culture and passionate way of working.

Cloetta aims to strengthen its position as the	deliver fast growing international sales	improved product mix in Branded packaged
leading confectionery company in Northern	through the ­expansion of selective brands.	products. In addition, we will continue to
Europe within the candy, chocolate, pastilles,­	We will ­continuously develop new innovative	drive cost savings and efficiency activities
chewing gum and nuts categories as well as	offerings and strengthen the e-commerce	throughout the entire value chain, including

Strategic priorities

Lower costs	3	1	Growth
and greater	leadership
efficiency	in Branded
	Sustain-		packaged
	ability		products

2

Sustainable value

within the Pick & mix

business

Three business models within Pick & mix

56%	Full concept
24%	Bulk
20%	Trade own

Full concept	Includes branding, assortment, fixtures­	and
	in-store merchandising
Bulk	Bulk sales to other pick & mix concepts or sales
	of individual products
Trade own	Similar to the full concept but products are
	sold under the retailer's own private brands

in the Pick & mix segment. Our aim is to	focus. Furthermore, we aim to achieve an	through the investment in the greenfield
grow 1-2 per cent organically, which is in line	adjusted EBIT margin of at least 14 per cent,	facility.
with or better than the long-term trend in	by driving volumes and value within
the market,­	on our core markets as well as to	Pick & mix, and profitable growth and

1Growth leadership in Branded packaged products

2Sustainable value within the Pick & mix business

3Lower costs and greater efficiency

Cloetta's strengths

14% Strategic building blocks to deliver margin expansion

We have a clear growth strategy for growth for Branded packaged products which

focuses on both the core operations­ and the Group's strong brands, well positioned

Pick & mix is an important consumer market as it goes hand in hand with underlying consumer trends such as individualism and sustainable packaging.

Cloetta needs to invest to continue to grow. This includes increasing marketing investments for Branded packaged products, adapting to

• Strong leading local

brands.

• Core markets in stable

­Northern Europe.

• Strong European leader

in Pick & mix.

• Scale benefits in Northern

Europe versus local

competition.

VIP+

Swedish cost Pick & mix reduction business

at break-

even

Covid-19 and	Pick & mix
cost inflation	volumes
2022-2023	and value

Branded mix and volume

Greenfield

Net facility

Perfect revenue Factory ­ manage-

ment

to respond to the growing ­consumer trends demanding local brands and

innovative­ offerings with a conscious and sustainable approach. As branded ­packaged products have an EBIT margin above the Group average, this segment is important for Cloetta to be able to reach its long-term profitability target. We will also continue to recover the mix within the segment to secure strong profitability.

The segment is also of importance for our customers as it increases in-store traffic and impacts our ability to sell other categories. From its strong ­market position Cloetta has good opportunities to develop the ­category and thereby drive profitability and growth, with the ambition to reach an EBIT margin in the range of 5-7 per cent in the medium-term.

changing consumer and customer demand, and creating capacity to produce more products. Cloetta's ­efficiency programmes, together with strengthened corporate culture and processes in One Cloetta, are important drivers to improve the overall profitability which allows for the investments.

Achievements 2023

During the year, our efficiency

• Route-to-market scale

in core markets.

• Locally tailored

innovations.

2019		Mid-
2023	term
11.4%*	9.6%*	≥14%*

*) Operating profit margin, adjusted.

Road to 14 %

Achievements 2023

In 2023, Branded packaged products continued its growth path - having reached twelve quarters of sequential growth by year-end. This was achieved mainly through successful marketing and strong innovation initiatives that enabled solid pricing execution in an inflationary environment. We also continued to focus

Achievements 2023

The Pick & mix segment has ­continued to deliver growth, both in volume and value, for eleven consecutive quarters. In Finland, we continued the rollout of our premium offer CandyKing - The Premium Mix as well as relaunched the Parrots concept with a new visual expression. Our e-commerce pilot for

programmes including the VIP+ cost programme, the Perfect Factory programme, and the Net Revenue Management programme progressed as planned, delivering improvements that helped offset the surging input cost inflation and strengthen our operating profit. As part of the Net Revenue Management programme,

Organic sales growth in ­		Organic sales
Branded packaged products		growth in Pick & mix		P&M to reach EBIT margin of 5-7%
Change from previous year		Change from previous year		Operating profit margin, adjusted

on recovering sales of high-margin

products­ such as chewing gum and

pastilles,­ with improvements seen during the year. Furthermore, we continued our

Pick & mix in Denmark has continued good development and we expanded into quick commerce with a pre­ -packed CandyKing cup. We also secured the

we commenced rolling out a new information system in our first market to enable the same efficiency focus to trade spend as we have had on cost.

SEK m

7,500

6,000

4,500

3,000

1,500

0

%	SEK m
25	2,500
20	2,000
15	1,500
10	1,000
5	500
0	0

%

35

30

25Swedish

20	1-2%	Pick & mix	Covid-19
	business
		impact
		at break-
15	2018	even
10

• Margin focus
• Volume gains	5-7%

• Perfect Factory
• Decompression*

Pricing

1% Full pricing

2023Mid-term

successful brand expansion into new

­segments such as Tupla Crispy Puffs and Skipper's Mini Pipes bags, and to excite with strong limited editions like Läkerol Triple-Treat and Juleskum Cola. We also expanded our vegan portfolio and strengthened our natural offering by launching additional variants of our ­fruit-based candy into new markets.

extension of contracts in several of our markets, proving the attractiveness of

our CandyKing concept to the retailers­ . Good results from our CandyKing brand communication was shown in both social media as well as through PR exposure in top-tier consumer media in Sweden. We continue to focus on

creating­ sustainable value within the

During the year we also continued to make progress on our new greenfield facility in the Netherlands 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. You can read more about the investment on page 12-13.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Input

Volume

2022

2023

2022

2023

cost

recovery

inflation

& margin

Rolling 12 months NSV

Rolling 12 months NSV

focus

Organic net sales growth

Organic net sales growth

*) Refers to the positive effect on margins that will arise when input costs stabalise or decrease.

segment, through a combination of pricing, continued margin enhancing initiatives and volume.

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introduction

Greenfield facility enables further growth

In 2022, Cloetta announced the greenfield investment

in the Netherlands with the ambition to create capacity for growth, significantly reduce cost, while reducing greenhouse gas emissions. When the new factory is fully operational it will be the first major candy factory running on renewable ­electricity in Europe.

The Netherlands

Key facts

• Focus on core candy and brands: Wine gums and mixed bags (Gott & Blandat, Red Band, Aakkoset, Venco)
• Planned facility size: ~ 45,000 m2 over 2 levels
• • Enables 15,000 tonnes extra capacity
  • Highly automated
  • Net decrease of ~ 150 FTEs
  • 4 process lines
  • New and upgraded packaging lines
  • 4 processing units, utilities and cleaning system
  • R&D capabilities
  • Space for future expansion

For the most recent updates, please visit cloetta.com

Background

Cloetta evaluated a wide range of alternatives for a manufacturing that meets the future demand based on the following criteria: savings, growth, sustainability, risk, and capital expenditure. The conclusion is that investing in a new greenfield facility

in the Netherlands­ and closing­ three existing plants is the most attractive alternative, meeting all important ­criteria for Cloetta's future development.

Progress

The greenfield facility project proceeded during the year with, among other things, the finalisation of the

design work and the first phase of the tendering process of the factory. During the fourth quarter 2023, it was concluded that

Cloetta has the technical ability to operate the factory fully electric, rather than at 80 per cent as originally designed. The decision contributes to Cloetta's set Science-based targets (SBTi). As for the

overall regulatory process, Cloetta expects to receive a decision from the city council in H1 2024. The

Roosendaal Borchwerf­ factory will stop ­production in summer 2024, with in- and outsourcing­ solutions in place.

Financials

In connection to an investor event in Stockholm on 27 September 2022, Cloetta provided an updated on the greenfield facility investment plan. The investment is expected to generate­

a total annual EBIT ­delivery of SEK 220- 260m, including quantified insourcing and enabled growth. The current estimated timeline indicates that the plant will start operations during H2 2026. Cloetta assesses that the adjusted timeline compared to the originally will not negatively impact the return on the investment. In addition, savings­ have improved within the range (SEK 220- 260m). The net increase in capital expenditure to create a new network is estimated at SEK 1.9bn during 2023-2032. Financing through new credit facilities, totaling EUR 160m, has been arranged for by Cloetta's existing banking group

at competitive rates that are marginally higher than on existing facilities.

Union	Financing	Employees'	Engineering	Permits	Land purchase	Factory building and	Construction and	Start-up of	Sales of
Consultations		social plan	design			production equipment	installation	new factory	properties
						contracted

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Cloetta's sales channels

Grocery	One of Cloetta's most important	Development The grocery retail trade has undergone
retail trade	sales channels, typically covered	extensive consolidation and restructuring over the past ten years,
		by central agreements at a national	with increasingly fewer and larger stores. Concentration in the
		level.	grocery trade is high in the majority of European markets, which
			means that the channel can place high demands on its suppliers.

The market

Service trade One of Cloetta's most important sales channels, characterised by generous opening hours, centrally located in the form of convenience stores and filling stations.

Development Over the past decade, confectionery sales to the service trade have decreased, primarily due to the presence of fewer filling stations, but also because the service trade has developed its own snack alternatives that compete with confectionery. Service trade faced a big hit due to the pandemic and the related restrictions and decrease in people mobility. It has gradually been moving back to normal levels during 2022 and 2023 but has not yet fully reached pre-Covid sales.

The confectionery market is traditionally divided into candy, chocolate, pastilles and chewing gum. Cloetta is active in all these categories, as well as in the nuts category.

E-commerce Cloetta's fastest growing sales ­channel, with a mix of both established and new players. Younger target groups with convenience as main driver.

Development Over the last decade, FMCG e-commerce in Europe has experienced strong growth further fueled by the Covid-19 pandemic. Key accelerators are technology-based improvements solutions such as mobile shopping, improved online shopper experience and automated supply chain systems giving faster and more accurate deliveries and quick payment methods. In recent years, fast delivery retailers have established a new way of shopping, quick commerce, with home delivery of groceries in less than 30

The confectionery market

The total market for confectionery in

Cloetta's­ main markets amount to approximately SEK 339 bn (316).

The confectionery market is relatively insensitive to economic fluctuations and shows stable growth that is driven primarily by population trends and price increases. Market recessions affect us mainly through general price pressure from the retail trade and increased competition from the trade's own private labels. Due to

products; however, they showed a strong growth in 2023 across most confectionary categories in our markets.

Consumption patterns Confectionery is one of the most impulse driven categories in the retail trade. Up to 80 per cent of purchasing decisions are made at the point of sale. Brand, availability, and product placement are significant success factors. The European confectionery market is characterised by strong consumer loyalty to local

Consumption patterns and taste preferences vary between the different markets. For example, compared to the rest of Europe, the Nordic region has a higher per capita consumption of chocolate and candy.

Competitive market

The global market for confectionery is dominated by international companies like Mars, Mondelēz International, Nestlé, Ferrero, Perfetti Van Melle, Haribo and Lindt & Sprüngli. However, in the local

minutes. Further, new services focused on convenience, such as meal kit subscriptions have attracted consumers who seek to simplify their everyday life.

Other	Includes cinemas, building supply	Development In recent years, this channel has broadened to
channels	stores, airports, and arenas. This	also include non-traditional confectionery sales channels such
		channel often requires support in	as building­	supply stores, furniture and appliance stores, hotels,
		developing its confectionery sales.	and bars.

high inflation, the prices of confectionery categories in 2023 increased by 10-15 per cent in our main markets. Private labels still account for a relatively small share of confectionery compared to other grocery

The confectionery market

68% Chocolate

27% Candy incl. pastilles

5% Chewing gum

brands. Shoppers however rarely buy only one brand but rather tend to have a few brands in their purchasing repertoire. The main considerations when buying are brand, flavour, quality, and curiosity about new products.

Breakdown of raw materials and packaging costs, %

19% Sugar

19% Packaging

14% Syrups

8% Cocoa

6% Gelatine

6% Starches

5% Milk products

5% Polyols

4% Fats & Waxes

4% Flavours

10% Other

Cloetta's largest cost items in production are raw materials and packaging. We collaborate closely with our largest raw material suppliers, for example through automated order and delivery processes that are adapted to the raw material consumption in each factory.

markets these meet tough opposition from ­players with locally established brands such as Cloetta, Fazer, Orkla and Toms. No player has a strong position across all European markets. Consolidation of the ­confectionery

Index of key commodities used by Cloetta

Index 160

140

120

100

80

20222023

Source: Mintec, EUWID, Kingsman.

industry is taking place gradually. For

­example, in 2023 Mondelez International completed the sale of its chewing gum business to Perfetti Van Melle. Similarly, in Q1 2023, Orkla finalised the acquisition of Bubs Godis AB, a Nordics confectionery company.

Pick & mix

The Pick & mix segment has a very strong position in the Nordic countries and accounts for a large share of the total confectionery consumption, while the consumption of pick & mix is considerably lower in Central Europe where packaged candy and chocolate have a stronger position. In Sweden, pick

• mix normally accounts for 30 per cent of the total confectionery market, while in the other Nordic countries it accounts for 5 to 15 per cent. After volume decline during the Covid-19 pandemic, pick & mix has recovered well with strong growth in both 2022 and 2023.

The nut market

Cloetta is also active in the nut market via the brands Nutisal in packed business and Parrots in pick & mix. The total nut market in the Nordic region is worth around SEK 5 bn, and the private labels of the retail trade account for approximately one third of the total market in value and 40 per cent in volume. In Cloetta's main markets, the nut market is experiencing annual growth of 1-2 per cent in volume. In the recent years the category has been declining in volume but growing in value due to price increases and a shift to the premium product category.

Raw material and packaging

The prices of Cloetta's most important raw materials are set on the European commodities exchange, either directly, as is the case for cocoa, or indirectly such as with glucose syrup, the price of which is influenced by the price of wheat and barley. This means

that our purchasing costs for these items are dependent on market pricing. Cloetta has a central procurement function that develops and implements sourcing strategies to manage risk and drive competitive advantage.

As a rule, the central purchasing department­ pre-purchases the most important raw ­materials so that raw materials are available for the equivalent of six to nine months of production. This also creates predictability in prices and financial outcomes since price changes affect our purchasing costs with a certain delay. In this way, we usually avoid temporary price swings in the commodities market. Furthermore, in a high inflationary environment, Cloetta's strategy is to ­protect its profitability by compensating for all input costs in absolute terms, also including packaging, freight, and energy costs, through price increases towards its customers as well as cost savings and reducing overall energy consumption.

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Consumer trends and behaviors

Cloetta continuously monitors market trends at macro and micro levels through market research, category and trend reports, social listening, and various trackers. Keeping track of trends provides valuable information for us to feed into the development of new ideas and concepts.

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Greater individualisation

Consumers increasingly wish to satisfy their individual needs. This means that they want the option of both choosing products, and also having access to products and services that are individualised and can be adapted to different occasions.

Cloetta's response

Pick & mix is a good example of a

­concept that is individualised, and a category in which we are a leading

market­ player. The CandyKing-concept relaunch has made it a more relevant and appealing offering and has given consumers exciting new options on the pick & mix shelf, through exclusive collaboration with suppliers. Cloetta also consistently works on different packaging sizes and formats to cater for different occasion needs, such as The Jelly Bean Factory providing a range of ­different formats, spanning from smaller "grab and go"- sachets, to larger sharing & gift jars.

Responsibility for the environment and human rights

One of the key trends is the interest in the impact of food production on the environment and the social conditions of the producer. Suppliers have responded to consumer demand for information; above all in terms of the origins of raw materials, the farmers' working conditions, quality, and farming methods, by introducing different types of labelling and certifications.

Cloetta's response

During 2023, Cloetta continued driving several programmes within these areas that aim to make a real impact in the world. In partnership with the Rainforest Alliance, we contribute to The Living Income Fund that bridges the living income gap by making extra ­payments directly to cocoa farmers. Science Based Targets initiative (SBTi) approved Cloetta's targets to reduce direct and indirect carbon emissions by 46 per cent by 2030 compared to the base year of 2019. As an example of our commitment, we also calculated the climate footprint for a selection of our products, involving the first steps of more data collection and engagement with our suppliers.

Health

Consumers are increasingly looking for natural raw materials with positive health benefits. Additives of various types and artificially produced substances are being questioned in favour of natural ingredients. E-numbers are being replaced with the name of the additive in plain language. Natural sugar and natural sweeteners like xylitol and stevia are preferred to artificial sweet- eners. Less sugar and fewer calories are another important aspect that ­consumers are demanding.

Cloetta's response

We are working to remove ­artificial flavourings and colourants from our assortment. They will be entirely replaced by natural fruit and plant extracts in our candy products. Cloetta provides alternatives in the form of ­sugar-free products, products with less sugar and products that are naturally free from sugar, giving consumers the opportunity to choose. We also use the natural sweetener xylitol in brands such as Jenkki, Mynthon and Läkerol Dent.

Local, genuine and transparent brands

Local brands with a strong history are favoured by consumers. This became even more apparent during the pan- demic, when consumers reverted far more to traditional and familiar brands. Authenticity and transparency are key for brands to deliver in order to earn consumer trust.

Cloetta's response

In all core markets, we have some of the strongest local brands that consistently deliver joy and fun moments in consumers' daily lives. We continue to invest in local brands and develop them in accordance with consumer trends whilst ensuring they meet consumer expectations. To earn consumer trust and to truly deliver genuine brands, we work continuously to ensure all products meet high quality standards and provide clear and transparent information about the contents of the products on the packaging and our website.

Superior sensory experiences

With the increased exposure to social media platforms where consumers share consumption experiences, and the need for affordable escapism, consumers are seeking heightened sensory experiences from their food. This is driving companies to regularly launch exciting new flavours and textures.

Cloetta's response

With our strong brands acting as a trustworthy ambassador for novel taste ­sensations, 2023 brought exciting taste experiences to consumers. Red Band juicy bites launch in the Netherlands is one example, providing consumers with a very different texture and overall sensory experience compared to classical Red Band wine gums. Another example is Finland's most popular chocolate bar Tupla expanding into a Tupla Crispy Puffs bag that contains crispy and crunchy wheat puffs with the same cocoa nougat found in the original Tupla bars.

E-commerce and digital channels increasingly important

E-commerce is in general growing across all sectors, including the grocery retail trade, and growth was fueled further by the Covid-19 pandemic. Despite turbulent times in 2022 and 2023, grocery e-commerce is midterm expected to grow to a significant size in several key markets. Online sales in confectionery are still lower than for other consumer product categories, but have more than doubled in Cloetta's core markets compared to before the pandemic.

Cloetta's response

E-commerce is one of our key focus areas. Cloetta's e-commerce strategy is focused on growth through a dynamic channel that matches our strong offline shares in online trade. Online grocery market maturity differs depending on the markets. This means that Cloetta sets clear priorities for where and how to drive e-commerce including online content, e-trade marketing activation and dedicated online product development. We are constantly developing new marketing tools to get noticed and end up being the preferred brand in a shopping cart.

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