Cloetta — Annual Report 2016

Mar 9, 2017

A N N UA L A N D S U STA I N A B I L I T Y R EP O R T

Contents

This is Cloetta Highlights of 2016 1 Words from the President 2

Goals and strategies

Long-term financial targets 4 Long-term sustainability targets 5 Strategies and activities 6 Cloetta's value chain 8

The confectionery market 10

Market strategies for growth 13 Brand development 14 Strategic product development 17 New markets, initiatives and concepts 20 Cloetta's leading brands 21

Cloetta's main markets 25

Supply chain 32 Factories 37 Raw material costs 40

Sustainability 42

Core values 42 Long-term sustainability 43 Stakeholders and materiality issues 45 Sustainability goals 47 Sustainable sourcing 48 Responsibility for consumers well-being 52 Reduced environmental impact 54 Employees 56

Share and shareholders 60

Financial performance 66

Net sales and profit 66 Financial position 69 Comments on the cash flow statement 71 Future outlook. Environmental impact and environmental management

Risks and risk management 73

Letter from the Chairman 77

Corporate governance report 78

Remuneration to the Group Management Team 84 Internal control over financial reporting 86 Board of Directors 88 Group Management Team 90

72

Financial information, contents 92

Consolidated profit and loss account 93 Consolidated statement of comprehensive income 94 Consolidated balance sheet 95 Consolidated statement of changes in equity 96 Consolidated cash flow statement 97 Notes to the consolidated financial statements 98 Parent Company financial statements and notes 133 Proposed appropriation of earnings 141 Auditor's report 142 Nine-year overview 145 Key ratios 146 Reconciliation of alternative performance measures 147 Definitions and glossary 149

GRI index 151

Membership of organizations 153 Auditor's limited assurance report on sustainability report 154

Shareholder information 155 History 156

• The audited annual report for Cloetta AB (publ) 556308-8144 consists of the administration report and the accompanying financial statements on pages 1– 4, 6 –7 and 66 –141.
• The summary sustainability report consists of pages 1–9, 42– 59 and 151–153.

The annual report is published in Swedish and English. The Swedish version is the original.

This is Cloetta

• A leading confectionery company in the Nordic region, the Netherlands and Italy.
• Listed on Nasdaq Stockholm.

in 1862.

Cloetta's strengths

• Strong brands and market positions.
• Excellent availability in stores enabled by a strong and effective sales and distribution organization.
• Good consumer recognition and loyalty.
• Innovative product and package development.
• Efficient production with high and consistent quality.

Vision To be the most admired satisfier of Munchy Moments

Mission To bring a smile to your Munchy Moments

The vision, together with the goals and strategies, expresses Cloetta's business concept

Categories where Cloetta is the market leader

Sweden

Sugar confectionery Chocolate countlines Pastilles Chocolate bags

Norway Pastilles

Sugar confectionery Denmark Pastilles Sugar confectionery

Netherlands Pastilles Sugar confectionery Chewing gum

Finland Pastilles Chewing gum Sugar confectionery

Italy Seasonal products Sweetener Sugar confectionery

Highlights of 2016

Cash flow from operating activities SEKm 100 200 300 400 500

Q1 Q2 Q3 Q4

n 2015 n 2016

Operating profit, adjusted SEKm 0 50 100 150 200 250 300 Q1 Q2 Q3 Q4 n 2015 n 2016

Key ratios

SEKm	2016	2015	2014	2013	2012
Net sales	5,852	5,674	5,313	4,893	4,859
Operating profit, adjusted	758	690	632	585	432
Operating profit margin, adjusted, %	13.0	12.2	11.9	12.0	8.9
Operating profit/loss (EBIT)	– 82	671	577	418	125
Operating profit/loss margin (EBIT margin), %	–1.4	11.8	10.9	8.5	2.6
Profit/loss before tax	–256	493	338	210	–140
Profit/loss for the year	–191	386	242	264	–73
Profit/loss for the year excl. impact of impairment loss	403	386	242	264	–73
Earnings per share, basic and diluted, SEK	– 0.67	1.35	0.84	0.92	– 0.26
Net debt/EBITDA ratio, x	2.44	3.03	3.97	4.19	4.90
Cash flow from operating activities	889	927	500	131	330
For definitions, see page 149.

0

Cloetta continues on the right path

Improvement in sales and adjusted operating profit, net debt/EBITDA ratio target met

2016 was an excellent year for Cloetta. All in all, sales were up by 3.1 per cent, of which 0.5 per cent was organic growth. Operating profit, adjusted for items affecting comparability, improved to SEK 758m (690), which is mainly due to high efficiency in the supply chain and good cost control. The corresponding operating profit margin was 13.0 per cent (12.2). We are thus well on our way to meeting our target of an underlying operating margin of 14 per cent. At the same time, our cash flow remained solid.

Strong cash flow, net debt/EBITDA ratio on target and higher share dividend

The year's cash flow from operating activities amounted to SEK 889m (927) despite one-off expenses for the refinancing. This once again demonstrates the strength of Cloetta's cash-generating ability. As a result of the robust cash flow, combined with higher earnings, we have succeeded in meeting our target for the Group's net debt/EBITDA ratio. This means that we now have a sound balance between debt and equity and no longer need to reduce our debt, so that we can instead focus on potential acquisitions and continued share dividends. In line with this, the Board of Directors also proposes that the dividend be raised to SEK 0.75 (0.50) per share.

"For the third consecutive year, Cloetta succeeded in growing its sales organically."

Nordics driving Cloetta's growth

Stable market development is contributing to making the confectionery market attractive. Although growth is relatively low and individual markets can show a downturn in sales for an isolated month or quarter, over time the confectionery market normally grows by 1 – 2 per cent annually.

For the third consecutive year, Cloetta succeeded in growing its sales organically. This growth has been driven primarily by the Nordics and the export markets, while Italy in particular has shown a continued decline in sales. The Group's sales have risen mainly for chocolate and nuts, but new pick & mix contracts have also added to the increase in sales. Aside from organic sales growth, the acquisition of Lonka, carried out in July 2015, also contributed some acquisition-driven growth during the year.

Refinancing reduces costs

In the past year Cloetta entered into a new term and revolving facilities agreement with a group of four banks and redeemed the previously issued senior secured notes. Interest in taking part in Cloetta's financing was keen, which has contributed to improved terms and thereby lower costs for Cloetta.

The new financing structure will ensure Cloetta's scope to maintain adequate financial flexibility for complementary acquisitions and future share dividends.

Strategic review of Cloetta Italy

Economic development in Italy has been weak for some time, which has led to a drop in both sales and earnings for Cloetta Italy in the past few years. We have therefore found it necessary to initiate a strategic review of these operations to evaluate the best way forward.

The review is being undertaken in order to improve growth and margins for the Cloetta Group, and could potentially include a sale of the Italian business.

Due to negative development in the Italian operations, we have been forced to recognize a sizeable impairment loss on goodwill and trademarks attributable to the Italian business, which has had a negative impact on Cloetta's operating profit for the full year 2016. However, since the impairment is a non-cash item and Cloetta has a strong cash-generating business, our ability to distribute dividends and make acquisitions has been completely unaffected.

Strategic initiatives to promote profitable growth

Cloetta has performed well in recent years. But as a company, we can never allow ourselves to stand still. We must continuously strive to develop and become better. For this reason, we have launched an effort to initiate strategic activities that can promote profitable growth. This essentially consists normal development work that is being pursued to adapt to a changing world and live up to the demands of our customers and consumers. With our Munchy Moments strategy we have an excellent platform for realizing new initiatives that drive more profitable growth.

Sustainability work enhanced

Cloetta's goal is to build long-term sustainable values by growing as a company while at the same time ensuring that both people and the environment are positively impacted. Cloetta's

sustainability commitment is focused on three central areas; greater well-being, reduced environmental impact and sustainable sourcing. For all prioritized areas, there are action plans, targets and key ratios in place.

direction. Most of our environmentally-related key ratios have improved or are unchanged in relation to earlier years.

In order to enhance our communication about sustainability issues, the year's

"I am both proud and delighted that we have been able to deliver another outstanding year."

Already in 2009 Cloetta joined the United Nations' Global Compact and ratified its principles. Cloetta continues to support the 10 principles in the UN's Global Compact, which have been incorporated into Cloetta's Code of Conduct and thus provide a solid foundation for our sustainability work.

In the area of sustainable sourcing, Cloetta has prioritized a number of raw materials. All cocoa and chocolate that we purchase are UTZ-certified, which means that we provide opportunities for cocoa growers to develop sustainable farming. We have a policy for palm oil that is aimed at combatting destruction of rainforest and in 2016 we made a decision to change over segregated palm oil according to RSPO (Round Table of Sustainable Palm Oil) principles, thereby improving the traceability of our palm oil. We have also decided to eliminate the amount of palm oil found in Cloetta's glazes. This means that the vast majority of Cloetta's products will be free from palm oil by the end of 2017, which is something that many customers and consumers have asked for.

Cloetta's long-term environmental goals extend until 2020. It is therefore highly satisfying that in 2016, just as in 2015, we were able to see that our efforts to reduce the company's environmental impact are moving in the right

sustainability report (included in this annual report) has been reviewed by the auditing firm of KPMG. As it is our ambition to meet international standards, our sustainability report has been prepared in accordance with the Global Reporting Initiatives (GRI) guidelines.

Cloetta on the right path

I am both proud and delighted that we have been able to deliver another outstanding year for Cloetta. Despite changes in management, during my leadership in the second half of 2016, we have been able to continue developing and advancing our business. This is clearly visible in the fact that in the past year we achieved both an increase in sales and an improvement in underlying operating profit.

Thanks to our positive development in 2016, we have met our financial target for the net debt/EBITDA ratio. This means that we now have the financial flexibility for both acquisitions and dividends, which has been realized in a proposed 50-per cent increase in the dividend and the recently announced acquisition of Candyking.

Interest, support and appreciation for Cloetta remain powerful among shareholders, customers and consumers, and are key factors

behind our successes. This strengthens both the employees and myself in the belief that Cloetta is on the right path.

Stockholm, March 2017

Danko Maras Interim President and CEO until 14 February 2017

Long-term financial targets

Organic sales growth

Cloetta's long-term target is to increase organic sales at least in line with market growth.

Comment on the year's outcome

Historically, total annual growth in the markets where Cloetta is active has been around 1–2 per cent. In 2016 Cloetta achieved sales growth of 3.1 per cent, of which organic growth accounted for 0.5 per cent.

EBIT margin

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

Comment on the year's outcome

Due to higher efficiency in the supply chain and good cost control during the year, the EBIT margin, adjusted, improved during the year to 13.0 per cent (12.2).

Net debt

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

Comment on the year's outcome

In 2016 Cloetta met its long-term target for net debt and reduced the net debt/EBITDA ratio from 3.03x to 2.44x. During the year, Cloetta also entered into a new term and revolving facilities agreement to refinance the existing bank loans and to redeem the senior secured notes.

Dividend policy

Cloetta's long-term intention is to have a dividend payout ratio of 40–60 per cent of profit after tax.

Comment on the year's outcome

The net debt/EDITDA ratio has decreased markedly in the past few years and in 2016 Cloetta met its long-term target of a net debt/ EBITDA ratio of around 2.5x. In view of this, the Board proposes a dividend of SEK 0.75 per share for 2016, which corresponds to 53 per cent of profit after tax excluding the impact of impairment losses. The ambition is to use future cash flows for payment of dividends and to provide financial flexibility for complementary acquisitions. In 2016, SEK 144m was distributed to the shareholders.

Long-term sustainability targets

Greater well-being

Employees

The number of days between occupational accidents with >1 day of sickness absence will exceed 24.3 days in 2017.

Great Place to Work – improved Trust Index compared to the previous survey.

Consumers – Complaints/feedback

The number of complaints about Cloetta products from consumers will not exceed 5.7 ppm (number per million units sold) in 2017.

No artificial colours or flavours

Cloetta is committed to increasing the share of natural ingredients. Cloetta's product portfolio will contain no artificial flavours by 2018 at the latest, and no artificial colours by 2019.

Comments on the year's outcome After several years with a steady decrease in occupational accidents, the trend was broken in 2016 and the target was not met. A new safety standard was therefore drawn up for immediate implementation in all factories during 2016. This will continue to be a priority in 2017. Roosendaal Borchwerf has not been included. Read more on page 32.

Complaints, feedback per million sold consumer units

0 1 2 3 4 5 6 7 8 2012 2013 2014 2015 2016 Number <5.7 Goal 2017

Comments on the year's outcome The result for 2016 was a clear improvement compared to last year. This was achieved through an increased focus on Cloetta´s product quality management system, which will continue to be a prioritized area in 2017.

Reduced environmental impact

Energy consumption

Reduce energy consumption in relation to the produced volume (MWh/tonne) by 5 per cent by 2020.

The base year for the three 2020 targets is 2014.

Waste

Reduce the volume of waste in relation to the produced volume (kg/tonne) by 25 per cent by 2020.

Carbon dioxide emissions

Reduce CO2 emissions from production in relation to the produced volume (kg/kg) by 5 per cent by 2020.

CO2 equivalents are linked to the Group's use of different energy types. Transports are excluded.

Sustainable sourcing

Responsibility for raw material producers

• w Sustainability programmes will be implemented for all prioritized raw materials.
• w By 2020 at the latest, Cloetta's suppliers of oils and fats must have a fully traceable pipeline of palm oil fractions back to known plantations.
• w 100 per cent of all cocoa and chocolate purchased by Cloetta must be UTZ-certified.
• w By the end of 2017, Cloetta will have implemented RSPO-segregated palm oil throughout the product portfolio.
• w By the end of 2017, Cloetta's glazing agent will be free from palm oil.

Comments on the year's outcome

• w Sustainability programmes have been implemented for cocoa and palm oil. For shea butter and raw sugar, sustainability programmes are under development.
• w 100 per cent of the cocoa purchases were UTZ-certified.
• w In 2016 Cloetta decided to improve the traceability of the palm oil that is found in parts of the product range and started efforts to formulate a new palm oil policy.

Strategies and activities

In connection with the merger between Cloetta and Leaf in 2012, the Group formulated its strategies for profitable long-term growth. Since then, net sales have risen by around 26 per cent through both organic and acquisition-driven growth. Cloetta's adjusted operating profit has increased significantly in recent years. The improvement in earnings is mainly attributable to higher efficiency in the supply chain and good cost control.

Strategies

Focus on margin expansion and volume growth

• Improve the strong brands with local traditions.
• Strengthen the strong position in the Nordic market.
• Widen and expand the product portfolio geographically.
• Launch and acquire new products and brands.
• Implement strategic pricing.

Focus on cost-efficiency Focus on employee

• Improve internal processes and systems.
• Improve cost-efficiency.
• Implement a programme for operational excellence ("Lean 2020") in the supply chain.
• Increase breadth in production technology to create flexibility in product development.

development

• Develop Cloetta's culture based on the results of the employee survey "Great Place to Work".
• Attract, develop and retain competent employees.
• Develop leadership and teamwork.

2012 • Merger between Cloetta and Leaf

• New vision for the Group
• New Group Management Team
• New organization
• New financial targets
• New strategy

• Factory restructuring programme was carried out 2013

• The credit facility was renegotiated and senior secured notes were issued
• New vision, mission and values were communicated in the organization
• Factory restructuring programme was completed • Nutisal and The Jelly Bean Factory were acquired 2014
• New sustainability goals were formulated

• Delivered improved profitability with support of LEAN and new ERP system 2015

• New pick & mix concept and the acquisition of Lonka
• The first sustainability programmes for prioritized raw materials was introduced

• Improved profitability 2016• Refinancing

Growth

• New pick & mix contracts in Sweden and Finland.
• Organic sales growth, primarily for chocolate and nuts.
• Lonka, which was acquired in July 2015, also contributes to acquisition-driven growth during first half of the year.

Cost-efficiency

• Operational excellence programme Lean 2020 in the supply chain.
• Synergies from the acquisition of Lonka.
• Good cost control.
• Refinancing of the existing bank loans and repayment of senior secured notes.

Sustainability

• New targets set for the palm oil that Cloetta uses. New palm oil policy under development.
• Sustainability report on which limited assurance procedures have been performed by external auditors.
• Clear goals set for elimination of artificial colours and flavours.

Cloetta's value chain

Cloetta's ambition for creating value is »To bring a smile to your Munchy Moments«.

Through innovative product development, efficient purchasing and high-quality production, as well as good relations with the retail trade and marketing that strengthens the brands, Cloetta creates economic value. At the same time, Cloetta strives to have a positive impact on people and the environment.

• Cloetta's total purchasing costs amounted to SEK 3,607m, of which SEK 2,152m refers to raw materials and consumables. Of these, packaging materials are the largest cost item and account for around 22 per cent. The three main raw materials in terms of

Product development 1 Purchasing Production

• Product development is driven by a combination of consumer needs/preferences, innovation and possibilities in the existing production structure.

2 3

• Cloetta had 2,530 employees during 2016 and total personnel costs amounted to SEK 1,304m.
• Cloetta's 12 factories had 1,825 employees.
• During the year, Cloetta produced 120 thousand tonnes of confectionery, chewing gum and nuts.

Environment

• Development of more energy-efficient processes and lower CO2 emissions.
• Waste is sent to material recycling and energy recovery.
• Systematic environmental management in all production units.

Occupational Health and Safety (OHS)

• Focus on personal safety.
• OHS activities with systematic monitoring and follow-up.
• Product Safety
• Product safety system.
• Focus on measures to prevent serious product complaints. Read more on pages 5 and 35.

Investments

A large share of the capital that is generated is normally reinvested in operations, for example through investments in activities aimed at strengthening competitiveness and creating long-term value for the Group and its stakeholders.

Repayment of borrowings

Customers

• Total net sales amounted to SEK 5,852m. Cloetta's largest customer category is the grocery retail trade. The service trade is also a very important customer group.
• 4 Consumers 5
• We satisfy Munchy Moments.
• Feedback about complaints and viewpoints.
• In general, the customers require BRC or ISO certification.
• Unnecessary transport packaging is avoided and transports are optimized. All packaging can be sorted at source.
• Products of a high quality that are marketed responsibly.
• Offer consumers a wide range of natural products.

Economic impact Production and sales of Cloetta's products generate economic values that benefit the stakeholders.

tax income and profit/loss for the year and including paid dividends and net financial items, total SEK 5,229m.

Cloetta's Code of Conduct is the basis for all relationships within and outside the company

Shareholders

SEK –191m

SEK 403m.

Loss for the year,

A certain share of non-restricted equity is distributed to Cloetta's shareholders in the form of dividends, after the operations have been provided with the capital necessary for development. For 2016 the Board has proposed a dividend of SEK 0.75 per share, equal to a total of SEK 216m, to be paid in 2017. In 2016, SEK 144m was distributed to the shareholders.

Profit for the year excl. impact of impairment loss

The confectionery market

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

Cloetta's main markets are Sweden, Finland, Norway, Denmark, the Netherlands and Italy. The total market for confectionery in Cloetta's main markets amounts to approximately SEK 94bn. The markets where Cloetta is active account for around 67 percent of Western Europe's total confectionery consumption.

Mature market

The confectionery market

The confectionery market is relatively insensitive to economic fluctuations and shows stable growth that is driven primarily by population trends and price increases. The market recession is affecting Cloetta mainly through general price pressure from the retail trade and increased competition from the trade's own private labels. However, private labels account for a relatively small share of confectionery compared to other grocery products.

Because growth takes places almost exclusively through the development of existing strong confectionery brands, the continuous launch of new flavours and products is a key success factor.

In terms of value, sugar confectionery accounts for around 24 per cent, chocolate confectionery for around 57 per cent, pastilles for around 10 per cent and chewing gum for around 9 per cent of the total market in Cloetta's home markets.

Per capita confectionery consumption

Kg per person in 2015

The graph refers to sugar confectionery and chocolate in the countries where Cloetta is active. Source: Datamonitor and Mintel

Competitive market

The global market for confectionery is dominated by international companies like Mars/ Wrigley, Mondelez, Nestlé, Ferrero, Perfetti, Haribo, and Lindt & Sprüngli. But in the local 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 industry is taking place gradually. The industry as such has a long history and the rate of technological change is low.

The nut market

Since 2014 Cloetta is also active in the nut market following the acquisition of Nutisal. The total market is worth around SEK 5bn in the Nordic region and is growing by 5–8 per cent annually in Western Europe. The retail trade's private labels account for around one third of the total market.

Consumption patterns

Confectionery is one of the most impulsedriven categories in the retail trade. With over 80 per cent of purchasing decisions made at the point of sale, brand, availability and product placement are significant success factors.

The European confectionery market is characterized by strong consumer loyalty to local brands. The main aspects when buying are brand, flavour, quality and curiosity about new products.

Consumption patterns and taste preferences vary between the different markets. Compared to the rest of Europe, for example, the Nordic region has lower per capita consumption of chocolate but significantly higher consumption of sugar confectionery than the rest of Europe.

Cloetta's sales channels

Increasingly fewer and larger stores, which is leading to greater efficiency and strength. Typically covered by central agreements at the national level.

Pick & mix

The pick & mix category has a very strong position in the Nordic countries and accounts for a high share of total confectionery consumption, while consumption of pick & mix is considerably lower in Central Europe where packaged sugar confectionery and chocolate have a stronger position.

Traditional sales channels

Cloetta's foremost sales channels in all markets are the grocery retail trade and the service trade.

The grocery retail trade has undergone extensive consolidation and restructuring over the past ten years, and the number of stores has decreased at the same time that floor space per store has grown larger. Concentration in the grocery trade is high in the majority of European markets, which means that the channel can place high demands on its suppliers. At the same time, as a leading supplier Cloetta has the opportunity to develop partnerships that benefit both parties. Strong brands and high-quality products that are attractively priced and can be effectively displayed and marketed are therefore of major importance.

Finland is the most centralized of Cloetta's markets and the Italian grocery trade is the most fragmented, which among other things demands a bigger sales organization.

A large share of everyday consumption of confectionery has traditionally taken place via the service trade, i.e. filling stations and convenience stores, kiosks, etc. Over the past decade, confectionery sales to the service

Generous opening hours, centrally located in the form of convenience stores, but also filling stations. An increasingly wide range of snack alternatives.

trade have decreased, primarily due to fewer filling stations, but also because the service trade has developed its own snack alternatives that compete with confectionery.

New sales channels

Because availability and a strong brand are two key factors for impulse-driven purchases, Cloetta continuously evaluates new types of sales channels to ensure availability where the consumers are found.

Other sales channels include those where confectionery has been offered for many years, including ferry lines, movie theatres, airports and arenas, but also channels that have not been traditionally associated with confectionery sales, such as building supply stores, hotels and bars.

One key success factor is to develop different packaging solutions to help customers in the different channels display the products.

E-commerce

E-commerce is continuing to grow globally in all types of industries, including food products and confectionery. Historically, the consumer goods industry has not been a leader in the e-commerce segment, but forecasts indicate that half of growth in the next five years will be driven by online sales. Research shows that in 60 countries, a full 17–30 per cent of consumers are already buying groceries online and over 50 per cent say they are willing to do so in the near future.

The UK is the most mature market, closely followed by France and the Netherlands. In the Netherlands, e-commerce already accounts for around 5 per cent of total grocery

Grocery retail trade Service trade Other sales channels

These include movie theatres, building supply stores, airports and arenas. This channel often requires support in developing its confectionery sales.

sales in the industry. This figure is significantly lower in Sweden. The typical online shoppers are families with small children, in urban and suburban areas. In 2016, use of mobile devices for retail e-commerce surpassed that of laptop and desktop computers.

The fast-moving consumer goods industry has taken several initiatives to strengthen its e-commerce presence. Unilever has acquired Dollar Shave Club (shaving products for consumers), and Wal-Mart has both acquired JET.com (an online discount platform, including confectionery) and increased its holding in JD.com, a major Chinese online retailer that also offers food products. In the Netherlands, Albert Heijn has acquired BOL.com, a local competitor to Amazon. Read more about Cloetta's development in e-commerce on page 15.

Market size, by region, Cloetta's main markets, 2015 SEK billion

u Chocolate Source: Datamonitor and Mintel

6 distinct consumer trends

Genuine raw materials Treating ourselves On-the-go

There is a continued interest in natural and genuine raw materials. Additives of various types and artificially produced substances are being questioned in favour of natural materials. E numbers are being replaced with the name of the additive in plain language. Natural sugar or stevia are preferred over artificial sweeteners.

Many people live stressful lives and need an occasional break to take a moment for themselves, be happy, enjoy and treat themselves to something special.

There is also a clear trend towards more indulgent and sophisticated products.

More and more often, we are eating outside the home on our way to and from different activities. Greater availability and different solutions allow consumers to satisfy their needs immediately.

Responsibility for the environment and working conditions

One key trend is an interest in the effects of food production on the environment and social conditions. Suppliers and retailers have responded to consumer demand for information, above all about the raw materials' origins, quality and cultivation methods by introducing different types of labeling and certification.

Health and functional confectionery/snacks

People are increasingly seeking raw materials with positive health effects.

Cloetta's product range includes nuts, which are rich in vitamins and minerals. Xylitol, which is found in chewing gum and chewy pastilles, is good for dental health.

E-commerce and social media gaining importance

E-commerce is growing rapidly across all sectors, including the grocery retail trade. Both grocery retailers and food producers are building up their own e-commerce capacity to sell their goods online, and new players are also capitalizing on the powerful growth of online sales. Alongside e-commerce, direct communication with consumers via the social media is emerging as one of the most important channels for further developing the brands' personalities and capturing trends.

Market strategies for growth

New markets, initiatives and concepts

• Acquisitions

Strategic product development

• Innovation Development of package sizes and prices
• New initiatives/business concepts
• Supplement the range where needed

Brand development

• Line extensions
• Wider distribution
• Effective marketing
• Sales and in-store campaigns
• Seasonal products
• Renewal of packaging

• Geographical expansion

• Relaunch of brands

Development of a successful market-leading position

Brand development is the core of day-to-day activities

Cloetta's wide brand portfolio is the Group's most valuable asset. Nurturing and developing these brands is therefore in constant focus for both the sales force and the marketing departments.

Drive organic growth

Strategic product development Through various strategic initiatives based on the Group's existing brands and production structure, Cloetta can drive organic growth.

Read more on page 17

New development opportunities

• New geographical markets

Market strategies for growth

New markets, initiatives and concepts

When good opportunities arise, Cloetta will widen its territory through acquisition of new brands, expansion into new geographical markets or new initiatives/business concepts.

Read more on page 14

Read more on page 20

Brand development

Confectionery is the most impulse-driven category in the retail trade, which means that good availability and visibility in stores, alongside strong brands with high recognition and loyalty, are critical drivers for confectionery sales. Cloetta's continuous brand development and strong sales force are therefore of vital importance.

Planned brand management

Cloetta's ten largest brands account for around 60 per cent of the Group's sales. Read more about the leading brands on pages 21–24.

For each brand there is an individual development plan to continuously contemporize and develop the brand. The primary tools are line extension, package development, sales development and effective marketing.

New flavours

The regular launch of new and attractive product variants or flavours, in segments where there is consumer demand, strengthens Cloetta's offering to both customers and consumers.

An exciting product innovation or seasonal product is mainly aimed at reminding consumers of the brand. Since successful innovations inspire trials of both the new product and often also the original product, good seasonal products and innovations normally generate incremental sales.

Package development

An important part of brand management consists of package development. The packaging material must perform several functions, such as protecting the product on its way to the consumer, enabling easy handling of the product, providing product information and communicating the brand. Package development also includes retail packaging for the various sales channels.

Visibility in stores

One decisive success factor for consumer sales is good exposure in the store, which means that it is crucial how new products and innovations are received by the retail trade. The customers must see the products as being needed, easy to handle and profitable for the trade.

Cloetta has a large, trendsetting and innovative sales force in its main markets. Through good relations with the trade and extensive knowledge about the industry, market and products, Cloetta can present attractive sales solutions that support the customers' business objectives and create added value for both Cloetta and the customer.

The most important part of the sales force's day-to-day work consists of helping the individual retailers display Cloetta's products to achieve higher turnover rates and margins in the store. Through the sales organization's category knowledge and strong in-store presence, Cloetta can reach out with campaigns, monitor local compliance with centrally negotiated listings and distribution agreements and ensure good visibility on the store shelves, in the checkout lines and in other places. Read more on page 16.

Marketing

Effective and well planned marketing, from traditional tools such as outdoor marketing and advertisements to activities in the social media, combined with in-store promotion, stimulates consumer awareness of and demand for Cloetta's products.

Cloetta's marketing is primarily local in nature and is tailored to each brand's strategy and position. Cloetta's marketing is characterized by image-creating brand advertisements in the mass media, sponsorship and events directed to selected target groups.

A large share of Cloetta's advertising budget goes to advertisements on online channels such as Facebook, Instagram and YouTube.

Media meets the trade

Data handling is of increasing importance for marketing and advertising. So-called programmed advertising is being used at a growing rate in the grocery retail industry to gather data and activate the right marketing. With the support of this technology, the brand message, advertisement and e-commerce can work together to deliver a better customer experience and more relevant advertising for each recipient. In the grocery trade, advertisements were previously focused mainly on conveying the brand message. Now there are clear examples where the ad itself drives sales. With so-called shoppable ads, consumers are confronted with advertisements on their mobile phones featuring "buy now" buttons to steer them to the closest sales outlet, which could be online.

Sales-promotional activities

Cloetta typically combines marketing activities with in-store campaigns. New products are normally given effective sales support through campaigns, events, in-store activities and advertisements to reach consumers as quickly as possible.

E-commerce

Like many food producers, Cloetta is in the process of organizing its e-commerce capabilities recruiting the right expertise and opening online stores directly to consumers. Cloetta defines the collaboration with the retail trade in order to deliver a better shopping experience for the consumer and gain a better understanding of digital retail.

Cloetta aims to achieve online growth in line with its market shares. Online sales of confectionery are lower than for other categories, but are expected to catch up in the next few years. Although the share of confectionery sold online is still very low, the growth rate among consumers who have started to buy groceries online is around 30 per cent. The average online shopper also spends two to three times longer on the purchase than they do in the store.

Cloetta is testing its way forward and learning from various initiatives. In the web shop www.jellybeanfactory.com, consumers can buy personalized candy gifts with different messages, such as birthdays greetings. The consumer can write a personal digital message and the gifts are delivered by mail. In Sweden Cloetta has an online merchandise shop, www.cloettashop.se. During the year Cloetta also opened a web shop on Tmall (cloetta.tmall.hk), the Chinese marketplace from Alibaba, where consumers can buy a selection of Cloetta's products from Sweden, Italy and Finland.

Online sales can have various impacts on impulse-driven goods like confectionery and Cloetta must learn more about this together with partners in the grocery trade. Cloetta will focus on increasing its knowledge about online confectionery sales.

Social media

Cloetta's goal is to increasingly communicate in the social media as a means of developing consumer loyalty to the brands, but also to facilitate interaction with consumers and gather valuable feedback. Through the social media Cloetta can:

• Gather knowledge on consumer thoughts and ideas about different products through so-called Candy Portals, i.e. online consumer panels.
• Answer questions incoming online via various media and pass on these viewpoints in the organization.
• Cooperate with consumers, among other things by asking direct questions.

To capture attention in the social media, the content must be interesting and based on stories and experiences.

Measurement tools

Effective marketing is dependent on continuous monitoring and analysis of changes in consumer patterns. In-depth knowledge about consumers and trends is essential for successful product development and marketing.

Marketing activities online and in the social media are targeted and followed up via two tools: DSI (Digital Sentiment Index) is a metric that summarizes the brands' online presence and NPS (Net Promotor Score) continuously measures different aspects of the customer and consumer experience linked to loyalty and recommendation. The purpose of these tools is to quickly track the success of individual activities in the various markets. Thanks to the DSI and NPS measurements the Group can see how marketing initiatives, have contributed to enhancing both the image of and loyalty to these brands.

Protection of intellectual property rights

To prevent infringement of its intellectual property rights, Cloetta uses a special monitoring service that provides alerts about applications for registration of brands, both nationally and internationally, that are identical to or can be confused with Cloetta's key brands.

For example, Kexchoklad's chequered pattern has been design protected for many years and the name Kexchoklad has been trademarked since 2004.

Cloetta further develops its brands

Development

Tools to strengthen

• New flavours and seasonal products.
• Package development.

Challenges

• Coordination of development between markets and brands.
• Availability

Tools to strengthen

• Large and competent sales force.
• Complete product range in stores.

Challenges

• New channels to reach consumers.
• New sales solutions adapted to different customer categories.
• Recognition and loyalty

Tools to strengthen

• Increase consumer awareness through advertising, PR and sponsorship.

Challenges

• Continue to improve use of social media.
• Be visible where consumers are found through planned effective marketing and in-store sales campaigns.

Examples of new flavours during the year

• Ahlgrens bilar Modell A16 • Venco Tikkels Sweet & Sour and Sweet & Fruity • Halloween Mix • Läkerol Ginger Lime • Cloetta Sprinkle Ice Cream Waffle • Saila Jelly Licorice • Gott & Blandat Fruit Salad

Success factors for the sales organization

The right products to the right customer

Selling the right products to the right customer generates profitability for both Cloetta and for the customer. Cloetta's sales force is large and effective, which provides good opportunities for a presence in many different sales points.

Good relations with customers at the central and local levels

Through good relations with the retail trade and in-depth knowledge of the industry, market and products, Cloetta can present attractive sales solutions that support each customer's business objectives.

Good visibility for Cloetta's products

High visibility in stores, and particularly at the checkout stands, is vital for growth in sales. In order to maximize the visibility of Cloetta's products, the sales force also works actively to increase the number of display points in the stores.

Effective sales campaigns in cooperation with the customers

Ensure compliance with central agreements with the retail trade

Boost sales

Marketing campaigns are typically combined with sales promotional activities in the stores. The sales force helps retailers to display these.

The sales force ensures compliance with central agreements and that the agreed range of products is found in the stores.

By being where consumers are found, it is possible to increase sales. The task for Cloetta's sales organization is to continuously seek new non-traditional sales points for selected parts of the product range, but also to increase display space and sales in existing stores.

Strategic product development

Through strategic product development, Cloetta utilizes its strong brands and its flexible production organization to drive and maximize organic growth.

Some examples of strategic initiatives are brand extension, new geographical markets, the relaunch of brands and pure innovations. Strategic initiatives also include price strategies and the related changes in packaging sizes.

Innovation and trends

Product development is a key driver behind Cloetta's brands and enables differentiation in the market. Cloetta's innovation work and optimization of the product development process create the conditions for future new product launches and relaunches.

Fashion and trends are found in all areas, even in the confectionery industry, where they are primarily related to colours, packages, flavours and ingredients. The ability to identify the trends that could be influential for Cloetta is of major importance. Knowledge about trends in the market and consumer behaviour is necessary for the development of successful product innovations.

Market analysis, trend monitoring and interaction with consumers in the social media provide the marketing department with valuable data for analysis of changes in consumption patterns.

Natural ingredients and consideration to environmental and ethical aspects are factors that are affecting the confectionery market to a growing extent. Cloetta continuously reviews all products and questions their ingredients. For example, sweeteners and fruit flavourings have been replaced with stevia and fruit juice in Dietorelle. Stevia is used in Läkerol and xylitol is used in Läkerol DentaFresh.

Product development process

An effective product development process is decisive for profitable growth. Product development is steered by the way in which market trends and consumer behaviour can be optimally combined with existing brands.

The biggest costs in product development arise in the product launch phase and are primarily associated with marketing activities, but also with ensuring efficient production.

Cloetta drives category projects in sugar confectionery, chocolate, pastilles, chewing gum and nuts. Within this framework, Cloetta has developed a product development process that combines consumer demand and needs with the possibilities found in the existing production structure and the innovation activities being carried out within the Group, see next page.

Strategic product development during the year

• Malaco Fudge/Bonbon/Toffee • Nutisal Dry Roasted Peanuts and Cashew Nuts • Red Band Less Sugar • Müsli Bite

The path to a new product

Tools for idea and concept generation and continuous follow-up create the conditions for Cloetta to be an even more innovation-active company.

A focus on taste

Packages and marketing can tempt consumers to try a new product, but if the taste doesn't measure up there is rarely a second purchase. It is therefore critical that the new products launched by Cloetta meet consumer requirements and expectations. The focus is on taste when Cloetta develops new products. Before a product is launched, it undergoes both internal and external taste tests via consumer panels that among other things assess its flavour, consistency and overall impression.

To systematically gather consumer feedback, Cloetta uses a consumer panel that regularly provides feedback and ideas on the Internet after receiving product samples to their homes. The ideas that have come up have been highly valuable for Cloetta's innovation work.

Without approval by the consumer panel, the product will not be released on the market. A large data base of earlier tests and reference values facilitates the necessary assessment.

The process from concept to a product

ready for launch normally takes around one year, but can be accelerated with the use of focused resources.

Launches in new markets

A product that is successful in one market can be launched in another market under an existing local brand. For Cloetta, with its many brands in different markets, scale economies in production can be utilized effectively by matching brands. Some examples:

• Läkerol Dents in Finland have become Läkerol DentaFresh in Sweden and Norway and King chewmints in the Netherlands.
• Sportlife Mints from the Netherlands are sold as Mynthon ZipMint in Finland and under the Saila brand in Italy.
• Läkerol pastilles from Sweden and Norway are sold as King Chewmints in the Netherlands.
• Polly from Sweden has been sold for many years as Pops in Norway, and Norwegian Pops Puffar are sold as Polly Puffar in Sweden.
• Dietorelle from Italy is sold as Red Band Sweet'n Pure in the Netherlands.
• Lonka Bonbons are sold as Bonbon, Malaco in Sweden and Fudge Toffee, Klassikkohyvä in Finland.

In recent years, the British brand Chewits has been launched in several markets that are new for the brand.

Package size

Aside from tasting good and being reasonably priced for the consumer, a new product must be commercially attractive to the retail trade. Its weight, package and distribution are adapted for their respective sales channels and markets. With the right packaging, many of the products that are strong in one market can also secure a good position in new markets.

Package sizes are often associated with price strategies for different customer categories and markets. Changing a package size is therefore a strategic decision for how a brand can be further developed to reach new customers and thereby also new consumers.

Travel Retail

For many years Cloetta has had substantial sales to ferry lines, charter tour operators and airports, so-called Travel Retail.

Well known brands and unique packages in terms of both appearance and size are two of the most important competitive tools.

19Cloetta [ A N N UA L A N D S U STA I N A B I LIT Y R EP O RT 2016 ]

Attention-getting campaigns

Ahlgrens bilar Modell A16 Aakkoset Emoji KING Krijt

In 2016 a new model of Sweden's most fun and delicious car was rolled out in Swedish stores – Ahlgrens bilar Modell A16. The launch was supported by communication that used humour to highlight the enormous popularity of Ahlgrens bilar among the Swedish people. And the name? Modell A16 simply stands for the new 2016 model of Ahlgrens bilar.

Aakoset emoji was launched to target teenagers through the most successful Facebook campaign of all time in the Nordic region according to Facebook.

The campaign is about how adults misunderstand or misinterpret the emojis young people send, which is something most teens have experienced. "Sometimes it's just better to eat the emojis".

Prior to Kingsday, the king's birthday in the Netherlands, consumers were given a piece of chalk in a King wrapper when they purchased a package of King. The chalk was meant to be used for marking out spots at the "Kingsday markets" that are held throughout the country. The campaign was supported on the radio and in the social media.

Mynthon chewing gum was launched a few years ago in Finland based on the concept of "ultimate freshness". The year's multichannel campaign was a parody inspired by perfume ads, with the theme of "always ready", and shows how to boost your self-confidence by chewing Mynthon. The spot got over 1 million views online.

Mynthon Sportlife in a jar Kexchoklad

In 2016 Sportlife was launched in a jar. The launch was made through a humorous TV ad with Ukrainian ice hockey players, and the campaign was supported on the Internet and through in-store activities. The market share for chewing gum in jars was doubled during the year.

Kexchoklad snack stations are part of the popular "Kexchoklad Hunt" ski race in the mountains. Kexchoklad is also featured in connection with major running races such as Göteborgsvarvet and Midnattsloppet. All participants deserve a Kexchoklad bar after crossing the finish line.

New market, initiatives and concepts

In 2015 Cloetta acquired Locawo B.V. (Lonka) – a Dutch company that produces and sells fudge, nougat and chocolate. The acquisition has strengthened Cloetta's position in the Netherlands and given the Group a wider range that can also be launched in other markets. During the year, new pick & mix concepts also reinforced Cloetta's position in Sweden.

Lonka – a significant acquisition

Lonka produces and sells fudge, nougat and chocolate products. Around 50 per cent of sales are branded and 50 per cent consist of pick & mix sales and contract manufacturing. At the time of acquisition, the products were manufactured at two factories in the Netherlands – one in Roosendaal and one in Dieren. In 2016 the factory in Dieren was closed down and its production was transferred to Levice, Slovakia. Prior to acquisition, Lonka had annual sales of around SEK 300m, of which the Netherlands accounted for roughly half. The Nordic countries and the UK are other important markets, especially for pick & mix.

Lonka is a well known brand that has significantly strengthened Cloetta's position in the Dutch market. The acquisition has also expanded Cloetta's product range into new technologies and categories, including the Dutch chocolate market. In the past year a number of Lonka products also changed brand to other brands that are better known in the respective markets, such as Malaco in Sweden and Klassikkohyvä in Finland.

Development of the pick & mix concept

In the autumn of 2014 Cloetta signed an agreement with Coop Sweden to provide them with a whole new pick & mix concept starting in 2015. This means that Cloetta is responsible for the product range, racks, merchandising, etc., in Coop's 700 stores. For many years Cloetta has successfully driven a similar concept, Karkkikatu, in Finland. Pick & mix is estimated to account for around 30 per cent of the total volume in the Swedish confectionery market.

The agreement with Coop was the starting shot for a new pick & mix concept that includes around 150 articles. Since 2016 Cloetta also provides pick & mix concepts for Bergendahls and ÖoB.

In addition, Cloetta has launched a pick & mix concept for natural snacks at Coop.

Cloetta's recent acquisitions

Goody Good Stuff Annual sales at acquisition, SEK 10m. Access to a new technology and brand in natural gummy candy.

Nutisal Annual sales at acquisition, SEK 200m. Access to a whole new category, nuts.

The Jelly Bean Factory Annual sales at acquisition, SEK 100m. Premium offering in sugar confectionery and stronger presence in

the UK.

2015

Lonka Annual sales at acquisition, SEK 300m. Strengthens Cloetta's position in the Netherlands and provides access to a new category.

Cloetta's leading brands

Cloetta is the name and symbol of the Nordic region's oldest confectionery company, with a very strong local heritage. Cloetta's brands fulfil the mission »To bring a smile to your Munchy Moments«.

Ahlgrens bilar

is a fruit-flavoured foam that a large majority of the Swedes love and enjoy. The original taste and elegant design have been unchanged since 1953, when Ahlgrens' candy factory decided to try to produce marshmallows. The result was not as expected; instead it was small foam pieces of candy in the shape of a car. Sweden's best tasting car was born!

New car models have been launched since then, in flavours such as salty liquorice and sweet & sour.

Sold in: Sweden, Norway, Denmark, Finland, the USA, China, Malta, Cyprus, Poland.

Bridge

is a candy mix that was created in 1966 when some employees were playing bridge and ate a a mixture of different tasty products that were made at the factory. One day someone came up with the idea of launching this mix of various delicious flavours in a bag. Bridge is the mature candy mix where everyone can find their favourite.

Sold in: Sweden, Norway, Denmark.

Center

has been around since 1941 when the roll was first launched in Sweden. Center is the tasty roll at the centre of attention – just unroll a piece and enjoy!

Sold in: Sweden, Norway, Denmark, Estonia, Cyprus, Poland.

Chewits

was launched in the UK in 1965 as a kids chewy sweet. The original flavours consisted of strawberry, blackcurrant and orange, which have now developed to include fruit salad and xtreme sour apple.

"Chewie the Chewitsaurus" is the brand mascot who features on all packs and encompasses the brand values for both children and adults.

Sold in: the UK, Norway, Finland, Italy, the Baltics.

Cloetta chocolate

In 2014 a new chocolate concept was launched in Finland under the Cloetta brand. Cloetta chocolate offers inspiring chocolate experiences through exciting combinations of taste and texture, presented with a twinkle in the eye. The current portfolio consists of delicious filled chocolates and countlines and is targeted toward the young and open-minded who cherish time together with friends and family.

Sold in: Finland.

Dietor

has been synonymous with sweeteners in the Italian market since 1975. Dietor guarantees its consumers the best

solution for a sweet taste with less calories. Dietor is available as a powder, in liquid form, as tablets and also stevia-based products.

Sold in: Italy, Germany, the Czech Republic, Bulgaria, Greece, South Korea.

Dietorelle

was launched in 1977 and has a leading position in the Italian market for sugar-free confectionery. The brand, a world of natural pleasure, stands for flavour, fun and colour and is a natural choice thanks to stevia and fruit juices.

Sold in: Italy, Finland, Germany, China, South Korea, Lebanon, Israel, Spain, Belgium, Chile, Morocco, Panama, Bulgaria, the Czech Republic, France, Malta, South Africa, Poland, Ukraine.

Galatine

is a hard pastille that consists of up to around 80 per cent milk and was launched in 1956. Galatine is today the single most sold candy and one of the most loved brands in Italy, with a high level of reassurance among parents and a strong appeal to children and young adults. The Galatine family also includes Choco for an adult target group, an indulgent chocolate-coated bean with a unique taste.

Sold in: Italy, Germany, the USA, Singapore, China, South Korea, Spain, Denmark, Panama, Bulgaria, Malta, Ukraine.

Goody Good Stuff

This tasty gummy candy range was launched in the UK in 2010. The range pioneers a plant-derived bio-gum technology that eliminates the need for animal-based gelatine, which makes the candy suitable for vegetarians. To make the range accessible to an even bigger user-group, the range is also free from artificial colours and flavours, gluten and lactose, and is Halal- and Kosher-certified.

Sold in: the Netherlands, the UK, Sweden, Norway, Germany,

Switzerland, Estonia, France, Malta, Greece.

The Jelly Bean Factory

offers 36 different flavours of gourmet jelly beans, made from 100 per cent natural flavours and fruit juices. Free from gluten, gelatine, and nuts. The Jelly Bean Factory was established in 1998 in Ireland. Every day over 12 million gourmet jelly beans are produced at the factory in Dublin, packaged in a wide range of playful formats. The most juicy, mouthwatering jelly beans on the planet.

Sold in: around 60 countries worldwide, mainly in the UK, China, Canada, the United Arab Emirates, Saudi Arabia, Germany, the Netherlands, Denmark, Sweden, Austria, New Zealand, Australia, South Korea, Poland, Singapore, Kuwait, Ireland.

Jenkki

is the market-leading chewing gum brand in Finland, where it was originally launched in 1951. Since 1975 the brand has been sweetened with the dental innovation xylitol, and has thus become a smart tooth-friendly habit for Finns: as a breath refresher or an enjoyable treat after each meal.

Sold in: Finland, Estonia, China.

Juleskum

is the original that has become a natural part of the Swedish Christmas traditions. Cloetta started making marshmallow Santas as early as the 1930s. Each year a limited edition is released, this year with the taste of Santa's Christmas porridge with cinnamon and vanilla. Although Juleskum is only sold for a limited period around Christmas, it is the fourth best-selling candy bag in Sweden on an annual basis. Juleskum Original is a fluffy, two-coloured marshmallow Santa with a taste of strawberry.

Sold in: Sweden, Norway, Denmark.

King

The De Vries family started producing peppermint in 1902, and from 1922 under the brand name King. Over time, the brand has evolved from a simple throat lozenge into a modern breath freshener. Today, after more than 90 years, it still contains the same secret peppermint blend that makes King loved by many Dutch consumers.

Sold in: the Netherlands, Latvia, Lithuania, Canada, the USA, Germany, Belgium, Suriname, Israel.

Kexchoklad

was launched as early as 1938 and is one of Cloetta's active Swedish classics. Sweden's best tasting between meal snack. Three layers of crispy, chocolate-covered filled wafers make Kexchoklad a snack for active people who need to quickly refill their energy.

Sold in: Sweden, Denmark, Estonia, Latvia, Lithuania, Russia, the USA, France, Guinea, Cyprus, Poland.

Lonka

At Lonka, it's all about soft and delicious sweets made with passion and high quality. Since the first Lonka factory opened in 1920 in the Netherlands, Lonka has been providing consumers with traditional favourites like caramel, fudge, soft nougat and chocolate. With Lonka products, consumers make their coffee and tee moment more indulging.

Sold in: more than 40 countries, mainly Benelux, Sweden, Denmark, Norway, the UK, Spain, Germany, Israel, China, South Korea, Japan, the USA, Brazil, South Africa.

Läkerol Dents/ Läkerol DentaFresh

is the world's first, in Finland market-leading and in Sweden and Norway new, xylitol pastille with 50 per cent xylitol, and is available in several flavours. Take two tablets after every meal to stop acid attack and strengthen your teeth. Läkerol Dents is the most delicious way to take care of your teeth. Läkerol DentaFresh – a smart habit for stronger teeth.

Sold in: Läkerol Dents in Finland. Läkerol DentaFresh in Sweden, Norway.

Mynthon

is the leading pastille brand in Finland, where it was launched in 1976. Fresh and effective is Mynthon's brand essence. The product range consists of chewy, hard and compressed pastilles in a variety of fresh flavours. In 2012, chewing gum was also launched under the brand.

Sold in: Finland, Norway, the Baltics, Hungary.

Plopp

is the mini-bar for indulging yourself or someone close to your heart. Originally introduced in 1949, Plopp is personified by the little mini-bar that stands for nostalgia, fun and playfulness. Plopp consists of wonderful milk chocolate filled with soft toffee.

Sold in: Sweden.

Läkerol

is a classic brand and the tastiest refresher for all occasions. The first box was sold in 1909. Läkerol is available in a variety of flavours and is effective when you want to soothe your throat, refresh your breath or just fancy something tasty. Läkerol makes people talk.

Sold in: Sweden, Norway, Denmark, Finland, Germany, Switzerland, the USA, Singapore, China, Indonesia, Lebanon, Lithuania, Belgium, South Africa.

Malaco

offers a wide variety of sugar confectionery products. The name Malaco comes from the first letters in the company name Malmö Lakrits Compani, founded in 1934. Over the years, many new products have been launched under the brand, such as Gott&blandat, TV MIX, Aakkoset, Familie Guf, Lagerman Konfekt and Kick. Quite simply – Saturday all week.

Sold in: Sweden, Finland, Norway, Denmark, Belgium, Canada, the USA, Germany, Thailand, Israel, the Baltics, France, Cyprus, the UK, Ireland, Poland.

Nutisal

is the Group's nut expert as of 2014. The business started in a shop in Beirut, Lebanon. There, back in 1948, a unique 'dry roasting' method was developed for roasting without oil. Nutisal took this technology to Europe and created a range of dry roasted

mixes that was launched in 2007. Because no oil is used in the process, the consumer can enjoy the genuine taste of nuts. Sold in: Sweden, Denmark, Finland,

the Netherlands, Switzerland, Germany, Spain, Estonia, Latvia, Greece.

Polly

was launched in 1965 and is the leading brand of bagged chocolate on the Swedish market. It's impossible to eat just one. Polly is delightfully chewy foam drops, covered with chocolate. The original is flavoured

with vanilla, arrack and butter toffee. Polly is also the candy that surprises, for example Polly with a taste of Ahlgrens bilar.

Sold in: Sweden, Finland, Denmark, Poland.

Red Band

has roots going back to 1928. Since the start, the Red Band brand has built up a leading position in the Dutch and German sugar confectionery markets with a promise to deliver fun, quality and pleasure. The classic Winegum Mix, the original Drop Fruit Duo's and Pret Mix are some of the well-known products that are sold under the Red Band brand.

Sold in: the Netherlands, Switzerland, Belgium, Canada, the USA, Austria, Germany, Palestine,

Thailand, Israel, the Baltics, the United Arab Emirates, Saudi Arabia, Kuwait, Jordan, Iraq, Spain, Portugal, the Czech Republic, Malta, Suriname, Cyprus, Poland, Hungary.

Sisu

is a liquorice pastille flavoured by a secret Sisu-aroma that was launched in Finland in 1928. Sisu is named for the true nature of the Finnish people – the word 'sisu' means guts, endurance or relentless courage. For the Finns, the Sisu brand is part of the Finnish spirit that no other brand can replace. With Sisu, you can do it. Sisu is available in several flavours packaged in boxes. Since 2013 Sisu chewing gum is also available.

Sold in: Finland.

Sportlife

was launched in the Netherlands in 1981 as the first chewing gum in "blister" packaging. Since the start, Sportlife has been a leader in the Dutch market and also has a strong position in Belgium. Sportlife is based on the brand essence of unexpected freshness and has an international brand profile. In 2015 Sportlife launched the core flavors in jars.

Sold in: the Netherlands, Switzerland, Belgium, Suriname.

Tupla

was launched in 1960 and is the number one chocolate countline in Finland. Tupla means ´double´ in Finnish and Tupla original countline always contains two pieces that are filled with energy and easy to share. The original Tupla countline has a cocoa nougat filling covered with milk chocolate, with a twist of saltiness and roasted almond crush. The taste and texture of Tupla is fuel for the body and attitude. Tupla is available in different flavours and sizes, and since 2015 also as a sport bar.

Sold in: Finland, the Baltics.

Saila

was launched in Italy in 1937 and is now one of Italy's best known and leading brands of pastilles. After becoming part of Cloetta's portfolio in 2007, Saila has emerged as a star in the pastilles market thanks to its unique beans and liquorice products. Saila's slogan is uniquely essential refreshment.

Sold in: Italy, Germany, the USA, Indonesia, Lebanon, Spain, Belgium, Bulgaria, France.

Sperlari

in the form of traditional Italian nougat – il Torrone – Sperlari was launched by Enea Sperlari back in 1836. The secret behind Spelari's

success lies in the combination of tradition and modernity, old recipes that meet new flavours, the finest ingredients and a passion for the craft. Sperlari is a cherished Christmas tradition, and the range includes a wide offering of nougat and chocolate, as well as sugar confectionery.

Sold in: Italy, Germany, Switzerland, Canada, the USA, Lebanon, Israel, Latvia, Belgium, Australia, Colombia, Denmark, Nicaragua, Panama, Croatia, France, Malta, the UK, Ireland, Albania, Slovenia, Ukraine.

Sportlunch

is a crispy wafer generously coated with pure milk chocolate in easyto-break pieces. Sportlunch was launched in Sweden in 1937, under the name "Mellanmål" and changed name to Sportlunch in 1996.

Sold in: Sweden, Norway, Estonia, Lithuania.

Venco

Venco was launched as early as 1878 and is the leading liquorice brand in the Netherlands. Venco has 'a passion for liquorice', which is delivered in a wide range of unique, iconic and top-selling items like chalk and honey liquorice. When the Dutch think of liquorice, they think of Venco.

Sold in: the Netherlands, Germany, Italy, Israel, Belgium, Suriname, South Africa.

Sweden

Sweden is the largest single market in the Nordic region, with around one third of the region's total confectionery consumption. In 2016 the total market showed positive development.

Cloetta's sales and competitors

In Sweden Cloetta is the market leader in sugar confectionery and pastilles, Mondelez (including the Marabou brand) in chocolate and Wrigleys in chewing gum. Overall, Cloetta is the second largest player in the Swedish market of packaged confectionery, with a share of around 24 per cent (24). Mondelez has approximately 31 per cent (31) of the market. The retail chains' private labels have a share of around 5 per cent (5) of the Swedish market.

Pick & mix, an important category that accounts for 30 per cent of the total market, is not included in the market shares above.

Sales channels

The Swedish grocery retail trade is concentrated and increasingly centrally steered, but with good opportunities for influence at the local store level. The task for Cloetta's sales force is to ensure distribution as well as placement and space in the stores in compliance with central agreements, but also to provide the trade with support in implementing campaigns and launches.

The service trade is a vital sales channel . In recent years, alternative sales channels like building supply stores, movie theatres, arenas, etc., have become increasingly important.

E-commerce

Online grocery sales in Sweden grew by over 30 per cent during 2016. Around 20 per cent of Swedish households bought groceries online at least once. Convenient meal kits started to change consumer behaviour and have contributed to moving grocery sales online. Now, online grocery purchases exceed those for meal kits. So far, sales of confectionery have been relatively low.

Sales organization

There are a total of around 200 employees in the sales organization and at the Scandinavian head office in Malmö.

Pick & mix

In 2015 Cloetta launched its own pick & mix concept in the Coop grocery chain under the name Godisfavoriter (Candy favourites).

Cloetta has previously only been a supplier to various pick & mix resellers. Through the contract with Coop and new contracts with retailers like Bergendahls and ÖoB during 2016, Cloetta has moved up as the market leader in pick & mix.

Nutisal

Since 2014 Cloetta also sells dry roasted nuts under the Nutisal brand. Nutisal is the market leader in the service trade and currently commands 10 per cent (10) of the Swedish nut market.

Top-selling brands: Malaco, Kexchoklad, Läkerol, Ahlgrens bilar, Polly, Center, Nutisal, Juleskum, Plopp and Sportlunch

Largest players, Sweden Confectionery market

Finland

Finland is the third largest market in the Nordic region, with around one fifth of the region's total confectionery consumption. The Finnish market was largely unchanged in 2016.

Cloetta's sales and competitors

Cloetta is the second largest player in the Finnish market, with a share of around 25 per cent (25) of packaged confectionery. The market leader is Fazer, with approximately 42 per cent (42) of the confectionery market. The retail chains' private labels have a share of around 8 per cent (7) of confectionery sales in the Finnish market.

Cloetta is the undisputed market leader in pick & mix, which is not included in the market figures above.

The confectionery tax in Finland has been abolished as of 2017. As a result, retailers reduced their inventories in Q4 2016 and sales by confectionery producers declined during the fourth quarter.

Sales channels

The Finnish grocery retail trade is dominated by large players and is the market with the most centralized purchasing in the Nordic region. Thanks to centralized purchasing, new products can achieve wide distribution and become quickly available to consumers.

In 2016 Finland's second largest grocery chain, Kesko, merged with the fourth largest chain, Suomen Lähtikauppa. Kesko has thus strengthened its market share to number two in the grocery trade and number one in general stores.

Sales organization

In Finland there are around 195 employees at the office in Turku and in the sales organization.

Top-selling brands: Malaco, Jenkki, Mynthon, Läkerol, Sisu and Tupla

The Netherlands

The Netherlands is the sixth largest market in Western Europe, with just over 4 per cent of the region's confectionery consumption. The Dutch confectionery market showed slightly negative development in 2016, mainly in pastilles and chewing gum, where Cloetta has a strong position.

Cloetta's sales and competitors

Cloetta is the second largest player within the total confectionery market. In the sugar confectionary market Cloetta is also the second largest player with a, with a share of 22 per cent (21). The market leader is Perfetti with around 26 per cent (26).

The retail chains' private labels have a share of around 9 per cent (9) of total sugar confectionery sales in the Dutch market.

Sales channels

The grocery retail trade is concentrated around a few major players. With primarily centralized purchasing, it is possible to achieve wide and rapid distribution of the new products that are launched. Online grocery shopping has a stronger position in the Netherlands than in any of Cloetta's other main markets, and in 2016 accounted for an estimated 5 per cent of total grocery sales. The hard-discount retail chains with a high proportion of private labels have increased their market shares during the year. Cloetta is not represented in the hard-discount segment.

Sales organization

Cloetta has around 55 employees at the office in Oosterhout and in the sales organization.

Acquisition of Lonka

In July 2015 Cloetta acquired the Dutch company Lonka, which has significantly strengthened Cloetta's position in the Dutch market.

In 2016, the designs, packages and marketing for Lonka's products were improved.

Top-selling brands: Sportlife, XyliFresh, King, Lonka, Red Band and Venco

Italy

Italy is the fourth largest market in Western Europe, with close to one tenth of the region's total confectionery consumption. In 2016 the Italian confectionery market decreased for the second consecutive year.

Cloetta's sales and competitors

Cloetta is the second largest player in the Italian market for sugar confectionery and pastilles, with a share of around 11 per cent (12). The foremost competitors are Perfetti and Ferrero. Perfetti has a market share of around 24 per cent (27) and Ferrero 9 per cent (10).

The retail chains' private labels have a market share amounted to around 13 per cent (13) of sugar confectionery sales in the Italian market.

Sales channels

In Italy, the grocery retail trade is more fragmented than in the Nordic and Dutch markets. The three largest grocery retail chains have a significantly lower share of Cloetta's sales than in the Nordic countries and the Netherlands. Aside from the more modern grocery stores, most sales take place via a very large number of small shops and are handled among other things by sales agents that act as distribution units and work for several suppliers.

Sales organization

In Italy Cloetta has around 140 employees at the office in Cremona and in the sales organization.

Top-selling brands: Sperlari, Dietor, Saila, Dietorelle and Galatine

Source: Datamonitor

Denmark

Denmark accounts for around one fourth of the Nordic region's total confectionery consumption. The confectionery market grew during the year.

Norway

Norway is the smallest market in the Nordic region, with just under one fifth of the region's total confectionery consumption. The Norwegian confectionery market grew in 2016.

Cloetta's sales and competitors

Cloetta is the second largest player in the Danish market for sugar confectionery and pastilles, with a market share of around 18 per cent (16). The market leaders are Haribo with around 28 per cent (30) and Toms with approximately 16 per cent (18). The retail chains' private labels have a market share of around 5 per cent (4) and 2 per cent (1), respectively, of the Danish pastilles and sugar confectionery markets.

Sales channels

The grocery trade in Denmark is moving towards greater centralization, but with a combination of centrally-driven chains and a more decentralized approach than in the other Nordic countries. Extensive efforts at the individual store level are therefore required to achieve distribution and sales of in-store display racks.

Sales organization

In Denmark there are around 35 employees at the office in Brøndby and in the sales organization.

Top-selling brands: Malaco, Läkerol, Nutisal, Center and Juleskum

Cloetta's sales and competitors

Cloetta is the third largest player in the Norwegian confectionery market, with a market share of 10 per cent (10). The market leaders are Mondelez with 39 per cent (39), Nidar (owned by Orkla) with 22 per cent (22) and Brynild with 6 per cent (6). In the market for sugar confectionery, Cloetta is the leading player with a market share of 22 per cent. In pastilles, Cloetta holds the number two position with a market share of 22 per cent. The retail chains' private labels have a share of around 5 per cent (3) of confectionery sales in the Norwegian market.

Sales channels

The Norwegian grocery retail market is consolidated, with three dominant chains.

In Norway the market is significantly more driven by product innovations compared to Sweden and Denmark. Norwegians want to try new products, which means that product innovation and relaunches are crucial for achieving better commercial positions.

Sales organization

In Norway Cloetta has around 40 employees at the office in Høvik and in the sales organization.

Top-selling brands: Malaco, Läkerol, Pops and Ahlgrens bilar

All in all, other markets accounted for 17 per cent (16) of Cloetta's total sales in 2016, with Germany and the UK as the largest markets.

Other markets consist primarily of sales to countries outside Cloetta's main markets, a total of more than 50 countries. The two largest markets are the UK and Germany.

External distributors

In Germany Cloetta has a small organization that takes care of both customer contacts and brands, while distribution of the products is

handled by agents. In the UK, the Baltics and Singapore, Cloetta has a few employees but handles sales and distribution through external distributors.

At year-end 2016 Cloetta had 12 factories in Sweden, Italy, the Netherlands, Belgium, Slovakia and Ireland. All in all, Cloetta produced approximately 120 thousand tonnes of confectionery in 2016.

Cloetta's supply chain is responsible for production, purchasing, planning, logistics, quality, technology and safety. The top priorities during the year have been to implement and drive the Lean 2020 programme in order to increase efficiencies and to integrate the factory in Roosendaal, the Netherlands, that came with the acquisition of Lonka. In 2016 the factory in Dieren, the Netherlands, was closed.

Production rationalizations and transfers

Between 2012 and 2014 Cloetta implemented a factory restructuring programme in which three factories were closed and production was insourced from third-party suppliers. Moving a production line is a complex process that requires extensive documentation, careful planning, knowledge transfer, technical adaptations and fine-tuning. Added to this, a physical relocation of machinery is often required. In total, the restructuring programme meant that 40 per cent of the total volume in the Group was transferred in some way. In 2016 further transfers between the factories were carried out in order to optimize utilization of our factory network.

At the end of 2016 the factory in Dieren, the Netherlands, was closed as part of the synergy programme related to the acquisition of Lonka and its production was transferred to the factory in Levice, Slovakia, which has been expanded in connection with this. The transfer has also made it possible to insource additional production to the factory in Levice.

Occupational safety

Employee safety is fundamental and is the top priority in every production facility. Continuous risk assessments and increased reporting of near misses contribute to greater knowledge about the causes of accidents in the workplace, which contributes to making preventative measures an integral part of day-to-day operations and minimizes the risk for accidents. The key elements of these activities are discussions and workshops that are held in the various workplaces to promote safety awareness and influence behaviour.

Cloetta produced approximately 120,000 tonnes of confectionery in 2016

After a couple of years of steady decreases in occupational injuries, the trend was broken in 2016 and the target of 28 days between accidents was not met. The number of days fell from 26 in 2015 to 18.3 in 2016 (between occupational accidents with >1 day of sickness absence). Seven of the accidents took place in connection with different types of machine interventions, which is normally prevented through robust LOTO procedures (lockouttagout). As a result of the accidents, a new safety standard was drawn up for immediate implementation in all factories during 2016. This will continue to be a priority in 2017.

When factories are acquired, the historical data for LTAs is recalculated. For this reason, the figures for 2012-2015 may differ from the previously reported outcome.

The eight principles of Lean

Lean 2020

Cloetta works constantly to decrease costs and reduce waste. Key success factors in the production process include long-term and dayto-day efforts to achieve continuous improvements and create a learning-driven culture. This is conducted through a systematic focus on lean processes and value engineering. The production strategy has been shaped into a long-term vision – "Lean 2020".

This vision is based on benchmarking against world class production with the aim of achieving operational excellence. To clarify this ambition, clear targets have been set for areas such as machine efficiency, energy consumption and reduction of inventories. The targets will be met through lean processes and tools.

In 2016 Cloetta continued its journey to move from building capabilities to utilizing them in order to meet these targets. A Lean Leadership programme was organized and 40 key people in Supply Chain were trained in Lean Leadership. This year a new concept was also added to the Lean programme, Repetitive Flexible Supply, a concept that will enable Cloetta to further reduce inventories and maximize flexibility and reliability in the Supply Chain.

In 2016 the Lean programme clearly drove improvements in the areas of inventory and waste reduction and increased efficiencies.

• 1 Have a long-term, sustainable customer focus that is shared by all employees.
• 2 Maintain a continuously even process flow from raw material to customer delivery, with the lowest possible inventories and waiting times.
• 3 Have standardized processes to maximize safety and quality and to create opportunities for continuous improvement.
• 4 Encourage people to do things right the first time, i.e. have a culture where the individual operator immediately stops a machine or process that is not working correctly in order to find the root causes of problems.
• 5 Have operators and teams that understand the processes and the company's values, who grow in their jobs and teach others.
• 6 Have a culture in which each individual identifies how problems arise and what improvements can be made. Decisions shall be based on observations.
• 7 Develop a learning-driven and empowering organization and utilize reflections and follow-up to optimize operations.
• 8 Make fact- and team-based decisions after weighing different possibilities, but implement decisions quickly. Focus on discussing how, not whether, to improve.

Roadmap to Lean 2020

Increase reliability and flexibility

• Learn to improve and eliminate the root causes of problems
• Faster and more flexible changeovers
• Better understanding and maintenance of machinery

• Reduce waste

Improve the flow • Achieve base stability

• (continued improvement in machine efficiency and output) • Value stream mapping: reduce bottlenecks • Provide operators with ongoing training and give them greater
• responsibility • Shorter lead times and
• increased frequency

Deliver according to demand (pull)

• Achieve balanced delivery • Reduce dependency on external parties through training and support of operators so that they do things right the first time to a greater extent

• Be a world class producer

Goal

• Improve resource-efficiency per line
• Reduce waste
• Improve energy-efficiency
• Lower inventory levels
• Balance between direct
• and indirect costs

2020

Changes in the production structure 2012–2016

Closure of four factories:

Alingsås, Sweden in 2012, Aura, Finland in 2012 and Gävle, Sweden in 2013. Closure of the factory in Dieren, the Netherlands, in 2016. Transfer of production from these factories primarily to Levice, Slovakia, and Ljungsbro, Sweden.

Acquisition of four factories: Nutisal, Helsingborg, Sweden in 2014, The Jelly Bean Factory, Dublin, Ireland, in 2014, Lonka, Roosendaal and Dieren, the Netherlands, in 2015.

Insourcing

Insourcing of chewing gum to Sneek, the Netherlands, and Tupla to Ljungsbro, Sweden.

Management systems

Cloetta has a central management system to ensure standardized working methods in its operations. Each production unit has a locally adapted management system that is linked to the central system. Central policies, goals and procedures are broken down and implemented at the factory level.

The management systems cover occupational health and safety, quality, product safety and the environment. These systems are based on international standards (BRC Global Standard for Food Safety, ISO 14001 and OHSAS 18001), recurring risk assessments and continuous improvements.

One important aspect of this working method is a systematized meeting structure for monitoring of results against targets, to detect both positive and negative deviations. Goals and results are visualized for example on displays in the facilities to provide knowledge about the current situation, which contributes to promoting awareness and engagement among the employees. Action can be taken immediately in the event of deviations and systematic follow-up creates scope for proactive improvements.

Read more about Cloetta's environmental work on pages 54–55.

Quality and product safety

Cloetta places rigorous demands on quality and product safety. First class raw materials and correct treatment and processing methods are essential for manufacturing of high quality confectionery.

Continuous efforts are made to ensure that the products meet the requirements and expectations of consumers and retailers. For each product there is a quality specification describing the required flavour, aroma, appearance, consistency and package. No azo food colourings are used in Cloetta's products.

All of Cloetta's factories are certified according to the BRC Global Standard for Food Safety. BRC is a standard for assurance of product safety and quality, and is one of the cornerstones of Cloetta's quality management.

The Group's product safety work is based on the HACCP method (Hazard Analysis Critical Control Points). With the help of the HACCP method it is possible to analyze potential risks to the consumer. This provides a basis for steering and control of the entire process, from purchasing of raw materials to delivery of finished products, in order to eliminate and minimize all conceivable consumer risks.

Both the BRC standard and EU food product legislation require traceability of raw materials and products. This traceability has

been assured and is tested regularly. Cloetta has a detailed action plan to enable rapid recall of a product from the market if needed.

Planning and logistics

Effective production planning leads to lower capital tied up in the form of inventories of both raw materials and finished products, at the same time that it increases the service level. Delivery reliability is one of the most critical parameters for the retail trade. Cloetta has a well developed planning system that integrates the entire value chain from supplier to production and final customer. The system also integrates financial planning and prices.

Cloetta works continuously to optimize its flows and working methods, both internally and externally, together with customers and suppliers.

Purchasing

Cloetta's largest cost items in production, accounting for around 60 per cent of total costs, are raw materials and packaging.

Raw materials are purchased only from suppliers that can be verified against Cloetta's ethical, quality, product, safety and environmental requirements. Suppliers to Cloetta are evaluated and approved before they are permitted to deliver raw materials to the factories. The process varies depending on the type of supplier and the type of material delivered. Certain suppliers are physically audited at regular intervals by Cloetta. Cloetta collaborates closely with its largest raw material suppliers, among other things through automated order and delivery processes that are adapted to raw material consumption in each factory.

Cloetta's range includes products that are produced by other manufacturers. External production is outsourced only to manufacturers following approval by Cloetta, according to the same high quality standards that apply to production in Cloetta's own factories. External manufacturers are evaluated and tested regularly.

Consumer and customer feedback

Feedback from individual consumers is extremely valuable in Cloetta's pursuit of continuous improvements.

Each market has a Consumer Service unit that receives, investigates and responds to consumer and customer feedback. In case of possible quality defects, Consumer Service always contacts the factory in question. The affected factory then uses the information provided by the consumer to systematically find the root causes of any defects and thereby eliminate them. Many of the complaints are related to the mixing of products in the bags and damaged packaging.

Complaints, feedback per million sold consumer units

The result for 2016 was a clear improvement compared to last year. This was achieved through an increased focus on Cloetta´s product quality management system, which will continue to be a prioritized area in 2017.

Success factors for production

Engaged employees Employee safety Flexibility

Good communication about processes and goals creates engaged employees who understand the business and how their work contributes to the Group's total results.

A safe working environment is a fundamental right for each employee. Being and feeling safe on the job is essential in order to develop and perform well in the workplace.

A production line is often used for several different products. Rapid changeovers and cleaning are vital for high machine capacity utilization. Flexibility also means that each employee is able to work on more than one line.

High and consistent quality Delivery reliability Cost-efficiency

The goal is to always deliver safe products with the right flavour, appearance and consistency according to their respective specifications.

Good production planning is decisive for effective production and low warehousing costs, but also for delivery reliability to the customers.

Cloetta's sales are based on large volumes. Cost-efficiency is necessary in order to stay competitive.

Helsingborg

San Pietro in Casale Silvi Marina

Cremona

Sneek Roosendaal Turnhout

Levice

Supply chain

Overview of factories

Dublin

Factories

Levice, Slovakia

Production volume 2016: 27,000 tonnes Number of plant employees Approx. 660 Certifications: BRC Global Standard for Food Safety

Number of machine lines: 10 production lines, 31 packaging lines Largest brands: Malaco, Red Band, Läkerol, Chewits, Venco, Läkerol, Mynthon Manufacturing methods: Starch moulding, extrusion, coating, hard- & soft-boiled candy, toffee

Gordona

During the year, the factory in Dieren, the Netherlands, was closed and its production was transferred to Levice, Slovakia.

Ljungsbro, Sweden

Production volume 2016: 23,500 tonnes Number of plant employees Approx. 300 Number of machine lines: 12 production lines with in-line packing, 3 separate packaging lines

Largest brands: Kexchoklad, Ahlgrens bilar, Center, Polly, Plopp, Sportlunch, Juleskum, Tupla

and 1 chocolate production center

Manufacturing methods: Chocolate moulding, starch moulding, coating, wafer production Certifications: BRC Global Standard for Food Safety and ISO 14001

Roosendaal (Spoorstraat), the Netherlands

Production volume 2016: 17,000 tonnes Number of plant employees Approx. 150 Number of machine lines: 5 production lines, 10 packaging lines Largest brands: Red Band, Malaco, Venco, Lakrisal Manufacturing methods: Starch moulding, Coating and Compression of pastilles Certifications: BRC Global Standard for Food Safety

Turnhout, Belgium

Production volume 2016: 14,000 tonnes Number of plant employees Approx. 115 Largest brands: Malaco, Red Band Manufacturing methods: Starch moulding

Number of machine lines: 2 production lines, 4 packaging lines Certifications: BRC Global Standard for Food Safety and ISO14001

Production by factory in 2016, tonnes

1) Spoorstraat 2) Borchwerf

Roosendaal (Borchwerf), the Netherlands

Production volume 2016: 6,500 tonnes Number of plant employees Approx. 100

Number of machine lines: 5 production lines, 14 packaging lines Largest brands: Sportlife, Jenkki, XyliFresh, King

Production volume 2016:	9,000 tonnes
Number of plant employees Approx. 80
Largest brands:	Lonka, Red Band

Sneek, the Netherlands

Number of machine lines: 7 production lines, 14 packaging lines Manufacturing methods: Toffee, fudge and nougat manufacturing Certifications: BRC IFS GMP and Global Standard for Food Safety

Manufacturing methods: Chewing gum, coating, hard-boiled candy and lozenge manufacturing

Certifications: BRC Global Standard for Food Safety, IFS and ISO 14001

Production volume 2016: 6,000 tonnes Number of plant employees Approx. 105 Certifications: BRC Global Standard for Food Safety, ISO 14001 and OHSAS 18001

Gordona, Italy

Production volume 2016: 6,000 tonnes Number of plant employees Approx. 70 Number of machine lines: 4 production lines, 6 packaging lines Largest brands: Sperlari, Red Band, Kick, AKO, Hopea, Tsinuski Toffee Manufacturing methods: Starch moulding and toffee manufacturing Certifications: BRC Global Standard for Food Safety, ISO 14001 and OHSAS 18001

Number of machine lines: 8 production lines, 23 packaging lines Largest brands: Sperlari, Galatine, Zanzibar, Dietorelle, Extra Starka, Läkerol Manufacturing methods: Hard-boiled candy, compressed milk candies and nougat manufacturing

Dublin, Ireland

Production volume 2016: 2,600 tonnes Number of plant employees Approx. 75 Number of machine lines: 1 production line, 10 packaging lines Largest brands: The Jelly Bean Factory Manufacturing methods: Starch moulding and coating Certifications: BRC Global Standard for Food Safety

San Pietro in Casale, Italy

Production volume 2016: 2,000 tonnes Number of plant employees Approx. 90

Number of machine lines: 4 production lines, 10 packaging lines Largest brands: Bentasil, Dietor, Dietorelle, Läkerol, Fruttil, Sisu Manufacturing methods: Sweetener manufacturing and starch moulding Certifications: BRC Global Standard for Food Safety, IFS Food Standard Version 6, ISO 14001 and OHSAS 18001

Production volume 2016: 2,000 tonnes

Helsingborg, Sweden

Number of plant employees Approx. 30 Number of machine lines: 6 production lines, 4 packaging lines Largest brands: Nutisal Manufacturing methods: Dry roasting, frying, coating of nuts Certifications: BRC Global Standard for Food Safety

Silvi Marina, Italy

Production volume 2016: 1,000 tonnes Number of plant employees Approx. 50 Largest brands: Saila, Sportlife, Läkerol

Number of machine lines: 4 production lines, 9 packaging lines Manufacturing methods: Compression of pastilles, coating, liquorice production Certifications: BRC Global Standard for Food Safety, ISO 14001 and OHSAS 18001

Raw material costs

Raw materials and packaging account for around 61 per cent of total production costs. In terms of value, the most significant raw materials are sugar, glucose syrup, polyols, cocoa, nuts and milk powder. Although the purchase prices for several of Cloetta's raw materials changed during 2016, the total cost was largely on par with the previous year.

The prices of Cloetta's most important raw materials are set on the international European commodities exchanges, either directly as in the case of cocoa or indirectly as for glucose syrup, whose price is mainly determined by the price of wheat and corn. This means that Cloetta's purchasing costs for these items are dependent on market pricing. Aside from the production volume, the total cost for raw materials is also affected by more efficient use in the factories.

Cloetta has a central purchasing unit that can carry out more effective purchasing both by consolidating and by exploiting local purchasing opportunities. As a rule, the central purchasing unit pre-purchases the most important raw materials so that they are accessible for a period equal to 6–9 months of production. This also creates predictability in prices and financial outcomes, since cost changes affect Cloetta's purchasing costs at a certain delay. By doing so, Cloetta can most often avoid temporary price swings in the commodities market.

Agricultural policy

The prices of most of Cloetta's raw materials are affected by agro-political decisions regarding subsidies, trade barriers, etc. The EU's new agricultural policy reform, which was passed in 2013, will among other things end the current system of sugar quotas with effect from 2017.

The prices of agricultural commodities are naturally also affected by supply and demand, i.e. the size of the harvest and consumption of food products. In recent years, speculative trading of agricultural commodities has increased dramatically, which has contributed to greater price volatility.

Suppliers

Cloetta uses several suppliers for the majority of its raw materials, but significant consolidations have taken place among the suppliers and this has sometimes made it difficult to find alternative suppliers. The ten largest suppliers of raw materials and packaging account for around 35 per cent of the total purchasing volume.

Suppliers to Cloetta are evaluated and approved before they are permitted to deliver to the factories. Read more on page 35.

Cost trend Sugar

After somewhat declining prices in 2014 and 2015, sugar prices have steadily increased during 2016. The main reasons for higher sugar prices are low stock in Europe and higher world-market prices due to a poor crop.

The EU consumes some 16 million tonnes of sugar annually, but produces only around 13 million tonnes that are permitted for use in manufacturing of food products. The deficit is an effect of the partial deregulation and quota system that have applied in the EU.

Cocoa

The price of cocoa fell during 2016. The cocoa price is often subject to sharp fluctuations that are partly explained by the fact that the cocoa exchange is comparatively small and therefore of interest for speculation. The cocoa price is naturally also dependent on the level of

Breakdown of raw material and packaging costs

supply, i.e. the harvest and trends in demand. Furthermore, the cocoa bean price has been affected by a long-term deficit perspective, the Ebola threat and El Niño risk in Côte d'Ivoire, from which most of Europe's cocoa is sourced.

Milk powder

After a substantial price decrease in 2015 due to stock surplus, the Russian embargo, as well as the abolition of the European quota system, milk powder prices have increased substantially during 2016 due to lower availability and fresh milk prices going up.

Nuts

Nut prices are affected mainly by supply/ demand, the harvest (weather conditions) and exchange rates, since most of the nuts are quoted in US dollars. The cost of nuts, particularly hazelnuts and almonds, has decreased during 2016 while cashew nuts increased significantly due to high demand from the US and China and no export out of India.

Other raw materials and packaging

The price of wheat and corn has a powerful influence on the price of glucose syrup. Supply and demand of glucose has been balanced during 2016 leading to minor price movements. The price of polyols (sweetener) is less affected by grain prices.

Purchase costs for packaging materials have been stable or slightly down.

Core values

Cloetta has four core values that guide the way of working and acting, both within and outside the company. These core values are Focus, Passion, Teamplay and Pride.

Long-term sustainability

Cloetta's overall goal for corporate responsibility is to build sustainable long-term value. For Cloetta, sustainable value is about growing as a company while at the same time ensuring that the people and environments that are affected by Cloetta's operations or products are positively impacted.

Steered by Code of Conduct and core values

Cloetta's work with corporate responsibility is steered by the Group's Code of Conduct. The Code of Conduct is a set of guidelines and principles for the way in which the company conducts operations and the employees' actions in relation to consumers, customers, suppliers, shareholders and colleagues. They are based on Cloetta's core values; Focus, Passion, Teamplay and Pride.

Long-term undertaking

Cloetta's sustainability commitment is a longterm undertaking. Cloetta has therefore formulated a number of goals that extend until 2020.

However, the journey to a sustainable society will not end in 2020. Cloetta is therefore working continuously to evaluate the achieved results and improve its working methods in

Cloetta's Code of Conduct

The Code of Conduct covers the entire value chain, from raw material to consumer, and applies to all activities in all markets and countries where Cloetta is represented. The principles in the Code of Conduct are consistent with:

• The UN's Declaration of Human Rights
• ILO conventions
• Organisation for Economic Co-operation and Development (OECD) guidelines for multinational enterprises
• The ICC framework for responsible marketing of food and beverages
• European Brand Association

order to continuously improve our corporate responsibility work.

Cloetta's goals for 2020 are shown under the respective headings; Greater well-being, Reduced environmental impact and Sustainable sourcing.

Sustainability every day

Cloetta's continuous striving for sustainable development is daily focused on respect for the employees' health and development, control of raw materials and first line suppliers, manufacturing safe products, handling complaints/ returns effectively and reducing the Group's environmental impact.

Measures to achieve day-to-day sustainability are described in this report within the targeted areas, such as product safety in the Supply Chain section and efforts to create a good working environment in the Employees and Production sections.

Scope

Cloetta's sustainability work primarily covers the company's own operations, meaning Cloetta's direct impact on the environment and people. However, Cloetta's commitment to corporate responsibility is integrated throughout the entire value chain.

This means that aside from taking responsibility for the aspects that are under the company's direct control, Cloetta also takes a certain responsibility for indirect aspects outside of its direct control, i.e. from raw material supplier to the recyclability of the product packages.

Sustainability and Cloetta's overall strategies

Cloetta's sustainability commitment supports and is firmly grounded in the company's overall strategies:

Focus on margin expansion and volume growth

By creating sustainability programmes for the prioritized raw material groups and communicating these programmes on Cloetta's packages, the brands are further strengthened among customers and consumers. UTZ-certified cocoa and palm oil certified according to the Roundtable on Sustainable Palm Oil (RSPO)'s principles are two such examples.

Focus on cost-efficiency

Efforts to continuously reduce the company's environmental impact go hand in hand with lower costs. Lower energy use and waste vol-

From raw materials to cherished brands

Cloetta works with responsibility throughout the supply chain, from raw material to finished product. Cloetta supports the relevant ILO conventions and complies with the laws and rules in the countries where it conducts operations. The same requirements are placed on the suppliers, and in order to become an approved supplier to Cloetta, the supplier must undergo an approval process and accept Cloetta's general supplier requirements.

Cloetta – every day

Cloetta has clearly defined guidelines for mutual respect and a shared set of core values. Cloetta has joined the UN Global Compact and works to promote its ten principles in the communities and environments where the company conducts business. Special emphasis is placed on:

• Equality and non-discrimination
• Freedom of association and collective bargaining
• Occupational health and safety
• Working hours

Cloetta's commitment to product content

When it comes to product content and quality, Cloetta is subject to a number of national and international laws and rules. However, Cloetta wishes to take its responsibility further and is a forerunner in developing the content of the products. For example, Cloetta is conducting an internal long-term programme called NAFNAC (No Artificial Flavours, No Artificial Colours), which is aimed at offering a portfolio of products that contain no artificial flavours or colours.

Cloetta's environmental impact

Systematic environmental management provides a foundation for Cloetta's efforts to minimize its environmental impact. Cloetta's environmental work is aimed at complying with the applicable laws and rules, engaging the employees and focusing on continuous improvements in the environmental area. Cloetta's foremost environmental impact arises through water and energy consumption, wastewater emissions, waste and transports.

umes from the factories contribute to greater cost-efficiency.

Focus on employee development

Cloetta works determinedly to create an attractive workplace for all employees and promotes the development of a high-performing organization by continuously developing and training its staff, designing competitive remuneration systems, upholding an inspiring corporate culture and building a clear corporate identity.

Organization for sustainability work

The overall strategies for Cloetta's corporate responsibility work are adopted by the "Group Management Team" and are controlled and monitored through business planning processes at several levels in the company. Ultimate responsibility for corporate responsibility lies with Cloetta's President/CEO.

Cloetta's sustainability work is overseen by the Director Corporate Responsibility, who

Strategic components

functions as a spokesman for issues related to corporate responsibility and is responsible for identifying prioritized areas, acting as the stakeholders' link to the management and supporting the implementation of Cloetta's corporate responsibility strategy. Environmental and occupational health and safety managers are found in all factories.

Independent verification and assurance

Cloetta has commissioned KPMG to make a limited review and assure the sustainability report. The independent review focuses on the most significant aspects of sustainability, as well as assurance that the report satisfies reporting criteria in line with Global Reporting Initiative (GRI) G4. See page 154.

Cloetta supports

Cloetta is involved in projects primarily in its local markets but also takes part in initiatives at the global level. These can include environ-

Policy and prioritized areas	Cloetta's overall strategy and operational policy. Code of Conduct. Responsible marketing. Materiality analysis and Cloetta's sustain ability commitment.
Goals and KPIs	Overall financial targets. Goals and KPIs have been defined for each part of Cloetta's sustainability commitment.
Data	See entire sustainability report.
Management systems, pro grammes and certifications	Lean 2020, IFRS. Cloetta's leadership platform. BRC, ISO 14001, UTZ and RSPO.
External statutes or initiatives	UN Global Compact and other relevant ILO conventions. EWC (European Works Council).

mental projects driven within the framework of Cloetta's sustainability work and projects to promote an active and healthy lifestyle.

Community engagement

The local commitment to sustainable development is aimed at strengthening the surrounding community but also Cloetta's brand both within and outside the company. This engagement is mainly focused on consideration to the local environment where Cloetta's production facilities are based, but can also consist of other activities. Cloetta maintains an ongoing dialogue with local authorities in the locations where it has factories, as well as with the media and schools/universities, among others.

Whistleblower service

Cloetta's whistleblower service that gives all Cloetta employees the opportunity to report concerns about conduct that is not in line with the company's values or ethical principles. As a first course of action, Cloetta's employees are encouraged to contact their manager. If an employee feels unable to openly disclose the information, Cloetta offers an opportunity to report their concerns anonymously.

All reports are treated confidentially. Personal data relating to violation of laws is handled only by key persons or individuals in management positions.

Anti-bribery and -corruption policy

During 2016 Cloetta adopted a new policy on anti-bribery and -corruption. The policy is closely related to Cloetta's Code of Conduct and together they intend to ensure compliance with applicable anti-bribery and corruption control principles. The policy applies to all of our activities in all markets and the principles outlined in this document apply to our relationships with employees, customers, consumers, suppliers, competitors, official authorities and Non Governmental Organisations (NGO).

The policy summarizes key features of anti-bribery and corruption control principles in order to prevent bribery and corruption within Cloetta. It explains compliance procedures to be followed by all Cloetta employees, along with information about applicable reporting and record keeping, and penalties for non-compliance with the policy. It applies to Cloetta, all of its employees, and all persons engaged to perform work for Cloetta, including temporary agency personnel, contractor personnel, and non-employee agents acting on its behalf.

Stakeholders and materiality issues

The areas that are prioritized in Cloetta's sustainability commitment have been defined through a materiality analysis. Every year, Cloetta performs a materiality analysis based on the sustainability issues that have been identified in discussions with Cloetta's stakeholders.

Cloetta's primary stakeholders are customers, consumers, employees, shareholders/ investors, business partners/suppliers and the local communities. These groups are directly critical for Cloetta's long-term survival. In addition, there are a number of other important stakeholders. These are shown in the illustration at right, in the outer circle. Cloetta has a continuous, open dialogue above all with the primary stakeholders based on the expectations and requirements of each stakeholder group.

The methodology behind Cloetta's materiality analysis is aimed at classifying different types of sustainability issues on the basis of two parameters:

• The stakeholder perspective i.e. what importance a specific issue has for Cloetta's stakeholders.
• The impact perspective i.e. the direct impact a specific issue can have on Cloetta from a financial perspective, goodwill, etc.

The issues that are classified as being of critical importance from both a stakeholder and impact perspective are those that have the highest priority for Cloetta. It is these sustainability issues and areas that are defined in Cloetta's sustainability commitment. Government

Cloetta listens

In 2016, more and more customers and consumers demanded increased traceability for the palm oil that is used in some of Cloetta's products. For that reason, Cloetta made a decision during the year to change over to segregated palm oil according to the RSPO's principles and to replace the small amount of palm oil used in Cloetta's glaze with other vegetable oils. Based on the same decision, efforts were also started to formulate a new long-term palm oil policy. Schools/ universities

Fulfil • Follow the health-related issues surrounding sugar. • Follow the health-related issues surrounding artificial ingredients. • Laws and conventions. Prioritize • Social, environmental and economic challenges in developing countries for prioritized raw materials (sustainable sourcing). • Environmental impact in Cloetta's operations. • Employee safety and well-being. • Product safety and quality. Monitor and supervise • Combat corruption and fraud. • Social, environmental and economic challenges in countries of origin for other raw materials. • Responsible marketing. • Ensure diversity. Administrate • Charity. • Local community engagement. • Tax issues. Impact on Cloetta High Very high Very important Important Materiality analysis Importance for Cloetta's stakeholders

Cloetta's stakeholders

Employee^s

Consumer organizations

^Loca^{l c}ommunit^y

Consumers

Media

Banks/ financial players

Shareholder^s

^Supplier^s

Union organizations

Custo mers

Non-profit organizations

Industry organizations

Stockholm stock exchange

The stakeholders' key sustainability issues

Stakeholder	Key issues – sustainability	Communication and cooperation
Customers/ Consumers	w Product safety and quality. w Clear declaration of ingredients. w Eco-friendly packages. w Cloetta takes responsibility for the environment and working conditions. w Ethical issues in general. w Efficient transports to the retail trade.	w With consumers via annual surveys and via websites and social media. w With customers through personal customer and sales meetings on a tertial basis and via customer surveys, but also collaborative initiatives for eco-friendly transports.
Employees	w Good and stimulating working conditions. w A safe working environment. w Health and fitness activities. w Ethical issues in general. w Good financial development for the company.	w Daily meetings to discuss occupational health and safety in the factories. w Annual performance reviews with all employees. w Systematic skills development activities. w Up-to-date information provided monthly, e.g. via managers, the intranet and union representatives. w Employee survey "Great Place to Work " every other year.
Shareholders and investors	w Sustainable long-term financial value growth. w Ethical issues in general.	w Annual report, website, analyst and investor meetings, interim reports and annual general meeting.
Suppliers	w Ethics and business codes in procurement. w Product safety. w Sustainable long-term development. w Support of human rights among raw material producers.	w Collaborative projects for sustainability. w Annual supplier evaluations, sponsorship evaluations and development projects.
Local communities, the public/society	w Cloetta takes responsibility for the environment and working conditions as far as possible. w Laws, regulations and standards. w Cloetta makes a positive contribution to development of society, including the local environment.	w Continuous contact with the local communities/municipalities around Cloetta's factories with regard to the local environment. w Continuous contact with public authorities in areas related to occupational health and safety, environmental and product responsibility, schools and universities. w Annual audits by Certification bodies for ISO and BRC. w Continuous contact with key opinion leaders.

Sustainability goals

Cloetta has defined three central areas for sustainability work that provide guidance in its sustainability commitment. All prioritized issues related to Cloetta's sustainability work are encompassed in these three areas.

Implement sustainable sourcing

By incorporating sustainability and ethical aspects into the company's purchasing strategy, Cloetta creates a platform for ensuring the supply of high quality raw materials to the factories while at the same time improving the opportunities for growers in the countries of origin to develop sustainable farming.

Goal

• Sustainability programmes implemented for all prioritized raw materials.
• By 2020 at the latest, Cloetta's suppliers of oils and fats must have a fully traceable pipeline of palm oil fractions back to known plantations.
• 100 per cent of all cocoa and chocolate purchased by Cloetta must be UTZ-certified.
• By the end of 2017, Cloetta will have implemented RSPOsegregated palm oil throughout the product portfolio.
• By the end of 2017, Cloetta's glazing agent will be free from palm oil.

Reduced environmental impact

Systematic environmental management provides a foundation for Cloetta's efforts to minimize its environmental impact. Cloetta's environmental work is governed by the Code of Conduct, which states that the applicable laws and regulations shall be followed, that Cloetta's environmental impact shall be minimized and that continuous improvements shall be made in the environmental area. Read more on 54–55.

Goal

• Reduce energy consumption in relation to the produced volume (MWh/tonne) by 5 per cent by 2020.
• Reduce the volume of waste in relation to the produced volume (kg/tonne) by 25 per cent by 2020.
• Reduce CO2 emissions from production in relation to the produced volume (kg/kg) by 5 per cent by 2020.

Read more on 48–51.

Greater well-being – Employees

Cloetta is driven by a conviction that value is created by the employees, and that the ability to attract, retain and develop the best and most competent people is crucial for the company's success. It is also of the utmost importance that the safety of our employees is continuously improved. All of Cloetta's factories adhere to the same mantra: "Safety first".

Goal

• The number of days between occupational accidents with >1 day of sickness absence will exceed 24.3 days in 2017.
• Great Place to Work improved Trust Index compared to the previous survey (2014: 52%).

Greater well-being – Consumers

Cloetta's responsibility for consumer well-being includes high and consistent quality, correct and detailed content labelling and responsible marketing. Cloetta also strives to take responsibility for the consumers' well-being through an increased number of natural products.

Goal

• Cloetta's consumers should know that the products are safe and of a high quality. The number of consumer complaints in 2017 will not exceed 5.9 ppm (number per sold million).
• Cloetta is committed to increasing the share of natural ingredients. Cloetta's product portfolio will contain no artificial flavours by 2018 at the latest, and no artificial colours by 2019.

Read more on about employees on page 56–59 and about consumers on page 52.

Sustainable sourcing

Sustainable sourcing in Cloetta's supply chain is a prioritized area. By incorporating sustainability aspects into the company's purchasing strategy, Cloetta creates a platform for ensuring the supply of high quality raw materials to the factories while at the same time improving the opportunities for growers in the countries of origin to develop sustainable farming.

Supplier controls

First of all, sustainable sourcing at Cloetta is about having control one step back in the supply chain, i.e. to the first line of suppliers. Raw materials are purchased only from suppliers that can be verified against Cloetta's requirements for quality, product safety and sustainability, including human rights. Suppliers to Cloetta are evaluated and approved before they are permitted to deliver to the factories. The process varies in relation to the risks, type of supplier involved and which raw material is delivered. Certain suppliers are evaluated and tested by Cloetta's employees via visits according to an established schedule.

Challenges

Secondly, sustainable sourcing at Cloetta is about directly addressing different types of social, environmental and economic challenges that are found in the value chain beyond first line suppliers of specific raw material groups. Cloetta's sustainable sourcing programme is based on external certifications and/or verification according to the guidelines defined in Cloetta's Code of Conduct.

Cloetta has evaluated all raw material groups and prioritized them based on the existing sustainability challenges and Cloetta's opportunities to address these challenges.

Cloetta has defined sustainability programmes for a number of raw materials and the longterm goal is to have sustainability programmes in place for all prioritized raw materials by 2020.

Evaluation methodology

In prioritizing Cloetta's raw materials portfolio, the following aspects have been taken into account:

• What are the sustainability challenges for each raw material?
• What types of sustainability initiatives have been defined?
• Is this a strategic raw material for Cloetta?
• How large are the volumes purchased by Cloetta?
• What scope does Cloetta have to create sustainability projects independently?
• What are the delivery and quality risks?

Cloetta had a total of 463 suppliers to production in 2016

Cocoa is produced by around 5 million farmers and employs some 40 million people, of whom 70 per cent are found in West Africa, primarily Ghana and Cote d'Ivoire.

UTZ-certified cocoa growers produce more

• aging trees

UTZ-certified 453kg/hectares

Not UTZ-certified

• diseases in the cocoa trees
• reduced soil fertility

Cocoa farmers in Cote d'Ivoire

Leads to: • lower yields • lower income • lower quality of life

UTZ-certified

Not UTZ-certified

at the same time that demand for cocoa has been rising steadily for 100 years

higher yields. • UTZ-certified cocoa farmers produce more than growers who are not affiliated with UTZ.

Through UTZ the cocoa farmers are given • Training in new farming methods. • Support to buy better plants, which leads to

Greater knowledge results in higher quality crops

• UTZ-certified cocoa farmers in Cote d'Ivoire have higher knowledge levels than those who are not UTZ-certified, and 83% have shared this knowledge with their families, their employees and others. Cocoa farmers in Ghana 444 kg/hectares

329kg/hectares 405 kg/hectares In Cote d'Ivoire, 98% of UTZ-certified farmers say that their cocoa beans meet the cooperatives' quality standards.

In Cote d'Ivoire, 37% of UTZ-certified farmers feel that the quality of their cocoa beans has improved since joining the UTZ programme.

Cloetta has programmes in place for cocoa and palm oil. Sugar cane sugar and shea butter are two other prioritized raw materials.

Sustainable cocoa

Since 2014 Cloetta buys only sustainable cocoa from UTZ-certified farmers. This means that all cocoa and chocolate that is delivered to Cloetta's factories is UTZ-certified. For Cloetta it is vital to address the challenges facing the cocoa growers in West Africa. By switching to sustainable cocoa from UTZcertified farmers, Cloetta creates a platform for securing a supply of high quality cocoa to the factories while providing better possibilities for West African cocoa growers to develop sustainable farming.

Sourcing of cocoa

West Africa accounts for around 70 per cent of the total global harvest of cocoa beans. There, cocoa is cultivated by three million smallholder farmers, and each farm consists of an average of 2–4 hectares of land with an average yield of 1–2 tonnes of cocoa beans per year. Local intermediaries then distribute the raw materials to the international cocoa wholesalers and exporters, after which the cocoa is sent to Europe. Every year, Cloetta buys approximately 3,000 tonnes of cocoa in the form of cocoa liquor, cocoa butter and cocoa powder from suppliers in Europe.

Low productivity for cocoa farmers

The West African cocoa farmers face a number of economic, social and environmental challenges, of which low productivity on the farms is one of the most critical. Limited knowledge about how to grow high quality cocoa in an efficient manner is a root cause behind the farmers' low productivity. The farmers are also struggling with aging cocoa trees and declining soil fertility at the same time that they often lack the means to finance investments in new plants, fertilizers, etc.

UTZ-certified cocoa – for a better future

With UTZ-certified cocoa, the growers are assisted in building a better future with sustainable farming practices. Through the UTZ programme, they are provided with training in better farming methods, improved working conditions and sustainable growing. The farmers are also given support to buy better plants. All in all, this generates more income and creates better prospects for the individual farmers while better safeguarding the environment.

To earn UTZ certification the farmer must meet strict requirements, which are closely monitored by an independent third party. These requirements include better farming methods and farm management, safe and healthy working conditions, the abolishment of child labour and protection of the environment. Read more about UTZ certification at www.utz.org.

Palm oil

From a sustainability perspective, there are a number of problems surrounding cultivation and production of palm oil and palm kernel

oil. As a result, in April 2014 Cloetta adopted a new palm oil policy that is aimed at preventing destruction of rainforest in the countries of origin and increasing the traceability of the palm oil that Cloetta uses indirectly. In order to take further steps toward traceability, Cloetta has worked during 2016 to update the policy from 2014. Read more on the next page.

Palm oil is a high-yield crop that is one of the most traded vegetable oils in the world. Malaysia and Indonesia account for around 90 per cent of total global palm oil production, and if cultivated in a sustainable manner it can be an important source of income and economic development in these countries. However, there are a number of environmental and social challenges associated with production of palm oil, such as deforestation in environmentally sensitive areas, that have a negative impact on the entire ecosystem.

Due to the urgency of combating the longterm negative effects of palm oil production, Cloetta has decided to formulate a sustainable plan that contributes to preserving the rainforests for future generations. Consequently, in its palm oil policy Cloetta declares a commitment to not contribute to destruction of rainforest.

Some of Cloetta's products contain small amounts of palm oil. However, Cloetta does not buy pure palm oil but only oils and fats that contain derivatives of palm oil to a varying extent.

All palm oil (part of the content in an oil or fat) that was purchased by Cloetta in 2016 is covered by GreenPalm certificates in

Goal 2020

Responsibility for raw material suppliers:

• Sustainability programmes implemented for all prioritized raw materials.
• By the end of 2020, Cloetta's suppliers of oils and fats must have a fully traceable pipeline of palm oil fractions back to known plantations.
• 100 per cent of the cocoa and chocolate purchased by Cloetta will be UTZ-certified.

Outcome 2016

Responsibility for raw material suppliers:

• Sustainability programmes for two new raw materials, sugarcane and shea butter, are under development.
• Efforts to formulate a new palm oil policy started.
• Cloetta decided to change over entirely to RSPO-segregated palm oil and to remove the amount of palm oil used in Cloetta's glaze.
• All cocoa that Cloetta purchased was UTZ-certified.

accordance with the Roundtable on Sustainable Palm Oil (RSPO). Purchases of Green-Palm certificates in 2016 have not yet been audited. This will take place in the spring of 2017. This means that for each tonne of palm oil that is used in production, Cloetta pays a premium to palm oil producers that work according to the RSPO standard. Today, RSPO is the most widely supported method for achieving sustainable palm oil production.

Cloetta's palm oil policy – from 2017 and onwards

At the end of 2016 Cloetta decided to update its palm oil policy. One central part of the new policy is an ambition to improve traceability back to known mills and plantations. In order to maximise traceability, Cloetta will change over to 100% RSPO-segregated volumes in 2017. Unlike GreenPalm certificates, after implementation Cloetta will be able to guarantee that only RSPO-certified palm oil is found physically in Cloetta's products. At the same time, Cloetta will know which mills, and related plantations, the palm oil comes from.

Furthermore, Cloetta's palm oil policy goes beyond that which is currently required in the RSPO standard. By the end of 2017, Cloetta's suppliers must accept Cloetta's requirement not to permit palm oil extraction in primary forest, peatlands, areas with protected forest or areas where slash and burn farming is used in plantation operation.

In 2016 a decision was made to replace the amount of palm oil that is found in Cloetta's glaze. Confectioner's glaze is used in most of Cloetta's products to create a shiny and protective surface that prevents the products

from sticking together, for example in a bag. This means that the great majority of Cloetta's products will be free from palm oil by the end of 2017.

The reason for this decision is that at present is difficult to achieve a traceable pipeline back to the mills and plantations for the small amount of palm oil contained in the glaze.

Sugarcane

To address the sustainability challenges found in the sugarcane industry, Cloetta has become a member of Bonsucro – a global non-profit organization that fosters sustainability in the sugarcane industry.

There are a number of sustainability challenges in the sugarcane industry. Deforestation to prepare the land for new sugarcane plantations is one of the most serious problems, but other problems related to the rights of indigenous peoples and the work environment also exist.

Most of the sugar purchased by Cloetta is of European origin and comes originally from sugar beets. As a result of the current market dynamics in Europe, Cloetta also buys sugar derived from sugarcane. For a long time the European sugar market has been regulated, which has made Europe a net importer of sugar. Today, Europe imports 3 million tonnes of sugarcane-based sugar annually.

With more than 400 members from 32 countries that represent all parts of the delivery chain, Bonsucro is an organization that has the resources to realize its vision: "A sugarcane sector that is continuously improving and verified as sustainable". In addition to support Bonsucro's vision, this membership

will give Cloetta the opportunity to better understand the challenges found in the sugarcane industry.

Shea butter

Shea butter is a vegetable oil that is found in some of Cloetta's chocolate products. The oil comes from the nuts of the shea trees that grow wild in central Africa, which are collected and dried in small villages on the savannah. The shea industry has nearly doubled over the past ten years and currently employs around 16 million poor rural women in 21 African countries. Shea butter is an important ingredient in food products, cosmetics and pharmaceuticals around the world.

But there are a number of major challenges for the shea industry in Africa. One primary problem is the declining quality of the shea nuts that are collected from year to year. Another problem is that the women who collect shea nuts have been largely alienated from the rest of the market, and are thereby prevented from receiving adequate compensation for their harvest. Furthermore, the number of shea trees is decreasing continuously, which indicates lower volumes in the future.

To overcome the sustainability challenges in the shea industry, Cloetta has joined the Global Shea Alliance (GSA). The GSA is a non-profit organization that promotes sustainability in the shea industry. The GSA's mission is to design, develop and propose strategies that provide a foundation for a competitive and sustainable shea industry worldwide, and to support and empower the rural African women and their communities.

Sustainable shea through Global Shea Alliance

16 million women support themselves on shea

• Nearly 2 billion shea trees grow naturally on parklands in 21 African countries, from Senegal to South Sudan. 16 million women in rural communities support themselves by collecting the fresh fruit and processing the kernels. From the shea kernel, a healthy vegetable oil is extracted, also known as shea butter. Shea butter is also used in some of Cloetta's chocolate products.
• The GSA's sustainability programme has been developed in consultation with women's groups, non-profits, food and cosmetics brands and international suppliers of oils and fats based on four guidelines:
• Promote women's empowerment Decent working conditions Development of local communities Protection of ecosystems

Conservation of the savannah ecosystem is critical to ensure a sustainable future for the shea industry.

Read more at: www.globalshea.com

Sustainable palm oil through RSPO

Others 82% u RSPO-certified palm oil t 18%

How do cultivation and production of palm oil impact the environment?

In certain regions, cultivation of palm oil has caused and continues to cause destruction of rain forest.

8 principles that growers must respect

• 1. Commitment to transparency.
• 1. Compliance with laws and regulations.
• 1. Commitment to long-term economic and financial viability.
• 1. Use of appropriate best practices by growers and millers.
• 1. Environnmental responsibility and conservation of natural resources and biodiversity.
• 1. Responsible consideration of employees, and of communities and individuals affected by growers and mills.
• 1. Responsible development of new plantings.
• 1. Commitment to continuous improvement in key areas of activity.

What is RSPO-certified palm oil?

By respecting eight key principles, it is possible to reduce the negative impacts of palm oil cultivation on the environment and communities.

Bonsucro certifies for sustainable sugarcane production

Bonsucro's global standard for sustainable sugarcane is based on 1. Legal compliance.

• 1. Biodiversity and environmental impact.
• 1. Human rights.
• 1. Production and processing.
• 1. Continuous improvements.

members

Worker wages are on average

(at farms and mills)

are certified according to Bonsucro's standard

The average yield per certified hectare is 3.4%

higher than for non-certified

Fewer calories with stevia

In order to offer products with a reduced calorie content, stevia plays a key role for Cloetta's products. Stevia is a plant native to South America whose leaves contain an intense and natural sweetness. Cloetta uses stevia extract in products such as Läkerol, chewing gum, Dietor and Dietorelle.

Nuts – loaded with nutrients

Nuts are a natural source of many vital nutrients and also contain antioxidants. Cashew nuts are rich in iron, folic acid and zinc. Peanuts (which are actually seeds) are rich in protein and contain high levels of Vitamin B3. Almonds (which are actually seeds) are rich in Vitamin E and pistachios are very rich in antioxidants.

Dental benefits with xylitol

Production of the sweetener xylitol, which has fewer calories than natural sugar, was originally started in Finland in the 1970s through extraction from birch sap. Xylitol is found in several of Cloetta's chewing gum products, such as Jenkki, Mynthon, DentaFresh and Toy.

Natural raw materials

Goody Good Stuff and The Jelly Bean Factory are two examples where Cloetta has implemented the idea of 100 per cent natural ingredients. All artificial colours and flavours have been replaced by natural fruit and plant extracts and all other food additives have been removed.

New goal as of 2017 increase the share of natural ingredients. The aim is for Cloetta's product portfolio to be free from artificial flavours by 2018 and artificial colours by 2019.

Clear declaration of ingredients

Cloetta works continuously to develop responsible and clear information about the contents of the products via packages and the website.

High quality and product safety

High quality and product safety are vital in food production and are strictly adhered to in every step of Cloetta's production processes, from inspection of raw materials to finished products. First class raw materials, correct handling and processes according to the recipes create the right flavour, appearance and consistency and eliminate any risks to the consumers.

Goal and outcome for complaints/returns, see page 35.

Läkerol Let's Talk

Läkerol's language training app "Let's Talk" to help new arrivals learn Swedish has been downloaded by more than 32,000 people. The goal of Läkerol Let's Talk is to exemplify the brand and while the same time contributing to integration in Sweden – to Make People Talk for real.

Let´s Talk is a language training app from Läkerol that brings together people who speak fluent Swedish with those who need to practice their skills. The app matches users on the basis of common interests, making it easier to find topics of conversation. Over 32 ,000 people have downloaded the app and registered themselves as users since the launch in September 2016. The share of "teachers" and "students" is evenly distributed between the app users. Around 900,000 chat messages have been sent and a large number of voice and video conversations have been held, of which the longest lasted a full 128 minutes.

Language, the fastest path to integration

Language is one of the fastest and easiest paths to integration, and the best way to learn a language is to use it as often as possible in everyday life. Many new arrivals to Sweden have trouble finding a way to do that, at the same time that there are many established Swedes who are eager to help. That makes Let´s Talk an excellent alternative.

Läkerol has collaborated with people who have in-depth integrity and credibility when it comes to integration issues. These include stand-up comedian Kristoffer Appelquist and hip hop artist Jason "Timbuktu" Diakité, who has taught Swedish to the world famous Egyptian singer Ramy Essam. The ambassadors took part in many different videos to create attention for Let's Talk that have been viewed a total of around nine million times on YouTube, Unruly, Facebook and Instagram.

Integrated campaign across different media

Let's Talk was launched through a major integrated campaign with a focus on social media such as Facebook and Instagram, but also through mobile, search word and banner ads. The campaign also collaborated with various podcast profiles. In addition, the campaign was supported by more traditional media such as outdoor ads, radio and the daily press. To ensure contact with all target groups in Sweden, the campaign was translated to a total of seven different languages.

Sustainability

53Cloetta [ A N N UA L A N D S U STA I N A B I LIT Y R EP O RT 2016 ]

Let's Talk has helped to make "Läkerol Makes People Talk" relevant in our time, for both existing and new consumers.

Read more about Let's Talk at www.lakerol.se/letstalk. The app can be downloaded from App Store and Google Play.

Reduced environmental impact

In 2016, the Paris Agreement was signed within the UN's Framework Convention on Climate Change. The Paris Agreement shows a pathway and direction not only for governments but also for companies around the world. It also sends a signal that it is urgent - we must act now to avoid serious climate change for future generations.

The focus in Cloetta's climate change work is on the following areas:

• reduction of greenhouse gases,
• increased energy-efficiency, and
• reduction of waste.

At present, our efforts are mainly focused on the Group's production units. In a longer perspective, Cloetta aims to widen the focus to also include the environmental impact arising from raw material production.

For the current scope, Cloetta has defined goals, strategies and action programmes for the period until 2020.

Cloetta works to reduce its environmental impact through systematic environmental management. Cloetta complies with the statutory environmental requirements and the Group is not party to any environmental disputes. Environmental initiatives are an integral part of Cloetta's operations and environmental aspects are taken into account when making decisions. Frequent evaluation and follow-up of measures increase awareness about the effects of different working methods on the environment.

Environmental work in the factories

All of Cloetta's factories conduct systematic environmental management that includes action plans and monitoring in a number of different areas. Seven of the 12 factories are certified according to the ISO 14001 standard.

Since 2015, all production units that already have ISO 14001 certification will be added to Cloetta's multi-site certificate. The factories that are not yet certified will be added to Cloetta's multi-site certificate successively.

volume increased by 3.1 per cent.

Outcome 2016

• The volume of waste in relation to the produced volume decreased by 3.0 per cent.

Central environmental management system

To ensure the use of a structured and systematic approach to Cloetta's environmental issues, a decision was made in 2014 to implement a central environmental management system encompassing the entire Group.

The goal is to develop and integrate the environmental management system with Cloetta's central ERP system. A fully integrated methodology creates better potential to live up to the Code of Conduct and deliver results in line with Cloetta's production policy.

Environmental goals 2020

Continuous reduction of the company's environmental impact is a central component of Cloetta's sustainability management. One important part of this work is the formulation of long-term goals and action programmes with clearly defined roles and responsibilities in order to meet the targets. For this purpose, Cloetta has defined three long-term environmental goals that extend until 2020, see graphs below.

Working methods

Every year, Cloetta carries out an assessment of environmental aspects to identify the existing risks and opportunities. Cloetta has an action plan that defines and governs the activities to be carried out in order to reduce the company's environmental impact.

Outcome 2016

⁰ 10 20 30 40 50 60 70 80 2014 2015 2016 Waste Kg/prod. tonne <49.3 Goal 2020

Environmental key performance indicators

2016	2015	2014
213	208	209
2.02	1.96	1.98
0.36	0.35	0.36
2.7	2.9	2.9
14.1	17.6	16.6
66	67	66
83	81	80

For energy consumption, energy consumption per produced tonne and for CO2 , Dublin and Helsingborg are included as of 2014.

For wastewater, COD, waste and recycled waste, Dublin and Helsingborg are included as of 2016.

Roosendaal Borchwerf is not included in the figures.

Environmental impact and priorities

Environmental impact in the confectionery industry arises among other things from water and energy consumption, wastewater emissions, waste and transports. Certain environmental effects are also caused by coolants, other chemicals, noise and particles. Outside Cloetta's direct influence, there is also significant environmental impact connected to production of raw materials and packaging.

The priorities for Cloetta's environmental work have been set based on how the direct operations impact the environment, the scope of Cloetta's impact as a whole, the probability of unplanned environmental events occurring, the requirements of public authorities and other stakeholders and, finally, the extent to which Cloetta can influence development. The prioritized areas for Cloetta's environmental work are:

• energy consumption,
• waste volume, type and recycling,
• reduction of carbon dioxide emissions.

Energy consumption

The Group's aggregated energy consumption during the financial year was 213 GWh (208).

Waste management

All of Cloetta's production units pre-sort their waste. The goal is to continuously develop waste management and reduce the total

volume of production-related and other waste. A decrease in raw material waste has a positive impact on both the environment and the Group's total costs. At present, 83 per cent (81) is recycled. The volume of hazardous waste is very minor and consists of fluorescent tubes and similar.

Emissions

Alongside efforts to reduce energy consumption, Cloetta is also working to choose energy types with the smallest possible negative impact on the environment. For that reason, the total amount of energy used is converted to the amount of CO2 equivalents generated by the chosen energy types.

In 2016 Cloetta had emissions of 0.36 kg CO2 per produced kg (0.35). CO2 emissions within scope 1 (direct emissions) amounted to around 21,500 tonnes in 2016, while the corresponding figure for scope 2 (indirect emissions) was 16,500 in 2016. Cloetta purchases renewable electricity for some of the factories, and assumes 0 kg in CO2 emissions for this power.

Transports

Since 2014 Cloetta calculates CO2 emissions from transports that Cloetta is responsible for. In 2016, 45 kg of CO2 were released per produced tonne including Roosendaal (Borchwerf), the Netherlands. To reduce both freight

Energy sources

costs and CO2 emissions, Cloetta uses stackable pallets for transports between the factories and warehouses. Furthermore, Cloetta chooses transporters that have two-level trailers and extra-long bodies and that use a combination of road/rail/water transports, when possible. If viable, without jeopardizing product quality, refrigerated transports are avoided.

Wastewater

The volume of wastewater was 2.7 m3 (2.9) per produced tonne.

In addition to the three prioritized goals, Cloetta is working to improve the wastewater quality. Cloetta rates this quality among other things in terms of COD (Chemical Oxygen Demand), which measures the amount of oxygen consumed in complete chemical decomposition or organic compounds in water. There are several projects in progress to improve the quality of the wastewater.

Packaging

The packaging materials must perform several functions, such as protecting the product on its way to the consumer, enabling easy handling of the product and communicating the brand. The most common method for consumer packaging is so-called "flexibles", a material that can be recycled or incinerated.

COD*

* COD (Chemical Oxygen Demand), is a measure of the amount of oxygen consumed in complete chemical decomposition or organic compounds in water.

Employees

Cloetta is driven by a conviction that value is created by the employees, and that the ability to attract and retain the best and most competent people is decisive for the company's future.

Cloetta works determinedly to create an attractive workplace for all employees and promote the development of a high-performing organization by continuously developing and training its staff, designing competitive remuneration systems, upholding an inspiring corporate culture and building a clear corporate identity.

Employee survey – Great Place to Work

To create an attractive workplace for all employees, it is essential that there is a genuine interest in understanding how the employees see their place of work, i.e. what they appreciate and what they find lacking or are simply dissatisfied with.

According to Great Place to Work, the best workplaces are built through day-to-day relationships. From the employees' perspective, a good workplace is one where you:

• trust the people you work for,
• have pride in what you do, and
• enjoy the people you work with.

Total number of employees in 2016 2,530

Great place to work

Great Place to Work® helps organizations in all industries and of all sizes to evaluate and develop their workplace cultures. With the help of an employee survey, GPTW offers benchmarks with other workplaces from a base of 10 million employees in 50 countries and approximately 7,000 organizations worldwide. Cloetta has worked with GPTW since 2013.

During the year Cloetta conducted the recurring employee survey "Great Place to Work" in the commercial units. The response rate was high, with 95 per cent of the employees participating, and Cloetta achieved a total Trust Index of 73 per cent. Denmark, Norway, the Netherlands, Finland and Sweden all have a trust index of between 75–90 per cent. Sweden, the Netherlands and Finland have maintained the same high level since the previous survey in 2013. The Trust Index for Norway and Denmark improved by 14 and 11 percentage points, respectively, to a level of 83 and 90 per cent. However, Italy and the International Sales unit (Cloetta's export business) with offices in Italy have had a tougher journey, with a lower result than previously, leading to a Trust Index of 50 per cent.

Follow-up

In 2016 Cloetta analyzed the results of "Great Place to Work" for each country and department in greater detail. In the majority of Cloetta's teams, the main focus has been on improving communication between the management and employees, and between departments. How we can ensure a good working environment despite a high working pace has been another focus area in the follow-up.

In 2017 the "Great Place to Work" employee survey will be carried out in the supply chain. The target is to improve the Trust index compared to the previous survey (2014: 52%). To optimize handling and communication related to the survey and to maintain the focus on ongoing improvement initiatives, the survey will be conducted every other year in the commercial units and every other year in the supply chain.

Relationship between the company and the employees

Cloetta strives to uphold a relationship of mutual respect and trust between the company and its employees. This also steers the company's way of working with the European Works Councils, local company councils and trade unions organizations. Cloetta complies with the applicable laws and regulations in the countries where the Group is active and respects local norms and values. In addition, the Group's principles are consistent with the relevant International Labour Organization (ILO) conventions.

Cloetta encourages a good balance between professional and personal life. It is important to help both men and women combine the demands of their jobs with responsibility for home and family. The Group therefore supports flexible work arrangements like flextime and part-time hours, when possible.

Cloetta's whistleblower service gives all of Cloetta's employees the opportunity to report, either anonymously or via a manager, concerns about conduct that is not in line with the company's values or ethical principles, read more on page 44.

A good and safe working environment

Efforts to improve and develop the working environment are a natural aspect of operational development and the goal is to create a good physical working environment and a healthy working climate where each individual can feel secure and pursue personal development. In production, employee safety is always the top priority and all of the factories perform continuous risk assessments to minimize

the risk for accidents. All incidents and injuries are followed up and reported. The Lean method is used to prevent and reduce production-related occupational injuries. Managers are responsible for preventing occupational illnesses and accidents through monitoring and active measures. Cloetta's HR department has developed a tool that makes it possible, together with managers that have staff responsibility, to detect early signals that can be caused by illness and thereby indicate a risk for long-term sickness absence.

After several years with a steady decrease in occupational accidents, the trend was broken in 2016 and the target was not met. A new safety standard was therefore drawn up for immediate implementation in all factories during 2016. This will continue to be a priority in 2017.

In 2017 projects will be initiated to highlight the importance of maintaining the right balance in life. The projects include activities, lectures and training with a focus on exercise, diet and sleep as key components for achieving a healthy work/life equilibrium.

Diversity

Cloetta aims to be a workplace where diversity and the different qualities, knowledge and skills of all employees are respected regardless of gender, religion, ethnic background, age, race and sexual orientation. Questions about whether anyone feels that they have been harassed or discriminated against are included in the employee survey "Great Place to Work".

Average number of employees and sickness absence

Employees	Slovakia	Sweden	Italy	The Netherlands	Finland	Belgium	Ireland		Norway Denmark Germany		Other	Total
Average number of employees	705	547	423	392	193	102	80	39	36	9	4	2,530
– of whom, women	474	251	171	133	153	22	35	18	19	3	2	1,281
Sickness absence, %,	6.3	5.3	5.0	5.4	1.8	6.5	2.7	7.7	2.0	2.8	0.0	5.2

Age distribution

The right expertise

Cloetta is committed to continuously renewing and utilizing the Group's aggregated expertise. Competent employees that are given scope to realize their full potential create the conditions for Cloetta to maintain its position as an attractive and innovative partner not only for the employees but also for customers, suppliers and business partners. A learning-driven organization that works in project form and the use of interdisciplinary teamwork in day-to-day activities are important components of Cloetta's skills development. All skills development is designed to support Cloetta's strategies, to be business-oriented and to promote the individual's professional interests and needs.

The main focus areas are to develop the right people for the right jobs and to continuously clarify and improve roles, responsibilities and working methods throughout the organization. In recent years there has been a major initiative, primarily in production, to work according to Lean. Read more on page 33.

Employer branding

Cloetta strives to be an attractive employer in the markets where the company is active and thereby retain valuable employees. All recruitment takes place locally with the support of centrally developed tools that include both skills tests and self-assessment tests. For all positions, the selection is based on a job description with specific set of competencies

against which the candidates' performance is measured, in combination with analysis of the various tests and interview material.

In 2016 an internal survey was conducted with questions about why people have chosen to work at Cloetta and what makes them want to stay. People who have been employed by Cloetta for no more than one year were invited to take part. The results show that a majority of employees feel they have been given far-reaching personal responsibility and scope to work independently.

With the help of feedback from the internal survey, Cloetta has initiated a joint platform for communication about Employer Branding, which will be launched in 2017.

Cloetta's leadership

As a leader, it is vital that you dare to trust in both your own leadership and in others. It is also essential to understand each other and why different individuals act differently in similar situations.

For some time Cloetta has worked with the leadership tool Management Drives, which is based on the use of a questionnaire that among other things identifies the drives for each employee, what energizes them and what drains them of energy. By using this leadership tool, both managers and employees are made aware of their own profiles and thereby which working methods suit them best. In 2016 the company further developed its leadership tool through the launch of Cloetta's Leadership Dimensions.

Cloetta's Leadership Dimensions

• Visionary Leadership
• People Leadership
• Entrepreneurial Leadership
• Structured Leadership
• Committed Leadership
• Trusted Leadership

Each dimension is briefly described with the help of several competencies and behaviours that are tied together with Management Drives. By combining the concepts in Management Drives with Cloetta's Leadership Dimensions, the company has created a set of concepts that show who Cloetta's employees are and what type of leaders and employees Cloetta wants to be. Good leadership is essential in inspiring maximum motivation and performance in the various teams and is a vital part in realizing Cloetta's vision and goals.

In 2016 some 65 managers were trained in Cloetta's Leadership Dimensions at the central level, where the Group Management Team also took part. In the second half of the year the local rollout continued in a number of countries. In addition to the follow-up carried out by the managers in their own teams following the course, several follow-up meetings are held for those who have completed the training. In 2017 the training will continue within the organisation.

Framework for remuneration

One major factor in how employees perceive the attractiveness or their workplace is the feeling that they are fairly paid and that there

is a well designed salary structure in the company.

For several years Cloetta has been working closely with one of the major consulting companies to develop an optimized framework and strategy for Cloetta's remuneration/ salary structure. All positions at Cloetta have been evaluated and plotted on a matrix where comparable jobs are ranked similarly regardless of company or function. This has then been supplemented with a salary structure that is benchmarked against other consumer goods companies in each country. The results provide an excellent basis for upcoming salary reviews, where the existing salary level and the year's performance are key parameters in the framework that has now been established.

Number of employees

The average number of employees in 2016 was 2,530 (2,583). 72 per cent of the employees are covered by collective agreements. The employees at Cloetta's factory in Levice, the only factory not covered by a collective agreement, are instead covered by a separate agreement. Of the average number of employees, 56 per cent are employed under collective agreements and 44 per cent are salaried employees.

In production there are certain periods with a higher workload, such as the spring run-up to Easter and the autumn run-up to Christmas, when extra staff is hired. Other areas of operation also use temporary and extra staff. Temporary staff accounted for approx. 9.7 per cent.

Flat organization for shorter decision-making processes

Cloetta has employees in 14 countries who are active in sales and marketing, production, innovation and support functions. Cloetta's head office is located in Stockholm.

Cloetta is organized according to function and its commercial activities are organized separately from the supply chain organization. Human Resources, finance and administrative units are found in each main market and serve as support functions for both the local sales and marketing organization and for production. Responsibility for business development, corporate communications, business control, marketing strategies, HR and certain financial activities like tax, financial administration, insurance and financial control are handled by central staffs.

Goals for greater well-being Employees

• The number of days between occupational accidents with >1 day of sickness absence will exceed 24.3 days in 2017.
• Great Place to Work the Trust Index will be in line with or exceed the previous year's high level. In Sweden, the Netherlands and Finland it was in line with the previous year's high level and in Norway and Denmark it exceeded the year-earlier level. The country that showed a lower score compared to earlier was Italy.

Days between occupational accidents (number of days between accidents leading to >1 day of absence)

After two years of steadily decreasing occupational accidents, the trend was broken in 2016 and the target of 28 days was not met. As a result, a new safety standard was drawn up and immediately implemented in all factories during 2016. This will continue to be a priority in 2017. Roosendaal Borchwerf has not been included. Read more on page 32.

Cloetta's HR wheel

Cloetta's HR work follows an annual cycle of activities aimed at building and raising the level of expertise in the organization. Most of the activities in Cloetta's HR wheel as described apply primarily to salaried employees.

Share and shareholders

Six reasons to invest in Cloetta

Strong local brands

Share and shareholders

Cloetta has an extensive portfolio of strong local brands that are well established in the minds of the consumers. The brands have been cherished for generations and consumers have a personal relationship with the brands they have grown up with.

Clear strategy to deliver growth

In order to drive growth, daily activities to broaden the distribution, updating of packaging, promotional and advertising activities, line extensions and the launch of seasonal products are the most important. Added to these are strategic activities such as innovations, geographical roll-outs, brand extensions and brand relaunches. Lastly, acquisitions can also be used to generate growth.

Attractive non-cyclical market

The confectionery market is relatively insensitive to economic fluctuations and shows stable growth that is primarily driven by population trends and price increases. Historically, annual market growth has been between 1 and 2 per cent.

Focus on continued margin expansion

Cloetta's profitability has improved substantially over the past few years. In order to drive towards Cloetta's financial target to reach an EBIT margin, adjusted, of 14 per cent, there will be a continued focus on cost-effectiveness, growth and profitability.

Strong market positions and distribution

In its core markets, Cloetta has strong sales and marketing organizations that have excellent relations with the retail trade. The wide portfolio of market leading products creates economies of scale and the brands are often very important for the retail trade.

Attractive cash flow generation and dividend

Cloetta's business has a very strong cash generating capacity. Low and stable capital expenditures combined with effective management of working capital generate robust cash flows and thereby allow for share dividends in accordance with the goal to distribute 40-60 per cent of profit after tax.

61Cloetta [ A N N UA L A N D S U STA I N A B I LIT Y R EP O RT 2016 ]

Cloetta's class B share has been listed on Nasdaq Stockholm since 16 February 2009, but Cloetta was originally introduced on the stock exchange in 1994 and has been listed in various owner constellations since then. The Cloetta share is quoted on the Nasdaq OMX Mid Cap index and the Nordic and Swedish indexes for Food Producers, Food & Beverage and Consumer Goods.

Shareholders1

At 31 December 2016 Cloetta AB (publ) had 16,236 (14,164) shareholders, an increase of 15 per cent since year-end 2015. Of the shareholders, 1,129 were financial and institutional investors and 15,107 were private investors. Financial and institutional investors held 91.2 per cent of the votes and 88.6 per cent of the share capital. There were 691 foreign shareholders who held 38.8 per cent of the votes and 50.7 per cent of the share capital. The 15 largest shareholders accounted for 68.2 per cent of the votes and 58.7 per cent of the share capital. At 31 December 2016, AB Malfors Promotor was Cloetta's largest shareholder with a holding representing 42.3 per cent of the votes and 24.6 per cent of the share capital in the company. The second largest shareholder was Columbia Threadneedle (Ameriprise Financial Inc.), with 4.4 per cent of the votes and 5.8 per cent of the share capital, and the third largest shareholder was Artisan Partners Asset Management Inc. with 3.8 per cent of the votes and 5.0 per cent of the share capital.

Share price and trading2

Between 1 January and 31 December 2016, 155,088,223 Cloetta shares were traded on Nasdaq Stockholm for a total of SEK 4,346m, equal to around 57 per cent of the total number of class B shares on Nasdaq Stockholm at the end of the period. Trading on Nasdaq Stockholm accounted for 53.5 per cent, and other markets where the Cloetta share was traded include BATS Europe with 18.2 per cent, BOTC with 14.3 per cent, LSE Group with 5.2 per cent, and others for a total of 8.8 per cent.

The highest quoted bid price during the period from 1 January to 31 December 2016 was SEK 33.30 on 14 October 2016 and the lowest bid price was SEK 24.10 on 18 February 2016. The share price on 31 December 2016 was SEK 28.70 (last price paid). During the period from 1 January to 31 December 2016, Cloetta's share price increased by 3 per cent, while Nasdaq Stockholm PI rose by 6 per cent.

The share's beta and standard deviation3

The price volatility of an individual share compared to the market as a whole is known as its beta. A beta of greater than 1 indicates that the share price is more volatile than the market average. The Cloetta share's beta in 2016 was 0.52 (0.69), which means that the Cloetta share was less volatile than the average on Nasdaq Stockholm. The Cloetta share had a standard deviation of 1.4 per cent (1.6) in 2016. Standard deviation is a measure of the share's variability from its average value for the measurement period, i.e. how volatile the share was during the year.

Lit, i.e. buy and sell orders are public. Traditional exchange trading.

Off-book, stock trades that are executed away from the exchange and are registered later.

Dark, buyers and sellers trade shares anonymously, without public transparency. Not registered on any public exchange.

Auction, auction trading process on an exchange.

• 2) Sources: Nasdaq Stockholm and Fidessa
• 3) Source: SIX

Share price performance

¹⁾ Sources: Euroclear and Holdings

Share capital and capital structure

Cloetta's share capital at 31 December 2016 amounted to SEK 1,443,096,495. The total number of shares is 288,619,299, divided between 9,861,614 class A shares and 278,757,685 class B shares, equal to a quota value per share of SEK 5. According to the Articles of Association, the share capital shall amount to not less than SEK 400,000,000 and not more than SEK 1,600,000,000, divided between not fewer than 80,000,000 shares and not more than 320,000,000 shares.

Dividend policy

Cloetta's long-term goal is a dividend payout of 40–60 per cent of profit after tax. Neither the Swedish Companies Act nor Cloetta's Articles of Association contain any restrictions regarding the right to dividends for shareholders outside Sweden. Aside from any limitations related to banking or clearing activities in the affected jurisdictions, payments to foreign shareholders are carried out in the same manner as to shareholders in Sweden.

A dividend of SEK 144m was transferred to the shareholders in 2016. The ambition is for future cash flows to be used for investments and also complementary acquisitions. For 2016 the Board proposes a dividend of SEK 0.75 per share, which is equal to 54 per cent of profit for the year excluding the impact of impairment losses. The dividend is resolved on by the Annual General Meeting (AGM) and disbursement is handled by Euroclear Sweden AB. The right to a dividend is granted to those persons who are listed as shareholders in

the share register maintained by Euroclear Sweden AB.

Articles of Association

Cloetta's Articles of Association contain a Central Securities Depository (CSD) provision and its shares are affiliated with Euroclear Sweden AB, which means that Euroclear Sweden AB administers the company's share register and registers the shares to owners.

Each A share grants 10 votes and each B share one vote in shareholder meetings. All shares grant equal entitlement to the company's profits and an equal share in any surplus arising on liquidation. Should the company issue new shares of class A and class B through a cash or set-off issue, holders of class A and class B shares have the right to subscribe for new shares of the same class in proportion to the number of shares already held on the record date. If the issue includes shares of only class B, all holders of class A and class B shares have the right to subscribe for new B shares in proportion to the number of shares already held on the record date. Corresponding rules of apportionment are applied in the event of a bonus issue or issue of convertibles and subscription warrants. The transference of a class A share to a person who is not previously a holder of class A shares in the company is subject to a pre-emption procedure, except when the transfer is made through division of joint property, inheritance, testament or gift to the person who is the closest heir to the bequeather. After receiving a written request

from a holder of class A shares, the company shall convert the class A shares specified in the request to class B shares.

Undertaking by Malfors Promotor

In connection with the merger between Cloetta and Leaf in December 2011, Malfors Promotor undertook, in relation to Cloetta and Leaf Holding S.A. (CVC and Nordic Capital), to convert parts of its holding of class A shares to B shares so that Malfors Promotor's share of the total number of votes in Cloetta after conversion is equal to 39.9 per cent in the first phase and 33.34 per cent in the second phase. Conversion to 40.2 per cent (39.9 per cent after full exercise of the outstanding option programme issued by the three principal shareholders) was carried out in December 2012. Conversion to 33.34 per cent will take place when Cloetta's net debt/EBITDA ratio is equal to or lower than a multiple of 2.7, according to the stipulations in the previous loan agreement between Cloetta and Svenska Handelsbanken AB (publ). The stated percentages for Malfors Promotor's conversion undertaking apply on a fully diluted basis for the outstanding incentive schemes in Cloetta. Furthermore, the shares that have been acquired by Malfors Promotor after 15 March 2012 (the settlement date for the rights issue that was carried out in connection with the merger between Cloetta and Leaf) will not be included in the calculation.

The net debt/EBITDA ratio of 2.7x or lower was realized at 31 December 2016. The conversion of the second phase will be carried out in February 2017.

Shareholder categories, % of votes 31 December 2016

Number of shareholders by size of holding 31 December 2016 Number

financial reports. During this period, representatives of the Group will not meet with financial media, analysts or investors.

Shareholder agreement

Oy Karl Fazer Ab, Conclo Ab, Oy Cacava Ab and certain private individuals affiliated with Oy Karl Fazer Ab have in relation to Hjalmar Svenfelt Foundation (which owns shares in Cloetta through AB Malfors Promotor), previously undertaken to refrain from acquiring, directly or indirectly, shares in Cloetta during a 10-year period. The 10-year period starts on the first date of trading for Cloetta's class B shares on Nasdaq OMX First North on 8 December 2008, provided that the Hjalmar Svenfelt Foundation does not reduce its direct or indirect holding during this period to a level of less than 30 per cent of the votes in Cloetta.

Individuals with an insider position

Persons discharging managerial responsibilities for Cloetta and persons or legal entities closely associated with them are obliged to notify Cloetta and the Swedish Financial Supervisory Authority of every transaction conducted related to changes in their holdings of Cloetta shares once a total amount of EUR 5,000 has been reached within a calendar year according to the regulation of the European parliament and of the council on market abuse.

Listed companies are required to record a logbook of individuals who are employed or contracted by the company and have access to insider information relating to the company. These can include insiders, but also other individuals who have obtained insider information. Cloetta records a logbook for each financial report or press release containing information that could affect the share price.

Silent periods

Cloetta maintains a silent period of at least 30 days prior to the publication of its quarterly

15 largest shareholders at 31 December 2016

	% of votes	% of share capital	Total no. of shares	No. of A shares	No. of B shares
AB Malfors Promotor	42.3	24.6	71,063,560	9,855,934	61,207,626
Columbia Threadneedle	4.4	5.8	16,657,769	–	16,657,769
Artisan Partners	3.8	5.0	14,429,617	–	14,429,617
Wellington Management	3.7	4.8	13,829,717	–	13,829,717
Dimensional Fund Advisors	1.9	2.4	7,062,734	–	7,062,734
Carnegie Fonder	1.7	2.3	6,578,358	–	6,578,358
Norges Bank	1.7	2.2	6,292,619	–	6,292,619
JP Morgan Asset Management	1.5	2.0	5,754,971	–	5,754,971
Ulla Håkansson	1.3	1.7	5,000,000	–	5,000,000
Franklin Templeton	1.3	1.7	4,775,300	–	4,775,300
Vanguard	1.2	1.6	4,496,360	–	4,496,360
Odin Fonder	1.1	1.5	4,334,866	–	4,334,866
Transamerica Asset Management, Inc	1.0	1.4	3,956,400	–	3,956,400
Wasatch Advisors Inc.	0.7	0.9	2,643,927	–	2,643,927
Olof Svenfelt	0.6	0.8	2,347,330	30	2,347,300
Total, 15 largest shareholders	68.2	58.7	169,223,528	9,855,964	159,367,564
Other shareholders	31.8	41.3	119,395,771	5,650	119,390,121
Total	100	100	288,619,299	9,861,614	278,757,685

Source: Holdings Trustee-registered accounts/shareholders are not included in this list. Current holdings for the 15 largest shareholders can be found at www.cloetta.com

Size categories at 31 December 2016

	No. of share holders	Total no. of shares	No. of A shares	No. of B shares	% of share capital	% of votes
1–500	10,834	1,554,595	2,098	1,552,497	0.5	0.4
501–1,000	1,919	1,657,644	500	1,657,144	0.6	0.4
1,001–5,000	2,362	5,972,175	2,400	5,969,775	2.1	1.6
5,001–10,000	435	3,342,502	525	3,341,977	1.2	0.9
10,001–15,000	131	1,666,412	–	1,666,412	0.6	0.4
15,001–20,000	93	1,717,478	–	1,717,478	0.6	0.5
20,001–	462	272,708,493	9,856,091	262,852,402	94.4	95.8
Total	16,236	288,619,299 9,861,614		278,757,685	100	100

Source: Euroclear

Shareholders by country at 31 December 2016

	No. of share holders	% of votes	% of share capital	Total no. of shares	No. of A shares	No. of B shares
Sweden	15,545	61.2	49.3	142,210,319	9,861,614	132,348,705
USA	102	19.1	25.0	72,148,389	–	72,148,389
UK	75	11.9	15.5	44,727,767	–	44,727,767
Luxembourg	26	2.0	2.6	7,482,356	–	7,482,356
Germany	23	1.0	1.4	3,922,851	–	3,922,851
Other countries	465	4.8	6.2	18,127,617	–	18,127,617
Total	16,236	100		100 288,619,299 9,861,614 278,757,685

Shareholder categories at 31 December 2016

	% of	% of share	No. of share	% of share
	votes	capital	holders	holders
Private investors	8.8	11.4	15,107	93.0
Of which, Swedish residents	8.6	11.3	15,003	92.4
Legal entities	91.2	88.6	1,129	7.0
Of which, Swedish residents	52.6	38.0	542	3.3
Total	100	100	16,236	100
Of which, Swedish residents	61.2	49.3	15,545	95.7
Source: Euroclear

Source: Euroclear

Development of the share at 31 December 2016

Year	Event	Increase in share capital	Total share capital	Increase in no. of shares	Total no. of shares
1998	Opening share capital, par value of the share is SEK 100	–	100,000	–	1,000
2008	Non-cash issue in connection with demerger of Cloetta Fazer	99,900,000	100,000,000	999,000	1,000,000
2008	Share split, quota value of the share changed from SEK 100 to SEK 4	–	100,000,000	23,119,196	24,119,196
2008	Bonus issue, quota value of the share changed from SEK 4 to SEK 5	20,595,980	120,595,980	–	24,119,196
2011–2012	Conversion of convertible debenture loan	2,836,395	123,432,375	567,279	24,686,475
2012	Issue in kind	825,934,620	949,366,995	165,186,924	189,873,399
2012	Rights issue	493,729,500	1,443,096,495	98,745,900	288,619,299

Source: Euroclear

Investor relations 2016

Cloetta meets regularly with investors and analysts. In 2016, Cloetta had more than 100 individual investor meetings in which the CEO, CFO or IR took part. At least twice a year, trips are made to Europe and the USA to meet investors and shareholders. In addition, Cloetta regularly attends major investor club meetings, lunches and evening meetings organized by banks and the Swedish Shareholders Association (Aktiespararna).

The following analysts regularly monitor Cloetta's development: Berenberg Bank, Anna Patrice Carnegie, Mikael Löfdahl Danske Bank, Mikael Holm Handelsbanken, Nicklas Skogman, Peter Wallin Nordea, Stefan Stjernholm SEB, Nicklas Fhärm

Share-based long-term incentive plans

The table below represents the main characteristics of the share-based long-term incentive plans that have been approved by the AGM. For more information about the incentive plans, see page 76, and Note 24 on page 121.

	LTI 2016	LTI 2015	LTI 2014	LTI 2013
AGM approval date		Dec 12 April 2016 23 April 2015 29 April 2014		Jan 11 April 2013
Maximum number of B shares to be allocated	1,524,100	2,000,000	1,773,840	1,920,000
as percentage of total shares	0.5	0.7	0.6	0.7
as percentage of voting rights	0.4	0.5	0.5	0.5
Number of employees offered the opportunity to participate	73	74	66	68
Number of participants at inception date	49	46	49	45
Estimated number of B shares to be allocated, subject to possible recalculation	941,840	500,855	384,945
as percentage of total shares	0.3	0.2	0.1
as percentage of voting rights	0.2	0.1	0.1
Number of participants at reporting date	45	39	38
Vesting date				18 May 2016
Realized performance target, %				12.4
Actual number of matching shares granted on vesting date				166,500
Actual number of performance shares granted on vesting date				61,380
Total number of B shares granted on vesting date				227,880
as percentage of total shares				0.1
as percentage of voting rights				0.1
Number of participants at vesting date				38

Segment Mid cap

Ticker symbol CLA B ISIN code SE0002626861 Currency SEK Standard trading unit 1 share No. of shares in issue 278,757,685 Highest price paid in 2016 SEK 33.30 (14 October 2016) Lowest price paid in 2016 SEK 24.10 (18 February 2016) Last price paid 2016 SEK 28.70 Share price growth in 2016 3 per cent The share's beta against SIXGX 0.52 (0.69) The share's standard deviation 1.4 (1.6)

Marketplace Nasdaq Stockholm Date of listing 16 February 2009 Sector Food Producers, Food & Beverage and Consumer Goods

IR-Contact Jacob Broberg Senior Vice President Corporate Communication and Investor Relations Telephone: +46 (0)70-190 00 33 Mail: jacob.broberg@cloetta.com Twitter: JacobBroberg

Frequently asked questions to Cloetta

Why don't you sell product X or Y anymore, and do you have any plans to launch product Z?

If we no longer sell a product, this is unfortunately often due to insufficient demand for the product in question. In certain cases, it could also be because the product's profitability has been too low or even negative. The launch of new product types can sometimes be difficult if we lack a brand that can carry them, at the same time that the necessary marketing investments would be so high that they wouldn't be profitable.

How will you meet your margin target?

Profitable growth will contribute to higher earnings. Our aim is to grow in line with the market while at the same time focusing on growth in pick & mix, where we see good potential. We can also consider additional acquisitions. We are currently implementing the Lean 2020 programme in the supply chain that will help to boost profitability. Furthermore, we are committed to driving profitability in our past acquisitions. Lastly, we have deployed a joint ERP system throughout the Group that will create better conditions for strengthening profitability.

When will you meet your 14 per cent margin target for adjusted operating profit?

In recent years we have successively strengthened our margin and in 2016 achieved a level of 13.0, which is an improvement compared

to earlier years. However, we have not set a specific timeline for reaching the target.

What is your pricing strategy?

We adjust our prices based mainly on fluctuations in raw material costs and exchange rates. This means that over time, Cloetta will hopefully avoid the impact of cost trends for raw materials. Sometimes we also adjust prices in connection with initiatives such as new product launches or changes in packages.

Do you plan to make additional acquisitions, and if so, in which countries?

We aim to pursue acquisitions that are consistent with our Munchy Moments strategy. This means that we acquire companies with impulse-driven brands that are well suited to our distribution chain.

Will you use the strong cash flow for acquisitions, to reduce debt or to pay dividends to the shareholders?

In 2016 we met our targeted net debt/EBIT-DA ratio of 2.5x and now feel that we have the capacity for both acquisitions and share dividends. The dividend payout ratio should be 40 – 60 per cent of net profit. However, we see no reason to reduce the net debt/EBITDA ratio to a level much lower than 2.5x.

How is Cloetta affected by the ongoing debates about sugar, health and childhood obesity? The major challenge in this context is hidden

sugar, i.e. the sugar hidden in everyday food products like breakfast cereal, yoghurt, bread, etc., and to a certain extent also carbonated beverages. The discussion should focus on consumption of these "sugar traps". Cloetta's products are among the most honest, since all consumers are aware that they contain sugar. Furthermore, 30 per cent of Cloetta's products are sugar-free. So for those seeking an alternative to products with sugar, Cloetta offers options such as nuts, chewing gum with xylitol, pastilles and sugar-free candy.

How big is the risk that various sugar taxes will be introduced, and how will that affect you?

In general, we have to reckon with the possibility that different countries will both introduce and abolish sugar and confectionery taxes from time to time. When different taxes are introduced it naturally affects our sales, but only to a fairly minor extent since our products are of a type that consumers want, and can afford, to treat themselves to despite price increases.

Why do you use palm oil in your products?

Our ambition is to eliminate palm oil from all products with the exception of certain chocolate and fudge products during 2018 at the latest. In those products where there is no satisfactory alternative to palm oil, mainly chocolate confectionery, we use RSPOsegregated, GreenPalm-certified palm oil.

Share price performance during 2016

Net sales and profit

Condensed consolidated profit and loss account

SEKm	2016	2015
Net sales	5,852	5,674
Cost of goods sold	–3,533	–3,463
Gross profit	2,319	2,211
Selling expenses	–955	–949
General and administrative expense
– Impairment loss	–771	–
– Other general and administrative expenses	–675	–591
Total general and administrative expenses	–1,446	–591
Operating profit/loss	–82	671
Net financial items	–174	–178
Profit/loss before tax	–256	493
Income tax	65	–107
Profit/loss for the year	–191	386

Net sales

Net sales for the full year were up by SEK 178m to SEK 5,852m (5,674) compared to the previous year. Organic growth amounted to 0.5 per cent, acquisition-driven growth was 2.2 per cent and changes in exchange rates accounted for 0.4 per cent.

Over half, or 54 per cent (55), of Cloetta's sales consist of sugar confectionery and 17 per cent (15) of chocolate. Pastilles account for 14 per cent (15), chewing gum for 6 per cent (7), nuts for 4 per cent (3) and other products, mainly sweeteners, for 5 per cent (5).

The largest increase compared to the previous year was seen for chocolate.

Sales in six main markets

Cloetta has six main markets, of which Sweden is the largest with around 31 per cent (30) of the Group's sales. The second largest market is Finland with 17 per cent (18). The Netherlands account for 14 per cent (13), Italy for 12 per cent (13), Denmark for 5 per cent (6) and Norway for 4 per cent (4). Sales increased or were unchanged in Sweden, Finland, Norway, Denmark and in the export markets, but declined in the Netherlands and Italy.

In Italy the important seasonal sales declined.

Other markets

In addition to the main markets, Cloetta's products are sold through distributors in some 40 additional markets. Sales in these markets grew compared to the previous year and other markets combined accounted for 17 per cent (16) of the Group's sales. The two largest markets are Germany and the UK, both of which decreased slightly during the year.

Price strategies

In Cloetta's main markets, except in Italy, grocery trade is very consolidated with few, very large retail changes. In total, Cloetta's ten largest customers accounted for around 43 per cent (40) of the Group's sales.

Concentration of the grocery retail trade has exerted powerful price pressure on all of its suppliers. To a large extent, Cloetta has handled this through efficiency improvements. To offset changes in raw material costs and exchange rates, Cloetta's strategy is to pass these on by adjusting its prices.

Gross profit

Gross profit amounted to SEK 2,319m (2,211), which is equal to a gross margin of 39.6 per

cent (39.0). The improvement in gross margin is mainly explained by higher efficiency in the supply chain.

Raw material and packaging account for 61 per cent (62) of total production costs. In terms of value, the most significant raw materials are sugar, cocoa, glucose syrup, polyols, gelatine and milk powder. Overall raw material costs were largely unchanged for Cloetta during the year, but for both sugar and milk there has been a rising tendency after the previously relatively low prices. The price of nuts and almonds fell during the year, while the price of cashew nuts has increased. In addition, exchange rate changes have affected the purchasing costs for certain products.

Operating profit/loss

Operating profit/loss was SEK –82m (671). This figure includes an impairment loss of SEK –771m (–) which is non-cash in nature. Operating profit, adjusted for items affecting comparability, improved to SEK 758m (690).

Items affecting comparability

Operating profit/loss includes items affecting comparability of SEK –840m (–19), of which

the impairment of Cloetta Italy accounted for SEK –771m (–). Other costs are related to the closure of the factory in Dieren, the Netherlands, the remeasurement of contingent considerations and a lost dispute related to the closure of the warehouse in Norrköping in 2013, for which Cloetta has been ordered to pay rent retroactively.

Employees

The average number of employees was 2,530 (2,583) during the year. The decrease is mainly related to Cloetta's closure of the factory in Dieren, the Netherlands, that was included in the acquisition of Lonka.

Research and development

Costs for research and development (R&D) were charged to operating profit in an amount of SEK 40m (47) and are primarily attributable to the creation of new product and brand varieties as well as packaging solutions within the framework of the existing product range. No expenses for research and development have been capitalized.

Total operating expenses – change including cost of goods sold and excluding impairment losses SEKm 5,500

Operating expenses, excluding impairment losses

Quarterly data

	2016	Q4	Q3	Q2	Q1	2015	Q4	Q3	Q2	Q1
Net sales, SEKm	5,852	1,684	1,448	1,362	1,358	5,674	1,622	1,459	1,280	1,313
Operating profit/loss, SEKm	–82	–548	216	142	108	671	239	212	130	90
Operating profit, adjusted, SEKm	758	258	224	150	126	690	255	194	133	108
Operating profit/loss margin, %	–1.4	–32.5	14.9	10.4	8.0	11.8	14.7	14.5	10.2	6.9
Operating profit margin, adjusted, %	13.0	15.3	15.5	11.0	9.3	12.2	15.7	13.3	10.4	8.2

Seasonal variations

Cloetta's sales and operating profit are subject to some seasonal variations. Sales in the first and second quarters are affected by the Easter holiday, depending on in which quarter it occurs. In a comparison between 2015 and 2016, seasonal variations related to Easter were limited. In the fourth quarter, sales are usually higher than in the first three quarters of the year, which is mainly attributable to the sale of products in Sweden and Italy in connection with the holiday season.

Net financial items

Net financial items for the year amounted to SEK –174m (–178). Interest expenses related to external borrowings amounted to SEK –81m (–120) and other financial items amounted to SEK –93m (–58). Net financial items were negatively impacted by a one-off cost of SEK –49m arising from the refinancing of the Group, of which SEK –19m is non-cash in nature. The one-off cost is related to the call option fee of SEK –30m for redemption of the senior secured notes and to full amortization

of the capitalized transaction costs of SEK –19m related to the Group's previous external financing. The interest expense for external borrowings and realized losses on interest rate swaps in individual currencies were positively affected by the Group's refinancing in July 2016. Of total net financial items, SEK –37m (–43) is non-cash in nature.

Net financial items

SEKm	2016	2015
Exchange differences in borrowings and cash and cash equivalents in foreign currencies	– 8	–1
Unrealized gains on single currency interest rate swaps	16	5
Other financial income	1	1
Interest expenses on third-party borrowings and realized losses on single currency interest rate swaps	–81	–120
Interest expenses, contingent earn-out liabilities	–10	–13
Call option fee for redemption of senior secured notes	–30	–
Amortization of capitalized transaction costs	–34	–18
Other financial expenses	–28	–32
Total	–174	–178

Profit/loss for the year

Profit/loss for the year was SEK –191m (386), which is equal to basic and diluted earnings per share of SEK –0.67 (1.35). Income tax for the year was SEK 65m (–107). The effective tax rate for the full year was 25.4 per cent (21.7). Profit/loss for the year excluding the impact of impairment was SEK 403m (386), which is equal to basic and diluted earnings per share of SEK 1.41 (1.35). The effective tax rate for the full year excluding the impact of impairment was 21.7 per cent (21.7).

Key ratios

%	2016	2015
Gross margin	39.6	39.0
Operating profit/loss margin	–1.4	11.8
Operating profit margin, adjusted	13.0	12.2
Return on capital employed	–0.9	8.6
Return on equity	–4.5	8.9

For definitions, see page 149–150.

Financial position

Condensed consolidated balance sheet

SEKm	31 Dec 2016	31 Dec 2015
ASSETS
Non-current assets
Intangible assets	5,354	5,948
Property, plant and equipment	1,700	1,698
Deferred tax asset	54	64
Other financial assets	13	27
Total non-current assets	7,121	7,737
Current assets
Inventories	780	786
Other current assets	1,024	978
Derivative financial instruments	4	1
Cash and cash equivalents	298	246
Total current assets	2,106	2,011
Assets held for sale	9	11
TOTAL ASSETS	9,236	9,759
EQUITY AND LIABILITIES
Equity	4,199	4,344
Non-current liabilities
Long-term borrowings	2,666	2,612
Deferred tax liability	586	621
Derivative financial instruments	12	44
Other non-current liabilities	–	43
Provisions for pensions and other long-term employee benefits	396	378
Provisions	22	10
Total non-current liabilities	3,682	3,708
Current liabilities
Short-term borrowings	2	344
Derivative financial instruments	54	35
Other current liabilities	1,235	1,271
Provisions	64	57
Total current liabilities	1,355	1,707
TOTAL EQUITY AND LIABILITIES	9,236	9,759

Assets

Total assets at 31 December 2016 amounted to SEK 9,236m (9,759), which is a decrease of SEK 523m compared to the previous year.

Non-current assets

Intangible assets totalled SEK 5,354m (5,948). The decrease in the year is explained by the impairment loss of SEK –771m (–), the year's investments amounting to SEK 15m (23) and amortization of SEK –42m (–34). Exchange differences related to intangible assets recognized in foreign subsidiaries amounting to SEK 197m (–106). Other movements account for in total SEK 7m (183). In 2015 an amount of SEK 183m was related to acquired intangible assets as a result of business combinations. Of total intangible assets, 98 per cent or SEK 5,225m (5,803) pertained to goodwill and trademarks at 31 December 2016. Goodwill and trademarks are tested at least yearly for impairment.

In the assessment of possible impairmenttriggering events in the fourth quarter, the company determined that in light of Italy's negative economic development and the performance of Cloetta Italy, an impairment test was to be made at 31 December 2016 for the CGU Italy/South in respect of goodwill and trademarks. As a result of this, Cloetta recorded an impairment loss of SEK 771m at 31 December 2016, of which SEK 266m refers to goodwill and SEK 505m refers to trademarks.

Property, plant and equipment amounted to SEK 1,700m (1,698). The year's investments amounted to SEK 155m (138), of which SEK 34m (26) referred to land and buildings and SEK 121m (112) to machinery and equipment. The year's investments in property, plant and equipment referred primarily to continuous efficiency-enhancing and replacement investments on the existing production lines and the extension of the Levice factory. Depreciation amounted to SEK –203m (–197). Acquired property, plant and equipment resulting from business combinations totalled SEK 0m (121).

Current assets

Current assets amounted to SEK 2,106m (2,011). The increase is mainly the result of increased tax receivables following the resolution of a tax dispute in Italy and higher cash and cash equivalents.

The assets held for sale at 31 December 2016 are the land and building in Zola Predosa, Italy for an amount of SEK 9m (11). A sale agreement with a third party has been signed. The property will be transferred in the second quarter of 2017.

Equity and liabilities Equity

Consolidated equity decreased in 2016 from SEK 4,344m to SEK 4,199m. On the balance sheet date the share capital amounted to SEK 1,443m (1,443). The equity/assets ratio on the same date was 45.5 per cent (44.5).

Liabilities

Non-current liabilities, consisting mainly of loans from credit institutions, amounted to SEK 3,682m (3,708), which is a decrease of SEK 26m compared to the previous year and SEK 518m compared to two years ago. Longterm borrowings amounted to SEK 2,666m (2,612) and consisted of SEK 2,677m (1,625) in gross loans from credit institutions, senior secured notes of SEK 0m (1,000) and SEK –11m (–13) in capitalized transaction costs.

Provisions for pensions increased from SEK 378m to SEK 396m, mainly as a result of changed actuarial assumptions.

Current liabilities fell to SEK 1,355m (1,707), mainly owing to a decrease in shortterm borrowings to SEK 2m, compared to SEK 344m in the previous year. Trade payables totalled SEK 569m (541).

Financial performance

Refinancing

In July 2016 Cloetta entered into a new term and revolving facilities agreement with a group of four banks, in total amounting to the equivalent of SEK 3,700m. The new facilities have been used to refinance existing bank loans and to redeem the senior secured notes.

The facilities agreement bear variable interest at a rate based on STIBOR plus an applicable fixed margin for loans in SEK and variable interest at a rate based on EURIBOR plus an applicable fixed margin for loans in EUR. The applicable margin at 31 December 2016 was 0.5 per cent for the outstanding loans in SEK (2.25) and 1.0 per cent (2.25) for the outstanding loans in EUR. The senior secured notes bared interest at a rate 3-month STIBOR-rate plus 3.10 per cent.

The combined effective interest rate for loans from credit institutions (and the senior secured notes) was 2.32 per cent (2.76) for the year.

35 per cent (40) of the fixed applicable margin on the unutilized amounts of the credit revolving loans is paid as a commitment fee.

Change in capital employed

The Group's capital employed during the year fell from SEK 7,756m to SEK 7,329m, a decrease of SEK 427m.

Net debt

SEKm	31 Dec 2016	31 Dec 2015
Non-current borrowings, gross	2,677	1,625
Current borrowings, gross	–	360
Senior secured notes	–	1,000
Derivative financial instruments (current and non-current)	62	78
Interest payable	1	1
Gross debt	2,741	3,064
Cash and cash equivalents	–298	–246
Net debt	2,443	2,818

Net debt

Interest-bearing liabilities exceeded cash and cash equivalents and other interest-bearing assets by SEK 2,443m (2,818). The net debt/ equity ratio on the balance sheet date was 58.2 per cent (64.9).

Cash flow from operating activities

SEKm

0

100

200

300

400

500

Comments on the cash flow statement

Condensed consolidated cash flow statement

SEKm	2016	2015
Cash flow from operating activities before
changes in working capital	813	697
Cash flow from changes in working capital	76	230
Cash flow from operating activities	889	927
Cash flow from investments in property,
plant and equipment and intangible assets	–170	–161
Cash flow from other investing activities	–152	–206
Cash flow from investing activities	–322	–367
Cash flow from operating and investing activities	567	560
Cash flow from financing activities	–534	–518
Cash flow for the period	33	42
Cash and cash equivalents at beginning of period	246	229
Cash flow for the period	33	42
Foreign exchange differences	19	–25
Cash and cash equivalents at end of period	298	246

n 2015 n 2016

Q1 Q2 Q3 Q4

Operating activities

Cash flow from operating activities before changes in working capital was SEK 813m (697). The improvement compared to the prior year is mainly due to the positive effect of adjustments in other provisions profit/loss for items of a non-cash nature, primarily related to changes in other provisions of SEK 69m and amortization/depreciation of SEK 14m. Operating profit, excluding the impact of the impairment loss, improved by SEK 18m, which together with a decrease in corporate income tax payments by SEK 10m, had a further positive impact on cash flow from operating activities. Cash flow from changes in working capital amounted to SEK 76m (230).

Working capital

Cash flow from changes in working capital was positively impacted by a decrease in inventories of SEK 30m (87), a decrease in receivables of SEK 3m (225) and an increase in payables by SEK 43m (–82).

Investing activities

Cash flow from investing activities was SEK –322m (–367). Settlement of the contingent consideration arising from the option agreement with Aran Candy Ltd. and the settlement of the contingent earn-out consideration related to the acquisition of Alrifai Nutisal AB resulted in a cash outflow of SEK –154m in the year. In 2015 a net cash flow from investing activities was included in an amount of SEK –206m related to the

acquisition of Locawo B.V. The cash flow from investments in property, plant and equipment and intangibles amounted to SEK –170m (–161). Other cash flows from investing activities amounted to SEK 2m (0).

Financing activities

Cash flow from financing activities was SEK –534m (–518). Total repayments of loans including the senior secured notes amounted to SEK 3,568m (518). The net proceeds from new loans amounted to SEK 3,176m. In addition, a dividend of SEK 144m (–) was paid during the year. Other cash flows from financing activities amounted to SEK 2m (–). The net cash flow was SEK 33m (42), which together with exchange differences of SEK 19m (–25) increased cash and cash equivalents to SEK 298m, compared to SEK 246 in the previous year.

Cash and cash equivalents

Cash and cash equivalents and short-term investments excluding overdraft facilities on the balance sheet date amounted to SEK 298m (246). In addition, Cloetta had unutilized overdraft facilities for a total of SEK 1,150m (699). Cloetta's working capital requirement is exposed to seasonal variations, partly resulting from a build-up of inventories in preparation for increased sales ahead of the Christmas holiday. This means that the working capital requirement is normally highest during the autumn and lowest at year-end.

Cash flow from investing activities

Cash flow from financing activities SEKm

1) In 2012 Cloetta received proceeds from a new share issue of SEK 1,056m in connection with the merger between Cloetta and Leaf. In addition, loans from credit institutions were renegotiated, thereby increasing the loans by a net amount of SEK 356m.

Future outlook

2016 was a good year for Cloetta. All in all, sales were up by 3.1 per cent. As a result of this sales growth, in combination with effective cost control, operating profit, adjusted, for the full year reached SEK 758m (690).

Goal attainment

The Group's target is an EBIT margin, adjusted, of at least 14 per cent. In 2016 the EBIT margin, adjusted, improved to 13.0 per cent (12.2). For growth, the target is to increase sales organically at a rate at least equal to market growth. Historically, annual growth in the market has been 1–2 per cent. In 2016 Cloetta's organic growth was 0.5 per cent (1.5).

Another of the Group's long-term targets is to reduce the net debt/EBITDA ratio to around 2.5x. In 2016 the net debt/EBITDA ratio target was met and amounted to 2.44x (3.03) at 31 December 2016.

Profitable growth

The strategy for Cloetta stands firm. The focus in 2017 will be on continued profitable growth, both organic and acquisition-driven, higher efficiency in the supply chain through the Lean 2020 initiative, improved growth and cost synergies, new growth initiatives in pick & mix and more effective internal processes.

In view of the strong cash flow the Board proposes a dividend of SEK 0.75 per share (0,50), an increase of 50%. The ambition is to continue using future cash flows for payment of dividends while also providing financial flexibility for complementary acquisitions. The long-term target of a payout ratio of 40–60 per cent of profit after tax remains unchanged.

Financial outlook

As in earlier year, Cloetta is not issuing any financial forecast for 2017.

Environmental impact and environmental management

Cloetta works to reduce its environmental impact through systematic environmental management. Cloetta's greatest environmental impact comes from water and energy consumption, wastewater emissions, waste and transports. Viewed over the entire life cycle of the products, the most significant environmental impact arises in raw material and packaging production. Cloetta complies with the statutory environmental requirements and the Group is not involved in any environmental disputes. At 31 December 2016, Cloetta conducted operations at 12

factories in six countries. The two Swedish factories in Ljungsbro and Helsingborg are subject to reporting requirements according to the Swedish Environmental Code. These permits apply until further notice. There are no injunctions in respect of the Swedish Environmental Code.

The manufacturing units outside Sweden adapt their operations, apply for the necessary permits and report to the authorities in accordance with local legislation.

All of Cloetta's factories conduct systematic environmental management that includes action plans and monitoring in a number of areas. Environmental management is an integral part of Cloetta's operations and environmental aspects are taken into account when making decisions. Frequent evaluation and follow-up of measures increase awareness about the effects of different working methods on the environment.

The Group's environmental policy and environmental management are described in more detail on pages 54–55.

Risks and risk management

Uncertainty about future events is a natural part of all business activities. Future events can have a positive impact on operations through opportunities to create increased value, or a negative impact through risks that can have an adverse effect on Cloetta's business and results.

Risks can arise as a result of events or decisions that are beyond Cloetta's control, but they can also be an effect of incorrect handling within Cloetta or among its suppliers.

Organization for risk management

Cloetta's Board of Directors is responsible to the shareholders for handling the company's risk management. Decisions regarding risks associated with business development and long-term strategic planning are prepared and discussed by the Group Management Team and decisions are made by the Board of Directors.

The Group Management Team continuously reports to the Board of Directors on risk areas such as the Group's financial status and compliance with the Group's finance policy. The operational risk management that is handled at all levels in the organization is regulated by Cloetta's Code of Conduct and a number of central policies.

Identification of risks

The identification of risks and proactive measures to limit them or prevent them from materializing and having a negative impact on operations are of fundamental importance for operations and are a central part of every manager's responsibility at Cloetta. Cloetta works continuously to assess and evaluate the risks to which the Group is, and can be, exposed. All events that could affect confidence in Cloetta or lead to operating disturbances are vital to monitor and minimize. This takes place among other things through business intelligence and dialogue with various stakeholders.

Risk management

Effective handling of risks is an integral part of Cloetta's management and control. Rapid distribution of relevant information is ensured via the company's management structures and processes. If possible, risks are eliminated and undesired events are minimized through proactive measures. Alternatively, risks can be transferred for example through insurance or agreements. However, certain risks are not possible be eliminated or transferred. These are often an active part of business operations.

Risk overview

In Cloetta's risk management process, a number of risk areas have been identified. A selection of these and a brief description of how each risk area is handled are presented on the following pages. The Group's financial risk management is also described in more detail in Note 28, on page 126.

Pages 86–87 contain a description of the internal control processes and risk assessment aimed at preventing misstatements in the financial reporting.

Management of risks in the working environment is described on pages 32 and 57.

Industry and market-related risks

Cloetta works continuously to assess and evaluate the risks to which the Group is, and can be, exposed. Critical external risks are handled both strategically through business and product development and operationally through day-to-day purchasing, sales and marketing activities.

	Risks Probability	Management Impact
Market climate	Financial crises can have a negative impact on consumption patterns. Operations are affected in that Cloetta's customers are suffering from lower profitability, which leads to price pressure.	From a historical perspective, the confectionery market has been comparatively mildly affected by market downturns among consumers. This applies to a large extent to Cloetta's products, which most people can afford to buy. To support the customers' business and promote sound price development, Cloetta cooperates with the customers among other things through in-store sales activities.
Competition	The confectionery market is highly competitive with several major players. Furthermore, grocery retailers offer private labels that compete with certain Cloetta products. This com petition can limit Cloetta's opportunities for price increases to compensate for higher raw material costs.	Cloetta competes in the market through active pricing, product innovation, product quality, brand recognition and loyalty, marketing and the ability to predict and satisfy customer preferences.
	Cloetta may also need to increase its investments in marketing and product development in order to maintain or expand its market shares.	It is important that Cloetta's products are perceived as provid ing the consumers with greater value added than the cheaper alternatives.
		Cloetta strives for effective marketing.
Retail trade development	The European grocery and service trade has undergone a process of consolidation leading to the establishment of large, sophisticated players with substantial purchasing power. These major players are not necessarily dependent on individual brands and can hold back price increases and demand higher investment in marketing initiatives. They can also take over shelf space that is currently used for Cloetta's products for their own brands.	Cloetta's strong brands and market position, together with a strong sales force and close cooperation with the trade, contribute to its ability to maintain good relations with the retail trade. Cloetta also works actively with new sales channels. Cloetta has a relatively wide and diversified customer base. In 2016, Cloetta's ten largest customers accounted for around 43 (40) per cent of the Group's total sales.
Consumer trends Health Social responsibility	Changes in consumer behaviour give rise to both opportunities and risks. Health trends and the debate on health, weight and sugar can have a negative impact on confectionery consump tion. The health trend has also spurred a growing interest in natural raw materials. In view of rapid globalization, individual consumers are more aware of how their consumption patterns affect the environment and social/ethical conditions around the world. Consumers want to know more about product origins, manu facturing methods and raw materials. Information that Cloetta, or Cloetta's suppliers, are not taking adequate environmental or social responsibility could damage Cloetta's brand.	Health trends have not affected confectionery sales to a great extent, since confectionery is often eaten as a small luxury in everyday life. Cloetta works continuously to satisfy consumer preferences. In addition, Cloetta has an extensive offering of sugar-free products and products that promote dental health. In the long-term, Cloetta's goal is for all products to be free from artificial colours and additives (NAFNAC). Cloetta strives to include supplier codes of conduct in all agreements as far as possible, but as an individual company Cloetta is unable to influence international development on its own. Cloetta's goal is to be open and, through cooperation with other confectionery producers and via various organizations, to identify problem areas and contribute to improvements.
Laws and taxes	Cloetta conducts operations through companies in a number of countries. New laws, taxes or rules in various markets may lead to limitations in operations or place new and higher demands. There is a risk that Cloetta's interpretation of the applicable tax laws, tax treaties and regulations in the different countries is not entirely correct or that such rules will be changed, possibly with retroactive effect.	Cloetta continuously assesses legal issues in order to predict and prepare its operations for possible changes. The introduc tion of confectionery taxes and fat taxes often has a short-term impact on sales. Provisions for legal disputes, tax disputes, etc., are based on an estimation of the costs, with the support of legal advice and based on the information that is available.
Raw material prices	Price development for raw materials is steered mainly by supply and demand, and is beyond Cloetta's control. The prices of sugar and many of the other raw materials purchased by Cloetta are also affected by agro-political decisions in the EU regarding quotas, support, subsidies and trade barriers, but also by rising living standards and the activity of financial investors on the commodities exchanges.	Cloetta continuously monitors the development of raw material prices and all purchasing is carried out through a central purchasing function. To ensure access and price levels, Cloetta normally enters into supplier contracts that cover the need for raw materials for a period of 6–9 months forward. If the aver age raw material prices had been 10 per cent higher/lower at 31 December 2016, profit before tax for the year would have been around SEK 150m lower/higher. Cloetta's policy is to compensate for higher raw material costs by raising prices to its customers.

Operational risks

Operational risks can often be influenced, for which reason they are normally regulated by policies, guidelines and instructions. Operational risks are part of Cloetta's day-to-day work and are handled by the operating units. The operational risks include risks related to the brand, relocation of production, insurable risks and environmental, health and safety-related risks.

	Risks Probability	Management Impact
Business ethics and brand risks	Demand for Cloetta's well known brands is driven by the consumers' association of these with positive values. If Cloetta or any of the Group's partners takes any measures in conflict with the values represented by the brands, the Cloetta brands could be damaged.	Cloetta takes a proactive approach to its sustainability respon sibility by implementing a Code of Conduct, ethical guidelines and routines.
Sustainability risks in the supply chain	Cloetta uses several raw materials originating from countries with risks regarding the working environment, social conditions and corruption. In addition, political instability can have a nega tive impact on costs.	As far as possible, Cloetta strives to include supplier codes of conduct in all agreements. Cloetta has evaluated all raw material groups and prioritized them based on the existing sustainability challenges and Cloet ta's opportunities to address these challenges. Cloetta purchases UTZ-certified cocoa. By the end of 2017, Cloetta will have implemented RSPO
		segregated palm oil throughout the product portfolio. By the end of 2017, Cloetta's glazing agent will be free from palm oil.
Product safety risks	Handling of food products places high demands on traceability, hygiene and safety. In a worst-case scenario, inadequate con trol can lead to contamination or allergic reactions. Deficiencies in handling of food products can lead to lower confidence in Cloetta and the Group's brands.	Cloetta works with first-class raw materials and in accordance with international quality standards. Analyses through chemical and physical tests are performed on both raw materials and finished products. Issues of importance for product safety are gathered in special policies and there are plans for information or product recalls in the event of deficiencies.
Insurable risks	Assets such as factories and production equipment can be seriously damaged, for example in the event of a fire or power outage. Product recalls can give rise to substantial costs, resulting from both direct costs and of damage to Cloetta's reputation.	Cloetta has an insurance programme, among other things for property and liability risks, and works systematically to reduce the risk for incidents and to have robust contingency plans in place to limit the effects of any incidents.
Relocation of production lines	To optimize efficiency, Cloetta continuously monitors capacity utilization in production. Moving production from one factory to another is a complex process that can result in disruptions and delays in production, which can in turn lead to delivery problems.	Cloetta has an experienced and efficient organization with well established routines for handling relocation of production lines.
Access to the right expertise	To a large extent, Cloetta's future is dependent on its capacity to recruit, retain and develop competent senior executives and other key staff.	Cloetta endeavors to continue to be an attractive employer. Employee development and follow-up plans, together with market-based and competitive compensation, contribute to Cloetta's ability to recruit and retain employees.
Environmental risks	Environmental risks arise mainly through water and energy consumption, wastewater emissions, raw material and packag ing waste, production waste and transports.	Cloetta sets environmental requirements for its production and regularly monitors the company's impact on the environment, in addition to conducting systematic efforts to reduce its environ mental impact.

Financial risks

The primary financial risks are foreign exchange, financing, interest rate and credit risks. Financial risks are managed by the Group's central finance function according to the guidelines established by Cloetta's Board of Directors. The objective is to identify the Group's risk exposure and, with a certain degree of foresight, to attain predictability in the financial outcome and minimize possible unfavourable effects on the Group's financial results in close cooperation with the Group's operating units. By consolidating and controlling these risks centrally, it is possible to minimize the level of risk while at the same time reducing the cost of measures like currency hedging. Financial risk management is described in detail in Note 28, on pages 126–127.

	Risks Probability	Management Impact
Foreign exchange risks	Exchange rate fluctuations affect Cloetta's financial results partly in connection with buying and selling in different cur rencies (transaction exposure), and partly through translation of the profit and loss accounts and balance sheets of foreign subsidiaries to Swedish kronor (translation exposure). Cloetta's presentation currency is the Swedish krona, while a majority of the subsidiaries has the Euro as their functional currency, for which reason translation exposure is significant. Aside from SEK and EUR, Cloetta also has some exposure to NOK, GBP and USD.	The objective for Cloetta's foreign exchange management is to minimize the effects of exchange rate fluctuations by utilizing incoming currency for payments in the same currency. If the Swedish krona had weakened/strengthened by 10 per cent against the Euro, the year's profit before tax would have been around SEK 25m higher/lower. The Group hedges parts of its translation exposure through borrowing in EUR. In addition, the Group has hedges in USD to some extent.
Refinancing risks	Refinancing risk refers to the risk that it will not be possible to obtain financing or that financing can be obtained only at a significantly higher cost.	In 2016 Cloetta met the financial target related to a net debt/ EBITDA ratio of 2.5x. During the year, the Group also refi nanced its entire debt (bank loans and senior secured notes) and entered into a new term and revolving facilities agreement with a group of four banks. This means that Cloetta now has a favourable situation for access to financing, including that for potential acquisitions, among other things.
Interest rate risks	Cloetta is exposed to interest rate risks in interest-bearing current and non-current liabilities. Although some of the Group's bank loans are hedged, there is still exposure to inter est rate risk for the parts that are not hedged or when hedges expire.	The Group continuously analyzes its exposure to interest rate risk and performs regular simulations of interest rate move ments. Interest rate risk is reduced by hedging a share of future interest payments through interest rate swaps. If the interest rate had been 1 percentage point higher with all other variables held constant, profit before tax for the year would have been approximately SEK 25m lower. If the interest rate had been 1 percentage point lower with all other variables held constant, profit before tax for the year would have been approximately SEK 35m lower due to some interest rate swaps that do not include a zero-floor clause.
Credit risks	Credit risk refers to the risk that a counterparty to Cloetta will be unable to meet its obligations and thereby the other party causes a loss. Financial transactions also give rise to credit risks in relation to financial and commercial counterparties.	Credit risk in trade receivables is relatively limited in that the Group's customer base is diverse and consists mainly of large customers, and that distribution takes place primarily through the major grocery retail chains. The customers are subject to credit assessments in accordance with the credit policy and the receivables balance is monitored continuously. The Group's counterparties in financial transactions are banks and credit institutions with good credit ratings (between AA– and A-3).
Valuation risks	The Group has a number of assets and liabilities that have been valued with the help of various experts. These include goodwill and brands/trademarks on the asset side and the pension liability and tax liabilities on the liability side.	Assets and liabilities are tested for impairment yearly or when there is an indication that such testing may be necessary. Read more in Note 11, Intangible assets on page 110 and Note 33, Critical accounting estimates and judgements on page 131.

Letter from the Chairman

2016 was a good year for Cloetta. Sales increased, the underlying operating profit improved, cash flow remained strong and the company met its net debt/ EBITDA target.

Lilian Fossum Biner Chairman of the Board of Directors

Corporate governance creates order and systems

The Board's foremost responsibility to the shareholders is to ensure that the company is managed as effectively as possible in the interests of the shareholders, but also that Cloetta complies with the rules set out by legislators, regulatory authorities and the stock exchange. Corporate governance is aimed at creating order and systems for both the Board and the Group Management Team. By having a clear structure, with well-defined rules and processes, we can also ensure that the management and employees are focused on developing the company's business and strengthening the company.

Work of the Board

At the 2016 Annual General Meeting the Board gained three new members, of whom I was given the honour of being elected Chairman. An important part of the Board's work during the year has been devoted to recruiting a new President/CEO to replace David Nuutinen, who chose to step down for personal reasons. During the recruitment process, Cloetta's CFO Danko Maras was appointed as Interim President/CEO to ensure continuity and stability in the company's management. After a thorough recruitment process with both external and internal candidates, the Board appointed Henri de Sauvage Nolting as the new President/CEO in December and he took up duties on 15 February 2017.

I am very pleased that we have been able to recruit a CEO with a solid background and a proven track record from the fast moving consumer goods industry.

Aside from the search to find a new

President/CEO, the Board has focused on supporting the Group Management in its work to achieve profitable growth and shape the future business strategy. Two special areas of attention for the Board were the situation in the Italian operations and the refinancing that the company carried out during the year. With three new Board members, including the undersigned, several visits were also made to gain greater knowledge about activities in the various countries.

More and new shareholders

In 2016 Cloetta gained nearly 2,000 new shareholders and at the end of the year more than 16,000 people owned shares in the company. This means that the number of shareholders has nearly quadrupled since 2012. Foreign share ownership also increased sharply during the year, from one third to around half. It is primarily shareholders in the USA and the UK who have chosen to raise their stake in Cloetta. It is gratifying that so many are interested in investing in the Cloetta share, and it is the Board's intention to manage this trust well and thereby uphold confidence in Cloetta among all shareholders.

Listed Company of the Year

For the third consecutive year, Cloetta was named "Listed Company of the Year" in a financial communication competition held by Aktiespararna and the consulting company Kanton, among other things by having the best annual report and investor website of all companies on the Stockholm Stock Exchange. In the past year Cloetta also won a prize, awarded by PwC, for the best reporting on value creation, where Cloetta was chosen as

the top performer among small to mid-sized companies on the Stockholm Stock Exchange. These awards are ample proof that Cloetta provides transparent and engaging communication for the benefit of both existing and potential shareholders.

Cloetta stands strong for the future

In the past year Cloetta showed impressive development despite challenges such as the change of President/CEO and weak performance in the Italian business that forced us to recognize a sizeable impairment loss. It is therefore a major achievement that the company has been able to report both a slight increase in sales and an improvement in underlying operating profit. This, in combination with a continued strong cash flow and the achievement of our target for net debt/ EBITDA, has motivated the Board to propose a higher share dividend.

I would especially like to thank Danko Maras, who in the capacity of Interim President/CEO made invaluable contributions to ensure continuity and development in the company during the year. I naturally also wish to extend my heartfelt gratitude to the management and all employees, including former and current Board colleagues, for their exceptionally good work during the year. Thanks to your efforts, Cloetta continues to move forward as a strong and attractive company.

Stockholm, March 2017

Lilian Fossum Biner Chairman of the Board of Directors

Corporate governance report

The purpose of corporate governance is to ensure that the company is managed as effectively as possible in the interests of the shareholders, but also that Cloetta complies with the applicable rules. Corporate governance is also aimed at creating order and systems for both the Board and the Group Management. By having well defined structures, rules and processes, the Board can ensure that the Group Management and employees are focused on developing the business and thereby creating shareholder value.

Cloetta AB (publ) is a Swedish public limited company, with corporate identification number 556308-8144, whose class B shares are traded on the Mid Cap list of Nasdaq Stockholm. The company is domiciled in Ljungsbro, Linköping, and its head office is in Stockholm.

Framework for corporate governance

Corporate governance report

Cloetta's corporate governance is regulated by external steering instruments that include the Swedish Companies Act, the Swedish Annual Accounts Act, Nasdaq Stockholm's Rules for Issuers and the Swedish Code of Corporate Governance, as well as internal steering instruments such as the Articles of Association, instructions, policies and guidelines.

Application of the Swedish Code of Corporate Governance

In 2016 Cloetta complied with the Code.

1 Shareholders

The class B shares in Cloetta AB (publ) have been listed on Nasdaq Stockholm since 16 February 2009 and are traded on the Mid Cap list since 2 July 2012. However, Cloetta was originally introduced on the stock exchange in 1994 and has since then been listed in a number of different owner constellations.

The number of shares at 31 December 2016 was 288,619,299 of which 278,757,685 were of class B and 9,861,614 were of class A. Each class B share corresponds to one vote and each class A share to ten votes, although all shares carry equal entitlement to the company's assets and profits.

The number of shareholders at 31 December 2016 was 16,236 (compared to 14,164 at 31 December 2015). On 31 December 2016 AB Malfors Promotor was Cloetta's largest shareholder, with a holding corresponding to 42.3 per cent of the votes and 24.6 per cent of the share capital in the company.

For more information about Cloetta's shares and shareholders, see section "Share and shareholders" on pages 60–65.

The general meeting of shareholders is Cloetta's highest decision-making body. At a general meeting, all shareholders have the opportunity to exert an influence over the company by exercising the votes attached to their respective shareholdings. The powers and duties of the general meeting are regulated among other things by the Swedish Companies Act and the Articles of Association.

Cloetta's financial year runs from 1 January to 31 December. The Annual General Meeting shall be held within a period of six months after the end of the financial year. The date and location of the AGM shall be communicated on the company's website at the latest in connection with publication of the

• Policies

• Appropriation of the earnings of the company through a dividend of SEK 0.50 per share;
• Discharge from liability for the Board of Directors and President/CEO;
• That the number of Board members elected by the AGM shall be seven, with no deputies;
• Re-election of sitting Board members Adriaan Nühn, Mikael Svenfelt, Lottie Knutson and Mikael Norman. Lilian Fossum Biner, Hans Porat and Camilla Svenfelt were elected as new Board members. The AGM elected Lilian Fossum Biner as Chairman of the Board. Former Board member Caroline Sundewall and Olof Svenfelt resigned in connection with the AGM. Aside from the members elected by the AGM, the employee organizations PTK and LIVS appointed an employee representative and a deputy representative each to the Board;
• Board fees were set at SEK 620,000 for the Board Chairman and SEK 285,000 for each of the other Board members elected by the AGM. Fees for work on the Board committees were set at SEK 100,000 for each member of the audit committee and SEK 50,000 for each member of the remuneration committee;

Board of Directors and the shareholders. third quarter report. Notice of the AGM shall be given no earlier than six weeks and no later

than four weeks prior to the AGM through publication in Post- och Inrikes Tidningar (the Swedish Official Gazette) and on the company's website. At the same time, information confirming that notification has taken place shall be published in Dagens Industri.

Every shareholder has the right to request

Attendance at AGMs/EGMs Votes, %

● No. of people

(shareholders, proxies, assistants and guests)

* Extraordinary general meetings

that a matter should be taken up at the AGM and in such case must submit a written request to the Board. In order to be taken up at the AGM, the request must be submitted to the Board no later than seven weeks prior to the AGM. In accordance with Chapter 7, 32 §, of the Swedish Companies Act, all shareholders have the right, at a general meeting of shareholders, to pose questions to the company

about the matters that are taken up at the meeting and the financial situation of the company and the Group.

2016 AGM

The latest AGM was held on 12 April 2016 in Stockholm. The AGM was attended by 275 individuals representing 59.6 per cent of the votes in the company. The President/CEO, all Board members, the company's independent auditor, the chairman of the nomination committee, the group's CFO and SVP Corporate Communications and Investor Relations were also present at the AGM. The AGM approved the proposals of the Board and the nomination committee regarding:

• Adoption of the balance sheet and the profit and loss account;

• Fees to the auditor are to be paid according to approved account;
• Re-election of KPMG AB as the company's auditor to serve for the period until the end of the next AGM;
• Rules for the nomination committee;
• Guidelines for remuneration to the Group Management Team;
• The implementation of a share-based longterm incentive plan.

The complete minutes from the AGM can be viewed at www.cloetta.com.

2017 AGM

The 2017 AGM will be held on Tuesday, 4 April 2017, at 4:00 p.m. at Stockholm Waterfront Congress Centre, Nils Ericsons Plan 4, in Stockholm. The Notice of the Annual General Meeting was published in February 2017 and contained the Board's proposals. For more information, see section on "Annual General Meeting" on page 155 and www.cloetta.com.

3 Nomination committee

Work of the nomination committee

The task of the nomination committee is to prepare recommendations to be put before the AGM for decisions regarding election of Board members and the Board Chairman, fees to the Board of Directors, remuneration for committee work, election of a chairman of the AGM, election of auditors, auditing fees and rules for the nomination committee.

The Board Chairman presents an annual evaluation of the Board's activities during the year to the nomination committee, which provides a basis for the nomination committee's work together with the provisions in the Swedish Code of Corporate Governance and Cloetta's own company-specific requirements.

The nomination committee's recommendations for election of Board members, Board fees and auditors are presented in the notice to attend the AGM and at www.cloetta.com.

Composition of the nomination committee

In accordance with the decision of the AGM, Cloetta's nomination committee shall consist of at least four and at most six members. Of these, one shall be a representative of the

Board and three shall be members appointed by the three largest shareholders in terms of voting power. The members appointed may themselves appoint one additional member.

Independence of the nomination committee

The majority of the nomination committee's members shall be independent in relation to the company and its Group Management and at least one of these shall also be independent in relation to the company's largest shareholder in terms of voting power. Of the appointed members, all four are independent in relation to the company and its Group Management and three are independent in relation to the company's largest shareholder in terms of voting power.

Shareholder proposals

All shareholders have the right to contact the nomination committee to propose candidates for election to the Board. Proposals shall be sent to the chairman of the nomination committee by e-mail to nominationcommittee@ cloetta.com.

Meetings of the nomination committee

The nomination committee ahead of the 2017 AGM has held three meetings. No fees have been paid for work on the committee.

Work of the Board

The primary task of the Board is to serve the interests of the company and the shareholders, appoint the President and ensure that the company complies with the applicable laws, the Articles of Association and the Swedish Code of Corporate Governance.

The Board is also responsible for making sure that the Group is suitably structured so that the Board can optimally exercise its governance over the subsidiaries and that the company's financial accounting, financial management and financial circumstances in general can be controlled satisfactorily. At least once a year the Board shall meet with the company's auditor without the presence of the Group Management Team, and shall continuously and at least once a year evaluate the performance of the President.

Nomination committee ahead of the 2017 AGM

Member	Appointed by	Independent1	Share of votes at 31 Dec. 2016, %
Olof Svenfelt, Chairman	AB Malfors Promotor	Yes/No	42.3%
John Strömgren	Carnegie Fonder	Yes/Yes	1.7%
Johan Törnqvist	Ulla Håkanson	Yes/Yes	1.3%
Lilian Fossum Biner	Board of Cloetta AB	Yes/Yes	0%

1) Independent from the company and its Group Management/from the company's largest shareholder in terms of voting power

Composition of the Board

According to the Articles of Association, Cloetta's Board of Directors shall consist of at least three and at most ten members elected by the AGM. The AGM on 12 April 2016 resolved that the Board shall have seven members appointed by the AGM.

To serve for the period until the end of the next AGM, to be held on 4 April 2017, the AGM on 12 April 2016 elected Board members Lilian Fossum Biner (Chairman), Lottie Knutson, Mikael Norman, Adriaan Nühn, Mikael Svenfelt, Hans Porat and Camilla Svenfelt. In addition, the employee organization LIVS appointed one employee representative to the Board, Lena Grönedal, and one deputy representative, Shahram Nikpour Badr. The employee organization PTK appointed one employee representative to the Board, Mikael Ström, and one deputy representative, Christina Lönnborn. All Board members have attended Nasdaq's stock market training course for board and management. The average age of the Board members elected by the AGM was 53 at year-end 2016, and three of the seven are women. For information about the Board members' assignments outside the Group and holdings of shares in Cloetta, see pages 88–89 and cloetta.com.

Independence of the Board

In accordance with the Swedish Code of Corporate Governance, the majority of the Board members elected by the AGM shall be independent in relation to the company and its Group Management and at least two of these shall also be independent in relation to the company's major shareholders. Of the Board's seven members, all are independent in relation to the company and its Group Management and five are independent in relation to the company's major shareholders.

Instructions and policies

The Board reviews and adopts the following instructions and policies on a yearly basis:

• Work plan for the Board
• Instructions for the President
• Instructions for financial reporting • Work plan and instructions for the audit committee
• Work plan and instructions for the remuneration committee
• Code of Conduct
• Corporate Communications and IR policy
• Finance policy
• HR policy
• Insider policy
• Insurance policy
• Policy for internal control
• IT security policy
• Mergers and acquisitions policy (anonymous reporting of violation of laws, the Code of
• Conduct or other rules at Cloetta)
• Fraud and whistleblower policy
• Anti-bribery and -corruption policy • Trade control policy

The Board's instructions and policies

On a yearly basis, the Board reviews and adopts a work plan for its own activities and those of the Board's audit and remuneration committees. The Board also adopts instructions for the President and instructions for financial reporting. Among other things, these regulate the segregation of duties between the Board of Directors, the Board Chairman, the President and the auditor, quorum, conflict of interest, the work of the committees, internal and external reporting, routines for notice to attend general meetings, Board meetings and minutes.

In addition, the Board has issued and adopted a Code of Conduct and policies for corporate communications and IR, finance, HR, insiders, insurance, internal control, IT security, mergers and acquisitions, fraud and whistleblower, trade controls, anti-bribery and -corruption.

Evaluation of Board performance

The performance of the Board is evaluated yearly in order to develop the Board's working methods and efficiency. The Board Chairman is responsible for carrying out the evaluation and presenting the results to the nomination committee. The purpose of the evaluation is to gather the Board members' views on the Board's performance, what measures can be taken to improve the efficiency of board work, and whether the Board has a well-balanced mix of competencies. The evaluation provides valuable input for the nomination committee ahead of the AGM. In 2016 the Chairman conducted a written survey among all Board members including the employee representatives. The results of the evaluation have been reported to and discussed by both the Board and the nomination committee.

Board meetings

In 2016 the Board held nine scheduled meetings, of which one statutory meeting, and four extra meetings. The President and the CFO, who is also the Board secretary, take part in the Board's meetings. Other members of the Group Management Team take part as needed as rapporteurs for special items of business.

5 Board committees

Audit committee

According to the Swedish Code of Corporate Governance, the audit committee shall consist of at least three members who are appointed by the Board on a yearly basis. One of the members shall be chairman of the committee. In 2016 the Board audit committee consisted of members Mikael Norman (chairman), Hans Porat and Adriaan Nühn.

The majority of the committee's members shall be independent in relation to the company and its Group Management, and at least one of these shall also be independent in relation to the company's major shareholders. At least one member shall be independent and have accounting or auditing expertise. Of the audit committee's three members, all three are independent in relation to the company and its management and all are independent in relation to the company's major shareholders.

The work of the audit committee is regulated by special instructions that have been adopted by the Board as part of its work plan. The audit committee is responsible for ensuring the quality of the financial reporting and the effectiveness of the company's internal control and risk management regarding financial reporting. In brief, the audit committee, without affecting the other tasks and responsibilities of the Board, shall regularly meet with the company's auditors to stay informed about the focus and scope of the audit. The company's auditor shall be invited to participate in the meetings of the audit committee. The audit committee shall meet at least four times every financial year. Once a year, the committee shall meet without the presence of any member of the Group Management. All meetings of the audit committee are minuted. The audit committee shall inform the Board about the matters dealt with by the committee. In 2016 the committee held five meetings.

Remuneration committee

The remuneration committee shall have no more than four members who are appointed by the Board on a yearly basis. One of the members shall be chairman of the committee. The Board's remuneration committee consists of members Mikael Svenfelt (chairman), Adriaan Nühn and Lilian Fossum Biner.

The majority of the committee's members shall be independent in relation to the company and its management. Of the remuneration committee's members, all are independent in relation to the company and its management. The work of the remuneration committee is regulated by special instructions that are adopted by the Board as part of its work plan. The main tasks of the remuneration committee are to prepare recommendations to the Board for decision on remuneration principles, remuneration levels and other terms of employment for the Group Management, to monitor and evaluate programmes for variable remuneration completed during the year and ongoing programmes to Group Management as adopted by the AGM and of the current remuneration structures and levels in the Group. The remuneration committee shall meet at

Board meetings in 2016

least twice every financial year. In 2016 the committee held five meetings.

Board Chairman

The Board Chairman shall be elected by the general meeting of shareholders, and the AGM on 12 April 2016 elected Lilian Fossum Biner as Chairman of the Board. The Chairman shall supervise the work of the Board and ensure that the Board discharges its duties, and has special responsibility for ensuring that the work of the Board is well organized and effectively executed and for monitoring the Group's development. The Chairman oversees the effective implementation of the Board's decisions and is responsible for ensuring that the work of the Board is evaluated yearly and that the nomination committee is informed about the results of this evaluation.

Organization for sustainability work

The overall strategies for Cloetta's corporate responsibility work are adopted by the Group Management Team and are controlled and monitored through business planning processes at several levels in the company. Ultimate responsibility for corporate responsibility matters lies with Cloetta's President/ CEO.

Cloetta's sustainability work is overseen by the Director Corporate Responsibility, who functions as a spokesman for issues related to corporate responsibility and is responsible for identifying prioritized areas, acting as the stakeholders' link to the management and supporting the implementation of Cloetta's corporate responsibility strategy. Environmental and occupational health and safety managers are found at all of the factories.

⁶ President/CEO and Group Management Team

The President/CEO is appointed by the Board and supervises operations according to the instructions adopted by the Board and is responsible for day-to-day management of the company and the Group in accordance with the Swedish Companies Act. In addition, the President/CEO, together with the Chairman, decides which matters are to be dealt with at Board meetings. The Board regularly evaluates the President/CEO's duties and performance.

The President/CEO is responsible for ensuring that the Board members are supplied with the necessary information and decision data and presents reports and proposals at Board meetings regarding issues dealt with by the Group Management Team. The President/CEO regularly informs the Board and Chairman about the financial position and development of the company and the Group.

Danko Maras has been Interim President/ CEO of Cloetta since 1 September 2016, when David Nuutinen resigned at his own request.

On 15 December 2016 the Board decided to appoint Henri de Sauvage Nolting as President/CEO of Cloetta AB. He took up duties on 15 February 2017.

As per 31 December 2016 aside from the interim President/CEO and CFO, the Group Management Team consisted of the three regional presidents for Scandinavia, Finland, Middle/Italy/Rest of the World, the President Operations (which includes purchasing and production) and the four heads of the central staff functions Finance, IT, Marketing, HR, Corporate Communications & IR and Corporate Development/M&A. For information about the President/CEO and other members

of the Group Management Team, see pages 90–91.

The Group Management Team conducts management meetings at regular intervals and held nine meetings in 2016. The meetings are focused on the Group's strategic and operative development and financial performance. In addition to these meetings, the members of the Group Management Team work in close daily cooperation regarding various matters.

The auditor is elected by the AGM for examination of the company's annual accounts and accounting records and the administration of the Board of Directors and the President/ CEO. The auditors' reporting to the shareholders takes place at the AGM through presentation of the auditor's report.

Tomas Forslund Auditor in Charge.

Auditor for the company since 2015. Born in: 1965. Authorized Public Accountant KPMG AB. Previous auditing assignments: ICA-gruppen, Kinnevik, Systemair, DGC, Tradedoubler, Feelgood

Finance/IT Finland Middle/ International Markets Operations Scandinavia Italy President/CEO HR Corporate Communications & IR Corporate Development/M&A Marketing

Organization

The AGM on 12 April 2016 re-elected the certified auditing firm KPMG AB as the company's independent auditor to serve during the period until the end of the next AGM. Authorized Public Accountant Tomas Forslund is Auditor in Charge.

8 Financial reporting

The Board of Directors is responsible for ensuring that the company's organization is structured in such a way that the company's financial circumstances can be controlled satisfactorily and that external financial information such as interim reports and annual reports to the market is prepared in accordance with the legal requirements, relevant accounting standards and other requirements applicable to listed companies. The tasks of the Board are to oversee the Group's financial development, assure the quality of the Group's financial reporting and internal control and regularly monitor and evaluate operations.

The task of the audit committee is to support the Board in assuring the quality of the company's financial reporting. However, the audit committee deals not only with the Group's financial reports and significant accounting matters, but also matters related to internal control, compliance, material uncertainty in reported values, events after the balance sheet date, changes in estimates and judgments and other conditions affecting the quality of the financial reports.

The President/CEO ensures that the financial accounting in the group companies is carried out in compliance with legal requirements and that financial management is conducted in a satisfactory manner. Cloetta AB's President/CEO is a member of the boards of all operating subsidiaries. Every month, the

Group prepares a closing of the books that is submitted to the Board and the Group Management Team. For each upcoming financial year, a profit, balance sheet and investment budget are prepared for the Group and are adopted at the scheduled Board meeting in December.

External financial information is regularly provided in the form of:

• Interim reports
• Annual report
• Press releases about important news that are assessed to have a potential impact on the share price
• Presentations for financial analysts, investors and the media on the date of publication of the year-end and interim reports
• Meetings with financial analysts and investors

Awards for financial communication Aktiespararna and Kanton's Listed Company of the Year competition

In the autumn of 2016, for the third consecutive year, Cloetta was the overall winner in the Listed Company of the Year competition following wins in the sub-categories Best Annual Report, Best IR Website and an honourable mention for Best Interim Report.

The annual Listed Company of the Year competition, which is arranged by Kanton in association with the head sponsor Aktiespararna, among others, is aimed at promoting exemplary financial communication among listed companies and is Sweden's largest competition in financial communications and the most comprehensive competition in investor relations. The competition consists of three sub-competitions in which the annual reports, interim reports and IR websites of all companies with a primary listing on Nasdaq Stockholm are reviewed.

Nordic Market Awards

In the yearly IR Nordic Market Awards survey conducted by Regi among all analysts, Danko Maras was named best CFO within Investor Relations among all companies on Nasdaq Stockholm and Jacob Broberg was named best Investor Relations Officer among all Mid-Cap companies on Nasdaq Stockholm.

Webranking by Comprend

Cloetta took first place in Comprend's Webranking survey among Sweden's 100 largest listed companies.

Webranking by Comprend is Europe's leading survey of corporate websites and the only global ranking that is based on stakeholder demands. Every year, Comprend ranks the digital corporate communications of 900 companies around the world, measuring how well they meet the expectations of their key stakeholders – analysts, investors, business journalists and job seekers.

Best reporting about value creation

For the third consecutive year, PwC named the companies listed on Nasdaq Stockholm that have provided the best reporting about value creation. Cloetta won the prize for smaller companies.

Additional information

At www.cloetta.com, information such as the following can be found: the Articles of Association, the Code of Conduct, information from previous AGMs and corporate governance reports from previous years.

Press releases 2016

Summary

• February
• Year-end report January–December 2015 • Proposal by the nomination committee regarding the Board of Directors of Cloetta AB

March

• Notice of the 2016 Annual General Meeting
• Annual report 2015

April

• Annual General Meeting
• Interim report January–March 2016

May

• Giorgio Boggero, President Cloetta Italy, resigns from Cloetta.
• June
• Cloetta extends its current bank credit facility July
• Interim report January–June 2016
• Cloetta enters into new loan agreement

August

• Cloetta exercises option to redeem senior secured notes early
• David Nuutinen steps down as President/CEO

September

• Cloetta has the stock exchange's best annual report
• Nomination committee appointed
• Cloetta completes early redemption of senior secured notes

October

• Interim report January– September 2016

December

• Henri de Sauvage Nolting appointed President /CEO
• Jacqueline Hoogerbrugge President Operations leaves Cloetta

Remuneration to Group Management Team

Guidelines for remuneration to Group Management Team

The current guidelines for remuneration to Group Management Team were adopted by the AGM on 12 April 2016. The total remuneration shall be market-based and competitive, and shall be proportionate to the individual's responsibilities and powers. In addition to base salary, remuneration to the President/CEO, other members of the Group Management Team and other executives reporting directly to the President/CEO can include:

Short-term variable compensation

Short-term variable compensation is linked to specific business targets and is derived from the annual business plan approved by the Board of Directors. The short-term variable compensation is delivered through a cash-based bonus program. Short-term variable compensation has three core targets:

• Net sales growth
• Operating profit
• Cash flow

The short-term variable compensation structure is as follows:

	Short-term variable compensation as a percentage of base salary
	Target level	Maximum level
President/CEO 2016	50%	100%
Other Group Management Team 2016, average	35%	70%
President/CEO 2015	50%	100%
Other Group Management Team 2015, average	35%	70%

Share-based long-term variable compensation

Share-based long-term variable compensation, consists of the share-based long-term incentive plans, which are resolved on yearly by the AGM and is aimed at increasing the value for the Group's shareholders by promoting and upholding the senior management's commitment to the Group's development, and thereby aligning the interests of the shareholders with those of the Group Management Team and other key employees in order to ensure maximum long-term value creation. The targets for share-based long-term variable compensation are the compounded annual growth rate and operating profit.

Other benefits

Other benefits, consist mainly of company car benefits.

Pension benefits

Pension benefits, vary depending on the agreements and practices in the country where the individual is employed. Defined contribution plans are strived for, which means that pension benefits most often consist of defined contribution plans for which annual premiums are paid as a percentage of pension-qualifying salary up to the age of retirement. In almost all cases, variable salary and benefits are not pension-qualifying. The retirement age is not less than 60 years and not more than 67 years.

The Board has the right to deviate from these principles in individual cases where there is special reason to do so.

Termination benefits

Upon termination of employment on the part of the company, the notice period shall be no longer than 12 months. Any termination benefits may not exceed one fixed annual salary. Due to employment contracts entered into in Leaf prior to Cloetta's acquisition of the company, there are employment contracts with members of the Group Management Team granting termination benefits corresponding to 18 monthly base salaries.

Total variable remuneration to Group Management Team incl. the President/CEO and outcome as a % of base salary

President/CEO

The retirement age is 65 years. The pension terms consist of a defined contribution plan for which annual premiums are paid up to the age or retirement in an amount corresponding to 30 per cent of pension-qualifying salary, consisting of base salary. Variable compensation and other benefits are not pension-qualifying.

The President/CEO has a notice period of six months. Upon termination on the part of the company, the notice period is 12 months.

Remuneration in 2016

Total remuneration to the Group Management Team including the President/CEO in 2016 amounted to SEK 44,581 thousand (52,355) including pension benefits and SEK 38,543 thousand (45,623) excluding pension benefits. Provisions of SEK 446 thousand (590) previously made for the resigned President/CEO in the share-based long-term incentive plan were dissolved in 2016.

Share-based long-term incentive plan for senior executives

The Annual General Meeting on 12 April 2016 approved the Board's proposal for a sharebased long-term incentive plan, similar to previous years. The plan aligns the interest of the shareholders with those of the Group Management Team and other key employees

in order to ensure maximum long-term value creation.

A personal shareholding in Cloetta is required for all participants. See page 64 and Notes 24, 29 and 31 for more information about share-based payment.

The Board of Directors' report on the remuneration committee's evaluation of remuneration to Group Management Team

The Board of Directors has set up a remuneration committee consisting of three members who prepare recommendations for decision by the Board regarding remuneration principles, remuneration levels and other terms of employment for the Group Management Team. The recommendations have included the proportional distribution between base salary and variable compensation and the size of any salary increases. Furthermore, the remuneration committee has discussed pension terms and termination benefits.

The remuneration committee is also entrusted with the task of monitoring and evaluating programmes for variable remuneration to the Group Management Team, application of the guidelines for remuneration adopted by the AGM and the current remuneration structures and remuneration levels in the company. Pursuant to paragraph 9.1, points 2 and 3, of

the Swedish Code of Corporate Governance, the Board hereby presents the following report on the results of the remuneration committee's evaluation:

The variable compensation that is payable according to the guidelines is linked to both the individual's responsibility for results and the Group's profitability targets, which contributes to value growth for the company's shareholders.

Market surveys are conducted regularly with respect to salary statistics, remuneration structures and levels for variable remuneration. In the opinion of the remuneration committee, Cloetta's remuneration structures and remuneration levels have allowed Cloetta to recruit and retain the right personnel to the Group Management Team.

Remuneration to the President/CEO for the financial year 2016 has been determined by the Board. Remuneration to other members of the Group Management Team and to other senior executives has been determined by the President/CEO. Since the 2016 AGM, the remuneration committee has met on five occasions. The proposed guidelines for remuneration to Group Management Team in 2017 that will be presented by the Board to the AGM on 4 April 2017 for approval are identical to the current guidelines.

Remuneration cost incurred for the Group Management Team

2016 SEK Thousand	Base salary	Short-term variable compensation incurred in the year, expected to be paid in the next year	Share-based long-term variable compensation	Other benefits	Subtotal	Pension benefits	Total
David Nuutinen, President/CEO1	3,516	–	–4463	306	3,376	–	3,376
Danko Maras, Interim President/CEO2 (CFO)	1,017	811	280	38	2,146	339	2,485
Other Group Management, 10 persons4	19,550	8,013	3,725	1,733	33,021	5,699	38,720
Total	24,083	8,824	3,559	2,077	38,543	6,038	44,581
Of which, in the Parent Company	14,714	5,173	178	1,168	21,233	2,191	23,424

2015 SEK Thousand	Base salary	Short-term variable compensation incurred in the year, expected to be paid in the next year	Share-based long-term variable compensation	Other benefits	Subtotal	Pension benefits	Total
Bengt Baron, President/CEO5	3,908	–	–5907	73	3,391	820	4,211
David Nuutinen, President/CEO6	1,744	961	473	104	3,282	–	3,282
Other Group Management, 10 persons	21,654	11,203	4,618	1,475	38,950	5,912	44,862
Total	27,306	12,164	4,501	1,652	45,623	6,732	52,355
Of which, in the Parent Company	14,701	7,757	1,929	590	24,977	3,204	28,181

1) Resigned on 31 August 2016.

2) Took up duties on 1 September 2016.

3) Refers to the release of the share-based long-term incentive plans for 2015 and 2016. The release had no effect on cash flow.

4) Other Group Management consisted of 10 persons from 1 January 2016 to 1 June 2016. During the period from 1 June to 1 September 2016,

other Group Management consisted of 9 persons. As of 1 September 2016 other Group Management consisted of 8 persons.

5) Resigned on 20 July 2015. 6) Took up duties on 20 July 2015.

7) Refers to the release of the share-based long-term incentive plans for 2013 and 2014. The release had no effect on cash flow.

Internal control over financial reporting

Cloetta's internal control over financial reporting is based on the framework as published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO-framework). The key objectives of Cloetta's internal control environment for financial reporting are that it is appropriately structured and effective, provides reliable reports and complies with the applicable laws and regulations. The Board of Directors defined policies regarding processes and roles and responsibilities that are vital for financial reporting and the internal control environment of the company.

Roles and responsibilities

The Board of Directors is responsible for establishing fundamental rules and guidelines for internal control. The audit committee assists the Board with its oversight of the performance of the company's risk management function and internal control insofar these affect the company's quality and integrity of financial reporting. The Board of Directors and the audit committee interact directly with the external auditors.

Where the Board of Directors is responsible for establishing fundamental rules and guidelines, the President/CEO is specifically responsible for the design effectiveness, implementation and supervision of monitoring of the internal control environment within the Group. The CFO is responsible for the design and operating effectiveness of the internal control environment within the Group. The design and operating effectiveness of the internal control environment at a local level is the responsibility of the area presidents and local CFOs.

Control environment

The foundation for Cloetta's internal control environment is the company's corporate culture and behaviour. Amongst others these are reflected in:

• Integrity and ethical values, with Cloetta's Code of Conduct, fraud and whistleblower policy, anti-bribery and -corruption policy and trade control policy as a platform for a set of guidelines and principles built on

Cloetta's core values that amongst other things govern financial reporting.

• The management's conduct and working methods based on a clearly defined working process described in amongst others the:
• Rules of procedures for the Board of Directors
• Instructions for the CFO
• Instructions for financial reporting
• Finance policy, and
• Rules of procedure for and instructions to the audit committee
• Rules for representations, commitments and disbursements towards third parties clearly defined in the Group's authorization framework.
• Processes for leading and developing employees in the organization and the attention devoted to these issues by Cloetta's Board of Directors.

Financial reporting competencies

The Group Management Team and local management teams ensure that the company has employees with the right competency in all key (financial) positions and that there are procedures in place to ensure that employees in key (financial) positions have the requisite knowledge and skills.

Human Resources (HR)

The guidelines and processes for management of human resources play a fundamental role in Cloetta's system of internal control and contribute to ensure the effectiveness of internal control. Key processes include compensation and benefits, HR development, recruitment, allocation of resources, performance management and routines for feedback to the employees.

Risk assessment

Periodically central and local risk assessments are prepared and monitored. In these assessments the likelihood that risks could occur and the potential impact are assessed. Furthermore, the velocity at which a risk could occur is considered. In the risk assessments business risks as well as financial reporting and other risks are considered.

Central and local financial reporting risks are assessed with respect to account balance assertions such as existence, completeness, rights and obligations, valuation and allocation, presentation and disclosure assertions and financial impact. The internal control environment is designed to mitigate risks identified to a level considered acceptable by management.

Certain specific risks, for example risks related to taxes and legal matters and other financial risks, are reviewed proactively on a periodic basis. Risks and risk management are reported on separately in more detail in the annual report, see the section "Risks and risk management". Tax, legal and other financial risks are reflected based on management's best estimate and judgement and in accordance with the applicable accounting standards in the consolidated financial statements.

Fraud risk

Cloetta's Group Management Team, local management teams and the central finance team are responsible for addressing the risk of fraud and a continuous assessment of the risk for fraud with respect to the applicable attitudes, incentives and opportunities to commit fraud. The Board of Directors issued a fraud and whistleblower policy with the purpose to prohibit dishonest and/or fraudulent activity and to establish procedures for reporting fraudulent activities to Cloetta's management and/or audit committee.

In addition to the fraud and whistleblower policy, Cloetta has adopted an anti-bribery and -corruption fraud and a trade control policy. The purpose of the policy is to avoid bribery and corruption by any employee or third party acting on behalf of Cloetta.

The trade control policy summarizes potentially applicable sanctions and export control rules, and compliance procedures to be followed by all Cloetta employees. The purpose of this policy is to provide guidelines to ensure compliance with all local trade control laws and regulations including countries through which shipments or financial transactions flow.

Basis for risk assessment

Existence, reported assets and liabilities exist on the reporting date.

Completeness, all transactions during the reporting period are recorded and reported.

Rights and obligations Assets are the rights of the organization and the liabilities are its obligations as of a given date.

Valuation and allocation, all items in the financial reporting are reported in conformity with IFRS valuation principles and are correctly calculated and summarized and appropriately recorded.

Presentation and

disclosure, items in the financial reports are properly described, sorted and classified.

Process for financial reporting

Monthly

Collection of information Local units report monthly according to an established timeframe in compliance with the applicable laws, regulations and accounting practices and the Group's accounting manual.

Controls

The Group's reporting system contains embedded controls. In addition, the central finance team carries out analytical controls as well controls of completeness and reasonability.

Processing and consolidation Any corrections are implemented in dialogue with the affected parties. Reconciliation occurs.

Reporting

Reporting of operative and financial information to the Board of Directors and the Group Management Team.

Quarterly

Audit committee

The auditor attends every quarterly meeting. Possible actions are carried out in respect of the audit report.

External reporting

Cloetta publicly discloses its interim and year-end reports through press releases and publication on the company's website.

Control activities

Control activities are the policies and procedures that contribute to ensure that management's directives are carried out and that the necessary actions are taken to address risks that may hinder the achievement of the company's objectives. Control activities occur throughout the organization, at all levels and in all functions. They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties.

Control activities are embedded in Cloetta's business processes and play a key role in ensuring effective internal control in the company. Local management is responsible for having all required control activities in place and maintained within their organizations. The CFO is responsible for ensuring that control activities are designed and operating effective and are maintained at the central level. The control environment is based on a balanced mix of preventive and detective controls and of automated and manual controls. In addition to a standard set of automated controls embedded in Cloetta's central ERP system, local management teams are encouraged to have as much as possible automated controls especially for routine transactions. Nevertheless, there are also manual control activities in place to verify that the automated controls are functioning as intended and for non-routine transactions.

Continuous reviews are performed by the Group Management Team and local management teams to safeguard proper and accurate financial reporting. These reviews are incorporated into the business processes and are an important part of Cloetta's monitoring controls. The local management teams are responsible for ensuring compliance with relevant laws and regulations in their respective areas of responsibility. All identified financial reporting risks are covered by one or more control activities.

Monitoring and improvement

Cloetta is continuously strengthening its internal control environment by evaluating the design and operating effectiveness. During the year procedures are performed to verify the design and operating effectiveness in certain areas. These procedures are performed on a central and on a local level and are intended to address any weaknesses or inefficiencies in the internal control environment. Internal control deficiencies detected through the ongoing monitoring activities or separate evaluations are reported upstream and corrective actions are taken to ensure continuous improvement of the internal control environment. On a quarterly basis the follow up and status of any weaknesses identified by internal procedures or external audits are reported and discussed with the involved persons and members of Cloetta's Group Management Team.

Reporting routines

An effective system for internal control requires sufficient, up-to-date and reliable information of a financial and non-financial nature. As far as possible, management reporting is directly linked to the financial reporting and to the consolidation tool.

Local management teams report their financial results periodically and in accordance with the Group's accounting and reporting policies. This reporting is the basis for Cloetta's internal and external reporting and serves as a basis for legal and business reviews. The business reviews are carried out according to a structure in which sales, earnings, cash flow and other key ratios and trends of importance to the Group are compiled and form a basis for analysis and actions by the management and controllers at different levels. Other important and group-wide components of internal control and reporting routines are the annual business planning process and the monthly and quarterly forecasts.

To ensure the efficiency of internal control over financial reporting, reviews are carried out by the Board, the audit committee, the

President/CEO, the Group Management Team, the central finance and treasury team and the Group's various subsidiaries. Every month, financial reports are reviewed against budget and established targets, and the results of self-assessments in the Group's companies are reported annually. This review includes follow-up of observations that are reported by Cloetta's auditor.

The company's financial situation is discussed at each Board meeting. The Board's audit committee has important monitoring and control duties with regard to loans, investments, financial management, financial reporting and internal control. The audit committee and Board of Directors review and formally approve interim reports and the annual report prior to publication. In addition, the audit committee receives regular reports from the independent auditor.

Communication Internal communication

Effective communication ensures the information flows in the organization. Separate communication channels are used to communicate internally, based on what is most effective.

External communication

It is also important to maintain communication about relevant policies with external parties such as customers, suppliers, regulators and shareholders. External communication is carried out in accordance with legal requirements and the Corporate Communications and IR policy.

Evaluation of the need for a separate internal audit function

There is currently no internal audit function at Cloetta. The Board has reviewed this matter and determined that the existing structures for monitoring and evaluation provide a satisfactory basis for control. For certain special audit activities, external resources are used.

Board of Directors

Member of the Remuneration Committee Elected: 2016

Born in: 1962

Lilian Fossum Biner Position: Chairman of the Board

Nationality: Swedish Education: M.Sc. Stockholm School of Economics, Sweden.

Other assignments: Board member of Thule Group, Nobia, LE Lundbergföretagen, a-connect and Givaudan.

Previous assignments: Board member Cloetta (2013 –2014). VP and CFO of Axel Johnson, Senior VP and HR Director at Electrolux.

Independence:

In relation to major shareholders: Yes

In relation to the company and management: Yes Shareholding: Direct: 10,000 class B shares Related parties: –

Lottie Knutson Position: Board member Elected: 2015 Born in: 1964 Nationality: Swedish Education: Journalism at Stockholm University,

L'Université Paris IV, Diplôme de culture Francaise. Other assignments: Member of the board of Scandic Hotels, Stena Line, STS Alpresor, Swedavia, Actic, Careereye and Wise Group. Active as a writer and advisor within leadership, change and crisis management.

Previous assignments: Director of Communications at the Fritidsresor Group for the Nordic countries, the SAS Group's communication´s department, journalist at the Swedish newspaper Svenska Dagbladet and communications consultant at JKL among others.

Independence: In relation to major shareholders: Yes In relation to the company and management: Yes Shareholding: Direct: 1,200 class B shares Related parties: –

Adriaan Nühn

Position: Board member Member of the Remuneration Committee Member of the Audit Committee Elected: 2012 Born in: 1953 Nationality: Dutch

Education: M.B.A., University of Puget Sound, Tacoma, Washington, USA and B.A. of Business Administration, Hogere Economische School, Eindhoven, The Netherlands.

Other assignments: Board Chairman of Sligro Food Group N.V. and Takeaway.com N.V. Board member of Anglovaal Industries Ltd. and WWF the Netherlands.

Mikael Norman Position: Board member Chairman of the Audit Committee Elected: 2015 Born in: 1958 Nationality: Swedish Education: Bachelor of Laws, Stockholm University. Other assignments: Member of the Board of

Byggmax Group AB and Bravida Holding AB. Member of the audit committee of Bravida Holding AB.

Previous assignments: CFO at Nobia, Group Controller at Electrolux, tax lawyer at Price Waterhouse and as judge at the Administrative Court and Administrative Court of Appeal in Stockholm.

Independence:

In relation to major shareholders: Yes In relation to the company and management: Yes Shareholding: Direct: 5,000 class B shares Related parties: –

Previous assignments: CEO and Board chairman of Sara Lee International and has held a number of assignments within the Sara Lee Corporation and Procter & Gamble. Board Chairman of Plukon Foodgroup N.V. Board member of Kuoni AG . Independence

In relation to major shareholders: Yes In relation to the company and management: Yes Shareholding: Direct: 198,363 class B shares Related parties: –

Composition of the Board

			Fees2				Attendance4
Elected by the AGM1	Nationality	Year elected	Born in	Board fees	Committee fees	In dependent3	Board meetings	Audit committee	Remuneration committee
Chairman
Lilian Fossum Biner	Swedish	2016	1962	620,000	50,000	Yes/Yes	14/14		5/5
Member
Camilla Svenfelt	Swedish	2016	1981	285,000	–	Yes/No	14/14
Hans Porat	Swedish	2016	1955	285,000	100,000	Yes/Yes	13/14	4/4
Lottie Knutson	Swedish	2015	1964	285,000	–	Yes/Yes	14/14
Mikael Norman	Swedish	2015	1958	285,000	100,000	Yes/Yes	14/14	4/4
Adriaan Nühn	Dutch	2012	1953	285,000	150,000	Yes/Yes	9/14	3/4	5/5
Mikael Svenfelt	Swedish	2008	1966	285,000	50,000	Yes/No	14/14		5/5

1) Education and other assignments are shown on pages 88–89.

2) The fees refer to set amounts during the period from the AGM on 12 April 2016 until the AGM on 4 April 2017. Board fees shall be paid in an amount of SEK 620,000 to the Board Chairman and SEK 285,000 to each other member elected by the AGM. Members of the audit committee shall receive fees of SEK 100,000 each and members of the remuneration committee shall receive SEK 50,000 each. For further details, see Note 6.

3) Independent in relation to the company and its Group Management Team/in relation to the largest shareholder.

4) Attendance refers to meetings during the period from the statutory meeting following the AGM on 12 April 2016 until the publication of this annual report in March 2017.

Hans Porat Position: Board member Member of the Audit Committee Elected: 2016 Born in: 1955 Nationality: Swedish Education: M.Sc. (metallurgy) from the Royal Institute of Technology (KTH) in Stockholm. Other assignments: Board member of Lindab, Gränges, DIAB, Ecolean and Chairman i Autoropa. Previous assignments: President and CEO of Nolato and Gadelius and long experience from leading positions in ABB and Trelleborg. Independence: In relation to major shareholders: Yes In relation to the company and management: Yes Shareholding: Direct: –

Related parties: –

Camilla Svenfelt Position: Board member Elected: 2016 Born in: 1981 Nationality: Swedish Education: B.A., Stockholm University Other assignments: Board member of AB Malfors Promotor and a deputy board member of the Hjalmar Svenfelt Foundation. Works as an accountant at AB Malfors Promotor. Previous assignments: – Independence: In relation to major shareholders: No

In relation to the company and management: Yes Shareholding: Direct: 60 class A shares and 461,485 class B shares Related parties: 35,095 class B shares

Mikael Svenfelt Position: Board member Chairman of the Remuneration Committee Elected: 2008 Born in: 1966 Nationality: Swedish

Education: Marketing and business economist, Tibbleskolan and law studies, Folkuniversitetet, Sweden.

Other assignments: CEO and Board member of AB Malfors Promotor. Board chairman of Fjärilshuset Haga Trädgård AB. Board member of Fjärilshuset Haga Trädgård Café AB.

Previous assignments: Senior positions in Nicator group, Dell Financial Services, GE Capital Equipment Finance AB and Rollox AB.

Independence:

In relation to major shareholders: No In relation to the company and management: Yes Shareholding: Direct: 25 class A shares and 37,515 class B shares

Related parties: –

Lena Grönedal Position: Employee board member, Swedish Food Workers' Union (LIVS) Elected: 2008 Born in: 1962 Nationality: Swedish Position: Factory Operative Cloetta Sverige AB Shareholding: Direct:– Related parties: –

Mikael Ström Position: Employee board member, PTK Ledarna Elected: 2016 Born in: 1961 Nationality: Swedish Position: Department Manager, Cloetta Sverige AB Shareholding: Direct: 32,243 class B shares Related parties: –

Christina Lönnborn

Position: Deputy employee board member, PTK Unionen Elected: 2016 Born in: 1962 Nationality: Swedish Position: Business Developer, Cloetta Sverige AB Shareholding: Direct:– Related parties: –

Shahram Nikpour Badr Position: Deputy employee board member, Swedish Food Workers' Union (LIVS). Elected: 2013 Born in: 1963 Nationality: Swedish Position: Factory Operative Cloetta Sverige AB Shareholding: Direct:– Related parties: –

Group Management Team

Henri de Sauvage Nolting Position: President and CEO since 15 February 2017 Born in: 1962

Nationality: Dutch Education: M.Sc. in Chemistry, Amsterdam University, the Netherlands. M.Sc. in Chemical Engineering, Technical University of Twente, the Netherlands. Postdoctoral studies in Business Administration, University of Leuven, Belgium.

Other assignments: Board member of Agra industrier Norway. Strategic advisor at Arla Foods amba. Previous positions: Executive Vice President of Arla in Sweden, Denmark and Finland 2013 –2016, and held several positions in sales, marketing and production at Unilever in the Nordics, the Netherlands, the UK and China, 1989 –2013. His last position at Unilever was as CEO of the Nordics. Shareholding: Direct: –

Related parties: 27,291 class B shares

Danko Maras Position: Interim President and CEO 1 September 2016–14 February 2017. CFO since 16 February 2012. Employeed by Leaf since 2010. Born in: 1963 Nationality: Swedish Education: B.Sc. in Business Administration and Economics, Uppsala University, Sweden. Other assignments: Board member of Mr Green & Co AB (publ) and Highwood AB. Previous positions: CFO of Leaf, 2010 –2012, CFO/COO at Unilever Nordic, 2007–2010, VP Finance Supply Chain at Unilever North America, 2004–2006, Senior positions within Unilever in Europe between 1992–2003. Shareholding: Direct: 180,290 class B shares

Related parties: –

Regina Ekström Position: Senior Vice President Human Resources since 1 January 2015.

Employeed by Leaf since 2004.

Born in: 1963

Nationality: Swedish

Education: B.Sc. in Business Administration and Economics, Lund University, Sweden.

Other assignments: Board member of LI. Previous positions: SVP Human Resources Scandinavia in Cloetta/Leaf , 2004–2014, SVP Human Resources Nordic in Findus, 2000-2004, HR Manager Sweden/Nordic in Nestlé , 1995-2000, Trainee, Product Manager, Human Resources Manager, Marketing Manager in Mars Sweden and U.K, 1987-1995.

Shareholding: Direct: 16,706 class B shares Related parties: –

Johnny Engman Position: Senior Vice President Corporate

Development and M&A since 1 May 2012. Employeed in Cloetta since 2012. Born in: 1977

Nationality: Swedish

Education: M.Sc. in Economics and Business Administration, Stockholm School of Economics, Sweden.

Other assignments: –

Previous positions: Director at Nordic Capital Advisory AB, 2004–2012, where he has worked with companies in various sectors, including retail and fast-moving consumer goods. Management Consultant at McKinsey & Company in Stockholm, 2001–2004. Board member of Menigo AB, 2006- 2016, StudentConsulting AB, 2006 –2010, Luvata Ltd., 2007–2009 and Saferoad AS, 2008 –2013. Shareholding: Direct: 26,703 class B shares Related parties: –

Jacob Broberg

Position: Senior Vice President Corporate Communications and Investor Relations since 16 February 2012. Employeed by Leaf since 2010. Born in: 1964 Nationality: Swedish Education: B.A. in Political Science and Economics, Lund University, Sweden. Other assignments: –

Previous positions: SVP Corporate Communications at Leaf, 2010–2012, VP Corporate Communications at TeliaSonera, 2008 –2010, SVP Corporate Affairs and Communication at V&S Vin & Sprit AB, 2005 –2008, VP Media Relations at Electrolux, 2001–2005, and VP Corporate Communications at Länsförsäkringar, 2000 –2001. Various positions, including Head of Media Relations and Information for Moderata Samlingspartiet, 1989–2000.

Shareholding: Direct: 34,165 class B shares Related parties: –

Ewald Frenay

Position: President Cloetta Middle since 16 February 2012. Interim President Cloetta Italy since 1 September 2016 and export markets since 16 June 2016.

Employeed by Leaf since 2000.

Born in: 1963

Nationality: Dutch

Education: M.Sc. Economics, Erasmus University Rotterdam, the Netherlands.

Other assignments: –

Previous positions: President Middle at Leaf, 2011–2012, Chief Marketing Officer and Senior Vice President Sales Rest of the World, 2008 –2011. Member of Leaf Executive Committee, 2008 –2012. Vice President Segment Sugar Confectionery, 2005 –2007, Marketing Director of Sugar Confectionery Division, (former subsidiary CSM), 2004–2005, Marketing Director of RBV Leaf the Netherlands (former subsidiary CSM), 2000 –2004. Several marketing and sales positions at Mars Inc., European Franchise Manager for Snickers, 1997–1999, Divisional Sales Manager Snackfood, 1995 –1997, Brand Manager roles in Snack and Petfood, 1990–1995.

Shareholding: Direct: 26,674 class B shares Related parties: –

Jacqueline Hoogerbrugge Position: President Operations since 16 February 2012. Employeed by Leaf since 2010. Born in: 1963 Nationality: Dutch Education: M.Sc. Chemical Engineering, University of Groningen, the Netherlands.

Other assignments: Board member of Swedish Match AB and IKEA Industries.

Previous positions: Board member of Cederroth AB, 2010-2015, President Operations at Leaf, 2010 –2012, Vice President Operations at Danone's Medical Nutrition Division, 2009 –2010, and Vice President Procurement at Numico Baby & Medical Food, 2006– 2009. Various positions in engineering, manufacturing and procurement at Unilever 1992–2006, and in engineering and sales at Fluor Daniel, 1988–1992. Shareholding: Direct: 27,291 class B shares Related parties: –

Ville Perho Position: President Cloetta Finland since 20 July 2015. Employeed by Leaf since 2004. Born in: 1979 Nationality: Finnish Education: M.Sc. Turku School of Economics, Finland. Other assignments: Co-owner and Board member of Varastoaura Oy. Previous positions: Sales Director Cloetta Finland 2010 –2015, Category Development Manager Leaf 2004–2010, Global Account Manager Lidl Leaf 2007–2009. Shareholding: Direct: 13,238 class B shares

Related parties: –

Lars Påhlson Position: President Cloetta Scandinavia since 16 February 2012. Employeed by Leaf since 2008. Born in: 1959 Nationality: Swedish

Education: B.A. Economics and Marketing, Växjö University, Sweden, PED IMD Lausanne, Switzerland.

Other assignments: Board member of DLF Serviceaktiebolag, Abdon Mills Group, GS1 Sweden AB and Clear On AB.

Previous positions: President Scandinavia at Leaf, 2008 –2012, President of Campbells Nordic, 2005 –2008, Senior Vice President Carlsberg Nordic, 2001–2005, Managing Director Falcon Brewery, 1998 –2001, Vice President Nestlé Nordic Findus, 1996 –1998, Marketing Director Nestlé Sweden, 1994–1996, various positions in sales and marketing at Nestlé Sweden and Nestlé Switzerland, 1982–1994.

Shareholding: Direct: 52,503 class B shares Related parties: –

Erwin Segers Position: Chief Marketing Officer since 1 March 2012. Employeed by Leaf since 2010. Born in: 1967 Nationality: Belgian Education: M.Sc. Business and Economics, University of Antwerp, Belgium. Other assignments: – Previous positions: Marketing Director at Leaf

Holland, 2010 –2012, Senior Marketing Director at Philips, 2006 –2010, Marketing Director at Cadbury Netherlands (part of Mondelez), 2002–2006. Several senior positions in marketing and sales at Sigma Coatings, Hero and Maxxium, 1990–2002. Shareholding: Direct: 11,547 class B shares

Related parties: –

Financial reports

Contents

Consolidated profit and loss account	93
Consolidated statement of comprehensive income	94
Consolidated balance sheet	95
Consolidated statement of changes in equity	96
Consolidated cash flow statement	97

Notes to the consolidated financial statements

Note 1	General information and accounting and valuation policies of the Group	98
	Note 2 Breakdown of income	106
Note 3	Amortization of intangible assets, depreciation of property, plant and equipment and other changes in value of non-current assets	106
	Note 4 Expenses by type	106
	Note 5 Personnel expenses and number of employees	107
	Note 6 Remuneration to the Board	108
Note 7	Items affecting comparability	108
	Note 8 Audit fees	108
	Note 9 Net financial items	108
	Note 10 Income taxes	109
	Note 11 Intangible assets	110
	Note 12 Property, plan and equipment	112
	Note 13 Tax assets and liabilities	113
	Note 14 Non-current financial assets	114
	Note 15 Inventories	114
	Note 16 Trade and other receivables	114
	Note 17 Cash and cash equivalents	115
	Note 18 Assets held for sale	116
Note 19 Equity		116
	Note 20 Earnings per share	117
	Note 21 Borrowings	117
	Note 22 Derivative financial instruments	119
	Note 23 Other non-current liabilities	121
	Note 24 Pensions and other long-term employee benefits	121
	Note 25 Provisions	125
	Note 26 Trade and other payables	126
	Note 27 Business combinations	126
	Note 28 Financial risks and financial risk management	126
	Note 29 Fair value measurement	128
	Note 30 Pledged assets and contingent liabilities	130
	Note 31 Related party transactions	130
	Note 32 Operating leases	130
	Note 33 Critical accounting estimates and judgements	130
	Note 34 Changes in accounting policies	131
	Note 35 Events after the balance sheet date	132

Group Parent Company

Parent Company profit and loss account	133
Parent Company balance sheet	134
Parent Company statement of changes in equity	135
Parent Company cash flow statement	136

Notes to the Parent Company financial statements

Note P1	Accounting and valuation policies of the Parent Company	137
	Note P2 Breakdown of income	138
	Note P3 Personnel expenses and number of employees	138
	Note P4 Audit fees	138
	Note P5 Net financial items	138
	Note P6 Income taxes	139
	Note P7 Deferred and current income tax	139
	Note P8 Shareholdings in group companies	139
	Note P9 Cash and cash equivalents	140
Note P10 Equity		140
	Note P11 Borrowings	140
	Note P12 Derivative financial instruments	140
	Note P13 Trade and other payables	140
	Note P14 Pledged assets and contingent liabilities	140
	Note P15 Related party transactions	140

Proposed appropriation of earnings	141
Auditor's report	142
Nine-year overview	145
Key ratios	146
Reconciliation alternative performance measures	147
Definitions	149

Consolidated profit and loss account

SEKm	Note	2016	2015
Net sales	2, 7	5,852	5,674
Cost of goods sold	4, 7	–3,533	–3,463
Gross profit		2,319	2,211
Other income	2	–	0
Selling expenses	4, 7	–955	–949
General and administrative expenses
- Impairment loss	3, 4, 7, 11	–771	–
- Other general and administrative expenses	4, 7	–675	–591
Total general and administrative expenses		–1,446	– 591
Operating profit/loss		–82	671
Exchange differences on borrowings and cash
and cash equivalents in foreign currencies	9	– 8	–1
Other financial income	9	17	6
Other financial expenses	9	–183	–183
Net financial items		–174	–178
Profit/loss before tax		–256	493
Income tax	10	65	–107
Profit/loss for the year		–191	386
Profit/loss for the period attributable to:
Owners of the Parent Company		–191	386
Earnings per share, SEK
Basic¹	20	– 0.67	1.35
Diluted1	20	– 0.67	1.35
Number of shares at end of period	20	288,619,299	288,619,299
Average number of shares (basic)¹	20	286,193,024	286,290,840
Average number of shares (diluted)1	20	286,447,465	286,561,607

1) Cloetta entered into forward contracts to repurchase own shares to fulfill its future obligation to deliver the shares to the participants of the long-term share-based incentive plan. The table in Note 22 presents the movements in the contracts as from 1 January 2014.

Consolidated statement of comprehensive income

SEKm	2016	2015
Profit/loss for the year	–191	386
Other comprehensive income
Remeasurements of defined benefit pension plans	–17	127
Income tax on other comprehensive income that subsequently will not
be reclassified to profit or loss for the period	4	–28
Items that will never be reclassified to profit or loss for the period	–13	99
Currency translation differences	225	–124
Hedge of a net investment in a foreign operation	–38	25
Income tax on other comprehensive income that will be reclassified
subsequently to profit or loss for the period, when specific conditions
are met	7	– 5
Items that are or may be reclassified to profit or loss for the period	194	–104
Total other comprehensive income	181	–5
Total comprehensive income, net of tax	–10	381
Total comprehensive income for the period attributable to:
Owners of the Parent Company	–10	381

95Cloetta [ A N N UA L A N D S U STA I N A B I LIT Y R EP O RT 2016 ]

Consolidated balance sheet

SEKm	Note	31 Dec 2016	31 Dec 2015
ASSETS
Non-current assets
Intangible assets	11	5,354	5,948
Property, plant and equipment	12	1,700	1,698
Deferred tax asset	13	54	64
Other financial assets	14	13	27
Total non-current assets		7,121	7,737
Current assets
Inventories	15	780	786
Trade and other receivables	16	988	975
Current income tax assets	13	36	3
Derivative financial instruments	22	4	1
Cash and cash equivalents	17	298	246
Total current assets		2,106	2,011
Assets held for sale	18	9	11
Total assets		9,236	9,759
EQUITY AND LIABILITIES
Equity
Share capital	19	1,443	1,443
Other paid-in capital	19	4,124	4,124
Translation difference reserve	19	366	141
Retained earnings including profit for the year	19	–1,734	–1,364
Equity attributable to owners of the Parent Company		4,199	4,344
Non-current liabilities
Long-term borrowings	21	2,666	2,612
Deferred tax liability	13	586	621
Derivative financial instruments	22	12	44
Other non-current liabilities	23	–	43
Provisions for pensions and other long-term employee benefits	24	396	378
Provisions	25	22	10
Total non-current liabilities		3,682	3,708
Current liabilities
Short-term borrowings	21	2	344
Derivative financial instruments	22	54	35
Trade and other payables	26	1,196	1,216
Provisions	25	64	57
Current income tax liabilities	13	39	55
Total current liabilities		1,355	1,707
TOTAL EQUITY AND LIABILITIES		9,236	9,759

Consolidated statement of changes in equity

SEKm	Share capital	Other paid-in capital	Foreign currency trans lation reserve	Retained earnings	Total equity
Balance at 1 January 2015	1,443	4,124	268	–1,787	4,048
Comprehensive income
Profit for the year	–	–	–	386	386
Other comprehensive income	–	–	–124	119	– 5
Total comprehensive income for 2015	–	–	–124	505	381
Transactions with owners
Reversal of capital contribution1	–	–	–3	– 81	– 84
Forward contract to repurchase own shares	–	–	–	–12	–12
Share-based payments	–	–	–	11	11
Total transactions with owners	–	–	–3	–82	–85
Balance at 31 December 2015	1,443	4,124	141	–1,364	4,344
Comprehensive income
Loss for the year	–	–	–	–191	–191
Other comprehensive income	–	–	225	– 44	181
Total comprehensive income for 2016	–	–	225	–235	–10
Transactions with owners
New forward contract to repurchase own shares2	–	–	–	–	–
Share-based payments	–	–	–	9	9
Dividend	–	–	–	–144	–144
Total transactions with owners	–	–	–	–135	–135
Balance at 31 December 2016	1,443	4,124	366	–1,734	4,199

1) Reversal of capital contribution relates to the derecognition of the tax indemnity receivable. This reversal is non-cash in nature.

2) The forward contract to repurchase own shares for a total amount of SEK 17,352,142 covering 937,610 Cloetta AB shares for an amount of SEK 18.50678 per share was settled in May 2016. 227,880 shares were granted to participants in the long-term share-based incentive plan 2013 in May 2016. For the remaining 709,730 shares Cloetta entered into a forward contract to repurchase own shares for an amount of SEK 28.50 per share in June 2016.

Total equity is attributable to the owners of the Parent Company.

Consolidated cash flow statement

SEKm	Note	2016	2015
Operating profit/loss		– 82	671
Adjustments for non-cash items
Amortization/depreciation and impairment of assets
and remeasurements of assets held for sale Provisions for pensions	3, 18	1,026 –16	236 –11
Other provisions and other non-current liabilities		29	– 40
Interest received		1	1
Interest paid		–78	–114
Call option fee redemption senior secured notes	21	–30	–
Proceeds on derivative financial instruments		–20	–19
Income tax paid		–17	–27
Cash flow from operating activities
before changes in working capital		813	697
Cash flow from changes in working capital
Change in inventories		30	87
Change in trade and other receivables		3	225
Change in trade and other payables		43	– 82
Cash flow from operating activities		889	927
Investing activities
Acquisition of subsidiaries	23	–154	–206
Investments in property, plant and equipment	12	–155	–138
Investments in intangible assets	11	–15	–23
Disposals of property, plant and equipment		2	–
Cash flow from investing activities		–322	–367
Cash flow from operating and investing activities		567	560
Financing activities
Proceeds from loans	21	3,188	–
Transaction costs paid	21	–12	–
Repayment of loans	21	–2,568	– 518
Repayment of senior secured notes	21	–1,000	–
Dividends paid		–144	–
Other cash flow from financing activities		2	–
Cash flow from financing activities		–534	–518
Cash flow for the year		33	42
Cash and cash equivalents at beginning of year	17	246	229
Cash flow for the year		33	42
Exchange difference		19	–25
Cash and cash equivalents at end of year	17	298	246

Note 1

Notes to the consolidated financial statements

Note 1 General information and accounting and valuation policies of the Group

General information

Cloetta AB (publ), corporate identification number 556308-8144, is a Swedish-registered limited liability company domiciled in Linköping, Sweden. The company's head office is in Stockholm with address Kista Science Tower, SE-164 51 Kista, Sweden.

Financial year

The consolidated financial statements for the financial year from 1 January to 31 December 2016 include the accounts of the Parent Company and its subsidiaries (collectively the "Group" and individually the "group companies").

The annual report and consolidated financial statements were approved for publication by the Board of Directors on 8 March 2017. The profit and loss accounts and balance sheets of the Group and the Parent Company will be put before the Annual General Meeting on 4 April 2017 for adoption.

Disclosures regarding changes in group structure Business combinations

Acquisition of Locawo B.V.

On 17 July 2015 Cloetta Holland B.V. (a 100 per cent direct participation of Cloetta AB (publ)) acquired 100 per cent of the shares of the Dutch candy company Locawo B.V. and its subsidiaries, which owns the brand Lonka.

See Note 27 for further information.

Acquisition of Aran Candy Ltd.

On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remaining 25 per cent of the outstanding shares in Aran Candy Ltd., resulting in the settlement of the contingent consideration arising from the option agreement for an amount of SEK 106m.

Acquisition of E-out instrument AB

On 13 February 2017 Cloetta Sverige AB (a 100 per cent direct participation of Cloetta AB (publ)) acquired 100 per cent of the shares of the Swedish company E-out instrument AB.

Mergers

• On 12 February 2015 Leaf Sweden IP AB merged into Cloetta Sverige AB.
• On 31 March 2015 Cloetta Produktion Sverige AB merged into Cloetta Sverige AB.
• On 1 March 2017 Locawo B.V., Lonka Sales B.V. and Confiserie Lonka Suikerwerkfabriek B.V. merged into Cloetta Holland B.V.

Strike-offs

• At 31 December 2016 Cloetta GGS Holding Ltd. was in the process of being struck off.

Liquidations

• On 8 February 2017 FTF Sweets USA Inc. was dissolved. See Note P8 for more information.

Compliance with legislation and accounting standards

The consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS) established by the International Accounting Standards Board (IASB) and the interpretations issued by the IFRS Interpretations Committee (IFRIC) which have been endorsed by the European Commission for application in the EU, with some supplementary requirements in the Annual Accounts Act. The applied standards and interpretations are those that were in force and had been endorsed by the EU at 1 January 2016. Furthermore, the Swedish Financial Reporting Board's recommendation RFR 1, Supplementary Accounting Rules for Groups, has been applied.

Guidelines on Alternative Performance Measures

On 8 December 2015 the Swedish Financial Supervisory Authority (FSA) ("Finansinspektionen") announced its intention to follow the ESMA (European Securities and Markets Authority) guidelines on Alternative Performance Measures (APMs). These guidelines are applicable for financial statements published after 3 July 2016. In accordance with these guidelines additional information on the use of APMs, including explanations of use and reconciliation of the APMs to the most directly reconcilable measures in the financial statements, has been included in these financial statements. APMs presented in these financial statements should not be considered a substitute for measures of performance in accordance with IFRS and may not be comparable to similarly titled measures by other companies.

Activities

The activities of the Group mainly comprise:

• sales, marketing and production of branded sugar and chocolate confectionery products, pastilles, chewing gum and nuts, and
• trading of sugar and chocolate confectionery products, pastilles, chewing gum and nuts.

The countries of the European Union and Norway form the most important markets.

Basis of presentation

Assets and liabilities are recognized at historical cost, except for certain financial assets and liabilities that are stated at fair value according to the accounting policies described below.

Unless otherwise stated, all amounts are rounded to the nearest million Swedish krona.

The preparation of financial statements in conformity with IFRS requires management to use certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The estimates and assumptions are based on past experience and a number of other factors that are considered reasonable under the given circumstances. The results of these estimates and assumptions are used to make judgements about the carrying value of assets and liabilities that cannot be readily determined from other sources. Actual results may differ from these estimates and assumptions. The estimates and assumptions are reviewed on an ongoing basis. Changes in estimates are reported in the period of the change, if the change affects that period only. Changes in estimates are reported in the period of the change and future periods, if the change affects both.

Note 1

Note 33 provides a description of judgements made by the company's management in the application of IFRS that have a significant impact on the financial statements, and estimates that can lead to significant adjustments in the financial statements of later years.

Unless otherwise stated below, the following accounting standards for the Group have been consistently applied in periods presented in the consolidated financial statements. The accounting standards for the Group have been consistently applied in reporting and consolidation of the Parent Company and the subsidiaries.

Segment reporting

An operating segment is an identified part of a group that engages in business activities from which it may earn revenues and incur expenses for which discrete financial information is available. An operating segment's results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its short- and long-term financial performance. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The President and CEO, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the chief operating decision-maker that makes strategic decisions.

Within the Cloetta Group four regions have been identified as the Group's operating segments. The vast majority of sales take place in the markets for "Munchy Moments", i.e. inexpensive cold snacks between the main meals, in Western Europe, which are comparable. It is the Group's goal to realize production efficiency through homogeneous production processes in the different production facilities throughout the Group regardless of their location. The Group has sales mainly in the "Munchy Moments" segment, with comparable markets and customers. The Group has an integrated distribution network and supply chain organization. The identified operating segments are assessed to have similar economic characteristics.

As a result of these consistencies between the different regions, for financial statement reporting purposes, the operating segments are aggregated into one reportable segment. For information about the Group's sales and earnings development and financial position, see the consolidated profit and loss accounts, balance sheet and cash flow statement.

Classification

Non-current assets and non-current liabilities essentially consist of amounts that are expected to be recovered or settled after more than 12 months after the balance sheet date. Current assets and current liabilities essentially consist of amounts that are expected to be recovered or settled within 12 months from the balance sheet date.

Basis of consolidation

Group structure

The company was originally founded in 1862. On 16 February 2012, Cloetta AB (publ) acquired Leaf Holland B.V. (currently known as Cloetta Holland B.V.) from Yllop Holding S.A. The acquisition has been accounted for as a reverse acquisition for consolidation purposes, where Cloetta Holland B.V. is the accounting acquirer and Cloetta AB (publ) is the legal acquirer.

On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remaining 25 per cent of the outstanding shares in Aran Candy Ltd., resulting in the settlement of the contingent consideration arising from the option agreement. All incorporated and acquired companies are as from this date as of this date wholly owned directly or indirectly by Cloetta AB (publ) and are consolidated without non-controlling interests from the date on which control is transferred. The put/call construction of Aran Candy Ltd. was treated as a forward purchase of the shares. As of acquisition date Aran Candy Ltd. has been consolidated without non-controlling interests.

Subsidiaries

The consolidated accounts include financial information for Cloetta AB (publ) and its group companies. Group companies are all entities in which Cloetta AB (publ) has a controlling influence. Control is achieved when the company directly or indirectly has the power to govern the financial and operating policies of an entity, generally accompanying a shareholding of more than one half of the voting rights, so as to obtain benefits from its activities. In assessing whether a controlling influence exists, potential voting equity interests that can be immediately exercised or converted are taken into account. As part of the acquisition of Aran Candy Ltd., Cloetta entered into a put/call construction on the class A shares in which the exercise price for the put option is the same as for the call option. As a result, the construction is treated as a forward purchase of the Class A shares. Aran Candy Ltd. is consolidated without non-controlling interests. On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remaining 25 per cent of the outstanding shares in Aran Candy Ltd., resulting in the settlement of the contingent consideration arising from the option agreement. All group companies are consolidated without non-controlling interest from the date on which control is transferred to Cloetta AB (publ). Group companies are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognized amounts of acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred. If the business combination is realized in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit and loss account.

Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. A subsequent change to the fair value of the contingent consideration that is deemed to be a liability is recognized in accordance with IAS 32 in the case of the forward purchase of shares or IAS 39 either in the profit and loss account or as a change to other comprehensive income only if it is an asset which is classified as available for sale. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interests in the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the profit and loss account.

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognized in the profit and loss account. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to the profit and loss account.

Note P8 provides an overview of all subsidiaries consolidated in the consolidated financial statements of Cloetta AB (publ).

Transactions eliminated on consolidation

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognized in assets are also eliminated.

Foreign currency

Functional and presentation currency

Items included in the financial information of each of our entities are measured using the functional currency of that entity, which is the currency of the primary economic environment in which the entity operates. The functional currency of foreign entities generally is local currency. The functional currency of the Parent Company is Swedish kronor (SEK), which is also the presentation currency of the Parent Company.

The consolidated financial statements are presented in SEK. The functional currency of the majority of the subsidiaries is euro (EUR). The assets and liabilities are translated at the closing rate at the date of the financial statements. Income and expenses are translated at the average exchange rate for the year.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions or the date of valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit and loss account.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the profit and loss account within exchange differences on borrowings and cash and cash equivalents in foreign currencies.

The Group applies hedge accounting. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. To the extent that the hedge is effective, foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in other comprehensive income and accumulated in the translation reserve. Any remaining differences are recognized in the profit and loss account within exchange differences on borrowings and cash and cash equivalents in foreign currencies. When the hedged net investment is disposed of, the relevant amount in the translation reserve is transferred to profit and loss account as part of the gain or loss on disposal and recognized in profit and loss account on the same line where the gain or loss of the disposal is accounted for.

A monetary item, held by a subsidiary, that is a receivable from or a payable to a foreign operation, for which settlement is neither planned nor likely to occur in the foreseeable future, is in substance a part of the entity's net investment in that foreign operation. Foreign currency differences are initially recognized in other comprehensive income and reclassified from equity to profit and loss account on disposal of the net investment. On disposal of the foreign operation, the cumulative amount of the exchange differences relating to the foreign operation, recognized in other comprehensive income is reclassified from equity to the profit and loss account on the same line where the gain or loss of the disposal is accounted for.

On consolidation, exchange differences arising from the translation of the borrowings and other currency instruments designated as hedges of such investments and the net investment in foreign operations are recognized in other comprehensive income.

All other foreign exchange gains and losses are presented in the profit and loss account within operating profit.

Financial statements of foreign operations

The profit and loss accounts and balance sheets of all group companies that have a functional currency currency other than the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
• Income and expenses for each profit and loss account are translated at average exchange rates unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions; and
• All resulting exchange differences are recognized in other comprehensive income.

When a foreign operation is disposed of, unrealized exchange differences accumulated in currency translation adjustments after 1 January 2006 (first-time adoption of IFRS) are are recognized in profit or loss as part of the gain or loss on the sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities in the functional currency of the attributable foreign entity and translated at the closing rate.

Basis of accounting

Except for the changes explained in Note 34, the Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements.

Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow:

I	Net sales
II	Cost of goods sold
III	Other income
IV	Selling expenses
V	General and administrative expenses
VI	Employee remuneration
VII	Net financial items
VIII	Income tax
IX	Dividend distribution
X	Items affecting comparability
XI	Intangible assets
XII	Property, plant and equipment
XIII	Deferred tax
XIV	Financial assets
XV	Impairment of non-current assets
XVI	Derivative financial instruments and hedging activities
XVII	Inventories
XVIII	Receivables
XIX	Current income tax
XX	Cash and cash equivalents
XXI	Offsetting financial instruments
XXII	Assets held for sale and discontinued operations
XXIII	Equity
XXIV	Other non-current liabilities
XXV	Provisions
XXVI	Employee benefits
XXVII	Borrowings
XXVIII	Borrowing costs
XXIX	Trade payables
XXX	Operating leases

The balance sheet, profit and loss account and cash flow statement include references to the notes.

Note 1

Recognition of revenue and expenses I Net sales

Net sales are designated as income from the supply of goods, less discounts and similar, excluding sales taxes and after elimination of intra-group sales. Net sales also include royalty income. Net sales are recognized as follows:

• Sales of goods are recognized when a group company has delivered products to the customer, the risks and rewards of the ownership of the products have been substantially transferred to the customer and the collectability of the related receivables is reasonably assured;
• To a limited extent and applicable to retail channels only, seasonal products in Italy are sold with a right of return. Accumulated experience is used to estimate and provide for such returns at the time of sale.

Consumer incentive and trade promotion activities are recorded as a reduction in net sales based on amounts estimated as being due to customers and consumers at the end of a period, based principally on historical utilization and redemption rates.

II Cost of goods sold

Cost of goods sold represents the direct and indirect expenses attributable to sales revenue, including raw materials and consumables, cost of work contracted out and other external expenses, personnel expenses in respect of production employees, depreciation costs relating to buildings and machinery and other operating expenses that are attributable to the production of products.

III Other income

Government grants and subsidies, other than those related to investments in property, plant and equipment, are recorded at fair value as other income in the profit and loss account in the period in which the related costs are recorded, income is received, or subsidized deficits are recorded. Grants and subsidies are recognized as income when there is reasonable assurance that all the conditions will be satisfied and it is probable that these will be received.

Gains on disposal of assets are determined by comparing the proceeds from disposal with the carrying amount and are recognized in other income in the profit and loss account when incurred.

Discontinuation fees received on cancellation of third-party distribution agreements are recognized in other income in the profit and loss account when incurred.

IV Selling expenses

Selling expenses comprise the cost of brand support through direct and indirect advertising, promotional activities, the cost of supporting sales and marketing efforts and amortization of related intangible assets. The company promotes its products through advertising, consumer incentives and trade promotions. Selling expenses are recognized in the profit and loss account when incurred.

V General and administrative expenses

General and administrative expenses include the costs of general management, human resources, finance and administration, information technology, and other back office services as well as amortization of related intangible assets. General and administrative expenses are recognized in the profit and loss account when incurred.

VI Employee remuneration

Regular payments

Salaries, wages and social security costs are charged to the personnel expenses which are included either in cost of goods sold, selling expenses or general and administrative expenses in the profit and loss account over the period when the related services are rendered and in accordance with employment contracts and obligations.

Termination benefits

A provision is recognized on the termination of employees as a result of either an entity's decision to terminate employment before the normal retirement date or an employee's decision to accept an offer of benefits in exchange for the termination of employment. When the criteria for recognition of a provision for termination benefits are met, the expenses are recognized either in cost of goods sold, selling expenses or general and administrative expenses in the profit and loss account.

Share-based long-term incentive plans

The cost of the share-based long-term incentive plans, which represent the grant date fair value of the shares multiplied by the shares vested and any social security expenses, is recognized in personnel expenses, which are included either in cost of goods sold, selling expenses or general and administrative expenses in the profit and loss account.

VII Net financial items

Financial income and financial expenses are recognized in the profit and loss account when incurred using the effective interest method.

VIII Income tax

The income tax expense for the period comprises current and deferred tax and is recognized in the profit and loss account. Corporate income tax is calculated on profit before tax in the profit and loss account, taking into account non-deductible expenses, non-taxable profits and losses and/or temporary differences arising from applicable local tax laws and other factors that affect the tax rate, e.g. changes in valuation allowances, adjustments in tax positions changes in tax law, such as changed tax rates.

The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the balance sheet date in the countries where the company's subsidiaries and associates operate and generate taxable profits.

IX Dividend distribution

Dividends paid to the company's shareholders are recognized as a liability in the consolidated financial statements in the period in which the dividends are resolved on by the company's shareholders.

X Items affecting comparability

Items affecting comparability are those significant items which are separately disclosed in the notes to the financial statements by virtue of their size or incidence in order to enable a full understanding of the Group's financial performance. The items affecting comparability are recognized in the profit and loss account. The classification in the profit and loss account depends on the nature of the items affecting comparability.

Principles of valuation of assets and liabilities General

If not specifically stated otherwise, assets and liabilities are initially recognized at the amounts at which they were acquired or incurred.

XI Intangible assets

Trademarks

Acquired trademarks are measured at historical cost. In view of the history of Cloetta's trademark portfolio, combined with Cloetta's commitment to continue supporting these trademarks with advertising and promotion resources and continuous product development, the useful lives of Cloetta's trademarks are considered to be indefinite in nature. Trademarks with indefinite useful lives are not amortized, but are subject to impairment testing at least annually or whenever events or circumstances indicate a risk of impairment.

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group's interest in the net fair value of the net identifiable assets and liabilities assumed by the acquiree and the fair value of any non-controlling interest in the acquiree.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the combination. Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within the Group at which goodwill is monitored for internal management purposes. A CGU is the lowest level to which an asset that generates cash flows independently from other assets can be allocated. A group of CGUs is not larger than an operating segment.

Goodwill impairment tests are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and fair value less cost of disposal. Any impairment is recognized immediately as an expense and is not subsequently reversed.

Software

Where computer software is not an integral part or a related item of computer hardware and not integral to the operation of an item of property, plant and equipment, the software is treated as a separate intangible asset.

Acquired software licenses are capitalized at historical cost and amortized on a straight line basis over their estimated useful lives of 3 to 5 years.

Capitalized costs for internally generated software include external direct costs of materials and services consumed in developing or obtaining the software, and payroll and payroll-related costs for employees who are directly associated with and who devote substantial time to the project. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. These costs are amortized over their expected useful lives on a straight-line basis, with the useful lives reviewed annually. Other software related costs that do not meet the above criteria for capitalization are recognized either in cost of goods sold, selling expenses or the general and administrative expenses in the profit and loss account when incurred. Development expenses previously recognized in the profit and loss account are not recognized as an asset in a subsequent period.

Software under construction is not amortized until the software is substantially complete and ready for its intended use. Software under construction is subject to impairment testing at least annually or whenever events or circumstances indicate a risk of impairment.

Amortization of software is recognized in cost of goods sold and general and administrative expenses in the profit and loss account.

Right of free electricity

The indefinite right of free electricity acquired is capitalized at acquisition cost. In view of the indefinite nature of the right, the right is not amortized, but is subject to impairment testing at least annually or whenever events or circumstances indicate a risk of impairment.

Research and development expenses

Expenses for research are recognized in the general and administrative expenses in the profit and loss account as incurred. Expenses incurred on development projects are recognized as intangible assets when it is probable that a project will generate economic benefits in the future, in view of its commercial and technological feasibility, and the costs can be measured reliably. Otherwise the expenses are recognized in the general and administrative expenses in the profit and loss account when incurred. Subsequent to initial recognition, development expenditure

is measured at cost less accumulated amortization and any accumulated impairment losses. The capitalized development expenditure is amortized over its expected useful life on a straight-line basis, with the useful lives reviewed annually. Development expenses previously recognized in the profit and loss account are not recognized as an asset in a subsequent period. Capitalized research and development expenses are subject to impairment testing at least annually or whenever events or circumstances indicate a risk of impairment.

Other intangible assets

Other intangible assets are capitalized at historical cost and amortized based on their useful lives, with the useful lives reviewed annually. Expenses previously recognized in the profit and loss account are not recognized as an asset in a subsequent period. Other intangible assets are subject to impairment testing at least annually or whenever events or circumstances indicate a risk of impairment.

For determining whether an impairment charge in respect of any intangible asset applies, see Note 11.

XII Property, plant and equipment

Items of property, plant and equipment are valued at historical cost less depreciation and impairment. Historical cost includes direct costs (materials, direct labour and work contracted out) and directly attributable overhead costs including interest expenses. Depreciation is accounted for using the straight-line method on the basis of the estimated useful life. Government grants are deducted from the historical cost or the construction costs of the assets to which they relate.

The estimated economic useful lives of property, plant and equipment can be specified as follows:

Buildings	20–50 years
Machinery and equipment	3–55 years
PP&E under construction	n/a

The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposal are determined by comparing the proceeds from disposal with the carrying amount and are recognized in the profit and loss account. The classification in the profit and loss account depends on the nature of the gains or losses on disposal.

Subsequent expenditure is included in the carrying amount of an asset or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit and loss account when incurred. The classification in the profit and loss account depends on the nature of the property, plant and equipment.

Subsidies and grants related to investments in property, plant and equipment are deducted from the related asset and are reflected in the profit and loss account as part of the depreciation charge.

Depreciation of property, plant and equipment is recognized in cost of goods sold, selling expenses and general and administrative expenses in the profit and loss account.

XIII Deferred tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the profit and loss account, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

Deferred income tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred

Note 1

tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences, only to the extent that it is probable that future taxable profit will be available against which they can be used.

Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized.

Deferred income tax liabilities arise on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the Group is unable to control the reversal of the temporary difference for associates. Only where there is an agreement in place that gives the Group the ability to control the reversal, the temporary difference is not recognized.

For the unrecognized deductible temporary differences, unused tax credits and tax losses carried forward, it is not yet probable that these may be utilized against future taxable profits or set off against other tax liabilities within the same tax group or tax jurisdiction.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

The positions taken in tax returns with respect to situations where the applicable tax rules are subject to interpretation are periodically evaluated. Provisions are established where appropriate on the basis of amounts expected to be paid to the respective tax authorities.

Deferred taxes are not discounted.

XIV Financial assets

The Group initially recognizes loans and receivables on the date when they arise. All other financial assets, including assets designated as at fair value through profit and loss account, are recognized initially on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument.

Loans, receivables and deposits are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are carried at amortized cost using the effective interest method.

At each balance sheet date, the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired.

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset are realized, expire, or the company has relinquished the right to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

XV Impairment of non-current assets

Assets that have an indefinite useful life are not subject to amortization but are tested annually for impairment. On the balance sheet date, the Group also assesses whether there are indications of impairment of assets that are subject to amortization or depreciation. If there are such indications, an impairment test is performed. For the purpose of testing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). An asset is subject to impairment if its carrying value is higher than its recoverable value, where the recoverable value is the higher of an asset's fair value less cost of disposal and its value in use. Impairment costs are recognized immediately in the profit and loss account. The classification in the profit and loss account depends on the nature of the impaired asset.

Non-financial assets other than goodwill that are subject to an impairment loss are reviewed for possible reversal of the impairment at each reporting date. If it is established that a previously recognized impairment no longer applies or has decreased, the increased carrying amount of the asset in question is not set higher than what the carrying amount would have been if the impairment had not been recognized.

XVI Derivative financial instruments and hedging activities

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The following hedge types are applicable within the Group:

(a) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);

(b) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or

(c) hedges of a net investment in a foreign operation (net investment hedge).

Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in net financial items in the profit and loss account, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group does not meet the requirements for applying fair value hedge accounting and, as a result, all gains or losses relating to these financial instruments are recognized in net financial items in the profit and loss account.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in net financial items in the profit and loss account. Amounts accumulated in equity are reclassified to profit and loss account in the periods when the hedged item affects profit or loss account. The gain or loss relating to the effective portion of interest rate swaps to hedge variable rate borrowings is recognized in net financial items in the profit and loss account. However, when the estimated transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognized in the profit and loss account, depending on the nature of the items. The Group does not meet the requirements for applying cash flow hedge accounting and, as a result, all gains or losses relating to these financial instruments are recognized in exchange differences on borrowings and cash and cash equivalents in foreign currencies in the profit and loss account.

Net investment hedge

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.

Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized in exchange differences on borrowings and cash and cash equivalents in foreign currencies in the profit and loss account. Gains and losses accumulated in other comprehensive income are included in the profit and loss account when the foreign operation is partially disposed of or sold. The Group has met the requirement for applying net investment hedge accounting.

The fair values of various derivative financial instruments are disclosed in Note 22. Movements in the hedging reserve in other comprehensive income are shown in the statement of other comprehensive income. The fair value of a derivative is classified as a non-current asset or liability for the part which exceeds 12 months, and as a current asset or liability for the part that will expire within 12 months.

The fair value adjustment on interest rate swaps is recognized in unrealized gains or losses on single currency interest rate swaps in net financial items in the profit and loss account. The fair value adjustment on the forward foreign currency contracts is recognized in the profit and loss account. The classification in the profit and loss account depends on the nature of the hedged item.

The contractual payments on single currency interest rate swaps are recognized in the realized gains or losses on single currency interest rate swaps in the net financial items in the profit and loss account.

XVII Inventories

Raw materials are valued at the lower of cost or net realizable value. Cost is determined using the FIFO method.

Inventories of semi-finished and finished products are stated at the lower of cost or net realizable value. Costs represent the cash equivalent of the expenditure necessarily incurred to bring the goods acquired to the condition and location for their intended use. Costs in respect of work in progress and finished goods include the applicable materials and labour costs, other direct costs, a representative share of the fixed manufacturing overhead costs based on normal operating capacity and variable manufacturing overhead costs based on actual production during the period.

Net realizable value represents the estimated selling price in the ordinary course of business less directly attributable, applicable variable selling expenses and less costs of completion of inventory.

The write-downs, additions and releases related to the provision for obsolete inventory are recognized in cost of goods sold in the profit and loss account.

XVIII Receivables

Trade and other receivables are initially recognized at fair value and are subsequently measured at amortized cost using the effective interest method less provisions for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the profit and loss account within net sales. When a receivable is uncollectible, it is written off against the allowance account for receivables. Subsequent recoveries of amounts previously written off are released in net sales in the profit and loss account.

XIX Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income.

XX Cash and cash equivalents

Cash and cash equivalents represent cash in hand and cash at banks. Current account overdrafts at banks are included under borrowings under the heading current liabilities.

XXI Offsetting financial instruments

The Group has a Notional Group Account with Svenska Handelsbanken AB (publ). If the following criteria are met, the cash and cash equivalents of participating group companies and the current account overdrafts at Svenska Handelsbanken AB (publ) are offset and presented in the balance sheet as a net amount:

• There is a legally enforceable right to offset the recognized amounts; and
• There is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

XXII Assets held for sale and discontinued operations

An asset or disposal group is classified as held for sale if its carrying amount will be recovered principally through a sale transaction, rather than through continuing use. Assets are classified as held for sale when they are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets, and the sale is considered highly probable. Assets held for sale are no longer amortized or depreciated from the time they are classified as such. Assets classified as held for sale are measured at the lower of their carrying amount or fair value less cost of disposal.

Operations that represent a separate major line of business or geographical area of operations, or are a subsidiary acquired exclusively with a view to resale and have either been disposed of or classified as held for sale, are presented as discontinued operations in the profit and loss account.

XXIII Equity

Ordinary shares are classified as share capital. Incremental costs directly attributable to the purchase, sale and/or issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

XXIV Other non-current liabilities

Contingent considerations

The fair value of the contingent considerations is calculated using the income approach and is linked to the financial performance of the acquired companies. As part of accounting for business combinations, contingent consideration is initially recognized. Contingent consideration is discounted using the cost of equity. If the fair value of contingent consideration deviates from the carrying amount, the difference is recognized in general and administrative expenses in the profit and loss account.

If the contingent consideration will be settled within 12 months from the balance sheet date, the contingent consideration is presented as part of trade and other payables.

XXV Provisions

Provisions are recognized for legally enforceable or constructive obligations existing on the balance sheet date, when it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow will be required for settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the

Note 1

Note 1

likelihood of an outflow with respect to any item included in the same class of obligations is small.

The initial recognition, subsequent additions and releases to a provision are recognized in the profit and loss account. The classification in the profit and loss account depends on the nature of the provision.

Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as other financial expenses in the profit and loss account.

If the expenditure to settle an obligation is expected to be recovered from a third party, the recovery is carried as an asset in the balance sheet if it is virtually certain to be received upon settlement of the obligation.

XXVI Employee benefits

Pension obligations

The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds for all countries in the Eurozone. For the Swedish plans, the discount rate is based on mortgage bonds. For the Norwegian pension plans, in the previous year the market yield on government bonds was used. As of 2015, the market yield of covered bonds is used for the Norwegian plans. The rates of these bonds are used as equivalent to high quality corporate bond rates in countries where there is no deep market in such bonds.

Remeasurements arising from defined benefit plans also include the return on plan assets excluding interest and the effect of the asset ceiling, if any, excluding interest. Remeasurements are recognized in other comprehensive income when incurred. All other expenses related to defined benefit plans are recognized in the profit and loss account when incurred, either in cost of goods sold, selling expenses or general and administrative expenses.

The interest on defined benefit obligations is recognized in net financial items in the profit and loss account when incurred.

The defined benefit schemes in industry sector pension funds, which are held by pension funds that are not able to provide companyspecific or reliable information, are accounted for as though they are defined contribution schemes. In the event of a deficit in these pension funds, the company has no obligation to provide supplementary contributions, other than higher future contributions.

The contributions are recognized as personnel costs, which are included either in cost of goods sold, selling expenses or general and administrative expenses in the profit and loss account. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available to the Group.

Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for special compensation. A provision is recognized on the termination of employees as a result of either an entity's decision to terminate employment before the normal retirement date or an employee's decision to accept an offer of benefits in exchange for the termination of employment. The expenses related to this provision are recognized in personnel expenses, which are included either in cost of goods sold, selling expenses or general and administrative expenses in the profit and loss account.

Share-based payments Call option arrangement

No costs related to share-based payment are recognized, since the company has no obligation to settle the transaction. The options have been acquired at fair market value.

Share-based long-term incentive plans

The incentive plans qualify as equity-settled share-based payments. The expenses for the plans will amount to the grant date fair value per share right times the number of share rights vested, including any accelerated vesting. The expenses are recognized as personnel expenses, which are included either in cost of goods sold, selling expenses and general and administrative expenses in the profit and loss account. The total expense depends on the number of shares right vested but any changes in the price of Cloetta share after the grant date do not impact the total expense. In some jurisdictions, social security expenses have to be paid. The total expense for social security contributions will be based on the vesting date fair value of the Cloetta share. Social security expenses recognized in the profit and loss account will therefore vary with changes in the share price.

Forward contracts to repurchase own shares

At inception of the forward contract to repurchase own shares, the agreed consideration to be paid at the termination date, net of any tax effects, is recognized as a deduction from equity and as a financial liability. The interest costs directly attributable to the forward contract are recognized in the net financial expenses in the profit and loss account when incurred. At the termination date, the agreed consideration will be paid and the financial liability will be derecognized as its contractual obligation is discharged and cancelled.

XXVII Borrowings

Borrowings are initially recognized at fair value, being the amount received taking into account any premium or discount, and less transaction costs. Borrowings are subsequently stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the profit and loss account over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date, in which case they are classified as non-current liabilities.

When borrowings from a shareholder are extinguished for consideration other than fair value, the difference between the consideration and the carrying amount of the borrowing is accounted for as an equity contribution.

A financial liability is derecognized when its contractual obligations are discharged, cancelled or expired.

XXVIII Borrowing costs

Borrowing costs paid on the establishment of credit facilities are recognized as transaction costs for the loan to the extent that it is probable that some or all of the facility will be drawn down. In such case, the transaction costs are recognized when the draw-down occurs. If it is probable that some or all of the facility will be drawn down, the transaction costs are reported as deferred expense and netted against current borrowings and amortized over the contract period the facility relates to, using the effective interest rate method.

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

106Cloetta [ A N N UA L A N D S U STA I N A B I LIT Y R EP O RT 2016 ]

Note 1 Note 2 Note 3 Note 4

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets, for which borrowing costs are included in historical cost, is deducted from the borrowing costs that are eligible for capitalization.

All other borrowing costs are recognized in other financial expenses in the profit and loss account in the period in which they are incurred.

XXIX Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If payment is expected to be settled after 12 months after balance sheet date, the payable is presented as non-current liabilities.

Trade payables are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest method.

XXX Operating leases

Lease contracts for which a significant part of the risks and rewards incidental to ownership of the assets does not lie with the Group are recognized as operating leases. Payments made under operating leases are recognized in the cost of goods sold, selling expenses and in the general and administrative expenses in the profit and loss account on a straight-line basis over the term of the contract, taking into account reimbursements received from the lessor.

Note 2 Breakdown of income

See Notes 1 (I) and (III) for the accounting policy.

SEKm	2016	2015
Net sales
Sales of goods
Sugar confectionery	3,170	3,118
Chocolate confectionery	998	881
Pastilles	824	848
Chewing gum	376	378
Nuts	225	184
Other	259	265
Total	5,852	5,674
Other income
Other	–	0
Total	5,852	5,674

The breakdown of net sales by country is as follows

%	2016	2015
Sweden	31	30
Finland	17	18
The Netherlands	14	13
Italy	12	13
Denmark	5	6
Norway	4	4
Other countries	17	16
Total	100	100

No individual customer accounts for more than 10 per cent of Cloetta's total net sales.

Note 3 Amortization of intangible assets, depreciation of property, plant and equipment and other changes in value of non-current assets

See Notes 1 (II), (V), (XI), (XII) and (XV) for the accounting policy.

SEKm	2016	2015
Software	36	30
Other intangibles	6	4
Land and buildings	18	18
Machinery and equipment	185	179
Total amortization/depreciation	245	231
Amortization/depreciation has been allocated by function as follows
Cost of goods sold	176	170
Selling expenses	7	5
General and administrative expenses	62	56
Total amortization/depreciation	245	231
Impairment
Intangible assets	771	–
Property, plant and equipment	7	–
Total impairment	778	–

The impairment losses on intangible assets have been charged to general and administrative expenses. The impairment losses on property, plant and equipment have been charged to cost of goods sold.

Note 4 Expenses by type

SEKm	2016	2015
Raw materials and consumables used including change in inventory of finished goods and work
in progress	2,152	2,145
Personnel expenses (See Note 5)	1,304	1,277
Depreciation, amortization
and impairment charges (See Note 3)	1,023	231
Transportation expenses	160	156
Operating lease payments (See Note 32)	88	75
Advertising and promotion	374	387
Selling and marketing	77	98
Energy expenses	124	124
Maintenance expenses	106	97
Other operating expenses	526	413
Total operating expenses	5,934	5,003

The costs charged to the profit and loss account relating to research and development amount to SEK 40m (47).

Note 5 Personnel expenses and number of employees

See Note 1 (VI) for the accounting policy.

Personnel expenses are specified as follows

SEKm	2016	2015
Salaries and remuneration Group Management Team
– Sweden	27	31
– Other	12	13
Of which, short-term variable compensation
– Sweden	7	12
– Other	2	4
Pension costs Group Management Team
– Defined contribution plans	6	7
Total salaries, remuneration and pension costs Group Management Team	45	51
Salaries and remuneration other employees
– Sweden	244	237
– Other	648	604
Pension costs other employees
– Defined contribution plans	70	65
– Defined benefit plans	8	10
Total salaries, remuneration and pension costs other employees	970	916
Total salaries, remuneration and
pension costs all employees	1,015	967
Social security expenses, all employees	232	238
Other personell costs, all employees	57	72
Total personnel expenses	1,304	1,277

The average number of employees is as follows

	2016	2015
Average number of employees
– Group Management Team	11	11
– Other employees	2,519	2,572
Of whom, women
– Group Management Team	2	2
– Other employees	1,279	1,325

The average number of employees by country is as follows

Average number of employees: Sweden Slovakia Italy The Netherlands Finland Belgium Ireland Norway Denmark Germany UK Other Total	2016 547 705 423 392 193 102 80 39 36 9 1 3	2015 553 706 440 426 193 106 68 35 38 7 6
		5
	2,530	2,583
Of whom, women:
Sweden	251	253
Slovakia	474	480
Italy	171	179
The Netherlands	133	159
Finland	153	160
Belgium	22	24
Ireland	35	25
Norway	18	16
Denmark	19	21
Germany	3	3
UK	–	3
Other	2	4
Total	1,281	1,327

Specification of the gender distribution is as follows

%	2016	2015
Percentage of women
Board of Directors	43	33
Group Management Team	18	18
Other employees	51	52

See page 84 for further details on remuneration to the Group Management Team.

Note 6 Remuneration to the Board

Paid fees 2016 (SEK 000s)	Board fees	Committee fees	Total
Board Chairman
Lilian Fossum Biner1	413	33	446
Caroline Sundewall2	203	50	253
Board members
Olof Svenfelt2	93	33	126
Adriaan Nühn	283	117	400
Mikael Svenfelt	283	50	333
Mikael Norman	283	100	383
Lotti Knutson	283	–	283
Hans Porat1	190	67	257
Camilla Svenfelt1	190	–	190
Total	2,221	450	2,671

Board fees

Caroline Sundewall 607 150 757

Olof Svenfelt 278 100 378 Adriaan Nühn 278 50 328 Mikael Svenfelt 278 50 328 Ann Carlsson3 92 – 92 Mikael Norman4 187 66 253 Lotti Knutson4 187 – 187 Total 1,907 416 2,323

Committee

fees Total

Note 8 Audit fees

SEKm	2016	2015
Fee for auditing services	5	5
Fee for other services
– Tax advice	0	0
– Audit-related advice	1	0
– Other	0	1
Total other services	1	1
Total audit fees	6	6

Auditing services refer to the audit of the consolidated financial statements, the Parent Company's statutory financial statements, the statutory financial statements of its subsidiaries, the accounts and company's administration by the Board of Directors and the President.

For both financial years 2015 and 2016, KPMG was elected as the auditor of the Group.

Note 9 Net financial items

See Note 1 (VII) and (XVI) for the accounting policy.

SEKm	2016	2015
Exchange differences in borrowings and cash and cash equivalents in foreign currencies	–8	–1
Other financial income, third parties	1	1
Other financial income at amortised cost	1	1
Unrealized gains on single currency interest rate swaps	16	5
Other financial income at fair market value	16	5
Total other financial income	17	6
Interest expenses, third-party borrowings	–62	–101
Interest expenses, third-party pensions	–12	–17
Interest expenses, contingent earn-out liabilities	–10	–13
Call option fee redemption senior secured notes	–30	–
Amortization of capitalised transaction costs	–34	–18
Other financial expenses, third parties	–16	–15
Other financial expenses at amortised cost	–164	–164
Realized losses on single currency interest rate swaps	–19	–19
Other financial expenses at fair market value	–19	–19
Total other financial expenses	–183	–183
Net financial items	–174	–178

1) Elected as per 12 April 2016.
2) Resigned on 12 April 2016.
3) Resigned on 23 April 2015.

Paid fees 2015 (SEK 000s)

Board Chairman

Board members

4) Elected as per 23 April 2015.

Note 7 Items affecting comparability

See Note 1 (X) for the accounting policy.

SEKm	2016	2015
Acquisitions, integration and factory restructurings	– 49	– 47
of which: impairment losses other non-current
assets	–7	–
Remeasurements of contingent considerations	–17	33
Remeasurements of assets held for sale	–3	– 5
Impairment loss goodwill and trademarks	–771	–
Total	–840	–19
Corresponding line in the consolidated profit and loss account:
Net sales	–	– 4
Cost of goods sold	–23	–22
Selling expenses	–	–12
General and administrative expenses
- Impairment loss	–771	–
- Other general and administrative expenses	–46	19
Total general and administrative expenses	– 817	19
Total	–840	–19

See Note 11 for further details on the impairment loss.

See page 147 for alternative performance measures.

Note 6 Note 7 Note 8 Note 9

Note 10 Income taxes

See Note 1 (VIII) for the accounting policy.

SEKm	2016	2015
Current income tax	28	–15
Deferred income tax	37	–92
Total	65	–107
The year's income tax expense corresponds to an
effective tax rate of, %	25.4	21.7

The difference between the effective tax rate and the applicable tax rate in Sweden is attributable to the following items

SEKm	2016	2015
Profit/loss before tax	–256	493
Tax calculated at applicable tax rate
for the Parent Company	56	–108
International rate differences	9	– 4
State and local taxes	–1	– 4
Result investments/divestments, non-taxable	–3	5
Expenses not deductible for tax purposes	–7	–3
Adjustments recognized in the period for tax of
prior periods	2	6
Effect of rate changes	–1	2
Tax losses for which no deferred income tax asset
is recognized in the current year	–10	–1
Tax losses for which no deferred income tax asset
was recognized in previous years	3	2
Other	17	–2
Income tax	65	–107
Reported effective tax rate, %	25.4	21.7
Tax rate of Parent Company, %	22.0	22.0

The applicable tax rate for the Parent Company is based on the enacted tax rate, which is the Swedish corporate income tax rate.

The reported effective tax rate is based on the relative proportion on the group companies' contribution to profit before tax and the applicable tax regulations in the countries concerned.

Other differences mainly consist of a settlement of the tax claims for the years 2005–2011 in Italy.

Note 11 Intangible assets

See Notes 1 (XI) and (XV) for the accounting policy.

SEKm				Other
Historical cost	Trademarks	Goodwill	Software	intangibles	Total
1 January 2015
Acquisition or production costs	3,520	2,310	249	39	6,118
Accumulated amortization and impairments	–	– 86	–135	–15	–236
Book value at 1 January 2015	3,520	2,224	114	24	5,882
Movements in 2015
Business combinations	121	42	–	20	183
Additions	–	–	23	–	23
Amortization	–	–	–30	– 4	–34
Exchange differences	– 45	– 59	–2	0	–106
Total	76	–17	–9	16	66
31 December 2015
Acquisition or production costs	3,596	2,291	258	59	6,204
Accumulated amortization and impairments	–	– 84	–153	–19	–256
Book value at 31 December 2015	3,596	2,207	105	40	5,948
Movements in 2016
Transfers from non-current financial assets	–	–	–	7	7
Additions	–	–	14	1	15
Amortization	–	–	–36	– 6	– 42
Impairments	– 505	–266	–	–	–771
Exchange differences	86	107	3	1	197
Total	–419	–159	–19	3	–594
31 December 2016
Acquisition or production costs	3,682	2,402	281	76	6,443
Accumulated amortization and impairments	– 505	–354	–195	–33	–1,089
Book value at 31 December 2016	3,177	2,048	86	43	5,354
Estimated economic useful life	Indefinite	Indefinite	3–5 years	5 years– indefinite

The carrying amount of software includes an amount of SEK 5m (2) for software under construction.

The other intangibles consist mainly of capitalized customer lists, benefits related to the right to free electricity and a capitalized recipe.

Impairment testing of goodwill and trademarks

Goodwill and trademarks do not generate cash inflows that are largely independent of those from other assets. These are therefore allocated to the cash-generating unit (CGU) or group of CGUs expected to benefit most from these assets. A CGU is the lowest level to which an asset that generates cash flows independently from other assets can be allocated. A group of CGUs is not larger than an operating segment.

The estimated recoverable amount of all CGUs and groups of CGUs has been determined based on value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a three-year period, taking into account asset specific risks. Cash flows beyond the three-year period are extrapolated using a terminal growth rate.

The most important assumptions in the calculations are the terminal growth rate and the pre-tax discount rate. EBITDA is a key assumption when establishing the financial budgets. These assumptions reflect and do not differ from prior experience and external information sources. EBITDA is determined in the annual budget process. The terminal growth rate is determined by assuming that the business will grow in line with consumer prices/inflation based on central bank forecasts or similar unless stated differently. Discount rates have been determined by applying the capital asset pricing model. The terminal growth target is in line with the Group's long-term goal for organic growth and the management's judgement.

These assumptions have been used for the analysis of each CGU and group of CGUs in the impairment analysis. The budgeted figures are based on past performance and management's expectations for market development. The weighted average growth rates used are consistent with the forecasts used in the Group. The discount rates used are pre-tax and reflect specific risks relating to the relevant industry and the risk particularly associated with the asset for which the estimates of the future cash flows have not been adjusted.

For impairment testing, the following assumptions have been used

	Terminal growth rate			Pre-tax discount rate
%	2016	2015	2016	2015
South/Italy	1.5	2.0	10.9	9.1
Scandinavia/Sweden	2.0	2.0	7.3	7.2
Finland	2.0	2.0	7.4	7.0
Middle/ The Netherlands	2.0	2.0	7.6	7.4
Group	2.0	2.0	7.9	7.5

Goodwill

Goodwill is allocated to a CGU or group of CGUs not larger than an operating segment. The allocation has been made to the groups of CGUs that correspond to the operating segments that are expected to benefit most, which are the commercial organizations of Scandinavia, Finland, Middle and South. The goodwill related to the purchase price allocation for the acquired company Locawo B.V. has been allocated to the CGU Middle.

The following summary specifies the allocation of goodwill to the different groups of cash-generating units

SEKm	Scandinavia	Finland	Middle	South	Total
1 January 2015	739	965	259	261	2,224
Business combination	–	–	40	–	40
Exchange rate differences	–18	–24	– 8	–7	–57
31 December 2015	721	941	291	254	2,207
Impairments	–	–	–	–266	–266
Exchange rate differences	35	42	18	12	107
31 December 2016	756	983	309	–	2,048

Trademarks

For trademarks, the related CGUs are the commercial organizations of the countries that own the respective trademarks. The trademark for the acquired brand Lonka has been allocated to the CGU the Netherlands. The products are mainly sold in the countries owning the trademarks. If products are sold by group companies in other countries, the trademark owner charges royalty fees to the selling party.

The following summary specifies the allocation of trademarks to the different cash-generating units

SEKm	Sweden	Finland	The Nether lands	Italy	Other (corpo rate assets)	Total
1 January 2015	1,455	486	770	750	59	3,520
Addition	–	–	125	–	–	125
Exchange rate differences	–	–11	–19	–17	–2	– 49
31 December 2015	1,455	475	876	733	57	3,596
Impairments	–	–	–	– 505	–	–505
Exchange rate differences	–	21	38	24	3	86
31 December 2016	1,455	496	914	252	60	3,177

The key assumptions on which the cash flow projections for the period covered by recent forecasts are included in the table below

Key assumption used in value in	Basis for determining value assigned
use calculation	to key assumption
EBITDA	External market studies on growth of market, historical growth rates in the period before the recession etc.

Impairment of goodwill and trademarks

In the assessment of possible impairment triggering events in the fourth quarter, the Company determined that fourth quarter sales volumes and the initiation of a strategic review in Italy required an impairment test to be made at 31 December 2016 for the CGU Italy in respect to trademarks and for the group of CGUs South in respect to goodwill. As a result of this 31 December 2016 impairment assessment, the

Company recorded an impairment charge on trademarks and goodwill of SEK 771m (–) related to the CGU Italy and group of CGUs South.

After recognition of this impairment the recognized goodwill related to the group of CGUs South is nil and the carrying value of the Italian trademarks is SEK 252m.

The group of CGUs South includes the commercial organizations for the Italian and Italian export business. The impairment arose following lower than expected revenue growth in the Italian market and the negative Italian economy as a result of the highly competitive environment and challenging market conditions. As a result the initial expectations about sales volume growth and corresponding cash flows for the Italian business were lowered. As at 31 December 2016, the recoverable amount of the entire group of CGUs South being the commercial organizations for the Italian and Italian export business excluding the Italian supply chain business, was SEK 415m (723).

Note 11

Note 11 Note 12 The recoverable amount is based on the higher of the fair value less cost of disposal and its value in use. Both the value in use and the fair value less cost of disposal are calculated using cash flow projections based on financial budgets approved by management covering a three-year period, and a pre-tax discount rate of 10.9 per cent (9.1). South's cash flows beyond the three-year period are extrapolated using a 1.5 per cent (2.0) growth rate. This growth rate is slightly lower than the long-term average growth rate for the Italian market. However, management believes that a 1.5 per cent growth rate is reasonable in the light of the market and economy development.

For the impairment calculation of goodwill, both the fair value less cost of disposal and the value in use calculated resulted in an impairment to nil. For the trademarks the fair value less cost of disposal is considered to be its recoverable amount.

After the recognition of impairment on trademarks of the CGU Italy, the estimated recoverable amount of the CGU Italy equals its carrying amount. If the terminal growth rate increases with 0.5%-point, the recoverable amount of the trademarks will increase with SEK 19m while if the terminal growth rate decreases with 0.5%-point the recoverable amount will decrease with SEK 17m. If the discount rate increases with 0.5%-point, the recoverable amount of the trademarks will decrease with SEK 20m while if the discount rate decreases with 0.5%-point the recoverable amount will increase with SEK 23m.

Corporate assets

Group-wide assets and liabilities, including the right of free electricity and software under construction that cannot be directly allocated on a reasonable and consistent basis to the CGUs or groups of CGUs are classified as corporate assets. A group impairment analysis has been performed where the carrying amount of the total group of CGUs, including the portion of the carrying amount representing the Group's corporate assets, is compared with the total recoverable amount.

Note 12 Property, plant and equipment

See Notes 1 (XII) and (XV) for the accounting policy.

SEKm Historical cost	Land and buildings	Machinery and equipment	Assets under construction	Total
1 January 2015
Acquisition or production costs	926	3,173	29	4,128
Accumulated depreciation and impairments	–371	–2,090	–	–2,461
Book value at 1 January 2015	555	1,083	29	1,667
Movements in 2015
Business combinations	–	121	–	121
Additions	3	33	102	138
Transfers	23	88	–111	–
Disposals	–	–1	–	–1
Depreciation	–18	–179	–	–197
Exchange differences	–10	–20	0	–30
Total	–2	42	–9	31
31 December 2015
Acquisition or production costs	933	3,282	20	4,235
Accumulated amortization and impairments	–380	–2,157	–	–2,537
Book value at 31 December 2015	553	1,125	20	1,698
Movements in 2016
Additions	3	30	122	155
Disposals	–	–3	–	–3
Transfers	31	95	–126	–
Depreciation	–18	–185	–	–203
Impairments	–	–7	–	–7
Exchange differences	22	37	1	60
Total	38	–33	–3	2
31 December 2016
Acquisition or production costs	1,005	3,485	17	4,507
Accumulated depreciation and impairments	–414	–2,393	–	–2,807
Book value at 31 December 2016	591	1,092	17	1,700

Estimated economic useful life Buildings: 20–50 years

Land: Indefinite

3–55 years N/A

Estimated economic useful life
5–35 years
5–25 years
3–55 years
3–5 years
3–20 years
7–20 years
5 years
5–20 years

The impairment losses on property, plant and equipment have been charged to cost of goods sold (see Note 3).

At 31 December 2016, the Group had contractual commitments for acquisitions of machinery and equipment for an amount of SEK 20m (31).

Note 13 Tax assets and liabilities

See Notes 1 (VIII) and (XIII) for the accounting policy.

SEKm	Tax losses carried forward	Unused tax credits	Property, plant & equipment	Intangible assets	Provisions (incl. pensions)	Other current assets and liabilities	Total
1 January 2015	275	60	–128	–658	71	–19	–399
Business combinations and divestments	–	–	–15	–36	0	2	–49
Profit and loss account (charge) /credit for the year	–112	–19	–3	–43	– 5	74	–108
Return to accrual	–3	0	0	0	1	–2	– 4
Effect of rate changes	–11	0	6	18	–2	–10	1
Exchange differences/ Other	20	–1	2	22	–28	–13	2
31 December 2015	169	40	–138	–697	37	32	–557
Business combinations and divestments	–	–	–	–	–	2	2
Profit and loss account (charge)/ credit for the year	–36	–14	– 4	149	1	–57	39
Return to accrual	39	–	–1	–40	1	2	1
Effect of rate changes	– 8	–	1	4	0	0	–3
Exchange differences/ Other	10	2	– 5	–25	6	–2	–14
31 December 2016	174	28	–147	–609	45	–23	–532

Deferred tax assets and liabilities can be broken down as follows

SEKm	31 Dec 2016	31 Dec 2015
Deferred tax assets	54	64
Deferred tax liabilities	– 586	–621
Total	–532	–557

Deferred tax assets refer, among other things, to the difference between the tax base of the defined asset or liability and its carrying amount and the recognized tax losses carried forward.

The amounts are as follows

SEKm	31 Dec 2016	31 Dec 2015
Deferred tax asset to be realized after more than 12 months	35	60
Deferred tax asset to be realized within 12 months	19	4
Total	54	64

The breakdown of non-current assets other than other financial assets and deffered tax assets by country is as follows

SEKm	31 Dec 2016	31 Dec 2015
Sweden	2,606	2,803
Finland	1,497	1,429
Italy	653	1,373
The Netherlands	1,511	1,525
Other countries	787	516
Total	7,054	7,646

The composition of deductible temporary differences, unused tax credits and tax losses carried forward is as follows:

		31 Dec 2016		31 Dec 2015
SEKm	Recognized	Not	recognized Recognized	Not recognized
Deductible temporary differences	84	–	150	–
Unused tax credits	28	13	40	19
Tax losses carried forward	174	103	169	118
Total	286	116	359	137

The unused tax credits relate to a tax abatement granted by the Slovakian government. This tax abatement means that a maximum amount of around SEK 95m of income tax liabilities will be waived by the Slovakian government during the period from 2009 to 2018.

The expiration dates for the tax losses carried forward range from four years to unlimited.

Deferred tax liabilities

The deferred tax liability is recognized to account for the taxable temporary differences between the tax bases of intangible assets, property, plant and equipment, work in progress, inventories, receivables and provisions and their carrying amounts.

SEKm	31 Dec 2016	31 Dec 2015
Deferred tax liability to be recovered after more than 12 months	616	655
Deferred tax liability to be recovered within 12 months	–30	–34
Total	586	621

Current income tax

SEKm	31 Dec 2016	31 Dec 2015
Current income tax assets	36	3
Current income tax liabilities	–39	–55
Total	–3	–52

See also Note 33 for further details regarding accounting estimates and judgments in respect to the ongoing tax audits.

Note 14 Non-current financial assets

See Notes 1 (XIV) and (XV) for the accounting policy.

SEKm	31 Dec 2016	31 Dec 2015
Deposits	5	5
Other financial assets	8	22
Total	13	27

The fair values of non-current financial assets approximate their carrying amounts.

None of the different classes of non-current financial assets contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security.

Note 15 Inventories

See Note 1 (XVII) for the accounting policy.

Inventories for own use and resale

SEKm	31 Dec 2016	31 Dec 2015
Raw materials and consumables	276	266
Work in progress	63	62
Finished goods and goods for resale	441	458
Total	780	786

Movements in the provision for obsolete inventory are as follows

SEKm	2016	2015
At 1 January	11	15
Business combinations	–	–1
Provision for impairment of inventories	16	14
Inventories written of during the year as obsolete	–11	–15
Unused amounts reversed	0	–3
Exchange differences	1	1
At 31 December	17	11

Note 16 Trade and other receivables

See Notes 1 (XVIII) for the accounting policy.

SEKm	31 Dec 2016	31 Dec 2015
Trade receivables, gross	929	909
Provision for impairment of trade receivables	–24	–20
Trade receivables, net	905	889
Other receivables	51	56
Prepaid expenses and accrued income	32	30
Total	988	975

The individual trade receivables for which provisions were made relate to uncollectible receivables that are not covered by credit insurance.

Movements in the provision for impairment of trade receivables are as follows

SEKm	2016	2015
At 1 January	20	16
Provision for impairment of trade receivables	10	14
Trade receivables written off during the year as uncollectible	0	–3
Unused amounts reversed	–7	– 8
Exchange differences	1	1
At 31 December	24	20

The age analysis of the trade receivables for which a provision for impairment has been recognized is as follows

SEKm	31 Dec 2016	31 Dec 2015
Up to 60 days	1	0
60 to 90 days	0	0
Over 90 days	23	20
Total	24	20

The other receivables and prepaid expenses and accrued income do not contain impaired assets.

As of 31 December 2016, trade receivables of SEK 166m (174) were past due but not impaired. These relate to a number of customers for whom there is no recent history of default.

Note 13 Note 14 Note 15 Note 16

SEKm	31 Dec 2016	31 Dec 2015
Up to 60 days	139	130
60 to 90 days	7	16
Over 90 days	20	28
Total	166	174

The carrying amounts are assumed to approximate the fair values of trade receivables and other receivables. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above. The Group does not hold any collateral as security.

The carrying amounts of trade receivables are denominated in the following currencies

SEKm	31 Dec 2016	31 Dec 2015
Euro	539	568
Swedish krona	247	210
Danish krone	43	35
Great Britain pound	36	40
Norwegian krone	19	20
US dollar	9	5
Other currencies	12	11
Total	905	889

The breakdown of prepaid expenses and accrued income is as follows

SEKm	31 Dec 2016	31 Dec 2015
Prepaid IT expenses	10	8
Prepaid rents, insurance and lease charges	9	8
Prepaid personnel-related expenses	2	2
Prepaid marketing expenses	2	1
Other prepaid expenses	9	11
Other accrued income	0	–
Total	32	30

Note 17 Cash and cash equivalents

See Notes 1 (XX) and (XXI) for the accounting policy.

The item cash and cash equivalents in the consolidated cash flow statement and consolidated balance sheet consists of the following

SEKm	31 Dec 2016	31 Dec 2015
Cash and cash equivalents	298	246
Total	298	246

All cash and cash equivalents are available on demand.

Svenska Handelsbanken AB (publ) provided the Group with a Notional Group Account (NGA). The NGA enables Cloetta AB (publ) and its subsidiaries to use the funds available as deposited in the bank in one or more currencies for the purpose of efficient liquidity management and daily payments in the ordinary course of business. The NGA provides the possibility of making withdrawals from accounts held by the bank in different currencies and in different countries without the necessary funds being available in the respective currency, provided that the corresponding funds are available considering the balances on all accounts in the NGA and any amounts available for this purpose pursuant to any credit facility and/or intraday revolver facility agreed upon separately. The NGA is based on and connects accounts in local account structures in different countries in which group companies participate as sub-account holders.

The following table shows the carrying amounts of recognized offsetting of financial assets and liabilities relating to the notional group account

Gross amounts of financial instruments	Set-off in the balance sheet	Net amount presented in the balance sheet	Related financial instruments that are not offset	Net amount
499	–383	116	182	298
499	–383	116	182	298
383	–383	–	2,668	2,668
383	–383	–	2,668	2,668
Gross amounts		Net amount	Related financial
instruments	balance sheet	balance sheet	are not offset	Net amount
158	–115	43	203	246
158	–115	43	203	246
115	–115	–	2,956	2,956
115	–115	–	2,956	2,956
	of financial	Set-off in the	presented in the	instruments that

Note 16 Note 17 Note 18 Assets held for sale

See Note 1 (XXII) for the accounting policy.

All assets held for sale relate to property, plant and equipment. The movements in the year are as follows

SEKm	2016	2015
At 1 January	11	16
Remeasurements recognized in profit and loss	–3	– 5
Exchange rate differences	1	– 0
At 31 December	9	11

The assets held for sale at 31 December 2016 are the land and building in Zola Predosa, Italy for an amount of SEK 9m (11). A sale agreement with a third party has been signed. The property will be transferred in the second quarter of 2017. The assets held for sale are categorized at level 3 of the fair value hierarchy.

See Note 29 for a total overview of the Group's assets and liabilities that are measured at fair value. The remeasurement of the fair value is recognized in the cost of goods sold in the profit and loss accounts.

Note 19 Equity

See Notes 1 (XXIII) and (XXVI) for the accounting policy.

Capital management

The Board's financial objective is to maintain a strong financial position that contributes to maintaining investor, creditor and market confidence and to providing a platform for ongoing development of the business. Capital consists of total equity. The Board of Directors proposes dividend to the shareholders.

The company's long-term intention is a dividend pay-out of 40–60 per cent of profit after tax. In 2015, the primary focus was on reinvesting the company's strong cash flow for continued repayment of bank loans, while at the same time allowing for complementary acquisitions. In 2016, the ambition was to continue using future cash flows to repay debt, to pay dividends and to maximize financial flexibility for complementary acquisitions.

The Group's objective when managing capital is to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total assets.

Dividend per share

No dividend was paid in 2015. The Annual General Meeting (AGM) on 12 April 2016 approved a dividend of SEK 0.50 per share, corresponding to 37 per cent of consolidated profit after tax for the financial year 2015. The dividend of SEK 144m was paid in April 2016.

The Board of Directors proposes that dividends be paid in a total amount of SEK216m, equal to SEK 0.75 per share.

The Board of Directors proposes that the total earnings in the Parent Company at the disposal of the AGM of SEK 2,650m are to be distributed to the shareholders for an amount of SEK 216m and to be carried forward to new account for an amount of SEK 2,433m.

Group equity Share capital

The number of shares authorized issued and fully paid up at 31 December 2016 was 288,619,299, consisting of 9,861,614 class A shares and 278,757,685 class B shares. All shares grant equal entitlement to participate in the company's assets and profits. The quota value (par value) of the share is SEK 5.00. Should the company issue new shares of class A and class B through a cash or set-off issue, holders of class A and class B shares have the right to subscribe for new shares of the same class in proportion to the number of shares already held on the record date. If the issue includes shares of only class B, all holders of class A and class B shares have the right to subscribe for new B shares in proportion to the number of shares already held on the record date. Corresponding rules of apportionment are applied in the event of a bonus issue or issue of convertibles and subscription warrants. The transference of a class A share to a person who is not previously a holder of class A shares in the company is subject to a pre-emption procedure, except when the transfer is made through division of joint property, inheritance, testament or gift to the person who is the closest heir to the bequeather. After receiving a written request from a holder of class A shares, the company shall convert the class A shares specified in the request to class B shares. A conversion of class A shares to class B shares was carried out in 2017 as a result of the undertakings with Malfors Promotor. See page 62 for further details.

Neither Cloetta AB (publ) nor any subsidiary has held any shares in Cloetta during the year.

Foreign currency translation reserve

Reserves consist of all exchange gains/losses arising on translation of the financial statements of foreign operations that present their financial statements in a currency other than that used by the Group. This includes foreign currency differences on monetary items that are a receivable from or payable to a foreign operation, for which settlement is neither planned nor likely to occur in the foreseeable future.

Retained earnings

Retained earnings comprise the sum of profit for the year and retained earnings from previous years. Retained earnings including other paidin capital represent the amount of non-restricted equity available for distribution to the shareholders.

Changes in equity

For disclosures about changes in equity in the Group, see the consolidated statements of changes in equity on page 96.

Hedge of a net investment in a foreign operation (Net investment hedge)

The Group applies hedge accounting for the investment in trademarks in Aran Candy Ltd., Cloetta Suomi Oy, Cloetta Holland B.V., Confiserie Lonka B.V. and Cloetta Slovakia s.r.o. See Note 1 (XVI) for further details on the applied hedge accounting.

Share-based payments

See Note 24 for further details about share-based payments.

Note 18 Note 19 Basic earnings per share are calculated by dividing profit for the year attributable to owners of the Parent Company by the weighted average number of shares outstanding. Diluted earnings per share are calculated by dividing profit for the year attributable to owners of the Parent Company by the weighted average number of shares outstanding adjusted for the dilutive effect of potential shares.

The calculation of basic and diluted earnings per share has been based on the following profit attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding

	2016	2015
Profit/loss for the year, attributable to ordinary shareholders (in SEKm) (basic and diluted)	–191	386
Number of issued ordinary shares at 1 January	288,619,299	288,619,299
Effect of forward contract to repurchase own shares	–2,426,275	–2,328,459
Weighted average number of ordinary shares during the year before dilution	286,193,024	286,290,840
Effect of share-based payments	254,441	270,767
Weighted average number of ordinary shares during the year after dilution	286,447,465	286,561,607
Basic earnings per share, SEK	–0.67	1.35
Diluted earnings per share, SEK	–0.67	1.35

Cloetta has entered into forward contracts to repurchase own shares in order to fulfil its future obligation to deliver the shares to the participants in the long-term share-based incentive plan. See Note 22 for a table that presents movements in the contracts as of 1 January 2014.

Note 21 Borrowings

See Notes 1 (XXVII) and (XXVIII) for accounting policies.

On 22 July 2016 the Group has entered into a new term and revolving facilities agreement with a group of four banks, amounting in total to the equivalent of SEK 3,700m. The new facilities have been used to refinance the bank financing with Svenska Handelsbanken AB (publ). The new facilities agreement includes a bridge loan of SEK 1,000m that was used to redeem the senior secured notes on 19 September 2016.

31 Dec 2016	Remaining term	Remaining term	Remaining term	Remaining term
SEKm	< 1 year	1–2 years	2–5 years	> 5 years	Total
Loans from credit institutions	–	993	1,673	–	2,666
Accrued interest	2	–	–	–	2
Total	2	993	1,673	–	2,668
31 Dec 2015	Remaining term	Remaining term	Remaining term	Remaining term
SEKm	< 1 year	1–2 years	2–5 years	> 5 years	Total
Loans from credit institutions	343	1,619	–	–	1,962
Senior secured notes	–	–	993	–	993
Accrued interest	1	–	–	–	1
Total	344	1,619	993	–	2,956

See Note 31 for further details on liabilities to related parties.

The following table shows the Group's contractually agreed cash flows payable under financial liabilities.

31 Dec 2016	Remaining term	Remaining term	Remaining term	Remaining term	Total
SEKm	< 1 year	1–2 years	2–5 years	> 5 years
Loans from credit institutions	18	1,017	1,687	–	2,722
Total	18	1,017	1,687	–	2,722
31 Dec 2015	Remaining term	Remaining term	Remaining term	Remaining term	Total
SEKm	< 1 year	1–2 years	2–5 years	> 5 years

Loans from credit institutions	402	1,640	–	–	2,042
Senior secured notes	31	31	1,022	–	1,084
Total	433	1,671	1,022	–	3,126

The following table shows the reconciliation of movements of liabilities to cash flows arising from financing activities

SEKm	Long-term borrowings	Short-term borrowings	Total
Balance at 1 January 2016	2,612	344	2,956
Changes from financing cash flows
Proceeds from loans	2,663	525	3,188
Transaction costs paid	–12	–	–12
Repayment of loans	–1,699	–869	–2,568
Repayment of senior secured notes	–1,000	–	–1,000
Other changes from financing cash flows	–2	–	–2
Total changes from financing cash flows	–50	–344	–394
Other changes
Capitalization transaction costs	–12	–	–12
Amortization of capitalized transaction costs	34	–	34
Interest expenses, third-party borrowings	86	6	92
Interest paid	–56	– 4	–60
Call option fee redemption senior secured notes	–30	–	–30
Exchange differences on borrowings	82	–	82
Total other changes	104	2	106
Balance at 31 December 2016	2,666	2	2,668

The carrying amounts and fair value of non-current borrowings are as follows

		Fair value	Carrying amount
SEKm	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015
Loans from credit institutions	2,666	1,619	2,666	1,619
Senior secured notes	–	1,031	–	993
Total	2,666	2,650	2,666	2,612

The fair value of loans from credit institutions is equal to their carrying amount, as the impact of discounting is not significant, and the credit risk has not changed since the loan agreement was signed.

The fair value of the senior secured notes as per 31 December 2015 was based on the price paid on the last trade in the year which amounted to SEK 103.8.

The Group's borrowings are all exposed to interest rate changes and changes in the applicable margin on a quarterly basis.

Loans from credit institutions Credit facility agreement with

Svenska Handelsbanken AB (publ)

At 15 December 2011, Cloetta AB (publ) entered into a credit facility agreement with Svenska Handelsbanken AB (publ). The agreement is effective as of 16 April 2012 for the Term A loan and as of 23 May 2012 for the Term B loan. On 30 August 2013 Cloetta AB (publ) renegotiated the terms of the credit facility with Svenska Handelsbanken AB (publ). The credit facility agreement was terminated at 27 July 2016.

Term and revolving facilities agreement with a group of four banks

On 22 July 2016, Cloetta entered into a new term and revolving facilities agreement with a group of four banks, being Danske Bank A/S, DNB Sweden AB, Scandinavska Enskilda Banken AB (publ) and Svenska Handelsbanken AB (publ) in SEK and EUR, amounting in total to the equivalent of SEK 3,700m. The new term and revolving facilities agreement is unsecured in nature and was used to refinance the existing bank financing with Svenska Handelsbanken AB (publ) on 27 July 2016 and to redeem its senior secured notes on 19 September 2016.

Note 21

		Outstanding amount Interest percentage		Applicable margin
SEKm	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015
			Variable
			EURIBOR +
Multicurrency term loan of nominal EUR 175m			fixed applicable
(approx. SEK 1,677m)	1,677	–	margin	–	1.00%	–
			Variable STIBOR
Single-currency term loan of nominal			+ fixed applicable
SEK 1,000m	1,000	–	margin	–	0.50%	–
			Variable STIBOR
Multicurrency credit revolving loan of EUR 105m			+ fixed applicable
(approx. SEK 1,006m)	–	–	margin	–	1.20%	–
Credit revolving loan of EUR 15m			Variable
(approx. SEK 144m)	–	–	EURIBOR + 1%	–	1.00%	–
				3-months STIBOR
				+ fixed applicable
Term B loan of nominal SEK 363m	–	363	–	margin	–	2.25%
				3-months
Term B loan of nominal EUR 253m				EURIBOR + fixed
(approx. SEK 2,424m)	–	1,623	–	applicable margin	–	2.25%
				3-months STIBOR
Senior secured notes of nominal SEK 1,000m	–	1,000	–	+ 3,10%	–	3.10%
				1-week EURIBOR
				+ fixed applicable
Credit revolving loan of SEK 740m	–	–	–	margin	–	2.25%
Total Group credit facility	2,677	2,986
Capitalized transaction costs	–11	–31
Accrued interest	2	1
Total borrowings	2,668	2,956

Commitment fee

35 per cent (40) of the fixed applicable margin on the unutilized amounts of the credit revolving loans is paid as a commitment fee.

Currency

All borrowings are denominated in euros, except for the singlecurrency term loan of SEK 1,000m (–), part of the Term B loan for an amount of SEK 0m (363) and the senior secured notes for an amount of SEK 0m (1,000).

Effective interest rate

The effective interest rate at the balance sheet date for the loans from credit institutions and the senior secured notes was 2.32 per cent (2.76).

Security

The new term and revolving facilities agreement is unsecured in nature. The following securities that were pledged to Svenska Handelsbanken AB (publ) and holders of the senior secured notes per 31 December 2015 were released on 27 July 2016:

• Shares in the group companies Cloetta Sverige AB, Cloetta Norge AS, Cloetta Danmark ApS, Cloetta Suomi Oy, Karkkikatu Oy, Cloetta Finance Holland B.V. and Cloetta Holland B.V. for an amount of SEK 5,164m;
• Floating charges and other pledges on movable assets in Cloetta Holland B.V., Cloetta Sverige AB, Cloetta Norge AS and Cloetta Suomi Oy for an amount of SEK 3,719m;
• Pledge on real estate property (mortgages) in Cloetta Sverige AB and Cloetta Holland B.V. for an amount of SEK 2,914m;
• Pledges on receivables in Cloetta Holland B.V. without nominal amount;
• Trademark pledges in Cloetta AB (publ), Cloetta Holland B.V., Cloetta Suomi Oy and Cloetta Sverige AB for an amount of SEK 2,469m;
• Guarantee by Cloetta AB (publ) as principal obligor to the bank for the due and punctual performance of all present and future obligations by each of the other obligors, under the Facilities Agreement and the other Finance Documents without nominal amount.

Senior secured notes

The senior secured notes amounting to SEK 1,000m were redeemed on 19 September 2016.

Note 22 Derivative financial instruments

See Note 1 (XVI) for the accounting policy.

					Note 18
	31 Dec 2016			31 Dec 2015
SEKm	Assets	Liabilities	Assets	Liabilities	Note 19 Note 20
Non-current					Note 21
Forward contract					Note 22
to repurchase own					Note 23
shares	–	11	–	39	Note 24
Interest rate swaps	–	1	–	5	Note 25
Total non-current	–	12	–	44	Note 26
Current					Note 27
Forward contract					Note 28
to repurchase own					Note 29
shares	–	48	–	18	Note 30
Interest rate swaps	–	6	–	17	Note 31
Forward foreign					Note 32
currency contracts	4	–	1	0	Note 33
Total current	4	54	1	35	Note 34
Total	4	66	1	79

Forward contracts to repurchase own shares

Following the introduction of the share-based long-term incentive plans, Cloetta entered into forward contracts in order to repurchase own shares to fulfil its future obligation to deliver the shares to the participants in the share-based long-term incentive plans. The forward contracts to repurchase own shares are measured at cost.

The following table show the movements in contracts as of 1 January 2014

	Date	Contract 1	Contract 2	Contract 3	Contract 4
Balance at	1 Jan 2014	1,037,610	–	–	–
Roll-forward to new forward contract to repurchase own shares	17 Jun 2014	–100,000	100,000	–	–
New forward contract to repurchase own shares	17 Jun 2014	–	1,100,000	–	–
Balance at	31 Dec 2014	937,610	1,200,000	–	–
New forward contract to repurchase own shares	20 Jul 2015	–	–	430,000	–
Balance at	31 Dec 2015	937,610	1,200,000	430,000	–
Shares granted to participants LTI'13 (settlement of forward contract to repurchase own shares) Roll-forward to new forward contract to repurchase	18 May 2016	–227,880	–	–	–
own shares	15 Jun 2016	–709,730	–	–	709,730
Balance at	31 Dec 2016	–	1,200,000	430,000	709,730
	Price, SEK	18.50678	23.00000	26.40000	28.50000

See Note 24 for more details about the share-based long-term incentive plan.

Interest rate swaps

The Group has entered into several interest rate swap contracts to partially cover the interest rate risk on the loans denominated in both SEK and EUR.

The following table shows the combined notional principal amounts of the outstanding interest rate swaps

		Notional principal amounts		Fixed interest currency rates	Duration
SEKm	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015
STIBOR Interest rate swaps	820	820	1.355%	1.355%	Q1 2017	Q1 2016 – Q1 2017
STIBOR Interest rate swaps1	200	–	0.030%	–	Q2 2017– Q2 2018	–
STIBOR Interest rate swaps1	200	–	0.030%	–	Q2 2017– Q4 2017	–
STIBOR Interest rate swaps1	200	–	0.030%	–	Q2 2017– Q3 2017	–
EURIBOR Interest rate swaps	50	50	0.203%	0.203%	Q1 2017– Q4 2017	Q1 2016 – Q4 2017
EURIBOR Interest rate swaps	–	50	–	0.203%	–	Q1 2016 – Q4 2016
EURIBOR Interest rate swaps1	40	–	0.156%	–	Q2 2017– Q2 2020	–
EURIBOR Interest rate swaps1	50	–	0.156%	–	Q1 2018 – Q4 2018	–
EURIBOR Interest rate swaps1	35	–	0.156%	–	Q1 2019 – Q4 2019	–
EURIBOR Interest rate swaps1	10	–	0.156%	–	Q1 2020 – Q2 2020	–

1) Swap includes a zero floor on the floating leg.

Foreign currency exchange contracts

The Group has entered into forward foreign currency contracts to hedge the currency risk for the USD with a maturity of less than one year from the reporting date.

The following table shows the notional principal amounts, weighted average exchange rates and remaining periods

	Notional principal amounts		Weighted average exchange rates		Expiry date
	2016	2015	2016	2015	2016	2015
SEK - USD	USD 7.1m	USD 8.5m	8.5428	8.2598	2017	2016
GBP - EUR	–	GBP 0.8m	–	0.7722	–	2016

Note 22

Note 23 Other non-current liabilities

See Note 1 (XXIV) for the accounting policy.

Contingent considerations consists of the contingent earn-out consideration related to the acquisition of Alrifai Nutisal AB (currently known as Cloetta Nutisal AB) and the contingent consideration arising from the option agreement for Aran Candy Ltd. The remeasurement movements recognized in the profit and loss account are the result of remeasurements of the financial performance of the acquired companies. On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remaining 25 per cent of the outstanding shares in Aran Candy Ltd., resulting in the settlement of the contingent consideration arising from the option agreement for an amount of SEK 106m. On 4 October 2016 Cloetta Holland B.V. settled the contingent earn-out consideration related to the acquisition of Alrifai Nutisal AB (currently known as Cloetta Nutisal AB) for an amount of SEK 48m.

Movements in other non-current liabilities are specified as follows

SEKm	2016	2015
At 1 January	125	147
Remeasurements recognized in profit and loss
- Unrealized remeasurement on contingent considerations recognized in general and admin istrative expenses	17	–33
- Unrealized interest on contingent considerations recognized in other financial expenses	10	12
Remeasurements recognized in other compre hensive income
- Unrealized currency translation differences	2	–1
Settlements
- Settlements via balance sheet	–154	–
At 31 December	–	125
of which remaining term < 1 year	–	82
of which remaining term 1–5 years	–	43
Fair value	–	125

In 2015, the current portion of the contingent consideration was reported in 'Trade and other payables', see Note 26.

Note 24	Pensions and other long-term
	employee benefits

See Notes 1 (VI) and (XXVI) for the accounting policy.

Group companies use various post-employment schemes, including both defined benefit and defined contribution pension plans.

A defined contribution plan is a pension plan under which the Group pays fixed contributions to a separate entity. The Group has no legal or constructive obligations to pay further contributions even if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The defined benefit schemes in industry sector pension funds, which are held by pension funds that are not able to provide companyspecific or reliable information, are accounted for as though they were defined contribution schemes. In the event of a deficit in these pension funds, the company has no obligation to provide supplementary contributions, other than higher future contributions.

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid.

The Group has a number of defined benefit pension plans in Sweden, the Netherlands, Belgium, Finland, Germany, Italy and Norway that refer to pension and other long-term benefit schemes.

For one defined benefit pension plan, the Group accounts as though this was a defined contribution scheme since sufficient information is not available to enable the Group to account for the plan as a defined benefit plan. Cloetta applies the same accounting policies as other participating employers. Sufficient information is not available, since asset administration of the fund is not designed to allocate the total assets of the fund to the participating companies. In the event of a deficit in this pension fund, the Group has no obligation to provide further contributions other than higher future contributions.

Monthly premiums are average premiums expressed as a percentage of the pension calculations basis and should, as a minimum, cover the cost of the fund. The minimum pension premium is determined in accordance with the actuarial and business note of the fund. In case of liquidation of the fund, an amount that is sufficient to cover defined benefits will be secured. In case of a deficit in the fund at moment of liquidation, the defined benefits will be proportionally reduced taking into consideration Article 134 of the Dutch Pension Act. Contributions to the plan for the next annual year are expected to amount to SEK 33m (30). These can be split into employer contributions of SEK 22m (20) and employee contributions of SEK 11m (10). At year-end 2016, the coverage of the pension fund was 102.7 per cent (106.7).

The main defined benefit plans at 31 December 2016 in the Group were:

Sweden ITP2 plan:

The ITP2 plan covers employees born before 1979. Benefits provided in the old defined benefit plan include a final pay-based retirement pension. This plan is an unfunded defined benefit plan.

The ITP plan benefit formula provides pension benefits as a percentage of salary. Benefits will be reduced proportionally if the expected years of service, within the plan and irrespective of employer, is less than 30 years. ITP plan benefits vested with former employers are indexed according to the consumer price index.

Finland Leaf/Merijal plan:

The plan is an insured voluntary final salary pension plan. It was established on 31 December 2005 when the liabilities and assets of Merijal Pension Foundation and Leaf Pension Foundation were transferred to Pohjola Life Insurance Company.

Norway

There is one plan, which is insured in a life insurance company. This funded plan, together with the national pension scheme, provides an old age pension of a maximum 66 per cent of final salary. Included is a widow(er)s pension equal to 60 per cent of the old age pension and children's pension equal to 50 per cent of the old age pension. Members who become disabled will receive a disability pension linked to the old age pension they would have received with their present salary.

Italy – TFR plan

The Trattamento di Fine Rapporto (TFR) benefit is a deferred compensation plan established by Italian law. Employers are required to provide a benefit to employees when, for any reason, their employment is terminated, i.e. in the case of retirement, death, disability and turnover.

The total pensions and other long-term employee benefits can be determined as follows

SEKm	31 Dec 2016	31 Dec 2015
Obligations for:
Pension benefits	395	377
Other long-term employee benefits (for jubilee payments) ('OLEB')	1	1
Total	396	378

The amounts recognized in the balance sheet are determined as follows

SEKm	31 Dec 2016	31 Dec 2015
Present value of funded obligations	99	87
Fair value of plan assets	–82	–72
Deficit of funded plans	17	15
Present value of unfunded obligations	379	363
Liability in the balance sheet	396	378

Movements in the combined net defined benefit obligations and other long-term employee benefits over the year are as follows

		SEKm	Present value of obligation	Fair value of plan assets	Total
		1 January 2015	585	–80	505
		Current service cost	10	–	10
		Interest expense/(income)	11	–1	10
		Remeasurements:
Note	1	- Return on plan assets, excluding
Note	2	amounts included in intrest expense/
Note	3	(income)	–	3	3
Note 4		- (Gains)/losses from change in demographic assumptions	–1	–	–1
Note	5	- (Gains)/losses from change in financial
Note	6	assumptions	–90	–	–90
Note	7	- Experience (gains)/ losses	–39	–	–39
Note	8	Total remeasurements	–130	3	–127
Note 9
Note 10		Exchange differences	– 5	3	–2
Note 11		Contributions:
Note 12		- Employers Payments from plans	–	–19	–19
Note 13		- Benefit payments	–19	21	2
Note 14		Acquired in a business combination	–2	1	–1
Note 15
Note 16		31 December 2015	450	–72	378
Note 17
Note 18		Current service cost	7	–	7
Note 19		Interest expense/(income)	14	–2	12
Note 20		Remeasurements:
Note 21		- Return on plan assets, excluding amounts
Note 22		included in intrest expense/(income)	–	–3	–3
Note 23		- (Gains)/losses from change in financial assumptions	23	–	23
Note 24		- Experience (gains)/ losses	–2	–	–2
Note 25
Note 26		Total remeasurements	21	–3	18
Note 27		Exchange differences	10	– 6	4
Note 28		Contributions:
Note 29		- Employers	–	–23	–23
Note 30		Payments from plans
Note 31 Note 32		- Benefit payments	–24	24	–
Note 33		31 December 2016	478	–82	396

The Group expects to pay SEK 20m (20) in contributions to its defined benefit plans in 2017.

The defined benefit obligation and plan assets are composed by country as follows

	Present value of obligation		Fair value of plan assets		Defined benefit obligation
SEKm	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015
Sweden	310	295	–16	–18	294	277
Norway	26	22	–25	–20	1	2
Italy	65	66	–	–	65	66
Finland	39	37	–30	–30	9	7
Other countries	38	30	–11	– 4	27	26
Total	478	450	–82	–72	396	378

The significant actuarial assumptions were as follows

Weighted average percentage	31 Dec 2016	31 Dec 2015
Discount rate	2.39	2.73
Expected rate of future salary increases	1.89	1.91
Expected rate of future increase for benefits in payment	1.22	1.23
Expected long-term inflation rate	1.62	1.61

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory.

These assumptions translate into an average life expectancy in years for a pensioner retiring at the age of 67 in the Netherlands and 65 in other countries

	2016
SEKm	Sweden	Others
Retiring at the end of the reporting period:
- Male	21	24
- Female	24	26
Retiring 20 years after the end of the reporting period
- Male	41	45
- Female	43	49

At 31 December 2016 the weighted average duration of the defined benefit obligation was 18.36 years (16.12 years).

The sensitivity of the combined net defined benefit obligations and other long-term employee benefits to changes in the weighted principal assumptions is as follows

	Impact on defined benefit obligation
SEKm	Change in as sumptions	Increase in assumptions	Decrease in assumptions
Discount rate	1%-point	–17%	19%
Salary growth rate	1%-point	4%	–3%
Pension growth rate	1%-point	15%	–13%

	Increase by 1 year in assumption	Decrease by 1 year in assumption
Life expectancy	4.36%	4.33%

The above sensitivity analyses are based on a change in one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method has been applied as when calculating the pension liability recognized in the statement of financial position.

Plan assets for both 2015 and 2016 consist for 100 per cent of insurance contracts.

The expected maturity analysis for undiscounted combined net defined benefit obligations and other long-term employee benefits is as follows

SEKm	Less than 3 years	Between 3–7 years Between 7–15 years		Over 15 years	Total
Defined benefit obligation by expected maturity	0	3	183	292	478

Total pension costs amounting to SEK 20m (20) are included in costs of goods sold, selling expenses, general and administrative expenses and financial income and expenses in the profit and loss account.

Share-based payments

Call option arrangement

In 2012, Cloetta's principal shareholders at that time, AB Malfors Promotor, Nordic Capital and CVC (through holding companies), issued call options that members of Group Management Team and one key employee have acquired on market terms. Under the call option agreement, the selected participants were offered the opportunity to purchase options against payment of the fair market value of the options.

The call options have been granted by the principal shareholders in order to promote commitment to the company's development.

Options acquired in the first tranche had an exercise period starting immediately after completion of the merger of Leaf and Cloetta and ended on 16 December 2013. The exercise period of the second tranche of the options was between 17 December 2013 and 16 December 2014, and the exercise period of the third tranche of the options is between 17 December 2014 and 16 December 2015. For the first tranche the call options grant the right to purchase class B shares in the company or to receive the equivalent value in cash. For the second and third tranche, the call options grant the right to receive the equivalent value of class B shares in cash. As no service requirements or other vesting conditions are attached, the options acquired in connection with the merger of Leaf and Cloetta vested immediately.

Cloetta is not contributing to the call option scheme and it does not have any impact on the Group's financial statements. The call option scheme will not result in any dilution of the current shareholders' holdings.

The options comprise in aggregate 15,251,303 class B shares in the company, of which 5,083,761 were exercised during 2013, 5,271,858 were exercised during 2014 and 4,895,684 during 2015.

The initial exercise price of the options is set at SEK 15.76 for all three tranches, corresponding to 120 per cent of the volume-weighted average share price during 10 trading days preceding the date on which the options were offered under the agreement ("the initial share price"). If the share price at the date of the exercise of an option is higher than 180 per cent of the initial share price, a step-up of the exercise price amounting to SEK 0.90 for each whole Swedish krona (SEK 1.00) above 180 per cent of the initial share price will apply.

Movements in the number of share options outstanding are as follows

	Number of share options in thousands
	2016	2015
At 1 January Exercised	– –	4,895 – 4,895
At 31 December	–	–
Weighted average exercise price during the period	–	23.01

Share-based long-term incentive plan

The AGM approved the Board's proposals for a share-based long-term incentive plan to align the interests of the shareholders on the one hand and Group Management Team and other key employees on the other hand in order to ensure maximum long-term value creation.

To participate in the plan, a personal shareholding in Cloetta is required. Following a three-year vesting period, the participants will be allocated class B shares in Cloetta free of charge provided that certain conditions are fulfilled.

In order for so-called matching share rights to entitle the participant to class B shares in Cloetta, continued employment with Cloetta is required and the personal shareholding in Cloetta must be continuously maintained. For each invested share one matching share will be granted if above requirements are fulfilled.

In addition, allocation of class B shares on the basis of performance share rights requires the attainment of two performance targets, one of which is related to Cloetta's EBIT and the other to Cloetta's net sales value in 2015, 2016, 2017 and 2018, respectively. The share-based longterm incentive plan 2013 vested in 2016.

With respect to LTI 2014, the target levels set by the Board for the two performance targets were met by 39.4 per cent (of a maximum target fulfillment of 100 per cent). The performance targets were related to growth in Cloetta's compounded sales value during 2014–2016 and EBITA level during 2016. As a result, Cloetta will, free of charge, transfer no more than 157,751 shares to participants holding matching share rights and no more than 223,786 shares to participants holding performance share rights.

Total costs related to the non-vested share-based long-term incentive plans are expected to amount to SEK 55m (52) during the total vesting period. The total costs for the share-based long-term incentive plans recognized in 2016 are SEK 10m (13).

See page 64 for further details on the main characteristics of the share-based long-term incentive plans.

The forward contracts to repurchase own shares amount to SEK 59m (57).

Movements in the number of shares for the share-based long-term incentive plans are as follows

	Number of shares in thousands
	2016	2015
At 1 January	1,789	1,188
Granted	1,118	1,131
Vested	–228	–
Released	– 851	– 530
At 31 December	1,828	1,789

Personnel expenses are calculated using the number of shares multiplied by the share price at the grant date and taking into consideration the expected number of shares to be granted at the end of the vesting period, consisting of matching and performance shares. The personnel expenses are allocated to the profit and loss account over the total vesting period of the share-based long-term incentive plan. The calculation for 2016 assumes a 70 per cent (62) performance, that 100 per cent (100) of the participants will be with the company at the end of the vesting period and that the requirement of continuous personal shareholding in Cloetta will be maintained.

Note 24

See Note 1 (XXV) for the accounting policy.

Movements in provisions, excluding pension benefits and other long-term employee benefits, are specified as follows

SEKm	Reorganization	Sales returns	Other	Total
1 January 2015	8	55	18	81
Business combinations	–	–	0	0
Additions	29	39	2	70
Utilizations	–17	– 48	– 6	–71
Unused amounts reversed	–1	–7	–3	–11
Exchange differences	–1	–1	0	–2
31 December 2015	18	38	11	67
Analysis of total provisions
Non-current				10
Current				57
Total				67

SEKm	Reorganization	Sales returns	Other	Total
1 January 2016	18	38	11	67
Additions	7	51	23	81
Utilizations	–17	– 44	–1	– 62
Unused amounts reversed	–1	–	–2	–3
Exchange differences	0	2	1	3
31 December 2016	7	47	32	86
Analysis of total provisions
Non-current				22
Current				64
Total				86

The reorganization provision at 31 December 2015 is mainly related relates to restructuring expenses in the commercial area, restructuring of the supply chain and merger-related activities.

A provision for an amount of SEK 47m (38) has been established relating to returns of seasonal products in Italy. The total provision for sales returns as of 31 December 2016 is expected to be utilized during the first half of 2017.

See Note 24 for details about pension benefits and other long-term employee benefits.

Note 25

Note 26 Trade and other payables

See Note 1 (XXIX) for the accounting policy.

SEKm	31 Dec 2016	31 Dec 2015
Trade payables	569	541
Other taxes and social securities expenses	132	132
Pension liabilities	5	1
Contingent considerations	–	82
Other liabilities	38	32
Accruals and deferred income	452	428
Total	1,196	1,216

Accruals and deferred income are specified as follows

SEKm	31 Dec 2016	31 Dec 2015
Accrued personnel-related expenses	195	197
Accrued customer bonuses and discounts	127	126
Other accrued expenses and deferred income	130	105
Total	452	428

Note 27 Business combinations

Acquisition of Locawo B.V.

SEKm
Consideration paid
Cash paid	206
Contingent consideration	–
Consideration transferred	206
Recognised amounts of identifiable assets and liabilities assumed:
Non-current assets	264
Intangible assets (excl. goodwill)	143
Property, plant and equipment	119
Other non-current assets	2
Current assets	76
Inventories	31
Trade and other receivables	45
Cash and cash equivalents	–
Non-current liabilities	–72
Borrowings	–21
Provisions	–2
Deferred tax liabilities	–49
Current liabilities	–107
Borrowings	–30
Trade payables	–26
Derivative financial instruments	–3
Taxes and social security premiums	– 6
Payables to related parties	–27
Other current liabilities	–15
Total identifiable net assets	161
Goodwill	45
Consideration transferred	206

On 17 July 2015, Cloetta Holland B.V. acquired control of Locawo B.V., by acquiring 100 per cent of the total outstanding ordinary shares and 100 per cent of the voting rights in Locawo B.V. The acquisition has significantly strengthened Cloetta's position in the Netherlands and broaden Cloetta's product portfolio as part of its 'Munchy Moment' strategy.

The total consideration consists of SEK 206m in cash.

The goodwill of SEK 45m relates primarily to the potential of new distribution channels, the workforce, the creation of diversity in Cloetta's branded portfolio and new market/sales opportunities in Cloetta's markets. The total goodwill of SEK 45m is not expected to be deductible for tax purposes.

The acquired receivables contain trade receivables of SEK 34m which have been collected in full. The contingent liabilities recognized as part of the purchase price allocation amount to SEK 1m. The total transaction costs related to the acquisition amounted to SEK 9m and were fully recognized in the 2015 profit and loss account as general and administrative expenses.

Due to the short-term nature of the receivables, the fair value approximates the gross contractual amounts. The contractual cash flows that are not expected to be collected are immaterial.

Locawo B.V. contributed SEK 278m to the consolidated revenues of Cloetta as from acquisition date up to 30 June 2016. The accounting for the business combination has been finalized. The goodwill acquired is allocated to the cash generating unit Middle.

See Note 1 for details about changes in the group structure.

Note 28 Financial risks and financial risk management

Through its activities, the Group is exposed it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

Financial risks are managed by the Group treasury department under policies approved by the Board of Directors. The Group treasury department identifies, evaluates and, if applicable, hedges financial risks in close cooperation with the Group's operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments and investment of excess liquidity. The primary market and financial risks are described in detail below.

Market risk

Currency risk

The Group is primarily active in the European Union and Norway. The Group's currency risk mainly relates to positions and future transactions in euros (EUR), Danish kroner (DKK), Norwegian kroner (NOK), US dollars (USD) and British pounds (GBP).

The Group has major investments in foreign operations whose net assets are exposed to foreign currency translation risk.

Based on a risk analysis, the Group's Boards of Directors has decided to hedge the euro-related currency risk by drawing part of the credit facility in euros. This hedge covers part of the currency risk in euros. Hedge accounting (hedges of net investments in foreign operations) is applied. This resulted in a reduction in the volatility of net financial items caused by revaluation of monetary assets and liabilities as of those dates. The Group's investment in trademarks in Aran Candy Ltd., Cloetta Suomi Oy, Cloetta Holland B.V., Confiserie Lonka B.V. and Cloetta Slovakia s.r.o. is hedged by a net euro-denominated loan (carrying amount: EUR 143m (105)) which mitigates the foreign currency

Note 26 Note 27 Note 28 translation risk on these trademarks. The fair value of the loan was EUR 143m (105). The loan is designated as a net investment hedge. The effectiveness of the hedge is tested and documented on a monthly basis. No ineffectiveness was recognized from the net investment hedge.

To manage the foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, the Group uses forward contracts. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity's functional currency. The Group entered into forward foreign currency contracts to hedge the currency risk of the USD with a maturity of less than one year from the reporting date. See Note 22 for the details of the forward foreign currency contracts.

In the financial year 2016, if the Swedish krona had weakened/ strengthened by 10 per cent against the euro with all other variables held constant, profit before tax for the year would have been approximately SEK 25m higher/lower, as a result of the foreign exchange gains/losses on translation of all euro-denominated trading in Europe and foreign exchange losses/gains on translation of euro-denominated borrowings.

The currency risk attached to the transactions in the other currencies is not significant as the amounts involved are not significant for the total Group.

Interest rate risk

The Group is exposed to interest rate risk on the interest-bearing non-current and current liabilities (including loans to credit institutions).

The Group is exposed to the consequences of variable interest rates on liabilities. In relation to fixed interest liabilities, it is exposed to market values, which is not a significant risk for the Group.

If the interest rate had been 1 percentage point higher with all other variables held constant, profit before tax for the year would have been approximately SEK 25m lower. If the interest rate had been 1 percentage point lower with all other variables held constant, profit before tax for the year would have been approximately SEK 35m lower due to some interest rate swaps that do not include a zero-floor clause. The analysis considers the effects of interest rate swaps and the impact of negative interest rates.

Credit risk

The Group does not have any significant concentrations of credit risk. The Group's customers are subject to a credit policy. Sales are subject to payment conditions which vary per customer. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted by the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the profit and loss account within selling expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.

Credit terms for customers are determined individually in the different markets. Concentrations of credit risk with respect to trade receivables are limited, due to the size and diversity of the Group's customer base. The Group's historical experience of collecting receivables is that credit risk is low across all markets.

The Group uses several banks (range of most used banks varies between AA- and A-3 rating) and has a revolver facility available

		Cash balances		Other loans
SEKm	Rating (S&P)	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015
Svenska Handelsbanken AB (publ)	AA-	163	77	– 669	–1,986
UBI Banca	A-3	49	27	–	–
Nordea	A-1+	25	10	–	–
Intesa Sanpaolo	A-3	22	17	–	–
Ulster Bank Ltd.	A-2	15	25	–	–
Tatra Banka	A-2	13	16	–	–
ING Bank N.V.	A-2	3	67	–	–
Skandinavska Enskilda Banken AB (publ)	A+	–	–	– 669	–
Danske Bank A/S	A	–	–	– 669	–
DNB Sweden AB	A+	–	–	– 669	–
Other banks		8	7	–	–
Total		298	246	–2,677	–1,986

Note 28

Liquidity risk

Cash flow forecasting is performed in the operating entities of the Group and is aggregated by the Group Treasury department. The Group Treasury department monitors the sources and the amounts of company's cash flows, dividend, obligation, loans, actual cash position and rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (Note 21) at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities and the impact such restrictions had or are expected to have on its ability to meet its cash obligations. Such forecasting takes into consideration the Group's debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable, external regulatory or legal requirements - for example, currency restrictions.

The Notional Group Account (NGA) includes both the Parent Company and several operating entities. Surplus cash held by operating entities included in the NGA is available to the Group's treasury department and is used for the Group's internal and external financing activities. Surplus cash held by operating entities not included in the NGA is transferred to the Group's treasury department and is also used for the Group's internal and external financing activities.

The table below analyzes the Group's non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows.

31 Dec 2016

SEKm	Term < 1 year		Term 1–2 years Term 2–3 years	Term 3–4 years	Term 4–5 years	Term > 5 years	Total
Loans from credit institutions	18	1, 017	1,687	–	–	–	2,722
Trade and other payables	1,064	–	–	–	–	–	1,064
Total	1,082	1,017	1,687	–	–	–	3,786
31 Dec 2015
SEKm	Term < 1 year		Term 1–2 years Term 2–3 years	Term 3–4 years	Term 4–5 years	Term > 5 years	Total
Loans from credit institutions	402	1,640	–	–	–	–	2,042
Senior secured notes	31	31	1,022	–	–	–	1,084
Contingent considerations	–	49	–	–	–	–	49
Trade and other payables	1,084	–	–	–	–	–	1,084

In 2015, the contractual payment for the minimum contingent earn-out consideration related to the acquisition of Alrifai Nutisal AB (currently known as Cloetta Nutisal AB) was included in the table above. On 4 October 2016 the contingent earn-out consideration was settled for an amount of SEK 48m.

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and thereby provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure as a means to to reduce the cost of capital. The Group's priority in monitoring capital is to maintain compliance with the covenants in the applicable credit facilities agreement. Cloetta actively monitors these and other ratios on a monthly basis. Up to 27 July 2016 Cloetta had a credit facility agreement with Svenska Handelsbanken AB (publ), which included a net debt/EBITDA covenant, an interest covenant, and an equity/total assets covenant. On 22 July 2016 Cloetta entered into a new term and revolving facilities agreement with a group of four banks. This new term and revolving facilities agreement includes one covenant, relating to the net debt/EBIT-DA ratio. Throughout 2015 and 2016, the Group was in compliance with the covenant requirements.

Note 29 Fair value measurement

Share-based long-term incentive plan

The 2013, 2014, 2015 and 2016 AGM approved the Board's proposal relating to the introduction of a share-based long-term incentive plan.

Under the share-based long-term incentive plans, the entity receives services from employees as consideration for equity instruments (shares) of the Group. The fair value of the employee services received in exchange for the grant of the shares is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the shares granted:

• including any market performance conditions (for example, an entity's share price); and
• including the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining as an employee of the entity over a specified time period). See Note 24 for more information.

Fair value measurement

The only items recognized at fair value after initial recognition are the interest rate swaps and forward foreign currency contracts categorized at level 2 of the fair value hierarchy in all periods presented, the contingent earn-out consideration related to the acquisitions of Alrifai Nutisal AB (currently known as Cloetta Nutisal AB) and the contingent consideration arising from the option agreement for Aran Candy Ltd.

Note 28 Note 29 initially categorized at level 3, as well as assets held for sale, in cases where the fair value less cost of disposal is lower than the carrying amount. On 4 July 2016 the contingent consideration arising from the option agreement for Aran Candy Ltd. was settled for an amount of SEK 106m. On 4 October 2016 the contingent earn-out consideration related to the acquisition of Alrifai Nutisal AB was settled for an amount of SEK 48m. The fair values of the financial assets (loans and receivables) and liabilities measured at amortized cost are approximately equal to their carrying amounts. The fair value of financial assets and liabilities for measurement purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair value derived is used as the carrying amount.

The fair value measurements by level according to the fair value measurement hierarchy are as follows:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2);
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the Group's assets and liabilities that are measured at fair value

31 Dec 2016 SEKm	Level 1	Level 2	Level 3	Total
Assets
Assets at fair value through profit or loss
• Assets measured at fair value	–	–	9	9
• Forward foreign currency contracts	–	4	–	4
Total assets	–	4	9	13
Liabilities
Liabilities at fair value through
profit or loss
• Interest rate swaps	–	7	–	7
Total liabilities	–	7	–	7

31 Dec 2015 SEKm	Level 1	Level 2	Level 3	Total
Assets
Assets at fair value through profit or loss
• Assets measured at fair value	–	–	11	11
• Forward foreign currency
contracts	–	1	–	1
Total assets	–	1	11	12
Liabilities
Liabilities at fair value through profit or loss
• Interest rate swaps	–	22	–	22
• Contingent considerations	–	–	125	125
• Forward foreign currency contracts	–	0	–	0
Total liabilities	–	22	125	147

The assets measured at fair value less cost of disposal at 31 December 2016 consisted of the land and building in Zola Predosa, Italy.

There are no financial instruments categorized at level 3 of the fair value hierarchy other than the contingent consideration. See Note 23 for movements in contingent consideration.

On 4 October 2016 the contingent earn-out consideration related to the acquisition of Alrifai Nutisal AB was settled via balance sheet for an amount of SEK 48m, resulting in a transfer from fair value hierarchy level 3 to 2 in third quarter of 2016. No other transfers between fair value hierarchy levels have occurred during the financial year nor the prior financial year.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to determine the fair value of an instrument are observable, the instrument is included in level 2. The valuation of these instruments is based on quoted market prices (price-component), but the underlying contract amounts (quantity-component) are based on the specific requirements of the Group. These instruments are therefore included at level 2. The fair value measurement of the contingent consideration requires use of significant unobservable inputs and was thereby initially categorized at level 3.

The valuation techniques and inputs used to value financial instruments are:

• Quoted market prices or dealer quotes for similar instruments;
• The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves;
• The fair value of forward foreign currency contracts is calculated using the difference between the exchange rate on the spot date with the contractually agreed upon exchange rate;
• The fair value of the asset held for sale is based on valuations by external independent valuators;
• Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

The assets measured at fair value are identified as a non-recurring fair value measurement and are related to the assets held for sale. The assets are valued at fair value less cost of disposal in case the fair value less costs of disposal is below the carrying amount. See Note 18 for the movements in the assets held for sale.

The contingent considerations were measured at fair value using the expected financial performance.

The valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used, can be specified as follows

Type	Valuation technique	Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fair value measurement
Derivative financial instruments
- Interest rate swaps	The valuation of the interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.	Not applicable	Not applicable
	- Forward foreign currency contracts The valuation of the forward foreign currency contract is calculated as the difference between future cash flows in foreign currencies converted at the spot rate at reporting date and the future cash flows in foreign currencies converted at the contractual agreed upon exchange rates.	Not applicable	Not applicable

See Note 23 for the effect of the measurements regarding contingent consideration liabilities in the profit and loss account or other comprehensive income and for movements in contingent consideration liabilities.

Note 30 Pledged assets and contingent liabilities

The Group's term and revolving facilities agreement is unsecured in nature. See Note 21 for the pledged assets at 31 December 2015.

Note 31 Related party transactions

All group companies mentioned in Note P8 are considered to be related parties. Transactions between group companies are eliminated upon consolidation.

In the context of this financial report, and aside from the subsidiaries of Cloetta AB (publ), the company regarded as related parties is AB Malfors Promotor. In 2015 and 2016 no transactions between Cloetta AB (publ) including its subsidiaries and AB Malfors Promotor including its subsidiaries have occurred.

Transactions with Group Management and key employees

For information about salaries and remuneration to the Board of Directors and Group Management Team, see pages 84–85. The Group has no receivables from Group Management Team and key employees. In 2015 and 2016 share-based long-term incentive plans were approved by the AGM. Total costs including social security charges related to the share-based long-term incentive plans that were recognized amount to SEK 10m (13), of which SEK 5m (5) is related to Group Management Team. Other liabilities to Group Management Team and key employees consist of customary personnel-related liabilities.

Note 32 Operating leases

See Note 1 (XXX) for the accounting policy.

Recognized expenses for operating leases amount to:

SEKm	2016	2015
Minimum lease payments	88	75
Future annual payment obligations for leased assets in the Group are broken down as follows:
Within one year	69	49
Between one and five years	105	92
More than 5 years	28	36
Total	202	177

The operating lease commitments mainly consist of the lease of buildings and warehouses with an average contract term of approximately five years and of car lease contracts with an average contract term of four years. All operating leases relate to minimum lease payments under non-cancellable operating lease agreements. There are no material subleases, no material contingent rents, no renewal or purchase options and escalation clauses nor any restrictions imposed by leasing arrangements.

In December 2015 a decision was made to close the factory in Dieren , the Netherlands. The factory in Dieren will be closed during 2017. On 31 December 2017 the operational lease agreement for the building will terminate.

Note 33 Critical accounting estimates and judgements

In preparing the financial statements, the Group Management Team makes estimates and judgments that affect the reported amounts of assets and liabilities, net sales and expenses, and disclosures of contingent liabilities at the date of the financial statements. The estimates and assumptions that are associated with a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the next financial year as well as critical judgments in applying the Group's accounting policies are discussed below. The accounting estimates and judgments are believed to be reasonable under the circumstances.

The Group Management Team and audit committee have discussed the development, selection and disclosures regarding the Group's critical accounting principles and estimates. The estimates and judgments made in the application of the Group's accounting policies are described below.

Impairment testing of intangible assets

For the purpose of impairment testing, assets are allocated to cashgenerating units when it is not possible to assess impairment on an individual asset basis. The recoverable amount of an asset is compared to the carrying amount to determine if an asset is impaired. An asset's recoverable amount is the higher of its value in use and its fair value less cost of disposal. The value in use is the present value of the future cash flows to be generated by an asset from its continuing use in the business.

Based on management's best estimates for the determination of the terminal growth rate, pre-tax discount rate and future cash flows, the goodwill in South has been impaired to nil and the Italian trademarks have been impaired to the recoverable amount of SEK 252m. Using management's best estimates in determination of the terminal growth rates, pre-tax discount rates and future cash flows, the estimated recoverable amounts of the group of CGUs in Scandinavia and Middle and the CGUs in Sweden, Finland and the Netherlands exceed the carrying amounts.

The carrying amount of the intangible assets at the end of reporting period was SEK 5,354m (5,948).

Accounting for income taxes

As part of the process of preparing financial statements, the Group is required to estimate income taxes in each of the jurisdictions in which the Group operates. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters differs from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

Temporary differences between tax and financial reporting give rise to deferred tax assets and liabilities, which are included in the balance sheet. The Group must also assess the likelihood that deferred tax assets will be recovered from future taxable income. A deferred tax asset is not recognized if, and to the extent, it is probable that all or some portion of the deferred tax asset will not be realized.

Cloetta has been negotiating with the Italian tax authority regarding a material tax claim for the period 2005–2011. Following these negotiations, Cloetta has settled the tax claim.

Provisions

By their nature, provisions are dependent on estimates and assessments as to whether the criteria for recognition have been met, including estimates as to the outcome and the amount of the potential cost of resolution. Provisions are recognized as an expense in the profit and loss account when it is probable that a liability has been incurred and the amount of such liability can be reasonably estimated.

Provisions for litigation, tax disputes, etc. for a total amount of SEK 86m (122), are based on an estimate of the costs, taking into account legal advice and the information currently available. In addition, provisions for termination benefits and exit costs involve management's judgment in estimating the expected cash outflows for severance payments and site closure or other exit costs. Should the actual outcome differ from the assumptions and estimates, revisions to the estimated provisions would be required, which could impact the Group's financial position and results from operations.

Accounting for pensions and other post-employment benefits

Pension benefits represent obligations that will be settled in the future and require assumptions to project the benefit obligations and fair values of plan assets. Post-employment benefit accounting is intended to reflect the recognition of future benefit costs over the employee's expected service period, based on the terms of the plans and the

investment and funding decisions made by the Group. For calculation of the present value of the pension obligation and the net cost, actuarial assumptions are made about demographic variables (such as mortality) and financial variables (such as future increases in salaries). In countries where there is no deep market in such bonds, the market yields at the end of the reporting period on government bonds are used. Changes in these key assumptions can have a significant impact on the projected benefit obligations, funding requirements and periodic costs incurred. It should be noted that when discount rates decline or rates of future salary increase, the pension benefit obligations will increase. For details about the key assumptions and policies, see Note 24. The carrying amount at the end of reporting period was SEK 396m (378).

Capitalization of development costs

Costs incurred on development projects are recognized as intangible assets when it is probable that a project will be successful in view of its commercial and technological feasibility. Group Management Team's judgement is required in determining when the Group should start capitalizing development costs. In general, the Group Management Team has determined that commercial and technological feasibility, in general, is probable when the Group decides to pre-launch a product and the costs can be measured reliably. However, since the development costs incurred by the Group after the pre-launch of a product are considered insignificant, the Group expenses all development costs in the period when the expenditure is incurred. Consequently, based on management's judgement, no development costs have been recognized as intangible assets in the consolidated financial statements.

Revenue recognition

In Italy, the customers of seasonal products have the right to return the goods if the goods are not sold to consumers. Based on past experience of similar sales, Cloetta Italia S.r.l. has recognized net sales on these transactions with a corresponding provision against net sales for estimated returns.

Note 34 Changes in accounting policies

New and amended standards and interpretations adopted by the Group

The following standards and amendments to standards have been adopted by the Group for the first time for the financial year beginning on 1 January 2016 and have had an impact on the Group:

IAS 1 'Presentation of Financial Statements', the final Standard Disclosure Initiative (Amendments to IAS 1) includes the following completed actions:

• Amended guidance on materiality in IAS 1 to clarify that:
• Immaterial information can detract from useful information.
• Materiality applies to the whole of the financial statements.
• Materiality applies to each disclosure requirement in an IFRS.
• Amended guidance on the order of the notes, including accounting policies to:
• Remove language from IAS 1 that has been interpreted as prescribing the order of notes to the financial statements.
• Clarify that entities have flexibility about where they disclose accounting policies in the financial statements.
• Use of less prescriptive wording for disclosure requirements when developing new standards.

Note 33 Note 34 IAS 7 'Statement of cash flows' is amended to improve presentation and disclosure of cash flows, by requiring disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The Group has early adopted the disclosure requirements in Disclosure Initiative (Amendments to IAS 7), on 1 January 2016, before the mandatory effective date of 1 January 2017. Consequently, the Group has provided additional disclosure in relation to the changes in liabilities arising from financing activities for the year ended 31 December 2016. Comparative information has not been presented (see Note 21).

There are no other IFRSs or IFRIC interpretations that are effective as of 1 January 2016 that have any impact on the Group.

New standards and amendments to standards not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016, and have not been applied in preparing these consolidated financial statements. None of these is expected to have impact on the consolidated financial statements of the Group, except the following set out below:

IFRS 9, 'Financial Instruments', published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments, Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group's disclosures about its financial instruments particularly in the year of the adoption of the new standard. The standard is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Group is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 9. The Group initiated a process for the implementation of IFRS 9. The Group is currently working on the impact assessment, which covers an assessment of current financial instruments, and the impact IFRS 9 will have on these. At this stage, the Group has not finalized the assessment and is not able to quantify the impact of the new rules on the Group's financial statements. The Group does not intend to adopt the standard before its effective date.

IFRS 15, 'Revenue from contracts with customers', establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The standard is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Group started the implementation process, in which the following phases have been identified:

• Phase 1: Impact assessment
• Phase 2: Implementation
• Phase 3: Embedding and monitoring

The Group is currently working on the impact assessment, which covers a detailed contract analysis including identification of impact on revenue recognition, an evaluation of processes and controls and an assessment of the IT environment. At this stage, the Group is not able to quantify the impact of the new rules on the Group's financial statements or to decide on the method of first-time application.

IFRS 16, 'Leases' is published in January 2016 and supersedes IAS 17 Leases. The standard is required to be applied from 1 January 2019. A company can choose to apply IFRS 16 before this date but only if it also applies IFRS 15 Revenue from Contracts with Customers. The standard will affect primarily the accounting for the Group's operating leases.

In conjunction with the implementation process of IFRS 15 Cloetta initiated a process for the implementation of IFRS 16 and identified the same three phases. Currently the Group is working on the impact assessment, which covers an assessment of current lease contracts, an assessment of the processes to obtain required data and ensuring awareness and understanding by the different stakeholders within the Group. At this stage, the Group is not able to quantify the impact of the new rules on the Group's financial statements or to decide on the method of first-time application.

There are no other IFRSs or IFRIC interpretations that are not yet effective that can be expected to have an impact on the Group.

Note 35 Events after the balance sheet date

On 18 January 2017 the Board announced a strategic review of Cloetta Italia S.r.l. This review is aimed at enhancing growth and margins of the Group and might include a potential divestment of the business and its related production facilities. Cloetta Italia S.r.l. had sales of approximately SEK 750m in 2016. A divestment of Cloetta Italia S.r.l. would improve Cloetta's EBIT margin.

On 17 February 2017 Cloetta signed an agreement to acquire 100 per cent of the shares in Candyking Holding AB ("Candyking") as well as 100 percent of Candyking's outstanding bond and other debt. Candyking is a leading concept supplier of pick & mix candy in the Nordic countries and the United Kingdom. The acquisition strengthens Cloetta's position within pick & mix and creates substantial synergies. This is in line with the strategy to grow within the category since it is an important and in many countries growing part of the confectionery market.

The initial purchase price amounts to SEK 325m on a cash and debt free basis with a potential additional purchase price of maximum SEK 225m based on the result of Cloetta's and Candyking's combined sales volume of pick & mix in confectionery and natural snacks in the Nordic countries, the United Kingdom and Poland during 2018. The seller of the shares is Candyking's CEO, Dani Evanoff. The majority of the initial purchase price and the potential additional purchase price will be allocated to the holders of Candyking's bond loan of SEK 750m. In connection with closing of the acquisition, Candyking's bonds will be delisted from Nasdaq Stockholm. At the same time Cloetta will issue an earn-out instrument to the current bondholders that entitles to the future potential additional purchase price. The instrument will be registered at Euroclear in order to facilitate the distribution of any additional purchase price to the current bondholders.

The transaction is subject to approval from the Swedish Competition Authority.

Note 34 Note 35

Parent Company profit and loss account

SEKm	Note	2016	2015
Net sales	P2	100	88
Gross profit		100	88
General and administrative expenses	P3,P4	–122	–113
Operating loss		–22	–25
Exchange differences on borrowings and cash	P5	1	0
Other financial income	P5	119	73
Other financial expenses	P5	– 85	– 46
Net financial items		35	27
Profit before tax		13	2
Income tax	P6	–3	0
Profit for the year		10	2

Profit for the year corresponds to comprehensive income for the year.

Primary activities

Cloetta AB's primary activities include head office functions such as group-wide management and administration.

Parent Company balance sheet

Clo ett a [
A N N U A L
A N D S U S
TA I N A B
I LI T Y R E
P O RT
20 16 ]
134

SEKm	Note	31 Dec 2016	31 Dec 2015
ASSETS
Non-current assets
Intangible assets		0	0
Deferred tax asset	P7	5	8
Shareholdings in group companies	P8	4,884	4,884
Receivables from group companies	P15	440	415
Total non-current assets		5,329	5,307
Current assets
Receivables from group companies	P15	116	88
Current income tax assets	P7	–	1
Other receivables		0	0
Prepaid expenses and accrued income		1	1
Total current assets		117	90
Total assets		5,446	5,397
EQUITY AND LIABILITIES
Equity
Share capital		1,443	1,443
Share premium		2,713	2,713
Retained earnings including profit for the year		– 63	62
Equity attributable to owners of the Parent Company	P10	4,093	4,218
Non-current liabilities
Borrowings	P11	999	993
Payables to group companies	P15	132	129
Derivative financial instuments	P12	0	3
Provisions		1	1
Total non-current liabilities		1,131	1,126
Current liabilities
Payables to group companies	P15	192	9
Trade payables	P13	3	3
Other current liabilities	P13	3	3
Derivative financial instuments	P12	4	14
Accrued expenses and deferred income	P13	19	24
Total current liabilities		221	53
TOTAL EQUITY AND LIABILITIES		5,446	5,397

Parent Company statement of changes in equity

SEKm	Share capital	Share premium reserve	Retained earnings	Total equity
Balance at 1 January 2015	1,443	2,713	49	4,205
Comprehensive income
Profit for the year	–	–	2	2
Total comprehensive income for 2015	–	–	2	2
Transactions with owners
Share-based payments	–	–	11	11
Total transactions with owners	–	–	11	11
Balance at 31 December 2015	1,443	2,713	62	4,218
Comprehensive income
Profit for the year	–	–	10	10
Total comprehensive income for 2016	–	–	10	10
Transactions with owners
Share-based payments	–	–	9	9
Dividends	–	–	–144	–144
Total transactions with owners	–	–	–135	–135
Balance at 31 December 2016	1,443	2,713	–63	4,093

Profit for the year corresponds to comprehensive income for the year.

Total equity is attributable to the owners of the Parent Company.

Parent Company cash flow statement

Clo ett a [ A N N U A L A N D S U S TA I N A B I LI T Y R E P O RT 20 16 ]
136

SEKm	Note	2016	2015
Operating loss		–22	–25
Adjustments for non-cash items
Amortization/depreciation and impairment of assets		–	0
Unrealized foreign exchange gains/losses		0	0
Provisions for pensions		–	0
Interest received		0	0
Interest paid		–71	–45
Income tax paid		0	0
Cash flow from operating activities before changes in working capital		–93	–70
Cash flow from changes in working capital
Change in operating receivables		61	61
Change in operating liabilities		178	9
Cash flow from operating activities		146	0
Cash flow from operating and investing activities		146	–
Financing activities
Repayment of interest-bearing borrowings		–1,000	–
Proceeds from borrowings (net of transaction cost)		998	–
Dividends to shareholders		–144	–
Cash flow from financing activities		–146	–
Cash flow for the year		–	–
Cash and cash equivalents at beginning of year	P9	–	–
Cash flow for the year		–	–
Exchange difference		–	–
Cash and cash equivalents at end of year	P9	–	–

Notes to the Parent Company financial statements

Note P1 Accounting and valuation policies of the Parent Company

The annual financial statements of the Parent Company are presented in accordance with the Swedish Annual Accounts Act (1995:1554) and the Swedish Financial Reporting Board's recommendation RFR 2, Accounting for Legal Entities. The statements issued by the Board with respect to listed companies are also applied. RFR 2 states that in the report for the legal entity, the Parent Company shall apply all EU-endorsed IFRSs and statements as far as possible, within the framework of the Annual Accounts Act and with respect to the connection between accounting and taxation. This recommendation defines the exceptions and additional disclosures compared to IFRS. These financial statements include the financial statements of the Parent Company covering the period from 1 January to 31 December 2016.

Changed accounting standards

Neither revised IFRSs, nor revised RFR 2 (January 2016) effective from 1 January 2016 has entailed any practical change of accounting standards for the Parent Company.

Differences between the accounting policies of the Group and the Parent Company

The differences between the accounting principles applied by the Group and the Parent Company are described below.

Classification and presentation

The profit and loss account and balance sheet of the Parent Company are presented in accordance with the Swedish Annual Accounts Act. The differences compared to IAS 1, Presentation of Financial Statements, refer mainly to financial income and expenses, equity and the presentation of provisions as a separate item in the balance sheet.

Shareholdings in group companies

In the Parent Company, shareholdings in group companies are accounted for in accordance with the cost method of accounting. The transaction costs are included in the carrying amount of shareholdings in group companies. In the consolidated financial statements, transaction costs are expensed as incurred.

Group contributions

Group contributions received are recognized in the net financial items in the profit and loss account. Group contributions paid to group companies are reported by the Parent Company as an investment in shareholdings in group companies.

Income taxes

In the Parent Company balance sheet, untaxed reserves are recognized with no division between equity and deferred tax liabilities, in contrast to the Group. Correspondingly, no portion of appropriations is allocated to deferred tax expense in the Parent Company profit and loss account.

Employee benefits

Calculation of the defined benefit obligation differs from the assumptions used by the Group in accordance with IFRS mainly in the following ways:

• The calculation does not take into account future salary increases; - The applied discount rate is established by the Swedish Financial Supervisory Authority.

Remeasurements arising from defined benefit plans also include the return on plan assets excluding interest and the effect of the asset ceiling, if any, excluding interest. Remeasurements are recognized in other comprehensive income when incurred. All other expenses related to defined benefit plans are recognized in the administrative expenses in the profit and loss account when incurred.

Anticipated dividends

Anticipated dividends from group companies are recognized in cases where the Parent Company has full control over the size of the dividend and has decided on the size of the dividend before the Parent Company publishes its financial reports.

Borrowing costs

In the Parent Company, borrowing costs are expensed when incurred.

Financial guarantees

The Parent Company's financial guarantee contracts consist primarily of guarantees issued on behalf of group companies. A financial guarantee contract means that the company has an obligation to reimburse the holder of a debt instrument for losses it incurs because a specified debtor fails to make payment when due. For reporting of financial guarantee contracts, the Parent Company applies a voluntary exemption that is permitted by the Swedish Financial Reporting Board. The voluntary exemption refers to financial guarantees issued on behalf group companies. The Parent Company recognizes financial guarantee contracts as provisions in the balance sheet when it is probable that an outflow of resources will be required to settle the obligation. The costs are recognized in the administrative expenses in the profit and loss account.

Note P2 Breakdown of income

The net sales of SEK 100m (88) refer to intra-group services.

The breakdown of net sales by market is as follows

SEKm	2016	2015
Sweden	41	35
The Netherlands	16	16
Italy	10	11
Finland	8	4
Other	25	22
Total	100	88

Note P3 Personnel expenses and number of employees

Personnel expenses are specified as follows

	SEKm	2016	2015
Note P1	Salaries and remuneration
Note P2	Group Management Team
Note P3	– Sweden	23	27
Note P4	Of which, short-term variable compensation
Note P5 Note P6	– Sweden	6	10
Note P7
Note P8	Other employees
Note P9	– Sweden	0	–
Note P10	Total salaries and remuneration	23	27
Note P11
Note P12	Pension costs
Note P13	Group Management Team
Note P14	– Defined contribution plans	3	3
Note P15	– Defined benefit plans	0	0
	Total pension costs	3	3
	Social security expenses, all employees	7	8
	Total pension costs and social security expenses	10	11
	Total personnel expenses	33	38

See pages 84–85 for details on remuneration to Group Management Team.

The company expenses the pension obligation related to the defined benefit pension plans, which are secured through credit insurance with and administered by Försäkringsbolaget PRI Pensionsgaranti, Mutual in the administrative expenses in the profit and loss account.

The average number of employees is 6 (5), of which 2 (1) are women. All employees are employed in Sweden.

The specification of gender distribution in the Board of Directors and Group Management Team is as follows:

%	2016	2015
Percentage of women
Board of Directors	43	33
Group Management Team	20	20

Note P4 Audit fees

SEKm	2016	2015
Fee for auditing services	2	2
Fee for other services
– Tax advice	0	0
– Audit-related advice	1	0
– Other	0	0
Total other services	1	0
Total audit fees	3	2

Auditing services refer to the auditing of the Parent Company's statutory financial statements, the Parent Company's administration by the Board of Directors and the President and the audit of remuneration to Group Management.

For both financial years 2015 and 2016, KPMG was elected as the auditor of the Group.

Note P5 Net financial items

SEKm	2016	2015
Exchange differences on borrowings and cash	1	0
Group contributions	87	59
Interest income, group companies	19	14
Interest income on financial liabilities measured at
amortised cost	13	–
Other financial income	119	73
Interest expenses, third-party borrowings	–47	–37
Call option fee redemption senior secured notes	–30	–
Interest expenses, group companies	– 6	0
Interest expenses on third-party pensions	0	0
Interest expenses on financial liabilities measured
at amortized cost	–	–9
Other interest expenses	–2	0
Other financial expenses	–85	–46
Net financial items	35	27

Note P6 Income taxes

2015
–
0
0
20.2

SEKm	2016	2015
The difference between the effective tax rate and the statutory tax rate in Sweden is attributable to the following items:
Taxable profit from ordinary activities	13	2
Tax calculated at applicable tax rate
for the Parent Company	–3	0
Expenses not deductible for tax purposes	0	0
Other	0	0
Income tax	–3	0
Reported effective tax rate, %	22.6	20.2
Tax rate in Sweden, %	22.0	22.0

Note P7 Deferred and current income tax

Deferred tax assets refer to the difference between the tax base of the defined asset or liability and its carrying amount as recognized in the financial statements. Deferred tax for the period was SEK 5m (8) and is considered to be realized after more than 12 months. The recognized deferred taxes comprise deductible temporary differences of SEK 5m (8) and unutilized tax losses carried forward of SEK 0m (0). There are no unrecognized deferred taxes.

The breakdown between current tax assets and liabilities can be made as follows

SEKm	31 Dec 2016	31 Dec 2015
Deferred tax assets	5	8
Total	5	8

Note P8 Shareholdings in group companies

			% of capital		Carrying amount
SEKm	Corp. ID no.	Domicile	2016 2015		2016	2015
Cloetta Holland B.V.	34221053	Amsterdam, the Netherlands	100	100	4,087	4,087
Cloetta België N.V.	0404183756	Turnhout, Belgium	100	100	–	–
Cloetta Suomi Oy	1933121-3	Turku, Finland	100	100	–	–
Karikkikatu Oy	0723577-7	Turku, Finland	100	100	–	–
Cloetta Danmark ApS	28106866	Brøndby, Denmark	100	100	–	–
Cloetta Norge AS	987943033	Høvik, Norway	100	100	–	–
Cloetta Deutschland GmbH	HRB 9561	Bocholt, Germany	100	100	–	–
Cloetta Italia S.r.l.	CR - 163489	Cremona, Italy	100	100	–	–
Cloetta USA Inc.	EIN 46-2706408	Wilmington, United States	100	100	–	–
Cloetta Finance Holland B.V.	20078943	Amsterdam, the Netherlands	100	100	–	–
Cloetta Slovakia s.r.o.	35 962 488	Bratislava, Slovakia	100	100	–	–
Cloetta GGS Holding Ltd.3	08520582	London, United Kingdom	100	100	–	–
Cloetta UK Ltd.
(formerly known as FTF Sweets Ltd.)	06775890	Heysham, United Kingdom	100	100	–	–
FTF Sweets USA Inc.4	211476123	Newark, United States	100	100	–	–
Cloetta Nutisal AB	556706-9264	Helsingborg, Sweden	100	100	–	–
Cloetta Ireland Holding Ltd.	544426	Dublin, Ireland	100	100	–	–
Aran Candy Ltd.2	285910	Dublin, Ireland	100	75	–	–
Locawo B.V.1, 5	20111616	Roosendaal, The Netherlands	100	100	–	–
Traditional Sweets B.V.1	20024278	Roosendaal, The Netherlands	100	100	–	–
Chocolade- en suikerwerkfabriek Marandi B.V.1	09065319	Lunteren, The Netherlands	100	100	–	–
Lonka Sales B.V.1, 5	53765028	Roosendaal, The Netherlands	100	100	–	–
Confiserie Lonka suikerwerkfabriek B.V.1, 5	20106944	Roosendaal, The Netherlands	100	100	–	–
Chocolade- en suikerwerkfabriek Donkers B.V.1	09053079	Dieren, The Netherlands	100	100	–	–
Cloetta Sverige AB6	556674-9155	Malmö, Sweden	100	100	795	795
Cloetta Development AB	556377-3182	Linköping, Sweden	100	100	2	2
Total					4,884	4,884

1) Locawo B.V. and its subsidiaries were acquired as of 17 July 2015.

2) On 4 July 2016 Cloetta Ireland Holding Ltd. acquired the remaining 25 per cent of the outstanding shares in Aran Candy Ltd.

3) At 31 December 2016 Cloetta GGS Holding Ltd. was in the process of being struck off.

4) On 8 February 2017 FTF Sweets USA Inc. was dissolved.

5) On 1 March 2017 Locawo B.V., Lonka Sales B.V. and Confiserie Lonka Suikerwerkfabriek B.V. merged into Cloetta Holland B.V.

6) On 13 February 2017 Cloetta Sverige AB acquired 100 per cent of the shares of the Swedish company E-out instrument AB.

See Note 1 and Note 27 for disclosures on changes in group structure.

B.V. As a result, no cash is presented for Cloetta AB (publ). See Note 17 for further details.

Note P9 Cash and cash equivalents

Note P10 Equity

Share capital

See Note 19 for a description of the share capital of the Parent Company.

A Notional Group Account is in place which is held by Cloetta Holland

Non-restricted equity

Retained earnings

Retained earnings comprise the sum of profit for the year and retained earnings from previous years. Retained earnings including the share premium reserve represent the amount of non-restricted equity available for distribution to the shareholders.

Dividend

No dividend was paid in 2015. The Annual General Meeting (AGM) on 12 April 2016 approved a dividend of SEK 0.50 per share, corresponding to 37 per cent of consolidated profit after tax for the financial year 2015. The dividend of SEK 144m was paid in April 2016.

The Board of Directors proposes that the AGM approves a dividend of SEK 0.75 per, (0.50) corresponding to around 53 per cent (37) of profit for the year excluding the impact of the impairment loss.

The Board of Directors proposes that the total earnings in the Parent Company at the disposal of the AGM of SEK 2,650m are to be distributed to the shareholders for an amount of SEK 216m and to be carried forward to new account for an amount of SEK 2,433m.

Note P11 Borrowings

The Parent Company's borrowings consist of loans from credit institutions for a net amount of SEK 999m (0) and senior secured notes for a net amount of SEK 0m (993). The senior secured notes were repaid on 19 September 2016.

See Note 21 for the disclosure of the borrowings.

Note P12 Derivative financial instruments

The derivative financial instruments comprise single currency interest rate swap liabilities amounting to SEK 4m (17) of which SEK 0m (3) is non-current of nature.

Note P13 Trade and other payables

SEKm	31 Dec 2016	31 Dec 2015
Trade payables	3	3
Other current liabilities	3	1
Other payables	–	2
Accrued expenses and deferred income	19	24
Total	25	30

Accrued expenses and deferred income amount to SEK 19m (24), of which SEK 9m (12) is related to accrued personnel-related expenses and SEK 10m (12) to other accrued expenses and deferred income.

Note P14 Pledged assets and contingent liabilities

SEKm	31 Dec 2016	31 Dec 2015
Contingent liabilities
Guarantees on behalf of group companies	796	206
Guarantee for group loan	1,677	2,557
Total	2,473	2,763

The term and revolving facilities agreement is unsecured in nature. The shares in the group companies Cloetta Sverige AB and Cloetta Holland B.V. were pledged to Svenska Handelsbanken AB (publ) and holders of the senior secured notes per 31 December 2015 for an amount of SEK 4,882m . These pledges were released on 27 July 2016. See Note 21 for the Group's pledged assets at 31 December 2015.

The company issued a parent company guarantee pursuant to Article 403, Book 2 of the Dutch Civil Code in respect of Cloetta Holland B.V. and Cloetta Finance Holland B.V. The company issued a parent company guarantee pursuant to section 479A of the Companies Act 2006 of the Parliament of the United Kingdom in respect of Cloetta GGS Holding Ltd. This means that Cloetta AB declares and accepts, under reservation of legal repeal of the declaration, joint and several liability for the debts resulting from legal acts of Cloetta Holland B.V., Cloetta Finance Holland B.V. and Cloetta GGS Holding Ltd. As the probability of a settlement is remote, an estimate of its financial effect is not practical to be calculated.

Note P15 Related party transactions

The Parent Company's holdings of shares and participations in subsidiaries are specified in Note P8.

Receivables from and liabilities to subsidiaries are broken down as follows
-----------------------------------------------------------------------------

SEKm	31 Dec 2016	31 Dec 2015
Non-current interest-bearing receivables	440	415
Current interest-bearing receivables	–	3
Current interest-free receivables	116	85
Non-current interest-bearing payables	–132	–129
Current interest-bearing payables	–179	–
Current interest-free payables	–13	–9
Total	232	365

For the Parent Company, SEK 100m (88), equal to 100 per cent (100) of the year's net sales, and SEK 45m (50), equal to 37 per cent (44) of the year's purchases, refer to group companies in the Cloetta Group. The prices of goods and services sold to and purchased from related parties are set on market-based terms.

At 31 December 2016 the Parent Company's receivables from group companies amounted to SEK 556m (503) and liabilities to subsidiaries amounted to SEK 324m (138). Transactions with related parties are priced on market-based terms. Total costs related to the share-based long-term incentive plan amounted to SEK 10m (13), of which SEK 5m (6) is related to Group Management Team.

Proposed appropriation of earnings

Earnings in the Parent Company at the diposal of the Annual General Meeting	2016
Share premium reserve	2,711,620,366
Retained earnings	–71,846,527
Profit for the year	9,841,915
Total	2,649,615,754

The Board of Directors proposes that dividends be paid in a total amount of SEK 216,464,474 equal to SEK 0.75 per share. The Board of Directors proposes that the earnings be disposed of as follows:

The earnings are to be disposed as follows:
To be distributed to the shareholders	216,464,474
To be carried forward to new account	2,433,151,280
Total	2,649,615,754

The number of shares at 31 December 2016 was 288,619,299.

The Board of Directors and the President give their assurance that the consolidated financial statements and annual report have been prepared in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002, on the Application of International Accounting Standards and Generally Accepted Accounting Standards, and give a true and fair view of the financial position and results of operations of the Group and the Parent Company. The administration report for the Group and the Parent Company gives a true and fair view of the business activities, financial position and results of operations of the Group and the Parent Company, and describes the significant risks and uncertainties to which the Parent Company and the Group companies are exposed.

Stockholm, 8 March 2017

Lilian Fossum Biner Chairman

Lottie Knutson Member of the Board

Mikael Norman Member of the Board

Mikael Svenfelt Member of the Board

Camilla Svenfelt Member of the Board

Lena Grönedal Employee Board member

Mikael Ström Employee Board member

Adriaan Nühn Member of the Board

Hans Porat Member of the Board

Lena Grönedal Employee Board member

Henri de Sauvage Nolting President and CEO

Our audit report was issued on 8 March 2017.

KPMG AB

Tomas Forslund Authorised Public Accountant

The profit and loss accounts and balance sheets of the Group and the Parent Company are subject to approval by the AGM on 4 April 2017. The information in this report is subject to the disclosure requirements of Cloetta AB (publ) under the provisions in the Swedish Securities Market Act. The information was submitted to the media for publication on 9 March 2017, at 08:00 CET.

To the general meeting of the shareholders of Cloetta AB (publ), corp. id 556308-8144

Report on the annual accounts and consolidated accounts Opinions

We have audited the annual accounts and consolidated accounts of Cloetta AB (publ) for the year 2016. The annual accounts and consolidated accounts of the company are included on pages 1–4, 6–7 and 66–141 in this document.

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act, and present fairly, in all material respects, the financial position of the parent company as of 31 December 2016 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2016 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act.

A corporate governance statement has been prepared. The statutory administration report and the corporate governance statement are consistent with the other parts of the annual accounts and consolidated accounts, and the corporate governance statement is in accordance with the Annual Accounts Act.

We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group.

Basis for opinions

We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Key audit matters

Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.

Valuation of goodwill and trademarks

See note 11 in the annual account and consolidated accounts for detailed information and description of the matter.

Description of key audit matters

As of 31 December 2016 the group reported goodwill of SEK 2,048 million and trademarks of SEK 3,178 million. During 2016, the group recorded an impairment loss on goodwill and trademarks of SEK 771 million.

The carrying amounts were subject to impairment tests which include both complexity and elements of management judgements with a significant impact. Impairment tests were performed for all cash generating units and groups of cash generating units.

When preparing the impairment tests, management makes judgements of the cash generating units and groups of cash generating units future internal and external developments and plans. An example of such judgments include prediction of future cash flows, which among other things requires expectations concerning future development and market conditions.

Other important assumptions are the parameters and underlying assumptions for the determination of the discount rate to be used in order to reflect time value of money and particular risks that each cash generating unit and group of cash generating units is exposed to.

There is a risk that the assessments made to form the basis of the estimated recoverable amount may have to be changed, which could directly affect the reported result for the period.

Response in the audit

We have assessed the impairment tests in order to conclude whether these were performed in accordance with the prescribed method. We have assessed the reasonableness of management assumptions, which have been derived from all available financial information confirmed by the audit committee and the board of directors, concerning future cash flows and the discount rates by evaluating management's written documentation including future plans. We also interviewed management and evaluated previous year's estimates of future cash flows in relation to actual results.

In order to assess how changes in management assumptions may affect the recoverable amount we evaluated sensitivity analysis of the recoverable amounts for the cash generating units and group of cash generating units. We have involved an internal valuation specialist primarily to assess assumptions concerning yield requirements linked to external markets.

We have also involved an internal accounting specialist to assess the accounting effects of the impairment tests performed and also to evaluate the accuracy of the disclosures of goodwill and trademarks in the annual account and consolidated accounts.

Other Information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts and consolidated accounts and is found on pages 5, 8–65 and 145–158. The Board of Directors and the President/CEO are responsible for this other information.

Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.

If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the President/CEO

The Board of Directors and the President/CEO are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the President/ CEO are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts The Board of Directors and the President/CEO are responsible for the assessment of the company's and the group's ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the President/CEO intend to liquidate the company, to cease operations, or has no realistic alternative but to do so.

The Audit Committee shall, without prejudice to the Board of Director's responsibilities and tasks in general, among other things oversee the company's financial reporting process.

Auditor's responsibility

Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of the company's internal control relevant to our audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the President/CEO.

• Conclude on the appropriateness of the Board of Directors' and the President/CEO's, use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast significant doubt on the company's and the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause a company and a group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified.

We must also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, including the most important assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the auditor's report unless law or regulation precludes disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the auditor's report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the President/CEO of Cloetta AB (publ) for the year 2016 and the proposed appropriations of the company's profit or loss.

We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the President/CEO be discharged from liability for the financial year.

Basis for opinions

We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the parent company and the group in accordance with

professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the President/CEO

The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company's and the group's type of operations, size and risks place on the size of the parent company's and the group's equity, consolidation requirements, liquidity and position in general.

The Board of Directors is responsible for the company's organization and the administration of the company's affairs. This includes among other things continuous assessment of the company's and the group's financial situation and ensuring that the company's organization is designed so that the accounting, management of assets and the company's financial affairs otherwise are controlled in a reassuring manner.

The President/CEO shall manage the ongoing administration according to the Board of Directors' guidelines and instructions and among other matters take measures that are necessary to fulfill the company's accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor's responsibility

Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the President/CEO in any material respect:

• has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
• in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the company's profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company's profit or loss are not in accordance with the Companies Act.

As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional skepticism throughout the audit. The examination of the administration and the proposed appropriations of the company's profit or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and violations would have particular importance for the company's situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

Stockholm 8 March 2017

KPMG AB

Tomas Forslund Authorised Public Accountant

Nine-year overview

SEKm	2016	2015	2014	2013	2012	2011	2010	2009	2008
Profit and loss account in summary
Net sales	5,852	5,674	5,313	4,893	4,859	4,658	5,019	5,486	5,256
Cost of goods sold	–3,533	–3,463	–3,325	–3,081	–3,157	–2,911	–3,058	–3,422	–3,198
Gross profit	2,319	2,211	1,988	1,812	1,702	1,747	1,961	2,064	2,058
Other operating income	–	0	5	12	13	1	16	0	5
Selling expenses	–955	–949	– 892	– 850	– 888	–915	–992	–1,019	–987
General and administrative expenses
- Impairment loss	–771	–	–	–	–	–	–	–	–
- Other general and administrative expenses	–675	–591	–524	–556	–702	–473	–471	–503	–567
Total general and administrative expenses	–1,446	– 591	– 524	– 556	–702	– 473	– 471	– 503	– 567
Operating profit/loss	–82	671	577	418	125	360	514	542	509
Exchange differences borrowings and cash
and cash equivalents in foreign currencies	– 8	–1	–11	–12	20	–12	–13	– 63	–27
Other financial income	17	6	4	24	5	11	5	3	11
Other financial expenses	–183	–183	–232	–220	–290	– 599	– 634	– 677	–712
Net financial items	–174	–178	–239	–208	–265	–600	–642	–737	–728
Profit/loss before tax	–256	493	338	210	–140	–240	–128	–195	–219
Income tax expense	65	–107	–96	54	67	172	–211	22	– 83
Profit/loss for the period for continuing operations	–191	386	242	264	–73	–68	–339	–173	–302
Result after tax from discontinued operations	–	–	–	–	–	–	–	–	–14
Net profit/loss for the period	–191	386	242	264	–73	–68	–339	–173	–316
Profit for the period attributable to:
Owners of the Parent Company	–191	386	242	264	–73	– 68	–339	–173	–316
	31 Dec	31 Dec	31 Dec	31 Dec	31 Dec	31 Dec	31 Dec	31 Dec	31 Dec
SEKm	2016	2015	2014	2013	2012	2011	2010	2009	2008
Balance sheet in summary
Intangible assets	5,354	5,948	5,882	5,252	5,099	4,811	4,822	5,383	5,646
Property, plant and equipment	1,700	1,698	1,667	1,660	1,611	1,318	1,333	1,623	1,831
Deferred tax asset	54	64	84	73	473	447	207	258	286
Other financial assets	13	27	105	91	88	261	147	45	34
Total non-current assets	7,121	7,737	7,738	7,076	7,271	6,837	6,509	7,309	7,797
Inventories	780	786	853	798	773	640	566	631	726
Trade and other receivables	988	975	1,121	933	951	1,051	1,198	1,313	1,313
Current income tax assets	36	3	3	0	4	2	1	–	–
Derivative financial instruments	4	1	2	–	–	–	–	–	–
Cash and cash equivalents	298	246	229	167	306	97	220	245	177
Total current assets	2,106	2,011	2,208	1,898	2,034	1,790	1,985	2,189	2,216
Assets held for sale	9	11	16	15	35	15	–	–	–
TOTAL ASSETS	9,236	9,759	9,962	8,989	9,340	8,642	8,494	9,498	10,013
Equity	4,199	4,344	4,048	3,747	3,326	–385	–1,117	–619	–725
Long-term borrowings	2,666	2,612	2,993	3,096	2,516	6,077	6,826	7,224	7,985
Deferred tax liability	586	621	483	397	824	728	714	789	870
Derivative financial instruments	12	44	56	21	3	0	0	–	–
Other non-current liabilities	–	43	147	2	–	–	–	–	–
Provisions for pensions and other long-term employee benefits	396	378	505	360	452	250	222	250	252
Provisions	22	10	16	7	11	24	29	28	31
Total non-current liabilities	3,682	3,708	4,200	3,883	3,806	7,079	7,791	8,291	9,138
Short-term borrowings	2	344	423	212	747	747	642	680	333
Derivative financial instruments	54	35	16	2	21	0	0	0	0
Trade and other payables	1,196	1,216	1,152	967	1,264	1,038	975	1,073	1,189
Provisions	64	57	65	79	79	60	78	66	76
Current income tax liabilities	39	55	58	99	97	103	125	7	2
Total current liabilities	1,355	1,707	1,714	1,359	2,208	1,948	1,820	1,826	1,600
TOTAL EQUITY AND LIABILITIES	9,236	9,759	9,962	8,989	9,340	8,642	8,494	9,498	10,013

Key ratios

SEKm	2016	2015	2014	2013	2012	20111	20101	20091	20081
Profit
Net sales	5,852	5,674	5,313	4,893	4,859	4,658	5,019	5,486	5,256
Net sales, change %	3.1	6.8	8.6	0.7	4.3	na	na	na	na
Organic net sales, change, %	0.5	1.5	1.0	–1.0	– 4.1	na	na	na	na
Gross margin, %	39.6	39.0	37.4	37.0	35.0	37.5	39.1	37.6	39.2
Depreciation	–239	–227	–198	–175	–167	–115	–125	–144	–127
Amortization	– 6	– 4	–3	–2	–1	– 8	–18	–10	–7
Impairment loss goodwill and trademarks	–771	–	–	–	–	–	–	–	–
Impairment loss other non-current assets	–7	–	–	–	–	–	–	–	–
Operating profit (EBIT), adjusted	758	690	632	585	432	565	686	698	670
Operating profit margin (EBIT mar gin), adjusted %	13.0	12.2	11.9	12.0	8.9	12.1	13.7	12.7	12.7
Operating profit/loss (EBIT)	– 82	671	577	418	125	360	514	542	509
Operating profit/loss margin (EBIT margin), %	–1.4	11.8	10.9	8.5	2.6	7.8	10.3	9.9	9.7
EBITDA, adjusted	1,003	921	833	762	600	688	829	852	804
EBITDA	941	902	778	595	293	483	657	696	643
Profit margin, %	– 4.4	8.7	6.4	4.3	–2.9	– 5.1	–3.3	–3.6	– 4.2
Financial position
Working capital	572	628	819	763	458	586	649	716	806
Capital expenditure	170	161	186	211	269	224	97	107	101
Net debt	2,443	2,818	3,308	3,230	3,056	2,827	3,070	3,812	4,371
Capital employed	7,329	7,756	8,041	7,438	7,066	6,682	6,575	7,543	7,845
Return on capital employed, %	– 0.9	8.6	7.5	6.1	1.9	5.7	na	na	na
Equity/assets ratio, %	45.5	44.5	40.6	41.7	35.6	– 4.5	–13.2	– 6.5	–7.2
Net debt/equity ratio, %	58.2	64.9	81.7	86.2	91.9	–734.3	–274.8	– 615.8	– 602.9
Return on equity, %	– 4.5	8.9	6.0	7.0	–2.2	na	na	na	na
Equity per share, SEK	14.5	15.1	14.0	13.0	11.5	na	na	na	na
Net debt/EBITDA, x2	2.44	3.03	3.97	4.19	4.90	na	na	na	na
Cash flow
Cash flow from operating activities	889	927	500	131	330	492	379	540	365
Cash flow from investing activities	–322	–367	–369	–202	–1,506	–335	– 83	–121	–140
Cash flow after investments	567	560	131	–71	–1,176	157	296	419	225
Cash conversion, %3	83.1	82.5	77.7	72.3	55.2	67.4	88.3	87.4	87.4
Cash flow from operating activities per share, SEK1	3.1	3.2	1.7	0.5	1.1	na	na	na	na
Employees
Average number of employees	2,530	2,583	2,533	2,472	2,579	2,192	2,275	2,309	2,392
Share data
Earnings per share, basic, SEK4	– 0.67	1.35	0.84	0.92	– 0.26	– 0.26	na	na	na
Earnings per share, diluted, SEK4 Dividend per share,	– 0.67	1.35	0.84	0.92	– 0.26	– 0.26	na	na	na
proposed for 2016, SEK	0.75	0.50	–	–	–	–	–	–
Number of shares at end of period	288,619,299	288,619,299	288,619,299	288,619,299	288,619,299	262,137,526	na	na	na
Average number of shares (basic)4,5	286,193,024	286,290,840	286,987,990	288,010,947	276,132,021	262,137,526	na	na	na
Average number of shares (diluted)4,5 286,447,465		286,561,607	287,092,780	288,026,408	276,132,021	262,137,526	na	na	na
Exchange Rates
EUR, average	9.4700	9.3445	9.1051	8.6513	8.6958	9.0228	9.5261	10.6165	9.5999
EUR, end of period	9.5804	9.1679	9.3829	8.8630	8.5750	8.9100	8.9700	10.2500	10.9100
NOK, average	1.0200	1.0432	1.0882	1.1071	1.1643	1.1577	1.1905	1.2144	1.1689
NOK, end of period	1.0548	0.9563	1.0439	1.0592	1.1667	1.1467	1.1493	1.2372	1.1161
GBP, average	11.5480	12.8736	11.3118	10.1987	10.7429	10.4057	11.1030	11.9012	12.0936
GBP, end of period	11.1673	12.4835	12.0340	10.6501	10.5215	10.6668	10.4109	11.5493	11.4337
DKK, average	1.2721	1.2529	1.2215	1.1601	1.1682	1.2112	1.2794	1.4258	1.2875
DKK, end of period	1.2888	1.2287	1.2604	1.1882	1.1495	1.1987	1.2035	1.3775	1.4644

1) The key figures per share for the years 2008 –2011 are not representative for the current group due to a completely different equity structure before the merger between Cloetta and Leaf.

2) In 2016 the defintion of Net debt/EBITDA has been adjusted to present a key figure over time which is irrespective of the applicable facility agreement.

Comparative figures have not been restated as the differences have a limited effect.

3) Comparative figures have been restated due to a change in the definition of the cash conversion.

4) Cloetta entered into forward contracts to repurchase own shares to fulfill its future obligation to deliver the shares to the participants of the long-term share-based incentive plan. The table in Note 22 presents the movements in the contracts as from 1 January 2014.

5) The number of shares for the year 2011 have been restated for the rights issue.

Reconciliation alternative performance measures

SEKm	2016	2015	2014	2013	2012	2011	2010	2009	2008
Items affecting comparability
Acquisitions, integration and factory
restructurings	– 49	– 47	– 85	–167	na	na	na	na	na
of which: impairment loss other non–
current assets	–7	–	–	–	na	na	na	na	na
Remeasurements of contingent
considerations	–17	33	27	–	na	na	na	na	na
Remeasurements of assets held for
sale	–3	– 5	–	–	na	na	na	na	na
Impairment loss	–771	–	–	–	na	na	na	na	na
Other items affecting comparability	–	–	3	–	na	na	na	na	na
Items affecting comparability¹	–840	–19	–55	–167	–307	–205	–172	–156	–161
¹ Corresponding line in the condensed consolidated profit and loss account:
Net Sales	–	– 4	–	–	na	na	na	na	na
Cost of goods sold	–23	–22	– 51	–121	na	na	na	na	na
Other operating income	–	–	3	12	na	na	na	na	na
Selling expenses	–	–12	–7	– 4	na	na	na	na	na
General and administrative expenses
– Impairment loss	–771	–	–	–	na	na	na	na	na
– Other general and administrative expenses Total general and administrative expenses	–46 – 817	19 19	– –	–54 –54	na na	na na	na na	na na	na na
Total	–840	–19	–55	–167	–307	–205	–172	–156	–161
Operating profit, adjusted
Operating profit	– 82	671	577	418	125	360	514	542	509
Minus: Items affecting
comparability	– 840	–19	– 55	–167	–307	–205	–172	–156	–161
Operating profit, adjusted	758	690	632	585	432	565	686	698	670
Net sales	5,852	5,674	5,313	4,893	4,859	4,658	5,019	5,486	5,256
Operating profit margin,
adjusted, %	13.0	12.2	11.9	12.0	8.9	12.1	13.7	12.7	12.7
EBITDA, adjusted
Operating profit	– 82	671	577	418	125	360	514	542	509
Minus: Depreciation	–239	–227	–198	–175	–167	–115	–125	–144	–127
Minus: Amortization	– 6	– 4	–3	–2	–1	– 8	–18	–10	–7
Minus: Impairment loss goodwill and
trademarks	–771	–	–	–	–	–	–	–	–
Minus: Impairment loss other non–
current assets	–7	–	–	–	–	–	–	–	–
EBITDA	941	902	778	595	293	483	657	696	643
Minus: Items affecting comparability
(excl. impairment loss goodwill and
trademarks and other non– current
assets)	– 62	–19	– 55	–167	–307	–205	–172	–156	–161
EBITDA, adjusted	1,003	921	833	762	600	688	829	852	804
Capital employed
Total assets	9,236	9,759	9,962	8,989	9,340	8,642	8,494	9,498	10,013
Minus: Deferred tax liability	586	621	483	397	824	728	714	789	870
Minus: Other non–current liabilities	–	43	147	2	–	–	–	–	–
Minus: Non–current provisions	22	10	16	7	11	24	29	28	31
Minus: Current provisions	64	57	65	79	79	60	78	66	76
Minus: Trade and other payables	1,196	1,216	1,152	967	1,264	1,038	975	1,073	1,189
Minus: Current income tax liabilities	39	55	58	99	97	103	125	7	2
Plus: Interest–bearing other
current liabilities	–	–1	–	–	1	–7	2	8	–
Capital employed	7,329	7,756	8,041	7,438	7,066	6,682	6,575	7,543	7,845
Capital employed comparative
period previous year	7,756	8,041	7,438	7,066	6,682	6,575	7,543	7,845	na
Average capital employed	7,543	7,899	7,740	7,252	6,874	6,629	7,059	7,694	na

Reconciliation alternative performance measures, Continued

SEKm	2016	2015	2014	2013	2012	2011	2010	2009	2008
Return on capital employed
Operating profit (rolling 12 months)	– 82	671	577	418	125	360	514	542	509
Financial income
(rolling 12 months)	17	6	4	24	5	11	5	3	11
Operating profit plus financial
income (rolling 12 months)	–65	677	581	442	130	371	519	545	520
Average capital employed	7,543	7,899	7,740	7,252	6,874	6,629	7,059	7,694	na
Return on capital employed, %	–0.9	8.6	7.5	6.1	1.9	5.6	7.4	7.1	na
Cash conversion
EBITDA, adjusted	1,003	921	833	762	600	688	829	852	804
Minus: Capital expenditures	–170	–161	–186	–211	–269	–224	–97	–107	–101
EBITDA, adjusted less capital
expenditures	833	760	647	551	331	464	732	745	703
EBITDA, adjusted	1,003	921	833	762	600	688	829	852	804
Cash conversion, %	83.1	82.5	77.7	72.3	55.2	67.4	88.3	87.4	87.4
Changes in net sales
Net sales	5,852	5,674	5,313	4,893	4,859	4,658	5,019	5,486	5,256
Net sales comparative period previous year	5,674	5,313	4,893	4,859	4,658	5,019	5,486	5,256	na
Net sales, change	178	361	420	34	201	–361	–467	230	na
Minus: Structural changes	127	208	213	na	na	na	na	na	na
Minus: Changes in exchange rates	28	77	158	na	na	na	na	na	na
Organic growth	23	76	49	na	na	na	na	na	na
Structural changes, %	2.2	3.9	4.4	na	na	na	na	na	na
Organic growth, %	0.5	1.4	1.0	–1.0	– 4.1	na	na	na	na
Profit for the period excluding impact of impairment loss
Profit for the period	–191	386	242	264	–73	– 68	–339	–173	–316
Impairment loss	–771	–	–	–	–	–	–	–	–
Income tax impact
on impairment loss	177	–	–	–	–	–	–	–	–
Profit for the period excluding	403	386	242	264	–73	–68	–339	–173	–316
impact of impairment loss
Average number of shares (basic)	286,193,024	286,290,840	286,987,990	288,010,947	276,132,021	262,137,526	na	na	na
Average number of shares
(diluted)	286,447,465	286,561,607	287,092,780	288,026,408	276,132,021	262,137,526	na	na	na
Earnings per share, basic
excluding impact of impairment
loss, SEK	1.41	1.35	0.84	0.92	– 0.26	– 0.26	na	na	na
Earnings per share, diluted
excluding impact of impairment loss, SEK	1.41	1.35	0.84	0.92	– 0.26	– 0.26	na	na	na

Definitions

General	All amounts in the tables are presented in SEK millions unless otherwise stated. All amounts in brackets () represent comparative figures for the same period of the prior year, unless otherwise stated.
Margins	Definition/calculation	Purpose
Gross margin	Net sales less cost of goods sold as a percentage of net sales.	Gross margin measures production profitability.
Operating profit margin (EBIT margin)	Operating profit expressed as a percentage of net sales.	Operating profit margin is used for measuring the operational profitability.
Operating profit margin, adjusted	Operating profit, adjusted for items affecting Operating profit margin, adjusted excludes the impact of items comparability, as a percentage of net sales. affecting comparability, enabling a comparison of operational profitability.
Profit margin	Profit/loss before tax expressed as a percentage of net sales.	This measure enables the profitability to be compared across locations where corporate taxes differ.
Return	Definition/calculation	Purpose
Cash conversion	Operating profit, adjusted for items affecting comparability, before depreciation and amortization less capital expenditures as a percentage of operating profit, adjusted for items affect ing comparability, before depreciation and amortization.	Cash conversion measures the proportion of profits that are converted to cash flow. Its use is to analyze how much of the profit attributable to shareholders is turned into cash that could be paid to investors without damaging the business, except for cash flows related to interest and tax.
Return on capital employed	Operating profit plus financial income as a percentage of average capital employed. The average capital employed is calculated by taking the capital employed per period end and the capital employed by period end of the comparative period in the previous year divided by two.	Return on capital employed is used to analyse profitability, based on the amount of capital used. The leverage of the company is the reason that this metric is used next to return on equity, because it not only includes equity, but takes into account borrowings and other liabilities as well.
Return on equity	Profit for the period as a percentage of total equity.	Return on equity is used to measure profit generation, given the resources attributable to the owners of the Parent Company.
Capital structure	Definition/calculation	Purpose
Capital employed	Total assets less interest-free liabilities (including deferred tax).	Capital employed measures the amount of capital used and serves as input for return on capital employed.
Equity/assets ratio	Equity at the end of the period as a percentage of total assets. The equity/assets ratio represents the amount of assets on which shareholders have a residual claim.	This ratio is an indicator of the company's leverage used to finance the firm.
Gross debt	Gross current and non-current borrowings, credit overdraft fa cilities, derivative financial instruments and interest payables.	Gross debt represents the total debt obligation of the company irrespective its maturity.
Net debt	Gross debt less cash and cash equivalents.	Net debt is used as an indication of the ability to pay off all debts if these were to fall due simultaneously on the day of calculation, using only available cash and cash equivalents.
Net debt/EBITDA	Net debt at the end of the period divided by the EBITDA, adjusted, for the last 12 months, taking into consideration the annualization of EBITDA for acquired or divested companies.	The net debt/EBITDA ratio approximates the company's ability to decrease its debt. It represents the number of years it would take to pay back debt if net debt and EBITDA are held constant, ignoring the impact from cash flows from interest, tax and capital expenditure.
Net debt/equity ratio	Net debt at the end of the period divided by equity at the end of the period.	The net debt/equity ratio measures the extent to which the company is funded by debt. Because cash and overdraft facilities can be used to pay off debt at short notice, this is calculated based on net debt rather than gross debt.
Working capital	Total inventories and trade and other receivables adjusted for trade and other payables.	Working capital is used to measure the company's ability, be sides cash and cash equivalents, to meet current operational obligations.
Data per share	Definition/calculation	Purpose
Cash flow from operating activi ties per share	Cash flow from operating activities in the period divided by the average number of shares.	The cash flow from operating activities per share measures the amount of cash the company generates per share from the revenues it brings in irrespective the capital investments and cash flows related to the financing structure of the company.
Earnings per share	Profit for the period divided by the average number of shares adjusted for the effect of forward contracts to repurchase own shares.	The earnings per share measures the amount of net profit that is available for payment to its shareholders per share.
Equity per share	Equity at the end of the period divided by number of shares at the end of the period.	Equity per share measures the net-asset value backing up each share of the company's equity and determines if a com pany is increasing shareholder value over time.

Definitions, Continued

Other definitions	Definition/calculation	Purpose
EBIT	Operating profit consists of comprehensive income before net financial items and income tax.	This measure enables the profitability to be compared across locations where corporate taxes differ and irrespective the financing structure of the company.
EBITDA	Operating profit before depreciation and amortization.	EBITDA is used to measure the cash flow generated from operating activities, eliminating the impact of financing and accounting decisions.
EBITDA, adjusted	Operating profit, adjusted for items affecting comparability, before depreciation and amortization.	EBITDA, adjusted increases the comparability of EBITDA.
Effective tax rate	Income tax as a percentage of profit before tax.	This measure enables comparison of income tax across locations where corporate taxes differ.
Items affecting comparability	Items affecting comparability are items such as restructurings and impact from acquisitions.	Items affecting comparability increases the comparability within the profit and loss account.
Net financial items	The total of exchange differences on borrowings and cash and cash equivalents in foreign currencies, other financial income and other financial expenses.	The net financial items reflects the company's total costs of the external financing.
Net sales, change	Net sales as a percentage of net sales in the comparative period of the previous year.	Net sales, change reflects the company's realized top-line growth over time.
Operating profit, adjusted	Operating profit adjusted for items affecting comparability.	Operating profit, adjusted increases the comparability of operating profit.
Organic growth	Net sales, change excluding acquisition-driven growth and changes in exchanges rates.	Organic growth excludes the impact of changes in group structure and exchange rates, enabling a comparison on net sales growth over time.
Structural changes	Net sales, change resulting from changes in group structure.	Structural changes measure the contribution of changes in group structure to net sales growth.

Glossary

BRC Global Standards for Food Safety	A leading safety and quality certification programme. Many European and global retailers will only consider business with suppliers that have been certified according to the BRC Global Standard.
Contract manufacturing	Manufacturing of external brands, i.e. insourcing production of products from external parties.
GRI Global Reporting Initiative	A network-based organization whose founders include the UN. GRI has pioneered the development of a framework for the structure and content of sustainability reporting.
ICC	International Chamber of Commerce.
ILO	International Labour Organization, United Nations agency dealing with labour issues.
ISO 9001 and ISO 14001	International Organization for Standardization. ISO 9001 addresses quality management and ISO 140001 addresses environmental management.
OHSAS 18001	International occupational health and safety management system specification.
Polyols	Sugar alcohols that resemble sugar and are used as sweeteners.
Pick & mix concept	Cloetta's range of candy and natural snacks that are picked by the consumers themselves.
UTZ	Certified standards for sustainable farming with a number of social and environmental criteria.

GRI

151Cloetta [ A N N UA L A N D S U STA I N A B I LIT Y R EP O RT 2016 ]

GRI index

	Strategy and Analysis	Page
G4-1	Statement from the most senior decision-maker of the organization	2–3
	Organizational Profile
G4-3	Report the name of the organization	Inside back cover
G4-4	Report the primary brands, products and/or services	21–24
G4-5	Report the location organization's headquarters	59
G4-6	Report the number of countries where the organization operates, and names of the countries where the organization has significant operations	25
G4-7	Report the nature of ownership and legal form	78
G4-8	Report the markets served	25–31
G4-9	Report the scale of the reporting organization	Inside front cover, 57, 95
G4-10	Total number of employees by employment type, employment contract, region and gender	57–59
G4-11	Report the percentage of total employees covered by collective bargaining agreements	59
G4-12	Describe the organization's supply chain	8–9, 48–51, 75
G4-13	Report any significant changes during the reporting period regarding the organization's size, structure, ownership or supply chain	32
G4-14	Report whether and how the precautionary principle is addressed by the organization	54–55
G4-15	List externally developed economic, environmental and social charters, principles, or other initiatives to which the organization subscribes or which it endorses	44, 153
G4-16	List of memberships of associations and national or international advocacy organizations	153
	Identified Material Aspects and Boundaries
G4-17	List all entities included in the organization's consolidated financial statements or equivalent documents	152
G4-18	Explain the process for defining the report content and the Aspect Boundaries	45–46, 152
G4-19	List all the material aspects identified	45
G4-20	For each material Aspect, report the Aspect Boundary within the organization	43, 152
G4-21	For each material Aspect, report the Aspect Boundary outside the organization	43, 152
G4-22	Report the effect of any restatements of information provided in previous reports and the reasons for such restatements	152
G4-23	Report significant changes from previous reporting periods in Scope and Aspect Boundaries	152
	Stakeholder Engagement
G4-24	Provide a list of stakeholder groups engaged by the organization	46
G4-25	Report the basis for identification and selection of stakeholders with whom to engage	45–46
G4-26	Report the organization's approach to stakeholder engagement	46
G4-27	Report key topics and concerns that have been raised through stakeholder engagement	47, 74
	Report Profile
G4-28	Reporting period for the information provided	1 January – 31 December 2016
G4-29	Date of most recent previous report	10 March 2016
G4-30	Reporting cycle	Calendar year
G4-31	Provide the contact point for questions regarding the report or its content	152
G4-32	Report the GRI Content Index in accordance with GRI G4.0 Core requirements and report the reference to the External Assurance Report	44, 151–152
G4-33	Report the organization's policy and current practice with regard to seeking external assurance for the report	154
	Governance
G4-34	Report the governance structure of the organization, including committees, and Board responsibility for economic, environmental and social topics	44, 78–83
	Ethics and Integrity
G4-56	Describe the organization's values, principles, standards and norms	42–44, 72

Performance indicators

	GREATER WELL-BEING – SAFE EMPLOYEES WITH GOOD WELL-BEING
	Working conditions	Scope	Comments	Page
G4-DMA	Occupational health and safety and absenteeism			32–33, 42–47, 56–59, 75, 82
G4-LA6	Occupational injuries, lost days, and absenteeism	Includes Cloetta	ODR, IR, LDR replaced by days between occupational injuries that lead to sick leave and ab senteeism. Occupational injuries are not reported by region and gender. Absenteeism is reported by gender	57, 59, 152
G4-LA12	Composition of governance bodies and break down of employees by gender and age group		The indicator is not reported by minority groups	57–59 88–91
	GREATER WELL-BEING – CONSUMERS Product reponsibility
G4-DMA	Customer health and safety			32–36, 42–47, 52, 75, 82
G4-PR1	Evaluation of products and services with regard to consumer health and safety	Includes Cloetta's customers		32–36, 52
Own	Consumer complaints/returns			35
	REDUCED ENVIRONMENTAL IMPACT – FROM OWN OPERATIONS Environment
G4-DMA	Energy consumption, waste and carbon dioxide emissions			42–47, 54–55, 75, 82
G4-EN3	Energy consumption inside the organization	Includes Cloetta		5, 54–55
G4-EN15, G4-EN16	Direct and indirect greenhouse gas emissions, by weight (Scope 1, Scope 2)	Refers to Cloetta and the supply chain		5, 54–55
G4-EN22	Total water discharge by quality and destination Refers to Cloetta's			54–55
G4-EN23	Total weight of waste, by type and disposal method	supply chain	No detailed information about disposal method. Reported in percentage, not weight.	54–55
Own	Recyling of materials			54–55
G4-EN30	Transports	Refers to transports within Cloetta's supply chain	Reported only in kg CO2 per transported tonne.	54–55
	SUSTAINABLE SOURCING Human rights
G4-DMA	Supplier human rights assessment			34–36, 42–47, 48–51, 75, 82
G4-HR 10	Percentage of new suppliers that were screened using human rights criteria	Refers to Cloetta's suppliers	No percentage available.	48
Own	Results of sustainability programmes for prioritized raw materials	Refers to Cloetta's suppliers		49 –51
	ECONOMIC PERFORMANCE Economic performance
G4-DMA	Economic performance			42–45, 78–83
G4-EC1	Direct economic value generated and distributed	Refers to Cloetta and external stakeholders		9

Cloetta reports in accordance with the Global Reporting Initiatives (GRI) Sustainability Reporting Guidelines, G4, Core. Cloetta's sustainability reporting covers all of its operations unless otherwise stated. The most recent sustainability report was presented on 10 March 2016. The table of contents above contains all standard disclosures and those indicators that have been identified as the most relevant in view of Cloetta's long-term sustainability targets. The indicators and other contents of the sustainability report have been selected based on Cloetta's materiality analysis on page 45. The focus of Cloetta's sustainability work and therefore also the reporting is on the well-being of employees and consumers, reduced environmental impact and sustainable sourcing. The key performance indicators have been collected with the help of internal reporting systems. Cloetta's sustainability report has not been reviewed by an external party, see page 154.

Compared to the reports for earlier years, the indicators G4-PR2 and PR4 have been replaced by Cloetta's own indicator "Consumer complaints/returns". G4-EN2 has been replaced by the own indicator "Recycling of materials", since the volume of hazardous waste is immaterial. A new indicator is "Results of sustainability programmes for prioritized raw materials".

Contact for sustainability information Thomas Wiesgickl

Director Corporate Responsibility and Special Sales Telephone: +46 73 026 16 33 E-mail: thomas.wiesgickl@cloetta.se

GRI

Membership of organizations

Cloetta is active in a number of collaborative initiatives aimed at promoting more sustainable cultivation of raw materials and improving the conditions for growers in developing countries. The following collaborations are the most important.

Industry organisations

women and their communities.

• AIDI (Italian Confectionery Industry).
• Bord Bia, Irish Food Board, (Irish industry association).
• Chokofa is a Swedish industry association.

• Choprabisco, Belgium.

• DI (Danish Chocolate and Confectionery Industries).

• ETL (Finnish Food Industries' Federation).
• FFNLI (The Dutch Food Industry Federation).
• HSH (The Federation of Norwegian Commercial and Service Enterprises).
• IBC (Italian Branded Products Industry).
• ISA (International Sweeteners Association), Italy.
• VBZ (Association of the Dutch Bakery and Confectionery Industry), the Netherlands.

Auditor's Limited Assurance Report on Cloetta AB (publ) Sustainability Report

This is the translation of the auditor's report in Swedish.

To Cloetta AB (publ)

Introduction

We have been engaged by the executive management of Cloetta AB (publ) to undertake a limited assurance engagement of Cloetta's Sustainability Report for the year 2016. Cloetta has defined the scope of the Sustainability Report on the inside cover in the Annual and Sustainability Report 2016.

Responsibilities of the Board of Directors and the Executive Management for the Sustainability Report

The Board of Directors and the Executive Management are responsible for the preparation of the Sustainability Report in accordance with the applicable criteria, as explained on page 152 in the Annual and Sustainability Report 2016, that are the parts of the Sustainability Reporting Guidelines (published by The Global Reporting Initiative (GRI)) that are applicable to the Sustainability Report, as well as the accounting and calculation principles that the Company has developed. This responsibility also includes the internal control relevant to the preparation of a Sustainability Report that is free from material misstatements, whether due to fraud or error.

Responsibilities of the auditor

Our responsibility is to express a conclusion on the Sustainability Report based on the limited assurance procedures we have performed.

We conducted our limited assurance engagement in accordance with RevR 6 Assurance of Sustainability Reports issued by FAR. A limited assurance engagement consists of making inquiries, primarily of persons responsible for the preparation of the Sustainability Report, and applying analytical and other limited assurance procedures. The procedures performed in a limited assurance engagement vary in nature from, and are less in scope than for, a reasonable assurance engagement conducted in accordance with IAASB's Standards on Auditing and other generally accepted auditing standards. The firm applies ISQC 1 (International Standard on Quality Control) and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Consequently, the procedures performed do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in a reasonable assurance engagement. Accordingly, we do not express a reasonable assurance conclusion.

Our procedures are based on the criteria defined by the Board of Directors and the Executive Management as described above. We consider these criteria suitable for the preparation of the Sustainability Report.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion below.

Conclusion

Based on the limited assurance procedures we have performed, nothing has come to our attention that causes us to believe that the Sustainability Report is not prepared, in all material respects, in accordance with the criteria defined by the Board of Directors and Executive Management.

Stockholm, 8 March 2017

KPMG AB

Tomas Forslund Torbjörn Westman Authorized Public Accountant Expert Member of FAR

Shareholder information

Financial calendar JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2017 Interim report Q3 25 October 2017 Annual Report 9 March 2017 Interim report Q1 21 April 2017 Annual General Meeting in Stockholm 4 April 2017 Interim report Q2 14 July 2017

Shareholder contact

JACOB BROBERG, Senior Vice President Corporate Communications and Investor Relations, +46 70 190 00 33, jacob.broberg@cloetta.com or ir@cloetta.com DANKO MARAS, CFO, +46 76 627 69 46.

Annual General Meeting

The Annual General Meeting of Cloetta AB (publ) will be held on Tuesday, 4 April 2017, at 4:00 p.m., at Stockholm Waterfront Congress Centre in Stockholm.

The Notice of the Annual General Meeting was published on 28 February 2017 and is posted on www.cloetta.com.

Registration

Registration to participate in the AGM must be received by the company no later than Wednesday, 29 March 2017. MAIL: Cloetta AB

	"Annual General Meeting"
	Box 7841
	SE-103 98 Stockholm, Sweden
TELEPHON E:	+46 8 402 92 85
WEBSITE:	www.cloetta.com

To order the annual report

The annual report is published in Swedish and English. The printed annual report can be ordered via the website. It can also be downloaded from www.cloetta.com.

Cloetta's history filled with legendary brands

The Cloetta brothers

In 1862 the three Swiss Cloetta brothers, Bernard, Christoffer and Nutin Cloetta, founded the company "Brødrene Cloëtta" for manufacturing of chocolate and confectionery in Copenhagen, Denmark. The brothers later moved their manufacturing to Sweden and the company was owned by the Cloetta family until 1917, when the Svenfelt family took over the majority shareholding in Cloetta via the newly formed Svenska Chokladfabriks AB. The Svenfelt family has major ownership interests in Cloetta to this day.

1800s 1900–1910 1920 1930–1940 1950–1960 JUL 1970 1980 1990 2000 2010–

Cloetta's oldest brands date from the 1800s

In 1836 Sperlari is launched in Italy, and in 1878 Venco is launched in the Netherlands.

1900–1913, industrialization can be exploited

Electrification and railway construction accelerate the pace of industrialization, a critical enabler for businesses like the Swedish companies Ahlgrens and Cloetta, which are active in industrial production of confectionery. Läkerol is launched in 1909 and Guldnougat in 1913. Läkerol is also launched in Denmark in 1910 and Norway in 1912.

The roaring twenties

The confectionery industry grows after the war. The slogan "Choose right – choose Cloetta" is created in 1921. In the Netherlands, the pastille brand King is launched in 1922. In 1928 Sisu is launched in Finland, Red Band in the Netherlands and Tarragona in Sweden.

The 1930–40s, launch of strong brands

Malaco (Malmö Lakrits Compani) is founded in 1934 during the period between the two world wars. Sportlunch (then called Mellanmål) is launched in 1937, as was Saila in Italy. Kexchoklad is introduced in 1938 and Center in 1941. Plopp is launched after WWII in 1949.

1950–60s – an interest in the USA and cars

The chewing gum Jenkki (Yankee) was launched in Finland in 1951.

Ahlgrens bilar – the world's best-selling car, was launched in 1953 with Italian Bugatti as its inspiration.

In Italy, Galatine is launched in 1956 as a candy for children.

The double countline Tupla was launched in Finland in 1960. In Sweden, Polly was launched in 1965 and Bridgeblandning in 1966. Chewits were launched in the United Kingdom in 1965. The first marshmallow Santas were also sold in the 1960s.

Strong brands with long traditions

1970s – fresh and healthy In 1975, the world's first chewing gum with xylitol is launched by Jenkki in Finland. The Mynthon pastille is introduced in Finland in 1976. In 1977 Dietorelle launches sugar-free confectionery in Italy, and in 1979 the sweetener Dietor is launched in Italy. In Sweden, the mixed 1980s, more chewing gum In 1981 Sportlife is launched as the first chewing gum in "blister" packaging. In the Netherlands, the country's first chewing gum with 100 per cent xylitol, Xylifresh, is launched in 1988. 1990s – consolidation of the industry CSM, a Dutch sugar and food products company, acquires Red Band in 1986. Leaf acquires Ahlgrens (with Läkerol and Ahlgrens bilar) in 1993, CSM acquires Malaco in 1997, Cloetta acquires Candelia (with Polly and Bridgeblandning) in 1998 and CSM acquires Leaf in 1999. Cloetta's share is 2000s – new groups formed During the period from 2000 to 2009, Cloetta is part of the Cloetta Fazer group. After the demerger in 2009, the independent Cloetta is relisted on NASDAQ OM Stockholm. In 2000 CSM acquires Continental Sweets and thereby strengthens its position primarily in France and Belgium, but 2010s – Cloetta grows Cloetta and Leaf are merged in 2012. In 2014 Cloetta acquires Nutisal, a leading Swedish company that roasts and sells dry roasted nuts. In the same year Cloetta acquires The Jelly Bean Factory, which produces gourmet jellybeans with the main market in the UK. In 2015 Cloetta 1800s 1900–1910 1920 1930–1940 1950–1960 JUL 1970 1980 1990 2000 2010–

candy bag Gott&blandat is launched in response to the growing popularity of pick-and-mix.

listed on the Stockholm Stock Exchange in 1994.

also in the Netherlands and the UK. In 2001 CSM acquires Socalbe in Italy (with Dietorelle and Dietor). In 2005 CVC and Nordic Capital acquire CSM's confectionery division and changes its name to Leaf.

acquired Lonka, a Dutch company that produces and sells fudge, soft nougat and chocolate.

Cloetta, founded in 1862, is a leading confectionery company in the Nordic region, the Netherlands and Italy. In total, Cloetta products are sold in more than 50 countries worldwide. Cloetta owns some of the strongest brands on the market, such as Läkerol, Cloetta, Jenkki, Kexchoklad, Malaco, Sportlife, Saila, Red Band and Sperlari. Cloetta has 12 production units in six countries. Cloetta's class B shares are traded on Nasdaq Stockholm.

Cloetta AB (publ) • Corp. ID no. 556308-8144 • Kista Science Tower, SE-164 51 Kista, Sweden. Tel +46 8-52 72 88 00 • www.cloetta.com