Cloetta — Earnings Release 2016

Feb 1, 2017

Interim report, Q4, October – December 2016

Stockholm, 1 February 2017

• Net sales for the quarter increased by 3.8 per cent to SEK 1,684m (1,622), of which organic growth accounted for 1.0 per cent.
• Operating profit, adjusted, increased to SEK 258m (255). Operating profit/loss decreased to SEK –548m (239), mainly due to the earlier communicated impairment related to Cloetta Italy of SEK –771m.
• Cash flow from operating activities increased to SEK 406m (367).
• Net debt/EBITDA ratio was 2.44x (3.03).
• The Board proposes a dividend of SEK 0.75 (0.50) per share.

Key ratios

		Fourth quarter		Full year
SEKm	Oct–Dec 2016	Oct–Dec 2015	Change, %	2016	2015	Change, %
Net sales	1,684	1,622	3.81	5,852	5,674	3.11
Operating profit, adjusted	258	255	1.2	758	690	9.9
Operating profit margin, adjusted, %	15.3	15.7	–0.4-pts	13.0	12.2	0.8-pts
Operating profit/loss (EBIT)	–548	239	N/A	–82	671	N/A
Operating profit/loss margin (EBIT margin), %	–32,5	14.7	N/A	–1,4	11.8	N/A
Profit/loss before tax	–573	191	N/A	–256	493	N/A
Profit/loss for the period	–420	157	N/A	–191	386	N/A
Profit for the period excluding impact of impairment loss	174	157	10.8	403	386	4.4
Earnings per share, basic and diluted, SEK	–1.47	0.55	N/A	– 0.67	1.35	N/A
Earnings per share, basic and diluted excluding impact of impairment loss, SEK Net debt/EBITDA, x (Rolling 12 months)2	0.61 2.44	0.55 3.03	10.9 –19.5	1.41 2.44	1.35 3.03	4.4 –19.5
Cash flow from operating activities	406	367	10.6	889	927	–4.1

1) Organic growth at constant exchange rates and comparable units was 1.0 per cent for the quarter and 0.5 per cent for the year. See further under Net sales on page 3.

2) The definition of net debt/EBITDA has been adjusted per Q3 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.

Message from the CEO

Improved sales and operating profit adjusted, net debt/EBITDA below target and increased dividend

2016 was a good year for Cloetta. Sales were up 3.1 per cent, of which 0.5 per cent was organic growth. Operating profit, adjusted for items affecting comparability, improved and amounted to SEK 758m (690), equal to an operating profit margin, adjusted for items affecting comparability, of 13.0 per cent (12.2). Profit for the period, adjusted for impairment, was SEK 403m (386), which is equal to earnings per share of SEK 1.41 (1.35). Cash flow remained strong and has enabled us to exceed our financial target of a 2.5x net debt/EBITDA ratio and land at 2.44x. Thanks to this strong cash generation, the Board of Directors is proposing a 50 per cent increase in the dividend to SEK 0.75 per share (0.50).

Stable operating profit, adjusted

Cloetta's operating profit (EBIT) for the quarter, adjusted for items affecting comparability, increased to SEK 258m (255) and the operating margin, adjusted, was 15.3 per cent (15.7). The somewhat lower margin was mainly attributable to lower profitability in Italy.

Compared to the same quarter of last year, operating profit was significantly impacted by higher items affecting comparability, mainly the impairment related to Cloetta Italy, but also a lost court case related to the 2013 closure of the warehouse in Norrköping, Sweden, whereby Cloetta was forced to pay the rent retroactively. The closure of the factory in Dieren, the Netherlands, also had a negative effect on operating profit. Operating profit/loss therefore amounted to SEK –548m (239) and the profit/loss for the period was SEK –420m (157).

Strong cash flow

Cash flow from operating activities remained strong and amounted to SEK 406m (367) in the quarter. For the full year, cash flow from operating activities was SEK 889m (927), which means that the cash conversion improved compared to last year. The results for both the quarter and the full year once again demonstrate the strength of Cloetta's cash-generating ability.

Confectionery market

The confectionery market as a whole showed positive development in the Netherlands. In Sweden, Norway, Denmark, Finland and Italy, market development was negative or unchanged.

Increased organic sales

Cloetta's sales for the quarter rose by 3.8 per cent, of which organic growth accounted for 1.0 per cent and exchange rate differences accounted for 2.8 per cent.

Cloetta's sales in the quarter increased in Sweden, Denmark, the Netherlands and in export markets, but declined in Finland, Italy, Norway, Germany and the UK. The positive sales trend in Sweden

was driven by pick-and-mix and seasonal products and the Netherlands saw rising sales of chewing gum and sugar confectionery. Sales increase in Denmark was driven by sugar confectionery and pastilles. In Finland sales decreased substantially due to de-stocking in the trade prior to abolition of the confectionery tax in January 2017. Overall, the abolition of the confectionery tax should support organic growth in Finland during 2017. In Italy, Cloetta lowered its prices on the key seasonal products due to decreased prices for hazelnuts and almonds in order to recover lost volumes from 2015. Since the price decrease did not lead to a full recovery of lost volumes from 2015, sales and profit in Italy were down in the quarter.

Strategic review Cloetta Italy

As previously communicated we have decided to initiate a strategic review of Cloetta Italy. It's aimed at improving growth and margins in the Cloetta Group and could potentially include a divestment of the Italian business. A divestment of Cloetta Italy would improve Cloetta's EBIT margin. As a consequence of the strategic review and the performance of Cloetta Italy, we have impaired the Italian business.

Cloetta stands strong

I am proud of the fact that we have been able to deliver yet another record year for Cloetta and continue to build towards achieving our long-term financial objectives. This demonstrates that Cloetta is on the right path and stands strong.

Despite the challenging situation in Italy and a one-off decline in sales in Finland, we have succeeded in growing the business organically in the quarter. In addition to positive sales development, we have also been able to increase operating profit, adjusted and generate a strong cash flow. Furthermore, I am particularly happy that we were able to meet one of Cloetta's financial objectives during the quarter, after which our net debt/EBITDA ratio is now below our target of

2.5x. In summary, 2016 was a record year for Cloetta.

We are now preparing Cloetta for the next level. The strategic review of Cloetta Italy, the focus on growth and profit drivers, operational excellence in the supply chain and potential acquisitions will therefore be important focus areas in 2017.

Danko Maras Interim President and CEO

Danko Maras, Interim President and CEO

Financial overview

Cloetta [ Interim report, Q4 2016

Development in the fourth quarter

Net sales

Net sales for the fourth quarter increased by 62m to SEK 1,684m (1,622) compared to the same period of last year. Organic growth was 1.0 per cent and changes in exchange rates accounted for 2.8 per cent.

Cloetta's sales increased in Sweden, Denmark, the Netherlands and in export markets, but declined in Finland, Italy, Norway, Germany and the UK. The positive sales trend in Sweden was driven by pick & mix and seasonal products and the Netherlands saw increased sales of chewing gum and sugar confectionery. Sales increase in Denmark was driven by sugar confectionery and pastilles. In Finland, sales decreased substantially due to de-stocking in the trade prior to abolition of the confectionery tax in January 2017. In Italy, Cloetta significantly lowered prices on seasonal products due to decreased prices for hazelnuts and almonds in order to recover lost volumes from 2015. Since the price decrease did not lead to a full recovery of lost volumes from 2015, sales in Italy declined.

Changes in net sales, %	Oct–Dec 2016	2016
Organic growth	1.0	0.5
Structural changes	–	2.2
Changes in exchange rates	2.8	0.4
Total	3.8	3.1

Gross profit

Gross profit amounted to SEK 667m (631), which is equal to a gross margin of 39.6 per cent (38.9). The improvement in gross margin is mainly due to higher efficiency in the supply chain.

Operating profit/loss

Operating profit/loss was SEK –548m (239). 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 258m (255).

Items affecting comparability

Operating profit for the quarter includes items affecting comparability of SEK –806 (–16), of which the impairment of Cloetta Italy accounted for SEK –771m. The other costs are related to the closure of the factory in Dieren, the Netherlands, and a lost court case related to the 2013 closure of the warehouse in Norrköping, Sweden, whereby Cloetta has been forced to pay the rent retroactively.

Net financial items

Net financial items for the quarter amounted to SEK –25m (–48). Interest expenses related to external borrowings totalled SEK –11m (–26) and other financial items amounted to SEK –14m (–22). Of the total net financial items, SEK 1m (–13) is non-cash in nature. Net financial items were positively impacted as a result of the Group's reduction of net debt and the refinancing in July 2016.

Profit/loss for the period

Profit/loss for the period was SEK –420m (157), which is equal to basic and diluted earnings per share of SEK –1.47 (0.55). Profit for the period, excluding the impact of the impairment loss, was SEK 174m (157), which is equal to basic and diluted earnings per share of SEK 0.61 (0.55).

Income tax for the period was SEK 153m (–34). The effective tax rate for the quarter was 26.7 per cent (17.8) and the effective tax rate excluding the impact of the impairment loss for the quarter was 12.1 per cent (17.8).

Cash flow from operating and investing activities

Cash flow from operating activities before changes in working capital was SEK 324m (295). The increase compared to the prior year is mainly due to lower interest payments and lower corporate income tax payments. Cash flow from changes in working capital was SEK 82m (72). Cash flow from operating and investing activities was SEK 301m (319).

Cash flow from changes in working capital

Cash flow from changes in working capital follows a normal seasonal pattern and was SEK 82m (72). The cash flow from changes in working capital was positively impacted by the decrease in invento-

Financial overview

Cash flow from investing activities

Cash flow from investing activities was SEK –105m (–48). The settlement of the contingent earn-out consideration related to the acquisition of Alrifai Nutisal AB resulted in a cash outflow of SEK –48m in the fourth quarter. The cash flow from investments in property, plant and equipment and intangibles amounted to SEK –58m (–48). Other cash flows from investing activities amounted to SEK 1m (0).

Developments during the year

Net sales

Net sales for the year rose by SEK 178m to SEK 5,852m (5,674) compared to last year. Organic growth was 0.5 per cent, acquisitions accounted for 2.2 per cent and changes in exchange rates accounted for 0.4 per cent. Cloetta's sales were up or unchanged in Sweden, Finland, Norway, Denmark and in export markets, but declined in the Netherlands, Italy, Germany and the UK. Contract manufacturing also declined.

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 due to higher efficiency in the supply chain.

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 for the year includes items affecting comparability of SEK –840m (–19), of which the impairment of Cloetta Italy accounts for SEK -771m. The other costs are mainly related to the closure of the factory in Dieren, the Netherlands, remeasurement of contingent considerations and a lost court case related to the 2013 closure of the warehouse in Norrköping, Sweden, whereby Cloetta has been forced to pay the rent retroactively.

Net financial items

Net financial items for the year amounted to SEK –174m (–178). The net financial items were negatively impacted by a one-off cost of SEK –49m, of which SEK –19m is non-cash in nature, arising from the refinancing of the Group. 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 on third-party borrowings and realized losses on single currency interest rate swaps were positively impacted as a result of the Group's refinancing in July 2016. Of total net financial items, SEK –37m (–43) is non-cash in nature.

Profit/loss for the period

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

Cash flow from operating and investing 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 operating profit for non-cash items consisting mainly of changes in provisions of SEK 69m and depreciation and amortization of SEK 14m. Operating profit, excluding the impact of the impairment loss, improved by SEK 18m, which together with lower corporate income tax payments of SEK 10m had a further positive impact on cash flow from operating activities. Cash flow from changes in working capital was SEK 76m (230). Cash flow from operating and investing activities was SEK 567m (560).

Cash flow from changes in working capital

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

Operating profit, adjusted

Cash flow from operating activities

SEKm 500

Cash flow from 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 period. 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).

Acquisitions

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.

Financial position

Consolidated equity at 31 December 2016 amounted to SEK 4,199m (4,344), which is equal to SEK 14.5 (15.1) per share. Net debt at 31 December 2016 was SEK 2,443m (2,818).

Long-term borrowings totalled 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.

Total short-term borrowings amounted to SEK 2m (344) and consisted of accrued interest on loans from credit institutions and senior secured notes for an amount of SEK 2m (1), SEK 0m (360) in gross loans from credit institutions and SEK 0m (–17) in capitalized transaction costs.

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

Cash and cash equivalents at 31 December 2016, excluding unutilized overdraft facilities, amounted to SEK 298m (246). At 31 December 2016 Cloetta had unutilized credit facilities for a total of SEK 1,150m (699).

Other disclosures

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 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.

Employees

The average number of employees during the quarter was 2,526 (2,563). The decrease is mainly attributable to the closure of the Dieren factory, the Netherlands.

The Board's proposed dividend

For the financial year 2016 the Board proposes a dividend of SEK 0.75 per share (0.50), corresponding to around 53 per cent (37) of profit for the year excluding the impact of the impairment loss. Proposed date for the record is the 6 April 2017 and payment is expected to be made on 11 April 2017.

The ambition is to continue using future cash flows for payment of share dividends, while at the same time providing financial flexibility for complementary acquisitions. The long-term target to distribute 40–60 per cent of profit after tax continues to apply.

Annual General Meeting

The Annual General Meeting of Cloetta AB will be held on Tuesday, 4 April 2017, 4.00 p.m. at Stockholm Waterfront Congress Centre, Nils Ericsons Plan 4, in Stockholm. Notice of the AGM will be published in February 2017 and will also be available at www.cloetta. com.

Annual report

The annual report for the financial year 2016 will be published in March 2017 at www.cloetta.com.

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 in the Cloetta Group and could potentially include a 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 Italy Italia S.r.l. would improve Cloetta's EBIT margin.

Examples of new launches during the fourth quarter

Sweden Malaco Halloween Mix Juleskum Santa's Christmas porridge Juleskum in chocolate, box

The Netherlands Venco Tikkels Sweet Sour Droptoppers Sweet Fruity The Jelly Bean Factory Pop-a-Bean

Denmark Juleskum advent calendar Skipper's Pipes advent calendar Läkerol advent calendar

The Board of Directors hereby gives its assurance that the interim report provides 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, 1 February 2017 Cloetta AB (publ)

Lilian Fossum Biner Chairman

Lottie Knutson Member of the Board

Mikael Norman Member of the Board

Adriaan Nühn Member of the Board

Hans Porat Member of the Board

Camilla Svenfelt Member of the Board

Mikael Svenfelt Member of the Board

Lena Grönedal Employee Board member

Mikael Ström Employee Board member

Danko Maras President and CEO

The information in this interim report has not been reviewed by the company's auditors.

Financial statements in summary

Consolidated profit and loss account

	Fourth quarter		Full year
SEKm	Oct–Dec 2016	Oct–Dec 2015	2016	2015
Net sales	1,684	1,622	5,852	5,674
Cost of goods sold	–1,017	–991	–3,533	–3,463
Gross profit	667	631	2,319	2,211
Other income	–	–	–	0
Selling expenses	–247	–237	–955	–949
General and administrative expenses
- Impairment loss	–771	–	–771	–
- Other general and administrative expenses	–197	–155	–675	–591
Total general and administrative expenses	–968	–155	–1,446	–591
Operating profit/loss	–548	239	–82	671
Exchange differences borrowings and cash and cash equivalents in foreign currencies	–10	– 6	–8	–1
Other financial income	5	6	17	6
Other financial expenses	–20	–48	–183	–183
Net financial items	–25	–48	–174	–178
Profit/loss before tax	–573	191	–256	493
Income tax	153	–34	65	–107
Profit/loss for the period	–420	157	–191	386
Profit/loss for the period attributable to:
Owners of the Parent Company	–420	157	–191	386
Earnings per share, SEK
Basic	–1.47	0.55	– 0.67	1.35
Diluted1	–1.47	0.55	– 0.67	1.35
Number of shares at end of period	288,619,299	288,619,299	288,619,299	288,619,299
Average number of shares (basic)1	286,279,569	286,051,689	286,193,024	286,290,840
Average number of shares (diluted)1	286,560,336	286,359,672	286,447,465	286,561,607

1) Cloetta entered into forward contracts to repurchase own shares in order to fulfill its future obligation to deliver the shares to the participants in the long-term share-based incentive plan. The table on page 16 presents the movements in the contracts as of 1 January 2014.

Consolidated statement of comprehensive income

	Fourth quarter		Full year
SEKm	Oct–Dec 2016	Oct–Dec 2015	2016	2015
Profit/loss for the period	–420	157	–191	386
Other comprehensive income
Remeasurement of defined benefit pension plans	78	32	–17	127
Income tax on other comprehensive income that will not be reclassified subsequently to profit and loss for the period	–18	–7	4	–28
Items that will never be reclassified to profit or loss for the period	60	25	–13	99
Currency translation differences	–20	–121	225	–124
Hedge of a net investment in a foreign operation	17	26	–38	25
Income tax on other comprehensive income that will be reclassified subsequently to profit and loss for the period, when specific conditions
are met	–5	–5	7	–5
Items that are or may be reclassified to profit or loss for the period	–8	–100	194	–104
Total other comprehensive income	52	–75	181	–5
Total comprehensive income, net of tax	–368	82	–10	381
Total comprehensive income for the period attributable to:
Owners of the Parent Company	–368	82	–10	381

Net financial items

	Fourth quarter		Full year
SEKm	Oct–Dec 2016	Oct–Dec 2015	2016	2015
Exchange differences on borrowings and cash	–10	–6	–8	–1
Other financial income, third parties	0	1	1	1
Unrealized gains on single currency interest rate swaps	5	5	16	5
Other financial income	5	6	17	6
Interest expenses on third-party borrowings and realized losses on single currency interest rate swaps	–11	–26	–81	–120
Interest expenses, contingent earn-out liabilities	–	–2	–10	–13
Call option fee redemption senior secured notes	–	–	–30	–
Amortization of capitalized transaction costs	–1	–5	–34	–18
Unrealized losses on single currency interest rate swaps	–	–1	–	–
Other financial expenses	–8	–14	–28	–32
Other financial expenses	–20	–48	–183	–183
Net financial items	–25	–48	–174	–178

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

Condensed consolidated statement of changes in equity Full year

SEKm	2016	2015
Equity at beginning of period	4 344	4 048
Profit for the period	–191	386
Other comprehensive income	181	–5
Total comprehensive income	–10	381
Transactions with owners
Reversal of capital contribution	–	–84
New forward contract to repurchase own shares¹	–	–12
Share-based payments	9	11
Dividend	–144	–
Total transactions with owners	–135	–85
Equity at end of period	4,199	4 344

1) 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 of 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.

Condensed consolidated cash flow statement

		Fourth quarter	Full year
SEKm	Oct–Dec 2016	Oct–Dec 2015	2016	2015
Cash flow from operating activities before
changes in working capital	324	295	813	697
Cash flow from changes in working capital	82	72	76	230
Cash flow from operating activities	406	367	889	927
Cash flow from investments in property,
plant and equipment and intangible assets	–58	–48	–170	–161
Cash flow from other investing activities	–47	–	–152	–206
Cash flow from investing activities	–105	–48	–322	–367
Cash flow from operating
and investing activities	301	319	567	560
Cash flow from financing activities	–425	–211	–534	–518
Cash flow for the period	–124	108	33	42
Cash and cash equivalents at beginning of period	418	153	246	229
Cash flow for the period	–124	108	33	42
Foreign exchange difference	4	–15	19	–25
Cash and cash equivalents at end of period	298	246	298	246

Condensed consolidated key figures

		Fourth quarter	Full year
SEKm	Oct–Dec 2016	Oct–Dec 2015	2016	2015
Profit
Net sales	1,684	1,622	5,852	5,674
Net sales, change, %	3.8	2.7	3.1	6.8
Organic net sales, change, %	1.0	–2.3	0.5	1.5
Gross margin, %	39.6	38.9	39.6	39.0
Depreciation	– 61	–59	–239	–227
Amortization	–1	–1	– 6	–4
Impairment loss goodwill and trademarks	–771	–	–771	–
Impairment loss other non current assets	–7	–	–7	–
Operating profit, adjusted	258	255	758	690
Operating profit margin, adjusted, %	15.3	15.7	13.0	12.2
Operating profit/loss (EBIT)	–548	239	–82	671
Operating profit/loss margin (EBIT margin), %	–32.5	14.7	–1.4	11.8
EBITDA, adjusted	320	315	1,003	921
EBITDA	292	299	941	902
Profit/loss margin, %	–34.0	11.8	–4.4	8.7
Financial position
Working capital	572	628	572	628
Capital expenditure	58	47	170	161
Net debt	2,443	2,818	2,443	2,818
Capital employed	7,329	7,756	7,329	7,756
Return on capital employed, % (Rolling 12 months)	– 0.9	8.6	– 0.9	8.6
Equity/assets ratio, %	45.5	44.5	45.5	44.5
Net debt/equity ratio, %	58.2	64.9	58.2	64.9
Return on equity, % (Rolling 12 months)	–4.5	8.9	–4.5	8.9
Equity per share, SEK	14.5	15.1	14.5	15.1
Net debt/EBITDA, x (Rolling 12 months)1	2.44	3.03	2.44	3.03
Cash flow
Cash flow from operating activities	406	367	889	927
Cash flow from investing activities	–105	–48	–322	–367
Cash flow after investments	301	319	567	560
Cash conversion, %	81.9	85.1	83.1	82.5
Cash flow from operating activities per share, SEK	1.4	1.3	3.1	3.2
Employees
Average number of employees	2,526	2,563	2,530	2,583

1) The definition of net debt/EBITDA has been adjusted per Q3 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.

Reconciliation of alternative performance measures

	Fourth quarter		Full year
	Oct–Dec	Oct–Dec
SEKm	2016	2015	2016	2015
Items affecting comparability
Acquisitions, integration and factory restructurings	–35	–14	–49	–47
of which: impairment loss on other non-current assets	–7	–	–7	–
Remeasurements of contingent considerations	–	3	–17	33
Remeasurements of assets held for sale	–	–5	–3	–5
Impairment loss on goodwill and trademarks	–771	–	–771	–
Items affecting comparability¹	–806	–16	–840	–19
1) Corresponding line in the condensed consolidated profit and loss account:
Net sales	–	–	–	– 4
Cost of goods sold Selling expenses	– 8 –	–20 1	–23 –	–22 –12
General and administrative expenses
- Impairment loss - Other general and administrative expenses	–771 –27	– 3	–771 –46	– 19
Total general and administrative expenses	–798	3	– 817	19
Total	–806	–16	–840	–19
Operating profit, adjusted
Operating profit/loss	–548	239	–82	671
Minus: Items affecting comparability	–806	–16	–840	–19
Operating profit, adjusted	258	255	758	690
Net sales	1,684	1,622	5,852	5,674
Operating profit margin, adjusted, %	15.3	15.7	13.0	12.2
EBITDA, adjusted
Operating profit/loss	–548	239	–82	671
Minus: Depreciation	– 61	–59	–239	–227
Minus: Amortization	–1	–1	– 6	–4
Minus: Impairment loss on goodwill and trademarks	–771	–	–771	–
Minus: Impairment loss on other non-current assets	–7	–	–7	–
EBITDA	292	299	941	902
Minus: Items affecting comparability (excl. impairment loss on goodwill
and trademarks and other non-current assets)	–28	–16	– 62	–19
EBITDA, adjusted	320	315	1,003	921
Capital employed
Total assets	9,236	9,759	9,236	9,759
Minus: Deferred tax liability	586	621	586	621
Minus: Other non-current liabilities	–	43	–	43
Minus: Non-current provisions	22	10	22	10
Minus: Current provisions	64	57	64	57
Minus: Other current liabilities	1,235	1,271	1,235	1,271
Plus: Interest-bearing other current liabilities	–	–1	–	–1
Capital employed	7,329	7,756	7,329	7,756
Capital employed in comparative period of previous year	7,756	8,041	7,756	8,041
Average capital employed	7,543	7,899	7,543	7,899

Reconciliation alternative performance measures, continued

	Fourth quarter		Full year
	Oct–Dec	Oct–Dec
SEKm	2016	2015	2016	2015
Return on capital employed
Operating profit (rolling 12 months)	–82	671	–82	671
Financial income (rolling 12 months)	17	6	17	6
Operating profit plus financial income (rolling 12 months)	–65	677	–65	677
Average capital employed	7,543	7,899	7,543	7,899
Return on capital employed, %	–0,9	8,6	–0,9	8,6
Cash conversion
EBITDA, adjusted	320	315	1,003	921
Minus: Capital expenditures	58	47	170	161
EBITDA, adjusted less capital
expenditures	262	268	833	760
EBITDA, adjusted	320	315	1,003	921
Cash conversion, %	81.9	85.1	83.1	82.5
Changes in net sales
Net sales	1,684	1,622	5,852	5,674
Net sales in comparative period of previous year	1,622	1,579	5,674	5,313
Net sales, change	62	43	178	361
Minus: Structural changes	–	75	127	208
Minus: Changes in exchange rates	46	4	28	77
Organic growth	16	–36	23	76
Structural changes, %	–	4.8	2.2	3.9
Organic growth, %	1.0	–2.3	0.5	1.4
Profit for the period excluding impact of impairment loss
Profit/loss for the period	–420	157	–191	386
Minus: Impairment loss	–771	–	–771	–
Minus: Income tax impact on impairment loss	177	–	177	–
Profit for the period excluding impact of impairment loss	174	157	403	386
Average number of shares (basic)	286,279,569	286,051,689	286,193,024	286,290,840
Average number of shares (diluted)	286,560,336	286,359,672	286,447,465	286,561,607
Earnings per share, basic excluding impact of impairment loss, SEK	0.61	0.55	1.41	1.35
Earnings per share, diluted excluding impact of impairment loss, SEK	0.61	0.55	1.41	1.35

Cloetta [ Interim report, Q4 2016

Condensed consolidated quarterly data

SEKm	Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015	Q2 2015	Q1 2015	Q4 2014
Profit and loss account
Net sales	1,684	1,448	1,362	1,358	1,622	1,459	1,280	1,313	1,579
Cost of goods sold	–1,017	–874	–790	–852	–991	–894	–756	–822	–983
Gross profit	667	574	572	506	631	565	524	491	596
Other income	–	–	–	–	–	0	0	0	1
Selling expenses	–247	–227	–255	–226	–237	–228	–239	–245	–237
General and administrative expenses
- Impairment loss	–771	–	–	–	–	–	–	–	–
- Other general and administrative expenses	–197	–131	–175	–172	–155	–125	–155	–156	–98
Total general and
administrative expenses	–968	–131	–175	–172	–155	–125	–155	–156	–98
Operating profit/loss	–548	216	142	108	239	212	130	90	262
Exchange differences borrowings and cash and cash equivalents in foreign
currencies	–10	8	2	–8	– 6	–4	3	6	–14
Other financial income	5	5	5	2	6	0	0	0	0
Other financial expenses	–20	–84	–39	–40	–48	–39	–42	–54	–57
Net financial items	–25	–71	–32	–46	–48	–43	–39	–48	–71
Profit/loss before tax	–573	145	110	62	191	169	91	42	191
Income tax	153	–37	–33	–18	–34	–39	–25	–9	–33
Profit/loss for the period	–420	108	77	44	157	130	66	33	158
Profit/loss for the period attributable to:
Owners of the Parent Company	–420	108	77	44	157	130	66	33	158
KEY FIGURES
Profit
Depreciation and amortization	–840	– 63	– 61	–59	– 60	–59	–56	–56	–56
Operating profit, adjusted	258	224	150	126	255	194	133	108	257
EBITDA, adjusted	320	287	211	185	315	253	189	164	313
EBITDA	292	279	203	167	299	271	186	146	318
Operating profit margin, adjusted, %	15.3	15.5	11.0	9.3	15.7	13.3	10.4	8.2	16.3
Operating profit margin (EBIT margin), %	–32.5	14.9	10.4	8.0	14.7	14.5	10.2	6.9	16.6
Earnings per share, SEK
Basic	–1.47	0.38	0.27	0.15	0.55	0.45	0.23	0.12	0.55
Diluted1	–1.47	0.38	0.27	0.15	0.55	0.45	0.23	0.12	0.55
Financial position
Share price, last paid, SEK	28.70	31.10	29.00	25.80	28.00	23.90	25.10	25.30	22.60
Return on equity, % (rolling 12 months)	–4.5	8.5	9.3	9.0	8.9	8.9	8.4	7.1	6.0
Equity per share, SEK	14.5	15.8	15.2	15.2	15.1	15.0	14.3	13.9	14.0
Net debt/EBITDA, x (rolling 12 months)2	2.44	2.76	2.82	2.78	3.03	3.39	3.30	3.60	3.97
Cash flow
Cash flow from operating activities per share, SEK	1.4	0.4	0.4	0.9	1.3	0.6	0.6	0.8	1.0

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 sharebased incentive plan. The table on page 16 presents the movements in the contracts as of 1 January 2014.

2 The definition of net debt/EBITDA has been adjusted per Q3 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.

Movements in forward contracts to repurchase own shares

		Number of shares
Transaction	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)	18 May 2016	–227,880	–	–	–
Roll-forward to new forward contract to repurchase 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

Cloetta [ Interim report, Q4 2016

Reconciliation of alternative performance measures by quarter

SEKm	Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015	Q2 2015	Q1 2015	Q4 2014
Items affecting comparability
Acquisitions, integration and factory restructurings	–35	–8	–5	–1	–14	–10	–5	–18	–22
of which: impairment loss on other non-current assets	–7	–	–	–	–	–	–	–	–
Remeasurements of contingent considerations	–	–	–3	–14	3	28	2	–	27
Remeasurements of assets held for sale	–	–	–	–3	–5	–	–	–	–
Impairment loss	–771	–	–	–	–	–	–	–	–
Items affecting comparability¹	–806	–8	–8	–18	–16	18	–3	–18	5
1) Corresponding line in the condensed consolidated profit and loss account:
Net sales	–	–	–	–	–	–	–	– 4	–
Cost of goods sold	– 8	– 6	– 5	– 4	–20	–	–	–2	– 8
Other operating income Selling expenses	– –	– –	– –	– –	– 1	– –2	– –	– –11	– – 5
General and administrative expenses
- Impairment loss - Other general and	–771	–	–	–	–	–	–	–	–
administrative expenses	–27	–2	–3	–14	3	20	–3	–1	18
Total general and administrative expenses	–798	–2	–3	–14	3	20	–3	–1	18
Total	–806	–8	–8	–18	–16	18	–3	–18	5
Operating profit, adjusted
Operating profit/loss	–548	216	142	108	239	212	130	90	262
Minus: Items affecting comparability	–806	–8	–8	–18	–16	18	–3	–18	5
Operating profit, adjusted	258	224	150	126	255	194	133	108	257
Net sales	1,684	1,448	1,362	1,358	1,622	1,459	1,280	1,313	1,579
Operating profit margin, adjusted, %	15.3	15.5	11.0	9.3	15.7	13.3	10.4	8.2	16.3
EBITDA, adjusted
Operating profit/loss	–548	216	142	108	239	212	130	90	262
Minus: Depreciation	– 61	– 61	–59	–58	–59	–58	–55	–55	–55
Minus: Amortization	–1	–2	–2	–1	–1	–1	–1	–1	–1
Minus: Impairment loss on goodwill and trademarks	–771	–	–	–	–	–	–	–	–
Minus: Impairment loss on
other non-current assets	–7	–	–	–	–	–	–	–	–
EBITDA	292	279	203	167	299	271	186	146	318
Minus: Items affecting comparability (excl. impairment loss on goodwill and trademarks
and other non-current assets)	–28	–8	–8	–18	–16	18	–3	–18	5
EBITDA, adjusted	320	287	211	185	315	253	189	164	313

Financial statements in summary

Reconciliation alternative performance measures per quarter, continued

SEKm	Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015	Q2 2015	Q1 2015	Q4 2014
Capital employed
Total assets	9,236	10,286	9,855	9,854	9,759	10,062	9,592	9,642	9,962
Minus: Deferred tax liability	586	680	647	618	621	606	508	474	483
Minus: Other non-current liabilities	–	–	–	–	43	43	88	86	147
Minus: Non-current provisions	22	10	9	9	10	11	11	14	16
Minus: Current provisions	64	7	14	37	57	12	10	51	65
Minus: Other current liabilities	1,235	1,383	1,438	1,420	1,271	1,349	1,218	1,228	1,210
Plus: Interest-bearing
other current liabilities	–	–	–	–	–1	–1	–1	1	–
Capital employed	7,329	8,206	7,747	7,770	7,756	8,040	7,756	7,790	8,041
Capital employed in comparative
period of previous year	7,756	8,040	7,756	7,790	8,041	7,860	7,830	7,537	7,438
Average capital employed	7,543	8,123	7,752	7,780	7,899	7,950	7,793	7,664	7,740
Return on capital employed
Operating profit (rolling 12 months)	–82	705	701	689	671	694	660	615	577
Financial income
(rolling 12 months)	17	18	13	8	6	0	1	3	4
Operating profit plus financial income (rolling 12 months)	–65	723	714	697	677	694	661	618	581
Average capital employed	7,543	8,123	7,752	7,780	7,899	7,950	7,793	7,664	7,740
Return on capital employed, %	–0,9	8.9	9.2	9.0	8.6	8.7	8.5	8.1	7.5
Cash conversion
EBITDA, adjusted	320	287	211	185	315	253	189	164	313
Minus: Capital expenditures	58	42	32	38	47	31	28	55	62
EBITDA, adjusted less capital
expenditures	262	245	179	147	268	222	161	109	251
EBITDA, adjusted	320	287	211	185	315	253	189	164	313
Cash conversion, %	81.9	85.4	84.8	79.5	85.1	87.7	85.2	66.5	80.2
Changes in net sales
Net sales	1,684	1,448	1,362	1,358	1,622	1,459	1,280	1,313	1,579
Net sales in comparative period of previous year	1,622	1,459	1,280	1,313	1,579	1,303	1,238	1,193	1,441
Net sales, change	62	–11	82	45	43	156	42	120	138
Minus: Structural changes	–	–	63	64	75	86	15	32	69
Minus: Changes in exchange rates	46	–1	–7	–10	4	15	17	40	45
Organic growth	16	–10	26	–9	–36	55	10	48	24
Structural changes, %	–	–	4.9	4.9	4.7	6.6	1.2	2.7	4.8
Organic growth, %	1.0	– 0.7	2.0	– 0.7	–2.3	4.2	0.8	4.0	1.7
Profit for the period excluding impact of impairment loss
Profit/loss for the period	–420	108	77	44	157	130	66	33	158
Minus: Impairment loss	–771	–	–	–	–	–	–	–	–
Minus: Income tax impact on
impairment loss	177	–	–	–	–	–	–	–	–
Profit for the period excluding
impact of impairment loss	174	108	77	44	157	130	66	33	158
Average number of shares (basic)		286,279,569 286,279,569 286,159,369 286,051,689 286,051,689					286,154,515 286,481,689 286,481,689 286,481,689
Average number of shares
(diluted)		286,560,336 286,558,440 286,471,820 286,404,267 286,359,672 286,408,540 286,810,369 286,685,221 286,622,223
Earnings per share, basic exclud
ing impact of impairment loss,
SEK	0.61	0.38	0.27	0.15	0.55	0.45	0.23	0.12	0.55
Earnings per share, diluted
excluding impact of impairment loss, SEK	0.61	0.38	0.27	0.15	0.55	0.45	0.23	0.12	0.55

Parent Company

Condensed parent company profit and loss account

	Fourth quarter		Full year
SEKm	Oct–Dec 2016	Oct–Dec 2015	2016	2015
Net sales	27	23	100	88
Gross profit	27	23	100	88
Administrative expenses	–32	–26	–122	–113
Operating loss	–5	–3	–22	–25
Net financial items	89	52	35	27
Profit before tax	84	49	13	2
Income tax	–19	–10	–3	0
Profit for the period	65	39	10	2

Profit for the period corresponds to comprehensive income for the period.

Condensed parent company balance sheet

31 Dec 2016	31 Dec 2015
5,329	5,307
117	90
5,446	5,397
4,093	4,218
1,131	1,122
0	3
1	1
1,132	1,126
4	14
217	39
221	53
5,446	5,397

Condensed parent company statement of changes in equity

	Full year
SEKm	2016	2015
Equity at beginning of period	4,218	4,205
Profit or loss for the period	10	2
Total comprehensive income	10	2
Transactions with owners
Share-based payments	9	11
Dividend	–144	–
Total transactions with owners	–135	11
Equity at end of period	4,093	4,218

Accounting and valuation policies, disclosures and risk factors

Accounting and valuation policies

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. 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. The consolidated interim report is presented compliant with IAS 34, Interim Financial Reporting, and in compliance with the relevant provisions in the Swedish Annual Accounts Act and the Swedish Securities Market Act. The interim report for the Parent Company has been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Securities Market Act, which are consistent with the provisions in recommendation RFR 2, Accounting for Legal Entities.

Basis of accounting

The same accounting policies and methods of computation are applied in the interim financial statements as in the most recent annual financial statements, except for amendments to standards that are effective for annual periods beginning on 1 January 2016 that have not already been applied in preparing the 2015 consolidated financial statements. Reference is made to Note 34 'Changes in accounting policies' in the annual report for 2015.

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 any 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. Currently the Group is 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 the 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' was published in January 2016 and supersedes IAS 17 'Leases'. Application of the standard is mandatory 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 primarily affect 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. The Group is currently 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.

Disclosures

Parent Company

Cloetta AB's primary activities include head office functions such as group-wide management and administration. The comments below refer to the period from 1 January to 31 December 2016. Net sales in the Parent Company amounted to SEK 100m (88) and referred mainly to intra-group services. Operating loss was SEK –22m (–25). Net financial items totaled SEK 35m (27). Profit before tax was SEK 13m (2) and profit after tax was SEK 10m (2). Cash and cash equivalents and short-term investments amounted to SEK 0m (0).

The Cloetta share

Cloetta's class B share is listed on Nasdaq Stockholm, Mid Cap. During the period from 1 January to 31 December 2016, a total of 155,088,223 shares were traded for a combined value of SEK 4,346m, equal to around 56 per cent of the total number of class B shares at the end of the period. The highest quoted bid price during the period from 1 January to 31 December 2016 was SEK 33.30 (14 October) and the lowest was SEK 24.10 (18 February). The share price on 31 December 2016 was SEK 28.70 (last price paid).

During the period from 1 January to 31 December 2016, the Cloetta share increased by 3 per cent while the Nasdaq OMX Stockholm PI index increased by 6 per cent. Cloetta's share capital at 31 December 2016 amounted to 1,443,096,495. The total number of shares is 288,619,299, consisting of 9,861,614 class A shares and 278,757,685 class B shares, equal to a quota value of SEK 5 per share.

Shareholders

On 31 December 2016 Cloetta AB had 16,236 shareholders. The largest shareholder was AB Malfors Promotor with a holding corresponding to 42.3 per cent of the votes and 24.6 per cent of the share capital in the company. Threadneedle (Ameriprise Financial Inc.) was the second largest shareholder with 4.4 per cent of the votes and 5.8 per cent of the share capital. 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. Institutional investors held 91.2 per cent of the votes and 88.6 per cent of the share capital. Foreign shareholders held 38.8 per cent of the votes and 50.7 per cent of the share capital.

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 (interim) 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, have been included in these interim financial statements.

The APMs presented in these interim financial statements should not be considered as a substitute for measures of performance in accordance with IFRS and may not be comparable to similarly titled measures by other companies.

Impairment 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 of trademarks and for the group of CGUs South in respect of goodwill. As a result of this 31 December 2016 impairment assessment, the company recorded an impairment loss on trademarks and goodwill of SEK 771m related to the CGU Italy and group of CGUs South. 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 a negative trend in the 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.

At 31 December 2016, the recoverable amount of the entire group of CGUs South being the commercial organizations for the Italian , UK and Italian export business excluding the Italian supply chain business, was SEK 415m. 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. South's cash flows beyond the three-year period have been extrapolated using a 1.5 per cent 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 economic development.

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 acquisition of Alrifai Nutisal AB (currently known as Cloetta Nutisal AB) and the contingent consideration arising from the option agreement for Aran Candy Ltd. initially categorized at level 3, as well as assets held for sale, in cases where the fair value less cost of disposal is below the carrying amount. On 4 July 2016 the contingent consideration arising from the option agreement for Aran Candy Ltd. was settled. On 4 October 2016 the contingent earn-out consideration of Alrifai Nutisal AB was settled.

The fair values of 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 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 were measured at fair value at 31 December 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

The assets measured at fair value less cost of disposal at 31 December 2016 consisted of the land and building in Zola Predosa, Italy. The assets measured at fair value are recognized in the 'assets held for sale' and 'derivative financial instruments' in the condensed consolidated balance sheet. The liabilities measured at fair value are recognized in the 'derivative financial instruments' in the condensed consolidated balance sheet.

The following table presents the Group's assets and liabilities that were measured at fair value at 31 December 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 consideration	–	–	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 2015 consisted of the land and building in Zola Predosa, Italy.

The assets measured at fair value are recognized in the 'assets held for sale' and 'derivative financial instruments' in the condensed consolidated balance sheet. The liabilities measured at fair value are recognized in the 'other non-current liabilities', 'derivative financial instruments' and 'other current liabilities' in the condensed consolidated balance sheet.

Movements in financial instruments categorized at level 3 of the fair value hierarchy can be specified as follows

SEKm	2016	2015
Opening balance	125	147
Remeasurements recognized in profit and loss
- Unrealized remeasurements on contingent considerations recognized in general and administrative expenses	17	–33
- Unrealized interest on contingent considera
tions recognized in other financial expenses	10	12
Remeasurements recognized in other comprehensive income
- Unrealized currency translation differences	2	–1
Settlements
- Settlement via balance sheet	–154	–
Closing balance	–	125

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, resulting in a transfer from fair value hierarchy level 3 to 2 in the third quarter. No other transfers between fair value hierarchy levels have occured during the current financial year or prior financial year.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is deter-

Accounting and valuation policies, disclosures and risk factors

mined 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 at level 2. The valuation of the instruments is based on quoted market prices, but the underlying swap amounts are based on the specific requirements of the Group. These instruments are therefore included at level 2. The fair value measurement of the contingent (earn-out) considerations requires the use of significant unobservable inputs and were therefore 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 rates.
• The fair value of the assets held for sale is based on valuations by external independent valuators.
• Other techniques, such as discounted cash flow analysis, are used to determine the fair value of the remaining financial instruments.

The fixed 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 in cases where the fair value less cost of disposal is below the carrying amount. The contingent (earnout) considerations were measured at fair value using a scenario model with an earn-out threshold, different results and related changes, and an applicable multiplier as input. These data was aligned with the earn-out contracts.

The inter-relationship between significant unobservable inputs and fair value measurement are:

• The estimated fair value of the contingent earn-out consideration would increase (decrease) if:
• –the forecasted profit before indirect costs for 2016 were higher (lower).
• The estimated fair value of the contingent consideration arising from option agreements would increase (decrease) if:
• –the working capital at 31 December 2015 was higher (lower),
• –the cash balance at 31 December 2015 was higher (lower),
• –the adjusted gross profit for 2015 was higher (lower).

For detailed information about the accounting policies, see Cloetta's annual report for 2015 at www.cloetta.com.

Taxes

The net effect of international tax rate differences, changes in filing positions and non-deductible expenses impacted the effective tax rate of the Group unfavourably. Cloetta's deferred tax balances have been calculated according to the enacted or substantially enacted tax rates.

Risk factors

Cloetta is an internationally active company that is exposed to a number of market and financial risks. All identified risks are monitored continuously and, if needed, risk mitigating measures are taken to limit their impact. The most relevant risk factors are described in the annual report for 2015 and consist of industry- and market-related risks, operational risks and financial risks. Compared to the annual report for 2015, which was issued on 10 March 2016, the financial risk exposure minimized significantly for the impairment of goodwill and trademarks in Italy.

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 comparability, as a percentage of net sales.	Operating profit margin, adjusted excludes the impact of items 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 com pared across locations where corporate taxes differ.
Return	Definition/calculation	Purpose
Cash conversion	Operating profit, adjusted for items affecting com parability, before depreciation and amortization less capital expenditures as a percentage of operating profit, adjusted for items affecting 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 with out damaging the business, except for cash flows related to interest and tax.
Return on capital employed	Operating profit plus financial income as a per centage 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 previ ous year divided by two.	Return on capital employed is used to analyze 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 facilities, 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 com pany'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.

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Data per share	Definition/calculation	Purpose
Cash flow from operating activities 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 gener ates per share from the revenues it brings in irrespec tive 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 company is increasing shareholder value over time.
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

Pick-and-mix concept Cloetta's range of candy and natural snacks that are picked by the consumers themselves.

Exchange rates

	31 Dec 2016	31 Dec 2015
EUR, average	9.4700	9.3445
EUR, end of period	9.5804	9.1679
NOK, average	1.0200	1.0432
NOK, end of period	1.0548	0.9563
GBP, average	11.5480	12.8736
GBP, end of period	11.1673	12.4835
DKK, average	1.2721	1.2529
DKK, end of period	1.2888	1.2287

Financial calendar

Contacts

Jacob Broberg, Senior Vice President Corporate Communications and Investor Relations, +46 70-190 00 33 Danko Maras, Interim Chief Executive Officer/Chief Financial Officer, +46 8 527 288 00

This information is information that Cloetta AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 8:00 a.m. CET on 1 February 2017.

Vision

To be the most admired satisfier of Munchy Moments

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

Business model

Cloetta's business model is to offer strong local brands in Munchy Moments and provide effective sales and distribution to the retail trade. Together, this will ensure continued positive development of the company's leading market positions.

Long-term financial targets

• Cloetta's target is to increase organic sales at least in line with market growth.
• Cloetta's target is an EBIT margin, adjusted for items affecting comparability, of at least 14 per cent.
• Cloetta's long-term target is a net debt/EBITDA ratio of around 2.5x.
• Cloetta's long-term intention is a dividend payout of 40–60 per cent of profit after tax.

Strategies

• Focus on margin expansion and volume growth.
• Focus on cost-efficiency.
• Focus on employee development.

Value drivers

• Strong brands and market positions in a non-cyclical market.
• Excellent availability in the retail trade with the help of a strong and effective sales and distribution organization.
• Good consumer knowledge and loyalty.
• Innovative product and packaging development.
• Effective production with high and consistent quality.

About Cloetta

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

More information about Cloetta is available at www.cloetta.com