Cloetta — Interim / Quarterly Report 2019

Oct 25, 2019

Interim report Q3, July – September 2019

Stockholm, 25 October 2019

• Net sales for the quarter increased by 5.9 per cent to SEK 1,629m (1,538) including a positive impact from foreign exchange rates of 1.6 per cent.
• Operating profit1 amounted to SEK 195m (180). Profit for the period amounted to SEK 130m (132). Operating profit, adjusted for items affecting comparability, amounted to SEK 200m (194).
• Cash flow1 from operating activities amounted to SEK 255m (250).
• Net debt/EBITDA ratio1 was 2.5x (2.5).

Key ratios

	Third quarter			9 months			Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Change, %	Jan–Sep 2019	Jan–Sep 2018	Change, %	Oct 2018– Sep 2019	2018
Net sales	1,629	1,538	5.9²	4,771	4,572	4.4²	6,417	6,218
Operating profit, adjusted1	200	194	3.1	527	503	4.8	701	677
Operating profit margin, adjusted, %1	12.3	12.6	–0.3-pts	11.0	11.0	0.0-pts	10.9	10.9
Operating profit (EBIT)1	195	180	8.3	518	501	3.4	677	660
Operating profit margin (EBIT margin), %1	12.0	11.7	0.3-pts	10.9	11.0	– 0.1-pts	10.6	10.6
Profit before tax	175	167	4.8	435	419	3.8	578	562
Profit for the period	130	132	–1.5	326	324	0.6	485	483
Earnings per share, basic, SEK	0.45	0.46	–2.2	1.14	1.13	0.9	1.69	1.69
Earnings per share, diluted, SEK	0.45	0.46	–2.2	1.14	1.13	0.9	1.69	1.68
Net debt/EBITDA, x (Rolling 12 months)1	2.5	2.5	0.0	2.5	2.5	0.0	2.5	2.3
Free cash flow1	199	206	–3.4	269	204	31.9	509	444
Cash flow from operating activities1	255	250	2.0	406	340	19.4	694	628

1 This metric has been affected by IFRS16 'Leases' as of 1 January 2019. Comparative figures are not restated. See pages 24–25 for indicative key figures excluding the impact of IFRS 16.

2 Organic growth at constant exchange rates and comparable units was 4.3 per cent for the quarter and 2.2 per cent for the first three quarters of the year. See further under Net sales on page 4.

Overview

– a leading confectionery company in Northern Europe

Words from the President

Financial overview

Financial statements

Disclosures

Definitions

Contact

Overview

Strong organic growth, increased marketing investments and stable EBIT

Cloetta continues to grow organically, driven by strong pick & mix and branded packaged growth, supported by increased marketing investments.

Confectionery market during the quarter

The packaged confectionery market increased in all markets. No complete market statistics are available for pick & mix, but according to our own estimates, all pick & mix markets also grew during the quarter.

Sales development

Sales for the quarter increased by 5.9 per cent, of which organic growth accounted for 4.3 per cent and exchange rate differences for 1.6 per cent.

Branded packaged products

Sales of branded packaged products grew by 3.6 per cent. Sales increased in Sweden, Denmark, Finland, the Netherlands, Germany and in International Markets. Sales declined in Norway and the UK. Growth was driven by fewer but bigger campaigns and was particularly strong in candy and chocolate. Cloetta increased investments in marketing in absolute terms during the quarter, while also continuing to improve the share of total spend that is visible to consumers. Cloetta gained market shares in 3 out of 16 categories in our core markets in the quarter, however, in the last twelve months Cloetta gained market shares in 15 out of 16 categories.

Pick & mix

Pick & mix sales increased by 6.4 per cent. Sales increased in Sweden, Denmark, Norway and Finland, but declined in the UK. Sales were particularly strong in Denmark and Norway.

Operating profit

Operating profit, adjusted for items affecting comparability, amounted to SEK 200m (194) and the operating profit margin, adjusted for items affecting comparability, was 12.3 per cent (12.6). Operating profit amounted to

SEK 195m (180). Operating profit improved due to growth in branded packaged products and cost efficiency, partly offset by higher marketing investments.

Cash flow and net debt/EBITDA

Cash flow from operating activities amounted to SEK 255m (250). During the first nine months of the year, cash flow from operating activities amounted to SEK 406m (340). The net debt/EBITDA ratio was 2.5 (2.5).

Strategy on the right track

We have now been able to demonstrate seven consecutive quarters of branded packaged growth. This has been achieved through a focus on the core business, fewer but bigger innovations and increased and more effective marketing investments. This growth trend is an important building block in our strategy to reach our financial targets.

After having had a decline in sales in pick & mix in 2017–2018 and the first quarter of this year, we have now seen two quarters of growth in pick & mix. In Sweden, we are progressing in our plan to turn around our loss-making business. Price increases have been implemented in quarter three on contracts representing half of the volumes, and renegotiations for the remaining contracts will start during the fourth quarter. Assortment optimizations will be complete by year end and activities to increase merchandising efficiency and to reduce cost for warehousing/ distribution have been initiated for 2020 implementation. In the other key markets, we continue to focus on sustainable profitable growth. We are on track to create a more unique offering and to position pick & mix to compete better for shopper preference.

We are pleased with the topline growth, but we do not see the same improvement in gross profit, since our supply chain network is stretching itself to cope with the increased demand. Our multi-year "Perfect Factory" program will create greater efficiency and less waste per unit in our factories, thereby both decreasing cost and increasing capacity. In the meantime, we are increasing capacity by extending operating hours. One example is Ljungsbro where an additional shift will allow us to meet increasing demand for foam products, such as seasonal "Juleskum".

In addition, the drying capacity investments previously announced are progressing according to schedule, and we have a new five-year capacity investment plan to improve service levels and enable further growth.

I am particularly satisfied with the fact that we continue to grow in both branded packaged products and pick & mix. I am also pleased to see that we are making progress in the turnaround of our loss-making pick & mix business in Sweden and with the Value Improvement Program Plus that will decrease indirect spend, enable more investment in our brands and increase profit. This demonstrates that we are on the right track with our strategy.

Henri de Sauvage-Nolting President and CEO

Financial overview

Third quarter development

Net sales

Net sales for the third quarter increased by SEK 91m to SEK 1,629m (1,538) compared to the same period of last year. Organic growth was 4.3 per cent and changes in exchange rates 1.6 per cent.

Changes in net sales, %	Jul–Sep 2019	Jan–Sep 2019
Organic growth	4.3	2.2
Changes in exchange rates	1.6	2.2
Total	5.9	4.4

Gross profit

Gross profit amounted to SEK 587m (559), which equates to a gross margin of 36.0 per cent (36.3). The gross margin is impacted by negative FX effect and higher share of pick & mix.

Operating profit

Operating profit amounted to SEK 195m (180). Operating profit, adjusted for items affecting comparability, amounted to SEK 200m (194). The improvement in operating profit, adjusted, is driven by strong sales growth, partly offset by increased marketing investments.

Items affecting comparability

Operating profit for the third quarter includes items affecting comparability of SEK –5m (–14) that mainly are related to costs for the integration of Candyking.

Net financial items

Net financial items for the quarter amounted to SEK –20m (–13). Interest expenses related to external borrowings were SEK –8m (–8), exchange differences on cash and cash equivalents were SEK –8m (5) which mainly related to the development of the Swedish krona against the euro during the quarter. Other financial items amounted to

SEK –4m (–10). Of the total net financial items SEK –7m (13) is noncash in nature.

Profit for the period

Profit for the period was SEK 130m (132), which equates to basic and diluted earnings per share of SEK 0.45 (0.46).

Income tax for the period was SEK –45m (–35). The effective tax rate for the quarter was 25.7 per cent (21.0).

Free cash flow

The free cash flow was SEK 199m (206). Cash flow from operating activities before changes in working capital was SEK 249m (226). The increase compared to prior year is mainly the result of a higher EBITDA including the impact of IFRS 16 'Leases'. The cash flow from changes in working capital was SEK 6m (24). The cash flow from investments in property, plant and equipment and intangible assets was SEK –56m (–44).

Cash flow from changes in working capital

Cash flow from changes in working capital was SEK 6m (24). The cash flow from changes in working capital was positively impacted by the decrease in inventories of SEK 11m (43) and an increase in payables amounting to SEK 76m (18) which were partly offset by the increase in receivables for an amount of SEK –81m (–37).

Cash flow from other investing activities

Cash flow from other investing activities was SEK 0m (0).

Cash flow from financing activities

Cash flow from financing activities was SEK –68m (–4). The cash flow from financing activities was related to net repayments of commercial papers of SEK –49m (0), and payments of lease liabilities related to IFRS 16 'Leases' of SEK –18m (0). The other cash flow from financing activities amounted to SEK –1m (–4).

Free cash flow

Operating profit (EBIT), adjusted

Disclosures

Development during the year

Net sales

Net sales for the first three quarters of the year increased by SEK 199m to SEK 4,771m (4,572) compared to the same period of last year. Organic growth was 2.2 per cent and changes in exchange rates 2.2 per cent.

Gross profit

Gross profit amounted to SEK 1,732m (1,678), which equates to a gross margin of 36.3 per cent (36.7).

Operating profit

Operating profit amounted to SEK 518m (501). Operating profit, adjusted for items affecting comparability, amounted to SEK 527m (503). The improvement in operating profit, adjusted, is driven by sales growth and cost savings, partly offset by increased marketing investments.

Items affecting comparability

Operating profit for the first three quarters of the year includes items affecting comparability of SEK –9m (–2) that mainly are related to costs for the integration of Candyking.

Net financial items

Net financial items for the first three quarters of the year amounted to SEK –83m (–82). Interest expenses related to external borrowings were SEK –23m (–24), exchange differences on cash and cash equivalents were SEK –32m (–20) which mainly related to the development of the Swedish krona against the euro. Other financial items amounted to SEK –28m (–38). Of the total net financial items SEK –56m (–51) is non-cash in nature.

Profit for the period

Profit for the period was SEK 326m (324), which equates to basic and diluted earnings per share of SEK 1.14 (1.13).

Income tax for the period was SEK –109m (–95). The effective tax rate for the first three quarters of the year was 25.1 per cent (22.7).

Free cash flow

The free cash flow was SEK 269m (204). Cash flow from operating activities before changes in working capital was SEK 654m (581). The increase compared to prior year is mainly the result of a higher EBITDA including the impact of IFRS 16 'Leases'. The cash flow from changes in working capital was SEK –248m (–241). The cash flow from investments in property, plant and equipment and intangible assets was SEK –137m (–136).

Cash flow from changes in working capital

Cash flow from changes in working capital was SEK –248m (–241). The cash flow from changes in working capital was negatively impacted by the increase in receivables amounting to SEK –221m (–122), and an increase in inventories of SEK –116m (–25) which were partly offset by the increase in payables for an amount of SEK 89m (–94).

Cash flow from investing activities

Cash flow from other investing activities was SEK –144m (0). In the first quarter of 2019 an amount of SEK -146m was related to settlement of the contingent earn-out consideration arising from the acquisition of Candyking Holding AB and its subsidiaries.

Cash flow from financing activities

Cash flow from financing activities was SEK -344m (-665). The cash flow from financing activities was related to the dividend distribution of SEK –287m (–433), payments of lease liabilities related to IFRS 16 'Leases' of SEK –56m (0) and other cash flow from financing activities of SEK –1m (–232). In 2018 the other cash flows from financing activities mainly related to net repayments on borrowings of SEK –219m as a result of the amendment and extension of the facilities agreement.

Financial position

Consolidated equity at 30 September 2019 amounted to SEK 4,102m (3,848), which equates to SEK 14.2 (13.3) per share. Net debt at 30 September 2019 was SEK 2,556m (2,339). As a consequence of the application of IFRS 16 'Leases' as per 1 January 2019 the net debt composition changed. As from this date the lease liabilities are included in net debt.

Long-term borrowings of SEK 911m (2,085) consisted of SEK 800m (2,087) in gross non-current loans from credit institutions, SEK 113m (0) in non-current lease liabilities and SEK –2m (–2) in capitalized transaction costs.

Total short-term borrowings of SEK 1,904m (499) consisted of SEK 1,337m (0) in gross current loans from credit institutions, SEK 500m (500) in commercial papers, SEK 67m (0) in current lease liabilities, SEK –1m (–2) in capitalized transaction costs and accrued interest on borrowings from credit institutions and commercial papers for an amount of SEK 1m (1). Cloetta has an extension option for the current loans from credit institutions of SEK 1,337m for another two years.

SEKm	30 Sep 2019	30 Sep 2018	31 Dec 2018
Gross non-current loans from credit institutions	800	2,087	2,078
Gross current loans from credit institutions	1,337	–	–
Commercial papers	500	500	500
Lease liabilities1	180	–	–
Derivative financial instruments (non-current and current)	75	59	63
Interest payable	1	1	1
Gross debt	2,893	2,647	2,642
Cash and cash equivalents	–337	–308	– 551
Net debt	2 ,556	2,339	2,091

1The lease liabilities related to the leased right-of-use assets are included in the gross debt as of 1 January 2019. Comparative figures have not been restated. See pages 24–25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

Cash and cash equivalents at 30 September 2019 amounted to SEK 337m (308). At 30 September 2019 Cloetta had an unutilized credit facility of SEK 1,268m (1,236).

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 in connection with the holiday season.

Employees

The average number of employees during the quarter was 2,652 (2,416).

Events after the balance sheet date

After the end of the reporting period, no significant events have taken place that could affect the company's operations.

Examples of new launches during the third quarter

DENMARK

Cloetta Mini Flipper Chocolate foam

Plopp Parrots canded almonds Malaco Mustascher – campaign product supporting Swedish Prostate Cancer Awareness

Läkerol Raspberry Licorice

"Mustaschkampen"

Malaco Gott & Blandat Salt licorice 30 % less sugar

SWEDEN Plopp Bridge

Hyvää Makumaasta 30 % less sugar Mynthon Fresh Eucalyptus (new identity) Tupla Double Layer Mint

N O RWAY

Ahlgrens bilar Fartshumper Läkerol YUP Mix Frozen Mango & Lime

THE NETHERLANDS

Venco Europroposition (co-creation with Albert Heijn) Xylifresh Clean Feel

Lonka & Lavazza duo-branding Soft Nougat

PICK&MIX

PusPus Liqorice Bites Malaco Cactus mix Malaco Gott & Blandat Salt Liquorice, 30 % Less Sugar

U K

Chewits Juicy Bites Strawberry

Words from the President

Financial overview

Overview

The Board of Directors hereby gives its assurance that this 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, 25 October 2019 Cloetta AB (publ)

The Board of Directors

Auditor's report

Cloetta AB (publ) Corp. id. 556308-8144

Introduction

We have reviewed the condensed interim financial information (interim report) of Cloetta AB (publ), as of 30 September 2019 and the nine-month period then ended. The board of directors and the President and CEO are responsible for the preparation and presentation of the interim financial information in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Stockholm, 25 October 2019

Öhrlings PricewaterhouseCoopers AB

Sofia Götmar-Blomstedt Erik Bergh Partner in charge

Authorized Public Accountant Authorized Public Accountant

7

Financial statements in summary

Consolidated profit and loss account

	Third quarter			9 months	Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Net sales	1,629	1,538	4,771	4,572	6,417	6,218
Cost of goods sold	–1,042	–979	–3,039	–2,894	– 4,079	–3,934
Gross profit	587	559	1,732	1,678	2,338	2,284
Other income	–	–	–	4	–	4
Selling expenses	–244	–230	–740	–746	–1,019	–1,025
General and administrative expenses	–148	–149	– 474	– 435	– 642	– 603
Operating profit	195	180	518	501	677	660
Exchange differences on cash and cash equivalents in foreign currencies	– 8	5	–32	–20	–28	–16
Other financial income	1	0	2	4	3	5
Other financial expenses	–13	–18	– 53	– 66	–74	– 87
Net financial items	–20	–13	–83	–82	–99	–98
Profit before tax	175	167	435	419	578	562
Income tax	– 45	–35	–109	–95	–93	–79
Profit for the period	130	132	326	324	485	483
Profit for the period attributable to:
Owners of the Parent Company	130	132	326	324	485	483
Earnings per share, kr SEK
Basic1	0.45	0.46	1.14	1.13	1.69	1.69
Diluted1	0.45	0.46	1.14	1.13	1.69	1.68
Number of shares at end of period Average number of shares (basic)1 Average number of shares (diluted)1	288,619,299 286,538,416 286,695,456	288,619,299 286,627,393 286,765,707	288,619,299 286,459,847 286,553,018	288,619,299 286,446,925 286,571,584	288,619,299 286,600,822 286,675,197	288,619,299 286,492,413 286,650,070

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 outstanding contracts at reporting date consist of one contract for 2,080,883 shares at a share price of SEK 31.2385. ### Consolidated statement of comprehensive income

		Third quarter	9 months		Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Profit for the period	130	132	326	324	485	483
Other comprehensive income
Remeasurement of defined benefit pension plans	– 47	–7	–103	–33	–111	– 41
Income tax on other comprehensive income that subsequently will not be reclassified to profit or loss for the period	11	1	23	7	25	9
Items that will never be reclassified to profit or loss for the period	–36	–6	–80	–26	–86	–32
Currency translation differences	68	– 50	227	217	186	176
Hedge of a net investment in a foreign operation	–19	15	– 65	– 68	– 55	– 58
Income tax on other comprehensive income that will be reclassified subsequently to profit or loss for the period, when specific conditions are met	4	–3	13	14	11	12
Items that are or may be reclassified to profit or loss for the period	53	–38	175	163	142	130
Total other comprehensive income	17	–44	95	137	56	98
Total comprehensive income, net of tax	147	88	421	461	541	581
Total comprehensive income for the period attributable to:
Owners of the Parent Company	147	88	421	461	541	581

Net financial items

		Third quarter	9 months		Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Exchange differences on cash and cash equivalents in foreign currencies	–8	5	–32	–20	–28	–16
Other financial income, third parties	1	–	2	4	3	5
Unrealized gains on single currency interest rate swaps	–	0	–	0	–	–
Other financial income	1	0	2	4	3	5
Interest expenses third-party borrowings and realized losses on single currency interest rate swaps	– 8	– 8	–23	–24	–30	–31
Interest expenses, contingent earn-out considerations	–	– 8	– 4	–19	–10	–25
Amortization of capitalized transaction costs	0	0	–1	– 8	–1	– 8
Unrealized losses on single currency interest rate swaps	2	3	– 4	0	– 6	–2
Other financial expenses	–7	– 5	–21	–15	–27	–21
Other financial expenses	–13	–18	–53	–66	–74	–87
Net financial items	–20	–13	–83	–82	–99	–98

Words from the President Financial overview Overview

Condensed consolidated balance sheet

SEKm	30 Sep 2019	30 Sep 2018	31 Dec 2018
ASSETS
Non-current assets
Intangible assets	5,779	5,666	5,626
Property, plant and equipment¹	1,564	1,362	1,354
Deferred tax asset	13	18	16
Other financial assets	8	11	11
Total non-current assets	7,364	7,057	7,007
Current assets
Inventories	903	792	765
Other current assets	1,072	1,031	844
Derivative financial instruments	–	3	1
Cash and cash equivalents	337	308	551
Total current assets	2,312	2,134	2,161
TOTAL ASSETS	9,676	9,191	9,168
EQUITY AND LIABILITIES
Equity	4,102	3,848	3,968
Non-current liabilities
Long-term borrowings¹	911	2,085	2,076
Deferred tax liability	801	794	754
Derivative financial instruments	6	2	3
Provisions for pensions and other long-term employee benefits	522	410	419
Provisions	5	6	9
Total non-current liabilities	2,245	3,297	3,261
Current liabilities
Short-term borrowings1	1,904	499	500
Derivative financial instruments	69	60	61
Other current liabilities	1,349	1,482	1,355
Provisions	7	5	23
Total current liabilities	3,329	2,046	1,939
TOTAL EQUITY AND LIABILITIES	9,676	9,191	9,168

1 he right-of-use assets and the corresponding lease liabilities are as of 1 January 2019 included in the property, plant and equipment and long- and short-term borrowings respectively. Comparative figures have not been restated. See further on page 23.

Condensed consolidated statements of changes in equity

	9 months	Full year
SEKm	Jan–Sep 2019	Jan–Sep 2018	2018
Equity at beginning of period	3,968	3,818	3,818
Profit for the period	326	324	483
Other comprehensive income	95	137	98
Total comprehensive income	421	461	581
Transactions with owners
Forward contract to repurchase own shares	– 6	0	0
Share-based payments	6	2	2
Dividend1	–287	– 433	– 433
Total transactions with owners	–287	–431	–431
Equity at end of period	4,102	3,848	3,968

1 The dividend paid in 2019 comprised an ordinary dividend of SEK 1.00 per share. The dividend paid in 2018 comprised an ordinary dividend of SEK 0.75 per share and a special dividend of SEK 0.75 per share.

Condensed consolidated cash flow statement

		Third quarter	9 months		Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Cash flow from operating activities before changes in working capital1	249	226	654	581	865	792
Cash flow from changes in working capital	6	24	–248	–241	–171	–164
Cash flow from operating activities	255	250	406	340	694	628
Cash flows from investments in property, plant and equipment and intangible assets	– 56	– 44	–137	–136	–185	–184
Cash flow from other investing activities	0	0	–144	0	–144	0
Cash flow from investing activities	–56	–44	–281	–136	–329	–184
Cash flow from operating and investing activities	199	206	125	204	365	444
Cash flow from financing activities1	–68	–4	–344	–665	–344	–665
Cash flow for the period	131	202	–219	–461	21	–221
Cash and cash equivalents at beginning of period	208	109	551	759	308	759
Cash flow for the period	131	202	–219	– 461	21	–221
Exchange difference	–2	–3	5	10	8	13
Total cash and cash equivalents at end of period	337	308	337	308	337	551

1 The repayments of lease liabilities are as of 1 January 2019 reported as cash flow from financing activities, whereas under IAS 17 the lease payments were reported as cash flow from operating activities. Comparative figures have not been restated. See pages 24-25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

Condensed consolidated key figures

	Third quarter		9 months		Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Profit
Net sales	1,629	1,538	4,771	4,572	6,417	6,218
Net sales, change, %	5.9	2.2	4.4	10.4	3.3	7.5
Organic net sales, change, %	4.3	–3.6	2.2	–2.7	0.9	–2.8
Gross margin, %	36.0	36.3	36.3	36.7	36.4	36.7
Depreciation1	–73	– 55	–221	–166	–273	–218
Amortization	–2	–3	– 8	–9	–11	–12
Operating profit, adjusted1	200	194	527	503	701	677
Operating profit margin, adjusted, %1	12.3	12.6	11.0	11.0	10.9	10.9
Operating profit (EBIT)1	195	180	518	501	677	660
Operating profit margin (EBIT margin), %1	12.0	11.7	10.9	11.0	10.6	10.6
EBITDA, adjusted1	275	252	756	678	985	907
EBITDA1	270	238	747	676	961	890
Profit margin, %	10.7	10.9	9.1	9.2	9.0	9.0
Financial position
Working capital	659	478	659	478	659	402
Capital expenditure1	65	44	157	136	205	184
Net debt1	2,556	2,339	2,556	2,339	2,556	2,091
Capital employed1	7,514	6,904	7,514	6,904	7,514	7,027
Return on capital employed, % (Rolling 12 months)1	9.4	9.8	9.4	9.8	9.4	9.5
Equity/assets ratio, %1	42.4	41.9	42.4	41.9	42.4	43.3
Net debt/equity ratio, %1	62.3	60.8	62.3	60.8	62.3	52.7
Return on equity, % (Rolling 12 months)	11.8	8.9	11.8	8.9	11.8	12.2
Equity per share, SEK	14.2	13.3	14.2	13.3	14.2	13.7
Net debt/EBITDA, x (Rolling 12 months)1	2.5	2.5	2.5	2.5	2.5	2.3
Cash flow
Cash flow from operating activities1	255	250	406	340	694	628
Cash flow from investing activities	– 56	– 44	–281	–136	–329	–184
Cash flow after investments1	199	206	125	204	365	444
Free cash flow1	199	206	269	204	509	444
Free cash flow yield (Rolling 12 months), %1	6.2	5.8	6.2	5.8	6.2	6.3
Cash flow from operating activities per share, SEK¹	0.9	0.9	1.4	1.2	2.4	2.2
Employees
Average number of employees2	2,652	2,416	2,605	2,391	2,577	2,458

1 The key figure has been affected by IFRS 16 'Leases' as of 1 January 2019. Comparative figures are not restated. See pages 24–25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

2 Employee numbers have been updated following the implementation of a new company-wide HR system. Comparative figures have not been restated.

Reconciliation of alternative performance measures key figures

	Third quarter		9 months		Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Items affecting comparability
Acquisitions, integration and restructurings	– 5	–7	– 6	–23	21	–38
Remeasurements of contingent considerations	–	– 6	–	21	–	21
Other items affecting comparability	–	–1	–3	0	–3	0
Items affecting comparability	–5	–14	–9	–2	–24	–17
*Corresponding line in the condensed consolidated profit and loss account:
Net sales	–	0	–	0	–	0
Cost of goods sold	–	–1	2	–3	8	3
Other operating income	–	–	–	4	–	4
Selling expenses	–2	–1	–2	–1	–2	–1
General and administrative expenses	–3	–12	–9	–2	–30	–23
Total	–5	–14	–9	–2	–24	–17
Operating profit, adjusted1
Operating profit	195	180	518	501	677	660
Minus: Items affecting comparability	– 5	–14	–9	–2	–24	–17
Operating profit, adjusted	200	194	527	503	701	677
Net sales	1,629	1,538	4,771	4,572	6,417	6,218
Operating profit margin, adjusted, %	12.3	12.6	11.0	11.0	10.9	10.9
EBITDA, adjusted1
Operating profit	195	180	518	501	677	660
Minus: Depreciation	–73	– 55	–221	–166	–273	–218
Minus: Amortization	–2	–3	– 8	–9	–11	–12
EBITDA	270	238	747	676	961	890
Minus: Items affecting comparability	– 5	–14	–9	–2	–24	–17
EBITDA, adjusted	275	252	756	678	985	907
Capital employed1
Total assets	9,676	9,191	9,676	9,191	9,676	9,168
Minus: Deferred tax liability	801	794	801	794	801	754
Minus: Non-current provisions	5	6	5	6	5	9
Minus: Current provisions	7	5	7	5	7	23
Minus: Other current liabilities	1,349	1,482	1,349	1,482	1,349	1,355
Capital employed	7,514	6,904	7,514	6,904	7,514	7,027
	6,904	6,852	6,904	6,852	6,904	6,979
Capital employed comparative period previous year

1 The key figure has been affected by IFRS 16 'Leases' as of 1 January 2019. Comparative figures are not restated. See pages 24–25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

Definitions

Words from the President

Financial overview

Financial statements

Disclosures

Overview

Reconciliation alternative performance measures, continued

		Third quarter	9 months		Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Return on capital employed1
Operating profit (Rolling 12 months)	677	672	677	672	677	660
Financial income (Rolling 12 months)	3	4	3	4	3	5
Operating profit plus financial income (Rolling 12 months)	680	676	680	676	680	665
Average capital employed	7,209	6,878	7,209	6,878	7,209	7,003
Return on capital employed, %	9.4	9.8	9.4	9.8	9.4	9.5
Free cash flow yield1
Cash flow from operating activities (Rolling 12 months)	694	645	694	645	694	628
Cash flows from investments in property, plant and equipment and intangible assets (Rolling 12 months)	–185	–182	–185	–182	–185	–184
Free cash flow (Rolling 12 months)	509	463	509	463	509	444
Number of shares	288,619,299	288,619,299	288,619,299	288,619,299	288,619,299	288,619,299
Free cash flow per share (Rolling 12 months), SEK	1.76	1.60	1.76	1.60	1.76	1.54
Market price per share, SEK	28.26	27.48	28.26	27.48	28.26	24.30
Free cash flow yield (Rolling 12 months), %	6.2	5.8	6.2	5.8	6.2	6.3
Changes in net sales
Net sales	1,629	1,538	4,771	4,572	6,417	6,218
Net sales comparative period previous year	1,538	1,505	4,572	4,141	6,215	5,784
Net sales, change	91	33	199	431	202	434
Minus: Structural changes	–	–	–	375	–	375
Minus: Changes in exchange rates	25	87	96	166	147	217
Organic growth	66	–54	103	–110	55	–158
Structural changes, %	–	–	–	9.1	–	6.5
Organic growth, %	4.3	–3.6	2.2	–2.7	0.9	–2.8

1 The key figure has been affected by IFRS 16 'Leases' as of 1 January 2019. Comparative figures are not restated. See pages 24–25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

Quarterly data

SEKm	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018	Q1 2018	Q4 2017	Q3 2017
Profit and loss account
Net sales	1,629	1,583	1,559	1,646	1,538	1,472	1,562	1,643	1,505
Cost of goods sold	–1,042	–1,004	–993	–1,040	–979	–913	–1,002	–1,037	–978
Gross profit	587	579	566	606	559	559	560	606	527
Other income	–	–	–	–	–	4	–	2	–
Selling expenses	–244	–253	–243	–279	–230	–268	–248	–281	–232
General and administrative expenses	–148	–167	–159	–168	–149	–140	–146	–156	–126
Operating profit	195	159	164	159	180	155	166	171	169
Exchange differences on cash and cash equivalents in foreign currencies	– 8	–12	–12	4	5	–3	–22	–7	–7
Other financial income	1	0	1	1	0	4	0	0	0
Other financial expenses	–13	–18	–22	–21	–18	–28	–20	–20	–20
Net financial items	–20	–30	–33	–16	–13	–27	–42	–27	–27
Profit before tax	175	129	131	143	167	128	124	144	142
Income tax	–45	–32	–32	16	–35	–31	–29	–124	–34
Profit from continuing operations	130	97	99	159	132	97	95	20	108
Profit/loss from discontinued operation, net of tax	–	–	–	–	–	–	–	–	45
Profit/loss for the period	130	97	99	159	132	97	95	20	153
Profit/loss for the period attributable to:
Owners of the Parent Company
Continuing operations	130	97	99	159	132	97	95	20	108
Discontinued operation	–	–	–	–	–	–	–	–	45
Key figures
Profit
Depreciation, amortization and impairment1	–75	–77	–77	– 55	– 58	– 57	– 60	– 59	–74
Operating profit, adjusted1	200	161	166	174	194	145	164	206	169
EBITDA, adjusted1	275	238	243	229	252	202	224	265	234
EBITDA1	270	236	241	214	238	212	226	230	243
Operating profit margin, adjusted, %1	12.3	10.2	10.6	10.6	12.6	9.9	10.5	12.5	11.2
Operating profit margin (EBIT margin), %1	12.0	10.0	10.5	9.7	11.7	10.5	10.6	10.4	11.2
Earnings per share, SEK
Basic2	0.45	0.34	0.35	0.55	0.46	0.34	0.33	0.07	0.53
Diluted2	0.45	0.34	0.35	0.55	0.46	0.34	0.33	0.07	0.53
Financial position
Share price, last paid, SEK	28.26	30.20	24.00	24.30	27.48	27.18	31.82	29.70	28.00
Return on equity, % (Rolling 12 months)	11.8	12.3	11.9	12.2	8.9	8.5	6.6	6.2	9.1
Equity per share, SEK	14.2	13.7	14.2	13.7	13.3	13.0	14.1	13.2	12.9
Net Debt/EBITDA, x (Rolling 12 months)¹	2.5	2.7	2.4	2.3	2.5	2.8	2.4	2.4	2.6
Cash flow
Free cash flow1	199	–41	111	240	206	68	–70	259	97

Words from the President

Financial overview

Financial statements

Disclosures

Definitions

Contact

Overview

1 The key figure has been affected by IFRS 16 'Leases' as of 1 January 2019. Comparative figures are not restated. See pages 24-25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

2 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 outstanding contracts at reporting date consist of one contract for 2,080,883 shares at a share price of SEK 31.2385.

17

Reconciliation of alternative performance measures per quarter

SEKm	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018	Q1 2018	Q4 2017	Q3 2017
Items affecting comparability
Acquisitions, integration and restructurings	– 5	1	–2	–15	–7	–13	–3	–20	0
of which: impairment loss other non-current assets	–	–	–	–	–	–	–	–	–9
Remeasurements of contingent considerations	–	–	–	0	– 6	19	8	5	–
Other items affecting comparability	–	–3	0	0	–1	4	–3	–20	–
Items affecting comparability*	–5	–2	–2	–15	–14	10	2	–35	0
*Corresponding line in the condensed consolidated profit and loss account:
Net sales	–	–	–	0	0	–	–	–	–
Cost of goods sold	–	3	–1	6	–1	–1	–1	–22	1
Other operating income	–	–	–	–	–	4	–	–	–
Selling expenses	–2	–	–	–	–1	–	–	–3	–
General and administrative expenses	–3	– 5	–1	–21	–12	7	3	–10	–1
Total	–5	–2	–2	–15	–14	10	2	–35	0
Operating profit, adjusted1
Operating profit	195	159	164	159	180	155	166	171	169
Minus: Items affecting comparability	– 5	–2	–2	–15	–14	10	2	–35	0
Operating profit, adjusted	200	161	166	174	194	145	164	206	169
Net sales	1,629	1,583	1,559	1,646	1,538	1,472	1,562	1,643	1,505
Operating profit margin, adjusted, %	12.3	10.2	10.6	10.6	12.6	9.9	10.5	12.5	11.2
EBITDA, adjusted1
Operating profit	195	159	164	159	180	155	166	171	169
Minus: Depreciation	–73	–74	–74	–52	– 55	– 54	– 57	– 56	– 61
Minus: Amortization	–2	–3	–3	–3	–3	–3	–3	–3	– 4
Minus: Impairment loss other non-current assets	–	–	–	–	–	–	–	–	–9
EBITDA	270	236	241	214	238	212	226	230	243
Minus: Items affecting comparability (excl. impairment loss other non-current assets)	– 5	–2	–2	–15	–14	10	2	–35	9
EBITDA, adjusted	275	238	243	229	252	202	224	265	234
Capital employed1
Total assets	9,676	9,410	9,854	9,168	9,191	9,078	9,650	9,252	8,945
Minus: Deferred tax liability	801	792	768	754	794	786	731	703	625
Minus: Other non-current liabilities	–	–	–	–	–	–	135	138	137
Minus: Non-current provisions	5	6	6	9	6	6	5	5	5
Minus: Current provisions	7	11	19	23	5	1	1	3	6
Minus: Other current liabilities	1,349	1,239	1,407	1,355	1,482	1,452	1,459	1,424	1,320
Capital employed	7,514	7,362	7,654	7,027	6,904	6,833	7,319	6,979	6,852
Capital employed comparative period previous year	6,904	6,833	7,319	6,979	6,852	6,727	6,002	5,966	6,273
Average capital employed	7,209	7,098	7,487	7,003	6,878	6,780	6,661	6,473	6,563

1 The key figure has been affected by IFRS 16 'Leases' as of 1 January 2019. Comparative figures are not restated. See pages 24–25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

Contact

Words from the President

Overview

Reconciliation alternative performance measures, continued

SEKm	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018	Q1 2018	Q4 2017	Q3 2017
Return on capital employed1
Operating profit (Rolling 12 months)	677	662	658	660	672	661	596	527	536
Financial income (Rolling 12 months)	3	2	6	5	4	4	1	7	12
Operating profit plus financial income (Rolling 12 months)	680	664	664	665	676	665	597	534	548
Average capital employed	7,209	7,098	7,487	7,003	6,878	6,780	6,661	6,473	6,563
Return on capital employed, %	9.4	9.4	8.9	9.5	9.8	9.8	9.0	8.2	8.3
Free cash flow yield1
Cash flow from operating activities (Rolling 12 months)	694	689	811	628	645	530	528	712	813
Cash flows from investments in property, plant and equipment and intangible assets (Rolling 12 months)	–185	–173	–186	–184	–182	–176	–164	–157	–169
Free cash flow (Rolling 12 months)	509	516	625	444	463	354	364	555	644
Number of shares	288,619,299	288,619,299	288,619,299		288,619,299 288,619,299	288,619,299	288,619,299	288,619,299	288,619,299
Free cash flow per share (Rolling 12 months), SEK	1.76	1.79	2.17	1.54	1.60	1.23	1.26	1.92	2.23
Market price per share, SEK	28,26	30.20	24.00	24.30	27.48	27.18	31.82	29.70	28.00
Free cash flow yield (Rolling 12 months), %	6.2	5.9	9.0	6.3	5.8	4.5	4.0	6.5	8.0
Changes in net sales
Net sales	1,629	1,583	1,559	1,646	1,538	1,472	1,562	1,643	1,505
Net sales comparative period previous year	1,538	1,472	1,562	1,643	1,505	1,414	1,222	1,367	1,285
Net sales, change	91	111	–3	3	33	58	340	276	220
Minus: Structural changes	–	–	–	–	–	76	299	285	261
Minus: Changes in exchange rates	25	27	44	51	87	51	28	–9	– 5
Organic growth	66	84	–47	–48	–54	–69	13	0	–36
Structural changes, %	–	–	–	–	–	5.4	24.5	20.8	20.3
Organic growth, %	4.3	5.7	–3.0	–3.2	–3.6	– 4.9	1.1	0.0	–2.8

1 The key figure has been affected by IFRS 16 'Leases' as of 1 January 2019. Comparative figures are not restated. See pages 24–25 for indicative key figures excluding the impact of IFRS 16 'Leases'.

Disclosures

Parent company

Condensed parent company profit and loss account

	Third quarter			9 months	Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Net sales	22	19	57	65	76	84
Gross profit	22	19	57	65	76	84
General and administrative expenses	–22	–21	– 69	–76	– 86	–93
Operating loss	0	–2	–12	–11	–10	–9
Net financial items	1	0	– 6	3	2	11
Profit/loss before tax	1	–2	–18	–8	–8	2
Income tax	0	0	2	2	–2	–2
Profit/loss for the period	1	–2	–16	–6	–10	0

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

19

Condensed parent company balance sheet

SEKm	30 Sep 2019	30 Sep 2018	31 Dec 2018
ASSETS
Non-current assets	5,360	5,365	5,366
Current assets	28	22	38
TOTAL ASSETS	5,388	5,387	5,404
EQUITY AND LIABILITIES
Equity	3,159	3,452	3,458
Non-current liabilities
Borrowings	934	932	933
Derivative financial instruments	4	2	3
Provisions	1	1	1
Total non-current liabilities	939	935	937
Current liabilities
Borrowings	500	500	500
Derivative financial instruments	3	0	1
Other current liabilities	787	500	508
Total current liabilities	1,290	1,000	1,009
TOTAL EQUITY AND LIABILITIES	5,388	5,387	5,404

Condensed parent company statement of changes in equity

	9 months	Full year
SEKm	Jan–Sep 2019	Jan–Sep 2018	2018
Equity at beginning of period	3,458	3,889	3,889
Other comprehensive income	–16	– 6	0
Total comprehensive income	–16	–6	0
Transactions with owners
Share-based payments	6	2	2
Dividend1	–289	– 433	– 433
Total transactions with owners	–283	–431	–431
Equity at end of period	3,159	3,452	3,458

1 The dividend paid in 2019 comprised an ordinary dividend of SEK 1.00 per share. The dividend paid in 2018 comprised an ordinary dividend of SEK 0.75 per share and a special dividend of SEK 0.75 per share.

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 2019. 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. For lease accounting the company makes use of the exemption under RFR2 to treat all leases as operating lease.

Basis of accounting

Except for the changes below, the same accounting policies and methods of computation are applied in the interim financial statements as in the most recent annual financial statements. Reference is made to Note 1 'General information and accounting and valuation policies of the Group' and Note 34 'Changes in accounting policies' in the annual and sustainability report 2018 at www.cloetta.com.

This is the first year in which IFRS 16 'Leases' (IFRS 16) is applied. Changes in significant accounting policies are described below.

Changes in significant accounting policies

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2019. None of these are expected to have impact on the consolidated financial statements of the Group, except for IFRS 16 as set out below.

IFRS 16, 'Leases', was issued in January 2016 and supersedes IAS 17 Leases. It will result in almost all leases being recognized on the balance sheet, as the distinction between perating and finance leases has been removed. Under the new standard, an asset (the right to use the leased item) and a lease liability to pay rentals are to be recognized. The only exceptions are short-term and low-value leases. The standard is mandatory for financial years commencing on or after 1 January 2019. The standard affects the accounting for the Group's operating leases. Cloetta decided to opt for the modified retrospective transition approach in which the right-of-use asset equals the lease

liability per the transition date. For the calculation of the lease liability the discount rates as at 1 January 2019 were used. The leases that have been recorded on Cloetta's balance sheet as a result of IFRS 16 are categorized in land and buildings (offices and warehouses), transport (cars, forklifts and trucks) and other equipment (e.g. IT, machinery, equipment, printers and coffee machines).

The Group has assessed the estimated impact that initial application of IFRS 16 has on its consolidated financial statement, as described below. Until 31 December 2018, the Group recognized lease expenses on a straight-line basis over the term of the lease, and recognized assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expenses recognized. The Group recognized an additional lease liability of SEK 229m and a right-of-use asset of SEK 229m, as at 1 January 2019. The impact for 2019 is assessed to be an improvement in EBITDA of SEK 74m, an increase in depreciation costs of SEK 71m and increased financial expenses of SEK 3m. No significant impact is expected for leases in which the Group is a lessor.

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. The right-of-use asset is initially measured at cost, and subsequently measured at fair value, in accordance with the Group's accounting policies.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The Group has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized. 21

Disclosures

Disclosures

Disaggregation of revenue from contracts with customers Cloetta generates revenues from the transfer of goods and services at a point in time and over time in the following major sales categories and performance obligations:

Disaggregation of revenue

	Third quarter			9 months	Rolling 12	Full year
SEKm	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Net sales
Branded packaged business	1,187	1,124	3,448	3,307	4,640	4,499
Pick & mix	442	414	1,323	1,265	1,777	1,719
Total	1,629	1,538	4,771	4,572	6,417	6,218

Breakdown of net sales by category		Third quarter		9 months	Rolling 12	Full year
%	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Net sales
Sales of goods
Candy	59	58	59	58	59	58
Chocolate	17	18	17	18	17	18
Pastilles	12	12	12	12	12	12
Chewing gum	6	6	6	6	6	6
Nuts	4	4	4	4	4	4
Other	2	2	2	2	2	2
Sub total	100	100	100	100	100	100
Other income
Other	–	–	–	0	-	0
Total	100	100	100	100	100	100

Breakdown of net sales by country		Third quarter		9 months	Rolling 12	Full year
%	Jul–Sep 2019	Jul–Sep 2018	Jan–Sep 2019	Jan–Sep 2018	Oct 2018– Sep 2019	2018
Sweden	31	31	31	32	32	31
Finland	21	21	21	21	21	21
The Netherlands	14	14	14	14	14	14
Denmark	10	10	10	10	10	9
Norway	5	5	5	5	5	6
Germany	6	5	6	5	5	5
UK	7	8	7	7	7	7
Other countries	6	6	6	6	6	7
Total	100	100	100	100	100	100

Financial statements

Leases

Right-of-use assets

SEKm	30 Sep 2019
Land and buildings	86
Transport	60
Other equipment	34
Total right-of-use assets	180

Additions to the right-of-use assets were SEK 9m during the quarter and SEK 20m during the first three quarters of 2019.

Lease liability

SEKm	30 Sep 2019
Current	67
Non-current (between 1 and 5 years)	110
Non-current (over 5 years)	3
Total lease liability	180

The non-current lease liability of SEK 113m are reflected in the 'longterm borrowings'. The current lease liability of SEK 67m are reflected in the 'short-term borrowings'.

Depreciation charge right-of-use assets

	Third quarter	9 months
SEKm	Jul–Sep 2019	Jan–sep 2019
Land and buildings	–9	–26
Transport	– 8	–23
Other equipment	–3	– 8
Total depreciation charge right-of-use assets	–20	–57

Cloetta makes use of the exemptions under IFRS 16 for short-term leases and leases of low-value assets, except for any leases of vehicles with a remaining lease term at implementation date of less than 12 months.

For a number of lease arrangements Cloetta cannot reliably separate the lease- and non-lease elements. For these lease arrangements the non-lease elements have been included in the calculation of the rightof-use asset.

Other disclosures

	Third quarter	9 months
SEKm	Jul–Sep 2019	Jan–Sep 2019	Recognized in:
Interest expense	0	–2	net financial items in the profit and loss account
Expense relating to short-term leases, where no right-of-use asset has been recognized	0	0	cost of goods sold, selling expenses and general and administrative expenses in the profit and loss account
Expense relating to leases of low-value assets that are not short-term leases	–1	– 6	cost of goods sold, selling expenses and general and administrative expenses in the profit and loss account
Expense relating to variable lease payments not included in lease liabilities	– 4	–9	cost of goods sold, selling expenses and general and administrative expenses in the profit and loss account
Total cash outflow for leases	–18	– 56	cash flow from operating activities and financing activities in the cash flow statement

23

Words from the President

Financial overview

Financial statements

Disclosures

Overview Some of Cloetta's key figures have been impacted as a consequence of the application of IFRS 16 'Leases' as per 1 January 2019. The key figures which are affected are indicatively adjusted for the IFRS 16 impact in the overview below.

SEKm	30 Sep 2019
Net debt
Net debt	2,556
Adjustment for: IFRS 16 Lease liabilities	–180
Net debt excluding IFRS 16 impact	2,376
Capital employed
Capital employed	7,514
Adjustment for: Right-of-use assets	–180
Capital employed excluding IFRS 16 impact	7,334

	Third quarter	9 months
SEKm	Jul–Sep 2019	Jan–Sep 2019
Depreciation
Depreciation	–73	–221
Adjustment for: Depreciation right-of-use assets	20	57
Depreciation excluding IFRS 16 impact	–53	–164
Operating profit, adjusted
Operating profit, adjusted	200	527
Adjustment for: Interest on lease liabilities	0	–2
Operating profit, adjusted excluding IFRS 16 impact	200	525
Operating profit margin, adjusted, %
Operating profit margin, adjusted,%	12.3	11.0
Adjustment for: Interest on lease liabilities, %	– 0.0	0.0
Operating profit margin, adjusted excluding IFRS 16 impact, %	12.3	11.0
Operating profit (EBIT)
Operating profit (EBIT)	195	518
Adjustment for: Interest on lease liabilities	0	–2
Operating profit (EBIT) excluding IFRS 16 impact	195	516
Operating profit margin (EBIT margin), %
Operating profit margin (EBIT margin),%	12.0	10.9
Adjustment for: Interest on lease liabilities, %	0.0	– 0.1
Operating profit margin (EBIT margin) excluding IFRS 16 impact, %	12.0	10.8
EBITDA, adjusted
EBITDA, adjusted	275	756
Adjustment for: Depreciation right-of-use assets and interest on lease liabilities	–20	– 59
EBITDA, adjusted excluding IFRS 16 impact	255	697
EBITDA
EBITDA	270	747
Adjustment for: Depreciation right-of-use assets and interest on lease liabilities	–20	– 59
EBITDA excluding IFRS 16 impact	250	688

Disclosures

	Third quarter	9 months
SEKm	Jul–Sep 2019	Jan–Sep 2019
Net debt/EBITDA
Net debt excluding IFRS 16 impact	2,376	2,376
EBITDA, adjusted excluding IFRS 16 impact1 (Rolling 12 months)	906	906
Net debt/EBITDA excluding IFRS 16 impact1 , x (Rolling 12 months)	2.6	2.6
Return on capital employed
Return on capital employed (Rolling 12 months), %	9.4	9.4
Adjustment for: Right-of-use assets, %	0.1	0.1
Return on capital employed (Rolling 12 months) excluding IFRS 16 impact1 , %	9.5	9.5
Capital expenditure
Capital expenditure	65	157
Adjustment for: additions right-of-use assets	–9	–20
Capital expenditure excluding IFRS 16 impact	56	137
Equity/assets ratio
Equity/assets ratio, %	42.4	42.4
Adjustment for: Right-of-use assets, %	0.8	0.8
Equity/asset ratio excluding IFRS 16 impact, %	43.2	43.2
Net debt/equity ratio
Net debt/equity ratio, %	62.3	62.3
Adjustment for: IFRS 16 Lease liabilities, %	– 4.4	– 4.4
Net debt/equity ratio excluding IFRS 16 impact, %	57.9	57.9
Cash flow from operating activities
Cash flow from operating activities	255	406
Adjustment for: Repayments of lease liabilities	–18	– 56
Cash flow from operating activities excluding IFRS 16 impact	237	350
Cash flow from financing activities
Cash flow from financing activities	– 68	–344
Adjustment for: Repayments of lease liabilities	18	56
Cash flow from financing activities excluding IFRS 16 impact	–50	–288
Free cash flow
Free cash flow	199	269
Adjustment for: Repayments of lease liabilities	–18	– 56
Free cash flow excluding IFRS 16 impact	181	213
Free cash flow yield
Free cash flow yield (Rolling 12 months), %	6.2	6.2
Adjustment for: Repayments of lease liabilities (Rolling 12 months), %1	– 0.8	– 0.8
Free cash flow yield (Rolling 12 months) excluding IFRS 16 impact, %	5.4	5.4
Cash flow from operating activities per share
Cash flow from operating activities per share	0.9	1.4
Adjustment for: Repayments of lease liabilities	– 0.1	– 0.2
Cash flow from operating activities per share excluding IFRS 16 impact	0.8	1.2

1 Pro-forma annualized.

Overview

25

Taxes

The net effect of international tax rate differences and rate changes, 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 applying the tax rates enacted or substantially enacted at the end of the reporting period.

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, as well as;
• the contingent earn-out consideration related to the acquisition of Candyking Holding AB and is subsidiaries initially categorized at level 3.

The fair values of financial assets (loans and receivables) and liabilities measured at amortized cost are approximately equal to carrying amounts, with the exception of the forward contract to repurchase own shares which has a fair value of SEK 7m (liability) while the carrying amount is SEK 65m (liability). For measurement purposes, the fair value of financial assets and liabilities 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 (i.e. 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 carrying amounts and fair values of the Group's financial assets and liabilities, including their levels in the fair value hierarchy:

30 Sep 2019			Carrying amount Fair value
SEKm	Mandatorily at FVTPL	Financial assets at amortized cost	Other financial liabilities at carrying value	Total	Level 1	Level 2	Level 3	Total
Financial assets
• Trade and other receivables, excluding other taxes and social security receivables and prepaid expenses and accrued income	–	966	–	966
• Cash and cash equivalents	–	337	–	337
Total assets	–	1,303	–	1,303	–	–	–	–
Financial liabilities
• Loans from credit institutions	–	–	2,137	2,137
• Commercial papers	–	–	500	500
• Forward contract to repurchase own shares	–	–	65	65	–	7	–	7
• Interest rate swaps	10	–	–	10	–	10	–	10
• Lease liabilities	–	–	180	180
• Trade and other payables, exclud ing other taxes and social security payables and excluding contingent consideration	–	–	1,106	1,106
Total liabilities	10	–	3,988	3,998	–	17	–	17

Financial statements

31 Dec 2018	Carrying amount				Fair value
SEKm	Mandatorily at FVTPL	Financial assets at amortized cost	Other financial liabilities at carrying value	Total	Level 1	Level 2	Level 3	Total
Financial assets
• Forward foreign currency contracts	1	–	–	1	–	1	–	1
• Trade and other receivables, excluding other taxes and social security receivables and prepaid expenses and accrued income	–	756	–	756
• Cash and cash equivalents	–	551	–	551
Total assets	1	1,307	–	1,308	–	1	–	1
Financial liabilities
• Loans from credit institutions	–	–	2,078	2,078
• Commercial papers	–	–	500	500
• Forward contract to repurchase own shares	–	–	59	59	–	11	–	11
• Interest rate swaps	5	–	–	5	–	5	–	5
• Trade and other payables, exclud ing other taxes and social security payables and excluding contingent consideration	–	–	1,040	1,040
• Contingent consideration	142	–	–	142	–	–	142	142
Total liabilities	147	–	3,677	3,824	–	16	142	158

30 Sep 2018	Carrying amount			Fair value
SEKm	Mandatorily at FVTPL	Financial assets at amortized cost	Other financial liabilities at carrying value	Total	Level 1	Level 2	Level 3	Total
Financial assets
• Forward foreign currency contracts	3	–	–	3	–	3	–	3
• Trade and other receivables, excluding other taxes and social security receivables and prepaid expenses and accrued income	–	930	–	930
• Cash and cash equivalents	–	308	–	308
Total assets	3	1,238	–	1,241	–	3	–	3
Financial liabilities
• Loans from credit institutions	–	–	2,087	2,087
• Commercial papers	–	–	500	500
• Forward contract to repurchase own shares	–	–	59	59	–	6	–	6
• Interest rate swaps	4	–	–	4	–	4	–	4
• Trade and other payables, exclud ing other taxes and social security payables and excluding contingent consideration	–	–	1,132	1,132
• Contingent consideration	136	–	–	136	–	–	136	136
Total liabilities	140	–	3,778	3,918	–	10	136	146

27

Disclosures

The following table presents the carrying amounts and fair values fo the Group's financial assets and liabilities, including their levels in the fair value hierarchy:

SEKm	Jan–Sep 2019	Jan–Sep 2018	2018
Opening Balance	142	138	138
Remeasurements recognized in profit or loss
– Unrealized remeasurements on contingent considera tions recognised in general and administrative expenses	–	–21	–21
– Unrealized interest on contingent considerations recognised in other financial expenses	4	19	25
Settlements
– Settlement via balance sheet	–146	–	–
Closing Balance	–	136	142

On 28 April 2017 the contingent earn-out consideration arising from the acquisition of Candyking Holding AB and its subsidiaries was recognized in the amount of SEK 128m. The final earn-out consideration amounted to SEK 146m and has been settled in the first quarter of 2019. No transfers between fair value hierarchy levels has occured during the financial year or 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 maximise 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 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 rates.
• 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 case the fair value less cost of disposal is below the carrying amount. The contingent earn-out considerations are 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 are aligned with the earnout contracts.

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

• The estimated fair value of the contingent earn-out consideration related to the acquisition of Candyking Holding AB and its subsidiaries would increase (decrease) if the Cloetta and Candyking combined sales volume of pick & mix in confectionery and natural snacks in the Nordic countries, the UK and Poland during 2018 were higher (lower).

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 30 September 2019. Net sales in the Parent Company amounted to SEK 57m (65) and referred mainly to intra-group services. Operating loss was SEK –12m (–11). Net financial items totaled SEK –6m (3). Profit before tax was SEK –18m (–8) and profit for the period was SEK –16m (–6). 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 30 September 2019, a total of 155,827,678 shares were traded for a combined value of SEK 4,134m, equivalent to around 55 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 30 September 2019 was SEK 31.80 (13 July) and the lowest was SEK 22.32 (28 January). The share price on 30 September 2019 was SEK 28.26 (last price paid). During the period from 1 January to 30 September 2019, the Cloetta share increased by 16.0 per cent while the Nasdaq OMX Stockholm PI index increased by 18.8 per cent. Cloetta's share capital at 30 September 2019 amounted to 1,443,096,495. The total number of shares is 288,619,299, consisting of 5,735,249 (5,735,249) class A shares and 282,884,050 (282,884,050) class B shares, equal to a quota value of SEK 5 per share.

Shareholders

On 30 September 2019, Cloetta AB had 25,507 shareholders. The largest shareholder was AB Malfors Promotor with a holding corresponding to 38.1 per cent of the votes and 27.0 per cent of the share capital in the company. Franklin Templeton was the second largest shareholder with 5.8 per cent of the votes and 6.8 per cent of the share capital. The third largest shareholder was Wellington Management with 4.1 per cent of the votes and 4.8 per cent of the share capital. Institutional investors held 89.4 per cent of the votes and 87.6 per cent of the share capital. Foreign shareholders held 40.4 per cent of the votes and 47.7 per cent of the share capital.

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 and sustainability report 2018 and consist of industry and market-related risks, operational risks and financial risks. Compared to the annual and sustainability report which was issued on 13 March 2019, no new risks have been identified.

Disclosures

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 opera tional 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 metric enables the profitability to be compared across locations where corporate taxes differ.
Return	Definition/calculation	Purpose
Free cash flow	Sum of the cash flow from operating activities and cash flow from investments in property, plant and equipment and intangible assets.	The free cash flow is the cash flow available to all inves tors consisting of shareholders and lenders.
Free cash flow yield	Free cash flow over the last 12 months divided by the num ber of shares at the end of the period and subsequently di vided by the market price per share at the end of the period.	This metric is an indicator of the return on investment of investors in the company.
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 profitabil ity, 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 includes equity, but takes into account borrowings and other liabilities as well.
Return on equity	Profit from continuing operations for the period as a per centage 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 the 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, lease liabilities, derivative financial instruments and interest payable.	Gross debt represents the total debt obligation of the company irrespective of its maturity.
Net debt	Gross debt less cash and cash equivalents.	The net debt is used as an indication of the ability to pay off all debts if these became 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 compa ny's ability to decrease its debt. It represent the number of years it would take to pay back debt if net debt and EBITDA were 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, the leverage takes into account net debt instead of 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 abil ity, besides cash and cash equivalents, to meet current operational obligations.
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 generates per share from the revenues it brings irrespective of the capital investments and cash flows related to the financ ing 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 repur chase own shares.	The earnings per share measures the amount of net profit that is available for payment to 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
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 metric enables the income tax to be compared across locations where corporate taxes differ.
Items affecting comparability	Items affecting comparability are those significant items which are separately disclosed by virtue of their size or incidence in order to enable a full understanding of the Group's financial performance. These include items such as restructurings, impact from acquisitions or divestments.	Items affecting comparability increases the comparabili ty of the Group's financial performance.
Net financial items	The total of exchange differences on cash and cash equiva lents in foreign currencies, other financial income and other financial expenses.	The net financial items reflects the company's total costs of 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 realised top line growth over time.
Operating profit (EBIT)	Operating profit consists of comprehensive income before net financial items and income tax.	This metric enables the profitability to be compared across locations where corporate taxes differ, irrespective the financing structure of the company.
Operating profit (EBIT), adjusted	Operating profit, adjusted for items affecting comparability.	EBIT, adjusted increases the comparability of EBIT.
Organic growth	Net sales, change exluding 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 the net sales growth.

Glossary

Branded packaged products	Products that are mainly sold under brands and are packaged.
FVTPL	Fair Value Through Profit and Loss.
Pick & mix	Cloetta's range of candy and natural snacks that are picked by the consumers themselves.
Pick & mix concept	Cloetta's complete concept in pick & mix including products, displays and accompanying store and logistic services.

Exchange rates

SEK	30 Sep 2019	30 Sep 2018	31 Dec 2018
EUR, average	10.5663	10.2329	10.2543
EUR, end of period	10.6958	10.2975	10.2274
NOK, average	1.0817	1.0671	1.0672
NOK, end of period	1.0809	1.0869	1.0294
GBP, average	11.9733	11.5798	11.5917
GBP, end of period	12.0757	11.6002	11.3992
DKK, average	1.4156	1.3737	1.3760
DKK, end of period	1.4326	1.3812	1.3698

Financial calender

Frans Rydén, CFO, +46 8 527 28 827

This information is information that Cloetta AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person detailed above, at 8:00 a.m. CET on 25 October 2019.

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 Strategies

• 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.

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.

Words from the President

Overview

Contact

Cloetta, founded in 1862, is a leading confectionery company in Northern Europe. 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, Candyking, Jenkki, Kexchoklad, Malaco, Sportlife and Red Band. Cloetta has eight production units in five countries. Cloetta's class B shares are traded on Nasdaq Stockholm.

Cloetta AB (publ) • Corp. ID no. 556308-8144 • Solna Business Park, Englundavägen 7D, PO Box 6036, SE-171 06 Solna, Sweden. • Tel +46 8-52 72 88 00 • www.cloetta.com