Cloetta — Interim / Quarterly Report 2019

Jan 29, 2020

Interim report Q4, October – December 2019

Stockholm, 29 January 2020

• Net sales for the quarter increased by 4.6 per cent to SEK 1,722m (1,646) including a positive impact from foreign exchange rates of 2.0 per cent.
• Operating profit1 amounted to SEK 209m (159). Profit for the period amounted to SEK 172m (159). Operating profit, adjusted for items affecting comparability, amounted to SEK 216m (174).
• Cash flow1 from operating activities amounted to SEK 318m (288).
• Net debt/EBITDA ratio1 was 2.2x (2.3).
• The Board proposes a dividend of SEK 1.00 (1.00) per share.

Key ratios

		Fourth quarter			Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	Change, %	2019	2018	Change, %
Net sales	1,722	1,646	4.6²	6,493	6,218	4.4²
Operating profit, adjusted1	216	174	24.1	743	677	9.7
Operating profit margin, adjusted, %1	12.5	10.6	1.9-pts	11.4	10.9	0.5-pts
Operating profit (EBIT)1	209	159	31.4	727	660	10.2
Operating profit margin (EBIT margin), %1	12.1	9.7	2.4-pts	11.2	10.6	0.6-pts
Profit before tax	213	143	49.0	648	562	15.3
Profit for the period	172	159	8.2	498	483	3.1
Earnings per share, basic, SEK	0.60	0.55	9.1	1.74	1.69	3.0
Earnings per share, diluted, SEK	0.60	0.55	9.1	1.74	1.68	3.6
Net debt/EBITDA, x (Rolling 12 months)1	2.2	2.3	– 4.3	2.2	2.3	– 4.3
Free cash flow1	269	240	12.1	538	444	21.2
Cash flow from operating activities1	318	288	10.4	724	628	15.3

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 2,6 per cent for the quarter and 2,3 per cent for the full year. See further under Net sales on page 4.

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– a leading confectionery company in Northern Europe

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Continued growth in branded packaged products and improved profitability

Cloetta continued to grow organically, with eight consecutive quarters of branded packaged growth whilst making progress on bringing pick & mix to sustainable value.

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 grew or were stable during the quarter.

Sales development

Sales for the quarter increased by 4.6 per cent, of which organic growth accounted for 2.6 per cent and exchange rate differences for 2.0 per cent.

Branded packaged products

Sales of branded packaged products grew organically by 3.6 per cent. Sales increased in Sweden, Denmark, Norway, Germany and International Markets. Sales were stable in Finland but declined in the Netherlands and the UK. Growth was driven by pricing and strong December seasonal sales, supported by fewer but bigger campaigns. Cloetta gained market shares in 4 out of 16 categories in our core markets during the quarter.

Pick & mix

Pick & mix sales were stable at 0.0 per cent organic growth. Sales increased in Denmark and Norway, but declined in Sweden, Finland and the UK. Sales were particularly strong in Norway as retailers held back orders in the same period of the prior year in anticipation of the decrease in sugar tax in 2019. Sales declined in Sweden as a result of lower volumes following price increases.

Operating profit

Operating profit, adjusted for items affecting comparability, amounted to SEK 216m (174) and the operating profit margin, adjusted for items affecting comparability, was 12.5 per cent (10.6). Operating profit amounted to SEK 209m (159).

The increase in operating profit was driven by strong sales from pricing and favorable product mix.

Cash flow and net debt/EBITDA

Cash flow from operating activities amounted to SEK 318m (288). The net debt/EBITDA ratio was 2.2x (2.3).

Delivering on the strategy

As we close the year, I am particularly pleased that we have had eight consecutive quarters of branded packaged growth, whilst making good progress on our journey towards bringing pick & mix to sustainable value. This has been achieved through focused attention and investments on our core markets and core categories.

During the fourth quarter, we continued to focus on marketing that is visible to consumers. We also reached an agreement with PHD Media International, part of Omnicom Media Group, to consolidate to one media agency. The agreement will create additional synergies and scale, and allow us to invest more effectively in our brands to enable continued organic growth.

Price increases continued to be implemented in the Swedish pick & mix business to address higher costs as well as to turn around the loss-making business by year-end 2020. We also finalized the contract to consolidate two warehouses into one, effective mid-2020. We continue to focus on activities to optimize the assortment and improve merchandizing efficiency across all markets.

During the quarter, we improved overall profitability as a result of pricing, favorable product mix, and strong seasonal sales. To further improve profitability, we are focusing on reducing conversion costs in our supply chain network. Further initiatives within the "Perfect Factory" program were taken in the quarter, with five additional lines being added, making it to a total of 11 out of 17 targeted lines.

We also went live with our new shared planning system in Finland, to improve service levels and optimize production planning. The roll-out across the organization will continue during 2020, replacing three existing systems.

Furthermore, indirect costs continued to be addressed through the Value Improvement Program Plus. In the Netherlands, we increased our central sales capabilities in response to our customer demands, whilst reducing our field salesforce, thereby delivering both savings and effectiveness.

Continued focus on profitable growth and efficiencies

For 2020, my focus continues to be on growing the branded packaged business, bringing the pick & mix to sustainable value as well as reducing costs and driving efficiencies across the organization.

We will continue to increase our pricing during 2020, to compensate for higher commodity costs and a weaker SEK, with a potential negative impact on volumes for the Swedish pick & mix business.

I am pleased that we have achieved the target of 2.5x net debt/EBITDA for the fourth consecutive year. In combination with improved profitability and a healthy cash flow, this enables the Board to propose a dividend in line with our dividend policy of SEK 1.00 (1.00) per share for 2019.

In conclusion, we continue to execute on our strategy and are well positioned to deliver on all our financial targets.

Henri de Sauvage-Nolting President and CEO

Financial overview

Fourth quarter development

Net sales

Net sales for the fourth quarter increased by SEK 76m to SEK 1,722m (1,646) compared to the same period of last year. Organic growth was 2.6 per cent and changes in exchange rates 2.0 per cent.

Changes in net sales, %	Oct–Dec 2019	2019
Organic growth	2.6	2.3
Changes in exchange rates	2.0	2.1
Total	4.6	4.4

Gross profit

Gross profit amounted to SEK 649m (606), which equates to a gross margin of 37.7 per cent (36.8). The gross margin improvement was driven by pricing and favorable product mix partly offset by higher conversion cost and negative FX effect.

Operating profit

Operating profit amounted to SEK 209m (159). Operating profit, adjusted for items affecting comparability, amounted to SEK 216m (174). The improvement in operating profit, adjusted, was driven by strong sales from pricing and favorable product mix.

Items affecting comparability

Operating profit for the fourth quarter includes items affecting comparability of SEK –7m (–15) that mainly are related to costs for restructuring.

Net financial items

Net financial items for the quarter amounted to SEK 4m (–16). Interest expenses related to external borrowings were SEK –6m (–7), exchange differences on cash and cash equivalents were SEK 13m (4) which mainly related to the development of the Swedish krona against the euro during the quarter. Other financial items amounted to SEK

–3m (–13). Of the total net financial items SEK 24m (–9) is non-cash in nature.

Profit for the period

Profit for the period was SEK 172m (159), which equates to basic and diluted earnings per share of SEK 0.60 (0.55). Income tax for the period was SEK –41m (16). The effective tax rate for the quarter was 19.2 per cent (–11.2), positively impacted by the settlement of a tax case. During the fourth quarter of 2018 deferred taxes were remeasured based on lower enacted tax rates as from 2019, resulting in a negative effective tax rate.

Free cash flow

The free cash flow was SEK 269m (240). Cash flow from operating activities before changes in working capital was SEK 254m (211). The increase compared to prior year is mainly the result of a higher EBITDA including the impact of SEK 18m on IFRS 16 'Leases'. The cash flow from changes in working capital was SEK 64m (77). The cash flow from investments in property, plant and equipment and intangible assets was SEK –49m (–48).

Cash flow from changes in working capital

Cash flow from changes in working capital was SEK 64m (77). The cash flow from changes in working capital was positively impacted by the decrease in receivables of SEK 133m (171) and a decrease in inventories of SEK 3m (24) which were partly offset by the decrease in payables amounting to SEK –72m (–118).

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 –18m (0). The cash flow from financing activities was related to payments of lease liabilities related to IFRS 16 'Leases' of SEK –18m (0). The other cash flow from financing activities amounted to SEK 0m (0).

Free cash flow

Operating profit (EBIT), adjusted

Development during the year

Net sales

Net sales for the year increased by SEK 275m to SEK 6,493m (6,218) compared to the same period of last year. Organic growth was 2.3 per cent and changes in exchange rates 2.1 per cent.

Gross profit

Gross profit amounted to SEK 2,381 (2,284), which equates to a gross margin of 36.7 per cent (36.7).

Operating profit

Operating profit amounted to SEK 727m (660). Operating profit, adjusted for items affecting comparability, amounted to SEK 743m (677). The improvement in operating profit, adjusted, was driven by sales growth and cost efficiencies, partly offset by increased marketing investments.

Items affecting comparability

Operating profit for the year includes items affecting comparability of SEK –16m (–17) that mainly are related to costs for the integration of Candyking.

Net financial items

Net financial items for the year amounted to SEK –79m (–98). Interest expenses related to external borrowings were SEK –29m (–31), exchange differences on cash and cash equivalents were SEK –19m (–16) which mainly related to the development of the Swedish krona against the euro during the year. Other financial items amounted to SEK –31m (–51). The decrease of the other financial items is for SEK 21m the result of the lower interest expenses related to the contingent earn-out consideration which was settled in the first quarter of 2019. Of the total net financial items SEK –23m (–73) is non-cash in nature.

Profit for the period

Profit for the year was SEK 498m (483), which equates to basic earnings per share of SEK 1.74 (1.69) and diluted earnings per share of SEK 1.74 (1.68).

Income tax for the period was SEK –150m (–79). The effective tax rate for the year was 23.1 per cent (14.1). The effective tax rate of last year was significantly impacted by the remeasurement of deferred tax balances as a result of changes in the enacted tax rates.

Free cash flow

The free cash flow was SEK 538m (444). Cash flow from operating activities before changes in working capital was SEK 908m (792). The increase compared to prior year is mainly the result of a higher EBITDA including the impact of SEK 74m on IFRS 16 'Leases'. The cash flow from changes in working capital was SEK –184m (–164). The cash flow from investments in property, plant and equipment and intangible assets was SEK –186m (–184).

Cash flow from changes in working capital

Cash flow from changes in working capital was SEK –184m (–164). The cash flow from changes in working capital was negatively impacted by the increase in inventories amounting to SEK –113m (–1) and an increase in receivables amounting to SEK –88m (50) which were partly offset by the increase in payables for an amount of SEK 17m (–213).

Cash flow from other 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 –362m (–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 –74m (0) and other cash flow from financing activities of SEK –1m (–232). In 2018 the other cash flow 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 31 December 2019 amounted to SEK 4,197m (3,968), which equates to SEK 14.5 (13.7) per share. Net debt at 31 December 2019 was SEK 2,302m (2,091). 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 totalled SEK 939m (2,076) and consisted of SEK 800m (2,078) in gross non-current loans from credit institutions, SEK 140m (0) in non-current lease liabilities and SEK –1m (–2) in capitalized transaction costs.

Total short-term borrowings amounted to SEK 1,870m (500) and consisted of SEK 1,306m (0) in gross current loans from credit institutions, SEK 499m (500) in commercial papers, SEK 64m (0) in current lease liabilities, SEK –0m (–1) 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 1,306m for another two years.

5

SEKm	31 Dec 2019	31 Dec 2018
Gross non-current loans from credit institutions	800	2,078
Gross current loans from credit institutions	1,306	–
Commercial papers	499	500
Lease liabilities1	204	–
Derivative financial instruments (non-current and current)	71	63
Interest payable	1	1
Gross debt	2,881	2,642
Cash and cash equivalents	– 579	– 551
Net debt	2,302	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 31 December 2019 amounted to SEK 579m (551). At 31 December 2019 Cloetta had an unutilized credit facility of SEK 1,254m (1,227).

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 2,688 (2,452).

The Board's proposed dividend

For the financial year 2019 the Board proposes a dividend of SEK 1.00 per share (1.00), corresponding to around 60 per cent of profit for the year. In 2018, the dividend was 60 per cent of profit for the year. Proposed date for the record is the 6 April 2020 and payment is expected to be made on 9 April 2020.

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 Thursday 2 April 2020, 3.00 p.m. at Stockholm Waterfront Congress Centre, Nils Ericsons Plan 4, in Stockholm. Notice of the AGM will be published in February 2020 and will also be available at www.cloetta.com.

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 fourth quarter

THE NETHERLANDS Lonka Food Christmas range: Nougat Almond green Caramel fudge red

I N T E R N AT I O N A L M A R K E TS Middle east

Red Band Tutti Frutti bears Red Band Tutti Frutti Cola Mix

The Jelly Bean Planet

SWEDEN

Ahlgrens bilar Bilgranar – "foam Christmas trees" Juleskum Polka – the Swedish people have voted!

U K Chewits Halloween Monster Bag

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, 29 January 2020 Cloetta AB (publ)

Lilian Fossum Biner Board Chairman

Mikael Aru Member of the Board

Patrick Bergander Member of the Board

Lottie Knutson Member of the Board

Alan McLean Raleigh 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

Henri de Sauvage-Nolting President and CEO

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

7

Financial statements in summary

Consolidated profit and loss account

		Fourth quarter	Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Net sales	1,722	1,646	6,493	6,218
Cost of goods sold	–1,073	–1,040	–4,112	–3,934
Gross profit	649	606	2,381	2,284
Other income	–	–	–	4
Selling expenses	–271	–279	–1,011	–1,025
General and administrative expenses	–169	–168	– 643	– 603
Operating profit	209	159	727	660
Exchange differences on cash and cash equivalents in foreign currencies	13	4	–19	–16
Other financial income	0	1	2	5
Other financial expenses	–9	–21	– 62	– 87
Net financial items	4	–16	–79	–98
Profit before tax	213	143	648	562
Income tax	– 41	16	–150	–79
Profit for the period	172	159	498	483
Profit for the period attributable to:
Owners of the Parent Company	172	159	498	483
Earnings per share, kr SEK
Basic1	0.60	0.55	1.74	1.69
Diluted1	0.60	0.55	1.74	1.68
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	286,538,416	286,627,393	286,578,395	286,492,413
Average number of shares (diluted)1	286,743,427	286,803,180	286,724,049	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

		Fourth quarter		Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Profit for the period	172	159	498	483
Other comprehensive income
Remeasurement of defined benefit pension plans	23	– 8	– 80	– 41
Income tax on remeasurement of defined benefit pension plans	– 6	2	17	9
Items that will never be reclassified to profit or loss for the period	17	–6	–63	–32
Currency translation differences	–124	– 41	103	176
Hedge of a net investment in a foreign operation	41	10	–24	– 58
Income tax on hedge of a net investment in a foreign operation	– 8	–2	5	12
Items that are or may be reclassified to profit or loss for the period	–91	–33	84	130
Total other comprehensive income	–74	–39	21	98
Total comprehensive income, net of tax	98	120	519	581
Total comprehensive income for the period attributable to:
Owners of the Parent Company	98	120	519	581

9

Net financial items

		Fourth quarter		Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Exchange differences on cash and cash equivalents in foreign currencies	13	4	–19	–16
Other financial income, third parties	0	1	2	5
Unrealized gains on single currency interest rate swaps	0	–	0	–
Other financial income	0	1	2	5
Interest expenses third-party borrowings and realized losses on single currency interest rate swaps	– 6	–7	–29	–31
Interest expenses, contingent earn-out considerations	–	– 6	– 4	–25
Amortization of capitalized transaction costs	– 0	0	–1	– 8
Unrealized losses on single currency interest rate swaps	3	–2	–1	–2
Other financial expenses	– 6	– 6	–27	–21
Other financial expenses	–9	–21	–62	–87
Net financial items	4	–16	–79	–98

Condensed consolidated balance sheet

SEKm	31 Dec 2019	31 Dec 2018
ASSETS
Non-current assets
Intangible assets	5,684	5,626
Property, plant and equipment¹	1,559	1,354
Deferred tax asset	9	16
Other financial assets	7	11
Total non-current assets	7,259	7,007
Current assets
Inventories	888	765
Other current assets	934	844
Derivative financial instruments	–	1
Cash and cash equivalents	579	551
Total current assets	2,401	2,161
TOTAL ASSETS	9,660	9,168
EQUITY AND LIABILITIES
Equity	4,197	3,968
Non-current liabilities
Long-term borrowings¹	939	2,076
Deferred tax liability	803	754
Derivative financial instruments	3	3
Provisions for pensions and other long-term employee benefits	499	419
Provisions	5	9
Total non-current liabilities	2,249	3,261
Current liabilities
Short-term borrowings1	1,870	500
Derivative financial instruments	68	61
Other current liabilities	1,271	1,355
Provisions	5	23
Total current liabilities	3,214	1,939
TOTAL EQUITY AND LIABILITIES	9,660	9,168

1 The 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

		Full year
SEKm	2019	2018
Equity at beginning of period	3,968	3,818
Profit for the period	498	483
Other comprehensive income	21	98
Total comprehensive income	519	581
Transactions with owners
Forward contract to repurchase own shares	– 6	0
Share-based payments	3	2
Dividend1	–287	– 433
Total transactions with owners	–290	–431
Equity at end of period	4,197	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

		Fourth quarter		Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Cash flow from operating activities before changes in working capital1	254	211	908	792
Cash flow from changes in working capital	64	77	–184	–164
Cash flow from operating activities	318	288	724	628
Cash flows from investments in property, plant and equipment and intangible assets	– 49	– 48	–186	–184
Cash flow from other investing activities	0	0	–144	0
Cash flow from investing activities	–49	–48	–330	–184
Cash flow from operating and investing activities	269	240	394	444
Cash flow from financing activities1	–18	0	–362	–665
Cash flow for the period	251	240	32	–221
Cash and cash equivalents at beginning of period	337	308	551	759
Cash flow for the period	251	240	32	–221
Exchange difference	–9	3	– 4	13
Total cash and cash equivalents at end of period	579	551	579	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

		Fourth quarter		Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Profit
Net sales	1,722	1,646	6,493	6,218
Net sales, change, %	4.6	0.2	4.4	7.5
Organic net sales, change, %	2.6	–3.2	2.3	–2.8
Gross margin, %	37.7	36.8	36.7	36.7
Depreciation1	– 69	– 52	–290	–218
Amortization	–3	–3	–11	–12
Impairment loss other non current assets	–2	–	–2	–
Operating profit, adjusted1	216	174	743	677
Operating profit margin, adjusted, %1	12.5	10.6	11.4	10.9
Operating profit (EBIT)1	209	159	727	660
Operating profit margin (EBIT margin), %1	12.1	9.7	11.2	10.6
EBITDA, adjusted1	290	229	1,046	907
EBITDA1	283	214	1,030	890
Profit margin, %	12.4	8.7	10.0	9.0
Financial position
Working capital	589	402	589	402
Capital expenditure1	78	48	235	184
Net debt1	2,302	2,091	2,302	2,091
Capital employed1	7,576	7,027	7,576	7,027
Return on capital employed, % (Rolling 12 months)1	10.0	9.5	10.0	9.5
Equity/assets ratio, %1	43.4	43.3	43.4	43.3
Net debt/equity ratio, %1	54.8	52.7	54.8	52.7
Return on equity, % (Rolling 12 months)	11.9	12.2	11.9	12.2
Equity per share, SEK	14.5	13.7	14.5	13.7
Net debt/EBITDA, x (Rolling 12 months)1	2.2	2.3	2.2	2.3
Cash flow
Cash flow from operating activities1	318	288	724	628
Cash flow from investing activities	– 49	– 48	–330	–184
Cash flow after investments1	269	240	394	444
Free cash flow1	269	240	538	444
Free cash flow yield (Rolling 12 months), %1	5.9	6.3	5.9	6.3
Cash flow from operating activities per share, SEK¹	1.1	1.0	2.5	2.2
Employees
Average number of employees2	2,688	2,452	2,629	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.

Financial statements

Reconciliation of alternative performance measures key figures

Fourth quarter Oct–Dec 2019 SEKm Items affecting comparability Acquisitions, integration and restructurings –7 Remeasurements of contingent considerations – Other items affecting comparability – Items affecting comparability –7 *Corresponding line in the condensed consolidated profit and loss account: Net sales – Cost of goods sold – Other operating income – Selling expenses – 4 General and administrative expenses –3 Total –7 Operating profit, adjusted1 Operating profit 209 Minus: Items affecting comparability –7 Operating profit, adjusted 216 Net sales 1,722 Operating profit margin, adjusted, % 12.5 EBITDA, adjusted1 Operating profit 209 Minus: Depreciation – 69 Minus: Amortization –3 Minus: Impairment loss other non-current assets –2 EBITDA 283 Minus: Items affecting comparability –7		Full year
		Oct–Dec 2018	2019	2018
		–15	–13	–38
		0	–	21
		0	–3	0
		–15	–16	–17
		0	–	0
		6	2	3
		–	–	4
		0	– 6	–1
		–21	–12	–23
		–15	–16	–17
		159	727	660
		–15	–16	–17
		174	743	677
		1,646	6,493	6,218
		10.6	11.4	10.9
		159	727	660
		– 52	–290	–218
		–3	–11	–12
		–	–2	–
		214	1,030	890
		–15	–16	–17
EBITDA, adjusted	290	229	1,046	907
Capital employed1
Total assets	9,660	9,168	9,660	9,168
Minus: Deferred tax liability	803	754	803	754
Minus: Non-current provisions	5	9	5	9
Minus: Current provisions	5	23	5	23
Minus: Other current liabilities	1,271	1,355	1,271	1,355
Capital employed	7,576	7,027	7,576	7,027
Capital employed comparative period previous year	7,027	6,979	7,027	6,979
Average capital employed	7,302	7,003	7,302	7,003

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

Reconciliation alternative performance measures, continued

		Fourth quarter	Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Return on capital employed1
Operating profit (Rolling 12 months)	727	660	727	660
Financial income (Rolling 12 months)	2	5	2	5
Operating profit plus financial income (Rolling 12 months)	729	665	729	665
Average capital employed	7,302	7,003	7,302	7,003
Return on capital employed, %	10.0	9.5	10.0	9.5
Free cash flow yield1
Cash flow from operating activities (Rolling 12 months)	724	628	724	628
Cash flows from investments in property, plant and equipment and intangible assets (Rolling 12 months)	–186	–184	–186	–184
Free cash flow (Rolling 12 months)	538	444	538	444
Number of shares	288,619,299	288,619,299	288,619,299	288,619,299
Free cash flow per share (Rolling 12 months), SEK	1.86	1.54	1.86	1.54
Market price per share, SEK	31.70	24.30	31.70	24.30
Free cash flow yield (Rolling 12 months), %	5.9	6.3	5.9	6.3
Changes in net sales
Net sales	1,722	1,646	6,493	6,218
Net sales comparative period previous year	1,646	1,643	6,218	5,784
Net sales, change	76	3	275	434
Minus: Structural changes	–	–	–	375
Minus: Changes in exchange rates	33	51	129	217
Organic growth	43	–48	146	–158
Structural changes, %	–	–	–	6.5
Organic growth, %	2.6	–3.2	2.3	–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'.

15

Quarterly data

SEKm	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018	Q1 2018	Q4 2017
Profit and loss account
Net sales	1,722	1,629	1,583	1,559	1,646	1,538	1,472	1,562	1,643
Cost of goods sold	–1,073	–1,042	–1,004	–993	–1,040	–979	–913	–1,002	–1,037
Gross profit	649	587	579	566	606	559	559	560	606
Other income	–	–	–	–	–	–	4	–	2
Selling expenses	–271	–244	–253	–243	–279	–230	–268	–248	–281
General and administrative expenses	–169	–148	–167	–159	–168	–149	–140	–146	–156
Operating profit	209	195	159	164	159	180	155	166	171
Exchange differences on cash and cash equivalents in foreign currencies	13	– 8	–12	–12	4	5	–3	–22	–7
Other financial income	0	1	0	1	1	0	4	0	0
Other financial expenses	–9	–13	–18	–22	–21	–18	–28	–20	–20
Net financial items	4	–20	–30	–33	–16	–13	–27	–42	–27
Profit before tax	213	175	129	131	143	167	128	124	144
Income tax	–41	–45	–32	–32	16	–35	–31	–29	–124
Profit for the period	172	130	97	99	159	132	97	95	20
Profit for the period attributable to:
Owners of the Parent Company	172	130	97	99	159	132	97	95	20
Key figures
Profit
Depreciation, amortization and impairment1	–74	–75	–77	–77	– 55	– 58	– 57	– 60	– 59
Operating profit, adjusted1	216	200	161	166	174	194	145	164	206
EBITDA, adjusted1	290	275	238	243	229	252	202	224	265
EBITDA1	283	270	236	241	214	238	212	226	230
Operating profit margin, adjusted, %1	12.5	12.3	10.2	10.6	10.6	12.6	9.9	10.5	12.5
Operating profit margin (EBIT margin), %1	12.1	12.0	10.0	10.5	9.7	11.7	10.5	10.6	10.4
Earnings per share, SEK
Basic2 Diluted2	0.60 0.60	0.45 0.45	0.34 0.34	0.35 0.35	0.55 0.55	0.46 0.46	0.34 0.34	0.33 0.33	0.07 0.07
Financial position
Share price, last paid, SEK	31.70	28.26	30.20	24.00	24.30	27.48	27.18	31.82	29.70
Return on equity, % (Rolling 12 months)	11.9	11.8	12.3	11.9	12.2	8.9	8.5	6.6	6.2
Equity per share, SEK	14.5	14.2	13.7	14.2	13.7	13.3	13.0	14.1	13.2
Net Debt/EBITDA, x (Rolling 12 months)¹	2.2	2.5	2.7	2.4	2.3	2.5	2.8	2.4	2.4
Cash flow
Free cash flow1	269	199	–41	111	240	206	68	–70	259
Cash flow from operating activities per share, SEK1	1.1	0.9	–0.0	0.5	1.0	0.9	0.4	– 0.1	1.1

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.

Words from the President

Financial overview

Definitions Overview

Financial statements

Disclosures

17

Words from the President

Financial overview

Financial statements

Reconciliation of alternative performance measures per quarter

SEKm	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018	Q1 2018	Q4 2017
Items affecting comparability
Acquisitions, integration and restructurings	–7	– 5	1	–2	–15	–7	–13	–3	–20
Remeasurements of contingent considerations	–	–	–	–	0	– 6	19	8	5
Other items affecting comparability	–	–	–3	0	0	–1	4	–3	–20
Items affecting comparability*	–7	–5	–2	–2	–15	–14	10	2	–35
*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
Other operating income	–	–	–	–	–	–	4	–	–
Selling expenses	– 4	–2	–	–	–	–1	–	–	–3
General and administrative expenses	–3	–3	– 5	–1	–21	–12	7	3	–10
Total	–7	–5	–2	–2	–15	–14	10	2	–35
Operating profit, adjusted1
Operating profit	209	195	159	164	159	180	155	166	171
Minus: Items affecting comparability	–7	– 5	–2	–2	–15	–14	10	2	–35
Operating profit, adjusted	216	200	161	166	174	194	145	164	206
Net sales	1,722	1,629	1,583	1,559	1,646	1,538	1,472	1,562	1,643
Operating profit margin, adjusted, %	12.5	12.3	10.2	10.6	10.6	12.6	9.9	10.5	12.5
EBITDA, adjusted1
Operating profit	209	195	159	164	159	180	155	166	171
Minus: Depreciation	– 69	–73	–74	–74	–52	– 55	– 54	– 57	– 56
Minus: Amortization	–3	–2	–3	–3	–3	–3	–3	–3	–3
Minus: Impairment loss other non-current assets	–2	–	–	–	–	–	–	–	–
EBITDA	283	270	236	241	214	238	212	226	230
Minus: Items affecting comparability (excl. impairment loss other non-current assets)	–7	– 5	–2	–2	–15	–14	10	2	–35
EBITDA, adjusted	290	275	238	243	229	252	202	224	265
Capital employed1
Total assets	9,660	9,676	9,410	9,854	9,168	9,191	9,078	9,650	9,252
Minus: Deferred tax liability	803	801	792	768	754	794	786	731	703
Minus: Other non-current liabilities	–	–	–	–	–	–	–	135	138
Minus: Non-current provisions	5	5	6	6	9	6	6	5	5
Minus: Current provisions	5	7	11	19	23	5	1	1	3
Minus: Other current liabilities	1,271	1,349	1,239	1,407	1,355	1,482	1,452	1,459	1,424
Capital employed	7,576	7,514	7,362	7,654	7,027	6,904	6,833	7,319	6,979
Capital employed comparative period previous year	7,027	6,904	6,833	7,319	6,979	6,852	6,727	6,002	5,966
Average capital employed	7,302	7,209	7,098	7,487	7,003	6,878	6,780	6,661	6,473

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

Reconciliation alternative performance measures, continued

SEKm	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018	Q1 2018	Q4 2017
Return on capital employed1
Operating profit (Rolling 12 months)	727	677	662	658	660	672	661	596	527
Financial income (Rolling 12 months)	2	3	2	6	5	4	4	1	7
Operating profit plus financial income (Rolling 12 months)	729	680	664	664	665	676	665	597	534
Average capital employed	7,302	7,209	7,098	7,487	7,003	6,878	6,780	6,661	6,473
Return on capital employed, %	10.0	9.4	9.4	8.9	9.5	9.8	9.8	9.0	8.2
Free cash flow yield1
Cash flow from operating activities (Rolling 12 months)	724	694	689	811	628	645	530	528	712
Cash flows from investments in property, plant and equipment and intangible assets (Rolling 12 months)	–186	–185	–173	–186	–184	–182	–176	–164	–157
Free cash flow (Rolling 12 months)	538	509	516	625	444	463	354	364	555
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	1.86	1.76	1.79	2.17	1.54	1.60	1.23	1.26	1.92
Market price per share, SEK	31.70	28,26	30.20	24.00	24.30	27.48	27.18	31.82	29.70
Free cash flow yield (Rolling 12 months), %	5.9	6.2	5.9	9.0	6.3	5.8	4.5	4.0	6.5
Changes in net sales
Net sales	1,722	1,629	1,583	1,559	1,646	1,538	1,472	1,562	1,643
Net sales comparative period previous year	1,646	1,538	1,472	1,562	1,643	1,505	1,414	1,222	1,367
Net sales, change	76	91	111	–3	3	33	58	340	276
Minus: Structural changes	–	–	–	–	–	–	76	299	285
Minus: Changes in exchange rates	33	25	27	44	51	87	51	28	–9
Organic growth	43	66	84	–47	–48	–54	–69	13	0
Structural changes, %	–	–	–	–	–	–	5.4	24.5	20.8
Organic growth, %	2.6	4.3	5.7	–3.0	–3.2	–3.6	– 4.9	1.1	0.0

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

Contact

Parent company

Condensed parent company profit and loss account

	Fourth quarter			Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Net sales	26	19	83	84
Gross profit	26	19	83	84
General and administrative expenses	–36	–17	–105	–93
Operating profit/loss	–10	2	–22	–9
Net financial items	65	8	59	11
Profit before tax	55	10	37	2
Income tax	–7	– 4	– 5	–2
Profit for the period	48	6	32	0

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

19

Condensed parent company balance sheet

SEKm	31 Dec 2019	31 Dec 2018
ASSETS
Non-current assets	5,361	5,366
Current assets	99	38
TOTAL ASSETS	5,460	5,404
EQUITY AND LIABILITIES
Equity	3,204	3,458
Non-current liabilities
Borrowings	935	933
Derivative financial instruments	2	3
Provisions	1	1
Total non-current liabilities	938	937
Current liabilities
Borrowings	499	500
Derivative financial instruments	2	1
Other current liabilities	817	508
Total current liabilities	1,318	1,009
TOTAL EQUITY AND LIABILITIES	5,460	5,404

Condensed parent company statement of changes in equity

	Full year
SEKm	2019	2018
Equity at beginning of period	3,458	3,889
Profit for the year	32	0
Total comprehensive income	32	0
Transactions with owners Share-based payments Dividend1	3 –289	2 – 433
Total transactions with owners	–286	–431
Equity at end of period	3,204	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.

Financial statements

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 an improvement in EBITDA of SEK 79m, an increase in depreciation costs of SEK 76m and increased financial expenses of SEK 3m. There is no significant impact 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

	Fourth quarter		Full year
SEKm	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Net sales
Branded packaged business	1,261	1,192	4,709	4,499
Pick & mix	461	454	1,784	1,719
Total	1,722	1,646	6,493	6,218

Breakdown of net sales by category	Fourth quarter			Full year
%	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Net sales
Sales of goods
Candy	60	59	59	58
Chocolate	17	19	17	18
Pastilles	12	11	12	12
Chewing gum	6	6	6	6
Nuts	3	3	4	4
Other	2	2	2	2
Sub total	100	100	100	100
Other income
Other	–	–	–	0
Total	100	100	100	100

Breakdown of net sales by country	Fourth quarter			Full year
%	Oct–Dec 2019	Oct–Dec 2018	2019	2018
Sweden	33	34	31	31
Finland	20	20	21	21
The Netherlands	14	14	14	14
Denmark	13	11	10	9
Norway	5	5	5	6
Germany	4	4	6	5
UK	6	7	7	7
Other countries	5	5	6	7
Total	100	100	100	100

Leases

Right-of-use assets

SEKm	31 Dec 2019
Land and buildings	113
Transport	56
Other equipment	34
Total right-of-use assets	203

Additions to the right-of-use assets were SEK 29m during the quarter and SEK 49m during 2019.

Lease liability

SEKm	31 Dec 2019
Current	64
Non-current (between 1 and 5 years)	135
Non-current (over 5 years)	5
Total lease liability	204

The non-current lease liability of SEK 140m are reflected in the 'longterm borrowings'. The current lease liability of SEK 64m are reflected in the 'short-term borrowings'.

Depreciation charge right-of-use assets

	Fourth quarter	Full year
SEKm	Oct–Dec 2019	2019
Land and buildings	– 8	–34
Transport	– 8	–31
Other equipment	–3	–11
Total depreciation charge right-of-use assets	–19	–76

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

	Fourth quarter	Full year
SEKm	Oct–Dec 2019	2019	Recognized in:
Interest expense	–1	–3	net financial items, in the profit and loss account
Expense relating to leases of low-value assets that are not short-term leases	0	0	cost of goods sold, selling expenses and general and administrative expenses, in the profit and loss account
Expense relating to short-term leases, where no right-of-use asset has been recognized	–3	–9	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	–13	cost of goods sold, selling expenses and general and administrative expenses, in the profit and loss account
Total cash outflow for leases	–19	–75	cash flow from operating activities and financing activities, in the cash flow statement

Disclosures

23

Words from the President

Financial overview

Financial statements

Some of Cloetta's key figures have been impacated 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	31 Dec 2019
Net debt
Net debt	2,302
Adjustment for: IFRS 16 Lease liabilities	–204
Net debt excluding IFRS 16 impact	2,098
Capital employed
Capital employed	7,576
Adjustment for: Right-of-use assets	–203
Capital employed excluding IFRS 16 impact	7,373

	Fourth quarter	Full year
SEKm	Oct–Dec 2019	2019
Depreciation
Depreciation	– 69	–290
Adjustment for: Depreciation right-of-use assets	19	76
Depreciation excluding IFRS 16 impact	–50	–214
Operating profit, adjusted
Operating profit, adjusted	216	743
Adjustment for: Interest on lease liabilities	–1	–3
Operating profit, adjusted excluding IFRS 16 impact	215	740
Operating profit margin, adjusted, %
Operating profit margin, adjusted,%	12.5	11.4
Adjustment for: Interest on lease liabilities, %	– 0.0	– 0.0
Operating profit margin, adjusted excluding IFRS 16 impact, %	12.5	11.4
Operating profit (EBIT)
Operating profit (EBIT)	209	727
Adjustment for: Interest on lease liabilities	–1	–3
Operating profit (EBIT) excluding IFRS 16 impact	208	724
Operating profit margin (EBIT margin), %
Operating profit margin (EBIT margin),%	12.1	11.2
Adjustment for: Interest on lease liabilities, %	– 0.0	0.0
Operating profit margin (EBIT margin) excluding IFRS 16 impact, %	12.1	11.2
EBITDA, adjusted
EBITDA, adjusted	290	1,046
Adjustment for: Depreciation right-of-use assets and interest on lease liabilities	–20	–79
EBITDA, adjusted excluding IFRS 16 impact	270	967
EBITDA
EBITDA	283	1,030
Adjustment for: Depreciation right-of-use assets and interest on lease liabilities	–20	–79
EBITDA excluding IFRS 16 impact	263	951

Contact

	Fourth quarter	Full year
SEKm	Oct–Dec 2019	2019
Net debt/EBITDA
Net debt excluding IFRS 16 impact	2,098	2,098
EBITDA, adjusted excluding IFRS 16 impact (Rolling 12 months)	967	967
Net debt/EBITDA excluding IFRS 16 impact, x (Rolling 12 months)	2.2	2.2
Return on capital employed
Return on capital employed (Rolling 12 months), %	10.0	10.0
Adjustment for: Right-of-use assets, %	0.1	0.1
Return on capital employed (Rolling 12 months) excluding IFRS 16 impact, %	10.1	10.1
Capital expenditure
Capital expenditure	78	235
Adjustment for: additions right-of-use assets	–29	– 49
Capital expenditure excluding IFRS 16 impact	49	186
Equity/assets ratio
Equity/assets ratio, %	43.4	43.4
Adjustment for: Right-of-use assets, %	1.0	1.0
Equity/asset ratio excluding IFRS 16 impact, %	44.4	44.4
Net debt/equity ratio
Net debt/equity ratio, %	54.8	54.8
Adjustment for: IFRS 16 Lease liabilities, %	– 4.8	– 4.8
Net debt/equity ratio excluding IFRS 16 impact, %	50.0	50.0
Cash flow from operating activities
Cash flow from operating activities	318	724
Adjustment for: Repayments of lease liabilities	–19	–75
Cash flow from operating activities excluding IFRS 16 impact	299	649
Cash flow from financing activities
Cash flow from financing activities	–18	–362
Adjustment for: Repayments of lease liabilities	19	75
Cash flow from financing activities excluding IFRS 16 impact	1	–287
Free cash flow
Free cash flow	269	538
Adjustment for: Repayments of lease liabilities	–19	–75
Free cash flow excluding IFRS 16 impact	250	463
Free cash flow yield
Free cash flow yield (Rolling 12 months), %	5.9	5.9
Adjustment for: Repayments of lease liabilities (Rolling 12 months), %	– 0.9	– 0.9
Free cash flow yield (Rolling 12 months) excluding IFRS 16 impact, %	5.0	5.0
Cash flow from operating activities per share
Cash flow from operating activities per share	1.1	2.5
Adjustment for: Repayments of lease liabilities	– 0.1	– 0.3
Cash flow from operating activities per share excluding IFRS 16 impact	1.0	2.2

25

Disclosures

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 unfavorably.. 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 0m (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:

31 Dec 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	–	832	–	832
• Cash and cash equivalents	–	579	–	579
Total assets	–	1,411	–	1,411	–	–	–	–
Financial liabilities
• Loans from credit institutions	–	–	2,106	2,106
• Commercial papers	–	–	499	499
• Forward contract to repurchase own shares	–	–	65	65	–	0	–	0
• Interest rate swaps	6	–	–	6	–	6	–	6
• Lease liabilities	–	–	204	204
• Trade and other payables, exclud ing other taxes and social security payables and excluding contingent consideration	–	–	1,052	1,052
Total liabilities	6	–	3,926	3,932	–	6	–	6

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

27

The movement of financial instruments categorized at level 3 of the fair value hierarchy is specified as follows:

SEKm	2019	2018
Opening Balance	142	138
Remeasurements recognized in profit or loss
– Unrealized remeasurements on contingent considerations recognised in general and administrative expenses	–	–21
– Unrealized interest on contingent con siderations recognised in other financial expenses	4	25
Settlements
– Settlement via balance sheet	–146	–
Closing Balance	–	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 31 December 2019. Net sales in the Parent Company amounted to SEK 83m (84) and referred mainly to intra-group services. Operating loss was SEK -22m (-9). Net financial items totaled SEK 59m (11). Profit before tax was SEK 37m (2) and profit for the period was SEK 32m (0). 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 2019, a total of 182,617,131 shares were traded for a combined value of SEK 4,951 m, equavalent to around 65 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 2019 was SEK 33.34 (5 November) and the lowest was SEK 22.32 (28 January). The share price on 31 December 2019 was SEK 31.70 (last price paid). During the period from 1 January to 31 December 2019, the Cloetta share increased by 33.5 per cent while the Nasdaq OMX Stockholm PI index increased by 29.6. Cloetta's share capital at 31 December 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 31 December 2019, Cloetta AB had 24,910 shareholders. The largest shareholder was AB Malfors Promotor with a holding corresponding to 38.2 per cent of the votes and 27.2 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 89.8 per cent of the votes and 88.0 per cent of the share capital. Foreign shareholders held 41.5 per cent of the votes and 48,9 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.

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	31 Dec 2019	31 Dec 2018
EUR, average	10.5815	10.2543
EUR, end of period	10.4468	10.2274
NOK, average	1.0748	1.0672
NOK, end of period	1.0591	1.0294
GBP, average	12.0732	11.5917
GBP, end of period	12.2788	11.3992
DKK, average	1.4173	1.3760
DKK, end of period	1.3982	1.3698

Disclosures

Financial calender

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 29 January 2020.

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 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

Financial 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

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