Cloetta reports full-year profit dip in ‘weak’ market

15-Feb-2013 - Last updated on 18-Feb-2013 at 12:16 GMT

EU sugar quotas, Danish sugar tax and Italian payment terms harm Cloetta's 2012 profits

Scandinavia’s largest confectioner Cloetta has reported a 20% fall in earnings for 2012 due to a weak Italian market, higher sugar prices and a "sugar tax" in Denmark.

The company released its fourth quarter (Q4) and full-year results today in which it recorded full-year underlying EBITDA of SEK 439m ($70m) down 20% compared to last year.

Q4 underlying net sales fell 7.4% to SEK 1.4bn ($222m), while underlying EBITA rose 2.7% to SEK 208m ($33m).

Italy: stricter payment terms

During the company’s conference call, CEO Bengt Baron said: “We are facing a fairly weak market…One market that hits us the most in Q4 is Italy.”

Cloetta, which produces many seasonal products for the Italian market, said the decline in Italy was a combination of the macroeconomic environment and a reduction in payment terms from over 100 days to 60 days.

Sugar price impact

Baron added that raw material impacts remained, primarily with sugar, due to the EU quota system, which he claimed had made EU sugar 40% more expensive than the world market price.

Baron said: “I think there has been a difference in view between competitors whether this is long or short term.”

Cloetta has introduced price increases to offset the impact of the sugar price.

Baron said that “everybody was feeling the pain” but would move at various speeds to react with price increases.

The Agricultural Committee of the European Parliament recently voted to extend sugar quotas until 2020 rather than abolish them in 2015. The decision is not final and a vote will be made at a plenary session in Parliament in March. A final decision must be made by June.

Sugar tax in Denmark

Baron said that a "sugar tax" in Denmark had also impacted prior year comparisons and had harmed consumer purchasing in the market.

The Danish government introduced an excise duty on chocolate and candy in 1922, which was raised in January 2010 and again in 2012.

The excise duty, based on the weight or volume of the product, was raised further this year. Current rates are DKK 24.61 ($4.41) per kilo of chocolate and sweets and a reduced rate of DKK 20.93 ($3.75) for products containing less than 5 gram of sugar per kilo, according to the Danish tax office.

Cloetta, like many manufacturers in the market, had introduced price increases to balance the cost of the excise duty.

“Typically what happens is that consumers get used to the new price level,” said Baron.

He added that Danish consumers were becoming increasingly induced to cross the border to Germany to buy confectionery products and Cloetta would need to make sure its portfolio was available there.

Restructuring

The company said it was on course to complete previously announced factory closures following its merger with Leaf in December 2011.

Cloetta claimed the restructuring will lead to SEK 100m ($16m) in cost savings.