Fazer in 2018: strong focus on implementing the new strategy

Thu, Feb 14, 2019 06:30 CET

Financial year 2018 in brief

Net sales were 1,618.2 million euros (1,641.6)
Operating profit was 84.2 million euros (92.1)
Cash flow from operating activities was 114.6 million euros (149.6) and gross investments amounted to 50.5 million euros (108.0)
The first year of implementing Fazer’s new strategy
The Fazer brand was renewed to support the ongoing transformation to a modern sustainable food company

Outlook for 2019

Fazer will continue its transformation, with strong focus on execution. Development of Fazer’s business and product portfolios will remain key cornerstones in implementing the strategy, along with the renewed Fazer brand and several growth initiatives. In addition to organic growth, active M&A work will continue to further strengthen growth and internationalisation. Fazer will also continue to work on strengthening its competitiveness through its value creation programmes and the continuous development of its organisational and structural efficiency. In 2019, the net sales and the operating profit are expected to increase compared to previous year.

Christoph Vitzthum, President & CEO of Fazer Group summarises:

“In 2018, we began implementing our new strategy to become a modern sustainable food company. We are heading towards our joint strategic goal backed by a strengthened consumer focus and a renewed Fazer brand positioning. We emphasize value creation through portfolio choices, continued operational excellence and structural improvements.

With our renewed purpose driven Fazer brand, we will ensure that Fazer will be meaningfully different in the eyes of the consumer also in the future. Northern Magic. Made Real. is unique and forward-looking; it is an ambitious promise that builds on our heritage and reaches out into the future, enabling Fazer’s ambition of strong expansion in Northern Europe and beyond.

How we grow, produce and consume food has a significant impact on the environment, on society and on our well-being. To take a stronger stand and to deliver concrete actions, we defined a new sustainability approach. It is aligned with Fazer’s mission, strategy and the renewed Fazer brand. The new sustainability approach consists of four core goals: 1) 50% less emissions, 2) 50% less food waste, 3) 100% sustainably sourced, and 4) more plant-based.

Financially, our operating result fell behind previous year even if the net sales were at 2017 levels. All of Fazer’s main foreign currencies weakened against the euro, which affected Fazer’s financial performance negatively. Unfortunately, consumers’ weakening purchasing power had a negative effect on the business performance of Fazer Bakery in Russia. Fazer Bakery Sweden did not perform according to plan, but some improvement was seen towards the end of the year.

People’s criteria for making choices have changed. We as a company are expected to understand what people want before they’ve even asked for it. At Fazer, we aim high and dare to think big. We have grown stronger as a company and the market sees us in a new light – as being more progressive and forward-looking. We continue to concentrate on delivering our strategy, with an emphasis of future proofing for a digitalised world, high performance and our safety culture. Fazer is well equipped to strengthen its positions on its home markets and to grow in Northern Europe and beyond.”

For further information please contact:

Jouni Grönroos, CFO & Deputy CEO, Fazer Group, jouni.gronroos@fazer.com, tel. +358 40 504 5125

Ulrika Romantschuk, Executive Vice President, Communications & Branding, Fazer Group, ulrika.romantschuk@fazer.com, tel. +358 40 566 4246

Fazer’s media phone line is open Mon–Fri from 8:00 to 16:00, tel. +358 40 668 2998

Fazer Group

In 1891, the young Karl Fazer opened his first café with a mission to make food with a purpose – and a passion to create moments of joy for all the people around him. It became Northern Magic. Made Real. Today, Fazer is an international family-owned company offering quality bakery, confectionery, biscuit and grain products, plant-based meals, non-dairy products, on-the-go food & drinks as well as food and café services. The Group operates in eight countries and exports to around 40 countries. The success of Fazer has been built on Karl Fazer’s vision, values and fearless creativity: the best product and service quality, beloved brands, the passion of skilful people and responsible ways of working. In 2018, Fazer Group had net sales of 1.6 billion euros and more than 15,000 employees. Fazer’s operations comply with ethical principles that are based on the Group’s values and the UN Global Compact.

Northern Magic. Made Real.

Full year report 2018

In 2018, Fazer commenced the implementation of its new strategy to transform into a modern sustainable food company with a joint direction. While the economies in Fazer’s key markets continued to develop favourably, the competitive landscape became tougher for all the businesses. Also, the extraordinarily hot summer affected Fazer’s businesses. In addition, the weak performance in Fazer Bakery Russia and Sweden and the weakening of all Fazer’s main foreign currencies had a negative impact on the 2018 financials. As a result, Fazer Group’s net sales and operating profit decreased from the previous year.

In 2018, Fazer’s brand positioning was redefined to amplify the consumer-centric approach. At the start of 2018, Fazer Retail was established as a separate business unit to strengthen the direct-to-consumer business. Also, the organisational setup for Fazer Lifestyle Foods was further developed. Focus on efficiency improvements continued with initiatives in several fields. Occupational safety and developing Fazer’s safety culture remained an important theme with positive results.

Markets, business environment and sales

In 2018, the economies in Fazer’s key markets continued to develop favourably. On the other hand, all of Fazer’s main foreign currencies weakened against the euro, and affected Fazer´s financial performance negatively. The largest foreign currency impact on Fazer came from the Swedish krona, which weakened by 6% against the euro.

Year 2018 was a challenging year for Fazer Bakery Russia and Sweden. At the same time, the performance in Finland reached record levels and business in the Baltics developed positively: in these markets Fazer’s market share also increased. Artisanal bread maintained its popularity, especially in Finland and Sweden. Bread consumption in Russia shifted towards lower-priced segments. The extraordinarily hot summer affected bread consumption in all markets. Fazer Bakery’s net sales decreased to 552.3 M€ (2017: 583.2 excluding net sales of Bakery Shops transferred to Fazer Retail and net sales of Alku porridges transferred to Fazer Lifestyle Foods). Programmes are in place to turn the development and to increase operational efficiency in all Fazer Bakery operations.

Fazer Confectionery’s net sales for 2018 reached 333.1 M€ (2017: 331.2). The market share in chocolate tablets increased and biscuit sales grew in Finland. In Sweden, Fazer kept its confectionary market share. Fazer Candy Store was opened to serve consumers online. Currently, the web store ships to EU countries only but the geographical expansion is being planned. Cooperation was started with JD.com to explore opportunities in the Chinese market.

Fazer Food Services with more than 1 000 restaurants in Finland, Sweden, Norway and Denmark reached net sales of 593.2 M€ (607.7). With comparable currency rates the net sales were at previous year level. Retention of existing contracts was on a good level while some unprofitable contracts were exited. Actions to improve performance were initiated and they will continue further into 2019 to strengthen the competitiveness of the business. Fazer’s Culinary Teams from Sweden and Finland took a double victory at the culinary World Championships in Luxembourg in November.

The competition tightened in the smoothie and non-dairy markets, with both branded and large private label competitors vying for market share. Fazer Lifestyle Foods’ net sales increased 21% and amounted 121.8 M€ (100.4). Several new products were launched during the year. The Froosh smoothie range was complemented with functional smoothies. Cereals and organic porridges were launched under the Fazer Alku breakfast food brand. The Fazer Yosa oat product family was expanded with eight products and the brand was refreshed with, for example, a new packaging design. Oat-based products have sparked global interest and Nordic oats are highly regarded around the world. Significant investments were made in Fazer Lifestyle Foods’ organisational development and marketing activities to ensure future growth.

Fazer Retail was established as a separate business unit at the start of 2018 to strengthen Fazer’s direct-to-consumer business. The business unit combines the Gateau bakery shops in Finland and Sweden with Fazer Cafés in Finland. The new business unit combines artisanal bakery products and high-quality delicacies with a first-class experience. In 2018, the focus was on building an organisation and operating platform for future growth and for expanding its retail expertise. The net sales of the new business unit reached 46.4 M€ during its first year of operation.

The Fazer Experience Visitor Centre was visited by more than 200,000 people in 2018, which is a new record.

Financial results

Fazer’s reported net sales decreased by 1% from previous year and reached 1,618.2 M€ (1,641.6). The weakened foreign exchange rates reduced the net sales by 48.6 M€. The businesses acquired in 2017 increased 2018 net sales by 18.8 M€ compared to previous year.

The Group’s operating profit decreased to 84.2 M€ (92.1). Operating profit included 4.2 M€ (3.5) one-time restructuring costs and write-offs (net). Profit for the financial period amounted to 63.9 M€ (72.1). Fazer Confectionery was the only business area that improved its profitability.

Cash flow and financial position

The Group’s financial position remained strong. Interest-bearing net debt totalled 95.0 M€ (79.0). The Group’s equity ratio was 56.8% (55.1%).

Cash flow from operating activities was 114.6 M€ (149.6) and gross investments amounted to 50.5 M€ (108.0). The majority of the investments were done in new production equipment and upgrades to the existing machinery in the bakery and confectionery operations.

Key figures 2018 2017 2016

Net sales, M€ 1,618.2 1,641.6 1,603.1

Operating profit, M€ 84.2 92.1 90.1

− share of net sales, % 5.2 5.6 5.6

Return on equity, % 11.6 13.3 14.1

Equity ratio, % 56.8 55.1 54.2

Gearing, % 17.5 14.2 10.8

Personnel

At year-end, Fazer had 15,696 employees (15,993). Out of these, 91 (68) were employed by the parent company.

Personnel 2018 2017 2016

Number of employees, 31.12. 15,696 15,993 16,048

Number of employees, avg. FTE 13,242 13,198 13,287

Wages and salaries, M€ 423.7 433.3 422.2

Strategy implementation

In 2018, Fazer began to implement its new strategy, with the aim to become a leading modern, sustainable food company in Northern Europe and beyond. With this strategic goal in mind, Fazer strengthened its focus on the consumer and updated the Fazer brand positioning. Fazer targets growth and value creation through portfolio choices, continued operational excellence and structural improvements. Despite 2018 having been a challenging year, Fazer is committed to improve its performance in all its businesses and geographies. Implementation of Fazer’s new strategy included in 2018 a large number of value creation initiatives in different businesses and Group functions, building the organisation and capabilities for growth in the new Fazer Lifestyle Foods business area, creating the new Fazer Retail business unit, establishing a distribution company for Fazer Confectionary in the USA as well as planning and developing other means for profitability, growth and geographical expansion.

Quality, environment, occupational health & safety and food safety

In 2018, the focus in quality, environment, health and safety (QEHS) was on the development and digitalisation of the related management system, ensuring compliance with regulations, improving competences, strengthening risk management and promoting safety leadership.

New ways of communication and leadership activities continued to improve occupational health and safety. Management safety walks, safety reviews, safety commitments and other safety practises are part of the daily operations. Accident frequency fell by 17% from 2017. All businesses have safety plans in place.

Fazer continued to improve its quality and food safety management in many ways. In addition to the new digital QEHS system taken into use, the programme to certify all production sites against a global food safety system was continued, and allergen management was developed.

Fazer has certified all its production sites against the Global Food Safety System (FSSC 22000). In addition to this, also other QEHS management systems have been certified depending on the demands of the markets and customers. Fazer Food Services’ HACCP (preventative food safety) process was digitalised and harmonised across the Nordics. In 2018, there were no product recalls.

Fazer’s environmental management continued to improve through internal programmes and 3rd party certifications. Fazer continued to engage in energy efficiency activities, conducting energy efficiency mappings and self-assessments. Waste reduction actions across the Group were carried out, focusing on preventing food waste and recycling side streams. Fazer was the first food industry company to make a Finnish water stewardship commitment.

Sustainability

In 2018, Fazer revised and updated its sustainability approach to support the transformation into a leading, modern and sustainable food company with a joint direction. Fazer’s ambitious direction towards 2030 consists of four core goals that support reaching the UN sustainable development goals through food. The core goals are: 1) 50% less emissions, 2) 50% less food waste, 3) 100% sustainably sourced and 4) more plant based. The highlights of Fazer’s sustainability work for 2018 include systematic work to improve energy efficiency to reduce climate emissions and continuing to focus on food waste reduction. Fazer continued its commitments concerning the sustainable sourcing of cocoa, grain, soy, palm oil and fish, and increase of its offering of plant-based foods. Fazer’s reputation remained on a good level in its main markets.

Risk management

Fazer regularly evaluates and analyses the Group's strategic, operative and financial risks within the framework of its risk management policy and takes action to mitigate these risks. In 2018, no major risks were realised.

Research and development

Fazer continued to execute the Fazer Brainhow programme, which focuses on the connection between food and cognitive performance. Two clinical trials were successfully finalised in 2018. The BRAVE study, a cooperative project with Nokia and Nightingale Health investigating the effects of brain-friendly food on cognitive functions, physiology and blood biomarkers, showed very promising results that will be published in 2019.

Fazer Lifestyle Foods’ technology and new product development work resulted in the launch of the new non-dairy oat products under the Fazer Yosa brand. The Fazer LOFO improver, which is a result of long-term R&D work, was presented at the international bakery exhibition (IBA) in Munich. This patented improver is the world’s first enzyme-based solution to reducing the amount of FODMAP compounds in bread making the bread more belly-friendly.

Fazer’s cooperation with universities and researchers continued and resulted in the publication of one doctoral dissertation and multiple master thesis works.

Research and development costs amounted to 9.8 M€ (9.9).

Changes in Group legal structure

Fazer continued its work to simplify its legal structure and several legal entities were merged in 2018.

Board of Directors and auditors

At the Shareholders’ Meeting on 10 April 2018, the following Board members were re-elected: Berndt Brunow (Chairman), Anders Dreijer (Vice Chairman), Klaus Cawén, Ketil Eriksen, Jan Fazer, Leif Hagelstam, Johan Linder, Cecilia Marlow and Juhani Mäkinen.

Chartered Accountants PricewaterhouseCoopers were chosen as auditors, with Chartered Accountant Martin Grandell as auditor-in-charge.