Fazer in 2019: Strategy execution and transformation

Financial year 2019 in brief

• Focus on FMCG business, strengthen our position as the leading brand in Finland and build our position in Northern Europe and beyond
•  Significant investment decisions in growth, innovation and sustainable food production, such as xylitol production, doubling the oat milling capacity and the acquisition of Kaslink
• Systematic work and progress towards Fazer’s sustainability Core Goals 2030
• Net sales for the continuing operations increased by 7% and reached 1,097.0 M€ (1,029.2)
• Operating profit for the continuing operations was 49.1 M€ (55.9), burdened by one-time restructuring and acquisition costs 
• Net sales and operating profit for the continuing operations in 2018 and 2019 do not include Fazer Food Services that was sold to Compass Group on 31 January 2020
• Cash flow from operating activities increased to 144.8 M€ (114.6) and gross investments amounted to 107.1 M€ (50.5)

Outlook for 2020

Fazer continues its transformation, focusing on the FMCG and direct-to-consumer businesses. The development of Fazer’s business and product portfolios is one of the 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 fuel growth and internationalisation. Fazer will also strengthen its competitiveness through value creation programmes and the continuous development of organisational and structural efficiency. In 2020, net sales and operating profit are expected to increase compared to previous year.

Christoph Vitzthum, President & CEO of Fazer Group summarises:

“In 2019, we continued executing our strategy of transforming into a modern sustainable food company with a joint direction. We focused on the fast-moving consumer goods (FMCG) and direct-to-consumer businesses with the objectives of strengthening our position as the leading FMCG brand in Finland and building our position in Northern Europe and beyond.

To focus our efforts in line with our strategy and to streamline our business portfolio, we sold Fazer Food Services to Compass Group and will invest the funds in Fazer Group’s FMCG businesses. We will place the consumer first in all our operations and leverage on our renewed brand positioning – Northern Magic. Made Real. – to be meaningfully different in the eyes of consumers.

We are The Food Experience Company; we build on our achievements and are supported by our company-wide sustainability approach. Fazer is committed to continuing the innovation of sustainable solutions to benefit people and the planet. Our sustainability core goals by 2030 – 50% less emissions, 50% less food waste, 100% sustainably sourced and more plant-based – guide us in our daily work. During 2019, the systematic work towards our sustainability Core Goals 2030 continued.  Sustainability is closely interlinked with our increasing investments into foodtech. Our ability to commercialise significant innovations will play an even more important role in executing our growth strategy.

Our operating result was close to previous year’s level and net sales increased by 7%, despite the challenging market situation. All our businesses grew in 2019. We invested in growth by acquiring Kaslink and by undertaking work to construct a xylitol factory. We also made a decision to double our oat milling capacity. In addition, we planned and executed several initiatives to further improve our profitability. Some of these resulted in one-time costs that reduced our financial result in 2019. As part of our strategic journey, we acquired Vuohelan Herkku, one of the forerunners in gluten-free baking in Finland,in January 2020.

Fazer is on the move and our strategic journey continues. We will create value through building an even stronger position as the number 1 FMCG brand in Finland, developing leading positions in Northern Europe and beyond as well as accelerating our profitable growth through innovations, on-trend categories and foodtech.”

 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, media@fazer.com, tel. +358 40 668 299

Fazer Group

Fazer, The Food Experience Company, enables people to enjoy the best moments of their day. 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. Shaping the next tastes, traditions and food experiences, Fazer builds on its strong heritage, consumer first approach and innovations to create the sustainable food solutions of the future. Fazer is focusing on its fast-moving consumer goods and direct-to-consumer businesses, transforming into a modern sustainable food company with a joint direction. The Group operates in nine countries and exports to around 40 countries. In 2019, Fazer Group had net sales of 1,1 billion euros and almost 9,000 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

In 2019, Fazer continued its transformation into a modern sustainable food company with a joint direction. The Group decided to sell Fazer Food Services in order to focus on its fast-moving consumer goods (FMCG) and direct-to-consumer businesses. The acquisition of Kaslink, an expert in high-quality oat-based food products, as well as the strategic decision to invest in doubling its oat milling capacity in Lahti, Finland and Lidköping, Sweden took Fazer closer to the goal of becoming the leading plant-based player in Northern Europe. Fazer started a 50-million-euro investment in the construction of a ground-breaking xylitol factory in Lahti, Finland, an innovation where side streams from oat milling will be used to produce xylitol, and production waste will be used as fuel in a bio-heating plant that will provide energy for Fazer’s entire factory area. Furthermore, Fazer focused strongly on its ‘consumer first’ approach.

Fazer Group’s continuing operations’ net sales increased and operating profit decreased from the previous year. Fazer Food Services is reported as discontinued operations in the Financial Statements.

Markets, business environment and sales 

In Finland, the economic development continued to be positive, but the GDP growth slowed down from previous year. Also, the growth of the Swedish economy and Russia’s GDP growth weakened from previous year. The biggest foreign currency impact on Fazer came from the Swedish krona, which weakened by 3% against the euro, and from the Russian rouble, which strengthened by 2% against the euro. The net impact of currency changes was negative on net sales but slightly positive on operating profit.

The Fazer Bakery business saw fierce competition especially in Sweden and Russia. At the same time, the business in Finland and the Baltics developed positively, and Fazer Bakery increased its market share in Finland and Latvia. Artisanal bread maintained its popularity, and Fazer Bakery invested in artisanal baking through its shop-in-shop and bake-off concepts. As many as 21 new shop-in-shops were opened in Finland, and the concept was expanded to the Baltics. In the fresh pre-packed bread category, the new additions to Fazer Street Food, sourdough and oat products, were received well. Fazer Bakery’s net sales increased by 2% to 565.2 M€ (2018: 552.3). Fazer Bakery business area organisation was simplified in October to bring decision-making closer to the customers. Value creation programmes are in place to increase operational efficiency in all Fazer Bakery’s operations.

Fazer Confectionery’s focus on profitable growth yielded excellent results, with increased sales in all key categories. Strong novelties and marketing campaigns generated growth in chocolate bars, candy bags, and chocolate tablets. Also, the seasonal portfolio continued its strong performance. Fazer Confectionery’s net sales increased by 6% and reached 353.1 M€ (2018: 333.1). In Finland, Fazer’s market share increased, and market share development was positive also in the majority of other markets. International growth was supported with strong development in Denmark, successful sales initiatives in Asia and the launch of Fazer Nordi premium chocolates in the US. Fazer Candy Store, opened in 2018 to serve consumers online, was extended in the end of 2019 to include products from all Fazer’s business areas and renamed Fazer Store.

Fazer Lifestyle Foods offers interesting growth opportunities for Fazer. The non-dairy market continued its strong development, and the Fazer Yosa core offering progressed well in most markets. Growth in the smoothie category was not on the desired level, but actions are taken to improve the situation. Fazer Lifestyle Foods’ net sales increased by 30% and amounted to 158.1 M€ (2018: 121.8). Strong investments into Fazer Lifestyle Foods’ brands and categories continued to drive the growth. Kaslink, a well-positioned player on the Finnish market with Nordic food offering including cooking products, drinks and snacks, was acquired. An investment decision of 30 million euros was made to double Fazer’s oat milling capacity in Lahti, Finland and Lidköping, Sweden, to meet the growing demand for oats and provide top-quality ingredients for Fazer’s businesses, in particular for the non-dairy, plant-based meals and breakfast categories. A ground-breaking 50-million-euro investment in building a xylitol manufacturing facility in Lahti was started.

The Fazer Retail business unit’s net sales increased slightly to 47.1 M€ (2018: 46.4), despite the challenging market situation prevailing especially in Sweden. New players were increasing their market presence, and the share of unpacked bread was growing in the grocery channel. In 2019, Fazer Retail opened six new stores in new locations in Finland and Sweden.

The Fazer Experience Visitor Centre was visited by more than 230,000 people in 2019, which is a new record.

Discontinued operations

Fazer is focusing on its FMCG and direct-to-consumer businesses. As part of this development and following the set strategy, Fazer Group announced the sale of the Fazer Food Services business to Compass Group in June. The sale was approved by the EU Commission’s competition authorities on 28 January 2020 and was completed on 31 January 2020. In 2019, Fazer Food Services’ performance improved from the previous year due to operational improvements and better contract retention, and its net sales reached 597.3 M€ (2018: 593.2). A programme focusing on four profit drivers – portfolio management, revenue management, margin management and fixed cost management – was successfully implemented to improve performance. Sales in comparable units grew in all countries but particularly in Finland. The value of new contracts signed exceeded the value of lost contracts, which supports the profitable growth plan.

Fazer Food Services is reported as discontinued operations in Fazer Group’s Financial Statements. The result of discontinued operations is presented in the income statement net of tax under “Result for the period, discontinued operations” and the comparative information is restated accordingly. Assets related to discontinued operations are reported in balance sheet as “Assets held for sale” and liabilities as “Liabilities related to assets held for sale”. The balance sheet is not restated for comparative period. The cash flow statement is not restated, so it includes discontinued operations in 2019 and 2018.

Financial results for continuing operations

Fazer’s net sales for the continuing operations increased by 7% from previous year and reached 1,097.0 M€ (1,029.2). The foreign exchange rate changes reduced the net sales by 4.4 M€. The businesses acquired in 2019 increased the net sales by 23.6 M€ compared to previous year.

Operating profit for the continuing operations decreased to 49.1 M€ (55.9). Operating profit included 4.2 M€ (2.7) one-time restructuring costs and write-offs (net), mainly related to the restructuring of the bakery shop network in Sweden and the bakery operations in Russia as well as the closure of the Oulu bakery in Finland. The 2019 result was also burdened by 5.2 M€ costs related to the acquisition of Kaslink and expected credit losses related to a Russian retail chain that became insolvent. Profit for the financial period amounted to 38.9 M€ (41.6) for the continuing operations.

Cash flow and financial position

The Group’s financial position remained strong. Reported interest-bearing net debt totalled 127.0 M€ (95.0) and gearing was 22.5% (17.5%). The Group’s equity ratio was 52.6% (56.8%).

The Group’s reported cash flow from operating activities was 144.8 M€ (114.6) and gross investments amounted to 107.1 M€ (50.5). Besides the Kaslink acquisition, majority of the investments were done in new production equipment and upgrades to the existing machinery in the bakery and confectionery operations as well as the construction of the new xylitol factory.

Personnel

At year-end, Fazer had 8,805 employees (8,884) in the continuing operations and 6,958 (6,857) in discontinued operations. Out of these, 65 (91) were employed by the parent company.

Strategy implementation

In 2019, Fazer continued the implementation of its strategy with the aim of transforming into a modern sustainable food company with a joint direction in Northern Europe and beyond. Fazer targets growth and value creation through portfolio choices, research and innovation, investments into foodtech, continued operational excellence and structural improvements.  

In terms of portfolio choices, Fazer decided to focus on its FMCG and direct-to-consumer businesses and agreed to sell Fazer Food Services to Compass Group. This transaction was completed on 31 January 2020. In addition, Fazer strengthened the Fazer Lifestyle Foods business through the acquisition of Kaslink. With regard to innovation and foodtech, Fazer started to build a xylitol factory in Lahti, made the first Low Fodmap (Fazer LOFO) product launches and entered into a strategic partnership with Solar Foods to research the use of a new sustainable protein ingredient in future food applications. Fazer also decided to double its oat milling capacity to meet the growing demand for oats for the non-dairy, plant-based meals and breakfast categories. Focus on strategy implementation was clearly visible also in the Fazer Confectionery business, where strong emphasis was put on growth and operational excellence. This resulted in achieving 6% annual organic growth and starting the planning of a major upgrade of confectionary manufacturing operations. In Fazer Bakery, the focus was on the expansion of the shop-in-shop bakery business, achieving 24% annual organic growth, and on negotiations for the Vuohelan Herkku gluten-free bakery business, that was acquired in January 2020. Each of the businesses and Group functions continued seeking opportunities for operational excellence with a large number of value creation initiatives in implementation.  

Quality, environment, occupational health & safety and food safety

Fazer’s quality, occupational health and safety and environmental management continued to improve through internal programmes and third-party certifications. During 2019, Fazer implemented a system for QEHS management in Finland. It ensured a more systematic accident and incident management, data availability and transparency. Lost-time accident frequency increased by 15% from 2018 in the continuing operations.

In 2019, there were three product recalls regarding food safety. Product recalls were made due to microbiological and allergen deviations.

All Fazer’s internal production sites have food safety management certifications (FSSC 22000 and/or IFS) approved by the Global Food Safety Initiative (GFSI), and food fraud and food defence mitigation actions continued. A new Group-wide access control system was implemented in most of the operating countries.

Fazer continued to engage in energy efficiency activities, started to work on its long-term energy plan for 2021 and onwards, and conducted regulatory energy audits in Finland. Waste reduction actions across the Group were carried out, focusing on preventing food waste and recycling side streams. As part of the water stewardship commitment, site specific water risk assessments were carried out, and this work continues. The energy consumption per produced tonne declined while waste, by-products and water consumption per produced tonne increased.     

Sustainability

During 2019, systematic work continued towards our sustainability targets for 2030. Fazer focused on implementing sustainability work through four Core goals: 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 in 2019 include systematic work to improve energy efficiency to reduce climate emissions, continued focus on food waste reduction and more focus on water related issues. Fazer continued its commitments on the sustainable sourcing of cocoa, grain, soy, palm oil, fish and cage-free eggs and increasing its offering of plant-based foods. In 2019, the development in the core goals was following: the emissions declined, the amount of food waste increased slightly, the supplier requirements were clarified, and the sourcing related commitments continued. Further, the plant-based offering increased. Fazer’s reputation remained on a good level in its main markets. 

Risk management

Fazer regularly evaluates and analyses the Group's strategic, operational and financial risks within the framework of its risk management policy and takes action to mitigate these risks. In 2019, one major risk was realised when Fazer Lifestyle Foods’ Lidköping mill experienced a fire. Due to prompt actions by the personnel on the site, no personnel injuries occurred, the damage was limited and the impact on deliveries to customers was mitigated. Apart from this fire, no major risks were realised.

Research and development

In the nutrition and health research track, the first results of Fazer Brainhow clinical trials were published at international scientific congresses. The so-called Brave study showed the beneficial effects of a brain-friendly dietary pattern on cardiovascular health, cognitive performance and vitality. In the Power Meals study, protein-rich home meals improved protein intake, physical performance and health related quality of life in home-dwelling older people.

In the food technology research track, Fazer initiated Fazer Oathow, an R&D project with focus on oat ingredient technology. Moreover, Fazer and the Finnish start-up company Solar Foods entered into a strategic R&D partnership in order to co-develop a novel sustainable protein ingredient into new food products. The protein ingredient is made utilising carbon dioxide captured from air. Fazer’s cooperation with universities continued and resulted in the publication of multiple master thesis works.

Research and development costs amounted to 9.3 M€ (8.5) for the continuing operations.

Outlook for 2020

Fazer will continue its transformation, focusing on its FMCG and direct-to-consumer businesses. 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 strengthen growth and internationalisation. Fazer will also strengthen its competitiveness further through its value creation programmes and the continuous development of its organisational and structural efficiency. In 2020, the net sales and the operating profit are expected to increase compared to previous year.

Events after the reporting period

In January 2020, Fazer announced plans to close its production facility in Kaarina, Finland and started collaboration negotiations affecting all employees at the Kaarina factory. Fazer has evaluated different options for increasing efficiency in the production of Fazer Yosa oat products and enabling further growth, and it plans to close the production facility in Kaarina and move its non-dairy operations to Fazer’s factory in Koria.

Also in January 2020, Fazer announced the acquisition of Vuohelan Herkku’s bakery and mill businesses. Vuohelan Herkku is one of the forerunners in gluten-free baking in Finland and has a new gluten-free bakery in Lahti. Through this acquisition, Fazer becomes the market leader in gluten-free bakery products in Finland. 

As part of Fazer’s shift of focus to the FMCG and direct-to-consumer business, Fazer Group announced the sale of Fazer Food Services to Compass Group in June 2019. The sale was approved by the EU Commission’s competition authorities on 28 January and took effect on 31 January 2020.

In February, Fazer decided to reorganise the Finnish field sales forces of its businesses into two joint organisations: one for fresh goods and one for long shelf life products.

Fazer-konserni

Ruokaelämyksiin keskittyvänä yrityksenä Fazer mahdollistaa jokaiselle päivän parhaista hetkistä nauttimisen. Kun Karl Fazer avasi ensimmäisen konditoriansa Helsingin Kluuvikadulle vuonna 1891, hänen missionsa oli tehdä ruokaa, jolla on merkitys: mahdollistaa ilon hetkiä ihmisille ympärillään. Fazer muovaa uusia makuja, perinteitä ja ruokaelämyksiä luottamalla vankkaan perintöönsä, kuluttajalähtöisyyteen ja innovaatioihin, joilla luodaan tulevaisuuden vastuullisia ruokaratkaisuja. Fazer keskittyy kuluttajatuotteisiin ja suoraan kuluttajaliiketoimintaan uudistuen moderniksi vastuulliseksi ruokayhtiöksi, jolla on yhteinen suunta. Fazerilla on toimintaa yhdeksässä maassa ja vientiä noin 40 maahan, Fazer noudattaa liiketoiminnassaan eettisiä periaatteita, jotka pohjautuvat yrityksen arvoihin ja YK Global Compactin periaatteisiin.

Northern Magic. Made Real.

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