Cloetta CEO Bengt Baron is handing the reins to the boss of its Finnish unit, David Nuutinen, after six years at the top of the European confectioner. The company has just come through what Baron called an "intense restructuring period" following the merger between Cloetta and Leaf International in 2012 and the business is seeing a steady rise in sales. But what lies ahead for Nuutinen? Hannah Abdulla reports.
Bengt Baron's departure from Cloetta comes with the European confectioner in a more settled phase after the merger with Leaf International and 2012 and the post-deal restructuring that followed.
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But his successor, David Nuutinen, has plenty to ponder as he takes the helm at the Chewits and Sportlife maker.
In February 2012, Cloetta completed a merger with rival Leaf (in accounting terms, Leaf was the acquirer) and the move was lauded by analysts, creating a bigger company, operating in more markets and one better able to deal with commodity volatility.
Baron, Leaf's chief executive, became CEO of the new Cloetta. The merger meant a lot of restructuring.
Unsurprisingly, the integration process meant charges and a hit to the new Cloetta's profitability, although, in 2012, in the teeth of the shake-up, the company still saw underlying sales and EBITA fall, amid a weak economy in Italy, a tax on sugar in Denmark and the implementation of ERP in Sweden.
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By GlobalDataBy the fourth quarter of 2012, Cloetta's underlying earnings were showing signs of improvement. In 2013 the company's underlying EBIT jumped almost 40% and it swung back into the black. Last year, despite full-year earnings being hit by the cycling of a tax benefit, it saw a jump in operating profit and underlying EBIT.
In the first quarter of the 2015, sales were up 10% and operating profit increased to SEK90m (US$10.9m), and it appears Cloetta is finally getting back on its feet.
Baron said it was "good time" hand over the reins after six "exciting and intense" years at the top. Nuutinen, the head of its Finnish arm and, like Baron, a man who was at Leaf at the time of the merger, is to take charge.
Cloetta's chairman of the board, Caroline Sundewall, said the internal appointment of Nuutinen, who spent ten years as CEO of Cloetta's Finnish arm, was one that demonstrated "continuity and stability".
"As leader of our Finnish business, David has led it to continued excellent performances by consistent and dedicated leadership. He has throughout the years improved the performance of his business area and under his leadership the strategy and financial targets have remained intact," Sundewall said.
In 2014, Cloetta said its business in Finland demonstrated "strong sales development". No specific figures were disclosed.
Jack Skelly, analyst at Euromonitor International, says the move to promote Nuutinen to the position "makes sense".
"He already has experience of working at the company and he knows what has made them successful over the last five years. There’s something of an 'if it ain’t broke, don’t fix it' logic being applied here," he says. "The company’s confectionery business has performed steadily in the last five years, which is perhaps unsurprising given the poor growth of its core European market. They aren’t rocking the boat with this move."
But industry watchers say the path ahead is far from smooth. Cloetta has had its struggles in some markets, with Italy a notable problem area. In February the Sperlari maker confirmed it would be axing 30 jobs in the country after the market contracted for the fourth consecutive year. The Italian challenge is unlikely to disappear anytime soon, Skelly says.
"The Italian confectionery market is in steep decline, with sugar confectionery struggling in particular. We’re expecting the sugar confectionery market to decline 6% by 2019."
Competition in Italy is tough. Cloetta is faced with trying to grow market share against rivals such as Perfetti Van Melle – for which Italy is its home market.
Skelly points to the success Perfetti has had with its Golia liquorice in the market through diversifying the range of flavours it offers. "Salia is Cloetta’s Italian answer to Golia, and it should perhaps invest in this brand in order to take some market share away from the [Golia]."
But it is not just the Italian market proving tough for Cloetta. It has also seen sales in the Netherlands and Norway come under pressure in recent months. Cloetta said the falls came from a decline in contract manufacturing in both countries. In Norway, Cloetta is the third-largest confectioner but is the leader in sugar confectionery and pastilles. Cloetta is the second-largest player in the Netherlands with an 18% market share, behind Perfetti Van Melle. In a profile snapshot of its activity in the country, Cloetta noted the increase in market share of the hard-discount retail chains in the country to 15%, a channel in which it is not present.
In general, confectionery consumption in both Norway and the Netherlands is in the doldrums. According to Mintel, in 2014, sales volume of sugar and gum confectionery in Norway fell 4.2% in value terms. In the Netherlands, in 2013 sales volume of sugar and gum confectionery fell 0.9%. In 2014, it was forecast to increase just 0.2%.
More consumers are looking for healthier snacks – and sales of obvious sugar-laden treats are being affected. Many traditional candy confectioners have looked to snacks – in particular better-for-you snacks – to broaden their portfolio and cater to a growing trend of health-first consumers.
Cloetta has responded and made some moves to extend their range. In late 2013, it acquired Sweden-based dry roasted nut maker Alrifai Nutisal – its first move into snack nuts. In May 2013, it acquired UK free-from candy firm Goody Good Stuff, which makes vegetarian, dairy and nut-free confectionery. Skelly suggests Cloetta could look at snacks more broadly as it looks for avenues for growth.
"Given that the company has very little experience in this area, an acquisition strategy would be useful. Biscuits grew far quicker than sugar confectionery over the last five years, and they’re expected to grow at about five times the rate of sugar confectionery over the next five years."
Acquisitions are on the company's agenda. In July last year, Baron told just-food there were a lot of "munchy moments out there that we're not satisfying at this point" and that the company would "continue to look for opportunities".
In the wake of news of Nuutinen's appointment, Cloetta said it would continue to look for acquisition opportunities, without disclosing which categories in which it is looking. Sugar confectionery could remain on the cards. Only last May, Cloetta added Ireland's Aran Candy, the firm behind the Jelly Bean Factory to its portfolio.
Sugar confectionery is still an area in which Cloetta is looking to grow but, says Skelly, it will be challenge to achieve significant value growth while the category is being "vilified".
He believes some success couldlie in creating more "expensive products with added novelty value", in order to increase impulse purchases.
In analysing Nuutinen's possible M&A options, location also needs to be considered. Cloetta boasts a strong portfolio of 30 brands. Only 10 of the 30 have a presence that spans outside western Europe. Nuutinen suggests any acquisitions in the near future would likely be "local" ones. But Skelly thinks it should be focusing its energy where "sugar confectionery is more popular" such as Asia Pacific.
"Given the number of smaller businesses in the region, Cloetta would have the financial wherewithal to acquire smaller companies. This would give the Cloetta access to distribution networks and production facilities that it currently lacks. This appears the most cost -effective and savvy route for acquisitions."
