Markets and business environment
The business environment in Fazer's key markets continued challenging in 2015. The economic situation in Finland remained weak. In Russia, the economy declined and the rapid decrease in oil price affected also Norway’s economy. Sweden, however, showed signs of growth. In addition, weakened currencies in Russia, Sweden and Norway affected Fazer's business and financial performance in 2015.
In Fazer Bakery, the devaluation of the rouble and high inflation weakened consumer purchasing power in Russia. Intensified price competition in the Finnish market was also acknowledged. In Sweden, the bread market grew slightly, although growth was strongest in segments where Fazer’s market share is relatively small. To compete in the tough marketplace, novelties continued to play a vital role in Fazer Bakery’s product offering; good examples being the root vegetable breads launched in Sweden and the Health Energy range launched in Russia. The previously announced closures of bakeries in Tallinn, Ulvila and Hyvinkää were completed in 2015. In addition, collaboration negotiations concerning the Vantaa bakery were concluded with the decision to reduce personnel by 40.
In Fazer Confectionery, the Finnish home market declined slightly from 2014 and, despite the strong performance and well-received novelties launched in the chocolate category, Fazer lost some market share. However, in Sweden and Russia, Fazer Confectionery continued to gain market share in growing markets. Other highlights were the comprehensive strategy work done on the product portfolio and the launch of a new liquorice range. Focus was also put on digital marketing and packaging capabilities. The decision of the Finnish Government to abolish its arbitrary excise tax on confectionery, ice cream and soft drinks at the end of 2016 was announced in September.
Fazer Food Services’ business environment in 2015 was characterised by continued economic downturn in several markets, combined with increased customer expectations and constant price pressure. The declining trend for traditional contract catering in business and industry sectors continued in 2015. Besides the continued investments into these sectors, Fazer Food Services also increased focus in the public sector. Good examples of growth in the public sector were a large hospital contract in southern Sweden and acquisition of Seniori Ateria in Finland. Seniori Ateria is a growing business that provides specialised food services for senior citizens in private and elderly care homes all over Finland.
The low quality of the Finnish wheat crop and the strong decline in the sales of mixes to Russia characterised the year 2015 for Fazer Mill & Mixes. However, the business unit did achieve good results in oat exports and with the launch of new oat derivatives. The Fazer Alku porridge produced by Fazer Mill & Mixes was announced as the food product of the year in Finland. Another success was to secure the mill’s domestic supply of Finnish rye flour until well into 2017.
Fazer Cafés enjoyed a strong year in 2015. After the launch of a new café concept and turnaround of the poorly performing cafés, the business unit progressed with profitable growth by the launch of two new locations, bringing Fazer’s taste sensations and café concept to consumers in the cities of Turku and Tampere in Finland.
Fazer’s net sales were affected by the weakening currencies in Russia, Sweden and Norway, and reached 1,576.1 M€ (2014: 1,647.7), down 4.3 % from 2014. With comparable foreign exchange rates, net sales increased by 0.5 %.
Growth in net sales in local currencies was strongest in Russia and Sweden, both for the bakery and confectionery operations. The continued economic downturn had a negative impact on net sales especially in Finland, Denmark and Norway.
The Group’s operating profit amounted to 44.9 M€ (43.3). Operating profit includes 3.4 M€ (12.7) one-time
restructuring costs and write-offs. Profit for the financial period was 19.7 M€ (16.5). The profitability of Fazer Bakery, Fazer Food Services and Fazer Cafés improved while the result of Fazer Confectionery and Fazer Mill & Mixes fell below previous year.
Cash flow and financial position
The Group’s financial position remained strong. Interest-bearing net debt totalled -17.3 M€ (-20.7) i.e. Fazer was net debt free at the end of the year, resulting in a negative gearing ratio. The Group’s equity ratio was 56 % (63 ).
Cash flow from operating activities was 110.7 M€ (130.4) and gross investments amounted to 61.7 M€ (58.9). The majority of investments consisted of new production equipment and upgrades to existing machinery in the bakery and confectionery operations.
At year-end, Fazer Group had 14,709 employees (15,305). Out of these, 133 (127) were employed by the parent company, which includes employees working in Group Management and Fazer Mill & Mixes.
Quality, occupational health & safety and environment
Fazer continued to develop and improve quality, occupational health & safety and environmental responsibility by continuing the implementation of its own internal programmes, but also through 3rd party certifications for its management systems.
In quality, the focus was on implementing the FSSC 22000 food safety system at Fazer’s production sites. By the end of 2015, all Fazer bakeries in Sweden and Russia, the Vantaa, Lahti and Lappeenranta bakeries in Finland, and all confectionery factories in Finland were certified.
Several actions were taken in 2015 to improve occupational safety. Fazer increased the number of safety observations and safety dialogues, with a focus on employee involvement and risk mitigation. Safety discussions became part of individual development discussions and were also held when an employee returned from holidays.
Several safety campaigns were also organised to promote safety at work. Accident prevention was supported also by training employees to work in a safe way. One of the focus areas was the safety trainings for supervisors and safety personnel. QEHS support and expertise were strengthened at sites across the company.
To support the work in safety, Fazer has set a bonus target to reduce lost time accident frequency by 20 per cent annually. This target was not met in 2015 but the company managed to reduce the accident frequency by 13.8 % from 2014.
Fazer has ISO 14001 certifications for most operations and continued to improve its environmental management. In 2015, Fazer achieved its target of 70 % renewable electricity.
In 2015, Fazer made significant progress in reaching its corporate responsibility targets. Highlights include increasing the share of vegetables in Fazer Food Services’ offering, raising the amount of responsible cocoa to 72 % in the confectionery business, publishing a new human rights policy, taking steps to improve occupational safety and supporting domestic rye production in Finland.
Fazer regularly evaluates and analyses the Group's strategic, operative and financial risks within the framework of its risk management policy and takes actions to mitigate these risks. Only some minor risks realized in 2015.
Research and development
A key R&D theme in 2015 was to apply R&D results in new product development and to increase related communication. Fazer’s dark chocolate study with the University of Helsinki was published in the Nutrition Journal. Product quality research delivered promising solutions for the management of fat-blooming and cocoa flavanols in chocolate processes. Sugar and salt reduction were investigated in confectionery and bakery products. Plant protein ingredients were explored and prototype food bases for nutritious plant-based dishes developed. Two clinical trials that investigated gastrointestinal effects of different wheat and rye breads were also conducted. Network building and active cooperation with universities and research institutes continued. Research and development costs amounted to 10.5 M€ (10.8).
Changes in Group structure
Fazer acquired a small but specialised food service business Seniori Ateria, including three legal entities, at the end of the year in Finland. The Group simplification project continued and three Group companies were merged in Norway to reduce administrative work and expenses. The Swedish cafés were moved operationally from Fazer Cafés to Fazer Food Services in the beginning of 2015.
Shares and share capital
At the end of 2015, the parent company had 3,958,763 preference shares and 2,365,200 ordinary shares. Preference shares carry a preferential right of at least 6 % of the share’s nominal amount, ahead of ordinary shares, for the annual dividend from the company’s distributable profit. At the Annual Shareholders’ Meeting, each ordinary share is entitled to ten votes and each preference share carries one vote.
Administration and auditors
At the Shareholders’ Meeting on 26 March 2015, the following Board members were re-elected: Berndt Brunow (Chairman), Anders Dreijer (Vice Chairman), Klaus Cawén, Ketil Eriksen, Jan Fazer, Leif Hagelstam, Johan Linder and Juhani Mäkinen.
Chartered Accountants PricewaterhouseCoopers were chosen as auditors, with Chartered Accountant Martin Grandell as auditor-in-charge.
Outlook for 2016
Intense competition in all markets and businesses together with economic uncertainties in Europe and Russia are expected to continue in 2016.
Fazer will continue to execute its strategy across its businesses. Fazer aims to achieve profitable growth within the current and new product categories, both in its home markets and selected growth markets. Fazer’s net sales are expected to grow moderately in 2016, subject to the development of key non-euro denominated currencies. Work on defined efficiency improvement actions will continue to strengthen competitiveness and profitability. Developing new products and services and implementing a high performance culture will continue to be in focus.
September 2016 will mark 125 years since Fazer was founded. As part of the company's 125th anniversary celebrations, Fazer will inaugurate a new visitor centre in Vantaa, Finland in September. The company aims to create an inspirational and educational brand experience that leads to a life-long relationship with Fazer.
Proposal for distribution of profit
The parent company’s distributable funds amount to 413,742,348.51 euros of which 24,031,800.99 euros represents profit for the financial year.
The Board of Directors proposes to the Shareholders’ Meeting that distributable funds should be appropriated as follows:
to pay a dividend of 3.00 euros per
share, i.e. a total of 18,971,889.00 €
to leave in profit brought forward 394,770,459.51 €
The proposed dividend does not pose any risk to the company's financial standing.