Fazer managed to grow, regardless of the difficult market situation. Performance was satisfactory but below the previous year’s level.

The general economic situation in Fazer’s main markets was weak in 2013. This led to low consumer demand, lay-offs in several areas and general economic uncertainty. This had an effect on Fazer’s business.

The bakery business' biggest challenges were the continued high volatility of prices of raw materials, a decreasing market for pre-packed bread and increasing price competition. The share of bake-off, or frozen, part baked bread is growing and price competition in pre-packed bread has become stronger, especially in Finland. Fazer’s market share in the bakery business decreased in Finland and Sweden but increased in Russia. There was a decrease in the financial performance. In response to the increasing popularity of oat in recent years, Fazer invested in a new oat mill, which was opened in 2013. The mill made its first deliveries in October.

Confectionery products faced a decrease in total demand, particularly in Finland. However, Fazer’s market share increased in all of its main market areas. Net sales development within the confectionery business was positive, partly due to the launch of innovative Fazer-branded biscuit products. The biscuit business, acquired in the end of 2012, clearly exceeded expectations in 2013. The result of the confectionery business was satisfactory but below the previous year’s level.

The café and bakery shop business was negatively affected by the warm summer and did not reach its business targets. In line with the company’s strategy, Fazer opened six new bakery shops, one café and two shop-in-shop units in 2013.

Fazer’s food service operations were burdened by lay-offs in client companies.Fazer strengthened its position in Norway through the acquisition of Skandinavisk Mat Invest AS (SMI) which, in turn, owns Wilberg AS, Maestro F&B AS and Holmedals Kantineservice AS. SMI operates in the food service industry, offering high quality, customer focused contract catering. In Finland, the result of the food service business was below that of 2012. There was a positive development in financial performance in the other market areas.

Results and financial position

Despite the challenging market situation, the Group’s net sales increased by 2.3 per cent and totalled 1,695.7 M€, compared to 1,656.9 M€ in 2012.

Growth in net sales was strongest within the milling operations, but was also robust within the confectionery business and food service operations in Norway, Sweden and Denmark. The effect of exchange rates on net sales was approximately -15 M€, mainly due to the weakening of the Russian rouble against the euro. The net impact of acquired and divested operations on net sales was +36.5 M€.

Fazer’s results were satisfactory but below the previous year’s level. The Group’s operating profit amounted to 49.0 M€, compared to 68.6 M€ in the previous year. Profit for the financial period was 23.9 M€ (34.4 M€ in 2012). Profitability improved in the milling business, food service operations in Scandinavia, the confectionery business in Sweden and Russia and the bakery business in Sweden. The results of both the bakery and confectionery business decreased in Finland.

The Group’s financial position remained strong. Interest-bearing net debt decreased and totalled 33.3 M€ at the end of the year (46.7 M€ in 2012). The Group’s equity ratio was 58 per cent (57 per cent 31.12.2012) and gearing was 6 per cent (8 per cent 31.12.2012).

Cash flow from operating activities was 115.3 M€ (155.6 M€ in 2012) and gross investments amounted to 79.7 M€ (84.1 M€ in 2012). The majority of gross investments consisted of the acquisition of SMI, investments in new production equipment and upgrades to existing machinery in the bakery and confectionery operations.

Personnel

On 31 December 2013, Fazer Group had 15,595 employees (15,542 in 2012). At year-end, 116 people (120 in 2012) were employed by the Group’s parent company, including employees working in milling operations.

Research and development

Fazer engaged in international research projects and studies, participated in international networks, and conducted its own research projects. Fazer cooperates with the University of Helsinki in research on the health effects of dark chocolate. Work proceeded according to plan and the findings will be evaluated in spring 2014. Rye, oat, xylitol products and carbohydrates and, in particular, the effect of carbohydrate-rich nutrients on blood sugar levels, were among the other principal fields of research.

Intensive cooperation and contacts with universities and research institutes in Finland and abroad continued in 2013. Investments in research and development grew by 19.4 per cent.

Research and development costs for Fazer Group amounted to 10.0 M€ in 2013 (8.4 M€ in 2012), including new product development.

Quality, environment and corporate responsibility

The quality of Fazer’s products and services is a high priority in all operations. The company has developed its own food safety standard with the purpose of further improving the safety of Fazer’s products and to enhance personnel’s competence in food safety matters. The work began in 2012 and continued in 2013 with food safety analyses conducted in all operating countries.

For many years, Fazer has employed the Reputation Institute’s RepTrak® model to measure the attitudes of stakeholders in Finland towards the company. This year, the study was extended to Sweden and the St Petersburg area in Russia. The results indicate that Fazer has a good reputation in all of these markets.

Work to define environmental standards for Fazer’s operations took place during the year, and efforts to improve energy efficiency and increase the use of renewable energy proceeded. Fazer continued to improve its level of responsibility in its sourcing of key raw materials, including cocoa.

In the food service business, the work to improve the selection of organic ingredients progressed. In Sweden, nine new restaurants were awarded organic certifications by KRAV, the main organisation for developing organic production standards in Sweden. About 70 per cent of Fazer’s restaurants in Finland are on Step Two of the Steps to Organic programme. In Denmark, Fazer focused on improving overall sustainability, and focused strongly on food portion sizes to reduce waste.

Karl Fazer Milk Chocolate was once again the most valued brand in Finland and the Fazer brand came second in an annual survey.

Risk management

Fazer regularly evaluates and analyses the Group's strategic, operative and financial risks within the framework of its corporate risk management policy. Group companies have defined their most important risks, developed action plans to reduce them and made progress in realising these plans. The most substantial risks for Fazer Group are related to activities conducted in developing markets. Other major risks are potential disruptions to the production and supply chain, changes in the customer and supplier chain, as well as risks associated with substantial price fluctuations for the most important raw materials. The Group’s financial risks and risk of loss were managed in line with the policy adopted by the Board of Directors.

Changes in Group structure

Fazer continued to invest in its core businesses. The company acquired SMI in Norway. SMI had net sales of 8.7 M€ from November to December 2013. The acquisition strengthens Fazer’s position in the Norwegian market for food services.

Additional measures were carried out in 2013 to simplify the Group's legal structure. To reduce administrative work and expenses, and to shift the focus from the legal structure to the operative business organisation, a total of six Group companies in Denmark, Sweden and Russia were discontinued or merged.

Shares and share capital

At the end of 2013, 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 per cent 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 21 March 2013, the following Board members were re-elected: Berndt Brunow (Chairman), Klaus Cawén, Anders Dreijer, Ketil Eriksen, Fredrik Fazer, Jan Fazer, Leif Hagelstam, Johan Linder and Juhani Mäkinen.

Chartered Accountants Pricewaterhouse­Coopers were chosen as auditors, with Chartered Accountant Kim Karhu as auditor-in-charge.

In line with his decision to resign the year he turns 60, Group President and CEO Karsten Slotte left the company in October 2013. Fazer’s new President and CEO Christoph Vitzthum started on 1 October 2013.

Outlook for 2014

The outlook for the economy of Fazer’s main markets remains uncertain. The high volatility of raw material prices will continue to have an effect on operational preconditions in 2014. Above all, the price of cocoa, which rose during 2013, is expected to remain high in 2014. Intense competition within the bakery sector is anticipated to persist.

Fazer will continue to implement its strategy in 2014. Its aim is to achieve profitable growth within current and new product categories, both in the home markets and selected growth markets. Fazer expects an increase in net sales and profitability during the year 2014.

Proposal for distribution of profit

The parent company’s distributable funds amount to 441,003,229.49 euros of which 27,148,975.15 euros represent 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 3.30 euros per share, i.e. a total of 20,869,077.90 €

-                                to leave in profit brought forward 420,134,151.59 €
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                                                                                  441,003,229.49 €
  

The proposed dividend does not pose any risk to the company's financial standing.