Fazer continued to improve its performance and to implement its strategy in 2017. The Group’s net sales and operating profit increased from the previous year.

In March 2017, a change was made to the company’s operating structure by forming a new business area, Fazer Lifestyle Foods, which focuses on non-dairy grain products, plant- based meals and on-the-go food and drinks. In relation to the newly established business area, two acquisitions were made in 2017 – the acquisition of Bioferme, a Finnish company specialised in fermented oat products, and the acquisition of the leading Nordic smoothie brand Froosh. In addition, Fazer Mills was included in the Fazer Lifestyle Foods business area. Focus on efficiency improvements continued with initiatives in several fields. Work safety and the development of a safety culture remained an important theme in 2017 with positive results.

In 2017, Fazer started to apply the International Financial Reporting Standards (IFRS) in its consolidated accounts. Also, comparative figures for 2016 were restated in accordance with IFRS. The parent company’s figures continued to be based on Finnish Accounting Standards (FAS).

Markets, business environment and sales

In 2017, the economies in many of Fazer’s key markets took a turn to the better: the Finnish, Norwegian and Russian economies strengthened, and the Swedish economy continued on its growth path. The biggest foreign currency impact on Fazer came from the rouble, which strengthened 1 % against the euro on average, and supported Fazer´s financial performance in 2017.

The bakery market as a whole slightly declined in the main markets during 2017, and the share of private label sales increased. Despite the challenging market situation, Fazer Bakery was able to increase its sales to 614.4 M€ (2016: 602.4) and successfully implement value creation actions to improve its operational efficiency and profitability. The health trend continued and supported the sales of the well-being offering, and the popularity of artisanal bread remained strong. In Finland, good performance was backed up by the strong portfolio with a good product mix and successful novelties. In addition, the shop-in-shop business continued its success. Sweden, on the other hand, suffered from the market decline and the competition from private labels. Successful product launches and operational improvements were carried out in Russia. The Baltic bakery operations improved their product portfolio with successful new product launches and price positioning. Artisanal bread continued to attract consumers, and bakery shops’ sales increased.

2017 was an excellent year for Fazer Confectionery: comparable net sales increased to 331.2 M€ (313.4, excluding the excise tax of 24.0 M€) supported by successful product launches, novelties and campaigns. The confectionery market volume increased, and the biscuit market saw some growth as well with Domino, Jaffa and Fasupala performing above expectations. In Finland, competition in chocolate tablets was tough, but Fazer was able to defend this core
market. The Karl Fazer brand was voted the most valued brand in Finland. Fazer Confectionery’s market share grew in Sweden.

Fazer Food Services has around 1,200 restaurants in Finland, Sweden, Norway and Denmark serving specific sectors within three clusters – Business, Concession and Public. In 2017, Fazer Food Services maintained a strong market position, despite increasing competition especially in the public sector. Net sales reached 607.7 M€ (600.7). The impact of the net portfolio change was slightly negative, but comparable sales improved especially in Finland. Client satisfaction (NPS) increased during 2017. A brand renewal was started, and it will continue in 2018 with the refreshing of the Amica brand and building of the new Fazer Food & Co restaurant brand.

Fazer Lifestyle Foods is a new business area established in March 2017 with the acquisition of the oat expert Bioferme and its popular Yosa brand. Fazer Lifestyle Foods’ offering consists of plant-based foods and drinks, non-dairy products, and snacks. The smoothie brand Froosh, acquired in November, serves as a platform for Fazer Lifestyle Foods’ offering of healthy and sustainable fruit-based products. In addition to its strong position in the Nordics, Froosh exports to several European countries. Fazer Mills, which is a part of Fazer Lifestyle Foods, produces oat-based breakfast products, for instance porridge, muesli and cereals, in addition to the traditional milling products. It also produces oat derivatives such as beta-glucan and oat protein for the food industry, as well as oat oil and oat fibre for the cosmetic and pharmaceutical industries. Net sales of the new business area reached 99.4 M€ during its first year of operation. This includes the sales of Fazer Mills and post-acquisition sales of Bioferme and Froosh.

      

In 2017, Fazer Cafés’ net sales remained on the same level as previous year and stood at 21.9 M€ (22.0), despite continuously tightening competition. Two new cafés were opened, one in Sanomatalo in Helsinki and one in Ainoa in Tapiola, Espoo. Fazer Cafés’ customer satisfaction improved from the already high level of the previous year.

The Fazer Experience visitor centre, opened in 2016 when Fazer celebrated its 125th anniversary, was visited in 2017 by more than 187,000 people who also gave high customer satisfaction ratings.

Financial results

Fazer’s reported net sales increased by 2% from previous year and reached 1,641.6 M€ (1,603.1). Excluding the excise tax abolished from the beginning of 2017 from 2016 figures, the comparable net sales were up almost 4%. The strengthened foreign exchange rates increased the net sales by 14.4 M€ and the acquired and sold businesses by 25.8 M€ (net).

The Group’s operating profit improved to 92.1 M€ (90.1). Operating profit included 3.5 M€ (0.6) one-time restructuring costs and write-offs (net). Profit for the financial period was 72.1 M€ (70.5). Fazer Bakery and Fazer Confectionery improved the profit most.

Cash flow and financial position

The Group’s financial position remained strong. Interest-bearing net debt totalled 79.0 M€ (57.3). The Group’s equity ratio improved to 55.1% (54.2%).

Cash flow from operating activities was 149.6 M€ (146.6) and gross investments amounted to 108.0 M€ (104.6). The most important investments included the acquisition of Bioferme and Froosh together with investments in new production equipment and upgrades to existing machinery in the bakery and confectionery operations.

     

 

Personnel

At year-end, Fazer had 15,478 employees (15,533). Out of these, 68 (143) were employed by the parent company.

Strategy implementation

In addition to the creation of the new business area, Fazer Lifestyle Foods, and the related acquisitions and business development, Fazer executed several initiatives to implement its strategy. These include value creation initiatives in the other business areas and Group functions as well as planning and developing means for growth and geographical expansion.

Quality, occupational health & safety and environment

In 2017, Fazer continued to manage and improve quality, occupational health & safety and environmental (QEHS) responsibility both via internal programmes and through 3rd party certifications for its management systems. The new QEHS policy was communicated broadly and common QEHS actions were rolled out across Fazer’s operations.

New ways of communication and leadership activities were implemented to improve occupational health and safety. Management safety walks, safety reviews, safety commitments and other safety actions began to be part of the daily operations. Accident frequency reduced by 6% from 2016.

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

Fazer’s environmental management was also improved: waste and by-product recycling as well as energy management certification were developed and, in Finland, Fazer Confectionery, Fazer Bakery and Fazer Mills joined the new national energy efficiency agreement with targets till 2025.

Corporate responsibility

In 2017, Fazer progressed in its systematic work towards its corporate responsibility targets. The highlights include reaching the target of 100% responsible cocoa, defining a target of 100% sustainable grain by 2025 for Finland and Sweden, promoting an increase in the share of vegetables in the restaurant offering, keeping Fazer’s reputation on an excellent level in its main markets, continuing work on Human Rights, and starting the development of a Water Stewardship Plan.

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 2017, no major risks were realised.

     

Research and development

The execution of the Fazer Brainhow programme, which focuses on the connection between food and cognitive performance, continued in 2017. Two new clinical trials were started. The FlaSeCo study focuses on the effect of cocoa flavanols on elderly people’s cognitive performance and health biomarkers. The study is conducted collaboratively with Gery (Society for Gerontological Nutrition in Finland). Another clinical study called BRAVE is conducted in cooperation with Nokia Technologies and Nightingale Health. The BRAVE study investigates the effects of brain-friendly food on cognitive functions, physiology and blood biomarkers. The results from both studies will be ready in 2018.

Technology development for belly-friendly food solutions continued. In 2017, the focus was on the development of a proprietary improver for belly-friendly bakery products. Also cooperation with University of Helsinki and Aalto University continued with five ongoing master’s or diploma works.

Research and development costs amounted to 9.9 M€ (9.0).

Changes in Group legal structure

The changes in the Group legal structure are disclosed in the Note 25 to financial statements.

Shares and share capital

At the end of 2017, 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 30 March 2017, 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.

Outlook for 2018

The GDP growth in most of Fazer’s main markets is expected to remain close to the same level as in 2017. The competitive environment is, however, expected to continue as tough for all Fazer’s businesses.

     

Fazer will focus on creating profitable growth in order to reach the long-term sales and profitability targets aligned with its strategy to create value. In addition to relentlessly driving the organic growth within the established businesses and product categories, active M&A work will continue to explore inorganic opportunities to further strengthen growth and internationalisation. Fazer’s net sales are expected to grow in 2018, subject to the development of key non-euro denominated currencies. Fazer will also continue to work on strengthening its competitiveness. This work is driven by the established value creation programmes and by continuously developing the company’s organisational and structural efficiency.

     

Events after the reporting period

Fazer Retail was established as a separate business unit at the start of 2018 to strengthen Fazer’s direct-to-consumer business. The new business unit combines the Gateau bakery shops in Finland and Sweden together with Fazer Cafés in Finland. Fazer Retail offers high-quality artisanal bread, sweet and savoury delicacies, chocolates and hot and cold beverages to café and bakery shop customers.

Proposal for distribution of profit

The parent company’s distributable funds amount to 643,230,795.57 euros of which 41,51 ,658.90 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 9.60 euros per share, i.e. a total of 60,710,044.80 €
- to leave in profit brought forward 582,520,750.77 €
  643,230,795.57 €

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

Vantaa, Finland, 8 March 2018 
Oy Karl Fazer Ab
Board of Directors