Markets and business environment
General economics were still quite weak in many of Fazer’s key markets, but there were also some positive signs towards the end of the year. The biggest foreign currency impact came from the rouble, which strengthened against the euro throughout 2016 but was still 9% weaker than previous year on average, affecting Fazer´s business and financial performance in 2016.
In 2016, Fazer Bakery focused on creating a winning product portfolio with increased resource efficiency. Fazer Bakery improved its market position in Finland, Russia and Estonia. In Finland, the new root vegetable bread and doughnuts sold particularly well. Likewise, the shop-in-shop business continued its good performance. Fazer strengthened its position in this Finnish artisanal bread category by acquiring the Leipomo Keisari (Pistrina Oy) artisanal bakery in June. In Sweden, the tough competitive situation coupled with major business transformation projects took its toll on business results. In Russia, the sales development in local currency was good, with bake-off in particular continuing its strong performance.
Fazer Confectionery was able to defend and improve its position in the slightly growing Finnish home market. Fazer Confectionery grew its market share with all key customers in Finland, with tablets performing exceptionally well. 2016 also saw the homecoming of three beloved biscuit brands – Domino, Jaffa and Fanipala (originally Fasupala), all originally launched by Fazer. With this acquisition, Fazer achieved a leading position in the Finnish biscuit market. In Sweden and Russia, the market share declined slightly.
For Fazer Food Services, the year 2016 was characterised by positive net sales development driven by both comparable sales improvement and positive portfolio net change. Sales development was strong especially in Denmark, while sales suffered in the oil-driven Stavanger region in Norway. Fazer Food Services continued to focus on specific sectors within three clusters – Business, Concession and Public. In the Business cluster, Fazer was chosen to provide restaurant and café services for many new clients, including the Swedish Parliament, Norway’s largest life insurance company KLP and the international retail company Bestseller in Denmark. In the Concession cluster, the company developed its “All-Day-Food Market” concept to serve the needs of working people with variable schedules, launching a new service brand called Tastory. Two Tastory restaurants were opened in Stockholm, one of them in Kista Business Park. Fazer Food Services continued to execute its growth strategy in the Public cluster. An important step in this was the confirmation of the contract for providing meals to the Swedish Armed Forces. Also, the Finnish Seniori Ateria, acquired in the end of 2015, supports the growth in Public cluster.
For Fazer Mills, the year 2016 was a success in many ways. Major investments were made, especially in the oats production capacity by first starting the doubling of the capacity of the oat mill in Lahti, Finland, and then re-doubling the capacity with the acquisition of the Frebaco mill in Lidköping, Sweden. This expansion strengthens Fazer’s position in oats and has already opened the way into the Swedish oat market. Fazer Mills’ net sales grew despite declining grain prices, thanks to the increasing exports of oats and special ingredients. In June, Fazer launched the Fazer Alku Mueslis to continue the successful oats story and the success of the Fazer Alku porridges in Finland.
In 2016, the café market grew in Finland, with new players entering the market. Despite tightening competition, Fazer Cafés was able to increase comparable sales. Moreover, two new Fazer Café locations were opened, one in Vaasa and one in Fazer Experience Visitor Centre in Vantaa.
On 17 September 2016, Fazer celebrated its 125th birthday by opening its new visitor centre, Fazer Experience, in Vantaa, Finland. Fazer Experience accommodates both individual visitors and groups, offering an exquisite experience with its unique design and fascinating exhibition. The visitor centre also includes a Fazer Café and a shop that offers Fazer products from chocolate and rye bread to unique design items. Fazer Experience was granted the Steel Construction of the year award in November 2016.
Fazer’s net sales increased by 2% from previous year and reached 1,603.5 M€ (2015: 1,576.1). The weakened foreign exchange rates reduced the net sales by 23.1 M€ and, with comparable exchange rates, net sales increased by 3% from previous year. The acquired businesses increased 2016 net sales with 24.2 M€.
Growth in net sales was strongest in the food service operations in Denmark. Sales development was good also in the milling, bakery and confectionery operations in Finland as well as in the bakery shops in both Finland and Sweden.
The Group’s operating profit amounted to 52.7 M€ (44.3). Operating profit includes 0.6 M€ (3.4) one-time restructuring costs and write-offs (net). Profit for the financial period was 29.4 M€ (19.4). The profitability of Fazer Bakery, Fazer Confectionery, Fazer Food Services, Fazer Cafés and Fazer Mills improved from previous year.
Cash flow and financial position
The Group’s financial position remained strong. Interest-bearing net debt totalled -17.6 M€ (-17.3) ie Fazer was net debt free at the end of the year, resulting in a negative gearing ratio. The Group’s equity ratio improved to 57% (56%).
Cash flow from operating activities was 120.9 M€ (110.7) and gross investments amounted to 104.6 M€ (61.7). The most important investments include the acquisition of the Frebaco mill, the Leipomo Keisari and the biscuit trademarks as well as the new visitor and meeting centers together with investments in new production equipment and upgrades to existing machinery in the bakery and confectionery operations.
At year-end, Fazer Group had 14,876 employees (14,709). Out of these, 143 (133) were employed by the parent company, which includes employees working in Group Management and Fazer Mills.
Quality, occupational health & safety and environment
Fazer continued to manage and improve quality, occupational health & safety and environmental responsibility both via internal programmes and through 3rd party certifications for its management systems.
Regarding occupational safety, the focus in 2016 was on developing the safety culture and leadership practices, and the first employee safety culture survey was completed. Additionally, focus was put on strengthening the safety procedures. A machine safety programme was launched to better identify and control machine-related risks. Fazer Confectionery and Fazer Bakery Sweden received OHSAS 18001 safety certifications.
To support the work in safety, Fazer continued to have a bonus target to reduce the lost-time accident frequency. This target was not met but the accident frequency was reduced by 3% from 2015.
Fazer has ISO 14001 certifications for most operations and continued to improve its environmental management. Fazer Food Services Sweden and the Eskilstuna bakery certified to new requirements in the updated ISO 14001. Fazer approved a Material Loss Plan and Waste Prevention Plan outlining a number of targets to prevent food waste, facilitate the re-use of materials and support circular economy. Energy mappings were carried out in all Fazer’s operating countries within the EU, in accordance with the EU energy efficiency directive. In Finland, Fazer Confectionery and Fazer Bakery reached their national energy efficiency targets defined in the national Energy Agreement, which came into force in 2009 and continued until 2016.
In product quality and food safety, focus was on strengthening the FSSC 22000 food safety systems at Fazer’s production sites. All Fazer’s bakeries in Finland, Sweden and Russia, all Fazer Confectionery’s production sites and Fazer Mills Sweden are now certified according to the FSSC 22000. The external certification body audit results were good. Fazer’s restaurants in Sweden are certified to the ISO 9001 quality management system standard, including the main processes, the office and two restaurant units. Fazer’s restaurants in Finland were certified already earlier.
In 2016, Fazer continued its systematic work towards its corporate responsibility targets with positive progress. The highlights include raising the part of responsible cocoa to 85%; establishing sustainable grain farming principles and launching new healthy bread products in the bakery business; promoting an increase in the share of vegetables in the food service business’ restaurant offering; keeping Fazer’s reputation on an excellent level in Fazer’s main markets i.e. Finland, Sweden and Russia; and taking steps towards further improving occupational safety.
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. In 2016, no major risks were realised.
Research and development
As a result of long-term R&D work, Fazer Bakery launched the world’s first low-FODMAP rye bread in Finland as part of a new “belly-friendly” bread range. A clinical trial verifying the beneficial effect of this type of rye bread for people with sensitive stomachs was published in a scientific journal. Fazer’s international patent application that aims to protect the technology behind this invention became public. Fazer has also filed another related patent application.
Co-operation with universities continued. Altogether eight master-level thesis works were finalised during 2016 with the University of Helsinki, the University of Turku and the Aalto University. The Brainfood programme, which focuses on the connection between food and cognitive performance, got a positive funding decision from Tekes (the Finnish Funding Agency for Innovation). The programme was launched and its execution started. A considerable amount of R&D work was done to support the creation of snack products in Fazer Bakery and Fazer Confectionery. Research and development costs amounted to 9.0 M€ (10.5).
Changes in Group structure
The changes in Group structure are disclosed on page 51 in the Annual Review.
Shares and share capital
At the end of 2016, 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 5 April 2016, 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. Cecilia Marlow was elected as new Board member.
Chartered Accountants PricewaterhouseCoopers were chosen as auditors, with Chartered Accountant Martin Grandell as auditor-in-charge.
Outlook for 2017
The economic situation in most of Fazer’s main markets is expected to remain quite weak but with increasing positive signs strengthening the hope for improvement. The competitive environment is expected to continue challenging in 2017.
In this business environment, Fazer will focus on creating profitable growth. Both organic and inorganic growth paths will be explored, within the current and new product categories, and both in the home markets and selected growth markets. Fazer’s net sales are expected to grow in 2017, subject to the development of key non-euro denominated currencies. To enhance its growth and internationalisation strategy, Fazer Group will establish a new business area, Fazer Lifestyle Foods. A fundamental part of the new business area is the acquisition of the Finnish Bioferme Oy in March 2017, an expert in fermented oat products.
Fazer will also continue to work on strengthening the company’s competitiveness and improving efficiencies. All the businesses will work to optimise their product portfolios to meet customer and consumer demands and expectations while improving profitability. Fazer Bakery Sweden will introduce an overall cost savings programme aiming at a strong and profitable bakery company in the long term: part of the actions are being already implemented, others are planned and in discussion with personnel representatives.
In Finland, the government’s decision to withdraw the excise duty on confectionery products in the beginning of 2017 is a positive change and is expected to restore equality in the market.
Proposal for distribution of profit
The parent company’s distributable funds amount to 639,662,914.67 euros of which 244,892,455.15 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 6.00 euros per share, i.e. a total of 37,943,778.00 €
- to leave in profit brought forward 601,719,136.67 €
The proposed dividend does not pose any risk to the company's financial standing.