Fazer reports a strong result in 2014, despite challenging operating environment

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1 Financial statement Fazer reports a strong result in 2014, despite challenging operating environment Fazer Group s operative result improved in 2014 when measured with comparable foreign exchange rates. However, due to the challenging business environment and especially the depreciated Russian rouble, the Group s net sales decreased by 2.8 per cent, amounting to 1,647.7 million euros. Fazer Group s operating profit before amortisation of goodwill amounted to 79.6 million euros. Fazer s newly released Annual Review reports a positive outlook for In 2014, Fazer continued to improve its performance, despite difficult market conditions. The Group s net sales and operating profit fell slightly below 2013 levels but showed an improvement when measured with comparable foreign exchange rates. Fazer s net sales amounted to 1,647.7 million euros. With comparable foreign exchange rates, net sales increased by 1.5 per cent. The Group s operating profit before amortisation of goodwill amounted to 79.6 million euros and its operating profit was 43.3 million euros. The economic situation in Europe remained weak, and the crises in Ukraine and in Russia contributed to an exceptionally weak rouble. These, together with weakened currencies in Sweden and Norway, affected Fazer s business and overall financial performance in The challenging business environment and the Group s focus on increasing efficiency led to organisational changes and collaboration negotiations, but the measures undertaken have had the intended effect on the overall results was a tough year, which was mostly due to the challenging operating environment. The unstable situation in Russia and the sluggish economic development in Finland made it difficult, says Christoph Vitzthum, President & CEO of the Fazer Group. Nevertheless, the Fazer Bakery and Fazer Food Services business increased in profitability. Fazer Confectionery, however, did not reach its targets. Since 1891, Fazer has grown by listening to customers and consumers, taking account of their changing lifestyles, and grasping the various opportunities that emerge. In this fashion, we continue to create successful product and brand experiences for consumers everyday moments, states Christoph Vitzthum.

2 Adapting in order to grow The year was characterized by many changes. At the beginning of 2014, Fazer s strategy was updated, focusing on the transforming business environment as well as on customer and consumer needs, while building on Fazer s strengths. The new operating model and organisation, consisting of three business areas (Fazer Bakery, Fazer Food Services and Fazer Confectionery) and two separate business units (Fazer Mill & Mixes and Fazer Cafés), was implemented in April. Fazer is built on strong brands. The Fazer brand strategy was updated during In addition to the importance of its brands, Fazer s businesses must be in best-in-class condition to make expansion and development within its industries possible. Fazer also aims to be less dependent on the Finnish market by growing outside Finland in all businesses. Fazer s target is profitable growth, and opportunities to achieve this are clearly identified. To secure Fazer s competitiveness and future success, the company will create value and drive profit to grow faster than net sales. A number of concrete actions will be undertaken to achieve this. We will increase efficiency and continue to invest in and develop our existing businesses, focusing on high quality and safety in everything we do, and reducing complexity in our processes and structures, states Christoph Vitzthum. Fazer s long-term plan is to continue investing in and developing its operations in Russia. The progress and effects of the political situation in Russia are being monitored closely. Responsible taste sensations Corporate responsibility is a fundamental part of the Fazer brand. In 2014, Fazer focused on updating its corporate responsibility vision, strategy and programme and Fazer s ethical principles were updated. For many years, Fazer has set targets and worked to raise its responsibility in sourcing essential raw materials such as cocoa, palm oil, fish and grain. According to the Group s plan, Fazer aims to increase the share of responsibly produced cocoa used in its production by 10 to 15 per cent annually according to availability and market conditions. By 2017, the origin of 100 per cent of the cocoa Fazer uses will be traceable and will fulfil criteria for responsible production. In 2014, Fazer increased the proportion of cocoa that complies with responsibility programmes to 50 per cent of all the cocoa purchased. This year, Fazer expects to increase its share to 70 per cent. In 2014, the World Cocoa Foundation (WCF) rewarded Fazer s longstanding support for sustainable cocoa. In addition, Fazer published a Commitment to Responsible Palm Oil in The new commitment will direct the Group s palm oil sourcing until 2020, and is a continuation of Fazer s work in the field of palm oil. The objectives of the commitment are to improve traceability and sustainability in palm oil sourcing. All palm oil used by Fazer is Roundtable on Sustainable Palm Oil (RSPO) certified palm oil from different supply chain options.

3 Amongst several steps in developing its corporate responsibility, Fazer signed the Corporate Responsibility Network (FIBS) diversity charter, increased the share of renewable electricity of the whole Group's total electricity consumption to 66 per cent, and increased the amount of vegetables in Fazer Food Services offering to approximately 40 per cent. Highlights and future prospects in Fazer s main markets Fazer s main business areas are Fazer Bakery, Fazer Confectionery, and Fazer Food Services. In addition to those, Fazer Group will continue successfully moving from products to services, with examples from Fazer Mill & Mixes and Fazer Cafés. We want to make an unforgettable experience with the high quality of our products and services, states Christoph Vitzthum. Fazer Bakery: The dynamic bakery markets demand agility Fazer is the leading bakery company in Finland, St Petersburg and Moscow, and has a major presence across northern Europe with bakeries in Sweden and the Baltic countries was, however, a challenging year in the bakery business as the total bread consumption continued to decline in most of Fazer s bakery markets. Despite the decline in consumption, novelties were particularly successful in Finland and Russia. In Russia, strong growth was seen especially in frozen and value adding products, and Fazer continued to strengthen its position as the leading bakery company in the country. Competition continued to intensify in Sweden and the Baltic countries. The strengthening of Fazer s market share continued through innovative novelties, improving profitability where possible and lending focus to certain regions with high potential, such as Russia. Changes between categories happen swiftly, and unexpectedly high growth in the frozen bakery market represents a clear opportunity for Fazer. With Fazer s leading brands and comprehensive portfolio, the Fazer Bakery business area aims to create even stronger consumer pull in the future. Fazer Confectionery: Quality and innovativeness to reflect the changing times The confectionery market has grown in volume in Finland for the past 20 years was an exception, with an overall 2.2 per cent decline, and thereby also a challenging year for Fazer. In response to this changing business environment, Fazer Confectionery continued to develop within the growing snacking trend and introduced biscuits and ice creams under its strong confectionery brands, as well as other novelties. The company s market share in Finland increased in chocolate tablets, with Karl Fazer 200g tablets and newly launched Fazer Pure Dark novelties being two particular highlights.

4 Fazer Confectionery plans to grow in all its main markets during Fazer has identified the broad consumer needs which will determine the development of its confectionery offering. These range from the latest conceptions of personal indulgence, special occasions and celebration to unfolding consumer tendencies around snacking and healthier products. The markets behind these needs have been identified and their potential measured. The success, for example, of the Fazer Pure Dark product concept, is one demonstration of these insights put to good use. Fazer Food Services: Offering meal solutions for business and industry Fazer is the leading meal solution provider in the Nordics, operating nearly 1,100 restaurants in Finland, Sweden, Norway and Denmark. In 2014, Fazer Food Services came close to its sales targets for the year. Gastronomy, health and well-being, and sustainability continue to be key themes in offering development. Examples of the latest initiatives in these areas include a project to limit food waste that was piloted at SAP in Denmark in 2014, which also contributes towards raising the quality of ingredients that go into meals. Fazer Food Services succeeded in achieving several major contracts in the Nordic region, with an example of a supply agreement with Region Skåne for patient meals in southern Sweden, including around 100,000 portions monthly, a large share of which will consist of organic food. The development of solutions that better respond to consumers changing needs is an on-going effort for Fazer Food Services. The business area s ambition is to shift from the role of contract caterer and take full advantage of future opportunities in new varieties of restaurants, meal solutions and segments to become a complete food service provider. Fazer Mill & Mixes and Fazer Cafés: from products to services 2014 was a good year for Fazer Mill & Mixes, despite the Russian counter-sanctions set against the EU that affected the export of some mix products to Russia. The new oat mill continued its successful ramp-up, and Fazer s international customer base was further developed. The Fazer Alku porridge range was also launched successfully. Fazer Cafés focused on the implementation of its renewed café concept and worked intensively to develop its consumer focus to serve its guests better. Future prospects According to Christoph Vitzthum, organic growth in sales will be moderate in the coming years. However, Fazer is planning improvements in all of its business areas. Fazer Group s strategy aims to achieve profitable growth within current and new product categories, both in Fazer s home markets and in selected growth markets. The company expects an increase in net sales and profitability in 2015 when measured with comparable exchange rates. To secure Fazer's competitiveness and

5 future success we will create value and drive profit to grow faster than net sales, states Christoph Vitzthum. Fazer Bakery will develop a strong consumer-focused offering and sell solutions to its partners. It will focus on fresh and frozen products and grow into a category leader in Fazer s home markets. Fazer Food Services will take advantage of new opportunities in the restaurant market, building strong offers and winning business outside its traditional sector. The contemporary confectionery trend represents a growth area for Fazer Confectionery, which will continue increasing competitiveness through continuous improvement in customer and consumer orientation. The world we live in is constantly undergoing dramatic changes, but we thrive on this: it motivates us to explore, to discover, and to create new taste sensations, says Christoph Vitzthum. Summary of Fazer s performance in 2014 Fazer Group s net sales totalled 1,647.7 million euros, a three per cent decrease from Operating profit amounted to 43.3 million euros. Cash flow from operating activities was million euros, a 13 per cent increase from Interest-bearing net debt decreased and totalled million euros at the end of the year. The Group s equity ratio increased by 8 per cent to 62.5 per cent. At the end of 2014, 15,305 people were employed at Fazer. Annual Review 2014 Fazer s Annual Review 2014 is published on Fazer s web page Corporate Responsibility Report Fazer s Corporate Responsibility Report is published on Fazer s web page