Cloetta Fazer AB

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Cloetta Fazer AB

Ljungsbro
S-590 69
Sweden
Telephone: +46 13 28 50 00
Fax: +46 13 655 60
Web site: http://www.cloettafazer.se

Public Company
Incorporated: 2000
Employees: 2,090
Sales: SEK 3.03 billion ($438 million) (2004)
Stock Exchanges: Stockholm
Ticker Symbol: CFA
NAIC: 311320 Chocolate and Confectionery Manufacturing from Cacao Beans; 311330 Confectionery Manufacturing from Purchased Chocolate

Cloetta Fazer AB is the Nordic region's leading manufacturer of chocolates and other confectionery. The Ljungsbro, Sweden-based company, a combination of Sweden's Cloetta and Finland's Fazer, commands 20 percent of the Scandinavian market, boasting key brands such as Fazer Blå, Dumle, Kexchoklad, Geisha, Polly, Center, Ässät, Pantteri, Marianne, Fazermint, Bridgeblandning, Tyrkisk Peber, Liqueur Fills, Plopp, and Sportlunch. Sweden and Finland remain Cloetta Fazer's primary markets, and also the site of its largest manufacturing sites in Ljungsbro, Norrköping, Vantaa, and Lappeenranta. These facilities combine for a total annual production of 59,000 tons. Sweden and Finland account for 34 and 31 percent, respectively, of the company's sales, which topped SEK 3 billion ($440 million) in 2004. The company also holds strong positions in the wider Nordic market, including Denmark, Norway, the Baltic States, and Russia, which add more than 10 percent to sales. The company's fastest-growing new market, however, is Poland, where the company has captured a 10 percent market share since its entry in 1995. Cloetta Fazer's Polish operations are supported by a manufacturing plant in Gdansk with a total production capacity of 7,000 tons. At the end of 2004, the company announced its intention to expand its Polish presence, most likely through acquisitions. Cloetta Fazer is listed on the Stockholm Stock Exchange.

Satisfying the Scandinavian Sweet Tooth in the 19th Century

Cloetta Fazer was formed through the merger of Cloetta, in Sweden, and Fazer Konfektyr, in Finland, in the year 2000. Both companies, however, traced their origins to the 19th century, and had both emerged as the leading confectionery company in their respective markets.

Cloetta's roots also lay in the famed chocolate-making tradition of Switzerland. The company's founders, brothers Christoffer, Bernhard, and Nutin, arrived in Scandinavia from their native Switzerland and set up their first chocolate making studio in 1862. An early success for the brothers came with the company's launch of its Kehlet chocolate in 1867. At first, the Cloetta brothers made chocolate in Copenhagen, then still under Sweden's control. In 1901, however, the company moved to its permanent home, building a new and more modern facility in Ljungsbro, in Sweden.

Cloetta remained in the Cloetta family until after 1917, when it was bought up by the Svenfelt family and placed under the holding, Svenska Chokladfabriks. The company, which by then had emerged as one of Sweden's prominent chocolate and candy makers, launched a new confection, a chocolate-coated wafer in 1921. Originally called the Five O'Clock, the chocolate was renamed as Kexchoklad in 1938. Under its new name, Kexchoklad proved a lasting success—by the mid-1970s, the bar had become Sweden's top-selling chocolate product.

Cloetta used its success in chocolates and confectionery to expand into other businesses, specifically a distribution wing, through subsidiaries Caterman and Cloetta Hushall. At the end of the 1980s, Cloetta expanded this division into one of its core areas of operation. This came about through the purchase of Adaco in 1989. That company had originally been established in 1921 as a pharmaceuticals distribution division of Malmsten & Bergval. Adaco later added a wide range of nonfood items. In 1955, the division was incorporated as a separate company. Originally called Apotekarens Droghandels, but long known as ADA & Co., the company adopted the new name of Adaco.

Two years later, Adaco added food items for the first time, winning the distribution rights to HJ Heinz products. Adaco was acquired by Skane-Gripen in 1983, merged with another Swedish distributor, Saljbolagsgruppen, and placed into a new structure, Interbroker. By the end of the decade, however, Interbroker was restructured, with all of its trading operations merged into a single company, called Adaco.

Cloetta joined in the restructuring of Adaco in 1989, when it acquired a stake in the company—and added its own trading operations to the mix. Cloetta then acquired majority control of Adaco in 1991. Another extension, made the year before, permitted Cloetta to expand its foods production from chocolates to other food items, specifically the growing market for Asian foods, with the purchase of Lecora. Cloetta's interest in expanding the scale and scope of its operations led it to the public market, and in 1994 the company listed its Class B shares on the Stockholm Stock Exchange. The public offering also enabled the company to expand, including through the acquisition of Candelia in 1998. That acquisition enabled Cloetta to claim the undisputed leadership of the Swedish confectionery market.

Finnish Chocolate Leader in the 20th Century

By then, Cloetta had formed a relationship with another leading Scandinavian confectioner, Fazer Konfektry of Finland. In 1990, the two companies, together with Norway's Brynildsen, set up a manufacturing and sales partnership, called Cloetta Fazer Production, which linked the companies' factories in Ljungsbro, Malmo, and Falkoping in Sweden and in Kolding in Denmark.

Karl Fazer originally established a business operating a café in Helsinki in 1891. Fazer began producing chocolates for his customers, and by the middle of the decade demand had grown so strongly that Fazer set up a small factory on Helsinki's Batsmangatan in 1895. Two years later, Fazer decided to enter chocolate making on an industrial scale, opening a new site on Fabriksgatan in 1897. The new plant also enabled Fazer to extend his production into the wider confectionery segment.

Fazer built up its position as Finland's major confectioner with a series of highly successful product launches, starting with the Pihlaja chocolate in 1895. In 1896, Fazer also found success when he released his Mignon Easter egg, borrowing an idea that had already become popular in Germany. The Mignon egg remained a mainstay of the company's product portfolio into the 21st century. Another major product success for Fazer was the launch of its Fazer Blue chocolate in 1922. This was later followed by the launch of the company's Marianne candy in 1949.

Fazer moved to a larger manufacturing site in Fagersta in 1963. The increased production capacity enabled the company to move into the wider Scandinavian market. The company backed up this effort with the creation of a new subsidiary, Karl Fazer AB, in Sweden in 1967.

Fazer's Swedish interests grew again in the mid-1970s with the purchase of Mazetti in 1975. Mazetti had been operating in Sweden since before World War II. In 1945, the company released what was to become its flagship product, a flat lollipop. It was not until 1960, however, that the Mazetti lollipop at last received its brand name. Known as Dumle, the lollipop became one of the Nordic region's best-selling candies. Under Fazer, the Dumle brand later expanded to include Dumle toffees, a chocolate-covered wrapped version. Launched in Sweden in 1987, the new Dumle toffee gained immediate success. By the end of the decade, the candy had been introduced throughout the Scandinavian markets. In the mid-1990s, Fazer successfully launched Dumle in the Baltic states, then extended the brand to Poland in 1999. That country, in fact, emerged as the Dumle brand's single largest market by the mid-2000s.

Although Fazer did not introduce the Dumle brand to Poland until the late 1990s, Fazer itself had staked out a position in that market—which, with 40 million people, was larger than the combined population of the entire Scandinavian market. Poland's emergence from Soviet domination, and the prospect of rapid economic growth into the 21st century, made it an attractive market for Fazer, which set up its Polish subsidiary in 1993.

That subsidiary began producing for the domestic market with the acquisition of a manufacturing plant in Gdansk in 1994. The Gdansk plant had been producing confectionery and other items, including sodas, since 1923, and had become a major Polish candy producer with the launch of its Whips candy in the 1950s. In 1993, the company formed a joint venture with Fazer, known as Whips Chocolate. Afterward Fazer took over control of the joint venture, which was then renamed Fazer Poland. By then, Fazer had made a number of other acquisitions, including Swedish sugar candy confectionery company Chymos, in 1993, and CK Chokolade, a chocolate broker based in Denmark.

Nordic Region Confectionery Leader in the 2000s

In 2000, Cloetta and Fazer decided to take their relationship to the next level, merging to become Cloetta Fazer AB. The company's combined operations gave it a leading position in the extended Nordic market, with a 22 percent market share, compared with primary competitors Kraft Foods (20 percent market share) and Malaco-Leaf (15 percent). Cloetta Fazer maintained its dual Cloetta and Fazer brand families, as well as the production sites from both companies. The company also established a separate wing for its combined trading and distribution operations, called Handel.

Company Perspectives:

The company's mission is to create fun and enjoyment. Our vision is to further consolidate Cloetta Fazer's position as the Nordic region's leading confectionery company. Cloetta Fazer will act and be seen as a driving force for development in the industry. Cloetta Fazer, with the market's most attractive portfolio, will create added value for customers, consumers, employees and shareholders.

In the early 2000s, Cloetta Fazer stepped up its focus on its chocolate and confectionery business. The company began streamlining, selling off Lecora—the only manufacturer grouped under its Handel division—in 2000. In 2001, Cloetta Fazer sold off the Handel division itself, to Switzerland's Valora Holding AG. In this way, Cloetta Fazer became a pure confectionery group.

Into the mid-2000s, Cloetta Fazer's sales remained strong in its core Finnish and Swedish markets. Slipping sales elsewhere, particularly in Denmark, Norway, and the Baltic states, led the company to step up its efforts to increase its share of the Polish market—already at 10 percent. At the end of 2004, Cloetta Fazer announced its intention to expand in Poland. With restrictions placed on further expansion of its Gdansk site, the company suggested that it was interested in making acquisitions in Poland. The first of these was expected to come before the end of 2005. With a history of nearly 150 years, Cloetta Fazer remained a major European confectioner in the new century.

Principal Subsidiaries

Chymos AB; Cloetta Fazer Choklad AB; Cloetta Fazer Development AB; Cloetta Fazer Konfektyr AB; Cloetta Fazer Konfektyr AB; Cloetta Fazer Polska Sp. z.o.o.; Cloetta Fazer Produktion AB; Oy NIS - Nordic Industrial Sales AB.

Principal Competitors

Nestle S.A.; Archer Daniels Midland Company; KJ Jacobs AG; Cadbury Schweppes PLC; Orkla ASA; Cargill B.V.; Mars UK Ltd.; Barry Callebaut AG; Koninklijke Wessanen N.V.; Chocoladefabriken Lindt und Sprungli AG; Ferrero S.p.A.; Kronfagel AB; Spoldzielnia Pracy Przemyslu Spozywczego Solidarnosc.

Key Dates:

1861:: Cloetta is established by brothers Christoffer, Bernhard, and Nutin Cloetta in Copenhagen.
1891:: Karl Fazer opens a café in Helsinki and begins making chocolates.
1895:: Fazer sets up a chocolate making site.
1897:: Fazer opens a larger facility for large-scale chocolate production.
1901:: Cloetta moves to a larger production site in Ljungsbro, Sweden.
1917:: The Svenfelt family acquires majority control of Cloetta.
1921:: Cloetta launches the popular Five O'Clock, renamed as Kexchoklad in 1938.
1945:: The Mazetti company begins producing a flat lollipop, renamed as Dumle in 1960.
1963:: Fazer moves production to a new site in Fagersta.
1967:: Fazer enters Sweden.
1975:: Fazer acquires Mazetti.
1989:: Cloetta acquires a stake in Adaco.
1991:: Cloetta acquires control of Adaco; Cloetta enters a production and distribution alliance with Fazer.
1993:: Fazer enters Poland, forms Whips Chocolate joint venture.
1994:: Cloetta lists shares on the Stockholm Stock Exchange.
1995:: Fazer acquires control of Whips Chocolate, renamed as Fazer Poland.
2000:: Fazer and Cloetta merge to form Cloetta Fazer AB.
2001:: Cloetta Fazer sells the Handel division to Valora of Switzerland.
2004:: Cloetta Fazer announces plans to make acquisitions to increase its scale in Poland.