I would like to welcome you all to Cloetta Capital Markets Day. My name is Jakob Broberg. I'm head of Corporate Communications and Investor Relations at Cloetta. If we take a quick look at the agenda for the day, you'll see that it is our ambition to give you an update on our strategy and what we intend to do to reach our targets. In addition, we'll give you an overview of the Pick & Mix business, how the synergy realization from CandyKing is progressing. We are a consumer-focused company, so we will also take a look into our marketing activities. But we are also a producer, so we present an overview of the production capabilities we're having and what we intend to do to be an even more efficient producer.
And finally, we will, of course, look into all the financial figures and the route to our 14% EBIT margin target. There will be time for questions after each presenter, just a few questions, but still. But at the end, there is a more lengthy Q&A session where you can ask questions. And of course, there will be a break just before 3:00 P.M. or so for coffee and candy, of course. And with that, I would like to hand over to Henri de Sauvage Nolting, the first presenter of the day, the CEO of Cloetta.
Very good.
Please go ahead, Henri.
Thank you and another welcome for everybody. I mean, I feel it's quite exciting. It's the first time we do this. We do this at Cloetta. But it's also the first time that I can introduce you to both our new strategy and unpack that a bit more and the people who are sitting with me in the management team. They're not all over here, but there's quite a few people, new people who are driving Cloetta in a different way, and I think that is probably more interesting than what I have to say, but okay, I have to say something right now. But I'll take you a bit through the profitable growth journey we are embarking on, or which we have embarked on.
For those who don't know Cloetta yet, it's an old company, around SEK 6 billion of sales in more than 50 countries, a number of core categories, and as well a factory network of eight factories, and we'll dive into all of those areas a bit further on. We have a mission, which is quite simple. It's to bring a smile to your Munchy Moments. I cannot express more the smile part of it because in the end, what we are doing is simple, right? We want to have consumers who are going into a store, and a store can be a small kiosk or it can be a hypermarket, and we want them to choose our brands in front of the shelf because our brands are good. They like our innovations. We support those brands in a good way. We're priced at the right way.
That's the first moment of truth. People are buying our products at that shelf. Then they come home, and that's where the second moment of truth is. That's the experience. People are eating our products. They're giving us the confidence that they're putting their product into their mouth. I personally think that's something else than driving a car or things like that. I mean, you put it into your mouth and you get a pleasant experience. We know from research that that is the split millisecond where people have a pleasant experience. The part in your brain which is associated with pleasure is at that moment more active. In the world where we're living with political uncertainty, economic uncertainty, that is something which is really important. That's why we think that's our role. How is Cloetta positioned?
I believe we are very well positioned in categories and with our brands in the markets where we're operating. So these are the core markets as we have defined them. You can see our position. A lot of number one, number two positions across and quite well aligned. And of course, there's scale benefits within the categories. That's from Pick & Mix scale to candy scale. And of course, Northwestern Europe, it's an interesting market to be in. It's politically stable. It's economically stable. Our business is quite cash-generating and stable from that perspective, or at least anti-cyclical. And of course, there are scale benefits also within the markets with the route to market, as we call it. So the route to the stores where scale matters with sales forces, with execution in store in order to bring the products to the shelf. So that's quite important.
If we then look at our brands, we have a good mix. We have been seeing in the last 20-30 years a big swing towards globalization also in brands. We now see the last five years that consumers are starting to become more interested in local brands, brands they know are coming from a country, have an origin which is close to them. So local brands are very important. And as you can also see, not only in the number of it, but also the majority of our business is in local brands. But then we have the benefit of also having some international brands like Läkerol or Jelly Bean or CandyKing, which can go across a number of territories. So we can play depending on the position we have in the markets. We can play with both and also fight with very local competitors or with the global ones.
So that is, I think, a very nice position to be in. If we then look at our markets, often I get questions from you, "Well, what is happening with the markets? There's debates about sugar. Is there growth in Europe?" and as you can see, this is Euromonitor data, but there is growth in our markets if we look back over the last couple of years. Of course, these are the markets where we operate in. This is not global confectionery, but there's growth. So that's, I think, the first good thing. Then if you look deeper into it, it's a lot of value growth and less volume growth. In order to reap the benefits of value growth, you also then need to come with products which are going to be of a higher value.
I took one example with me here in the corner. That's for the sweets under us. That's the most famous candy brand in Sweden, Gott & Blandat. Then we offer consumers a choice. I'll come back to that as well with a 30% less sugar. It's a smaller bag, but for the same price. So good for our value driving. And Thomas, who is coming from L'Oréal, they're arguably, it's hard to say that Thomas coming from Unilever is actually probably the best one in the world driving valorization and premiumness. He will talk a bit more about the journey we're making there in order to become more value-driven as Cloetta. So really important to know that this is the trend and that our categories have growth.
In that sense, we're not so different from other northern European categories where you see the same trend, that it is difficult in volume, but value is certainly there. Yeah, if we then look at what is our focus, and here is probably the first shift we want to talk about. Frans is also going to talk about that at the end in his presentation. At Cloetta, we've been focusing a lot on acquiring new categories, new Munchy Moments categories. And we have been forgetting, you could say, about our core business, getting our core business in growth. And I fundamentally believe that if you want to be a healthy company, you need to grow your own business before you start to acquire new business. You cannot have a strategy where you are acquiring new business in order to compensate for the non-growth of your own business.
We are focusing on core markets and core categories. Over here, you can see the categories. You can see candy, chocolate, pastilles, chewing gum, nuts are the big categories. You can also see in there and Oskari will talk quite a lot about Pick & Mix, but in there, you can see the split in sales. That is volume in sales between the branded part and the Pick & Mix part. 28% is Pick & Mix. The rest is branded. Where do we then sell that? That is in our core markets. You can see the core markets on the right where we are showing with the red. These are the big core markets of Cloetta. Then, is that all?
No, we have one additional initiative which we'll not talk about more today, but that's our international business, 8% of Cloetta in markets which are growing much faster than Northwestern Europe. We're professionalizing that. We have recruited a number of people from companies who are extremely good in managing international markets. And we put a plan together with a number of hubs, which you can see over here where we are then looking at consumers and customers in those markets, what they want to have, and then adopting our approach towards them. So core markets and core categories, it's the main message over here. So where are we coming from? I think for most of you, this is known. The Cloetta Leaf merger, bringing the company to the stock market, a lot of attention went in there.
You could say in 2014, the journey was very much about the ERP system, closing down factories, introducing the concept of one supply chain, and also a number of smaller acquisitions in order to grow the business, and you can see how we have been adding turnover to the business. In 2017, we did actually two things which were quite fundamentally changing the structure of this business. We disposed of the Italian business. I think most of you know why, but it was difficult. Economic slowdown, high cost, half-empty factories. We disposed of the Italian business and we bought the CandyKing business, and I'll come back to that.
After we finished that from 2018, we said, "Okay, we start to focus now on organic growth and to get to the 14% EBIT margin which we think this business deserves." And those two things are the important parts of today's presentation to show what are the actions we are doing to get there. Now, in order to get there, we have a strategy with three building blocks all to get into the organic growth and the EBIT target of 14%. So the first one is how we're going to drive growth. And not surprisingly, this is a branded business. And again, if you want those consumers at that point of purchase to buy your products, you need to have strong brands. And we don't always have maintained our brands in the past in the right way. So we're strengthening, as we call it, the equity of our core brands.
Very important. We're looking, of course, core categories, core markets. I already talked about that. We've been doing a lot of innovation, but not always successful innovation. So we're moving to less innovation, but stronger and also across the markets. I already talked about the concept of creating value. We have a lot of products which are in the middle of the price, the price volume pyramid. How do we get more value, higher price products? Thomas will talk more about that. And then, of course, there can be selective acquisitions in our core categories and our core markets. That's where the risk is low and the synergies are highest. But it is not number one or number two priority on our agenda. So drive growth is number one. Then facilitate growth.
Yeah, because we also need to have an organization and competence and people and scale which are able to deliver that growth. And that's another important part. That's also why there's a number of new management team members sitting here around, not around the table, but in this area to drive the competence development of this company. So zero tolerance of accidents. As long as I am responsible for Cloetta, we're going to have always number one priority that people who come to Cloetta to work here in a healthy way, that they also leave back home in a healthy way, be it in the factories or people driving as sales reps around the countries. One Cloetta. Yeah, it sounds maybe easy, but the commercial organizations within Cloetta have been living along as commercial islands.
I'm not going to call them paradise, but there was full flexibility, meaning that everybody was doing everything on their own the way they wanted. And that can be very good. Don't misunderstand me, because if it is for the consumer or the customer, you want to be as local as possible. But there are a lot of things we can actually do together and do it only once. And we do that in HR. We've just implemented one HR system, Workday, to get full control of all our FTEs and our cost. It is as well with innovations. It is about buying our media. It's also managing our brands. We had four brand managers for Läkerol in all the Nordic countries, four media agencies, four creative agencies, four POS agencies. We were basically paying four times for something we could have paid for once. So that is a lot.
I mean, I don't have the time to talk more about it, but there's a lot of value we can get out of the one Cloetta. Yes, cost savings, but even more using our scale to professionalize faster than what we could do in any single country on our own. Brand and category management, I'll leave that to Thomas. There's a lot of new competence we can bring into our markets. CSR, really important. From a follower, we want to start being in the front, maybe not leading, but in the front of CSR developments. I'll talk quickly about that as well. And then, of course, a winning culture with leaders who are able to lead this business. And last but not least, there's something which Frans is going to talk more in detail about, but how are we going to fund this?
How do we get more efficiency and how do we get rid of cost? Marcel will talk about the Perfect Factory, which is our follow-up program from Lean to show you what we're doing in efficiency for our factories. There's a lot, right? And some of you might think, "Okay, but they're not so big as a company and a lot of initiatives is one maybe more important than the other." Yeah, there is. So there's basically three things which I'm focusing on, also on the exec is focusing on, and that's something we want to unveil a bit. This is new information. Branded growth. Thomas will talk about it. I talk about it. We have brands. You could see how more than 70% of Cloetta. Those brands or that branded business has already an EBIT which is above 14%.
So just growing that quarter after quarter is going to generate nice EBIT improvements for our business. That's why it is so important to keep on focusing on the branded business. And that is, let's say, the old Cloetta business, the core of what we have. We need to keep on growing that quarter after quarter. Very important. And then Pick & Mix. We bought that business from CandyKing. In Finland, we had a sizable business. In Sweden, less sizable also after we lost the Coop contract. So it's basically acquisition business which we need to get to where we want it to be. And if we look at total Pick & Mix, it delivers 1%-2% margin. When we acquired CandyKing, it was around 0%. EBIT is now at 1%-2%, and that's not enough. And then I think you will ask, "Okay, well, that's very low margin.
Is it interesting then to be there?" Yeah, that is interesting because this is the average of all the markets. Our biggest market, and Oskari will talk a bit more in detail, is Sweden. We had in 2018 minus SEK 60 million negative EBIT, minus 60. So I mean, you're all analysts or many of you are analysts, so you can calculate yourself how much EBIT then the rest is generating. We'll show you a bit more of the percentages. But the rest is 6%, 7%, 8% of EBIT, which is actually where we want it to be because that's then the commercial EBIT from these markets. And of course, there's a lot of scale benefits which Marcel will talk about as well when we do the Perfect Factory because more volume. CandyKing had no factory, so all that volume comes in.
And of course, it drives down the fixed cost of the whole portfolio, branded and Pick & Mix. So the whole portfolio is being held by the extra CandyKing volumes. So priority number one before we do anything else is to get that minus 60 at least into black figures and to realize the CandyKing synergies. And then number three is, again, reduce cost, indirect cost, supply chain cost, and get the efficiencies in the factories up, which is the Perfect Factory. So those three things, keep the brands growing, get rid of the minus 60 in Sweden, and start to drive out cost. These three things together are my main concern and what I'm driving day in, day out. This, I think most of you have seen, but Jakob is in the management team the longest member.
He said, "We've never had four quarters of growth in branded in a consistent way as long as I was here. Four quarters, if I were you, I would say, 'That's nice, but it's only four quarters.'" I mean, come back to me whether it is six or eight, and that's what we will do. And what we'll show you today as well, what are the plans to keep on growing the branded business. But now at least you also understand 14% plus EBIT. That's why I'm stressing all the time that we need to keep on growing the branded business. We have quite a good portfolio. I already talked about it. Leading local brands where we can fight locally. International brands where we either fight with international players or which we can take out into more high-growth markets.
The middle one is something we haven't talked about so much and which in the past didn't exist because each country was working in splendid isolation. We were coming up with more and more platforms, I call them, innovations based on the same consumer insights with the same technology, even with the same TV advertiser, which we then can plug in under different brands in the different markets. So these are platforms which can travel across brands. It's very common in the consumer goods world, but we haven't really done that in Cloetta. CSR, how do we go from leading to being in front of the pack? It's important. We recruited again somebody from the outside world who is really experienced in this. We brought the CSR agenda together. You can see the main things over here. NAFNAC is no artificial flavor, no artificial colorants.
Also very important, it is naturalness, strength of consumers. We link it very strongly to the UN Sustainable Development Goals. That's also very important towards our customers that they are seeing what are you doing to help us to reach our goals which are also formulated in the same way. There's a lot we can do. The last one is the Choice for You strategy. I'll unpeel it a little bit more. Important, the sugar debate is there. When we talk to consumers, you can ask Thomas. Consumers are answering when we ask them, "What do you think about sugar and sugar confectionery?" They're saying, "Well, they're not really saying, 'Are you dumb?'" But basically, they're saying, "Well, of course, there is sugar in sugar confectionery and chocolate. We know that.
But did you know that in ketchup or whatever, there's so much hidden sugar?" Even though we say we will give consumers a choice. So our ambition is that for our main core brands, we will give people a choice between the original, a minus 30%, and a sugar-free. And then people can choose. So we have some examples, I think, on like Gott & Blandat, number one, with minus 30%. Venco, the number one licorice brand in Holland, now with sugar-free portfolio. That's a bit like Coke, but then maybe even more sophisticated. The original, minus 30%, and without sugar. And at the same time, we're bringing functional benefits to the portfolio with products like Läkerol Dents. It's not small. It's already 23% of our sales.
So I think, again, risk-wise, nicely balanced between the very indulgent, which is still need stage number one, you could say, and people looking for other benefits. Pick & Mix, Sweden, minus 60. It needs to get at least to black and then to average. What are we doing? We're changing basically everything in Sweden, where the contracts signed with individual retailers. So in Sweden, it's mostly individual retail contracts. So one store, one contract. And think about how many stores there are. They were fixed, two-year fixed contract, three-year fixed contract, and no ability to change price. And that's, of course, impacting us. When the Swedish krona is weakening or the sugar price is going up, we get an impact. And we're saying, "Well, hell, we will break open those contracts." And actually, tomorrow, we do another price increase.
We'll announce another price increase in the Swedish market, also on Pick & Mix to get pricing up because we need to turn around this minus 60. And then there's a whole lot of other actions Oskari will talk about from merchandising efficiencies. So how are we driving more effectively, but also the whole area of the assortment? We have 600 SKUs or something like that. We did an exercise like that in Finland where we went from 600 to how many?
215 articles in Finland. Can you imagine all the tail we cut out and the bigger articles become bigger? We're doing now the same exercise in Sweden because it's much more efficient to produce more of the same. So there's a lot going on. And of course, then we have the CandyKing insourcing which we talked about many times, and Marcel is going to tell you more where we stand over there. This needs to be fixed. Then we can dream about the future. And the future, of course, is the reason why we bought this business. Consumers are more and more not demanding, but they are interested in individualization, that they can pick products or services or creams for their hands which are tailored to you. When we sell a consumer a Gott & Blandat, it's about 13 components, I think, in a bag like this.
We have chosen which are the 13 most popular. In front of a Pick & Mix, you can choose depending on the occasion. Is it a Saturday night where you're getting some friends over and you want to have some chocolate, or is it a party for your kids of 10-year-olds and you want to give them a candy bag? Different products for different occasions. You can choose, and the second thing which I try to illustrate over here, with e-commerce growing, the customers are seeing that the bulk sales are disappearing from their stores. I mean, not now and certainly not in Sweden, but in Holland or U.K., it's already over 10%.
These retailers like Ahold are saying, "Well, in 10 years' time, we will close 20% of our stores because the volume is just not there anymore." The reason for consumers to go to a store becomes much more about the in-store experience compared to an Apple store. Are you really going there to buy, or are you going there to get the inspiration? That is what Pick & Mix can help them because bulk products in bags is easy to buy over e-commerce. Cooking there in the store or tasting cheese or interacting with Pick & Mix and choosing it together with your kids or with your family is an experience. That's quite a big plus for us where we have the scale to develop those insights, to develop those fixtures, and our competitors don't. The last one is value, right? What are we doing?
This is basically a sum-up chart of all the actions we are taking. The first one is the CandyKing. How do we get the profit of Sweden from minus 60 to black? The insourcing we are doing on the CandyKing, which Marcel is talking about, and a few other savings we are making. The second one, that's the motor of Cloetta. How do we keep on growing with the branded business quarter after quarter after quarter and with the margin we already have starting to add business, but also premiumization that each kilo or the average kilo price we're selling is going up because we're selling more expensive products. The third one is Perfect Factory. We've been closing a lot of factories. We have been moving equipment from one factory to the other. Now we have eight factories, and the task is very different.
How do we make those eight factories work better? That's rather than producing only six hours and a shift of eight hours because there's two hours of breakdowns or changeovers. We bring that to six and a half or seven because the machines are paid, the electricity is paid, the people are paid, and getting more output from the existing equipment in a reliable way. Marcel will talk about that, and the cost reduction program we started with that last year. Frans is coming in from Mondelēz. He did a lot of ZBB work over there, so of course I was very interested when we met, learning more about ZBB. I know a little bit from it from Unilever. He will talk even more about what we're going to do over there in the coming years, but of course cost is one thing.
And then the last bucket is a lot of other initiatives we're taking like net revenue management. Can we price up? Can we spend less in promo? Can we become more efficient in our media? Thomas will talk a little bit about media and media buying directors, etc. That whole stretch we call value improvement plus. The VIP Plus program. We even brought Mattias here. He will lead that for us. So all those initiatives coordinated centrally and driven as one of the three priorities for Cloetta to bring us to 14%. And that's it. Exactly on time, right? That's good. And we only rehearsed once. So now we have 5-10 minutes for questions. You need to take a mic.
I know you guys because you're always very good in the quarterly calls to then pack three questions into one, but do one and then I'll pass it over to the other. At the end, you will have ample opportunity to ask everybody in the management. Shoot one question.
Thank you. This is going to be very difficult.
Difficult, yes and no. But I'm learning to present, and you're learning only to ask one question, right?
All right. So my name is Nicklas Fhärm with SEB Equities. Thank you for taking my question. If we could, I'm sure there will be a lot of questions on CandyKing, etc. If we could go back to slide 10, and I would like to ask you now, even though the total market is obviously growing, I would like to ask you to elaborate a bit on the different categories in that market because to some extent, you are exposed to non-growth market and even declining categories. And I was wondering how this slide is going to look, say, five years out.
Yeah. Thomas is coming back with market development. So yes, there's only one market which globally, sorry, one category which globally is under pressure, that's chewing gum. We have chewing gum in two markets, Finland and the Netherlands, but we actually have some traction over there. The other markets are growing. Of course, this is not science. I mean, this is Euromonitor. If you take Nielsen, the picture looks slightly different, but grossly speaking, the same. And when I would be an investor or a potential investor, I would say, "Okay, what are your sources of growth?" And I would say, "What we're looking at over here, it is the branded growth value." There's not a lot of volume over there.
Volume, we know, after we do all the insourcing, and Marcel will talk about that, the Italian insourcing, of course. At a certain moment, we want more volume because that drives efficiency. That's not going to come from the northwestern European core markets, core categories. But then, hey, we've got Pick & Mix. And Oskari will talk about Pick & Mix. The penetration levels between the countries are very different. And hey, here we're talking volume. We can increase the penetration of Pick & Mix in Denmark or Finland to the same levels as Norway or even Sweden. And I even talk about U.K., where the penetration is really low. So that's where the volume comes. And then the third one is then the international markets. 8% of our business in countries or areas like Southeast Asia, Middle East, CEE, and the U.S.
But the first three are all high-growth markets. Also, again, volume, yes, but we need to work with premium products because it's a more expensive route to market. So therefore, you need to go in with things like Läkerol and jelly beans.
Thank you.
Hello. Nicklas Skogman from Handelsbanken. How long do you think it will take to eliminate the SEK 60 million of losses in Sweden? And are those losses part of the SEK 100 million of?
No.
Okay.
The 100 million synergy savings have nothing to do with the losses of 60. Marcel will show you where we are on the 100 million. I think we are going to be a bit more bolder. It took us some time, arguably, to get the clear picture because we didn't really have the CandyKing business in our systems until, let's say, summer last year. Then there are several hundreds of contracts which we actually need to make more actual to really understand what is happening in those contracts. There were a few trends like the SEK, but also some distribution and warehousing agreements which were recently done by old CandyKing, but which were impacting us through 2018. In order to make that plan, that took us a bit more time.
But now we have, I think, a very good plan, a new dedicated leader on the Swedish business. So I would say it will take us one and a half to two years to get rid of those negative figures. But we'll take a bit more gamble also with breaking open those contracts and getting pricing, even though that is what was in the original contract. But I think we're in a position to do that.
Thank you very much. That's very good.
Good. Then I'm proud to present Oskari. I'll put the slide on the right deck. Oskari is leading our Pick & Mix business. So the P&L responsibility sits in the countries, and Oskari is leading with the central team and all the Pick & Mix leads in the countries the journey for Pick & Mix. So Oskari, come.
Thank you, Henri.
Success.
Good afternoon, everyone. It's a great pleasure to take this opportunity to talk a bit more about the Pick & Mix, specifically with the new scale by having combined Cloetta and CandyKing, as we learned, it's a sizable part of our business. I have four different pieces what I'm going to present. I'm a bit more talking about where we are coming and what are the shifts what we're going to take. Then obviously, I'm addressing some of the synergies, where we are with those ones, more specifically addressing Sweden, and then also looking at some of our mid-longer-term commitments and priorities taking this business forward. So I'm really much willing to take this opportunity to educate you a bit more. I know that there's a lot of Swedes in the room. So as consumers and shoppers, you know that.
But also, it's a slightly different nature when we're talking Pick & Mix versus our branded packed business. First comment on the headline. Pick-and-mix is volume business, but where we are coming from, we are coming from a heavy volume hunt. From now on, we are shifting more and more towards creating value out of that business format on a sustainable way, not only reflecting back to the CSR agendas what we have, but also having a business which we can build together with our customers and keeping and investing to make it even more attractive to those shoppers and consumers. So that's a major change. Looking at Pick & Mix as a business model, it's way more about selling services. Internally, and together with our commercial partners, we're talking eight to nine different fundamentals.
I'm covering today three because these are most probably the most understandable, what makes it different and what makes it more like a service instead of selling only individual products. Assortment, we are, yes, operating with hundreds and hundreds of SKUs, different products every day. We've been lately building our capabilities to manage that better than some of our competitors. In our case, it means also the capabilities from end to end, sourcing those products either from our own factories or from our partners, and then managing that assortment with the right way until the store, and even providing some of the final printings and ingredients in the different solutions what we have in the store. Yes, we are actively managing the tail, as Henri said, but also by the nature of this impulse-driven business, there are products and brands coming and going.
We are actively managing the assortment in different channels in different countries. The beauty of my team is that we have, let's call it, global responsibility. We are doing that on behalf of the end markets. Then we can get those synergies, as Henri said, instead of having different assortments in different places, but also responding to those local needs based on the product formats or the brands. It's not only our own brands or products. In Pick & Mix, our third-party suppliers are also playing a fundamentally important role. That makes the Pick & Mix business and the concept attractive enough. The second element is the fixture. There is one of our latest developments on the coffee and the lounge area. Feel free to come and approach me during the break. That's mostly the area where we have learned the most since we joined our forces with CandyKing.
I wouldn't call that there is even a science behind the fixtures, but it's a really important part of the concept. We have a unique understanding of how to attract consumers and the shoppers with different offerings. Also, we know a lot based on the facts what are the most effective ways of refilling, cleaning, and maintaining those solutions. And that's the service, what we're offering to our customers, not giving them the reason to try to do that by themselves because we have that scale. We have tens of kilometers of those solutions out in the stores. Lastly, merchandising, which is basically those 100 people out there every day taking good care of those concepts from the ordering, getting the supply on time in full, refilling those units, also keeping them clean and attractive to those shoppers who are visiting there.
That's also the service, what we're doing on behalf of our customers. Now, also moving forward, looking at the way we're going to play the Pick & Mix in the future, we can have really fact-based dialogue with our customers. What are the choices they are willing to make between these services? And that's obviously impacting the price. So then we have also more flexibility to scale up and down depending on what service specific customers are willing to get during this period or that period. Sounds simple, but it's complex, but we have that scale to do that. Looking geographically, as Henri said, where we are, we are quite well positioned looking at the core markets where we are operating. So looking at Sweden, one-third of the confectionery volume is sold through Pick & Mix solutions, either ours or someone else.
Then we have also some of the big markets where we are operating where a sizable amount of volume is sold via Pick & Mix solutions. So it makes our position really good and strong. And in the end, I will talk about the synergies between the branded and the packed business and the Pick & Mix. Also, as we said, a lot of current shopper and consumer trends are supporting our Pick & Mix offering. There is a lot of individualism to make your own choices, tailoring your personal pack, whatever products and brands you're going to choose. Also, in some of the researches, we see that there is also the opposite impact when either the wife or husband is really selecting the ones which are not attractive to the other partner at home to make sure that that bag and the product stays in his or her hand.
Moving on, looking at Pick & Mix sales in Cloetta currently, how our sales are split between different core markets where we're operating. It's easy to say 38% Sweden, so there is no choice. We will fix, and we have started to take a lot of actions to make Sweden numbers black. It's so big, also at the same time Denmark, Finland, also U.K., we have a strong presence when it comes to the Pick & Mix, and the market is massive with Cloetta's capabilities to scale and build that offering also there to get further. Currently, the concept brands where we're operating are obviously the CandyKing, Karamellkungen here in Sweden, Parrots is our nuts concept, and then the old Cloetta concept brand in Finland called Karkkikatu, which means the candy street, so those are the brands what we have today.
In general, what I can say is that currently there are no real strong brands today when it comes to Pick & Mix. A lot of those concepts out there in the stores are still quite bulky, including ourselves. But it's definitely the way we're going to take this concept forward to build that differentiation not only towards our customers, but also towards the shoppers and consumers. A bit more detailed, what are the different business models, as we call it? Because there is not just one way of doing Pick & Mix business. A major part of Cloetta's Pick & Mix business is so-called full concept, where the branding belongs to us. We are providing all the fixtures, merchandising services, kind of a full package. That's the majority of our Pick & Mix business today. The second area, as we're calling it, is the trade-owned concept.
It could be shopper and consumer-wise branded by trade-owned brand. A good example here in Sweden is the chain called City Gross. They are owning that concept brand, but we as Cloetta, we are providing all the services. We are managing their assortment. We are developing and maintaining all the fixtures in the store, but the branding is visible and owned by the customer. Then we have also a small portion of our total Pick & Mix business, so-called hybrid, where due to different reasons, we have agreed with our customers what is our role and what is customer's role. Sometimes customers might have principles to do certain things by themselves, for example, not allowing external parties to visit their stores. We have all those facts and analytics where we can split how this choice will impact the price of that concept.
Then lastly, a sizable part of our business is so-called bulk sales, where we are selling our brands and products to either other concept suppliers or some of our key trade partners who are running their own concept by themselves. So that's what we mean by different business models. A few words about CandyKing acquisition. As we said in the beginning, the integration itself is practically done. The last remaining task what we have is in a few weeks' time. Also, our UK business is joining Cloetta's ERP system. The good news is that the synergies are coming through both from our commercial operations. We've been already operating as one organization quite some time. And also, our insourcing plan is moving as it was originally initiated. As Henri said, nothing to do with the synergies.
Still, the challenge remains with Sweden, which I'm going to talk about in a few seconds. This is also the estimate of the progression what we're looking at 2019 and 2020 when it comes to the synergy realization. Back to Sweden and back to minus 60. As Henri said, we have more or less changed all and everything. The key message what I'm saying is that we have started to take those actions already quite some time ago. We were organizing ourselves in Sweden totally differently than what it was. There is a dedicated team and division derived at execution. And also, from my team and a central point of view, that's one of our key priorities.
We've been building a lot of analytics thanks to Cloetta's knowledge in general to understand where those contracts are, where we have profitability issues, what are the different elements driving those contracts to be non-profitable, and also in parallel looking at solutions, how we can make those improvements. We have taken some steps with the pricing. As we said, tomorrow is the next one we're going to announce, which goes both packed and Pick & Mix. Assortment is a massive opportunity to us. As I said, we are rotating assortment all the time, but also looking at those small non-profitable SKUs, cutting the tail, and bringing in more profitable SKUs, still keeping the attractiveness of the concept. Because even if you have 1,000 SKUs, there is no such store in this country where all the 1,000 SKUs will fit in. The maximum is approximately 250.
That might be the biggest movie theater or the showcase somewhere, but then that's the limit. You don't need more SKUs than that. We have also an approach how we're going to go into those negotiations, either increasing the price, changing the offering what we have there today, and if needed, we are even willing and ready to exit some of the worst contracts. Some of those contracts being built based on this volume hunt mode on without allowing us that flexibility to make adjustments what we do with our packed business when it comes to the ROAS and FX and so on and so forth, but we know where we're going to go and how we're going to go with it. Also, because of this volume focus, we've been also the ones driving a lot of campaigns, even non-profitable campaigns.
Now on, we're making more selective options and also actively bringing different ways of activating Pick & Mix concept, not only putting the price tag right in front of the consumers and the shoppers. Yes, we know that we're going to get a peak, but because of the nature of Pick & Mix, it's also increasing your cost to execute those campaigns, having a right balance. I already covered the contract models. We have a lot of new contract models where we are building that flexibility, but with full transparency and openly with the customers and really creating a longer-term partnership instead of locking one deal and then play. Merchandising is obviously a big part of the cost.
There is a lot of modern tools that we are bringing in, where different people should visit, how frequently, what they should do there to secure that the concept is taken care of. Theoretically, we can offer 24/7 service, but there is a price for it. So I'm not expecting the first supermarket calling tomorrow morning, "I need Sunday morning 3:00 A.M., get this service." We have that knowledge to say when and how frequently you should and we should together to take care of that concept. There is a lot of modern tools coming in, for example, related to route planning. There are hundreds of people out there on the road where they should visit based on what route, how we can optimize our delivery timings based on those routes. So there are a lot of opportunities on that space.
Also, distribution related to merchandising, those are the methods what we have built, which we can use market by market on a regular basis, evaluating what would be the best way of managing this business. So a lot of actions taken and more to come as we speak. Getting back to this focus on sustainable value creation, the objective what we have is to offer the best retail solution. Almost like saying that there is no reason for our customers to start running this business by themselves. We can offer that service to them. We have that knowledge to cover all fundamental areas, plus the shoppers and consumers better than anyone else. We will do that together with the customers, driving that based on the category, not only based on us and our brands. That's the collaboration what we're aiming at.
We are actively seeking innovative solutions when it comes to packaging, fixtures, and making those experiences to our shoppers. And as I said, to become efficient and effective both with supply and providing those services. Time to sum up. Priority number one, as Henri said, fixing Sweden profitability. We gave our estimate what are the steps we need to take. We have that unique know-how which we've been building during and post-integration as a new Cloetta. We are really comfortable by coming up with the unique USPs, looking at our branded concepts, what we're offering in the market moving forward. We are in a position to make choices between the channels.
If in the past we were hunting the channels where there is the highest volume, in our new strategy, it allows us to make choices where we are either driving penetration or frequency or other KPIs as well and getting that differentiation and branding value by actively investing to our concepts. Fixtures, we talked already, and we are more than happy with the pipeline what we have, further working with our existing pipeline, different generations, fitting in the different channels, different markets, because it's a big part of the investments running this type of business as a service. Last point what I mentioned during the presentation is the synergies between branded packed business and Pick & Mix. It comes from the production. It comes from the branding. It comes from the execution.
When we have hundreds of people out there taking care of our Pick & Mix offering, that same visit allows us to do things with our packed business, our packed promotions, and so on and so forth. So that puts us in our core markets in the unique position, having those two synergies in our hands. Thanks for your time. Now we're breaking for a few questions.
Thank you. I was just going to ask you, in your Pick & Mix business on a total level, what is the share of private labels versus third-party SKUs, and what are the margin differences between the two, and where do you think that you need to end up in the end in terms of mix between private labels and external suppliers, please?
If I start with how to define private labels, I would rather call it non-branded products. There might be a generic wine gum if you mean that. The way we are running our assortment, we have certain methods built behind it where we're talking A, B, and C. When you're more in a high-end premium chain where you are in a position to take a higher price as a customer, your concept includes a higher portion of A brands, some B brands, and products, and less, let's call it, generic non-branded wine gums. If you are in a mass merchandiser, like in Sweden, one good example could be ÖoB, then you might have a higher portion of Cs and Bs because you have selected to fight with the price. The good thing is that those things are in our control.
We are having consistently that dialogue with our customers, what would be the right for their specific position, what type of store they have next to it, because Pick & Mix is store-by-store game. When it comes to the margin differences, that's way too complex to answer because the range is enormous, because all these A's are including our own brands as well as our 3P brands. I think the key message is, especially in the high-end and creating that value within our 3P partners as well as our own brands. Also, it's obvious that in some of the markets where we're operating, we don't have such a high branded share like in Sweden. So there's also a lot of market differences.
Stellan Hellström, Nordea, a question on CandyKing. With the coming and needed price increases, how much of the CandyKing volumes do you think is at risk?
Those are the questions we can't give an estimate.
Not even a rough number. Do you think it is 10 or 20?
No.
I would not answer that because we are going out and negotiating with customers. They know what we are expecting. They will start to calculate that, and that will help them in their negotiation position. So I'd rather not talk about that, even though we have an estimate.
Yes. Hi. Mikael Löfdahl. A question on if you lost SEK 60 million in 2018, what was the results in 2017, and how was the profitability on the Coop contract that you lost?
Yeah. So I'll take that one. So it's a little bit difficult to be very exact. But when we bought the CandyKing business and we integrated it in May 2017, then the last published figures for CandyKing was actually in 2016, right? And there they were running at around 0% EBIT, yeah? And that is also a bit the incoming position we had. Now, what we can see also the nature of the earnout deal, that there was actually a lot of focus on the volume. That's why Oskari is also saying the volume hunt. And those volumes didn't come for free. So there was quite a lot of new contracts being made in 2016, early 2017 even, which were impacting the run rate on the Swedish CandyKing business negatively.
There was even a number of contracts where the pricing coming from the CandyKing system was not the same pricing as the customer could demonstrate on the invoices. I think the run rate was much worse than what we expected in the Swedish business. This was also the Swedish business where CandyKing had the biggest trouble. I remember that they lost the Coop contract to us on price, having a big impact on the fixed cost because these merchandisers still have to drive to Örebro or Jörlanda or whatever to fill one store then rather than two. The run rate on EBIT for CandyKing was much worse. I think that altogether, including with the new setup of distribution, is probably another 20-30 million SEK worsening from what we expected to find.
We brought this all into our ERP system, all these hundreds of contracts, and that was done as from May 2018, yeah. So arguably we started to look much more in detail in those contracts after we got that visibility. Of course, some of these contracts, it's the assortment which was wrong because it's too expensive assortment for the low price or the price in itself was wrong, but also that the services we were offering, because a big chunk, what Oskari is saying, is if we agreed to come to them every weekend to refill on Saturday and Sunday, and we have to pay those people higher cost, that also drives. There was a union issue as well. We had to make an agreement with the unions because they were operating out.
There was a lot of cleaning up to do before we could really see what is the true impact of this. So the minus 60 is something we've now really dissected in all the different cost drivers and had the plans behind 90% of those cost drivers which we're now getting into execution. On the other hand, we don't want to jeopardize the totality of it. So we want to make it step by step because it's mainly the ICA stores, yeah? And in my opinion, the ICA stores, that is where the future of the Karamellkungen brand and concept in Sweden will be built because the rest, I mean, City Gross has their own concept. Also, ÖoB has their own concept, and everybody will be looking at ICA. Also, Coop, they will be looking how is ICA doing.
If we can show over these two or three years to come that ICA is growing the business and that Karamellkungen or CandyKing is actually doing a better job, meaning more sales per store or more sales per consumer, then there's a big chance that they will come back to us on our conditions for a higher price. It's a challenge. Arguably, of course, Cloetta wasn't so good in Sweden either with Pick & Mix. Remember the commercial islands I talked about? I mean, the Swedish business never went to Finland to ask, "How are you guys doing this? You're doing this already for 15, 20 years." "Oh, we knew better." Yeah, but then we got Coop and we lost it after three years because we didn't really take care of it in a good way.
We've also built completely from the bottom up the experience, the processes, etc. And that's why they're so good. There's quite some Finns in the team and that we're working across the market. The UK very well-run business from CandyKing. Also, over there, they were more or less running on their own pre-Brexit and doing it the way they wanted. Now we're building all that knowledge together in one way of operating to also help the Swedish team to get out of this -SEK 60 million situation.
Good.
Okay. Thank you, and I'm available during the break, so let's have more talks about Pick & Mix. Next, I have an opportunity to introduce our Chief Marketing Officer, Thomas Biesterfeldt.
Thank you, Oskari. Yeah, good afternoon. I'm very, very excited to be here and talk more about our marketing strategy and our consumers, and principally, I will go through two parts. One thing is external, so the category we are operating in and those consumers and its consumers, and secondly, I will talk about what are we doing, what are we leveraging, but also what do we need to or what are we improving in order to win and grow, but in the end, and Henri mentioned it before, it's about the consumer. It's about the consumer in front of the shelf, and it's about the consumer coming home and having the moment of enjoying candy, and now we can ask, "Okay, what is the opportunity? What is the consumer value?", and in Cloetta, we believe in the power of true joy.
What do I mean with the power of true joy? What do we mean with the power of true joy? It is that smile we see here, that first smile which will never disappear. It is highly memorable. It's connected to taste. It's connected to emotions. It's like making good times great. Whether you're in the car on the way to holiday and the kids are eating some candy, they will have those memories. Whether it is the family together on the sofa and you watch your favorite movie, or whether it is you are gaming and in between you take that little—what is important, though, this is not what I imagine. This is what the consumer is sharing with us.
I think it's very, very important to know and think about that we operate and work in a category which is characterized by the very, very high number of positive associations. They might be taste-related. They might be needs-related, social-related, those moments what I mentioned, the sofa, hygge, fredagsmys, but also positive emotional. Of course, we are aware that consumer trends are in motion. To give a little bit more view on the external world of what is happening with the consumer, and many of those trends, of course, you are very aware about, the conscious consumer, first of all, because information is there, and we have information available. Individualization, the dream to just optimize yourself and be a better version of yourself, get what is exactly right for you.
The local relevancy, we spoke about the local relevancy, which is really about, on one hand, trust, but it's also belonging to a local tribe. It also means something if I buy a local brand. The Best Agers 50-plus phenomenon. I think it's the biggest opportunity in marketing history. And this is not only because of the age pyramid. It is because consumers 50, 60-plus are participating totally differently in the society and have a total different demand on brands. Those who will answer that in the right way will win. The next big trend is high tech, high touch. You might have heard it. The more technology around us, the more we look for emotional touch. Again, linking a little bit back to the concept of Hygge, Fredagsmys, and so on, and whatever you do, summer house or that. It's that polarizing phenomenon.
And digitalization, obviously, we want it now. And everyone knows with our mobile phone, I buy that, I buy that, that's part of it. So why do I tell all of this? Because I think and feel that Cloetta is in a very good position. First of all, and Henri shared that before, the portfolio of our brands and our local heritage around brands, the Nordic way of life. And I'm not only saying this for the Nordics, but also internationally, the world around is very keen on that lifestyle. Individualization, we spoke about Pick & Mix, obviously. The choice, so individualization also, I want the best for me, provide choices. We cater to a very wide audience, from young to old. And we have a very, very ambitious plan on e-commerce to mirror the impulse from offline to online. So behind all of this are obviously the strong brands.
You recognize that slide. I could now talk about brand identity, brand preference, brands consideration. But in the end of the day, I believe it's simply about our share of market and our share with paying customers. Why? Because that is the moment when you make a choice in a competitive environment and when you choose brand A in front of brand B. So one can say it's nice, brand preference, consideration, equity, but in its vanity, market shares are reality. Okay? Let's look at market shares. We mentioned that we had a question on that topic before. Quickly on the background, what are we looking at here? We're looking at Nielsen and IRI sell-out scanning data. That covers approximately 65% of our markets. This is aggregated on our core markets for our categories. That is for the full year 2018.
So, first of all, we see that the total branded business, this is for our branded products, the market is in a modest growth of 0.4%. We expect probably that the 35% outside of Nielsen is a little bit more dynamic, but it gives a direction plus 0.4%. One of the driving categories is candy and chocolate with plus 0.7% growth. Pastilles, rather flat, and chewing gum during the last year, and we mentioned it before, is the category which is currently decreasing. So how is Cloetta doing on these categories? First of all, I'm happy to share we are in a very, very solid stage here, and we're growing market shares. We outperform the market, the sellout grows. We win market shares on the total branded level, and now reaching 15% market share. This means that we outperform the markets times four.
We have candy, which is the number one driver, where we strongly win market shares. Chocolate, we win strongly market shares. On chewing gum, well, we are not helping, and to be honest, we are not helping to stop the decline on the category. So this is, of course, one of the challenges, and pastilles, yes, we have lost market shares, but the good news is the last two periods of 2018, we are already growing again, and it continues, and it's a big focus during 2019, which we will also talk about a little later. Okay. Besides market shares, I think one thing is very important when we look at our portfolio, and that wheel you have seen before with the big candy and then chocolate, pastilles, and our chewing gum and nuts, but that we enrich several and very unique consumer occasions.
Whether it is Red Band or Malaco, when we're watching maybe Melodifestivalen and in the last weeks together with the family enjoying that, whether we drive for holidays and have a bag with us with Ahlgrens bilar, whether we stand on the mountaintop in Åre and we have Sweden's bästa mellanmål with Kexchoklad, or whether Läkerol, always with me, always in my bag, the most permissible treat, I would say, different, many, many different occasions. But apart from the occasions, we discussed that the consumers' trends are shifting, and we have different opinion agendas, and Henri mentioned one of them, low sugar, calories. And it is not, as Henri said, if we ask the consumers, it's not today a very, very big topic, but we want to be at the forefront and be part of the race and be the first.
In 2017, we launched in Holland with our Red Band portfolio. Beside the original, a 30% less sugar variant, a no-sugar variant, a veggie variant. We have done sugar-free on licorice as well. And now, in 2018, at the end of 2018, we have launched in the Nordic markets on Gott & Blandat, the two alternatives on the sour and on the original, which we also support, and I will come back later to that. When we do something from now on and in the future, we will support it to make consumers know that. It starts very, very well. And on top, and this is a very interesting message I want to say here, it helps to recruit new consumers. Approximately one fourth of the consumers buying Gott & Blandat minus 30% sugar are new to the sugar bag category.
So Henri mentioned it before, and we will say it later on as well. We're making serious and massive efforts to cut indirect cost to partly refuel our media investments to drive profitable and long-term organic growth. And there is something I want to share which I think is very important because the word investment, obviously, I mean, it is also then the question, the next question, okay, what's the return on the investment? And I think it's a fair question. And I want to share a few principles which I find very, very important and what we put in place for the future now and driving that growth. And the first one, in order to accelerate the return on investment on our marketing spend, is to make our marketing spends visible.
That might sound weird, but what I'm talking about is when you look at our total marketing investments, it's split up in non-working and working. What is non-working? Non-working is basically the production. So the production of the media assets, agencies, market research, and the working media is what you're going to see in store, point of sale material, advertising, you name it. You can see in 2017, the ratio, well, that's obvious, was not very good. So we moved it up and turned it around during 2018. We had an ambitious plan for 2019, and we go further, and this is the ambition to 70%. 70% to make out of our marketing investments visible to consumers. Then, and that's the next 70%, we need to maximize then these, what I call pure media, to make sure that out of this working media, 70% is spent on pure media.
What do I mean with that? Again, that is advertising. I want to remind on two things here. We operate in a category of impulse. So for me, within marketing here, when it comes to advertising, it's about impact. Impact, impact, impact. And secondly, we spoke about valorization and premiumization and my history from L'Oréal. You need pure media to defend higher prices beside innovations. It's super important. So that's, again, why 70% of the working media needs to be in those types of pure media. And then there comes, and this is very, very important, and we work with that with the team day in, day out. It is about boosting your launches hard and measure fast. We have fast-moving consumer goods.
That basically means if we do a campaign, as you see the period afterwards and elasticity and uplift, well, then keep pushing, or if you don't see it, go on something else. But don't keep going. So either pushing or that's what I mean with boosting hard and then measuring fast. This was the second 70. There's a third 70. So out of my pure media, what is then important is, are we not forgetting to spend and support the bread and butter? And this is our core pillar brands, as I used to call them. I brought a few examples. Number one example is here from Holland, the Venco brand, which is a licorice brand. It's the number one licorice brand in Holland. And for many, many years, we didn't support.
And we came back following the principles of boosting it hard, and we see the uplift, which we have done during the campaign, and the brand continues to grow in a very healthy shape after the campaign. Second example I brought from Finland, Sisu. It's a pastille. And that pastille, again, is a very local, very historical brand, has not been supported for many, many years. Once we pushed, we see the uplift, and we pushed it right. And I'm very happy to tease now because this is the first time in this room on our key iconic and loved brand, Läkerol. We will, during the second half of 2019, come back with a modernization, with a renovation, both of packaging and communication. I feel personally, as I love advertising and brands, something to look forward to, which will be the next case.
So beside the acceleration of our marketing investments and the return on investment, it is also very, very important, and we heard that several times before about scale and cross-market utilization, and basically, we have done two things to put in place now. Number one, we made a massive project together with all markets, with marketing directors, shopper marketing, but also business units and commercial units to define our category strategies, and that means that we have identified specific drivers per category, which we believe, and what our consumers believe, and the feedback we have gotten will drive the category in the future. Why I'm saying this is because it was a big undertaking, and secondly, it is very, very important for us in marketing, for cross-market scale, to have identified what are the common nominators and the synergies, the key focus.
The other one is that we are not looking at innovation and my innovation team anymore as one entity and one group, so to say. It is more agile. What we mean with that is basically we have one approach, which is fast track. We heard before about the international markets. Here, we take existing brands, existing products. We launch news, so it has to go fast. It's about speed to market. It's about pack change. That's what we call fast track. It's another way. Then we have innovation taking care about local needs, which is very adapted to local needs, born local, executed with the locals, and launched local. And third, it's what we call the discovery. That is basically what we believe are then the next products and launches and innovation to come in year plus two or plus three.
And then it is about, obviously, mentality of my marketing team, the full marketing team around Cloetta. And I would like to close here, again, the circle to what I said in the beginning and talking about to be consumer-obsessed. And I will quote one book from Bob Hoffman, which is his very recent one, a little bit provocative, but very brilliant, called Laughing at Advertising. And one part about that is, if you would ask today the CMOs at big corporations, a standard answer you would get on more or less the main challenges, the key challenges, we need to be younger, we need to be more digital. Well, could say that, but what we believe, that is also marketing with a selfie stick. Because why? Our marketing population, our agencies, the guys we work with are on average 35 or below.
In a way, you mirror a little bit what you are, and you think that's going to work out in the world. It's a little bit more complex than that. There's three keywords I want to mention, which is very important for the Cloetta marketing in the future. Be curious, that basically means try to understand, try to understand your consumer, try to understand why this is happening. Be curious by nature. Dare also, when you're curious, dare to break sometimes rules and reinvent the rules. Be observant. I say observant because the consumers today, they don't tell us the truth. Consumers, when they answer your questions, they answer rational and cognitive, but when they make the decision in front of the shelf, they do it emotional with their guts. I have to say in a category like this, impulse, FMCG.
This is why it's super important, our market research, and we do fundamental changes because what I can't buy out on the market, any competitor can buy. But what I observe with my consumers, that is what I observe, and that's what makes our potential for innovations unique. And last but not least, entrepreneurial. And what I mean with that basically is to say it's quite interesting what the question towards the marketing population does if you would ask them, would you do it if it would be your same money? If it would be your own money, sorry, would you do it? Well, it opens quite a lot of new perspectives and the new thinking, which I think is very, very relevant in the time we are today. Thank you very much for listening, and we have time now for a few questions.
[audio distortion] . Could you please elaborate on chart 37 about the different growth rates of the different categories in regards to price and volume?
This is value.
This is only value.
This is only value.
So this is only what, price?
This includes price, yeah.
Yeah, but you have a volume component here as well, right? Or is that zero?
It's the sell-out growth, so meaning you take, it's the total market of value, and that's what you look at. Volume is, of course, included, but times price.
Of course, but so that's what I'm getting at. What is the volume growth, and what is the price component? In order to gauge here how important price is in the different categories you're working in.
Yes. Okay, clear. I get it. Henry was on that before as well about the market and the market growth, and that the market is basically rather flat in volume and growing in value, especially in our markets in Northern Europe, Western Europe. So in particular, and I'm a strong believer that whether it's candy, whether it's chocolate, whether it's pastille, is interesting room for growth when it comes to pricing and when it comes to value. So you asked me about the categories, and that's the way I hope it answers your question.
If I may follow up on that, actually. If you look at these different categories, but in different target groups of the market, as in age groups, would you care to elaborate a bit how, let's say, some younger category of ages actually consume in terms of volume, please?
First of all, it's important to say that these are retail scanning data. So a retail cash machine at an ICA when you scan doesn't make any notification about the age of who's buying. So that's another type of source. That's household panel data. Household panel data are, again, looking at something different, but there we get information about consumer age and consumer profile. It's now obviously very, very complex to go into category and age groups, and I won't have the time for that. So is there one specific area you're more interested in?
Yes. Let's take the largest share of sales, 58%, which is confectionery. How does the younger target group consume in terms of volume development, please?
Right. Basically, what we can see is that I don't know now exactly what you mean with younger. Of course, that can depend on age, but we know that.
Your choice.
I will draw a curve, so to say, imaginary. In a way, it's very interesting. I spoke about before the best ages and the older age group. Today, when you look through a life cycle, consumers up to 18, they very little go out in store and buy confectionery themselves, but they ask parents to buy it. So consumer and buyer, two different things. Then it starts a time when they leave home, studies. Confectioneries play a fairly little role. There's much more important things in life at that point. You come back.
And that's why I'm saying something interesting when I say the answer, we need to be younger and we need to be more digital, I think has not a lot of truth in it because if we throw money after the most expensive target group to convert them while they in that stage of life are caring about many other things than confectionery, I'm not sure if that should be the number one objective or greatest opportunity. Any more questions? Well, otherwise, then thank you very much again for listening, having me here. And then I'm very happy to introduce our President of Operations, Marcel.
Thank you. All right. So now it's time for arguably the most fun part, yeah? Because this is about making. And I'm pretty sure you've all pictured yourself at some point in your life or maybe even with your children working or actually walking around a manufacturing unit and picking some of those beautiful products of the line. That is what this is about, yeah? It's about producing those quality products day in, day out at the best ability that we can. And actually, we are the proud owners of eight manufacturing units. So we own our supply chain. And we fundamentally believe by owning our supply chain, we have a competitive advantage.
The things that Oskari talked about, that Henri talked about, and that Thomas talked about, for instance, route to market, we have the ability to be quicker in terms of route to market than potentially others that are only working with third-party. The majority of the volume that we produce today is made by our own manufacturing units. Yes, we do buy in some third-party products as well that we then mix into our own products or that find their way into the sellouts to Pick & Mix. The previous strategy within manufacturing was all about consolidating. And Frans will later on talk about the value creation that that delivered. What we are now talking about is value creation through this own supply chain, running this supply chain more efficiently than it did yesterday and the day before that.
Every day should be slightly better than the day before. The eight manufacturing units, for those that don't know, we have two here in Sweden. We have four in the Benelux, one in Dublin, and one in Levice and Slovakia. And I'll come to that in a second. What you see on the left-hand side is effectively value creation and getting ready for future. So we want to futurize our manufacturing units. So the investment we did last year in Ljungsbro that you see here on the left-hand side for you, the right-hand side for me, is an investment we did in our chocolate line, the chocolate bar line that produces, for instance, the Tupla bar for Finland, but also for other regions. Another example that we will find in the booklet, but that I also bring here, is the latest investment in molded candy.
So this is the investment that we did in Belgium in Turnhout. What you see here is actually the molding part. So all the way at the back, you see how we are filling the molds, and it comes all the way forward into the trays that then find their way through our manufacturing site into drying chambers, then being demolded, and then in the bags that you basically find on shelf in the supermarkets. So two great examples of where we are investing in future capability and getting ready for the future. Looking into more specifics, so as part of the manufacturing strategy, we're giving all sites a clear purpose, a reason to be, and a role within the network. What do I mean with that? We've got three main molding sites, molded candy sites. One in Turnhout, one in Levice, and one in Roosendaal.
Why do we believe in purpose-driven sites and giving them a clear identity? Because through that, you basically build expertise. Rather than in the past, it was the case that it was local for local, so markets would reach out to a site whether they could make a certain product. We are now deciding where those products are being made and shipped from so that we get effectively the economy of scale and the expertise being built in those sites. So that's the example for Roosendaal, Turnhout, and Levice. At the same time, we've got a nut factory. There's a specific nut factory that only produces nuts for the whole of Cloetta. Then we've got a specialty site in Roosendaal, Roosendaal-Borchwerf, just across the track, actually the railway track from the other factory, and that produces our specialty products, so fudges and the like.
Sneek, in the north of the Netherlands, produces the pastilles range and refreshment range as well as chew and gum, and then the Jelly Bean Factory, a factory on its own, producing only the Jelly Bean Factory products. The total produced last year was, as you can see, 102,000 tons, 102 kilotons, produced own products. Now, being part, and when I talk about supply chain, I also talk obviously about source. The sourcing, we do ourselves. We've integrated the CandyKing business into our sourcing team. Again, if you talk about the 100 million SEK there we see in synergies, this is part of that. We brought the buyers in from CandyKing into our own network, and we created synergies. Not only synergies in terms of buying power, but also synergies in terms of being able to do it with less people.
So it's giving you an idea of what effectively synergies are about. 100% of our raw materials, specs, energy, etc., are bought by my team. Now, one of the things that we will use to argue that prices should go up in the market is what you see here, and I'll point it out on the left-hand side: what you see there is the sugar prices going up. That could either eat into our margin or, in this case, we say arguably that is something that we're going to charge out to the market. And that is the arguments that we are using. This is publicly known data, a system called Mintec that we use for that. At the same time, I see here on the left-hand side; I see also that corrugated. So these are your packaging materials. Those prices are also going up.
We need to find a way to make sure that we recover from that. The coverage that we apply really depends on the type of product. But on average, I could say for any of the commodities, the standard commodities like cocoa, butter, sugar, etc., etc., we contract out for a period of three to six months in advance. So that basically takes out fluctuations, really heavy fluctuations in our own manufacturing units and so margin impact. I will talk a bit more later on about third party and strategic third parties because that's another important part. But first, I go to the insourcing and the synergies that we talked about and volume coming into our network and how that drives effectively efficiency and with that cost down.
What you see here on this chart, and it might have been shared in different forms in slightly different formats, but last year, we produced roughly rounded numbers, about five kilotons of CandyKing product into our own network. By the end of this year, we expect that to be around 7.8 kilotons. Now, having said that, what we are always assessing is what drives the most value for us. So we're not blindly insourcing volume through the fact that we have acquired CandyKing. We will always look at what volume drives the highest value. And that is what we will insource, and that is what we will produce ourselves. At the same time, we still have significant volume out there that is part of the divestment in our Italian business. That's about six kilotons that we can bring into our network.
Will we fully bring that into our network? Again, the same answer I would give there. We look at what really delivers value for us and so develops value for the shareholder, but the estimated, as you can see here on screen, is at the moment that we will, up to 2021, bring in about 1.3 kilotons of that product throughout the network. This is not just molded network. The last part, a key message there as well. In the past, and probably up till now, we are slightly lower than that. We had 70 third-party suppliers, partners that we worked with. Actually, they're not really partners, so we want to move to a situation where we really create partnerships and through that create value for them and for us, and less, in that case, is more. That is what we are about to embark on.
Then the last point probably is what you see in this graph is that we also see further opportunities through either efficiencies or other ways to further insource another two kilotons up to 2021 and beyond. A key change that I mentioned before is this, the Perfect Factory. Henri used that word several, several times. In the past, we consolidated networks. Now we will drive efficiency through our own network. And that's what the Perfect Factory program is about, creating repeatable, measurable, and capable lines. Just picture this. You walk into a factory, and you know exactly what is expected of you. You walk into that factory, and you know that that factory is in control. You walk into a factory, and you can already picture that we are making these quality products really come to life. That's what I envisage to achieve with Perfect Factory.
That is not a one-year program. So what I'm not telling you here is that we will fix it in a month or in two months. This is a multiple-year program, and we will prioritize the most critical parts first. And the key thing that I also said at the start of the session, actually in the lunch area, is the power of yes is the ability to say no. We can't do everything at the same time. We need to make choices, and we will do so. So we've started this program in our Levice factory in Slovakia and with great enthusiasm of all the people that are working on those lines because that's a critical part. Products are not made by machines. Yes, they do, in the end, the depositing, which is basically putting all those nice sweets into the starch molding, etc., etc.
But people make the product. And so that is a key essence of this program. Repeatable, measurable, and capable, those are the lines, but also competent employees. The way we will do that, and that is a fundamental change versus the past, is we'll do that through the Leading Performance Program. What is then different, you might ask? What did you do during the Lean 2020 journey? We basically, in that program, delivered great value through one-off initiatives. What we're doing here is we're fundamentally working with the employees on the shop floor to sustain this for longer. In essence, I'm saying forever. So it should be a journey of day-by-day improvement of performance. How we are going to do that is, like I said, through the Cloetta Leading Performance Program. Now, that's only a word. How do we really make that come to life, Marcel?
Now, we are partnering with a company called CCI, and they've developed a program called TRACC, and probably important to stress here, whatever we do in our manufacturing units and whatever this program will deliver becomes our intellectual property. So what we are currently working on today in Levice will be spread across the network, and that is our intellectual property. But in essence, it's four to five parts. The first one is standardizing tools and standardized ways of working. Again, I bring it back to home life. When you wake up in the morning, you know exactly where to get your toothbrush from because it's exactly located in the right spot. You know where your clothes are. You know your routines are getting out. Nobody actually thinks about that. That is what this is about.
Operators walking into a factory knowing exactly what is expected of them, but also knowing exactly where to find the screwdriver that they need, or exactly knowing what the setting is to produce that fantastic quality product so that the second moment of truth that Henri talked about really becomes that indulging moment and that the shape is correct and that the strawberry is a strawberry and not a blue smurf. That is what standardizing is about. That is a long journey, but we have started it, and the first signs are really positive. Second part of that is moving from almost like the industrial age where everything was mechanically to really moving into the 21st century, the internet of things. So real-time knowing what's going on, and that's not important for me, but it's important for the operators.
So they know exactly what is going on in their manufacturing units so that they can anticipate. Not wondering what the setting would be, but they know what the setting is, and they know what the effect of that is. The third element is statistical process control. And this is nothing more or less than knowing that the inputs are right, and as a result of that, I can predict that the outputs are right. Currently, we don't have such things. We don't control our processes in the way that we provide or through statistical process control, but we will do going forward. So then when we're off track, they know exactly what to do to bring the quality back within specification. And the fifth part, it might sound logical, and I'll bring it back to day-to-day life.
When you all leave here, some might leave with tram models, with metro, other ones with bus. You simply expect those pieces of kit to run efficiently. You don't wonder whether when you're starting up your car, whether it will start or not because you have maintained it properly. There's a system behind it that provides that security for you that you will get home safe and that actually you will get home in the first place. That is what the maintenance basics is about, and then we will build that into advanced systems so that we know that when we are maintaining the equipment, it will actually continue to deliver and that driving efficiency. Now, the backbone of all of this is a system called TRACC.
That's where we lock all of these actions, and the system TRACC will also provide us the tools and the procedures to deliver this. That is our intellectual property that I talked about earlier on. Now, what will it deliver? Higher OE. For those that are not familiar with the terminology, you could say it's operational efficiency. It's more cases out of the door in the same time as we are producing it now. In other words, you can produce the same amount of cases in less time, driving cost out. This is also part of the value improvement plus program. Logically, what it will then also do, if you can produce those cases in a shorter period of time, you've changed over to the next item, you get automatically a higher capacity increase because there is all of a sudden spare time available.
So without investing in new equipment, you actually can produce more on the same equipment. Sweating your assets is another way of looking at that. Quality improvements come automatically with it because if you have statistical process control, if you have trending lines, you know exactly what is going on in your process. So you don't have to wonder whether you're producing that strawberry or whether you're producing that smurf to the right standard or the licorice product. I'm just calling out some products. When you have the right standards in your factory, when you have all of these tools, typically, your incident rates are going down as well. LTIR, for those that are not familiar with the terminology, stands for Lost Time Incident Rate. This is a normalized way of looking at how good you are doing against the industry standards.
Most importantly, well, not most importantly, but one of the important elements is become predictable. I typically call this become boringly predictable because if the job becomes boringly predictable, actually, you can do it in less time. With that, I free up brain power to do more important things and value creation. I want to standardize as much as possible and make it boringly predictable so that actually our people can do more value-added task rather than just running around finding that screwdriver, running around and cleaning up the candies from the floor. That is not value-added. Through all of this, and probably I should have started with that, but I'd like to finish with that, is it drives higher engagement. Even without all of this, if you've got engaged employees, you will deliver better results.
If you are not engaged in the job that you're doing and you feel totally bored and you're basically not willing to come to work, are you? That is what this program will also deliver. But that's where we will always start with. So where Henri said his number one point is getting people home safe, whether they're in the sales floors or in the factory, I totally agree with that. The second challenge for any line manager is engagement. Engagement drives improvement. The last part and the last slide I want to leave you with is capacity investment. So we talked about CandyKing insourcing. We talked about growth, how we're going to facilitate that. Yes, we will facilitate that through the Perfect Factory program because that's what I said. Sweating, yes, it's harder. Delivering more volume out of existing assets.
That in itself is at the moment not good enough or is not enough. And what we already said when we acquired CandyKing is that we would have to invest in additional capacity. That's what we have just signed on to. So what we are doing is we are investing in 10% additional capacity for the candy molded lines in Levice and in Turnhout. So Levice being our Slovakian site, Turnhout being the site in Belgium, that will deliver 10% more capacity, that SEK 100 million investment. What can we do with that? And we will make the trade-off so that we create the highest value for the business, but we will be able to support the package growth that we see. We will also be able to further build on the synergies that I showed on earlier on by bringing CandyKing volumes in.
But also, we will be able to insource further the Italian volume that we want to insource. This capacity will gradually be available because we're now working on the engineering phases. It will gradually be available in 2020. That's what I wanted to share about the funniest part of actually our business, which is making. So I'll invite you at some point to come in and see how we make them. Any questions before we have a break? It was that crystal clear, or you're all looking forward to a cup of coffee or water or anything alike. Thank you very much.
Thank you. Last but not least, among the presenters, I would like to introduce Frans Rydén, who is the quite new CFO at Cloetta. So please come up on stage, Frans.
Thank you. Great. I was given the best spot of the day, I think.
Just after coffee break, I could already feel there was more energy in the room as people came back with the coffee. That kicks in. Hopefully, some of you also have a bit of a sugar rush by now. I've been testing the products. Nonetheless, let's talk about financial strategy and the very important road to 14%. And I'm going to do this by sort of making sure we have a bit of an alignment on what's the background, where are we coming from, what are we actually changing, and as a result, what does the outlook look like? And we're going to look through growth and how we've gone from growing through acquisitions and how we're going to move to grow organically instead. And if we have acquisitions, they should be on top and in addition to organic growth, not instead of.
We're going to talk about the margins, and we've improved margins in the past, but again, largely through post-acquisition synergies and plant restructuring, and now we're going to say, well, how can we drive cost consciousness, cost control in everything we do all the time in addition to the improvement in the Pick & Mix portfolio, and then we'll look at how we're doing on cash and our leverage and dividend, where we've actually been doing better so far, and we don't really need a specific big change there, so the outlook is unchanged, and those are the four key KPIs that I'm going to go through. Organic growth in line with markets, about 1%-2%. Obviously, you can see here that we haven't delivered that.
You heard about the Pick & Mix and the lost contract at the beginning of last year and some of the challenges in Norway. We'll zoom in on it. Then we'll talk about the margins. Again, 14%. We have quite some bit to go, although we improved last year over 2017. We'll zoom in on that. For the last two, on the leverage and on the dividend, where we have nice tick marks, we are in line with what our owners have asked us to deliver. Less than two and a half times EBITDA on our net debt and paying out dividend, somewhere between 40% and 60% of our net profit after tax. First topic, growth. If you look at this, this basically represents our growth since 2012, and you see four acquisitions and one divestiture.
There's actually another acquisition in there, but it was too small to even show on the chart. But of course, it takes focus and effort away from something else when you do that. What you can't find on this slide is a bar that says organic growth because there has actually not been any. The last bar here is forex. So that's the first big change, right? We have to move to organic growth, and you've heard Henry talk about it. You heard Oskari talk about it. You've heard obviously Thomas talk about it. Having heard them talk about it, there's no reason that we wouldn't be able to do this.
The nice thing is if we zoom in just one step further and we separate our portfolio between the branded package business in the top row and the Pick & Mix at the bottom, we can see that we have, as Henri said initially, we have grown quarter- over- quarter- over- quarter for the last one year. Obviously, we now need to make sure that that's going to be year- over- year- over- year as well. So it's promising, but it doesn't mean that we've sold for it yet. But there's no reason that we should not be able to grow organically in a market and a category where that is happening. The other thing I wanted to show why I'm doing the over and under here is one is the relative size, of course, between the packaged branded business and the Pick & Mix.
And the other one is the size of these graphs. So you see the volatility is much greater on Pick & Mix. That's because we win contract at the time with the customers, whereas in the branded, it's much more winning with every consumer all the time. So we've had much bigger fluctuations. In the past, that was without CandyKing. Obviously, more recently, it is with CandyKing. We took the contract from them or vice versa. This is what we need to build back. And as Oskari has been talking about, if we can add value to Pick & Mix in the store that the retailers cannot do themselves, that's our ticket in. This does not mean that we will not be open to acquiring something else.
It means that if we do that, it has to be in addition and on top of organic growth, and we have to be more selective. It has to have some scale. It needs to be in our core categories. It has to play to our strength. It needs to be a company where the private label is not the big thing. It has to be branded products, and it should be in our core markets. If we're going to go slightly outside of that, we have to, again, be much more discerning in our choice. If we do this, we're going to have great value from the acquisition on top and in addition to organic growth. Otherwise, we're going to not do it. We're not going to acquire like a popcorn company just because it's Munchy Moments. We know nothing about popcorn. That was growth. Over to margins.
In this chart, you can see that we've had a nice EBIT margin improvement since 2012, 8.9%, making it way north of 13% by 2016. Not too far away from those 14% we mentioned, but it mostly came through post-acquisition synergies and plant restructuring. Not going to say no to that in the future, but we can't rely on that per se. In 2017, you have a drop here. It's obviously the introduction of the CandyKing portfolio, which was very dilutive to our margins. On top of that, we had some forex headwinds, and we spoke previously in quarterly calls about some of the challenges with our production and the cost related to that, which obviously Marcel is now addressing through the Perfect Factory program. In 2018 is the full 12 months of CandyKing.
It's the first year where we have 12 months of CandyKing. In theory, maybe margins should have dropped a little bit further. We managed to offset that through the synergies that we're delivering, plus other cost reductions. So we are going in the right direction, but it leaves a lot of room before we get to 14%. This is the high-level roadmap how to get there. Some of you were probably hoping that it will be a Swedish krona value or a percentage above each arrow. Yeah, Niklas is nodding. So we're not going to share that. I'm not going to make any forward-looking statements here, but let's discuss this and where I'm coming from when I'm talking about this. The first arrow is the Pick & Mix.
You heard and you saw on the slide that we have roughly another SEK 45 million in synergies that we will realize. We also spoke about Sweden losing about SEK 60 million. If I put these two together, that alone is about 1.5% EBIT margin on the entire company. And then we haven't even talked about Sweden starting to make a profit. That's just breaking even. So if we believe in some of the plans as presented, there is a real opportunity under this arrow. Moving to the next one. This is Thomas's presentation about driving branded growth through some of the things you would expect all FMCG companies to do. And now we're going to do that. And as you saw, we've started to do it. We also called out that we're already doing 14+% EBIT margin there. So all the growth is accretive.
He spoke about how he's going to do this by using his advertising money more efficiently as well. So maybe the uptick could be more than the current EBIT margin. Thirdly, we talked about Perfect Factory. So again, I'm not going to make any forward-looking statement, but let's just talk about a few numbers here. Our cost of goods sold last year was SEK 3.9 billion. 35% of that is manufacturing cost. That's 1.3-1.4. So what if we took out 1% per year for, let's say, five years? That would be 1% EBIT margin. I'm not saying that 1% is a good number, but if it was 2%, that's 2% EBIT margin. So there is some real potential value to realize here. And that's even before we start talking about insourcing more volumes, which brings me to the fourth green arrow here.
Henri spoke about some of my experience. I spent 18 years with Mondelēz. The last three years, I was running a cost reduction program focusing on indirects for Asia-Pacific. It's a four plus billion US dollar region. We delivered that using ZBB methodology and with the support of Accenture. Then I had a short stint with Arla before I was recruited over here. It was a bit shorter than I originally thought, but I also started rolling out ZBB there, then with Boston Consulting Group over a one-year period. I know this very well. We have done some really good work so far, but we can take this to a very different level going forward. We're spending about SEK 1.6 billion on SG&A. And you've seen in the annual report, roughly SEK 400 million is advertising and selling expenses, excluding the overheads, the people cost. That leaves 1.2, right?
What if I saved similar there, 1% per year for five years? That's another 1%. I'm not saying that 1% is right. It could be two, but you see that there's opportunities. Then we're starting to work as one Cloetta now. We already have pockets of best practices across our different company. We're very good at certain things in some countries. If we spread that knowledge, whether that is revenue management, if it's net productivity, if it's how to manage your portfolio, we can do much more with what we already have, and we can also take best practices from outside that we currently don't have. I'm not going to give a number for it, but there's further opportunities. Then there will be headwinds. There will be disappointments. There is stuff that doesn't always go in your way.
But if you do the math in your own head, you should conclude that we have a well-stocked roadmap to get to 14%. We've said midterm here. I'm sure we'll question about how long that is. You'll have an opinion about that, but there's a well-stocked roadmap with the what we need to do. Next question is how. And that's the arrow at the bottom here when we talk about Value Improvement Program Plus. We've had a program already internally that the employees are familiar with, which was called Value Improvement Program, VIP. It's very important. Now we're adding the plus. It means it's going to be more. It's going to be bigger. It's going to be better. It's going to be holistic, cover the whole span of value improvement initiatives and company-wide. And we're going to drive this with some of the practices that are used by industry leaders.
And that includes zero-based budgeting, transparency, accountability, and rigor. By that, I mean transparency on where we're spending our efforts, our money, our focus, our time. So we can make sure that we put that where it gives the most value to drive profitable growth and get to 14%. We're not going to cut costs just to cut costs. We cut the cost that gives the least value. That's what you do. Accountability to be absolutely clear about who's going to deliver what and by when, and make sure we don't have overlaps or gaps. Again, if I take the CandyKing synergies, obviously we have those. Some of that will be people cost. That sits in indirect. Some of it is in insourcing. It sits with Marcel. We need to put everything under one roof so we're clear on where the demarcation lines are.
Do we count the saving twice, or did we miss something out? Ultimately, we want to spend where it matters the most, and we want to get the most bang for our buck, and we will safeguard that through the rigor. We're going to change our chart of accounts. We're going to roll out new tracking systems so we can see on a monthly basis with the level of transparency required to really drive the business in the right direction. We're not going to do it on our own either. We have engaged Accenture. They will help us with the visibility to understand our spend, to benchmark that to a relevant peer set, value targeting from that. Where is the low-hanging fruit? Where is the biggest deal size? What are the best practices to bridge those gaps? Appropriate workshops in focus areas so we can then drive those savings.
That's not something we will do later. They're already working on our data as we speak right now. That's the difference. That's what we're going to do, and that's how we're going to do it. So those were the growth and the margins. The other two pieces here were on the cash flow and about leverage. So we've had a nice evolution of cash flow. We are delivering well on cash. Can we do better? Absolutely, we can do better, but we also have to pick our battles. Right now, the battles are organic growth, margin improvements, pick and mix. Three years ago, however, we made it below 2.5. We've held that steady since. Consequently, in our priorities, it's still a priority that we have there to be able to pay off debt. But now we don't have to put it at the top of the list any longer.
It can be within the list, but further down. Top of the list comes growth because if you get the growth and you get it profitable, it solves for everything else. To get that growth, we have to invest as well. And Marcel already spoke about it. If I look at the CapEx over the last couple of years, we've been spending less than what we've been depreciating, which is probably normal for a company that's not growing organically but growing through acquisitions. It's been oscillating somewhere between 2.7% and 3.5% of sales. Over the next two years, we're anticipating a step up on average to 5% of sales in CapEx investments. That includes the SEK 100 million that Marcel spoke about. It also includes stepping up what we're doing on racks for Pick & Mix.
It includes stepping up on intangibles that would allow us to work through the Perfect Factory systems, work as one with Workspace, 3M, etc. After that, our new normal will probably be at 3.5. That's what we're sharing today. This will still allow us to continue to pay our dividends. A few years ago, we paid no dividend. Then we had 50 öre, took it up to 75 öre, and now we have the recommendation is for 1 krona for the 2018 results, which is a doubling of the dividends over three years. It's within the range of 40-60, which we have been requested. That's where we are staying. What I've just told you is we're going to move from growing through acquisition to grow organically and acquisition on top, not instead of.
We're going to go from improving our EBIT margin through only synergies or plant restructuring to do it by driving cost out everywhere where it makes sense. The other stuff, happy to take it, but it's got to be on top. And we're going to continue to keep our debt down, and we're going to keep the dividend up. Thank you. Time for question. And do you want to broaden this to the bigger question occasion? Awesome. Yes, please.
Yes, Nicklas Skogman from Handelsbanken again. Looking at the growth in the categories where you're currently present, it's not a lot of growth, basically. So why are you so reluctant to look for acquisitions in other categories that might be growing faster?
Yeah, I mean, there's a famous saying, right, which I think in English is the grass at the neighbor is always greener. Yeah?
And there's many companies which have made that. I don't want to call it a mistake, but where you look at another category and say, "Well, hey, that's fantastic. Let's buy ourselves into that." You make an acquisition case, looks very nice, then you get it, and you actually realize that it is much more difficult to keep it like that or to grow it or that you're finding problems in it because you actually didn't understand really what you were buying. Yeah? And if you use popcorn, why? Because it was a real case. There was a real acquisition case on the table for a popcorn business. But if you look at it, the raw material is different. There are no synergies in the buying. The factory, completely different. No synergies over there as well.
Of course, you come to the route to market, where the Munchy Moments was basically built on the previous Munchy Moments strategy. If our key accounts have to negotiate on candy and then on chocolate and on chewing gum, and then we go to popcorn, even nuts is a stretch already because you're sitting there with a buyer who knows everything about nuts. He said, "Well, you're not coming with a price increase, but did you know that it rained last night or last week in Costa Rica and the almond prices are going down or going up?" Because they buy maybe 20 times more nuts for the private label, which is a highly private label country than we are. Yeah? It's a different buyer often, so you need to make extra appointments.
So actually, from a consumer point of view, it sounds good that you're going to be in all these Munchy Moments, but actually bring a lot of complexity in it. You become like a jack of all trades and a specialist in none. Yeah? And I've seen it in Unilever. You've seen it in L'Oréal. I mean, the big companies trying to go into another category of another competitor, Unilever in colorants, L'Oréal into deodorants, failure after failure after failure. So we're not going to do that. But it's also based, and that's maybe the other part of your question, it's based on my inherent belief that we have so much we can do with our existing business in growing it, getting cost out, bringing competence in, improving the equity.
If I have a table, unfortunately, I don't have that with like 10 steering wheels on it, from the innovation process to the media spend, to the listings in store, to the factory cost. I mean, when I was in previous jobs, maybe out of those 10, there were two which I could tweak a little bit. Here I can swing more than everyone, each of them, and get better results. So as a shareholder, it's much less risk if we just keep on improving what we have rather than buying ourselves into new categories. That's my fundamental belief. It's also shown in FMCG. I'll not name names, but there's quite a few FMCG companies who did this and are struggling to get that to work. Also, I mean, you're showing our track record. Our own track record is not so great either.
I mean, the jelly beans, yes, we bought the brand fit in the category. It's been growing and giving us margin. But yes, we have improved a bit on the Nutisal nuts business, but it's still far below the 14% that we've lost a lot of the private label business, the Lonka fudge business in Holland. Yeah, it's still far below the 14% in EBIT, and we've lost a lot of the private label and call it C-brand business over there. CandyKing, yeah, okay. We knew they were close to bankruptcy, let's say it like that. We're struggling, as you can see, to bring it. Let's stick to what we have and make a healthy company first before we start to acquire companies within the core or even outside. But that's, yeah, I would say not on my watch list at the moment.
Yeah, I would add to that that obviously sometimes you can't choose when these opportunities come around.
Of course.
So if the right thing is there, hence we could still go for it. We shouldn't substitute improving what we already have by just buying other things to tackle.
I mean, listen to Frans, core categories in our core markets, synergies in buying, synergies in manufacturing because we produce these things, synergies in marketing sales because we already have people taking care of those categories of those customers. Yeah, and very low risk because we know those markets really well. Of course, if there's something in Norway or Denmark or even Sweden, Finland, Holland, and then U.K. and Germany are a bit adjacent because we're smaller over there. We have hybrid models. If something really interesting comes, of course, we're interested.
But I'm not going to dilute the margin, yeah, or the synergy case needs to be really good, and we're not going to buy Mickey Mouse stuff because every Mickey Mouse integration is costing time. Whether you put a SEK 100 million business into the ERP system or a SEK 10 million business, it's costing more or less the same amount of time. And we need that focus on our current business. I can more or less see every time we acquired something, I can see that the market where that integration was happening, that our base business was doing like this because everybody was jumping on the new toys in the toy store. That's a bit what Marcel was saying, boringly predictable. Improving what we have is so much more value creation than buying new stuff with your money, basically.
Because Frans is not showing the dividends, we're showing the net debt EBITDA, but we've paid two large sums for CandyKing, one in 2017, sorry. One in 2017 and now one again. And we're increasing the dividends. Yeah? So imagine the amount of cash we're getting out if we would not buy something now for the next one or two years, unless it is very attractive according to the principles which Frans lays out.
Thank you very much.
Yes, Nicklas.
Thanks. Nicklas Fhärm with SEB Equities again. I was just wondering if you could give us some more detail on the SEK 25 million that you hope to take out in synergies in CandyKing this year. And then, just for the record, you ended the sort of thematic EBIT bridge by saying, "And then in addition to that, we have the insourcing possibilities and opportunities." But I was under the impression that the insourcing is actually part of the SEK 100 million synergies.
Yeah.
So we're, just to be clear.
Yeah, yeah, yes. Just to be clear. So we've always said SEK 100 million synergies, and we said that we were going to have one-time cost of SEK 175 million, out of roughly 60% was CapEx, and now we're confirming that SEK 100 million, which corresponds to that. That remains unchanged. We're still saying SEK 100 million synergies. We're still saying spending SEK 100 million. What Marcel then shared on the slide was that there are also other volumes that we could potentially insource in the future, whether that's Italy or that still sits in CandyKing.
We never said we would insource 100% of CandyKing volumes because there will be volumes where we make more money by having someone else make it for us. So we are not building in CapEx for that further insourcing, but it's a potential that still sits there that we need to look at very, very closely. For your first question, and I noted that you did manage to sneak in two questions. Yeah. So the bulk of the synergies that we're getting now is coming from insourcing. The beginning, we had more on the commercial side. That's not to say that there's nothing left there, but the bulk is coming from insourcing.
Thank you.
And that's probably a first five-month effect because the bulk of the commercial came when we did the integration as per May last year when we were all on the same platform, so.
Yes, Mikael Löfdahl, coming in again. Short-term question, if I may. In this quarter, or so far in this quarter, have you seen a rebound in volumes in Norway? That's the first question.
Yes.
And then on the same, but have you regained all that you sort of lost in December, which was quite significant and, I guess, a surprise for you as well?
Yeah. Okay.
We have.
Second question then, Easter and the year-on-year Easter effect that we will have negatively then in Q1 this year. Could you say something about last year? Because last year was special because of Norway, and we had it the other way around last year for Norway. What would you expect this year to be in sort of normal Easter impact?
Yeah. So there are three things. So if we take Norway, yeah, the sugar tax was increased last year, decreased again this year.
But it's not per se the sugar tax which was having the impact on Easter. It was the PR around the sugar tax where the all main customers in Norway said, "Yeah, we're not going to promote during Easter." And Easter also in Norway was the biggest pick and mix month, you could say, of the year where all retailers were dropping promotional prices. Now the sugar tax is back to normal, but there are no indications—I mean, in the end, it's a customer decision—there are no indications that they will promote again. Yeah? So at best, not at best, but the comparator, of course, is now the same. So because there were no promotions last year, there are no promotions this year. However, of course, last year, the Easter effect was in Q1, and now most of it will be in Q2, but at a lower base. Yeah?
So that is one thing to know. Then the second thing, which is also very important when we talk about Q1, is last year, Coop, which you've seen in the numbers, Coop started to rebuild their stores at the end of December, and that took them three months. So you could say that during Q1, Coop was like this, right? So starting from 100% of the stores having the Cloetta pick and mix to the end being at zero. So in that March month last year, let's say 33% of the Coop stores still had Cloetta pick and mix active. And then we had the, sorry, then we had the Easter effect in that month. Yeah?
That's, of course, something which is a bit of a double whammy in Q1, you could say, but it's not only the Coop stores which we will not have in the comparator, but it was actually also quite a big month because it's such a peak. Of course, this year, then the Easter will come in Q2. So those are the two differences on Easter. Then, of course, you have the Norway sugar tax effect in Q1, which is a January effect, stopping to buy in December, buying again in Jan.
If I may continue, just a clarification on the CapEx for perhaps elaboration. It's SEK 100 million in total over 2019 and 2020. So the CapEx to sales is over that period, not for both years. Then when do you expect CapEx in this year to occur? Will it occur early, and you will see the synergies come late, or will they be more simultaneously, or?
Yeah. Specifically for the SEK 100 million, as Marcel said, the volumes we will get through that investment only next year. So obviously, the CapEx will start paying this year. It's phased over both this year and next year.
So the synergies that you're saying that you will have in 2019 will not be dependent on those investments?
No. Correct.
Because the investment is in molded, so let's say these kind of products, but we're also still able to insource other stuff, hard boiled or chocolate or jelly beans. So there's more to do there as well. And there's actually two phases, right, of the investment because we were able to move fast with one phase, and then for the rest, we need to do some civil work before we can put those drying chambers in place.
And I assume, I mean, a way of thinking about it would be that after the acquisition, we could have waited and left spare capacity in our plants, invested, and then insourced, whereas what we did was we started insourcing where we had spare capacity. And now when the additional capacity comes online through the investment, sort of you end up at the same place. It's just that you could do the insourcing earlier.
Another question on the sort of growing demand for low sugar or no sugar and perhaps even vegan confectionery, and you have on the chocolate side protein bars and so on. First of all, on the confectionery side, if this trend would continue to be very strong, how will that affect your production? And production costs, will there be any significant changes in your production facilities to be able to do this? I guess vegan is much more difficult than lower sugar amounts or if you have to go gluten-free or whatever. But do you see this as a threat, or?
I think, first of all, we see this. I don't want to say as an insurance premium, but we've said we will be responsible as a company where we will be then transparent on the ingredients and on the sugar content, and we'll give people choice. And then there's a fourth one, which is portion control. But on the choice, we will give people a choice. And why do we want that? Because we want to be first.
I want to be first in that shelf with our products able to offer a choice to consumers. So there's not this shitty small company moving fast and being in that shelf, and then we have to pay ourselves into that. And that's why we went first in Holland. A lot of credits from the customers that we did that. Then in the new way of working, the one Cloetta, we, well, I'll not name names, but one of our markets was very skeptical to do this and said, "No, it's nothing for us." And we said, "Okay, but hey, come on. Now you commit to this, you do it." So they went to the customer and the customer said, "Wow, that's great. We will support you much more than with another launch because we find it so important." So it is an insurance.
I don't know if this is going to be 5% of the category, which it is more or less on average right now, or if it is going to be 20%. Arguably, we have the most experience in Holland. We have about 10 SKUs or something like that in the market. It's not an easy piece, yeah? I mean, we need to work hard to get penetration, to get people to taste it, and then say, "Hey, shit, this is actually quite good." Because there's also some skepticism, right? If you say minus 30, people will say, "Okay, but that cannot taste as good as the original." We can even make minus 50, but then we know that people are saying, "I don't believe that. I don't buy that. If it is minus 50% sure, it cannot be good. I'll just take the original." So it's hard work.
Then on candy, it is relatively easy to do this, right? I'm looking at Marcel, a little bit extra drying time, but it's relatively easy to produce. But you're right. If we would have to go into gluten-free on KEX, and it's the same line, and you would have to clean that completely, it's more complicated to do that. But if you're a consumer-led company, then what the consumers want in the end needs to lead if there's a good business case what we're doing in the rest of the organization. So I think we need to be prepared for that. And then we can see how we do that. And these are difficult trade-offs. Should we go to a third party to do a vegan or a gluten-free first so that we don't have to invest or have to deal with that complexity?
Maybe that's a good idea from a production point of view, but then they also have our recipes and our wafers, and maybe then suddenly there's a private label coming from a customer who finds that out and says, "Well, maybe they can make a copy of KEX or of Plopp over there as well." But in the end, we need to find solutions to fulfill the strategy of what we call then Choice for You, where we give choice in the portfolio. And not only for candy. We'll do that in Bilar. We'll do that in chocolate. We'll do that in the KEX range in all countries.
And on the protein bars and so on, which you see taking more and more shelf space in kiosks and in retail stores and so on. If you're going to be in that space as well, will you do that with existing brands, or will you launch new brands?
Yeah. Now, when was it? Was it last Friday when we did the business review with Sweden? We have been looking at that. And true answer at the moment is we don't know because it's exactly these two, how do you call it? These two alternatives where we then need to look. Do we have brands which can carry a protein concept in Sweden? So in Finland, do we have Tupla here somewhere? No. But in Finland, we have the number one bar in the market. Tupla is ours. So we've launched a protein Tupla. It's actually doing quite well. What we also can see, by the way, in Finland is that the protein bar segment is now plateauing. So people found it very interesting in the beginning.
Now they're going to protein yogurts, protein drinks, or other sources of protein. Exactly that question is now on the table for Sweden. Do we have a brand which can carry protein in a bar to get into that segment? And what is then our USP? Because just coming with a copy, yeah, not so interesting, expensive, difficult. It's crowded. There's maybe 10, 12 brands right now. You know that in the end, when FMCG categories mature, there will be maybe three or four left. So which one do you buy? How much money do you need to put in there? Is it then not better to do it under one of our own brands? Do we think the brand is strong enough to carry that? And then like with Tupla, I mean, protein bar often is very much protein. Maybe the taste is so-so.
With Tupla, maybe the people who are a little bit less protein but still believe it's healthier than a regular Tupla. That's a very interesting niche, and that's why we have 20% of that market or something like that. So can we find that same position for Sweden?
Yeah.
So it's a question we're working on.
So I think it's fairly obvious that you have a significant potential in lifting margins from your Perfect Factory plans and production as such. On the other hand, there's SEK seven billion in capital employed on the balance sheet, and your returns over the past decade have been high single digit or below 9% as an average. So my question is, what will be the benefits of splitting the company and unbundling and incorporating the production in one part and the FMCG business in the second part, please?
So I haven't been given that envelope since I joined in November, maybe. Yeah. I have not looked at that. No, I think there's a strength for us to have our own manufacturing network. That's what I've seen in the companies that I worked before as well. But I think also when we look at the CK insourcing, I think that's a very good comparator, right, that we can see significant lower transfer prices when we produce it ourselves versus the CandyKing prices which they got from their suppliers. And they were not a small player either, right? So they had a few, well, they've had a few suppliers where they actually were a big chunk of their business. And still, we can do it. We can do it cheaper. So it's more, I think, how do we get the return up?
And that is actually to make the large factories larger. I mean, we had a record volume output from the Ljungsbro chocolate factory last year, right? And then we de-bottlenecked a bit, and we'll try to take it one notch up. And the same with Turnhout, working longer, putting in drying chambers, increasing the volume. So I think that's, for me at the moment, the most value-creating, how do you call it, measures we can take. And I've been in several of these exercises when I was in Unilever looking at, should we outsource shampoo production and bundle it together with Henkel and create one more new network? But every time you basically come to the conclusion that also that company needs to make 5-6% margin on the capital employed, and it's actually the disintegration then is actually disadvantage of your speed to market, your innovation process.
I mean, we don't have a big laboratory standing somewhere in the Netherlands with hundreds of people. We have people in the factories working with product development, with quality. It's very integrated also for the size of our business. So I will be, yeah, cynical.
That's a good question.
I was just thinking, here you have a SEK 1.3 billion business in sales making 5% margin. That would be a nice proceeds that could be distributed to shareholders. And then you could spend the SEK 100 million in CapEx on OpEx to grow your brand and business.
Yeah. But then pay higher prices for the products across the whole portfolio.
It's the return on capital employed, I'm assuming.
Exactly. Yes. Yeah.
Hi, Mikael again at Carnegie. Regarding Pick & Mix and the penetration in other countries, specifically outside Sweden, this has been the case ever since CandyKing was supposed to be listed many years ago, but hasn't really happened or materialized from my point of view at least. So how are you aiming to drive penetration rate in some of these countries? And what are the differences to Sweden, for instance? I guess there are cultural differences and more, I don't know, more obstacles to pass.
Yeah. The other markets are growing. So maybe that's actually the first answer I can give. Penetration growth is, of course, more people buying into the category or existing buyers buying more often. Those two together, of course, give volume growth. In all the other markets, we're seeing volume growth over the last couple of years. So it is growing.
Then I would say Sweden is by far the oldest market where this has started. What is it? Oskari 30? Close to 30 years ago?
1984.
1984. Yeah. So they have had the longest time to work with both customers and Karamellkungen on the acceptance of Pick & Mix as an interesting category concept. And I would say that CandyKing, in particular, when they started to lose a number of the businesses like in Sweden, that they have been tuning down or actually cutting the cost to a bare minimum. So everything which had to do with knowledge and shopper understanding, triggers and barriers to marketing language, all that was basically gone. We've just completed a study across all the markets where we're looking at exactly those questions. So what is a barrier for people in Denmark to buy into Pick & Mix?
That's the fear of hygiene, for example. What is the barrier in the U.K.? It's a very different market. Here, it's all, well, but most of it is being sold in supermarkets. There we have one or two-meter at best at the end of an aisle with confectionery. 80% over there is chocolate. Our big business is actually in cinemas and in something called Wilko's, which is a combination of, yeah, ÖoB and Åhléns or something like that. So a lot of different, and this is a destination category for them. So I think the answer is there's different ways to build penetration in each of the markets.
It is happening, but exactly what Oskari is saying, how do we build that competence across all the countries and we start to work much more on understanding what the brand stands for, the portfolio, the offering, the in-store in order to build that penetration. But I don't see why we would not be able to come to a 25% across those markets. Okay, UK will take us a long time, but then the market is very big. So even if we grow 0.5% of penetration, it will be a huge upside for us to do that.
But how do you do it? I mean, what are your tools?
Well, yeah. So if we say Denmark hygiene, how do you make sure that it looks clean and that you also show to the shoppers when have we been there? They will be surprised if we talk to shoppers, "When have we been there to clean it?" Some of the big stores, we have every day. That's a bit like when you walk into a toilet that there's a scheme where you can see when was this last clean. So if you have in the center of the Pick & Mix, you can show, "On the 9th of March, we were here, Joakim, blah, blah, blah." And they're standing there on the 9th or the 10th, and they say, "Wow, it really looks clean." But it's also segmentation. So people who are more interested in low sugar, a low sugar section, a vegan section we're now testing in some markets.
It's about the offering. It's about penetration through price. We know that here a large chunk of the penetration is because of the Friday and Saturday habits we have gotten people in. How do we build similar things if we think that is working in maybe Finland or Denmark and Norway, going with customers to do special promotions on Friday, Saturday, maybe with the radio, very traditional, when people are driving to a store that we tell them, "Buy Pick & Mix, come home, make your family happy." There's a lot of ideas coming from the research which each market will start to work with. Halloween activations, Easter activations. Again, everybody was doing it on their own. Now we're doing it more centralized. We developed a, how do we call that?, a display pallet. So a pallet solution which we're now testing in Norway because we sell actually a lot.
Now that goes so well that we're now looking at, can we bring that to the other markets to work on penetration? Customers like Netto in Denmark who have no pick and mix because they say, "We don't have space in the store. Can we convince them to put that display pallet in on Friday, Saturday, Sunday, and then send it back of what is still left and we refill it somewhere centrally?" Wow, penetration, here we come. So there's a lot of ideas, but it took us some time to build a central team, to build the knowledge, and now to get into execution. Jacob starts to look worried. No? Okay. No, I shouldn't say that because now nobody dares to ask a question. Okay.
You should summarize.
That's true. Yes.
I can finish it off. Yeah. Stay close. It's good. How much time can I get? According to a study, 25% of people who shop for groceries online says it helps them to cut back on impulse buying. What are you doing to sort of, if we assume that online grocery shopping is going to increase going forward, what are your key sort of responses to that? Three responses. But what? Both in terms of the packaged business and the maybe even more trickier Pick & Mix business.
That's the fourth one. Response number one. Yeah. We have built a central team because we're too small in each of the countries with e-commerce capability. So we brought somebody in from Bol.com, which is like the Zalando of the Netherlands owned by Ahold, really deep experience, some digital e-com people who can help our countries but also help our key accounts and e-com managers in the countries when we're talking to MatHem or to ICA or to Coop.
So the main starting point is that the competence is now there. The second thing is then that with these customers, we're working on impulse in an e-com environment. And there's actually quite some encouraging results we see with Ahold, for example, where we started three years ago in the Netherlands with e-com, sorry, with checkouts when you come to the end where we're driving impulse, actually with quite some good results. We were also then able to get market shares which are higher than the market shares we have in the physical stores. On the branded business, the beauty is as well, because it is impulse, you don't have to buy it in the e-com shop because that person who is buying in the e-com shop is later on filling their car at Circle K, taking a coffee in a 7-Eleven.
In all these places, in the weekend going to a Bauhaus or shopping in IKEA, in all these places, we have a moment to sell them our products, our impulse products. Because your laundry powder, you're not going to buy in Circle K or in IKEA. But our products, our Läkerol or Gott & Blandat, we can sell in so many more places than, let's say, the traditional grocery retail where all non-impulse companies, they have to either do it in the physical stores or in the e-commerce. Difficult to sell it outside. I mean, in Sweden, we have - what is it? - 40% of our sales are outside of the traditional grocery retail stores. That's a lot. That also in the balance of power versus our customers, really, really good to have.
And then on pick - sorry. And the last one over there, we also have a few web shops ourselves. I think the best one for me is the Jenkki one, the chewing gum, where on subscription, people in Finland are ordering chewing gum because we've really been able to help people to eat chewing gum after each meal because of the xylitol. So people are getting that also in school programs to eat a Jenkki after lunch or after dinner to take care of your dental health. Again, something fantastically done in Finland, not at all being looked at in the Netherlands because, of course, the Dutch know better and they do it themselves. So now we're getting these cross because the Dutch have done—it's not on here—fantastic pots of Sportlife, which then only stays in Holland.
And now we want to bring that to Finland and maybe xylitol from Finland to Holland. The web shops are for us also a way to maybe not to be very big, but to understand consumer behavior in an e-commerce environment, which we later on then can use when we talk to customers. Last but not least, Thomas can jump in. That's Pick & Mix. We're working with MatHem and looking at how can we do Pick & Mix online. Of course, now it's all manual. You can dream about robots picking individual bags in a warehouse and then cross-docking that to ICA or MatHem into the stores. That's very premature, I would say. But of course, technically, it should not be a problem. Thomas.
Yeah. Just to add one point on the e-commerce question because it's a very good one. One thing to say is basically, I think I have seen the similar study. There is one interesting thing about whether the consumers are happy about that they cut down on impulse, which there's also other studies showing that they're not very happy. The second thing, if we go further from the consumer, it's about the e-retailers. That is a huge opportunity for us because Amazon, you may also like, I don't think they would confirm that they have cut down on impulse, vice versa. Our colleagues from MatHem and all those which we are in close contact with, they're looking for the opportunities how to mirror that impulse from offline into online. I think technology is there and it's going very, very fast. What we want to do with our e-com team is simply to be part of it, be there, because we believe it's a very big opportunity.
Good. Thank you. Then just closing it, only one slide. It's the same one you've seen before. This is quite simple what we're doing. It's continue to grow the branded business with all the stuff we've been talking about. Why? Because it delivers 14% plus. Don't forget the plus. 40% plus EBIT. And there's ample opportunities. The second one is pick and mix. We need to fix Sweden fast, and we need to deliver on the synergies and get the SEK 100 million. And then we're stepping up on the VIP program, getting cost out of this business, be it in indirect, be it in more efficient factories to go to the bottom line to fund some of the branded growth initiatives or CapEx investments in the factories. Yeah.
If we do these three things and we keep on focusing on that, I'm very confident we will get to our financial targets.