Good morning, and welcome to Cloetta conference call. Jacob Broberg, head of investor relations here, actually, my 25th quarter report from Cloetta. With me today, I have Danko Maras, our CFO, and also Henri de Sauvage-Nolting, our CEO. Please go ahead, Henri.
Yes, thank you, Jacob. So quarter one, important quarter for us. We had a good EBIT delivery and also very good Easter sales. If you look at the net sales, we of course see the CandyKing effect, which takes us up to just over SEK 1.5 billion. SEK organic growth was 1.1%, coming from Easter, Easter effect, but also very good performance on the packed business, which is less affected by by Easter. If we then look at the operating profit, adjusted SEK 164 million. Again, good mix, good sales from the packed business, which is delivering above average profit, synergies coming in, production volumes back on track, and also good cost good cost control.
That leaves us with the operating profit on SEK 166 million, and the profit for the period on SEK 95 million. Then cash flow, important, Danko will explain more in detail, but Italy is still in the comparator of last year. And of course, the Easter sales in the last two weeks of the quarter also mean that we sold a lot and that debt has to be collected, and the net debt, EBITDA target is in line. If we then go to the markets and the sales, as already said, good growth of the branded packaged business. If we start with the packaged confectionery market, so again, important to say, that's where we have Nielsen figures. We don't have that on pick and mix. So the packaged confectionery market was growing or was unchanged in all markets except Denmark, and we saw our sales across the board growing.
If we look at a few highlights, I mean, Sweden, we of course saw the Easter effect, but also the packed business did really well in Finland. The packed business grew, and we were able to compensate also for the very strong first quarter of last year with the abolition of the sugar tax as from the first of January. In Denmark, we are back in that customer where we had some issues last year. Of course, that helps us. And then we have Norway, where there is a sugar tax as from the first of January, which is impacting the business. I'll come back to that later. So we also said that as from this year, we would start to report the two core divisions.
The branded packaged business actually grew 2.4%, very important for our EBIT again, and Pick & Mix went down 3.3%. That's mainly Norway, and what happened over there is not only the sugar tax, sugar is because of the sugar tax introduction, a big discussion topic across categories, and all retailers decided that during the Easter period, they did not do price promotions on Pick & Mix. That's a very important part of the Pick & Mix business, and not having those price promotions has really impacted us quite heavily.
Then we also had a strong comparator last year, again, in Finland, and we also, of course, had to cope with the Coop business going out in the first quarter. That's actually now completely gone. So with the concept sales to Coop have gone, we are still delivering our branded packaged products to Coop for their own assortment. Then Candy King, as previously said, very important for us. A lot of value creation coming from that if we do that well. Overall integration is in line with the plan. Our Cloetta ERP system is going into the Candy King business during quarter two, so a lot of work on that.
Of course, if we have that implemented, then also back office functions are easier to integrate. So very important step. And then we will do the U.K., which is then another big CandyKing market later in the year. Depending on the markets, we're either fully integrated or are just on the combined leadership with sales and merchandising integration is done. Insourcing of all the production is on plan, and also with the Turnhout line coming on stream now, we're getting more capacity to do that. Then on the first of April, we appointed a very good Cloetta employee as the new Pick & Mix officer.
We've called it to really leverage the scale and the learnings across all the Pick & Mix markets we now have, which is an important step to reach that, in particular in growth, but also in cost synergies. And the identified savings of SEK 100 million are still standing firm, and we're following up on that quite regularly. Danko, over to you.
Thank you very much, Henri, and good morning, everyone. If we go into page 5, and we look at the income statement, some highlights. If I leave sales for a second, and then move into the profit immediately, you can see gross profit of SEK 560 million in the quarter. It's SEK 106 million more than last year. That's a nice contribution. About two-thirds of that is actually the inclusion of the CandyKing business, so a good contribution in gross profit from CandyKing. But also, as Henri was alluding to, good production, good sales of pack, giving us a good mix. So really a good quarter in the total delivery of the gross profit. It comes back to the same discussion we've had before.
If we look at the gross margin, there's still a dilution of 1.3%. Had we only had CandyKing in there, it would be twice as big. So the dilution effect from CandyKing is still quite high, but we are actually offsetting it in this quarter with good production and the pack business that is going so well. Moving down to operating profit adjusted, there is a SEK 50 million contribution versus last year, the SEK 164 million, and that's coming down to the fact that we are including the merchandising cost of CandyKing in the business model. That is, of course, costing us a bit more and taking away part of the gross profit. Again, offset by good cost control in the quarter and also some CandyKing synergies, so even there, a good contribution on the operating profit adjusted.
A little anomaly is that our operating profit is actually higher than the adjusted one, and that relates to an earn-out adjustment we've done on the CandyKing and Pick & Mix volumes that will be paid out by the end of December this year. It's a slight adjustment, not a major one, but that actually has a credit effect in the income statement. So for this quarter, we have approximately SEK 6 million of restructuring only, very small restructuring charge, but an offset of a credit of SEK 8 million being the earn-out release. Nice to see the operating profit margin adjusted, being at double-digit 10.5% versus last year's 9.3%. The net financial items has impact of a revaluation, the -SEK 42 million, versus SEK 11 million last year.
Our third-party interest cost is SEK 8 million, so it's below last year. But we have monetary assets that are not included in our hedge accounting principles, and a lot of negative euro balances had to be revalued at 10.28, which was the closing rate. So you have a SEK 22 million impact of revaluation of cash balances in euros. That comes and goes, as you know. It's unrealized throughout the period as we are revaluing them. On the other hand, SEK 63 million of revaluations are captured in other comprehensive income, which is then also part of our hedge accounting. So the total effect we had in the quarter of SEK 85 million, you'll see SEK 22 million in the income statement.
Profit before tax is SEK 124 million, and then profit for the period is SEK 95 million, meaning that we have a tax charge of approximately 23.4%, which is equal to what we had last year, and also in line with what we had indicated as our corporate tax rate target. With that, moving into sales on page six. As Henri was mentioning, good organic growth of 1.1%, also having an Easter impact, of course, and then CandyKing, 24.5%. I would like to just inform you that as of Q2, you will, from May onwards, have organic growth in CandyKing. That's the time when we acquired CandyKing, so you won't have this high-digit numbers in the quarters to come, so be prepared for the like-for-like comparator that is coming now in, in Q2.
The euro continues, as you've seen, all of you, being very strong, and 2.2% contribution of top line is coming from a strong euro. Now, just finishing off with cash flow on page 7. Very strong contribution from operating activities, SEK 190 million. Lesser impact on interest and tax is contributing also to the EBIT, so a very nice delivery from our income statement. However, on the working capital movements, there is a SEK 300 million swing and two key parts to highlight here. We have not restated the Italian cash flow. That's not what we do with discontinued items. Therefore, you have a comparator of Italy, where they traditionally collect all their cash from the seasonal sales in the fourth quarter, the year before.
And that is approximately half of the total impact, a little bit more than half of the total impact. On the other hand, Italy was also not cash generating in other quarters. So when we look at it in total effect, it's relatively minor. It's more to learn that we will have this impact going forward, but there will be no significant cash flow impact from Italy in the go-forward statements for Q1. The other part is also the timing of the Easter that has given us good sales, but then also what we see is receivables going up significantly because of this very late sales pattern coming in from the Easter period, and that is essentially the other part of that SEK -300 million.
The good news for that is, from a cash point of view, that's all going to be collected. We have good payment disciplines in the Northwestern European region, as you know. I feel very confident that this imbalance will come through in the second quarter and going forward. That is the key issue for the quarter on the cash flow. With that, I will give the word back to Henri.
Yeah. So what is the focus? In general, of course, getting the business fundamentals right in all the markets while we're integrating CandyKing. But if you look at the four big things, it's of course growing the base, grow the base business, making stronger where we are already strong, very important, and because we have quite an effect from the lost Coop contract, which we need to mitigate. And now on top of that is consumer impact on the sugar tax introduction in Norway. So we need to compensate that with growth in our base business, so very important. Then the second one is the cost and the gross margin improvement.
Yeah, cost coming both from synergies, but also good cost control on the existing business and growth margin both through supply chain and portfolio. And why is it so important, though? We have the Swedish krona really weakening fast. We have methods to do price increases, but always a lag, so we need to compensate that partly with the cost and growth margin improvement action. The third one is then the CandyKing integration, as already said. It's a big go live in quarter two on the ERP system. But it's also something we're really looking forward to because it will give us much more insights into the combined business and make our life also easier to steer the combined pick-and-mix business.
And then last but not least, we have the new line in Turnhout coming in operation. I was there myself last week. It's running, although it's still in commissioning phase, meaning that we're trial running, but everything is working, and we're ramping up the production during the quarter two, which will then give us the space and capacity in, particularly in the molding network, to go to the next phase on the insourcing, be it CandyKing, be it third party, or be it some volumes we are still having in our previous Italian business. So those are the four areas.
Then, like what we did last time, a little bit every time and an update on one of the strategic pillars we're working on. And today, we chose The Jelly Bean Factory, how we're moving on to make it a real, truly global brand. So we put quite some effort in to redesign the packaging and the brand promise, all to make it look more premium, which again is quite important in the mix to sell more premium products, in particular when we go into new markets. Also a very good piece of work is what we call a brand book, which basically describes, you know, how does the brand stand in front of consumers?
How do you introduce it, into which channels, on what kind of price levels do we want to do that? So when we go to distributors in new countries, that we have like a playbook, a repeatable model on how to get into those markets and, and start to earn money from this, fantastic, fantastic brand. And, and we're also really now with international markets, leveraging our presence, by, by introducing, Jelly Bean and combining, combining businesses. And, and last but not least, travel retail, which is all the airports, fantastic, progress, because quite often that's where we want to start introducing the, the brand into a market. Again, premium, premium price and a lot of visibility, which we can, show you on the next, page.
And you see, Budapest Airport, so it's not a market where we are present, but travel retail is quite often big groups who are running quite some airports among many geographies. And you can see, for example, over here with one of the companies, we do a big activation across all their sites, where Jelly Bean really sticks out. Another big thing we're finding out and really attractive is this whole notion of gifting. Of course, travel retail is quite often gifting, but there are other platforms like e-commerce, where gifting is more and more important, and Jelly Bean is one of these brands which really fit well with gifting.
And again, when we are talking about gifting, people are less price sensitive, so again, good for margin going forward. And then, last but not least, of course, is our purpose. This is what we do day in, day out, so we have a very nice job. You could say we're selling highly regarded brands to consumers to satisfy their Munchy Moments. That's in the end all there is. How do we convince more consumers to buy our brands when they're standing in front of the shelf? That's what this business ticks on and will make this business successful in the future. Jacob?
Thank you, and with that, we open up for questions.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. Please hold until we have the first question. Ladies and gentlemen, I remind you that if you wish to ask a question, you will have to press zero-one on your telephone keypad. Not a single question?
Okay, with that then, I would like to say thank you from-
Yeah, sorry. We have a first question from Nicklas Fhärm. Sir, please go ahead.
Thank you. I've been pressing like a lunatic here. Good morning, everybody.
Good morning.
So I basically have three precise detail questions. Let's start with those and see if there's someone else trying to get in. My first question is, now you have the kindness of reporting CandyKing's sales contribution for the full year since the time of acquisition, at slightly north of SEK 1 billion. Now, could you just help me sort out, because in the previous set of results, or quarterly results, you have also guided us to pro forma sales contributions from CandyKing. Would it be fair to just take the balance and say that CandyKing contributed with SEK 398 million, as it happens, in Q1 sales this year, please?
Do you want me... Well, first of all, good morning, Nicholas. I think I understood, if I understood your question right, then you want to know the contribution of the sales from CandyKing out of the total sales of SEK 1.562. Is that correct?
Q1.
Yeah, we don't disclose that number, but you can see from the growth that we are referring, you will see what the packed growth will be and what the pick & mix growth will be. And that's the definitions that we actually think that we want to do going forward, giving you a good idea about the concept of the business models, where you have the packed business being somewhat different to the support structure for our pick & mix business. So we find it very relevant to talk about pick & mix as a concept, and therefore you will see more of that. And obviously, in the information that we will give, we will also highlight specifics from our pick & mix and CandyKing, but further than that, we did not intend to do.
No, and I, I think to add on that, it also becomes more and more integrated, where, you know, what is then the old Cloetta Pick & Mix business? What is the old CandyKing business? Of course, so up till now, we can still follow that through the CandyKing ERP system, but that's from the first of May. That will be even getting more close. So I think it is better looking at the performance of both, both the Pick & Mix, and not try to split out the CandyKing contribution right now.
Sure. In a slightly different way, I respect that, of course. According to my estimates, at least, it could be that CandyKing has had a very good quarter in the contribution this time around. Would you consider this quarter, above, in line, or below your own expectations when it comes to CandyKing sales in Q1 this year?
No, I mean, if we, I tried to allude a little bit that on the performance I gave to the different markets. So, of course, in, in Sweden, we saw good CandyKing progress, a lot, of course, driven by, by Easter, but also the customers we took, smaller customers we took last year, which we already talked about. But of course, Norway is a big market for CandyKing, and we don't disclose individual figures, but not having any promotions during Easter is a big negative hit we took, we took over there. And then last but not least, of course, also the Finnish CandyKing business.
Last year, the sugar tax was abolished from the first of January, so we saw a big uplift, both in the Cloetta Pick & Mix concept, but also in the CandyKing Pick & Mix concept. And that uplift wasn't there, so it was more a normal year. So, you could say those three markets had a little bit of a mix back, and then, and then them might continue to, to, let's say, perform in line with last year. So you cannot take that conclusion like that.
I hear you. So would it be fair to say then that the Easter impact on the 1.1% organic growth rate recorded in this quarter has actually been slightly of less importance because of those reasons that you just mentioned on it?
No, it's quite important. I mean, in Sweden, yeah, we still have a big pick & mix business. The combined pick & mix business in Sweden is, of course, also the biggest market. So Easter in Sweden has a big impact. And as you know, the Coop concept was being scaled down during quarter one and is now completely cooled as such. Of course, that was an effect we had to, let's say, compensate in Sweden. And then again, depending on the markets, Easter is more or less important. So in Sweden, Norway, yes, Easter is very important. If we look at Denmark and Finland, Easter is less important.
But of course, given the size of Sweden and also the size of the Pick & Mix business in Norway, that has a big, a big effect.
And on that topic, you said previously or last year that you expected the lost volumes from this particular contract in the order of SEK 130 million-SEK 150 million. And I think maybe you said slightly below that more lately. Would you care to give us an update on what sales you actually lost in Q1?
No, that's still the estimate holds. Of course, there's a lot of factors in there. We're happy with the cooperation on the pick and mix concept of that customer and the service we can deliver over there with our strong, strong brands. But then, of course, there's a lot of other factors. How is this new concept of that customer going to perform in the market? How is that customer performing in the market, and how is the market developing in general? These are all uncertain factors after one quarter. So we'll have to see, and we're focusing on the concept which are driven by Cloetta.
Okay. Would it be still fair to assume that the impact in Q1 was slightly less than sort of the annual run rate that we're talking about?
Yeah.
Yeah.
Because we were, Coop started in December, and it took them, like, the first quarter to wind down store after store.
Yeah.
But at the end of Q1, it was completely done. So yeah, you have an effect of that in Q1.
Yeah, yeah, perfect. And, I said three questions, but I'm gonna take four while I'm on the line, please. Could you just give us an overview and update on the Lean 2020 program, please?
Yeah. So, of course, we, when we got the, issue, but, last year in the, in the Turnhout factory, we have been focusing then a lot on mitigating that by stretching ourselves to, at the full production on the other existing lines in the, in the network. It's, I think, fair to say that that's had, a little bit of an effect also on progress in, Lean 2020 during, and we got then a very little spare capacity to make improvements on the line. But, also not with the new, president operations, we're now really taking, Lean to the, to the shop floor.
So, I mean, all the tools are there, all management is trained, middle management is trained, and we can see very good progress in the plants where we are able to spend a little bit more time due to capacity on the Lean 2020 journey. Again, I was very impressed in the Belgian Turnhout factory to see operators, quality people, engineers really showing in a lean way how they have been working with preventative maintenance or quality standards on the new line. So it is a cultural change, and as always, with the cultural change, that will take time, but we are progressing well. And of course, we use the capacity now to in-source more products from the CandyKing business.
All right. Thank you so much for taking all these questions.
You're welcome.
You're welcome. Thank you. The next question comes from Mikael Holm. Sir, please go ahead.
Yes, hi. First, a question on the gross margin de-development when I adjust for this restructuring cost you included in the cost of goods sold. I mean, in early quarters when you had CandyKing, it has declined by, I mean, 300 up to 460 basis points. Now, it was only down 150. What's the reason for this quarter having a much less drop in the adjusted gross margin compared to the earlier figure, when you had CandyKing in the figures?
Yes. Good morning, Mikael. I alluded to it a little bit, but the dilution from CandyKing is not less. It's still continuing, and you can see the restructuring is very small in gross margin. It's about SEK 1 million. So what is actually happening is the point about absorption and production volume are good. We are recovering from what has been a very difficult period for us with the fire in Turnhout, and now our production volumes are increasing, and that's a good contribution also in line with plan. The fact that we are also having good growth in pack, you have a great contribution of the gross profit from pack. So in fact, it's not the CandyKing part that is diminishing.
We are still to generate big synergies as we start introducing it in our ERP system and so on. It's actually good performance from the rest of the business that is driving this improvement.
Okay. And just also on the gross margin, I mean, impact from raw material and currency fluctuations. Was that a net negative in the quarter and at the current, I mean, spot rates and planned price increases, et cetera, where do you see this heading for the full year? I mean, is it a net positive or a net negative for the full year?
Here, I have to be also distinct that there is a real issue in our Swedish business. We have a transaction exposure. The Swedish business is buying all their products in, almost all of it, in euro-denominated currency. And this is causing a transaction exposure that needs to be dealt with, and that's what Henri has been referring to. And given the size of Sweden, it also has a disproportionate effect for the rest of our business, which is also contributing in euro. So you have a positive retranslation benefit in the gross margin this quarter, but it's not offsetting the impact completely on the transaction exposure we have in the Swedish markets. And as you know, we deem performance in individual markets in their local currency, and Sweden has a profitability issue because of the euro, and that needs to be dealt with.
In the quarter, the impact was dampened a little bit by the retranslation benefit that comes from the rest of the euro-denominated countries. Overall, this is a business issue that we need to deal with from a transaction point of view.
I guess that there are some delays from, I mean, when you purchase the goods and when you sell it. I mean, is it fair to assume then that this would be more of an issue going forward?
Well, we, in a way, having a weak Swedish krona is good for exports, but it's not good for import. And we are continuously seeing a strengthening of the euro. So this problem, I think, will remain for as long as the euro stays, lies around 10.30, 10.40. If it continues, the activities where we need to do will have to be further accelerated depending on how the currency moves. But you're right, there is a lagging effect, and all of these things are not easy activities. They have a time lag effect, and we need to deal with them. So for instance, if there is a pricing coming through, that, that full year effect is not gonna happen in 2018.
We need to think of it more as over time. We want to compensate our 14% EBIT margin target by recovering on pricing.
Okay. And just my final question, I mean, just on this, Pick & Mix development. I mean, it seems like sales dropped by SEK 6 million organically in the Pick & Mix business. Is that the Coop contract, or is it... I mean, Norway, is that also included in that?
Yeah
... organic sales decline?
Yeah, so I mean, there are some big- the three big, big things which I already mentioned, one is Norway, which is, is a big one. The other one is the Finnish pick & mix comparator of last, last year, and now we're back to normal level. That's another big one. And the, and the last one is the Coop, the Coop effect. So, those are the three, the three big ones, and, and of course, partly, partly offset by good performance in, in other, in other markets, but those are the three main, main effects.
Okay. Thank you.
Thank you. The next question comes from Mikael Laséen. Sir, please go ahead.
Yes, hi. I think most of my questions have been asked, but not all of them have been answered, unfortunately. But coming back to the Easter effect, and I get it that you don't want to display too much around CandyKing and their growth, even though you have done so in previous quarters. But I think, I mean, this quarter is obviously special with Easter. So could you say something then on your branded packaged products and how much Easter affected that? Because there is a positive effect also on this segment.
Yeah, I would, I would argue that, it's a little, little bit difficult to, to estimate, but we are... The first thing to remember is we're not so, big or not big at all in very Easter-related chocolates, products, like, chocolate eggs and things like, like that, which, which tend to be big Easter, products. I would say the market where, where there is an, an Easter effect, also on the pack business is in, is in Sweden. Yeah, so there we are definitely helped, by the, by the Easter effect. In all the other markets, I would say it's, it's limited.
So a little bit in Norway, but there we see that we still need to strengthen our brands further, and we've been under pressure also with the sugar tax coming in. I would say in all the other markets, it's not so much Easter related. So you could say that Sweden, yes, pack business, but the rest of the market, it's not very much related to Easter. Fact.
Okay. And why can't you give us more on CandyKing? I guess this increases the uncertainties also for the next quarter, because you... You obviously integrated CandyKing in May, which means that CandyKing did not support or the Easter sales of CandyKing did not have any impact last year on Q2. So it's a bit difficult to know exactly how Cloetta is actually performing in this quarter if we don't get the CandyKing numbers or the exact impact from Coop. Otherwise, the development in these segments doesn't really tell us much.
Yeah, I would, I would say that we, we reported CandyKing up to the full year, and then we chosen to had to do it differently this year by reporting the packed branded business, and then Pick & Mix on the other one. That's also because we're really integrating those businesses, and it also becomes more and more difficult to really split out what is, what is CandyKing related and what is, let's say, old Cloetta related. Because we're integrating merchandising, we're even integrating concepts, we're letting one concept be the dominant, or not dominant, but the only concept in a certain customer. So there are swings between the two previous Pick & Mix businesses. And it will become also a bit of a guesstimate, I would say, if we start to try to single out CandyKing.
Up to the first of May, we can still do that to a large extent because it is in the same... Sorry, it's not in the same system, but as from the first of May, it becomes even more difficult because it will all flow through the same ERP system, combined customers, et cetera. So, then we would only be able to do that for the first, for the first quarter. And as you can see, we had a negative development on total pick and mix due to the three reasons I had just been giving. And I think we, when we also did the acquisition case, we also disclosed a little bit how big CandyKing was in the different markets.
And yeah, that I think gives you a feeling for how that business is running. And Danko, do you want to add?
I just want to... I mean, the problem will disappear, or the issue will disappear as we start having comparators.
Yeah.
So you will get much more insight and discussions around the performance on the branded pack business and our pick and mix segment. That, from first of May, will be like for like on the comparator. So you will have one more month of where the last year's comparator is not included, but as of May month going forward, the analytics will be done and very transparently towards what we have performed out of total sales in pick and mix and in pack. When we did the acquisition, if you remember, we said we will double our size in Norway, in Denmark, in UK. And clearly, Henri's point about Norway, we did not have any pick and mix business in Norway before, and it was severely impacted by the sugar tax, of course.
Yeah, and it's because of all these reasons we would have appreciated more info, because these two quarters are obviously from a year-over-year perspective very different because of Easter now coming in Q1.
Yeah.
So now we have to wait until the Q3 report to get a full quarter of comparable figures. Then we are in October. It's quite far away. So I think the market would appreciate some more disclosure on this, just to give you some feedback on that.
All right.
But let's leave it to that. And one more on how you are thinking of price increases or trying to get price increases through to mitigate the currency movements. At the same time, you are trying to drive growth, so how are you thinking of price increases versus volume growth and perhaps recapturing market share?
Yeah, I mean, this is not, of course, the first time this is happening. And in general, I would say we're quite good in this. And also, of course, this is not easy, but also, the practice is that raw material and Forex movements, there is a way, let's say, to price up with our customers. But as we already just said, I mean, that takes time because we don't price up on spot prices. There, of course, is something of a moving quarterly or a moving annual total, which is then sparking certain price increases.
And then we just need to do that very cleverly across the portfolio so that doesn't impact volume growth, which is still very important. But that's, I would say, that's good commercial management to do that in such a way that we get coverage for the Forex. And of course, we didn't talk too much about raw materials, but that's something which happened last year, and which of course also is something which is on the table or has been on the table. So it's the combined effect of Forex and raw material, which constantly goes up and down over time.
I'm confident we are able to solve this, but there is a time lag on the Forex.
Okay. Regarding Turnhout, was there any negative impact actually in this quarter? You don't mention anything, but was there a negative impact? And in Q2, as you know, are or will ramp up production again, will there be any costs associated with that moving back production and so on?
... No, I mean, we, we have got the situation quite well under control, I would, I would say. So there was not a negative, impact other than the fact that we have, a few third parties, who are delivering products to us to compensate part of the lost, volumes of the Turnhout, line. And when that line is up and running, of course, we can start to bring those products back into, fully into Cloetta. Now we're doing, you could say, generally speaking, we're doing the packing of the, of the bulk products, and then we can produce the bulk products, as well. So there will be some, some, synergies and some, positive effects, in the total supply chain.
But mostly important is that we need that extra capacity to go to the next, well, next to the, like, step three or four in the CandyKing insourcing. So if we have more, more capacity, we can start with bringing in third-party products which we, which we asked for help when the Turnhout fire was there. We can look at the, at the tonnage we still have in the Italian factories, and the agreements we have over there. And of course, more CandyKing insourcing in the molded network will also generate, yeah, the synergies we have, we've committed to, in the 100 million SEK.
And that was my final question, where if you could give some flavor on the timing of those synergies coming through, when we will... I guess, they are already started to show, but will show even more in the second half of 2018. But could you give some flavor?
Yeah, we've always said it will take until 2020 before we are fully there, but we've also said that, of course, a lot of a big chunk of it will come in 2018. If we have the Q2 ERP go live happening, that will help, and as well, the Turnhout factory and getting more capacity, then we can start with the next steps in the insourcing, which then starts, let's say, somewhere after the Turnhout line is fully operational. Then we can insource even more products during 2018 and 2019. So, that is where the bulk of the SEK 100 million will lie, but it's a lot of work.
That's a lot of products we can insource. We're going for the most attractive ones, those are the easiest ones, and then, towards the next phase, we'll also then need to look at products where we might have to do a small investment and whether that business case is attractive. There's a lot of business cases to just work through, and that's why we have the 2018-2020 timing before we are ready with the full synergy realization.
Okay. Okay, thank you.
Thank you. Ladies and gentlemen, let me kindly remind you that if you wish to ask a question, you need to dial zero one on your telephone keypad. We have a question from Guy Howe. Sir, please go ahead.
Yeah, good morning. Just in terms of your full year expectations, you, you've said very little about that, apart from in your statement, saying your main focus is on driving growth up and costs down. I wonder if you care, I know it's early in the year still, but maybe be a little more precise in terms of your aspirations for this year, particularly relative to your long-term targets of growing organically in line, at least in line with the market, i.e., +1%-2%, which you've done in the first quarter. And also in terms of your, what sort of, improvements in EBIT margin should we expect? I know it's going to take a while to get back to 14%, but, you know, should we expect some modest progress this year?
Yeah, we don't, we don't give forward-looking statements on, on that level of, of detail, and that's why you didn't, didn't hear it. We've never done that. But of course, it is quite, quite clear that in 2018, we need to get, a few things, back in order, and also a few things we need to, like on the, on the brands and the factories, the integration of, of CandyKing. And as, as Dank already explained, of course, the CandyKing has an, dilute effect when you just take the whole CandyKing business and put it into the Cloetta P&L, but that is before all the synergy savings are coming, through and all the, synergies we will get in our factory network.
And that is something we will work through during 2018. And of course, if we see that we're confident on the SEK 100 million synergy realization in the period 2018 to 2020, and that the bulk is coming in 2018 and 2019, then of course, we're also banking that we will see some of that coming through in this year.
Okay. Thank you.
Thank you. The next question comes from Nicklas. Sir, please go ahead.
Yes, hi. Could you maybe disclose to us what... Well, thank you for disclosing the packaged business like for like, we appreciate that. But could you disclose what you had in Q1 last year for the packaged and the pick and mix business?
No, it's coming back to, it's Danko here, Nicklas. It's coming back to that, we will have full disclosure of comparators as of May.
... second quarter, and perhaps we will discuss whether we should include the additional month or not. We'll do that hearing from your questions, so that is very transparent for you. But last year did not have a comparator on CandyKing, and we haven't intended to share that. It was not our business at the time. And what we will do going forward, take a thorough look and see if we can do it from Q2 onwards because of the questions we have received today.
Okay, but you had, I mean, you had pick & mix business yourself in Q1 last year, and you had packaged business, of course, in Q1 last year, so but you don't want to disclose those figures?
Well, no, not really. But what we talked about, again, you have this Easter effect, that last year, the Easter effect was between January and April because it slipped over to April. So if I should start explaining last year without CandyKing and the impact of Easter, then it gets a little bit tricky. So let's leave it for this time, and we'll give you more information as of Q2 onwards, which is like for like.
Okay, thank you. And then on marketing spend, I think you've communicated that you're prepared to step this up. How... What's the year-on-year impact on marketing spend and your cost?
We have two programs running, and one is that with the existing marketing budget, we want to become more efficient. So we're driving hard a program, which you probably have heard from other big FMCG companies, to make a real shift towards what we call working media, so away from non-working media. In non-working media, you have costs like agency cost, Nielsen cost, research cost, creative cost, et cetera. And working media is basically all the money we spend, which consumers see. So from buying outdoor advertising to online advertising or TV advertising.
And that's that balance we are really trying to move up into a direction that most of the money or a big chunk of the money is being seen by consumers and less being spent on, let's say, bought in services. And I would say that's the first big thing we're doing, and we're seeing good progress on that. Then the second part that we said, well, if we see opportunities where we can strengthen our brands forward, we will do that during the year. And if you look at the P&L, you can see that in quarter one, we'll be more or less flat.
However, the efficiency of where we have been spending the money on has gone up because we have more working Media than last year. But it is definitely something we have talked about and committed to. But we also need to be judgmental in the investment proposals we are getting from the markets and from the central marketing unit.
Okay. Thank you very much.
Thank you. We currently have no question. Ladies and gentlemen, let me kind of remind you that if you wish to ask a question, you will need to dial zero one on your telephone keypad.
I have one question here, Jacob, here from Cloetta, from the web, too. How should we understand CandyKing margins versus group margins?
It's Henri here, then. There is a combined benefit. When we talk about 14% EBIT margin contribution, it means that the total group will get a benefit in the insourcing of volumes that will not necessarily only be on the segment of CandyKing. For those of you who are part of the CandyKing journey, you know, at the time of the proposed IPO, they were referring to somewhere around 3%-5% EBIT margin in the pick and mix business. We are not deviating from that kind of long-term EBIT margin because it's a different business model.
But on the other hand, what it will then do is to give us additional tonnage that we can produce that will affect the total Cloetta business in a lower cost per unit in those factories where we are then producing it, which will be the incremental 10%-11% EBIT margin that it will yield to us on the increment. Therefore, for the total group, you'll see a 14% impact with the SEK 100 million being delivered. But for the segment of CandyKing, we are... For Pick & Mix, we are currently looking at the same levels as have been indicated by the previous CandyKing business.
There are no further questions over the phone.
Okay, then we'll say thank you from Cloetta, and have a good time and speak to you next time. Thank you and goodbye.