Good afternoon. Welcome to Cloetta conference call. Jakob Rydén, Investor Relations here, and as always, I have Bengt Baron, CEO, and Danko Maras with me here, and I hand over to Bengt to give an introduction.
Thank you, Jakob. Good afternoon, everybody. Overall, before diving into the material and the presentation, I would like to state that we feel that the second quarter of 2013 was another good step on our margin expansion journey. As you may recall, if we go back to February 16, when we actually announced and closed the deal between Cloetta and Leaf, we were also quite clear on that the first two years or so is gonna be a lot around restructuring, integration, and margin expansion. So far we are following plan. Diving in a little bit more into details, net sales SEK 1.1 billion, which is -6.8% on paper, but in fact, as Danko will come back to, there's an FX effect. So, like for like, it is -4.1%. There are varying explanations by market.
In general, we can say that the markets continue to be relatively weak. I don't think that that is a surprise to anybody across Western Europe. And also we've had some one-time effects in various markets, such as in Denmark, where we continue to be in conflict and discussions with one of the major customers. We think it's important to stay firm on that because for the long-term equity story and the price positioning, it is important that we are able to pass on cost increases through price. In Norway, another example, we announced an organizational change during the quarter, where we are changing the composition of the sales force and merchandising to become more efficient in the longer run in the market. Short term, that, of course, had some impact in the marketplace.
In Sweden, we consciously elected to not sell a couple pro products, which were not as successful as we would have wished for, last year. However, overall, of course, we would like to grow, and in the long run, it is our firm intention to get back to profitable growth. But there's a lot on our plate right now, and we need to make sure that we complete the restructuring and the integration. As I said, there's a lot about margin expansion. If we move on to the EBIT, it's more than doubled to SEK 109 million, and the margin is up to 9.6% in the quarter. Indeed, we are going the right direction from a profitability point of view. We amortize our loan. It's SEK 90 million according to plan, as we do every quarter.
I'll come back a little bit later, but, more or less, integration process is completed. Factory restructuring are proceeding according to plan, and we've also come to agreement, as we said, as we stated, to acquire and insource the production of Tupla, into Ljungsbro. Also exciting, even though a relatively small acquisition, very exciting that we acquired The Goody Good Stuff, which gives us access to new technology in the form of free-from, which, means that we can now invite even more, consumers into our franchise of confectionery.
And then sometimes we take things for granted, but also, in the quarter, we actually implemented a new ERP system in our second largest factory in Levice, and that typically is a high-risk venture, but we're extremely pleased with how that project has gone, and that it's completed, in place, and up and running, and we've been able to close the books according to plan without any glitches whatsoever. So all in all, quarter two, another step on our journey.
So, Danko here. So I see you. Good afternoon, everyone. If you go to page 3, then you have a couple of numbers that I would like to go through. And if I perhaps start with the underlying EBIT, you can see, as Bengt was saying, SEK 109 million versus SEK 49 million last year. And that's an EBIT margin of 9.6%. And as many of you know, we are now starting to see, really the effect of the synergies from the merger and the factory restructurings that we are doing, but also price coming through in a positive way in those markets that were lagging before. So, as of now going forward, we will also have some comparables on pricing that we will meet, going forward, but very, very positive to see the underlying EBIT improving such to a large extent.
The gross profit of 38.4% versus 34.1% is a significant improvement of 430 points that we feel very good about. If we then look at the operating profit, you can also see that we have SEK 54 million versus a negative SEK 53 million last year. Here you can also see that we are reducing our restructuring spend. So even though we are incurring restructuring in the quarter, it is SEK 55 million in total, or items that affect the comparability. It's SEK 51 million on restructuring, versus last year having SEK 102 million. So we are converging, as we have always said, from a recurring to a reported EBIT, but we are not there yet. We will continue to realize the cost that we have announced, the SEK 320 million-SEK 370 million, we're and the SEK 70 million we have announced also in Cloetta Leaf integration. Excuse me. That should be SEK 80 million.
I'm sorry. That will be SEK 450 million in total. I'll come back to the profit for the period in a second. But just coming back to the net sales, you see that we had a growth number of 6.8% reported. And if you go down to the table down there, you will see that the three components we are describing on the sales, what they contain, there's one benefit from a comparison purpose, and that's the fact that we don't have any structural changes anymore. So you really do compare a like for like in Q2, where we do not include or exclude former Cloetta. It's all a comparator. But the exchange rate is 2.7%, and I actually will come into that a little bit more. The underlying organic growth is then negative 4.1%.
So if you turn to the page there, and maybe this is very obvious to everyone, but maybe I'll just say it one more time to be sure. I know one or two of you have said that the euro has become stronger lately, and that is true. But in fact, if we compare versus last year in the quarter two, the euro FX rate was 8.88, and we closed the, euro FX rate in this quarter at 8.53, and that is still, a negative effect on the euro of 3.9%. And without being too specific, you can see that a large share of our sales are in Euroland. So with the 55% on euro, but also, as you know, Danish krone are being pegged to the euro, it's about 60% of it.
That becomes then 2.7% of a forex effect on the movement of euro in the quarter. Today I could see that the rate was 8.59, so it continues to hover around that level, and we'll just have to see where it continues in the remainder of the year. I'll come back more into the forex part in a second. If we go into page five, here you can see the stack bars we've been showing before about the history of the EBIT delivery, and you can see the double up in both Q1 and Q2. We began to realize synergies from the merger and cost savings from the restructuring in the third quarter of 2012.
So the comparative quarterly results will include such positive effects going forward on our journey towards this EBIT margin of at least 14% that we've mentioned or that Bengt mentioned in his introduction role. I said I would come back to net profit. So if you just turn the page again, and we look if focus below operating profit or below EBIT, you then come into page six. And there is one item there which I would like to explain to the best of my abilities to you. It could be perceived as a bit complicated, but it's not really. And it's the fact that we have a monetary asset in an underlying currency, which is not the same as the legal entity currency, meaning that we have a euro loan in a Swedish entity.
According to IFRS, you have to book the retranslation impact in your income statement if that is the case. Any other unit having a borrowing in the same currency is booking it to other comprehensive income, so that it disappears. The volatility of the movement of the currency rate disappears from the income statement. In our case here, we have looked at this, and both in Q1 and Q2, we have a sizable euro loan in the Swedish unit for which we will apply hedge accounting going forward. We've discussed this with our auditor who is in full support of this, and it's nothing unusual as such. But what will happen is if you look at the Q2 without hedge accounting, we have a significant charge, essentially was SEK 78 million in financial net, which was a negative charge affecting the whole profit after tax as well.
With this adjustment, we would have eliminated SEK 64 million of that, and that would have been booked into other comprehensive income. Therefore, if you would have applied Q2 with hedge accounting, you would have seen a profit for the period of SEK 6 million. Now, the rules are such that you have to make a board decision on these, and therefore, the year-to-date number remains. But as of Q3 forward, we will no longer have this volatility in the P&L. It will disappear, and I guess it will make the life more easy for the analysts who are now trying to calculate what this means. It should be mentioned that in Q1, we were showing a gain of SEK 37 million, if I recall it right. The year-to-date effect will stay, and, and of course, that is a tax credit for us that we will be able to utilize.
Page seven, then if I move on to the cash flow, there you can see a swing in the operating activities before changes in working capital of SEK 44 million. That's, of course, from the good contribution in our underlying performance, but also in the operating profit. One or two reactions I've seen on the changes in working capital. I just want to reassure everyone that now we are starting to prepare our closing for the factory in Gävle, and we are building up stock for making sure that our well-known brands such as Läckerol, Alingsås Bilar, etc., do not run any service risks in the second half of the year.
We had the same impact in Q1, so I might sound like a broken record, but it was actually Aura that we were managing in that case, a somewhat smaller factory, and Gävle is our biggest one. So you do have a negative impact on that, inventory movement, and you can see that in the balances in the balance sheet. Another one which is worthwhile to mention, if you recall, Bengt said, last time we talked, that we had a change of payment terms in Italy, normally having somewhere around 150 days, and that changed to 60 days in October last year. The consequence of that is that what we normally would see is cash collection coming in in the second quarter of the year.
So you have a positive effect of almost SEK 61 million in last year's numbers that don't appear in this year's number, because they are already appearing in Q1. All of this relates to the seasonal business of the one activity we have in Italy so that the cash collection comes in faster. And that might look odd when you look at the totality of it, but it is, in fact, already in the numbers in Q1. Then, of course, we continue to invest in our supply chain strategy, but it is declining. The peak of it has happened in terms of investment, but we still have cost, as I've announced before. And then there are some other activities related to the acquisition of the companies we've done, giving us a cash flow of approximately SEK 102 million.
Bengt mentioned also that we amortize SEK 90 million. It might be worthwhile to mention that we are amortizing a more expensive loan and using a less expensive revolver. So it makes a lot of sense for us to do that. With that, I think for now, I'll give the word back to Bengt. Quick really glance at the progress when it comes to the integration and the factory restructuring, as those are two very, very important activities. Integration process is essentially completed from an operational point of view. There's some insourcing to be done, IT integration and fine-tuning, but everything is on track. And as Danko said, we are seeing the results starting to flow through, significantly in our P&L. Restructuring is also according to plan. Alingsås also now are all closed, sold, products transferred, all done. Scandinavian warehouse is in place.
We also announced that we also closed the Norrköping warehouse, and we're concentrating all into one location in order to be optimally efficient, going forward. Factory in Gävle is still on schedule to be closed during first quarter of 2014, meaning that savings will be fully realized towards the end of 2014, as we have said, consistently. So this is a slide you are beginning to get familiar with. Already last time, we moved integration off, with keeping restructuring process on as Gävle still remains, and that is the biggest of the three plants that we are planning to close. Rollout vision, mission, and values, last time we spoke about the Munchy Moments and the fact that we're rolling out the new vision, mission.
That was initiated during the second quarter, and we have a quite ambitious plan to make sure that everybody gets on board, fully understands the direction of the company. And then the third box, which is new this time, is, of course, as we get completed with the integration and the restructuring process, it is all about getting back to 100% focus on profitable growth. We have had a lot on our plate. We continue to have a significant amount of other activities on our plate. We are working ourselves through that so far, so good. And with that, we're also allow ourselves then to get back to a diligent focus on profitable growth going forward.
And at the end of the day, we are still staying firm on getting towards our target of 14% EBIT margin, once everything is done and we get towards the end of 2014 and beyond. Of course, we haven't forgotten our wonderful brands and products, and we give you here a taste of all the activities going on in the various markets, all the launches of new products. And I can promise you all that they're exactly as well-tasting as they're good-looking. So I urge you all to go out and try them, whatever market you're in. So with that, I will turn it over to whoever wants to ask questions.
Ladies and gentlemen, if you have a question for the speakers, you will have to press 01 on your telephone keypad, and you'll enter a queue. After you're announced, please ask your question.
That is 01 on your telephone keypad. 01. Our first question comes from Mr. Peter Wallin from Handelsbanken. Please go ahead, sir.
Thank you. Good afternoon. Good afternoon. I would like to start off with this reorganization you've done in Norway during the quarter and just if you could give some more color of exactly what you've done and also when you expect, like, sales to be normalizing and, and hopefully also seeing some positive effect on the organization.
Basically, what we've done in Norway is, we have reduced the number of salespeople on payroll. We have reassigned some of the headcount that was on sales into merchandising.
And then we have also, instead of having full-time merchandisers on our payroll, we are buying that in the rural areas of Norway from third-party, which means that we're far more efficient and cost-effective, and we get the better coverage for less money. That was all announced and completed during second quarter. Our expectations is that we should be back into full swing in the Norwegian market when everybody's back from vacation.
Okay. Thank you. That sounds very good.
And then also, if you could just give some update on, well, firstly, in Q1, you gave an estimate of, or you actually told us the sales impact from the lower contract manufacturing volumes, if you could give some kind of feeling for how that impacted all in this quarter and then also for how you think the negotiations are going forward with this Danish customer of yours which you're struggling a bit with. Contract manufacturing, basically, in the quarter was about EUR 500,000 less than last year. So the impact was not as big as it was in the first quarter, but it was still there as a headwind. In Denmark, well, I wish I could give you a very clear answer.
It is our ambition to find our way forward, and I think, everybody around the table is trying to be constructive, and we, we are hoping to find a solution during the latter part of the year, because at the end of the day, everybody wants to sell our, our brands. We just need to figure out how to make sure that it's a win-win situation for everybody. We hope and believe that we should find a solution during the year, but I, I, I dare not to venture to give you a date, Peter.
Yes. Absolutely. I understand. And then, then also, I'd just like to get some kind of feeling. You're highlighting the fact that now going into Q3, we're coming up against last year's, starting to reap the benefits of this cost synergies and supply chain restructuring.
But also, you've—I mean, lots of things have happened since Q3 in terms of Alingsås Bilar now and stuff. So, is it possible to give a very crude estimate of as of, for example, in this quarter, we saw underlying EBIT more than doubling. How large share of the cost synergies which have boosted Q1 and Q2 this year should be so, like, non-annualizing in Q3, and how much should be annualizing in just a big picture?
I hesitate to give you a good number because if you remember last year, also, we talked about the fact that part of it was restructuring, realizing synergies, but also, we had temporary inefficiency in there, and we didn't spend a lot of time in trying to sort of quantify the two buckets.
So what we're saying is we started—I mean, you remember last year—we actually implemented the new sales organization in Sweden, actually in the month of August. And that was a significant saving, of course, as headcount went down. And we also closed Alingsås Bilar quite early, so there's some benefit. But we still had Aura going, and we still had Gävle ahead of us, and there was some more restructuring that was done on the warehouse side as well and so on and so forth. So I will not give you a number. But we just want to highlight that, I don't think it's a good idea to just straight-line going forward.
At the end of the day, what we've said to, since February 16th is we're striving towards the 14% EBIT margin, once we get through all of the restructuring. Yes. Okay. Thank you. And then just a final question of mine, on if you could, could just give an update on, on, on how you're seeing input prices developing, if there's anything dramatic happening there or if it's fairly stable. The good news is they're fairly stable, Peter. The bad news is we remain at a fairly high level. But at least we have been in a position where the ups and the downs are, are sort of canceling out. So we're quite stable over the past, three to six months, I would say.
Okay. Sounds good. Thank you.
Our next question comes from Mr. Fredrik Villard from Carnegie. Please go ahead.
Yes. Hello. I was wondering, given the sales decline in Q2 compared to last year, 4% organically, how are you seeing the competitive landscape now, and what are competitors doing? Or do you feel you're outperforming in any market? Could you elaborate a little bit on the competitive landscape and what competitors are doing, perhaps? Well, Fredrik, I mean, in a mature market and in the market conditions we're in it, there's fierce competition, of course. What we're happy and what we're tracking is, of course, our major brands that are performing quite well and that are defending their market shares in the major markets. But it is an intense, and everybody's fighting and scratching for market shares. Oh, you're okay. Thank you so much.
I mean, going forward, how I know you rarely give comments about AMP spending, but do you feel the need for it being you're comfortable at this level, or you feel the competitive pressure is so that you to defend your market shares, you're gonna have to increase or decrease, or would you like to comment on that? Or, and also, perhaps in the same question is product launches. Are you? I mean, we saw you mentioned Dietorelle in Italy, a relaunch that's having a positive impact. Are you planning on doing something equal to that in other markets, or was that a one-off, or if you could comment on that as well, please. Well, I mean, when it looks at spending and investments in the various markets, again, the ups and the downs in the markets vary.
We need to stay nimble. We need to stay on our toes. So we need to be quite agile. When there is action, we will react because at the end of the day, it's important to defend market shares where we, for our core brands. When it comes to our plans, and I think one of the reasons why I'm highlighting the fact that as we get through all the restructuring integration work, that we can really focus back on driving profitable growth. And I think that's one example where we have quite active plans but also now getting everybody aligned, going, looking into the future, developing new concepts, and working on our fantastic brands. It feels good and refreshing to talk about topline again, and not only about the restructuring and integration.
Okay. Good. Thanks. That's all from me. Thanks.
Our next question comes from Mr. Mikael Holm from Danske Bank. Please go ahead, sir.
Hello. I have one question on the development in underlying EBIT. Last year, you said that the main explanation for the earnings drop was that you didn't compensate for raw material prices. And now, when you have this earnings recovery, you're pointing at merger synergies and the factory restructuring but not price increases. Is there a negative effect of prices compared to raw material compared to the earnings level two years ago? No. I'm not sure I was clear on the communication, but our earnings recovery in this quarter is a combination of synergies from the merger, the manufacturing strategy, and also positive price. Okay. It is indeed. Yes.
And what Bengt was alluding to before is the fact that we did not spend a lot of time we spent a lot of time internally, but in fact, trying to itemize exactly what was an inefficiency and what was exceptional. That just didn't seem to be a good use of time at the time. So it's a bit difficult, perhaps, to be specific about every detail of it. But we are seeing a positive price in the quarter for sure. Absolutely.
Okay. And at least in my model, you had a quite positive effect from pricing from the fourth quarter last year. So I guess there should be a quite good year-on-year effect in Q3 as well from prices.
Yeah. It's a good model you have. I would like to see that.
I'm not, I'm not giving you any more indications for the forward, Mikael.
Okay. Thank you.
Our next question comes from Mr. Christian Hellman from Carnegie. Please go ahead, sir.
Hi. Christian here. Just a question on, coming back to growth. You're down 4% organically in the quarter. Could you give some indication on the range in the different markets? You don't have to mention the exact market, but the market that showed the most growth in the quarter, what are we talking about? 3%-4% plus, or where are we at? And the worst-performing market, is that down 7%-8%? I don't know. But a range or something would be very helpful.
I'd rather not go into it.
And as we said before, the reason for that is once we get into that quarter-by-quarter, you start going into individual markets, into categories, into brands, things become affected by, "Did I launch a product last year, or did I not? Did I get the promotion last year in week 20, or did I get it in week 16?" So Dietorelle, for instance, now in Italy is having a big benefit. Is that sustainable? We'll see. Or we don't know. Next year, we're gonna run into that number in the second quarter. So probably next year, if you look individually on Italy, we're gonna run into a big launch which is gonna impact. Therefore, I don't think that the percentage is really gonna impact. So it's more about the overall number, the reasons behind, I mean, what's driving what.
I gave you some updates upfront, a couple of one-offs. I mean, we mentioned Norway. We mentioned Denmark, and so on and so forth. So, I'd rather not give you a number because we'll be reconciling it every quarter and explaining what goes up, what goes down, what is organic, what's caused by something else. Yeah. Okay. I understand. It's just that our models are based on numbers and not comments in the report, so. Well, that's why you're the smart guy. We can actually have something to punch in, that, all right. I'll have to settle with that. Thanks. I remind you, if you have a question for the speakers, you'll have to press 01 on your telephone keypad. That is 01. There are no further questions at this time. Please go ahead, speakers. Okay. Thank you very much, everyone.
Enjoy summer and vacation if that's in front of you, and speak to you in Q3 if not before. Thank you very much. Thank you, everybody. Bye-bye.