Good morning and welcome to Cloetta Q2, result presentation. My name is Jacob Broberg, Head of Investor Relations. With me I have Bengt Baron, CEO, and Danko Maras, our CFO, and I will actually hand over to Bengt immediately. Go ahead, Bengt.
Thank you, Jacob. Good morning, everybody. As Jacob said, welcome to a review of the second quarter highlights. First of all, I would like to say that, overall, second quarter was quite an intensive quarter where we started the exciting journey of laying the foundation for the future Cloetta. First round of numbers are in, as you've probably all seen, net sales of just over SEK 1.2 billion, which is on reporting +8%, but the underlying net sales is -3%, and I'll come back to that in a sec. EBITDA, profit-wise, underlying is SEK 53 million, which is behind last year, after excluding restructure integration cost of around SEK 100 million during the quarter, and this is something that Danko will come back to later on. During the quarters, we can say that we have focused on four key areas.
First of all, completing the entire transaction. It may seem that it is far distant in the past, but we actually completed a rights issue of just over SEK 1 billion during the quarter, and we also refinanced the company, have a new credit package in place. And with that, we can say that the transaction is totally completed and behind us. Second area, of course, is on the integration, primarily in the Scandinavian and the Swedish commercial organization, and that is totally on plan and going quite well. And in fact, as of August, we have one commercial organization in place, completely staffed, in Sweden, which I think is a big step forward. Third area of value creation is the restructuring of our production structure where we had a significant amount of overcapacity, which we're addressing.
The first major step is to take the decision on closing three of the units: Aura, Finland, Alingsås, and Gävle, in Sweden. Fourth area is, of course, to continue to offset the relatively high or at least increased. Whether they're high or not, we can debate looking into the future, but they have increased the raw material and packaging cost. As we've said, our strategy is to offset that through pricing, a process that takes time and in some cases is cumbersome, but we've made some progress during the second quarter, but we're still not there yet to fully offset the increased costs.
Looking into the future, we think this will be an area of continued importance as we do not know where the raw material prices are going and that there are signs, in some areas, the corn crop in the US, for instance, that there might be additional pressure going forward, but we don't know that, but this will continue to be offset with pricing. Sugar prices remain high. Sometimes when you look at sugar prices, we have a tendency, in the outside world, to look at world market prices. Unfortunately, they're not totally correlated with the EU sugar prices as they are regulated by a quota system, and therefore, not necessarily we get reliefs when the rest of the world does it. And one can actually track that if you look at the profitability of some of the European sugar players.
Finally, in the overview, cash flows from operating activity continue to be positive, over SEK 100 million in the quarter. Coming back to the overall market development, as we know, we are in an impulse-driven category, so we're quite resilient even if we're not immune to ups and downs, but we're quite resilient. Looking at our bag of various markets, we can say that the sugar confectionery category in total from a volume perspective is quite flattish. There's some ups and downs, but in total, it's quite flattish. However, one area to keep an eye on is the service trade, and the best examples in the service trade, I would say, is the gas stations across Europe, which is a channel that continued to shrink during the second quarter, primarily driven by fewer visitors.
Of course, that is an effect of economic situation, but also the fact that people are buying smaller cars and diesel engines, and if you actually don't go to get gas, you don't drive by to pick up impulse products. Italy, of course, is impacted by the macro situation and the financial crisis down there, whereas we see encouraging signs in Finland, which, as you may remember, introduced an additional tax on confectionery products back in early 2011 and experienced during 2011 a significant decrease in volume. It's very encouraging to see that the consumers are returning and buying chocolate products, confectionery products again, which again shows that it's quite a resilient category. And finally, positive development within the chocolate category in Sweden.
So all in all, it's a fairly soft market, but it is proving to be resilient, but we do not have any help from the market in totality, but there are, of course, differences between the marketplaces. Stepping over to the two very big and important processes and areas where we are really working on value creation, the synergies from the merger and the restructuring program within the production structure, we have highlighted some of the areas here on the slide and sort of tried to demonstrate the progress in the core subparts within these two areas, and I'd like to briefly comment on it. Restructuring of the commercial organization in Sweden, green, meaning that it is complete as of August, all done, people in place. Efficiency measures within administration in progress.
It takes a little bit of time to get everything together, everybody working in the same way and fashion. The insourcing of distribution business that is currently with distributors in Finland, Norway, and Denmark, all contracts have been canceled, and we will take them over successively, beginning with Norway September 1st, and then we will have Finland and Denmark coming online around a year-end or slightly thereafter, but everything is going according to plan. Insourcing of third-party production is also, of course, a process of canceling contracts, preparing to take on, and take on the production, matching, and being able to do it. Everything is on track, but will be ongoing.
Procurement synergies, here it is not a question of getting giant size and therefore being able to totally renegotiate the prices as we are a relatively small player in some of the, some of the products that we are buying, but it's primarily to calibrating, to make sure that we take advantage of whichever party has the lowest price, and that is well underway. Corporate processes, everything from admin to governance, done in place, acting as one company, without a doubt. IT integration systems on way, roadmaps overall are in place, and then, of course, it takes a bit of time to actually implement these to make sure that we don't interfere with the business. And then finally, finalizing the move of production on Slagelse in Denmark to Levice, Slovakia, green, all done, and in fact, we actually sold the building during the second quarter.
So overall, I would say we're very much on track on the merger, and we are still staying firm on the savings target of SEK 110 million on the EBITDA level. Restructuring, production restructuring, of course, the first important, sensitive, and challenging and difficult phase is to actually announce what will be done and get through the shock phase and be able to handle that. We did that for Aura, Finland, Gävle, and Alingsås in Sweden, so it is decided, it is communicated, and we're through the first difficult phase in that. Also, the decision to streamline the warehouse operation in Scandinavia has also been taken, communicated, and the process initiated.
All these four workstreams, Scandinavia warehouse, Alingsås, Aura, Gävle, are now in the next phase, which is all about getting contracts into place locally, starting to prepare the receiving factories for what is about to come, matching products, and then preparing the move, and I would say that everything so far is on track. So also in this important part, we are staying firm on the savings, the savings target of about SEK 100 million on the EBITDA level. So with that, on the major areas, I would hand over to Danko to take you through the numbers.
Thank you, Bengt. Good morning, everyone. If we go in then to page five and you see on the right side the underlying performance on the negative growth of 3% and the difference of 53 versus prior quarter in EBITDA, it's very much referring to the effect that Bengt was talking about initially, that we are having some softness in the market, and that decline, of course, has an impact in our EBITDA in terms of the 3%, the gross profit contribution for that, but then also continuing to have the challenge on making sure that we mitigate the high input cost on pricing, and the pricing effect is having some lagging that is taking time to come into full effect. That is really the core issues.
We do have positive net pricing, but in effect, this is affected in volume and therefore our turnover -3% is coming through. However, if you look at the underlying EBITDA of SEK 53 million, we are reporting -SEK 54 million, so if I change to the next page, you can see Q2 items affecting comparability. And in here, very much in line with what we have been communicating, you can see that the supply chain restructuring for the quarter is SEK 58 million, and the integration expenses related to the merger activity is SEK 54 million, and then we have some smaller items of SEK 3 million, adding up to approximately SEK 100 million in the quarter, and that should be compared to what we had announced earlier of about SEK 80 million on merger activities and about SEK 320-370 million overall for the closure of the factories that we just recently mentioned.
And then we have some smaller parts in there, but there you can actually see the difference very much in line with plan. To some extent, there is more to come, as you can see, because of the announcement that we made, and that will come in the forthcoming quarters. If we then go in and look at the cash flow, we announced SEK 102 million coming from operating activities. Of course, we are being affected by the adverse impact in EBITDA and the operating activities and the cash flow coming from there, but still strong delivery in our working capital positions are giving us a positive cash flow in the quarter of about SEK 100 million.
You can also see that we are investing approximately the same as the prior period, about SEK 50 million in, predominantly capital expenditure for machinery and equipment, etc., but then you also see a swing there on cash flow activities that are elsewhere. They're SEK 29 million. That relates to the closure and the sale of the building in Denmark, the Slagelse building. So we have a cash flow, positive cash flow impact of that in the second quarter, adding to the good cash flow. But net, a negative cash flow, and if I then go in and talk about the financing activities of SEK 181 million, you can see that those ones are negative, of course, in the net numbers are negative at SEK 100 million.
The 180 million is a result of all the financing activities that Bengt was referring to in terms of paying the vendor loan note to CVC and Nordic in quarter two, completing the share issue, etc., etc., and the net number that is 180 million. We should add that in the quarter, we have actually also amortized 180 million of our debt level, and to finish off on the cash flow and the net debt positions, we are now in a net debt position of SEK 3.2 billion. That is a reduction of SEK 1 billion from Q1 where it was incomplete, where we had a balance sheet position of our net debt position of about SEK 4.2 billion.
We are now, as Bengt was saying, we have normalized the since the transaction is complete, so we have now normalized the levels of net debt, and we will continue to amortize on that one as we have planned, SEK 360 million per year. With that, I give the word to Bengt back.
So going, going forward, what is the focus areas? And you can either view us as boring or consistent because it's gonna be pretty much the same areas. It's very much about the integration process, primarily in Sweden and in Scandi, to make sure that we go from desktop and get it to fully operational and smooth organization, so that is the next phase of what we're doing. Restructuring process is going from announcement and getting into not only desktop planning but practical planning and starting to execute, so that's gonna be very much in focus, and pricing will be ongoing as we not yet have been able to fully offset it, and we also need to stay on top of what's going on in the marketplace so that we are proactive in the continuing pricing process and cost developments.
Overall, we remain firm on our financial targets as announced in connection with the merger. Finally, not least, but actually, I think, most important, a little bit on the action on the products because at the end of the day, we are in an area where there's plenty of joyful, wonderful products. We continue to be active in the marketplace. Starting closest to home, I think, two of the most important launches is, in the licorice department. We launched Viva Lakrits. Also think this is an excellent example of what we can do within our network. The three products are actually existing Venco products from the Dutch market where we are clearly market leader in licorice and have extensive knowledge of the industry and the category, and we have packaged the top three products into the Malaco concept Viva Lakrits and launched it.
Also, I think is an interesting, we are the market leader in Christmas foam with Santa foam by far, and no foam is sold in the summertime, but this year, Santa actually decided to take a vacation in Sweden. Unfortunately, it shows from a weather point of view a pretty bad vacation, but on the other hand, people stayed indoors and they ate a lot of July foam, which I think is positive. Italy moving into the balsamic hard-boiled candy, which is an interesting category for us. In Finland, launching a new unique gum product, a cube product which has a unique shape, flavor, and coating, and also continuing where we took the chocolate brand Tupla into the biscuits category very successfully last year, launching a new product SKU in that area.
And then another example would be from Holland where we launched two new products for the leading gum brand, Sportlife, which actually helped us gain a little bit of market share in that market. So despite working hard on integration, on restructuring, on pricing, we're also staying very active in the marketplace, making sure that the consumer gets new, exciting, fun, and wonderfully tasting experiences. With that, I would like to open up for questions.
Operator, please.
Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. Our first question comes from Mr. Peter Wallin from Handelsbanken. Please go ahead, sir.
Thank you, and good morning. I would like to start off with a question about the top line since you're stating that your estimate is that the sugar confectionery market overall was kind of flattish, whereas you're seeing your underlying net sales going back by 3%. So which markets are driving this sort of, like, setback?
Well, I'd say, primarily driven by Italy, number one, which is experiencing macro issues. Number two, we've had shrinking sales in Norway, primarily driven, I would say, there, by our drive for price increases, which has resulted in some somewhat tense relationship with some of our key customers. And then actually, third area would be IKEA, which, of course, has been a big, big customer who has decided, for now at least, to go into private label, and that, of course, impacts us. Then we have some offsetting, which the example would be Finland, and also actually sales outside of our key markets is also doing quite well. So there's some ups and downs.
Okay. Then continuing on that track, coming back to what Danko was saying just a few minutes ago about that you have successfully, if I understood things correctly, been able to carry through price increases also net from campaign activities and increased price pressure, but losing out on volumes, leading to a gross profit decline, on like-for-like terms. And that's mainly from Norway. I mean, do you see this persisting going forward as well?
Well, I would say we have been partially successful in offsetting prices on the net level. I think we are on the gross level, definitely, and then there's a combination of ongoing negotiations, and then also, as you said, they're quite whenever the market is flat or slightly down, it becomes quite competitive out there, so the promotion pressure gets stepped up a bit to defend market shares and volumes. So I would say that we have not totally offset it yet, on the net level, but in the markets we will also. So it's a combination of the volume and the net pricing.
Okay. Because I would assume that given that all your competitors also face the same kind of raw material input prices going up, wouldn't everybody be, like, looking for raising prices or have is there somebody out there being very price aggressive in order to gain market shares?
I don't know exactly what the competitors have been doing, but I think it varies to a certain degree. But at the end of the day, and I think this is also from a timing, I think going into periods where there are drastic shifts of price and total costs, some people will view it as a short-term blip and not take action immediately. Some people will view it as a long-term trend and take action earlier. So over time, I think we're all in line and everybody will be driving for price increases because at the end of the day, the consumer has to bear the increased cost.
Okay. Thank you. Then, if I may, if you could give any kind of ballpark relative importance, division between, if we're saying that the gross margin is down year-over-year by 4 percentage units, if you would divide those into mix effect from the merger, raw inputs, well, input prices going up, and then price pressure, which I guess mainly led to your gross price hike not fully coming through. I mean, what's the relative size of these three? Are they pretty much the same magnitude, or is there any of these factors being the clear driver?
I mean, what we could say, Peter, is that we have announced that we have a full effect of the input costs already from fourth quarter last year. So we are seeing the input cost affecting our gross margin, of course, and that's the full effect already from our first quarter. And then I come back to what Bengt was referring to on the volume and price impact. We are carrying through our pricing in the marketplace, but the full effect of the input cost is then, of course, what we were referring to in Q1 and Q2. So we are gradually addressing it, but if you talk about proportions, one should remember already in Q4 last year, we were talking about the high input cost coming through with full force. So that's the reference I would like to give on your question, Peter.
So, if a reasonable assumption for Q3 and Q4 this year, then if we're seeing the gross margin decline by 4 percentage units, a qualified guess on your behalf, considering the price hikes you have been carrying through and those you expect to carry through, as well as then you're sort of like coming up against easier comparables in terms of input prices, are we still talking percentage units down year-over-year in Q3 and Q4 in the gross margin, and that would be the mixed effect?
I think it would be inappropriate for us to make a qualified guess at this point in time.
Okay. Sure. And then in terms of the market weakness, and you're saying that you're estimating that at least some markets or at least some categories are actually seeing negative growth currently. I mean, and, and historically, I mean, we know that, that during the last 10 years or 2000, 2010, we haven't seen negative growth in any of your key markets any individual year. So is this something, a completely new phenomenon, or have you seen this kind of weak market previously as well for a few months or maybe 2 or quarters, but for the full year, it's never ended negative? I mean, I'm basically asking, are you seeing something completely new here which makes you very concerned, or is this pretty much a normal thing that happens every now and then, but normally over the full year, you would still expect the market to have positive growth?
I would say that, again, it's a combination. On the one hand, have we seen swings over quarters before? Absolutely. It happens for various reasons, and it could be tax increases, price increases, it could be promotional changes, it could be so we see it. It could just be launches of new technologies. So yes, we've seen, but at the same time, I don't think we've ever seen a macro situation across Europe that we are experiencing right now, and then we'll see what happens going forward. And right now, I think there are a lot of people looking into the crystal ball, but nobody's really daring to guess where it's gonna go.
So I think the consumer is probably more cautious than he or she has ever been, but history tells us they tend to come back, and everybody wants a piece of affordable luxury at the end of the day. And I think, again, the best example we have currently is, in Finland, where we had a fairly steep hike a year and a half ago, in pricing towards the consumer, and the consumer reacted in the short term in volume, but it is coming back now.
Okay. But I guess the difference this time compared to previously, all those different times when you've seen very, very poor sales have basically been in conjunction with some kind of external factors. I mean, a tax increase or any other event taking place, but now it's basically just very dire macro outlook. So I guess that, but hopefully then, I guess, the historical pattern will repeat. I think that's all the questions for me for now. Thank you very much.
Thank you, Peter.
Thank you.
Our next question comes from Mikael Holm from Danske Bank. Please go ahead, sir.
Hello, Mikael Holm here at Danske. Just looking at the pressure from raw materials during the first half, what does this say about your more long-term pricing power and the ambition to improve the EBITDA by SEK 210 million? Do you actually believe this will filter down the P&L to the bottom line, or do you believe that your customers will take a larger share of that?
We are still staying firm on being able to reach the 14% EBITDA margin that we stated as one of our long-term financial targets, and we are working towards that direction, and we see no reason for us to change that ambition level today.
Okay. Another question. We've had a quite significant euro-euro weakening during the summer. Could you give some color on your transaction exposure in different currencies, and also if you could say something about different margins per country, for us to estimate the translation effects from this move?
Well, you could say, first of all, maybe important to remember that our June reporting is referring to rates that actually did not see the strong appreciation of the Swedish Krona. So it's more what you have seen in July, August, where the Swedish Krona has significantly strengthened through the weekend.
Yeah.
euro. And of course, we have a different stream of earnings and predominantly in euros. Although we are a Swedish company reporting in Swedish krona, our predominant inflow comes in euro, and therefore, the assumption to see some translation effects, transaction impact on our results going forward is feasible also for Q3 as you go forward.
Yeah. But it's mainly translation then, or?
Yes. It is predominantly translation you will see, and you can see that the impact in Q2 is relatively minor, but considering the impact that you've seen in the last two months here, there's going to be a higher impact of that, going forward.
Yeah. Okay. Could I also ask you about the financial net? Could you say something about what the underlying interest rates are currently?
We have communicated that we will have approximately SEK 200 million.
Yeah.
The cost of interest, equating to approximately 5%-6% underlying interest rate in total. I could say if you look at the financial net for the quarter, it's significantly distorted by the fact that we have some other items in there, but the underlying financial net of SEK 200 we hold to at the directions that we have given.
Okay. Thank you.
Our next question comes from Miss Catherine Farrant from Deutsche Bank. Please go ahead, madam.
Good morning. Thank you. Just two questions from me. The first, I'm not sure if I missed this earlier, but I was just hoping you could clarify where you are with regards to contract manufacturing and some of the private label business and, you know, how much of the business is still coming from those areas and, you know, whether you're having to finish meeting some of the contracts that Cloetta previously had. And then secondly, you said you described the process of communicating the restructuring process as being, you know, the difficult part. And I wondered if there was anything that, you know, has changed in your plans as a result of that, you know, any sort of reason that you have had to change things slightly.
I know things are still on track, but perhaps there is, you know, you've decided on doing things in a slightly different order or sort of addressing different markets first, for example.
Thank you, Catherine. Question number one on the private label. Actually, overall, in the new structure, private label is a very minor or third-party, or contract manufacturing is a rather minor part of the total business, so it's not really impacting the overall results in a very significant way.
Yeah. Okay.
Question number two on the restructuring. Absolutely right. And we, it's quite a process to announce it. There's lots of emotions involved, from both internally and externally.
Mm-hmm.
But I must say that the team has done a terrific job in holding to plan, taking care of people even in difficult situations. And, of course, there are always some things that don't go 100% to plan, but overall, we are on track and we have not changed any intention, and we're actually sticking to absolutely the time plan and the order and the sequence that we had planned from the outset.
Okay. Very clear. Thank you.
Our next question comes from Mr. Fredrik Villard from Carnegie. Please go ahead, sir.
Hi. Good morning. Mm-hmm. My question is regarding the pricing in Norway, and I was wondering how the pricing have you seen the same, or are you going to see the same effect on the difficulties trying to get pricing through in Norway? Are you gonna see the same thing with prices in other markets, or, or, or have they already been dealt with, and Norway was the only market where you saw difficulties?
Well, it's an ongoing process, but as we go towards the end of the year, we're getting more and more complete in it. So I would say that Norway was definitely on the extreme in one direction and that we've been much more successful. It's been a smoother process, even if it's not easy everywhere, to get through. So some markets, I would say that we are totally through, and some markets, there's still some work to be done.
All right. Perfect. Thanks. I, I just wanted to also, to, if we look at your performance figures, for 2011, your EBITDA was at SEK 500 million, mid-500s million, and, year to date, you're at SEK 100 million. How in what way is the performance for Leaf and Cloetta comparable for 2011 for 2012, seeing as seasonality? How much is I mean, is H2 gonna pick up, materially, or is it is the performance, useful comparable for you guys, this year?
Well, as, Fredrik, as you're saying, I mean, structurally, over the years, we have a bigger second half than the first half, primarily driven by seasonality on, on Cloetta products or the old chocolate products in Sweden and Italian business where we have a big seasonal business. So structure, we have it. Then whether 2011 is a good proxy or not for 2012, I, I will be able to answer that on January 1, I think, from a sales point of view.
Okay. But basically, what I'm saying, I mean, are you, I mean, the to reach a, the margins we're talking about, how, I mean, how, you've not pushed that any further into the future. You're, as you say, you're dead on plan, but these are, or let me phrase it this way. How much do you think the day-to-day business is so affected by the integration and the merger? Are you seeing anything that we're not seeing in the numbers that sort of so people in the organization is more focused on integration than on selling?
I think that's a perfectly fair question. It's impossible to sort of give you a measurement on how much it does impact, but I would be astonished if we could do everything we did in Q2 without having an impact on the daily business. That would be remarkable if that did not have an impact. Exactly how large that is and what financial impact that has, it's impossible to say. The only thing I can say is that I'm really pleased with the progress and especially, I think, within the commerce, which is where you can get the biggest short-term impact. And we are, as I said, as of August, we are actually one in Sweden, one organization, fully equipped and fully manned. And we are making progress in restructuring, which is gonna be a longer process.
Therefore, Q3, Q4, and beyond, it's gonna maybe focus on making sure that the new commercial organization becomes fully operational and tops in the Swedish market and continue to plot away in creating value by the restructuring in our production setup. So has it had an effect? I would believe so. How big it is, I don't know. I cannot measure it, but I'm happy with where we are from a operations point of view and an activities point of view.
All right. Perfect. Thanks. Those are all the questions for me. Thank you.
Thank you.
The last question comes from Mr. Dean Best from just-food.com. Please go ahead, sir.
Good morning. I just maybe covering some ground that you covered just now, but I just had some questions on the difficulty in passing on prices given the tough trading conditions that you've outlined in some markets. Obviously, with consumer confidence weak, there is the danger of price increases affecting volumes. Weak market conditions could increase your need to up promotional activity. That could still put pressure on margins. So I just wondered sort of although you're confident that you can prove that you can pass on price increases, I would suggest that could still affect margins going into the second half.
Well, it has a timing impact, right? I mean, when we get the raw material cost increases, as soon as our sort of forward buying contracts end, we get the full impact of that. Then passing that on to the customer, I think we have to honor contracts going in, and so the renewal processes and the renewal windows are different in different markets and by different customers, and they could occur and do occur throughout the year. So it's not that all contracts everywhere are renegotiated in Feb or in April or in October, but they're actually spread over the year, and therefore, there is sort of a very natural lag or delay before you get the full impact on it.
And then on top of that, you always have the negotiation phase where there is a give and take, and sometimes it's bumpier than other. So we are still staying firm with the strategy that at the end of the day, we will pass on. We have to pass on the cost increases to the consumer. There is a natural lag, as I said, and then there is a challenge, which is always the case.
In the statement, you said that you'd protected market share in some segments. Could you give us some examples of that?
Since we're talking trends, short-term trends, I'd rather not go in by segment because that could change from quarter to quarter, but I think the overall picture is important that in this challenging market environment, we are primarily defending market shares, and that's important because one day, the market will turn.
Looking at the proportion of your sales by market, you mentioned how challenging Italy is. Is that one of your largest markets, top three, top five, something like that?
It's definitely top five market. Absolutely.
Okay. Thanks very much.
Thank you.
Our next question comes from Mr. Peter Wallin from Handelsbanken. Please go ahead, sir.
Hi, guys. Coming back. I have a question on—you're writing in the report that Cloetta sales suffered somewhat from you terminating Cloetta's distribution agreements outside of Sweden. Could you give any kind of color of what kind of sales impact that had in Q2?
No. It's actually difficult to separate what is what. What is the underlying growth, and what is sort of the effect of the fact that you have distributors that as of December or February, depending how you look at it, knew that they were gonna lose the business. So that is one of the reasons why we were very, very keen on trying to get to take over the business as soon as possible, and it's very satisfying that, I mean, already September 1, we will take on the Norwegian business, which is the largest of the markets, of the three markets, and then the other ones quite rapidly also, probably by year-end or the beginning of next year. And the main thing right now is to get control of the business, merge it with the rest, and then get it back into growth.
Okay. And in your estimate of your underlying sales going down by 3%, is this the Cloetta termination of distribution agreements, is that included in that 3%, or is that driving part of the 3% decline?
It's part of driving the decline and therefore part of the decline. Absolutely.
Okay. And then just a question of how quickly, I mean, is it possible to, like, pick up sales momentum when you're like putting a new kind of a product category or portfolio in the hands of your sales force? I mean, how long does it take before it's like fully up and running, or how?
I think that's gonna depend very much on the market situation and also the market position, where we are because in some cases, taking over an existing business and defending it, I think is quite rapid, but building distribution, getting into new channels, aligning contracts, and so on and so forth takes a bit of a time. Again, that's gonna very much vary by market and by customer, the way they operate and the way they run. Some people say, "We only have listing windows once a year or twice a year," and in some places, you have three or four windows. So it's very different to give a general answer on it, but I mean, taking over and defending, I think is quite, if not instantaneous, I think it's quite, quite rapid.
Getting into building it, we also need to make sure that we do a lot of thinking about it so we don't just spin our wheels the first quarter or two quarters, and then we strategically get it wrong, and then we pay the price year two, year three. So we're spending a lot of time really getting into the business and aligning, understanding knowledges and directions going forward, and then pick our spots and see what areas do we think we can be winners in the longer term.
Okay. And then also coming back to what we've already discussed, that the Norwegian market suffered somewhat in terms of volumes because of your price increases. I mean, now, at least for Cloetta's products then, when you're actually stepping up one step in the value chain, I mean, not having a distributor, which then, in turn, has to sell to your end clients, the retailers, shouldn't that mean that at least for Cloetta's portfolio, you could probably hold your product prices constant or increase them somewhat and still be able to be price competitive to the retailers?
That is definitely our intention.
Okay. Thank you very much. That's all for me for this time.
Thanks, Peter.
Our next question comes from Ms. Catherine Farrant from Deutsche Bank. Please go ahead, madam.
Thanks. So just a one follow-up, really after hearing the last question. Could you comment at all on advertising and promotional activity and sort of what the momentum has been in that and whether you've, I understand, it will be seasonal anyway, but whether you've had to or decided to cut back because of the weakness in some of the end markets?
No. I think we're staying quite consistent on that, and it's about at the end of the day, it's about making sure that you don't do short-term things that's gonna hurt you long-term and that you don't stop doing the things that's really gonna build the brands in the longer term. So we're staying active in the marketplace, and I think some of the products that I showed you, the launches, I think also demonstrates the fact that we're staying very active in the marketplace.
Sounds good to me. Thanks very much.
There are no further questions at this time. Please go ahead, speakers.
Okay. Then I think we'll conclude and say, thank you for your interest and speak to you at a later stage. Thank you, and goodbye.