Earnings Call: Q2 2021

Jul 16, 2021

So good morning and thank you for joining us on the Q2 conference call for Clouesta. My name is Nathalie Redmoor and I'm Head of Investor Relations. I'm here today with Henrik de Selaj, CEO of Cloesta and Priyans Rudien, CFO. Henrik Brant will take you through our Q2 results, And we will then move on to a Q and A session. And I will now hand over to Henry. Thank you, Nathalie. So pleased to Have you here and be able to talk a bit through the Q2 results. The key messages are that we've seen a strong rebound In both of our segments and also a healthy profitability coming back in the business now that society starts to open up and Of course, as well as a result of the many actions we have been working on over the last 12 months. Sales of the branded packaged Products are back at pre pandemic levels, and this is really good to see because for Kandi, in particular, we had a very strong hoarding effect last year. I remember that people were buying a lot of grocery products in the 1st and second month After the lockdown and the pandemic started, so that's good that we are able to compensate for that. And Well, Pikamix has shown enormous rebound. We kept the candy sales and the packed business in growth. But also pastels and gum, they were double digit down during COVID, are recovering, however, not yet to the 2019 levels. Pick and mix sales up with 80%, of course, it's driven by the opening of channels and the compared growth last year, Yes, but it's also very good to see the very positive sales impact of all the things we've done like the premium Candy King concept, which is selling at a higher Price. And we're also making good progress towards sustainable profitability with all the actions we have been taking, and I'll come back to that a bit more. Significant building stone in our local 14% EBIT is to get growth up in the profitable branded business. And we do that, among others, by strengthening our most important top 25 brands. In this quarter, we made a further step up in our marketing spend, Not only versus this low compared to 2020 when we cut a lot of advertising given the uncertainty of COVID, but also versus the absolute level of 2019. We'll show you a bit more about that as well. In our continued preferred factory journey, we took another milestone by going Live with a new integrated maintenance system in our first factory, which will be rolled out to all the plants. The main benefits are a systematic approach to preventative maintenance, which will increase our efficiencies of the lines and creating extra capacity As well as getting a better insight into maintenance spend and cost. Cloeta has underwritten the science based targets initiative To underpin the climate agreement of Paris, and we're now nearly ready to announce our commitment In reducing the end to end impact, so both from the farming and sourcing of raw materials, our own Great impact in factories and transport locations, but also consumers and customers. So that will be done in quarter 3. And last but not least, a very important point is that over the last month, we've seen a strong increase in input costs from raw material, packaging, energy And transport. And we're not hit by that yet, but we are preparing actions, you I would say with price increases to mitigate that for the year to come. If we then look on the next Slide, Nathalie. Yes, we can see the 2 segments. So in total 18% Growth well distributed over the months. And you can see the 7.3% of the branded Sales going up and really gaining traction April, May, June. Of course, April was also partly impacted by the Easter Effect being a little bit more in March, as we discussed last time. And then pick and mix is quite an astonishing number, of course, but It has to be seen in the light as well of the comparator of last year. But normally, there's a lot of stuff we've been doing In premiumization, federalization, activation to get to this figure. So quite pleased to You see this, it was very important to get volume back in the business. Next slide. Yes, a lot is driven by mobility, People moving around again, and we can see that in many countries. These are the main ones, and we just want to take you through a little bit how the picture is Looking to grocery, of course, is doing really well. Also high street shopping, which is important for the U. K. Market, For Pick and Mix, given the presence we have over there is also picking up, but you can also see that things like retail and recreation I'm still down with the baseline of 2019, although it's getting better. And you can see also the Different approaches taken by the different governments in a way that Sweden and Finland are more open than U. K. Or the Netherlands. Well, we read a lot about the road map of the U. K. To opening up, and this is also one of the reasons that Theme parks and cinemas in the U. K. Are open, but not all the traffic is back to the levels where it It should be so together with these customers, we've decided not that we start too early with pick and mix so that we have a healthy rotation in the assortment. And then the other conclusion, of course, is that people moving to work through transit stations, train, etcetera, which is very important For us as well, given the kiosks we have, that is still very much at the level of last year and also in workplaces. So offices, We can see that it has not really improved dramatically. So that's still a channel which is very much down. What we expect Is that if the delta variant remains under control, that offices will start to open up In September after summer. And so the overall picture is that channels are opening up, But it is not completely back to the 2019 level. If we go to the next one, We zoom in a little bit more on the branded business. So if we first look at the total categories and not specifically Cloweta, And we can see that the pastel and gum category start to recover. We had a big drop versus 2019 In the figures of last year and many, many reasons that we can see, in particular with the mobility coming back, that these sales start to Recover. We will also need people still to go back to the office because very much in line with the personal care care decrease. We see that people are taking less care of their Personal outlook and pastels and chewing gum are part of that. And we can also see now for the first time since last Cheetah, candy bags is suddenly down with 5%. And that, of course, is against the very strong competitor we had Last year, with this category, where many people started to buy candy bags and a lot of other products, staple goods, which they could keep With the uncertainty of the pandemic and of course, there was also a shift from pick and mix into candy bags. So that's The important effect and we can see traffic increasing in that what we call other channels, so everything outside of the growth for e commerce, I'd like travel retail coming back, maybe not air traffic so much, but like the ferries, which are very important for us in the Nordic, Yes. Our important channel is coming back, but also kiosks and petrol stations start to show increasing sales also in Countries like the Netherlands and Germany, and that's quite important for us. Yes, what we have been doing in the last quarter, I mean, we Keep on working on the top 25 brands. That's also why we're spending more money to make them competitive and to also spend in a competitive way. Frans will show you a bit more About that, we're doing some very important launches. We've talked about how to improve our gross margin by Launching products with a higher gross margin than the average category. A few good examples, I'll take the fruit based candy Later on in the strategic review but also the KEX, vegan is getting enormous traction and in the Netherlands, A liquorice board, so it's a liquorice coated with chocolates in a premium Position also receiving a lot of positive feedback in social media and with food sales. E Commerce, I'll come back to that as well, but also important, of course, to keep on driving that. Then there is a specific penetration program for both pastels and gum. So How are we going to recruit those people back into the brands which have forgotten or have not Seeing the need in the last 12 months to buy either fast deals or gum and also how do we attract Younger people, so we're launching like Lecoroll, Christie, Duck across all the markets with Lecoroll very much aimed at younger people Because we can see that the light users have been dropping out. Heavy users actually have been buying more than Normal. So that's quite important and also our program is strongly supported with A and P. And then also very important, our number one brand, The way we classify that, that Redbend in Germany on a fantastic growth journey through both Distribution gains and penetration, and that's, of course, also very attractive market size wise and volume wise, and we're working As well on getting profitability in that market to the level where it contributes to the business. If we then look at Pick and mix. We can see that in the channels, the main differences are that the U. K, of course, is starting to Open up. So all the grocery stores are open. All the high street stores are open. The Poundlands are So opening now only the cinemas and leisure, which will open in Q3. So in summertime, when people are moving back into that Channel and the last restrictions are lifted. That will turn into green as well. On the consumer Activation, we see small steps. But in general, you can say that only in U. K, we are back with our Number 1 retailer with the promotional mechanisms which we had before, but not in all the other Once and as well that we are starting to get some activations locally, but in other markets like Denmark And also in Finland, big national promotional price offs from the customer are still on a very low or absent Level, and that is quite important as we saw in the U. K. Because that is a very important driver To get people back. So we saw some fantastic volume uplifts in that sense in the U. K. And then, of course, consumer demand, so the consumer interest and the consumer trust in the category is improving. We tried to symbolize that with the yellow arrow going from down to more immediate, but we're still not completely back to, Of course, the 2019 levels and what we do, of course, to mitigate this is the As the premium Candy King 2.0 concept, which is not live in all the markets, it's much more Premium adult feeling to the pick and mix, higher prices, better assortment, more hygiene, and that is Being appreciated and where we do this well, we can see that sales are going up. But as said before, that will take a little bit more Fine. We're also interesting to know launched in a number of test stores, 17, a very premium concept in Finland with a Substantial higher price and initial sales are very positive. We can see both More top line that we can even see volume growth. So it's another good example that if you put a quality Premium pick and mix concept into a country like Finland and I'm convinced it will be the same for the other countries Then consumers are willing to pay for that. So it just underlines our journey to profitability for pick and mix that if we do this well, Then we can step out of this price game and just deliver quality with good activation and good marketing and support and be paid And then last but not least, we set up an e commerce pilot in Denmark. You can see it on the Internet, sleekexpressand Bob Dike. So we're testing a digital platform and a fulfillment where we are able to offer Online shoppers, a service where they can pick their own bag of pick and mix, and then we get that picked And deliver it to them. It's a crowded space. There's over 20 competitors in In Denmark already offering this, but for us, of course, really important and interesting as we'll obviously see how we can digitalize this Completely. And then if it goes well, we can roll it out to other markets as well. Yes. Then we go to the next section, which is Frans with the financial. Frans? Thank you, Henry. So as usual, I will start with the net sales. And as we share now the quarterly results, With the 1st full quarter where the pandemic is fully in the comparator, we are pleased to report a strong rebound. Overall organic growth of 18.2%, partially offset by unfavorable ForEx. And this growth was driven by both Pact At 7.3% and PIK and mix growth of, as Henry mentioned, close to 80%. Henry has already shared Some of the drivers of this growth, but it is good to see that the rebound enabled by this increased mobility for societies, Which we have spoken about since last year actually is clearly there. And on a year to date basis, Now of course, and having pre pandemic results in the comparator, organic growth is up by 5.9% With branded package sales up 4.9% and pick and mix almost double digit at 9.7%. So I think I'll not linger longer on this, but let's look at this by segments over time. So here, looking then by quarter, Total growth and the 7.3% growth in our branded package business, this is by far the strongest growth we've had for quite some time. It is a rebound from the weak sales last year for sure. But to understand this figure better, I think a little bit of triangulation could be helpful. So first, I have previously shared that the branded package sales were somewhat helped by cannibalization from pick and mix, Meaning then that pick and mix sales declined, and it was at least in part as consumers bought more bagged candy. But here now in quarter 2, branded package sales are in absolute NSV on par With Q1 sales, despite the massive 80% growth in pick and mix, And that's great to see. And obviously, as Henry said, a result of all the actions we've taken on the branded side. Secondly, these Q2 Branded package sales are now I exclude translation ForEx. So on an organic level, they are above The Q2 sales we had in 2019, meaning that in both quarters this year so far, we have matched Or beat our 2019 branded package sales, which was arguably our best year ever. And thirdly, With the branded package portfolio, our refreshment sales remain down versus pre COVID, But that's mitigated by the higher candy sales, but it does have an impact on profitability. So when we look at the operating profit, I will come back on this and the need and interest for us to drive that part of the portfolio. Then moving on to the lower half of the slide and the pick and mix business. At 80% growth, clearly, it's a rebound, But of course, it places us below the pre COVID sales by a bit over 25% on an organic basis. Although some of that is due to us having walked away from unprofitable contracts over the last year, which is in line with our strategy To deliver sustainable and profitable growth with Pick n' Mix. And that's a good segue to look at the profitability. And as you can see here in this graph, our operating profit adjusted increased versus last year. Now last year, we also shared that in that result, EUR 35,000,000 of production cost had shifted out of Q2 And into Q3. So on a like for like basis, we are really improving profit from, let's say, around SEK 75,000,000 To SEK 140,000,000. So that's if I'm generous to myself, it's not too far from doubling it, And it takes us just shy of also double digit EBIT margin of 9.9%. Now this recovery is primarily driven by the higher sales, but and this is almost more important, It's not driven by cutting investment behind our brands. Within this result, there is a big increase versus prior year Of approximately SEK 30,000,000 in marketing, coming both from having pulled back on marketing last year due to COVID And also as a result of stepping up investment versus historical levels to support the rebound and the new launches that we've spoken about. I'm going to come back to this when we look at the total sales in general and admin. So The profit growth, net of last year's shift of cost to Q3, is then really driven by 2 things: The rebound in volume, which of course is also good for our supply chain and margin enhancing initiatives in pick and mix. Versus prior year, mix is not a major driver here. It's quite stable, a tad bit favorable. But obviously, versus 2019, we still have a challenge with the refreshment. Now partially offsetting this volume driven profit growth are increasing cost per sales and general and admin, Primarily, the step up in marketing that I mentioned, and I will drill down a little bit closer into the sales, General and admin on a separate slide. But the key takeaway here is that the quality of the profit growth is good. It's not coming from cutting investments in our brand, but actually the opposite. And that is then a Good place to move on to looking at the profit by segment. So I'm pleased to report that the branded package business Delivered a SEK 136,000,000 in operating profit adjusted, which is really the same as in Q1 Despite the step up in marketing investment that I mentioned. So versus prior year, as you see here on the top right, And having adjusted for the cost that last year was phased to Q3, you see the red box of negative SEK 9,000,000. You don't see the big increase in marketing that I mentioned. Obviously, most of that SEK 30,000,000 sits in the branded package segment. And the reason that you only see €9,000,000 here is because favorable offset from the higher volumes. Now again, the mix versus last year is largely unchanged, but it's important to note that it's nonetheless unfavorable Compared to pre pandemic, given that our refreshment category, pastas and gum, remain more suppressed and much more dependent on the mobility. Now part of the stepped up market investment is, of course, going to support the refreshment And we committed to bring it back again and our overall branded package profit. So in summary, the quality of the branded package Correct. It's solid. The mix is still not where we want it, but that is also an opportunity To further improve on this margin when those sales are coming back. Now with respect to pick and mix, In Q1, I said we needed the consumer to be picking and mixing and driving scale and efficiencies, Yet that we believe we could get back to profit without fully reaching the pre COVID volumes, And I'm pleased to report a good progress on this. In the quarter, we are at about breakeven, if you will. And last year, obviously, we had a loss per quarter of an average around SEK 40,000,000. In Q1, we had brought that down to CHF 24,000,000 in loss and now at about breakeven, actually better than in Q2 2019. But it's touch and go, and a lot of work remains to make this sustainable. That said, it's also important to note that this result, Of course, includes pick and mix's fair share of common costs that we have in headquarter, IP, supply chain, etcetera. There is nonetheless a favorable overall contribution in there. Ultimately, however, the most relevant comparator here is probably not 2019 or 2020, but where we want to be. Clearly, this is not where we want to stop. And as volumes continue to recover, So can the profitability in addition to other margin enhancing initiatives we're taking. I mean, we talked about fairer pricing, reducing cost For warehousing and distribution, merchandising, support functions, etcetera. So we're going to try to put all of those levers. Then moving on to sales general and admin. So you see here on the left side the SEK 53,000,000, Excluding ForEx and items affecting comparability, of which, as I mentioned, approximately SEK 30,000,000 relate to the step up in marketing spend. This step up has been 2 parts. First, it is putting back the spend we held back on in Q2 last year because of COVID. And at that time, I shared information that you could conclude that it was about €15,000,000 or €16,000,000 We were favorable $63,000,000 and I mentioned that about a quarter of that related to lower marketing. So those $15,000,000 $60,000,000 The first piece is we put that money back in, and then we've added almost the same amount on top of that, Getting to the total of approximately $30,000,000 So this brings our spend above prior levels in support of the rebound And our new innovation. Excluding then this marketing step up, that still leaves an increase in SG and A Of about SEK 20,000,000 versus last year. So let me explain why this is going up. So first, Last year, I shared that we had reduced the cost, excluding the savings of marketing, by about SEK 47,000,000. So when costs are up $20,000,000 it means that more than half of those $47,000,000 Steel remains at the saving in this P and L for Q2, which is good, and that's what we want to do with, obviously, VIP plus Secondly, if you then wonder why are not all the savings still in there, while I had also shared last year that cost would start Come back as the business also started to normalize, and that's what we see here in Q2. Obviously, the rebound in sales of pick and mix Naturally brings higher cost of merchandising. We also have, let's call it, the absence of last year's government support with Back to furloughing employees, and we also have investments behind fixtures to help drive this rebound. In a way, these are good cost increases, and you can also tell from the good progress we have Had on building profitability back in Pick n' Mix. Secondly, we have continued to invest. We've invested in e commerce, and Henry is going to talk more about that and in other capabilities, such as in marketing, new S and OP system. Of course, there's the annual merit increase. These are the things we need to do to safeguard growth going forward. Then on the flip side, We have also continued to deliver new VIP plus savings, and those are more than offsetting merit and some of the other Onetime savings we took in 2020. Very good. Then moving on to cash flow. We had a healthy free cash flow for the quarter, delivering CHF 102,000,000 on a net profit of less than CHF 100,000,000. So compared to 2020, when we built inventories during Q2 to safeguard production and product supply due to COVID, The free cash flow is improved by SEK 220,000,000. That said, that very significant uptick It's primarily driven by the comparator. And in Q2 2021, we are holding our working capital fairly flat Versus where we started the quarter, you can see that in the free cash flow here. It really is the profit that's coming through and not changes in working capital. Now with respect to that working capital, days inventory on hand is 89 days. So we are down actually 19 days versus last year And we're also down by about 4 days versus where we closed last year. And this is also in line with what we said that we would do. So for the same reason, our overall cash conversion cycle is down by 16 days versus last year. Now versus Year end, we are up 3 days, but that is in line with our historical trends because every year, We exit with very low receivables given that there's hardly any sales after the Christmas holiday. And also, We do need to build up some inventory versus year end as we head into the summer to have enough production when we come out of the summer given The vacations. Now with the seasonality of our business, we tend to generate our cash in the second half of the year. Although now we have already delivered a solid SEK 130,000,000 free cash flow year to date, Obviously, huge improvement versus last year by about SEK 0.25 billion. But when you think about our Cash flow, you have to remember that in the back half of last year, we also had incredibly strong cash flow, Both on account of bringing inventories down by almost 2 weeks and also with the 2nd wave of COVID that hit Q4 sales And really low ending year sales, so lower receivables. So when we report Q3 and Q4, Obviously, we're going to compare to that tougher comparator, not to have these great first half results being misinterpreted. Then for my last slide, as you know, leverage is one of our key financial targets alongside sales, EBIT and dividend, And I'm trying to capture that on this slide. And you can see from the bar chart on the left that our utilized Credit facilities and commercial papers totaled SEK 2,300,000,000. And then on the right that we have access to additional Unutilized credit facilities and commercial papers, not yet on the market, of SEK 600,000,000 SEK 750,000,000 For a total of almost $1,400,000,000 Now that's down versus what we had in Q1 and is driven by our revised, And I would argue refined financing, which has allowed us also to reduce cost. In addition, we held SEK 272,000,000 in cash at the end of Q2, hence my conclusion that our financial position remains strong. During the quarter, we finalized the refinancing of our group through our existing club of banks. I also mentioned that in Q1. And I want to repeat that I'm very pleased the refinancing has not only been completed ahead of schedule, but also with strong interest From our full banking group, continued to partner with us. Now this financing consists of 2 loans And the revolving credit facility repayable in June 2023, 2024 2025, And each with the possibility of extending for an additional 2 years. This secures our financing. It gives us flexibility for the coming years. In addition, we're going to continue our existing commercial paper program, and hence, this allowed us to reduce the revolving credit facility By €60,000,000 and provide those savings. As for the leverage, our net debt versus VIDA is 2.8, So that's unchanged versus Q1. And it's a little bit higher than our target of 2.5, But it's fully in line where we normally are in Q2 given that, that is also the quarter when we pay for our dividends. So on that positive note, that concludes my part of this presentation, and I hand back to Henri. Yes. Thanks, Frans. And then I thought it may be interesting to just Show you progress in 2 areas, which we are having as strategic areas in our Cloeta's strategy to organic growth. So one is, of course, e commerce. As part of the strategy, we developed that Already in 2018 as an important area. So a lot of work has already gone in pre COVID in establishing an organization, but also in particular the infrastructure like Binge Systems, which is a way to I shared data with e commerce players, and all that was more or less ready when the pandemic struck. So we were Fully able to exploit the big move of shoppers into e commerce. And why is that important? Well, also because we think this is a behavior which It has only been accelerated by the pandemic and which is not going to go back. So apart from The e commerce pilot in Denmark, you can see over here some great sales numbers. Of course, a lot of traction In these channels, but also we can see now that the operational execution, as I call it, is getting better and better and better. So A cooperation partnership with the likes of Amazon really working well with launching At specific SKUs for them, big sizes, like you can see, 4.2 kilos of jelly beans in the UK And being a really big success over there, so very different consumer behavior than in the retail channel And also working with them on building the brands, which is a very nice way again in the U. K, where we basically have 2 brands, Steward's and And Jellybean Factory, supporting that growth through an e commerce strategy. I talked a little bit about So how do we regain penetration for gum and pastels? And again, a nice example with Yankee, a little bit of a smaller picture, But a checkout promotion with Yankees, so people handling buying online with 1 of the Major retailers in Finland getting an offer for Yankee when they are at the checkout, and it surprised the retailer, surprised us How much we were able to sell off of that and the kind of fall drop Great. At the checkout for such a promotion, it's really important. And then I would say also the new organization where we have a Small central team with experts operationally in how to manage like pure players and then working with the Key account managers in the countries that resulted in 2 of our growth markets, U. K. And Germany, that we Are having the SKUs, which are number 1 in their respective category within the Amazon business. So that's And also for Germany, the Redben brand, I just said, is the biggest brand position we have in Cloeta. It's great to see that It becomes number 1 in wine gum portfolio sold under Amazon. So Great progress. Of course, a lot more to capture, and we're learning more or less every day, but much more to exploit over here. And then I thought as the second thing to maybe share, if we go to the next slide, Nathalie, is At the fruit based, can be because it is a really different thing. I mean, the most important thing that 50% Of the product, it's really made from fruit. It's not like Syrah or fruit taste Our fruit juice is really the fruit puree, which we have been able technically to make candy off so that 50% of the candy is made of real fruit. And the way this now is being launched is a nice example Of premiumization, which is so important to generate more gross margin and to help us in the road to 14%. It also is Something which is long lasting. It's not just a line extension. It's a completely new platform in that sense, and we do it across markets. So you can see now Gotenblanda, but it also goes into, for example, Finland. And of course, Gotenblanda is in all the three Scandinavian Markets, and we're rolling this out under all the candy brands we have. So that is very important. You can see that new consumers Coming in particularly younger ones, which, of course, is what we were hoping for because that's what all the consumer tests were telling us. Of course, all Families with children who are more conscious about what they are buying, they see this concept as very interesting. And that, again, For the future, it's also very important because in that way, we bring those people into the Gottenbladag brand, so really important. And then we can also see that And with 2 SKUs, we are already able to get something like 20% of the cotton blend up sales Into this new concept. And we haven't even really started when we these numbers are not from last week, And we haven't even started to put the media campaigns on there, which you will see on the next slide. So if we go to the next one, You can see that we are, let's say, on TV and that although the insight, the consumer insight is The same, and we have made those campaigns all in one go. You see in the bottom, you see the Swedish Version, you might have seen that. And in the top, you see the finished version of the product, and they are different, although the insight I have to talk about, is it really 50% fruit? Is it therefore fruit? Or is it candy? I mean, that is exactly the same. But we have to also So be aware that the brands can have different positions, different heritage, and that who are we to try to force the Finnish or the Swedish consumer To look at the same or to try to get the same commercial, so there we adapt. And I think that's a strong point from Groeta that we can adapt and still be cost effective Because we do this all with 1 media agency, and we shoot it in one go. Of course, outdoor also important and then What you normally don't see, but that's the in store execution. I mean, look here at the top picture for AcoSets. I mean, that is like 1, 2, 3, Or 5, 6 display pallets in a store really getting the attraction. As you can see very much The visuals in the in store execution are very much the same as the visuals that people see On the TV or in the outdoor, that's a real what we then call a real 3 60 implementation that People might have seen it outdoor or on TV, and then they're being reminded when they are in store. So it's not necessarily AcoSet, Cloeta, red For brown boxes now, it takes the same elements as the commercial into the in store execution. It's very important. And we work, of course, a lot Influencers and this product, but also the KAKS vegan, which we don't show today and also the VENCO Schok und Rop, I mean, getting a lot of positive comments. And of course, when you bring something new, like 50% fruit, then people start to talk about it and generating That's basically publicity or, yes, support for the brand through what we then call earned Media. So really good. Very nice to see and a lot of hard work coming to fruition. Yes. Then if we come back to the last part, Nathalie, I mean, the strategy doesn't change. So three business priorities, The organic growth of the branded business, we talk now a lot about the fact that we focus on the top 25 brands, More marketing investments, making those brands stronger, spending competitively versus competition, Doing that through strong new innovations, which are also margin accretive, really important. Vegan, we talked about the thing before, and 15% of the portfolio can now claim vegan. We're on a journey Over there and also e commerce as an important sales channel, but also as an important way to build the brand, in particular In the adjacent markets of U. K. And Germany, where we're strengthening our branded position. So really good To see. Yes, pick and mix, I mean, profitability is important and good to see that we now hit Breakeven, as Frans said, still with the lower volumes. So we are able to adjust costs, In particular, in the of course, in the distribution and merchandising to be able to do that now that we get in a little bit more of a steady state, A very, very important thing, of course, to be able to report today At the new Candy King premium concept launched in all the countries, it Really looks different, very positive remarks as well and stick in the markets like Norway, U. K, where we have not been investing in Rebranding over many, many years, also pre cloaca. So it looks now more adult. It looks more hygienic. It looks more Premium as well to all to support this move upward and adding value To the category to the shopper of the customer being very enthusiastically. And of course, we can go further like those 17 stores in Finland are showing with an even more premium concept. A lot of focus and We've been doing more merchandising. That's basically a continuous effort. We're also having good benchmarks between the markets to see We're doing what best and how can we learn from each other. So in no means, we're at the end over there, and I talked about the e commerce pilot. Yes. And then all the efficiency programs, I mean, they continue to deliver the share of service center in the VICI for finance is up and running. That's Fantastic thing, which was achieved all under corona circumstances where tasks and duties were being From countries into L'Ovitja, which is the Slovakian production site where we've opened on the production site, We've cleaned part of the office, and that's now where the Share 12% is working. So it's really great to see. We're working with cloud based Move so that we can also save cost on service, etcetera. There's a lot Going on in that area. The maintenance system is something we picked up, but there's a multitude talk about in Perfect Factory and then Not the least about the operational efficiencies of the lines, the important lines really stepping up month after month. We're seeing progress over there. So that's Really good because it gives us lower cost, but it also gives us more capacity for the growth. That's really important. And then the refinancing, of course, successfully finalized it, Frans already Talk you through. So overall, the business priorities don't change. Of course, the actions are stepping up, and that is very good We see that also the momentum, the acuity asset in the business to get back, deliver the results We are very positive. We just did an employee satisfaction survey with good results where we can also see Where we have been working hard on improving things that it also shows In the employee survey, it's very positive. So important steps Which we've been taking over the last 12 months, not only to manage the COVID crisis, but also to make this a better business going forward in the future. So that's where we close and have questions. Thank Our first question comes from Andreas Lundberg from SEB. Please go ahead. Good morning and thank you for taking my questions. On the profit on the Pick N Mix Segment, I think you put it in context. You said you were improving versus 2019, correct? Is that correct? Yes, Ram. And if you was it more driven by Pricing or is it cost efficiencies? Or what can you say about that? Okay. Yes. So Well, yes, my comment was versus Q2 2019. So I think that the key let's say, the key takeaway here Is that we have a real improvement on the profitability versus Where we were certainly a year ago and in the back half of last year and in Q1. And that's obviously driven both by volumes coming back, But also, this plantera of actions that we've taken, whether that was exiting loss making contracts, As you remember, we started with we mentioned that in Q2 last year. It's pricing. It's the premium candy cane 2.0 that enables that Pricing, the organization is more efficient use of merchandising resources, its distribution costs. I mean, it's not one single Since the bullet here, right, it's both what we've done internally and both what we've done externally. So that's number 1, real improvement. Now we are around breaking them. And that's why I think when you look let's say, if you go back and look at 2019 by quarter, You would see that sales could be up or down $10,000,000 $20,000,000 and you don't see that profits always moves in the same direction Because it really depends a little bit on which country and if this is full concept or the bulk sales, of course, has to do with the recovery. So we're not saying that everything is fine now. We're saying we're making really strong good progress, and obviously, we want to continue with that. On the mix side and or geographical mix, what can you say there? I think Sweden is an example. Let's compare that to 2 years ago. So I mean what I see, of course, is that the And the societies and the retailers have taken different actions, so the comparators are also different. So in Denmark last year, we were in like It's a nearly full lockdown that retailers stopped with pick and mix. So you can expect that sales over there rebounded even stronger than the average, A bit the same in the U. K, where many stores were being closed or where we went into wrapped products to Fulfill the policy decision from the retailers. And then in Sweden, it's actually referenced, of course, there was not A full lockdown, but you also remember that we stepped out of unprofitable contracts in Sweden. But the recovery It's, of course, different over the different markets, very much dependent, a, on the actions we've taken in that market, Be on how severe the lockdown was during Q2. Are there big seasonality in a pick and mix category? Yes. Under the big one is Easter And mainly in Sweden, less so in Norway, not in UK and And Minimal in Denmark, Finland. So that is the real big one. And then we are Trying to generate more seasonality around Halloween or Christmas, but the big one is Easter. All right. A different question on your country split, so sales split by country. If I do the math correct, I know you don't have used decimals, but it looks like U. K. And Germany are up quite substantially year on year, while Countries like Denmark and Norway, it's a little bit offish versus Latvia. Could you comment on that? Or is that correct? Well, everything is growing. So that is very nice to see. It's not that one country Staying behind, and I'm not going to give the specifics. But I mean, on pick and mix, everybody It's growing. And also on the branded, there's only one company which had 50% -plus growth last year in branded, which this year is just below 0, and the rest is all growing. And you know how it goes then. Everything is growing, but of course, some countries are growing much faster, but they're the smaller ones. It takes many years before the size of that country starts to really then impact the distribution of the sales over the country. So That is not something which I would say is at the moment really happening. And maybe, Andreas, I would add to Henry's answer there. You mentioned Germany and Norway specifically. As you've seen in the presentation, Henry talks about Redbend in Germany and that we're having some really good progress on that. So of course, you'll That's part of what you're seeing is stronger sales in Germany because of the different attention to Germany than maybe what we've had in the past. This is a really interesting area for us, as Hendrik said, big markets, wealthy consumers, if you will. And on Norway, there we've also spoken about that last year, Norway had sort of a different COVID had a different implication there because a lot of the Norwegians, they stopped going across the border and shopping in Sweden, And they will consume more domestically. So of course, we had an incredible uplift in Norway last year, and now we have that as a comparison. For everyone else, pretty much, it's an easy comparator, but for the Norwegian, it's a really tough comparator. So I think your analysis there is correct, And that's 2 drivers. I see. And then on the raw material side, You talk about some actions by yourself. Do you expect to see a drag here in the near term? Or how should we see that going forward? Thank you. Yes. We do that. We deal with that like we always deal with raw materials that we are discussing that with our customers, and we see Trends depends a little bit country by country, but when we see a trend and we establish a trend, be it on raw material or energy or ForEx, Then we announced a price increase, which in on average, it has like a 3 month notice time, and then the price increase is Coming through. But since it goes so fast, we're very much on top of this at the moment. We will managing this like we I've been managing this in 2019 when we saw also raw material prices really Going up, of course, it's not only raw material. We can see it in transportation. We can see it in energy. We expect it In salary inflation, so it's better to be on top of that even though it doesn't impact us now because we're not buying a lot on the stock market. We have Contracts with variations going forward, but it is, of course, a thing which we will have to cope with Going forward, hence, we signal that and we have our action programs in place. Okay. That's clear. Thanks a lot. Thank Thank you. The next question comes from Nicholas Skogman from Handelsbanken. Please go ahead. Yes. Hi. Good morning. I'm keen to learn more about This Candy King Premium, what how is it different from the regular Offering in terms of where you sell it, what products you're selling and what do you think is the potential market? Is it So something you can roll out to basically all stores? Or is it does it need to be a specific market or a specific retailer to offer this? Yes. So I sometimes I think I might not explain it completely in the right way. So there's basically 2 things, Nicolas. 1, We have moved now all the countries into what we call the premium Candy King 2.0 concept. So let's say, take Sweden where we have Karamelkommen, which was a bit childish with the light blue and the light The orange and green colors, Caramellcun is not there anymore. It's now all candicing. It's more colorful, but more important, it's more add on, yes? And while doing that, we've also improved the assortments, and we have taken pricing Because of that and of course retailers, their own decision on what the price is up towards the consumer. But of course, in general, And prices are going up. And that's what we've been doing across all the Clobeta market, That's one. Then the other one, which is maybe what your question is about. This is a Finnish Premium concept. So Infinib will run the same. But then on top of that, we have gone to 17 customers, individual stores In 17 locations. And we have raised the prices Quite a lot. And is the euro more per kilo, what the retailers are asking over there? And that's on the basis of our price increases due to a better assortment, but also a more a much more premium Concess, so it's called the premium mix. Yes, it's a wide assortment. It's different, I recall that different sizes. Hygiene is the same. It's better segmented, better lighted. It's our latest Shell, which we developed in partnership with the supplier, We have, of course, all the markets. And the good thing is there are 2 things. I mean, the consumers or the shoppers, they really like it. They're willing to pay the extra price, and we can see that from their feedback that they really appreciate the better quality of the shop, Of the assortment. But we're also selling more volume. And that, of course, is very interesting because normally if you raise prices so much, You can maybe see a bit of a drop down in the volume because some people might feel that this is too expensive, but we see also that we sell More volume relative to the other stores, of course. And that then leads to the second effect that the store owners Of the 17 stores, they are very supportive and enthusiastic. And that means now that there are many other Store owners of that same chain asking us, can we please get it? And then there are also the practicalities. Can we execute that? How do we then deal with national promotions, etcetera, etcetera? But the most important data point for me is that Like we expected, like what we saw from the market research when we do that in a proper way, consumers are willing to pay And for a good quality pick and mix, we can get out of this constant price spiral downwards, which we're seeing over the last 5 to 10 years in a lot of the markets that the only thing which matters is price. And that is a very important thing, which I think It's worthwhile to share with you because I feel that this can go Into all our markets, maybe not in all the retail context because we all have discounters or and we don't want to offer the same things To everybody, so that we also help our customers to differentiate from each other. But, yes, It's very promising. Let's keep it on that. Yes. It sounds like it. Have you started to in source any volumes in pick and mix yet? Or sorry or are you still awaiting To see where the volumes will stabilize. No, we have in sourced. That's part of our plan For this year, so of course, we made a volume plan for this year and I said, okay, because we are not completely back on 2019 Levels with the pick and mix, we can do some more insourcing, and that is continuing also After the summer. Okay. Perfect. And actually, of course, Yes. Sorry, that's what I just said with the perfect factory because we are the lines are working more efficiently. We also create capacity by that. So Absolutely. That journey continues on the insourcing. Yes. And one more question on pick and mix Profitability. It looks to me like sales in Q2 organically were down 25% versus 2019, but still profits were better than Q2 2019. So and we obviously discussed a few of the drivers. I was wondering the actions that you have taken out in the last couple of quarters with exiting contracts and raising prices on some of the Most challenging, if you will, contracts. Is that now fully in I assume it's fully in the Q2 numbers, but when did you start Seeing the full effect from that? Or is there still more to come sequentially? Yes. I mean pricing It doesn't stop, right? So like we just talked about the Finland case, We can learn from that. And of course, there where needed, let's say, it's like that, we can take Further pricing and discuss that with our customers. So that I would say that journey doesn't stop here. That Probably never stops, but of course, so long as we're not at the EBIT margins where we think that pick a mix is then Really contributing, and that will be somewhere north of 5%, at least. However, not we're not Stopping with pricing and looking for pricing opportunities. Also one more time from my side, important to say When we show you the segment reporting, of course, here, your pick and mix is carrying the full load Of Cloeta, of course. So it's the head office cost, it's the office rent, of course, it's the local management teams, it's Customer service, IT and of course in supply chain as well. And We were not producing pick and mix on the production line in Davitsia and only had back products being produced there Two shifts, and now we work 3 shifts on that line. Of course, the write off and the maintenance cost for that shift, which used to be carried by the pack, It's now being carried by the pick and mix. So just when we look at profitability that's all the time something We need to take into account as well. Right. And then I You came up with a final question. The refreshment category, which is still lagging behind, is the To get back to 2019 levels or above, do we is it only do we only need to see Sort of a society going back to the way it was? Or is there anything that Could suggest that the underlying demand has changed permanently in your view? Yes. I mean, the first thing, of course, to happen is that we need society or let's call it more specific, Our sales channel to fully open again, right, because we're not only selling gum or lacquerol in grocery. If we look at the Netherlands, we're very strong in the sector stations and kiosks, relatively speaking. And of course, when mobility is So down people who were used to shopping or buying imports over there, they're not able to do that anymore. So that's the first one. But of course, the second one is, yes, if people have not been buying and using our brands For more than 12 months, I reckon that it will be a bit of work to bring them back into that habit, Yes. And that's I think you can also read from other multinationals. I still follow the personal care category A bit given my old background that you can see the same kind of comments that people not working in the office has not been spending so much time on their How they're looking and using less deodorant, less shampoos, etcetera. And that's a bit the same with the mouth, You could say that people have spent less money or less attention, let's say, like that on the personal appearance. That is something we will have to build back, and that's why we're also spending them more money on mackerel and Yankee Pestils, for example, we launched this year in Finland to support that comeback and then in particular in the people who are working, That's why this natural Crispy is so important to you because it is more aimed towards younger Consumer, so a bit like what I was showing on the Gottembladag RealFruit. We're doing that With the Yacht Crispi to, yes, address younger people in the category because they are the ones who have been dropping out. So, Yes. It's both, I would say. Sales channels are also to get behavior back. All right. Thank you very much. Thank you. We have no other questions by phone. Back to the speakers. Henry? Yes. Would you like to close the call? Yes, I think so. So Thank you very much. I mean, I'm pleased with the results. We had A good rebound, as said before. Of course, we know it was a weak comparator in Q2, but I also hope that you got the notion that We have not just been sitting there behind our desks waiting for the rebound. There's a lot of actions we have taken over the last 12 months, which are now bearing crucial and Helping us to grow the business to impact to levels above 2019 and in SYKTA makes a strong rebound and in particular a lot of work on the profitability because that's, of course, our number one cryo for that segment. And we will continue with that, and we'll see how we will do. So thank you for your attention today. Thank you very much. Thank you. Thank you. Ladies and gentlemen, this now concludes our conference call. Thank you all for attending. You may now disconnect your lines.