Cloetta AB (publ)

Good morning, and thank you for joining us on the Q4 conference call for Cloetta. My name is Nathalie Rebmo, and I'm Head of Investor Relations. With me here today are Henri de Sauvage, CEO of Cloetta, and Fianz Rubin, CFO. Henri and Fianz will take you through our fourth quarter and four-year results, and we will then move on to a Q&A session. I will now hand over to you, Henri.

Thank you, Nathalie. Quarter four was a quarter which... On one hand, it gave us the consequences of the second wave and the associated lockdowns. On the other hand, we kept the progress in the execution of our strategic agenda. If we look at the key things which happened over there, we can, of course, see that the business had to slow down in Q4 2020.

It's also fair to say it was much less of a slowdown than the second wave, in particular, where the effect in that quarter was nearly double. We see the same pattern, so in food retail, the candy bag business is really up again. But the branded business and all the channels went down, and we also saw, again, as I said, a negative trend in Big Amix, although all fixtures remained open. What we also decided to do for you to get a better view of the different effects is that we disclosed the total EBIT for Pick and Mix in 2020. being a negative 135 million. That, of course, is not only the Swedish business, but due to the volume loss we've seen in most of the other markets, we can see that the fixed cost of both the merchandising and the fixtures was not Yeah, adjustable to completely compensate for the fall in volume and the volatility in it, which has led to this fall. So we'll come back to that later, because, of course, it's an integrated system. And integrated P&Ls, also all the cost allocations, et cetera, are in here as well.

showing that since we started with the program and we have delivered like-for-like savings of 130 million sec and also the board looking at where we are agreed to a proposal of 75 euro dividend to be taken to the agm this this year which will be a virtual egm Yeah, if we then look a little bit more at the sales results, as you could read, minus 12%, of course, not good. You can see that it starts to, after the good, the better Q3, that it worsened the

particularly towards December. If we unpack that, then you can see that the branded sales went in the quarter to minus 3.6. And again, you know that we had positive growth in quarter three. And then you can see October starting to slip and it's getting worse into December. We'll come back a little bit more on that in some next slides. Again, mainly driven by the same factors as before. And then pick a mix. Mine is 36%, a bit more volatile depending on Halloween activations. You can see that the whole of the third quarter was actually quite tough. As I said before, it's better than in Q2. However, still very much impacted by the second wave, a little bit different market by market. Of course, the UK with the full lockdown very much contributing to this as well. If we go down and show a little bit more inside, we use this among other parameters. But what do we see in mobility? We just took out a few. figures. This is Google mobility and what is important over here, of course, is what is happening in the country versus the baseline of a normal year. You can see that retail and recreation, so that is shopping malls, but also recreation parks or cinemas, et cetera, you can see in Sweden and Finland it's more or less the same, minus 18, minus 16% in the Netherlands, minus 31% also in Holland, of course, they now have a curfew. After 9 o'clock, you're not allowed to go out on the streets anymore. And as from January, actually, over there, all shops for food retail are closed. So with our out-of-home or non-grocery, food retail business. We are in these channels and it's very important to be in those channels to also diversify our business and be where the consumers are shopping and with the impulse nature of our our categories, we can reach consumers quite well in all these channels.

So that's quite important also for the future, but of course now that plays against us. If we look then at what you call transit stations, so these are railway, bus and train stations where people are traveling to and from work, for example, or to and from the city. where you have the kiosks, the 7-Elevens, where people buy a coffee and a keks. You can see with offices being closed, well, in Holland it's close to half, and in the other Nordic countries it's minus 40%, which we see over there. It's the same picture. And then, of course, workplaces, so the office places, minus 24%.

So people are very much at home, as we all know, and they shop in the food retail shops, and the rest is seriously down, and that, of course, also impacts our branded business in those places. Yeah, so that picture, not to go to the next one. In 2019, just to remind you, 70% of our business, branded business, being in food, including e-commerce, and 30% being in auto channels. The auto channels are very important because it drives point of sales, drives consumption but of course we could with the mobility data all see a decline in that sales development of the 30% and in food on the other hand we saw again an increase in the demand of in particular candy bags including e-commerce, really developing. So also happy that we have that strong program on e-commerce, both for the pure players and, of course, the omni channels in place, and that we're able to really see the growth in those channels and make good progress over there. We have fewer stoppers or closures in those markets with lockdowns and a bit of a negative product mix from less impulse sales. What we're doing is we need, of course, to keep on bringing our top 25 brand positions into stronger positions.

You will see that we have increased our media investment behind those brands.

Just to recap, we first said we will use the money we have in a more efficient way towards working media. We're not completely where we set on the 70%, but very close. 70% of the media is now working media. Now we've also increased the absolute amount to get more organic growth when we come out of this pandemic. It's a very strong innovation program for 2021, also with margin increase of launches. We'll talk about that next more in the next quarter. We did the step up in e-commerce and some partnerships. As I said, valorization is quite important to increase the margin, but of course also With economic uncertainty, people are looking for value deals, so it's also important to be there. Point of sales, for vessels and gum, we see that people are less standing in the checkout areas. in food we need to find also other places when those channels are going to open up again so that's a drive across Cloetta and then we have this strong new sustainability agenda which will in one way or the other also communicate more clearly to our shareholders which has now become part of the marketing agenda and then last

thing on this slide. Again, you can see the pastel and gum category in the markets we reported also last time. It's only the Nordics, but the picture in the Netherlands is very much the same. You can see minus 5% in the quarter. That's the market. It's not us. We then look at the pick and mix. You can see that in Q4, The only real change on the channels being open has been in the UK, where some of the channels have started to close down again.

So that's actually where we have the most tense situation for Big MX, also given the measures the government has taken with the British. variant, I think we should call it. The lockdown measures in our main markets are toughest in the UK. Last time, we said that the consumer activation, surprise promotions, or buy and get or our Viaplay promotion that we were getting back on track and that we were discussing with customers. Now, that has more or less stopped. You can see that the progress was not there. It's not getting better. Worse than what was in Q3, but of course we were planning and executing even to be back in Q4, and that has not happened. And in general, you could say, I think, that the consumer demand, apart from Norway, has gone negative again. Let me remind you that when consumers are going into a food retail store and they need to wear mouth masks and not more than a number of people allowed into a supermarket. Maybe we don't see that so much in Sweden, but in most of the other countries there's limitations of the number of people. Yeah, if you are standing in front of a big mix shelf, on average you take three and a half to four minutes to pick your product versus a 10 to 15 seconds in front of a candy or a chocolate shelf. So we do see that people don't spend the time in front of the picnic. That's a weakness right now. It's an enormous strength in the future because Just this interaction and this high interest in the category and the personalization of things which are going to help us in the future, where retailers are very interested in, but right now it doesn't help us. And as you know, we're working on a lot of things to mitigate this, at least to say that the launch of the upgraded Candy King concept is doing well. Customers accepting as well the higher prices associated with that also consumer feedback. consumers shopping there very positive so i think that's the right thing to do and we've also looked at a number of extension of contracts where we also do pricing in order to make this more profitable we're also looking

or implementing pricing for the relatively higher merchandising cost per kilo, because if we lose this volume, we can, of course, spend less time in store, but you still have to drive there, you still have to clean it, you still have to bring the products from the back store, and all those costs are fixed and are not variable, so we're also taking pricing on the basis of that. And that's probably where I'll end this slide. Natalie starts to look angry at me that I take too much time, but then I'll hand over to Frans.

Great. So as usual, I will start with net sales. So as you saw in the quarter with the worsening situation due to the second wave,

the recovery that we had seen in our sales in Q3 was both halted and reversed. So it branded down 3.6% and picking makes down almost 36% in the quarter. I should add here that those numbers were also a little bit depressed as a result of some destocking in Norway. because the government there has now decided to abolish the sugar tax with the start of January 2021. So we estimate that maybe 5 million Swedish kroners or so was reduced. So it's impacting December a little bit. But it's definitely not going to really change the results. But if we then look at this by quarter, obviously this decline, because of the second wave, really actually shows that, I would say, society and therefore also us in Toyota, we've been able to weather the second wave a lot better than when the first wave struck us in Q2. If you recall, Q2 branded was down more than 6%, and Picky Mix was down 20% dash points more than what we've seen before. And here I would also say that the share of net sales coming from branded versus Picky Mix If you look at the pie charts on the left side, that remains unchanged from Q3. 80% of sales coming from branded, which in 2019 on average was only 70%. And branded is generating above 14% EBIT margin, which is our long-term goal for the total business. much less profitable. So let's look a little bit closer at the profitability and some of our key actions. So first, an overall overview. Operating profit adjusted for the quarter totaled $123 million. That resulted in a margin of 8.4% of sales. This is a reduction by 93 million versus 2019. And that can be fully attributed, as you see here, to the volume loss in the quarter. And the same applies to the full-year profit loss that you can see on the right. As you can see, We have been able to offset about half of that, which is really good for us. The reason you see less offset in Q4 is because of a couple of things. One important difference is that in the year-to-date numbers, you have the release of long- and short-term incentives in quarter three that we detailed at that time. And then in Q4, we have a really stepped-up R&D. marketing spam to drive growth and it's part of our effort to both manage the current situation and also to secure the future and Henry spoke about that and we'll come back to that later.

And then there's a bit of a mix effect here. We have shared before that although we have an unfavorable mix within branded and the channels due to the lower share of refreshment sales. That has been largely offset by the favorable mix of higher share of branded over pick and mix. But in Q4 2019, the share of branded was already higher as it generally is because of those seasonal sales. So we don't get as much of that profit offset in Q4 as we had year to date. In both of these sites, quarter and full year, we have a really good offset through cost savings, and I'll get into that more.

I also want to mention here that while we clearly have an impact on the count of COVID-19 on our gross profit, the severity is not only less than in the first wave, as I mentioned, but Also, for us, having gone through this now once, we are also better equipped to handle it. So our production volumes and sales volumes are much more closely aligned in Q4, and also our ability to work with our costs has improved. So the result that you see for the quarter is the underlying one. and not distorted by any significant facing like we had in quarter two. So let's look closer at two key aspects here. Take a look in Sweden. Thank you, Natalie. So at our capital market today, at the end of... Q1 2019, we disclosed that the Swedish pick and mix business was making a loss of roughly 60 million Swedish kronors. And we did that, of course, to help the U.S. investors to understand the difference between our profitable branded business and pick and mix. and also that there are significant differences within picnics. And we shared how we wanted to address this, both through fair pricing and strong cost action, and to bring the Swedish picnics first to break even, and thereafter to profitability. The issue has not been volume. As you know, in these tweets, we love the Picamix format, and a rapid percentage of all consumption in Sweden has, in the past, been coming from Picamix. Now, despite the circumstances for this earnings release, I am actually really pleased to share that the value of our actions on pricing and cost since that instance, including annualized value of actions taken during this year and even before, would have brought Sweden to a break-even run rate as we close 2020. However, given the significant sales losses on account of COVID, the break-even is going to be delayed by about a year. This is subject to how quickly we can regain the volumes. And as Henry also mentioned at the very beginning, it's not only Sweden, but also other countries have been impacted by COVID-19 and that we're making a profit in the past. That means that our total pick and mix business in 2020 made a loss of 135 million Swedish kronors. And that loss is driven by the fixed cost under absorption. And in the short term, profitability will only come back with higher volumes.

Andrew shared some of it, and we will talk more about it later in the call. But the effort currently ongoing to rebuild those volumes is there. And in parallel, we're also working on reducing costs. Of course, we can't just blindly cut costs because some of those costs are also prerequisites to be able to rebuild the volumes. For example, we do have the fixed costs in the stores with the fixtures. The only way we can eliminate those costs is getting rid of the fixtures, but then we won't have any sales as well. So that's what we're trying to manage through. If we then move to the next slide, also at the Capital Market Day almost two years ago, we spoke about our newly launched VIP Plus cost savings program and that we had an ambition to deliver 1% even margin to reduce indirect costs in the mid-term.

Also here, I'm actually really pleased to share that the value of all of those actions that the program has enabled has resulted in an elimination or deferral of costs exceeding $130 million since the launch. Now, of those $130 million, and I also talked about this earlier, of the earnings costs, about half are one-timers on account of COVID-19, which could be hiring freeze, or the absence of travel, or volume related, such as lower merchandise costs. The other half is sustainable, and that includes key action in Q4, such as the execution of the new organizational structure for our Swedish commercial business to make that organization both less costly but also better adapted for the future. Some of those savings has gone towards increased investment in our brand over this period and in our marketing capabilities. Again, building for the future, and this is obviously something that we want to continue to do going forward. Now, delivery of the IP program is also evident in our reported financials, which you see on the slide here. And you can see that in the quarter, and excluding items affecting comparability in Forex, the index was down 11 million, despite the big step up in AMP. And on a year-to-date basis, you can see indirects down 131 million, which is partly due to the release of the incentives program in 2003. But the balancing amount of savings more than offset the step-up in the annual merit increases and other investments that have been done. It's important to note that some of those reduced costs are sustainable, as I mentioned, and we will continue to identify opportunities to do more savings. But some of this reduction is also one-time in nature, and that's going to come back as the business returns to something which looks more similar to what it did in the past. And obviously, that's going to come and society goes back to something that is more similar to a normal situation. But of course when those costs come back, so will the net sales and the gross profits to fund that.

Yes, coming then to cash. We did deliver very strong in the working capital, also in Q4. And if you look at the free cash flow here, that's in the middle of the graphs, we delivered 252 million Swedish kronors in free cash flow on just over 120 million in operating profits. And that's notable because it's only 17 million less in free cash flow than what we did in Q4 2019. despite that operating profit, as I mentioned, is down around $90 million. And if you exclude somewhat higher capex this quarter than last year, their free cash flow is down even less. It's almost in line with what we had last year.

And as I shared in the earlier quarters, we put in place a cash committee to get more focused on cash in this challenging environment. And I'm actually really pleased to see that we're getting a good return on that effort from our colleagues. Now, the improved working capital is driven by lower receivables. both due to the lower sales, but also better collections. The receivables are down over 20%, so more than sales, and overdue is down by over 60% versus Q4 2019. And at the same time, despite this volume growth, and as mentioned earlier, we're a bit more agile now, Our inventory is actually declined versus Q3 instead of going up. On CapEx, despite COVID-19 and travel restrictions, we have been able to proceed with our CapEx project in total executing to a value of $63 million in the quarter. And this plan places our 2024 year at 5% of sales in line with the guidance that I had provided earlier this year. And finally, we had again a very strong quarter, but note that we also had a very strong full year. Our working capital is 222 million better than 2019. So this is not just a phase in between . So coming down to my last slide, as you know, leverage is one of our key financial targets alongside NSV, EBIT and dividends. And I'm trying to capture that on this slide. First, you can see from the two bar charts that our overall situation is very similar to where we were at the end of Q3. On the left, the total utilized credit facilities in commercial papers is 2.3 billion Swedish kronors. While on the right, you can see our additional unutilized credit facilities, as well as commercial papers not yet on the market amount to 1.2 billion and 750 million for a total of almost 2 billion. In addition, we have 396 million Swedish kroners in cash at the end of Q4. Hence our conclusion that our financial position is strong. We're also in the process of refinancing. We've made good progress on that with our partner banks, and we expect to have that completed before the middle of this year. And for the leverage, I had a slide in Q3 that we expected to end the year higher than normal, even a little over EBITDA. And we also did with a net cap at 2.7 times EBITDA. Now, our target is to be around 2.5. And obviously, we can't discuss if 2.7 is around 2.5. But most importantly, we are well below our covenant of 4.0.

And with consideration of our financial positions, our plans that we've shared with the board, and yet the uncertainty that still remains in the market, despite the current rollouts of vaccines and everything, the board has decided to propose a dividend for 2020 of 75 euro, which is a 50% increase versus the 50 euro dividend that was approved for 2019 results. And at this, it means that with the 50 euro being below our stated policy of 40 to 60%, and 75 euro being above that policy, it brings the average of these two years to well within our targeted range. And on that positive note, that concludes my part.

I hand it back to Henry. Thank you, Frans. So, as you already heard, we have a well-thought-through discussion strong sustainability agenda with three main areas, choices for you, care about the people and planet footprint. Important, I think, is to show what we're doing. We are gaining space. on moving towards natural colors and natural flavors, and that's an important program also from a consumer perspective. If we think about people and partnerships, something you probably don't know, but we already are for a number of years in a partnership around Shea. Shea is a substitute, you could say, for palm oil, which is coming from France. sub-Saharan Africa, where there are a lot of women through the AAK partnership who are producing this Shia oil, and thereby providing for themselves and their family, and that's something which Soweta actively supports. We also entered into a two-year pilot project with the Rainforest Alliance around the cocoa farmer production using blockchain technology to see how, through the whole value chain and middlemen we can get more of the money we pay to the farmers to improve their living conditions so they can earn a decent living and that's something big or non-competing companies in the project. So quite interesting. And then on the planet footprint, they were also taking our sustainability expectations towards our suppliers with a new supplier code. And we also see some strong progress across markets on our new plant pack. And the plant pack is plastic bags, which partly are being made from, let's call it plant or vegetable sources and not oils. Yeah, no surprise over here. We keep focusing on the three main business priorities. Just give you a quick update of what is happening. We talked about the increase in the media investment on the top 25 brands. Also now very much looked at through things like media mix modeling, which I would say that

best FMCG companies are doing that, where you can really assess, you know, what is the, we're getting back for our bucks, what are the best channels, are the films working, so not just spending, but also really looking at the financial impact. I talked about the innovation funnel, some fantastic innovations for 2021, which we're going to execute also in innovations which you will see coming in q1 which are going across uh a number of um of markets and also net revenue management so looking at not only pricing but also promotional uh spent and and portfolio mix is is now starting this fantastic work done in holland which we're now copying into the other uh into the other markets if we then look at pick and mix of course we will have a delay in the sweden profitability by one year france already alluded to all the actions we

had taken and we did a calculation to see if we would have kept the volumes without the COVID effect. We would have been in black figures in Sweden, so that of course gives us confidence that we're on the right track, but it will be a delay of one year. one year. Now, the volumes are really, really important because it is a different business model than the branded business. There are the fixed costs of the fixtures. There are the fixed elements in the merchandising costs. So we need those volumes back or we need to really scale down the capabilities in the market's most impacted. That's a choice, of course, we cannot make at the moment because we don't know how this will completely pan out. But we are sure that when volumes are coming back, profitability will come back as well. A good pilot in the UK with a new lit solution trademark to give extra patented, I think is a better word, with more hygienic use. We'll test that over there and see what consumers, shoppers think about it. But customers are really impressed we really are showing that we are the leading company in big chemics. And that's also a feedback we got from some of these renewed contracts that really see we now have the know-how and the skills to help them to improve on this category. Yeah, and then cost and efficiency, the reorganization in Sweden has been executed a more simple, leaner organization, more focused on fewer things, but also at a lower cost, really important. We also closed the factory. in Helsingborg and outsource the manufacturing of nuts, which is a good saving and on top of that gives us the possibility to tap into more innovation and different packs. I think we're really proud of the VIP savings of 130 million SEK since we started in 2019. We're not at the end of the journey. We made some further announcements internally on improving the efficiency And then we're looking, while we are being impacted by the mixed volumes, which other volumes can we bring into Cloetta to keep the factories full at a good level so that we keep the coverage where we want it to.

I would say it's a mix of short-term actions to mitigate the COVID effects, but we are not losing the sight of the long-term goals we have and the long-term strategic agenda. And when we review 2020, I'm also very pleased to see that a lot of progress was made in those areas. strategic areas which will benefit us already in 21, but of course also going forward. And that's it. And then we have questions.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you do wish to withdraw your question, you can do so by pressing 02 on your telephone keypad. Our first question comes from the line of Nicola Skommel from Hannes Banken. Please go ahead.

The line is open.

Yes, good morning. I have two or three questions we see. So the first one is on the gross margin. It was only down 65 basis points compared to last year, despite the big sales drop here. So I'm wondering how should we think about Q1, which seems to have pretty... But by the looks of the lockdowns, we should expect some pretty soft sales there too. I'm thinking gross margin in terms of delayed under-absorption costs. You did mention that you... that you're now in a better string between sales and inventories and production. Any comments on that? Yeah, I mean, maybe start from that end. I mean, the first thing is, yeah, I mean, I'm confirming that the kind of facing that we were very transparent when we released our Q2 report, you know, we're not going to see that. That's not a thing for this quarter, both because of that... that better sync and also how we're able to manage a little bit better around our code. I think that's one piece. The other one is Yeah, I mean, the gross margins are strong. You know, we also get from a percentage point of view, there's always a benefit in the mix, even if it doesn't have the gross profit. But also, as I know, when you look at how things play out historically, our gross profit because the gross margin is usually a little bit higher in Q4 because of the seasonal sales. I mean, that's the historical trend, as you know. Okay. I'm wondering, I have a question on the SG&A cost. They were only down 3% year-on-year in this quarter. Why could they not be managed lower? If you look at Q2, which did not have this one-off bonus dissolution effect... down by almost 16%. And I think admin costs year-on-year are flat. Have you been aggressive enough in terms of cutting back on costs? Yeah, I mean, I think so. I think, I mean... We are sharing a little bit about how the VIP Plus program has delivered. I mean, the savings are really strong. I think an important comparison with Q2 probably starts with AMP.

As you know, we actually held back on AMP spend in Q2. Whatever it was, outdoor, we redirected some, but given the situation, we pulled back. Whereas now I think we hopefully have been very clear that we have actually done a significant step up on the A&P to help drive the brands, not only to support the quarter, but also going forward. So there you have, you know, there's a big variance there. Then there's smaller stuff. Of course, we had started to deliver on VIP plus in Q4 2019. So you have a slightly tougher comparison there than what we had in Q2 this year. But overall, no, the indirect savings, they are delivering also strong in the quarter.

Okay. Will you be able to tell us how big the step up in marketing was in Q4 year on year? It's a big number. It's a big number.

Okay.

So then going forward, will you continue with these smart investing investments also in H1? Yeah, as I mentioned, the intent is to continue to support our brands and, you know, hopefully when society opens up again, you know, those investments will not only pay off for the quarter, but also help, you know, future growth. This is an area where maybe we didn't do enough for a number of years. And as Henry said, up until quite recently, the increased working media spend came by reducing the non-working. So it was not so much of an absolute increase, whereas now we're talking about an absolute increase. Okay. I'm just thinking, I mean, people are not out and about as much now. So if you're spending a lot on marketing... the effect of that. No, you're completely right. Of course, you know, with our new global media agency, we're constantly looking at how to optimize this. We call that dynamic reallocation. And of course, we're not spending money into media channels, which at the moment are... you know, are not being consumed. So it is much more around TV or social media where consumption actually has gone up and away from other channels. The most easy one, of course, is outdoor, where we're completely absent this year, which used to be always quite a big one. And then we are with this media mix modeling. which I also remember using a lot in my previous career. We're looking at return on investment, trying to distill the effect of the media on the additional sales on top of your baseline. And we're looking at our competitors. And that's a bit what Franz is alluding to. And we need to keep our brands in a healthy shape, not only for 2021, but also going forward. So there's a lot of analysis and a lot of scrutiny on this. But, you know, our number one target is to get organic growth in line or above market. And by supporting these top brands in Cloetta, we support that first financial goal.

And, of course, with volume growth in the branded business, we'll also get a better market. better ebit which of course is the number two goal of of the company then i see a question which came from the from the mail from uh from trojan uh trading uh why are you so against uh m a um i'm not sure where you got that remark from but i'll i'll give you an um an answer i mean the The main thing is that I firmly believe that we first need to get our own existing Cloetta business to grow organically.

And we have been doing that pre-COVID on the branded business, very good to see, and we Of course, the professionalization, the extra working media, and now the absolute media to get the branded sales to grow, which already are contributing. That's a very, I don't want to say low risk, but of course, that's a fairly easy thing to do. It's a business we have, a business we know, categories we know, and countries we know. And, of course, it takes effort and investment, but we were doing quite well. And we have a recently acquired business, which is the Candy King business. And as you all can read, we still have a lot. do, in particular on the profitability growth-wise, it started to turn in the right direction pretty quickly. the biggest challenge over there is on the profitability. I've said I want management attention to go to improving our existing business and to show that we are on the trajectory towards the 14% and the organic growth before we really start to go and think acquisitions. However, We also have, of course, our eyes wide open on acquisitions, but we have changed the previews. I'm not sure what the question comes to, but we have from the previous strategy, which was in the moment, we were basically buying any category which was adjacent to the And to Ken, we said, no, that has not worked. It's also proven that it hasn't worked and that it hasn't really contributed to the growth or the eber journey of Clover. So if we buy something, it will be in one of our core categories. And to start with, in one of our core markets, but it also has to deliver on our eBridge journey. And it has to be of a certain size, because we have been buying too much, which was small and still needed a lot of effort to integrate and thereby in a medium-sized company like Cloetta take too much management attention away from our own core business. We will not be going into new categories through acquisitions in that sense. So it is not a priority. We are going definitely not going to grow because of acquisitions. We're going to grow organically with the existing business we have, but if something comes on our path which is interesting, then we will look into that.

Then I see here, operator, I see a question on the call. Are there more questions on the call?

Yes, we have one more question. Just a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. We have one more question from Andrew Slubber from SEB. Please go ahead. Your line is open.

Thank you so much, and thank you for sharing more flavor on your cost-saving programs. But could you perhaps give a little bit more on where you are versus your original plans when it comes to – I mean, Picamix seems to be on track, especially on the VIP Plus program, and what you see on top of your original plans on that matter. Thank you.

You can say that we always have around 1% we would like to bring on the VFC+. And we're ahead, I would say. And a bit to Nick's question, we've also pulled forward ideas because of COVID to speed it up. So in that sense, it has been a catalyst to the VRP program. We did a fantastic job already early in 2019 to convince everybody that this is a cultural thing we need to change to spend less money and to be proud about trying to avoid making uh making cost and then of course covert that only helped us to to get this even more into the minds of people but there is still of course more to do in that sense Yeah, and Andreas, I think in the question, maybe you were asking about the full scope of this program and not only about the indirect, right? And for those who doesn't have that at hand, I mean, we always ask, We've got to drive branded growth because it's already north of 14%. We did margin, and we're going to do that also with, you know, an efficient use of our A&P. And, of course, we had the branded growth. You need COVID. I think with the investments we're doing here now, as we come out of COVID, we're going to see, obviously, that growth returns, right? So... So I think that what we're doing there is the right thing. Second thing was on picking next Sweden. And we said if we can get Sweden back to black, that's over the 1% margin. And as we've been hopefully really transparent on this call and in the report, The actions that we have taken, you know, adding those together on the volumes that we wanted to keep would have gotten us to that break-even point, you know, at run rate exit in 2020. Now it's a different challenge to get the volumes back. But as we get the volumes back, we'll get those volumes back, not the loss. So I would say yes, with the exception for the COVID situation. Third one was on Perfect Factory, and I think Henry has spoken about that before. Lots of good progress. Of course, the challenge is slightly different when the volumes are down, because then it just makes it more difficult to become more efficient. but we have, you know, a number of production lines, and we have a production organization who is really deeply engaged in finding improvements. So I would say good progress on that. In that bucket, we also stand for the insourcing. And, of course, again, I mean,

I don't want to sound like I'm just blaming COVID, but what we said before is that it's difficult to insource if your quality people and your production people can't travel to make sure that there's a proper match in the consumer expectation on the product, same flavor, texture, mouthfeel, et cetera. So difficult to insource on the current situation. But that, of course, remains an opportunity, if you will, and that is likely going to be another way that we can offset some of the volume loss that's going to take time to recover. The fourth one was on the indirects. Yes, we delivered. We're going to go for more savings, but we're actually already where we had hoped to be and maybe even a little bit better. And then we had a final leg on that. We said there's also other stuff. And one of those things that I had mentioned

was uh i think i said that already back in 2019 which we have you know pockets of excellence but it's it's not everyone is not at the same level and and i think henry actually had it on his slide that That's the next thing that we're launching here now that has the potential to further help drive those margins up again. Thank you. When you're specifically on the VIP plus, it's the expected savings net. marketing plan or is it the gross figure? Yeah, because what we always said was it's our journey to 14%. And on the indirect side of what we said specifically on the SG&A, we said it should be next. I sort of say, hey, imagine if we could take this much out. That should be about a percent EBIT margin in the midterm, which is normally considered three to five years. I would say that we're about there already now. But yes, of course, it has to be net because otherwise we won't get to the 14. But it's also the combination, right, of the talk about the VIP indirects and the branded growth because the money doesn't go into nothing. If you get more branded growth on the fixed cost in your factories, your fixed cost in the In the countries, that's, of course, very interesting. It's this continuous cycle of growth, which will certainly help us, which we started to see, of course, pre-COVID on the branded side. That's, you know, 2% to 3% growth. That's a lot to the PSL. Good. Leslie, if I may share some life from your Catholic plans for 2021 and also the state of the soul. Yeah, on the catfish plans, I mean, some of the bigger investments that we have done, such as for the molding, I mean, that's some of those costs you see come through in Q4. There's a little bit left, the last mile of that beginning of next year. Beyond that, what we had said, if you will, in the past was that Cuesta has, if you will, had slightly lower capex maybe than what the growth should require on account of actually acquiring growth rather than building it organically. And we said that as we moved forward, we would see a step up in over two years, and then it would come down and normalize probably maybe around 3.5%.

That's sort of the long-term guidance that we provided before, and as of now, I would stick to that. Sorry, there was one other question in there.

Yeah, I'm working capital. Anything specific to think of in the coming quarters?

Yeah, so obviously we had some good efforts now on this, and there's three components there. One is the inventories, which we will continue to manage very closely. They are higher than what they were a year ago, but we also know that We needed to build up inventories a bit for customer service levels.

As long as the market is volatile, it's better to have a little bit extra than too little, but we're managing that very, very closely. On the receivables, of course, that depends really on the timing within the quarter, but we are continuing that program as well and making sure that, you know, payments are done on time, et cetera. And payables, we've always had an effort of trying to work with the payments with our suppliers. I think it's, you know, over time, it's going to be a steady improvement. But that doesn't mean that each quarter will be, you know, it might not be 100% smooth. It really depends on the facing at the end of the quarter. Thank you.

The last reminder, if you do wish to ask a question, please press 01 on the telephone keypad now. There will be a brief pause while questions are being registered.

So this is a question from Paul. Paul, from Tiger Fund, on the topic of stepped-up marketing investment, can you see that the market positions have improved already, i.e. shelf space and other metrics could drive faster recovery than the market wants that becomes relevant? I would say yes, we're looking at those metrics, particularly for media investment, you look at the metrics which are to do with how strong is your brand, so what is the preference of the brand, what is the top of mind of your brand, but also looking at some output KPIs like penetration and frequency. And we see that when we invest in the top brands, some nice examples of Yankee in Finland or or Venco in the Netherlands, which had not been supported for eight to 10 years. And now it's the second year with support. We actually can see that we start to get back into our number one brand position, which we used to have before. And that also leads to what you are noting, that we are seeing extended distribution because also our retail customers are seeing that we are making those investments that the brands are becoming stronger. Consumer preference is going there and that then the shelf space goes more towards towards us. So there's a number of elements in there indeed where you have brand KPIs, legging KPIs, customer KPIs. So that's for sure. And our aim is to of course, grow in line or faster than the market, which means that for the whole portfolio, we need to gain market share.

And we've now been talking about our top brands and not all the brands from Cloetas. Also, the top brands, they will have to compensate in growth for those brands where we're not investing anything in order to get the total branded business to grow faster and than the market. There's one more question.

Yes, our next question comes from the line of Stefan Jahan from Nordea. Please go ahead, the line is open.

Hi, it's Stefan here. You asked a question on your target for the pick and mix fixing to reach a break even by end of this year.

Just to make this right, I understand that you expect the runway end of this year and then to be break-even going into next year, and you still expect a lot for 2021. Is that right? Yes. So, yes, we're all on this really big. look at what we have executed, the actions that we've actually taken, pricing agreed, costs taken out, warehouse closed, etc. If we look at that and we annualize it, If we hadn't lost the COVID volumes, we would have been at the break-even by the end of this year. So to imagine if we took some pricing in December, obviously this year we would only have had one month of benefit of that. But if you look at the 12-month benefit of it, we would have left this year at break-even. Now, with the volumes down, obviously, this has been delayed, and we've said it's been delayed by about a year. You say, you know, before the end of 2021, someone else might say, hey, that sounds like the beginning of, you know, Q1 2022. We said by about a year is what we've said. And that's to get to break even. That doesn't mean that the entire year is break even, right? That's to get to break even. But it depends on how quickly we get the volumes back. In your scenario, is it to get back to 2019 volumes or... Say, if volumes are down some, say, 10% to 15% versus 2019, is it possible to reach breaking or do you need to fully recover? Yeah, I mean, we've said that it will take, you know, several quarters to fully recover, but obviously we're also going to work on our costs. So, I mean, I think the short answer is it doesn't require us to get fully back to 2019, no. Okay. Yeah, thanks for my question.

Thank you. We have no more questions from the live speaker.

There's one more question from Mr. X. He probably doesn't want us to... No, it is, but the question is, so we have to close our eyes and hope for an improved volume in pick-and-mix and hope for zero results. This is with low margins and high fixed costs. Why not touch your losses? Turn around. It's in its fourth year. Now it's still heavy losses. It's another lost year. What can you do to lower fixed costs in pick-and-mix and achieve break-even on the current volume level? So... That's quite a lot in there.

I mean, I still think that we need to look forward, we need to look at the future, and we need to take the mixed business on its merits, where we say, well, this is actually a business which is going to grow in the Nordics, potentially into Northern Europe, because of the three underlying consumer and customer trends of individualization, of plastic-free, and of more in-store theater. So I still think this is a very important potential for Cloetta, where we're well-positioned. Also, as a company already now, we're number one in this. We're probably the only one who really have the category, captaincy, insights, and capability to To do this, I think next to that we were prior to COVID, we had a profit in pick and mix.

We had one market where there was a negative in Sweden due to all the price erosion which had been going on for several years. We had a good plan which we have executed to bring it back to break in. And then, of course, COVID came, which impacted all the markets, not only Sweden. And the fact that it was impacted was that the volumes went down. Now, this, again, I can also underline that this is not a regular FMCG business. There's a relatively high fixed cost in here with shelves and with merchandising costs. And in order to bring it to break even market by market, you then need to make the decision, am I going to bring down my merchandising to adjust to the current volumes? It is possible, because the merchandising costs we have by market and the merchandising costs per kilo, they're not exactly the same, but more in line than you might think. My thing, whereas these markets are not all the same, in Sweden there's a much higher consumption level than, for example, in the UK. Sweden versus the UK versus Denmark, there's different geographic situations. We can adjust merchandising costs per kilo on a new volume. However, the moment we do that, we will not be able to grow back to original volumes when consumer and customer demand is coming back. Yeah, and that's a little bit the situation where we are in. Yes, we could bring fixed costs down, merchandising costs, and if we would have a business which used to be 4,000 tons, and we cut it down now to 2,000 tons, we can make it break even again, but it will remain then a business of 2,000 tons, irrespective of consumer demand. And if consumer demand is then going back to 3,000 or 3,500 or 4,000, we will not be able to serve this. Hence, we'll probably get very unhappy customers, retail customers who are saying, hey, I'm buying this This is from you, and you are not able to service it. We're going out of stock. I get angry consumers in my store, then I'll kick you out and ask somebody else to do it. So we need to have a more stable situation in Picamix before we can really adjust the final product. fixed cost in this business model. Good. No more questions on the phone, no more questions on the

So then I thank you for your time and, of course, always happy to follow up with you. Thank you for today.

Thank you so much. Have a good day.