Cloetta AB (publ)

Good morning, and thank you for joining us on the Q1 conference call for Cloetta. My name is Nathalie Hedmo, and I'm head of investor relations. With me here today are CEO, Henri de Sauvage, and Fiancee Rudine, CFO. Henri and Frans will take you through our first quarter results, and we will then move on to a Q&A session. And I will now hand over to you, Henri.

Good. Thank you, Nathalie, and welcome, everybody.

A few key messages on what we did see in the business in Q1. So it's very pleasing to see that the branded business came back to growth, while we still have quite some out-of-home channels with a lot less shoppers. The mix was still negatively impacted by COVID, although March was a good month, which we'll show you later. That, of course, has to do both with the comparator and also that Easter was in March. Difficult to calculate exactly the effects of the two. Also very pleasing to see is the progress we're making on the roadmap to profitability for pick and mix, a lot of pricing and premiumization was done in the last couple of months and that also starts to show in particular on the growth margin in that underlying business. Then I'm also very pleased to say that Although we're still managing the pandemic, there's a lot of progress on the strategic agenda. Today we'll talk a little bit more about e-commerce and sustainability, which are gaining traction. A few quarters ago, we talked about our innovation 2.0 setup, so fewer innovations, but bigger ones. This quarter, we're actually launching quite some disruptive innovations, which will disclose a little bit more about them going forward. I can tell you a little bit about the success. Still very good focus on the VIP Plus, the savings program, delivering also on the indirects, moving towards a global shared service center in the Netherlands and in Slovakia. Also very good progress over there. We'll talk a little bit about the refinancing of the group, which we have done, and we also approved an investment into new packaging technology for carts and boxes.

So with that said, we can have a look at the sales. Of course, I don't like the first bubble, the minus 4.2. That's still negative, which is not success in my opinion. In my books, but if you then unpeel it, of course, it is very good to see that we are growing the branded business again, which is, of course, a very important part of our total business and something we were consistently doing before the pandemic. And now we're back to growth. So very, very good. And then on pick and mix, you can see that we're still heavily impacted by the pandemic both in sales channels in activation but also in consumer behavior but that march looked a little bit better and just to remind you of course last year in march in the second half of march the pandemic actually was pulled out as a pandemic and consumers and customers started to

the comparator versus last year becomes a lot lower and hence we will see this positive development. We internally are constantly looking also at 2019 figures and how we get back to those levels. So next one, please. Important for us and maybe also for you in a highlight, just to see what is happening with consumers across some of our main geographies. And you can see that depending a bit on the market, that there's a lot less traffic in areas like retail and recreation. And look at the UK, I mean, minus 60, but also the Netherlands, when there's a full lockdown. People are not allowed on the streets after 9 o'clock in the evening. So let's not only take the Sweden perspective, where, of course, we are having a very mild set of measures compared to, let's say, the Netherlands and the UK. These are markets where we also operate So you can see that a little bit over here, also transit stations, so that's very much people moving around, going to work. And again, that's where Cloetta is selling products, looking with the same pattern that the UK is worth in that sense. but also the Netherlands is quite bad. Workplaces where people are working in the UK are very low and the rest more or less in line. As we're tracking this, it's also fair to say that now in the UK, since mid-April, As things are going so well, the society starts to open up, so we get bi-weekly reports with many more details, because this is something we can learn from, to see how our consumers and customers are behaving when things start to up against, so we take those lessons and implement them into our other markets. So we looked at the branded business. First of all, we have made the estimation of the split between the two. Why is it an estimation? Because some of our customers are serving both channels, and we have to determine the exact split, which we don't always get from them. But you can see between the brackets what it was a year before, and now in 2020, we can see it went down to 75.25.

Last three months market data, very important for the mix element. We can see that pastels and gum markets are still down minus 13%. In Q3, they came up a bit, and then they started to go down again. Here we also have above average profitability, which impacts our mix within the branded. and candy bags still being very positive in the in-home channel. So this doesn't say anything about the loss we see, of course, of sales in the 25% other channels. So the increased candy and chocolate demand is still there. And I would say less impulse sales is also still a trend.

So not so much change here versus the previous quarter. I mean, we're doing a lot of things. So the step up in brand investments in the top 25 brands is happening also. In Q1, we spent more in absolute sense. Also, the next quarter, of course, will continue where we had a very low spend last year when the pandemic started. I talked about the innovation 2.0. We'll talk a little bit further on the e-commerce. The valorization is very important so that all the products we're now, all the innovations we're bringing to the market under the Innovation 2.0, they should have a gross margin which is higher than the category average of the that category in the country where we're operating. Over time, we're also in that way lifting the gross margin of the group. And the same, of course, with the pick and mix with a lot of pricing quarter after quarter coming into play and starting to show in the results. And for pastels and gum, we are working on a strong point of sales program, both in the out-of-home market, but also in the retail, to bring those consumers back into the category. And then for pick and mix, Same overview as last time. I mean, what has changed in the UK, I would say... We see at the end of March, early April, we see some of the channels opening up again. Consumer activation largely unchanged. Less price promotions than normal. And consumer demand also still very much following what we have been But there's positive news as well. In April, we do see that the UK has started to get into a better place on these traffic laws. If you look at the actions we're taking, I mean, we have higher merchandising per kilo. If the volume is less, we are costing that out towards our customers, which we have been doing. We have some very good activations through CUP. promotions, that's an idea we have from the UK, where they're selling not in bags, but in cups, and we're doing those activations now as well in all the Nordic markets, where the first one's really good. The premium can be 2.0, rollout is progressing.

And then I would say also some really nice barter deals with other companies for the Candy King brand where we are then bartering. So we then put those brands onto our fixtures, our bags, and then we get in return, we get media on the kind of channels they have. So that is also a very effective way for us with limited budgets to to get the new Candy King 2.0 concept communicated.

Yes, Frans. Good, thank you. So as usual, I will start with net sales. In the quarter, our organic sales declined by 4.2% versus last year, and then almost the same on account of currencies. Now, it is important to recall that in Q1, we are still comparing ourselves largely against pre-COVID sales. So January and February is pre-COVID, and March is Q1.

partially pre-COVID, as the impact was only really starting to be felt towards the end of March. Actually, the World Health Organization only declared COVID a pandemic on March 11 last year. It feels like it's been going on for longer, but that's what it is. With that said, we are very pleased to report 2.5% growth on the branded packing sales for the quarter. And I'm gonna add some perspective to that on the next slide. But also for pick and mix, sales are down almost 23%. This is significant and we certainly have our work cut out for us to get that business back to a good place and henry spoke about a number of things we're doing but i also want to put that in perspective on the next slide Here, looking at the sales by quarter, top growth, starting with a 2.5% growth in our branded package business. So if you exclude the last two quarters leading up to the pandemic, then 2.5% growth is the highest growth we have delivered four brand new package sales for several years. It's fair to say that there's some cannibalization on pick and mix. Q1 of 2020 was also a very strong growth quarter, including due to COVID. But we are on par. this quarter with Q1 2019, which was arguably our best Q1 for branded package sales for several years. And this is despite that, as Henri laid out, outlets in our markets are still experiencing significantly reduced footfalls. Then looking at the lower half of the slide, 23% decline. That is, and I'm reluctant to use the word, but that is the best you know, quarter we've seen since COVID-19 began. And if you look on the very right, you can clearly see the impact of COVID, where January and February is down significantly, very similar to the prior quarters, where as in March, we grew. Easter do come a bit earlier this year, Clearly, society deals with COVID better now than during the start of the pandemic last year, and so do we. And it is very encouraging to see this part of recovery. So with those, let's call them green shoots, let's look closer at the profitability Starting with Q1 this year, we are providing increased transparency on our results by reporting operating profits for the branded package business and the pick-and-mix business separately.

We believe this will help you as stakeholders in the success of Floetta to better understand our results, our opportunities, and challenges. And in a way, Henry Thiest is already in his CEO world in Q4. And I'm happy to also confirm that we're going to do this consistently going forward, not just during the pandemic. Before that deeper dive, let's look at operating profit drivers for the total business. And as you can see in the graph, we declined versus last year and that's driven both by the volume loss with associated under-absorption of costs in supply chains. And then in the unfavorable mix within the branded package portfolio that Henry also spoke about with refreshment category being harder hit by the reduced mobility of people and the social distancing. Operating profits further declined on account of increased cost of raw material,

after Q1 last year, as well as we have continued to invest behind our brands. It's difficult to underscore enough how important this is for us. We are a consumer-focused company. After safety and quality, there is no more importance than communicating with our consumers. And we have some incredibly new products. And we will have some slides from this. But looking at vegan, food-based candy, building on from private innovations such as plant-based packaging and the 30% less sugar, we're going to further step up in the area of promoting our products to let the consumer know that, hey, we are actually here. Now, finally, you don't see too much of those increased costs come into the water, only $6 million, as you see there. That's because of the continued efforts in our VIP Plus program. And I'll come back to that on a separate slide. of course pricing and other margin enhanced initiatives that we've taken. So let's then move to the split between the two segments. You can see here that the profit from the branded package business declined by 40 million despite the growth. This is driven by several contributing factors. There's that higher investment in marketing that I mentioned. There's also the impact of higher material costs that I mentioned. But it's also allocation of its share of the supply chain under absorption due to the overall volume growth. We're obviously using our plants to produce both packaged and the mixed products so that it's also impacting us in this segment. I'm also highlighting here that we have taken costs in Q1 related to the recall of Easter products made for us by third parties. It does have a sufficiently significant impact on the quarter to mention But as this is a work in progress, I'm not going to go into the details on the value. And for the underlying business and looking forward, I think the most important aspect is the negative impact of mix that I mentioned with the reduced sales of refreshment products. Looking at the pick and mix below, you can see that we made a loss in this business of 24 million Swedish kronors. And let's triangulate that number a little bit. Firstly, in Q4, we shared that the volume lost due to COVID had pushed pick and mix to a loss of 135 million. Or as we now report with the inclusion of headquarter allocation, it's a loss in 2020 of 154 million.

Now, you can see in the report that while Q1 last year was already impacted by COVID, most of the 2020 loss came after Q1. Now that makes for an average quarterly loss for the last three quarters of 2020 of 44 million. And you sort of have to compare those 44 million to the 24 million loss in Q1 now. So that is arguably already an improvement. The loss is on par with last year, despite the volume loss. Although, as I mentioned, the supply chain under absorption is shared between pick and mix and branded packaged product. But I think it speaks strongly for the various margin-enhancing initiatives that we have shared that we would do, and then we have also done. Fairer pricing, exiting unprofitable contracts, reducing costs, be it for warehousing or distribution or merchandising, or in support functions.

Some of the action helped soften the damage in last year. but the full-year effect we can only see now in Q1. And then we have taken additional steps during Q1, including further fair pricing initiatives. Ultimately, though, we need the consumers to be taking and mixing, driving scale and efficiency to get back to full profitability. We can then move to the sales general and admin costs and the continued delivery from the VIP Plus program. It's also evident here in the reported financials. Here you can see that in the quarter. Excluding items affecting comparability, Forex costs were down 18 million. And I also want to put that into perspective. First, I already mentioned that we increased investment in marketing during the quarter. So this reduction of cost is net of that increase. It's, of course, also net of the annual salary increases across the market. But secondly, this is a reduction on top of the VIP plus savings we ordered and reported in Q1 2020. And at that time, we could report a reduction of 19 million. So on top of that 19 million. So this comes, of course, partly from one-time activities like travel restrictions or lower merchandising costs due to lower volumes. But most of this are sustainable VIP plus savings delivered over the last two years and also continuing now in 2021. For example, and Henry mentioned that, I'm really pleased to say that this month, actually from April 1, we went live with our new shared service center for accounts payables, which we co-located with our manufacturing in Lviv, Slovakia, which will help improve how we work on things and enable further harmonization and automation. Now, for the non-sustainable savings, some of that will come back into the business as society returns to normal. And most importantly, because of merchandising. Those merchandising costs will also come with higher merchandising sales and the profits from those sales, so that is going to be a good thing when that happens. Looking then at cash, we had a healthy cash flow for the quarter, and I think there's two reasons why I can say that. As you know, with this analysis of our business, we tend to generate our cash in the second half of the year. At the same time, we did deliver a positive free cash flow for the day now in Q1, at the middle of the top graph of 11 million.

And that free cash flow is also an improvement compared to last year when we had a loss of 20 million. Secondly, the improvement in free cash flow comes from improved working capital management as well as lower cap expense as the installation of the new drying chambers is near completion, which more than fully offset the lower operating profit we had in Q1 2021. As shared earlier this year, we have put in place a Clueta Cash Committee to get more focus on cash in the challenging environment, and I'm pleased to see a continued good return on that effort. Now, the improved working capital is driven obviously by the absence of last year's build-up of inventories as we were safeguarding our supply chain from disruption due to the pandemic, but that's partially offset by lower payables

that corresponded to that inventory build-up and also higher receivables much stronger this year than what we did last year. Now, the working capital is nonetheless increased in the quarter compared to where we ended last year. And that's because of high receivables, which is completely normal because end of Q1, we have Easter sales, whereas end of Q4, post-Christmas, there is very, very little activity. Then, as for my last slide, as you know, leverage is one of our key financial targets. alongside sales, EBIT and dividend, and this slide to capture that and our debt position. You can see from the bar chart on the left that our utilized credit facilities and commercial papers total 2.3 billion, and then on the right that we have additional unutilized credit facilities, commercial papers not yet on the market, for almost 2 billion. In addition, we have 444 million in cash at the end of Q1, which was a lot, but then we also read it ourselves for the dividend that was paid on April 13th. That said, as we hold this call, we have finalized the refinancing of our group through our existing club of banks. I had shared at the Q4 earnings call that we expected to have this completed before the middle of the year. And I'm very pleased to share that it has been done so already now. very good progress, with strong interest from our pool banking group to continue to partner with us. For the leverage, our net debt is 2.5 times the data, given that the lower profit has pushed it up above our target today. around 2.5, but it's well below the covenant of 4.0. Now, coming back to the financing, it consists of two loans and a revolving credit facility. It will be repayable in June 2023, 2024, and 2025. and each with the possibility of extending for an additional two years. This secures our financing and gives us flexibility for the coming years. And in addition, we will continue our existing commercial paper programs. We are part of that also reducing the revolving credit facility with 60 million, which provides us some nice savings. And on that note, that concludes my part, and I hand back to Henry. Thank you, Franz. So, a few questions.

more flavors on the execution of the strategy. So 14% EBIT is really important to start generating also more growth margin. So the innovation 2.0, which we started two years ago, now starts to deliver. I would say these are three examples. There's many more of them. The first one very much linked to the sustainability strategy into action is a program where we are introducing plant pack across our ranges, and plant pack are plastic materials either made totally or partly from plant-based material, so not fossil fuel. And that has good traction with consumers who see that as a positive and also gives us a reason to increase prices.

The second one is that we are the first one to launch a vegan keks chocolate bar into Sweden, but also into other markets. And it's very nice to see that we're so fast. I mean, more or less the same time we were announcing a global major competitor of ours was launching their intention to launch this as a big piece of news. And we are oriented. already on the market and really plays well into a growing interest among consumers for vegan products and of course again at a premium price and then the other one the last one i'll mention out of the multiple examples we have is fruit based candy it is candy made from 50% fruit again with the first ones here in our markets to do this and also the first one we think globally with such a high percentage of fruit in the candy very much linked to several consumer trends of more naturalness, more products made from ingredients people recognize, and also tasting really, really well. I must say, fantastic effort by the innovation and supply chain and marketing team to bring this to the market. And again, you can now see here we're launching this across markets under the different brands we have in those markets. So I will take quite nice examples of how to increase margin through innovation. Yeah, the second one is We already had this as part of our new strategy within Cloetta before the pandemic, which was very cool. We have focus of excellence, but not one approach. So we put this better in one execution process. strategy for all the markets with a small team of experts helping the different markets to get going and on the left you can see At the kind of growth levels we are seeing, of course, the markets are in different stages of development, where the Netherlands is more advanced. because you already have e-commerce there for the last 15 years and the markets like Sweden or even Denmark being a bit behind. But it's very pleasing to see that we see some really good growth numbers and also that we are in most markets we're outgrowing the market development

And our focus is very much on the omni channel and pure players in each market to really understand the kind of activation, but also to optimize ourselves. So that's both the digital self-packed shots, which need to be different, but also an artificial intelligence tool to see how we are being shopped or how our products are being presented in all those e-shops from different uh kpi so really a step up i would uh i would say and then also specific activations and in the future we're also looking at products it's very interesting to see the kind of dynamics in this channel also the kind of pack sizes for example we are we're selling and next to that we have we have a strong focus on marketplaces amazon across europe also bull.com

The Dutch owned Amazon, you could say. And a lot of traction over there. And here it really shows that if we do things together, and we only have to invent the real ones rather than each market with limited resources trying to do this themselves. And if you look at the example over here, the shop of jelly beans, which is doing phenomenally well in both the UK and Germany, relatively small markets for Cloetta, not with a lot of resources and then being able to do this with the group and then we can leverage that into other markets later on, maybe not even only in Europe. So very, very positive to see. Yeah, also the sustainability strategy, we will organize something in May to communicate more clearly our total program. I think we talked about the first column in the second one, a very interesting pilot project on the living income module together with some key partners, big global companies, and then Rainforest Alliance, who really work on cocoa and the farmers in a more direct way using blockchain. We're also starting to look at a feasibility study for a partnership on GammaRatic. which is coming from the Sub-Saharan area, where there's both social, economic, but also planting of trees and keeping trees in that area as both a deforestation or death certification countermeasure and of course giving income to people living there and then on the on the footprint we have subscribed to the climate-based scientific targets so we're calculating our baseline when that is ready we will set ourselves that target and we're all very clearly now linking all the 25 supported brands to the sustainability agenda. What kind of sustainability parts are we going to lift into those brands? A lot of enthusiasm in the marketing and commercial unit for that. The key business priorities that remain unchanged, I mean, it is to get back the growth of the profitable segments of the branded goods, and we talked about all the actions we're doing over there.

The pick and mix business, we need to get back to To profit and all the actions we are having are focused on either improving the gross margins of the product or to look at the cost, which is mainly the fixtures and the merchandising. So very good to see the progress of that coming through. And then cost and efficiency. We talked about the shared service center. There's more insourcing we're doing, even though it's not that easy with travel restrictions in Slovakia, for example. And then we also decided this investment in carton packaging technology to be ready for the future. And that's also an important part of our project.

electric program to move towards a future which is built on modern equipment and digitalization. So I think that was the last part we wanted to share, and then we're open for questions. Thank you. If you wish to ask an audio question, you may do so by pressing 01 on your telephone you may do so by pressing 02 to cancel from the polling process. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. There will be a brief pause as we wait for questions to emerge. Our first question comes from Andreas Lundberg from SEB. Please go ahead. Yeah, good morning. Thank you. And yes, we are branded. the package profits, could you shed some light on the effect from mix and absorption on the earnings decline there? Thank you, Andreas. So we're not spitting it up per se, but I would say that, number one, We've shared before that our refreshment segment is, you know, a very possible one. And that's, of course, very much hit by the continued COVID restrictions and people's mobility patterns. On the under-absorption, yes, the key point there is that because, you know, how we're manufacturing our products and we're sharing, you know, the production resources between the two segments, and sometimes even shipping between plants for the packaging, The volume drop that we're seeing in ticket mix is also impacting our branded package portfolio. I guess it's fair to assume that earnings would have been down also without these under absorption effects. Is that correct? you're referring to the brand package business on its own to me. Yeah, yeah. So, I mean, yeah, there's a couple of things that are impacting that. I think one is when you compare it to last year. The other one, if you're just thinking about sort of where we're coming all from when we actually lost here. So we have also a one-time event here with Easter Egg Recon. That's of course impacting us. We have stepped up the A&P, but there's more to come, and as you see, there's a lot of activities that we've launched now into Q4.

We would have dropped even without the underabsorption because of the mix and because of the Easter egg recall. That's correct.

Okay, gotcha. And also, I think you touched upon it a little bit, but on markets that have

have opened up recently what you see when it comes to both consumer activation and consumer demand thank you yeah so that's uh it is early days because that has happened I think last week in the UK uh opening and UK for us is of course a um a market which is well I don't want to say different but Our business is different. We have a lot of pick-and-mix over there and much less branded sales and no candy bags in that sense.

What we have seen in the UK is that people are really coming back to the high streets. And that is very important because we have a few very big customers like Wilco's and Pantland who saw very low footfall. They were open, but very low footfall. And, of course, when people are back in the streets shopping in those kind of places, we can see that sales also are coming back. So that is something, of course, to translate that into other markets that we will see the out-of-home channels coming back.

So for us in the Nordics and the Netherlands, there are more kiosks and

And that's going to place it. Then cinemas in the UK, which is also a very important channel, cinema leisure, is not open yet. That's going to happen in May. But I would expect a similar kind of effect. And then it's too early... yet to conclude on what is happening in the supermarket channel and I also do not expect that that will go very fast so I mean that pick-and-mix sales within the supermarket channel when the restrictions are being lifted, that will not immediately explode, I would say, back to the 2019 level, as communicated earlier. That will take several quarters before we'll be able to get people completely back into pick-and-mix. But we're following this to get a detailed report with all the consumer insights on a bi-weekly basis and are then doing our learnings from that for the other markets. And we're, of course, happy to share that next quarter. Thank you. And one on the online channel, does it differ? I mean, does your profitability differ versus traditional channels? And also, how does it work? What's the difference between a kind of marketing, you know, merchandising, Do you share that more or less with your sales channels versus the traditional model, for instance? Of course, we don't have any merchandising in these e-commerce channels. And then the marketing, I would argue, I mean, you do that for brands, no matter where it's being sold. So we're not allocating our marketing costs to a supermarket or a kiosk.

or a swimming pool, or an e-commerce channel. So I would say that's the same for all of them. And then some of the only players, of course, are regular customers like ICAO or Albert Heijn, who have both retail stores and e-commerce. And then there are pure players like, let's say, Amazon or... sorry, or Maltham, and then the marketplaces with Amazon. Yeah, it is a mix of everything. I think it's too early to say, you know, is it above or below or at par in marketing. We also are learning. We're seeing that we're selling different kind of packs in these places. I mean, like in Jellybean, we're selling, actually, our biggest selling SKU is the big pool. So that is the...

let's say one and a half and two kilo pot so that is also a mixed difference very clearly in that in that channel which also impacts profitability okay thank you and lastly from me at least on this new investment plans in the carton, packaging, technology, what you expect to get out of that. Thank you. Well, a few things. I mean, more than... have modern lines with higher efficiency, so we're able to produce more, but also lower cost due to the fact that we'll have higher output with the same number or even lower number of operators. It's also making us future proof that we are able to keep on supporting this packaging technology which actually is quite important because we can see that there's more and more discussion about plastic so we are able to sell candy products in carton like we have black roll or zoo or tutti frutti in in expanding markets in Eastern Europe and in Asia. That's also an important future growth model, and it will support our Perfect Factory program, because we are also replacing with this investment a number of very old lines, with modern technology which is able to perform at a much higher level with less waste more flexibility in this case we're also going to do with portfolio harmonization where we're going from something like 24 different boxes to well, something like four boxes in total, so harmonization, which will then bring us further improvements on the buying of the cartons. There's complexity, there's change over time, so there's a lot of benefits actually coming from modernization of these backing lines. Thank you so much. Thank you. Our next question comes from Niklas Kockmann from . Please go ahead. Yes, good morning. So I have a couple of questions. The first one is, what is the reason that you allocate an under-absorption cost to the package business? Is it because it's just too difficult to split it out?

I mean, that's part of it. I think it's also a fairer way of doing it. So if you imagine that we have a production line, which is producing products that may both be sold in pick and mix and in branded packaged. So obviously when the volume goes down, it makes the whole line less efficient. So it impacts the volume across. And in terms of the difficulty, and you're spot on there, because you might even have an instance where these products are then shipped to another plant where they may be packaged. So at the production line, it might not even be clear exactly if this product will land in pick and mix or in a bag later on. So it wouldn't be possible to do it. But I think the simple thing, it's because of the shared technology and shared use of resources, it is fair to allocate it based on the volume.

Okay. Good. And was there any negative impact from input costs in the quarter, and how do you see this developing going forward? Yeah, so basically we have, yeah, there's an impact if you will on But maybe it's more of a facing impact where commodity costs went up last year and we saw less of that in Q1. But again, I think what we're seeing now in Q1 is that they're going forward because that's more of a comparison to last year and not the run race. So I think we are in a pretty good place now. OK. So if we look at the factors impacting the package business in Q1, you have the underabsorption, the still chewing up negative mix effect. They should all be in the comparables in the coming quarters, right? I mean, again, it depends, of course, what happens now in Q2. You know, if we continue to see, you know, An opening of society can hire sales, and the absorption, of course, will come down. The mix should be improving. Input costs will, of course, be as they are. Yeah, I just mean... In Q2, Q3, Q4, you already had absorption and negative mixing packaged, right, last year. Yeah. Okay. Yes, of course, yes. Yeah. I mean, the other thing is just, just, just, just, Bear in mind that when you do it by quarter, recall that we were very clear last year as well about the shift of some of these costs between Q2 and Q3. So you just have to bear that in mind when you think about quarter versus quarter results. Yeah. And then the product recall that impacted this quarter, will there be any costs related to that? No, we believe that we're fully and appropriately provided for that. Okay, so it's a net positive sequence. Anyway, finally, I'm not an expert on this field yet, but your vegan kickstrap blood, could that be considered a plant-based product?

It should, right? Well, it's vegan, right? So that means no dairy and vegan-based.

Yeah, yeah. Okay. Good. But you have some other vegan products already, don't you?

Yeah, we do. We do. And it's a growing interest. So this is not going to be the last one. And we're working as well in different markets on different brands to...

towards vegan, so that is also... Do you mind sharing how much of your sales are vegan, maybe in 2020?

Yeah, if we can, we would, but I don't have that figure here in my head, but it's certainly something we are... We are on that trend, but it also, of course, has to fit the consumer, and the consumer is our boss. That is how we say and how we think and how we act. And it cannot go at the expense of quality, because it is, in the end, the second moment of truth is when you put the product into your mouth after you've bought it. And then it also needs to taste really well. So I would say it's important, but it's not the holy grail. It's not that if we move everything into vegan that it will suddenly sell, you know, twice as much. It's like proper marketing. We look at consumer trends, at segments, how big they are, where the consumers are interested. And in kegs, for example, this is a... of course, article, which is very big in Sweden with a lot of different target groups. So then it makes a lot of sense to do this. And we can do it as well with fantastic taste. So that all fits together. Sounds good. One final question, now I remember. You talked about the lower cost for merchandising and pick and mix. I seem to remember that in previous quarters you have sort of said that it's been difficult to adjust that cost base. considering the drop in picking mix. Has that changed? No, I don't think it has changed. We have reduced it. But what we said in the previous quarter is that it is difficult to right-size the merchandising costs where we do not know yet how the volumes are going to be post, let's say, society opening up. And we can see that we talked a little bit about the UK and how things are bouncing back. Would we have taken the decision to right-size our merchandising in the UK with the kind of loss we had over there. And you can see the kind of impact of mobility in the UK and also understand that's probably one of the markets where pick and mix is the most hit. If we would have done that last year, we would not have been able to grow that business now in March, and we certainly would not have been able to do that in April when society is going back. So what we said is we need a little bit more of a stable situation to right-size the merchandising

in each of the markets. Well, having said that, we have just concluded a big benchmarking across all the markets on the merchandising course to see and learn from each other. I mean, who has best practice in merchandising, be it route planning, be it efficiency of filling, efficiency of cleaning, efficiency of ordering, et cetera, et cetera, and then trying to bring all those lessons across the group had to lift everybody to a higher level, and there are interesting differences, let's call it like that, and opportunities to further streamline the ways of working in merchandising and how we work with merchandising. So that is certainly not the last time we talk about merchandising costs in this call, I would say. All right.

Thank you very much. Thank you. Just as a quick reminder, if you wish to ask an audio question, please press 01 on your telephone keypad. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. We have a few questions here on the screen. The first one I would ask Frans from Stefan. Stefan had two questions. One was on the gross margin last year and how to think about... you know, that impact this year. I think probably this question came at the same time as Niklas, but just to be, so basically, so last year, we had 35 million Swedish tons of costs that sort of, that spilled over into Q3. So when you think about the comparator, that you have to keep that in mind. This year, we're not going to have any movements like that. I mean, there's always a little bit of space in between quarters, but there's nothing significant impacting from Q4 going into Q1, nor is there between Q1 going into Q2. So that's one piece. The other question from Stefan was about the Easter sale. And Henry touched on it very briefly. So basically, there's two pieces here. One is that Easter has to be by eight days. But the other aspect of this, which makes it very difficult to really untangle, is that at the end of Q1 last year, you know, at the end of March, you know, sales really dropped, you know, incredibly because of COVID, because that was really the first time it really hit us. And untangling what is because of the facing and what is because of COVID is difficult. I mean, we've looked at this, you know, by week almost by day. But I think a fair way of looking at it would be to say that in 2019, when we had a similar shift of Easter, we estimated that that was roughly 30 to 40 million Swedish kronors that were shifting. And I would say that we're talking about roughly half of that now. So somewhere, you know, 15, 20 million 3D chroners is probably the benefit of the facing of Eastern Q1 this year. Good. Then I'll... can confirm to Niklas that it is plant-based, so you can now tell all your friends to buy Kex Vegan because it's plant-based. So just to confirm that fact. Now we have a question from Trojan Trading. Yes, the opening of Senior World in the UK will have a positive effect on on pick and mix.

Yeah, we are in dialogue, of course, with all our customers. Together with them, we also said we'll wait one week after the opening to see what kind of footfall they are getting into the cinema because pick and mix is, of course, also something you want to have fresh, and it needs to have a certain rotation for the concept to be fresh. But that's a big segment, cinemas and leisure are one of the three pillars on which the UK business is built. One is high street, second one is cinema and leisure, third one is let's say the more traditional supermarkets, the way we know it here in the Nordic. So that's absolutely a fair observation that that is a very important step forward for the UK. Can I comment on Katjes buying shares in Cloetta? No, I can't really.

I mean, they are a competitor on one hand. On the other hand, they are a third-party producer. Remember that we sold our Italian business to them. They seem to have an investment strategy where they are purchasing shares in companies they know very well, but there are real underlying reasons I would say you need to ask them. And that was the last one, I think, from the screen. Any other ones on the audio? There appears to be no further questions from audio. Good. Well, then I would like to thank everybody