Cloetta AB (publ)

Good morning, and thank you for joining us on the Q2 conference call for Cloesta. My name is Natalie Redmo, and I'm head of investor relations. I'm here today with Henri de Sauvage, CEO of Cloesta, and Frans Rudén, CFO. Henri is going to take you through our second quarter results, and we will then move on to a Q&A session. And I will now hand over to Henri.

Thank you, Natalie. 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 package products are back at pre-pandemic levels and this is really good to see because for candy

We had a very strong hoarding effect last year. I remember that people were buying a lot of grocery products in the first and second month after the lockdown and the pandemic started. So that's good that we are able to compensate for that. Well, Big Mix has shown enormous rebounds that we kept the candy sales and the pack business in growth. But also the pack tools in gum, that were double-digit down during COVID, are recovering. However, not yet to the 2019 levels. Big Mix sales up with 80%. Of course, it's driven by the opening of channels and the comparison of last year. But it's also very good to see the sales impact of all the things we've done, like the premium 10-weeking concept, which is selling at a higher price. And we're also making good progress to work sustainable profitability with all the actions we have been taking, and I'll come back to that a bit more. Significantly, the building started in our local 14% event is to get growth in this profitable branded business. And we do are strengthening our most important top 25 brands. In this quarter, we made a further step up in our marketing stance. Not only was it 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 factory journey, we took another milestone by going live with the new integrated maintenance system in our first factory. which will be rolled out to all the clients, may benefit our systematic approach to preventative maintenance, which will increase our efficiency of the lines and creating extra capacity, as well as getting a better insight into maintenance and costs. The webinar has underwritten the science-based target initiative to understand the climate of Paris.

We're now legally ready to announce our commitment in reducing the end-to-end impact, so both from the farming and sourcing of raw materials, our own impact in factories in Frankfurt location, but also consumers and customers. So that will be done in quarter three. 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 could say, with price increases to mitigate that for the year to come. If we then

look on the next slide Natalie yeah we can see the two segments so total 18% growth well distributed over the months and you can see the 7.3% of the brand sales going up really gaining traction April, May June, and of course April was also quite impacted by the Easter effect, being a little bit more in March, as we discussed last time. And a 15-mix is quite an astonishing number, of course, but it has to be seen in the light as well of the comparison of last year. activation to get to the next slide. Yeah, 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. So grocery, of course, is doing really well. Also high street shopping, which is important for the UK market. For pick and mix, given the pressure we have over there, it's also picking up. But you can also see that things like retail and recreation are still down with the baseline of 2020. 19, 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 the UK or the Netherlands, while we speak a lot about the roadmap of the UK to opening up. And this is also one of the reasons that that theme parks and cinemas in the UK are open, but not all the traffic is back to the levels where it should be. So together with these customers, we decided to hope that we start too early with the mix so that we have a healthy rotation in the store. And then the other conclusion, of course, is that moving to work, to transit stations, training, et cetera, which is very important for us as well. Giving the key to what we have that is still very much at the level of the last year and also in workplaces or 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 we dealt with the variant, it remains under control, that offices will start to open up in September after summer.

sure if the 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 Cloetta, we can see that the Pastel and Gum categories start to recover. We had a big drop versus 2019 in 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 categories, we see that people are taking less care of their personal outlook and fast sales are part of that.

We can also see now, for the first time since last year, that Kennedy backs to somebody down with 5%. And that, of course, is against the very strong comparison we had the issue with this category where many people started to buy candy bags and a lot of the water products 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 what we call order channels, so everything outside that we grow through e-commerce. That's like travel retail coming back, maybe not air traffic so much, but And like the ferries, which are very important for us in the Nordic, are important for the channelers coming back. But also teals and petrol stations, as I've tried to show, increase in sales also in countries like the Netherlands and Germany. That's quite important for us. Yeah, what we have been doing in the last quarter, I mean, we keep working on the top 25 brands. That's also why we're spending more money to make them competitive and to also expand in a competitive way. Hans will show you a bit more about that. We're doing some very important launches. We've talked about how to improve our revenue by launching products with a higher cost margin than the average category. A few good examples I'll take to prove that can be later on in the strategic review, but also the text. a lot of positive feedback in social media and with good sales. E-commerce, I'll come back to that as well, but also in support of, of course, the people driving that. Then there is the specific penetration program for both pastels and dumps. So how are we going to recruit those people back into the brand, which have forgotten or have not seen the need in the last 12 months to buy either pastels or gum? And also, how do we attract younger people? So we're launching, like, lateral crispy duck across all the markets with lateral very much aimed at younger people. 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&T.

And also very important, our number one brand, the way we classify that, so that Red Band in Germany, on a fantastic growth journey through both distribution gains and penetration. And that's, of course, also a 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 UK, of course, is starting to open up, so all the grocery stores are open, all the high street stores are open, the Poundlands are open, it's now only the cinemas and leisure which will open in Q3.

So in summer time when people are moving back into that channel and the last restrictions are lifted, that will turn green as well. On the consumer activation, we see small steps, but in general, you can say that only in the UK we are back with our number one reset with the promotional mechanisms which we had before, but not in all the others. want 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 prices from the customer are still on the very low or absent level and that is quite important as we saw in the UK because that is a very important driver to get people back. We saw some fantastic volume uplifts in that sense in the UK. And then, of course, consumer demand, so the consumer interest and the consumer trust in the category is improving. the yellow arrow going down to more immediate, but we're still not completely back to, of course, the 2019 levels. And what we do, of course, is the premium candy king 2.0 concept, which is not live in all the markets. It's much more premium, added 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 I said before, that will take a little bit more time. Also interesting to know, launched in a number of tech 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, 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, and consumers are willing to pay for that. So it just underlines our journey to profitability for a bigger mix, that if we do this well, then we can step out of this crisis.

and just deliver quality with good activation and good marketing and support and be paid for that. And then last but not least, we set up an e-commerce pilot in Denmark. You can see it on the internet, sleekexpressen.dk. 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 delivered to them. It's a crowded space, there's over 20 competitors in Denmark already offering this but for us of course really important and interesting as well to see how we can digitize this completely and then

If it goes well, we can roll that out as well. Then we go to the next section, which is France with the financials. Thank you, Henry. As usual, I will start with the net sales. And as we share now the quarterly results with the first full quarter where the pandemic is fully in the competitor, we are pleased to report a strong rebound. Overall organic growth of 18.2%. Partly offset by untable Forex. And this growth was driven by both PACT at 7.3% and pick 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 across 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 competitor, organic growth is up by 5.9%. with branded package sales up 4.9, and picking mixed almost double digits at 9.7%. So I think I'm not going to linger long on this, but let's look at this by segments over time. So here, looking then by quarter, growth and a 7.3% growth in our 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 packet 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. Here now, in quarter two, branded packet sales are in absolute Tennessee, on par with Q1 sales, despite the massive 80% growth in bacon mix. That's great to see, and obviously, as Henry said, the result of all the action we've taken on the branded side. Secondly, these Q2 branded package sales are Now, I exclude Translation 4X 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 decent 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.

We pick and mix. And that's a good segue to look at the profitability. And as you can see here in this graph, graphs are operating profit adjusted increased versus last year.

Now, last year we also shared

And in that result, $35 million of production costs had shifted out of Q2 and into Q3. So on a life-for-life basis, we are really improving profits from, let's say, around $75 million to $140 million. 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 doubling the 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 30 million Swedish kroners in marketing, coming both from having pulled back on marketing last year due to COVID that also has the 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 and general anatomy. net of last year's shift of cost to Q3 is then really driven by two 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 the major driver here. It's quite stable. But obviously, versus 2019, we still have a challenge with the refreshments. Now, partially accepting this volume-driven profit growth are increasing costs for 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. take away 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 $136 million 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 faced to Q3, you see the red box of negative returns nine million swedish corners you don't see the big increase in marketing that i mentioned obviously most of that 30 million sits in the branded package segment and the reason that you only see 9 million 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, pastures and gum, remain more suppressed and much more dependent on the mobility. Part of the step that marketing investment is, of course, going to support the refreshment category. And we committed to bring it back again and our overall branded package profit. So in summary, the quality of the branded package profit is solid. The mix is still not where we want it. 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 believed we could get to process without fully reaching the pre-COVID volumes. I'm pleased to report a good progress on this. In the quarter, we are at about break even, if you will. And last year, obviously, we had a loss per quarter of an average around 40 million. In Q1, we had brought that down to 24 million in loss, and now at about 30. That's actually better than in Q2 2019. But it's touching though, and a lot of work remains to make this sustainable. It's also important to note that this result, of course, includes pick-and-mixes, fair share of common costs that we have in headquarters, IT, supply chain, et cetera. So 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 the other margin-enhancing initiatives we're taking. And we talked about fairer pricing, reducing costs for warehousing, distribution, merchandising, support functions, et cetera. So we're going to try to put all of those layers together. Then, moving on to sales, general, and admin. So you see here on the left side, there are 53 million excluding Forex and items in comparability, of which, as I mentioned, approximately 30 million relate to the step-up in marketing spend. This step-up has then two parts. First, it is putting back the spend held back in Q2 last year, the cost of COVID.

And at that time, I shared information that you could, you know, conclude that it was about 15 or 16 million. You know, we were favorable 63 million. And I mentioned that about a quarter of that related to lower marketing. So those 15, 16 million, 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 million. 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&A of about 20 million 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 for marketing, by about 47 million. So when costs are up 20 million, it means that more than half of those 47 still remains after saving in this P&L for Q2. which is good, and that's what we wanted to do with, obviously, VIP+. Secondly, if you then wonder why aren't all the savings still in there, well, I had also shared last year that costs would start to come back as the business also starts to normalize, and that's what we see here in quarter two. 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 respect to furloughing employees. And we also have investments behind fixed years 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 costability back in pick and 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 SNOP 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 one-time savings we took in 2020. Very good. Then moving on to cash flow. We had a healthy free cash flow for the quarter delivering 102 million. on a net profit of less than 100. 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 220 million. That said, that very significant uptake is primarily driven by the competitors. And in Q2 2021, we are holding our working capital fairly flat versus where we started in the quarter. You can see that in the cash flow here, it really is the profit that's coming to not change the working capital. With respect to that working capital, days of inventory on hand is 89 days. So we are down actually 19 days versus last year. And we're also down by about four days versus what 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 three 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 $130 million free cash flow year to date. Obviously, huge improvement versus last year, by about a quarter of a billion .

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 two weeks, And also with the second 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 the top of the 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 are utilized credit facilities in commercial papers, total 2.3 billion. And then on the right, that we have access to additional unutilized credit facilities and commercial papers, not just on the market, of 600 million and 750 million for a total of almost 1.4 billion. That's down versus what we have in Q1, and it's driven by our revised and, I would argue, refined financing, which has allowed us also to reduce costs. In addition, we held $272 million 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 to continue to partner with us. This financing consists of two loans and a revolving credit facility, repayable in June 2023, 2024, and 2025, and each with the possibility of extending for an additional two years. This ensures our financing. It gives us flexibility for the coming years. In addition, we're going to continue our existing commercial paper program, and this allows us to reduce the revolving credit facility by $60 million and provide those savings. As for the leverage, our net debt versus EDA is 2.8, so that's unchanged versus Q1.

And it is a little bit higher than our target of 2.5, but it's fully in line with 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 Henry.

Yeah, thanks, Frans. And then I thought it may be interesting to just show you progress in two areas, which we are having as strategic areas in our Globata 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- solve it in establishing a organization but also in particular the infrastructure like pin systems which is a way to share data with with e-commerce players and all that was more than that already 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 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 cooperation partnerships with the likes of Amazon, really working well with launching a specific SKU for them. Big sizes, like you can see, 4.2 kilos of jellybees in the UK are 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 brand, which is a very nice way, again, in the UK, where we basically have two brands, Chewbacca and Jelly Bean Factory, supporting that growth through an e-commerce strategy. I talked a little bit about how do we retain penetration for gum and pest kills and again a nice example with Yankee a little bit of a smaller picture but a check out promotion with Yankee so people handling buying online with one of the major retailers in Finland getting an offer for Yankee when they are at the checkout. And it surprised the retailer, it surprised us how much we were able to sell of that and the kind of fall drop rate at the checkout. for such a promotion is really important. And then I would say also the new organization where we have a small central team with experts in how to manage like pure players and then working with the key account managers in the country. that resulted in two of our growth markets, UK and Germany, that we are having the skews, which are number one in their respective category within the Amazon business. So that's also for Germany, the Bremen brand, I just said, the biggest brand. position we have in the web, it's great to see that it becomes number one in wine gum portfolios 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, Natalie, is the fruit-based candy, because it is a really different thing. I mean, the most important thing that 50% of the product is really made from fruit. Syrup or fruit taste or 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 which is long-lasting.

It's not just a line extension. It completes your platform in that sense. And we do it across markets. So you can see in Rotten-Blanda, but it also goes into, for example, Finland. And of course, Rotten-Blanda 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 are coming in particularly the younger ones which of course is what we were hoping for because that's what all the consumer tests were We're telling us, of course, also 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, is also very important, because in that way, we bring those people into the, quote, brand, so really important. And then we can also see that And with two skews, we're already able to get something like 20% of the cotton blanda sales into this new concept. And we haven't been able to really start it when the numbers are not from last week. We haven't even started to put the media campaigns on there, which you will see on the next slide. So we go to the next one. You can see that we are, let's say, on TV. And that although the inside, the consumer inside is the same, 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 then in the top, you see the Finnish version of the product. And they are different, although inside, to talk about, it is really 50%. I mean, that is exactly the same, but we have to also 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 to look at the same or to try to create the same commercial. So there we adapt, and I think that's a strong point from ProWeb that we can adapt and still be cost effective because we do this all with one media agency and we shoot it in one go. Of course, outdoor also is important. what you normally don't see, but that's the in-store execution. I mean, look here at the picture for Aquaset. I mean, that is like one, two, three, four, five, six display pallets in a store really getting the attraction. As you can see, very much at the...

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 what we then call a real 360 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, you know, Arco set, Cloetta red or brown boxes. No, it takes the same elements as the commercial into the in-store execution very very important and we work of course a lot with influencers and this topic but also the kex vegan which we don't show today and and also the the venko uh show control community 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 basically publicity or um

support for the brand through what we then call earned media. So really good. Very nice to see a lot of hard work coming to fruition. Then if we come back to the last part, Natalie, I mean, the strategy doesn't change. So three basic priorities that have the organic growth of the branded business. We've talked 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. and doing that through strong, new innovations, which are also margin-creative, really important. Vegan, we talked about the thing before, and 15% of the portfolio can now claim vegan, and we're on the journey over there and also e-commerce as an important sales channel and also as an important way to build the brand in particular in the adjacent markets of UK and Germany where we're strengthening our branded position. So really good to see Yeah, it's a mix. I mean, profitability is important. And it's good to see that we've now hit a break-even, as Franz said, still with a lower volume. So we are able to adjust costs, in particular in the distribution and merchandising, to be... able to to do that now that we get a little bit more percentage the very very important thing of course before today the new candy king premium concept launched in all the countries. It's really different, very opposite to what we are. It sticks in the market like no way. UK where we have not been investing in rebranding over many, many years. So it looks more adult, it looks more hygienic, it looks more premium as well. So all this support, this move upwards and adding value to the category, to the shopper, to customers being very enthusiastic. And of course, we can go further, like 17 stores in Finland are showing with an even more premium. That's basically a continuous effort.

We're also having good benchmarks between the markets to see who is 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 pilots. Yeah, and then all the efficiency programs, I mean, they continue to deliver. The Shared Service Center in Lubitschia for finance is up and running. That's a fantastic thing which was achieved all under corona circumstances where tasks and duties were being transferred from countries into Lubitschia, 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 shared service center is working. So it's really great to see. We're working with cloud-based moves so that we can also save costs on servers, et cetera. There's a lot going on in there.

area. The maintenance system is something we picked up and there's a lot to talk about in Perth's factory and also about the operational efficiency of the lines, the imported lines, really stepping up month after month. We're seeing progress over there to this really good because it gives us lower costs but it also gives us more capacity for the growth so that's really important and then the refinancing of course successfully finalized So overall the business priorities have changed, of course the actions are stepping up and that is very good to see that also the momentum, the enthusiasm in the business to In fact, the results are very positive because it actually is actually served by the good results where we can also see where we have been working hard on improving things that it also shows in the in the survey as very positive. So important, 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 you.

Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may just follow by pressing 02 to cancel.

There will be a brief pause while questions are being raised.

Our first question comes from Andreas Lundberg from SEB. Please go ahead.

Good morning, and thank you for taking my question. On the profit on the picnic segment, I think you put it in contact. You said you were... improving versus 19, correct? That's correct. Yep. Yep. And if you... Is it more driven by pricing, or is it cost efficiency, or... What do you say about that? Okay, yeah, so... The key takeaway here is that we have a real improvement on the cross-stability versus

you know, 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, you know, this plentora of actions that we've taken, whether that was exiting loss-making contracts. As you remember, we started with, you know, we mentioned that in Q2 last year. It's pricing. It's the premium Candidate 2.0 that enables that pricing. It's more efficient use of merchandising resources. It's distribution costs. I mean, there's not one single bullet here, right? It's both what we've done internally and what we've done externally. So that's number one, real improvement. Now, we are, you know, around breaking down, 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, you know, 10, 20 million, and you don't see that profit, you know, always moves in the same direction, because it really depends a little bit on which country, and if this is for the concept or the bulk sales, which of course has to do with the recovery. We're not saying that, you know, everything is fine now, we're making really strong good progress, and obviously we want to continue with that. On a mix, I don't know, a geographical mix, what can you say there, you know, for example, to compare that to two years ago? The reality of course is that the societies and the retailers have taken different actions, but the competitors are also different. So in Denmark last year, we were in like a nearly full lockdown. The retailers stopped with pick and make. So you can expect sales over there. rebounded even stronger than the average. It's the same in the UK, where many stores were being closed, or where we went into product to fulfill the policy decisions from the retailer. And then in Sweden, if that's your reference, of course, there was not a full lockdown, but you also remember that we stepped out of a profitable contract in Sweden. The recovery is, of course, different over the different markets. We have very much dependent, A, on the actions we've taken in the market, B, on how to feel the lockdown was during Q2. Are there big season updates in the pandemic category? Yes, the big one is Easter. And maybe in Sweden, less show in Norway, not in the UK, and minimal in Denmark and 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. And this is a question on the other countries. So sales by country, if I do the math correct, I know you don't have used decimals, but It looks like UK and Germany are up quite substantially year-on-year, while countries like Denmark and Norway are a little bit of fish versus lab here.

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 is staying behind, And I'm not going to give the specifics, but I mean, on pick and mix, everybody is growing. And also on the branded, there's only one country which had, you know, 50% plus growth last year in branded, which this year is just below zero. And the rest is all growing. And you know how it goes then, you know, everything is growing. But of course, some countries are growing much faster. But they're the smaller ones.

It takes many years before, you know, the size of the country really then impacts the distribution of the sales over the country. So that is not something which I would say is at the moment really happening. 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 web and in Germany and that we're having some really good progress on that. So, of course, you'll That's part of what you see is stronger sales in Germany because of the different tensions in Germany than maybe what we've had in the past. It's a really interesting area for us, as Henry 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 stopping in Sweden and they would consume more you know, domestically. So, of course, we had, you know, an incredible up list in Norway last year, and now we have that as a comparator. You know, for everyone else, pretty much, it's an easy comparator. Norwegian, it's a really good comparator. So, I think your analysis there is correct, and that's two drivers. I see. And then on the raw material side, you talk about some actions by yourself. What do you expect with the drag here in the near term, or how should we see that going forward? Thank you. Yeah, we do that. We deal with that like we always deal with raw materials. and that we are discussing that with our customers, and we see a trend, defensively, country by country, and we see a trend, and we establish a trend, be it on raw material or energy or forex, and we announce a price increase, which, on average, it has like the three-month notice time, and then the pricing fee is coming through. Since it goes so fast, we're very much involved with this at the moment. We're managing this like we had been managing this in 2015. 2019, when we saw also raw material prices really going up. Of course, as well as raw material, we can see it in transportation, we can see it in energy, we can see it in salary inflation, so it's better to be on top of that

even though it doesn't impact it 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. And hence, we signal that and we have our action programs in place.

Okay, that's clear. Thanks a lot.

Thank you. As a reminder, if you have any comments or questions, please press 01 on your telephone keypad to enter your queue. Once again, if you wish to ask a question, please press 01 on your telephone keypad. Thank you. The next question comes from Nicholas Scotchman from Hondos Blanket.

Please go ahead.

Good morning. I'm keen to learn more about this candy cane premium. How is it different? different from the regular offering in terms of where you sell it, what products you're selling, what you think is the potential market, is it something you can roll out to basically all stores, or does it need to be a specific market or a specific retailer to offer this? Yeah, so sometimes I think I might not explain it completely in the right way. So there's basically two things. One, And we have moved now all the countries into what we call the premium candy king 2.0 concept. Let's take Sweden, where we have caramel spoon. That was a bit childish with the light blue and the light orange and green colors. And while doing that, we've also improved the assortment and we've taken pricing Because that and, of course, retailers, their own decision on what the price is up to the consumer, but, of course, in general, then prices are going up. And that's what we've been doing across all the Clovetza markets. So that's one. Then the other one, which is maybe what your question is about, this is a finished premium concept, so I think we've done the same, but then on top of that, we have gone to 17 customers, individual stores, in 17 locations, and we have The basic price is quite a lot. It's a euro more per kilo. That's what the retailers are asking over there. And that's on the basis of our price increases due to a better assortment. also a more premium, a much more premium concept. It's called the premium mix. It's a wide assortment. It's different, how do you call it, different sizes. Hygiene is the same. That's the segment, that's the light, that is our latest shelf, which we developed in partnership with the supplier.

We have, of course, all the markets. And the good thing is, there are two 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's then leads to the second effect, that these store owners of these 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, you know, can we please get it? And then also the practicalities, can we execute that? How do we then deal with the actual product? etc. etc. 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 for good quality. They can get out of this constant price spiral downwards which we've seen over the last five to ten years in the whole of the market that the only thing which matters is price and that is a very important thing which I think is worthwhile to share with you because I feel that this can into into all our markets maybe not in all the retail concepts because we also 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 yeah it's very promising let's Yeah, it sounds like it. Have you started to in-source any volumes in Picking Mix yet? Or are you still awaiting to see where the volumes will be stabilized? No, we have team stores. That's part of our plan for this year. So, of course, we made a full year plan for this year. And I said, okay, because we are not completely back on 2019 levels with the picture mix, we can do some more... and that is continuing also after the summer. Okay. Perfect. And actually, of course, yeah, we sort of limited all of what I just said to the perfect factor because we are... lines are working more efficiently, we also create the impact by that. So, absolutely, that journey continues on the industry. Yeah. And one more question on technology's profitability. It looks to me like sales in Q2 organically were down 25% versus 2019, but still profits were better than Q2 2019. We obviously discussed a few of the drivers. I was wondering the actions that you have taken 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 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?

Yeah, I mean, pricing doesn't stop. So, like we just talked about the Finland case. We can learn from that. And of course, there where needed, let's say it like that, we can take further steps. 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 we can make really contributing and that will be somewhere north of 5%.

At least, we're not stopping with pricing and looking for pricing opportunities. Also, one more time from my side, it's important to say that when we show you this segment reporting, of course, here, it's carrying the full load of of close contact costs. So it's the head office cost, it's the office rent, of course it's the local management fees, it's the customer service, it's the IT, and of course it's the supply chain as well. And if we were If we were not producing big mix on the production line in the beach and only had fast rollers being produced there, two shifts, and now we were three shifts on that line. Of course, the risers and the maintenance calls for that shift, which used to be carried by the is now being carried by the pick-and-mix show. Just when we look at the possibility that all the time something we need to take into account as well. Right. And then I came up with a final question. The refreshment category, which is still lagging behind, is to get back to 2019 level or above, do we only need to see sort of a... despite going back to the way it was or is there anything that could suggest that the underlying model has changed permanently in your view? Yeah, I mean the And the first thing, of course, to happen is that we need society, or let's call it more specifically, our sales channels to fully open again, right? Because we're not only selling gum or collateral in groceries. If we look at the NEL, it's very strong in sexual stations and at kiosks, relatively speaking. And of course, when mobility is so down, people who are used to shopping buying people so they're not able to do that anymore so that's the first one but of course the second one is if people have not been buying and using our brands for more than 12 months I reckon that this will be a bit of work to bring them back into that habit

I think we can also read from other multinationals. I still follow the personal care category a bit, given my old background. You can see the same kind of comments that people not working in the office have not been spending so much time on how they're looking and using less deodorant, less shampoos, etc. That's a bit the same with the mouth, you could say, that people have spend less money or less attention on their personal appearance. And that is something we will have to build back. And that's why we're also spending more money on Lekkerol and Yankee Festivals, for example, we launched this year in Finland to support that comeback.

And then in particular, the people who are working, and that's why this Lekkerol Crispy is so important to young people because it is more aimed towards younger consumers. So, just like what I was showing on the cotton