AAK AB (publ)

STO:AAK

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, welcome to the AAK Q2 Report of 2020. Today, I am pleased to present Johan Westman, President and CEO. [Operator Instructions] Mr. Westman, the floor is yours.

[Johan Westman, President & CEO]

Thank you very much, and good day, everyone. Welcome to this call. Together with me today is, as usual, our CFO, Fredrik Nilsson. To begin, you'll find on Page 2, we will cover a short update from myself, business area update as well and then a bit more details on our financials from Fredrik, and then some concluding remarks. And as always, we are happy to take questions at the end of this call. With that, turning ourselves into Page 3, a few comments highlights to the quarter. As you have seen, a weak start to the quarter with April really being, and beginning of May, the low point, the low mark in the quarter. But after that, we have seen clear improvements, so May being better than April and June being better than May, an improvement in sales or volumes as well as earnings towards the end of the quarter. Within the business, the most significant impact with regards to volume reductions has been within Foodservice, where the sales is going directly to or the consumption is directly in restaurants, fast food chains, hotels, airline catering, that has been the area with the most significant volume drop. Within Chocolate & Confectionery Fats, there has been more of a -- across the globe, reduced demand of a low Easter sales or really bad Easter sales, limited [indiscernible] and [indiscernible] as airport sales, et cetera, et cetera, being lower for -- with regards to our customer sales, and with that, we do see that our demand towards our customers has really been impacted by that lower consumption, and also on top of that, a destocking effect where our customer had to reduce their stocks. But again, in the quarter, gradually improving volumes also for Chocolate & Confectionery Fats. On the positive side, we do see our Plant-based Foods Solutions growing again, doubling the business year-over-year, very nice to see. And we also have a good continued trend for our Special Nutrition business. With regards to our margins, EBIT per kilo has been relatively strong, if you compare to volume, only down year-over-year 5%. And this is despite volume reduction of 50%. We have had a strong focus on our value-added products also through this period. We have taken measures to adopt our cost levels, and also a very strong execution by our organization with regards to staying safe, acting safe and, with that, securing business continuity, we have been able to operate through the COVID-19 situation with a very few exceptions. And so really, for us, being a critical part of the food supply chain, there has been a volume reduction basically everywhere. We have not seen a need to close plants or so, but really a slightly or 50% lower volume in general for the business. So with that, fairly good margins still. Page 4. Lockdowns and restrictions. We all know that by now, in most countries where we operate, in most countries where we sell, there has been versions of lockdowns and restrictions in the world. This has impacted, of course, demand, and with that, also the earnings that we have in the industries that we serve with a few exceptions. In response, we have also optimized our cost base to secure short-term as well as mid-term profitability. But this -- and this is important, this is without jeopardizing our long-term strategic focus. We have no reason today to adjust our strategic direction that we launched last year, the underlying trends are there. Health and safety for our employees in our network at work, at home has been in focus. I mentioned before, a strong focus within the organization, execution on our contingency plan has really secured that we have been able to operate and supply ingredients to the very important food supply chain. This is very much thanks to our global team's passion, drive and attention to save procedures. I'd like to take this opportunity to thank the whole organization of AAK for achieving that. As communicated earlier in the quarter by -- in the end of June, we have also initiated measures to optimize our structure on the more mid- to long-term horizon. With this, we plan at achieving SEK 150 million in savings and expected to have full run rate by the second half of 2021. This is also fully in line with our strategic direction. We aim to optimize our Bakery, Dairy and Foodservice businesses as well as continue to make strategic investments in Chocolate & Confectionery Fats, Health & Nutrition as well as Plant-based Foods, where we see strong growth trends going forward. Also glad to see that we have closed the acquisition of NPO Margaron LLC in Russia. This is a milestone for AAK. This is a strategic important acquisition, giving us opportunity to grow in a very important market in Russia. All in all, AAK is well positioned to take advantage of a market rebound as soon as lockdowns and restrictions are lifted. With that, turning into Page 5. Plant-based Foods continued to grow. And also very importantly, we see a more and more global market penetration, with great interest from the get-go, I would say, in Europe, North America, but we're also seeing now Latin America coming strong and also in Asia, and an example here given in India, where we are entering into a corporation, a partnership with Good Food Institute in India in order to accelerate research and development as well as promotion of Plant-based Foods Solutions. More than glad that we have a new colleague in the leadership team of AAK, Sten Estrup has joined us. A very experienced Director, he's the President of Asia for AAK. And he has joined us already and is already up and running with a strong base out of the Singapore office of AAK, and we are long enforced restrictions and lockdowns to be lifted so that we can also travel more. But really happy to have Sten in our team. With that, into Page 6. In an unprecedented or in unprecedented times like this one, the one we are in at the moment with a pandemic ongoing, it is so important to be pragmatic and creative. And to really stay connected while we still have to -- have physical distancing really. And in our organization, we have seen very good creativity in order to secure connectivity with customers, suppliers and also internally. And one of those examples is an initiative started in our North Latin America organization, called A Part Together, where we get movies sent from the different parts of the AAK organization in an attempt to really feel that we are together, although physically apart, just highlighting one example of the good spirit within AAK. On Page 7, a few words on sustainability and sourcing of raw materials. At AAK, sustainability is really close to our hearts. It's a central part of our strategy and a top priority. And we believe in partnerships and strong engagement to drive change. And for a long time, we have worked systematically to achieve improvements. To just exemplify a few things, within West Africa, we source shea kernels. And we have a program that we call Kolo Nafaso. We have now reached over 300,000 members, women in our women's program, Kolo Nafaso. That is over 30% and over 30% increase compared to last year and show our dedication. And this has also been achieved in spite of challenges to operate and communicate given the current situation. And this is all due to a very passionate and dedicated organization that we have in West Africa. Palm and Palm oil. We have had -- in the quarter, there has been some media coverage with regards to AAK and our sourcing of Palm oil in Indonesia. The picture painted on how we work do not correctly describe the AAK as we know it. And they do not describe the engagement in sustainable sourcing of Palm oil that we do apply. Let me assure you that within AAK, we have the ambition to ensure a palm supply chain free from deforestation. And we know that there is so much more to do. And we believe that it is extremely -- this extremely important transformation can only be achieved in close collaboration with governments, industry bodies, suppliers, customers and NGOs. We are a founding member of RSPO, and we have been engaged in improving the Palm oil supply chain for a long time, and we are fully committed to do our part also going forward. Finally, on coconut. We are, as you know, a multi-oil, a multi raw material using company. Within coconut oil, we have also secured a better supply chain through active on-the-ground supplier development, and that includes also small holder programs to develop a coconut oil supply chain that is better than the one we have had. As a multi-oil company sourcing several raw materials, we are focusing on improving the supply chain in all aspects, including sustainability, which is a top priority, again, in our strategy going forward. With that, moving into more details on the different business areas of AAK, starting with Food Ingredients on Page 8. Volume was down significantly in the quarter if you compare year-to-year. Again, the low mark really in April and with lower margin, more or less, across the board, it meant lower utilization of our plants. This is not due to that we had to close, but this is more due to the general lower demand, and with that, a reduction by plant. That led to a hit on earnings. But again, EBIT per kilo, our margin, was held up in spite of lower margins, really with regards to the measures also taken. The main driver of volume reduction within Food Ingredients was Foodservice. I mentioned that before, the volumes were down 50% linked to the sales to restaurants, airline catering, hotels and so forth. But again, for Foodservice, a very dramatic drop in the beginning of the quarter, but a gradual improvement towards the end. Plant-based Foods doubled and Special Nutrition performed well, really, within the Fat Nutrition being a -- having a strong performance and predominantly with good sales in China and with new local Chinese customers helping that development. On Page 9, a few words on our Chocolate & Confectionery Fats business, impacted very much by a weak Easter with regards to sales to consumers, and with that, our customer had a weak sales and a follow-on ripple effect of that is our demand was down. And also on top of that, we have seen clear destocking with our customers or from our customers, and that impacted our demand. Volumes did start to gradually pick up towards the end of the quarter within Chocolate & Confectionery Fats. One of the highlights in this business area is that we did manage to improve, year-over-year, our operating profit per kilo or margin, it's up 8% year-over-year in spite of lower volumes. This is very much thanks to the already implemented supply chain improvements with additional capacity in orders as well as better yielding shea kernels and productivity improvements. So again, showing the capacity and the leverage that we can have in this sector as soon as restrictions are lifted and demand starts coming back more and more. With that, turning into Page 10, Technical Products & Feed. Volume is up, but really, volume is up on the lower-margin businesses, where we have seen volumes being down in our fatty acids business and, predominantly, within sales to candles and Technical Products. And with that, that took a hit on earnings in that business area. With those comments on the business areas, I am turning it over to Fredrik Nilsson to give us a bit of an update on the details in our financial figures.

[Fredrik Nilsson;Chief Financial Offcier, Head of Corporate Communications, Mergers & Aquisitions and IT, Vice President AAK]

Thank you, Johan. Looking into Page 11 and cash flow. We have seen a lower EBITDA with 9% in the quarter, and that is due to the lower operating profit, as Johan has just explained. If we begin to look at details, looking into the working capital, we have an outflow of SEK 262 million -- SEK 152 million in the quarter. That is linked to accounts receivables was positive due to lower sales. We have good inventory management that has also given us an inflow during the quarter. However, all the positive things linked to the receivables and the inventory was offset by lower accounts payables, and that was a consequence of lower purchases and also the deferred impact of higher raw material prices. Reported tax cost was very low in the quarter, actually down to 15%. This is not the underlying tax rate you should expect going forward. The earlier guidance is still valid, excluding the income we had as item affixed and comparability. It's not -- that was not taxable. So the underlying tax rate remain still 24% for the full year. Cash flow from investments, SEK 174 million in the quarter, and that was mainly related to regular maintenance investments and capacity increases. Let's move to Page 12 and looking into the raw material prices. During the first quarter, raw material prices almost returned back to the levels that we saw before the rally in 2019. That should imply that we should get a positive impact in our working capital during the second half of this year. As you maybe recall, there is a time line of 6 to 9 months until we see the cash flow effect in our -- from the price volatility in our cash flow. And also, another reminder is a 10% change in all our raw material prices will affect working capital with around SEK 350 million. Yes, you have that in mind. Looking at Page 13, return on capital employed. It declined down to 13.6% in the quarter, and that was mainly driven by the decreased operating profit and the impact from higher raw material prices. Looking at Page 14, our net debt. I think it's important to highlight AAK has a really strong balance sheet. Equity assets ratio, 47% in the quarter. We have a net debt of SEK 3.2 billion, up around SEK 100 million since year-end. And net debt divided by EBITDA at 1.14x. So really strong balance sheet key figures. Let's move to Page 15. Looking at our loan duration profile, we have today 90% of our loans with a duration with more than 12 months. We have total credit facilities, SEK 8.2 billion, and we have SEK 6.9 billion in committed credit facilities. As you maybe also recall, it's many years ago now, we also have a revolving credit facility of EUR 400 million that will expire in mid-June 2021. This has now been extended by additional 12 months but adjusted to EUR 280 million. We have also approved, by our Board today, 2 new facilities in total of EUR 120 million. Moving on to Page 16. We saw a negative currency translation impact in the quarter of SEK 10 million, SEK 6 million linked to Food Ingredients and SEK 4 million related to Chocolate & Confectionery Fats. And also based on the current spot rates, end of June, we should expect a continued negative translation impact going into the third quarter. By that, I would like to hand it back to my good friend, CEO, Johan.

[Johan Westman, President & CEO]

Thank you, Fredrik. And the next page, Page 17, is actually about you, Fredrik. My dear wingmate, Fredrik, he has decided to pursue new opportunities. And with that, I would like, if I said anything else that I am sad with you leaving AAK, but I am simultaneously happy for you. A good opportunity. Fredrik will stay with us to the beginning of next year. So that gives us a good time to find a strong successor for Fredrik, but I'll take this opportunity to hand it over to you again, Fredrik, for a few words on that.

[Fredrik Nilsson;Chief Financial Offcier, Head of Corporate Communications, Mergers & Aquisitions and IT, Vice President AAK]

Thank you, Johan. With the big AAK heart I have, it has not been an easy decision to leave AAK for new opportunities. And to be honest, I will say, it's one of the most difficult decisions in my professional career. I have to go back. My career started here in AAK back in 2007, and it has been an amazing and exciting journey all the way. And I'm extremely proud of being a small part of the AAK history. As Johan said, I will be here, close the year, and I'm also really looking forward to delivering the strongest possible second half of 2020. At the same time, it's also with great confidence and pleasure that I'll join Trelleborg during the first quarter 2021.

[Johan Westman, President & CEO]

Thank you, Frederik, and we'll come back to say goodbye to you. But with that, the process defining a new successor has started today. Concluding remarks from myself, we do offer plant-based, healthy, high value-adding oils and fat solutions based on our co-development approach. Of course, in the short to mid-term, we see the corona pandemic, obviously, increasing uncertainty. But there is no reason for us to adjust our view on the strong favorable underlying long-term trends in our markets. And therefore, we do remain prudently optimistic about the future. We've seen a drop in volume. We've seen corona impacting many, many industries, and so it has with ours. But we've also seen, in the quarter, a gradual improvement sequentially with April being the lower mark in the quarter. So with that, again, prudently optimistic about the future, strong underlying trends on the more mid- to long-term basis. Thank you so much for listening. We are happy to take questions from now and forward.

[Operator]

[Operator Instructions]We do have some questions in the queue already. So we will begin with Alexander Jones from Bank of America.

[Alexander Jones, Analyst]

Two questions, if I may, the first one, you've talked about sequential improvements through the quarter. Could you perhaps give an indication of the exit rate that you've seen in segments like Foodservice or in Chocolate to get a sense of how things stack up into the third quarter? And then the second question is on the Chocolate segment. You talked again about destocking having been an impact as well as the weaker end market in general. Is it possible to quantify that relative to the weaker end market in terms of the sales decline you've seen this quarter?

[Johan Westman, President & CEO]

Thank you. Starting with the trend, as we said sequentially. So obviously, there is a lot of uncertainty still. But there's nothing in July so far that is showing any other trend line then that we are continuing. And to be a bit more specific as you asked, Foodservice, yes, Foodservice was, of course, very -- a dramatic drop as lockdown hit early on, but we were also very fast in our Foodservice organization to adopt -- to apply following and now adjusting to the new reality with that demand. And as soon as we saw societies open up a little bit, we also see immediately a pickup in demand. Of course, also in this sector, there must have been destocking as restaurants closed and so forth, and there has been a bit of a filling the pipeline. But from an index point of view, clearly, we see that we are on a week-by-week gradual improvement within Foodservice, but still, obviously, with a significantly lower level compared to before corona since there is still clear restrictions out there still in the world. With regards to CCF, less of the U-shaped pickup, but still gradual improvements. And I cannot give you the specific details because this is based on what we know from our customers, but we do not get a specific range about how much was destocking, how much was demand. But if you look at the underlying development in the Chocolate & Confectionery market and then apply, then destocking a bit and you see where we sit. So clearly, when destocking is lifted and we go back to a normal demand, there will be an additional gradual improvement, I hope to see. But less of a sharp improvement, but still, a gradual improvement in CCF from the beginning of the quarter towards the end. I do believe that there is still some destocking to do after a bad Easter and after generally lower volumes. But after that, we should see a gradual pick up as soon as restrictions are lifted.

[Operator]

Next, we have a question from Kenneth Toll from Carnegie.

[Kenneth Toll Johansson, Financial Analyst]

A short one. Can you explain where the positive result in EBIT came from? From your changes in finances? And also why those changes did not end up in the financial map and on the EBIT line [ this time ]?

[Johan Westman, President & CEO]

Absolutely, Kenneth. Fredrik?

[Fredrik Nilsson;Chief Financial Offcier, Head of Corporate Communications, Mergers & Aquisitions and IT, Vice President AAK]

Absolutely. It was linked to internal optimization and it was linked to old FX variances in equity that we had to release due to that we changed in the legal structure. That was the reason. As it was FX, you need to report them as another income.

[Kenneth Toll Johansson, Financial Analyst]

Okay. So it was more sort of internal structure rather than refinancing?

[Fredrik Nilsson;Chief Financial Offcier, Head of Corporate Communications, Mergers & Aquisitions and IT, Vice President AAK]

Actually, there's nothing to do with the refinancing. This was just pure optimizing our own structure.

[Johan Westman, President & CEO]

Turning every stone looking into the restructuring program, looking at the opportunities, and this one came up as something we needed to do and wanted to do.

[Operator]

And next, we have a question from Andreas Brock from Coeli Global.

[Andreas Brock;Coeli Global Select;Fund Manager]

Andreas here. I'm a Manager at Coeli Global. I have a question regarding ESG. And, I'm just trying to make money for my investors. And the thing is that, that whole Expressen article on Palm oil, it really put a negative feeling around the stock and has affected the share price. And I really appreciated your comments earlier today about how you view palm oil. But I have a question, could you please, just on that article, could you just state publicly here on the conference call for everyone to hear that you actually -- that article wasn't relevant because you actually don't have production in that area at all? And secondly, could you just please give us something more tangible about how -- what can we expect in the next 12 to 24 months from you when it comes to this whole palm oil certification?

[Johan Westman, President & CEO]

Thank you. So first of all, that was -- as you mentioned, that was statements made by an evening tabloid in Sweden. We source from suppliers in Southeast Asia in several countries, and we are working diligently to secure our supply chain. And whenever we get any information and/or statements alluding to something, we always take that into account. We are always happy to engage further. And in this specific case, we made an investigation. And today, we have not found anything confirming that AAK would have been acting in the way it was at least described and painted, call it, in this article. We have been, for a long time, very active, as I mentioned before, to transform the palm oil supply chain. We are one part of it. We are sourcing from our suppliers who, in turn, are refining oil, and then they are buying from crushing companies if they don't have them themselves. And then they, in turn, are buying from plantation. So this is a long chain that we have to master together in order to make improvements happen. And that's where we are still dedicated to continue to drive change, to monitor and to work with our suppliers to really make a change happen. But with regards to one of the most important things here is really to get deforestation to stop. I think still the debate is a bit twisted with regards to palm oil, whether the palm oil is good or not, palm oil is really an important ingredient for the world, feeding the world, one of the most efficient ones. So we really have to get the dialogue about how we get deforestation to stop. And that needs to be in coordination with government bodies, with industry bodies, suppliers, customers as well as NGOs.

[Operator]

And next, we have Heidi Vesterinen from BNP Paribas.

[Heidi Maria Vesterinen, Financial Analyst]

I have a few questions. I'll go one by one. First of all, could you update us on the emerging markets, please? I think you had flagged India, for example, being a challenge. I think you have big exposure in India, Mexico, Brazil and Turkey, in particular. Could you update us on each market?

[Johan Westman, President & CEO]

Yes. Thank you. We'll -- we -- yes, it goes without saying that although on an overall level, we can say that it's been versions of lockdowns and measures taken by governments. But really, India was difficult in the quarter because the way they did the lockdown made it actually impossible for us to operate for a while. And we see that as one of the countries where that could still happen. So uncertainty about the way they do restrictions and lockdowns, we finally managed to get approval for being a critical ingredient in the food supply chain as well as getting our employees into the plant and being able to operate. But clearly, that was a bit of a challenge in the quarter. And that could still be in the future, but again, we are part of the critical food supply chain. So one way or the other, we get through, but it can be more difficult, in this case, in India. We are operating in Brazil, Turkey and China as well, as you mentioned. China was early on, as we all know. We have been able to act safe to keep on operating. So business continuity has been really strong. Really strong execution by our China team. So China, as a country and demand, is -- has come back, but not to the level it was before. So still, more to give in a general demand sense, but from an internal point of view, still operating well and maintaining business continuity. In Turkey, we have had the impact really on our -- we do sell and have a business that goes through to many, many, many thousands of artisanal bakeries and call that type of Foodservice business that, of course, was hit as well. And that is something that is expected to improve as also restrictions are lifted there. And then coming into Brazil and Southern Latin America, I think we have all seen in the news, the difficulties and the way it's spreading at the moment. We have again been able to operate safe. We have it under control internally. But with regards to demand, that is, of course, impacted quite a bit due to restrictions and lockdown. But I think we should expect the same pattern as they are lifted, the demand for our products are also coming with it. So in the short-term, very uncertain and volatile, but in the mid- to long-term, still prudently optimistic about these regions as well and countries.

[Heidi Maria Vesterinen, Financial Analyst]

And then the next question on CCF. I think last quarter, you had talked about down-trading by some customers. When you look at the volumes that you do have in this segment, is -- do you see that the high end is suffering, is there a trading down still happening?

[Johan Westman, President & CEO]

Yes. It's been in the results that you see, that is included in the quarter already. And that is likely to continue for some time, but not a long time. That's not what we forecast, but that has been part of the result in the quarter, yes, and predominantly Eastern Europe.

[Heidi Maria Vesterinen, Financial Analyst]

And then as a final question, we hear from other ingredient companies that innovation activity is slowing. Do you find that co-development activity is slowing for you as well? And I wonder, given your long development time, if this could be a headwind on mix with a bit of a lag?

[Johan Westman, President & CEO]

Well, very relevant question. And of course, I think we all feel that some activities are difficult to maintain. So there has been certainly a change of the way we do things, but we have managed to continue some co-development activities and academies where we have been able to do things virtually, and even sending samples via post and having a virtual camera setting in a lab, et cetera, et cetera. So again, we show our agility, our creativity to make things happen. But if you -- simple answer to, is it slower, yes, a bit slower, but it's certainly not dying. And going forward, I think in the mid- -- in the short to mid-term, as we cannot travel, as we cannot meet as we did before, yes, it will be more difficult. But at the same time, I see that the underlying trends still call for later on, at least, accelerated activities and reformulations and so forth.

[Operator]

Our next question from Oskar Lindstrom from Danske Bank.

[Oskar Lindstrom, Senior Analyst]

I have a couple of questions. I'll take them in turn, please. The first one, in the PowerPoint presentation now, you have a comment on Page 4, where you say that you guide for a significant drop in demand for Foodservice and other non-food segments in the coming quarters, and that this will have a material impact on earnings. I don't find -- at least at this exact comment in the report, I mean, you do mention sort of further disruptions from lockdowns. So in light of this, what do you mean by material impact? And how should we see H2 volumes in light of this? And is this irrespective of sort of lockdowns ending during H2? I'm a little bit sort of interested in this comment.

[Johan Westman, President & CEO]

Can you repeat on where did you say you saw that, Page 4?

[Oskar Lindstrom, Senior Analyst]

This is on Page 4, update on the coronavirus situation, the section Business Impact, the second to last bullet, if you will, or gross?

[Fredrik Nilsson;Chief Financial Offcier, Head of Corporate Communications, Mergers & Aquisitions and IT, Vice President AAK]

I think, Oskar, are you having the right presentation? You're not having this first quarter presentation in front of you?

[Oskar Lindstrom, Senior Analyst]

Maybe I've gotten the wrong -- that probably explains it. I was a little bit worried there all of a sudden.

[Johan Westman, President & CEO]

Yes. But you clearly saw in Q2 that, that happens.

[Oskar Lindstrom, Senior Analyst]

Yes. Good. No, I was just wondering that you're sort of warning for this for H2 as well?

[Johan Westman, President & CEO]

No, no.

[Oskar Lindstrom, Senior Analyst]

Okay. Fine. Let's leave that behind. I have a second question around the sort of turnaround in Infant Nutrition, which you mentioned here with new local clients in China, et cetera. Is this segment now sort of back on track after the weakness last year? And have you been forced to make any changes to your offer or business there in China?

[Johan Westman, President & CEO]

Thank you. Well, not really. We have had always a strong position in China, but we know that the Infant Nutrition business was down predominantly linked to lower birth rates. But we also have good business opportunity. We have had good business opportunities in pipeline and a few innovations and new product offerings in the higher range of the higher value-added solutions. So call it that, we stabilized it, and we are now growing from that new level, and in a stable pace. And through corona, we have seen no impact really on demand. If anything, it is slightly positive and with a good traction in China.

[Fredrik Nilsson;Chief Financial Offcier, Head of Corporate Communications, Mergers & Aquisitions and IT, Vice President AAK]

Absolutely. We have also got in some new local Chinese customers here during the last quarters as well.

[Oskar Lindstrom, Senior Analyst]

So it's not a situation where you've sort of simplified and reduced the price of your products or made any such changes?

[Johan Westman, President & CEO]

No.

[Oskar Lindstrom, Senior Analyst]

Okay. And my final question, which I hope, is also relevant. I mean, the CCF performance in Russia and emerging markets in the second quarter, in light of not only corona, but also weaker currencies, sort of how has that impacted your business? Is that fully in the second quarter? And then do you foresee sort of having to raise prices locally? What kind of effect should we expect there?

[Johan Westman, President & CEO]

The effect that we have seen, and it is in the quarter, we -- Eastern Europe and Russia, predominantly an important market. Yes, that's a market where it's strong for us. It's -- we forecasted to be strong going forward in a more mid- to long-term perspective, and that's why we made an acquisition into Russia as well, clearly, with the ambition to continue to grow there. But that is one of the countries, and the region if we take Eastern Europe into it, where you do see some down trading. There was a question before there from Heidi. Yes, that is in the quarter already and has been an impact. That is probably the most important impact. And then the other things that you mentioned are also included in the quarter, but not as significant to the overall results. CCF, call it 3 dynamics, a bit of down trading, a bit of general volume reduction, but also our own cost improvements from the implementations we have made and that's why you also see a margin improvement within that.

[Operator]

Our next question comes from [ Stefan ] from Millennium Capital.

[Unknown Analyst]

Just 2 for me on the Chocolate division. Just shorter-term and longer-term, do you see -- I mean, by [ recovery report ] on [ business views ] and they don't rate it somehow the long-term algorithm of taking 2020 off a lower base and telling us that volumes would grow off a lower base in Chocolate. Do you also see the longer-term prospect slightly affected here in Chocolate due to the lower demand? And second, you mentioned the Easter impact in Q2. Would it be fair to assume that we're going to see as well a weaker Christmas season this year? And that the negative effect would come on top of the destocking in Chocolate & Confectionary?

[Johan Westman, President & CEO]

Very relevant, of course, in a situation like this. We don't -- I don't have all the answers to that, but I'll still answer your question what I believe. Yes, is it likely that we will be completely in a new normal or normal situation by Christmas, I think that is something that I don't believe. I don't believe we will be completely back to normal anywhere in the world. So does that then have an impact on Christmas? That, I don't know. Could be, but it could be that we have now find ways to shop what we need and to create a great Christmas and maybe more online shopping for gifts and so forth. Let's see how our industry here is really developing. But our sales is really going to the production of chocolate. So what we need to see here is the trends really from the consumption of chocolate and with that our customers' sales, whether we see an additional impact with regards to Christmas. But clearly, we had -- this pandemic came right over Easter, and I can easily understand how that was impacted. Then with regards to -- you mentioned one player in the industry. We certainly have -- we are supplying most of the players in the Chocolate & Confectionery industry. So we -- our demand follow very much the dynamics in the industry, then with the caveat of our different value propositions and products, of course. But -- so we have one indicator there, and that is included in our total customer base, but we need to see the whole development for the whole sector in order to draw better and more precise conclusions. I do expect demand to be gradually improving as restrictions are lifted, call that from a new base in Q2 and forward.

[Unknown Analyst]

Can I ask a follow-up question on the Infant Nutrition business here? Reading some of your quarterly comments and already a transition for a few quarters, like local Chinese manufacturer taking shares from the multinational leader and you won some local contracts, I think, earlier. Is it margin agnostic for you? Or is there -- if we see market share shift in Infant formula in China, how does that affect your EBIT per kilo in that region?

[Johan Westman, President & CEO]

I think, not a major shift. We -- the price level or margins is quite the same, but it's more showing how we are relevant and how we are able to follow our customers, both the multinational or international customers as well as the local ones.

[Operator]

There are no further questions at this time. I would like to invite the speakers to deliver their closing remarks.

[Johan Westman, President & CEO]

Thank you very much, everyone, for listening. An unprecedented situation, very challenging, to some extent, quarter, strong focus on staying safe, being able to secure business continuity, well executed by the organization, measures taken, cost adjustments in place, more long-term, medium-term actions also announced, and we have seen a gradual improvement through the quarter with the restrictions lifted. And then if they are and if they continue, we do see that as a positive to a continued sequential improvement. Thank you very much for listening.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.