Cloetta AB

STO:CLA B

Earnings Call Transcript 2018-Q1

[Jacob Broberg]

Good morning and welcome to the Cloetta conference call. Jacob Broberg, Head of Investor Relations here, actually my 25th quarterly report from Cloetta. And with me today, I have Danko Maras, our CFO; and also Henri de Sauvage-Nolting, our CEO. So please go ahead, Henri.

[Henri de Sauvage-Nolting]

Yes, thank you, Jacob. So quarter 1, important quarter for us. We had a good EBIT delivery and also very good Easter sales. If you look at the net sales, we, of course, see the Candyking effect which takes us up to just over SEK 1.5 billion. Organic growth was 1.1% coming from Easter effect but also very good performance on the pack business which is less affected by Easter.If you then look at the operating profit adjusted, SEK 164 million, again good mix, good sales from the pack business which is delivering above-average profit, synergies coming in, production volumes back on track and also good cost control. That leaves us with the operating profit on SEK 166 million and the profit for the period on SEK 95 million.Then cash flow, important, Danko will explain more in detail, but Italy is still a comparator of last year and of course the Easter sales in the last 2 weeks of the quarter also mean that we sold a lot and that that has to be collected and the net debt to EBITDA target is in line.If we then go to the markets and the sales. As already said, good growth of the branded packs business, if we start with the package confectionary market, the organic point to say, that's where we have Nielsen figures. We don't have that on pick & mix. So the packaged confectionary market was growing or was unchanged in all markets except Denmark and we saw our sales across the board growing.If we look at few highlights, I mean Sweden we, of course, saw the Easter effect. The pack business did really well in Finland, the pack business grew and we were able to compensate also for the very strong first quarter of last year with the abolition of the sugar tax as from the 1st of January. In Denmark, we are back in that customer where we had some issues last year. Of course, that helps us. And then we have Norway where there is a sugar tax as from the 1st of January which is impacting the business. We'll come back to that later.So we also said that from this year we would start to report the 2, what I call, divisions, so the branded pack business actually grew with 2.4%, very important for our EBIT again. And pick & mix went down with 3.3%. And that's mainly Norway and what happened over there is not only the sugar tax, sugar is -- because of the sugar tax introduction a big discussion topic across categories and all retailers decided that during the Easter period they did not do price promotions on pick & mix.And that's a very important part of the pick & mix business, so not having those price promotions has really impacted us quite heavily. And we also had a strong comparator last year again in Finland and we also, of course, had to cope with the Coop business going out in the first quarter. That's actually now completely gone. So the Cloetta concept sales to Coop have gone. We are still delivering our branded built products to Coop for their own assortment.Then Candyking, as previously said, very important for us, a lot of value creation coming from that if we do that well. Overall integration is in line with the plan. Our Cloetta ERP system is going into the Candyking business during quarter 2, so lot of work on that. And of course if we have that implemented then also back office functions are easier to, yeah, to integrate, so very important step. And then we will do the U.K., which is then another big Candyking market, later in the year.Depending on the market we're either fully integrated or just on the combined leadership, but sales and merchandizing integration is done. In-sourcing of all the production is on plan and also with the Turnhout line coming on-stream now we're getting more capacity to do that.Then on the 1st of April we appointed a very good Cloetta employee as the new pick & mix officer, we've [indiscernible] to really leverage the scale and the learnings across all the pick & mix markets we now have which is an important step to reach that particularly in growth but also in cost synergies. And the identified savings of SEK 100 million are still standing firm. And we're following up on that quite regularly.Danko, over to you.

[Danko Maras, Chief Financial Officer]

Thank you very much, Henri, and good morning everyone. If we go into Page 5 and we look at the income statements and highlights. If I leave sales for a second and I move into the profit immediately you can see gross profit of SEK 560 million in the quarter. It's SEK 106 million more than last year. That's a nice contribution.About 2/3 of that is actually the inclusion of the Candyking business. So a good contribution in gross profit from Candyking. But also as Henri was alluding to, good production, good sales of packed, giving us a good mix, so really a good quarter in the total delivery of the gross profit.It comes back to the same discussion we've had before. If we look at the gross margin there is still a dilution of 1.3%. Had we only had Candyking in there it would be twice as big. So the dilution effect from Candyking is still quite high but we are actually offsetting it in this quarter with good production in the packed business that is going so well.Moving down to operating profit adjusted, there is a SEK 50 million contribution versus last year, the SEK 164 million, and that's coming down to the fact that we are including the merchandizing cost of Candyking in the business model. That is, of course, costing us a bit more and taking away part of the gross profit, again offset by good cost control in the quarter and also some Candyking synergies. So even there a good contribution on the operating profit adjusted.A little anomaly is that our operating profit is actually higher than the adjusted one and that relates to an earn-out adjustment we have done on the Candyking and pick & mix volumes that will be paid out by the end of December this year. It's a slight adjustment, not a major one, but that actually has a credit effect in the income statement. So for this quarter, we have approximately SEK 6 million of restructuring only, very small restructuring charge, but an offset of a credit of SEK 8 million being the earn-out release.It's nice to see the operating profit margin adjusted being at double digit, 10.5%, versus last year's 9.3%. The net financial items has impact of reevaluation, the negative SEK 42 million versus SEK 11 million last year. Our third-party interest cost is SEK 8 million, so it's below last year, but we have monetary assets that are not included in our hedge accounting principles and a lot of negative euro balances had to be revalued at SEK 10.28 which was the closing rate. So you have a SEK 22 million impact of reevaluation of cash balances in euros that comes and goes as you know, it's unrealized throughout the period as we are revaluing them.On the other hand, SEK 63 million of reevaluations are captured in other comprehensive income, which is then also part of our hedge accounting. So the total effect we had in the quarter of SEK 85 million you see SEK 22 million in the income statement.Profit before tax is SEK 124 million and then profit for the period is SEK 95 million. We have a tax charge of approximately SEK 23.4% which is equal to what we had last year and also in line with what we have indicated as our corporate tax rate target.With that moving into sales on page 6. As Henri was mentioning, good organic growth of 1.1%, also having an Easter impact of course and then Candyking 24.5%. I would like to just inform you that as of Q2 you will from May onwards have organic growth in Candyking, that's the time when we acquired Candyking, so you won't have this high digit numbers in the quarters to come, so be prepared for the like-for-like comparative that is coming now in Q2.The euro continues, as you have seen, all of you, being very strong. And 2.2% contribution of top line is coming from strong euro.Now just finishing off with cash flow on page 7. Very strong contribution from operating activities, SEK 190 million, lesser impact on interest on tax is contributing also to the EBIT, so a very nice delivery from our income statement. However, on the working capital movements, there is a SEK 300 million swing and 2 key parts to highlight here. We have not restated the Italian cash flow, that's not what we do with discontinued items, therefore you have a comparator of Italy where they traditionally collect all their cash from the seasonal sales in the fourth quarter the year before, and that is approximately half of the total impact, a little bit more than half of the total impact.On the other hand, Italy was also not cash generating in other quarters. So when we look at it in total effect, it's relatively minor, it's more to learn that we will have this impact going forward, but there will be no significant cash flow impact from Italy in the go-forward statement for Q1.The other part is also the timing of the Easter that has given us good sales, but then also what you see is receivables going up significantly because of this very late sales pattern coming in from the Easter period, and that is essentially the other part of that negative SEK 300 million. And the good news for that is on from a cash point of view that's ultimately collected, we have good payment disciplines in the Northwestern European region as you know. So I feel very confident that this imbalance will come through in the second quarter and going forward. And that is the key issue for the quarter on the cash flow.With that, I'll give the word back to Henri.

[Henri de Sauvage-Nolting]

Yes. So what is the focus in general, of course getting the business fundamentals right in all the markets whilst we're integrating Candyking, but if you look at the 4 big things it's of course growing the base, grow the base business, making stronger where we are already strong, very important because we have quite an effect from the lost Coop contract which we need to mitigate and now on top of that this consumer impact on the sugar tax introduction in Norway. So we need to compensate that with growth in our base business, so very important.The second one is the cost and the gross margin improvement, yes, cost coming both from synergies but also good cost control on the existing business and gross margin both through supply chain and portfolio. Well, why is it so important, well, we have the Swedish krona really weakening fast, we have methods to do price increase if there is always a lag, so we need to compensate that party with the cost and growth margin improvement action.The third one is on the Candyking integration. As already said, it's a big go-live in quarter 2 on the ERP system, but is also something we're really looking forward to because it will give us much more insight into the combined business and make our life also easier to steer the combined bigger mix business. And then last but not least, we have the new line in Turnhout coming in operation [indiscernible] last week. It's running, although it's still in commissioning phase, meaning that we are trial running but everything is working and we're ramping up the production during the quarter 2 which will also then give us the space and capacity in, particularly in the molding network to go to the next phase on the in-sourcing, be it Candyking, be it third party or be at some volumes we are still having in our previous Italian business. So those are the four areas.Then like what we did last time, a little bit every time, an update on one of the strategic pillars we are working and today we chose the Jelly Bean factory, how we're moving on to make it a real truly global brand. So we've put quite some effort in to redesign the packaging and the brand promise all to make it look more premium which again is quite important in the mix to sell more premium products, in particular when we go into new markets. Also a very good piece of work is what we call a brand book which basically describes how does the brand stand in front of consumers, how do you introduce it, into which channels, on what kind of price levels do we want to do that. So when we go to distributors in new countries that we have like the playbook repeatable model on how to get into those markets and start to earn money from these fantastic, fantastic brands.And we're also really now with international markets leveraging our presence by introducing Jelly Bean and combining businesses. And last but not least, Travel Retail which is all the airports, fantastic progress because quite often that's where we want to start introducing the brand into a market, again premium price and lot of visibility, which we can show you on the next page. You see Budapest airport, so it's not a market where we are present, but Travel Retail are quite often big groups who are running quite some airports along many geographies, and you can see, for example, over here with one of the companies we do a big activation across all their sites, but Jelly Bean really sticks out.Another big thing we're finding out and really attractive is this whole notion of gifting, of course Travel Retail is quite gifting, but there are other platforms like e-commerce where gifting is more and more important and Jelly Bean is one of the brands which really fit well with gifting. And again, when we are talking about gifting, people are less price sensitive, so again good for margin going forward.And then last but not least of course is our purpose. This is what we do day in and day out, so we have a very nice job, you could say, we're selling highly regarded brands to consumers to satisfy their munchie moments, that's, in the end, all there is, how do we convince more consumers to buy our brands when they're standing in front of the shelf, that's what this business ticks on and will make this business successful in the future. Jacob?

[Jacob Broberg]

Thank you. And with that, we open up for questions.

[Operator]

[Operator Instructions] We have the first question from Nicklas Fhärm.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

So I, basically I have 3-plus detailed questions. Let's start with those and see if there is someone else trying to get in. My first question is, now you have the kindness of reporting Candyking's sales contribution for the full year since the time of acquisition at slightly north of SEK 1 billion. Now could you just help me sort out because in the previous set of results, the quarterly results, you have also guided us to pro forma sales contribution from Candyking, would it be fair to just take the balance and say that Candyking contributed with SEK 398 million as it happens in Q1 sales this year please?

[Danko Maras, Chief Financial Officer]

Well, first of all, good morning, Nicklas. I think if I understood your question right then you want to know the contribution of the sales from Candyking out of the total sales of SEK 1.562 billion, is that correct?

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Q1?

[Danko Maras, Chief Financial Officer]

Yes, we don't disclose that number but you can see from the growth that we are referring you will see what the packed growth will be and what the pick & mix growth will be, and that's the definition that we actually think that we want to do going forward, giving you a good idea about the concept of the business models where you have the packed business being somewhat different to the support structure for our pick & mix business. So we find it very relevant to talk about pick & mix as a concept and therefore you will see more of that. And obviously in the information that we will give we will also highlight specifics from our pick and mix and Candyking, but further than that we did not intend to do.

[Henri de Sauvage-Nolting]

I think to add on that, it also becomes more and more integrated where what is then the old Cloetta pick & mix business what is the old Candyking business of course, so up till now we can still [indiscernible] that through the Candyking ERP especially [indiscernible] from the 1st of May that will be even getting more close. So I think it was better looking at the [indiscernible] pick & mix am not try to split out the Candyking contribution right now.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Sure, in a slightly different way I respect that of course, according to my estimates at least it could be that Candyking has had a very good quarterly contribution this time around, would you consider this quarter above in line or below your own expectations when it comes to Candyking sales in Q1 this year?

[Henri de Sauvage-Nolting]

I mean, if we -- I've tried to allude a little a bit that on the performance I gave to the different market, so of course in Sweden we saw a good Candyking progress, lot of course driven by Easter but also the customers we took, smaller customers we took last year which we already talked about. But of course Norway is a big market for Candyking and we don't disclose individual figures, but not having any promotions during Easter is a big negative hit we took over there. And last but not least of course also the Finnish Candyking business last year the sugar tax was abolished on the 1st of January. So we saw a big uplift both in the Cloetta pick & mix concept but also in the Candyking pick & mix concept, and that uplift wasn't there, so it was more a normal year. So you could say those three markets are a little bit of a mixed bag and then they might continue to, let's say, perform in line with last year. So you cannot make that conclusion like that.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

So would it be fair to say then that the Easter impact on the 1% organic growth rate recorded in this quarter has actually been slightly of less importance because of those reasons that you just mentioned, Henri?

[Henri de Sauvage-Nolting]

No, it's quite important. I mean in Sweden, yes, we still have a big pick & mix business, the combined pick & mix business in Sweden is of course also the biggest market. So Easter in Sweden has a big impact. And as you know that the Coop concept was being scaled down during quarter 1, is now completely. As such of course that was an effect we had to, let's say, compensate in Sweden. And I am -- again depending on the markets Easter is more or less important. So in Sweden, Norway, yes, Easter is very important if we look at their market. In Finland Easter is less important. But of course given the size of Sweden and also the size of the pick & mix business in Norway that has a big effect.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

And on that topic, you said previously or last year that you expect the lost volumes from this particular contract in the order of SEK 130 million to SEK 150 million.

[Henri de Sauvage-Nolting]

Yes.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

And I think maybe you said slightly below that more likely. Would you care to give us an update on what sales you actually lost in Q1, please, or -- yes.

[Henri de Sauvage-Nolting]

Yes, that's still the estimate, the estimate holds. Of course, there's a lot of factors in there. We are happy with the cooperation on the pick & mix concept of the customer and the service we can deliver over there with our strong brands. But then, of course, there's a lot of other factors, how is this new concept of that customer going to perform in the market, how is that customer performing in the market and how is the market developing in general and these are all uncertain factors after one quarter. So we'll have to see and we are focusing on the concept which are driven by Coletta.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Would it be still fair to assume that the impact in Q1 was slightly less than sort of the annual run rate that we're talking about?

[Henri de Sauvage-Nolting]

Yes, [indiscernible] Coop started in December and it took them like the first quarter to wind down store after store. At the end of Q1, it was completely done. So yes, you have an effect of that in Q1.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Yes, perfect. And I said, 3 questions but I'm going to take 4 while I am on the line, please. Could you just give us an overview or an update on the Lean 2020 program, please?

[Henri de Sauvage-Nolting]

Yes, so of course have and we got the [indiscernible] issue about last year in the Turnhout factory. We have been focusing then a lot on mitigating that by stretching ourselves to full production on the other existing lines in the network. It's I think fair to say that that had a little bit of an effect also on the progress in the Lean 2020 journey because then there is little spare capacity to make improvements on the line but other than that with the new president operations we are now really taking Lean to the shop floors, so I mean all the tools are there, all management is trained, middle management is trained and we can see very good progress in the plants where we are able to spend a little bit more time due to capacity on the Lean 2020 journey. Again I was very impressed in the Belgium Turnhout factory to see operators, quality people, engineers, really showing in a lean way how they have been working with preventative maintenance or quality standards on the new line. So it is a cultural change. And as always with a cultural change that will take time, but we are progressing well and of course we use the capacity now to in-source more products from the Candyking [ business ].

[Operator]

The next question comes from Mikael Holm.

[Mikael Holm, Analyst]

First question on the growth margin development when I adjust for this restructuring cost you included in the cost of goods sold. I mean in early quarters when you had Candyking it has declined by, I mean, 300, up to 460 basis points, now it's only about 150. What's the reason for this quarter having much less growth in the adjusted growth margin compared to the earlier [ period ] when you had Candyking in the figures?

[Danko Maras, Chief Financial Officer]

Yes, good morning, Mikael. I alluded to it a little bit, but the dilution from Candyking is not less, it's still continuing. You can see the restructuring is very small in gross margins [indiscernible]. So what is actually happening is the point about absorption and production volume are good, we are recovering from what has been a very difficult period for us with the fire in Turnhout. And now our production volumes are increasing, and that's a good contribution also in line with plan. The fact that we are also having good growth in packed you have a great contribution of the gross profit from packed. So in fact, it's not the Candyking part that is diminishing, we are still to generate big synergies as we start introducing it in our ERP system and so on. It is actually good performance from the rest of the business that is driving this improvement.

[Mikael Holm, Analyst]

Just also on the gross margin, I mean impact from raw material and currency fluctuations, was that negative in the quarter and at the current, I mean, spot rates and planned price increases where do you see this heading for? I mean is it a net positive or a net negative for the full year?

[Danko Maras, Chief Financial Officer]

Again I have to be also distinct that there is a real issue in our Swedish business. We have a transaction exposure and the Swedish business is buying all their products in, almost all of it in euro-denominated currency and this is causing a transaction exposure that needs to be dealt with and that's what Henry has been referring to. And given the size of Sweden, it also has a disproportionate effect for the rest of our business which is also contributing in euro. So you have a positive retranslation benefit in the growth margin this quarter, but it's not offsetting the impact completely on the transaction exposure we have in the Swedish market. And as you know, we deem performance in individual markets in their local currency and Sweden has a profitability issue because of the euro and that needs to be dealt with. But in the quarter the impact was dampened a little bit by the retranslation benefit that comes from the rest of the euro-denominated countries, but overall this is a business issue that we need to deal with from a transaction point of view.

[Mikael Holm, Analyst]

And I guess that there are some delays from, I mean, when you purchase the goods and when you sell it. So I mean, is it fair to assume then that this will be more of an issue going forward?

[Danko Maras, Chief Financial Officer]

Well, we -- in a way having a weak Swedish krona is good for exports, it's not good for import, and we are continuously seeing strengthening of the euro. So this problem I think will remain for as long as the euro-SEK lies around SEK10.30, SEK 10.40. If it continues, the activities we need to do will have to be further accelerated depending on how the currency moves. But you're right, there is a lagging effect and all of these things are not easy activity. They have a time lag effect and we need to deal with them. So for instance, if there is a pricing coming through, that full year effect is not going to happen in 2018. We need to think a bit more of over time we want to compensate our 14% EBIT margin target by recovering on pricing.

[Mikael Holm, Analyst]

And yes, my final question, I mean just on this pick & mix development, I mean it seems like your sales dropped by SEK 6 million organically in the pick & mix business. Is that the Coop contract or is it, I mean Norway is that also included in that organic sales decline [indiscernible].

[Henri de Sauvage-Nolting]

Yes, so I mean some big -- the 3 big things which I already mentioned, one is Norway, which is a big one. The other one is Finnish pick & mix comparator of last year and now we're back to normal level. That's another big one. And the last one is the Coop, the Coop effect. So those are the 3 big ones and of course partly offset by good performance in other markets, but those are the 3 main effects.

[Operator]

The next question comes from Mikael Löfdahl.

[Mikael Löfdahl, Research Analyst]

I think most of my questions have been asked, but not all of them have been answered unfortunately. But coming back to the Easter effect, and I get it that you don't want to display too much around Candyking and their growth even though you have done so in previous quarters, but I think, I mean this quarter is obviously special with Easter. So could you say something then on your branded package products and how much Easter affected that because there is a positive effect also on this segment?

[Henri de Sauvage-Nolting]

Yes, I would argue that it's a little bit difficult to estimate, but we are in -- the first thing to remember is we're not so big or not big at all in very Easter related chocolate products like chocolate eggs and things like that which tend to be big Easter products. I would say the market where there is an Easter effect also on the packed business is in Sweden. Yes, so there we are definitely helped by the Easter effect. In all the other markets I would say it's limited, so little bit in Norway, but there we see that we still need to strengthen our branch further. And we've been under pressure also with sugar tax coming in. I would say in all the other markets it's not so much Easter related. So you could say that Sweden, yes, packed business, but the rest of the markets it's not very much related to Easter, packed.

[Mikael Löfdahl, Research Analyst]

And why can't you give us more on Candyking? I guess this increases the uncertainty also for the next quarter because you obviously integrated Candyking in May which means that Candyking did not support -- or the Easter sales of Candyking did not have any impact last year on Q2.

[Henri de Sauvage-Nolting]

No.

[Mikael Löfdahl, Research Analyst]

So it's a bit difficult to know exactly how Cloetta is actually performing in this quarter if we don't get the Candyking numbers or the exact impact from Coop. Otherwise, the development in these segments doesn't really tell us much.

[Henri de Sauvage-Nolting]

Yes, I would say that we reported Candyking up to the full year and then we chosen to do it differently this year by reporting the packed branded business and then pick & mix on the other one. That's also because we are really integrating those businesses and it also becomes more and more difficult to really split out what is Candyking related and what is, let's say, of Cloetta related because we're integrated merchandising, we're even integrating concepts, we're letting one concept be the dominant, not dominant but the only concept in a certain customer. So there are swings between the 2 previous pick & mix businesses and it will become also a bit of a guestimate I would say if we start to try to single out Candyking. Up to the 1st of May, we can still do that to a large extent because it is in the same -- sorry, it's not in the same system. But as from the 1st of May, it becomes even more difficult because it will all flow through the same ERP system, combined costumers et cetera. So then we would only be able to do that for the first quarter and that's, as you can see, we had a negative development on the big mix due to the 3 reasons I had just been giving. And I think we -- when we also did the acquisition case we also disclosed a little bit how big Candyking was in the different markets. And yes, that I think gives you a feeling for how that business is running. Danko, you want to add?

[Danko Maras, Chief Financial Officer]

I just want to, I mean, the problem will disappear or the issue will disappear as we start having comparators. So you will get much more insights and discussions around the performance on the branded pack business and our pick & mix segment. That from 1st of May will be like-for-like on the comparator. So you will have 1 more month where the last year's comparator is not included, but as of May month going forward, the analytics will be done very transparently towards what we have performed out of total sales in pick & mix and in packed. When we did the acquisition, if you remember, we said we will double our size in Norway, in Denmark, in U.K. and clearly Henry's point about Norway we did not have any pick & mix business in Norway before and it was severely impacted by this sugar tax of course.

[Mikael Löfdahl, Research Analyst]

Yes, and it's because of all these reasons we would have appreciated more info because these 2 quarters are obviously from a year-on-year perspective very different because of Easter now coming in Q1.

[Henri de Sauvage-Nolting]

Yes.

[Mikael Löfdahl, Research Analyst]

So now we have to wait until the Q3 report to get a full quarter of comparable figures, then we are in October, it's quite far away. So I think the market would appreciate some more disclosure on this, just to give you some feedback on that. But let's leave it at that. And one more on the -- how you are thinking of price increases or trying to get price increases through to mitigate the currency movements. At the same time, you are trying to drive growth. So how are you thinking of price increases versus volume growth and perhaps recapturing market share?

[Henri de Sauvage-Nolting]

Yes, I mean this is not, of course, the first time this is happening. And in general I would say we're quite good in this and also, of course, it's not easy but also the practice is that raw material and ForEx movements there is a -- there is a way, let's say, to price up with our customers with as we already just said, I mean, that takes time because we don't price up on spot prices, therefore this is something of a moving quarterly or moving annual total which is then sparking certain price increases and then we just need to do that very cleverly across the portfolio so it doesn't, yes, impact volume growth which is still very, very important. But that's, yes, I would say that's good commercial management to do that in such a way that we get coverage for the ForEx. And of course we didn't talk too much about raw materials but that's something which happened last year and which of course also is something which is on the table or has been on the table. So it's the combined effect of ForEx and raw material which constantly goes, yes, goes up and down over time. So I'm confident we are able to solve this, but there is a time lag on the ForEx.

[Mikael Löfdahl, Research Analyst]

Okay. Regarding Turnhout, was there any negative impact actually in this quarter, you don't mention anything, but was there a negative impact? And in Q2 as you now are or will ramp up production again will there be any costs associated with that moving back production and so on?

[Henri de Sauvage-Nolting]

I mean, we have got the situation quite well under control I would say, so there was not a negative impact other than the fact that we have a few third parties who are delivering products to us to compensate part of the lost volumes of the Turnhout line. And when that line is up and running, of course, we can start to bring the ForEx back into, fully into Cloetta and now we're doing, you could say generally speaking we're going to packing off of the built products and [indiscernible] products as well, so there will be some synergies and some positive effect in the total supply chain which is mostly important because we need that extra capacity to go to the next, well, next, so it is like step 3 or 4 in the Candyking in-sourcing, so we have more capacity, we can start with bringing in third party products which we asked for help when the Turnhout fire was there, we can look at the products we still have in the Italian factories, [indiscernible] we have over there and of course more Candyking in-souring [indiscernible] network will also generate, yes, the synergies we have committed to in the SEK 100 million.

[Mikael Löfdahl, Research Analyst]

Yes, that was my final question where if you could give some flavor on the timing of those synergies coming through, when we will, I guess, they're already started to show, but will show even more in the second half of 2018, but could you give some flavor?

[Henri de Sauvage-Nolting]

Yes, we've always said it will take until 2020 before we are fully there, but we've also said that of course a lot of, a big chunk of it will come in 2018. If we have the Q2 ERP go live happening that will help and as well the Turnhout factory and getting more capacity, then we can start with the next steps in the in-sourcing which then starts, let's say, somewhere after Turnhout line is fully operational, then we can in-source even more products during '18 and '19. So that is where the bulk of the SEK 100 million will lie. But it's a lot of work, that's a lot of products we can in-source, we're going for the most attractive ones but also the easiest ones and then towards the next phase we'll also then need to look at products where we might have to do with small investment and whether that business case is attractive, and there is a lot of business cases to just work through and that's why we have the '18 to 2020 timing before we are ready with the full synergy realization.

[Operator]

[Operator Instructions] We have a question from Mikael Holm.

[Mikael Holm, Analyst]

Just in terms of your full year expectations, you said very little about that apart from in your statement saying your main focus is on driving growth up and costs down. I wonder if you can, I know it's early in the year still, but maybe be a little more precise in terms of your aspirations for this year particularly relative to your long-term targets of growing organically in line -- at least in line with the market, i.e., about 1% to 2% which you have done in the first quarter and also in terms of your, what sort of improvements in EBIT margin should we expect. I know it's going to take a while to get back to 14%, but should we expect some modest progress this year?

[Henri de Sauvage-Nolting]

Yes, we don't give forward-looking statements on that level of detail and that's why you didn't hear it, we have never done that. But of course it is quite clear that in 2018 we need to get a few things back in order and also a few things we need to, like on the brands and the factories, the integration of Candyking and as Danko already explained, of course, the Candyking has a dilutive effect when just take the whole Candyking business and put it into the Cloetta P&L, but that is before all the synergy savings are coming through and all the synergies will get in our factory network and that is something we will work through during 2018 and of course if we see that we're confident on the SEK 100 million synergy realization in the period '18 to '20 and that the bulk is coming in '18 and '19 then course we are also banking that we will see some of that coming through in this year.

[Operator]

The next question comes from Nicklas.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Yes, could you maybe disclose to us what's -- well, thank you for disclosing the package business like-for-like, and we appreciate that, but could you disclose what you have in Q1 last year for the packaged and in the pick & mix business?

[Danko Maras, Chief Financial Officer]

No, It coming back -- so it's Danko here Nicklas, coming back to that, we will have full disclosure of comparators as of May second quarter and perhaps we will discuss whether we should include the additional month or not, we'll do that hearing from your questions so that is very transparent for you. But last year did not have a comparator on Candyking and we haven't intended to share that. It wasn't our business at that time. And what we will do going forward, take a thorough look and see if we can do it from Q2 onwards because of the questions we have received today.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

But you had -- I mean you had pick & mix business yourself in Q1 last year and you had packaged business of course in Q1 last year, so -- but you don't want to disclose those figures.

[Danko Maras, Chief Financial Officer]

Well, we -- no, not really, but what we talked about, again you have this Easter effect that last year the Easter effect was between January and April, because this flipped over to April, so if I should start explaining last year without Candyking and the impact of Easter then it gets a little bit tricky. So let's leave it for this time. I will give you more information as of Q2 onwards which is like-for-like.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

And then the, on marketing spend, yes, I think you've communicated that you're prepared to step this up, how the -- what's the year-on-year impact on marketing spend on your cost?

[Henri de Sauvage-Nolting]

We have 2 programs running and one is that with the existing marketing budget we want to become more efficient, so we're driving hard a program which you probably have heard from other big FMCG companies to make a real shift towards what we call working media, so away from nonworking media. In nonworking media you have costs like agency cost, Nielsen cost, research cost, creative cost, et cetera, and working media is actually all the money we spent which consumer sees from buying after advertising to online advertising or TV advertising, and that balance we are really trying to move up into a direction that most of the money or a big chunk of the money is being seen by consumers and less being spent on, let's say, both in services. I would say that's the first big thing we're doing. We're seeing good progress on that [indiscernible]. The second part that we said, well, if we see opportunities where we can strengthen our branch forward we will do that during the year. And if you look at the P&L you can see that in quarter 1 we have been more or less flat. However, the efficiency of where we have been spending the money has gone up because we have more working media than last year. But it is definitely something we have talked about, committed to but we also need to be, yes, judgmental in the investment proposals we are getting from the markets and from the central marketing unit.

[Operator]

We currently have no question. [Operator Instructions]

[Jacob Broberg]

I have one question here, Jacob here from [indiscernible] from the web to how should we understand Candyking margins versus group margins?

[Danko Maras, Chief Financial Officer]

It's Danko here and there is a combined benefit. When we talk about 14% EBIT margin contribution, it means that the total group will get a benefit in the in-sourcing of volumes that will not necessarily only be on the segment of Candyking. For those of you who were part of the Candyking during the year, you know at the time of the proposed IPO they were referring to somewhere around 3% to 5% EBIT margin in the pick & mix business. We are not deviating from that kind of long-term EBIT margin because it's a different business model. But on the other hand what it will then do is to give us additional tonnage that we can produce that will affect the total Cloetta business in a lower cost per unit in those factories where we are then producing it which will be the increment of 10% to 11% EBIT margin that it will yield to us on the increment. Therefore for the total group, you will see a 14% impact with the SEK 100 million being delivered. But for the segment of Candyking, we are -- for pick & mix we are currently looking at the same levels as has been indicated by the previous Candyking [indiscernible].

[Operator]

There are no further questions over the phone.

[Jacob Broberg]

Okay, then we'll say thank you from Cloetta and have a good time and speak to you next time. Thank you and goodbye.