Cloetta AB

STO:CLA B

Earnings Call Transcript 2021-Q2

[Nathalie Redmo, Head of Investor Relations & Communications]

So good morning, and thank you for joining us on the Q2 conference call for Cloetta. My name is Nathalie Redmo, and I'm Head of Investor Relations. I'm here today with Henri de Sauvage, CEO of Cloetta; and Frans Rydén, CFO. Henri and Frans will 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.

[Henri de Sauvage-Nolting]

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 packaged products are back at pre-pandemic levels. And this is really good to see because for candy, in particular, 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 lockdowns and the dynamic started. So that's good as we are able to compensate to that. And well, pick & mix and the packed business in growth. But also pastilles & gum that were double-digit down during COVID are recovering, however, not yet to the 2019 levels. Pick & mix sales up with 80%, of course, is driven by the opening of channels and the comparator of last year, but it's also very good to see the very positive sales impact of all the things we've done, like the premium Candyking concept, which is selling at a higher price. And we're also making good progress towards sustainable profitability with all the actions we have been taking, and I'll come back to that a bit more. Significant building stone in our road to 14% EBIT is to get growth up in the profitable branded business. And we do that, among others, by strengthening our most important top 25 brands. In this quarter, we made a further step-up in our marketing spend, not only versus this low comparator of 2020 when we cut a lot of advertising given the uncertainty of COVID, but also versus the absolute level of 2019. I'll show you a bit more about that as well. In our continued preferred factory journey, we took another milestone by going live with a new integrated maintenance system in our first factory which will be rolled out to all the plants. The main benefits are 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 spend and cost. Cloetta has underwritten the science-based target initiative to understand the Climate Agreement of Paris. And we're now nearly 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 and transport location, but also consumers and customers. So that will be done in quarter 3. And last but not least, a very important point is that over the last month, we've seen a strong increase in the input costs from raw materials, 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, Nathalie. Here, we can see the 2 segments. So in total, 18% growth, well distributed over the months. And you can see the 7.3% of the branded sales going up, really gaining traction April, May, June. Of course, April was also partly impacted by the Easter effect, being a little bit more in March, as we discussed last time. And then pick & mix is quite astonishing number, of course, but it has to be seen in the light of as well of the comparator of last year. But nonetheless that's a lot of stuff we've been doing in premiumization, paralyzation, activation to get to this figure. So quite pleased to see that, this is very important to get volume back in the business. Next slide. Yes, 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 it 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 U.K. market for pick & mix, given the presence we have over there is also picking up. But you can also see that things like retail and recreation are still down with the baseline of 2019, 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 U.K. or the Netherlands while we read a lot about the roadmap of the U.K. to opening up. And this is also 1 of the reasons that theme parks and cinemas in the U.K. are open, but not all the traffic is back to the levels where it should be. So together with these customers, we decided not to start too early with pick & mix so that we have a healthy rotation in the assortment. And then the other conclusion, of course, is that people moving to work through transit stations, train, et cetera, which is very important for us as well, given the kiosks we have that is still very much at the level of last year and also in workplaces or offices, as 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 the delta variant remains under control, that offices will start to open up in September after summer. So the overall picture is that 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 more specifically Cloetta, we can see that the pastilles & gum category start to recover. We had a big drop versus 2019 in the figures of last year. And many, many reasons that we can see, in particular with the mobility coming back that the sales start to recover. We will also need people still to go back to the office to go very much in line with the personal care cap decrease, we see that people are taking less care of their personal outlook and pastilles & chewing gum are part of that. And we can also see now for the first time since last year that Candybags is suddenly down with 5%. And that, of course, is against a very strong comparator we had last year with this category where many people started to buy Candybags and a lot of other products, stable goods, which they could keep with the uncertainty of the pandemic. And of course, there was also a shift from pick & mix into Candybags. So that's the important effect, and we can see traffic increasing in that what we call other channels. So everything outside of the grocery, e-commerce and like travel retail coming back, maybe not air traffic so much, but unlikely the ferries, which are very important for us in the Nordic are an important channel is coming back, but also kiosks and petrol stations has started to show increasing sales also in countries like the Netherlands and Germany, and that's quite important for us. Yes, what we have been doing in the last quarter, I mean, we keep on working on the top 25 brands. That's also why we're spending more money to make them competitive and also spend in a competitive way, Frans will show you a bit more about that. We're doing some very important launches. We've talked about how to improve our gross margin by launching products with a higher gross margin than the average category. A few good examples of fruit-based candy later on in the strategic review, but also the Kex Vegan is getting enormous traction and in the Netherlands, a licorice coat or it's a licorice coated with chocolate in a premium position also receiving a lot of positive feedback in social media and with food sales E-commerce, I'll come back to that as well, but also important, of course, to keep on driving that. Then there is a specific penetration program for both pastilles & gum. So how are we going to recruit those people back into the brands, which have forgotten or have not seen the need in the last 12 months to buy either pastilles or gum and also how do we attract younger people so we're launching like Läkerol Crispy YUP across all the markets with natural, very much aimed at younger people. Because 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 we've programs strongly supported with A&P. And then also very important, our #1 brand, the way we classify that so the 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 & mix we can see that in the channels, the main differences are that the U.K., 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 summertime, when people are moving back into that channel and the last restrictions are lifted, that will turn into green as well. On the consumer activation, we see small steps. But in general, you can say that only in U.K., we are back with our #1 retailer with the promotional mechanisms which we had before, but not in all the other ones and as well that we are starting to get some activations locally. But in other markets like Denmark and also in Finland, a big national promotional price offs from the customer are still on a very low or absent level, and that is quite important as we saw in the U.K. because that is a very important driver to get people back. So we saw some fantastic volume uplift in that sense in the U.K. And then, of course, consumer demand, so the consumer interest and the consumer trust in the category is improving and we try to symbolize that with the yellow arrow going from down to more immediate, but we're still not completely back to, of course, the 2019 levels. And what we do, of course, to mitigate this as the premium Candyking 2.0 concept, which is not like in all the markets. It's much more premium ad feeling to the pick & 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 said before, that will take a little bit more time. We're also interested to now launch in a number of test stores, 17, a very premium concept in Finland with substantial higher price and initial sales are very positive. We can see both more top line that we can even see volume growth. So it's another good example that if you put a quality premium pick & mix concept into a country like Finland, and convince it will be the same for the other countries, then consumers are willing to pay for that. So it just underlines our journey to profitability for pick & mix that if we do this well, then we can step out of this price game and just deliver quality with good activation and good marketing and support and be paid for that. And then last but not least, we've set up an e-commerce pilot in Denmark. You can see it on the Internet, slikekspressen.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 & 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 digitalize this completely. And then if it goes well, we can roll it out to world market as well. Yes. Then we go to the next section, which is Frans with the financials. Frans?

[Frans Rydén, Chief Financial Officer]

Thank you, Henri. So 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 comparator, we are pleased to report a strong rebound. Overall organic growth of 18.2%, partially offset by unfavorable ForEx. And this growth was driven by both packed at 7.3% and pick & mix growth of, as Henri mentioned, close to 80%. Henri has already shared some of the drivers of this growth, but it is good to see that the rebound enabled by this increased mobility for societies, which we have spoken about since last year actually is clearly there. And on a year-to-date basis, now, of course, then having pre-pandemic results in the comparator, organic growth is up by 5.9%, with branded packaged sales up 4.9% and pick & mix almost double digit at 9.7%. So I think I'm not lingering longer on this, but let's look at this by segments over time. So here, looking then by quarter, top grow and 7.3% growth in our branded 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 packaged sales were somewhat helped by cannibalization from pick & mix. Clearly then that pick & mix sales declined, and it was at least in part as consumers bought more bagged candy. But here now in quarter 2, branded package sales are in absolute NSV on par with Q1 sales despite the massive 80% growth in pick & mix, and that's great to see. And obviously, as Henri said, a result of all the actions we've taken on the branded side. Secondly, these Q2 branded package sales are now exclude translation ForEx, so on an organic level, they are above the Q2 sales we had in 2019, meaning that in both quarter this year, so far, we have matched or beaten our 2019 branded package sales, which was arguably our best year ever. And thirdly, with the branded tax portfolio, our refreshment sales remained 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 & 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 with pick & mix. And that's a good segue to look at the profitability. And as you can see here in this graph, our operating profit adjusted increased versus last year. Now last year, we also shared that in that result, EUR 35 million of production costs had shifted out of Q2 and into Q3. So on a like-for-like basis, we are really improving profit from, let's say, around SEK 75 million to SEK 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 a double-digit EBIT 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 SEK 30 million in marketing, coming both from having pulled back on marketing last year due to COVID but also as a 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 in general and admin. So the profit growth, net of last year's shift of cost to Q3 is then really driven by 2 things. The rebound in volume, which, of course, is also good for our supply chain, and margin-enhancing initiatives in pick & mix. Versus prior year, mix is not a major driver here. It's quite stable. It had been favorable. But obviously, versus 2019, we still have a challenge with the refreshment. Now partially offsetting this volume-driven profit growth are increasing cost 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. But the key takeaway here is that the quality of the profit growth is good. It's not coming from cutting investments in our brands, but actually 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 SEK 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 costs that last year was phased to Q3, you see the red box of negative SEK 9 million, you don't see the big increase in marketing that I mentioned. Obviously, most of that SEK 30 million sits in the branded package segment. And the reason that you only see [ EUR 9 million ] here is the 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 pastilles & gum remain more suppressed and much more dependent on the mobility. Now Part of the stepped-up market investment is, of course, going to support the refreshment category, and we're committed to bring it back again and our overall branded package profit. So in summary, the quality of the branded package is quite solid. The mix is still not where we want it, but that is also an opportunity to further improve on this margin when those sales are coming back. Now with respect to Pick & Mix, in Q1, I said we needed the consumer to be picking and mixing and driving scale and efficiencies yet that we believe we could get back to profit without fully reaching the pre-COVID volumes, and I'm pleased to report a good progress on this. In the quarter, we are at about breakeven, if you will. And last year, obviously, we had a loss per quarter of an average around SEK 40 million. In Q1, we had dropped that down to SEK 24 million in loss and now at about breakeven, actually better than in Q2 2019. But it's touch and go, and a lot of work remains to make this sustainable. That said, it's also important to note that this result, of course, includes pick & mix's fair share of common costs that we have in headquarter, IT, supply chain, et cetera. So there is nonetheless a favorable and 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 other margin-enhancing initiatives we're taking. I mean we talked about fairer pricing, reducing cost for warehousing and distribution, merchandising and support functions, et cetera. So we're going to try to put all of those levers. Then moving on to sales, general and admin. So you see here on the left side, the SEK 53 million, excluding ForEx and items affecting comparability, of which, as I mentioned, approximately SEK 30 million related to the step-up in marketing spend. This step-up has then 2 parts. First, it is putting back the spend we held back on in Q2 last year because of COVID. And at that time, I shared information that you could conclude that it was about SEK 15 million or SEK 16 million. We were favorable SEK 63 million. And I mentioned that about 1/4 of that related to lower marketing. So those SEK 15 million, SEK 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 SEK 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 SEK 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 on marketing by about SEK 47 million. So when costs are up SEK 20 million, it means that more than half of those SEK 47 million still remains at the saving in this P&L for Q2, which is good. And that's what we want to do with, obviously, VIP+. Secondly, if you now wonder why are not all the savings still in there. Well, I had also shared last year that costs would start to come back as the business also started to normalize, and that's what we see here in quarter 2. Obviously, the rebound in sales of pick & mix naturally brings higher cost per merchandising, I think. We will 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 fixtures 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 profitability back in pick & mix. Secondly, we have continued to invest. We've invested in e-commerce, and Henri is going to talk more about that, and in other capabilities, such in marketing, new S&OP 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+ savings, and those are more than offsetting merit and some of the other onetime savings we took in 2020. Very good. Then moving on to cash flow. We had a healthy free cash flow for the quarter, delivering SEK 102 million on a net profit of less than EUR 100 million. 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 SEK 220 million. That said, that very significant uptick is primarily driven by the comparator. And in Q2 2021, we are holding our working capital fairly flat versus where we started the quarter. You can see that in the free cash flow here, it really is the profit that's coming through, not changes in working capital. Now with respect to that working capital days inventory on hand is 89 days. So we are down actually 19 days versus last year and were also down by about 4 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 3 days, but that is in line with our historical trends. Because every year, we exited 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 SEK 130 million free cash flow year-to-date. Obviously, a huge improvement versus last year by about SEK 0.25 billion. But 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 2 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 tougher comparator, not to have these great first half results being misinterpreted. Then for my last slide. As you know, leverage is 1 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 our utilized credit facilities in commercial papers totaled SEK 2.3 billion. And then on the right that we have access to additional unutilized credit facilities and commercial papers, not yet on the market, of SEK 600 million and SEK 750 million for a total of almost SEK 1.4 billion. Now that's down versus what we had in Q1 and is driven by our revised and I would argue refined financing which has allowed us also to reduce cost. In addition, we held SEK 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. Now this financing consist of 2 loans and the revolving credit facility repayable in June 2023, 2024 and 2025 and each with the possibility of extending for an additional 2 years. This secures our financing. It gives us flexibility for the coming years. In addition, we're going to continue existing commercial paper program and hence this allowed us to reduce the revolving credit facility by SEK 60 million and provide those savings. As for the leverage, our net debt versus EBITDA is 2.8x, so that's unchanged versus Q1, and it is a little bit higher than our target of SEK 2.5 million but it's fully in line 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 Henri.

[Henri de Sauvage-Nolting]

Yes. Thanks, Frans. And then I thought this may be interesting to just show you progress in 2 areas which we are having a strategic areas in our Cloetta strategy to organic growth. So 1 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-solving it in establishing an organization but also, in particular, the infrastructure like [ binge ] systems, which is a way to share data with e-commerce players and all that was more or less ready 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 that cooperation partnership with the likes of Amazon really working well with launching a specific SKUs for them, big sizes, like you can see, 4.2 kilos of Jellybeans in the U.K. are being a really big success over there. It's a 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 U.K., where we basically have 2 brands, Chewists and Jellybean factory and supporting that growth through an e-commerce strategy. I talk a little bit about how do we regain penetration for gum & pastilles. And again, a nice example with Jenkki, a little bit of a smaller picture but check out promotion with Jenkki, so people handling or buying online with 1 of the major retailers in Finland, getting an offer for Jenkki 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 full drop rates at the checkout for such a promotion is really important. And then I would say also the new organization where we have the small central team with experts operationally in how to manage like pure players and then working with the key account managers in the countries that resulted in 2 of our growth markets, U.K. and Germany that we are having the SKUs, which are #1 in their respective category within the Amazon business. So that's now also for Germany, the Red Band brand, I just said is the biggest brand position we have in Cloetta's, great to see that becomes #1 in Wine Gums portfolio or sold under Amazon. So great progress, of course, a lot more to capture, and we're learning more than every day, but much more to explore it over here. And then I thought at the second thing to maybe share if we go to the next slide, not only is the -- 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. It's not like syrup or fruit taste or fruit -- it's really the fruit pure, which we have been able technically to make candy after all 50% of the candy is made of real fruit. And the way this now is being launched, it 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 something which is long lasting. It's not just a line extension. It's a completely new platform, in that sense, and we do it across markets. So you can see now Gott & Blandat, but it also goes into, for example, Finland. And of course, Gott & Blandat is in all the 3 Scandinavia 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 in particularly younger ones, which, of course, is what we were hoping for because that's what all the consumer tests were telling us, of course, also families with children who are more conscious about what they are buying, they see this concept is very interesting. And that again, for the future, is also very important because in that way, we bring those people into the Gott & Blandat brand. So really important. And then we can also see that with 2 SKUs, we are already able to get something like 20% of the Gott & Blandat sales into this new concept. And we haven't even really started when we -- these numbers are not from last week, and we haven't even started to put the media campaigns on there, which you will see on the next slide. So if we go to the next one. You can see that we are, let's say, on TV and that -- although the insight, the consumer insight is the same, and we have made those campaigns all in 1 go, you see in the bottom, you see the Swedish version and you might have seen that. And in the top, you see the Finnish version of the product, and they are different, although the insight to talk about, is it really 50% fruit, is it there for fruit or is it candy? 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 foresee Finnish with the Swedish consumer to, to look at the same or to try to get the same commercial. So there, we adapt. And I think that's a strong point from Cloetta that we can adapt and still be cost effective. because we do this all with 1 media agency, and we shoot it in 1 go. Of course, outdoor also important and then what you normally don't see, but that's the in-store execution. I mean look here at the top picture for Aakoset, I mean that is like 1, 2, 3, 4, 5, 6 display pallets in a store really getting the attraction. As you can see, very much the visuals in the in-store execution are very much the same with divisions that people see on the TV or in the outdoor, that's really what we then call Real360 implementation that people might have seen at outdoor or on TV and then they're being reminded when they are in store. So it's not that certainly Aakoset, Cloetta, red or brown boxes. No it takes the same elements as the commercial into the in-store execution. It's very important. And we work, of course, a lot with influencers and this product but also the Kex Vegan, which we don't show today, and also the Venco Choco D'rop, 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 basically publicity or support for the brand through what we then call earned media. So really good, very nice to see and a lot of hard work coming to fruition. Yes. Then if we come back to the last part, Natalie, I mean the strategy doesn't change. So 3 business priorities, the organic growth of the branded business. We talked now a lot about the fact that we focus on the top 25 brands, more marketing investments, making those brand stronger, spending competitively versus competition, doing that through strong new innovations, which are also margin accretive, really important. Vegan, we talked about these things before, and 15% of the portfolio can now claim Vegan and we're on a journey over there and also e-commerce as an important sales channel, but also as an important way to build the brand, in particular, in the adjacent markets of U.K. and Germany where we're strengthening our branded position. So really good to see. Yes. Pick & mix. I mean profitability is important and good to see that we now hit breakeven, as Frans said, still with a lower volume. So we are able to adjust cost, in particular, in the -- of course, in the distribution and merchandising to be able to do that now that we get a little bit more of a steady state but very, very important thing, of course, to be able to report today. And that the new Candyking Premium concept launched in all the countries, it really looks different, very positive remarks as well and particularly in the markets like Norway, U.K., where we have not been investing in rebranding over many, many years of pre-Cloetta, also it looks now more agile, it looks more hygienic, it looks more premium as well, so all to support this is move upward and adding value to the category, to the shopper, of the customers being very enthusiastically. And of course, we can go further like those 17 stores in Finland are showing with an even more premium concept. That a lot of focus and stuff we've been doing on merchandising that's basically a continuous effort. We're also having good benchmarks between the market to see who is doing what best and how can we learn from each other. So it now means we're at the end over there, and I talked about the e-commerce pilot. Yes. And then all the efficiency programs, I mean they continue to deliver the shared service center in the Levice 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 Levice, which is the Slovakian production site where we've opened on the production side, we've cleaned part of the office, and that's now where the Levice center is working, that's really great to see. We're working with cloud-based move so that we can also save cost on service, et cetera. There's a lot going on in in that area, the maintenance system is something we picked out and a lot more to talk about in product factory and more or least about the operational efficiencies of the lines, the imported lines really stepping up month after month, we're seeing progress over there. So it's really good because it gives us lower cost, but it also gives us more capacity for the growth. So that's really important, and then the refinancing, of course, successfully finalized it. Frans already talk you through. So overall, the business priorities don't change. Of course, the actions are stepping up, and that is very good to see that also the momentum, the enthusiasm in the business to get back to deliver the results are very positive. We just did a satisfaction survey with good results where we can also see where we have been working hard on improving things that also shows in the employee 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 it a better business going forward in the future. So that's where we close and have questions.

[Operator]

[Operator Instructions]Our first question comes from Andreas Lundberg from SEB.

[Andreas Lundberg, Analyst]

On the profit on the pick & mix segment, I think you put it in context, you said you were improving versus '19, correct? Is that correct?

[Henri de Sauvage-Nolting]

That's correct? Yes. Frans?

[Frans Rydén, Chief Financial Officer]

Yes. Yes.

[Andreas Lundberg, Analyst]

And if you -- it's more driven by pricing? Or is it cost efficiencies? Or what do you say about that?

[Frans Rydén, Chief Financial Officer]

Okay. Yes. So I -- yes, my comment was versus Q2 2019. So I think that the key -- let's say, the key takeaway here is that we have a real improvement on the profitability versus 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 this plethora of actions that we've taken, whether that was exiting loss-making contracts. As you remember, we started with -- we mentioned that in Q2 last year. It's pricing, it's the premium Candyking 2.0 that enables that pricing. It's organization, it's more use of merchandising resources, it's distribution costs. I mean, there's not one single feasibility, right? It's both what we've done internally, also what we've done externally. So that's number one, real improvement. Now we are around breakeven. 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 SEK 10 million, SEK 20 million, and you don't see that profit always moves in the same direction because it really depends a little bit on which country and if this is full concept of the bulk sales. Of course, has to do with the recovery. So we're not saying that everything is fine now. We're saying we're making really strong good progress. And obviously, we want to continue with that.

[Andreas Lundberg, Analyst]

And on the mix side, in our geographical mix, what can you say there? I take Sweden as an example, compare that to 2 years ago?

[Henri de Sauvage-Nolting]

I think, of course, is that the societies and the retailers have taken different actions. So comparisons are also different. So in Denmark last year, we were in like a nearly full lockdown that retailers stopped with pick & mix. So you can expect the sales over there rebounded even stronger than the average, a little bit the same in the U.K., where many stores were being closed or where we went into ramp products to fulfill the policy decision from the retailers. And then in Sweden, is that you referenced, of course, there was not a full lockdown, but you also remember that we stepped out of unprofitable contract in Sweden. But the recovery is, of course, different over the different markets, very much dependent; a, on the actions we've taken in that market; b, on how severe the lockdown was in during Q2.

[Andreas Lundberg, Analyst]

Are there big seasonalities in pick & mix category?

[Henri de Sauvage-Nolting]

Yes, under -- the big 1 is Easter and mainly in Sweden, less so in Norway, not in the U.K. and minimal in Denmark, Finland. So that is the real big one. And then we are trying to generate more seasonality around Halloween or Christmas, but the big 1 is Easter.

[Andreas Lundberg, Analyst]

And a different question on your country split. So sales bit by country, if I do the math correct, I know you don't have decimals what, it looks like U.K. and Germany are up quite substantially year-on-year while countries like Denmark and Norway is a little bit off-ish versus last year. Could you comment on that? Or is that correct?

[Henri de Sauvage-Nolting]

Well, everything is growing. So that is very nice to see. It's not that 1 country is staying behind. And I'm not going to give the specifics, but I mean, on bigger mix, everybody is growing and also on the brand that there's only 1 country which has 50%-plus growth last year in branded, which this year is just below 0 and the rest is all growing. And you know how it goes, then if everything is growing, but of course, some countries are growing much faster. But they're the smaller ones, it takes many years before the size of that country starts to really then impact the distribution of the sales over the country. So that is not something which I would say is at the moment really happening.

[Frans Rydén, Chief Financial Officer]

And maybe, Andreas, I would add to Henri's answer there. You mentioned Germany and the Norway specifically. As you've seen in the presentation, Henri talks about Red Band in Germany and that we're having some really good progress on that. So of course, you'll -- that's part of what you're seeing is stronger sales in Germany because of the different attention to Germany than maybe what we've had in the past. This is a really interesting area for us, as Henri 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 shopping in Sweden, and they would consume more domestically. So of course, we had an incredible uplift in Norway last year. And now we have that comparator. For everyone else, pretty much it's an easy comparator. But for the Norwegian team, it's a really tough comparator. So I think your analysis there is correct, and that's 2 drivers.

[Andreas Lundberg, Analyst]

I see. And then on the raw material side, you talked about some actions by yourself, but do you expect a drag here in the near term? Or how should we see that going forward?

[Henri de Sauvage-Nolting]

Yes, we do that -- we deal with that like we always deal with raw materials as that we are discussing that with our customers, and we see a trend. It depends a little bit country by country. But when we see a trend and we establish a trend, be it on raw material or energy or ForEx, then we announce a price increase, which on average, it has like a 3-month notice time and then the price increase is coming through. But since it goes so fast, we're very much on top of this at the moment. We will be managing this like we have been managing this in 2019 when we saw also raw material prices really going up. Of course, it's as although raw material, we can see it in transportation, we can see it in energy. We expect it in salary inflation. So it's expected to be on top of that, even though it doesn't impact us now because we're not buying a lot on the spot market. We have contracts with variations going forward. But it is, of course, a thing which we will have to cope with going forward. Hence, we signal that, and we have our action programs in place.

[Operator]

[Operator Instructions] The next question comes from Nicklas Skogman from Handelsbanken.

[Nicklas Skogman, Research Analyst]

I'm keen to learn more about this Candyking premium. What -- how is it different from the regular offering in terms of where you sell it, what products you're selling? And what do you think is the potential market? Is it something you can roll out to basically all stores? Or is it -- does it need to be a specific market or a specific retailer to offer this?

[Henri de Sauvage-Nolting]

Yes. So sometimes -- I think, I might not explain it completely in the right way. So there's basically 2 things, Nicklas. One, we have moved now all the countries into what we call the premium Candyking 2.0 concept. So let's say take Sweden, where we have Karamellkungen, which was a bit childish, with the light blue and the light orange and green color, Karamellkungen is not there anymore. It's now all Candyking. It's more colorful, but more important, it's more adult. And while doing that, we've also improved the assortment and we have taken pricing because of that and of course, retailers, their own decision on what to price it afterwards to consumer, but of course, in general, then prices are going up. And that's what we've been doing across all the Cloetta market. So that's one. Then the other one, which is maybe what your question is about. This is a Finnish premium concept. So it's symbolically the same. But then on top of that, we have gone to 17 customers -- individual stores in 17 locations. And we have raised the prices quite a lot and it's a euro more per kilo, what the retailers are asking over there. And that's on the basis of our price increases due to a better assortment but also a more -- a much more premium concept. So it's called the premium mix, yes, it is -- it's a wide assortment. It's different. I recall that different sizes. Hygiene is the same. It's better segmented, better lighted. It's our latest shelf, which we develop in in partnership with the supplier, we have across all the markets. And the good thing is there are 2 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 then leads to the second effect that the 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, can we please get it? And then there are also the practicalities, can we execute that? How do we then deal with national promotions, et cetera, et cetera. 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 couple of ways, the consumers are willing to pay for a good quality pick & mix. We can get out of this constant price spiral downwards which we've seen over the last 5 to 10 years in a lot of the markets 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 go into all our markets, maybe not all in the retail concept because we all 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 yes, it's very promising. Let's keep it on that.

[Nicklas Skogman, Research Analyst]

Yes. It sounds like it's -- have you started to in-source any volumes in pick & mix yet? Or are you still awaiting to see where the volumes would stabilize?

[Henri de Sauvage-Nolting]

No. We have in-sourced. That's part of our plan for this year. So of course, we made a volume plan for this year and then said, okay, because we are not completely back on 2019 levels with the pick & mix. We can do some more in-sourcing and that is continuing also after the summer.

[Nicklas Skogman, Research Analyst]

Okay. Perfect.

[Henri de Sauvage-Nolting]

And actually, of course, Yes, what I just said with the perfect factory because we are -- the lines are working more efficiently. We also create capacity by that. So Absolutely. That journey continues on the in-sourcing.

[Nicklas Skogman, Research Analyst]

And 1 more question on pick & mix profitability. It looks to me like sales in Q2 organically were down 25% versus 2019, but still profits were better than [ Q2 ] 2019. So -- and we obviously discussed a few of the drivers. But I was wondering the actions that you have taken now 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 fully in -- 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?

[Henri de Sauvage-Nolting]

Yes, 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, like that. We can take 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 pick & mix is then really contributing, and that would be somewhere north of 5%, at least. We're not stopping with pricing and looking for pricing opportunities. Also 1 more time from my side, important to say that when we show you this segment reporting, of course, here, pick & mix is carrying the full load of Cloetta cost. So it has office cost, with the office rent, of course, it's the local management team, it's the customer service, it's the IT and of course, it's supply chain as well. And if we were -- we were not producing pick & mix on the production line in Levice and only have packed products being produced there in 2 shifts, and now we work 3 shifts on that line. Of course, the write-off and the maintenance cost for that shift which used to be carried by the packed it's now being carried by the pick & mix. So just when we look at profitability, that's all the time something we need to take into account as well.

[Nicklas Skogman, Research Analyst]

And then I came up with a final question. The Refreshment category, which is still lagging behind, is the -- to get back to 2019 levels or above. Do we -- is it only -- do we only need to see sort of society going back to the way it was? Or is there anything that could suggest that the underlying demand has changed permanently in your view?

[Henri de Sauvage-Nolting]

Yes. I mean the first thing, of course, to happen is that we meet society or let's call it more specific, our sales channels to fully open again, right, because we're not only selling gum or Läkerol in grocery. If we look at the Netherlands, we're very strong in the petrol stations and kiosks relatively speaking. And of course, when mobility is so down, people who were used to shopping or buying imports over there, they're not able to do that anymore. So that's the first one. But of course, the second 1 is yes, if people have not been buying and using our brands for more than 12 months, I reckon that it will be a bit of work to bring them back into that habit, yes? And that, I think we can also read from other multinationals. I still follow the personal care category a bit given my own background, and you can see the same kind of comment that as people not working in the office have not been spending so much time on their, how they're looking and using less deodorant, less shampoos, et cetera. That's a bit the same with the mouth, you could say that people have spent less money or less attention let's say on that on the personal appearance. And that is something we will have to build back, and that's why we're also spending them more money on Läkerol and Jenkki, pastilles, for example, we launched this year in Finland to support that come back. And then in particular, in the people who are working, and that's why this Läkerol Crispy is so important to YUP, just because it is more aimed towards younger consumers. So a bit like what I was showing on the Gott & Blandat real fruit. Now We're doing that with the YUP Crispy to address younger people in the category because they are the ones who have been dropping out. So Yes. It's both, I would say. Sales can also help us to get behavior back.

[Operator]

We have no other questions by phone. Back to the speakers

[Frans Rydén, Chief Financial Officer]

Henry?

[Henri de Sauvage-Nolting]

Yes.

[Frans Rydén, Chief Financial Officer]

Would you like to close the call?

[Henri de Sauvage-Nolting]

Yes, I think so. So thank you very much. I mean I'm pleased with the results. We had a good rebound as said before. Of course, we know it was a weak comparator in Q2. But I also hope that you got a notion that we have not just been sitting there behind our desks waiting for the rebound. There's a lot of actions we have taken over the last 12 months, which are now bearing fruit and helping us to grow the business to impact to levels above 2019 and if pick & mix is a strong rebound and in particular, a lot of work on the profitability because that's, of course, our #1 prio for that segment. And we will continue with that, and we'll see how we will do. So thank you for your attention today.

[Frans Rydén, Chief Financial Officer]

Thank you very much.

[Nathalie Redmo, Head of Investor Relations & Communications]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, this now concludes our conference call. Thank you all for attending. You may now disconnect your lines.