Cloetta AB

STO:CLA B

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, welcome to the Cloetta Interim Report Q2 2024 Conference Call. I am George, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, you will be joined into the conference room.

[Laura Lindholm, executive]

Thank you for joining Cloetta's Q2 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina and CFO, Frans, will first go through our Q2 and H1 results, after which we will move to the Q&A, where you either have the possibility to dial in and ask questions live or alternatively post your questions through the chat. The chat will open up for questions when the Q&A starts. And it has also been postponed to preregistered questions. Over to you, Katarina.

[Katarina Tell, executive]

Thank you, Laura. Before we move on to the result, as I am the new President and CEO, I would like to take the opportunity to introduce myself. I joined Cloetta in May 2018 as a member of the Group Executive Management Team and with the responsibility for Sweden, Cloetta's largest geographical market. As you know from our reporting, Sweden has certainly hold its share as Cloetta's sales during these years of strong growth. But while we do not report profit per market, you all do know that Cloetta 5 years ago was growing Pick & Mix business in Sweden, which at the time had a negative profit of SEK 60 million.



And you know from reporting since then, uncertainly with the result we have recently presented and are presenting today that the Pick & Mix business in Sweden no longer is loss-making. I have really enjoyed leading the Swedish turnaround. That is for sure, but also many other things that we have achieved, such as cakes being the #1 selling food and beverage SKU in the Swedish retail, the last 2 years running ahead of all other domestic and international brands.



I also would like to mention our leadership in expanding confectionery outside the regular retail landscape, and hopefully, many of you in this call have been surprised of the amount of different places where you can find Cloetta these days. Still in the week since the change, I have met and listening to many team members from across the company and new people from both inside and outside of Cloetta. When ready, I will also come back to you and share more about that, but I must say that as much as I have enjoyed leading the Swedish business, I am so excited to step further into this new role. And my ambition is to drive the profitable growth agenda at Cloetta, as I have also done before joining such as Kraft Heinz.



In my role as Managing Director at Kraft Heinz, I was responsible for 28 markets in the north and east of Europe, and I lived abroad throughout this time. The key achievements during my years as a leader of Kraft Heinz, we're also the profitable growth from our business units delivered. And without sharing any numbers, I can say that I received the company annual Leadership Award for outstanding business results 3x.



I can also share that I have been a member of the Board at different companies and association. The most relevant ones are the Swedish Trade Association for the fast-moving consumer goods industry, DLF, where I was the Vice Chairman of the Board for 3 years. The last 2 years, I've also been a member of the Board at [indiscernible]. And during this time, we opened a Site Zero, the world's biggest and most advanced plastic sorting and recycling plant.



My academic background is a master degree in Food & Nutrition, which actually means I'm registered dietician. But this is an addition to the maybe more expected studies in business administration. Finally, I'm a Swedish Citizens and Cloetta's 16th CEO, and I'm the first female one. And today, I'm proud of being part of publishing Cloetta's 50th interim report, where we will present a strong quarter with improved profitability.



So, then over to the agenda today. I will start with describing our company in brief and go through our Q2 highlights. Then our CFO, Frans will walk you through both Q2 and year-to-date financials. And after that, I will give you a strategic update, then we wrap up with Q&A.



In case of any of our new shareholders have joined the call, I would really like to make a brief description of our company. Cloetta is a leading confectionery company in Northern Europe, and we are proud how our loved brands and products bring fun and joy to different occasions. I have more than 2,600 colleagues at Cloetta, and we have sales to more than 60 countries. The most recent change in our operation is that in May 2024, we divested our dry roasted nuts brand Nutisal, as part of our previously communicated plan. We divested a brand to continue streamlining the brand and product portfolio, this to reduce the complexity and to support the long-term goal of adjusted EBIT margin of at least 14%. Last year, our total nut category represented 2% of the total net sales, which the brand Nutisal represented approximately half of it. We will continue to sell nuts in our Pick & Mix segment.



As previously mentioned, we had a strong quarter with improved profitability and the key messages for the report are, the food price inflation was reduced compared to Q2 last year. We continue to deliver stable underlying volumes. Our adjusted profit was positively impacted by the full effect of the pricing we did in quarter 1 and the improved Pick & Mix margin. We expect to continue to successfully manage potential increased input costs also going forward. We divested a brand Nutisal to streamline our brands and our portfolio, and we are proud to share that net debt over EBITDA of 1.8x is the lowest ever in Q2. I know Frans is really eager to get back on those numbers, and he doesn't have to wait long because now it's time for the financials.



Frans, our CFO, will walk you through both Q2 and year-to-date financials.

[Frans Rydén, executive]

Thank you, Katarina. So for quarter 2, net sales starting there, I'm really pleased to repeat what Katarina already mentioned, which is that we are delivering 1.8% organic net sales growth. That means now over 3 years of consecutive quarterly growth. And it's also our fourth consecutive quarter with net sales over SEK 2 billion. Now 1.8%, that is in line with our long-term target, but it's obviously less growth than what we've seen in the last couple of years, as we are now facing comparisons to prior periods, which already include a lot of pricing to offset the higher input cost.



Now, I made that point already in Q1 about meeting these tougher competitors. But I would also want to add now that although the overall environment is more stable than last year, increasing input cost continues to be a challenge, especially [indiscernible] coco. Coco does keep going up, and we're actively managing that to our strategy to price for higher cost.



I think the growth is actually best understood when we look at the 2 segments separately, which is going to come on the next slide. And -- but I first want to address something about the sale of the Nutisal brand, and that is how it's reflected in the numbers as I take you through this. So the transaction date of this sale was early June. So the quarter includes 2 months of Nutisal sales prior to that. And to help you understand how our continued business is doing, in the growth numbers, we have separated out the effect of this change. And as I talk about organic growth, that's going to be on this ongoing business.



Now, in accordance with the relevant accounting standards, we're not going to restate for comparable numbers. And going forward, you will also continue to see that we report sales of nuts. And as Katarina mentioned, that is because we will continue to sell nuts as part of the Pick & Mix segment.



But let's look at the segments one by one here. So on the top row, the branded package sales, they grew organically 1.2%, and I have 3 points to make about this. First and maybe most importantly, that growth is coming on stable underlying volumes, which is a really terrific thing. So, we do see a lot of companies having a hard time maintaining their volumes. You could say that they're losing the share of summer. While we have, despite also taking a lot of pricing the last couple of years, we continue to see consumers chose to buy our brands. We have fantastic brands that people love and trust, and we continue to invest in them. So, we are also holding on to our strategy of fair pricing, and I think the stable volumes are an effect of that. Not only the consumers enjoy them, we are, of course, also happy that we are stable volumes, but it also helps our retail partners and other customers. So that's the first point.



The second point is that, there is a mix effect in these numbers that has softened the sales growth somewhat, both with respect to refreshment. But also -- and I don't normally talk about this, but actually because of the weather, because we had a really great late spring here in the Nordics or, if you will, like an early start for the summer. So the first 2 months of quarter 2, I would argue, was really terrific. Really nice warm weather, ice cream, I'm sure, sold really well, but it had a noticeable effect on our numbers with less candy sales and also in the mix with less chocolate sales. Now on top of that, we have continued our portfolio rationalization, and we did some extra cleanup in some of the noncore markets, and that has softened the sales growth a little bit further.



But the third point is that all of this was more than offset by full quarter effect of the catch-up pricing and net revenue management that we did in quarter 1 and also new action in quarter 2. And I'm going to come back to that when we look at the profitability. But first, let's look at the growth in the Pick & Mix segment on the lower part of this slide. So 3.4% growth after 12 quarters of double-digit top line growth, this is, of course, lower. There was a shift with some sales into Q1 because of the Easter. But also here, I think the key point is that this growth is despite the fact that we had a big customer in the UK that went into administration last year. So obviously, we're not selling to them any longer. And also, if I exclude that, our volumes are stable here, again, a terrific thing in this operating environment.



Now on that volume, we have done fair pricing, and we have a favorable market mix, and we've done many things to try to improve on this. And that also comes through when we look at the profit. So let's move on to the profit. So if I start on the right-hand side for total Cloetta year-to-date, we have grown our profit versus last year despite the input cost hike since then and the quality incident that we talked about in quarter 1. And you can see that the profit growth is coming from volume and mix, which is a really important thing.



Likewise, if you look at quarter 2, we are also stepping up profit to SEK 222 million, which is the highest we have reported for a quarter for many, many years on roughly a decade. Again, the strong profit is built on the stable volumes that I mentioned and with a favorable net effect of pricing and cost, which is clearly visible on that graph, which comes both from our net revenue management program and as in the quarter, had caught up on some of the earlier cost increases. We said this many times that we negotiate new pricing and market input cost increases. But as a result, there is inevitably a lag between when the costs are going up and our pricing comes into effect. So here, we have caught up.



Now, I also want to repeat then what I said at outset, which is that while the overall environment in totality is more stable than a year ago. Some costs are still going up even versus quarter 1 this year, such as for coco, but also in part of the packaging. Some other materials are stable or coming down, but we will continue with our pricing strategy, which is to take price with absolute increase, even though that does have a compression effect on the margins.



And on that note, on the margins, we are very happy that for the quarter and for year-to-date, we are back on double-digit EBIT margin. Now that's on the back of the step-up in gross margin. We are improving, and we will continue our focus in this area. Still, the quarter 2 step-up is quite big. And here, I would like to say that you need to keep in mind that as costs continue to go up, our offsetting higher pricing will compress some of the margin improvement. And on the same topic, when we turn towards colder weather in the back half of the year and chocolate consumption goes up as a share of our portfolio with this new higher coco cost and the pricing that we will take for it, we also will see some of the favorable Q2 margin a little bit compressed.



Now, before looking at the segment separately, I also want to mention here that we are still working through the details with the supplier of that nonconforming ingredients, which we spoke of in quarter 1. We work for them with them for something like 50 years, and we expect this to be solved in a good way. But the quarter 2 result does not include any reduction in the provision that we took in quarter 1.



Now, let's look at the profits by segment. So starting with the branded packaged products on the top row, we are again pleased to have been able to protect the profit in the segment despite the input cost hike since last year and while it is regrettable that the pricing does compress the margin. Now in the quarter, there is a favorable effect from catching up on the pricing and the net revenue management action that I mentioned, but there's also an unfavorable mix on account of passive volumes being a bit down and also on the chocolate that we have a little bit less of in the portfolio.



Still on the past builds, the trajectory is that they are actually less down in Q2 than they were in Q1. So that is a promising sign. And also on the gum category, the volumes actually grew in the quarter. So we're putting a lot of focus in this area, and I hope that we can keep reporting promising numbers there.



Now I also flagged in the Q1 earnings call that we were going to step up on marketing in quarter 2 compared to last year by about SEK 10 million to SEK 20 million. And we did that. Now given how strong the volumes came in, we held that step up to about SEK 10 million. Now for quarter 3, I will again repeat the same thing, which is that we will step up spend versus last year, somewhere in the range of SEK 10 million to SEK 20 million because we firmly hold that it is the continued investment in our brands, which allows us to continue to take pricing because the retailers appreciate that the consumers are coming back to buy our product even when they have to charge them more.



Now, on the bottom row, though, for Pick & Mix, the quarter looks really, really different. And we're really delighted. And despite the shift of Easter by 1 week to quarter 1, this quarter 2, we are delivering a margin again in line with the midterm target of an operating profit adjusted of 5% to 7%. So despite the Easter shift, that was more than offset by continued margin and housing initiatives and a favorable market mix. And what you see here is a lot of work over a long time that really starts to deliver. Pricing has caught up despite higher prices, healthy volume and higher efficiencies relating to merchandising, work on assortment, fixtures, I mean everything basically. Now this step up is really encouraging, but I would like to be able to present a few more good quarters like this before saying that we have locked in on the midterm target.



Now, moving on to sales and general and admin. For quarter 2 and year-to-date, they look kind of similar, where the onetime effect of the sale of the Nutisal brand, which is captured in the items affecting comparability, drives the overall variance and also sort of in a way distorts the total cost as a percent of sales. And if we rather look at the actual net SG&A, that increase is driven by, of course, general salary inflation, relating to our own workforce since last year, the same effect for our suppliers, including where contracts are indexed, but also importantly, due to the higher marketing spend that I mentioned, which ultimately enables the volumes and those in turn for pricing. That accounts for roughly half of that increase both for the full year.



Now, moving then on to our waterfall of 12% to 14%, I'm not going to make a detailed update on the efforts to drive bottom line profitability in what I already mentioned. But I think it's fair to use a darker shade of green here now on that arrow that talks about Pick & Mix, given the strong results. But I'm keeping the light green shape for the branded and a lot of effort is ongoing. I think we will be able to do something nice with this even though the margin remains compressed.



I also want to repeat what we said before with respect to the greenfield delivery, it will secure and improve on our ability to deliver the targeted margin. We previously in quarter 3, in the earnings release, I reconfirmed that despite the high interest rates, the net investment remains in line with what we communicated. And as you know, we have taken headroom for uncertainty when we originally announced this in 2022.



At that time, in Q3 last year, we also confirmed that we would generate higher up in the range of EBIT given that part of the upside comes from savings on payroll cost and since payroll costs have gone up, that saving is now worth more money than what it used to be. Now as shared previously also, we will be able to provide a more detailed update on both investment and savings when we have sufficiently progressed or even closed ongoing tendering and contracting process. And that, in turn, of course, depends on the complete finalization of permits, and we will rework on this.



Now, moving then to cash flow. There is a seasonality to our cash flow. As many of you know, where historically, most of the cash is generated in the back half of the year. And Q1 is normally pretty poor as the quarter starts with lower working capital after Christmas, and then it improves a bit, but we're also doing stock buildups in quarter 2 for the holiday season. And then in the second half, that's where we really generate the cash.



Now this year, we started with a strong Q1. We delivered SEK 99 million in free cash flow. So I'm really happy to say that we could add to that strong Q1 now in quarter 2 with another SEK 28 million, which is SEK 26 million more than quarter 2 last year. So year-to-date, we are now SEK 148 million better on the free cash flow than last year. And these numbers do not include any of the proceeds from the divestment of the Nutisal brand, which comes under other investing activities.



Now part of the improvement was due to the efforts to increase the focus on cash across the organization and part is due to the inflation having slowed down somewhat year-to-date. Although as you see in the quarter, we did increase our working capital close to what we did in Q2 last year. I also said this in Q1, which is that we are not in a deflationary environment. But I think I made the point clear already that we will need to take more pricing.



Now on CapEx, SEK 30 million is on the lower side of our normal spend due to several contributing factors. That includes phasing of spend, but also to some extent, driven by the preparation for the greenfield where we have communicated that, that investment will help us avoid or you could say, displace the need for other investments in CapEx in some of the other plants. So it does help. But the biggest effect will come when the new plant is up and running, of course.



A year ago, we expect our CapEx spend to be in the range of SEK 50 million to SEK 60 million per quarter. Nonetheless, SEK 127 million in free cash flow is the best Q2 year-to-date cash flow we've had since 2017. And it's worth pointing out that this is not a onetime effect, but the continuation of a process that has been going on for quite some time. And that is quite clear when we look at the financial position on the next slide.



So here, I'm really, really pleased that on account of strong cash flow and the improved profit, we closed the quarter with a net debt EBITDA of 1.8x, so well below our target of 2.5x. Now given the payment of dividend in quarter 2, leverage tends to go up in quarter 2 versus quarter 1. I also flagged for that in Q1. And the leverage did go up from 1.6% to 1.8%. But normally, it goes up with something up to 0.5. And actually versus Q2 last year, leverage is now down from 2.3x to 1.8x, which makes this quarter 2 our best ever quarter 2.



Now, you might be wondering if this was helped by the sale of the Nutisal brand, but it doesn't because with or without that, our leverage does round to this best ever 1.8x. Now on the graph to the left, and maybe it's a bad choice of color. But if you look at the red line in the graph, it's consistently trending downwards to improve position over these last number of years with the bumps being quarter 2 when dividends are paid. But even so for quarter 2 this year, the bump is hardly there. And if I would stretch this graph out maybe another 5 years back, you would see that leverage was rather stable at around 2.8x every quarter 2 during that period. So the improvement to bring Q2 leverage down to 1.8x is a really nice step up.



Now finally, we currently have access to additional unused credit facilities, commercial papers and cash on hand for SEK 3.9 billion, which is double the net need for the greenfield. So I would conclude that our financial position is strong. And with that, back to you, Katarina.

[Katarina Tell, executive]

Thank you, Frans. I really understand your eagerness of presenting the summation. And one enabler to deliver those numbers is, of course, our strategy, and I would like now to give you a strategic update. So for you who are new on the call, we have the last year's focus on 4 strategic areas. The first one is to grow our branded packaged business. The second one is to create value within Pick & Mix. The third is to lower cost and improve efficiency throughout the company. And the fourth is to drive our sustainability agenda. To be able to grow and see our brand flourish, we are convinced our consumer must be focused because in the end, they are the ones that will buy, eat and enjoy our products.



I will now go through the 4 different strategies -- strategic area a little bit more in detail. So starting with our first strategic focus area and that is to grow branded packaged goods. We focus on 6 parts. The first one is to improve and grow the right product mix. One important part is to continue to recover Pastilles and Chewing Gum sales that dropped during the pandemic, but also to the divest brands that aren't contributing to the profitability target of 14% like Nutisal.



The second part is to grow market shares of our key brands in our core market. We primarily focus on investing behind the brand that has or could reach a top 3 position in its category. The third one is to win a stronger position in UK and Germany. There are 140 million potential consumers living in this area, and we have not reached all of them yet.



The fourth part is to expand selected brands into countries that are currently outside our core markets. We actually have a dedicated international market team working with distributors to grow this area. The fifth part is to launch fewer, but bigger innovation to ensure profitable growth. The latest example is Läkerol strawberry that has successfully been launched in several markets during 2024. The last one is to drive growth in other channels than the traditional retail universe like E and Q-commerce. But I would also like to mention our own stores by Cloetta that we today have in Sweden, their turnover has been growing double digits year-on-year.



In our next slide, I will tell a bit more our progress in E and Q-commerce during the first half of the year. And as most of you probably know, e-commerce has been an overall strategic focus area for us for several years, but as quick commerce expanded rapidly during the pandemic. We decided to also step up focus in this emerging channel. The achievement with E and Q-commerce that I would like to highlight during the first half of the year are. First, the double-digit growth we have reached with Jelly Bean at Amazon and especially at Amazon in the US.



Secondly is that we became the supplier of the year at Foodora, the leading Q-commerce player in Sweden. And one of the reasons we got the award was the virtual pop-up store for [indiscernible] where we offered both candy and merch that we launched at Foodora market in Sweden during the autumn last year. Third highlight is that during Q2, we actually launched a dedicated online store for merch. We have been running Cloetta online stores for several years and in different markets. But launching an online store for merch is, of course, also a nice recognition, how loved our brands are as the launch was very much driven by consumer demand.



Then we are moving into our second strategic focus area, and that is to secure sustainable value from the Pick & Mix business. We strongly believe in this category because it's one -- is on consumer trend, where the consumers are looking for greater individualization and asking for more sustainable packaging. Second, customers see this concept as a differentiation for the stores and joyful and inspiring Pick & and Mix shelf will attract shoppers to them. We see potential also to drive value for customers and all our other stakeholders through the premium offering. And of course, if you get the scale, there is a very good opportunity to drive cost efficiency in this category.



Cloetta has already a strong market position in this area and has therefore, the potential to develop a further profitable growth, Pick & Mix. And we had 2 strong quarters, but it's still premature to state that we have sustainable reached the midterm target of EBIT 5% to 7%. But we are absolutely on the right way, and we have a strong position in this area as we today are the largest Pick & Mix supplier in Europe. Pick & Mix is the fastest growing confectionery category in the Nordic market. We are today the only player with a multi-market scale and proposition. Our concept is very inspiring and is inspiring both offline and online. And last year, we actually launched our first prepacked mix for quick commerce in several Nordic markets as quick commerce is a channel that is highly relevant to impose driven purchases. This was a very successful strategic decision. And the last one is that our Pick & Mix model is repeatable, which make it possible to expand into new markets and channels.



Then we are moving into our third strategic focus area, and that is to take out costs and improve efficiency. To drive this agenda, we have 6 different key deliverables. The first one is our perfect factory, where our aim is to increase efficiency and reduce waste and energy at our plants. The second one is our greenfield project that I will come back to on next slide. The third one is to reduce indirect costs. The fourth is to drive net revenue management, where we are focusing on all pillars, but I would say, especially on portfolio pricing and promotions. Fifth is to be smarter in media investment by, for instance, in increasing working media. Working media is visible for consumers, nonworking is the investment behind developing the material. Sixth area is, of course, to focus on cash generation.



So, then I would like to give an update on our greenfield facility in Netherlands. As you know, when the plant is operational, it creates capacity for growth, significantly reduces costs and reduces greenhouse gas emissions. Because of the new plant, we are closing 3 current confectionery factories, 1 in Turnhout, Belgium and 2 in Roosendaal, the Netherlands. At the end of Q2, we closed the first plant in Roosendaal, ahead of the original plan. During the quarter, our internal project work streams, continuous plan and the regulatory permitting process also developed at plans, and we are especially happy to have received overwhelming political support from Roosendaal City Council for the Sony plant.



Then we're moving over to the fourth strategic focus area, sustainability. Our sustainability initiatives cover topics across the value chain where Cloetta can make an impact. And this slide summarizes our sustainability targets, agenda and ambitions. We have clustered our sustainability agenda into 3 areas For You, For the People and The Planet and build our plans and targets accordingly. One of our most important target is of course, the reduction of CO2. And as you might have read in our latest annual report, our total CO2 emissions have decreased with approximately 10% compared to the base year 2019. This is a decent start, and we are working towards our commitment to reduce our greenhouse gas emission by 46% by 2030.



Then moving on to an important decision made in this quarter. We have decided to start aligning our reporting according to the corporate sustainability reporting directive requirements already in 2024. And this is actually 1 year ahead of the required deadline. I'm proud of this decision as the CSRD makes a significant step towards accounting for sustainability alongside financial reporting in the EU. This, of course, also means that we have now finalized our double materiality analysis, as well as the GAAP analysis. We now look forward to starting to work on our annual report for 2024, where this change will be very visible.



Now it's time to hand over to Laura for the Q&A.

[Laura Lindholm, executive]

Thank you very much, Katarina, and thank you, Frans. It's now possible to either dial in and ask your question live. You can alternatively also post your question through the chat, which is now open. Operator, do we have any questions from the telephone lines?

[Operator]

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]

[Frans Rydén, executive]

Okay. Great. I think I can take the first one, which is on the slide here, from Stefan at Nordea. So it is -- there are 3 parts to this question. The first one is about giving a bit more flavor to the higher input cost for coco and what that means. And the other part of this is a little bit on the Nutisal divestment and timing around that.



Let me start with the last one, which is very simple. Yes. So the date -- the official date is on the 4th of July. So it's basically -- that's why 2 of the months in the quarter are in these results and 1 month is out. And the question is any further one-off costs for the divestment? No, there is not. We've taken everything. There won't be anything else negative coming through on this.



And then coming back to the major question even around, if we could give more flavor, if there's a negative impact in the autumn from higher input cost for Chocolate products, if that would be visible in the group margin? Or is it just a Chocolate products et cetera. So yes, so let me break that down. So the first thing is, coco prices are continuing to go up. So if you look at -- I mean, this is changing every day, but if you look at this, if it's the powder or the different type of chocolate components, they're up sort of 60%, 70% to 80% versus quarter 1. So this is coming through. And as we said, we will continue our strategy to take fair pricing for the increased cost. Given that it's happening now, of course, there's always a little bit of a lag before our new pricing comes through. So that's one thing to think about that there could be a bit of a lag between our new higher prices and when these costs are actually hitting our P&L. That's one.



Number two is that, any increase we make to -- on a one-for-one basis offset the higher cost has a compression effect on the margin. So when you look at this and you know that a year ago, in 2023, about 8% of our costs were coming from coco. That has now, of course, gone up with the higher prices. So it's a significant component of cost for us. But if someone thought we were just a chocolate company versus that, of course, it's not. We are a candy company, but chocolate is an important aspect. So -- so a little bit depending on how those costs play out and no one knows for sure, of course. I mean this could reverse itself, it could get worse. But definitely, it does have a bit of an effect. But then, we're saying versus Q2. And in Q2 now, we've done a really nice step up. So of course, we're talking about that, that step-up will be somewhat moderated in the back half of the year.



And the final piece of this is, there is a mix component here as well. So it was a little bit less chocolate now in Q2 in the back half of the year, chocolate will be a bigger part of the portfolio. So yes, if we didn't think that there was anything at all here, we probably would not have mentioned this. So yes, the conclusion should be on the total company, probably that there may be an impact on this level of step-up that we've seen in Q2.

[Laura Lindholm, executive]

Thank you, Frans. Moderator, do we have any questions from the telephone lines?

[Operator]

There are no questions over the phone.

[Laura Lindholm, executive]

Thank you very much. We also have some questions from our retail shareholders, which have been preregistered. The first one is for you, Frans. Have all the price negotiations held with customers being successful?

[Frans Rydén, executive]

I think the short answer, I would say is yes. It doesn't mean that it's easy and we fully -- we respect the fact that consumers have seen a lot of inflation. And so it's not easy to absorb more cost as a consumer. And likewise, we fully appreciate that this is also not easy for our retail partners. The people that help us get our products out to the consumer. I mean, they also have challenges. But we have a transparent approach where we price based on public available date on what's happening in the market. Now that doesn't make it an easy conversation. But I think sticking to this strategy, ultimately has enabled us to take fair pricing for our products. And as you know, in the past, we did walk away from contracts where we couldn't get the fair pricing through principally, we do that. As of this quarter, we don't see the need for that. So I would say, yes, it's successful, but it's difficult, but we understand the challenge for all the parties involved.

[Laura Lindholm, executive]

Thank you, Frans, very clear. Then over to you, Katarina. In the report, you mentioned the investment in core brands. Could you walk us through what we mean with these core brands?

[Katarina Tell, executive]

For Cloetta, the core brands are the brands in our core markets and the expectation is that they have or have the potential to reach the top 3 value position in the categories where they're playing. And of course, we are also continuously monitoring their performance on the different core markets.

[Laura Lindholm, executive]

Thank you very much. It appears, we have no further questions from the telephone lines and also no further questions in the chat. So we conclude the event today and take the opportunity to remind everyone of our upcoming IR events. Our next report Q3 is published on the 25th of October. But before that, on the 9th of September, we have a Group Launch in Stockholm arranged by Nordea. Thank you, everyone, for joining today. We wish everyone a very relaxing summer and of course, hope that you get the chance to enjoy Cloetta's products during many joyful and memorable locations.

[Frans Rydén, executive]

Thank you. Goodbye.

[Laura Lindholm, executive]

Thank you. Goodbye.