Cloetta AB
STO:CLA B
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Cloetta AB
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Good afternoon, and welcome to Cloetta Q4 Conference Call. My name is Jacob Broberg. I'm Head of Investor Relations. And with me today are Henri de Sauvage-Nolting, our CEO; and also Frans Rydén, who is our new CFO. But I'll give the floor to Henri to start with.
Yes. Welcome to this call on Friday afternoon. If we look at Quarter 4, I'm pleased to show yet another quarter where we have our branded business in growth 4 quarters in a row. And if I listen to the people who have been around here for a long time, this hasn't happened for multiple, multiple years. We also today are deciding on proposing an increased dividend to SEK 1. If we look at the underlying performance, we can again see that the net sales is up to SEK 1.646 million, but we tend to look only at the organic growth, which was minus 3.2%, all driven by negative growth in the pick & mix, like we have been carrying with us during the other 3 quarters as well. Operating profit adjusted was SEK 174 million and the operating profit SEK 159 million, driven by marketing spend, as we already talked about last quarter but also the abolition of the increased sugar tax in Norway and production cost in France will go into that, but for the period SEK 159 million. Last year was exceptionally low. And cash flow at SEK 288 million. Our net debt at 2.31. Again, well below the 2.5 and then the proposed dividend of SEK 1, up from the SEK 0.75 that we had last year. There was some confusion, I think, already in the media, but last year we had SEK 0.75 dividend coming from the continued operations and then a special dividend of SEK 0.75, which was due to the sale of Italian business that we gave the cash coming from that transaction back to the shareholders. So we see this as a step-up from SEK 0.75 to SEK 1. Then if we look at the markets, the brandeds, what we call packaged confectionery we can measure through Nielsen. And those objective external figures are showing a growth in all markets. So that's positive. We looked in the summer at some negative development but they are all bounced back. Pick & mix market, where we don't have a single source, we think that there was growth in most of the markets, but it is our own estimate varied on different sources, supplier databases or POS data from one customer. But we think they are still on aggregate across our markets' growth and the growth levels are very different market-by-market. I already commented on the minus 3.2%, fully driven by pick & mix, impacted a little bit at total pick & mix decline with 13.5%. Yes, and it's still the same reasons, so it's the lost Coop contract in Sweden, which is by far the #1 but also the weak sales in Norway. We had no promotions due to the sugar tax but also the government has decided to abolish the increase in sugar tax they took last year, which also then means that customers are refraining from buying the full amount in December because then if they buy in January it becomes a lot cheaper. And it doesn't mean that the no-promo policy is immediately gone from the customers in Norway, because that was much more related to PR rather than to the sugar tax itself. And then there's a third bucket, which we said we're preparing the pick & mix business in general. But in particular, the old CK business to be ready for growth by cleaning up and focusing not only on volume but also on profitability. Now that counterbalancing that, as I already said, packaged branded growth of 1.4%, really nice because it's coming from northern European markets with little-to-no volume growth and more price growth and that shows in our market share evolutions. Along aggregate level, Cloetta is taking market share outgrowing the markets in -- on aggregate levels. So that's very positive because it's -- that's a clear fourth quarter where we do that also for the full year. And as said before, we haven't seen that for well at least 5, 6 years, maybe even more going back. And let me remind you, I mean the growth margin of this business for the time being is in the branded business. Yes, if we look at the strategic focus. Yes, these are the 3 pillars we've been talking about. So why do we drive our growth? Well, it is still very much the focus on growth on the brand that -- on the branded business delivering superior gross growth margin. Another area where I'm really pleased to see the progress is the move towards working media. Remember, you, the working media, is the money we spend, which is actually being seen by consumers. The nonworking is all the production cost or agency fees or research fees. And we have been able to move this up with 15%, which is a big impact actually if you look at it on absolute numbers that have more of our spend going into activities which the consumers actually can see, be it either traditional or new media. And the last one is on integration in our innovation process to get much more leverage between the markets or across the markets on the kind of innovations we are doing. So moving from single-market innovations to cross-market innovations, good example which we showed last time is the lower sugar launch which is now going in all the core markets of Cloetta. So fewer innovations but bigger. So 3 important things also for '19 to keep on driving and also as a next step of innovations, we are looking at more long-term innovations, getting more focus over there versus short-term tactical innovations. Yes, then the second pillar is then how do we facilitate growth? One, Cloetta is to get much more benefits of the knowledge and scale we have by combining countries and functions to work more together. And that can be from working as one HR, where we have just implemented a cloud-based HR system, called Workday, where we have much more transparency on organizations and cost but also things like customer boards, where all sales directors of the different countries are coming together to really look at common challenges. The second point is brand and category management. So again, we were very de-central in the way we were working in marketing. We have now a common forum exchange for growth under the leadership of the Chief Marketing Officer to really define long-term plans, category visions, the way we work with the trade, common innovation platforms.And then third, but not least, is in CapEx proposal to de-bottleneck our drying capacity so that our production lines in the -- we call it molding but it's basically the wine gum candy portfolio, so that we can reap the benefits of the Lean program by getting more of the increased output also right and giving hence more possibilities to keep on insourcing but also to keep the branded growth volumes, which are added to the portfolio into our own factories. And last, but not least, is then the funding the growth. We're looking at preparing the pick & mix, and particularly the previous Candyking business, for future growth. And there's still some cleaning up to do. These are customer -- long-term customer negotiation contracts with the run-times of several years. So we need to break those open, but we don't want to do in all in one go. It's a negotiation contract-by-contract. And cost efficiency, we call it internally the value improvement plan, also with the new CFO coming from Mondelez was very much involved in looking at cost and tools like zero-based budgeting, we're going to make an step-up, obviously, to get funds from the cost we have both in supply chain and head office and bringing part of that into marketing support and part of that into EBIT improvement. And the last, but not least, is the continued journey of Lean. So we move from Lean into something we call perfect factory. We could call it Lean Plus really now working on getting our operators and engineers in the factories, on the shop floor, involved in how to improve the lines they are responsible for.We then go over to Frans and tell us a bit about the net sales.
Thank you, Henri. This is Frans speaking. Happy to be here with everyone on the call this afternoon. So picking up from Henri's comment on the organic growth, which you see on the slide, which is, as we said, completely driven by the shortfall in pick & mix. That is then offset by favorable Forex rates for a basically flat development quarter-over-quarter. And just make a note also on the full year, you see there the upside from the structural change as a result of the Candyking acquisition as well. Now, however, zooming in on the packaged product growth, and this visually represents now something Henri mentioned earlier, which is that we're happy to see 4 quarters of consecutive growth, first in a long time. It doesn't mean that we necessarily have turned full year corner, but it's a promising sign. And we have to remember that's 70% of our business, not only where the profit is coming from. The other side, so the remaining 30% is then the pick & mix. And of course, the graph looks very different here with the decline over this year as a result of the loss of the Coop contract as well as the challenges in Norway. I would also point out here that when we look at this business, we have to remember that you get really significant swings when you gain or lose a contract. So the 2016 growth you see there, which excludes Candyking, was driven by big contracts gained in Bergendahl and [ Överskottsbolaget ].Moving then on from the net sales to the gross profit. It's in line with prior year as the impact that we have in Norway and with Candyking and the higher production costs we've had in this quarter were offset by the retranslation Forex that I mentioned earlier. Moving then to the operating profit adjusted for items affecting comparability. You can see that unfavorability that we have in gross profit is flowing through but it's offset by a favorability from retranslation in Forex. That has now been netted off with unfavorable retranslation in Forex below gross profit. So this decline versus prior year is also driven by the increased investments in advertisement and promotion that Henri mentioned. And all of this is partially offset by other savings that we've had on indirect driven by the cost-control programs. Continuing down on EBIT, we can see we had net SEK 15 million in items affecting comparability. This primarily relates to restructuring in Norway with Candyking as well as in Sweden and takes us from SEK 174 million to SEK 159 million. So this is SEK 20 million less of such items than we had in 2017. So that reduces the variance versus prior year to SEK 12 million. We are then having less net financial items impact. This is, of course, again Forex with favorable exchange rate differences on borrowings in cash. And that reduces the variance versus prior year when it comes to profit before tax to just SEK 1 million that you see on the second row from the bottom. And then finally we see a significant favorability versus prior year from profit from continuing operations or even after tax. And that's on account on two things. First, we have a negative tax rate in this quarter. This is the result of several countries revising their tax rates and we have an effect as a result on our deferred tax liabilities. And secondly, in Quarter 4 2017, the tax rate was unusually high because of the valuation allowance that we did that year relating to deferred tax assets in Slovakia. So moving on to the cash flow. So here I would like to start at the bottom of the table and the cash flow for the period. So SEK 240 million. This is, of course, a healthy cash flow, especially if you keep in mind that the EBIT was SEK 159 million for the quarter. This is nonetheless SEK 80 million less than the SEK 320 million we generated in Quarter 4 last year. And the explanation for that you can find first and foremost towards the middle of the page under the heading for cash flow from other investing activities. There you can see a cash receipt of SEK 69 million in 2017, which was the final payment related to the sale of the Italian business. So that basically explains SEK 69 million of the SEK 80 million. And the remaining of the variance you can see under the change in working capital. We have SEK 77 million generated from favorable working capital in the quarter, which again is good. But it's nonetheless less than the SEK 105 million we generated in Quarter 4 2017. So that concludes my part of the presentation. I hand back to Henri.
Yes. So we go back to summary of 2018. Very good to see that the branded business is growing. It forms a strong cornerstone of the strategy we are executing to get our base business to grow and particularly the base business where the margin is. So that's really important. Of course, we also are working on total top line growth. And of course, we realize that we need to get the pick & mix business -- the integrated pick & mix business into growth as well. On the other hand, we are also preparing that business for growth because growing a completely nonprofitable business in some countries is not a good idea either. Yes, EBIT and EBIT adjusted have both improved coming from Candyking synergies, more production volumes, good cost control. That's the journey we are on towards the journey of 14%. And if we want to grow the branded business during 2018, we're focusing very much with the markets and the marketing community to get the working media up 15% is a very good first step. We're not at the target where I want us to be, but at least we've taken out quite a chunk and also proven that we can invest this in a wise and a good way. Also, if I look at the results or try to also share a bit more of that on the Capital Markets Day when we have a little bit more time to go into the whole area of marketing and branding. Yes. The Candyking synergies are coming in. As we have communicated, the indirect chunks of same officers, same field sales forces, one system, most of that has been coming through in 2018. The biggest chunk of the insourcing is also well under its way and will come in the time period we have communicated. We make business decisions on what is the best insourcing and we have to balance that, of course, also with our own organic growth from the branded business. So we feel confident that the SEK 1 of dividend lies well between the policy of the 40-60 percent. That is a good step-up, also showing the health of the business. And that was it.Yes, it was a turbulent year. A lot of changed programs, which have been going into the company, also things which are too detailed to discuss here today, but a lot of transformation work going on. So we're not there yet. I'm also pleased that my team is in place, the last one joining, Frans, really being able then to drive this change agenda through the whole company in all different functions.
Yes. With that, we open up for questions.
[Operator Instructions] The first question is from the line of Nick Fhärm from SEB Equity. Okay. Nick, there seems to be a bit of disturbance on your line.
Okay. Just a second.
Can hear us? Yes.
Can you hear me now?
Yes, you're coming through clear.
All right. Okay. Sorry about that. And my first question would be on the comments that you're making towards the integration of Candyking and ending up in rich-rating the full synergy potential by 2020. Now in the second paragraph, the actual section in the report that you read[Technical Difficulty]
Sorry to interrupt you. This is the operator speaking. So your line, there's still a bit of disturbance coming from your line.
[Technical Difficulty]
Unfortunately, we cannot hear you. So I will just need to mute that line. And then we'll go on to the next question. And that is from Stefan Stjernholm from Nordea.
Stefan from Nordea here. Can you hear me now?
Yes, we can hear you.
Yes.
Finally. Okay, sorry. The first question regarding Norway. The question is, have you already seen volumes coming back after the destocking in the fourth quarter?
Yes. Of course. So we are quite used and prepared to this. Of course, we discussed this with customers, because we quite often work in collaboration with customers when it is forecasting and when they expect certain volumes. We've seen this exact same behavior in Finland before when the same thing happened. So yes, we see volumes coming back both on the branded and the pick & mix.
Is it possible to quantify how much that has been?
No.
No. Okay. And regarding marketing investments in 2019, I understand that they will be up, but how much? And what about the timing throughout the year?
Yes. Of course, we are also prudent, right? So I don't want an enormous increase in the first quarter and then nothing in the 3 quarters to follow. So the way we do this is that we spread this evenly across the quarters. It's an investment, so we also need to see the result or the continued result, I would say. I'll show you a bit more on the Capital Markets Day on how we're investing and how we make those decisions. So the increase is evenly spread across the quarters. And then as we said before, it's -- the goal or the target is to get cost savings in the indirect sphere to offset investments in A&P. It's a little bit too early to say a statement here how much we will increase. And again, it's on both sides, right? So it's an absolute investment but we also think we can make a further step on the reduction of the nonworking media, which also will help then on the growth levels in the branded business.
Okay. And my final question, can you add to this early stage only to help us to understand the potential Easter impact given that Easter is full in Q2 this year?
Yes. So I mean, the full Easter is in Q2 versus 2018. So that is for sure going to be there. It is a big impact on pick & mix. But also remember that last year, in Q1, we still had Coop in Q1 for about half the business because they started to rebuild the Coop stores, let's say, on the 1st of January and that ended more or less at the end of Q1. So on average, we had half the business there. But then we also had the Easter effect in Q1, right? So like-for-like, that would hurt us a little bit more than we would like, of course, because now we do not have the Easter in Q1. So the comparator of the Coop-Easter effect, those 2 together I would say are a bit maybe higher than we would like it to be. I mean, there's nothing in the underlying business, which is different. And we also try to, of course, compensate for that. We have a huge activity in Sweden for those with Melodifestivalen. But that effect will be there.
Yes. But it's not possible to give a range for these 2 -- the impact on EBIT? If it...
We've always said that the Coop effect was around SEK 150 million, SEK 160 million. So SEK 40 million in a quarter. So you could say, well, then 1 quarter is SEK 40 million and you have half of it in Q1. You're talking about SEK 20 million. But then there is an upside in Easter. And you how much that exactly is also for us very difficult to estimate that because of so many moving parts during Q1 last year. You know that Coop started the biggest stores first and then the smaller ones. So was it by region, it's very difficult to get that picture from them. So -- but it'll be an effect.
And the next question we have again from Nick Fhärm from SEB Equity.
Can you hear me now?
Yes.
All right. Excellent. My first question relates to your comments in the report on the integration of Candyking. You're writing that you expect necessary investments to further increase insourcing, right? And I'm a bit stuck on the word further. How does that relate to your original plans when guiding for -- I understand the...
Yes, in line with the original plan. So what we said is that we would insource about half of the volume of Candyking and that we would have about SEK 175 million of cost about the restructuring but also investment to be made in the factories in order to do that, yes? And we have started, of course, with the insourcing already in '17 and in '18 and we now need to make this investment to unlock further -- yes, got to continue journey in the insourcing of Candyking. And that amounted to SEK 170 million out of the SEK 175 million. Then on the SEK 100 million of savings, the majority of that is the insourcing and a smaller part is the, let's say, the indirect savings in systems and people and back office and things like that. I mean, that has mostly -- apart from the U.K., that has mostly been put in place in '18, but not all on the 1st of January. So there will be some benefit still coming through in '19. And the insourcing is, of course, a continued journey, where we follow and track ourselves as well quarter-by-quarter, the volume which is coming in from the insourcing. So we express that as the percentage of the volume being produced by ourselves or the absolute amount of volume which is still outside. The only caveat, of course, is that we are also growing our own business. And of course, that is also important to be able to cater for that. And then there are also some other third-party, like the Italian business, which are interesting to insource if that gives us more. So we make what is best for the business financially, those trade-offs.
All right. So just -- if I may, just so I get this right what you're saying. What you're saying to the market is that there are no changes to the sort of synergy, not in terms of amounts or in timing?
Yes.
But -- yes. But for 2019, it sounds to me at least that you expect to incur the costs more or less to get the savings in 2020. Is that fair?
Yes. I mean, what is fair, of course, is we need to make an investment in the drying capacity. So nothing to do with our lines. We'll just have the same number of lines. But to get the drying capacity expanded, we will need to make an CapEx, so that -- but I don't think we'd communicate the exact timings of the CapEx when we did the Candyking acquisition case, but they will now come in '19. And I would expect a part of it in '20. But I don't know yet if that is 50-50 or 25-75 or 75-25, but we will make that investment and then -- I mean, a good thing with the drying chambers, the moment they are installed, you can more or less start to use them. But that's capacity unlock will then, of course, always come later than when you make the investment.
And in terms of OpEx, just to be clear, I mean, you talked about increased wage and production costs, right, to improve insourcing volumes in this quarter. How do we sort of model that from a timing perspective in 2019? Should we expect...
I'll ask Frans to answer that, but there were quite a big chunk of one-off costs in there in the comparator. But that you give...
No, but that's exactly correct, Henri. I mean, the increase in production cost that we see, about half of that are one-timer variances that won't repeat themselves going forward. And then, of course, Henri spoke earlier also about further need to drive this, let's say, Lean Plus, the perfect factory program to address where costs have been maybe higher than what we had hoped them to be.
Yes.
All right. Then my second question, if I may, is if you could somewhat elaborate a bit on your view of M&A in 2019 versus dividend focus in the company, please.
Yes. I mean, the first thing is that M&A has been, let's say, redefined. I think we talked about that. So we are saying, well, we are interested in M&A when it meets a certain threshold in size. And so we're not interested in small M&As, because I can also see that the small M&As are taking disproportionate amount of time and focus, which is then not being spent on the base business or the core business. So rather bigger than smaller. The second one is that we want the M&A first and foremost to be in our core categories. So we're not going to venture out in new categories. So that's a bit of a breach with the maybe old philosophy that we would buy a lot of different consumer occasion categories. No. We'll stick with what we know best, the core categories and then predominantly in our core countries, being the 4 Nordic countries plus the Netherlands, yes? And then target group number two, again core categories. We have synergies in production, in technology, in innovation, in marketing, et cetera. But then the core categories in adjacent markets. And adjacent markets are markets like the U.K. and Germany, where we are present with own organizations but maybe are not having the market share as we have in our other core markets. So establishing ourselves there and being able to bank on the scale benefits of Cloetta is potentially a good acquisition case. And an adjacent could also be Belgium and the Baltics, maybe even Poland. And that's where, for the time being, we will stay and we'll focus on and not venture out yet in other parts of Europe or the world until we have our new international division clearly established working with the hubs we have now out there in the different geographies. So if I say that you could also, of course, conclude the case that maybe fewer acquisitions, but the ones which will come through when they come through will be slightly bigger. And that yes, I think, answers your question and also on the dividend that we will be looking really at acquisitions which can strengthen the core business of Cloetta. And there are fewer of them than -- well, I think, we talked about popcorn last time we met, popcorn business in the U.K. with a fit perfectly in the old Munchy Moments acquisition strategy. But we have no capability in popcorn nor do we have factories where we can produce popcorn or we have marketing or salespeople who understand popcorn. So clearly, we said no, not of interest. So we'll stay within the categories we have.
And -- but I guess my question was actually more leaning towards the dividend. Your view, not the board, but your view on dividends. So if you had the opportunity to make one of these acquisitions that you're talking about in 2019, would you prioritize that ahead of paying out the extra dividends? I guess that's my question.
Yes. I mean, I think, if this is the case, it needs to be judged on its own, right? So I'm not blank-signing a check for an acquisition. I think an acquisition, that's also something we've learned. It needs to be able to deliver value to Cloetta maybe not on day 1 but in -- on -- well, maybe after month 6. So if there is a very interesting acquisition, which can strengthen the core business we have in one of our core markets, that will be interesting, particularly if it comes with the right manufacturing network, so we can produce more in our existing factories and there's not too much restructuring cost. If there are some really strong brands, where we can build on, yes, that we would be interesting in -- interested in that. But of course, we need to balance that with our dividend policy and the continued stream of dividends. We want to be a stable company also in the amount of dividend we pay out. But if it is big, yes, I mean, we should look at it and judge it on its attractiveness.
[Operator Instructions] Next question is from Mikael Löfdahl from Carnegie.
Just if you -- if it's possible, again, on the Candyking synergies and what has been realized and what we can expect going forward. I mean, if you look at since the acquisition and particularly in 2018, it doesn't seem that the synergies have come through at all. If you look at only the numbers. If you look at SG&A to sales, partly maybe on gross margins but definitely not on SG&A. And also, you did announce that you were going to make savings of SEK 50 million, that was a new savings program, which I guess lies besides the sort of back-office SG&A-related synergies. So when you add those SEK 50 million to another SEK 50 million in realized synergies, I struggle to get to your numbers for 2018.
Yes. Before I hand over to Frans. I mean, the SEK 100 million stands strong and we're delivering that over the time period communicated, also in the same kind of shape we have been talking around. Yes, the majority of that will again come from the insourcing and, of course, that will be spread across the whole portfolio. The benefit will not only lie on the pick & mix, and not only the indirect parts. We have implemented most of that during 2018. Remember that in -- on the 1st of May, we went live with our enterprise system in the 4 Nordic markets. Only after that, that we were able to start integrating back offices and processes, warehousing, et cetera. There's still a little bit more to be done over there. Yes, the other remark you make is on the SEK 50 million saving. Correct. But what we communicated that we would have that SEK 50 million run rate in by Q4 2018. So that's a saving which you should start to see coming through in the SG&A cost during 2019. And then that should indeed be seen as something which is standing next to the Candyking synergies. The progress we've made over there versus the communicated external report, I'll ask Frans to allude us a little bit more on that with Forex retranslations.
Yes. Thank you. Yes, so on the SG&A, if you recall when I spoke about the gross profit, I mentioned that we had the upside there from the retranslation in Forex. And -- but you have the flip side on SG&A. So when you see the increasing cost that's sort of obfuscating the fact that we have the savings. On the quarter, it's the translation. And on the full year, you both have translation impact but you also have the Candyking structure, where we were comparing now for 2018, 12 months of Candyking and SG&A versus 8 months in 2017. So the savings are in there but they're bit obfuscated by these other drivers.
And then maybe last, but not least, I mean, we said we would make this run rate of SEK 50 million set off savings, but that would also partly be reinvested in advertising to get the branded growth going. And that's also, of course, something which you need to take into account when you look at total SG&A cost. But nevertheless, I mean, we're on a journey we, both Frans and I, think we can find more cost to come out of the business. We have Frans alluded on some restructuring cost we took in Q4 to reorganize both in Sweden and Norway with the aim to bring cost levels in SG&A down, and that journey will continue.
Okay. But if you only look at Q4, then all those savings that you're speaking about, the first sort of SEK 50 million for Candyking and the other savings, everything is in there in the Q4 numbers, I guess, since you said that it has come gradually during 2018. So...
Yes. No, everything is in there. But the SEK 50 million savings program, we said we will have the run rate of SEK 50 million by Quarter 4 2018. So that doesn't mean that's SEK 50 million savings in Quarter 4, but the run rate. So the full year run rate we should have at SEK 50 million by...
The quarterly impact should be there already in Q4 from those SEK 50 million?
Yes. The quarterly impact should be there. I mean, we have -- we said in Q4.
On SG&A, the only thing that sort of stands out in Q4 is the marketing expenses, let's say, SEK 20 million or so. But that's -- that is what stands out in Q4 on SG&A. Is that fair to say?
No. I think -- again, so I mean, yes, we have the incremental investment in A&P. You have the translation impact on SG&A, which is unfavorable here. Just like it's favorable at the gross profit level, it's unfavorable there. And then the -- I mean, there's bits and pieces. But the savings are in there. On a full year basis, you see the less of this, as I mentioned, because of the structural difference due to Candyking with 8 months of SG&A versus 12 months this year.
But if -- and to make it simple, I mean, the way we communicated organic growth as a clean subset from the P&L, we are also looking, of course, at our indirects, which are a breakout of the SG&A. And I think we can just say we are pleased with the progress we are making in the indirect cost without the translation effects and without the increase in marketing cost.
Just so we can understand where we are as we move into 2019, because obviously Q4 was -- on a gross profit level was hit by the Norwegian tax inventory reductions and so on from the sugar tax and everything. But going forward, from Q1 '19, the SG&A is not where we will see any particular savings going forward, on a -- let's say, on a quarter-to-quarter basis. It would rather come on the gross margin side from more insourcing of Candyking's assortment.
Well, if you talk about the Candyking part, the SEK 100 million, I mean, the vast majority of that will come on the insourcing, a smaller part is coming from the indirect. And then most of those indirect or SG&A cost savings have been put in place in 2018 with an important day, the 1st of May, was to go live. So that's also where we really could start to integrate processes and things like that. So there will be some benefit still in early 2019 from that. But I agree with you, the bulk of it will and has always been planned to come from the insourcing and the continued improvement of the performance of the factory network.
Okay. Another just clarification. On the CapEx side, you had SEK 182 million, I think, in 2018. That is up from SEK 134 million in 2017. I guess that increase is partly driven by investments needed for insourcing of Candyking's volumes. So first question, of those SEK 50 million roughly in increase in CapEx, should we assume that -- should we take away that from the remaining CapEx need that we should put in for 2019 and potentially 2020? Because from my point of view...
Frans will give you more on this also when we have the Capital Markets Day. But of course, we also have a continued operation we are running. So we're also -- with the increased organic growth in our branded portfolio, we're investing in chocolate production because we're coming to the close of the capacity over there. So there's more things than Candyking insourcing. And another part, of course, is the investment of putting the M3 system in place in all the countries in the Nordics for the Candyking business, which is not production-related one-off cost we then had in 2018. Frans, anything more?
No. Obviously, part of the -- one of those would be the M3 implementation as an example.
You said at the time of acquisition, you would have charges and investments of SEK 175 million. And I think I read between the lines that some 60% or so of that would be CapEx and be more backend loaded. And that is what you're saying now as well. So let's say that the SEK 100 million or so of those SEK 175 million are CapEx related. And of those, you have already taken a portion, but a majority of those SEK 100 million will come in 2019 and 2020. Is that what you're saying?
Yes.
Okay. Good. Final question from me regarding Coop. Have you seen -- because when they sort of insourced the concept as such, obviously, you are still delivering candy to their pick & mix concept. Has that -- has those volumes been in line with what you expected? Or have they sort of replaced your assortments with something else or...
This is a little bit dangerous because you know Coop is a customer from us and I don't think they would like us to comment on the development of their business because that could be competitive information really interesting for their competitors. So that's not something I can really comment on in figures, up or down or the same. But we generally tend to say and also tend to see that depending on the strength of our brands in the market, you get a certain share of the assortment. And within Coop, we were okay with the share of assortment, which then is based on real consumer preference or consumer demands, you could say, depending on the number of brands we have in impact or in other the pick & mix concepts. Whether then their concept is doing better than the old Cloetta one or worse, I mean, that is something I think you should ask Coop.
And when looking at pick & mix in Sweden, is that business -- has that stabilized, excluding the Coop effect?
Yes. So we -- so if you look at the total pick & mix business, this is the country where we have most focus to prepare ourselves for growth. I mean, I think you can -- or at least I would conclude if I was you that if we lost the Coop contract after 3 years that also says something about how well we as a business have been managing that. And you also know that the Candyking business before we built it was struggling in Sweden if you look at their reports. So those are 2 businesses together which were not performing on the level where you would like it to be and certainly not on the level where you would like to get growth from the business. And that takes more time to get that right than maybe initially thought. But it's my firm belief that with the people we now have in place driving this, looking at all the processes, and it is actually, of course, quite an operation with the merchandising bring these products into store that we will sort this out. But again, it needs to be healthy before you kick it into growth, because otherwise it would be just dilutive. So it's not at any cost that we want to drive top line growth in pick & mix Sweden. That's maybe the best answer.
I have a couple of -- sorry, I have a couple of questions from the web too. One is related to deliveracy accuracy. We spoke about that in Q3. Whether we should be able to come back on that on product delivery? And the second question is related to Easter, whether having a lot of -- Easter is just 2, 3 weeks into Q2. Is it not so that some of the products actually will be delivered in Q1 or will mostly be in Q2?
Well, let's start with Easter. I think we always need to look at Easter versus last year. And the majority of the sales will go into Q2, yes? And that's a -- there will be a significant effect versus last year. We tend to work with quite short lead terms with customers. So I would say 2 to 3 weeks is long. I mean customers don't want to have the stock sitting in their -- either in their warehouse or on the shop floor. We can push that a little bit in particular with the field sales force in Sweden with the more independent stores. But nevertheless, the effect will be that most of the sales will be in Q2. Then on customer service, we're constantly balancing, of course, the balance between getting more insourcing and, of course, still being able to produce flexible on consumer demands or customer demands going up and down. But there's much -- yes, with every quarter we go on, there's more processes in place, better forecasting also on the old Candyking business and less complexity in the portfolio, where we're cleaning up as well in the pick & mix portfolio between the countries. So I can't say that we are always 100% delivering on time in full. But we have -- yes, we have a good balance over there. And also, as from January onwards, I can see further steps in the right direction. More question from the web?
No, no questions from the web. Operator, please go ahead.
Okay. And the next question is from Nicklas Skogman from Handelsbanken Capital Markets.
A question on the insourcing and so on. So given the bottlenecks you had, which you name as one of the reasons for the decline in earnings in the quarter. Is it fair to think that the insourcing did not contribute to any synergies in the quarter but rather you had extra costs for this? And then the follow-up question on that is, it appears to me you're now investing in more capacity. When do you expect to have that up and running in 2019?
Yes. Let me start with the last one. I mean, there I'm also a little bit sensitive in discussing that so public over here, because we also constantly work with third-party producers with flexible contracts. So I wouldn't announce exactly when we think we are coming online with that, even though I don't exactly know that, that would not be good for our negotiation position. But a further supply chain strategy update, let's call it like that, we will do in the Capital Markets Day in March, the 14th of March. And let's also, again, be clear, we were talking here only about the mall, so the wine gum factory. So we're not talking about jellybeans or chocolates or nougat products, so let's say, the other 50% of the portfolio. Maybe Frans, you can say something on the question on the cost side.
On the cost side. Yes, I mean on the cost, I think it's important not to equate the increased costs with the insourcing. So obviously, as we've been insourcing, we have -- it's a saving in that. We're able to, generally speaking, manufacturer these products at a lower cost than we were buying them at. However, as we've also increased the utilization of the network, we've also had to, in some cases, bring in additional shifts. But that's not only related to the insourcing. That's also because of slightly different sort of mix of product that has come through the strong packaged product growth. And that has necessitated additional costs. So I wouldn't equate these 2 things.
Okay. But it's not public, it's no secret that if you would look at newsroom, which is public information, you can see that also in the branded business, we have a lower growth in the quarter in the wine gum segment. So that's where we see the shares across markets going up really quite, I wouldn't say dramatic, because it's positive, but quite forcibly going up. So -- and that is, of course, volume which is coming from the same factories as where we do the investment for the drying capacity.
Okay. But do you see a need for additional shifts also in Q1, Q2, Q3 next year? Or is this completely difficult to forecast?
No. That's not so difficult to forecast. I mean, again, we make the -- we make business decisions. Now what is best, what makes financially more sense to produce it ourselves with the extra on cost of the shifts, we want our shifts to be flexible so we're able to take them away versus insourcing or staying outside with more volume. And it can be then the Candyking's volume that can also be the ex Italian volumes, which we can take back in over a 5-year period. So on average, I would say that it is something we will see in Q1 as well. But it's still cheaper than the alternative to keep more of it outside. And in general, I would say, it's -- sounds maybe strange, but your luxury problem, right, at your factories where we can really produce as much as we want and that we can further optimize the running of those lines and take not only the less hours produced as a variable benefit but we can immediately fill it up with even more volume to produce even more. So I've been all too often in situations as factories which are heavily underutilized. And here we have 3 plants, which are fully utilized. But it's not that all of them are running at 7 days a week, because we make the trade-off between benefit and cost quite consciously.
But do you see a need to invest in capacity for these product categories where you have had to bring in additional shifts?
No. I mean, I'm not going to spell out the shift patterns of all the factories. That's probably not the purpose of the call. But in the molding network, you would say, half the lines we have are running on 7 days a week and the other half on 5 days a week. And the month can fluctuate. Those customers have late changes. And we then have to react at maybe with 3 weeks' notice, we can't ask a third-party supplier to suddenly produce that because they are also trying to plan their factories at a 100% level because their margins are so thin. So then we have to indeed put extra cost on to produce extra shifts over a weekend and those are expensive shifts. But hey, we also have a customer service reputation we want to hold up to and it still makes sense to produce that business and then, of course, we need to become better in planning more collaborative forecasting with customers. But as said, it's a better situation to be in and then you have ample capacity and you never have to add shifts because then your fixed cost already volume produced will be much higher than what we have right now.
But in the short term, I mean it seems very clear, it's hurting profit.
As Frans explained, I mean, there are several aspects in the production cost. And some of them are of a nature which are one-offs and some of them are of a nature of extra shift cost, yes? And they are temporary. But of course, if we get another 400 tons of products because a customer really wants to do a big promotion with us and we have the capacity with the machines but not the people and we have to ask people to work overtime or to do a number of months of extra shifts, we'll probably say yes to that because long-term that is value-creation, even if there's then an impact on a quarter with higher cost. I mean, the end of -- the business obviously is being generated, of course, by consumers. And if those consumers are then being more able -- or more consumers are being able to buy Cloetta products whatever 30% less sugar or in Venco relaunch we're doing with TV and digital, which goes extremely well. Long term, that generates value for Cloetta because those people don't buy only then in Quarter 4 of 2018 but they will continue to buy those products going forward. So when we make those decisions, we take a longer-term view than just the impact on that quarter. And that's what I stand for. And I think that for the shareholders as well, that's a better decision given the long-term nature of the business.
And there are currently no further questions registered on the telephone lines. So I'll hand the call back to you, speakers.
Thank you very much for listening and calling. And I would just like to remind all of you of our Capital Markets Day in Stockholm on March 14. So thank you, and have a nice weekend.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.