Cloetta AB (publ) (CLAB) Earnings Call Transcript & Summary

Good morning, and thank you for joining us on the Q4 conference call for Cloetta. My name is Nathalie Redmo, and I'm Head of Investor Relations. With me here today are Henri de Sauvage, CEO of Cloetta; and Frans Rydén, CFO. Henri and Frans will take you through our fourth quarter and full year results, and we will then move on to a Q&A session. I will now hand over to you, Henri.

Thank you, Nathalie. Quarter 4 was a quarter which on one hand gave us the consequences of the second wave and the associated lockdowns. On the other hand, we kept the progress in the execution of our strategic agenda. If we look at the key things which happened over there, we can, of course, see that the business had a slowdown in Q4, but it's also fair to say it was much less of a slow than in the second wave, in particular in pick & mix, where the effect in those -- in that quarter was nearly double. Yes, we see the same pattern. So in food retail, the candybag business is really up again, but the branded business in the other channels went down, and we also saw, again, as I said, a negative trend in pick & mix, although all fixtures remained open. What we also decided to do for you to get a better view of the different effects is that we disclose the total EBIT for pick & mix in 2020 being a negative SEK 135 million. That, of course, is not only the Swedish business, but due to the volume loss we've seen in the other -- in most of the other markets, and we can see that the fixed cost of both the merchandising and the fixtures was not yes, adjustable to completely compensate for the fall in the volume and the volatility in it, which has led to this loss. We'll come back to that later. But there's of course, an integrated P&L so also all the cost allocations, et cetera, are in here as well. Pleased to see that also in the fourth quarter, we kept delivering on our VIP+ cost program also over there showing that since we started with the program, we have delivered like-for-like savings of SEK 130 million. And also the Board looking at where we are agreed to a proposal of SEK 0.75 dividend to be taken to the AGM this year, which will be a virtual AGM. Yes. If we then look a little bit more at the sales results as you could read, minus 12%, of course, is not good. You can see that it starts to after the good -- with better Q3 that it worsened particularly towards December. If we unpack that then, you can see that the branded sales went in the quarter to minus 3.6%. And then again, you know that we had positive growth in quarter 3. And then you can see October starting to slip and it's getting worse into December. We'll come back a little bit more on that in some next slides. Again, mainly driven by the same factors as before. And then pick & mix, minus 36%, a bit more volatile depending on Halloween activations. You can see that the whole of the third quarter was actually quite tough, but as I said before, it's better than in Q2. However, still very much impacted by the second wave, a little bit different market by market, of course, the U.K. with the full lockdown very much contributing to this as well. If we go then and show a little bit more of insight, we use this among other parameters. But what do we see in mobility? We just took out a few figures. This is Google Mobility. And what is important over here, of course, is what is happening in the countries versus the baseline of a normal year, you can see that retail and recreation, so that is shopping malls, but also recreation parks or cinemas, et cetera, you can see in Sweden and Finland is more or less the same, minus 18%, minus 16% in the Netherlands, minus 31%. Also in Holland, of course, they now have a curfew after 9:00. They're not allowed to go out on the streets anymore and as from January actually over there, all shops, but food retail are close. So as with our out-of-home or non-grocery food retail business, we are in these channels, and it's strategically very important to be in those channels to also diversify our business and be where the consumers are shopping and with the impulse nature of our categories, we can reach consumers quite well in all these channels. So that's quite important also for the future. But of course, now that plays against us. If we look then at what you call transit stations. So these are railway, bus and train stations where people are traveling to and from work, for example, or to and from the city where you have the kiosk, the 7-Elevens, where people buy coffee and cakes. You can see with offices being closed that -- well, in the Holland, it's close to half and in the other Nordic countries, it's minus 40%, which we see over there as the same picture. And then, of course, workplaces. So the office place is minus 24% of people are very much at home, as we all know, and they shop in the food retail shops, and the rest is seriously down. And that, of course, also impacts our branded business in those places. Yes. So that picture, Nathalie, if you go to the next one, in 2019, just to remind you, 70% of our business branded business being in food, including e-commerce and 30% being in other channels. The other channels are very important because it drives point of sales, it drives consumption. But of course, we could -- with the mobility data, all see a decline in that sales development of the 30%. And in food, on the other hand, we saw again an increase in the demand of, in particular, candy bags, including e-commerce, really developing. So also happy that we have that strong program on e-commerce, both for the pure players and, of course, the omnichannels in place. And that we are able to reap the growth in those channels, and we made good progress over there. We have fewer shoppers or closures in those markets with lockdowns and bit of a negative product mix from less impulse sales. So what we're doing is we need, of course, to keep on bring our top 25 brand positions into stronger positions. You also see that we have increased our media investment behind those brands. Just to recap, we first said we will use the money we have in a more efficient way. That was the whole move towards working media. We're not completely where we said on the 70%, but very close, that 70% of the media is now working media now. We've also increased the absolute amount to get more organic growth when we come out of this pandemic. It's a very strong innovation program for '21, also with margin accretive launches. We'll talk about that next more -- in the next quarter. We did the step-up in e-commerce and some partnerships. As I said, valorization is quite important to increase the margin. But of course, also with economic uncertainty, people are looking for value deals. It's also important to be there. Point of sales for pastilles and gum, now that we see that people are less standing in the checkout areas in food, we need to find other places when those channels are opened up again. So that's a drive across Cloetta. And then we have this strong new sustainability agenda, which will, in one way or the other, also communicate more clearly to our shareholders, which has now become part of the marketing agenda. And then last thing on this slide, again, yes, you can see the pastilles and gum category in the markets we reported also last time. So it's only the Nordics with the picture in the Netherlands is very much the same. And you can see minus 5% in the quarter. That's the market, that's not us. Yes, we then look at the pick & mix. You can see that in Q4, the only real change on the channels being open, has been in the U.K., where some of the channels have started to close down. Again, so that's actually where we have the most tense situation for pick & mix also given the measures the government has taken with the British variant, I think we should call it. The lockdown measures in our main markets are toughest in the U.K. Last time, we said that the consumer activations or price promotions or buy and get or our ViaPlay promotion that we're getting back on track and that we were discussing with customers now that has more or less stopped. You can see that the progress was not there. It's not getting worse than where it was in Q3, but of course, we were planning and executing even to be -- back in Q4, and that has not happened. And in general, you could say, I think, that consumer demand, apart from Norway, has gone negative again. Let me remind you that when consumers are going into a food retail store and they need to wear mouth masks and there's not more than a number of people allowed into a supermarket. Maybe we don't see that so much here in Sweden, but in most of the other countries, there's limitations of the number of people. Yes. If you are standing in front of a pick & mix shop, on average, you take 3.5 to 4 minutes to pick your products versus a 10 to 15 seconds in front of a candy or a chocolate shop. So we do see that people don't spend the time in front of pick & mix. That's a weakness right now. It's an enormous strength in the future because just is interaction and this high interest in the category and the personalization of things which are going to help us in the future, where retailers are very interested in. But right now, it doesn't help us. Yes, and as you know, we're working on a lot of things to mitigate this. I'm pleased to say that at the launch of the upgraded Candyking concept is doing well. Customers accepting as well the higher prices associated with that also consumer feedback. Consumers shopping there, very positive. So I think that's the right thing to do. And we've also looked at a number of extension of contracts where we also took pricing in order to make this more profitable. We're also looking or implementing pricing for the relatively higher merchandising cost per kilo because if we lose this volume, we can, of course, spend less time in store, but you still have to drive there. You still have to clean it. You still have to bring the products from the back store and all those costs are not -- yes, they're fixed and are not variable. So we're also taking pricing on the basis of that. And that's probably -- yes, well -- and this slide -- Nathalie starts to look angry at me that I take too much time, but then I'll hand over to Frans.

Great. So as usual, I will start with the net sales. So as you saw in the quarter, with the worsening situation due to the second wave, the recovery that we had seen our sales in Q3 was both halted and reversed. So branded down 3.6% and pick & mix down almost 36% in the quarter. I should add here that those numbers were also a little bit depressed as a result of some destocking in Norway because the government there has now decided to abolish the sugar tax with the start of January 2021. So we estimate that maybe SEK 5 million or so was reduced sale there. So it's impacting December a little bit, but it doesn't really materially change the results. But if we then look at this by quarter, obviously, this decline because of the second wave really actually shows that, I would say, society, and therefore, also us in Cloetta, we've been able to weather the second wave, a lot better than when the first wave struck us in Q2. If you recall, Q2 branded was down more than 6%. And pick & mix was down 20 percentage points more than what we see in Q4. And here, I would also say that the share of net sales coming from branded versus pick & mix, if you look at the pie charts on the left side, that remains unchanged from Q3, 80% of sales coming from branded, which in 2019, on average, was only 70%. And branded is generating above 14% EBIT margin, which is our long-term goal for the total business. Pick & mix, much less profitable. So let's look a little bit closer at the profitability on some of our key actions. So first, as an overall overview, operating profit adjusted for the quarter totaled SEK 123 million. That resulted in a margin of 8.4% of sales. This is a reduction by SEK 93 million versus 2019 and that can be fully attributed, as you see here, to the volume loss in the quarter, and the same applies to the full year profit loss that you can see on the right. Although as you can see, we have been able to offset about half of that, which is really good for us. Now the reason you see less offset in Q4 is because of a couple of things. One important difference is that in the year-to-date numbers, you have the release of long and short-term incentives in quarter 3 that we detailed at that time. And then in Q4, we have really stepped up our marketing spend to drive growth, and it's part of our effort to both manage for the current situation and also to secure the future and Henri spoke about that, and we'll come back to that later. And then there's a bit of a mix effect here. We have shared before that although we have an unfavorable mix within branded and the channels due to the lower share of refreshment sales. That has been largely offset by the favorable mix of higher share of branded over pick & mix. But in Q4 '19, the share of branded was already higher as it generally is because of those seasonal sales. So we don't get as much of that profit up offset in Q4 as we had year-to-date. In both of these sides, quarter and full year, we have a really good offset to cost savings, and I'll get into that more. I also want to mention here that while we clearly have an impact on account of COVID-19 on our gross profit. The severity is not only less than in the first wave, as I mentioned, but also for us, having gone through this now once, we are also better equipped to handle it. So our production volumes and sales volumes were much more closely aligned in quarter 4, and also our ability to work with our cost has improved. So the result that you see for the quarter is the underlying one and not distorted by any significant phasing like we had in quarter 2. So let's look closer, 2 key aspects here, pick & mix in Sweden and VIP+. Thank you, Nathalie. So at our Capital Market Day at the end of Q1 2019, we disclosed that the Swedish pick & mix business, we're making a loss of roughly SEK 60 million. And we did that, of course, to help the U.S. investors to understand the difference between our profitable branded business and pick & mix and also that there are significant differences within pick & mix. And we shared how we wanted to address this, both through fair pricing and strong cost action and to bring the Swedish pick & mix first to breakeven, and thereafter to profitability. The issue has not been volume. As you know, we Swedes, we love the pick & mix format and roughly 30% of all consumption in Sweden has in the past been coming from pick & mix. Now despite the circumstances for this earnings release, I am actually really pleased to share that the value of our actions on pricing and cost since that instance, including annualized value of actions we've taken during this year and even in Q4, would have brought Sweden pick & mix to a breakeven run rate as we close 2020. However, given the significant sales losses on account of COVID, the breakeven is going to be delayed by about a year, obviously, subject to how quickly we can regain the volumes. And as Henri also mentioned at the very beginning, it's not only Sweden, but also other countries have been impacted by COVID-19 and that we're making a profit in the past. That means that our total pick & mix business in 2020 made a loss of SEK 135 million. And that loss is driven by the fixed cost under absorption. And in the short term, profitability will only come back with higher volumes. Henri shared some of it, and we will talk more about it later in the call. But the effort currently ongoing to rebuild those volumes is there. And in parallel, we're also working on reducing cost. Of course, we can't just blindly cut costs because some of those costs are also a prerequisite to be able to rebuild the volumes. For example, we do have the fixed cost in the stores with the fixtures. The only way we can eliminate those costs is getting rid of the fixtures, but then we won't have any sales as well. So that's what we're trying to manage through. If we then move to the next slide. Also at the Capital Market Day almost 2 years ago, we spoke about our newly launched VIP+ cost savings program and that we had an ambition to deliver 1% EBIT margin to reduce indirect costs in the midterm. Also here, I'm actually really pleased to share that the value of all of those actions that the program has enabled has resulted in an elimination or deferral of cost exceeding SEK 130 million since the launch. Now of those SEK 130 million, and I also talked about this earlier in other earnings calls, about half are one-timers on account of COVD-19, which could be hiring freeze or the absence of travel or volume related, such as lower merchandising cost. The other half is sustainable. And that includes key action in Q4, such as the execution of the new organizational structure for our Swedish commercial business to make that organization both less costly, but also better adapted for the future. Some of those savings has gone towards increased investments in our brand over this period and in our marketing capabilities. Again, building for the future, and this is obviously something that we want to continue to do going forward. Now delivery of the VIP program is also evident in our reported financials that you see on the slide here. And you can see that in the quarter and excluding items affecting comparability in Forex, the indirect was down SEK 11 million despite the big step-up in A&P. And on a year-to-date basis, you can see indirect down SEK 131 million, which is partly due to the release of the incentives program in Q3, but the balancing amount of savings more than offset the step-up in A&P, annual merit increases and other investments that we've done. And of course, as we head into 2021, it's important to note that some of those reduced costs are sustainable, as I mentioned, and we will continue to identify opportunity to deliver more savings. But some of these reduction is also onetime in nature, and that's going to come back as the business returns to something which looks more similar to what it did in the past. And obviously, that's going to come and society goes back to something that is more similar to a normal situation. But of course, when those costs come back, so will the net sales and the gross profit to fund that. Yes. Coming down to cash. We did deliver very strong on the working capital also in Q4. And if you look at the free cash flow here, that's in the middle of the graph, we delivered SEK 252 million in free cash flow on just over SEK 120 million in operating profits. And that's notable because that is only SEK 17 million less in free cash flow than what we did in Q4 2019. Despite that, operating profit, as I mentioned, is down around SEK 90 million. And if you exclude somewhat higher CapEx this quarter than last year, the free cash flow is down even less. It's almost in line with what we had last year. And as I shared in earlier quarters, we put in place a Cloetta cash committee to get more focused on cash in this challenging environment. And I'm actually really pleased to see that we're getting a good return on the effort from our colleagues. Now the improved working capital is driven by lower receivables, both due to the lower sales, but also better collections. So receivables are down over 20%, so more than sales. And overdue is down by over 60% versus Q4 2019. And at the same time, despite this volume growth, and as mentioned earlier, we're a bit more agile now. Our inventories actually declined versus Q3 instead of going up. And on CapEx, despite COVID-19 and travel restrictions, we have been able to proceed with our CapEx projects, in total, executing to value of SEK 63 million in the quarter. And this spend places our 2020 full year at 5% of sales, in line with the guidance that I had provided earlier this year. And finally, we had again a very strong quarter, but note that we also had a very strong full year. Our working capital is SEK 222 million better than 2019. So this is not just a phase in between quarters. So coming then to my last slide. As you know, leverage is one of our key financial targets, alongside NSV, EBIT and dividends, and I'm trying to capture that on this slide. First, you can see from the 2 bar charts, that our overall situation is very similar to where we were at the end of Q3. On the left, the total utilized credit facilities in commercial papers is SEK 2.3 billion, while on the right, you can see our additional unutilized credit facility as well as commercial papers, not yet on the market, amount to SEK 1.2 billion and SEK 750 million for a total of almost SEK 2 billion. In addition, we held SEK 396 million in cash at the end of Q4, hence our conclusion that our financial position is strong. We're also in the process of refinancing. We made good progress on that with our partner banks, and we expect to have that completed before the middle of this year. And for the leverage, I have slide in Q3 that we expected to end the year higher than normal given the lower EBITDA. And we also did with net debt at 2.7x EBITDA. Now our target is to be around 2.5x. And obviously, we can discuss if 2.7x is around 2.5x. But most importantly, we are well below our covenant of 4.0x. And with consideration of our financial positions, our plans that we've shared with the Board and, yes, the uncertainty that still in the market despite the current rollouts of vaccines and everything, the Board has decided to propose a dividend for 2020 of SEK 0.75, which is a 50% increase versus the SEK 0.50 dividend that was approved for 2019 results. And at this, it means that with the SEK 0.50 being below our stated policy of 40% to 60% and SEK 0.75 being above that policy, it brings the average of these 2 years to well within our targeted range. And on that positive note, that concludes my part. I hand back to Henri.

Thank you, Frans. So as you already heard, we have a well thought through strong sustainability agenda with 3 main areas choices for you, care about the people and planet footprint. Important, I think, is to show what we're doing. We are gaining speed on moving towards natural colors and natural flavors, and that's an important program also from a consumer perspective. If we think about people and partnerships, something you probably don't know, but we already are for a number of years in a partnership around shea. Shea is a substitute, you could say, for palm oil, which is coming from Sahara -- sub-Sahara Africa, where there are a lot of women through the AAK partnership who are producing this shea oil and thereby providing for themselves and their family, and that's something which Cloetta actively support. We also entered into a 2-year pilot project with Rainforest Alliance around the cocoa farmer production using blockchain technology to see how through the whole value chain and middlemen, we can get more of the money we pay to the farmers to improve their living conditions so they can earn a decent living. And there's some big other non -- yes, competing companies in the projects are quite interesting. And then on the planet footprint, we're also taking our sustainability expectations towards our suppliers, with a new supplier code and we also see some strong progress across markets on our new plant pack, the plant pack, the plastic bags, which partly are being made from, let's call it, plant or vegetable sources and not oil. Yes, no surprise over here. We keep on focusing on the 3 main business priorities, just give you quick update of what is happening. We talked about the increase in the media investment on the top 25 brands. Also now very much looked at through things like media mix modeling, which I would say the best FMCG companies are doing that where you can really assess what is the -- are we getting bang for our buck? What are the best channels? Are the films working? So not just spending but also really looking at the financial impact. I talked about the innovation funnel. Some fantastic innovations for 2021, which we're going to execute also. Innovations, which you will see coming in Q1, which are going across a number of markets and also net revenue management are looking at not only pricing, but also promotional spent and portfolio mix is now starting. There's fantastic work done in Holland, which we're now copying into the other markets. If we then look at pick & mix, of course, we will have a delay in the Sweden profitability by 1 year. Frans already alluded to all the actions we had taken, and we did a calculation to see, well, if we would have kept the volumes without the COVID effect, we would have been in black figures in Sweden. So that, of course, gives us confidence that we're on the right track, but it will be a delay of 1 year. Now the volumes are really, really important because it is a different business model than the branded business and the either fixed cost of the fixes, they're either the fixed elements in the merchandising cost. So we need those volumes back or we need to really scale down the capabilities in the market's most impact. And that's a choice, of course, we cannot make at the moment because we don't know how this will completely pan out, but we are sure that when volumes are coming back, profitability will come back as well. A good pilot in the U.K. within a new lead solution trademark to give extra or patented, I think, is a better word with more hygienic cues. We'll test that over there and see what consumer shoppers think about it, but customers are really impressed. We really are showing that we are the leading company in pick & mix, and that's also a feedback we got from some of these renewed contracts that really see. We now have the know-how and the skills to help them to improve on this category. Yes, and then cost and efficiency, the reorganization in Sweden has been executed a more simple, leaner organization, more focused on fewer things. But also at a lower cost, really important. We also closed the factory in Helsingborg and outsourced the manufacturing of nuts, which was a good saving. And on top of that, gives us the possibility to tap into more innovation and different packs. I think we're really proud of the VIP savings of SEK 130 million since we started in 2019. We're not at the end of that journey. We made some further announcements internally on improving the efficiency and then we're looking while we are being impacted by the pick & mix volumes can -- which other volumes can we bring into Cloetta to keep the factories full at the good level so that we keep the coverage where we want it to be. So I would say it's a mix of short-term actions to mitigate the COVID effects, but we are not losing the sight of the long-term goals we have in our long-term strategic agenda. And when we review 2020. I'm also very pleased to that a lot of progress was made in those strategic areas, which will benefit this already in '21, but of course, also going forward. And that's it. And then we have questions.

[Operator Instructions] Our first question comes from the line of Nicklas Skogman from Handelsbanken.

I have 2 or 3 questions we seek. So the first one is on the gross margin. It was only down 65 basis points compared to last year despite the big sales drop here. So I'm wondering how should we think about Q1, which, I mean, seems to have pretty -- by the looks of the lockdowns, maybe we should expect some pretty soft sales there to I think in gross margin in terms of delayed under absorption costs, you did mention that you -- let you're now in better sync between sales and inventories and production. So any comments on that?

Yes. Yes. I mean maybe I'll start from that end. I mean the first thing is, yes, I mean, I'm confirming that kind of facing that we were very transparent with when we released our Q2 report but we're not going to see that. That's not a thing for this quarter, both because of that better sync and also how we're able to manage a little bit better around our core. I think that's one piece. The other one is, yes, I mean, the gross margins are strong. We also get, from a percentage point of view, there is always, let's say, benefit in the mix, even if it doesn't help the gross profit but also, as I know that when you look at how things play out historically, our gross profit is or gross margin is usually a little bit higher in Q4 because of the seasonal sales and I mean that's, let's say, the historical trend, as you know.

Okay. And then I'm wondering, I have a question on the SG&A costs. They were only down 3% year-on-year in this quarter. Why could they not be managed lower? I mean if you look at Q2, which did not have this one-off bonus dissolution effect, but in Q2, SG&A costs were down by almost 16%. And I see admin costs year-on-year are flat. Have you been aggressive enough in terms of cutting back on costs?

Yes. I mean, short answer, I think so. I think -- I mean, we are sharing a little bit about how the VIP+ program has delivered. And I mean, the savings are really strong. I think an important comparison with Q2 probably starts with A&P. As you know, we actually held back on A&P spend in Q2, whatever there was outdoor, we redirected some, but given the situation we pulled back, whereas now, I think we hopefully have been very clear that we have actually done a significant step-up on the A&P to help drive the brands, not only just to support the quarter but also going forward. So there, you have -- there's a big barrier there. Then there is smaller stuff, of course, we had started to deliver on VIP+ in Q4 2019. So you have a slightly tougher comparator there than what we had in Q2 this year. But overall, no, the indirect savings, they are delivering also strong in the quarter.

Okay. Are you -- will you be able to tell us how big a step-up in marketing was in Q4 year-on-year?

No...

Substantial, I would say.

Yes, it's a big number. It's a big number.

Okay. So then going forward, will you continue with these marketing investments also in H1?

Yes. As I mentioned, the intent is to continue to support our brands. And hopefully, where society opens up again, those investments will not only pay off for the quarter but also help future growth. This is an area where maybe in Cloetta we didn't do enough for a number of years. And as Henri said, up until quite recently, the increased working media spend came by reducing the nonworking. So it was not so much of an absolute increase, whereas now we're talking about an absolute increase.

Okay. I'm just thinking, I mean, people are not out and about as much now. So if you're spending a lot on marketing, just the effect of that...

You're completely right. So of course, with our new global media agency, we're constantly looking at how to optimize this, you call it, dynamic reallocation. And of course, we're not spending money into media channels, which at the moment are not being consumed. So it is much more around TV or social media where consumption actually has gone up and away from other channels. I mean the most easy one, of course, is outdoor, where we're completely absent this year, which used to be always quite a big one. And then we are with this media mix modeling, which I also remember using a lot in my previous career. We are looking at return on investment, trying to distill the effect of the media on the additional sales on top of your baseline, and we're looking at our competitive spend, and that's a bit what Frans is alluding to, and we need to keep our brands in a healthy shape, not only for 2021, but also going forward. So there's a lot of analysis and a lot of scrutiny on this. Our #1 target is to get organic growth in line or above markets. And by supporting these top brands in Cloetta, we support that first financial goal. And of course, with volume growth in the branded business, we'll also get a better EBIT, which, of course, is the #2 goal of the company. Then I see a question which came in from the mail, from Trojan Trading. Why are you so against M&A? I'm not sure where you got that remark from, but I'll give you an answer. I mean the main thing is that I firmly believe that we first need to get our own existing Cloetta business to grow organically. And we have been doing that pre-COVID on the branded business, very good to see. And we make of course, the professionalization, the extra working media and now the absolute media to get the branded sales to grow, which already are contributing. That's a very -- I don't want to say, low risk, but of course, that's a fairly easy thing to do. It's business we have, a business we know, categories we know and countries we know. And of course, it takes effort and investment. But I think pre-COVID we were doing quite well. Then we have a recently acquired business, which is the Candyking business. And as you all can read, we still have a lot to do and particularly on the profitability. Growth-wise, it started to turn in the right direction pre-COVID, but the biggest challenge over there is on the profitability. I've said I want management attention to go to improving our existing business and to show that we are on the trajectory towards the 14% and the organic growth before we really start to go and think acquisitions. However, we also have, of course, our eyes wide open on acquisitions, but we have changed the previous, I'm not sure what the question comes from, but we have -- from the previous strategy, which was Munchy Moments where we basically were buying any category which was adjacent to Candy. We said, no, that has not worked. It's also proven that it hasn't worked and that it hasn't really contributed to the growth or the EBIT journey of Cloetta. So if we buy something, it will be in one of our core categories, and to start within one of our core markets, but it also has to deliver on our EBIT journey, and it has to be offered certain size because we have been buying too much, which was small and still needed a lot of effort to integrate and thereby in a medium-sized company like Cloetta taking too much management attention away from our own core business. We will not be going into new categories through acquisitions in that sense. So it is not a priority. We are definitely not going to grow because of acquisitions. We're going to grow organically with the existing business we have. But if something comes on our path, which is interesting, then we will look into that. Then I see here -- operator, I see a question...

Is someone on the call?

On the call. Are there more questions on the call?

Yes, we have 1 more question. [Operator Instructions] We have 1 more question from [ Andrew Luber ] from [ SEB ].

And thank you for sharing more flavor on your cost-saving programs. But could you perhaps give a little bit more on where you are versus your original plans when it comes to -- I mean, pick & mix seems to be on track, especially on the VIP+ program. And what you see on top of your original plans on that matter?

Maybe, Frans, you can take it? But we always said around 1% we would like to bring on the VIP+. And in that sense, we are ahead, I would say. And a bit to Nicklas' question, we've also pulled forward ideas because of COVID to speed it up. So in that sense, it has been a catalyst to the VIP program. We did -- Frans did a fantastic job already, early '19 to convince everybody that this is a cultural thing we need to change to spend less money. And as you should be proud about trying to avoid making cost. And then, of course, COVID, it only helped us to get this even more into the minds of people. But there is still, of course, more to do in that sense.

Yes. And [ Andrew ], I think in the question, maybe you were asking about the full scope of this program and not only on the indirects, right? And for those who doesn't have that at hand. I mean we always said, we've got to drive branded growth because it's already north of 14% EBIT margin, and we're going to do that also with an efficient use of our A&P and of course, we had the branded growth, leading into COVID. I think with the investments we're doing here now as we come out of COVID, we're going to see, obviously, that growth returns, right? So I think that's -- what we're doing there is the right thing. Second thing was on pick & mix, Sweden, and we said if we can get Sweden back to Black, that's already 1% EBIT margin. And as we've been hopefully really transparent with on this call and then in the report, the actions that we have taken, adding those together on the volumes that we wanted to keep, would have gotten us to that breakeven point a run rate exiting 2020. Now it's a different challenge is to get the volumes back. But as we get the volumes back, we'll get those volumes back not at the loss. So I would say, yes, with the exception for the COVID situation. Third one was on Perfect Factory. And I think Henri has also spoken about that before. Lots of good progress. Of course, the challenge is slightly different when the volumes are down because then it just makes it more difficult to become more efficient, but we have launched this on a number of production lines, and we have a production organization who's really deeply engaged in finding improvements. So I would say, good progress on that. In that bucket, we also set further in-sourcing. And of course, again, I mean, I don't want to sound like I'm just blaming COVID, but I -- but what we said before is that it's difficult to in-source if your quality people and your production people can't travel to make sure that there's a proper match in the consumer expectation of the product, same flavor, texture, mouth feel, et cetera. So difficult to in-source on the current situation. But that, of course, remains an opportunity, if you will, and that is likely going to be another way that we can offset some of the volume loss that's going to take time to recover. The fourth one was on the indirect. Yes, we delivered, we're going to go for more savings, but we're actually already aware we had hoped to be and maybe even a little bit better. And then we have a final leg on that. We said, there's also other stuff. And one of those things that I had mentioned was, I think I said that already back in 2019 was net revenue management, which we have pockets of excellence of within Cloetta, but it's not, let's say, everyone is not at the same level. And I think Henri actually had it on his slide that, that's the next thing that we're launching here now that has the potential to further help drive those margins up again.

And just specifically on VIP+, is the expected savings net of marketing spend? Or is it the gross figure?

Yes, VIP+, what we always said was, if you will, it's our journey to 14%. And on the indirect side, what we said on that specifically on the SG&A, we said it should be net. We -- I didn't -- I sort of say, hey, imagine if we could take this much out, that should be about 1% EBIT margin in the midterm, which is normally considered 3 to 5 years. I would say that we're about there already now. But yes, of course, it has to be met because otherwise, we won't get to the 14%.

But there's also the combination right of the -- if you talk about the VIP indirect and the branded growth because the money doesn't go into nothing. If you get more branded growth on the fixed cost in your factories, your fixed cost in the countries, that's, of course, very interesting. It's this continuous cycle of growth, which will certainly help us, which we started to see, of course, pre-COVID on the branded side that 2% to 3% growth does a lot to the P&L. Good?

Lastly, if I may, could you shed some light on your CapEx plans here for '21 and also the status of working capital?

Yes. Well, on the CapEx plans, I mean, some of the bigger investments that we have done, such as for the molding, I mean, that's some of those costs you see come through in Q4. There's a little bit left the last mile of that beginning of next year. Beyond there, what we had said, if you will, in the past was that Cloetta has, if you will, had slightly lower CapEx maybe than what the growth should require on account of actually acquiring growth rather than building it organically. And we said that as we move forward, we would see a step-up in over 2 years, and then it would come down and normalize probably a little bit, maybe around 3.5%. That's sort of the long-term guidance that we provided before. And as of now, I would sort of -- I will stick to that. Sorry, there was one other question in there as well.

Yes, on working capital, anything specific that you're thinking of in the coming quarters?

Yes. I mean, so obviously, we had good efforts now on this. And there's 3 components there. One is the inventories, which we will continue to manage very closely. They are higher than what they were a year ago. But we also know that we needed to build up inventories a bit for customer service levels. As long as the market is volatile as well, it's better to have a little bit extra than too little, but we're managing that very, very closely. On the receivables, of course, that depends really on the timing within the quarter, but we are continuing that program as well and making sure that payments are done on time, et cetera. And payables, we always had an effort of trying to work with payment terms with our suppliers. I think it's over time, it's going to be a steady improvement, but that doesn't mean that each quarter will be -- it might not be 100% smooth. It really depends a bit on the phasing at the end of the quarters.

[Operator Instructions]

So there's a question from [ Paul ] from [ Targa Funds ] on the topic of stepped-up marketing investment. Can you see that the market positions have improved already, i.e., shelf space or other metrics which could drive a faster recovery than the market once that becomes relevant? I would say, yes, we're looking at those metrics, in particular, for the media investment, you look at the metrics, which had to do with how strong is your brand? Or what is the preference for the brand? What is the top of mind of your brand, but also looking at some output KPIs like penetration and frequency. And we see that when we invest in the top brands and there's some nice examples of Yankee in Finland or Venco in the Netherlands, which had not been supported for 8 to 10 years. And now it's a second year with support. We actually can see that we start to get back into our #1 brand position, which we used to have before. And that then also leads to what you are noting that we are seeing extended distribution because also our retail customers are seeing that we are making those investments that the brands are becoming stronger. Consumer preference is going there and that then the shelf space goes more towards us. So there's a number of elements in there, indeed, where you have yes, brand KPIs, lagging KPIs, customer KPIs. So that's for sure. And our aim is to of course, grow in line or faster than the market, which means that for the whole portfolio, we need to gain market share. We've now been talking about our top brands and not all the brands from Cloetta. Also the top brands, they will have to compensate in growth for those brands where we're not investing anything in order to get the total branded business to grow faster than the market. There's 1 more question.

Yes. Our next question comes from the line of Stefan Stjernholm from Nordea.

It's Stefan here. Just a question on your target for the pick & mix fixings to reach a breakeven by end of this year, just to make this right. I understand that you expect a run rate end of this year and then to be breakeven going into next year and you still expect a loss for 2021. Is that right?

Yes. Well, so I guess we're all on this really. So if we look at what we have executed, actions that we've actually taken, pricing agreed, costs taken out, warehouse closed, et cetera. If we look at that, and we annualized it, if we hadn't lost the COVID volumes, we wouldn't be at the breakeven by end of this year. So if you imagine, if we took some pricing in December, obviously, this year, we would only have had 1 month of benefit of that. But if we look at the 12-month benefit of it, we would have left this year at breakeven. Now with the volumes down, obviously, this has been delayed, and we've said it's been delayed by about a year. You say before the end of 2021, someone else might say, "Hey, that sounds like the beginning of Q1 2022." We said, by about a year, is what we've said. And that's to get to breakeven. That doesn't mean that the entire year is breakeven, right? That's to get to breakeven. But it depends on how quickly we get the volumes back.

And in your scenario, is it to get back to the 2019 volumes, or say, if volumes are down some, say, 10% to 15% versus 2019, is that still possible to reach breakeven? Or do you need to fully recover?

Yes. I mean we've said that it will take several quarters to fully recover. But obviously, we're also going to work on our costs. So I mean, I think the short answer is it doesn't require us to get fully back to 2019, no.

We have no more questions from the line.

There's another question from Mr. X. He probably doesn't want us to know who he is. But the question is, so we have to close our eyes and hope for an improved volume in pick & mix and hope for 0 result, with low margin, high fixed cost, why not cut your losses turnaround? It's in its fourth year, now we still have losses. Another loss year. What can you do to lower fixed cost in pick & mix and achieve breakeven on the current volume level? So that's quite a lot of in there. I mean I still think that we need to look forward. We need to look at the future, and we need to take the pick & mix business on its merits, where we say, well, this is actually a business which is going to grow in the Nordics potentially into Northern Europe because of the 3 underlying consumer and customer trends of individualization, of plastic-free and of more in-store theater. So I still think this is a very important potential for Cloetta, where we're well positioned. Also as a company already now, we're #1 in this. We have the -- we're probably the only one who really have the category captaincy insights and capability to do this. I think next to that, we were -- prior to COVID, we had a profit in pick & mix. We had one market where there was a negative in Sweden due to all the price erosion, which had been going on for several years. We had a good plan, which we have executed to bring it back to breakeven. And then, of course, COVID came, which impacted all the markets, not only Sweden. Yes, and the fact that it was impacted was that the volumes went down. This, again, I cannot underline that this is not a regular FMCG business. There is a relatively high fixed cost in here with shelves and with merchandising cost. Yes, and in order to bring it to breakeven market by market, you then need to make a decision, am I going to bring down my merchandising to adjust to the current volumes, it is possible because the merchandising cost we have by market and the merchandising cost per kilo, yes, they are -- they're not exactly the same, but they're more in line than you might think, whereas these markets are not all the same in Sweden. There's a much higher consumption level than, for example, in the U.K., yes, Sweden, first, the U.K., growth in Denmark, there's different geographic situations, we can adjust merchandising cost per kilo on a new volume. However, the moment we do that, we will not be able to grow back to original volumes when consumer and customer demand is coming back, yes, and that's a little bit the situation where we are in. Yes, we could bring fixed cost down, cut merchandising cost. And if we would have like a business which used to be 4,000 tonnes, and we cut it down now to 2000 tonnes, we can make it breakeven again, but it will remain then a business of 2,000 tonnes, irrespective of consumer demand. And if consumer demand is then going back to 3,000 to 3,500 or 4,000, we will not be able to serve this. Hence, we'll probably get very unhappy customers, retail customers, who are saying, "Hey, I'm buying this business from you and you are not able to service it. We're going out of stocks. I get angry consumers in my store, then I'll kick you out and ask somebody else to do it." So we need to have a more stable situation in pick & mix before we can really adjust to the final fixed cost in this business model. Good. No, no more questions on the phone, no more questions on the portal. So then I thank you for your time. And of course, always happy to follow up with you. Thank you for today.

Thank you so much. Have a good day.