Good afternoon, everyone, and thank you for joining today's call on Newlat with nine months' results for the year 2020. Joining me today, we have Angelo Mastrolia, our Chairman; Giuseppe Mastrolia, Deputy CEO and Chief Commercial Officer; Rocco Sergi, CFO; and Fabio Fazzari, Group Financial Director. Before commenting our results, I would like to remind you that this presentation may contain certain forward-looking statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Newlat Food current expectations and assumptions of future events and are subject to various risks and uncertainties that could actually cause actual results to differ materially from those projected or implied by these statements. We move straight into the presentation at page three, where we have highlighted some key messages that we would like to share with you before commenting the results.
As the year 2020 has been a year of challenges for everyone, we wanted to highlight some of the key aspects that have characterized our business in the last nine months and that have shown to be a strength point for us. The first one, of course, is the resiliency of our business and our business model. In fact, we've been, you know, in the last nine months and, as you've seen in previous results call, we've been able to actually adapt to these challenges, to actually take advantage of these challenges and to in sales and in this period tied to the problems associated with the pandemic. We've also had the very dynamic approach to business. As you will see later on, we've sort of summarized some of the key product changes that we had in the last nine months.
So we've been really active in the business development and in the commercial strategy of the company, which has been strengthened even with the entry of Centrale del Latte d'Italia last March, and as you've seen probably from the numbers, there's been an actually very good successful implementation of the synergies with Centrale del Latte d'Italia, which are at the moment exceeding our previous expectations before the acquisition, so we're really happy about that, and also you have seen, and you will see, that we have been able to generate cash at group level and also on a standalone basis for Newlat and Centrale del Latte d'Italia, which has been really positive for us, so we've been able to convert most of our EBITDA into cash, into free cash.
That's always been one of our strength points in the past, and it's confirming to be one of the key points for us. Of course, the very last point that we wanted to remark is that we are really dedicated to M&A. We are always engaged in looking at new deals, new opportunities in the market, and we really hope to close, hopefully, a new deal in the next couple of months. Now I'll just jump onto the key financial highlights. As you know, we like to look at the aggregate revenues. To sort of give you an idea of where we are in the group level, you will see the pro forma aggregate revenues for 2019 and 2020, 2020.
Revenues were at EUR 372.7 million, + 5.4% versus the first nine months of 2019. We had a very good growth in the pasta, bakery, and special product segment. Germany, in particular, as a region, performed really well. We actually had a growth of 14.5% in that particular country. We're really happy about our performance in that particular market. We also had an underlying organic growth of 4%. EBITDA was also one of our, I would say, best successes in the last nine months. We've actually been able to increase our, to double, basically, our EBITDA. We actually recorded EUR 37.8 million in EBITDA.
We finally reached the thing that we've been dreaming of in the last year, which was the 10% EBITDA margin. Now we have 10.2% EBITDA margin versus the 6.8% EBITDA margin of last year. We have very good performances in most of our business units. That's milk, dairy, bakery, and special products. They will have double-digit margins. Some of them are higher, some of them are lower, but still very good margins. Free cash flow also was very good. We generated 30.8 million EUR free cash flow. As I said, the EBITDA and free cash flow conversion was 81.5%. Net income, there's some noise. I'm sorry. I just, we're trying to unmute. Okay. Now it's better. The net income for the period was equal to EUR 30.5 million .
And of course, that is the reported net income. And the adjusted net income was EUR 11.3 million versus EUR 2.15 million in the first nine months of 2019. This was, again, after deducting the EUR 19.3 million of negative goodwill that you saw already in the first half presentation. Net financial position, of course, also improved as a result of the free cash flow generation and the very good performance. And we now have a net financial position of -EUR 8.8 million versus a -EUR 35.3 million at the financial year 2019. So of course, this is all pro forma with the Centrale del Latte consolidation scope. And without the IFRS 16 lease liabilities, net financial position is actually positive. And we had a net financial position of EUR 8.4 million .
Now we move on to something that we would like to share with you because we like to sort of put things into perspective and to let you see what's behind all these numbers. So we've shared some of the key launches and some of the key commercial initiatives that we had in the last nine months. These were all sort of launched in the last, I would say, in the last three, four months probably. One of them is the pre-portioned packs, as I called it here. It's, we launched the Gran fetta, which is our rusk brand, at the Sansepolcro factory. So as you can see, we've actually successfully implemented the sort of transition from the Buitoni to Sansepolcro factory branding.
We launched this particular SKU, which caters to a different, I would say, different consumer needs, which is the need to have something to snack on, even if you're at work or. It's really good for, for example, hotels and sort of food service. I know food service is not the best example at this moment, but it's really good in that particular area. Then we also launched some new products that sort of support the local businesses. So for example, with the Mugello and the Centrale del Latte di Salerno Latte del Parco, what we do here is we collect the milk from local farmers.
All everything is procured from local farmers, and this is to sort of incentivize the local production and to premiumize as well the production and our products in those particular regions. These are very regional. I would say even very, like, linked to a particular specific area of a region, for example, Mugello or Parco del Cilento in near Salerno. These products are also sustainable. The packaging is also sustainable. We use recyclable packaging. It's really exciting. We've also launched our mascarpone with Amazon. We're producing the Amazon mascarpone. That's the only picture I had, but it's really an exciting project. Maybe later on we can give you more details about it.
We also launched some healthy snacks with Mukki, where we launched these snacks for kids. So we have sort of portion control and calorie-control snacks. So they are all below 200 calories, which is really good for kids. I'm really happy about the chocolate chip biscuits. They're really good. We've also launched Delverde in Germany, successfully, I would say. We've been launching it in a few retailers, and we also are finally launching, I think, by the start of the year of 2022, 2021, we will launch the new Delverde packaging in Italy, which is the 100% Italian wheat product, which is really a big request here in Italy. So we've jumped on that sort of consumer need. And also, we've been developing some protein and vitamin-enriched drinks.
With, for example, here we have the Mukki Special Donna, which is a milk stuff for women who sometimes are deficient in some particular vitamins or some particular nutritional nutritionals. That's what it does. We also have a sports drink with the protein, with 25 grams of protein. Really quickly, and then we'll go into the numbers. Here we have some of our market share indication in the bread substitute market. As you know, Crostino Integrale is our Crostino and Crostino Dorato and Crostino Integrale have been really successful in the last couple of months, and it's been even more so in the last nine months where at home snacking has been a thing. Here, I just wanted to show you that we've I think here in Italy, you've probably seen that we've launched the double branding again.
So the Sansepolcro and Buitoni co-branding, which has been working really well for us. We have a 12.5% revenue growth in year to date 2020, as opposed to a market that grows by 4.7%. We've been tripling the performance as opposed to the market performance. We're really happy about it, and it's a product that really is performing really well. We have confirmed our position as the second largest producer after Barilla. Of course, there's a private label, but we are the second largest producer in terms of branded products. Now we move on to the actual results. As we've already said, the revenue went from EUR 353.6 million to EUR 372.7 million, hence with an revenue increase of 5.4%.
We have seen also an improvement again of the cost of goods sold, which was equal to 77.4% as opposed to 80.1%. This is again something that was initiated in the, at the beginning of the year, but we've really been, wary of, you know, cost and cost structures. We've been optimizing these cost structures and the, procurement policy between Newlat and Centrale del Latte d'Italia as well. Here we've prepared, sort of a bridge, sort of a waterfall graph to show you the, actual, organic growth that we've had both at Newlat Food standalone level and Centrale del Latte d'Italia standalone level. You can see the underlying growth.
We started with the, pro forma revenues at, nine months 2019, which included Delverde and, and, Newlat from the first January 2019 to give you sort of a basis point. We've included the, sort of the acquired, revenue from Centrale del Latte d'Italia.
And then we have the actual organic growth of Newlat Food, which is 4.35%, and the organic growth of Centrale del Latte d'Italia, which is 3.3%, which overall gives us an average organic growth at group level of 4%. We've included also foreign exchanges for you to see that we haven't really been. We're not usually impacted by foreign exchange. That's just to give you this idea. And of course, then we get to the EUR 372.7 million in revenues, which overall represents a 63.9% of increase in sales. Here we also wanted to sort of go really in depth into the organic growth trend both at Newlat Food level and Centrale del Latte d'Italia level. So to sort of show you that we've been having a really good year and a really good performance both at Newlat Food level and at Centrale del Latte d'Italia.
So as you can see, I won't go too much into detail, but as you can see, we've had very good performance in all the quarters. Of course, Newlat in the second quarter was slightly impacted by the reopening of businesses and the fact that retailers wanted to resize their inventory levels after the stockpiling that was happened in the first quarter. But we had a really good pickup. We've already picked up in the third quarter with 9.4% increase compared to quarter three of 2019. And overall, we had sort of a cumulative increase, which was very positive. So we had an overall to date of 4.35% increase at nine months 2020. We've gone to the Centrale del Latte d'Italia trend.
We see they also had a pretty good organic growth both at quarter level and at a cumulative level. They had a really good first and second quarter. The third quarter, unfortunately, since it was the summer period, it was impacted by the slowdown in tourism in Florence, in the major cities where we operate, which Centrale del Latte d'Italia. Nonetheless, at group level with Newlat we've been able to sort of balance it out. So we didn't really see any material problems. You can see that the overall average organic growth for Centrale del Latte d'Italia was very positive at 3.3% at the nine-month point. Then we did the same thing for EBITDA growth.
So just to give you again an understanding of what goes on, even at EBITDA level, which I think has been one of the best, I would say, best figures to look at because it really shows the improvements that we've had in the last months. So Newlat Food performed really well as well, especially in the last quarter. We had a really good sort of management of the costs, which helped us gain 65% of EBITDA compared to the third quarter of 2019. Same goes with the cumulative growth, which was 29% at nine months 2020. And then we go on to Centrale del Latte d'Italia, which of course has the worst, I would say, or worst basis to start with. So they had a really good increase in the first two quarters and even in the third quarter.
One thing that we're really happy about is that although the company probably, as you see here, they didn't perform extremely well in the third quarter, they were actually able to double, basically more than double their EBITDA level in the third quarter. And this gives an overall increase in EBITDA of 197% for Centrale del Latte d'Italia at the nine-month point. We move on to the usual breakdown by business unit. Pasta had a really good performance in the period. We had an extremely good performance in the German market, as I already said, and where we launched Delverde, but also all of our brands that already existed in the market were really performing really well and have been really successful in Germany.
Milk products had sort of a slowdown, as I said, in the third quarter because of the tourism that went down. But we had two opposite trends. So one was the sale increase in the large-scale retailers, which was still a thing, but also then we had the negative impact of tourism and lockdown restrictions going on around Europe. Bakery also saw, as we already saw a very good increase in sales. Dairy products increased by 1.6%, really simple increase in the last couple of quarters. And special products also increased by 11.4%, again as a result of the pricing negotiations with Kraft Heinz. And of course, other products saw a decrease because we saw other products or the commercialized products through the food service channel. So these are salads or products that we source from somewhere else and we just commercialize.
That didn't really have a good, like a big impact on our sales overall because it only accounts for 3% of our revenues. We then have the revenue breakdown by channel. As we said, of course, the large-scale retailer channel saw a major increase, especially in the first couple of quarters. It really showed a really good increase of 8.7%. B2B partners also increased by 3.3%. Normal trade, private label sort of stayed in line with the previous period. Food service, of course, was impacted by the COVID-19 situation. This also doesn't account for much because it's less than 3% of our revenues. We move on to the breakdown by geography. As we already mentioned, Germany performed really well in the period.
Italy also went up by 2.5% due to increase in overall sales in most categories, but Germany really performed well because of the, as we said, of the pasta, especially of the pasta, sales. Other countries also increased a lot by 7.9%, so 8% of increase, mainly due, mainly thanks to the pasta and sort of the shelf-stable products, which is, we see a sort of a tendency to buy more of these shelf-stable, long-shelf-life products, in this period. EBITDA breakdown, I think we sort of went through this, at a higher level, but we had a really good, also, performance in the EBITDA, adjusted EBITDA that we look at, which was increased by 58%, and we, as we said, we reached a double-digit EBITDA margin.
Our best performing margins were, excuse me, our performing business units were the bakery, dairy, special products, and also the milk finally went from 4.5% to 10.2%. So really good performance there. Okay. And then, we just gave you a brief sort of breakdown of the profit and loss statement of the income statement to remind you that we had the impact of the income arising from business combination. So that the badwill that we had with the acquisition of Centrale del Latte d'Italia. And we had an EBIT of EUR 37.9 million compared to EUR 5.6 million. Of course, that's a big, big jump. But we also had a very good net profit.
For example, we had EUR 30.5 million at reported, sort of basis, but then we had an adjusted net profit that was really good anyway, which was EUR 11.3 million as opposed to EUR 2.15 million. We just highlighted here that the non-controlling interest was equal to EUR 1.05 million. Then we move on to the free cash flow, which is pretty interesting to look at, especially for Centrale del Latte d'Italia. So we've just like for the first half results, we sort of have the two columns for Newlat Food and Centrale del Latte d'Italia, and then the consolidated results, consolidated figures.
So as you can see here, Centrale del Latte d'Italia had a very good performance, even, even despite the fact that they had, again, the slight decrease in sales. They had a really good performance and they generated EUR 12.4 million of free cash flow with an EBITDA-to-free cash flow conversion of 90.9%, which is really good. So this shows the ability, again, once again, as they did in the first half, to generate cash to repay their debt without having to sort of Newlat Food to take any sort of active role in that because they're really independent in that sense. They can deleverage, deleverage without the help of, without the financial help of anyone else. And then we just move on to our key message, our final messages here.
We would like to underline that we think we will be coherent with the market expectation of 3.3%-3.5% organic growth in this and in 2020. We also think that the further optimizations that will come from Newlat Food and Centrale del Latte d'Italia, which saw a few sort of improvements even after the merger of Centrale del Latte di Vicenza and Centrale del Latte della Toscana. We think that these two factors will really help improve even more the profitability in this particular year. We also want to underline again that we are continuously focusing on M&A targets and we are really excited that we can definitely, we think at least that we can, close the deal by 2021.
And the really last message that I would like to share is that we think, we reassure and we reiterate the fact that the company will meet the analyst expectations for the years 2020 and 2021. Okay. So I'll move to the Q&A now. So what we do is, as usual, if you want to make yourself and ask questions or if you want to maybe send a question through the chat, you can do so. And, please go ahead with your question.
Hello, Marco speaking from Inocap Gestion.
Hi.
Can you hear me?
Yeah. Yeah.
Yes.
So I have a few questions. First, on your organic sales growth guidance for the year 3.3%-3.5%, it sounds a bit low given that you've done 4% over the nine months. And given that Q4 is a quarter for a seasonal wave, so maybe more restocking, maybe less restaurants and more supermarkets. So why are you so cautious about the Q4?
Hi, good afternoon. No, it's just maybe it's better to highlight that and to stress that we usually are not giving guidance and this is not a guidance. Just we want to say that, considering what kind of expectations we see in the market. And if we consider the consensus expectation in terms of organic growth, we are absolutely confident that we are going to meet this level, these expectations that the market has. It's not, it's not a guidance. Obviously, we are going on very well. We are increasing quarter by quarter also the level of organic growth. For what we are seeing today, the situation is going on substantially in line for what we saw also in the past quarter. And we are absolutely confident to continue to deliver a good level of growth this year.
Our comment is only related to our confidence about the market expectation, not a guidance.
Okay. Thank you very much. Well, the Q3 margins were really record high, across all segments. Is it sustainable or is it some portion of one of entailing, like, I don't know, seasonality, some more promotion than last year, maybe a good mix across channel distributions? Can you explain a bit more, this exceptional margins across segments?
Benedetta, can you share the presentation with the slide that is concerning the questions, please?
Yes.
Thank you.
So the.
So we can be all on track on what we're saying.
We're talking about the, sorry. I think this, where is it?
We can speak also, considering the progression because, I think, that the most important item that must be taken into account to explain the margin improvement, especially for Newlat Food, is the absolutely amazing organic growth that we realized in Q3. Newlat Food grew 9.4% organically in Q3. And this obviously explains the operating leverage that also was the main driver for our profitability. This is sustainable in the sense that with this level of volume of growth, we can generate this level of profitability. And this is related to what we mentioned also one year ago at the time of the IPO. The fact that our industrial structure is absolutely ready to support additional volumes. And through these additional volumes, we can generate operating economies of scale and operating margin improvement.
This is the proof that when we get additional volume into the market through the initiatives that also Benedetta explained before, we can leverage our structure and achieving the improvement of profitability that we also mentioned, explaining our equity case one year ago.
Okay. Thank you very much. And just the last one for me. In terms of organic growth, so as you mentioned that Q3 was particularly strong, how much is coming from new projects that you highlighted in your introduction? How much is coming just from capitalizing on old brands and old products?
So now maybe you can go on the initiatives, Benedetta, just to show which are the commercial initiatives, just to explain a little bit about that. These are all things that we are launching in the next future for the pre-portioned snacks . For example, something that is coming up now and it will be additional to the current business and will not take part of our current business because we are talking about taking part of a business that is made by our competitor. So there was some competitor that could give a product, a similar product pre-portioned snacks . So our idea is to gain new market share about just giving you a highlight on every one of these products.
So, it's not cannibal. For example, the next are not cannibalizing nothing about the listings into the retail channel. And it's implementing even our opportunity into the food service because this product has a really high service level. And this product is really interesting even for exporting more and more, even the bakery products, because we have a long shelf life on this product. So, the first, the pre-portioned pack is something that would be additional volume that is not in the nine months figures that you see. So the launch is now and we are already listing it in some Italian retailers. And we will see maybe the result in the next three, six months, of what we have in plan. Talking about the other opportunity that you see is everything I can say additional. We put sustainability and supporting local business.
These are new milk segments that are additionally on the market. What we can see is that with our current service level, with our milk extension, we have over 200 trucks delivering every day to the shops in Italy. We can gain a new position into the shelf, compared with our competitors. The idea is to implement as much as possible the offer for such kind of segments because of two motivations.
One is because of margins, of course, because we can as much added value you give to a product that is produced nearby your hometown, as much you trust in the raw material and in the company and in the brand, and as much you leave the buying, the purchasing from other companies that are making the opposite strategy. So to give an idea of a far away company.
These are additional plus that we are giving and they are giving us even the opportunity to enter in. We are the first one with the milk that is. You see the first milk, the blue one is 100% plastic free, the first 100% plastic free because it comes from sugar, all the packaging, even the cap. It's an initiative that gives us an added value even in terms of innovation. It's a totally new product that is going on the market. The other initiative that you see, we highlight mascarpone by Amazon. Why? Because we want to understand that Newlat is a reliable company on the market and we get the contract to start with Amazon the adventure of the fresh food.
So this is the fresh, the first mascarpone that Amazon launched on the market. We are the supplier, so that's good for us. We are not doing big. They are implementing now the business of fresh food, delivering fresh foods. For them, it's quite new in Europe. But we are the first supplier with their mascarpone under their own brand. So we hope to get into this online sales as well. This is a total new market for fresh products. No fresh products are working a lot online, but through Amazon, we hope and we see that maybe volumes can come in. Then you can see that we are diversifying our portfolio with the Healthy Snacks for Kids, for example.
The Delverde is all additional because before our purchasing of the plant of Delverde, it was not into the German market. It represented just a niche. Now we are launching it on the whole market. We gained the most important listing on the German market that is the group Edeka now. We will see in the next months what will happen with the opportunity of volumes. We want to launch it as much as possible as a high-level product, really important for the consumer, the quantity of protein and the reliability of the brand. In Italy as well, we are relaunching the brand with an added value of 100% Italian wheat. Initiatives about the raw material.
Last but not least, we are the first company that is introducing a milk for a first milk company that is introducing this special recipe that does not exist on the market. We just saw something that is far away, like in Australia and New Zealand. Let's say we call it Mukki Donna that is for a segment for women, with added phosphorus, vitamins and magnesium, I think. And milk-based drink for sports people that do sports. Everything you see on this slide is everything additional. Our growth, I can tell you that is due to achieving of new customers and even, of course, of new projects that are coming up. But as I said at the beginning, all this, most of these projects are still not on the market already.
This will be everything out, and new for the market in the next months.
Okay. So your organic growth in Q3 is due to new customers and new products? I'm not sure I understood. Sorry.
Our interest.
Yes.
We launched a new product. We had the new projects in general with customers. But of these key projects, the only one that is already on the market is the mascarpone by Amazon and the Healthy Snacks for Kids, and the pre-portioned snacks are going out this month as the milk, sustainability and supporting local business are going out this month, so you can see the result in the next month.
Okay. Thank you. Maybe can we have an update on two more things? Maybe on the baby milk contract and also on your M&A activities. Unfortunately, you couldn't go further with Hovis. Are you on other projects, ongoing or imminent, or is it more on the long term?
I'm interested in the short project about the contract. I didn't get which contract you are referring to.
the baby milk, going international with baby milk contract where we so far.
Yes. This was we signed some contract in the summer for baby food. And the project will start in January 2021. So we are quite ready to start with this project. And we need, due to the very high diversification in terms also of countries, we need on average two years and one half, three years to cover all the contracts. But everything is going on as we already explained during the first half presentation. Unfortunately, we can go in some details because we signed a confidential agreement with the counterpart and we can share a lot of details. But everything is going on. And in three years we will be as I would say full in terms of execution of the new contracts.
In terms of Hovis, as you probably read, Hovis was sold to the Endless Private Equity last Friday in the night between Thursday and Friday. This was a process in which we were involved until the last week. We are very disciplined in the M&A approach. And I think that, even if we were not successful in buying Hovis, I think that our shareholder could find two important messages in this experience. The first one is the fact that we are really focused in M&A and we want to find an interesting target to be also more international. And we are looking for other targets. We already have on the desk other targets that could help us to diversify our business in Central and Northern Europe. And this is the first point.
The second one is the fact that we are committed in M&A, but we don't want to do a deal because we need to do a deal. If there are the condition to do a deal and to put the base on which we can create value for our shareholder, we are very happy to go on and to sign the deal. But as it is in the case of Hovis, we made an offer. And we were not able to increase our offer and to continue in this competition with the other counterpart because we analyzed the target and we realized that that was the price.
Otherwise, we can be focused on other one, because on this, I want to highlight once again, we are very, very disciplined and we don't want to do a deal only because we promise that we are looking for a target. So this is just a comment that I can give you, I can share with you about the Hovis experience.
Thank you very much.
Can I ask a question?
Yes.
Hi. This is Doriana from HSBC. Thank you very much for taking my questions. First of all, apologies because I was a bit late and I couldn't download the presentation. So I might ask a question that has already been asked. Obviously, across all the different divisions, you have, you have had a tremendous performance, top line and bottom line. The laggard seems to be the milk and dairy division. I think you mentioned that because of the low tourists in Q3. Can you explain it a little bit better? Why would those two divisions be more exposed than the other ones? So that's my first question. I've got several.
First of all, I can tell you, Doriana, that, speaking especially about the business of CLI, the division, differently from Newlat, is exposed to the HoReCa. Especially speaking about particular regions like Tuscany, like Liguria, for example, you know that, for the coast and also for the cities, the tourism, the tourism is very important. This year, most of the hotels in Tuscany and in Liguria saw a - 70% in terms of bookings. And this obviously is a direct impact on the orders that we receive in those regions from the HoReCa segment. The other point is that we are experiencing substantial situations with a bit of volatility this year because we experienced a very strong Q1, Q2 absorbed the exceptional effect linked to the COVID.
This is especially in Newlat, as you can see in the chart when we realized an organic is slightly negative in Q2. In Q3, the business got a very important rebound, not in milk, but I think that this is a combination of several situations that also characterize the sector because now we have on the table a lot of diversifications, new product launches to try to stimulate the demand in this segment. But obviously, as you can imagine, it's not a business characterized in general with a particular high organic growth. I think that it's quite normal for us to see this business developing in terms of revenues at this level.
The business in which we are betting for a strong contribution in terms of organic growth obviously are other businesses starting from pasta because we can get new listings and we have also innovation, etc., special products, and also the bakery in which we are gaining market share and we have room to implement the offer and also the listing to increase our share around the market in which we are present. This, generally speaking, to try to share a picture of the situation.
Okay. Understood. Thank you very much. And in terms of the bottom line, I think that there was a question before asking about how sustainable are these margins. I mean, put it in a different way. Because of the sort of very special conditions this year, I understand that widely the promotional level has been much below the previous year. So can you tell us something about that? How much do you think you have saved from this low promotional environment and therefore that which, you know, could come into question coming next year, for example?
I think that the situation this year won't change in Q4 because the market generally remains very strong for the category on which we are more focused on. Generally speaking, I think that it's not a simple matter of promotion. I think that the results are first of all an industrial matter in the sense that when you realize this strong organic growth in terms of volume, pricing could play a role. But on the structure of the company, when you realize + 9% of volumes, you are going to get anyway material improvement in profitability for the structure that we have. And I think that it's not the right angle to see the performance linked to the lower promotional activity. It's an improvement that I would classify more as an industrial improvement than linked to a particular situation of lower promotion.
Okay. And, and then my third question would be, mostly on the current trading environment, is there anything you can tell us that might have changed with the second lockdown hitting pretty much all your markets? Shall we expect something like Q1, or shall we expect a more normal behavior? What are you seeing?
Honestly, I don't know because the situation is very volatile in the sense of what is happening also in Italy because, you know, it's a matter of color. Today you are yellow, tomorrow red. The situation is going to be materially different in terms of also the approach of the consumer in the day-to-day life. This is something that obviously leaves some uncertainty. We don't know what is going to happen. For sure, what I'm reading into the market is that the consumer are more focused on categories in which we are present, more I would say healthy categories because when you have this psychological approach to want to protect your health, your body, etc., you are also more focused to buy food that could be classified as healthier, that could help you to protect your body.
All the initiatives that Giuseppe explained before, part of the initiatives, are going in this direction. Generally speaking, what we are seeing is that, people obviously, is, more focused on, direct consumption in supermarkets because the activity of restaurants, etc., are as of today, I think, at a very low level. There are very few people that want to go in a restaurant, etc. This, I think, that is supportive for our business. How this could evolve in the future, it could increase like in March or not, honestly speaking, is difficult to say today. What we can say, is that, for our current business, traditional business, Giuseppe, we can say that, for example, the mascarpone category. I think that, after COVID, what we can say is that we managed this situation really, really good in terms of, even of managing new customers.
The listings that we have done during this period will be permanent in the future. So this is the good thing that we can ensure that we gain new customers and new positions on the shelf that we will take, surely for the future. So we don't know what will be the future, of course, but we see that our products are products that are actually well accepted by the new consumer attitude. You see, mascarpone, all the fresh cheeses are performing really good. But fortunately, we are producers of mascarpone. And most of the people now, they are making, baking by their own, tiramisu and other cakes. And mascarpone demand is growing like crazy.
So, in this period, we were ready to answer to the demand of the retail. And what I can ensure is that the listing that we have done will be permanent in the future in all the categories. So pasta, bakery, dairy, special products, and so on.
Okay. Thank you. And one more question is, at the time of the IPO, one of the ideas was to become more aggressive or more present in terms of new product development. And you have shown us a lot of initiatives which all look very interesting, but they must come with probably a boost in terms of investment in marketing and A&P. Is that something that we should keep in mind in terms of margin progression, going, you know, in the near future?
In my opinion, I think that, for example, if we speak about the promotion, so the marketing support that they need, that they are already part, let's say, all the brands that you saw, they are all already supported by marketing. So they already have their own advertising about the brand, day-by-day news, and so on. So, nothing that would be that's, let's say, crazy advertising about the products because we are already communicating all the brands that you see, on the internet and on the supermarket as much as possible. So our strategy was always be and is, it will be always, I think, as long we are here that we want to give the support to the product into the supermarket.
If we invest in marketing, we want to invest where the people can purchase our products. We do not need such strong support to let the consumer know our new products. Of course, they are part of advertising of the current advertising. A little improvement could be part of it to let the consumer know the new products. But I think that they are already communicated with the whole communication about the brands. I don't know if Fabio wants.
general, yes, generally speaking, we can say that we expect from this product an important contribution in terms of mix on our revenues. This means that the general average profitability of this product is higher than the previous one. This means that we have room also to think about an increase in the promotional activities without an impact on our profitability improvement.
Okay. That's very good. Thank you. And my very final question is on the use of cash. Obviously, you must be disappointed that you have lost the Hovis business that you bid for, and you hinted to something else that you have on the pipeline, but you know, shall we assume that, if not fruit, you will be considering returning some money back in the form of dividends or some other form for the shareholders?
As of today, Doriana, even if we lost this opportunity with Hovis, we have on the desk other interesting opportunity, again in the U.K., in Germany, in France, in other countries. We are analyzing a lot of potential targets. And we are confident that maybe so since nothing happened by chance, probably there is a reason why we lost this opportunity because maybe we can realize something better with another one. And we are so focused in the M&A activity, as we mentioned in the presentations, we expect to obviously sign a deal in 2021, at least one deal in 2021. Obviously, it depends by the size of the deal we are going to do.
This remains our first choice in terms of use of proceeds of cash that we are generating, and the cash that we are available in Newlat. I think that as of today, our idea is to continue to maintain this flexibility to do M&A, to grow externally and to reach the target of EUR 1 billion revenue. Because our opinion is that value creation for our shareholder, even if they need to wait maybe another six months, is materially higher if we reach this target of EUR 1 billion revenues with a lot of diversification around Europe, around products than to pay a dividend every year. For this reason, as of today, the equity story doesn't change. The investors of Newlat, the shareholder of Newlat, need to so to expect an important value creation through M&A and through organic growth.
But it's not an equity case that could be recognized as for the dividend. So, because we believe that there are other areas of more value creation as of today.
Okay. Excellent. Thank you very much.
You're welcome.
Hello? Can you hear me?
Yes.
Yes. Hi. Good afternoon, everybody. I'm Paola Carboni from Equita. I have a few questions. Can you hear me properly? Sorry, there's maybe some noise, unfortunately.
Oh, yes.
So, my first question was about the performance of CLI in terms of profitability, which was very strong but not, let's say, as strong as in Q2 in spite of, I assume, ever more evident synergies, especially from the organization of the merger of Centrale del Latte di Vicenza and Toscana. So, I was wondering what we should expect for the fourth quarter and to what extent this is the result of the operating deleverage you mentioned before, or maybe other factors which we haven't mentioned yet. The second point, if you can give us a bit more color on your performance for October, November, which you mentioned was still growing in terms of revenues. In the press release, you mentioned this. If you can give us a bit more color on that.
Thirdly, probably I've missed it, but I would like to understand your initiative on mascarpone with Amazon, which market it should address, which geographical market it should address. And last point is, in particular for pasta, I'm referring to the question of marketing, which was also my question, but specifically as regards your pasta business and the new initiative with Delverde in Italy, which was a bit new to me, in the sense that you have always considered the Italian pasta market very tough and very competitive. So clearly you are betting on a high value-added and quality product.
I was wondering, what kind of marketing support are you going to give to this product, let's say, on top of the margin impact that you already addressed, but also in terms, let's say, of tools you are going to use and what we should expect as a strategy to support it. Thank you.
Okay. Maybe I start with the first two questions and, Giuseppe, you can give an update about the trading and the specific question on pasta. About CLI and the profitability of CLI, I would suggest to see the story in a different way because I think that what happened for Newlat, considering Q2 and Q3, is a good proof that our business model is difficult to be modeled considering the movement quarter by quarter of volume and profitability as macro trend that could continue in the future. What is important to understand is that, first of all, the profitability decrease is obviously linked to the fact that, in Q2, in Q3, sorry, CLI was negative in terms of growth. If you lose volume, obviously your profitability is impacted.
Despite that, thanks to the activity in terms of efficiency that we made on the gross margin side and also on the OpEx side, Q3 was the first quarter with, even if small, but a positive impact coming from the merger of the three entities that we previously had inside the CLI group. What we saw, our idea, our approach is to try to maintain this profitability of 10%. We were happy to see that despite this difficult quarter, for the reason I mentioned before, answering to Doriana, we were able to maintain this profitability level. Looking at the last quarter of the year, the approach will be the same, even if the quarter could be obviously different in terms of volume performance than Q3 that was particularly negative, but it's quite difficult.
As you see, as you saw, Newlat reached this negative performance in Q2, and I think that was totally unexpected for all of you. We realized this + 9.4% in Q3 because when the market, the world, and the retailer are facing these particular situations, it's also difficult to have a linear progression of revenues, of profitability, etc. What we can say is that the level that we reach at the end of nine months is a sustainable level for us, and we try to maintain this profitability level for CLI and also for Newlat. About the current trading, what we want to say today is that we are continuing reaching growth, organic growth, also in the first months of Q3.
I don't want to share any kind of number because otherwise, if next week, something happened related to external situation, etc., I receive calls saying, "But you said seven, now it's six, and then it's four." We can say that all the expectations that are inside the market today, we are very confident, and we are still, and we are yet above these expectations. We are continuing in this process of organic growth, and we are confident that we can confirm for the full year a similar level of the one that you are seeing today, but apart from that, I prefer to avoid to give numbers, just to avoid confusion or to manage badly the expectation.
Okay. So I can get back on two questions concerning the mascarpone for Amazon. So the mascarpone for Amazon, it's a project that is born for the European market, because our product has a shelf life of 120 days. So we are delivering in Italy, and they are delivering all over Europe. So it's present in France, Spain, and other things. But this is we are not talking about big volumes, but it's a project. But let's see how it will work. It depends on Amazon's credibility in terms of fresh food delivery, you know, because most of the online food stuff is sold by supermarket online websites. Talking about the pasta, Delverde, we chose to renew the brand.
This is something that, as a, let's say, for a marketing goal after four, five years, it's something that you need to do, but this is something that came up from the request of the current retailers, so where we are selling now, Delverde's new version, and as we want to go up in terms of positioning, up on the other competitors, that's why we chose to create the new design and give a high content of quality to the product, so the investment is just the redesign, and we will see which will be the opportunity of these things.
But our redesign is done because we want to renew our brand and to maintain our position where we are now because otherwise, our place on the shelf that now we gain with Delverde could be taken over from other producers if we do not do nothing. If you do not move, somebody can take your place. And that's why we are changing the packaging to give the idea that Delverde is still running on the Italian market. It is always the biggest market in the world for pasta. So why not the opportunity to do new places on the shelf if it can happen?
Is there any more questions? Okay. So I guess we can close the call here if there are no more questions. Of course, we're still available for further questions after the call, so you can just send us an email or just call us, and we'll be more than happy to reply. And, again, thank you for joining the call, and see you again in a few months. Thank you.
Thank you.
Thank you. Bye-bye.
Bye.
Thank you. Bye.
Bye. Thank you. Bye-bye.
Bye. Thank you.
Good afternoon. Are you there? Sir, go on, we can.