Earnings Call: Q3 2020

Oct 22, 2020

My name is Natalia Louermo, and I'm Head of Investor Relations. With me here today are Henri de Sevoche, CEO of Clouder and Srianne Srivijen, CFO. Henrik Pjens will take you through our Q3 results, and we will then move on to a Q and A session. I will now hand over to you, Henrik. Very good. Thank you, Nathalie. Some key messages to start with for Q3. Very pleased and good to see that we are back to having growth in our branded business. So a good quarter, driven by both marketing investments, innovation, but also increased traffic in the non food retail stores. A continued recovery for pick and mix, but consumer demand still very subdued, minus 30%. Of course, it was minus 16% in quarter 2. Traffic is coming back, but still quite some work to be done in order to get that back to where we want it to be. Because of the COVID situation, we put in even stronger cost control, pulled a lot of things forward, and that has been able to give us some good savings. Part of that, we have reinvested into marketing expenditure, and there's also a provision of incentives, which are positively contributing to the result. Still a good strong balance sheet, which also means that the Board has decided to propose a dividend, which will have an EGM in 2 weeks' time for approval. A lot of work went into maintaining the business continuity and supply, both by suppliers, our own factories and of course, warehousing distribution. No major disruptions due to COVID and also our commerce units in all the countries have been able to keep on working to a large extent from home, but most of the offices are partly open for team meetings and plannings. And we see still a continued volatility, in particular, in the pick and mix area. And of course, while we're speaking, we can see the wave 2, in particular, in the Middle European countries starting to have an impact. And that, of course, gives a certain uncertainty within our business. So in general, a continued recovery in a challenging environment. When we look at the sales results, as I said, total is down with 7%, organic sales quite different, branded business plus 1.7 percent, I'll unpack it a little bit further and the pick and mix business minus 31.4%. That's of course an enormous figure, better than last quarter, but not where we want to be. And you can see also the months that it is slowly getting better in September, but still very volatile between the months. If we look at the branded business, 2019 as a reference, 70% in food and 30% in other channels. Other channels that everything from kiosks to travel retail to do it yourself stores, etcetera. Yes, what we have been seeing in this quarter is that the demand in the food channel, including e commerce, is still very high. Shoppers have returned gradually to other channels, in particular during the summer months. We have seen an uplift over there, but we still have this negative product mix that we see refreshment, that's chewing gum and pastels still being lower than the candy bag business. And those products are predominantly sold in checkout areas in food, but also, of course, very much an on the go product in the other channels. So actions we have taken is actually to continue with our strategy to strengthen the top 25 brand positions of Cloweta, adjusting the marketing and innovation programs, but also a step up in e commerce. Of course, that already was part of our strategy. We were just bolstering that and also investing over there and then continue with the journey of valorization, take pricing where possible, but also look at value for money given the economic uncertainty. If we then look at pick and mix, we try to make that even more transparent. There's basically 3 things which need to happen for pick and mix to really recover. And the first one, of course, is that the channels are open, so that the stores are open, that the shelves are open for sale. And we show you a bit in Q2, we had 2 markets where we still had problems, both in Denmark and in the UK, and that has gradually improved. As you can see in Denmark now, most of the stores are open. There's still a few which we need to help to open again. In the UK, however, we have been able to work together with our customers in food retail and high street to open up, but we still see like the leisure channel, including the cinemas very much not seeing the footfall and therefore together with them, we also decided not to open the pick and mix. So that's quite an important market, still very much impacted by the closure of channels. So that's step 1. And step 2 is that in pick and mix, we do or our customers do and we facilitate that do a lot of price promotions. So when it is the weekend, for example, they are giving a good deal to shoppers. And as you can see in most markets, we are still not seeing price promotions back. So UK, Finland, Denmark and in Sweden, it's a bit of a mixed picture, but we cannot say that price promotions are back. And in Norway, we did not have any price promotions from before. So over there, it is activations and that is why it is in a green situation. So that's the next step. And then of course, the consumer demand is something we need to bring back. There is a number of consumers who are either spending less time in store, they're either spending less time in front of our fixture or the consumers who we have to bring back into pick and mix because they went over into packed business. And that you can see is still very much something which is ongoing, which we've also communicated before that it will take several quarters to bring that back. And the good thing is that we're now in full fledged rollout with the Candy King 2.0 concept, which is more premium, but it also has a lot of hygiene cues in there, which will help consumers to return to Pick and Mix. So that's basically what is happening in Pick and Mix. And then we can have a further look into the financials. Thank you, Henry. So as usual, I'll start with net sales. So in the quarter, our business continued to recover from the impact of COVID-nineteen, as Henry said, with organic growth now down at least single digit compared to last year, while, of course, year to date with a very soft quarter too, it is remaining down double digits. So the improvement in quarter 3 was both on the brand and package business and in pick and mix, with the branded package business growing 1.7% over last year, despite the still very weak travel retail and the lower consumer footfall in the out of home channels. And for pick and mix, while this is down, of course, 31%, at least when we compare to Q2, if you remember, we started out with roughly down 70% in April and then gradually improved then. So it is a step forward. Nonetheless, if we look at branded and pick and mix on an over and under, so the gradual recovery is evident on the right, but also that pick and mix in the quarter And if you look at the pie chart at the bottom left, now represents 20% of our sales, up from 15% in Q2. Although this is still short of the 30% of sales it represented last year. And we have previously shared that within the branded side of the business, we have a challenging mix on account of lower sales in the refreshment category, including due to less sales in out of home but also less sales in the checkouts when people are socially distancing. And with pick a mix decline compared to last year, on the half of what we saw in quarter 2, we naturally will see an impact on the gross margins quarter to quarter, and I will come back to that a little bit later on. But starting then with operating profits, adjusted here, we are making the drivers for the variance to prior year vis a gold. And I followed this up with more details specifically on the selling and the general and admin. But overall, for the quarter, operating profit adjusted totaled $130,000,000 for a margin of 8.8 percent of sales, and that is a significant reduction versus last year. But half of this reduction of $70,000,000 is due to the phasing of cost from quarter 2 as we previously have shared. And together with this profit loss due to the lower volumes also in the quarter, that accounts for this full SEK 100,000,000 Against this volume driven impact, we do have a partial offset, which is in the middle column, and that consists of lower sales, general and admin on account of the strong cost control and also the release of accruals relating to performance incentive programs. And then part of all of this has been reinvested into higher A and P than last year and as mentioned by Henry previously. But before we look on those indirects, I want to clarify the gross margin. So the Q3 gross margin compared to last year needs to be understood by keeping 3 things in mind. Firstly, and I think we were quite transparent about this in quarter 2, there's a phasing of certain costs into this quarter. And obviously, in Q3, we see those $35,000,000 in cost hitting the gross margin. Secondly, at the start of Q3, basically in July, we have executed a number of planned production shuts. We've mentioned that also in the past. And here, you have to remember that we built up inventory at the end of Q1 to predict the business if we would have had to shut plants or had major disruption of raw and packaging material supply on account of COVID-nineteen. And now, of course, with better visibility, we were able to start to bring those inventories down. This has been good for freeing up working capital, and I'll come back to that later, but also reducing the risk of write offs. But it did mean much higher manufacturing cost per kilo of the products we produced during that period. And this has also affected the quarter. And thirdly, we do have items affecting comparability relating to the Helsingborg plant closure in quarter 3. Now the good thing is on that closure, we've actually now found a way of accelerating the closure somewhat. So it should be coming in closer towards the year end than what we had originally anticipated. Now this is clearly a one off drop in gross margin, these three drivers. And as you've heard, we have chosen to reiterate the outlook that we will return to double digit operating profit margin by end of the year. And given that our sales general and admin normally ranges between, let's say, 24% 26%, that obviously means that we're saying that gross margins will get back to at least 34% to 36%. Now these three drivers explain most of the change in gross margin, not only versus last year, but also between what you saw in quarter 2 this year and quarter 3. But there's one other factor that plays into that comparison between quarters, and that is the mix that I mentioned earlier. So in both quarters, we have a favorable mix versus last year, obviously, on account of the higher share of sales coming from packaged products. I mean, the favorability in Q3, it's much less pronounced than it was in Q2, given the recovery of pickle mix. Now with that, let me detail out a little bit more on the sales general and admin that offsets the volume impact. So in this quarter, we have continued to accelerate actions within our VIP plus program and how to get what we call more bang for our buck. And previously in the quarter, we did communicate on the closure of the Helsingborg plant, although that sits in gross margins, savings around $10,000,000 per year. But we have also now taken other VIP plus actions, and that is we have executed a change in the Swedish organization, which will improve the ways of working in the business and also deliver savings. And these savings will be somewhat higher than the savings that we will deliver through the Helsingborg plant closure. Now in the quarter, excluding items affecting comparability in ForEx, which you can see here roughly offsets each other, The indirects was down SEK 48,000,000 compared to prior year. Now within that, we released accruals for performance incentive programs, total in Swedish kroner is SEK 45,000,000, and that's a year to date number. But then we also stepped up our A and P investments. And the reason that you don't see that in the profit and loss here is because we were able to fully offset those investments as well as annual merit increase for our employees since last year through the continued VIP plus savings. And in quarter 2, I had mentioned that out of the reduced indirect costs, about half related to savings, some sustainable and some one off, a quarter related to lower merchandising cost and a quarter related to lower marketing spend. Now year to date quarter 3, the proportion has changed. Excluding the incentive program release, VIP plus savings now account for almost 3 quarters of the reduction that we have and merchandising cost for a bit over a quarter because marketing spend is now close to what we had last year despite the volume reduction as we are protecting our brand equity. Now moving on to cash. And as you know, as a company, we tend to generate most of the cash in the second half of the year. And Q3 is, from that point of view, not an exception. But we did deliver very strong on the working capital this quarter, as you see in the second column from the left. So SEK 151,000,000 was freed up, which is SEK 145,000,000 better than last year. And with CapEx investment similar between the 2 years, our Q3 free cash flow of SEK 252,000,000, as you see in the middle of the top waterfall graph, is $53,000,000 better than last year, and this is despite the lower operating profits. So in summary, we had a very strong quarter on cash. And you should also note that year to date, our working capital is significantly better than year to date Q3 last year. So it's not just for the quarter, it is also an overall improvement. Then looking a little bit closer to the working capital. So obviously, on inventories, we have shared in Q2 that we would bring them down in Q3 and which we have done. So we reduced inventories to below SEK 1,000,000,000, which is lower than we were at quarter 1 end and certainly lower than we were at quarter 2 end. And we have also improved the days inventory on hand from 108 days down to 93. It does remain higher than last year, and we will continue to manage this in a careful way. We will build appropriate stock for seasonal products, such as Christmas, and we're going to safeguard our ability to bounce back as societies opens up again. But we're also going to make sure we can safeguard production and keep an eye on the cash. So that's the balance we're taking. Now payables also increased in quarter versus quarter 2, but that's, of course, because production has been ramping up again towards the end of the quarter. And then receivables also increased because sales also ramped up towards the end of the quarter. But both remained below last year, both in value and in terms of days. So the next piece here also on the CapEx. So despite the travel restrictions we've had and other challenges with COVID-nineteen, we have actually proceeded quite well with our CapEx projects in total executing to value of SEK 61,000,000 in the quarter, which is actually higher than last year. And as I mentioned in quarter 2, we expect that this year spend will be higher than last year, and year to date spend is actually already higher than last year. So that's good progress. And assuming we can continue as per current thinking to get things done, which, of course, costs money, spend will probably land around 5% for this year. And then moving on to my last slide. As you know, leverage is one of our key financial targets next to sales and EBIT and dividend. And here, I'm trying to capture that in our debt position. So first, you can see top left, our total utilized credit facilities and commercial papers of SEK 2,400,000,000 and then to the right, we're holding EUR 330,000,000 in cash, including for the upcoming dividend payment. But we have access to another $1,300,000,000 in additional unutilized facilities as well as SEK 750,000,000 in commercial papers that are not yet on the market. Hence, our conclusion that our financial position is strong. Now our financial strength is also reflected in the leverage, where the year end target is to be around or below 2.5 times EBITDA. We have stayed below that at prior year ends. But normally, of course, we exceeded in quarter 2, which is the quarter when we pay out our dividend. Now with the dividend payment in quarter 4 instead, we expect to end this year higher than normal for the year end, but not to stray too far from the targets or too far from around 2.5. And that concludes my part of this presentation, and I hand back to you, Henrik. Thank you, Frans. A few words on what we're doing going forward. So we have already at the outset of Q3, looked at our strategic priorities and adjusted where needed. I mean the overall picture remains very much the same. It's to keep on focusing on the organic growth of the branded business, really important above average profitability. It is, of course, to restore the profitability in the pick and mix business by sustainable value growth. And of course, number 3, as you can see, is focusing on cost and efficiency. As on the branded business, I think the things we are doing are very much in line with our told you already before. Maybe one thing is to bring sustainability into our brands. It's something which we will probably talk about in the coming months in a little bit more specific way and to increase the A and P investment into our main brand positions to make them really competitive and to be able to keep on growing our business in the brands in a profitable way. Yes, on the pick and mix, of course, that's where we have the biggest impact. As you are aware, that's also where we did the biggest changes. So it's good to see that the repositioning of Candy King to a more premium concept is in a rollout phase. We're doing that, for example, in Sweden with all the previous Karamalkungen stores and also improving the assortment, but also very much improving the price towards the customer and the customer towards the consumer. It is of course rebuilding the profitability through scale after the volume drop. So that is, of course, an issue we are managing. The fact that we're raising prices, of course, is good for the kilo price, but then the merchandising cost per kilo are going up because we lose so much of the scale and then a lot is being eaten up by that. So we need to bring in back the scale because the cost and the savings in merchandising are not linear with the how do you call it, with the volume drop. We're working still on the price increases that's happening basically month after month in the different markets. I cannot tell you exactly what we are planning, but there are further plans to work on pricing to bring profitability into the pick and mix business. And then we are looking at really building a brand around Candy King. So there are certain activation programs on a small scale from a cost perspective. You can see that, for example, in the Swedish market already from 2 weeks ago. And number 3, I think Frans already talked about the reorganization in Sweden to take resources out and make savings. It's the savings for the nut manufacturing in Helsingborg. It's in the order of initiative both for sustainable cost savings, plans we already have for executing being faster and then the last point on the working capital management. A few highlights on the marketing agenda. I mean, we are going into adjacent categories. So here you see a brand which is in Countlights Plop in Sweden, going also in chocolate tablets, quite important. And I think also making use of the Algan Bila brands to give us a USP over the existing other brands in this market. It's also very much trying to strengthen the top and advertise Gothenblendatt towards the consumers, we also increase the franchise and the same with a relaunch we do in Finland on the top. And then of course, looking at value, how can we price up, how can we premiumize, bring more value to our products, the 2 Finnish examples, but they could as well have been in the Netherlands. So how can we create an extra price platform on top of the existing ranges in order to basically get more euros per kilo by premiumization. Yes, the purpose of the power of True Joy really bringing that and coming bring that alive also in our brands and the decisions we take is something we are working on throughout the company. Given the time, we will not go into that right now. It will be something which we'll be communicating on a separate notice towards our shareholders and analysts. But I think it's an important program also from stakeholder management, both internally, but also our customers want to cooperate with this and that's also very much in that light a business opportunity. We decided also to join the science based targets initiative, which is quite important on the climate action elements in this program. Yes, Q4, I mean, key expected impacts on the branded sales. We think we will be around last year's level, of course, very much focusing to keep the momentum we have and also for the mix to gradually improve with chewing gum and pastels slowly coming back due to channel and checkout mix. On pick and mix, we are planning to gradually improve a further step, but it will take several quarters before the full consumer demand comes back. So the first thing now is to get promotions back into place and to work with the Candy King 2.0 rollouts to bring the consumers or all consumers back into this business. And then the operating profit adjusted, we expect that to be greatly stronger and ending the year on double digit margins in a way to get back to the journey we are on. And with having that said, I think we open up for questions. 1st question from Michael Langdell from Kennenade. Please go ahead. Yes. Hi. So I maybe I'm a bit slow here. But when you went through the EBIT bridge or the adjusted EBIT bridge and also spoke about the gross profit and the gross margin impact. I'm a bit curious. I mean, first of all, on the SG and A bridge, to start with, you when you speak about this release of accruals, so this incentive programs, I mean, this is a big number, SEK 45,000,000. And you report that in this quarter. And I understand that this should probably have been then lower amounts provisioned in Q1 and Q2, obviously, and now you released that. But isn't the full impact of the SEK 45,000,000 included in the adjusted EBIT for the quarter? And if so, if you extract that, when you look at the net cost reductions of SEK 48,000,000 that makes it only SEK 3,000,000 then on a year on year basis? Or am I wrong here? Well, thanks, Mikael, for asking the clarifying question. So the first piece is that, yes, you're correct. This is a year to date number. And generally speaking, if we go back a couple of years, given our business, and let's say, there's still fairly limited span of growth rates we have, it's normally only around quarter 3 that we have felt that we have sufficient visibility on where we're going to land that we would start either to provide more or to release. And this year with even, let's say, starker fluctuations up and down, that has not been different. So it is in Q3 that we have felt that we had enough visibility to make the decision. So that's one thing. It is a year to date number. The other aspect of this is that, remember, when we report SG and A here, it's not only the indirect in the sense of people cost and non people cost, it's also the marketing spend, so the advertisement and promotions. So the way you should think about this that, that 48, yes, 45, there is the release, then you would have expected to have an increase versus last year on account of merit, and you should have expected to see a pretty big step up in cost on account of the increased A and P investment. And the reason that you don't see an increase there is because we're offsetting all of that with various VIP plus savings. Did that answer your question, Yes. So yes, I guess it does. But when you look at the Q1 and Q2 numbers then, I guess, A and P was significantly lower in those quarters then because you don't have the same kind of mitigating factor from A and P increases in those quarters. Yes. What I mentioned was that when we are at Q3 year to date, we are roughly in line with what we spent Q3 year to date last year on A and P because we have stepped it up in quarter 3 even versus last year. And you remember that was also a bit of a step up with electrical, etcetera. Whereas in Q2, earlier we held back a bit given the fact that the volatility we had in the market, we pulled back on outdoor advertisement and we redirected some of that spend. So yes, if you imagine, if there was one more column here that just talked about marketing, then on the Q3, you would see a big red. And then and as a result, we would show the 48 would have been a higher number to get back to the same place. Whereas on the 9 month basis, the marketing one would be fairly small, that box, and the cost reduction would, as a result, look fairly similar to what you see here. Okay. But so on a year on year basis in Q3, marketing spend is basically not Higher. No, it stepped up. So on quarter, it stepped up. Yes. Higher. Year to date, it's roughly in line with last year. Yes. Okay. So it's a 3rd quarter thing. Okay. But as we move into the Q4 now, obviously, A and P will remain at roughly the same level, I would assume. And but you don't have the positives from these release of the accruals. So how then and still you're guiding for an adjusted EBIT margin of above 10%. So how is that achievable? I know that you also spoke about then the gross margin coming up so significantly. So could you specify that a bit more then on the I guess it's on the gross profit side. How should that or how will that be able to rise so much from 1 quarter to another? Okay. No, great. Yes. So I think the easiest one, which is very transparent, that is also, of course, the exceptionals with the closure of the Helsingborg plant, which where the exceptional is slightly higher than what we originally thought, but that's also because we've moved the culture a little bit. It's happening a little bit earlier than what we originally envisaged. So obviously, we're not closing the plant one more time in Q4. So there already you have it that's an impact. But beyond that, I mean, in a simplified terms, one could say that this quarter is helped on the bottom line by the, let's say, one timer of releasing these performance incentive provisions. But we are hurt by arguably a onetimer hit in the gross margin on account of the lower volumes, which has then 2 aspects. 1 is the lower volumes and the impact that was carried in from quarter 2 and 2, the lower volumes in July where that impact stays within the quarter because it happened so early. So in a way, you can imagine that in Q2, our worst month in terms of production was at the end of the quarter, whereas in Q3, our worst month in terms of production was at the beginning of the quarter. So therefore, we take a big hit plant closures to ramp up on the maintenance, get even more focused on perfect factory program, which of course will deliver some good numbers going forward. But as a result, costs are quite high at the beginning of the quarter against very low volumes. So in a way, I mean, you could think of that as more or less a one off drop on the gross margin, and we have a one off gain on the indirects. So I think still our reported numbers are probably quite representative to what the numbers should be. Okay. Another question on the, call it, guidance on the packaged sales for Q4 being, as you say, probably unchanged year on year for Q4. Does that mean that you still expect the positive impact from higher retail sales to be fully mitigated then by reduced sales in other sales channels? Or is it something else there? Because you are, at the same time, speaking about more normalization and so on, which the net impact should or could even be positive for the package side, which you saw in this quarter growing actually on a year on year basis. But now you're saying that it's expected to be unchanged. So what is behind that guidance? Well, so here, you must excuse. So when we say around last year's level, I mean, I would say if you're 1% up or down, that's still around last year's level. So it's not a major deviation from what we're seeing here. Obviously, there's a couple of things you have to think about there is that when consumers exit, when they choose not to buy pick and mix, obviously, and they walk over to the packaged products that there is we have many more competitors there. And if they move back into pick and mix, we will lose some of that, but our competitors will also lose some of that. And that's between, let's say, these two aspects of the business. But then also within the branded business, while probably recovering the travel retail is still some way off, as society hopefully opens up again and we're not going to have a very strong second wave, then you also have more footfall in out of home channels where we are arguably quite strong. And so overall, what we're saying is that we had some nice number on the branded business growth in Q3, and we're sort of reaffirming that we will also in Q4 be around where we were last year. Okay. And just to remind me, last year, Q3 and Q4, in terms of marketing, you had this very big Leckerel campaign. But was that that impact both Q3 and Q4, the marketing spend, that's one thing. And then I guess the top line effect was probably in Q4 last year from that campaign. Yes, it did impact so the spend was in both quarters. And you would see, let's say, an effect on the top line in both quarters as well. And then, of course, the tricky part is that there's a difference between the timing when the consumer buys the product versus when we sell it to the retailer as well in anticipation of the uptick when we advertise. But just to reiterate on that one, of course, we have we made a strategic plan to get organic growth on the brands, start with getting the organic growth on our top brand position. So that is brands per country. And let's say, Gottenblandert in Sweden. Then we looked at the competitive situation of all those brands. And then the first step we did was we were bringing down the non working media to below 40%, ultimately below 30%. So to utilize the money we already have in A and P more efficiently, that journey is still continuing, but we're coming towards the 65% level. And then we said, okay, when we have done that, the next step will be to also bring up the absolute amount of A and P spend. And that you could see now in quarter 3, and that is not something which will go away. We will be spending more also in absolute money on A and P to strengthen those brands, in particular those brands in those countries where we have not had any spend or far too little versus competition because that is a necessary investment we need to make in order to keep the organic growth going year after year. Okay. Thank you. Thank you. Next question from Niklas Krugmann from Handelsbanken. Please go ahead. Yes, hello. The first question is on pick and mix. Q3 was obviously better than Q2, but the sales progression throughout Q3, unfortunately, does not actually sort of support the gradual recovery that you guide for, if you will, for Q4. So my question is, are you seeing improvements now in October? Or are we looking at easier comps? Or what makes you sort of make that statement that you expect a gradual recovery in Q4? Yes. I mean, it's a little bit back to the chart about the 3 different parameters. I mean, the pick and mix business, it is still very volatile. You can see that from the month to month figures. And why are we saying there's a gradual recovery? Because first, we work very much on getting the basics back, yes? And the basics are that we get our fixtures open in all the countries, in all the retailers. And we've made good progress on that, Yes, then the second thing is that we are seeing that some retailers are now contacting us, okay, we want to start doing promotions, yes. And promotion has a big impact. I mean, in some countries, more than 40% four-zero of the volume are being sold in promotion. So having a promotion or not having a promotion also gives huge swings, you could say, between months. And also, you need to think that, that is in the comparator of last year. And particularly, also Halloween is an important month. So we see the basics improving on both opening of all the fixtures and that in some countries, we also see retailers starting to look at promotions again, but again, not everywhere. And then, of course, the third one is those consumers who have left pick and mix or have reduced consumption in pick and mix, those need to be regained. And we see good, good first responses of the Candy King 2.0 implementation in the markets where we're implementing. So I think all in all, we can say we look with confidence that things are improving. But of course, it is still very volatile in that sense. Okay, perfect. And then on I'm trying to sort of put together your various pieces of guidance here. So starting out with the double digit margins for Q4 EBIT, which I take it as it means. And then you've guided for flattish packaged sales and gradual recovery, so in pick and mix. So we're not going to be minus 30 at least. And I think you also said that SG and A costs to sales would be to the tune of 24% to 26%, right? Yes. No, actually on that one, I just want to say without saying if that's correct or not, I just want to say that my comment was that if you look historically, if you take, let's say, 2019, that is normally the range that we are between, sort of 24% to 26%. So it's more to sort of just sort of sharing what you already have and sort of give some confidence why what it actually means to say double digit margin or what it should mean for the gross margin. Okay. Yes. So then let's say I put in 25.4 percent in SG and A sales. So we're then looking at the gross margin year on year deterioration of 100 and or roughly 2 percentage points? Or am I sort of ballpark right there, Q4 gross margin? Yes. I mean, yes, we haven't we're not giving a guidance for Q4 on gross margin, but rather we've given a guidance, say that we should get back to double digit EBIT by the end of the year. And if you use your assumption that if that is evenly spread across Q4 and we have normal indirects, including then the marketing spend, that should mean that we have to get to at least 34% to 36%. That's as far as I would give guidance. Yes. That's very good. And then so where do you think your inventory will be at the end of this year in terms of 1,000,000? Yes. So now we brought it down to SEK 986,000,000 or something. So we're below SEK 1,000,000,000 and it's, of course, a big reduction. It's less than what we had last quarter and quarter 1. But what we're trying to balance here is, on the one hand, we want to be lean on inventories. On the other hand, according to last year before COVID, we said that we need to increase our inventories to improve our service levels. And that remains a priority for us as well to make sure that our customers can sell when there is a demand from the consumer. And with the uncertainty, and what we're seeing now that there is further action taken by governments related to COVID, we also have to protect the supply that we have. So I think the intention is, of course, to make sure that we position ourselves at the right place on the inventory. Ballpark, it will be the same as last year. Yes. Ballpark, I mean, ballpark, I would say, will be the same as we're now. Yes. Okay. So okay, good. Very good. And then finally, then, if I'm allowed to ask, can you give me the breakdown of your inventory in terms of raw materials work in progress versus finished goods in Q3 and then in Q3 last year would be great. Yes. No, I don't I don't think we have that here without I don't have a couple of months. Obviously, what But just maybe Nick would have, so what did we do? We at the beginning of the year, we already increased some of the production because we could see that we had the space in our factories to pre produce certain items, which we were then going to sell later on and that we would later on then go do some more insourcing so to get to fully occupied factories, which is extremely important for the fixed cost coverage. Then we got into COVID. We built up stock both of raw material, intermediate and on the most important SKUs. And then, of course, we saw in COVID that we were not selling so much pick and mix and we're not selling so much on out of home. So we stopped the production in Q2 on basically those two items. So we were still getting in stock from 3rd party providers, and that's why we ended up with a relatively high stock levels at the end of Q2, which of course given the COVID situation and the cash generation being important, we said, okay, we're going to address this. And how do we address that? By reducing the factories output and also doing that very much in the summer period, which I think was cost wise the most beneficial way to do it because we could ask people to take holidays. In other years, we asked them to stay. So we keep our most important lines running, but we reduced output a lot in July and August. And of course, then there are other things we could or we had to do in that time, and that's why there is quite some supply impact, supply cost impact in both from Q2 products already into Q3 and then the Q3 effects, which Frans explained. I think that was a good decision even though it had an impact now on gross margin because we've really reduced our stock levels to at the level where we want it to be, but also to the products where we want that stock to be. And you can see that from the work in progress and the cash flow statement. That is something which happened in Q3. And now the factories are, let's say, back to where they should be producing for the demand, which we're also selling. And we're looking at further insourcing. We don't talk about that so much, but that's, of course, still a very nice thing to have that we can bring in products from the outside to make up for the minus 30% or wherever it will land of the pick and mix business that we don't sit with fixed costs, which have nothing to do. We can just bring in volumes and then on top of that we have to grow projections for the branded business. And that's a continuing journey. The only thing is it takes a bit of time. We cannot respond within a month or within a quarter because a lot of these things have to be preplanned. We need to cancel contracts with 3rd party to bring it in. We need to test those products and see that we can produce the same quality or the same taste, I would say, as what we bring in. There's travel restrictions. If it is in Slovakia, it's difficult to travel there. So it takes time to adjust. But I mean we have that possibility, which I think is a very nice cushion to have. Yes. My question was more focused on if I know sort of your how what proportion is finished goods of your inventory, I can calculate how much you can produce without the finished goods inventory stacking up. But maybe we can take those numbers at a later stage. But you mentioned something very interesting there, the in sourcing of volumes. Can you just maybe talk a bit more about how you're viewing this? And I understand you still don't know where volumes How would we do that? We have an installed capacity mainly in molding, yes, so wine gums, etcetera, Gottemblandas, yes. And we want to occupy that installed capacity as financially interesting as we can make it. So that's a little bit different by plants. I mean some plants, it is like in Slovakia, it's very attractive to produce 7 days a week. In other plants, it's better to work 5 days a week, 20 fourseven and then some extra shifts in the weekend if needed. And that means that if we now have a lower demand on pick and mix items like you see at the minus 30%, we can bring in more production from the outside, so from 3rd party producers to compensate for that so that our factories over a time span, let's say, of 12 months are not going to stand idle because we had less production. And that should bring us back to the fixed cost coverage and the scale benefits, which are going to help us in the gross margin journey we've been talking about so much today. Okay. But over what time frame do you see this happening? Let's say by the end of this quarter, you're confident on the volumes and where they will develop. Is it a quarter or is it half a year or? Yes, it's more half a year because as I said, it depends very much. We need to cancel some of these contracts with 3rd party or reduce them. We need to match these products. So if they have been always produced by 3rd party and now we have to produce them, we need to do tests on those lines, get consumers to taste those products. So this is not something you can put on and off within a month or even within a quarter. And it also depends and that's maybe the last thing, it also depends on the outlook we have and that would pick a mix in particular for it to be so volatile, it's all the time a balance between putting a lot of more volume in, but then running the risk that we are not going to be able to produce everything and that we have supply chain or customer service issues with the customer. So it's that balance we need to strike right. And of course, if the demand is becoming less volatile, yes, we can then have a better utilization of the factories. The more uncertainty there is in the demand, the more you need to be able to react within your supply chain network on that volatility. And that's going to gradually improve as well. Okay. Very good. And my final question is, I noticed a Amazon logo in your presentation next to e commerce. Should I interpret that as you are about to launch direct selling on the Amazon Swedish website? It's quite one of the players. So we're working both with all the existing omnichannel, as we call them, so that the ECAI or the Albert Heijn's of this world, but we're also working together with the pure players in this world and that whatever in Sweden is maltem, but there's also the Amazons of this world. And already we are working with Amazon in the UK, in Germany, and that's of course something we now want to roll out across all the countries. We just got in listings in Australia for jelly bean factories with the 2 main retailers over there. So then it also makes a lot of sense if you have 80% distribution in the physical stores to also be available on Amazon in Australia. So yes, it is a signal, of course, that we take this serious. It's an important trend. It's one of the key elements of our strategy to get branded growth, and that's the beauty of Cloweta. We can do these sort of things across markets and work then in a central way with the likes of Amazon. All right. Thank you very much. Thank you. Should we look at the questions, which were written? We don't have any more questions by There are 2 questions which have been sent. So one is from Franz Jungel. It's a question about rumors of Orkla. I think the people to us that are the people at Orkla, not at Cloueta. I don't know more than what we read in the newspapers. And then there is a question from Stefan from Nordea. I think we have answered most of that, but on pick and mix, larger contracts that are up for renegotiations and if you lost contracts due to price increase. So if I answer that, we are raising prices in Sweden on an individual store by store that is going on. We've lost some contracts, but not more than what we already thought. We won a big contract and implemented that in Finland this year. That's fully operational, and there is another contract coming up for negotiation towards the end of this year in another market. And it's a bit the nature of pick and mix. But so far so good. And if you say you lose a contract, I mean, I would rather say we walk away from certain contracts because we are not in the business to sell with a loss. We're in the business to make money on pick and mix. So if the customers want to only look at the P of price, then we walk away from that contract. I'll take the year. Yes, so Stefan, the other question you had here was around the items affecting comparability on the SEK 19,000,000 and whether that fits in gross profit or in the SG and A. And the answer is actually, it's both because there's SEK 19,000,000. And I appreciate that, that gets a bit not absolutely clear. But so let me just say it again. So the first EUR 19,000,000 that sits in gross profit is related to the closure of Helsingborg, where we previously said it was going to be around 15% and that we're going to have a closure during 2021. It's now 2019 because we brought it forward. So it comes earlier than originally anticipated. And then there is certain cost that we then have to take as exceptional, for example, ramps that will no longer be utilized. So that's the first EUR 19,000,000. It will deliver about EUR 10,000,000 on an annualized basis in savings. The other SEK 19,000,000 relates to the reorganization in the Swedish business, which both will improve ways of working and help the business, but it's also delivering savings. And that's also $19,000,000 coincidentally. And that will deliver savings, which is actually higher on an annualized basis than the Helsingborg plant closure, slightly higher, I would say. Good. Any more questions? Good. Well then, I thank you all for being here today, and we go on and try to sell more for a higher price. Yes. Thank you very much. Thank you.