Thank you very much, Operator. Jacob Broberg, Head of Investor Relations, here, and as usual, I have Henri de Sauvage-Nolting, our CEO, and Danko Maras, CFO, with me today. I will ask Henri to start. Please go ahead, Henri.
Thank you, Jacob. Here to talk about quarter three, which was a tough quarter for Cloetta with many short-term challenges. If you look at our net sales, we see an increase of 17%, which is all due to the Candyking acquisition now being in our figures, coming to a total of SEK 1.5 billion. This was including a negative impact of foreign exchange rates of -0.4%, and the organic growth was disappointing at -2.8%. About half of that was caused by out-of-stocks due to the Turnhout fire. If we look at the adjusted operating profit, it came to SEK 169 million, and also the operating profit amounted to SEK 169 million. Danko will go a little bit more into detail over there.
Profit for the period, in the end, came to SEK 153 million, and cash flow was up to SEK 135 million, of course, also helped with the proceeds from the Italian business. On the 5th of September, we concluded the divestment of Cloetta Italy with the closing with a new owner. If we go a little bit more into the markets, we can see that the confectionery market is showing positive demand development in all markets but in Denmark, so that's a very good thing for us to have, also given the European climate. But as said, our organic sales declined -2.8%, and it was quite affected by the out-of-stock situation coming from the factory in Turnhout, but also that we were not completely fully able to recover as we had planned in the other factories of Cloetta.
That is something, of course, which needs to be addressed as soon as possible. I'll come back to that, a bit later. We had sales growth in Sweden, although little. Finland and the Netherlands, and the other markets showed decline. Candyking grew with 4.4%, which, of course, is very positive in the quarter, given their history of losing sales and the fact that we have positive growth in the Candyking business right now. If we then look a little bit more at Pick & Mix and Candyking, of course, that is still a big focus for us to get the integration delivering on time and in full. So we've worked in this quarter to set the new organization, new integrated organization, different phases, you could say, in the different markets, but we are in implementation phase across all markets.
In Sweden, for example, the merchandisers of Candyking will start to take care of the merchandising of the, let's say, ex-Cloetta Pick & Mix business. We can also see that products which used to be produced by third-party producers for Candyking are now slowly starting to get into the factory network of Cloetta. Of course, we had to refocus a little bit because we're quite stretched in the molded products, as we say, so and we're looking now more at products which are not coming from the molded factories and start over there. We have strong and firm plans for 2018, where there will be a lot of progress in this area, but also 2019, we will need to make the next step. There's also, given the nature of this business, there are annual or bi-annual agreements with customers which have to be renegotiated.
That work is ongoing in all the different markets where we are present. Renegotiate contracts in Denmark, new one and a renewed one. We also have contract negotiations going on further in both Norway and in Denmark, and also a central agreement in Sweden, which gives us the opportunity to approach a lot of independent retail groups with quite some volume. In Sweden, though, we had a bit of a setback on the Coop Pick & Mix business. You know, we were the sole supplier over there, and Coop now wants to run this under their own Coop concept, together with Cloetta as their main supplier, but some of the non-branded products might be bought by Coop themselves and not anymore directly from Cloetta.
We think this could be a loss in sales of about SEK 130 million-SEK 150 million for us on an annual basis. However, the synergies from the Candyking acquisition still stand firm on SEK 100 million by 2020. And if you read the quarter report, you can also see that we're still expecting about SEK 175 million earnout in the earnout instrument, which is, of course, looking at the total volume of the Pick & Mix business of Cloetta and Candyking together. So having said that, I would like to hand over to Danko to tell us a bit more about the financial performance.
Thank you, Henri. Good morning, everyone. If you will move into then page five, you can go through the regular tables. I will come back on top line a little bit, SEK 1.5 billion, but a couple of points on the results for this particular quarter. You can see the gross profit increased with SEK 33 million, with the inclusion of Candyking, but you see a significant dilution in the gross margin of 340 points. Approximately 190 points of that relates to the inclusion of Candyking. We have yet to create synergies that will enhance this margin, going forward. But 190 points of that is a significant part that relates to Candyking. The other parts relate to the indications we have done earlier on, supply chain-related issues, which approximate about 90 points. Then also, we are being affected by FX in the quarter of about 100 points.
That relates to both the Swedish krona to the euro, but also the pound continues to trickle us and affect us. If I take those three together, those are the main components that are diluting the gross margin, but also the gross profit in the end on a net basis, so that the impact and benefit from Candyking is actually reduced to SEK 33 million. That trickles down to SG&A, and I will explain that a little bit more. As Henri was saying, our operating profit was SEK 169 million, both adjusted and our regular one, and that means that, did we not have any exceptionals in the quarter? The reality is we did, but also what we managed to conclude on the 5th of September was the disposal or the sale of Italy.
In doing so, the restructuring charges that we had year to date or exceptional items related to Italy have been moved down to discontinued items. So the impact that you see on the netting of this is about SEK 15 million. And those SEK 15 million are related to write-down of a brand that we had, a smaller brand, also that the actual incident in Turnhout where we are booking up SEK 5 million of the deductible that we need to have in there. And then also, we are having Candyking integration items that are being booked. But the net impact of the reversal of the charges is zero, and that's why we are having SEK 169 million.
If you look at SG&A per se, you see there is a SEK 59 million difference versus prior year, and, you could say, in principle, all of that is related to the Candyking merchandising costs that are higher than our regular business, and we are including them in this quarter but not prior years, of course. So the net impact of all of this comes down to the operating profit margin of 11.2%, and it's a little bit, less negative than, earlier indicated. And, part of that is, of course, that we have been a bit conservative in the output of what we were indicating earlier, coming in a little bit better. And a couple of other positive points are also coming through in the full income statements.
If you look at net financial items, we are SEK 40 million better than last year, which actually has an effect of improving profit before tax so that we are SEK 14 million better than last year. Then, if you recall, those of you who were listening in, a year ago, we did an early redemption of the corporate bond of SEK 1 billion, and we paid early redemption fee of about SEK 30 million. And we also released transaction costs related to the earlier refinancing agreement. So, this impact is significant in the quarter, and well, you will start seeing pretty good comparators going forward as we are now coming down to that 1% interest rate that we are effectively having, approximately. In addition to that, there's another, might be a complicating factor, but in page 24, you can actually see all the details of that.
The discontinuation of Italy is now giving us credit of SEK 45 million. What can that be? As you recall me saying that we have rebooked the cost from exceptionals down to discontinued items. But also, according to the accounting rules, we have also moved out all the currency retranslation issues related to Italy. As you know, Italy is a euro asset in our Swedish books, and the euro has been strong, and therefore, we have had approximately SEK 102 million of benefit in our equity related to currency retranslation. As of 5th of September, Italy is out, and therefore, we have to reverse that entry from the equity into the income statement. It gives us this one-time benefit of SEK 45 million when we look at profit for the period.
So the net financial items and the fact that we are now moving out Italy from the income statement means that our profit and loss for the period is SEK 153 million, SEK 45 million higher than last year, despite the operating challenges that we were indicating to you before. If I then move on from the income statement, back to top line sales, as Henrik was saying, minus 2.8% on organic growth means minus 1.8% year-to-date. That's obviously not something we are happy with, in that man in that respect. It's been a challenge throughout the year. The Candyking part is included with 20.3%, and we are seeing some softening of the euro, but that is predominantly still on a year-to-date basis. You see the 1.2% coming from a stronger currency. Moving into cash could be perceived as a bit tricky, but it's actually not.
If you look at the results, we don't restate Italy on cash flow because cash is cash. Last year, you have the full Italian business included. This year, you have two out of three months included. The September month was disposed, and therefore, you have impact. We are not building up the seasonal in the month of September because we no longer have Italy in our books. So effectively, what that means is SEK 135 million coming from operating activities. It's actually higher than last year of SEK 116 million, so that's good news. And the predominant contributor to that is the lesser increase of working capital due to the seasonals buildup in Italy. On top of that, as Henrik was mentioning also, the proceeds, the partial proceeds that we have received from Italy is SEK 314 million, netted out to about SEK 310 million.
Those are two items bringing up the cash flow from operating and investing activities to SEK 407 million in the quarter. This has then resulted in our lowest net debt ever, but also because we are now excluding Italy from our EBITDA, our net debt EBITDA ratio has gone to 2.63 times. The SEK -275 million financing that you see there is the repayment of the revolver, which is currently under-unutilized, not underutilized, but unutilized. I'm sure we can find ways to utilize it, going forward, meaning that the cash flow for the period is then SEK 132 million related, also including the financing activity. Coming back to the graph that you probably have seen now a couple of times on the next page, you see a continuation of a reduction of our net debt EBITDA.
We were, obviously, below our target level, but now with the exclusion of Italy, we continue to move towards the 2.5 times, which will be in the very near future. That is much as I can say with the cash flow that is coming from our fourth-quarter business. We feel confident about the cash delivery in our business. It continues to be very strong. And, with that summary, I think I'll give the word back to Henrik. We can take some questions later.
Yes. Thank you, Danko. So if we look at the current state of the business, what are the four focus areas for the business and for me myself to focus on? Of course, we have a short-term issue to deal with the out-of-stock effects, which are being caused by the fire we had on one production line in Turnhout, but which also causes quite some effects on the other factories, which are trying to help out to make up for the lost volume and also third-party producers who've taken part of the volume we lack on that line. And so managing this out-of-stock situation to the best possible way and with limited trying to limit the impact both on top line, but surely also on bottom line is prior number one.
Second one, of course, is the integration of Candyking. You saw the volume improvement we see over there with the growth, which is an important one for the Candyking integration to keep that while we're integrating and going after the SEK 100 million synergies, which we have identified. Then the third block is looking at cost and gross margin improvement. We have started a cost program to find SEK 50 million in SG&A cost, partly to be used to strengthen our brands, which is the organic growth challenge, which, of course, remains and is the overall longer-term goal to get that right, but it's also partly to invest in the bottom line. So that is a program we will deliver next year.
And then, as a last point, we have the organic growth, of course, within the strategic growth priorities, which we talked about last quarter, which still remains our number one overall challenge. If we then look a little bit at what kind of products we have launched, in the end, this is where the bread and butter of this company. This is where consumers are buying our products. We can see that we did Jenkki. That's a chewing gum in Finland, with some very nice new taste. And the Jenkki brand is doing really well in Finland. Another one to call out is the Plopp product, which you see there under Sweden. It's a very famous brand in Sweden, and it is sort of half a step into the chocolate tablet market.
And so far, reception of customers, but also consumers, is very, very positive. You can see the Crazy Face product in Finland, in Sweden. It was already launched in Norway. You can also see that coming into Denmark. And so this is trying to, yeah, innovate once, launch in multiple markets. And in the Netherlands, you can see an extension of the Lonka brand, which we bought approximately 2 years ago, where we're now trying to modernize, but keeping the old values of the brand, even adding that it is produced since 1920. We think we understand the brand well and have a way forward. And then on Nutisal, again, you can see that we're stretching the brand from just nuts, which you eat as a savory, into nuts, which you can use in your yogurt and salad.
Again, not launched only in one country, but, in this case, in Sweden and Denmark. With having said that, I think we open up for questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 0 followed by the 1 on your telephone keypad. Once again, to register for a question, it's 0 followed by the 1 on your telephone keypad. There will be a brief pause while questions that are being registered. Thank you. Our first question comes from Mikael Holm from Danske Bank. Please go ahead. Your line is open.
Hi. First of all, on the organic sales decline. If you take a longer perspective on this, there seems to be a trend of you losing a bit of market share in the recent year. And I also noticed that advertising spend as a percentage of sales has declined in recent years. Do you think that the company has historically underinvested in the brands, and that is what we now see, with you losing some market share?
I think first, we need to see that the organic growth this quarter is poor. 50% of that growth approximately is coming from the out-of-stock situation. It has nothing to do with the strength of our brands. But I think, to a certain extent, we come to the conclusion that we need to strengthen our brands, whether that is underinvestment. That's a conclusion I cannot draw. But of course, we need to modernize and bring those brands into the kind of media channels, the modern media channels, and also in the most efficient way. And that's for sure something you can be reassured of. It's top one on my agenda when we talk about organic growth and our strategic plan going forward. Number one priority is brands and consumers.
And that's absolutely something we are driving in many different ways. One small example could be the amount of working media, which we are going to spend in the coming years, is going to increase. And the non-working media, well, for the experts in that, services we're buying in, we're going to decrease. So more strengthening media towards the end consumer.
Okay. But is the fair assumption that, I mean, you have identified SEK 100 million of savings of cost savings within Candyking and now additional SEK 50 million of cost savings that a large part of this will be reinvested into, I mean, restoring organic growth for the company?
No, that's not what we are saying. So, I mean, the Candyking synergy savings are needed to come to our 40% EBIT goal, and will play very heavily in the whole mix of the company by putting so much volume into our factory network. It will benefit the total group and all the categories. And then on the SEK 50 million for next year, yeah, to a certain extent, we're trying to run down the indirect cost by becoming more efficient. The goal is SEK 50 million on a running basis, towards quarter four. And part of that money, we will invest when we see good investment opportunities, and part of that money will be going to the bottom line.
I mean, that also gives us the flexibility between investing in brands and bottom line, because that's much easier to move between those two rather than having these costs in indirect, which tend to be much more difficult to shed on a short-term basis. But there's also within the media, within the A&P you're referring to, there's a lot we can do to make things more efficient so that we actually get more bang for our bucks, you could say, from the pot of A&P money we already have.
Okay. And my final question is regarding the Coop contract and the impact from the lost sales. You talked about SEK 130 million-150 million of Topline Equity. What kind of contribution margin have you had on this Topline?
Danko, you want to take that?
On the reference that we have made, in absolute numbers, if we just pull it together, of course, it's affected by the mix that we have, what we've sold, and what we've built up. But it's approximately somewhere around SEK 10 million-SEK 15 million on a contribution basis that we are losing. It's difficult to be totally exact on that. But we're about 10-15, which is slightly below the 14% margin that we have said it would contribute to. And there are different reasons for that. But if we talk about materiality, the important part is perhaps more about the concept per se than the actual profitability, which is less material as might be perhaps expected.
Yeah. And I think it's also fair to say that we're still discussing with Coop, you know, what kind of help they want or expect from us in driving their concept on many different elements, not only the products, but also racks or distribution or merchandising. But we felt it was important to put it into the Q3, even though it's not 100% clear how and when it exactly is going to pan out, somewhere in 2018.
Okay. thanks.
Thank you. Our next question comes from Nicklas Fhärm from SEB Equities. Please go ahead. Your line is open.
Thanks, operator, and good morning, everyone. My first question goes to you, Henri, on being new to the company and, having had a brief look, I'm sure, at the past acquisitions and, you know, the history. Given the balance sheet situation, given what has happened in Italy, and your net debt targets, etc., what are your thoughts on dividends and focus on organic growth as opposed to the or any potential acquisition list that you have, you know, may have on your desk at this stage?
Yeah.
Please.
Yeah. I mean, I think on, there's no change in our financial goals, and we have a dividend policy, which is very, very clear, and that is not going to change on the long term. And then, of course, on the proceeds on Italy, well, that's a question for the board, and we will enter that discussion soon with them. Then on acquisitions, of course, we are a medium-sized company at the moment. We want to focus fully on the integration of Candyking, and that will take us in 2017 and 2018. And that is our prime focus to really make that work and also deliver against the synergy benefits, which we have put in the business case and which we have communicated.
After that is finished, of course, we will be looking at potential acquisitions because that's always a good value driver, as we have been showing as well in the last couple of years, I would say, in particular given the big dependency of the business on volume and a way to create value in our factory network. So it is both and, there is no change to the strategy or the way we have been working so far.
But I think, I think it could be, you know, fairly true to say that the Italian venture has not been that successful in terms of creating positive cash flow and net present value. But if I if I interpret you correctly, your key focus for the coming year or two, at least, would be to integrate what you have, today and focus on organic development. Is that fair?
Well, I think, you know, you want to be in a company which is growing, right? I mean, something which growth is healthy. So we're going to put a lot of focus on that. That's, in the end, the best way to create value. And then I see Candyking also as an part of Cloetta, of course. And we're working very hard on the integration. And with those two things, we are quite occupied for at least the next 12 to 16 months. Then even interesting acquisition would come by during that time period. Of course, it would be foolish not to look at that. And of course, we have a very active way of working with acquisitions. We know what's happening in the market. At the moment, we're not actively pursuing certain attractive acquisitions.
But if that would come to the market, we would certainly be involved in that.
Thanks. Thanks for clarifying. Could we go back to the organic growth developments? I appreciate you've had, you know, the fire in Belgium, and that has created a lot of problems, both on sales and, and under, under absorption costs, etc. What, what, what, what would you could you give us some idea of, you know, to what magnitude the production disruptions has actually impacted the negative life sorry, the organic growth rate of 2.8% in this quarter, please?
Yeah. And of course, it's not science. So, you need to make certain assumptions and estimates. We also did some benchmarking and looked at that, you know, when an out-of-stock is more than five days out of stock, does that constitute a lost sales? But with all that knowledge, we say approximately 50% of the organic sales decline in the quarter has come from the out-of-stocks, which we have seen.
Thank you. Thank you so much. Could I also ask you on the lost Coop contract with Coop? Could you share some opinions on sort of the negotiations and the rationale behind Coop's decision? And also, could you shed some light on what other more material contracts you actually have today, please?
Yeah. I mean, it would be quite dangerous, of course, to start being too open about, you know, negotiations we're having with customers in certain markets because it would be fantastic for our competitors to call in the future and get a fair idea of where we are with which customer and how long these contracts are signed for. So that will be difficult. We cannot give more information what we are saying now. But of course, the nature of this business is that you sign contracts for one, two, or three years. I mean, that is the kind of duration of these contracts. And depending also whether there are new contracts, which tend to be a bit longer, or renewal of contracts, which tend to be a bit shorter as a broad indication.
Then if you go back to Coop, I think this is a more difficult decision to really get into a lot of detail. But I think what you could say overarching is that the concept in Coop did not perform good enough towards the shoppers of Coop. Yeah. So, the shoppers of Coop didn't like the concept enough for this concept to grow on an annual basis. And there's multiple reasons for that. Part of them align with Cloetta not being very experienced, because this is all pre-Candyking acquisition. And part of that are choices we made together with Coop in this way. Yeah. We say now we've lost the contract, but, you know, it is not a lost contract.
Cloetta remains the prime, key supplier toward Coop, so that's something else than completely being out of a contract. And we, of course, Coop is an important customer to us, so we're also helping them going forward to do this in the best possible way to get shoppers back to the concept. But I think it underlines how important it is that we are, together with the Candyking acquisition, investing in knowledge about shoppers, what they like in Pick & Mix, and how to drive that concept because, in the end, that's the added value we can bring to our customers across the countries where we are operating with Pick & Mix.
Thanks. And are there any other major contracts that you could, even if you don't want to name them, maybe you could put a number on them in terms of magnitude here?
No, we can't do that.
No. Thank you so much. Now, I may come back at a later stage. Thank you.
If I may just follow up on a question from Timo Bischoff from Swedbank Robur, on the earnout. It was a question posted on the web. Given the fact that you now are losing the Coop agreement, will they be part of the earnout definition or not? Because the fact that Candyking is growing 4.4 in the quarter, that should actually take you above the SEK 175 million earnout threshold. So please, can you share some light on the earnout mechanism?
You want to do that, Danko?
Well, so obviously, one common denominator in the acquisition of Candyking together with the bondholders and the owners of the former Candyking was that we would together work towards a solution of growing the business and sharing the benefit of that. And that's why we have decided to collectively have the volume both from Candyking and Cloetta as a combined effort. And that also is both good and bad, of course, depending on where you have the effect. So if you look at the earnout calculation and the estimates that we've done for the payout next year, we're actually at 100%. So even though you are, of course, rightfully, getting anxious about the effect on Coop, there's also benefit, as you explained, from Candyking but also elsewhere within Pick & Mix in Cloetta.
In totality, I think it's a very good reassurance that we are starting at this level. It gives me some comfort that we are trailing on a level which is good for both the buyer and the seller. Obviously, we will update this. So this is a preliminary number that we are using, but every quarter, there will be an update that you can actually see, where are we on the Pick & Mix concept in total, which for us is sort of the best solution in both from a buying and a selling point of view. Any further questions?
Thank you. As another reminder, to register for a question, it's 0 followed by the 1 on your telephone keypad. The next question comes from Mikael Laséen from Carnegie. Please go ahead. Your line is open.
Yes. Hi. Most of my questions have been answered. But a final question on the Coop contract. Do you expect to—I guess you have some costs related to handling the concept for Coop. So even though you're going to continue to deliver candy, you might have some overcapacity in terms of individuals here. Are you foreseeing any layoffs here as part of also the integration with Candyking? Is this something we should expect in the coming quarters?
What you, what you should realize is that the whole merchandising for the Coop contract was done by third party. Yeah. So that's, that's at a slightly higher cost you could, you could assume than doing it in-house. And it also timing-wise, this is happening next year where we're also integrating the former Cloetta Pick & Mix business with the Candyking Pick & Mix business. So there are overhead savings and synergies to be made when we bring those two organizations together on all levels, I would say, and in all functions. And that is part of the SEK 100 million savings which we have identified overall. And that figure stands firm even with the lower Coop volumes.
Okay. So no initial costs related to losing the Coop contract?
No. No.
Okay. Regarding Belgium also and the damaged production line there, could you say something on the current status? I mean, you have obviously used the inventory initially and then moved production and so on. Where are you right now, and where were you at the end of Q3 and sort of a run rate here on the effects for the group and up until, you know, the new production line is?
Yeah. I think I can chime in on a qualitative way. I can describe a little bit what we did. So, of course, when the incident happened, we looked at our own production capacity. Yeah. And that is not in all factories fully utilized. So in the molding factories, which can make the same products as on that one line in Belgium and also in the other line we have in Belgium, we went to a five-shift operation, which actually took a little bit more time to get there because it was in the middle of the holiday season, so a bit more time than we initially planned.
And then there was an part of the volume which we could produce in our Italian factories, which, of course, are a little bit more complicated because now we have sold them to the new owner. But still, we're getting the products from them, but that gives us a bit of a financial impact. And the last, and we lined up already, in the summer, during the holidays, we lined up a number of third-party suppliers, which all started actually a few weeks later than initially committed to. And that has meant that during that Q3 period, we've been running on really low stocks on the products affected. And that we start now to see from this month onward that we are starting to slowly recuperate the stocks.
Of course, it is in our interest to bring back both the shift patterns but also, of course, the third-party production as soon as possible back in-house. And that's why we're working full speed ahead to install a new line in the factory in Belgium, which will happen somewhere in quarter two.
Okay. Final question on raw materials. Could you give an update here where you are in terms of pushing this forward, raising your own prices, and so on?
Yeah. I can't do it.
I mean, we have made a reference to the fact that there are some costs of raw materials that are increasing for us this year, also being an effect in our EBIT during the year. And as you know, we've been saying before that we are not having any hedging strategy per se, but we have replenishment strategy, making sure that we have 6-9 months going forward. So even though you might have heard or seen that there's some ease of some raw material, others are going up. And also, if we are adding the fact that we are having currency effect, this is a combined picture whereby we are not seeing a significant movement either up or down, on a material level going forward. But we will come back on that when we are a bit more clear on it.
But for the actual quarter and where we are year to date, we have had some increases in our raw material that have affected also our EBIT.
Okay. Because this was an issue you spoke about, around this time last year or by the end of 2016, and you were very confident in managing to raise prices and that there wouldn't be any effect. Then now in Q3, obviously, there was effects on your gross margins.
Yeah. Yeah. And let me just be clear on this. The Cloetta group has positive price. So without disclosing too much, we are having a positive impact on pricing, but we are not getting full pricing through. And unfortunately, if we are adding the component of FX to it, which in a way is a commodity that we have to deal with with our retailers and customers, it's very difficult to get pricing through in the full effect of that. And as you know, this quarter, I was highlighting that we have approximately 100 points of FX effect coming through because of both Sweden but also in the UK market. So in our negotiations with our customers, it's a fine balance to talk about price increases both with raw materials and FX included.
And we do get an effect, but we don't get the full effect that we were expected to get, also exacerbated by the fact of currencies moving in the wrong direction. And that was not clear at the end of 2016.
So going forward, how should we look at your gross margin if we exclude Candyking now and synergies coming through from that? I mean, you're now obviously saying that there is a positive price component in your growth, but still, organic growth is negative. So that means that volume growth is even more negative than what you are reporting. And then, on top of that, you need then to gain back, potentially some lost market share, while you at the same time need to raise prices. How should we look at your, you know, focus on either gross margins or getting growth up in volumes?
That's a lot of questions in one go there, but let me give it a try here. That it's we have positive price. It's not material, but we have positive price. I wanted to highlight the fact that it's not negative. But if we are including FX, it's negative. On the volume mix or the volume component that we were referring to, a lot of it is absorption-related, as was previously asked from someone else who was asking the question. It's not that we are losing significant volume out in the market. The 50/50 that Henri was referring to is the out-of-stock, and that is a problem. But a key component of the volume is absorption-related from our supply chain, which is not producing what we normally would produce.
So in short, if we look at X, Candyking, the whole point is to come back to the gross margin where we've been before, which has been trailing approximately around 39%-40%. And those short-term issues that we are having now, they should come back, if we do the right things on the production part and that we are getting the absorption in the normal level again, we should recover coming back to the levels we were on gross margin before. On input cost, generally, what we have said is more on the 14% EBIT margin target. If prices go up, we do pricing. If prices go down, we also give back on pricing so that we are unaffected by input cost. That has been the principle of a longer term.
But of course, you will have time lags and effects on that, and hence, the impact we were talking about, 6-9 months of replenishment. So the short answer would be we should recover and come back to the gross margin where we have been before. So the dilution that you've seen caused by Cloetta should recover. And then Candyking and the integration of Candyking should contribute to that 14% margin. And the whole insourcing component of that should also improve our gross margin.
Okay. Thanks.
Thank you. There appear to be no further questions. I'll return the conference back to you, speaker.
Okay. Thank you, everyone. And thank you for today. And speak to you next time. Have a good day. Thank you and goodbye.