Good morning and Welcome to Cloetta Q3 Presentation. My name is Jacob Broberg, Head of Investor Relations, and today I have Danko Maras with me, who is interim CEO and also CFO. Please go ahead, Danko.
Thank you very much, Jacob, and good morning, everyone. Today's presentation will be carried out by myself only, so please bear with me and my voice throughout the presentation. Hopefully you all know me by now, so I'm sure it will be okay. With that, I'm happy to go ahead and do the report of Q3. We can see I'm happy to report a continued improved operating profit. Net sales for the quarter decreased slightly by 0.8% to 1.448 billion. It's a decrease of SEK 11 million, and I will come back to that soon. We also have a negative impact for foreign exchange rates of -1.1%. However, operating profit increased to SEK 216 million, SEK four million more than last year, and our operating profit adjusted increased to 224 million, an improvement of SEK 30 million versus last year.
Our cash flow from operating activity was positive with SEK 116 million, a decline versus last year, and I'll come back to that as well. Our net EBITDA ratio decreased to 2.76, which was 3.39 last year and 2.82 in the last quarter. As you all probably know by now, we have entered into a new loan agreement in the third quarter, and we have redeemed our corporate bond of SEK 1 billion, so we paid it back, and now we only have bank loans in place. If we turn page and I come back to on the sales part, let me start with the market development. Overall, in those markets where we operate, the market is slightly positive or actually unchanged over the quarter. There's a slight decline in Denmark and Norway, but not any significant movements overall.
If I go back into and only look at organic sales, we mentioned it was -0.7% in the quarter. It's a mixed picture here. You could have seen, as we wrote earlier, that sales grew in Sweden, grew also in Finland. We had a slight growth in Italy, which was very positive. Since 2013, we didn't have any growth, although it's quite fragile in Italy. Positive to see the growth. There was good growth in Norway and the export markets. The decline that we saw was mainly in the Netherlands and the UK, also slightly down in Germany and Denmark. And in addition to that, we had a planned reduction in contract manufacturing with about 50 basis points or SEK eight million.
The positive sales trend that we see in Sweden and Finland is predominantly by pick and mix, and the drop in sales in the UK is partly attributable to a weaker British pound. In the Netherlands, sales of special products to discount declined in the quarter and had an impact for us in the group. I come back to that a little bit more a bit later, but let me go into profitability and turn the page. You can see that if I start talking about our gross profit, we continue to improve our gross margin and gross profit. It's SEK 574 million versus SEK 565 million last year. So the improvement of 90 basis points is coming through via our supply chain efficiencies.
We are now at 396 both year to date and in the quarter, and if you look at a rolling 12 months, you can see we have improved 40 basis points versus 2015. So steady and ready, we are moving ahead on the improvement on the gross margin. Our operating profit adjusted, 224 million, is a combination of the improvement in our gross margin and SG&A and good cost control. If we look at it on a year-to-date basis, we are still having a higher OpEx than what we are having in the quarter, but through good cost control, we are managing our SG&A. And that, of course, results in a good margin development of 15.5% in the quarter. And overall, if we again look at the last 12 months rolling, you can see that we are now coming up to 13% EBIT margin versus our financial objective of 14%.
Our operating profit is SEK 216 million, an EBIT margin of 14.9%, and you can see from last year that it's an improvement of about SEK 4 million. We had an unusual credit last year, if you remember, and therefore the operating profit is actually higher than our adjusted operating profit. That related to an earnout adjustment of almost SEK 20 million last year. So if you look at the current trend, the SEK 216 million versus the SEK 212 million would be the one to look at. Another additional point is that we had an exceptional charge in net financial items because of the redemption of the bond.
The impact of that was approximately SEK 49 million, which was a one-time charge. We had expected that it would be a bit higher, but we managed to redeem a little bit earlier and to get the benefit of the new loan contract in place.
So the SEK 71 million that you see there are a little bit lower than we expected in total when we did our announcement. Already now in Q4, we will start to see benefits coming through from this new loan arrangement with a more effective interest rate. Really, all of that is then falling through to the profit before tax and the profit for the period. Had we not had that exceptional item booked into our net financials, of course, our net profit would have been higher than last year. We have a slightly higher tax rate of 25.5%, and they are just non-deductible expenses that we had in Italy and also some international rate differences because of the mix of profit generated temporarily for the quarter. All in all, if I go back then to sales, let me spend a second here 0.7% is, of course, not satisfying.
We are not happy with negative growth in the quarter. We are having positive year-to-date growth of 20 basis points. So if you look at it from January to September, still growing. Compared to 1.5% last year, we understand to drive the important thing for us is to drive profitable growth, and we keep working on that objective. As regards to structural changes, please keep in mind that as of now, Lonka is part of our organic growth. We acquired it last year in July, and therefore our comparators are from now on organic. There is no M&As that are distorting the organic growth. The exchange rate is only showing 10 basis points, and here I just would like to mention it's a net out of three currencies.
What you've seen in the quarter is a continued strengthening of the euro, and we have a positive retranslation effect in our results of about 50 basis points. However, the retranslation effect from pounds in the quarter was also 50 basis points. We have a smaller part of our business in the UK, but because of the significant devaluation, the impact in the quarter was 50 basis points, and they offset each other. And we have an additional 10 basis points of Norwegian Kroner that is the net impact of -0.1%. So the benefit of euro is shadowing the impact we talked about on the British pound. So obviously, that had an impact for us in the quarter. On the next page, you can just see the visual of a continued improvement on operating profit. We keep driving over the three-year period.
You can see the phasing of when the profit contribution tends to come. We are now heading into our very important Q4 with the seasonal's in Italy. Coming back to cash, you can see the SEK 927 million cash generation in 2015 has come down slightly. I would like to say that in the quarter, we had the exceptional charge of the redemption of the bond, which was about SEK 30 million. And in addition to that, what we normally have reference to is our benchmark of working capital, and we made a significant effort last year to reduce our working capital as a percent of NSV or as a percent of sales. And we used to be at about 15%, but today we are hovering around 10%.
So a significant improvement was done in the last year, and you cannot expect that we will make the same significant improvement in 2016 as we are coming down to our target level. But it's still good cash generation in our business. We are pleased with the delivery that has come through. And if you go to the next page, you can see that SEK 219 million of cash flow that you have in the quarter is impacted by these SEK 30 million. It is very normal for us to have a negative cash flow in the third quarter because we do seasonal buildup and we produce a lot of nougat in Italy, and we build up also seasonal sales for our receivables. So it's not unusual to have this negative cash flow.
You can also see that our Capex of SEK 42 million is a bit higher, but it's within the target range of 3% of NSV, and the extra spend we have here relates to the closure of Dieren and our expansion in the factory in Slovakia. Cash flow from other investing activities relates to the payment of the earnout for The Jelly Bean Factory, and the prior year was the acquisition of Lonka. So with that cash generation, we move into the next page, and you can see that we continue to drive down our net EBITDA range to 2.76. In combination with the refinancing that we've done, we also slightly changed the terminology for net EBITDA, what is included in there. It's very small changes.
They are not material, and we might go back into only using one decimal in the future, but for the sake of it, we just wanted to explain that to you. Very happy to see this progressing as we have planned, and soon we will come to our target level. On page 10, I will not go through this very much in detail. We've done a few press releases, and I've seen that you have reflected on it. We are very happy with the refinancing. It's now coming to place, and we are starting to see benefits, as I mentioned before, to come through already in our fourth quarter. So what's in our focus? Well, obviously, we were happy to see growth in Italy, but it is very fragile. Our profit has not developed in line with our expectations, and now we're heading up for the seasonal sales.
So we keep monitoring what's happening in Italy with scrutiny, and we are hopeful that we can get a good quarter. It's a very important quarter for Italy, as you know, but also for the group. Another part which might be worthwhile to mention to you is that there is an abolition of a confectionery tax in Finland from the 1st of January. This confectionery tax has been levied on confectionery products and will cease to exist from 1st of January. And sales will probably increase in the long run, but there could be some short-term patterns by order-taking from customers who want to wait in December month and order in January. The Finnish team is working very diligently with this and making sure that we don't have any unusual patterns, but there is a risk that there might be implications of that.
The Q4 and the Q1 will not see any implications. In the long run, we believe sales will increase with the abolition of confectionery tax. We keep monitoring that for the Q4 . We continue to drive our Pick & Mix initiatives to establish ourselves as a core provider to the markets where we are in, and we are negotiating and trying to establish better and more contracts. Our factory closure in Dieren is going according to plan. I have nothing to report that is deviating from what we've said before. Please remember that the full run rate of the cost savings will not come through until 2017, but we are very happy with the progress. It's working in a very professional and smooth way.
Then coming back to our core focus, happy with the improved profitability in total if we look at it year to date, but we want to, of course, also make sure we are driving our top line. Profitable growth is our core focus, and thus that's why we are also focusing on Q4. For Q3, some interesting new launches that we have done. You can see actually our Lonka products. If you go to Sweden, you can see under the Malaco brand, we have something we call mixed fudge and mixed toffee. They are actually Lonka products sold under the umbrella of Malaco. Please buy them. They are very tasty, very nice, and they are now established in the Swedish market. Also, the bonbons that you see there, they come from the Lonka factory.
We are doing exactly the same in Finland with the fudge toffee with a local brand positioning in Finland, but it's the same products as we are having in Holland. You can also see our expansion of Crispy Bites and what people perceive as a great munchy moment opportunity in Sweden and Norway. It's selling very well, and we are happy to see that developing. And for those of you who like to eat pipes, the Skipper's Pipes is now being launched in an extra large size, and we are very happy to sell it in travel retail in Denmark. It's a big seller. With that, Thank you very much, and I think we are opening up for questions.
Ladies and gentlemen, if you wish to ask a question to the speaker, please press zero and one on your telephone keypad. We have a question from Erik Sandstedt from Handelsbanken. Sir, please go ahead!
Hi, thanks. It's Erik here with Handelsbanken. I have a few questions. My first one relates to the EBIT margin. If we look at the first nine months of the year, that margin is up 1.3 percentage points versus the same period last year. How should we think about the progression into 2017? I suppose it's fair to assume a much slower margin progression. Otherwise, you would be basically at your 14% margin target already next year.
Hi, Erik! It's obviously Danko here. There's nobody. I'll take that question. First of all, I think you know that we are not giving you any forward-looking statement about how we are progressing. We have also not disclosed when we're going to reach a 14% EBIT margin target. We are pleased to see the rolling 12-month progression of 13%. Another percent is not easy to come to.
We keep working on it, obviously. If you look at the split between the margin expansion in the gross margin versus SG&A, the majority of that improvement that we've had over the years has been in our gross margin. And then, of course, you've heard that we have had input cost increases in sugar, and we have to go out and make price increases for that, and that's not an easy activity for us to do. So let me just say that the timing of reaching our financial objective, we have never really said when that would happen. We keep working along and driving the margin up with a lot of basis points, but the reality is we also have to look at the external world and what is happening, and the pricing for me could have an impact on timing.
Yeah. No, perfect. That makes sense.
My second question relates to financial expenses. You have already touched upon this where you have obviously said that they should be some SEK 50 million lower in 2017, but what is the starting point here when you say SEK 50 million lower? The way I'm looking at it is for 2017, is it roughly right to assume interest rate expenses of some SEK 40 million and then some SEK 60 million in those sort of non-cash charges such as amortization of capitalized transaction costs and so forth? So that would total around SEK 100 million in 2017, of which SEK 40 million would be interest rate expenses.
That was a long question, but you could say that, of course, it's a theoretical calculation because we are assuming going concern cash flow. We're assuming that there are no acquisitions.
Of course, we are working on an average debt position, but the impact that you're referring to is not totally wrong. In percentage term, we have said that we would be approximately around 1% on effective interest when we look at that payment that we need to do to the borrowing part or to the lending part, sorry. So that would be the reference point that I would give to you now. And then, of course, if something happens with our debt position, if we increase our dividend, decrease our dividend, or make acquisitions, that would then implicate that we would have effects on the interest rate. We also hedge our interest because of security reasons. So we don't work only on a variable part, and then it becomes a little bit of an effect of what the swaps will cost us.
So my reference point to you would be approximately 1% of effective interest rate.
Yeah. But is there any reason to assume that the costs not related to interest rate expenses would be different next year to this year, for example, the capitalized transaction costs and so forth?
Yes, you are right. The capitalized transaction costs will be lower than our original borrowing that we had in the outset of 2012 was more expensive to arrange than this year. And out of respect to the other parties, I will not say how much, but it will be lower. Another part which might be worthwhile to consider is that there are some statistical interest rates relating to the earnout adjustment, which is a requirement from IFRS.
We have now paid off all our earnouts, so there are no more earnouts in our balance sheet to consider, and therefore, the earnout adjustments and the discount rate and the cost calculated for that has been eliminated from Q4 and onwards.
Yeah. Perfect. And then sorry for taking up a lot of time. Just one final question here. I also know that you mentioned the sort of relatively low administrative expenses here in the quarter, but how should we think about that going forward? Is there some quarterly volatility here and some phasing between Q3 and Q4, or should we assume that the administrative expenses have structurally been lowered?
If you look at the OpEx as a whole and you actually make adjustments, which you can do in our quarterly report with those parts that are items affecting comparability, if you do that exercise on a year-to-date basis, you will see that we are increasing our OpEx. It's not a lot, but we are increasing it, and the bigger part of that relates to the fact that we are establishing ourselves in the Pick & Mix area, and merchandisers are employed, and they are actually then expensed in the OpEx line. As you know, looking at individual quarters can be misleading. It's better to look at it on a year-to-date basis or a rolling 12 months, which I think is the relevant metric.
And if you have a significant benefit in a certain quarter, look at it on a year-to-date basis, and then you see the structural effect on our SG&A. It's a planned increase that we have if you take out all the items affecting comparability because of the merchandisers, but it's still something that we have a scrutiny on and good cost control.
Yeah. Perfect. Thanks a lot and well done.
Thank you, Erik, and hopefully, we will meet each other somewhere else in the future.
So for sure.
The next question is from Michael Holm from Danske Bank. Sir, please go ahead!
Yes. Hello. A question regarding the organic growth 0.2% year-to-date. Now you're mentioning this lost contract manufacturing that affected growth by 50 basis points in the quarter. Is it fair to assume this effect to be in the coming Q3 then as well from a year-on-year perspective?
No, Hi, Michael. The effect on the lost contract has been there in different forms already in Q1, Q2, and Q3, and the Q4 is the last quarter. The materiality of this is normally not that large. We had a very, very low share of contract manufacturing. But when we are almost on a break-even level on top line, I thought it would be nice to call out that this one is simply a production that will cease. As of next year, there's no comparators anymore, so this will be outside the organic growth part.
Okay. And just two questions on the Italian business. First, more on the short-term outlook. I mean, last year, you did raise prices, and competitors didn't follow. Do you have the pricing situation clear for you from competitors as well now for the very important Q4 ?
Yeah. I mean, all of this is just going on, Michael. So we have reduced prices because of the reduction of hazelnuts and almonds, so we have been able to come back to it in line with our policy that input cost increases or decreases should be borne by the consumer at the end of the day. So we are in the middle of this also looking at what other competitors are doing, and it is our ambition to get this recovery on volume, but it's too early to tell, and we will see how that will come out in the Q4 . Remember that the majority of the sales is exceptional in Italy. Majority of it comes in December month during a two-week period, so it's a little bit too early for me to conclude on what competitors are doing.
Okay a nd also, you mentioned the report that you're reviewing the development of the Italian business. What kind of options do you see here?
But we have hopes on improvement in profitability in Italy this year, and so far, we have not seen that uplift, and therefore, I wanted to mention it. But I mean, we are closely following this, reviewing the development to make sure that our Italian operations are developing well. We have a lot of scrutiny. Italy is part of the family we are looking into and making sure that we do our utmost to drive growth in that region. As you know, I've been down there quite a lot in an earlier stage, and it's a great team, and they're doing what they can to drive the seasonal business.
Okay. My last question is regarding the savings from the closure of the Dieren factory and the SEK 35 million for next year because I noticed that the number of employees decreased a bit from the Q2 . Is that related to this factory and then implying that we could see the full benefit already in the fourth quarter from this?
What I can say is that our head of supply chain is very pleased with the development of the transition into the production in Levice. So we are delivering according to our timetable. We're happy with that. There might be one or two smaller differences, but I will look at it as a whole, Michael, and then think about the full run rate in 2017. Then I will come back to also saying whether we have a few more or a few less on a total basis.
Okay. Thank you.
Thank you.
We have a question from Anna Patrice from Berenberg. Please go ahead. Madame, your microphone is open.
Yes. Hello. This is Anna Patrice from Berenberg. Just a couple of follow-up questions. On the organic growth, could you please give a split volume versus price development? I mean, how big was this reduction in the prices in Italy affecting the overall growth? Then another question I probably missed—sorry for that—about the pricing traders to offset the UK pound. If you're already starting negotiations, if you think that you will be able to increase the prices, or what could be the transactional impact from the lower British pound? And then were there any one-offs because of the integration of Lonka, etc., in the Q3? That's something I also missed. Thank you.
Okay. Hi, Anna Patrice. It was a little bit of a bad sound, but I think I understood your questions. The first question was about how much was volume and price, and I could say predominantly, what we are dealing with here is volume, and the impact that you are seeing is volume-related. There is one market - I don't want to disclose it specifically - where we have very good price development because we had to do price due to weakening currency, but overall, when you look at our growth, it is predominantly volume-related.
Then your question on the British pound. I know it's not only us having a problem with the British pound. There's a lot of fast-moving consumer goods having a problem with the British pound, and we, as a player in the UK market, are not that big. And if something were to happen in a market where we are having a strong position, we would be more forceful, but we have to follow a bit on what's happening in the UK market, and our team is working on doing price increases for next year to mitigate the purchases that are done in euros as many others are doing too. So the implication of 50 points that I referred to as translation are an impact that is affecting us that we want to mitigate. But I wouldn't say that we are a leader here.
We are a bit of a follower, and the positive thing for the Cloetta Group is that in reality, it's not a large share of our total sales. Then as regards to the one-offs in the quarter, they were predominantly related to Dieren. There is a SEK 1 million charge on SG&A which relates to a restructuring we did on individuals, but it's very, very small. The majority is in Dieren, and there is a reference that we are making today with this: if you look at the quarterly report, you can get a lot of details on page 13 where you can see where we are booking our items affecting comparability, what they are, and in which line items, and hopefully, they will be helpful for you.
Thank you.
We have no other questions for the moment. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, you can press zero and one on your telephone keypad. We have a question from Oscar Erixon from SEB. Sir, please go ahead!
Yes. Good morning, Danko. I think most of my questions have been answered already, but could you elaborate a little bit on the abolition of the confectionery tax in Finland? Do you think that will have a significant impact in December on growth? Thank you.
Hi, Oscar. I'm not sure I said that.
I think what I said was the uncertainty is increasing, and the Finnish team is working on trying to smoothen out any kind of order patterns that might be happening because of and naturally so, that the retailers are saying, "Why should I buy more expensive in December than in January?" And the fact is that the confectionery tax is something that we have to invoice, so we bear the burden of registering that confectionery tax to the authorities. And over the Q4 and the Q1 next year, we don't see any implications at all, but I want you to be aware that this is going on, and I think the team is doing a great job in not having distortions in the order patterns. And in the long run, we think sales will be positively affected by the fact that we are abolishing this confectionery tax.
So there is a certain level of anxiety that we need to work on phasing, which is important for us, but hopefully, it will not come through, but we will let you know, of course, if that would be the case.
Understood. Thank you. And then just two questions on working capital. You said you did a lot of improvements last year and are quite comfortable with the current level. Can you interpret that as it should stay on a similar level going forward?
Yeah. I think we've talked a lot about this in the past. We used to have about 15% of working capital on energy, and most of that was inventory-related because we had a lot of safety stock, and quite a significant effort was done now in bringing that down to about 10%.
It will fluctuate a little bit around that level, but to go down to 5% or even having a negative working capital, I'm not sure we either have the power to do that versus our suppliers, or I'm not even sure it's a good business practice to be on that level and push suppliers too hard. We've said that our target level should be around 10%. We are reaching that level. That doesn't mean that we don't continue to find ways to improve our capital efficiency. We are working in every way we can, but a radical shift from the 10%, I think, is not really in our plans. It will be difficult to carry through. That is our benchmark level at the moment.
Excellent. Thank you very much. That's it for me.
The next question is from Mikael Löfdahl from Carnegie. Sir, please go ahead!
Yes. Hi. I have three questions. First of all, on the sugar prices and cocoa as well, where are you right now in terms of effects on the gross margin? I mean, there's a lag, obviously, in this, so when do you need to get prices through without hurting the gross margin?
Hello, Mikael. I think it's the first time we are meeting. It's nice to have you on the phone. As regards to sugar prices, we have a normal time lag of six to nine months that we've talked about because we work on replenishment of sugar, but we have to act in good time, of course, because we are seeing that prices are coming up, and we are looking into 2017. It's publicly available information, so everyone can see that sugar is actually turning up again, and the implications are different by market.
Unfortunately, there is no standard way of doing price increases in Europe, so people work on trimesters in Finland. In Sweden, we work on calendar, different sort of time windows for price increases. Italy is very different to Finland, so it's a combined effect that we have to think about, and there's always becoming a sort of a time lag of half a year to a year of the implications of that. So my answer to you will be a little bit more general than we are working on it already today. We are negotiating and actually entering into those discussions now as we speak, and the effect will come through in 2017. And I'll stop there.
Yeah. So if you are unsuccessful in price negotiations, the negative effect will come sometime in 2017 then?
Yeah. That's correct. That's correct. But we don't plan to be unsuccessful in doing that. We are quite firm on our thinking and our policy of input cost increases and decreases should be carried out to the consumer, and we have even been in a situation where we have decreased price like in Italy when the input cost has come down, so we are very consistent and firm about this policy.
Okay. Thanks. Also, just to be clear, previously, the currency effect on UK sales was actually affecting organic growth, wasn't it? But you have changed that as of this quarter?
Yeah. We have changed it. It's still not a material amount of sales in the UK, but because of our acquisitions of both the Jelly Bean Factory and Lonka and our existing Chewits business in the UK market, it has become a little bit more sizable in the UK market. When we talk about organic growth, we want to talk about how much growth do we have pound for pound, and that was not material at all in the previous periods, and that's why we have actually changed it. Going forward, when we talk organic growth, there is no currency impact. It will be booked in retranslation like we did in Q3.
Okay. Thanks. Also, when it comes to Pick & Mix, do you see any sort of desperate moves from? I mean, we have Candyking, obviously, having some difficult times in terms of pricing and on existing contracts coming up for renegotiation and so on. Are you experiencing any sort of price pressure from these other players?
No. Mikael, I would say we have an interest of having a good category development on sugar confectionery. So in the interest of the category, we hope everyone is doing well. We have our ambition level of becoming a strong player in the Pick & Mix concept. Remember, we have 13 factories, and we can be very good in providing a good offer as a concept provider, but we have no interest in having a decline in the category, so we don't really look at what is happening on that side. We try to do our best on our side.
Okay. Final question on the taxes. Could you give some sort of guidance where you believe you will be in 2017 in terms of tax rates?
We haven't yet. That becomes a forward-looking statement again, and what you could expect, which I've said before, is that in Sweden, we are at 22%, but if we make a mixture out of the markets where we operate in Europe predominantly, we land somewhere around 24%, and then it could be mixes impacting us because the rate is a bit higher in Italy, a bit lower in Finland. So what I have said is somewhere around 24%. The actual cash tax paid is much lower than that, of course, but we're using credits. But if you want the guidance from me, that would be 24%.
Okay. Thanks.
We have a new question from Michael Holm from Danske Bank. Sir, please go ahead. Hi again!
Just to follow up on the raw material situation and especially the sugar price. I mean, the chart that I look at is pretty flat over the latest year, basically, for prices within the EU, but could you tell what you see, or is this an effect of the weakening of the Swedish krona now lately?
No, Michael, we will send you the market chart. I don't know which one you are looking at, but there's no official numbers, and lately, the sugar price has increased significantly, so we will provide that to you so you can make a reference to it when you talk to others.
Okay. Thank you because I can see that the world price is moving up significantly, but that's also the case within the EU. Okay. Yeah.
Yeah. I mean, both of them, the world market prices and the EU prices are increasing. Please remember that also the sugar quota system will have an abolition in October 2017.
Yep
And the implications of that is there are as many views on that as there are experts, to be honest. So what that will mean for demand and supply is an uncertainty factor, but there will be an abolition of the quota system in Europe, and we will be more normalized towards world market prices thereafter. That's at least what most other people think.
And just your thoughts on that, considering that, I mean, the world market price seemed to be higher for the first time in many years than the EU prices, is it fair to assume that that's being then a negative for you?
I come back to our policy on input costs. In 2012, we made a large-scale price increase because we had to. Now, we are seeing pricing go up again, and we are starting our pricing negotiation. It should be unaffected. Our 14% EBIT margin target should be unaffected by input cost increases. It is not easy when input cost goes up or down. We would prefer it to be very stable, but if it goes up, then we will have to move on pricing negotiations with our customers and colleagues.
Thank You!
So the next question is from Stellan Hellström from Nordea. Sir, please go ahead.
Hi. This is Stellan at Nordea. Just a short follow-up from Italy. I'm sorry if I missed that early in the presentation, but apart from price adjustments, what have you done differently ahead of the Christmas season this year compared to last year?
I heard you a little bit better, but I think you asked me what I have done in addition to the price reduction. T he preparation for seasonal sales is a significant effort that starts already in May month where you are settling some of the input cost price increases or the way to establish contracts with our customers. There's no real difference in the offering per se. Of course, we are rejuvenating the brand and making some differences in the packaging, etc., but the core products that we have, Mostarda or Sperlari, Nougat, etc., it's a great assortment that every Italian loves to have.
The team that does the execution and goes to market and does the pricing negotiations, that is what they are doing at this point in time, and the price reduction per se is a very key component in making sure that we can recover the volume.
Then it's basically putting the feet on the street and making sure that we are getting sales in December month so people go out, everyone in the company in Italy, to drive sales through the stores. So I would say it's an everyday great execution that is expected from the team in Italy, and every time is an important time. And the key differentiator versus last year is that we can compete with different pricing versus last year.
Okay. Thank you. But there are no changes in your sales channels, additional ones, or if you left one?
No, not really.
O kay. Thanks.
We have no other question.
Okay. Then I will say thank you from our side and from Cloetta, and please do remember to buy our seasonal products in December and speak to you next time. Thank you and goodbye. Thank you. Bye-bye, everyone.