Okay, welcome to Cloetta Q3 results. I'm Jacob Broberg, and with me I have Bengt Baron, CEO, and Danko Maras, CFO. We'll get going and I'll leave for Bengt to go.
Good morning, everybody. I'll dive directly into the report and to the slides we've put together, the presentation, and guide you through that together with Danko Maras. Starting out, overview, summary, quarter three highlights, I would say, from our point of view, that we feel that this is definitely a step in the right direction. We feel that we are on track despite it being in a challenging market. Of course, it's no surprise to most of you or all of you that there are continued weak macroeconomic developments out there in many of our markets. Despite that, the underlying net sales, yes, it is down by a couple of percentage points, but in light of the external environment, we at least feel that we're going the right direction. Positive EBITDA of SEK 92 million, and looking at the underlying EBITDA, it's SEK 128 million.
It's down by 20% versus last year, but if you look at the margins, they're improving, and Danko will take you through this in more detail in a couple of minutes. Price increases, we talked about the raw and packs and how the raw material and packaging prices and costs have remained at a high level. We are working hard on increasing the prices, which we have done in most markets and with most customers. However, as you see in the next bullet point, in the market environment where we're actually seeing volume decreases in some of our markets, we, of course, also have to defend market shares, and everybody's chasing market shares, so we have also stepped up our investments in order to defend market shares and to be in a good position once the market turns, which you all know will happen at some point in time.
The question is only when. This investment level does affect the underlying EBITDA in the short term but positions us for the future. Factory structures and integration process, synergy realization on plan, and I will actually take you through this in much more detail in a couple of slides. So overall, we feel that we are going in the right direction. Looking at the external environment, yes, as I mentioned, we're seeing volume decreases in several of the markets. I mean, examples would be Italy, would be Denmark, and would be Holland, for instance. We are not seeing a relief for raw material and sugar costs, so therefore, it is of vital importance that we drive through the price increases towards customers, and ultimately, consumer has to bear it. Italy is, from a macroeconomic perspective, under continued pressure.
What is new in Italy, actually, in late October, it was introduced a new law regulating payment terms. In Italy, there has been a tradition in history of having payment terms of somewhere between 115-180 days. Now, there has been introduced mandatory 60-day payment terms. Given the fragmented retail structure, which means that there is a liquidity squeeze in many of the retail customers, especially in the traditional channel, the mom-and-pop cafeterias, bars, meaning that in the short term, it will impact buying behavior. It's way too early to really judge the impact, but I think it's worthwhile mentioning that we're not going to see a quick ease or turnaround in the Italian market. In Norway, there's a challenging market. It's slightly different. There, we have had some customer conflicts in connection with our price increases.
We are staying firm on the need of price increases and taking some short-term consequences of that, but we believe it's the right thing to do for the longer perspective. At the same time, we would really like to highlight the positive developments continued in Finland, in the UK, outside core markets, and I think especially gratifying or satisfying is in Sweden. There, we in the third quarter actually saw growth in our sales upon completing the merger and creating one sales organization, one commercial organization, and it's very, very pleasing to see that we are back in the growth mode in Sweden. With that, I'll hand over to Danko for a couple of minutes.
Thank you very much, Bengt. Good morning, everyone. As you can see, the reported sales that we have is a positive 3.1%, but as Bengt just mentioned, on the underlying sales growth, it's a negative 3.2% related to the markets that Bengt was referring to. I'm not going to go further into each individual market, but instead, perhaps look a little bit more at the EBITDA that you are seeing there. The reported one of SEK 92 million versus SEK 133 million last year. If we do that to the underlying EBITDA, we're up to SEK 128 million versus SEK 159 million in the prior quarter. We attributed that to, of course, the sales growth or the declining growth that we're having, having a contribution to the missing piece of the EBITDA contribution, but also our investment into the market to defend our market shares is affecting our EBITDA slightly.
And then the inefficiencies we have had in our operations due to the changes of our production, there's some costs in there. But if you look at it overall, it's a positive mark for seeing that we are now delivering more in our EBITDA than we actually did in the first half year, and that SEK 128 million has a margin of 10.7% in our underlying numbers. And in addition, you can actually see a positive net income in the quarter, and that's always nice to have. Just to remind you all on the next page, you can see that we do indeed have some seasonality in our EBITDA delivery, and it might be good to remind ourselves a little bit that the merger happened on the 16th of February, our announcement of the manufacturing strategy. All of that was a lot of challenges in the first half year.
So if you can see the contribution from EBITDA in Q1 and Q2, we feel this is a very positive sign for us to slightly coming out of those immediate challenges with the merger and the sales force uncertainties, etc., and now we have SEK 128 million for the quarter, as I just said. It's still below the prior year, but it's a good sign, and the 10.7% is always nice to have. If I then give the word back to Bengt, and I'll come back a little bit later.
I'll say that the next two charts are probably the most important with all due respect to the financials, but the major projects that we are driving is, of course, the synergy and the restructuring program, which are major value creators going forward. So starting out looking at the merger synergies, I would like to start in the top right-hand corner and go back to what we actually stated back in the prospectus in February where we committed to creating synergies, realizing synergies of merger of at least SEK 110 million on the EBITDA level. And that was the merger effects, the synergies organizationally for SEK 65 million.
The completion of the restructuring that was already initiated primarily the closure of the Slagelse production plant in Denmark yielded another SEK 45 million, and total implementation cost of approximately SEK 80 million. So where are we right now when we look at these?
If you go to the left side of the chart, number one, restructuring of the commercial organization, primarily Sweden, partly Scandinavia. It is completed. It is on track. It is according to plan or even slightly beyond, including the reduction of about 50 employees. Distribution agreements in Finland, Denmark, and Norway, just to remind everybody, Cloetta had its own sales force in Sweden, relied on third-party distribution in the three markets mentioned. We will now insource that into the old LEAF organization so that we take care of that by ourselves. Norway already implemented September 1st. Finland and Denmark are on track and have been announced, agreements dissolved, and we will take over in the beginning of next year. Third, insourcing of third-party production. The merger gives us now all technologies in-house, so we have the potential of insourcing.
The first real tangible example is the chocolate plate product Royal, which is sold in Finland, which is being produced in these days for the first time in Ljungsbro. So that's a good example. So I would say we're on track there, but there's more to come going forward. Efficiency measures within admin, primarily the head office functions. We are on track, not completed yet. We need to work all the way through when it comes to IT systems, administrative processes, and so on, but it's well on track. Procurement synergies. It's actually joint buying, picking the raisins out of the cake when it comes to commodities that we both have been buying and comparing notes on that.
The only reason that is not green is the fact that it takes a while before the contracts go into effect going forward, but we are well on track versus assumptions going into this. Corporate processes, I would say, completed and done. We are acting, functioning, thinking at one today, and I think that's important. On the other hand, IT integration systems, we're not there yet. We're still working on two platforms in Scandi and in Sweden, but that will be changed in the beginning of next year when old Cloetta and Ljungsbro will go onto the M3 platform that we have implemented actually as recently in January within the old LEAF system. Finalize the move production from Slagelse, as I mentioned. That is done, completed, done totally. We have sold the premises and so forth, so that is a closed book.
So taking us to the lower right-hand then of the chart, if I give ourselves a grade and a status, I would say the first one, Slagelse, completed and done. Synergy program of SEK 65 million, I would give us a good grade. We are on track both time-wise and savings-wise. So timing and cost of implementation also on track, but there's some more work to be done, but we are totally on track on this one. This then takes us to the second big major effort currently ongoing, which is the restructuring program. Same approach. What did we say back in February?
Well, we talked about SEK 100 million improvement on EBITDA level. It will take a gradual effect, and as we said already then, and which we are reiterating, it will take full effect run rate-wise towards the end of 2014. So no full-year effects until 2015 at the earliest.
Also, I think it's worthwhile to remind ourselves that we actually announced this and decided this as late as June, so we haven't been at it for that long, and it is a two-plus years project, and we also flagged costs of somewhere between SEK 320 million and SEK 370 million. So where are we? Left-hand side of the chart. Product transfer from Gävle, which is, again, completed. Completion date targeted to early 2014. It is in process. We are working. Negotiations, announcements, matching, transfer, investment of new equipment in the receiving parts, it is all ongoing. Same thing with Aura, which is targeted to be closed early next year. Also ongoing, on track. Alingsås, the third plant that was impacted by the restructuring process, all done. Production is terminated. All the products are transferred.
The equipment that was in there has been sold, and we're now in the process of looking at the building.
November.
Levice, which is the receiving part of it together with Ljungsbro, which is the next bullet point, but in Levice, matching, equipment installation, ramp-up, full production, which will again take effect towards the end of 2014, is on track. I was there as recently as Tuesday this week, and it's fantastic to see the level of activity, the change, the enthusiasm, and the pressure that's on that plant, and we're really growing this into the biggest plant that we have, which is a formidable challenge, but they're doing a good job to date. Ljungsbro, which is the other receiving part, all against Ahlgrens Bilar amongst others, is also ramping up and getting ready to take on the volumes, so we're on track. Scandinavian warehouse, moving from three warehouses into one, is also decided and on track.
The Norwegian inventory warehouse has already been closed, and we're in the process of transferring everything into our Helsingborg facility going forward. So summarizing all of that, we are reiterating that we are convinced that we've reached SEK 100 million of synergies. We are on track with the timing to reach run rates towards the end of 2014, and we are within budget, SEK 320 million-SEK 370 million as we announced. Before moving on and handing over to Danko, I would like to say a little bit of word of caution here because it's easy now to say, "Okay, there are two pieces in the Cloetta business. One piece is the underlying business, which is doing X, and then there are these restructuring and synergy programs, which is Y, and then you add them up to 100%.
" Life is not that simple. Of course, there is some interaction in between those. Of course, the daily P&L will be impacted by the activities that we're doing in the synergies, synergy realization, and in the restructuring process. Some examples just to clarify what I mean. Well, for instance, sales organization, sales within Sweden. Yes, we have done the synergies. We have taken out the people. We are realizing cost savings beginning in the third quarter. On the other hand, during the first eight months, we had dis-synergies in the form of, after the announcements in February, we, of course, did not replace vacancies. Of course, there was a nervousness in the organization and unclear on who is going to be part of the team going August and forward. So, of course, we had some dis-synergies in those points in time, which impacted our sales.
What was the minus of that, and what is the positive of the cost side, and what is the positive of this? It is impossible nested. Likewise, in the restructuring program, when preparing to take on new production, there is matching going on in the new receiving. That means we have to interrupt the running of the process on the production line and the packaging lines. That has a cost. Also, when closing down one plant and taking on, temporary, other plants have to step up and produce bigger volumes. That means they need to take on extra shifts. That is also going to drive an increased cost versus the run rate. The matching of the is going to require material and so on and so forth. Also, before moving, there's an inventory buildup to take on. All these things are temporary. All these things are in the P&L.
We could spend hours and try to quantify them and really separate this into three buckets, underlying, program, and overlap. We do not think that that is very productive because we are convinced and know that these are temporary inefficiencies, but we just really want to highlight this to make it crystal clear on how these parts interact. So with that, I would like to hand over to Danko again and take us through the financials.
Thank you, Bengt. So just to add to Bengt's points about this, I would like to say that in those two programs that we have up and running, which are the restructurings, we have excellent cost control of what qualifies as exceptionals, and we are following all those conventions we need to do. Therefore, when you see the charges we had in Q3, they're actually quite small relatively to what you've seen so far year to date. It's only SEK 26 million in supply chain restructuring and another SEK 6 million integration expenses. These are costs that firmly qualify for what we believe are items that affect our comparability.
If you look at it on a year-to-date basis also, you are hopefully aware of our announcement on the 27th of February where we disposed the LEAF Belgium distribution. That's the only additional exceptionals that we are including of SEK 37 million.
You can see that on the year-to-date note. But all other costs, we are firm with they have to be part of operations, and therefore, you don't see any additional exceptionals. So when we talk about going from SEK 92 million in our EBITDA in the quarter to SEK 128 million, the majority of them are in supply chain restructuring and integration expenses. We have a few more very small points there you can see with foreign exchange differences, etc., but I'm not going to go further into them because if you look at it from a year-to-date, they are zero or literally zero on a year-to-date basis.
And then finally, on the cash flow side, considering that we are investing heavily at the moment, we are also spending on our restructuring on a year-to-date basis. You can see that we have this positive contribution from our operations of SEK 103 million.
However, on the working capital side, you see SEK -45 million, and as a comparator, it was positive last year. We can attribute all of that into something which is entirely according to plan in building up safety stock for the transfer of our production, and especially in the first quarter next year that we're working a lot with the matching that should materialize. Therefore, we are consciously building up inventory levels, and I'm sure for those who are looking into the report, you can actually see that's approximately SEK 100 million that we are building it up with, totally according to plan. Also, when you look at the Capex, you see that we are spending in line with last year. It's a coincidence, but it's actually also according to plan. It might be worthwhile also to mention that the year-to-date cash flow is strong.
We have amortized SEK 270 million in the debt levels that we're having since the beginning of this journey, and we continue to deliver another SEK 90 million in Q4, so SEK 360 million will be reduced in our debt position. Okay, so with that, back to you, Bengt.
So next page in focus, what's going on? Well, we're staying on course. Of course, it's no surprise that the external environment is quite challenging and the macros around Europe, which is our primary home market. So we're keeping track, of course, of what's going on, what's happening, and trying to take the right decisions on that. And one of the areas that we're highlighting as well is that we're going to defend market shares and make sure that we are in a good position when the markets turn. And historically, we are quite resilient category, and we tend to turn back from a higher level than many other segments when the turn occurs.
And of course, integration, although most of it is done, but we're going to make sure that we completed 100% according to plan, and the restructuring process where we're really going into crunch time now, but we're feeling good about where we are. Finally, before opening up for questions, let's not forget what we're all about. We're all about wonderful, fun, great, tasting products, and we should not lose sight of the key people, our consumers. So we also want to give a little bit of highlight on some of the wonderful products that we're launching out there, and depending on which market you are in,
I'm sure you will swing by your stores and pick up a couple of bags or boxes to make sure that you enjoy your Friday night evening with family and friends. In Sweden, I think Polly, Gott & Blandat, Supers ura, and Läkerol are great examples.
Finland, Mynthon goes into gum. It's a pastille brand going into gum with a zinc-based product which works for fresh breath. Italy, Sperlari, our oldest brand, 1836, launching a range of new products, new packaging. Also, an old traditional brand, Club, coming back with balsamic candies into the markets. And for our Dutch friends, Tikkels. I think every Dutch person knows what Tikkels are growing up, and they're now in a wonderfully tasting fruit variety and mint variety. So there's something for everybody out there. So with that, please, questions on what we spoke about or what we missed?
Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. That is 01. Our first question comes from Mr. Peter Wallin from Handelsbanken. Please go ahead, sir.
Thank you, and good morning, gentlemen. I would like to start off with sort of the macro environment in Italy to get a slightly more feel for how much that has impacted your total underlying sales drop of 3.2%. Italy is the big negative here, and then if you're talking positively about Sweden and Norway, are we talking like 2 or 3? I mean, basically, is Italy falling off a cliff in terms of still delivering -3% if you're talking positively about Sweden and Finland?
I would not say that Italy is falling off a cliff, and that's one of the advantages that we have in our category, that they're quite resilient. But Italy is facing some extremely challenging market environments. Also, what I want to highlight there is the whole thing that I mentioned about the credit terms, that is just quite recent, so we don't know what the impact is, so we just want to highlight that. Then when it comes to the Scandinavian parts, and it's primarily Norway where we've run into a couple of customer conflicts when driving through price increases. So normally, we fluctuate between sort of ± a couple of percentage points, and temporarily, it can be up and down more. So now we're seeing a bigger impact in Italy.
The question is, how long is that going to linger? And I think your guess is as good as mine, but I'm not going to say that we're falling off a cliff anywhere because we're not in that type of category.
Okay, sounds good. And then I got the impression now from your presentation that pretty much all of your planned price adjustments for taking the new sort of input prices into consideration are done. But then on the other hand, the underlying market is forcing you to be more active on promotions and stuff like that. So could you give an idea about what kind of the net price impact was in the quarter?
Well, there is some positive on net price in totality, but we're not offsetting net-net all of the cost increases. We're not doing that because we have elected to invest back into the market given the dynamics. But as you say, we are now through with, if not 100%, close to 100% of all customer negotiations, and for the vast majority, the price increases are through. Not all of them have taken full effect because that's something that takes place throughout the year, negotiations, I mean, but most of it is through. And now it's more sort of a question of, okay, what's the right balance in investing for the future versus letting the price increases drop down through the offsetting of raw pack increases to the bottom line?
Okay, okay, thank you. And then these, as you've highlighted very clearly, and these, well, not regular production disturbances or what you want to call them, I mean, basically taking place when you're making such a big change in production and supply chain structure as you're doing now, I mean, do you expect, I mean, could you quantify how much, I mean, obviously, you don't include that in your underlying figures, I presume. Those are just disturbing things which will become better going forward, but should we expect a similar impact coming quarters as we've seen in this quarter, or have you taken a very large share of those now?
It is virtually impossible. I mean, I wouldn't say it is impossible, but there's so much interaction with what's going on between the underlying business, the projects, and the market environment. So it's difficult to quantify it. But going forward, I mean, we're not done yet. I mean, Alingsås is done pretty much. Aura, we're in the midst. We're going to close it down early 2013. Gävle, we're very early. I mean, that's going to be closed down early in 2014. So will there be inefficiencies going forward? Yes, there will be. Hopefully, there'll be less and less, but I mean, there will be some, we are moving approximately 40% of our products. It's a fairly major undertaking, and we're quite pleased that we are on track both from the cost and timing-wise, but it has impact. It will have some impact going forward as well.
And that's why we've been clear on that the run rate of these savings are going to kick in towards the end of 2014. And there will be a J-curve going there. There will be sort of if you look at it specifically with the underlying business, how deep it will be, we can debate. But I think the most complex part of it, we have been through right now because every part has been moving. Now, Alingsås, tick. And then hopefully, when we meet in a quarter or two quarters, we can do a tick of Aura, and then there'll be less and less of it. But I cannot quantify it. I don't want to quantify it because I'm afraid that would be misleading you.
Yeah, okay, thank you. And then coming back to the cash flow and the working capital, basically, you're saying that it's 100% planned inventory build because of these supply chain changes. So I guess then also one could interpret that as your pre-Christmas shipments have been according to plan and not, I guess, then very much influenced by the underlying weakness in the market, or how should I interpret that?
No, Peter, I would just say that in our production planning to secure customer service and making sure that we don't have out-of-stock issues, we have built up a production plan that coincides and secures the delivery of products, and therefore, that has an outcome of an increase in inventory. I would less put it into some seasonality because there you have your comparables. It's actually a planned production that we've done to secure the customer service issues. And also there, Peter, is we don't have an order book that is very long-term. I mean, it's basically 1, 2, 3, 4 days where we know when we have full visibility on our customers' buying patterns. So we don't have that long-term book building, so we cannot really give you guidance on seasonality and seasonal sales.
Okay, thank you. And then just a final question, if you could give some more color on in your segments reporting, I mean, previous, old Cloetta, basically, now you're reporting SEK -14 in operating results there and compared to SEK 14 last year. So if you could just give some color on the underlying drivers for that change.
Yeah, it's entirely relating to the underlying performance of the growth. If you look at it, you see that well, you can't see it, but the effect of this is predominantly related to the decline of sales that you had in the segment. I know we don't talk about segments in details or how much is in absolutes, but the fact that we have good performance in Sweden, as Bengt was mentioning, we also have the effect of that we're taking over distributor businesses in Norway, Finland, and in Denmark, and that is part of the how should I put it? The inefficiencies of discontinuing with a distributor in Norway and then starting up with a sales team.
I would relate it more to the fact that it's a temporary disturbance affecting the sales, and therefore, you have a profit contribution or a lack of profit contribution because of that.
Okay, thank you very much. That's all from me for now.
Our next question comes from Mr. Mikael Holm from Danske Bank. Please go ahead, sir.
Hi, Mikael Holm at Danske. Looking at the organic sales drop of 3%, considering that you have implemented price increases, could you say a bit more about the volume development, and do you believe that the drop is just related to the market weakness, or are there any other structural reasons for the volume declines, like health concerns, something like that?
Our belief is that it's all macro and temporary changes. We don't see that there are any major drops due to any other, probably with one exception, I would say, which is the Danish market that increased its tax on confectionery and sugar-based products in the beginning of the year. And that has had an impact, which we will see when that turns when it comes back, just like we had in Finland a couple of years back. Otherwise, I would say it's all macro, and it's just sort of a reflection of the market environment. You are right that with price increases, the volume drop is slightly bigger. We're also seeing across the markets, we're also seeing that the volume development in many of our markets is negative at this point in time in reflection of the macro environment.
Okay. Just entering the next year then on these confectionery taxes, do you see risk for that in any other of your markets?
Well, I mean, of course, there's a risk. I mean, given the fiscal environment, I think there's a risk of all sorts of taxes everywhere across Europe at this point in time. There are debates, but there's also signs. If you take the example, there was a planned so-called fat tax increase in Denmark, which was pulled back this week. And you take the Danish environment, close to cross-borders, the market might be down in Denmark, but I think there are quite a few Danish consumers buying the products on the German side of the border. It's a quite complex environment, but I would be surprised if pretty much every segment of society right now thinks their politicians are looking at tax increases.
Yeah, okay. And then just my last question is on the debt side. Could you remind us what your covenants look like, or what is the bank what is the main key ratio for them?
We have chosen not to disclose that, so I will not go further and talk about it in detail. However, I can say that we are doing fine, and we are okay in terms of the arrangement with the bank.
Okay, thanks.
I could say yet again, if you think about the amortization plans that I've been referring to, SEK 270 million we've amortized already. It's SEK 360 million a year we're doing so, and we are doing okay. And you can see that the debt level is actually slightly below the pro forma that we were referring to, so the net debt level is not a source of worry for us.
Okay, thank you.
Our next question comes from Ms. Katarina Tell from Deutsche Bank. Please go ahead, Ms.
Thank you. Just one question left from those I had, really, which is on the Norwegian market. You talked about having difficulties in that market specifically with getting the price increases through, but I note that you've also taken over the responsibility from the third-party distributor. I'm not sure at what point in the quarter that happened, but could you just give us an idea of whether that improved the situation or whether it's something that still remains quite difficult for you? Thanks.
It's still a challenge. Norwegian market, to be quite honest and frank and transparent on it, we took over the third party in September, so it's slightly less than a month of actual business that is in the books. We continue to have discussions with our customers, and we are standing firm because at the end of the day, our pricing strategy is that we will offset cost increases of raw and packs with price increases. And also, which I think is important today, if that ever comes, if costs come down, we will also send that on because I think that's important for our credibility towards trade and consumer.
Okay. May I just supplement, actually, with another question? Are you seeing generally across your market your competitors doing a similar thing, i.e., putting up core prices but offsetting with some sort of shorter-term promotional activity? Is that a similar trend, or are they a little bit slower to put through the price increases necessary?
I think it varies a bit, as always, of course, but I mean, in general, I think everybody is going through the same process as we are going. And then there are some people who are more aggressive, some people are faster, and vice versa. But at the end of the day, the change, the level of change that we've experienced over the past 12-18 months is of such magnitude that I think every supplier has to pass on price increases.
Excellent. Thank you.
Our next question comes from Mr. Christian Hellman from Carnegie. Please go ahead, sir.
Yes, thank you. First question, there have been some questions previously about the sales decline in A&P spending, but could you please elaborate, given that sales will continue to decline here for a couple of more quarters, if we just assume that, how will your A&P spending develop going forward? Will you continue to invest in the market, or how should we look upon marketing spending?
I think it's very difficult to sort of guess what the future's going to develop. I still believe that we are in a quite resilient category, so I think we will come out of it faster than many other categories. So therefore, giving any type of sort of prognosis on investment levels, I think would be the wrong thing to do at this point in time. What I can say is we intend to defend market shares, and we think that's important to do. And that's going to be a combination of bringing the right products out there, servicing our customers, investing in advertising, but also driving promotion. And the exact mix of that bucket is something we decide, so basically, not day to day, but quarter to quarter, given the uncertain environments that's out there.
Okay, but given that sales will continue to decline, if we assume that the base case is that you will also continue to invest in the market in terms of promotion and other activities.
I'd rather not assume where sales are going because I think that would be the wrong thing to do because that might interpret that you guys believe that we know more than we do know. I mean, our pipeline of orders is a couple of days, so we'll see when it turns.
All right. In terms of the gross margin, you mentioned in the report that it was diluted partly due to the merger between Cloetta and LEAF, but also due to increased raw material costs. Could you give us a split between those two effects?
I'd rather not disclose the totality of it, but if you think about it, the fact that we had different gross margins from the former, you can see it. Of course, you will have a diluted effect when you do the comparator, and we are working towards improving that dilution so that we come back to the restored levels. It all fits into, let's say, the strategy of coming into the 14% EBITDA margin, but of course, we have a diluted effect of it when we mix the two together. And to a certain extent, we are having some effects of the input costs also in the Q3, but not at all to the same extent that we've seen in the first half year.
All right, but just to give us an idea, last year, you had a gross margin of 39.7%, you say, in the report, and that's solely attributed to LEAF, I assume. So what would the gross margin have been for LEAF today in Q3 without the merger? Would it have been 38, or?
I mean, I don't think it's irrelevant to go into the specific details of what it would be or not be. It is the fact that you have a diluted effect, and the long-term strategy for us is to drive up the gross profit for our business to the 14% EBITDA margin or the equivalent implicit value of that. And I would say, in doing this, I would like to highlight that we are improving the gross margin. So you are seeing an improvement coming through quarter-over-quarter. But I don't want to disclose more on that.
Okay. Finally, Christian, we're halfway through Q4 now. Could you give us some indication on current trading?
You're absolutely right. We are halfway through the quarter that we will disclose. I think it's February 14th.
All right, loud and clear. Okay, no further questions.
Ladies and gentlemen, I do remind you, if you have a question for the speaker, please press 01 on your telephone keypad. There are no further questions at this time. Please go ahead, speaker.
Okay, thank you very much for attending the call, and speak to you later, if not at our Q4 presentation in February. Thank you very much. Have a nice weekend.