Hi, and welcome back to ABG Investor Days. My name is Alice Beer. I work as an equity analyst here at ABG, and with me today I have Peter Åsberg, CEO of Midsona. So with that, please go ahead, Peter Åsberg.
Thank you so much, and I'm pretty much going to talk about two things that we see in this first picture. One, that we're seeing a new sunrise for Midsona. I will talk about our development and what we have done, and most importantly, what we are doing, and then Midsona is all about healthy and sustainable foods, and I think that pretty much everyone in the room and everyone out in the audience do know our products, and I think that you're probably consumers of at least a few of our products. You see some of them up here. It's really a mix of products that you probably know very well and some that you probably have not seen. We are a European company in sustainable foods, healthy and sustainable foods, about four billion SEK in sales.
Our main markets are the Nordic countries, but we also have a strong franchise in the DACH region and a somewhat smaller franchise in France and Spain. Some of the brands: Friggs, corn and rice cakes, dietary supplements, Kung Markatta, organic foods. You see Mivitotal and Eskio-3 here, some of our dietary supplement brands. So this is what Midsona is all about: strong brands that provide healthy food for both people and planet. So there is a health aspect in terms of you as a consumer, that you get healthy food, but we also have a clear drive towards sustainability to provide food that is actually good for the planet. And there are strong needs and strong macro trends that really, really make this segment look very attractive.
There have been a couple of tough years as we have been battling cost inflation, high interest rates for consumers, but we have done a lot of research, and it's very clear that long-term consumers do want to consume healthy and sustainable foods. It's important in our everyday lives, and I would say that overall consumers are getting more and more interested in living a healthy life by eating healthy, but also by exercising. We see an increasing part of the population becoming vegetarians or flexitarians, and most of our products are plant-based, and one trend that is very strong, we have seen it partly in Sweden, but it's probably even stronger in some of our neighboring countries, is that we do not want artificial ingredients in our foods, so we want clean foods, and the type of foods that Midsona provides is very clean food products.
That's about the health aspect for people, but then there is also saving the planet. And we know that eating a more plant-based diet, more organic foods, will also help us save the planet. And this is something that consumers are very keen on, but we also see numerous institutions, states, like the UN, like the EU, to really put programs in place to make consumers consume more of sustainable foods. So there are some very strong macro trends that speak for us and speak for this segment. We are right in the middle of a change process. We actually presented a new strategy spring this year. And why did we do that? Well, because a number of things have changed, and a number of things have changed in our environment, which made it very important for us to set, to some extent, a new direction.
It's still all about healthy and sustainable foods, but the way there is a little bit different. We were very much acquisition-driven for a number of years, especially in the Nordics, because we saw that the markets were very fragmented, lots and lots of small and medium-sized companies. So we set out to build a strong Nordic franchise and continued also out in Europe by a few acquisitions out in Germany, France, and Spain. Then we had two very special years during the pandemic, which was kind of a high season for us because people were staying at home, they didn't go to restaurants. So we had very good sales during that time period and also very good profits. And then, to be quite honest, we have had a couple of very challenging years.
And it all started by the horrible war in Ukraine, which meant that we had huge cost inflation, also supply chains were broken, and energy prices started to creep up, also interest rates started to creep up. So consumers, to some extent, changed their behavior. And we have worked very hard to overcome those issues, and I will talk more about them later. But of course, we also see a sunrise now in the sense that the consumer sentiment is getting better again. Consumers are starting to have a little bit more money in their wallet and will increasingly have so as we go into 2025 and 2026. There is no inflation anymore, more normal inflation, I should say. Interest rates are coming down, and also energy prices have come down. So we see our consumer that is more positive, which will all else equal be to our benefit.
Our strategy, this is just a summary slide, and I will go more into detail, but it's built on three distinct pillars. One is to really drive our organic brands, ekologiska in Swedish, so organic brands, which stands for about 50% of our total sales. Then we have also a portfolio of conventional health brands, and there are a number of brands that we want to drive harder. But then also, as we have made all those acquisitions, we have been a company that has been quite complex. We were working a lot in terms of reducing complexity in our portfolio. So we have basically pruned our portfolio quite significantly, but we're also working to have increased efficiency in production and in our sourcing. I think that we do have some very strong and attractive brands.
What really summarizes it is that they're all healthy and sustainable to some extent. They are a little bit different, and I would say that the gold standards in terms of sustainability and health are our organic brands, which we have one by every major market. I will come back to them. But then we also have a number of strong brands like Friggs, Earth Control, Gainomax in sports nutrition, and also some supplement brands. We also do have a strong footprint across Europe, as I said. Our main business is in the Nordics, but we also have a strong foothold in the DACH region and also down south in Europe. We also have production facilities so that we can produce most of our own products. We are working to do this in a more efficient way.
As we have acquired companies, we have quite a few factories, and we're now working to make them more efficient and more specialized to, in that sense, drive more efficiency and thereby drive down cost in the portfolio. Organic brands. We have one main organic brand by market. And the reason for this is that the organic consumer, consumer organic product, is a consumer that wants local products and local brands. They do not want the big international and multinational brands. But what we are doing, and increasing the sale, is that we are streamlining the portfolio so that we are streamlining our sourcing, we are streamlining our innovation so that we can offer the same type of products produced in one place under a number of different brands.
You probably know Kung Markatta, the ones who are Swedish in the audience, but we have similar strong brands with leading positions across Europe. Urtekram, the Danish brand in both Denmark and Finland, Helios in Norway, a brand called Davert in Germany, and so on and so forth. Then we have a number of strong health brands, and those have been local brands, mainly focused on one market, Friggs in Sweden, Gainomax also in Sweden, and Earth Control mainly in Denmark. What we're doing now is that we are really, really trying to introduce those brands in more markets and in a more structured way. I'll just give you one example of how this has been achieved. As I said, Friggs has been a Swedish brand from origin.
We launched it in Finland quite a few years ago, but we did not really invest in the brand up until a few years. When we started to do that, we did see massive growth for Friggs in Finland. We have now also launched it in Norway. We are planning, I don't want to say which countries yet, but you will see Friggs in more markets in the future. And as you can see, we have been able to grow it by adding new countries, but also by doing good advertising and good product innovation that we do across all markets that we are present in. So this is about our brands and products, but we also want to make our backend more efficient. We have done some major work on complexity reduction.
We have had a very, very broad portfolio, lots and lots of products, lots and lots of brands, and it has simply been too complex and in that sense not efficient. So what we have done is that we have pruned the portfolio quite a lot. We're not done yet, but we're getting closer to the end. This has put some downward pressure on our sales, but it has really, really improved our margins, and you will see that in a later slide. In parallel with this, we are working on sourcing and production to source together because we are sourcing in the past, we have sourced similar products from different suppliers, and this is now much more efficient. And as you have seen, we are about to also hire a central sourcing director, which we hopefully will be able to announce quite soon.
Then, on capital allocation, we have been working a lot on inventory. At some point in time, we will probably get back to buy and integrate great brands. It's not our focus right now. Our focus right now is really to work with the portfolio that we already have, but the market is still very fragmented, and I think that there will be consolidation in this quite fragmented market. We are also looking at our divesting assets that are non-core, and we did sell a few brands end of last year, actually. Financial targets. We did set new financial targets when we presented our strategy. We are saying that we should grow 3%-5% per year, but our brands should grow more, and that's because we want to continue to prune the portfolio to make it more efficient and really, really focus on the high-value items.
We did achieve almost 3% in Q3. We are going over and above 8% in terms of EBIT margin. We did take a good step in Q3, but still a long way to go, and we will do that by driving our brands, but also to improve efficiency over time, and we have said that we should achieve that goal by 2027, which we think is very doable, then getting down in terms of leverage, so we have said maximum 2.5 in Q3, we're actually at 2.0 already, so we are a much, much more solid and sound company in that response, so a little bit about our business status. Where do we stand right now? This is a summary of the first three quarters of 2024.
I must say that I think that we have done good progress in a market that still has been very, very difficult. We have not really seen the pickup in consumer sentiment yet, so consumers have been quite careful still, not spending so much on high-value food products like our organic products and our health brands, which are a little bit more expensive. Personally, I think it's sad because really this is so important to really eat healthy and sustainable foods. As I said at the beginning of the presentation, consumers are very clear that they do want to do this. My assumption is that as the consumer sentiment gets better, consumers will get back to more healthy and organic foods. You can see that we do have a slight organic growth. We are growing quite a lot of our brands.
We are also quite a big producer of private label products for the trade, and this part has been growing for us also. But then, as I talked about, we have done a lot of product pruning or product cutting to make our portfolio more efficient. And you can see that EBIT is still up from SEK 38 million last year to SEK 92 million this year. We are improving the gross margin quite significantly by 3.1 percentage points. And this is really the fruits of us focusing on the parts of the portfolio that are most profitable, most efficient, and all the projects that we have done in terms of really making our whole portfolio more efficient.
If you look at the last quarter, Q3, we had better organic growth, so 2.6 percentage points, so it has been picking up, did improve a bit, and EBIT margin was at 3.5 percentage points compared to 2.0 percentage pointslast year. If we dig more into the details to really explain what is it that is happening and what have we been doing, what I'm really happy about is that we do have organic growth for organic products. The organic industry had a tough year across Europe in 2022 and 2023. Also 2024, we don't see a lot of market growth, if any. I would say that this has stabilized, but we don't see growth in this market still. Still, we're able to grow, which I'm very happy about. As I said, as we see a pickup in consumer sentiment, we think that the demand for organic products will be bigger.
Our health food portfolio is down by 4%, but this is really due to the fact that we have stepped out of a lot of unprofitable private label contracts. So Friggs, which is our biggest brand, both in health foods, but also totally in the portfolio, is still growing and growing quite nicely. But we have stopped things that did not make sense, and this has really helped us to drive our gross profit. Then very good organic growth in consumer health. We did get a new contract in Finland. Consumer health is like dietary supplements and natural remedies. Very good growth because we got a new licensing agreement in Finland, but also because we have been able to grow quite a few of our brands.
Here you can see the transformation in a sense that what we have done is that across all of our three divisions, we've been able to improve the gross margin quite significantly. It's about managing price, of course, but it's also about improved production efficiency and that we have discontinued the parts of the portfolio where we do not make decent money. So a much more solid portfolio, much, much stronger compared to what we have seen in the past. We continue to drive our brands. Just a couple of examples. We've introduced new spreads under the brand Davert in Germany quite recently, which are organic, vegan, and we're also introducing new soft bars under the Gainomax brand. Innovation is a big and important part of our drive forward to drive growth.
We're also stepping up our efforts in terms of coming up with new and good innovations for our brands. This takes me to my summary. We are seeing continued improvement in 2024. We see a significant profit improvement and it's driven by our brands, our more efficient portfolio, the initiatives we are taking in terms of sourcing and production. What is important also, all three divisions contribute to this improvement. We have announced a new strategy during the year about creating one organic powerhouse, about expanding a select number of our conventional health brands, and to really, really build for the future in terms of creating a more efficient and more harmonized company. This we have done in a pretty, pretty tough environment.
As hopefully the future will look brighter for consumer goods, we think that our continued drive to drive our portfolio with some better help from consumers will really take us step by step towards our financial targets, which again, I repeat, is to have an organic growth of 3%-5%, to reach an EBIT of over 8% by 2027, and to have leverage that is below 2.5 percentage points, which we already do have. That was my introduction to Midsona. As I said, I think what we see now is a new sunrise for Midsona. I'm positive about the future, and we will continue our drive to really create profitable growth for the Midsona company. So, and I think you have some questions now.
I do. Thank you very much for that presentation, Peter Åsberg.
So as you mentioned, the past few years have been a little bit tough, but the tide seems to be turning. Could you recap maybe why 2021- 2023 have been such difficult years and how you have started turning the business around in 2024?
Overall, it was tough years for the food industry, and especially for organic and healthy foods because those products are typically higher value, and consumers did to some extent down-trade when times were getting worse. I think that we have maneuvered through this quite well, and we have learned a lot from this. So this is really, really good. I would also say that a lot of companies have been suffering more than we have.
I could see that because about a year ago, we had lots and lots of companies calling us if we wanted to cooperate, if we wanted to buy them, but that was not the right timing for us. I think that it has been tough for the industry, but we're seeing a stabilization, and by the efforts that we have taken, we are anyhow improving quite nicely.
All right, thank you very much. What would you say would be the most important change that you have implemented into the business in the past year, and what effects have you started to see from it?
I would say that the work that we have done in terms of creating a more efficient assortment has been very important. It has partly taken a toll on our growth, but we still have a much, much better margin profile.
I would say that we have also become more agile because what we learned from this crisis is that it is a very complex and fast-moving world, so we are better in terms of price management. I would also say that we're better in terms of sourcing. We are closer to our suppliers and also have started to have dual sourcing to have more security in that sense. Maybe what I also did not mention in the presentation is that we have also reorganized, so we have strengthened some of the central functions in order to be able to have more synergies and more co-working, and this has really, really helped us to drive the change again that needed.
All right, thank you, and you said that some competitors have had, say, a worse experience than you or had it more difficult. Could you expand a bit on that?
What has differed?
It was a few tough years for the industry. I mean, relatively speaking, we have been stable. We have a stable base, especially in the Nordics. So we could maneuver through this crisis better in that sense. If you're a smaller company, if you are very dependent on one customer, one niche, it's much more difficult. That said, I think that I talked about our acquisitions that we did in the past. We did that because we saw that this market, first in the Nordics, was a very fragmented market. We started out in Europe to acquire a few companies because we saw the same thing there, that it was a very fragmented market. It still is a very fragmented market. Lots and lots of small and medium-sized family companies.
As I said, I mean, acquisitions is not our main focus right now, but over time, I'm very convinced that this market will consolidate. It cannot be this fragmented. So for us, in the long run, it's a matter of eat or be eaten, basically.
All right, okay. And as you say, the market is quite competitive. Would you say that the market can be more accommodating towards players such as Midsona going forward?
The way I think about it is that, and I talked about that during the presentation to some extent already, is that there is a strong urge from consumers and also from customers, I should say, to provide. Our customers want to provide healthy and sustainable foods. Consumers want to eat healthy and sustainable foods.
But of course, when you see not only higher food prices, but also you have a mortgage and you see interest rates going through the roof, you see energy prices going up, you get worried. So what consumers have done to some extent is to down-trade. I'm convinced that as it looks better for consumers, consumers will get back to old habits because, as I said, consumers do want to eat healthy and sustainable food. And in my mind, it's a very affordable luxury. I mean, you pay a little bit more, but you get food that is much, much better also.
All right. Well, thank you very much, Peter Åsberg. Unfortunately, we are out of time, but thank you to Peter Åsberg for presenting and to everyone who is listening in. Thank you so much.