Midsona AB (publ) (MSONB) Earnings Call Transcript & Summary

Hello, and welcome to the Midsona Audiocast with Teleconference Q4 2021. Today, I am pleased to present CEO, Peter Asberg; and CFO, Max Bokander. [Operator Instructions] I'll now hand the floor to our speakers. Please begin your meeting.

Hello, everyone, Peter speaking here, and thank you so much for attending. I would like to start by summarizing the full year of 2021. But of course, we will quite soon get into the challenging Q4 that we have had. But also importantly, what I would like to spend some time on is to discuss the corrective actions that we are taking. As a leadership team, we see this as a bump in the road, and we are fully committed to get back on the right track again. By that, you can turn to Page #2. Midsona has enjoyed a long streak of profitable growth, as you can see on the left-hand side of the screen. That streak was unfortunately broken in 2021. While 2020 was a record year, we did face quite a lot of headwind in 2021 and especially towards the end of the year. We saw a market decline for organic products, maybe not surprising in itself after the strong market growth that we saw in the first phase of the pandemic in 2020. The industry has suffered from bad autumn crops, leading to extreme cost inflation in the later cases of the year. And furthermore, the issues were worsened by the fact that transports did not work. This meant that we lost sales in Q4, especially at the beginning of the quarter in October and November, but we also had to do some quite expensive spot buying. We did this to deliver on our customer commitments for the important Christmas season. It was costly, but we are convinced that this was the right thing to do long term to nurture our important customer relations. The main reason for the lower results are to be found in external factors, but admittedly, we also had a few internal challenges. We acquired System Frugt in 2020, and the forming integration did not go as well as the previous ones. We have worked hard on that now to correct those issues, and we're convinced that System Frugt has a bright future. We were not as active on the acquisition front. We only acquired one smaller company, Vitality. There's no way denying it that 2021 was a disappointment, but we have a strong plan for 2022. And as I said, I and the rest of the management team, we are fully committed to turn the business around again, and we are convinced that we will do so. We go to Page #3. And this is just a quick summary of 2021 results. Max will speak about the results more in detail and the specific focus on the fourth quarter. So -- I mean, what I can say is that we've had slight growth, but organic growth was negative and the EBITDA was down as communicated. Let's go to Page #4. And let's get into the more detailed explanation of the adverse external factors that we were facing. We have seen sharp increases in raw material prices, bad crops led to general scarcity for many raw material groups and thereby sharp price increases. And we have been facing bad crops before, but not at all to the same extent that we saw during the autumn. At the same time, prices for energy, transport and tech materials increased. And as it did, that wasn't enough, the global supply chain broke down. Many raw materials arrived late, and in many cases, it did not arrive at all. And as already mentioned, to save our important customer relations and to deliver during Christmas, we did some expensive spot-buying. This was very costly for us, but we think that it was the right thing to do to nurture our customer relations. The result of this are sharply eroded gross margin and very poor sales in October and November. Once we got stocks in again, we saw better sales in December, and that trend has continued into January. On the bottom left-hand side of this slide, you see an extract from a report recently published by the Swiss Industry Association for Food Producers. What it shows is that the industry saw the most dramatic cost increase ever experienced. On a scale from 1 to 100, we arrived at an index of 99 and where 50 would describe stable prices. The chief economist of the Swedish -- the Industrial Association stated this is far beyond a perfect storm. It's a lot worse than that, and he described this as a perfect superstorm. And we were indeed hit by that perfect superstorm. So the obvious question then for investors and analysts is what do we do about it and where do we stand now? And as soon as we saw the issues, we announced price increases to the trade to cover. However, there is an average lag of about 5 months from announcement until the price increase actually takes place. What this means is that we will gradually see gross profit improvement during Q1, with fully effect from the start of Q2. And we are very committed to actually recover the cost increases that we have had. I should also say that the supply situation has improved. And as I said, both in December and January sales were roughly on par compared to last year. And now the previous year, we had very strong months in December and January as this was a period of strict lockdown across Europe. So we are still quite positive about the results that we are seeing right now in terms of sales. I would like to turn to Page #5. And while we did face challenges in 2021, there are a lot of positives also. One thing that I would like to mention is that we moved ahead of our plant-based meat alternatives. This is the main focus area of ours. We did make a major investment in both capacity and capability, and we were able to start production at the end of 2021 according to plan. This gives us a lot of opportunity. First of all, to in-source production and thereby become more cost efficient, but also to launch new and innovative products under our brands. And on the left-hand side, you see a few examples of what we are launching or have launched in market the brand and how we're promoting the brand vis-a-vis consumers. The expansion also gives us opportunity to win new customers. And at the beginning of 2022, we got our first lift with Mercadona, the biggest retail chain in Spain. This is indeed a breakthrough for us. We have not been present in Mercadona before. So this is a good sign of how we can actually use our plant-based meat alternatives to attract new customers. Turn to the next page, which would be Page #6. We have had a fantastic growth story with Friggs. And as you can see in the last 10 years, sales have increased by 330%. It's a brand that has been growing tremendously. From a small Swedish brand, we've expanded into the home market, into new categories by new innovation, but also in the other Nordic countries. And in 2021, we were especially successful in Norway where we expanded the brand. And the expansion of Friggs will continue into 2022 and well beyond that. Page #7. We are on a quest to step by step move our brands out in the grocery trade in Europe. And our strategy and execution of this built on the successful rollout that we have done in the Nordic countries over the last 5 to 10 years. We run our business of convenience, but they're offering our product in the grocery trade, we'll be able to touch more consumers and thereby to drive more long-term profitable sales growth. This was an overall summary of 2021. Let's look more specifically on Q4, and we start by doing that on Page #8. And about this, I have mentioned already. So what was a little bit of a headwind in the first 3 quarters turned into a perfect superstorm in Q4. In October and November, we had delivery issues due to the broken supply chain. Also as stated before, market development for organic foods was weak across the board. And this was as countries opened up and both customers and consumers depleted their stocks. Again, the situation was a lot better in December, and it continued into January. It should also be said that it's mainly 2 countries where we have the real issues, and that's Denmark and Germany. And these are also the 2 countries most depend upon by product, and consequently the ones where we saw the biggest negative effect. We turn to Page #9, and this is the summary of the figures for Q4. And again, Max will go into them in a lot of detail. I just conclude that results aren't satisfactory, and we now are fully focused on getting back on track again. So what have we been doing? We turn to Page #10, and the priorities and actions for 2022. A strict growth focus, of course, we have specific focus on our own brands. This is where the make the majority of our money and we do have strong brand equities that we should continue to develop. We are making a bet on plant-based meat alternatives and will gradually roll out new products in 2022 and forward. One of the most important things is, of course, the implementation of price increases. We are right into that. Now the price increase was announced last year. We're implementing them now in the first quarter. It's a little bit different by customer and by country. So it will have a gradual effect during Q1, and we will see the full effect from Q2. This means that we will still have some downward pressure on gross profit also in Q1. We see certain risk of continued cost inflation. We think that we have the worst behind us, but we are very humble when it comes to this, and we will be agile when it comes to implement further price increases, if so needed. We're implementing profit protection plans in all divisions. We'll have a strict cash flow focus, very important. And also, our main focus will be on fixing the base business. We will not prioritize acquisitions so hard at this time. We will get back there. We want to continue to consolidate the European market for health and well-being products. We think that we have the model for that. We have been successful in the Nordics in the past. But right now, considering the challenges we've been facing, I think that the right focus and priority is to focus on our base business and turn it around again, which we will. I will come back to a short summary at the end, but I'll now leave the word to Max and the more detailed financial information.

Thank you, Peter. I would like you to move to Page 12, the financial summary. In Q4, the net sales decline was 6.6% with an organic decline of 9.5%, which I will come back to more in detail. Due to the lower sales, spot purchases, write-offs and timing of passing on cost inflation to our customers, we had a significant drop in gross margin with 4.2 percentage points. We did deliver good savings in selling and admin expenses on SEK 70 million, partly to compensate the lower gross margin. However, the EBITDA came in SEK 53 million lower than last year. The free cash flow was further negatively impacted by the compliance to the new EU regulations for unfair trade practices implemented in Sweden from 1st of November. I now ask you to move to Page 13. And this sales bridge, I only would like to highlight the structural growth that we had during the quarter on 3%, which was represented by our acquisition, Vitality, adding SEK 35 million in sales during the quarter. Please now move to Page 14. On this slide, I will explain the organic decline more in detail by division, product category, sales channel and brand type. As you see in the upper left graph, the organic sales development was similar for all 3 divisions, driven by the organic product category that was declining more than the other product categories. However, worth noting is that Nordic division and within the Nordic division, Norway, that demonstrated an organic growth driven by the successful geographical expansion of the brand Friggs. I ask you to move further down in the slide to the development by product category. And here, I would like to emphasize or you to note that within the consumer health portfolio, we still have a negative impact from the exit of the licensed brand, some that we did in January 2021. Excluding that, Consumer Health had an organic growth. If you look in the upper right graph, where you see our sales development by channel, we had positive effects from the reopening of societies for the food service and pharmacies business. But since we have higher share of the more declining channels, this did not compensate for those declines. And finally, but maybe most important for us being a brand-driven company, the sales development by brand. And on this slide, I just want you to note that, that development for our own brands was less negative than the average business. And with that, I ask you to move to Page 15, where you see the development of our own brands, organic sales development over the quarters. And I would like to highlight that during these 12 quarters where we have officially tracked the growth for our own brands, 12 -- 8 of them, we have demonstrated an organic growth. Please now move to Page 16. In this EBITDA bridge, I will try to explain the gross margin effect further. The negative volume effect assuming last year margins resulted in SEK 33 million less contribution, partly compensated by, as I mentioned before, SEK 17 million lower selling and admin expenses from our cost control and synergies. But the gross margin percentage was, as I said before, 4.2 percentage points below last year, resulting in SEK 44 million lower contribution. This was driven by 3 categories I classified into. The extra costs for spot purchases, write-downs that in total, summarized to SEK 18 million, which could be seen as a one-off. But we also had negative effect from the timing of price increases to our customers, approximately SEK 17 million and additional -- despite savings in the factories, the overhead cost was not fully reduced in line with volumes, explaining a variance of SEK 9 million. Please now move to Page 17. On this slide, you see the EBITDA trend over the quarters. And following the weak Q4, the full year EBITDA for 2021 landed on SEK 313 million versus last year, SEK 390 million. Please now go to Page 18. The free cash flow continued to be negative also for Q4. This due to, we did not manage to release the cash from working capital in line with our plans. We have planned for the unfair trade practice effect, but we have not planned for this low release of inventory, which I will come back to in next slide, when I now ask you to move to Page 19. And I summarize the full year free cash flow that landed on minus SEK 94 million versus last year, plus SEK 252 million. And on top of the weaker EBITDA, we had, in total, for the year, minus SEK 309 million effect from working capital. This has been partly explained by unfair trade practices. We have also, earlier in the year, explained that we had canceled factoring, that was SEK 67 million. But most disappointing during the year has been the inventory build that we had not planned to be on this level. We have planned to have it flat basically. During the year, this has been a struggle for our factories in Germany and Denmark. In Denmark, we were positive all the way until late Q3, beginning Q4 that we should be able to reduce inventory when the high season especially for System Frugt's business, Christmas season would come. But due to the situation where planned and committed deliveries did not come in on time, we needed to buy spot deliveries. This will have some slipover effects for Q1. In Germany, it's more related to the fact that our sourcing model and sales and operation planning have not been agile enough or working well with the new constrained supply chain situation. We have though now identified and ongoing several actions to improve our inventory situation and is determined to improve our situation during the year. And now I would like you to move to Page #20. And on this slide, I only would like to highlight the fact that we have material available cash. We have SEK 543 million available cash, representing 14% of our sales. And finally, I would like to mention that if you miss any of the slides that I'm presenting during the year, especially the division slide, these are published on our homepage at appendix. And with that, I hand over back to you, Peter.

Thank you so much, Max, and we go to Page #21, one which is the summary and outlook. It has been a tough 2021, there is no way denying it. Yes, it came off a record 2020, but still, we should have done better than this. However, I mean, the external factor that we are facing during the later half of the year, especially in Q4, was so adverse, that we could not balance that short term. With severe cost inflation, the plant chain issues that I have described, especially around global transport and an overall negative market development as both customer and -- customers and consumers depleted excess stocks that they have built up during the pandemic. That said, we are expecting a gradual improvement in 2022. The first signs of price increases are gradually taking effect during the first quarter, and you see the full effect in Q2. Already in December and January, we did -- you have more stable supply chain. One, because the global situation improved a little bit -- it was not good, but it was better -- but also due to the fact that we took a lot of action internally to manage the situation. We also expect stabilized market conditions as far as we can judge that pandemic is not coming to an end. I and the rest of the leadership team and organization is 100% aware of the situation. We are 100% committed to a sharp turnaround. It will be gradual, but it will happen. We are committed about that. And what are the things that we're doing? First of all, we have implemented price increases, and they will take effect now in Q1 gradually, and we'll have to continue an agile pricing management. Strict focus on growing our brands. 2021 was the last year, but as Max was showing, we had very strong growth in both 2020 and 2019 for our own brands and especially 2020 was a special year where we got some extra tailwind from the first phase of the pandemic. We have exciting opportunities in plant-based meat alternatives. The fact that the biggest retailer in Spain now has listed products from us is a great sign of the future and the potential that we have in that segment. We are very unhappy about the results, but results are not bad everywhere. We did do quite well in a number of countries, but we had huge issues in Denmark and Germany, the country where we source most dried products and we were also most hit by bad crops. We are implementing product protection plans in all divisions and also at the central level. We have been very good at cash conversion in the past, and we will restore that. We had some very specific -- special effect in 2021, and we will get back on track again. So while the message has been harsh today, I'm very committed to a brighter future, and I'm very convinced that we'll deliver a brighter future also. Thank you for the attendance so far. And by that, we open up for questions and answers.

[Operator Instructions] And we currently have one person lined up for questions so far. That's Johan Brown of ABG.

A few questions from me. Firstly, just a follow-up on the current trading statement here, where you say that January has started sort of in line with December. Are we talking organic growth here? So essentially, are you growing organically in January?

We are talking stable business, I would say. But then again, let's say, I mean, both December and January, the year before were a very strong month because that was in the midst of lockdown and restrictions. So I think that the situation looks still a lot better compared to the very weak October and November that we saw.

So flat organically, if I understand you correctly?

Right, yes.

Yes. Great. And then secondly, on these different cost and cash improvement measurements you're mentioning. Is it possible to say something about the different building blocks here, what you're doing more specifically and essentially the net margin impact of this, how the magnitude of these measurements?

Maybe I'll start by giving some bullet points. And then maybe, Max, you would like to get into some of the more specific details. First of all, as Max was mentioning, we had a lot of more of the type of one-off effect in the fourth quarter due to the fact that in order to save our customer relations, we did a lot of very expensive spot buying. That was to save the Christmas season. And now that we have also got on more stock in, that will not happen again in Q1. On the price increases, we are all else equal, having the ambition to restore our gross margin. As said, this will happen gradually during Q1. There are almost no price increases in January. So in January, the gross margin will still be under pressure. As of February, we're starting to implement price increases, but most of them will fall into February and March. So the full effect you will see in Q2.

And to build on that regarding the P&L, I would say, as I mentioned, that the extra cost of SEK 18 million is really Q4 isolated. The efficiency of SEK 9 million, I think there are also some opportunities to improve, and there are plans and actions ongoing for that. Further profit protection plans are still in preparations. So more cost savings is not yet defined or I'm able to communicate. When I come back to the cash generation, I mean, there is clear -- and we are very determined to come back on inventory level. We have changed the way of working in that sense that it's really not only buy and take on what is available. We are much more selective. We have a clear process where actually to be. Traneborn, who is the chief of supply chain for the group has -- and me, including -- have been involved also in these plans for both Denmark and Germany. And we go in and totally checked orders that are open, and we cancelled them, if not needed. We, of course, systematically work with MOQs, safety stock levels. we are more agile basically. This is not acceptable, what we saw. It will still be a constrained supply chain during 2022. I think it's better, but it will be constrained, and we need to manage that better.

And again, to build even further that Q4 was as the industry association described as a perfect superstorm. So the adverse conditions that we saw during Q4 were unprecedented. And by that, we have some good hopes that the situation will improve over time, but also said, as Max was alluding to, we are kicking a lot of corrective action. We are implementing price increases to cover for the quite sharp cost increases that we've seen during Q4.

And continuing on the cash slide here, which was very helpful. A few questions on the dynamics here. How your sort of unutilized credit facilities, how dependent are those on your EBITDA? I guess we have a lot of -- you're quite clear in that the main improvement should be visible from Q2, which means that the margin in Q1 will still be pressured. So I guess you have some sort of covenants being regulating the credit facilities here in combination with the effect from these Swedish payment regulations as well. In essence, how confident are you in this cash position? And how should we think about cash flow in Q1, which will be the main focus here, I guess?

Yes. Cash flow for Q1, I will not really give you a prognose. However, as I said, our focus is really to stabilize the inventory situation. We have planned to reduce the inventory. I'm humbled with the slipover effect. Regarding our financial situation and potential covenants and so forth, we -- we're not in breach with the covenants in Q4, and we have very good relationship with our banks. And I -- I mean, of course, when we have this profit update, I spoke with the banks, and I don't see any risks for that situation into Q1.

And I think the way that we are looking at this and also our finance institutions is that this is some very adverse circumstances that we've been facing, and thereby it's a bump in the road and as I've said before, we are very committed to a turnaround, and we're very confident that, that will happen. You will not see all of the effects in Q1. So Q1 will be challenging. We will have challenges in Q1. But time over time, the situation will improve that we're very confident about.

Great. And then a last question from me, a quick one as well. I believe you mentioned in the report that you have been taking some market share. How do you reckon your sort of like-for-like market has been developing during the year?

I would say that, especially when it comes to organic products, the markets -- we don't have all the market data for 2021 yet. They haven't been published. But I think it's quite safe to say that markets have been down versus 2020. Now we have to remember that 2020 was a very special year, which we greatly benefited from. It was a record year for us. From the first phase of the pandemic, and we saw massive hoarding, then into strict lockdowns when people did spend a lot of time at home, did a lot of cooking. That's had a great effect on us. Now we have seen the reverse effect in 2021. Not only that consumption might have gone down a little bit, have gone back to more normal work life, but also that consumers and customers had to deplete stocks as they were sitting on excess inventory. Our judgment is that, that we now have behind us. It's more of a normal situation. We now see that the last restrictions are lifted in almost all countries across Europe. So we think that we're getting back to a better and more stable situation in that sense.

We currently have one further person in the queue. That's from [ Anders Celebi of Crealities ].

A few questions from me. First, you mentioned in the report for Q4 that you have taken out some synergies from previous acquisitions. Could you elaborate a bit on sort of what is the magnitude of these synergies and from which acquisitions is it? And also if you could elaborate a bit on how much synergies there is left to take out from the acquisitions you have done over the last few years?

Yes. I will start and try and answer that question. It's synergies from System Frugt. And these are the synergies that you partly see in the minus -- I mean, the savings in SG&A of SEK 17 million in the quarter. Not all of it comes from System Frugt. And of course, as we have integrated the company now fully, the picture is a little bit more blurred what comes from System Frugt and what is not. I would say that from the acquisitions, there are not that much of synergies left. But however, we do have a huge operation in the Nordics now, and we have done a lot of acquisitions in the past. Our conclusion now is that the critical mass that we have, there is still significant potential to lower cost, and that's positive profit protection plan for the Nordics to run a more efficient operation and thereby drive down costs. So that's where I see the main synergy. In the other countries, we will look at profit protection plans. But I would say that both in Germany, France and Spain, the main focus should be on accelerating growth again because it's about creating more critical mass in those countries.

Great. And you also said, I think, in another question that sort of most of these cost savings are not yet defined. So I mean, how should we interpret that in the way that you have not yet started to realize this, it's more sort of something you intend to do during the year. So it's not initiated yet. Is that how to look at it?

We have started to set the direction for, but you're absolutely right that they are not realized yet. So that's further to comment. And of course, considering the quite adverse situation that we've been facing in Q4, we have taken a new look at those plans to be able to even cut costs further.

Maybe to add to it in that sense that -- the real synergy projects we have had running during the year was sustainable, which we communicated already in Q1 being on track. However, at that time, the effects were not the full SEK 9 million per quarter. So we are running -- I mean, we had -- and when we communicated System Frugt, SEK 34 million, I think, in total rolling 12 synergies. And those are actually slightly higher now on Q4. So comparing quarter-over-quarter, we are running with a slightly leaner organization now than we did last year at the same time. So we have -- but the new additional savings is in progress and planning.

And when it comes to price increases, I mean, this is something that you, of course, do every year, but maybe at a smaller magnitude. But you have had sort of price increases in the past, but it has been quite difficult for us then to actually see any impact from it and at least from what we can read from the reports. And sometimes it has been difficult to sort of push through as much price increase as you have wanted. So could you elaborate a bit on why you are so certain that you will actually be able to push these through and also the magnitude of these and whether that will be enough to offset the higher input prices? Because you mentioned that you might need to raise more, and that sounds like an indication that you don't think that the current price increases are not. Could you please give us some confidence in this?

Yes. I would say the following, that most of them are already in box and start to get implemented now during February and March. It varies a little bit by country because you have different windows and different negotiation windows by country. So most of them are in box, and it's also a completely different magnitude to what we have seen before. I also think that the general understanding from the trades is much higher because we have seen the adverse effects that we are now facing. And then from -- for those of you who are Swedish, there was a good article on the subject in target industry. It was the day before yesterday, I think, which also relates to this survey that the industry association has done. So I think that we have had very good discussions and negotiations with our customers. So I feel confident about that. Why we said that we don't outlook further price increases is that it's still a very volatile market. It seems like transport prices have started to level off, but there's still is, of course, risk that they increase further. We are getting new crops in quite soon now, I mean, the winter spring crops. And we don't know the effect of those yet and how the situation will work out. It could become better. It could become worse, but we just want to highlight that it's still a volatile situation. We have no indication right now that there will be major further price increase, and then we think that we have the worst behind us here. But as I said, I mean, we will be agile when it comes to pricing and also humble that it's a market that is quite unlike anything that we have seen before in our careers.

So if I understand you correctly, it means that you think that these pricing increases that you have done will be able to compensate fully for the higher input prices as they are now at least and get back to sort of the margin lever where you were before they started to happen, so before Q4. And -- but if -- and if you want to do more price increases or if you need to do that, you will, but I guess that will also be in the next window. So that will be in August or September if you need to raise prices? Or can you do it gradually during the spring?

It depends. I mean, I think we have started some negotiated discussions with customers that considering the huge volatility, I mean, we have to look at how to handle that more efficiently in the future. But generally speaking, yes, I mean we are stuck to those launch we invest in, in most cases. That, of course, works in reverse, if prices start to go down. So it works both ways, which is kind of somewhat comforting for us. And to your first question, again, all else equal, yes, our ambition is to restore the gross margin then, of course, there are other effects in terms of recent development of exchange rates, mix and so on, but it's a huge step forward compared to where we are. And again, also, as Max was describing, we did have quite a huge effect in Q4 from spot buying at a very high prices. And I think that that has also then put some credibility with our customers that we did take that hit to be able to serve our customers in the profit important Christmas season. That spot-buy in fact we will not have in Q1. So yes, we will get back on track when it comes to margin.

And because on the one hand, you are sort of pointing to a lot of these sort of difficult factors also for this year with the sort of -- with the input prices and difficult with logistics and transport and also some other uncertainties. And then on the other hand, you are quite confident that you will return to growth and you have initiated sort of a lot of issues or a lot of actions to deal with it. So I mean, could you -- I mean how should we balance this? I mean, is the -- and also you have a super easy comparables for 2022, given the weaker 2021. I mean, so how should we see sort of your outlook? Is it sort of a lot of uncertainties and that you could -- or should you actually be able to bounce back rather quickly and rather get closer or above the 2020 results? Or are you sort of starting from a lower level now somehow? I mean -- or to help us understand sort of what -- how we should interpret sort of these negative factors you mentioned, but also your confidence in a sharp turnaround?

I would say as following. First of all, I and the leadership team, we are very committed to a turnaround. And we have initiated a lot of different actions now. Having said that, the start of the year, as I've tried to describe, is still quite challenging. Because in the first quarter, we will not be able to restore gross profit due to the launch readiness for price increases. Also, it should be said that the start of the year was quite good still of 2021. So this year will be back here in the real low comps we are facing towards the end of '22. So in that sense, the year will be back heavy. I think that we have a very strong plan in place. The effects that we have seen in Q4, as I said, we have never seen anything like it. And as also the industry association described, the whole industry has been hit by a perfect superstorm. We think that that storm will decrease over time. It's, of course, difficult to say how long it will take. So we're very humble that still will be a little bit of a bump to road at the beginning of the year, but we for sure expect a gradual improvement and quite a strong improvement towards the end of the year.

And I understand the Q1 given that you have the sort of tougher comps and the price increases that will have impact also Q1. Q1 obviously will be a bit weaker. But when we move into Q2, when price increases are fully in place and you have had a lot of time to sort of work to face these issues, I mean, is it fair to -- is there any sort of reason why you should not return to sort of your prior gross margin levels of 29%, 30% and an EBITDA margin of over 10%, again, tendering from Q2 and onwards. Is there any factor that sort of -- that you can see now that should sort of hold you back? I mean Q1, we have a few reasons. Q4, there were a lot of reasons. But from Q2 and onwards, are there any factors that you see now that is sort of stopping you from getting back to the levels where you were before?

The only factor that I see is the development of raw material prices. Should we, God forbid, also have very bad winter spring crops, we might face similar issues. I don't think that the likelihood is high. But on the other hand, I did not expect the situation that we had in Q3, where, I have to be honest about that, and I think no one else did because it's, as I said before, an unprecedented situation. So this is, of course, a customer. I mean, and that can work in both ways. It could be good spring crops and then it will return to normality quicker than we might in today. Then of course, we are very dependent on the global transport chain. And assuming that it's getting a little bit better time by time, we should be able to supply to a whole different extent. So I would say that they overall look more positive on Q2 and forward. Then demand, we are -- consumers are facing a lot of price increases. It's not only from food that they haven't really seen yet. It's from energy, a lot of different things. Will that affect demand? My key assumption is that it will not have a big effect on demand because I would say that buying plant based and healthy food is still relatively cheap to a lot of other expenses that you have. But those are the caveats that I can see in front of me. Most of it, we will be able to manage by price increases, focus on our brands and strict cost control. But of course, considering what has happened during Q4, we have to be humble about that and also agile should things change.

[Operator Instructions] There seems to be no further questions on the phones at this time.

Thank you so much. And by that, I think we then conclude the call. I appreciate your attendance. I hope that we've been able to give a good picture of what has happened and most importantly, in terms of what we're doing to create a better future, which we are very committed to. Thank you so much. Bye.