Cloetta AB (publ)

Welcome, and thank you for joining us on the Q4 conference call for Cloessa. My name is Nathalie Redmo, and I'm head of Investor Relations. I'm here today with our CEO, Henri de Sauvage, as well as CFO, Friance Houdin. Henri and Friance will take you through our fourth quarter results, and we will then move on to a Q&A session. And I will then hand over to you, Henri.

Thank you, Nathalie. So good to have you here again. A few key points. The things we really believe are important for you to know. And, of course, very happy to say that the branded sales was really great during the quarter. I mean, nearly double digits, and that doesn't happen so often in a northern European market. based company, I would say. And it is also now that we are again above the 2019 level. So where we left it, you could say before the pandemic, we're over that in absolute amount. A lot of strong marketing, both on the innovation, but of course, also on the continued journey to support our brands in a competitive way. A lot of margin enhancing initiatives, which we of course already started before the pandemic, but we kept on going through the pandemic. And now of course, volumes also recovering on the pick and mix business, including with pricing to cover for cost. We now see that the total pick and mix business is close to break even for the full year, which of course we were planning to do, but also very pleased to say that now the Swedish pick and mix business since the acquisition of Candy King is at break even levels in quarter four. And that's quite important for us because we first want to have profits before we are going to grow, pick and mix. As said, marketing investments exceeding last year's average quarter by around 25 million. It was a strong marketing spent quarter in Q4 compared to the quarters before. Of course, that needs to be funded and the VIP cost program is also delivering and we have increased the full year savings on that program. It's also really good to see. And then for those of you who remember our our strategy and our initiatives to get to our financial goals. We have now added a new element, which we're planning to do after the VIP savings initiative was embedded, and that is the Net Revenue Management Program. I'll talk a little bit more through that in the strategic update. We're on track to mitigate the current known headwinds on the input costs for 2022. A lot of pricing going on in all the markets. And yesterday, the board decided on a dividend proposal of one sec per share, which is back to where we were before the pandemic. So great sales, a lot of marketing initiatives and support to fuel that, which is all Completely in line with the strategic agenda which we have with Cloetta. So 14% in total. Very good. 9% of growth in brands. And as I said, now above 2019 levels. So you could say we keep on going from where we left when the pandemic broke out in 2020. in quarter two, 2020 is a really good to see. And then of course, pick and mix now, another quarter of strong recovery. From the top of my head, we're around now at index 85 versus the 2019 base. And I'll talk you through a little bit what else is going to potentially happen in order to bring that up further. Mobility, very important for us, for our business. It's a tale of two stories. I mean, Q4 was better than the previous year, so versus Q4 2020. But we're still below the baseline of 2019, which is the year where there was no COVID impact. And we could see towards the end of the quarter with restrictions like in the Netherlands and Denmark that in some areas it started to be impacted a little bit downwards again. So you can see the retail and recreation, which of course is an important one. It worsened a bit compared to Q3 21, but still better. than 2020. And the transit and workplaces, you should maybe look more together. That is a little bit different picture. Also worsened on the transit stations, that of course traveling to work, but also traveling into the city for shopping or recreation, a little bit worsened versus Q3. and then on the workplaces, an improvement, and that is quite important to keep tracking and keep on taking action on insights we develop over there, in particular for the refreshment category. Yeah, we then look at the branded business. We've updated now the channel split. You can see there's not a lot of change, so it's still 75% in food and 25% in other channels. Market data, interesting, of course. Let me say again, this is mainly food retail. So all the other channels are more or less out. And we see pastels and gums going up. So that's positive. We see candy bags going down. And that is all basically explained with the mobility figures we just looked at. So... What we are doing is a lot of attention for pastels and gums because it's above average profitability. And of course, getting consumers back into that habit when they are traveling to work, when they're going out again into restaurants after restrictions are lifted is important. And we see a little bit of different behavior between the two categories where pastels are going up faster than Then gum in general, we also can see that within pastels as a category that the cold care is coming back as a consumer need because now we have also a flu going on in most of the markets, whereas last year that was completely absent. Yeah, pick and mix continues to develop in the right direction. Channels are still all open. Not so much change on consumer activation, although we had planned for for more consumer activation, in particular, promotionally in most of the markets, but with the developments that didn't completely come through, but we expected that will now happen this year, and that will be a nice addition to the The volumes, because in some of these market promotions are playing an important role, and you see consumer demand keeps on going upwards and also no early signs of the fourth wave now having an impact on the consumer confidence. So we executed the SF Anytime campaign, which went really well. The efficiency program is delivering, and we have some constraints with third parties delivering and not being able to keep up with our increased sales, but we will manage that.

And then we go to Frans for the financials. Thank you. So as usual, I'll start with a bit more details around the net sales. So as Henry mentioned, we can report very strong growth across both our segments. And for branded packet sales, again, growth not only on prior sales, but also on top of the pandemic or pre-pandemic. So that's very nice. Overall organic growth up 13.8%, almost double the 7.5% we grew in Q3 2021. And this means that our Q4 sales, and here I talk about branded and pick and mix combined and on a constant currency basis, were just about back in line with 2019 sales, just down by 0.3%. So total portfolio back to pre-pandemic levels. Now this phenomenal recovery was again driven by both branded and packaged products on the back of strong investment in our brands, and more about that later, and by pick and mix. And for the full year, organic sales were up 8.4% versus last year. Now for branded packaged sales, growing 9.3% in the quarter, close to double digits, as Henry mentioned. Now, that means that the sales, again, on a constant currency basis, were up, again, 5% versus pre-pandemic 2019. And on the full year, we grew 5.8% in the branded package. That means that we're up almost 3% full year versus pre-pandemic. Now, we know that part of that growth is cannibalization from pick and mix, But the branded package growth is coming shoulder to shoulder with pick and mix growing 32.4% in the quarter and 18.4% on the full year. And that brings pick and mix in Q4 to an index of 85 versus pre-pandemic and an index of 78 on the full year. So it's a great rebound, but I'd like to think that there remains room for more growth still. So then looking at this segment over time, starting with the branded package sales by quarter on the top row. So this is the fourth quarter of growth and with the strongest growth coming in the last two months. And I'm also pleased to say that within the branded package segment, sales of pastels and gums again grew in the quarter, supported by the strong advertisements and sales activities, with the easing of COVID restrictions, at least at the beginning of the quarter. So clearly, The concerns around COVID then picked up again. So it's too early to say that we have, let's say, turned a corner on refreshment. But maybe it would be fair to say that the reaction to the lower restrictions at least show that there is life at the end of the tunnel. So that said, while growing, the refreshment growth was not at the level of the rest of the branded package portfolio. So there is still an unfavorable mix within the segment, and you can see that in the gross margin. But similar to what I mentioned for pick and mix, that also means that there remains some room for a nice upside. Then looking at the lower half of the slide and the pick and mix business, at over 32% growth, that is again great. And as mentioned, gets us to an index of 85, up from an index of 83 in Q3, and an index of 75 in Q2. So it's a steady improvement. Now, importantly, this growth is also a lot more profitable than it was pre-pandemic. So let's look at that. So looking then at the profits in the quarter, on the 13.8% organic sales growth, we grew our operating profit adjusted by more than the double, over 35%. So that is obviously very nice. Margin was up 9.4%, so it was 9.4%, up by 150 basis points versus last year, and of a very high quality. And I want to say high quality because this increased profit was primarily driven by volume and margin-enhancing initiatives in pick and mix. And despite a repeat of the strong push on marketing spend we did at the end of 2020 to bring the consumers back in. And Henry mentioned this, that marketing spend, it was up a little bit on top of last year, which was at that time our highest spend quarter ever. Now versus what we spent in Q3, marketing, of course, was up significantly. But importantly, if we look at the quarterly run rate that we had between Q4 2020 until Q3 2021, this quarter spend is up by about $25 million. Now, clearly, that spend helped drive the strong growth, including some growth in refreshment. And it will also help mitigate the impact that we see in Q1 2022 with Omicron and also help with the pricing, of course. But momentarily, at least, it does suppress the operating margin. Now, on a full year basis, our operating profit adjusted is also growing almost twice the rate of the top line. It's up 15% while sales are up 8.4%. Now, with respect to what is driving that, it's very similar to the quarter with the growth coming from volume, margin-enhancing initiatives, partly offset by increased marketing spend. And on the full year, it is a clear increase, but also partially offset by increasing other indirect costs to enable the continued growth. And I'll cover that on a separate slide. Now, before looking at the profit by segment, Let me clarify what you do not see in this bridge, and that are the significant increases of input costs, which are reported on daily in the media. Nor do you see any supply chain challenges. Now, for the increased input costs, given our contracts and inventories, the impact is still limited, and we are committed and confident in our ability to offset the full absolute impact of all the currently known costs within 2022. And as for supply disruption, Some of our third party manufacturers have struggled a bit to keep up, but our own team are doing a phenomenal job in keeping our supply chain running free of material disruption, which frankly speaks to one of the advantages of owning your own supply chain as we do. So let's look at operating profit by segment. So for the branded package business on the top row, the key takeaway here is that for both the quarter on the left and the full year on the right, is that unfavorable mix due to lower refreshment saves keep suppressing the operating profit. And hence our strong focus on addressing that. And Henry already spoke some of that. Now versus 2020, the comparator is tough because of the lower SG&A, which I'll detail separately. But it's worth noting here that in Q4, we again lean forward on marketing spend. And at the lower average quarterly spend that we've had previously, our Q4 operating profit would have been at about the 14% we normally quote for the branded package segment. Now, if you look at pick and mix at the bottom, in Q1, we said we would get back to profit without all the volumes back. And Q4 is now the third quarter where we are just about or even above breakeven, showing that the recovery of profitability is really sustainable. And even on a full year basis, we are just about back to break even. I also mentioned before, and I want to repeat here, that this result does include pick and mix, having first absorbed its fair share of common costs in headquarters, IT, supply chain, etc. So the segment does provide a favorable contribution beyond the reported profits. And of course, this is not where we stop. We will keep improving on this through fairer pricing, reducing costs, et cetera. And before moving on to SG&A, I want to mention that in the material for this session, I have included a table that I promised in Q3 that details the impact of the new guidelines on accounting for software as a service or cloud computing services. So our report and numbers now reflect that. And the 2021 impact is 30 million, which is about half a percent EBIT that we're down on the full year as a result of this accounting change. Now for the quarter, the impact is only 3 million and you'll have all the details in the presentation and also in the report. Looking then at sales, general and admin costs. So there's three drivers of this increase. First, where we are turning spend back on because that helps drive the rebounding growth. I mentioned that before, and these are good cost increases such as for higher merchandising or for fixtures, et cetera, to get the pick and mix, which is now more profitable back up again. And SG&A at the percent of sales, as you see is down from 29.3% to 27%. So the effect of that should be clear. Secondly, Last year benefited from certain one-time cost avoidances. That includes there was no incentives at all. And you may recall that we detailed that out in Q3 2020. And that, of course, also impacts the quarter and the full year. And thirdly, we have continued to invest in marketing and marketing capabilities. And I already mentioned the step up on the spend there. And all of this is partly offset by increased efforts on our VIP Plus program. And I have a separate slide on that to show you what happened over the last two years. So when we closed 2020, I was happy to report that the program had delivered 1% EBIT savings. Actually, the program had enabled 130 million in savings, but we said about half of that, 65 million, were dependent on COVID and lower volumes, and was expected to start to come back, leaving the other $65 million being sustainable savings. Now, to give you an update on where we are, the below bridge looks at the SG&A we reported on the left-hand side in 2019. So both indirects covered by the VIP Plus program and marketing spend, which of course is funded by the profit from the sales that it drives. And then on the right-hand side, you have our 2021 reported SG&A. So within here, I'm pleased to say that the sustainable savings we brought from 65 million to 85 million through transition of our ERP system to cloud, through the Finance Shared Service Center, and through reorganization in the Swedish organization and many other initiatives. At the same time, And I mentioned also that we're turning spend back on to drive the rebounding growth. So out of the total 65 we had saved last year, some of that has come back. So a net 120 million savings delivered as where we stand now. And from these savings, we have continued to invest and strengthen our marketing and e-commerce capabilities. And we have, of course, also funded annual salary increases for our organization. bringing the net savings to 60 million and the one percent that you see on the top now beyond that other movements in sgna is unrelated to vip plus but important to understand they are largely offsetting for that plus 11 that you see but that includes a step up in advertisement it includes of course the restatement for cloud computing and also forex benefits looking then at cash We had, again, a healthy free cash flow in the quarter, delivering $313 million, which is, and there is a theme emerging here, more than double the profit after tax for the quarter. And this strong result is driven by operating profit, but also very strong working capital reduction built on top of already really strong progress when we closed Q3 year to date. But part of the strong delivery comes from a reduction of finished goods inventories from third parties mostly. As I mentioned, they struggled a bit, but also on account of high payables on the high marketing spend. However, this working capital delivery is also despite a huge amount of progress on the implementation of the new European UTP directive, which I flagged in Q3. Now, as we close the year, days inventory on hand are down another five days in the quarter. We had said we would reduce inventories. We did end a little bit lower, as mentioned that we had hoped for. But nonetheless, overall conversion is down 14 days versus last year, which is significant. For the investment in property and plants and equipment and intangible, it was 55 million in the quarter and just below last year. Now, here I want to call out that the cost for the new carton packaging technology is reflected in these numbers, but as I had also slide in Q3, less than the 40 million we thought we would spend this year has been spent, only about 18 million on account of restrictions in traveling that have impacted the rollout. It leaves about 112 million yet to be spent, of which we think about two-thirds will be spent in 2022. but we also believe that the startup of the packaging line will remain as originally planned for Q2 2023. Now, on the full year, our free cash flow delivery is $664 million, which is the highest we've delivered the last five years, and it's almost $300 million more than what we delivered in 2020. Which brings me to my last slide, on our leverage and net debt, where on the back of the strong cash flow, we closed the year with net debt over EBITDA at 2.0 and well below our internal target of 2.5. And our net debt is at an all-time low since the Clueta-Lease merger in 2012 of only 1.7 billion. You can also see from the bar chart on the right that we have additional unutilized credit facilities Commercial papers not yet on the market of 0.6 billion and 0.9 billion. And we held 0.7 billion Swedish kronors in cash as we closed the year. So in summary, very strong double-digit top-line growth, bringing total sales just about back to pre-pandemic level, with profit growing twice as fast as sales, despite heavy marketing investment, and with free cash flow generation at more than double the profit, brings leverage down to 2.0 and net debt to an all-time low. So we're pleased that the board decided to propose a dividend of one krona per share back to pre-pandemic level and at the upper end of the targeted 40 to 60% of profit after tax. And on that positive note, over to you, Henry.

Thank you, Frans. What more can I say? Few things to update on the strategy. You know that we have a strong CSR agenda. We are in dialogue with the science-based target initiative, and we think that somewhere in February or March, depending a bit on their ability resource-wise, that we will get a confirmation of our submission. which is important because that will also then mark the point where we are then going to be able to really progress in this journey to reduce climate impact of Cloetta, but also in the scope one and three. So that's an important one, which will also kick off actually this afternoon with our extended leadership team across the company to get everybody on board because a lot of small actions make a big difference. If we then look at the marketing agenda, take you back a few years, Cloetta not been growing organically, very important to get this wheel going of growth, more volume, lower cost, more opportunity to invest in order to get again more growth. So it's also good to see that the growth is also reflected by us gaining competitiveness with our bigger brands in the company. That's really important. And we both see that the visibility is going up of the big brands to see that the efficiency of the marketing is still going up and now close to where we want it to be. And then next to that, of course, we see that our innovation 2.0 agenda also is starting to pay off with a lot of real breakthrough innovations hitting the market. And of course, no surprise, they're really liked a lot by our consumers and as well our customers. We're winning quite some prices with best innovation in the whole confectionery category of the year 21. So a lot of positive feedback and that of course is needed to keep this wheel of growth spinning. So very pleased to see that. Then as said, have a financial goal of 14%. Frans showed you the fantastic progress on the VIP cost saving program. Now we are launching a company-wide new initiative, which is called Net Revenue Management. For those of you who are not familiar with the term, it is a systematic approach to look at the growth to net part of the P&L, where we're looking at channel profitability, portfolio profitability, pricing versus competition versus consumer needs. A lot of money is going into promotions, so there the program is very important, and to support the program, we're also implementing a promotional planning and evaluation tool, so that the ROI of our promotions is going to be calculated on a permanent basis, making better investment decisions to either get more volume or to spend less. And the last, of course, is trade terms. So these are the terms of doing business we have with our customers, which, of course, customers need to be able to earn money on our products, but we also want customers to take the right decision, to put it on the right place in the shelf, to give us the best promotion. to pay us in time, to take full pallets, to reduce costs, and that whole package you call trade terms. So the NRM program is going to be focused on our biggest markets where we work with modern trades. We will take a few of these pillars and get some external support of a company which is, well, very knowledgeable in this area, and this is being all kicked off now as we speak in Q1 2022. Yeah, so back to the last slide, the key business priorities, they're not changing. It's very clear for us, for internal people as well. The first one is the organic growth of the branded business. As we showed, of course, We want the profitability to go up further through the growth and the major thing we're working on, of course, is to get the pastels and gums category to recover because it has above average profitability, so it will really help us in the mix. Maybe also important to say is that we're working constantly now on a complexity reduction program to take smaller SKUs out, take unprofitable SKUs out, and reduce cost in complexity, but also to get the marketing and sales forces to focus on the more profitable parts in the portfolio. So that is one. Then pick and mix. Very good to see that we're now close to break even. On the totality, we don't stop there. We are going to go on with all the margin-enhancing initiatives and the premiumization, which we're driving with pick and mix across the markets. We're also aggressive on price increases. We need to get coverage for the raw material cost, energy cost, and et cetera. That is really important, so we're not shy of coming through with big price increases on pick and mix. Maybe then important to say one more time, it's really pleasing to see that the Swedish pick and mix business now starting for the big minus when we acquired Candy King is now at break even level. That's a big milestone for us. And we need to manage the third party suppliers who are not always able to keep up with our sales rate. And then in the VIP cost program, great progress. On the efficiency, of course, we have the perfect factory program. If we look at 21 of our key production lines, we have significantly improved our OEEs, so the amount of time these machines are producing. Big increases, I mean, more than I actually have seen before, so that's a big increase. A big applause, I would say, to the people working on our lines because it is those people who are making those progress and finding solutions for small stoppages or making changeovers faster. And then I introduced the NRM program very quickly to you and also pleased to say that we are having a proposal back on the dividend of one set. So that was it. And then we opened for questions.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will be a brief pause while questions are being registered. Our first question comes from Niklas Skogman with Handelsbanken. Please go ahead.

Yes, hi, good morning. I have two questions, please. So thinking about the gross margin for the current year, 2022, you said you will offset cost increases in raw materials, et cetera, in absolute terms, which would imply some gross margin headwinds. On the other hand, I assume you will have a better absorption effect in 2022 compared to 2021. You're implementing price hikes and improving contracts in pick and mix. And also, we may assume you will have some mixed tailwind from the past category recovering this year. So I guess the question is, where does all of that leave us in terms of gross margin outlook for 2022?

Yeah, hello. Good morning, Niklas. Thanks for asking the question. So, I mean, starting point, we tend not to give, let's say, a forward-looking statement, but I think it's very clear that we're saying that since many years we have a a way of working with our customers where when costs are going up we can take pricing and when costa costa coming down we're rolling it back so we're confident on that and also that we will manage to do a full offset of this within the year 2022 although you know there's normally a bit of a delay here but we still think that we can manage that now uh arithmetically it does have an effect on the margin but i think you you spelled it out really well here i mean there's There's many other pieces that we will work on in terms of the absorption, cost reduction, the portfolio, being smart around those things to protect our margins.

Okay, so there is still an opportunity to raise, to lift the margins, the gross margin in 2022, despite the headwinds from input costs.

Yes, of course, that's the direction we're working on without, you know, giving you a forward-looking statement. But, you know, step one, get the pricing, and, of course, then there's many other levers to work with to protect and develop the gross margin.

Yeah. And on the pick-and-mix contracts, I understand it's an ongoing process and so on, but if we think about the original sort of, plans in terms of exiting bad contracts and getting the margin up? Is that basically completed now and there's just this normal business price negotiations or are there still contracts that are onerous?

No, it's not completely finished because a lot of that is our individual contracts with individual store owners. But the majority, I would say, we have done. We have concluded in the last two years. But on the other hand, I would say, you know, we are not stopping. We're just having break-even business. It cannot be the meaning of being in business that we are break-even, even though, to Frans' point, pick and mix is also taking a lot of the fixed cost in relation to the volume. So we're continuing with this journey, but it will be more a combination of showing our customers that premiumization, meaning more expensive products in there, are able to carry a higher consumer price. That is their decision. of course, but a higher consumer price also means that we can raise our prices towards them. So in order to start making a decent single digit margin on pick and mix. So that is one big one. The second thing, we still have a bit of volume to recover. So a market like the UK, which was probably most severely impacted by all the closing down of stores, There, more volume through the existing merchandising network is going to give us another real step upwards. If we look at a country like Denmark, where price promotions before the pandemic were something 30 to 40% of the volume, and they're at the moment more or less still absent. If that comes back in one way or the other without destroying value, that could be another big efficiency lift for for us at the same time as said you know we're still working to improve certain smaller contracts so we don't stop that may be the short answer right perfect and then finally on the marketing spending in the current year how is that gonna be a step up further or are we

the same level as 21 or lower?

No, I don't think it will be lower. I mean, it is a variable, and it's not a fixed. I mean, let me say that first. And also, when Fran said the quality of the result, I can only underline that three times. I mean, I rather spend my SG&A in marketing costs than if it sits in fixed. indirect cost because marketing costs within two to three months you could reduce a lot if if we would have another pandemic or or whatever it's a much more variable um investment uh than the fixed cost so that the quality of the profitability with with this high marketing cost compared to the past is is a lot better i would i would say than than having these costs in in indirect and It is variable because it depends very much on the amount of innovations we want to do. It depends on the quarters we plan those innovations. But also in all honesty, it depends very much on what our competition is doing because we want to spend and maintain our brands in a competitive way. So if we would have one or two competitors who are upping their game in marketing support, we will most likely follow. But on the other end, if some of them are getting under pressure due to raw materials and they're reducing their market expense, then we will reduce. So I, again, to Frans' point, we're not going to give you forward-looking statements. We've said the strategic agenda is to grow our branded business. In order to do that, we need to strengthen our top 25 brands. We do that, among others, by marketing spend, but there are many other things which are happening in there. In the marketing spend, we first took two years to improve the efficiency of the spend. Well, that's where we are now. 70% is working media. And then as a next step, we said that we will introduce probably more marketing spend in order to fuel more growth. And that we've now done. And you can see the result of that with the plus 9%. And the spend is in that sense delivering, but Looking forward, it's probably not going to go down. That, I think, is something I can give you unless something big would change. But then it will vary quarter by quarter depending on launches and the kind of jobs to be done, like, for example, refreshment recovery.

All right. Thank you. I may have one more question, but I'll leave the floor to other people.

I remind you that if you do wish to ask a question, please press 01 on your telephone keypad.

Maybe then we can take the questions which have come up in the questions. So the first one is from Deepak. Eastern Europe, geopolitical tensions, do we see any risk to our business? We are not that big in Eastern Europe, I mean, this part of our international So we follow this, of course, and we'll have to see what happens. And that, I think, is probably, for us, limited. If there would be big sanctions coming up, we can manage that. And then there is a question from Paul, which I think we've answered on the growth margin development in 22 versus 21. So that was the answer from Frans. Then we have a question from Trojan Trading that is acquisitions. And there are, of course, many people who think acquisitions. We have a clear strategy which says we are going to grow Organically, that is our major strategic focus away from the acquisition strategy, which Cloetta had before. I do not see any reason at the moment to deviate from that strategy. So priority one is to keep on growing the existing business organically and improve margins in that way. However, we've said that if there will be a right target and the right target, like you're saying, it should be an acquisition in one of our key core categories, in one of our key core markets, but it also should be a acquisition which is able to deliver on the EBIT journey we are on. We're not going to buy companies with 0% EBIT anymore and then banking on a lot of synergies which then maybe are not coming through or only partly coming through. And why do I say this with so much confidence? There is still a lot we can improve with Cloetta. So I don't see that we're at the end of a growth journey. I don't see we're at the end of a gross margin expansion. I don't see that we're at the end of further improving our supply chain operations. So we don't need acquisitions to improve the P&L of this company. And then the last one is probably for Frans.

So, yeah, Erwin, thanks for the question on this effective tax rate and any color on that and guidance going forward. We tried to provide something in the commentary in the report to also explain the effect of some of these, let's say, one-time benefits that we've had. Yeah, I mean, we should be, as normal, somewhere around 22%, 23%, 24% as effective tax rate. Now it's significantly down, and especially in Q4, and that is largely because we've We've had, in one of our countries, we've made provisions where the statute of limitation has expired, and based on updated tax advice, we've now chosen to release those provisions. So that's the one-time benefit we're seeing in Q4. Now, you know, subsequent years, there's other provisions that we will release, but this was sort of a catch-up that covers several years. So you're not going to see as big impact going forward. We should be going back to sort of our normal range of 22% to 24%. With respect to net revenue management, depending on which consultants you talk to, you can get quite big numbers out of this. I think for us, we would say that this will be an important step in our road towards 14%. But how much will come out of it will also depend on the countries. The maturity is different across our markets. Holland, for example, has already worked on this for a number of years, so we have internal knowledge to draw from. But there's also, it takes time, this, right? Because as Henry, you know, when he elaborated on the different pillars there, you understand it's, you know, it's one thing for us to identify what to do differently than negotiate and then get it implemented. So the impact for this year 2022 will be limited, and it's investment in time and energy now that will help serve us really well going forward afterwards.

Another question on the innovations. At 12 to 18 months, we launched two years ago a program called Innovation 2.0, meaning that we were going to come not with line extensions only, but also with meaningful innovation like the Vanco Chocodrop or the KEX vegan. And what you could be looking at is that we want the percentage of innovation of total sales every year to come close to 10%, probably more realistic 7% to 8%. And of course, there is a strong growth margin, the creativeness demand of the innovation, so each innovation which should which hits the market should be margin accretive to the average category growth margin in that country. So if we now have one year of margin accretive innovation, then over a three-year period, of course, which is when the program will now start to roll out, we should be seeing a contribution of innovation to our growth margin journey, and that is going to be a continuing process.

And just maybe so that it's not misunderstood. So, I mean, if we talk about 7% or 10%, that's not sales on top of our existing sales because, of course, what we're doing is we're attracting the consumer back in with this offering. And when they pick our innovation, you know, to some extent, they will also then deselect another product and often something they would have bought from us. So that's what we call cannibalization. So it's not a net increase. Yeah.

Share buyback is not on the agenda of the board as far as I know, but of course what we always see happening, and I don't know if that's going to happen going forward, is that quite often our biggest shareholder reinvest their dividends back into shares of the company, given that it is, and Steve Tosari said that, and foundation with the goal to own Cloetta. So you could say that it's sort of a share buyback program. And then the working capital program, yeah, there is more to come. We have done quite a bit on raw material. aminization, flavors, and colorants, et cetera. And that program is still continuing, but we're now, like I said, also really working on complexity reduction, meaning taking small skews out, which you maybe produce once every three or four months, They tend to have a relatively larger amount of stock because you have a minimum order quantity. Taking those products out and selling more of the existing bigger items will help us in order to drive that. We've also changed our internal transfer pricing model so that we penalize smaller products and give a credit to the bigger products given the efficiencies they have in the factory network. So yes, there is more to be done on the networking capital. Is there another question from the public?

Yes, we have a follow-up question from Niklas Skogman with Handelsbanken. Niklas, please go ahead.

Yes, hi again, thank you. I'm just interested to hear sort of your latest take on this cost inflation. Do you see any signs that it's tapering off or is it still at a very high level when you look at the sort of the very latest prices you quoted in terms of packaging and so on?

Yeah, I mean, I think that's public information at least available to everybody. So if we take the basket of our biggest raw materials, we do not see an easing yet of raw material and packaging materials going upwards. I think that's the short answer. If I would know what's going to happen in the next six months, I would probably be a trader and not the CEO of Cloetta. But as said before, we have a good model to take pricing based on raw material costs going up. So if it keeps on going up, we'll just have to price more this year.

Okay, perfect. Thank you very much.

There are no further questions at this time. Speakers, please go ahead.

Very good. Well, then we thank you for your attention. I'm pleased with the quarterly results, great growth, great improvement of the profitability, strengthening the brands, regaining further competitiveness with the pick and mix business, break even, and of course, also a fantastic cash flow and on the back of that, a good dividend. So we're entering stronger into 2022. Thank you very much for today. Thank you.