Norma Group SE
XETRA:NOEJ
Earnings Call Analysis
Q3-2023 Analysis
Norma Group SE
NORMA Group's Q3 results demonstrate resilience amid a challenging environment, with a decrease in net sales by 6.7% to EUR 297.1 million compared to the same quarter last year. This includes an organic decline of 1.5%, partially offset by positive price adjustments, noting stable conditions in the EMEA region and strength in APAC offset by challenges in the Americas. The adjusted EBIT stood at EUR 24.8 million, marking an adjusted EBIT margin of 8.3%, illustrating an effective response to market pressures.
For the first nine months of the year, net sales dipped slightly by 0.5% to EUR 936.1 million. The company has faced a mixed bag of organic growth rates across regions and segments with an overall organic decline of 1.5% in Q3 balanced by organic growth of 1.5% over the nine months. The negative impact of currency translation was significant, especially in Q3, with a 5.2% decrease in the quarter alone. EBITDA margin stood stable at 13.1% for Q3 but reveals a 50 basis point decline over nine months. The focus on pricing over volume, particularly in the Americas, has been a strategic choice amid market volatility.
NORMA Group's profitability metrics such as material and personnel cost ratios have seen fluctuating trends, with a notable increase in personnel costs due to labor market inflation. Despite these challenges, operational adjustments have led to a notable improvement in gross profit ratio and reduction in operational expenditure ratio due to decreased freight and IT costs. These adjustments reflected in a stable EBITDA and a slight decrease in EBIT margin to 8%. The earnings per share (EPS) have also been adjusted with an operational EPS reported at EUR 0.80 and an adjusted EPS at EUR 1.17 for Q3.
The Group's liquidity has seen fluctuations, with an increase in net debt by 14.5%, attributed to seasonal cash flows and dividend payments. Leverage ratio has slightly increased to 2.6x, while equity ratio improved to 46.1%. The NORMA Value Added (NVA), the company's measure for long-term strategic success, suggests areas for strategic improvements, as it presents a 25.1% challenge for the first nine months. Management is focusing on strategies such as the Step Up program to drive growth and efficiency, which has already led to the implementation of 20 initiatives out of more than 300 identified.
The Step Up program has been a cornerstone for driving innovation, resolving supply chain bottlenecks, and exploring new market opportunities such as aerospace in North America. The company has launched new products, including control boxes for telecom networks and connection solutions for heat pumps, demonstrating its commitment to diversification and addressing market demands. These initiatives have already contributed to significant improvements, setting a foundation for future growth.
Operational improvements have led to a more stable situation with a reduction in backlogs and supply chain issues. The net operating cash flow has seen a positive swing to EUR 38.6 million in Q3 from a negative EUR 3.8 million in the same quarter of the previous year. Capital expenditures reflect investment in growth, exemplified by the expansion of facilities in the United States, including a new production site in Alabama that supports geographic reach and increased capacities.
NORMA Group has successfully navigated refinancing, resulting in a current average financing cost of around 4%, a competitive rate given the market conditions. It anticipates net financial expenses to be around EUR 6 million per annum moving forward. The company is also approaching a normalization of tax rates following a prudent approach due to past restructuring. While the tax rate has been unusually high, there is an expectation of a reduction as sustainable profits are achieved.
The company reaffirms its commitment to achieving its full-year targets despite the need to reassess sales forecasts. Efforts to focus on sales, particularly in the fourth quarter and into the next fiscal year, will be crucial. The revised guidance emphasizes a continuous effort to adapt and optimize the business strategy in response to evolving market dynamics.
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Hello, everybody. My name is Guido Grandi, CEO of NORMA Group. In the following minutes, I will take you through some high-level information concerning our quarter 3 results before I hand over to my colleague, Ms. Annette Stieve, our CFO. Starting on the second page of our presentation. We saw a decrease of net sales of 6.7%, leading to sales of EUR 297.1 million in the third quarter. This represents an organic decline of 1.5%, resulting in an adjusted EBIT of EUR 24.8 million, which relates to a good adjusted EBIT margin of 8.3% given the challenging environment. Based on this performance, we saw a net operating cash flow of EUR 38.6 million. With that, our balance sheet improved to an equity ratio of 46.1%. Our net debt stands at EUR 400.6 million. In the meantime, our improvement program Step Up continued successfully. We now have more than 300 initiatives set up and 20 of them were already completed, which helped us to perform well in a tough market environment.
Let's take a look at our third slide and talk a little bit more about our top line development. For the top line, we had a decrease in net sales of 0.5% and to EUR 936.1 million in the first 9 months of this year. This included an increase in organic growth of 1.5%, which relates to minus 2.5% volume and plus 4.1% pricing effects for the first 9 months. Focusing in on the organic growth, we had an organic decline of 1.5% in Q3 and organic growth of plus 1.5% in the first 9 months due to strong business in APAC, a stable development in the EMEA region, and a challenging market environment in the Americas region. For our EJT business, which contains our Mobility & New Energy business, sales were showing an organic decline of minus 1.3% in the third quarter, leading to sales of EUR 171.3 million in Q3, mainly due to special customer situations in EMEA and the Americas and the strong development in APAC.
For our SJT business, Water Management and Industry Applications, sales were showing an organic decline of 1.2% in Q3, leading to sales of EUR 124.5 million in the third quarter of 2023, with priority on pricing versus volume in the Americas and some moderate growth in APAC. We also had some currency effects with negative translation of minus EUR 19 million or 2% for the first 9 months, meaning 16 or minus EUR 16.6 million or minus 5.2% in the third quarter specifically. We'll now take a look at the next slide and look a little bit closer at the segments. Starting with the European region EMEA. For EJT, we had stable business development on very high comps, leading to zero organic growth due to stable volumes and some special effects like IT and supply chain challenges of our OEM customers. For SJT, we had positive pricing effects in the Industrial Applications business and positive volume effects due to healthy demand and improved availability to our plants, leading to an organic growth of 0.6%. Moving on to the Americas region. For EJT, we had an organic decline of 9.2% in the third quarter on high comps and due to special effects like the UAW strike leading to lower volumes that could not be offset by pricing. For SJT in the Americas, we had lower volumes of 2.5% in the Industrial Applications business due to some inventory reductions at our wholesalers and lower demand in the Commercial Vehicle segment, partly offset by positive pricing effects. While the U.S. water business showed a decline of minus 3.2% for the full 9 months on high comps, it finished a promising third quarter with year-over-year organic growth of 4.1%. Last but not least, the Asia Pacific region. For EJT, we had strong organic growth of 9.2% despite some strong comps from the prior year and mainly due to good volume effects. For SJT, we had organic growth of 3.9%, mainly due to volume development, but also some positive pricing effects. Going to the next slide and putting our results into perspective. We see that we're stabilizing at an 8% EBIT margin and also confirming our guidance for the full year. I will now hand over to Annette Stieve, our CFO.
Well, let's have a closer look to our profit and loss development for Q3 and the first 9 months of '23. Our material cost ratio increased by 40 basis points in Q3 2023 and decreased by 250 bps in the first 9 months of the year, also due to lower inventories of finished goods and work-in-progress, while our gross profit ratio increased by 230 bps in Q3 and 120 bps in the first 9 months. Our personnel cost ratio increased by 300 bps to 27.1% in Q3, mainly due to labor cost inflation. Our OpEx ratio decreased by 80 basis points to 15.4% in Q3, mainly due to lower freight costs and IT implementation costs. EBITDA margin stabilized -- stable at 13.1% in Q3 but decreased 50 bps in the first 9 months compared to prior year. The adjusted EBIT margin decreased by 20% to 8.3% in Q3 and our EBIT margin amounts 8% for the first 9 months. Our operational adjustments, earnings per share amount reported to EUR 0.80. The adjustment is EUR 0.37 and our adjusted EPS stands at EUR 1.17. Our PPA -- our adjustments may refer from any kind of M&A activity in the past and the corresponding PPAs. On the next slide, we see again our adjusted earnings per share of Q3 amounting to EUR 0.35 and of the first 9 months of EUR 1.17 and our reported EPS amounts in Q3 to EUR 0.22 and in the first 9 months to EUR 0.80. Our dividend policy is determined by a payout ratio of approximately 30% to 35% of our adjusted group annual earnings. At the AGM at '23, the dividend of EUR 0.55 or 31.3% has been approved by the AGM in May 23. This led to a payout of around EUR 17.5 million in May. Looking to our equity, net debt, and debt ratio. We can see that our net debt increased by 14.5%, mainly due to seasonal cash outflows and from operating activities and the dividend payment. Our leverage showing a slight increase to 2.6x due to higher net debt and lower EBITDA. Our equity ratio further improved to a decent 46.1%. Our gearing amounts to 0 to 0.6x. Looking to our net operating cash flow development. We see that our working capital outflow of EUR 48.6 million in the first 9 months due to decrease in our factory programs from EUR 77 million at the end of last year to EUR 60 million as of September '23. Our CapEx increased in the first 9 months, mainly due to new locations of NDS in Lithia Springs and the extension of a Chinese plant in Guangzhou, result -- this is resulting in a net operating cash flow of EUR 38.6 million in Q3 compared to minus EUR 3.8 million in Q3 '22. Our NORMA Value Added as NORMA Group's long-term strategic target is defined by the NOVA is calculated on the basis of adjusted EBIT of the tax rate and the cost of capital. This figure is, in this case, burdened by on the one hand, the tax rate and on the other hand, our cost of capital. The NOVA shows in Q3, minus 9.7% and for the first 9 months, a 25.1%. Having said this, I hand over again to Guido Grandi telling us about the Step Up update.
Yes. As we have introduced you to the Step Up program here in the beginning of the year, we would like to give you an update on where we stand. As you know, we have two focused subjects. One is growth and the other one is efficiency, and we have several work streams that will carry us forward.
Relative to the overall program, Step Up is now fully integrated as a focused continuous improvement tool for the company. As I always say, this is going to be our culture going forward. A comprehensive project management and tracking system is implemented, which means we're reporting and tracking all activities centrally. More than 300 growth and efficiency initiatives have been set up in the meantime.
Talking about some selected efficiency and growth areas. On the efficiency side, we were able to make some headway on our supply chain management improvements, especially across the EMEA region. We're able to resolve some bottlenecks to improve product availability, which led us to reduce backlog and inefficiencies and enabled us with some better product availability to our customers.
For the growth areas, we have some nice examples concerning our water management field with new products like control boxes for telecom networks and also venturing into the EMEA region. On the industry application side, we have new target markets identified like aerospace in North America and new sales channels for do-it-yourself applications of our products. Moving on to Mobility & New Energy. We have some product enhancements and also some new alternative energy solutions like connection solutions for heat pumps as an example. Overall, 20 initiatives have already been implemented, leading to some significant improvements that are helping us this year and in the years to come. Moving on to our next slide and final slide. You see the outlook confirmation for the year 2023 and our company guidance. As you are aware, we issued a corrected guidance within the last couple of days. So we'll not spend the time right now to go through all the details as they were already made aware to you. Obviously, one of the important subjects is the sales number, which we had to take another look at. And I think we provided you with some information how we derived this number here today. Obviously, this is going to be our main focus for the remainder of this year and also going into next year. With that, we would like to open the floor for questions.
Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Marc-René Tonn with Warburg Research.
Although it's still a bit early perhaps looking into next year, but a few key drivers to understand that there is a potential performance which we could expect for next year, would be helpful, particularly after a bit more cautious view also on the top line in the current year, perhaps you could see at least directionally tell us what might be positive development, which you see next year. I think global car production has more seems flat. On the other hand, you had, let's say, a bit weaker start into the water business, particularly in NAFTA in the first half of this year. There are some building blocks which we should keep in mind looking into 2024. And I think particularly of interest will also be, let's say, your expectation next year when it comes to, let's say, price versus material cost development. I think a lot of material prices have stabilized, at least in recent months. And second, obviously your expectations about labor costs going forward? And how do -- how you assess the opportunity to, let's say, pass on these potentially further increases to customers also next year? And what that may mean for the overall margin development at NORMA?
To answer that question, obviously, it's still very early to talk about 2024. As you're aware, we're normally issuing our guidance in the February to March time frame of the new year. Nevertheless, to give you some general answers as you are already referring to. The market environment in the moment is challenging, as we saw in the third quarter, and we're expecting no less in the fourth quarter. We have our program set up to react to these external market drivers relative to additional sales opportunities, but also efficiency opportunities to compensate for potential cost increases. So we feel that we're well positioned to deal with this environment. As we showed also in the third quarter as we were able to hold our EBIT margin in a softening environment, and we're working on countermeasures to be prepared for the remainder of this year and next year, but it's a little bit too early for us to give any guidance on that.
Well, if I should take over the labor cost point, I think that's one of the most challenging demands of the next year. This is what we expect because what we see now in terms of merit increase without hiring 1 additional headcount. We always see overproportional increases in payroll costs and in wages for the future. That's pretty clear. I think that is the inflation which confronted us in the recent years, and that is now dropping down in this figure. That will be not easier for the future because this is at the end, something what everybody is confronted with. And while we had in the recent years, I would say, open doors with our customers in order to increase prices. We for sure try to do that moderately with this one. Anyhow, the demand will be mostly that these type of things should be mostly covered by efficiency gains and productivities out of that because everybody is confronted to that, and we are in the same range confronted. So this is one of the major challenges of the next year.
The next question comes from the line of Peter Rothenaicher with Baader Bank AG.
So you finalized in the third quarter, you're refinancing. And with that, you have also generated higher financing costs in the third quarter and have also adjusted your guidance regarding net financial expenses for the full year. Is it fair to assume going forward, now that net financial expenses would be around EUR 6 million per annum? Or will there be any relief or change in 2024.
Well, I can better answer maybe in ratios to that. So finally, I think we are pretty fine with our capital costs or with our financing costs compared to others. As you know, Peter, we have a long-term financial, so our long-term credit is valid until the major facility last until '26. We were able to refinance ourselves this year with a promissory note. And we have very good -- so at the end, we had optimal costs before for sure. We also participate that this basic interest rate went up in the recent year, that's clear. However, I would say our current average cost is roughly around 4%. What I would say is in these times really, really optimal. So that is not something what finally gives us a real concern.
Okay. But can we then expect these EUR 6 million net financing cost per quarter going on also for 2024?
Yes, roughly, yes. Finally, well, we have also good hedging against these burdens. So I think there we are fine EUR 6 million roughly, sounds reasonable.
Okay. And then the second point, below the EBIT line there is a tax ratio. Can you comment a little bit what is the problem or the fact why your tax rate is so unusually high this year? And is this also something where we have to feel additional burdens in 2024? Or will we see a normalization again.
So we expect that we get sooner in a normalization. Finally, what happens here at the end, you know the story that we were on a restructuring. And this, I would say, over-proportional tax rate, the root cause is that we for NORMA Germany were prudent and didn't capitalize any type of tax assets in order not to be there any risk. We will go on with this as long as we have no sustainable profit there again. So therefore, we expect that this turnaround is turning around soon. But anyhow, for the time being, we are prudent there. As soon as we start capitalizing again, the tax ratio will be on the normal user rate.
Okay. Then regarding the normalization or improvement in efficiency. So in previous quarters, you stated you had to employ additional leased personnel, and this were extra costs. How is the situation? Is efficiency in Europe meanwhile close to normal again? Or is this still a point where you have additional costs?
No, we improved significantly over the third quarter and in the course of this year. We are basically with all of our operations out of any backlog situation, meaning we hardly have any backlog situations left, which is good. We were able to resolve most of our supply chain issues. And as I said before, it also enables us to improve the availability of products to our customers, especially in the Industrial Applications side through our distribution centers. So these operational items have been improving significantly. Are we 100% satisfied, definitely not. We need to improve further. But at least relative to extra costs, we are now in a more stable and a more normal situation.
Okay. And the last point on NDS. So in the third quarter, definitely, good development again with nice organic growth. You commented on a new expansion opportunities in the U.S., but also coming with products to Europe. Perhaps can you give us some more details how are you managing here to bring your products to Europe? I think particularly in this area, there's always some problems with the team NORMA and so on? And how is this going forward? And what can we expect?
Yes. I cannot give you too many details, but I can tell you that we're working on two aspects of a growth program for our Water Management business. One is in the U.S. specifically, where we have, as you know, established also a new production site in Alabama in the beginning of this year, which is enabling us to offer additional capacities, but also a better geographical reach, as we're now represented on the West Coast as well as on the East Coast. So that helps us going forward. And at the same time, we're implementing a plan. Finally, I have to say, to bring the water management business on a better footing here in Europe, but I cannot share any details with you here at this time.
The next question comes from the line of Yasmin Steilen with Berenberg.
I have three topics, if I may. So first of all, in all stands with regards to the interest results, I was a little bit puzzled by the strong increase of the guidance, there is only 2 months left or to go. So could you remind me a bit about the fixed and variable proportion of your net debt? And I also assume, also coming back to the question before, that the new guidance does not reflect any meaningful refinancing costs from your promissory loan at the end of August. So basically, going forward, we should then penciling the EUR 24 million as a new run rate. This would be my first question on the tax rate.
And then I got a second question on EJT. So Q3 has been impacted by the strikes among others of the U.S. among the U.S. OEMs according to your comment and also IT issues in EMEA. Have you also been impacted by the production idling of Volkswagen to face some component [indiscernible] in the ICE production? And could you quantify the impact of your around a 4% volume decline in EJT in Q3? And the last one on Industrial Applications. You've seen a severe 14% volume decline in Q3 while pricing was still supportive you. Could you elaborate on the reasons and also your visibility into Q4?
Yes, maybe I'll go ahead with our fixed and floating rate. So the rate is roughly 55 to 45, something around that in terms of hedging and floating things. Could you remind me on your second question of this...
Refinancing cost.
Where this included some refinancing costs from the promissory loan. So the significant step-up from up to EUR 15 million to up to EUR 22 million interest cost in total? Or is it just a clean number. So basically, going forward, penciling in some EUR 24 million annually?
Yes, exactly. That's just a clean number. So where we participate, I think we are in all fine where we participate is that the [indiscernible], things like this are going up. So this is where we participate with the rest, we are pretty well leveled out. So in average, we have a financing cost of roughly 4% in total.
Starting with EJT or the question on EJT sales. Of course, we cannot comment on any customer-specific subjects here. But yes, I can confirm your assumption we had on the EJT side, two extraordinary effects. One, we stated clearly, which was the UAW strike in North America. And in Europe, while sales were somewhat stable, they could have been better if we would have not been affected by one customer that you already named with two effects there. One was a supply chain issue and the other one was an IT issue that hit us significantly in the month of September and also go into October a little bit.
Concerning the Industrial Applications question and the sales decline that we see here. The subject is a little bit more complex because we have to take a look at it globally and the effects are somewhat different in the different regions. Overall, the team in all regions has been very successful in prior years to implement price increases in reaction to the inflationary effects that we saw in the marketplace. We're now getting into a situation that we have in a very focused manner, look at also sales incentives. So there are some opportunity for us to kind of manage that going forward. At the same time, though, and that refers to the European region and to a lesser degree, also to the American region. We had some product availability issues in the past and also lingering on in the course of this year relative to availability of product in our distribution centers. As I referenced before, these subjects have been addressed successfully. So we see some opportunity in that going forward.
The next question comes from the line of Christian Glowa from Hauck Aufhäuser Investment Banking.
I have two questions left. My first one would be on your Step Up program. You say you have identified more than 300 or 300 initiatives. And out of these 300, you have basically completed 20, that is actually less than 10%. And that really means like you have not made major progress basically in pushing your growth and returning to a better efficiency. Can you please comment on when you expect all of these 300 measurements to be completed?
And can we maybe provide a bit more color on the two major steps to push growth and efficiency again? What exact did you mean by this? And what's the impact?
Do you have a second question? Or those were the two questions.
That's my first one. I think I should go one by one.
Okay. Fair enough. Well, let me thank you for asking this question because I'm a little bit concerned that obviously, our message didn't come across that clearly, and it gives me the opportunity to put that in the correct light. You have to remember that the Step Up program was established by the company just in the beginning of this year. So it is still fairly young. So as a matter of fact, the way we look at this is that it's quite successful that we already have 300 projects listed and that we have 20 of them implemented. As you might recall, in our discussion after the second quarter, we were reporting that we had approximately 100 listed at the time. And as all of these or most of these subjects are medium- to long-term subjects like introducing new products, addressing new customers or also making changes to our manufacturing process, these things don't happen overnight. So from my perspective, I'm actually fairly happy to report that we already have 20 of them implemented and you really need to take those 20 and refer them to the 100 we're talking about in the second quarter. We're increasing in number continuously in our system, and they're going into the two areas that you also are repeated, efficiency and growth. To give you some examples. On the efficiency side, we're looking at supply chain improvements, meaning that this range is from simple things like packaging solutions as far as localization projects to reduce supply chain costs overall. So some short-term initiatives as well as longer-term initiatives.
And the same is true for the growth side. There are some things that we can establish quickly by offering a specific part number in our Industrial Applications field to a new customer. And there are other things like the valve boxes, for example, that I was referring to earlier that needs design changes, needs customer approval and needs placement in the sales channel. Overall, we're always referring to a time frame from May this year when the program was established, looking at a time frame of 5 years to 2028. Of course, we want to be front loaded, and implement as many of these projects as fast as we can. We already see opportunities of a double-digit or EUR 30 million for next year, which we're incorporating in our budget plan for next year. So overall, we are very happy with the program, and we're very cognizant of the fact that we want to be very transparent also in tracking and then implementing these projects.
All right. Maybe one follow-up on the growth again. Does it also include that you're evaluating now maybe inorganic growth, so going through M&A outside automotive, is that part of that Step Up program.
No. Again, also, thank you for this question. It helps us to be more specific on the definition. There are two things that we don't list in Step Up. One thing is things that are somewhat normal to our business. For example, if we have a running customer program, let's say, on the M&E or automotive side, and we are successful to acquire the follow-on program. We're not listing that in Step Up because it's not a significant change to our status quo. I mean, of course, we're trying to acquire this business and our sales team is working on these subjects, but we're not listing it here because it's not a real step-up from where we currently are.
Also, M&A activities are not listed in Step Up because we see those as special events and they are not really affecting our ongoing organic business. So in summary, we're listing organic growth in step-up, where there are new business opportunities outside of mergers and acquisitions?
Excellent. That's very clear. And then my second question is on the level of inventories of your dealers in the SJT business. Specifically, when can you basically expect that the destocking effect reverses into restocking? Is there any indication you can provide?
Yes. We -- there is two effects that are happening here in the moment. Based on the fact that the company has some delivery issues in 2022 and prior years, we kind of provoked the effects with our systems customers that, they basically, in protection of their own supply chain, carried some increased stock as we now found out, especially on the Industrial Applications field. We now feel that this stock is depleted towards the end of the year. We have a second effect that, I guess, is something that the entire economy is now facing is that, of course, with higher interest rates and inventory carrying costs, there is a natural incentive to the different supply chains to deplete some of the inventory. We would think that this process is now completed. It's going to be completed by the end of this year so that we're now looking at a more normal situation, but those two effects kind of harp us a little bit here in the third quarter.
[Operator Instructions] The next question comes from the line of Nicolai Kempf with Deutsche Bank.
It's Nicolai Kempf speaking from Deutsche Bank. I have two questions from my side. I will take them one by one. First one, I guess, you also in discussions with the auto OEMs. And do you feel that the discussions are getting tougher because they're offered say a bit more pricing pressure currently?
I don't think they are getting tougher. They're getting a little bit different because, as you know, and I think that's true for most of the companies that are active in the automotive supply field. Over the last 2 years, we saw kind of a change in the game relative to price increases, which, of course, this segment hasn't seen over the last 10 or 20 years. And over the last 2 years, we saw some -- and we had to see some price increases. NORMA Group was also very successful to implement these price increases and protect therefore, protect against the inflationary effects that we saw on the purchasing side. These trends are now normalizing to a certain degree as raw material costs are stabilizing and inflation, at least in some markets, is tempering down. So therefore, these negotiations with the OEMs will not continue and don't have to continue.
There is another effect, though, that also Annette Stieve was referring here a little bit earlier, which is significant increases in personnel costs relative to merit increases that we see globally. And those discussions are continuing with our OEMs. They are somewhat more difficult because raw material pricing is always a little bit easier to prove, especially if you have to reference it down to a certain part number, but those discussions will definitely have to continue.
Okay. Understood. And my second one is a bit more long term. Again, we got kind of some more small [ profit ] warning, but we got one or at least one every year over the last 5 years, which does question a bit your possibility. How will you try to improve that going forward?
Well, I mean, for those of you I was able to meet in the different conferences and road shows. I mean, it is very clear that your expectation for NORMA Group is that we are a reliable and trustworthy partner. And obviously, the alerts that have been sent out where necessary. But at the same time, they were obviously not very helpful.
In this special case, here for the third quarter this year, the way we look at this, and there are obviously two ways you can look at this. The first way to look at this is just another alert. The way we like to look at this is, yes, it is an alert, but it's based on, let's call it, external forces that were just very difficult for us to control, if at all. And I think that the company has responded to this in a very robust way because given the fact that sales were somewhat softening, but us being able to carry forward with a healthy EBIT margin shows that the robustness, and therefore, resilience of the company has improved, and that gives me confidence also to say that, hopefully, and most likely these kinds of notices will diminish in the future.
Okay. Understood. But if we call the 8% margin healthy, do you still have the ambition to return to double-digit margins?
That is definitely our medium-term ambition, absolutely as we have communicated this in different channels. But we also communicated already that this will not happen this year, of course.
Ladies and gentlemen, there are no further questions. At this time, I will hand over back to Mr. Grandi for any closing remarks.
Well, thank you very much for your participation. As I just said in the answer of the last question, there's two ways to look at our third quarter. The way we like to look at it is that the company performed well in a very difficult environment. We feel confident that we're set up well for the remainder of this year and also going into next year with a Step Up program and other initiatives that we have going on.
But I also want to take the opportunity here to thank Andreas Trösch, who has been with the company for many years and who has been participating in many of these calls and other discussions. This is going to be his last quarterly report. And we want to thank him as a company for all the good things he has done for us. And also, we want to wish him well for the future. And with that, we want to close the meeting. Thank you.