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Edited Transcript of RBREW.CO earnings conference call or presentation 14-Nov-19 8:00am GMT

Q3 2019 Royal Unibrew A/S Earnings Call

Faxe Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Royal Unibrew A/S earnings conference call or presentation Thursday, November 14, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Johannes F. C. M. Savonije

Royal Unibrew A/S - CEO, President & Member of Executive Board

* Lars Jensen

Royal Unibrew A/S - CFO & Member of Executive Board

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Conference Call Participants

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* Andrea Pistacchi

Deutsche Bank AG, Research Division - Research Analyst

* Frans Hoyer

Handelsbanken Capital Markets AB, Research Division - Analyst

* Jonas Guldborg Hansen

Danske Bank Markets Equity Research - Analyst

* Richard Withagen

Kepler Cheuvreux, Research Division - Research Analyst

* Søren Samsøe

SEB, Research Division - Country Head of Denmark and Analyst

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Presentation

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [1]

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Good morning, and welcome to the Royal Unibrew Quarter 3 conference call. I'm Hans Savonije, the CEO of Royal Unibrew, and next to me is Lars Jensen, our CFO.

Today, we present our results for the first 9 months of 2019 and share our expectations for the rest of the year. We will also provide an update on our progress within CSR area and on our latest acquisition in Latvia.

Now please turn to Slide #2. During the first 9 months of 2019, we have, with strong commercial execution, generated a solid financial result despite less favorable weather condition in the second and third quarter in Northern Europe than last year. The weather in the summer of 2019 is regarded normal. The solid development of net revenue and earnings confirm the positive trends in our business, and our execution in all our core routes to market continues to be innovative and passionate.

For the first 9 months of 2019, we've seen a solid increase in EBIT with 10%. And with positive product, channel and country mix, we improved our overall EBIT margin with 1 percentage point to 20.4 percentage.

Based on the solid results for the first 9 months, we specify our outlook for 2019 to be in the top end of the outlook announced in August 2019. At the end of the presentation, we will share our guidance outlook.

Let me briefly summarize the key headlines for our first 3 quarters of 2019. Our net revenue increased by 5%, which relates to the acquisitions in the second half of 2018 and the first quarter of 2019. And adjusted for the beer campaign in Finland, we deliver, as expected, organic net revenue growth. And on top, we even cycle through a tough summer comparison with last year.

Volumes increased 1% and amounted to 8.5 million hectoliters, and we have slightly improved our market shares. We continue our focus on finding the balance between innovation power and managing the incumbent complexity, which has proven to be key.

During the 9 months of 2019, we have launched new products, including new low and no sugar and nonalcoholic drinks as well as nonalcoholic beer variants. Combined with our focus on pack sizes and types, we are confident that we will build preference for our portfolio also going forward. Thus, responding to the future consumer trends and demands, supported again by a notable increase of our marketing investments.

Earlier this month, we received approval from the Latvian competition authorities for our acquisition of 100% of the share capital of the Latvian craft brewery, Bauskas Alus. Bauskas is a Latvian brewery producing beer and focusing on using traditional brewing technology. Currently, Bauskas produces 8 kinds of beer and a few other products such as kvass, which is a local malt beverage.

In August, we acquired 100% of the share capital of the Bruce Ashley Group in Canada. The integration is progressing as planned, and we see good potential for growing our business in Canada even in the future.

The 2 acquisitions mentioned will not affect our guidance for 2019. The integrations of CULT in Denmark and the Lorina business in France are progressing according to plan.

Focus has been on streamlining the businesses as well as improving the consumer communication. Lastly, we continue our progress of extending the footprints of some of our recently acquired businesses as well as we continue to improve the efficiencies across our businesses.

Please turn to Slide #3. Our work on the CSR objectives for 2019 is progressing according to plan. Royal Unibrew has committed itself to join the UN Global Compact in 2019, and our application was submitted in September. Going forward, we will report in accordance with the responsibilities of the 10 principles regarding human rights, labor standards, environment and anticorruption as well as our concrete actions for the 17 sustainable development goals. We are continuing implementation of initiatives identified in our materiality assessment from 2018. For example, we have worked with the Egekilde still water brands in Denmark, which, in due course, will be produced in a plastic bottle with 100% recycled material.

We have improved the sustainability profile on our Royal beer portfolio by using only labels -- by only using labels, plastic wrap and cardboard made of recycled material. In the annual report, we have set out KPIs for our usage of recycled PET and R-PET bottles and expect to deliver beyond the target in our core market. We have launched many new SKUs with no sugar or low sugar.

We have committed ourselves to establish the baseline for our CO2 footprint 2019. The baseline includes all direct emissions from activities within our control and direct emissions from electricity, heat or steam purchased and used. We expect to finalize the methodology in Q4, and we'll provide additional information in the annual reports over the year 2019.

With the introduction, I will hand over the word to Lars to go through our key financial performance in the first 9 months of 2019. Lars?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [2]

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Thank you, Hans. Please turn to Slide #4. As expected, we continued to deliver solid financial results in the first 3 quarters. The solid development in net revenue and earnings was attributable to positive development in all segments. We estimate that our market positions have slightly improved on branded products.

I would like to highlight the following. We delivered a solid revenue improvement of 5%. Both EBIT margin and EBITDA margin have increased. Earnings per share increased by 11 percentage points or 11% from DKK 16.9 to DKK 18.7. And we continue to deliver a strong free cash flow. The share buyback that we initiated in March was completed at the end of October, and we maintain our strategic flexibility with a strong balance sheet.

Please turn to Slide #5. At group level, volumes increased by 1% to 8.5 million hectoliters. The acquisitions added a 3% increase, while the organic development reduced volume by 2%, which can be explained by negative impact from stepping back from the beer campaign in Finland as well as a weather comparison to last year's warm and dry summer must be taken into consideration.

Compared to the same period in 2018, the first 9 months of 2019 have shown an increased EBITDA of DKK 110 million to DKK 1.453 billion and an EBIT increase of DKK 110 million to DKK 1.202 billion, corresponding to a 10% increase in EBIT. Our growth in earnings is attributable to portfolio premiumization and the improved product channel and market mix and a slight improved market position. These positive developments in key figures are based on a 5% increase in net revenue. The acquisition contributed positively with 5%, whereas the organic development was the same as last year. When adjusting for the beer campaign in Finland, which took place in Q2 and Q3 last year, we delivered as expected an organic net revenue growth in the rest of the business in spite of cycling the great weather last year.

Net revenue was positively affected by the Western European and international segments, while the net revenue in the Baltic segment was negatively impacted by the beer campaign in Finland and the weather comparison.

As Hans highlighted in his introduction, we continue our focus on the integration of the acquired businesses as well as extending the footprint into new areas.

Now please turn to Slide #6. Profit before tax at DKK 1.191 billion is DKK 111 million higher than last year. Our balance and cash flow remains strong. The net interest-bearing debt increased by DKK 159 million due to the acquisitions, while the leverage level at 1.5x EBITDA is at the same level as last year. Our DKK 400 million share buyback program were completed at the end of October and 790,000 shares was bought back at an average price of DKK 506 per share.

At the end of Q3, our shareholder equity amounted to DKK 2.9 billion, while the equity ratio decreased from 36% at year-end 2018 to 34% at the end of Q3 2019, whereas the decreased ratio stems mainly from the acquisition of CULT, which was carried out in February.

The investment in CULT affected the return on invested capital, excluding goodwill, negatively, ending at 31%, which was 3% -- which was 3 percentage points lower compared to the last year. Still, compared to peers, our return on invested capital is still solidly high.

Please turn to Slide #7. The performance of our key figures continue to advance positively. The free cash flow ended slightly higher than last year, reflecting the lower campaign activities in Finland and higher tax payment.

With this, I will now give the word back to Hans to make some comments on the development in our different business segments.

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [3]

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Thank you, Lars.

Please turn to Slide #8. This slide illustrates the performance of our segments in terms of EBIT and EBIT margin for the past 3 years.

A couple of highlights to our performance. In Western Europe, we see volumes increasing by 7% for the first 9 months of 2019 while net revenue was up 10%. Adjusting for acquisition effects, the net revenue grew by 3% organically. Due to a better product mix, the average selling price per volume was 3% above last year. EBIT increased by 12%, and the EBIT margin improved by 0.4 percentage points to 20.7%.

In Denmark and Germany, we realized an increase in volume growth of 2% and an increase of net revenue of 7%. Adjusting for the CULT acquisition, net revenue increased by 1%. The market development is as expected, in spite of the very -- excuse me, in spite of the very warm weather last summer here in Q2 and Q3. We had a high level of commercial activities during the year, and quarter 3 was the high season for festivals. This year, we celebrated the 40th anniversary as a partner of the Skanderborg festival, also called Smuk festival in Denmark.

Having a widespread product portfolio plays still a more important role. And in the category of good-for-you products, we launched Fonti di Crodo still and sparkling water to the Danish market. The mineral water from Crodo runs for 30 years inside the alps of Piemonte before it hits the surface. In Southern Europe, which comprises France and Italy, net revenue increased by 21%, while volume increased, up 27%, compared to the first 9 months of 2018. Adjusted for the Lorina acquisition volume, decreased by 6% -- volumes increased by 6% and net revenue by 7%.

The market environment in Italy has seen a slight increase in the beer sales, driven by positive performance in the premium category. We estimate to have maintained our market share in the beer category with Ceres Strong Ale, which is performing well. The integration of the Lorina business in France is progressing as planned, and we continue our focus on simplifying the business and streamlining the portfolio.

In our Baltic Sea segment, which comprises Finland and the Baltic countries, volumes decreased by 6%, while revenue decreased by 3% as no special beer campaign took place in quarter 2 and quarter 3 in Finland, as it did last year. EBIT increased 7%, and the EBIT margin improved by 2 percentage points to 20.9%. The lower campaign activity in Finland has affected the margin positively together with a better product mix.

In Finland, we continue to see good performance of our ready-to-drink category, and a positive trend in the nonsugar soft drink category, with good sales of both Pepsi Max and Jaffa.

In the energy drinks category, Faxe Kondi Booster, which we knew from Denmark, was introduced to the Finnish market. The support -- to support our commercial activities, we have identified the use of various digital platforms. The beer markets in the Baltic countries continues to be challenging, but the market has started to recover slightly. On the other hand, the non-alcohol segment is growing, driven by a soft drink sales increase despite unfavorable weather in quarter 3. It is estimated that we in the Baltic countries have maintained our market position in the beer category and gained market shares in the soft drink category in all 3 countries.

Turning to our international segment. We saw volumes increasing by 15% whilst net revenue ended up 21% for the first 9 months of 2019 compared to the same periods 2018. Adjusting for acquisitions, net revenue increased by 1% organically but with a better product mix.

In the segment, our EBIT improved DKK 10 million compared to last year, and our EBIT margin decreased from 22.7% to 20.7%. The decline of the EBIT margin is attributable to the acquisition effects and the challenging market conditions in the malt business caused by a challenging macroeconomic and exchange rate developments in a few core markets as well as the Brexit situation in the U.K.

The integration of the Bruce Ashley Group acquired in August is progressing well, with focus on building a right organization and partnerships.

Now please turn to Slide #9. Before we are ready to take your questions, I would like to wrap up our session and share our outlook guidance for 2019. We confirm our expected 2019 results to be in the top end of the initially provided intervals, which we herewith confirm as follows: The net revenue interval runs from DKK 7.575 billion to DKK 7.650 billion and the EBIT interval runs from DKK 1.440 billion to DKK 1.465 billion.

With this, we have completed our presentation for today. We're ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Jonas Guldborg from Danske Bank.

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Jonas Guldborg Hansen, Danske Bank Markets Equity Research - Analyst [2]

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Lars and Hans, this is Jonas from Danske Bank. I would -- could you elaborate a little bit on the dynamics in the ready-to-drink category in Finland? Is the category still taking share from cider or other categories? And how are your market share developing within the category?

Then on the Bruce Ashley acquisition. You said in the prepared statement here that you see good growth prospects for that business. Could you elaborate a little bit on your strategy around this acquisition and also around these good growth prospects?

And then finally, if you could just break out what the organic EBIT growth in Western Europe was year-to-date.

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [3]

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If I start, Jonas, with the Bruce question on Canada. So Canada has, for many years, been a good market for us and a growth market. So we see a number of different angles into the Canadian markets. First of all, doing better what we already do, by us, I would say, taking the lead on how to, I would say, to excel in the local market. So that's one thing that is to do better with what we already have from our own portfolio.

Then the second one is to strengthen the partnerships that we have there. We have about 10 partners in the Canadian business with portfolio that is not competing with our brands and has thereby strengthened the totality of the business that is run there, and we see some opportunities to do that even better, potentially also adding new partnerships to the portfolio over time. So this is not a short-term thing. This is something that we will work towards during the next years.

And then the third one is, of course, that given that we have expanded our territory or a product portfolio on the export international front, we do see some opportunities for some of the brands to enter into Canada. We feel that with the heritage that sits in Canada, that there are some good opportunities for brand bundles like the Italian ones and the French ones.

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Jonas Guldborg Hansen, Danske Bank Markets Equity Research - Analyst [4]

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Okay. And then, how big is Canada before you acquired Bruce Ashley here? How big was Canada in your revenue?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [5]

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It's not something that we disclose, so to speak, on a single country basis. But if we divide our beer and malts business, Canada is not a big malt market for us. It's more like a beer market. So when you look at our beer business, Canada is a significant pillar in our beer strategy. I think that's as close as I can come.

Then the question on the ready-to-drink in Finland, so what we have seen this year is, I would say, a continued decline in the cider category. And we have seen that ready-to-drink on the sales, the limited amount of sales out numbers that we get, that we see that ready-to-drink is doing better and is catching up from what cider is losing. So it's not like that we see a big, big growth in those 2 categories together, but we see a migration from cider to spirit-based. And I think what the luck and the fortune and good work from our side is that we have a higher share in the ready-to-drink segment than we do in the cider segment. So when we look at those 2 categories together, then we gain a bit of share, because we are stronger in the part of the category that grew, so to speak.

On the organic numbers, there's so many movable parts here. So what is organic? What is not organic? So we have tried throughout, I would say, to give you the best guidance we can give in terms of -- on the acquisition side to when we acquired the businesses, to give you insights into the turnover, the volume, the profitability. And we have also given you insight into how you should think about the weather last year that you also need to adjust for to get a view on how the organic development is on a bottom line basis. So I will not give you a specific number, but I think you have what you need to do a reasonable estimate on what is organic both on the volume top line as well as on the bottom line.

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Operator [6]

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Your next question comes from the line of Richard Withagen from Kepler.

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Richard Withagen, Kepler Cheuvreux, Research Division - Research Analyst [7]

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Hans and Lars, 3 questions, please. First of all, on the commercial development in Denmark, you talked about the Italian water brand. But what products have done particularly well in the last couple of months? And can you give an update on the tap walls and how you plan to develop the CULT portfolio?

The second question is on Lorina in France. You said in the past that you want to expand distribution to on-trade convenience channels. Where are you on that at the moment?

And then the last question, should we expect another buyback now? You completed the DKK 400 million buyback. So should we expect a new buyback anytime soon? Or will that be a decision for after the full year results next year?

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [8]

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Thank you, Richard. Hans here. I'll answer the questions on Denmark and Lorina, and Lars will talk about the buyback, yes?

In Denmark, we see good progress across the business, both in the off-trade as well as in the on-trade channel. Brands that are doing better than the average that are gaining share, you can say, are, in particular, are organic Royal beer that is doing very well. Our Faxe soft drink brands, including the energy drink variant thereof. So it's a broad advance, you can say. These beer -- the beer walls are proving to be very successful. What customers and consumers like a lot about it is that it keeps them very flexible, and it is extremely good for the environment in terms of the perception and the fact that there's basically no waste, of course, in this system.

And then to your question around CULT. In CULT, we have spent the first 8 months of our ownership trying to reset a little bit. To be quite honest, there's not yet been a period of commercial boosting. We need to learn about these brands. But I can tell you that, within the brands, there's a lot of energy, literally, and we will follow up with 1 or 2 extensions on this brand in due course.

Within the portfolio of CULT itself, you can say that there are some shifts. So within this ready-to-drink sector, in particular, some -- it's a segment that, in general, is a little bit more subject to faster developments and people experimenting. So the newer products, and particularly in the SHAKER part of the business, are doing extremely well.

The tap walls we dealt with. Lorina was your other question related to the commercial strategy of the company. Yes, we have these plans of on-trade and convenience. One of the things that we have been working on is identifying what are the pack sizes that we need in order to come to these occasions with the right concept and the right bundle, if I may say so. We have identified those, and we have been investing in those. We are currently putting them to work, so the real impact on the numbers you will not see this year, 2019. For Lorina, you will only start to see those next year, I would say. Lars, on the share buyback?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [9]

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Yes. On the share buyback, we finalized it end of October. And the way that we see it, and we also have talked about it is that because of the number of acquisitions that we have done, and we have done those kind of like, I would say, organically, meaning that we have not written out new shares or something like that to cover for some of the debt, we have decided that the DKK 400 million is it for now and that we will get back to it in March when we announce the full year result. And in the meantime, we will strengthen the balance sheet a bit and get a slightly higher equity ratio, which is what have -- which is the key figure that have kind of like changed materially since we started to do the acquisitions of first Italian business about 2 years ago. So you shouldn't expect that we will come with a new buyback before March.

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Richard Withagen, Kepler Cheuvreux, Research Division - Research Analyst [10]

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All right. And the -- what does that mean for your M&A strategy? Are you trying to look at, yes, some bigger targets?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [11]

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No, but -- our M&A strategy is the same as it has been for the last 10 years. So we keep our eyes and ears open, as we must do. So that hasn't changed, it's just -- I think when you look at our balance sheet, our balance sheet because of also the goodwill that you get on the balance sheet, it expands more than the buying price itself, and that means that, relatively seen, your equity becomes smaller. And in this case, we have paid out, I would say, solidly during the year. And then we will have a few months where we can strengthen a bit the equity, and then we will get back to the guidance for 2019. But you should not look at us differently today than you looked at us 3 months ago or 6 months ago. It's not like that we are trying to be a bank or something like that. We just want to make sure that we will maintain our strategic flexibility and a strong balance sheet.

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Operator [12]

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Your next question comes from the line of Frans Hoyer from Handelsbanken.

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Frans Hoyer, Handelsbanken Capital Markets AB, Research Division - Analyst [13]

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Could you talk about the market trends in beer and soft drinks in Denmark and Finland, please, in the third quarter? Separately, please. And could you also talk about the drivers of the -- I mean, there are pockets of the market that are growing, including craft beer and alcohol-free and so on. Talk about the outlook for growth and the importance of these categories in your group volume.

And then finally, a question relating to the decline in SG&A costs in the third quarter separately. First time in 7 quarters, you deliver a decline on that item. What should we expect to -- precisely what is driving that and how sustainable is it going forward, please?

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [14]

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Okay. So market trends -- Hans here, I'll talk a little bit about that, and then Lars will take 1 or 2 of the other elements of your questions.

In terms of the market trends in Denmark and in Finland, in a way, there's nothing shocking. What you see is that there are -- in Denmark, the beer market is slightly, slightly negative. I think the last indication that I saw is minus 1% in terms of the volume. But because of this continued drive towards less but better by the consumers, you see that the value still continues to go up. And that is also driven by the fact that there is, I think, in the industry and also with our customers and understanding that it is important to create more value with consumers. So they changed within the assortment from, I would say, standard products or mainstream products towards a little bit more special products.

Finland, in beer, in particular, is about the same. We saw some increases last year, but we should not forget that, of course, we had a superior increase in the tax in Estonia, where traditionally quite a lot of the beer consumption in Finland came from, that then transferred into Finland a little bit. Now the Estonians have decreased the tax, the excise tax by 25% effective -- what was the date? I think the 1st of August. And now you see again that there is the decline of the beer market that we've seen in Estonia is out of the market. Yes, it's going up a little bit, and a few consumers of Finland find their way back into Estonia.

In terms of the habit of drinking, those habits normally change only very slowly. So I would not say that there is any other major shifts. The one that is really suffering quite a bit is the cider category. That is the category that is not doing so well in Finland in particular.

Also, in Denmark, we see no advantage there.

In both countries, you see the energy drink sectors and continued almost double-digit growth. And in both countries, you see that the water segment is down, and that is very much driven by the weather that was, of course, superior. Last year, you saw big double-digit increases in the water segment across the Baltic Sea and Denmark.

And then you asked about are there any pockets in beer that are doing well. Absolutely. Craft continues, like I said before, is a part of this shift towards speciality and more premium taste. Less is more for the consumer, clearly. So that continues to develop very well. We looked at some market figures year-to-date yesterday, and we saw good advances of our craft beers across a wide range of our craft brands. Yes, the Kissmeyer brand that has been launched in a can is doing well. The Schiøtz beer is doing well, and particularly also in on-trade. Anarkist is doing well in on-trades. Those are products out of this specialty and craft brewery that we have erected in Odense.

Alcohol-free beer absolutely continues its growth. We saw the share of Heineken almost doubling versus a year ago, yes. So we went within the segment with just that 1 brand from 6% to 12% in the period. So we see good advances also there, and we believe, we are very firm, that the kind of propositions that we have in the future will also prove to be very relevant and looked after. Lars?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [15]

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Yes. On your question on your -- on the cost lines here, I think if you start with the admin expenses, specifically in Q3, as we always said, you don't look at it from a single quarter point of view. You need to look at it from a 12-month running -- rolling basis. And there, you would see that we are pretty flat on the admin cost in spite of the fact that we have acquired some businesses in the meantime. So I think that, that is kind of the reading that you should take out of it.

On the sales and distribution expenses, a big part of this is volume-driven. And that means that the mix of products, the mix of countries, the development in the total volume makes a difference. I think the underlying here is that we spend, as Hans said earlier on, we spend more in the markets on sales and marketing initiatives to support the future growth of our business. And we do whatever we can to stay efficient on the delivery part, so to speak, and then trying to create operational leverage as much as we can while still keeping top-notch service levels to the trade.

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Operator [16]

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Next question comes from the line of Søren Samsøe from SEB.

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Søren Samsøe, SEB, Research Division - Country Head of Denmark and Analyst [17]

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First question regarding the last sort of 2 bigger acquisitions you made of Geyer Fréres in France and CULT in Denmark. If you could just tell us some of the initiatives you have done first in France in terms of reducing SKUs. I'm sure there are other cost initiatives you have done. And same question for CULT, outsourcing of or in-sourcing of production and distribution, et cetera. Is -- are we seeing that already here in the Q3 results? Or is that something more we should expect to see pick up in 2020? That's my first question.

The other question goes to -- I don't know if you already answered this, but there was a fallout on the line. But on the admin cost, which is down 16% in Q3 year-over-year. Should we see this as you're now running -- I mean, I understand there is some phasing. But should we understand it as you are now at a normal level or -- and it was particularly high last year? Or are you just at a very low level in this quarter and it will go up again in the coming quarters?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [18]

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I will take the easy one first, the last one. So don't look at the quarter specifically. We always have projects, can be IT projects as an example, where you have phasings between quarters. So the reading here is that you need to look at the 12-months running basis. That's kind of the best reading that you can have of our admin part. So nothing specific I would mention in Q3 versus last year.

And then on the acquisitions, Hans?

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Søren Samsøe, SEB, Research Division - Country Head of Denmark and Analyst [19]

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The unusual low level -- that would imply that you have an unusual low level this quarter in the business?

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [20]

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Or last year, I was at an unusual -- a bit higher level, and then the reality is something in between or something like that. So we manage this on a full year basis. And not so much on quarters, because it's a matter of fitting in the initiatives when it fits the business best, apart from the base spending, of course, we have in the admin part. So, yes.

So then, as an illustration, in the third quarter last year, we had some expenses for the acquisition of Lorina. For example, as you know, we expense those immediately. So that could have affected last year a little bit or quite some money go into these kind of transactions. So take the 12 months running, and I think you're very good then.

On the cost initiatives of Geyer and what is it that we do on SKU management, we bought a company that had as a credo, we will make everything that everybody asks, yes. So there were special products made for orders for 2 pallets in that business, yes. So that we have changed, yes, because we need to make sure that this thing is ready for a little bit more than average growth, of course, than the sector is.

So we took out quite some SKUs, which also means that short term you take out some revenue. But of course, you can be sure that we looked at what we take out that it was not the highest yielding revenue that we took out of the business and the highest-yielding SKUs. So that is a part of the work that is being done in Geyer, but there are other elements. There are elements around logistics. We've invested in a new wastewater system, et cetera. All of this to prepare for a future that is a little bit more efficient than what it is that we have acquired.

Does this come out in the figures already now? Only partially, because the reality is that this is a year of transition. It's the first full year that we own the business. So some of these things take a little bit of planning time, et cetera. So I would say, going over -- going into the future, you will see the effects of that on the results of that business.

CULT, a little bit the same, because we got the business early March, yes. And of course, we have, since then, been trying to in-source a part of the portfolio, which we have done. We have started to produce a part of this portfolio ourselves. So some of the costs on the CULT portfolio have started to decrease, but you do not see any full effect yet in the P&L at this moment, I would say. Lars?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [21]

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No, I don't have any big things to add. I think this is pretty normal for acquisitions during the first period, that you don't see significant, let's say, financial effects. And this is also the learning that we had from the Italian acquisition, and that is that we went through a number of, I would say, tough things the first year, ramping up, preparing ourselves, preparing the organization, preparing the customers. And then we start seeing positive effects after a bit of a while.

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Operator [22]

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Your next question comes from the line of Andrea Pistacchi from Deutsche Bank.

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Andrea Pistacchi, Deutsche Bank AG, Research Division - Research Analyst [23]

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Yes. I have a couple of questions on Italy, please, and then another. So on Italy, on your beer business, Ceres seems to have picked up and delivering well in the past few quarters. Crodo helped here. Is there anything else underlying this, supporting this improvement of the beer performance?

And then on Italy, if you could say what is your understanding on or your read of the situation now on potential taxes, sugar tax and potentially PET in Italy? And possibly, if you could say what your exposure is to PET within the LemonSoda portfolio.

Then 1 question, please, on the international business, where one of the factors which has been holding back the business here has been in Nigeria, the availability or not availability of hard currency. What is the situation there? And do you have any view of when would you expect the -- broadly, the malt business to start delivering more regular growth?

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Lars Jensen, Royal Unibrew A/S - CFO & Member of Executive Board [24]

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I can do the last one first, the international one. So it's not Nigeria. So we don't have any business in Nigeria, in which you need to produce in in-country to do business there. And we haven't done that for 6 or 7 years now. But it's in adjacent countries that you see FX or scarcity of FX, hard currency. And this come and go a bit between countries. Last year, we had other countries. This year, it's new countries, and you need to -- you need to remember that we -- in Africa, we have about 5 -- 6 to 7 markets that are kind of like our strongholds. And every year, there's either FX issues, macro issues, elections or something like that. So it is a vulnerable environment that we are living in. And I think that, that is also the notes that you see from some of our peers that do business in the same regions.

When you look at the malt as such, we do actually grow in a number of markets. So it's not like that we see malt as a category that is without growth. We actually see it as an opportunity for us. And yes, we look positively on this, and this goes in Africa, and it goes in our hardcore, I would say, territory in the Americas. So we see some good developments. And then we have a bit of macro FX issues. They are slightly bigger for the malt this year. Last year, they were slightly bigger for some of our beer countries, but this is out of our control.

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [25]

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We are there. To your questions about Italy. Cheers and (foreign language) as the Italians say. They always doing -- it's doing well. It is being revised. I must say we see a fantastic work and a fantastic increasingly interest with younger users for the brands. We've also been working very hard on the marketing mix communication thereof. So that is one element.

The other elements that helped Ceres is undoubtedly the fact that we have combined the businesses of Crodo and Ceres, which has really allowed us to become a core player, in particular, also in the on-trade segment, where we historically always have been 1 of the 10 -- #7 or so must-stock SKUs. We added this -- the second one, the LemonSoda, must-stock item, to this. So that is helping us as well. So it is both on the consumer pool as well as on the customer ends that we see advances. And now we are looking at how to tweak this a little bit more. So we are intensively working on keeping this momentum and feeding it.

You asked then about how we understand the sugar tax. We have the impression that the Italian government doesn't yet understand how they see the sugar tax, whether it is a sugar tax or whether it is a CSD tax, whether it is a tax on soft drinks in general or really on sugar. There have been no details yet, I think, decided in the parliament. So with your name, you are probably closer to it than I am almost, yes.

As far as the PET tax is concerned, there are rumors around that, but our exposure in that segment is very limited, yes. So the Terme di Crodo portfolio is not built around a core of a PET business. For us, the can and the glass businesses are much more important. Does that help you?

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Andrea Pistacchi, Deutsche Bank AG, Research Division - Research Analyst [26]

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Absolutely, yes.

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Operator [27]

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There are no further question at this time. Please continue, sir.

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Johannes F. C. M. Savonije, Royal Unibrew A/S - CEO, President & Member of Executive Board [28]

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Then I would say thank you to everybody participating, and we look forward to follow up. Thanks.