Good morning, and welcome to this Q3 Trading Statement Conference Call. My name is Lars Jensen, and I'm the CEO of Royal Unibrew. With me this morning, I have our CFO, Lars Vestergaard, and we will present the Q3 results before taking your questions. Now, please turn to slide 3. Looking at Q3, our business has continued its solid development across most geographies. In Denmark, a very vibrant reopening of the on-trade clearly supported growth together with warm weather in July. In Italy, we continue the successful rollout of our Lemonsoda Energy Activator , and in the super premium beer segment, our Ceres beer continues to deliver strong results. The soft drink market in France is in decline, mostly weather driven, but Lorina continues to gain market share and has now over the past 29 months gained total value market share every month.
The Finnish market continues to be negatively affected by COVID-19 related restrictions on the on-trade, but through strong execution in the off-trade, we generated solid results with improving trends through the quarter. In the Baltic countries, our non-alcoholic beverages did very well with high growth rates in CSD, energy, and water. We have seen strong volume growth in international trade, as trade inventories were low going into the quarter and volume performance last year was relatively weak. Higher raw material costs, capacity constraints, and logistics costs had a negative impact on EBIT. In total, we grew organically volumes by 4% in Q3 compared to last year. A positive channel mix resulted in a positive price mix and an organic revenue growth of 6% for the quarter.
Higher sales and marketing costs, higher raw material prices, and higher logistic costs resulted in an organic 3% decline in EBIT, which is all as planned. In absolute terms, EBIT is at par with last year at 21% higher than 2019, and therefore very satisfactory given the significant cost pressure we are experiencing. We are maintaining our full-year outlook for EBIT of between DKK 1.625 billion and DKK 1.7 billion. Lastly, we'll give more details on the outlook towards the end of the presentation. Please go to slide 4. Our focus on the six strategic pillars seen on this slide continues to produce strong results. Energy drink volumes have increased by more than 30% year-to-date, and the category shares of our business therefore continues to increase.
The strong growth is driven by all markets where we sell energy drinks, and with the acquisition of Crazy Tiger, we expect the strong trend to continue. The Baltic countries are growing 1.5 times compared to last year, so an index of about 250, which is very fast, and the successful launch of Lemonsoda Energy Activator in Italy is also supporting the development, and is now hitting a market, a constant market share of about 3%, which is only from April. As a consequence of the higher freight cost and capacity constraints, we have been forced to take decisions to lower trade stock significantly and consequently our sales in one of the categories that have been hurt is the ready-to-drink cider category, and in particular, the international segment. In spite of this, volumes increased by double-digit percentages.
This was primarily driven by strong growth in Denmark and the Baltic countries. The no and low alcohol segment also continues to grow. Year to date, no and low alcohol beverages has grown by about 20%, and the category is showing strong growth across all the multi-beverage markets. Low and no sugar CSD grew by 23% in the first nine months of 2021, driving an uplift in low and no sugar beverages of almost 20%. The above mainstream beer segment continues to drive premiumization within that category, and it is a general trend that consumers opt for more premium variants in the different categories. Finally, on this slide, our Finnish launch of Novelle Pro within the enhanced beverages, which is a refreshing low no-calorie drink with added plant-based proteins, have been very strong and has achieved very good tracking among consumers.
Please turn to slide 5. A short status on acquisitions. In late April, we acquired Fuglsang, which is a strong regional Danish brewery. The integration of Fuglsang is completed, and the acquired organizations has been merged into the Danish business, which also includes the system integration. We are running SAP on the two production sites. The next phase now is the commercial expansion. Crazy Tiger, which is a French energy drinks brand with a market share of around 10%, was acquired in early July. Integration is going according to the plan, and the sales performance we have experienced since we took over the company has been solid, and we have gained further market shares in the quarter.
We plan to put Crazy Tiger on our platforms, IT platforms, in the first quarter of 2022, and thereby Crazy Tiger would be fully integrated. The acquisition of Solera Beverage Group was completed on the seventeenth of December, and therefore only had a very limited impact on the quarterly numbers. Integration has started, although it's still early days, but so far progressing according to plan. We are now working on the strategic frame for the individual countries and look forward to sharing that when our thinking has been finalized. Earlier this week, we announced the agreement to acquire Aqua d'Or, which previously was owned by or is owned by Danone. Aqua d'Or is a Danish-based water company which operates primarily within still and sparkling water.
It will strengthen our position in the Danish water market, and we expect the deal will be closed during the first half of 2022 after an approval from the Danish competition authorities. In total, the acquisitions had a revenue of around DKK 125 million in the third quarter, while the impact on earnings was limited, as the profit generated was at around the same level of the acquisition costs. With that, I will hand over to you, Lars.
Thank you, Lars. If we turn to slide number 6, please. I will start with a few words on the quarterly performance. If you look at the graph, it shows you the performance over the last three years. If you take the numbers from 2019, that was the last year when COVID did not impact our business, so a normal year. Since then, restrictions have, to a varying degree, impacted our business. In the second quarter of 2020, we initiated a long list of cost-saving initiatives and really did not spend a lot of money on marketing initiatives. This had full effect during the third quarter of 2020.
However, in the third quarter, business was very good, with very few restrictions in our marketplaces, and consequently, the EBIT level was very high in the second quarter of 2020, and actually the highest in the company history. However, in the third quarter of 2020, we invested very little in our brands. This year, in the third quarter, we had a very high activity level, only with a few restrictions in Finland, so we're very pleased that revenue is 19% higher than 19, and EBIT is 21%. Furthermore, we have normalized the investments into commercial activities, and we can see that our market shares are developing well in most parts of our business.
When you look at the quarterly numbers, we are comparing with an unusual quarter last year with no marketing costs, staycation, and good weather, so we are pleased to see that our commercial investments are back on track and that we can deliver a strong 2021. If you then move on to slide number 7. The business has developed as planned in the quarter, and we have stepped up the commercial investments to drive growth. We have seen a continued reopening of the on-trade across markets, and in Denmark, the reopening has been more dynamic than expected, while in the Finnish on-trade have continued to be negatively impacted by restrictions throughout the quarter.
Weather has been supportive, especially in the first part of the quarter, and together with strong commercial execution across the business, we delivered a 4% organic volume growth in the third quarter of 2021. Supported by the reopening and the following beneficial channel mix, price mix in the quarter was positive by 2%, resulting in a 6% organic revenue growth. We are pleased with this high volume and top-line growth, as it's measured against a very high growth rate also last year. EBIT came in slightly below last year at DKK 596. This is a satisfying result, and remember that last year we were in savings mode throughout the quarter due to COVID.
While there was very little COVID impact on revenue due to the summer season, the EBIT is 3% below last year, but 21% higher than third quarter of 2019. Again, a satisfying level and as per our plan. The decline is primarily driven by higher sales and marketing costs, which is a result of our strategic decision to invest more behind growth opportunities we see in the marketplace. As per plan and for the reasons just explained, the EBIT margin declined by 280 basis points to 24.5 when compared to 27.3 last year. The EBIT margin is still 50 basis points higher than in the third quarter of 2019.
The decline compared to last year, besides the higher sales and marketing costs just mentioned, is also a result of higher raw material costs and freight costs, product mix, and M&A. Free cash flow was strong and ended in the quarter at DKK 551, which is 29% higher than in 2019, but as expected, significantly lower than last year, where the free cash flow was positively impacted by extraordinary beer campaign in Finland, as well as extended payment terms for VAT and employee tax. To be absolutely clear, we're very satisfied with the financial development in the third quarter. If you turn to slide 8, please. The slide shows an overview of the development within the business segment, starting with Western Europe, which has seen an impressive double-digit organic growth in both volume, revenue, and EBIT.
In Q3, the Danish business was supported by good weather, especially in June, staycation, and a vibrant reopening of the on-trade and nightlife throughout the quarter. In Italy, we continued to gain market share across categories, and our market positions within beer, soft drinks, and energy has never been stronger. Great work by our Italian colleagues. In France, our organization managed to extend the period in which we have taken overall market share. In the Baltic Sea segment, volume and revenue are up 5% and 6% respectively year to date, whereas EBIT declined by 6%.
Volume and revenue have been supported by strong commercial execution and warm and sunny weather, whereas the Baltic Sea segment has been relatively hard hit in sales and have seen a high increase in sales and marketing costs and has continued to see restrictions in the on-trade, which is the reason why EBIT has declined organically 6% year to date. The Baltic countries experienced bad weather in the third quarter but benefited from strong execution and broad product portfolio in the off-trade. We continues to see strong demand for our products in the international segment sell out in the marketplace we operate in continues at a high pace, and volumes and revenues are significantly higher than last year, both in the quarter and year to date.
The international segment have been impacted by restrictions in our supply chain, and growth could have been even higher. Great work by the international team. The higher raw material and freight costs have started to impact earnings in this segment. In Q3 2021, EBIT declined by 10% corresponding to DKK 5 million, and a major part of this decline is stemming from higher costs. We continue to invest in our market position around the world despite short-term logistics and input cost challenges, and we expect the international segments to be negatively impacted by increasing freight costs and capacity constraints well into 2022. If you turn to slide 9, please. I will now take you through our outlook for 2021. We maintain our full year EBIT outlook of DKK 1,625-DKK 1,700.
The reopening of the on-trade channel has, throughout 2021, been slightly slower than we initially expected at the start of 2021, but off-trade has performed strongly. The development towards more and more open societies have supported our efforts to increase our sales and marketing expenses towards more normal levels to build our brand equities further and invest in growth opportunity. Therefore we continue to build a higher cost level than in 2019 into our outlook. Raw material and freight costs have continued to increase during the third quarter, and we now expect the full year to be impacted negatively by DKK 90 million from this, where in the half year result we had DKK 75 million. The added costs are included in our maintained outlook for the year.
The biggest risk on earnings for the rest of the year remains the COVID-19 and potential reintroduction of stricter restrictions or lockdowns that we see. The lower end of the guidance includes the risk of such negative development, whereas the top half of the guidance includes a reopening of societies throughout the quarter. With that, I give the word back to you, Lars.
Thank you, Lars. Just to round off the presentation before we go to Q&A, I would like to give a few words on our priorities. As we have acquired a number of companies, we are very busy with integration, and getting the synergies to be delivered. To this aim, we will strengthen the organization to ensure that we can continue to drive growth both organically and inorganically. Secondly, we are currently in commercial negotiations with all of our customers to mitigate the cost inflation that is impacting our business. The majority of the price increases will not come through until next year, so from the beginning of 2022. The remainder of the year will be impacted negatively by the higher costs, but very little offset from the higher prices.
This is all included in the guidance as Lars laid out. Just to give a little bit of a flavor on it, I have seen an analyst report that's been done many, but in particular one that evaluates the expected impact on the European brewers and soft drink companies in general, from the cost inflation that, and that indicates that there is a need for price increases, sales price increases of between 6%-6.5% to cover up for what we know currently. It's a little bit more for beer than it is for soft drinks. Beer is on the high side and the soft drinks is more on the low side. We are fully committed to seek full coverage on a per hectoliter basis for the cost increases that we see converted into price increases.
We have and we have not seen the same amount of cost inflation, cost increases in 2007. Of course that gives some extra uncertainty. The uncertainty relates mostly to the consumer's reaction to the price increases and uncertainty on how competition will behave. I guess you will have a lot of questions around it, so we can go much deeper on that, in a second. Just to underline, there's nothing that has changed materially since we came with our Q2 reporting, on our approach, to how we are going to deal with it. Thirdly, we have with open eyes increased our commercial spending this year.
We can see the underlying development that this is driving growth in the categories, and our focus is to deliver both a strong result this year, but also to ensure that we enter 2022 with investments that support the brands to grow in the long term. If you look at the numbers that are behind it, we have increased our commercial spending this year by about 30%. With those words, let's get back to the operator, and we are ready to take your questions. Thank you.
The first question is coming from Frederik Albertsson at ABG. Your line is now open.
Thank you, gentlemen. A few questions from my side. If we could start with the Solera acquisition, would you mind just reminding us of how much of that business is wine sales to the various monopolies? And also what do you expect in terms of growth from that business next year, given that 2020 and 2021 was quite boosted by COVID-19? That's my first question.
Yeah. The majority of the business is of course wine. There's a bit of spirits, but they also have a number of, are representing a number of brands within beers, soft drink mixers, as an example. The vast majority of the businesses is in wine. There's differences between the different countries. Finland is almost pure wine. The Swedish business is mostly wine, with a little bit of other products as well, whereas the balance in the Nordic Norwegian business is skewed towards a wider portfolio. The Norwegian business is the one where the portfolio has been developed the most.
When it comes to growth rates and expectations for net revenues, I think we will get back to that when we announce our full year statement and give guidance for next year. I think what you should do is that you should look at the announcement that we did on acquisition, because that is what indicates a normal year where there's no COVID restriction and there's a normalization of traveling and the border trades, which is pretty big between Sweden and Norway. That's the starting point of modeling. Then I think what you should keep in mind is that most acquisitions do not really generate a lot the first 12-18 months in the sense of generating more than what you acquire.
I think the mindset that we always have when we acquire assets is that we need to do whatever we can to keep the top line and to secure the bottom line of what we buy, and then develop it from there. If you look at the assets that we have acquired back in 2018, those are the assets that we are benefiting from, you know, 2020 to 2021, where we did not benefit a lot in 2018 or in 2019 for that matter. That's the way that you should look at it.
Excellent. Thanks. A follow-up. So you're quite new to wine. Is this a category that you would be interested to expand further and maybe move into southern parts of Europe as well? Is this a category you're very interested in, or is it more about getting the distribution to the Swedish and Norwegian markets?
No, but I think through Hartwa-Trade , we have been working in this category for 50 years. This is something that is an embedded part of the Hartwall business. Since we took over the ownership eight years ago, we had learned an awful lot of what that can deliver in terms of added value from a portfolio point of view. I think there's a difference between monopoly countries and non-monopoly countries, and that is one of the things that we are of course learning even more. Now we have the Solera business with us.
I think if you look at it in a let's call it Southern European context, it is not something that is high on our radar.
Okay, thanks. One question on cash flow and net working capital in particular. I think you have guided for a negative DKK 200 million impact for the full year previously. Is that still your expectation for 2021?
When we started the year, we gave a few indications that we had some headwinds because we are not continuing with the Finnish beer campaign. Also there was some delayed payments that hit us that helped us last year. When you look into this year, we have been helped a little bit by a change in duty payments in Finland. Some of the headwind have been mitigated by other factors. I would say it's very difficult to indicate where you end the full year on free cash flow. I think that the headwind we receive from working capital is substantially lower than what we indicated at the beginning of the year.
Excellent. Thanks. That's my questions.
The next question is coming from Edward Mundy at Jefferies. Your line is now open.
Morning, Lars and Lars. A couple of questions from me. The first is really an update on current restrictions. I appreciate you don't have a crystal ball, but could you remind us what you're seeing at the moment that's leading to this element of caution within the guidance range? And does the bottom end of the range assume, you know, full, you know, hard lockdowns in all markets, you know, like we saw in the first quarter? The second question is around revenue growth management and your toolkit here. You know, clearly for 2022 it's gonna be a bit of a balance between both headline price and revenue growth management. Could you sort of talk us through some of your toolkit and, you know, what proportion of your business currently sold on discount?
Were there opportunities to perhaps reduce the frequency and depth of that? The third question is on the water acquisition in Denmark. I appreciate it's quite small, but you know, water's traditionally a sort of slower growth, lower revenue per hectoliter, per case category. Could you remind us how this helps your multi-beverage strategy and what's the scope for innovation on this portfolio?
Thank you. If we start with the COVID restrictions, I think what we see at this point in time is that the number of people who have caught the disease in the Nordic countries in particular have been on the rise. We've seen a few companies cancel Christmas parties, so on, and the reintroduction of the Coronapas in some of the markets. There is a little bit uncertainty as to what level will the on-trade stay at for the rest of the year. It's not a normal trading in on-trade for the rest of the year.
That gives us a little bit of extra volatility than what you would normally see so late in the year. With that said, trading is still very strong in on-trade, in particular in Denmark and also in Finland. You see some restrictions, and you can see that there is a little bit more risk than what you would normally see at this point in time. For the revenue question, I think we have been pretty good at working on the average value over the last many years. The average sales price, which is a combination of premiumization and price pack strategies.
I think the way that we look at it is that going into next year, we will have to be even stronger on that as well. The combination of, call it net price increases, will be a combination of price increases. It will be an evaluation of, you know, the promotional strategies. What is the depth, should we go to, you know, everyday fair pricing? What kind of multi-packs do we promote? Is it the 24-pack? Is it the 18-pack? Is it the 20-pack? Is it the 6-pack? All of that is being worked out right now, in all of the countries. Some of the countries are starting earlier than others.
I think Denmark is a country where you start the first. In Finland, you have the window on the first of April. Most of the new things are implemented, like in France, also going into the second quarter, Italy a bit earlier and so on. It's kind of like a cascading effect that we will see over the course of the next four to five months. Where we have already, you know, taken some initiatives is of course on the international business, because that's where we are not working with retailers that have planned promotion programs that cannot be changed because of the way that they work.
That is where we are, we are already implementing, you know, some price adjustments during the fourth quarter. Did that answer your question, Ed, on the revenue side?
Yeah. I mean, soft drinks category and beer to a certain extent, there's all the tradition. There's a lot of products sold on discount. Are you able to share sort of what proportion of your business is sold on discount or promotions and therefore, you know, what is the size of the price that reduces?
I think the rule of thumb is that in mainstream retail, it is between, depending on the country, 70%-85% that is sold on some kind of either promotion or activation in the store. Whereas the remaining part is sold either from the fridge or is sold from the hot shelf, standard shelf. It's a relatively high share that is, you know, promoted, activated in some sort of way. That means that back to what I said, it is also important to look at the promotional pricing and the depth of the promotional pricing in, you know, the whole discussion about compensating for the cost price increases.
Great. Thanks.
Then
Finally on the Voss acquisition.
Yeah. This is actually an asset where we have been looking at for quite some years. If you look at our portfolio in Denmark, we have the Egekilde water brand, which is a premium water in its positioning. Whereas the Aqua d'Or brand is more in the mainstream territory. They are very strong in convenience, and they are very strong in what we would call alternative channels. Channels where we are not actually very strong. The way that we look at it is that we would kind of like complete our range of waters. And this is again the territory of no low sugar, which is an area where we do see growth.
Some of the brands growing from the heritage of water and others growing from the heritage of soft drink more in the artificially sweetened kind of proposition. From a category point of view, this is actually something that we like in the Nordic countries. Again, it's mostly convenience driven. It's driven on the go. I wouldn't rule out that there will be some cross-selling synergies given that they have a route to market that we do not have into certain customers. I think I've seen some comments about that it's a low margin business, water.
I think if you look at it on a European level, you would consider it as a low margin. If you look at it on a Nordic basis, water is not low margin because it has a convenience angle and not a carry home in 1.5-liter like you see in Southern Europe. We feel that this is a nice business and a good fit. They have a very strong supply chain. Similar to what we saw when we acquired Crodo from Campari, well-invested, good people, good processes. That's the same that we see going out of Danone. We feel it's a very nice asset for the Danish business.
There's some export into the other Nordic countries, which is in our mind a good match to build up our portfolio next to the Solera business.
Great. Thanks. The final part of the question was innovation opportunities. I know you're pretty good with the functional waters. Is there opportunity to do more with this portfolio?
Yeah. We need to get the approval from the competition authorities and, you know, talk with the management and look at their pipeline of ideas. When we follow them and have followed them for the last five, seven, eight years, they have been pretty innovative around the whole water segment. They have been more successful on their innovations around waters than we have, to be honest, in the Danish market. We feel it's a good platform.
Great. Thank you.
The next question is coming from Mitch Collett at Deutsche Bank. Your line is now open.
Morning, Lars and Lars. I noticed your comment in the release about your ambition to offset the EBIT per hectoliter impact of higher input costs. You also commented that maybe 6-6.5% is a reasonable estimate for how much you'd need to take to achieve that. I appreciate that soft drinks and beer are relatively inelastic categories, but if you're gonna try and get 6-6.5% of net pricing, even if some of it comes from lower promotional activity, do you think there's scope for a negative volume consequence in 2022?
I appreciate there's a lot of uncertainty and I guess depending on the answer to that question, would you see flat EBIT as a good outcome given all the uncertainty that there is for next year?
Yeah, I think if I start with the first one, I think you know we are not different from any other European brewer or soft drink company in terms of how we are going to look at the cost. I think that there's always a discussion around you know the level of hedging and how far you go on your hedging strategies, but eventually it will hit all of us. We are not different from that. I think as we also highlighted in the pre comments, and that is that there's two uncertainties. How is competition going to play this? Are they going to cut down on costs to cover up for some of it?
Spending more on sales and marketing costs, maybe taking people out of the organization, et cetera, et cetera. Try to put price increases that are lower. That's an option. Of course, we need to figure out how do we play that. We do not have a full transparency on that right now, in how that's this has played out, so that can change a bit of you know to our strategies, how we play it. So there's many, I would say movable parts here that we are managing right now. But our conclusion is it's the same for everybody. You ask a question around guidance for next year. I think we will of course not answer that right now.
I think if you have followed us for quite some time, then our mindset has always been around building additional value to the shareholders over time. That's the core reason why that we continuously spend more on sales and marketing, and that we continuously are building our capabilities from an organizational point of view. That is to be able to deliver a constant growing business and converting that into bottom line. I think that the amount of movable parts that we have on the table for next year is pretty high, and that is just what we highlight. We also highlighted that after Q2. We are highlighting it again. Do we feel comfortable of where we are right now? Yes, we feel comfortable.
Okay, great. Maybe a follow-up. Higher input costs come and go, but, you know, beer and soft drinks pricing tends to move up over time. Do you think the current pressure on input costs is potentially good for your margin and your profit per hectoliter on a longer term basis?
I think it really depends on on two things. How will the consumers react to the new price points? Would they accept them? I think that the our current view is that if you look at the Nordic countries, consumers are generally in a good shape. Unemployment rates are relatively low. There's a lot of things that you cannot spend your money on, so you're you know, actually quite cash rich, as an average family. So you see that there is inflation. The hope is of course that you as a consumer would accept the new price points, but if you don't accept the new price points, what do you do? Do you consume less, or do you move down to private label discounts?
Are you buying more on promotions and less from the shelf? These are some of the dynamics that we are following very closely. One thing is the consumer, and the other one is of course how competition will play it. You know, when and if there will be a deflationary situation on the cost, but we'll have to see that when we get to it. We don't know if this is in nine or 12 or 18 or in three years' time. I think we need to deal with the challenge that we have right now, and then look at the opportunity when it arise.
Understood. Thank you. The next question is coming from Brian Swanson at J.P. Morgan. Your line is now open.
It's Brian Swanson from J.P. Morgan. Good morning, Lars. Just two questions from me, please. Firstly, with regards to the you mentioned the capacity constraints around ciders, RTDs, and also capacity constraints for the international business which sounds like it well into 2022. Could you give us a sense in terms of like how like what is the inventory situation for your international business? And like will you be looking to accelerate maybe CapEx or organic capacity investments to meet the strong demand? And then secondly, with regards to your the integration of Crazy Tiger in France, you mentioned you've already gained market share within the segment. How has the integration gone so far, and how like what are your ambitions for the Crazy Tiger brand in particular within the French energy drink market in the midterm?
Thank you.
Yeah. If I take the first one around the cider, I think our sales out growth rates in international have been kept at a relatively high level. And that's a combination of our malt business growing more than what we have seen, you know, in the past. We feel that is helped a bit also by the pandemic because we are relatively strong on the retail side where we do not have an exposure to on-trade. And the job for us is of course that as the restrictions run out, people will be out there, that is to secure that we have, you know, the relevant, I would say, distribution and activation and convenience.
Because when people are at home, they consume more malt when they are compared to when they are on the road. That's one of the drivers that we have. Another driver is our Faxe brand is doing really well. And in particular around the higher alcohol variants that we have in our assortment. And we haven't seen any, call it, deceleration of the growth, and we have been able to secure that the level of out of stock in the markets have been very low. It's the trade inventories that we have been ramping down. Now we are getting out of the season in the Nordic countries, and that means that we will be able to supply and restock in the markets over the next four to five months.
That's the plan on the international. I think if you look at the first quarter, that will be unusually strong in international because of the replenishment of the stocks in terms of how we look at the planning. The same will go on the RTD and cider. We are working on a combination of third-party help for some of our production. And the other one is to make use of the spare capacity that we have out of the season. You know, months like January, February, and March, we normally do not produce full speed, and we plan to do that going into next year so that we utilize, call it, the full year capacity in a better way than we did last year.
You need to remember that there was a lot of uncertainties about restrictions last year, so we didn't really fill the stock for that reason, which we will do this year so or next year, so that will be a more normal year. We are evaluating what is, what can we do to increase the output on our current equipment. Is there any, call it, a CapEx that we need to do on our current lines that can increase the speed and the output? What is the, you know, potential investments that we could do, should do for the future? It's not something that would impact 2022.
We feel that we have a plan for 2022, so this is more something that relates to 2023, 2024, when it comes to capacities. We are adding a new canning line on our Faxe facility, which will be operational in around May. We are adding a PET line into our Baltic territory in Finland, but that can supply also the Baltic countries and potentially even Sweden. We are ramping up our capacities going into 2022. On Crazy Tiger, the business is still not fully integrated into our French setup, but I think what we have experienced since we took over the business is that the brand is really performing well in the market.
It continues to gain shares. Over the next six months or so, we will merge the organizations. We will combine the logistics set up. We will put them onto our IT platform, and then we will start to ramp up the commercial investment. I think we can say that the business is performing and the brand has a lot of attraction in the French marketplace.
Thank you. Just to follow up on that last point, please. Like, so these share gains that you're seeing in the French energy market isn't necessarily a result of higher distribution or sales integrations more like like-for-like same store velocity?
If you look at the market share data, we are up 8%-10% more than the market in general. If you look at how it evolves, a piece of that is an increase in distribution. There is a lower level of promotion, and there's an increase on the base sales. The unpromoted share of sales is going up, which is, you know, a strong signal for the brand. That's the combination of what is happening right now in France.
Perfect. Thank you. That note very clear.
The next question has come from Richard Withagen at Kepler Cheuvreux. Line's now open.
Yeah, good morning, Lars and Lars. I have two questions, please. I know it's difficult, but in terms of price elasticity, I've got some questions. Can you share your thoughts on specifically what you expect in terms of elasticity in the energy segment and RTDs? And is that if you think that differs materially from, you know, mainstream beer and mainstream soft drinks? And then the second question I have is on your budgeting for 2022 for next year, what are you assuming in terms of, you know, market restrictions? And I'm especially interested in, you know, what that means for the innovations you put on the market, you know, the marketing spending you plan to do. Those will be my questions.
Yeah. If you look at the price elasticity, I think where we have the highest price elasticity is in the Baltics, and that's because of the consumer spending power, and that's in particular in the alcohol segments. So, when you increase prices, and that doesn't really matter if it's us trying to cover for cost price increases or if it's derived from excise, you normally see a decline in the volume. So there's, you know, a pretty easy mathematics that you can sit down and look at the consequences. If you look at the categories that you talk about, energy and RTD, those are categories with less price elasticity. Energy is still a convenience product most and for all.
It's you buy it cold from the fridge, on the go, convenient, and those occasions generally have lower price elasticity for the consumers. RTD is a combination of, I would say, two categories. You have more like alcopop, and then you have, call it, the more adult area. I think the adult area with relatively low price elasticity, whereas the more alcopop area is more price sensitive, because you have some price points today in most countries that the consumers have had for many years. The question is how we play that piece in terms of what we talked about early on, the promotional level versus what is on shelf.
It might be that it's better to keep the promotional price, but you have, you know, the amount of promotions that you do is less, and thereby you increase the share of base sales and so on and so forth. We go through that in all of the categories, in all of the countries in terms of what is the right choice in terms of the price strategy and the price points.
Then you had questions around next year and our budgeting and so on. Of course, we'll give our full year outlook when we come with the full year results. I think we can say that the innovation pipeline we have for next year will not really be that dependent on what kind of restriction scenario that we see. I think we've seen this year that by investing into the growing categories, by making certain that you follow the trends, by being strong in low no focusing on energy and so on, and premiumizing our portfolio, that works really well for us. The plans we have for innovations next year are following what you say, our priority categories.
Of course, if you look at different levels of restrictions next year, that is probably going to impact sales cost more than what we are going to do about our innovation platform next year. We'll give you more details on what our scenarios will be in terms of potential restrictions next year. On innovation, expect more of what you've seen this year.
Okay. If I can just add one more question then, back on Crazy Tiger. I saw, Lars, on one of the first slides you showed the Crazy Tiger cans. Is that new, or was that already in the market? So in other words, are you already starting to introduce new pack systems? Because I think it was originally in a big bottle, right?
Yeah. If you look at the Crazy Tiger, it has to a large extent been the sharing occasion where a lot of the sales came through the larger sharing size PET. They had a can lined up for a number of years, but not as a big focus area for them. I would say we have not done a lot to the product assortment yet, but of course over time, we will look into whether we should have a stronger offering within cans, which is the normal pack format for energy drinks, where today we're really strong in the sharing location in France.
The cans you see on the picture are already in the market, and we haven't changed those designs at this point in time.
All right, very clear. Thanks. Thanks, guys.
The next question has come from Danske Bank . Your line is now open.
Morning, Lars and Lars. A couple from me, please. First, could you please share some, maybe some high-level thoughts on how you're seeing retailers approach the pricing negotiations? Is there a sense of more acceptance, obviously, given the environment, and any areas where you feel it's more difficult? Again, connected to the pricing situation, you were saying earlier how it obviously depends on how competitors react, what they do. When you think of some of the smaller players in the market that typically probably have less hedges than you or than the larger players, they've been experiencing probably some of the pressures already through this year. Do you get a sense of what they may be doing going into next year, i.e., maybe they don't need to take price?
Could that make things a bit more difficult? Just want to ask on the Aqua d'Or acquisition, if you are able to disclose or give us a bit of an indication on the cost of this deal. The last thing, please, on admin expenses, which have increased materially in the last couple of quarters. There were some acquisition-related costs, I believe, in there. What's a sort of normalized, roughly normalized quarterly level for admin costs going forward?
If I start with the acceptance of price increases, I think it takes, of course, a bit of work to explain this to the retailers because they are, of course, always extremely focused around the total basket value when people are shopping in their supermarkets, and they are highly concerned also on traffic, right, and the traffic generation. Beverages is a traffic-generating category for many retailers. I think the level of, call it, acceptance varies of course also from country to country and also from concept to concept. I don't have a you know, a straight answer to that.
I think all in all, the feedback that we have is that they know that we need to do price increases. The question is more how we do it, how much is promotion driven, how much is price pack driven, how much is really price increases on the shelf, which of course makes the negotiations a bit more complex this year than the prior years. I think the general sentiment is that the retailers acknowledge that there is a need to cover up for price increases. Again, they know it because they also have private labels, so they know exactly what the cost price inflation is.
I think if you look at the smaller players in the market, we haven't seen any indications that there's different dynamics around them than us. Our reading is that it's the same. You asked a question around Aqua d'Or, the deal price. I think we're restricted a bit from the sellers in terms of giving the exact value. I think the way that you should look at it is that the multiple that we are paying on this asset is not very different from the similar acquisitions that we have made, meaning you know, solid positions in local markets like in France or Italy. So that's a similar kind of multiple that we are paying, and I think that's the closest guidance we can give on that one.
That's helpful, yeah.
In terms of administration expenses, I think what you saw during the pandemic times, we didn't refill positions. We didn't spend any additional spend. Of course, there's some normalization of spending taking place again, where admin expense positions are being filled, so we are recruiting the positions that we saved under COVID. There was a sharp reduction from 2019 to 2020, and now we are normalizing the spending on admin again. I think it's also in the shorter term, we will be strengthening the organization, in particular in IT, to ensure that we have the muscle to integrate the companies that we have acquired.
I think if you look at admin costs as a percent of revenue, I think we'll still continue to see the efficiencies by becoming a bigger business. It will, in absolute terms, increase next year, because we have a lot of integration work ahead of us and IT is becoming a more and more important enabler for efficiency, as it's been for a number of years.
Perfect. Thank you.
The next question has come from André Thormann at Danske Bank. Your line is now open.
Yeah, thanks a lot. Take my question. First question is just about the 6-6.5% that you mentioned. Just to be sure that does that translate into a cost per hectoliter next year of 5% of that? That's my first question. I'll take one.
Relates to the math of the cost and price increases. To cover those up, how much does an average beverage player need to increases the net selling prices to compensate for that? The 6.5 is relates more to the beer guys, and the 5% relates more to the soft drink players. Again, if you take us being about 50/50 between the two, then we are probably in the middle looking at it over a period of time where hedging will run out and so on and so forth.
Thanks a lot. I think something happened with the sound, so I didn't hear the first part of the answer. Could you repeat?
What I'm saying is that the 6.5% relates to beer guys. The 5% relates to soft drink. We are about 50/50. The percentage here that I talk about, that is the price increases that you need to compensate 100% on the cost price increases for an average beverage player in Europe.
Okay, thanks a lot. It doesn't directly translate into 12%-13% cost per hectoliter next year, just to be sure.
No, not when you look at us, but the point is that there's also excise increases in some countries. When you add it all together, our presumed price increases in this scenario, let's say at 5%, that can convert into a price increase on shelf of 7%, 8%, or 10% depending on other parameters, including the discussion around retail margins, et cetera. That is a number that relates to us as a producer and not the price for the consumer.
Okay. Cool. Thanks a lot. My next question is just in terms of price increases for on-trade. Are you willing to increase prices for on-trade? I think I remember that, historically you haven't been willing to do it, at least, due to the pandemic. Are you willing to do that due to the increase that-
I think those are two separate topics. There's the piece about how do we support the on-trade, and we are supporting them quite heavily in making sure that they have maximum traffic, that we have the right portfolios and so on and so forth. Then the other one is a cost measurement. I think if you look at the price increases in general, then packaging is the category where you see the biggest price increases. Since we're using less packaging in on-trade because you have bag-in-box and you have draft beer and so on and so forth, if you look at the average between what is needed in the different categories, we would need a bit lower in on-trade compared to the off-trade.
Given the magnitude of the price increases, we do not have any channels where we would not see price increases.
Okay. Just then, just my last question in terms of price increases and raw materials and all these things is how much are you currently hedged for aluminum and barley into the 5th week?
I mean, we are hedging the normal levels, but we are not telling what is the exact hedge amount then, and it couldn't really help you that much because if you look at the prices that we've had over the last six months, they have been all over the place. We normally hedge quite a portion before we start the year, and then we finalize the hedging during the year, and that's what we continue to do next year.
Oh, just my last one, on Aqua d'Or, how much of volumes are private label in that biz?
The details, we'll have to come back with that when the deal is concluded for non-disclosure reasons right now. They do private label, yes, but the magnitude, we'll have to be a little bit patient on how much it is.
Thanks a lot. Thanks for taking my questions.
There are no more questions at the moment. For closing remarks, I give back to the speakers.
Yeah. Thank you, everybody for participating. I hope you got some clarifications around the buildup of our results in Q3 and year to date, also comparing to 2019. We wish you all a nice day, and thank you for participating.