Earnings Call: Q2 2021

Aug 24, 2021

Good morning. My name is Lars Jensen, and I am the CEO of Royal Unibrew. With me this morning, I have CFO, Lars Westergaard, and together, we will present our first half year result for 2021. Following our presentation, there will be enough time for questions. Now if we now turn to Slide number 3. We are very happy to present the highest Q2 result ever for Royal Unibrew. Performance has been strong across the business, providing the resilience of our strategy and our business model as well as our ability to act diligently in a changing environment. The results are realized despite COVID-nineteen continues to impact our business and despite significantly higher sales and marketing costs. Almost all sales channels are now open, and we are working with our customers to secure supply for all consumers across our geographical footprint. Volumes were 13% higher in the first half of twenty twenty one, putting pressure on the entire value chain. Our organization has once again delivered in a challenged circumstance, not least supported by a very flexible and adaptable supply chain. We continue to invest behind the growth opportunities we see in the market. And in combination with the higher sales and marketing cost, EBIT increased by 13% in Q2 to DKK 521,000,000. This is 6% above the level in Q2 2019 before COVID-nineteen. We raised our full year outlook for EBIT from $1,525,000,000 to 1,625,000,000 through an interval of $1,625,000,000 to $1,700,000,000 We'll get back to the assumptions behind our outlook later in the presentation in more details. Yesterday, we also announced a new share buyback of up to DKK 250,000,000 running to the end of the year. Now please turn to Slide number 4. In the first half of twenty twenty one, we generated an EBIT of DKK 750,000,000, which is 13% higher than first half of twenty twenty. As stated earlier, it is also 6% higher than what we delivered in H1 'nineteen before COVID-nineteen. Despite negative impacts from restrictions in all markets, in fact, we feel that our business is stronger at all levels compared to before COVID-nineteen, with proof to the resilience of our strategy and business model as well as our ability to navigate safely through the crisis. The gross profit increased to 49.3% in H1, despite gross profit per hectoliter declined by 1%. Both sales and marketing costs and administrative costs increased significantly in the first half, resulting in an unchanged EBIT margin of 19.2%, which when we compare it to H1 2020. Growth in EBIT is driven by Western Europe and International, whereas our EBIT in the Baltic Sea decreased due to COVID-nineteen restrictions on the on trade. All in all, we produce and sell more before COVID-nineteen. We are generating higher earnings and higher cash flows in a market that is still restricted compare it to before COVID-nineteen. That is only possible because of a skilled, dedicated team, colleagues across the business, and I want to use this opportunity to thank all employees for their great efforts. We can now turn to Slide number 1 sorry, 5. Looking at our volume growth by category. You can see that we continue to enjoy high growth in Energy Drinks, which grew 36 present in the first half of the year. This growth is driven by our focused actions around benefiting from the general market growth in the category, reach some other things. Other includes the rollout of lemon soda energy activator in Italy, a rollout that is progressing very satisfactory. The carbonated soft drink also continued to grow significantly, which is a solid performance as carbonated soft drink has benefited positively from the strict COVID-nineteen restrictions, which came into place a year ago. The solid performance is create it from a strengthening of our already very strong market position across geographies, focused install execution add all customers and a growth in the no low sugar territory. Our malt beverages continues to grow and did so by 15% in the first half of twenty twenty one. Sellout has been higher than sales in, which really is as a result of a destocking because of priorities and deliveries. So we have a lower trade inventory than normal. Cider ready to drink volume grew 12% in the first half, steaming from high growth in the Nordics and in Asia. The 10% volume growth in beer in the first half has also benefited from the reopening of the on trade channel, but also from extraordinary campaigning in Finland in the beginning of the year, which contributed significantly to the growth. Juice and water grew by single digit percentages in the first half by 8% and 3%, respectively. Growth was higher in Q2 than in Q1 as a result of the reopening of restaurants and hotels, convenience, etcetera. Wine and Spirits declined by 6% in the first half of twenty twenty one, which is a result of a very restricted on trade in Finland, which is the area where we do have a business with Wine and Spirits at the moment. The business today in on trade has been impacted by the lockdown and is a main driver of the lower sales. Now we will turn to Slide 6. It has been a busy quarter with high volumes and pressure on the entire value chain. The very high sales growth had led to some production capacity constraints, and we have also experienced and been challenged by the industry wide lack of aluminum cans. To remain a flexible supplier with the highest service level, we will secure more capacity. But for now, in the short term production and procurement planning is more important than ever. The reopening of the on trade as well as the opening of the border in Denmark and Germany has also kept us busy throughout the quarter. And towards the end of the quarter, the event business also restarted, although a significantly lower level than 2 years ago. So smaller events, not the big events. On the product innovation front, we have launched, as an example, an alcohol free version of our iconic original long drink in Finland as well as we have launched a plant based enhanced water under the Nobel Plus brand with Prodanes. Both innovations tap into the growing demand for healthy and good for you products, which is a part of our strategy. In Italy, we continue to roll out our new energy drink, lemon soda energy activator, which is going according to our best wishes and reached number 3 position in the energy drinks market during the last week of July after only 4 months in the market and with only about 50% of a weighted distribution change reached. So an excellent performance by the Italian team. We also broke ground on the new solar panel plant next door brewery in Vaxze, which would generate around 60% of our electricity needs at our Danish production sites. We have also committed to 100% recycled plastic for the PepsiCo products in Denmark by the end of 2022 and committed also in July, we expanded that to include also our Finnish business as well. In the first half of twenty twenty one, we also spent quite some resources on our strategic development on the M and A front, which was executed in the Q2 and in the beginning of Q3. Please turn to Slide 7. We have agreed on 3 acquisitions so far in 2021, where the acquisition of Solera Beverage Group is still awaiting a final regulatory approval. In the beginning of May, we acquired Fusang, a strong regional Danish brewery with a strong market position in southern part of Joplin, especially within the entree channel on beer, kraft soda and premixed cocktails. We believe that we can leverage this very interesting brand portfolio into the rest of Denmark. And in 2021, we do not expect this acquisition to contribute significantly to sales or earnings. At the beginning of July, we also announced an acquisition of MC Energy in France, which at an interest price value of around DKK 610,000,000 on a debt free basis. MC Energy owns the energy drink called Crazy Tiger, which has a market share of around 10% in a fast growing French energy market, which is equivalent to a number 3 position in the market. In 2020, MC Energy had a revenue of around DKK 100,000,000, and we expect it to contribute by around DKK 75,000,000 to our revenue in 2021. We believe that we can take the Crazy Tiger brand to the next level through investments in innovation, in the organization and by evolving the brand to become a bit more premium, gaining new customers, new consumers and occasions and thereby, in all channels leverage our grow on already growing existing capabilities in France. The acquisition also marks the next step in developing our French business towards a multi niche market instead of being a niche market. We also agreed I'll on acquiring Solera Beverage Group in the beginning of July. Solera is a leading importer and distributor of beverages across Norway, Sweden and Finland, with a strong portfolio of international, mainly imported beer, wine, soft drinks and other beverages. The acquisition provides a strong platform for Royal Unibrew to expand the sales of our white product portfolio into Norway and Sweden, in line with the Mucci beverage strategy that we are pursuing in countries like Finland, Denmark and the 3 Baltic countries. It will give us a sales force covering the Nordic region and the Baltic Sea, which totaling around 30,000,000 consumers, which is a doubling of our current footprint in the area. Solera Berries Group is being acquired from a private equity fund, CAPMAN, at an enterprise value of around DKK 770,000,000 on a debt free basis and has around 150 employees across geographies and generates a normalized net revenue, meaning excluding COVID-nineteen effects of around DKK 1,300,000,000 and a normalized EBITDA of around DKK 70,000,000 on an annual basis. But as I stated by saying, the acquisition still awaits regulatory approval, which we expect to come through here in the Q3. I will now pass the word on to Lars Westergaard, who will go through the financial performance, business segments and the outlook before our wrap up before we go into the Q and A. Thank you, Lars. So if you please turn to Slide number 8, please. The performance in Q2 'twenty one has been very strong. Societies and therefore, importantly for us, the on trade has slowly reopened and supported volumes throughout the quarter. We have still seen and we still will see restrictions in the beginning of the quarter, whereas in June, it was warm and supported growth, especially in Denmark and Finland. The warm weather coincided with Euro 2000 Euro Football Tournament and therefore also contributed to growth. On the coming slides, I'll return and go more into detail on the different line drivers. In total, volumes increased by 12% compared to Q2 2020. Pricemix was positive, among the other things, due to the reopening, which drives both positive channel mix, positive product mix and premiumization. This led to an increase in net revenue of 16% in the quarter. Sales and distribution expenses increased by $109,000,000 compared to last year. Admin cost increased 39% in the quarter, driven by a normalization in the cost level compared to last year, but also cost to advise us in relation to the 3 acquisitions we have done so far in 2021. As a result, EBIT increased DKK 58,000,000, Danish kroner corresponding to 13% in the quarter, resulting in an EBIT margin contraction of 80 basis points to 22.6%. For the first half year, the EBIT margin was flat at 19.2%. Free cash flow increased by 19% to SEK785,000,000, which is higher than expected and caused by a change in payment terms on excise sushis in Finland as well as higher activity across the group. On a later slide, I will go into more details on the components of our free cash flow. Cash flow, if you turn to Slide number 9, please. Cash flow before changes in net working capital increased by 11% to DKK 929,000,000 in the first half of the year compared to the same period last year. Noncash adjustments were almost unchanged, so the improvement in cash flow before changes in net working capital was driven by higher earnings. Cash flow from operating activities increased by DKK 183,000,000 to DKK 885,000,000 in the same period. The increase is driven by a positive contribution from net working capital, which contributed positively by DKK 81,000,000 compared to minus CHF 21,000,000 last year. Net working capital is positive impact by the change in payment terms on excise duties in Finland. Net investments in property, plant and equipment was DKK 202,000,000 which is significantly higher than last year but in line with expectations. This means that free cash flow for the first half year reached DKK 683,000,000, which is 16% more than the same period last year. The free cash flow headwinds of around $200,000,000 which we expected for 2021 at the beginning of the year has been materialized, but the higher than expected growth across the business as well as the change in payment terms in the Finnish excise duty mitigates these headwinds on a full year basis. Please turn to Slide number 10. Before I give the word back to Lars for his final wrap up, I will just take you through our outlook for 2021. As Lars mentioned at the beginning of our presentation, the strong set of result in the first half the strong momentum into the Q3 has led us to upgrade our 2021 full year EBIT outlook to SEK 1.525 to DKK 1,625,000,000, 2, a new guidance of DKK 1,625,000,000 to DKK 1 point our DKK700 1,000,000,000 With the continued reopening and normalization of our markets, we will continue to increase our sales and marketing ventures towards more normalized level, build on our brand build our brand equity further and invest in growth opportunities as we see them across the markets. We have increasing raw material and freight cost in the market as we speak. And we have increased the headwind from CHF 50,000,000 to CHF 75,000,000 in our guidance. And these added costs are included in our new guidance for the year. We expect a positive contribution from MC Energy in the second half 2021 and potentially also from Solera Berievich Group. The biggest risk on earnings expectations short to medium term remains COVID-nineteen restrictions and potential reintroduction of stricter restrictions or lockdowns more than we have seen today. But our main scenario is that the restrictions will impact our business a lot less in the coming quarters compared to what they have done in the last 6 quarters. The low end of the guidance includes the risk of such negative development in COVID-nineteen related restrictions, whereas the top end includes a continued reopening of societies throughout the year. The top end of the guidance also includes quick approval of the Solera Beverage acquisition as well as no further deterioration in raw material prices. When it comes to raw material prices, the low end of the guidance do include scenarios with higher prices than what we currently see in the market. With that, I will give the word back to you, Lars. Thank you, Lars. Now please turn to Slide number 11. I'd like to conclude this presentation by outlining that we that is our this is our key points that we are focusing on in the coming period. Clearly, it is very important to us that we integrate Fusang and Crazy Tiger as quickly as possible so that we can execute on the business plans we have set forward for these investments. It is business plans which includes significant investments into brands, innovations and the organizations. In case of Fusag, we want to invest into a much wider distribution in Denmark, thereby growing the market position significantly. With regards to Crazy Tiger, it's about investing behind the brand and the organization and the spread of the brand in France. Our strategic focus remains set out on our 6 growth drivers that we went through in details at the Capital Markets section back in May. The very high activity level across the group has led to some capacity constraints. We have also experienced and seen challenges in the industry wide lack of aluminum cans as well as a global shortage of transportation capacity, the pressure on our production, procurement and logistic operations to secure the flow of products around the world is significant. It's therefore important for us that we spend enough time and align as much as we can with everybody around the whole value chain from procurement to production and so on. Related to these challenges, it is a need for us to secure additional production capacity see to remain the preferred partner for customers and consumers and to stay flexible for the future. We also need to continue to manage the CapEx environments that are tied up to our CSI ambitions. We have ambitious targets in that area, and we'll be able to reach that. So we need to for us to be able to reach that, we need to do a number of dedicated investments. And with that, I would like to turn back the operator, and we are ready to take your questions. Thank you. Thank you. I'll. Our first question comes from the line of Jemima Benskow from Citi. Please go ahead. Good morning. Thank you both for the presentation. Two questions from me, please. Firstly, I'd love to hear a little bit more about how confident you are in managing the input cost headwinds, particularly those higher in 2022. Can you talk us through the levers that you have to pass these pressures through to consumer? Basically, How confident are you in your pricing power? And then the second question, you feel margin pressure, particularly in Finland and the Baltic our high commercial investments. I'm interested to hear a bit more about which categories this investment was focused on, Particularly given your market shares were unchanged in the period, are you getting the return that you want from this commercial investment? Thank you. Yes, thank you, Jermina. I think if we start with the input costs because I think that's topic that we have also seen in the words that you have all written so far is one of the biggest pillars. I think if you look at it from a helicopter point of view, I think we have proven throughout the last many years that we are, I would say, pretty capable in the whole area of working with price pack strategies together with our customers, finding the right package for the right moment at the right price to the consumer. And thereby, over time, I would say, maximize the opportunities to create value for everybody in the chain, even the consumers in that respect. That will continue unchanged. Undoubtedly, I would say that this is a new situation. The last time where we have experienced, call it, significant inflation is back before the financial crisis, 2008, 2009. So what does that mean? That means that consumers need to learn about new price points. We probably need to introduce even new pack sizes. We need to work on the different priorities that we have between the different type of products that we have. Now I'm most and foremost talking about the multi beverage markets, to a lesser extent, the niche markets where it's more individual products. So I think we are confident that there is an open minded attitude towards this in the market. So when we talk to retailers, they know, they acknowledge that price adjustments needs to be made. What we, of course, do not know is if we hit price points where the consumer starts to say, that looks too expensive, so I would rather do something else. So there's a number of learnings that we'll have to go through during the period where the prices will be adjusted, but I think we have the true box. I think we have the right mindset to, I would say, to deal with it in the broader sense. Yes, I don't know if you have anything to add to that question, Lars. No, I think We are targeting to ensure that we mitigate the pressure by all the tools that Lars just mentioned. So if we look at our hedges, they are a lot of the hedges that we have been using this year have not been see you at the same attractive prices as we've had this year. So there will be a step up on prices. And of course, as Lars mentioned, the confidence we have in managing next year's profitability, of course, also relies on what competition is doing. So our ambition is that, of course, that we mitigate the entire input cost pressure by all the tools that Lars mentioned. If we take the question on the Baltics, I think we are actually pretty confident in the development in the Baltic area. We had a strong development during the quarter where the restrictions was pretty tough on the Baltic business in the beginning of the quarter. But as we exited the second quarter, the impact was actually a lot less. So I think we do not see any warning signs in the Baltics at all. It is a question have a lot of restrictions being in place this year. A lot of them have been lifted. The run rate is higher. We have seen a small reintroduction of some restrictions in on trade in Finland. But in the big picture, our business in Finland and the Baltic countries is back to normal levels. So this is what you can say, just comparison figures and higher investments behind the innovations that we've done. So no warning signs in Baltics at all. And the next question comes from the line of Richard Wittgenstein from Kepler Cheuvreux. Please go ahead. AUR. Yes. Thank you. Good morning all. Thanks for the questions. I have three questions, please. First of all, yes, you mentioned Your production in your packaging lines, what are the long term implications from higher capacity utilization on your packaging lines? Is it simply Investing more? Or do you need to increase the flexibility of your production setup? That's the first question. 2nd question is, yes, coming back on sales and marketing spending. How does it compare in first half twenty 'twenty one to the first half twenty nineteen, I guess it's still lower. But what is the outlook? Should we expect as a percentage of sales For it to be back to 2019 levels in 2022. And then the last question I have is, yes, indeed, coming back to the input cost environment. You're mentioning DKK 75,000,000 impact in 2021 and a significantly higher impact in 2022. Will Maybe I mean, can you quantify that? Is it going to be double the impact next year? Or are we even looking at a bigger impact? Thank you, Richard. If you look at the overall setup of our call it our geographical footprint with the production lines, etcetera, etcetera. We have actually already this year, I'd say, been able to create a lot of flexibility between the sites. So we have had certain lines and brew houses and so on, so forth. We have had ample capacity like in Italy. We have also had ample capacity for certain packaging types in Finland, as an example. And both of these areas have helped out on producing more for the entire group. So that's the call it the 1st year in 10 years, where we have utilized our platform more cross border than we have ever done before, that has created a lot of learnings in terms of how we can, call it, optimize our footprint and also create, in reality, a better churn on the CapEx when we then do them because then that means that when we buy a new line, then we can reallocate volumes and thereby save a lot of logistic costs and at the end of the day, makes it a more a better investment faster. I think overall, if you look at our footprint, we have 2 relatively large sites today. So our Lachie side in Finland and the Fakse side in Denmark. And they are ultimately the center of our of our capacity expansions. There's a limit to what we can do to a number of the other sites because they are located in city centers, whereas it's difficult to expand significantly. So by nature, you would see that most of what we do would be in these areas. And when you look when it comes to Italy and France, we have a lot of flexibility still. So this is more in the Nordic space that we are focusing our expansions, so to speak. When it comes to this with the marketing costs, and of course, there's a difference in this respect to between the sales costs and the marketing costs because when you look at the marketing costs, they're more consumer oriented, if not 100% consumer oriented, whereas the sales cost is more channel oriented. And given that we have had restrictions in On Trade, as an example, we have had convenience where you have had less traffic and so on and so forth. By nature, you would see that sales costs and the activities that we conduct there deviates compared to the restrictions, write. So that's the comparison that you should do. When it comes to the marketing costs, we are I would say, we are probably, all in all, around the same level as we were in 2019. But we are about 30% higher in H1 than we were in 2020. And that's in spite of the fact that the savings only came in from about mid May, end May because we had to do the marketing that was already booked, we had to conduct that. So April, in spite of the restrictions, was a full month and then fade it out during May. So we are spending significantly more, which is one thing. The other one is, of course, the effect of what we do. And I think we can praise our marketing teams on the effectiveness of what we do. So that's the other piece of comparing to 2019 versus 2021, but it's also how much do we get out of it. And I think net, we are getting more for the money that we spent. And regarding your question on the input cost, maybe just to give you the full picture, there is a shortage of a number of the categories that we are using for our products. So the key priority us, it's actually to ensure that we actually get the supplies. There is a shortage of cans. There is a shortage of sugar, of dextrose, of many different categories. So the first priority for our teams is actually to secure that we can get the raw materials. And so far, the team have done a good job in this. But it is a very unusual supply market we have, and it's not a market that is in equilibrium in any way. Then when it turns in terms of the prices that we are paying to our suppliers, they will increase as we move through the year. So the comparison figures for the rest of the year will be impact it more by higher input costs than what we've seen in the 1st parts of the month. So and then when we exit the year, we will be paying more or less market prices on most commodities. And the way we are managing is, of course, that we have a very active with our sales organization about when do we go out and manage the price increases. Most of them will done to be done with the annual negotiations with the big retailers. And of course, there we will see how much we can compensate by price increases, but we will also be working on efficiencies and mix changes. So there'll be many different tools that we can use to ensure that we can mitigate the pressure from input cost next year. All right. Thanks, guys. And the next question comes from the line of Frederik Ivershen from ABG. Please go ahead. Thank you very much. Good morning all. First question on volumes. If we look at the organic volume growth in Q2, I think it was 5% versus Q2 'nineteen and the same number in Q1 was 11%. So guess a bit of a slowdown. I'm curious to hear whether that's a good run rate to expect for the coming quarters. So do you expect that to accelerate in H2. Thank you. I think the movable parts are relatively big here given COVID's in and out. I think when you look at our run rate in a 12 month perspective, year high single digit or something like that. There might be some individual swings between quarters. And that it's also the reason why that we talk about capacity constraints, we have never seen such a high growth so fast. And a part of it is, of course, deriving like in the beginning of the year from the Finnish beer campaign, but it's also driven by the market share gains and so on and so forth. We are not so volume driven. Of course, it's important to create efficiencies in some parts of the supply chain, but we are more focusing on what kind of a revenue that we generate out of it. I'm not going to guide you, Frederic, on if this our 5% or 6% or 7% or 3%. I think it ties up to the ambitions that we want to grow. We want to gain a little bit of share, and we want to be smart on our price pack strategy. And then that, at the end of the day, derives a number of X. And just to give you a little bit of view on this is if we grow at the magnitude that we do now, we need to add another production line every kind of like every 9 months. So on one hand side, of course, volume generates more business. On the other hand, it also generates an enormous pressure on the organization to secure that there's available capacity. So we are more net revenue focused than we are volume focused. Thank you. And then one more question from my side. So the implicit guidance for H2, it's a quite steep earnings increase in contrast to H1. Can you elaborate a bit on the key drivers for the implicitly, I guess, stronger margin expansion Then we saw during the first half of the year. Is it more of the same in terms of channel and product mix? Or what should we expect in that sense? I think one thing we should really remember is how last year actually happened. If you remember, Q3 last year, actually, most channels were trading at a fairly good level. On trade was open. And we hardly spent any money on commercial investments like all competitors did. So we had a quarter with good revenue, low investments, so a very strong quarter 3 last year. So if you look at the comparison between last year and this year in quarter 3, you should not expect a significant step up this year. But when it comes to quarter 4, there was a very strong lockdown in more or less all on trade segments throughout our markets. But actually also the restrictions were so tight that they impacted off trade in the Q4. So the Q4 is easier comps compared to the Q3. So that's one thing you have to really bear in mind when you think about the year to go number for our business. The full year guidance also includes what we have delivered up until mid August. And remember that the weather was very, very nice in both Denmark, Finland and Italy and the Baltic countries. We only had France in our footprint where we had some bad weather, and that's a small market for us. So we had good weather in July and quarter 4 is hopefully not impacted by the same restrictions as we saw last year. Right. Yes. Sorry, I was a bit unclear. I was actually referring to 'twenty one versus 'twenty 19 earnings, which implicitly is quite astonishing if you're delivering on your guidance here. But I guess the answer will be the same. So I'll leave the queue for other guys. Yes. But yes, I think just maybe concluding on this topic, there is so many movable parts and you get more and more every day kind of. So it gets more and more difficult to really make by element make a comparison to 2019. And that is also why Lars is talking about it the way that he's talking about it. Some things you can compare to 2020, other things you can compare to 2019. I think the ultimate piece here is that we are growing our business, in principle, in all our geographies. So we have a good momentum. And as we have shown you on the volume slide in the deck that we went through, we are growing in the categories that is growing. So we feel that we are well placed. We are investing ahead of the curve. And when we are talking about investing ahead of the curve, you always measure that on a share to voice, share voice basis. So it's not always dollar to dollar, but it's also relatively to how your competitors spend in the market. And that's the formula that we pursue. There might be some changes between quarters, but it's the 12 month kind of horizon that you should put on these things on a rolling basis. Thank you. That's helpful. And the next question comes from the line of Sean Samshoy from SEB. Please go ahead. Yes. Good morning, guys. Firstly, I have a question on Baltic Sea. And EBIT margin was down, I think, 3 40 basis points in Q2. How much of those base points was due to the launch of our Nobel Pro and the energy drink original in Finland. And Should we expect a similar amount of marketing cost in Q3 and Q4 in Baltic Sea? I think, Soren, the margin discussion in the Baltic Sea is purely because of restrictions. So when we talk about marketing spending is that we have not cut down on our marketing spendings while we have seen the restrictions because we believe in the innovations and by the and also as a starting point, these innovations are more patients are more retail driven. Nobel Pro is more convenience driven. So even though the people are traveling less in Finland and buying less products in Convenience. We have not postponed the launch. We have not cut down on the spending in the launch phase because this is for the long run. So you can say that on trade is down, both in Finland and in the Baltics. But we haven't changed our innovation plans and have kept spending at the right level for the future earnings. And we have in the future, you said that so how does that look going into the second half? We have the exact same view. That was also if you go back to how we treated second half last year, that was with exactly the same view. So in spite of the fact that On Trade closed down in most geographies in November, December last year, we kept spending the marketing money to make sure or to increase the likelihood that our flight attitude going into 20 21 would be either the same or enhanced. Now it has been enhanced, so I think we came through it successfully in terms of what we did last year. And we have the same philosophy around what we do this year. And that's not only in the Baltic Sea. This is something that we basically do across all geographies. Okay. I'll I'm not sure that is completely clear to me. But so is it fair to assume a margin decline in second half in Baltic Sea? I'll we're not going to guide you on specific segments and margins. I think what is important here is that overall, as a totality, Royal Unibrew is growing. There are some countries where the governments are a little bit more harsh on the restrictions. And even though that that's the situation, we are as it looks right now, we're not going to change our plans in terms of how we execute in the market because we do believe that it is the long term that matters and not the short term optimization of a quarter. And if that and that might lead to that there will be a small margin decline in one of the segments due to that, which in our mind is okay because we are not, as I said, optimizing the specific quarter. But looking at how we are creating a flight attitude of the business going into the next years. I think just to maybe just to explain it in a slightly different way, but with the same meaning, our target is not to what you can say deliver profit by quarter. It is to ensure that the business grows as much as possible in the medium term. And as Lars mentioned, the commercial pot of money we have, we allocate them to the best growth opportunities we have. The growth opportunities we had in Finland were actually pretty good and have delivered as expected. Then there are restrictions in Finland in the same quarter, which means that the EBIT margin in Finland is not as high as it was previously, but that's not for us, a warning sign at all because it's what you say, the lack of top line is driven by restrictions. But the growth in the new innovations we've had are actually pretty solid. So when you look at it in the long with the long term view, it is exactly where we would like it to be. So again, no red signs in the Baltic Sea. And when you look at from the beginning of the quarter to the end of the quarter, the performance was pretty strong when we exited the second quarter. Okay. Then my second question is on the group level. On the gross margin, I think it's up around 170 I'll How much of that is due to opening of Entre? I think you can if you compare the markets market last year versus this year, it is a completely different environment. Where last year, people were afraid of losing their jobs. You saw huge volume in off trade. You saw a movement to big packs where this year, you've seen in many places a fairly normal consumption with on trade opened and with some level of convenience, albeit not back to normal to old levels. So I would say it's a lot about channel mix that drives the improvement in margins in the second quarter. Say there's no structural if you look at it market by market, there's no structural change in the specific market. Our next question comes from the line of Vincent Wijn from JPMorgan. Please go ahead. Good morning, Lars. Lars, two questions for me, please. Firstly, I guess sort of following on from my last question. Given that the on trade in your markets, the off trades and the on Trade channels are sort of getting back to pre pandemic levels. Are you starting to get the sense that maybe some of the consumption trends that has helped your brands over the last 18 Months might reverse. What I'm thinking like maybe people, particularly the raw material inflation environment is picking up again. Like should we expect see private label coming back gaining share? Or what sense are you getting from your retail customers about how they would sort of be playing their own sort of promotional strategy and mix. And then secondly, Just with regards to the MC Energy acquisition in France as well as the energy launch in Italy, wondering if you could share any sort of Any early learnings that you got from the businesses there? I appreciate still very early days, but has there anything there change your approach to this, like thinking about how you'll go to market in the French market and like leveraging the Crazy Tiger brand with the Lorena brand in particular in France. Thank you. If I try answering the first question, there was a number of questions, I think, in the question. I think the most important one is the topic around how will consumers behave private label discount low end, low mainstream versus branded and premium. I think the general rule here or the general observation that we have is that when you have a low relatively low unemployment rate. Consumers are less interested in buying into low end propositions. We have built there might be differences between markets. But in a couple of our big markets, we have clearly seen a correlation between the unemployment rate, call it, slash the consumer spending power and the likelihood that they will take a branded beverage product instead of a low end product. And if you look through how, call it all of them the Nordic markets that they look right now. They're generally the consumers are generally in a healthy position. And that also means that our key hypothesis, back to Jarmina's first question, around how do we feel about passing on to the consumers. I think if you look at it from a consumer perspective, you probably do not find consumers in a better state in the Nordic countries to check different price points. Whereas if you look at Italy, then it might be slightly different, the same in France. But that's a different type of business because it's a niche business. We do not have the same benchmarking versus competitors. So that's it's a totally different mechanism. Also in terms of the percentage of price increase that you need, given that this is premium priced products. You would normally our you need to increase prices will from just from a pure mathematical point of view will, of course, be less. So there will be differences between categories, but we believe that if you look at it relatively soon, it will probably be the toughest for the low end producers and the private label producers, given the relative impact that they will see on their business compared to guys like us operating in the Branded business. And regarding MC Energy, I think we've had a pretty good start to taking over the business. So we've had it for a couple of months. It's been in the middle of the high seasons, it's been in the period where the French team have been on holiday. So of course, what we've been focusing on is to secure that they continue to grow at the pace that they've been growing at in the past. The hypothesis on this acquisition is the same say as when we took it over, it is to, what you can say, integrate the business into the Lorena organization, have more salespeople out in the field, make certain we have more salespeople that put our products on the shelves and thereby both increase the sales of Crazy Tiger, but also of Lorena. So I think the case regarding MC Energy is the same ask when we took it over, and it's looking very interesting. And a comment on the on Italy and the lemon solar energy activator. I think we have been confirmed that consumers generally would like to have a local alternative on the shelf. So the trade has embraced us and the consumers have embraced us. That means that when we are benchmarking our flavors to, call it, the top performers in the market, we are are getting very close to the same level of rotation at the distribution points that we have achieved. The traders have taken generally the expansion of energy drink on shelf very positively. So they are shrinking the space for sports drinks. And then they are increasing the shelf for energy drinks, which is slightly different than what we have seen in the Nordic countries where they have been squeezing more the CSD space to give Energy Drinks more space. So I think all in all, a very positive journey. And as you would know, this is the first time that we take lemon soda outside of its core space in terms of product proposition. So we also, in that respect, of course, takes a number of learnings, which could be beneficial for the future. So we are pretty optimistic still, as we talked about in May, on the Energy Drinks category. We are pretty optimistic about that. Generally, we are optimistic about our own ability to perform in the category. Great. Thank you very much. The next question comes from the line of Franz Heuer from Handelsbanken. Please go ahead. I'll Question around Western Europe in the second quarter, big volume growth, very little happening on the revenue per unit. I guess the inclusion of Fulsanne has something to do with that. Could you outline the organic growth rates for Western Europe volumes, revenues and EBIT in the second quarter, please. I'll There was a very, very low impact from Fulsang in the Q2. We got the keys late in the quarter, and it's a very on Heavy business. So you can hardly see the impact in the numbers for the Q2. So that actually does not really impact. I think the value of the Fulsang acquisition sits more in the portfolio and the position in Southern Jutland. So it's all about making certain we take that portfolio to the rest of Denmark where craft and specialty have a strong importance as well as we take all the rest of the Royal Uni will put the portfolio down to the customers that Fulsang have in Southern Dortland and increase our total sales in Southern Dortland. So it's a little bit of a longer term play, the Fulsang acquisition, and it's rather small compared to Royal EnPro. When you look at the numbers, France, volume on the beverage side is up by 21%, beverage revenue was up by 25 percent and bottom line is up by 37%. So of course, that also reflects a bit of the on trade discussion, both in around the Danish consumers, but also in Italy. Right. Okay. But I'm just a little puzzled that the revenue per unit is up so little given the importance of channel mix improvement and so on. Yes, but you also have the border trade as an example. That was in fully closure last year until what was it, end May, beginning of June. So there's a couple of months of on trade revenue, which by unit is lower because we don't have the same level of sales force and OpEx around it. So it's a different kind of setup. So you operate with a lower net revenue per volume, but you also operate with lower cost. So that's why it drives the call it the average revenue down. So there's a number again of movable parts. So if you look at it individually, so if you look at the different elements of what makes the Western Europe, France is the Denmark. So there's no structural changes within the 3 segments. So it's more the mix between them. Yes. Got it. Question on Baltic see I understand your point about continuing to spend and volumes not quite keep him up. But with regard to share of voice and with regard to competitive pressure, Generally speaking, in Finland, how would you describe the situation there now? I think that the market in Finland is not very different from what we have seen in the past. So I would say no changes. And there's no big changes in share of voices either. I think there's a difference between where we spend the money. So I think if you look at it in totality, I don't think there's with the knowledge that we have, there's not a lot of changes to share voice, but there will be changes to share voice in the different categories. So that you would see, but not apart from that. And finally, a question on the CapEx side of things. It does sound like we are and CapEx was up in First half, and do you have a number for us on full year CapEx 2021 and maybe an idea of the trend going forward in the next few years. Yes. I think we last year, we had a number of projects will. We're a little bit back end loaded because we stopped a lot of the projects while corona was really hitting. So there was a little bit of phasing between the end of last year and this year. I think we our guidance of a CapEx level of around 5 ish percent is still holding for this year. But of course, it's very important for us to ensure that we have enough past year and we deliver on the CSR journey. So of course, it is there is a lot of investments to be done, but we'll stick with see all the guidance of around 5% for the year. Okay. Thank you very much. The Next question comes from the line of Andre Thormann from Danske Bank. Please go ahead. Good morning, guys. Thanks Taking my question. Just I know you have been speaking of it already, but just to be sure, in terms of this input cost inflation for 20 2021. I mean, we have like 4 months left. But 2021, you usually hedge 6 to 12 months. So shouldn't the negative potential remaining here be very limited for 2021? I'll yes, I think we also have a fairly narrow guidance. So I would say there is, of course, a potential that it could be SEK 10,000,000, SEK 20,000,000 in either direction. But I think we that can be kept within the guidance. The volatility is, of course, more around how much impact will we have for 2022. So yes, there is a limit to how much it can impact the full year of 2021. Thanks. And then in terms of these normalizations you meant on the administration cost, Just to show, what are the exact and are there still normalizations to be done in the second half? Give you an example. So last year, we asked people to do a lot of holiday. We asked them if they had anything accrual for overtime and so on and so forth, we asked them to go home and then we could reverse that from the balance sheet. So there's a number of these, call it, onetime adjustments that happened predominantly in Q2 but a bit also in Q3, Q4 was more normal. So that's one thing. Another thing is that we didn't hire any people. So when somebody left us or went on retirement, whatever. We didn't really fill up again. And during the Q2 here and into Q3, we are putting some people back also as channels open. So that also goes hand in hand with the business opportunity. So that's a bit of the thinking. When it comes to just another example of maintenance, Lars just talked about CapEx. There was also a number of maintenance projects that we postponed because we use external suppliers to help us out. We wouldn't allow them into the facility, and thereby, we postponed the maintenance. So there will be some more normalizations I'll to be observed during Q3 and Q4. But when we get into Q1 comparison, 2021 versus 2022, they'll probably be a bit smaller, I would say. That's very clear. And then just my last question in terms of these capacity constraints that you have had. I mean, When will you start to do expansion of capacity? And which expansions are we talking about? Are there Potentials for Brewery or is it more like line extension? Line extensions. And if you had been physically in Faxi, you would see that the machines are already standing on the other side and have started to dig. So there is investments ongoing to make sure that we're ready for the season next year. And the largest consequence of all of this when we're talking about capacity constraint is that the level of inventory that we have in totality together with our customers has been lowered. We have had some out of stocks, which I think is at the same level of competition when we look at the core numbers that we can get from Nielsen and other sources. Saw the trade inventory level has been lower. Then the weather has been great. And when the weather is great, then certain categories, they increased quite dramatically. So there have been some stockouts of like water in Finland, but that has been for a very short period of time. So I think in general, our supply chain has again delivered on a very, very high service level, but we would have liked to have a higher trade inventory than what we see. Thanks a lot. That's my question. The next question comes from the line of Trusim van Threen from Redburn Partners. Please go ahead. Hey, good morning, guys. Just 2 for me. Just first one, just a short term question just on the follow-up on input cost. Do you still have a bit of a natural hedge as the channels return as people drink more draft beer at Cedar? Or is that kind of work through the system At the moment. I think you should not consider that we have a big natural hedge between the channels that covers up for input cost. But I think back to the point about that you should price as the market can bear. You have healthy consumers in terms of money in the hand, so if there's opportunities should take price increases, to do smart price pack initiatives even in channels where you would not see that the input cost increases are as significant. We would use that in have that as a tool in the toolbox anyway. Okay, great. Got it. Very clear. And just a second question. You've done really 3 very different acquisitions in different geographies and different areas. So I guess my question is a bit more about management stretch there. I mean, how are you managing the risk of not being able to integrate these businesses properly? Yes. So if we start with the first acquisition we did, which is Fusang, that is a purely Danish acquisition that if you measure it in percentage of our Danish business, it's very small. It is the majority of the business has been rolled to our IT system and it's already being delivered by our trucks and sold by our salespeople. So that one is more or less already integrated buy the Danish team. Then we have the Energy business in France, which is, of course, what you can say, a slightly different one, and it's not too dissimilar to the size of the business we have I'll in France in terms of profitability. So there, you have a merger of 2 businesses, which will be done by group resources but also done locally where we have now 2 organizations that we need to put together and build a stronger combined business. And then you have the last one, which is platform acquisitions, say in particular in Norway and Sweden. And then the Finnish team will integrate the Finnish piece. And then, of course, we'll take a lot of resources from the group ensure that we build businesses in Norway and Sweden that built on the strength of Solera, but also operates in the way we would like Royal Univiti develop. So Solera will be the one that really requires a lot of resources for us. And then Tristan, now instead of being a gang of 2 with Hans and I, we have now the senior leadership team where we have a group of 6 people. So that means that we have more brain and more hands also to get into these activities. We have, over the last year, added a number of resources to the organization to strengthen some specific areas that also relates like to the M and A area or like Jonas that has joined us on the Investor Relations side. And we still have a number of open positions that we are filling up as we speak. So we are very, I would say, conscious about what it takes to keep, call it, the project list say rolling. But if you look at it in a 6 to 9 months perspective, of course, there's a lot to do. But that doesn't mean that we do not have ambition still in the territory of doing M and A, strengthening our partnerships and so on and so forth. Okay. Thank you. That's very clear. Can I just follow-up on the Solera M8 deal? And maybe you've already covered that when you did your presentation in June. I guess one of the things that you said at the time that I think was positively impacted by COVID-nineteen. Is it possible for me to unpack that? I guess what I'm trying to How dependent is this business on the on premise? Or is it more of an off premise business? Difference between the countries and because of the fact that it's not approved by the Finnish authorities yet, and I cannot go into too many details. I think what we detected during the due diligence is that the staycation has had a relatively high positive impact on the business. And that is predominantly in Norway, where the border trade between Sweden and Norway has been closed down, and they have not traveled abroad for vacation and so on and so forth. So if you look at what they would be reporting externally, the revenue is higher and the bottom line is higher. But adjusting and looking at what happened in 2019, then it is at the level of what we have announced. The question is, of course, what sticks, what doesn't stick. If you look at the relative untrade strength, Norway is by far the area where they are the strongest in on trade. And I think if you look at their website, I think they would claim there that they are the biggest one in the market in on trade in terms of volume in wine. But it's more fragmented than you would see in beer or soft drink. Will Yes. Thank you very much. And then we will go to the last question from Andreas. Please go ahead, Graeme. Yes. Yes. A couple from me, please. The first one on the production constraints. Can you say what categories is are these constraints impacting you most on? And partly connected to this, The international business is clearly an area which has been held back by these constraints. Underlying, is it fair to assume that your growth would have been Probably similar to what we've seen in the past couple of quarters. And when would you expect to catch up with the sellout? And then my second question, please, just a slightly more technical one, the impact of the on the working capital of the change In the tax payment terms in Finland, if you could quantify that? And when should we expect this to wash out? Thank you. If I take the first one in terms of constraints and sell insell out. If you look at the Q2 in International sellout is higher than sell in. So we're ramping down stocks. And of course, you would say that over time, sell out sell in should be at the same level. And that's also the reason why that we have always talked with you about that you need to look at it in a 12 month just because there can be big deviations between the quarters. I think we still need to see, after the pandemic, how much has been of the growth that we have been able to accelerate over the last 12 months? How much of that will stick because the nature of our business in international is more retail driven and thereby also supported by the pandemic. I so I think that's the only thing that we are following closely. In the beginning of the year, the constraints on our side was mostly on cans, then it became an issue from the supply. And then as Italy opened up, Denmark opened up in on trade and the growth in international keep growing, that turned in to also become a challenge on delivering enough glass. So we have seen a little bit of everything during the quarters. Regarding the working capital impact, it is a duty change that happened in the beginning of the year in Finland where basically instead of paying duties before month end, it was moved into the middle of the following month. So it was a small delay by for when we pay the duties in Finland. And that impact is fully in our numbers at this point in time. So there'll be no more positive impact. But of course, the size of the impact varies with how much duty we owe at a certain point in time. So during the high season, it's a big number and of course, lower when it's in other parts of the season. But it's a 3 digit number for the group throughout the year, at least I'll sorry, it's a 3 digit group in Almond. Very clear. Thanks. Thank you. And with that, we will have to conclude on the Q and A session, which became long this time, but great questions and involvement from all of you in the call here. I will urge you to reach out to any of us if you have any questions beyond what we have been able to answer right now. So please reach out. And then we wish you all a great day. So thank you.