Earnings Call: Q3 2020

Nov 18, 2020

Everyone, and welcome to Royal Unibrew's conference call on the results for the 1st 9 months of 2020. I'm Lars Jensson, the CEO of Royal Unibrew and Lars Westegor, our CFO, is joining me on the call. Today, we will present our results for the 1st 9 months of 2020, give an update on our activities, including the situation relating to COVID-nineteen. And finally, we will share our expectations and priorities for the rest of 2020. Now please turn to Slide number 3. Before we go through the business results, I will sum up the key takeaways after the 1st 9 months of 2020, which have markedly been influenced by the restrictions and uncertainties relating to COVID-nineteen. Since March, we have taken part in a very strange and unpredictable journey, not knowing tomorrow's framework for our business with restrictions imposed and or lifted. It is hardly an exaggeration to state that planning has been and still is an equation with several unknown, which on one hand makes everything more complex, but on the other hand puts a different speed into the market, something we strive to make an advantage for us. On this background, I'm very happy to conclude that Royal Unibrew's multi beverage business model and our local brands have demonstrated their resilience during the period with COVID-nineteen related restrictions and uncertainties. Based on a wide portfolio, consisting of broad selection of both beer soft drinks and ready to drink products, close relations to our customers and continued adjustment of our supply chain, we have been able to meet and take advantage of changing consumer demand and channel mix. I'm also very proud of the way that our organization has handled the COVID-nineteen situation. We have succeeded to protect our people and customers while at the same time reducing the financial impact of COVID-nineteen during the very challenging period. Our results in Q3 turned out to be very strong with an organic revenue growth of 6%, and especially due to the continued strong performance in off trade and staycation in most markets. Based on the good development, we have narrowed our outlook to the upper half of the previous guided interval. More developments were in our favor over the summer. The majority of consumers spent their vacation in their home country and in combination with good weather in August in Denmark and Finland and a resulting solid demand for our attractive portfolio of local brands provided for performance over the summer. In addition, the social distancing and gathering restriction were partly lifted during the summer, supporting the good momentum that started in June. As can be seen on the graph on the slide, the development across the quarters in 2020 has been very mixed. We had a strong start of 2020, followed by 3 very challenging months from March, which were highly impacting by restrictions and lockdowns across our markets. In June, we returned to the growth track, and the trend was even stronger during Q3. Looking a bit ahead, Q3 will not be like Q3 or Q4 will not be like Q3, else restrictions in most countries has been tightened. We were, of course, still negatively impacted by COVID-nineteen during Q3 as pandemic continues to challenge some of our sales channels. But despite this negative impact, we succeeded to improve our profits during our strong operational focus and cost management and the just mentioned positive effects. For the 1st 9 months of 2020, EBIT increased by 5%, and we also generated a very strong cash flow. As mentioned in our Q2 report, we reduced sales and marketing spending in the spring in order to mitigate the impact from COVID-nineteen, But in the wake of a strong business performing over the summer, we have decided to reinforce the underlying positive development of our business by supporting our portfolio with selected commercial investments. We, of course, invest cautiously, taking stock of market developments, but we expect that the effect will be a higher marketing cost in Q4 compared to the same period last year. In that respect, we are very much aware of what we are looking into in Q4 with additional restrictions such as limiting opening hours at bars and restaurants and bans on gatherings in larger group as well as imposed limitations on the border trade between Denmark and Germany. We have also restarted a number of CapEx projects and expect our spending will increase in Q4. Based on the financial development in Q3, we have dedicated we have decided to initiate a new share buyback program of up to DKK 200,000,000 that will run until the end of January 2021. Let me close my introductory remarks by concluding that we are very satisfied with the results for the 1st 3 quarters, taking into account the rollercoaster way markets have developed during the period. And now we will give a short update on our 3 business segments, first with some comments on the development in the Western European segment. So please turn to Slide number 4. Total volume in Western Europe declined by 2%, whereas net revenue declined by 3% for the 1st 9 months compared to the same period last year. EBIT declined by 4% and was negatively affected by the lower revenue, in particular in Italy and a bad debt provision. We have seen improvements in the on trade business in Italy during Q3, and September was the 1st month where we were back on last year's levels since February. October was again challenging, which we'll come back to. In Denmark, the on trade business improved during the summer, however, still lagging revenue from events, including concerts, festivals and sports events. September was again affected by further restrictions in the areas of restaurants and bars. The marketing and sales cost were low in Q3 as various campaigns have been postponed to Q4. In the Baltic Sea segment, the total volume increased by 1% in the period, including all the quarters so far, and net revenue decreased by 2% compared to last year. The net selling price declined compared to last year, and revenue was negatively affected by the product and channel mix in Finland in particular. The Bauskas acquisition in Latvia contributed positively with 1% to both volume and revenue and strengthened their earnings in the segment. Furthermore, the volume was positively affected by the stock building at our customers for a large beer campaign in Finland for the period of Q4 this year and Q1 next year. In the Baltic Sea segment, innovations have delivered solid growth as both original long drink on lowno alco beers and no low sugar products continue to grow. The next segment is the international segment. In the 1st three quarters, the total volume in this segment declined by 1%. Net revenue increased by 10% and EBIT increased by 22% compared to last year. Revenue was positively affected by the market mix in the segment as core markets grew and more opportunistic sales and license were lower and also due to the fact that we consolidated revenue in Canada from the Bruce Aftley Group, where some of the revenue from agency sales comes without volume as it is not our brands. During the last 12 months, our core market grew sell out by more than 10%. Now please turn to Slide number 5. Despite COVID-nineteen, our focus and commitment to our CSR agenda remain the same. Overall, we are progressing as planned in achieving our short term CSR sustainability goals for 2022, and we are particularly focused on consumers through a balanced launch of regular and low no sugar, no low alco containing beverages. Environment and climate through an increase of recycled material, in particular in pet bottles, carton trays and paper labels as well as the decline in the carbon footprint from production with 30% compared to 2015. Employees' Health and Wellness with a decline in absence related accidents of 40% compared to 2018. Although it is key to us to measure and fulfill the outlined short term goals, it is equally essential to consider potential future challenges. Our aspiration and goals for long term CSR strategy for towards 2,030 will therefore be disclosed in the annual report in March for the year of 2020. I will now hand over the word to Lars Westergaard to go through the financial figures. Thank you, Lars. Please turn to Slide number 6. As mentioned by Lars, the COVID-nineteen pandemic has had a significant impact on parts of our business as well as how we manage the business during the 1st 3 quarters of 2020. During the first phase of the COVID-nineteen period, our key focus was to mitigate the impact of lower sales by optimizing our spending. But as we have returned to the growth track in Q3, we have, as Lars have already mentioned, gradually started to support the positive development of our business with selected commercial investment as well as we have restarted a number of CapEx projects. All in all, we achieved a better result and a stronger cash flow generation during the 1st 9 months of 2020 than we had dared hope for. Of course, some of these costs, we are starting up where we will only see the impact of in Q4. The volume for Q3 have increased by 5% compared to Q3 2019 and amounted to 3,200,000 hectoliters. For the 1st 3 quarters, the volume was at the same level as 2019. In Q3, the revenue increased by 7% and amounted to CHF 2,258,000,000 compared to CHF 2.114 billion in Q3 2019, while the net revenue was 1% lower in the first three quarters and amounted to DKK 5,800,000,000 compared to DKK 5,900,000,000 in 2019. Compared to the same period in 2019, the overall average net selling piles per volume decreased due to COVID-nineteen related shifts from the on trade to the off trade channel and the move to larger pack formats that we saw, in particular, in Q2. While the average selling prices decreases, we have, at the same time, succeeded to win value share in most of our markets: Denmark, driven by low no sugar soft drinks, low no alcohol beers and energy drinks. In Finland, the original long drink have continued to perform well. We grow in our low no sugar soft drinks, our specialty range increases and also our low and no alcohol beers. In France, we're not only over indexing the lemonade market but also the soft drinks markets in general. And this is the Loringa brand that we acquired a couple of years ago that is performing well here. In Italy, we have also gained share with our Cheris brand, which is partly innovation driven. EBIT for Q3 was CHF 108,000,000 higher than 2019 and amounted to CHF 600,000,000 where it is was CHF492,000,000 in the same period last year. Year to date, EBIT increased by €61,000,000 compared to 2019 and amounted to 1,263,000,000. The EBIT margin increased by 1.3 percentage points to 21.7 percent in the 1st 9 months of the year as a consequence of our strong focus on cost during the pandemic we have experienced. It is important to highlight that Q3 was exceptionally strong. It was supported by factors that are of nonrepetitive nature, such as staycation, good weather, but also our cost management is not at a level where you can say it's sustainable over the longer period of time. So Q3 was unusually strong. Also a number of the initiatives we initiated in Q3 in the commercial area will mainly impact Q4. Therefore, some of the factors driving what we have seen will not be repeated in 2021. Please turn to Slide number 7. The free cash flow amounted to CHF889,000,000 in the Q3 2020 compared to $427,000,000 in Q3 2019. In the 1st 9 months of the year, the free cash flow was DKK 1,400,000,000 compared to DKK 1,000,000,000 in the same period last year. It was possibly affected by one off effects due to the extraordinary beer campaigns we do in Finland, where we have factoring and extended payment terms on VAT and employee taxes in a number of countries. Based on the strong cash flow in Q3, we have, as Lars have already mentioned, decided to initiate a new share buyback program of up to CHF200 1,000,000 which will run until the end of January. This is on top of the CHF 245 1,000,000 of share buybacks we have already executed during 2020. So the total amount of programs launched during 2020 is now 445,000,000 dollars Please turn to Page number 8. The outlook announced in August for EBIT is narrowed to the upper half of the previously guided range. So we are now at the EUR 1.475 to EUR 1.525. The updated outlook is based on what has happened in the market up until year to date, which, of course, include October. The COVID-nineteen impact on the on trade, the almost closed border trade between Denmark and Germany and the higher marketing investments in Q4 compared to last year. We do see significant impacts of the restrictions in the last 2 months of this year. We are currently in the process of making our plans for 2021. This is, of course, a difficult task, and we do not know what restrictions will impact the various channels during next year. In general, we are planning on the basis of that COVID-nineteen will have an impact on on trade in the first half of the year, but we do not see closed down scenarios like we had this year. We will prioritize selective and commercial opportunities from the start of 2020. But in general, we will start the year with extreme focus on cost management until we have more clarity on how COVID will impact the various sales channels. This year, and in particular, Q3 have been helped by staycation, good summer weather and cost management. And some of these effects, we cannot put into our plans for next year. The remainder of the year, our focus is to help customers get through a difficult year with many changing restrictions and take advantage of the commercial opportunities that may come by remaining flexible in our supply chain and sales force, but also to ensure that we have invested sufficiently in our brands to ensure that we get a good start for 2021. With this financial update, I give the word back to you, Lars. Thank you, Lars. And now please turn to Slide number 9. As some of you or most of you have noticed, I took over as CSO from Hans as 1st of September. And I can hardly claim that I'm a new guy in the company as I've been here for more than 25 years. And I've been a part of the Board, the executive management since 2011 and most recently as a COO. But even though that I'm very familiar with the Royal Unibrew, this is, of course, a new role for me, and I'm very honored to have this opportunity. And I'll promise that I'll do my best to fill this role. There's very many exciting challenges take care of and in the present especially in the present situation. And I'm sure that most management teams will agree that they have never experienced such a high level of uncertainty. But we remain optimistic and of good cheer, and we are very aware that it is a team task to run the business successfully. If we were not completely convinced of that before, then recent times have showed it very clearly, and our positive results through the period of COVID-nineteen can only be attributed to the fantastic teamwork across the organization. We have therefore decided with the aim to prepare our Unibrill for the future that we have established a senior leadership team, which is consisting of Lars Westergaard as the CFO Kelli Jarminen, who has been appointed promoted to Senior Vice President for the Baltic Sea and Managing Director of Harpe Jan Andersson, Senior Vice President for South Europe and General Manager of our Italian Business And Carsten Oren has been appointed promoted to Senior Vice President for International and following me on that task. And then ultimately, of course, myself. It's the aim of this reorganization is, of course, to strengthen the commercial and call it commercial and marketing side of our job management, and we really look forward to include the 3 guys in the team. Before we are ready to take your questions, I would like to wrap up the session by saying that our short term key priorities are the same as in August and when we presented the Q2 results. And on top of that, we will continue to closely follow the latest Q 'nineteen restrictions and adjust accordingly. And with that, we are ready to go to the questions. Our first question is from Jonas Goldport from Danske Bank. Please go ahead. Yes. Good morning, Lars and Lars, and thank you for taking my question. First of all, on the outlook, clearly, I acknowledge the high uncertainty right now. But maybe you could talk a little bit about the different scenarios you have looked at in defining the upper and lower end of the guidance range? And also talk a bit about marketing spend. As you said, you are increasing marketing spend in Q4 compared to last year. But could we also see a chance of you actually stepping on the brake again because we're seeing these lockdowns and restrictions being tightened around at the moment. So if you could tell us a bit about that. Then also in seeing this second wave of COVID-nineteen and restrictions in posting your business, how is the M and A environment developing? And then my last question would be on competition. You touched upon it, but how is it especially developing in Denmark and Finland? And I'm also thinking on potential changes in competition due to COVID-nineteen here. Thank you, Jonas. I think what we have tried to we have tried on the outlook, of course, to learn from what we have seen during the period of time that started from March onwards. Now the restrictions that are put in, in most countries have been put in until next week and until, I think, 3rd December. And we do not really know what governments will do here. Are they going to lift a bit here and there also towards Christmas? So we have tried to evaluate what we have seen in terms of ups and downs and what if scenarios. And that's based on that, that we have created the outlook that we put forward. When it comes to the marketing spend in Q4, I think it's important for us to underline that there's, I would say, 2 angles into that piece. And one thing is, of course, the share of voice. So we would like to make sure that we are not losing share of voice with any of our core brands in any of our core markets, so to speak. And there has been a trend of, I would say, higher spending towards the end of Q3, generally speaking, than what we saw during the summer in the beverage industry in general. So that's one. And the other one is, of course, that in spite of COVID-nineteen, we're still building our brands. We are still, where possible, launching innovations, and we want to make sure that we have sufficient funds to support those initiatives because it's important for our performance, in particular in off trade, but it's also important for our brand building for the long run. And maybe, Lars, if you want to comment on the M and A landscape? Yes. That's as you have you may have seen, we have not announced anything in this year in terms of M and A. It is, of course, a time where a lot of companies are facing difficult challenges. And we do not see that there has been an increase in terms of activity and eco seller even though the market is difficult. So at this point of time, we have nothing new to say in this area. We continue to look for opportunities to grow our business, but not a lot of activity is actually ongoing in the M and A space. And on the competition question, I think the reading that we have is that and that was also, I would say, a part of it, a bit predictable given that on trade is experienced growth, while on trade and convenience is more in a struggling territory. We have seen, call it, marketing, commercial money from those channels move towards the off trade channel. So if you I think if you generally look at the price picture in the stores today compared to how it looked 12 months ago, I think you would see that the level of activity has increased, and you see a wider span of different multipack formats being activated. So ultimately, if you boil all that down, I would say that, yes, competition has tightened a bit over the corona period. Perfect. Thank you very much. Our next question for today is from Markus Berenberg from Nordea. Please go ahead. Yes. Thank you. Two questions, if I may. The first one, a follow-up to Jonas' question. I'm just wondering the marketing spend. You say it's going to be up year on year, which I don't remember what Q4 was like last year in terms of marketing spend. But it just sounds like you're making a pretty big increase compared to the previous quarters. So I'm just wondering if you can comment on that a little more. And then secondly, I'm curious about your gross margin in Q3. It's close to record high, and you spoke of mix effects in your prepared remarks. But I guess there's also still a negative impact from less on trade and more off trade. So I'm just I was just hoping you could elaborate on that dynamic a little bit. Thank you. Of course, Markus. I think on the marketing spend, I think the reason why we have comment on this is that Q4 is a relative small quarter. So if we move some costs between the quarters, you often immediately see an impact as the EBIT for the totality of the quarter is relatively small. So you should not see this as we are massively investing in Q4. That's not what we're highlighting here, but you should expect that there will be spending moving from Q3 into Q4. And because of the relatively size, that, that is something that you need to take into consideration when you do your math around the quarter. So that's how you should consider it. And on your mix question, I think the important thing to notice in Q3 is that the majority of all sales channels were open in Q3. So when you look at across our business, in particular, the Italian on trade was open. We had good momentum behind the convenience channels across the markets. Our ready to drink in Finland did really well in the Q3. So it's more a normal quarter where you can say very few impacts. And we were, of course, also sitting very tightly on our spending in the Q3. But basically, you saw a big normalization of spending and in particular, on trade went up, which, of course, impacts positively our gross margin. So it's probably the most normal quarter we have seen this year where all channels have been open. Our next question for today is from Richard Withagen from Kepler. Please go ahead. Yes. Good morning. Thanks for the questions. I have 2, please. Now first of all, you're saying that you still expect a significant impact from restrictions in the Q4. But could you talk a little bit more on where you see that? Is that more in the beer business than in soft drinks? Because what I see is that at least people mobility in your key markets holds up relatively well. So why would you still expect a significant impact from these restrictions? And then the second question is on the recovery that you foresee in 'twenty one in the on trade in your markets. As you just said already in Q3, I think there was quite a nice recovery in various channels and various on trade parts of your business. So that doesn't make you too cautious when you say that you still expect a significant impact on the on trade in the first half of twenty twenty one? If we start by the Q4 restrictions, I think it's quite clear that in most of our markets, we have seen that on trade there have been significant restrictions imposed on on trade, very tight in Italy but also in Denmark. And if you look across the group, we are trading in the month of November. To date, we are at less than 50% in terms of index compared to last year. So we do see very significant impact on the on trade as we speak. And it's more impacting beer than it's impacting soft drinks. So it's a fact that there are significant restrictions impacting our business at this point in time. The other restriction is, of course, that the border trade between Denmark and Germany is more or less gone at this point in time because people are not traveling outside the country. So that is also something that is impacting our business. And in general, the On the Go consumption is impacted. So I think we can clearly see in the numbers that there are channels that are heavily impacted in Q4. What we saw earlier in the year was that retail channel was able to capture some of the lost business. But I think it's still early after we have that's more restrictions have come. So we have not seen the dramatic pickup in retail that we saw earlier on. And I think to your question around the different categories, yes, beer as an example and ready to drink in general is categories that has a little bit of a bigger struggle. When you have, like in Denmark, closed down for alcohol sales after 2 or 10 in the evening, then that, of course, harms that piece of the business more than the non ALCO portfolio. And we have also seen, I would say, at least in the Nordic space, that soft drinks and energy drinks and similar kind of propositions are getting through this in a with better indexes than the alcohol territory. So there are some mix changes. And building into 2021, I think realistically, Q1 will be with some restrictions continuously. The question is more about the level. So at this point in time, bars and restaurants in Italy are not allowed to sell alcohol after 6 Will that remain? Will it be moved to 8 I think it's not realistic to assume that it will be lifted totally until that we have a vaccine or an effective treatment. So that is the thinking that we have around Q1, that, that would be something that will probably be a struggle in the beginning of the year. And then hopefully, over time, we will see a gradual improvement month by month. Yes. Thanks for that, Lach. As a follow-up, you also talked about still a focus on costs in 2021, certainly in the early part of the year. But does that also apply to marketing expenses? Because I think it's clear you would love to increase your growth rates. So would that cost containment also apply to sales, marketing expenses? It relates to all kind of spending that we have. So there's nothing that we do not look at basically. I think what is important for us is that in the categories and channels where we see growth opportunities, we must secure that we have sufficient funds to support it. So and that is all a matter of priorities. So that we will undoubtedly, as we have gone through that process over the last 8, 9 months, we will repeat to go through the exact same exercise, and we will be ready to ramp up when things are opening up. And if it's not opening up, we are prepared to continue down, call it, the road that we are following as we speak. Stop and go that we need to be prepared for. Our next question is from Fintan Ryan from JPMorgan. Please go ahead. Good morning, Lars. I've got two questions, please, and just one quick clarification. So firstly, in terms of your free cash flow, it's been the Slide 7 highlights very strong free cash generation year to date. And in particular, net working capital and CapEx being areas where you had efficiencies this year. Can you give us a sense of what your outlook for free cash generation is for the full year? And I appreciate you started talking about renewed capital expenditures coming to the business. And how sustainable are the working and capital efficiencies that you've delivered year to date? And like would you expect that situation to normalize into 2020 2021? Secondly, I guess just following on really from the last question, could you give us I appreciate still not at the end of the year yet, but conceptually, could you give us a sense of an absolute number of cost savings delivered year to date or delivered for the Battleford 2020? And how sustainable how much of those incremental cost saves delivered this year can realistically be held into next year? I appreciate those things are sort of slowly getting back to normal, costs that were quite dramatically, say, in Q2 are going to naturally come back. But if you could give us a quantification of that, that would be very welcome, please. And then the final clarification is just on the German Danish border spend. How much of that or how much of your Western European business would be affected by that sort of that border trade that you mentioned? Thank you. If I start with the last clarification here, we do see the Danish border trade as a part of servicing Danish customers. And of course, we have differences between the, call it, product portfolio that we carry the border trade versus Denmark. As an example, we do not sell Pepsi on the border, whereas we have the Pepsi sales in Denmark. So when the border trade is closed down, some of that will migrate into sales in Denmark, which we hopefully, as we did during April, May, while the border was closed, we'll be able to take advantage of. So we look at it as a total market. So what happens with I think in general around the border trade is stock building on and off. So people while the border trade is closed almost closed down now, we would expect that people will ramp down their stock at the house. And then at a certain point, they will run dry and then they will have to go and shop in the Danish trade or the border trade will reopen and then they will go to the border again and replenish. So there's a dynamic between the two areas that needs to be taken into consideration. I think net, it is negative for the consumption in Denmark, for the stock pressure at the households that the border trade is closed. So we do believe that during this period of time, there will be a net negative impact, not only for us, but for the whole market. If we turn to the question around free cash flow, of course, we have had an exceptionally strong 1st 9 months of the year. I think it's important with a seasonal business like ours that we look at the 12 months, not 9 months. So if you look at where do we expect to end the year, we will, of course, get a positive of, let's say, around SEK 120,000,000 from what we're doing in Finland with 1 big retailer. So that is a positive. That is, of course, not permanent. So if we lose that business next year, then we will get that pressure in next year's number. So there are anomalies. We also see that the channel mix and what countries are open or closed have an impact on our working capital. So in a closedown scenario, of course, we have less business in Southern Europe where payment terms are normally longer. So that actually helps us a little bit when restrictions are ongoing for working capital because that means that business migrates to Northern Europe and more to off trade where we get money a little bit faster. So when you look at the full year, we will, of course, have an improvement in working capital year over year. But it is extremely good in at the end of Q3. Free cash flow, sorry, CapEx. We stepped on the brakes when COVID broke out when we had very little clarity on what was happening. The majority of the investments that we had initiated in the beginning of the year, we are still continuing with these, and we have restarted them. So we expect that there will be a substantial level of CapEx running into the 4th quarter. But whether we will manage to get to the same level as we had expected for the year, I think that may be a little bit doubtful. So some of the CapEx will run into next year. But I think you should expect a substantial increase in CapEx in quarter 4 compared to what you have seen so far this year. But then on cost savings, we, of course, have pulled the brake on a lot of costs across the business. And where we have really seen the biggest reduction in cost in the business is on the more discretionary type of spend where we, in particular, in sales and marketing, have been running quite low in this year. The question is how sustainable is that. When on trade opens up again and the music festivals goes on again and the football stadium goes back to normal, there will be an increase a natural increase again in sales and marketing. But there will be some more permanent cost savings. I think on travel, we will be traveling less in the future. But I think in general, our the way we managed cost before corona was quite efficient. So I don't think we see dramatic new levels of cost across the business when we are out of the corona pandemic again. But of course, there will be some on travel. And maybe we will start to spend our commercial money differently. But I think it's a little bit too early to say where we end after corona. Great. Thanks a lot. It's very clear. Could I just have one follow-up there? And just following from that last question. You've set out margin targets of 19% to 20% at the start of the year. And given what's happened since those targets were set out and where we are now, Is that 19% to 20% still a good place to start as we think about 2021? That's a good question. Since we are looking into a number of different scenarios for next year, I think the 2019 to 2020 here, we have put that in the market, not considering the COVID-nineteen and what kind of an impact that does to the ratio also between top line and cost and channel mix and so on and so forth. I think if you do just a simple math on what we are performing this year, it's above or at the top of this range, which is not a normal year. And I would expect that next year will not be a normal year either. So as we see it now, we feel that the 19% to 20% on a midterm basis looks reasonable. And as we have, I think, repeated over the last period of time is that we are more focused on creating growth on the top line, and we would rather want to grow the Snowball bigger than to add another 0.2%, 0.3% to the margin. I think we have an organization that has proven to deliver growth. And if we can strengthen that a bit, we believe that in the long run, that is more valuable for the business than to add some roundings to the margin. Our next is from Soren Sanslow from SEB. Please go ahead. Yes. Good morning, gentlemen. It's Soren here. I have a few questions. First, on Italy, if you could just quantify what the volume growth was in Q3. And you already said that you gained value share in the beer business, but could you also elaborate on what's going on in the Grotto business in terms of market share, etcetera? Then in Italy, also you mentioned about debt provision. Also, if you could quantify this and what kind of customer it relates And then on the International segment, volume down 10%, revenue up 4%. Just give some more detail on what's going on there. And then I have a few more questions after that. Okay. Italy. So what we have experienced in Italy is a bit of a, call it, a roller coaster development, and it is the country where the swings are the biggest ones. If you look at on trade, which is about 60% of our total business in Italy, that was really reasonably okay in the beginning of the year when COVID came in. It was running at index 5, so almost a total lockdown of that channel. And then towards the summer, it became closer to being at the same level as last year in September as the market was back on track compared to last year. And then in October, we saw a decline in the total market of about 40%, again, in on trade based on the restrictions that have been put in place. And in that market, in on trade, what we can see is that we have gained a slight share in that territory. And that is also because that beer in kegs is declining more than beer in bottle. And that's, of course, occasion driven. So a good performance. In the modern trade, so retail area, we have for 9 sorry, 6 months in a row, we have gained share in a market for beer in total that has grown by about 8%. So our growth is higher than that. And after, I would say, after the summer has accelerated a bit as we have been able to create and get a higher campaign pressure to secure more at home consumption with our brands where we are historically not very strong. So a good performance in beer, but in a market because of entree that is down. For Crodo, we entered the year with a launch of multipacks, basically delisting single serves with a redesign of the brand and a price increase on shelf being implemented just when the COVID crisis came in. So we actually experienced a period of time where we came a bit out of stock. And then into May, June, where the market started to reopen, we have come back to a level of or a market share level, which is at the same level as last year but includes a price increase for the consumer of 7%, 8%, 9% or so on shelf. So and we have been investing for the first time in many, many years in above the line for Croda to continuously build the brand over time. So I think a strong performance by Croda. But if you look at beer versus soft drink, beer is in a slightly better place than soft drink is. International, I think if you look at what we call our core markets, we are performing really well. We're continuously building our business. But the international business also consists of what you would call opportunistic sales, which because of COVID-nineteen and because of political tensions in some areas, have not resulted in any sales this year where we had reasonable sales last year. Sorry. And this is sales that pops up every quarter, every 6 months. And sometimes we get it, sometimes we don't. But that doesn't change the strength of the business. And the other one is that we have had less sales for license, which generally generate higher volume and lower value. And that is a matter of phasing in terms of sales. So that is bulk sales. So those are the parameters. So the I'd say we are really comfortable with the development in the international segment. Maybe Lars, you would comment on the bad debt. So as you remember, we took a bad debt provision in the Q1. And we have not made significant changes to the bad debt provisions since the Q1. So very little impact on Q2 and Q3 in terms of the P and L. We have not realized that many losses in terms of bad debts, but we do see that the risk is increasing on bad debts. You see that there's a number of life support measures that is supporting the on trade right now, where they have delays of various types of payments and they have support packages. Once this runs out, we do see a risk that we may see realized losses. So we see the risk as actually quite high at this point in time. So we are all over our debtors and making certain that customers are paying on time. So negative impact on the P and L in the Q1 and very limited in the second and third quarter. Okay. That's clear. Then regarding the margin development, up 330 bps year over year. In Q3, if you could just try to quantify how much is coming from the operational leverage, how much is coming from the cost cutting you have made and how much is coming from better mix? It's a bit of both or it's a bit of all. All of it, Zoran. And there's no reading in Q3 isolatedly, of course, because we came into Q3 with a very low cost level, given the uncertainties and the measures that we have taken. Staycation helps us in all our core territories. And as Lars mentioned early on, almost all channels were opened everywhere apart from nightlife. We experienced a staycation period of time where we, through our local brands, took benefit of that, which, of course, has created operational leverage. So I think as Lars tried to emphasize that you cannot read anything into Q3 isolatedly because there are so many angles here that plays to the positive that you cannot repeat into any other quarter. Okay. And then the final question is, you talked a lot about the senior leadership team you have made, and I can see Carsten Nordland has become Head of International. Could you also just tell us who will then become the new Head of the Danish market and give some background to that as well? Yes. So management consistency is one of the core pillars in Royal Unibrew, and that is what the senior leadership team here has been built on. Carsten was previously serving as our General Manager for our Danish business. And we have promoted our Sales Director, Kasper Reutersgaard, and he has been serving as Sales Director in the Danish business. Plus, he also had the responsibility of the Board of Trade for about a year or so. He has been promoted to General Manager of the Danish business, and he reports to me. And that means that I have 4 commercial leaders reporting to me. And we have thereby decreased a bit the span of control for me, but also left space for us to enhance areas like business development, Investor Relations and HR. So we believe we have a really strong, I would say, lineup being made, also with some external recruitments, as I mentioned. And on top of the SLT group, as we call it, we also have the growth leadership team, which is equally important. And the group where we discuss strategy, we share learnings, we share good ideas, we share trends on a broader basis, and that's a forum where we have our Supply Chain Director, Soren Lischberg, involved. We have our General Manager is also in Baltics and France, as an example, a part of that group. And we invite people in depending on the topic. So we believe that we have a pretty strong, I would call, operational model in place, which has been fine tuned a bit over the last couple of months, given the way that Lars and I look at it and given the background that we have. Thank you very much. Our next question is from the line of Alfa Hanel from Jefferies. Please go ahead. Good morning. I was wondering about the performance across your portfolio in terms of price band. So with 65% of revenue from mainstream brands, has this segment benefited especially from consumers behaving differently during the pandemic? Have you seen any down trading? Or how has the mainstream performed versus premium and cost and specialty? And then secondly, historically, you've been very good at identifying growth deposits there, and you've done very well in, for example, low alcohol. How do you think around the opportunities for hard sensors? If we look at generally, I would say that consumers if you look at it on a channel basis, consumers are generally not shopping down. So I think on a volume basis in our core markets, we see that private label discount territory, they kind of like keep their share or keep their business and losing a bit of share because mainstream and above mainstream is increasing. So I think on a retail basis, we do not see any change there. And I think we have probably seen on the on trade side more to the positive, given that you're not going out as often as you have done in the past. And that means that when you go out, you're also a little bit more, I would say, a little bit loose on your spending and trade up in terms of what you buy when you are out. So I think we have been confirmed by the trends that we are focusing on, so call it premiumization, specialty, localness or authentic propositions, no low alco in beer, ciders and even with mocktails coming in. We have seen no low alcohol beer also increasing quite significantly in all the markets, and we are over indexing the growth in the markets. So that's the status. In terms of hard seltzer, I think we see some opportunities in the broad ready to drink category, And a part of that space is hard seltzer. I'm not sure if it will be played out as hard seltzer in all countries because there's big differences in terms of the maturity of the ready to drink categories and the understanding of it. I think in the markets where we have, call it, solid ready to drink markets, we do believe that low calorie drinks, either through less sugary versions or through less alcohol, is an opportunity that we are pursuing and looking into. But I think our reading so far is that it is not going to be as big in Europe as it is in the U. S. Within the same, call it, short time span from launch to the level where it is today. And you need to reckon that there is a big difference in taxation as most hard sales would be taxed as ready to drink and thereby at price points that are far beyond beer. So you do not have the same pricing power versus beer as is the case in North America. Great. And 2 super quick ones. Do you have any early read on input costs into next year? And in international, when you talk about opportunistic sales, is that opportunistic clients or markets? Or is it also a different set of products? Yes. It's more market driven than it's product driven. So we do have some and have had that since, I don't know, 15 years or so, some markets where we, in some years, do good business and in other years, we don't. And most of it is, I would say, is related to political tensions or lack of foreign exchange, hard currency. So that's kind of what delivers the fluctuation there. But it's in markets that are interesting for us in the long run, but short term remain opportunistic. And on the input cost, I think this year, we have really been helped by what happened to a lot of the commodity markets. So if you look at the oil price and what that does to a number of cost categories that have helped us this year. And in recent weeks, we've seen, what you can say, people have become more bullish on the outlook for the coming years and that, of course, have an implication on oil price. And you can see some of the metals have started to increase again. So I think it's a little bit early to say where will it end for next year. At this point of time, we believe it's a fairly neutral impact from 2020 to 2021. But I think it's fair to say that the movement from the movements that happens in the markets right now could impact negatively. We have hedged quite a bit of our aluminium. And then of course, we are of course, looking extremely a lot into recycled materials where we do see that there is an enormous increase in people who wants to buy recycled materials. So that could be a challenge for next year as I think a lot of people would like to produce more recycled materials in their packaging materials. So we may see some pressure on sustainability driven input cost. Our next question for today is from Gemma Bernstein from Citi. Please go ahead. Hi, there. Good morning. Most of my questions have been answered, but just a couple from me. Firstly, on capital allocation. You've obviously announced a further buyback with these results, meaning your cash distribution will be similar to 2019 and getting close to that €1,000,000,000 But more broadly, how are you thinking about cash allocation and potential M and A into 2021? And then secondly, around pricemix, which is obviously quite positive in Western Europe. I just wanted to understand a bit more of the drivers of that. Was it broad based across the region? Was it more kind of pricing? Or was it really just that mix shift into the quarter? And then how are you thinking about Q4 trends or price mix more generally across the business? Thank you. If we start with the capital allocation priorities, we have I think, first of all, our balance sheet is very strong at this point in time. So we have room to select what we would like to do. I think it's very clear from our history that we would like to continue to buy businesses, and there is room to do that with our current balance sheet. Also, as we do grow the core business quite a lot. So then we have to invest in capacity. So in the coming year, we will make certain that our, what you can say, fixed assets are modern. So as we look into the coming year, if we don't see any M and A opportunities, we will continue to send money back to shareholders like we have done in the past. But we are looking at seeing if we can find some M and A candidates, which would I think we would prioritize to do M and A if good candidates were around. And with the leverage level that we have, we unless this is something very big, we should be able to do both in principle, as we have also done during the last 3, 4 years that we have basically acquired businesses, but we have also paid out according to our capital allocation policy. When it comes to the question around mix, it's really a lot of moving parts. We have benefited, as we mentioned early on, from Italy performing really well in Q3, which is an area where we have a higher net revenue per volume. All channels were back on growth. And I think people in general during the staycation period of time over the summer were a little bit more loose on their spending, whereas in the pre summer, we saw that big pack sizes was the big thing also because you didn't want to spend too much time in the supermarkets. So you were shopping in a different way. During the summer, we did not think as much about COVID as we have done before or after the summer. And we would expect and that's what we see in the numbers as we speak, and that is that in terms of consumer behavior, we do see some swaps back to what we also saw in the pre summer. So focus on multipacks and less focus on single serve as an example. So it's a big combination of market mix, channel mix, local brands versus international brands and then behavior from consumers. So that's probably the closest I can get to answering your question. Great. Thank you. And our next question is from Tristan Vansteen from Redburn Partners. Please go ahead. Hey, good morning. Sorry, I apologize. I thought I exited the queue. But let me just actually just follow-up on some good questions from earlier. And I think the big one, obviously, is the changes in your senior leadership team, which is, I think, quite significant for Royal Unigroup. So I guess to follow-up on that, and you get quite a good explanation on it, but it looks like a very traditional FMCG setup, which obviously is a bit concerning because you guys have always been a bit different and more agile as a result. So I guess the first question is how do you prevent that lack of agility that we normally see in FMCG companies with this new setup? And I guess connected to that is how big is your span of control, Lars, on the back of this? How many people do you have reporting to you at the end of it? And then lastly, I guess, what is the implication as we go further down the line in your business more than anything else? Yes. So I think we actually net not getting more layers. So if you take Jan as an example, Jan was responsible for our French business and U. K. And a couple of other markets surrounding France. And he is now moving to Italy. We're putting in a general manager that will report to him, and Jan will report directly to me, which he also did before. So for us, this is more about getting these 3.5 leaders closer to Lars and I reckon that Lars and I, even though that we have, I think, good commercial understanding, we are not commercial or marketing people of background. And when we, call it, discuss the bigger themes at in Roy Unibrue, it's important that it's not just Lars and I that they call it calls a shot. In terms of the empowerment of the local organizations, that has not changed. I think it's actually the opposite that given that the guys here are getting closer to us, the level of empowerment that we give the local organizations is intact or is increased. And most of the business decisions that we take, we take those in business reviews, where normally Lars and I, we are present, the local management and then one of the team members from the SLT will also be present so that we make sure that we have the right dynamism and thereby secure that we are not moving decision powers up, but keeping it where it has been throughout many years. So I think that's a cementation of, call it, the agility that we have had. So we are not losing any of that. And I don't think that we have a setup which is like a FMCG business because we have if you look at our business in Finland as an example, the full supply chain is a part of the responsibility of the Finnish organization as well as the supply chain in the Baltics is a part of the Baltic organization. And what you see in many at least, bigger FMCG companies, and that is that you centralize you have a tendency to centralize a lot of things, supply chain, marketing, maybe even HR, where we have kept and will keep our local anchoring, but enhancing the idea sharing between each other. So we feel it's a strengthening. I think what you can challenge us on is, will there be enough new blood here because we are promoting people from within. And I think we have proven that we have been able to reinvent ourselves every 3, 5 years instead of revolutionizing the business and the setup by taking in new people from the outside that is then, call it, like destroying what we have and then building up something new. So there's a high consistency in terms of the way that we operate here. And then we get some fresh blood in around us with Investor Relations, Business Development and Group HR. So hopefully, they will be able to, I would say, to push us in the right direction so that we do not make sure that we renew ourselves over time. And on your question of span of control, I think I will end up at 8 or 9 people reporting to me, where half is commercial and half is group staff functions. Most of it of the staff and group sits in Lars' responsibility. I think, Tristan, it's a very clever question that you asked there, and it's been one of the design criteria for the new organization to do exactly as you and Lars just talked about. So I think it's a very valid point, and we are extremely aware that we don't want to create a big head office. We want to keep the agility and the local ownership. So good question. Thank you. That gives us a bit more comfort. Ladies and gentlemen, there are no further questions at this time. I'll now hand back to the room for any closing remarks. Thank you very much for many good questions. Highly appreciate, and we wish you a happy day.