Anora Group Oyj (ANORA) Earnings Call Transcript & Summary

So good morning, everyone, and welcome to Anora's first quarterly results presentation. My name is Tua Stenius-Örnhjelm, and I am from Anora's Investor Relations. It has been an exciting quarter, and we are happy to share Anora's first financial report to you today. You will soon hear our speakers, CEO, Pekka Tennilä; and CFO, Sigmund Toth, go through the results. Pekka, who is here in Helsinki, will first give you a recap of what Anora is and then discuss the Q3 business performance. Sigmund, who is in Oslo, will talk you through the Arcus' stand-alone results and continue with the financials. Before the Q&A, Pekka provides an update on the integration. Before handing over, a few practical remarks. As of this report, our Q1 and Q3 reports will be standard interim reports, not short business reviews as was the case in Altia. For this report, Arcus has been consolidated as of 1st of September, and it is reported as the fourth segment, together with the former Altia segments. [Operator Instructions] And as a final remark, we are recording the presentation, and the on-demand version will be available on our website later on. With this, we are ready to start. Pekka, please go ahead.

Thank you, Tua, and welcome on my behalf as well. Very nice to see so many of you online. Since we last spoke in August, a lot has happened, and it has been truly exciting times for us. We completed the merger on 1st of September. And with that, we also have a new Board of Directors and management team. We announced our future operating model, which I will talk a bit more about later. But more importantly, we have remained focused on our business. Since the beginning of September, we have met with our customers and partners. And the discussions have been really good, and feedback has been positive. It has also been great to visit our sites and see our people, both in real life and virtually. I'm very proud that we, despite this big transformation, have been able to perform so well and deliver strong results. And this has been possible thanks to our committed and driven people. So a big thanks to all of our employees for their great work and achievements. Today, Anora is the leading wine and spirits brand house in the Nordics. We are the #1 player both in wine and spirits with pro forma net sales of some EUR 630 million and comparable EBITDA of EUR 98 million. We are about 1,100 employees across Northern Europe. Our distilleries are located in Koskenkorva in Finland, 2 craft distilleries in Sweden and 1 in Norway. Today, we have 2 larger production facilities, one in Gjelleråsen in Norway and the other one in Rajamäki in Finland and then smaller ones in Estonia and in France. Our logistics centers are located across the region. And in Norway, we have our own logistics company called Vectura, which also serves other companies in our industry. So with the merger, we now have a stronger footprint in the Nordics, with leading positions in all of the Nordic countries. Our key strength is our market-leading portfolio of both own and partner brands. Our portfolio covers all categories and price segments, with wine being our largest one. This means that we can offer a one-stop shop for our customers within wine and spirits. Innovations are an important growth driver for us. We inherited an innovative culture and have a strong track record of successful innovations. With our stronger presence in the Nordics, we have excellent possibilities to launch novelties across the whole region. It also means that we can offer a pan-Nordic route to market to our partners, together with our strong local and regional expertise of the Nordic consumers. We have the leading digital platforms through which we can directly engage with consumers in those markets where it is allowed. And we believe that we can even further increase in the engagement and number of visitors to our platforms with the merger. And last but definitely not least, with our combined offering, we believe we have a great opportunity to grow our business in travel retail and in exports. Since the closing of the merger on 1st of September, our main focus has been on business continuity and the integration work. We want to achieve the synergy target and to create an agile and efficient organization and culture that supports growth. With regards to Anora's strategy, we expect that by the end of summer, we will be -- end of next summer, we will be ready with the strategy process and with our new financial targets. Strategy will be focused on growth and expansion, as described in Phase 2 arrow above. Next, we move on to discuss the Q3 performance. Our reported segments for the time being are former Altia segments and Arcus as the fourth one. This quarter is not a normal quarter to report on. So there is a bit more information than we would usually have. But the idea is to provide you enough to help you get an understanding of how the underlying business has developed. But first, let's look at the market development. In Q3, we saw that COVID restrictions were lifted in different ways in the 3 monopoly markets. And with lighter restrictions in traveling and on-trade, we have seen these channels recovering. As a result of this, the volumes in the monopolies have declined compared to Q3 last year as expected. But still volumes were at a higher level than before the pandemic. The Q3 last year is still a tough comparison, for example, in wines, where we saw overstocking of bag-in-boxes. This year, we've seen more of a premiumization trend. So all in all, markets are returning to normal. General mix changes and the volumes gradually returned in travel retail and on-trade. On the next page, we look at Anora's development. The business performance in Q3 was solid, and we are very happy about the strong start that Anora has had. Our actual net sales in Q3 were EUR 114 million; and our comparable EBITDA, EUR 20 million. These numbers are basically old Altia, added with 1 month of Arcus' sales. So they are really not comparable to previous year. So to make comparisons easier and to illustrate Anora's development as if the merger had happened earlier, we're also providing the pro forma figures which you see on the right-hand side. Pro forma net sales in Q3 were EUR 165 million, and comparable EBITDA at EUR 30 million. And Sigmund will talk more about the pro formas later on. Moving on to the segments. Due to the timing of the merger, we have provided standalone information in the report so that comparison to previous quarter would be easier. When we look at the stand-alone development in Altia and Arcus, we see that both companies have performed extremely well. Next, I will talk you through Altia development, and Sigmund discusses Arcus. In the third quarter, Altia's reported net sales increased by 3% to EUR 29 million, driven by solid sales growth in spirits and supported by FX tailwind. In constant currencies, net sales increased by 2%. Comparable EBITDA was EUR 15.4 million, which equals to a good margin of 17.3%. Year-to-date, net sales have increased by 5% to EUR 248 million. Also here, strong development in spirits and FX tailwind are driving growth. Comparable EBITDA amounted to EUR 35.5 million, giving a margin of EUR 14.3%. Then we look at Finland & Exports. In Finland & Exports, net sales in Q3 grew by 3% to EUR 31 million. Growth was driven by the higher spirits sales in travel retail and exports. Wine sales declined due to lower sales volumes of own wine brands, especially in bag-in-boxes where volumes last year this quarter were really strong. In the on-trade channel, we saw sales growth from the previous year. In the Finnish grocery trade, the overall development has been good. In the Baltics, the stable development in the domestic grocery trade continued, while border trade was still impacted by COVID-19 restrictions and were below last year. Comparable EBITDA was at EUR 5.2 million, slightly below last year despite the positive product mix with more spirits sales. But the comparable EBITDA declined mainly because of higher marketing expenses than Q3 last year. On the right-hand side, you see some of the Q3 launches. We've had several tender wins for own brands in both spirits and wine. So here's just a few examples. We launched an organic Koskenkorva at 24% and the Koskenkorva Herbs & Citrus in the growing liquor category. And this launch already won a Gold medal in the Spirits Business' Liqueur Masters in the herbal category. Examples of old wine tender wins include the Loyalty wine with a Portuguese white wine in a pouch and the Expedition wine with an Austrian Grüner Veltliner in a PET. We also have a new spirits partner, Quintessential Brands, which is one of the leading gin producers in the world. This partner strengthens our portfolio of premium gin and Irish whiskeys. In the grocery trade, we had an exciting RTD launch under the legendary Jaloviina. And to support our growth in this channel, we have signed 2 new partners that bring beers to our offering. Next, we move on to Scandinavia. Scandinavia reported -- net sales increased by 7% to EUR 29 million. We had a good tailwind from FX, but also in constant currencies, we saw good net sales growth at 4%. Net sales grew in all markets. In Sweden, growth was driven by higher spirits sales to the monopoly, a strong recovery in on-trade and FX. In Norway, net sales grew both in the monopoly and on trade and was driven mainly by the higher spirits sales. Comparable EBITDA was EUR 3.5 million, which is a very strong improvement from last year and equals to a margin of 11.8%. This improvement was driven by the positive portfolio mix, revenue management and FX tailwind. Also in Scandinavia segment, we have a strong lineup of novelties. On the right side, we have wine launches such as Yoko and Luigi di Grasso, both launched at Systembolaget and Vinmonopolet, and Kein Name Riesling. Our Chill Out wine has gone through a thorough rebranding to respond better to consumer trends. The first product after the rebranding is Chill Out Riesling in a lightweight glass bottle. From among our partner brands, we launched a non-alcoholic Pinot Noir from Leitz in Norway. In spirits, new tender wins at Vinmonopolet included Arctic Italian Citrus Gin, O.P. Anderson Organic Gin Blood Orange and Koskenkorva Ginger. And in Sweden, 2 whiskeys from Distell were launched through the order assortment. To conclude my first part, let's look at Altia Industrial. Net sales were stable at EUR 29 million. The good -- sorry, I was muted. So let's start from the industrial. So at industrial, the net sales were stable at EUR 29 million. The good recovery of contract manufacturing volumes continued in Q3. And in starch and feed, the stable development was supported by pricing following the higher cost of barley. Technical ethanol volumes were below last year's level. We can say that the underlying business was stable, but in the reported net sales, we saw a negative impact from the lower sale of cognac inventory this year compared to Q3 last year. Comparable EBITDA was EUR 6 million, a bit behind last year and equals to a margin of 20.7%. The price level of both barley and purchased ethanol was higher than in the last year. And the negative impact from this has been only partly offset by the higher contract manufacturing volumes. OpEx seasonality in industrial were lower in Q3 this year compared to last year, having a positive impact on year-on-year comparison. Both Koskenkorva distillery and Rajamäki plant have operated normally in Q3, so a great contribution by all of our employees in the supply chain. At the Koskenkorva distillery, we have taken important steps towards carbon-neutral production with the installation of a new heat recovery system starting in Q3. So to conclude, for former Altia, we continue to perform well with good, stable results for Q3. And now over to Sigmund.

Thank you very much, Pekka. A warm welcome to everyone in the meeting from me as well. So before I go into the numbers, I would like to point out that what I'm going through now is the Arcus stand-alone information, and we are preparing this for illustrative purposes only because of the timing, the closing of the merger which happened in the middle of the quarter. So these figures are there to help you understand the underlying performance of the business. They include the whole period, and the comparison is being made to the same period Arcus figures for 2020. That being said, looking at the numbers, we had for the former Arcus good performance in Q3. Reported sales increased by 5%, so that's coming actually behind quite a bit of FX tailwind. It's the same FX tailwind that Pekka was referring to when he was talking about the Scandinavia segment for ex-Altia. If you take out the currency effect, in constant currencies, actually, sales were more or less stable for the ex-Arcus. Comparable EBITDA, on the other hand, was up with -- at EUR 16.1 million versus EUR 14.1 million last year, and the EUR 16.1 million represents a margin of 20.2%. So a very, very strong margin, which I'll give you more information about as we go through the various segments. And then when we look at year-to-date, the reported net sales are up 8%, and that includes during that period also FX tailwind. And in constant currency, the net sales increased by 3%. Again, here on a year-to-date basis, you see that the you see that the comparable EBITDA is up both in absolute terms and in terms of the margin. So now on the following pages, what I'll discuss separately are the former Arcus reporting segments, wine, spirits and logistics. So if we move to the first page, this is wine. So Arcus wine segment reported net sales that grew by 3%, but that's behind this FX tailwind that I talked about in constant currencies decline -- net sales were down 1.7%. I hasten to add that, that decline of 1.7% in constant currencies is versus an extremely demanding comparable. As you recall from the market slide that Pekka was showing, last year's Q3 was simply amazing due to the corona effects seen in the monopolies and particularly in Norway. So it's versus that very strong comparable that in constant currencies were down 1.7%. And I would also add that actually in the 2 biggest markets in Norway and Sweden, our sales are basically flat, and the decline in constant currencies is coming from the from the Finnish business due to declines in the monopoly channel and also some partner losses. Now another aspect here that Pekka was also mentioning during the review of the market is that whereas previously, at the start of corona, we saw a big increase in bag-in-box sales, which was absolutely to our benefit. Now in the latter stages of corona, what we see is somewhat more returned to normal in terms of the bag-in-boxes, but the clear premiumization trend where consumers are buying more bottles rather than bag-in-boxes and more expensive wines rather than the average-priced ones. But all in all, a good net sales performance for the wine segment. And then looking at the profitability of it, it's very good. So it's up in absolute terms to EUR 9.2 million versus EUR 7.3 million, and the EUR 9.2 million represents a margin, EBITDA margin of 19.1%. And that is driven -- given that in comparable that the sales were slightly down, it's driven by a very, very strong gross margin. So when the currency -- when the NOK and SEK, in particular, when they improve versus the euro and versus the U.S. dollars, there is a clear expansion of our gross margin due to the fact that we source wine in those currencies. So that's basically the story in wine, good sales performance versus very tough comparables and a significant expansion in margins driven by better gross margins. And if you look at the right side, as always, we like to talk a bit about our launches and tender wins in Q3. So we have successes in partner brands. You see our South African wine here, red wine from Ken Forrester Vineyards. That's part of the Advini Group. We have orange wine from Mas Janeil. That's one of the Francois Lurton established wine estates. And in terms of the own brands, we have La Parra Bariño, which has been in the test listing assortment from September 1. It's already present in stores for a while, and it's very popular. And then we have the all-time, best-selling Christmas red wine in Norway. This is the 11th edition of Arne & Carlos Hyggevin. And last but definitely not least, on the extreme right, you see the last example which is from Finland. And this is the Antiche Terre Venete's Amarone Baorna 2017, and this was selected as the red wine of the year by Viinilehti magazine's judges, and it's selected amongst 300 wines that they blind-tasted. So we're obviously very, very happy about that award for one of our partner brands, and we are seeing the results also in increased sales in Alko. So that's wine. If we then move on to Arcus spirits. Arcus spirits here, the reported net sales grew by 4%. We are -- as on the wine side, we are seeing sort of a normalization as COVID-19 restrictions are being lifted. So the reported growth of 4%, it also has a foreign FX impact that's positive. In net sales, growth in constant currencies, it was only slightly up by 0.8%. And if you look at the external spirits sales, it was up by 5.2%. Tender wins that were supporting stable net sales in Norway and Sweden, and we are improving sales shipments to Germany and recovery of travel retail. So that's all contributing well. Profitability is slightly down in absolute terms, a bit more in the margin, and this is due to unfavorable product mix and also channel mix. I mean, it's good to have travel retail back, but it has lower profitability than the monopoly channels. And then there have been some partner portfolio changes in Sweden and in Finland. But all in all, a relatively solid quarter from the former Arcus spirits. And again, on the right side, we are presenting some new launches and listings in Q3. The DiSaronno liquor brand was listed at Systembolaget in Sweden. And then the 2 products, very interesting ones, these are new launches from our Strand range, handcrafted, small-batch aquavits. And they have a modern sort of an experimental twist. You see one has the espresso cup, and the other one is Christmas-themed. And to the very right, another in the same lineup of innovating in aquavits, we have Bohemens Jul, and that's an urban aquavit from the Simers brand. It's inspired by the Bohemian subculture from Oslo in the 1880s. So with that, we move on to the last segment which is logistics. Logistics, it has distributed volume 16.5 million liters. That's down 5.2% due to markets normalizing somewhat. Border trade has increased, and the overall shipments or sales at Vinmonopolet has gone something down. And this is reflected also then in Vectura's shipments, given that delivered share to the monopoly is about 50% of the total market in Norway. Reported sales are growing by 5.1% in euros, but that's behind, again, the FX tailwind. And net sales decline in constant currencies is actually of 0.7%. You see that the 0.7% decline is lower than the 5.2% from the volume. So there was a positive contribution from price adjustments and channel mix. Now when you look at the comparable EBITDA, the picture is less favorable. As through most of the corona times, Vectura has been operating at volume levels that are higher than the design capacity of the warehouse. And what this leads to is in order to be able to fulfill orders to Vinmonopolet and increased volumes to on-trade as corona restrictions have been lifted, it results simply in the need for increased staffing levels. People are working night shifts. They are working weekends. And there's also the need for external warehousing, and this costs money, and that's what's resulted in this decline in comparable EBITDA. There was also increased cost for repairs and maintenance, which is not mentioned on the slide. So that was the review of the illustrative figures for the former Arcus. And now we then move on to the financials. And here on the financials, I'll cover 4 topics. I will not cover these in depth. These are quite technical subjects, so I encourage you also to look at the quarterly report. We have quite extensive disclosures there. And obviously, there's the opportunity of asking questions either during the meeting or off-line. So -- but I'll cover 4 topics: I'll cover barley; I'll cover the group key figures; I'll cover the pro forma; and I'll cover the purchase price allocation. So starting with barley. Yes, as many of you know, and I think everyone knows now, Barley is the key raw material that Anora is using to produce ethanol for beverages but also for technical purposes as well as starch and feed production, and it's very significant. We source over 200 million kilos a year, and it's actually a very significant part of the total market volume for Finnish barley. And as with all agricultural products, the price of barley, it fluctuates depending on the quality and size of the annual crop, as you can see on the upper chart on the slide. And we purchase barley at spot prices, and there aren't any hedging tools that are available for barley on the market. So what that means is that the impact of price fluctuations, they can be significant on the top line of the company. They can be significant on the profitability and on the inventory values. And this year, and you can see that in the -- on the top slide and with the dots at the end, and that's because the -- we are using the Luke source in average feed, and then it's the Anora price quote for November which is the last value there. And you can see that the current price is at the sort of an all-time high, and we expect the price level to remain high. And the reason for the price being that high is a historically poor crop in Finland, but it's also due to an imbalance between supply and demand of grain globally, right, which impacts prices for other grains. So the whole market is -- the imbalance in the market also for other grains is driving the price. So I mean, we have tools to mitigate the cost push. To some extent, we can pass on, on some of the products, the cost increase, to prices. But the impact of this year's price increase, which is then mostly reflected in the Altia Industrial segment but also on group profitability, it's quite significant. So that's on barley. And then if we move on to the key figures. Again, key figures here, a bit difficult to compare, as Pekka said, simply due to the fact that its numbers where in the last year, you have Altia only, and then in the current year, you have Arcus figures for 1 month only, right? So Arcus, yes, consolidated as of September 1, so the P&L, it includes Arcus numbers for September only. And the positive contribution of Arcus on net sales, it was EUR 25 million; and on comparable EBITDA, about EUR 5 million. So that's the September-only value. I'd like to mention here also that other items affecting comparability. You can see that in the difference between comparable EBITDA and EBITDA line. They were EUR 3.3 million for Q3, so negative, and EUR 8.7 million year-to-date. So these costs, they are mainly related to the merger, and the impact is obviously seen on the operating result and the EPS. So that's the key figures. But I mean, I encourage you to look at the pro forma and the illustrative figures. It's more representative definitely on the P&L on what the real performance of the businesses. So on the next page, we'll have a look at the balance sheet ratios. Yes, so balance sheet key figures, again, they're including Arcus cash flow numbers for the month of September only, but obviously, the balance sheet that is there as of September 30, so the end period, that is the real balance sheet of the combined company. So January to September, net cash flow from operations was EUR 6.7 million negative, and this decline is driven by the net working capital development. So that's -- it's the net capital development. It was negative due to gradual recovery of travel retail, exports and on-trade channels, which is increasing receivables, and then there's a calendar effect in how we pay VAT and excise tax payables. So again, I mean, that was common to both companies previously, and it's not necessarily something which is new this time that quarter-on-quarter, you have variations right in the working capital needs. Now at the end of the reporting period, this is a very significant change. You can see the borrowings, so the net debt, it amounted to EUR 173 million. And this increase is due to the Altia and Arcus merger, as the balance sheet of the former Arcus, it had significant lease liabilities. These are IFRS 16-based, and it's due to the long lease on the Gjelleråsen facility, and there's also a bank debt coming from Arcus. And then the increase in net debt, it impacts the leverage ratio. But I would draw your attention to the note here and the remark, which is the last bullet here. You see that the reported net debt over comparable EBITDA is 2.9, but that figure is a bit misleading because, of course, reported net debt is a balance sheet figure, so it reflects the end of period value. And then the comparable EBITDA, it reflects the reported numbers, right, with only 1 month of Arcus comparable EBITDA, not the full 12 months. So actually, if you had included the full 12 months, the figure would have been 1.6. So 1.6 is still an increase versus the 0.7, right, of last year for Altia alone, and that reflects the fact that there was a higher leverage definitely when you're including IFRS 16 in the former Arcus, then the former Altia, but still a leverage ratio which is relatively low for a company with such a strong and solid cash flows. Gearing was at 35.5%. Equity ratio was at 42.5%. And then I would say that last point to mention is that gross capital expenditure, it was a bit lower at EUR 3 million compared to the previous year, and the CapEx was allocated mainly to replacement investments and to improve energy efficiency and work safety. So among those things were the things Pekka mentioned during the Altia Industrial segment presentation. And then we move on to the pro formas on the next page. Here, there are many things, and I mean, I'm not going to go through all of them. I refer you to the separate pro forma stock exchange release, which we published on November 18. It includes then historical figures basically from 2019 and first half, and now we are releasing as part of this report, Q3. I mean, the purpose of the pro forma figures, and this is something we've created with external assistance and according to best practices, it's presenting essentially illustrative and hypothetical situation as if the merger had been completed on January 1. The balance sheet here with the assets required and liabilities assumed at provisional fair values. And we have applied Altia's accounting principles and reclassified Arcus values according to those and translated them into euro. And the key merger adjustments that we've made is that net sales and expenses are adjusted by the remedies. So the sale of these brands that we have to do for competition purposes, we've recorded the merger-related costs that had been incurred until now. And we've recorded the inventory step-up that I'll talk more about in the next page on purchase price allocation, and we've recorded that as an expense in 2019. So I guess that's about it in terms of the pro forma figures. More information in the release and in the quarterly report. So if we then move on to the purchase price allocation of the Arcus acquisition balance sheet. So the fair value of the merger consideration, it's EUR 337.4 million. I mean, this is essentially market value of Arcus at the last listing date with the shares times the number of new shares. And then we're allocating this value essentially to the acquired Arcus net assets. And here, a couple of key points to point out that's changing also the balance sheet quite significantly of the merged company compared to the previous Altia balance sheet is that there are intangible assets of EUR 181 million. They include fair value of the brand portfolios but also some customer relationship, company brands and other intangible assets. So that's the sort of a big figure. And then inventory of EUR 61.7 million, it also includes then a fair value adjustment of about EUR 2.4 million which will turn over within the year. And then I mean, there's also a balance because we know sort of what was the price that was paid, and only some of it is attributable to specific net assets, and the difference, that's goodwill. And that's attributable to things like the market share, the synergies, the workforce future growth potential. And in addition to that, I guess that we can point out related to the intangible asset that the amortization period for the intangible assets, they vary between 5 and 50 years. And some spirits trademark, these are really long living ones, existed for maybe 100 years. They even have indefinite lifetime. And an important point to point out here that annual amortization then from these fair value adjustments there, it will be around EUR 4 million in addition to Arcus historical amortization levels. So I mean, that very -- we ended on a very technical note. And now with that, I'm done with the financial review. So with that, I hand it back to you, Pekka.

Thank you, Sigmund. So let's look at a few words on the integration. The integration work has started off really well. The work is progressing according to our plan and is on schedule. We have a number of initiatives, which we have assigned across 10 integration work streams. We are committed to the previously announced annual EBITDA net synergy target of EUR 8 million to EUR 10 million. And we continue to expect that 80% of the net synergies will be realized within 2 years. The run rate of already realized cost synergies is already EUR 2.7 million, so a good start. And the impact of the remedies on EBITDA was EUR 4.6 million. As said before, the remedies did not impact our annual EBITDA synergy -- net synergy target. We have estimated that post-closing integration costs would be EUR 7 million to EUR 9 million this year and next year. One concrete and important example of integration was the announcement of Anora's operating model in October. So a bit about that. We have 4 business areas to support our growth. We have wine, spirits, international and industrial. Wine is headed by Janne Halttunen. And here, we offer a strong growth platform for our partners, and we'll continue to operate on an entrepreneurial setup, leveraging our category expertise and our market-leading digital platforms. Spirits is headed by Henrik Thomsen. And here, we continue to build on success on our complete portfolio of leading global and local spirits brands and, obviously, our strong sustainability work. International is headed by Kirsi Puntila, and it focuses on taking Anora brands to new markets. The business area also includes our operations in Denmark, Baltics and in travel retail. Industrial is headed by Hannu Tuominen, and it includes our industrial operations, supply chain and the logistics company, Vectura. Since we announced the operating model, we have made the first leadership nominations, and the work to structure operations continues. And as communicated earlier, we expect to be ready by end of December. So in my closing remarks before the Q&A, I wanted to give you an update on sustainability and showcase our offering for the Christmas period. We have traditionally provided you with insight into sustainability in our quarterly reports. The work to integrate sustainability data and processes is ongoing, and our new sustainability targets will be set during next year. In the meanwhile, here are a few highlights of our sustainability achievements in the third quarter. Koskenkorva distillery's energy self-sufficiency improved further, and year-to-date, we reached a record high level of almost 69%. During the quarter, we have made several launches in the low and non-alcoholic category such as 7 variants of Blossa Glögg, which are the first products to be produced in-house with the new liquid de-alcoholization equipment. Recycling compatibility and the reduction of CO2 emissions remains at the core when developing our packaging. By the end of quarter, 90% of the former Altia's PET portfolio were rPET, which are bottles which are made with at least 25% of recycled plastic. At Gjelleråsen, bottle capsules have been changed to one plastic capsule type for all main bottle formats. This has brought increased efficiency in production. And last, the Koskenkorva distillery was granted The Year Award in Starch Europe's Safety Program. The award is given to plants with a full calendar year without lost time incidents. And this is a fantastic recognition for our long-term safety work at Koskenkorva and prove that we are moving in the right direction. The fourth quarter of the year and Christmas season are obviously very, very important to us. Though aquavit is obviously enjoyed with foods all year around, the Christmas season is marked by very high demand in this category. All our most established aquavit brands are available with a seasonal design and special blends. Most have prolonged cask maturations like Linie Aged 4 Years and Gammel Opland Juleaquavit 8 years. On the far right is Gilde Juleaquavit 2021, the original Christmas aquavit, presented with the new design and liquid every year since 1988. And this is the all-time best seller. Glöggs are another important part of Christmas traditions consumed at Christmas lunches, parties and gatherings both at home and outside. The market-leading glögg brand, Blossa, has again this year a strong offering. On the slide, you see some of the novelties for this year, which are complementing the offering of the traditional Blossas. In the middle, the Blossa Sparkling & Spices Classic Red is a non-alcoholic variant in the sparkling glögg lineup. And on the far left, you see the annual Blossa this year inspired by Andalusia. We have a strong combined offering for the season, and we believe that we are ready and well prepared for this high season. And before the Q&A, our short-term outlook. We're not providing guidance for 2021 but have updated our short-term outlook. Societies are returning to normal obviously with a lot of changes, a lot of turbulence like we've seen in the last few days. But we still expect to this to impact our channel mix, with probably on-trade still growing and travel retail still growing share of sales from monopolies. What we do know is that in the industrial segment, barley market prices are expected to remain at the very high levels due to historically poor crop in Finland and the global imbalance between demand for and supply of grain. We also see a significant cost pressure in other raw materials. We continue to carefully monitor the development of COVID-19 and to implement necessary precautions for the health and safety of our employees. So then back to Tua.

Thank you, Pekka and Sigmund. And now we will take questions. And we will start with the ones that we have on chat. I will repeat them before Pekka or Sigmund answers the question. So we have a first question from Jaakko, SEB. How large was the impact of increased barley prices in Altia Industrial? And should we expect greater impact for Q4 and Q1? How are you able to mitigate the cost pressure going forward? So I will ask Pekka to take this question.

The impact of barley is definitely bigger in Q4 than in Q3 and obviously continues for 12 months from now or since, I guess, since September. It is a very significant cost increase. I mean, we've been used to high barley prices from before, as you probably know. But the situation right now is a bit unseen. I mean, we are closing in on EUR 300 per tonne, which is something I haven't seen. And I guess, such prices goes back to, I don't know, early 1970s. So quite an unusual situation where we are at right now. So as Sigmund said, I mean, we do have ways to mitigate the cost push. Price increases, like Sigmund mentioned, are the obvious one, both in industrial as in beverages. And that's something we need to do and take very seriously. The purchase of ethanol from outside is definitely one way where to mitigate the cost increases on ethanol, that's more for technical purposes. And there are some other ways as well, and we need to look at all of them with such high cost push. And naturally, and like we -- like I mentioned earlier, not just on barley but on all raw materials.

Great. Then a question about synergies, and I will direct that one to Pekka as well. So you mentioned to be able to achieve 80% of synergy benefits within 2 years, not 100% mentioned in Q2 report. Any reason why this estimate has changed?

I think we talked about 80% all along. I think in some instances, we might have used most words. So most and 80% to us, I mean, is the same thing. So most of the synergies, 80% of synergies we expect to reach within -- net synergies we expect to reach in 2 years.

All right. And then we have a question -- follow-up question from Joni at Nordea. Regarding the current EUR 2.7 million cost synergy run rate, have you been able to find any top line synergies? And if not, when should we expect to see impact from these? Pekka, please go ahead.

Yes, we do expect top line synergies as well, and that's something that we'll start to looking now. I mean, the '22 planning is well on its way, and the top line synergies are definitely one of the key areas. I think we will see opportunities both in partner brands and own brands. I think we already mentioned earlier in our presentation. I mean, now with the truly pan-Nordic platform that we have, we believe that we can take more power from our launches. Instead of one country, we can do it in more countries. And we definitely are looking for top line synergies also in the partner business, being able to offer a truly pan-Nordic route to market with leading positions in each and every market. The planning is well on its way, and I do hope that already next year, we see fruits of that planning.

Great. So then following on to the divestment or the remedies. So you expect EUR 4.6 million annual EBITDA impact from divestment of brands to Galatea. Can you comment on the impact on top line?

Maybe that's to you, Sigmund.

Yes. Yes, I guess, we can talk roughly, we can talk of a rough numbers. So it's about EUR 12 million of net sales impact.

Okay. Then we move on to Altia Industrial. So you mentioned lower OpEx in industrial. Is this due to normalizing mix? And should we expect further improvement in Q4? Pekka?

In Q3, yes, we mentioned lower OpEx. I think it's more related to the fact that we had an all-time year last year in industrial, and that's visible in OpEx, for example, in salaries. Don't want to comment on Q4. I think there's so many elements in Q4 that we're looking at right now, especially industrial, especially with barley. So probably leave that for later.

All right. Then we had a question, and I will direct this to Sigmund, about FX. So how is Anora using FX hedging? And are you expecting changes to the current situation?

Basically, the way that Anora is using FX hedging is the sum of the former policies of ex-Altia and ex-Arcus. So I would refer you to the more detailed description in the Q3 report and also in the annual reports of the respective companies. But to sum up, in simple terms, as you know, ex-Altia was hedging a significant part of its foreign currency exposure, and Arcus was not hedging basically at all. So as is natural, right, after the integration, we have continued, let's call it, with the separate policies of the 2 entities and as a natural part of harmonizing the way that we operate, we will, together with the Audit Committee and the Board, come up with a new treasury policy that will also cover the FX hedging practices. And then at the appropriate time, we will communicate that to the -- publicly and reflect it in our external reporting so that you know what the practice is.

Great. Then there's a question about the current trading conditions at the monopolies. So I will let Pekka start to comment on Finland and then Sigmund to comment on Norway.

Yes. So maybe I refer to public information, what we've known. I think on-trade was recovering fast in November. I think that's well known, like was traveling as well, and that obviously one would expect that to have an impact on the channel mix. But as we've seen in the news today and yesterday, things are changing fast. So I think our -- let's see how that will impact for example, the Christmas celebrations in restaurants. So that will obviously have a big impact. So I would say for November, referring to public sources, one would expect that on-trade and maybe traveling would still gain share from monopolies on a year-on-year comparison. Sigmund, you want to build on that?

Yes. In Norway, the situation during corona has been that sales at the monopoly have -- in Norway have increased very, very significantly, 40%, 50%. A lot of that was driven by the on-trade channel and travel retail being shut -- entirely shut down at some point. But an even bigger part of that is the border trade. So again, referring to publicly available information, we know that, for example, from border crossings, the number of cars traveling from Norway at the key border passing at Svinesund into Sweden. You can see that, that -- the number of passings have recovered not fully to the 2019 normalized levels but are significantly and have been so for, I would say, the last 2, 3 months significantly above where they were in 2020. And I would say, if not quite at the level of 2019, then roughly in the same order of magnitude, which is something which is new. So based on that publicly available information, one would -- and the strong volumes in on-trade and restaurant activity and still quite more travel than we saw last year, you would expect channel mix to shift from the monopoly to not only on-trade and travel as in Finland, but also to the border trade to the detriment especially then of the monopoly stores which are close to the border.

Thank you. So we have reached 12 here in -- the time is 12 here in Finland, but we will take all the questions that we received today. [Operator Instructions] And then we have still one question from Paul Handeland, and it's about the new heat pump system in Koskenkorva. So would you expect the new heat pump system to contribute to meaningful cost savings from Q2 '22? And what is your CO2 quota position? Are you a net seller or a net buyer?

Thank you for the question, Paul. I think this is very, very important. We're definitely a CO2 net seller. We've been able to reduce at Koskenkorva distillery our CO2 emissions, I believe, by 50% during the last 5 years, so very, very significantly. And obviously, the heat pump installment is part of that further CO2 emission reduction plan, and we aim to be carbon neutral in -- by 2025, and we are well on our way towards that target. Cost savings, yes, obviously, yes, all cost savings are important to us. And yes, whether that's material and visible in our -- in industrial profit and loss, I'm not sure. Probably it's not, but it is a positive move in many ways for us.

Thank you. And there is one more question from Jaakko at SEB. So any guidance or indication on one-offs for the following quarters? Sigmund, would you like to take this?

Nothing beyond the fact that Pekka said that we expect post-integration cost to be EUR 7 million to EUR 9 million over the next 2 years.

Thank you. And then we have a question from Maarit Kairento regarding production capacity. So in regard to production capacity and utilization, shall the current capacity be sufficient to support future growth? Or can we expect investments?

We do invest every year for different purposes. So -- but in terms of increasing capacity, this -- we don't see a need in general for that we have adequate capacity both in bottling and in distilling as it is now. But hopefully, we do our utmost that our growth would be such that we would need even more. But currently, no plans for capacity increase.

Okay. Let's wait just a while to see if there are any more questions. Okay. It looks like there are no more questions. So I will hand over back to Pekka for a quick summary.

Thank you, Tua. Thank you for all the great questions. To summarize our first quarterly results presentation, I would say that we had a very strong start with solid business performance in Q3. We saw less COVID-19 restrictions, which are obviously coming back now, but we'll see. And this less restrictions led to changes in our channel mix. Spirits sales had a strong development in Q3. Our integration work is progressing according to plan and on schedule. And we have maintained the early announced synergy target. And now back to Tua for final remarks.

Great. Thank you, Pekka and Sigmund, and thank you, everyone, for joining and following our presentation today. We are now ready and with everything for today. And if you have any feedback or questions, please don't hesitate to reach out. We are happy to set up follow-up calls. So with this, I wish you everyone a relaxing rest of the week. Hopefully speak to you soon. Bye.