Royal Unibrew A/S (RBREW) Earnings Call Transcript & Summary

Good morning and welcome to Royal Unibrew's conference call on the results for the full year 2019. I'm Hans Savonije, the CEO of Royal Unibrew. And on the call with me is Lars Jensen, still, our CFO, but soon, COO, to be; and Lars Vestergaard, who will join us on the first of April as CFO. Today, we will conclude on the 2019 results and share some insights into 2020 assumptions, knowing that the current COVID-19 situation creates uncertainties to our development, particularly in Italy and generally to the events seen, whereas we expect the off-trades to be less impacted. Before we turn to the business development, I would like to briefly touch on the announcement of yesterday evening related to the CEO transition that will be initiated shortly by the Board of Royal Unibrew. I'm proud of what we have achieved in Royal Unibrew during the last 10-or-so years and the transitions that we have made. Royal Unibrew is all about teamwork and strong values that we live every day, and I trust that this will continue also under a new leadership. I will stay flexible until the Board has a solution. With Lars Vestergaard onboard, we have already secured continuity as well as with the move of Lars into the COO position. And those 2 strengthen, of course, the overall leadership of Royal Unibrew further. Further questions can be addressed to our Chairman, which can be also facilitated by Lars. Let me give the words to Lars Vestergaard for a short introduction.

Thank you, Hans, for giving the -- me the opportunity to connect with analysts and investors, even though I only start in a couple of weeks from now. As you know, I have been serving in the Board for a little bit less than 2 years, which, of course, gives me a unique insight into Royal Unibrew, including knowledge of the leaders in the organization that I'll be taking over from Lars Jensen in a couple of weeks. Royal Unibrew is a well-run machine, and I look forward to contributing to the journey and meeting you all as soon as the COVID-19 allows us to travel again. I will hand over the word to Hans for the business update.

Thank you, Lars, and welcome to the Royal Unibrew family. Now please turn to Slide #2. 2019 has been another very busy year, where we have outperformed most fast-moving consumer goods businesses and delivered solid returns to our shareholders, while strengthening our CSR work and reporting significantly. Financially, we increased our EBIT margin guidance for the coming years to the interval of 19% to 20%, even though the unknown impact from COVID-19 might short term, meaning this year, 2020, leads to a margin that is not within the range, but below. We continue to return a lot of cash to our shareholders through dividends, which will be proposed at the AGM at DKK 12.20 per share, which is an increase of 13% over last year. And a new share buyback of DKK 400 million has been initiated this morning. In total, a record high cash return. Earnings per share was up 12% in 2019 in spite of a tough comparison to 2018, which was this year with a fantastic summer. Structurally, we closed the Bev.Con deal in March, that is the CULT brands, acquired the Bruce Ashley service business in Canada, in August, and we closed the Bauskas deal in Latvia in November. So another busy year with a lot of integration work has been completed. On the CSR agenda, we have established short-term targets, got insight into our CO2 footprint and joined the UN Global Compact, which we will elaborate on further in the next slides. As Lars leads the CSR efforts in the company, he will take us through this in a moment. Please turn to Slide #3. Our performance in 2019 has been strong with solid development, both in our net revenue, earnings and free cash flow. Overall, we estimate that our market shares generally increased slightly compared to the same period last year. I would like to highlight the following: a solid revenue improvement by 5%; both EBITDA margin and EBIT margin have increased; earnings per share increased by 12% from DKK 20.6 per share to DKK 23 per share; we continue to create a strong free cash flow; expected distribution to shareholders of DKK 1.010 billion in comparison to 2018 where we distributed DKK 950 million allocated by, first of all, a dividend of DKK 12.20 per share, last year 2018 was DKK 10.80 per share and a new share buyback program of DKK 400 million, that is the same size as last year. We maintain our strategic flexibility. Lars, can you take us through the CSR area.

Thank you, Hans, and please move to Slide #4. So during 2018, we have conducted -- we did conduct a materiality assessment, which helped us to focus on the topics that really matters the most on the CSR agenda for us and our stakeholders. In 2019, we have created a link to UN's 17 sustainability goals, which will focus us even more on the important topics and secure solid reporting. We do a lot of excellent work, which will accelerate even further during the coming years. Inside the fence of the breweries, which -- where we have a very good performance, it's also where we have many new projects to reduce the CO2 usage significantly during the coming years. The most important area to address is the packaging material area, where the combination of reduced carbon footprint and increased usage of recycled materials is a prime focus. We have already established a number of new projects with our suppliers in these areas, and a lot will come during the next years as technology and waste management improves. Let us move to Slide #5 for our short-term targets. As I mentioned, our focus during the next 3 years will be a reduction on our carbon footprint, and not only inside the fence, which most breweries or beverage companies focus on, but also including the packaging and transportation area, and further on increasing usage of recycled and recyclable materials. We already use a high degree of recyclable materials, and in our core markets, most materials is collected either via the process systems or via public waste sorting systems. So the task is to secure a closed -- what we would call, a closed FMCG loop for the future. The CSR dilemmas are many. And a couple of examples is in the Nordics, where we have solid recycling systems, the more we move away from plastic containers, actually the highest CO2 usage that we will have. Another example is that with the introduction of smaller pack size, which leads to less food waste, also increase the CO2 consumptions. So a lot of dilemmas that we need to deal with, but we think we are equipped to check the right judgments of them. And just to underline, we believe in deposit and return systems are very important to facilitate this FMCG closed loop for the packaging area. Now please turn to Slide #6. At group level, volumes increased by 2%. And for the first time, we sold and delivered more than 11 million hectoliters to our consumers and customers. The acquisitions added 3% increase, while organic development reduced volume by 1%, which can be explained by negative impact from stepping back from the beer campaign in Finland as well as the weather comparison to the historical warm summer in 2018. Our revenue improved by 5% and was positively affected by acquisitions. The organic development, when adjusting for the acquisition effects from CULT and Arena, which are the bigger ones, was a 1% increase. On a like-for-like basis, meaning excluding the beer campaign in Finland and the good weather last year, the real organic growth is higher than the 1%. EBIT increased by DKK 130 million to EUR 1.469 billion and the EBIT margin expanded by 0.7 percentage points to 19.1%. Besides the acquisitions, EBIT was positively affected by premiumization of our portfolio and improved market and product mix. Please turn to Slide #7. Profit before tax amounted to DKK 1.458 billion and is DKK 130 million higher than last year. Our balance sheet and cash flow remained strong. The acquisitions have increased the net interest-bearing debt, which is at DKK 2.7 billion now and is DKK 183 million higher than 2018. The leverage is unchanged at 1.5x EBITDA. During 2019, we bought back shares of a value of DKK 433 million. At the end of the year, our shareholder equity amounted to DKK 3.1 billion, while the equity ratio decreased from 36% at year-end '18 to 37% year-end 2019. The investment in CULT affected the return on invested capital, excluding goodwill, negatively. And ROIC, so return on invested capital ended at 30%, which is 3 percentage points lower compared to the last year, so acquisition driven. Please turn to Slide #8. The performance of our key figures continues to be solid. The free cash flow ended DKK 217 million above last year. The free cash flow has, above normal, been impacted positively by, for example, from asset sale. We estimate that a normalized level in 2019 is just above the DKK 1.1 billion. With this, I will now give the word back to Hans to make some comments on the development in the different business areas.

Thank you, Lars. Please turn to Slide #9. A couple of highlights to our performance in the 3 business segments. In Western Europe, total volumes showed a 6% increase in 2019 and reached 4.8 million hectoliters. Net revenue increased by 9% due to positive developments in the average net selling price per volume. Adjusted for acquisition effects, the net revenue grew by 3% organically. EBIT increased by 12% and the EBIT margin improved by 0.5 percentage points to 19.6%. In Denmark and Germany, volumes showed a 3% increase in 2019, and net revenue increased 7%. Adjusting for the CULT acquisition, net revenue increased by 1%. It is estimated that Royal Unibrew increased its market shares across categories. We continuously focus on creating new, innovative products to be able to match the consumer demand for more specialized, organic and low or nonalcoholic products. We work closely with our partners, and together with PepsiCo, we increased the net revenue in the snack portfolio with 10%, and we are now holding a #2 position in the Danish market. We have now owned CULT for 1 year, and we consider the CULT business to be fully integrated into Royal Unibrew. In Southern Europe, net revenue increased by 15%, while volume increased up 19% compared to 2018. Adjusted for the Lorina acquisition, volume increased by 5% and net revenue by 6%. In Italy, we estimate to have increased our market shares in the soft drink category with our Fonti di Crodo portfolio, and in particular, measured in value, where LemonSoda and OranSoda were top performers in their categories. During the year, we introduced new packaging formats and designs and increased our in-store activation and digital communication. In France, the integration of the Lorina business into Royal Unibrew goes according to plan, with focus on simplifying the business, strengthening the relationship to our customers and harvesting synergies. We have increased our investments in marketing through an increase in in-store activation and the first TV commercial for Lorina ever. We are looking forward to celebrate Lorina's 125th anniversary this year, 2020. In our Baltic Sea segment, volume showed a 3% decrease in 2019 and reached 5.3 million hectoliters. Net revenue decreased by 1% and was positively affected by higher net selling prices in all countries due to a better product mix. The decrease in volume and net revenue can be explained by the lower beer campaigns in Finland and the comparison to a very hot summer in 2018. In Finland, we increased our market shares during 2019 in continuation of an exceptional 2018. We have delivered on our strategic priorities with introduction of new flavors in the original Long Drink portfolio and with focus on the nonsugar soft drink category and premiumization of the beer and cider portfolio. In the beer category, we have launched new organic Lapin Kulta and the low-alcohol beer Lahden Erikois IPA with 0.5% of alcohol. During the year, Hartwall carried out a wide range of commercial activities and communication with consumers, such as after ski events and the event, The Greyest Day of Year, which was even bigger than the year before and confirms the strong connection between original Long Drink and the Finnish consumers. The Baltic countries contributed positively to the segment result, and the net selling prices increased in all countries due to an improved product mix. With a strong marketing agenda, Royal Unibrew has succeeded to grow the business in a challenging market through new innovative products in the premium segment and in the low and nonalcoholic categories. We also introduced CULT Energy in the Baltic market, which is an example of how we -- how the newly acquired companies support our business model. Turning to the international segment. We saw volumes increased by 14%, while net revenue ended up at 19% compared to 2018. Adjusting for acquisitions, the organic growth was 9% in net revenue, supported by the introduction of the Fonti di Crodo portfolio in core markets and growth in the Faxe brand across regions. In this segment, our EBIT improved by DKK 5 million compared to last year, and our EBIT margin decreased from 21.9% to 19%. EBIT is negatively impacted by an impairment of DKK 7 million. Thus, the EBIT result is up by DKK 12 million, exclusive of this impairment, equivalent to an EBIT margin of 20%. The integration of the Bruce Ashley Group, in Canada, is progressing as planned, focusing on professionalization of the organization as well as strengthening of the existing partnerships. In addition, we entered into a new partnership with a local craft brewer. I will hand over to Lars for the outlook.

Thank you, Hans. Please turn to Slide #10. Before we are ready to take your questions, I would like to wrap up our session and share the outlook guidance for 2020. And for specific elements, please read the annual report, which highlights further details in this area. Although Royal Unibrew's business is resilient and trends have been positive until end of February, we cannot, at this time, fully assess how the COVID-19 virus will affect, in particular, our Italian business and the on-trade. We monitor the situation in our local operations with very high urgency and adjust promptly where needed. In spite of the current circumstances, we expect to deliver an EBIT at around 2019 level, and we confirm our strategic commitment to deliver solid earnings and cash flow. With this, we are completed -- we have completed our presentation, and we are ready to take your questions.

[Operator Instructions] So our first question is from the line of Jonas Guldborg.

First of all, a question on the COVID-19 impact on your Italian daily operations, so to speak. Could you elaborate a bit on how -- is production up and running at the moment? How is logistics in Italy affected? And then is it possible for you to get products out of Italy for exports? Then I would also like you to comment on your guidance. And if you have factored in any potential positives from more consumers staying at home in Denmark and Finland for the summer vacations instead of traveling? And then lastly, could you just let us know what the M&A impact was on EBIT in 2019?

Thank you, Jonas. So if we look at the guidance first, so your mid-question here. Positives around the COVID-19, I think, is very few. And if anything, probably not something that has any effect in 2020 at the end of the day. So we're extremely concerned about this and follow it on a daily basis. So I wouldn't talk about any positives In terms of the impact in Italy, maybe you will comment on that, Hans.

Yes. Jonas, in Italy, we started taking first measures on the way that we organize ourselves 2.5 weeks ago, immediately after the first cases came up. To your question, the facility is open and producing at this moment. We -- the biggest effect is expected to be the transport of the products, but there is still a free movement of merchandise across Italy. So in that respect, there are no major disruptions, and some of the beer that we used to drive into the Milan area, we will now drive around the Milan area to go directly south. And we have also -- because we anticipated when this started that there might be some areas of -- or some limitations, particularly in shipping capabilities and container capacities, we have started to move products into the direction of the U.S., in particular, a little bit more than what we had anticipated earlier. So we are anticipating with the business on an everyday basis. The business is up and running in terms of production. And of course, some of the local initiative for the month of March, in Italy, was the first month for the introduction of a number of new innovations and products into the market, that is being delayed or hampered a little bit. But of course, Lars and myself and the team in Italy have been doing some calibrations on this and taking measures on it. So it will be -- it will have an effect on our March delivery in Italy, absolutely, but exactly how big it will be, it's difficult to say at this moment. Lars.

Yes. On the last question, Jonas, you asked about how much M&A impact EBIT. We haven't give -- given you the exact numbers. We have given you the EBIT of the acquired entities, as we have been acquiring them. And you know exactly how many months each of them is accounting for. So we will not give you a precise amount, but I think you'll be fairly close if you do a small, simple math on it. And of course, when you look at 2020, as we also write, there will be a bit of impact on the M&A, given that we have full year effects from Bauskas, 10 months, and we have 2 months of CULT, so those 2 in particular.

Okay. If I could just rephrase my second question then to, if you assume a normal summer in your 2020 guidance, does that then include normal travel vacation patterns?

This is not -- I would say, even though that there is some people that would not leave their original countries, say, Finland and Denmark and have holiday at home, this is not something that we believe materially will change our possibilities to sell more product. So this is not something that we specifically have included in the guidance we have given. And we don't know if that would be the case.

Next question is from the line of Richard Withagen.

I have 3 questions as well, please. First of all, yes, back on COVID-19, could you please remind us what the split is between on-trade and off-trade in your Italian business? And what kind of measures you have taken in order to have reduced costs or where you can actually reduce costs? Second question is on Finland. I think we see a continued channel shift in Finland with Alko selling less and other outlets selling more. Do you expect that to continue in 2020? And what are the main commercial initiatives for you in 2020? And then the last question is on Lorina in France. I've been reading that you've made quite some changes to the management of Lorina in France, the General Manager, recently a new Marketing Manager. Does this mean that the integration is largely done? And what kind of capabilities have you been looking for especially?

If we start with the first question, in terms of Italy. So our beer business in Italy is about 70% out-of-home consumption and 30% at home, whereas the soft drink business is close to being the opposite. Since the beer business is bigger than the soft drink business, then we are skewed more to the out-of-home consumption and on-trade. So if you take the mix of the 2, it's in the neighborhood of about 60% of our business that sits in the on-trade business. Then you asked questions around what kind of measures can we take? I think this is not only something that is isolated about measures in Italy. This is about Royal Unibrew as a group, helping each other and securing that we, as a group, deliver and create flexibility. So we are looking at exactly the same measures as we are looking at if we have a very bad summer, bad weather, what can we do to operate smarter? What kind of cost can we avoid, et cetera, et cetera? And I think the latest example we have goes back to the summer of 2017, which was the most dreadful summer, I think since we start measuring weather in the Nordics. So we have -- I think, in general, in the organization, we have a pretty good way of dealing with these things in a very agile and proactive way. So this is not only Italy, just to stress that point. Hans, do you want to comment on Finland?

Yes. Richard, selling of Alko of our products has, with the change of the law in the first of January 2018, of course, had a major impact. So Alko has changed its strategy. Alko is, for the people who do not know, is the monopoly that sells alcohol above 5.5% alcohol in -- to Finnish consumers. And Alko has changed its strategy. It has gone from an assortment of 3,000 products now to an assortment of 10,000 SKUs in order to expand the attractiveness to the Finnish consumer. Our business, which was original Long Drink, was the #1 SKU and is still the #1 SKU in Alko, of course, has moved away from Alko alone into the normal supermarket channel. And that channel shift is still taking place. Consumers are -- have changed their habits on how they shop, in particularly in the ready-to-drink and cider categories and also a little bit in the beer category that has certain effects. When you ask about our main commercial initiatives in Finland, we have -- we continue to focus very much on our low alcoholic and nonalcoholic beer portfolio. We have some very interesting launches that we announced to the trade, which have been taken up in a very positive way. We also have in the Jaffa portfolio of soft drinks, a very impressive innovation hitting the market right now, which is around the combination of low sugar and juice. And so -- yes, and within the range of the original Long Drink, we also introduced right now a lower than the current 5.5% alcohol variant, which is more targeted towards specific other consumer groups that are interested in that. And I don't want to give too much away around that anymore. Lorina?

Yes. So -- yes, on the last question, Lorina and integration. So we don't consider ourselves in being in an integration phase as such. We have done a lot of changes since we took the ownership of the business. Yes, we have a new Marketing Manager, but that's part of a normal, I would say, management evolvement. So that's not a part of an integration process as such. [ Jen ], who is leading the French organization, has a strong team in place to deliver. So yes, so we are on a good path we feel.

Richard, I did not understand. We have appointed a new very experienced Site Manager in the Munster facility, perhaps that is an exchange of personalities here. The man, [ Erik Schmidt ], started with us at the beginning of this month is a man with very extensive beverage experience, production, logistics experience from, amongst others, Nestlé. Yes, 55-year young backbone, I would say, a real strengthening of the team.

Next question is from the line of Søren Samsoe.

I have 3 questions. First of all, on the gross margin, which is quite strong, it's up 70 bps. And I think your gross profit was up 9% in Q4. Just if you could tell me what's driving this margin development? Is it sort of the volume effects of the scale? Is it product mix or country mix? Or what is it? Secondly, I was wondering, in your international business, you have strong growth in Q4, if you could tell if this is malt? Is it beer? Or is it some of the new products that you have acquired that are starting to work in terms of cross-selling? And then finally, in your guidance for the 2020, the sales that you think you will lose due to the corona situation in on-trade, do you assume that some of that will be converted into off-trade or you just assume that you will lose it?

So on the gross margin, and specifically in the quarter, you need to look at it in a -- on an ongoing rolling basis. There is phasing in terms of promotions and campaigns and these kind of things. So there's nothing that is particularly different in terms of the underlying developments in Q4 compared to the rest of 2019. When we look at the international segment, it is a bit the same. There, you always see phasing between quarters in terms of shipments. The takeaway around the international business is that we have managed to increase the sales out. So when you look at the flight attitude of the international area when we entered the year was lower than when we exit the year. And we are more in the range of between mid-single digit and high single digit in terms of our sales out, which was below mid-single digit when we entered the year. So our flight attitude is higher, but it's not at the level of the sales that you see. And you need to adjust also for the full year effect of the Lorina business that we have in the U.S. But again, the takeaway is that it's a solid increase, and it's a higher sales out than what we entered the year -- when we entered the year. On the guidance, we do not expect to gain a lot of synergy on the retail side, to be honest. So what we have seen over the last 2 weeks, 2 to 3 weeks, and in, of course, in particular, in Italy, and that is that the retail business seems to be progressing, I would say, almost as usual, whereas we see that the on-trades, of course, starts to suffer from when people go less out. And that they do immediately or the effect becomes immediate. So we have not taken into the math that retail will compensate. We expect that we will lose top line and that we will have to compensate through the way that we spend our money, spend less, think smart in all aspects.

Okay. Then I just want to move back to the first question. If we look out in a 12-month rolling perspective then, the progression you're doing on the gross margin, is it then volume-driven? Is it product mix? Is it country mix? Or is it a combination of all 3 of them?

It's a combination of country mix, product mix, premiumization and operational leverage. So it's a nice mix of everything.

Okay. And is there anything, except if you -- let's say, if you can look beyond the corona situation. Is there anything that is sort of looks -- that should change in the future?

But it all depends on where we grow the most, how we perform in the different areas. So that is core. And of course, how we will be able to create leverage. There's potential different leverage effects between the different countries. So it all depends on the relative size of each of the business segments.

But it is fair to say, Soren, that in the work that is being done across the portfolios of our products that the work is focusing more on premiumization. Yes, that means that you bring consumers products for which they are prepared to pay a little bit more. And that is an overriding factor in where the gross margin and how the gross margin develops.

Next question is from the line of Elsa Hannar.

A couple of questions from me. Just first, going back to the guidance. When you talk about the COVID impact, are you factoring in any impact outside of Italy? I know it's hard to see where this could go, but do you see it spreading wider across Europe? And also, when you talk about the guidance for a normal summer in 2020, is that including or excluding the Euro being played or not. And then moving over to the CEO search. I was just wondering what are your key criteria you're looking for here? And then finally, on raw material, are you seeing any benefits from lower oil prices? I know the guidance is to follow inflation, but have you run any consistent ramp up?

So on the guidance, what we have assumed here is that we will have a significant impact in Italy. And of course, we're also looking at the geographical differences because there is a -- we see that there's a difference between north and south. So we have made -- based on what we know and what we see and the performance that we have experienced, we have, of course, made some assumptions around how that could play out. On top of that, we also expect that we will have a negative impact on the on-trade business, in particular, in Italy -- sorry, in Denmark and in Finland, because those are the 2 countries where we have significant on-trade businesses. The Baltic, we also have an on-trade business, but it's, in relation to the total size of the business is far, far smaller. So we will -- we do expect that we, until end of May, will have a hard time in, let's call it, the 3 biggest geographies. If Euro 2020 is going to be played or not, I don't think that will change the guidance from our side. Of course, we have a lot of activities like our competitors have a lot of activities around this. It's a big business opportunity, but it's not something that materially would change our view on our earnings capabilities for a specific year. So no special assumptions taken on the Euro 2020. If I comment on the raw material part. As you know, we have a history of having high transparency on our input costs when we announced the outlook for the year, which is also the case for 2020. So when we're talking about potential raw material impacts of what we see today or these days, then it's something that is more 2021 or beyond that, so nothing particular for 2020. On the CEO, Hans.

The Chairman, of course, or the Board puts together a brief for a search and therein the qualities. I think if I put it this way, yes. I mean, Royal Unibrew is a company with a rather unique and a rather profound management culture. We have a strong leadership team of about, let's say, 10 people who run the companies. The new leader must be an inspiring new leader for all of these people and put it all together. And so that there's not much more to be said about that, I feel, to be quite honest. I've done this for -- I've been in this company in the executive team for 12 years. It's been a fantastic 12 years. But I'm turning 64. And before we are -- you know it, I'm 65. And I don't want to do this until I'm 70. So that's a little bit of the background.

And I hope you have a further next couple of years, even if you're not doing this.

Next question is from the line of Frans Hoyer.

I was wondering about the 2020 guidance and whether you can, sort of, in broad terms, say something about 3 components of that guidance, i.e., the underlying progress without any COVID impacts, then the impacts of the COVID, and then the benefit of any countermeasures that you might have? Just in broad figures, I understand it's difficult to be precise, but in broad figures perhaps.

So if we look at how we entered the year, as we commented on a bit earlier, so we have -- we flew nicely out of the year with a good organic growth rate. And if we look at the performance in January and February, that has been confirmed, so to speak. So we have had a start of the year, which is in line with the original plans that we have built and as a prolongation of the strong execution and strategy that we have had over the last years. Of course, there's components here, but there are so many assumptions, and the assumptions will be changing on an everyday basis. So I think the closest we can get here is that we try, of course, to maximize our flexibility. We normally operate with flexibility in an agile way so that we can change our priorities when we see things are working well, and we can dose the money in those areas, et cetera, et cetera. So we -- on the short term, we try to maximize the flexibility. I think, hence, Frans, I cannot give you -- we will not give you exactly numbers on the magnitude here. I think the difference -- put it in a different perspective. So there's the guidance of this year that we have given with certain assumptions, but I think we haven't changed our view on our capabilities for the future. And we have done that also by giving an upgrade of our mid-term guidance from 18% to 19% to 19% to 20%. Because we must believe in that this is something that will be a challenge for us for a certain period of time, and then we can come back and continue crunching every day to make the business even stronger. But short term, that is the closest we can get, Frans.

Okay. Coming back to the commodity cost trends and try and step back from the issue that you have good visibility, everything is locked in for the current year. But what are the underlying trends in the key commodities that you're looking at? I mean let's assume that you weren't locked in and just exposed to spot trends.

I think when you look at what has happened over the last few days only, then, of course, the energy cost is the one that is most visible. And we also know that it will take time before it really impacts the sourcing of the raw materials. And you need to see it for a longer period of time. So the impression that we have here is that on the commodity markets, the future prices have not come down at the same magnitude. They have come down a bit. But it's not like that they have dropped dramatically in the core, let's call it, the core raw material areas.

Next question is from the line of Marcus Bellander.

Most of my questions have been answered, but I would like to follow-up on one thing that you said, Lars, you said something along the lines of that assumptions can change every day. And I'm just curious that when you -- at which point in time you set this guidance? How many days or weeks ago? Is it -- does it include, for example, the fact that all of Italy basically seems to be quarantined by now?

So the guidance was made with the knowledge of -- with the knowledge that we had before we announced it yesterday. So the whole situation around Italy, in particular, which came out yesterday morning is a part of the thinking and in principle, incorporated in the guidance that we have given.

No further questions, sir. Please continue.

Okay. Then thank you all for attending this call this morning. It is a special time for all of us. I think the disruption is, of course, very considerable. But I believe that over time, we will prevail and stick together through this more difficult time. And I wish you all a great week. And if there are any specific questions, then Lars and Lars will be able to answer those. Thank you.