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

Good morning, everyone, and welcome to Royal Unibrew's conference call on the results for the first half year of 2020. We called in a little bit earlier than what we had assumed before, and we will come back to the reason why later on in this presentation. My name is Hans Savonije, I'm the CEO of Royal Unibrew, and with me are Lars Vestergaard, our CFO; and Lars Jensen, our COO. Today, we will present our first half year results for 2020, give an update on the COVID-19 implications and our initiatives to reduce the impact and finally, we will share with you our expectations and priorities for the rest of 2020. Now please turn to Slide #2. Before we get to the business results, I will sum up the key takeaways after our first half of 2020 that has been nothing but normal. First of all, I'm very happy, and also proud, of the way the organization has handled the COVID-19 situation and that we have succeeded to protect our people and customers whilst, at the same time, reducing the impact of COVID-19 during this very challenging period. For me, it demonstrates the strength and the resilience of our business model, our brands as well as our people and organization. In particular, am I proud of the speed and the dedication by our people to adjust to these new opportunities that arrives. In the first half of 2020, all our markets were affected by the COVID-19 outbreak and the subsequent restrictions imposed on our consumers and customers. From the beginning of March, we experienced an unprecedented level of uncertainty and with the aim to maximize our business flexibility and at the same time secure our earning capabilities, we initiated several initiatives at a very early stage. These initiative have included strict procedures to ensure the safety of our employees, optimization of our discretionary spending, adjustment to shifts in demand, extra support to customers and more frequent replanning of production as the product mix and channel mix has changed dramatically and has been fairly unpredictable. In addition, we increased our focus on free cash flow generation and in particular, optimization of the working capital. Due to the strong operational focus and our cost management and in combination with our efforts to adapt to the new market reality and leverage new opportunities, we have succeeded to reduce the COVID-19 impact in our business markedly. As can be seen in the graph on Slide #2, we had a strong start of 2020, followed by 3 very challenging months, which were highly impacted by restrictions and lockdowns across our markets. In June, we returned to the growth track. The net effect on revenue in H1 was a decrease of 6% absolutely, and 7% organically and EBIT decreased by 7%. In addition, we generated a strong cash flow despite the very challenging market conditions. Based on the financial development in H1, we have decided to pay out an interim dividend of DKK 12.20 per share and we will do this in September. As you may remember, it was decided to postpone the decision of the planned dividend payout in April. We have also decided to adjust our full year outlook to a new interval of DKK 1,425 million to DKK 1,525 million, and we will come back to this in more detail. Let me close my introducing remarks with a brief overview of the COVID-19 situation. Off-Trade has generally had a strong performance during the COVID-19 outbreak because people have stayed at home, and this segment improved further during May as shopping behaviors started to develop more favorably. In June, we experienced further improvement supported by good weather and staycation in our core markets. In the On-Trade area, the impact has been negative. Outlets were closed from mid-March until the end of May, where part of the On-Trade outlets reopened. Border shops were closed, but reopened during June, while, for example, nightlife, music festivals have remained closed in most of the markets. Consequently, the On-Trade sales channel was not fully back to normal level at the end of the first half. Now we will give a short update on our 3 business segments. First, some comments on the development in the Baltic Sea segment. Please turn to Slide #3. In Finland, we've seen a good restart after the On-Trade reopening end of May, supported by excellent summer weather, in particular in June. In addition, the staycation has had a positive impact on our Off-Trade business. We've done excellent Zero Zone in-store executions, and continue our efforts in the low and nonalcohol area and have introduced a new Lapin Kulta 0.0%. It's a great-tasting product. You should try it. Premiumization of beer is working well, especially Lahden Erikois continues its success story in Off-Trade. In the Baltic countries, we have been less impacted by COVID-19 as we are less dependent on the On-Trade channel in this region. Furthermore, we have limited the COVID-19 impact by strengthening the sales by utilizing public areas to build summer outdoor terraces, in particular in Lithuania, after the On-Trade channel fully reopened during May. Net revenue in the Baltic Sea segment decreased by 5% to DKK 1,534 million, and total volume decreased by 1%. EBIT increased by 4% to DKK 322 million, and EBIT margin improved 1.6 percentage points to 21%. The margin development was positively influenced by product mix, and the acquisition effect of Bauskas in Latvia. Please move to Slide #4. Western Europe -- in Western Europe, the COVID-19 outbreak has affected all countries negatively. Our On-Trade channels are still impacted by consumer caution and restrictions as well as the fact that a group of outlets, including nightlife, events and many of the entertainment areas and sports venues, have not yet reopened. In the first half of 2020, net revenue was 11% below the same period in 2019 and volumes showed an 8% decrease. EBIT decreased by 24% to DKK 267 million in 2020, whilst the EBIT margin decreased by 3 percentage points to 16.2%. A part of the decrease relates to provisions for bad debt made in the first quarter. In Denmark and Germany, COVID-19 has had a positive impact on our Off-Trade business, although not in scale to compensate fully for the lost business in the On-Trade channel and the border business. The border between Denmark and Germany reopened strongly in June, with consumers restocking after the closure, similar to pre-COVID-19 buying behavior and also to use the staycation for a day tour to these stores. We generated growth in our nonalcoholic business in the first half of 2020, especially within the soft drink categories, driven by our iconic brand Faxe Kondi, and this year's summer version with a mango taste as well as we see a strong performance of Pepsi Max as sales moved from the border to Denmark proper. On a quite different note, but related to Denmark, Royal Unibrew, we have decided, excuse me, to reimburse the received salary compensation from the Danish government as the performance of the business in Denmark has been stronger than anticipated when the COVID-19 restrictions were announced in March 2020. Lars Jensen will now take us through our Southern European and International segments.

Thank you, Hans. Italy is the part of our business that has been impacted mostly by COVID-19, and that is because of the Italian business has a relatively high dependency on the On-Trade channel. To compensate, we are focusing on boosting our Off-Trade efforts and ensuring that the whole sales and cash and carry channels are well-stocked and activated with our Ceres and LemonSoda brands. For the LemonSoda range, our unchanged key priority is to drive value, while for Ceres, we keep focusing on maximizing the Off-Trade opportunities, which has worked well. The performance in July was strong as restocking and sales in for the Italian holiday period supported the volume development. In France, we estimate we have gained share in the lemonade market that grew slightly, while the overall soft drink category declined. We focus on building a solid platform from which we can drive high-value creation and we have continued these initiatives. Although some plans have been adjusted or delayed as a consequence of the COVID-19 situation, like Lorina's 125 years anniversary this year. During the COVID-19 period, we have reached out to our consumers online in all countries in the Western European segment, with the aim to create new occasions where our brands create enjoyment and indulgence. The next segment is the International segment. So please turn to Slide #5. The impact from COVID-19 has been fragmented in the International segment, and we have seen countries in Asia moving towards a more normal situations for bar and restaurants before countries in Europe or in the Caribbean. All in all, the COVID-19 impact was more than offset by increased sales, a better product mix and the development of the U.S. dollar currency rate. We estimate that the stock levels in the trade have been rebalancing in Q2 after stock building in Q1. During the first half of 2020, net revenue increased by 13%, of which 7% was organic growth. We estimate that the distributor sales to consumers and customers increased by just above 10%. Volume for H1 2020 showed a 4% increase supported by the new Fonti di Crodo product launches in the U.S. and the Bruce Ashley acquisition in Canada. EBIT for the first half amounted to DKK 82 million, which was DKK 20 million above the same period last year. Now please turn to Slide #6 for a few comments on the CSR agenda. Despite COVID-19, our focus and commitment remain the same and as communicated in the full year statement of '19. But due to the changes in channel and product mix because of the COVID-19, for example, increased demand for products in cans and lower demand for draft beer, we might need to adjust the speed and implementation of some targets, which includes the CO2 target. In other areas, we keep pace and the launch of new products supports the target of more balanced portfolio between regular, sugar-reduced, sugar-free soft drinks. As well as within the Alko space, like with beer, we have launched nonalcoholic beers. In many of our export markets, we have made public donations and supported with, for example, respirators, as well as products for hospitals and frontline responders. I'll now hand over to Lars Vestergaard to go through the financials.

Thanks, Lars. Please turn to Page #7. As mentioned by both Hans and Lars, the COVID-19 virus has had a significant impact on parts of our business and this is, of course, reflected in our financial performance during the first half of the year. The key focus for us has been to mitigate the effect from lower sales by optimizing our spending. Because of our mitigation actions, the overall impact on our business have been relatively moderate, taking into account the substantial changes in our sales channels and product mix and also taking into account how the COVID-19 outbreak has impacted our industry in general. If we start with volumes, we had an aggregate volume of 5.3 million hectoliters in the first half, which was 4% lower than the same period in 2019, and net revenue decreased by 6% and amounted to DKK 3.566 billion. The acquisitions contributed positively by 1%, whereas the organic's decrease was 7%, primarily related to the impact of COVID-19 in Western Europe and the Baltic Sea. Compared to the same period in 2019, the overall average selling price per volume unit for the first half decreased by 3% due to COVID-19-related shifts from the On-Trade to the Off-Trade channel and the move towards larger-pack formats. We managed to reduce our cost base in line with the drop in revenue and consequently, our EBIT margin is in line with the same period last year. Please turn to Page 8. During the first half, we have focused intensively on optimizing and managing our cost, as we mentioned in the first quarter webcast, and we have succeeded to cut both sales and distribution expenses significantly and administration expenses and production costs markedly. This has limited the effect on profit from the decrease in revenue. The channel mix impacts production cost as more sales in Off-Trade and consequently, more packaging materials included in our cost base and limits the ability to save in this area. In contrast, the lower volume in On-Trade have given us more savings in distribution as the cost of distribute in On-Trade is, on average, higher than to distribute to the Off-Trade. The discretionary spending on marketing have been lower than last year. In the period, we have to be very grateful to our employees who have shown a great willingness to support each other and colleagues, from example, On-Trade, have supported the Off-Trade channel, where workloads have been very high in the period. So very strong support from our employees in the period. EBIT for the first half amounted to DKK 666 million, which is DKK 47 million below the same period in 2019. The negative development in EBIT is attributable to the COVID-19 impact on the Western European segment, while EBIT in the Baltic Sea and International segment increased despite COVID-19. The pandemic impacted Italy more than the rest of the business as well as bad debt provisions have impacted slightly negatively. It is worth noticing, as Lars Jensen mentioned, that Italy started to pick up again in July. The EBIT margin for the first half was 18.6%, close to the 18.7% realized in the first half of 2019. Profit before tax was DKK 52 million below the same period in 2019, amounted to DKK 648 million, equivalent to a decrease of 7%. Net profit was DKK 505 million, which is DKK 36 million below the same period last year. Our balance sheet and cash flow remained strong despite the COVID-19 impact. And during the first half, we continued to generate considerable free cash flow and it amounted to DKK 590 million. This is the decrease of DKK 22 million compared to last year. The free cash flow was positively impacted from extended payment terms for VAT and tax of approximately DKK 100 million. The net interest-bearing debt showed a DKK 592 million decrease and amounted to DKK 2.113 million. The decrease was expected as no dividend has been paid to shareholders and the share buyback program was suspended after a buyback of DKK 45 million. Consequently, the net interest-bearing debt to EBITDA, on a 12 months running basis, was 1.2 versus 1.7 in the same period last year. Please turn to Page 9. The outlook announced in June for EBIT is updated to a range of DKK 1,425 million to DKK 1,525 million. The updated outlook are based on the results year-to-date and not only for the first 6 months, the COVID-19 impact situations in our markets and the plans and already implemented initiatives. The updated outlook is a result of strong performance since mid-June. The key drivers of the strong performance is very good weather in June and August, a surprisingly strong performance due -- caused by staycation in the Off-Trade channel. And On-Trade improved slightly in July, partly driven by restocking, as Lars mentioned, and staycation. And these effects, we do not expect to continue in the remainder of the year. Furthermore, the guidance is supplemented with the following assumptions. COVID-19 will continue to impact our business but with balanced restrictions in the remainder of the year. Large part of On-Trade will remain open, but majority of nightlife and events will remain closed in most markets. In general, On-Trade is expected to trade below last year. Price/mix in Off-Trade to be in line with 2019. And on-the-go consumption, we expect to get closer to the level that we saw last year in the second half. We will continue to have high focus on discretionary spending. And in the guidance, we have sufficient financial flexibility to make commercial investments in marketing and sales initiatives. Moreover, the outlook is -- has been prepared, taking into account the development in material expense categories as well as the effect of the completed and initiated initiatives. With this financial update, I'll give the word back to you, Hans.

Thank you, Lars. Please turn to Slide #10. Before we are ready for your questions, I would like to wrap up our session and share our key priorities in the current situation. Most of all, it is important that we continue to secure the safety of our employees and customers and the continuity of our business. Although the COVID-19 situation seems to be under relative control in most of our markets, we stick to strict procedures across the company. It is an integrated part of our DNA to stay close to our consumers and customers, and our markets in general. This has been a great advantage for us during the COVID-19 outbreak. We've had and have very constructive cooperation with our customers and our agile organization has worked very hard to provide our consumers and customers with the right products. And we are also very keen to exploit new market opportunities arising in the wake of the COVID-19 situation and to keep adapting our business to the new consumer behavior, which we expect to show a more permanent change. We entered into this new reality with a very strong financial position and very attractive earning capabilities. And despite COVID-19 and a moderate setback, we have maintained our strong earnings and cash generation. We will continue to adapt our business to secure our financial flexibility. The agility that we demonstrated in the first half has been key. I'm sure that risk management has got a revival and renewed focus in all companies, and I'm also sure that all companies have identified new risk factors and sensitivities across their companies and value chains. That's also the case here at Royal Unibrew. We succeeded to react and adapt to the COVID-19 situation swiftly and now we are in the process of assessing and mapping our risk factors and adjusting our business processes and policies accordingly. I think it's time for questions by now.

[Operator Instructions] Your first question comes from the line of Jonas Guldborg, Danske Bank.

Yes, Hans and Lars and Lars, and let me start by congratulating you on these very impressive results for the half year. You implicitly guide for a between flat and 14% growth in EBIT in the second half of the year. So could you please elaborate a bit on the building blocks for this guidance? And what is the difference between the low end and the high end of the guidance? Then this -- on the strong margin development in the Baltic Sea, I guess that part of it is due to lower marketing costs, but you also mentioned product mix. So could you tell us what is driving this positive product mix? And how much of margin improvement that comes from this? And then the third question is on CapEx. It's down around 30% in the first half. So where do you see CapEx for the full year?

If I start with the last first, on the CapEx side. So I think what you've seen in the first half reflects that we were unable to follow the base plan that we had in the sense of getting people into the site. So we basically took a decision to put a number of projects on hold because we didn't want to have external contractors at our sites. So we have postponed a bit the speed. In terms of the guidance for CapEx, you should still expect that we will keep it as the percentage of the revenue, as we have guided in March. So we are ramping up on the core initiatives that we have in the plan. So yes, a slight delay for some projects, but the bigger ones, we have full speed on those as we speak.

Lars, if you take the part of the low and high-end of the guidance.

Yes. So I think you can all appreciate that the risk in the rest of the year is higher than normal and there are channel shifts which we have not normally seen. So if you look at the high end of the guidance, that will, of course, be reached if we see very few setbacks in terms of COVID-19 closing down parts of our business. It also assumes that -- that people do not -- and here, we think about, as an example, competition do not go crazy on spending on marketing and sales. So if we have a normalized or a prudent spending on sales and marketing, that will also help us to move to the higher end. If we see setbacks in society, that could be that fewer people will go to public transportation and the convenience channel would go down. If you see more restrictions on the On-Trade, that could have a negative impact on where we reach -- where we go in the full year. And also if we have to spend a lot of money on marketing, that would also drive us down towards the lower end. So I think those are the moving parts in terms of what is the upper end and the lower end of the guidance.

Yes. And then, Jonas, you had a question around the product mix in the Baltic Sea. We are normally not so detailed on that because that's one of the secrets of -- in the kitchen. Having said that, it's quite clear that in the Baltic sea in general, the On-Trade sector is smaller than in other parts of our business. So it is there with less sensitive for COVID, was less sensitive, number one. The increase in the margin is predominantly a consequence of shifts within the product mix. And we have also seen, particularly in Latvia, a good contribution of the Bauskas acquisition. And last but not least, of course, we have adjusted our cost base in each of the operations, and in the Baltic Sea area. That has been done very effectively. So also, that has an impact on the margin development. And a part of that is there to stay and other parts will move again. But in general, I would say we are well equipped to go into the second half of the year, yes. Is that answering your question, Jonas?

Partly, right? But I have a follow-up on the marketing cost then. Because could you just then tell us how much is marketing -- sales and marketing costs down in H1? And at the midpoint of your guidance, what are you then assuming for the second half?

I think a general comment on this, and that is not -- that is throughout. One of the things that we are looking at is our share of voice, of course, on the individual brands and categories and putting that also into a context of which channel -- which products are more channel-related, and there's a number of consumer occasions that have switched. And of course, that have changed the way that we spend our money, the way that we communicate with the consumers, but it doesn't necessarily mean that our share of voice is down. I think we have good examples of actually with less cost, that our estimate is that our share of voice is the same or is actually higher and where the impact of what we do is really resonating with the people. A good example of that is in Italy, where we have been very limited on air in television, which we normally do, but we have spent a far bigger proportion of our money on the social media, which has got a second wave of, call it, revival in terms of relevance. So you should not focus too much on the level of cost, but more on how effectful our marketing is -- sales and marketing is. And our relative share of voice, so that we secure that we invest enough in the brands for the long run. And this is where we feel we are. We don't see that we have a discrepancy in terms of not spending enough at this moment of time.

Perhaps in addition, when we went through a detailed planning of the rest of the year yesterday, we also made sure that we continue to have the financial flexibility to invest in marketing in the second half of the year and probably we will have real good flexibility and a lot of things have changed. For example, also the media market has changed, the prices in the media have changed. So you can't just take one for one. But it's fair to say that in the second half of the year, we have assumed that there will be some spending going on.

Your next question comes from the line of Søren Samsøe from SEB.

Yes. First, just following up on cost. The admin cost is down 8% in the first half. And your SG&A is down 11%, I think. If you could just first say how much is your SG&A down, excluding marketing spend? And then maybe give an answer on sort of what proportion of these costs, i.e., admin costs and SG&A, mix, marketing do you expect to come back in 2021? That's the first question. Second question is, in your guidance, you assume flat price/mix in the Off-Trade. But do you expect it to be negative for the group, as you say that you don't expect On-Trade to come back fully in the second half? And then finally, a question on France, where you have gained market share. Just if you could explain what is driving that market share gain in France.

If I start with the last one. So in France, since we took the ownership of the business, we have been through a rationalization of the assortments. We have been cutting down on SKUs to make sure that we focus on fewer things, but the things that worked and that have worked in the past and we see is also for the future. So what is really working well in France is the clear lemonade, which is the core of the business that we acquired. We are constantly growing. We are also, as the market leader in lemonade, managing to grow the market with the initiatives that we undertake. So that is really working well. Where we have a challenge, and that's not only in France, that is also in other markets, that is during the COVID-19 period, it has been difficult to bring new products to the market. The retailers have not opened the stores to change the planograms and they have focused on delivery, I would say, ability to the consumers on the most important SKUs in the stores. So we are pushing, as a first priority, and that has been since we acquired the business, the artisanal clear lemonade. And then we are pushing, as a second priority, the fruit ranges. And that is where, from a timing point of view, that we do not see the full effect as we would have liked to see, which is also similar in some of the changes we have done in Italy with the LemonSoda business. As to the launch of LemonSoda and the expansion of the Lorina business in the U.S., this is also where we have seen that a rebuild of shelves is more towards the latter part of the year where they normally rebuild the shelf before the season.

Lars?

Yes. And if we look at the cost, I mean, I think it's fair to say that the situation we had in the second quarter was extremely unusual. We had a lot of On-Trade customers where we didn't -- we could not communicate with them. The whole -- more or less the whole industry went silent on marketing. Nobody could travel into the offices. So cost went down dramatically in the second half but also because of the whole closedown of the society. So it's difficult to extrapolate anything from the second quarter, in particular, into the rest of the year because you had this very unusual situation. So we had a lot of cost savings in the second quarter, and marketing was very much down, in line with the whole industry. In the second half, things will normalize a little bit, but we expect to travel less, we expect not to spend too much discretionary spending in any area. We do expect that marketing will come back somewhat. But -- so if you look at the first half, we've cut a lot. But in the second half, we will cut less. So we're not expecting it to go back to the same level as in previous years, but it will go up compared to the first half of the year. So I don't think we want to give exact numbers on marketing, but I do think that we have done enough to keep our share of voice in the second quarter. And then in the second half, things will normalize a little bit, but spending will be lower than in previous years.

And then to your question around pricing in the Off-Trade. In general term, we do not comment on specific pricing kind of expectations. But it's quite clear that the whole...

So it was more a question whether you expect -- if On-Trade does not come back, whether you expect negative price/mix on a group level?

The net revenue, yes, that is what you should expect.

Yes. But there is revenue and gross margin, but there are also costs related to On-Trade's activities that are, in general, higher than in Off-Trade. So this is a balancing act, and it is a continuous balancing act. It gets more profile right now, but it is something that we do on a constant basis, so it doesn't really change our lives, to be quite honest. We continue with an agenda where consumers still are interested to try different products. You see big shifts of consumption, as you see them in the United States, in particular. I -- there is -- there will be some channels that will grow and other channels that will come down. But it's difficult to give an exact forecast, but we have the financial flexibility within the P&L to deal with most of the swings that we expect.

And your next question comes from the line of Fintan Ryan, JPMorgan.

Gentlemen, just 2 questions from me, please. And well firstly, well done on the strong cost performance in the first half of the year. But as we sort of look into 2021, I appreciate a lot of moving parts, but would you see any of the cost savings that you made in the first half being made permanent and potential to increase the 19% to 20% midterm margin target? Is there anything else we should be thinking about as we sort of go into 2021? And then secondly, I wondered, could give some color in terms of the market share performance of your different categories, particularly thinking around the premiumization that you've seen historically in the beer segment? Has there been a sort of consumer shift away in terms of like within the Off-Trade, any sort of consumer shift in terms of product mix there? Is there anything that you'd be sort of cognizant about in the second half of the year? Maybe some of these shifts being more permanent away from premiumization?

So if we start with the cost question, I think we are starting to get a more clear air view on how COVID is impacting the business at this point in time. If we look at. so like, cost savings that will help us in the coming years, I think it's clear that we, like everybody else, have learned that traveling for 1-day meetings is not something we will continue to do. So I think we have learned something about online meetings, traveling less. And some of these cost savings we expect will continue in the future years, although they will come back when we are able to see customers and travel with customers again. But we definitely will be able to save a little bit in the travel area in the coming years because behavior has changed. But if you look at what was the situation at Royal Unibrew when we went into this crisis, we already had a fairly lean cost structure. So to go out and think we can reduce that cost base dramatically would be too early to say. And I don't think there's that much opportunities there. I think what we have to see where things land will be in the commercial area where we will do everything we can to continue the growth pace of the company and continue the positive development over the last many years. So fundamentally, the business setup and the business structure is in good shape. So we feel that it's very important that we continue the positive journey for the last 6, 7 years, rather -- or 10 years, rather than start to readjust the costs all over the company. So there will be some cost savings coming in, but whether it's enough to justify a higher EBIT margin, I think that's too early to say.

And at the end of the day, it's more about where we put the money. So given that the consumers are changing, customers are changing, we will also change our spending, so where the money goes, what we support. And it moves a little bit into the market share performance discussion here, and that is that we do have a core focus on growing value share. We are not a volume player in that sense. So -- and we do gain a bit of share in the Off-Trade channel, which is the only one that we can really measure across countries and also given COVID. And this is a combination of premiumization, not only in beer, it's also in all the other categories where we focus on having a diverse offer. And it's not just within what you will call premium, it's also about working the mainstream portfolio upwards with the offering that we have and to make sure that the mix of what we sell across channels is something that is perceived more valuable for the consumers. That is a driver that we have had for many years, and this is also something that we see as being very important for the future. We look at the category developments and we focus on, of course, in categories that grow, but we also focus on categories that have average higher value generation. So it's a combination of looking at different parameters. That said, mainstream will probably always be the core of what we do because it gives the foundation for the business and the top of the assortment to really -- to blossom. Now what we have seen during COVID-19 is not a lower focus on that part, but what we have seen is that the pack sizes in Off-Trade have moved to bigger pack sizes, which is something that is moving in the wrong direction in the sense of having an optimal price pack strategy. So that is something that will probably stick for a while, the stock up situation where people want to shop left -- less during the week or less times during the week. So this is an unchanged focus that we have. We have not changed our mindset dramatically, but we look at different channels and categories, slightly different today than we looked at it 6 months ago. And we will also look at it again in 6 months' time with a slightly different view to drive the value of the business.

Your next question comes from the line of Richard Withagen from Kepler.

Yes. I have 2 questions, please. First of all, you mentioned in the press release that your priorities were changed to focus on new opportunities and manage the cost base. Could you clarify a bit more what you mean with new opportunities? Does that also include possible M&A? And the second question, what do you believe are the reasons that you were able to gain market share in the Off-Trade? Is that mainly related to commercial initiatives or to operational execution?

If I take the second part of your question, I think we have, very early on in COVID-19, and of course, as we are -- have a significant presence in Italy, we were probably better prepared than 1 or 2 others. The Italian business started already to close down partially in the north in the second half of February, some areas thereof. But we have been able to move our resources very swiftly from On-Trade to Off-Trade, and I think that has been a good move. So that is an operational, executional kind of capability that we have leveraged, and that has worked very well for us. The new...

And maybe on -- so like new opportunities, I think, as Hans mentioned, we have -- our organization have adjusted extremely fast and agile in terms of managing the situation. And as we can see that what we do works around in the business, we have started to put a little bit a longer lens on and see what can we do to take advantage of this so that we grow faster than if we didn't do anything in 2021. So really start to focus on -- on doing things where we also get growth back in the business. And Lars, if you want to touch on M&A?

Yes. I think M&A is a part of our agenda on a day-to-day basis. We follow what is going on in the markets. So no change to what we talked about before. We feel that we have the financial capability to do M&A. We feel that we have the organizational capability. We are at a good place in terms of implementation and also the commercial life of the acquisitions that we have done over the last couple of years. Bauskas is performing well in Latvia. We have a good integration in spite of the COVID-19 situation. And the Canadian business is also doing well, performing for the portfolio we have in Canada, not only our brands, but also our partner brands. We are performing above the industry index for imported beers. So we do well and feel that we can cope with more, but the right asset must pass by. So nothing has changed in terms of our priorities on the M&A side.

[Operator Instructions] Your next question comes from the line of Marcus Bellander, Nordea.

You've touched upon this a couple of times earlier, but I just wanted to follow-up on it. You mentioned that you made some changes to marketing, for example more social media and less television in Italy. Are there any of those changes you expect to be permanent? And will that allow you to save some costs or maybe address new segments and therefore, drive growth?

Yes. Without being very specific, there will be a remaining effect of COVID-19. The world after COVID-19 will not be the same as the world before COVID-19. Media will be different, behavior of young people will be different, and it's difficult to put your finger on it exactly, Marcus. But it's fair to say when we look at our business 5 years ago, yes, we did spend of our marketing money, probably something like between 60% and 70% on traditional media. Right now, it is significantly less than half. And I think that there's a, for example, a very clear trend that will continue to be there. It will be interesting to see what is the role of On-Trade because On-Trade has a role in the marketing mix in beverages. If On-Trade stays more restricted, then people will find different ways to connect with brands, and it is extremely important that we, as an organization, stay extremely alert on this. What has learned -- what happened with COVID is that we have absolutely questioned the way that we -- that consumers think and consume, yes? And we do work on this, as probably many other players in the industry do. So I know it's a little bit of a whimsy answer, but it is -- or hazy answer, but it is very difficult to put your finger on it very precisely, to be quite honest. And even if I were to know it precisely, I would never tell you because it must -- it's like I always say, this is one of the elements of the recipe that stays with the cook.

Your next question comes from the line of Elsa Hannar, Jefferies.

Three quick questions. Just on the current trading and the exit rates. You talked about June, plus 7%; July, On-Trade boosted by restocking; and then August, very good weather. If you could just give a little bit more color around how we think about those months and maybe into the rest of the quarters? And then on the dividend, the fact that you pay out the interim dividend now from last year, does that have any impact on the potential of paying a dividend for this fiscal year or will that be a decision made later on? And then finally, circling back on the M&A. I know at the beginning of COVID, you talked about sometimes through crisis, there is a lot of opportunities arising. But you said then you expect that to take a couple of months before it starts to get visible. Has anything changed in sort of how optimistically you look at that opportunity?

Yes. I'll take the first -- the last question you have first. I think not too much has changed. And one of the reasons is that you have seen a lot of the companies that likely could have gone into a very, very difficult situation have been helped by government packages and prolonged payment schedules for tax and excise and these kind of things. So that part of it is still, I would say, in its making, depending on how the government will help or not on a continued basis. And then there's the other part, and that is always the strategic reviews in terms of do you want to be the owner? Or is it better to have a different owner? And of course, times of crisis put you into that discussion. You always look at your business in a different view. I think the difficulty here is probably to have an alignment on the price of those assets because what is the new price of beverage assets? One thing is what you see on the stock exchange, but another thing is what is not on the stock exchange. What is the core value? And if you have an exposure to On-Trade, will On-Trade come back? Do you want to pay for something that you don't know is coming back? So the alignment between the seller and buyer will probably be the toughest decision I would foresee. So no big changes on that agenda, Elsa.

Yes. So if we look at the dividend, it will have no impact for the dividend we pay out for 2020. It is money that was sitting in our equity that we would have paid out earlier on if we had not seen the uncertainty. So it will have no impact on the dividend for the full year or the dividend that we announced when we come with the full year result.

Yes. So the only reason why we postponed the dividend payment is we wanted to make sure that we have a lot of liquidity at the beginning of the crisis. We have now seen with the results, also after the first half year, so the past months, yes. We guided on -- in the mid of June, yes, since the mid of June, we are now close to the end of August. So of course, we have some visibility about our performance and we feel confident that we can deliver upon our commitments, yes.

And if we take the On-Trade question. Then in general, the On-Trade ticked up over the second quarter. And when we just looked across, it was around 17%. The things that have not opened up to the same level as before is, of course, events like music. festival, it is big sports events, it's nightlife. And we -- in our planning, we have expected these to remain at a very low level for the remainder of the year. So if you look at what is already in the books in -- at the end of June, it is bars and it is restaurants and all these, and we expect them to continue. We saw that Italy picked up a little bit later on than the other markets and came back strongly in July as our portfolio down there is very much for Italians and they stayed home this year. So I think if you look at the run rate as we exit the summer, it has improved maybe a little bit compared to the end of June, but it is not something that is dramatic. We saw an increase in Italy in July, but that's where we had the biggest movement since June.

And your next question comes from the line of Søren Samsøe from SEB.

I just had one question regarding your capacity. I know that you were running with -- or you had too little capacity basically on your canning lines in Denmark over the summer. I was just wondering what you have done to mitigate this and if you are planning to invest in more canning lines in the near future?

Yes. I think, yes, we have had a few SKUs that we have deprioritized, given that we have focused on delivering, call it, the bulk of the market. So we have taken some decisions, which we normally do, so that's not very different from any other year, and we went through the same exercise in 2018 when the summer was fantastic. We also was producing full speeds to service the market. So we are always looking at how we can optimize the individual lines, the performance on the lines, do stock building before the season, et cetera, et cetera. We -- so I think we are in a good spot. We have done capacity investments over the last 6, 7, 8 years. We have put new lines into, in particular, into Faxe. And we will continue to do so if we see that there is a need for it. I think what you need to expect is -- we need to expect is that the soft drink, in particular, a business that we got through May, June when the border was closed, we will not have that business next year. So the next year will look different, and thereby, the calculation on the capacities would also be different. Yes, so we feel that we are in control.

Okay. So you're not assumed any new canning lines in the CapEx budget for this year?

Not for this year, no. But we are doing adjustments to some of our lines to increase the efficiencies, lower the waste and so on and so forth, which, at the end of the day, drives more flexibility. So that we do all the time.

And Søren, for you to understand. Yes, of course, when COVID hit us in March, we were initially extremely careful. So we built down our inventories. And then when we saw that the consumer behavior drove our volume in a different way, we had also, in Denmark particularly, we had a number of people -- lines closed and some people at home for 1 or 2 weeks and that has then be corrected and it was difficult for us. With the demand that was increasing rapidly, it was very difficult for us to answer the full demand. So what you have heard and seen perhaps in 1 or 2 areas is something which was also partly self-inflicted because we reduced our capacities very early on in the crisis, the end of March and very early in April, and now we've -- it's taken us some time to build the stock back.

We will now take our last question, and the question comes from the line of Tristan Van Strien from Redburn.

Just 2. The first one, Lars, can you just remind me of your route-to-market network in Italy, specifically your use of wholesalers, how that works for you guys and whether you guys carry any of the fixed costs that are involved with that? And perhaps, with all these changes, do you see any change in that wholesaler network or will all of them survive the crisis because some seem to be financially a bit more troubled than others. And then the second question. Just on your Pepsi portfolio relative to the rest of your soft drink portfolio, how did that perform? You talked about it in Denmark as well, obviously. And I know you've said this before, but what share does the border trade normally account for soft drinks in Italy as we look forward and your advantage will probably reverse over the next 12 months.

So you said Tristan where? In Denmark?

Denmark.

Yes, Italy, the route-to-market in Italy, and the use of wholesalers. Like some of your competitors obviously own their wholesalers. I mean how do you -- how does your route-to-market compare? And are you impacted by the large fixed cost charges that sat there idle or not in Q2?

Yes. So we do not have our own route to market in Italy. So we have our production site. And then downstream to the customers, we don't have any assets, so to speak. So it's external warehouses, external drivers and we work through wholesalers. We have been -- since we took over the LemonSoda business, we have expanded the number of wholesalers a bit. During the last 6 months -- 6, 8 months, we have been working on a more tailor-made focus on a little bit fewer wholesalers, but still hundreds of wholesalers that we work with. We also have, I would say, an extended collaboration with the cash-and-carry channel, which is the alternative to the wholesalers for the bars and restaurants. And then you also have something we call multichannel, where you have retailers that also have cash-and-carry services next to their retail business. And we, in principle, we service them all. But through our sales force and through external drivers, et cetera, et cetera. So from a cost point of view, in Italy, you should consider that our cost base is the plant we have in Crodo and then the sales organization of about 75 -- sales and marketing organization of about 75 people next to that. In terms of wholesalers, I think so far so good. We haven't seen a big wave of bankruptcies in Italy. Now business has restarted, and that means that, of course, they try to earn as much money as they can. But we think geographically, there will be some challenges for some wholesalers, some businesses, because of the lack of tourists, whereas other parts of Italy will likely go through this in a better shape. We use insurance -- credit insurance and have used that for 20 -- more than 20 years in Italy. So we use that quite extensively. So that will be the first line of defense, so to speak or second line of defense. The first line is to keep the books in order. Second line of defense is to get the help from the insurance company. So we have provided in Q1, as we talked about, for some bad debt, but we haven't seen a level that has gone worse since we announced the Q1 results. In terms of the Pepsi portfolio question that you asked, so yes, short term, because of the fact that we have sold a lot of Pepsi in Denmark because of the closure of the border trade, Pepsi has short term become a bigger piece of the puzzle, but we see that very isolated in -- during that period of time. If you look at it, more broadly speaking, this is not something that is changing a lot over time, how much the partner brand is making up of the total Royal Unibrew business. And as we have acquired assets in Italy and in France, that have actually diluted the partner share a bit on a group level. So that's a bit the situation. And the border trade which in -- for Royal Unibrew is mostly between Denmark and Germany. We would see -- what we see at this moment of time is that it has not normalized in terms of the number of travelers yet. They buy a little bit more when they go there, but you still have to queue in line to get into Denmark. So you need to count, I don't know, an hour to 2 hours to get -- to pass the border control. And that, of course, limits a bit the day travelers that go there just to -- for the fun of it. So it's really people that is stocking up at home that is going there now. And we'll have to see what happens. We see more and more travel bands again coming in. Will that mean something for the next month? We don't know. But we are prepared for whatever scenario will play out. Did that answer your question, Tristan?

Very clear. Yes, that's very clear.

Okay. I think we've come to the end of the session. Thank you all for your questions. And we look forward to go into the second half of the year with momentum. And if there's any further questions, you know the telephone number of Lars, and he will be able to -- Lars Vestergaard -- to help you. Thank you.