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

Good morning, and welcome to this Q3 trading statement conference call. My name is Lars Jensen, and I'm the CEO of Royal Unibrew. With me this morning, I have our CFO, Lars Vestergaard, and we will present the Q3 results before taking your questions. Now please turn to Slide #3. Looking at Q3, our business has continued its solid development across most geographies. In Denmark, a very vibrant reopening of the On-Trade clearly supported growth together with warm weather in July. In Italy, we continue the successful rollout of our Lemonsoda Energy Activator. And in the super premium beer segment, our Ceres beer continues to deliver strong results. The soft drink market in France is in decline, mostly weather-driven, but Lorina continues to gain market share and has now, over the past 29 months, gained total value market share every month. The Finnish market continues to be negatively affected by COVID-19 related restrictions on the On-Trade, but through strong execution in the market in retail, we generated solid results with improving trends through the quarter. In the Baltic countries, our nonalcoholic beverages did very well with high-growth rates in CSD, Energy and Water. We have seen strong volume growth in international as trade inventories were low going into the quarter, and volume performance last year was relatively weak. Higher raw material costs, capacity constraints and logistics costs had a negative impact on EBIT. In total, we grew organically volumes by 4% in Q3 compared to last year. A positive channel mix resulted in a positive price/mix and an organic revenue growth of 6% for the quarter. Higher sales and marketing costs, higher raw material prices and higher logistics costs resulted in an organic 3% decline in EBIT, which is all as planned. In absolute terms, EBIT is at par with last year at 21% higher than 2019 and therefore, very satisfactory, given the significant cost pressure we are experiencing. We are maintaining our full year outlook for EBIT of between DKK 1.625 billion and DKK 1.7 billion. Lars will give more details on the outlook towards the end of the presentation. Please go to Slide #4. Our focus on the 6 strategic pillars, as seen on this slide, continues to produce strong results. Energy drink volumes have increased by more than 30% year-to-date, and the category shares of our business, therefore, continues to increase. The strong growth is driven by all markets where we sell energy drinks and with the acquisition of Crazy Tiger, we expect the strong trend to continue. The Baltic countries are growing 1.5x compared to last year, so an index of about [ 250 ], which is very fast and the successful launch of Lemonsoda Energy activator in Italy is also supporting the development and is now hitting a constant market share of about 3%, which is only from April. As a consequence of the higher freight cost and capacity constraints, we have been forced to take decisions to lower trade stock significantly and consequently, our sales in. One of the categories that have been hurt is the ready-to-drink cider category and in particular, the international segment. In spite of this, volumes increased by double-digit percentages. This was primarily driven by strong growth in Denmark and the Baltic countries. The no/low alcohol segment also continues to grow. Year-to-date, no and low alcohol beverages has grown by about 20%, and the category is showing strong growth across all the multi-beverage markets. Low and no sugar CSD grew by 23% in the first 9 months of 2021, driving an uplift in low/no sugar beverages of almost 20%. The above mainstream beer segment continues to drive premiumization within that category. And it is a general trend that consumers opt for more premium variants in the different categories. Finally, on this slide, our Finnish launch of Novelle Pro within the enhanced beverages, which is a refreshing low no-calorie drink with added plant-based proteins have been very strong and has achieved very good tracking among consumers. Please turn to Slide #5. A short status on acquisitions. In late April, we acquired Fuglsang, which is a strong regional Danish brewery. The integration of Fuglsang is completed and the acquired organizations has been merged into the Danish business, which also includes the system integration. So we are running SAP on the 2 production sites. The next phase now is the commercial expansion. Crazy Tiger, which is a French energy drinks brand with a market share of around 10% was acquired in early July. Integration is going according to the plan and the sales performance have experienced -- we have experienced since we took over the company, has been solid, and we have gained further market shares in the quarter. We plan to put Crazy Tiger on our platforms -- IT platforms in the first quarter of 2022, and thereby, Crazy Tiger would be fully integrated. The acquisition of Solera Beverage Group was completed on the 17th of December, and therefore, only had a very limited impact on the quarterly numbers. Integration has started, although it's still early days, but so far, progressing according to plan. We are now working on a strategic frame for the individual countries and look forward to sharing that when our thinking has been finalized. Earlier this week, we announced the agreement to acquire Aqua d'Or, which previously was owned by or is owned by Danone. Aqua d'Or is a Danish-based water company, which operates primarily within still and sparkling water. It will strengthen our position in the Danish water market, and we expect the deal will be closed during the first half of '22 after an approval from the Danish Competition Authorities. In total, the acquisitions had a revenue of around DKK 125 million in the third quarter, while the impact on earnings was limited as the profit generated was at around the same level of the acquisition costs. And with that, I will hand over to you, Lars.

Thank you, Lars. So if we turn to Slide #6, please. I will start with a few words on the quarterly performance. If you look at the graph, it shows you the performance over the last 3 years. If you take the numbers from 2019, that was the last year when COVID did not impact our business, so a normal year, since then, restrictions have, to a varying degree, impacted our business. In the second quarter of 2020, we initiated a long list of cost-saving initiatives and really did not spend a lot of money on marketing initiatives. This had full effect during the third quarter of 2020. However, in the third quarter, business was very good with very few restrictions in our marketplaces and consequently, the EBIT level was very high in the second quarter of 2020, and actually the highest in the company history. However, in the third quarter of 2020, we invested very little in our brands. This year, in the third quarter, we had a very high activity level, only with a few restrictions in Finland. So we are very pleased that revenue is 19% higher than '19 and EBIT is 21%. Furthermore, we have normalized the investments into commercial activities, and we can see that our market shares are developing well in most parts of our business. When you look at the quarterly numbers, we are comparing with an unusual quarter last year with no marketing costs, staycation and good weather. So we are pleased to see that our commercial investments are back on track and that we can deliver a strong 2021. If we then move on to Slide #7, the business has developed as planned in the quarter, and we have stepped up the commercial investments to drive growth. We have seen a continued reopening of the On-Trade across markets. And in Denmark, the reopening has been more dynamic than expected, while the Finnish On-Trade have continued to be negatively impacted by restrictions throughout the quarter. Weather has been supportive, especially in the first part of the quarter, and together with strong commercial execution across the business, we delivered a 4% organic volume growth in the third quarter of 2021. Supported by the reopening and the following beneficial channel mix, price/mix in the quarter was positive by 2%, resulting in a 6% organic revenue growth. We are pleased with this high volume and top line growth as it's measured against a very high growth rate also last year. EBIT came in slightly below last year at DKK 596 million. This is a satisfying result and remember that last year we were in savings mode throughout the quarter due to COVID, while there was very little COVID impact on revenue due to the summer season. The EBIT is 3% below last year, but 21% higher than third quarter of 2019. So again, a satisfying level, and that's per our plan. The decline is primarily driven by higher sales and marketing cost, which is a result of our strategic decision to invest more behind growth opportunities we see in the marketplace. As per plan and for the reasons just explained, the EBIT margin declined by 280 basis points to 24.5% when compared to 27.3% last year. The EBIT margin is still 50 basis points higher than in the third quarter of 2019. The decline compared to last year, besides the higher sales and marketing costs just mentioned, is also a result of higher raw material costs and freight costs, product mix and M&A. Free cash flow was strong and ended the quarter at DKK 551 million, which is 29% higher than 2019, but as expected, significantly lower than last year, where the free cash flow was positively impacted by extraordinary beer campaign in Finland, as well as extended payment terms for VAT and employee tax. So to be absolutely clear, we are very satisfied with the financial development in the third quarter. If you turn to Slide #8, please. The slide shows an overview of the development within the business segment, starting with Western Europe, which has seen an impressive double-digit organic growth in both volume, revenue and EBIT. In Q3, the Danish business was supported by good weather, especially in June, staycation and a vibrant reopening of the On-Trade and night life throughout the quarter. In Italy, we continue to gain market share across categories and our market positions within beer, soft drinks and energy has never been stronger. So great work by our Italian colleagues. In France, our organization managed to extend the period in which we have taken overall market share. In the Baltic Sea segment, volume and revenue were -- are up 5% and 6%, respectively, year-to-date, whereas EBIT declined by 6%. Volume and revenue have been supported by strong commercial execution and warm and sunny weather, whereas the Baltic Sea segment has been relatively hard hit in sales and have seen a high increase in sales and marketing costs and has continued to see restrictions in the On-Trade, which is the reason why EBIT has declined organically 6% year-to-date. The Baltic countries experienced bad weather in the third quarter but benefited from strong execution and broad product portfolio in the Off-Trade. We continue to see strong demand for our products in the international segment. Sell-out in the marketplace we operate continues at a high pace and volumes and revenues are significantly higher than last year, both in the quarter and year-to-date. The international segment have been impacted by restrictions in our supply chain and growth could have been even higher. So great work by the international team. The higher raw material and freight costs have started to impact earnings in this segment. In Q3 2021, EBIT declined by 10%, corresponding to DKK 5 million, and a major part of this decline is stemming from higher cost. We continue to invest in our market position around the world despite short-term logistics and input cost challenges. And we expect the international segments to be negatively impacted by increasing freight cost and capacity constraints well into 2022. If you turn to Slide #9, please. I will now take you through our outlook for 2021. We maintain our full year EBIT outlook of DKK 1,625 million to DKK 1,700 million. The reopening of the On-Trade channel has, throughout 2021, been slightly slower than we initially expected at the start of '21, but Off-Trade has performed strongly. The development towards more and more open societies have supported our efforts to increase our sales and marketing expenses towards more normal levels to build our brand equities further and invest in growth opportunity. And therefore, we continue to build a higher cost level than in 2019 into our outlook. Raw material and freight costs have continued to increase during the third quarter, and we now expect the full year to be impacted negatively by DKK 90 million from this, where in the half year result, we had DKK 75 million. The added costs are included in our maintained outlook for the year. The biggest risk on earnings for the rest of the year remains the COVID-19 and potential reintroduction of strict restrictions or lockdowns that we see. The lower end of the guidance includes the risk of such negative development, whereas the top half of the guidance includes a reopening of societies throughout the quarter. And with that, I give the word back to you, Lars.

Thank you, Lars. And just to round off the presentation before we go to Q&A, I would like to give a few words on our priorities. As we have acquired a number of companies, we are very busy by integration and getting the synergies to be delivered. To this aim, we will strengthen the organization to ensure that we can continue to drive growth, both organically and inorganically. Secondly, we are currently in commercial negotiations with all of our customers to mitigate the cost inflation that is impacting our business. The majority of the price increases will not come through until next year, so from the beginning of 2022. So the remainder of the year will be impacted negatively by the higher cost, but very little offset from the higher prices. This is all included in the guidance, as Lars laid out. And just to give a little bit of a flavor on it, I have seen an analyst report that's been done by many, but in particular, one that evaluates the expected impact on the European brewers and soft drink companies, in general, from the cost inflation. And that indicates that there is a need for price increases -- sales price increases of between 6%, 6.5% to cover up for what we know currently. It's a little bit more for beer than it is for soft drinks. So beer is on the high side and the soft drinks is more on the low side. We are fully committed to see full coverage on a per hectoliter basis for the cost increases that we see converted into price increases. But we have -- and we have not seen the same amount of cost inflation -- cost increases in 2007. And of course, that gives some extra uncertainty. The uncertainty relates mostly to the consumers' reaction to the price increases and uncertainty on how competition will behave. And I guess you will have a lot of questions around it, so we can go much deeper on that in a second. And just to underline, there's nothing that has changed materially since we came with our Q2 reporting on our approach to how we are going to deal with it. Thirdly, we have, within overnight, increased our commercial spending this year. We can see the underlying development that this is driving growth in the categories, and our focus is to deliver both a strong result this year, but also to ensure that we enter 2022 with investments that are -- with investments that supports the brands to grow in the long term. If you look at the numbers that are behind it, we have increased our commercial spending this year by about 30%. With those words, let's get back to the operator, and we are ready to take your questions. Thank you.

[Operator Instructions] The first question is coming from Fredrik Ivarsson at ABG.

A few questions from my side. If we could start with the Solera acquisition, would you mind just reminding us of how much of that business is wine sales to the various monopolies? And also, what do you expect in terms of growth from that business next year, given that 2020 and 2021 was quite boosted by COVID-19? That's my first question.

Yes. So the majority of the business is, of course, wine. There's a bit of spirits, but they also have a number of -- or representing a number of brands within beer, soft drink, mixers, as an example. But the vast majority of the business is in wine. There's differences between the different countries. So Finland is almost pure wine. The Swedish business is mostly wine with a little bit of other products as well, whereas the balance in the Nordic -- Norwegian business is skewed towards a wider portfolio. So the Norwegian business is the one with the -- where the portfolio has been developed the most. When it comes to growth rates and expectations for net revenues, I think we will get back to that when we announce our full year statement and give guidance for next year. I think what you should do is that you should look at the announcement that we did on acquisition because that is what indicates a normal year where there's no COVID restriction and there's a normalization of traveling and border trades, which is pretty big between Sweden and Norway. So that's the starting point of modeling. And then I think what you should keep in mind is that most acquisitions do not really generate a lot the first 12 to 18 months in the sense of generating more than what you acquire. So I think that the mindset that we always have when we acquire assets is that we need to do whatever we can to keep the top line and to secure the bottom line of what we buy and then develop it from there. So if you look at the assets that we have acquired back in 2018, those are the assets that we are benefiting from '20 to '21, where we did not benefit a lot in '18 or in '19 for that matter. So that's the way that you should look at it.

Excellent. And I had a follow-up. So you're quite new to wine. Is this a category that you would be interested to expand further and maybe move into southern parts of Europe as well? Is this a category you're very interested in? Or is it more about getting the distribution to the Swedish and Norwegian markets?

But I think it's through Hartwa-Trade, we have been working in this category for 50 years. So this is something that is an embedded part of the Hartwa business. And since we took over the ownership 8 years ago, we have learned an awful lot of what that can deliver in terms of added value from a portfolio point of view. So I think there's -- there might be a difference between monopoly countries and non-monopoly countries, and that is one of the things that we are, of course, learning even more. Now we have the Solera business with us. I think if you look at it in a, let's call it, Southern European context, it is not something that is high on our radar.

Okay. And then one question on cash flow and net working capital, in particular. I think you have guided for a negative DKK 200 million impact for the full year previously. Is that still your expectation for 2021?

When we started the year, we gave a few indications that we had some headwinds because of -- we're not continuing with the Finnish beer campaign. And then also there was some delayed payments that hit us -- that helped us last year. When you look into this year, we have been helped a little bit by a change in duty payments in Finland. So some of the headwind have been mitigated by other factors. So I would say it's very difficult to indicate where you enter the full year on free cash flow. But I think the headwind we receive from working capital is substantially lower than what we indicated at the beginning of the year.

The next question is coming from Edward Mundy at Jefferies.

A couple of questions for me. The first is really an update on current restrictions. I appreciate you don't have a crystal ball, but could you remind us what you're seeing at the moment that's leading to this element of caution within the guidance range? And does the bottom end of the range, assuming a full hard lockdowns in all markets like we saw in the first quarter? The second question is around revenue growth management and your toolkit here. Clearly, for 2022, it's going to be a bit of a balance between both headline price and revenue growth management. Could you sort of talk us through some of your toolkit? And what proportion of your business is currently sort of on discount, where there are opportunities to perhaps reduce the frequency and depth of that? And then the third question is on the water acquisition in Denmark. I appreciate it's quite small. But water is traditionally a sort of slower growth, low revenue per hectoliter by case category. Could you remind us how this helps your multi beverage strategy? And what's the scope for innovation on this portfolio?

Thank you. If we start with the COVID restrictions, I think what we see at this point in time is that the number of people who are -- who have caught the disease in the Nordic countries, in particular, have been on the rise, and we've seen a few companies cancel Christmas parties, so on and the reintroduction of the Corona pass in some of the markets. So there is a little bit uncertainty as to what level will the On-Trade stay at for the rest of the year. So it's not a normal trading in On-Trade for the rest of the year. So that gives us a little bit of extra volatility than what you would normally see so late in the year. With that said, trading is still very, very strong in On-Trade, in particular in Denmark and also in Finland. But you see some restrictions, and you can see that the -- there is a little bit more risk than what you would normally see at this point in time.

And for the revenue question, so I think we have been pretty good at working on the average value over the last many years. So the average sales price, which is a combination of premiumization and price pack strategies, and I think the way that we look at it is that going into next year, we will have to be even stronger on that as well. So the combination of, call it, net price increases will be a combination of price increases, it will be an evaluation of the promotional strategies, so what is the depths, should we go to everyday fair pricing, what kind of multi packs do we promote, is it the 24 package, the 18 package, is it the 20 package, is it the 6 pack? So all of that is being worked out right now in all of the countries. Some of the countries are starting earlier than others. So I think Denmark is a country where you start the first. In Finland, you have the window on the 1st of April. Most of the new things are implemented like in France, also going into the second quarter, Italy a bit earlier and so on. So it's kind of like a cascading effect that we will see over the course of the next 4 to 5 months, where we have already taken some initiatives, of course, on the international business because that's where we are not working with retailers that have planned promotion programs that cannot be changed because of the way that they work. So that is where we are already implementing some price adjustments during the fourth quarter. Did that answer your question, Ed, on the revenue side?

Yes. I mean, soft drinks category and beer to a certain extent, tradition is that lot of products are sold on discount. So are you able to share sort of what proportion of your business is sold on discount or promotions? And therefore, what is the size of the prices that reduces?

Yes. So I think the rule of thumb is that in mainstream, in retail, it is between -- depending on the country, it's between 70% and about 85% that is sold on some kind of either promotion or activation in the store, whereas the remaining part is sold either from the fridge or it's sold from the hot shelf -- standard shelf. So it's a relatively high share that is promoted, activated in some sort of way. And that means that, back to what I said, that it is also important to look at the promotional pricing and the depth of the promotional pricing in the whole discussion about compensating for the cost price increases.

Great. Finally the water acquisition?

Yes. So this is actually an asset where we have been looking at for quite some years. So if you look at our portfolio in Denmark, we have the Egekilde water brand, which is a premium water in its positioning, whereas the Aqua d'Or brand is more in the mainstream territory. They are very strong in convenience. And they are very strong in what we would call alternative channels, so channels where we are not actually very strong. So the way that we look at it is that we would kind of like complete our range of waters. And this is, again, the territory of no/low sugar, which is an area where we do see growth. Some of the brands growing from the heritage of water and others growing from the heritage of soft drink more in the artificial sweetened kind of proposition. So from a category point of view, this is actually something that we like in the Nordic countries. And again, it's mostly convenience-driven. It's driven on the go. And I wouldn't rule out that there will be some cross-selling synergies, given that they have a route to market that we do not have into certain customers. And I think I've seen some comments about that it's a low-margin business, water. I think if you look at it on a European level, you will consider it as low margin. If you look at it on a Nordic basis, water is not low-margin because it has a convenience angle and not a carry home in 1.5 liter, like you see in Southern Europe. So we feel that this is a nice business and a good fit, and they have a very strong supply chain, similar to what we saw when we acquired Crodo from Campari, well invested, good people, good processes, and that's the same that we see going out of Danone. So we feel it's a very nice asset for the Danish business. And then there's some export into the other Nordic countries, which is, in our mind, a good match to build up our portfolio next to the Solera business.

Great. And the final part of the question was innovation opportunities. I know you're pretty good with the functional waters. But is there opportunity to do more with this portfolio?

Yes. We need to get the approval from the Competition Authorities and talk with the management and look at their pipeline of ideas. When we follow them and have followed them for the last 5, 7, 8 years, they have been pretty innovative around the whole water segment, and they have been more successful on their innovations around waters than we have, to be honest, in the Danish market. So we feel it's a good platform.

The next question is coming from Mitch Collett at Deutsche Bank.

I noticed your comment in the release about your ambition to offset the EBIT per hectoliter impact of higher input costs. And you also commented that maybe 6% to 6.5% is a reasonable estimate for how much you need to take to achieve that. I appreciate that soft drinks and beer are relatively inelastic categories. But if you're going to try and get 6% to 6.5% of net pricing, even if some of it comes from lower promotional activity, do you think there's scope for a negative volume consequence in 2022? I appreciate there's a lot of uncertainty. And I guess depending on the answer to that question, would you see flat EBIT as a good outcome, given all the uncertainty that there is for next year?

Yes. I think if I start with the first one, I think we are not different from any other European brewer or soft drink company in terms of how we are going to look at the cost. I think there's always a discussion around the level of hedging and how far you go on your hedging strategies, but eventually, it will hit all of us so we are not different from that. I think as we also highlighted in the pre-comments, and that is that there's 2 uncertainties. So how is competition going to play this? Are they going to cut down on costs to cover for some of it, so spending more on sales and marketing costs, maybe taking people out of the organization, et cetera, et cetera, and then try to put price increases that are lower? That's an option. And then, of course, we need to figure out how do we play that. We do not have a full transparency on that right now and how this has played out. So that can change a bit of -- to our strategies, how we play it. So there's many, I would say, movable parts here that we are managing right now, but our conclusion is it's the same for everybody. Then you asked a question around guidance for next year. I think we will, of course, not answer that right now. But I think if you have followed us for quite some time, then our mindset has always been around building additional value to the shareholders over time. And that's the core reason why that we continuously spend more on sales and marketing and that we continuously are building our capabilities from an organizational point of view. That is to be able to deliver a constant growing business and converting that into bottom line. I think that the amount of movable parts that we have on the table for next year is pretty high. And that is just what we highlight. We also highlighted that after Q2. We are highlighting it again. Do we feel comfortable of where we are right now? Yes, we feel comfortable.

Okay. Great. And then maybe a follow-up. Higher input costs come and go, but beer and soft drinks pricing tends to move up over time. Do you think the current pressure on input costs is potentially good for your margin and your profit per hectoliter on a longer-term basis?

I think it really depends on 2 things. So how will the consumers react to the new price points? Would they accept them? And I think our current view is that if you look at the Nordic countries, consumers are generally in a good shape. Unemployment rates are relatively low. There's a lot of things that you cannot spend your money on. So you're actually quite cash-rich as an average family. So you see that there is inflation, so the hope is, of course, that you, as a consumer, would accept the new price points. But if you don't accept the new price points, what do you do? Do you consume less? Or do you move down to private label, discounts? Are you buying more on promotions and less from the shelf? So these are some of the dynamics that we are following very closely. So one thing is the consumer and the other one is, of course, how competition will play it when and if there will be a deflationary situation on the cost. But we'll have to see that when we get to it. We don't know if this is in 9 or 12 or 18 or in 3 years' time. So I think we need to deal with the challenge that we have right now and then look at the opportunity when it arise.

The next question is coming from Ryan Fintan at JPMorgan.

It's Fintan Ryan, JPMorgan. Lars, Just 2 questions for me, please. Firstly, with regards to -- you mentioned the capacity constraints around ciders, RTDs and also capacity constraints for the international business for likely well into 2022. Could you give us a sense in terms of like how -- like what the inventory situation is for your international business? And like will you be looking to accelerate maybe CapEx or organic capacity investments to meet the strong demand? And then secondly, with regards to your -- the integration of Crazy Tiger in France, you mentioned you're already gaining market share within the segment. How has the integration gone so far? And how -- like what is your ambition for the Crazy Tiger brand, in particular, within the French energy drink in the midterm?

Yes. So if I take the first one around the cider, I think our sales growth rates in international have been kept at a relatively high level. And that's a combination of our malt business growing more than what we have seen in the past. We feel that, that is helped a bit also by the pandemic because we are relatively strong on the retail side, where we are -- we do not have an exposure to On-Trade. And the job for us is, of course, that as the restrictions run out, people will be out there, that is to secure that we have the relevant, I would say, distribution and activation and convenience. Because when people are at home, they consume more malt when they are -- compared to when they are on the road. So that's one of the drivers that we have. Another driver is our Faxe brand is doing really, really well, and in particular, around the higher alcohol variants that we have in our assortment. And we haven't seen any, call it, deacceleration of the growth, and we have been able to secure that the level of out-of-stock in the markets have been very low. So it's the trade inventories that we have been ramping down. Now we are getting out of the season in the Nordic countries, and that means that we will be able to supply and restock in the markets over the next 4 to 5 months. So that's the plan on the international. So I think if you look at the first quarter, that will be unusually strong in international because of the replenishment of the stocks in terms of how we look at the planning. The same will go on the RTD and cider. So we are working on a combination of third-party help for some of our production. And the other one is to make usage of the spare capacity that we have out of the season. So months like January, February and March, we normally do not produce full speed, and we plan to do that going into next year so that we utilize, call it, the full year capacity in a better way than we did last year. And you need to remember that there was a lot of uncertainties about restrictions last year. So we didn't really fill the stock for that reason, which we will do this year -- next year, so that will be a more normal year. And then we are evaluating what is -- what can we do to increase the output on our current equipment or is there any, call it, CapEx that we need to do on our current lines that can increase the speed and the output, and what is the potential investments that we could do, should do for the future, but it's not something that would impact 2022. We feel that we have a plan for 2022. So this is more something that relates to '23, '24, when it comes to capacities. We are adding a new canning line on our Faxe facility, which will be operational in around May. And then we are adding a PET line into our Baltic territory in -- so we're adding it into Finland, but that can supply also the Baltic countries and potentially even Sweden. So we are ramping up our capacities going into 2022.

On Crazy Tiger, the business is still not fully integrated into our French setup. But I think what we have experienced since we took over the business is that the brand is really performing well in the market. It continues to gain shares. And over the next, what you say, 6 months or -- we will merge the organizations. We will combine the logistics setup, we will put them onto our IT platform. And then we will start to ramp up the commercial investment. But I think we can say that the business is performing, and the brand has a lot of attraction in the French marketplace.

Great. And just a follow-up on that last one, please. So the share gain that you're seeing in France from the French energy market isn't a result of higher distribution or sales integration. It's more like-for-like same-store roughly.

So if you look at the market share data, we are up [ 8%, 10% ] more than the market in general. If you look at how it evolves, a piece of that is increase in distribution. There is a lower level of promotion, and there is an increase on the base sales. So the un-promoted share of sales is going up, which is a strong signal for the brand. So that's the combination of what is happening right now in France.

The next question is coming from Richard Withagen at Kepler Cheuvreux.

I have 2 questions, please. I know it's difficult, but in terms of price elasticity, I've got some questions. Can you share your thoughts on specifically what you expect in terms of elasticity in the energy segment and RTDs, and is that -- if you think that differs materially from mainstream beer and mainstream soft drinks? And then the second question I have is on your budgeting for 2022, for next year. What are you assuming in terms of market restrictions? And I'm especially interested in what that means for the innovations you put on the market, the marketing spending you plan to do. Those will be my questions.

Yes. If you look at the price elasticity, I think where we have the highest price elasticity is in the Baltics, and that's because of the consumer spending power. And that's, in particular, in the alcohol segment. So when you increase prices, and that doesn't really matter if it's us trying to cover for cost price increases or if it's derived from excise, you normally see a decline in the volume. So that's pretty easy mathematics that you can sit down and look at the consequences. If you look at the categories that you talk about, energy and RTD, those are categories with less price elasticity. Energy is still a convenience product notion for all. So you buy it cold from the fridge, on the go, convenient and those occasions generally have lower price elasticity for the consumers. And RTD is a combination of, I would say, 2 categories, so you have more like the AlcoPop and then you have the, call it, the more the adult area. I think the adult area is with relatively low price elasticity, whereas the more AlcoPop area is more price-sensitive because you have some price points today in most countries that the consumers have had for many, many years. So the question is how we play that piece in terms of what we talked about early on, the promotional level versus what is on shelf. So it might be that it's better to keep the promotional price, but you have the amount of promotions that you do is less and thereby, you increase the share of base sales and so on and so forth. But we go through that in all of the categories, in all of the countries in terms of what is the right choice in terms of the price strategy and the price points.

And then you had a question around next year and our budgeting and so on. And of course, we'll give our full year outlook when we come with the full year results. But I think we can say that the innovation pipeline we have for next year will not really be that dependent on what kind of restriction scenario that we see. I think we've seen this year that by investing into the growing categories by making certain that you follow the trends by being strong in low/no, focusing on energy and so on and premiumizing our portfolio, that works really well for us. So the plans we have for innovations next year are following, what you can say, our priority categories. And of course, if you look at different levels of restrictions next year, that is probably going to impact sales cost more than what we are going to do about our innovation platform next year. So we'll give you more details on what our scenarios will be in terms of potential restrictions next year. But on innovation, expect more of what you've seen this year.

Okay. And if I can just add one more question then back on Crazy Tiger. I saw, Lars, on one of the first slides, you showed the Crazy tiger cans. Is that new or was that already in the market? So in other words, are you already starting to introduce new pack systems? Because I think it was originally in a big bottle, right?

Yes. So if you look at the Crazy Tiger, it has, to a large extent, been this sharing occasion, where a lot of the sales came through the larger sharing size PET. And they've had a can lined up for a number of years, but not as a big focus area for them. So I would say we have not done a lot to the product assortment yet. But of course, over time, we will look into whether we should have a stronger offering within cans, which is the normal pack format for energy drinks, where today, we're really strong in the sharing occasion in France. So the cans you see on the picture are already in the market, and we haven't changed those designs at this point in time.

The next question is coming from Andrea Pistacchi.

A couple from me, please. First, could you please share some -- maybe some high-level thoughts on how you're seeing retailers approach the pricing negotiations? Is there -- do you sense a sense of more acceptance, obviously, given the environment? And any areas where you feel it's more difficult? And then again, connected to the pricing situation you were saying earlier, how -- obviously depends on how competitors react, what they do. When you think of some of the smaller players in the market that typically probably have less hedges than you or than the larger players they've been experiencing, probably some of the pressures already through this year. Do you get a sense of what they may be doing going into next year, i.e., maybe they don't need to take price? Could that make things a bit more difficult? And then just want to ask on the -- on Aqua d'Or acquisition, if you are able to disclose or give us a bit of an indication on the cost of this deal? And the last thing, please, on admin expenses, which have increased materially in the last couple of quarters. There was some acquisition-related costs, I believe, in there. But what's the sort of normalized -- roughly a normalized quarterly level for admin costs going forward?

If I start with the acceptance of price increases, I think it takes, of course, a bit of work to explain this to the retailers because they are, of course, always extremely focused around the total basket value when people are shopping in their supermarkets, and they are highly concerned also on traffic, right, and the traffic generation and beverage is a traffic generating category for many retailers. I think the level of, call it, acceptance varies, of course, also from country to country and also from concept to concept. So I don't have a straight answer to that. I think all in all, the feedback that we have is that they know that we need to do price increases. So the question is more how we do it? How much is promotion-driven, how much is price pack-driven, how much is really price increases on the shelf, which, of course, makes the negotiations a bit more complex this year than the prior years. But I think the general sentiment is that the retailers acknowledge that there is a need to cover up for price increases. And again, they know it because they also have private label. So they know exactly what the cost price inflation is. I think if you look at the smaller players in the market, we haven't seen any indications that there's different dynamics around them than us. So we are reading is that it's the same. You asked a question around Aqua d'Or. The deal price, I think we're restricted a bit from the sellers in terms of giving the exact value. I think the way that you should look at it is that the multiple that we are paying on this asset is not very different from the similar acquisitions that we have made, meaning solid positions in local markets like in France or Italy. So that's a similar kind of multiple that we are paying. And I think that's the closest guidance we can give on that one.

In terms of administration expenses, I think what you saw during the pandemic times, we didn't refill positions. We didn't spend any additional spend. So of course, there's some normalization of spending taking place again, where admin expensing -- positions are being filled, so we are recruiting the positions that we saved on the COVID. So there will be -- there was a sharp reduction from '19 to '20. And now we are normalizing the spending on admin again. I think it's also in the shorter term, we will be strengthening the organization, in particular in IT to ensure that we have the muscle to integrate the companies that we have acquired. But I think if you look at admin cost as a percent of revenue, I think we'll still continue to see the efficiencies by becoming a bigger business. But it will, in absolute terms, increase next year because we have a lot of integration work ahead of us. And IT is becoming a more and more important enabler for efficiency as it's been for a number of years.

The next question is coming from Andre Thormann of Danske Bank.

The first question is just about the 6% to 6.5% that you mentioned. Just to be sure, does that translate into a cost per hectoliter next year in spite of that? That's my first question. And I have a second one.

[Technical Difficulty] relates to the math of the cost and price increases. So to cover those up, how much does an average beverage player need to increase the net selling prices to compensate for that? And the 6.5% is -- relates more to the beer guys and the 5% relates more to the soft drink players. And again, if you take us being about 50-50 between the 2, then we are probably in the middle, looking at it in over a period of time where hedging will run out and so on and so forth.

I think something happened with the sound, so I didn't hear the first part of the answer. Could you repeat?

What I'm saying is that the 6.5% relates to beer guys, the 5% relates to soft drink. We are about 50-50. And the percentage here that I talked about, that is the price increases that you need to compensate 100% on the cost price increases for an average beverage player in Europe.

Okay. So it doesn't directly translate into 12% to 13% cost per hectoliter next year, just to be sure?

No, not when you look at us, but the point is that there's also excise increases in some countries. So when you add it all together, our presumed price increases in this scenario, let's say, at 5%, that can convert into a price increase on shelf of 7%, 8% or 10%, depending on other parameters, including the discussion around retail margins, et cetera. So that is a number that relates to us as a producer and not the price for the consumer.

Okay. And then my next question is just in terms of price increases for On-Trade. Are you willing to increase prices for On-Trade? I think I remember that historically, you [Technical Difficulty] willing to do it at least due to the pandemic. Are you willing to do that due to this [Technical Difficulty]?

I think those are 2 separate topics. So there's a piece about how do we support the On-Trade, and we are supporting them quite heavily in making sure that they have maximum traffic, that we have the right portfolios and so on and so forth. And then the other one is a cost measurement. I think if you look at the price increases in general, then packaging is the category where you see the biggest price increases. And since we are using less packaging in On-Trade because you have bagging box and you have draft beer and so on and so forth, if you look at the average between what is needed in the different categories, we would need a bit lower in On-Trade compared to the Off-Trade. But there's no -- given the magnitude of the price increases, we do not have any channels where we would not see price increases.

Okay. And then just my last question in terms of price increases and raw materials and all these things is how much are you currently hedged for aluminum and barley in [Technical Difficulty]?

So I mean, we are hedging the normal levels, but I'm not -- we are not telling what is the exact hedged amount, and it couldn't really help you that much because if you look at the prices that we've had over the last 6 months, they have been all over the place. So we normally hedge quite a portion before we start the year and then we finalize the hedging during the year. And that we continue to do in next year.

All right. And then just my last one on Aqua d'Or. How much of volumes are private label in that business?

So the details, we'll have to come back with that when the deal is concluded for nondisclosure reasons right now. So they do private label, yes, but the magnitude, we'll have to be a little bit patient on how much it is.

There are no more questions at the moment. For closing remarks, I give back to the speakers.

Yes, thank you, everybody, for participating. I hope you got some clarifications around the buildup of our results in Q3 and year-to-date, also comparing to 2019. So we wish you all a nice day and thank you for participating.