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

Good morning to you all, and welcome to our first half results webcast. I'm Lars Jensen, I'm the CEO of Royal Unibrew. Today, our CFO, Lars Vestergaard, joins us on another line. So we hope that the technology will work as expected. Now let's turn to Slide #3. The second quarter of '23 marked the first signs of improvement in profitability as we recorded positive organic EBIT growth of 3% in Danish kroner. This was especially driven by a strong performance in our Northern European multi-beverage markets, where EBIT grew organically by 19% and 24% in local currencies in the first half of '23. The organic volume decline of 4% in Q2 was a consequence of tough comparable numbers in Western Europe and International, whereas volumes in Northern Europe increased by 3%. The organic net revenue growth of 5% in Q2 was driven by the implemented price increases while negatively impacted by weaker Norwegian and Swedish krona. The organic net revenue growth in local currencies was 7% in the quarter. The inorganic EBIT -- impact on EBIT from M&A in the second quarter amounted to DKK 10 million, which is negatively impacted by the weaker Norwegian kroner. The integration of Hansa Borg and Amsterdam Brewery in Toronto are progressing well. The free cash flow for the first half of '23 amounted to DKK 545 million, an increase of DKK 235 million compared to last year and is the result of a high cash flow from operating activities that compensate -- that more than compensate the higher CapEx. The result of the first half of '23 has led us to adjust our full year guidance. We are now expecting a revenue of around DKK 13 billion compared to DKK 13 billion to DKK 14 billion previously, a reduction that is caused by a combination of lower Norwegian and Swedish krona plus the lower revenue that has been caused by the weather during July and the first weeks of August. EBIT is now in the range of DKK 1.6 billion to DKK 1.75 billion compared to DKK 1.55 billion to DKK 1.75 billion previously. Lars Vestergaard will return to the financials in more details later during this call. Please turn to Slide #4. Let's look at some ESG highlights from the first half of '23. In April, we received an updated and improved ESG risk rating for Morningstar Sustainalytics where Royal Unibrew was rated #1 in the global beer, wine and spirits business, which we are very, very proud of. We have improved our water consumption efficiencies from 3.1 liter per liter to 3 liter per liter, primarily driven by a change in product mix, whereas our per-liter consumption of energy and CO2 emissions are still negatively impacted from the switch from natural gas to oil. To become 100% CO2 emission-free at our production sites by the end of '25, we have established decarbonization road maps with specific actions for all of our markets, and we are well on track to meet these targets. In June, we reached an important milestone with the completion of a biogas plant in Finland and by getting our solar park in Denmark fully up and running. Both these projects and several other projects around our geographical footprint reduce our dependency on fossil fuel. As part of our climate target submission for the Science Based Target initiative, we have stepped up on our ambition for Scope 3 emission and added a target of 50% reduction in absolute CO2 emission from Scope 3 alone in 2030 compared to our 2019 baseline. Finally, of the highlights we are mentioning here, we have invested in cardboard solutions for our packaging systems to reduce or even eliminate the use of plastics on our road to provide 100% recyclable or reusable packaging in 2025. Now please move to Slide #5. It has indeed been a busy first half of '23 for us. We have been working hard to make sure that our businesses are performing well in an uncertain and unprecedented environment. As I've already mentioned, we have been very successful on a task in our multi-beverage market in Northern Europe, where we overall have gained market shares. In Italy, we can finally say that the destocking in On-Trade through the wholesalers in the beer area normalized during the second quarter. In the past 3 months, and that is from May to July, we have experienced a balanced sales in and sales out figures. And as I will show on a slide later, the Ceres brand has gained share also in '23. During the first half of the year, we have had 2 very successful product launches with great prospects. In Denmark, we launched a Faxe Kondi orange, which quickly became very popular among consumers and in record time is competing for the market-leading position in the orange segment with around 25% market share. In Finland, we launched an original long drink version with pineapple flavor, which quickly became the summer beverage and has claimed a double-digit market share of the RTD market in Finland. We have been busy in making sure that we are spending our money well with a focus on return on investments. But higher production costs and higher project-related costs have outweighed the lower sales and distribution costs, including lower marketing costs than last year. We have also ordered a new PET line for the Danish business, making sure that our production capacity can keep up with the strong growth in our business. The line increases our capabilities, both commercially and with regards to ESG. And as I'm sure you have all noticed, in July, we agreed to acquire Vrumona in the Netherlands as well as a brewery in Italy. The Vrumona transaction is expected to close in September or October of this year and will create a new growth platform for Royal Unibrew in Western Europe being the largest -- second largest soft drink player in the Dutch market. The production facility in San Giorgio, Italy should be more seen as a capacity expansion to support our growing Italian business as well as our international markets. More details on both acquisitions will come in connection with the closing of the deals. Now please turn to Slide #6. On this slide, we have tried to put our European performance a little bit into perspective. We have compared the performance of Royal Unibrew Northern and Western European segments with the European businesses of 2 of our main peers. From the first graph, you can see that despite an organic 22% volume decline in Western Europe, our total European volume only declined organically by 1% as Western Europe volume was up by 3% in the first half. From the graph in the middle, you should be able to see that very strong price/mix of 13% in Northern Europe drove an organic net revenue growth of 10% in Europe despite the organic net revenue decline of 14% in Western Europe. On EBIT, Western Europe EBIT declined by 50% in the first half of '23, driven by the destock in Italy. But as Northern Europe EBIT grew 13% organically, we managed to secure an organic EBIT growth of 11% in our European business. Comparing our organic volume, net revenue and EBIT performance to peers, we are satisfied with the underlying development taking into consideration the impact for the destocking in Italy in the first half. Now please move to Slide #7. As promised and before I turn the word to Lars, a few words on the development in Italy. As I said earlier, the On-Trade wholesale beer channel normalized in the second quarter and thereby ending a period of destocking impacting our Italian business negatively on sales in. What is important is that it has not impacted our brand negatively as we read the data, and we have now seen balanced sales in and sales out for the past 3 months. As you can see on this slide, the Italian beer market grew by 4.3% on a year-to-date July basis, whereas Ceres has grown 10.2% in the same period. That is an outperformance of the market by almost 6 percentage points. We, therefore, remain confident that the Ceres brand is strong and healthy, and we continue to expect good growth going forward. We have also selected some data for our 2 other categories in Italy. Our CSD category grew 19.3% on the year-to-date July numbers, which is a clear outperformance to the market of 12.3%. Our energy drinks portfolio in Italy has not been able to keep up with the market growth year-to-date, but very promising, and after some strategic changes of commercial priority, we have been building up momentum and our portfolio outgrew the market by 6 percentage points in July. And the LemonSoda Energy is now the third largest energy brand in volume in Italy and in our stronghold in North of Italy for our soft drink portfolio, LemonSoda Energy reached a market share of 4.5%, which makes it more than double the size of the fourth largest brand in the region. And with that, I will pass on the word to Lars.

Thank you, Lars, and good morning to you all. Looking at the financial performance in Q2 2023, our volumes increased by 1 percentage point to 3.9 million hectoliters, supported by M&A and our extended partnerships and despite [indiscernible] tough comparable numbers for Western Europe and International. Price increases implemented during the past year supported a strong price/mix effect, leading to an increase in net revenue of 12% in the quarter, also supported by growth in our partnership business and M&A while weaker currencies impacted negatively. EBIT is increased organically by 3% in DKK despite weaker currencies and the destocking in Italy. We will explain the dynamics behind the EBIT development in more details in the coming pages. The EBIT margin declined by 1 percentage point from 15.9% to 14.9% in Q2 2023. Acquisition of Hansa Borg and Amsterdam diluted the market, and it was also negatively impacted by a weaker Norwegian kroner. Free cash flow amounted to DKK 949 million compared to DKK 669 million in Q2 2022. The development is driven by higher cash flow from operating activities and that more than compensated for higher CapEx. If we go to Slide #9, please. The slide gives a view on the development within our 3 business segments in H1 of 2023. Starting with Northern Europe, total volume showed an increase of 10% to 5.4 million hectoliter. Organically, volume increased by 3% compared to 2022. The significant price increase implemented in the Baltics resulted in volume declines impacting the Northern European organic volume growth negatively by almost 4 percentage points. That said, net revenue and profit contribution increased in the Baltics despite significant volume decline. Net revenue increased by 22% to DKK 4.9 billion, of which around 9 percentage points contribute to M&A activity, resulting in a 13% organic net revenue growth in the first half. Price increases taken throughout the year positively impacted the top line, whereas weaker currencies in Norway and Sweden did have a negative impact of around 2 percentage points. Adjusting for weaker currency, organic revenue growth in local currency was 16% in H1. Earnings before interest and tax for H1 increased to DKK 637 million and was DKK 100 million higher than last year. The EBIT margin declined by 0.4 percentage points from 13.3% to 12.9%. In Western Europe, volumes declined by 22% in H1, while net revenue declined by 14%. Tough comparable growth numbers from [ destocking ] in the wholesale market in the On-Trade channel and poor weather in Italy were the primary reasons for the decline. EBIT declined by DKK 64 million, corresponding to 50%, reaching DKK 65 million for H1. This meant that EBIT margin declined by 7 percentage points to 9.9%. The weaker profitability was caused by the destocking in Italy, lower-than-expected volumes and the poor weather in Italy. Profitability improved during the second quarter as the Italian wholesale channel normalized. Finally, in International, total volumes showed a 21 percentage points decline in H1 to 0.5 million hectoliter corresponding to a 25% organic decline. The inorganic development is explained by the acquisition of Amsterdam Brewery in Toronto. Net revenue was flat compared to the year before at DKK 561 million in H1, corresponding to a 15% organic decline. The [indiscernible] market was challenged throughout most of the first half by political unrest and weak macroeconomic development, but most markets stabilized towards the end of the quarter. EBIT for H1 amounted to DKK 25 million, which was DKK 42 million below H1 2022. The margin declined from 12% to 4.5%, and that was driven by the implementation and start-up investments for festival contracts in the U.K., costs related to the acquisition of Amsterdam Brewery and negative scale effects. The organic EBIT margin declined by 5.2 percentage points in H1 and by 2.7 percentage points in Q2. And now a short comment on the development in net revenue and EBIT in Q2 2023, if we can turn to Page 10, please. Net revenue increased by 12% to DKK 3.211 billion -- from DKK 3.2 billion to DKK 3.565 billion. More than half of this was driven by acquisitions, whereas the organic growth in DKK amounted to 5%. EBIT increased by DKK 26 million from DKK 511 million in Q2 2022 to DKK 536 million in Q2 2023. The impact from M&A, including a significant negative contribution from weaker Norwegian kroner was DKK 10 million, whereas the organic EBIT amounted to DKK 16 million in the quarter. And then Slide 11, please. And now look at the cash flow. Our cash flow before changes in working capital increased by DKK 14 million to DKK 987 million, which was driven by a higher noncash adjustment than last year. Changes in net working capital positively contributed by DKK 106 million, which was a positive swing of DKK 353 million compared to H1 2022. Despite investments and leases increased by DKK 55 million, our free cash flow before M&A and financing increased by DKK 235 million from DKK 310 million in H1 to DKK 545 million in H1 2023. Please turn to Page #12. If we look at the outlook for the full year of 2023, which we have adjusted to take into account the performance so far in 2023 and the higher visibility we have seen through the high season, we now expect an EBIT in the range of DKK 1.6 billion to DKK 1.75 billion compared to DKK 1.55 billion to DKK 1.57 billion expected previously based on net revenue of around DKK 13 billion compared to DKK 13 billion to DKK 14 billion expected previously. We have reduced our expectations to net revenue because of the poor weather in the Nordics in July and August and because of the weaker Norwegian and Swedish krona. Assuming unchanged foreign exchange rates for the remainder of the year, the full year negative impact on net revenue is expected to be around DKK 250 million from currencies. We have narrowed our EBIT guidance range by DKK 50 million given the higher visibility, but still reflecting the uncertainties related to the consumer. The increased low end of the range is primarily driven by strong performance in our Nordic multi-beverage markets. Net financial expenses, excluding currency-related losses or gains are expected to be around DKK 200 million for the full year. We expect an effective tax rate of around 21% of profit before tax. CapEx for 2023 is expected to be around 5% to 6% of net revenue, and we have -- as we have increased our investment in ESG projects. And with that, I would like to hand the word back to Lars Jensen.

Thank you, Lars. Now please turn to Slide #13. And before we will take your questions, I would like to give a few words on our current priorities. We have now mitigated the input price inflation experience since the beginning of '21, and some input prices have started to roll over, while others continues to increase. On top of that, salary increases driven by higher living costs and currency-related inflation, that means that we still need to increase prices going forward. And what does that mean? That means that we are likely going to be in a territory of, call it, normal price increases of about 1% to 3%. So about DKK 1.5 billion of headwind that we got after the inflation started to kick in, that has been covered up. We still have a bit to do because of the currency in Norway and Sweden, which if you isolate that, it's just a matter for these 2 markets. And the rest is more a normal situation that we foresee. And what does that mean? That means that we will price as the market can bear. And there's no reason why the underlying price development of beverages should not follow the general inflation in the societies. Therefore, we remain focused on monitoring consumers' reaction to the higher prices. Consumer behavior has been relatively unchanged and robust during the first half of the year, but we do expect affordability to remain a key focus for consumers also during the rest of the year. We also continue to expect that private label and discount brands will gain some share in the overall market. This also means that we need to remain cost conscious while at the same time continue to support and invest behind the growth opportunities that we see in our markets. This is instrumental in supporting continued solid underlying growth on the top line, but especially in making sure that we will create solid organic earnings growth going forward. With the agreed acquisitions of Vrumona and the Italian production facility in San Giorgio, our integration pace is not slowing down. Vrumona is a healthy and strong business, which do not need immediate integration, but that will await available resources while the integration of the Italian production facility will be managed locally by Royal Unibrew's strong Italian organization and is expected to be a smooth and relatively uncomplicated process. With the acquisitions done over the past years and the resulting capacity expansions, the opportunity to optimize our production footprint has increased. And in the coming period, we will therefore also need to focus on the optimization of production securing a better production economy, but also reducing our CO2 footprint. The growth we are experiencing underlines the continued need of securing production capacity to which we will continue to direct CapEx, and it is becoming ever more clearly that ESG ambitions also will need investments going forward, and we need to focus making sure we have the right capital allocation to secure satisfactory results in both these areas. And with those words, I will hand it back to the operator, and we are now ready to take the questions.

[Operator Instructions] Now we're going to take our first question. And the question comes from the line of Andrea Pistacchi from Bank of America.

Yes. I have 2 questions on costs, please. And then a brief question on LemonSoda. So on your sales and distribution expenses were more or less flat in Q2. So maybe down a little bit on an organic basis. So could you talk a bit about the moving parts there? What is marketing spend? What is sort of distribution costs or maybe other factors? And how you think about discretionary spend for the rest of the year and going into 2024 or so given that some of your peers seem to be stepping up investment. And then on the COGS. On COGS, please, one of your peers called out higher glass costs in 2024. How do you see glass next year? More broadly, I mean, you commented a bit on how you're thinking of costs going forward and the need possibly to take a little bit of price. But are you able to say whether you expect overall COGS to still be slightly inflationary next year or whether actually you should see a bit of COGS deflation? And then the last thing, just going back to those comments that you're making on LemonSoda Energy in Italy, which had a very strong start when you launched it, but you were saying it's been underperforming a bit, better in July. Could you maybe just give a bit of color on why you think in the last few months it was underperforming and what you've changed that now it's getting it back on track?

Thank you, Andrea. I'll start with the LemonSoda and COGS and then Lars can talk about the general cost picture thereafter. If you look into the LemonSoda Energy, we had a very solid launch. What happened, obviously, there's a number of factors. First of all, this is a category where the competition is getting tougher and tougher and where we see also from the big guys in the market, but also from a lot of small new players trying to enter the category because it's growing. It's growing fast, and it's a profitable category. So it is getting crowded. We experienced that after having been in the market for about a year or so, having a really strong trial on the product. We saw that pricing was creeping up, even to prices that was higher than Monster. And when the prices got higher than Monster, we saw that we were losing share in the market. And when you're a small player, you don't want to lose market share, you want to gain market share. So we have made a number of changes to price points, promotions. We have been good in getting listings also into the convenience channel. So there's a number of, I would say, elements and learnings from both the Nordics, but also from the Baltics where we launched CULT 2.5 years ago or so that we have utilized in our rethinking on getting into another growth momentum in Italy. And that is what we have experienced during the last, I would say, 2, 2.5 months and that is helping us in gaining momentum. And then we have put an extra emphasis on the North because this is where LemonSoda is strong. So instead of fighting in the whole country, we have started in the North with these initiatives, and that is helping us on the performance. And then it's a little bit of the same discussion around France and Crazy Tiger. It's the same kind of process that we go through within the energy drink category in general. A comment on the COGS side, and now you asked very specifically around glass. We do not want to comment on specific categories here because that also involves, I would say, discussions with how the supplier is looking at this. I think the general picture that we see here is that some categories are going down. And most of the categories that are going down, that's driven by lower energy costs. And of course, there is a hedging mechanism that plays in here also for our suppliers in terms of when do they get effect of lower energy costs. And then we see some of the agricultures that are holding up pretty high on the pricing. And of course, some of it will also be dependent on how harvest and crop will come out. So we see kind of like, let's call it, a balanced view. We will, of course, during a certain period of time, have some benefits of lower energy costs. But if you look at the fundamentals, we do not foresee a lot of big changes. That means no big positives or no big negatives. That's the way that we look at it right now. And that means that we are looking at a more normal scenario, as I commented on, and that means that we should make sure that we price as market can bear and try to gain a little bit of share in the market and thereby is back to the old growth formula of Royal Unibrew. And then I'd like you, Lars, to take the questions on the costs.

Yes. So if we look at sales and distribution cost, it is, of course, a line that come from -- that is based on different elements. In there, you have logistics, which is coming down in cost due to energy and so on. And then you have sales and marketing cost. When we look at how much money we spend in this line, we, of course, clearly follow what is our share of voice in the market to ensure that we invest sufficiently behind our brands. Secondly, we follow the consumer behavior very, very closely. And it is clear that some consumers are struggling with cash these days due to high interest rates and all the money they have spent on higher energy costs. So when we look at how we spend our commercial money, in some cases, it's more important that we are -- we have good promotions in store. We have good visibility in stores. So the way we separate, let's say, our commercial spending, it's all about the consumer and how do we make certain we have the right offerings in store for the consumers. So if you look for the rest of the year, I think we will make -- we will continue to follow do we invest enough behind our brands very carefully to ensure we have our share of voice and give competition a belief that we should start to increase marketing spend, we will monitor that very carefully. Because I think in this consumer environment, it's as important that you have very attractive offerings for consumers that sometimes are sort of -- so we are -- as we've said for quite a few quarters, we are monitoring this area very closely and making certain that we do not lose out in terms of share of voice. But more importantly, that we have attractive offers that meet the consumers where they are right now. And it's clear that some consumers are struggling with the inflation and the higher interest cost they have on their bills. So we do see a lot of consumers going into discounters where the share of private label is higher, and that's, of course, something that we monitor closely to ensure that we are capturing these consumers.

Now we're going to take our next question. And the next question comes from the line of Andre Thormann from Danske Bank.

I just have 2 questions. First of all is on the result in Hansa Borg. It looks like your organic EBIT growth in Northern Europe is equal to the total EBIT growth. So I wonder whether you can confirm that there was a 0 contribution for the first 5 months in -- on absolute EBIT in Hansa Borg and also give some elaboration on why because I guess that's not satisfactory for the first 5 months? The second question is in terms of Italy and whether you can just elaborate a bit on what you're looking at now in the second half now that these issues about destocking seems to have been fully resolved?

We are not satisfied about the performance in Norway, obviously, and we need to separate that in two. First of all, we have a currency effect that has hit us by a hammer. I think we are not the only one that have experienced that. We have seen some of our competitors downgrading their results because of FX fluctuations in the Nordic countries. There is a time lag on passing on price increases and that vary depending on if this is the monopoly systems or if this is up against the On-Trade customers or Off-Trade customers. But we are very focused on passing on the effects to the consumers. It has a time lag, but that gap will close. So that's one. Then the other one is that when we took over the business, there was -- the previous management did not, I would say, pass on price increases fast enough already. So we inherited a little bit of a challenge on being out of bounds between COGS and the pricing. And our new management have been working super hard on fixing that, which is a combination of, as you would know, Royal Unibrew of making real price increases, but also working on the mix, the mix of products, the campaign mix, the channel mix and so on and so forth to try to compensate for that. But that is -- that has been in the beginning of the year. It is something that has not been solved. The change of management came in, in January. But when you are looking at the recent period, we see that, that gap is also starting to close. So we are equally optimistic on the Norwegian business going forward. And then there is, of course, an optionality that is not possible to take into any spreadsheets and that is if the Norwegian kroner -- and by the way, the Swedish kroner will strengthen at a certain moment of time, then there is, of course, an optionality for us on that one. On Italy, so we are real happy with the market performance as such. But of course, there's a lot of fluctuations because of the stocking last year that is uncalibrated with the sales-in/sales-out number, so to speak. And that means that even though that we are saying that everything seems to be in order, you cannot see it on the numbers and we are going to struggle with that for the remainder of the year because we have months of both stocking and destocking also in the second half. But we are pretty confident on our performance versus the market in Italy. I think we have seen and there's a lot of probably weather related to that. We have seen the beverage market being a bit soft in July, but that we keep our good momentum. So that's the situation in Italy.

Just one follow-up. So did I hear you correctly that you will still struggle with destocking in the second half in Italy? Was that correctly understood?

We're not going to -- I think you're overexaggerating here on the wording here. I'm saying that destocking in the market is done, but when we're comparing month-to-month with last year, there was a destocking in the late part of the year last year and then this is going to normalize. And we would expect that, that will give a positive effect in that specific month. Whereas in -- during the summer season last year, so July as an example, we also had stocking in July. So that is, of course, impacting negatively. So you would see that it's not a straight line from here, so there will still be fluctuations between the months. So that is what I'm saying.

Now we're going to take our next question. And the next question comes from line of Richard Withagen from Kepler Cheuvreux.

I've got 3 questions, please. First of all, I want to come back to the question Andrea asked on marketing and sales. Maybe you can talk a bit about your thoughts on broader brand support and marketing promotions, everything, especially what changes do you expect as consumers remain under pressure, inflation comes down. Maybe we can even see some deflation at some stage? So what do you expect to change over the next 6 to 12 months? Second question is on the production footprint. I think, Lars, you said that you are looking at that production footprint of Royal Unibrew. So maybe you can -- what kind of plans do you have? Is this going to be a major overhaul or not that major at all? And is there additional CapEx involved? And then maybe lastly, a bit of a longer-term question. I think you still have your midterm margin target. Now we've seen also the Vrumona acquisition probably a bit margin dilutive to that. So maybe you can sort of give us some insights how you expect to get back to that midterm margin target? And maybe also some time frame around that.

Thank you. A general comment on the market -- sales marketing/commercial costs. For us, this is always to strike the right balance between people, marketing and sales support that we do towards our customers, helping them selling more. And there's no straight formula here. In some markets, we prioritize to have much more people on ground. At the end of the day, then maybe spend a little bit less on the brand building that you do not see in store, but move the money in store. And in other markets, we prioritize to do much more traditional, call it, marketing, which is either digital or from the cinema or from television or whatever and then we have less to execute in the store. That's -- we always try to strike the right balance between those 3. And for what makes sense for us in terms of the growth aspirations that we have and the opportunities that sits and what competition does. And if you look at the total cost here, there is also a lot of efficiencies to be gained if you hit that right. And that is, I would say, a very strong discussion in Royal Unibrew to try to hit that right. And we do not have an aspiration to spend less because we see a lot of growth opportunities, so we would actually like to see more -- spend more so that the snowball can grow even bigger. On the production footprint, we have been struggling, I would say, since the mid of COVID for 2 reasons. We had a strong growth during COVID on the volume side, which did not crawl back when COVID was over. And we didn't -- we had to postpone some of the CapEx projects that we had at that time because we couldn't get external people in and working. So we have been running behind on building up capacity and matching the growth that we have seen and that we foresee. And that means that we need to add capacity. And capacity for us comes in 2 ways, so you have the lines and then you have the brewing. And we have been struggling a bit on the brewing side and that means that we have been moving products between countries, which is very expensive. And if you look at a European picture, I don't think Europe supports that we should build up more capacity in Europe for brewing. And that is the reason why the scenario of acquiring the San Giorgio brewery is much more feasible than building up extra brewing capacity in any of our breweries. And then we would like, at the end of the day, to move production closer to the consumers to be more, on the ESG forefront, to be closer to the market so that we service the market much better than we do by shipping around goods for weeks or even months around the world. And this is where we have identified 4 areas where we are looking at different projects. So this is -- it is a long-term planning cycle in terms of all of this. Short term, you would argue that it takes -- buying a brewery in Italy takes off a bit of the pressure on CapEx, you would argue. But if you wouldn't have done it, the CapEx would probably have been even higher than the CapEx that we are guiding. Vrumona is also adding a bit of capacity to the network, and we are already, by now, building a number of scenarios on how we can make usage of that for the [indiscernible] Royal Unibrew network. But we are adding new lines and we will add more new lines as long as we can see our growth is continuing. So that's -- we see this as a positive. And then maybe finally, before, if Lars has any supporting answers on the margin, so what -- first of all, it's a long-term target. It's not a midterm target. The other pieces that what we have said all the way through is that we will only be able to get back to that if we would see a scenario where COGS would decline to a more, call it, reasonable and normal level. And that is, of course, still a topic. Will it happen and when will it happen? But we have -- in our thinking, we have said that in a long-term perspective, so in a 3- to 5-year perspective, we believe that it's reasonable to believe that COGS will go down and that we would be able to put a part of that on the bottom line. So that's the core assumption. So that's the way that we look at that. I don't know, Lars, if you have any supporting comments.

I think what I may add to this discussion is that the target we have of being around 20% to 21% EBIT margin, if you look at old Royal Unibrew from before we made the acquisitions in Norway and Sweden that gave us different types of businesses, those businesses are clearly, if you just take out the inflation impact on the top line, close to 20%. And for us, it's extremely important that we continue to have a target that is high margin because it gives us a lot of robustness and high cash-generative businesses. And then we've acquired some businesses that are different in nature from what we've had before, where there's more trading business. That's an extremely high ROIC. So the invested capital is very low on these businesses. So that, of course, makes the target slightly more demanding. So I would say, I think that the philosophy for Royal Unibrew to be a high-margin business is still ingrained and the businesses that were high margin before are still high margin. So we haven't changed the way we run these businesses. We put a big stretch on ourselves in terms of the new acquisitions that we bought with low margins and to get them back to up to 20%, that is a high task. So of course, it's something that we are aiming to do because we believe that high margins is important. Of course, it is a demanding task when we dilute the margins with many acquisitions.

Now we're going to take our next question. And the next question comes from the line of Thomas Lind Petersen from Nordea.

Two questions from my side. Regarding the International division, then you are saying here that the markets in Africa stabilized. Can you maybe expand a bit on what exactly you mean by stabilized and perhaps the run rate into Q3 here, how is that doing? Then the second question is on the integrations, especially Norway and Canada. If you can also please give an update on how they are performing and maybe an updated time line here also.

Thank you, Thomas. Yes. On the International side, we have, of course, in Africa, I would say we have enjoyed almost, say, 5 years in a row without having any larger turmoil in the region. But we have had 3 markets -- 3 of our big markets being hit simultaneously. And what we do see is that some of that seems to be stabilizing. That's mostly the political scenery. That means that on the [ coups ] that have been tried or is still relevant in the countries, the situation around those have stabilized, and that means that we can start to sell again in the markets. And the first month where we have seen sales-out numbers from our partners seems to be in line with what we did last year at the same time. But it's still, of course, a vulnerable situation. I think what we will still struggle with is a lack of FX and a depreciation of local currencies. So there are some of the markets that will be with higher fluctuations than we normally have. But if we look at our top 2 markets, those seem to be back on last year's levels going into Q3. When it comes to integration, and in particular, you said on Norway and time line. So our time line, the most important time line that we are working on for Norway is the implementation of SAP. And we still foresee that, that will happen with an implementation during next year. If we don't hit it, I would say, for April, we will do it after the season because we don't want to have any interference from IT-wise during a high season. So I think the likelihood is probably that we would do it just after the season and thereby be live some way early autumn. So that's the biggest piece of the Norwegian integration. The rest is on track. Also the IT is on track, but the rest is on track compared to what we expected. On Canada, we are on plan and that means that we are now migrating the biggest region in Canada, Ontario, into local production. So we're doing that as we speak now. And that means that we would lose destocking short term because the local lager board, they are selling all of the old SKUs out before they stock up with the new ones. So there will be some months of fluctuations, but sales-out is solid. And then we will start harvesting all the logistics synergies and the commercial synergies thereafter from, I would say, late Q4 and then into next year. So the full year effects of the Toronto in-sourcing will be from the 1st of January to be realistic from a bottom line perspective. So that's on track.

[Operator Instructions] Now we're going to take our next question. And the next question comes from the line of Soren Samsoe from SEB.

Just a follow-up question on the Hansa Borg acquisition. There doesn't seem to be any earnings contribution in the first half, as we talked about earlier. But could you maybe say -- I mean, this is pretty far from the DKK 210 million normalized EBITDA contribution you guided when you made the acquisition. Could you try to quantify how many integration costs you have taken on this in first half? And if that would be a similar amount in second half of the year? And then also, what other differences there could be in Norway in the second half versus first half? And then finally, if you can maybe talk a little bit more about the synergies we can expect to come in from this acquisition?

Yes, Soren. So I think priority #1, 2 and 3 in Norway is about pricing and it's all about pricing to make that right. And when we get, I would say, the pricing in order, it is much more like a normal business with the earnings that we acquired. So that is what we are working towards from a commercial perspective. And then thereafter, we are trying to get some of the Royal Unibrew thinking on multi-beverage into the business. There's a lot of cross-selling opportunities in all channels. We have launched energy drinks. And if we look at the market share numbers in Norway, even though that is still small, we're the only one -- apart from the 2 big brands in the market, we are the only one that is actually growing from a brand perspective. So we -- and that's, call it, integration cost. That's the kind of cost that you would foresee here. There's nothing big in the first half or in the second half here. It's -- yes, it's, I would call it, normal course of business. So it's not something that you should think about. What you should focus on in your thinking around Norway. That's about getting pricing right. That is all what it's about. And then, of course, keeping costs in control so that we are -- that we run an efficient machinery.

Okay. Okay. So we should expect a big delta in the second half is what you're saying. And then in terms of the financial expenses, you guided for '23 yesterday, but also we have some acquisitions coming in. Could you maybe give us a little bit of guidance on '24, what will be the all-in interest rate once the acquisitions are included? And also how much of your debt currently is variable versus fixed?

Will you take the interest question, Lars?

Yes. So we have hedged a part of our debt [indiscernible] of this year. And it's clear that the share of our debt that is hedged, of course, goes down as we increase our debt with the acquisitions. So we have more and more floating interest costs. So we are paying -- the majority of our debt is in Danish kroner or euros, and we pay the market standard rates on that. So I would say the interest cost will go up for us as long as the short-term interest rate goes up. And as our debt increases in the remainder of the year due to Vrumona and the Italian acquisition. And of course, the interest cost for next year is you can add a normal margin to the -- if you look at the additional debt we will get next year, you can add a normal margin on top of a euro interest cost and then you'll get the effect from that.

Okay. And then finally, a question on the working capital. The positive changes in working capital in the first half, maybe just give us a little bit more color on that so we know sort of what to expect for the second half working capital development?

I think the working capital seasonality follows our normal path. And so if you think about last year, we had some big moving parts in our working capital due to the big cost inflation that we saw. So there was some moving parts in there. So if you look at the full year of '23, you should expect a normal pattern, sorry if you go back to the patterns that you saw before the inflation hit us. So we don't expect that there will be a massive impact on the full year in terms of working capital. We had very high inventory as we went into '23. And of course, it would be nice to get that a little bit down. But on the other hand, we have capacity constraints in our system right now. So we need to build some inventory for the high season. So do expect the normal patterns. There are no significant movements in terms of payment terms to either suppliers or our customers.

There are no further questions, and I would now like to hand the conference over to your speaker today for any closing remarks.

I'd like to thank you all for your participation and good questions, and we look forward to continue the discussion after this call. So have a nice day.