Oatly Group AB

Good morning. Thank you for joining us on OATLY's 2021 inaugural second quarter earnings conference call and webcast. On today's call are Tony Peterson, Chief Executive Officer, Peter Berg, Chief Operating Officer, and Christian Hanke, Chief Financial Officer. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements. Please refer to the company's final perspective filed pursuant to the Rule 424B3 on May 21, 2021, and other reports filed from time to time with the Securities and Exchange Commission for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note on today's call, management will refer to certain non-IFRS financial measures, including EBITDA, adjusted EBITDA, and adjusted EBITDA margin. While the company believes these non-IFRS financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or to substitute for the financial information presented in accordance with IFRS. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, OAT was posted a supplemental presentation on its website for reference. It's now my pleasure to turn the call over to Tony Peterson.

Thanks, Katie. Good morning, everyone. It's great to speak with you today on our first earnings call as a public company. On today's call, I will briefly review our second quarter financial highlights, provide an overview of our business performance during the quarter, including the continued strong momentum for Oatly and the OAT category. and reiterate the key reasons we believe Oakley is uniquely positioned for long-term growth and to be the leading dairy alternatives brand globally. Peter will provide an update on our global manufacturing capacity footprint, and Christian will review our financial results in more detail before we open the call to take your questions. Now 2021 represents the most transformational year in our history, with the completion of our successful IPO in May, which has provided us with the capital to fuel new production capacity globally, as we scale our business across three continents to meet the robust consumer demand for our leading brand. We are appreciative of the support from our investors and look forward to this exciting journey together. We continue to invest heavily in our business, establishing structure, personnel, innovation, capabilities, and partnerships to maintain and grow our category leadership position. We are incredibly pleased with the opening of two new facilities in Auburn, Utah and Singapore. This year marks the first time We will have local production in Asia, and we recently doubled production capacity at our facility in Glycigan, Netherlands. We're also excited to open our second manufacturing facility in Asia later this year in Manchang, China. We're presenting a tremendous opportunity for our future growth, and we expect to gain increased operating efficiencies, reduce the environmental impact, and increase profitability as the region begins to reduce production reliance on EMEA. We are incredibly proud of our global team's operational execution and the continued strong growth in both new and existing customers. All of this is quite remarkable to accomplish at any time, and we are doing it on multiple continents during global pandemic. As we discussed during the IPO, we continue to prioritize growth investments over profitability in the next few years to best position Oakley to serve customers and consumers alike, to focus on case, nutrition, sustainability, transparency, and trust with a strong emotional connection to our brand. We believe these priorities are critical for accelerating conversion from the global dairy market, which we estimate to be worth approximately $600 billion in the retail channel value alone as of 2020, with a large food service footprint and growing e-commerce opportunity. Our record all-time high second quarter revenues increased 53% to $146 million from the second quarter last year, reflecting the strength of our diversified business across multiple geographies and sales channels, as well as the momentum we have in the global market. This further provides evidence of the continued consumer migration away from traditional dairy and the conversion to plant-based alternatives, including oatmeal. Our finished goods volume was 106 million liters, for the second quarters compared to 74 million liters for the same period last year, an increase of 43%. However, global demand for O3 products continues to outpace our supply. Capacity constraining our growth in the second quarter and certain COVID-19 and startup manufacturing headwinds impacted our revenue by approximately 12 to 14 million US dollars. Importantly, these are behind us. and we are expanding global production capacity every month to support our long-term growth. Again, I can't tell you how pleased I am with our achievements. The scale at which our team is executing and achieving strong results is impressive. And as we continue to scale, we have significant opportunities to satisfy unmet demand and leverage our brand success to expand across geographies, sales channels, and product categories. June was the highest production month in the company's history, and we have started off the third quarter strong in July with a consecutive record-setting production month. As Peter will elaborate on, this is a trend we expect to continue and gives us confidence in our 2021 outlook for revenue to exceed $690 million and increase of greater than 64% year-over-year, representing an acceleration in our rate of growth in the second half of 2021 from the first half of 2021. For those of you new to Oakley, I will take a little more time on this first call to provide an overview of our business model and global growth strategy. We launched the world's first oat milk product in 1995 and been the only company focused solely on liquid oat technology for more than 25 years, working to put forward the best possible version of milk. Research had made clear that an estimated two-thirds of the global population cannot process calcium due to lactose intolerance, according to Lancet. Through our commitments to oats, we have developed a proprietary oat-based production technology that leverages patented enzymatic process to turn oats into nutritional, great-tasting liquid products. More than 95 patents filed and pending are supplemented with protected by three decades of production craftsmanship, commitment to continuous innovation, and of course, sustainability in our consumer-centric brand. Our mission and core belief in driving societal shift towards plant-based food systems unifies our company in our quest for purpose-driven growth. As humanity faces massive challenges of climate change and lifestyle disease, our mission is even more relevant and powerful. What we do is to inspire people to make small changes in their lives that are beneficial to themselves and the planet. Our in-house creative team creates resources you have emotional bond with consumers who are already becoming more health conscious and more environmentally conscious. Our approach has turned out to be incredibly successful, driving a revenue trigger of 82% from 2018 through our second quarter ended June 30th, 2021. Sanjay's dairy penetration of dairy retail sales globally is only approximately 3% have grown rapidly. Based on our consumer insights, we found that 35 to 40% of the adult population is now purchasing dairy milk alternatives in our key markets, indicating that the penetration and familiarity with the category is high, creating growth opportunities from increased frequency and usage. Nearly 70% of plant-based milk consumers have joined the category in the last two years in our key markets. This conversion demonstrates the accelerating trajectory of the category and growth potential from further penetration. The oat category is rapidly gaining market share and surpassing other crop categories in our key geographies, with Oatly helping to accelerate the overall oat and non-dairy category growth of active markets. We believe a majority of the market is wide open for the taking, and at Oatly, we're approaching a major tipping point of conversion to plant-based alternatives, and this creates a significant runway of long-term growth. We have proven global significance with commercial success in more than 20 markets across multiple channels and segments, including retail, food service, and e-commerce partners. The range of our growth and success is one of our most impressive accomplishments, and we expect it to continue to fuel our growth versus the competition. As of June 30th, 2021, our oat-based products were available across 65,000 retail doors and over 60,000 food service locations, including coffee and tea shops. Year to date, we've added more than 30,000 total doors across all of our sales channels globally. with additional upside in all of our key markets. And our products are sold through a variety of channels, from independent coffee shops to continent-wide partnerships with established franchises like Starbucks, from food retailers like Target and Tesco to premium natural grocers and corner stores, as well as to e-commerce channels, such as Alibaba's Tmall. Spending new markets, we use a food service net expansion strategy that builds awareness and loyalty for our brand through the specialty coffee market and drives increased sales organically through retail and e-commerce channels. We take this strategic and deliberate approach in all of our markets to build consumer demand organically via trials in food service. And then expanding into other channels, has positioned us to be a category leader, not only the oat and plant-based category, but also within the broader dairy category. We have tailored this strategy in many successful international market launches, including the United Kingdom, Germany, the United States, and China. Our brand has continued to excel on the scale, as evidenced by the following market statistics. For the last 52 weeks, and for the latest July 2021 refresh, according to Nielsen and IRI data, Oatly contributed the highest amount of sales growth to the dairy alternative strength category across the key markets in the UK and Germany. And we're the number two in the US and Sweden, only as a direct result of our supply constraint. This is in line with what we expect in near term as we ramp up added capacity in EMEA And our Ogden Utah facility increases capacity. In the UK, Germany, and Sweden, we are the highest-selling brand in the oat category by retail sales value, which is the largest category within dairy alternatives in all these markets. In the U.S., we are the second-selling brand for the last 52 weeks in the oatmeal category, which is the fastest-growing category by far in dairy alternatives. In the U.S., Oakley has the highest velocity skew and highest dollar per TDP or total distribution points of all brands in the total dairy category, dairy including cow's milk, according to Nielsen XAOC for the last 12-week period and the June 19, 2021, excluding private label. Based on the same XAOC and Nielsen data, we're the only dairy alternatives brand in the top 10 fastest turning milk skews for both traditional dairy and plant-based milk. And we have two skews of the top 10 skews including our original and full-fat 64-ounce. This illustrates the strength of our brand at retail and the halo effect from our multi-channel distribution strategy. Any recent pressures on our market share velocity measured channel is expected and directly correlate the capacity constraints and lack of inventory to fulfill demand across sales channels. As we've seen in the past, once supply improves, we can increase velocities and growth as well as backlog of orders to fulfill. Keep in mind, we have accomplished a growth in measured channels while having to prioritize ship rates for existing customers with only very limited distribution expansion in 2021, with strong demand for increased oil growth. Oakley is one of the most profitable brands for retailers in plant-based milk, with a winning combo of premium price points and velocity, according to Milton and total US data for the 12-week period end of June 19, 2021. According to SPIN, for the last 12 weeks and July 11, 2021, we were the number one oatmeal brand and the number one velocity plant-based meal brand in terms of dollar sales. This continued growth in the position is impressive, considering the natural challenge where we first started distribution in the U.S. Oatmeat drives the vast majority of the total dairy alternatives category growth and is quickly taking market share, up to approximately 30% market share for the same time period. This leads ex-AOC Oatmeat market share by over 10 percentage points. Now keep in mind, in the U.S. approximately 50% of our sales are generated in the food service channel and 50% in the retail channel. In total, only approximately 35% of our sales in the Americas are represented in the mastered sales channels. For example, we also have strong presence in the natural channel, which is not fully captured in the Nielsen data. And we are strategically building distribution in the convenience store channel. Our most mature market, 10% of our sales are in the food service channel and 90% in the retail channel, of which approximately 80% are recorded in measured sales channels. So while we track the measured sales channels across geographies, it's not fully representative of our regional or total revenue results, specifically in the US. In terms of food service, We generated strong growth in the U.S. during the quarter. Last year, we shifted volumes away from food service to retail as a result of COVID-related on-premise cultures. This year, we've been able to strategically increase sales back into food service to drive consumer trial and brand awareness, which helps us create an acceleration and conversion across all sales channels, not just food service. We're very pleased with our successful launch and growth in Starbucks as their exclusive oat milk brand partner. Growth of oat milk has exceeded both of our expectations to date. For example, we aligned on an estimated volume per month and have consistently been shipping double the original projection. This is a result of the incredible consumer demand and accelerating rate of conversion from dairy and other plant-based alternatives to oat milk, generating exponential growth. This is exciting for us because as our capacity increases in the second half of this year, we will be back to fulfilling 100% of the oat milk needs this fall. We are currently providing two-thirds of the volume, and this continues to grow. Starbucks is a strong collaborative partner, and we look forward to growing with them across existing and new geographies. Together, we're able to reach many more people with open beverages. And in doing so, we can continue to do great things for the planet. Focusing on Asia, our growth in this region demonstrates the effectiveness of our proven multi-channel expansion strategy. We have built a new generation of plant-based milk consumers in Asia by converting traditional dairy milk drinkers to Oakley and by attracting new drinkers to the category altogether. We successfully entered the Chinese market in 2018 through the coffee and tea channel, which we have since scaled nationally to over 13,000 doors at the end of the second quarter of 2021. The awareness and trial achieved in the specialty coffee and tea channel was critical to educate the market about plant-based dairy and establish our leadership in Asia. As a result of the consumer excitement that we built around the Oakley brand, we were able to rapidly scale our regional presence through a strategic e-commerce partnership with Alibaba's Tmall and an exclusive branded partnership with Starbucks in China. Even a very competitive marketplace with limited supply, we continued to maintain our market-leading position on Tmall, and with increased revenue in Asia, 333% from 2018 to the last four months and the June 30th, 2021. A team in Asia successfully added many new food service and retail wins the second quarter, including brand partnerships where our oat milk drinks and other oat-based food products are sold together, including Oatsburg in a key coffee chain customer. That's just one example. This is an exciting development that demonstrates the strength of our product portfolio across multiple categories and the increasing consumer appetite for Oatly, proving our brand's ability to travel where consumers choose to shop. A few additional highlights in Asia during the second quarter include we expanded our partnership with McDonald's in mainland China, and we launched a partnership with K-Coffee in KFC in mainland China. The retail sales channel has only been a low single contributor to our growth, and our team has recently achieved important customer wins with a tremendous upside for future distribution growth in new and existing customers as we scale our local production capabilities later this year and more meaningfully in 2022. Customers are Walmart, RT Mart, On the convenience store side, we launched an expanded distribution nationally in 7-Eleven with both retail and the pay counters, and also we added Metro Cash & Carry, and in the first quarter, we added Sam's Club. This is a strong breakthrough in retail distribution for us in Asia, and we're already seeing growth in velocities, demonstrating the continued success of our multi-channel strategy and ability to drive growth organically. Conversion across sales channels from food service to retail and e-commerce occurs at the highest rate in Asia, and our team is doing an excellent job to ensure our products are available for Asian consumer shops and consumer plant-based products. Looking ahead, we expect to drive continued industry-leading growth and strong financial performance through further expanding and executing on our existing strategies. We have a tremendous opportunity to accelerate Oakley's brand awareness consumer trial. For example, in the U.S., our household penetration is less than 3%, according to Milton panel data. This represents a significant runway for growth in not only the U.S. as we add production, but globally as we expand in both existing and new geographies. In each of our markets, we can fuel our growth through distribution, velocity, market share gains, especially if we improve field rate, which today on average are at only approximately 70% on a global basis. Just improving our field rates alone will generate substantial incremental revenue for our business. We are accomplishing this through investing in global production capacities to capture the immense consumer demand we have today and well into the future. And we have a proven, disciplined, and thoughtful multi-channel strategy that we believe sets us apart from the competition since we're already building our brand successfully across three continents with a tremendous amount of white space to add new markets. In the second quarter, we added new countries with distribution in Switzerland and Ireland. Today, only Sweden and Finland carry out its full product range. we will look to continue to strategically roll out our existing product portfolio across global regions and pioneer new product categories with innovation. I've already mentioned the early success we had in China, and the U.S. is another great example with a recent strong contribution from frozen and okras to our sales. Food products now account for 10% of our total U.S. sales today. And finally, in terms of our core ingredients, we have contracts, and supply in place to grow revenue at the rate we expect for 2021 and beyond. In summary, we believe Oakley is incredibly well positioned for long-term global growth. We believe the fundamentals of our business are stronger than ever, and consumer demand continues to accelerate, and we are increasing production capacity globally to meet that growing demand. Before I turn the call over to Peter, I would like to address the report published last month by a third party and an associated publicity campaign attempting to plant doubt about our company. While we believe the report to be false and misleading, if someone makes an allegation, it is our responsibility to take it seriously. And we did. A special committee of our independent board of directors reviewed the report with the help of independent legal counsel and forensic accountant. The special committee has completed the review, and I'm pleased to say that we continue to fully stand by the accuracy and efficacy of our reporting. I will now turn the call over to Peter.

Thanks, Tony. I will start by elaborating on how we are increasing production capacity globally. Production capacity has been a major constraint on our growth. and we have made substantial investments to scale our production capacity and address supply shortages due to the massive demand for our products globally. We believe a significant acceleration is underway for Dairy Alternative. Oatly is well-positioned to continue to generate strong growth based on these compelling industry tailings and our unique brand positioning in more than 20 countries globally. As Tony mentioned, approximately 60 to 70% of plant-based milk consumers joined the category in the last two years. Today, we utilize a total of five self-manufacturing and hybrid facilities globally. These include two self-manufacturing and three hybrid facilities, as well as co-packing facilities. We have four factories planned or under construction. In 2019, we opened one production facility in the United States and one in the Netherlands. In March 2021, we opened our second U.S. facility in Agda, Utah. This is our first self-manufacturing facility in the region. As you think about capacity ramp, it takes between eight to 12 months to reach full production. In the first quarter of this year, we also completed our planned capacity build out in the Netherlands, giving us the ability to produce an estimated 300 million liters and increase from 150 million liters of finished goods capacity previously. In Singapore, We now have a hybrid facility representing our first local production available in Asia. This is an important corporate milestone. The facility is estimated to produce 75 million liters of annual finished goods capacity at full production. To date since 2018, we have been shipping our products from Europe to support the growth in Asia. We are excited about the operating efficiencies we expect to gain from our new Singapore facility, along with our own self-manufacturing facility, which is on track to open later this year in Machan, China. We expect our EMEA manufacturing, combined with our two facilities in US and two in Asia, to help us achieve approximately 1 billion liters of finished goods capacity by the end of the calendar year 2022. This represents a 200% increase in our production output from the end of 2020. In addition, we continue to expand capacity of our existing facilities, and we are currently in a planning stage to open additional facilities in U.S. and U.K. in 2023. These two facilities are estimated to add an incremental 400 million liters of finished goods from 2023 to support the demand for our products globally. June and July this year represent our highest consecutive production months in the company's history. We expect a similar trend as we progress through the third and the fourth quarter of this year, which support our strong revenue outlook for 2021. As we grow, we believe owning and controlling our global operating footprint is paramount to addressing the significant consumer demand for Oatly products. We expect our planned CAPEX investment in self-manufacturing, will expand our margin profile. Self-manufacturing enable us to apply our own standards of quality and sustainability and flexibility for innovation and to protect our IP while achieving significantly more attractive production economics as demonstrated by our fully owned manufacturing capabilities in Sweden. Using an end-to-end self-manufacturing model. We produce the oat base, mix and fill the product as a single oatly owned operated facility. We supplement our own manufacturing facility with a diversified network of deeply vetted third-party co-manufacturing partners to help us drive growth by providing the necessary speed and flexibility to help us meet consumer demand commence pilot projects, and support new product launches. When we utilize a co-packing model, we transport our oat space through tanker trucks to our strategically chosen third-party filler for mixing and filling. When we utilize a hybrid model, of manufacturing, we transport our oat base through pipelines to a physical adjacent plant operated by a third party partners for filling and mixing. Our long-term goal is to have 50 to 60% of our total volume to come from self-manufacturing, reducing co-packing to 10 to 20%, with 30 to 40 from hybrid manufacturing. For the first six months of 2021, self-manufacturing was 20% of our total volumes compared to co-packing at 53% and hybrid at 27%. We expect to drive profit growth through increasing our self and hybrid manufacturing model, as well as localizing our production footprint, which will improve our economics of scale and our service level. Giving a strong outlook for revenue growth, we expect to achieve greater operating leverage from our capital investment to help fuel our significant margin improvement across our global operations. Going forward, we intend to continue to invest in our innovation capabilities, build our manufacturing footprint, and expand our consumer base. all supporting our growth trajectory. I'll now turn the call over to Christian to review our financials.