Oatly Group AB

Greetings. Welcome to Oatly's fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Brian Kearney, Vice President of Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us today on Oatly's fourth quarter and full year 2022 earnings conference call and webcast. I'm Brian Carney, Oatly's head of investor relations. On today's call are Tony Peterson, chief executive officer, and Christian Honke, chief financial officer. John Christoph Flaten, global president, and Daniel Ordonez, chief operating officer, will also be available for questions. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future results and operations in financial position, industry and business trends, business strategy, market growth, and anticipated cost savings. 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 annual report on Form 20F for the year ended December 31, 2021, filed with the SEC on April 6, 2022, or our report on Form 6K for the period ended September 30, 2022, filed with the SEC on November 14, 2022, and other reports filed from time to time with SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statement made today. Please note, on today's call, Management Rule will refer to certain non-IFRS financial measures, including EBITDA, adjusted EBITDA, adjusted EBITDA margin, and constant currency revenue. 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 as a substitute for the financial information presented in accordance with IFRS. Please refer to today's release for reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Tony Peterson.

Thanks, Brian. Good morning, everyone. We appreciate you joining us to discuss the fourth quarter and full year 2022 results. Page five shows the key messages that I want you to take away from today. We ended fiscal 2022 with a solid fourth quarter and gained momentum as we moved through the quarter. We continue to see strong underlying demand from our consumers and customers. We've improved the stability and enhanced our global supply chain across the regions. As we announced last quarter, we have shifted to a more asset-like supply chain strategy and closer transaction with Yaya Foods for our Ogden and Dallas Fort Worth facilities in the Americas. Also, as you've seen in the press release that we issued this morning, we have received $425 million in secured and committed financing, which we believe is enough to fund our growth plans and reach financial self-sufficiency. With our operations now stabilized and our funding in place, the company is now well positioned to start playing offense in 2023. Let's dig into each of these points. On page six, you can see our financial results for the total company for the fourth quarter and full year 2022. I'll draw your attention to the fourth quarter constant currency revenue growth of 14% year over year, which was at the high end of our expectations. On our last call, we said that we would start seeing sequential margin improvements, and that's exactly what we saw this quarter. On a quarter-over-quarter basis, our gross margin improved over 1,300 basis points, and our adjusted EBITDA improved $22 million compared to the third quarter. Turning to page seven, where you can see that the category growth rate remained strong in the quarter, with oat milk growing at three times the rate of the total plant-based category. On the right-hand side, you can see that we've been gaining share in our core markets with a significant acceleration in the second half of the year. This performance has been driven by our teams refocusing on the execution fundamentals, increasing distribution and in-store visibility, building strong momentum of the enhanced portfolio, such as Chill and MiniBarista. BloodAid shows how we intend to continue this momentum in 2023. In short, EMEA will leverage its existing people and supply chain assets to expand further. We will expand the product portfolio from coffee occasions into all milk-based moments, including an exciting no-sugar alternative. As we said in the past, we will also look to expand our food service customer base. On this page, you can see the logos of several of our more recent customer wins. and we are very excited to partner with these high quality companies. Finally, we will be expanding geographically into adjacent markets. The geographic expansion will be executed in a controlled manner where we are leveraging many of our existing people and supply chain facilities to service the neighboring markets. This will allow us to move faster and minimize the need for additional resources. Turning to the Americas on page nine, we believe that the Americas continues to have significant upside relative to its recent performance. You can see on the left-hand side that the category had strong double-digit growth in the quarter, and we grew below the category. We're not satisfied with this performance. As we mentioned in prior quarters, this was largely related to supply chain issues, which impacted our ability to adequately supply the marketplace. That being said, we have a very solid base to grow from. Our velocities remain very strong despite recent price increases. There are still a multiple of the nearest competitors. On top of that, we improved our fill rates back to the mid-90s where they should be. This means that our supply chain is finally able to fulfill all orders and strengthen customer relationships to drive volume growth in 2023. Slide 10 goes a bit deeper on our supply chain improvements. You can see that our Ogden, Utah facility has now been stable for over four months. This stability has been a key driver of our improved fill rates. Also, our Millville, New Jersey plant has added an additional oat-based production line, which, once it's fully ramped, will double Millville's oat-based production and increase America's capacity by over 30%. This capacity expansion is enabled by our strategic alliance with our local hybrid manufacturing partner. We expect this stability and expanded capacity to be a critical part of unlocking the growth of our America segment and expanding our distribution, as well as drive significant margin growth as we consolidate co-packers. Turning to page 11, you can see the details of the Yaya Foods transaction, which we recently closed on March the 1st. We are very excited about this long-term partnership, which will convert our Ogden and Dallas Fort Worth facilities from self-manufacturing to a hybrid model, meaning that we will retain ownership and operation of our proprietary oat-based technology, and Jaya will be responsible for the filling portion of the production process. This partnership simplifies our operations, and it's expected to further support our growth. We are working hand in hand with the Yaya Foods team to develop a joint site plan for the DFW facility in order to optimize facility design and the roadmap to completion, which we expect to be in 2024 or 2025. For this transaction, all of our American manufacturing facilities will now be a hybrid model, reducing both cost volatility and future capex. We expect that having two strong co-packing partners will enable us to consolidate our co-packing network and drive margin expansion going forward. On page 12, we laid out America's plans and priorities for 2023, which is accelerating growth and continuous improvement of the supply chain. Now that the supply chain is back on firmer footing and we have the capacity to meet our estimated demand in the near to medium term, we can focus more on building awareness, trial, repeat, and ultimately brand loyalty We'll be looking to expand our distribution across all channels by adding new doors and customers as well as incremental use at existing customers. We'll also be stepping up our in-store promotions beginning in Q1 and gain significant visibility and competitiveness. To support this expansion, we'll be unleashing our creative department to amplify our culture-creating brand voice starting in late Q1 and early Q2. And while we're very happy with the progress that our supply chain has made to date, we're not done yet. Now that the local deal closed, our teams on the ground will now be focused on executing the transition to Yaya Foods, completing the DFW facility and ensuring that we fulfill our customers' and consumers' needs. Finally, we're consolidating our America's co-packer network to drive significant additional efficiency and absorption into the supply chain. Turning to Asia on page 13. As you all know, our Asia business has been impacted by the ongoing COVID-19 pandemic, and the Asia team has been managing through the volatility very well. Given the uncertainties and restrictions due to the virus, managing inventory has been a challenge. The team has had to adjust prices to be able to minimize inventory write-offs. You can see this in the sales bridge shown in the left-hand of the slide. However, the team has not lost sight about the longer-term health of the business. We have consciously continued to invest in marketing as we move through the year. In fact, we increased the marketing spend as a percentage of segments revenue from the mid-teens in Q1 to north of 20% as of Q4 to support the brand and strengthen our position and head of the post-COVID reopening. We concentrated our efforts in the retail channel, which, as many of you know, requires a higher level of marketing support. And on the slide, you can see an example of our presence online and in-store leading up to the Chinese New Year. This rate of marketing spend is well above what we would consider normal levels, and we expect it to migrate down going forward. The team also did a terrific job gaining distribution through the year. We increased the number of draws, and we're now sold in 150% in 2022 compared to 2021. Page 14 discusses how the Asia business is going to capitalize on those strong distribution gains and brand awareness. First, it's important to remind you that the Asia business now has local supply and is no longer as reliant on EMEA for product. And after a brief COVID-related disruption that impacted production in January, the production is stable. This stable local supply will be a key enabler for Asia in 2023. In 2023, the Asia segment will be focused on three strategies, expanding distribution, launching new products, and driving efficiency. We believe there are plenty of opportunities that remain in the coffee channel as well as QSRs, and we will be aggressively pursuing those in the year to come. We also believe that there is an even bigger opportunity to expand in the tea channel as well as e-commerce. And finally, We will be accelerating our entrance into the retail channel in mainland China this year. To enhance our distribution expansion, we'll continue rolling out our recent new product launches, such as our Tea Master product, which is our tea channel-focused item. We helped pioneer the plant-based ice cream category. We will look to capitalize on and grow our very strong market share in this category. We'll also be launching new formats and sizes of our existing products, For those who know the Chinese market well, you know that having the smaller format items is critical in order to really tap into the retail and e-commerce channels. We'll also be leveraging our co-branding for additional ready-to-drink items, including the item you see on the page. That is a co-branded Langfeng Yuan milk tea that we are very excited about. Finally, efficiency. The supply chain team will look for continuous improvement opportunities and use the additional expected volume to drive absorption. The team will focus on cost control, both in cost of goods sold as well as SG&A, while continuing to enable growth. Turning to page 15, as I mentioned earlier, we have received $425 million in secured and committed financing between the combination of private convertible bonds as well as term loan B. We've also signed a commitment letter to renew our revolving credit facility. We have support by our key anchor shareholders, and we believe that this fundraising will be enough for us to support our growth investment and enable us to reach financial self-sufficiency. Christian will take you through the finer details in a moment. So to wrap it up on page 16, our foundation for growth is stronger than ever. We have an enormous global market opportunity. our relative velocities remain outstanding, and we have enhanced and upgraded our supply chain, increased the agility of our organization, and we now have our financing in place. Trust me when I say that our team is excited to start playing offense in 2023. In 2023, we'll be focused on, one, accelerating our top-line growth across all segments, two, continuously improving the supply chain, Three, balancing growth and efficiency appropriately that we drive towards profitability. And four, and finally, delivering 2023 guidance. With that, I would now like to turn the call over to Christian to walk through the financials and guidance.