Oatly Group AB

Good morning and welcome to the Oatly Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. If you need assistance, please signal Conference Specialist by pressing this tie key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Brian Carney from Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us on today's call for Oatly's second quarter 2023 earnings conference call. On today's call are our Chief Executive Officer, John Christophe Platon, our Chief Operating Officer, Daniel Ordonez, and our Chief Financial Officer, Christian Honka. Before we begin, please review the disclaimer on slide three. During 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 of operations and financial position, industry and business trends, business strategy, market growth, and anticipated cost savings. These statements are made 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 documents we have filed with the 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 statements made today. Also, please note on today's call management will refer to certain non-IFRS financial measures, including EBITDA, adjusted EBITDA, and constant currency revenue. While the company believes these non-IFRS financial measures will provide useful information, 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 the non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Olli has also posted a supplemental presentation on its website for reference. I'd like to now turn the call over to Jean-Christophe.

Jean- Thank you, Brian, and good morning, everyone. Page five has the key messages I want you to take away from today's presentation. First, I'm very excited to be OT's new CEO because I believe OT has a significant amount of potential in both growth and profitability. In my time here so far, it has become equally clear that to realize our potential, we must continue to take bold actions. One bold action we are taking is initiating an improvement plan in our Asia business where we are refocusing our energy and resources on strengthening the core business to have a strong foundation to grow from. We expect this will enable us to adjust to the evolving post-pandemic environment and set this segment up for profitable growth. Another action we are taking is a further reduction of our overhead costs in both corporate functions and our Americas segment. This reduction will further increase our focus and agility as a company. Finally, while we are reducing our guidance for 2023 revenue growth, these bold actions keep us on track to reach our targeted growth margin for quarter four and positive adjusted EBITDA in 2024. So let's dig in. Slide six. outlines why I so much believe Oatly is a uniquely exciting company. We have an enormous sales growth opportunity in front of us as we look to revolutionize the food industry and convert consumers from dairy into plant-based. The underlying demand for the oat milk category remains strong, and Oatly is a key driver of category growth. especially in regions where we have sustained capacity, distribution gain, and bond-building investment. We also have a significant margin expansion opportunity in front of us. In full year 2022, we were at just 11% gross margin. This quarter, we are at 19%, and we believe we can reach our long-term targets of 35 to 40%. Finally, what makes Oatly truly unique is our mission and purpose-driven culture. Here, you can see the three pillars of our mission. Our employees and myself know when we come to work every day that we are working to make the world a better place. Slide seven outlines how we plan to realize our potential. First, we will achieve an appropriate balance between performance and purpose. We know that while performance without purpose is meaningless, purpose without performance is not possible. So for us to achieve our dual mandate of performance and purpose, we must have a stronger business before we are able to have a significantly bigger business. And to strengthen our business, we have instituted disciplined resource allocation decision processes that are driven by rigorous fact-based analysis. We have also increased regional accountability and aligned incentives accordingly. And finally, over the past year, Danielle and I have embraced the approach of hands-on, in-person management to ensure our teams have the support and resources needed to execute on our priorities and are able to focus on execution. Slide eight outlines where we are in this journey. If you recall, On our third quarter 2022 earnings call, we laid out a plan where we would prepare for goals, increase simplicity and agility, and ultimately drive profitability. This plan began with our EMEA business and our corporate functions. As you can see, our EMEA segment has been performing well since then, with strong and improving market shares consistently solid revenue goals and consistently positive adjusted EBITDA. We have now expanded this approach to our America's business, where we have stabilized and strengthened the supply chain, increased demand-driving investment, and steadily improved adjusted EBITDA. While we are not yet all the way to where we want to be, the consistent improvement is clear. Finally, we are expanding this approach to our Asia business. We have long-term conviction of the opportunity in Asia, and taking this action will help us capture the opportunity. This includes refocusing on its core business, improving the operating cost structure, and aligning incentives for the local management to focus on driving profitable growth. Danielle will provide additional details on our actions. Slide 9 outlines the cost savings actions we are announcing today. You can see that across the entire company, we are targeting to save approximately $85 million of costs by 2024. These savings will come primarily from non-people cost expense, such as fewer project-related expenses, and reducing our reliance on outside consultants, as well as, unfortunately, some eliminated jobs, including roles that we have not yet hired for. Importantly, though, we are not reducing our demand-generating advertising investments. Since we expect all of these savings to fall to the bottom line, we now expect total overhead in absolute value to decrease compared to both 2022 and 2023. Just to be clear, the $85 million of savings are calculated as a reduction in our forecasted 2024 SG&A, not as an $85 million reduction compared to 2022. We are being very surgical in this cost reduction. and we are not applying a one-size-fits-all approach. Each team has diligently evaluated what is necessary to drive growth, margin, and profit, and has then eliminated the rest. We strongly believe that this careful approach will ensure an appropriate level of support and investment in order to drive profitable growth. Turning to slide 10, Daniel and Christian will take you through our performance in the quarter in more detail, but I want to give you my perspective on our updated 2023 outlook. We are reducing our constant currency sales goals outlook to a range of 7% to 12% from the prior range of 23% to 28%. Approximately two-thirds of the reduction is driven by the Asia segment, with the reminder being driven by a more conservative outlook for the Americas. Our outlook for the EMEA business has not changed. We are maintaining our fourth quarter gross margin outlook as favorability in the EMEA business is expected to offset margin and win from reduced sold volume expectations in both Asia and the Americas. Importantly, we believe the bold actions we are taking across the business will keep us on track to achieve positive adjusted BBA in 2024 and enable our future sustainability goals. With that, I would now like to turn it over to our Chief Operating Officer, Daniel Ordonez, to give you an operational update.