Oatly Group AB

Good day and welcome to the Oatley Second Quarter Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star 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 a touchtone phone. 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 Brian Carney from Investor Relations.

Please go ahead. Good morning and thanks for joining us today. On today's call, our Chief Executive Officer, Jean-Christophe Platon, our Chief Operating Officer, Daniel Ordonez, and our Chief Financial Officer, Marie-Josée David. 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 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 docs we have filed 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 statements made today. Also, please note on today's call, management will refer to certain non-IFRS financial measures, including EBITDA, adjusted EBITDA, constant currency revenue, and free cash flow. While the company believes these non-IFRS 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, OLE has posted a supplemental presentation on its website for reference. With that, I'd now like to turn the call over to Jean-Christophe.

Thank you, Brian, and good morning, everyone. Slide 5 has the key messages I want you to take away from today's presentation. First, during the second quarter, we continue to make good progress on strengthening the business and moving toward achieving profitable roles. You can see that clearly in our accelerated top line growth and improved margins, as well as how we are activating the brand in each of our markets. This continued improvement is driven by our progress on our 2024 strategic priorities of bringing the OZ magic to more people, continuing our calibration of resources, and a continued focus on executional excellence. Finally, given our solid performance through the first half of the fiscal year and an increased confidence in our second half performance, we are updating our full year guidance to be slightly more favorable than the previous outlook. We now expect constant currency revenue growth in the range of 6 to 10% compared to our prior guidance of 5 to 10%. Adjusted EBITDA in the range of minus 35 to minus 50 million compared to our prior guidance of minus 35 to minus 60 million, and capital expenditures to be below 70 million compared to our prior guidance of below 75 million. Turning now to our report card on slide 6. Here, you can see we continue to make good progress on our journey towards profitable goals. As you can see, total company volume accelerated to a strong 10% year over year increase in the quarter as we drop volume growth in every region. Growth margin increased sequentially by approximately 200 basis points in this quarter to 29%, which is 10 full percentage points higher than last year's second quarter. This is a significant improvement from the 11% margin we reported for the full year of 2022. We still have plenty of work to do to get to our longer term targets, but we are clearly making good progress. Similarly, we have made noteworthy progress on our adjusted EBITDA. In 2022, we reported quarterly losses between 53 million to 83 million. Today, we are reporting a quarterly loss of just 11 million and our fourth consecutive quarter of sequentially improving adjusted EBITDA. Slide 7 gives you an update on where the operating segments are on their respective improvement plans. Recall that we have been methodically applying the same transformation formula to each region. We started our work with our Europe and international segments. Our progress in Europe boosts our confidence in our approach. We then applied the same framework to our North America segment and we gained further confidence. And one year ago, we began applying the framework to our Greater China segment. As such, our European and international segments is the furthest along and it has been consistently driving profitable growth while reinvesting in brand building and innovation. The next phase for these segments will be increasing demand generating investments to drive accelerated growth via new markets and new occasions. Our North America segment has been making continuous progress and I am pleased to report the North America segment reported its full quarter of profitable growth in the second quarter. This segment will continue to focus on driving awareness, trial and repeat purchases across all channels while continuing to be disciplined on cost. As you all know, our Greater China business has been executing very well and it's important plan we announced just one year ago on our second quarter in 2023 on the E-School. After a year of focused execution, I am proud to announce the segment generative policies adjusted to the DPA for one month during the quarter. I recognize that one month is just one month but this is a clear sign the segment is moving in the right direction. And as we move forward, this segment will be balancing growth and profitability as we continue to execute on the improvement plan. Slide 8 is a reminder of the strategic pillars we are focused on in 2024. The first one is bringing the ultimate magic to more people. In Europe and international, we are engaging with new consumers in new occasions while also making very good progress in our geographical expansion strategies. In the US, we have increased our distribution compared to one year ago and in Greater China, we have seen positive test results with China's largest copy chain which is helping us expand our reach in a disciplined manner. Our second pillar is to continue to work on the calibration of resources across SG&A and the supply chain. We remain on track with both our previously announced SG&A consulting program as well as our previously announced exit of our manufacturing facilities in the US and the UK. And we are continuing to evaluate our options in our Asian supply chain. The final pillar we are focused on this year is execution of excellence. As I work with our teams across the globe, I am glad to see our culture is maintaining the disruptive mindset that made out the global phenomenon while also being increasingly disciplined on execution. Having both at the same time within the same organization is rare and therefore I believe our culture is truly unique. Turning to slide 9, where I want to bring these pillars to life a bit more. Our work on these three strategic pillars are not necessarily discrete projects that fold neatly into one individual bucket. Our partnership with ES Procycling is a good example of how we are executing on these three strategic priorities all in one project. First, this partnership is clearly focused on bringing the ultimate magic to more people by increasing awareness of our brand. ES Procycling is extremely focused on nutrition and we are excited to partner with them as their official performance partner. This partnership also demonstrates how we are continuing to be efficient with our results allocation to benefit all three operating segments. More specifically, let's reflect on the fact that ES Procycling is an American team that just finished competing in a European race that has a global audience. Finally, our team's execution of this partnership has been fantastic so far, announcing it right as the Tour de France media frenzy kicked off. And the ES team is executing as well. Richard Carapaz, who won the Diego Jersey for one day early in the race and then had multiple achievements later on, which has helped draw a significant amount of attention to the team and to our brand. Turning to slide seven, during the quarter we started reclaiming our why and our reason for being. We know we have a unique brand voice that can gain a lot of attention, so we decided to pivot from using our brand voice in a slightly less self-indulgent way, but to lead the conversation of the necessary transformation of our food system, reconciling health for people and the planet. We ran a campaign to urge European citizens to vote and to keep climate change in mind as they do so. At the same time, we engaged with thousands of coffee customers and consumers, offering free oatmeal coffee to the many who voted. We know our unique tone of voice gains attention, but we also know substance generates relevance. So, as we move forward, our brand campaigns will keep the unique of the voice and will be public down on substance, relevance, and demand generation so that we can drive forward our company's mission. Before I turn the call over to Daniel, I want to turn to slide 11 and give you our priorities for the second half of the year. The organization will be completing our work on the calibration of resources. We will continue to invest in demand generation to drive conversion and an acceleration of voice. As we invest, we will maintain cost discipline and ensure we are focused on high return investments. And finally, we will maintain our north star of driving the business towards structural, sustainable, and profitable goals. With that, my dear Daniel, over to you.

Thank you, JC, and good morning, everyone. I'll begin my discussion on slide 13 with our largest operating segment, that is Europe and international. This segment reported solid results in the quarter with constant currency revenue growth of 7.5%, approximately in line with quarter one. A adjusted EBITDA of 12.6 million was slightly below quarter one's level, largely due to seasonality and timing of emotional events and investment. On a -on-year basis, we were way much higher than last year's quarter two levels. On slide 14, you can see we're seeing broad-based strength in the segment. The retail side of the business grew 7%, and the food service side grew 9% in the quarter. As we have discussed in the past, we believe there is significant opportunity to drive solid, robust growth in the food service channel. On the right-hand side, you can see our established markets grew volume by a solid 6% in the quarter. These are markets where we have operated for many years, and they continue to drive solid -single-digit growth rates. The European markets where we have recently expanded drove a strong 24% volume growth in the quarter, so overall, we're executing very well. Slide 15 shows the retail track channel data for some of our largest new European markets. You can clearly see here we're driving the entire category. For instance, in Spain, which is the second largest plant-based beverage market in Europe, and in Belgium, which is the oldest and where the category was first created. In essence, only catalyzed growth once we enter a market. The same dynamics we experienced when we entered markets like the UK or Germany in the past. I have said it in the past, and I will say it again and again. There is a clear difference between the underlying trends of plant-based drinks versus oat milk, and then versus oatly. Turning to slide 16, as JC said earlier, we are refocusing our brand efforts on substance and demand generation in a thoughtful and strategic manner. Here you can see how our Europe and international segment has been using our unique voice to drive brand awareness while pushing forward on our mission to transform the food system, so people do not have to choose between their health and the planet. In Spain, we're driving awareness, engagement, and our genuine commitment to transparency via a campaign idea that Brian won't let me say, but that you can read on the slide yourself. As JC mentioned earlier, across Europe, we're running a vote VOAT campaign during the recent elections. And we recently launched in Mexico City, where we're excited to bring the Oatly Magic to. Slide 17 shows we are pairing these awareness-driving campaigns with -the-ground cultural experience events. A proven magnet for young generations that love the Oatly brand and can experience it via surprises, new collaborations, partnerships, and crossovers with other categories. For example, for five weeks this summer, we have a pop-up store in -les-Marais. We are collaborating with local culturally relevant Parisian brands. These involve our two most amazing product experiences, our soft serve and plenty of coffee with Oatly Barista. Likewise, in Shoreditch, London, we opened the Paradise Arches, our very own pop-up club in collaboration with Malibu, where celebrities and consumers can enjoy our Piña Obrada, the perfect summer treat of a Malibu-flavored drink or soft serve. And I can go on and on, city by city across Europe, bringing our unique brand to more people in the most surprising and culturally relevant way. Then, as you can see on slide 18, our brand uniqueness does not stop there. Selectively, but increasingly, we activate in store in the same provocative way, never transactional, always surprising. This slide shows just one recent example from Hamburg, where we built seven great pyramids in one of Germany's largest retailers. They become true tourist attractions with a hop-on, hop-off tour bus, postcards, and t-shirts, unusual, surprising in market executions with this event that drove a significant amount of consumer bus. You should expect more of this type of thoughtful, disciplined brand activity in each of our segments as we move forward. Turning to our North America segment on slide 19, this segment's quarter two results are a direct result of disciplined execution throughout the entire organization and staying true to our North star of profitable growth. We reported nearly 10% revenue growth, and I'm very happy to report the segment was profitable in the quarter. Slide 20 focuses on our retail performance, which is just over half of the segment's net sales. The strong 13% growth in measured channels has led to market share gains in Oatmeal of 370 basis points year on year. Our products are showing up well on shelves, both chilled and ambient, and our dollar velocities per point of distribution remain nearly three times higher than our nearest competitor. On slide 21, you can see the segment's food service sales grew nearly 9% in the quarter. Our strategy of nurturing our existing business while expanding into the higher growth, higher margin areas of the full service channel is clearly working. Turning now to the Greater China segment on slide 22, volume growth has accelerated to over 26% in the quarter, which translates into 20% growth when compared to two years ago. This strong growth was largely aided by the successful limited time offer test with China's largest coffee chain I mentioned on last quarter's call. To give you perspective of this, their size and potential impact, this test has already driven them to be the segment's second largest customer base on a year to date net sales. Over the coming months, we will be executing another test with them with a broader menu offering. Because this customer focuses on the lower price value tier, there is an impact to this segment's price mix line in the sales bridge. We are comfortable with this because of the clear positive margin impact this volume drives through fixed cost absorption as well as the visible momentum it generates. Let's discuss this segment's profitability on slide 23. The segment's adjusted EBITDA was just below breakeven in the quarter, and importantly though, it did report positive adjusted EBITDA for one month during the quarter. The right side of the page shows the trend in the segment's cost of goods per liter, the 18% reduction quarter over quarter, which is largely driven by the higher volume leading to in-growth absorption. So while we remain cautious and continue to monitor the consumer macro environment in the region, we're pleased with the progress so far in our Greater China segment. I will now turn the call over to MJ, Marija Sedadic.

Thank you, Danielle, and good morning, everyone. Slide 25 shows an overview of the quarterly P&L. We reported .2% -over-year revenue growth and constant currency revenue growth of 3.9%. Gross margin for the quarter was 29.2%, which is 1,000 basis points higher than a year ago. Adjusted EBITDA was a loss of 11 million, which is 41.5 million improvement compared to last year's second quarter. Overall, we had a solid performance in the quarter and the first half. Slide 26 shows the bridging items of our total company quarterly revenue growth. Volume grew .6% and price mix was a .7% headwind for .9% constant currency revenue growth. Current exchange was a headwind of 0.7%, resulting in a .2% total revenue growth for the quarter. Slide 27 shows the revenue bridge by segment. JC and Danielle's presentation outlined everything we are doing in each region to drive solid growth. And the overtake away of this slide is that each region drove solid volume growth as our strategic initiatives and growth plans continue to work. Europe and international continue to report solid growth with .5% constant currency revenue growth led by .7% volume growth. North America's revenue growth of .7% was driven mainly by the strong .3% volume growth. Greater China's .9% constant currency decline was driven largely by the actions we have taken as part of the segment's strategic reset plan we announced on last year's second quarter earnings fall. The sales headwinds in the quarter from the strategic reset were partially offset by sales to a new customer that is focused on the lower price value tier. This customer mix has a clear impact on the segment's bridge with a large volume increase and an impact on price mix. Since we will start to anniversary the reset next quarter, we expect greater China to report a more favorable constant currency growth next quarter. Since we are running another LTO with this large customer, we expect the bridging lines to continue to be impacted at least in Q3. Slide 28 shows the drivers of our 1,000 basis points year over year growth margin expansion. The biggest item is the 700 basis points increase driven by absorption and supply chain improvements. The .6% volume growth has drives it and sees our team continue dedication to removing costs and inefficiencies. Our net pricing and product mix improved margin by 240 basis points. This was largely driven by the actions we have taken done in greater China to eliminate low margin products. For an exchange increase our margin by 60 basis points, an inflation was roughly neutral to margin. Slide 39 shows the year over year improvement in our adjusted EBITDA was driven by roughly equal balance between gross profit and SG&A. As we move forward, we expect gross profit to be the main driver of profit improvement as the benefits of our SG&A savings program eventually roll off and we invest in demand generation. Slide 40 shows our adjusted EBITDA by segment. Each segment continues to report a significant improvement compared to the prior year while corporate was approximately flat as it contains the expenses related to some of the global initiatives that benefits all segments, such as the EF Processing Partnership -Pierre-Strauss mentioned. For the first quarter in a row, the sum total of the adjusted EBITDA of the three regions was positive. On top of that, I am pleased that our North America segment reported its first quarter of positive adjusted EBITDA and the Greater China segment was just below breakeven. It continues to be clear the strategic actions have been taking hard driving concrete results. Turning to our balance sheet and cash flow on slide 31. The biggest takeaways are that our cash flow remains on track with our plans. We remain fully funded and our liquidity remains strong at $335 million. The chart on the right is our quarterly cash flow breach. In the quarter, our total cash balance decreased by $66 million compared to Q1. Recall from our quarter, I said the cash impact from exiting our manufacturing in the UK and US will hit in different parts of the cash flow statement with some hitting free cash flow and some hitting elsewhere. In Q2, we had a net cash impact of $26 million related to this plant exit with $24 million flowing through free cash flow. Year to date, we are at the net cash outflow of $13 million and we remain on track for the exits to have no more than a $20 million total cash outflow. As I have said previously, improving our cash flow is a priority for me and our organization is focused on it. Slide 32 shows our updated 2024 guidance. Now that we have completed the first half of the year and slightly exceeded our internal expectations, we are increasing our guidance for our PMN matrix and lowering our guidance for capex needs. We expect constant currency growth in the range of 6 to 10% and we continue to expect foreign exchange to have a minimum impact. We continue to expect the second half constant currency growth rate to be stronger than the first half. As a reminder, starting in the third quarter, our Greater China segment will start to anniversary the strategic reset. We expect this comparison to benefit the segments -over-year growth rate in the second half. Also, as a reminder, in the fourth quarter, the North America segment will anniversary the large retail distribution gains, it shows from the shared reset which we expect to impact the segment growth in the fourth quarter. So I just said EBITDA, we expect to report a loss of between $35 million and $15 million in 2024. We have chosen to take a portion of our first half profit outperformance and reinvest it into branding activities, especially in our Europe and international segments. Finally, we expect capex to be below $17 million for 2024, which is $5 million lower than the previously expected. This concludes our prepared remarks. Operator, we are now prepared to take questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Our first question comes from Ken Goldman with JP Morgan. Please go ahead.

Hi, thank you. I wanted to ask a little bit about the cadence of pricing for the rest of the year. Obviously, there was a big deceleration in China in the second quarter. I know you had some comments about China in the back half of the year. Unfortunately, I don't know if I had a tough connection or it was a little tough to hear. But if you could just repeat what you said about China back half growth and potentially weave thoughts about pricing in that segment and really around the world, that would be helpful. Thank you.

Okay. How are you doing, Ken? Is Daniel here? I will start by addressing China in particular where your question is the most specific. Then I'll try to give you a color of the overall outlook on pricing, but perhaps in general. In China, we've made solid progress during the quarter, knowing that the quarter two -on-year net revenue growth does not fully reflect the progress because it's still impacted by the strategic resets we've executed over the past year. One area in which we made very solid progress this quarter, Ken, is the added addition of a new, very important customer that operates in the growing and important meat price tier segment. So as we said in the prepared remarks, we are not concerned about that. And this overall value creation from the SG&A resets, the higher volume and stronger absorption can be seen in the overall company margin performance and the segments EBITDA reported figures. So as we move forward again in China, we expect to solidify this quarter two performance held by a more favorable base as we have the last year's resets. So it's all the price mix and the effect of the resets overall. Then when it comes to general pricing assumptions, Ken, in terms of outlook in Europe, expect consistent -on-year solid performance across the P&L lines. And in North America, we expect consistent performance and a slight improvement driven by more favorable overall base and less headwinds, thanks to the new terms agreed with that important customer in food service we've mentioned before. So as you can see, I'm not addressing specifically pricing, but you can see the different mix volume growth effects and the overall equation, Ken, and hope that's okay.

That's helpful, thank you. And just a follow-up, if I may. You know, as you think about the ranges of your top and bottom line guidance, are there any particular risks or upside scenarios that we should think of that might be the most important, just as you were kind of crafting the updated guidance, any particular underlying factors we should think about that might lead to the higher or lower end?

Thanks, Ken, for the follow-up question, JC speaking. First, I think it's important to note that we are pleased with our performance in the first half of the year, and we have outperformed our internal expectations. Specifically on the top line, as we said, we have delivered the expected gains in distribution in both new and existing markets. We've made progress on selling in our new products to customers, and we've made progress as well, driving trial with consumers. On the bottom line, we've just shared with you the progress we have made, both on the supply chain recalibration as well as SG&A recalibration. So, the fact that we are seeing our actions, both on resource calibration and demand generation, deliver the expected results, has led us to update our guidance. Now, double-clicking on your question, how have we calibrated our new guidance range? Since we have been seeing good traction in many of our demand-generating activities, we've decided to take a portion of our first half outperformance and reinvest it into additional demand-driving investments to help further accelerate the growth in the second half and going into 2025. As a consequence, the unfavorable end of our NBDA range now assumes that these investments would not bring the full return we saw in H1. Thank you, Ken.

The next question comes from Michael Lavery with Piper Sandler. Please go ahead.

Thank you. I was just wondering if you could unpack the EBITDA thinking a little bit and maybe just any cadence? You've shown, let's say, for the gross margin, a pretty steady improvement. Should we just think about EBITDA the same way through the back half? And can you give us sense, and sorry if I might have missed this, but any updated thoughts on when total company positive EBITDA would be within reach?

Thank you so much, Michael. JC, again, good to hear you. I think let's be super clear of the front. Achieving profitable goals is and remains our unique North Star, and I am and we are fully committed to it. Clearly, as you have just heard, we are pleased with the significant structural progress we have made so far. It is pretty good. Exhibit one, gross margin increase, exhibit two, SGRE calibration that we have highlighted in our prepared remarks and just in our conversation with Ken. Having said this, we know we still have plenty of work to do to get to our longer-term targets, and this is exactly why we know, because we know we still have remaining progress journey in front of us with three segments in three different situations of maturity, execution, and performance that I don't want us to come into a specific date of reaching profitability. We want to continue to make the right decisions day by day, one after the other, to bring this business to profitable goals as quickly as possible, and I don't want us to make this decision for what is right for the business and not to lend on a specific date.

Okay, that's helpful. And then just to follow up on SG&A, I guess tied to corporate costs, you've talked about some of the SG&A cost savings, but corporate at least has been pretty flat. Is that the right expense level? Should we expect it to stay there? Is there any room for improvement going forward there? Or just how to think about what the SG&A impact is on that corporate line?

Yeah, sure. Hi, Michael. This is Marie-Rosée speaking. You're right. We mentioned that it's pretty flat compared to last year, but we also mentioned that it includes expenses related to some global initiatives that benefit all segments. So this is the takeaway of the quarter. Now, we continue to work definitely on SG&A recalibration. We have done some, if you recall, we have already shared that we have done two rounds of savings program. We continue to work on that, and we continue to deliver on a long-term target, as JC just mentioned. So corporate, we expect corporate to be approximately flat going forward.

So all the SG&A cuts are just in the segments then? Is it just that simple?

I did not understand the question. Sorry, Michael. Do that again? Well,

so yeah, so I guess at least where it nets out, if you're making these SG&A cuts, they really are within the segments and corporate costs are just kind of running steady. Is that the right way to think about it?

Yeah, absolutely. Over yes.

Okay. All right. Thanks a

lot. And the next question comes from Kalmil Jarwala with Jeffreys. Please go ahead.

Hi, guys. Good morning. I guess good afternoon, depending where you are. We're hearing a lot about the slowdown in away from home consumption at coffee shops and food service and across sort of the board. So as you think about sort of that incremental upside that you're reinvesting into the business, can you maybe just talk about is it in an effort to sort of bend the curve on what's happening on that side or is it more broad in terms of where you're spending it?

Kalmil, how are you doing? This is Daniel. Just to double-click on your questions, make sure I understand and I respond properly. Are you talking about the generalized market slowdown or are you referring to us?

Generalized market slowdown.

Okay. Thank you. Thank you for your question. No, I have to go back to not just to these prepared remarks but to the few last ones which we don't see such a slowdown for ourselves. We have consistently invested resources, both quality and quantity, across the three regions and we're pretty pleased with the progress we are making. You will recall significant growth in the channel, which I have referred in a few occasions for us. We have different layers within the channel, different sub-segments in which we balance both accelerated growth and profitability, margin and profitability. So we see a good picture ahead of us that you can see already in the numbers and the outlook is positive too. We will continue to invest on this because this is where we do bring the ugly magic. JC talks about it in every single remark. This is where the consumers experience the brand and we see a bright outlook for us, Kalmil. I hope that's helpful.

Thank you. Yeah, that's helpful. And then when I think about, or I guess when we all think about the exit costs, a lot of these sort of one-time cash or non-cash exit costs for things, are we largely complete or should we expect more over the course of the year?

So this is my Jose, very nice meeting you. In the preferred remarks, you saw that we have called out year to date 13 million out of the 20 million that we have announced a quarter ago, two quarters ago. So we have 7 million to go. Those 7 million will occur as we have already planned, which is through the end of fiscal 2025. So definitely we're on track and really nothing to call out here. Okay,

great. So nothing else. That's everything according to plan, I guess.

Yep.

Yep.

Great. Thank you.

The next question comes from Dara Mersenian with Morgan Stanley. Please go ahead.

Hi, guys. Just to follow up on Michael's question, any flavor on Q3 versus Q4 EBITDA progression, specifically in the back half of the year, just trying to frame the quarterly EBITDA progress as we think about your path to profitability? And specifically as you look out to 2025, I know you won't lay out goals today, but can you just discuss conceptually, are there additional cost savings you think you can go after for 2025, just after the profitability focus here in 2024? Thanks.

Thank you so much, Dara. Great to have you on the call, JC speaking. So first of all, broadly on your quarter, on quarter comparison, I think broadly you can expect Q4 being better than Q3. But of course, as you know, we will not be guiding by quarter. So that's the trend I want you to have. And just building on your second point, which is SG&A and building on what Marie-José has well explained earlier, first let's share our belief. Our belief is that in any business, the chase for efficiency should never stop. We are constantly and we always dynamically look for ways to become more efficient. It's our competitiveness duty of any business to permanently adapt and adjust and these supplies across the entire company. So that's what we will keep doing. Clearly, we are not trying to signal that we are planning new massive SG&A reductions. What we are saying is we want to complete our work on the previously communicated reductions. And then we believe that once this is done, we believe that our SG&A structure in total will be the appropriate size for the company. So more work to do, a mindset of permanent efficiency chase overall in the company at the service of our mission.

Great, thanks.

And the next question comes from John Bromgartner with Mizuho. Please go ahead.

Hi, good morning. Thanks for the question. Maybe first off, for Marie-José, in terms of the free cash, what was behind the provision that was recorded in Q2 and cash from operations? That line has been volatile the last couple of quarters and had a big impact on Q2 cash. I guess, aside from that, what are your expectations for cash burn in the back half of the year? And is it possible to see cash from operations turn positive at some point or is that still a little bit optimistic?

Hi, there. Let me just answer to the first one. Provision wise, we are talking about the legal settlements. We are talking about the severances. So this is the two big pockets. When it comes to our liquidity position, we remain strong in our liquidity position. We are at $335 million and our cash positions remain sufficient to fully fund our business plan. Now, if you look at what happened in this quarter, you have noticed as well the past quarter that we have called exceptional elements such as exiting our factories. Looking forward, those elements will not happen. So when you look at the way of how you want to model our liquidity, keep in mind that we had over the past two quarters some exceptional elements that faced up to $31 million that will not happen moving forward. This is what I can say. I'm not going to give you guidance on the phasing, but keep in mind strong cash, $335 million, exceptional elements as we speak. Definitely, what I want to say is that big focus on liquidity, big focus on cash for what we already discussed, which is improvement in adjusted EBITDA, which is improvement in networking capital metrics. As you notice this quarter, we have reduced as well our capex, so full capex management. I hope that helps.

Thanks for that. Then Daniel, in terms of your newer markets in Europe, in some of these markets like Spain, it's more of a private label market with smaller brands and sort of lacks a dominant branded leader. Then you have other markets like France where you've got one big branded company with dominant market share, and the influence of private label and smaller brands is comparatively lower. To what extent are you managing your entry approaches differently based on the different competitive landscapes in these markets? I'm curious how you're navigating that and what you're seeing in terms of the competitive response. Thank you.

Fabulous. Thank you, John. Good to speak to you today. One of my favorite topics. Listen, you're absolutely right to call out that we don't take any market as equal. As you have just seen, for instance, we just recently launched in Mexico. No market is alike. What is alike obviously is our model, which is proven to work in any of them so far. So I will put a spin on your question if you don't mind, but first by giving you an overall view about the new markets. We're really, really excited about the progress we're making. And we, as you can imagine, we thought long and hard about starting to show progress in these quarterly calls. Every city we land, we have now proof that the magic of the brand and how these markets are prepared to welcome only with open arms is really material. So that's number one there. When we are executing the model that I just called out, like in France, Spain, or Belgium, we are growing in triple digits. It's pretty impressive. And you see the impact. No matter how different the market is, it seems to be lifting the overall category growth to very significant levels, whether it's France or Spain. But I wouldn't categorize them as private label or not. That's what you may see in the numbers. The reality is we're looking at the level of maturity, which is totally different. The uptake in coffee space, which you cannot see in numbers in any market data, it's tremendous. And the speed which we also reach the number one velocity in the retail space in these markets is extraordinary. We are now the number one turning brand in Spain, France, and Belgium. It's pretty impressive. This is how we should look also at the expansion, which is we do it in a disciplined manner. We talked very briefly about this, but it's super important to us. We use efficiently the install capacity. And also we have a lot of overhead synergies in the regions. So we're pretty pleased. Then again, now back specifically to your question, I wouldn't necessarily name or tag Spain as a private label market. There are very, very important brands there. What there is not in Spain or Spain has been deprived from was a distinctive, disruptive brand that will drive the oat milk category as Oatly is doing today. And that's what consumers are enjoying. And that's why you see the Oatly brand growing as it is growing. In France, for instance, where the market is potentially so much stronger, you see some exponential growth rates because of the lack of maturity. The French population has been deprived of oat milk in general. And you see they are welcoming us with open arms. So pretty pleased. In a nutshell, the model seems to be working no matter what level of maturity of the market. The news value of the brand makes a difference, John. That's the headline that I would leave you with.

Thanks, Daniel.

This concludes

our question and answer session. I would like to turn the conference back over to Brian Carney for any closing remarks.

Thanks, everyone, for joining us. Feel free to send me an email and we can set up a follow-up call if you're interested. Thanks a lot.

Bye. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.