Olvi Oyj Unsp/Adr

The Helsinki Distilling Company.

Welcome. You are in the right place. You might have wondered what was that video about, but we're today sitting here at the Helsinki Distilling Company in the city of Helsinki. And the reason for being here is that this year we're celebrating 10 years of whisky manufacturing in Finland in the first distillery that was opened after the prohibition. So we're quite proud of our heritage and our growing business here. But indeed today we've gathered here to talk about our first quarter results and our interim report for Q1. And thank you for those of you who have joined us here in person today and also for you that are joining online. So before we get to it, let's go through the usual disclaimers. So today, again, as in the past, we will refer to the future and thereby there's intrinsic uncertainty. So whilst we have every faith in the messages we're sharing, there is always that caveat to bear in mind. To most of you, we hope that we're already familiar, but Tina-Liisa is heading our finance and our Digi and IT part, and I'm Patrick, and I have the pleasure of supporting the business overall. But let's get to it, and let's have a look at the first quarter and a few things that stand out. So the performance which we believe many of you have already seen as we released the earnings already online a few hours ago are very much in line with our expectations and based on the initiatives we set in place and thereby we're pleased to see that the results are coming and following in line with our expectations. We also wanted to talk a bit about the operating environment. So of course the environment remains challenging There's all that geopolitical uncertainty prevalent that we're familiar with and reading in the news, unfortunately, on a daily basis. But beyond that, in our operating markets, there's also evolution, as always. And in this case, we're referring mainly to the changing tax environment. So we've seen in some of the Baltic countries already since January increased VAT. We received some news around the same topic in Finland this week, and that seems to be a prevailing trend. Beyond local legislation, we're also preparing for European legislation, be it around the packaging directive or then future evolution in, for instance, soft drinks taxing, which is both regional and local. What's nonetheless really reinsuring and something that we've been stating before and is worth repeating again this quarter is the prevalence, the strength, the resilience of our product portfolio. So having a broad portfolio of strong leading brands really is delivering dividends. So what you see is the performance was slight softness on the volume, good improvement on the profitability and solid demand. So we're not losing our shares, we're not losing the consumers. And this is really paramount as we navigate the year forward. I also wanted to talk briefly about people. So we brought that up before that people is central and our team is central to our performance. We did our biannual people survey in January, late January this year, and we have now received the results and gone through them. And we're really pleased about the increased level of engagement. So our team across the group remain engaged at an exceptional level compared with the industry average. And this has improved from last year's reading. So that's brilliant to see. And then finally, I'll refer to the strategy, which we'll come back to later on. But now we'll move into the figures from where you'll see more precisely what I just shared come to life through the numbers. And Tina-Liisa will take us through this section. Please, Tina-Liisa.

Thank you, Patrik. And welcome to this webcast and this event here on my behalf too. I will have three topics today. We will talk first the scrupleable performance, then segment performance, and then some main KPIs. In a group level, net sales and sales volume grew slightly compared to the first quarter last year. In total, it was a good achievement as the consumption is under pressure due to the lowered consumer purchasing power. But as Patrick said, Olli was able to keep its market shares on a good level. Group-level profitability improved almost 13% as the adjusted EBIT grew to 11.2 million euros. Good development in the profitability was supported by price increases and lowered cost inflation. EBIT grew over 600%. First quarter EBIT last year was affected by fine pating in Belarus. Then segment performance. First, I want to remind you that the first quarter is seasonally small quarter. Net sales represents about 20% and then EBIT about 15% of the whole year figures. In Finland, sales volume decreased slightly due to the planned and gradual portfolio changes, especially in beers. Net sales grew over 5% against the decreased volumes as sales value has improved thanks to the price increases. This helped us more than double our adjusted EBIT. At the same time, we need to remember that the first quarter last year was burdened by high-cost inflation, which we could not reflect on the customer prices back then. In 2023, we were able to start price increases in the second quarter. In the Baltic Sea, sales volumes and net sales remained on the last year level. Unlike in Finland, we were able to carry out the price increases already beginning of the year 23. Therefore, net sales growth against volume is not similar than in Finland. Even though sales volumes and the net sales remained on the previous year level, we were able to increase our EBIT by 13%. Thanks to inflation coming under control, improved production efficiency and targeted price increases. In Belarus, sales volume increased due to promotional sales. In local currencies, net sales grew by 11%, but because of exchange rate, net sales in euro decreased 5.4%. You can see the impact of exchange rate and promotional sales in the development of adjusted EBIT. It decreased by 14%, but in local currency it remained at the previous year level. Then what comes to withdrawal from Belarus markets? We unfortunately do not have new news. Olvi does not have permission to sell the shares. Business is continued standalone basis for now. We also need to remember that the business operations and the financial forecasting in Belarus involves high uncertainty. Then some KPIs from the first quarter. First equity ratio that remained on a good level. Then earnings per share that retained to the more normal level and were 43 cents per share. Last year figure was negatively impacted by fine in Belarus. You can see the same development in cash position or cash change. It returned to the more normal level. Last year figure was affected by change in short-term financing instruments. Cash change is normally negative in the first quarter because of the seasonality and because we are stocking for the summer season. Then investments decreased in the first quarter as we have informed earlier that the large part of the investments will take place in the latter part of the year and we will inform how those projects will continue during the year. Then the number of employees grew slightly and that is in line with our business development. Then in the first quarter, we finalized the calculations to green house gas emissions for full year 23. Related to sustainability, reducing emission is an important part of our planet agenda. We are happy to share that in intensity, which means emissions per liter is reduced 4%, which is more than the absolute value.

Yes. Wonderful. Thank you, Tiina-Liisa. So now then, let's look forward. So in terms of our guidance for this year, we're happy to read reconfirm our previous guidance or confirm that we're staying in the range as previously confirmed. So Q1 came in according to plan and thereby there's no need to change our forward-looking forecasts. We also wanted to take the opportunity to talk briefly about the revised strategy. So I'll share two slides. One is mainly as a reminder of the whole strategy and some of the key elements of it. And then perhaps more importantly, I wanted to share with you about what we've been doing so far this year and where our focus is on over the next months. So as a quick reminder on our overall strategy and the purpose indeed of our business, we wanted to remind you of the purpose first and foremost. So it's grounded really in the vision and the desire of our founders to have a positive impact on society. And some of you may recall in one of our previous updates, we shared that during the year of 23, if you take the full group volume and you divide it by four deciliter servings, we were present in the everyday lives, increasing the enjoyment of people's everyday seven million times a day. So seven million times a day, we were on the lips of consumers across our geographies. That's quite impactful. So we believe we're leaning in on the purpose of our founders. We of course also want to be the most wanted operator locally, across our markets, hence multinational. We spoke about the strength of our brands and really being able to present propositions that are familiar, of high quality and desired by the consumers in each of our operating markets and beyond, remembering exports, is really paramount for our success. So then if we look at the ambition level here on the chart, really growing our presence through these moments of enjoyment is one part of our promise. And the other part is then to reinstall the profitability to where it was before COVID and even beyond. Then we have three enablers and three drivers of our performance. And as it comes to this year, we're focusing on a few of them more so than others at the beginning of the year. So let's get to that. So when we look at what we've been sharing today, the topics that we've raised, you'll see them on the left hand here on the chart, the consumers being under pressure. There's an intensified amount of competition, whether it's between retailers competing for consumers or indeed business overall becoming more and more price sensitive. We noticed that our strategy is absolutely spot on. And we see the importance of continuing our journey around net revenue management, which we have started already by really making sure we've got the right tools and the competences and right focus in this space. Some of the results are starting to show already. Secondarily, strengthening our export efforts. That's a particular area of focus as we speak. We're also looking at non-organic growth opportunities in a very structured and prudent way. But importantly, the people. We spoke about the people power rating already. We're heading in the right direction that by no means that the job is done. For instance, in the Finnish market where we're sat today, we're going to run this month some training for line managers to make sure that we really treat our respective teams along with the values of our company, that we make sure that we're staffed appropriately, and that each and every one of us can show up at work as their full selves, feeling both mentally and physically safe. And then finally, a foundational enabler for all of this, leveraging data, the latest tools and processes to make sure that we can support all the evolution that we're doing across the various functions. So with that, we will continue executing our strategy and look forward to sharing the Q2 results in due time. So that was it from us in terms of presenting here today. But now we're very keen to hear if there's any questions from the audience, either online or here in the room. So we have some time, a few minutes or so, for a few questions. So please, moderators, audience, feel free to ask. Thank you.

Iris Teeman from Carnegie. You mentioned intensified price competition in the report. So where and from whom are you seeing it?

Yes, thank you for the question, first of all, Iris. And indeed, as I mentioned, it's broad-based. On one hand, it's between operators in the markets. Retailers are competing for footfall. They want to make sure that their door is moving faster than their competition, and thereby they're doing various activities within their operating space. On the other hand, negotiations on price are always tense, and more so today than before. In some markets, in Belarus, for instance, it was mentioned, we see increased volume on deal versus previous years. So it takes different forms, but it's on the other hand also very natural and part of our operating environment. But thanks again for the question.

And secondly, can you comment your development in Denmark? Basically, what have you done so far in order to improve profitability and what are your next steps?

Thank you. Thank you. A very important question indeed and an area of particular focus for us. So we have shared previously that we have taken sometime last year to revise the strategy and the local execution plan and devised a turnaround plan. And the local team is now at full steam executing against that turnaround plan. So if you recall the numbers from Denmark, as you can get them from the market, there was a significant improvement in 23 versus 24. And obviously our expectation is to continue on that journey to improve the strength of the operations there. And we're making good progress day by day.

Yes, and in the first quarter report, what we said about this Baltic Sea region is that all the countries were able to improve their performance compared to the last year.

Joni Sandvall from Nordea. Maybe continuing on the cost environment, it appears to be easing, so can we expect lower raw materials in 2024 and how this compares when taking into account maybe salary inflation coming in this year, so what's going to happen with the cost of goods sold?

You can start if you want.

Thanks again for the question. Indeed, inflation is slowing, but it's not going away. And we should recall that this is inflation on top of an already inflated base. So there's significantly higher costs than what the operations have been used with in the past. But perhaps you want to talk a bit about the landscape and this year looking forward.

As I said, inflation is slowing down, but the cost or the COGS has been remained in a high level. And that is the kind of the key issue to understand or key topic to understand that that there is no outlook that we could or we are going to go down from the current cost levels. In some elements there are for example energy that is coming down or getting easier The price is there but on the other hand there are then increases like the salaries for example that has increased a lot in the past years and there will be also increases this year.

Okay, thanks. Then maybe question on the product offering. You mentioned that there has been some changes in the portfolio. So what about new offering for the peak season?

We will continue to be a highly innovative and creative operator and live up to the expectations of trade by bringing new products to the market also going forward. So the references, they were really about pricing and portfolio optimization and management. There's room maybe to cut the tail to an extent, but it's really rather looking at the strength of our key propositions and making sure that they are both delivering on expectations, but also still affordable for the consumer. So it's a bigger picture, but we're not changing our DNA as it relates to being innovative and creative and bold even on that side. Thank you.

Okay, then maybe one topic on the Finnish political strikes during the Q1 and early Q2. So I think you mentioned that you have not incurred any major costs on this, but how have you been able to prepare your inventories ahead of the peak season? Because I think past years there has been some shortages during the summer, so can you comment anything on this?

Thanks for the question and we won't dwell on politics per se, but suffice it to say that we're not immune to the impact of the strikes and it takes various forms, whether it's containers being stopped at the in the harbors and thereby not reaching consumers, whether it's impacts on distribution or, as we saw at the end of last year, even production. But during this period, this first quarter, we've been able to run production at full steam and we've been able to, importantly, as you bring up, build our warehouse stock ahead of season. So we're looking forward to this summer, as always, The second quarter is the most important quarter and we believe that we're well placed to deliver against orders in an increasingly successful way.

Okay, thanks. And last one on the investments. The large three-year program is coming now and starting in H2. So can you give any indication of the capex level now for the 24? Maybe you want to comment on that.

There's no changes in plans. So basically the preparation of these investments has proceeded as planned earlier. And we have announced that these both major investments, which relates to our warehouse and the picking system there, and also this new brewery in Finland, that the total amount was about 45 million and that's the estimation still and also the timeline has not changed. So basically we are going forward and preparing the improvements on our operations.

Okay, maybe follow up on this. Due to the new packaging directives that are proposed, would this mean some changes on the investment? I mean from the, you know, recyclability and stuff like this. Can you give any comments on this at this stage? It's quite far away, but still quite relevant.

Yeah, far away or close by, depends on your horizon. horizon there. What still remains unclear is what it actually will mean and to what extent it will be applied in Finland. So the way the legislation has been articulated still leaves room for interpretation. But if you just take it as a top line statement there that the amount of refilled bottles should be increased going forward from a Northern European perspective. That means some smaller additional investments in machinery and lines, but it doesn't go against the already decided investment. Focusing now on interpretation, interpreting the intent, but as also mentioned in our earnings release here for Q1, we do not believe, and we're still trying to remind the legislators that the initiatives that they're taking are not necessarily in the Northern European context helping the environment, rather the opposite, given the high level of recycled bottles we already have achieved. So we believe that our system should be accepted as a as an alternative to moving back to what we used to have in the late 1900s. Should we take some questions from online?

Yes, from online also. Do you expect to make further price increases?

Well, in pockets for sure. Again, when you're dealing across the group with a product range of more than 5,000 SKUs, there's always room to tweak and change and improve. And this is really the space which we're dealing with when we talk about net revenue management. So not looking at a few SKUs or a few categories either, but managing the whole. and recognizing our role in any given category as a value generator for trade for our customers and our consumers. So we're focused on that space and we're really dialing up the intensity but the specificity on our actions, making sure that our offering remains relevant and attainable to the consumers.

Yes, and the second one, you saw a strong cross-margin improvement in the first quarter. Is this a run rate for the rest of the year?

Well, I think, Tiina-Liisa, you kind of answered it already, and we need to bear in mind the previous year's quarter that were overlapping, and of course the numbers are particularly strong for the Finnish market, and that's one of the, shall we say, most... stable markets when it comes from a pricing perspective. So it's less dynamic than perhaps the Baltic markets, meaning we were not able to react as fast to the price inflation as we were in some other markets in the market of Finland. So we're overlapping, excuse me, a quarter where our profitability was really, really challenged. So we're catching up with that. Tina-Liisa also mentioned that in the second quarter we were then able also in the Finnish market to increase our pricing, so I would not expect a similar potential evolution.

Yes. And then there's a question that your OPEX per sales was up in the quarter. Do you expect that for the full year as well? And are you expecting sales growth to mitigate the higher cost in the coming quarters?

I can start again if you want to elaborate on that. But as we've confirmed, our firm commitment is to return to the profit level before COVID and go beyond 12. So this still remains the plan. And it, of course, will take time. It's not going to be done in a quarter or two, perhaps even in a year. But we will carry on executing our strategy which should deliver on that.

Yes, and we have to remember that the first quarter is kind of off the season quarter. So this OPEX kind of development might seem quite or seem that it's going to the wrong direction compared to the net sales. But when we are then going further on year, we can see that this will be a little bit kind of slowing this trend. then in the coming months. And also we have to remember that we are also investing our strategy implementation. So there might be some indication also in OPEC side for getting that forward.

Thank you. And there's probably a lot of questions online and maybe we take one from the room and one from online and then as in the previous session we then follow up on the online questions in writing because we might not get to all of it. But any further questions from the room?

In terms of volumes, your volumes were slightly down in Q1 in the core business. Then you mentioned that your demand was solid. Do you see that this small volume decline in Q1 was temporary due to, for example, portfolio changes in Finland?

If you think about it more broadly, we see a softening in the overall demand for beer, for example. So we see the whole market come down. But it's important in that context to retain your share and your relevance. So if you go into Finland, for instance, where you saw a negative volume evolution, it's important to state that, for instance, the leading brand Sundells grew in that same period. So it's really about the portfolio and the market and making sure that your placement remains strong and relevant. Thank you, Iris.

Yes, and then I think we take a last question, which is related to products. So can you comment on trend on non-alcoholic beer? What kind of growth rates we are currently seeing? How big share of the portfolio they present at the moment?

Thank you. Good question. So I won't be able to share specific percentages that they represent across the market. Non-alcoholic beverages overall is part of our strategy and it's also part of our long-term targets. So we're tracking that. We want our share in non-alcoholics to grow ahead of our share in the total portfolio. And we see that as a growing trend more broadly. So consumption of alcohol beverages in certain categories is declining, whereas then growth in non-alcoholic propositions is growing. So if you look out five years, the strongest growth is indeed within the non-alcoholic space. So it's a clear area of focus for us. And non-alcohol beer plays a role in that. We see switching. Beer consumers may from time to time enjoy a non-alcoholic beer and then then have an alcoholic beer as well. We don't necessarily see it as bringing a lot of new consumers to the beer category per se, but it is here to stay, it's growing and also part of our offering and our focus areas.

Yes, I think that's all.

With that, then we thank you again to all of you online and to you here in the room for your interest and for your time. this morning, and if not before, we hope to see you all latest after the second quarter. Thank you.

Thank you.

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