Olvi Oyj Unsp/Adr

Welcome to ISALMI. Thanks for joining us. It's our pleasure to be here today to share with you both our Q2 earnings as well as our half-year report. We're actually at the brewery here in ISALMI where everything started in 1878. And more specifically, we're in a brewery museum, the only one that's open to the public here in Finland. So we welcome you to visit anytime. I know some of you already have. but a great place to be and reflect on the first half of the year. Before we get to the gist of things, a little disclaimer. We'll be referring to the future that always holds some uncertainties within itself. And then an introduction. Many of us have met before, but Tina-Liisa Liukkonen, our CFO, and myself, Patrik Lundell, we have the pleasure of hosting you today. Let's start by looking at a few highlights from Q2. And then I'll give you a little heads up as well that we have a short video right after this slide. But when we look at Q2, I'd like to reflect a bit on our strategy. And one of the cornerstones of our strategy is to drive profitable growth in our core offering. Our core offering, which is tailored to local consumer and customer needs. And it is remarkably satisfying to see how strong our brands are and how strong our market shares remain, despite the challenging environment in which we operate. Our profits have been improving during the second quarter again, in line with our plans and expectations, driven both by pricing and portfolio choices. We're also here in Iisalmi particularly satisfied with the progress we're making with executing our investments, and that's what the video will be all about. But in summary, as a whole, Q2 is one that we're pleased with in terms of performance because it's all coming in according to plan. And I can't emphasize enough the challenging environment, both from a consumer purchasing power perspective, the softness in demand that we see across categories as a whole. and across markets, but again, the resilience of our offering and demand for our propositions. But with those introductory words, before we go into the actual numbers, I'd ask you to play the short video that we have prepared for you, going around the factory site here in Iisalmi. Hi guys, here we are, Tomi and Risto. Tomi is our head of production and supply chain and Risto our technical brewmaster. Why don't you tell us a bit about the installation behind us?

Yeah during the fermentation process the yeast creates huge amount of CO2 and with this plant we're able to recover it, purify it and use it in our own production with support values in cost ways and also in environmental targets.

Yeah that's fully true and we are getting 24-7 running plant and it saves something like one million euros annually.

Wonderful, it's great news. Thank you guys. Hi, Pekka and Kimmo. Good to see you. Pekka is our technical manager and Kimmo is our project manager. We're here to look at the progress of the works that are being done here at our High Bay warehouse. We're doubling our capacity so that we can pursue our growth targets. And we're very curious to hear how the project has evolved so far.

Project implementation started already a few months ago and so far we have progressed actually very well within the schedule and without any safety issues. That's wonderful. And budget-wise, do you think we're going to hit the budget? So far it looks that we are finalizing the project within the budget. Excellent. Very good news.

How about this time schedule? When this will be finished and we can then utilize the new capacity and then improve our service level to our customers?

New warehouse will be in production for 25 high season. Wonderful. So one year to go. Thank you, gentlemen. Thank you.

We are here in front of our old brew house and the new brew house will be then built in front of the old one. So please tell us about the project. We have also Silja, our brew master with us today.

Yes, nowadays that the brew house is the bottleneck of our processes and with the new one, we get some technical benefits. So Silja, what kind of benefits we are gaining?

Yeah, we are trying to looking to increase our production capacity and flexibility, but also to save in energy consumption, for example, steam, electricity, and also to save some water usages. Thank you Silja.

welcome back we hope you enjoyed a little tour around our our site and things are progressing every day here on the slide you you see the highlights that i i referenced earlier and now we'll move forward and go into the numbers in a bit more detail i mentioned already the profitability improving in line with our our plan and our expectation driving both driven both by portfolio choices and pricing actions taken there's an additional facilitator of the improvement and that's the subsiding inflation on raw material costs. The costs are not turning to the better. They're still high, but they're not growing as fast as we've become accustomed to over the last couple of years. So with this, we were able indeed to improve our profitability with 7.6% compared to last year's quarter two. And whilst that's a good performance, I can't emphasize enough the challenge we continue to see in consumer purchasing power, which hasn't returned, the confidence of the consumers hasn't returned yet to the levels pre-COVID. Excuse me there. Our shares remain strong, as I mentioned at the beginning. Our products are growing in many categories. We've been able to gain share. But overall, you see volumes in slight decline. And this has been very much intentional. Intentional, driven by the choices we made on pricing and optimizing our portfolio. So it's really impressive to see that despite of this environment, despite of the decline in volume, we've been able to retain our net sales on last year's comparable level. Then looking briefly at the segments for Q2 before I then hand over to Tina-Liisa to talk about the first six months. there are always nuances between the various segments, and I'll refer to a few here. Starting with Finland, one change that we saw materialize this summer, which we had anticipated, was the increase of the allowed alcohol contents level in grocery retail. In Finland, it was increased to 8%, and this allowed us the opportunity to introduce some of our strong brand propositions from the monopoly chain in a retail format. And I must compliment the Finnish team for their agility. It was rather impressive to see the legislation being confirmed on a Friday and our products being on shelf on a Monday. This really speaks volumes of the agility, the courage, the ability to execute that our team in Finland has become so well known for amongst trade. We were first to market. Now the impact of this change in terms of volume and profits is too early to say based on the Q2 results. Now then in the Baltics we see increases in taxes and this does not help the consumer. This drives the softness in demand that I have referenced previously. So we have, in addition to these economic changes, also seen our competition then intensifying the game or the competition for the volumes in these declining markets. And again, we're proud and confident in the appeal of our propositions, the breadth of our portfolio, and the strength of our brands. We have not lost share even in this challenging moment. So with that, I'll just briefly touch on EU legislation and the packaging directive that's being planned. As mentioned before, if it goes through as introduced by the previous parliament, we believe it will take us backwards in our operating markets rather than forwards on sustainability topics. And more specifically, it will lead to an increase in water consumption, an increase in energy consumption, and in an increase of CO2 emissions driven by increased road haulage. So we hope that our voices will be heard and these plans will be adjusted such that we can carry on operating in the sustainable way that we do across the Nordics and our operating markets as a whole. But with that, I hand over to you, Tino, please.

Thank you, Patrik. So now we continue with the highlights of the first half of the year. As we have been discussing so far, so this sales volumes decreased due to the weak development of consumers purchasing power and the product range optimization in retail. But our net sale remained at the previous year's level as a result of an increase in the average price. We managed to increase sales in the Horeca channel, while harbour and cross-border sales were lower than in the previous year, especially between Finland and Estonia. profitability improved as a result of a slowdown in cost inflation and market-specific price increases. Production and delivery costs continued to increase during the first quarter, but increase stopped in the second quarter, but in total. production costs were higher in the first half of the year than in the previous year. Then, summary of the financial performance in the first half of the year. As we have stated already, volumes did not grow, but the market shares we kept. Net sales stayed in the previous year level. Profitability has grown as planned. Our adjusted EBIT grew almost 9% and the EBIT almost 60%. In the comparison period, the operating result was burdened by a fine imposed on the Belarusian subsidiary. About the investments, you saw the video, so we are continuing the Finland warehouse expansion and the brew house renewal is starting this year. Brew house is financed with green loan as it brings remarkable energy and water consumption savings. Investments in Finland will be around 40 to 45 million euros. Then about segment performance. In Finland, volumes declined as the volumes were optimized and the net sales was affected by price increases, so the net sales grew about 3%. Good profitability. Development was possible due to the product positioning, product range optimization, and these price increases. The most significant price increases were implemented in the first half of the year, but the profitability has not yet recovered to the pre-crisis level as mentioned earlier. Measures to improve profitability and achieve the target set out in the strategy will continue, for example, with this product portfolio optimization. In the Baltic Sea area, consumers purchasing power developed poorly in the first or the early part of the year, affecting on volumes and net sales. But we are very happy that the profitability still improved as they caused inflation, especially in energy, stabilized. In Belarus, volumes increased, but the exchange rate of the Belarusian ruble weakened during the first half of the year from the comparison period. The net sales remained in the previous year level, but in the local currency, net sales grew by 13%. The adjusted operating result decreased by 5.3%, but in the local currency, it grew 6%. In general, there are no changes in Belarus' situation when it comes to exit from the market. Restrictions concerning the sales of shares remain in force. Then some KPIs. So equity ratio has remained in a good level. Earnings per share retained to the more normal level and was 1.5 euros per share. Last year figure was affected negatively by this fine in Belarus. And you can see the same kind of development in cash position. It returned to the more normal level now at the end of the quarter too. Number of employees grew slightly and that's because the business is developing and also because we are in the season at the moment. The calculation of emissions from Olvi Group's value chain for 2023 was completed this spring. Compared to the previous year, total emissions from value chain remained at almost the same level. Taking all the emissions into account, and I mean the score of 1, 2 and 3, total emissions decreased by 0.2% between 2022 and 2023. The emissions intensity, which is the important one, meaning emissions in relation to liters produced, has decreased by 1.8% as a result of operational development. The goal for this year is to reduce total emissions by 5.5% from last year. Reducing the emissions is an important part of our planet agenda.

Ten. Excellent. Thank you, Tina-Liisa. So continuing on to our near-term outlook, and with everything being said, we're specifying our outlook for the year of 2024, and our operating result is expected to land between 74 and 80 million euros. Looking forward as well, thinking about what we'll try to achieve in the future and what we're working on at the moment, I think it's always prudent to remind ourselves of the strategy. It's a multi-year strategy that we're executing. And within the strategy, sustainability was mentioned. The progress was mentioned by Tina Lisa, but it's also specifically called out. And I'm particularly proud to say that we're well prepared for the changing legislation as it pertains to sustainability reporting. So progress is going well. And perhaps on a lighter note, it's also really rewarding to know that our consumers across our markets have been enjoying our products 6.9 million times each day. So we really have a local strong presence also in forms of consumption. If we think about 2024 specifically, there's a few things that we have zoomed in on, if you like, and one has to do with profitability, as already previously mentioned. But in order to achieve these improvements, we must focus on our people. We must make sure that we recruit and strengthen our organization to retain our resilience. We must make sure that we have the data in place to be able to track our performance and react in an agile way to also foresee coming changes and be prepared for the future. So with these thoughts, we'd like to close the actual presentation and see if there's any questions from the audience. I believe we have some tech supporting us on that. But perhaps we park on the strategy side as we take some questions. Thank you for your attention. Now, what have we received?

Yes, so we have received some questions and we try to answer at least some of those and then we will come back to those questions that we are not able to answer here on live. But here's one question about the cross margin. So if significant price increases still in first half of the year, it's done I suppose here, should that support cross margin also in the last part of the year?

Good question. Obviously, we don't want to give too firm signals on the future and setting expectations. But as mentioned, our efforts to continuously improve our profitability for our core offering in particular, To reach the levels of profitability that we enjoyed before COVID broke, this still remains the case. And we're on that journey. So the job is not done. We continue to seek improvements, not only through price increases, but also through portfolio choices and really honing our skill around net revenue management overall.

Yes, and then you have been able to optimize product range during the first half of the year. How much is that had impact on Quartal 2 volumes? It seems that Finnish market volumes declined 2.5% in Quartal 2, while your volumes were down 6%.

Good catch and indeed in the Finnish market we've made some changes and choices in our offering both through price and priorities and this has been seen in volume. So we've achieved for a few lines a new level of volume which was in line with our expectations and in line with our objectives. So that delta should ease off over time.

Yes, and then there is a question about tax rates in Q2. Is there something specific in that one? And I can answer to that one that yes, in previous year, for example, Net profit was quite low because of the fine. And this year we have higher tax rates in Belarus than we had in the previous year. And also because the EBIT has improved, so in total we are paying more taxes. And then there is a question about investments. So they were only slightly up in the first half of the year. Can you give an indication of the last part of the year and 25 investments levels?

As we shared during the capital markets day some time ago, the intention is to really invest more heavily during 24 and 25. You'll see some of that tail come play out as well in 26. The majority of the investments are here in Isami. Tinley's already shared that we're renewing the brew house with a green loan. You saw the videos, and we were standing in front of the high bay warehouse, which will improve our delivery and offering capabilities further, seeking efficiency. So this is a program of a couple of years. And we mentioned that on a historic average, we've been spending roughly 6% of our net sales back in terms of investments, and that will go up now over these couple of years. closer to 9%, but then it will ease off, will reach the historic average after that.

And we have been saying that this warehouse and brew house investments are quite big in Finland. And that is totaling about 40 to 45 million during the next three years. So basically I think that is also the guidance for the investments on that one. And then there is a question about that is there better guidance on EBIT basically due to the lower input cost and higher prices. So I think someone is questioning that is our guidance in a conservative way or is it the kind of what we are thinking.

Of course, we see the evolution of our business working according to plan. We're within the range that we communicated earlier of the year. We see it now being, or we see the opportunity to specify the range to what we have communicated, 74 to 80. So indeed, this is where we expect the year to land.

Yes, I think that those were the main questions here. So thank you for the questions and those pending questions, we will come back to you directly. And thank you for these ones and thank you for watching this one.

Thank you and see you after Q3.