Q1 2022 Oatly Group AB Earnings Call

May 4, 2022

[music].

Thank you for standing by this is the conference operator welcome to at least first quarter 2022 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Rachel <unk> Investor Relations. Please.

Go ahead.

Morning, and thank you for joining us on <unk> first quarter 2022 earnings conference call and webcast on today's call are Tony Peterson, Chief Executive Officer, and Christian Hong K, Chief Financial Officer, Peter Berg, Chief Operating Officer will also be available for questions. Before we begin please remember that during the course of this call.

<unk> may make forward looking statements within the meaning of the federal securities laws, including financial projections for future periods in fiscal year 2022. 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 20-F for the year ended December 31, 2021 filed with the SEC on April six 2022, and other reports filed from time to time with the Securities and Exchange Commission 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.

Please note in today's call management will refer to certain non <unk> financial measures, including EBITDA and adjusted EBITDA. While the company believes these non I F. R. US 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 I ever.

For us.

Please refer to today's release for a reconciliation of these non <unk> financial measures and the most comparable measures prepared in accordance with I ever US. In addition, we have posted a supplemental presentation on its website for reference I'd now like to turn the call over to Tony Peterson.

Thanks, Rachel Good morning, we appreciate you joining us to discuss our first quarter financial results.

Today, I will provide an overview of our business and discuss the key reasons, we believe <unk> positioned to become the number one thing to think globally and.

Christian will review our financial results in 2022 outlook question, Peter and I will be available for questions.

It has been less than two months since our last earnings call in March.

The business remains as strong as ever I'm pleased to report.

First quarter guidance revenue growth of 19% to 166 million US dollars. This was despite production challenges in January and February due to COVID-19 on the chrome barrier.

As expected the multiple marked with significant improvement in EMEA and Americas were record revenue in EMEA and the largest production month ever for the Americas.

At the same time Asia has continued to be impacted by COVID-19, with Lockdowns in China, the dime intensified in March.

It didn't affect in certain areas today.

The health and safety of our team members remains our number one priority and we want to support the communities in which we live and operate as much as we can especially if there is such a difficult time that.

That is why we work with our local teams to donate and deliver care if I could just with ultra products and other essentials to those most in need.

Globally, our team has done an excellent job navigating a very challenging operating environment, while executing on our growth strategies across more than 20 countries.

We have a vision for a feed system, that's better for people and the planet. We believe Oh. Please once in a generation company, leading a transformation of the food industries in nutritional health and sustainability.

Sports execution of our strategy and our next phase of our global growth. We have added two new executives with extensive industry experience to built the team both effective first of June .

Jean Christophe <unk>, who joined the Oakley to serve the new role of global President Daniel Although next has been appointed Chief operating officer.

Together, John Kristoff and Daniel have a total of over 55 years of experience, leading incredible broken transformation at scale across big multinational brands. These two positions with serving connecting and bridging integral parts of the organization as we continue to expand our global footprint pizza.

Pizza Berg of currency, Oh, we transitioned to the new role of Chief strategy Officer, where he will focus on leading our global strategic projects to help further strengthen its long term growth.

The addition of these two world class executives with proven track records will be valuable totally while we continue to build production capacity and capabilities to meet the growing demand for our products and we're excited to welcome to our team next month.

Turning back to the global opportunity ahead of US we estimate the global dairy market to be worth approximately $630 billion in 2021 for the food retail channel alone with plant based dairy currently only 3% of that at $20 billion up from 18 billion at the end of 2020.

Our studies have found that the majority of plant based new consumers joined the category in the last two years, which is another reason we are confident in the size of the category opportunity in the future long term trajectory of our business we.

We believe <unk> is positioned to become the number one plant based milk globally scanner data continues to show that the old categories, gaining share over other dairy alternatives across our key markets and were an important driver of this growth.

Last page is one of the fastest growing segment in CPG and we're still in the early innings of expanding distribution entering new geographies as well expanding into adjacent dairy categories.

Our strategic multichannel approach brand and proprietary outpaced production process also differentiate us from our competition.

The opportunity in front of us remains massive so in the near term, we're continuing to prioritize growth investments over profitability to best position Oakley and serve our customers and consumers as we drive the conversion of dairy users the plant based products.

We are investing heavily in our business to establish the infrastructure necessary for global company on a multibillion dollar growth trajectory. This includes not only our innovation and digital infrastructure, but also our production capacity, which is a key factor in achieving growth.

As we grow we believe owning and controlling our global operating footprint is important to meet the significant consumer demand for Otis products as well as protecting our IP for our patented <unk> based process.

Total production volume was 121 million meters in the first quarter in line with our previous guidance broken down by region. EMEA production was in line with expectations. America's production was impacted by COVID-19, severe weather conditions, and logistical constraints and Asia production ramp up.

Slow due to the COVID-19, lockdowns impacting the foodservice demand environment.

While these setbacks, we are unfortunate temporary relief.

<unk> focused on what we can control.

Used to report our Ogden facility remains on track to finish wrapping up by the end of second quarter. The middle of this expansion project is on track for the second half of this year, Singapore. It is expected to reach fully utilized production in the third quarter and Sean is continuing to ramp up throughout the year pending the overall.

COVID-19 environment and lockdown restrictions in China.

So as stated earlier production volumes reached all time high in March in the Americas.

Localized production in Asia with Mount shown in Singapore will enable us to further diversify our product portfolio with new products and performance of future growth in foodservice retail and E. Commerce in Q1, 80% of our sales in Asia were derived from the Bristol product compared to 85% in Q1 last year.

Also expect to begin to gain operating and financial efficiencies and reduce our environmental impact from localized production and will phase out shipments from EMEA over the course of this year.

I'm also pleased to announce we concessions both of our North American facilities to 100% renewable energy in 2021 renewable electricity was generally didnt apart from our own fiber rescue as well as wind and solar this was a significant milestone towards achieving our global sustainability ambitions and limiting our environment.

It'll impact in greenhouse gas emissions.

In the second quarter, our production volume is projected to rebound and we expect to produce 135 to 145 million liters of finished goods.

We continue to expect run rate capacity of approximately 900 million liters exiting 2022, and an approximately 40% increase to $1 3 billion liters exiting 2023.

In the light of the overall macro environment as we discussed last quarter, we're taking a very focused approach to execution of our capacity expansion project and we.

We're strategically phasing and the timing of certain smaller outpaced project, such as Ogden and that's grown up.

This approach will allow our teams to have all resources focused on the largest expansion project to add meaningful production capacity.

Over the next few years, we expect to drive profitable growth through increasing our self in hybrid manufacturing model, reducing our reliance on co Packers.

Well, it's localizing our production footprint, we expect this to improve our production and supply chain economics.

And then as it scales.

Service level.

And the first quarters self manufacturing was 25% of our total volume compared to co packing, a 32% and hybrid at 43%.

Our target over the long term is to have 50% to 60% of a total volumes, coupled self manufacturing, reducing co packing to 10% to 20% and hybrid equity of 30% to 40%.

We believe this manufacturing mix, coupled with pricing actions will help offset completion and benefited gross margins as a pathway to profitability.

I'd like to share a few highlights across our key markets to support why we believe totally we continue to win a significant share of the dairy alternatives market globally.

Focusing on EMEA first according to Nielsen data for the 12 and 13 weeks ended March 2022, <unk>. The number one selling oak nut brand by market share in the U K, Germany, Sweden, Switzerland and Netherlands.

We continued to see strong velocity performance with a number one philosophy or any non dairy milk brand in the U S U K, Germany, Sweden, and the Netherlands.

In the U K, Germany and Sweden.

Additional items is the number one selling SKU in plant based milk and milk our brand to accomplish this with a limited SKU range the fraction of the distribution points.

Medicant distribution potential for future growth in these markets, where the competition has more than three times the distribution of Oakley today.

In EMEA quarter, while we increased our retail both year over year by 14% to 52500 and foodservice location by 21% to 15000.

Retail remains 84% of our business in EMEA, and we expect to continue to expand our shelf space with new and existing retailers for example in the U K our products can now be found in Holland, and Barrett Amazon fresh and starting in April we are now in 900 Lidl stores, we're also increasing our faces and expect.

To have more chilled oakville products in major U K retailers this summer.

In Germany, our sales reached all time highs in every mountain Q1 growth rates accelerated compared to fiscal 2021, a one liter Ot barista as higher grocery sales value. The next top five branded skus in the plant based category combined for the first quarter, we didn't expand Rob.

Distribution and also started to expand our product range, we launched frozen desserts in March and April major retailers, leading to nearly 32000 additional stocking points of cross dock, including 25000 in Germany.

Foodservice, which represented approximately 16% of our business in EMEA is a core focus for expansion going forward to become a more natural part of our consumers' daily lives and to meet the consumer where they are historically, we had not been able to aggressively pursue this childhood because of supply constraints with.

Just getting started and have a long runway. So far we had great success with the lock in on both your bond train and recently partnered with <unk> the biggest coffee brand in Germany with over 500 locations.

Also excited to announce a new strategic partnership with Dunkin' and Aero market in Germany, beginning in June .

I'm also excited to announce we have renewed and expanded our partnership with express in house, one of the largest coffee changed in northern Europe , with nearly 500 locations across Sweden, Norway, Finland, Denmark and Germany.

As discussed on our last call. We currently only have Mexican presence in five markets in EMEA with our expanded capacity. We're now in a position to selectively we enter and expand into new EMEA markets.

Currently the incubation phase of our expansion plans, starting with limited distribution.

We're very excited about these white space opportunity in driving more conversion globally also given our proven success in entering new markets.

In the Americas demand for ultra product has very strong according to Nielsen data for the 13 weeks ended March 26, 2022 totally remains the number one fastest turning brand in total dairy plant based dairy and oat milk in fact for the 24 week period ending March 26, Okay.

Okay, I have to talk to velocity items and plant based meal with lower ACD and the premium price point.

The open category continues to gain market share in the U S going from 16% in March 2021 over 21% in March 2022, while almond and soy milks both declined.

We made major progress on development in our frozen business with our pilots growing share distribution and performing well on shelf and you recently launched a frozen novelty Boston great market adoption, so far and over 2500 retail locations confirmed in the first six months of launch we believe our frozen business has great potential.

To expand our debit conversion universe.

In 2022 as capacity continues to ramp and we have more supply in the U S. We are looking to fill the gaps with current customers. We are selectively expanding our distribution with new customers, such as Cvs and Walgreens.

And finally in China, I'd like to commend our team for navigating a very difficult environment, especially in light of this recent lockdowns. Our business has been severely impacted by the lockdown with over 17000 retail and foodservice locations closely China, and foodservice, representing 75% of our sales to Asia in the first.

Quarter.

We expect continued headwinds in the region until the situation begins to improve given the lockdowns are still in place, including Shanghai, where we have a large portion of our business. However, the team has used the lockdown to sharpen our multichannel growth strategy to better position us both the near term and as soon as the restrictions ease.

Recently, we implemented both purchasing for communities to Lockdown government procurement and online to offline or brings in more business partners.

Tier one and two cities are the most impacted by the Lockdown, we've turned our focus to tier three and four cities.

We are working to expand distribution.

Additionally, we have accelerated our APAC market expansion plans with distributors to neighboring countries, such as South Korea, Thailand, and the Philippines.

In Asia in Q1, we increased our retail penetration year over year by more than 250% to over 21500 location in foodservice locations increased by more than 60% to over 37000 doors.

Is this the end of 2021, we've added over 2500 retail doors and over 11000 foodservice doors.

We continue to maintain a number one position on tmall with Ot at 45% market share in the new plant based category year to date and 19% share in the total plant based category.

With our newly opened facilities were able to aggressively launch new products.

We are tailored to the Asia market and enable us to successfully enter expand in new channels for instance in the past few weeks, we launched our T master product and a new 250 millimeter format for <unk> product.

The team at certain say Cleveland.

Our Bristol product, but specifically created for the specialty channel, which is twice the size of the specialty coffee channel based on our estimates.

The Covid Lockdown our team has the locked in approximately 5000 chewy delicious stores, which is one of the largest specialty teaching from China.

With a special beverage that became one of the top selling brings within 10 days and sold over 1 million Cups.

Feel very confident about the success so far with strong interest in orders from additional chain and look forward to expanding this platform in 2022 and beyond.

Our new 250 middle of the format for our open loop products, specifically tailored for the retail channel and it makes it easier for a consumer to enjoy our products all the goal.

China the AUM to go 200 to 350 million leads the pack size to represent the largest volume segment and the Chinese milk category, which underlines our excitement about being able to offer similar format, but open loop products. Overall, we believe we remain well positioned in Asia for accelerated growth once locked out of the game.

Yeah.

While kristian will regrow annual guidance and near term view more detail. It's important to understand that we believe both its growth opportunities over the next three to five years can be all remains very strong dairy users continue to convert to opening users globally with a long runway ahead of us to increasingly connect with more consumers around the world.

We expect the quarter to will continue to be impacted by heightened restrictions and lockdowns in certain countries as well as increased inflationary pressures, but our teams have done a great job navigating the dynamic operating environment and defending and growing our market share in key markets.

We are reiterating our revenue guidance of 880 million to $920 million for the year, despite the challenging operating environment and supply chain destruction globally.

Related lockdowns the niche I spoke about earlier.

Maintaining a responsible and prudent approach to our cost and expenses as we navigate this environment and believe our actions today will benefit margins beginning in the second quarter.

In summary, our success in a difficult operating environment across more than 25 different countries demonstrate the resilience of our global team the strength of our product portfolio across multiple categories.

We see consumer appetite for Oatley cross channels.

With that I would now like to turn the call over to Christian.

Thanks, Tony and good morning, everyone. It's nice to speak with you today as.

As we indicated on our previous earnings call. Our first quarter production output decreased sequentially to $120 9 million liters of finished goods product from $142 2 million leaders produced in the fourth quarter of 2021.

The lower production output was an outcome of a number of COVID-19 related factors impacting our business primarily in the Americas and Asia.

This resulted in the lower sequential revenue reported in the first quarter and increased our cost of production driving a lower gross margin for the first quarter compared to the fourth quarter of 2021. This performance was in line with our internal expectations.

Turning to the financials.

Revenue for the first quarter of 2022 was.

106 to $6 $2 million, an increase of $26 1 million or $18 six.

Percentage points compared to revenue of $141 million in the first quarter of 2021.

There was a foreign exchange headwind to revenue of approximately $5 $1 million in the quarter.

The foodservice channel in EMEA and the Americas increased in the first quarter of 2022 compared to the prior year period with the reopening of on premise outlets from their relaxation of COVID-19 restrictions in our key markets.

Partially offset by Covid related foodservice location closures in Asia.

For the first quarter of 'twenty to 'twenty, two the foodservice channel accounted for 33, 8% of revenue compared to 31% in the same period last year.

On a year over year basis, the foodservice channel was up 32, 8% compared to Q1 of last year.

The retail channel accounted for 6% to two 9% of first quarter of 2022 revenue compared to 6% to five 7% in the first quarter of 2021 on a year over year basis. The retail channel. It was up 13, 6% compared to Q1 of that.

Last year.

As expected consolidated net sales per liter was $1 41 in the first quarter of 2022 compared to $1.52 in the first quarter of 2021, mainly driven by customer and channel effects in EMEA and Americas and the forum.

Exchange headwind in EMEA.

As a reminder, our highest regional net sales per liter is in Asia, followed by the Americas.

The EMEA.

Gross profit in the first quarter was $15 8 million compared to $41 $9 million in the prior year period.

Gross profit margin decreased to nine 5% in line with our expectations compared to 29, 9% in the prior year period.

Please refer to page 21 of our earnings presentation to show our gross margin bridge year over year and the key reasons. We believe our gross margin will improve as we progress through 2022.

As we have indicated in the past it takes at least three to four quarters and no longer due to COVID-19 impacts before a new facility reaches steady state utilization of the production lines during the ramp up phase, we carry the full fixed and variable cost structure.

But have not yet reached the steady state levels of production output that fully utilizes the capacity of the facilities.

The gross profit margin in the first quarter of 2022 was impacted by a number of factors as communicated during our fourth quarter earnings call, including the under utilization of our three new facilities in Americas, and Asia as well as higher inflationary pressures.

The primary reasons for the gross profit margin decline in the first quarter of 2022 as compared to the prior year period were.

The positive margin impact from higher share of self manufacturing of 250 basis points driven by increased output from our new and expanded facilities.

Set by <unk>.

First short term underutilization of our new facilities due to supply chain challenges of 970 basis points, largely driven by COVID-19 related impacts on labor absenteeism in Americas, and Lockdowns in China, and logistical constraints delaying the.

Timely supply of raw materials, and spare parts all of which resulted in a lower production output.

Higher cost inflation of raw materials logistics and electricity expenses of 760 basis points, primarily due to the inflationary environment.

Third consolidation actions in our EMEA co packing network, resulting in a margin impact of 290 basis points that we incurred in the first quarter, but will enable us to accelerate the shift of production volumes to our higher margin self manufacturing and <unk>.

<unk> facilities for the remainder of 2022, and lastly, 270 net net basis points impact of other items.

Sequentially gross profit margin decreased by 640 basis points from the fourth quarter of 2021, primarily related to the short term under utilization of our new facility in Americas, which led to a higher cost of production.

We experienced lower production and sales volumes in the first quarter in the Americas, mainly driven by Covid related issues.

Which included labor absenteeism due to a local spiking cases and supply chain challenges such as the Canada border situation with truckers, and inclement weather, which affected the timely supply of raw materials and spare parts.

Lower sales volumes impacted both our revenue and sales mix and also led to a higher cost of production, which jointly led to a meaningful reduction to our gross margin.

In Asia.

Strict public health measures will remain in effect due to the omnicom variant.

Since our Q4 earnings call. The COVID-19, Lockdowns have intensified, including a complete shutdown of Shanghai during the latter half of March and larger closures of both foodservice and retail locations.

As such our revenue in Asia reflected a more challenging operating environment, which also negatively impacted our gross profit margin.

We continue to expect variability in our gross profit margin quarter to quarter.

Based on the impact of supply chain challenges inflation timing of new capacity coming online and makes our production model and by sales channel and region. We are monitoring the situation in Ukraine as well as the worst unexpected COVID-19, Lockdowns in China is.

Adding another level of uncertainty and the impact it could potentially have on our business.

However, we should start to see meaningful gross profit margin improvement in the second quarter, which we expect to continue in the second half of 2022 through the better utilization of our all done in Asia facilities.

In our gross margin bridge in the earnings presentation. The positive impact of the highest share of sales manufacturing is an early proof point of this.

A higher production output from our self manufacturing facilities will unlock most of pulling margin accretive benefits at the same time, namely.

Capturing higher production economics, and reducing logistics expenses from shifting co packing volumes to in house filling as well as the localization of production closer to our customers.

Enabling us to increase our sales to higher margin channels and customers and generally leading to higher fixed operating leverage in our new facilities.

In addition, as previously communicated we are executing on broad based price increases in two of our regions to offset a portion of the inflation, we are experiencing for raw materials logistics energy and labor globally.

In EMEA and mid single digit price increases have been and will be rolling out from March through may in the U S. We're planning double digit price increases that will be reflected this summer across all channels.

We have great relationships with our raw material suppliers that puts us in a position to mitigate raw material shortages, particularly in note and we are also expanding our sourcing options, we have raw material contracts and supply in place to grow revenue at the rate we.

<unk> for 2022 and beyond.

We expect to see year over year improvement in our gross profit margin starting in the second half of 2022 and sequential improvement in gross margin starting in the second quarter.

We continue to expect that the localization and expansion of our production capacity within the regions should improve our production economics over time, and we are watching inflation closely.

We are also continuing to monitor the war in Ukraine, and any impact it may have more broadly on our business.

Both Russia, and Ukraine are large exporters of grains, such as wheat as well as the vegetable oils.

Which could impact global pricing for these items and even directly impact other grains ingredients and energy prices. In addition, Russia is a significant exporter of fertilizer.

Again as already noted the recent more severe COVID-19, lockdowns in China could have a meaningful short term impact on our business if restrictions do not ease in the beginning of the third quarter.

First quarter of 'twenty to 'twenty, two EBITA loss was $81 4 million compared to an EBITDA loss of $24 $7 million in the first quarter of 2021.

Adjusted EBITDA loss for the first quarter of 2022 was $71 4 million in line with our internal expectations. The adjusted EBITDA loss was primarily related to the lower gross profit and we balanced the need for investments in our scalable infrastructure to support growth across.

Three continents, while managing and reducing our operating expenses on a quarter over quarter basis.

Beginning in the second quarter, we expect operating expenses as a share of net revenue to improve.

We will continue to manage our operating expense growth rate very closely given the more uncertain operating environment today.

Now focusing on our balance sheet and cash flow as of March 31, 2022, we had cash cash equivalents and short term investments of $411 million and total outstanding debt to credit institutions of $5 3 million.

We also have a fully unutilized revolving credit facility of approximately $475 million, including an accordion.

Net cash used in operating activities was.

Six to $8 9 million for the three months ended March 31, 2022, compared to $29 $2 million during the prior year period.

Capital expenditures were $53 $3 million for three months ended March 31, 2022, compared to four to $5 $5 million in the prior year period.

Capex spend was lower than expected in the first quarter of 2022. After COVID-19 restrictions in China have impacted the facing of our investments.

Cash flow used in the finance financing activities was $4 2 million for the three months ended March 31, 2022, compared to cash flow from financing activities of 6% to $2 4 million.

In the prior year period.

Turning to the guidance.

In the second quarter, we expect.

Acceleration in our revenue growth rate compared to Q1, driven by higher production output.

Tony mentioned, we expect production volume in the range of 135 to 145 million liters, which is a leading indicator of our revenue expectation and reflects that our growth is a function of our production output.

Note there is a lag in turning production volumes into sales volumes and the fourth quarter of 2021 is a good representation of what that ratio typically typically looks like we.

We expect a sequential improvement on net sales per liter compared to Q1 and expect it to reach the same level as the fourth quarter of 2021.

As I stated a few moments ago compared to the first quarter of 2022, we also expect meaningful gross margin improvement and operating expenses as a share of net revenue to improve.

For fiscal year 2022, we are reiterating our outlook and continue to expect.

Revenue of $882 $920 million, an increase of 37% to 4% to 3% compared to fiscal year 'twenty to 'twenty, one with strong growth across regions importantly, our guidance reflects a mid single digit appreciation of the U S dollar versus our <unk>.

Major European currencies on a percentage basis and our earnings presentation shows the FX assumptions in our full year guidance.

We expect revenue to be back half weighted this year with approximately 60% in the second half of the year our scale our production given a number of factors primarily related to COVID-19.

Broken down by region.

In EMEA, we have built supply ahead of expansion into the foodservice channel our new markets. Later this year, we continue to see variability in the timing of some retailer resets.

But are very excited about the discussions we're having with our retail partners in EMEA and we expect to have a better share of the shelf resets are complete.

We are also re entering expanding to new European markets throughout 2022, as Tony stated earlier that being said given Ukraine, we are cautiously managing our international expansion plans.

In the Americas, we are pleased with recent production output improvements, particularly in our Ogden, Utah facility, we expect accelerated growth in the back half of the year. Once all of them is fully ramped and the midlevel oat base expansion is completed.

And finally in Asia, we are closely monitoring the strict public health measures for omicron and remain focused on the health and safety of our team.

Given the ongoing restrictions, particularly in China, where the Cerro Covid policy and foodservice representing over 70% of our sales in the region, we see near term risk to our second quarter sales projections, depending on how long the lockdowns laws we.

We remain bullish overall for this region in the long term SBC significant opportunity to grow but short term the level of risk has increased.

We still expect to see strong growth for the full year, assuming lockdowns ease because as new production comes online we will be able to broaden our product portfolio and introduce more products and formats that are tailored for the Chinese consumers and the retail and e-commerce channels.

We expect capital expenditures to be between 400 and $500 million Ly.

Likely at the low end of the range after COVID-19 and restrictions in China will impact the facing of our investments.

We expect run rate production capacity to be approximately 900 million liters of finished by the end of fiscal 2022.

With that review, we are now ready to take your questions operator.

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.

Hear a tone acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.

Our first question comes from Andrew Lazar of Barclays. Please go ahead.

Great. Thanks, very much I.

I guess to start off in thinking about gross margins in the meaningful sequential improvement that you're looking for in <unk>.

You broke out a bunch of the buckets in terms of the gross margin bridge in the first quarter year over year I guess, what portion of those buckets. Do you think are now sort of essentially completely behind you.

They don't or are not expected to impact <unk>.

As a starting point.

Yeah, So Andrew it's Christian here.

Question.

So in terms of the ones that are completely behind us is the EMEA co Packer consolidation.

The charge that we took in the first quarter.

We continue to expect inflationary impact.

Throughout the year.

We have.

We indicated during our fourth quarter earnings call, but as you know we are implementing price increases in EMEA.

Through March and May across all markets and regions, which will help to offset some of that and then we have the Americas.

Taking the effect in the second half of the year.

And also the ramp up of the production.

Improvement the sequential improvement that we expect to see.

In the second quarter, both in America, as well as Asia will start to see an improvement in terms of Underutilization and the challenges that we faced here. So the first quarter as you know.

The worst margin quarter and from here on we should start to see a sequential improvement throughout the year.

Great. Thank you for that and then Tony just looking at the U S. Nielsen data. It does show that as distribution improves so too typically does market share are you seeing that similar trend.

In many of your other key countries.

And is there are there is there are markets, where you don't see that and if so what would be the reason for that thank you.

Hi, Andrew.

Good question and just to be clear on the question did you ask for distribution gains in market share.

That's right. So we see a nice correlation certainly in the Nielsen data that we can track in the U S and I'm curious if you see that type of relationship in your other key markets and if there are markets, where you don't why that might be.

Yes, no, but we are starting to see great progress and in EMEA, we have solid market share.

And with increased shelf space and distribution as well as launching new Skus, we are expanding on multiple levels and as expressed earlier with facing a lag as we're implementing the shelf space increased met and distribution expansion.

But the underlying health sector is still velocity performance, so that together with expansion that we're doing on multiple levels.

We are seeing great progress, especially at the end of Q2 here.

All top of that Andrew I, just wanted to add that that exponential our marketing that we haven't been able to do for two years, we expect to boost the Brent and sales in Europe . We previously at the end of around 200 different events a year, we haven't been able to do that for the last couple of years and now we are really really accelerating that and we're going to see output from that that's what we expect.

<unk>.

Great. Thanks very much.

Thank you.

Our next question comes from Ken Goldman of Jpmorgan. Please go ahead.

Hi, This is may be some faulty math I just did back of the envelope here.

If we sort of take the ratios that you were talking about in the fourth quarter.

Of last year and apply it to maybe your expected production.

$140 million for <unk>, it implies sales pretty far below where the street might be forecasting. So I'm. Just wondering if you can sort of give a little bit more color on what you expect that production.

Millions of leaders to turn into in terms of revenues just given some of the puts and takes that might be unclear to us.

I think I mean.

When we we obviously have sort of tried to give you some.

Factors that you should use.

In terms of getting to a reasonable revenue range for the quarter.

And.

Based on the production volume range of the 135 to 104 to 5 million liters.

Using that ratio.

Of the sale.

Sales volumes versus production volumes in the fourth quarter should should guess should get you. There. It's a production led revenue growth for the second quarter and also considering that the net sales per liter should improve as well versus the first quarter. I mean, those are the key components Kevin.

Should be able to get there.

The other factor in terms of revenue on a full year basis is that 60% of what we guided to the market will happen in the second half of the year. So I think those pieces together you should be able to sort of get there.

Yes, we can its just because youre not giving the number okay.

I think some people feel like it's a little bit hidden so to speak and so I just wanted to make sure we weren't missing anything and it sounds like we're not so I guess my second question is.

Last quarter, you said that while you have sufficient.

Sufficient liquidity and we still do your monitoring capital markets for some favorable opportunities. So I'm just curious Christian do you have any additional thoughts of the attractiveness of potential.

Capital raise opportunities at this time I think it is.

Nothing that we get a lot of questions on and I'm sure most of our peers do as well.

Yes, that's a fair question Kim.

First I want to reiterate that we ended Q1 with plenty of cash on our books $411 million in cash and short term investments and we also have the <unk>.

Unutilized Rcs I'm sure you guys are aware of that $475 million.

Including an accordion. So we believe we have sufficient liquidity to fund our business through 2022, but we're also confident that we have multiple options to access capital to fund our growth at the right time.

Yes.

That was it.

Our next question comes from <unk> Parikh of Oppenheimer. Please go ahead.

Good morning, Thanks for taking my question. So I had two questions on the pricing front. So first have your competitors started to take pricing.

Other plant based categories and then secondly, I think your commentary imply that the pricing actions that you're taking will help to offset some cost pressures. So is it fair to assume that there could be more pricing even after the rounds that you expected to do in EMEA and the Americas coming out.

Hi, Tony.

Great question I'll, let Christian if you want to pursue.

We are still monitoring the price increases we do see competition take price not all of them. The smaller ones are waiting a little bit, but all the bigger competition. We see are implementing price, but we haven't seen and can take anything from behaviors perspective. So we'll just have to wait and see the price.

This increase in the U S going to take place for the second half of this year. So we'll just have to wait that out.

Okay great.

But the pricing that you're taking is only partially offset the cost pressure. So there could be additional pricing required down the road or do you anticipate.

This round will help to offset all the cost pressures you are currently seeing.

No I mean, I think we're certainly monitoring the inflationary environment very closely driven by a bunch of different factors that we have a stated during the earnings call.

So if the inflationary rate continues to expand beyond what we guided in our fourth quarter earnings call of 8% to 9% as you might recall on a consolidated level. We were clear that clearly have to consider potential additional actions to offset these inflationary pressures, including additional pricing actions.

Yes.

Okay, great. Thank you.

Thank you.

Our next question comes from Michael Lavery of Piper Sandler. Please go ahead.

Thank you and good morning.

Good morning.

Good morning can you just give.

You've mentioned that 75% of your sales in Asia were from foodservice, but but you also have the lockdown pressured their.

Skewed primarily to March in the quarter, if I'm not mistaken.

I guess one did you.

For I mean can you confirm I think you said there are 17000 of your outlets out of your 37, there 37000 that are closed.

What does that ratio look like in March and trying to just understand how it may look in second quarter obviously.

So in terms of close close retail doors.

Service is still 17th Allison.

I'm sorry, Michael can you repeat that question just so I get it right. So I guess.

What I'm trying to understand is if you had 75% of your sales from foodservice in the quarter. We will have that look in March when the lockdown started to take effect because that feels more like how second quarter might look what was that ratio.

Okay.

I understand that's a great question.

<unk> probably.

Didn't change during March it got more severe in March the lockdowns than it was prior to our earnings call, but also.

That said the team has pivoted.

Because I think that's the core of the question how can we sell when everything is closed basically by the team has done a great job.

To really pivoting, our business model and as I stated in my in my prepared remarks, we do a lot of activity to sell in different ways, including entering new series for retail procurement government procurement and community sales and as well as Samsung Teashop channels. So yes.

We are monitoring it very closely it is it is so severe lockdown, but also.

Given the activities that we have down we actually strengthen our position during the lockdown, meaning that our customer base is higher than planned and the acceleration once lockdown is east Patel.

Potentially happened faster.

Okay. That's helpful and maybe just a follow up on that you talked about converting some of the production to retail product how much of an increase in the retailer online sales have you been able to see even with or in part because of the lockdowns.

In.

You mean in Asia specifically.

Yeah, right, Yeah, China in particular right.

And in particular, and it's still it's still early innings I would say in terms of the retail strategy considering the lockdowns.

We have experienced.

And in Asia, but we are preparing ourselves from a production point of view, having the right formats.

Enter into the retail space with the smaller formats for smallpox.

And.

That is something that would progress through throughout the year.

Okay, great. Thanks, so much.

Thank you.

Our next question comes from Laura.

Of Guggenheim. Please go ahead.

Hey, good morning, everyone.

Actually I've got two question right the U S retail distribution.

So in U S retail in the quarter, you lost market share leadership to plant food.

By higher velocity.

As you <unk> I mean, you mentioned, 34%.

Two questions. The first one is what is the rational to get into the frozen category.

Rather than securing more distribution dairy alternative meat first.

Yes that was a decision made prior to the supplier disruption in January and February also it takes away lower.

Lower amount of face to create the frozen items. So those are the components for that decision.

And Youre right, we lost market share for the first quarter, but that was really purely due to the production.

Discussion that we had and how we need to strategically allocate the volume said that they were enhanced.

Right.

Appreciate that.

Yes.

Second question I am not ready to this as well is.

I'd like to discuss I mean, just Starbucks business.

Shifting to the U S. I appreciate why you are focusing on Starbucks.

But at this point.

Disability.

Very limited I mean, two Saturdays.

As part of the reason to be installed books distribute the brand.

As you all know.

That visibility yet.

That would be better to expand distribution into <unk> reduce your odds of stock getting shelf space gain market share and probably also I mean increased profitability I'd like to understand digitally.

I appreciate it is not an easy answer.

At this time of year shouldn't should be used for the more longer term nature.

<unk>.

Really if you don't get.

But you shoot from them and that permits that are two to react if some of these retail.

No, but that is a very valid question Lauren and I just want to say that we have a long term strategic vision for that partnership.

And in the short term, yes, obviously, if we would have allocated.

The volumes differently with the profitability would have been different. However, we do believe that this is strategically the right thing to do to drive conversion brand awareness and the long term opportunities for the company and just want to point out that the multichannel strategy is so important for us and how that creates a halo and even if we don't have like.

Menu board visibility in the U S. We have to remove it from the App once we launched at Starbucks the cost of the success.

Related to the two then the supply we had.

Okay.

It still gives the brand a lot to be.

At Starbucks and the partnership that we have with them, we really value. It's a very collaborative and open partnership that we have and we share the views of plant plant based vision going to the future here so strategically.

Truly believe it's right thing to do short term, yes, you could have done you can pick different.

Decisions, but we here for the long term as we said right from the start so that's what we're pursuing right now.

Thank you good luck guys.

Thank you too.

Our next question comes from Rob Dickerson of Jefferies. Please go ahead.

Great. Thank you.

So Tony just a couple of questions in terms of.

The expected ramp in the back half.

On the revenue side.

I know you said you plan to enter new.

A few new European markets.

But kind of have to watch maybe the timing just given the situation in Ukraine, and then also I heard you say.

The clear potential to ramp Skus in Asia as you get through the back half but.

And kind of assuming things start to ease a bit in Asia. So.

I'm just curious like as you sit here now we're already in May that we're talking back half rate, which starts July .

Are you already in those conversations with those retailers and saying Hey, if the Ukraine kind of uses when pricing gets better like we're ready to go here our products from the same thing in Israel or has it been a little bit more complicated just given.

The operating backdrop, that's my first question.

So if you so it varies.

Hi, Rob by the way good question.

Are you, referring to EMEA or all the different regions.

Really all of the different regions, but I just kind of quickly.

In Asia.

Okay got it.

And as we express so many times. This is all about in the U S. It's all about getting old enough, they're running and we see really good progress. There. So we feel confident about the ramp up in the second half of this year. We can also start to allocate the volumes.

The way, we want to that is probably more favorable for us in terms of from a margin perspective as well.

Europe , we are really stepping up.

Fantastic progress in retail will be increased shelf space I mean, 50%.

The increase of facing one of the major.

Retail is in UK is just one.

One action foodservice.

We are having really interesting discussion and we are confident that we will announce more excitement in the opportunities for foodservice.

In Europe . So we have we see really good progress there.

We'll see the benefit of coming into <unk>.

<unk> this year in Asia, we actually like we said fantastic.

Proof points, when we launched the T T Master for instance, which is I just want to say the magnitude of that product is massive it's it is a tailored product for.

Foodservice segment that is twice as big as coffee shop.

Great <unk> result, and we have key accounts lined up.

Also <unk> already received orders for the majority of them and we see great proof of retailers. So we're just waiting in China and Asia, just about waiting it out we think the platform for our growth actually expanded.

Massively during the lockdown because of the work the team has done there.

Sure.

What's that sufficient Robert.

Yes, no that's great I appreciate it.

And then second question just kind of back to the margin piece as we get through the year.

I just wanted to clarify I know you had said.

Sequential improvement.

In the second quarter and then.

Gross margins should be better on a year over year basis, as we get to the second half.

Obviously Q4 is not extremely difficult comparison.

So maybe it could help everyone on the call just to kind of understand.

Is it really kind of expected sequential improvement quarter to quarter as you get through the year. So, let's say I'm speaking kind of more so to Q3 that Q3 should be better than Q2, but it doesn't necessarily mean Q3 would be better year over year, given a lot of the cost headwinds it's more the average of the back half.

First one for the back half of last year and that's it. Thanks.

Hi, Rob It's Christian here, Yeah, So I think.

You sort of laid it out.

You should look at it it will be a quarter over quarter sequential improvement.

We are improving our production output from our three new facilities around the world.

Offsets.

Some of the Underutilization headwinds that we have experienced here in the first quarter again, the first quarter as like the lowest point of gross margin from here on it will improve.

Got it sorry fourth quarter being the highest margin quarter.

Yes.

Okay helpful helpful. Alright, Super Thank you so much.

Thank you.

Our next question comes from Jon Andersen of William Blair. Please go ahead.

Well hi, everybody. Thanks for the question.

I wanted to revisit Lauren's question on U S distribution.

With the progress that you're making in Ogden.

And I guess later in the year with fee enhancement to mill Bill.

What how should we be thinking about.

Sure.

Both the ability to service, let's say Starbucks in foodservice, but.

Perhaps on the retail side to get your distribution up from lets say, 40% to something more like.

The leading brand at 80% what kind of timeframe.

Is associated with that and kind of your your own internal plan at this point.

Okay.

Hi, John Yes.

That's a very good question.

Our ability as you said will definitely increase.

Terms of foodservice, we will continue to consider and together with the in discussions with Starbucks to see how much of that demand we're going to continue to serve.

And we came mainly it's about filling the fill rate gaps.

Again velocities increasing for us.

And if you look at the dollar per store per week actually increased from 80 to 84. This quarter. So we still see a strong performance on velocity side.

So we need to that's going to be a catch up game for us to feel that that gap Inc.

In terms of expanding we are taking a very cautious and mindful.

<unk> two expanding but we are in continuous discussions with all the retailers the major retailers in the U S debate berthing to the network and other brands that they have so I guess, we're just we just have to balance that is going to be a decision made by the local teams.

Mainly who are very close to <unk>.

Posted it should action here in the U S. But we are monitoring we are.

There is an opportunity.

Go for it but we're going to do is I'm very mindful manner I can't give you timeframe John .

It also depends on the development, especially the velocity developments.

Wish we are extremely excited about of course, so we just have to wait and see and balance that thoroughly.

Yes.

Do you do you just a quick follow up on that Tony.

When you think about the U S.

Retail opportunity do you envision or CEA.

Placement of the <unk> brand at those higher levels of ACB, 80%, plus or do you anticipate more selective distribution.

Where the brand may sit at 50% ACB, because youre going to be selective choosing your locations and locations that serve a target customer.

We're going for the next for the next period of time, we're going to continue to have a mindful approach and be selective.

And we're also going to balance because we do believe the multichannel strategy is very important for us and I think 43% of the sales today comes from retail.

Uh huh.

Oh around 50%, maybe as retail sales.

It's going to be maintained as we go forward because we think that is a good balance for us.

In terms of getting up to 80%, yes, but again it will be related to supply how much supply we have at the moment. So we are very excited about the Ogden progress and the mill expansion, we're going to have Dallas Fort forthcoming up and then we can go really really wide I hope.

Okay. That's super helpful. One more quick one.

With the Lockdowns in in.

In China.

Wanted to try and understand how that may be affecting.

<unk>.

Construction or ramp in the Mondschein.

Facility.

Is that is that.

Pushed out kind of.

Your timeframe to kind of hit run rate.

Production within that facility because that's an important facility to your point to expanding the product range that you can offer in that part of the world and expanding distribution. Thank you.

Yeah.

This is Peter here.

We are producing volume in both China and Singapore facility.

As you said due to the Covid lockdown.

On the demand environment in China, and our ability to receive input materials in my shop, we are deliberately managing our timeline to ramping up production.

And as Tony mentioned, we see significant growth opportunities in Asia and have strong confidence in the potential potential of that region. So we are positioning us in both facilities to quickly ramp up as soon as the lockdown restrictions are lifted.

So our current expectation is that Singapore will reach steady state utilization in the third quarter and that my Shang will continue to ramp up during the course of this year.

Remember my Shawn just started in November so it is still in the ramp up phase.

Hasn't materially impact our plans at this stage.

Great. Thank you so much good luck.

Thank you thanks John .

Thank you.

Our next question comes from John Baumgartner of Mizuho Securities. Please go ahead.

Good morning, Thanks for the question.

Maybe for Tony just just returning to the pricing discussion at retail in the U S. You've seen many categories, where elasticity as had been either minimal or at least better than expected up to this point, but plant beverages, you have seen some volume pressure. So if you could just in the context of your commentary pertaining to the future price increases what are you.

Thoughts on the categories existing elasticity and I guess, how do you think about value I mean do you look at the categories pricing relative to milk I mean is there a pricing threshold either on a relative basis or an absolute price point, we think elasticity may accelerate I understand the limited visibility, but im just curious in terms of just historical case studies and anything you've seen her.

Thresholds or consumer pushback. Thank you.

Yes, we don't take we just yes, because we are a premium price clearly is good it's a good question Hi, John .

That's a good question and we are premium priced.

Brand with.

Testing performance.

In terms of elasticity like we don't take that as likely we have done our work thorough analysis.

Multiple in multiple angles, and we believe that the pricing that we're going to take it's going to benefit the company and our position.

And we also relatively to other.

Other brands, we do see that the competition also is taking price so relatively the gap is going to even maintain will be.

If it is going to be a change can be very very low in terms of absolute pricing. It's really hard to say, we will also see that some dairy across some markets. We do see dairy also take price. So so overall the inflationary pressures kind of like we're going to see an impact across the whole food industry and other industries.

Which is very evident for us today.

So.

I do believe one thing that is important is that trying to stay as the milk industry is subsidized. So it's not a healthy industry for antibody really is industry well very few or no. One is really making any money that is not the benchmark up with this.

This category is going so so.

Either those subsidized.

We're going to be lifted.

Or are they going to maintain that that remains to be seen but the category has not grown.

Im going to hit rock bottom in terms of the.

Type of pricing.

We do recognize going forward say midterm long term that pricing could potentially be an hurdles too.

To reach our the demography and geographies that is something that we are strategically working on the supply chain side to optimize production. So with the new facilities that we have we have great opportunities to lower our cost over time, when we can get more focused on.

Oh really launching those initiatives at depth.

Okay. Thank you thanks for the detail.

Thanks, Tom.

Okay.

This concludes the question and answer session and today's conference call.

May disconnect your lines. Thank you for participating and have a pleasant day.

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Right.

Okay.

Yes.

Okay.

Yes.

Okay.

Yeah.

Okay.

Sure.

Okay.

Yes.

[music].

Okay.

Thanks.

Okay.

Sure.

Thank you.

Yes.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yeah.

Yes.

Okay.

Yeah.

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

Sure.

Okay.

Yes.

<unk>.

Okay.

Sure.

Yes.

Okay.

Sure.

Great.

Okay.

Yes.

Sure.

Okay.

Sure.

Okay.

[music].

Yes.

Please.

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Okay.

[music].

Okay.

Yes.

[music].

Okay.

Sure.

Okay.

Yes.

Sure.

Okay.

Great.

Okay.

Yes.

Okay.

Yes.

Julie.

Yes.

[music].

Yes.

Okay.

Yes.

Sure.

Yes.

Okay.

Thank you for standing by this is the conference operator.

Welcome to <unk> first quarter 2022 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during.

The conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Rachel.

Investor Relations. Please go ahead.

Good morning, and thank you for joining us on <unk> first quarter 2022 earnings conference call and webcast on today's call are Tony Peterson, Chief Executive Officer, and Christian Hong K, Chief Financial Officer, Peter Burke, 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 federal securities laws, including financial projections for future periods in fiscal year 2022. 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.

And these forward looking statements.

Please refer to the company's annual report on form 20-F for the year ended December 31, 2021 filed with the SEC on April six 2022, and other reports filed from time to time with the Securities and Exchange Commission for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward.

Statements made today.

Now on today's call management will refer to certain non <unk> financial measures, including EBITDA and adjusted EBITDA. While the company believes these non <unk> 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 <unk>.

Please refer to today's release for a reconciliation of these non <unk> financial measures and the most comparable measures prepared in accordance with IRS. In addition, we have posted a supplemental presentation on its website for reference I'd now like to turn the call over to Tony Peterson.

Thanks, Rachel Good morning, we appreciate you joining us to discuss our first quarter financial results.

Today, I will provide an overview of our business and discuss the key reasons, we believe <unk> positioned to become the number one plant based drink globally and.

Chris <unk> will review our financial results in 2022 outlook question, Peter and I will be available for questions.

It has been less than two months since our last earnings call in March and our confidence in the business remains as strong as ever I'm pleased to report we had beat our first quarter guidance revenue growth of 19% to 166 million US dollars. This was despite production challenges in January and February due to COVID-19 on the chrome variant.

As expected the month of March with significant improvements in EMEA and Americas were record revenue in EMEA and the largest production month ever for the Americas.

At the same time Asia has continued to be impacted by COVID-19 with Lockdowns in China.

Testified in March still in effect in certain areas to date.

The health and safety of our team members remains our number one priority and we want to support the communities in which we live and operate as much as we can especially through such a difficult time.

It is why we have worked with our local team to donate and deliver care packages with ultra products and other essentials to those most in need.

Globally, our team has done an excellent job navigating a very challenging operating environment, while executing on our growth strategies across more than 20 countries.

We have a vision for a food system that better for people and the planet, We believe <unk> once in a generation company.

Leading a transformation of the food industry and nutritional health and sustainability.

Execution of our strategy and our next phase of our global growth. We have added two new executives with extensive industry experience to the Ot team both effective first of June .

John Kristoff Flatting, who joined only to serve the new role of global precedent and Daniel Autodesk has been appointed Chief operating officer.

Together, John Kristoff and Daniel have a total of over 55 years of experience, leading incredible growth and transformation at scale across big multinational brands.

These two positions with serving connecting and bridging integral parts of the organization as we continue to expand our global footprint.

Pizza Berg of currency.

We transitioned to the new role of Chief strategy Officer, where he will focus on leading our global strategic projects to help further strengthen <unk> long term growth.

Turning back to the global opportunity ahead of US we estimate the global dairy market to be worth approximately $630 billion in 2021, and the food retail channel with plant based dairy currently only 3% of that at $20 billion U S dollars up from $18 billion at the end of 2020.

We believe <unk> is positioned to become the number one plant based milk globally.

Our data continues to show that the old categories, gaining share over other dairy alternatives across our key markets and were an important driver of this growth.

Client base is one of the fastest growing segment in CPG and we're still in the early innings of expanding distribution entering new geographies as well as expanding into adjacent dairy categories.

Our strategic multichannel approach brand and proprietary outpaced production process.

So differentiate us from our competition.

We are investing heavily in our business to establish the infrastructure necessary for global company on a multibillion dollar growth trajectory. This.

This includes not only our innovation and digital infrastructure, but also our production capacity, which is a key factor in achieving growth.

As we grow we believe owning and controlling our global operating footprint is important to meet the significant consumer demand for <unk> products as well as protecting our IP for our patented oat based process.

Total production volume was 121 million meters in the first quarter in line with our previous guidance broken down by region. EMEA production was in line with expectations American's production was impacted by COVID-19, severe weather conditions and logistical constraints and Asia production ramp.

With slow due to the COVID-19, lockdowns impacting the foodservice demand environments.

These setbacks, we are unfortunate temporary we remain focused on what we can control I'm pleased to report our Ogden facility remains on track to finish wrapping up by the end of second quarter. The middle of this expansion project is on track for the second half of this year, Singapore is expected to reach fully utilized <unk>.

<unk> third quarter and onshore is continuing to ramp up throughout the year pending the overall COVID-19 environment and lockdown restrictions in China.

So as stated earlier production volumes reached all time high in March in the Americas.

Localized production in Asia with non shown in Singapore will enable us to further diversify our product portfolio with new products and performance of future growth in foodservice retail and e-commerce.

Q1, 80% of our sales in Asia were derived from the Bristol product compared to 85% in Q1 last year. We also expect to begin to gain operating and financial efficiencies and reduce our environmental impact from localized production and will phase out shipments from EMEA over the course of this year.

I'm also pleased to announce we concession both of our North American facilities to 100% renewable energy in 2021 renewable electricity was generated in part from our fiber rescue as well as wind and solar this was a significant milestone towards achieving our global sustainability ambitions and limiting on.

Our mental impact in greenhouse gas emissions.

In the second quarter, our production volume is projected to rebound and we expect to produce 135 to 145 million liters of finished goods.

We continue to expect run rate capacity of approximately 900 million liters exiting 2022, and an approximately 40% increased to $1 3 billion liters exiting 2023.

In the light of the overall macro environment as we discussed last quarter, we're taking a very focused approach to execution of our capacity expansion projects.

And we are strategically facing the timing of certain smaller outpaced projects, such as Ogden and Thats grown up.

This approach will allow our teams to have all resources focused on the largest expansion projects and to add meaningful production capacity.

Over the next few years, we expect to drive profitable growth through increasing our self in hybrid manufacturing model, reducing our reliance on co Packers as well as localizing our production footprint.

Expect this to improve our production and supply chain economics economies of scale our service level.

The first quarter's self manufacturing was 25% of our total volume compared to co packing, a 32% and hybrid at 43%.

Our target over the long term is to have 50% to 60% of our total volumes, coupled self manufacturing, reducing co packing to 10% to 20% and hybrid equity 30% to 40%.

We believe this manufacturing mix, coupled with pricing actions will help offset inflation and benefit gross margins not a pathway to profitability.

I'd like to share a few highlights across our key markets to support why we believe poorly we continue to win a significant share of the dairy alternatives market globally.

Focusing on EMEA first.

According to Nielsen data for the 12 and 13 weeks ended March 2022, <unk>. The number one selling oatmeal brand by market share in the UK, Germany, Sweden, Switzerland and Netherlands.

We continued to see strong velocity performance with a number one velocity or any non dairy milk brand in the U S UK, Germany, Sweden, and the Netherlands.

In the U K, Germany, and Sweden, a blister edition item is the number one selling SKU in plant based milk and milk.

Brand accomplish this with a limited SKU range and a fraction of the distribution points.

Inefficient distribution potential for future growth in these markets, where the competition has more than three times the distribution of Ot today.

In EMEA quarter, while we increase our retail both year over year by 14% to 52500 and foodservice location by 21% to 15000.

Retail remains 84% of our business in EMEA, and we expect to continue to expand our shelf space with new and existing retailers. For example in the UK. Our products can now be found in Holland, and Barrett Amazon fresh and starting April we are now in 900 Lidl stores, we're also increasing our faces and expect.

To have more open loop product a major UK retailers this summer.

In Germany, our sales reached all time highs in every month in Q1.

Growth rates accelerated compared to fiscal 2021, a one liter Ot barista as higher grocery sales value next pop five branded skus into plant based categories combined for the first quarter, we didn't expand our distribution and also started to expand our product range, we launched frozen desserts in <unk>.

March and April major retailers, leading to nearly 32000 additional stocking points cross dock, including 25000 in Germany.

Just getting started and have a long runway. So far we had great success with launching on boat Shaban train and recently partnered with <unk> the biggest coffee brand in Germany with over 500 locations.

We are also excited to announce a new strategic partnership with Dunkin' and Aero market in Germany, beginning June <unk>.

We're also excited to announce we have renewed and expanded our partnership with express will house, one of the largest coffee changed into northern Europe , with nearly 500 locations across Sweden, Norway, and Denmark and Germany.

As discussed on our last call. We currently only have.

<unk> presence.

Markets in EMEA with our expanded capacity, we are now in a position to selectively we enter and expand into new markets.

Currently the incubation phase of our expansion plans, starting with limited distribution.

Im very excited about these white space opportunity in driving more conversion globally also given our proven success in entering new market.

In the Americas demand for <unk> product is very strong according to Nielsen data for the 13 weeks ended March 26, 2022 remains the number one fastest turning brand in total dairy plant based dairy and oat milk in fact for the 24 week period ending March 26, Okay.

At the top two velocity items.

With lower ACD and the premium price point.

The open category continues to gain market share in the U S going from 16% in March 2021 over 21% in March 2022, while almond and soy milks both declined.

We've made major progress in development in our frozen business with our pilots growing share distribution and performing well on shelf. We recently launched a frozen novelty products with great market adoptions. So far in over 2500 retail locations are confirmed in the first six months of launch we believe are close.

<unk> business has great potential to expand our dairy conversion universe.

In 2022, its capacity continues to ramp and we have more supply in the U S. We are looking to fill the gaps with current customers and we are selectively expanding our distribution with new customers.

Cvs and Walgreens.

And finally in China, I'd like to commend our team for navigating a very difficult environment, especially in light of this recent lockdowns. Our business has been severely impacted by the lockdown with over 17000 retail and foodservice locations closed in China, and foodservice, representing 75% of our sales to Asia in the first.

Quarter we.

Recently, we implemented both purchasing four communities can lockdown government procurement and online to offline ordering more business partners.

Tier one and two cities are the most impacted by the Lockdowns, we turn our focus to tier three and four cities where.

But we are working to expand distribution.

Additionally, we have accelerated our APAC market expansion plans with distributors to begin neighboring countries, such as South Korea, Thailand and its independence.

Asia in Q1, we increased our retail penetration year over year by more than 250%.

21500 location at foodservice locations increased by more than 60%.

37000 doors.

End of 2021, we've added over 2500 retail doors and over 11000 feet service stores with.

We continue to maintain a number one position on tmall with Ot at 45% market share in the new plant based category year to date and 19% share in the total plant based category.

With our newly opened facilities were able to aggressively launch new products.

We are tailored to the Asia market and enable us to successfully enter expand in new channels for instance in the past few weeks, we launched our team Astral product.

A new 250 millimeters format for our <unk> product.

The team asset.

Our Bristol products, specifically created for the specialty channel, which is twice the size of the specialty coffee channel based on our estimates.

Prior to the Covid Lockdown Tms lasting approximately 5000, <unk> delicious stores, which is one of the largest specialty teaching from China, We launched with a special beverage that became one of the top seven brings within 10 days and sold over 1 million Cups.

Feel very confident about the success so far with strong interest in orders from additional chain and look forward to expanding this platform in 2022 and beyond.

Our new 200 since the middle of the format for our own new products, specifically tailored for the retail channel and makes it easier for a consumer to enjoy our products on the globe.

China on the go 200 to 350 million liter pet sites represent the largest volume segment and the Chinese milk category, which underlines our excitement about being able to offer similar format, but open loop products. Overall, we believe we remain well positioned in Asia for accelerated growth locked out.

Okay.

While kristian will re grow annual guidance and near term view more detail. It's important to understand that we believe postage growth opportunities over the next three to five years to NPL remained very strong debit users continue to convert to <unk> users globally with a long runway ahead of us to increasingly connect with more consumers around the world.

We are reiterating our revenue guidance of 880 million to $920 million for the year, despite the challenging operating environment with supply chain disruption globally.

Related lockdowns that means chassepot quite earlier.

Maintaining a responsible and prudent approach to our cost and expenses as we navigate this environment and believe our actions today will benefit margins beginning in the second quarter.

Summary, our success in a difficult operating environment across more than 25 different countries.

Straight the resilience of our global team the strength of our product portfolio across multiple categories.

Increasing consumer appetite for open cross channel.

With that I would now like to turn the call over to Christian.

Thanks, Tony and good morning, everyone. It's nice to speak with you today.

The lower production output was an outcome of a number of COVID-19 related factors impacting our business primarily in the Americas and Asia.

Turning to the financials.

Revenue for the first quarter of 2022 was.

$106 to $6 2 million, an increase of $26 1 million or $18 six.

Percentage points compared to revenue of $140 $1 million in the first quarter of 2021.

There was a foreign exchange headwind to revenue of approximately $5 $1 million in the quarter.

The foodservice channel in EMEA and the Americas increased in the first quarter of 2022 compared to the prior year period with the reopening of on premise outlets from the relaxation of COVID-19 restrictions in our key markets.

Partially offset by Covid related foodservice location closures in Asia.

For the first quarter of 'twenty to 'twenty, two the foodservice channel accounted for 33, 8% of revenue compared to 31% in the same period last year.

On a year over year basis, the foodservice channel was up 32, 8% compared to Q1 of last year.

The retail channel accounted for 6% to two 9% of first quarter of 2022 revenue compared to 6% to five 7% in the first quarter of 2021 on a year over year basis. The retail channel was up 13, 6% compared to Q1 of <unk>.

Last year.

As expected consolidated net sales per liter was $1 41 in the first quarter of 2022 compared to $1 52 in the first quarter of 2021, mainly driven by customer and channel effects in EMEA and Americas and a forum.

Exchange headwind in EMEA.

As a reminder, our highest regional net sales per liter is in Asia, followed by the Americas.

Then EMEA.

Gross profit in the first quarter was $15 8 million compared to $41 $9 million in the prior year period.

Gross profit margin decreased to nine 5% in line with our expectations compared to 29, 9% in the prior year period.

Please refer to page 21 of our earnings presentation to show our gross margin bridge year over year and the key reasons. We believe our gross margin will improve as we progress through 2022.

But have not yet reached the steady state levels of production output that fully utilizes the capacity of the facilities.

The primary reasons for the gross profit margin decline in the first quarter of 2022 as compared to the prior year period were.

The positive margin impact from higher share of self manufacturing of 250 basis points driven by increased output from our new and expanded facilities.

Set by <unk>.

Timely supply of raw materials, and spare parts all of which resulted in a lower production output.

Higher cost inflation of raw materials logistics and electricity expenses of 760 basis points, primarily due to the inflationary environment.

Third the consolidation actions in our EMEA co packing network, resulting in a margin impact of 290 basis points that we incurred in the first quarter, but will enable us to accelerate the shift of production volumes to our higher margin sales manufacturing and <unk>.

<unk> facilities for the remainder of 2022, and lastly, 270 net net basis points impact of other items.

Sequentially gross profit margin decreased by 640 basis points from the fourth quarter of 2021, primarily related to the short term underutilization of our new facility in Americas, which led to a higher cost of production.

We experienced lower production and sales volumes in the first quarter in the Americas, mainly driven by Covid related issues.

Lower sales volumes impacted both our revenue and sales mix and also led to a higher cost of production, which jointly led to a meaningful reduction to our gross margin.

In Asia.

Strict public health measures will remain in effect due to the omnicom variant.

As such our revenue in Asia reflected a more challenging operating environment, which also negatively impacted our gross profit margin.

We continue to expect variability in our gross profit margin quarter to quarter.

Based on the impact of supply chain challenges inflation timing of new capacity coming online and mix of production modules and by sales channel and region. We are monitoring the situation in Ukraine as well as the worst unexpected COVID-19, Lockdowns in China.

Adding another level of uncertainty and the impact it could potentially have on our business.

In our gross margin bridge in the earnings presentation, the positive impact of the higher share of sales manufacturing is an early proof point of this.

The higher production output from our sales manufacturing facilities will unlock multiple margin accretive benefits at the same time, namely.

Capturing higher production economics, and reducing logistics expenses from shifting co packing volumes to in house filling as well as the localization of production closer to our customers.

Enabling us to increase our sales to higher margin channels and customers and generally leading to higher fixed operating leverage in our new facilities.

In EMEA up mid single digit price increases have been and will be rolling out from March through may in the U S. We're planning double digit price increases that will be reflected this summer across all channels.

<unk> for 2022 and beyond.

We expect to see year over year improvement in our gross profit margin starting in the second half of 2022 and sequential improvement in gross margin starting in the second quarter.

We continue to expect that the localization and expansion of our production capacity within the regions should improve our production economics over time, and we are watching inflation closely.

We are also continuing to monitor the war in Ukraine, and any impact it may have more broadly on our business.

Both Russia, and Ukraine are large exporters of grains, such as wheat as well as the vegetable oils.

Which could impact global pricing for these items and even directly impact other grains ingredients and energy prices. In addition, Russia is a significant exporter of fertilizer.

Again as already noted the recent more severe COVID-19, lockdowns in China could have a meaningful short term impact on our business if restrictions do not ease in the beginning of the third quarter.

First quarter of 2022, EBITDA loss was $81 4 million compared to an EBITDA loss of $24 7 million in the first quarter of 2021.

Adjusted EBITDA loss for the first quarter of 2022 was $71 4 million in.

In line with our internal expectations, the adjusted EBITDA loss was.

Primarily related to the lower gross profit and we balanced the need for investments in our scalable infrastructure to support growth across three continents, while managing and reducing our operating expenses on a quarter over quarter basis.

Beginning in the second quarter, we expect operating expenses as a share of net revenue to improve.

We will continue to manage our operating expense growth rate very closely given the more uncertain operating environment today.

Now focusing on our balance sheet and cash flow.

As of March 31, 2022, we had cash cash equivalents and short term investments of $411 million and total outstanding debt to credit institutions of $5 $3 million.

Also have a fully unutilized revolving credit facility of approximately $475 million, including an accordion.

Net cash used in operating activities was <unk>.

Six to $8 9 million for the three months ended March 31, 2022, compared to $29 $2 million during the prior year period.

Capital expenditures were $53 $3 million for the three months ended March 31, 2022, compared to $5 $5 million in the prior year period.

Capex spend was lower than expected in the first quarter of 2022. After COVID-19 restrictions in China have impacted the facing of our investments.

Cash flow used in the finance financing activities was $4 2 million for the three months ended March 31, 2022, compared to a cash flow from financing activities of 6% to $2 4 million in the prior year period.

Turning to the guidance.

In the second quarter, we expect acceleration in our revenue growth rate compared to Q1, driven by higher production output as Tony mentioned, we expect production volume in the range of 135 to 145 million liters, which.

Is a leading indicator of our revenue expectation and reflects that our growth is a function of our production output.

Note there is a lag in turning production volumes into sales volumes and the fourth quarter of 'twenty to 'twenty. One is a good representation of what that ratio typically typically looks like.

We expect a sequential improvement on net sales per liter compared to Q1 and expect to reach the same level as the fourth quarter of 2021.

As I stated a few moments ago compared to the first quarter of 2022, we also expect meaningful gross margin improvement and operating expenses as a share of net revenue to improve.

For fiscal year 2022, we are reiterating our outlook and continue to expect.

Major European currencies on a percentage basis and our earnings presentation shows the FX assumptions in our full year guidance.

We expect revenue to be back half weighted this year with approximately 60% in the second half of the year our scale our production given a number of factors primarily related to COVID-19.

Broken down by region.

In EMEA, we have build supply ahead of expansion into the foodservice channel our new markets. Later this year, we continue to see variability in the timing of some retailer resets.

But are very excited about the discussions we're having with our retail partners in EMEA and we expect to have a better share of the shelf resets are complete.

We are also re entering expanding to new European markets throughout 2022, as Tony stated earlier that being said given Ukraine, we are cautiously managing our international expansion plans.

And finally in Asia, we are closely monitoring the strict public health measures for omicron and remain focused on the health and safety of our team.

We remain bullish overall for this region in the long term as we see significant opportunity to grow but short term the level of risk has increased.

We expect capital expenditures to be between 400 and $500 million Ly.

Likely at the low end of the range as the Covid restrictions in China will impact the facing of our investments.

We expect run rate production capacity to be approximately 900 million liters of finished by the end of fiscal 2022.

With that review, we are now ready to take your questions operator.

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press star.

Thank you.

Our first question comes from Andrew Lazar with Barclays. Please go ahead.

Great. Thanks, very much I.

I guess to start off and thinking about gross margins in the meaningful sequential improvement that you're looking for in <unk>.

They are not expected to impact <unk>.

As a starting point.

Yeah, So Andrew it's Christian here.

Question.

So in terms of the ones that are completely behind us is the EMEA co Packer consolidation.

The charge that we took in the first quarter.

We continue to expect inflationary impact.

Throughout the year.

We have.

Indicated during our fourth quarter earnings call, but as you know we are implementing price increases in EMEA.

Through March and May across all markets and regions, which will help to offset some of that and then we have the Americas.

<unk> the effect in the second half of the year.

And also the ramp up of the production.

Improvement the sequential improvement that we expect to see.

In the second quarter, both in America, as well as Asia will start to see an improvement.

Terms of Underutilization and the challenges that we faced here. So the first quarter is.

The worst margin quarter and from here on we should start to see sequential improvement throughout the year.

Great. Thank you for that and then Tony just looking at the U S. Nielsen data. It does show that as distribution improves so too typically does market share are you seeing that similar trend.

In many of your other key countries.

And is there are there is there are markets, where you don't see that and if so what would be the reason for that thank you.

Hi, Andrew.

Question just to be clear on the question.

Would you ask for distribution gains in market share.

Yes, no, but we are starting to see great progress and in EMEA, we have solid market share.

But the underlying health sector is still velocity performance, so that together with the expansion that we're doing on multiple levels.

We are seeing great progress, especially at the end of Q2 here.

On top of that Andrew I, just wanted to add there.

Exponential marketing that we haven't been able to do for two years, we expect to boost the Brent and sales in Europe . We previously at the end of around 200 different events a year, we haven't been able to do that for the last couple of years and now we are really really accelerating that and we're going to see output from that that's what we expect.

Great. Thanks very much.

Thank you.

Our next question comes from Ken Goldman of Jpmorgan. Please go ahead.

Hi, this may be some faulty math I just did back of the envelope here.

If we sort of take the ratios that you were talking about in the fourth quarter.

Of last year and apply it to maybe youre expecting production.

Millions of leaders to turn into in terms of revenues just given some of the puts and takes that might be unclear to us.

I think I mean.

When we we obviously you have sort of tried to give you some.

Factors that you should use.

In terms of getting to a reasonable revenue range for the quarter.

And.

Based on the production volume range of the 135 to 104 to 5 million liters.

Using that ratio.

Of.

And the other factor in terms of revenue on a full year basis is that 60% of what we guided to the market will happen in the second half of the year. So I think those pieces together you should be able to sort of get there.

Yes, we can just because youre not giving the number.

I think some people feel like it's a little bit hidden so to speak and so I just wanted to make sure we weren't missing anything and it sounds like we're not so I guess my second question is.

Last quarter, you said that while you have.

The capital raise opportunities at this time I think it is.

Something that we get a lot of questions on and I'm sure most of our peers do as well.

Yes, that's a fair question Kim.

First want to reiterate that we ended Q1 with plenty of cash on our books 411 million used dollars in cash and short term investments and we also have the.

Unutilized Rcs I'm sure you guys are aware of that $475 million U S dollars, including an accordion. So we believe we have sufficient liquidity to fund our business through 2022, but we're also confident that we have multiple options to access capital to fund our growth at the right time.

That was a R.

Our next question comes from <unk> Parikh.

<unk> of Oppenheimer. Please go ahead.

Good morning, Thanks for taking my question. So I had two questions on the pricing front. So first have your competitors starting to take pricing.

Hi, Tony.

Great question I'll, let Christian if you want to assume.

We are still monitoring the price increases we do see competition take price if not all of them. The smaller ones are waiting a little bit, but all the bigger competition. We see are implementing price, but we haven't seen an can't track anything some behaviors perspective. So we'll just have to wait and see the price.

Price increases in the U S going to take place for the second half of this year. So we'll just have to wait that out.

Okay, Great am I correct that the pricing that you're taking is only partially offset the cost pressure to there could be additional pricing required down the road or do you anticipate.

This round to help to offset all the cost pressures you are currently seeing.

No I mean, I think that we're certainly monitoring the inflationary environment very closely driven by a bunch of different factors that we have stated during the earnings call.

So if the inflationary rate continues to expand beyond what we guided in our fourth quarter earnings call of 8% to 9% as you might recall on a consolidated level. We will look clearer clearly have to consider potential additional actions to offset these inflationary pressures, including additional pricing actions.

Okay, great. Thank you.

Thank you.

Our next question comes from Michael Lavery of Piper Sandler. Please go ahead.

Thank you good morning.

Good morning.

Good morning can you just give.

You mentioned that 75% of your sales in Asia were from foodservice, but but you also.

So have the lockdown pressure there skewed primarily to March in the quarter, if I'm not mistaken.

I guess one did you.

I mean can you confirm I think you said there are 17000 of your outlets out of your 37, there 37000 that are closed.

That ratio look like in March and trying to just understand how it may look in.

<unk> second quarter obviously.

So in terms of close close retail doors, including foodservice is still 17000.

I'm sorry, Michael can you repeat that question just so I get it right yeah, So I guess.

What I'm trying to understand is if you had 75% of your sales from foodservice in the quarter.

Did that look in March when the Lockdown started to take effect because that feels more like how second quarter might look what was that ratio right now okay.

No I understand that's a great question no that that probably had.

That didn't change during March.

It got more severe in March the lockdowns than it was prior to our earnings call, but also.

That said the team has pivoted.

Because I think thats the core of the question how can we sell when everything is closed basically by the team has done a great job to really pivoting our business model and I stated in my in my prepared remarks, we do a lot of activities to sell in different ways.

<unk> entering new cities for retail procurement government procurement and community sales.

And as well as Samsung <unk> tea shop channels. So yes.

We are monitoring it very closely it is it is so severe lockdown, but also.

Given the activities that we have down we actually strengthen our position during the lockdown, meaning that our customer base is higher than planned and the acceleration once lockdown is east.

Potentially happened faster.

In.

You mean in Asia specifically.

Yeah, right, Yeah, China in particular right.

And in particular, and it's still it's still early innings I would say in terms of the retail strategy considering the the lockdown.

We have experienced.

And in Asia, but we are preparing ourselves from a production point of view, having the right formats to <unk>.

Enter into the retail space with the smaller formats for smallpox.

And.

And that is something that would progress through throughout the year.

Okay, great. Thanks, so much.

Thank you.

Our next question comes from Laura.

Of Guggenheim. Please go ahead.

Hey, good morning, everyone.

Actually I've got two question rich the U S retail distribution.

So in U S retail in the quarter, you lost market share leadership to play it.

Despite higher velocity.

As you <unk> I mean, you mentioned, 34%.

Two questions. The first one is what is the rational and to get into the frozen category.

Rather than securing more distribution dairy alternative meat first.

Yes that was a decision made prior to the supplier disruption in January and February also it takes away lower.

Lower amount of face to create the frozen items. So those are the components for that decision.

And Youre right, we lost market share for the first quarter, but that was really purely due to the production.

Something that we had and how we need to strategically allocate the volumes said that they were enhanced.

Right.

Appreciate that.

Yes.

Second question I'm not ready to this as well is.

I'd like to discuss I mean, just Starbucks business and partnership in the U S. I. Appreciate why you are focusing on Starbucks.

But at this point.

Both disability.

Very limited them into southern East.

As part of the reason being Starbucks.

Debuted the bran.

As you all know.

That visibility, yet would even be better or to expand distribution and retail which used to utilize the stock getting shelf space gain market share and probably also I mean increased profitability light.

To understand digitally I appreciate is not an easy answer.

At this time of year shouldn't should be spread be more longer term nature.

Really if you don't get.

But you shoot from them and that it ought to give some of these retail.

No, but that is a very valid question alone and I just want to say that we have a long term strategic vision for that partnership.

And in the short run, yes, obviously, we would have allocated.

Menu board visibility in the U S. We have to remove it from the App once we launched at Starbucks the cost of the success.

Related to the two then the supply we had.

Okay.

It still gives the brand a lot to be.

Truly believe it's right thing to do short term, yes, you could have done you can pick different.

Sure.

Decisions, but we here for the long term as we said right from the start so that's why we are pursuing right now.

Thank you good luck guys.

Thank you too.

Our next question comes from Rob Dickerson of Jefferies. Please go ahead.

Great. Thank you.

So Tony just a couple of questions in terms of.

The expected ramp in the back half.

On the revenue side.

I know you said you plan to enter new.

A few new European markets.

But kind of have to watch maybe the timing just given the situation in Ukraine, and then also I heard you say.

The clear potential to ramp Skus in Asia as you get through the back half, but again kind of assuming things start to ease a bit in Asia.

I'm just curious like as you sit here now we're already in May that we're talking back half Ray which starts July .

Are you already in those conversations with those retailers and saying Hey, if the Ukraine kind of uses pledging gets better like we're ready to go here our products and the same thing in Israel or has it been a little bit more complicated just given.

The operating backdrop, that's my first question.

So if you so it varies.

Hi, Rob by the way good question.

Are you, referring to EMEA or all the different regions.

Really all of the different regions, but I just kind of quickly.

In Asia, Yes.

Got it.

And as we express so many times. This is all about in the U S. It's all about getting all going up and running and we see really good progress. There. So we feel confident about the ramp up in second half of this year. We can also start to allocate the volumes the way we want to.

That is probably more favorable for us.

From a margin perspective as well.

Europe , we are really stepping up.

We have fantastic progress in retail will be increased shelf space I mean, 50%.

The increase of facing one of the major.

Retail is in UK, just one one action foodservice.

We are having really interesting discussion and we are confident that we will announce more.

<unk> in the opportunities for foodservice.

In Europe . So we have we see really good progress there.

That will see the benefit of coming into.

<unk> this year in Asia, we actually like we said fantastic.

Proof points, when we launched the T T Master for instance, which is I just want to say the magnitude of that product is massive it's it is a tailored product for.

Foodservice segment that is twice as big as coffee shop.

And we have great poodle resolved and we have key counts lined up.

Massively during the lockdown because of the work the team has done there.

Sure.

What's that sufficient Robert.

Yes, no that's great I appreciate it.

And then second question just kind of back to the margin piece as we get through the year.

I just wanted to clarify I know you had said.

The sequential improvement.

In the second quarter, and then gross margins should be better on a year over year basis, as we get into the second half.

Obviously Q4 is not extremely <unk>.

<unk> comparison.

So maybe it could help everyone on the call just to kind of understand.

Firstly for the back half of last year and that's it. Thanks.

Hi, Rob It's Christian here, Yeah, So I think.

You sort of laid it out the way you should look at it it will be a quarter over quarter sequential improvement.

We are improving our production output from our three new facilities around the world that will offset.

Some of the under utilization headwinds that we have experienced here in the first quarter again, the first quarter as like the lowest point of gross margin from here on it will.

Yeah.

Got it by fourth quarter being the highest margin quarter.

Okay helpful helpful. Alright, Super Thank you so much.

Thank you.

Our next question comes from Jon Andersen of William Blair. Please go ahead.

Well hi, everybody. Thanks for the question.

I wanted to revisit Lauren's question on U S distribution.

With the progress that you're making in Ogden.

And I guess later in the year with fee enhancement to mill Bill.

What how should we be thinking about.

Your both the ability to service lets say a starbucks in foodservice, but.

Perhaps on the retail side to get your distribution up from lets say, 40% to something more like.

The leading brand at 80%.

What kind of timeframe.

Is associated with that and kind of your your own internal plan at this point.

Hi, John Yes.

Thats a very good question.

Our ability said will definitely increase.

Terms of foodservice, we will continue to consider and then together with the in discussions with Starbucks to see how much of their demand we're going to continue to serve.

And we came mainly it's about filling the fill rate gaps.

Again velocities increasing for us.

And if you look at the dollar per store per week actually increased from 80 to 84. This quarter. So we still see a strong performance on velocity side.

So we need to that's going to be a catch up game for us to feel that that gap Inc.

In terms of expanding we are taking a very cautious and mindful.

Mainly who are very close to <unk>.

Posted it should action here in the U S. But we are monitoring we are.

There is an opportunity.

Go for it but we're going to do is I'm very mindful manner I can't give you timeframe John .

It also depends on the development, especially the velocity developments.

Wish we are extremely excited about of course, so we just have to wait and see and balance that thoroughly.

Yes.

Do you do you just a quick follow up on that Tony.

When you think about the U S.

Retail opportunity do you envision or CEA.

Placement of the <unk> brand at those higher levels of ACB, 80%, plus or do you anticipate more selective distribution.

Where the brand may sit at 50% ACB, because youre going to be selective choosing your locations and locations that serve a target customer.

We're going to for the next for the next period of time, we're going to continue to have a mindful approach and be selective.

And we're also going to balance because we do believe the multichannel strategy is very important for us and I think 43% of the sales today comes from retail.

Uh huh.

Around 50%, maybe as retailers tell us that that is going to be maintained as we go forward. Because we think that is a good balance for us.

Okay. That's super helpful. One more quick one.

With the Lockdowns in in.

China.

Wanted to try and understand how that may be affecting the <unk>.

Construction or ramp in the mine shot <unk>.

Facility.

Has that is that.

Pushed out kind of.

Your timeframe to kind of hit run rate.

Production within that facility because thats, an important facility to your point to expanding the product range that you can offer in that part of the world and expanding distribution. Thank you.

Yeah.

This is Peter here.

Our producing volume in both my China, and Singapore facility.

As you said due to the Covid lockdown.

The demand environment in China, and our ability to receive input materials in my shop.

We are deliberately managing our timeline to ramping up production.

And as Tony mentioned, we see significant growth opportunities in Asia and have strong confidence in the potential of that region. So we are positioning us in both facilities to quickly ramp up as soon as the lockdown restrictions are lifted.

So our current expectation is that Singapore.

Steady state utilization in the third quarter and Thats My Shang will continue to ramp up during the course of this year.

And remember my Shawn just started in November so it is still in the ramp up phase.

Is it materially impact our plans at this stage.

Great. Thank you so much good luck.

Thank you thanks John .

Thank you.

Our next question comes from John Baumgartner of Mizuho Securities. Please go ahead.

Good morning, Thanks for the question.

Thoughts on the categories existing elasticity and I guess, how do you think about value I mean, do you look at the categories pricing relative to milk and is there a pricing threshold either on a relative basis or an absolute price point, we think elasticity may accelerate.

I understand the limited visibility, but im just curious in terms of just historical case studies and anything you've seen around thresholds or consumer pushback. Thank you.

Yes, we don't take we just yes, because we are a premium price clearly is good it's a good question Hi, John .

It's a good question and we are premium priced.

Brand.

Fantastic performance.

In terms of elasticity like we don't take that likely we have done our work thorough analysis.

Our people in multiple angles, and we believe that the pricing that we're going to take it's going to benefit the company and our position and we also relatively to other.

Other brands, we do see that the competition also is taking price. So relatively the gap is going to either maintain or b. If it is going to be a change can be very very low in terms of absolute pricing. It's really hard to say, we will also see that some vary across some markets. We do see dairy also take price. So so overall inflationary.

Just kind of like we're going to see an impact across the whole food industry and other industries.

Which is very evident for us today.

So.

I do believe one thing that is important is that trying to stay as the milk industry is subsidized. So it's not a healthy industry for anybody really is industry well very few or no. One is really making any money that is not the benchmark of with this.

This category is going so so.

Either those subsidized.

We're going to be lifted.

Or are they going to maintain that remains to be seen but the category is not growing.

Not going to hit rock bottom in terms of the.

Type of pricing.

We do recognize going forward say midterm long term that pricing could potentially be an hurdles too.

To reach our the demography and geographies that is simply that we are strategically working on the supply chain side to optimize production. So with the new facilities that we have we have great opportunities to lower our cost over time, when we can get more focused on the.

Oh really launching those initiatives at depth.

Okay. Thank you thanks for the detail.

Thanks, Tom.

Okay.

This concludes the question and answer session and today's conference call.

May disconnect your lines. Thank you for participating and have a pleasant day.

Q1 2022 Oatly Group AB Earnings Call

Request a DemoDemo

OTLY

Oatly Group

Earnings