Q2 2023 Oatly Group AB Earnings Call

July 27, 2023

Good morning, and welcome to the <unk> second quarter 2023 earnings Conference call.

All participants will be in a listen only mode. If.

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After todays presentation, there will be an opportunity to ask questions.

To ask a question you might.

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Please note this event is being recorded.

I would like to turn the conference over to.

Mr. Brian Kearney from Investor Relations.

Please go ahead.

Good morning, everyone and thanks for joining us on todays call for <unk> second quarter 2023 earnings Conference call.

On today's call are our Chief Executive Officer, John Kristoff photon.

Our chief operating officer, Daniel or don't yet and our Chief Financial Officer Christian conquer.

Before we begin please review the disclaimer on slide three.

During this call management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, including statements regarding our future results of operations and financial position industry and business trends business strategy market growth and anticipated cost savings.

These statements are made on made based on management's current expectations and beliefs.

And involve risks and uncertainties that could differ materially from actual events or those described in these forward looking statements. Please refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

Also please note on today's call management will refer to certain non <unk> financial measures, including EBITDA, adjusted EBITDA and constant currency revenue.

While the company believes these non <unk> financial measures will provide useful information. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with <unk>.

Please refer to today's release for a reconciliation of the non <unk> financial measures to the most comparable measures prepared in accordance with iron ore.

In addition, <unk> has also posted a supplemental presentation on its website for reference.

I'd like to now turn the call over to John Kristoff.

Thank you, Brian and good morning, everyone.

Page five as the key messages I want you to take away from today's presentation.

Third.

I'm very excited to build these new CEO , because I believe <unk> has a significant amount of potential in both goals.

<unk> profitability.

In my time here, so far it does become equally clear that to realize the potential we must continue to take bold action.

One action, we are seeking is initiating that improvement plan in our Asia business.

Where we are refocusing our energy and resources.

Thank goodness the coal business.

Confirmation to go home.

We expect this will enable us to adjust to the evolving plus upon the become vitamin.

This segment up for profitable growth.

Another action, we are seeking is a further reduction of overhead costs at both corporate function and our Americas segment.

This production will further increase our focus and agility as a company.

Finally, while we are reducing our guidance for 2023 of our new goals. These bolt action keep us on track to reach all targeted gross margin for the full.

<unk> adjusted EBITDA in 2024.

So.

Good.

Slide six outlines why so much believe occ's uniquely exciting company.

We haven't been normal sales growth opportunity in front of us as we look to revolutionize the food industry and convert consumer.

Daily into club base.

The underlying demand for the milk category remains calm.

And <unk> is the key driver of category growth.

Basically in regions, where we have the same capacity distribution gains and bone building.

We also have a significant margin expansion opportunity in front of us.

In full year 2022, we will have just 11% gross margin.

This quarter, we are at 19% and we believe we can reach our long term target of 35% to 40%.

Finally, what makes <unk> truly unique is our mission and purpose driven culture.

Here you can see the three pillars of our mission.

Our employees and myself no when we come to work every day.

We are working to make the world a better place.

Slide seven outlines how we plan to realize our potential.

First we will achieve an appropriate balance between performance and purpose.

We know that wide performance with purpose is meaningless.

Purpose results performance is not placebo.

So for us to achieve our dual mandate of performance and to a close.

We must have a stronger business.

Before we are able to have a significantly bigger business.

And to strengthen our business.

<unk> instituted disciplined resource allocation decision processes.

That is all driven by legal.

Based analysis.

We have also increased regional accountability and aligned incentives accordingly.

And finally over the past year.

Yes.

Embraced the approach of handgun.

The management to ensure our team I have the support and resources needed to.

To execute on our priorities.

And are able to focus on execution.

Slide eight.

Like where we are in this judd.

If you'll recall on our third quarter 2022 earnings call, we laid out a plan, where we would prepare for goals.

Increased simplicity and agility and ultimately drive profitability.

This plan began we though EMEA business and our corporate functions.

As you can see our EMEA segment has been performing well.

With cone and improving market share consistently studied the hope of new goals and consistently positive adjusted EBITDA.

We have now expanded this approach to our Medicare business, where.

We have stabilized the.

The supply chain.

Creased demand driving investments.

And candidly in pool.

Adjusted EBITDA.

While we are not yet all the way to where we want to be the consistent improvement is clear.

Finally.

We are expanding this approach to our Asia business.

We have long term conviction of the opportunity in Asia.

And taking this action will help us capture the opportunity.

This includes refocusing on its core business improve.

Improving the operating cost structure and aligning incentives for the local management to focus on driving profitable growth.

Daniel will provide additional detail, but no actions.

Slide nine.

Outlined the cost savings that we have.

Announcing today.

You can see that.

Across the entire company.

We are targeting to say the approximately $85 million.

By 2024.

These savings will come primarily from non people costs expense.

Such as fewer project related expenses and reducing our reliance on outside consultants as.

As well as.

Unfortunately, some element some eliminated drugs, including goals that we have look at Hyatt full.

In Polk complete so we are not producing our demand generating advertising investments.

Since we expect all of these savings to fall to the bottom line, we know expect.

Total overhead in absolute value to decrease compared to both 2022 and 2023.

Just to be clear the $85 million of savings are calculated as the reduction in our <unk>.

Forecasted 2020 full SG&A nut.

The $85 million reduction compared to 2022.

We are being very surgical in these cost reductions and we are not playing one size fits all approach.

Each team has diligently.

Diligent be evaluated what is necessary to drive gross margin and profit.

Then eliminated.

We currently believe that this careful approach will ensure an appropriate level of support and investment in order to drive profitable growth.

Turning to slide 10.

Tim will take you through our performance in the quarter in more detail, but I want to give you my perspective on our updated 2023 outlook.

We are reducing our constant currency sales goals outlook to a range of 7% to 12% from the pie all kinds of 23% to 28%.

Approximately two thirds of the reduction.

Even by the Asia segment.

With the remainder being driven by a more conservative outlook for the Americas.

Our outlook for the EMEA business has not changed.

We are maintaining our fourth quarter gross margin outlook.

Payable ability in the EMEA business is expected to offset margin and we'd probably use so volume expectation in both Asia and the America.

Importantly, we believe the bold actions, we are taking across the business.

And keeps us on track to achieve positive adjusted EBITDA in 2024.

And enabled our Fisher sustained goals.

With that.

I would now like to turn it over to our Chief operating officer, Daniel of don't yet to give you a no production that update.

Thank you Jay and good morning, everyone.

I'm very happy to be here with you.

I will begin with our EMEA segment on slide 12, EMEA is executing well on its 2023 priority strengthening the core markets growing foodservice customers expanding the portfolio beyond coffee and into adjacent market.

Slide 13 touches on the first two of those priorities.

Can see on the left that our category continues to have strong growth growing 14% in the quarter.

Neither chart shows that we continue to gain share in our core markets of Germany, the UK and the Netherlands.

And we're very happy about the continued expansion of our food service customer base, including Starbucks in Italy, and expansion of our partnership with Mcdonald's into four new markets and Qatar Airways.

Also our new self serve product continues to gain traction with many new customers across Europe .

Ever pop up store in Amsterdam is putting a big hit with up to 2000 Cups sold every day.

Slide 14 is an update on our progress in expanding our portfolio beyond coffee locations.

As a reminder, we're expanding our non coffee portfolio from a somewhat limited offering that was mostly chubb deal regional OTT product to a non coffee portfolio that more directly replicates dairy products, such a whole milk, saying schemes scheme on no sugar.

We are calling this expanded portfolio. The go glu portfolio, we're very excited about these.

Enhances our product offering while expanding margins our UK business is the furthest along in the mixed shift in the second quarter. The net impact of this mix shift 13% year on year volume growth as we increased usage and bringing new consumers into the category.

So we're still in the early days, we're seeing good progress on volume and margin.

Slide 15 gives you an update on our geographical expansion, which is progressing well.

Our new markets increased their share of total volume by 50 basis points in the quarter.

I'm also excited to announce today that we have signed a partnership with Amazon that will expand our European distribution with them, we will be capitalizing our success on Amazon in the UK and expand into Germany, France, Italy, Spain, the Netherlands, and Belgium later in the year.

Additionally, this exciting partnership will help us further accelerate our expansion into new geographies.

In the look out for a more formal press release with additional details.

Turning now on to the Americas on Slide 16.

The Americas supply chain remains excellent and they are progressing well against our priorities.

We are also making good progress on our commercial priorities our strategy is working.

At a slightly slower pace than we originally expected we have not taking our foot off the gas on our team.

Bracingly pursuing additional commercial opportunities across all channels.

And as Stacy mentioned the Americas, it's further simplifying its overhead structure.

The drive simplicity and agility.

Let me double click into each of them.

Slide 17 is a reminder of the Americas 2023 priorities, we are focused on supply chain execution with the <unk> transaction and consolidating the co Packers network.

And on the commercial side, we're focused on expanding distribution high quality infill promotion and accelerating our brand building investment.

On slide 18, you can see that our transactions with <unk> foods is progressing quite well.

This partnership will bring us significant improvements in operational reliability and capabilities.

As evidenced by our fill rate remaining at appropriately high levels, we have terrific relationships with both at the highest strategy level as well as the day to day on the ground level and we're working very closely on longer term planning on things like innovation and continuous operational improvements.

Overall, the <unk> transition is going very well and I'm very pleased with our progress.

Turning now to slide 19.

The EIF transaction enables us to consolidate our co pockets network.

This consolidation is now substantially complete.

And this slide shows how it impacts our supply chain network we.

We have exited the co Packers marketing red.

You can see that they were very far far away from our manufacturing facilities and by exiting those agreements. We are now able to drive significant savings in logistics.

And on Slide 20, you can see that we are doing exactly that.

Since the beginning of this year, we have reduce our outbound freight per liter by about 25%.

And we believe there is additional runway for continued improvement.

The recent progress by the supply chain.

On.

21, you can see we have increased the America brand building investments in the quarter up two 6% of net sales in the segment.

The campaigns are driving a significant amount of box for consumers.

The media and consumers are really loving our new cream cheese product. These investments is very important to continue converting consumers to plan base and we're very pleased with the progress so far.

Turning to slide 22.

With the supply chain stable and additional advertising, we have started to regain distribution.

We have increased our retail distribution by 24% since our supply chain stabilized.

Pushed fill rates above 90% back in October .

We're pleased to see trends moving in the right direction, but the distribution build it's a bit below where we expected it to be at this time.

Our sales teams have had very productive conversations with lapsed and new customers.

While we remain confident that we will continue to gain distribution. It is just taking a little longer than we originally expected.

You can see on slide 23, the distribution deals have started to translate into volume growth, which is very important to drive margin improvement through absorption again, we're very pleased that trends are moving in the right direction with increased advertising and promotions, but.

This lowered unexpected distribution deals has put the volume growth slightly behind where we expected which is driving the increased conservatism in the fiscal year outlook that GNC has just mentioned.

Turning now to Asia on Slide 24.

Since joining the company over a year ago. The C&I have come to appreciate the amazing job with <unk>.

<unk> team has done and the huge potential that still remains in the region.

The team has done a terrific job by starting from zero building two production sites that produce high quality products and establishing the <unk> brand as a leader in the plant based market in China as.

The region has been transitioning into the post pandemic era, we continue to see significant opportunities for growth. However, consumers for chasing behaviors are different than we expected.

For those who have been listening to our prior earnings calls we were positioning ourselves for a large post pandemic tailwind across foodservice retail and e-commerce.

These included significant upfront P&L investments in things that are just new product distribution will start promotions sampling and advertising. These expected tailwind has not materialized as we expected.

So we need to adjust to the current reality of how consumers are behaving and we need to improve the fundamentals of our business before we're able to meaningfully accelerate growth.

We cannot continue to destruct hotels, and we cannot continue to justify the significant investments with uncertain payoffs.

This is why we have initiated the strategic reset plans for Asia.

Slide 25 outlines our improvement plan.

We'll be transitioning the business from a mentality of expanding very rapidly across all channels. So a more controlled expansion.

We will primarily focus our efforts on expansion within our core businesses, where we believe would have a strong position with an unrivaled brand presence.

<unk> portfolio and innovation agility we.

We will capitalize on those strengths to adapt to the emerging environment.

Nearly 60% of our revenue in Asia is in foodservice and we believe we have a strong position in that channel. Our foodservice business is fairly geographically concentrated and we believe that retail expansion in those market makes the most sense since the local consumers already knows us.

We will also be changing the team's innovation process.

Directly we had a process that resulted in testing and piloting a multitude of new products at the same time.

Many of which were very expensive to produce and distribute especially in the retail and e-commerce channels.

We will be therefore slowing down on S SKU expansion and eliminating many unnecessary skus.

By focusing on fewer skus, we will be able to better simplify our processes and optimize power plants operate.

Finally, as Jason mentioned, we will be migrating to a more simplified cost structure that will streamline business processes and enable the local team to focus on execution.

As both Jay and I have said.

We're excited about the opportunities in the Asia market.

We expect that these actions will refocus the team and recalibrate, how they operate which we believe is a critical move towards profitable growth.

We'll look forward to updating you on our progress.

With that I will turn it over to Christian to give you a financial update.

Thank you Daniel and good morning, everyone. Slide 27 gives you an overview of the P&L for the quarter, we reported 10% year over year revenue growth and 11% constant currency revenue growth gross margin for the quarter was 19, 2%.

It's a 340 basis point improvement versus the prior year quarter, and a 180 basis points sequential improvement from Q1.

Adjusted EBITDA was a $53 million loss, which was a $1 million improvement versus the prior year. This came in slightly below our expectations.

Slide eight shows the bridging items of our second quarter revenue growth.

You can see that volume grew 3% price mix grew 8% for our constant currency revenue growth of 11% that was partially offset by a 1% foreign exchange headwind to result in 10% total revenue growth for the quarter.

Slide 29 dominant clicks on the revenue bridge a bit further.

Shows that by segment.

We are pleased to see that both EMEA and Americas posted constant currency sales growth of high teens, which was offset by an 11% constant currency sales decline in Asia.

As a reminder, as we've moved through the third quarter, we will lap the Americas price increases that they took in August of last year. So we expect strong price mix number to come down going forward.

Slide 30 shows you the sequential quarter over quarter gross margin bridge, our year over year Bridge is provided in the appendix of this presentation.

The sequential improvement in gross margin was driven primarily by improvements in our supply chain costs and absorption rates in the Americas and EMEA.

To a lesser extent, we also benefited from the impact of a full quarter of the impact of EMEA price increases.

These benefits were partially offset by the slower than expected post COVID-19 recovery in China, and a flight segment margin mix headwind.

Turning to profitability and cash on slide 31.

In the left hand chart, you can see our adjusted EBITDA by segment with EMEA are continuing to report good profitability.

<unk> segment also improved to $9 million loss, despite the increase in promotions and advertising.

The Asia segment reported a $22 million at all.

As this segment continues to be impacted by the slower than expected post pandemic recovery corporate expense of $28 million came in largely as expected and approximately in line with the prior year and prior year quarter.

On the balance sheet I'm happy to report that all previously announced financing truck transactions closed during the quarter and we raised $465 million.

After paying down our revolving credit facility balance transaction related fees and.

And funding the business and now have over $340 million of cash and cash equivalents on our balance sheet.

End of the quarter. In addition, we have approximately $200 million available in our amended revolving credit facility.

Slide 32 shows you our updated guidance for 2023, we now expect constant currency sales growth in the range of 7% to 12% with them.

Approximately 130 basis headwind from foreign exchange.

We continue to expect sequential improvement in gross margin and to reach the high <unk> by the fourth quarter with the largest quarter over quarter increase occurring in the fourth quarter.

We also now expect to spend $110 million to $130 million in Capex. This year. The reduction is primarily related to an adjustment in the timing of projects to better align with expected demand as we have enough production capacity to support growth.

The next couple of years.

As we move forward through the balance of the year, we expect that EBITDA will improve slightly from the second quarter as gross margin improved sequentially and then the SG&A savings will it be a more meaningful driver of EBITDA dollar improvement in the fourth quarter.

As Jason mentioned, the bold actions that we're taking are expected to strengthen the business and keep us on track to achieve positive adjusted EBITDA in 'twenty to 'twenty, four while enabling our future sustained growth.

This concludes our prepared remarks, operator, we are now prepared to take questions.

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

Speakerphone, please pick up.

Your handset before pressing the keys to withdraw your question. Please press Star then two.

Please hold while we collect question.

Yeah.

The first question comes but Christian Carey with Bank of America. Please go ahead.

Thank you operator, good morning, everybody.

How much of the reduction in your organic sales outlook was driven by Asia versus the Americas segment, you mentioned on the call earlier that you have a more conservative outlook for the Americas business is that entirely driven by slower than expected distribution build that you guys talked about or.

Are you guys also assuming slower growth for the oat milk category in the U S.

Scanner data for the U S shows that retail sales just continues to slow sequentially. Thank you.

Hi, James Okay. So speaking thanks for your question.

First part of your question is 66% of the guide down is due to the Asia. The effects only because it is related to the U S and I hand over to Daniel to give you the answer to the detailed answer to your question on the U S.

Thank you Christian.

We see sustained progress in our ability to continue to fulfill distribution. Both in GDP you saw in the in the recorded remarks above 20% and ACD now reaching to <unk> four oat milk, which is very good progress.

And as you can expect.

We're working on reset range resets in the rest of the calendar year. So expect more to come when it comes to promotions, we have seen our good part of two months.

Units.

Volume growth, which is.

Which is slightly behind our expectations, but solid progress after we have.

As a result, our supply chain issues until rates issues.

Of course, what Youre seeing is a more.

More muted performance for plant based in general, but let's face it our ultimate continuous to outperform all other crops. So as we move forward and as we continue to stimulate category growth as we have proven in EMEA. We're very confident that we will continue to gain.

Sure and we will continue to make the category growth. These multiple come in the U S of course, but perseverance and investments in growth will eventually payback.

Thank you.

Thank you. The next question comes with micro Laughing at me with my opinion Piper Sandler. Please go ahead.

Thank you and good morning.

Just wanted to good morning.

Just wanted to come back to your.

Yeah.

Launching Mcdonald's in several European countries, and just get a sense of.

What could be next.

You don't want to get over your skis on that but.

Is this a little bit of a test that could have a broader rollout or.

Just how do we think about that relationship and.

What it would take to translate into other markets.

Very good Michael good to speak to you. This morning. Indeed as you saw we started with Austria now we are expanding east.

<unk>.

I can tell you that its more to come.

On a country by country basis.

And yes, you know it's part of our strategy there is substantial head space for us to grow in EMEA, but around the world in foodservice.

In EMEA lift on 20% of our volumes come from food service and it's a priority strategy. So you should expect.

Some important names coming into in the upcoming quarters.

The MDC of not just mcdonalds, but some others. So indeed it is.

The priority of our strategy.

No that's great and then just to Asia that was certainly were.

Numbers were worse than we'd expected.

We've seen some some headlines about.

The macro picture there.

Certainly the reopening hasn't gone the way I think you were many would've hoped but can.

Can you just give us maybe a little bit more granular sense of how the consumer is adapting.

<unk> got Youre, mostly foodservice there is the pressure.

Are people just not leaving the house as much are they cutting back on at home purchases are they more frugal across the board I guess, what are you seeing and I know you are adjusting your strategy to try to.

Fit more appropriately and at the very at least be more focused I think.

Quite reasonable, but as far as just the consumer piece of it do you have a sense of along there.

Malaise could last.

What are you seeing as far as the view on the ground.

Thank you so much Michael I think it's a great opportunity for me to share a bit deeper what's up and then all of you on this agent.

Where do we come from let's let's come back to that this business over the past five years, our business in greater China, and Asia has really been building and driving the category. We have been leading the plant based innovation and sustainability and honestly, establishing quite a bump phenomenon there.

As the economy keeps a few years ago, our Asia business was weak leasing that could to prolong and continue that goes and pulled out there put quite a number of bets. So that we could be positioned to benefit from the funding mix boom that was the intent so what does up and what's the <unk>.

<unk> environment, we are all seeing today as the region moved from Zillow commit to deal with frictions like all of you we got surprised because consumption customers consumer behaviors exactly as you said, we're not the line, we though our assumptions and as a consequence, we quickly realized that the best.

We have placed we are not paying off and we saw some of the new channels customer products, we have been putting bets on we're not generating delivery of a new way. We are looking for and at the same time there were not justifying the expenses were put behind them.

No.

What we saw is the need to very quickly reset because in that kind of circumstances in my book licensees not the strategy. So we decided to act and act quickly and immediately with the reopening of the travel Danielle myself, we've been able to grow that twice in the past two months.

To act finally able to be underground on the market with the teams.

What have we seen if I start by our own internal Dec disease, we have a very strong brand we have a wonderful dedicated team with a lot of competency.

We have clearly a man.

Factoring facility management plans.

Really great.

We have lots of great ideas at the same time, we saw too many activities that started becoming distractions too many unprofitable activities and finally activities that we have not fully leveraging our asset base. Neither great people know the production facility.

We had so what we've decided to do what Daniel alluded too in his recent plan is three simple and clear themes refocus.

Uh huh.

We rationalized our portfolio.

<unk> our cost structure.

We are refocusing on our core business, which means foodservice and a very few key retail partners only on key cities.

Symbolize the portfolio, we have far too many skus as you heard most of some of the Skus. We are margin dilutive and we are not feeling our factories. We are sorting out all of that and finally recalibrating our cost structure as you can imagine to be in line with the business we have today.

Very confident and we believe that's by refocusing on our core business, we will improve our business under long term by doubling down on what's working that will allow us to play or the hope that the market expects us to play.

Particularly dealers, which is to continue to drive category growth and we will do that by doubling down with the great local partners, we have in foodservice chains as well as in retail.

Finally, what what can I say on that as well is you know like me Michael that this market is moving superfast so as things move fast in China. We are lucky to have only China team does is equally moving fast and that gives me a lot of confidence that we are built.

Being a very strong Fisher once we go through these very short term reset talking about consumers.

Also one of the aspects of your question what we see is a number of trips that these notes where it was before the pandemic we see difference.

Spending trends.

Still quite high on high premium, but also more price conscious and therefore, we are considering exploring pricing tiers.

Strategy and finally, we see people that are still totally obsessed with novelties and innovation, which means we need to find efficient ways to answer that so that's that's what we see and Thats our analysis of what's happening in Asia and greater China Michael.

Okay very helpful. Thanks, so much.

Yeah.

Oh, Thank you and this concludes.

A question and answer session I would like to turn the conference back over to Mr. Carney or.

Any further observations. Please go ahead.

So there are a couple of questions that risk.

We received that I think might be helpful to tackle in this venue.

The first would be probably for Daniel.

The prepared remarks, we said that.

Our outlook for EMEA as sales has not changed and could you elaborate on kind of what we're seeing in that market and what leads us to continue to be confident there with pleasure. Thanks, Brian .

EMEA.

What we see in EMEA are now I.

I guess, you're getting familiar with the consistency of our solid performance in the segments.

We see the metrics going continue to move in the right direction volume growth in the core markets continuous share gains year on year.

And on the proof that we continue to stimulate category growth in the core markets.

<unk> continues to grow at more than double digit growth.

Now what makes us more excited.

Moving forward is that the opportunities to continue to expand in the segment as well as across to the other regions as well.

Three things that we only started to explore number one portfolio.

Portfolio, we alluded in the prerecorded remarks.

About our non coffee locations portfolio, which is only only in the early innings.

Expect much more on pack size architecture, as we move forward.

Secondly on foodservice.

Service is.

It's less than 20% of our revenue in EMEA and we're only starting to explore the impacts on the opportunity to generate consumption and to drive conversion in the B floats.

Food service accounts, we are investing in capabilities, both in route to market and innovation.

To make sure that continues to be the case.

And number three new geographies, we're super excited about the new geographies.

We have seen now.

Our products only appearing in.

In the most prominent Cds across Europe in the new regions. So you will find very easily ultimately in most of the coffee stores in Paris, Barcelona, Madrid, Milan in Brussels worse. So you name it and that's only the beginning and we start to see that whether it's in monoplane, France or whether it's in carefully in Spain.

<unk> is already the number one turning SKU.

So with patients and playing up to the strength of our model. There is much more bright future to come in EMEA.

Perfect and then the other question that we've gotten.

For Christian.

Would be on the path to profitability and if you could remind everybody of the drivers and.

And how to think about that going forward, but to do that Brian .

So what we stated in our prepared remarks is that we.

We are confident that with the actions that we have taken and will take during the second half of 2023, we are still on track to achieve positive adjusted EBITDA in 2024.

As you might recall the key drivers in our path to profitability consists of gross profit margin expansion throughout 2023 and beyond as we continue to grow our business.

And also optimizing and streamlining our organization to balance growth with profitability.

Our sequential gross profit margin expansion is on track.

To achieve the margin of the high <unk> in the fourth quarter.

In our Q4 earnings call, we laid out the four buckets, which would drive the gross profit margin improvement.

We have three of the four buckets largely behind us.

Namely implementation of price increases in EMEA that is done.

Improved channel mix effects.

Expand distribution, we're seeing those effects already and improving our cost per lead or as we optimize our supply chain operations and network and that is also largely behind us but it will also continue into the second half of the year as we improve our growth.

We believe that with the improvement plant in China that we are about to implement.

As such the SKU rationalization that Jay spoke to.

Will result in gross profit margin improvement in the Asia segment.

And that is related to the bucket that we call COVID-19 recovery in China.

The gross profit margin story, we remain on track and we've seen sequential improvement now over four quarters.

In terms of optimizing and streamlining the organization as we communicated on todays call. We have identified $5 million of annualized SG&A expense savings.

Rich the America and the corporate segment is already behind us that is $4 million to $5 million out of the 85.

With Asia happening in the second half of this year.

Thus, we will see $85 million reduction of our forecasted 20 for SG&A.

And as noted in our prepared remarks, our total SG&A in 2024 will be lower than in 2022. We are confident that these actions combined will result in positive adjusted EBITDA in 2024.

Thank you Shannon and thank you for everything.

Jim I just wanted to add my voice to that to say, we have one single guiding north star, which is profitable goals and myself. The leadership team. The organization is laser focused on delivering full year 2020 for positive adjusted EBITDA in order to fuel profitable growth.

The clarity of having one guiding studies, what's driving our choices our decisions and actions and this is what we do every day. So I just wanted to add my voice to our guide detailed somebody you gave to say that's what makes us confidence because we talk about actions we have taken all we uptick thank you.

Terrific. Thank you. This concludes our conference call today feel free to reach out to me in Investor Relations. If you have any follow up questions have a great day.

This conference has now concluded thank you for attending.

Today's presentation you may now disconnect.

Okay.

[music].

Good morning, and welcome to the <unk> second quarter 2023 earnings Conference call.

All participants will be in a listen only mode. If.

If you need assistance. Please signal conference specialist by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question to me to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note this event is being recorded.

So I would like to turn the conference over.

Mr. Brian Kearney from Investor Relations.

Go ahead.

Good morning, everyone and thanks for joining us on todays call for <unk> second quarter 2023 earnings Conference call.

On today's call are our Chief Executive Officer, John Christoph <unk>, our Chief operating officer, Daniel or don't yet and our Chief Financial Officer Christian conquer.

Before we begin please review the disclaimer on slide three during.

These statements are made on made based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events.

Or those described in these forward looking statements. Please refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

Also please note on today's call management will refer to certain non <unk> financial measures, including EBITDA, adjusted EBITDA and constant currency revenue.

Please refer to today's release for a reconciliation of the non <unk> financial measures to the most comparable measures prepared in accordance with Io bra.

In addition, <unk> has also posted a supplemental presentation on its website for reference.

I'd like to now turn the call over to John Kristoff.

Thank you, Brian and good morning, everyone.

Page five as the key messages I want you to take away from today's presentation.

Third.

I'm very excited to be Lp's, new CEO , because I believe Ot is a significant amount of potential in both goals and profitability.

In my time here, so far it does become equally clear that to realize the potential we must continue to take bold action.

One action, we are seeking is initiating that improvement plan in our Asia business.

We are refocusing, our energy and resources.

Lengthening the coal business to have a strong foundation to go home.

We expect this will enable us to adjust to the evolving on the become vitamin.

This segment up for principal goals.

Another action, we are taking is a further reduction of overhead costs.

Corporate function and our Americas segment.

These production will further increase our focus and agility as a company.

Finally, while we are reducing our guidance for 2023 are about your goals. These bolt action keep us on track to HL targeted gross margins for both full and part D C, but adjusted EBITDA in 2024.

So.

Let's dig it.

Slide six outlines why so much believe uniquely exciting company.

We haven't been normal sales growth opportunity in front of us as we look towards evolution.

Food industry and convert consumer one.

Daily into plant base.

The underlying demand for the oatmeal category remains calm.

And <unk> is the key driver of category growth.

Basically in regions, where we have sustained capacity distribution gains and bone building investment.

We also have a significant margin expansion opportunity in front of us.

In full year 2022, we were at just 11% gross margin.

This quarter, we are at 19% and we believe we can reach our long term target of 35% to 40%.

Finally, what.

It makes <unk> truly unique is our mission and purpose driven culture.

Here you can see the three pillars of our mission.

Our employees and myself.

No.

We come to work every day that we are working to make the world a better place.

Slide seven outlines how we plan to realize our potential.

First we will achieve an appropriate balance between performance and purpose.

We know that widespread.

Four months, we built purpose is meaningless.

Purpose results performance is not placebo.

So for us to achieve our dual Monday.

And to a close.

We must have a stronger business.

Before we are able to have a significantly bigger business.

And to strengthen our business, we have instituted disciplined resource allocation decision processes.

Driven by legal and fact based analysis.

We have also increased regional accountability and aligned incentives accordingly.

And finally.

Over the past year that has embraced the approach of handgun input.

In Perth, the management to ensure our team as the support and resources needed to execute on our priorities.

And are able to focus on execution.

Slide eight outlines where we are in this judd.

If you recall.

Third quarter 2022 earnings call, we laid out a plan, where we would prepare for gold increase.

Increased simplicity and agility.

Timothy drive profitability.

This plan.

We though EMEA business and our corporate functions.

As you can see our EMEA segment has been performing well.

With strong and improving market share.

<unk> studied the hub of new goals and consistently positive adjusted EBITDA.

We have now expanded this approach to our Medicare business.

We have stabilized them.

The supply chain.

Increased demand driving investments.

And trading the improved adjusted EBITDA.

While we are not yet all the way to where we want to be the consistent improvement is clear.

Finally.

We are expanding this approach to our Asia business.

We have long term conviction of the opportunity in Asia.

And taking this action will help us capture the opportunity.

This includes refocusing on its core business improve.

Improving the operating cost structure and aligning incentives for the local management to focus on driving profitable growth.

Daniel will provide additional detail on our actions.

Slide nine.

Outlined the cost savings.

We are announcing today.

You can see that.

Across the entire company.

We are targeting to say the proximately $8 5 million.

By 2024.

These savings will come primarily from non people costs expense, such as fewer project related expenses and reducing our reliance on outside consultants as.

As well as <unk>.

Unfortunately, some element.

And eliminated jobs, including goals that we have looked at highest full.

Importantly, so we are not reducing our demand generating advertising investments.

Since we expect all of these savings to fall to the bottom line, we now expect.

Total overhead in absolute value to decrease compared to both 2022 and 2023.

Just to be clear the $85 million savings are calculated as the addiction.

Kathy 2020 for SG&A.

<unk>.

$85 million reduction compared to 2022.

We are being very surgical in this coke production and we are not playing a one size fits all approach.

Each team.

Diligent be evaluated what is necessary to drive gross margin and profit.

Then eliminated.

We strongly believe that this careful approach will ensure an appropriate level of support and investment in order to drive profitable growth.

Turning to slide 10.

<unk> will take you through our performance in the quarter in more detail, but I want to give you my perspective on our updated 2023 outlook.

We are reducing our constant currency sales goals outlook, two hands of 7% to 12%.

The pie all kinds of 23% to 28%.

Approximately two thirds of the reduction is driven by the Asia segment.

With the remainder being driven by a more conservative outlook for the Americas.

Our outlook for the EMEA business has not changed.

We are maintaining our fourth quarter gross margin outlook.

Payable ability in the EMEA business is expected to offset margin.

Hopefully use sold volume expectation.

Asia MD America.

Importantly, we believe the bold actions, we are taking across the business will keep us on track to achieve positive adjusted EBITDA in 2024.

Enable though fixture sustained goals.

With that.

I would now like to turn it over to our Chief operating Officer, Daniel Oh don't yet to give you a no production no debate.

Thank you Jay and good morning, everyone.

I am very happy to be here with you.

I will begin with our EMEA segment on slide 12, EMEA, it's executing well on a 2023 priorities strengthening the core markets growing foodservice customers expanding the portfolio beyond coffee and into adjacent market.

Slide 13 touches on the first two of those priorities.

Can see on the left that our category continues to have strong growth growing 14% in the quarter.

They neither chart shows that we continue to gain share in our core markets of Germany, the UK and the Netherlands.

Also our new self serve product continues to gain traction with many new customers across Europe , Oxford ever pop up store in Amsterdam.

The kit with up to 2000 Cups sold every day.

Slide 14 is an update on our progress in expanding our portfolio beyond coffee locations.

As a reminder, we're expanding our non coffee portfolio from its somewhat limited offering that was mostly regional OTT product to a non coffee portfolio that more directly replicates dairy products, such a whole milk.

Kim scheme and no sugar.

We are calling this expanded portfolio. The go blue portfolio, we're very excited about these.

Enhances our product offering while expanding margins.

Our UK business is the furthest along in the mixed shift in the second quarter. The net impact of this mixed shift 13% year on year volume growth as we increased usage and bringing new consumers into the category.

So we're still in the early days, we're seeing good progress on volume and margin.

Slide 15 gives you an update on our geographical expansion, which is progressing well.

Our new markets increased their share of total volume by 50 basis points in the quarter.

I'm also excited to announce today that we have signed a partnership with Amazon that will expand our European distribution with them, we will be capitalizing our success on Amazon in the U K and expand into Germany, France, Italy, Spain, the Netherlands, and Belgium later in the year. Additionally, this exciting partnership will.

Help us further accelerate our expansion into new geographies.

B in the lookout for a more formal press release with additional details.

Turning now on to the Americas on Slide 16.

The Americas supply chain remains excellent and they are progressing well against our priorities.

We are also making good progress on our commercial priorities our strategy is working.

At a slightly slower pace than we originally expected we have not taking our foot off the gas bill.

Team are aggressively pursuing additional commercial opportunities across all channels.

I am Stacy mentioned, the Americas further simplifying our overhead structure.

Further drive simplicity and agility.

Let me double click into each of these.

Slide 17 is a reminder of the Americas 2023 priorities, we are focused on supply chain execution with the Yahoo transaction and consolidating the co Packers network.

And on the commercial side, we're focused on expanding distribution high quality infill promotion and accelerating our brand building investment.

On slide 18, you can see that our transactions with <unk> foods is progressing quite well.

This partnership is bringing a significant improvements in operational reliability and capability.

Evidence by our fill rate remaining at appropriately high levels, we have terrific relationships with both at the highest strategy level as well as the day to day on the ground level.

Working very closely on longer term planning on things like innovation and continuous operational improvements.

Overall, the <unk> transition is going very well and I'm very pleased with our progress.

Turning now to slide 19.

The <unk> transaction enables us to consolidate Alco pockets network with.

These consolidations are now substantially complete.

And this slide shows how it impacts our supply chain network.

We have exited the co Packers marked in Red you can see that they were very far.

Way from our manufacturing facilities and by exiting those agreements we are now able to drive significant savings in logistics.

And on Slide 20, you can see that we are doing exactly that.

Beginning of this year, we have reduce our outbound freight per liter by about 25%.

And we believe there is additional runway for continued improvement.

The recent progress by the supply chain.

On Slide 21, you can see we have increased the America brand building investment in the quarter up two 6% of the net sales in the segment.

The campaigns are driving a significant amount of box for consumers.

The media and consumers are really loving our new cream cheese products. These investments is very important to continue converting consumers to plant base and we're very pleased with the progress so far.

Turning to slide 22.

The supply chain stable and additional advertising, we have started to regain distribution.

We have increased our retail distribution by 24% since our supply chain stabilized and pushed fill rates above 90% back in October .

We're pleased to see trends moving in the right direction, but the distribution build is a bit below where we expected it to be at this time.

Our sales teams have had very productive conversations with lapsed and new customers.

While we remain confident that we will continue to gain distribution. It is just taking a little longer than we originally expected.

We can see on slide 23, the distribution deals have started to translate into volume growth, which is very important to drive margin improvement through absorption again, we're very pleased that trends are moving in the right direction with increased advertising and promotions, but.

Turning now into Asia on Slide 24.

Since joining the company over a year ago. The C&I have come to appreciate the amazing job. The Asian team has done and the huge potential that still remains in the region.

The team has done a terrific job by starting from zero building two production sites that produce high quality product and establishing the <unk> brand.

A leader in the plant based market in China as.

The region has been transitioning into the post pandemic era, we continue to see significant opportunities for growth. However, consumers purchasing behaviors are different than we expected.

Those who have been listening to our prior earnings calls we were positioning ourselves for a large post pandemic tailwind across foodservice retail and e-commerce.

So we need to adjust to the current reality, you'll have consumers how behaviors and we need to improve the fundamentals of our business before we're able to meaningfully accelerate growth.

We cannot continue to distract ourselves and we cannot continue to justify the significant investments with uncertain payoffs.

This is why we have initiated the strategic reset plans for Asia.

Slide 25 outlines our improvement plans, we will be transitioning the business from Edmonton 80 of expanding very rapidly across all channels to a more controlled expansion.

We will primarily focus our efforts on expansion within our core businesses, where we believe we have a strong position with an unrivaled brand presence superior portfolio and innovation agility we.

We will capitalize on those strengths to adapt to the emerging environment.

We will also be changing the team's innovation process.

Originally we had a process that resulted in testing and piloting a multitude of new products at the same time.

Many of which were very expensive to produce and distribute especially in the retail and e-commerce channels.

We will be therefore slowing down on S SKU expansion and eliminating many unnecessary skus.

By focusing on fewer skus, we will be able to better simplify our processes and optimize power plants operate.

Finally, as Jason mentioned, we will be migrating to a more simplified cost structure that will streamline business processes and enable the local team to focus on execution.

As both Jay and I have said, we are excited about the opportunities in the Asia market.

We expect that these actions will refocus ethylene and recalibrate, how they operate which we believe is it.

Critical move towards profitable growth.

We look forward to updating you on our progress.

With that I will turn it over to Christian to give you a financial update.

It's a 340 basis point improvement versus the prior year quarter, and a 180 basis points sequential improvement from Q1.

Adjusted EBITDA was a $53 million loss, which was a $1 million improvement versus the prior year. This came in slightly below our expectations.

Slide eight shows the bridging items of our second quarter revenue growth.

Okay, and power supply chain costs and absorption rates and the America and then a.

To a lesser extent, we also benefited from the impact of a full quarter of the impact of price increases.

These benefits were partially offset by the slower down expected post COVID-19 recovery in China, and a slight segment Morgan mix headwind.

Turning to profitability in cash on flights 31.

And the last 10 short you can see our adjusted EBITDA by segment with me are continuing to report good profitability.

America segment also improved to a 9 million dollar loss, despite the increase in promotions and advertising.

The Asia segment reported a 22 million donut at all asked the segment continues to be impacted by the slower than expected post pandemic recovery corporate expense of 28 million came in largely as expected and approximately in line with the prior year year and prior year quarter.

On the balance sheet I'm happy to report that all previously announced financing truck transactions close during the quarter and we raced $465 million.

After paying down all revolving credit facility.

Transaction related to Pee and funding the business, we now have over $340 million of cash and cash equivalents on our balance sheet at the end of the quarter. In addition, we have approximately $200 million.

A boat in our amendment revolving credit facility.

So I had to go to two shows you are updated guide them for 2023, we now expect constant currency sales growth in the range of 7% to 12% wisdom.

<unk> 130 basis headwind from foreign exchange.

We continue to expect sequential improvement in gross margin and to reach the high twenties by the fourth quarter with the largest quarter over quarter increase occurring in the fourth quarter.

We also know expect to spend $110 million to $130 million in Capex. This year. The reduction is primarily related to an adjustment in the timing of projects two bedroom a line expects the demand after we have enough production capacity to support growth.

For the next couple of years.

As we move forward through the balance of the year, we expect that EBITDA dollars will improve slightly from the second quarter gross margin improved sequentially and then the SG&A savings will it be a more meaningful driver or a dollar improvement in the fourth quarter.

J C mentioned the bold actions that we are taking are expected to strengthen the business and keep us on track to achieve positive adjusted EBITDA in 12 to 24, while enabling our future sustained growth.

This concludes our prepared remarks, operator, we are now prepared to take questions.

Thank you.

Begin to question and answer session to ask a question you May press start then one and your telephone keypad, you're forgetting a speaker phone. Please speak up a tree and your handset before pressing the keys to.

At least draw you a question. Please press sorry, then too.

Please hold probably connect a question.

The first question comes but Christian cannot with Bank of America. Please go ahead.

Thank you operator, good morning, everybody.

How much of the reduction in your organic sales outlook was driven by Asia versus the America's segment, you mentioned on the call earlier that you have a more conservative outlook for the Americas business is that entirely driven by slower than expected distribution build that you guys talked about or are you guys also.

So assuming slower growth for the milk category and the U S.

You know standard data for the U S shows that retail sales just continues to slow sequentially. Thank you.

Hi, Chris Jones, Okay still speaking thanks for your question.

The first part of your question is 66% of the guide down these due to the Asia reset only because he's related to the U S. On the end over the Daniel to give you the answer to the detailed answer to your question in the U S.

Thank you Christian we see Saint progress in our ability to continue to fulfill distribution boosting TDP.

So in the in the recorded remarks about 20% and a C. D now, reaching the forties florals milk, which is very good progress.

Unless you can expect we're working on re set range reset in the rest of the calendar year. So expect more to come when it comes to promotions, we have seen all the good part of two months.

Units volume growth, which is.

Which is slightly behind our expectations, but it's solid pro rate. After we have a result, our supply chain issues and field rates issues of course, what you see is a more muted performance Ah for planned basically in general, but let's face it all oatmeal continuous to outperform all.

Other crops. So as we move forward and as we continue to stimulate category growth. We have proven EMEA. We're very confident that we will continue to gainshare and we will continue to make the category growth. These multi come in the U S of course, but perseverance and.

Investment and growth will will eventually pay back.

Thank you.

Thank you. The next question comes with Michael Laugh at me with my opinion Piper Sandler. Please go ahead.

[noise]. Thank you good morning.

I just wanted to <unk>.

I just wanted to come back to your.

Launch in Mcdonalds in several European countries, and just get a sense of what could be next I know you don't want to go over your skis on that but is this a little bit of a test that could have a broader rule out or.

Just how do we think about that relationship and and what it would take to translate into other markets.

Very good microplate to speak to you. This morning, indeed that through so we started with Austria now we are expanding east and I need I can tell you that it's more to come on a country by country basis, and yes, you know, it's part of our strategy Dirty substantial headspace.

For us to grow in EMEA, but around the world and food service May I lived on 20% of our volumes come from food service and he said priority strategy. So you should expect some important names coming in the in the in the upcoming quarters in the in the sea of not just mcdonalds.

But some others, so indeed decent priority about strategy.

Oh, no that's great and and then just to Asia that was certainly where.

Numbers were worse than we'd expected.

We've seen some some headlines about you know just the the macro picture there.

Certainly the the reopening hasn't gone the way I think you were menu would've hoped but.

Can you just give us maybe a little bit more granular sense of how.

How the consumer is adapting you know you've you've got your your mostly food service there is the pressure on.

Are people just not leaving the house as much are they cutting back on at home purchases or are they more frugal across the board I I guess, what what are you seeing and I know you're adjusting your strategy to try to.

Fit more appropriately and and at the very least be more focused I think.

Which is quite reasonable, but as far as just the consumer piece of it do you have a sense of along there. There. This malaise could last you do you know what are you seeing as far as the the view on the ground.

Thank you so much Michael I think it's a great opportunity for me to share a bit deeper what's happened and I'll have you on this agent.

Where do we come club, let's let's come back to that this business over the past five years, all business in Geico, China Asia, I've really been building and driving the category, we have been leading the plump based innovation them sustainability and honestly, establishing quite the bumps phenomenon, there and as the pandemic keeps a few.

[noise] years ago, Oh Asia business was doing it releasing that could too polone and continued that goes and pull that they have put quite a number of bets. So that we could be position to benefit from the pandemic boom that was the intent.

So what does up and what's the macro environment. We are all seeing today as the Legion moved from Zillow Kobe to deal with pictures like all of you, we got surprised because consumption customers consumer behaviors exactly as you said, we are not the line, we though assumptions and as a consequence we.

Quickly realized that the best we have placed we are not paying off we saw some of the new channels customer products, we have been putting bets on we're not generating delivered they'll probably knew where we are looking for and at the same time they wound up justifying the expenses, we have put behind them.

So.

What we so is the need to very quickly reset because in that kind of circumstances in my book waste on <unk> not the strategy. So we decided to act and act quickly and immediately we Zoe opening of the Tamil Daniela myself with being able to go there twice in the past two months and.

To act finally able to be underground on the market with the teams.

What have we seen if I stopped by our own internal <unk>, we haven't Barry's towing brand, we have a wonderful dedicated team with a lot of competency.

We have clearly Ah manufacturing facility management plans that is really great M. We have lots of great ideas at the same time, we saw too many activities that started becoming discussions too many unprofitable activities and.

Finally activities that we have not fully leveraging our asset base. Neither very people know the production facility. We add so what we've decided to do what Daniel eluded to reset plan is three simple and clear fees refocus.

Lee and I assume the nice portfolio M Z Caddy bites August culture.

So we are focusing on a co business, which means foodservice and a very few key retail partners only on key cities.

Sure that is all for you we have far too many sku's as you heard most of some of the FK use where mountain dilutes Eve and they will not feeling all factories, we are sorting out all of that and finally, he calibrating our cost structure as you can imagine to be in line with the business we have today.

We are very confident and we believed that by refocusing of no cool business, we will improve our business under long term by doubling them on what's working that will allow us to play alert the hold that the market expects us to play as particularly leaders, which is to continue to dive category.

And we will do that by doubling down with the great local partners, we have in foodservice change as well as in retail.

Finally, what what can I say on that as well is you know like me Michael that these smart cat He's moving Super fast So accedes move fast in China. We are lucky to have a <unk> China team that is equally moving fast and that gives me a look of confidence that we are.

Building very strong Fletcher once we go through these very short term reset talking about consumers, which was also one of the aspects of your question. What we see is a number of trips that these notes where it was before the pandemic, we see difference spending trends.

We still quite high on high premium, but also more price conscious and therefore, we are considering exploring pricing tiers.

<unk> and finally, we see people that are still totally obsessed with novelties and innovations, which means we need to find efficient ways to them. So that so that's that's what we see and that's Oh I'm not a piece of what's happening in Asia in greater China Michael.

Okay very helpful. Thanks, so much.

Oh, thank you and that sounds <unk>.

And in nature session I would like to turn the conference back over to Mister Carney or any further observations. Please go ahead.

So there are a couple of questions that that I've received I think might be helpful to tackle in this venue. The the first would be probably for Daniel in the prepared remarks. He said that our outlook for me is sales has not changed and could you elaborate what kind of.

What we're seeing in that market and what leads us to continue to be confident there.

Pleasure Thanks, Brian .

And there we what we see in EMEA now.

Yes, you're getting familiar with the consistency of our solid performance in the segments.

We see.

<unk> go in continue to move in the right direction volume growth in the core markets continuous share gangs year on year.

ER Underproof that we continue to stimulate category growth in the core markets Ultimate continues to grow at more than double digit growth.

Now what makes us more excited.

Moving forward that the opportunity to continue to expand in the segment.

Well as across to the other regions as well.

Are three things that we only started to explore number one portfolio.

Portfolio, we alluded in the prerecorded remarks about where non coffee occasions portfolio, which is only only in the early evening.

Expect much more on pack on size architecture, as we move forward.

Currently on foodservice full service, it's less than 20% of our revenue in EMEA and we're only starting to explore the impact and the opportunity to generate a consumption and to drive conversion in the B a full service accounts we are.

Investing in capabilities boasting brought to market innovation.

To make sure that continues to be the case.

A number three and your geography, we're super excited about the new geography.

We have seen now our products are openly appearing in in the most prominent C. DS across Europe , and then you'll regions. So you would find very easily opening in most of the coffee stores in Paris, Barcelona Madrid, Milan in Brussels War, So you name it and.

That's only the beginning and we start to see whether it seemed monoplane, France or whether you think carefully in Spain.

Various studies already the number one turning it scared you so.

With patience and playing up to the strength of our model there is much more bright future to come in there.

Perfect and then the other question that that we've we've gotten for Christian would be on the path to profitability and if you could remind everybody of the draw.

Drivers and.

And how to think about that going forward have but to do that Brian . So what we stated in our prepared remarks is that we are confident that with the action that we have taken and will take during the second half of 2023, we are still on track to achieve Pulsative adjusted EBITDA entwined, that's plenty for as he might.

Recall, the key drivers in our path to profitability concept of gross profit margin expansion throughout 2023 and beyond as to be continued to grow our business.

And also optimizing and streamlining our organization to balance growth with the profitability.

Or sequential gross profit margin expansion on track.

To achieve a more going off the high twenties in the fourth quarter.

In our queue for earnings call, we laid out the four buckets, which would drive the gross profit margin improvement.

We have three of the four buckets largely behind us.

Namely implementation of price increases in EMEA that is done improve.

Improved channel it makes effects athletes expand distribution, we're seeing those effects already and improving our records police or after you optimize our supply chain operations in network and that is also largely about behind us, but it but almost the continuing through the second half of the year, we improve our growth.

We believe that busy improvement plant in China that we are about to implement.

Ah such as the S U rep to notification that J C spoke to will result in gross profit margin improvement in the Asia segment.

And that is related to the bucket that we called the COVID-19 recovery in China cause that's the gross profit margin. The story, we remain on track and we'd seen a sequential improvement over four quarters.

In terms of Optimising and streamlining the organization.

We communicated on today's call, we have identified $8 million to $5 million of annualized SG&A expense savings.

Which the America and the corporate segment is already behind US that is 45 million out of the 85.

And with Asia happening in the second half of this year.

Thus, we will see 85 million dollar reduction of our forecast that 24 SG&A if.

And it's noted in our prepared remarks are total SG&A in 2024 will be lower down in 2022. We are confident that these actions combined will result impulse to adjusted EBITDA in 2024.

Thank you and thank you for every scene kitchen I I just wanted to add my voice to that to say, we have one single guiding nonstop, which is puppy table goals and myself. The leadership team. The organization. These laser focused on delivering fool. Your 2024 positive about just see the beta.

In order to fuel pump reachable goals, the clarity of having one guiding studies, what's driving our choices all decisions and actions and this is what we do able either so I just wanted to add my voice to a detailed somebody you gave to say that's what makes us confidence because we talk about actions we have taken all we.

Upticking. Thank you.

Terrific. Thank you. This concludes our our conference call today feel free to reach out to to me an investor Relations. If you have any follow up questions have a great day.

This conference is now completed thank you for your attention.

Today's presentation you may now disconnect.

Q2 2023 Oatly Group AB Earnings Call

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