Q3 2023 Oatly Group AB Earnings Call

Yeah.

Speaker 1: Good day and welcome to the Oatley Third Quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance please signally conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on a touch tone phone.

Good day and welcome to the third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on a touchtone phone.

Speaker 1: To withdraw your question, please press star then too. Please note this event is being recorded. I would now like to turn the conference over to Brian Kerney, Vice President of Investor Relations. Please go ahead.

To withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Brian Kearney, Vice President of Investor Relations. Please go ahead.

Speaker 2: Good morning and thanks for joining us today on Oatleys 3rd quarter 2023 earnings conference call.

Good morning, and thanks for joining us today on <unk> third quarter 2023 earnings conference call.

Speaker 2: And today's call are our chief executive officer, John Christoff Slatan, our chief operating officer, Daniel Orgoniaz.

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

Our chief operating officer, Daniel or don't yes.

Speaker 2: and our new Chief Financial Officer, Marie Jose W.

And our new Chief Financial Officer, Marie Jos a.

Speaker 2: 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 security litigation reform act of 1995, including statements regarding our future results of operations in financial positions, industry and business trends, business strategy, market growth, and anticipated cost.

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.

Speaker 2: These statements are based on management, current expectations, and beliefs and involve RISW and uncertainties that could differ materially from actual events or those described in these sort of looking statements.

These statements are based on management's current expectations.

Beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward looking statements.

Speaker 2: 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 board looking statement made today.

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.

Speaker 2: Also, leave note on today's call, management will refer to certain non-IFRS financial measures, including either DA, adjusted either DA, copy currency revenue, and free cash flow. While the company believes these non-IFRS 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 IFRS.

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

Constant currency revenue and free cash flow, 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 IRS.

Speaker 2: Please refer to today's release for reconciliation of non-IFRS financial measures and most comparable measures prepared in accordance with IFRS. In addition, Oli has posted a supplemental presentation on its website for reference. I now look to turn the call over to John Prasov.

Please refer to today's release for a reconciliation of non <unk> financial measures to the most comparable measures prepared in accordance with higher for US. In addition, OLED has posted a supplemental presentation on its website for reference.

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

Thank you, Brian and good morning, everyone.

Speaker 3: page 5 as the key messages I want you to take away from two less presentations.

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

Speaker 3: First, we have sorted so quarter results where I've just been a BDA, exceeding our expectations and we need solid progress.

First we had solid third quarter results, where adjusted EBITDA exceeded our expectations and we.

Okay.

Speaker 3: The results of a bold strategic action are clearly starting to material.

No.

Bold actions are clearly starting to materialize.

Speaker 3: Our EMEA segment continue to show its ranks and their ability.

Our EMEA segment continued to show strength and.

And your ability.

Speaker 3: Our America segment gained good momentum in its retail business and the food service business helped improve the bottom line by sacrificing some top life.

Our medical segment gained good momentum any retail business.

And the foodservice business helped improve the bottom line by sacrificing some top line.

Speaker 3: And the Asia segment is executing a three-set plan, which is on track and delivery good results. Today,

And the Asia segment is executing a prepaid plan, which is on track and delivering good results.

Today, we are also announcing.

Speaker 3: Another bold action where we are doubling down on our asset life production model, which we expect to increase our focus while improving our cash flow outlook and improving our confidence in our longer term margin type.

Another bold action, where we are doubling down on our asset light model, which we expect to increase our focus while improving our cash flow outlook and improving our confidence in our longer term margin target.

Speaker 3: Also, we are modifying our 2023 guidance to reflect an acceleration of all strategic actions. In particular, the diversification of our Americas with service business and the strategic?? bet strawberryfed???age properties is probably done in a regional state, plenty of technical support.

Also we are modifying our 2023 guidance to reflect an acceleration of our strategic actions.

In particular, the diversification of our Americas foodservice business and the tuck <unk> in Asia.

Speaker 3: We now expect our constant guarantee revenue goes to be near the low end of our higher range of 7 to 12 percent. And our false quarter growth margin to be in mid-20s compared to our higher expectation of high 20.

We now expect our constant currency revenue growth to be near the low end of Ohio hedge of 7% to 12%.

And our fourth quarter gross margin to be in 'twenty compared to a higher expectation of high twenties.

Speaker 3: Finally, we believe we remain on track to achieve profitable goals in 2024.

Finally, we believe we remain on track to achieve profitable growth in 2024.

Speaker 3: On slide 6, you can see that the profitability of the business continues to improve in the third quarter.

On slide six you can see that the profitability of the business continued to improve in the third quarter.

Speaker 3: Our reported goals profit included a continent with 6 million dollars of one of course related to our Asia strategist.

Our reported gross profit included approximately 6 million burnout of one off cost related to our Asia strategy reset.

Speaker 3: This is primarily inventory right off and co-packer payment.

It is primarily inventory write off and co packer payment fees.

Speaker 3: This created a 320 baby points headwind in the clock that we believe masks the underlying improvement in the baby.

Okay.

The 320 basis point headwind in the quarter that we believe not.

Underlying improvement in the business.

Speaker 3: Our adjusted BDA also improved sequentially in the plotter as each segment showed improvement.

Our adjusted EBITDA also improved sequentially in the quarter.

Each segment showed improvement.

Speaker 3: The 85 million dollar cost-fade in Koldan, that we announced last quarter is already starting to flow through the PML and we remain on track to achieve our target.

The $85 million cost savings program that we announced last quarter is already starting to flow through the P&L and we remain on track to achieve our targets.

Speaker 3: So, once we still have plenty of work to do, we are clearly making good progress.

So whilst we still have plenty of work to do we are clearly making good progress.

Slide seven.

Speaker 3: outline how we are doubling down on our asset light section mode.

Outline how we are doubling down on our asset light model.

Speaker 3: As you know, we have been evaluating how to optimize our supply.

As you know we have been evaluating how to optimize our supply chain.

Speaker 3: We have been taking a holistic look at the network with the overarching goals of ensuring we have the right amount of capacity when we need it, while also being very efficient with our capital.

We have been taking a holistic look at the network with the overarching goals of ensuring we have the right amount of capacity when they need it while also being very efficient with our capital.

Speaker 3: We believe that we have enough capacity available to support our goals over the next few years.

We believe that.

But we have enough capacity available to support our goals over the next few years.

Speaker 3: We currently have conduction capacity of approximately 900 million liters compared to approximately 550 million liters sold over the past four quads.

We currently have conviction capacity of approximately 900 million litre compared to approximately 515, maybe a month or so.

Over the past four quarters.

Speaker 3: Additionally, for the past 12 months, we have been making material improvement in our manufacturing network utilization, efficiency and reliability.

Additionally for the past 12 months, we have been making material improvements in our manufacturing network utilization.

Fee and reliability.

Speaker 3: both our own, both base processing production and with our strategic co-package method.

Both our own <unk>.

Base positive conviction and resolve apogee co Packer network.

Speaker 3: This has resulted in significantly higher and more consistent output across our established site.

This has resulted in significantly higher and more consistent output across our established sites.

Speaker 3: We have also found new solutions that already enable it to better utilize our existing plants and expand them gradually over time to support the goals in EMEA and the American.

We are also from new solutions that already enabled us to better utilize our existing plants.

And then gradually over time to support the goals in EMEA and the Americas.

Speaker 3: Therefore, we are discontinuing the construction of new manufacturing plants in EADA and the American.

Therefore, we are discontinuing the construction of new manufacturing plants in EMEA and the Americas.

Speaker 3: We have also started to relocate some equipment that we previously purchased to ensure that we have adequate capacity to service our growing demand.

As part of this we have also started to relocate some equipment that we previously purchased to ensure that we have adequate capacity to service our growing demand.

Speaker 3: We believe this will help achieve our goals of appropriate time and expansion and capital efficiency.

We believe this will help achieve our goals of appropriately kind of expansion and capital efficiency.

Speaker 3: should also enable us to better focus by simply fine and springlining the supply chain and reducing the complex.

It should also enable us to better focus by simplifying and streamlining the supply chain and reducing the complexity.

Speaker 3: this increased simplicity and focus. Also, increase of confidence in our longer term margin targets, as we expect to be able to allocate more of our team time and results in into improving the business.

This increased simplicity and focus also increases our confidence in our longer term margin targets as we expect to be able to allocate more of our team and we will see into improving the business.

Speaker 3: On capital efficient team, we now focus significantly lower capex can be previously expected.

On capital efficiency, we now forecast significantly lower capex can be previously expected.

Speaker 3: We now expect our 2023 Carpex to be below $75 million compared to our prior guidance of $110 million to $130 million.

We now expect our 2023 capex to be below $75 million compared to our prior guidance of $110 million to 113 million better.

Speaker 3: We also expect to invest below $75 million in 2024 capital.

We also expect to invest below 75 million below in 2020 for Capex.

Speaker 3: This increased efficiency is a meaningful step on our way forward, toward financial health efficiency. We are continuing.

This increased efficiency is a meaningful step on our way forward.

Financial self sufficiency.

We are continuing to evaluate the total supply chain.

Speaker 3: including our set in Asia, where the currently have two active facilities and the third one that is currently being built.

Including assets in Asia, where we currently have two active facilities and the third one that is currently being built.

Speaker 3: Since we are continuing to evaluate the metro in Asia, our updated Capex guidance continues to assume that the third facility will be built and be an end-to-end facility.

Since we are continuing to evaluate the network in Asia.

<unk> Capex guidance continues to assume that the third facility will be built and be an end to end facility.

Speaker 3: With that, I would now like to turn it over to our Chief Operating Officer, Daniel Ordonez, to give you an update on the segment. Thank you, JC.

With that I would now like to turn it over to our Chief operating Officer, Daniel Douglas to give you an update on the segments.

Thank you J P and good morning, everyone.

Speaker 3: I begin my discussion on flight 9 with an air, which is our largest operating segment at 54% of our third quarter readiness.

I'll begin my discussion on slide nine with EMEA, which is our largest operating segment at 64% of our third quarter revenue.

Speaker 3: The old drink category in the mayor grew at a very healthy 15% in the quarter, which was more than double the growth of the broader plan-based meal categories.

We all drink category and EMEA grew at a very healthy 15% in the quarter, which was more than double the growth of the broader plant based category.

Speaker 3: I'm pleased to say, though, that our constant currency revenue growth was 16% in the quarter, outspacing the old green capital.

Im pleased to say, though that our constant currency revenue growth was 16% in the quarter outpacing the old Green category.

Speaker 3: like 10 shows that the NAF segment have consistently reported volume growth in the needs to high-pungal digits, driven by our established markets, growing volume in the mid-single digits, and the new market contributing the balance.

Slide 10 shows that EMEA segment have consistently reported volume growth in the mid to high single digits, driven by our established markets growing volume in the mid single digits and the new market contributing the balance.

Speaker 4: We believe that this consistency in our established markets is a testament to the strength and the ability of our business model in the mail.

We believe that this consistency in our established markets is a testament to the strength and.

And durability of our business model in EMEA.

Speaker 4: And we expect this moment going forward, held by many of our new customer wing, including coffee pillows, which we recently announced.

And we expect this momentum going forward held by many of our new customer wins, including coffee payloads, which we've recently announced.

Speaker 4: We are pleased with the performance in the established market and we're actively working to maintain the momentum. Slide 11, give an update on our Gold Blue strategy, which is our approach to increasing consumer usage by launching marginal critical innovations that best use outside of coffee.

We are pleased with the performance of the established market and we are actively working to maintain the momentum slide 11.

An update on our goldbloom strategy, which is our approach to increasing consumer usage by launching margin accretive innovations that is best used outside of coffee.

Speaker 4: Record that our UK business is the furthest along the way with this portfolio expansion. In the UK, our new items are some of the fastest-earning plant-based products. The whole and selling products are the biggest launches in the category in the last 52 weeks, according to NPD. And we have strong repeat rates, which already 50% of whole and selling shoppers repeating purchase seems long.

Recall that our UK business is the furthest along the way with this portfolio expansion in the U K, our new items are some of the fastest growing plant based products.

The whole and semi products are the biggest launch in the category in the last 52 weeks. According to NPD and we had strong repeat rates, we already 50% of hope and semi shoppers with peaking purchases since launch.

Speaker 4: In Germany, which is our second largest market in EMEA segment, the rollout of Gold Blue is progressing well. The Gold Blue introduction has driven a 24% in volume net of cannibalization. Overall, we're seeing very good results.

In Germany, which is our second largest market in EMEA segment. The rollout of go Blue program well the global introduction has driven a 24% in volume net of cannibalization.

Overall, we're seeing very good progress here.

Speaker 4: Now turning to slide 12. We continue to make terrific progress in bringing Oatmeal to new geographies. Here you can see some of our activity in this market. You can see on this slide that we are making good progress establishing an Oatmeal culture in these new markets. For example, in Belgium, we already have an established presence in Fes.

Now turning to slide 12, we continue to make terrific progress in bringing outlook in new geographies.

You can see some of our activity in this market.

You can see on the slide that we are making good progress establishing an open culture in these new markets. For example, Belgium, we already have an established practice in place.

Speaker 4: In France, we are already the highest velocity planned at the open super market. And we are continuing to engage with customers and consumers on a personal level in the street.

We are already the highest velocity plant based milk in supermarket.

We are continuing to engage with customers and consumers on a personal level industry.

Speaker 4: And in Spain, we already have the leading market share in the barista category, and we're growing rapidly by integrating it into the culinary culture.

And in Spain, we already have the leading market share in the barista category and we are growing rapidly by integrating it into the culinary culture.

Speaker 4: Lighter teams show some of the highlights of our recent unique experience-based brand activities where summer coffee and soft serve tools. We showed up at the most important news effectiveness with food trucks all over Europe spreading the ultimate magic with its consumer target audience. In fact, we had to extend the soft serve pop-up shop in Amsterdam way after the Through feedback passed by customer service and other debate minutes along ? May 17, 2020.

Slide 13 shows some of the highlights of our recent unique experience Bank branch activity was somewhat coffee and Softsoap tour. We showed up at the most important music festivals with proof products all over Europe, spreading the ultimate magic with its consumer target audience.

In fact, we had to extend the soft third pop up shop nuanced way after this summer.

Speaker 4: I encourage you to go to our YouTube channel to see more on how we engage consumers this summer.

I encourage you to go to our Youtube channel to see more on how we engage consumers with summer.

I close the EMEA discussion on slide 14.

Speaker 4: You see, while engaging the consumers and driving top line is important, EMEA is a solid and profitable business throughout the P&L.

While engaging the consumers and driving top line with important EMEA is a solid and profitable business throughout the P&L.

Speaker 4: As you can see on this slide, our EMEA business is generating margins that are already approaching our total company long-term margin target. We believe that EMEA margins still have room to expand as we execute on our growth plans and increase our capacity utilization from the low 70s.

As you can see on this slide our EMEA business is generating margins that are already approaching our total company long term margin targets.

We believe that EMEA margins still have room to expand as we execute on our growth plans and increase our capacity utilization from the low <unk>.

Speaker 4: As many of you know, we believe we can replicate our EMEA business model in our other sectors.

As many of you know we believe we can replicate our EMEA business model in our other segment.

Speaker 4: Learning to America's segment on July 15th.

Turning to Americas segment on slide 15.

Speaker 4: I am pleased to report that we're back to gain retail market share in the America.

I am pleased to report that we are back to gaining retail market share in the America.

Speaker 4: While the category growth rates have not been as strong as we would like, we firmly believe that consumers will continue the shift to ultimate over time.

While the category growth rates have not been as strong as we would like with.

We firmly believe that consumers will continue the shift to <unk>.

Ultimately over time.

Speaker 4: So, we are focused on controlling the controllables and ensuring that we are building our business to achieve long-term profitable growth.

So we are focused on controlling the controllable and ensuring that we are building our business to achieve long term profitable growth.

Speaker 4: On slide 16, you can see that we continue to post strong distribution gains. In the last 12 weeks period, we have increased our total distribution points by 18%, and our ACV is now at 39%, which is 250 basic points versus this time last year.

On Slide 15, you can see that we continued to post strong distribution gains in the last 12 week period, we have increased our total distribution points by 18%.

Our ACB with now a 39%, reaching 260 basis points versus this time last year.

Speaker 4: While this progress is good, there is plenty more to come during the shelf reset this fall and this winter. You have likely seen our recent press release announcing the new Meijer distribution, and we're also launching new distribution at Costco and expanding our distribution at Walmart.

While this progress is good.

Plenty more to come during the shelf reset this fall and winter.

You have likely seen our recent press release announcing the new mayor distribution and we're also launching new distributors have Coca Cola and expanding our distribution at Walmart.

Speaker 4: I'm also very pleased to announce that we have regained distribution at Stop & Shop, which is a customer that we lost during our historical supply chain hiccup.

I'm also very pleased to announce that we have regained distribution at stop <unk> shop, which is a customer that we lost during our critical supply chain hiccups.

Speaker 4: Turning to slide 17, as part of this shared research, we're also getting good acceptance of our new innovation.

Turning to slide 17.

Part of this shelf resets were also getting good acceptance of our new innovation.

Speaker 4: Here you can see our new product. Similar to the EMEA Global Strategy in the Americas, we are expanding our portfolio to increase consumer choice and usage of our products. We are launching two new oat milks.

So here you can see our new products similar to the EMEA a global strategy in the America, we're expanding our portfolio to increase consumer choice.

Usage of our product <unk>.

We're launching two new oatmeal.

Speaker 4: Super basic version that has set all easy to pronounce ingredients and an unsweetened version that has giro sugar and has a calorie count that will directly compete with almond milk.

Our Super basic version.

For ECP pronouncing, Louisiana and in.

Then sutent version that has zero sugar and calorie counts that will directly compete with online milk.

Speaker 4: We're also launching a line of delicious coffee creamers with a variety of popular flavors. Be on the lookout for this terrific new product.

We're also launching a line of deletion coffee creamers with a variety of popular flavors.

Beyond the lookout for the terrific new product.

Speaker 4: Turning to food service side of the business on slide 18.

Turning to put service side of the business on slide 18.

Speaker 4: 45% of the American settlement sales quarter revenue was in food service.

45% of the Americas segment.

The revenue was in foodservice.

Speaker 4: This part of the business revenue declined by 6% in the quarter. While we do not like to see sales decline, we are focused on profitable growth.

This part of the business revenues declined by 6% in the quarter, while we do not licensing sales declined with focus on profitable growth.

Speaker 4: excluding our largest customer who service revenue grew by 10%.

Excluding our largest customer could service revenue grew by 10%.

Speaker 4: by bringing new customers, expanding into new doors, and launching new items. We are diversifying our food service business, improving our margins, and giving us access to faster-growing areas of the channel.

By winning new customers expanding into new doors, and launching new items, we are diversifying our foodservice business, improving our margins and giving us access to faster growing area of the channels.

Speaker 4: Slide 19 shows that our co-pastor consolidation in America is driving solid results that are flowing through the PNL.

Slide 19 shows that our co Packer consolidation in America is driving solid results that are flowing through the P&L.

Speaker 4: This initiative has driven the segment's cost of goods per litre down by a healthy 10% from quarter one to quarter three, which is enabled by the Yaya Foods transactions that we completed early this year. And it's as well as our strong ongoing partnership with Innovation Foods at our meal bill facility.

This initiative has proven the segment's cost of goods per liter down by a healthy 10% from quarter to quarter, three which is enabled by the yoga foods transaction that we completed earlier this year and he said well have a strong ongoing partnership with innovation foods at new growth opportunities.

Yes.

Speaker 4: Both the IF rules and innovation rules have been terrific partners. As we continue to work with them to become more and more efficient, we believe we can continue to reduce our costs moving forward.

Both via food and innovation could have been terrific partners.

As we continue to work with them to become more and more efficient. We believe we can continue to reduce our costs moving forward.

Speaker 4: Turning to Asia on slide 20, the Asia team has moved quickly to implement the strategy reset plan that we discussed on the last quarter's call. On this slide, you can see the impact of those actions.

Turning to Asia on Slide 20.

Asia team has moved quickly to implement the strategy reset plan that we discussed on the last quarter's call on this slide you can see the impact of those actions by refocusing the business on reducing costs, but was a top line impact and a significant bottom line benefit.

Speaker 4: By refocusing the business and reducing costs, there was a top-line impact and a significant bottom-line benefit. By implementing the research plan, the Asia business improved adjusted EBITDA by $4 million quarter over quarter and $10 million year on year.

Implementing the reset plan the Asia business improved adjusted EBITDA by $4 million quarter over quarter, and 10 million year on year.

Speaker 4: Live 21 shows how significant the change the team has executed just in the last quarter.

Slide 21 shows how significantly change the team has executed Chuck in the last quarter.

Speaker 4: The team has got over 70% of the residues and focus on the ones that are most profitable and can be produced more efficient.

The team has got over 70% of the rest of us and focus on the ones that are most profitable and can be produced more efficiently.

Speaker 4: You can see in the middle chart that we are also executing a significant shift in our channel mix by intentionally pulling back on certain SKUs, customers, and geography. We have increased the percentage of revenue so through the core pool service channel by a few 11 percentage points.

You can see in the Middle chart that we are also executing a significant shift in our channel mix by intentionally pulling back on certain extra use customers and geographies. We have increased the percentage of revenue sold through the core pool service channel by 11 percentage points.

Speaker 4: And the result of this refocusing is a reduction in cost of goods per liter by 16% year-on-year and 8% quarter-over-quarter.

And a result of this refocusing that reduction in cost of goods per liter by 16% year on year and 8% quarter over quarter.

Speaker 4: The team has done a good job executing the first phase of the research plan.

The team has done a good job executing the first phase of the reset plan.

Speaker 4: Now, turning to slide 22. While we are pleased with the progress to date, we know that we will still have to work to do to get this segment to where it needs to be.

Now turning to slide 22.

While we are pleased with the progress to date, we know that we will still have to work to do to get this segment the way it needs to be.

Speaker 4: and the team is clearly focused on achieving profitable growth. As they see mentioned, our SGNA cost-setting program remains on track and Asia remains on track to deliver their portion, which is 40 million.

And the team is clearly focused on achieving profitable growth.

<unk> mentioned, our SG&A cost saving program remains on track and Asia remains on track to deliver their portion which is $40 million.

Speaker 4: The team is continuing to drive efficiencies in the supply chain by focusing on things such as optimizing which facilities we produce, which products in, and maximizing production runs for larger selling SKUs. We expect that they will continue to find ways to drive additional efficiency.

The team is continuing to drive efficiencies in the supply chain by focusing on things such as optimizing which facilities, we produce which products in and maximizing production run for our largest selling SBU.

We expect that they will continue to find ways to drive additional efficiencies.

Speaker 4: Finally, the third thing remains active and energized. We have been given the direction to continue to build the business without core channels, geographies and SKUs, so that we can build a strong, profitable and sustainable business.

Finally, the sales team remains active and energized we had been given the direction to continue to build the business with our core channels geographies and asking us. So that we can build a strong profitable and sustainable business.

Speaker 4: I would now like to turn the call over to our new CFO , MJ Narejo-Tedda Bip. Thank you then.

I would now like to turn the call over to our new CFO.

Jay the IHS data.

Thank you Dan and good morning, everyone.

Speaker 5: Slide 34 gives you an overview of the PNF protocol.

Thank you for giving you another view of the P&L for the quarter.

Speaker 5: We reported 3% year-over-year revenue growth and flat-content current year revenue growth.

We reported 3% year over year revenue growth and flat constant currency revenue growth.

Speaker 5: First, more than 1.4, was 17.4%, which is a 14.7% each point improvement versus the prior year quarter. And the 100 APVs is more secure and declined from two.

Gross margin for the quarter was 17, 4%, which is a 14 seven percentage point improvement versus the prior year quarter.

And the 180 basis point sequential decline from Q2.

Speaker 5: As Jean-Christophe mentioned, our reported gross margin includes approximately $6 million of one-off costs associated with the ongoing Asia reset, which is a 320-day response headwind that we believe masks the underlying improvement in our gross margin.

Sure Chris has mentioned our reported gross margin includes approximately 16 million of one off costs.

Keep it needs the Unbanked Asia reset.

Which is a 300, Pennsylvania five headwind that we believed mask the underlying improvements now in gross margin.

Speaker 5: Adjusted EBITDA was a loss of 36 million, which was the head of our expectation.

Adjusted EBITDA was there not a 56 million, which was ahead of our expectations.

Speaker 5: Yit was 47 million informants versus the prior year, and 17 million informants versus the second.

<unk> was 47 million improvement versus the prior year, and 17 million improvement versus the second quarter.

Speaker 5: Live 25 shows the bridging item for our quarter year revenue growth.

Slide 25 shows the bridging items for our quarterly revenue growth.

Speaker 5: You can see volume decline 1% price mixing of 1% for flat constant current here already.

You can see volume decline, 1% price mix at 1% for a flat constant currency revenue growth.

Speaker 5: For an exchange, what is that window per percent? Resulting in per percent was over the global photo.

Foreign exchange was it said wind up 5%, resulting in 3% total revenue growth on a quarter.

Yeah.

Speaker 5: Now 19 knots below the

Slide 26 shows the revenue bridge by segment.

Speaker 5: EMEA continues to report strong growth, with 16% constant currency revenue growth led by 10% price mix improvement, which was driven by the price increase with two-plus winter, and will start to anniversary this coming fourth quarter.

We have continued to report strong growth with 16% constant currency growth.

Led by 10% price mix improvement, which was driven by the price increase we took last one sir.

And we'll start trying to penetrate this coming fourth quarter.

Speaker 5: America's 4% decline was driven by a 6% volume decline, which was driven entirely by the food service channel as the rest of the business group, volume.

America, 4% decline was driven by a 6% volume decline we tried chorizo in entirety by this food service channel as the rest of the business grew volume.

Speaker 5: Asia, 28% constant currency decline was driven by the actions we have taken as far as the segment strategy concept time.

Asia, 28% constant currency decline was driven by the actions we have taken as part of the segment strategy, Chris at the time.

Speaker 5: The only decline, 15% as we've refocused the business on our core channel and your working and price mix declined for 2%. Largely driven by an favorable sales mix as we rationalize choose that were higher price that the war margins.

Well you have declined 15% as a ratio to the business on our core channel and geography.

And price mix declined 2% largely driven by unfavorable sales mix and we have rationalized choose that quite higher priced but some of our margin.

Speaker 5: Line 27 shows you the sequential quarter-over-quarter gross margin break.

Seven shows you the sequential quarter of a pressure on gross margin bridge.

Speaker 5: A year-over-year bridge is provided in the appendix of this presentation.

Yeah. My younger age is provided in the appendix of this presentation.

Speaker 5: Over, growth margin declines 180 basis points. The sequential decline in growth margin was driven primarily by a 190 basis points headwind from the Asia-Bizet, which includes the 6 million or approximately 420 basis points of one of the costs related to the strategic risk.

Gross margin declined 180 basis points, let's.

This sequential decline in gross margin was driven primarily by a 119 basis points headwind from the HIV.

We think the <unk> are approximately 120 basis point of one off costs related to the strategic reset.

Speaker 5: Pricing and mix in India and America improved gross margin by 110 basis points.

Pricing in the Americas improved gross margin by 110 basis points.

Speaker 5: So it's a good for literature in Indian America. Wasn't headwind of 90 basis points as the co-patcher of consolidation in America is improving our course for literature while India experienced increased co-packing costs.

So some good furniture in EMEA and America was a headwind of 90 basis points as the Copa carrier consolidation in America is improving our cost per liter.

India experienced increased co packing costs.

Finally, foreign exchange was a 20 basis point headwind.

Slide 28 shows our adjusted EBITDA by segment.

As you can see each segment showed good sequential improvement and our strategic actions are showing results.

The cost savings program that we announced last quarter is on track.

And it is most clearly helping drive the improvement in Asia in corporate.

Last year, we do expect to cooperate to increase several millions that are sequentially in Q4.

She's on any spend more in our fourth quarter.

Yeah.

Turning to our balance sheet and cash flow on slide 29.

Our liquidity position is strong and we are improving our free cash flow.

The left hand chart shows how our liquidity position at the end of the quarter.

We ended the quarter with 487 million of total liquidity.

Comprised of 284 million of cash and equivalents and sometimes more than 4 million of Undrawn bank facilities.

That sounds like chart shows that we have made good progress in improving our free cash flow.

Improving our free cash flow is a priority for me and the organization is very focused on it as such we expect our cash flow to continue to improve driven by the items shown on the right side of this slide.

We expect to continue improving our adjusted EBITDA and reached profitability in 'twenty to 'twenty four.

I have just discussed we are continuing to optimize our manufacturing footprint.

And we're continuing to evaluate options as far in the network.

We believe that we have the opportunity to improve our working capital metrics.

Slide 14 shows you in that.

<unk> guidance for 2023.

We now expect constant currency revenue growth to be near the low end of our guidance range of 7% to 12%.

This is primarily driven by our revised outlook, Yes America segment as we diversify its foodservice business.

We now expect our fourth quarter gross margin to be in the new countries.

This estimate now includes our expected cost related to the Asia reset.

Well, yeah absorption impact of reduced volume expectations in the Americas segment.

I said earlier, we also now expect capex to be below $75 million this year as well as in 2024.

As mentioned in our earnings press release in our fourth quarter, we expect to ensure a noncash impairment in the range of 102 hundred $15 million related to the production facility in <unk> America segment.

Where are we are discontinuing construction.

We also expect to ensure restructuring and other exit costs of approximately $40 million to $50 million.

Turning to HMH to result in no more than 20 million of net cash out over the next two fiscal years.

After taking into consideration anticipated proceeds from selling certain equipment.

Finally, we remain on track to achieve E G. The adjusted EBITDA in 2024.

Enabling our future sustained growth we are confident that the actions we are taking lease trends the business and position us for success.

This concludes our prepared remarks.

Operator, we are now prepared to take questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Our first question comes from Ken Goldman with J P. Morgan. Please go ahead hi.

Good morning, Thank you.

I wanted to ask if it's not too early if we could get a little bit of a read on what you think some of the key.

Tailwind and headwinds we should look for as we head into next year not looking for numbers necessarily but just an idea of kind of how you think about progression obviously, it looks like youre feeling pretty good about.

Americas recovering in some of the new doors going in there I just wanted to get a general sense of your thoughts early on on.

On the direction, there and kind of.

Milepost, we should look for.

Hi, Ken.

Nice meeting you today Youtube.

Thank you.

Look as we speak we are working on our 244 projects so far.

For sure we will share more on next earnings call.

What I can tell you today is that.

Our first priority is to be to bring this business to profitability.

What we see is that the second half is going to be better than the first half.

From absolutely at least I thought ours as well as organic growth.

Asia, our reset plan and the actions, we're taking in America will be behind us.

And we will continue to deliver on our <unk> as well as the supply chain productivity as we discussed.

So this is what we can tell you today I really want to ramp from the side, that's what I'm working on it and this is where we stand today.

Thank you and then just a quick.

Question about.

The status of your relationship I guess with your largest customer in Americas.

Do you see that progressing from here or any color you can provide on that would be would be helpful. I think.

Thanks again Daniel here.

To see to hear from you today will listen.

We're looking to drive profitable growth you heard us in the prepared remarks, and you heard Jay talking about it now.

And.

That means that we are prioritizing the quality of our growth. According to our strategy and we believe we're here for the long run so.

This doesn't mean, we're walking away from any contracts on any customer.

Just rebalancing.

Out of home and food service.

China sales, which have a variety as we discussed in previous earnings a variety of sub channels that are more margin accretive to us and more profitable and we re balancing that.

So that's what we can share with you today, there is ample opportunity to growth in both channels as you see our recent distribution gains in the U S. With some early signs of market data improvements and the same thing goes for out of home and food service ample growth opportunities is just a rebalancing of the <unk>.

Pension between both to make sure that were true to our quality of growth and the debt only becomes.

And much better and stronger business before it becomes a bigger business.

Yes.

Yes.

Our next question comes from Max <unk> with B N. P. Please go ahead.

Hey, Thanks for the question.

Sticking with the Americas. So you acknowledged that category growth rates in the retail channel have slowed but it sounds like you believe that the shift to milk will continue and I was just hoping for more color on what's driving the conviction behind that thanks.

Yeah.

Yeah. Thank you. Thanks for the question Daniel again, taking it yes as you have seen that we've seen.

Units in <unk>.

<unk> growth recently.

Our scanner and a ton of data.

<unk>.

And we have also seen market share.

Progress within both land base.

Milks and ultimately so.

This is this is consistent with the early signs of distribution gains, we seen us and as we consistently said.

We are head down on execution, it may sound a bit sell centers, but hopefully is the proven brands that ignites category growth and therefore are supposed to be.

<unk> time.

Worrying about the categories, where we're doing a stimulating that growth sustained field rates as you would've heard US speaking a few earnings calls ago, now strong innovation coming and ongoing disruptive brand activation at the back of solid distribution gains. This is what we're doing in EMEA amex and reduce it will.

And this is where we're starting now to consistently deploy in the U S. Mind, you that only has a strong runway for distribution gains in the Americas too.

That was held with the strong velocities, we have to stimulate further demand.

Got it and then just on the supply chain changes I realize they're being positioned as a doubling down on the asset light production model and they should increase here, okay and improve your cash flow and the competence in your longer term margin targets I guess.

To play Devil's advocate, a skeptic could say step.

Step back from Asia, and Youre seeing declining sales in the Americas, partly due to the step away from your largest customer in foodservice.

It sounds like you've got the capacity to produce more than youre selling you've lowered your sales targets throughout the year and your volumes declined in <unk> on a year over year basis, and maybe you could conclude that grocers just has come down a lot for this business over the last several months.

What would your pushback.

That type of narrative.

IMAX is okay. So speaking I have a very strong push back for you.

Is there is no demand issue for us what drives the ban is our ability to fully deploy.

The underlying demand for the oatmeal category remains calm and as Daniel said, Okay is the key driver of category growth, especially when we combine sustained capacity distribution gains and brand building investments.

EMEA is a very good example for that we have consistently stimulated growth in our core markets and we are still gaining significant share just take the example of Germany or the Netherlands.

<unk> continues to grow in a consistent high single digits in volume, despite the pricing and Thats why in the U S. We are confident that with the recent and upcoming distribution gains as well as increased bond activity, we will be able to hit the gates. The same playbook on results and of course.

In China, we just started recently to adapt to the new context, so really when you look at the reduction in Capex. It is therefore simply a consistent ongoing calibration.

<unk>. The fact that we have strong assets like ways to service our goals and expansion within our established network and by doing so thankfully further our confidence in our long term margin so that would be my pushback Max.

Great. Thanks very much.

Yes.

Yes.

The next question comes from John Baumgartner with.

With Mizuho Securities. Please go ahead.

Good morning, Thanks for the question.

Just first off looking at Asia, There's a lot there's a lot going on there I think just re sort of reshaping the portfolio of pulling back on unprofitable items.

Is there a way to think about where this business sort of basis out in terms of just seeing the year on year decreases in revenue, what's the right run rate for this business at this point do you think I mean is this is this sort of a bottom and is there more to go in terms of absolute sales declines this year like how do you think about resetting the base in Asia.

Thanks, John.

Great to hear from you. Thank you for joining us today as always.

I'll try to unpack that for you and Youre right. There are multiple multiple dimensions to our reset the nature of the first one has to do with the context right.

Accepting and acknowledging that there is a much tougher consumer and customer environment.

With very clear repercussions when it comes to demand sensitivity, but also especially price sensitivity more than demand.

Number one so we're reacting to that first right then and as explained in prepared remarks, not just from this earnings but in previous one the team has moved in record time to implement that reset plans that we announced so.

That is focusing the portfolio with a strong reduction of 70% in Skus channel in our proven perimeter, which is foodservice and of course, a subsequent head count Recalibration. So this is almost behind us in terms of our operational and execution. So now it's all hands.

On deck.

Towards generating.

Further growth. So we are pleased to see that the reset these moving in the right direction.

Now I know your question is about the outlook and what we expect moving forward and of course, we cannot predict the future right. So we are controlling the controllable there and we are in the early steps of our reset plan, we do expect and I think and Jay was referring to that too.

To report better results in 2020 for it but it's too early to give you exact details on the shape of the growth curve at this point in time, the three of US I can tell you will be in Shanghai and in the factory and mention again in two weeks time with our team in the field. We will obviously keep you updated and we'll give you full 2020 for guidance.

In our quarter four call.

Perspective on how the business is I expect it to Luke.

Our go forward plan has been proven to work in EMEA and it's starting to show early results in the U S. So we see no reason why we cannot follow suit in Asia.

However.

I would like to repeat one of the previous.

Mantra with which we are driving the business.

It seems the last two quarters, we really seek joint a stronger business before we seek a bigger business and I cannot think on a better region to apply that mantra that in Asia at the moment.

Okay and to follow up in the Americas.

I think you've quietly built up some pretty nice TDP growth year on year. Despite the absence of any kind of big Bang.

Increases in sizable retailers, but looking at looking at the Americas results today seem to volume being softer coming from foodservice.

How should we think about that sort of volatility from foodservice in the Americas numbers going forward I imagine that you've got the volume declines in foodservice youre shifting you're shifting leaders to more profitable outlets. How do we think about preparing for further volume declines in the Americas going forward, if we see that.

Or is there a trade off with more profitability going forward just help us walk through the non measured channel component of the of the other geographies.

Thank you John.

Well.

The the same words of healthy seeking profitable growth here.

Imagine the two buckets as you called them out.

Foodservice.

And.

And retail in the retail environment, you see the baby steps and we have very promising outlook when it comes to distribution gains with our considering continued solid.

Velocities and very promising.

<unk> gains when it comes to the new items, the new innovation, So expect a promising solid outlook when it comes to retail which is approaching 50% of our sales.

In foodservice is a balancing act expect some headwinds in the net.

Because we have made some.

Proactive decisions to manage growth profitably now if you look at to one sliding which we make specific remarks on these we are growing solidly outside some of the some of our largest customer.

Food service. So we believe now that we have put focus teams and resources to multiply growth in these channels, which are more margin accretive to keep that balance that and James was referring to more towards the second half of 2024, so expect more growth and more profitable.

Growth.

Okay. Thank you.

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

Great. Thank you operator, and thanks, everybody for joining us feel free to reach out to me. If you have any follow up questions have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.