Q4 2024 Oatly Group AB Earnings Call
Speaker Change: Good morning and welcome to the Oatley Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode.
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Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. 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 Change: Good morning and thanks for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Platon, our Global President and Chief Operating Officer, Daniel Ordonez, and our Chief Financial Officer, Marie-José Debbie.
Speaker Change: Before we begin, please review the disclaimer on slide 3. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future results of operations and financial position.
Speaker Change: industry and business trends, business strategy, market growth, and anticipated cost savings. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements.
Speaker Change: 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 Change: Also, please note that on today's call, management would refer to certain non-IFRS financial measures including adjusted EBITDA, constant currency revenue, and free cash flow.
Speaker Change: 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.
Speaker Change: Please refer to today's release for reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, OLE has posted a supplemental presentation on its website for reference. With that, I'd now like to turn the call over to Jean-Christophe.
Thank you, Brian, and good morning, everyone.
Jean-Christophe Platon: Slide 5 has the key messages I want you to take away from today's presentation.
Jean-Christophe Platon: First, let me tackle up front our 2024 performance versus guidance.
Jean-Christophe Platon: Despite a very robust volume growth of plus 8.8% versus 2023, our 2024 top-line results came in below our guidance at 4.8% in constant currency revenue growth.
Jean-Christophe Platon: At the same time, our Profitable Goals focus has delivered our adjusted EPTA at the favorable end of our guidance range.
Jean-Christophe Platon: This demonstrates that Oatly is a much stronger company than it has been two and a half years ago.
Jean-Christophe Platon: Looking ahead to 2025, we expect to drive our first full year of Profitable Goals.
Specifically, we expect...
Jean-Christophe Platon: Constant currency revenue growth in the range of 2% to 4%
Jean-Christophe Platon: As you saw in our press release, we expect an approximately 300 basis point impact to our goals from a change in sourcing decisions at our largest U.S. customer.
Jean-Christophe Platon: We expect adjusted BDA in the range of $5 to $50 million.
Jean-Christophe Platon: We expect to drive these profitable goals by leveraging our brand to ignite positive momentum in the category, while simultaneously driving additional efficiencies.
So, let's begin.
One area of change has been in our supply chain.
Jean-Christophe Platon: Today, we have a more simplified supply chain that has become a strategic asset.
Jean-Christophe Platon: In December, we announced we were closing our Singapore facility, and today, we are announcing that we have discontinued construction of our second Chinese facility.
Jean-Christophe Platon: With those two announcements, we have five manufacturing plants globally with no additional plants being built.
Jean-Christophe Platon: These five plants can produce approximately 900 billion liters of product.
Jean-Christophe Platon: We are guiding to 30 to 35 million of CapEx, which is approximately 4% of revenue.
Jean-Christophe Platon: And I am pleased to report that we achieved 99% customer fill rates in 2024, which highlights the significant benefits of increased focus.
First, we have significantly simplified our overhead structure.
Jean-Christophe Platon: Today, we are much leaner, with approximately 1,500 employees, down 500 over the past two years.
Jean-Christophe Platon: When it comes to mindset, as Profitable Growth is our North Star, we now make deliberate, margin-focused decisions about channels, customers, and products.
Jean-Christophe Platon: We have also augmented our approach to marketing to focus on relevant and integrative arm activation.
Slide 7 shows the final tool impact
Jean-Christophe Platon: On our second quarter 2023 earnings goal, I said that we must have a stronger business before we have a significantly bigger business.
Jean-Christophe Platon: I am pleased to report that we have strengthened the business.
Our Goals Margin expanded 18 percentage points.
and our adjusted EPA improved by over 230 million.
We are clearly making good, healthy progress.
Slide 8, further highlights our healthy progress.
Jean-Christophe Platon: Each of our three operating segments improves the adjusted PTA by over 70 million in the past two years.
Jean-Christophe Platon: while we also make good progress in reducing our corporate expenses.
Jean-Christophe Platon: Our teams embraced the challenge, made the necessary changes, and drove the vehicles.
Jean-Christophe Platon: To be clear, we have executed this transformation in order to enable our mission.
Jean-Christophe Platon: Our mission is an important part of our culture, and I believe it makes Oakley truly unique.
Jean-Christophe Platon: We have maintained our mission and purpose throughout our transformation and we remain committed to it going forward.
Jean-Christophe Platon: We now expect to enter our profitable growth era by driving top-line growth and positive adjusted EBITDA.
Jean-Christophe Platon: While our constant currency revenue growth rate is expected to be impacted by approximately 300 basis points from a sourcing decision at our largest US customer,
Jean-Christophe Platon: We believe the underlying growth rate of our business remains healthy, with further expected distribution gains in all channels and innovation performance that Daniel will detail for us later.
Slide 11 shows our priorities for 2025.
Our top priority is to ignite category momentum.
To do that, we will continue increasing our relevance.
aggressively attacked the barriers to conversion from dairy
Jean-Christophe Platon: and increase the availability of our products to both new and existing consumers.
Jean-Christophe Platon: As we are igniting this category momentum, we intend to continue our aggressive pursuit of cost efficiency.
Jean-Christophe Platon: Over the past two years, we have built a strong efficiency muscle and we intend to flex that muscle in 2025 again to drive margin expansion.
Jean-Christophe Platon: Simplify for speed and impact, and provide further fuel for growth-driving reinvestments.
Jean-Christophe Platon: Our final 2025 priority is to fulfill our financial commitment of delivering our first full year of profitable growth as a public company.
With that,
I turn the call to Daniel.
Thank you, J.C., and good morning, everyone.
Daniel Ordonez: Slide 13 shows our 2025 priorities as introduced by JC. I will provide additional color and context on these priorities and how we plan to execute them.
Jean-Christophe Platon: So let's start with priority one, which is creating the second wave of category momentum.
Jean-Christophe Platon: First, I would like to highlight that we posted growth-based steady growth in 2024, as demonstrated on slide 14.
Jean-Christophe Platon: Europe and international had solid growth in both channels, with good contribution from both established and the expansion markets.
Jean-Christophe Platon: North America reported double-digit revenue growth in retail and 8% growth in food service.
Jean-Christophe Platon: Excluding the segment's largest customer, food service sales grew by 22% in 2024, which shows you just how aggressive we have been.
Jean-Christophe Platon: North America has been impacted by a change in sourcing decisions at our largest food service customer.
Jean-Christophe Platon: And while they remain large and important, we will continue to systematically expand our food service customer base with the same balance criteria as the opportunity remains massive.
Jean-Christophe Platon: Our Greater China segment posted strong double-digit growth in the second half of this year after it fully lapped its strategic reset.
Jean-Christophe Platon: This is driven by our expanded presence in the food service channel.
Jean-Christophe Platon: Slide 15 shows our Barista portfolio. It is second to none in velocities and product performance and it continues to be our largest business and our growth driver.
Jean-Christophe Platon: The range continues to expand in breadth and depth, including new items that drive relevance and ubiquity for different locations, channels, and price points.
Jean-Christophe Platon: In North America, for instance, barista grew by 10% in 2024, aided by the distribution expansion of the original barista and the addition of the new creamers to the lineup.
Jean-Christophe Platon: In Europe and international, barista grew by 13% in 2024, growing both the original barista organically and with incremental growth coming from the 1.5 litres, lighter taste, the organic range and the gigas.
Jean-Christophe Platon: Slide 15 shows we have driven this without the category wind at our back.
Jean-Christophe Platon: Despite this category sluggishness we have seen in both Europe and in the US, we have continued to drive growth.
Jean-Christophe Platon: In both markets, our retail takeaway grew in the mid-single digits in the last 52 weeks as we have continued to take steady share in nearly every one of our markets.
Jean-Christophe Platon: These supports our continued belief that there is a clear difference between plant-based milks versus oat milks and versus oat milk.
Jean-Christophe Platon: As I mentioned in the past, we cannot wait for others to grow this category and just take share from less relevant competitors.
Jean-Christophe Platon: Oakley has long been the only brand proven to drive category growth, and we intend to use that competitive momentum to do it once again.
Jean-Christophe Platon: Slide 17 shows the household penetration for the UK and the US. If we showed additional countries the story would be identical. Household penetration for the category has plateaued around 20 to 30 percent.
Jean-Christophe Platon: Considering the health, product performance, and climate relevance of our products, as well as the meaning of our grant to younger generations, we see that 70% to 80% of categories set stakes as an enormous opportunity.
Jean-Christophe Platon: In the UK, we activated a brand alerting consumers to our semi-oat milk that is tailor-made addition to the daily cup of tea.
Jean-Christophe Platon: With just a single activation to expand how we think about oat milk, the results have been quite solid.
Jean-Christophe Platon: Our base velocities infected quickly. Interestingly, almost 80% of the volume improvement came from consumers that are new to plant-based milks.
Jean-Christophe Platon: showing the power of the brand to increase penetration and convert people away from cow's dairy when the offering is newsworthy and relevant.
Jean-Christophe Platon: However, we know a simple change in messaging is not enough.
Jean-Christophe Platon: Slide 19 shows two of the biggest factors we believe are preventing the category from breaking through that 20 to 30 percent penetration level.
Jean-Christophe Platon: The first is the preconceived notion of taste. We know that most people who have not considered trying oat milk is because they believe it does not taste good even before they try it.
The second and more recent barrier is misinformation.
Jean-Christophe Platon: Following the rise of social media, we see a rise in misinformation, especially on the nutritional value of oat milk.
Jean-Christophe Platon: Slide 20 shows one of the first steps in conquering the historical barrier of taste and preconception.
Jean-Christophe Platon: In Germany, we used our unique voice to entice consumers with a very single message based on our local market research that proves that over one in two German consumers prefer oatly to cow's milk in a blind test.
Jean-Christophe Platon: Imagine that, it's phenomenal. After two months of this integrated brand activation, our baseline sales increased by over 9%. And this is only the beginning with plenty to come.
On to misinformation then, on slide 21.
Jean-Christophe Platon: We are increasingly seeing noise on social and in legacy media disparaging the nutritional facts of oat milk. As the most recognizable brand, we often find Oatly is the poster child of these attacks.
Jean-Christophe Platon: Many of these false claims are, at best, misguided, and at worst, deliberately misleading.
Jean-Christophe Platon: Fortified plant-based meals like Oatly are recommended in dietary guidelines around the world.
Jean-Christophe Platon: We have been and will continue to work with and partner with healthcare professionals, journalists, influencers, and registered dieticians to debunk misinformation and to ensure the correct
Jean-Christophe Platon: science facts, true facts, get to consumers without us adding to the noise.
Jean-Christophe Platon: In short, we will continue to set the record straight, in a very orderly way of course.
Jean-Christophe Platon: We are enthused to see the welcoming initial reactions from these relevant key opinion leaders and their commitment to advocate for science and for facts.
Speaker Change: Turning now to slide 22, the final piece of the plan is to continue increasing our distribution and ensure products are more available, be it in new spaces, channels, or customers.
Speaker Change: We continue to believe there is vast opportunity in the European food service channel and we continue to make progress in creating new moments of consumption.
Speaker Change: For example, many European airlines are showcasing our Jiggers on their in-flight menus, replicating the success we have had across the railway networks.
Speaker Change: These intentional choices on spaces and customers continue to stimulate the oatmeal consumption habit.
Speaker Change: In U.S. retail, we already have our highest ever weighted distribution and our highest ever share of the plant-based meal category.
Speaker Change: And we have secured additional distribution gains in both chilled and ambient.
Speaker Change: This new distribution is already coming online just as we lapped last year's range reviews.
Speaker Change: Our teams will be aggressively pursuing additional opportunities in all channels with customers of all sizes.
Speaker Change: Now, turning to the next 2025 priority, which is aggressively driving cost efficiencies to simplify and create more fuel for growth.
Speaker Change: We have driven these great results through delivered actions and streamlining our supply chain processes, procurement, as well as forecasting and planning accuracy.
Speaker Change: While we are pleased with our progress, we believe plenty of opportunity remains. In 2025, we expect to drive additional efficiencies from the closure of our Singapore plant as well as recently negotiated input cost contracts in North America business.
Speaker Change: And we have done in Europe, all productivity initiatives, whether large or small, have clearly identified project owners, resources, and timelines attached to them.
Speaker Change: We are pleased to have built truly a culture of productivity and efficiency obsession and of course we expect that volume growth will continue to help with fixed cost absorption.
Speaker Change: with that is an 8 million increase of branding and advertising so the reduction would have been 88 million if not for the reinvestment.
Speaker Change: We did this while growing our revenue by over $100 million.
Speaker Change: Just like with the supply chain, we have built the muscle of finding leverage and eliminating waste.
Speaker Change: In early 2025, we have already executed additional SG&A efficiencies to further simplify and provide fuel for growth-driving investments.
and we will always look for more.
So, as we enter 2025, you can see that.
Speaker Change: We have a track record of simultaneously improving profitability and driving broad-based growth, even in a challenging environment.
Speaker Change: We have a plan to reignite category momentum. We have early traction of the execution of our plan. And we have additional efficiency programs that will provide more fuel for that growth.
María José: I would now like to turn the call over to Maria Jose.
Thank you, Daniel, and good morning, everyone.
María José: Slide 27 shows an overview of the quarterly and full-year PNL.
María José: For the full year, we reported 5.1% revenue growth and constant currency revenue growth of 4.8%.
María José: This was slightly below the guidance we provided last quarter as category growth remains sluggish.
María José: We continue to drive strong growth margin expansion with the fourth quarter margin extending 540 basis points year-over-year, bringing the full year margin expansion to 940 basis points.
María José: Adjusted EBD was a loss of $6.1 million in the quarter and was a loss of $35.3 million which is at the favorable end of our guidance range.
María José: Slide 28 shows the briefing items of our total company revenue growth.
María José: As you can see, both our fourth quarter and full year revenue growth was driven primarily by volume growth. We grew volume by 9.9% in the fourth quarter and 8.8% for the full year.
María José: Slide 29 shows the drivers of our strong year-over-year growth margin expansion.
María José: In both the fourth quarter and full year, the biggest driver of our margin expansion was absorption and supply chain improvement.
María José: Our supply chain has become a strategic asset as the teams have maintained high customer service levels to support our growth, while also embracing an efficiency mindset to drive out waste, renegotiate contracts, and reduce costs.
Slide 30 shows the year-over-year improvement in our adjusted EBDA.
María José: In both the fourth quarter and full year, our improvement was primarily driven by a very good increase in gross profit.
María José: In the fourth quarter, we have a slightly over a year headwind in SG&A as we increase our advertising investment to drive growth.
Slide 31 shows segment level details.
There are three big takeaways on this slide. First,
María José: This is our seventh quarter of all three segments reporting profitable growth.
María José: Second, two of our segments drove profitable growth on a two-year basis.
María José: Third, each segment brought solid volume growth in both the fourth quarter and full year.
Our strategic initiatives and growth plans clearly continue to work.
María José: Turning to our balance sheet and cash flow on slide 32.
Our balance sheet remains solid.
María José: At the end of the quarter, we had $99 million of cash and $186 million of our credit facilities.
María José: Note that our revolving credit facility is completely undrawn and the quarterly changes in its value have been driven by foreign exchange rates.
María José: We continue to believe that our business plan remains fully funded with our path to profitable growth.
María José: Our profitability continues to improve. We continue to optimize our capital expenditures and working capital, and cash impact of our existed and discontinued factories remain on track.
María José: The middle of the slide shows our free cash flow improvement.
María José: Our 2024 free cash flow was $156 million use of cash which is our best performance since the IPO and a $319 million improvement since 2022.
María José: In the fourth quarter, Free Cash Flow was a $23 million use of cash, which was our best quarterly performance since the IPO and an improvement versus Q3.
María José: On the right side, you can see our progress on working capital.
María José: We have reduced trade working capital by $23 million over the past two years. We have done this while growing revenue, which has resulted in our trade working capital as a percentage of revenue falling by over 500 basis points.
María José: I have repeatedly said that improving our cash flow is a top priority for me and we are clearly making good progress.
María José: Our third priority for 2025 is to deliver our third full year of profitable growth as a public company.
Slide 34 shows the detail of what we expect.
María José: We expect constant currency revenue growth in the range of 2 to 4 percent.
María José: Our largest U.S. customer has made a change in how he will source oat milk.
María José: While they remain a large customer, we currently expect the change to cause an approximately 300 basis point headwind to our total company growth.
María José: We expect the year-over-year adjusted EBGA improvements to be primarily driven by gross profit.
María José: While we continue to monitor and evaluate the tariff situation in our North America segment, and our teams are preparing for possible scenarios, we have not included any potential explicit impacts into our guidance.
María José: We expect adjusted EBDA to improve as we move for 2025, driven by a combination of the business continuing to strengthen, higher ground investment early in the year, and Q1 naturally being a lower trend due to Chinese New Year.
María José: We expect CAPEX to be in the range of $30 to $35 million for the whole year.
María José: This reflects how now simplified supply chain network of 5 plants with no additional plants under construction.
María José: Slide 35 shows the building block of our expected improvement in adjusted EVDA.
María José: We expect the biggest improvement to come from efficiencies in our supply chain and SG&A.
María José: We have already taken the appropriate actions to achieve the majority of the feedings and we have clear plans and timelines to achieve the reminder.
María José: We will continue to regularly evaluate our entire cost structure to seek out additional efficiencies.
María José: For example, in December, we announced the closure of our Singapore plant, which we expect will save us nearly $10 million annually.
María José: We have also recently renegotiated many contracts that will lower our input costs, as well as internally communicated some changes that will lead to additional SG&A savings as we move through the year.
María José: We are controlling the controllables and have clear plans to deliver on our guidance.
This concludes our prepared remarks.
Operator, we are now prepared to take questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: If you're 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 2. Again, it is star then 1 to ask a question.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Komil Garjawala with Jeffreys. Please go ahead.
Speaker Change: Hey everybody, good morning and good afternoon. I guess let's dig into the the goal for profitability in 25 being driven by gross margin.
Speaker Change: You know, I see some of the details you provide on supply chain, but is there a pricing component, a mixed component, regional pieces, some of those types of things? Any more details in that, what looks like is sort of the fat piece of the thing that will swing you to profitability? I think that'd be useful.
Hi Camille, this is Marie-Josée. Hope you are well.
Speaker Change: Thank you for the questions. Let me let me double click on the answer on top of what we already said in the prepared remarks.
Speaker Change: Coming from, coming from this, coming from, let me explain a little bit more. First, optimizing our production footprint. We have already announced a few things on that front.
Speaker Change: maximizing our global sourcing resources, that's the second piece, and third piece is managing our product mix.
Speaker Change: On that front, there are obviously several variables that could influence where we will exactly land.
such as our SAIS Guidance Ranch.
such as the customer mix.
Speaker Change: but also, potentially, the foreign exchange, as I called out already.
So the takeaway on that for 2025.
Speaker Change: We will make progress on our path towards our long-term cross-margin target of 35 to 40 percent.
So, I hope that answers the question.
Speaker Change: It does. And then maybe if we could just talk about the U.S. a bit and, you know, this might be very short-term, but just in sort of very recent results, it looks like promo activity has really sort of
Speaker Change: spiked, at least in the Nielsen data that we're looking at. Is there something going on in the industry that we should be aware of as we're sort of starting 2025?
Speaker Change: Thanks Camille, how are you doing? Daniel here. Yeah, you're spot-on. There's been some volatility in the last, if you're looking at the scanner data, the last four weeks, but if we look at a bit more, you know, 12 weeks.
Speaker Change: This is how we see things in the U.S., right? Apart from the category dynamics, that you see that by yourself. So...
Speaker Change: The biggest driver we see moving forward would continue to be new distribution and the new ones here in the very short term is
Speaker Change: The second one that you see in terms of our own performance...
Speaker Change: is a little bit of a drag from the discontinued older innovations and the ones that have been diverging a little bit our focus, like frozen novelties or cream cheese.
Speaker Change: But this is short term, and we expect this to be lapped in the coming months. Right, so those are the, let's say, mechanical ones.
Importantly...
Speaker Change: This is how we look at things Camille. We see solid consistent velocities of our core portfolio, milks and creamers in both units and dollars.
Speaker Change: So all these while we register highest ever dollar shares in plant-based milk and oat milk in the in the recent periods and in the longer term. So we expect
Speaker Change: with the upcoming incremental ACB that you saw in the prepared remarks and in the main banners, we should be maintaining the steady growth trajectory that we have posted so far.
Speaker Change: Sort of this headwind from your largest customer. Was that a you know, maybe a business that was a you know operating at a loss anyways and that perhaps could be a One of the contributors to higher gross margins or is it just something else going on there?
Speaker Change: No, you've seen the consistent way in which we have handled the food service channel in the U.S. and everywhere, in fact, balancing growth
Speaker Change: with Volume Growth Decisions with Margin, Balancing the Margin, right? And we will continue to make these decisions as we move forward, growth and margin.
In this context, it's important for you to...
Speaker Change: I think if I understand the question behind the question, Camille, each customer in the U.S. is now only over 20% of the 2024 U.S. sales.
and only 7% of total company.
Right, so...
Speaker Change: Well, only, you know, any volume we lose means less cost absorption. In fact, your question is spot on. We expect to keep tracking on our relentless journey of gross margin improvement we set course two years ago.
Speaker Change: So you see, we maintain controlling the controllables, and as we said, this large customer continues to be large and super important to us, as it is the continued growth in the food service channel overall.
Got it. Okay, great. Thank you.
Thank you.
Max Gumport: The next question comes from Max Gumport with BNP Paribas. Please go ahead.
Max Gumport: Thanks for the question. I thought you gave a very helpful update on the category sluggishness that we're seeing right now, and it's encouraging to hear you aren't waiting for others and you've got plans in place to
Max Gumport: to get the category moving in the right direction. I also recognize that you, regardless, are posting differentiated performance versus the category, but can you just expand on how much you think is in your control with regard to improving the category?
this year and then
Max Gumport: Also, how much of the pressure right now is simply the lack of ability to bring in new households? And then how much are you seeing in terms of existing households?
Max Gumport: may be leaving the oat milk category because of some of the headwinds you announced in terms of the misinformation on nutrition. Thanks very much.
Speaker Change: Thanks. There is a lot in that question that I will try to unpack, Max, but it's super helpful and thank you for appreciating the effort. I will start with a headline, which is...
Speaker Change: only did it once and we are decisively going to and willing to do it again. In fact we don't see anything that impairs our ability.
Speaker Change: Any of these paradigm shifts has never been a linear growth trend, right? There are waves of growth that have to do with the adoption by different consumer groups.
Speaker Change: If you're going to stereotype them as millennials and Gen Z, they are different and they respond to different changing contexts, right? When it comes to sustainability tailwinds, less sustainability tailwinds say no more about the context to them, it's dramatically different.
Speaker Change: There are two, potentially three elements to your question. The first one is mechanical growth.
Speaker Change: The current performance that you have seen with no tailwinds or very very light tailwinds
Speaker Change: will remain. We see opportunities for us to continue to post steady, solid growth.
by gaining distribution.
Speaker Change: the addition to the new markets, to the mix, the new markets in E&I in Europe and international are starting to gain in critical mass. We started this journey two years ago and we like what we see, right? So the mechanical, I wouldn't underestimate the mechanical growth components for starters.
Speaker Change: And second of that, you would have heard us talking about our significant shift in marketing approach.
Speaker Change: And that is not by changing the model, which is what makes us unique.
but it's changing the way in which we allocate resources.
Speaker Change: in a much more precise manner. And that is the intentionality that you see behind on the two examples. And this is just quoting two.
Speaker Change: not random, but two examples with the tea integrated activation in the UK or with the taste experience example in Germany and you will of course see more in this direction which are
Speaker Change: precisely directed to breaking down the number one barrier to penetration for that 70% which is taste.
Speaker Change: whenever and wherever you taste plant-based milk before trying, the number one barrier to consumption is taste and has always been the case and it's proving today. And I'm encouraged to see that the first examples that you have seen in Germany are proving
Speaker Change: our ability to bring new consumers to the category, let alone Oakley.
Speaker Change: For the rest, we continue to believe in the power of this brand. I'm always amazed by the power of this brand. The latest one...
Speaker Change: Mark has to do with, you would have seen the recent announcement of the collaboration with Nespresso all around the world and we start seeing the, in two weeks, the impact of the Oakley Pots selling out and being top of the list of the Nespresso Pots.
And that's something that gives me confidence.
Speaker Change: that in a few quarters we would be able to articulate to you
Speaker Change: the precision of how are we bringing new households into the OP franchise.
Speaker Change: and starting to see the early innings of new category penetration.
Speaker Change: But it's early days. What I would like to say to you is, for us internally, we're adding category growth in our list of controllables, if that helps.
Speaker Change: Yes, very helpful. And as I look at your plans for 2025, it strikes me that much of the EBITDA progress you're targeting is actually completely unrelated to sales and to category growth, and it's much more related to supply chain improvements that are completely in your own control, regardless of where the category goes.
Speaker Change: I was hoping you could just give us an update on where you are on that supply chain journey longer term as we think about the continued progress you could make on that front beyond 25. Thanks very much. I'll leave it there.
Jean-Cristophe Platon: Thank you so much, Max, Jean-Cristophe speaking, and thank you for the question. As you've noticed, strategic lever number one to answer your question is...
Jean-Cristophe Platon: the very significant recalibration of our supply chain. As you have seen, we have taken the decision to discontinue three new factory projects, so previously the US and UK and now in China, as well as the closure of our Singapore plant.
Jean-Cristophe Platon: This allows us to focus all our execution and expertise power, as well as our CAPEX of course, in only five existing sites around the world. So that's super important. We believe that...
Jean-Cristophe Platon: Recalibration draws focus and focus drives performance. That's the belief that drives this business.
Jean-Cristophe Platon: The second strategic lever is our permanent quest for supply chain efficiency and an asset light supply chain.
Jean-Cristophe Platon: This is what contributes to the gross margin progress that you have seen. We just posted a full year gross margin of 28.7, which is 9.3 full percentage points higher than just one year ago. And as you very well noted, this represents again the bulk of the 2025 EBITDA progress.
Jean-Cristophe Platon: because we continue to relentlessly work on additional efficiencies, but we now do that on a much tighter, compact, fit-for-purpose network. So that's what you can expect from us.
Great, thanks very much.
Jean-Cristophe Platon: The next question comes from Ken Goldman with J.P. Morgan. Please go ahead.
I will take it. Thank you for the question.
Speaker Change: So, as we said, Adjusted EBITDA, and you just mentioned it again, will improve as we move through 2025, driven by the combination of the business continuing to improve.
Speaker Change: Higher brand investment as well, early in the year, and Q1 naturally being a lower sell quarter due to the Chinese year. Now, with that said, let me tell you that we have three things that are happening in 2025.
Speaker Change: First, and how you need to look at the sequence of the year. First, the expansion markets continue their growth rate and will improve the segment growth rate as we move through the year.
Speaker Change: Second, in the second half of 2024, we increased our promotional activity in Europe, which has impacted our constant currency revenue growth, and we expect that to be less.
Speaker Change: overhead wind as we enter in the second half of 2025.
Speaker Change: And the third point is that we expect our new integrated ground activation investment of the first half to drive accelerated growth in the second half.
Speaker Change: So the way to look at the sequence within the year is really driven by these major three things that I just called out.
Great, thanks. I'll pass it on.
Bye.
Speaker Change: The next question comes from Michael Lavery with Piper's Fandler. Please go ahead.
Thank you.
Thank you. Good morning and good afternoon.
Speaker Change: footprint that you represent there has been cut back. Any look ahead of how maybe stable that is going forward or what should we expect there?
Daniel Ordonez: Thank you. Thanks a lot, Michael. Good to hear from you. Daniel here. If you allow me, I will perhaps double-click in a couple of remarks we moved, I think, to Camilla at the beginning.
Daniel Ordonez: because you know that unfortunately falls into one of those questions which is I cannot give you a full answer to yes or no answer to that.
However, color and context first.
We'd like to underline again the...
Daniel Ordonez: the exposure we have to this very large and important customer. In the U.S. today, it is only 20% of the 2024 sales last year.
Daniel Ordonez: and 7% of the total company, right? That gives you an impression of the size.
and the decisions that were made and the why.
Daniel Ordonez: However, to go straight to your question and the outlook, when we speak with consumers and baristas across our customer base,
Daniel Ordonez: in food service and in coffee. They consistently tell us that they can tell the difference in quality and in performance in coffee between Oakley and all other competitors.
Daniel Ordonez: and I would like to pause there because that already gives you a view about what can happen in the U.S. market.
Daniel Ordonez: That gives me confidence and gives us confidence that we will continue to aggressively pursue new customers, drive incremental distribution and increase penetration.
Daniel Ordonez: And as you can see, we keep tracking on growth outside this large customer. You see in the recent quarter, we saw 82% of growth outside this customer. So the exposure continues to reduce.
Daniel Ordonez: And that is exactly what we're doing. So we will continue to control the controllables, continue to drive this good relationship with this large and imposter customer, and driving the business moving forward.
Speaker Change: expectations for the market opportunity there changed and how much is there maybe an influence of the current macro environment in China versus a longer term view you maybe just help us understand you know what what if anything changed in your outlook for demand and how that changed how that impacted this decision
Jean-Christophe Platon: Thank you so much Michael, JC here, I'll take it. First of all, let me confirm that OT business in Greater China is showing order development trends at the moment. We have reported profitable growth in this market since Q3 of 2024 and we see that as a direct result of the research strategy that our China team has executed with excellence.
Jean-Christophe Platon: I could also comment on the fact that our relationships with our key customers and partners there are stable and we see them as being highly productive.
Jean-Christophe Platon: So, overall, what do we see in China? On the food service side, which is the majority of our business in China, we really see a promising systemic momentum across all our important customer base.
Jean-Christophe Platon: It's a very vivid, vibrant environment there, and we have great relationships with the key partners there.
Daniel Ordonez: Beyond this, as you have heard from Daniel, we are excited to announce that we will be entering the Club Chart in 2025.
Okay, that's great. Thank you very much.
Speaker Change: Again, if you have a question, please press star, then 1.
Speaker Change: The next question comes from John Baumgartner with Mizzou Hall. Please go ahead.
Good morning. Thanks for the question.
Speaker Change: Maybe first off, it's nice to see the guidance for positive even on 2025 and that milestone.
Speaker Change: and I'm curious if you could walk through that in a bit more detail. You know, this past year there was some flexibility in the model where you invested at a healthy level.
Speaker Change: and I see you've incorporated some year-on-year drag in 2025 from larger brand building as well. But I'm curious, given the plan to build more distribution again this year, the comments you've made around challenges to household penetration,
Speaker Change: What's your confidence you've adequately built in enough reinvestment into the Guide, whether for marketing, for trade, for pricing? I'm just curious as to your confidence level in at least the low end of the EBITDA guidance for this year.
Speaker Change: and I have to say it's a very important moment today for our teams, for ourselves.
Speaker Change: marking the moment to guide in 2025 a kind of a new era which is the the first full year of profitable growth as a public company. It's an important moment for us.
Speaker Change: We are pleased with the significant structural progress we have made so far, mainly the gross margin increase and the SG&E recalibration that we highlighted. And you spotted it very well.
Speaker Change: These two leavers have significantly changed the peanut shape of this business over the past two years and because we continue and will continue to work on them, they will continue to explain the vast majority of our APDA improvements between 24 and 25 guidance.
attached to that.
Speaker Change: So, what we have applied so far is a very strong turnaround mindset, and we are turning it into an ongoing efficiency obsession mindset.
Speaker Change: And with this mindset, and this is exactly this mindset that will drive us to make deliberate...
Speaker Change: margin-focused decisions when it comes to new channels, new customers, new markets.
Speaker Change: and new products. So that's the way, overall, I wanted to start there by saying...
What will fuel a drive?
Daniel Ordonez: the vast majority of the MBDA improvement and what's the mindset with which we make these decisions? Now, over to Daniel to give more color. That's a great question, John. As you can imagine, we have been all hands on deck for a while re-assessing our choices here, so...
Daniel Ordonez: and bringing down these barriers of further conversion, right? So, in one hand, your question was about confidence levels.
Speaker Change: I believe that our plans are fully resourced when it comes to the confidence levels to deliver what we are guiding for today.
Not more.
Speaker Change: where this new marketing approach is simply being more precise and more intentional in how we articulate the brand activities against this new category context, which is focused on barriers to penetration, and we're deploying that in a much more integrated manner.
Speaker Change: In the early days, we were very encouraged with the results. So, precise resource allocation while protecting the brand and the uniqueness of the model of this brand and the teams behind it, which is what sets us apart.
Speaker Change: This may sound like a bit parochial and not very different to us, trust us, for us at Oakley, it's a paradigm shift, which is protecting the brand model and being super precise in how we allocate resources.
Speaker Change: Okay, thanks for that. It's helpful. And then, you know, coming back to Kamil's question on margins, just to focus more on the OPEC line.
just more about leveraging the existing base from volume growth.
Speaker Change: Thank you so much for the follow-up, John. We will always be looking for efficiency. In other words, we don't think we are done. We will continue and what I was explaining is what has served us well as a terminal mindset is now a culture of efficiency, obsession, a mindset that will be ongoing and we keep that with us.
Speaker Change: So, we will be turning these mindsets into continued improvements, both on the supply chain and on the SG&A.
María José: You heard also MJ in the pre-pub remark says we are actively working on this DNA further reduction as we speak In the beginning of 2025 and they are being brought to life
María José: One, perhaps one or two additional points, because that's a very important topic. When you benchmark us versus peers, it's important to keep in mind that our total SG&A includes both advertising as well as distribution costs.
María José: And we know it's not the case for every company, so sometimes it can impact the comparison with some others.
So
María José: As we continue to work to grow ourselves, here is what you can expect.
We continue to work actively on SG&A improvements.
María José: There is a part of our cell-related portion of the DNA that will continue to grow alongside our volume growth, but not stronger than that.
María José: But at the same time, of course, beyond our continued improvement work, we expect to see leverage on the fixed portion of our SG&A. So, never done, we are on it, and we know this is what is needed to fuel the goals.
Speaker Change: What's your opportunity, if you look more at capturing existing plant-based beverage buyers who already you have overcome the hurdles of maybe you know taste concerns and nutritional misinformation, you're looking back in the US evolution where almond came into the category about 10 years ago and took quite a bit of share from soy milk.
Speaker Change: You're thinking about, oh, the ability to take share from soy or almond from better functionality, whether it's in creamers, you know, ingredients, recipes. How do you think about the ability to maximize that, taking a share of the existing plant-based beverage consumer base, in addition to just getting more households and incrementality?
Speaker Change: Very good. Thank you, John. Daniel, again, I will take that.
Thank you.
Bye-bye.
Speaker Change: You see one of those charts where we talk about the portfolio and that's exactly, I would tackle your question twofold, right? The North Star, our North Star, is to continue to convert and make this category bigger.
Speaker Change: That is not just because we're mission-led, but that's the North Star for us, and we want to do it again.
Speaker Change: As we do that, what you have seen us doing for the last couple of years is how we are steadily gaining market share, which by definition, we are taking share not only by other oatmeal competitors, but also by the other crops.
Speaker Change: If you look at the other cross development in both the U.S. and in Europe, you will see that they are all in decline.
Speaker Change: And that is happening already as we continue to pursue our mission and to pursue conversion.
Speaker Change: That, if you go back to that chart, John, that talks about portfolio with the Barista All Things Coffee portfolio, you could dissect that portfolio in two, which that's precisely what you're doing. We are going wide in formats.
by being ubiquitous.
Speaker Change: in different channels, occasions, moments of consumption, and price points, that's exactly what we're doing. We're taking share and taking space from all different competitors outside plant-based milks but within plant-based milks.
Speaker Change: And if you were looking at the different concepts in that portfolio, like, for instance, the organic barista.
Speaker Change: of the Lighter Taste Barista that is also not just attracting new consumers into the category, but taking share from the plant-based meals as well. So you see, I don't want to give you a half-hearted answer, which is we do both.
Speaker Change: because you know that strategy is about choices, so doing both doesn't work. We go for conversion, and we have proven to ourselves and to you guys that for the last two years, by taking share on other crops and other competitors, we do that in the making.
Great. Thank you very much.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Brian Kearney for any closing remarks.
Brian Kearney: Great, thanks a lot everyone for joining us. Feel free to reach out to me if you have any follow-up questions. Everybody have a great day.
Brian Kearney: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Music by Kevin MacLeod Music by Kevin MacLeod Music by Kevin MacLeod