Q4 2024 Oatly Group AB Earnings Call
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Speaker Change: Good morning and welcome to the Oatly 4th Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: 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.
Brian Kearney: 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.
Brian Kearney: 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.
Brian Kearney: Industry and Business Trends, Business Strategy, Market Growth, and Anticipated Cost Savings.
Brian Kearney: 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.
Brian Kearney: 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.
Brian Kearney: Also, please note that on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue, and free cash flow.
Brian Kearney: Well, 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.
Brian Kearney: 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 in front our 2024 performance versus guidance.
Jean-Christophe Platon: At the same time, our profitable growth focus has delivered our adjusted EBITDA 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: Over the past two years, we have indeed executed a significant transformation, where we now have a much healthier business with clear strategies, clear accountability, stronger margins, and significantly improved profitability.
Jean-Christophe Platon: Looking ahead to 2025, we expect to drive our first full year of Profitable Goals.
Specifically, we expect...
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 BPA in the range of 5 to 50 million.
Jean-Christophe Platon: and we expect capital expenditures in the range of $30 million to $35 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.
Jean-Christophe Platon: Slide six outlines the significant transformation that we have methodically executed over the past two years.
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: We are guiding to 30 to 35 million of CAREx, which is approximately 4% of poverty.
Jean-Christophe Platon: We have also made significant changes outside of our supply chain.
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.
Slide 7 shows the final tree type
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 input 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 improved their adjusted BPA 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 phase-out.
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.
As we look ahead to 2025 on slide 10,
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 U.S. 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, simplify force, speed, and impact, and provide further fuel for growth-driving reinvestment.
With that,
I turn the call to Daniel.
Thank you, J.C., and good morning, everyone.
Jean-Christophe Platon: 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.
Speaker Change: First, I would like to highlight that we posted broad-based steady growth in 2024, as demonstrated on slide 14.
Speaker Change: Europe and international had solid growth in both channels with good contribution from both established and the expansion market.
Speaker Change: North America reported double-digit revenue growth in retail and 8% growth in food service.
Speaker Change: As we have previously discussed, North America has been aggressively diversifying its food service business, proactively balancing growth and margin.
Speaker Change: Excluding the segment's largest customer, food service sales grew by 22% in 2024, which shows you just how aggressive we have been.
Speaker Change: North America has been impacted by a change in sourcing decisions at our largest food service customer.
Speaker Change: 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.
Speaker Change: Our Greater China segment posted strong double-digit growth in the second half of this year after it fully lapped its strategic reset.
Speaker Change: This is driven by our expanded presence in the food service channel.
Speaker Change: 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.
Speaker Change: The range continues to expand in breadth and depth, including new items that drive relevance and ubiquity for different locations, channels, and price points.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Slide 15 shows we have driven this without the category wind at our back.
Speaker Change: Despite this category sluggishness we have seen in both Europe and in the US, we have continued to drive growth.
Speaker Change: 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.
Speaker Change: This supports our continued belief that there is a clear difference between plant-based milks versus oat milk and versus oat milk.
Speaker Change: As I mentioned in the past, we cannot wait for others to grow this category and just take share from less relevant competitors.
Speaker Change: Oatly has long been the only brand proven to drive category growth, and we intend to use that competitive momentum to do it once again.
Speaker Change: 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%.
Speaker Change: Considering the health, product performance, and climate relevance of our products, as well as the meaning of our brand to younger generations, we see that 70% to 80% of categories face an enormous opportunity.
Speaker Change: Slide 18 shows the first step in recruiting that remaining 70% to 80%, which is to make oat milk relevant to a broader population.
Speaker Change: 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.
Speaker Change: With just a single activation to expand how we think about oat milk, the results have been quite solid.
Speaker Change: Are base velocities infected quickly? Interestingly, almost 80% of the volume improvement came from consumers that are new to plant-based milks.
Speaker Change: showing the power of the brand to increase penetration and convert people away from cow's dairy when the offering is newsworthy and relevant.
Speaker Change: However, we know a simple change in messaging is not enough.
Speaker Change: Slide 19 shows two of the biggest factors we believe are preventing the category from breaking through that 20 to 30 percent penetration level.
Speaker Change: 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.
Speaker Change: Following the rise of social media, we see a rise in misinformation, especially on the nutritional value of oat milk.
Speaker Change: Slide 20 shows one of the first steps in conquering the historical barrier of space and preconception.
Speaker Change: In Germany, we used our unique voice to entice consumers with a very single message based on our local market research that proved that over one in two German consumers prefer oatly to cow's milk in a blind test.
Speaker Change: 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 the information then on slide 21.
Speaker Change: 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.
Speaker Change: Many of these false claims are, at best, misguided, and at worst, deliberately misleading.
Speaker Change: Fortified plant-based meals like Oatly are recommended in dietary guidelines around the world.
Speaker Change: We are a company rooted in science, and we stand behind the nutritional makeup of our products. So, we refuse to sit by and let consumers continue to fall victim to this disinformation.
Speaker Change: We have been and will continue to work and partner with healthcare professionals, journalists, influencers and registered dieticians to debunk misinformation and to ensure the correct
Speaker Change: science facts, true facts, get to consumers without us adding to the noise.
Speaker Change: In short, we will continue to set the record straight, in a very orderly way of course.
Speaker Change: 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: And in Greater China, we're excited to announce that we will be entering the Club Channel in 2025.
Speaker Change: The Chinese retail channel is very large and we're very excited to partner with these great club stores to start capturing the opportunity in a disciplined way and more actively diversifying our channel footprint.
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: On slide 24, you can see that we have reduced the cost per liter by 19% over the past two years.
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.
Speaker Change: 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: Slide 25 shows we have driven efficiencies in our overhead structure as well. Over the past two years, we have reduced our total SG&A and R&D by $80 million.
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: driving the edge in a margin down by 17 percentage points.
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. 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 PML.
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 930 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 breaking 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
María José: In both the fourth quarter and fourth year, our improvement was firmly driven by a very good increase in gross profit.
María José: In the fourth quarter, we have a slight year-over-year headwind in SCNA as we increase our advertising investment to drive growth.
Slide 31 shows sediment 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 four-year basis.
María José: Third, each segment draws 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.
María José: Thanks for tuning in. I'm Brian Kearney. I'll see you next time.
María José: Our balance sheet remained solid. At the end of the quarter, we had $99 million of cash and $186 million of our credit activities.
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 exited and discontinued factories remain on track.
The middle of the slide shows our frequent flow improvement.
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 work in capital by $23 million over the past two years.
María José: 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 first 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 EBDA improvement 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 through 2025, driven by a combination of the business continuing to strengthen, higher brand investment early in the year, and Q1 naturally being the lower sales 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 savings 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 a sort of a fat piece of the thing that'll 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 double click on the answer on top of what we already said in the prepared remarks.
Speaker Change: So, in the prepared remarks, we said that we expect the improvement of gross profit as you mentioned.
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 SES Guidance Lunch.
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%.
So 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 is 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.
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: that this year's new distribution will hit a little bit later than last year, so expect a brief blip in the lapping periods between one year and the other. That would be one.
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 innovation 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: that with the upcoming incremental ACV 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: Okay, great. I could sneak in maybe a third on the...
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: decisions with volume growth decisions with margin, balancing the margin right so 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.
Speaker Change: The next question comes from Max Gumport with BNP Paribas. Please go ahead.
Speaker Change: 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.
this year and then
Speaker Change: 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 maybe 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: There are two, potentially three elements to your question. The first one is mechanical growth.
And I would like to stress the fact that...
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 component 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
whenever and wherever you taste plant-based milk before trying.
Speaker Change: 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 our ability to bring new consumers to the category, let alone Oakley.
Speaker Change: And for the rest, we continue to believe in the power of this brand. I am 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: I'm 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 here
Speaker Change: 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.
Speaker Change: Thank you so much Max, Jean-Claude speaking, and thank you for the question. As you've noticed, strategic lever number one to answer your question is...
Speaker Change: 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...
Speaker Change: Recalibration draws focus and focus drives performance. That's the belief that drives this business.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: The next question comes from Ken Goldman with J.P. Morgan. Please go ahead.
Speaker Change: Hi, it's Elsa on for Ken. So, it does seem like the majority of the year-over-year improvement and adjusted EBITDA for 2025 is expected to be driven by increases in gross profit tied to supply chain productivity. How should we think about the cadence of that improvement as we go throughout the year?
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, higher brand investment as well, early in the year, and Q1 naturally being a lower sell, a quarter due to the Chinese year.
Speaker Change: 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 segments 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 precincts that I just called out.
Great, thanks. I'll pass it on.
Bye.
Speaker Change: The next question comes from Michael Lavery with Piper Sandler. Please go ahead.
Thank you. Bye-bye.
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?
Speaker Change: 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.
Speaker Change: 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...
Speaker Change: and 7% of the total company, right, that gives you an impression of the size.
and the decisions that were made and the why.
Speaker Change: However, to go straight to your question and the outlook, when we speak with consumers and baristas across our customer base,
Speaker Change: in food service and in coffee. They consistently tell us that they can tell the difference in quality and in performance in coffee between Oatly and all other competitors.
Speaker Change: and I would like to pause there because that already gives you a view about what can happen in the U.S. market.
Speaker Change: That gives me confidence and gives us confidence that we will continue to aggressively pursue new customers, drive incremental distribution and increase penetration.
Speaker Change: 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.
Speaker Change: 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
Speaker Change: Profitable growth in this market since Q3 of 2024 and we see that as a direct result of the recess strategy that our China team has executed with excellence.
Speaker Change: 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.
Speaker Change: 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 bases.
Okay, that's great. Thank you very much.
Speaker Change: The next question comes from John Baumgartner with Mizzou Hall. Please go ahead.
Good morning. Thanks for the question.
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: for trade and support to coincide with increased distribution. 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: Thank you so much Jean-Christophe here. I'll start and probably get the compliment from my friend Daniel here to answer your question.
Speaker Change: Thank you for noticing Achieving Profitable Goals, as you know, is, has been and will remain being our North Star.
Speaker Change: And I have to say, it's a very important moment today for our teams, for ourselves, marking the moment to guide, in 2025, a kind of a new era, which is 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 the liberate.
Speaker Change: Margin-focused decisions when it comes to new channels, new customers, new markets.
Speaker Change: and new products. So that's the that's the way overall I wanted to start there by saying
What will fuel and drive...
Speaker Change: 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, reassessing our choices here. So,
Speaker Change: and bringing down these barriers of further conversion, right? So, in one hand, your question was about our 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, but 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 OPEX line.
Speaker Change: You've made quite a bit of progress the last few years reducing expenses, and you've got another benefit coming through in 2025 guidance. But bigger picture, how do we think about incremental OPEX reductions from here? Are there more reductions to be had following what you achieve in 2025? Or at this point, are the incremental gains
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.
So, we will be turning this...
Speaker Change: Mindset into continued improvement both on the supply chain and on the SG&A. You heard also MJ in the pre-part remark says we are actively working on SG&A further reduction as we speak in the beginning of 2025 and they are being brought to life.
Speaker Change: And we know it's not the case for every company, so sometimes it can impact the comparison with some others.
So...
We continue to work actively on SG&A improvements.
Speaker Change: There is a part of our most self-related portion of the DNA that will continue to grow alongside our volume goals, but not stronger than that.
Speaker Change: 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 know, have overcome the hurdles of maybe, you know, taste concerns and nutritional misinformation? You know, looking back in the U.S. evolution where almond came into the category about 10 years ago and took quite a bit of share from soy milk.
Speaker Change: Very good. Thank you, John. Daniel, again, I will take that.
Thank you.
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 I would 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 crops 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: or the light-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.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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