Anora Group Oyj (28Q.F) Earnings Call Transcript & Summary

Good morning, everyone, and a warm welcome to this presentation of Anora's Q3 results. My name is Milena Haeggstrom. I'm the Head of Investor Relations here at Anora. And our presenters today are our CEO, Kirsi Puntila; and CFO, Stein Eriksen. After these presentations, we will start with the Q&A session. And please be reminded that this call will be recorded. And now please go ahead, Kirsi.

Thank you, Milena. Thank you. So, it is time for the Q3 results. So, it's been busy times for us here at Anora. Now that during the past quarter, we launched the Anora turnaround program called Fit, Fix and Focus. As far as the details of each of these Fs is concerned, you will hear more from us next week on the Capital Markets Day, next Wednesday. In mid-September, we also announced our decision to adjust the organization structure and hence, initiated change negotiations. These discussions in all markets are progressing as planned. The ongoing immediate Fit & Fix work streams are very much in execution phase already and in fact, showing some promising profitability improvements. Naturally, the full execution work will continue over the whole updated strategy period, and we will keep you in the loop of progress on a regular basis. But before that, let's look back at the recent history, the period of July, August and September. So, the overall picture is still very much the same as in the earlier quarters this year, where the monopoly channels are presenting negative development. Total sales volumes in Nordic markets declined by 3.4% overall. Spirits, 4.2% and wine at 3.2%. For Anora though, quarter 3 showed improvement on many fronts. We showcased strong execution of the ongoing performance improvement projects, and they delivered tangible results. Top line has been our Achilles heel all year. I don't want to undermine the challenge. But if you allow me to look at the situation positively, the revenue decline -- diminished from the previous quarters. And in fact, the sales of our own brands were actually strong. But it is true. The total net sales did decline, minus 3.7%, equaling to EUR 156.7 million. This decline was primarily coming again from the lost filler business in the wine segment and the earlier lost partners in spirits. The good news is that the gross margin rose to 43.9% of net sales, supported this time by the wine and spirits -- wine and industrial segments. Simultaneously, our discipline on cost control continued, resulting in reduced operation -- operating expenses and improved profitability. But what really pleases us now is the comparable EBITDA, which increased by 13.1%, amounting to EUR 18 million compared to EUR 15.9 million last year. And this improvement, which is really good, happened in all segments. The comparable EBITDA margin was 11.5% of net sales, which is up from last year's 9.8%. And if you look at the year-to-date figures, the comparable EBITDA was in line with the previous year at EUR 40 million despite the lower net sales. And that, I think, underlines our improved resilience. But sure, the year is not over yet, and we are in the middle of the last very important quarter. So, we cannot drop the ball at all, and we are determined to continue working hard to deliver also the current quarter. So as far as the full year 2025 guidance is concerned, we continue being confident in hitting the window of EUR 70 million to EUR 70 million. If we then scratch the surface a little bit, giving you some highlights what happened in Q3. So, if we start on the left side from wine, and wine market share in particular. I know that I'm starting to look like a happy broken record, but we are very pleased to see that our focused investments and successful new launches made us the fastest-growing company in the Swedish wine market. In Q3, we made several new wine launches in Sweden, including Diamond Cellar Cabernet Shiraz in 3-liter bag-inbox and then Casa Nero Barbera in 1-liter bottle. We also expanded our excellent Il Capolavoro brand into new categories in Denmark, including Italian sparkling wine as well as Italian style wine-based spritzes. And then if looking at the spirits, Koskenkorva brand, strong performance continued, and the net sales grew across nearly all markets. And we have had some exciting new product launches, Jaloviina Cream for the Finnish audience. You know the brand. And then for maybe the Danish audience, Aalborg Red, and then also some fantastic seasonal brands such as Koskenkorva Gingerbread and Minttu Choco Vanilla. And that resulted in net sales growth for Koskenkorva in particular and the other strong brands. And this, of course, is a strong testimonial to our ability to innovate and expand our current core brands into new segments. Lastly, let's not forget that we are about to start the glögg season. We launched our Blossa Annual 2025 in September and the theme this year is Alps. And this year, for the first time, we have a red wine-based glögg at our hands. We also extended the glögg season with new tastes such as Blossa Pumpkin Spice for the Halloween season and tomorrow -- today's Halloween. So, I think it's very topical, as well as Blossa Coffee Vanilla, frost and original recipe. So, the glögg's, it's good to remember that around 10% of Blossa sales is usually coming from the Quarter 3, but the large majority is, of course, in Quarter 4. But what is very promising is the fact that the fastest-growing wine brand, Blossa in Q3 is growing. So, we hope for the cold, frosty rest of the year to catalyze people to spend time with our warming glöggs. Then as usual, let's elaborate further on the segment performances. If we start with the wines, wine segment net sales declined by 5% to EUR 70.3 million from EUR 74.1 million last year. Last quarter, I explained the nature of the wine business, which can be kind of divided into 2 areas: one being our so-called commercial owner and partner wine business and the rest being so-called filler business, which is basically selling our factory capacity to others in the industry. So, the decline in Q3 was mainly driven by this lower filler service business in Denmark. In Sweden, the recent successful new launches made us the fastest-growing company in the Swedish wine market, as mentioned. It's a clear proof of our competitiveness. We regained our #2 market position in that monopoly channel and also improved our market share further in Sweden. We also maintained our total market leadership in Norway and Denmark and secured leadership in Finland, thanks to the full off-trade, which means that it's a total of alcohol and also the grocery trade. Wine gross margin was 29% of net sales and the gross profit amounted to EUR 20.4 million. And finally, the comparable EBITDA increased to EUR 3.5 million, which is 4.9% more of net sales than last year. And the increase was thanks to improved gross profit and lower operating expenses. Then let's move on to the spirits segment. In Q3, spirits net sales declined by 3.4% to EUR 50.8 million. One has to remember that 2/3 of the decline was explained by the earlier changes in the partner portfolio, the partner losses earlier and 1/3 of the pure performance of the monopolies. So mostly driven by some mix challenges in our value vodka category. Market share, unfortunately, saw some declines across main countries with Norway, in particular, experiencing weak performance. Koskenkorva, again, good to mention net sales grew from previous year and the Koskenkorva brand portfolio, all in all, is representing already 18% of the total spirits sales. Gross margin remained at a very high level with 46% and the gross profit amounted to EUR 23.4 million. The spirits comparable EBITDA amounted to EUR 9.3 million, which is a slight improvement and EBITDA margin increased to 18.3% of net sales, thanks to lower operating expenses. And then finally, let's look at the Industrial segment. In Q3, the Industrial segment's total net sales amounted to EUR 59.9 million, while the external net sales decreased by 1.2% to EUR 35.6 million. This decrease was mostly driven by lower volumes in contract manufacturing and the site product sales, but it was compensated by higher sales of starch and ethanol, which are very pleased. The industrial gross margin increased to 47.5% of net sales in Q3, very high and the gross profit amounted to EUR 28.5 million. So, the industrial segment's comparable EBITDA has actually increased to EUR 5.8 million, which is 9.7% of the net sales. I think it's fair to mention also that the efficiency improvement in supply chain successfully increased our profitability. Vectura in particular, has shown some extraordinary development in Norway. And I guess with the segment details, I will now give the word over to Stein to get into the more detailed financial review.

Yes. Thank you, Kirsi, and good morning, everybody. Should we then have a look at the financials for Q3. So let me start with a summary of the financial performance in the third quarter of 2025. I think it's fair to say it's a mixed quarter, especially due to the lower top line. But that being said, we also had improvements in several areas, and I will come back in more details with all of them. But first of all, we delivered a stronger gross margin compared to last year, up 190 basis points. We had lower OpEx compared to last year. We had reduced inventory of almost EUR 23 million, hence, also improved cash flow as well as lower net debt contributing -- or sorry, lower net debt of EUR 50 million, contributing then to also a lower leverage. So definitely some positive signs below the top line. However, as Kirsi mentioned, on the flip side, sales were down mainly due to the less filler business in Denmark and some partners that we lost earlier this year. Also, just wanted to give you an update on some of the ongoing projects that we have in finance and IT. First of all, and the most important ongoing project is the SAP implementation progress. I'm happy to announce that it's progressing as planned with a technical go-live now in November 2025 and with a full operational go-live early next year. Also, we have finalized our credit policy review, and we will then tighten our credit control going forward. And also, worth mentioning that in Q3, we successfully implemented a new technology platform for external reporting which enhances the transparency, control and efficiency within our department. So, let's then move over and have a closer look at the net sales performance. In Q3, net sales decreased by 3.7%, mainly due to the lower volumes in the wine and spirits segments. In wine, the decline was mainly driven by the reduced filler service business in Denmark. And in spirits, lower sales reflected the earlier changes in our partner portfolio, while actually Anora had growth for our own brands. Industrial segment, sales were down slightly due to lower contract manufacturing volumes and side product prices, although this was partly offset by stronger sales of starch and ethanol. So, while top line volumes were somewhat low, the key point is that profitability improved significantly. And then I think we move to the next slide to have a closer look at the gross margin development. Our gross margin continued to strengthen, supported by revenue management and a more stable cost environment. The input cost has flattened out and the improvement is mainly due to 2 things: improved revenue and mix management as well as Kirsi mentioned, improved efficiency in our industrial business. On the left-hand side, you see the example, which is a Finnish barley, which is one of the key raw materials in our supply chain, and it has now averaged around EUR 176 per tonne. And as you can see from the graph, this is significantly below the peaks we saw back in 2022 and 2023. Turning to the right-hand side of the slide, the strong gross margin also in the quarter contributed to the year-to-date improvement and the margin remains at 43.7%, which year-to-date, which is then also above last year's underlying gross margin of 42.5%. And the key driver once again here is the revenue management. We made continued progress in price and mix optimization across all segments ensuring that our pricing fully reflect cost changes and value positioning. So, in summary, the combination of stabilized input costs, disciplined pricing and efficiency measures, this has strengthened our profitability base, and we will also talk more about this in our upcoming Capital Markets Day, the 5th of November. If we then move to the next slide to look at our profitability, we delivered improvement across all operative segments. And our comparable EBITDA came in at EUR 18 million compared to EUR 15.9 million last year. If you look at the breakdown per segment, and Kirsi already commented on this. But in wine, we had a clear increase with EUR 2 million, driven by 2 things: higher gross profit and lower OpEx. Spirits also improved EBITDA, thanks to continued good cost control. And in industrial segment, supply chain efficiency gain helped us to strengthen profitability and especially in the Norwegian logistics operations, Vectura in Norway. So solid EBITDA growth and cost discipline. Let's now have a look on the cash flow and net debt development. I have to say, when I first looked at the cash positioning at the end of September, I was very pleased because I knew that cash flow would be strong, and the cash flow was strong in the quarter, ending up EUR 14 million above last year. But if we go through the net debt development, as you can see, we ended net debt in the end of Q3 at EUR 203 million, up from EUR 122 million at the end of last year. And the increase is mainly explained by seasonal working capital movements and the dividend payments done in April this year. Starting from the left, EBITDA generated around EUR 40 million and contributed positively, but this was offset by a seasonal buildup of working capital amounting to EUR 76 million. We also had EUR 12 million in financial payments and EUR 6 million in taxes paid during the period. Capital or CapEx expended amounted to EUR 10 million, mainly related to ongoing efficiency programs and system upgrades. There were no major assets sold in the quarter, and we distributed EUR 15 million or EUR 14.9 million in dividends earlier this year. In total, net cash flow from operations was minus EUR 54 million, leading then to a net debt of EUR 203 million at the end of Q3. And despite the seasonal effects, I just want to say once again, I'm really happy with the cash flow year-to-date because if we then move to the next slide, you then see our financial position by the end of Q3. As I mentioned, point number one, we have stronger cash flow of EUR 14 million compared to last year. Second, our liquidity reserves remained fairly strong at EUR 262 million. That's up from EUR 236 million a year ago. And also, our net debt going down or improving from EUR 218 million down to EUR 203 million and then also contributing to a lower leverage ratio, moving from 3.3 last year down to 3 this year. Moving over to working capital position. At the end of September, the group's net working capital stood at EUR 3 million, which is around 0% of net sales on the last 12 months basis. And looking at the components, I think here, I just want to highlight that we are pleased to see quite strong inventory reductions compared to last year. And this is mainly driven by -- well, first of all, we see good progress in our industrial segment. We see also strong underlying improvement in our wine business. And then in spirits, most of the reduction is related to the previously lost partners. But all in all, really pleased to see a strong decrease in inventory. But that being said, and we will also talk more about it, the 5th of November, we still see more improvements in further reduction of working capital and inventory. So, I think that sums up the Q3 business. So, Kirsi, over to you.

Thank you. Thank you, Stein. Let me then summarize a few key takeouts of our Q3, where the strong execution and performance improvement actions started delivering tangible results. First and foremost, comparable EBITDA increased by 13.1% and amounted to EUR 18 million with improvement in all segments. Secondly, comparable EBITDA margin was 11.5% of net sales. Then our net sales amounted to EUR 156.7 million, which is down by 3.7% from last year, primarily due to lower volumes in the filler services and wine and the earlier lost partner business in spirits. Gross margin, however, rose to 43.9% of net sales, supported mostly by the wine and industrial segments. And our disciplined cost control continued, resulting in reduced operating expenses and improved profitability. So, for the rest of the year, the markets, our key markets are expected to be relatively flat compared to the '24, both in volumes and in value. As far as the 2025 guidance, as said, our EBITDA target is still valid and expected to be in the range of EUR 70 million to EUR 75 million. And I guess the final reminder next page is we said it, I think, maybe 7 times already, but that next week, we hope to see you all on Wednesday to listen to our Capital Markets Day, where we will elaborate further on our turnaround program of Fit, Fix and Focus. So, with this, I would like to hand over back to Milena for opening up the Q&A.

Let's open up for questions, and we already have some questions in the chat. You can still post those, but let's have the live questions first. So, the first question is coming from Maria Wikstrom at SEB.

I think it was enlightening to see the Q3 to progress on the -- across the board on the earnings level. I mean, definitely, it seems that, I mean, the actions that have been taken are currently biting. And I'm pretty sure that you are going to enlighten us more about the measures and how you get the revenue growing in next week's Capital Markets Day. But still, if you could give us a little bit of a feeling that how do you see on the revenue side that would -- is there any type of a leveling off of the sales trend, I mean, you would be seeing in the foreseeable future, especially as we enter the flat season?

Thank you, Maria. I'm always happy to make you happy. So, thank you for the good comments in the beginning. So, as I said, I think what we see towards the end of the year is quite flat development. I think it's a challenging environment still. I think it would be foolish to claim anything else. As far as the sort of focus part of our strategy, we're not going to say anything about it today. We will elaborate further next week. But obviously, it's fair to say that we can't win if we're just fitting and fixing the organization. We also need to grow, and that is the underlying ambition for us. But more on that then next week, Maria.

And then maybe a bit more about the -- I mean, the competition situation across the markets that could be of interest. I mean I see that -- I mean, you had a good comment on Sweden that you are currently, I mean, the fastest-growing wine dealer in Sweden. But if there is -- if you could a little bit enlighten about the competition in Norway and Finland as well and Denmark?

Yes. As I said, super, super pleased to see how the wine is developing in Sweden. But also, what is very at least positive for us is that when you look at our own brands and the actual commercial brand business, whether it is owner partners for that matter, it is -- we're seeing some really positive development. In fact, when you look at all of the 4 key markets, the market shares are sort of -- I mean, the declines are diminishing and our own brands in Finland and obviously, Finland being by far the biggest and most important market for us as far as the EBITDA is concerned is, in fact, improving. So, there are signs of positivity in the tunnel. The competition is, of course, fierce. I mean the whole beverage industry is much wider than it has ever been before. We are moving away from the traditional categories such as cognac, vodka, aquavit. So, there's so much more out there. So, the competition is fierce. But I think the strength of Anora in general is that we can adjust our operations to the current environment, whatever it is. And we have the ability and competencies in the house to create innovations and make further adjustments to whatever the consumer trends are -- however the consumer trends are developing. So, I guess that's all I can say about the competition.

Yes. And finally, an update currently on the Danish business. I mean, I think you commented that the filler volumes are still down. But what is currently -- I mean, what comes to the profitability and then, I mean, the demand for the filler business. So, if you could give a little bit of color that, I mean, what is currently going on in the Danish business?

Yes. I don't know if you want to also mention on that Stein, but I think to start with Maria. So, we're obviously working really hard on the filler business and contract manufacturing in general. It is one of our work streams, in fact, of our turnaround program. So, I think we are progressing with that one. As you saw still in Q3, there were disappointments in that area in all fairness, but that's something that we are working on. As far as Denmark in general is concerned, of course, you may have read about the news of the packaging taxation changes in the market. And those, of course, we are adjusting to. I mean, what it basically means is that in future, it's favoring us in future because the taxation is changing in Denmark so that it's more about the sustainable packaging, and that's also obviously a strength for us. But there obviously are now fluctuations when the customers are stocking up in 1 month and then the tax is coming into effect in October. So, there are changes on that on the commercial side. But as far as the filler business is concerned, that's something that we obviously are working on continuously here. I don't know if there's anything you want to elaborate on that.

Well, I guess I can say we still have improvement potential when it comes to improving the profitability in Denmark. But that being said, I think the Danish operation has a very important role in Anora because around 48% of the wine market in the 3 monopolies volume is bag-in-box, efficient producer of bag-in-box in Northern Europe. So of course, Globus has a very -- or sorry, the Danish operation has a very important role in going forward. And we will talk more about this also on the 5th of November.

We have a question from Rauli Juva from Inderes.

Just one question, which was actually mentioned already in your Q2 report, but I don't recall that it was discussed back then, so related to the insurance claim with the Globus acquisition, you mentioned that you have initiated an arbitration in English against the insurance company. So, can you elaborate on that? I guess it means that things haven't been going your way really.

All things are still in progress, let's put it that way, rather than things are not going our way. I think this -- trust me, I'm amazed how long these things can take. I don't know if we have the General Counsel on the line here, but it is a topic we've discussed also this week in the Board and the EMP. But things are progressing, but it takes time. So, there's nothing to update on that one. Unfortunately, Rauli, I wish we would be able to do that.

But can you say what is the arbitration about? So, have they given -- has the insurance company given some decision? Or what are you arbitrating on?

No, we're not telling more details on that here now. But things are progressing.

We will wait another few years.

Yes, hopefully not, but we'll see.

We have a question from Matti kaurola at OP.

First of all, congrats on delivering good results. My first question actually covering the market situation. You mentioned that you've been able to increase the sales of your own brands under the spirits segment. And while the market has actually been quite soft, I would say, what's your secret? What are the categories that are being growing there?

As I said, Koskenkorva is still delivering. It is unbelievable how well the innovations are getting into the lips and hands of our consumers. As I said, this Pumpkin Spice, not only in Finland, but also Sweden, it's been crazy successful in a way that we've had some amazing ambassadors and sort of endorsers, celebrities drinking Koskenkorva Pumpkin Spice. And then, as I mentioned, Choco Vanilla. We are very good in I mean, answering the trends, answering to the trends and trends of younger consumers as well. So Koskenkorva, whether it is [indiscernible] or the ready-to-drinks, the can variants of the portfolio are performing really well. What else did I say? Yes, our core brands are delivering really strongly in Finland at the moment for the spirits. Jaloviina Cream, all these cream variants are performing very well.

I comment very briefly, Kirsi, because it's like Kirsi said, I mean, Finland is our most important market when it comes to spirits, and we are around 52%, 53% volume share of the Finnish spirits market. But I think what's encouraging to see, like Kirsi already mentioned, is that we gained market share for our own brands in Finland. in the quarter, and that's very encouraging. And it's driven, once again, like Kirsi mentioned, related to the new launches and in particular, the liquors.

Then, going to the wine segment. You mentioned that the Danish operation was kind of a headache there, and explaining a great majority of the decline. But are there something else that has been kind of a bit soft or pushing sales down? Or is it just all about the operation in Denmark?

No, we mentioned -- yes, that's mostly -- it is still a business, really. But I mean something that obviously we are closely following is the development of American U.S. Wines. And I think I mentioned that if I remember correctly, in Q2, that obviously, us being the #1 U.S. wine producer in Denmark that, of course, back then affected that. And it's still, of course, thanks to the tariffs and the president of the U.S. sort of punishing the European markets a little bit on that. So I think that's, but again, there, we are adjusting to the situation. But then I think in Q2, in particular, it was the U.S.-based red wines that were contributing somewhat to the negative development.

Maybe I can just comment briefly on the numbers, around 80% of the decline in net sales in Q3 was related to the lost filler business. And then we see some challenge in the Norwegian market. And it's like, it's especially on the American wines.

Then final question from me. Regarding the improved gross margin. So, could you elaborate a little bit what's contributing there? Like we know that you've been kind of having restructuring organization for the next year. But like right now, what's kind of secret behind the improved gross margin?

It is like we mentioned that it's related mainly to 3 things. First of all, good revenue management. We have managed to have good control over our pricing. Second, we see also some positive mix effects from the lost partner business and the lost filler business. So that's around 1% point. And then it's also continued efficiency improvements in our industrial segment.

And then we have a question from Sanna Perälä at Nordea.

Still my first question, thanks for the answer. Then I would like to touch upon the market losses in spirits. Is it mainly due to the portfolio changes? Or is it something else? And do you have any measures already in place to turn this development around?

No, as I said, I think it's really mostly to do with our previously lost partners. That's basically the reason for the lost shares in the spirits. And I think we talked about that in the last quarter that this is the nature of the partner business that you kind of win some, you lose some. And in the past 12 to 18 months, the spirits segment has been the ones suffering the most from a couple of the big partner losses. So, they're still carrying over the effect from those recent losses. But in the wine segment, it's almost the opposite. I mean we have been very strong with our partner wine business lately. And I mean, obviously, future will tell, and you will see later on. But as I said, because of the nature of that partner business, sometimes you lose, sometimes you win. And of course, we are having strong negotiations with some other partners. And hopefully, we will be able to talk about that then in spirits as well moving forward. But right now, majority of the lost shares are really coming from the lost partners that happened earlier in the year and end of last year.

And then I feel like you will talk about this next week a little bit more, but could you share anything about the ongoing cooperation negotiations? When should we expect to hear some results from that? I mean, those are quite meaningful on your earnings.

Definitely, they are meaningful, and it is significant. It is unfortunate, but that's something that we have to do. We are in the middle of the change negotiations as we speak, and we're expecting them to be finished all of them by the end of the year, hopefully, even earlier. Some of the markets, as you can imagine, Finland, Sweden, and Norway, in particular, have very different union laws. And therefore, we are working according to the local laws and union negotiations. But those plans are progressing. Our ambition is as informed in mid-September to reach EUR 7 million EBITDA improvement from those efficiencies.

Let's go then to the chat questions in the meanwhile. So, we have one question, you can still post more. So, this is a question from Michail. Anora has carried out several efficiency and merger synergy programs of similar size in past years, but they have not been successful. Is this your latest program -- sorry, is your latest program sufficient, taking into consideration that in the past, a lot of work has been left undone?

I've been in the company for 11.5 years, Altia and Anora are connected. I don't remember there has been this big of a turnaround program before. So I think that's sort of that said, so this is significant. The program, as we have informed, is taking 3 years. So we're talking about a turnaround program, which started now and is ending in the end of 2028. So there are obviously several aspects in that Fit, Fix and Focus program. Is it going to be efficient? No one knows. This is a big turnaround, big program, and I have full trust that with this program, we are going to see a very positive development for Anora in future.

It seems that we don't have any more questions in the chat. Do we have any more online? You can raise your hand to mark the question in that case. Yes, we have a follow-on question from Matti Kaurola, OP.

Maybe one follow-up regarding the highlights or the ongoing projects that Kirsi and Stein mentioned. So typically, when any company mentioned 3 letters, ERP, it's kind of for investors a bit of the kind of red flag. And so could you a bit of the calm down for our kind of view. So, what's the situation there? And how is it going?

Yes. No, it's -- I understand the question. No to be honest, I feel very confident. We have a very competent internal team working with the ERP integration, and also a good cooperation partner. So, we just had a steering committee 2 days ago, and I feel very confident that we will manage to implement this according to plan. Very confident actually.

So, you can put the green flag up to the poll now, no red flag.

Well, we will also talk more about this at the 5th of November because this is a very important enabler for the Fit, Fix and Focus program.

Do we have any more questions? Please mark your question by raising your hand. It seems that there are no more questions. So, thank you to the speakers and to everyone online joining us today. And like Kirsi said, so we have the Capital Markets Day next week on Wednesday. So, I hope many of you can join in online or physically if you have signed up. And after that, we have our full year '25 financial statements release on the 11th of February. So, let's keep in touch.

Happy Halloween.

And that as well.

Have a nice weekend.