Anora Group Oyj (ANORA) Earnings Call Transcript & Summary

Welcome, everybody, to this exciting day where we can announce the merger of Altia and Arcus to the new company called Anora Group. We're webcasting from Helsinki and hope that our investors, analysts, media and also our employees are watching this presentation from close and far. We have worked very hard to get here, and we're very excited to tell the world about our new merger, creating a leading wine and spirits player in the Nordics with great international ambitions. Today's program will have 3 parts: We -- first, we will have a fairly brief presentation about the merger. Then we will hold a Q&A session, where we recommend you to send the questions through the chat board, and they will then be read up here. And afterwards, of course, now here in the room, we will be available for the media. And further on also, the Norwegian group will be available physically on the media this afternoon in Oslo. Material we are presenting today will be covered at arcus.no and the altiagroup.com. Let me start by presenting the people here today together with me. My name is Sanna Suvanto-Harsaae, and I'm the Chairman of Altia. With me is Michael Holm Johansen, who is the Chairman of Arcus. We have Pekka Tennilä, who is the CEO of Altia. We have Kenneth Hamnes, who is the CEO of Arcus. And we have Sigmund Toth, who's the CFO of Arcus. Welcome to all of you. Michael, over to you.

Thanks, Sanna. What I would like to do now is just to take you through the highlights of the transaction. As Sanna mentioned, you'll find the details in the merger plan that has been agreed by the Boards, and it's available on the 2 companies' websites and on the stock exchange release. The combination will be completed by a so-called statutory cross-border merger. The headquarter will be in Helsinki with some executive management teams placed in the different Nordic countries, thereby creating a true effective and Nordic organization. The stock will be listed on NASDAQ here in Helsinki. And for a limited duration, there will be a dual-listing also in Oslo. We are very pleased that we have this morning received the support of Vake, who actually is represented here today, I understand, stating their support for the transaction. And likewise, I'm also very pleased to announce that a voting undertaking has been secured from Arcus' largest shareholder, Canica. And in total, voting undertakings secured from the main shareholders of both companies, representing approximately 45% of the shares in Altia and approximately 59% of the shares and vote in Arcus, are supporting and have given their support to the transaction. The Nomination Committee of Altia, with some input from the Arcus Nomination Committee, is proposing that the Vice Chairman of the merged company will be Sanna and has proposed that I will assume the role as the Chairman of the Board. The management team will be led by Pekka as the CEO and Sigmund as CFO. Both, you will hear from later. And for good order sake, I underline that the completion of the merger is subject to approval by the extraordinary general assemblies, which both need 2/3 of the votes in order to approve this as well as obviously getting the necessary merger control approvals and the customary closing conditions. And with this, I hand over to Pekka to give you some highlights of this exciting business.

Thank you, Michael. This merger will create the leading wine and spirits house in the Nordics, which, of course, is a great thing. But personally, I am even more excited about the growth opportunities that this merger creates. We're talking about growth, both top line and bottom line. We're talking about growth in the Nordics and especially outside the Nordics. Here, you see some of the headlines that we will go through. I will start and then Kenneth and Sigmund will follow. We will talk about the super strong branch portfolio that this new company will have. We talk about the strength in, route to market, which we will have, which is very, very important for our partners. We talk about the growth in the Nordics and especially outside the Nordics. We will talk about what the increased scale means for our supply chain. And then we'll talk about the identified synergies. But if we start with the map which represents Anora Group, so our net revenue is EUR 640 million, EBITDA at EUR 85 million and we will employ 1,100 people. The countries in blue, that's our home base. If we look at the positions, we are #1 in wine and spirits in the Nordics. In spirits, we are #1 in all Nordic countries. In wine, we are #1 in Norway and Finland. And in Sweden, we are #2. We are #3 player in spirits in Baltics and a very strong player in the travel retail segment. Moving on to look at our amazing brands portfolio. Here, you see some of the key brands that we have. It's a combination of iconic local market leaders, regional brands and global leading partner brands. We have brands, products for every occasion for all consumer segments in the Nordics. And this obviously is a great asset for the company and a great growth opportunity together with our customers. Sustainability is extremely important for both companies, and we want to be the forerunners in sustainability in our industry globally. We continue to strive for carbon-neutral production. We continue to work together with our customers, especially monopolies, to drive for the positive drinking culture in the Nordics. We continue to develop the eco-friendly packaging, such as PET, bag-in-boxes. And we continue to push for zero accidents in our production. We want to -- both companies, Arcus and Altia, have very strong and positive corporate cultures. And we want to take the strengths of both of those companies and build them into a new Anora Group working culture. With this, I hand word over to Kenneth.

Okay. Thank you, Pekka. This merger will create a superior route-to-market in the Nordics in 2 ways: Firstly, we will be able to deliver sales and service excellence to our agency and brand partners. We will offer a very strong market presence, and our local knowledge is second to none. Our setup and size allows us to tailor-make solutions in the local markets but also create effective pan-Nordic arrangements. Either way, our strategy on building strong relationships remain firm. Secondly, we will become a more attractive supplier to both on- and off-trade customers. Supermarkets, restaurants, bars and monopolies will all get access to the unique portfolio of brands that Pekka already presented. Especially on trade, we will be able to offer deep assortments, for example, fine wine to top-end restaurants and a category-wide assortment to cocktail bars. The merger also creates a strong growth platform. And the first point I would like to highlight is our joint forces. Our competencies put together should produce even better innovations. We expect to put more resources behind our big-bet launches and also behind opportunities in markets and segments that grow. The second point around growth opportunities is solid Nordic brand portfolio that still has more export potential. As in growing home markets, we will put more resources behind selected brands. And on the screen, you will see some examples, the iconic brands like Koskenkorva, Linie and Larsen, in addition to the brand-new Skagerrak Nordic Dry Gin. The third point is growth by M&A. Both companies have in the past done several bolt-on acquisitions, and we will continue to look for them. But in addition to that, our financial strength is at a level for us to look for bigger opportunities and also outside the home markets. On the left-hand side of this slide, you will see the combined footprint of Altia and Arcus with regards to manufacturing sites and warehouses. Altia has its manufacturing in Finland, Sweden and Estonia, and Arcus has manufacturing in Norway. Both companies have setups and interests in cognac with the [ foreign ] Larsen. And on the warehouse side, Altia has their own setups in Finland, Estonia and Sweden. And Arcus has a logistics subsidiary called Vectura that covers the Norwegian market. On the right-hand side, you will see the main scale effects we realize -- we expect to realize going forward. On the sourcing, we expect to gain effects by going even deeper with strategic partners, and we expect to create tender situations with others. The potentials are quite clear on this one, and our new size will also ensure improved priority with certain suppliers. On logistics and warehousing, combining volumes will improve utilization in each market and create cost savings. And it will also enable us to negotiate better on transport services. On the last point of the slide, the manufacturing, we believe that specialization will realize efficiencies and take out costs, too. Both parties either own or have a long-term commitment to our manufacturing sites. So optimization of the current structure will be our focus going forward. So then I will pass the word on to Sigmund.

Thank you, Kenneth. Let me first share with you a few illustrative key figures for Anora Group. On the left-hand side of the slide, you see the combined revenue and the combined EBITDA as well as the margin for the last 3 years. And of course, merging these 2 similarly sized companies represents a significant increase in scale with revenue of around EUR 640 million and EBITDA of around EUR 85 million, meaning a margin in 2019 a bit above 13%. On the right-hand side, you see the combined sales split in 2 ways: First, there is the category, and then there's the geography. In terms of category, of course, the wine and the spirit remains the main part of the business, totaling 78% of the total. But there is a significant portion of the business as well which is in industrials and in logistics. And then you have by geography. Obviously, we all know that the 2 companies are coming from respective strongholds in Finland and in Norway. But this combination allows us to take a very significant step-change, especially in Sweden, which actually becomes, by geography, the biggest market for the combined group. And then there are also strong positions in the Baltics in the travel, retail and export and beyond. If we move then to the next slide, this is about the synergies. And in essence, this is the summary of what Pekka and Kenneth have told you. We believe that there is strong value-creation potential for our shareholders through significant synergies, and we think that those synergies will come from several different areas. In terms of the cost synergies, we believe that they will come from sourcing and manufacturing, from logistics and warehousing, from SG&A, so selling, general and administration, and also from other areas. And of course, then there are the revenue synergies, and they will come as we combine our very strong portfolios of products, but we also combine the expertise. And we believe that doing that will allow us to even better serve the consumer needs, particularly in the core Nordic home markets but also selectively beyond that. And if you sum up all that, what we think is that initially, we are looking at run rate synergies of about EUR 8 million to EUR 10 million annually. And we think that in -- most of that will be realized in the first 2 years after the completion of the merger. But then as you have heard from all those who spoke before me, there are also some benefits, clear positive benefits from the combination that we believe will give us effects even beyond that period of time, and that will continue to create value for our shareholders. So with that, I hand the word back to Michael.

Thank you, Sigmund. So what I'd like to do now is take you through the -- some of the details of the transaction structure. As I stated in the opening remarks, the transaction will be executed as a statutory cross-border absorption merger, whereby Arcus will be merged into Altia. And the way that we propose to do this is to have each Arcus share to be exchanged for a little less than half a new Altia share or 0.46 to be very precise. In addition to that, the Altia shareholders will receive the EUR 0.21 dividend that was already approved by the Annual General Meeting, plus an additional EUR 0.40 dividend. And this, in total, will represent a EUR 22 million dividend to Altia shareholders. This will also mean that the new Anora Group will end up with former Altia shareholders holding about 53.5% of the shares in the new company and the former Arcus shareholders will be holding 46.5%. So in summary, we are proposing a transaction that will create value for the shareholders of both companies. It's based on solid and tangible synergies that my colleagues here have outlined and certainly also create a stronger platform for the future. So let me now turn to how we are going to take this forward. We will work diligently to obtain the approvals while obviously respecting all the approval process frameworks that needs to be worked through. In October, we will issue the call for extraordinary general assemblies in both companies, and we will also issue a prospectus. In November, we will conduct the EGMs, seeking the required shareholder approvals, which you may recall is 2/3 of the votes in each of the 2 companies. And then we're looking to achieve the merger in the first half of 2021. So with those comments, I will turn it over to Sanna for some closing remarks.

Thank you, Michael. Today is a very exciting day. We are creating a new company called Anora Group, combining the great energy of Arcus and Altia together in one. This group will have a Finnish headquarter and a very strong Norwegian heritage, which the name tells its story of itself. We are all looking forward. And as you can see, we have a good team around here. And we're looking forward to get this deal completed and then start the hard work to actually create the new group when the deal comes to completion. Now I would like to open for the Q&As. And for the Q&As, let me try to guide you through how we're going to do this now. We're going to start with any questions here in the room. And there's a microphone behind, which we will then ask you to do your questions. After that, we will move to questions which have come on the chat. And after that, we will take questions on Teams. If you have questions on Teams, please raise your hand so the team here can do it. Please feel free to do the question in suomeksi, in Swedish, in Norwegian. We keep it on the Norwegian or the Nordic languages or in English. But all the questions will be answered in English, so all the listeners can hear what has been asked. And finally, if you wish to have any questions for us here in the podium on the Teams, we will be available here after the Q&A session is over. And I said afterwards -- and as I said already, the Norwegian team will return to Norway during the midday and will be available for questions physically also in Norway during this afternoon. With this one, I leave open for questions and I have Petra, who is going to -- Tua, who's going to steer us through the questions. Any questions from the audience present here at the room? Could you just please step up and state your name and to the microphone so we can -- also in the people in the -- elsewhere can hear?

Pete-Veikko Kujala from SEB. I have a couple of questions. First of all, can you give any comments on -- or your thoughts on possible competitive authority risks basically relating to antitrust issues, for example, in Sweden?

Michael, I'll give this to you to have the first go on this.

Yes. Obviously, what we have done in preparation for this is to assess the competitive situation in 3 countries. We are attempting to file for approval in Norway, in Sweden and in Finland. In each of these markets, we have done our own assessment together with our legal advisers. And that has been worked into the overall synergy assessment that we have. But obviously, we are expecting to have constructive dialogues with the competition authorities in each of the 3 countries.

Maybe I'll add on that one to just say that in the synergy discussions, we have taken into consideration the fact that there might be something into that one. But we have very good discussions going with the authorities at the moment.

All right. And the other one, I think the cost side synergies are quite clear, but can you talk a little bit more about where you see the revenue side synergy potential? For example, are you more focused on kind of increased pricing power against partner brands with this -- by you becoming a Nordic champion here? Or are you more interested in international expansion? Any thoughts on this?

As you can see, I'm trying to do the traffic thing here. So that's why I'm stepping in here in between the questions. Pekka?

Yes. Thank you. Good question. So I believe we can gain positive revenue synergies with partner brands. We have a clearly stronger route-to-market in all Nordic countries, which is definitely positive for our partners, and we believe this can create growth for both of us. We believe that by the combined own brands portfolio, it gives us further opportunities, for example, in on-trade to grow sales per outlet. There are some opportunities in Baltics as well with the combined portfolio. And most probably, Germany is one part where we see positive synergies as well.

More questions from the audience here? [Foreign Language] Maybe we'll then move to the questions from the chat.

Okay. So we have, at the moment, 2 questions in the chat board. The first one is from [ Petri Newberry ]. Any plans to expand to other business areas like restaurants and hotels?

I think, Pekka, I will leave that to you as well.

Currently, no plans. I think it's safe to say that another group is yet to start and we will build on the new group strategy, so that's yet to come. But straight to the question, no plans of expanding basically beyond drinks in our core business.

Okay. And the next question is from Hubertine Underberg-Ruder. Is there already a strategy for country clusters?

I'm just looking. I think I'll give this one to Pekka. And Sigmund, you can fill in if there's anything more on that one.

Well, I mean in terms of -- I think Hubertine is referring to organization. And I think that's something that is yet to be decided, obviously. I think we are -- we have a bit different systems with Arcus and Altia. I think Arcus is more run by categories as we are per countries, and we are looking at both models. But I think kind of underneath the first level, the organizations are quite similar. So to Hubertine's question, there's no decision yet, but we believe that this merger will create opportunities to grow in the Nordics for our partners and also in Germany as well. So yes.

Sigmund, do you want to add anything on that one?

No, I think that was perfect.

Very good. There is no more questions?

Yes. Here's one more question from Markus Heiberg. Can you elaborate on the EUR 8 million to EUR 10 million synergy target? For example, how can you improve capacity utilization, particularly at Gjelleråsen in Norway?

I will leave that to Sigmund.

Yes. I mean I think that we -- the short answer to the question is no. We can't really elaborate that much. I mean I think everyone understands that as 2 separate companies that are also competitors, there have been some constraints in the way that we have worked with the synergies. We are confident about this level that we have communicated today. But many of the details are things that we have to work out in part by figuring out the organization, as Pekka just stated. I mean to the specific question about capacity utilization, I think that having a larger portfolio of brands, having more factories that you can play on allows you to optimize how you use them in a way that's more cost effective than if you only have a narrower portfolio and one factory. So that's the short answer to that question.

Okay. Thank you. Then we have a question from [ Kati Pohjanpalo ]. Can you estimate market value for the combined company?

Sigmund?

Well, I mean I think there's a mechanism for estimating that, and it's called the stock market, right?

That's right.

I think that we will have the answer now. I think it was 570...

570 was the estimate, yes.

Was the estimate at the latest date. And then I think we're all excited to see what it's going to be once trading is on the way, yes.