Anora Group Oyj (ANORA) Earnings Call Transcript & Summary

So it's 2:00 p.m. Finnish time. So good afternoon, and a warm welcome to Anora's Q3 Pre-silent Call. My name is Milena Haeggstrom. I just recently joined the company as the Head of Investor Relations. And in today's call, our CFO, Sigmund Toth, will be discussing our recent events and taking you through the Q&A. And we look forward to a lively discussion. You can start posting the questions on the chat already and then ask more right after the introduction. And please also note that we are recording the presentation and the recording will be published on our website after the call. And now, Sigmund, please go ahead.

Thank you, Milena. Well, I think I will not have a very long presentation from my side. I think that this is very much intended to be a dialog and Q&A. But still some words about the recent events. So I think that no discussion of the Q3 would be complete without mentioning that we have done a major sale of the Larsen Cognac business. And that consisted of selling shares in Larsen, the operating company, also selling some cognac inventories owned outright by Anora and selling related brands. So that was a rather big transaction by Anora's size, and it's very much a sale which -- or a transaction that's in line with our strategy that was announced last year at the Capital Markets Day, which is that we are concentrating on those brands or those categories where we think that we have the best opportunity to create profitable growth and good return on our invested capital. And in terms of the cognac assets of Larsen, we think that this is a classic example of Anora not being as good an owner for these assets as the acquirer in the sense that in order to be successful in cognac, you need distribution capabilities in the big markets of Asia and United States, including also abilities to either exploit existing brands that you have or build new ones. And while Anora I think has been a good owner and has developed these assets during its period of ownership, it's also true that we don't have those capabilities in those target markets. And in that way, by selling them to someone who has big ambitions to continue developing the brands and has the capabilities, especially in Asia to do that, these assets are in better hands than ours in terms of the return on the invested capital that could be achieved. And that you can also see in terms of the purchase price that we realized and the relatively limited impact that it has on our EBITDA or profits. So that is a big transaction. And then in terms of other events, Q3 for us was a quarter that was still quite challenging in terms of our profitability due to foreign exchange, the NOK and SEK being still weak, and we were taking corrective actions on that front. But the impact of that in both Norway and Sweden was quite limited because the price change window at the monopoly was as of September 1, so in Q3, it was only 1 month where the price increases that we took had an impact. So Q3 is still a difficult quarter on that front and then more improvement opportunities for Q4 with price increases also in Finland that were effective late September. So that's on the current trading front and then work is proceeding in a number of operational areas that have been announced previously, in particular, continued work on improving the profitability of Globus Wine that was acquired last year and also on executing on the central excellence strategy, which is about adding a more specialized and efficient manufacturing footprint with wine volumes being moved from Norway to Denmark to Globus Wine, and then also some spirits volumes in time being moved to Rajamaki in Finland, achieving thus 3 big factories with a more specialized and less complex at each of the manufacturing portfolio, which is targeted to give us significant savings starting next year. So those, I think, were maybe the 3 current developments that I wanted to mention, and then happy to take your questions. I see that there are a lot of people in attendance. So please go ahead with your questions.

[Operator Instructions] Joni Sandvall has a question.

Thanks, Sigmund for the quick recap. Maybe if you can a little bit elaborate about the underlying market demand, how it has going. I see that Norway volumes and actually in Finland also quarter-to-date volumes are a bit down, but nothing dramatic. And also how your underlying volumes, if you exclude these [indiscernible] partner deals in Sweden, so how those have evolved?

Yes. Joni, well, I would say, I think that it's what you were saying that there are no dramatic moves. I think that that sums it up fairly well. I think in Q3, and especially in September, there was 1 less trading day from our point of view, which can be quite significant from the monopolies than the same period last year. But these things, they tend to even each other out during the year and during the quarters. And as you correctly emphasize, in terms of our volumes and sales, also not big changes. I think that the trends from earlier in the year around us having successes in own wine brands, especially in Sweden after several launches that has continued into this quarter as well. And then we have had good market share trends on spirits for quite a while now. And I think that we are now arriving at the point we don't have market shares yet ourselves for September, where the big question mark is how has our in-market performance been versus our competitors, given the quite significant price increases that we took, especially on spirits and also on own wine brands, but for that matter, also on partner wine. The jury is still out on that. We see, of course, our own volumes but then we don't have the full picture yet on how our market share performance has been for the month of September, much less for the rest of the year, of course.

That's clear. I think you were speaking about something around EUR 30 million inventory reduction target during the Q2. How this has been going now?

Very good question and I believe that we gave some additional color on that in our last quarterly presentation and the honest answer to that is that there is incredible amount of effort that is going into making reductions in the inventory and increasing the inventory turnover rates. But in terms of the actual inventory that has been reduced versus comparable last year, it's fair to say that all of the work is still ahead of us for the last quarter. This, in the end, is not that surprising because, of course, this is the quarter where you really have very high rates of sale and where if you then hold back on the production and you hold back on purchases of trades goods, the inventory levels they naturally go down, seasonally. But then if you are making special efforts like the ones that we are doing, this would be the quarter. I think it's fair to say that in spite of all of our efforts it might be that a portion of those EUR 30 million that it will -- and again I'm talking here about like for like comparable basis -- that some of that will come next year rather than this year. But the target of structurally taking out EUR 30 million, that remains firm and very, very high priority for management with a lot of very, very specific actions in terms of focus on the sales and operational planning, in terms of talking with partners about inventory levels on their specific portfolios, of looking at our own brands and cutting [ tail of ] portfolio and these things. But as you know, these are things which are very easy to say and inventory is easy to build, but then it's a bit more difficult to take it down in such a way that it doesn't have a negative impact on your sales, which is, of course, our goal.

Maybe 1 more before I give floor for others about barley use, it has been lower. And I think you are running not with 100% utilization rate. So I'm just thinking if you could give some color on that and the second question related on that, when the lower barley prices are coming visible also in the spirit side.

Yes. Well, I think that indeed it is true, and I don't have off the top of my head now the exact number of the volumes. We will disclose that, of course, in the quarterly report, but it is true that it has been somewhat lower, and there have been planned stops during the quarter at Koskenkorva. In terms of the price on barley, I think that we can say that it would be similar to the comment that you had on monopoly volumes, right, in the sense that, yes, it's coming down. It's definitely down, as you have seen from the previously very, very high levels. And then the harvest in Finland this year, it was not by any means a disaster, but as you can recall, there was a lot of rain during the harvest period. So it's also not a bumper crop. So I would say that, yes, it's coming down. I think that to some extent you can see some of the effects already in Q4 and then a bit more in Q1. But it's also not the massive, let's call it, decrease that you would have had if you'd had a bumper crop this year in Finland or if things on the macro level would have improved, as they've not. I think that this is no longer than something which is worsening our results, but it's also unfortunately not something that is giving us a massive, massive windfall.

Then we have a question from Maria Wikstrom.

Yes. Just wanted to touch base on the pricing with the monopolies. How do you see -- I guess, was it Sweden and Norway the pricing window was open in September and in Finland, it will be now in October. But is it sufficient to compensate for the current pricing environment with the inflation and then, of course, partly the Nordic FX. So will this be enough for the price increases?

I think that it varies a little bit by level of business. On spirits, yes, we are there in terms of it having compensated for all of the known impacts. In wine, we are getting very close, but I would say not fully there yet. And, of course, there is a variability in terms of how the FX rate will pan out. It is jumping up and down every day. But I think that on the wine side, we may have still some work ahead of us, but it is, of course, compared to very, very -- it was very particular base years as well, especially on the wine side, right? In early COVID times, there was a big, big drop in the NOK and -- especially the NOK but also the SEK for which we at that time compensated massively with pricing. And then there was a reversion of the currency, which led to really quite extraordinarily high gross margins in '21 and partly in '22. And then this year you are again in an environment where you are trying to catch up and trying to get back to those '21-'22 levels but that were quite high. So I would say a bit of a mixed picture between wine and spirits and very significant price increases on the own brands in wine and on the spirits and then somewhat less on the partner brands. And then, of course, will be very, very interesting. We don't have the full picture of that yet how this compares to our competitors and what the impact will be on the volumes in the months to come.

And then if you can remind us on the hedging strategy that you have in place and how you report the hedging gains I think in this respect.

Yes. So hedging strategy now is still a bit in an intermediate state in the sense that on the ex-Altia part of the business, which is about half of the currency exposure for NOK and SEK is hedged, so around 25% of the total, and that is following the principles of hedge accounting. So it is intended and does go to the cost of goods sold. And then the plan is, and this is mainly a question of some technical changes that we need to do in our processes and systems, our current thinking is that we will significantly expand the hedging to have more stability on our gross margins looking forward. So that would be something that we would be looking to implement in conjunction with the upcoming pricing periods at the monopolies. But currently that's our hedging level as we speak, and then that's intended to increase significantly as we go forward.

And this 25%, is this on group sales or is this -- sorry, group COGS or is this out of FX and NOK...

Out of the FX exposure. Out of the FX exposure.