Anora Group Oyj (ANORA) Earnings Call Transcript & Summary

Hello, good afternoon. It's 02:00 p.m. so let's start. My name is Milena Haeggstrom. I'm the Head of IR here at Anora, and this is the Anora Q4 pre-silent call. In today's call, we have our CFO, Sigmund Toth, discussing the recent events and going through the Q&A. And you can also start to post questions already during the presentation or the introduction on the chat. And now we kindly ask you to mute your microphones and we will be recording this presentation that will be posted on our website after the call. And now, Sigmund, please go ahead.

Hello, everyone. Welcome to this call, and thank you for attending. I will keep my introductory remarks quite brief at this time and we'll leave time for Q&A, although of course, the level of detail that we can go into at this time is quite limited. So in terms of recent developments, I think that it is more of the same as what we have seen and communicated previously, is that, as you know, we now have some quite simple priorities for our efforts at this time, and they are related to improving the profitability of our business, which, as you know, due to several factors such as foreign exchange, high input prices, and other factors had decreased during the first 3 quarters of the year. And then, in September and October, we have taken in our key monopoly markets at the first available time, quite significant price increases to increase the gross margin or to re-establish gross margin levels from the lower base. And this is one of our priorities. And second priority is related then to reducing net debt through the reduction of working capital and in particular, inventory. And then the period that's been behind us is, of course, the biggest season of the year for us, with the Christmas season. This is where we make by far the highest proportion of our sales of any quarter. It's where we are also the most profitable, given that the higher sales lead to a higher margin with our relatively fixed operating costs. And it's also then the opportunity with the big sellout, really to make inroads in the reduction of inventory by then limiting purchases and production at the time when the sales are high. And I would say that entering the Q4, the big question mark was how the top line and our market share would react to these quite significant price increases that we had taken. Of course, many of our competitors are also in a similar situation as we are, but still we were taking quite significant price increases. And then also, the economic climate in general is, as you know, quite challenging for consumers, including here in the Nordic. So the question was, would sales, in general, in our key markets in the monopolies hold up? And how would our performance relative to our competitors be in those segments? So to speaking in broad terms, I would say that in terms of improving our gross margins there, the progress has been as expected and it has been a significant improvement versus the run rates of previous quarters, definitely relative to the year-over-year performance. So that is one point. Second point, I would say that on the inventory and working capital reduction there also the progress has been significant over the last quarter thanks to more focus on sales and operations planning and tighter control of the inventory. So that has also progressed as planned. And then in terms of the sales or the relative performance, this is actually still a bit early to tell because there are several monopolies now. Alko just released their overall sales for Finland, I think just yesterday. Systembolaget, we don't have yet, and then nor do I think that actually we have data for Vinmonopolet yet for December. So it's a bit difficult to tell what was the overall market picture. I would say, and this you have seen also from our communication related to our profit warning that we were seeing in terms of our shipments to the monopoly and also in terms of what figures are available from the monopolies or in the communication from them, that this was not only related to our overall performance, but also to some softness in the monopoly sales to consumers. And I would say that actually that softness is the most pronounced in Norway, maybe somewhat surprisingly, because in terms of the macroeconomic figures, I would say that for consumers the situation is probably, objectively speaking in terms of unemployment and other factors better than it is in, for example, Sweden and in Finland. Although in Norway there have been quite a few interest rate hikes due to the weakness of the NOK. And Norwegian consumers have a lot of mortgage debt. So maybe they are feeling the pinch in terms of their budgets, household budgets, and reducing somewhat the spend, including on our categories. There is certainly in all of our markets a rather broad trend towards down trading. So people still buy the products in the categories in which we compete. But quite systematically, I think, across markets, what we have seen in the monopoly data and in our own sales for that matter, is quite significant downtrading. So less expensive, more value for money products. So still a bit early to tell what was the exact monopoly performance and what was our relative performance within that. But I would have to say that it is, from our point of view, a mixed picture. Some things I think we can already say were somewhat soft. Again, as I mentioned, Norway and within that aquavit in Norway I mean, as always, it has been a very positive period for us in absolute terms in terms of our sales and people have kept buying aquavit, but relative to prior year and to our ambitions, somewhat on the soft side. And then if we are to mention positives in terms of the sales, then Blossa, which as you know is a very big seasonal product, especially in Sweden, but also to some extent in Finland and with strong growth in Norway and Denmark, as you could say "export" markets for that product, the performance of Blossa in spite of higher input prices and higher consumer prices from our side to cover for that has been very, very strong, especially in the month of December after a somewhat softer November. So that I would say is the big picture and we are still working on our financials. So I will not go into more details now, but I can say that our focus and our priority on re-establishing the profitability through increased gross margins and we've had price changes now in Norway as of January 1 as well, and more to come in Sweden as of 1st March. We are looking to continue that improvement and have realized quite a bit already in the last quarter of the year. We have also then been, as you know from previous communications, been restrictive with our marketing spending as part of that EUR 6 million savings plan, which at least based on current knowledge of the closing, seems to have come in line with the plan. So we have tried to compensate also for the loss in profitability through reduced operating expenses, in particular, marketing. And while at the same time selectively focusing on future growth products, as you know, bag-in-box below SEK 200 in Sweden and Koskenkorva as a hero brand on spirits, which has seen strong growth internationally. So that's one focus, re-establishing profitability. And the second one is to improve cash flow by decreasing working capital. And as I said, Q4, based on the currently available figure seems to have been -- there have been some steps in the right direction. And then we are continuing on those efforts in the quarters to come. There are, as we announced previously, organizational change program ongoing, both in terms of center of excellence, so our manufacturing footprint, and then also in terms of the organizations on the commercial side, both wine and spirits, that both aim to organize in a way that allows for growth, but at the same time is also estimated to bring cost savings. And I would say that both of those programs are still work in progress and for the commercial program still object of negotiations with unions and employees. But we are making progress and I would say good progress according to plan on both of those programs. So I would say that those are sort of my brief remarks, and then I open the floor for questions.

Yes, thank you, Sigmund. And yes, so let's open up for questions. And if you have a question, please raise a hand to mark that. Also, we have the first question from the chat, so maybe we will start with that. It's coming from Joni Sandvall. What level of price increases are you targeting in next pricing windows?

The question what level of pricing -- I can't say that, and I will go to jail from the competition authorities so that I can't communicate on at that level of accuracy. Although the question is a very sharp one, I think that on a broad level, what I can say is that input prices now seem to have stabilized, or in some cases even come down the SEK and everyone Swedish on the call. Please excuse my use of the banana republic currency sort of lingo, but it seems to have found some strength, and the same with the NOK. So there are some of the elements, let's say, that have been giving us trouble that have sort of abated, and we have done some efforts in the past and to re-establish gross margin levels. And that -- I mean, I'm not saying that price increases are not needed, because they may well be in Norway. They were, for example, if nothing else, due to the regular inflation adjustment of alcohol taxes. But let's say that maybe on the whole, the factors driving price increases, at least currently, they seem to be less drastic than they were only a few months ago. So I don't think I can say anything more precise than that.

Yes. And then a follow-on question from Joni Sandvall. You mentioned a significantly improved inventory and net working capital. When do you expect to reach normalized inventory levels?

I mean, I would say that we are getting close to the normalized inventory levels already. And then I think that it's also a fair question whether we sort of know exactly what is the new normal in terms of our inventory levels. I think that now we have done a big part of the normalization. So to kind of take out the excess inventory that came in during these logistical disturbances last year. And now, I mean, I wouldn't say that we are kind of like, back to normal now. And now it's only sort of incremental improvements. But to a little bit it is there that now we have strengthened our sales and operations planning process. We have done this effort of reducing the inventory levels, and now, of course, we still want to do continuous improvement. But it's right now maybe a bit hard to say exactly what is the normalized inventory level. I would say quite soon. Now I mean, I should point out that, as you know, of course, due to seasonal reasons, during Q1, Q2 inventory then increases, but -- so I'm always talking about relative levels to where it was last year. But I would say that we are sort of almost there. And then, like with everything, we are not happy with the current levels, but we want to now, with the newly implemented processes, continue this continuous improvement journey.

And then we have a question from Rauli Juva.

Rauli from Inderes here. Just wanted to kind of confirm that when I listened to your comments, it seems that there wasn't any really dramatic changes during the Q4 compared to what we have seen.

Hello, Rauli, do you have a question?

Yes. Can you hear me?

You have a hand raised. At least, so.

I can hear him. Sorry. Go ahead, Rauli, I can hear you. I think that Milena couldn't, but I can hear you, go ahead.

Yes. So I was just wondering. I said that your comments pointed to that there were no significant changes during the Q4, yet your guidance change before Christmas was fairly big in terms of euros. So even though I think it was acknowledged that the high end looked pretty kind of unreachable after Q3, can you a bit explain that this is the right interpretation? And why did you maintain that guidance then in the Q3 report?