Anora Group Oyj (ANORA) Earnings Call Transcript & Summary

Okay. So it's 3:00. So let's get started. Good afternoon, and a warm welcome to this pre-silent call for Anora's Q3 report. My name is Milena Haeggstrom. I'm the Head of Investor Relations here at Anora. And today's presentation will be held by our new CFO, Stein Eriksen, who will be discussing the recent events and answering the Q&A as well. And you can also post questions through the chat or ask them live then after the presentation. But now let's get started. So just be reminded that we will also record this presentation and share it on our website after the call. And now, Stein, please go ahead.

Yes. So thank you, Milena, and good afternoon, and welcome, everyone, to this pre-silent call. So as you know, we are still in very early October. And although the quarter ended yesterday, we are obviously then still working on putting together all the figures, which will then be published the 7th of November. However, the reason for this call is to give you a little bit more flavor about the quarter that we just recently put behind us. So if we start with the market development, we see that the trend from Q2 continues with a reduction in consumption of alcohol, with volume decline in the Nordics and especially in Norway, Finland and Denmark. Also the decline in volumes is very broad-based amongst most categories, both in Wine and Spirits. Some of it can be explained by post-COVID normalization and where we now start to see some more pre-COVID volumes, except for Finland, where the overall demand in [ monopolies ] are down, probably also then explained by the introduction of below 8% Wine in Finland in June. Due to the reduced purchasing power among the consumers, we also see a shift towards more affordable products as well as packaging formats. Also I want to state that in the Industrial segment, we start now to finally see some signs of volumes flattening out compared to last year. If we move over to the gross margin, where you know, we faced good margin improvements versus last year, both in Q1 and Q2 related to both somewhat reduced input costs, but also due to price increases. This is expected also to give a positive impact in Q2 -- Q3, sorry. As already communicated, Anora increased our hedging program of NOK and SEK in the beginning of the year, and the hedging policy is covering much more significant part of our exposure. The logic behind this is that we cover then essential a high percentage of FX exposure during a pricing period at the monopoly, those then stabilizing our gross margin for that period. Hence, FX should have -- should not have a material impact on gross margins in the quarter. When it comes to price increases, the highest effects of these were seen at the end of last year and in the 2 first quarters of this year. However, we do also expect positive effects from revenue management in the upcoming quarters. If we move over to OpEx, that so far year-to-date June was fairly in line with last year's level in Q2, and the results from previous personnel reduction and Center of Excellence initiatives will -- is expected, also the effects of this will be seen over time. If we move over to the balance sheet, Anora has, during the last year, put strong focus to reduce net debt and working capital. Part of the reduction is related to increased use of factoring and also sales of last year. However, some of the reduction is also lower inventory after implementing strengthened governance of the planning process. As you probably remember, in Q2, Anora's net debt ended at EUR 201 million, down from EUR 253 million last year, and leverage net debt EBITDA was at 2.8, down from 3.9 last year. For Anora, Q3 and especially Q4 are quarters with strong results and cash flow compared to first half of the year. Hence, both net debt and leverage ratio will decline in the second half of 2024. I also want to say or state that going forward, we still see potential in further reduction in inventory by a more structured process on tail cutting our SKUs and improve governance of introducing new ones. When it comes to factoring of the receivables, most potential has already been taken out. Hence, there should be no increases in this program going forward. So that was a brief summary of Q3 highlights so far and just try to sum it up then, continued weak markets in terms of soft volume development. But Anora has especially taken a strong position in Wine in the Finnish grocery market, as we also stated in Q2. Volumes in Industrial is flattening out. Strength in gross margin due to active revenue management as well as reduced input costs. And number four, focus to reduce working capital, especially inventory in order to improve operating cash flow. And as stated in the beginning of the call, the quarter 3 has just ended, and the numbers are far from being ready at this stage. And before leaving the word over to Milena also, I also want to remind you the importance of having strong Q4, where -- and Q4 normally contribute with almost 50% of the yearly profit as well as a large portion of the cash flow. So of course, we are having very important Q4 in front of us. So I think that was a summary of the highlights of Q3 so far, Milena. Then handing the word over to you.

Thank you, Stein. And let's then open up for questions. So you can post questions through the chat or then just raise your hand. So please go ahead. We have a question from Maria Wikstrom at SEB.

Yes, nice to meet you, Stein. So this is Maria Wikstrom, from SEB. So a little bit more color on the, basically, I mean, the very weak Finnish markets, I mean, and then if we look at the Wine sold in monopolies. But then as a quite new [ phenomenon ], so if you could a little bit talk about, I mean, how much of that lost Wine sales in Finnish monopoly has been replaced by the sales in the grocery store? And does that have any margin impact on the Wine segment?

Maria, nice to meet you. Yes, good question. We do see, and as you stated, definitely a decline in the monopoly market in Finland, both on Wine and Spirits. That being said, especially when it comes to compensating then with sales through the grocery channel, I think it's fair to say that the market is a little bit up actually in total in Finland when it comes to Wine. But of course, probably some of these increase is then also related to some testing of the innovations launched in Finnish grocery. When it comes to margins, I don't really want to be specific regarding the gross margin in grocery versus monopoly versus Alko. But as Jacek also stated in Q2, we have taken quite significant market shares in the grocery channel so far. And our market share, I can also say, it's higher in the grocery channel than in the monopoly.

And then on the Spirits segment. So now I think I have seen the figures, I mean, for Finland and Norway, and especially the Finnish Spirits sales was very, very weak. And the question here is that, is your, like, sales development mimicking the underlying market trend? Or is there like some that changes in the market shares?

I think what we see, at least in Sweden and Finland is that we are gaining some market shares, but it's a declining market, like you stated. In Norway, we have lost some shares both in Q2 and also so far in Q3. And then sorry, but then again, we are in declining markets in Norway, especially, and in Finland. Sweden is the only market where we start to see some recovery of both volumes and value. So Denmark, Finland and Norway with quite significant volume decline, while Sweden starts to show recovery.

All right. And then finally, on the Industrial segment because I think that's been the most difficult one to model. So if you could a little bit describe, I mean, how is daily conditions? I mean, what comes to, I mean, the volumes and I mean, the profitability outlook?

Good question. Like I said, we start to see now that the volumes in Industrials are starting to flattening out. I mean, the volume decline that you have seen in Q1 and Q2, Q3, they are starting to flatten out during Q3. And then let's see, going forward, I won't guide anything on the Industrial segment, but it seems like the volume is starting to pick up somewhat.

I'll let others to jump in. So if you have a question, please raise your hand or ask through the chat. We have a question from Rauli Juva at Inderes.

Yes, Rauli here. Just one question from me. You have been saying throughout the year, you are expecting that the markets would decline slightly. So it's kind of the development year-to-date stayed in line with that you have had? Or is it -- or has it been declining a bit more than you had been expected earlier in the year?