Olvi Oyj (OLVAS) Earnings Call Transcript & Summary

Welcome. It's our pleasure to welcome you here for our session today to go through the Q4 and full year results of 2024. Before we start, the usual disclaimer. We will be referring to our future estimates. So therefore, there are certain uncertainties associated with that. So we can't, of course, promise that everything will go according to plan, but we promise to do our best. Some of you have met us before. For those who haven't, Tiina-Liisa Liukkonen, our CFO; and CEO and myself, Patrik Lundell, have the pleasure of hosting you. I have the pleasure of starting, and I wanted to really pause on the year of 2024 and bring up some of the highlights. So we're particularly proud about the progress that we've made. We've taken solid steps forward on our strategic journey, and we've delivered results across all our key measures. None of this could have, of course, been achieved without the great teams across the respective markets. The broad portfolio is proving resilient. It's been able to hold its share and grow in many categories at the same time. We have sharpened our focus on processes, data and analytics. There's even something quite exceptional with 2024. And if I think back to the year 1878 when the company was first founded in Iisalmi, and the brewery was opened on the shores of Lake Porovesi, we have always retained a focus on the environment, making sure that we don't let anything flow into the lake or otherwise harm the environment. This year, we have been recognized as one of the top 500 most sustainable growth companies in the world by Time magazine. This is quite an achievement. Additionally, we were recognized by EcoVadis as one of the top 5 best-performing sustainable companies in the world. So a lot to be proud of. Then looking at some of the focus areas. I touched on them already, and maybe delving in a bit further. We looked at 4 of our 6 key focus areas with more rigor this year. And I closed on the previous slide on the sustainability topics, and that's one that remains a center for us and we're quite proud to being recognized as a global forerunner in this space. Our people remains our strength. We've invested a lot in training, in bringing in new talent and we remain committed to that space. Data is a key area of ours in terms of focus, where we will be able to do a lot more even this year as we move forward, providing our team with the best tools and sharpening our processes so that we can continue to seek margin expansion, continue to build our profitability in a sustainable way over the years. And the results really speak for themselves. I'll soon hand over to Tiina-Liisa to talk about them in more detail. But on the top line, we're particularly proud of the results we've delivered and honored to continue the great heritage that was left to afford us by the previous generations and deliver indeed the ninth year of consecutive growth. This can also be translated into moments of enjoyment. And I'm quite proud to say that in 2024, we were able to deliver 7 million moments of enjoyment each day. But now Tiina-Liisa, why don't you show us in more detail what happened during the quarters of last year. Thank you.

Yes. Thanks, Patrik. So I have a pleasure to share the performance with you, and we will start with the quarter 4 and building then forward. Let's start with Finland. We are happy that this last quarter, we were able to make positive volume growth. And that came mainly because of the nonalcoholic -- from the nonalcoholic categories, like waters and energy drinks. And you can also see that the average price has been growing so that the net sales growth is bigger than the sales volume growth. And what comes to the profitability, you can see almost 66% improvement compared to last year. This is a cumulative effect of all the changes what we have done during this year. And the profitability improvement came almost all the categories and sales channels. So it kind of reflects the power that we have been able to kind of implement our plans this year, and now it's fully shown in the quarter 4. In the Baltic Sea region, this volume growth is flat. But if we divide that to the Baltic countries and Denmark, so the volume grew in the Baltics. But in Denmark due to changes in this portfolio, this -- volumes declined there. This adjusted EBIT is smaller than last year, and that is due to 2 reasons. First one is the Denmark, where that is the cause of the decreased volumes. And the second one is coming from Latvia because there, the price competition has been intensified. In Belarus, we see that the volumes and net sales increase were supported by the market growth and strong consumer demand. And that has been going there this almost all year. So it differs a little bit from the other markets where we are operating. And the EBIT also is higher than last year, but the profitability is a little bit lower when we compare to the net sales growth, and that is due to the higher cost of goods sold and then also higher fixed costs, for example, in sales and logistics. So then in total, the quarter 4 main KPIs, as said, we are very happy that we have been able to grow the sales volume now in quarter 4. And the net sales increased more than the growth in sales volume because of the improvement in the average price that we have been working the whole year. Profitability continued to improve, as we saw, especially in Finland, and that's thanks to the stabilization of the increase in raw materials, the development of the product range and then the market specific price increases. But then the whole year. So when we are including this quarter 4 to the other quarters, we can see that in Finland, the volume decreased, but that is a result of changes made in the beer category, mainly in retail. But there's no -- don't worry in a way because the market share is still very strong and over 50% in Finland for the beers. And also, we have been quite successful. In water categories, our KevytOlo and Vichy brands are very strong in the market. And also we have been able to grow further our hard seltzers even though there has been more competition in the market currently. And now the whole year, this EBIT improvement is over 47%. And that is coming improved production efficiency, the stabilization of the cost increases, changes in the product range and then the price increases. So many kind of reasons together. Baltic Sea region, volumes remained at last year level, except Denmark. Also, the Baltics has been suffering from weak development of consumer purchasing power and that has kind of limited the volume growth in '24. And then in Denmark, the reason is that there has been changes in product portfolio. So there is also a decrease in volumes because of that. And then the adjusted EBIT of Baltic Sea region. We are happy that even though the volumes are a little bit declining and the net sales remained at the last year level, we were able to increase the profitability. So there are similar kind of changes. Costs were no longer increasing. Measures were taken to improve the production efficiency, and targeted price increases were implemented. The profitability development of the segment came from the Baltic countries. So in Denmark, we still need to improve the profitability and increase the sales to improve the whole kind of situation and the profitability of that company. And in Belarus, the market grew as the consumer demand has developed quite well. Especially in non-alco segments, the demand for our products has been very strong. And then the EBIT grew along the net sales. Also, we earlier announced that there are restrictions on the distribution of profits to the parent company, and those are valid still until end of this year, so year '25. The management view is that this temporary restriction on the payment of dividends does not impair the parent company's ability to pay dividends out to the shareholders. And then I have to kind of repeat the message that we do not have a permission to sell the shares in it -- in our Belarusian subsidiary, but we are monitoring the legislative situation actively and also evaluating the situation and options for operating in the market. So in total, Patrik already showed you that what was the full year picture. But just to summarize here, despite the intensified competition and the weak purchasing power development, we were able to increase the sales volume in both retail and HoReCa as well as maintaining and increasing our market shares. And then thanks to the good average price development in the third and fourth quarterly, especially net sales increased. And then this profitability has improved in all reporting segments, mainly as a result of these 4 factors that we have been discussed already. The stabilization of the increase in production cost; secondly, selection and price optimization; third, the warm weather in summer season, because that supported the business in general and also kind of made the product mix better for our sales; and then the fourth one is the improved efficiency of our own operations. So the operating margin improved above the 12%, which is our strategic target already in '24. So we were able to return the profitability closer to the level before the cost crisis caused by COVID and Ukrainian war. And that's the good kind of ground to go forward there and continue gradually then now the profitability improvements. So this full year summary, our financial position has remained very strong. Equity ratio is now over 60%. Earnings per share were almost EUR 3. And just a reminder that last year, this comparison figure includes the penalty that we paid in Belarus. Operating cash flow has increased EUR 58 million compared to the last year. And that is, of course, the result of improved profitability and the result making, but also that we have been improving the net working capital, especially in Finland. Investments were in total almost EUR 44 million. So there is an increase of EUR 19 million. And EUR 24 million from that was related to Finland. So you remember that we have been talking about our big investment project. So we have this high-bay warehouse that we are building and that should be ready in the spring and support our delivery accuracy for the next summer season. And then that we have started our brewhouse renovation or kind of building the new brewhouse in Iisalmi. And then about EUR 14 million of these investments came from Baltic Sea region and less than EUR 6 million from Belarus, there -- where these necessary investments done by the -- or through the subsidiaries cash flow financing. Then personnel, small growth there. As Patrik said that we have been strengthening, of course, our organization to implement better the strategy. And also, there is because the business is growing, especially in Belarus. So that requires to more kind of people power behind. Then the sustainability number, so the reduction of the CO2 emissions was not in the report, but we just found out and this will be -- we are telling more about this one in our annual report that we were able to decrease 14% our own emissions. So it means Scope 1 and 2. And that comes especially from Denmark and then Belarus. You remember that, for example, in Finland, we are carbon neutral already. And then I think, hopefully, this is a good news for the shareholders. So Olvi Board has made a dividend distribution proposal for the annual meeting. And they are proposing the dividend of EUR 1.3 per share, which is EUR 0.10 more than previous year. And that is, of course, possible because we have been able to improve our profitability. So that was, I think, the numbers.

Great. Then I guess a short peek into the future. So as we started last year with giving a range, so we intend to do this year as well. So we provided the outlook for the fiscal year of 2025. And we believe we'll be able to deliver between EUR 82 million and EUR 90 million in terms of profits this year. So it gives you a range. I believe this is very much in line with expectations. Now it's worth repeating some of the key messages that Tiina-Liisa shared here in terms of the segment performance. The drivers in Finland on one hand, you spoke about the efficiency in the factory, the healthier portfolio mix, some of the pricing we've taken, but importantly, the relevance -- the consumer relevance and attractiveness of our offering, that remains strong. So we intend to build off this stronger base now. We intend to drive growth whilst protecting our profitability. So we really see opportunities for us to leverage the strength, whether it's in nonalcoholics like water or then our solid leadership in beers and the growth that we're generating in subcategories like hard seltzers. Then in the Baltics, usually, we haven't opened up that much on the markets, but Tiina-Liisa referred to some of the challenges in Denmark. So this remains one of our focus areas for this year across the Baltics -- sorry, I meant the Baltic Sea segment when referring to Denmark, but in the Baltics specifically, market has been quite pressured. We sense certain elements of hope in some of the key markets. But on the other hand, also taxation is being intensified, price levels are creeping up. So it's a tough market. It's a very competitive market, but we're holding strong. And this is where our multi-local approach really carries dividends. We know the consumers. We have the oldest brewery in the Baltics. We provide the locally relevant propositions, which attract the consumers. And then finally, the Belarusian segment, performance has been strong during 2024. In 2025, we expect things to continue, if all things are equal, the uncertainties relate really to the domestic demand from consumers and then on the other hand, the evolution of the exchange rate. So these are the uncertainties in that region. Perhaps then to close, we can just state that we remain very much committed to our long-term targets and aspirations, and we have full confidence in our team's ability to deliver another strong year in 2025. With that, we close the actual presentation. And based on some feedback we got last year, we've reserved a bit more time for questions. So we have a moderator in the room who will be conveying some of the questions that you have put into the chat box and then we have also people present here live. So dear moderator, please take us away. Maybe I'll leave this slide up. That's a good slide.

This is Maria Wikstrom from SEB. I had a few questions. I'd like to talk a little bit more as there has been a lot of news articles of declining alcohol consumption in Finland and elsewhere in Europe as well. So could you walk us through a bit more on the volume development in beer category and category as a whole? And then I'm specifically interesting in the beer volumes in retail and HoReCa. So how these have developed during the Q4 period or...

Or full year? Yes. Well, thank you. Thank you for the question. And indeed, it's a commonly known fact that for some time now, total beer consumption across the world and across Europe has been coming down. I think in Finland, we've seen it for the last 10 years or so. The decline is small as a percentage. So it's not a drastic shift. We're talking about the large category, a category that have been around for ages. But there is a slight decline in volume. On the other hand, the assortment has been broadened from previous years through more value propositions, which means that we're still able to deliver value growth as an industry, even in the beer category. You asked then specifically about retail and HoReCa sales. The HoReCa channel, of course, often in economically trying times is pressured. Restaurants are struggling to get footfall, to get customers through the door as people are trying to save on extra spending. So there's an impact on that. We've seen in markets some restaurants closed. On the other hand, we also see growth opportunities, particularly for us as our role in HoReCa is smaller than our market share on average. So we might even grow as we have in the HoReCa channel, even when the channel in itself is coming down. I believe I covered most of your questions. But did I forget some aspect of it?

No, I think we covered that subject. I still have a few more left.

Yes, please.

So I wanted to have a little bit more color on the magnitude of a loss in the Danish business. And then a bit more the action points that do you see you need to increase your investments in order to turn the profitability around? Or what's like your playbook in turning around the Danish operations?

Of course, we have to be mindful of the market listening and it being a high competitive market, we're starting off a very small base. Our share in the market is around a percentage. We're up against some of the global giants who operate in the home market that also significantly scaled players in the private label space. What we have done, which is visible in the total Baltic segment -- Baltic Sea segment numbers is we walked away from some unhealthy business. So we've lost volume, but it was unhealthy volume that we lost with the intention of again strengthening the average margin and driving growth in a sustainable way. Where we haven't succeeded is indeed on the sales front, bidding that incremental sales up. So our challenge is quite practical and simple actually. It's a need to push harder on promoting our local propositions. And we have great propositions available. We have in the craft beer segment, we have a popular beer brand called Vilmos. On the other hand, in the soft drink segment in the nonalcoholic space where we see growth broadly, both in Denmark and regionally, we have Jolly. And Jolly is a brand that was introduced in the 50s as a proud Danish alternative to some of the global operators that were entering the market at that time. So we believe we have strong propositions on which to build. The work continues. But as I've said before, Denmark also plays a role in our group, which is beyond the borders of the Danish market. So not only does it have a place in the Danish market, but it can also help us with production for other markets, even for our export efforts. So the production unit remains relevant and an opportunity even if the market itself is challenging. We're not shying away from the fact that last year, we didn't deliver the results and plans we were expecting.

And finally, on the Belarus operations, I think the analyst community was happy to get the range for 2025 EBIT. But then the question is that how much visibility you actually have over the operations, given the guidance range itself includes Belarus, but then some of the management compensation is tied purely on performance in Finland and the Baltic area?

Thank you for the question. I guess your question was how much visibility do we have? Well, in that context, we're quite confident and really happy to have our old employees, our CEO, our Lithuanian colleague who's been leading the business for a long time now, is still there and committed to help us through these turbulent times. So we have visibility. We have a leadership team that we trust in and who can provide us accurate input as to what's going on in the marketplace. Of course, we're also doing our own marketplace tracking to make sure that we stay up to speed on changes in the legislative environment and so forth. It is a particular market context in which we're trying to navigate day-to-day as best we can. But in terms of transparency and visibility, we believe we have that.

This is Jussi Mikkonen from OP Markets. I had a follow-up question on Denmark and its turnaround. What are your expectations on the time line of it? Will we see any improvement this year? And is anything included in your guidance?

Thank you for the question. Interesting to see so much interest being put on Denmark. We haven't had that in the past. Denmark plays a small -- fairly small part of the total Baltic Sea region results, we should keep that in mind. But having said that, our aspirations are, of course, and our commitment is to continuous growth. Last year, we didn't move forward as planned. We're quite disappointed with where last year ended. This year, we will continue our efforts to improve the business. So it's a long-term journey and also a long-term commitment. We're quite persistent. We don't want to give up as is our team. We're talking about a team of Vikings in Denmark, and they are ready to make Vestfyen a healthy proposition as part of the Olvi Group for the long term.

Okay. Then I had a question on your volume development in Finland. You talked about markets declining. But did you see a chance of volumes stabilizing this year or maybe going forward? Or is it -- if it's able to stabilize, is it due to market share increases?

Thank you for your question. I think a really important follow-up as well. I believe the previous question referred specifically to beer and the beer category volume evolution as a whole. Now for us, particularly, we do see volume growth as well this year and in the coming years. We have opportunities to grow in several categories. In beers as a whole, we hold a 53% share. So there's maybe not so much room for volume growth, but we have a healthy portfolio that will be offering opportunities as well for value growth. Sandels, the leading beer in Finland, is still growing also on a volume basis. So we have pockets of growth even within the beer category. But more importantly, when we look across the range of categories, we see solid growth in the hard seltzers category, where we are the leaders driving that category growth. We see interest from our competition coming into that category. So it's a category of the future. In the nonalcoholic space, we're particularly proud of our performance in the water category where we took nearly 3% market share last year. And that's where we're also rather underperforming. We took second place last year in the market. So we're now the #2 brand as a whole. We're #1 in Vichy. We're #1 in, what we call, juice waters, free translation from Finnish there. So we see pockets of growth there. There's room to grow in energy drinks, there's room to grow in enhanced waters. And in soft drinks, in soft drink we're particularly small. So there are opportunities for growth also volume-wise in the Finnish market. Thank you for the follow-up question.

And finally, related to market growth, in Finland, we had this legislation change last year. What is the net impact on Olvi?

So you're referring to the alcohol level being increased in grocery retail. It's something we touched on during last year. We were very proud of our team's ability to react to legislation being put in force on a Friday and then enabling products to be placed on shelf on a Monday, and we were amongst the first to secure our space. We've been performing well. We've actually been performing a bit better than expectations in the strong beer propositions. But as a whole, they play a fairly small share of the total beer category. But it's a healthy segment, and it's growing -- but it's not significant in total scale perspective. I believe we have some online questions.

Yes, indeed, we do. So we have covered some of these already, but I think that we can still start with a question about Denmark. So in a competitive market like Denmark, where consumer expectations are high and local brands are well entrenched, what differentiators does Olvi leverage to stand out and how are we balancing global brand strength with local market customization to secure a competitive advantage?

Very good question and a broad question. Thank you for the question. I think we touched on some of the locally relevant propositions already. I think what we could add in terms of flavor, building on what we previously already mentioned is the opportunity from a group perspective. we have really compelling propositions in our respective markets that we might be able to leverage more broadly across all our operating countries, building brands across the Nordics that we also can leverage in export. Maybe one of the best example of a group brand that's performing well internationally is our Le Coq cocktails, the ready-to-drink called -- it's called ready-to-drink segment in Denmark is underdeveloped versus other markets. Might that be an opportunity. What can we do from a production perspective in Denmark to support our Nordic markets? What can we do in Denmark from a production perspective to drive exports? There's many levers we can pull in order to building our business there, both for the local market and then for broader group benefits.

And maybe to add on that one. So I think that our aim is to continue this multi-beverage strategy implementation in Denmark. So of course, we see that there is room also in the beer market because for the craft propositions and kind of -- that kind of segment there. But then this multi-beverage, especially in non-alco and going forward with that one and utilizing the group brands also in Denmark.

Okay, I think that is enough for Denmark, but then let's jump to investments. So there was a little bit of talk about the investments progressing. So there was a question about any indication of 2025 investments and also any update on the time line of Iisalmi investments?

I feel like I've answered most, so can you take this one?

Yes. So as I said, we are kind of progressing with the Iisalmi investments according to the plan and according to the budget, what we have set. So next year, there will be a heavy investment year as we shared, I think, earlier that these bigger investments amounts are now focusing on this '24, '25 and '26. So this new warehouse will be ready in April so that we can kind of utilize that for the summer season and stocking our products there. And then we also increasing our picking capacities and making our delivery capabilities better. And then this brewhouse, so that is then in a time line '26 that we would be able to start to utilize or take that in use and then utilize that new brewhouse '26 onwards. Basically, '27, it will be in full use.

Then we're going to jump to risks, risk management. There were a few questions. So we will bundle them up here a little bit. There is a question about what is the biggest risk to the company right now? And there is also a question on how Olvi is managing the risks related to currencies, especially taking into note that it's operating in multiple countries with multiple currencies.

Thank you. How shall we divide and conquer this one? I think if we start from some of the more obvious ones, our business is dependent on access to clean water, to certain raw materials and packaging materials. So the flow of products in terms of raw materials and packaging is critical for our business. We've done extensive risk assessment and scenario works to identify a more broad spectrum of potential risks, whether it's in the space of cyber or other eventualities. We're quite prepared. We've done quite a lot of practices around that as well. We have further exercises planned across our markets for this year as well. So in terms of risk management, we're very much awake on top of it and trying to print all the predictable and less predictable potential scenarios. Tiina, would you add to that?

Yes, I think those are the main risks for us currently. So I think that, of course, we are also waiting that the consumer purchasing power would be getting -- or improved so that we can fully implement the strategy and also this value growth through that one. So premiumization is important back to us. And then this basic risk like cybersecurity and everything like that, we have invested a lot to that too, so that we can kind of operate normally also in this new cybersecurity risk environment. But of course, we have to kind of mention the Belarus. So that is also related to the exchange rates. So that is the biggest market, and there is a risk for the exchange rate development. So how it will go because it's not fully in our hands, of course, and that's the -- this currency is very difficult to secure. So there is no kind of tools for that one. The other part is, currency positions are so small that, that is not a relevant risk for us.

Then let's talk a little bit about the equity ratio. So there's a question, how does the rising of the equity ratio to 16.3% from last year's 57.3%. How does this affect the company's ability to invest and to the financing strategy?

No, as we said earlier, so it kind of keep our final sale position very strong. So we have to invest in organic growth. So like we are investing in Iisalmi, the production and then also this inorganic growth, so both kind of covered to support our growth in the future. So that gives us kind of leverage possibilities for the future.

Then what do you expect for gross margins in 2025 for cost of goods sold?

I think the cost of goods sold, we see that there is a variation in different kind of parts. So as we have been seeing that some inflation already stabilized in '24, and that is the raw material. But then we also see that this package material price increases, that will still continue in '25. For example, the can prices are such that there is a pressure to -- for the inflation. But on the other hand, we can affect the cost of goods sold with increasing our own efficiency in the production, that is very kind of strong agenda in our work to continuously improve on that one because we are in a volume business, so then it supports also the ability to win in the market. But in general, I think that we see that the situation is pretty much equal to '24. No big changes, small changes in different kind of purchasing categories there is still.

And then maybe to add to that, the strength of our portfolio and the improved mix that will also support us to keep our margins on track.

Then we have a couple of last questions, and these are more related to seeking growth. So let's start with the partnerships. So many of our competitors seek more partnerships with big brands such as Pepsi, Fever-Tree, Diageo, et cetera. So will you explore these opportunities more?

Well, thank you for the question. And actually, we already are. We're very proud to represent many of the brands, which you already mentioned. But across our markets, we have different partners. And this is actually part of our strategy as well. Some of you may recall that we have this dedicated section we call international branded growth and that entails on one hand, exports and group brands, but importantly, these partner brands. So working with global powerhouses is one of the opportunities we've identified, something we've been doing for a long while already. I can point to the Servaali acquisition in 2018, where we've got some partnerships. We've been building on that country by country, and we're proud to represent many of the leading brands across our markets and something we intend to do more in the future.

Then last question or questions. Let's ask them together. So these are regarded to M&A. So Olvi has a strong balance sheet. So have you been scanning for potential M&A actions? And also as an additional question, what criteria metrics do you use to identify and evaluate potential acquisition targets or strategic partners? And how do you ensure that these are aligned with your own strategic -- long-term strategic vision and targets and also complement the core competencies?

Very good question. For obvious reasons, we can't be very specific, but I can talk to the intent. The intent is indeed to explore inorganic growth, but only when it makes sense, only when it enables us to deliver on our long-term promise of profitable growth. So we're not going to go frivolously and buy scale. We will buy a partner that drives synergies for us, enables us to expand our footprint across the margins and helps us build profitable business in whatever territory, shape or form it takes.

And I think there are different kind of approaches. We can then support the growth in our home markets, the 6 markets there or 5 to support the growth M&As and go forward there. As Patrik has mentioned, there is a lot to win also in -- for example, in HoReCa segment and the branded partnerships. Those helps us also to look forward with their -- and we have been doing these local M&As. One good example is Latvia, where we bought this beer bulkers, and that has helped quite a lot with the local proposition there and being stronger in the market. So basically, there is supporting the current market, kind of supporting the non-alco growth, but also that we want to grow in general. And if there is a strategic fit to go forward, then, of course, we are then looking forward to those ones. And yes, we try to be active in the market, but those are the things that will come in time, if we -- if there is possibilities.

I think we covered now most of the questions.

Brilliant. Well, thank you for joining us here in the room. Thank you for your interest online and, moderator, for facilitating the questions. We're probably happy to conclude here, and thank you for being with us, and we look forward to seeing you next quarter.

Thank you.