Oatly Group Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025

There are 9 speakers on the call.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Brian Kearney, VP of Investor Relations. Please go ahead.

Speaker 1

Good morning, and thank you for joining us today. On today's call are our Chief Executive Officer, Jean Christophe Platon our Global President and Chief Operating Officer, Daniel Ordonez and our Chief Financial Officer, Marie Jose Davy. Before we begin, please review the cautionary statement regarding forward looking statements and other disclaimers on slide three, which are integrated into this presentation and includes the Q and A that follows. Please also refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today. Also, please note on today's call, management will refer to certain non IFRS financial measures, including adjusted EBITDA, constant currency revenue, and free cash flow.

Speaker 1

Please refer to today's release for reconciliation of non IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Foley has posted a supplemental presentation on its website for reference. With that, I'd now like to turn the call over to

Speaker 2

Jean Christophe. Thank you, Brian, and good morning, everyone. Slide four are the key messages I want you to take away from today's presentation. You will hear us use the word progress a lot today, but I believe the biggest takeaway from today is that we are making progress toward our North Star of structural, consistent, profitable goals. As we discussed last quarter, we have driven a significant transformation over the past two years and we've all further progressed in the first quarter of twenty twenty five.

Speaker 2

In this first quarter, our financial results came in largely as we expected, and we made progress on our top line, our cost structure, and our cash flow. Today, you will hear both from Daniel and Marie Jose about how we are executing on our 2025 priorities. These 2025 priorities all have the overarching theme of disciplined allocation of resources in order to create value. And we believe that is exactly what you should see in our results. We have been allocating resources with the goal of igniting positive momentum in our business.

Speaker 2

These resources have built time, people, and capital to engage with customers and consumers in the unique way that only Oatly can. And we are starting to see results. We are being disciplined in this result allocation and we are generating the fuel for these investments by aggressively continuing to drive efficiencies throughout the company. In the quarter, we continue to make progress in driving efficiencies in both our supply chain and SG and A, and we redeployed a portion of those savings toward growth focused investments. We believe this progress keeps us on track to deliver our first full year of profitable growth as a public company.

Speaker 2

Therefore, with one quarter of results behind us and with strong plans for the rest of the year, our full year guidance remains unchanged. Slide five shows a summary of our quarterly performance. I am proud to report that we have made progress on many of our key financial metrics. It is a big recognition for the team's efforts over the past two years to see that our first quarter results for gross profit, gross margin, adjusted EBITDA and free cash flow were all the best they have been since our IPO. Our top line performance was a bit mixed, so while we grew volume a solid 9.2% in the quarter, with notably strong volume growth in our Greater China segment and solid volume growth in Europe and International, our constant currency revenue growth was 0.7% in the quarter.

Speaker 2

As we enter 2025, we plan for our first quarter top line growth to be below the full year guidance level. While we made good progress and even outperformed our expectations in several markets, we continued to face some challenging dynamics in North America, where we have not yet fully deployed the resources to ignite positive momentum. We believe the investments we are making combined with our action plans to drive positive momentum will enable us to accelerate total company growth later this year. Now, I will turn the call over to Daniel to give you a more detailed update on how we are progressing on our 2025 priorities.

Speaker 3

Thank you, JC, and good morning, everyone. As a reminder, our 2025 priorities are to ignite positive momentum globally, aggressively pursue cost efficiencies to simplify and generate fuel for additional demand driving investments and to deliver our first full year of profitable growth as a public company. First, to ignite positive momentum globally, we're executing against three pillars: increasing our relevance to customers and consumers attacking barriers to conversion, most notably preconceptions on taste and misinformation on health increasing the availability of our products to consumers. The first pillar is relevance, rooted in our fantastic portfolio of products that consumers love. Our Barista family is second to none, as demonstrated by its velocities and continued growth.

Speaker 3

It has changed the game and as it grows into occupying more usage occasions, channels and price points, it is best placed to leverage the growing momentum in the coffee and beverages space. You should expect us to continue to expand into the coffee and beverage space, further driving cultural relevance and conversion into oat milk. But relevance does not start and stop with the product. Oatly is a generation of brands that maintains its cultural edge with millennials and Gen Z, as you can see in the examples on slide nine. A good example of how we are activating the brand at global scale is our collaboration with Nespresso, with whom we developed an oatly branded pod for the perfect latte or flat white experience.

Speaker 3

Nespresso boutiques across most cities of the world will experience this collaboration over the course of this year with stunning visibility. At local level, we continue to execute relevant brand activations like It Works in Tea in The UK, reminding Brits that our product work just as well in tea as they do in coffee. These results of these high impact activations have been outstanding in terms of awareness and you should expect us to continue executing this in the future. And we're not stopping there. Slide 10 shows you some examples of how we're attacking one of the primary barriers to conversion, which is the preconception on taste.

Speaker 3

Those of you who have followed us for a while know that our proven model is to drive experience in the food service channel and then to ensure that consumers can find us in retail so that they can repeat the experience at home and other occasions again and again. We're taking this exact model and dialing it up, owning the growing momentum there is in the coffee and the beverages space. You know, there is a taste bonanza and a flavor bonanza going on in coffee around the world, and our teams are intimately woven into this community. So whether in a coffee shop in Shanghai, Brussels, Mexico, Dubai, or Boston, Oakley is uniquely positioned to bring the hottest emerging global taste trends to their menus. We're working with most of our food service customers to revitalize their menus and bring the most exciting new news to the category.

Speaker 3

They want us to help them better understand the market, better understand Gen Z and therefore better anticipate what is next and help them to become more competitive. On the left, you can see just few examples of what we have been developing with them among thousands of signature drinks that we are creating with and for our customers all around the world. Expect these examples on this slide just to be the tip of the iceberg. And we're supporting these efforts with provocative integrated brand activations across digital and in real life platforms that encourage consumers to try converting from dairy to oatly. An example is our ongoing blind taste test activation.

Speaker 3

We have been executing taste tests across many markets and the results are remarkably consistent showing that roughly half of the sample refers only to dairy milk. Since our household penetration has not yet reached that 50% level, that potentially means that millions and millions of people are having a suboptimal coffee drinking experience. Finally, we close the loop with impactful in store retail executions. I'm happy to say that our in store execution is ever so strong and has become one of the key reasons behind the sustained commercial traction that is reflected in market share gains and velocities that remain well above our competitors. Slide 11 shows what we have been doing to attack another large barrier to conversion, which is misinformation on health.

Speaker 3

Instead of creating more noise, we have been systematically engaging with registered and renowned dietitians, nutritionists and key opinion leaders, arming them with science based facts about our category and our products so they can be advocates for the truth. The science behind our product is unequivocal. 45 plant based meals like oatly are recommended in dietary guidelines all around the world. And while there's plenty more to do to ensure that the public is not being misled, our tracking data shows that negative media coverage has declined very significantly compared to last year. So we're making progress on ensuring the discussion on our category is balanced and honest.

Speaker 3

Now, let's talk results starting on Slide 12. We have started to roll out this strategy in Europe and this slide shows the retail takeaway data for our European markets. You can see that we have started to accelerate our volume growth. We have persistently highlighted OLTIC continues to outperform both the plant based milk category as well as the oat milk category. Slide 13 is even more interesting though, as the data gives us the confidence to say that we're on the right track.

Speaker 3

Our two largest markets in Europe are The UK and Germany and they are precisely where we started to roll out. On the left, you can see that our German business has accelerated growth to nearly 8% in the last twelve weeks. On the right, can see The UK data. If you recall from several quarters ago, we mentioned how The UK market was seeing some sluggishness. Well, we believe the actions that we have taken have started to revitalize our UK business moving from decline to incipient growth.

Speaker 3

So good progress and plenty more to do. It is important to note though that we have not yet fully deployed this playbook across all our markets, but we will do so throughout the course of this year and consistently as we move forward. Igniting category momentum will not happen by snap of a finger, but by consistently focused on breaking down the barriers that exist with culturally relevant execution and surgical resource allocation. North America is the largest market where we have not yet rolled out this playbook, but the strategic direction will be identical and so is the external context and the relevance of the brands and the portfolio. So let's then discuss North America.

Speaker 3

Last quarter, we mentioned some discrete headwinds within these segments. First, we're navigating a change in sourcing strategy at our largest customer. And second, we're going through an SKU rationalization on certain frozen items. In the first, over 100% of the segment's year on year sales decline came from the impact of our largest customer and the decline in the frozen business. While we expect these headwinds to continue to impact our year on year growth rates for the rest of the year, we view them as temporary.

Speaker 3

We were able to offset some of these headwinds, most notably with distribution gains on the core portfolio. However, the gains were not enough to offset the declines from the largest customer and frozen. Slide 15 goes a level deeper. In the quarter, we continued to outperform both the plant based meal category and the oatmeal category, even when including the impact of the frozen business decline. But if we remove the impact of the frozen products, our retail scanner data would have showed only a one percent decline in the quarter.

Speaker 3

This outperformance relative to the category was driven by share gains in each of our drinks subcategories, which outline the core beverage portfolio strategy that I referred at beginning of my discussion. This is clear evidence that we continue to execute well despite category headwinds. Retailers are seeing this strong execution and allocating us more shelf space as shown on Slide 16. We see these distribution gains are evidence that our customers continue to see a bright future for our category. And these distribution gains are an important building block as we prepare for the North America segment to execute the brand playbook in a similar fashion to Europe.

Speaker 3

Additionally, our lineup of creamers and other coffee complements, which include a variety of flavors and pack sizes, has been performing well with solid velocities. We continue to pursue additional distribution opportunities in both measured and not measured channels, and you should expect us to report steady progress on this front. Slide 17 shows that the Greater China segment is performing well. As many of you know, the category here is not as developed as it is in the other two segments. So the application of our strategy is still focused on strong execution with the food service channel and is just now starting to rebuild our retail presence in a disciplined manner.

Speaker 3

The foodservice business continues to perform well in the quarter and it is now larger than it was before we executed the strategic reset. As you will remember, we initiated mid-twenty twenty three. On the right side of the page, you can see that the retail side of the business is starting to gain traction now that we have entered the club channel. While it is early days, we continue to believe that the retail channel is a very large opportunity for this segment and we're making good steady progress. Now, I want to turn the discussion to our second priority, which is to aggressively pursue cost efficiencies that generate the fuel for demand driving investments.

Speaker 3

Slide 19 shows some of the progress we have been making. In the first quarter, we reduced our cost of goods sold per liter by 15% year on year and 6% compared to last quarter. Our teams have done a stellar job leveraging our fixed assets with volume growth, finding additional efficiencies, renegotiating contracts, as well as rightsizing our network, including plant closures. I am pleased to say that this translates into a year on year total cost of goods reduction of $10,000,000 Slide 20 shows the progress we have been making on SG and A efficiencies. As we discussed last quarter, we have driven a significant reduction in our total SG and A over the past two years and we continue to make progress in quarter one.

Speaker 3

This has been driven primarily by a reduction in overhead spent. We have taken a portion of the savings from the supply chain and SG and A and strategically redeployed part of these savings into the brand investments I mentioned previously. Turning now to slide 21. As we look forward, we intend to continue to drive productivity and efficiency savings in our supply chain and SG and A and then redeploying a portion of those savings into demand driving brand activation to ignite positive momentum. We will start to roll out the strategy to more European markets and North America in quarter two and given the size of the market, we expect that our investments will be tilted towards the North America segment.

Speaker 3

While we have confidence in our strategy, we know that it will take time for it to generate its full impact, especially North America where the category remains soft. And as we roll out this strategy, we will continue to pursue additional distribution opportunities across all channels. I will now like to turn the call over to MJ.

Speaker 4

Thank you, Daniel, and good morning, everyone. Slide 23 shows an overview of the quarterly P and L. In the first quarter, we reported a revenue decline of 0.8% and constant currency revenue growth of 0.7%. We continue to drive strong gross margin expansion, with our first quarter gross margin expanding four fifty basis points year over year to 31.6%. Adjusted EBITDA was a loss of 3,700,000.0 in the quarter, which is a 9,500,000.0 improvement compared to last year's first quarter.

Speaker 4

Our gross margin and adjusted EBITDA are our best quarterly results as a public company. Slide 24 shows the breaking items of our total company revenue growth. We grew volume by 9.2% in the quarter, which was partially offset by an 8.5% decline in pricemix. Foreign exchange was a 1.5% headwind. As mentioned on our last earnings call, our 2025 revenue growth will be impacted by a change in sourcing strategy at our largest food service customer in North America.

Speaker 4

The impact of that headwind in the first quarter was approximately a two seventy basis point headwind to revenue growth. Slide '25 shows the drivers of our strong year over year gross margin expansion. Expansion. The benefits of absorption and supply chain improvement improved margin by four ninety basis points. This reflects the benefit of rightsizing our supply chain for 2024, including the closure of our Singapore manufacturing facility in December, which drove approximately two forty basis points or just under half of the supply chain driven margin expansion.

Speaker 4

The remainder comes from volume absorption, productivity efficiencies, as well as improved sourcing. Pricing and product mix added 30 basis points to our gross margin in the quarter. While our revenue bridge that I discussed on the prior slide shows a headwind from pricemix, we drove a mix benefit in the quarter as we reduced sales in lower margin products and increased sales in higher margin products. We experienced 60 basis point headwind from inflation in the quarter. Finally, the impact of foreign exchange movement was a 10 basis point headwind to gross margin.

Speaker 4

Slide 26 shows the year over year improvement in our adjusted EBITA. The 9,500,000 improvement compared to last year's first quarter was mainly driven by an $8,400,000 increase in gross profit. The $1,100,000 year over year improvement in SG and A and other reflects our ongoing efficiencies programs, which were partially offset by increase in branding and advertising. Slide 27 shows segment level detail. On the top line, our 0.7% constant currency revenue growth was slightly below our expectations as the Europe and International and Greater China segments both outperformed our expectations, while the North America segment underperformed.

Speaker 4

On adjusted EBITDA, our €3,700,000 loss in the quarter was slightly better than we expected, primarily driven by the Europe and International segments. Turning to our balance sheet and cash flow on Slide 28. First, our business plan remains fully funded. As of the end of the quarter, we had CHF74 million of cash and CHF211 million of our credit facilities. The middle of the slide shows our free cash flow improvement.

Speaker 4

In the first quarter, free cash flow was 21,000,000 use of cash, which was our best quarterly performance as a public company and a CHF25 million improvement compared to last year first quarter. Within that CHF21 million, CHF5.5 million was for payments related to restructuring and severance, as well as 7,600,000.0 for annual incentive plan payments. We expect the majority of these payments will not occur again this year. On the right side, you can see our progress on working capital. In the quarter, we reduced our trade working capital by another $2,000,000 In the quarter, our trade receivables were below $100,000,000 for the first time since Q1 twenty twenty two, when our sales base was much lower.

Speaker 4

We have created a cash mindset into the entire organization, and this is generating results. In summary, we are making solid progress on improving our cash flow, and we expect continued improvement as our second half adjusted EBITDA is expected to be higher than the first half and no PML cash flow drivers are expected to improve through the year. Our first priority for 2025 is to deliver our first full year of profitable growth as a public company. Slide 30 shows our outlook. We continue to expect constant currency growth in the range of 2% to 4%.

Speaker 4

The improvement from the first quarter's growth rate is expected to be largely driven by the benefit of executing the playbook Daniel discussed more broadly. For adjusted EBITA, we continue to expect to report in the range of positive 5,000,000 to €15,000,000 We continue to expect the improvements to be primarily driven by gross profit as the benefits of stronger net sales as well as our ongoing supply chain efficiency program flow through. As Daniel mentioned earlier, the North America segment and several European countries are expected to launch integrated brand activation in the second quarter, and we intend to support the launches from an increase in brand activations. As such, second quarter adjusted EBITDA is likely to be comparable to Q1 level. We are not currently including any significant direct impact of tariffs into our guidance.

Speaker 4

Since we believe the majority of the products we import from Canada are U. S. MTA compliant. We do, however, assume that the current economic conditions and consumer behaviors remain largely consistent for the rest of the year. Finally, we continue to expect CapEx to be in the range of 30,000,000 to $35,000,000 for the full year.

Speaker 4

This concludes our prepared remarks. Operator, we are now prepared to take questions.

Operator

We will now begin the question and answer session. If you are using a speakerphone, please pick your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press then 2. The first question comes from Max Gamport with BNP Paribas. Please go ahead.

Speaker 5

Hey, thanks for the question. And it was great to get color on some of the initiatives you're rolling out in Europe in particular to increase the relevance of oat milk and attack some of these barriers to conversion and also to see the results that that's already having in terms of improving your own performance. It looks like though on the slides that you presented that it's so far at least really just driving improvement in oatmeal's own performance and it's not lifting category growth trends for oatmeal. So I'm just curious as you start to roll this out in The U. S, what's giving you the confidence that this will also lift to what is still a very soft oat milk category in The U.

Speaker 5

S? Thanks very much.

Speaker 3

Thanks, Max. Daniel here. Good morning to you. Yes, if you allow me a couple of minutes, I will speak up about Europe First to provide even more color about what we're seeing there. It's clearly a business that is outperforming markets and competitors, right?

Speaker 3

And I would like to start there, as you can see in market shares across the different markets. So that's number one. You see that in the established and more mature markets. I wouldn't like you to forget as well that the expansion markets in Europe are giving us also a signal of increased traction of the OT brand across Europe. Countries like France, Spain, Belgium, Mexico or UAE, which are in this reporting segment are really, really increasing relevance and contributing to our total company growth in a meaningful manner.

Speaker 3

So that's something that we don't normally take into account, but they start building onto the critical mass. The initiatives you referred to, we would like us to be as conservative as we can possibly be, although the numbers are giving us confidence that this will gain traction. The reason why you hear me being conservative is because we know that turning around category momentum will not happen overnight, right? And but the first signals are quite interesting, right? What we see in these two the two most important markets.

Speaker 3

Then it's a matter of allocation of resources to the different segments. The context we see, it's a bit softer in The U. S, as you know, but the dynamics are similar, and we expect the relevance of the brand and of the playbook to be equally applicable. Now when it comes to The U. S, I would also like to draw your attention, Max, to what you know very well.

Speaker 3

The ocean of opportunity we have in distribution in all channels, and not measured, be it retail, be it class and be it foodservice, it's enormous. So this is why we plan for a softer quarter one, yes, first half of the year in North America, and we expect those things to be improving as well as we start deploying. Now going back to your question of category and playbook deployment, we will do so according to our North Star, which is profitable steady profitable growth, which means that, that reporting segment, which has reported consistent now EBITDA positive EBITDA, we will allocate resources according to this tempo that we set for ourselves moving forward, More in the second part of the year than in the first part of the year, but again, with a clear north start that JC set up in this call again and again, which is first year of profitable growth as a public company.

Speaker 5

Great. Thanks very much. And then as a follow-up, the progress you're making on gross margin is very clear, setting a new record and improving sequentially and year over year by meaningful amounts. It looks like it's primarily driven by supply chain improvement and absorption, which largely is within your control. So I'm just trying to get a better sense for any sort of update on how you're thinking about your gross margin for the full year and beyond, given the marked progress that you are making?

Speaker 5

Thanks very much.

Speaker 4

Yes, Moshe, let me take this question, Max. So you know we are not guiding to a specific number, and we expect an improvement in our gross profit in dollars, right, to be as we mentioned already, biggest driver in gross margin being the improvement in our adjusted EBITDA. So this gross margin is expected to increase compared to the 28.7% we reported in 2024. As you mentioned, as we continue to optimize the production footprint, as we continue to drive efficiency through the supply chain, we also mentioned a few times already that we're negotiating contracts, and we are managing our product mix. Of course, what we also know is obviously a few variables could influence where we would exactly land.

Speaker 4

That could be our sales guidance range, that could be our customer mix, that could be potentially foreign exchange, and potentially future development on the tariff situation as we know. So our plan is continue to make this progress on our path towards our long term gross margin target, which is a 35% to 40%, as we have already mentioned.

Speaker 5

Great. Thanks very much. I'll pass it on.

Operator

The next question is from Andrew Lazar with Barclays. Please go ahead.

Speaker 6

Great. Thanks so much. Nice to see early signs of volume consumption improvement for plant based milks and Oatly specifically in Europe. Price mix was a larger drag in Europe in the quarter than we'd modeled, I think down 4% or so. I was hoping to get a little more clarity on what drove that and what your expectation around price mix would be in Europe as we move through the rest of the year?

Speaker 3

Hi, Andrew. How are you doing Daniel here? Yes, exactly, largely expected. You obviously see just a 4% growth in volume, which is offset by pricemix. Start of the year, quarter one, some customer renegotiations, some of them got a bit funny, but most of them are behind us.

Speaker 3

So I wouldn't do this I wouldn't give this lot of importance as we move forward. Of course, the context is tight, but super manageable and within the guidance we have provided. So I would I should guide you not to read anything else as we move forward for the rest of the year.

Speaker 6

Got it. And then in North America, obviously with the loss of some foodservice business and discontinued certain frozen items, I assume there's likely some flex in the North America supply network now. You called out in the slides, you're obviously pursuing additional distribution opportunities in the region. I guess, I'd be interested in hearing where you think the biggest opportunities are from a distribution standpoint in North America and how you think about balancing sort of improving sales trends with the improving profitability that you're seeing in the region as well? How do you balance those?

Speaker 6

Thank you.

Speaker 3

Very good. Very, very good questions. Well, I try to stress it. We have opportunities everywhere I see. So it's our ability to execute them that is the gap.

Speaker 3

And I would say that perhaps 2025 should be this kind of last part of the cleaning exercise of some part of the portfolio, which is strategic and has to do with, as we said, always balancing growth and margin. As we move forward, you see the new portfolio. There are items that I'm sure you can pick up in scan data like the new Barista sixty four ounces chilled with very promising velocities, the new creamers with very promising velocities, the ACVs of those items range around 5%, right? So as you can imagine, there is an ample opportunity within the new core portfolio, drinks. I underline drinks because the opportunity is very, very significant in the new growing beverage space.

Speaker 3

That this category is evolving following how beverages are evolving, and we believe we're well poised for that. So significant growth opportunity of the portfolio you see on the picture in retail, all customers. Then I would like to underline clubs And I should expect to come to you in the following quarters with some news on these fronts, number two. And number three is foodservice. Outside the largest customer and even within the largest customer, we see ample opportunity to continue to grow.

Speaker 3

So I would say pretty much everywhere, Andrew. Thank you.

Operator

The next question comes from Michael Lavery with Piper Sandler. Please go ahead.

Speaker 7

Thank you. Good morning. I just wanted to get a little more color on The U. S. Consumer.

Speaker 7

You've pointed to some outperformance for yourselves in the category, especially excluding the SKU cuts. But retail sales momentum for the category and for Oly's been decelerating the last few months. Is it just a stretched consumer trading down? Can you help us maybe give us some sense of what you're seeing and what you expect looking ahead over the rest of the year?

Speaker 3

Thank you. I would like I would try not to repeat myself, Michael. What else I can say here in this front, would say, if I look at velocities, units per sales per week in both dollars and unit, I don't see an erosion there. On the contrary, I see a slight upside. When I look at dollars, shares and unit shares, I don't see loss of traction on the contrary.

Speaker 3

It's this category that as you know very well is pivoting around the minus five. Now when you remove these one off items, we're talking about the total different performance. So now going back to the way in which we will eventually ignite a new category momentum that it will not take a snap of a finger, but it will be the adoption of the playbook that we have been starting to deploy in Europe and seems positive signs. Now the headline was The U. S, but I would like to go a step back a bit and see how we're looking at the category in general, because we have, if you allow me a couple of minutes here, we have seen great momentum, disproportionate momentum of this category for many, many, many years.

Speaker 3

Now this is there's a paradigm shift going on and growth in this paradigm shift categories is never ever linear. So we are creating this new wave. We are starting to create the fundamentals in new wave. And fundamentals like health, taste, climate impact are so strong that we believe the future is absolutely irreversible. So we're working on creating an infection for us.

Speaker 3

Now seventy percent of consumers, eighty two percent in The US haven't tried oat milk. That's our new obsession. We add that to the list of controllable. So why do we believe that those things go in our favor is not just because of the two points we start seeing in Germany and in The UK. We are uniquely placed to serve the new wave of coffee and beverages.

Speaker 3

We have the great Gen Z. See very, very few brands around the world. So all hands on deck. It will not happen overnight, but really looking forward to report progress in how we're adopting this strategy in The US very soon.

Speaker 7

That's helpful elaboration. And just to follow-up on that, the outperformance only has ex frozen versus oat milk broadly and all plant based milk is pretty meaningful. Are you seeing that help drive rationalization of competitors at retail or distribution gains for yourself? How is that playing out on shelf?

Speaker 3

Sorry. Do you do you mind repeating the question, Michael? I I it's a bit crocky, the signal. So I I need to if you don't mind.

Speaker 7

Yeah. No problem. But So as you outperform both oat milk and all of plant based milk, are you seeing that drive a better distribution for yourselves? Just, you know, how's the shelf space evolving?

Speaker 3

It's accompanying that. It relates to the question I answered before. It's a more robust and solid, bold drinks portfolio that accompanies coffee and accompanies beverages is starting to grow expand on shelf. Of course, we are not walking away from the adjacent categories as you saw in frozen, we're adapting and recalibrating, but you should expect definitely, that was your question, Michael, expect us to grow in share of shelf

Speaker 7

in the portfolio of

Speaker 3

drinks, both in chilled and in ambience. If you go into the double click of the scan data, you will see some disproportionate growth in the ambience shelf, which needs new life as well across the ocean.

Speaker 7

Okay, great. Thanks so much.

Operator

The next question comes from Ken Coleman with JPMorgan. Please go ahead.

Speaker 4

Hey. This is Elsa on for Ken. So you mentioned that some of the brand investments being made in The US will take time to generate full impact. Can you elaborate on the time line for some of those investments to start making an impact? Should we start to expect, the majority of those benefits to be seen later in the year, or is that more of a 2026 story?

Speaker 3

Thank you, Elsa. Are you referring specifically to The US or is it general question?

Speaker 4

Yes. To the brand assets being made in The US.

Speaker 3

Yes, The U. S. So I think thank you for the clarification. It has to do with the way we're managing the business as a whole. You see, we present a very solid according to ourselves, a solid track record on EBITDA progression and margin progression.

Speaker 3

So as you can see, we're all the time balancing growth with margin and with profit. When it comes to a game of resource allocation, expect us to start fully deploying or starting to deploy more strongly the new playbook in North America in the second part of the year, okay? So that's hopefully as much as I can share with you at the moment. I would like to stress that as much as we provided color into how this new strategy is panning out in Europe with promising signs, I would like to underline that we don't expect the full category turnaround overnight. These things take time.

Speaker 4

Great, thanks. I'll pass it on.

Operator

The next question comes from Please go ahead.

Speaker 8

Good morning. Thanks for the question. Maybe first off, coming back to foodservice, I'm curious of the feedback that you're hearing from operators where you're seeing momentum from those operators who haven't adopted plant based and are doing so now or maybe those who dialed back on plant based and now want to return. Are there any common themes you're hearing? Is it primarily the plant based needs to be offered as a creamer to keep up with competitors?

Speaker 8

Is it that plant based is recognized more as a significant product innovation driver itself as the main ingredient in beverages and that's being seen as a traffic driver. Just how are you seeing some of these newer customers utilizing plant based on the menu?

Speaker 3

You. Thank you. Good to speak to you, John. Listen, very good question because I think this paints the color of what we're observing, the macro picture of market. And there are two big, big dynamics going on here that affects not just the plant based milk category, but affects food service in general, which is how coffee is massively drastically evolving from hot latte art a few years ago only, where millennials were driving the world of coffee into Gen Z, you know, who are driving beverages and cold beverages.

Speaker 3

In some cases, I'm sure you hear a lot of statistics, but we're talking about very significant amounts. In some cases, cold beverages have overtaken hot coffee. And I'm sure you've read about the matcha phenomenon. There's no coffee on matcha, and yet it's the same space. So you've asked me a general question about food service.

Speaker 3

Food service is evolving, and we see many of our most of our very large customers trying to evolvecatch up with that trend. What I'm observing and you can see what JC and I post normally on this topic, is that small to medium and medium large foodservice customers are adapting faster to this trend and are adopting faster our playbook and are seeing very disproportionate growth serving Gen Z with this type of offering. Now I don't expect this to be simply an ingredient story for us, John, as we have discussed many times before. Of course, a, we believe we have the absolute relevance of our full service package to be the ones winning in this space and service package is end to end. It's the brand, it's the product, but it's our amazing army of barista market developers around the world who have intimacy with this space.

Speaker 3

And then this eventually, as it happened a decade ago with oat milk, will travel into the retail space. So watch this space for some of us. If you look at The Nordics, at the moment, we are offering with great initial success flavored offerings, so cold beverage drinks, oatmeal based with Espresso House, one of our key customers in the Nordics market. So be on the look for more stuff like that. So not just an ingredient, but certainly surfing the way from hot coffee into cold beverages with our distinctive brand uniqueness and service package.

Speaker 3

That's what we see. Hopefully, I'm painting a picture of both the market and how we try and continue to be at the leading edge of that.

Speaker 8

Yes. Thanks, Daniel. And I guess maybe to follow-up, coming back to the mention in the presentation of the significant reduction in negative media that you're seeing for the category. And presumably, the work you're doing is good, but your resources alone, I don't think are sufficient to affect that kind of a shift in isolation. Are any other sources or contributors that you're seeing out there that are sort of adding support to the debate in favor of plant based right now?

Speaker 8

And then I guess moving forward, thinking about that support, in plant based meat, we've seen some endorsements or positive recognitions for products from the American Diabetes Association, the Heart Association. I know from a product claim perspective, it's very difficult to make claims yourself on products, but do you see an opportunity for plant based beverage to pick up some of these endorsements or support from, I guess, recognizing with third party medical or health organizations?

Speaker 3

The answer to that is definitely yes, John, but we are not under any illusion that our size is enough to do what you just suggested. But allow me to provide a couple of data points or sentiment. We see we were quite conservative as to what we shared on the prepared remarks on the evolution we see on this point of disinformation on health. In the two key markets, we generate a bounce off of each other on the noise front, which are The UK and The U. S, right?

Speaker 3

They operate as one market. What we now see is that just by simply by consumers getting tired about this noise and see how many pimples you will get by drinking oat milk or the depression you will get after Blue Monday in The UK, thanks to oat milk, which is, of course, doesn't have a doesn't make a lot of sense. To this work, a lot of science and data provided by the key opinion leaders, nutritionists and dietitians that have worked with us, that we see our tracking shows us that that science based data is already starting to spread. And so is, for instance, some positive signs about fibers and gut health, which we have not heard for a while. So we don't believe those things are just pure coincidence, right?

Speaker 3

So people getting tired and some of the good information coming across. We are indeed building alliances, be it in Brussels or at The Hill, be it with some think alike partners of ours, and why not public education? This is something that was discussed in the past and we're active with schools. You will see us starting to do that, some efforts in The U. S.

Speaker 3

This year with schools, John. So all of that to say absolutely yes, it will take time, but we're decided to go there.

Speaker 1

Great. Thanks, Daniel.

Operator

This concludes our question and answer session. I would like to turn the conference over back to Brian Kearney for any closing remarks.

Speaker 1

Thanks, everyone, for joining us today. Thank you for your interest in Oatly. If you have any follow-up questions, please feel free to reach out to me.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Oatly Group Q1 2025
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