So it's 2:00 P.M. Finnish time. So good afternoon, and a warm welcome to Anora's Q3 pre-silent call. My name is Milena Hæggström. I just recently joined the company as the Head of Investor Relations. And in today's call, our CFO, Sigmund Toth, will be discussing our recent events and taking you through the Q&A. And we look forward to a lively discussion. You can start posting the questions on the chat already, and then ask more right after the introduction. And please also note that we are recording the presentation, and the recording will be published on our website after the call. And now, Sigmund, please go ahead.
Thank you, Milena. Well, I think I will not have a very long presentation from my side. I think that this is very much intended to be a dialogue, a Q&A. But still some words about the recent events. So I think that no discussion of the Q3 would be complete without mentioning that we have done a major sale of the Larsen Cognac business. And that consisted of selling shares in Larsen, the operating company, also selling some cognac inventories owned outright by Anora and selling related brands.
So that was a rather big transaction by Anora's size, and it's very much a sale which- or a transaction that's in line with our strategy that was announced last year at the Capital Markets Day, which is that, you know, we are concentrating on those brands or those categories where we think that we have the best opportunity to create profitable growth and good return on our invested capital. And in terms of the cognac assets of Larsen, we think that this is a classic example of Anora not being as good an owner for these assets as the acquirer. In the sense that...
In the sense that, in order to be successful in cognac, you need distribution capabilities in the big markets of Asia and United States, including also abilities to either, you know, exploit existing brands that you have or build new ones. And while Anora, I think, has been a good owner and has developed these assets during its period of ownership, it's also true that we don't have those sort of capabilities in those target markets. And in that way, you know, by selling them to someone who has big ambitions to continue developing the brands and has the capabilities, especially in Asia, to do that, these assets are in better hands than ours in terms of the return on the invested capital that could be achieved.
That you can also see in terms of the purchase price that we realized, and the relatively limited impact that it has on our EBITDA or profits. That is a big transaction. Then in terms of other events, Q3 for us was a quarter that was still quite challenging in terms of our profitability due to foreign exchange, the NOK and SEK being still weak, and we were taking corrective actions on that front, but the impact of that in both Norway and Sweden was quite limited because the price change window at the Monopoly was as of September first.
So in Q3, it was only one month where the price increases that we took had had an impact. So Q3 still a difficult quarter on that front, and then more improvement opportunities for Q4 with price increases also in Finland that were effective late September. So that's on the current trading front, and then you know work is proceeding in a number of operational areas that have been announced previously.
In particular, continued work on improving the profitability of Globus Wine, that was acquired last year, and also on executing on the Center of Excellence strategy, which is about having a more specialized and efficient manufacturing footprint with wine volumes being moved from Norway to Denmark, to Globus Wine. And then also some spirits volumes in time being moved to Rajamäki in Finland, achieving thus, you know, three big factories with a more specialized and less complex at each of them manufacturing portfolio, which is targeted to give us significant savings starting next year. So those, I think, were the maybe the three big current developments that I wanted to mention, and then happy to take your questions.
I see that there are a lot of people in attendance, so please go ahead with your questions.
Yeah, and you can also post questions through the chat, so. But if you can please raise your hand so, it's easier to follow who is asking the question. Joni Sandvall has a question. Please go ahead.
Yeah, thanks, Sigmund, for the quick recap. Maybe if you can a little bit elaborate about the underlying market demand, how it has going. I see that Norway volumes, and actually in Finland also, quarter to date, volumes are bit down, but nothing dramatic.
Mm.
And also, how your, you know, underlying volumes, if you exclude this-
Mm
... lost partnerships in Sweden, so-
Mm
... how those have evolved?
Yes, good, good questions, good questions, Johnny. Well, I mean, I would say I think that it's somewhat what you were saying, that there are no dramatic moves. I think that that sums it up fairly well. I think in Q3, and especially in September, there was one less trading day from our point of view, which can be quite significant from the monopolies than the same period last year. But these sort of things, they tend to even each other out, you know, during the year and during the quarters. And as you correctly emphasize in terms of, you know, in terms of our volumes and sales, also not big, big changes.
I think that the trends from earlier in the year around us having successes in own wine brands, especially in Sweden, after several launches, that has continued into this quarter as well. We have had good market share trends on spirits for quite a while now, and I think that we are now arriving at the point we don't have market shares yet ourselves for September, where the big question mark is: how has our in-market performance been versus our competitors, given the quite significant price increases that we took, you know, especially on spirits and also on own wine brands, but for that matter, also on partner wine? The jury is still out on that.
We see, of course, our own volumes, but then it's we don't have the full picture yet on how our market share performance has been for the month of September. I mean, much less for the rest of the year, of course.
Okay, thanks. That's, that's clear. I think you were speaking about something around, yeah, EUR 30 million inventory reduction target-
Mm
... during the Q2.
Mm
... how this has been going now?
Very, very, very good question. I think that... And I believe that we gave some additional color on that in our last quarterly presentation. And the honest answer to that is that there is incredible amount of effort that is going into making reductions in the inventory and increasing the inventory turnover rates. And in terms of but in terms of the actual inventory that has been reduced versus comparable last year, it's fair to say that all of the work is still ahead of us for the last quarter.
I mean, this is not, in the end, is not that surprising, because, of course, this is sort of the quarter where, you know, you really have very high rates of sale and, and where if you then hold back on, on the production and you hold back on, on purchases of, of traded goods, the, the, the inventory levels, they naturally go down, I mean, seasonally. But then if you are making special efforts like the ones that we are doing, this would be the, this would be the quarter. I think it's, I think it's fair to say that, in spite of all of our, all of our efforts, it, it might be that, a portion of those EUR 30 million, that it will...
You know, and again, I'm talking here about like for like, right, comparable basis, that, that, some of that will come, next year rather than, rather than this year. But the target of, of structurally taking out, EUR 30 million, that, that remains, firm and, and very, very high priority for, for management with a lot of, you know, very, very specific actions in terms of focus on the sales and operational planning, in terms of, you know, talking with partners about, inventory levels on their specific portfolios, of looking at our own brands and cutting tail of portfolio and these things.
You know, as you know, these are things which are very easy to say, and inventory is easy to build, but then it's a bit more difficult to take it down in such a way that it doesn't have a negative impact on your sales, which is, of course, our goal.
Yeah. Thanks. Maybe one more before I give floor for others. About barley use, it's, it has been lower-
Mm
... and I think you are running not with 100% utilization rate.
Mm.
So, I'm just thinking if you could give some color on that, then, and the second question related on that...
Mm
... when the lower barley prices are coming-
Mm
... visible also in the spirit side.
... Yes. Well, I mean, I think that indeed it is true, and I don't have off the top of my head now the exact number of the volumes, which we'll disclose that, of course, in the quarterly report. But it is true that that it has been somewhat lower, and there have been, you know, plant stops during the quarter at Koskenkorva. In terms of the price on barley, I think that we can say that, I mean, it would be similar to the comment that you had on Monopoly volumes, right? In the sense that, yes, it's coming down. It's definitely down, as you have seen from the previously very, very high levels.
And then the harvest in Finland this year, it was not by any means a disaster, but as you can recall, there was a lot of rain during the harvest period. So it's also not, you know, a bumper sort of crop. So I would say that, yes, it's coming down. I think that to some extent, you can see some of the effects already in Q4, and then a bit more in Q1, but it's also not the massive, let's call it, decrease that you would have had if you'd had a bumper crop this year in Finland, or, you know, if things on the macro level would have improved, as they've not.
I think that this is no longer than something which is worsening our results, but it's also, unfortunately, not something that is giving us a massive, massive windfall. Okay, thanks.
Then, we have a question from Maria Wikström. Please go ahead.
Yes, thank you. Just wanted to touch base on the pricing—
Mm-hmm
... with the monopolies. That I mean, if it, How do you see that, I mean, the—I guess, I mean, the, was it Sweden and Norway, the pricing window-
Mm-hmm
... was open in September, and in Finland in, I mean, will be now in October.
Yes.
But is it sufficient to compensate for, I mean, the current pricing environment with the inflation-
Mm
... and then, of course, partly the Nordic FX. So will this be enough, I mean, for the price increases?
I mean, I think that it varies a little bit by level of business. On spirits, yes, sort of we are there, in terms of it having compensated for all of the known impacts. In wine, you know, we are getting very close, but I would say not fully, not fully there yet. And of course, there is a variability, right, in terms of how the FX rate, you know, will pan out. It is jumping up and down, you know, every day.
But I think that on the wine side, we may, you know, we may have still some work ahead of us, but it's, of course, compared to very, very, I mean, it was very particular sort of base years as well, especially on the wine side, right? In early COVID times, there was a big, big drop in the NOK and the, and especially the NOK, but also the SEK, for which we at that time compensated massively with pricing, and then there was a reversion of the currency, you know, which led to really quite extraordinarily high gross margins in 2021 and, and partly in 2022.
And then this year, you know, you are again in an environment where you are trying to catch up and trying to get back to those 2021, 2022 levels, but that were, you know, quite high. So I would say a bit of a mixed picture between wine and spirits and very significant price increases on the own brands in wine and on the spirits, and then somewhat less on the partner brands. And then, of course, it will be very, very interesting. We don't have the full picture of that yet, how this compares to our competitors and what the impact will be on the volumes in the months to come.
And then if you can remind us on the hedging strategy that-
Mm
... that you have in place and, how you report, the hedging, I mean, gains, I think, in, in-
Yeah
... this respect.
Yes. So, hedging strategy now is still a bit of an in, in an intermediate state, in the sense that on the ex-Altia part of the business, which is about half of it, about half of the currency exposure for NOK and SEK is hedged, so around 25% of the total, and that is following the principles of hedge accounting. So it is intended and does go to the cost of goods sold.
And then the plan is, and this is mainly a question of some technical changes that we need to do in our processes and systems. Our current thinking is that we will significantly expand the hedging to have more stability in our gross margins looking forward. So that would be something that we would be looking to implement in conjunction with the upcoming pricing periods at the monopolies. But currently, that's our hedging level, you know, as we speak, and then that's intended to increase significantly as we go forward.
This 21-25%.
Mm-hmm
... is this on group sales, or is this, sorry, COGS, group COGS, or is this,
It's-
... F- out of, F-
Mm-hmm
... FX and NOK?
Out of the FX exposure. Out of the FX exposure.
... And then finally, relating to Q3, I mean, should we expect some extraordinary items to be reported in Q3?
Yes, there are, I mean, the extraordinary items, obviously, the Larsen sale and the gain that has been communicated, that can be accounted for as extraordinary. And then there are still quite significant costs related to the integration, and they come in integration and/or other structural programs. So they come in two flavors, right? One of them is that we are still in the process of integrating our IT systems and bringing ourselves to the one SAP platform. That's ongoing on Globus Wine, and also for a number of our companies, former Arcus companies in Norway. So that's one set of non-recurring expenses. And then the other set of non-recurring expenses are related to the Center of Excellence.
As I mentioned, there are shifts of volume that are... that will be happening from Norway to Globus Wine and to Rajamäki. The impact of that is that there will be a decrease in the number of jobs corresponding to that move in volume. There are non-recurring expenses related to, essentially, severance packages that the employees who have agreed, you know, by mutual agreement to take such packages, they will also be booked in Q3. There are quite a few of those packages.
Okay. Thank you. No further question.
Okay, and Joni Sandvall has still questions, so please go ahead.
Yeah, thanks. Maybe couple follow-up. Still now following the divestment of the Larsen Cognac brands, how should we now look the financial expenses? Net debt is going down, so could you give any flavor, you know, the sales price now and probably how you will use the money?
Yeah, no, I mean, I think that you could probably take it, take it down proportionately. There is nothing I would say in special or in particular about the, about our financial strategy going forward. I mean, I think that we still need to then figure out exactly how do we, how do we optimize that. But I would say that, you know, proportionally to the, to the, to the net debt, you can, you can assume that it will, I mean, there's nothing in our general, I would say, financing strategy that has changed, other than the fact that the net debt now is going down. I mean, we use for short-term needs, we use commercial paper in Finland, and obviously there is now a lot less need for that.
And then we will still have to... we're continuously optimizing, obviously, how we, our cash flow needs.
Okay. Okay, thanks. Then final question from me relating to Globus. I think you mentioned that you aim to reach positive EBITDA in H2. Is this still the target? And do you have any news about the claims related to Globus?
Sorry, again, I didn't quite hear the first half of your question, Joni.
Yeah
... if you don't mind repeating.
Yes. Just, I think you said in during the Q2 that, you aim to reach positive, positive profitability in, in Globus-
Mm-hmm
... during the H2. Is this still the plan?
At the EBITDA level, at the Comparable EBITDA, because of course, at Globus, there is then, as I said, quite a few of these costs I mentioned related to integration and these things. But yeah, on a Comparable EBITDA basis, yes, definitely.
Yeah.
That is the-
Yeah. And any news about the claims or when should we know something more about this?
Yes, very, very good, very good question. I mean, this claim, and then for those on the call who don't have the background on it, is that there was, last year, as we disclosed with our Q4 report, we discovered that there were significant issues with the accounting in Globus Wine. And so the underlying profitability on which we had based our acquisition analysis and the price was not the right one. In reality, the profitability was significantly lower. I mean, from that level, we're trying to rebuild, but our claim is that we have acquired this company at a much too high price because the profitability that was promised to be there was actually not there.
We have here an insurance for such claims, where we have made a claim to the insurance company, and we are now in the very early stages of information exchange, Joni. So unfortunately, I mean, I really wish I could give you a precise answer that it's by this and this date that we will know, but we don't know that. This is quite... I mean, I think that this is a new type of insurance policy, not only to Anora, but actually in the Nordic region as well. It's not that common. It's getting more and more common for these private equity exits.
In actual fact, I think it's one of the first sort of significant claims that has been made against such a policy, so there's not a whole lot of, you know, experience about, you know, how long can it take. I think that we have now... I mean, what I can say is that we have a good and professional dialogue with the insurance company, that currently is at the stage of documentation, exchanging information about, you know, what did we know? What were the documents here, and what were the due diligences done?
And then, you know, at some point, the insurance company will, I guess, make a statement about whether they agree with our claim or not, and then, you know, to what extent they are willing to pay something against that claim, if anything.
Yeah. Thanks. Maybe one more because there is no raised hands. So, I'm just thinking, still Koskenkorva and maintenance shutdowns now. Is there any difference, if you can just remind us if there is any, you know, changes to last year's in the maintenance breaks, you know, timing of the maintenance breaks?
You're asking some very good questions, Joni, as always, and I think that on this one, I have to admit that I don't necessarily have the exact answer. I would have to say that overall, I think that it's probably, and I hope my colleagues who are responsible for this are not cringing and will shoot me afterwards, but I think that it's about the same or maybe even a little bit less, because it is true that the volume, some of the demands for some of the outputs from Koskenkorva, such as, you know, the starch, et cetera, for the pulp and paper, there is, you know, not great. The demand picture is not great, so to say.
So I would say that about the same or maybe a bit less production in Koskenkorva than last year, but to be very honest, I don't have in front of me the exact figure now. I'll have to come back with that.
Yeah. Yeah. Thanks. I'm just reminding myself that it... I think that, you know, maintenance break is pretty much the same time. I'm just thinking if it's-
Yeah
... now gonna shift between Q3 and Q4, so that's why I'm just asking that.
Mm.
We will see then-
Understand
... during the report then. Thanks. That's all.
Very good.
Thank you, Johnny. Do we have any more questions? At least we don't have any in the chat. You are welcome to raise your hand if you have any more questions. If not, then thank you, Sigmund, and everyone online joining us today. Like, you know, our next scheduled event will be our Q3 interim report on the ninth of November. So see you then. Have a great start of the week.