Good morning, everyone, and a warm welcome to the presentation of Anora's Q1 results. I am Tua Stenius-Örnhjelm from Anora's Investor Relations. In today's call, we have CEO Pekka Tennilä and CFO Sigmund Toth. Pekka will start shortly the presentation with the business update, which is followed by Sigmund's review of the financials. After the presentations, we start the Q&A. We look forward to many interesting questions from you, and you can actually start sending your questions to us already during the presentations through the Teams chat. Before handing over to Pekka, as usually, we kindly ask you to mute your microphones, and please note that we are recording the event, and the on-demand version will be published on our website, anora.com. Without further ado, we are ready to start. Pekka, please go ahead.
Thank you, Tua, and welcome on my behalf as well. Nice to see so many of you online. Before going into Q1, a quick recap of how Anora looks like today. We are the leading wine and spirits brand house in the Nordics with number one market positions, and we are very proud of also leading the way in sustainable packaging in the Nordics. Our distilleries are located in Finland, Sweden, and Norway, and our main production facilities are in Norway and Finland. We have a smaller one in Estonia and a cognac house in France. With the merger, we are much stronger and have a better platform to grow. We have a market-leading portfolio with both owned and partner brands covering all categories and price points.
We work with numerous partners from all over the world, and to them, we provide valuable insight into the Nordic consumer, a superior route to market, and a sales force locally present in all customer segment. Sustainability is at the core of everything we do. For us, this means, for instance, to strive for carbon neutral production. With the merger, we have taken a step change in scale, which allows us to drive productivity further. We have strong growth ambition. Our strong financial position puts us in a good position to pursue growth opportunities, and we see that M&A will play an important role. After this short introduction, we can now move on to Q1 business review. Overall, I'm happy to say that we had a good first quarter.
Despite the headwinds in the operating environment, we saw solid net sales development. Net sales were EUR 133 million, which is just slightly below last year's pro forma net sales. This is largely supported by the strong recovery of travel retail and implemented price increases. Comparable EBITDA fell short of last year's pro forma and was at EUR 30 million, which equals a margin of 9.8%. EBITDA was very much impacted by the high input costs and lower wine sales. Next, a closer look at how the market has performed. On this slide, you can see the market growth rates in the monopoly markets, Sweden, Norway, and Finland. In Q1, all COVID restrictions were lifted in all three markets, and this can clearly be seen in the monopoly numbers as well.
Combined, the Q1 volumes in spirits declined by 11% and in wine by 14%. The return to pre-pandemic levels, that is the 2019 levels, has been the fastest in Finland, where the difference between the 2019 Q1 and this year was only 3%. On the other hand, in Norway, where the COVID boost was the most significant, the return has also been very strong. Still, at the end of Q1, the volumes were 24% higher than in 2019. I would also like to remind that the timing of Easter sales this year was in Q2 and not in Q1 as was in last year. This also has an impact on the Q1 market volumes. All in all, a key takeaway from here is that the recovery has been rather fast.
Consumers have returned to the on-trade channel, and travel retail is also picking up very well. As of the beginning of this year, we're working in a new operating model, and to reflect this, we also have new reporting segments. We are today for the first time reporting with the new segments, which are wine, spirits, and industrial. The wine segment includes the sales of partner wines and our own wines in the monopoly countries. The spirit segment includes two business areas, spirits and international. Within spirits business area, we have our own spirits brands and partner brands in the monopoly markets. The business area international covers our operations in Estonia, Latvia, Denmark, and Germany, as well as travel retail and exports. The industrial segment consists of former Altia industrial operations, as well as productions from former Arcus and the logistics company Vectura.
Next, I will discuss each segment in more detail and I begin with wine. In Q1, net sales in the wine segment were EUR 53 million versus EUR 62 million last year. This is a decline of 14% from last year. The decline is due to normalization of the channel mix, and it is in line with the declining monopoly volumes. The net sales were also impacted by the later timing of Easter sales and out of stock, mainly for own wine brands. Our market shares have declined, and this is mainly due to changes in partner portfolio, which we have already largely covered, and that the bag-in-box volumes have declined after the boost they had due to COVID. The positive note is that we have seen that the on-trade channel has recovered extremely well in all three markets.
On the profitability side, the lower sales and the higher marketing costs have impacted EBITDA. Comparable EBITDA was at EUR 3.1 million versus EUR 6.8 million last year, and it gives a margin of 5.8%. Examples of our launches. In Q1, we started collaboration with Zonin, a leading Italian wine producer. The collaboration covers distribution in all Nordic monopolies and on-trade. In addition, new products with permanent monopoly distribution were launched for our wine partners, such as Signature Rosé in Sweden, Bird's Tree bag-in-box in Finland, and J.P. Chenet Ice Rosé in Norway. We also launched new products for our own wine brands like Chill Out Riesling bag-in-box in Norway and Wine Tunes Funky Soul Tetra in Finland. Next, we move on to spirits.
Net sales for spirits in Q1 were EUR 45 million with growth of 7% from last year. The growth was driven by the international business area, where we saw strong recovery on travel retail. As was the case in wine, the monopoly volumes were down due to normalization of the market and channel mix and the late timing of Easter. Market shares have developed well in the monopoly markets, and the on-trade recovery has been very strong. In the international business area, the development has been good also in the Baltics and in Germany. The positive development in international and lower OpEx contributed positively to EBITDA, which improved to EUR 8.1 million, versus EUR 7.5 million last year, and equals a margin of 18%.
The divestment of brands as acquired to close the merger impacts comparability both on net sales and EBITDA, with the annual EBITDA impact being EUR 4.6 million. Some examples of new listings at the monopolies in Q1. We had a very strong lineup of listings for our own spirit brands. Carlow Cuttings and Carlow Counting Days, two Irish whiskey-based drinks challenging anything traditional, launched in Finland and Sweden. Akvavit and Gilde Akvavit, new akvavit, listed in the order assortment in Norway. Koskenkorva Hard Seltzer, Red Berries, further building the successful brand expansion in the liquor category in Finland. Finally, Arctic Gin, a novelty in the very popular gin category in Sweden. Next, we move to industrial.
Net sales in industrial grew by 12% to EUR 61 million, versus EUR 54 million last year. Of the EUR 61 million, EUR 36 million were external sales. This is the segment where we directly see the impacts of the high cost of barley, both on net sales as higher sales price and EBITDA. In contract manufacturing, both volumes and price increases have contributed to growth. In starch and feed, growth was driven by price increases, while volumes have declined as we have temporarily reduced running speed at Koskenkorva Distillery. In Vectura, sales were positively impacted by the normalization of the channel mix with higher volumes to the on-trade and lower volumes to the monopoly. In technical ethanol, we have implemented price increases, but in Q1, sales were below last year's level because the Q1 2021 included a non-recurring volume increase.
Market demand for technical ethanol has remained strong in many segments, like in geothermal heating, where Anora's Naturet products are used in the heating systems. Comparable EBITDA in Q1 was more or less on last year's level. Higher contract manufacturing volumes, price increases, and proceeds from the sales of CO2 emission rights have mitigated the negative impacts of the significantly higher raw material costs. With this, I'm ready with the business review, and give word over to Sigmund.
Thank you, Pekka, and good morning to everyone joining the call. I'll start off the financial review with a few words on the barley situation. I don't think that it comes as a surprise when we say that the cost of barley has reached yet again a historically high level. We know that the barley price was already high due to you know since the end of last year due to the poor harvest, the poor crop in Finland in the summer of 2021. Due to the war in Ukraine, the grain market supply globally, the market has been significantly affected by that.
You know, then the constraints on supply, not only of Finnish barley, but of wheat and other grains has increased, and this has driven prices even higher. If you look at the price level in Q1, you know, compared to last year, it's 77% higher. You know, the pricing cycle of grain is normally defined by the volume, right, and the quality of the new crop. That's still the biggest factor for Finnish barley.
you know, in the unstable situation that we have now, we do expect that prices are going to remain at a high level, but still, obviously, the crop in Finland is going to be important. n addition to the high price, the availability of the grain or the crop is also extremely tight, and it will remain so until the new crop arrives in late August, early September. Now, you know, in terms of how are we handling this situation, we have different tools to secure the availability. As we've said before, one of them is simply that we reduce the capacity or the used capacity of the Koskenkorva Distillery.
During this year, the capacity reduction will be close to 15%. What that means is that, you know, since we reduce the capacity or the throughput of the facility, we are then buying less barley, but also we are then producing lower volumes of ethanol and of starch. That's one means. The other means is, you know, to some extent, we can use alternative grain at the distillery to ensure continuous production. For example, we can use imported barley, and we can use domestic wheat for technical products.
Now, I mean, I'd like to point out here to be very clear that we are for the use of Anora's own brands and other products requiring Finnish origin for the grain that's made from domestic, so Finnish barley, to fulfill the brand promises, but we can use other grains for some of the technical products. Last, you know, for the last means we can also use increase the share of imported ethanol in our technical end-use products. Last but definitely not least, we do have very long and very good relations with the farmers and grain suppliers. In a situation like this, which is unstable, that's obviously a great benefit. That was on barley.
Before looking at net sales, a quick overview of the new segments, and Pekka already touched on this. Three segments: wine, spirits, industrial. By sales, wine is the biggest one ahead of spirits. Industrial, and here we are only showing the external net sales. In terms of the gross margin, the wine is somewhat lower than the spirits. This is due to the higher share of partner brands on the wine side and the higher share of own brands on the spirits side. In terms of the margin, spirits, you know, with its higher share of own brands, it has the highest EBITDA margins at a bit higher than 20%, and this is last year's pro forma figures.
Wine at 13%, and then industrial, as can be expected by the nature of that, is the one with the lowest EBITDA margin. Those are calculated on total sales, so both external and internal. Moving then on to net sales. I mean, here we have the normalization of the markets and the late timing of Easter is impacting net sales. You know, altogether, given the decline of the market volumes in the monopolies, we think that this is a very solid development, which is almost, you know, you know, leading our net sales almost to be at the same level as last year.
If you then look at on the right-hand side where you can see what is the change versus last year, you know, by segment, you see that this normalization of volumes due to the COVID effects disappearing and especially then that being the case in Norway, that is impacting the wine segment. This is the segment that received the biggest boost from COVID, and now it's seeing the biggest decline when things are normalizing. On spirits, we see the other side of the coin, right? Their travel retail is getting a boost from lifting of COVID restrictions and our performance also in the monopolies as Pekka stated was good. That's increasing.
In the industrial segment, there is a strong growth in net sales that's very much driven by price increases due to the barley cost, but also in that quarter, you know, good development of contract manufacturing volumes. Again, you know, somewhat of a normalization post-COVID. All in all, given the difficult external conditions late Easter, we would say that this is a solid net sales development. Moving on to EBITDA. EBITDA was lower than last year to EUR 13 million compared to a pro forma of EUR 16.7 million last year. The margin was also given that the net sales were declining was also down. There are a couple of key drivers for this decline.
As we saw the high cost of barley, we've, you know, and other increased prices of input, we have taken pricing, but not yet, you know, fully compensated. Then the other big driver of that, as you can see on the right, it's very much has to do with the lower wine sales. You know, we got a big boost from COVID. Now, the wine sales are declining again. Though we managed to maintain actually on the wine business the gross margins, which is good, simply then the lower sales, it flows down into a lower bottom line.
On the other hand, on the spirits, as you can see, positive development from sales in travel retail and lower OpEx. A very good result, again, as Pekka mentioned, when you're considering that this includes the negative impact from the brand divestment. In the industrial segment, there is a positive impact from the sale of CO2 emissions rights. That's about EUR 0.7 million that's contributing. If we're moving on to the cash flow and the balance sheet. On the balance sheet, net debt, it's amounting to EUR 171 million versus EUR 9.4 million last year.
This increase in the net debt, it's due to the Altia-Arcus merger, as the balance sheet of the former Arcus includes significant lease liabilities. You know, according to the IFRS 16 standard, those are then classified into debt. The rolling twelve-month ratio of net debt comparable to EBITDA was 2.2, but in fact, you know, that doesn't then include the comparable EBITDA for the full twelve months for the ex-Arcus part of the business. If you adjust for that, the actual net debt level to EBITDA was 1.7, which is still a very low level compared even to our target of 2.5. In Q1, net cash flow from operations it totaled -EUR 38.6 million.
This is related to change in working capital due to seasonality and the late timing of Easter. Basically, as you know, if you've been following the two companies separately, we have a lot of cash flow coming in in Q4, and then there are alcohol taxes which are payable in the first quarter. Working capital need increases and cash flow is typically negative in the first quarter, and then that evens out during the year. Then receivables sold amounted to almost EUR 42 million, which is somewhat lower than at the end of a reporting period last year.
In terms of gross capital expenditure, that was about EUR 3 million in the quarter, and that's mainly replacement investments, and related to energy efficiency and work safety improvements. Now to conclude on my part, let's recap our guidance. Here, basically the news is that there is no news. We reiterate our guidance for 2022 on comparable EBITDA to be between EUR 75 million and EUR 85 million. That basically corresponds to the pre-pandemic level. A s Pekka was showing, you know, monopoly volumes are returning to that. You know, we've also taken into account the annual impact of the EUR 4.6 million of divestment of Anora brands due to the merger.
Yes, it reflects also obviously that the input costs are expected to remain at a high level, but then we are trying to compensate for that through increased pricing on all of our segments. With that, I'm done with the financials, and I'm happy to hand over back to you, Pekka.
Thanks, Sigmund. Before we go to Q&A, a few words on sustainability and integration. Like I mentioned in the introduction, sustainability is at the core of everything we do. We are currently building a new sustainability roadmap, including new ambitious sustainability targets for this purpose and to have a better understanding of stakeholder expectations, we have carried out a materiality analysis in Q1, and we have also started to gather data for the emission calculations for Scopes 1, 2, 3. Meanwhile, we continue to report on the themes that were common for both former Altia and Arcus. For more in-depth view on our sustainability work, I would warmly recommend you to have a look at our extensive sustainability report, which was published on April 19th and can be downloaded from our website anora.com.
Next, an update on the merger integration, which has progressed according to plan and on schedule. Throughout the Q1, we continued to focus on people processes as the new organization, with new structure and the new teams came into force in January. The established teams have been engaged to build the future Anora culture. Both in Norway and Finland, organizations have merged into one office location. In wine, work has started to create the joint on-trade and digital teams to serve all wine companies across all markets. In Spirits and International, the portfolio strategy work is ongoing for the combined spirits portfolio. In Industrial, we have achieved an important milestone. The insourcing of third-party logistics operations was completed in Norway and Finland, while we expect the same in Sweden to be completed during Q3 this year.
The run rate of annualized net synergies at the end of Q1 was EUR 1.9 million, and this includes the annual impact of EUR 4.6 million from the divestment of brands. The total synergy target remains at EUR 8 million-EUR 10 million, of which we expect 80% to be realized within two years of closing. With this, we are ready for questions.
Very good. Thank you, Pekka and Sigmund. We have a few questions on the chat, so let's begin with them. We have from Maria Wikström at SEB three questions. The first one is: What is the gross margin difference between own wine brands and partner brands?
Yeah, we don't disclose the difference between the two. Different types of businesses. Obviously, with own brands, you own the whole value chain, while with partner brands, you get the distributor margin. Normally there is a difference, but we're not disclosing that in more detail.
All right, the second question is: You mentioned that there is a lack of unpacked wine and glass bottles. Can you please elaborate?
I think what we said is that we have faced out-of-stocks, and this is mainly due to logistics problems in wine. The glass bottles, I think that is, I guess, both in wine and spirits, but maybe more in spirits side. Our procurement has worked extremely hard to get the supply, and seems like we've managed to recover a majority of the bottle volume gap that we had. I think an excellent work by our procurement for sure.
All right. The next question was about group sales. Could you please split between value and volume growth?
Well, I can take that. I mean, first, we're not doing that now, so we're not disclosing, but it's something definitely that we'll consider. It's sometimes a bit, you know, in a business that is as varied as ours is, right, where there is wine, where there is, you know, huge amounts of price ranges, where there is spirits, again, in huge amounts of price ranges, and then industrial, right, with a completely different, you know, set of products. You know, the whole notion of volume sometimes also gets a little bit difficult, right? Especially if you are trying to do something on the group level, right? Because it's a bit apples to apples and oranges between volumes of industrial ethanol and starch and pig feed and Koskenkorva Vodka.
You know, we definitely appreciate the interest in understanding what is the evolution of pricing or sales compared to the volume and we'll think about how we can communicate better on that point. For now, it's not something that we are disclosing.
All right. Thank you for that. Before we take Joni's questions, just a reminder that you can also use the raise your hand function on the Teams control panel if you want to ask questions in person. Joni Sandvall from Nordea asks,
"How long inventories do you have for barley, and how has the availability evolved during and after Q1?
I think the situation is tight and we've been open about it. Normally we cover about two to three months barley and that's pretty much the situation right now. It's been more tough to get barley, to buy barley and therefore as Sigmund said earlier, we've been buying barley also outside Finland which we haven't done in a long time. That was purely to secure the availability and produce goods for many technical purposes.
All right. The next question is, "You mentioned good or even strong demand among on-trade travel retail and border trade. Have you seen fluctuation in demand due to geopolitical tensions?
Yeah. The answer to Joni's question is no, we haven't seen that. Maybe a few words on the strong recovery. I think on-trade especially is very close to normal levels, which is 2019. I think travel retail still lagging a bit from 2019 levels, but obviously recovering fast. Border trade the same. You can see that impact very clearly especially on our spirits brands, which is sold more in travel retail. I think the on-trade recovery is very strong for both wine and spirits brands. No, I haven't seen anything on the you know, regarding the geopolitical situation we are in right now.
All right. Thank you. The next question is about the CO2 emission rights. You mentioned, Sigmund, the impact for Q1 this year. How much was the impact in Q1 last year?
I think I have to be honest and say that I have to double-check to be 100% sure, but I don't think that Q1 last year we had very material sales of CO2 emission rights, right? This was a key explanatory reason. We had them this year and not very much in Q1 last year, if memory serves me right. Let me get back to you separately on that, Joni.
All right. On the receivables sold, so they have declined substantially year-on-year, so what's the main reason for that?
I don't think that there is a particular reason for that. Let me also, you know, check up on that. We haven't changed our policy, so I think there's some probably just simply some cutoff effect when, you know, partly related, I'm sure, to the Easter impact that we probably had more to sell in the quarter, excuse me, in the monopolies. We haven't at all changed our policy on that. You know, we are still selling, you know, receivables in Sweden and Finland for the ex-Altia business, you know. If anything, we are looking into the opportunity of adding, you know, also the ex-Arcus receivables to that program. There is no reason to think that that's gonna remain at a depressed level going forward.
About CapEx. The CapEx was EUR 2.9 million in Q1. Is this a good run rate proxy for 2020, 2022?
Too. Yeah. That's probably a little bit at the higher rate than what are the levels for the rest of the year. I think a good, you know, good guidance to what we will be spending can be seen in the previous years of spending of the two companies separately. I mean, we are continuing with our CapEx program and then, you know, some of it happens in this quarter, some of it happens in that quarter.
All right. Thank you. These are all the questions we have. There is a couple of more questions in the chat. They come from Karlo Gylling at OP. The first question about Koskenkorva Distillery. The capacity was reduced during Q1. Do you see further needs for capacity reductions due to high barley costs during 2022, and is this possible?
Yeah, it is possible. I think we will continue with the plan we have now. Obviously, if situation changes dramatically, we will revisit the plan. As if the question is do you see the need right now, no, we are continuing with our current plan.
All right. The second question is: How do you see the Russian natural gas supply and high electricity prices affect your operations, if applicable?
The gas side doesn't impact us in a significant way, if at all. Electricity prices is another input cost increase, which we have experienced and will continue to experience. Yeah.
Okay. Good. Those were now all the questions we have at the moment in chat. Let's wait just a few more seconds to see if someone wants to ask question in person or if there are any more questions. Okay, no more questions, back now to Pekka for a final summary.
Thank you, Tua, and thank you again for your great questions. To summarize our Q1, I think we had a good quarter with very solid net sales development. As anticipated, the channel mix in the monopoly markets has normalized, and the recovery in on-trade has been strong, and travel retail has picked up, well too. We believe we are in a good position to manage through these turbulent times, like I think we've shown. Securing raw material availability, be it grain, bulk, wine or glass bottles, is a top priority for us. We continue to focus on growth. We continue to invest in our brands and to build the market together with our partners and customers.
The work on our strategy progresses, and we very much look forward to discussing our future growth ambitions and sustainability roadmap, with you, in our first Capital Markets Day, in the autumn. Now back to Tua for final remarks.
Thank you to the speakers and to everyone online for joining us today. Feel free to reach out if you have any follow-up questions or comments. From all of us, have a great rest of the week. Bye.