Okay, good morning everyone. It's 11:00 A.M., so let's get started. My name is Milena Häggström, and I will be moderating this call. The presentation today will be held by our CEO, Jacek Pastuszka, and our CFO, Stein Eriksen. After their presentations, you will have a possibility to ask questions. Please be reminded that you can also post questions through the chat throughout the presentations. Please also note that this call will be recorded and published later today on our website, anora.com. Now, Jacek, please go ahead.
Hello, can you hear me now? Yes, very good. Sorry for that, I had some difficulties connecting. I hope you can hear me now well, and you can see me as well, and you can see the presentation slides. Good morning, everybody. Again, sorry for this slight delay due to technical issues. Let's go to the summary page for the quarter. Thank you very much. Yes, the quarter was clearly below expectations. It was a weak quarter, and it also, as you well know, resulted in lowering our full-year guidance. There are four key messages that I would like to communicate or convey together with the numbers on this slide.
Obviously, the first one is about the soft volumes that we have encountered in our key markets, in our Nordic markets, especially in September, which had a significant impact on our top-line delivery and, as a result, bottom-line delivery for the full quarter. It was especially pronounced, obviously, in Norway, where we believe we see, especially in the spirits segment, we see the impact of the new legislation in place about 8% wine making its way to the grocery outlets. But also, Norway was quite depressed as a market, minus 12% around in September. It's a big drop in volume year on year. Sweden, that was quite resilient so far this year, was also in the high single-digit negative territory. And the Danish wine market, which is obviously of critical importance for us, was in double-digit decline as well. The markets were difficult for us.
They created a difficult backdrop for our financial performance for the full quarter. Even if you adjust for the trading days, it was still a pretty poor volume backdrop in September and in the full quarter. This led to a 6% decline in net revenue for the quarter and also 6% on around 5.5, to be precise, on a year-to-date basis. This is the first key message. It was a difficult quarter, a difficult, challenging quarter from the volume, from the market development point of view, and we were not able to offset it fully in our net revenue or bottom line. The second message is around the marginality of our business. We have managed to sustain most of the gains in marginality that we have accomplished so far this year. As you would recall, this was one of the key priorities at the entry of this fiscal year.
It's a good testimony to our pricing and mix management efforts. We have prioritized margin-accretive businesses, as we have communicated. This nice hefty improvement in the marginality has, at least to some extent, helped us offset these headwinds on the volume side. Gross profit in absolute terms for the beverage business was flat. It was plus 1% versus last year for wine and minus 1% versus last year in spirits. In total, the beverage business was relatively flat at gross profit level, which indicates these gross margins were able to offset at least a big part of this volume decline at gross profit level. On a year-to-date basis, gross profit for spirits is plus 4%, and for wine is plus 7%. For the total beverage business, on a year-to-date basis, we are in the mid-single-digit growth in our gross profitability.
Which takes me to the EBITDA numbers, which, as you can see, are quite negative versus the comparable period of last year. There were two developments on the cost side that I would like to highlight because they weighed quite heavily on our Q3 EBITDA performance. The first one is phasing of our A&P of our marketing spend in spirits. Our spend this year on A&P in spirits has increased quite significantly versus last year by around EUR 3 million. This increase was also visible in the third quarter of this year. There is obviously a delayed impact from marketing activities, but as you may recall from the previous teleconferences when we were discussing the performance of last year, we were either decreasing or completely freezing our marketing spend in the second half of last year, as an example.
I think the fact that we are continuing with our A&P and marketing spend is demonstrating our commitment to our brands on the spirits side especially. This campaign that we have financed in Q3 was specifically devoted to Koskenkorva and specifically designated for the international markets. We have good Koskenkorva performance in depletions in international markets. I will get to international in a second. We would like to support it even further with this increased investment from which we should be benefiting in the quarters to come. But it had an impact on our Q3 performance, phasing of A&P spend in spirits. The second cost item I would like to highlight that had impact, that weighed on our EBITDA performance for the quarter was the production and operational costs in the former Globus Wine business in Denmark.
At the beginning of this year, we have gone through the integration of the ERP SAP systems between Anora and Globus Wine. As frequently happens in cases like this, we had quite a few one-off costs that we had to bear in the quarter and also a bit of operational disruptions related to this transition. It resulted in higher logistics costs, higher production costs, a bit of scrapping, a bit of invoices belonging to the previous periods that we had to accrue for. There was this additional cost burden from the operational disruptions in the former Globus Wine business in Denmark. These two cost items explain to a large extent this difference between relatively solid gross profit performance in absolute terms and EBITA, which was below expectations, and also around EUR 4.5 million behind last year. Can we switch to the next slide?
I will now provide a little bit more color on the segment performance. On wine, as you can see, net revenue minus 5% on a year-to-date basis is minus 4%. Year-to-date numbers were impacted by the loss of some of the large distributors in Sweden in the beginning of the year, especially in the first quarter. But also for the full year and specifically for Q3, we have some impact from the low profitability, low margin filler business that we have discontinued in Globus Wine in Denmark, and we filled it with some of the own wine business. Gross profit in wine was plus 1% for the quarter, plus 7% on a year-to-date basis. Gross margin improved, 160 basis points for the quarter, and it remains very solid, 310 basis points for the full year.
Just as in spirits, we will be intensifying our marketing spend going forward to regain some of our market share positions in key markets. EBITA was down by one-third for wine in the quarter. However, on a full-year basis, it remains significantly ahead of last year. So far this year, we delivered EUR 8.5 million in EBITA versus a relatively depressed result of last year at EUR 2.2 million. The difference in profitability delivery for the third quarter can be mostly explained by these operational disruptions and related costs coming from the Danish operations. Talking about Denmark, we have a bit of a perfect storm in the Danish market because also the market is down, the wine market is down double-digit. While we are very effectively growing share in a declining market, the volume is down. Let's then move to spirits. The net revenue decrease in spirits is more pronounced.
It's minus 8% for the quarter, minus 4% on a year-to-date basis. Gross profit flattish in the quarter, minus 1% or close to minus 1% to be precise. On a year-to-date basis, still we are plus 4% in gross profit versus last year. Gross margin, as also mentioned before, very solid improvements versus previous periods. We have maintained the progress made so far, 340 basis points improvements year-to-date and also 340 improvement in the quarter. EBITA was down mostly due to the combination of depressed volumes, but also this phasing of marketing investment in Koskenkorva brand that I have mentioned before. On a year-to-date basis, we are flattish in EBITA, minus 1% to be precise. The difference is EUR 300,000, EUR 0.3 million versus an increase of spend in marketing, which is 10 times bigger.
Looking at the markets, Finland volume down in Finland because of the reasons I mentioned before. The reduced footfall in Alko, partially or to a large extent driven by this new legislation in place, and share up in a declining market. Our spirits portfolio in Finland is doing very well share-wise. However, the volume, the spirits volume is declining quite severely. Maybe that's also the right moment to mention that the 8% wine initiative in Finland is working well for us from the total market perspective. We are satisfied with volume performance and also bottom-line performance for the combined Finnish market for all channels and all beverage businesses we are in.
It's mostly because of the fact that we put our best foot forward in the Finnish grocery with the wine portfolio reaching strong share, higher share than we have in Alko, which helped us obviously to deliver strong top line in wine and offsetting large part of the spirits decline. Back to the spirits performance by market. The Swedish market is a bit more resilient, and also our share performance, year-to-date share performance is satisfactory. We had a slight decline of share specifically in Q3, but this was more of a one-off driven by out-of-stocks from one of our partners. Norway is a more systematic issue that we are dealing with, and we are obviously working on improving our share, but especially the aquavits, we are not satisfied with the share that we have and the evolution of the share in the Norwegian monopoly. Then international down in net revenue.
However, if we adjusted it for Larsen, which had quite a significant share in some of the markets, Baltics, for example, then our net revenue development is a little bit more balanced in the international markets. As I mentioned before, our commitment to developing, especially Koskenkorva in international markets, is unshaken. We will continue investing behind it. This relatively weak top line performance in the quarter in this year is influenced by the delivery patterns to some of the new distributors that we have opened in 2023 and also by a change of distributor in a relatively large for us German market. But in all of the international markets, the Koskenkorva depletions are in good shape, which gives us, again, a good motivation to continue investing behind this brand going forward. Then the last segment I wanted to cover, which is industrial.
Can we switch the slide to industrial? Yes, thank you very much. Industrial was featured quite heavily in our discussions for the first two quarters of the year. It still remains the biggest drag on our performance for the full year. However, it's EUR 5 million in EBITA behind last year versus the total company being around EUR 1 million or EUR 0.6 million to be precise after Q3. But industrial was less of a headache for us in Q3 compared to the beverage performance I have just discussed. What is still there is obviously low internal volumes because these two things are obviously connected, but also depressed sales and pricing of side products, which, as also mentioned before, we optimize for gross profit rather than for net revenue.
What has improved, however, and this led to this relatively solid EBITA performance for still negative, but better than in the previous quarter for industrial in the third quarter, is the fact that our contract manufacturing, our Finlandia volumes were much stronger. They are gradually improving, as we have indicated, and Stein also talked about it in the pre-silent call. We expect the Finlandia volumes, the contract manufacturing volumes to gradually improve, sequentially improve as we enter into the second half of the year, and this is materializing, and we expect it to continue for the balance of the year. That much for segments and high-level overview. I will be back for questions, but before that, I will hand it over to Stein for more details. Thank you.
Thank you, Jacek. And good morning, everybody. Let's then move on to look at the financials for Q3.
I think Jacek had quite a good and comprehensive explanation of the net sales, but I can just repeat what he said. As you can see from this slide, Anora sales in the third quarter declined by 6% to EUR 162.7 million. As already mentioned, primarily due to lower volumes in the beverage sales, in the wine and spirit segment. The impacts of exchange rates were not significant on net sales. It was around 0.4%. If we then continue to look at the composition of the revenue, next slide, please. We start with wine where net sales decreased by 5.1%. Most markets were down compared to last year, except for Finland, where the launch of our 8% ABV wines was successful, and we gained a leading position in the Finnish groceries with our new offering. Spirits down with 8.1%.
Sweden was the only country delivering net sales growth, while it was a broad-based decline in all other countries, and especially in Finland, where we see that the reduced footfall to Alko is contributing negatively. Then lastly, industrial net sales was, like Jacek already mentioned, impacted by decreased ethanol and side product sales and production volumes. However, we are happy to see that the contract manufacturing volumes are starting to pick up after somewhat slow starts in the beginning of the year. I would also just like to mention that the divestment of Larsen was completed at the end of Q3 2023 and was booked as other operating income under the other segment. Please bear that in mind when looking at the numbers. Continuing to look at our EBITDA, that ended at 15.9 million EUR, down 21.4% from last year.
I think it's fair to say that despite the price increases that we started with at the end of last year and continued with this year, it was not enough to cover up for the lower volumes in the beverage sales in wine and spirit segments. However, on an EBITDA perspective, we see in the industrial segment that the ongoing efficiency improvement programs helped to improve the margins from previous year. Also happy to see that all our segments continue to improve their gross margin. All segments then posting positive gross margins in the quarter and also year-to-date. Looking a little bit more into the profitability development in Q3. Next slide. Looking then at our EBITDA margin ending at 9.8% of net sales, still showing an improvement, as you can see from the slide from the previous quarters, but below last year that ended at 11.7%.
The reported EBITDA ended at EUR 15.3 million versus EUR 28.9 million last year. But then once again, please bear in mind the one-off divestment of Larsen in Q3 last year. Then let's move over to the next slide, please, over to look at the cash flow development. The net cash flow from operations ended at minus EUR 68 million for the first nine months of 2024. Nothing dramatic in this. This is very much related to the normal seasonal increase of working capital during the first nine months. If we compare to last year, then please bear in mind that Anora significantly increased its sales of receivables program last year, and this is then the main explanation for the deviation. Just also bear in mind the receivables sold program amounted to EUR 101 million at the end of the reporting period compared to EUR 97 million last year.
CapEx ended at 1.8% of net sales, and it was mainly then related to replacement investments. Yes. Looking at net working capital, amounted to EUR 7.5 million compared to EUR 1.8 million last year. Working capital was flat compared to last year and represented around 1% of net sales at the end of September, then looking at a 12-month rolling basis. Despite this, you can see that Anora has significantly reduced our working capital during the last quarters, both in absolute numbers and in percentage of net sales related to both, like I mentioned, divestiture of Larsen and increased sales of the receivable program, but also we have an underlying reduction of inventory. Talking about inventory, the inventory decreased to EUR 174 million compared to EUR 185 million as a result of our recent focus to cut in inventory and reduce inventory. Yes. Then moving over to the net debt development.
Please bear in mind that we paid down parts of our long-term interest-bearing debt by EUR 50 million, and those also lowering our net financial expenses going forward. At the end of the quarter, our interest-bearing net debt amounted to EUR 218 million compared to EUR 220 million last year, while our leverage ratio ended at 3.3 compared to 3.5 last year. At the end of the quarter, our cash ended then at EUR 66 million, but then please bear in mind that we paid down, as I mentioned, EUR 50 million in long-term debt. Yes. We still have an unused facility of EUR 150 million. Then moving over to the last slide before giving the floor back to you, Jacek. Here are financial targets until 2030 compared to our recent performance over the past two years on the right-hand side.
Looking at the performance so far this year, I think it's fair to say that we need to focus our efforts to get back on track to deliver on these long-term targets. With this, Jacek, I would like to hand it back to you for a summary and outlook.
Thank you very much, Stein. The key message is just to repeat what I said before. The comparable EBITDA for the quarter declined primarily due to lower volumes in beverage sales in wine and spirit segment, but also due to some of these additional extra costs that I have outlined before.
Net sales declined by 6% in the quarter and is at 5.5% decrease versus last year for the full year, again due to lower volumes in the beverage sales in the wine and spirits segment, but also due to the optimization of our portfolio, removing some of the low profitability filler business. Also, there is still Larsen in the base for the first three quarters of the year. Importantly, as Stein has mentioned, we paid down debt by EUR 50 million, which is reflecting our commitment to improve our cash position and improve our balance sheet. That's all from us at this stage. I think we are ready for questions.
Thank you, Jacek and Stein. Yes, we are ready for questions. Please, if you have any written questions, you can post them through the chat, or then if you would like to ask them in person, please raise a hand to mark this. I see we have the first question coming from Maria Wikström at SEB. Please go ahead.
Yes, thank you. This is Maria from SEB. I have a few questions. I think you discussed at least the first one already during the presentation, but just to get a little bit more clarity of the impacts now when this 8% ABV wine was allowed in grocery store. I think I gather that you said that overall your Finnish wine sales were up, but if you could discuss also on the profitability wise, how has that impacted on your wine profitability in Finland?
Please. Yes, thank you for the question, Maria. Let me take this one. As we talk already a few times, the jury is still out whether it's a threat or an opportunity for our business, for Anora. I think it very much depends on how we handle this change in legislation. I'm happy to say that I believe we have put our best foot forward so far, securing a strong share position in the grocery and not only offsetting what we have lost in wine sales in monopoly, but also delivering for the total wine business in Finland a very hefty 18% net revenue growth for the third quarter. So far, so good. However, obviously, it may create a threat to our underlying business if we don't manage and watch the profitability part of it, which was, I understand, the second part of your question.
Without going into specific details, I want to say that we have entered this initiative with certain targets for gross margin targets at which we would be willing to continue investing and growing our position and targets that in the overall scheme of things are not threatening our gross profit delivery from the total Finnish market. We are on these targets or even slightly above them. In the months of September, again, without going into more detail on the number front, in the months of September, where the Monopoly volumes were obviously very heavily depressed, as we talked before, our total volume beverage business in Finland was up mid-single digit versus the same period last year, which demonstrates the impact from this well-executed 8% initiative.
But again, as I said many times already, the jury is still out on how this will develop and how we will manage this channel shift that we are observing right now. But so far, I think Anora has done a very good job in managing this.
Then maybe a little bit of follow-up on this topic. I don't know if you have any idea how this has impacted overall traffic in the Finnish Monopoly, because if the traffic would be down, then of course that could impact your spirits business in Finland as well. But what is your best analysis of the situation, whether this has impacted the spirits business or has that been unchanged about the legislation change?
Again, I don't have a specific number to quote, but based on anecdotal evidence and also comments that we are receiving from the Monopoly, the footfall was affected and the volumes in the Monopoly were affected by this change.
Yes, thank you. Then maybe this question is more towards Stein on the seasonality of the cash flow. Of course, it's a bit difficult to look back the quarters as you have extended the sale of the receivables sold program. But if you could a little bit discuss the seasonality between the different quarters when it comes to operating cash flow.
Yes. The seasonal working capital during the year, Maria, is around 90 million EUR. But of course, as you know, Q4 is extremely important from a cash perspective. 50% of our EBITDA is coming normally in Q4 and also a large part of our cash flow.
I do understand some of the confusion that you have, because of course, if you look at our cash flow in Q4 last year, I believe it was around 100 million EUR. In 2022, it was around 40 million EUR. Then from previous year at 2021 and 2020, it was around 50 million EUR. I do understand the question, but like I said, normal swing is normally 90 million EUR during the year. But of course, we do expect a much more positive cash flow in Q4, but I won't give you a number.
Okay. Then maybe finally for Jacek, and I understand if you can't really comment on this, but I think especially personally, I've been very happy about your capabilities of communicating what is happening within Anora. I think it was a bit of sad news for the analyst community, and I think partly investor community to see you leave after such a short period at Anora. Is there anything that you could give out for the reasons your decision of early retirement?
First of all, Maria, I really appreciate your words. Judging by the performance of these three quarters, I'm not really sure I fully deserve it. Regarding my decision, there isn't much I can comment more to the announcement that was already made. The announcement that was made was both factual and complete. It was factual that I approached the board to communicate my intention to leave the company when the board identifies a new CEO.
The only thing that maybe I would like to add is that my confidence in this business and in the prospects in the future of Anora business is mostly unshaken. We have a lot to do, no question about it. We are still in the formative stage after the merger and after the Globus Wine acquisition. I believe a new perspective from a new person can help in this journey. But I'm confident that we'll find our way and we will overcome some of these challenges that we are battling still this year, as we can clearly see in our Q3 performance. I have high faith in the future of the company. It's also worth mentioning that the key segments of the business are managed by experienced veterans and veterans in the positive sense of the word, yes, by Janne Halttunen and Kirsi Puntila.
Now, Risto obviously, and now Hannu Vähämurto taking over the responsibility for the industrial part. I think they will make sure that this business continues to evolve in the positive direction. But thank you for your question.
Thank you very much. Appreciate it.
Thank you, Maria. Then Rauli Juva has raised a hand. Please go ahead.
Yes. Hi, it's Rauli from Inderes. Two questions on my side. First of all, the wine segment gross margin, like you mentioned, it was up year on year, but it was still quite a bit below the previous quarters, being around 30% and now somewhat about 26%. Can you a bit open up what was driving that drop in Q4 compared to previous quarters?
Yes. I would have to mention the same reason as previously. We mostly struggle in our former Globus Wine business in Denmark.
These challenges that I have mentioned, they are both visible in the product costing and in profitability of some of the remaining filler business, and they are in OPEX. They are spread between these two lines without going into much detail because it's a relatively long list of challenges that we have faced specifically in the third quarter due to the disruptions behind the plant ERP or SAP integration of the former Globus Wine business into Anora, which needed to be done. That's the key reason. Also, I don't think that for an extended period of time, this 300 or 400 basis points gains in gross margin can be sustained, especially if we are to invest in our market share improvements in some of the markets where we struggle the most.
We don't struggle in these markets only this year or in this quarter, but it's a more extended period of time in which we have lost our position in some of the large markets. We need to gradually start thinking about how to reduce our gross margin appetite and invest back into the business.
Okay. That's clear. On the Globus costs or negative earnings impact, was that isolated to Q3, or is it continuing into Q4?
No, we want to believe it is Q3. I will not comment on Q4 at this stage.
Sure. That's clear. Then maybe a question on the outlook. You continue to state that you expect slightly lower volumes in the markets overall. Clearly, they have been weaker than what you believed in the beginning of the year. I was just wondering what is the updated guidance expecting in terms of market volumes for Q4? Is it something along the lines of what we have seen year to date or something else?
Stein, can you take it and talk about our volume assumptions in the forecast for the full year?
Yeah. As you know, our Q4 ended last year at 27 million. You saw in Q3 that our volumes or turnover was down with 6%. But I guess we can say it's between 0% and 6%. Yeah, somewhere between there. But of course, as you know, like I stated earlier, also the Q4 is extremely important for us when it comes to both turnover and profitability. But of course, like I also already mentioned, we are disappointed by the top line in Q4. No, Q3, sorry.
Yeah. Good.
That's fine. -6%.
Yeah. Thanks. That's all from me.
Thank you, Rauli. Do we have any more questions that anyone wants to ask in person? Please mark that by raising your hand in that case. Yes, we do have a question from Sanna Perälä from Nordea. Please go ahead.
Hi. I had a quick question about your barley usage. You're doing Q3. You're not disclosing it anymore in this presentation. What was it, or will you not be telling us that in the future?
Stein?
Yes. I believe we had it as an appendix in the presentation, or did we hide it, Milena?
We hid it, so. Unfortunately, it's hidden.
I can answer it anyway. What we can say about the barley prices is that they are fairly stable. We expect them to be fairly stable. We saw in September that the barley prices was down with 27%, and so they were quite much lower than last year, but we expect them to be fairly stable going forward.
Right. Thanks. Then I was thinking about prices versus volumes. The Monopoly volumes are roughly at 2019 levels at this moment, or slightly below that. How much has pricing changed since then, roughly?
It's. Yeah, I don't know. I don't have a straight answer. We would have to get back to you with this. But I can. But you are correct, Sanna. But it really depends on the different markets. Like in Norway, we still have higher volumes so far this year compared to 2019. But like you say, in Finland, the volumes are lower. That being said, we saw in Q3 that all the markets, they had negative volume growth, while the value growth was slightly positive in Sweden. Of course, there are price increases all across the markets. But I can't give a specific number on value versus volume compared to 2019. We have to come back to you.
All right. Thank you. That would be great.
Yeah.
Yeah. Just to add there, we used to track this figure in our report, but we have now left it out, but absolutely, we can get back to that. Any more questions? Live audience? If not, we have one question here on the meeting chat. Coming from Mika R., do you think your fixed cost base is anywhere near right level compared to declining beverage business revenue?
I think the answer is in the question already. It's not. We have planned a certain decrease in volume for this year. The decreases in volume are higher for various reasons. Yes, one of the things that we will have to take a hard look for next year budgeting is our cost base versus the budget versus the volume expectations that we will put in the budget for next year.
Thank you. Do we have any more questions through the chat or from the live audience? If not, then I would like to thank you all for your participation and for the good questions. Please also be reminded that our next scheduled event will be on the 12th of February. The full year financial statement release will be published then. Looking forward to seeing you then. Thank you. Bye.