Okay, so it's 3:00 P.M., so let's get started. Good afternoon, and warm welcome to this pre-silent call for Anora's Q3 report. My name is Milena Häggström . I'm the Head of Investor Relations here at Anora. Today's presentation will be held by our new CFO, Stein Eriksen, who will be discussing the recent events and answering the Q&A as well. You can also post questions through the chat or ask them live then after the presentation. But now let's get started. Just be reminded that we will also record this presentation and share it on our website after the call. Now, Stein, please go ahead.
Yes. So, thank you, Milena, and good afternoon, and welcome everyone to this pre-silent call. So as you know, we are still in very early October, and although the quarter ended yesterday, we are obviously then still working on putting together all the figures, which will then be published the 7th of November. However, the reason for this call is to give you a little bit more flavor about the quarter that we just recently put behind us. So if we start with the market development, we see that the trend from Q2 continues with the reduction in consumption of alcohol, with volume decline in the Nordics, and especially in Norway, Finland, and Denmark. Also, the decline in volumes is very broad-based amongst most categories, both in wine and spirits.
Some of it can be explained by post-COVID normalization, and where we now start to see some more pre-COVID volumes, except for Finland, where the overall demand in monopolies are down. Probably also then explained by the introduction of below 8% wine in Finland in June. Due to the reduced purchasing power among the consumers, we also see a shift towards more affordable products as well as packaging formats. Also want to state that in the industrial segment, we start now to finally see some signs of volumes flattening out compared to last year. If you move over to the gross margin, where you know we face good margin improvements versus last year, both in Q1 and Q2, related to both somewhat reduced input costs, but also due to price increases.
This is expected also to give positive impact then in Q3. As already communicated, Anora increased our hedging program of NOK and SEK in the beginning of the year, and the hedging policy is covering much more significant part of our exposure. And the logic behind is this: that we cover then essentially a high percentage of our FX exposure during a pricing period at the monopoly. Those are then stabilizing our gross margin for that period. Hence, FX should not have material impact on gross margins in the quarter. When it comes to price increases, the highest effects were. Of these were seen at the end of last year and in the two first quarters of this year.
However, we do also expect positive effects from revenue management in the upcoming quarters. If we move over to OpEx, so far, year to date, June, was fairly in line with last year's level in Q2, and the results from a previous personnel reduction and Centre of Excellence initiatives will is expected also, the effects of this will be seen over time. If we move over to the balance sheet, Anora has, during the last year, put strong focus to reduce net debt and working capital. Part of the reduction is related to increased use of factoring and also sales of last year. However, some of the reduction is also lower inventory after implementing strength and governance of the planning process.
As you probably remember, in Q2, Anora's net debt ended at EUR 201 million, down from EUR 253 million last year, and leverage net debt EBITDA was at 2.8, down from 3.9 last year. For Anora, Q3, and especially Q4, are quarters with strong results and cash flow compared to first half of the year. Hence, both net debt and leverage ratio will decline in second half of 2024. I also want to say, or state that going forward, we still see potential in further reduction in inventory by a more structured process on tail cutting of SKUs and improved governance of introducing new ones.
When it comes to factoring, or the receivables, most potential has already been taken out, hence there should be no increases in this program going forward. So that was a brief summary of Q3 highlights so far, and just try to sum it up then. Continued weak markets in terms of soft volume development, but Anora has especially taken a strong position in wine in the Finnish grocery market, as we also stated in Q2. Volumes in industrial is flattening out. Strengthen gross margin due to active revenue management, as well as reduced input costs. Number four, focus to reduce working capital, especially inventory, in order to improve operating cash flow.
As stated in the beginning of the call, the quarter three has just ended, and the numbers are far from being ready at this stage. Before leaving the word over to you, Milena, I also wanted to remind you the importance of having strong Q4, where Q4 normally contributes with almost 50% of the yearly profit, as well as a large portion of the cash flow. Of course, we're having very important Q4 in front of us. I think that was a summary of the highlights of Q3 so far, Milena. Handing the word over to you.
Thank you, Stein. And, let's then open up for questions. So, you can post questions through the chat or then just raise your hand. So please go ahead. We have a question from Maria Wikström at SEB. Please go ahead.
Yes, thank you, and nice to meet you, Stein. So this is Maria Wikström from SEB. So a little bit more color on the basically, I mean, the very weak Finnish markets. I mean.
Mm.
And then, if we look at the wine sold in monopolies.
Mm.
But then, as a quite new phenomenon, so if you could little bit talk about, I mean, how much of that lost wine sales in a Finnish monopoly has been replaced by the sales in the grocery store, and does that have any margin impacts on the wine segment?
Hi, Maria. Nice to, nice to meet you. Yes, good question. We do see, and as you stated, the definite decline in the monopoly market in Finland, both on wine and spirits. That being said, especially when it comes to compensating then with sales through the grocery channel, I think it's fair to say that the market is a little bit up, actually, in total in Finland when it comes to wine. But of course, probably some of this increase is then also related to some testing of the innovations launched in Finnish grocery. When it comes to margins, I don't really want to be specific regarding the gross margin in grocery versus monopoly versus Alko.
As Jacek also stated in Q2, we have taken quite significant market shares in the grocery channel so far, and our market share, I can also say, it's higher in the grocery channel than in the monopoly.
And then, on the spirits segment.
Mm.
I mean, now I think I have seen the figures, I mean, for Finland and Norway-
Mm.
And especially the Finnish spirits sales was very, very weak.
Mm.
And the question here is that, is your like sales development mimicking the underlying market trend, or is there like some that your changes in the market shares?
I think what we see, at least in Sweden and Finland, is that we are gaining some market shares, but it's in a declining market, like you stated. In Norway, we have lost some shares, both in Q2 and also so far in Q3.
And then my final.
But sorry, but then again.
Yeah, yeah.
Maria, in declining markets, in Norway especially, and in Finland. Sweden is the only market where we start to see some recovery of both volumes and value.
Yeah.
So, Denmark, Finland, and Norway with quite significant volume decline, while Sweden starts to show recovery.
All right. And then finally, on the industrial segment, because I think that been, the most-
Mm.
Difficult one to model.
Mm.
So if you could a little bit describe, I mean, how is the conditions, I mean, when it comes to, I mean, the volumes and, I mean, the profitability outlook?
Good question. Like I said, we start to see now that the volumes in industrial are starting to flattening out. I mean, the volume decline that you have seen in Q1 and Q3, they are starting to flattening out during Q3. And then, then let's see going forward. I won't guide anything on the industrial segment, but it seems like the volume is starting to pick up somewhat.
Yes, thank you. I let others to jump in.
Thanks, Maria.
So if you have a question, please raise your hand or ask through the chat. We have a question from Rauli Juva at Inderes. Please go ahead.
Yeah, hi. Rauli, Rauli here. Just, one question from me. You have been saying throughout the year or expecting that the markets would decline slightly, so it's kind of the development year to date stayed in line with that view you have had, or is it, or has it been declining a bit more than you have been expecting earlier in the year?
I think, I mean, if you look at the volumes so far this year, I would say it's a slight decline. But once again, but it was a little bit stronger decline in Q3 that. But to be honest with you, I've been here for two months, but the decline in, I mean, in July and August has been a little bit higher than what we see year to date. And then, but as then as stated as well, I mean, Q4 is a really important quarter both for the industry and for Anora, right?
Yeah. Okay, so remains to be seen still.
Remains to be seen, yes.
Okay. That's all for me. Thanks.
Thanks.
And then we have a follow-on question from Maria Wikström. Please go ahead.
Yes, I mean, knowing, Stein, that you are new to the job.
Mm.
But I'm just thinking, I mean, what do you, like, if you were to run the business, I mean, of course, now you have a declining, I mean, volume outlook, and I think there is still a lot of question if this is more like a sustainable trend where people just drink less alcohol than they used to. That, I mean, what do you think, I mean, Anora can do in order to basically get the profits growing again? Because if we look at the historical context, I think, I mean, there is much more potential what the current earnings, I mean, would indicate.
Yeah, no, no, I agree with you, Maria. I should be a little bit careful to say too much after two months, but I mean, as you have seen, we have taken quite good shares in Finland. There Anora was quite fast in order to act, and that was also the advantage of having a local value chain when then introducing below 8% wine in Finnish grocery. But also, I think it's fair to say that we have lost some market share in some categories also during the last years, and that we have to start to answer up and start to, you know, maybe regain some market shares.
Like I said, in spirits, we have taken good shares so far this year. And then there are some categories where we can start to regain some shares, I think. But it's like I said, we are operating in a somewhat declining markets, but then again, we start to... We need to start to regain some shares as well.
Yes. Thank you. And can you just remind me, I mean, of course, I think, I mean, I can go on the website and see your CV, but would be great, I mean.
Mm.
If you once again, introduce a bit of your background.
Yeah, I can give you a quick update on my background. I started now at Anora 5th of August becoming a CFO. Before that, I was the CFO of a Nordic sports retailer called XXL. It's the biggest sports retailer in the Nordics. I was also interim CEO there for a while, and before that, I worked seventeen years at a FMCG company called Orkla that you probably are familiar of, in different positions, both as a CFO for smaller companies, bigger companies, and then also working centrally for the group. Yeah.
Yes, perfect. Thank you.
Thanks.
Thank you, Maria. Do we have any more questions among the audience? Please go ahead if there are any. It seems not. So thank you, Stein, and everyone joining us online today, and please remember that our next scheduled event will be the Q3 interim report on the 7th of November. So see you then. Bye-bye.
Thank you. Bye-bye.
Bye. Thank you very much.
Bye.