Oatly Group AB Price & Performance (OTLY)

During this call, management may make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future results of operations and financial position, industry and business trends, business strategy, market growth and cost savings.

These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward looking statements 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 that on today's call, management will refer to certain non IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow.

The company believes these non IFRS financial measures will provide useful information, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS.

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, Opelios Brzeit has posted a supplemental presentation on its website for reference. With that, I now like to turn the call over to Jean Christophe, Thank you, Brian, and good morning, everyone. Slide five as the key messages I want you to take away from today's presentation First, let me tackle and fund our 2024 performance versus guidance [indiscernible] Despite a very robust volume growth of plus 8.8%, versus 2023 our 2024 top line results came in below our guidance at 4.8% in constant currency revenue growth. At the same time, our profitable growth focus has delivered our adjusted EBITDA at the favorable end of our guidance range. This demonstrates that Otely is a much stronger company than it has been two point five years ago. Over the past two years, we have indeed where we now have a much healthier business with clear strategy clear accountability stronger margins and significantly improved profitability. Looking ahead to 2025, we expect to drive our first full year of profitable growth.

Specifically, we expect constant currency revenue growth in the range of 2% to 4%, [indiscernible] As you saw in our press release, expect an approximately 300 basis points impact to our goals from a change in sourcing decisions at our largest U. S. Customer, Absent this impact, our guidance range would have likely been 5% to 7% Oatly. We expect adjusted EBITDA in the range of $5,000,000 to 50,000,000 and we expect capital expenditures in the range of 30,000,000 to $35,000,000 We expect to drive this profitable growth by leveraging our brand to ignite positive momentum in the category while simultaneously driving additional efficiencies. So let's dig in. Slide six outlines the significant transformation that we have methodically executed over the past two years. One area of change has been in our supply chain. Today, we have a more simplified supply chain that has become a strategic asset [indiscernible] In December, we announced we were closing our Singapore facility and today we are announcing that we have discontinued construction of our second Chinese facility. With those two announcements, we have five manufacturing plants globally with no additional plants being built. These five plants can produce approximately 900,000,000 liters of product.

We are guiding to $30,000,000 to $35,000,000 of CapEx which is approximately 4% of revenue. [indiscernible] I am pleased to report that we achieved 99% customer fill rates in 2024, which highlights the significant benefits of increased focus. We have also made significant changes outside of our supply chain. [indiscernible] First, we have significantly simplified our overhead structure Today, we are much leaner with approximately 1,500 employees down 500 over the past two years. When it comes to mindset, as profitable growth is our norm, we now make deliberate margin focused decisions about Channel customers We have also augmented our approach to marketing, focus on the relevant and integrated brand activation. Slide seven shows the financial impact. On our second quarter twenty twenty three earnings call, I said that we must have a stronger business, before we have a significantly bigger business. I am pleased to report that we have strengthened Versus 2022, our revenue grew by approximately $100,000,000 or 14%, Our gross margin expanded 18 percentage points. And our adjusted EBITDA improved by over EUR230 million euros We are clearly making good healthy progress.

Slide eight further highlights our healthy progress. [indiscernible] Each of our three operating segments improved the adjusted EBITDA by over 70,000,000 in the past two years.

While we also made good progress reducing our corporate expenses, Our teams embraced the challenge made the necessary changes [indiscernible] To be clear, we have executed this transformation in order to enable Our mission Our mission is an important part of our culture. And I believe it makes OBLY truly unique. Have maintained our mission and purpose throughout our transformation we remain committed to it going forward. As we look ahead to 2025, on Slide 10, we now expect to enter our profitable growth era by driving top line growth and positive adjusted EBITDA. [indiscernible] While our constant currency revenue growth rate is expected to be impacted by a from a sourcing decision at our largest U. S. Customer we believe the underlying growth rate of our business remains healthy with further expected distribution gains in all channels and innovation performance that Daniel will detail for us later. Slide 11 shows our priorities for 2025. [indiscernible] Our top priority is to ignite category momentum. To do that, we will continue increasing our relevance aggressively attack the barriers to conversion from dairy, and increase the availability of our products to post new and existing consumers. As we are igniting this category momentum, we intend to continue our aggressive pursuit of cost efficient Over the past two years, we have built a strong efficiency muscle And we intend to flex that muscle in 2025 again to drive margin expansion simplify for speed and impact and provide further fuel for growth driving reinvestments.

Our final 2025 priority is to fulfill our financial commitments of delivering our first full year of profitable growth as a public company. With that, I turn the call to Daniel. Thank you, JC, and good morning, everyone. Slide 13 shows our 2025 priorities, as introduced by JC. I will provide additional color and context on these priorities and how we'd like plan to execute them. Let's start with priority one, which is creating the second wave of category momentum. First, I would like to highlight that we posted broad based steady growth in 2024, as demonstrated on Slide 14. Europe and international had solid growth in both channels, with good contribution from both established and the expansion markets. North America reported double digit revenue growth in Retail and 8% growth As we have previously discussed, North America has been aggressively diversifying its foodservice business proactively balancing growth Excluding the segment's largest customer, foodservice sales grew by twenty percent twenty twenty four which shows you just how aggressive we have been. North America has been impacted by a change in sourcing decisions at our largest foodservice And while they remain large and important, we will continue to systematically expand our foodservice customer base with the same balance criteria.

As the opportunity remains massive. [indiscernible] Our Greater China segment posted strong double digit growth in the 15 shows our Barista portfolio. It is second to none in velocities and product performance and it continues to be our largest business and our growth driver. The range continues to expand in breadth and depth including new items that drive relevance and ubiquity for different occasions, channels and price points. In North America, for instance, Barista grew by 10% in 2024. Aided by the distribution expansion of the original Barista and the addition of the new creamers to the lineups. In Europe and international, Barista grew by thirteen percent twenty twenty four, growing both the original Barista organically and with incremental growth coming from the 1.5 liters lighter taste, the organic range and the Jiggers.

Slide 15 shows we have driven this without the category wins Despite this category's luggage we have seen in both Europe we have continued to drive growth. In both markets, our retail takeaway grew in the mid single digit as we have continued to take steady share in nearly every one of our markets. This supports our continued belief that there is a clear difference between plant based milks versus oat milk and versus Oakley. As I mentioned in the past, we cannot wait for others to grow this category. And just take share from less relevant competitors. Oakley has long been the only brand proven to drive category growth.

And we intend to use that competitive momentum Don't do it. Once again, Slide 17 shows the household penetration for The U. K. And The U. S. If we showed additional countries, the story would be identical. Household penetration for the category has plateaued around 20% to 30 sense. Considering the health product performance and climate relevance of our products, as well as the meaning of our brand to younger generations we see that 70% to 80% of category sales stays has an enormous [indiscernible] Slide 18 shows the first step in recruiting that remaining 7% to 80%. Which is to make ultimate relevant to a broader population. In The UK, we activated the brand alerting consumers towards semi Oatly milk that is tailor made addition to the daily cup of tea. It's just a single activation to expand how we think about oatmeal the results have been quite solid. Our base velocities infected quickly Interestingly, almost 80% of the volume improvement came from consumers that are new to plant based milks. Showing the power of the brand to increase penetration and convert away from cows dairy. When the offering is newsworthy However, we know a simple change in messaging is not enough.

Slide 19 shows two of the biggest factors we believe are preventing the from breaking through that 20% to 30% penetration level. The first is the preconceived notion and taste. We know that most people who have not considered trying oatmeal is because they believe it does not taste good even before they try it. The second and more recent barrier is misinformation Following the rise of social media, see a rise in misinformation, especially on the nutritional value of oat milk.

Slide 20 shows one of the first steps in conquering the historical barrier of space and preconceptions. In Germany, we used our unique voice to entice consumers with a very single message based on our local market research that proves that over one in two German consumers prefer Oatly to cow's milk in a blind test. Imagine that it's phenomenal After two months of this integrated brand activation, our baseline sales increased by over 9%.

And this is only the beginning with plenty to come. Onto misinformation then on Slide 21. We are increasingly seeing noise on social and in legacy media disparaging the nutritional facts of oat milk. As the most recognizable brand, we often find Oatly is the poster child of these attacks. Many of these false claims are [indiscernible] And upwards deliberately misleading. 45 plant based meals like Oatly are recommended in dietary guidelines around the world. We are a company rooted in science.

And we stand behind the nutritional makeup of our products.

So we refuse to sit by and let consumers continue to fall victim to this disinformation. We have been and will continue to work with and partner with healthcare professionals journalists, influencers and registered dietitians to debunk misinformation and to ensure the correct science backed true facts get to consumers without us adding to the noise. In short, we will continue to set the record straight in a very orderly way, of course. We are infused to see the welcoming initial reactions from these relevant key opinion leaders and their commitment to advocate for science and for facts. Turning now to Slide 22.

The final pace of the plan is to continue increasing our distribution and ensure products are more available be it in new spaces, channels or customers. We continue to believe there is vast opportunity in the European for service and we continue to make progress in creating new moments of consumption. For example, many European airlines are showcasing our riggers on their in flight menus. Replicating the success we have had across the railway networks. These intentional choices on spaces and customers continue to stimulate the oatmeal consumption habits. In U. S. Retail, we already have our highest ever weighted distribution and our highest ever share of the plant based meal category. We have secured additional distribution gains in both chilled and Ambient. This new distribution is already coming online just as we lap last year's Range reviews, our teams will be aggressively pursuing additional opportunities in all channels with customers of all sizes. And in Greater China, we're excited to announce that we will be end the club channel in 2025. The Chinese retail channel is very large and we're very excited to partner with these great club stores to start capturing the opportunity in a disciplined way and more actively diversifying our channel footprint. [indiscernible] Now turning to the next 2025 priority, which is aggressively driving cost efficiencies to simplify and create more fuel for growth.

On Slide '24, you can see that we have reduced our cost per liter by 19% over the past two years. We have driven these great results through delivered actions and streamlining our supply chain processes, procurement as well as forecasting and planning at While we are pleased with our progress, we believe plenty of opportunity remains. In 2025, we expect to drive additional efficiencies from the closure of our Singapore plant as well as recently negotiated input cost contracts in North America business. And we have done in Europe, all productivity initiatives, whether large or small, have clearly identified project owners, 25 shows we have driven efficiency in our overhead structure as well. Over the past two years, we have reduced our total SG and A and R and D by €80,000,000 With that is an €8,000,000 increase of branding and advertising so the reduction would have been €88,000,000 if not for the reinvestment. We did this while growing our revenue by over $100,000,000 driving the SG and A margin down by 17 percentage points. Just like with the supply chain, we have built a muscle of finding leverage, and eliminating waste. In early twenty twenty five, we have already executed additional SG and A efficiencies to further simplify and provide fuel for growth driving investments and we will always look for more.

So as we enter 2025, you can see that we have a track record of simultaneously improving profitability and driving growth based growth even in a challenging environment. We have a plan to reignite category momentum We have early traction on the execution of our plan. And we have additional efficiency programs that will provide more fuel for that growth. I would now like to turn the call over to Mario Jose.

Thank you, Danielle, and good morning, everyone. Slide 27 shows an overview of the core we reported 5.1% revenue growth and constant currency revenue growth of 4.8%. This was slightly below the guidance we provided last quarter, as category growth remained sluggish. We continue to drive strong gross margin expansion with the fourth quarter margin expanding five forty basis points year over year, bringing the full year margin expansion to nine thirty basis points.

Adjusted EBITDA was a loss of $6,100,000 in the quarter and was a loss of $35,300,000 dollars which is at the favorable end of our guidance range.

Slide 28 shows the bridging items of our total company revenue growth. As you can see, both our fourth quarter and full year revenue growth was driven primarily by volume growth. We grew volume by 9.9% in the fourth quarter and 8.8% for the full year. Slide 39, shows the drivers of our strong year over year gross margin expansion. [indiscernible] In both the fourth quarter and full year, the biggest driver of our margin expansion, was absorption and supply chain improvement, Our supply chain has become a strategic asset as the teams have maintained high customer service level to support our growth, while also embracing an efficiency mindset to drive out Waste renegotiate contracts and reduce costs. Slide 30 shows the year over year improvement in our adjusted EBITDA In both the fourth quarter and full year, our improvement was primarily driven by a very good increase in gross profit. In the fourth quarter, we had a slight year over year headwind in SG and A as we increased our advertising investment to DriveScore. Slide 31 shows segment level detail. There are three big takeaways on this slide. First, this is our second quarter of all three segments reporting profitable growth.

Second, two of our segments drove profitable growth Third, each segment drove solid volume growth In both the fourth quarter Our strategic initiatives and growth [indiscernible] clearly continue to work. Turning to our balance sheet and cash flow on Slide 32. Our balance sheet remains solid. At the end of the quarter, we had $99,000,000 of cash and €186,000,000 of our credit facilities. Note that our revolving credit facility is completely undrawn and the quarterly changes in its value have been driven by foreign exchange rate.

We continue to believe that our business plan remains fully funded with our path to profitable growth. Our profitability continues to improve We continue to optimize our CapEx and cash impact our exited and discontinued factory, remain on track. [indiscernible] The middle of the slide shows our free cash flow improvement. Our total twenty twenty four free cash flow was €166,000,000 use of cash which is our best performance since the IPO. And a €319,000,000 improvement since 2022. In the fourth quarter, free cash flow was a €23,000,000 use of cash. Which was our best quarterly performance since the IPO and an improvement versus Q3. On the right side, you can see our progress on working capital. We have reduced trade working capital by 23,000,000 over the past two years. While growing revenue which has resulted in our trade working capital as a percentage of revenue falling by over 500 basis I have repeatedly said that improving our cash flow is a top priority and we're clearly making good progress. Our third priority for 2025 is to deliver our first full year of profitable growth as a public company Slide 34 shows the detail of what we expect. We expect constant currency revenue growth in the range of 2% to 4%.

Our largest U. S. Customer has made a change in how we source ultimately.

While they remain a large customer, we currently expect the change to cause an approximately 300 basis point headwind to our total company growth. For adjusted EBITDA, we expect to report in the range of positive $5,000,000 to $15,000,000 We expect the year over year adjusted EBITDA improvement to be primarily driven by gross profit. While we continue to monitor and evaluate the tariff situation in our North America segment, and our teams are preparing for possible scenarios we have not included any potential expected impact into our guidance. We expect adjusted EBITDA to improve as we move through 2025 driven by a combination of the business continuing to strengthen higher brand investments early in the year and Q1 naturally being a lower sales due to Chinese New Year. We expect CapEx to be in the range of $30,000,000 to €35,000,000 for the full year. This reflects how now simplified supply chain network of five plants with no additional plants under construction. Slide 35 shows the building block of our expected improvement in adjusted EBITDA. We expect the biggest improvement to come from efficiencies in our supply chain and SG and A. We have already taken the appropriate actions to achieve the majority of these savings and we have clear plans and timelines to achieve the remainder.

We will continue to regularly evaluate our entire cost structure to seek out additional efficiencies. For example, in December, we announced the closure of our Singapore plant which we expect will save us nearly $10,000,000 annually.

We have also recently renegotiated many contracts that will lower our input costs as well as internally communicated some changes that will lead to additional SG and A savings as we move through the year. [indiscernible] We are controlling the controllables and have clear plans to deliver on our guidance.

This concludes our prepared remarks. Operator, We will now begin the question The first question comes from [indiscernible] Jefferies. Please go ahead.

Hey, everybody.

Good morning and good afternoon.

I guess let's dig into the goal for profitability in 2025 being driven by gross margin, Maybe if you could talk a bit about breaking down what the drivers within that gross margin will be? I see some of the details you provide on supply chain, but is there a pricing component, a mix component, regional pieces, some of those types of things?

Any more details in that, what looks like sort of the fat piece of the thing that will swing you to profitability I think that'd be useful. Hi, Camille. This is Marjos Dei.

Hope you are well.

You for the questions. Let me double click on the answer. On top of what we already said in the prepared remarks. So in the prepared remarks, we said that we expect the improvement of our profit as you mentioned coming from this coming from let me explain a little bit more. First, optimizing our production footprint.

We have already announced a few things on that front. Maximizing our global sourcing resources, that's the second piece, and third piece, is managing our product mix.

On that front, there are obviously several variables that could influence where we will exactly land. Such as our sales guidance range, such as the customer mix, but also potentially the foreign exchange. As I called as well out already. So the takeaway on that for 2025. We will make progress on our path towards our long term gross margin target of 35% to 40%. [indiscernible] It does.

And then maybe if we could just talk about The U. S. A bit and this might be very short term, but just in sort of very recent results, it looks like promo activity has really sort of spiked at least in the Nielsen data that we're looking at. Is there something going on in the industry that we should be aware of as we're sort of starting 2020 Thanks, Camille. How are you doing Daniel here? Yes, you're spot on. There's been some volatility in the last day. You're looking at the scanner data in the last four weeks. But if we look at a bit more twelve weeks, this is how we see see things in The U. S, right, apart from the category dynamics that you see them by yourself. So The biggest driver we see moving forward would continue to be new distribution. And the new ones here in the very short term is that this year's new distribution will hit a little bit later than last year. So expect a brief blip in the lapping periods between one year and the other. That would be one The second one that you see in terms of our own performance is a little bit of a of a drag from the discontinued older innovation and the ones that have been diverging a little bit our focus like frozen novelties or cream cheese That erodes in the short term 400 to 500 basis points of our growth.

But this is short term, and we expect this to be lapped in the coming months, right? So those are the, let's say, mechanical ones. Importantly, this is how we look at things, Camille. We see solid consistent velocities of our core portfolio, milks, and creamers in both units and dollars. So all these while we register highest ever dollar shares in plant based milk and oat milk, in the recent periods and in the longer term. So we expect that with the upcoming incremental ACV that you saw in the prepared remarks, and in the main banners, we should be maintaining the steady growth trajectory that we have posted so far.

Okay.

Great. And I could sneak in maybe a third on the sort of this headwind from your largest customer, was that a maybe a business that was operating at a loss anyways and that perhaps could be one of the contributors to higher gross margins or is it there something else going on there?

No. You've seen the consistent way in which we have handled the foodservice channel in The U. S. And everywhere in fact, balancing growth decisions with volume growth decisions with margin balancing the margin, right? So and we will continue to make these decisions as we move forward. Growth and market. So in this context, it's important for you to I think if I understand the question behind the question, Camille, is this customers in The U. S. Is now only over 20% of the twenty twenty four U. S. Sales.

And only 7% of total company. Right? So, well, only any volume we lose means less cost absorption, In fact, your question is spot on. We expect to keep tracking on our relentless journey of gross margin improvement we set course two years ago. So you see, we maintain controlling the controllables and as we said, these large customer continues to be large and super important to us. As it is the continued growth in foodservice channel overall. Got it.

Okay, great. Thank you. Thank you. The next question comes from Max Gumport with BNP Paribas.

Please go ahead.

Hey, thanks for the question.

I thought you gave a very helpful update on the category sluggishness that we're seeing right now and it's encouraging to hear you aren't waiting for others and you've got plans place to to get the category moving in the right direction. I also recognize that you regardless are posting differentiated performance versus the category. But can you just expand on how much you think is in your control with regard to improving the category? This year and then Also, how much of the pressure right now is simply the lack of ability to bring in new households? And then how much are you seeing in terms of existing households maybe leaving the oat milk category because of some of the headwinds you announced in terms of the misinformation on nutrition? Thanks very much. Thanks. That is a lot in that question, but I will try to unpack, Max.

But it's super helpful. And thank you for appreciating the efforts I will start with the headline, which is [indiscernible] And we are decisively going to and willing to do it again. In fact, we don't see anything that impairs our ability to start the second wave of momentum. Right? If you allow me to start at the high level approaching your question, any of these paradigm shifts has never been a linear growth trend. Right? There are waves of growth that have to do with the adoption by different consumer groups If we want to stereotype them as millennials and Gen Z, they are different and they respond to different changing context, right? When it comes to sustainability tailwinds, less sustainability tailwinds say no more about the context today. Dramatically different. There are two potentially three elements to your question.

The first one is And I would like to stress the fact that the current performance that you have seen with no tailwinds or very, very light tailwinds will remain. We see opportunity for us to continue to post [indiscernible] solid growth. By gaining distribution, by increasing penetration with a new portfolio you have seen which is wide in formats and deep in new concepts and we are encouraged to see that portfolio as well as the addition to the new markets to the mix. The new markets in ENI, in Europe and international, are starting to gain in critical mass. We started this journey two years ago and we like we see right? So the mechanical I wouldn't underestimate the And second of that you you would have heard us talking about our significant shift in marketing approach And that is not by changing the model, which is what makes us unique. But it's changing the way in which we allocate resources in a much more precise manner. And that is the intentionality that you see behind the two examples And this is just quoting two not random, but two examples with T integrated activation in The UK with the taste experience example in Germany and you will course see more in this direction, which are precisely directives to breaking down the number one barrier to penetration for that 70% which is taste.

Whenever and wherever you taste, plant based milk before trying, the number one barrier to consumption is taste and has always been the case. And it's proven today. And I'm encouraged to see that the first examples that you have seen in Germany are proving our ability to bring new consumers to the category, let alone Oakley Oatly. As for the rest, we continue to believe in the power of these brands. I I'm always amazed by the power of this brand. The latest one Max has to do with you would have seen the recent announcement of the collaboration with Nespresso all around the world We'll start seeing the in two weeks, the impact of the Otea pot selling out and being top of the list of the Nespresso pots. And that's something that gives me confidence that in a few quarters, we would be able to articulate to you the precision of how are we bringing new households into the OG franchise and starting to see the early innings of new category penetration. But it's early days. What I would like to say to you is for us internally, we're adding category growth in our list of controllables.

If that helps.

Yes, very helpful. And then as I at your plans for 2025, it strikes me that much of the EBITDA progress here targeting is actually completely unrelated to sales and category growth and it's much more related to supply chain improvements that are completely in your own control regardless of where the category goes. So I was hoping you could just give us an update on where you are on that supply chain journey longer term as we think about the continued progress you could make on that front beyond '25? Thanks very much. I'll leave it there.

Thank you so much, Marc Jean Cesar speaking and thank you for the question. As you've noticed, liver leverage lever number one, to answer your question, is the very significant recalibration of our supply chain. As you have seen we have taken the decision to discontinue three new factory projects. So previously The U. S. And U. K. And now in China, as well as the closure of our Singapore plant. This allows us to focus all our execution and expertise power as well as our CapEx, of course, in only five existing sites around the world. So that's super important. We believe that recalibration drove focus and focus drive performance. That's the belief that drives this business. The second strategic lever is our permanent quest for supply chain efficiency and an asset light supply chain. We just posted a full year gross margin of 28.7%, which is 9.3% full percentage points higher than just one year ago. And as you very well noted, this represents again the bulk of the 2025 EBITDA progress. Because we continue to relentlessly work on additional efficiencies but we now do that on a much tighter, compact fit for purpose network. So that's what you can expect from us.

Great. Thanks very much.

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

Hi, it's Elsa on for Ken. So it does seem like the majority [indiscernible] is expected to be driven by increases in gross profit tied to supply chain productivity How should we think about the cadence of that improvement as we go throughout the year?

I would take it Thank you for the question. So as we said, I just said EBITDA and you just mentioned again will improve as we move through 2025. Driven by the combination of the business continuing to improve higher brand investment as well, Early in the year, and Q1 naturally being a lower sales, quarter due to the Chinese year Now with that said, let me tell you that we have three things that are happening in 2025. First and how you need to look at the second of the year. First, the expansion markets continue their growth rate and will improve the segment growth rate as we move through the year. Second, the second half of twenty twenty four, we increased our promotional activity in Europe. Which has impacted our constant currency revenue growth and we expect that to be less of a headwind as we enter in the second half of twenty twenty five. And the third point is that we expect our new integrated brand activation investment of the first half to drive accelerated growth in the second half. So the way to look at the second within the year is driven by these major risks three things that I just called out.

Great. Thanks. I'll pass it on. The next question comes from Michael Lavery with Piper Sandler. Please go ahead. Thank you. Good morning and good afternoon.

Just wanted to come back to the largest customer in The U. S. I realize it's not unprofitable, but like to your point, it helps cost absorption even if it may be lower margin than retail. Can you give us a sense of what if any risk to the remaining there's been a couple of times now that [indiscernible] footprint that you represent there has been cut back. What any look ahead of how maybe stable that is going forward or what should we expect there?

Thank you. Thanks a lot, Michael. Good to hear from you. Daniel here. If you allow me, I will have double click in a couple of remarks. We moved I think to Camilla at the beginning. [indiscernible] Because that's unfortunately falls into of those questions, which is I cannot give you a full answer to yes or no answer to that, right? However, color and context First, we'd like to underline again the exposure we have to this very large and in postal important customer.

In The U. S. Today, it is only 20% of the twenty twenty four sales, last year's 7% of the total company, right? That gives you an impression of the size. And the decisions that were made and the why. However, to go straight to your question, and the outlook, when we speak with consumers and baristas, across our customer base in foodservice, and in coffee. They consistently tell us that they can tell the difference in quality and in performance in coffee between Oatly and all other competitors.

Right? And I would like to pause there because that's that already gives you a view about what's can happen in The U. S. Market.

Gives me confidence and gives us confidence that we will continue to aggressively pursue new cash And as you can see, we keep tracking on growth outside this large customer. You see it in the recent quarter, we saw 22% of growth in outside this customer. So the exposure continue to reduce. And that is exactly what we're doing. So we will continue to control the controllables continue to drive these good relationship with this large and impostor customer and driving the business moving forward. Okay. Yes, that's helpful color to add. And then just on Asia with your decision to discontinue the second China plant. You said that Manchon can support the current business and growth Had your expectations for the market there maybe an influence of the current macro environment in China versus a longer term view. Maybe just help us understand what if anything changed in your outlook for demand and how that impacted this decision?

Thank you so much, Michael. JC here. I'll take it. First of all, let me confirm that the whole team in Greater China is showing a robust development trend. At the moment. We have reported profitable growth in this market since Q3 of twenty twenty four, and we see that as a direct result of the resale strategy. That our China team has executed with excellence. Could also comment on the fact that our relationships with our key customers and partners there are stable and we see them as being highly productive. So, Bogo, what do we see in China? On the foodservice side, which is the majority of our business in China, we really see permitting systemic momentum across all our important customer base. It's a very vivid environment there. And we are great relationships with the key [indiscernible] To announce that we will be entering the club chat in 2025.

And peace Chinese retail channel is expected to launch we are very excited to partners with the great club stores to start capturing the opportunity in a very efficient way. And more actively diversify So overall, what you hear from us is we continue to see a lot of opportunities in China.

Okay. That's great. Thank you very much.

The next question comes from John Baumgartner with Mizuho. Please go ahead.

Good morning. Thanks for the question.

Maybe Maybe first off, it's nice to see the guidance for positive EBITDA in 2025 and that milestone. And I'm curious if you could walk through that in a bit more detail. This past year, there was some flexibility in the model where you invested at a healthy level.

For trade and support to coincide with increased distribution. And I think you've incorporated some year on year drag in 2025 from larger brands building as well. But I'm curious, given the plan to build more distribution again this year, the comments you've made around challenge household penetration, what's your confidence you've adequately built in enough reinvestment to the guide. Whether for marketing, for trade, for pricing. I'm just curious as to your confidence Thank you so much, Jean Christophe here. I'll start and probably get the profitable growth, as you know, is, has been and will remain being our non stop And I have to say, it's a very important moment today for our teams, for ourselves, marking the moment to guide in 2025 a kind of a new era, which is the the first full year of profitable growth as a public company. It's an important moment for us. We are pleased with the significant structural progress we have made so far mainly the gross margin increase and the SG and A recalibration. That we highlighted. And you spotted it very well. These two levers have significantly changed the P and L shape of this business over the past two years.

And because we continue and we'll continue to work on them, they will continue to explain the vast majority and the 25 guidance.

Attached to that what we will remain extremely disciplined on is both the cost and the capital. So what we have applied so far is a very strong turnaround mindset. And we are turning it into an ongoing efficiency obsession mindset. And with this mindset, and this is exactly this mindset that will drive us to make deliberate margin focused decisions when it comes to new channels new customer, new markets, and new products. So that's the way overall I wanted to start there by saying what will fuel and drive the vast majority of the EBITDA improvements what's the mindset we make these decisions now over to Daniel to give more color. That's a great question, John. As you can imagine, we have been all hands on deck for a while reassessing our choices here. So long story short, it's not about allocating more investments into the brand. It's about the how we're allocating investment into the brand to drive and bringing down these barriers of further conversion, right? So in one hand, your question was about our confidence levels. I believe that our plans are fully resourced when it comes to the confidence levels to deliver what we are guiding for today.

Not more. And all the efficiencies that J. C. Was referring to are blenders into the resource we are allocating. And I would like to to mention again what I was referring to a couple of remarks ago, which which is what do we mean by this the how, right? And where this new marketing approach is simply being more precise and more intentional in how we articulate the brand activity focused on barriers to penetration. And we're deploying that in a much more integrated manner With early days, we're very encouraged with the results. So precise resource allocation while protecting the brands and the uniqueness of the model of this brand and the teams behind, which what sets us apart. This may sound like a bit parochial and not very different to us. Trust us for us, Oatly, is a paradigm shift. Which is protecting the brand model and being super precise in how we allocate resources. And then coming back to Camille's question on margins, just to focus more on the OpEx line, You made quite a bit of progress the last few years reducing expenses and you've got [indiscernible] benefit coming through in 2025 guidance. But bigger picture, how do we think about incremental OpEx reductions from here?

Are there more reductions to be had following what you achieve in 2025 or at this point are the incremental gains just more about leveraging the existing base from From volume growth, Thank you so much for the follow-up, John.

We will always be looking for efficiencies. In other words, we don't think we are done We will continue and what we are what I was explaining is what has served us well as a turnaround mindset is now a culture of efficiency obsession, a mindset that will be ongoing and we keep that with us. So we will be turning this mindset into continued improvements both on the supply chain and on the SG and A. You heard also, MJ, in the prepared remarks, we are actively working on SG and A further reduction as we speak. In the beginning of twenty twenty five and they are being brought to life Perhaps one or two additional points because that's a very important topic. When you benchmark our Swiss peers, it's important to keep in mind that our total SG and A include both advertising as well as distribution costs. And we know it's not the case for every company. So sometimes it can impact the comparison with some others. And finally, some of our SG and A reflects strategic profitable growth choices, as explained by Daniel, like investment in new markets to create category and stimulate growth. So as we continue to work to grow our sales, here is what you can expect.

We continue to work actively on SG and A improvement. There is a part of almost sales related of SG and A that will continue to grow alongside our volume growth, but not stronger than that. But at the same time, of course, beyond our continued improvement work, we expect to see leverage [indiscernible] portion of our SG and A, so never done, we are on it and we know this is what is needed to fuel the goals.

And maybe last one for me real quick. You highlight the degree of incrementality for new consumers into the plant based beverages category in the [indiscernible] And I'm curious tying back to some of the softness in consumption growth, what's your opportunity if you look more at capturing existing plant based beverage buyers who already have overcome the hurdles of maybe taste concerns and nutritional misinformation. Looking back in The U. S. Evolution where almond came into the category about ten years ago and for quite a bit of share from soy milk, Thinking about the ability to take share from soil or almond, from better functionality, whether it's in creamers, ingredients, recipes, How do you think about the ability to maximize that taking share of the existing plant based beverage consumer base in addition to just getting household incrementality.

Very good. Thanks, John. Daniel, again, I will take that. Listen, You see one of those charts where we talk about the portfolio. That's exactly Oatly would tackle your question twofold, right? The North Star, our North Star is to continue to convert and make this category bigger. Right? That is not just because we're mission less, but that's the most for us. And I will want to do it again. As we do that, what you have seen us doing for the last couple of years while how we are steadily gaining market share, which by definition we are taking share not only by other old mill competitors, but also by the other crops If you look at the other crops development in both The U. S. And in Europe, you will see that they are all In decline. And that is happening already as we continue to pursue our mission and to pursue conversion. That if you go back to that chart, John, that talks about portfolio with the Barista, Oatly things coffee portfolio, You could dissect that portfolio in two. Which does precisely what you're doing. We are going wide in formats by being ubiquitous in different channels occasions, moments of consumptions and price points, that's exactly what we're doing.

We're taking share and taking space from all different [indiscernible] plant based meals.

And if you were looking at the different concepts in that portfolio like for instance the organic barista was the lighter place barista that is also not just attract new consumers into the category but taking share from the plant based meals as well. So you'll see, I don't want to give you a half hearted answer which is we do both. Because you know that strategy is about choices. So in doing both doesn't work. We go for conversion and we have proven to ourselves and to you guys that for the last two years, by taking share on other crops and other competitors, we do that in the making. Great.

You very much.

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

Great. Thanks a lot everyone for joining us. Feel free to reach out to me if you have any follow-up questions. Everybody have a great day.

The conference has now concluded. [indiscernible] [indiscernible]