Olvi Group’s Interim Report, 1 January to 30 September 2021 (9 months)

OLVI PLC                Interim Report 2 November 2021 at 9:00 am

Olvi Group’s Interim Report, 1 January to 30 September 2021 (9 months)

Interim Report in brief

Olvi Group’s business development continued on a strong track in the third quarter. Sales volume, net sales, operating profit, and net profit increased clearly on the previous year. The Group’s financial standing is good.

Near-term outlook

Olvi’s operating profit for fiscal year 2021 is expected to remain on the previous year’s good level or increase slightly. Good business development is estimated to continue but uncertainties can be seen for the remainder of the year, associated with the continuing corona pandemic, the availability of raw materials and packaging supplies, as well as increasing costs. 

Consolidated key ratios

* Due to a change in the presentation of the income statement, gross profit is presented instead of gross margin.

Business development

Lasse Aho, Managing Director:

Olvi Group’s third-quarter business development was good. Sales volume increased by 16.3 percent, net sales by 15.5 and operating profit by 9.7 percent. The heat wave in July brought a substantial increase in sales volume but sales development was also good in early autumn. Strong demand continued in the retail sector. Growth was seen in all product groups, with best sales development in non-alcoholic products, particularly waters. Exports continued to develop well, increasing by more than 40 percent in the third quarter.

The corona pandemic has still affected business operations in the third quarter. Among the different sales channels, HoReCa sales improved in comparison with the first half of the year, but sales are still lower than they were before the pandemic. Sales restrictions were in force in almost all markets. Furthermore, the volume of cross-border and harbour sales has remained low. Olvi’s production has operated almost normally and there has not been any widespread virus exposure among personnel. There have been occasional difficulties in the availability of raw materials and packaging supplies, and there is substantial upward pressure in production costs. These may restrict production volumes, cause difficulties for deliveries, and have a negative impact on profitability during the rest of the year. However, the current outlook is that the impacts would be limited and manageable.

Business development in Finland continued on a strong track. Third-quarter sales volume increased by 8.5 percent, net sales by 8.6 and operating profit by 18.2 percent. The hot summer caused a high peak in overall demand. It was challenging to respond to this, and there were some delivery difficulties in waters, for example. Demand is also boosted by Olvi’s improved market position in several product groups, thanks to our strong brands and versatile range of packaging. Market shares have improved particularly in beers and mineral waters. Profitability was affected by increased production efficiency as the sales volumes were high.

In Estonia, third-quarter sales volume and net sales were stimulated into growth by the summer heat wave, and preparations for the season went well. The market share remained strong.  Among the different sales channels, retail and export sales increased. Growth in HoReCa was moderate in comparison with the previous year. Cross-border and harbour sales were still impacted by travel restrictions. Third-quarter operating profit improved by 6.8 percent and accumulated profit was almost on a par with the previous year.

In Latvia, third-quarter sales volume increased by 10.1 percent and net sales by 6.5 percent. Domestic market demand improved. Price competition has still been intense in retail trade, and legislative changes with regard to mixed drinks in particular have hampered profitability. This has caused a decline in the company’s operating profit. Operating profit declined by 13.6 percent. Sales of Piebalgas products have started strongly and the company's integration into the Latvian operations has proceeded according to plan. The company has acquired the Everest water brand in the beginning of October to strengthen the offering and sales of non-alcoholic products in Latvia.    

Business in Lithuania developed well. Third-quarter sales volume increased by 12.0 percent and net sales by 11.6 percent. Good net sales development was supported by the strong summer season, a more diversified product portfolio and increased market shares. Domestic retail demand was a driver for growth. Operating profit increased by 13.3 percent, which boosted full-year development to 22.0 percent.   

In Belarus, third-quarter sales volume increased by 23.0 percent and net sales by 30.2 percent. Sales have improved particularly well in non-alcoholic product groups, but two-figure growth figures can be seen across all product groups. Among the sales channels, growth in exports was excellent but domestic retail sales also developed well. Good development of net sales was partially attributable to the exchange rate, which has been improving since August. This evens out the poor foreign exchange development in the first half of the year; however, the accumulated figures are still impacted. Measured in the local currency, net sales have increased by 29.0 percent and operating profit by 9.3 percent since the beginning of the year. Operating profit measured in euro increased by 5.5 percent in the third quarter and the accumulated figure was –1.2 percent. Operating profit was impacted by an increase in logistics costs in line with sales volume, as well as marketing efforts to support the multi-beverage strategy. The company has been able to develop its business in spite of the situation in the country.

Strategic expansion has continued according to plan as the acquisition of the Vestfyen brewery in Denmark became effective on 1 September. Vestfyen has been consolidated with the Group since September, so the company does not yet have any major impact on the figures for the period under review. Integration has started according to plan. The objective is to gradually build up and grow the company in accordance with the focal points of Olvi’s strategy.

Strategically important Group-wide development projects, such as digitalisation projects and the responsible management operating model have been substantially pushed forward during the year in order to ensure competitive ability in the future. Investments have been implemented as planned, supporting future sales growth, improving production efficiency, and promoting the achievement of responsibility targets with regard to carbon neutrality, for example. Investments since the beginning of the year amount to 23.4 million euro.

Seasonal nature of the operations
 

The Group’s business operations are characterised by seasonal variation. The net sales and operating profit from the reported geographical segments do not accumulate evenly but vary according to the time of the year and the characteristics of each season.

Sales development

Olvi Group’s sales volume increased in January-September by 11.0 percent to 661.0 (595.5) million litres. In July-September the sales volume increased by 16.3 percent to 247.3 (212.6) million litres. Growth was seen in all of the operating countries.    

The Group’s net sales in January-September increased by 9.2 percent and amounted to 351.6 (321.9) million euro. Third-quarter net sales increased by 15.5 percent.

Earnings development

The Group’s operating profit in January-September stood at 52.3 (49.5) million euro, or 14.9 (15.4) percent of net sales. Operating profit in July-September stood at 23.6 (21.5) million euro, which was 17.6 (18.5) percent of net sales. From the beginning of the year, operating profit has improved by 5.5 percent on the previous year, and in the third quarter there was an improvement of 9.7 percent. Operating profit is boosted by increased gross profit but hampered by increased costs of logistics, sales, and marketing in comparison with the previous year.

The Group’s January-September profit after taxes amounted to 42.7 (38.0) million euro. The July-September figure was 20.8 (18.1) million euro. Profit for the period is affected by decreased financing costs related to foreign exchange translation differences. 

Earnings per share calculated from the profit belonging to parent company shareholders in January-September stood at 2.04 (1.82) euro, and the July-September figure was 0.99 (0.87) euro.

Balance sheet, financing, and investments

Olvi Group’s balance sheet total at the end of September 2021 was 491.4 (410.7) million euro. Equity per share at the end of September 2021 stood at 13.94 (12.76) euro. The equity ratio was 59.5 (65.1) percent and the gearing ratio was -19.6 (-11.3) percent. The current ratio, which represents the Group’s liquidity, remained on the previous level at 1.3 (1.3).

The amount of interest-bearing liabilities amounted to 12.9 (3.5) million euro at the end of September. The increase is due to the consolidation of Denmark into the Group’s figures. Current liabilities made up 5.2 (0.7) million euro of all interest-bearing liabilities.

Olvi Group’s investments in extensions and replacements from January to September amounted to 23.4 (25.2) million euro. The companies in Finland accounted for 9.1 million euro, the Baltic subsidiaries for 10.1 million euro and Lidskoe Pivo in Belarus for 4.2 million euro of the total. Olvi Group has invested in increasing and diversifying its production capacity, the modernisation of production facilities, as well as environmentally friendly operations.

Personnel

Olvi Group’s average number of personnel in January-September was 2,094 (1,927). The Group’s average number of personnel increased by 8.7 percent due to seasonal variation and the Piebalgas and Vestfyen acquisitions.

Olvi Group’s average number of personnel by country:

* At the end of the review period, the number of personnel was 118.

Board of Directors and management

There have been no changes in Olvi plc’s Board of Directors or management during the review period.

Other events during the review period

Changes in corporate structure

Olvi’s holdings in subsidiaries include the Bryggeriet Vestfyen brewing company in Denmark as of 1 September 2021. Because the company was taken over towards the end of the review period, its effect on the Group’s business in 2021 is minor, and Denmark has not been observed as a separate entity in segment reporting. The effects of consolidation are described in more detail in Table 5, Section 12 of the tables attached to this interim report.

Share-based payments

Olvi Group’s previous share-based incentive plan for key employees, which was initiated in 2019, expired on 31 January 2021. At its meeting of 1 February 2021, the Board of Directors of Olvi plc decided on three new share-based incentive plans for the Group’s key personnel: a performance-based share plan for 2021–2025, a matching share plan for 2021–2022 and a restricted share plan for 2021–2025. Detailed information on the incentive plans and the associated share repurchases is provided in Table 5, Sections 4 and 5 of the tables attached to this interim report.

Business risks and their management

The corona pandemic continues to impose risks on business, even though the overall economic impact has been minor so far. There are uncertainties associated with predicting business development as it is not possible to sufficiently anticipate the various impacts of the corona pandemic. The impacts are associated with sales channel restrictions imposed in order to contain the spreading of the corona pandemic, for example, but also changes in overall demand. Substantial sales channel restrictions can still be projected towards the end of the year, particularly in the Baltic states.

As the corona pandemic has continued, there have also been challenges in the availability of raw materials and packaging supplies, as well as upward pressure in their prices. The most substantial availability problems concern cans, as global demand for them has increased faster than supply. The situation has not caused substantial sales volume losses so far. Cost pressures concern the prices of all raw materials and packaging supplies, as well as other production costs such as energy. Mitigation measures against such pressures include product development, cost savings and focused price increases. It will be challenging to fully respond to the rapidly increasing production costs by the end of 2021.

Olvi has drafted several scenarios and made preparations for responding to changing situations through a variety of measures, paying particular attention to the corona pandemic situation. Olvi has made preparations for production disruptions and drafted contingency plans concerning the availability of personnel and raw materials, among other things. Uncertainty is also caused by potentially continuing fluctuation of the Belarusian exchange rate due to the political and economic situation in the country.

A more detailed description of normal business-related risks is provided in the Board of Directors’ report and the notes to the financial statements, as well as in the Investors/Corporate Governance section of the company’s Web site.

Events after the review period

There have been no significant reportable events after the review period.
 

OLVI PLC
Board of Directors

Further information: Lasse Aho, Managing Director, Olvi plc, phone +358 290 00 1050 or +358 400 203 600

TABLES:

- Statement of comprehensive income, Table 1

- Balance sheet, Table 2

- Changes in shareholders’ equity, Table 3

- Cash flow statement, Table 4

- Notes to the interim report bulletin, Table 5

DISTRIBUTION:

NASDAQ OMX Helsinki Ltd

Key media

www.olvi.fi

 
OLVI GROUP     TABLE 5

NOTES TO THE INTERIM REPORT

The interim report has been prepared in accordance with IAS 34, applying the same accounting policies as for the financial statements of 31 December 2020.

The information in the interim report is presented in thousands of euros (EUR 1,000). For the sake of presentation, individual figures and totals have been rounded to full thousands, which causes rounding differences in additions. The ratios are calculated from exact amounts in euros. The information disclosed in the interim report is unaudited.

The registered share capital on 30 September 2021 totalled 20,759 thousand euro.

Olvi plc’s shares received a dividend of 1.10 euro per share for 2020 (1.00 euro per share for 2019), totalling 22.8 (20.7) million euro. The dividends were paid in two instalments. The first instalment of 0,55 euro per share was paid on 20 April 2021. The second instalment of 0,55 euro per share was paid on 3 September 2021. The Series K and Series A shares entitle to equal dividend. The Articles of Association include a redemption clause concerning Series K shares.

4. SHARE-BASED PAYMENTS

Olvi Group’s share-based incentive plan for key personnel, the performance period of which was from 1 February 2019 to 31 January 2021, has expired. The target group of the plan included approximately 60 people, and in accordance with the terms and conditions of the plan, rewards were paid in Olvi plc Series A shares and partially in cash. A total of 36,200 Series A shares were handed over as share-based rewards.

At its meeting of 1 February 2021, the Board of Directors of Olvi plc decided on the terms and conditions of three new share-based incentive plans for the Group’s key personnel: a performance-based share plan for 2021–2025, a matching share plan for 2021–2022 and a restricted share plan for 2021–2025. Among these incentive plans, the performance-based share plan for the performance periods 2021–2022 and 2021–2023 started on 15 February 2021. The target groups include approximately 18 people, including the Managing Director of the Group, the Managing Directors of the subsidiaries outside Finland, the members of Olvi plc’s Management Group and the Sales Directors of subsidiaries outside Finland. The rewards are based on the Group’s accumulated operating profit in euros and the increase of non-alcoholic sales volume. Net rewards payable for the performance period 2021–2022 amount to an approximate maximum of 6,100 Olvi plc Series A shares, and for the performance period 2021–2023, approximately 10,000 Olvi plc Series A shares.

Olvi plc initiated a new matching share plan for key personnel, the performance period of which is from 15 April 2021 to 14 April 2023. The plan is directed to approximately 55 people. In accordance with the share-based incentive plan, Olvi plc has sold a total of 12,495 treasury shares to the target group members by the end of September for an aggregate price of 598.9 thousand euro.

The objective of long-term rewards is to support the achievement of the company’s targets, make key personnel committed to the company and offer incentive plans based on earning the company’s shares. The rewards are payable partially in Olvi plc’s Series A shares and partially in cash. The cash proportion is intended to cover taxes and tax-related costs arising from the rewards to the employees involved. As a rule, no reward will be paid if employment or service ends before the reward payment. Under the scheme, the target group is able to earn Olvi plc Series A shares based on performance. The Board of Directors shall decide on the earning criteria and the targets for each of these at the beginning of the performance period. Any rewards from the scheme shall be paid after the end of each performance period.

The Board of Directors has set an upper limit for the gross total rewards payable to each person in a calendar year. The limit applies to all gross rewards payable under long-term incentive schemes. Any member of Olvi’s Management Group has to hold at least one-half of the shares received as net rewards from the new incentive
plans until the value of the member’s holding in the company equals at least one-half of their annual salary for the previous year. These Olvi plc Series A shares have to be held for as long as the person is a member of the Management Group.

In the period under review, costs associated with the plans were recognised for a total of 548.6 thousand euro. Olvi Group does not have any other share-based plans or option plans.

5. TREASURY SHARES

At the beginning of January 2021, Olvi plc held 38,560 of its own shares as treasury shares. Olvi plc continued its share repurchase plan in January. The plan started on 5 November 2020 and ended on 15 January 2021. The shares shall be acquired for the purpose of financing or executing any upcoming corporate acquisitions or other arrangements, implementing the company’s incentive schemes or for other purposes decided upon by the Board of Directors.

On 19 February 2021, the Board of Directors of Olvi plc decided to initiate a scheme of acquiring treasury shares based on the authorisation issued by the Annual General Meeting on 8 April 2020. On this basis, the Board will repurchase a maximum of 10,000 Series A shares. The repurchase of treasury shares is based on the new share-based incentive plan for the Group’s key personnel announced on 2 February 2021. The acquisition of shares started on 25 February 2021 and ended on 01 March 2021.

In accordance with the share-based incentive plan, Olvi plc has transferred a total of 11,495 treasury shares to the target group members of the matching share plan for an aggregate price of 551.5 thousand euro.

At the end of the review period, Olvi plc holds a total of 9,404 of its own Series A shares. The total purchase price of treasury shares was 438.0 thousand euro. Treasury shares held by the company itself are ineligible for voting. Series A shares held by Olvi plc as treasury shares represent 0.05 percent of all shares and 0.01 percent of the aggregate number of votes. The treasury shares represent 0.06 percent of all Series A shares and associated votes.

On 31 March 2021, the General Meeting of Shareholders of Olvi plc decided to revoke any unused authorisations to acquire treasury shares and authorise the Board of Directors of Olvi plc to decide on the acquisition of the company’s own shares using distributable funds. The authorisation is valid for one year starting from the General Meeting and covers a maximum of 500,000 Series A shares.

The Annual General Meeting also decided to revoke all existing unused authorisations for the transfer of own shares and authorise the Board of Directors to decide on the issue of a maximum of 1,000,000 new Series A shares and the transfer of a maximum of 500,000 Series A shares held as treasury shares.

During January-September 2021, Olvi has not received any flagging notices in accordance with Chapter 2, Section 10 of the Securities Markets Act.

The increase in liabilities is due to the acquisition of Vestfyen and the consolidation of the company with Olvi Group.

12. BUSINESS COMBINATIONS

SIA Piebalgas Alus

Olvi’s Latvian subsidiary AS Cesu Alus is a leading player in the Latvian beverage market. Cesu Alus acquired the entire stock of Piebalgas Alus, a widely known and appreciated microbrewery in the Vidzeme province of Latvia. The acquisition brings more strength to our product portfolio in premium craft beers and kvass in the retail and HoReCa markets. The Piebalgas brewery was established in 1989. It is devoted to traditional manufacturing methods and high-quality raw materials.

Piebalgas Alus has been consolidated in Olvi Group since the beginning of June 2021. In Olvi Group’s segment reporting, the business operations of Piebalgas Alus are included in the Latvian figures. The company’s effect on the consolidated figures is minor.

The following tables present a summary of the acquisition price and the fair value of the assets acquired and liabilities assumed at the time of acquisition. The balance sheet has been prepared in its essential parts in accordance with IFRS and Olvi Group’s accounting policies. The acquisition was recognised as preliminary in the second quarter.

A/S Bryggeriet Vestfyen

Earlier this year, Olvi announced the acquisition of 96.8% in Bryggeriet Vestfyen, a Danish brewery. The Bryggeriet Vestfyen company consists of a brewery producing beer and soft drinks in Assens as well as the Indslev microbrewery located in Norre Aaby. Bryggeriet Vestfyen was established in 1885.

Bryggeriet Vestfyen has been consolidated in Olvi Group since the beginning of September 2021. The business operations of Bryggeriet Vestfyen are not reported as a separate segment in 2021 because the company does not exceed the quantitative thresholds.

The following tables present a summary of the acquisition price and the fair value of the assets acquired and liabilities assumed at the time of acquisition. The balance sheet has been prepared in its essential parts in accordance with IFRS and Olvi Group’s accounting policies. The acquisition is recognised as preliminary in the interim report.

13. CALCULATION OF FINANCIAL RATIOS

In the summary of financial indicators (page 1), the Group presents figures directly derived from the consolidated income statement: net sales, operating profit and profit for the period, the corresponding percentages in proportion to net sales, as well as the earnings per share ratio. (Earnings per share = Profit belonging to parent company shareholders / Average number of shares during the period, adjusted for share issues.)

In addition to the consolidated financial statements prepared in accordance with IFRS, Olvi Group presents Alternative Performance Measures that describe the financial development of its business and provide a commensurate overall view of the company’s profitability, financial position and liquidity.

The Group has applied the ESMA (European Securities and Markets Authority) new guidelines on Alternative Performance Measures that entered into force on 3 July 2016 and defined APMs as described below.

As an APM supporting net sales, the Group presents sales volumes in millions of litres. Sales volume is an important indicator of the extent of operations generally used in the industry.

Equity per share = Shareholders’ equity held by parent company shareholders / Number of shares at end of period, adjusted for share issues.

Equity to total assets, % = 100 * (Shareholders’ equity held by parent company shareholders + non-controlling interests) / (Balance sheet total).

Gearing, % = 100 * (Interest-bearing debt – cash in hand and at bank) / (Shareholders’ equity held by parent company shareholders + non-controlling interests)