Altia year 2015: Clear positive turn in profitability

Altia improved clearly its profitability and recovered a strong financial position after two years of restructuring and strategic repositioning. Operating profit 2015 increased to EUR 25.3 (-18.6) million and was 6.6 % (-4.4 %) of net sales. Operating profit excluding non-recurring items improved by 2.0 % points to 6.2 % of net sales. The strategic decision to focus and streamline the brand and product portfolio had an expected impact on net sales.

January–December 2015 in brief
(including comparative figures for the corresponding period in 2014)

• Net sales was EUR 380.7 (426.3) million
• Operating profit excluding non-recurring items increased to EUR 23.6 million (6.2 % of net sales) compared to previous year of EUR 17.9 million (4.2 % of net sales)
• Profit for the period amounted to EUR 21.0 (-18.1) million
• Gearing was 12.0 % (34.2 %)
• The equity ratio was 36.6 % (28.7 %)
• Return on capital employed (ROCE) was 8.1% (5.5 %)
• The Board of Directors proposes dividends of EUR 10.4 million to be paid for the financial year 2015

CEO Pekka Tennilä’s comments:

“I am glad to see that the transformation of Altia has clearly progressed in 2015 in accordance with the strategy. The short-term focus has been on pricing, procurement, supply chain efficiencies and overall cost management in all areas of the business. As a result profitability improved clearly with EBITDA at 10 % level. Despite major restructurings and impairment losses in 2013–2014, we are satisfied with the rapid recovery, strong balance sheet and the strengthening of all key balance sheet ratios.

Market conditions and net sales development continued to be challenging. However, the main part of the decline in net sales came from earlier strategic decisions on a focused portfolio significantly reducing number of products as well as discontinued contract manufacturing in Denmark. In addition exchange rates had a negative impact on reported sales. Nevertheless, we must continue to concentrate on our mid and long term initiatives to create sustainable growth for our brands and partner business. There are already good signs of this with increased activity and success with product development and launches as well as market share gains particularly in Finland.

We have done a lot of work with our core brand portfolio, such as renewing our Larsen and Renault cognac brands, and results have been encouraging. A New Koskenkorva Vodka concept along with new taste variants were launched for the first time at the Cannes Tax-Free fair. In Cannes, Koskenkorva Vodka received two gold medals at the Vodka Masters 2015 for Best Premium Vodka and Best Scandinavian Vodka out of 91 global competitors.

We also made big steps with our responsibility work: For example, the new bioenergy power plant at our Koskenkorva distillery reduced CO2 emissions by 35 % and increased fuel self-sufficiency of the plant from 20 % to 46 % during 2015. We made a Baltic Sea Action Group Commitment to promote sustainable agriculture. Our first organic grain spirit product, Rooftop Garden liquor was launched. It was also great to see good progress with our employee survey results compared to last year, showing that our people are motivated and supporting the transformation Altia is going through.

Investments in consumer understanding, market segmentation and new trends are helping us to create an even closer cooperation with our key customers and partners, enabling us together find sustainable value growth platforms in the Nordics and Baltics,” says CEO Pekka Tennilä.

Operating environment 2015

Consumers in the Nordic alcohol retail monopoly markets (Finland, Sweden and Norway) continued to favour lighter beverages with lower alcohol content. The sales of spirits have declined for a long time but, in 2015, the rate of the decline slowed down and the market even turned to growth in some markets. In the case of wines, the slowing down of sales growth and turn towards a decline - which were already seen in certain markets in 2014 - continued.

The Nordic markets for alcohol continue to be characterised by substantial cross-border trade between Finland and Estonia, Denmark and Germany and Sweden and Germany, due to considerable price differences between these countries. The importance of Estonia as a purchasing location for alcoholic beverages consumed by Finns turned to a decline according to statistics published by the National Institute for Health and Welfare in October 2015. According to Altia’s estimate, the main reason for the decline is the stricter instructions on passenger imports that took effect in the beginning of July 2014, as well as increased inspections by Finnish Customs as a result of these instructions. Increases in alcohol taxation in Estonia have also balanced the price differences between the two countries to some extent. The cross-border trade between Denmark, Sweden and Germany is also estimated to have declined slightly.

In the monopoly markets, unclear legislation is slowing down consumers’ shift to buying alcohol online. Nevertheless, e-commerce alcohol sales continue to grow, with the focus being on price-sensitive consumers and those looking for special products. In open markets, especially Denmark, e-commerce alcohol sales are seeing strong growth, both as part of the selection offered by traditional retailers’ online stores and on specialised alcohol retail websites.

The following table illustrates the trends in the total sales of alcoholic beverages in Finland, Sweden and Norway. The figures are based on the sales volumes (litre) published by the monopolies (Alko, Systembolaget and Vinmonopolet).

• In Finland, in spirits especially the sales volumes of spirits/vodka, brandy and cognac as well as liqueur were significantly lower compared to the previous year. In wines, red, white and fortified wines showed decline from the previous year, while the sales of rosé and sparkling wines continued to increase.
• In Sweden, the growth in the sales of spirits was particularly attributable to the increased sales of whisky, rum, liqueur and gin. In wines, especially the sales of fortified wine and red wine declined, while the sales of sparkling wine continued to see strong growth. The increase in the sales of rosé wine seen in previous years stalled and the product segment declined.
• In Norway, the decline in the sales of spirits was sharpest for cognac and brandy. Among wines, white wine sales declined the most, while the sales of sparkling wine continued to grow significantly.

According to Altia’s own estimates, the overall market changes in Estonia, Latvia and Denmark were not significant.

Financial performance

Altia Group’s net sales totalled EUR 380.7 million, which is EUR 45.6 million (10.7 %) less compared to the previous year (EUR 426.3 million). The decrease in net sales was partly attributable to the market environment, but it was also due to strategic changes to the product portfolio and lower volumes in contract services. Changes in exchange rates also had a negative effect on net sales.

Other operating income was EUR 10.0 (8.0) million, with the non-recurring items amounting to EUR 2.7 (0.5) million. Other operating income also included income of EUR 3.4 (3.6) million mainly from the sales of steam, energy, water and carbon dioxide, as well as rental income of EUR 0.7 (0.8) million.

Employee benefit expenses totalled EUR 54.7 (65.2) million, including EUR 42.7 (50.9) million in wages and salaries. Employee benefit expenses in the reporting period included an accrual for annual bonuses in the amount of EUR 3.6 (1.4) million.

Other operating expenses amounted to EUR 79.1 (84.1) million. During the financial year, the expense recognised for obsolete items and write-downs on inventory in the Group companies totalled EUR 2.4 (5.6) million.

Operating profit excluding non-recurring items increased by EUR 5.7 million year-on-year and amounted to EUR 23.6 (17.9) million. The operating profit margin excluding non-recurring items was 6.2 % (4.2 %).

The non-recurring items included in the operating profit for the reporting period (and the comparison period) were as follows:

Operating profit (loss) was EUR 25.3 (-18.6) million. The operating profit margin was 6.6 % (-4.4 %).

The sales of assets reported as non-recurring items comprised sales gains from the non-core assets, real estate and movable property. The restructuring expenses related to non-recurring employee benefit expenses as well as strategic changes to the product portfolio and resulting write-downs on inventory, which were completed in 2015.

The sales of assets reported as non-recurring items in the comparison period comprised gains from the sale of land areas. The restructuring expenses in the comparison period were related to strategic changes to the product portfolio and resulting write-downs on inventory, as well as non-recurring employee benefit expenses recognised following statutory co-operation negotiations. Significant impairment losses were recognised on goodwill and other intangible assets allocated, which relate to the new strategy and changes in expectations of future cash flows.

Net financial expenses decreased to EUR 2.8 (5.1) million, primarily due to the lower effective interest rate and a reduction in interest-bearing debt. The Group’s share of profits in joint ventures and associated companies amounted to EUR 3.8 (3.2) million.

Taxes for the review period were EUR 5.2 (-2.3) million, which corresponds to an effective tax rate of 20.0 % (11.2 %). More detailed information on Altia’s tax footprint is provided in the separate Responsibility Report.

The profit for the financial year showed a significant improvement and amounted to EUR 21.0 (-18.1) million.

Altia has defined benefit pension plans for supplementary pensions, and their assumptions with respect to inflation and interest rates were updated at the end of the reporting period. The remeasurement of pension plans had an effect of EUR 5.8 (-1.4) million on comprehensive income and equity.

Financing, liquidity and balance sheet

Net cash flow from operating activities totaled EUR 34.8 million (comparable amount in 2014: EUR 17.1 million). The amount of receivables sold at the end of the reporting period was at EUR 91.4 (101.7) million.

Altia repaid loans from financial institutions according to plan during the reporting period, by a total of EUR 60.2 million. The new EUR 30 million loan from a financial institution withdrawn in April 2015 is a non-current loan which matures in April 2020. The Group had no issued commercial papers at the end of the reporting period (2014: EUR 13.0 million). The Group’s liquidity reserve comprises a revolving credit facility of EUR 60.0 million as well as overdraft facilities of EUR 20.0 million. Both were unused on 31 December 2015. Altia Group’s liquidity position was good throughout the reporting period.

The Group’s interest-bearing net debt amounted to EUR 20.4 (49.3) million at year-end,
and gearing was 12.0 % (34.2 %). Equity ratio was 36.6 % (28.7 %).

The consolidated balance sheet total decreased to EUR 466.7 (501.5) million. This was primarily due to the amortisation of loans and the reduction of pension liability.

Strategy

In September 2014, Altia announced its new strategy which extends to the end of 2016. The focus of the strategy is on improving the business operations, competitiveness and profitability. In accordance with the strategy, during the reporting period the company focused on strengthening its core brands and partnerships, value creation, sales channel development and the continuous improvement of efficiency. Improving profitability was the primary objective for 2015.

The focus on core brands and partnerships was reflected in Altia’s marketing and product development activities in 2015. The company has continued to clarify its product portfolio and reduce the number of brands for its own products as well as partner brands.

Value creation is an important strategic objective for Altia. It is pursued by means such as continuous product development, pricing and packaging design. During the reporting period, Altia launched various premium and limited edition products. The company also launched new kinds of packages and product sizes to meet consumer and customer needs.

One of Altia’s strategic objectives is to build and develop first-class sales channels. The consolidation of sales organisations, which was implemented at the start of the strategy period, has produced good results in all of Altia’s operating countries. Altia has also developed and harmonised its processes to serve its customers more smoothly and with higher quality. The company has also invested in marketing within retail locations in those markets where it is possible.

The company continued its efforts to improve efficiency in 2015. Altia has been active in implementing measures to increase inventory turnover and production efficiency. Expenses have been reduced, for example, by increasing the efficiency of the supply chain and support functions.

In addition to alcoholic beverages, industrial products – starch, feed and technical ethanols – are an important part of Altia’s product range. Together with the alcohol business, they improve the efficiency of Altia’s raw material use and the utilisation of production and logistics capacity. The Koskenkorva bioenergy power plant, which began full-scale operations in January 2015, supports the increasingly sustainable manufacturing of Altia’s products and further improves the efficiency of raw material use.

The company will announce its new long-term strategy in 2016.

Events after the reporting period

Ms. Kirsi Lehtola has been appointed SVP Human Resources, and as a member of the Executive Management Team. She will take up her position on 1 April 2016.

Market outlook

The development of the Group’s business operations and profitability are affected by factors such as the market situation and competitive environment, economic outlook, passenger import and changes in the alcohol taxation. The uncertainty in the eurozone and changes in customers’ buying behaviour are continuing. There is still significant uncertainty related to the development of consumer demand. Sales in the sector are seasonal, with net sales and operating profit generally being significantly higher in the fourth quarter of the year compared to other quarters. Raw material prices and currencies are expected to remain volatile.

Outlook for the year 2016

The decline in net sales of alcoholic beverages is expected to be smaller than in 2015. Altia group net sales will also be affected by the discontinued contract manufacturing at the Svendborg site. Assuming market conditions do not deteriorate, operating profit excluding non-recurring items and relative profitability are expected to further improve from the year 2015.

Altia Plc

Board of Directors

Further information:

Pekka Tennilä, CEO

Matti Piri, CFO

Contacts via Altia Group Communications, tel +358 40 767 0867 and +358 400 728 957  

* Photo: Fabian Björnstjerna/Agent Bauer