Oatly Group AB: FY2023 Form 20-F Summary
Business context and reporting period
Oatly Group AB is a Swedish producer and distributor of oat-based dairy alternatives, primarily oatmilk, sold through retail, foodservice and e-commerce channels in more than 20 countries. The filing is an annual Form 20-F for the year ended December 31, 2023, prepared under IFRS. The filing does not provide a separate, complete Q4 income statement; Q4 is discussed primarily through material strategic actions and impairment charges.
- Six production facilities were operating at year-end across EMEA, the Americas and Asia, with approximately 900 million liters of technically available finished-goods-equivalent oat-base capacity.
- Oatmilk represented approximately 90% of FY2023 revenue.
- Revenue mix: retail 61.1%, foodservice 34.6% and other channels, primarily e-commerce, 4.3%.
- Geographic revenue mix: EMEA 51.3%, Americas 32.0% and Asia 16.7%.
Key financial metrics
| US$ millions, except percentages | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | 783.3 | 722.2 | +8.5% |
| Gross profit | 152.1 | 80.0 | +90.0% |
| Gross margin | 19.4% | 11.1% | +8.3 pts |
| Operating loss | (457.0) | (396.0) | Worsened |
| Loss before tax | (408.2) | (397.4) | Worsened |
| Net loss | (417.1) | (392.6) | Worsened |
| Adjusted EBITDA | (157.6) | (267.9) | Improved |
| Net cash used in operating activities | (165.6) | (268.9) | Improved |
| Capital expenditures | (69.0) | (206.2) | Reduced |
| Free cash flow | (234.7) | (475.1) | Improved |
Revenue growth reflected pricing actions and volume growth in EMEA and the Americas, partly offset by lower Asia revenue following a strategic shift away from lower-margin retail and e-commerce products. Sold finished-goods volume increased 3.2% to 518 million liters. Foreign exchange reduced reported revenue growth by approximately $1.6 million; constant-currency revenue growth was 8.7%.
- Cost of goods sold declined 1.7% to $631.3 million, reflecting supply-chain efficiencies, the Asia reset, co-packer consolidation in the Americas and fewer one-time costs.
- SG&A declined 9.5% to $373.4 million, while R&D declined 5.5% to $21.0 million.
- Adjusted EBITDA remained negative despite improving by $110.4 million. EMEA generated adjusted EBITDA of $43.0 million, while the Americas, Asia and Corporate remained negative.
- Cash and cash equivalents were $249.3 million at December 31, 2023, including $170.0 million of short-term deposits.
- Total equity was $335.8 million, down from $791.1 million, primarily reflecting the annual net loss and other comprehensive loss.
Debt and liquidity
- Convertible Notes had a December 31, 2023 carrying value of $323.5 million and a contractual maturity obligation of $546.8 million, including capitalized interest assumptions. The notes bear a 9.25% coupon, mature September 14, 2028 and may be settled with cash or payment-in-kind interest, subject to applicable restrictions.
- Oatly issued $335 million aggregate principal amount of Convertible Notes in 2023: $300 million of original notes and $35 million of Hillhouse notes. Net proceeds from the financing transactions were approximately $325.0 million.
- Liabilities to credit institutions totaled $120.3 million, including approximately $117.5 million outstanding under the Term Loan B facility and $2.8 million under the EIF facility.
- The Term Loan B facility has a $130 million principal amount, carries interest at Term SOFR plus 7.5% or Base Rate plus 6.5%, and requires 1% annual amortization.
- The Sustainable Revolving Credit Facility had commitments of SEK 2.1 billion, equivalent to approximately $192.1 million, plus an uncommitted incremental facility option of up to SEK 500 million. No amounts were drawn at year-end.
- Management stated that cash and available credit commitments were sufficient to fund the current business plan for at least the next 12 months. However, the company continues to report substantial losses and negative operating cash flow and cautions that additional capital may be required if its operating plan changes.
Material changes versus the prior comparable period
- Revenue increased 8.5%, while gross margin expanded from 11.1% to 19.4%.
- Adjusted EBITDA and operating cash flow improved materially, but the reported net loss increased because of large impairment, restructuring and legal settlement charges.
- In Q4 2023, Oatly discontinued construction of production facilities in Peterborough, United Kingdom and Dallas-Fort Worth, Texas, consistent with its shift to a more asset-light production model.
- The company recorded $172.6 million of non-cash impairment charges and $29.0 million of other restructuring and exit costs related to the discontinued facilities. It estimated net cash outflows from these exit and restructuring costs of no more than $20 million over the following two fiscal years, after anticipated equipment-sale proceeds.
- Oatly entered into a long-term strategic partnership with Ya YA Foods. The Ogden, Utah facility was sold in March 2023, while Oatly retained oat-base production and entered into a ten-year co-manufacturing agreement.
- Headcount declined from 2,009 employees at December 31, 2022 to 1,548 at December 31, 2023. Average consultants increased from 402 to 452.
- Asia revenue declined 14.3% on a reported basis, while EMEA revenue increased 16.4% and Americas revenue increased 11.8%.
Guidance, outlook, management commentary, risks and unusual items
- Management expects 2024 net capital expenditures to be below $75 million, primarily for production-facility investments, maintenance and efficiency improvements.
- The company expects approximately 900 million liters of annualized oat-base capacity by the end of 2024.
- Management's strategy emphasizes profitable growth, pricing and mix management, supply-chain efficiency, overhead reduction, organizational simplification and increased use of co-manufacturing.
- Major risks include continuing losses, negative operating cash flow, high leverage, payment-in-kind interest, debt covenant compliance, potential dilution from convertible notes, reliance on co-manufacturers and key suppliers, oat and packaging price volatility, customer concentration, food-safety or recall events, geopolitical and currency risks, and uncertain demand for plant-based products.
- One foodservice customer represented approximately 12% of FY2023 revenue.
- The company recognized $9.25 million for a proposed settlement of securities litigation, subject to court approval. If the settlement does not become effective, the litigation may resume.
- Management and the independent auditor concluded that internal control over financial reporting was not effective at December 31, 2023. The remaining material weakness relates to inadequate performance and documentation of review procedures and insufficient evidence supporting the completeness and accuracy of information used in controls. The auditor issued an adverse opinion on internal control over financial reporting.
- Subsequent to year-end, Oatly amended its revolving and term-loan agreements to reset financial covenant levels and provide additional flexibility. The amended agreements also establish future leverage-covenant testing beginning with the period ending December 31, 2026.
- No dividend was declared or paid in 2023, and the company does not anticipate paying dividends in the foreseeable future.
Important facts for investors to verify
- Whether gross-margin improvements and EMEA adjusted EBITDA performance continue after pricing actions and one-time benefits fade.
- The pace of cash burn, progress toward positive operating cash flow and the sufficiency of $249.3 million of cash plus available credit facilities.
- Compliance with minimum EBITDA, liquidity, leverage and tangible-solvency covenants under the amended debt agreements.
- The cash cost and final outcome of the Peterborough and Dallas-Fort Worth facility exits, including equipment-sale proceeds and any further impairments.
- The extent of dilution risk from the Convertible Notes, including payment-in-kind interest and conversion-price resets.
- Execution of the asset-light model and the ten-year Ya YA Foods manufacturing arrangement.
- Progress in remediating the material weakness in internal control over financial reporting.
- The court approval and final cash payment obligations associated with the proposed $9.25 million securities-litigation settlement.
- Asia's strategic reset, customer concentration and the effect of competition, inflation and commodity prices on demand and margins.