Oatly Group AB — FY2022 Form 20-F Summary
Business context and reporting period
Oatly is a Sweden-based global producer of oat-based dairy alternatives, including oatmilk, yogurt, frozen desserts, cooking products, spreads and ready-to-drink beverages. The filing covers the fiscal year ended December 31, 2022, prepared under IFRS as issued by the IASB. The filing is an annual Form 20-F rather than a standalone Q4 report.
- Products were sold in more than 20 countries and over 200,000 retail and foodservice locations.
- Oatly operated six production facilities at year-end and had additional facilities under construction or planning.
- Oatmilk represented approximately 89% of revenue; retail, foodservice and e-commerce represented approximately 58.4%, 36.0% and 5.6% of revenue, respectively.
Financial performance and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $722.2 million | $643.2 million | +12.3%; +20.1% at constant currency |
| Finished goods sold volume | 502 million liters | 421 million liters | +19.2% |
| Gross profit | $80.0 million | $155.0 million | -48.4% |
| Gross margin | 11.1% | 24.1% | Down 13.0 percentage points |
| Operating loss | $396.0 million | $213.7 million | Loss increased |
| Net loss | $392.6 million | $212.4 million | Loss increased |
| Adjusted EBITDA | $(267.9) million | $(147.0) million | Loss increased |
| Operating cash flow | $(268.9) million | $(213.8) million | Cash use increased |
| Capital expenditures | $201.7 million | $273.8 million | Lower year over year |
| Cash and cash equivalents | $82.6 million | $295.6 million | Down $212.9 million |
| Debt to credit institutions | $52.6 million | $6.0 million | Increased |
Basic and diluted loss per share was $0.66 in 2022 versus $0.39 in 2021. Total assets were $1.225 billion and equity attributable to shareholders was $791.1 million at December 31, 2022. Lease liabilities totaled $99.1 million. Inventory increased to $114.5 million, including $28.8 million of inventory write-downs during the year.
Revenue increased in all regions: EMEA revenue was $345.5 million, Americas revenue was $223.9 million and Asia revenue was $152.8 million. At constant currency, revenue increased 15.5% in EMEA, 24.5% in the Americas and 25.8% in Asia. One foodservice customer represented approximately 14% of total revenue.
Material changes versus the prior comparable period
- Revenue growth was driven by volume increases and price increases in EMEA and the Americas, but reported growth was reduced by a $50.0 million foreign-exchange headwind.
- Gross margin deteriorated materially because of inflation in raw materials, packaging, freight, warehousing and energy; COVID-19-related shutdowns and facility underutilization in China; ramp-up challenges at Ogden; inventory provisions and scrap; and co-packer volume adjustments.
- Cost of goods sold increased 31.6%, substantially faster than revenue, to $642.2 million.
- Selling, general and administrative expense increased 16.6% to $412.8 million, reflecting higher headcount, share-based compensation, distribution costs, marketing and severance costs.
- Oatly recorded $38.3 million of impairment related to assets classified as held for sale in connection with the Ya YA Foods transaction, plus other related costs of approximately $1.3 million.
- Operating cash use increased while cash balances declined substantially after the company funded production-capacity investments and no longer held the $249.9 million of short-term investments reported at year-end 2021.
- Headcount increased from 1,615 to 2,009 employees, although the company initiated a restructuring and reduction in force during the fourth quarter.
Liquidity, debt and financing
At December 31, 2022, Oatly had $82.6 million of cash and cash equivalents and reported approximately $315.6 million of undrawn bank facilities in the operating review. Management stated that available liquidity was sufficient for the existing business plan for at least the following 12 months, while also warning that additional capital may be required if operating conditions or the business plan change.
Subsequent to year-end, Oatly completed a significant refinancing. In March and April 2023, it issued $300 million of 9.25% Convertible Senior PIK Notes due 2028, receiving $291 million of proceeds. In April 2023, it also entered into a $130 million Term Loan B facility and amended its revolving facility to commitments of SEK 2.1 billion, equivalent to approximately $201 million, plus an uncommitted incremental option of up to SEK 500 million. The new financing includes financial and negative covenants and creates potential dilution from conversion of the notes.
Guidance, outlook, commentary and unusual items
- Management expects inflation to continue pressuring cost of goods sold in 2023, partly offset by improved facility utilization, pricing actions and supply-chain improvements.
- Oatly expected 2023 net capital expenditures of approximately $180 million to $200 million for new facilities, maintenance and efficiency investments.
- Management expected up to $25 million of gross annual savings from organizational and fixed-cost actions beginning in the first quarter of 2023, plus up to $25 million of additional annual gross savings beginning in the first half of 2023. The filing states that much of the savings would be reinvested in growth and market expansion.
- The company shifted toward a more asset-light and hybrid manufacturing model. On March 1, 2023, Ya YA Foods acquired most operating assets related to the Ogden and Dallas-Fort Worth facilities and assumed related leases, while Oatly retained its proprietary oat-base production assets and entered into a ten-year co-packing arrangement.
- Oatly cited COVID-19 restrictions, especially in China, the Russia-Ukraine war, higher energy and transportation costs, supply-chain disruption, equipment lead times, labor absenteeism and raw-material inflation as material operating pressures.
- In July 2022, co-packer Lyons Magnus initiated a precautionary recall involving certain Oatly products. Oatly terminated future business with Lyons Magnus and stated that the recall did not have a material effect on FY2022 results.
- The company did not declare or pay dividends and does not anticipate paying dividends in the foreseeable future.
Principal risks and contingencies
- Continued large operating and cash losses, substantial capital needs and dependence on external financing create liquidity and going-concern risk.
- Oatly reported material weaknesses in technology access and change controls, documented business and entity-level controls, and segregation of duties. Management concluded internal control over financial reporting was ineffective at December 31, 2022, and Ernst & Young issued an adverse opinion on internal control.
- Supply concentration, oat availability, agricultural conditions, commodity prices, packaging costs and energy prices could materially affect production and margins.
- Production ramp-up, facility construction, co-packer dependence and the execution of the Ya YA Foods partnership could affect capacity, cost structure and customer service.
- Food-safety incidents, recalls, product-liability claims and regulatory enforcement could damage the brand and create unplanned costs.
- Competition from conventional dairy, branded plant-based products and private-label products may increase pricing and promotional pressure.
- One foodservice customer represented approximately 14% of FY2022 revenue, creating customer concentration risk.
- Oatly is subject to pending U.S. securities litigation. The ultimate outcome and potential loss were not estimable from the filing.
- The company faces foreign-exchange, interest-rate, credit, liquidity, refinancing, cybersecurity, geopolitical, regulatory and sustainability-related risks.
Most important facts for investors to verify
- Whether revenue growth can translate into improved gross margin and reduced operating cash burn.
- The 2023 utilization, timing and economics of the production network, including the Ya YA Foods arrangement and planned facilities.
- Compliance with financial covenants and the sufficiency of cash, revolver availability and refinancing proceeds under downside scenarios.
- The terms, interest capitalization, conversion resets and potential dilution associated with the $300 million convertible notes.
- Progress in remediating the material weaknesses and whether future filings report effective internal control over financial reporting.
- The status and potential financial exposure of the pending securities litigation and other legal, recall or regulatory matters.
- Whether pricing, procurement and cost-reduction actions offset inflation, freight, energy, labor and raw-material pressures.