Olvi Group's Interim Report, 1 January to 31 March 2020 (3 Months)

OLVI PLC                INTERIM REPORT 30 APR 2020 at 9:00 am

OLVI GROUP’S INTERIM REPORT, 1 JANUARY TO 31 MARCH 2020 (3 MONTHS)

Interim Report in brief

Olvi Group’s first-quarter sales volume, net sales and operating profit developed well. However, the measures taken to contain the spreading of the corona pandemic in almost all of Olvi’s home markets were already reflected in performance towards the end of the review period. Olvi Group’s financial standing is strong.

Near-term outlook

On 30 April, Olvi issued a separate release withdrawing its earnings guidance for 2020 due to uncertainty caused by the corona pandemic.

”The authorities have closed down a number of sales channels in many of Olvi’s main market areas, and in spite of increased retail sales, this imposes a challenge on predicting the development of profitability particularly within the next few months. Due to this, Olvi Group withdraws its earnings guidance for 2020.”

Consolidated key ratios

Business development
Lasse Aho, Managing Director:

Olvi Group’s business development was outstanding in comparison with the previous year. Sales volume and operating profit improved clearly in all home markets. Operating profit increased by more than 30 percent.

Sales channel restrictions caused by the corona pandemic started to impact Olvi’s business operations in the middle of March. All Olvi Group companies immediately initiated contingency measures to protect their personnel and production and to cut costs. Authorities in all of Olvi’s operating countries except Belarus started to restrict the movement of people, and a number of sales channels were closed. There were restaurant lock-downs, and passenger traffic came to an almost total halt, shifting demand to retail sales. Olvi has a strong position in retail sales in all of its home markets. 

All Group companies have started to rapidly adapt their operations to the new situation and to cut costs in order to maintain the best possible performance level. To safeguard the security of supply in a society-wide crisis, more production shifts have been introduced and inventory levels have been increased.

Business in Finland continued on the previous year’s favourable development trend. Sales volume, net sales and operating profit have clearly increased on the previous year. The demand for mild alcoholic beverages and the market position of Olvi’s brands have remained strong, particularly in beers and long drinks. Due to the corona pandemic, sales have shifted to retail outlets, and their volume growth has compensated for the closure of other sales channels. 

Good development of the Estonian market continued until the beginning of March. The alcohol tax cuts implemented in the previous year had a positive effect on domestic demand as well as on-board and harbour sales in Tallinn. Thanks to this, sales volume increased by more than 5 percent and net sales 8 percent on the previous year. The corona pandemic has had its most rapid impact in Estonia because the share of on-trade and cross-border sales is the highest across all of Olvi Group. Operating profit for the quarter declined slightly on the previous year. The company has executed rapid adaptation measures to control the changed situation.  

In Latvia, sales volume increased by almost 7 percent on the previous year. The company’s market share has improved in all of the main product categories, and sales development has outperformed the market. Due to the corona pandemic, on-trade and cross-border sales came to a halt in March also in Latvia. To compensate for this, the company has opened an online direct sales outlet with temporary permission from the government, as well as started the production of hand sanitiser, which has also been donated to local hospitals.

In Lithuania, sales volume has increased by 25 percent and net sales by 23 percent on the comparison period. Domestic demand for Volfas Engelman’s mild alcoholic beverages has become stronger. The sales of waters have also more than doubled, thanks to the company’s own mineral spring water plant. However, the strongest sales growth can be seen in exports, particularly to Russia. Thanks to good sales development, operating profit has improved by almost 60 percent on the previous year. The impact of the corona pandemic is not yet substantial in the first quarter, but on-trade sales restrictions in particular will have some impact on the good growth trend in the second quarter.

In Belarus, business development in the first quarter was very good. Both sales volume and net sales increased by 14 percent. Domestic demand grew stronger in beers, and particularly in all non-alcoholic product categories. Exports continued to grow as well. Thanks to good sales management, the company’s operating profit improved substantially, amounting to more than two million euro. The Belarusian government has not initiated any restrictive action concerning the corona pandemic for the time being. However, consumer behaviour has changed similarly to other countries, and on-trade sales have declined, for example. Uncertainties in the global economy have hampered the exchange rate of the Belarusian local currency against the euro when compared to the previous year.

Investments have been completed as planned during the review period. The focus has been in Finland, where preparations for the commissioning of a new production line and juicing facility have continued. An investment in a new production line has also been initiated in Belarus. Strategic growth investments within the Group will be completed as planned.  

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 in January-March increased by 11.5 percent to 153.2 (137.4) million litres.

Sales volume development in the beginning of the year was good across the entire Group. Stronger domestic demand and increased exports have been common factors for volume growth in the different markets.

The Group’s net sales in January-March increased by 9.8 percent and amounted to 84.6 (77.0) million euro. All of the markets were growing.

Earnings development

The Group’s operating profit in January-March stood at 7.8 (6.0) million euro, or 9.3 (7.8) percent of net sales. In the first quarter, Lithuania and Belarus in particular were able to substantially improve their earnings in comparison to the previous year. The earnings figure includes a provision of 0.3 million euro for potential credit losses and write-downs on inventories due to the corona pandemic.  

The Group’s January-March profit after taxes amounted to 5.4 (5.1) million euro. The weakened Belarusian exchange rate is reflected in financial expenses.

Earnings per share calculated from the profit belonging to parent company shareholders in January-March stood at 0.26 (0.25) euro per share.

Balance sheet, financing and investments

Olvi Group’s balance sheet total at the end of March 2020 was 398.5 (369.6) million euro. Equity per share at the end of March 2020 stood at 12.36 (11.69) euro. The equity ratio was 65.0 (66.4) percent and the gearing ratio was -3.6 (-2.4) percent. The current ratio, which represents the Group’s liquidity, remained unchanged at 1.2 (1.2). The most substantial factor affecting the change in consolidated working capital was the parent company’s partial discontinuation of receivables factoring at the beginning of the year.

Interest-bearing liabilities amounted to 13.5 (6.8) million euro at the end of March. Current liabilities made up 11.1 (4.9) million euro of all interest-bearing liabilities.

Olvi Group’s investments in extensions and replacements from January to March amounted to 9.2 (6.8) million euro. The companies in Finland accounted for 4.8 million euro, the Baltic subsidiaries for 2.2 million euro and Lidskoe Pivo in Belarus for 2.2 million euro of the total. Olvi Group has invested in increasing and diversifying its production capacity, as well as the modernisation of production facilities.

Personnel

Olvi Group’s average number of personnel in January-March was 1,829 (1,783). The Group’s average number of personnel increased by 46 people or 2.6 percent.

Olvi Group’s average number of personnel by country:

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

There were no changes in Olvi’s holdings in subsidiaries in January-March 2020.

Share-based payments

At the beginning of 2019, Olvi plc initiated a share-based incentive plan for key personnel, the performance period of which is from 1 February 2019 to 31 January 2021. Detailed information on the incentive plan is provided in Table 5, Section 4 of the tables attached to this interim report.

Business risks and their management

The corona pandemic currently imposes substantial business risks. Business development is difficult to predict. Olvi has evaluated a variety of scenarios and made preparations for responding to changing situations through a variety of measures, for example if the crisis is prolonged.

Even though the availability of raw materials and labour has been good so far, prolongation of the corona pandemic or substantial numbers of personnel falling ill may hamper production. Olvi has made preparations for production disruptions and drafted contingency plans concerning the availability of personnel and raw materials, among other things. Furthermore, substantial weakening of the currency exchange rate brings more uncertainty to Belarus.

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

Annual General Meeting

Olvi plc’s Annual General Meeting of 8 April 2020 adopted the financial statements and granted discharge from liability to the members of the Board of Directors and Managing Director for the accounting period that ended on 31 December 2019.

In accordance with the Board’s proposal, the General Meeting decided that a dividend of 1.00 (0.90) euro be paid on each A and K share for the accounting period 2019. The dividend according to the resolution accounts for 49.6 (45.7) percent of Olvi Group’s consolidated earnings per share. The dividend will be paid in two instalments. The first instalment of 0.50 euro per share will be paid on 8 May 2020 to shareholders registered in the register of shareholders held by Euroclear Finland Ltd on the record date 14 April 2020. The second instalment of 0.50 euro per share will be paid on 8 September 2020 to shareholders registered in the register of shareholders held by Euroclear Finland Ltd on the record date 2 September 2020.
 
The General Meeting decided that the Board of Directors shall have six (6) members. Pentti Hakkarainen, Lasse Heinonen, Nora Hortling, Elisa Markula, Päivi Paltola and Heikki Sirviö were re-elected to the Board of Directors. 
 
The authorised public accounting firm Ernst & Young Oy was re-elected the company’s auditor, with Elina Laitinen, Authorised Public Accountant, as auditor in charge.

All decisions made at the General Meeting can be found in the bulletin released on 8 April 2020.

Organisation of the Board of Directors

At its organising meeting held on 8 April 2020, the Board of Olvi plc elected Pentti Hakkarainen as the Chairman of the Board and Nora Hortling as the Vice Chairperson of the Board.

The Audit Committee consists of Lasse Heinonen, Päivi Paltola and Nora Hortling, and the Remuneration Committee consists of Pentti Hakkarainen, Heikki Sirviö and Elisa Markula.

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

*) Income taxes calculated from the profit for the review period.

Other reserves include the share premium account, legal reserve and other reserves.

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 2019.

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 31 March 2020 totalled 20,759 thousand euro.

Olvi plc’s shares will receive a dividend of 1.00 euro per share for 2019 (0.90 euro per share for 2018), totalling 20.7 (18.6) million euro. The dividend will be paid in two instalments. The first instalment of 0,50 euro per share will be paid on 8 May 2020. The second instalment of 0,50 euro per share will be paid on 8 September 2020. 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                                                                                   

The aim of Olvi plc’s share-based incentive plan is to combine the objectives of the shareholders and the key employees in order to increase the value of the company, to make the key employees committed to the company, and to offer them a competitive reward plan based on earning the company’s shares.

In 2019, Olvi plc initiated a new share-based incentive plan for key personnel, the performance period of which is from 1 February 2019 to 31 January 2021. The prerequisite for receiving reward is that a key employee purchases the company’s Series A shares up to the maximum number determined by the Board of Directors and that employment or service continues upon reward payment. Rewards will be paid partly in the company’s Series A shares and partly in cash in 2021. The cash proportion is intended to cover taxes and tax-related costs arising from the rewards to the key employees. The plan is directed to approximately 60 people.

In accordance with the share-based incentive plan, Olvi plc sold a total of 36,450 treasury shares to the target group members in 2019 for a price of 1,179,330.37 euro. From January to March 2020, costs associated with the plan were recognised for a total of 236.3 thousand euro. Olvi Group does not have any other share-based plans or option plans.

5. TREASURY SHARES       

Olvi plc holds a total of 11,549 of its own Series A shares. The total purchase price of treasury shares was 502,956.28 euro. Treasury shares held by the company itself are ineligible for voting. Series A shares held by Olvi plc as treasury shares represent 0.06 percent of all shares and 0.01 percent of the aggregate number of votes. The treasury shares represent 0.07 percent of all Series A shares and associated votes.

On 8 April 2020, 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-March 2020, Olvi has not received any flagging notices in accordance with Chapter 2, Section 10 of the Securities Markets Act.

12. 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.

The definition of gross margin is operating profit plus depreciation and impairment.

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).    

Attachment

• Olve072020