From the CEO
CEO Pekka Tennilä in the Business Review January-March 2020 (29 April 2020):
“The outbreak of the COVID-19 turned into a global pandemic with governments issuing strict restrictions on the movement of people and policies for social distancing. This is affecting our operating environment and ways of working in a very significant way. Our key priorities now are the health and safety of our employees and business continuity. We are following the recommendations and instructions from the governments and health authorities of the countries we operate in. Those of our employees who have the possibility to work remotely have been doing so since mid-March. At the production facilities where personnel is needed on-site, we have further strengthened the hygiene measures and routines. As a company, our important contribution to the society in these exceptional times is providing denatured ethanol for hand sanitizers to critical fields such as the medical and healthcare sectors. I am very proud of our employees who make all this possible and we will continue to deliver as much denatured ethanol as possible to the critical sectors in terms of security of supply. In addition, we are continuously in close contact with our partners and suppliers to ensure the availability of products and raw materials – so far all our operations have run without any major disruptions. Due to the crisis, travel retail and on-trade channels, which account for about 20% of Altia’s consumer beverage sales, have been close to zero since mid-March.
During the first quarter of 2020, Altia’s net sales declined by 6.0% in constant currencies. The decline was due to the phasing of Altia Industrial’s contract manufacturing volumes and the barley price normalising after the previous year’s high price level. In the Finland & Exports segment, net sales declined despite the higher volumes in the monopoly channel in the first quarter. The decline was driven by the closing of travel retail and on-trade channels. In the Scandinavia segment the good development from last year has continued and in constant currencies net sales grew by 6.7%. The higher monopoly volumes in March have offset the decline in on-trade. We see a negative impact from the weak SEK and NOK, and the business transfer in Denmark last year.
Profitability improved in the first quarter compared to the previous year. At the initial phase of the outbreak of COVID-19 we saw a positive impact related to channel mix and exceptionally high volumes of denatured ethanol for hand sanitizers. In addition, the normalisation of the barley price has impacted profitability positively. Comparable EBITDA was EUR 5.5 (4.3) million, which is 8.1% (5.8%) of net sales.
As of the second quarter, we will face the full impact of the crisis in our operations. We assume the travel retail, exports and on-trade channels to be at or close to zero in the second quarter. We have seen consumers shifting their purchases of alcoholic beverages to the monopolies, but this will not compensate the shortfall. As a response to the changes in our operating environment, we have taken measures to adjust our cost structure. We have frozen marketing activities in closed sales channels and have implemented strict cost saving measures in all functions. We are also implementing temporary lay-offs or part-time work in Finland, Sweden and Norway. In the second quarter, we are focusing our sales and marketing efforts on the open sales channels with our digital platforms Viinimaa in Finland and folk-o-folk in Sweden playing an increasingly important role.
The liquidity position of the Group has remained stable throughout the crisis. We are pleased that we have had good access to funding in the challenging debt market. We will continue to focus on securing the liquidity during the upcoming months.
Looking beyond the crisis, we are continuing to implement our strategy and are focusing on selected strategic choices. In innovations we concentrate on executing monopoly tenders, creating novelties for the growing gin, liqueur and rum categories as well as developing low-alcoholic beverages for the grocery trade. In packaging development, we are working towards our long-term target of making all packaging 100% recyclable.
Visibility for the rest of the year is poor and forecasting the COVID-19 impacts on the operating environment reliably is difficult. Therefore, we are suspending our guidance for 2020. We will provide a new guidance if the visibility improves and the impacts of COVID-19 on Altia’s operating environment and business conditions can be assessed in a reliable manner.”