From the CEO
CEO Pekka Tennilä in the Half-Year Report January-June 2019 (15 August 2019):
“We are pleased to see reported net sales growing by 2.7% to EUR 165.0 (160.6) million during the first half of 2019. In constant currencies, net sales grew by 3.5% compared to last year. In the second quarter, reported net sales grew by 4.7% to EUR 91.2 (87.1) million and in constant currencies by 5.4%. In the Scandinavia segment, growth in wine and price increases are contributing to net sales growth. We are especially pleased with the development in the Scandinavia segment in the second quarter with net sales growing by 7.8% in constant currencies. Also Altia Industrial’s net sales grew mainly driven by price increases following the high barley cost and good volume development.
Our cash flow from operating activities has improved in the second quarter and first half of the year as a result of measures taken to manage working capital more efficiently. In January–June, cash flow from operating activities was EUR -4.0 (-26.7) million.
In January–June, comparable EBITDA was EUR 13.7 (13.8) million and when excluding the impact from the adoption of the IFRS 16 standard comparable EBITDA was EUR 11.7 (13.8) million. The cost of barley, fx rates and the declining volumes in all the monopolies have negatively affected profitability development during the period. As an immediate action, we have implemented strict cost savings measures throughout the organisation.
As previously communicated, we are working on initiatives that support topline growth and create further efficiencies. Within revenue management, we made further price adjustments in both Finland and Norway in all categories in the second quarter. We have also proceeded with the optimisation of the alcohol by volume (ABV) levels of selected spirits products, and the first new products were introduced in the Finnish monopoly at the end of the second quarter. We are expanding with new innovations in growing categories and in grocery trade. Some of the recent novelties include for example Rum Ö, Explorer candy shots and Koskenkorva Ginger. On the efficiency side, we focus on consolidation and centralisation within procurement and further simplification of the supply chain. Also, we are working with SKU management focusing especially on non-profitable products.
The total wine and spirits volumes in all three monopolies declined during the first half of the year. Specifically in Finland the volume decline has not flattened out, as we previously have anticipated, rather the decline of 3.5% is steeper than in the same period last year. The wine markets have also declined in the Swedish and Norwegian monopolies, while we see a more positive development in spirits in both countries.
The Koskenkorva distillery was included on the list of the most interesting and inspiring companies in the circular economy compiled by the Finnish future fund Sitra – we use 100 per cent of the barley used as a raw material in our distillery. With the Green Company of the Year award received in 2018, this shows that we are the frontrunners in the industry. Sustainability is important for Altia and for our brands such as Koskenkorva Vodka, and we will continue to build on this strength both in our home markets and in exports.
The passenger imports of spirits from the Baltics to Finland have been increasing. Following the successive decisions by the Estonian and Latvian governments to decrease alcohol taxes, it is expected that passenger imports will continue to increase. The Finnish government’s plans to further increase excise taxes in Finland would accelerate the decline of domestic alcoholic beverage sales volumes, and consequently jeopardise the industry’s capacity to invest in international growth.
The latest grain harvest forecast expects the total harvest to exceed last year’s volumes, and the outlook for the barley harvest is also positive compared to last year. The high barley cost continues to put pressure on Altia’s profitability until the new harvest this autumn. The harvesting period has started but the quality of the harvest will be clarified at the end of the third quarter.
We repeat our guidance for 2019. We expect the comparable EBITDA to improve from the 2018 level. The guidance assumes a normal barley harvest, a flattened out market development in Finland, and growing markets in Sweden and Norway. In addition, the impact from the implementation of the new IFRS 16 standard is expected to improve comparable EBITDA by EUR 3-4 million.”