Incredibly weak? I don’t understand what is so incomprehensible about strong international brands taking most of the market. For example, what soft drinks does Koff have if you don’t count the Coca-Cola Company’s products? Exactly.
In my opinion, it is exactly the right move to start renewing the soft drink brand and start challenging those big giants locally. Olvi can achieve a completely different level of gross margins with those than Koff/Hartwall, as they own the brands themselves. When a company emphasizes a growth strategy for non-alcoholic products, it must also be executed. Good job, Olvi!
Well, Muumit (Moomins) and Smurffit (Smurfs) come to mind first, which are also found in S-Group. Olvi Cola has been missing, and at least in some Prismas, Kane’s have completely disappeared from the selection. What’s left is… nothing.
Last year’s promotional campaign for Jolly Cola did manage to spread widely, and the newly launched Juju series seems to have comprehensive distribution.
But even just Laitila and Nokian Panimo have beaten Olvi 10-0 in the soda category at S-Group stores.
“Manufacturing” soft drinks at a factory doesn’t require massive equipment compared to, say, beer or milk. If I recall correctly, the concentrate and water are mixed and carbonation is added in a single machine before the bottling line. So it is certainly possible that Olvi now has enough logistics space and loading capacity for a major brand. The concentrate would then be the major brand’s proprietary product, delivered by tanker truck.
The result fell short of expectations. “Operating profit decreased by 14.5 percent from the comparison period and was EUR 10.6 (12.4) million. The decrease was due especially to the weakening of the Danish operating profit. In addition, operating profit was burdened by depreciation resulting from the allocation of acquisition costs compared to the previous year. The operating profit of the new subsidiaries was negative overall due to, among other things, acquisition costs and high costs relative to a sales-wise low quarter.”
Revenue was about as expected, but Belarus generated about EUR 5 million more sales than expected, and elsewhere it was softer. So, the structural development in this area was undesirable.
“Beverage company Olvi’s operating profit in January–March was EUR 10.6 million. The result fell short of the analyst consensus compiled by FactSet, which expected an operating profit of EUR 13.9 million.
The company’s revenue during the review period was EUR 148 million, which exceeded the EUR 146 million forecast by analysts tracked by the Factset database. The operating profit margin settled at 7.2 percent.”
The report was very soft. EPS compared to the prior-year period was -40%. The problems in Denmark still haven’t been resolved, and there are no signs of a quick improvement. The outlook was kept unchanged, even though there is no information on the completion of the Värska deal. Without Belarus, the result would look even worse.
On the positive side, Q1 is not a significant quarter for the company, but in the coming quarters, a similar performance simply won’t be enough anymore.
On the other hand, upcoming quarters face uncertainty from consumer demand and the rise in material and logistics costs caused by the war in Iran. Additionally, the integration of M&A activities will cause extra costs.
All the more so, since Q1 included Easter sales unlike last year, and conversely, they will be absent from Q2 unlike last year.
I am currently concerned about the impact of the situation in Iran on the availability and cost development of cans for breweries. And on the other hand, the relative position of breweries if potential problems arise. Olvi’s strength is, of course, its large size, which is an advantage for security of supply. On the other hand, the low price point of the products means that when prices rise, the can eats into the margin disproportionately much, unless the costs can be easily passed on to selling prices.
OP lowered Olvi’s target price from 34 euros to 33 euros, but due to the share price drop, changed its recommendation to “add” (previously “reduce”).
Earlier, OP predicted Olvi would reach the mid-point of its guidance, but now expects it closer to the lower end with a result of 84.8 MEUR. OP’s earnings expectation thus decreased by 3.4 MEUR. At the same time, the quality of the result was weakened as the Belarusian businesses are expected to generate 1.5 MEUR less in earnings.
While the “best” quality of both Sandels and all the other bulk beers on the list is always open to debate, the results speak volumes about brand power and competitiveness.
According to OP Pohjola analyst Matti Kaurola, non-alcoholic products represent Olvi’s most important long-term source of growth.
Consumption of traditional beer in Finland has long been flat or declining, while the market for non-alcoholic beers, soft drinks, and waters has grown by about five percent per year during good years.
Acquisitions also support this development.
For example, the acquisition of the Estonian Värska Originaal will, once completed, increase Olvi’s non-alcoholic product volume by approximately ten percent.
Olvi’s figures from the beginning of the year support this same trend.
In Finland, sales grew in both alcoholic and non-alcoholic products, with energy drinks and hard seltzer products performing particularly well.
Subheadings:
Summer weather may once again be a deciding factor
Acquisitions promise growth, but Denmark weighs on performance
