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Oatly reorganizing as losses mount

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MALMO, SWEDEN — A week after Beyond Meat, Inc. said it was pivoting to improve business performance, Oatly Group AB has announced its own pivot. After weak results in the third quarter, the company is moving to a “hybrid” manufacturing model and reducing costs in its Europe, Middle East and Africa (EMEA) region through cost and workforce reductions.

“This reset plan involves two fundamental screens – adjusting our supply chain network strategy and simplifying the organizational structure,” Toni Petersson, CEO, said on a November 14 conference call to discuss third quarter results. .

As part of the supply chain reset, Mr Petersson said Oatly was simplifying its strategy by focusing investment on the company’s oat-based technology and capacity and was in active talks with manufacturing partners to establish a hybrid production model.

“This shift to a more hybrid network should significantly reduce our future capital expenditures and positively impact our cash flow outlook,” he said.

The second pillar of Oatly’s plan will involve reducing overhead and headcount in EMEA, impacting costs by up to 25%. The company did not provide specific details about the reorganization.

“In doing so, we anticipate annual savings of up to $25 million from the reorganization, which is expected to take effect from the first quarter of 2023,” Petersson said. “We have identified additional opportunities across the rest of the organization from which we expect up to $25 million in incremental annual savings in the first half of 2023.”

For the quarter ended Sept. 30, Oatly posted a loss of $108 million, significantly higher than the $41.2 million loss the company incurred in the third quarter of fiscal 2021.

Quarterly sales reached $183 million, compared to $171 million the previous year.

Items affecting quarterly results included issues at Oatly’s Ogden, Utah, manufacturing plant that cut production, COVID-19 restrictions in Asia and $16.6 million in foreign exchange costs.

“The volume sold for the third quarter of 2022 amounted to 126 million liters compared to 110 million liters last year, an increase of 14.5%,” said Christian Hanke, chief financial officer. “We saw broad-based growth with 7% sales volume growth in EMEA, 17% growth in (the) Americas and 38% volume growth in Asia.”

Securities analysts on the call pressed Petersson about the pivot to the hybrid manufacturing model.

“Fundamentally we will need more capacity to support growth,” he said. “It gives us the flexibility to increase capacity more quickly.”

He added that building a manufacturing plant is a “heavyweight” and moving to a hybrid model will allow the company to focus more on innovation, branding and sales.

“Second, the availability of strategic co-packers is easier to come by now than before since we have both scale and growth,” Petersson said. “So that means we have more qualified partners to work with in terms of food safety, quality and security of supply.”

Oatly cut its sales outlook for the rest of the year to sales of between $700 million and $720 million, an increase of 9% to 12% over fiscal 2021 sales.

“For fiscal 2022, we are lowering our outlook primarily to reflect COVID-19 pressures negatively impacting sales in Asia, operational challenges in Americas limiting our ability to accelerate sales momentum, and headwinds currency issues,” Petersson said. “We believe these challenges are transitory and that we have significant growth opportunities as these headwinds subside. In the meantime, we have taken steps to adjust our supply chain network strategy and simplify our organizational structure for a more balanced growth equation going forward.”

The operational challenges in the Americas were related to manufacturing issues at the Ogden plant that caused a production line to be shut down for approximately three weeks.

“That has since been resolved or production is stabilizing, so we can start to replenish inventory, but that has impacted the third quarter and will also impact the volumes we can sell in the fourth quarter, which is the main driver of our guidance update,” said Petersson.

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