Core Insights - Oatly Group AB is a Swedish company that has transformed the milk industry by introducing the first creamy and barista-friendly oat-based milk alternative, which has achieved commercial success [1] Company Overview - Oatly Group AB trades on NASDAQ under the ticker OTLY and specializes in oat drinks [1] - The company has faced a decline in its stock price despite its innovative product offerings [1] Investment Perspective - The investment approach emphasizes long-term value investing, focusing on undervalued quality businesses with strong fundamentals [1] - The analysis is influenced by the principles of Warren Buffett, prioritizing companies with solid business models and sustainable growth [1]

Company Overview - Oatly has achieved a significant improvement in profitability, moving its earnings into the black and potentially pushing free cash flow positive [1] Market Context - The equity market serves as a powerful mechanism for wealth creation or destruction over the long term, with daily price fluctuations contributing to this dynamic [1] Investment Focus - Pacifica Yield aims to pursue long-term wealth creation by focusing on undervalued yet high-growth companies, high-dividend stocks, REITs, and green energy firms [1]

Core Insights - OATLY is undergoing a strategic review of its Greater China operations, considering various options including potential divestiture, after seven years in the market [1][4] - The company reported a 3% revenue growth in Q2, but the Greater China segment experienced a 6.4% decline in revenue year-on-year [2][5] Financial Performance - In Q2 2025, OATLY's Greater China revenue was $27 million, continuing a trend of declining growth since 2020, while the first half of the year showed a 12.5% increase to $56.95 million [2] - The adjusted EBITDA for the Greater China segment showed a loss of $636,000, marking five consecutive years of unprofitability [2] Market Dynamics - Approximately 62% of OATLY's revenue in Greater China is still reliant on the food service channel, which is currently under pressure, although retail channel growth has partially offset this decline [2][3] - The plant-based market in China has shifted from initial hype to a cooling phase, with significant competition from local brands impacting OATLY's market share [3][5] Competitive Landscape - OATLY faces increasing competition from local brands such as Yili, Mengniu, and Vitasoy, and ranks fourth in the Tmall plant-based beverage repurchase list [3] - Market analysts attribute the decline in OATLY's performance to factors such as waning consumer interest, high product prices, and the rise of domestic brands [3] Strategic Options - Three potential paths for OATLY's Greater China operations have been suggested: exiting the market, forming partnerships with local brands, or operating independently [4] - CEO Jean-Christophe Flatin indicated a preference for the independent operation route, emphasizing the need to maximize value after restructuring [4][7] Operational Capabilities - OATLY has established a fully localized team and R&D center in China, significantly shortening the product development cycle to respond to market changes [4][7] - The company has successfully penetrated both B2B and B2C markets, with its products being used to create approximately 1.4 billion cups of oat lattes since entering the market [6][7] Market Share - OATLY holds a 62.9% market share in the Chinese oat milk market, reflecting a growth of over 10 percentage points year-on-year, despite the challenges faced [5][6]

Group 1 - Yanghe Co. elected Gu Yu as the chairman of the board, with the term consistent with the current board's term [1] - FrieslandCampina reported a 6.4% increase in revenue to €6.847 billion, with a net profit of €230 million, driven by a 19.1% rise in milk prices [2] - OATLY's revenue for the first half of the year was $406 million, a 1.1% increase, while the Greater China region saw a 12.5% growth [2] - Yanzhi House expects a net profit of approximately ¥72 million to ¥81 million for the first half of 2025, a year-on-year growth of 20% to 35% [3] - Angel Yeast plans to acquire 55% of Shengtong Sugar Industry for a transaction amount of ¥506 million [4] - Nestlé's sales for the first half of 2025 were CHF 44.2 billion, with a 1.8% decline attributed to currency fluctuations [5][6] Group 2 - Anji Food completed the acquisition of 70% of Dingwei Thai and 100% of Dingyifeng, integrating them into its consolidated financial statements [7] - Coca-Cola reported a net revenue of $12.5 billion for Q2 2025, a 1% year-on-year increase [7] - Yuanji Cloud Dumplings announced the opening of franchises in Singapore, marking its first step in overseas expansion [8] - Starbucks introduced self-study rooms in some Guangdong stores, planning to explore more "interest-oriented" spaces in the future [9] - Cotton Password stated that under normal usage conditions, the residue of thiourea in their sanitary napkins does not pose a health risk [10] - Sam's Club responded to claims of organic soybean quality downgrade, stating the new high-protein soybeans still meet the first-grade standard [11] - Donglai Yu announced that 50% of the production of Jiugui Ziyouai will be allocated to support enterprises, with accelerated development of milk powder and dairy products [12]

Core Viewpoint - OATLY has initiated a strategic review of its operations in the Greater China region, considering the possibility of independent operation to accelerate growth and maximize value [1][12]. Group 1: Company Background and Market Entry - OATLY, founded in 1994, specializes in oat milk production and initially struggled to gain traction until a brand repositioning in 2012 [2][3]. - The company entered the Chinese market in 2018, leveraging support from its shareholder, China Resources, to establish a foothold [2][3]. Group 2: Growth and Performance - OATLY experienced rapid growth in China, achieving a market share of 62.9% in the oat milk sector as of mid-2023, with a year-on-year increase of over 10 percentage points [7]. - Revenue figures for OATLY in Greater China from 2020 to 2024 show a growth trajectory, with 2023's first half revenue reaching $56.95 million, a 12.5% increase year-on-year [9]. Group 3: Strategic Challenges and Market Dynamics - The decision to review operations in Greater China comes amid concerns over market uncertainties and competitive pressures, as seen with other foreign brands like Starbucks and Häagen-Dazs [1][13]. - OATLY's pricing strategy has been affected by local competition, leading to a significant reduction in prices, which may dilute its premium brand positioning [16][17]. Group 4: Future Outlook - Analysts suggest that OATLY's potential separation from the Greater China market reflects a cautious approach to a market that has not met profitability expectations compared to other regions [13][17]. - The company has halted plans for a second factory in China, indicating a shift in focus and possibly a reassessment of growth strategies in the region [17].

Core Viewpoint - OATLY is undergoing a strategic review of its Greater China operations due to declining revenue and continuous net losses since 2020, with a potential divestment being considered to accelerate growth and maximize business value [1][2]. Financial Performance - In Q2 2025, OATLY reported a revenue increase of 3% to approximately $208 million, with a gross margin improvement of 3.3 percentage points to 32.5%. However, the net loss attributable to shareholders was approximately $55.9 million, an increase of $25.5 million compared to the same period last year [1]. - Revenue from the Greater China region decreased by 6.4% to $27 million in Q2 2025, down from $28.8 million in the same quarter of the previous year, primarily due to a decline in sales through the food service channel [1][4]. Strategic Review and Market Position - OATLY has initiated a strategic review of its Greater China business, which may include options such as divestment to enhance growth and value realization [1][2]. - The company continues to operate in the Greater China market during the evaluation period, maintaining its production facilities and commitment to customers, consumers, and employees [2]. Market Challenges - The transition from B2B to B2C has proven challenging for OATLY, as the oat milk segment remains a niche market in China, facing competition from local brands and higher price points compared to dairy products [3][5]. - The market for plant-based beverages in China has shown signs of cooling, with a shift from initial consumer enthusiasm to more rational demand, compounded by rising competition from local brands [5][6]. Revenue Composition - Approximately 62% of OATLY's revenue in Greater China in Q2 2025 came from the food service channel, down from 70% in the previous year, indicating a shift in revenue sources [4].

Core Viewpoint - OATLY is considering a strategic review of its Greater China operations, which may include divesting this segment to accelerate growth and maximize business value [4][5][10] Financial Performance - OATLY's revenue for Q2 2025 increased by 3% to approximately $208 million, with a gross margin improvement of 3.3 percentage points to 32.5% [3] - The net loss attributable to shareholders was approximately $55.9 million, an increase of $25.5 million compared to the same period last year [3] - In Greater China, revenue decreased by 6.4% to $26.976 million, down from $28.8 million in the same quarter last year [3][4] Strategic Review - The strategic review of the Greater China business will consider various options, including potential divestiture, to enhance growth and value [4][5] - OATLY continues to operate in the Greater China market during this review, maintaining its production facilities and commitments to customers, consumers, and employees [4][5] Market Dynamics - OATLY has faced increased competition in the plant-based beverage market in China, with numerous local brands emerging [7][8] - The company initially struggled to penetrate the market but found success by positioning its products in coffee shops, leading to significant brand recognition [6][7] - The plant-based beverage market in China is experiencing a slowdown, with consumers becoming more price-sensitive and local brands capturing market share [9][10] Future Outlook - Analysts suggest that OATLY's ability to innovate and adapt is crucial for its success in the increasingly competitive market [10] - The company must evaluate its performance in 2025 before making final decisions regarding the Greater China operations [10]

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company reported revenue growth and a net loss for Q2 and H1 2025, with a slight decrease in total assets and cash as of June 30, 2025 [Consolidated Statement of Operations](index=4&type=section&id=Interim%20condensed%20consolidated%20statement%20of%20operations) Oatly's Q2 2025 revenue increased 3.0% with improved gross profit and narrowed operating loss, but higher finance expenses led to an increased net loss Statement of Operations Highlights (in thousands of U.S. dollars) | Metric | Q2 2025 | Q2 2024 | Change | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | 208,354 | 202,195 | +3.0% | 405,884 | 401,350 | +1.1% | | **Gross Profit** | 67,625 | 58,956 | +14.7% | 129,955 | 112,854 | +15.2% | | **Operating Loss** | (22,116) | (39,079) | -43.4% | (40,707) | (67,492) | -39.7% | | **Loss for the period** | (55,946) | (30,441) | +83.8% | (68,477) | (76,285) | -10.2% | | **Basic and diluted EPS ($)** | (0.09) | (0.05) | - | (0.11) | (0.13) | - | [Consolidated Statement of Financial Position](index=6&type=section&id=Interim%20condensed%20consolidated%20statement%20of%20financial%20position) As of June 30, 2025, Oatly's total assets slightly decreased, cash and cash equivalents declined, while total liabilities increased primarily due to Convertible Notes, leading to a decline in total equity Financial Position Summary (in thousands of U.S. dollars) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | 803,055 | 803,980 | | Cash and cash equivalents | 67,931 | 98,923 | | **Total Liabilities** | 706,336 | 697,857 | | Convertible Notes | 328,981 | 324,395 | | **Total Equity** | 96,719 | 106,123 | [Consolidated Statement of Cash Flows](index=8&type=section&id=Interim%20condensed%20consolidated%20statement%20of%20cash%20flows) For H1 2025, net cash used in operating activities significantly decreased, while investing activities shifted to an outflow, resulting in an overall decrease in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands of U.S. dollars) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash flows used in operating activities | (15,005) | (86,013) | | Net cash flows (used in)/from investing activities | (10,220) | 858 | | Cash flows used in financing activities | (8,151) | (20,213) | | **Net decrease in cash and cash equivalents** | **(33,376)** | **(105,368)** | [Notes to Financial Statements](index=9&type=section&id=Notes%20to%20the%20interim%20condensed%20consolidated%20financial%20statements) Key notes detail segment performance, financing arrangements including significant debt from Convertible Notes and a Term Loan, and commitments such as minimum purchase obligations Revenue by Segment - Six Months Ended June 30 (in thousands of U.S. dollars) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Europe & International | 225,858 | 215,948 | | North America | 123,071 | 134,786 | | Greater China | 56,955 | 50,616 | | **Total** | **405,884** | **401,350** | Revenue by Channel - Six Months Ended June 30 (in thousands of U.S. dollars) | Channel | 2025 | 2024 | | :--- | :--- | :--- | | Retail | 262,567 | 251,371 | | Foodservice | 133,823 | 135,829 | | Other | 9,494 | 14,150 | | **Total** | **405,884** | **401,350** | - Oatmilk accounted for **91%** of the Group's revenue in the six months ended June 30, 2025, up from **89%** in the same period in 2024[37](index=37&type=chunk) - The company has minimum purchase commitments with suppliers, which led to volume shortfall expenses of **$5.6 million** in H1 2025, included in cost of goods sold[122](index=122&type=chunk) - On March 23, 2023 and April 18, 2023, the Company issued **$300 million** in 9.25% Convertible Senior PIK Notes due 2028, with an additional **$35 million** issued to Hillhouse in May 2023[105](index=105&type=chunk)[112](index=112&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q2 2025 revenue growth to Europe & International, with improved gross margin from supply chain efficiencies, while executing strategic actions and maintaining liquidity [Recent Developments and Trends](index=43&type=section&id=Recent%20Developments%2C%20Trends%20and%20Other%20Factors%20Affecting%20our%20Business) The company is executing strategic priorities for profitable growth, including organizational simplification, an asset-light supply chain strategy, and a strategic review of its Greater China business - The company is executing strategic actions to achieve profitable growth, focusing on reducing complexity and implementing an asset-light supply chain strategy[132](index=132&type=chunk) - The company has initiated a strategic review of its Greater China business, considering options up to a potential carve-out to accelerate growth and maximize value[135](index=135&type=chunk) - As part of its asset-light strategy, the company discontinued construction of facilities in Peterborough, UK, and Dallas-Fort Worth, Texas, and closed its production facility in Singapore[134](index=134&type=chunk) [Results of Operations](index=47&type=section&id=Results%20of%20Operations) Q2 2025 revenue increased 3.0% (down 0.2% constant currency) driven by Europe & International, with gross margin expanding due to supply chain efficiencies and reduced operating expenses contributing to a narrowed operating loss Revenue by Segment - Constant Currency Change (Q2 2025 vs Q2 2024) | Segment | Revenue (As Reported) | % Change (Constant Currency) | | :--- | :--- | :--- | | Europe & International | $118.2M | +5.7% | | North America | $63.2M | -6.8% | | Greater China | $27.0M | -6.6% | | **Total** | **$208.4M** | **-0.2%** | - Gross profit margin increased by **3.3 percentage points** to **32.5%** for Q2 2025, and by **3.9 percentage points** to **32.0%** for H1 2025, primarily driven by supply chain efficiencies in Europe & International[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - R&D expenses decreased by **57.7%** in Q2 2025, mainly because the prior year period included expenses related to a new product launch issue in North America[168](index=168&type=chunk)[169](index=169&type=chunk) - SG&A expenses decreased slightly by **0.2%** in Q2 2025 due to continued cost savings initiatives[170](index=170&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by cash reserves and undrawn credit facilities, with key debt instruments including a Term Loan B and Convertible Notes, and management believes current liquidity is sufficient for the next 12 months Liquidity Position as of June 30, 2025 (in millions of U.S. dollars) | Item | Amount | | :--- | :--- | | Cash and cash equivalents | $67.9 | | Undrawn bank facilities | $221.0 | - The company has a **$130 million** Term Loan B Credit Agreement, maturing in five years from April 2023, with an interest rate of Term SOFR + 7.5% (with a 2.50% floor)[183](index=183&type=chunk) - The company has issued over **$335 million** in aggregate principal of 9.25% Convertible Senior PIK Notes due 2028[191](index=191&type=chunk)[199](index=199&type=chunk) - Net cash used in operating activities for H1 2025 improved to **$15.0 million** from **$86.0 million** in H1 2024, driven by better operating results and working capital improvements[207](index=207&type=chunk) [Non-IFRS Financial Measures](index=59&type=section&id=Non-IFRS%20Financial%20Measures) The company uses Adjusted EBITDA and Free Cash Flow as key non-IFRS measures, both showing significant improvement in Q2 and H1 2025 due to better operating results and lower capital expenditures Adjusted EBITDA Reconciliation (in thousands of U.S. dollars) | Period | Loss for the period | Adjusted EBITDA | | :--- | :--- | :--- | | **Q2 2025** | (55,946) | (3,563) | | **Q2 2024** | (30,441) | (10,997) | | **H1 2025** | (68,477) | (7,294) | | **H1 2024** | (76,285) | (24,201) | Free Cash Flow Reconciliation (in thousands of U.S. dollars) | Period | Net cash used in operating activities | Capital expenditures | Free Cash Flow | | :--- | :--- | :--- | :--- | | **H1 2025** | (15,005) | (10,699) | (25,704) | | **H1 2024** | (86,013) | (20,420) | (106,433) | [Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks including foreign exchange, interest rate, credit, liquidity, and commodity price risk, with detailed disclosures available in the 2024 Annual Report - The company's primary market risks are foreign exchange, interest rate, credit, liquidity, and commodity price risk, with detailed disclosures available in the 2024 Annual Report[233](index=233&type=chunk) [PART II – OTHER INFORMATION](index=67&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The company states that it is not currently a party to any material legal proceedings - As of the report date, Oatly is not a party to any material legal proceedings[234](index=234&type=chunk) [Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) A new material risk factor concerns the strategic review of the Greater China business, with no guarantee of success or value enhancement, and potential negative impacts if unsuccessful - A new risk factor has been added regarding the strategic review of the Greater China business, noting that the process may not be successful or enhance shareholder value and could have a negative impact on the business[235](index=235&type=chunk)

Core Insights - Oatly Group AB reported revenue of $208.35 million for the quarter ended June 2025, reflecting a 3% increase year-over-year, but fell short of the Zacks Consensus Estimate by 0.54% [1] - The company's EPS was -$1.86, a decline from -$1.00 in the same quarter last year, resulting in an EPS surprise of -173.53% compared to the consensus estimate of -$0.68 [1] Revenue Breakdown - Revenue from Europe & International was $118.19 million, exceeding the two-analyst average estimate of $112.98 million [4] - Revenue from Greater China was $26.98 million, below the estimated $31.9 million by two analysts [4] - Revenue from North America was $63.19 million, slightly below the average estimate of $64.6 million from two analysts [4] Stock Performance - Oatly Group's shares have returned +19.2% over the past month, outperforming the Zacks S&P 500 composite's +5.9% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Financial Data and Key Metrics Changes - The company reported a revenue growth of 3% in the quarter, but a decline of 0.2% on a constant currency basis [35] - Adjusted EBITDA was a loss of $3,600,000, which is consistent with the previous quarter's guidance [35] - Gross margin expanded by 330 basis points year-over-year to 32.5%, marking the best quarterly results as a public company [35][36] Business Line Data and Key Metrics Changes - The Europe and International segment grew volume by 9.4%, indicating that the growth playbook is effective [39] - North America experienced a revenue decline of 6.8%, primarily due to changes in sourcing strategy and the largest customer [39] - Greater China saw a constant currency revenue decline of 6.6%, reflecting a challenging macro environment [39] Market Data and Key Metrics Changes - The foodservice side of the Greater China business grew revenue by 12% in the first half of the year [33] - In Europe, the company achieved strong volume-led double-digit revenue growth, with EBITDA margins improving to over 20% in Q2 [15] Company Strategy and Development Direction - The company is focused on three priority areas: reducing costs, igniting top-line momentum, and driving profitability [7] - A strategic review of the Greater China business has been initiated to accelerate growth and maximize value [6][12] - The company plans to continue executing its growth playbook, particularly in North America, despite current challenges [30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged slower-than-expected progress in North America and a soft macro environment in Greater China [6] - The company remains confident in its growth playbook and expects to see improvements in the second half of the year [43] - Management emphasized the importance of taste as a barrier to consumption and plans to enhance product offerings accordingly [62] Other Important Information - The company has identified additional SG&A savings, primarily from corporate expenses, to drive efficiencies without harming the business [66][68] - The cash outflow of $5,000,000 in Q2 was the best quarterly performance as a public company, indicating progress in cash management [41] Q&A Session Summary Question: Why is now the right time for the strategic review of China? - Management believes the business is now leaner and stronger, making it a good time to evaluate how to accelerate growth and maximize value [48][49] Question: What is the optimal outcome of the strategic review? - The company is considering a range of options, including a potential carve-out, but will not speculate on the ultimate outcome at this time [49] Question: What are the challenges in North America, and how can they be turned around? - Management noted that while the market is soft, there are early signs of improvement, and they are confident that strategies successful in Europe can be applied in North America [53][55] Question: How are the incremental SG&A savings derived? - Most savings will come from corporate expenses, focusing on efficiency without hurting the business [66][68]