Oatly Group AB (OTLY) Q2 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to Oatly's Second Quarter 2021 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Katie Turner, with the Investor Relations. You may begin.

Good morning. Thank you for joining us on Oatly's 2021 Inaugural Second Quarter Earnings Conference Call and Webcast. On today's call are Toni Petersson, Chief Executive Officer; Peter Bergh, Chief Operating Officer; and Christian Hanke, Chief Financial Officer. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements. Please refer to the company's final perspective filed pursuant to Rule 424(b) three on May 21, 2021, and other reports filed from time to time with the Securities and Exchange Commission for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note, on today's call, management will refer to certain non-IFRS financial measures, including EBITDA, adjusted EBITDA and adjusted EBITDA margin. While the company believes these non-IFRS financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference. It's now my pleasure to turn the call over to Toni Petersson.

Thanks, Katie. Good morning, everyone. It's great to speak with you today on our first earnings call as a public company. On today's call, I will briefly review our second quarter financial highlights, provide an overview of our business performance during the quarter, including the continued strong momentum for Oatly and the oat category, and reiterate the key reasons we believe Oatly is uniquely positioned for long-term growth and to be the leading dairy alternative brand globally. Peter will provide an update on our global manufacturing capacity footprint, and Christian will review our financial results in more detail before we open the call to take your questions. Now 2021 represents the most transformational year in our company's history, with the completion of our successful IPO in May, which has provided us with the capital to fuel new production capacity globally as we scale our business across 3 continents to meet the robust consumer demand for our leading brand. We are appreciative of the support from our investors and look forward to this exciting journey together. We continue to invest heavily in our business, establishing infrastructure, personnel, innovation, capabilities and partnerships to maintain and grow our category leadership position. We are incredibly pleased with the opening of 2 new facilities in Ogden, Utah and Singapore. This year marks the first time we will have local production in Asia, and we recently doubled production capacity at our facility in Vlissingen, Netherlands. We're also excited to open our second manufacturing facility in Asia later this year in Maanashan, China, representing a tremendous opportunity for our future growth. And we expect to gain increased operating efficiencies, reduce the environmental impact and increase profitability as the region begins to reduce production reliance on EMEA. We are incredibly proud of our global team's operational execution and the continued strong growth in both new and existing customers. All of this is quite remarkable to accomplish at any time, and we are doing it on multiple continents during global pandemic. As we discussed during the IPO, we continue to prioritize growth investments over profitability in the next few years to best position Oatly to serve customers and consumers alike to focus on taste, nutrition, sustainability, transparency and trust with a strong emotional connection to our brand. We believe these priorities are critical for accelerating conversion from the global dairy market, which we estimate to be worth approximately $600 billion in the retail channel value alone as of 2020, with a large foodservice footprint and growing e-commerce opportunity. Our record all-time high second quarter revenues increased 53% to $146 million from the second quarter last year, reflecting the strength of our diversified business across multiple geographies and sales channels as well as the momentum we have in the global market. This further provides evidence of the continued consumer integration away from traditional dairy and the conversion to plant-based alternatives, including Oatly. Our finished good volume was 106 million liters for the second quarter as compared to 74 million liters for the same period last year and increased 43%. However, global demand for Oatly products continued to outpace our supply, with capacity constraining our growth in the second quarter, and certain COVID-19 and start-up manufacturing headwinds impacted our revenue by approximately $12 million to $14 million. Importantly, these are behind us, and we are expanding global production capacity every month to support our long-term growth. Again, I can't tell you how pleased I am with our achievements. The scale at which our team is executing and achieving strong results is impressive. And as we continue to scale, we have significant opportunity to satisfy unmet demand and leverage our brand success to expand across geographies, sales channels and product categories. June was the highest production month in company's history, and we have started out the third quarter strong in July with a consecutive record-setting production month. As Peter will elaborate on, this is a trend we expect to continue and gives us confidence in our 2021 outlook for revenue to exceed $690 million, an increase of greater than 64% year-over-year, representing an acceleration in our rate of growth in the second half of 2021 from the first half of 2021. For those of you new to Oatly, I will take a little more time on this first call to provide an overview of our business model and global growth strategy. We launched the world's first oatmilk product in 1995 and had been the only company focused solely on liquid oat technology for more than 25 years, working to put forward the best possible version of milk. Research had made clear that an estimated 2/3 of the global population cannot process cow's milk due to lactose intolerance, according to Lancet. Through our commitments to oats, we have developed a proprietary oat-based production technology that leverages patented and sematic process to turn oats into nutritional, great-tasting liquid product. Our more than 95 patents filed and pending are supplemented with the protected by 3 decades of production partnership, commitment to continuous innovation and, of course, sustainability on our consumer-centric brand. Our mission and core belief in driving the size shift towards plant-based food system unifies our company in our quest for purpose-driven growth. As humanity faces massive challenges of climate change and lifestyle disease, our mission is even more relevant and powerful. What we do is we need is to inspire people to make small changes in their lives that are beneficial to themselves and the planet. Our in-house creative team creates a strategy to have an emotional bond with consumers who are already becoming more health conscious and more environmentally cautious. Our approach has turned out to be incredibly successful, driving a revenue CAGR of 82% from 2018 through our second quarter ended June 30, 2021. Plant-based dairy penetration of dairy retail sales globally is only approximately 3%, but growing rapidly. Based on our consumer insights, we found that 35% to 40% of the adult population is now purchasing dairy milk alternatives in our key markets, indicating that the penetration of and familiarity with the category is high, creating growth opportunities from increased frequency and usage. Nearly 70% of plant-based milk consumers have joined the category in the last 2 years in our key market. This conversion demonstrates the accelerating trajectory of the category and growth potential for -- from further penetration. The oat category is rapidly gaining market share and surpassing other crop categories in our key geographies, with Oatly helping to accelerate the overall oat and nondairy category growth for active markets. We believe a majority of the market is wide open for the taking, and at Oatly, we're approaching major tipping point of conversion to plant-based alternatives, and this creates a significant runway of long-term growth. We have proven global significance with commercial success in more than 20 markets across multiple channels and segments, including retail, foodservice and e-commerce partners. The range of our growth and success is one of our most impressive accomplishments, and we expect it to continue to fuel our growth versus the competition. As of June 30, 2021, our oat-based products are available across 65,000 retail doors and over 60,000 foodservice locations, including coffee and tea shops. Year-to-date, we've added more than 30,000 total doors across all of our sales channels globally, with additional upside in all of our key markets. And our products are sold through a variety of channels from independent coffee shops to continent-wide partnerships with established franchises like Starbucks; from food retailers like Target and Tesco; to premium natural grocers and corner stores as well as the e-commerce channels, such as Alibaba's Tmall. To enter new markets, we use a foodservice-led expansion strategy that builds awareness and loyalty for our brands through the specialty coffee market and drive increased sales organically through retail and e-commerce channels. We take this strategic deliberate approach in all of our markets to build consumer demand organically via trials in foodservice, and then expanding into other channels has positioned us to be a category leader, not only the oat- and plant-based category, but also within the broader dairy category. We have tailored this strategy in many successful international market launches, including the United Kingdom, Germany, the United States and China. Our brand has continued to excel and scale, as evidenced by the following market statistics. For the last 52 weeks ended for the latest July 2021 refresh according to Nielsen and IRI data, Oatly contributed the highest amount of sales growth through the dairy alternative drink category across our key markets in the U.K. and Germany. And we're the number two in the U.S. and Sweden only as a direct result of our supply constraint. This is in line with what we expect in the near term as we ramp up added capacity in EMEA and our Ogden, Utah facility increases capacity. In the U.K., Germany and Sweden, we are the highest selling brand in the oat category by retail sales value, which is the largest category within dairy alternatives in all these markets. In the U.S., we are the second selling brand for the last 52 weeks in the oatmilk category, which is the fastest-growing category by far in dairy alternatives. In the U.S., Oatly has the highest velocity SKU and highest dollar per TDP, or total distribution points, of all brands in the total dairy category, dairy, including cow's milk, according to Nielsen xAOC for the last 12-week period ended June 19, 2021, excluding private label. Based on the same xAOC Nielsen data, we're the only dairy alternatives brand in the top 10 fastest turning milk SKUs for both traditional dairy and plant-based milk. And we have 2 SKUs of the top 10 SKUs, including our original and full fat 64 ounce. This illustrates the strength of our brand at retail and the halo effect from our multichannel distribution strategy. Any recent pressures on our market share velocity measured channel is expected and directly correlated with the capacity constraints and less of inventory to fulfill demand across sales channels. As we've seen in the past, once supply improves, we can increase velocities and growth as well as backlog of orders to fulfill. Keep in mind, we have accomplished our growth in measured channels, while having to prioritize to give way for existing customers with only very limited distribution expansion in 2021, with strong demand for increased sales growth. Oatly is one of the most profitable brands for retailers in plant-based milk with a winning combo of premium price point and velocity, according to Nielsen in total U.S. xAOC data for the 12-week period ended June 19, 2021. According to SPINS for the last 12 weeks ended July 11, 2021, we were the #1 oatmilk brand and the #1 velocity plant-based milk brand in terms of dollar sales. This continued growth and the position is impressive considering the natural channels where we first started distribution in the U.S. Both of these drive the vast majority of the total dairy alternatives category growth and is quickly taking market share, up to approximately 30% market share for the same time period. This leads xAOC oatmilk market share by over 10 percentage points. Now keep in mind, in the U.S., approximately 50% of our sales are generated in the foodservice channel and 50% in the retail channel. In total, only approximately 35% of our sales in the Americas are represented in the measured sales channels. For example, at retail, we also have strong presence in the natural channel, which is not fully capturing the Nielsen data, and we are strategically building distribution in the convenience store channel. In EMEA, our most mature market, 10% of our sales are in the foodservice channel and 90% in the retail channel, of which approximately 80% are recorded in measured sales channels. So while we track the measured sales channels across geographies, it's not fully representative of regional or total revenue results, specifically in the U.S. In terms of foodservice, we generated strong growth in the U.S. during the quarter. Last year, we shifted volumes away from foodservice to retail as a result of COVID-related on-premise structures. This year, we've been able to strategically increase sales back into foodservice to drive consumer trial and brand awareness, which helps us to create an acceleration in conversion across all sales channels, not just foodservice. We're very pleased with our successful launch and growth in Starbucks as their exclusive oatmilk brand partner. Growth of Oatly and oatmilk has exceeded both of our expectations to date. For example, aligned on an estimated volume per month and have consistently been shipping double the original projection. This is a result of the incredible consumer demand and accelerating rate of conversion from dairy and other plant-based alternatives to oatmilk, generating exponential growth. This is exciting for us because, as our capacity increases in the second half of this year, we will be back to fulfilling 100% of the oatmilk need this fall. We are currently providing 2/3 of oatmilk volume, and this continues to grow. Starbucks is a strong collaborative partner, and we look forward to growing with them across existing and new geographies. Together, we're able to reach many more people with oatmilk beverages. And in doing so, we can continue to do great things for the planet. Focusing in Asia, our growth in this region demonstrates the effectiveness of our proven multichannel expansion strategy. We have built a new generation of plant-based milk consumers in Asia by converting traditional dairy milk drinkers to Oatly and by attracting new drinkers to the category altogether. We successfully entered the Chinese market in 2018 through the coffee and tea channel, which we have since scaled nationally to over 13,000 doors at the end of the second quarter of 2021. The awareness and trial achieved in the specialty coffee and tea channel was critical to educate the market about plant-based dairy and establish a leadership in Asia. As a result of the consumer excitement that we've built around the Oatly brand, we were able to rapidly scale our regional presence through a strategic e-commerce partnership with Alibaba's Tmall and an exclusive branded partnership with Starbucks in China. Even a very competitive marketplace with limited supply, we continue to maintain our market-leading position on Tmall, and we have increased revenue in Asia 333% from 2018 through the last 12 months ended June 30, 2021. Our team in Asia successfully added many new foodservice and retail wins in the second quarter, including brand partnerships where our oatmilk drinks and other oat-based food products are sold together, including Oatgurt in key coffee chain customer as just one example. This is an exciting development that demonstrates the strength of our product portfolio across multiple categories and the increasing consumer appetite for Oatly, proving our brand's ability to travel where consumer chooses to shop. A few additional highlights initiated during the second quarter include we expanded our partnership with McDonald's in Mainland China, and we launched partnership with K COFFEE in KFC in Mainland China. The retail sales channel has only been a low single-digit contributor to our growth, and our team has recently achieved important customer wins with a tremendous upside for future distribution growth in new and existing customers as we scale our local production capabilities later this year and more meaningfully in 2022. Customers are Walmart, RT-Mart. On the convenience store side, we launched an expanded distribution nationally in 7-Eleven, with both retailer and the café counters. And also we added Metro Cash & Carry. And in the first quarter, we added Sam's Club. This is a strong breakthrough in retail distribution for us in Asia, and we're already seeing growth in velocities, demonstrating the continued success of our multichannel strategy and ability to drive growth organically. Conversion across sales channels from foodservice to retail and e-commerce occurs at the highest rate in Asia, and our team is doing an excellent job to ensure our products are available where Asian consumers shop and consume plant-based products. Looking ahead, we expect to drive continued industry-leading growth and strong financial performance to further expanding and executing on our existing strategies. We have a tremendous opportunity to accelerate Oatly's brand awareness consumer trial. For example, in the U.S., our household penetration is less than 3%, according to Nielsen panel data. This represents a significant runway for growth in not only the U.S. as we add production, but globally as we expand in both existing and new geographies. In each of our markets, we can fuel our growth through distribution, velocity and market share gains, especially as we improve fill rates, which, today, on average, are at only approximately 70% on a global basis. Just improving our fill rates alone will generate substantial incremental revenue for our business. We are accomplishing this through investing in global production capacities to capture the immense consumer demand we have today and well into the future. And we have a proven, disciplined and thoughtful multichannel strategy that we believe sets us apart from the competition since we're already building our brand successfully across 3 continents with a tremendous amount of white space to add new markets. In the second quarter, we added new countries for distribution in Switzerland and Ireland. Today, only Sweden is filling [indiscernible] its full product range. We will look to continue to strategically roll out our 16 product portfolio across global regions and pioneer new product categories with innovation. I already mentioned the early success we had in China, and the U.S. is another great example with the recent strong contribution from frozen and Oatgurt to our sale. Food products now accounts for 10% of our total U.S. sales today. And finally, in terms of our core ingredients of oats, we have contracts and supply in place to grow revenue at the rate we expect for 2021 and beyond. In summary, we believe Oatly is incredibly well positioned for long-term global growth. We believe the fundamentals of our business are stronger than ever, and consumer demand continues to accelerate. And we are increasing production capacity globally to meet that growing demand. Before I turn the call over to Peter, I would like to address the report published last month by a third-party in an associated publicity campaign attempting to plant doubt about our company. While we believe the report to be false and misleading, if someone makes an allegation, it is our responsibility to take it seriously. And we did. A special committee of our independent Board of Directors reviewed the report with the help of independent legal counsel and forensic accountants. The special committee has completed the review, and I'm pleased to say that we continue to fully stand by the accuracy and efficacy of our reporting. I will now turn the call over to Peter.

Thanks, Toni. I will start by elaborating on how we are increasing production capacity globally. Production capacity has been a major constraint on our growth, and we have made substantial investment to scale our production capacity and address supply shortages due to the massive demand for our products globally. We believe a significant acceleration is underway for dairy alternatives. Oatly is well positioned to continue to generate strong growth based on these compelling industry tailwinds and our unique brand positioning in more than 20 countries globally. As Toni mentioned, approximately 60% to 70% of plant-based milk consumer joined the category in the last 2 years. Today, we utilize a total of 5 self-manufacturing and hybrid facilities globally. These include 2 self-manufacturing and 3 hybrid facilities as well as co-packing facilities. We have 4 factories planned or under construction. In 2019, we opened 1 production facility in the United States and 1 in the Netherlands. In March 2021, we opened our second U.S. facility in Ogden, Utah. This is our first self-manufacturing facility in the region. As you think about capacity ramp, it takes between 8 to 12 months to reach full production. In the first quarter of this year, we also completed our planned capacity build-out in the Netherlands, giving us the ability to produce an estimated 300 million liters, an increase from 150 million liters of finished goods capacity previously. In Singapore, we now have a hybrid facility, representing our first local production available in Asia. This is an important corporate milestone. The facility is estimated to produce 75 million liters of annual finished goods capacity at full production. To date, since 2018, we have been shipping our products from Europe to support the growth in Asia. We are excited about the operating efficiencies we expect to gain from our new Singapore facility, along with our own self-manufacturing facility, which is on track to open later this year in Maanashan, China. We expect our EMEA manufacturing, combined with our 2 facilities in U.S. and 2 in Asia, to help us achieve approximately 1 billion liters of finished goods capacity by the end of the calendar year 2022. This represents a 200% increase in our production output from the end of 2020. In addition, we continue to expand capacity of our existing facilities, and we are currently in a planning stage to open additional facilities in U.S. and U.K. in 2023. These two facilities are estimated to add an incremental 400 million liters of finished goods from 2023 to support the demand for our products globally. June and July this year represent our highest consecutive production month in the company's history. We expect a similar trend as we progress through the third and the fourth quarter of this year will support our strong revenue outlook for 2021. As we grow, we believe owning and controlling our global operating footprint is paramount to addressing the significant consumer demand for Oatly products. We expect our planned CapEx investment in self-manufacturing will expand our margin profile. Self-manufacturing enable us to apply our own standards of quality and sustainability and flexibility for innovation and to protect our IP, while achieving significantly more attractive production economics, as demonstrated by our fully owned manufacturing capabilities in Sweden. Using an end-to-end self-manufacturing model, we produce the oat base, mix and fill the product as a single Oatly-owned operated facility. We supplement our own manufacturing facility with a diversified network of deeply vetted third-party co-manufacturing partners to help us drive growth by providing the necessary speed and flexibility to help us meet consumer demand, commence pilot projects and support new product launches. When we utilize a co-packing model, we transport our oat base through tanker trucks to our strategically chosen third-party filler for mixing and filling. When we utilize a hybrid model of manufacturing, we transport our oat base through pipelines to a physical adjacent plant operated by third-party partners for filling and mixing. Our long-term goal is to have 50% to 60% of our total volume to come from self-manufacturing, reducing co-packing to 10% to 20%, with 30% to 40% from hybrid manufacturing. For the first 6 months of 2021, sales manufacturing was 20% of our total volumes compared to co-packing at 53% and hybrid at 27%. We expect to drive profit growth through increasing our self- and hybrid manufacturing model as well as localizing our production footprint, which will improve our economics of scale and our service level. Given our strong outlook for revenue growth, we expect to achieve greater operating leverage from our capital investment to help queue our significant margin improvement across our global operations. Going forward, we intend to continue to invest in our innovation capabilities, build our manufacturing footprint and expand our consumer base, all supporting our growth trajectory. I'll now turn the call over to Christian to review our financials.

Thanks, Peter, and good morning, everyone. It's great to be joining you today on our first earnings call as a public company. Turning to the financials. Revenue for the second quarter of 2021 was $146.2 million, an increase of $50.8 million or 53.3% compared to revenue of $95.3 million in the second quarter of 2020. In the second quarter of 2021, we experienced broad-based growth across retail and foodservice channels. The revenue increase was primarily driven by additional supply coming from the company's existing and, to a smaller extent, our new facilities to meet the growing global demand for our products, partially offset by approximately $12 million to $14 million of COVID-19 and startup-related manufacturing headwinds to sales that we experienced in the quarter at our Vlissingen, Netherlands and Ogden, Utah facilities. The estimated foreign exchange benefit to revenue was approximately $10.2 million in the quarter. The foodservice channel continued to increase in the second quarter of 2021 compared to the prior year period, with the continued reopening of on-premise outlets from the relaxation of COVID-19 restrictions in our key markets. In the second quarter last year, the retail channel experienced a significant increase in sales, more than offsetting the decline in the foodservice sales channel, primarily noticeable in the Americas, all as a result of COVID-19 restriction. For the second quarter of 2021, the foodservice channel accounted for 33.2% of revenue compared to 21.6% in the same period last year. The retail channel accounted for 61.5% of second quarter 2021 revenue compared to 74.5% in the second quarter of 2020. Net sales per liter were $1.54 compared to $1.42 in the second quarter of 2020 primarily driven by regional channel and customer mix in the Americas. While in EMEA and Asia, the net sales per liter increase primarily is foreign exchange-driven, with our highest regional net sales per liter in Asia, followed by the Americas and then EMEA. Our sales globally are achieved with much lower promotional rate than competition. For example, in the U.S., approximately 10% of sales are driven on promotion, and this rate is similar across our key geographies. Gross profit in the second quarter was $38.6 million compared to $30.8 million in the prior year period. Gross margin decreased 590 basis points to 26.4% compared to 32.3% in the prior year period. The gross margin decline in the second quarter of 2021 compared to the prior year period was primarily due to higher logistics expenses in EMEA and the Americas as well as higher container rates for our shipments from EMEA to Asia, a change in segment channel and customer mix, a higher share of co-packing production and minor negative effect from foreign exchange. We have noticed an increase in freight cost driven by the effects of the pandemic and the shortage in capacity primarily in the Americas and EMEA. We have also experienced price increases related to our shipments from EMEA to Asia. We expect that the localization and expansion of our production capacity within the regions will help to offset some of these freight cost headwind. To date, we have experienced limited material cost inflation compared to the prior year period as we benefited from volume growth, except for rapeseed oil, which accounts for approximately 3 to 4 percentage points of our total cost of goods sold. We expect rapeseed oil prices to continue to increase during the second half of 2021, offset by other anticipated cost efficiencies. Keep in mind, we continue to expect variability in our gross margin quarter-to-quarter based primarily on the mix of revenue by geography and sales channel as well as the mix of our manufacturing output. On an annualized basis, we expect to continue to see improvement in our gross margin year-over-year, starting in 2022, with a long-term goal of 40%. Research and development expenses in the second quarter of 2021 increased $2.6 million to $4 million compared to $1.3 million in the prior year period. This increase was primarily due to an increase of $1.8 million in employee-related expenses due to the higher headcount, which include $0.3 million in cost for the 2021 long-term incentive plan and $0.4 million in consultant and other professional fees. Selling, general and administrative expenses in the second quarter of 2021 increased $49.8 million to $83.1 million compared to $33.3 million in the prior year period, and other operating income and expense were $0.4 million gain compared to a $0.5 million loss in the prior year period. The increase in SG&A expenses was primarily due to an increase of $22.3 million in employee-related expenses, of which $4 million were noncash costs for the company's long-term incentive plan, all as a result of increased headcount as we continue to invest in our growth and also added headcount for being a public company. We also incurred $12.5 million in increased costs related -- relating to external consultants, contractors and other professional fees due to the growth of the business and costs associated with being a public company, of which $7.1 million were nonrecurring costs related to the company's initial public offering, $5.3 million of increased branding and marketing expenses as compared to lower branding and marketing activities in the prior year second quarter of 2020 due to the COVID-19 pandemic. In total, SG&A included nonrecurring costs related to our initial public offering and a noncash LTIP charge of $11.1 million. Customer distribution costs increased with $4.7 million mainly as a result of higher revenue. Other operating income for second quarter of 2021 included a net foreign exchange gain of $0.3 million compared to other operating expense in the second quarter of 2020 that included a net foreign exchange loss of $0.5 million. Now focusing on the balance sheet and cash flow. As of June 30, 2021, we had cash and cash equivalents of $524.2 million, $322.7 million in short-term investments and total outstanding debt to credit institutions of $7 million. Net cash used in operating activities was $72.5 million for the 6 months ended June 30, 2021, compared to $20.1 million during the prior year period. Capital expenditures were $134.4 million for the 6 months ended June 30, 2021, compared to $52 million in the prior year period. Cash flow from financing activities were $960.9 million, reflecting the proceeds from the IPO, net of repayment of liabilities to credit institutions and repayment of the shareholder loan. The company invested a portion of the IPO proceeds in secure short-term investments. Finally, turning to the guidance. For fiscal year 2021, we expect revenue to exceed $690 million, an increase of greater than 64% compared to fiscal year 2020, with accelerating growth across regions and balanced contribution from each of them. This revenue outlook assumes very nominal contribution from our Maanashan, China facility that is on track to open later this year. Any upside to our outlook will be a result of our ability to ramp production at a faster rate than we anticipate. Assuming no significant changes from where we are today, we expect the second half of 2021 exchange rates to be a single-digit tailwind compared to the second half of 2020. We expect the capital expenditures to be on the low end of the $350 million to $400 million range we provided at the time of the IPO. We expect production capacity to be approximately 600 million liters of finished goods by the end of fiscal 2021, a sufficient amount of capacity to reach our annual revenue outlook. Long term, we expect to generate gross margin greater than 40% and an adjusted EBITDA margin approaching 20% as we benefit from a much larger self-manufacturing footprint globally, greater economies of scale and continued strong revenue growth. With that, I'd like to turn the call back over to Toni.

Thanks, Christian. The last 6 months have been remarkable for Oatly. I'd like to thank our entire global teams' efforts in helping us achieve our results. Every day, they work to help create an oatmilk phenomenon across Europe, the United States and China, with a brand that is the primary growth driver of dairy alternatives. These effort and dedication of our employees continues to advance the reach and impact of Oatly's mission on a global scale. In summary, we are very pleased with our accomplishments year-to-date and excited about the balance of the year as we focus on executing our global growth objectives. With that overview, Pete, Christian and I are now available for your questions. Operator?

[Operator Instructions]. Our first question comes from Andrew Lazar with Barclays.

Great. I'll start with, during the IPO process, Oatly discussed its on-shelf productivity metrics versus other oatmilk brands and key retail customers' metrics such as shelf velocity and price premium and promotional depth and frequency. And they were all, as you mentioned this morning, far better than peers. I guess, how has the shelf productivity held up as more oatmilk brands continue to gain distribution on the shelf, some of which have greater capacity than to you, at least at this stage? And is your anticipation that we'd continue to see this type of on-shelf advantage play out moving forward?

Andrew, this is Toni. Thank you so much for your question. Yes, I mean, as expected, we knew that we're going to be pressured in the measured retail channel due to capacity, and we believe these market share losses are temporary, right? We are building the capacity as we go. And if you look at the SPINS data, for instance, we are the solid #1. You look at the partners we started, the publisher long ago with like Whole Foods Market, Targets and Wegmans, we are the clear market leader in the nondairy category, where we have a little bit of higher fill rate. Not fully, right? Average fill 70% globally, it's even lower in the U.S. -- has been lower in the U.S. at 50%, 60%, but continuously increasing. Now having Ogden on board here producing commercial product brings a lot of confidence in the progress going forward. So we expect to increase the fill rate over the course of the last two quarters of the year and increase as time goes.

Great. And then that's a good segue into market share. Obviously, there's been plenty of discussion about share losses in the U.S., which would seem to be primarily, if not completely, about capacity constraints. Maybe you can get into a little bit more detail around market share trends more recently with those key customers with whom you've sort of prioritized supply and how that's impacted your expectations for the business once the company can supply key customers more fully.

Yes. So if you look at some of the long-term partnership that I mentioned earlier, we have a 50%, 70% market share in oats, which is significantly higher, right, for the rest of the measured retail channel. So that's what we expect. We see the performance data, and what we said earlier in the call that we are the best-performing brand in dollars for TDP in the total dairy, total dairy, including milk. So I mean, it's unprecedented. That brings us a lot of confidence going forward as we can bring more capacity on board. The same thing in Europe as well, best-selling SKUs in the key markets, best velocity. So a great platform and great progress in terms of production.

Our next question comes from Dara Mohsenian with Morgan Stanley.

Can you give us just a bit more detail around the plans to expand Ogden? When exactly do you commence production there? Should we think about that as upside to your prior revenue goals? Was that embedded, and you just announced the project? How should we think about that? And then I guess, second, to take it out broader, given you have a lot of new facilities coming online, for example, Singapore and Maanashan, maybe you can just talk about holistically your ability to expand capacity quickly beyond what you've announced, meaning adding incremental capacity on top of the original plant coming online and how quickly that can be done in some of these newer facilities that are up and running similar to what we're seeing in Ogden.

Thanks, Dara. Great question. And when you speak about Ogden, you're referring to the new expansion that we announced recently.

Yes. I meant the new expansion on -- the plans for the new...

Yes, yes. I will let Peter speak about it. But yes, that is incremental volumes to the plant. And basically, we're doing what we said we were going to do during the IPO, right, when we said that we want to -- we have expandable plants. And because of that, we can probably expand faster. And -- but Peter, maybe you can speak more about it.

Yes. Thanks for the question, and we can start with the state of Ogden. The starting point was 150 million liters on an annual basis, and 150 million liters doesn't mean 100% efficient line. But 150 million liters gives us a monthly output of 12 million to 15 million liters. In July, we produced 5 million liters filled internally over at co-packers. So the 5 million-liter we produced in July gives us approximately 30% to 40% of total expected output at total capacity on a monthly basis. That's where we stand today. So we expect to increase the output quarter-by-quarter, so we can get closer to the 12 million, 15 million by the end of the year. And now we announced a new investment, and that gives us additional capacity, 75 million liters on an annual basis of oat base capacity. So already, next year, we expect to get 50 million liters more from that facility. And in 2023, 75 million liters more. So that investment is on top of what we already communicated, and that's the plan. All the new sites we are building today, we do them expandable from day 1, so we can move fast, we'd add new capacity.

Okay. Great. So just to follow up. I guess, it sounds like that time frame for Ogden is something that could be similar for other new facilities in terms of if you decided to expand them beyond what you've announced. And then second, should we infer from this, with the incremental capacity, that there's incremental revenue to what you guys have communicated previously? Or is it more of this was sort of in the plans, but you just weren't ready to announce this discrete project?

No. The incremental 50 million in 2022 and then 75 million beyond 2022, that is expected to be on top of what we already communicated. And to the question, we are continuously looking for new opportunities to expand our footprint, so we can grow beyond the plan because there are massive opportunities out there. So that's our job right now is how can we expand faster, quicker, more efficient.

Great. That's helpful. And if I could just slip one more in on foodservice in the U.S. Any sense, guys, for how much of the incremental revenue that's coming from the Starbucks relationship, or foodservice growth in general? How much of that is from new customers versus existing customers? I know the numbers are a little more difficult to track in foodservice, but just any sense there would be helpful.

So I don't know, Christian, do you have more detailed numbers around that? But the remaining portion that comes from new customers, especially entering the partnership with Starbucks. But we know that we're going to continue -- I mean, if you look at the coffee shop channel in general, we know that from our existing pipeline, that demand is multiple to what we can deliver, right, and it goes well beyond what we register as the orders. So this is a tremendous upside for us in the coffee shop channel that will be captured simply by delivering volumes. And we have devoted years to building those solid relationships. But on top of that, we actually added, Dara, additional 10,000 foodservice doors through wholesalers through -- for the first half of the year, so a lot of this comes from new customers.

Yes. I mean, I think maybe to add to on Starbucks piece that accounted for, it seems, a large share of our sales in the second quarter. So Starbucks is definitely performing much better than our expectations and accounted for approximately 27% of our sales in the second quarter. So I just wanted to add that piece as well. It's a great performance.

Our next question comes from Ken Goldman with JPMorgan.

Just to follow up on the Starbucks. There was a bit of noise last week when another producer mentioned it would also supply Starbucks in the U.S. with some oatmilk. Is it fair to assume that you're still the exclusive branded provider there and that the other producers are just filling in some spots that maybe you can't reach right now with your supply? Or maybe you could just clarify that a little bit for us, if possible.

Absolutely. Yes. We confirm that we are the exclusive oatmilk brand at Starbucks. And we have consistently been shipping double the original projection as a result of the magnitude of the success of the launch here and the consumer demand and this accelerating rate of conversion from dairy to oatmilk. We think this is really exciting for us because, as our capacity increases in the second half of this year, we'll be back to fulfilling 100% of their oatmilk needs this fall. And we are currently providing about 2/3 of their oatmilk volume, and this continues to grow. Now Starbucks is leveraging private label to deliver on our oatmilk demand that far exceeded again -- again, far exceeded everyone's expectations. And we are behind this 100%, and it's in line with the purpose of the Starbucks partnership that we have to drive the conversion from dairy to plant-based at a mainstream sale. So to your point there, yes on both those questions there, Ken. It's temporary, and we're the exclusive oatmilk brand.

Great. That's good to hear. And then a quick follow-up. Anything we should think about in terms of modeling the back half of the year, whether it's the cadence of sales or any particular expenses that we should think about? Just -- I know you don't want to give too much guidance, but just in the name of no surprises necessarily in the third quarter.

No. Sure. And I think, Peter, maybe that is something you can elaborate around or...

Yes. I can elaborate on the top line, I can elaborate on the top line. And I think, Christian, you can add if you want. So again, the demand is strong, and it continues to accelerate in every region. So if you look at the Page 21 in our presentation, we are on a strong trajectory for production output, with June and July being our largest production month. In quarter two, we sold on average 32 million liter per month. In quarter 3, we expect to sell on average 40 million liter per month. In quarter four, we expect to sell on average 50 million liter per month. On Page 21 of the presentation, you can see, in July, we produced approximately 46 million liter. Ogden, Vlissingen and Singapore are still in a ramp-up phase, and it takes 2 to 3 quarters for a new facility to fully ramp. Also remember, there is a time lag from when we produce the product to when it's sold of about 2 to 3 weeks, except for Asia, we -- where we have longer lead time due to shipment from Europe to Asia. So we think we have a very straightforward trajectory for our production output going forward, and we have built in conservatism. And our outlook for 2021 includes minimal contribution from our second facility in Asia, which is on track to open in the second half of this year, the Maanashan plant in China. Incremental upside to our stated revenue will be a result of our ability to add production capacity at a faster rate than we expected. So that's the top line guidance. And Christian, do you want to add something about EBITDA?

Sure. Yes, yes, yes. Sure. And perhaps on the gross margin variability as well in terms of how we expect that to perform in the second half, so in line what we communicated pre-IPO, Q3 would be better than Q2 and Q4 slightly better than Q3. And on an overall basis, in terms of 2021, the gross margin will not significantly improve. Like we sort of indicated, '21 is a transition year, and we should expect to see an annual improvement in 2022 versus 2021, as previously communicated. In terms of EBITDA, we expect that to be an EBITDA -- adjusted EBITDA loss of $108 million for the year. This is again a transition year. We are investing in our organization in terms of people, in terms of IT operations as we're scaling up the company for future growth.

Our next question comes from Kaumil Gajrawala with Credit Suisse.

Congratulations on your first earnings call. A couple of things I'd like to try to square. The increase in production -- or the incremental increase in production and production plans and such, and obviously we're all hearing about quite substantial inflation across a whole number of things, but curious on how the CapEx guidance is now expected to be towards the lower end given those 2 items. Or is it just as simple as timing where you might be at the lower end for this year, and we would expect that to just kind of roll into next year?

And on the capital -- do you want me to take that quickly, Toni, before you add?

No. I don't. Christian, you go.

Yes. On the CapEx piece, this is more timing as you were alluding to. So that's the short answer.

Okay. Perfect. And one of the comments in your prepared remarks, I just want to make sure I understand it properly, is unlike I think most other folks in this industry and other industry, we're seeing a lot of raw material inflation. You mentioned that with the exception of one item, you're not seeing as much, but I think you linked that to volume. So did you mean that you're not seeing as much gross margin pressure because of perhaps volume leverage and that the raw material prices are indeed higher for your business? Or is there something about the way that you've procured or something about what you're seeing in the market that you're just not feeling that same degree of inflation?

Yes. I mean, I think, first of all, we are continuing to prioritize growth over profitability near term. Yes. So this is sort of a transformational year for us with the build-out of the two self-manufacturing facilities and our 1 hybrid facility in Vlissingen. And this is sort of the highest capacity build-out that we had in a single year ever. But in terms of coming back to your question on inflation and our expectations for the second half, we expect to see some minor increases to our costs in terms of material cost, in the 1% to 2 percentage range, and about 0.5 percentage point related to freight, but that's built into our projections for the second half of the year. So we have noticed an increase in freight costs driven by the effects of the pandemic, as we sort of noted in our remarks, driven by shortage in capacity primarily in the Americas and EMEA. We also talked about the shipments from EMEA to Asia as well in terms of containers and the difficulties we have seen there. And related to material cost inflation, yes, we noted rapeseed oil. That is the one that we are seeing as sort of a insignificant price increase, double digit, and we expect that in the second half of the year as well. But again, it accounts for 3% to 4% of our cost of goods sold. And we have other anticipated cost efficiencies that we're working on to offset some of that headwind. But it shouldn't be significant, and it's part of our model as well for the second half. In terms of oats, that's an area, I mean, I think we have the supply secured for '21 and '22. We will see how the harvest is doing in Canada. As I think we all know, it's been quite a drought situation there. Again, oats represents 8% to 9% of our COGS, just to keep that in mind, so it's not a super big component. But we have secured the supply for the next few years.

Our next question comes from Michael Lavery with Piper Sandler.

Just looking at your -- in Asia, the distribution gains you've called out, it seems pretty significant, and you've got some big players and national exposure for China. I guess, how do we think about the -- how quickly this ramps in the trajectory? Does this kind of depend on Maanashan coming online later in the year? Or are you ready to serve that? Is it significant as it seems? And could it pick up pretty quickly? Or is this really more going to impact 2022?

Yes. Listen, yes, I mean, China is China. The nature of that market is so different from Europe and U.S. It's going so much faster there. You have bigger players jumping on board way sooner. You're going to see some effect. The most of the effect is going to be seen next year. But we are really, really pleased with the partnership that we have. We're going to -- maybe we're going to see some effects during the course of this year, but main portion is going to come next year. Yes. We're going to supply -- we're going to continue to supply a portion of the supply from Europe and EMEA, as we've been ramping up Singapore and bringing Maanashan live here. And as Peter and Christian said, Maanashan, we haven't really counted on any bigger volumes coming from that facility this year. But you're right. It's a great significance to the doors that we have added here. I mean, we have -- probably, if you look at the QSR in China, we kind of locked them down, I think. And also if you look at the retail, entering the retail here now without -- and I want to add, like, with great velocity performance, without any promotion, so you can see that the strategy, the multichannel strategy works in driving that organic demand. Also in China, yes. I didn't mention Yonghui. But Yonghui is one of the biggest retailers and where we have 80% distribution in their stores. Walmart is also one of the 10 biggest retailers in China, all with good performance. So yes, it's really hard to predict the magnitude in China at all because it's so big, it's moving so fast. But like we said, like we are -- what we have to do is to try to look at additional capacity during the course of 2022, 2023 here.

That's really helpful. And just a quick follow-up on the top line. You called out the $12 million to $14 million sales opportunity you missed from some COVID restrictions and the delay ramping up. Just eyeballing Slide 21 and looking at the capacity dip in May, would it be right to think that, that split is maybe about half and half of those? And I guess, what risk do you see of either one of those ahead? Is there more COVID restrictions that might impact production in looking ahead as far as you can tell now? Or do you feel like you're in the clear there? How should we think about just what might be on the horizon?

I mean, it's a great question. And Peter, maybe you can speak more about the split. I just want to add that, yes, COVID-19 is very much here to stay, right? I think we have managed it excellently during the 1.5 years that it has been going on. But it is unpredictable, right? The event in Vlissingen was one -- all the best in terms of production has been in COVID-19, but I think Vlissingen was a big hit for us during the Q2 here. But Peter, do you want to speak more about the split here? I just want to say the COVID is here. I think we have managed excellently through the course of the last 1.5 years. We're going to continue to have these strict protocols around our production facilities. We have strong local regional teams. We could not have grown without the regional teams that we have because we cannot travel. And I'm extremely pleased to see the performance that we have and how we are managing this throughout these tough times here. And again, it's here to stay, right, but it's hard to say kind of market...

Yes. And to your point, Michael, you're correct. It's a split of 50. The drop in May was because of the COVID situation in Vlissingen and then also some headwinds when ramping up some production facilities, and it's a 50-50 split. So that's the reason why it dropped in May. That's the answer to that question.

Our next question comes from Laurent Grandet with Guggenheim.

I'd like to better understand how you are making trade-offs or -- and I've got, I mean, three sub-questions here. The first one is, so you managed to get 75 million liters additional capacity. That's great. So why the U.S. and not China? So I'd like to understand basically why you picked one and not the other. Second one would be more in the U.S. When you have some constraint in terms of capacity, why Starbucks versus some retail where, I mean, some could say that you are losing shelf space potentially or you are at risk of losing some shelf space? And then the last one is you decided to enter 2 new countries, Ireland and Switzerland. I understand those are not major countries, but why enter into new countries where you can't fulfill yet the demand of consumer in existing countries? So I'd like to understand more the thinking process on those three different sub-questions.

No, absolutely. Well, still, U.S. is the bigger market versus China, right? And we entered China later than we did in the U.S. And we see a tremendous demand for our products in the U.S. We see fantastic performance in terms of velocity. We have the strong established partnerships. So I would say that the platform is rock solid for us to grow from. So it's not that we are deprioritizing China. Like it's -- I mean, U.S. and China are the most substantial markets in the world, but we are adding Maanashan, China now, and we are going to try to ramp up as quickly as possible and to optimize the output as much as we can. But we know too little to say that we're going to expand faster in China than we are planning. We want to see a little bit more before we do that. And remember one thing, we're going to have the third plant. That was the second plant. Third plant in Asia, second plant Mainland China up and running in 2023, right? So when it comes to Starbucks, I think that, hey, we didn't expect the success, right? I don't think anybody expected this magnitude of success at Starbucks, right? But it's really important for us. This multichannel strategy that we have sets us apart from competition. So again, 35% of our business in the U.S. comes from measured channels. So 65% is something else, and that is really, really important for us to maintain to drive that organic growth. Now Starbucks, I mean, it's a fantastic partner, committed to ESG, and we're reaching a lot of people, and we want to drive conversion, right? Again, when we spoke -- when we talked during the IPO, it was driving conversion. And we see the evidence here in the performance data, right? So that is what we want to achieve with the partnership like Starbucks, for instance. When it comes to new countries, so remember, Ireland is part of U.K., Switzerland is part of DACH, which is Germany, Austria and Switzerland. So the window for adding retail doors is small, and these launches were planned well ahead. So as we have added new distribution oriented into new partnership, the growth in demand accelerates beyond our expectation, and that's what happened here. And we have a very deliberate and strategic and disciplined approach of adding distribution across sales channels. And the challenge has always been to strike the right balance between opportunity and the volumes, right? But again, it's the -- it's when it goes better than you expect. Like if you're on the aggressive side of normal, when you -- beyond the aggressive side of normal in terms of demand, it's something else, and it's really hard to predict, right? But those were planned well ahead.

And if I may squeeze something on the U.S. extra capacity. Will that be primarily for milk barista or expansion into more ice cream and yogurt?

Peter, do you want to...

Yes. The investment is oat base capacity, so we have the flexibility to choose. But of course, most of it will go to oatmilk, but we can use that oat base for ice cream and yogurts as well. So that's the flexibility we will have with that additional 75 million liter of oat base capacity.

Our next question comes from Bryan Spillane with Bank of America.

Just two quick follow-up questions. One, just on one of Laurent's questions about, I guess, foodservice versus retail and measured channels in the U.S. Would we expect to see -- or how should we expect to see, I guess, in-stock levels and more production begin to show up more in measured channels? I think one of the questions we get quite a bit from investors is just a concern that consumers are being driven to oatmilk at retail. And if they're finding some other brand, right, they may choose that brand, and it's hard to convert them over. So just trying to understand, with capacity -- additional capacity coming on, would we expect to see market share -- that show up in some of the major channel data as we move through the balance of the year?

Yes. You're right, we are going to see improvement as we bring more capacity in terms of market share in retail, foodservice, wherever. We are aiming to build that. So we have clear line of sight of some expansion in the U.S., but we really want to bridge the gap here because the demand is so high. And it's really hard to say exactly when, right, because if you look at the fill rate, we are expanding. We're building more capacity. But if demand continues to accelerate the way it does, it's going to be hard to exactly say when we're going to close that gap completely. But definitely, we aim to bridge the -- close the gap a little bit, at least closer, during the course of this year.

Can I just add to that quickly? I mean, to fill into Toni, this is Christian here. So we are beginning to see improvement in our fill rates as our production capacity is ramping up. But there is about 3 to 4 week lag on average from increased production to consumption at retail. So I just wanted to add that.

Okay. That's helpful. And then just one follow-up. I think it was Michael Lavery's question around COVID. And just -- can you just -- I guess, the question I had was just in terms of how it impacted capacity or production in May. Is it related to like infection rate in the plants and absenteeism? Or is it related to some delays in expanding capacity? Just trying to understand what exactly happened. And then are you taking any other additional actions, whether it's vaccinations or testing or other sort of actions to try to kind of limit the impact that you could have on your manufacturing?

I mean, yes, I think we're extremely disciplined there. Not even I am allowed into the factories, not even in Sweden, just to go there. So we have protocols set up everywhere because we know how difficult it's been. So to be honest with you, we're extremely happy to be where we are, right, to actually have brought all the steel up into the factories, starting to ramp up, producing commercial product, with people sitting in hotel rooms per week. If you look at Singapore, we have a really strict life. You see immediate action from governments and stuff like that. So we understand the importance of these protocols and have been there and execute them at 100%. Now in terms of FX impact, maybe, Peter, is that -- or Christian, is that something you want to take?

I mean, in May, specifically on that, I mean, I think Peter can chime in, we did have a planned maintenance stop on Landskrona as we had for our plants every now and then, right? So that occurred in May, so that's part of the explanation that you see. It was -- the plant was shut down. And then we also have the Vlissingen COVID impact that occurred in April that had sort of a lag into May as well. So those are the 2 touch points for the dip in May. But Peter, do you want to add something?

No. Yes. That's correct, that's correct.

And Bryan, just going back to your question, which Christian pointed out, now fill rate has increased continuously since March, right? So definitely, you're going to see the fill rate improving during the course of this year.

Our next question comes from Bill Chappell with Truist.

Just to make sure I understand the numbers. A lot of the questions have been on market share losses, competitive nature in the U.S. in tracked channels. That 7% to 8% of your total sales, is that -- am I doing the math correct?

Sorry. Again, what -- did you say 7?

Like, I think you said 35% of the Americas is tracked channels, and I think Americas is about 27% of total sales. So if I think I'm doing the math right, we're talking about 7%, 8% of total sales, correct?

Christian, is that -- do you have that numbers...

Can you repeat question because I didn't quite follow. You said America accounts...

I mean, when we're talking about U.S. tracked channels where you have been losing share, that's about 7% to 8% of your total sales. Is that correct? I can come back to it. I just was...

Maybe we take that to you offline.

Yes, yes, yes. Because the reason I asked that is that we actually haven't talked that much about Europe. And could you talk a little bit more about any competitive entrants, competitive activity and actually how that market is progressing? Because kind of going into the IPO, oatmilk had really overtaken almond and soy and was kind of expanding even further on the plant-based side. So I'm kind of interested if you're seeing an onslaught of competition kind of like you have in the U.S. or if that's kind of a steady as you go.

No. Okay. Got it. No, that's a really good question. So remember one thing, Europe is the most volume-constrained region that we have because it is supplying -- it has supplied Asia for a very long period of time, and Asia has really, really boomed. So Europe has been the region where we have like with most constraints on. Now that said, like, still, we are the best-selling SKU with the highest velocity across our key markets. What we see in terms of competition is the normal kind of stuff sort of when you are promoting heavily. We don't see -- maybe you see almond -- because we are such -- we have been such a significant growth driver in the categories across our key markets, so when we don't supply enough, you're going to see that oat category is also dropping slightly in terms of growth rate, right? That will change when we bring that supply, when we have Vlissingen now up and running. Like -- remember, like Vlissingen is kind of significant. It's the biggest plant. We double the capacity from 150 million to 300 million liters ramping up, of course, right? So you don't see the 300 million liters coming out right now, but you're going to see everything change when we start to supply again. So there was a question earlier about are we like concerned about leaving the space for competition. Well, that's the nature of the business. Our brand is so strong, and we see that we are regaining every single time when we are off shelf and get back again because we are playing a different game than competitors are, right? So it was a really good question around Europe. It's still our biggest region. But to be honest with you, we are happy where we are there because it could have been so much worse given our supply [indiscernible] have the production up and running now.

Got it. And a follow-up on the COVID question. Was that across all 3 regions? Or was that primarily in Europe? Where was the biggest impact of kind of the -- what you could have gotten, but impacted by COVID?

Peter, is that something you know?

That -- the COVID issue was related to our Vlissingen site only. So we have closed that down and then started up a couple of days later. That refers to one site. But in general terms, during the last 12 to 24 months, the challenge -- the biggest challenge with COVID for us has been setting up the new facilities. But now most of that work has been done. So -- and we are in a ramp-up phase in most of them. So the biggest challenge for us with COVID so far has been keeping the new -- our new projects at the right speed.

And Bill, coming back to your original question, we're a bit slow, but, finally, I think we understand it. Yes, so in terms of our total U.S. sales, yes, less than 20% of that is something that would be measured. So that would be the 35% of the 50% that we have on retail. That's how I got it. Yes.

Our next question comes from Rob Dickerson with Jefferies.

Great. So I just have a question about incremental new business win opportunity in the U.S., kind of vis-a-vis what we've seen in Asia, right? You said Asia is a much different beast, and things can ramp a lot more quickly. Right now, you're trying to just meet demand of the incremental capacity in the U.S. But then, I'm curious, like, as you go into these retailers and also foodservice providers, how are those conversations now with respect to new business win opportunity given that capacity constraints? You say, look, here's the evidence of how we've done so well in these other regions and at these retailers and at Starbucks. And if you just bear with us, right, we're going to have incremental capacity, and we can partner with you. So I'm just curious kind of how that plays out in those talks now if we think into next year also compared to what your competition might be doing.

Yes. I think, obviously, I mean, Q2, as we now enter Q2 would be the difficult -- most difficult period of time in the history of the company in terms of capacity versus demand, right? So all these, of course. And -- but if you look at, for instance, delisting, right, you haven't seen any material impact from delisting, and it's a testament of how strong our contribution to the category and our sales performance is when we're on shelf and how important our brand is for the growth of the retail business. All this -- we could have not done that without these strong partnerships. So I think what our key account managers are doing regionally, our regional managers are doing, like it's really, really make sure that those relationships remain strong. Now entering the second half of this year, we're -- it's going to become better and better and better, right? So it's going to be more -- those conversations is going to be easier. Now I wouldn't say it's never easy, right, but more on a positive tone every single time we're going to meet with them. So we feel really confident about where we are bringing these plants up and running.

Okay. Fair enough. And then just a quick clarification question just regarding your comment earlier around potential EBITDA for the year. I'm not sure if I heard you correctly, but it seems like it could imply some ramp expenses in the SG&A area in the back half relative to the first half. So one, I guess, is that right? And if so, what would be driving that, let's say, outside of freight? That's it.

Christian?

Yes. I mean, I think in terms of SG&A and adjusted EBITDA, I think that is progressing in line what we have communicated as part of the roadshows. And we -- this is sort of a transitional year. We are investing in our organization and IT operations and the like to take us to the next level. So there's nothing there that's sort of out of the ordinary. And yes, to reiterate again, I mean, we expect adjusted EBITDA to be around $108 million for the year.

Our next question comes from Nik Modi with RBC Capital.

I'll keep it quick. You've talked a lot about -- I just wanted to get some context on the capacity and talking about the year-end guidance and how the capacity or your production and fill rates happened better than you expected that there could be some upside. And I'm just curious on what the swing factors there are just so we can monitor and pay attention a little bit more closely.

It's a good question. Peter, maybe, you want to repeat some of the things which are there and bring some more clarifications.

Yes. It's all about if we can -- our ability to add production capacity at faster rates, like ramping Ogden faster, ramping Singapore and Vlissingen faster and then get Maanashan live faster. So that's the potential upside, and it's hard to value a swing of that because there are also a lag between production and when it can be sold. So -- but we feel very comfortable with our guidance.

Yes. And I'm asking more about what are some of the actual drivers that would get you to that point. Meaning, is this really about hiring, finding the right workers, potential COVID risk? I mean, I'm just trying to understand what's kind of embedded in your existing expectations.

Yes. It's about like stick to our ramp-up plan for our facilities, like getting more and more volumes every month. So as I've said, we produced 5 million liter in July in Ogden, and we expect that to increase. And in quarter four, we expect that to be closer to 10 million -- 9 million to 10 million liters. So that will give us extra volume. We also expect Vlissingen to get more volumes. And we expect Singapore to get 1 million to 2 million liter per month going forward. So just by adding these volumes, we feel comfortable about our guidance.

I guess, it's more or less sticking, like making sure that we execute and stick with the plan. And if we can do that faster, great. And maybe that's a potential swing. The opposite direction would be a COVID hit somehow that would hit us. I don't know, people maybe can't travel or a certain region is locked down completely, people can't go outside their homes. They are more strict in Asia than anywhere else in the world in terms of locking down things, right? So I mean, COVID is there. We manage it. But as Peter said, we feel good about the numbers that we have provided to you guys. So it's mainly about execution, make sure that we follow the protocols and all that.

Our next question comes from Jon Andersen with William Blair.

I had a question about kind of priorities as well. When you think about getting to 600 million liters of capacity by the end of the year, presumably, that's going to allow you to improve your fill rates, improve the supply-demand imbalances. Is your goal or would your priority be to get existing customers up to, say, 98% service levels? Or will you continue to add new customers and accept kind of a lower fill rate in aggregate? I'm just trying to understand how you're balancing that focus again on driving higher fill rates or very high fill rates with existing customers versus expanding, say, at retail in the U.S. where your ACV is much lower than a certain competitor in the oatmilk category.

Yes. Just bridging that fill rate with existing customers will add incremental sales to our business, right? And we give -- we need to honor the relationships that we have. Now we have a very disciplined manner in how we expand. So we have a couple of clear line of sight in terms of expansion, but it's not going to be anything crazy. I think the most difficult part when you speak about fill rate, it's your ability to supply versus demand, right? And if demand continues to accelerate, even if we bring everything we have there and we launch it with retail, we wouldn't know if it would hit the fill rates, right, or the service levels with customers because demand is increasing. But in terms of priorities, we're not doing anything crazy. We are super disciplined in how we are expanding. And we have great relationships, great partnership where we are. That's why also why we feel so confident. We have the doors, right? We do have the doors. So it just starts to produce and ship. And so we're going to very much stick to that as much as we can and not do anything crazy, but we are going to add some very limited number of doors during the course of this year.

Okay. That's helpful. And then just shifting gears. To think about the product portfolio and the potential evolution of the portfolio beyond milk into gurts, frozen desserts, which I know you're already doing, but has your thought on the -- your ability to shape the portfolio or move it in the direction with higher contributions from Oatgurts and other products, has that changed at all? Because I think those are higher-margin products in some cases as well. And given kind of the demand and the supply situation right now, how should we think about, again, your ability to kind of evolve the portfolio over time?

No. I mean, that's a great question. And remember one thing. What we said in the IPO is that we don't have the same structure as dairy when it comes to different categories, right? Because milk is the most commoditized category in the world of food, it's subsidized industry. Yes, like no one is making money out of cow's milk, right? So you have to produce your yogurt. You have to produce your cheese to get any margin whatsoever. Now we're not in that position here, right? We use the same oat -- type of oat base. And mainly, we use co-manufacturers when it comes to other categories. So yes, if we would have produced them in-house fully, we would have a slightly better margin. But they are equal because we feel both are on healthy margins. So if you look at the product, I mean, also, if the demand -- this is about conversion is driven by milk. Like we have to monitor that closely. But in the U.S., we have great success, already now 10% of our portfolio. It's food, right? You look at the -- when it comes to Oatgurts and ice creams or frozen items in retail, but also if you look at soft serve, our sales in soft serve is 10x what we expected it to be in the collaborations with the NBL team and 16 Handles. So we feel that if we expand into those categories, we're going to be immensely successful as well, right? So we have to prioritize there, and I think we have to be prepared and we have to monitor the development as time goes. That's how we look at it. But we will never lose innovation power and our ability to expand across the different categories, that -- like we have like devoted to this 30 years. We're not going to throw that away, right? Like we said during the IPO, we expect to distinct ourselves even further versus competition with the expertise we're bringing in and expanding across the world, right? So it's a very long answer, but it is a very interesting question that we are also following closely, that I can't give you like a direct answer on. But that's the thought process that we have, Jon.

At this time, I would like to turn the call back to management for closing comments.

I just want to thank everybody. This was our first earnings call, and we have been waiting for this, guys, to be able to meet and speak with you again. And we appreciate your questions and interest in the company. All of us look forward to meeting more of you when we attend investor events this year. So thank you so much for your questions, your participation, and have a great and fantastic day, everybody.

This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.