Good day, and welcome to the Oatly Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brian Kearney, VP of Investor Relations. Please go ahead.

Good morning, and thanks for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David. Before we begin, please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please also refer to the documents we have filed with the SEC 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. Also, please note, on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow. Please refer to today's earnings 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 supplementary presentation on its website for reference. I'd now like to turn the call over to Jean-Christophe.

Thank you, Brian, and good morning, everyone. Slide 4 has the key messages I want you to take away. First, we continue to make good progress on our 2025 priorities. Igniting top line momentum is our most important priority out of the 3, and the actions are working. We are continuing to roll out our growth playbook more broadly, and we continue to see similar results. While we are confident our playbook will continue to drive results, we are reducing our full year outlook on the top line. This reflects reduced slower-than-expected progress in our North America segment as well as a soft macro environment in our Greater China business. Importantly, we plan to drive additional cost efficiencies and keep us on track on the bottom line and we are reaffirming our adjusted EBITDA guidance. Therefore, we are refining our 2025 guidance. We now expect Constant currency revenue growth of approximately flat to plus 1%, adjusted EBITDA in the range of $5 million to $15 million which represents no change compared to our prior outlook and CapEx of approximately $20 million. Finally, we have decided to conduct a strategic review of our Greater China business with the goal of accelerating growth and maximizing value for this part of the business. Slide 5 remind you of our 3 priority areas. This year, we are focused on reducing cost, igniting top line momentum and driving profitability. We fully expect our disciplined execution on these priority areas will set us up for long-term value creation. I will start with costs on Slide 6. We have made good progress in driving efficiencies this year. In the first half of this year, we have driven down our cost of goods per liter by 10% compared to last year's first half. And Q2 is our eighth…

Thank you, JC. Good morning, everyone. Slide 12 shows how the Europe and International segment has been performing. Strong volume led double-digit revenue growth in the quarter. This steady volume-led growth, coupled with reliable operational efficiency, push the segment's EBITDA margin from the low double digits in early 2024 to the mid-teens in Q4 and Q1 and now north of 20% for quarter 2. This segment is now focused on generating incremental consumer demand, which we expect will drive continued profit improvement. Today, I will discuss how we're driving demand and our plans for the future. Slide 13 reminds you of the 3 pillars of our growth playbook. The first is to increase our relevance to consumers. As you saw in my first slide, we have significantly expanded our portfolio from a position of strength and uniqueness out of our iconic Barista original edition. We're doing so by leveraging new usage occasions and the emerging taste and flavor bonanza that Gen Z is driving and that is evolving coffee into a much broader beverages space. At the same time, our advertising has become simpler, equally arresting and with messaging focused on the barriers to conversion. The second pillar is to attack those barriers to conversion, most notably, preconceptions on taste. Anywhere we taste blind, we see that around 1 in 2 people prefer Oatly to cow's milk in their coffee. This is a very persuasive tool that we expect to intensify in our communication. We add to these our elevated signature drinks experience, so relevant in these new beverages space. And the final pillar is to increase the availability of our products to consumers. We continue to add new customers and new distribution points every day. We know there is still a tremendous amount of runway ahead of us, and…

Thank you, Daniel. Good morning, everyone. Slide 24 shows an overview of the quarterly P&L. In the quarter, we grew revenue 3% but declined 0.2% on a constant currency basis. We continue to drive strong margin expansion with Q2 gross margin, expanding 330 basis points year-over-year to 32.5%. Our adjusted EBITDA was a loss of $3.6 million in the quarter, which was approximately in line with the first quarter's level and what we guided to on last quarter's call. Both our gross margin and adjusted EBITDA are our best quarterly results as a public company. Slide 25 shows the bridging items of our revenue growth. We grew volume by 2.8% in the quarter, which was offset by a 3% decline in price/mix. Foreign exchange was a 3.2% tailwind. Slide 26 shows the driver of our year-over-year gross margin expansion. The benefits of absorption and supply chain efficiencies improved margin by 270 basis points. This reflects the benefit of closure of our Singapore manufacturing facility in December as well as volume absorption, productivity efficiencies and improved sourcing. Pricing and product mix added 110 basis points to our gross margin in the quarter. While our revenue bridge that I discussed on the prior slide showed a headwind from price mix, we drove margin mix benefit in the quarter as we reduced sales in lower margin products and customers and increased sales in higher margin ones. For example, some of the newer products in large pack sizes are dilutive to price/mix in the sales bridge, but are margin accretive. We experienced a 90 basis point headwind from inflation in the quarter, which was mainly driven by higher labor costs in our European supply chain and certain inputs in North America. Finally, the impact of foreign exchange movements added 40 basis points to gross…

[Operator Instructions] The first question today comes from Kaumil Gajrawala with Jefferies.

I guess a couple of things on the decision on the strategic review of China. The first maybe is why is now the right time? But maybe more importantly, what is an optimal outcome look like? And to give you -- maybe make it a multiple choice question is, is the preference to sell it, is the preference to raise some capital through a JV, is the preference to find a strategic that helps improve the condition of the business? If you can maybe just help us out with where you hope to get to with this review?

Kaumil, this is Jean-Christophe. Thank you so much for the multifaceted question on the same topic. So let me address them one by one. First, why? Why we're doing that is because we believe in the future potential of this business, and we are looking to maximize shareholder value. Your second question was, why now? And the why now is that after the [research] that we conducted in this business in '23 and '24, we believe this business is now leaner and stronger. And therefore, it's a good time to step back and evaluate how to accelerate its goals and maximize its value. The next thing I want to tackle is your question about what are we looking for? As we said, we are considering a range of options, including a potential carve-out. Of course, we are not going to speculate today on the ultimate outcome of this strategic review and we will provide updates on this strategic process as appropriate and when relevant. The final thing I want to insist on is that as we conduct this review, we remain fully committed to our team, to our customers and suppliers in Greater China.

Okay. Great. Got it. So looking forward to hearing about progress. On North America, I think it's -- the business was flat, excluding business losses or discontinuations. Flat still sounds like a challenged market to some degree. So why do you think that is? And what do you think you can do to turn that around? Again, excluding any of the sort of discontinuations or business losses?

Thank you, Kaumil. Daniel here. Good to speak to you again. It's important to accentuate what you said, right? So when we exclude these 2 one-offs that we are going through this year and that we expect to affect us for the year to go on a full year basis. We see a solid performance in a challenged market, as you say, the market continues to show softness, Kaumil. But as we discussed, it's plateauing. The underperformance of the market is plateauing and slightly inflecting that curve, right? So for the future, while in the short-term performance is below our expectations and our expectations, as we discussed before, is for the North American segment to be our largest and fastest growing. The opportunity remains intact for 2 reasons. In one hand, the mechanical growth, be it distribution, be it category growth and be it operational excellence, it's still to be deployed, if I'm brutally honest. On the second hand, we have every confidence that the early signs of significant improvement we're seeing in Europe can be fully deployed in North America. If you want, I can elaborate why, but the consumer and the demand situation in Europe compared to North America is similar. Beyond the most vegan and climate-focused consumers, the barrier beyond those taste continues to be the #1 barrier to consumption, North America and Europe are identical. Whether we taste in Germany or the U.K. or in the U.S., 1 out of 2 Americans preferred Oatly to cow's milk in their coffee. The brand is equally strong and equally hot in both markets. And also the way coffee is developing in Europe and in North America is identical. It's going from the [oat latte] cappuccino mostly, warm mostly in winter to a raft of choices and signature drinks mostly cold. So all of that combined proves that when we are able to execute the playbook and invest accordingly in full, Kaumil, the same dynamics will progress.

The next question comes from John Baumgartner with Mizuho.

Maybe first off, Daniel, if I can come back to North America and just keep on this topic, I think just given the magnitude and duration of the volume declines at this point for the category, we're 4, 5 years into this, it seems like it's become less of an issue of maybe reduced frequency by existing households and more just folks leaving the category. And I appreciate the growth playbook and flavor innovation, but to the extent -- I mean, I guess, to what extent is this weakness just simply the protein content in the U.S. relative to traditional dairy, whether it's protein and trend, GLP-1s, whatever it may be, which might limit the ability or ease of duplicating some of the turnarounds that you've highlighted in Europe?

That's a very provocative question. You made the point as you have done in the past about frequency and penetration, John, and I totally get it. If we go through some facts, the reality of the penetration numbers is not necessarily showing that. Penetration for oat milk in the U.S., it's stable. And in the case of Oatly has shown consistent decimals of growth in our yearly and monthly penetration. So there is a relevance and there is a frequency topic that we are addressing and point taken about protein. The reality, as we have discussed in previous calls and one-on-one, the protein topic is more of a value phenomenon in North America, less than a volume phenomenon when you look at the dairy category. We will be hand-in-hand focused on driving relevance. We don't make a choice between health, protein, fibers and we strongly believe that we are focused on driving both penetration and frequency in that order -- penetration and frequency in that order, taste remains the #1 barrier to consumption for plant-based products and certainly for oat milk and plant-based milk. So you will see us without ignoring the point of our protein, a lot of focus on the health topic via enhanced fiber content, wholeheartedly driving the taste strategy, which is proven -- is starting to prove to work in Europe, John.

Okay. And then a follow-up on the P&L. You identified these incremental SG&A savings for this year and moving forward as well. Can you detail a bit more where these savings are derived? I think you mentioned some procurement, but I mean, I guess, what prompted these reductions right now? Can you isolate the savings between corporate expenses relative to the individual segments? And then I guess, to what extent should investors feel confident that you're not cutting too close where it begins to sacrifice resources for growth?

John, this is Marie-Jose. I expected this question, to be honest. So first, as you know, over the past 2 years, we've gone through 2 big savings programs, which allow us to look at all the details and understanding in a very deep detail our cost structure. So what does it mean? It means that this approach led us to be in a place where either we want to be aggressive at all costs, which is absolutely not the way that we are looking at it. We are looking at it with the approach where we want to be aggressive, but with the right level of efficiencies and refueling as well the top line. So the way that I want you to think about it is, it's about efficiency, without hurting the business. And it's about what we had identified as additional SG&A savings. With that said, let me double click on those additional SG&A savings. Most of it will come from corporate, just answer to your question. Yes, it's a part of the indirect savings, which we will come from initiatives, right? I mean, I'm not going to tell you all the initiatives that it could be just like centralizing some contracts, it could be like professionalize our way of negotiating. So that's one thing. The other things are coming from the efficiencies that we have been looking at, analyzing and making sure that they will come through as we go into the year. So clearly, corporate segment aggressive as we can without working the business on both sides, efficiencies and incremental from indirect. Hope this answers.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.