UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of August, 2021

Commission File Number: 001-40401

 

Oatly Group AB

(Translation of registrant’s name into English)

 

Jagaregatan 4

211 19 Malmö

Sweden

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☒    Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes  ☐    No  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes  ☐    No  ☒

 

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Oatly Group AB

 

Interim condensed consolidated financial statements

For the three and six months ended June 30, 2021

 

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Table of contents

 

 

 

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Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

Interim condensed consolidated statement of operations

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Interim condensed consolidated statement of comprehensive (loss)/income

 

 

Loss for the period and total comprehensive (loss)/income are, in their entirety, attributable to shareholders of the parent.

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Interim condensed consolidated statement of financial position

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Interim condensed consolidated statement of changes in equity

 

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Interim condensed consolidated statement of cash flows

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

Note 1. Corporate information

Oatly Group AB (the “Company” or the “parent”) is a limited company incorporated and domiciled in Sweden. The Company’s registered office is located at Jagaregatan 4, Malmö, Sweden.

Oatly Group AB and its subsidiaries (together, the “Group”) manufacture, distribute and sell oat-based products.

Note 2. Summary of significant Accounting Policies

The interim condensed consolidated financial statements of Oatly AB for the three and six months ended June 30, 2021 and 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2020, as they do not include all the information and disclosures required in the annual consolidated financial statements. Interim results are not necessarily indicative of the results for a full year. The interim condensed consolidated financial statements are presented in thousands of U.S. dollars.

New and amended standards and interpretations issued but not yet adopted

There are no International Financial Reporting Standards (“IFRS”) or International Financial Reporting Standards Implementation Committee (“IFRS IC”) interpretations that are expected to have a material impact on the Group in the current or future reporting periods nor on foreseeable future transactions.

Note 3. Significant accounting judgments, estimates and assessments

In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2020.

During the three and six months ended June 30, 2021 areas with new events requiring estimates and judgments compared to the year ended December 31, 2020 were:

Group as lessee

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

The majority of the extension options in properties and production equipment have not been included in the lease liability, primarily due to the fact that the Group could replace the assets without significant cost or business disruption. However, for two new production plants, which commenced during the three months ended March 31, 2021, extension options have been included in the lease term since the Group intends to make larger investments in the plants. The total lease terms for these production plants are 10 and 20 years, respectively. For one existing production plant, the contract was amended during the period and additional extension options have been included for a total lease term of 40 years.

The lease term is reassessed when it is decided that an option will be exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, that affects this assessment and that is within the control of the lessee. Refer to Note 11 for further details.

Financial assets

Part of the proceeds from the Company’s initial public offering (“IPO”) has been invested in different short-term investments with low risk and high liquidity for the purpose of securing and increasing the value until the cash is needed for other purposes in the operations of the Group, for example investment in new production facilities.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

The short-term investments are primarily comprised of funds, bonds and certificates carried at fair value through profit and loss. The primary purpose of the portfolio is to secure and increase value of the investments compared to keeping cash in bank accounts, until cash is needed for other investments in the business, for example new production facilities. Based on the primary purpose of the portfolio and indicators identified in the IFRS 9 Financial Instruments test, the overall assessment is that the portfolio is the business model “Other”. The investments in the portfolio are therefore recognized at fair value through profit or loss and presented as short-term investments and cash and cash equivalents in the statement of financial position. For more detailed accounting principles, see Note 2 in the Group’s consolidated financial statements for the year ended December 31, 2020, included in the Company’s final prospectus filed pursuant to Rule 424(b)(4) for its IPO. For details on fair value, see Note 12. For details of the investments, see Note 15 and Note 16.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value for stock options is estimated using a model, which requires the determination of the appropriate inputs. The assumptions and models used for estimating the fair value of share-based payment transactions are disclosed in Note 6.

Note 4. Seasonality

During the periods covered by this report, we have not experienced any pronounced seasonality, but such fluctuations may have been masked by our rapid growth.

Note 5. Segment information

The CEO is the chief operating decision maker of the Group. The CEO evaluates financial position and performance and makes strategic decisions. The CEO makes decisions on the allocation of resources and evaluates performance based on geographic perspective. Internal reporting is also based on the geographic perspective. Geographically, the CEO considers the performance in Europe, the Middle East and Africa (“EMEA”), Americas and Asia; thus, three geographical areas are considered to be the Group’s three reportable segments.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

 

 

Note 6. Share-based compensation

The warrants outstanding as at March 31, 2021 have been either exercised or forfeited during the three months ended June 30, 2021, as follows:

 

* Warrant holders had the right to subscribe to 27 ordinary shares per warrant.

During the three months ended June 30, 2021, in connection with the IPO, the Company implemented a new incentive award program, the 2021 Incentive Award Plan (“2021 Plan”). The principal purpose of the 2021 Plan is to attract, retain and motivate selected employees, consultants and members of the Board of Directors through the granting of share-based compensation awards and cash-based performance bonus awards from 2021 and onwards. 69,496,515 shares have been reserved for grants pursuant to a variety of share-based compensation awards, including, but not limited to, stock options and restricted stock units (“RSUs”). To secure the future delivery of the shares under the 2021 Plan the shareholders resolved to issue 69,496,515 warrants. The right to subscribe for the warrants shall only vest in the Company.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

During the three months ended June 30, 2021, the Company, under the 2021 Plan, issued 1,215,952 RSUs to employees and 41,175 RSUs to members of the Board of Directors. The RSUs are accounted for as equity-settled share-based payment transactions. The RSUs are measured based on the fair market value of the underlying ordinary shares on the date of grant. The RSUs granted to employees vest gradually over three years from date of grant, subject to continued service. The RSUs granted to members of its Board of Directors vest over one year from date of grant, subject to continued service.

Activity in the Group’s RSUs outstanding and related information is as follows:

 

During the three months ended June 30, 2021, the Company, under the 2021 Plan, issued 6,867,649 stock options to employees, of which 5,750,002 were issued to members of key management. The stock options are accounted for as equity-settled share-based payment transactions. For stock options granted under the 2021 Plan, the exercise price is equal to the fair value of the ordinary shares on grant date. The exercise price is included in the grant date fair value of the award. The stock options granted to participants under the 2021 Plan vest in equal instalments on each of the first three anniversaries of the date of grant, subject to continued service. The stock options expire, in relation to each instalment under the vesting schedule, five years after vesting, corresponding to a total term of six, seven and eight years for the respective instalment.

Activity in the Group’s stock options outstanding and related information is as follows:

 

 

The fair value at grant date of stock options granted during the three months period ending June 30, 2021 was SEK 6.24. The fair value of the stock options at grant date has been determined using the Black-Scholes option-pricing model, which takes into account the exercise price, the expected term of the stock options, the share price at grant date, expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the stock options and the correlations and volatilities of the peer Group companies. The Company does not anticipate paying any cash dividends in the near future and therefore uses an expected dividend yield of zero in the option valuation model.

The following table lists the inputs to the Black-Scholes option-pricing model used for stock options granted during the three months ended June 30, 2021:

 

Share-based payments expense were $4.5 million and $0.0 million for the three months ended June 30, 2021 and 2020, respectively, and $4.5 million and $1.0 million for the six months ended June 30, 2021 and 2020, respectively.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

Note 7. Finance income and expenses

 

Note 8. Income tax

The effective tax rates for the three months period ended June 30, 2021 and 2020 were (0.4%) and (9.6%), respectively. The effective tax rates for the six months period ended June 30, 2021 and 2020 were (2.5%) and (6.3%), respectively. The main driver of the Group’s effective tax rate is unrecognized tax losses in Sweden and certain other jurisdictions. The Group operates in a global environment with significant operations in various jurisdictions outside Sweden. Accordingly, the consolidated income tax rate is a composite rate reflecting the Group’s earnings and the applicable tax rates in the various jurisdictions where the Group operates, and whether or not deferred tax assets are able to be recognized.

Note 9. Intangible assets

A summary of the intangible assets as at June 30, 2021 and December 31, 2020 is as follows:

 

The amortization expense for the three months ended June 30, 2021 and 2020 was $0.5 million and $0.2 million, respectively. The amortization expense for the six months ended June 30, 2021 and 2020 was $0.8 million and $0.2 million, respectively.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

Note 10. Property, Plant and Equipment

A summary of property, plant, and equipment as at June 30, 2021 and December 31, 2020 is as follows:

 

The increase in construction in progress during the six months ended June 30, 2021 is mainly related to investment in new and existing production facilities.

The reclassifications between Constructions in progress and Land and buildings and Plant and machinery are mainly related to part of the Ogden, Utah production facility which was completed during the six months period ended June 30, 2021.

The depreciation expense for the three months ended June 30, 2021 and 2020 was $2.3 million and $1.5 million, respectively. The depreciation expense for the six months ended June 30, 2021 and 2020 was $4.0 million and $2.9 million, respectively.

Note 11. Leases

The lease agreement for the production facility in Ogden, Utah, originally had a lease term of total 20 years (including extension options). The lease was modified during the period ending June 30, 2021 in regards of the lease term adding options to extend the lease further from December 31, 2038 to December 31, 2061. The Group has assessed it as reasonably certain that all extension periods will be utilized up until 2061. The addition to the right-of-use asset as a result of the modification amounts to $4.7 million.

In addition to the modification above, the lease was also amended with two additional buildings at the Ogden production facility. One addition commenced in June 2021, and the commencement date for the second addition is December 31, 2022.

Furthermore, three lease agreements regarding production facilities were entered into during the three and six months ended June 30, 2021:

Lease terms for properties are generally between 1 and 10 years, except for the production facilities in Ogden, Utah and Fort Worth, Texas described above. Lease terms for production equipment are generally between one and five years. The Group also has leases with a

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

shorter lease term than 12 months and leases pertaining to assets of low value, such as office equipment. For these, the Group has chosen to apply the exemption rules in IFRS 16 Leases, meaning the value of these contracts is not part of the right-of-use asset or lease liability.

Below is the roll-forward of lease right-of-use assets

 

 

The increase for the six months ended June 30, 2021 mainly relates to the lease agreements described above.

Below is the maturity analysis of lease liabilities:

 

 

During the six months ended June 30, 2021, the Group entered into certain lease agreements which have not commenced as of June 30, 2021, and as such, have not been recognized in the interim condensed consolidated statement of financial position. For more information see Note 24.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

Note 12. Fair value of Financial Instruments

This note explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards.

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques, which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Specific valuation techniques used in level 2 to value financial instruments include:

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities.

 

There were no transfers between the levels during the six months ended June 30, 2021 and the six months ended June 30, 2020.

The fair value of liabilities to credit institutions is estimated to correspond to the carrying amount since all borrowing is at a floating interest rate, and the credit risk in the Group has not changed significantly.

The carrying amount of other financial instruments in the Group is a reasonable approximation of fair value since they are short-term, and the discount effect is not significant.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

Note 13. Inventories

 

Inventories recognized as an expense for the three months ended June 30, 2021 and 2020 amounted to $101.2 million and $61.8 million, respectively. Inventories recognized as an expense for the six months ended June 30, 2021 and 2020 amounted to $195.0 million and $117.7 million, respectively. The expenses were included in cost of goods sold.

Write-downs of inventories to net realizable value for the three months ended June 30, 2021 and 2020 amounted to $0.5 million and $0.8 million, respectively. Write-downs of inventories to net realizable value for the six months ended June 30, 2021 and 2020 amounted to $1.0 million and $1.6 million, respectively. The write-downs were recognized as an expense for each period and included in cost of goods sold.

Note 14. Trade receivables

 

Carrying amounts, by currency, expressed in thousands of U.S. dollars, for the Group’s trade receivables are as follows:

 

The maximum exposure to credit risk on the date of the statement of financial position is the carrying amounts according to the above.

Note 15. Short-term investments

 

 

Some of the cash received in the IPO has been invested in different short-term investments for the purpose of securing and increasing the value until the cash is needed for investments in the business, including, for example, new production facilities. The short-term investments are made in SEK and USD.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

Funds consist of primarily “money market funds”, i.e. a kind of mutual fund that invests in highly liquid, near-term instruments and high-credit-rating, debt-based securities with a short-term maturity. 

Bonds and certificates consist of corporate bonds and commercial papers.

The changes in fair value recorded in the profit and loss for the three and six months ended June 30, 2021 were $31 thousand. The fair value changes were recognized as an expense and included in Finance income and expenses, net.

Note 16. Cash and cash equivalents

 

Short-term deposits are time deposits and structured deposits, with maturities of 1 to 9 months. The deposits can be withdrawn at any time before maturity date. The expected change in value is assessed as insignificant since the amount received cannot be less than the amount deposited.

Note 17. Share capital and other contributed capital

As of December 31, 2020, the Company had 433,502 thousand A-shares, 46,798 thousand B-shares and 1,406 thousand G-shares outstanding.

At an extraordinary general meeting held on March 15, 2021 a bonus issue with a registration date of March 22, 2021 was made. The bonus issue resulted in an increase in the share capital of $62.8 thousand (SEK 535.2 thousand). The number of shares were unchanged. The par value per share changed to $0.00017 (SEK 0.00148).

At an extraordinary general meeting on May 4, 2021, the shareholders of the Company approved to adopt new articles of association according to the Board’s proposal. As a consequence of the adoption of the new articles of association, the share classes were removed so that the Company only has ordinary shares.

On the date of the IPO, on May 20, 2021 the following transactions were carried out:

As of June 30, 2021 591,777 thousand ordinary shares were outstanding and the par value per share was $0.00018 (SEK 0.0015).

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

Note 18. Liabilities to credit institutions

 

 

During the six months ended June 30, 2021 the Group utilized GBP in the equivalent of $54.9 million, and USD in the equivalent of $50 million, of the multi-currency facility available. The credit had a maturity of three months for every drawdown and could be extended on a rolling three-month basis. The interest rate was GBP and USD Libor three months. The credits were repaid in May 2021.

On April 14, 2021, the Group entered into a Sustainable Revolving Credit Facility Agreement (the “SRCF Agreement”) including a multicurrency revolving credit facility of SEK 3.6 billion with an accordion option of another SEK 850 million, subject to the fulfilment of certain conditions and at the lenders’ discretion. The SRCF Agreement have replaced the previous financing agreement. The initial term of the SRCF Agreement is three years from May 20, 2021 with an option to extend twice, for one additional year each at the lenders’ discretion. Borrowings under the SRCF Agreement are repayable at the end of the interest period to which that loan relates and carry an interest rate of the aggregate of the applicable margin and SONIA, LIBOR (with a rate switch to SOFR), STIBOR or EURIBOR, depending on the denominated currency, amounts loaned and if the denominated currency is a rate switch currency. Under the SRCF Agreement, the Group is subject to both financial and non-financial covenants. The non-financial covenants are covenants linked to sustainability measures. The financial covenants are tangible solvency, minimum EBITDA and liquidity requirements. The financial covenants are subject to a conversion right and it may be exercised at our discretion from December 31, 2023, and following such conversion, the existing tangible solvency, minimum EBITDA and liquidity covenants will fall away and be replaced with a total net leverage ratio. The SRCF Agreement also contains limitations on the Group’s ability to pay dividends until the Group exercise their covenant conversion right.

At June 30, 2021 the Group has not utilized any loan amounts under the new SRCF agreement. The Liabilities to credit institutions balance at June 30, 2021 is related to outstanding amounts on the European Investment Fund Facility (the “EIF Facility”) which was entered into in October 2019.

During the six months ended June 30, 2021 the credit agreement with Israel Discount Bank of New York (the “IDB Facility”) was pre-terminated as of 30 June 2021.

Note 19. Provisions

 

The provision relates to restoration costs for leased production facilities.

Note 20. Shareholder loan

During the three months ended June 30, 2021, the Company and the majority shareholders extended the final repayment date of the Subordinated Bridge Facilities from April 1, 2021 to the earlier of (a) the date of settlement in respect of the initial public offering of shares (or related instruments) in Oatly Group AB in the U.S. and (b) August 17, 2021. In May 2021, $10.9 million was repaid in cash, and the remainder was converted into 6,124,004 ordinary shares at a price equal to the public price in the initial public offering.

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

Note 21. Accrued expenses

 

Note 22. Related party disclosures

Share-based compensation to related parties

Information about share-based compensation to related parties is found in Note 6 Share-based compensation.

Loans to related parties

During 2016 to 2020, the Group granted warrants to certain members of the key management, other employees and to an entity controlled by related parties. In addition to the warrants, the Group issued full recourse loans at a market rate to the participants for the purchase price of the warrants. The balances outstanding relating to certain members of key management was $3.3 million at December 31, 2020. In connection with the Company’s IPO in May 2021, the warrants were exercised, and the loans were repaid by the warrant holders.

Shareholder loans from related parties

The shareholder loans received during 2020 have been completely settled during the three months period ended June 30, 2021. For more information, see Note 20.

Note 23. Loss per share

 

 

Loss per share was calculated as follows:

 

 

Potential dilutive securities that were not included in the diluted loss per share calculations because they would be anti-dilutive were as follows:

 

 

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Notes to the interim condensed consolidated financial statements

(in thousands of U.S. dollars unless otherwise stated)

 

 

Note 24. Commitments and Contingencies

Commitments

Minimum purchase commitments

The Group has several supplier contracts primarily for production and packaging services where minimum purchase commitments exist in the contract terms. The commitments are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used and fixed, minimum or variable price provisions. Historically, the Group’s annual purchase volumes have exceeded the minimum purchase commitments, and the Group expects the volumes to continue to exceed the minimum purchase commitments going forward.

Leases and property, plant and equipment

The Group has the following lease agreements, which had not commenced as of June 30, 2021, but the Group is committed to:

In addition to the lease agreements above, the Group is committed to two purchase agreements regarding production equipment in Peterborough, UK under which the Group’s obligations amount to $71.8 million. The production equipment is expected to be delivered in 2022.

Legal contingencies

From time to time, the Group may be involved in various claims and legal proceedings related to claims arising out of the operations. During the period ended June 30, 2021, the Group was not a party to any material legal proceedings, including any such proceedings that are pending or threatened, of which the Group is aware.

Note 25. Events after the reporting period

In July and August 2021, securities class action complaints were filed, captioned Jochims v. Oatly Group AB et al, Docket No. 1:21-cv-06360 and Bentley v. Oatly Group AB et al, Docket No. 1.21-cv-06485, in the United States District Court for the Southern District of New York against the Company, and certain of its officers and directors alleging violations of the Securities Act of 1934 and SEC Rule 10b5-1. The Company disputes each and every claim and intends to defend the matter vigorously.

In July 2021, the Group entered into a new lease agreement regarding a production facility in Peterborough, UK, under which the Group’s obligations amount to $61.9 million over the lifetime of the lease, and the commencement date is expected to be in 2022.

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This discussion and analysis reflects our historical results of operations and financial position and contains estimates and forward-looking statements. All statements other than statements of historical fact are forward-looking statements. The words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible,” and similar words are intended to identify estimates and forward-looking statements.

Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks and uncertainties and are made in light of information currently available to us. Many important factors may adversely affect our results as indicated in forward-looking statements. These factors include, but are not limited to:

We operate in an evolving environment. New risk factors and uncertainties emerge from time to time, and it is not possible for our management to predict all risk factors and uncertainties, nor are we able to assess the impact of all of these risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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We qualify all of our forward-looking statements by these cautionary statements. For additional information, refer to the risk factors discussed under the section titled “Risk Factors” in our prospectus, dated May 19, 2021, filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act on May 21, 2021 (the “Prospectus”), and in our other filings with the U.S. Securities and Exchange Commission (“SEC”).

You should read this discussion and analysis completely and with the understanding that our actual future results may be materially different from our expectations.

Investors and others should note that we announce material financial information to our investors using our Investors website (investors.oatly.com), SEC filings, press releases, public conference calls, and webcasts. We use these channels, as well as social media, to communicate with our users and the public about our company and other issues. It is possible that the information we post on these channels could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our Company to review the information we post on the channels listed on our Investors website.

Overview

We are the world’s original and largest oatmilk company. For over 25 years, we have exclusively focused on developing expertise around oats: a global power crop with inherent properties suited for sustainability and human health. Our commitment to oats has resulted in core technical advancements that enabled us to unlock the breadth of the dairy portfolio, including milks, ice creams, yogurts, cooking creams, spreads and on-the-go drinks. Since our founding, we have had a bold vision for a food system that is better for people and the planet. We believe that transforming the food industry is necessary to face humanity’s greatest challenges across climate, environment, health and lifestyle and have not only positioned our brand to capitalize on the growing consumer interest in sustainable, plant- based foods and dairy alternatives, but we have become a driving force behind increased consumer awareness and transition from traditional dairy consumers to Oatly. We believe there is substantial opportunity to grow our consumer base, increase the velocity at which households purchase our products and disrupt the global dairy market of approximately $600 billion in the retail channel alone.

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 through e-commerce channels such as Alibaba’s Tmall.

On May 24, 2021, we completed our initial public offering of common stock, in which we sold 64,688,000 American Depositary Shares (“ADSs”), each representing one ordinary share, and the selling shareholders sold an aggregate of 32,344,400 ADSs, including 12,656,400 ADSs sold by the selling shareholders pursuant to the underwriters’ over-allotment option. The ADSs began trading on the Nasdaq Global Select Market on May 20, 2021. The ADSs were sold at an initial public offering price of $17.00 per share for net proceeds to the Company of approximately $1,037.3 million, after deducting underwriting discounts and commissions of $52.2 million and offering expenses of $10.1 million payable by us.

Components of Results of Operations and Trends and Other Factors Affecting our Business

The following briefly describes the components of revenue and expenses as presented in our consolidated statements of operations and trends and other factors affecting our business.

Supply chain update

To date, our growth has been constrained by our production capacity, as consumer demand for our products continues to outpace our global capacity.

For the three and six months ended June 30, 2021, approximately 53% and 53% of our products, respectively, were produced through the co-packing and complete outsourcing model, 27% and 27% through a hybrid model, respectively, and 20% and 20% through our own end-to-end manufacturing, respectively. In the long term, we plan for the majority of our production to be through a full end-to-end production model, as we believe this will allow us to drive speed to market and have the strongest product quality, economics and sustainability integration.

The majority of our capital expenditures for the six months ended June 30, 2021 reflect our global, strategic production capacity investments, and we expect this to continue for the foreseeable future. We have doubled our oat base capacity in our hybrid facility in Vlissingen, Netherlands during the first half of 2021 and we expect that it will take several quarters until we realize the full potential of that new capacity. In addition, we began production of oat base during the first quarter at our facility in Ogden, Utah (self-manufacturing), which we shipped to a copacker for filling. We continued the ramping up of our Ogden facility during the second quarter with both oat base and in-house filling of chilled and ambient products and we expect the ramping up phase to continue through the third and fourth quarters according

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to plan.  We began commercial production at our new facility in Singapore (hybrid) in July and our new facility in Maanshan in the Anhui province in eastern China (self-manufacturing) is still tracking for end of year 2021.  We expect that these expansions will in the aggregate result in approximately one billion liters of finished goods equivalent of oat base capacity at the end of financial year 2022. We also recently announced our plans to construct a facility in Peterborough, the United Kingdom and a facility in Fort Worth, Texas. We are also investing in improvements to our existing facilities and manufacturing equipment. We are financing these expansions and improvements through a combination of cash, including the proceeds of our initial public offering in May 2021, our credit facilities described under “Credit Facilities” and the leasing arrangements described under “Contractual Obligations and Commitments”. In the six months ended June 30, 2021 we invested $134.4 million, in property, plant and equipment to expand our production capacity.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has impacted our business operations and customer and consumer demand. Although certain government restrictions around the world imposed as a result of the COVID-19 pandemic have begun to be lifted and certain exceptions to these restrictions have allowed for takeaway and delivery, which have enabled certain of our customers to continue to generate business, we experienced a deterioration in sales to coffee shops and restaurant customers during the second quarter of 2020 as stay-at-home orders became and remained more widespread. However, we also experienced an increase in retail demand beginning in the second quarter of 2020 as consumers shifted toward more at-home consumption, and we transitioned our distribution to meet this shift. We began to notice an improvement in the foodservices channel during the second half of 2020 as some of our key markets began to reduce some of the restrictions. This trend has continued during the first half 2021.  

We have implemented and continue to practice a series of physical distancing and safety practices at our production facilities, which may result in increases in long-term operation costs. If we are forced to make further modifications or scale back hours of production in response to the pandemic, we expect our business, financial condition and results of operations would be materially adversely affected. Because we currently sell all products we produce, if we were forced to close any of our facilities as a result of the pandemic or any new government regulations imposed in any of the countries in which our facilities operate, this would materially affect our results of operations. To date, other than one closure for a few days at our Vlissingen facility in mid-April 2021, we have not closed any of our production facilities in response to the pandemic, but we have experienced delays in the construction of our new facilities in Singapore and Ogden as a result of COVID-19, and there can be no assurance that there will not be closures or additional delays in the future as a result of the COVID-19 pandemic. The pandemic has also negatively impacted our rate of research and innovation, as we have experienced delays in tests and launches of our new products. The environment remains highly uncertain, including the length of time needed to vaccinate a significant segment of the global population and effectiveness of the vaccines with respect to the new variants of the virus, and we are continuing to closely monitor the impact of the COVID-19 pandemic on our business.

Revenue

We generate revenue primarily from sales of our oatmilk and other oat-based products across our three geographic regions: EMEA, Americas and Asia. Our customers include retailers, e-commerce channels, coffee shops and other specialty providers within the foodservice industry.

EMEA has been our largest region to date, followed by Americas and Asia. Currently, our primary markets in EMEA are Sweden, the United Kingdom and Germany. In the Americas, substantially all of our revenue to date can be attributed to the United States, and in Asia, the majority of our revenue is generated in China. The channel and product mix vary by country, where our more mature markets, such as Sweden and Finland, have a broader product portfolio available to customers and consumers.

We routinely offer sales discounts and promotions through various programs to customers. These programs include rebates, temporary on-shelf price reductions, retailer advertisements, product coupons and other trade activities. The expense associated with these discounts and promotions is estimated and recorded as a reduction in total gross revenue in order to arrive at reported net revenue. We anticipate that these promotional activities could impact our net revenue and that changes in such activities could impact period-over-period results.

To date we have experienced accelerated demand and our revenue growth has been constrained by limitations in our production capacity. As noted above we plan to significantly increase our capacity to support our continued expansion and revenue growth across our three geographic regions.

The following factors and trends in our business have driven net revenue growth over prior periods and are expected to be key drivers of our net revenue growth going forward:

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Expand global production capacity to meet unmet demand.

Cost of goods sold

Cost of goods sold consists primarily of the cost of oats and other raw materials, product packaging, co-manufacturing fees, direct labor and associated overhead costs and property, plant and equipment depreciation. Our cost of goods sold also includes warehousing and transportation of inventory. We expect our cost of goods sold to increase in absolute dollars to support our growth. However, we expect that, over time, cost of goods sold will decrease as a percentage of net revenue, as a result of the scaling of our business and optimizing our production footprint.

Gross profit and margin

Gross profit consists of our net revenue less costs of goods sold. We have scaled our production quickly, with a priority on growth and meeting demand over gross profit and margin optimization. As we continue to expand production by moving production capacity closer to our customers and consumers, shifting towards hybrid and end-to-end production solutions, we expect to gradually improve our manufacturing operational performance and leverage the cost of our fixed production and staff costs.

Operating expenses

Research and development expenses consist primarily of personnel related expenses for our research and development staff, including salaries, benefits and bonuses, but also third-party consultancy fees and expenses incurred related to product trial runs. Our research and development efforts are focused on enhancements to our existing product formulations and production processes in addition to the development of new products. We expect these expenses to increase somewhat in absolute dollars but to slightly decrease as a percentage of revenue as we continue to scale production.

Selling, general and administrative expenses include primarily personnel related expenses, brand awareness and advertising costs, costs associated with consumer promotions, product samples and sales aids. These also include customer distribution costs, i.e. outbound shipping and handling costs for finished goods, and other functional related selling and marketing expenses, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Selling, general and administrative expenses also include auditor fees and other third-party consultancy fees, expenses related to management, finance and accounting, information technology, human resources and other office functions. We expect selling, general and administrative expenses to increase in absolute dollars as we increase our expansion efforts to meet our product demand but to decrease as a percentage of revenue over time.

Other operating (expense)/income consists primarily of net foreign exchange gains (losses) on operating related activities.

Net finance expense primarily consists of interest expense related to loans from credit institutions, interest expense on lease liabilities and foreign exchange losses attributable to our financing arrangements.

Income tax expense represents both current and deferred income tax expenses. Current tax expenses primarily represent income taxes based on income in multiple foreign jurisdictions.

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Results of Operations

The following table sets forth the consolidated statements of operations in U.S. dollars and as a percentage of revenue for the periods presented.

 

For the three and six months ended June 30, 2021 and 2020

Revenue

Revenue increased by $50.8 million, or 53.3%, to $146.2 million for the three months ended June 30, 2021, net of sales discounts, rebates and trade promotions from $95.3 million for the three months ended June 30, 2020, which was primarily a result of the additional supply coming from our existing and new facilities to meet the growing demand we have for our products. The foreign exchange benefit on revenues was approximately $10.2 million.  The produced finished goods volume for the second quarter of 2021 amounted to 106 million liters compared to 74 million liters for the same period last year, an increase of 43.2%.

The Company experienced broad-based growth across retail and foodservice sales channels for the three months ended June 30, 2021. The Retail Channel experienced a significant increase in sales during the second quarter of 2020 more than offsetting the decline we recorded in the Foodservice Channel, primarily noticeable in Americas, as a consequence of market imposed COVID-19 restrictions. The Foodservice channel has rebounded compared to prior year period with the reopening of on-premise outlets from the relaxation of COVID-19 restrictions in our key markets.  For the three months ended June 30, 2021 and 2020, the Foodservice channel accounted for 33.2% and 21.6% of our revenue, respectively, and the Retail Channel accounted for 61.5% and 74.5% of our revenue, respectively.

EMEA, the Americas and Asia accounted for 53.7%, 28.3% and 18.0% of our total revenue in the three months ended June 30, 2021, respectively, as compared to 62.6%, 26.3% and 11.1% of our total revenue in the three months ended June 30, 2020, respectively.

Revenue increased by $106.7 million, or 59.4%, to $286.2 million for the six months ended June 30, 2021, net of sales discounts, rebates and trade promotions from $179.6 million for the six months ended June 30, 2020, which was primarily a result of the additional supply coming from our existing and new facilities to meet the growing demand we have for our products. The foreign exchange benefit on revenues was approximately $19.4 million. We produced 196 million finished goods liters equivalent of oat base for the first six months of 2021 compared to 135 million liters for the same period last year, an increase of 45.2%.

The Company experienced broad-based growth across retail and foodservice sales channels for the six months ended June 30, 2021. For the first six months ended June 30, 2021 and 2020, the Foodservice channel accounted for 31.7% and 21.5% of our revenue, respectively and the Retail Channel accounted for 63.6% and 74.7% of our revenue, respectively. As noted above, during the second quarter of 2020 we experienced a significant shift in sales from Foodservice to Retail more than offsetting the decline in Foodservice sales. Starting in the second half of 2020, we have seen a noticeable rebound in the Foodservice channel.

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EMEA, the Americas and Asia accounted for 56.0%, 26.2% and 17.9% of our total revenue in the six months ended June 30, 2021, respectively, as compared to 66.2%, 25.3% and 8.6% of our total revenue in the six months ended June 30, 2020, respectively.

As of June 30, 2021 our products were available at over 65,000 retail doors and over 60,000 foodservice doors, respectively.

Our employee headcount increased significantly compared to prior year in order to support the significant growth of our business growing from 568 headcount as of June 30, 2020 to 1,478 as of June 30, 2021.

Cost of goods sold

Cost of goods sold increased by $43.0 million, or 66.7%, to $107.5 million for the three months ended June 30, 2021, from $64.5 million for the three months ended June 30, 2020, which was primarily a result of higher revenue across our three segments.

Cost of goods sold increased by $84.2 million, or 69.3%, to $205.7 million for the six months ended June 30, 2021, from $121.5 million for the six months ended June 30, 2020, which was primarily a result of higher revenue across our three segments.

We have to date experienced limited material cost inflation compared to prior year as we have benefited from volume growth, except for rapeseed oil.  Rapeseed oil accounts for a minor portion of our total cost of goods sold. We have noticed an increase in freight costs driven by the effects of the pandemic, primarily in Americas and EMEA driven by shortage in capacity. We have also seen 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 headwinds.  

Gross profit and margin

Gross profit increased by $7.8 million, or 25.3%, to $38.6 million for the three months ended June 30, 2021, from $30.8 million in the same period in 2020. Gross margin decreased by 5.9%, to 26.4% for the three months ended June 30, 2021, from 32.3% for the three months ended June 30, 2020, which was due to a number of factors, primarily due to higher logistics expenses in EMEA and the United States 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, to a lesser extent, negative impacts from foreign exchange.

Gross profit increased by $22.4 million, or 38.6%, to $80.5 million for the six months ended June 30, 2021, from $58.1 million in the same period in 2020. Gross margin decreased by 4.2%, to 28.1% for the six months ended June 30, 2021, from 32.4% for the six months ended June 30, 2020, which was due to a number of factors, primarily due to higher logistics expenses in EMEA and the United States as well as higher container rates for our shipments from EMEA to Asia, a change in segment, channel and customer mix and a higher share of co-packing production.

Research and development expenses

Research and development expenses increased by $2.6 million, or 203.3%, to $4.0 million for the three months ended June 30, 2021, from $1.3 million for the three months ended June 30, 2020 and as a share of revenues 2.7% and 1.4%, respectively. This increase was primarily due to an increase of $1.8 million in employee related expenses due to higher headcount, which include $0.3 million in costs for the 2021 Plan, and $0.4 million in consultant and other professional fees.

Research and development expenses increased by $4.6 million, or 183.8%, to $7.0 million for the six months ended June 30, 2021, from $2.5 million for the six months ended June 30, 2020, and as a share of revenues 2.5% and 1.4%, respectively. This increase was primarily due to an increase of $3.4 million in employee related expenses due to higher headcount, which include $0.3 million in costs for the 2021 Plan, and $0.5 million in consultant and other professional fees.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses increased by $49.8 million, or 149.3%, to $83.1 million for the three months ended June 30, 2021 from $33.3 million for the three months ended June 30, 2020 and as a share of revenues 56.9% and 35.0%, respectively. This increase was primarily due to an increase of $22.3 million in employee related expenses, which include $4.0 million in costs for the 2021 Plan, as a result of increased headcount as we continue to invest in our growth and also added headcount for being a public company. For additional information regarding the 2021 Plan, see Note 6 to our condensed consolidated financial statements, which are included elsewhere in this report. There also were $12.5 million in increased costs relating to external consultants, contractors, and other professional fees, of which $7.1 million is one-off costs related to our initial public offering and the rest of the increase is due to the growth of the business and added costs for being a public company, $5.3 million in increased branding and marketing expenses, due to our growth, but also due to lower branding and marketing activities prior year due to the COVID-19 pandemic. Customer distribution costs

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increased with $4.7 million mainly as a consequence of higher revenue, but also increased as percentage of revenue from 6.3% to 7.3%, due to a number of factors including higher freight rates.

Selling, general and administrative expenses increased by $85.8 million, or 133.6%, to $149.9 million for the six months ended June 30, 2021 from $64.2 million for the six months ended June 30, 2020 and as a share of revenues 52.4% and 35.7%, respectively. This increase was primarily due to an increase of $32.2 million in employee related expenses, which include $4.0 million in costs for the 2021 Plan, as a result of increased headcount as we continue to invest in our growth and also added headcount for being a public company. There also was $19.6 million in increased costs relating to external consultants, contractors, and other professional fees, of which $9.3 million is one-off costs related to our initial public offering and the rest of the increase is due to the growth of the business and added costs for being a public company, $18.0 million in increased branding and marketing expenses, including our Super Bowl commercial and other campaigns, due to our growth, but also due to lower branding and marketing activities prior year due to the COVID-19 pandemic.  Customer distribution costs increased with $9.1 million mainly as a consequence of higher revenue, but also increased as percentage of revenue from 6.1% to 7.0%, due to a number of factors including higher freight rates.

Other operating income and expense

Other operating income and expense primarily consists of foreign exchange gains and losses on operating items.

Other operating income and expense for the three months ended June 30, 2021, include net foreign exchange gains of $0.3 million compared to net foreign exchange losses of $0.5 million for the three months ended June 30, 2020.

Other operating income and expense for the six months ended June 30, 2021, include net foreign exchange losses of $0.5 million compared to net foreign exchange losses of $0.9 million for the six months ended June 30, 2020.

Net finance expense

Net finance expense increased by $10.7 million to $10.7 million for the three months ended June 30, 2021, from $0.0 million for the three months ended June 30, 2020. The increase in finance expenses was primarily due to net foreign exchange losses of $6.9 million for the three months ended June 30, 2021, compared to net foreign exchange gains of $3.6 million for the three months ended June 30, 2020. The foreign exchange gains and losses are related to the revaluation of external and intercompany financing arrangements. Interest expenses increased with $4.0 million, partially offset by $1.7 million in increased capitalized interest costs relating to our ongoing capex projects. The increase in interest expenses during the quarter is related to $2.0 million in one-off expenses in connection with pre-terminating the SLL Agreement (as defined below), higher utilization of loan facilities and additional leasing arrangements compared to the prior year period.

Net finance expense increased by $9.9 million to $12.6 million for the six months ended June 30, 2021, from $2.7 million for the six months ended June 30, 2020. The increase in finance expenses was primarily due to net foreign exchange losses of $3.6 million for the six months period ended June 30, 2021, compared to net foreign exchange gains of $2.4 million for the six months ended June 30, 2020. The foreign exchange gains and losses are related to the revaluation of external and intercompany financing arrangements. Interest expenses increased with $7.8 million, partially offset by $3.4 million in increased capitalized interest costs relating to our ongoing capex projects. The increase in interest expenses is related to $2.0 million in one-off expenses in connection with pre-terminating the SLL Agreement (as defined below), higher utilization of loan facilities and additional leasing arrangements compared to the prior year period.

Income tax expense

Income tax expense decreased by $0.1 million, or 37.1%, to $0.3 million for the three months ended June 30, 2021 from $0.4 million for the three months ended June 30, 2020. The effective tax rates for the three months ended June 30, 2021 and 2020 were (0.4%) and (9.6%), respectively. The main driver of the Group’s effective tax rate is unrecognized tax losses in Sweden and certain other jurisdictions.

Income tax expense increased by $1.4 million, or 186.5%, to $2.2 million for the six months ended June 30, 2021 from $0.8 million for the six months ended June 30, 2020, which was driven by higher taxable income in certain jurisdictions. The effective tax rates for the six months ended June 30, 2021 and 2020 were (2.5%) and (6.3%), respectively. The main driver of the Group’s effective tax rate is unrecognized tax losses in Sweden and certain other jurisdictions.

Seasonality

For the periods presented, we have not experienced any pronounced seasonality, but such fluctuations may have been masked by our rapid growth.

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Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through cash generated by the issuance of equity securities and from borrowings. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and for general corporate purposes. We expect to continue to use this combination of financing in addition to proceeds from our initial public offering to fund our continued expansion. We expect our net capital expenditures for 2021 to be at the lower end of the range of $350 million to $400 million. The amount and allocation of our future capital expenditures depend on several factors, and our strategic investment priorities may change. Any delays in our expected increase in production capacity, including as a result of the COVID-19 pandemic, could delay future capital expenditures. We believe that our sources of liquidity and capital will be sufficient to meet our existing business needs for at least the next 12 months.

Our primary sources of liquidity are our cash and cash equivalents, short term investments and our credit facilities. As of June 30, 2021 and 2020, we had cash and cash equivalents of $524.2 million and $84.3 million, respectively. As of December 31, 2020, we had cash and cash equivalents of $105.4 million. Our cash and cash equivalents consist of cash in bank accounts and short-term deposits. Short-term deposits are time deposits and structured deposits.

In addition to the cash and cash equivalent, we have short-term investments with low risk and high liquidity. The investment portfolio consists of funds, bonds and certificates in USD and SEK with a market value equivalent of $322.7 million. Funds consist of primarily “money market funds”, i.e. a kind of mutual fund that invests in highly liquid, near-term instruments and high-credit-rating debt-based securities with a short-term maturity. Bonds and certificates consist of corporate bonds and commercial papers.

In addition to the above, we had access to $418.9 million in undrawn bank facilities as of June 30, 2021.

Credit Facilities

In October 2019, we entered into a European Investment Fund guaranteed three-year term loan facility of €7.5 million with Svensk Exportkredit (the “EIF Facility”). The EIF Facility bears interest at EURIBOR + 2.75%.  As of June 30, 2021 and December 31, 2020, we had €5.6 million and €6.6 million, respectively, outstanding on the EIF Facility.

In November 2019, we entered into a credit agreement with Israel Discount Bank of New York (as amended in December 2020, the “IDB Facility”) for a total amount of $15 million. The IDB Facility was pre-terminated as of June 30, 2021.

In March 2020, we entered into a Subordinated Bridge Facilities Agreement with our majority shareholders that provided for three separate term loan facilities: one facility for SEK 145.2 million and two facilities for a total of €65.6 million (as amended, the “Bridge Facilities”). Of the $115.0 million aggregate principal amount of the Bridge Facilities outstanding, upon consummation of our initial public offering, $10.9 million, was repaid in cash, and the remainder was converted into 6,124,004 ordinary shares.

In June 2020, we entered into a Sustainability Linked Loan agreement (the “SLL Agreement”) with Nordea Bank Abp, filial i Sverige, Coo¨ peratieve Rabobank U.A., BNP Paribas SA, Bankfilial Sverige and Svensk Exportkredit including a term loan of SEK 725 million and a revolving credit facility of SEK 1.2 billion with an accordion option of another SEK 1 billion, subject to the fulfillment of certain conditions as well as at the lenders’ discretion. We repaid all amounts outstanding under the SLL Agreement in connection with our initial public offering in May 2021, and the SLL Agreement was replaced by the SRCF Agreement described below.

On April 14, 2021, we entered into a Sustainable Revolving Credit Facility Agreement (the “SRCF Agreement”) with BNP Paribas SA, Bankfilial Sverige, Coöperatieve Rabobank U.A., Nordea Bank ABP, Filial I Sverige and Skandinaviska Enskilda Banken AB (publ) as Bookrunning Mandated Lead Arrangers, Barclays Bank Ireland PLC, J.P. Morgan AG and Morgan Stanley Bank International Limited as Mandated Lead Arrangers and Credit Suisse (Deutschland) Aktiengesellschaft as Lead Arranger and Skandinaviska Enskilda Banken AB (publ) as Agent and Security Agent, including a multicurrency revolving credit facility of SEK 3.6 billion with an accordion option of another SEK 850 million, subject to the fulfilment of certain conditions and at the lenders’ discretion. The SRCF Agreement replaced the SLL Agreement at the closing of our initial public offering. The initial term of the SRCF Agreement is three years from the settlement date of our initial public offering, with an option to extend twice, for one additional year each at the lenders’ discretion. Borrowings under the SRCF Agreement are repayable at the end of the interest period to which that loan relates and carry an interest rate of the aggregate of the applicable margin and SONIA, LIBOR (with a rate switch to SOFR), STIBOR or EURIBOR, depending on the denominated currency, amounts loaned and if the denominated currency is a rate switch currency. Under the SRCF Agreement, we are subject to ongoing covenants such as tangible solvency, minimum EBITDA and liquidity requirements and, subject to the exercise of our conversion right relating to such covenants, total net leverage ratio. The covenant conversion right is subject to the provision of notice and no Event of Default (as defined in the SRCF Agreement) continuing at the relevant time, and it may be exercised at our discretion from December 31, 2023, and following such conversion, the existing tangible solvency, minimum EBITDA and liquidity covenants will fall away and be replaced with a total net leverage ratio. The SRCF Agreement also contains limitations on our ability to pay dividends until we exercise our covenant

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conversion right. Furthermore, we are subject to non-financial covenants linked to sustainability measures.

Cash Flows

The following table presents the summary consolidated cash flow information for the periods presented.

 

 

Net cash used in operating activities

Net cash used in operating activities increased by $52.4 million, or 260.7% to $72.5 million for the six months ended June 30, 2021 from $20.1 million for the six months ended June 30, 2020, which was primarily driven by a loss from operations as we continue to invest and scale our business to support our growth.

Net cash used in investing activities

Net cash used in investing activities increased by $409.3 million, or 740.2%, to $464.6 million for the six months ended June 30, 2021 from $55.3 million for the six months ended June 30, 2020, which was primarily driven by purchase of short term investments of $329.4 million and $134.4 million in investments in our production capacity to meet the growing demand for our products.

Net cash from financing activities

Net cash from financing activities increased by $809.5 million, or 535.0%, to $960.9 million for the six months ended June 30, 2021 from $151.3 million for the six months ended June 30, 2020. The increase in cash for the six months ended June 30, 2021, was due primarily to the net proceeds of $1,037.3 million from our initial public offering, proceeds from the exercise of warrants of $38.5 million, partially offset by net decrease of liabilities to credit institutions and shareholders of $104.8 million.

Contractual Obligations and Commitments

We have entered into contracts in the normal course of business with suppliers, primarily for production and packaging services. These contracts contain minimum purchase commitments. The commitments are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used and fixed, minimum or variable price provisions. Historically, our annual purchase volumes have exceeded the minimum purchase commitments, and we expect the volumes to continue to exceed the minimum purchase commitments going forward.

In addition, we have entered into lease agreements for some of our offices, production facilities and production equipment. Lease terms for properties are generally between one and ten years, except for our Ogden, Utah production facility, where extension options of 30 years have been included resulting in a total lease period of 40 years and for our Fort Worth, Texas production facility that has a 20-year lease period. Lease terms for production equipment are generally between one and seven years. The majority of extension and termination options held are exercisable only by us and not by the respective lessor. We have one related lease agreement regarding production equipment in the United States under which our obligations collectively amount to $7.8 million for a term of seven years, and the commencement date is expected to be in the second half of 2021. We have two lease agreements regarding production equipment in Maanshan, China under which our obligations collectively amount to $15.9 million for a term of six years, and the commencement dates are expected to be in second half of 2021. For our Ogden facility, we modified the lease agreement regarding the addition of two buildings and amended the original lease term. One of the two additional buildings have commenced now during June 2021. The second additional building has a commencement date of December 31, 2022 and the lease term, if all extension options are exercised, is 40 years and our obligation amounts to approximately $27.9 million for the fully extended lease term. We have also one lease agreement regarding R&D premises in Lund, Sweden under which the Group’s obligation amounts to $14.6 million for a term of 15 years.

In addition to the lease agreements above, the Group is committed to two purchase agreements regarding production equipment in Peterborough, UK under which the Group’s obligation amount to $71.8 million. The production equipment is expected to be delivered in 2022.

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For additional information regarding our contractual commitments and contingencies, see Note 24 to our condensed consolidated financial statements, which are included elsewhere in this report.

Non-IFRS Financial Measures

We use EBITDA and Adjusted EBITDA as non-IFRS financial measure in assessing our operating performance and in our financial communications:

“Adjusted EBITDA” is defined as loss for the period attributable to shareholders of the parent adjusted to exclude, when applicable, income tax expense, finance expenses, finance income, depreciation and amortization expense, share-based compensation expense and IPO preparation and transaction costs.

Adjusted EBITDA should not be considered as an alternative to loss for the period or any other measure of financial performance calculated and presented in accordance with IFRS. There are a number of limitations related to the use of Adjusted EBITDA rather than loss for the period attributable to shareholders of the parent, which is the most directly comparable IFRS measure. Some of these limitations are:

 

Adjusted EBITDA should not be considered in isolation or as a substitute for financial information provided in accordance with IFRS. Below we have provided a reconciliation of Adjusted EBITDA to loss for the period attributable to shareholders of the parent, the most directly comparable financial measure calculated and presented in accordance with IFRS, for the period presented.

 

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Segment Information

Our operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who is our CEO. Our operating segments and reportable segments are EMEA, Asia and Americas. The CEO primarily uses a measure of earnings before interest, tax, depreciation and amortization (“EBITDA”) to assess the performance of the operating segments.

 

Off-Balance Sheet Arrangements

We did not have during the period presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off‑balance sheet arrangements or other contractually narrow or limited purposes.

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Critical Accounting Policies and Significant Judgments and Estimates

We prepare our interim condensed consolidated financial statements in accordance with IFRS as issued by the IASB. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates. Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our financial condition, results of operations and cash flows to those of other companies.

Our critical accounting policies are described under the heading “Critical Accounting Policies and Significant Judgments and Estimates” in the Prospectus and the notes to the audited financial statements appearing elsewhere in the Prospectus. During the three months ended June 30, 2021, there were no material changes to our critical accounting policies from those discussed in the Prospectus.

Recent Accounting Pronouncements

Refer to Note 2 to our interim condensed consolidated financial statements appearing elsewhere in this report for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.

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Item 3. Qualitative and Quantitative Disclosures about Market Risk

We are exposed to certain market risks in the ordinary course of our business. These risks primarily consist of foreign exchange risk, interest rate risk, credit risk and liquidity risk as follows. For further discussion and sensitivity analysis of these risks, see Note 3 to our audited consolidated financial statements, included in the Prospectus.

Foreign exchange risk

Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities denominated in a currency that is not the functional currency of the relevant group entity. We are primarily exposed to currency risk in group companies with SEK as the functional currency. The primary risks in these companies are USD/SEK, GBP/SEK, EUR/SEK and CNY/SEK due to sales (trade receivables), purchases (trade payables) and intercompany and third-party borrowings. We monitor a forecast of highly probable cash flows for each currency and aim to achieve a natural match of inflows and outflows. For those currencies that have a net cash flow that is positive, derivatives are used to manage the risk for up to 75% of the exposure for the following 12 months. We do not apply hedge accounting. As at June 30, 2021 and December 31, 2020, we had currency derivatives in GBP, EUR and NOK equivalent of $51.2 million for which the fair value was $0.1 million and £20 million for which the fair value was $0.8 million, respectively.

We are also exposed to currency risk when foreign subsidiaries with a functional currency other than USD are consolidated, primarily for EUR, SEK GBP and CNY. Our policy is not to hedge the translation exposure related to net foreign assets to reduce translation risk in the condensed consolidated financial statements.

Interest rate risk

Our main interest rate risk arises from long-term liabilities to credit institutions with variable rates (primarily Euro Interbank Offered Rate “Euribor” 3 Months), which expose us to cash flow interest rate risk. As at June 30, 2021, the nominal amount of liabilities to credit institutions with variable interest rate were $6.7 million with no hedges. As at December 31, 2020, the nominal amount of liabilities to credit institutions with variable interest rate were $97.6 million, of which $5.7 million were swapped using floating-to-fixed interest rate swaps for the risk in Stibor 3 Months.

Credit risk

Credit risk arises primarily from cash and cash equivalents, short-term investments and debt instruments carried at amortized cost. We manage financial counterparty credit risk on a group basis. The external financial counterparties must be high-quality international banks or other major participants in the financial markets, in each case, with a minimum investment grade rating BBB- / Baa3. The rating of the financial counterparties used during the periods presented were in the range from BBB- to AA+.

Customer and supplier credit risk is mitigated through credit risk assessment, credit limit setting in case of payment obligations overdue and through the contractual terms. There are no significant concentrations of credit risk in regards of exposure to specific industry sectors and/or regions. For the periods presented no customer accounted for 10% or more of revenue.

Liquidity risk

Liquidity risk is our risk of not being able to meet the short-term payment obligations due to insufficient funds. As at June 30, 2021 and December 31, 2020, we held cash and cash equivalents and short-term investments of $846.9 million and $105.4 million, respectively, that were available for managing liquidity risk. Due to the dynamic nature of the underlying businesses, we maintain flexibility in funding by maintaining availability under committed credit lines.

Management monitors rolling forecasts of our liquidity reserve (comprising the undrawn borrowing facilities above) and cash and cash equivalents on the basis of expected cash flows. This is monitored at group level with input from local management. In addition, our liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal proceedings related to claims arising out of our operations. Other than as described in Note 25 to our condensed consolidated financial statements, which are included elsewhere in this report, we are not currently a party to any material legal proceedings, including any such proceedings that are pending or threatened, of which we are aware.

Item 1A. Risk Factors

The section entitled “Risk Factors” in our Prospectus includes a discussion of our risk factors. There have been no material changes to our risk factors since those reported in our Prospectus.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

There was no share repurchase activity during the three months ended June 30, 2021.

Set forth below is information regarding unregistered securities issued by us during the three months ended June 30, 2021. Also included is the consideration received by us for such unregistered securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.

On May 19, 2021, upon the closing of the IPO, we issued to certain investors an aggregate of 39,317,319 ordinary shares upon the exercise of warrants previously issued at exercise prices ranging from SEK 5.26 to SEK 39.77 per ordinary share, for an aggregate exercise price of $38.5 million.  

On May 19, 2021, upon the closing of the IPO, we issued 6,124,004 ordinary shares to certain investors to convert a portion of the Bridge Facilities, based on the IPO price of $17.00 per ADS, an exchange rate of SEK 8.3355 to $1.00 and an exchange rate of SEK 10.1822 to €1.00.  

The issuances of securities were deemed to be exempt from registration under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D under the Securities Act as a transaction by an issuer not involving a public offering. Each of the recipients of securities was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act.

Use of Proceeds

On May 19, 2021, the SEC declared effective our registration statement on Form F-1 (File No. 333-255344), as amended, filed in connection with our initial public offering (the “Registration Statement”). Pursuant to the Registration Statement, we registered the offer and sale of 97,032,400 of our American Depositary Shares (“ADSs”), representing the same number of ordinary shares with a proposed maximum aggregate offering price of approximately $1.65 billion. Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC acted as representatives of the underwriters for the offering.

On May 19, 2021, we issued and sold 64,688,000 ADSs, representing the same number of our ordinary shares at a price to the public of $17.00 per share. Upon completion of the initial public offering on May 19, 2021, we received net proceeds of $1,037.3 million, after deducting underwriting discounts and commissions of $52.2 million and offering expenses of $10.1 million. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.

The offering terminated after the sale of all securities registered pursuant to the Registration Statement. As of June 30, 2021, net proceeds of $205.9 million from our initial public offering have been used to repay the SLL Agreement in full and to repay a portion of the Bridge Facilities, and $329.4 million have been invested in short-term investments, primarily consisting of “money market funds”, i.e. a kind of mutual fund that invests in highly liquid, near-term instruments and high-credit-rating, debt-based securities with a short-term maturity. There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, dated May 19, 2021, filed with the SEC on May 21, 2021 pursuant to Rule 424(b) relating to our Registration Statement.

 

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

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