Oatly Halts Expansion of Production Facility Amid Declining International Sales

Oatly Halts Expansion of Production Facility Amid Declining International Sales

2023-11-12 16:48:12

Table
  1. Oatly Cancels Expansion of Production Sites Following Downturn in Global Sales
    1. Oatly Halts Construction on New Facilities
    2. Oatly's Performance in Various Regions
    3. The Path to Financial Stability

Oatly Cancels Expansion of Production Sites Following Downturn in Global Sales

Oatly's CEO, Jean-Christophe Flatin, has recently revealed that the company is revising its growth strategy by enhancing the production capabilities at its current plants. This update is part of a broader initiative to instill a more streamlined cost structure throughout their entire supply chain.

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Oatly delivery truck

Oatly aims to minimize capital expenditure in the supply chain. | Photo Credit: Oatly

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Oatly Halts Construction on New Facilities

The well-known oatmilk brand has suspended its plans to open additional production sites in Europe and North America due to a slump in sales and persistent operational deficits experienced in Asia and the Americas. Flatin expressed that this strategic shift supports the company's commitment to an asset-light production approach that focuses on enhancing operations while decreasing the complexity and financial investment within their supply chain.

Oatly anticipates facing non-cash impairment costs of up to £111 million (approximately $150m) in the fourth quarter, along with restructuring expenses close to £29.6 million (around $40m). Flatin states, “We have found ways to service the growing demand by expanding capacity at our existing facilities in a more gradual manner. This leads us to halt construction on the third production facility in both of these key market segments. We are convinced that this modified strategy will sharpen our focus and simplify the supply chain, enhancing our confidence in achieving our long-term margin goals."

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Oatly's Performance in Various Regions

Although Oatly's Asia operations witnessed a reduced EBITDA loss from £22.5 million ($30.3m) to £16 million ($21.6m) in the third quarter, sales in Asia saw a 31% year-on-year drop, translating to around £20.2 million ($27.3m). Additionally, the brand marked a 4% decrease in the Americas' revenue, generating £43.4 million ($58.5m), and noted a loss of £5.6 million ($7.5m) for the period.

Despite these setbacks, Oatly's total third-quarter sales only saw a minor decline of 2.5% from the previous year, amounting to approximately £139 million ($187.6m), mostly offset by robust revenue from the EMEA (Europe, Middle East, and Africa) region.

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Sales in the EMEA sector surged by 23% to around £75.5 million ($101.8m), accounting for 54% of the company's total revenue for the quarter. Notably, retail channels are the source of nearly 84% of Oatly's EMEA revenue. The EMEA sector's EBITDA was a healthy £8.8 million ($11.8m) for the third quarter, a noteworthy turnaround from a loss of £8.7 million ($11.7m) in the same period the previous year. Oatly's overall adjusted EBITDA loss during the term improved by £34.8 million ($47m) year-on-year, resulting in a deficit of £26.7 million ($36m).

The Path to Financial Stability

In March 2023, then-CEO Toni Petersson believed that the company's supply chain had stabilized, positioning Oatly to become financially independent and take a more aggressive stance in the current year. However, throughout the first nine months of 2023, sales have fluctuated significantly, particularly in the Asian markets. Oatly posted an impressive 16.4% sales increase in Asia during the first quarter, with earnings around £24.8 million ($33.4m), but then reported a 15% yearly drop to approximately £27.4 million ($37m) in the subsequent quarter.

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