© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome, everyone, to our Q4 2023 presentation. My name is Emil Sallnas and together with our CFO, Linn Gafvert. I will present today. This is the agenda for today. And before we go into the quarterly update and financials, I just quickly want to start by giving you a short introduction to the Viva Wine Group.
In the group, we have 2 major segments, the Nordics and the eCom. In the Nordic monopoly market, we are the market leader in wine. We also have a profitable eCom business in Europe with a strong growth potential. Our operating companies are in the Nordic monopoly markets, Sweden, Finland and Norway, while our eCom business is based in Germany, which is our main market. In total, our eCom market covers 10 European countries.
And now let's move on to the quarterly update and the performance summary. First of all, I would like to highlight our strong performance in the Nordics. Despite soft markets, we reported record high market shares in the Nordics. Our net sales for the group increased by 4.3% in Q4 with an organic growth of 4.4%. The adjusted EBITA margin of 6.3% was down versus last year, and was negatively impacted by significant FX effects in the Nordics, along with some one-off effects in the quarter that Linn will explain a little bit more about later on.
Finally, the Board of Directors proposes the Annual General Meeting an ordinary dividend of NOK 1.55 per share. One of the major events in the quarter was that we, by the end of the quarter, signed an agreement to acquire Target Wines in Norway. And the transaction was completed in the beginning of February. The purchase price amounted to NOK 44 million and is expected to contribute with an EBITA of between NOK 6 million and NOK 7 million and a turnover of NOK 18 million to NOK 20 million in 2024. With own brands, like Giovanni Barcelli and Marco Pontarelli in the highly popular PMO segment. Target Wines will further strengthen our position in the Nordics. Now it's time to look at the financial performance, and I will hand over the word to Linn.
Thank you, Emil. We have a strong net sales growth of 4.3% for the Group in the quarter, and that is despite soft markets. The Nordics is the driver and all countries in the segment contribute, Sweden, Finland and Norway. Group organic growth even slightly better with 4.4% in the quarter. Adjusted EBITA here, we continue to see pressure. The main reason is the lower gross margin percentage down from 22.3% to 19.2% this year. The driver is the negative FX development in Sweden and Norway.
Now the headwind has eased somewhat related to FX. But although they have eased due to our hedging policy, it will take another quarter before we see the positive effects in our gross margins. However, we have positive contribution from price adjustments and cost control.
In the quarter, we also had one-off effects, as Emil mentioned, it is mainly related to our active M&A agenda within eCom. And we have some minor restructuring costs relating to the consolidations of our consumer platforms in Sweden.
Our net working capital decreased from last year and has a stable trend towards net sales. Our net debt is well within our targets. The increased level compared to last year is mainly related to the pressured EBITA margin in the Nordics and some positive effects last year related to the sale of our warehouse.
Looking at the cash flow, starting with the quarter. We have a strong cash flow from operating activities during the quarter. Our investing activities of SEK 20 million is related to the new eCom warehouse. Amortization is at a lower level compared to last year, and that is the result of our refinancing.
To summarize the year, we have a stable cash flow for -- from operating activities and our cash flow from financing activities is impacted by the refinancing. And the refinancing, as mentioned, will have a positive impact going forward.
Thank you, Linn. So now over to the performance by segment. So I'm again very proud to say that we have -- that our sales volumes have increased more than the market, and we are reporting record high market shares in all the Nordic monopoly markets. For the Nordic market combined, we reported a market share of 21.4%, which is an increase of 1.5 percentage points from last year, very impressive, in my opinion.
We strengthened our position as the #1 supplier in Sweden, and we also became #1 in Finland, which we are very proud of. Also in Norway, we made a significant jump in market share to 6.4%. The increase in volume and market shares in the Nordics is exclusively organic and is driven by our proactive work in agile and consumer-centric business model. As mentioned, we had a strong performance in the Nordics, and it has come from both partner brands and owned brands. And I'd like to mention a few examples from each market.
In Sweden, we welcome a new partner, Antiche Terre from Valpolicella in Italy, who from November worked with iconic Wines in Sweden. In Finland, we would like to mention our own brand, Casa Marrone. It is a very successful brand developed in Sweden by the wine team, but which has now been very well received in Finland and we'll have full distribution in the outer shops from 2024. In Norway, one impressive development in 2023 was the J. Moreau, Chardonnay Bag in Box, a partner brand, which increased in sales with over 100% in the year.
Taking a look at our net sales for the Nordic segment. It increased with 6.8% in the quarter. The increase is driven by both volume increases and price increases. The adjusted EBITA decreased in Q4, and the main driver is the lower gross margin going from 17.2% to 13.9% this year, negatively impacted by the FX effects mentioned before. And the FX effect has stabilized a bit, but it will take another quarter before visible in the gross margins.
I want to highlight that we have positive contributions from well-balanced price adjustments and also good cost control.
Moving over to the segment, Viva eCom. The European e-commerce market has continued to be weak in the quarter and also during Christmas sales. Despite the current market conditions, Viva eCom is performing relatively well, and our estimate is that we are performing better than the overall market when it comes to both sales and profitability. We've had a busy year finalizing our synergy work with regards to the new centralized warehouse. And looking forward, we see that the consumer sentiment is still low in Germany, which is our main market, and we have not yet seen any significant improvement on that -- in the market.
We do expect the market to continue to be soft in the beginning of the year, but we are still hopeful that the market will return to growth again in 2024.
Yes. And looking at the numbers, net sales is down for eCom in the quarter Consumer sentiment continued to be low, as Emil mentioned also during Christmas season. Organic growth was negative in the quarter of 3.3%. That is, however, an improvement compared to last year. The gross margin is stronger than last year, reaching 41.7% in the quarter. Adjusted EBITA margin is lower, and that is related to the lower sales.
Moving over to mention a few words about sustainability, which is a very important and integrated part of our business and something that we work on a daily basis and in all parts of our business. We are committed to reducing our CO2 emissions per liter until 2030, and we are aiming to achieve net zero climate impact by 2050.
During the year, we have been focusing on improving methods for measurement and data collection. And of course, we are, as many companies preparing for CSRD, which is coming in the coming years.
Before our final remarks, I would like to comment a little bit on our financial targets. When it comes to the growth target, we are reaching and beating the organic growth level for the Nordics in 2023 and are well above 4%. In the eCom segment, we are, as already mentioned, not reaching our target and expect the market to be soft in the next quarters.
Regarding our profitability target, it is, as in previous quarters, the other way around. The eCom segment is in line with our target, while the Nordics is still lagging due to the currency effects. Going forward, for the Nordic segment, we see that FX rates have gradually improved, but as Linn has mentioned, there will be a delay before we see it fully in our margins.
The net debt-to-EBITA ratio is well below our target of 2.5x. And finally, the Board has proposed a dividend of NOK 1.55 per share, which is above our target on a yearly basis, but in line with our target over a 3-year period.
Going into '24, we have strong market positions in both the Nordics and the eCom. We have managed to outperform and gain market shares in the Nordic markets in -- despite difficult market conditions, and our eCom business is also performing relatively well. Going into '24, we will focus on improving the margins in the Nordics, and we will have a sales focus in the eCom.
To support the growth, we are also actively working in the M&A market. And as mentioned, we have completed one transaction in the quarter with Target Wines. In M&A for the eCom segment, we are also very active but the trend of sellers and buyers, having very different views on valuation continues.
Finally, to repeat the message from last quarter, we remain very confident in our business model, our strong teams and we are looking forward to 2024. So now it's time for the Q&A session, and we will start with questions by the phone.
[Operator Instructions] The next question comes from Johan Fred from SEB.
First one on Nordics, impressive growth, but could you add some color on what drove the sort of continued volume growth, especially in Norway and Finland, please? That's my first question.
In Finland and partly in Norway, it is, as mentioned in previous calls, a result of a long-term work that is now showing the good effects. The Casa Marrone brand, for example, that I mentioned, under Finland was launched in Finland 6 years ago, but it's now that it's really getting into the market. So for some products, the development is quite slow.
But in general, it's all about our business -- sorry, our consumer-centric model and being very quick and agile in adapting to the market. So it's a little bit the same explanations as you have heard in previous quarters. So nothing special that stands out. But in general -- and I mean the increased sales are all over different product lines in different categories as well.
Okay. Makes sense. And looking into 2024, what is realistic to sort of extrapolate or expect in terms of volume growth, given the strong year you've had in 2023.
We expect to continue to beat our growth target in the Nordics, if that's an indication of sorts. So I mean that's 4% -- at least 4%. So we are quite confident and the year has not started according to the numbers that are out, has started very well for us as well.
Okay. But sort of what kind of -- could you sort of clarify a bit on the potential? Like you're now the market leader in both Sweden and Finland. What is sort of realistic to expect? Could we see that Norway supports the majority of the growth going forward? Or sort of -- yes, can you extrapolate a bit about that?
We expect to continue to grow because it is really on a forward moving trend. We continue to grow very heavily in especially Finland but also in Sweden because we have that movement going forward. In Norway, we are, of course -- we will get some support by the volumes that comes through Target Wines. They will probably grow from a lower level but on a higher percentage. But we do expect growth from all 3 markets in the coming years, if I'm a little bit more general, but definitely in 2024.
Okay. And then a question on segment eCom. You mentioned in the report that the market, of course, remains weak, which is tough, I guess, and your strategy to sort of defend profitability while waiting for markets to recover has, of course, been successful to an extent. But my question really is what are you actively doing to sort of control your own faith in regards to growth? I mean couldn't this be a good opportunity to drive growth and sort of advance your position in the overall weak market?
No, definitely, and that's why we say that we have a sales focus on the -- in the eCom business. So of course, we will use the possibilities in the market. We are seeing customer acquisition costs going down to levels which we find more attractive. So we are seeing positive signs on that and the full focus of the teams is to increase the sales, while keeping, of course, the costs under control.
Great. Makes sense. And a final question on the net financial, which was a bit higher than expected. Could you sort of remind us of the dynamics in relations to the FX hedges? And how should we think about this going forward? Is it reasonable to expect that the negative effect will be positively offset by higher gross margin? Or how should we think about this going forward?
Well, we have negative effects in the quarter since the currency has gone down, looking at the end of the year. number, SEK to EUR. And that means that our assets in euro has been revaluated to a lower level, and that is both our hedges that has been then getting a lower value, but also our other assets as euro cash assets, that's per 31st of December had a very low value. So that hurts the number in the quarter. However, so that is the explanation to the financial net being negative in this quarter.
Yes, I get that. But what can we expect going forward? Is this a Q4 effect given the transition into a new year or -- and especially in relation to the gross margin, is it going to be a net positive or sort of a net-net effect?
I will -- this is on an extremely low level in the quarter since we had this huge effect going from high currency level to lower levels. I will say this is high negative number that we will not expect in Q1 for the financial net.
The next question comes from Markus Augustsson from Carlsquare.
So first off, I want to start with the Nordics. And I see that volume has came up with 5.3%, while sales is up a little bit higher by 6.6%. And if I understand that correctly, that is partially due to price hikes. I mean, have you already done the price hikes on your top-selling products? Or can we expect more price hikes in the upcoming quarter?
There is a price increase coming, especially in Sweden then from first of March. So then we can expect price hikes up for Sweden. However, to mention for Q1, we still have the negative impact from the FX effect. So the gross margins will not really improve that much until Q2. But the effects from the price increases, we will see some further improvements going from first of March.
All right. And on Viva eCom on the topic opening new markets, if you look at the geographical area other, it has grown quite significantly during the last 2 quarters. I mean, is that due to actually opening new markets? Or is it due to state penetration on existing markets other than Germany.
So what number do you mean? All eCom is in the eCom segment.
Yes. I mean on the geographical distribution, I think it's on Page.
We have opened new markets, and it's a -- the focus is the Central European countries.
All right. And one final question regarding nonrecurring items here. in the adjusted EBITA, you have added, I think it was SEK 8 million. And then there's other nonrecurring items that is not included in the adjusted EBITA of SEK 6 million. Is that correct?
Yes, that's correct.
All right. I believe that we do not have any more phone questions, but we do have some e-mail questions or chat questions.
The first one comes from Fredrik Ivarsson at ABG and his first question is, the growth in e-commerce does not seem to pick up pace. Do you expect to reach your growth target of 10% to 15% for the segment in 2024?
Well, as already mentioned, we know that the year will start slowly with soft markets. So I would not -- I would say that we expect the market to grow by the end of 2024, but whether we reach -- but it's doubtful that we will reach the target of 10% to 15%.
Next question is, have you seen any particular impact of the raised excise taxes, which were introduced in the beginning of the year, and that's specifically in Sweden and Finland that has been...
In Finland, yes.
Do you want to answer?
Yes. Well, we -- the statistics is just out in the market for January. And what we can see is that the volume is down in the markets, but really no change to last year. It was down in the Nordics segments last year as well. So there is no trend that the volumes will decrease even more than last year, but weak on volume side.
Are you talking about the market?
The market -- our performance, as Emil mentioned, still looks very strong as the trend we have seen for the Nordic markets.
Next question from Fredrik, do you expect to offset some of last year's FX headwinds in the Nordics through more price increases in order to get closer to the previous gross margin of around 20%? Or do you need some FX tailwind to get there?
Yes. Well, I would say that we would need some FX tailwinds to get back to that level, of course. And in Q1, we will have negative impact from our hedges, especially in January and February. It will ease out in March, and then we also have the price increase. But I would say, for Q1, we can't expect any big improvements and seeing at Sweden, which is our biggest segment and also is the most exposed to currency. We have been around 13%. So I don't think that we will see a big improvement for the Q1. But going forward, we don't have any huge negative impact from hedges, and we will see full effects from our price increases. However, to get to the 20%, it will take some -- we need some tailwind.
Perfect. And Fredrik's last question. 2023 CapEx was driven by a new eCom warehouse in Germany. You have any other large investments planned for '24? And would you be open to give some guidance for full year '24 CapEx, please?
Yes. Well, I would say that we don't have any huge initiatives planned for CapEx spending during the year. So I would say that we will be back on our normal levels on CapEx spending.
So thank you, Fredrik, for your questions. And now over to questions from Rauli at Inderes.
His first question is, can you discuss the margin drivers for 2024? Is FX still impacting negatively in the beginning of the year, assuming current FX rates? Is there some other notable negative margin drivers, pricing will be clearly positive, I presume.
Yes. And I think we have discussed that topic, but let me repeat then that for Q1, it will be no significant improvement in the gross margin level from the price increases, and that is due to the hedges in specifically Sweden. Going forward, as mentioned from March, we will see price hikes up and if the FX is at today's level, which you never know, then we can expect increases in the margins going from Q2 and forward. And then there are also new price increase options in September. So positive outlook from Q2 and forward on gross margin level.
And then there is a second question from Rauli. How would you describe your capital allocation priorities? You are proposing over 100% payout while also looking for acquisitions with a fairly leveraged balance sheet, which was -- which one is more important for you, dividends or growth investments, acquisitions.
While I think both are very important for us. And for us, it's always about finding the balance between the two. And currently, we are finding the balance by proposing the dividend which is good for our shareholders. And we still have a good capacity, especially through the refinancing to make also acquisitions and investments.
Yes. And also, as we have mentioned, if we do any larger acquisition, we will be looking at the possibility to raise capital, and that is a part of our strategy.
Great. Then we have some questions from GLI. Norway versus Finland, solid volume growth in both markets, but 2 different stories when it comes to price. In Norway, the average price mix driven or strategic -- strategic pricing to gain market share question mark, has come down a lot adjusted for FX, while that -- while it is the opposite situation in Finland. Please elaborate on this apparent difference of the underlying drivers. Also, could you clarify to what extent the price decline in Norway is driven by like-for-like decrease, lower prices on the same wine or a mix shift?
Well, starting with Norway, the prices have come down, but we can expect the prices actually to go up in Norway, if you look at price per liter and starting from the beginning of this year. So they will be increasing in Norway.
In Finland, also, we can expect increases looking at net sales per liter starting already from first of January.
And if you have any further questions, I think this -- on that matter, I think it's better maybe to send us an e-mail.
We can also have a follow-up meeting, if anyone wants.
A complicated answer. Would you expect an increase in adjusted EBITA for e-com in tandem with your expectations of an increased revenue for the segment in 2024? All else equal, the recent decreases in repeat customers would perhaps indicate the need to increase marketing expenditure in the customer base if the customer base is to increase going forward.
I think that's a very correct analysis, and we've always tried to balance the growth and the EBITA. So that is the balance that we are working with on a daily level. And then, of course, we are working on, and this is the warehouse is one example of being more efficient on all other matters except for the marketing. But there's always a connection between the marketing and the sales development in eCom.
Yes. But we need more sales to increase our adjusted EBITA margin. That is correct.
So your next question is your lowest EBITA margin ever. And given the seasonality of the business, Q1 should be even -- be yet even lower? Are you close to the margin through now? And what would it take to get back to double-digit EBITA margin?
Yes. Well, as mentioned, we will see improvements, especially for the Nordic segment from Q2 going forward. But Q1 is still weighing in with the negative FX effect. So we expect it not to be a strong Q1 in relation to that aspect. But going forward, absolutely for the Nordic markets, we will see improvements during the year.
The next question on the same topic. Do you expect to get back to the 20% gross margin? I assume that reflects to the Nordics. You previously had within a year? Or do you expect to remain below 15% for the foreseeable future?
Well, we expect us to go up in percentage wise. But as mentioned, Q1, we will not see any big gross margin hike ups. But from Q2, we will see improvements. But to reach over 20%, we will need some tailwind from FX.
Then on the same topic. Obviously, there is always a major volume shift between Q4 and Q1 due to seasonality. But is there also a typical seasonal shift in gross margin driven by product mix between Q4 and Q1.
In general, there are some higher products -- higher-margin products sold in Q4. But in Q1, we also have some of the Easter effect and Easter is also a season where we have some higher margin products again. So I would say it depends on where the seasons are at. So it could be a bit higher in the season -- Christmas season, but also given the Easter, that is also a time where it's up a bit.
So -- and then last question regarding the CapEx. What would you consider to be a normalized CapEx level for the group?
Yes. Normalized CapEx level is to not include the Q4 where we have the investments for the warehouse. So it will be back to the trend as we have seen in previous years, and you can see it towards net sales and then you will get to a good estimation.
And then there is a question regarding leasing payment level going forward. We had SEK 18 million in '23 and SEK 6 million in Q4 '23, leasing payment level?
Yes. I would say that Q4 is a good estimate to how to see it going forward.
Great. And then the final question from GLI, which I think we have answered what is the additional SEK 6 million in one-offs you just mentioned?
Yes. The additional one-off is at SEK 5 million of those are related mainly to our active work in the M&A field within eCom and SEK 1 million is related to the restructuring of our consumer clubs in Sweden, consolidating them to be more efficient going forward.
Great. Thank you for all the questions. I believe we do not have any more questions right now. So I'd like to thank you for listening in to this presentation, our next report, the Q1 will be published on May 16, and we'll all see you then again. Thank you, and goodbye.
Thank you.