Viva Wine Group AB

STO:VIVA

Welcome to the Viva Wine Group Report Presentation Q3 2024. [Operator Instructions]

Now I will hand the conference over to CEO, Emil Sallnas; and CFO, Linn Gafvert. Please go ahead.

[ Good morning ], everyone, and welcome to our Q3 presentation. My name is Emil Sallnas, and I will, together with our CFO, Linn Gafvert, present today.

This is the agenda for today. And before we go into the quarterly update and financials, I want to start by giving you a short introduction to Viva Wine Group.

Viva Wine Group consists of 2 major segments: the Nordics and eCom. The Nordics consists of the 3 monopoly markets, Sweden, Finland and Norway, where we are the market leader in wine. This is currently 83% of our net sales. The remaining 17% is our eCom business based in Germany and serving 11 markets in Europe.

Now let's move on to the quarterly update and performance summary. First of all, we again reached record high market shares for the quarter in all of the Nordic markets, strengthening our position as the market leader in wine. And since the Nordics is by far our biggest segment, this means that we had a very solid organic growth of 5.8% for the group as a whole.

We are also very happy to report that the EBITA margin reached 9.9%, up from 8.1%, a very solid increase in profitability of 27%. So all in all, a very strong quarter for the group.

Now let's look at the financial performance in more detail. And for that, I will hand over the word to Linn.

Thank you, Emil. We have a positive net sales growth of 4.8% for the group. Organic growth even slightly better, reaching 5.8%. The Nordics is the driver and primarily Sweden. All countries in the segment Nordics also increased its position compared to the market. eCom declined in the quarter as the consumer sentiment was weaker than expected in Q3.

We had an improved profitability, and we see a strengthened adjusted EBITA margin, reaching, as Emil said, 9.9% in the quarter. The increase is related to Nordics and comes from improved sales and stronger gross margins. The decline in adjusted EBITA in eCom is related to the sales decrease.

Our well-balanced price adjustments in the Nordics have had a positive contribution to our gross margins, and our solid sales development proves that consumers have remained loyal to our strong portfolio of owned brands and partner brands.

Our net working capital is above last year, and the net working capital towards net sales is slightly higher. The increase in net working capital is, however, a timing effect and not related to any operational change.

Our net debt is well within our targets.

Looking at the cash flow, we have a strong operative cash flow from the ongoing business while working capital was negative due to timing effects, namely, trade payables offsetting the amount.

The refinancing that we did last year in Q3 now has a positive effect related to paid interest year-on-year. Our repayments according to plan are also at lower levels.

Thank you, Linn. So now over to the performance by segments. In the Nordics, we have a continued steady growth and again increased more than the market. We reported record high Q3 market share in all the Nordic monopoly markets. This is something we are very proud of since the overall market decreased and sales in all of the 3 monopoly markets declined.

The key success factor for us beating the market is our consumer-centric and decentralized business model, which allows us to quickly adapt to changes in consumer demand.

For the Nordic markets combined, Viva Wine Group reported a market share of 22.2%, which is an increase of an impressive 1.4 percentage points from last year.

In Sweden, we reached almost 28% market share in the quarter and beat the market in all wine segments. We continued to have a high pace of introducing new products and are seeing consumers responding positively to the new offering.

In Finland, we also continued to beat the monopoly market and increased our market share with almost 2 percentage points, reaching 21.3%.

Since June, we have also entered a new market, which is the sales of wines with alcohol content of up to 8% in supermarkets. The rollout has been according to plan, and we estimate that we have a strong market position also in this new channel.

In Norway, we increased our market share to 6.2%. The increase in market share in Norway is driven by organic growth and price increases, but also volume, and of course, also by our acquisition Target Wines.

Looking at the Nordics. Total net sales for Nordics increased with 7.8% in the quarter with an organic growth of 8.3%. The increase was driven by our new launches, volume increases in general and price increases.

The adjusted EBITA increased along with the adjusted EBITA margin in the quarter.

Sweden is the main driver, an increase in both sales and gross margin. Continued focus on cost control is another contributing factor.

In our Finnish business, adjusted EBITA increased on previous year, driven by increase in sales as a result of price increases and sales of 8% wines.

Norway had a strong quarter with significant improvement in adjusted EBITA margin, driven by increased volume and price.

So over to segment, Viva eCom. In this quarter, we have seen the expected bumpy road for the e-commerce market in Europe. Organic growth showed negative figures and declined versus previous year. However, our gross margins remained strong, and we still have a solid profitability.

As mentioned in previous quarters, our focus is on growth in existing markets. The market overall continues to be soft and the consumer sentiment, especially in Germany, is showing very low figures.

We are, of course, not happy with this development of our sales and continue to work hard on reaching growth again.

The eCom segment had a negative development, as Emil mentioned, with an organic growth of negative 6% in the quarter.

Net sales was down versus previous year due to weaker sales. Consumer sentiment shows very low figures, especially in Germany, which is our main market for eCom. We continued to work on operating excellence by optimizing our logistics setup, upgrading our CRM model and strengthening our organizational setup.

The gross margin continues to be strong, reaching just above 40%. Costs are within good control and at good levels versus prior year.

Adjusted EBITA margin was lower than prior year, driven primarily by the lower sales.

Before our final remarks, I would like to comment on our financial targets.

When it comes to our growth target, we are once again reaching and beating the organic growth level for the Nordics and are well above 4%. As mentioned, in our eCom segment, we are not yet reaching our target.

Regarding our profitability target, we have made significant improvement and now with 9.9% EBITA, within touching distance of our target range.

The net debt-to-EBITDA ratio is well below our target of 2.5.

To summarize, the message is very similar to last quarter: we are very proud of our performance. Q3 was a very strong quarter and we have further strengthened our market position in the Nordics as the #1 wine supplier. Our focus on margins in the Nordic continues to show results, and we continue to have a high focus on improving them. In eCom, we are not happy with the development, but continue to work hard on improving.

M&A continues to be a focus area, and we continue to evaluate potential targets to further strengthen our business.

Finally, we see strong potential going forward. Driven by our biggest segment, Nordics, we have a very strong momentum with both higher sales and stronger margins.

We are, therefore, confident that 2024 will finish strongly for Viva Wine Group.

And with that, it's now time for the Q&A session.

[Operator Instructions] The next question comes from Johan Fred from SEB.

My first question is on the Nordics. Impressive performance, as always, for yet another quarter. My question is, how -- for how long can you keep taking market share in the more mature markets such as Sweden, for example, before you sort of reach the upper threshold in terms of share of total wine volume, if you get my question.

It is very difficult to say. We have, over the years and also long before we were listed, asked ourselves is the maximum 15%? Is it 20%? Is it 25%? If we keep growing organically, we don't really see a threshold. We are really taking market shares all the time. We will not maybe be able to, in Sweden, do a bigger acquisition. Wouldn't be very interesting for us either considering our market position. But we don't really see a limit.

But we have discussed that, and it's a very -- it's a good question, but we don't really see a limit on the growth in market share in the near future, let's say. I mean, obviously, eventually, there is one, but not in the near future or even midterm.

Okay. Very clear. And just to sort of -- a follow-up question there. Are there any sort of regulatory thresholds in terms of -- or on the monopolies that dictate how much of the total wine volume that can be supplied by one company?

We have never been informed about any thresholds from either government agencies or the monopolies as such. Also, our business is, of course, spread with several different companies in each market. So I don't think they see it that way.

Okay, okay. Great. Very clear. And on the organic sales growth in the Nordics, an impressive 5.8%. From your report, I gather that 3.1% was volume. But could you just elaborate on the remaining 2.7% and the distribution between the price and mix?

Well, we have increased both volume and price. So both contribute to the increase in the Nordics. I mean, we have increased our volume with 3.5% approximately. So then you can do the calculation that the rest is supported by price increases.

So pure price, no mix driving the growth?

There is, of course, always a mix -- product mix, but the driver is volume and price more than mix.

You should also remember that in Sweden, the biggest market, the price increases in October, it came in September. So only 1 month of the quarter is covered by the new prices from September.

Okay. Got it. Very, very clear. And the final one on segment eCom, if I may. We all understand that the market is challenging and has been weak for some time. And in that context, you're still, though, very, very -- have a very small market share. And I'm just thinking out loud here, but shouldn't you be able to perform better than the market in large as you have in the Nordics, for example, because that market has also been weak.

And my question really is that, is there anything that you could have done differently or would have done differently in eCom to drive growth? And you mentioned that you were working very hard to drive growth in the segment. What more specifically are you doing strategy-wise to sort of control your own destiny? Or are you just waiting and hoping for the markets to recover soon enough. That's my question.

I think there is, of course, a combination. But to start with the first part of the question, we totally agree that this is the goal for us. And we, of course, want to perform in a similar way to how we perform in the Nordics.

We are looking on all kinds of things in order to increase our market share, which is another problem is that there is not really a clear market share if you look on the numbers. If we -- when we compare ourselves with similar companies, we are performing in a similar way to those companies when the public -- when there is public information on them. Also when we have informal calls, we will see that everyone is performing in a similar way.

But I think for our eCom in general, there is a new thing to be found and that is to have a different kind of growth strategy, and we are working on it. We don't have the solution today.

Do you want to add something, Linn?

No, but also important to mention that we are performing better profitability-wise. But of course, the growth is our main focus going forward.

We will get back to you guys when we have a clearer answer on how to take on this challenge.

The next question comes from Fredrik Ivarsson from ABG.

I've got two. First one, it sort of seems like the EBITA margin in Sweden is up around 3 percentage points, if I did my math correctly, versus Q3 last year. Is this purely a gross margin effect? Or was the operating expenses also lower this year?

The main effect is the gross margin improvement, and you also have the gross margin for the Nordics where it's pretty clear. But -- so I would say the main driver is the gross margin in Sweden and the Nordics for this quarter.

Yes, of course. Good. Second one on eCom following up there on the previous discussion, you said in the report that the trend is showing a brighter picture going forward. Does this mean that growth has been, I guess, less negative or even positive in the first half of Q4? Is that sort of the way we should read that message?

Not really. I think you should read it a little bit further into the future, and I think Q4 is a tricky one with everything related to e-commerce because we all know it's Black week now and the sales haven't really started yet. Black Friday is a bit later than normal.

So it's a bit early to say that we have any clear numbers on Q4 right now. So I would look at it the horizon would be a bit Q1, Q2 next year.

Yes. But that's also in the indexes that we follow. So we're seeing in the markets, if we look at the long trends in the consumer sentiment, that's where the figures are turning better.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Questions from the message board. So from [ Alexander ], 4 different questions. Number one, do you still see that you have kept the momentum market shares you won from competitors during the Skanlog cyber-attack?

And the answer to that is, yes, there is still an effect on that. We see it mainly on the market share of our competitors, which has not recovered. So it seems that there has been a shift, which seems to be permanent or at least a long-term effect on that.

OpEx. Do you still expect OpEx to be flattish year-on-year in Q4? And can you please elaborate a bit on OpEx growth in 2025?

Yes. About OpEx, we stick to our guidance, as we said last quarter, that we expect year-on-year to be same level in Q4 as last year approximately. And then, of course, for the full year, that will be approximately in line with last year as well. That is how we expected.

And also looking into the future, we expect OpEx to grow with the business going forward.

Great. Question number three, eCom. Can you please say something about the market growth right now? I mean, do Viva Wine take or lose market shares in Germany, for example? Can you remind us of the expected market growth rates in Europe, assuming a normalized market?

We are -- it's very difficult to talk about market shares. We are happy with the performance considering the circumstances in terms of market share. So we believe that we at least keep our market share. We believe -- in some quarters that we believe that we have been able to keep our market share as well or even increase it.

And then when it comes to the normalized growth rate in Europe, I would expect that when things are more normal, if ever, we would like to -- we will -- we expect to see a 10% growth in the eCom market in general.

Then finally, gross margins, do you still expect an even stronger gross margin in Q4 versus Q3 2024, thanks to price hikes in September? Also elaborate on gross margins in 2025, assuming steady-state euro-SEK levels right now.

Yes. I think that we expect some gross margin improvement also in Q4 and that is related to the price increases that Emil mentioned were in effect just 1 month this quarter. So we expect a quarter-on-quarter increase in the gross margins.

And going forward, we expect stable margins looking forward in the future. Of course, as mentioned in the question as well, as long as the euro-SEK doesn't turn at any unforeseen directions.

Great. Then there is a question from Rauli Juva at Inderes. The OpEx in the Nordic segment was flattish year-to-date despite top line growth and general salary inflation. Can you elaborate how have you managed your cost? And do you see more upward pressure in OpEx going forward, assuming you continue to grow?

Yes. I think we discussed this question also on the last one. And as I said, we work hard with cost control and we are happy with our OpEx levels. However, of course, when we grow the business, we expect the OpEx going forward to grow with the business.

Great. And then a final question from Niklas at Carlsquare. How do you see market dynamics in the Nordics in Q4 in the light of the softness so far and price adjustments?

We believe that the market will look very similar in Q4 than Q3. I think that's the short answer. Then, of course, sometimes people will buy more wine in Q4 because of obvious reasons related to holidays and so on. But we don't expect a change in market dynamics from one quarter to the other.

Perfect. So that concludes our Q3 call, and we are looking forward to meet you again for the Q4 in [ 2025 ].