Viva Wine Group AB
STO:VIVA
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Welcome to the presentation of the Q1 report of Viva Wine Group. [Operator Instructions] Now I will hand the conference over to CEO, Emil Sallnäs; and CFO, Linn Gäfvert. Please go ahead.
Good morning, everyone, and welcome to our Q1 2024 presentation. My name is Emil Sallnäs and together with our CFO, Linn Gäfvert, I will present today. From this quarter onwards, we will try for us a new way of presenting without video. 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 Viva Wine Group.
We have 2 major segments, Nordics and eCom. In the Nordic monopoly market, we are the market leader in wine. We also have a profitable eCom business in Europe with strong growth potential. Our operating companies are in the Nordic monopoly markets, Sweden, Finland, Norway, while our eCom business is based in Germany, which is also our main market for eCom.
We are operating 3 platforms in eCom, Vicampo, Weinfürst and Wine in Black. In the quarter, we continued our Eastern European expansion by launching Weinfürst in Bulgaria. This means that we are now present in 11 markets in total.
Now let's move on to the quarterly update and performance summary. In the quarter, we once again reported record high market shares in the Nordics, and we further strengthened our position as the #1. Net sales for the group increased by 2.4% in Q1 with an organic growth of 2.8%. Our adjusted EBITDA margin of 6.3% was down versus last year and was negatively impacted by the lower sales in eCom along with FX effects in the Nordics.
Our latest acquisition, Target Wines, was consolidated in the quarter and had a good start in line with our expectations. 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 stable net sales growth of 2.4% for the group despite continued soft markets, group organic growth even slightly better with 2.8%. The Nordics is the driver and all countries in the segment contributes, Sweden, Finland and Norway. eCom, however, still affected by lower consumer sentiment. We continue to see pressure on our EBITDA margin. The main reason is the negative effect from the lower sales in eCom along with lower gross margins for the Nordics.
The Swedish and Norwegian currency was strengthened in the beginning of the year, but due to timing effects of hedges from previous quarters, as mentioned on the last call, we were not able to fully benefit from that in Q1. Going forward, we will see a gradual improvement of our gross margins, although somewhat depending on the currency development later during the year.
Well-balanced price adjustments were introduced in the Nordics in the quarter, which had a positive contribution on our gross margins and our solid sales development proves that consumers have remained loyal to our strong brand portfolios of owned brands and partner brands. We will also have a new price adjustment window in September in the Nordics. In the quarter, we also continuously worked with cost control, which had a positive contribution.
Our net working capital decreased compared to last year. The trend of net working capital towards net sales is in line with seasonal trends, however, better than last year due to the reduced net working capital. Our net debt is also well within our targets.
Looking at the cash flow. We have a strong cash flow from operating activities during the quarter, which is in line with seasonal trends. Our investing activities related to the acquisition of Target Wines, our amortization is now at a lower level in the quarter compared to last year as a result of the successful refinancing finalized during Q3 last year.
Over to the performance by segments. We have a continued strong momentum in the Nordics. Our sales volume once again increased more than the market, and we reported record high market shares in the quarter in all the Nordic monopoly market. The timing of Eastern versus previous year had a positive effect on the total market, while the underlying trend still remains soft. For the Nordic markets combined, we reported a market share of 22.3%, which is an increase of 1.5 percentage points from last year. We thereby strengthened our position as the #1 in the market. Despite alcohol tax increases in January and price adjustments, we see that consumers have remained loyal to our strong portfolio of brands.
Our great performance in the Nordics shows that our agile and consumer-centric model delivers also in more challenging times. It gives us speed to market and it enables us to quickly adapt to changing consumer trends. This, combined with synergies between the Nordic countries, which with many products being launched in several markets, is one of our most important success factors.
Looking at the countries one by one. In Sweden, we exceeded 28% market share in the quarter, and we beat the market in all wine segments. In the quarter, we saw especially strong growth in white wines, but also Rosé wines grew and we see a trend towards increased sales all Rosé all year around instead of being a more seasonal product. We had many new launches in the Rosé segment in different formats in the quarter. One example is in the picture below [indiscernible], which is in a 1-liter bottle.
In Finland, we continue to see an impressive growth. We further gained market shares in the red wine segment, while at the same time, we continue to increase our market shares in the white and sparkling segment. This is an important part of our long-term strategy in Finland. An example of a new sparkling wine is the can from [ Pizzolato ], one of our bigger partner brands in the Nordics. This is a product which has also been launched in Sweden with success and shows that there is a growing demand for this format.
Also in Norway, we made a significant jump in market share to 6.8%. The increase in volume and market share in Norway is driven both by organic growth and by our latest acquisition, Target Wines. We gained market shares in all wine segments. One highlight from the quarter in Norway is [indiscernible], which is a new partner brand since December last year. Over to you, Linn.
Yes. Net sales increased with 6.4% in the quarter. The increase was driven both by volume and price increases. The adjusted EBITDA was stable, while the adjusted EBITDA margin decreased in the quarter. The main driver is the lower gross margins, as we mentioned, impacted by timing effect of hedges from previous quarters. Going forward, we expect to see a gradual improvement of the margins, although to somewhat depending on the currency developed during the year.
Our Finnish operations have, to some extent, been affected by political strike resulting in closed harbors in the country during late March and beginning of April. This has, for us, meant somewhat higher logistics costs in the quarter and will also affect the next quarter for Finland. But all in all, no significant effects for segment Nordics.
Moving over to the eCom segment. The European e-commerce market continued to be weak in the quarter. However, we've had a good start in eCom in the second quarter, trending towards organic growth. This is supported by various positive news on German consumer sentiment, and we therefore continue to expect that the market will return to growth again during 2024. In the quarter, we continued our Eastern European expansion by launching in Bulgaria. This means that we have now increased our market potential to over 230 million consumers present in 11 countries. Going forward, our focus will be on continuing growing in these markets.
Net sales was down for eCom in the quarter. Consumer sentiment continued to be low, and the sales was also negatively affected by timing effects of campaigns versus previous years. Organic growth was negative with 9%. But as Emil mentioned, we had a good start to the quarter and halfway into Q2, we are trending towards organic growth. We continuously work to improve our operating excellence, further optimizations of our logistics setup and upgrade of our CRM model in combination with a new organizational setup. We expect to see results gradually on both net sales and EBITDA level.
The gross margins continued to be strong, reaching almost 40% in the quarter. Adjusted EBITDA margin lower than last year due to the lower sales.
So now a few words on sustainability. Sustainability is an important and integrated part of our business and is influencing our work on a daily basis and in all parts of our business. During the quarter, we consolidated our sustainability results from 2023, and we recently published our annual sustainability report. Our climate impact from packaging has decreased during 2023. Both climate-smart packaging and packaging in lightweight glass has increased in proportion.
In the beginning of the year, our climate investment with Solvatten in Kenya was certified according to the gold standard regulations. For us, it's very important to work with certifications and third-party audits to ensure that our projects have the greatest possible impact on the climate as well as on the sustainable development of the local societies.
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%. In our eCom segment, we are not reaching our target, but as already mentioned, we have seen significant improvements already in Q2, and we still expect that we will return to growth during 2024.
Regarding our profitability target, the eCom segment was somewhat below, negatively affected by the lower sales, while the Nordics is still lagging due to the currency effect. The net debt to EBITDA ratio is below our target of 2.5 and finally, the Board has proposed for 2023 a dividend of SEK 155 per share, which is above our target on a yearly basis, but in line with our target over a 3-year period.
To summarize, in the quarter, we have further strengthened our market position in the Nordics as the #1 supplier. Going forward, we will continue focusing on improving the margins in the Nordics, while we have a strong sales focus in eCom. Viva eCom has a strong and scalable platform, which will get full effect on when the market in Europe returns to growth, which, as mentioned, we expect it will during the year. Our main focus for eCom in the near future will be growing in our 11 existing markets.
We continue to be very active in the M&A field and are continuously evaluating both potential and active targets. There is still a gap in valuation between buyers and sellers, but we see signs of greater understanding on the selling side. It is here worth noting that in our primary markets, eCom and in the Nordic monopoly countries, we have seen very few completed transactions in the last 3 years despite a steady deal flow that we have evaluated.
Finally, we see strong potential going forward. eCom had a good start in the second quarter compared to last year, trending towards organic growth and the latest market indications are also positive. In the Nordics, we expect continued growth, but also a gradual improvement on margins. However, as mentioned, still dependent on FX in the shorter term.
And now it's time for the Q&A session, and we will start with the questions by phone first.
[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.
I have 3 questions, all related to the Nordics. So first, we saw volumes, they were up 7.5%. And then prices have also been raised a couple of times since Q1 last year, which means that the -- I suppose, mix was quite negative in the quarter. And then I'm curious to hear whether this is a result of your own efforts when it comes to like price value products? Or do you see that consumers are more price sensitive this year than last year still?
I would say it's a combination of both factors. Consumers are more price sensitive as they are everywhere in society, especially in Sweden, which is, of course, our biggest market. But then also we have adapted to that, our own mix is influenced by the fact that we are also launching more products in the lower price segments. So in a way, it's a combined effect due to the same reason.
Yes, but we have increased prices in line with market. So on our normal portfolio, we have increased all prices. So it's an effect of the new launches.
Yes. Yes. Understood. Good. And then second question on the gross margin in the Nordics as well. Coming back to what you said regarding stronger gross margin there going forward. Can you just explain how we should sort of understand the statement, do you guide for a sequential gross margin expansion in the coming quarters or just in Q2 and then sort of normal seasonality variations from there?
Yes. I would say that we expect it to increase in Q2, but then it is dependent on currency development later during this year. But -- so increase in Q2 and then we expect it to be stronger, but not sequentially increasing depending on the currency development.
Okay. So more normal seasonality.
Yes, normal seasonal. Yes, that's correct.
Makes sense. And then last question from my side on OpEx down, I think, SEK 4 million, SEK 5 million in the Nordics versus last year, of course. How should we think about OpEx reductions as we look into the rest of the year?
Yes. We don't plan for any big reductions. And I would say that for the year, it's more expected to be in line with previous year. So that's the expectation for the full year.
The next question comes from Johan Fred from SEB.
You mentioned that you're focusing on margin improvement in the Nordics. Besides continued price increases and FX tailwinds, which, I guess, is an external factor, what strategies or margin drivers do you see for the segment going forward?
Well, the margin driver is, of course, the price increases that we have made not only for Q1 this year, but you see already since all quarter basically going back starting already in -- yes, since the inflation started and the FX effect started going up. So of course, the price increases is the main reason that we will expect gross margin improvements. And FX tailwinds, of course, will improve them even more, but that is more uncertain, but we also hedge. So that will give us -- when the currency go up, we will see effects, but it will be gradually.
But also it's an effect of many small gradual improvements on marketing efficiency, the product mix, the new products that we launch tend to have better margins, although maybe at a lower price point, but still with better margins than the historic products might have at this very moment due to the FX effect. So it's a combination of cost control, new products and the things Linn mentioned.
Got it. Great. My second question is concerning the eCom segment. Could you elaborate a bit on current trading in Q2 thus far? And what are you seeing in terms of consumer sentiment and basically what has changed versus what you saw in Q1, please?
Yes. Well, we followed consumer confidence indexes in Germany. And it increased in May, down from 27 negative points in April, it was up in May, and it is expected to go down gradually during the year. So the consumer confidence indexes, for example, we follow GfK Consumer Climate indicated for Germany is expected to gradually improve the rest of the year.
And regarding our own numbers, we wouldn't indicate growth unless we were positive that it would happen, but we are, of course, very careful mentioning any specific numbers. But really good start to the...
Okay. Yes, yes. So what you're referring to in the Q1 report and the commentary and outlook is what you're seeing in terms of your trading, not just macro indicators. Is that correct?
Correct. So we see it in our trading and it's supported by the macro indicators. That's how we should read it.
The next question comes from Markus Augustsson from Carlsquare.
So my first question is regarding what's been in the news for quite some time here that one of the logistics companies have been having issues with deliveries to Systembolaget in Sweden. How has that affected you guys in Q1? And what it looks like now in Q2?
Yes. So first of all, we do have a different logistics solution. And our first comment is, of course, that we feel a lot for our colleagues and competitors when it comes to these kind of things. It's not something that you would like to happen to yourself in any way. In terms of the effects on us, there is a slight positive effect in the end of -- in the beginning of the quarter or [ speaking ] a month in this period, end of April, beginning of May. Not a big number that would change anything long term, but a slight positive sales increase we have seen so far.
Right. And also regarding FTEs, it's been -- it came down quite drastically here in the Q1, and it's mainly related to logistics and fulfillment in Europe, what can we expect there going forward? I mean, are you able to cut further FTEs? Or what can we expect going forward?
No, we made improvements and all through last year. So these levels are efficient and at expected levels going forward.
All right. And also one question here regarding the average order value in for Viva eCom. It has been increasing year-over-year quite steadily for some time. Is that mainly due to price increases? Or is that some sort of effect of product mix or what's affecting the average order value?
I would say that it's a little bit of both, but mostly it is due to a little bit of an intensified work on the so-called up sales, the offer that the consumer gets towards the end of the sales process where he or she is able to upgrade to another wine case or add a bottle for free. So it's more about the sales process being a little bit more efficient than last year in terms of actually having the customers order a little bit more once they have decided to actually order something.
I mean you probably have seen that yourself, if you order something from an eCom, you will always get a few offers towards the end of the process at quite good prices. But for us, it's, of course, products that have good margins and which means more sales for us.
[Operator Instructions]
Okay. We have a few -- I am taking over to the written questions. We have a few questions that have been partly answered from [ Alexandria ], but I will read them out anyway. Can you please elaborate more in detail how much gross margins will strengthen in the coming quarters, assuming a steady state in [ Eurosic ] levels?
Yes. Well, the [ Eurosic ] was strengthened in the beginning of the year. So that will have effect -- positive effect in Q2, together with the price increases. So you would expect the Nordics to go up 1 or 2 percentage points. But then in Q3, it depends on how the [ Eurosic ] develops further, but an uptick in Q2 is expected.
Which is due to the price increases.
Price increases and the better [ Eurosic ] levels.
And then the second question from [ Alexandria ], which was also regarding Scanlog, and I think we have already answered that, that we have -- we see a slightly positive effect due to the ransomware attacks on our colleagues in the business.
I think that concludes today's session. Thank you very much. Our next report, our Q2, will be published on August 28. Thank you all for today, and I hope to see you soon again.