Viva Wine Group AB
STO:VIVA
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Good morning, and welcome to the quarterly presentation of Viva Wine Group. We are happy to be back in this place, in this forum again after a long summer. Today's presenters are myself, Emil Sallnäs, the CEO; and together with Linn Gäfvert, our CFO. We will, as always, go through the short introduction to Viva Wine Group. We'll have the quarterly update a little bit more in words, followed by the financial overview in numbers. We will touch up on the very important sustainability work we do, and then we'll end with some final comments from my side.
Viva Wine Group reports into two major segments: a Nordic business in the monopolies, selling wine to the Nordic monopolies for alcohol where we sell -- have 81% of our turnover and 19% of our turnover comes from eCom business based in Germany.
In the Nordics, we are the market leader. And in Europe, we have a very strong and growing eCom business. Sustainability is at the heart of our business and very important for our sales and growth.
As some of you have noticed, we have changed our reporting into two major segments from this quarter, and it's quite logic since we hired a COO, Anna Möller for the Nordic business. We have reported internally. Nordics internally as one segment, and now we are more consistent with that also towards the market. Our third segment Other has quite insignificant turnover and mainly consists of profit from minority interest and cost for group functions.
So looking at the map, this is how we look going forward, the Nordics up in the north. And then we have the eCom business that we expect to grow over time. Back to the quarter. So we are very happy with the quarter. We think it's a quite solid quarter where we have increased the market share in the Nordics with -- to 20.4% compared to 19.3%. That is almost 1 percentage point higher than last year. And this is now the seventh time we are presenting our quarterly reports to the market, and it's also the seventh time that we have an increased market share. And I think that is really strong and something quite amazing that I want to thank all our employees for. The net sales increased with 4.8% in Q2 with an organic growth of 3.9%.
On the EBITDA side, it is still mixed news. We have strong gross margins in the eCom while we still have significant FX impact in the Nordics. In both segments, we do get positive contribution to the EBITDA from the efficiency work we do and cost control that we have in place.
Another thing that has happened in our market in the quarter is the so-called winefinder court case. And we'd like to take this time to explain a little bit how we see this. And what has really been decided is that eCom sales into the Nordic market, not the Nordic to the Swedish market from another EU country, i.e., not from a Swedish warehouse and paying Swedish alcohol tax is now confirmed legal by the Supreme Court. In the same ruling, the status of the retail monopoly was confirmed by the Supreme Court, so no change there.
Our view is that there is really no big change on the current market situation to be expected. These competitors have existed for 5 to 10 years. And the only major thing that happened this summer is that the Supreme Court confirmed that their business is totally legal. We are following from our side, the development very closely. Obviously, we have an eCom ourselves. And -- but we are following the development closely, and we are evaluating the potential. Over to the numbers.
Yes. And starting off with our net sales development. As Emil mentioned, we have a strong net sales in the quarter. It has increased by 4.8%, and organic growth is plus 3.9% in the quarter. We have a strong contribution from our Nordic markets. And according to our estimates, we are twice as good as the market growth when it comes to net sales development.
Looking at our gross margins in the quarter, they have been pressured compared to last year, we have negative effects coming from freight and distribution. However, the main explanation is the negative currency development in the Nordics. The Euro SEK development and the Euro NOK development. Our eCom continues to show strong gross margins in the quarter, even higher than last year.
And looking at our EBITDA. It has been pressured mainly due to the negative FX effect mentioned, but we have also positive contribution from efficiencies and cost control in the quarter.
And over to the view of the net sales contribution, it's clear that it comes from the Nordic markets. Here, our estimate is that the Nordic markets has increased net sales-wise 2 to 3 percentage points, while we have increased twice as much. And looking at our EBITDA margin, we see that it is pressured from the Nordics due to the negative FX effects.
However, when it comes to our eCom, we have a negative effect from the net sales, but looking at our Other contribution to the EBITDA level, it's not -- it's only slightly contributing. And that means that we yet again demonstrate resilience in our eCom business. Our net working capital is lower than last year, and we have a positive trend towards net sales.
Looking at our net debt, it is well in line with our targets. And this quarter is higher than the other quarters during the year, and it's seasonal wise, since we have our dividend in Q2. Our cash flow, we have a stable cash flow coming from our operating activities. And from our financing activities, everything is according to plan. We repaid our loans and we have paid out dividend.
So over to the performance by segment.
Yes. And first, we would like to start with looking at our volume and market share development in the Nordic market. We have a growth in the quarter from 19.3% to 20.4%. Our market share has grown and the volume has grown with 5% in the quarter, while the market is down 0.8%. Our -- all our monopoly markets have increased Sweden, Finland and Norway.
So we'd like to take this time to explain a little bit how this growth and where this growth is coming from because the story is a little bit different depending on the market. So in Sweden, it's really about having a high pace of innovation and launching products. We have mentioned it before, but we mention it again.
So the market share comes -- and in addition, in Sweden, the effect on the sales are quite immediate. So it's a quite quick -- if you are successful, you quite quickly see that in your sales. So in recent times, we have launched products like Falu, Crazy Cat, In the Mood and La Vecchia Via that are all been very well received in the monopoly shelves also resulting in good sales. We've also introduced an innovative packaging of 4.5-liter banging box, which is very much in line with the consumer demand for cheaper per liter, cheaper wines.
From our partners, we see great products coming through the -- both of the tender assort -- tender wins and also through premium products coming in, in all different assortments. So in Sweden, our market share grew to 26% from 25.2%.
In Finland, the story is slightly different. The dynamics of the market requires a much more long-term strategy. So what we are seeing now is a strategic decision we took 1 to 2 years ago and that was to go into more white and rose wines. We were very heavy on red wines before. So with this success, we have been able to increase the market share with a whopping 3 percentage points from 15.7% to 18.7%.
In Norway, it is the similar story, but for different reasons. But also here, we have worked on the product mix, increasing the number of white and rose wines, which together with very good weather has helped the sales in the quarter. So here, our market share is 5.6% compared to 5.2 before.
Yes. And taking a look at our Nordic net sales development. As mentioned, is strong in the quarter, 7.7% and that is according to our estimates over the market development, which we estimate to be 2% to 3% up. And why is that? As Emil mentioned, we have made a lot of successful new launches, but we have also had price increases, and we also have a favorable product mix. The weather was also favorable in Q2.
Looking at our EBITDA margin, it is down from last year. And as mentioned, it comes from the pressured gross margins due to the negative FX effects. However, at EBITDA level, we have positive contribution from our cost control. The margin is 7.1% this quarter.
So in the eCom segment, we have a continued weak market sentiment, but we have, as mentioned, strong gross margins on all our platforms. We're happy to report that Winefurst, our entry level concept, has been voted best online wine retailer in 2023 for the second time in a row, which for a quite new player in the market, is very impressive.
Our new warehouse and distribution center, which you see in the picture on the right-hand side, looking very empty right now, is on track for the Christmas sales. So it's exactly as planned. The number of orders decreased compared to last year, which is quite logic since the sales are decreasing, but we're happy to see that our average order value is increasing as a result of some strategic work on the product mix.
Yes. And taking a look at the result. The net sales is down compared to last year due to the negative sentiment in the market. Our organic growth is negative 9.7% in the quarter. We believe that we are in line with overall e-commerce market and with peers.
Looking at our adjusted EBITDA margin. We have strong gross margins. And as Emil mentioned, due to good and high average order value, product mix and pricing strategies. Profitability-wise, we estimate that we have outperformed the market in the quarter.
So over to sustainability. And here' some great news. We -- recently the Swedish Drink's Business Climate Initiative report came out. And for the fifth year in a row, we are performing better than our peers. And we have a CO2 emissions that are 28% lower than the industry average. And what is maybe more important for us and for the climate as a whole is that we continue year by year to decrease our CO2 emissions.
So some final comments from my side. We always comment on the financial targets. And as you have noticed, our growth target for the Nordics, we are well in line with that, well above that. On the e-com, we are still struggling a little bit, but we are still believing in the 10% to 15% target in the medium term. In addition, we will have some M&A coming on top of that for the growth.
The profitability slightly below the target at the moment due to explanations given mostly the Euro SEK effect. But again, in the medium term, we believe in this target. Capital structure and dividend policy, as you have seen, is in line with our targets. So all in all, we believe that we had a very solid quarter and that we do have a very solid foundation for the future.
As mentioned, 7 quarters in a row reporting higher market shares in the Nordics. In my opinion, Very strong. We have a profitable eCom beating the market and our concept winefurst. We are launching in new markets have been well received, and we are planning to launch in several more markets. We do also have a very lean cost structure. And I think here, the way that we work comes in, in most of our daughter companies, we have management ownership, which, together -- which gives a very efficient organization and a way of working that overall gives us a leaner cost structure, in general.
On the M&A, we are screening the market actively, but we are quite cautious due to the volatile market conditions. The -- quite put it a little bit more simply, companies that we want to buy might not want to sell at this time and companies that are for sale, we don't want to buy due to the market conditions in, depending on if it's the Nordic or the eCom.
So as a summary, we are very confident in our business model and our understanding of the consumer. And therefore, we also are very confident in our long-term growth and the profitability of the business. Thank you very much. Now over to Q&A. You will have a message on your phone for the phone questions, which comes first now, and then we'll follow up with the questions online.
[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.
I have four questions, but I think I'll take them one by one. First one on Sweden. I think it seems like the EBIT or EBITDA margin was almost flat from Q1 at ballpark 6.5%. Curious to hear whether that's also true for the gross margin, which I think you reported at 15.9% last quarter?
Yes. The gross margin is [indiscernible] at 15% right now.
Okay. Is it down around 1 percentage point?
Yes, due to the FX effects.
Yes. Perfect. And the second one on the current trading in the Nordics, obviously, given that the weather has been quite poor during the summer months. So I'm curious to hear whether that has impacted the market in Q3?
Overall, if you look at the numbers that are publicly available, i.e., the monopoly sales, sales statistics, we would say that July and August are somewhat canceling each other out because in the end, there is an effect on Rose wines in the beginning of the season, and this is what we are referring to that the weather helped, especially the Rose wines. While the red wines came out very strong in July and continuing into August and then the Rose has made a slight come back when the weather came back as well. So overall, the product mix means that it doesn't have a big effect for us, but it's important for us to get the Rose wine selling in the beginning of the season, and that's what we referred to in the Nordics.
Okay. That's clear. Third one, on the streamlining efforts you mentioned, Emil, within the e-commerce segment, obviously. In Q1, you wrote that you expect to see visible results from that during the second half of the year? In this quarter, I couldn't see any comments on it. So it would be great if you could give us an update on that.
Yes. If you're looking at the numbers, we have efficiencies also in the numbers, but when we convert it from euro to SEK it looks like it's flat, but there is an increase looking at the local currency. And over to you about how it's going.
I think in general, we need to kick in the new warehouse, which we expect to have sometime during Q3 to really get things going in terms of the efficiencies being final, final. So we still believe that they will -- you will see them in the second half. But then, as Linn mentioned, it will depend a little bit on exchange rate effects and also, of course, on total sales because if we can start selling a little bit more the efficiencies will be obviously bigger.
Right. Okay. So maybe a little bit more back-end loaded than we initially anticipated.
Yes. And in local currencies, we have the positive effects. But when the euro is increasing, that gives the negative effects.
Yes, of course. And last one on M&A. You sounded, I think a bit more positive in Q1, saying that price expectations have come down in the market and so forth. Are you still as optimistic now? Or do you think you're sort of further away from striking a deal?
I think the word cautious means that I'm not as optimistic and we have been very, very active in the market, but we have run into exactly the problem I described that companies that we want to buy does not feel that it's the right time to buy or the price is too high because there's always a price, I guess, or due to the fact that in the Nordics, the most of our peers have exactly the same exchange rate problems. While in the eCom, of course, the market is quite weak. So I mean, their numbers will not look great either. So Yes, we are a little bit more cautious overall. It doesn't mean that we're not very active basically on a daily level. But yes, a bit more cautious, and we were hoping that there will be more news, let's put it that way.
Do we have any other phone questions?
Please go ahead.
Johan Fred from SEB. A few questions from me. You saw pretty impressive volume growth in the Nordic despite the flat underlying margin -- or sorry, the underlying market. Much of this, I gather, was due to you targeting a sort of pocket of growth in terms of white, rose and sparkling wines in Finland and Norway. Have you identified any other obvious pockets of growth going forward? And how should we think about the drivers in terms of price mix and volume going into H2 and Q3?
I think our story is quite similar to what you see in the supermarkets here in Sweden and all over Europe that people are trading down a little bit. So we do see a lot of growth in somewhat cheaper products. I mean there's not a huge price difference where we're talking about here, but somewhat cheaper products. And this is, of course, where we already were very strong and launching quite a lot of new products. So for the moment, it's a lot about finding products that are matching the current consumer sentiment.
Okay. Great. Any obvious low-hanging fruit there?
I couldn't tell you right now. You have to see later on.
Fair enough. But on that topic, you continue to outgrow the market and gain market share. Could you break down sort of the dynamics or the drivers to your success? You mentioned that consumers are trading down. Would you say that volume growth is due to what you do actively every quarter? Or would you say that some of it is relating to you having a favorable offer in the lower price ranges?
Well, first of all, growth has been in our DNA for the last 20 years. So I think it's very difficult to put it as one driver. It is really in all the companies, the willingness to grow is there all the time. And I think that says it all. What was the second part of your question?
Well, it's a big part of the growth drivers or sort of the outperformance in the market due to you being having a favorable exposure to the lower price ranges?
Well, it is. But our aim and what has driven our growth all the time is the fact that we always aim to have a favorable product mix that matches the consumer demand at any time. And it is really the speed that we launched products and the quickness that we adapt to the current market conditions that in my opinion, makes the difference when we increase our market share.
Yes, fair enough. Fair enough. Jumping to gross margin. You touched upon it briefly in the report, but could you elaborate on the factors besides FX that had an impact on gross margins? And how much this contributed to the year-over-year decline?
Yes. I would say that pretty much everything is related to the FX effects. We have had other costs increasing, like mentioned, freight and distribution. But we -- at every price window, we increase our price and make a balanced decision to make right pricing nodes to play catch up with these cost effects. But the negative development that you see compared to last year is related to the FX effects that has been very volatile during this year. And as you know, we only have two price windows in Sweden and Finland and 3x in Norway. So at any price window, we continue to increase prices where possible. But the contraction of the gross margin is related to the FX effects.
Okay. Very clear. And one additional question. Do you mind providing some color on your outlook for the eCom segment? What are you seeing? And what do you expect -- and sort of what do you expect going forward? Do you expect the segment to return to growth in H2 this year?
A little bit tricky to say. We do see, as I think we have mentioned before, there is a little bit of a light in the tunnel. We do see some indicators going upwards, but they may also the consumer sentiment in Germany, which is our main market is going up and down very much. So we see a little bit of light in the tunnel. We are hoping to be able to have growth in the end of the year, but I wouldn't give that as a very sort of clear prognosis. I mean it's -- there is a possibility, but I think that you should look at numbers that are in the similar trend as you have seen now, slightly improving for every quarter compared to last year.
And just a small technical question as a final one for me. Could you elaborate a bit on sort of the one-off in the quarter? And also the disposal in the segment eCom?
The one-off, we adjust our -- we only have one adjustment in our EBITDA, and that's related to eCom and its bonus to the founders of the eCom business. So otherwise, is there any more follow-up?
No. Thank you so much guys.
Thank you.
Thank you. Any other questions...
[Operator Instructions] There are no more question this time. So I hand the conference back to the speakers for any closing comments.
Well, we do have the online questions as well. So we'll take them in this order.
How does Viva Wine Group's range fair in the recession? And how is the market affected by a recession?
I suspect that consumption will remain, but that slightly cheaper wines will be more successful. While I think we already answered that question, it's very clear that we always try to have a good range. But in terms of a recession, we do believe that we have a very strong range and people are trading down. Consumers are trading down somewhat, and that shows in our numbers.
Second question from [indiscernible]. What kind of price increases are you planning for the fall? Will those composite for the negative FX impact? Or will that take until 2024?
I think in general, we are increasing all the prices that we can increase. We started also very early compared to our competitors here in the Nordics, increasing prices already two price periods ago. Will we catch up? It is difficult because no consumer would like the price to increase at the rate that the Euro SEK has increased. So I would say the guess that until '24 is probably quite correct.
Can you -- from [indiscernible], can you mention a few big sellers on sustainable target?
Well, we do have in the red wine segment, a wine series called Albariño, which is one of the best-selling bag-in-boxes. In the more expensive side, we have [indiscernible] bag-in-box and, for example, [indiscernible] bag-in-box. So there are quite a few. I think we can -- there are some information on our homepage as well, but we are also market leaders, especially in sparkling wines, white wines we are market leaders in basically all the segments. So I would -- if you'd like to have a more full description, I'm sure you can mail us and then we can get back to you with more details.
Yes. We have top sellers in all segments in the monopolies.
Then there is a more technical question maybe for you, Linn, how can the financial net be plus SEK 1 million in the half year, net debt and leasing should cost you money is still the way you set it to the listing, I guess, is a Swedish effective financial net?
Yes. Well, we have had some increased interest expense as everyone, but we have a low debt, and you can look at the cash flow for where you can see paid interest. So there, we have a small increase. However, why it is positive is due to the fact that we reevaluate from euro to SEK.
Great. And then I think the last question from another shareholder. I think you can expect that many actors will process consumers and tell them it is now legal to have wine delivery to the home, how well equipped is Viva Wine Group to face this competition and take new market shares in the market? How big do you think the new market will be after all it's a new market now that it has become legal.
which is very true. I think starting off with the first part of the question, yes, there will probably be new actors. All the new actors trying to push this segment. We are, from our side, very well equipped. We have a very strong eCom set up in Germany. So we know exactly what to do if we want to do that. And if we find the profitability in the market, so I have no doubt there. On the other hand, how big do you think the new market will be? Very tricky to say. Currently, it is somewhere between SEK 300 million and SEK 500 million, which is 2% to 3% of the total market, a little bit depending on which numbers you are relying on.
Will it increase? Yes. But we see also in Germany, in all the markets that we are, is that eCom growth is quite slow. So starting from there, I don't want to predict how big it will be, but we will see how this develops. And maybe in the next quarter, I can be a little bit more clear on our view.
Good. I think that's all. So thank you all very much, and I hope to see you again in the next quarter.
Thank you.