Cheffelo AB

Hello and welcome to today's webcast with Shefalo, where CEO of Walker Kinman and CFO Erik Bergman will present the report for the first quarter of 2024. After the presentation, there will be a Q&A. So if you have any questions, you can send them in via the form to the right. And with that said, I hand over the word to you guys.

Thanks a lot and good morning to everyone joining us. It's nice to be back for this presentation of Shefalo's first quarter results of 2024. My name is Walker Kinman. I'm the CEO of Sheflo, and I'm here today with Eric Bergman, our CFO. I'm going to take a few minutes to give you a short intro on the company for those of you joining us for the first time, and then take you through some prepared remarks on the first quarter development of financials, and then we'll take your questions. So first, a little bit about Sheflo and our business. So over 15 years, we've been transforming people's eating habits by innovating the mealtime experience. Our local brands in Norway, with Gotlavert and Adams Matkassa, in Sweden with Linas, and in Denmark with Ratnem, all have a rich history of entrepreneurship and innovation. They're all geared towards making our customers' lives easier. Our focus is on delivering delicious, well-balanced, and inspiring meals that make cooking a joy, while also promoting good eating habits and uniting families around the dinner table. We take the stress out of meal planning and shopping so our customers can focus on enjoying their meals. Our meal kit business model is demand driven. Because of this, we can maintain very low inventories and minimize food waste generated in our operations. Our local chefs and dietitians create recipes that reflect local taste preferences while offering the broadest selection of recipes available in the markets where we operate. We provide a highly personalized customer experience across all our brands. This is powered by our in-house technology platform. The customer experience we deliver capitalizes on AI technology, driving, for example, meal selection options and our recommendation engine. This level of personalization is supported by the capability to produce each order individually using Pictolite and automated production solutions. Our supply chain is well established, strong, and it's scalable. It enables us to efficiently purchase and distribute our products in each country where we operate. Furthermore, we are constantly integrating our Nordic supply chain. This enables us to take advantage of sourcing opportunities across markets. So turning to slide six, let's talk about some of the key figures for the quarter. We posted our third consecutive quarter of growth in Q1, with net sales in local currency increasing by 2.1%. This excludes the timing effect of Easter, where we always see a drop in delivery volumes due to the holiday, especially so in Norway. This year, the last week of the quarter was affected by reduced demand over Easter, while the dip in delivery volumes last year occurred fully in the second quarter. Without the last week of the quarter, sales grew by 4.3% on a local currency basis. This is a temporary effect that has already reversed at the start of Q2, and it will have a corresponding positive effect on net sales for the second quarter. Denmark continues to stand out with 44% net sales growth in local currency, a trend that has also continued into the start of the second quarter. Order frequency was up again in the quarter versus last year. This metric is also negatively impacted by the Easter timing. So we are very pleased to see the efforts being put into improving the customer experience, positively impacting customer behavior. Contribution margin landed at 31.4% in line with our plan and on track for over 30% for the full year 2024. EBIT was 10 million kroner for Q1, but slightly lower than last year. Keep in mind that the Easter timing effect also directly affects profitability. The revenue related to the timing effect has a roughly 35% variable contribution margin that will roll into the second quarter. We've mentioned the improvement of the customer experience as part of our strategic must-win battles for 2024. So let's zoom in on that on the next slide. As I wrote in our report, we have continued to see lower fulfillment unit costs, and this mostly has to do with the cost of our logistics setup, and to a lesser degree, continued production efficiency gains. The icing on the cake is the fact that we have also increased the number of delivery time slots, we've introduced real-time delivery tracking for the customer, we've improved delivery predictability, and we've successfully improved our delivery ratings, all while maintaining a lower unit cost in our distribution setup. We are in reinvesting the gains from costs in operational excellence into the physical product experience. Examples of this include adding more items that previously the customer was expected to have at home, and we are also introducing a higher percentage of recipes that are ready in less than 30 minutes. Faster recipes also require more expensive semi-prepared ingredients, such as spice blends, sauces, and soviet meats. The result is a less complex meal preparation process that we can see is appreciated by our customers. In Q1, we also rolled out the offering of discounted recipes to Sweden and Denmark after a successful test in Norway in the fourth quarter. Finally, we see the digital interface as equally important to an epic customer experience and have launched several new features and continuous improvements on our customer-facing platforms. We were very happy to achieve full staffing in our tech team during Q1 and currently have no ongoing recruitments. Those new team members joining us in the quarter help strengthen the talent pool and build on the capabilities and bandwidth needed to continue developing the customer experience. We have also made it clear that continuing to drive marketing excellence is central to our strategy, and a step in that direction can be seen briefly on slide eight. During the Q1 promotional cycle, we launched the first campaign based on a common customer value proposition. This approach allows a high level of media production synergies, which also enables a broader range of overall messaging and content as the team is reusing much of the creative elements across the brands of Linus, Gottlobert and Ratnamt. The initial results of this campaign are quite promising as it has driven better message comprehension with higher purchase intent than the benchmark. Additionally, there has been an increase in brand consideration versus previous campaigns. Let's shift to the market situation on slide nine. As I stated last quarter, we see a clear shift in the Danish market. Inflation has disappeared and the effects of higher interest rates are not as prevalent in Danish households as compared to Norway and Sweden. This has led to a rebound in consumer confidence in Denmark and can now be considered to be at a neutral level. We have also seen market growth in online groceries since May of 2023 and believe that our offering is positioned to continue performing well in this market. Consumer confidence is also improving in Sweden and more recently at a faster pace, probably due to expected reductions in interest rates. The online grocery index we track in Sweden showed 4.8% growth in Q1, and we remain hopeful that market conditions will continue their improvement in the near term. In the Norwegian market, however, we still see a persistent negative consumer confidence, which is only up slightly off of the lows seen in late 2022. High interest rates, a weak currency and inflationary effects continue to affect consumer sentiment and willingness to spend in Norway. We can see how this translates into our own development by market on the next page. Looking at the growth rates in local currency, we are very happy to see the improvements in Q1 versus this time last year. As mentioned, Denmark landed at 44% while Sweden was just over 2% growth. Norway sticks out with a 5.5% contraction, but it is also the market that sees the largest dip from Easter and is the most affected by the timing issue. On a year-to-date basis, our business in this market is flat through the end of April, once Easter timing effects reverse. We do not expect to see contraction in Norway for the full year, but this is also based on the assumption that consumer confidence and general market conditions will improve at a faster rate than what has been observed in the last year. Because of the different growth rates, we also see a reduction in the concentration risk in Norway, with Denmark increasing to 14% of net sales for the group and profitability rising sharply in Sweden. So let's take a look at where we are focusing our efforts going forward. 2024 continues to be about strengthening the core while we explore other growth vectors. The themes of marketing excellence and epic customer experiences are central to that. And I've been able to share some examples of how we're introducing changes in line with this strategy. For marketing excellence in general, continued development of performance marketing and social selling combined with a common Nordic value proposition are key elements. We also will continue pursuing new partnerships that build on both our own capabilities and the strength of other brands. The epic customer experiences side is defined by a continued push to increase personalization and improve the kitchen experience. We're also working on the future development of our add-ons and grocery capabilities and enhancing this product offering. And of course, we always do everything in the context of an environment of operational excellence that is uncompromising in the pursuit of continuous improvements in efficiency and quality. Our long-term financial targets are now on a net sales of CAGR of 6% to 8% and EBIT margins of 4% to 6%. It remains necessary to point out that long-term profitability margins are dependent on economies of scale, and we do not expect to be there already in 2024. Looking forward to 2026, this translates into roughly a 20% increase or 1.2 billion SEC, which is a revenue level where we see EBIT margins hitting the 50 to 70 million range. With this, let me now turn it over to Erik to take us through the financials.

Thank you, Walker, and good morning, everyone. I'm very pleased to present the financial update for the first quarter of 2024. This marks our third consecutive quarter of growth. From an accounting perspective, we grew by 0.3%. However, the quarter was negatively affected by Easter and a weaker NOC. Adjusting for currency and excluding the Easter comparison, we grew by 4.3%. To elaborate on what we refer to as an Easter effect, in 2024, a week of Easter actually fell in the first quarter, which is different from last year when all Easter weeks fell entirely in the second quarter. Many customers tend to pause their subscription during holiday as the normal day-to-day pattern is interrupt, and then they return to their normal subscription once they are back to normal routines. Moving a week of relatively lower volumes from the second quarter to the first quarter affects the comparability of many of our metrics, both top-line metrics as well as profitability measures in the form of lower scale of economics. And I would also like to mention that this actually also means that the ruling 12-month comparison contains three weeks of Easter instead of two weeks. Although that the Easter affects the comparison of average number of deliveries, the hour order frequency increased by 4.8% versus last year. We are very pleased to see the output from all of our efforts to improve customer quality. Among these efforts are the implementation of our loyalty club, a more efficient and selective way of handling discounts, and an overall improvement in the customer experience. We have also other initiatives that are launched in 2024 and remain optimistic that those will continue to affect our customer metrics in a positive way. Looking at active customers, active customers grew sequentially from Q4 to Q1 by 18.7%, which was a higher sequential growth compared to last year. However, active customers at the end of the quarter were 2.5% lower than last year. The lower number of active customers are mainly explained by fewer new customers acquired in 2024, The lower acquisition are a result of both the Easter week timing, as well as a successful launch of Weight Watcher partnership last year, which gave a high customer inflow. I would like to highlight that a few new customers were full offset by reduced churn and an increase in order frequency, despite the time of lower order volumes during the Easter week. The average order value for the period was negatively affected by weaker NOC. Excluding exchange rate differences, average order value declined by 0.1%. All of our brands reported growth in local average order value, driven by customers choosing a larger meal kit. And this offsets a country mix shift towards Denmark, which have a relatively lower average order value compared to the other brands. Let's move on to take a closer look at contribution margin on the next slide. In the first quarter, we delivered a contribution margin of 31.4%, which was in line with last year's margin. I'm very proud to say that we have good control of our unit economics and the results in Q1 shows that we are on track to achieve our annual target. The average fulfillment cost per delivery decreased by 5% compared to the same period last year as a result of efficiency gains in production and logistics. Being in control of our unit economics has allowed us to utilize the improvements in fulfillment cost and invest them in items included in input goods, thereby enhancing the kitchen experience while keeping our overall contribution margin at the same level. Examples of effort that drives cost in input goods includes adding more ingredients to the meal kits, having more ingredients that are faster to prepare, such as pre-blended spices and sauces. This means providing our customers an even more value for money, which enhances our competitiveness. Having a contributor more in line with last year might not sound that exciting, but being in control of our unit economics is key to our profitability and establish the foundation for economies of scale. So a big thanks to the Scheffler team for achieving this. Let's keep on looking at profitability on the next slide. Also, when it comes to profitability, we are delivering according to plan. In general, the first quarter in our line of business is characterized by allocating a relatively higher budget to marketing, resulting in larger volumes during that period, but also a relatively higher marketing spend compared to other quarters. Controlled sales and marketing expenses for the quarter remain in line with last year and amounted to 42.6 million SEK. This equals 14.7% of net sales, which was the same as last year. A portion of the expenses in 2024 were related to the launch of the Common Value Proposition campaign for Linas, Gotlevart and Rätsnämt. By investing in this shared value proposition, we support our efforts to improve marketing excellence in the coming periods. Compared to last year, we have increased our tech costs, mainly related to staffing, to strengthen both our capabilities and our tech capacity. We don't currently have an open position in tech. Our OPEX is at the level where we can see the potential for leveraging increases volumes to gain scale advantages. This position is for continued profitability and growth. The easter effect with lower volumes also affected comparability versus last year resulting in relatively lower profitability. However, the Easter is a timing effect and we do expect the opposite effect in the second quarter. In summary, we are continuing to deliver on our target of an annual contribution of more than 30%. We are at an OPEX level where we see that we will benefit from economies of scale. We will continue to have a strict approach to cost and a tactical approach to sales and marketing spend. With this, we're confident we have a strong foundation for future growth and profitability. Let's move on to the next slide and have a look at the cash flow. We continue to generate a solid cash flow with a free cash flow of 27.6 million SEK for the period, which was an increase compared to last year when excluding changes in working capital. To put that into numbers, the operating activities excluded changes in net working capital was 18.3 million SEK, which was 1.5 million SEK higher than last year. We finance our operations using a negative networking capital model. The model involves receiving payment from most of our customers shortly after delivery while paying our supplier at the later stage. This strategy provides a relatively low financing cost and a leverage for growth. As our sales follows a seasonal pattern, this is also reflected in our networking capital. We normally expect an increase in working capital in the first quarter, which drives a positive change in the cash flow statement. Change in net working capital amounted to 18.1 million SEK. This was 10.4 million SEK lower than last year. This decrease is explained by increased accounts receivables, which is related to that last week over the quarter being dominated by Easter bank holidays, which postponed much of that week's cash collection into the second quarter. At the end of the period, cash and cash equivalents amounted to 119.2 million SEK, which gives us room for seasonal variation in cash precision, as well as the ability to invest in our business and return value to our shareholders. At the annual general meeting held on April 24th, it was resolved that the proposed dividend of 1.78 SEK per share was would be paid corresponding to a total amount of 22.6 million SEK. This makes it the third consecutive year that we are issuing a dividend. Let's move on to the next slide. We remain focused on profitable growth and expect to see a high single-digit growth in the second quarter. We anticipate higher growth in Denmark where we expect double-digit growth The market condition in Norway and Sweden remains uncertain, with a greater uncertainty regarding the development of consumer sentiment on the Norwegian market. As mentioned throughout this presentation, we expect to see the reverse effect of easy timing in the second quarter. DARA performed according to plan, and no material changes are expected in our current unique economics. or cost structure. Our ambition is to maintain a contribution margin of about 30%. We will continue to target a market spend of 13% on a full year basis. However, this will continue to follow the seasonal pattern observed in the previous years, with a relatively lower spend in the second quarter, followed by a higher spend in the third quarter. With that, I would like to hand back to Walker for a quick summary.