Cheffelo AB (publ)

Good morning and welcome to today's webcast with Sheffalo presenting the Q4 report for 2024. With us presenting we have the CEO Walker Kilman and CFO Erik Bergman. If you have any questions please use the form located to the right and we'll take that up during the Q&A. And with that said please go ahead with your presentation.

Thank you Martin and good morning to everyone joining us and welcome to this presentation of Sheffalo's fourth quarter and full year results for 2024. My name is Walker Kinman. I'm the CEO of Sheflo and I'm here today with Eric Behrman, our CFO. I will 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 fourth quarter development and financials. And then we'll take your questions and you can post those in the question dialogue or by emailing us directly on ir at sheflo.com. So let's start with a little about Sheflo and our business. For over 16 years, we've been changing the way people eat dinner by innovating the mealtime experience. In Norway, we operate under the brands Godelbert and Adams Matkasse. In Sweden, Linas. And in Denmark, Ratnemt. These well-known local brands have a rich history of innovation and entrepreneurship, all geared towards making our customers' lives easier. Our goal is to make life less complicated with inspiring and tasty, well-balanced meals that are easy to prepare. By taking the stress out of meal planning, shopping, and cooking, we help more people eat better and bring families together around the dinner table. Our meal kit business model is demand driven. Because of this, we can maintain a very low inventory 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 meal kit recipes available in the markets where we operate. We provide a highly personalized customer experience across all our brands, 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 pick-to-light and automated production solutions. Our supply chain is well-established, strong, and scalable, enabling us to efficiently purchase and distribute our products in each country where we operate. Furthermore, we are constantly integrating our Nordic supply chain, enabling us to take advantage of sourcing opportunities across markets. Turning to slide five, let's talk about some of the key figures for the quarter. Q4 was the icing on the cake for us as we finished a year that showed growth in every quarter and a return to growth in the active customer base in the second half. Net sales grew on a local currency basis of 11% in Q4, which brought the local currency growth for the year up to just over 7%. Active customers posted nominal growth for the second quarter in a row, while another key metric order frequency also showed another quarter of solid growth at 7.3%, driven by improvements in the customer experience. The Medox-Fried partnership has performed well, and the customer cohorts that have been converted to Lina's are strong, helping drive the second quarter of double-digit growth in a row for Sweden. Good growth in the quarter and for the full year further translated into profitability improvements, with full-year EBIT increasing by 36%, reaching 3.9% of net sales, just shy of our long-term financial targets of between 4% and 6%. improved profitability converted into higher cash flow and on the back of that the board of directors will propose a dividend of 3.32 kroner per share equal to 42.1 million kroner the amount is 100 percent of the free cash flow generated by the business in 2024 excluding changes in networking capital and will mean that sheflo has distributed over 90 million kroner to shareholders since the first dividend was announced in 2022. Let's take a little closer look at the market developments in Q4 on the next slide. So we did almost half of our net sales in Norway in Q4, and that's been a tough market during much of 2024. And that's with uncertainties on the macro side, reducing demand and preventing meaningful growth. However, in Q4, we were also very pleased to see that trend shift abruptly. Initially, this came from a slower decline in volumes than expected, approaching Christmas and New Year, followed by a sharp increase in customer acquisition at the start of 2025, which has continued steady through mid-February. The result in Q4 was a 6.6% increase in net sales in local currency led by Gottfried Levert. The repositioning of atoms has increased the average order value for that brand, which mostly offset lowered delivery volumes. The Linus brand in Sweden again grew well in Q4, reaching 15.6%, and the second quarter in a row of double-digit growth. This was substantially better than the online grocery index in Sweden of 3.5% in Q4. There's good momentum as well in the Swedish market at year end, and we see the growth rate in both Sweden and Norway landing in high single-digit to low double-digit growth for Q1, and further assisted this year by Easter calendar effects. Denmark continued to post solid local currency growth at 8% in Q4, which exceeds the growth rate of the online grocery index in Denmark up until November of 6%. As noted last quarter, we have seen the growth rate slow in Denmark on the back of very rapid expansion in the second half of 2023 that reached almost 47% in the fourth quarter. We do not see strong momentum at the start of 2025 in Denmark, and we'll expect much of the early growth in the year to come from Norway and Sweden. Let's take a look at a couple of points we've discussed in previous quarters on the next slides. Firstly, the marketing partnership with Middagsfrid, when they exited the meal kit space, is something that has had a positive effect on the growth of Schefflo, contributing around 1.4 percentage points during the quarter. While we do not expect to see a substantial further increase in the number of customers coming from that partnership, the results have been in line with our expectations, and we are very pleased with the opportunity to serve these customers and help consolidate the Swedish market. Turning to the page, the second point we've discussed also affects the Swedish market with the discontinuation of the Weight Watchers partnership. With this partnership ending in December, we've had the opportunity to launch our own calorie smart recipes, which have been well received by customers in both Sweden and Denmark. These dishes provide a nutritious and low calorie alternative in our regular assortment of over 80 dishes every week that can be attractive for our customers with calorie management in mind. To further enhance our reach in this space, we entered non-exclusive digital media partnerships with Wellaby and Eatit. Turning to the next slide, let's revisit what we have said about growth in the near term. There are four areas that we see that will have a meaningful impact on growth for Sheffalo in the near term. On the pricing side, we have increased prices by 2% to 3% in all brands in December, with little observation of price elasticity affecting demand. The larger price increase of around 7% in the Adams brand in Norway in August last year will continue to drive an increase in average order value during the first half of 2025 for that brand. We've now been able to observe two quarters of growth in active customers. While this growth so far has been nominal, it underscores that the trend has shifted. And looking forward, we are already observing low single-digit growth in active customers in Norway and Sweden. Order frequency has been a key driver of growth in 2024, reaching 7.3% growth in Q4. With our reorganization, we aim to make it easier to focus on customer retention, which should continue to support higher order frequency. However, we do expect a more moderate increase compared to 2024, as higher customer acquisition rates also impact the trend. Order frequency has been a central factor to growth in 2024. And even in, excuse me, we believe that these first three areas can help drive growth at two to three percentage points each. The final area is the ongoing expansion of add-ons and groceries. New product bundling and a stronger strategic focus are already delivering results, with higher double-digit growth early in 2025. We're also developing new user experience improvements and capabilities that we believe will help accelerate this growth even further. Since add-ons and groceries accounted for less than 2% of net sales in 2024, we expect this area to contribute 1-2 percentage points of overall growth in 2025. With that, let me now turn it over to Erik to take us through the financials.

Thank you, Walker. I'm very pleased with our result for the fourth quarter. The fourth quarter makes a strong finish to the year. Net sales grew by 9.7%. We continue to experience volatility in exchange rates between SEK and both Norwegian and Danish krona, which had a negative impact on our reported numbers. Adjusted for currency, net sales actually grew by 11.1%. Throughout the year, we have referred to what we call bumpy growth, with 6% in the first half, a slower third quarter, and a strong finish in the fourth quarter. As a result, net sales for the full year reached $1.5 billion, an increase of 5.8%. Adjusted for currency, that is a growth of 7.1%. This currency adjusted growth, placing us in the middle of our communicated financial growth targets. The fourth quarter saw a less pronounced seasonal slowdown towards Christmas holidays, with fewer customers past their subscription than we typically see. This had a positive impact on net sales and contributed to increased order frequency. We have seen a strengthening of the order frequency throughout the year. Key drivers behind the higher order frequency include the updated loyalty club, a more targeted approach to customer acquisition, and an enhancement in customer experience. These enhancements in the customer experience includes more ingredients in meal kits, which reduce the need for pantry items. It's expanding the delivery slots options and having a more personalized recipe recommendation. Despite continuous slow macroeconomic environment, we achieved growth across all our markets. Sweden performed well with a positive impact from customers acquired through the Midasbreed partnership that performed in line with our expectations. As mentioned in our trading updates, the comparison versus last year was affected by one additional delivery week. So let's move on to the next slide where I will elaborate on that. So basically, 2024, we had 53 delivery opportunities, which we refer to as 53 delivery weeks, which is one more than the previous year. This is due to the way our deliveries are scheduled, as most deliveries occur on Sundays or Mondays. So to be clear, this is not aligned with the ISO calendar weeks. So to oversimplify it, it is not more complex than counting the number of Mondays that occurs during the year, which in 2024 was 53. And because of this, certain years will have an additional delivery week, although this is rare. The next time this will occur is in 2029. The extra week had a positive impact on our financial results, contributing by approximately 8 million SEK to Netsys and about 2 to 3 million SEK to our EBITs. All in all, the fourth quarter marked a strong finish to the year, both with and without this extra week. So with that, let's move on to have a look at profitability, starting with our contribution margin. So our contribution margin for the quarter improved 32.3%, which was 0.5% higher than last year. This reflects economies of scale and continued efficiency gains in logistics and productions, where we successfully reduced fulfillment costs by 2% per delivery. Throughout the year, we have reinvested a large share of this savings into the product, while still achieving an increasing margin. The full year contribution margin reached 30.9%. And what's in line with what we have communicated before, we exceeded our full-year contribution margin target of a margin above 30%. So looking forward to 2025, we expect to see continued improvement on contribution margin with both price adjustments and higher volumes. And therefore, we increase our long-term ambition to exceed 31%. Let's move on to have a look at the marketing spend. Sales and marketing spend in the fourth quarter was as expected and according to what we previously communicated. The fourth quarter is a relatively slower quarter when it comes to customer acquisition efforts. Sales and marketing expenses amongst almost 28 million SEK, which was about 4 million SEK lower than last year. This reduction is primarily driven by two factors. First, a reallocation of 2.2 million SEK in costs from sales and marketing to the technology team, which are reflecting an organizational shift where we are moving design and product management functions into the tech function. Second, as mentioned in our last report, sales and marketing spend was reduced compared to last year, as last year included costs related to the launch of a new value proposition. From a full year perspective, sales and marketing expense amongst 134 million SEK, which was 12.7% of net sales. This remains in line with what we have previously communicated and the target of 13%. And to be clear, that holds true also considering cost allocation through the tech departments. I also would like to point out that last year we spent 131 million SEK. This year we spent 134 million SEK with a significantly higher growth rate. Looking ahead, we will continue to maintain a tactical approach to marketing spend, focus on driving quality customer growth. Due to the shift of cost to the tech department and the economies of scale, we are updating our target to 12% of net sales on a full year basis. But also with this, note the slightly higher technology cost that is included in the central function expenses. So let's move on to have a look at the profitability on the next slide. All in all, we delivered a strong improvement in profitability with an EBIT increase of almost 83% in the fourth quarter compared to the previous year. On a full year basis, EBIT increased by almost 11 million SEK to 41.7%. That brings the EBIT margin up from last year, and it amounts to 3.9%. This improvement reflects higher volumes, improved contribution margin, and continued cost discipline. As you could see in the chart, there was a shift in profitability between the third and the fourth quarter compared to the previous year. This was partly due to the higher allocation of market spend in the third quarter, and also partly driven by stronger volumes growth in the fourth quarter, which then was benefited from economies of scale. With this profitability, let's move on to the next slide to have a look at the cash flow. During the year, free cash flow amounts to almost 47 million SEK, which was 1.5 million SEK higher than last year. The increased profitability drew an 11.5 million SEK increase in cash flow from profit before tax. However, this was partly offset by a negative cash flow from changes in net working capital, as you could see in the graph. Net working capital remains a key factor in our cash flow dynamics. The lower cash flow from networking capital compared to last year are explained by a lower cash flow from changes in operating liabilities combined with a higher accounts receivable balance at year end, which is driven by increased volumes and timing of customer payments from late December being received in early January. Our cash position remains strong with cash and cash equivalents of almost 114 million SEK at year end. And we continue to operate with no interest-bearing debt other than the IFRS 6 and lease obligations. With this strong cash flow and financial position, let's go to the next slide to have a look at the dividend proposal. The board will propose a dividend of 3.32 SEK per share, which are to be decided after the annual general meeting on April 25th. The proposed dividend is higher than the lowest level specified in our dividend policy. The amount this year is based on free cash flow, less changes in network capital generated during the year, which amounts to 42.1 million SEK. With this dividend, we will have distributed over 90 million SEK in cash to shareholders since 2022. With that, let's move on to the outlook for the coming year. As we move into 2025, we are carrying forward a strong momentum from 2024. Net sales growth is expected to be in line with our financial target, keeping us on track to exceed 1.2 billion SEK in 2026. We expect that growth will mainly come from Sweden and Norway. In the first quarter, we anticipate high single-digit to low double-digit growth in Sweden and Norway, while Denmark's top line is expected to remain stable in the first quarter. One factor to keep in mind for the first half is the timing of Easter, which all else equaled shift delivery volumes between quarters. As a result, we expect higher volumes in the first quarter and lower in the second quarter, purely due to the holiday day timing. On profitability, we have increased our contribution margin target, which is now expected to exceed 31% on an annual basis, supported by both higher volumes and continued operational efficiencies. Sales and marketing expenses are expected to be around 12% of net sales on an annual basis, reflecting economies of scale and the recent cost reallocation to our tech team. So all in all, with increased volumes, improved margins, and continued disciplined cost control, we are well positioned to exceed the low end of our long-term EBIT target in 2025. With that, I would like to hand back to Walker for a quick summary.

All right. Thanks, Erik. So let's turn to the final slide to summarize, and then we will open it up for questions. And in summary, the fourth quarter represented a solid finish to the year, and we are off to a great start in 2025. We had growth in all markets, with Sweden marking a second quarter of double-digit growth and Norway accelerating. Our efforts on improving the customer experience continue to drive order frequency, and we are starting to see an increase in the number of active customers as well. Good momentum at the start of 2025, particularly in Norway, followed by Sweden. Price increases and higher basket penetration in add-ons and groceries are very encouraging, and we are confident that we will be able to exceed our target of 1.2 billion in 2026. The realized economies of scale mean that full-year EBIT grew by 36% in 2025, and we will continue to see higher profitability on increased volumes. Our board is proposing an increase in the dividend to 3.32 kroner per share equal to 42.1 million kroner that will raise the total cash distributed to shareholders since 2022 to over 90 million. Ending 2024 on a strong note is a proof point to the dedication and hard work of every team member here at Sheffalo. Their commitment to improving the customer experience in every aspect, product quality, service reliability, and overall satisfaction has been remarkable and noteworthy. On behalf of management and the board, I thank them all for their contributions. With such high engagement and clear results, I think we're well positioned to continue building on this success in the year ahead. That concludes our prepared remarks. We'll now turn it over to questions that we have received. So remember to send your questions, send your written questions to our investor relations email, which is ir.sheffalo.com if you haven't already done that. So let's get started with our first question. And the first question comes from Eriker Danielsson, and he is asking, how large is the Easter effect on your growth outlook for Q1?

So in 2025, both week of Easter will actually be in the second quarter compared to last year when half of the Easter was in the first quarter. I don't have a number prepared that I could share with you, but you could the similar effect as you saw last year.

All right. Thank you, Erik. The next question also coming from Also coming from Eureka Danielson, you're writing in the report, our expectation is to see the business exceed the low end of our long term financial targets for EBIT profitability already in 2025. Does this mean that you expect an EBIT above 40 million SEC? Thanks for asking the question. I think for clarification, we have been thinking along the lines of the target range of 4% to 6% EBIT growth. So from a relative performance perspective, we're looking at, we see the business exceeding the low end of that 4%. Let's take the next question. And that is coming from Saman. And the question is, Hang on just a second. I'll get the question for you. So the question is, how has price increases in December affected customer retention? So from a price increase perspective, I think we see, as we said in the prepared remarks, that price elasticity is good for this level of price changes. So the important point here is that the price increases were not more than what we're seeing as inflation in the market. I think consumers are expecting that. We're certainly thinking about our price increases in terms of what the market can bear. And so in terms of price elasticity, we haven't seen any noteworthy effects on price increases starting the new year. Let's take the next question. And this one coming from Magnus Skog. Will the effect going forward from moving marketing expenses to the technology team also be around 2 million sec per quarter?

And so the effect in the fourth quarter was 2.2 million SEK. But what this also then means for a full year, it's less. Part of this shift also then includes the plan to insource some of these expenses. But then all else equals this will have a full year effect of around 6 to 8 million SEK.

All right, and we have the next question from Clement from Brian Garnier. What is driving the growth inflection in Norway in Q4? So looking at the Q4 numbers, I think there's a couple of things that we've talked about here. One is that the seasonal effect of approaching the end of the year historically has shown volumes tapering off the closer you get to the holiday season. So we're actually seeing in both the Sweden and in the Norwegian market, but this is particularly important in Norway, given that it's been a fairly stable market this whole year, is that those volumes didn't decline as what we would have seen as historical patterns. So the first effect is to actually maintain volumes longer into the holiday season. The second effect is customer acquisition. We were active in the Norwegian market already in December. We saw the acquisition levels basically start to take off towards the end of the year. And as we've said before, we're continuing to see high acquisition rates in the Norwegian market. Clement had a second question here as well. Can you explain the rationale behind the two to three price increase in December? Is it to differentiate your positioning versus HelloFresh or to mitigate persistent food inflation? I think the tactics behind pricing, I don't think we'll share all of our tactics, but I think one of the lessons that we've learned in this business is even if the idea of holding prices to be competitive is is it sounds good um over time it deteriorates your the product quality and and what you can deliver to the customers so the tactics that we use is simply to make sure that we do not fall behind in what would be inflation in the food in in the general market and uh in food in particular i think the fact that we're able to keep the price increases at the level that they are and consistently do that type of pricing gives us over the long term maintains profitability and maintains the sustainability in the business. Let's take the next question. This is coming from Martin Wallstrom from Red Eye. You seem a bit more conservative regarding the customer outlook in Norway and Denmark. Denmark has previously been quite strong. Has there been a deterioration in customer sentiment recently, or is it partly a result of challenging comparable figures? I think if you look at the Danish market, briefly, a very fast recovery in consumer sentiment after the pandemic bounced up quite into a recovery phase. I think the last quarter has shown that customer sentiment is falling again. And I think there's concerns about unemployment and the challenges of long-term effects of the pandemic that it has had on business health, which is also trickling into consumer sentiment. So what we see in Denmark is sort of a consumer sentiment combined with accelerated competition in the Danish market. We have several players that are operating and pushing really hard that we see in the first quarter and even at the end of last year. I think you have to also consider the fact that the comparatives when it came to the fourth quarter last year at 47% has a lot to do with the customer intake and high acquisition rates in that market. um one of the dynamics of of high acquisition rates is that the churn of high of new customers is high so there is an effect that would be that would be coming from doing comparatives against a figure where acquisition rates were significantly higher and we did see that last year and even at the start of of 2024 we saw that at the end of 2023 and even the start of 2024 in the danish market uh martin also writes the next question the revised targets for contribution margin are of course solid but you but do you see a risk for trade-off between customer churn and contribution margin if taken to the extreme uh absolutely uh i think the the challenge here is is not to try to squeeze every drop out of the lemon but to make sure that we're delivering a very very good customer experience first and foremost What we've seen is that over time, we have a great team working with both the menus, all the sourcing. We see our production teams and operations delivering high-quality products and high efficiency. Over time, that takes noise out of the system, and it also allows us to get better leverage when it comes to how we buy and what we buy and at what prices we buy. So I think what we've seen now over the last 18 months is that We're kind of fooling ourselves if we say that the business should generate contribution margins at 30%. We're happy to take on the challenge of making sure that we deliver a great customer experience. We think and we know we can do it at 31%. Last question for Martin. You carried out price increases in mid-December. How was this generally received by customers? And I think this is coming back to the same point on price elasticity. We don't hear a lot from our customers regarding the price increases. We haven't seen any significant changes in customer dynamics at the beginning of the year due to price. Alexander Ripe from Pareto asks a couple of questions. You mentioned slightly higher technology costs with central function expenses. The target was 9% to 7% of sales. Could you give some guidance where in this range you expect to be during 2025-2026?

We don't actually talk that much on guidance when it comes to this cost for central functions. What you could expect on the central function will not move that much in 2025. We do see this shift when it comes to the shift from marketing expenses when it comes to the design and product management. That effect, as mentioned before, you could see that as a 6-8 million SEK effect, all else equals. there will be no other large movements within the cost-percentile functions.

All right, thank you for all of your questions. We've reached the end of those questions we received. You can, of course, reach out to us on ir at cheflaw.com if you have any follow-up questions. I'd like to take the time to thank you again for joining us for this fourth quarter earnings call at Sheffalo. We look forward to seeing you again in May when we share our first quarter results. Have a great day.