Cheffelo AB

Hello and welcome to today's webcast with Sheffilo, where CEO Walker Kinman and CFO Erik Bergman will present the report for the second quarter of 2025. After the report, there will be a Q&A, so if you have any questions for the company, please submit them using the form to the right. And with that said, I hand over the word to you, Walker.

Thank you and good morning to everyone joining us and welcome to this presentation of Sheffilo's second quarter result for 2025. So my name is Walker Kinman. I'm the CEO of Sheflo. I'm here today with Eric Berryman, our CFO. I'm going to take a few minutes to give you a short intro on the company for those of you that perhaps are joining us for the first time and then take you through some prepared remarks on the development over the first half and Q2 financials. And then we will take your questions. You can fill these questions in on the form located to the right of the broadcast. So let's start with a little about Sheflo and our business. For over 16 years, we have been changing the way people eat dinner by innovating the mealtime experience. In Norway, we operate under the brands Godle Vert and Adams Maltkasse. In Sweden, Linas Maltkasse and in Denmark, Ratnemt. These well-known local brands have a rich history of innovation and entrepreneurship that are 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 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 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, pre-selection of recipes based on preferences, purchase history and ratings, 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 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. So turning to slide five, let's talk about some of the key figures for the quarter in the first half. We're going to have to talk about Easter timing quite a lot again this quarter, which is unfortunate from the perspective of those trying to understand the normal patterns of our business. This is the fourth quarter of the last six we've reported where Easter shifting back and forth between the first and the second quarter has affected comparability, this time reducing growth. While Q2 growth was lower due to Easter timing, we have had strong acceleration after the summer and double-digit growth for the third quarter is expected. This means that looking at our performance over the entire first half gives a much better understanding of where the business is right now rather than looking at Q2 on a standalone basis. We said that growth would be reduced in the second quarter due to Easter timing, which it was, and therefore growth over the first half of the year came in at 12%. This is roughly a doubling of the growth rate relative to what we experienced in the first half of last year. A relative strengthening of the SEC, however, also negatively affected comparability and consolidated net sales growth in the first half came in at just under 10%. Norway continues to be a substantial catalyst behind our growth story this year, with the Gotelbeck brand outshining the other three brands, and this is being driven by substantially higher customer acquisition. Local currency growth in Norway during the first half was almost 19%. Sweden continued a steady growth path, up almost 9% for the first half. We can also highlight that our add-ons and groceries revenue grew by 50% for the first half on a reported currency basis. I will talk more about what we are doing in this area shortly. EBIT profitability continues to expand and we increased EBIT to 41.9 million SEC during the first half. This means that EBIT margin has expanded 1.6 percentage points while growing by 42% or 12.4 million SEC over the first half of the year. So let's turn to slide six and take a look at the general market development. So consumer sentiment continues to correlate with what we're seeing in terms of business growth and customer acquisition results. Norway consumer sentiment continues to develop favorably and reached a neutral level in August. In June, Norway's central bank also made its first interest rate reductions since the end of 2023, helping to free up more disposable income for households. While Norway was slightly contracting over the first half of last year for us, this year we have seen, as mentioned, almost 19% growth and we are performing very well in the market. Norway accounts for about half of Sheffalo's consolidated net sales. Consumer confidence in Sweden fell off sharply from the end of last year and was lower in the second quarter. Despite this decline in sentiment, our performance in the market appears strong, with growth of almost 9%, outpacing the growth of the Swedish online growth index in the first half, which would have been about... based on a simple average of Q1 and Q2. We do a little over one-third of our business in the Linus brand in Sweden, so we are very encouraged to see significant improvement in order frequency and lower churn rates in Sweden helping to drive volume growth. We indicated in our last report that we expected Denmark to be flat, so we were a bit disappointed to see a contraction of just over 2% in local currency during the first half. Food inflation has moved between 4% and 5% this year in Denmark on an annualized basis. And this is also helping drive growth in the Danish online index, which showed just under 6% for the first five months of the year. Danish consumer confidence has deteriorated over the last year with tariff uncertainty and a turbulence in the pharmaceutical industry having a broad impact on the economy. We are not satisfied with the development in Denmark, coming off a very strong 2024, and we remain focused on returning to a clear path of profitable growth, despite the current market conditions and softer consumer demand. As we move into the third quarter, we are continuing to see strong growth in Norway, solid growth in Sweden, and a stable business in the Danish market. Let's take a closer look on the next slide at some of the growth metrics clearly having an impact on the second quarter result. The four areas that we have talked about over the last year helping to drive growth are increases in average order value, active customers, order frequency, and add-ons and groceries. Given the fact that active customers and order frequency measurements outside of a quarterly context work poorly and the distortion due to Easter timing in the Q2 results, I'll focus on the other two areas. Average order value was up 4.6% when adjusting for exchange rate differences. This has been driven predominantly by price increases over the last year and to a lesser degree by more portions and more recipes for deliveries. Growth in the add-ons and groceries basket penetration also positively affected average order value to a lesser degree. We raised prices in August by 2%, which helps address continued food inflation seen in the market, as well as adjustments to our pricing logic that helped improve the customer experience. Add-on and grocery revenue increased by almost 44% in Q2, but was still limited to only 2% of total net sales. Basket penetration increased by 2.9 percentage points, but remained in the mid-teens, giving substantial room for growth. During Q2, we were able to release both technical changes and accelerate the assortment development. So let's share some of that on the next slide. Growth in add-ons and groceries during Q2 centered to a large degree on continuing to test product assortment and improve communication with our customers. More pre-composed kits like tacos, wraps, and salads are showing positive results, helping fill in the blank for ad hoc meals not planned with a full meal kit recipe. Bundling with retail discounting strategies is further helping create interest in the ANG assortment. We have introduced more seasonal relevance as well with tests on the 17th of May celebrations in Norway and mid-summer in Sweden. These tests allowed significantly more flexibility in choosing relevant side dishes and main courses specific to these eating occasions. Getting customers to take a closer look at the assortment shifts focus to testing different communication methods and messages, and these have also helped us learn how to sell even more effectively. At the end of the quarter, the team deployed new tools for administrating the assortment and completed system architecture changes that enable the next steps moving into the second half. We've already seen some of the positive contributions to that so far in Q3, with the ability to plan and communicate the ANG offering more efficiently and expect continued high relative growth in the area. With that, let me now turn it over to Erik to take us through the financials.

Thank you, Walker, and good morning, everyone. Second quarter was operationally a strong quarter, although it was masked by both easter and currency effects. Reported growth for the second quarter was 1.9%. However, it is important to note that customers to a large extent passed deliveries during holidays. This year, Easter fell in the second quarter, while last year it was partially in the first quarter. This means that the timing of Easter impacts the comparability of metrics year over year. If we include the last week of the first quarter, and thus including all Easter week in both years, we grew by 6.1% in local currency. Although that we provide an easy adjusted growth, to fully take into account the effects of Easter, I still recommend to focus on the first half as a whole. In the first half, net sales grew by 9.6%. In addition to the Easter timing, the underlying growth was also masked by continued negative effects from currency on our consolidated net sales. This is a result from the Swedish krona getting relatively stronger to both Norwegian and Danish krona. Adjusting for currency effect, Net sales grew by 12% in the first half. Growth continued to be driven by strong momentum in both Norway and Sweden, while Denmark saw a softer demand. Average order value increased by 1.4%, 4.6% when adjusted for currency, reflecting both pricing changes and changes in the geographical mix. Our active customer base grew by 1.9%, which is lower than we saw in the first quarter, and order frequency dipped slightly. But both of these measures and the development in them are mainly explained by the Easter timing. But with that, let's move on to the next slide. We remain on track to exceed an annual contribution margin of 31%. In the second quarter, contribution margin landed at 30.3%, down 0.8% from last year. This was primarily driven by higher input costs, with input goods as the share of net sales increased from 46% to 46.7%. The relatively higher input cost was mainly due to the food inflation and adjustment to our pricing structure. These adjustments include removing most plus prices on recipes, as we listen to our customer feedback. Now, if a dish has a premium price, it is clear to the customer that it is because of the dish type or that it includes more expensive ingredients. As we transition to this approach, we expect a period of higher cost and we expect to see continued effects from this also in the third quarter. I also want to emphasize that our contribution margin typically fluctuates with seasonality, and we do anticipate seeing seasonal lower levels in the third quarter. Let's move on to the next slide. Looking at overall profitability, we saw an improvement in EBIT. EBIT for the first half, which includes all effects from Easter timing, has increased by 42% to almost 42 million SEK, with the margin increasing to 7%. In the second quarter, EBIT grew by 9.9% to 21.4 ms and the margin improved to 8.2%. The improvement in our profitability margins is primarily driven by economies of scale. We continue to maintain a strict cost discipline and we remain focused on growing our top line to ensure long-term profitability. The second quarter is typically characterized by lower spending on sales and marketing, since we focused most of those investments in the first and third quarters. We are really pleased to see the reduced relative sales and marketing expenses compared to last year, while still delivering 18% increase in new customers during the quarter. All in all, I am pleased to see the improvement in profitability, both in the quarter as well in the first half, which includes easier effects in both years. Let's move on to the cash flow. Our improved profitability is translated into a strong cash flow. Cash flow operating activities before changes in net working capital amounts to the 6.8 million SEK in the first half, which was 10 million SEK higher than last year. To truly understand cash flow in Sheffield, it is important to understand the dynamics of net working capital. To simplify, we have two major factors that influence the cash flow, accounts receivables and accounts payable. In the second quarter, as volumes decline towards summer vacation, we normally see a declining working capital, resulting in negative effects from changes in that working capital. If we look at the effect from accounts receivables, this year's quarter ended on a Monday, which meant that many inbound payments were delayed into the next quarter, unlike last year. This is also reflected in accounts receivable, which was 17 million SEK higher this year. This timing difference affected free cash flow comparison for both the rolling 12 months as well as for the first half of the year. During the quarter, we completed the exercise of two outstanding long-term incentive programs and closed the third program. As a result, approximately 342,000 new shares were allocated to management and key employees, generating a positive cash flow effect of 8 million SEK from the proceeds of the share issue. And to be clear, there are currently no other equity-based programs in Sheffaloo. With that, let's move on to have a look at the future periods. Looking forward, we expect full year net sales growth to exceed the upper end of our financial target range of 8%. This despite having one week less this year compared to last year, which you will notice in the fourth quarter. We expect our net sales growth in consolidated currency to continue being affected by currency effects going forward. The ramp up after summer has so far performed very well, and we anticipate double daily growth in the third quarter, with continuing strong momentum in Norway and Sweden. This while Denmark is expected to remain flat for the rest of the year. Our contribution margin is expected to exceed 31% on an annual basis, although dampened in the third quarter. Sales and marketing expenses are projected to be around 12% for 2025. As in previous year, the third quarter is typically a seasonal weaker quarter for EBIT due to higher marketing spend and lower volumes during summer holidays. We expect to return to quarterly profitability in the fourth quarter following the normal seasonal pattern. With that, I would like to hand back to Walker for a quick summary.