Viva Wine Group AB

Good morning and welcome everyone to our Q2 24 presentation. This is the agenda for today. 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 two major segments, Nordics and Ecom. In the Nordic monopoly market, we are the market leader in wine, and we also have a profitable Ecom business in Europe. Our operating companies are in the Nordic monopoly market, Sweden, Finland and Norway, while our Ecom business is based in Germany, which is also our main market for Ecom. Within Ecom, we are operating three platforms, Vycampo, Winefjurst and Wine in Black. And in total, we are now present in 11 different markets. And now let's move on to the quarterly update and the performance summary. In the quarter, we once again reported record high market shares in the Nordics and we continue to strengthen our position as number one. Net sales for the group increased by .4% in Q2 with an organic growth of 6.6%. We can also report that we are again showing some organic growth in the Ecom segment. Finally, we are very happy that our adjusted EBITDA margin of .6% shows a significant increase versus last year. There is some news in one of the markets in Finland where a new law amendment in Finland came into effect in June, allowing sales of wines up to 8% in grocery stores. We were well prepared in position for this change and our 8% alcohol wines are based on line extensions of our strongest brands. This has been very well received by the Finnish consumers and we have further strengthened our position in the Finnish market. Now it's time to look at the financial performance and I will hand the word over to Lin.

Thank you, Emil. We have a positive net sales growth of total .4% for the group. The underlying business continues its strong development and group organic growth is even slightly better with 6.6%. The Nordics is the driver and all countries in the segment, Sweden, Finland and Norway, contribute. Ecom shows a stabilization in the quarter and has a slight organic growth. We see a strengthened adjusted EBITDA margin. Both segments contribute, main part from the Nordics, and comes from increased sales, stronger gross margins and good cost control. Well balanced price adjustment have had a positive contribution to our gross margins and our solid sales developments proves that consumers have remained loyal to our strong portfolio brands. We will continue adjusting our prices in the next pricing windows. Our networking capital is in line with last year. The networking capital towards net sales hence is improved. Our net debt is well within our targets. Taking a look at the cash flow, we have a very strong operating cash flow from the ongoing business. We have a planned inventory increase related to the increased sales and the new product category of 8% wines in Finland. We also have one one-time effect related to payment of our previous bonus provision to Ecom founders of 33 million kronas. That is now settled. In addition to this, the financing activities were affected by the dividend paid during the quarter. Our amortization is at lower level in the quarter compared to last year as a result of the refinancing finalized in Q3 last year.

Thank you, Lin. So now over to the performance by segments. We have a continued very strong momentum in the Nordics. Our sales once again increased more than the market and we reported record high market shares in the quarter in all the Nordic monopoly markets. The timing of Eastern had a negative effect of total market sales while the underlying trend remained soft. So we're growing very strongly in a market that is going down at the moment. For the Nordic markets combined, we reported a market share of .9% which is an increase of a whopping 2.5 percentage points from last year. We thereby strengthened our position as the number one in the market. Our great performance in the Nordics is proof that our agile and consumer-centric model delivers also in more challenging times when the market is not growing. In Sweden, we exceeded 29% market share in the quarter and beat the market in all wine segments. So strong growth in white wines and rosés. Also sparkling wines continue to be important in the second quarter. One example is the newly launched Isabella Costa which you see on the left-hand side of the picture. A sparkling one from Spain which has sold over 70,000 bottles since the beginning of May which is a very strong start for a new product launched in the ordering assortment which means that it did not have any guaranteed distribution from day one. Also in Finland, we continue to beat the market. Our long-term strategy to increase market shares in white wines is clearly showing results. An example of a new white wine is the Stretto Prima Riesling Bag in Box from Italy which you see in the picture as well. As for Norway, we made a jump in market share to 6.3%. The increase in volume of market share in Norway is driven both by organic growth and by our latest acquisition Target wines. We gained market share in all wine segments. One highlight from the quarter in Norway is Best Time Cremando Soss which is a tender win which was successfully launched in May. It's also one of the first products of Viva Wine Group once upon a time. The producer as such.

And looking at the net sales for the Nordics, it increased with .2% in the quarter. The increase was driven by both volume and price increases. In addition to our strong momentum seen in previous quarters, we also benefited from the supply problems that affected some of our competitors as well as the initial rollout of the 8% wines in grocery stores in Finland. The adjusted EBITDA increased along with the adjusted EBITDA margin in the quarter. The main driver is the increased sales and improved gross margins in the period.

Moving over to the segment Viva Econ. In this quarter we have seen the anticipated stabilization of the Econ market in Europe. Organic growth showed cautious positive figures and slight improvement versus previous year. However, the market is still soft and we expect the coming quarters to be somewhat of a bumpy road. Growth has been positively impacted by our initiatives to strengthen customer offer and changes in organizational structure. Our focus as mentioned in last quarter is now continued growth in 11 countries where our total addressable market is over 230 million consumers.

And taking a look at the numbers, the Econ segment had a positive development in organic growth for the quarter even though with modest figures of plus 0.1%. Net sales however was slightly down versus previous year due to discontinued businesses during last year. Consumer sentiment continues to be at low levels also in Q2. We continuously work as Emil said on improving our operating excellence and we expect to see results gradually impact both net sales and the beta level. The gross margin continues to be very strong reaching almost 41% in the quarter resulting in an improved adjusted EBITDA margin versus last

year. And now a few words on our sustainability. During the spring, during the quarter, we have strengthened our sustainability organization as an integrated part of our business, both at group level and more importantly in our operating companies. Further on, our work on the CSRD implementation is progressing according to plan. 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 Econ segment, we are not reaching our target, but as already mentioned, we have seen improvements in Q2 but expect a bumpy road going forward. Regarding our profitability target, both Nordics and the Econ segment are now within touching distance of our target of 10%. Our net debt EBITDA ratio is below our target of 2.5%. Finally, the dividend for 2023 was paid out in Q2 with 1.55 krona per share. To summarize, Q2 was a very strong quarter and we have further strengthened our market position in the Nordics as the number one wine supplier. Our focus on the margins in the Nordics has now started to show real results and we continue to have a high focus on improving the margins in the Nordics moving forward. In Econ, sales growth is our main focus and as mentioned in Q1 and previously in this call, we aim to grow in our 11 existing markets. When it comes to M&A, we are a company that always has been active in the M&A field and are always evaluating potential targets. Finally, we see a strong potential going forward. Driven by our biggest segment, Nordics, we have a very strong momentum with both higher sales and stronger margins. We are therefore confident that 2024 will finish strongly for Viva Wine Group. That concludes our comments and now it's time for the Q&A session.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Fredrik from Avarsen. Please go ahead.

Good morning, Jens and Edlin or Emil and Lin. This is Fredrik, AVG. Can we start on with the Nordics maybe and on the gross margin, we saw it up to percentage points from Q1. I think we have a question from Fredrik from Avarsen. How should we think about this as we look ahead since currencies are reasonably flat but there is a pricing window coming up during the fall season?

Yes, as mentioned also in Q1, we expect to see gradual improvements during the year going forward as well. But now we have had a 2% uptick but in Q3, we expect gradual improvements but the pricing window as you mentioned is at the end of Q3 so therefore an extra uptick will be in Q4. So gradual improvements is expected during the year.

Okay, that's very clear. Very shoring. Second question is staying in the Nordics but focusing on OPEX, you spent I guess around 60 million in the quarter and when I look a few years back, you spent closer to 80. So what's the key drivers for this lower OPEX spend and is this new level sort of sustainable as we look into the coming years?

Yeah, well we have made improvements and efficiencies during last year. However, looking at the year Q1 and Q2, we have some timing effects. So looking at Q3 compared to last year, we don't expect to see savings. We expect to see some increase in Q3. Looking at Q4, we expect to see pretty much the same level of slightly below last year and in total of course, this will give us a year where the ratio net sales to OPEX will be somewhat better. But no significant decrease in the coming two quarters compared to last year.

Maybe to add also, I mean obviously our focus on margins gives us a result if you look at the EBITDA level as well. I mean the gross margin is as Lin explained but also marketing is part of the OPEX and in order to look more from margin than growth, now we get the growth anyway but that's also a shift that you have seen.

Yeah, that's also very clear. Thanks so much for that answer and then jumping to EECOM, obviously very reassuring to see the market coming back. Curious to hear if you've seen any sort of changes in customer acquisition costs as the market pressures sort of eased or is the level similar to what we saw a couple of years back?

It still stays fairly similar. We don't see huge differences. In the customer acquisition costs unfortunately but once the sentiment comes back we expect that to go down as well.

Okay, good. And last question from my side before I jump back in the queue. Maybe to Lin on working capital, you said it was up or wrote it was up partly due to strategic initiatives. What kind of initiatives are you talking about if you could give some sort of color to that statement?

Yeah, the inventory levels.

Whatever strategic initiatives you refer to?

We have increased our inventory levels as you see compared to last year and that's partly due to the increased sales but then we also have this new line of 8% swines in Finland that is a new initiative that we build up to be able to support the new product line to the market. And also looking at our e-comm segment last year we had the move of our warehouse and so but I would say that the main part is from the new product category in the sales increase in general.

Okay, so that's the main reason for the higher inventory.

Yes.

Okay, very clear. Thanks so much for answering my questions.

Thank you.

The next question comes from Marcus Augustin from Carl Square. Please go ahead.

Hi, this is Marcus from Carl Square. Thank you for a great presentation and taking my question. So I have a question regarding the product mix in the Nordics. How is that expected to change in a scenario of improved economic conditions? I mean you are now in a trend towards lower price and bagging boxes. How would that change in improved markets?

Well, it's a complicated question to answer but in general I would say how we work is that we do increase price on our historic products in order to gain margin while we also launch a huge number of new products which is also an important part of our business model. So we meet the demand for lower price bagging boxes with new products where we can to a large extent also have better margins than we would have had if we only had the old products that were launched under different circumstances. I don't know if it makes sense but we always move product up in the price ladder and then replace the ones in the lowest part with as good margins as you can get in that segment because obviously in the low price segment that's not where the greatest margins are. But if you launch a new product and you know the conditions, the exchange rate, all the costs around it then you can actually have products with a very decent margin from the start.

Thank you. And you also mentioned that you will increase prices during the next windows. I mean I think there is one coming up in September but there are also windows for pricing increases coming up. And you would continue doing that for another one month or how long can we expect prices to be high?

It is a continuous work and we always said that we do not increase prices in one go in one period. We have done this basically the last two years in every pricing period. We have been quite active in that part but we try of course to increase the price slowly towards the consumer so we keep as much sales as possible. And we know of course since the information is in that we will increase prices now also in September, October depending on which Nordic country you talk about. Then looking into March next year it's more difficult to say but we do have a very strong focus on the margins so obviously we want to get above those 10% and moving upwards somewhat if you look at the EBITDA margin.

All right thank you. And on EECOM and marketing efforts, how is the marketing effort in current markets and how would they change in the market with better conditions? And also the final question there is how would increase the intensified marketing affect your profitability in the EECOM segment?

Now in general I would say that our marketing within EECOM for us is very dependent on total demand whether it comes to traditional digital marketing. The total demand is of course people searching Google searches which is the easiest example of course it's much more complicated than that nowadays. The more people that look to buy wine the easier it is to acquire a customer and the cost should thereby go down. Then of course we do have in the case of Google they're both business model against us so I mean those prices tend to go up. But then if you look at the leaflet marketing that we do for some of the brands where we send leaflets to other EECOM players products which is a very very efficient marketing effort then of course we are dependent on total demand within EECOM and looking at EECOM totally in Germany our main market it is weak not only for wine but also for EECOM in general so that's how we see that marketing cost will go down if the total demand or the sentiment in the end goes up from the consumer side.

All right thank you that was my question.

As a reminder if you wish to ask a question please dial pound key five on your telephone keypad. The next question comes from Rauli Juva from Endiers. Please go ahead.

Yes hello it's Rauli from Rauli from Inderes here. Just one question from my side I wanted to ask on the Finnish legislation change how do you see that impacting going forward first of all your volumes since there will be obviously lower volumes in the monopoly chain with the change and then secondly on the margins will this 8% wines in the grocery have a different margin profile than the average you have?

When it comes to the 8% category if we stay at that it is way too early to say something it has been well received in general if you look at the total market now we know from the latest info we have gotten in July and August that it's a little bit cooling down the interest on the consumer side so I mean we for our volumes we do not expect we are growing very strongly and still grow in market share we didn't grow totally because of the seasonal effects in Q2 for Finland but we expect to continue growth in our term so the 8% let's see but as mentioned we do feel we have our fair market share in the grocery part as well when it comes to the margin fair market and with that I mean that we have a similar market share as far as we can see the numbers are still a little bit opaque everyone has not published their numbers yet but when it comes to the margins yes they are somewhat lower in the segment but if you look at our Finnish business overall we do not expect margins totally to go down or for the Nordics in terms of segment

yeah and we also think that we have gained market position with this new product line since we have not decreased our volume we have increased in in our market shares in the alco business side so it's an addition and from seeing the numbers we have increased the total market position

yeah that's clear thank you

thank you so we do have a couple of oh sorry there's one more question from Nicholas

the next question comes from Nicholas Elmhammer from Carl Square please go ahead

me yes okay great I was just wondering about the I mean it's encouraging to see the relative improvement in in econ at the same time you mentioned that they say bumpy road ahead if you could elaborate on that please

yeah I know that bumpy road is not in the financial school books but our definition of a bumpy road is that it can go up a little bit it can go down a little bit in the coming two three quarters and it's very much related to consumer sentiment we have so far seen a quite direct relation between various consumer sentiments in sentiment indexes in Germany and the total development so I mean if we now say that we see that it's still quite negative and you would see that if you looked at it as well you would see that Q3 started not great so that's what we can say at this stage but a bumpy road for us is going up a little bit go down a little bit it's not like a clear break that we are now going upwards only

yeah do you still expect positive growth in the second half or if that's too early too

it's way too early today within ecom it's so dependent on Christmas Christmas sales black friday or black week nowadays so it's very very early to say and considering the sentiment we we don't want to say anything specific on that but q4 is of course in all ecoms a very important quarter

okay and just on the financial details you had an impairment charge in the quarter yeah so what was that related to please

it is an old financial investment in a in a wine producer which we now unfortunately have to value at zero and that is the total impairment we do not expect or there is not any anything more to to impair and this is the only kind of that's the only investment of this kind that we have had so it is a truly a one-time thing which is it's more than it's pre-ipo stuff so to speak

okay thank you thank that's what's all for me

yes so we do have a couple of questions uh let's start with alexander can you elaborate on the from current levels

yeah we have discussed the gross margin a bit and we expect to see gradual improvements during this year and if currency effects stays flat as you say also next year

second question on your conference call for q1 you indicated flatish opex levels in 2024 but is down 10 year on year in the first half of the year so i guess it's fair to assume that opex is down for the whole year 2024 or should we expect the steep steep ramp up in h2 i think you partly answered yeah i

partly answered that one and there is some timing effect so we expect q3 to be at higher levels than last year but q4 pretty much in line or slightly better than last year so looking at the total opex level for the year it will be better ratio towards net sales

and then finally can you elaborate on the start of q3 in ecom the same trend as in q2 or are you seeing further improvement well as already indicated we expect this bumpy road and i think q3 has started within in those parameters not not up but down a little bit next question from geor at gratitude capital approximately how much was the positive revenue effect from the logistical issues with one of your competitors well we suggest that you look at the q1 organic growth for the nordics which was around six percent now we did have eight percent in this quarter and i think the difference between the six and eight percent you will find the truth but please note that we have seen that we have kept quite a lot of consumers that have changed to our products and not changed back so to speak to our colleagues so somewhere in between those two i think that concludes all the questions i'll give you one last shot all right thank you very much and i hope to see you soon again so