Viva Wine Group AB (KY1.F) Earnings Call Transcript & Summary

Welcome to Viva Wine Group presentation for Q3 2025. [Operator Instructions] Now I will hand the conference over to CEO, Emil Sallnas and CFO, Linn Gafvert. Please go ahead.

Good morning, everyone, and welcome to our Q3 2025 presentation. My name is Emil Sallnas, and I will, together with our CFO, Linn Gafvert, present today. This is the agenda for today. And before we go into the quarterly update and financials, I want to start by giving you a short introduction to Viva Wine Group. Today, almost 90% of our business is in our B2B segment, which includes the Nordic monopoly markets as well as retailers and restaurants in both the Nordics and Europe. With the acquisition of Delta Wines, our B2B business is now present in 7 markets and operate through 12 companies. In the Nordic monopoly market, we are the market leader in wine. With the acquisition of Delta Wines, we also entered the open market in Europe, and we are the leading wine distributor in the Netherlands. Just over 10% of our sales is in the B2C segment, which consists of our profitable e-commerce business based in Germany. We operate via our 3 platforms, Vicampo, Weinfurst and Wine in Black, selling to 11 markets in Europe. And we are one of the leading online wine retailers in Europe. So now let's move on to the Q3 update and our performance summary. When summarizing the quarter, I'm very pleased to report that we delivered a strong third quarter. Net sales increased significantly by 49%, mainly driven by the acquisition of Delta Wines. Organic growth was positive at 2.8% with growth in both segment B2B and segment B2C. Adjusted EBITDA increased year-on-year as an effect of the consolidation of Delta Wines, while the adjusted EBITA margin was lower, which is a reflection of the lower margin profile of Delta. Since our last quarterly call, we have communicated that we are in the process of moving to the main list. For us, this is the next step in our growth journey and a natural progression after the IPO in 2021. Moving to the main market is a quality stamp that makes the share more attractive to investors. To align with the shareholding profile of mid-cap companies and to broaden the investor base, we also, in the end of the quarter, issued a limited distribution of shares. The issue was oversubscribed, and we welcomed 3,500 new shareholders. We expect the change of listing venue to be finalized in the near future. Now let's look in more detail at the financial performance. I will hand over the word to Linn.

Thank you, Emil. We have a strong net sales growth of 49% in the quarter, mainly driven by the acquisition of Delta Wines. Organic growth was positive at 2.8% with growth in both segments, which reflects that we continue to have a solid underlying business. In our B2B segment, Delta Wines performance and integration is going according to plan. The underlying Nordic business was also performing well and was slightly up in the quarter. B2C reported positive organic growth for the third quarter in a row and also continued to grow its customer base. Looking at the profitability, adjusted EBITDA increased versus previous year, mainly as an effect of the consolidation of Delta Wines, but also excluding Delta Wines, adjusted EBITDA increased versus prior year. The lower adjusted EBITDA margin is a result of the lower GM percentage in Delta Wines. The adjusted EBITDA margin for the underlying business exceeded the previous year's level with improved gross margins. Over to the net working capital. Net working capital is according to plan, and the ratio of net working capital to net sales is down to 12.9% from 14.5% in the last quarter. A high-level simulation, including net sales for 12 months shows that the ratio is slightly below numbers pre-acquisitions. Our net debt to EBITDA is also developing according to plan and is down from 4.1 in Q2 to 3.6. We expect to continue to deleverage as the EBITDA is consolidated month per month. A high-level simulation of adding 12 months of EBITDA reduced the number from 3.6 to approximately 3. We expect to continue to deleverage and reach our financial target of 2.5 during next year. Cash flow. We have a very strong cash flow from operating activities in the quarter, supported by an improvement in working capital. We have cash flow from investing activities that includes the business combination of Vinguiden Nordic with a cash flow effect of SEK 8 million. Cash flow from our financing activities includes repayments of term loans according to plan and change in overdrafts. The cash flow from the previously mentioned distribution issue of shares will be reported in the cash flow in Q4.

Thank you, Linn. So now over to the performance by segments. First out is our B2B segment. In the Nordic monopolies, we remain the clear market leader, and we increased market shares in all markets. We continue to see weak consumer sentiment and sales volumes in the Nordic monopolies, which decreased by 2.9% compared to last year, while our sales volume decreased by 1.9%. Please note that these numbers relate to volume. And as you can see in the quarterly report, the organic growth for the B2B business -- sorry, growth for the B2B segment, which excludes Delta Wines, is 2.0%. For the Nordic market combined, Viva Wine Group reported a market share of 22.4% for Q3, which is a slight increase from last year. Our B2B business in Europe is estimated to have performed well in relation to the market.

Looking at the net sales in segment B2B, it increased significantly by 57.4% in the quarter with an organic growth of 2%, as Emil mentioned. The increase versus last year is driven by Delta Wines. This is the first quarter where Delta numbers are consolidated the entire quarter in the numbers. Adjusted EBITDA increased versus last year, while the adjusted EBITDA margin in the quarter decreased and ended at 8.7% versus 10.4% last year. Main reason for the lower adjusted EBITDA margin percentage are explained by the lower gross margin percentage in Delta Wines. The gross margin percentage in the Nordic business increased in the quarter, mainly driven by price increases. Both adjusted EBITDA and the adjusted EBITA margin was above prior year's level for the Nordic B2B business.

Segment B2C, which consists of our e-com business has had a very strong quarter and for the third consecutive quarter, showed growth. In Q3, the organic growth was 7.9%. Despite a slow overall market, we have seen a positive trend shift in our active customers due to strong customer acquisition. Our estimate is that we, thanks to this strong performance, now outperformed the market not only in profitability, but also in growth.

In the B2C segment, our net sales was up versus previous year with 4.8%, and we have continued positive organic growth, reaching 7.9% in the quarter. The gross margin increased slightly due to positive product mix. Adjusted EBITDA margin in Q3 was lower than prior year, driven by our investments in marketing.

So now some final comments. As we communicated yesterday, our Board has adopted new financial targets. Our previous targets have served us well, but our recent acquisition of Delta Wines and our change of segments was a natural trigger to evaluate the financial targets. After careful consideration, the Board decided on the following targets: 2 updated and 2 unchanged. For growth, the new target is organic sales growth exceeding market growth. The growth target is now the same for the whole group and it's a reflection of our wider footprint as a company, where we now have a business in many more different countries than when the old targets were formulated. We are a company that is built on organic growth and beating the competition. So this updated target shows that it's our intention to continue on that track. In addition, the company intends to grow through acquisitions. For profitability, the new target is 8% to 10% adjusted EBITDA. Profitability target has been adjusted due to the different margin profile of the Delta Wines business in comparison with our historic business. The capital structure and dividend policy remain the same, but to repeat, capital structure, net debt over EBITDA below 2.5 and dividend policy of 50% to 70% of the annual net profits. To summarize, with Delta fully integrated in the quarter, we are a significantly larger company with a strong footprint in Europe. Sales increased with SEK 489 million, mostly due to Delta Wines. Adjusted EBITDA was also significantly higher. We had a strong third quarter with growth in both segments. Especially pleasing is to see our B2C is back on a growth track with positive organic growth for the third quarter in a row. With regards to M&A, we do see an increased activity and steady deal flow in that area. Finally, we are in the last stages of the process of changing list venue and expect to change venue in the near future. And with that, it's now time for the Q&A session.

[Operator Instructions] The next question comes from Johan Fred from SEB.

A first one on your updated sales target. You target growth above the market or above market growth. What -- in your sort of models and calculation, what do you expect the underlying market growth to be coming period?

I think in general, we do see -- and also, I mean, even at the IPO, we did not communicate that we thought that this is a growing market in terms of volume. So we do expect volumes to go down slightly in the near future in all our markets. However, we do expect sales value to be flat or slightly growing if you extend the time period a little bit more than in the coming year.

And that also includes the e-com market, which you previously assumed or targeted a growth of between 10% and 15%. I suppose that is driven by increased online penetration, et cetera. But -- so you also expect this -- the online market to grow at a significantly lower pace than previously?

Actually not. I wouldn't say that, but we do still see a low consumer sentiment, and we do have -- but we do have a positive outlook on our growth. But in terms of the market, we don't expect it to grow significantly in the near future. But if you extend the period over the midterm, which is where our financial targets are set, we do expect the e-com or the B2C segment to outperform the B2B segment. So they will be on the upper part of -- they will grow more than the other segments in general. But it all depends on the market growth as well. I mean the more the market growth, now we are beating the market quite significantly because the market is going the other way as we see it, and we are increasing. So if the market starts growing, our growth will be higher as well. So you're right. It's not the same for the 2 different segments. That's correct.

Okay. Cool. Got it. And speaking of the B2C segment, 8% organic growth in the quarter despite, as you stated, a weak consumer sentiment. That's quite the sequential step-up from Q2. Could you elaborate on what drove the growth and if you've done something differently in this quarter in terms of marketing, et cetera?

No, I think this is an effect of many smaller adjustments of the marketing that we do and the customer acquisition. And I think we did a year ago or so, talk about changing a little bit the way we're working. So now that changed our way of working and has also been coming out in the growth figures. So I would say it's many different small things. There is no -- not one recipe, but a lot of hard work from the teams, but especially that we organized our marketing teams differently than we had before.

Cool. And do you expect this trend to continue? Or is there anything during -- well, Q3 to start off, but Q4 that might impact the current growth trajectory?

We are -- we have a positive view on Q4. Then, of course, for any e-com business, the Black Week will be very, very important. And of course, that is yet to come. But we are positive for Q4 for the slightly longer future. We are very, very careful that, of course, with this market going up and down and the consumer sentiment in especially Germany, our main market also going up and down a lot, it might vary a little bit. But overall, we do have a positive view on the growth of the e-com.

And a final one, if I may, before I jump back in the queue. Any chance that you could break out the OpEx contribution from Delta Wines in the quarter?

We don't do a breakout of the segment. That's OpEx total that we present to the market.

The next question comes from Niklas Elmhammer from Carlsquare.

Sorry if you already comment on this. But is it possible to say something regarding markets in Q4 so far?

No. What I mentioned -- just mentioned is that we have a positive view on the e-com or business-to-consumer segment in Q4. For the -- there is no guidance for the rest of the B2B segment, the rest of the business.

Okay. Fair enough. And regarding the gross margin, it looks like a notable improvement in the Nordics. Do you have any guidance going forward for the end of the year for the gross margin?

Yes. High-level estimate is that we will strengthen the gross margin a bit more in Q4 versus Q3, a slight improvement to Q4 is expected for the Nordic market, but also for the European market. And that will mean that we expect it to increase for the overall Viva Wine Group as well, where we see the B2C segment is stable and has been over the last year around 40 percentage, but we see increases -- small increases quarter-by-quarter in the B2B segment that will make a total level a small increase also in Q4 from Q3.

Okay. Yes. Got it. And regarding Delta Wines, is it possible to comment on the sort of underlying growth there? You mentioned the weak market in the Dutch market.