Viva Wine Group AB (VIVA) Earnings Call Transcript & Summary

A very warm welcome to the Q4 presentation of Viva Wine Group. Presenting today is myself, Emil Sallnäs, together with our excellent CFO, Linn Gäfvert. And as always, we'll go through our usual agenda. Short introduction to the group. We'll make the quarterly update in terms of words, then we'll follow up with the financial overview. We'll talk a little bit about sustainability. And then we will have some final comments and talk a little bit about our agenda ahead. And as always, we will finish off with the Q&A, where you are very welcome to ask questions. So to Viva Wine Group. We are the group selling wine. We are based in the Nordics and in Germany with the countries around Germany as our market. We work with 3 strong segments: Sweden and Nordics, which together are about 80% of the total business, which is wine sales to the monopolies in these 3 countries. And then we have 20%, which is in the eCom sector, based in Germany. In the Nordic sector, we are the market leader in the monopoly market, the clear market leader. So we are #1 in all the markets together. And this is main -- a big -- the big reason for that is our strong portfolio, own brands, partner brands and exclusive brands. And depending on the market and depending on the channels, the mix of these brands will be different. And then the last pillar of our success is our work with sustainability, where we have always been a pioneer working with sustainability since the early 2000s. We are a member of various organizations in the sustainability field, and we do put everything together in the GRI assured report as well, which is very unusual in our business. In total, we have 10 operative companies, 6 in Sweden, where we started. So that's where we have more companies. One in Finland, CISA, 1 in Norway, Norwegian Beverage Group. And then we have 2 companies and 3 platforms in Germany. That means that Vicampo and Weinfürst are actually the same company, but 2 different platforms, catering to different customers and then Wine-in-Black. So over to the quarterly update. Well, '22 was a very challenging year. And despite this, we are very happy to stand here today and have reached market shares that are on record high levels in all of our monopoly markets, Sweden, Finland and Norway. Our net sales increased by 2.1% in Q4. And this is then despite the fact that the overall market slowed down compared to Q4 2021. The reasons for these are the ones that are common for most companies nowadays. There are post pandemic effects, there are consumer sentiments. And of course, the war has -- in the Ukraine has not been very positive for the supply chain. But again, despite this, we have reached a very good result. On the EBITA margin, we have some negative FX effects, especially in Sweden, and those are difficult to mitigate immediately. And then in addition to that, we have had some increased trade distribution and material costs, but less and less on that side. We are also happy to report that before the AGM later this year, we will propose an increased dividend of SEK 1.55 per share. Looking ahead for 2023, we are again, happy to start the year with record high market shares. So that means that we feel that we are in a very good position once we get a little bit of tailwind. We have, in the Nordics, a very lean organization. We have a strong product pipeline. We'll talk a little bit more about that later on. And we are working with the synergies across the Nordics. So again, we feel that we are very well prepared in the Nordics for the coming year. In the eCom, we are equally well prepared. We have a very efficient eCom business now. We are, as you will see, still a very profitable business, but we have increased our possibilities to -- for profitability in the future, thanks to working with the synergies in the eCom field. That means that we will have 1 warehouse catering to all of our business from the mid of this year. We will have 1 team serving all the 3 platforms. And of course, having 1 of everything is a great efficiency in the eCom field. We are also happy that the Weinfürst concept is working very well, and this is something that we expect to expand into further markets in the near future. So for the financial overview, over to you, Linn.

Okay. Thank you. And starting with the group view on net sales, gross margin and the EBITA margin. We have an increase in the quarter. Net sales of 2.1 percentage points. The increase comes both from segment Sweden and from the Nordic segment. We have a slightly negative organic growth, although it is the strongest quarter during the year. Our gross margins have been pressured during the quarter, mainly by negative FX effects, but also, as Emil mentioned, we have increased freight distribution and material costs. And 1 important factor here is that the price increases to end consumer in the Nordic markets are controlled by price windows. So you can only changed the price twice in the Swedish and Finland and 3 times a year in Norway. We're happy to report that our gross margins both in the quarter and year-to-date in segment eCom are actually higher compared to last year. Going over to the adjusted EBITA, it decreased in the quarter compared to last year and mainly that is explained by the negative FX effects in segment Sweden. Viva Wine Group do hedge currency, and we have substantial positive hedge effects in the quarter and year-to-date, but they are recorded below the EBITA level. Year-to-date, our adjusted EBITA margin is slightly below the medium target level of 10% to 12%. But if we were to account for the positive hedge effects, we would be well in line. And here, getting a view of the net sales development in the quarter, we can see that we have positive contribution from Sweden, and we will come back to that later, but we also how positive effects on Nordic market where the acquisition of Norwegian Beverage Group contribute 1 more month this year. Over to the EBITA margin. Here, it's very obvious that the negative effect is mainly in segment Sweden, where we have this negative FX effects. We sell in Swedish krona, we buy in, mostly in euro. And yes, -- and over to the net working capital, it is lower than last year, so that's very good, working with synergies within that area. And we have a stable trend towards net sales. Our net debt situation is very strong. The net debt is lower than last year. And the net debt-to-EBITDA slightly higher. But then once again, it's important to mention that we had onetime effects of about SEK 213 million in last year coming from this revaluation of the Norwegian Beverage Group. So a very strong position for the future. Our cash flow has had a very nice development. We had a strong cash flow in the quarter from operating activities, mainly from profit after financial items. And the other factors during the year, we have mentioned at the previous presentation, but we have made strategic divestments and 1 business combinations. We have repaid our loans according to plan, and we have made dividends. And as Emil mentioned, we will also have a dividend if the AGM accepts during this year. Taking a look at the segment. We have, in segment Sweden, a net sales increase in the quarter, and we have had a lot of successful launches, but we also made price increases from 1st of September. So this contributes to the positive development in the quarter. Our volume again developed stronger than the market in Q4. It's down compared to last year. However, it's less than the market development, so that was down 2.8%. So our market share increased. We have now 26%. So that's very good and very proud of that. Our adjusted EBITA margin, once again, it is lower compared to last year, mainly due to the negative FX effects. We also have worked a lot with our OpExes. In total, we have lower OpEx than previous year. Our adjusted EBITA margin landed on 8.4%. So lower than our targets. However, we have, again, the substantial positive effects from the hedges. So if you were to take those into account, we would be in line. Over to you to Emil.

Yes. And as has been the tradition, we talk a little bit about all the products that we have been launching in the quarter, and this is just a small selection of the quite big number of products that we are launching every quarter and which, of course, contributes to our sales development. The first product on the top left side is Anciano Rioja Gran Reserva, which is one of the most successful launches in the December launch of -- in the fixed assortment, meaning that this is a tender win where we competed with other wines to get into the assortment. So a very nice entry start of that product. In the middle, you have Falu Rödvin, which is a very qualitative French wine, but with a very Swedish touch that has been extremely well received in the market. On the right-hand side, you have Palacio Caterina, which is our twist on the 1 liter concept. So here, we combine the 1 liter, which is a bottle size, which has become more and more popular. And we suspect that it will be quite popular also in these more lean times. And in this case, we are combining that with the traditional net of Spanish wines, very good wine as well. On the bottom side, you have Pitch, which is a little bit of a flirt with Golf. It's an Algarve wine as well, which for you -- those of you playing golf, then make the connection even better, very quality wine from Casa Santos Lima, one of our key partners that we work with in all Nordic markets. But also we have done quite a few products in the higher assortments. So just to mention a few, we have the one with a small genome or tomte in Swedish which is Josetta Saffirio Barolo which is one of the most popular Barolo's that every year for the end of the year is selling very well at the monopoly. Finally, we have Tocca Stella, which is a very nice anti-classico in the traditional style. So this shows that all the product launches we have, we have everything from very good value for money to the top lines of the assortment.

Yes. And taking a look at our Nordic segments. In the Nordic segments, we have Finland's monopoly market and we have Norway's monopoly market. Here, we have a strong increase in the quarter of 25.7% compared to last year, and this is due to the acquisition of Norwegian Beverage Group that contributes 1 more month in Q4 this year. Both Finland and Norway outperformed the market in volume. Finland increased by 2.4%, while the market actually declined 8.6% in the quarter. Norway decreased volume of 10%, but it was less than the market of 11.8%. Year-to-date, Norway actually increased its volume. So we end up here with record high market shares in both Finland, reaching 18.8% and in Norway, 5.6% in the quarter. So very happy about that as well. Our EBITA margin increased during the quarter. So it was 14.9% higher than last year. And here, Norway contributes with a strong EBITA margin. And looking at the margin, it is actually a bit lower than last year, but that's mainly due to price increases, purchase price increases higher cost for freight and distribution and also the Norwegian business is somewhat affected by the negative FX effects. But all in all, a strong EBITA margin, well above the targets.

And on the loan side, those of you that participated in the last call will recognize Buco Nero, which is our Argentinian Malbec win that was launched in Sweden in the last quarter. And now in Q4, we have also launched that in Finland, and it has been very well received also in Finland. And this shows a little bit how we are working. We are -- sorry, totally, we are creating products, we are finding products and developing products is the word I'm looking for. In Sweden, in the different markets, and then we'll take them into the other Nordic markets as soon as we can afterwards. In the middle, you have Rutasur which is Sauvignon blanc from Aresti a key partner in Finland, and this is a tender win. So we also win tenders in Finland, although we are extremely good at also launching our own products in Finland. Finally, on the right-hand side, you have Viva Valentina Riesling, which is an Italian Riesling in the Viva Valentina series, which is a series created in Sweden, but now it has been growing and becoming even bigger in Finland. So that's, of course, also something that can happen with our product launches that even though it's created in 1 country, it becomes bigger in one of the other markets. In Norway, we launched a pouch, which is one of the most climate-friendly packagings, you can imagine. From the bag-in-box, you take away the box and you have only the bag left. In this case, it's a fair trade wine from Sun Vineyards and Pinotage very well received in the market, and we also launched together with the bottle product as well. But also in Norway, we sell a little bit more expensive wines from time to time. We have Domaine du Matua, which is a very interesting wine style that has become more and more popular in the last few years, and it has been introduced now in Norway in the ordering assortment. And we have also done a line extension with our champagne Montaubret, which is producer that we've been working with for a very long time. And now the -- thanks to the ordering assortment, also have rosé wine in the assortment.

And taking a look at our segment, Viva eCom. We have decrease in the quarter, and it is due to the negative market sentiment that has been mentioned by Emil. So energy crisis and inflation has hit Europe hard on that level. Our organic growth is negative in the quarter with 13.9%. But here, we have also high comparative figures from the pandemic year. Our gross margins are strong and according to plan. So despite cost pressures, we have been able to work with improvements in this area with product mix and pricing strategies. Our adjusted EBITA decreased. However, the margin reached 11.6%, so well in line with the medium target of 10% to 12%.

And in the eCom segment, we would like to highlight, of course, the strong gross margins already mentioned. These are a very important pillar for our future development. And all the concepts, of course, of the platforms, of course, Weinfürst which for those of you do not have the details is our shop aimed at a low price market segment has been developing very well in the existing markets. And of course, as mentioned already, we are identifying new markets expand this into. And meanwhile, we have been also focusing a lot on our lean structure. We have been restructuring according to plan. We have the same technology environment on all platforms. We have the same team running the platforms. We have 1 warehouse solution that is finalized during actually this year, I should say. And then we have been also working a lot with our CRM capability, how to take care of our customers, how to retain them, how to acquire them. So we have also invested a lot in that. So we're well prepared for the coming year. Over to sustainability. Here, we have already spoken a little bit about how we are developing. We, of course, started in Sweden with our sustainability work. Now we have rolled that out in the Nordic business. So we -- and the next step is to also include the eCom business in our sustainability platform, so a quite big step internally. We've also implemented an upgraded software solution because, of course, sustainability, it's nice to talk about, but it's extreme amount of data that you need to collect in order to be able to talk about it in a proper way. This means that we are quite well prepared for the CSRD, the new directive corporate social reporting that has now been decided that it will come into play in the coming years. So there, we are also starting some preparations for that. And on the lighter side, we -- and this is the trucks that you see on the picture, we have with the brand Hope that iconic wines here in Sweden owns created together with the producers in the Cape area, a mobile library that gives improved access to books and hence, education in the Western Cape. So 1 of many social initiatives that we are taking in order to give something back to the community in the producing countries. On the final comments, we usually go through the financial targets a little bit. We are very comfortable with our targets in the medium term. Of course, I think everyone realizes that -- it has to be in the medium term when it comes to the growth where we do need some help from the general financial economy and the macroeconomic environment in the coming months. But once we get there, as mentioned, we are very well prepared. On the profitability, it is the euro, SEK, which is the main hurdle for us to reach our target in terms of profitability. Linn has already mentioned that the net debt is under control. And as for the dividend, we will suggest the dividend, which is slightly above the 50% threshold in our dividend policy around 54%, I believe. I mentioned already that we feel very strong for the coming year and we do feel very strong. I mean we have a very strong product pipeline in the Nordics, which we have already adapted to the current market situation, meaning that we have many products in the lower price segments. We have quite a lot of products in the bag-in-box segment as well that we see increase. So this really should come to our advantage even in a market which is a little bit soft. Our very quick product development should pay off very well. We have been focusing on pricing and margins. So again, in first of March, we will do some slight price increases. We did the heavy price increases in September. Now we will adjust in during the spring a little bit more the pricing for the coming years. We also have in Sweden a tax change that we have to take into account, which affects the pricing a little bit. I keep going about, about this 1 warehouse solution for the eCom, but it is very important. It also creates very good opportunities for coming M&A activities that once we have our own warehouse solution in 1 place, we should be able to acquire companies in a very good way and to create even further synergies. And we also mentioned already the expansion of Weinfürst which we expect to be happening very, very soon into new markets. And on the M&A agenda, I -- for those of you who have then been listening to us in the last year or so or even through the IPO process know that we said that '22 was going to be maybe for the eCom M&A a little bit of a slower year because there is -- there was a gap between sellers and buyers in terms of expectations on valuations, but now we do see that the market normalizing and sellers and buyers coming much closer together. So we are actively looking at the M&A part of the market as we speak. So that concludes our agenda. And please, if there are any questions, do not hesitate.

[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.

I've got 4 questions maybe take them one by one. First one on product launches and also some upcoming product launches for 2023, I suppose. Considering the weak Swedish krona and, I guess, general cost inflation, are you able to also reduce the input cost in order to defend the gross margin in some way, if you get my question?

I mean that's correct. I think this is also the advantage of very, very quick product development. It means that, of course, if we develop a new product, let's say, Q4 last year to be launched in the beginning of this year, we will adapt to the price situation, and we will find sourcing of wine and packaging and so on, which gives us our ideal margin, the one that for, let's say, older launches has been eaten up by the FX effect. So we do adapt to the current FX scenario and thereby have -- these products have good margin once they are in play. As you remember, Fredrik, in the beginning, of course, they come with quite heavy marketing, but once they are established in the market, they do come with our ideal margins.

Perfect. And next question on the eCom market. If we look at it, it's been normalizing for quite some time now, and the comparable is definitely starting to look easy. Just curious to hear your expectation of the market growth in general in 2023, if possible?

I think what we're seeing in the eCom market is that we -- as in many other markets, I think the -- especially the German consumers, they need some kind of a little bit of a nudge to start behaving in a more normal way. We do see some very small tendencies in the market that this is happening as we speak. But I would say that we should expect the first quarters to be somewhat soft, in line with the numbers that you now see in Q4 and then things to start to pick up towards the end of the year. As you remember for the eCom, the summer is not a perfect period, that's a quite weak quarter in general. So I would say September and onwards, we should be back on track.

Okay. Good. And then on synergies between Sweden, Norway and Finland, you mentioned, Emil, do you mainly refer to sales synergies? Or do you also see some potential to cut costs here?

No, it's basically on the marketing and sales side that we use the same product development and so on. It is still -- we have been looking at it, it's still tricky to find synergies on -- it would be the logistics, I guess, what would be the key area. But we need to deliver quite quickly to the various markets. And Norway, in addition has a border with the EU, so it makes it difficult. So it is on the sales side, yes.

Yes. That makes sense. And last question on cash flow. Just curious to hear how you guys view work capital projections throughout the year and also CapEx as you look into 2023, please?

Yes. With the CapEx, it's worth mentioning that we had extra onetime effects now in Q4 and also for the whole year 2022. So those will not be expected during 2023. So looking at Q2 would be the normal going forward.

The next question comes from Johan Fred from SEB.

Just a few follow-up for me. Could you start by providing some color on what you see in terms of consumer behavior thus far into 2023 and especially relating to restaurant visits and spend both in the Nordics and the rest of the Europe?

Yes, I think it's a bit tricky to say because we have been looking for clear evidence that there is a trade from restaurants to home consumption. I think under normal circumstances without the COVID, we would probably have seen that already. I think that we are about to see that now in Q1, but I would -- that's more my gut feeling analysis than any solid numbers on the restaurant side. Then if you look at the consumer behavior, we see already in the beginning of the year in the public numbers of the monopolies that bag-in-boxes are increasing their share of the market. And that's a quite clear indication, of course, that per liter, the bag-in-box would normally be the product, which is the cheapest. So there is a down trading in that respect, which we see quite clearly. Then of course, you will have to look at the sort of general macroeconomics in the different countries. In the Nordics, they are behaving a little bit different. Finland is maybe the one which is the quickest to be a little bit more negative sentiments in. I think Sweden has been quite slow. And Norway, we expect the Norwegian market as a whole to go down, for example, while the Swedish and Finnish are expected to be more or less in line, although I think that the Finnish one might also go down. Now we talk about the whole market and based on a combination of publicly known numbers and quotes from the various monopolies. So Norway and Finland, you could expect the markets to go down somewhat in Finland due to macroeconomic effects. In Norway, maybe more due to late pandemic adjustments because they have been a bit late on that curve. While in Sweden, we expect the market to be slightly negative or around 0 as a whole. I don't know if that gives you a bit more color on the whole picture for the Nordics. For the eCom, as mentioned on the previous question, it's going to be a soft start of the year, but we do see signs that it's picking up. And again, the Weinfürst concept is going very well. So that is, of course, contributing new sales as well to the overall numbers.

No, great. Very clear. Do you think -- or just a follow-up on the down-trading there. Do you think that's a result of consumer behavior mostly or is it due to the tax increase in Sweden as well?

I think it's consumer behavior. I mean the tax increase is just a few krona. Of course, I mean, the tax increase together with other price increases due to all the other factors that have been mentioned previously means that products are becoming more expensive regardless of the tax. So I think it's more of a consumer change both due to the consumers' own economy and the pricing of the product. So it's not an ideal situation to have an increased prices in the market in general because, of course, the consumer is maybe going in the other direction. But for us, as a group, we do have everything in the whole assortment, and we are launching more products in the affordable assortment now. So as a group, we should be fine, although individual SKUs are behaving quite big changes on some individual SKUs.