Good morning, and welcome to the Cheffelo AB Q2 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star then Zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then One on your telephone keypad. To withdraw your question, please press Star then Two. Please note, this event is being recorded. I would now like to turn the conference over to Walker Kinman. Please go ahead.
Thank you, operator, and thank you to those of you who are joining us this morning for the presentation of the second quarter results for Cheffelo. Let's get started on slide two. My name is Walker Kinman. I'm the CEO of Cheffelo. I'm joined by Erik Bergman, our CFO. We will give you a short intro on the company and then take you through some prepared remarks on the second quarter development and financials before opening up for questions. First, a little about Cheffelo and our business on slide three. As a pioneer in the meal kit space, we have been changing the way people eat for over 14 years, which is why we see our purpose as innovating the mealtime experience.
Our four strong local brands in Norway, with Godtlevert and Adams Matkasse, in Sweden, with Linas Matkasse, and in Denmark, with RetNemt, have a long heritage of innovation and entrepreneurship, and basically simplifying everyday life for our customers. We make it easy for our customers to enjoy delicious, well-composed, and inspiring dishes, and our service reduces the stress of planning and shopping while forming good eating habits and stimulating joyful cooking and saving valuable time for quality family moments at the dinner table. Let's turn quickly to slide 4. Our meal kit business model is demand-driven. This means that we do carry very low inventories and minimize food waste generated in our own operations.
Our recipes are prepared by local chefs and dieticians, meaning that we incorporate a significant portion of local taste preferences while also offering the widest selection of recipes in the markets we operate in. We use our own proprietary tech solution made up of a single technology platform across our business. This enables a highly personalized customer experience using, for example, AI technology in the form of recommendation engines, while being able to produce each order uniquely to the customer's own taste preference using pick-to-light and automated production solutions. Our well-established, strong, and scalable supply chain enables efficient purchasing and distribution processes, and we integrate supply chain operations in the business across countries, as we're doing this, we're taking advantage of Nordic-wide sourcing opportunities. Let's turn to slide five and mention some of the highlights for the quarter.
As we noted in our trading update that we published on July sixth, net sales reached SEK 267.6 million for the second quarter. That was down 29.8% versus the second quarter of last year. In a tough macro environment, we've seen a broad downturn in online groceries and softness in the general e-commerce space in our markets. Despite this challenging environment, we did generate an adjusted EBIT of SEK 6.3 million for the quarter and an operating cash flow of SEK 18.2 million. Order frequency was down only slightly at -1.5%, while the average order value continued to increase and was up by 5.9% on a year-over-year basis.
At the annual general meeting that was held in April, shareholders approved the board's proposal of a dividend of SEK 22.2 million, which was distributed in May. Shareholders also elected Johan Kleberg as a new independent board member of the board of directors. I'd like to thank our departing board member, Fredrik Kongsli from the Herkules team, who has worked with the board and also contributed to the development of the company since joining in 2018. Let's move on to slide 6. It's not news to anyone that the macro environment is creating a challenge within the e-commerce space, and we have a couple of key market indicators from public sources that we follow. In Sweden, that is the Grocery Index, which is published every month by the Swedish Food Retailers Federation.
In Denmark, Statistics Denmark publishes monthly data on online groceries with a two-month delay. What we see in Sweden is that the Grocery Index contracted by 28% during Q2 after contracting by 19% during Q1. In Denmark, the most recent figures published are for May, showing a 21% contraction year-on-year for online groceries. The figure for March was a contraction of 31%. While we don't have any corresponding data for the Norwegian market, the underlying factors in what is driving consumer behavior across the Nordics as we emerge from the pandemic are the same also in that market, and they're characterized by a higher degree of out-of-home leisure and travel, and correspondingly a reduction in at-home spending, which has also been amplified now by inflation pressure.
For our business, this meant a sales decline in Norway by 26%, in Sweden by 30%, and in Denmark by 43% during the quarter. Let's go to slide seven. Coming back to the topic of inflation, it's been on everyone's mind for some time. We saw inflation accelerate in Q2. Energy prices moved sharply higher due to the war in Ukraine and brought with them costs for food products and packaging materials and has also driven consumer inflation to levels we haven't seen since the 1980s and 1990s in our markets. We chose not to increase prices in Q2 and rather increase competitiveness while grocery stores and other peers in the meal kit space increased their prices.
We waited until early August, and then we adjusted our prices by roughly 6% across all of our brands to offset the higher fuel, food, and material costs. This is still less than what is being recorded in key consumer price index measurements. Groceries and non-alcoholic drinks in Sweden, for instance, are exceeding 13% in July on an annual basis, and therefore also helps us keep our overall competitiveness intact on a price basis. We've not seen any material defections from customers due to the price change. While we clearly have no intention of trying to absorb all inflationary price increases, we have been able to offset a substantial amount of price increases due to initiatives on the supply chain management side.
We had expected to offset the higher cost of customer unique production with sourcing initiatives during 2022, but because of inflation, we've only managed to keep our relative cost of food flat in relation to gross sales. The lower volumes have also demanded that we look closely at our own cost structure and thereby adapt to market realities. Excluding production personnel, we ended Q2 with roughly 7.5% fewer average full-time equivalent staff. We will continue to manage our full-time equivalent headcount lower predominantly through normal employee turnover, so as we continue to adjust our cost structure to the current volume levels. Let's move on to slide 8 then.
During the second quarter, we did continue to focus on providing a superior customer experience, and we've done that by the continued development of our offering and brands. Thanks to our ability to produce each order in a custom-tailored way, we're now capable of offering 80 recipes every week for Linas Matkasse and Godtlevert brands. We have 60 recipes for Adams Matkasse, and we have 40 recipes for RetNemt in Denmark. We also finalized the rollout of taste preferences across all brands during the quarter that together with our AI-based meal selector, gives us the unique opportunity to offer a custom menu every week based on each household preference. In early August, we launched several initiatives expanding our total addressable market with even more focus on convenience.
With partners, we launched single-portion, ready-to-heat meals in the Norwegian and Swedish markets while expanding the offering in Denmark. We further launched a new concept based on fast meal preparation, where the oven does most of the work after a very short preparation task. Finally, on this slide, you can also see one of our collaborations here to the left with Swedish celebrity chef and TikTok influencer, Filip Poon. In this collaboration, Filip has designed several dishes, with his unique style of Asian fusion, which are then promoted on his own social media channels, other performance marketing channels, as well as directly towards Linas customers. With that, let's now turn it over to Erik to take us through the financials.
Thank you, Walker, and good morning, everyone. Let's move on to slide 10 for the financial update. As Walker talked about, the economy continues to emerge from the COVID pandemic restrictions, which continues to affect demand for e-commerce and meal kits, as well as consumer fears of inflation have had an impact on customer behavior. This is reflected also in our sales. Our net sales amounted to SEK 268 million, which is 29.8% lower than last year. During the month, we delivered 348,000 deliveries, and we delivered to almost 80,000 active customers. The active customers is 32.7% lower than last year.
Part of the reason for the lower customer base is related to our elimination of external telephone marketing sales, which co-contributed to 18,000 fewer new customer acquisition during the first half of 2022 compared to 2021. During the quarter, we have also reduced our overall sales and marketing spend by 52% versus the same period last year. Last year being unusually high due to aggressive spending on new customer acquisition. Our effort in this second quarter returned to focus on retention and reactivation ahead of the summer season, which typically generates higher customer churn and paused deliveries. Average order value continues at a high level, up 5.9% from last year. Excluding currency, this is up 3.1%.
The increase is driven by both price increases introduced in August 2021, as well as increased add-on and up-sales. Order frequency at 4.35 was slightly down versus last year. During the second quarter, we saw more customer pausing during this year compared to last year, during the many red days that we had during the second quarter. Let's move on to slide 11 for profitability. Profitability is impacted by lower volumes as well as cost inflations. We achieved a contribution margin of 24.5%. That is lower than last year, although this year we are operating with 100% customer unique production, where each delivery could be tailored for each customer in all countries we operate.
We saw a high and accelerating inflation during the period, driven by higher fuel, food, and packaging costs. As an example, we absorbed around SEK 2.1 million in fuel surcharges during the first half, with the war in Ukraine driving oil prices higher and regulatory changes in Sweden. We continue to actively work with our Pan-Nordic purchase initiatives, which are successfully impairing inflation in the current environment, but not producing direct incremental productivity as we had originally planned. We are monitoring the inflation closely to evaluate what measures needs to be taken. As mitigation to the increased inflation, our customer prices were increased by approximately 6% throughout our brands in the beginning of August this year.
As mentioned in the previous slide, we continue to drive marketing efficiency measures, and we are managing sales and marketing to focus spend on when it's most efficient and profitable to gain and retain our customer, meaning that we are focused the highest spend in the first and third quarter. Based on that, our sales and marketing spend are reduced in the second quarter by 52% versus the same period last year. Adjusted EBITDA for the quarter amounted to SEK 19.8 million, which equals an adjusted EBITDA margin of 7.4%. That is 4.8% lower than last year. The lower adjusted EBITDA is explained by lower volume as well as lower contribution margin. The adjusted EBIT amounts to SEK 3.8 million and equals an adjusted EBIT margin of 2.4%.
With that, let's move on to page 12. End of the quarter, the cash position amounted to SEK 109.8 million, and our cash from operating activities amounted to SEK 18.2 million. Last year, the operating activities included reversal of accrued transaction costs related to the IPO. During the quarter, we paid a dividend of SEK 1.75 per share. That equals a dividend of SEK 22.2 million, which is a good direct return while still allowing the company to invest in strategic growth opportunities. CapEx amounted to SEK 6.8 million during the quarter. With that, let's move on to page 13.
If you take a look forward, we will continue to drive marketing efficiency measures, and we are managing sales and marketing at an average below 30% of net sales for the full year, following a seasonal pattern with higher spend in the first and third quarter. Given the rapid escalation of inflation, we see our target of contribution margin approaching 30% to require more time than originally planned. We expect that price increases combined with efficiency improvements, sourcing initiatives, and cost reduction will help offset the effects of inflation and contribute to improve the contribution margin in the second half. The external environment where we operate is turbulent, and we expect it to continue to be turbulent. Although we are well equipped to face such markets as our company retains a healthy balance sheet and is not encumbered by structured debt.
With that, I would like to hand over to Walker for a quick summary.
Thank you, Erik. Let's turn to slide 15 and summarize here. In Q2, we generated profitability despite a tough macro environment and a drop in sales that was in line with broader online grocery sales contraction seen in the Nordics. Inflation is a clear reality even in our business, and we have made price adjustments and are taking other cost-cutting measures to adapt to the reality of the current trading environment. Our work is ongoing to provide a superior customer experience, and we'll continue to invest in the development of our service, products, and brands. We continue to expand our convenience offering with the launch of ready-to-heat products in August as well as easy preparation meals. Last but not least, the company retains a healthy cash position and is debt-free.
To conclude, I would like to thank all of our employees and partners for all their hard work in a challenging operating environment. Let's now turn it back over to our operator and open up for any questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Clément Genelot from Bryan, Garnier & Co. Please go ahead.
Yeah. Good morning, Walker and Erik. Only two from my side. The first one was global, but everyone would agree on the fact that, yeah, macro remains quite sensitive and that you still haven't found a magic IP on marketing. So what's exactly your view regarding the situation right now at MK and what are your levers to really soften the impact or maybe also prepare for the recovery which will come? My second question is on the dividend. Do you still reiterate your multi-years dividend up
About Odyssey on that. Thank you.
Thanks, Clément, and good morning to you. I think, you know, when it comes to looking forward in the situation, obviously the macro environment is something that we cannot influence dramatically and we will feel the effects of how the market is developing in general e-commerce and in the food segment. I think we have a lot of work underway right now, focusing both strategically and operationally on topics of marketing efficiency, strengthening our performance marketing, our search engine optimizations, and also shifting a lot of our spending on the marketing side from sort of upper funnel activities to lower funnel activities.
You know, you will see a lot more from us with regards to low funnel activities and also focusing on elements of consideration versus sort of more of the big budget broad media activities. We will still have some, but more focus on the lower funnel. I think this is also in this environment. We assess it's when customers in potential markets are extremely distracted. It's more valuable for us to be focusing on the customers that we have, retaining, reactivating the customer base that knows us rather than being on the hunt for new customers. That is impacting our work when it comes to how we're focusing marketing and sales efforts.
Obviously, as we guide to the marketing spend, you know, I don't know that there's a magic number, but we do see that the 13% is what makes good sense to continue to grow our business in our current business model, in an environment which is stable. We will continue to manage to the 13%. I think as Erik said in his comments, both, you know, when we think about emphasis on marketing spend, we'll see that in the first and the third quarters because of the benefit to cohort and the proximity to holiday seasons when you look at the second and the fourth quarters.
I think, you know, as we look for our own development in terms of sales, we will probably see development that's in line with the market going forward as well. I think that's the views regarding the situation at the LMK group that you ask about. I think your second question with regards to the dividend, it's a bit premature to talk about, you know, the dividend in any other sense than what we've said so far. We sit on a good cash position, and investors and shareholders have been active in discussing with the management and the board about how that cash position can be returned to shareholders or used to generate growth.
I think, you know, so far the dividend policy that we have in place hasn't been discussed for changing. I think that's a topic for as we approach the shareholder meeting next year that becomes more relevant based on the coming quarters.
For any further questions, please press star and one. There are no more questions from the phone.
Okay. Do you have any?
Yeah, we have one question through the chat that has been sent in from Jerker Danielsson and asking about the profitability in Denmark and what is the plan for the development in Denmark?
I think, you know, Denmark is at an inflection point for our business. I think we have a clear change in the offering that has been presented to the market with the integration and alignment with our technology platform. We see a market which has been heavily impacted as well in general. There's obviously two effects that we're dealing with in Denmark. We're committed to the market. We see a very good opportunity in the meal kit space. It's a very large meal kit market. We feel strongly we have a superior offering. There are things to be done, but in terms of our plans in Denmark, we have work to do.
There was another question here with regards to the reception of the new offering with regards to the ready-to-heat segments. I think the comments that we can say about that is it's so far developing according to our plans at this point. It's a very new offering on the market. We're not promoting it heavily yet because we're, as in any new offering, you make sure your supply chain is stable, make sure that your front-end operations and back-end operations are working as you make adjustments. That's sort of where we're at in the life cycle, which means that there's not a lot we can say other than the customer, the volumes that we have been expecting here in the first several weeks have been according to plan.
Those were planned to be low volume. We'll have to wait and see, and I think we will have more to say about that as we look at the end of the third quarter. There was also reference to the category concepts and in many of our category concepts cases, the concepts that we're talking about fast preparation, or you could even say preparation in five minutes. It really has to do with freeing up time for people who are going to be home but have other things to do. The oven does most of the work. It's easing into a convenience category, where it's not necessarily important that customers are done with their meal, or already eating within a very short period of time.
I think, we don't have a lot to say about how that's developing. It's a nice complement to our convenience selection. Very happy with the work that's been done internally to prepare that and be able to put it out in front of our customers. Then the last question also from Jerke here is, given the current marketing environment, how much can you strengthen the contribution margin through internal measures and efficiency and productivity? I think that question is, of course, a good question. We have always seen the development of 100% customer unique production as a journey.
The implementation of it and the final implementation at the end of Q3 and the beginning of Q4 last year means that we had a journey of manufacturing production management ahead of us and operations improvements. We've made investments in automation steps through the last several quarters, which means that as we come into Q3, we do expect efficiency improvements relative to the first half of the year in production, even with lower volumes, and that has to do with automation and process improvements. That's one element.
I think obviously, you know, where pricing affects the overall portfolio, I think you would see that as less of an internal measure and just the ability to price given the market conditions at a higher rate, but that obviously will have an improvement on contribution margin. As I mentioned in the comments even, or as we are restrictive in hiring, we are challenging how we work internally always, which means that we even are reducing through attrition, headcount that would impact above contribution margin. I think that those are probably the measures that stand out clearest. We continue our work with Nordic sourcing initiatives and supply chain management.
It's difficult to know how much we'll get from standing where we are today and not knowing how inflation will look in the end of Q3 or Q4, but anticipating that it'll be high. It's difficult to assume at this point in time that our efforts, which are being very productive, will have a price productivity element or will continue to sort of ward off inflation, as we've been doing in the first half. Yeah. It looks like we have. Those were the questions from Jerke. Thank you for the questions. It looks like we have a question from Petter von Hedenberg. Can we expect a total negative EBIT for last half year due to the significant lower sales and general trends?
The second question, is your cash position strong enough today to deal with a significant negative EBIT during last half year? When it comes to, you know, the first part of that question, Peter, I think, first of all, our forward-looking statements are quite limited in how much detail we're giving. As we get into, you know, comments to is it going to be totally negative or is it going to be positive, et cetera, that's more than we're at this point, going to indicate. I think when it comes to sales trends and general trends, we do see a trend in the market where declines in both offline and online groceries are being reduced.
As we look towards even our trading patterns last year, I would say that, you know, we saw the last growth in 2021 on a quarterly basis happening in Q3. Even for our business, we will expect that those contractions that we've seen both in the market and our own business will diminish. How we manage from a pricing perspective, how inflation develops, and to the extent that we can continue to drive productivity will determine sort of the profitability levels at the end of the year. In the second part of that question, a significant negative EBIT during last half year. We do have a strong cash position today.
You know, we have taken a very active measures to make sure that we maintain a good cash position and we reduce the downside of the low sales volume. You know, talking about, is it enough? It isn't even on my radar at this point in time whether the cash position is strong enough, because we feel comfortable with that cash position. Do we have any other questions that I'm missing?
No. No other questions has come up yet.
Okay. I haven't seen any other questions through the channels for questions, and there were no more questions on the telephone call. Again, thank you everybody for joining us. We look forward to speaking to you again after the end of our third quarter, when we present the results in early November. Thank you very much and have a great day.
Thank you.