Welcome to the Cheffelo Q3 2023 presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to the speakers. CEO Walker Kinman; and CFO Erik Bergman, please go ahead.
Good morning to everyone joining us for this presentation of the third quarter results for Cheffelo. My name is Walker Kinman. I'm the CEO of Cheffelo, and I'm joined by Erik Bergman, our CFO. We will give you a short intro on the company and then take you through some of the prepared remarks on the third quarter development and financials before opening up for questions at the end of the call. So first, a little bit about Cheffelo and our business. For the past 15 years, we have been transforming people's eating habits and thereby define our purpose as innovating the mealtime experience. Our local brands in Norway with Godtlevert and Adams Matkasse, in Sweden with Linas Matkasse, and in Denmark with RetNemt, all have a rich history of entrepreneurship and innovation. All are geared towards making our customers' lives easier.
Our focus is on delicious, well-balanced and inspired meals that make cooking a joy, while also promoting a good eating habits and freeing up value time for quality family moments at the dinner table. We take the stress out of meal planning and shopping so our customers can focus on enjoying their meals. As most of you are now well aware, we have recently changed the corporate name to Cheffelo from LMK Group. The strength and success of our company going forward is based on an organization that is able to effectively coordinate activities and operations over five locations. Without this, we will have difficulty in extracting best practices and synergies that would otherwise be unavailable to a smaller local operating unit, which in turn would reduce our competitiveness. We see a stronger corporate brand as a way to further attract and retain talent.
Perhaps the most important thing that we say in relation to Cheffelo is that it is not replacing the strong local consumer brands that we have built up over 15 years. Linas, Godtlevert, Adams Matkasse, and RetNemt will continue to be the brands that carry our product to market. Our meal kit business model is demand-driven. This means that we are able to maintain very low inventories and minimize food waste generated in our operations. Our local chefs and dieticians create recipes that reflect local taste preferences while offering the broadest selection of recipes available in the markets where we operate. We provide a highly personalized customer experience across all of our brands, powered by our in-house technology platform. The customer experience we deliver capitalizes on AI technology, driving, for example, meal selection options and our recommendation engine.
This level of personalization is supported by the capability to produce each order individually using pick-to-light 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 supply chain, enabling us to take advantage of sourcing opportunities across the Nordic region. Turning to slide seven, let's talk about some of the key figures for the quarter. Net sales for the third quarter landed SEK 211 million, which was up 2% on a common currency basis from the same period last year, and it also marks a return to growth after two years of post-COVID contraction. Average order value was up 8.7% versus last year, helping push the top line into growth.
We were very pleased with the strong contribution margin for the quarter, despite the headwinds with lower volumes that are typical for the third quarter. The production team did a fantastic job in balancing vacations and staffing, while the logistics team was able to further optimize route planning with our transport partners. The contribution margin for Q3 was a record for the quarter and helped put us over the annual target of 30% for the last twelve-month period, as we said we would do last quarter. Strong contribution margin and good cost control meant that Adjusted EBITDA was just under breakeven, which was an improvement of SEK 14 million versus last year. The decline in active customers of only 1.1% represents a big step forward for us, given the contractions we have experienced over the last year.
To put it into context, last year there was a sequential decline from Q2- Q3 of 7%, while this year it was a sequential increase of 14%. We acquired 47% more customers in Q3 versus last year and did it with only 2.9% more in sales and marketing expenses, which is an outstanding accomplishment by the team. Focus briefly on where we are at in light of our financial targets. We made it clear that being profitable and self-financing was our most important, most important target at the beginning of the year. The biggest driver of profitability has been a 674 basis point increase in our contribution margin year to date Q3.
A combination of better unit economics and cost discipline, including lower sales and marketing, resulted in improvement of over SEK 50 million in the year-to-date adjusted EBIT, despite lower net sales during those nine months. Cash flow improved by over SEK 145 million in the nine months ending September due to improved profitability, lower capital expenditures, higher negative working capital, and a decrease in the dividend paid versus last year. We generated SEK 52.5 million in cash during the first nine months. We have stabilized the top line in Q3 and expect to continue to see single-digit growth, with encouraging performance in new sales. New customer acquisition remains good at the beginning of Q4, although this is at a lower level, considering that Q4 spending in sales and marketing is also lower relative to the first and third quarters.
Let's take a closer look at how our markets have been developing. Consumer confidence remains weak, but is up from the lowest levels we saw last year. From a disposable income and consumer confidence perspective, the operating environment remains challenging, but recent news on declining inflation rates will hopefully help accelerate a return to more positive sentiments. Public indexes we track for online food in Sweden and Denmark are beginning to show improvements. Online groceries were flat in Sweden during Q3. The data in Denmark for August showed an increase of 7.4%. The last full quarter data in Denmark was Q2, where the market index showed a 3.4% growth.
We're happy to post much better numbers than the market in both Denmark and Sweden, with those growing by over 20% and almost 5%, respectively, which is refreshing to see in comparison to the sharp contractions last year. In Norway, a combination of weak macro conditions and aggressive marketing tactics by the competition are giving us stable but slightly mixed results. Our Godtlevert brand is performing well and posted both net sales growth and strong customer acquisition in the quarter. However, our Adams Matkasse brand, which has a higher price perception and premium position, is performing less well in the current market. In total, we saw our net sales in Norway contract by 2.6% in local currency. Let's move on to slide 10, where I will summarize where we're at with our Must Win Battles.
The three Must Win Battles to stabilize and profitably grow volumes that we shared in our Q4 report were increasing marketing excellence, cultivating epic customer experiences, and increasing volumes in Denmark. A push to increase marketing excellence means we're driving efficiency measures to lower the cost for customer acquisition and retention, and note again, the continued improvement in higher customer acquisition at a lower spend that was achieved in Q3. With epic customer experiences, we are doing our best to assure that customers have every reason to be loyal. This quarter saw the introduction of better box sizing and increase in cooled last mile delivery and the reduction of no longer needed ice in some boxes. We also launched our new loyalty program in October, with a focus on retaining customers earlier in the customer life cycle.
Finally, we set a target to increase delivery volumes in Denmark to assure our critical mass in this market. We're very pleased with the strong customer acquisition performance achieved during the fall cycle. We're seeing good momentum at the beginning of the quarter and are confident we will see accelerated revenue growth in Denmark in Q4, driven by new customer acquisition. With this, let me now turn it over to Erik to take us through the financials.
Thank you, Walker, and good morning, everyone. I'm very pleased to present this financial update for the third quarter of 2023. We are on top of our unit economics, and we do have a good model for both profitability and cash generation, which we have improved further throughout the year. This sets us in a great position for profitable growth. That is why I'm extra glad that we, in this report, could say that we are back to growth in the third quarter. We grew by 2.7% versus the same quarter last year. That is a growth of 2% adjusted for currency. We are glad to see an efficient marketing during the period where we had a great traction on our after summer campaigns that led to 47% more new customers compared to the same period last year.
The high increase of new customers also contributed to net customer growth, consequently leading to an increase in active customers. By the end of September, the number of active customers was only 1.1% behind last year, which is a notable improvement from the 90% fewer customers that we had in the previous quarter. The success in new customer acquisition and the comparable purchase frequency of a new customer versus an established customer have a natural negative impact on our order frequency, which is the main explanation for the 4.5% lower order frequency. We saw an increased average order value of 8.7% or 7.9% adjusted for currency. Price adjustments made during 2022 are reflected in the increase. It was also a result of a relatively lower overall discount level.
Although, seeing the increased new customer acquisition, we have been able to be more efficient when applying discounts, which gave the discount per delivery to be lower than last year. Worth highlighting is that we are also seeing customers choosing larger meal kits to a wider extent, which also have had a positive impact on the average order value. All in all, we have a quarter with many positive signals on the revenue side. Let's go on to take a closer look at the profitability on next slide. I can proudly say that we are experiencing a positive development in our contribution margin. To start, we have reached another record. With a contribution margin of 27.9%, we have achieved the highest contribution margin we have ever recorded during a third quarter.
The contribution margin was 6.4 percentage points increase versus last year, which equals an increase of SEK 14.8 million. The high contribution margin also means that we have successfully reached our target of a 30% contribution margin on an annual basis. Over the last twelve months, we have achieved a 30.2% contribution margin. If you take a closer look at what that really means and put it in relation to number of deliveries, this translates into that each delivery, on average during the last twelve months, has contributed by SEK 260. As the contribution margin covers direct variable costs, this means that a growth in volume will have a large effect on our profitability, leveraging economies of scale.
We will, in the upcoming capital market event, do a deep dive into our approach to managing contribution margin and explore the driving factors behind the improvements made. The achievement within our contribution margin is thanks to a great effort put forth throughout the organization. As an example of that, initiatives within logistics, including an optimization of line haul, resulted in lower logistic cost per delivery, despite the inflation seen during the last year. Also, increased production efficiency, measured in deliveries produced per hour, improved in the third quarter compared to the same period last year. Both improvements in production and logistics resulted in an average fulfillment cost per delivery was 6% lower during the third quarter compared to the same period last year. Being in control of our unit economics is the key to our profitability and establish a foundation for achieving economies of scale.
So let's move on to the next slide and continue with the profitability. As we said in our last quarterly report, we did not expect to be profitable in the third quarter. However, the combination of net sales growth, improved contribution margin, and efficient cost discipline allowed us to minimize the Adjusted EBITDA loss to only SEK 0.6 million. In the Nordics, it is common for customers to pause subscription during vacation time, leading to that we experience lower volumes in the first half of the quarter. We also invest relatively higher in marketing to acquire and reactivate customers after the vacation season. The combination of lower volumes and a relatively higher marketing spend results in that we will experience a relatively lower profitability in the third quarter.
Sales and marketing expenses during the quarter followed the normal business seasonality and amounted to SEK 35.4 million. I would also like to mention that part of the planned sales and marketing expenses have been shifted to the fourth quarter, and we expect the total spend to be around 30% of net sales for the full year. For the period January to September, we achieved an EBIT margin of 2%. This equals an EBIT of SEK 14.6 million, which is SEK 51.6 million higher than the adjusted EBIT last year. Worth noticing is also that cost for central function has been reduced by 18% or SEK 16.3 million during January to September. In summary, we have delivered on our target to reach a contribution margin of 30% on an annual basis.
We keep a strict approach to cost and a tactical approach to sales and marketing spend. With this, we are confident we have a strong foundation for future growth and profitability. Let's move on the next slide to take a look at the cash flow. At the end of the quarter, cash and cash equivalents surpassed SEK 100 million and amounted to SEK 105.9 million. The SEK 30.7 million increased cash position versus the second quarter are to a large extent explained by seasonal variation in net working capital. To understand the cash flow and cash position in Cheffelo, it is important to understand the net working capital. We have a negative working capital model, where most of our customers pay shortly after the delivery, whereas we pay our suppliers later.
I will talk more about that in our upcoming capital market event. In connection with the after summer volume ramp up, we are experiencing a positive cash flow from trade payables, which were the main explanation for the positive cash flow from net working capital. We saw the opposite effect in the second quarter. Cash flow from operating activities amounted to SEK 39.3 million. As we are experiencing seasonality in our cash flow related to volume, it makes sense to look at the cash flow from a rolling 12-month perspective, which incorporates all seasonal trends throughout a year. As you can see in the graph to the right, we are experiencing a positive trend, which also correlates to the improvement in our contribution margin. In the last 12 months, our cash flow from operating activities amounted to SEK 78.8 million.
Excluding changes in net working capital, this translates to a positive cash flow from operating activities of SEK 67.8 million. During the same period, lease amortization amounted to SEK 24.7 million, mainly related to our facilities. We have also had a CapEx investment of SEK 13.5 million, which is 1.4% of net sales. We will see that go down a bit in the coming quarters, but in medium term, we expect us to be around 1.5% of net sales. All in all, comparing the total cash flow from January to September versus the same period the previous year, we see an improvement of SEK 145.1 million. Let's go to the next slide for our expectations going forward w e remain focused on profitable growth.
Our current outlook is that we expect to see single-digit revenue growth continue also in the fourth quarter and into 2024. It's also worth noticing that we have made price adjustments in 2022, with the last one made in late 2022. This means that the growth in average order value will not have the same push from price increases. We will have a relatively higher sales and marketing expense in the fourth quarter. As mentioned earlier, we expect to see sales and marketing for the full year and the coming years to be around 13%. Our ambition is to maintain a contribution margin around 30%, with the intent to reinvest the incremental efficiency and cost savings into the meal kit itself. With that, I would like to hand back to Walker for a quick summary.
All right, thanks, Erik. So let's turn to slide 19 to summarize, and then we will open up the call for questions. First of all, we returned to growth in Q3, and we expect to continue seeing growth in the single-digit range in the near future. Q3 contribution margin touched a new record for Cheffelo, and we also saw our last 12-month margin exceed the annual target we have set of 30%. Sales and marketing effectiveness continued to improve, with substantially more new customers acquired on limited cost increases. The momentum at the start of Q4 remains good. High profitability, lower capital investments, higher negative working capital, and a reduced dividend have led to solid cash generation in the first nine months, with our cash position exceeding 105 million SEK at the end of the quarter.
We also want to make sure you mark your calendars for November fourteenth, when we will hold our first capital market event, where the senior leadership team and I will talk more about our business and ambitions in the meal kit space. We're very glad to see the top line reach an inflection point, but are not satisfied and are working hard on our plan to drive even more growth profitably. In conclusion, the team has been very engaged in delivering an impressive Q3 and a milestone for Cheffelo with a return to growth. A clear recognition of those efforts, and a sincere thank you to every member of the Cheffelo team are very well deserved. We're now going to turn the call back to our operator to handle questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Clément Genelot from Bryan, Garnier .
Yeah, good morning. Thank you. Just wonder from my side, Erik and, welcome, maybe what are the drivers behind, the stabilization in the, the online active customer trends in Q3? Is it a higher new customer's inflow, or is it a better retention rate, or a boost from, the WeightWatchers, partnership? And more globally, do you see real market share gains over some dying players, or maybe, the whole meal kit market is really bouncing back, across Nordics? Thank you.
All right. Good morning, Clément, and thanks for the questions. So I think, you know, when we look at the active customers, obviously this is something we're very keen on seeing return to growth, and it did bounce back in this quarter. Not only did we decline sequentially last year, but the ability to grow sequentially this year, and then hit, you know, sort of a flat active customer number was really good. I think, you know, the fact that there's 47% more new customer acquisitions that happened in the quarter is a very encouraging sign for us because it's also, you know, this push towards marketing effectiveness, and push towards lower customer acquisition cost is something we're working on in many different ways.
I think, you know, we do see good momentum in the WeightWatchers partnership, and that's part of the higher level of customer acquisitions. I think as we noted here, though, we're also seeing a lot of really good momentum in the Danish market with the RetNemt growth. That's very specific there for Denmark, with over 20%. I think, even in Norway, Godtlevert as a brand is performing very well, but the Norwegian market in general has, we operate two brands, and one of the brands is not positioned in this current market with a strong position. So, I think we're happy to see the active customer growth.
There's a lot of new customers in the mix, which also means then, I think as we look forward in the next quarter or so, we will see a higher churn rate, because of all the new customer inflow. I think in general, though, as we look at cohorts, we're quite happy with the cohort performance that we're seeing in the third quarter. So there is some portfolio dynamic with a higher degree of new customers short term, but I think that's long term, it's in our favor that we're acquiring more customers, so we're happy to have that little higher churn going forward. You asked a question about market share gains.
I don't think that we can put a finger on if we've gained market share, and I would be cautious about saying that. I think what we do highlight is the customers that we picked up in Denmark have been performing very well. So obviously, if we can be in a position to help consolidate through acquiring customers and through attracting customers from people that are actually exiting the market, then that's good. We're seeing some notable exits here in the quarter. For those of you watching, I think one of those is City Gross exiting their meal kit business in the third quarter. And we saw earlier this week, Marley Spoon exiting their Danish meal kit business in Denmark.
They withdrew from both Sweden and Denmark this year. So I think, you know, from an overall context of having profitability and being able to compete well in the market, we're very happy with the ability to take those customers to the degree that we can. But I wouldn't venture to say that we've got a major shift in market shares that we're seeing. Do we have any? If we don't, do we have any other questions coming in from the call? Otherwise, we have a few questions that we can address.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
So I think for now, we'll take some of the questions that we've seen come in. I think the first question we can answer is a question from Ole Forsch. The long-term target to reach an EBIT margin of 4%-6%, is it reachable in 2024 or 2025? So what we as we look at our growth, we're targeting a growth of 6%-8%. And in our minds, that sort of puts us at SEK 1.2 billion by 2026. And as we start to approach the SEK 1.2 billion level, that's where we see the scale in the model pushing EBIT margins towards the low end of the 4%-6% range.
The answer to that question is no, we don't see—we're not planning for EBIT margins of 4%-6% because that would stress, that would stress profitability or growth possibilities too much in the short term. We are definitely looking at that range by the time we hit 2026. We can take another couple of questions here that we have on the sent in. Magnus has sent in a couple of questions. The first question I'll read: How should we look at your opportunities to increase marketing costs in the future? During Q4, you see an opportunity for that, but in broad terms and in a slightly longer perspective, is there room for more?
I think the important part with how much we spend on, how much more do we spend on marketing, really has to do with opportunities, and if we can find opportunities that translate into higher customer acquisition. I think that this seems pretty obvious. I think for the time being, we also recognize we have a very high cost of capital, which means that when it comes to balancing the being both profitable and self-financing versus taking more risk on the marketing side, we are going to be cautious in expanding marketing costs for increasing growth. We need to see very clear links in that. I think that this isn't sort of a short-term reactive discussion. It's more about planned marketing activities to the extent that we truly believe there will be a good return on the extra spend.
Another question from Magnus here is: You write that you will reinvest efficiency gains, about 30% contribution margin. Will it take place in personal or sales and marketing? I think, I think the big thing when it comes to reinvesting in contribution margin is really talking about the, what the experience is for the customer. So this is a balance, this is a balance of, of what the, what the actual product the customer receives is. So, so to the extent that we can, that we can, make efficiency gains, we'll be able to reinvest that in the customer experience. To the extent that we drive it down to 30 or we maintain it slightly above 30, I think that will remain to be seen in our planning.
But we definitely appreciate the fact that we are able to hit that target of 30%. Let's take another question here, also from Magnus. Regarding WeightWatchers, do you see continued growth or penetration month after month since you started, or has it now leveled off? I think on the WeightWatchers there is there's a very good inflow of new customers because the WeightWatchers value proposition is slightly different than a general meal kit. And I think that this is a very interesting market opportunity, given that we would not normally, with our brands, be able to tap into that type of value proposition. I think the growth has continued since the start of the year.
I wouldn't expect it to grow significantly more as part of our sort of offering and customer base, above the relative percent that it is today. Another question is, you described a little the competitive situation has hardened in Norway. Is this something that could have a more negative impact in the future? And how does the competitive situation currently look in Sweden? So I think the clear situation in Norway is that HelloFresh entered the Norwegian market two years ago. And what has been clear is that they have actually driven the market and expanded the market significantly. So while we have not grown the business and have contracted a little bit, the market, their growth has been significant, but also due to expanding the market.
I think in any situation where we have a competitor that has accepted a very poor profitability in the short term to both acquire market share and to grow volume, it will make it for a turbulent market. We do think that that is something that has to fundamentally change at some point in the future, which will then change even their behavior, but I think that's a reality that we have in the Norwegian market. We're seeing on the flip side, we're seeing other competitors that need to be much more focused on profitability, including Oda in the Norwegian market, and that would have somewhat of a substitute reduction effect.
So it's a tough market, but also not just the competitive situation, it is also that there's very high mortgage rates happening in Norway as well as Sweden, and the general economic sentiment has not recovered fully in both those markets. In the Swedish market, the competitive situation is, I would say, as I mentioned, we have seen competitors leave in the Swedish market over the last three or four months. I think we're starting to see a dynamic in Sweden, which is more rational in terms of profitability and companies that need to demonstrate profitability. I think that happens both in the meal kit space as well as the food space.
So I think, from a competition perspective, the market is starting to grow again, and I think we're in position to compete well in Sweden. The last question here from Magnus: You have made a lot of efficiency improvements and have reached a target of 30%. Why is it not relevant to raise the target instead of reinvesting? What makes 30% the magic number?
So yeah, if I can answer that. So 30% is not a magical number, it's our current level where we see ourselves and we are performing, and that is a level where we are profitable in the current level, and it is also a way for us to reach the financial targets. What we do see is that we want also to invest in our product and and make it a good product for our customers. So, so that is also what we see, that we want to enhance that product even more.
We have received one more question here from Saman Bidgol. What is your minimum cash balance you need to run the business on current sales level around SEK 1 billion? Can you please describe your net working capital swings per quarter in more detail?
So the cash flow or cash position follows our seasonality and follows the volume. So during when we have higher volumes during the first quarter and into the second quarter, then we have a higher negative net working capital. But then during the summer period, when we have lower volumes, we pay off our trade payables to our suppliers, which means that we have a lower cash position in the third quarter during the summer period, and then again, we go up. So we do have a swing from our high volume season to the low seasons, around SEK 60 million.
We don't see any further questions that have been coming in and checking through our investor relations account this morning. We don't have any further questions that have come in through those channels. So I'd like to thank you again for joining us for this third quarter earnings call at Cheffelo. We also look forward to seeing you again at our Capital Markets event on November fourteenth, and our fourth quarter earnings call, which is scheduled next year on February 22nd. So have a great day!