Hello, and welcome to Viva Wine Group presentation of the third quarter results. Presenting today, is Chief Executive Officer Emil Sallnäs and Chief Financial Officer Linn Gäfvert.
Thank you, Michael. So, before we go into the numbers of the quarter, I'd like a quick recap of who Viva Wine Group is. We are a company that is present in 13 different countries. We have, at the heart of the business, 25 entrepreneurs. A very important part of our business model is that in every daughter company operating company, we also have one or several shareholders that have a minority stake. We have 10 operating companies, and together those are divided into three very strong segments. 65% in the Nordics, where we have including Norway and Finland. We have our e-com business, which is currently 18% of the total based out in Germany.
We are the Nordic leader in wine in the Nordic monopolies with a very strong market position, and this is very much thanks to our very strong portfolio of own brands, partner brands, and exclusive brands. The last part I want to mention, and which has been very important for our development and also for our business, is our focus on sustainability, which has driven a lot of our business through the years. We are a member of amfori and BCI, which is an audit organization. We are market leaders when it comes to climate efficient transports and packaging. We have the highest share of organic products in our portfolio, and we are also the only ones with an audit-assured GRI report in our sustainability report.
The operating companies are, as I mentioned, in Sweden, in Finland, Norway, and then in Germany. Over to the quarter. This quarter has, of course, as for every company, been a little bit of a strange quarter. There are strange times because there are so much things in the world that's happening at the moment. Obviously we have inflation and other local pressures as well. Despite this, we are very happy that we have an increased market share in all the Nordic countries. Even separately, we have increased our market shares in the quarter, and we are increasing our position in the market. We have an increased operating profit. This is mainly due to our selling of our German warehouse.
Still, if you look at numbers, they are very strong considering the times. Overall, the market slowed down during the quarter if you compare to Q3 2021, which is still due to the post-pandemic effects that we are feeling. They have shown themselves a little bit differently in different markets, so we're still feeling those in Q3. In addition, as we mentioned last time, the consumer sentiments are very low. I mean, this is not any new things that we're coming with. This is obviously something that you hear from a lot of companies. When it comes to EBITDA margin, it's the same story as last quarter. We are still having negative FX effects, and we have the increased transport and material costs.
As you will see in the coming slides, we have addressed that issue, and we are improving our margins thanks to increase of prices. When it comes to the sort of main news in the quarter, it is the selling of our Würzburg property, which is the most important. Most important it is because it's a big step in our synergies. We are moving towards one warehouse in Germany during 2023, which will create further synergies for all of our e-com companies. Then it's of course a very nice additional benefit to make a profit out of SEK 65 million while selling a warehouse you only owned a few years. Over to Linn and the financial overview.
Yes, taking a look at our net sales, we have a growth in the quarter of 8.5%. A lot of this is thanks to the acquisitions that were made during last year, and Norwegian Beverage Group in Norway in segment Nordics, and then we have the Vicampo segment e-com that contributed as well. Our organic growth is negative in the quarter, and the main factors are the general downturn in the e-com sector, inflation, and all-time low consumer sentiments. We are facing pressures on our gross margins, as we mentioned already in Q2. It's mainly explained by the negative FX effects, but we also have cost pressures in transports and material. Important to mention here that our price increases to end consumer in the Nordic monopolies are controlled by the price windows.
Our adjusted EBITA decreased to SEK 87 million in Q3, and that is mainly driven by the negative FX effects in Sweden, but also then the increased transport and material costs. Important to mention here is that we are wanting to hedge currency to mitigate the risks. We have substantial positive effects year to date, but the effects are accounted for below EBITA levels, so in the financial net. Year to date, our adjusted EBITA margin is in line with our medium target. Looking at the segments here, it's clear that the net sales contributions come from our acquired businesses, E-Com and the Nordics, but we also see that Sweden is flat compared to last year, so that's good in these times.
Going over to the adjusted EBITDA margin, we also see positive contribution from our acquired businesses in the E-Com segment and the Nordics, but here it's clear that we have the negative FX effects in segment Sweden that gives a big negative impact in the quarter. Our net working capital continues the positive trend towards net sales and landed on 9.8% year to date. Taking a look at our net debt situation, we have very good and strong position, and we are well below our target level of 2.5. Our cash flow, we still have a strong cash flow from our operating activities. In the quarter, we see the one-time effect where we sold the warehouse that Emil mentioned that gave a positive contribution of SEK 111 million. In connection to this, we also repaid a connecting loan of SEK 21 million.
Taking a closer look at our segments, we're starting with segment Sweden. That is our biggest segment. Our net sales is in line with previous year in Q3. Our volumes developed stronger than the market in Q3, and that means that we increased our market share and have now a position of 25.3% in the quarter. Our adjusted EBITDA decreased to SEK 49 million, and as mentioned before, it's mainly explained by the negative FX effect and the higher cost for material and distribution. Our adjusted EBITDA margin landed at 8.4%, and here in Sweden, you can adjust the prices twice a year, and we adjusted them from September, so they have not yet fully impacted the whole quarter.
As we have done before, we would like to talk a little bit about the various products that we launched during this quarter. Again, this is a very important part of why we are increasing our market shares, and it's only a part of the products that we have launched during the quarter. Our product launches are the key factor to us increasing our market shares in spite of a slower market. Starting off with the bag-in-box Buco Nero, it's a very attractive packaging with a Malbec from Argentina that has started out very well in the market. It's our own brand from Iconic Wines. Another of the Iconic Wines brands is The Revenge of the Little Squid.
It's the follow-up of The Revenge of the Little Pig, so a little bit more of a humorous take on a very serious wine, but also very, very well received from the market. The Riesling to the right from Von Wallberg is a product which is very close to my heart. It's from a producer who is actually the first producer I met in 1999 when I started out in Giertz, the first company of Viva Wine Group. This product was launched three months ago, and now already it looks likely that next year in September, it will be in more than 100 shops in Sweden, so a very successful launch.
A newer supplier that we just started working with, which shows that also new partners are very attracted by Viva Wine Group, is a product from Kris and a producer called Giacomo Fenocchio Barolo. Of course, wines from the Piedmont have been very popular in the last few years and are very strong in trends, so having another Barolo producer in the assortment is very attractive to us. BYou in the middle is, as you might see from the picture, a PET bottle, which means that it's a very environmentally friendly packaging, and it's also in a sort of buttery Chardonnay style, which is very much in line with the market demand at the moment. It's a U.S. wine. Finally, another private label and another.
Sorry, own brand and another brand extension was the word I was looking for in the Link series. It's a Riesling from the U.S., which has also been launched during the quarter and very successfully so.
Going over to our segment Nordics, we have Finland and Norway in this segment. The strong net sales increase of 80% compared to Q3 last year is due to the acquisition of Norwegian Beverage Group. Norway improved their sales despite the weaker market. They increased the volume with 0.9% compared to the market that went down with 20%. Finland outperformed the market. We have a decline there of 6.5% in volume, but the market declined 9%. In both Finland and Norway, we increased our market shares. In Finland, we ended up at 15.9% in the quarter, and in Norway at 5%. Our adjusted EBITDA margin increased following the acquisition.
The EBITDA margin is in line with previous year, and here in Finland and Norway, you can change the prices in October, so the price increase has not yet been in place in this quarter.
Great. Looking at the product launches in the Nordic segment, you might remember Lush from the Swedish page in the last quarter, and now it has also been launched with initial success in Finland, so it's one of our own brands. Of course, we work a lot with our own brands to make sure that we launch them in all the Nordic countries if possible. Another brand that was launched in Sweden first is The Scream Barbera, which is also launched now in Finland, coming from Iconic Wines. Lush is coming from The Wine Team. Finally, the bag-in-box with a dog on it, Lab, is from one of our bigger suppliers that we work with in all the Nordic countries called Casa Santos Lima.
This wine has already had a lot of success in Sweden with a slightly different packaging, but the Lab concept is working very well with people who love dogs, and who does not love dogs, right? In Norway, we have launched three new products. Château de Vacques is a Bordeaux wine, which in a more mature style, but a very low price, which has been very successfully launched in the ordering assortment in Norway. This is quite a feat because the ordering assortment in Norway is for those of you that have listened to or our more detailed presentations, know it's a more complicated market when it comes to launching new products compared to Finland and Sweden, mainly due to the fact that marketing is not allowed in the Norwegian market.
In Norway, we also won two different tenders. One is from Sam, a South African producer, which is also an ethical product, a fair trade wine. Finally, Trisquel, which is a product from Chile, which is one of our most important suppliers in the Finnish market. Again, we are working this sort of Nordic cooperation when it comes to launching products here.
Taking a look at our segment Viva e-com, we have a huge net sales increase in the quarter following the acquisition of Vicampo. The market sentiment is, however, at all-time low due to the energy crisis and inflation. Looking at our organic growth, it was negative with 21.2%. Our organic growth includes Vicampo with two months, and then we have our historic e-com business, which is currently reorganized to gain future synergy effects. We have very strong gross margins according to plan in this segment, despite that we see cost pressure in procurement and logistics. We have worked a lot with product mix and pricing strategies that has been very successful. Our adjusted EBITDA increased and touches upon the medium target of 10%-12%.
When it comes to the e-com business, some of the highlights, one of the main highlights is the Winefest, which is our D2C concept, which is really hitting a sweet spot in the market right now with its focus on the low price segment. As we told you before, we launched it in the Czech Republic and Slovakia with great success, and we are planning to launch in several new markets in the near future. The Winefest concept is actually growing as well at the moment. This is a positive sign among the otherwise somewhat less happy e-com figures when it comes to sales development.
Obviously, it's for the whole market, so we are not worried about the total development, but we are very happy that Winefest is growing. We already mentioned several times the warehouse in Germany, which was a big thing for the organization in the quarter. Also a big thing is that we now have moved the whole Wine in Black office from Berlin to Mainz, and we have also re-platformed it to the same technology that Vicampo and Winefest uses, and this will create a lot of synergies for the Wine in Black concept in the near future. Looking at the KPIs, they are a little bit of a mixed news, but I would say they are very, very typical for how the situation looks post-COVID. It's natural that the number of active customers is going down somewhat.
On the other hand, we are increasing the number of orders, and we have strong sales from our repeat customers. If we move over to our sustainability, we are very happy to be back auditing our producers in Italy, to start with, but all over the world. This has, of course, been on a pause during COVID due to travel restrictions, so this is a very important part of our work. We have also upgraded our software solutions, so we have now a more efficient collection possibility to collect sustainability data. We are obviously proud to have been finalist to two different prizes. One is for innovative climate solutions, while the other is for the best annual and sustainability report in 2021, which is the second year running that we have been finalist in this prize. Final comments.
When it comes to the growth, we are, of course, very happy that we are increasing our market shares, and we take a lot of comfort in that, despite not hitting the growth targets in the quarter. We are seeing a very, very active M&A market at the moment. There are a lot of transactions out there. We remain very picky, and obviously, we will only acquire companies that are profitable and that has a great growth potential. It is very good news if you are M&A active as we want to be, that there are a lot of potential transactions out there. The EBITDA margin is, as Linn already mentioned, in line on year to date, even without taking into account the hedge effects.
As mentioned, the net debt target, we are well within the ratio. When it comes to my final comments, and I already mentioned that the product development is very, very important, and here we have full activity, despite that we see in the market that a lot of our peers and our colleagues have a more defensive positioning when it comes to product development. Again, this is probably what explains our higher market shares in the quarter. We are, of course, focusing a lot on synergies, especially in the e-com business, where they are maybe a little bit easier to explain. Also the level of cooperation between the Nordic companies has increased a lot, thanks to the new role of a Nordic Chief Operating Officer, which helps a lot when it comes to working together in the Nordics.
We have always focused on pricing and margins, so it seems for me it's like, yes, of course, it should be there on the agenda always. It is true that we have always focused on that, and obviously during these times we focus a lot on this. M&A, very active, as I said. Who knows? Might happen now, it might happen in a year. I mean, I'm not saying anything about these things. Those of you that have been in that environment knows that these targets come and go, and not all of them are ideal. What we can say is that there are a lot of companies that are for sale, especially within the e-com sector globally.
Finally, we have also started to implement the shared sustainability platform that we will use for all the Nordic businesses, which are very similar in how they work with the monopolies, so we can report the sustainability across the Nordic in the future. That's it from us. Please pose any questions that you might have.
Thank you.
Thank you.
If you wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from Fredrik Ivarsson from ABG. Please go ahead and ask your question. Your line is now open.
Thanks so much. Morning, Linn and Emil.
Morning.
I have a few questions, so let me take them one by one. First, if we can start in Sweden. Volumes were down, I think, a couple of percent in the quarter if we talk about the market as a whole. During the last quarter, we saw similar patterns within the food retail market. In October, volumes in food retail declined by 11%. On the back of that, my question is, have you seen the volume decline accelerate during Q4?
The official monopoly number, which is the only one we can comment on for October, is -7% in the volume. Somewhat in that direction.
Right. Great. You also, partly on the back of that, right, about the changing consumer behavior, downtrading in the market, et cetera, et cetera. Can you talk a bit about what you've done to address this sort of new consumer behavior, if you will?
I would say first of all, we already had a product mix which was very well suited for this change. We had some natural hedges or whatever you want to call it. But also in the last 6 months, a lot of the products that we have launched are in the lower price segments. We are launching product bag-in-boxes that are below SEK 200. We are launching bottle products which are below SEK 100. While maybe during the previous 12-24 months before that, the focus was more on wine bottles that were above SEK 100 and bag-in-boxes that were a little bit more expensive. Of course, in this. I mean, this is not a clear line.
There are some exceptions and I would say that we're focusing a lot on the sentiment as well in terms of giving people products that difficult to explain, but in terms of our market approach now, maybe giving a little bit products that are supposed to give people a little bit more comfort. Sounds a little bit nerdy, but we're trying. I think the Crazy Cat wine is one of them, the Crazy Cat that we saw in the last quarter. It's a product which gives people a little bit more comfort and a little bit of humor in difficult times. Long answer as always, Fredrik, but you like that, I guess.
Yeah, no, that's perfect. Thanks, Emil. A follow-up, maybe, if you could remind us of the sort of share of your total portfolio that stems from these sort of lower price categories, if possible.
Do we have an exact number, Linn? Or no. I think ballpark, I would say 60%-70% is in that category.
Yeah.
This would be the same for anyone who is a volume player, and we're obviously the volume player in the Nordic market. I would say 60%-70% are in that category already.
Yeah. Excellent. On the wine price inflation, which I think was around 2% in Sweden in September with the September raises. Is that a fair assessment of your price adjustments as well, or were they a bit higher?
Ours were a little bit higher. I mean, if you look at the. I mean, obviously you can only do these calculations on a standstill basis, but we were increasing our prices by around 4% in September, which means that we were ahead of the curve when it comes to price increases compared to our colleagues in general. Obviously, there are exceptions there, but.
Yeah. Perfect. Last one from me on the inventory levels, which were up quite a bit in the quarter compared to end of Q2. If you could talk a bit about that and what drove those higher inventory levels and also what to expect in the end of Q4, please.
For me, from a business point of view, I haven't actually noticed the inventory as an issue. I think it's quite natural that we're building up stocks before Q4 now. In the e-com, it's definitely true that we're building a lot. In the Nordics, normally Q4 is a very strong quarter. I would expect the Q3 number to be a little bit higher. In general, we would expect the inventory levels to go down over time. These transport situations are a little bit fluid going back and forth. There is really no inventory that can't be sold or is not planned to be sold. It's all within normal business.
Yeah. We also have the Norwegian business now included in the numbers.
Ah.
That's an increase that is natural, of course, that business is included. Then we have some higher inventories, but it's no risk. That has been assessed. It's a good situation going into Q4, I would say, a stable and good situation to have our products ready.
Yeah. I think the Norwegian business was part of the business as well in Q2, and the increase was almost SEK 60 million. That's why I sort of asked the question. We can discuss that further offline, I think, Linn. Thanks. That's all my four questions.
Thank you. The next question comes from Johan Fred from SEB. Please go ahead and ask your question. Your line is now open.
Hi. Good morning, guys. Just a few follow-ups from me. In terms of the margin development and the price increase that took place in October, are you expecting to see similar development as you explained earlier as you saw in on the Swedish monopoly for Q4 and 2023?
In terms of price adjustments, obviously the next possibility in the Swedish monopoly is in March and the other monopolies in April. There will definitely probably be price corrections or changes to the consumers in 2023 in Sweden. There is an alcohol tax increase that has been basically confirmed by the government as opposed to be passed in the Riksdag, I guess, parliament. Sorry about that. So that's one factor and we do expect to do further adjustments in March. But in general, we also expect maybe the whole market to adjust a little bit more in March than they did in September. The situation is the same. It's not, however. It hasn't sort of continued to increase.
I would say the inflation in the wine product that is now more or less back to a normal level if you look month to month as in inflation in general is defined. I mean, we don't see a further pressure. Of course, as we mentioned in the report, harvests in Europe have been decent to very, very good depending on where you are, which means also that the pressure on the actual wine is less. Again, a long answer and a little bit of both. There's nothing that is worse that we expect things to go up further in prices when it comes to the costing. That maybe not everyone in the market has priced it into the product price to consumer.
Okay. Perfect. What effect are you expecting to see in Q4 stemming from the price increase in Finland and Norway on gross margin level?
I would say it's smaller adjustments upwards. There's no big changes. I think, obviously, our Finnish friends they had only had to cope with the increased costs of packaging, wine transport, and so on because they are denominated in euro. There are quite limited effects. The Norwegian business, as we all know, the Norwegian krone is not as weak as the Swedish krone. Their situation is a little bit less dramatic. I would say smaller adjustments upwards, but nothing dramatic.
Perfect. In terms of the overall margin development, could you elaborate a bit on what you're seeing in terms of input prices? You talked about the good harvest season, but in addition to this, transportation costs and logistics costs that seems to still be quite high even in Q3. What are you seeing for Q4 and full year 2023?
Yeah. I think what we have mentioned in Q4 is that what has been lagging was the last part of the transport logistics in Sweden and the Nordic markets, which we see a little bit increasing during Q4. We expect 2023 in terms of price increases for these things, knock on wood, to be flat. I think it's that that's the last hurdle to pass, and then we will hopefully in terms of cost increases due to transport, product, et cetera, that will be smooth sailing. The krone versus the euro, the Norwegian krone versus the euro will be very the last important part, which we hope will develop in our direction, so to speak.
Perfect. Thank you. Just a final one from me here. Are you seeing or are the consumer downtrading? Is that impacting your margins as well? Do you see any impact on mix?
There is not a super clear pattern when it comes to that. I think in theory, yes. I mean, obviously if you're trading down to the price fighters, you will have lower. If you're trading down to just good pricing compared to good price, whatever, medium pricing compared to premium price is not a huge difference in percentage at least. Somewhat the trends would probably be slightly less margins. For our portfolio, not necessarily. We have a very good product mix overall.
Yeah. We have a lot of own brands also.
Mm-hmm
in that segment, so that helps.
Perfect. Thank you. That was all for me. Thank you so much, guys.
Thank you.
Thank you. There are no more questions from the telephone conference. I hand over the word back to you, Emil and Linn.
I believe there are no other questions via email either.
No other questions via email so far.
All right. Thank you very much, and looking forward to meet you all again after Q4.
Thank you.
Have a good day.