The Chefs' Warehouse, Inc. Price & Performance (CHEF)

Thank you, Martin, and good morning to everyone joining us and welcome to this presentation of Chef Lo's fourth quarter and full year results for 2024. My name is Walker Kinman. I'm the CEO of Chef Lo, and I'm here today with Eric Beriman, our CFO. Take a few minutes to give you a short intro on the company for those of you joining us for the first time and then take you through some prepared remarks. On the fourth quarter development and financials. And then we'll take your questions and you can post those in the question dialogue or by emailing us directly on Cheffelo dot com. So let's start with a little about Cheflo and our business. For over sixteen years, we've been changing the way people eat dinner by innovating the mealtime experience. In Norway, we operate under the brands Kotler Bert and Adam Smoltkasse. In Sweden, Linas and in Denmark, Ratnemt. These well known local brands have a rich history of innovation and entrepreneurship. All geared towards making our customers' lives easier. Our goal is to make life less complicated with inspiring and tasty well balanced meals that are easy to prepare. By taking the stress out of meal planning, shopping and cooking, we help more people eat better, and bring families together around the dinner table.

Our Meal Kit business model is demand driven. Because of this, we can maintain a very low inventory and minimize food waste generated in our operations. Local chefs and dietitians create recipes that reflect local taste preferences while offering the broadest selection of meal kit recipes available in the markets where we operate. We provide a highly personalized customer experience across all 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 PictoLite 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 Nordic supply chain, enabling us to take advantage of sourcing opportunities across markets. Turning to Slide five, let's talk about some of the key figures for the quarter. Q4 was the icing on the cake for us. As we finished a year that showed growth in every quarter and a return to growth in the Actim of customer base in the second half.

Net sales grew on a local currency basis of 11% in Q4, which brought the local currency growth for the year up to just over 7%. Active customers posted nominal growth for the second quarter in a row, another key metric order frequency also showed another quarter of solid growth at 7.3%, driven by improvements in the customer experience. The Midoz Free partnership has performed well and the customer cohorts that have been converted to LINAs are strong. Helping drive the second quarter of double digit growth in a row [indiscernible] Good growth in the quarter and for the full year. Further translated into profitability improvements with full year EBIT increasing by 36% reaching 3.9% of net sales. Just shy of our long term financial targets of between 46%. Improved profitability converted into higher cash flow, On the back of that, the Board of Directors will propose a dividend of DKK3.32 per share equal to DKK42.1 million. Amount is 100% of the free cash flow generated by the business in 2024, excluding changes in net working capital and will mean that has distributed over DKK90 million to shareholders since the first dividend was announced in 2022. Let's take a little closer look at the market developments in Q4 on the next slide.

We did almost half of our net sales in Norway in Q4. Which has been a tough market during much of 2024. With uncertainties on the macro side reducing demand, and preventing meaningful growth. However, in Q4, were very pleased to see that trend shift abruptly. Initially, this We'll correct the presentation. Let me give us just We're just getting up here shortly. Give us a second. Sorry about the technical challenge. Still working with it. Good. So as we're getting back to slide six where we're showing the development in by markets, So the point here is that we've had let's see, where do we go? Okay. So we did almost half of our net sales in Norway in Q4. And that's been a tough market during much of 2024. And with uncertainties on the macro side [indiscernible] trend shift abruptly. Initially, this came from a slower decline in volumes than expected approaching Christmas and New Year followed by a sharp increase in customer acquisition at start of twenty twenty five, The result in Q4 was a 6.6% increase in net sales in local currency led by LeVert. The repositioning of Adams has increased the average order value for that brand which mostly offset lower delivery volumes.

The Linus brand in Sweden again grew well in Q4, reaching 15.6%. And the second quarter in a row of double digit growth. This was substantially better than the online grocery index in Sweden of 3.5% in Q4. There's good momentum as well in the Swedish market at year end. And we see the growth rate in both Sweden and Norway landing in high single digit to low double digit growth for Q1. And further assisted this year by Easter calendar effects. Denmark continued to host solid local currency growth at 8% in Q4. Which exceeds the growth rate of the online grocery index in Denmark, up until November of 6%. As noted last quarter, we have seen the growth rate slow in Denmark on the back of very rapid expansion in the second half of twenty twenty three that reached almost 47% in the fourth quarter. We do not see strong momentum at the start of 2025 in Denmark. And we'll expect much of the early growth in the year to come from Norway and Sweden. Let's take a look at a couple of points we've discussed in previous quarters. On the next slides. Firstly, the marketing partnership with Migdolix Fried when they exited the meal kit space is something that has had a positive effect on the growth of Chef Lo, contributing around 1.4 percentage points during the quarter.

While we do not expect to see a substantial further increase in the number of customers coming from that partnership. The results have been in line with our expectations and we are very pleased with the opportunity to serve these customers and help consolidate the Swedish market.

Turning to the page, the second point we've discussed also affects the Swedish market with the discontinuation of the Weight Watchers partnership. With this partnership ending in December, we've had the opportunity to launch our own calorie smart recipes which have been well received by customers in both Sweden and Denmark. These dishes provide a nutritious and low calorie alternative in our regular assortment of over 80 dishes every week can be attractive for our customers with calorie management in mind. To further enhance our reach in this space, we entered non exclusive digital media with Wellaby and Edith. Turning to the next slide, let's revisit what we have said about growth in the near term. There are four areas that we see that will have a meaningful impact on growth for Shelflow in the near term. With little observation of price elasticity affecting demand. The larger price increase of around 7% in the Adams brand in Norway in August will continue to drive an increase in average order value during the first half of twenty twenty five, We've now been able to observe two quarters of growth in active customers. While this growth so far has been nominal, it underscores that the trend has shifted Looking forward, we are already observing low single digit growth in active customers in Norway and Sweden.

Order frequency has been a key driver of growth in 2024 reaching 7.3% growth in Q4. With our reorganization, we aim to make it easier to focus on customer However, we do not expect a more we do expect a more moderate increase compared to 2024. As higher customer acquisition rates also impact [indiscernible] Order frequency has been a central factor for to growth in 2024. And even in We believe that these first three areas can help drive growth at two to three percentage points each. The final area is the ongoing expansion of add ons and groceries. New product bundling and a stronger strategic focus are already delivering results. With higher double digit growth early in 2025. We're also developing new user experience improvements and capabilities that we believe will help accelerate this growth even further. Since add ons and groceries accounted for less than 2% of net sales in 2024, we expect this area to contribute one to two percentage points of overall growth in 2025. With that, let me now turn it over to Eric to take us through the financials. Thank you, Joaquin.

And we're pleased with our results for the fourth quarter. The fourth quarter makes a strong finish to the year. And net sales grew by 9.7%. We continue to experience volatility in exchange rates between SEK and both Norwegian and Danish Krumna, had a negative impact on our reported numbers. Adjusted for currency, net sales actually grew by 11.1%. Throughout the year, we have referred to what we call bumpy growth, with 6% in the first half, a slower third quarter and a strong finish in the fourth quarter. As a result, net sales for the full year reached SEK 1,580,000,000.00 an increase of 5.8%. Adjusted for currency, that is a growth of 7.1%. This current said adjusted growth placing us in the middle of our communicated financial growth targets. The fourth quarter saw less pronounced seasonal slowdown towards Christmas holidays with fewer customers past due to subscription than we typically see. This had a positive impact on net safe and contributed to increased order frequency. We have seen a strength in all the order frequency throughout the year, Key drivers behind the higher order frequency include the updated loyalty club and more targeting targeted approach to customer acquisition and enhancement in customer experience.

These enhancements in the customer experience in includes more ingredients in meal kits, which reduced the need for pantry items, It's expanding the delivery slots options and having a more personalized recipe recommendation. Despite continuously macroeconomic environment, where achieved growth across all our markets Sweden performed well with the positive impact from customers acquired through the Midas partnership that performed in line with our expectations. As mentioned in our trading update, the comparison was versus last year was affected by one additional delivery week, So let's move to the next slide where I will elaborate on that. So basically, 2024 we had 53 delivery opportunities, which we refer to as 53 delivery weeks. Which is one more than the previous year, This is due to the way our deliveries are scheduled as most deliveries occur on Sundays or Mondays. So to be clear, this is not the line with the Easter calendar weeks, So to oversimplify it, it is not more complex than counting the number of Mondays that occurs during the year, in 2024 was 53. Because of this, certain years will have an additional delivery week [indiscernible] is rare, next time this will occur is in 2029. The extra week had a positive impact on our financial results.

Contributing by approximately SEK8 million net sales and about SEK2 million to SEK3 million to our EBIT. All in all, the fourth quarter marked a strong finish to the year. Both with and without this extra week So with that, let's move on to have a look at profitability. Starting with our contribution margin. So our contribution margin for the quarter improved at 32.3%, which was 0.5% to zero point higher than last year. This reflects economies of scale and continued efficient gains in logistics and production where we successfully reduced fulfillment costs by 2% per delivery. Throughout the year, we have reinvested large share of these savings into the product, while still achieving an increasing margin. The full year contribution margin reached 30.9%, and was in line with what we have communicated before, We exceeded our full year contribution margin target of a margin above 30%. So looking forward to 2025, expect to see continued improvement on contribution margin with both price adjustments and higher volumes and therefore, we increased our long term ambition to exceed 31%. Let's move on to have a look at the marketing spend. Sales and marketing spend in the fourth quarter was as expected and according to what we previously communicated, The fourth quarter is a relatively slower quarter, it comes to customer acquisition efforts.

Sales and marketing expenses amounted almost SEK28 million, which was about SEK4 million lower than last year. This reduction is primarily driven by two factors. First, a reallocation of SEK2.2 million in cost from sales and marketing to the technology team which are reflecting an organizational shift where we are moving design and product management function into the tech function. Second, as mentioned in our loss report, sales and marketing spend was reduced compared to last year as last year included costs related to the launch of a new value [indiscernible] From a full year perspective, sales and marketing expense amounted to SEK134 million, which was 7% of net sales This remains in line with what we have previously communicated and the target of 13%. And to be clear, that holds true also considering cost allocation through the tech departments. I also would like to point out that last year, we spent SEK 131,000,000 This year, we spent SEK 134,000,000 with a significantly higher growth rate. Looking ahead, we will continue to maintain a tactical approach to marketing spend Due to the shift of cost to the tech department and the economies of scale, we are updating our target to 12% of net sales on a full year basis.

But also with this, note the slightly higher technology cost that is the central function expenses. So let's move on to have a look at the profitability on next slide. All in all, we delivered a strong improvement in profitability with an EBIT increase of almost 83% in the fourth quarter compared to the previous year. On a full year basis, EBIT increased by almost SEK11 million to SEK41.3 7 That brings the EBIT margin up from last year. [indiscernible] This improvement reflects higher volumes improved contribution margin and continued cost discipline. As you could see in the chart, there was a shift in profitability between the third and the fourth quarter compared to the previous year, This was partly due to the high allocation marketing spend in the third quarter and also driven by stronger volumes growth in the fourth quarter which then was benefited from economies of scale. With this profitability, let's move on to next slide to have a look at the cash flow. During the year, free cash flow amounts to almost SEK47 million, which was SEK1.5 million higher than last year. The increased profitability growth and SEK11.5 million in in cash flow from profit before tax, However, this was partly offset by negative cash flow from changes in net working capital as you could see in the graph.

Net working capital remains a key factor in our cash flow dynamics. The lower cash flow from net working capital compared to last year are explained by a lower cash flow from shares in operating liabilities, combined with the higher accounts receivable balance at year end, which is driven by increased volumes and timing of customer payments from late December being received in early January. Our cash position remains strong with cash and cash equivalents of almost 114,000,000 at year end. And we continue to operate with no interest bearing debt other than the EFS six and lease obligations. With this strong cash flow and financial position, let's move to the next slide to have a look at the the dividend proposal. [indiscernible] The Board will propose a dividend of SEK 3.32 per share ought to be decided after the Annual General Meeting on April 25. The proposed dividend is higher than the lowest level specified in our dividend policy. The amount this year is based on free cash flow less changes in net written capital generated during the year, which amounts to SEK42.1 million.

With this dividend, will have distributed over SEK90 million in cash to shareholders since [indiscernible] With that, let's move on to the outlook for the coming year. As we move into 2025, we are carrying forward the strong momentum from 2024, Net sales growth is expected to be in line with our financial targets keeping us on track to exceed SEK 1,200,000,000.0. In 2026. We expect that growth will mainly come from Sweden and Norway, In the first quarter, we anticipate high single digit to low double digit growth in Sweden and Norway, while Denmark's top line is expected to remain stable in the first quarter One factor to keep in mind for the first half is the timing of Easter. Which all else equal shift delivery volumes between quarters. As a result, we expect higher volumes in the first quarter and lower in the second quarter purely due to the holiday day timing, On profitability, we have increased our contribution margin target which is now expected to exceed 31% on an annual basis. Supported by both higher volumes and continued operational efficiencies. Sales and marketing expenses are expected to be around 12% of net sales, on an annual basis, reflecting economies of scale, and the recent reallocation to our tech team So all in all, with increased volumes, improved margins and continued discipline cost control, we are well positioned to exceed the low end of our long term EBIT target in 2025.

With that, I would like to hand back to Walker for a quick summary. All right. Thanks, Eric.

Let's turn to the final slide to summarize and then we will open it up for questions. And in summary, the fourth quarter represented a solid finish to the year, and we are off to a great start in 2025. We had growth in all markets with Sweden marking a second quarter of double digit growth and Norway accelerating. Our efforts on improving the customer experience continue to drive order frequency, and we are starting to see an increase in the number of active customers as well. Good momentum at the start of 2025, particularly in Norway followed by Sweden, price increases and higher basket penetration in add ons and groceries are very encouraging and we are confident that we will be able to exceed our target of $1,000,000,000 in 2026. The realized economies of scale mean that full year EBIT grew by thirty six percent twenty twenty five and we will continue to see higher profitability on increased volumes. Our Board has proposed an increase in the dividend to INR 3.32 per share equal to INR 42,100,000.0 that will raise the total cash distributed to shareholders since 2022 to over $90,000,000 Ending 2024 on a strong note is a proof point to the dedication hard work of every team member at Shelflow, commitment to improving the customer experience in every aspect, product quality, service reliability, and overall satisfaction On behalf of management and the Board, I thank them all for their contributions.

With such high engagement and clear results, I think we're well positioned to continue building on the success in the year ahead. That concludes our prepared remarks. We'll now turn it over to questions that we have send your written questions to our Investor Relations email, which is iercheflo dot com. If you haven't already done that, So let's get started with our first And the first question comes from Jorga Danielson and he is asking how large is the Easter effect on your growth outlook For Cuba, So in 2025, both week of Easter will actually be in second quarter compared to last year when half of the Easter was in the first quarter. I don't have a number prepared that I could share with you, but you could see similar effect as you saw last year. All right. Thank you, Erik. The next question also coming from Also coming from Jurgenio you write in the report, our expectation is to see the business exceed the low end of our long term financial targets. For EBIT profitability already in 2025. Does this mean that you expect an EBIT above SEK 40,000,000? Thanks for asking the question. I think for clarification, we have been thinking along the lines of the target range of 4% to 6% EBIT growth So from a relative performance perspective, we're looking at we see the business exceeding the low end of that 4%.

Let's take the next question.

And that is coming from Saman. And the question is, Hang on just a second. I'll get the question for you. So So the question is, how has price increases in December affected customer retention? So from a price increase perspective, I think we see, as we said in the prepared remarks, that Price elasticity is good for this level of price changes. So the important point here is that the price increases were not more than what we're seeing as inflation in the market. I think consumers are expecting that. We're certainly thinking about our price increases in terms of what the market can bear. And so in terms of of price elasticity, we haven't seen any noteworthy effects on price increases starting the new year.

And this one coming from Magna Skoughe.

Will the effect going forward from moving marketing expenses to the technology team also be around SEK2 million per quarter. [indiscernible] [indiscernible] so So the effect in the fourth quarter was SEK2.2 million. But what this also then means for a full year, it's less. It's part of the shift also then includes the plan to in some of these expenses, but then all else equals, it's will happen full year effect of around SEK 6,000,000 to SEK 8,000,000 And All right. And we have the next question from Clement from Brian Garnier.

What is driving the growth inflection in Norway in Q4?

So looking at the Q4 numbers, I think there's there's a couple of things that we've talked about here. One is that the seasonal effect of approaching the end of the year historically has shown volumes tapering off the closer you get to the holiday season. So we're actually seeing in both, the Sweden and in the Norwegian market, but this is particularly important in Norway given that it's been a fairly stable market this whole year. Is that those volumes didn't decline as what we would have seen as historical patterns. So the first effect is to actually maintain volumes longer into the holiday season. The second effect is customer acquisition. We were active in the Norwegian market already in December. We saw the acquisition levels basically start to take off towards the end of the year. And as we've said before, we're continuing to see high acquisition Clement had a second question here as well. Is it to differentiate differentiate your positioning versus HelloFresh or to mitigate persistent food inflation. [indiscernible] I think the tactics behind pricing I don't think we'll share all of our tactics, but I think one of the lessons that we've learned in this business Even if the idea of holding prices to be competitive is sounds good.

Over time, it deteriorates your the product quality and what you can deliver to the customers. So the tactics that we use is simply to make sure that we do not fall behind in what would be inflation in the food in the general market and in food in particular. I think the fact that we are able to keep the price increases at the level that they are and consistently do that type of pricing gives us over the long term maintains profitability and maintains sustainability in the business.

Let's take the next question. This is coming from Martin Wahlstrom. From Redeye. You seem a bit more conservative regarding the customer outlook in Norway. And Denmark.

Denmark has previously been quite strong. Has there been a deterioration in customer sentiment recently? Or is it partly a result of challenging comparable figures?

I think if you look at the Danish market, briefly, a very fast recovery in consumer sentiment after the pandemic. Bounced up quite into a recovery phase. Think the last quarter has shown that customer sentiment following again. And I think there's concerns about unemployment and the challenges of long term effects of the pandemic that it has had on business health, which is also trickling into consumer sentiment. So what we see in Denmark is sort of a consumer combined with accelerated competition in the Danish market, we have several players that are operating and pushing really hard that we see in the first quarter and even at the end of last year. I think you have to also consider the fact that the comparatives when it came to the fourth quarter last year, 47%, has a lot to do with the customer intake. And high acquisition rates in that market. One of the dynamics of high acquisition rates is the churn of high of new customers is high. So there is an effect that would be coming from doing comparative is against a figure where acquisition rates were significantly higher, and we did see that last year. Even at the start of 2020 We saw that at the end of twenty twenty three and even the start of 2024, four in the Danish market.

Martin also writes the next question. The revised targets for contribution margin are of course solid, but do you see a risk for trade off between customer churn and contribution margin if taken to the extreme. Absolutely. I think the the challenge here is is not to try to squeeze every drop out of lemon, but to make sure that we're delivering a very, very good customer experience, first and foremost.

What we've seen is that over time, we have a great team working with both the menus, all the sourcing. We see our production teams and operations delivering high quality products and high efficiency. Over time, that takes noise out of the system and it also allows us to get better leverage when it comes to how we buy and what we buy and what we at what prices we buy. So I think what we've seen now over the last eighteen months is that we were kind of fooling ourselves if we say that the business should generate any contribution margins at 30%. We're happy to take on the challenge of making sure that we deliver great experience. We think we know we can do it at 31%. Last question for Martin. You carried out price increases in mid December. How was this generally received by customers? And I think this is coming back the same point on price elasticity, We don't hear a lot from our customers regarding the price increases. We have seen any significant changes in customer dynamics at the beginning of the year due to price. Alexander Wright from Pareto asks, a couple of questions.

You mentioned slightly higher technology costs with central function expenses. The target was 9% to 7% of sales, Could you give some guidance? Where in this range you expect to be during twenty twenty five twenty twenty six?

So it comes we don't actually talk that much on guidance when it comes to these cost for central functions. But what you could expect on the central function is not that will not move that much in 2025. We do see this shift when it comes to the shift from marketing expenses when it's comes to the design and product management that Cheffelo, as mentioned before, before, you can see that as a $6 effect all else equals. But There will be new other large movements within the cost of central functions.

All right. Thank you you for all of your questions. We've reached the end of those questions we received. You can of course reach out to us on irchefelaw.com. If you have any follow-up questions. I'd like to take the time to thank you again for joining us for this fourth quarter earnings call of Shelfalo Cheffelo. We look forward to seeing you again in May. When we share our first quarter results. Have a great day.