Rival Viva Wine grows and outperforms Anora's Wine segment

Translation: Original comment published in Finnish on 4/2/2024 at 1:41 am EEST.

Viva Wine Group, listed in Sweden, is Anora's main competitor in the Wine segment and operates mainly in the same market, providing a good benchmark. Viva has on average outperformed Anora in terms of both growth and profitability. Although the profitability of both has been hit by the weak SEK in recent years, the profitability outlook for this year is clearly positive.

Viva Wine Group in Sweden Anora's main competitor in the Wine segment

Viva Wine Group is a wine vendor listed in Sweden at the end of 2021. Approximately 80% of its revenue comes from the Swedish, Finnish, and Norwegian markets and 20% from online sales. The company does not currently break down its business by country, but Sweden is by far its largest market. Viva is Anora's main competitor in the Nordic monopoly markets. Viva is already the market leader in Sweden (27% market share) and, according to the company, it also became number one in Finland last year (21% market share), ahead of Anora. In Norway, Anora remains the largest wine company, while Viva is much smaller (6% market share). For Anora, the weight of Finland and Norway is somewhat higher than for Viva and it also has operations in Denmark, but no corresponding online business. In terms of revenue, both are roughly in the range of 350 MEUR, with Anora slightly below and also below Viva last year. The sales structure is very similar as well, i.e., over half of the sales comes from importing and distributing wines of third parties but own wine brands also play an important role.

The graph shows Viva’s development in recent years. Revenue growth has been supported by acquisitions and increased demand due to the COVID pandemic in 2020-21, but organic growth has also been strong. The decline in demand after COVID and the weakening of the SEK and NOK in particular have put pressure on Viva's margins. In terms of profitability, and despite a significant decline in margins, Viva has outperformed Anora's Wine segment over the past two years, which has suffered from currencies as well as the loss of partnership agreements and the poor performance of its Danish operations.

Viva Wine Group’s ambitious growth targets

Viva Wine Group has the following financial targets:

• Growth: Organic growth of at least 4% for the Nordic segment, i.e. the Nordic monopoly markets, and of 10-15% for the eCom segment. In addition, Viva plans to grow through acquisitions, as it has already done so far.
• Profitability: adj. EBITA margin 10-12 %
• Indebtedness: Net debt/EBITDA max. 2.5x
• Dividend distribution: Aim to distribute 50-70% of profit.

In the rather flat Nordic markets, we believe that an organic growth target of over 4% is ambitious. However, Viva has shown that it can regularly take market share and achieve its growth targets. Last year, for example, Viva grew 6% in its Nordic segment and 5% in volume, despite a shrinking market. It has been able to gain further market share in Sweden, where it is already the largest player, as well as in Finland and Norway. Anora, on the other hand, has been losing share, especially in Sweden, and has said that it will focus more on profitability than market share in the short term, which we believe will give Viva further growth opportunities. Viva itself commented in its Q4 webcast that it expects the good growth trend to continue. Anora's long-term growth target for Wine (until 2030), announced in the fall of 2022, was just under 4% per year, which seems difficult to achieve, especially after last year's challenges.

In terms of profitability, the main challenges in 2022-23 have been the weakening of the SEK and NOK, as well as slow-moving sales prices. However, Viva commented that it expects price increases and, on the other hand, some stabilization of currencies to lead to an improvement in margins in Q2'24 (Q1 was still weaker). For Anora, margins already started to improve significantly in Q4 and should continue to improve in early 2024. Viva commented earlier last year that, without any currency challenges, they should reach their target margin of 10-12%, whereas last year's level was only 7%. Therefore, barring any further negative impact, we expect a substantial margin improvement this year. For Anora, we also expect a clear margin improvement in the Wine segment and forecast the adjusted EBITDA margin to increase from below 4% last year to 7%, still below Viva's level.

The graph below shows the margin development of Anora's Wine segment and Viva Wine's Nordic segment in recent years. It should be noted that Viva's margin is EBITA and Anora's is EBITDA, so they are not directly comparable and a similar margin in the graph means that Viva's margin is comparatively better.

Viva's balance sheet and dividend targets are exactly the same as Anora's and relatively typical given the low investment needs of the businesses.