Good afternoon, and welcome to our second quarter and first half 2023 webcast. This webcast will focus on our second quarter 2023 performance, and we will share with you the highlights and management's observations. Let us look at some of the highlights of the second quarter. B2B had a minus of 2% growth in the second quarter. We are satisfied to conclude that our business gained market shares in a challenging second quarter.
The EA assortment is fully integrated in AO central warehouse and, as of today, it has been introduced in four AO shops in Sjælland. By the end of the second quarter, approximately 20% of the EA assortment is sold outside the EA shops, namely from AO.dk and the four AO shops where EA is presently on the shelves.
We will continue the journey in making EA nationwide, with more AO shops adding the EA assortment during the year. The second quarter's gross margins have been kept at the same level as Q2 of last year, when adjusting for the one-off gains last year from material price increases driven by suppliers. In spite of challenging supply issues, AO has maintained a high delivery capability to customers throughout the past year.
Now, as the supply situation is getting back to normal, it is time to destock accordingly. By the end of 2023, AO has a target to reduce inventories by DKK 150 million, compared to March 31st of this year. In Q2, inventories were reduced by DKK 73 million, and the rest is targeted to come into effect during the second half of this year.
As we have stated often before, AO will, at any time, choose to secure an inventory buffer during uncertain times, rather than disappointing our customers. Let us look at the management's observations. Q2 was as challenging as expected. From a market perspective, demand slowed as expected. Although heat pumps showed continued growth in many international market not addressed by AO, we saw a sharp decline in Denmark in heat pump activity and other green products.
The decline in the sale of heat pumps is temporary, driven by the delay in the government's subsidy scheme. We believe that the market for heat pumps will pick up again by the end of Q3 to continue in Q4. Second quarter margins came in as expected, but took a hit compared to Q2 of last year, where material one-off gains from supplier-driven price increases benefited both growth and margins.
Global e-commerce continues to decrease, and general cost inflation causes private consumers to hold back new investments in house improvements. It is too early to predict the future development, but there are early signs of B2C activities getting closer to last year's level. The cost of doing business under pressure from the general cost inflation, as expected, energy prices have decreased during 2023.
On the other hand, salary increases, as well as the numerous increases of interest level, have been higher than anticipated. Although we have slightly more optimistic view of the length and the depth of the slowdown, we estimate that demand will stay low for the rest of 2023. We expect B2B projects to decrease, still gaining market shares. Margins may come under pressure, taking the overcapacity in the business into consideration. Combined, we see a higher-than-normal uncertainty in the revenue and margins.
Let us look at the market trends as we see them. The market was hurt in Q2. In general, demand was lower than last year. In the sour market, AO gained market shares. As you will recall, our ambition is to grow faster than the market year -by -year. New construction is tracking significantly lower than last year in the market. AO is observing a satisfactory project activity and pipeline.
A pproximately 30% of the AO activity is related to projects and approximately 70% to renovation and maintenance. Especially heat pumps and green products took a significant hit in the Danish market due to lower prices on conventional energy sources. We expect the heat pump activities to increase during Q4, as subsidies are expected to be reintroduced by September. Our inventory is ready to serve the expected and increased demand. W e see no or very little impact from supplier-driven price increases.
From a customer's point of view, this is promising for the future development of customer demands, since price increased significantly during 2022. From an overall point of view, we do not estimate the recession to be worse than what we see for now. The high interest rates may reduce new construction for a period of time, and customers' lower spending power has reduced demand. We expect that we will continue to see this pattern also throughout the second half of 2023. Now, Per, take us through the financial performance.
Thank you, Niels. As expected, Q2 was a challenging quarter. B2C sales index reached index 98, corresponding to index 100 when adjusting for number of sales days and negative effects. B2C came in at index 83. As Niels mentioned, private consumers has reduced investment in house improvement temporarily. Gross margin reduced from 24.5% to 23.6% in Q2. The reduction was indeed inspected and was due to the one-off gain from supplier-driven price increases back in second quarter last year.
External cost and salaries were at par with last year. We are satisfied to note that efficiencies and reductions has thus mitigated the cost inflation. EBITDA came in at DKK 92.6 million, against DKK 119.4 million last year, the reduction being a result of the lower gross profit.
Financial costs took a hit in Q2, as interest rates have increased, as net interest-bearing debt has increased, as the Swedish and Norwegian currencies continued the depreciation. Result before tax ended at DKK 57.5 million, against DKK 90.9 million last year. As said in the beginning, the result was in line with our expectations. Let's turn to the margin development, comparing Q2 2023 to Q2 last year.
The quarter saw a margin slip from 24.5% to 23.6%. As you can see from the chart, the primary reason being last year's one-off price gain from supplier-driven price increases. We saw a 0.2-point reduction from segment mix. This is reflecting the lower share of B2C sales, which carries a higher gross margin.
The distribution ratio margin took a 0.1 percentage points advantage, also due to the lower part of B2C sales, which carries a higher freight ratio. We saw a mix impact of + 0.2 percent points, which is mainly due to reduced sales of lower-margin heat pumps. Since we saw a 1 percentage point positive impact from one-off price increases last year, the margin slip of 0.9% was expected. Let's leave the margins and turn to the segment info.
The B2B segment accounted for 90% of revenues and the B2C segment accounted for 10% of revenues. The segment split was 88: 12 back in Q2 last year. In a challenging market, the B2B sales performed well and gained market shares. The B2C sales index is in line with web sales development within house improvements. Given the market development, we are satisfied with the margins and the profitability in the segment.
Finally, indirect, non-allocated cost was at par with last year. Let's turn to the investments. Please be aware that the chart does not include M&A investments. The green band in the chart shows the normal level of maintenance investments in AO. As you know, AO has invested heavily in expanding warehouses in Albertslund and Horsens during the past two years in order to prepare for the future.
In Q2, investments amounted to DKK 37.6 million. Out of this, approximately DKK 10 million relates to expanding relevant AO shops to include EA assortment in order to make EA nationwide. The 58 shops throughout the country is a cornerstone in AO's business model. This is where we meet thousands of customers each day, and where we combine the personal meeting with the flexibility of AO 365, where customers have 24/7 opening hours via app-driven opening of the shops.
Now let's turn to the cash flow and net interest-bearing debt. As expected, net interest-bearing debt increased during the quarter, as it usually does in Q1 and Q2. Gearing increased to 2.0x EBITDA, compared to 1.6x EBITDA at the same time last year.
As Niels mentioned, we have started to reduce the stocking level as supply uncertainty has reduced. Inventories have reduced DKK 73 million in Q2, and the expectation is to reduce with another DKK 75 million rest of year. As previously said, AO will always choose to have buffer stocks if the alternatives, alternative is to disappoint customers.
Payables decreased significantly, partly due to timing in payments, but also as the destocking caused a temporary lower purchase. Net interest-bearing debt is expected to be reduced during second half of 2023.
Now, let's leave the finances and turn to the outlook 2023. The strong growth in Q1 and the more challenging second quarter was as expected. We expect that sales for full year will be slightly higher than originally guided. Sales guidance is changed to DKK 5.35 billion-DKK 5.5 billion, from DKK 5.25 billion-DKK 5.45 billion. The adjustment reflects an expected revenue growth for the full year of 0-2 percentage points, and the second half growth of -4 to +1.
We expect EBITDA to be unchanged at DKK 435 million-DKK 465 million, due to a slightly higher pressure on gross profit or gross margins. Finally, we expect EBT to be unchanged, at DKK 300 million-DKK 330 million. However, as AO has decided to reassess the estimated useful life of automated warehouses from 10-15 years, this will reduce depreciations with approximately DKK 17 million in 2023, and EBT is therefore expected to end in the high end of the range.
The updated full year guidance is based on the current momentum and an assumption that sales in second half of 2023 will trade approximately at same sales index as Q2. This concludes the presentations, and we are ready to take your questions. We already received a couple.
It is asked "if we are expecting to use the mini-loads, the automated mini-loads after 15 years, or if we, at that time, are going to replace it with shuttles". Well, in a daily basis, we are maintaining and also upgrading our mini-loads and our automated warehouses. We would expect the mini-loads to run effectively also above 15 years.
Then, we are asked "if the EA assortment so far has affected our sales". I think, I hope we answered that question during our presentation b ut then, as Niels said, we have now included the EA assortment in four AO shops in Sjælland, and customers are also able to order EA assortment through our ao.dk webpage. End of Q2, 20% of all EA assortment is now sold through the AO network and web shop or in other words, outside the EA shops.
We are also asked if " how the integration in EA products portfolio into AO stores are being done, and if we have enough space in the AO stores?". I n some stores, we have the space. In other stores, we are expanding our shops where we see a significant market. This is also why we have seen and will see slightly higher than normal investments. We will be investing in our in our shops to expand them to make EA nationwide. We have not for now. We also asked if we have had to move stores. For now, we have not had to move stores, but that may also be opportunities if it makes sense from a sales and cost perspective.
We are asked about operating cash flow, that it's weak, and it has been weak for some quarters now. " When will that change?" Well, you are right. I think the, the underlying earnings have been as expected, but the cash conversion during the past quarters have been lower than what we usually see. Why is that? That's because we have tied up more money in our net working capital, mainly due to the in-buffer inventories during the uncertainties, uncertain times with supply chains. A nd also bear in mind, when our B2C shares relatively is lower than what it used to be, then it impacts our net working capital, since this segment's customers they pay cash.
"When are these going to change?" We are working hard to change that while changing our or reducing our tied-up capital and net working capital a nd the destocking of inventory is a big part of that plan. Now, when doing destocking, it will eventually benefit your cash, but what happens first is that it reduces your purchase and the financing from suppliers. But we are expecting stronger cash flow from that plan during second half of the year.
We are asked, "What is the market growth in Q2?" Well, we don't have accurate market data, but we do have semi-official market data when it comes to sanitary. We have gained a couple of percentage points market share. The market share data and the official market share data they are not official, and they are not always accurate, but w e are certain that we have gained market share.
We have a question that, "Y ou mentioned that there were positive signs within B2C and that you expected it to recover." Well, we are seeing in the trade that we are getting closer to last year's level, so it's not more academic than that. The index that we are showing in Q2 and prior to Q2 is pretty much aligned with the index we see from the web sales within house improvements. They are, bear in mind, that the house improvement web sales are trading significantly lower than other parts of the web universe. Now we are just seeing that it's early days, as we said, but it seems as if we are getting a bit closer to last year's level.
We asked if "We could quantify the synergies of EA?" It's not a number that we disclose, but I can talk into where we have synergies. Now, when having a central warehouse, we are able to run a shop with a lower level of resources than if you are also an inventory function in each shop, w e are also able to increase sales. That is the most significant synergy. When we bought EA, they had their business throughout seven or eight shops.
Now we have a nationwide shop net to make available for EA assortment. We are looking forward to invite carpenters throughout Denmark. That will be the main synergy. We have initiated to harvest those synergies. We have an exciting journey ahead of us.
We have a question that, "I noticed that Sanistål decided to close down stores after Ahlsell acquisition. Could you talk broadly about the competitive situation?" Well, in Denmark, we have a fierce, competitive environment. We won't comment on Sanistål's decision, but what we can say is that in AO, the shops are absolutely cornerstone in our business model.
"Please expand on some cost items", we are asked. " Should we expect full salary inflation impact in Q3 or increased cost already in place in Q2?" Well, if you manage to run your cost base equal to last year, you have already included efficiencies, since the inflation has been pretty high in salaries and other cost items. One should not expect our cost base to increase. That's not our plan.
We have a question also related to EA, to the rollout nationwide, "If it will happen through opening new stores or it is simply by putting their products into existing stores?" It will pretty much be to put EA products into our existing stores. We are very, very satisfied with our shop outlets and where we are placed. There may be a couple of new shops, but it will mainly be in existing stores. Some of the stores are ready to host the EA assortment and others will need an expansion. Where we make the expansion, we do it based on a normal business case decision.
We are asked if "it's correct that we will pay more tax because the depreciation time is now longer for the automated warehouses and pre-tax profit is higher." No. In Denmark, you have accounting depreciations, and then you have appreciation accounted as the tax regulations requires them to be calculated, and those are unchanged. The tax will be unchanged.
I think that concluded the list of questions. Thank you for, for the many good questions and your activity out there. See you next time in when we disclose Q3, the 26th of October.