Welcome to the Matas Annual Report for the financial year 2022, 2023. For the first part of this call, all participants are in listen-only mode. Afterwards, there will be a question-and-answer session. To ask a question, please press 5 star on your telephone keypad. This call is being recorded. I'll now hand it over to the speakers. Please begin.
Thank you, operator, welcome everyone to the call covering our financial year. I am joined by Per Johannesen Madsen, our CFO, and I'm Gregers Wedell-Wedellsborg, the CEO of Matas. We're covering a year that has been remarkably stable and full of progress, despite a lot of volatility in our environment. I will give my comments to the financial year and the strategy. I'll hand over to Per to cover the financial results, I will return to remark on the guidance for this financial year, we will take questions. As for the year, revenue growth of 3.3%. Looking back to the last normal year, if you will, after a year of...
years and years of lots and changes, we are seeing a Matas that has been able to grow, by around 6%, compared to the year 2018, 19, the last normal year, if you will. The story, about this year is that we have managed to grow on top of, a couple of spectacular, years during COVID, where, we grew, outsized. We managed to sustain that growth and actually build on that growth, despite, the consumer confidence crisis that we have seen, in this past year. As we look at the quarters, we had a strong finish to the year, in terms of sales. More than 8% growth coming from both the stores and online, in the last quarter of the financial year.
The main numbers, we see revenues coming in at almost DKK 4.5 billion revenues, EBITDA before special items of DKK 809 million, an EBITDA margin of 18%, and a free cash flow of DKK 423 million. I think what is notable from this chart is that the growth is driven by an increase in the number of transactions, and we consider that to be really healthy growth. It is happy customers shopping more frequently with Matas. As for the strategy, we consider this past year evidence proof that the strategy that we are pursuing, a strategy of assortment expansion online, is actually starting to show results.
It is that strategy that is allowing us to grow despite macro uncertainty and volatility, and despite being up against a very good couple of years for the last two financial years. I will dig deeper into a couple of the highlights on the strategy and give you some flavor on that part. First and foremost, our growth recipe is having both a strong store network and a very strong online offering. Expanding the offering online, we have added more than 8,000 new products in the last year, more than 180 new brands in the last year, and that has allowed us to sell products that we have never sold before in Matas, that the customer don't usually shop in Matas, more than DKK 100 million.
That number in itself is maybe not significant, but it is proof, in our opinion, that our members, they do actually want to shop new stuff with us, stuff that they haven't normally shopped with Matas. This goes across categories. We see it especially within health, that more and more customers buy into our health offering. Looking at our business model and our club also, what we're seeing again and again, and have seen for the last few years, is once a customer starts shopping both online and offline, her annual spend with Matas grows quite significantly. Omni-channel customers, they have an annual spend that is more than double of customers that shop in only one channel.
At the same time, we're seeing growth in the number of members and customers who are shopping in both channels. This is our recipe, this is our business model. This is what allows us to grow faster than the market and also be more profitable than the market, because we can offer services to the consumer that no one can actually really match. One of the components of that is what we call connected retail. Connected retail is the ability of our store colleagues to offer the entire range, the entire online range, to customers shopping in the physical store.
More than 200,000 orders that were made on matas.dk, they were actually fulfilled and picked in store, if you will, with no shipping from the central warehouse to the store. Of course, that is, from an economic point of view, really attractive. It is also very fast from the consumer point of view. We also see the mobile POS or the mobile cashier allowing customers to pay on the shop floor rather than standing in line to go to the cash register.
16% of transactions are actually fulfilled via mobile POS, giving the customers a better experience and obviously allowing us to save cost in operations. This is a pure coincidence, that the number is the same as in the assortment expansion, but more than DKK 100 million of revenues generated in the store from products that are not on the shelf in the physical store. 12% growth on that and an area that we will continue to shine a light on. The big news for us for today, and news that's been long in the waiting, if you will, is that we have signed an agreement to construct a 32,500 sq m logistics center to open in the spring of 2025.
ld what is going to be the biggest Matas store, if you will, allowing us to further expand our range, allowing us to ship to the entire country, and allowing us to fulfill day-to-day, which is part of our promise to the consumer. And of course, it also gives us cost savings and efficiency gains, and they are actually more attractive now with the wage inflation picture that we have seen over the year
Finally, this is an area, or this is a facility that will be powered in part by solar panels as well. It is not fully self-sustained in terms of energy, but when the sun shines, it will be fully run on solar energy. Our international business is still in very early days. We set out in the last financial year to be in 25, or sorry, 75 stores in Germany to test the interest of the German retailers and consumers. We exit the year with 225 retail partners selling Matas products in German stores. We see the reaction of the customers and the feedback from the retailer being positive.
We consider that test to be validated, even though the numbers are not great. This is a great way to have exposure and get leverage on our private label brands. Also, we started just a few months ago, selling in Sweden and Norway. We have not backed that launch with any kind of significant marketing. What we're seeing is members coming in in both countries, and we're seeing quite notably a very high customer satisfaction. This is really our key objective, to make sure that our offering, that what we deliver to the customer actually works for the customer. The worst thing you can do is add a lot of marketing spend onto something that doesn't deliver happy customers.
Also of interest, some of our top-selling brands in those markets are our own label brands, so it's not just competing to sell third-party brands, it's our own brands that are performing well in those two countries. With that, I conclude my remarks on the strategy and overall for the year, and I will hand over to Per to cover the financial results.
Thank you, Gregers, let me take you through the full year performance of Matas this year. Looking at our revenues, we're looking at a growth, as already mentioned, of 3.3%. Looking at the gross margin development, you see here on the graph, a minor decline in the gross margin. Actually, if we adjust in last year, as you might remember, there was a special VAT case last year, which gave us an income of DKK 20 million. Adjusting for that, we actually see a slight increase in our margin, going from 44.8% to 44.9%. That is actually in a year, as Gregers already mentioned, with a lot of volatility in the market.
Looking at our cost side, yes, we have an increase in our, in our cost base, that actually reflects, as already mentioned earlier, that we have been investing in our, in our international expansion, both Germany, but also, as you saw recently in Norway and Sweden, which has added some extra cost. Like everybody else, we've also been impacted, of course, by the increase in energy costs. That all translates into a EBITDA growing from last year, although with a margin slightly below, which is linked to the investment in, as I just mentioned, in our international expansion. From a free cash flow perspective, we're generating above DKK 400 million free cash flow this year.
If we compare to last year, the big moving parts is really around our working capital and taxes interest, where we last year had a lot of payments coming out of the COVID. All the deferred payments on taxes, you know, holiday, allowance, et cetera, et cetera, was paid last year, which we, of course, didn't see this year. In addition to that, we have this year actually invested, as already mentioned, in the land, so we were ready to build the new logistics center. Acquisition last year, as you remember, was the acquisition of Websund, which of course, we didn't do again this year. Overall, very healthy cash flow of above DKK 400 million for the year.
part of that is actually also driven by the fact that we are managing our inventories very tight. As you can see, we are closing the year with an inventory at 20.3%, compared to the last 12 months' revenues, a decline. As you will see, quarter by quarter, we've been able to really keep a focus on our inventories and keeping them as in a moving trend in a very positive way. On the right side, you will see. We've been able to do that with really focusing on our existing business, optimizing that, allowing for all the assortment expansion, all the growth areas, actually, to increase our inventories to be able to fulfill all the new assortment that we are delivering to our customers.
I'll hand over to Gregers.
Yes, I will cover the guidance for this financial year. We guide for 3%-6% revenue growth for the financial year. We have a guidance of around 17% for the EBITDA margin before special items. That includes the OpEx investments, if you will, in driving our growth strategy and driving our assortment expansion strategy. We will have CapEx, rather large CapEx, for next year, and of course, that is mainly due to the fact that we take the first part of the investment in our logistics center. DKK 250 million is the first part of that ticket, invested in the logistics center.
We will continue to invest in IT, software development, and also in refurbishing our stores as well. That is our guidance for the financial year. We have listed the assumptions, of course, one big question for us and for all of us is, what is the overall market going to look like? What I just want to highlight is that our growth strategy and our long-term growth strategy does not necessarily rest on whether the market grows outsize. It really is up to us to execute on the assortment expansion strategy. We consider that to be a quite robust growth strategy, even in a market that might turn out once again to be volatile.
With that, we conclude the presentation part of the call, and operator, we are ready to take questions.
All right. If you do wish to ask a question, please press 5 star on your telephone keypad. To withdraw it, please press 5 star again. We'll have a brief pause while questions are being registered. The first question will be from the line of Sebastian Grave from Nordea. Please go ahead. Your line now be unmuted.
Yeah, good morning, Per and Gregers, thank you for taking my question. I have a couple. I'll take them one by one. First, Gregers, it sounds like you said that you have been, if I'm not mistaken, you've been introducing 8,000 new products over the last year. To me, it sounds like you have quite a number, and you have to up this number quite a lot over the coming years to meet the CMD assortment expansion target of 100,000. What is the assortment expansion journey from here? Is it still a prerequisite for you to introduce 100,000 new products to meet the 2025, 2026 targets?
Yeah, thank you for that question, it allows me to be quite specific. We don't have a target in and of itself to have 150,000 SKUs. We can, with the facility that we have in Humle-co, we can actually get to that size if we want. For us, this is really about finding the assortment, the new assortment, that works for our customers, that rotates sufficiently fast for us to be a good business. If we can deliver on our growth ambitions without reaching 150,000, that's fine and dandy for us. Long term, we believe that assortment expansion is a journey that has just begun.
What we have learned over the last year is really, one thing is introducing the assortment, another thing is to make sure that it is well known, that the awareness is being built amongst consumers, that consumers actually get a preference for buying the new assortment with us. In a sense, what I'm saying is, we can actually reach that number without necessarily going to 150. If we need to go to 150, we can do that.
Okay, thank you for clarifying. Very clear. In your EBITDA margin guidance, you state that the assortment expansion and international growth will weigh around one percentage point year-on-year. I mean, I guess given that you are in both an early phase in the assortment expansion and the international growth strategy, that this is going to be a drag on profitability for the years ahead. Could you maybe give us some more color on the sort of the margin journey from here?
I can give you next year, we can give you that our long-term guidance of reaching between 17% and 18%. That's still what we believe in and what we see.
Mm-hmm.
In the year 2025, 2026, we're beginning to get the benefits from our new logistics center, and we're seeing new categories mature. To give you flavor, what happens if you introduce a new category, you have to back it with more marketing because people are not used to buying this and finding this as Matas, and you probably don't have the SKUs quite the same terms with suppliers because we are a new retailer of some categories. In the initial phase, it will be gross margin, even EBITDA margin dilutive. As Pierre just mentioned, if you looked at the last year, we've actually managed to keep our gross margin flat in real terms.
That is, I think, an indication that we have a lot of levers to pull, and we're pulling all those levers, both in terms of our own brand assortment, which we've really strengthened over the last few years, and that, of course, is very positive for our gross margin. Also finding out what is the right way to introduce new categories to the market. Do we need to do big TV campaigns? Is it better to do email? How can we use the stores to really build awareness around those categories?
I mean, given that the logistics center will be up and running 2025, spring 2025, I guess what you're saying, it's fair to assume that the margin guidance will be back and loaded?
Well, you can make, you can make the assumption, we're quite firm on our long-term guidance. We're of course, firm on our guidance for this year, there is a lot of discretion on the guidance in the year between what, how much do we want to push, how much do we need to push, how much traction do we have on, or momentum effect do we have from categories that we have already launched over the last few years? I think it's too soon to make any real interpolations.
Okay. Okay, thank you so much, Gregers.
Thank you, Sebastian. The next question will be from the line of Nas Christa from Carnegie. Please go ahead. The line now be unmuted.
Thank you. I will take my questions one by one. First, go to depreciation, amortization, and net financials, and also your tax rate for the coming year. Can you put some comments on that? Thank you.
Yes, thank you for the question, Nas. On depreciation, it is really an impact of the investments we made over the last couple of years, and also this year, where we do incremental investments, as Greg already talked about in the whole omni-channel setup. In our web, our e-commerce business, we do it on our app, we do on our connected retails, and also the way we invest in our stores. That whole thing with the rules around depreciation, where we are a little bit more aggressive on some of the investments, on the IT elements, actually drives an increase in our depreciation in the last quarter of roughly DKK 16 million-17 million.
That is what is reflected in the full year numbers also, when you compare to last year. In terms of the tax rate, roughly the same. What you'll see in fourth quarter this year is actually the adjustment for the full year. When we do the final tax update for the year, there is minor movements, and thereby, we do the final sort of tax assessment for the year, and that's what's reflected in fourth quarter, which makes fourth quarter look a little bit more tax heavy than it actually is. Overall, the tax rate will going forward, roughly be in the same range as we close this year.
What about net financials?
Net financials, you've seen an increase. That's just a reflection of the interest increase we've seen in the year. Looking forward, we are looking into determining a hedging or a policy around that. Actually, we have a policy, but when we actually initiate the hedging going forward. Right now, we're looking into hopefully decreasing interest rates, and we'll benefit from that, of course, as we move forward.
Very clear. Thank you for that. I have a question on the CapEx. I remember on the Capital Markets Day, you gave this CapEx number between DKK 1 billion-DKK 1.3 billion going towards 2026. I guess, first of all, the timing, maybe it's including 2027 now, are you still expecting to use DKK 1 billion-DKK 1.3 billion in CapEx over the coming years?
We will end up in the high end of that range with the decision to build the Matas Logistics Center and build the size that we have chosen to build in Lynge. Five-year period.
Okay.
Around DKK 1.3 billion.
Yeah. It's including 2027 now, right?
No.
The period.
The guidance is until including 2025, 2026, going back for five years.
Okay.
Yeah.
Okay. Fair, fair. Good, my final question is on Sweden and Norway. Pretty good start, but obviously also a slow start. When do you expect to do this marketing push in these countries to get a stronger foothold in the market?
I think that's something that you'll know once we decide rather than give advance warning. frankly, Nas, it's been all about, does our setup allow for a good customer experience? Is there a good response? What kind of brands are they buying? What kind of difference can we make in those two markets? it's all about learning how to operate in those two markets before we make any decision.
Just to follow up, are you satisfied with sort of the feedback that you're receiving right now?
Yeah. I think the one number that we're really looking at is customer satisfaction. And with customer satisfaction, using the NPS, Net Promoter Score methodology, in the mid-70s, that's really good. That's the kind of customer satisfaction you usually only get if you've been in the market for a long time. I think that's a very encouraging response.
Okay. Thank you so much.
Thank you, Nas. As a reminder, please press 5 star on telephone keypad to ask a question. The next question will be from the line of Paul Lawson from Danske Bank. Please go ahead. Your line will be unmuted.
Yes, thank you. I have a few questions as well. Coming back to the logistics center, now you say DKK 525 million-DKK 550 million. Can you remind how much did you spend last year?
This is, we spent around DKK 80, DKK 40, DKK 48?
DKK 48 million.
Yeah, DKK 48 million.
Forty-eight.
Last year. That's included in that number.
Yeah.
The total investment, including.
An assessment of next year.
Yeah.
It will be about DKK 225-DKK 250, also, in 2024-2025.
Yes. That's correct.
When I go back to the Capital Markets Day, I think it was said it was 25,000 sq m, now you say 33. Have you scaled it up?
We looked at different options for what kind of size to build from day one, if you will, and we got an attractive offer to build a little more space than we had originally anticipated. I think the original proposal was 29,000 square meters. We see opportunities for some consolidation of some of our secondary or tertiary warehouses that we can also consolidate into Matas Logistics Center. We're building a slightly bigger box, and we think with the ambitions that we have for the assortment expansion, we think that's a good case to build slightly bigger than maybe we need in the very short term.
Will that change, your EBITDA impact, which you guided earlier, that you now reduce the number of sites more?
No, that's. I think we haven't updated with the new salary negotiations that have been going on, but obviously, with salaries increasing in the range 5% to 6%, the case for automation becomes better. With the scale that we are having now and the momentum we're having on sales, of course, the case also becomes better. There might be other stuff that drags in the other direction, you know. Again, it allows us some strategic freedom to decide how we wanna invest our margin. Do we wanna go faster on assortment expansion? Do we wanna build more aggressively awareness in Denmark to the new assortment? Do we wanna push the button on more expansion outside of Denmark?
Okay. finally, on the logistics, can you help us on how the depreciations will impact the coming years, based on the plans now?
On the logistics center?
Yeah, the logistics center will.
Yeah, on the logistics center.
That will only impact from 2025, 2026 onwards, when we take it into operation, so to say.
Okay. How much will it be raised in that event?
Um-
We'll get back to that.
I'll come back to that, Jay. I just need a little calculation on that, Paul.
Okay. You say on the guidance for 2023, 2024, that you see less price increases than you saw last year. I think when we discussed the numbers throughout 2022, 2023, you several times stated that there were more or less no price increases last year, and now you say less this year. What were the price increases impact from that last year?
This is the, on the margin, part, that's on the energy prices, right, that you're commenting?
Okay. I thought your comment was on revenue growth guidance, as well as should be on the prices you took on your products.
No. We, in our assumption for the revenues, just to be clear, we see modest price increases overall. There's a lot of difference between different categories, so some ingredients do become more expensive, and on the other hand, some become cheaper. In our assortment expansion strategy, you know, our way of responding to inflation is to offer customers a wider selection of affordable products as well. When we say as a basis for the 3%-6% growth, that it is a modest price increase, that is, on average on the total assortment.
Okay. Just to confirm, that is same modest price increases, below the level of 2022, 2023?
Correct. On the EBITDA margin impact, that, our assumption is for the energy prices not to have the same kind of spike that they had in the fall of last year.
Okay. The final one for, from me is on net working capital in the fourth quarter, where I think the main surprise was in the payables. Is that a temporary one?
Uh-
Is it normalization?
It's a little bit of a combination, Paul. I think when we look at third quarter, if you can recall that, we had a very.
Yeah
... positive development in our working capital, which was a lot of payables, which was actually postponed into fourth quarter, and that's what you're basically seeing. There is minor movements in fourth quarter, where, you know, we're ending the year with payables slightly below what I would say the, what it should be from a normalization perspective, which we're carrying into next year, which will be a positive.
Okay. Perfect. Thank you.
Thank you, Paul. As there are no further questions at this moment, I'll hand it back to the speakers for any closing remarks.
Thank you very much for joining the call. Again, for us, this has been a very stable year in an unstable environment. It has been a year that has served as proof that our assortment expansion strategy is working. With those two components, it gives us the confidence to push the button on the big investment to build the Matas Logistics Center, which will be the platform for online growth for years and years to come. Thank you very much for joining the call today.