Welcome to the Matas Q2 report. For the first part of this call, all participants are in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press five star on your telephone keypad. This call is being recorded. Today's speakers will be Gregers Wedell-Wedellsborg and Per Johannesen Madsen . I will now hand it over to the speakers. Please begin.
Thank you, operator, and welcome everyone. Thanks for joining the call covering the second quarter of our financial year, a stable quarter in a changing market. I will go through some high-level comments and a few deep dives on the strategy, then I will hand over to Per to cover the financial results in more detail, and we will open up for questions. Overall, 1.6% growth in the business, and an EBITDA before special items of DKK 160 million, slightly down from last year due to rising energy costs, an EBITDA margin of 16.2%. Again, flat if you exclude energy cost increases. Per will get back to that. Notably, an increase in the number of transactions in Matas and a slightly lower basket.
On the strategy, we are progressing as planned. We are making good strides to realize our growing Matas Group strategy, a strategy that is all about selling more to existing customers by expanding our assortment online. In the quarter, we have introduced a number of brands. I will get back to that. We have seen online growth coming back after a growth pause following COVID. Matas Decor is growing by more than double-digit. We are seeing the highest level of customer satisfaction that we have ever recorded, both on matas.dk and in the shops.
In the shops, we have introduced a mobile POS so that the customers, they can pay directly on the shop floor without going to the cashier, which really adds convenience and allows us to sell more to the individual customer. We have added more stores in Germany. We're now at 176 stores in Germany. We have acquired Miild, a small upcoming brand, and we're working on our logistics facility as well. No new updates on that in this meeting. Of course, on ESG, energy is front and center, so we're doing a lot to reduce our energy consumption.
Overall, of course, the big question is the impact of macro volatility, and what we are seeing is still limited effects from the uncertainty, the macro uncertainty that we're seeing, both in terms of interest rates and inflation. It hasn't really impacted the health and beauty sector in the way that it has impacted many other sectors. Also we have seen higher level of stock outs than usual, but nothing that is really material, so we are not really materially impacted by constraints in supply chain. This crisis, this macroeconomic situation is obviously very different from historical precedents. The one historical precedent that we can point to is the financial crisis. What we saw in the financial crisis was a quite resilient overall beauty market with high-end beauty declining, but mass beauty growing.
Consumers still shop, and they still consume in our category, even in crisis situations. We do see some signs of impact in the business, small signs here and there. We see consumers trading down to mass business. That is not only bad, because in mass business we have a very high share of private label with the healthy margins. We're seeing customers more looking for good deals, good bargains, looking for the membership benefits that they get from Club Matas. We are seeing some customers in some geographies cutting back on spending towards the end of the month before the paycheck hits, and then spending a lot more at the front end of the month when the paycheck has been paid out. We're seeing quite big differences in geographies overall.
In areas that heat their houses with gas, and maybe doesn't have the same income level, they are impacted more, whereas city centers, they are still performing well. We're doing a lot to adapt to this situation. We have been doing a lot ever since mid-February to adapt to a new market. The main thing that we are doing is offering consumers a wider choice of products at cheaper prices or new brands that might inspire them to shop with us. That is our primary commercial response, a wider assortment, more choice for consumers. Also, putting our private label front and center to offer more value for money for consumers.
We are also really leveraging the value of Club Matas to really be right in how we time campaigns and what kind of offers we offer to the individual member of Club Matas. We're seeing steady growth in Club Matas Plus, our subscription service, and we ascribe this to the fact that it's a pretty good deal for consumers. If they shop a lot in Matas, then it's a pretty good deal to be a Club Matas Plus member. We see that once customers become Club Matas Plus members, they increase their basket size and their annual spend with us. We have also been diligent about cost ever since we started the financial year.
We have been attacking our cost base, and we are entering the second half of the year with a lower cost base than what we had originally budgeted for, and of course, that will impact next year as well. Overall, when we prioritize, we look into technology investment that will make our operations run more smoothly and allow us to be efficient both in stores and online. As I mentioned, the key thing in our strategy, but also the key response to a situation, a changing market, is really to offer more choice. We have introduced more than 65 new brands to date in the financial year, both very well-established brands that have not historically wanted to trade with Matas, but now, given our very strong digital position, they do want to be listed by Matas.
Brands that appeal to young consumers that are hot on social media, we are introducing at a higher pace and, cheaper alternatives to the, product categories that our customers, want to shop, so that there is a choice and a way to respond for every kind of customer. We also want to take the opportunity to, do a short dive into our acquisitions that we have made over the last few years. I'm happy to report that, the two main acquisitions we have made, Kosmolet, the owner of, Nilens Jord, the number one makeup brand in Denmark, and Firtal Group, the e-commerce outfit in, Aarhus, both of those acquisitions have, come out, better than our investment cases.
While Web Sundhed, our most recent acquisition, is seeing lower growth than expected due to the fact that the online market for health has not been growing as fast after COVID. There's some kind of COVID comparable here we have to take into account. Kosmolet Nilens Jord has consistently outperformed the category. We have been making line and range extensions within the brand. It's still the number one ranking brand with an even higher margin to number two. It is also a set of competencies to run a house of brands, to be a brand owner and understand both the wholesale business and the retail business. Very happy about that acquisition. Firtal more than doubled the
Just on organic revenue since the acquisition, we have been able to take out the cost synergies that we have anticipated and reinvested those synergies into more growth. It has also proven to be a good platform for making smaller acquisition, bolt-on acquisitions, to the Firtal Group. We're also very pleased that the two founders have been with us ever since the acquisition, and they signed up for another journey with us and we have a very, very strong collaboration with the founders. Even in Firtal, we have seen that the pure online market there is slower growth after COVID, but Firtal has been maintaining and in some instances winning market share. For Web Sundhed, this was all about gaining a foothold in the health market.
We have seen, as I mentioned, lower growth in that online market after COVID. It was really booming during COVID, of course, and we have seen slower growth. That has allowed us some time to do improvement to the operation to IT and logistics, and we've been focusing on that. We have a strong collaboration with our pharmacy partner as well. With that, I will hand over to Per to cover the financial results.
Thank you, Gregers. Yes, let me take you into the performance of our second quarter. Let's just focus on our revenue and margins to start out with. As Gregers already alluded to, 1.6% growth. That is very much supported by a strong growth in our online business, almost 10% growth for the quarter. Also the second point, as mentioned earlier, a strong growth on our private label, Matas Striberne. That is also when we look at our cost base, translating into slightly higher cost compared to last year. As we do more online business, part of our cost base is also the freight to our customers, and that is of course impacting our cost base.
The other second point is really our energy cost with DKK 8 million incremental cost compared to last year. Taking that into our EBITDA performance and our EBITDA margin, we're looking at 16.2% reported. If we adjust or when we adjust for the incremental energy cost, we actually on parity with last year at 17% margin, sorry. Going to our cash flow, a very strong cash flow for the first half year, almost DKK 160 million generated this year. If we compare to last year, a strong growth in terms of our cash flow. That is supported by a couple of items. In terms of our working capital, an improvement of DKK 50 million.
That is coming from last year, basically when we had to repay some of the debt we had on Social Security, VAT and taxes, which we got further extension on during the COVID crisis. The other point, as you saw in our investments, DKK 41 million of incremental investment compared to last year, and that is really our MLC investment, the land getting ready for our distribution center. Last but not least, if we compare to last year, we had the investment in Web Sundhed, which we of course didn't have this year. Which basically brings me to another big item which we have a lot of focus on and continuously are monitoring to make sure that we are as efficient as possible, and that is our inventories.
We compare that to the last 12 months revenues, and when you look at that for the second quarter, we are again improving compared to last year, where we this year have 22.8% compared to our revenues. Again, an improvement. Some of the increases is coming though from the assortment expansion as Gregers Wedell-Wedellsborg has already mentioned, and of course, that means that we need to have more stocks and inventory. Having said that, we still keep a good inventory level compared to our revenues. That basically concludes our financial results for the second quarter. I will hand over to Gregers Wedell-Wedellsborg.
Yes. On that basis, we reiterate our guidance for the year with an expected growth of 1%-4% and EBITDA margin before special items between 17% and 18%, and we maintain our CapEx level of DKK 225 million-DKK 250 million, of which about DKK 100 million is non-recurring projects that we're running. With that, I will open up for questions. Over to you, Operator.
Thank you very much. If you have a question for the speakers, please press five star on your telephone keypad. To withdraw your question, please press five star again. We have the first question from the line of Claus Almer from Nordea. Claus, your line is now unmuted.
Thank you. Yeah, hi. Just have a few questions. The first is, Gregers Wedell-Wedellsborg, you mentioned in the report this possible higher downside risk. What is the most important for Matas? Is that sales or margins? That would be the first question.
I don't know how to answer that, frankly, Claus. They are both important, and we follow both very closely. I will say that we have a strategy that we are big believers in is the right strategy. We have seen a lot of points that prove that doing the assortment expansion online is a great way to grow the business, and it might be if we're looking into tougher years, macroeconomic tougher years, then resting your growth ambitions on actually expanding assortment rather than relying on just underlying growth in your markets is a good strategy. For sure, we will make the investments necessary to execute our strategy, both in terms of CapEx and OpEx.
The reason why I'm asking is you said, you know, customers starting to chase more campaigns and discounts. You may end up in a situation where some of your competitors just to attract sales are becoming more aggressive on their campaigns. I.e., will Matas then, you know, follow the same strategy or would say, "Okay, we don't want to add too much campaign," and therefore saying no to market shares in essence?
Yeah. It's a lot more complex than that because we always monitor the market and what is going on. As I mentioned in our sort of list of responses, we are looking to how can we run more efficient campaigns. We also make sure to get support from our suppliers. I think if there's one number that you should look at in this report, it's customer satisfaction. The fact that we are breaking records online for customer satisfaction and offline, that is probably the best indicator or the best response or preparedness you can have in the face of a crisis, that you have really happy customers that use Matas as a destination, as a place to go shopping.
Even though they have less money, they will still go to Matas. They will be able to find merchandise, products at their price range. So I would really highlight that, having that kind of customer satisfaction, having the momentum on our online strategy, having the product supply, and having the people needed in our stores and for our online business to meet the Christmas quarter, I think we're quite well prepared.
Okay. Fair enough. Different topic. You showed in one of the slides that the health and beauty market, it grew through the financial crisis. At that time, Matas had actually a negative like-for-like growth. I would have thought that Matas giving, you know, the strong brand and so on, that you would be able to take market shares on certain times. How do you think your market share will trend in a recession scenario?
It's a good question. It's a different crisis from the financial crisis. It's a different animal, if it materializes, and Matas is a different business. The main way in which Matas is a different business is that we are so strong online. Again, we are way bigger than our nearest competitor. We have higher customer satisfaction. We have an infrastructure that not only allows us to grow faster than the market but also be more profitable in our online channel. Whereas a lot of our competitors have been running either at, with a loss or very close to break even, of course, they're facing more difficult, more stark choices than we do because we have proven the profitability of the online channel.
That allows us, I think, to be aggressive in the sense that for sure our aim is to capture market share online with the strategy that we have presented.
Going to your online, in Q2, you had a high transaction growth, I think it was 20%, but the basket size decreased. Will this be a negative on a profitability point of view? Because this must add a cost on your inventories and also transportation costs, or it's just insignificant?
That particular, so a lower basket online, of course, makes the individual basket a little less profitable. On the other hand, you get more scale in your operations, based on the higher volume online. These two things, they kind of go hand in hand. We also see increased effectiveness on our marketing spend, both external media and our own media. In that sense, there are a lot of ratios that work in our favor when online grows as it does, even though there is a slight, slightly negative impact from the basket size.
Okay. Just the final question. With Web Sundhed, you were to, or you are to, pay out some earn-outs in the years to come. Given your comments about the performance, will these earn-outs still be to happen, or will there be less earn-outs?
They are dependent on performance, and it's too early days. They run long into the future. As I mentioned, what we're seeing in Web Sundhed is more of a market thing that during COVID, everybody used online pharmacies as they did with many other things, but that market hasn't really grown against COVID. In a sense, it's good because there were a few things that we had on our bucket list to do with the business to make it stronger, more resilient, and more capable to grow. There is no specific impact on our earn-out expectations at this point.
The earn-out is based on the relative performance or on absolute performance?
I won't comment on that.
Okay. That was all for me. Thanks.
Thank you, Claus. The next question is from the line of Poul Jessen from Danske Bank. Your line is now unmuted.
Thank you. I have a few questions as well. You mentioned in the report that you are preparing for cost reductions. I don't know how much you can say for now, but what should we look at in restructuring costs or in forward-looking savings into second half of next year?
We don't give out a number. You shouldn't expect a restructuring cost. This has been running optimization of the business, looking into what kind of cost base do we want to run with going into the second half of the year, going into next year. What I'm indicating is that compared to when we set out and when we made the budget for the year, we have been attacking our cost base more systematically all through the first half of the year, to brace for some impact, if it materializes.
If you take out the energy cost that you had, are your cost base then even more below where you budgeted at the beginning of the year?
That's probably a little too detailed. We are splitting out the energy cost so you can track those. It's mainly to signal to you that we have tons of ideas how we can grow the business. I would say in our assessment of new ideas, we have become more critical about the payback time, you know, the requirements on return on investment, and more selective about doing fewer things with more power rather than doing a lot. It's more of a balance to balance the risk, if there is some slowdown in consumption.
Okay. About trading down towards the private label, I guess that the margins are higher on private label than branded products. Is the actual earnings contribution also higher?
On a sort of a marginal basis, it is, of course, if you look at the full P&L for own brands, then you have to take into account that you need to spend marketing and you need to have an organization to do the product development, all that. When you get more marginal sales in the private label business, it's good for the bottom line.
On the inflation on your cost side, do you have any idea what we next year should look for or what responses you have gotten from retailers in general on the cost inflation on wages?
That's a big question. There's, as you know, collective bargaining next year, and how that is going to turn out, I think, is anybody's guess. If there is one thing about this dark cloud situation, it might be that there will be more wage moderation going into the negotiations. I think one small indicator for us is that it's been easier than we thought to attract colleagues to help us in the stores for Christmas and also to help us with our online fulfillment center. Maybe there's a small indication. We're also seeing attrition rates not being materially higher than they usually are. In that sense, there are some good indicators.
Okay. Thank you.
Thank you, Poul. As a reminder, please press five star on your telephone keypad to ask a final question. We will have a brief pause while any final questions are being registered. We have a question from Mads Quistgaard from Carnegie. Your line is now unmuted.
Yes, thank you. Just some follow-up questions from my side. I will take them one by one. First of all, coming back to the signs of downtrending and the negative development in consumer confidence. I guess my question relates to Christmas season this year, which is very important for you guys. Have you decided if you will host a Black Week event this year? That'll be my first question.
We usually don't comment on campaigns at all. We have been part of Black Friday, Black Week for the last couple of years, and I think it's safe to expect that we will also be part of Black Week this year.
Okay, great. On July and sales which negatively were impacted by the rebound in travel retail, but you know, July was also the busiest month in Copenhagen Airport. Can you maybe comment a bit on the monthly development within the high-end beauty segment?
Looking at the 1.6% growth, I think it's quite important to understand that this was really created by a July that was lower than last year, and we attribute that exclusively to the fact that people were traveling. A lot of our more rural summer districts' shops didn't have the fantastic summer that they had last year. That, of course, was to be expected. On August and in September, we saw a recovery of growth as people came back from traveling. If you recall our long-term strategy, of course, this is part of the reason why we embarked on the assortment expansion because we knew there was going to be some headwinds as people started to travel again. We would lose some sales to travel retail.
It's really in our strategy to mitigate that there will be this reversal effect from more travel retail, and we will compensate with selling more assortment and getting growth from new assortment.
Okay. Can you maybe comment a bit on the product availability issues online?
It's not a big deal. We have higher stock out levels than we usually do, but it's not at a level where it's material. Please recall that our business model is very much driven by a need to have a black mascara, and you might have a preference for a brand, but we are very well trained at inspiring customers to try something new if the black mascara is out of stock. It's slightly higher than it usually is, but we don't have stock out issues that materially will affect Christmas sales or this financial year. From a supply perspective on the inventory we have, we have what we call satisfactory inventory levels. This might actually be a time in history where it's good to have inventory.
Makes sense. Okay, great. My final question, in your fiscal quarter one, you gave a number on how many brands you have introduced in the quarter. Can you give similar data for quarter two? What is the number of brands you have introduced in the quarter?
44. 45.
45 new brands.
45.
In the second quarter, yeah. Was 21 in the first quarter, right?
I can just remark that you know, the fact that we are a digital business, it makes it a lot easier to introduce new brands. We don't have to make space for the new brands in the stores. We don't have to do new refits of the stores. It's really listing the brand, getting the product description, marketing the brand, seeing if it catches on. If it doesn't catch on, you know, very limited inventory risk, and we can delist again and put something else in front of the consumer. It's a very, very different process to list brands than what it used to be in the conventional Matas, which was only brick and mortar.
Of course, it also lowers our innovation risk because then if we see things performing online, we can introduce it to the stores with much more certainty than in the old days, where you took a bit of a bet if you listed something customers knew and introduced something new and different.
Okay. Thank you.
Thank you, Mads. We have a follow-up question from Poul Jessen from Danske Bank. Your line is now unmuted.
Yes, thank you. That's just a short question on your financing. With the DKK 1.2 billion in interest-bearing debt, could you update on how the interest rates is fixed or is it variable? What kind of interest rates should we look at at the current rates going forward?
Thank you, Poul. We are not hedged in our interest rates, and that means that we will be following, if, you know, from a guidance perspective, you follow the variable interest in the market, basically the CIBOR rates. That's what we'll be looking at in the second half of the year also. With that uncertainty that actually still is in the market in terms of how that will develop.
Okay. Thank you.
As there are no further question at this moment, I will now hand the word back to the speakers.
Thank you, Operator. Thank you everyone, for joining. We'll see you next time.