Ladies and gentlemen, welcome to the Matas Q3 report. For the first part of this call, all participants will.
Why do we do that? Because this could have been a quarter where we could optimize for profit. Really on the big level, if you look at Matas, what is our challenge right now? We are one of the companies who got a boost from COVID. That's for sure. We are in a very strong position right now, and this is really the time to invest and make sure that we can translate that momentum into sustainable growth going forward in line with our Growing Matas Group. On a more granular level, the core of our strategy is to expand our assortment online and sell that to existing customers. Now we have 10,000 SKUs in an average Matas store.
We have 50,000 SKUs online, and a lot of customers don't know that. They don't know that they can get access to a much broader assortment online. For us, this is all about educating the customer that she can actually find tons of brands and new categories that we sell only online. We decided in the quarter, given that we had good sales and some financial headroom, to build awareness to the new assortment that we had introduced, specifically the professional haircare assortment that we brought online just after the summer. We also decided to invest in a branding campaign with a major Danish influencer, with the aim of making Matas more relevant to the younger generation.
Finally, we decided to pull forward the buildup of competencies and people to help us execute the strategy. Really these three areas were areas where we decided to invest and add cost in in the quarter. Anders will return to this, but some of these costs are of a one-off nature or discretionary nature. If you look at the long view, what has happened and what is interesting is that COVID gave us a boost. Obviously it gave online a massive boost, but what we saw in the quarter was a comeback for the stores. The closer we got to Christmas, the more we saw the comeback for the stores. It seems.
The fact of it is that we've actually maintained a high level of online sales, and we have seen stores coming back in a heartening way, I would say, because it is not the case that the customer has learned to shop online for two years and forgotten about the stores. The customers actually have missed the stores. They want to get back into the physical estate. For us, of course, being an omni-channel player with the stores a major competitive advantage for us, that is really good news. I just wanna add as well that actually our fastest growing store is our app, which has more than 800,000 active users. That's an interesting one to watch.
Another nugget hidden in the financial report is our Club Matas Plus. That's our paid premium membership concept. We started it less than a year ago. We started testing and we have run a few campaigns to recruit customers, and we've done some adjustments along the way. Now we've reached the milestone of 50,000 paying members within just the scope of a year, paying DKK 29 a month to get access to free shipping, tripling their Club Matas points, and then a lot of surprises that we give to the Club Matas Plus members. We think this is a significant development. We think it's very interesting for Matas. What it does and what we have seen proof of is that it increases our share of wallet with those members.
It is also, on a strategic, level, a defensive move. We all know that there will be lots of loyalty concepts coming into the market, and for us to have an affordable alternative to prime concepts is actually I think a good way of preparing ourselves for those kinds of challenges. Then, of course, very interesting for us, who are, you know, usually a transactional retailer, to see recurring revenues as part of our business model, both with subscription products but also with Club Matas Plus subscription. One to watch. Overall, this was a very busy quarter.
It was sort of the second quarter in after our launch of the Growing Matas Group strategy, and we're making a lot of strides in that area. Of course, the work with the assortment is front and center. This is what it's all about, expanding the assortment online. Pro Hair Care, dermocosmetics came online, especially Pro Hair Care had a very good start. We also launched exclusives within our existing beauty offering with Kylie Skin, an international phenomenon, and also Ecooking Makeup, one of the biggest, most successful skincare brands going into makeup with an exclusive deal with Matas.
For e-commerce, we continue to see growth online, and these are not spectacular numbers, compared to what we have seen over the last few years or actually many years, but it's actually quite an achievement to sustain that level, given that the world is a different place now than it was during COVID. For our stores, we have not been standing still. We have upgraded some stores. We have merged a couple of stores, was it, which is definitely part of our strategy to take smaller stores, merge into bigger ones, something that the customers really like. We have also tested personal consultations, so customers can book online and get a personal consultation. We know that if they book a personal consultation, that is a big basket customer.
We look forward to strengthening as well going forward. For our Matas brands, as you might recall in our strategy, we want to have a portfolio of brands and strengthen what we used to call our private label, but now consider to be our house brand portfolio. That is really now all about getting the organization in place, and starting to build the plans for that venture. Making strides there as well. At the same time, seeing that our existing in-house brands, led by Nilens Jord, the acquisition we made a couple of years ago, performing really strongly. For logistics, the biggest investment that we have coming up over the next couple of years, that is progressing according to plan.
We're waiting for the final approvals from city council, but we are on track and on the budget for that project. Finally, we have set an ambition to ramp up our efforts in corporate social responsibility. A good way to start that is by tying yourself to the mast. We really entered an agreement, a financing package, which is linked to us reaching the ESG targets that we have set out. We are busy doing baseline studies to be able to set targets for our CSR strategy and also report to you accordingly. Really a busy quarter both on the commercial side of just performing and selling, but also a very busy quarter on the strategic side.
With that, Anders, I will hand over to you to go through the financial results.
Thank you, Gregers. I would say good morning, but it's 11 o'clock, so I'll refrain from that. Revenues, I won't go into any further discussions about that. As you all know, we came out with the revenue numbers pretty early on as the trading update. Let's just start by looking at the gross margin. If you look at the gross margin, it's here, the gross margin before special items. If we look at the headline gross margin, it was actually 44.5%. As the case states here, if we take out the DKK 20 million that we got back from a VAT case we had with the Danish tax authorities, a long-running case that was finally settled in the quarter, and the settlement meant that we got DKK 20 million back.
That added some numbers. That added to the gross margin. We take that out, we had a drop in gross margin compared to the same quarter last year of 0.8%. However, it should be noted that half a percent of that, so the majority of it, is linked directly to the Web Sundhed acquisition that we made. Web Sundhed is a wholesaler. As a wholesaler, with open eyes, we entered into buying a wholesaler, and a wholesaler does have much lower gross margin. That really shouldn't be a worry.
If we look at the numbers on a last twelve month basis, and we do that on the next page, you will see that last twelve month gross margin was 44.2%, which is actually exactly the same as it was in Q3 last year. Costs, there is an increase in cost. Gregers has already mentioned it, and I'll come back to it in excruciating detail a little later. Of course, with the increase in costs and the fairly stable gross margin, there was a corresponding drop in EBITDA, again, before special items. If you look at the headline EBITDA, it actually rose. Adjusted EBIT falls with the fall in EBITDA. Free cash flow looks dramatic.
However, I will come back to it, but it should be noted that last year was an outlier. Q3 of last year, there's a lot of things that just happened to happen in the same quarter, and that made it an extraordinarily good quarter from a cash flow perspective. Last but not least, an interesting development, I think, in transactions and investment size. The way we look at this is that we see this more or less as a normalization. We think that this really reflects that the customers are acting in a more normal way with, which means that they have more shopping trips. Obviously, when they don't sort of pile together their shopping for one big trip, then you will see the basket size drop a bit. We're not too worried about that.
We're actually quite happy to see the development in the number of transactions. Now, I will not dwell a lot on these long-term trends. We've talked about them many times, and all I can say is that when we look at these numbers, what we're looking at is a world where we see growth has come up and where we see that both gross margin and EBITDA margin is actually quite stable seen in the longer term perspective. Let's dive into the costs. Obviously, this is an interesting point because the 17.2% on external costs and 10.1% on staff costs is numbers that are worth noting. Now, Gregers Wedell-Wedellsborg has already mentioned this.
It is very, very important to understand that what we chose to do in this quarter, we chose with open eyes to add costs to the business. Some of that decision was taken on the back of the fact that we got these DKK 20 million from the tax authorities. Of course, we had always counted on winning, but you never know in the real world. Well, we won the case. We felt that there was room to accelerate. Now, the sort of funny thing about this is that obviously we have to take those DKK 20 million and say it's a one-off because there was a one-off, that's a one-off. But the cost that we added on, those are discretionary costs.
We don't have to spend DKK 7 million again on the marketing campaigns and so forth. Of course, for accounting purposes, these are just part of the business. We're not pulling them out from the cost. That gives this sort of slightly funny picture that actually covers that the underlying picture is better than the one you see here. With regards to personnel and so forth, as Gregers points out, we have, again, with open eyes, gone in and said we want to be able to support the strategy. We are firmly of the opinion that by adding costs right now, we are strengthening the business going forward, and we think it's gonna come back and to benefit and Matas in the coming years. With that, we'll go to the inventories.
If you look at inventories, yes, the headline number has gone up by DKK 41 million. Look down the bottom, you'll see that as a percentage of last 12 months sales, we've actually had a slight drop in inventory levels. Even if we didn't have any other explanation, we could say, well, the business is growing obviously, there's a tendency for our inventories to grow a bit. I will just add a few comments here. If you look at what we call the existing business, we've had 58 million of extra inventory. That should be said, is a conscious decision on our part to say we wanna make sure that we have as few stock-out issues as possible.
We all know, you know, anybody who reads the papers or look at the TV or watches the web, you all know that there are supply chain issues in just about every business. Now, thankfully, Matas has actually been spared a lot of this. We've taken the decision that, you know, rather safe than sorry, so we've actually added inventories, but we've done so in those SKUs. This is really down on an SKU by SKU basis, where we've added inventories in those SKUs where we are, sorry for my French, damn sure that we'll be able to sell 'em. We're quite certain that we are not putting on what we could or what you could call dead stocks here. We are adding, but we're adding stocks that we know we can sell again. A conscious decision.
Overall, we think this is a very satisfying feature. Now finally, cash flow. Of real interest here is of course the changes to working capital. Again, I just have to underline that last year was an outlier. Q3 of last year was a special quarter, and a quarter where we saw supplier payments being lower than they usually were, and that again had to do with some timing around the time of New Year. At the same time, we also saw a more positive development in the inventory level. You shouldn't look at this and say, "My God, things are going badly." If you look back historically, you will see that this is pretty much a more normal feature. Again, not something that keeps us up at night.
With that, fairly short, I will hand back to you, Gregers.
Thank you, Anders. As for the remainder of the year, which is not long, we've decided to maintain the guidance on revenue 2%-5%. That is a broad range for a short time. I will say that it is a decision that is driven by macro uncertainty. It's not that we have seen anything in the business that has materially changed. So this is really just to perhaps err on the side of caution. Also those of you who follow us closely know that the Q4 of last year was really a special quarter with lockdowns of retail massively benefiting online sales and hampering physical store sales.
This quarter, of course, is very different with the full reopening of society, but still, high numbers in terms of, in infected, and people who are sick, who are not very sick.
No.
Which is good. Revenue is maintained, EBITDA margin maintained as well between 18% and 19%. For CapEx, we do a small adjustment of DKK 20 million up, which is mainly related to the timing of some expenses related to the MLC, but doesn't affect the overall budget. With that, I will close our presentation and we will be happy to take your questions.
Our first question comes from the line of Poul Jessen of Danske Bank. Please go ahead.
Thank you, hello to both of you. I have a few questions. First, I was thinking about the inflation that we are seeing picking up now. There are two sides of that. One is on your cost side on salaries. Can you walk through how the agreements are here for how long current agreements are running, and how much they are fixed or flexibility put into the agreements on when you have to adjust your own cost side on the salaries? That's the first one.
Yeah. Sorry. I thought maybe.
Just if you could do all the questions, Paul-
You can.
We'll do all the answers.
Okay. The second one is back on inflation on your demand side. I was wondering, as you see electricity and gas and food pricing moving up, how you look on your high-end beauty. Is that a stable business in this environment or do you see areas where you could see some headwind in the coming periods where people get lower disposable income?
What? Let me just address-
That was the two.
Yeah, that's fine. Thanks, Poul. Let me just address the collective bargaining agreements first. To be brutally honest, I don't remember quite how long they run, but they at least run for the next year. The settlement are pretty fixed, so it doesn't have any kind of cost of living adjustments, as you're well aware, that's been pulled out many, many years ago. We are talking about an underlying, and again, I don't wanna be strung up in the news tree if this is not quite correct. I think it's about 2% of underlying, and then there are some additions to, I think it's called in Danish, [Non-English content] which is a very technicality, but it adds about maybe up to 1%.
Now, however, that does not affect all of our employees because it really does only affect those that are on the minimum wage. The picture gets a little blurry, but it doesn't get worse than what I just said.
Yeah, I might add that.
But some-
Sorry?
Just to follow up. Some other industries, they see that attrition rates are moving up, that people are leaving to get better terms somewhere else. Are you seeing stability here or are you facing the same?
seeing anything that concerns us. Of course, we're seeing an uptick because there is a lot of movement in the labor market, but it's not at a level where we would say it's a cause for concern. Of course this is an area just the way inflation is an area that's new to us. This is an area where we focus more. We have just announced that we have hired a new director for HR. One of her tasks will be to make sure that the total experience of working with Matas remains competitive and attractive. We are in a good place.
If you want to work in retail, very often, Matas will be on the top of your list, so we're probably less exposed than others on just sort of the competition for salaries. I wouldn't say that it's not a cause for concern with cost inflation on labor, but it's not reached the level where we wanna flag it as a real risk. As for inflation effects on demand, well, that's the hot and cold water, right? That we could benefit in some ways by seeing inflation in consumer prices and seems to be an acceptance in the market that prices are going up on goods.
At the same time, of course, if the household budgets get strained, then there is some negative exposure to that. Having said that, I think what we have seen over a number of years and actually accelerated with the entry of Normal in the market is that our customer base is probably less exposed to that risk than maybe if you're a supermarket, or a drugstore, or price-driven drugstore. This is something we follow. We're nowhere near the level where we can say that it will affect high-end beauty or anything. We watch it closely, but there is hot and cold water in that equation.
Okay, thank you. Two additional questions. One is on Club Matas Plus. Now you have these DKK 14 million in annual revenue coming in here. Are you able to say something? Is it seen as a partly paid consumer support to your defensive move, or is it actually loss-making or profitable as a service in itself? And the second question is the household brands. Now you start adding the cost, and of course you do that, as you said you want to go in that direction. But when should we start seeing meaningful revenue coming in from these brands to be sold internationally?
Can you answer this first one?
Oh, yeah. Your first question is whether or not, seen in isolation, Club Matas Plus is profitable or not. Wasn't that basically what you were fishing for, Poul?
Correct.
Yeah.
Correct.
Yeah. I think that, you know, it's really difficult to see it in total isolation because then you have to do some kind of assumptions as to how would these consumers have acted if we did not have Club Matas Plus. Then as you all know, that becomes a little. There's a lot of moving parts. We consider it overall to be profitable, but we are also aware that you can't just measure the profitability by, you know, multiplying 50,000 by 29 by 12. That's just too simple because there are lots of buts and ifs, and then we also pay them three times as many points, and we give them extraordinary good offers and so forth and so on.
The picture gets a little muddled, but obviously, when we look at it overall, we think that this is a positive, and we think it's also a positive with regards to profitability. Again, you know, really crucial to this is that it really is something that increases loyalty. Loyalty is long-term a very good thing for profitability, and I think we should see it more in that light rather than just the dollars and cents. That's very rare for a CFO to say that.
Yeah, that's good. I like that. I really like that. Looking at the business case, it does drive significant share of wallet uplift. Just purely commercial, that is attractive. Then second, this is a good defensive move for things coming our way in maybe a few years. It's really good for us to be ahead of the curve and to welcome as many customers into a paying kind of membership and learn as we go and adjust as we go. From a defensive point of view, this is important. The last thing I would say is look at this in conjunction with our overall strategy.
What we wanna do is expand the range of products available on matas.dk, so that customers without thinking ideally go to matas.dk, use Matas to buy products that they may not have bought before at Matas at all. Club Matas Plus makes that an easy decision because it's free shipping, you get the points, sometimes you get a nice surprise, and so we think it's really a vehicle of our strategy as well. As for the household brands that you mentioned, it's too soon for us to comment on that. Right now we are in the phase of building the organizational muscle and really acquiring competence because this is an area that is new for us, and I would say we're not spending massive amounts on this.
This would not be something that you have to carve out and say, "Oh my God, this is a real, big issue." This is about, you know, bringing in a few people, to make sure that when we execute on this part, we can do it, with a safe pair of hands.
Okay. Thank you. That was all for me.
Our next question comes from the line of Mads Quistgaard of Carnegie. Please go ahead.
Yes. Hey, thank you for taking my questions. I got one on your potential expansion plans into Germany. Can you put some more words on this? I'm thinking about, you know, the timing, choose the distribution channels and so on.
Yeah. Too soon for us to comment, but you have probably noticed that we are bringing on board people who know the German market. We have seen some demand from the German market because they are familiar with Denmark, they are familiar with Matas in many ways. The Nordic stands for something that is growing of growing interest to German consumers. We think if at some point we should make a move on selling our brands outside of Denmark, Germany is probably a good bet. Frankly, Mads, this is early days. It is two people coming on board. Too soon to say anything about what the financials are, what the distribution strategy is, so on. We will get back to that as we progress.
Fair enough. Maybe then you have these plans, this quite big strategy using strategic partnerships. You have footprint in Germany today, you know, and so on. I'm just thinking, what is your appetite, M&A appetite locally? We have seen the private equity firms outside Denmark acquiring firms, for example. What are you seeing today? What is the current target pool in Denmark, and what do you see of multiple expansion?
We see we don't have an M&A strategy per se. We have a strategy that if we find or come across targets that allow us to accelerate our strategy, and we can get those at with an attractive rationale and attractive business case, investment case, then it's part of our mandate to do that. As you know, we have done it successfully with Firtal, which has really outperformed what we thought when we invested. We've also done it with Kosmolet, which has also outperformed, even given a slump in makeup sales during COVID. We do have some track record on that, on those kinds of areas. But I think that's all I can say about M&A.
You're not afraid of paying too much for the companies. I'm just guessing, you know, you have the financial firepower to do more M&A activities in Denmark.
We make a sober assessment of the targets. As always, some targets are mature targets, and that should play into the consideration. Some targets are on their way and growing. You know, it's an individual assessment. We don't have a threshold. We make an individual assessment of the opportunity and the risk and the price.
Fair enough. Then my last question is on the revenue growth in the quarter. Maybe sort of try to decompose how much the growth comes from new products and how much comes from the existing ones, just to get a sense of the drivers.
Yeah, that's a good question. I think it's too soon for us. This is really 1.5 quarters down the road of a strategy of really expanding our assortment. That's too soon. I think it's a good question to follow up on, you know, to follow or track whether our strategy works. We will take that as an input to our future reporting.
Perfect. Just one follow-up. Another question, sorry. The app you mentioned is the largest store to date. I guess that the app is included in online sales, right?
Correct. That's correct.
Yeah. Yeah.
It's.
Oh, good.
It's matas.dk desktop or mobile phone is actually still the biggest store. The app and people using the app is the fastest-growing one. Why do I mention this and not just say it's part of digital? It's because we see higher loyalty, higher conversion rates, less price comparison, more personalized marketing on the app. It's quite important to us to follow that number and follow that, you know, the adoption of the app overall actually leads to increased sales on that platform. That's why we bring it forth.
Perfect. Thank you.
There are no further questions at this time. Please go ahead, speakers.
Thank you, Operator. I want to thank you all for joining the call. Thank you. We will close for now.