Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Matas first quarter 2019 to 2020 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, Tuesday, the 20th of August, 2019. Now, I would like to hand the conference over to your speaker today, the CEO, Gregers Wedell-Wedellsborg. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to our presentation on the first quarter of the 2019-20 financial year. With me on the call are CFO, Anders Skole-Sørensen, and Elisabeth Toftmann Klintholm, Head of IR and Corporate Affairs. I will start out by offering some high-level comments on the quarter and then briefly cover our strategic progress and the initiatives launched this quarter. Anders will take you through the presentation of our first quarter results. Finally, I will comment on the outlook for this financial year. Please note that this quarter is impacted by the implementation of IFRS 16. We will, however, comment on the numbers on a pre-IFRS 16 basis, unless we mention otherwise, and that is in order to be able to make comparisons and explain developments compared to last year. We look forward to taking your questions at the end.
Please turn to slide number two. The results for the first quarter of 2019-20 financial year was fully in line with our expectations, and thus our guidance for the year remains unchanged. Revenue for the quarter came in at DKK 876 million compared to DKK 844 million in the same quarter of last year. This is an increase of 3.8%. The increase came from the acquisition of the Firtal Group, which closed mid-November 2018. Like-for-like growth declined 1.2% in the quarter, compared to a 1.1% growth in Q1 of last year. The decline in like-for-like can be fully explained by two less trading days in the quarter. Our assessment of the effect of the loss of the two trading days is a decline in the like-for-like sales of between 1.25% and 1.75%.
Therefore, our assessment is that the underlying growth remained in positive territory when we adjust for those two trading days. We maintained our gross margin at 45%, but as you will note, our EBITDA margin before special items was 13.7%, down from 16.4% last year. The cause of this is our digital business. It is now a business of significant size, and it is in a rapid growth phase. The decline in EBITDA margin was driven by margin dilution from the shift towards online business and added costs to fuel further digital growth. These investments reflect our commitment to the goal of becoming the undisputed market leader within the health and beauty space. Overall, the results of the quarter fully in line with our own expectations, and we maintain the guidance. Please turn to slide number three. The highlights of the quarter.
As mentioned, results in line with our own expectations. It's been a busy quarter. We've had progress on all strategic tracks. I'll return to that. Online sales, of course, pop out. It triples to 10.9% of total group sales, up from 3.7% a year earlier. Of that increase, I take particular notice that we had very strong organic growth on matas.dk, 67% growth on the basis of against growth of 50% in Q1 of last year. We also introduced our new store concept, Matas Life, at the end of the quarter. We have eight Matas Life stores operational. Four of them are fully in Q1. Towards the end of the quarter, we acquired Kosmolet, the owner of the leading makeup brand, and added that makeup brand to our own brand portfolio.
Like for likes, 1.2% lower. Again, marginally positive when we adjust for calendar effects and the two trading days. Gross margin, we continue to see a stabilization in the gross margin. Cost development is in line with expectations and the increase in cost is driven by the inclusion of Firtal Group in particular, but also marginally by the acquisition of Kosmolet. Margin contraction, as mentioned, we see that as well due to the dilutive effect of higher online growth and the addition of resources to be able to continue and drive digital growth. Again, guidance for the financial year unchanged. Please turn to slide number four. We measure our long-term success towards three KPIs. First is our ability to lift customer engagements across all channels and all media. Second, this is a growth strategy.
We aim to grow revenue, and we think in the current retail environment, the way to secure earnings is to grow revenues over time. We are on track with all three ambitions for the Q1 2019-2020. We maintain our guidance, and we are pleased with the progress that we're making on the strategic level. Please turn to slide number five. These are our five pillars on the strategic framework. I'll just comment briefly on two and go deep dive on three of them. First, Live Our Purpose is all about revitalizing the Matas brand and making sure that we're relevant for future generations as well.
This has not been a big focus area for the quarter, except I'll mention that we relaunched our legacy brands, the Stripes, our product brand, the Stripes that every Dane knows in new packaging, which is very much in part of the whole brand of Matas, and we've seen very good reception on that relaunch. We have an initiative, Change How We Work, and that actually covers two distinct areas that we work on. First is a cost program for our legacy business so that we can run our legacy business more effectively and efficiently. Second, it is about building digital competencies and adding digital competencies and renewing the culture of Matas to be able to address the changes in the market. Please turn to slide number five. I will double-click on the digital developments in the quarter.
This has been in many ways a breakthrough quarter online. Of course, the acquisition of Firtal fully in the numbers drives that we have tripled online revenues compared to same quarter last year. Firtal is in the number of the accounts from mid-November, 13th of November to be exact, last year, and the share of total turnover now is 10.9% in Q1, up from 3.7%. Again, I would like to take special notice that matas.dk, our own omnichannel proposition is growing at 67% and now constitutes 5.9% of turnover in Q1. There are a lot of sources of that growth.
It has been a strategic priority for us from the outset of this strategy to drive digital growth, and we now see a real payoff on the resources that we are adding to our digital organization and the resources that, or the attention we're devoting to that particular pillar of our strategy. This feature, just to give a few examples, we have ramped up our subscription business model, offering subscription on vitamins and supplements as a new way of selling. We have also started testing out giving advice to customers online. One of the things we're famous for in the physical stores, we now use all the knowledge and skills of our materialists on the online platform as well to be able to migrate that brand positioning to the online space as well.
Second, we have begun preparing a new online fulfillment center to be able to accommodate rapid growth in online for years to come, and in particular, be able to accommodate fast delivery times. This is one of those areas where we have been investing and will be investing to make sure that we can deliver day to day to the entire country. As some of you will know, we have for about a year now been doing same-day delivery to the greater Copenhagen area, and this is something that we see even more potential in. We opened a new fulfillment center, which apart from delivering a better customer experience, actually will improve the unit economics of our e-commerce business as well.
Finally, I would like to point out that our marketing transition from marketing in the conventional channels, the leaflet and TV, has again this quarter taken a step up with even more social media presence, social media reach, and a general increase in the marketing, which is all about inspiring and teaching our great customers about our online opportunities. We have added and will continue to add resources to online. We now have a fully outfitted organization with all the skills needed to drive growth, and we are seeing, in particular, very good payback on our digital marketing efforts. Something that we become better at every quarter, including using all the data from Club Matas to drive effective marketing online. Please turn to the next slide. Slide number seven.
As for the stores, the main event in the quarter is that we have at the end of the quarter, we now have eight Matas LIVE stores. Our idea of what a future Matas store should look like. We have also worked with the store network. As you know, we believe that down the line, we will have fewer physical stores and much more online sales. We haven't given out the exact split because that's really up to the consumer how fast that development goes. We are actively working with the store network, including negotiating with the landlords.
It's not just what the stores look like, it's also how we operate the stores so we can operate them more effectively. It is also about introducing newness to the stores, new brands, and making new brand launches to be the most attractive partner to all our suppliers, something that they are very keen to see. Matas LIVE, we now have a total of 10 stores. After the quarter, we opened four in the old financial year, four openings in Q1, two openings in July. We are still in a test and learn phase. We are learning a lot from the stores that we have opened. With only four stores fully in the quarter, it's too soon to share conclusions about the effect of the upgrade.
I can tell you that we will continue upgrading stores in the second half of the calendar year, and we will expect to open and modernize 16 stores before the end of the calendar year. As for the store network, we have merged two stores into one in Ringkøbing. We've closed two stores, which is pretty much business as usual. We have opened one new location. As for the brand side and the proposition to the customers, we have very successfully introduced the U.S. cult brand IT Cosmetics. We introduced it in a new way, starting online and then migrating into the stores. This is a launch method that we expect to see much more in the future. We also introduced the French brand Caudalie, which is a green brand, one of our areas of interest and one of the growth areas that we see.
We rolled out some of our recent introductions that have performed well into more than 100 new doors, including brands like ZARKOPERFUME, Filorga, green brands like [Lain], Raz, [Spe], Miild, just to give a few examples. Please turn to slide number eight. The quarter, of course, was also marked by the acquisition of Kosmolet. We acquired Kosmolet and closed Kosmolet on 11th of June. Kosmolet is the number one makeup brand, not just the number one Danish makeup brand, but the number one makeup brand overall in the Danish market. It is a brand that has been doing exceptionally well and continues to do exceptionally well.
We aim to ramp up product development for Nilens Jord, which is the name of the brand owned by Kosmolet, and increase distribution of the brand and take out all the synergies that we can from now owning the company, being able to cooperate more closely with the company. I will note that we have as part of our strategy that Nilens Jord is to be sold not only in Matas but also in other channels. We have seen no negative reactions from external customers. We continue on Nilens Jord's growth path, both in our own channels and in other channels. With a selective view, we won't sell it anywhere to anyone. We will be careful about where we distribute the brand. Please go to slide number nine, and I will turn over the speaker role to CFO Anders to go through the numbers.
Thank you, Gregers. On the next page, you can see that we are showing the overview of the numbers. As already mentioned by Gregers, we have a growth of 3.8% overall revenue, while our like for like, as also mentioned, was slightly down by 1.2%, although we believe that this is the result of the fewer trading days rather than the underlying. If we look at the category performance, we have beauty, which is around 70% of sales, increased by 1.9% in the quarter. High-end beauty increased by 5.3%. That's roughly half of beauty, or 36% out of 70. While mass market beauty, which is the rest of 34%, actually declined slightly by 1.5%.
Firtal increased by a dramatic 33.5%, you have to take into account here that is primarily caused by the fact that the Firtal numbers are now in there, they didn't used to be in there, Firtal is primarily in the vital area. The Matas segment decreased sales by 8.9%, with the reason primarily, in our view, being seasonal sales of some products that were low because, as I think you all know, this first quarter, the weather wasn't quite as glorious as it was last year. Matas Life decreased marginally by 0.6%. If we look at gross margin, it was fairly stable, 45%, down from 45.2% in the same quarter last year. As we've mentioned a few times over, of course, when we see very high growth in online sales, it does tend to put a bit of pressure on the margin.
It's also fair to say that we are showing some progress in persuading our suppliers to make up for some of that short term. If we look at gross profit, it increased by DKK 12 million or 3.2%. Of course, this was driven by the higher sales. Other external costs rose primarily due to the Firtal acquisition. Firtal is now in the numbers, obviously it wasn't in the numbers for the first quarter last year. In addition, the costs that were already mentioned by Gregers that we have put on to grow future sales. When it comes to staff costs, they also rose due to Firtal and due to increased online activity.
Overall, and this is very important to underline, overall costs were in line with our expectations, and I'll revert a little more to the cost development in detail later. EBITDA before special items was at DKK 170 million, which is against DKK 133 million last year. Adjusted profit was DKK 72 million compared to DKK 90 million last year. Of course, the decline was primarily due to the increase in costs. Number of transactions declined by 5.7%. Part of that decline, again, had to do with the fact that there were two calendar days missing, two sales days missing. Of course, that reflects in the number of transactions. At the same time, we saw a continuation of the trend we've seen over many quarters now, which was that the average order size grew this time by 4.8%. With that, please turn to slide number 10.
On slide number 10, you can see the more long-term developments in revenue growth, gross margin, EBITDA margin, and also a bit about the level of inventories. If we look at revenue growth, we can basically see that the picture we've seen over the sort of the last number of quarters is fairly stable. We have seen that the decline, underlying decline in growth has stopped, but we are looking at a revenue growth which is fairly flat. As the gross margin picture is more or less the same, the decline we saw in 16/17 and even back to 15/16 has stopped, and we are now seeing a fairly stable development in the longer-term trend of our gross margin. On the EBITDA margin, however, we are not seeing the same picture yet. We are seeing a decline.
As we know, we are changing the setup or changing the mix of the business with the online growth and some of the costs we're adding there. There we are still seeing a decline in spend. As to inventories, there is, as you can see, an increase in inventories in Q1 compared to the same quarter last year. However, very much primarily all of that is related to the fact that we have both Firtal and Kosmolet now in the numbers, both adding some inventories to the overall level. It's not really the underlying old Matas business that is growing its level of inventories. If you please turn to slide number 11. As I promised, coming back and with a little more detail concerning the cost development.
As you can see here, we have other external costs which were up by DKK 20 million year-on-year. Of course, that's a fairly big number. However, please note that DKK 11 million of that increase was due to operating costs from the Firtal Group and to a much more limited extent from Kosmolet now being in the numbers. Obviously, they weren't in the numbers last year. Then there's DKK 3 million of transaction costs in the numbers, primarily, but not totally, but primarily related to the acquisition of Kosmolet. Finally, there are increases, which you could say is from the older Matas business. Primarily, that's DKK 7 million, primarily driven by the increase in activity on our online business. Growing 67% does carry a bit of cost. Also because we have increased our marketing spend in Matas.
If we look at the staff costs, they were up by DKK 8 million year-on-year. There you have to look into or just note that non-recurring costs fell by DKK 5 million compared to 2018/2019, so we got a bit of a positive from there. Those DKK 5 million in 2018/2019 were related to executive changes in Matas. There were DKK 5 million of new staff costs, again, primarily related to the acquisition of Firtal and a slight effect from Kosmolet. There were also DKK 8 million of higher staff costs from the Matas business. Again, primarily driven by the very strong growth in our online business and also some increase in our headquarters costs to support the online growth and things as social media presence, among other growth before the initiative. With that, please turn to slide number 12. In slide number 12, we're looking at cash flow and working capital.
Cash generated from operations, including changes to working capital, increased by DKK 66 million. Working capital increased due to the increase in the level of inventories. There were other movements as well, but they sort of leveled out, so the net effect was the increase in inventories. Then there was, of course, a negative effect because the cash generated by the business declined. CapEx increased by a lot because of or by DKK 16 million, and that was because the investments that we put into Matas Life. There's a new warehouse or sorry, a new workshop that we talked about, the fulfillment center that Gregers had mentioned, and some online investments. Then, of course, a big chunk from the acquisitions. There's DKK 123 million, which is related to the Kosmolet.
Obviously, with result of all that was a fairly steep drop in free cash flow by DKK 200 million to DKK 130 million negative. With that, please turn to slide number 13. As Gregers has already mentioned, and I'm sure you are well aware, Matas has implemented IFRS 16, the leasing, from the 1st of April, our new financial year. IFRS 16 primarily impacts the balance sheet due to the fact that the store leases, which have previously been classified as operational leases, are now included in the balance sheet. On the P&L, there is an effect on EBITDA, on EBIT, and also on earnings before tax. There is also some technical impact on cash flow as well. Of course, in reality, it doesn't change our underlying cash flows.
EBITDA is positively affected as leasing costs from the operating leases are now recognized as depreciation and interest costs, rather than previously as leasing costs or RECs related to other external costs. EBIT is actually lowered marginally as a result of increased depreciation, earnings before taxes is also affected by increased interest. These are basically timing differences. It doesn't show any underlying changes. Please turn to slide 13, and I'll hand you back to Gregers for a look at our strategic progress.
Thank you, Anders. Before we go to Q&A, let's have a short look at the financial targets for 2019/20. The targets are stated in the annual report, meaning that the full year guidance is that we expect overall revenue growth of between 3.5%-6.5%. We expect underlying revenue growth of between 0.5%-2.5%. That is the like-for-like growth. We expect an EBITDA margin before exceptional items of between 14%-15%, and that is before the effect of IFRS 16. We still expect CapEx of between DKK 200 million-DKK 220 million. As for the guidance, we've stated a few tailwinds and headwinds to drive the different parts of the business. For revenue growth, I think that the main tailwind is that we have really been successful in getting our omni-channel, the two channels that we have to support each other.
We can talk about that in more detail. The stores do actually support our online growth, and our online growth actually supports traffic to the stores, working against the general trend of people shopping less in stores and more online. That is, of course, the headwind on revenue, that we still see the structural change in retail overall, a decline in footfall to the high street and shopping centers. We have also seen an increase in price competition over the last few years. We don't expect that price competition to be any lighter over the coming years. Actually, we are both bringing ourselves that the price competition is here to stay, and this, of course, we are taking into account. As for the total top-line revenues, it is driven by the full-year effect of the Firtal acquisition.
We also get some help for having one more trading day in the year overall. The two trading days that we lost in this quarter will be coming back in one more. Of course, we are looking selectively at opening new stores. We don't have an ambition to open many new stores, but there are some underserved areas that really deserve a Matas in their proximity. As for top-line revenue and the acquisition of Kosmolet, it's only a marginal effect because we are the main sales channel for Kosmolet, so Kosmolet's sales will be eliminated in the accounts. As for top-line revenue headwinds, we have stated quite clearly, and we continue to state that we have a very short patience with underperforming stores.
It's very inexpensive for us compared to other retailers to exit stores, and we use that flexibility actively in negotiations with landlords, but also when we see stores that we don't see a future for, we have no romance surrounding the stores. We close them and serve the community with either fewer stores or serve the community online. As for online competition, we see a gradual increase in online competition at all times. This is expected, and it's well within the expectations that we have on our strategy overall. As for the EBITDA margin before special items, we continue to work very closely with suppliers to secure both innovation, exclusivity, and also funding for campaigns and price reductions to be competitive. Suppliers do understand the new reality of the market, as Anders mentioned, and we have a very close and strong working relationship with the suppliers.
We continue to work on promo effectiveness, particularly using the data from Club Matas to be able to promote Matas in a more one-to-one fashion, which gives a better payoff on the marketing dollars we spend. As for tailwinds, we do see, as I mentioned, digital organization now is fully operational and is really delivering results. I would like to add that the digital growth that we're seeing and expect to see is also driven by the fact the rest of our organization, of course, supports the online business as well. EBITDA margin will also be positively affected by the Kosmolet acquisition, which goes straight to the bottom line. Given that the revenues are eliminated, this will affect our EBITDA margin in a positive way. As for the headwinds, EBITDA margin, we are making less money on our digital business because it's in a growth phase.
Fortunately, we do see positive scale effects. We have a lot of initiatives to bring down the margin dilution, including the new fulfillment center. The short-term margin dilution from online is inevitable, and we do that with our eyes open because it is a very important part of our future. As for CapEx, we have increased CapEx this year to fuel investments in the store network, based on what we are learning on the Matas Life launches, and also to drive online growth and IT to make sure that our long-term financial ambitions are met. With this, we have concluded our presentation, and we now turn to the Q&A. I will hand it over to you, operator. Thank you.
Thank you so much. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question and the hash key to cancel your request. The first question comes from the line of Alexander Edelman from Nordea. Please go ahead.
Thank you, and congratulations for your earnings. My first question is, maybe you can put some color on the like-for-like growth online compared to offline? Your online is growing 67% coming from matas.dk. It seems like your offline like-for-like growth must be significantly down in this quarter. That's my first question.
Yes, it's correct that the offline like-for-like is down, obviously. It is affected by the calendar days, which is actually quite important, that we mentioned many times. Also to add a little bit more flavor, I think last year you all remember that the month of May was pretty much a summer month. You could argue that this year was more like a winter month, and that did actually affect our traffic to the stores and our sales in Matas in particular and sunscreen. I don't want to put too much emphasis on that, but it is part of the picture of this quarter. I think the key takeaway is that we do not see an underlying acceleration of the shift from stores to online when we adjust for the calendar effects and seasonal effects overall.
We still see the same kind of structural change from stores to online, but no significant development in this quarter.
Okay. Thank you. My second question. Q on Q, your Firtal share of online is slightly down, now accounting for 5%, whereas matas.dk is flattish Q on Q. Does that mean that flattish or Firtal is seeing a flattish to negative growth, or how does that work?
No. Firtal is growing as expected and delivering according to the plan and ambition that we have for Firtal.
Okay.
We don't give out the specific growth numbers for Firtal at this point in time.
All right. My third question, if that's okay. Your number of transactions declined 5.7% despite you now have Firtal in the numbers. I was thinking if you could put some color to that.
Okay. Thank you for asking that question. When we give out transaction numbers in the quarter report, that excludes Firtal. It's only Matas. We will make a change when we have Firtal fully in the numbers and the comparisons fully in the numbers. At this point in time, we thought it was more transparent to say Matas DK. From Q3, you will see transaction comparisons including Firtal.
Okay. Thank you. It's more like a like-for-like basis, this transaction number to some extent.
Yeah, exactly. That's right.
All right. Thank you.
Thank you so much. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. The next question comes from the line of Claus Almer from Nordea. Please go ahead.
Thank you. Yeah, also a few questions from my side. It seems only Nordea is going to ask questions today. The first question is about all the new initiatives that have been implemented in the stores. Gregers, what works and what doesn't work? That would be the first question.
We actually discussed quite a lot whether we should start disclosing the effect of Life. To be frank, to disclose on the basis of four stores fully in the quarter, I think would be more misguiding than guiding. We are learning a lot. What we do now is a very systematic collection of customer feedback, looking at the numbers. With the first stores that we have made, we've also made a lot of experiments to see what works, what doesn't. I think you should look at those first stores as prototypes that we're learning from. If you want to draw any conclusions, the conclusion that you can draw is that we will continue rolling out the store format. We are very pleased with the overall direction of the stores.
As in any retail case, the first stores you open, there's tons of learnings, both with regard to how the store is fitted and the assortment and how we operate it, and we really want to see that learning curve come through before we start sharing numbers.
It was more like your own impression, maybe not numbers, but what are you mostly pleased by? Maybe could be another way to ask the question.
I look at the stores through my own eyes, and I look at the stores through the eyes of the customer. When we get reactions from the customers, they're very pleased with the layout and the overall impression of the store. The fact that we have managed to actually make a route for the customer that wants advice, which is very key for us to be able to offer advice easily to those who want. We have also offered a route through the stores for those customers who just pop in and buy one thing, and want to exit fast. I'm really pleased with the fact that the stores probably accommodate more types of customers and more kinds of shopping behavior, if you will.
Okay. Coming back to our last question regarding the like-for-like growth in the physical stores. When I do the math, it seems to be down like 7%, 8%. I know it's a little bit tricky as these four fewer stores is excluded from your like-for-like growth. Is that roughly the right underlying like-for-like growth?
We can't immediately recognize that number.
Okay. Let me ask in another way. The like-for-like growth you are reporting, in that number, you're taking out those stores you have taken out, and I guess those stores are also underperforming. That's the reason why they've been closed down, right?
It depends a little on what you're looking at. The stores that were closed in the quarter are very small stores.
Small.
Yeah.
Okay.
On top of that, there are places like Ringkøbing, where we had two stores, we moved and opened a new store, which is just one store, like we did with Hägersten last time around. That also can create a few hiccups in the numbers. Obviously you are right in saying that with 67% growth online and overall a negative like-for-like growth, there is a decline in the physical stores. There is a decline in physical stores.
That must be substantial, meaning it must at least be 5% decline, right?
We haven't changed the definitions of the like for likes. There's no effect of us having included some stores and not others in the like for like. You are right in saying this quarter, and you have to take note that there is probably reinforcement from the trading days and from weather in the quarter. As I said before, we haven't seen an acceleration in the development of the stores compared to what we've seen historically.
Okay. Therefore, there's no a larger share of stores that is loss-making.
No. That's an important point. There's no sudden appearance of a red tail, and it's a fair point to ask. That is not the case.
Okay. Regarding your full year guidance, obviously it's only first quarter, so there's a long way to go. You stated that the profitability is down by DKK 23 million, and yes, you will get some extra profit from Kosmolet rest of the year. The guidance mid-range is reflecting a flattish EBITDA, i.e., that rest of the year, your EBITDA must be flattish to meet mid-end of guidance range. Is that the way to think about it?
I think it's fair to say, Claus, that we don't go into a discussion as to the details of the guidance. I think it suffice to say that given what we've seen and given the way we look at the future, we are reiterating our guidance. By reiterating our guidance, of course, we are pointing to a belief that the numbers that we will see for the rest of the year will make that guidance or make that expectation be fulfilled. We're not going to go into a technical discussion about exactly what has to happen in the different quarters.
No, sure.
This is not exactly the biggest quarter of the year.
I agree. Just doing the math, I'm not talking about Q2, three, and four, but the last nine months.
We're not disputing your math. The math is-
Right. Okay.
I would like to reiterate.
Sorry?
I would like to reiterate, Q1 is perfectly in line with our own expectations.
Yeah.
No material changes in the business to make us consider the guidance.
Sure. That's why I'm asking that we should think about the underlying performance of Matas coming from a larger decline in profitability in the first quarter, it will be more flattish rest of the year. There's no extra cost or less extra cost in certain quarters, something like that we should take into account.
No. If we had such events, we would have included them in the guidance or it would be non-recurring costs or extraordinaries, we of course can't.
No.
I think that there will be extraordinary.
It is not extraordinary costs. It might be marketing costs, it might be payment from your suppliers. There could be a number of different cost items.
Yeah.
None of those we should be aware of?
I think the one thing that we can say, and I think that's worth reiterating because we are talking about margin dilution from online. When we open our new fulfillment center and as we climb the learning curve on our new online fulfillment center, we do see an improvement in the unit economics of our online business. That's not the major part of the business, but it does help us in that margin dilution respect. As you mentioned, Kosmolet will also come into the numbers. A very stable business that we are very pleased with seeing the performance of Kosmolet.
Sure. Okay. Just my final question regarding IFRS 16 and your cash flow statement. In which lines does IFRS 16 impact the numbers?
Are we talking about cash flow?
Yes.
There's an impact on the numbers, of course. I only have it in Danish here, just to make it very difficult. No, I have the underlying information in Danish. Of course, the result before taxes is impacted by it. Then there are impacts on depreciations as well. Then there are impacts on financial costs.
Okay.
If you need, we have a further explanation. There's a note.
Note one.
Yeah, there's a note in note one, that's not particularly the cash flow number. That's just the overall impact on free cash flow. We can go through that in more detail with you offline if you want.
Perfect. Thanks.
Nothing strange about it, but as you know, it does take particular depreciations and the interest cost.
Okay. Thank you.
Thank you so much. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. The next question comes from the line of Alexander Edelman from Nordea. Please go ahead.
Yes. Only Nordea today. Just my last question. I guess, you have that just EBITDA margin of 13.7 in this Q1, and normally your Q2 and Q4 is in line or lower than that. I guess Q3 is going to be the make or break it for your EBITDA margin. Is that correct or can you put some color to that? Thanks.
I think we missed the key words.
You're talking about the importance of the third quarter?
Yeah. It seems like Q3 is going to be the quarter where you're going to bring in most of your-
Q3 is always the most important quarter when it comes to profitability because it's the Christmas quarter and the Black Friday and all that. Obviously, as you know, that is a quarter where our margins normally will peak because costs don't rise in line with sales. Yes, it's fair to say that a great third quarter will be very beneficial for us and a horrible third quarter will not be so beneficial. That's not surprising given that we are retail.
Yeah. No, it's just Okay. All right. Okay. Yes. Thank you.
Thank you so much.
Thank you. Nordea.
Thank you so much. There are no further questions at the moment, so please speakers go ahead.
Well, we will say thank you for your time today. As usual, we are on phones and can take a follow-up with Anders regarding the whole IFRS cash flow movement. Just let me know. If anyone else has anything they would like to follow up on, we are available to reach out. Thank you and have a very nice day.
Thank you so much. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please continue to stand by.