Earnings Call: Q1 2020

Aug 20, 2019

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Marta's First Quarter 2019 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. I must advise you that this conference is being recorded today, Tuesday, 20th August 2019. And now I would like to hand the conference over to your speaker today, the CEO, Gretel Riedel. Please go ahead. Thank you, operator, and good morning, everyone. Welcome to our presentation on the Q1 of 2019 2020 financial year. With me on the call are CFO, Anders Vogelstandsen and Elisabeth Glintal, 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 process progress and the initiatives launched this quarter. Anders will then take you through the presentation of our Q1 results. And finally, I will comment on the outlook for the 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 2. The results for the Q1 of 2019 2020 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 876,000,000 compared to 844,000,000 in the same quarter of last year. This is an increase of 3.8%. The increase came from the acquisition of Fiatel Group, which closed mid November 2018. Like for like growth declined 1 point 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 2 less trading days in the quarter. Our assessment of the effect of the loss of the 2 trading days is a decline in the like for like sales of between 1.25% and 1.75%. And 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. And the cost 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 dilution, margin dilution from the shift towards online business and added cost 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. So overall, the results of the quarter fully in line with our own expectations and we maintain the guidance. Please turn to Slide number 3. 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 tripled to 10.9% of total group sales, up from 3.7% a year earlier. And of that increase, I take particular notice that we had very strong organic growth on MAGES DK, 67% growth on the basis of against growth of Life. At the end of the quarter, we had 8 Matrix Life stores operational. 4 of them are fully in Q1. Towards the end of the quarter, we acquired Cosmo Lips, the owner of the leading makeup brand and added that makeup brand to our own brand portfolio. Like for likes, 1.2% lower and again marginally positive when we adjust for calendar effects and the 2 trading days. Gross margin, we continue to see a stabilization in the gross margin. Cost development is in line with expectations and driven the increase in cost is driven by the inclusion of theater group in particular, but also marginally by the acquisition of the cost of this. 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. And again, guidance for the financial year, unchanged. Please turn to Slide number 4. So we measure our success our long term success towards 3 KPIs. 1st is our ability to lift customer engagements across all channels and all media. 2nd, we 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 'nineteen, 'twenty. We maintain our guidance, and we are pleased with the progress that we're making on the strategic level. Please turn to Slide number 5. This is our these are our 5 pillars on the strategic framework. I'll just come briefly on 2 and go deep dive on 3 of them. First, Live Our Purpose is all about revitalizing the Matrix 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 day knows in new packaging, which is very much in part of the whole brand of Matrix and we've seen very, very good reception on that relaunch. Also, we have an initiative change how we work and that actually covers 2 distinct areas that we work on. 1st is cost program for our legacy business, so that we can run our legacy business more effectively and efficiently. And second, it is about building digital competencies and adding digital competencies and renewing the culture of measures to be able to address the changes in the market. Please turn to Slide number 5. I will double click on the digital developments in the quarter. So this has been, in many ways, a breakthrough quarter online. Of course, the acquisition of FioreTel fully in the numbers drives that we have tripled online revenues compared to same quarter last year. Fiatel is in the number of the accounts from mid November, 13th November to be exact, last year. And the share of total turnover now is 10.9% in Q1, up from 3.7 percent. Again, I would like to take special notice that METAS DK, our own omnichannel proposition, is growing at 67% and now constitutes 5.9% of turnover in Q1. And 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 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. 2nd, 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. And as you 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. So 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. And 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 our great customers about our online opportunities. We have added and will continue to add resources to online. We are now 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 ClubMatters to drive effective marketing online. Please turn to the next slide, Slide number 7. As for the stores, the main event in the quarter is that we have at the end of the quarter, we now have 8 Macy's live stores. Our idea of what a future Macy's 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. But we are actively working with the store network, including negotiating with landlords. And then it's not just what the stores look like, it's also how we operate the stores so we can operate them more effectively. And 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. Memphis Live, we opened. We now have a total of 10 stores. After the quarter, we opened 4 in the old financial year, 4 openings in Q1, 2 openings in July. We are still in a test and learning phase. We are learning a lot from the stores that we have opened. With only 4 stores fully in the quarter, it's too soon to share conclusions about the effect of the upgrade. But 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 in before the end of the calendar year. As for the store network, we have merged 2 stores into 1 in the handkerchiefing. We've closed 2 stores, which is pretty much business as usual, and 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. And as well, the French brand Caudalie, which is a green brand, one of our areas of interest in one of the growth areas that we see. And we rolled out some of our recent introductions that have performed well into more than 100 new doors, including brands like SAKO perfume, Piloga, green brands like Laine, RAS Fee, Mill, just to give a few examples. Please turn to Slide number 8. The quarter, of course, was also marked by the acquisition of Cosmolett. We acquired Cosmolett and closed Cosmolett on 11th June. Cosmolett 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 Nyingzior, which is the name of the brand owned by CosmoDebt and increase distribution of the brand and take out all the synergies that we can from now owning the company and being able to cooperate more closely with the company. I will note that we have as part of our strategy that MeetingSure is to be sold not only in Matrix but also in other channels. And we have seen no negative reactions from external customers. We continue on New Azure's growth path, both in our own channels and in other channels. But 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 9, and I will turn over the speaker role to CFO, Anders, to go through the numbers. Thank you, Gregor. On the next page, you can see that we are showing the overview of the numbers. And as already mentioned by Gregor, we have a growth of 3.8 percent 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 the 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, 36% out of the 70%. While mass market beauty, which is the rest of 34%, actually declined slightly by 1.5%. Vital increased by a dramatic 33.5%, but you have to take into account here that, that is primarily caused by the fact that the VIAZAL numbers are now in there, and they didn't used to be in there. And VIAZAL is primarily in the vital area. The material 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 Q1 weren't the weather wasn't quite as glorious as it was last year. And Medicare decreased marginally by 0.6%. If we look at gross margin, it was fairly stable, 45 percent 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. But it's also fair to say that we are showing some progress in persuading our suppliers to make up for some of that. If we look at gross profit, it increased by DKK 12,000,000 or 3.2%. Of course, this was driven by the higher sales. Other external costs rose due to the primarily due to the Firsal acquisition. Firsal is now in the numbers, obviously, it wasn't in the numbers for the Q1 last year. And in addition, the costs that we already mentioned by Kreger that we have put on to grow future sales. When it comes to staff costs, they also rose due to peer test 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 €170,000,000 which is again to €133,000,000 last year. Adjusted profit was €72,000,000 compared to €90,000,000 last year. And of course, the decline was primarily due to the increase in cost. Number of transactions declined by 5.7%. Part of that decline, again, had to do with the fact that there were 2 calendar days missing, 2 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 after tax 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 inventory. If we look at revenue growth, we 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 'sixteen, 'seventeen and even back to 'sixteen, 'sixteen 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. So there, we are still seeing a decline in that. 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 of primarily all of that is related to the fact that we have both FTL and customer debt now in the numbers both having some inventories to the overall level. So it's not really the underlying old maintenance business that is growing its level of inventory. If you please turn to Slide 11. As I promised, I'm coming back with a little more detail concerning the cost development. As you can see here, we have other external costs, which were up by €20,000,000 year on year, and of course, that's a fairly big number. But however, please note that €11,000,000 of that increase was due to operating costs from the Fearsale Group and to a much more limited extent from CosmoLex, now being in the numbers. Obviously, they weren't in the numbers last year. And then there's CHF 3,000,000 of transaction costs in the numbers, primarily but not totally, but primarily related to the acquisition of Crokim. Finally, there are increases, which you could say is from the older, the Meitas business, primarily that EUR 7,000,000 primarily driven by the decrease in activity on our online business, growing 67% does carry a bit of cost, and also because we have increased our marketing spend in Matrix. If we look at the start costs, they were up by €8,000,000 year on year. There, we have to look into or just look at nonrecurring costs fell by €5,000,000 compared to 'eighteen, 'nineteen. So we got a bit of a positive from there. Those $5,000,000 in 'eighteen, 'nineteen were related to executive changes in 'eighteen. There were $5,000,000 of new start costs, again, primarily related to the acquisition of PSL and a slight effect from customers. But there were also DKK 8,000,000 of higher staff costs from the Macy's business, again, primarily driven by the very, very strong growth in our online business and also some increase in our headquarter costs to support the online growth and things as social media presence, among other growth supporting initiatives. With that, please turn to Slide 12. In Slide 12, we're looking at cash flow and working capital. Cash generated from operations, including changes to working capital, increased by £66,000,000 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 and that effect was the increase in inventories. And then there was, of course, a negative effect because the cash generated by the business declined somewhat. CapEx increased by a lot because of or by €60,000,000 and that was because of the investments that we put into Matrix Life, the new warehouse or some new workshop that we talked about, the fulfillment center that Tejas mentioned and some online investments. And then of course, a big chunk from the acquisitions, the CHF 123,000,000 which is related to the customer there. And obviously, with the result of all that was a fairly steep drop in free cash flow of €200,000,000 to €130,000,000 negative. With that, please turn to Slide number 13. Now as Greg has already mentioned, and I'm sure you are well aware, Maestas has implemented IFRS 16 leasing from the April 1, our new financial year. Now 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 and L, there is an effect on EBITDA, on EBIT and also on heavy support. There is also some technical impact on cash flows 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 REX related to other external costs. EBIT is actually lowered marginally as a result of increased depreciation, and earnings before taxes is also affected by increased interest. But these are basically timing differences. It doesn't show any underlying changes. Now please turn to Slide 13, and I'll hand you back to Becca for a look at our strategic progress. Thank you, Anders. And before we go to Q and A, let's have a short look at the financial targets for 20 nineteen-twenty. 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% to 6.5%. We expect underlying revenue growth of between 0.5% and 0.25%, that is the like for like growth. And 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 200,000,000 and DKK 220,000,000. 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 omnichannel, the 2 channels that we have to support each other. We can talk about that in more detail, but 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 in online. And 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. And 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 bolstering 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 Fiat acquisition. We also get some help for having 1 more trading day in the year overall. So the 2 trading days that we lost in this quarter will be coming back and 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 mattress in their proximity. As for top line revenue and the acquisition of Cosmolev, we don't expect it's only a marginal effect because we are the main sales channel for Cosmolev. So Cosmolev'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. We have been very 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 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, very closely with suppliers to secure both innovation exclusivity and also funding for campaigns and price reductions to be competitive. And suppliers do understand the new reality of the market, as Anders mentioned, and we have a very close and strong working relationship with suppliers. We continue to work on promo effectiveness, particularly using the data from Club Mates to be able to promote Mates Mates in a more one to one fashion, which is both gives a better payoff on the marketing dollars that we spend. As for tailwinds, we do see, as I mentioned, digital organization now is fully operational and is really delivering results. But 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 CosmoLit acquisition, which goes straight to the bottom line. And given that 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. And fortunately, we do see positive scale effects, and we have a lot of initiatives to bring down the margin dilution, including the new fulfillment center. But short term margin dilution from online is inevitable, and we do that with our eyes open because it is very, 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 Amexus Live 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 and A. I will hand it over to you, operator. Thank you. Thank you so much. And 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 major DK. So it seems like your offline like for like growth must be significantly down in this quarter. That's my first question. 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. And 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. This 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 materially in particular. And so, traffic to the stores and our sales materially in particular and sunscreen. So 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. So we still see the same kind of structural change from stores to online, but no significant development in this quarter. Development in this quarter. Okay. Thank you. And then my second question. So Q on Q, your fiscal share of online is slightly down, now accounting for 5%, whereas Matrix DK is flattish Q on Q. So does that mean that FiatL is seeing a flattish to negative growth? Or how does that work? Viatal is growing as expected and delivering according to the plan and ambition that we have for Viatal. We don't give out specific growth numbers for Viatal at this point in time. All right. And then my third question, if that's okay. So your number of transactions declined 5.7% despite you now have a Fusil in the numbers. I was thinking if you could put some color to that. Okay. Thank you for asking that question. When we give our transaction numbers in the quarterly report, that excludes DHL. So it's only measures. We will correct it all. We will make a change when we have FSL fully in the numbers and the comparisons fully in the numbers. But at this point in time, we thought it was more transparent to say negative EBITDA. So from Q3, you will see transaction comparisons including PSL. Okay. Thank you. So, it's more like a like for like basis, this transaction number to some extent. Yes. All right. Thank you. Thank you so much. And the next question comes from the line of Klas Almer from Nordea. Please go ahead. Thank you. Yes, 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 has been implemented in the stores. I guess, what works and what doesn't work? That will be the first question. Yes. We actually discussed quite a lot whether we should start disclosing the effective life. But to be frank, to disclose on the basis of 4 stores fully in the quarter, I think, would be more misguiding than guiding. So we are learning a lot. We get a what we do now is a very systematic selection 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. So I think you should look at those first stores as prototypes that we are learning from. And if you want to draw any conclusions, the conclusion that you can draw is that we will continue rolling out the store format. So we are very pleased with the overall direction of the stores. But 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 on 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 it could be another way to ask the question. I think that the I look at the stores through my own eyes, and I look at the stores through the eyes of the customer. And when we get reactions from the customers, they're very, very pleased with the layout and the overall impression of the store and 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. But 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. So, I'm really pleased with the fact that the stores probably accommodate more types of customers and more times of more kinds of shopping behavior, if you will. Okay. Then coming back to Alexander's question regarding the like for like growth in the physical stores. When I do the math, it seems to be down like 7%, 8%. And I know it's a little bit tricky as these 4 fewer stores is excluded from your like for like growth. But is that roughly the right underlying like for like growth? We can't just we can't initially recognize that number. But I mean okay, let me ask in another way. The like for like growth you are reporting, in that number, you have taken 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. I mean these are very the stores that were closed in the quarter are very small stores. And then Okay. But And on top of that, then there are a things like Rheinkweeping where we had 2 stores and then we moved and opened a new store, which is just one store like we did with Hefew last time around. And that also gives a little it can create a few pickups in the number. But obviously, you are right. I'm saying that with 6% to 7% growth online and overall a negative like for like growth, there is a decline in the physical growth. And there is a decline in the growth that is And that must be substantially meaning it must at least be 5% decline, right? Well, 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. But 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. So as I said before, we haven't seen an acceleration in the development of the stores compared to what we've seen historically. Okay. And therefore, is no a larger share of stores that is loss making, the tail of stores are still No, no, no, no. That's an important point. It's not a bit there's no sudden appearance of a red tail, and it's a fair point to ask. But that is not the case. Okay. And then regarding your full year guidance, obviously, it's only Q1, so there's a long way to go. But you stated that profitability is down by 23,000,000 dollars And yes, you will get some extra profit from Cosmolette rest of the year. But 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's a discussion as to the details of the guidance. I think it's suffice to say that given what we've seen and given where we are the way we look at the future, we are reiterating our guidance. And 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 feasible. Full. But we're not going to go into a technical discussion about exactly what has happened in the different quarters. No, sure. I mean, this is not exactly the biggest quarter of the year. I agree. I mean, yes, just doing the math and not talking about Q2, Q3 and Q4, but the last 9 months, we're not disputing your math. The math is Right. Okay. Just because, sorry? I would like to reiterate, Q1 is perfectly in line with our own expectations. No material changes in the business to make us consider the guidance. Sure. And that's why I'm asking that we should think about the underlying performance of Matrix coming from a loss, a larger decline in profitability in the Q1. 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 in the guidance or it would be nonrecurring costs or extraordinary, and we have forced time. No. It is not extraordinary cost. It might be marketing cost. It might be payment from your suppliers. There could be a number of different cost items. But none of those we should I think the one thing we can say on the 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 aspect. And as you mentioned, CosmoNet will also come into the numbers, a very stable business that we are very pleased with seeing the performance of Cosmolev. Sure. Okay. And then just my final question regarding IFRS 16 and your cash flow statement, in which lines does IFRS 16 impact the numbers? Is that what you Are we talking about cash flow? Yes. Yes. We have there is an impact on the numbers, of course, in and I only have it in Danish here just to make it very difficult. Now I have the underlying information in Danish. Of course, the result before taxes is impacted by it, and then there are impacts on depreciations as well. And then there are impacts on financial costs. But we have if you need so, we can we have further regulations. There's a note in the Node 1. Yes, there's note in Node 1, but that doesn't that's not particularly the cash flow. That's just the overall impact on free cash flow. But we can go through that in more detail with you offline if you want. So it's Perfect. Thanks. Nothing strange about it, but as you know, it does take the particular depreciation and the interest cost. Okay. Thank you. Thank you so much. And the next question comes from the line of Alexander Edelman from Nordea. Yes, only Nordea today. Just my last question. So I guess, I mean, you have adjusted EBITDA margin of 13.7% this in Q1. And normally, your Q2 and Q4 is, I mean, in line or lower than that. So I guess Q3 is going to make or 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 word. Yes. The importance of the Q3? Yes. I mean, it seems like Q3 is going to be the quarter where you're going to bring in most of your It's always the most important quarter when it comes to profitability because it's the Christmas quarter and the Black Friday and all that. So obviously, as you know, that is a quarter where our margins normally will peak because costs don't rise in line with sales. So yes, it's fair to say that a great Q3 will be very beneficial for us and a horrible Q3 will not be so beneficial. That's not surprising given that we are reaching. Yes. No, I mean, it's just okay. All right. Okay. Yes. Thank you. Thank you so much. And there are no further questions at the moment. So please, Frigas, go ahead. Well, we will say thank you for your time today. And as usual, we are postponed and we'll take a follow-up with Anders regarding the whole IFRS cash flow movement. So just let me know. And if anyone else has anything they would like to follow-up on, yes, we are available to reach out.