Good day, welcome to the Matas Annual Report 2017 and 2018 and Updated Strategy towards 2023 conference call. Today's conference is being recorded. Presenting on today's call, we have Gregers Wedell-Wedellsborg, CEO, and Anders Skole-Sørensen, CFO. I would now like to turn the conference over to Gregers Wedell-Wedellsborg. Please go ahead.
Good afternoon, everyone, welcome to our conference call. Today is a big day at Matas. We have announced our annual results, even more importantly, we have announced our updated strategy. If you turn to slide three, you can see that I am on the call, Anders Skole-Sørensen is on the call, and Elisabeth Toftmann Klintholm is on the call. If you turn to slide four, please. The main idea of our updated strategy is to return Matas to a long-term growth path. I will talk about this after Anders has been through the annual results. What you see on this page is our starting point, the results that we have delivered for this year. We came in at the top end of our revised guidance at a turnover of DKK 3.42 billion versus DKK 3.46 billion last year.
We came in on EBITA before exceptionals at DKK 459 million, which was at the top end of the guidance. Clearly, the number that we're really looking at is the underlying growth of -1.4%, which is in the middle of our guidance. Still, if you need a burning platform for a new strategy, this is clearly the one. I will return to that, but for now, I will hand over to Anders Skole-Sørensen to go through the annual results.
Thank you, Gregers. If you can skip by my lovely picture on page five and go directly to page six. We've expressed the years in the numbers. Very simply, I'll just go through a part of it. Gregers has already mentioned a slight decline in revenue, a bigger decline in underlying like-for-like, and I'll come back to that. Gross margin was also down 46.5%, down to 45.3%. That's -1.6%. We'll also delve into that in a little more detail. That resulted in a drop-off in EBITDA by DKK 85 million from DKK 620 million back in 2016, 2017 to DKK 535 million in 2017, 2018, or almost -14%. This also is reflected in a drop-off in the free cash flow, which ended at DKK 282 million, down from DKK 348 million in 2016, 2017. That's DKK 66 million lower, or almost -19% lower.
If you please turn to slide number seven. On slide number seven, we can delve in a little more into the quarterly development, especially what happened in Q4. Let's start with the revenue. We saw revenues drop, we saw like-for-like revenues drop by 3.6% in the fourth quarter. I'll just add a few comments to that. First comment is that there is a bit of what we call a base effect. The fact was that Q4 in the last financial year, 2016, 2017, was actually quite good with 2.5% growth, it was a fairly high base. The second comment that I'd like to make was that if you look at the quarter, normally we don't discuss this very much, I think it has some interest here.
We frankly saw numbers in January and February, sales numbers, which were quite disappointing and not very good at all. We did see a March, which was much more to our liking. We actually saw sales in the run-up to Easter of, if not the best, then at least very close to the best we've ever seen in a run-up to Easter. It doesn't change the fact, however, that if you look at the revenue going in the last 12 months as a minus 1.4%, obviously, as Gregers already pointed out, does point to a growing platform. If we take a look at gross margin, for the quarter, we realized 45.1%, that is 1.3% lower than what we did in the same quarter last year. Again there, it is quite clear now to see that there has been a negative trend in gross margin.
If we go back four to eight quarters, we see that negative trend. If we take that further down the profit and loss, you can see that EBITA percentage was 7.4%, which is very low much lower than the 13.1% we saw in the same quarter of last year. I'll just come back a little to the explanation. Obviously, there's an explanation from the gross profit, also the explanation from other factors. Just to finish off this page, inventories, we saw, as we've traditionally seen, a drop-off in inventories in the fourth quarter, going down from DKK 790 million at the beginning of the quarter to DKK 749 million. However, we are still looking at a total inventory level which is higher than we've seen in the last couple of years.
Obviously, the level of inventories is an area we are working with, we have ambitions to reduce the level of inventories, but I would just like to stress as we will do so in an intelligent way. We all know that if we try to do this too rapidly, we will run into problems with out of stock in the stores, that is obviously something we want to avoid. If you turn to page number eight, you can see the income statement, I will then use that just to talk a little bit about what happened on the cost side.
There are actually just one area of the cost side that is really moved significantly, and that is other external costs, which as you can see, moved from DKK 72 million in the fourth quarter of 2016, 2017 to DKK 93 million in the fourth quarter of this year. If you look in the annual accounts, you can see that there has been a number of reasons for this. We have had increased rent because we opened new stores and some of the stores we bought last year. We have seen increased marketing spend, which also affects the numbers here. Then there are some of the costs associated with the ramp up on online and the whole digital ramp up that we went through, all of which has affected other external costs.
You can say that the fourth quarter was slightly unusual if you look at it in a longer perspective. Not as such necessarily a bellwether. One of the positive things to take out here, and it's always nice to have something positive, is the fact that we actually have the very important cost part with stock costs well under control. You can see that stock costs were DKK 167 million, both in this quarter and in the same quarter of last year. That quite important part of cost is following. All in all, due to the drop in gross profit plus the increase in other external costs, we did see that significant drop off in the EBITDA margin. Turning to slide number nine, I will briefly touch upon the cash flow development.
Firstly, let me just give my apologies for a mistake on this page, but it says that the operating cash flow was DKK 673 million lower than the same quarter of last year. If you actually look in the table, you realize that's not quite the case. It's actually DKK 67 million, but we've been very busy, so these things happen. Yes, it has been dropped by DKK 67 million. Of course, this comes back to the lower earnings, the lower EBITDA level, and also a slightly less positive net working capital development in the fourth quarter compared to the same quarter of last year. We look at investments, we can see that CapEx was on par, DKK 20 million, roughly the same as we spent last year.
This year we did not buy any more associated stores and thus we had a zero in acquisitions of subsidiaries and affiliates, where we had DKK eight million last year. The result was a free cash flow, which was DKK 60 million worse than we saw in the same period as last year. Finally, let me just give you a brief comment on the development in cash flow from financing activities. Last year you saw a big drop off by DKK 178 million. That was some repayment of debt in connection with the refinancing we did of the company. This year we saw more normal development with actually a slight increase in debt of DKK 49 million. This was short and sweet because we'd like to focus very much on the strategy. We'll actually just skip page 10, and I'll hand it back to Gregers.
Thank you, Anders Skole-Sørensen. We have today presented our new strategy. You can read about it in the annual report. We have just finished our Capital Markets Day. I will do the highlights from that. I will run quite swiftly through some of the slides so that we can focus on the numbers and give you the opportunity to ask questions. The whole premise for the strategy is that we are entering an era of a lot of changes in retail. We are, I should say at slide number 12. We are entering an era of a lot of change. This is happening all over Europe. It is happening in Denmark as well. We are seeing that the next couple of years would be a lot less predictable than what we have been used to.
Therefore, the question that has been the overriding question for us is how can Matas actually become a stronger company given all these changes that we are facing? I am hoping to give you some answers to that today. If you turn to slide 13. We shared with the market in our Q3 update, seven questions that have guided our strategy work. I will not go through those today, but you can consult those if you wish. It basically has to do with how do we get the business growing again is the key question. If you turn to slide number 14. This is an explanation of what we mean by the retail shakeup or the changes that we are expecting. We do see four shifts ahead of us, or actually we are in the middle of those four shifts. I will just briefly comment on each of them.
One is, we are seeing a quite significant shift in how the consumer behaves. She will be much more on social media. She will be much more informed. She will use stores in a different way than she has before. Obviously also looking to online for inspiration and advice. You should take into account that the role of the store in the future is going to be different from what we expect of the stores today. Second, we are seeing a shift in how brands, our suppliers, are working. In particular, we are seeing a much more rapid product life cycle and brand life cycle. Our business model is very much based on having the same assortment, changing over a little bit of the assortment, but brands are coming into fashion faster than ever before and going out of fashion faster than ever before.
We need to up our game and introduce much more units in our stores. Number three is probably the most discussed shift of any, namely the shift of channels from physical retail to online shopping. This has been pervasive in a lot of other categories. It has not really, in Denmark, been pervasive in our category. We expect this shift to affect all of retail and affect the number of people who go to the streets to buy goods. Then finally, there is a tech shift, a technology shift. We see a lot of technologies that used to be in the lab, artificial intelligence, self-driving cars, and I could go on. A lot of technologies that are coming into the mainstream that will allow us to operate a modern retailer at a lower cost and also serve the customer better using a lot of technology.
We need to be more tech-savvy than ever. I think no one is able to say how fast these changes will occur or what the scale of them are. We have adopted what we call a scenario-based strategy for the next couple of years. We have set long-term ambitions, but we know that we need to update our strategy more frequently, and we need to be more agile in how we deploy resources to grow and make money. If you turn to slide 15. This slide is a summary of what we hope to achieve and how we will achieve that. Overall, the title of our strategy is Renewing Matas. This is our ambition to, over the next 5 years, renew Matas both in terms of the stores and online and other. We have three ambitions toward the year 2022, 2023.
One is that we want to continuously improve customer satisfaction. We will report on that number as if it were a financial target starting from Q1. We have an ambition to grow revenue in the coming period. Our ambition is to secure earnings at the absolute level that they are now. What I'm saying here really is we're seeing a shift in the P&L, where we need to sell more, invest more to make the same absolute level of money that we are today. There are 5 strategic tracks. One is we want to renew the customer experience, both online and offline. The second one is that we have set an ambition to win online and to be the market leader online. The third is that we propose investing in our stores, and we see a good case for investing in our stores and modernizing our stores.
Number 4 is that we believe that there are business opportunities that are related to the Matas we know today, but will add on new revenue on top of what we do today. Those initiatives are not included in our financial targets. Finally, we believe that this is going to be a period where we change how we operate Matas, and how we run our commercial operation as well is going to change in several ways. I will now dig into each of the 5 strategic tracks. If you'd please turn to slide 16. What you should take from slide 16, I'm not going to spend a lot of time given the audience today. I will just say that we have spent a lot of time with consumers.
We have done extensive consumer research to understand what needs are driving consumer behavior and what kind of segments are out there that we are at risk of losing, which segments that we already address should we serve better, which segments can we attract in the future to grow the business. We have set out 6 guideposts for how we're going to do that. If you have a chance to read through these, what you should read underneath the beautiful images is that each of these contain an opportunity for us to be different from our low-cost competitors and from our online competitors, and they also represent areas or pockets of growth, if you will. We can speak more to that in the Q&A if you wish. Please turn to slide 17. Slide 17 captures where we are today in terms of online.
The Danish online market for beauty and wellbeing is quite fragmented. It is not as developed as in many other categories, we enjoy, or rather we have about a 15% market share, which is far below our fair value in the offline world. We are among the top three players today, and we have set a clear ambition that within these next five years, we are going to be the undisputed market leader in online, and we will devote the resources to that. We started that journey already with our Q3 and with the announcement that we have hired a new e-commerce director to lead that change. We believe the market growth is going to be somewhere in the vicinity of 10%-15% per year, and we should outgrow that rate significantly over the next couple of years. Please turn to slide 18.
Slide 18 will give you just a little bit about how we think we're going to win, and there are three boxes to tick. One is the ticket to play, as we call it. Basically what that tells us is we don't want to see any areas where competitors are superior to us. To give you an example, delivery, we know that delivery is incredibly important to consumers. We know that if, for example, Amazon should enter the Danish market, they will do day-to-day delivery. We have announced in last month that we are now promising day-to-day delivery to all our stores.
We just today announced that we can actually do same-day delivery, so if a customer orders before three o'clock, I'm afraid it's too late now, but if you had ordered before three o'clock, we would be able to deliver the same evening, between half past five and nine o'clock. Now, that is a very strong proposition. There are a number of other areas where we see that we should not fall behind the best practice in the market, because as competition intensifies, you have to be in place with all these items. On top of that, and the reason that we think we can actually win in this market is that we have some assets that allow us to differentiate quite a lot from the other players.
One is that we have a ton of content, a ton of insight into the customer about their preferences, a lot of expertise and a lot of ways of getting, for example, product ratings and recommendations, in connection with the merchandise that's sold online. We also see that omni-channel obviously is a big driver. I think I have mentioned before that you see that the stores and online are actually growing in tandem, and if a customer orders online, she will most likely pick it up in the store. When she picks the parcel up in store, one out of three will actually buy an item in the store when she's in the store, just to give one example. Then finally, we do have relationships with brands that allow us to have a range and assortment and new items that competitors cannot get a hold of.
A lot of our suppliers, they are hesitant of being on the big marketplaces like Amazon. We will cultivate that relationship and keep that strong. The final one I am not going to talk a lot about, but we have a very mature, in a good way, tech platform. We can pull best of breed technology to make sure that we can keep up the pace in terms of technological innovation. That is our ambition for digital. That is going to be a main priority in this financial year to really make a move on that area. The second tenet is store growth. This is sort of the slide that pulls the proof. We have upgraded some stores in the last period. When we upgrade a store, we see a 4% growth in that store on average the first year after the concept upgrade.
That growth is driven both by attracting new customers to the store, winning back customers, and higher baskets. We see a very strong case for investing in the stores. Reversely, if we do not invest in the stores, we are quite concerned about where our like-for-like is going. Could you please turn to slide 20? Since we spoke last, since Q3, we have reviewed our entire store network. Decided which stores do we think can grow if we invest in doing the upgrades. We have looked at new opening store expansions, store consolidations, and store closures. We do see that there are about 5 to 15 white spots in the market where we could open new stores. We believe that we could open profitable new stores, long-term profitable new stores.
We see that there are 10 to 20 locations where we can expand stores to serve the customer better and get a better unit economic in the store. We see 10 to 20 places around the country where we can consolidate two small stores into one. 10 to 20 is the range, but we have to get the right room, the right place in the city. Then store closures, I think a lot of retailers are announcing store closures these days. We have zero loss-making stores in our portfolio, so if we were to close stores, it would negatively impact our bottom line. But we are well aware that if things are going online, there will be stores that will be driven into the red, and we have very short patience with stores that we do not think we can turn around.
We expect, we have not announced any stores, and if it becomes necessary to close stores, we can do so swiftly, and we do not have long leases, so we have a very flexible store network. This is one of the areas that we are investing quite a lot in. Just to reassure you that we are not spending all the investments at once, we are now at page 21. We will do a controlled rollout of the format of the new concept. We roll out one tranche, we evaluate, assess, correct our mistakes, do another tranche. Once we get it right, then we can actually roll out quite quickly. That also means that in this financial year, we are going to be testing and learning and developing, and from next year we will see the ramp up in upgrades of the stores. Please turn to page 22.
This is a question that hasn't been asked of Matas for a long time, namely how can we grow beyond the business that we have today? Not into areas that are far-fetched, but areas that are in logical extension of what Matas is doing today. We are trialing a lot of small growth initiatives with very limited financial exposure. Today we are pointing out one area where we think we could grow. If you turn to page 23. What we're saying is we're going to tag on to the great green wave that is crashing all over a lot of industries and areas, and we see consumers being more attuned to responsible, natural, organic, healthy products than ever before. We see it in our own numbers that those categories are growing.
What we announced today is that we will make an effort across all channels to capture a bigger part of this market, which amounts to around DKK 1.5 billion in Denmark, of which we have a fair share, but we can have even more. We will be extending our range online at matas.dk. We would be extending our range in shop-in-shops in our existing Matas stores, and we announced that we're opening two green Matas stores or Matas Natur stores in Copenhagen and Aarhus, which will allow us to learn a lot and source a lot of new brands, interesting brands that we can sell both in the stores and online. We think this is an area that holds a promise of more growth above and beyond what we're having here. This is our first initiative in that direction. That was our three main drivers for growth.
I will now run quickly through the impact on the rest of the business or the inside the engine room of the business, if you will. If you turn to page 24, we have set out a number of initiatives within our commercial area. One example is that we usually renew 10% of our assortment every year. We have done a complete review, and we will rotate 20% of our assortment to make room for new brands, new categories, and more localization. We also continue our effort to always have everyday fair prices on some of the most competition-intensive product ranges. We will engage in serious discussions with our suppliers and ask for their support to be competitive in the market. If you please turn to page 25. For sales, we have a number of initiatives as well.
One is that we are investing in training and incentivizing omni-channel sales in the stores. We are seeing good reception on that. We're also putting every store online, almost every store now has their own Facebook page. This sounds like a trivial thing, but we're seeing very good results from each of the stores being able to communicate with their local community, very strong effects of that. We're rolling that out even more. If you turn to page 26. Customer insights or Club Matas is a point that we have talked about repeatedly. We have just hired a new head to run our club and to take it to the next level.
I will not go into detail about that today except to mention that next week we are launching a club in the club for the younger demographic, the social media generation, if you will, that will allow our customers to share beauty tips and integrate content from social media, whether it be YouTube or Instagram or Snapchat or whatever you want. To create a community to engage with the younger demographic. We are excited about that. Now to the numbers. If you turn to page 27. We have the four key indicators or ambitions. First, for customer engagement, as I mentioned, we will report on that as if it were a financial indicator from Q1. We strive to have continuous improvement in our customer satisfaction. We have a target set of being at index 110 to where we are today.
You should know that our target or starting point is very high. We have very high customer satisfaction levels. Getting to 110 is actually quite a stretch goal. For revenues, we expect to generate positive like-for-like no later than the year 2020, 2021. For the long term, we have an ambition to add between DKK 300 million and DKK 500 million of revenues from our existing business and the Matas Natur initiative. For the EBITDA margin, what we're going to see over the period is that as online grows, online also begins to scale and become more profitable. As we succeed in changing how we work internally, we can operate Matas at lower cost levels than we do today. We have an ambition, and this is something that we have simulated quite a lot, given the many different scenarios that you can see for retail.
We have an ambition to be able to deliver an EBITDA margin in 2022, 2023 at 14%, and that level we are expecting to be sustainable. There is a price for the growth, and the price for the growth is that we expect to double our normal CapEx level. We have earlier said that to keep Matas running, we should spend between DKK 60 million and DKK 70 million a year to keep our stores running. We double that number on average per year, and I should mention that we expect to front-load the investment in the strategy period. At the end of the strategy period, we expect a more normalized, and I just have to make one correction here, a more normalized CapEx, and that number should be 90, not 100. I apologize for that. That is 90. We will correct that in the online version.
Slightly higher than historically, but down from the level in the strategy period. If you turn to slide 28. This is sort of a principle discussion of what's going on, why are the numbers looking the way they are. We currently have a turnover of DKK 3.4. We expect headwind in the years to come from the general drop in retail footfall and from price competition. If we were to do nothing, or if we were to continue on the path that we are now and not invest, we would expect lower turnover in five years than we are today. With the initiatives that we are presenting today, winning online and reigniting store growth, we think we can counteract that development and actually deliver a business that is bigger than it is now with a sustainable growth rate. That is not including revenue from new growth paths.
Please turn to slide 29. I will not spend time on this except to say that you know that Matas has historically been good about controlling costs. We will remain committed to controlling costs all through the strategy period, both ongoing and the more step change-oriented cost initiatives. If you please turn to slide 30. This is where our EBITDA ambition comes in, that we do expect to see a negative impact from the negative underlying growth if we do nothing. We do expect to see that counteracted by the investments that we make in growth. It's also key to mention that we believe and hold ourselves accountable to the fact that we need to bring down costs in the coming period as well to deliver on the ambition to sustain the level of earnings.
The number DKK 520-DKK 560 is just simply the revenue range that we had given and the EBITDA floor that we had given of 14%. It should be above DKK 520-DKK 560. We have not included any income from new growth path. If you turn to slide 31, these are the implications and ambitions for our capital allocation towards 2022, 2023. First, our gearing. We have guided on an absolute debt number until now. We now in the future guide on the gearing, and we have an aim of having a gearing between 2.5 and 3. I should mention that we also strive not to materially exceed 3, and that wording you should read in the way that we might have quarters where we go above 3, but on a sustainable level, it should be between 2.5 and 3.
For CapEx, as I mentioned, DKK 120 million-DKK 140 million average per year front-loaded, then the right number, namely DKK 90 million in 2022, 2023. We expect throughout the period, we will distribute excess capital. No changes to that. As you can read from the annual report, we do indicate that we expect the dividend in absolute terms per share to be lower. If you turn to slide 32, this is the principles for our capital allocation. We will first make sure that we are in place on the gearing, we will make the investments necessary to execute on the strategy, we will distribute the excess capital to shareholders.
Please turn to slide 33, we are now at the guidance for this financial year, we guide that for revenues, we expect a flat market with a margin of -1% to +1%, so a range of -1% to +1% for the like-for-like. We expect an EBITDA margin at 14.5%, reflecting that this is the first year of strategy, we have to ramp up the strategy. A CapEx that's slightly higher than now, DKK 110 million-DKK 130 million, which covers both investments in digital and the first part of the upgrade cycle for the stores. That concludes the speedy version of our strategy, we will now turn over to question and answers, we are now at slide 34.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that's star one to ask a question. We will take an opening question from Nicklas Skogman of Handelsbanken. Please go ahead.
Yes, thank you. I have a couple of questions, please. First of all, I'd like to hear how you plan on getting to up to DKK 3.9 billion in sales by 2022, 2023, given that it sounds like like-for-like is not going to be positive until after 2021.
Let me address this by saying that, as we're saying, that we are, so to speak, not putting our hand on the hot stove with regard to like-for-like growth being positive before 2021. Obviously, in that scenario where we're at DKK 3.9 billion, which is at the top end of what we're indicating, that would probably be one of the scenarios in which like-for-like growth would be positive earlier than in 2021. That's why you shouldn't say that you are then saying automatically that you're sort of combining the top end of one range with the bottom range of another.
Okay. You think you will be able to show like-for-like growth then in the next couple of years already?
In that case, it isn't likely that we have like-for-like growth that's positive earlier on this.
Okay, there's no acquisitions or anything?
Not included in those targets.
No, that does not include acquisitions, no. Very important to underline that. The only of these new growth paths that's included in these numbers is the green for Matas Natur that we talked about.
Okay. The step-up in CapEx, what will you be spending this on?
A combination of investment in digital and physical stores. We don't give the split between the two, this is to retain flexibility because none of us know how fast the online transition is going. We obviously have a base case that we are operating from, but if we see online moving faster, we should be able to allocate the capital towards that channel faster. If it goes slower, then maybe we should do more stores, upgrade of stores.
Okay.
We don't break out the number.
Okay. You previously only really talked about EBITA, now you're guiding on EBITDA and you're also stepping up CapEx.
Yeah.
Can you sort of give us an estimate of where you see the EBIT margin being in 2022, 2023, given that we don't know really how you're spending the CapEx and so on?
Yeah, exactly. The thing is that at the moment, the reason why we've changed guidance from EBITA to EBITDA is twofold. First of all, internally in Matas for measurement purposes and for communication wise, it's easier to work with EBITDA. It's a number that is much easier to explain to people. Since this has been used extensively internally in measurements, we thought this was a good time to change that also in the external guidance. That's why we chose to do that in connection with the new strategy. Obviously, going forward, we'll have to look into that there are some effects on, as you probably imagine, on depreciations from this new level of investment. Again, depending on where the investments in spend and so forth, we're not giving that long-term guidance or long-term ambitions on EBIT level.
We are giving them on EBITDA level because we think that reflects the sort of underlying earnings of the company.
Okay. Thank you. Then you had some interesting slides there on the online market, your market share, and what's the total market for health and beauty?
To be honest, this is our best guess. Let's not call it more than that. We're looking at a market of somewhere between DKK 800 million and DKK 800 and something million, I think.
Yeah.
Probably ± DKK 100 million.
We have some cross-border trade that we're not taking into effect.
Yeah.
Online market expected to be below DKK 1 billion at this point, and growing at 10%-15%.
We know that the total health and beauty market is around DKK 8 billion, so 10% fall into rule of thumb also that it's around 10% from DKK 6 billion.
Yeah.
We can do sort of an upside up down and bottom-up, and we reach about that level.
Okay. Thank you. That was it for now. Thank you.
Thank you.
As a reminder, that's star one signal for an audio question. We will take our next question from Poul Jessen of DNB. Please go ahead.
Yes, thank you. Unfortunately, I didn't have the chance to be at the Capital Markets Day, but could you come back to the online part, where you want to be a leader, combined with this slide 17 about the market shares. Who are currently gaining share? Are those newcomers with the aggressive pricing, or is it the more incumbent like you which have more focus on the broad product line and are not that focused on the price? That's one. When it comes to the Zalando and the Boozt who are going to enter into this segment, I think when you launched the MAC one or two years ago, it was with a comment that you are now introducing new brands in the stores where you have exclusivity, and Boozt announced that they are also going to take MAC in now.
When you said that you got MAC on board, you said that you would also have the opportunity to cancel agreements with others or with suppliers who then suddenly put their products on a broader platform in Denmark. If you could comment on that. Just clarification on this total DKK 800 million, that's excluding imports as I understand it then. Thank you.
Yeah, it's excluding it.
Good point.
Yeah. That's excluding.
Yeah. Good point. 800 is excluding cross-border. The market right now is dominated by local players, local Danish or Nordic players. It's hard to tell who's gaining share. The shares between the players have actually been quite constant for the last couple of years. We're not seeing one or two pulling ahead of the pack. As you mentioned, Poul, we think what's going to happen is this area is going to be professionalized quite a lot with the entrance of some of the broader marketplace players. What we're saying is the time is now to consolidate this market and to take our place in the market. Anders will comment on the MAC situation.
Yeah, on the MAC situation, two points here. First of all, of course, as you know, Boozt is operating in other countries than Denmark. That's one point to be made here. Secondly, I think we were well aware at the time that we were not going to be able to keep MAC as exclusive distribution online in Matas forever. It was a bit of also a question of working with it as long as we can. I don't think we have any interest at this point in time in throwing out MAC because it's a good brand that we make money on selling. Those developments is something that happens in a commercial world. I'm sure we will have what is known as a good and honest conversation with them about this.
As soon as we lose exclusivity, there is a conversation that is on more regular commercial terms.
Yeah.
How do you see the balance between both Boozt, I guess they have already said that they will also have campaigns like the physical stores are having, like the department stores continuously, at least that's also what they do in other products. Versus the parallel importers, do you believe that you can win this market without matching the prices of the parallel importers in this segment? Especially when it comes to hair products and moisturizers and so on.
The high end? Poul?
Yeah, it's both. The parallel importers, they are in the high end.
Yeah.
Right. The short answer, yes, we think we can win this market. We know that we're going to win it on commercial terms as well, so that online is going to be campaign driven just as a big part of our offline sales is. I think that's part of the game. What we've seen in a lot of other countries is that the specialists, the ones that do only play in this category, they actually get preference from the customer. I think as we look across Europe and other regions, we do see that specialist players have a good chance of becoming number one, and even specialist players like us, who, if you will, play by the rules and go with the brands, and focus on service and quality delivery. It's a very good question, Poul.
This is an area that we talk a lot to customers about, whether is it just price online? The answer increasingly is it's not just price. It's a combination of the customer experience, the availability to the brand, the newness, the delivery time, the right to return the product if they don't want, gifting options. There are a lot of value-added items that you can add into the online game that makes us think that this is an area in which we can win.
Okay. I'll move on to the EBITDA. You say more than 14% margin at the end of the period. You have 14.5% for current year. How should we see it in between those two points? Are we going down in the 13% level or below 14% before we start seeing coming up again?
I think the right thing to say here is we guide year-by-year on that. The underlying dynamics is that we see over this period, we will see online scale, and at the end of this era. Ideally, we would be in a situation where we are just as happy if the customer buys online as if she buys in the store. As you know now, the case is that we will make more money on the offline side than on the online side. We do quite rapidly approach a place where online is starting to scale. As we have looked across Europe, we see a number of players in this particular category who enjoy EBITDA margins at the level that we have historically been used to in the physical stores. It's not impossible to do that online. It's not without precedent, at least.
Okay. I will step aside and then come back if there's no one else there. Nothing. I guess most people were on the Capital Markets Day.
Yeah. You're right.
We will take our next question from Nicklas Skogman of Handelsbanken. Please go ahead.
Yes. Thank you. I'm back. First of all, the second question might be related to the first, but it's quite a long timeframe, this, for doing these strategic changes. Several years and while profitability is declining quite quickly. What's the reason for this having to take five years, roughly?
We think we could have done three years, but we think this is an era where we're seeing all these fundamental changes, and it's absolutely critical for a retailer to actually act much more long-term than we have been used to. Retail has been famous for saying that strategy is all about next week. I think in retail now, strategy is all about the next five years, and it's about winning those positions that will make you grow in the future. That's why we've put a long time horizon. As for why does it take so long? Well, it's just a practical aspect of how many stores can you upgrade in one year. Both how much can you take commercially and how much can an organization carry through?
Also, finally, we have an informed guess how online is going to grow, but we can't really tell whether you will see, as you have in other markets, linear growth, or you're going to see more kind of exponential growth over the period, kind of like a ketchup effect. We think the right thing for Matas and for Matas shareholders is to take a longer view on this strategy period and move with long-term targets in mind.
Okay. Yes. The second question was then that why is the store conversions, why do you have this approach to the store conversions that you're going to do a few then wait and do a few more? The pilot that you showed on the slide, you see a 4% uplift. Is that not good enough or do you expect to sort of, with a few more tweaks, it can be higher? Doing your 150 stores shouldn't need to take-
That's a very good question.
several years. There are other retailers that can do 400 stores in a year.
Yeah. That's a very good question and you've given the answer. We think there is more to get than 4% in doing the right upgrade. There are a number of issues that with the current concept, the most recent concept we've put in place, it doesn't really solve all the issues related to omni-channel, for example. We think our categories and our product mix is going to change more than it has done in the recent concept. Maybe a more general comment. Getting the concept right is what takes time. Once you have the concept, we do have a lot of liberty in deciding how fast to move. If we see that our new concept is working better than anticipated, faster than anticipated, we do have flexibility to move faster as well.
This is why we will update our strategy on a more continual basis and not just say, "This is our five-year plan." A very good question.
Okay. The market development, you said market shares of the physical players appear to be pretty stable. Do you feel like the biggest competitive threat right now is coming from online rather than any of your own store-based competitors?
We anticipate our competitors to keep adding more stores when we talk about the supermarkets, which is our other big competitors. We are actually seeing some consolidation and announcements of a number of store closures. Whether that is a good thing or a bad thing, because once the supermarket closes, it also affects local traffic. That's probably in the balance. We're not seeing a step change in competition in the physical world.
You're right in saying that we think the battleground is going to be digital, and that is why we are very clear that we want to move now.
Okay. That was it, I think. Thank you very much.
Thank you.
We will take a follow-on question from Poul Jessen of Danske Bank. Please go ahead.
Yes. Thank you. Coming to the gearing guidance you're giving. If I calculate the EBITDA, which you are guiding, the DKK 520-DKK 560, and put the 2.5-3x gearing on that one, that means that you should have a debt of about DKK 1.3 billion in the worst case, at the end of the period. That means that you should reduce debt by about DKK 200 million over the coming five years. Is that numbers you can recognize?
I can recognize many numbers, Poul.
Yeah.
You are right in saying, and you get the results, but it's not an aggressive move down on debt. Yeah. I would say it's not unreasonable. Let me put it that way.
That means that the debt reductions you're talking about, where you are releasing some liquidity from reducing the dividend, is about DKK 40 million-DKK 50 million per annum.
No, I don't think so. That's too detailed. You can't just do the calculation like that.
Okay.
There is a measure in that. Yeah. That with what we see with the EBITDA, probably we need to run with quite a smaller
Yeah. That's the fair point.
The magnitude of that, there are many-
There are many computations in the sense of how you do it, but you're absolutely right. Of course, with the lower EBITDA, yeah, there's a lower limit.
Okay. A question about IFRS 16. Why are you not implementing this now so that you're not going to change your guidance in a year from now, just do it now?
Why we are not implementing IFRS 16, that's because we're still having very interesting debates with our auditors as to how exactly we're going to implement IFRS 16, just like everybody else in the business.
Okay. We're just seeing other companies who had to come out with a strategy update, that they did it now, so that they didn't have to make adjustments.
To be honest, Poul, we discussed it with the auditors. There was general agreement that this is next year. Next year, we will come out with that number that you're talking about.
Okay. You lose some revenue because you closed down Stylebox. How much will that impact next year?
That's probably in the impact of same sort of level that you were talking about, isn't it, DKK 30-DKK 50 you were talking about?
I think we said DKK 60 in revenue drop from closing Stylebox and the four other stores that we ended up closing.
You have to move closer to the mic, Elisabeth.
Sorry, Poul. What we said in conjunction with Q2 was that closing down Stylebox and other stores, which ended up being four other stores, was that that would impact revenue negatively with DKK 50 million to DKK 60 million.
DKK 50 plus [inaudible].
Yeah. That was a full year effect.
That's a full year effect.
That would translate into an effect of between DKK 30 million-DKK 40 million, of which the majority would be reinvested into basically new initiatives, that being primarily online, but also other strategic initiatives.
When you're talking about the, since we're sort of guiding on EBITDA now, and that's a part of the guidance, so we can say that if you just look at the top line, we're looking less than DKK 50 million.
Okay. On page 13 in the report, you mention a claim against the company. Is that not worth talking about?
It is a low single digits million DKK amount that we have reserved for that.
That's taken a provision in the fourth quarter numbers.
Right.
In the other external cost?
Other external cost, yeah.
Okay. The final one from me, inventories. I think we've spoken inventories for three years, you said you have to do something about the inventories. How shall we look at it? You struggled on this one continuously throughout the period.
The thing is, Poul, we have been working with it, and then for a while when we were really pushing it, then we realized that we were running into real problems with out-of-stock issues. We sort of sat down and thought, "Look, we have to do this in a more intelligent way." Otherwise, we're going to end up with the net working capital worth costing us too much in sale. Right now, we're sort of looking at it, and looking at it also in the conjunction with the whole idea about the taking out the 20% of SKUs that Peik has mentioned. Yes, we definitely have some ambitions on working capital, but try to do it in a smart way. It's not easy. I will now be the first to admit that this is just not an easy area.
You really have to tread carefully, but we still have to.
You're currently at about 22% of revenues. Where would you like to see it?
Yeah, well, we'll have an ongoing discussion on that internally and with the board, and when we're ready to make an announcement of it, I'll be sure to tell you.
You disappeared there or did you end?
Oh, sorry. I was just saying that we don't have a specific target like that, but if we do get one at a future point, I'll be sure to tell you.
Okay. I think I'm done.
All right. Thanks.
As a final reminder, that's star one, signal for an audio question.
Okay.
All right.
I think we will say thank you for listening in, those of you who couldn't attend the CMD. If you have further questions, please feel free just to give us a ring or send us an email. We'll be in touch. Take care.
Good afternoon.
Bye.
Bye-bye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.