Earnings Call: Q4 2018

May 30, 2018

Good day, and welcome to the Matas Annual Report 2017 and 2018 and updated Strategy Towards twenty twenty three Conference Call. Today's conference is being recorded. Presenting on today's call, we have Gregers Wojdl Wettelsborg, CEO and Anders Skolos Sorensen, CFO. I would now like to turn the conference over to Gregers Wojdl Wettelsborg. Please go ahead. Good afternoon, everyone, and welcome to our conference call. Today is a big day at Matas. We have announced our annual results, but 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 Godesansen is on the call and Elisabeth Tophank Hinnkarn 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. And I will talk about this after Anders has been through the annual results. And 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 DKK3.42 billion versus DKK3.46 billion last year. We came in on EBITA before exceptionals at €459,000,000 which was at the top end of the guidance. And clearly, the number that we're really looking at is the underlying growth of minus 1.4, which is in the middle of our guidance. But still, if you need a burning platform for a new strategy, this is clearly the one. So I will return to that. But for now, I will hand over to Anders Godesansson to go through the annual results. Thank you, Gregers. If you can flip by my lovely picture on Page five and go directly to Page six, we've expressed the year some in numbers. Sort of very simply, I'll just go through a part of it. Gregers has already mentioned a slight decline in revenue and 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 minus 1.6%. So and we'll also delve into that in a little more detail. That resulted in a drop off in EBITDA by CHF 85,000,000 from CHF $620,000,000 back in twenty sixteen-seventeen to CHF $535,000,000 in twenty seventeen-eighteen or minus almost 14%. And this also was reflected in a drop off in the free cash flow, which ended at CHF282 million, down from CHF348 million in twenty sixteen-twenty seventeen. That's 66,000,000 lower or almost 19% lower. Now if you please turn to Slide number seven. On Slide number seven, we can delve in a little more into the quarterly development and especially what happened in Q4. Let's start with the revenue. We saw revenues drop we saw like for like revenue drop by 2.6% in fourth quarter, and I'll 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, so a fairly high base. The second comment that I'd like to make was if you look at the quarter, normally, we don't discuss this very much, but 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. And then we did see a March, which was much more to our liking. And we actually saw sales in the run up to Easter of if not the best, but 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 twelve months, it's a minus 1.4%, obviously, as Greg has already pointed out, third point to a growing platform. Now if we take a look at gross margin, for the quarter, we realized 45.1%, and 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 is has been a negative trend in gross margin. If we go back four to eight quarters, and we see that negative If we take that further down, the profit and loss, you can see that EBITA, the EBITA percentage was 7.4%, which is very low and much lower than the 13.1% we saw in the same quarter of last year. And now I'll just come back a little to the explanation. Obviously, there's an explanation from the gross profit, but 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 $790,000,000 at beginning of the quarter to DKK $7.49 However, we are still looking at a total inventory level, which is higher than we've seen in the last couple of years. And 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 that we will do so in an intelligent way. We all know that if we try to do this rapidly, we will run into problems with out of stock in the stores, and that is obviously something we want to avoid. Now if you turn to Page number eight, you can see the income statement, and I will then use that just to talk a little bit about what happened on the cost side because there are actually just one area of the cost side that has really moved significantly, and that is other external costs, which, as you can see, moved from 72,000,000 in the '17 to €93,000,000 in the first in the fourth quarter of this year. And 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've opened new stores and some of the stores we bought last year. We have seen increased marketing spend, which also affects the numbers here. And then there are some of the costs associated with the ramp up on online and the whole digital ramp up that we've gone through, all of which has affected other external costs. So you can say that the fourth quarter was slightly unusual if you look at it in longer perspective, so 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, which start cost is well under control. You can see the start costs were €167,000,000 both in this quarter and in the same quarter of last year. So that is quite an important part of cost of the following. But 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 EBITA margin. Now turning to Slide nine. I will briefly touch upon the cash flow development. And firstly, let me just give my apologies for a mistake in this on this page, because it says that the operating cash flow was €73,000,000 lower than the same quarter of last year. And if you actually look in the table, you realize that, that's not quite the case. It's actually €67,000,000 but we've been very busy, so these things happen. So yes, it has been dropped by million. Of course, this comes back to the lower earnings, the lower EBITDA level and also a slightly less positive it was positive slightly less positive net working capital development in the fourth quarter compared to the same quarter of last. We look at investments. We can see that CapEx was on par, 20,000,000, roughly the same as we spent last year. But this year, we did not buy any more associated stores, and thus, we didn't have we had zero in acquisitions of subsidiaries and activities where we had DKK 8,000,000 in the past. So the result was a free cash flow, which was CHF60 million worse than we saw in the same period in the past. Finally, let me just give you a brief comment on the development in cash flow from financing activities. Last year, you saw a quick drop off by DKK178 million. That was some repayment of debt in connection with the refinancing we did with the company. This year, we saw a more normal development with actually a slight increase in debt of DKK49 million. Now this is short and sweet because we'd like to focus very much on the strategy. So I'd like to just skip Page 10, and I'll hand it back to Klaus. Thank you, Anders. We have today presented our new strategy. You can read about it in the annual report, and 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. I think the whole premise for the strategy is that we are entering an era of a lot of changes in retail. And 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's 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. And 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. And I'm 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. But 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, and this is an explanation of what we mean by the retail shakeup or the changes that we're expecting. We do see four shifts ahead of us or actually, we're in the middle of those four shifts, and I'll just briefly comment on each of them. One is we're 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. And 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 to play. Second, we're seeing a shift in how brands, our suppliers working. And in particular, we're seeing a much more rapid product life cycle and brand life cycle. So 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. So we need to up our game and introduce much more newness in our stores. Number three is probably the most discussed shift of any, namely the shift of channels from physical retail to online shopping. And this has been pervasive in a lot of other categories. It hasn't really in Denmark been pervasive in our category. But we expect this shift to affect all of retail and affect the number of people who go to the streets to buy goods. And then finally, there's a tech shift or 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. So 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. So 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. So 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 five years, renew Matas in both in terms of the stores and online and other. We have three ambitions towards the year twenty twenty two-twenty twenty three. 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. And our ambition is to secure earnings at the absolute level that they are now. So what I'm saying here really is we're seeing a shift in the P and L, where we need to sell more, invest more to make the same absolute levels of money that we are today. There are four five, excuse me, 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 four is that we believe that there are business opportunities that are related to the matters we know today, but will add on new revenue on top of what we do today. And those initiatives are not included in our financial targets. And then 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. So I will now dig into each of the five strategic tracks. So if you please turn to Slide 16. And what you should take from Slide 16, I'm not going to spend a lot of time, given the audience today. I would 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 addressed should we serve better, which segments can we attract in the future to grow the business. And we have set out six guideposts for how we're going to do that. And 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 of or pockets of growth, if you will. And we can speak more to that in the Q and 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 well-being is quite fragmented. It is not as developed as in many other categories. And we enjoy or rather, we have about a 15% market share, which is far below our fair value in the off line world. And 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% to 15% a 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. And basically, what that tells us is we don't want to see any areas where competitors are superior to us. So 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. And we just today announced that we can actually do same day delivery. So if a customer orders before three I'm afraid it's too late now. But if you had ordered before three we would be able to deliver the same evening between 05:30 and nine That is a very strong proposition. And 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 omnichannel 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. And when she picks a 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. And then finally, we do have relationships with brands that allow us to have a range and assortment and news new items that competitors cannot get a hold of. A lot of our suppliers, they are his sense of being on the big marketplaces like Amazon. So we will cultivate that relationship and keep that strong. And the final one, I'm not going to talk a lot about, but we have a very mature and a good way tech platform, and we can pull technology best of breed technology to make sure that we can keep up the pace in terms of technological innovation. So that is our ambition for digital. And that is going to be a main priority and a main priority in this financial year to really make a move on that area. The second tenet is store growth. And this is sort of the slide that holds 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. And that growth is driven both by attracting new customers to the store, winning back customers and higher basket. So we see a very strong case for investing in the stores. And reversely, if we don't invest in the stores, we are quite concerned about where our like for like is going. If you please turn to Slide 20. We have since we spoke last since Q3, we have reviewed our entire store network and decided which stores do we think can grow if we invest in doing the upgrades. And we have looked at new openings, store expansions, store consolidations and store closures. We do see that there are about five to 15 white spots in the market where we could open new stores, and 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 economics 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 it's we have to get the right room, the right place And in the 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 don't think we can turn around. So we expect we have not announced any stores. And if it becomes necessary to close stores, we can do so swiftly, and we don't have long leases. So we have a very flexible store network. And this is one of the areas that we are investing quite a lot in. So 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 rollout one tranche. We evaluate, assess, correct our mistakes through another tranche. And once we get it right, then we can actually roll out quite quickly. And 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. And we are trialing a lot of small growth initiatives with very limited financial exposure. And 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 back 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. And we see it in our own numbers that those categories are growing. So 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 1,500,000,000.0 in Denmark, of which we have a fair share, but we can have even more. So we will be extending our range online at matasdeco..dk. We would be extending our range in shop in shops in our existing Matas stores, and we announced that we are opening two green Matas stores or Matas Nature 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 are having here. So 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. And then, 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 omnichannel sales in the stores, and we are seeing good reception on that. And we're also putting every store online. So every store now has their 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, a very strong effect of that. So 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, so to create a community to engage with the younger demographic. And 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. And you should know that our target or starting point is very high. We have very high customer satisfaction levels. So getting to 110 is actually quite a stretch goal. For revenues, we expect to generate positive like for likes no later than the year twenty twenty-twenty twenty one. And for the long term, we have an ambition to add between DKK300 million and DKK500 million of revenues from our existing business and the Maisons Natura initiative. For the EBITDA margin, what we are going to see over the period is that as Online grows, online also begins to scale and become more profitable. And 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 stimulated 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, '23 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, should spend between 60,000,000 and €70,000,000 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 90,000,000 not 100,000,000 I apologize for that. So that is 90,000,000 We will correct that in the online version. So slightly higher than historically, but down from the level in the strategy period. If you turn to Slide 28, this is sort of a principal discussion of what's going on, why are the numbers looking the way they are. We currently have a turnover of 3.4%. We expect headwind in the years to come from the general drop in retail footfall and from price competition. So 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. And 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. And that is not including revenue from new growth paths. Please turn to Slide 29. And 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 at both ongoing and the more step change oriented cost initiatives. Please turn to Slide 30. And this is where our EBITA ambition comes in that we will 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. But 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. And the number of $520,000,000 to $560,000,000 is just simply the revenue range that we had given and the EBITDA flow that we had given of 14%. So it should be above $520,000,000 to €560,000,000 And 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 twenty twenty two-twenty twenty three. First, our gearing. We maintain or we return from we have guided on an absolute debt number until now. We now, in the future, guide on the gearing, and we have a name of having gearing between 2.53. And I should mention that we also strive not to materially exceed three. And that wording, you should read in the way that we might have quarters where we go above three, but on a sustainable level, it should be between 2.53. For CapEx, as I mentioned, DKK120 million to DKK140 million average per year front loaded and then the right number, namely DKK90 million in DKK22 to DKK23 million. And we expect throughout the period so throughout the period, we will distribute excess capital. No changes to that. But as you can read from the annual report, we do indicate that we expect the dividend in absolute terms per share to be lower. And then 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. Then we will make the investments necessary to execute on the strategy. And then we will distribute excess capital to shareholders. Please turn to Slide 33. And we are now at the guidance for our this financial year, and we guide that for revenues, we expect a flat market with a margin of minus 1% to plus 1%, so a range of minus one to plus 1% for the like for like. We expect an EBITDA margin at 14.5%, reflecting the business diversity of strategy, and we have to ramp up the strategy. And a CapEx that's slightly lower than now slightly higher, excuse me, than now, euros 110,000,000 to €130,000,000 which covers both investments in digital and the first part of the upgrade cycle for the stores. And that concludes the speedy version of our strategy. And we will now turn over to questions and answers. And we are now at Slide 34. Thank And we will take an opening question from Nicolas Gogman 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 SEK 3,900,000,000.0 in sales by 2022, 2023, given that it sounds like like for like is not going to be positive until after 2021? Yes. Well, 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 regards to like for like growth being positive before 2021. But obviously, in that scenario where we're at 3,900,000,000 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. So 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 with another. Okay. So you think you will be able to show like for like growth then in the next Yes. Couple of years In that case, it is likely that we have like for like growth funds earlier on, yes. Okay. And there is no acquisitions or anything? Not included No, in those it 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 Ometas Natura that I just talked about. Okay. And the step up in CapEx, what will you be spending this on? Combination of investment in digital and physical stores. We don't give the split between the two. And this is to retain flexibility because none of us know how fast the online transition is going. We might we obviously have a base case that we are operating from. But if we see online moving faster, we should be able to allocate capital towards that channel faster. And if it goes slower, then maybe we should do more stores upgrade of stores. So we don't break out the number. Okay. And the you previously only really talked about EBITDA, but now you're guiding on EBITDA and you're also stepping up CapEx. Is there a can you sort of give us an estimate of where you see the EBIT margin being in 2022, 'twenty three, given that we don't know really how you're spending the CapEx and so on? Yes, exactly. I mean the thing is that at the moment, the reason why we've changed guidance from EBITA to CBDA is twofold. First of all, internally, in Matas for measurement purposes and for communication wise, it's easier to work with the EBITDA to be a number that is much easier to explain to people. And since this has been used extensively internally in measurements, we thought this is a good time to change that also in the external guidance. And so that's why we chose to do that in connection with the new strategy. And obviously, going forward, we'll have to look into there are some effects on, as you probably imagine, on depreciations from this new level of investments. But again, depending on where the investments in spend and so forth, we're not going into we're not giving that long term guidance on the or long term ambitions on EBIT level. We are giving them on EBITDA level because we think that reflects the sort of underlying revenues of the company. Okay. Thank you. And 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. But we are looking at a market somewhere between 800,000,000 and €800,000,000 something, I think. And then that's and probably plusminus at least €100,000,000 to go. And we had some cross border trade that we're not taking into effect. But online market expected to be below 1,000,000,000 at this point and growing at 10% to 15%. And we know that the total Health and Beauty market is around €8,000,000,000 so expenses fall into full of sum also that is around 2%. So we can do sort of an abstract, up down and up and we reach about that level. Okay. Thank you. That was it for now. Thank you. Thank you. We will take our next question from Paul Jessen of Danske Bank. 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? And then combined with this Slide 17 about the market shares, who are currently gaining share? Are those newcomers with aggressive pricing? Or is it the more incumbent like you, which have more focus on the broad product line and then are not that focused on the price? That's one. And then when it comes to the Savanto and the Boost, we're 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 Boost announced that they are also going to take Mac in now. And when you said that you got Mac on board, you said that you would also have the opportunity to cancel agreements with others who or with suppliers who then suddenly put their products on a broader platform in Denmark. So if you could comment on that. And then just clarification on this total €800,000,000 that's excluding imports, as I understand it then. Thank you. Yes, it's excluding it's good point. 800,000,000 is excluding cross border. So 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 have between the players have actually been quite constant for the last couple of years. So we're not seeing one or two pulling ahead of the pack. But as you mentioned, Paul, we think what's going to happen is this area is going to be professionalized quite a lot with the entrants of some of the broader marketplace players. So what we're saying is the time is now to consolidate this market and to take our place in the market. And Anders will comment on the MAX situation. Yes. On the MAX situation, that's two points here. First of all, of course, as you know, Boost is operating in other countries in Denmark. That's one point to be made here. Secondly, I think we were well aware at the time that we are not going to be able to keep MAC as exclusive distribution in online in Matas Forever. So it was a bit of also a question of working with it as long as we can. And I don't think we have any interest at this point in time in filling out MAP because it's a good brand that we make money on selling. So those developments is something that happens in the commercial world. But I'm sure we will have a good and what is known as a good and honest conversation with the robot. As soon as we lose exclusivity, there is a conversation that is on more regular commercial terms. And how do you see the balance between both booths, 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. But versus the parallel importers, do you believe that you can win this market without being matching the prices of the parallel importers in this segment, especially when it comes to hair products and moistures and so on? So the high end, Paul? Yes, it's both. The parallel imports, they are in the high end. Yes, right. The short answer, yes, we think we can win this market. We know that we are 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 off line sales is I think that's part of the game. So and 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. So I think as we look across Europe and other regions, we do see that specialist players have a good chance of becoming one 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. And this is an area and it's a very good question, Paul. This is an area that we talk a lot to customers about whether it's is it just price online. And the answer increasingly is it's not just price. It's a combination of the customer experience, the availability of 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 then 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 it's the right thing to say here as we guide year on year, year by year on that. And the dynamics 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. And as you know, now the case is that we will make more money on the off line side than on the online side. But we do quite rapidly approach a place where online is starting to scale. And we also 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. So 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 is no one else there. I guess most people were on the until March day. Yes, yes, you're right, Paul. You're right. We will take our next question from Nicolas Gorgmann of Handelsbanken. Please go ahead. Yes, thank you. I'm back. So first of all, the question the second question might be related to the first, but it's quite a long time frame this for doing these strategic changes, several years and while profitability is declining quite quickly. So 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. I mean 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. So 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. And also, finally, we have no well, we have a guess 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, like linear growth or you're going to see more kind of exponential growth over the period, kind of like a catch up effect. So 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. So the question second question was then that why is the store conversions why do you have this approach to the store conversions that you're going do a few then wait and do a few more? I mean, 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? Or I mean, doing your 150 stores shouldn't need to take several because, I mean, there are other retailers that can do 400 stores in a year. Yes. 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. And there are a number of issues that with the current concept, the most recent concept that we've put in place, it doesn't really solve all the issues related to omnichannel, for example. And we also want to we think our categories and our product mix is going to change more than it has done in the recent concept. And maybe a more general comment. It's 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. So 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. It's a very good Okay. And the market development, you said market shares of the physical players appear to be pretty stable. So do you feel like the biggest competitive threat right now is coming from online rather than any of your store based competitors? We our competitors to keep adding more stores when we talk about May. 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. But we're not seeing a step change in competition in the physical world. So 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. Was it, I think. Thank you very much. Thank you. We will take a follow on question from Paul Jessen of Danske Bank. Please go ahead. Yes, thank you. Coming to the gearing guidance you had given, if I calculate the EBITDA which you are guiding, the $520,000,000 to $560,000,000 and put the 2.5 to three times gearing on that one, that means that you should have a debt of about $1,300,000,000 in the worst case at the end of the period. That means that you should reduce debt by about €200,000,000 over the coming five years. Is that number that you can recognize? I can recognize many numbers, Paul. But you are right in saying that you get to talk, but it's not an aggressive move down on debt. And yes, I would it's not unreasonable, let me do it that way. But that means that the debt reductions you're talking about where you are releasing some liquidity from reducing the dividend is about €40,000,000 €50,000,000 per annum. Don't think that's too detailed. You just do the calculation like that. Okay. There is a measure in with what we see with the EBITDA, then probably we need to run with Pfizer, I didn't ask a smaller question. Yes. That's And the the magnitude of that, there are many are many computations in the sense on how you do it. But you're absolutely right. Of course, with the lower EBITDA, yes, there's a lower limit. Okay. And then 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 and then 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've just seen other companies who had to come out with a strategy update that they did it now so that they didn't We have to make a discussed it with the to be honest, Paul, we discussed it with the auditors, and there's a general agreement that this is next year. Next year, we will come out with that number that you're talking about. Okay. And then you lose some revenue because you closed down Stylebox. Much will that impact next year? Probably impacting the sort of level that you were talking about, the 30% to 50% you were talking about? I think we said 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, Elizabeth. Sorry, Paul. So 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 50,000,000 My share of that now? Yes. That was a full year effect. That was a full year effect. And then the that would translate into an EBITA effect of between 30,000,000 to 40,000,000 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 the part of the guidance, so we wouldn't say that if you just look at the top line, you're looking less than 50,000,000 Okay. And then on Page 13, in the report, you mentioned a claim against the company. Is that not worth talking about? It is low single digit million now that we have reserved for that. So that's taking a provision in the fourth quarter numbers? Correct. In the other external cost? Other external costs, yes. Okay. And then the final one from me, inventories. You have I think we have spoken inventories for three years, and you said you have to do something about the inventories. How shall we look at it? Struggled on this one continuously throughout the period. Yes. Mean the thing is, 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. So 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 sales. So right now, we're sort of looking at it and looking at it also in the conjunction with the whole idea about taking out the 20% of SKUs that Greg has mentioned. So yes, we definitely have some ambitions on working capital, but try to do it in a smart way. And it is 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 But you're currently at about 22% of revenues. Where would you Yes. Like to see Well, I mean, I'm not going to we this is we'll have an ongoing discussion on that internally and with the Board, and we are ready to make an announcement of it. I'll be sure to tell you. You disappeared there or did you end? No, sorry. I was just saying that we don't have a specific target like that. But if we do have get one at a future point, I'll be sure to tell you. Okay. I think I'm done. All right. Thanks. Okay. I think we will say thank you for listening in, those of you who didn't attend the CNB. And if you have further questions, please feel free just to give us a ring or send us an e mail, and 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.