Good day, welcome to the Q2 2017/18 report conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Gregers Wedell-Wedellsborg, CEO. Please go ahead, sir.
Thank you, good afternoon, everyone. Welcome to our presentation covering the first half of the 2017/18 financial year. My name is Gregers Wedell-Wedellsborg. This is the first time we meet. I took over as CEO of Matas on Wednesday last week, November 1st. With me today on the call, I have Anders Skole-Sørensen, our CFO, and Elisabeth Toftmann Klintholm, our head of investor relations and strategy. I would like to start off by offering a few comments on Matas. Afterwards, Anders will take you through the presentation of our Q2 numbers and the outlook for 2017/18. Then I will take over again to make some comments on the measures to boost our performance, we have announced those today, and on the strategic work that we have ahead of us. We will end with the usual Q&A session.
The division of labor today is that Anders will take care of the numbers, and I will answer some of the more forward-looking questions. Please turn to slide three. At this early stage of my time with Matas, eight days in, I would like to start by addressing some of the concerns that have been raised lately and sharing my thinking around Matas, our position, and the work we have ahead of us. Firstly, we remain a strong and well-run company. We have a solid cash flow. Also, I have to say that we fully recognize the nature and the scale and the urgency of the challenges that we face. We commit to addressing speed, and that is a word you are going to hear many times, and force, we are going to be as transparent as possible. Secondly, today, we have announced a series of short-term actions.
The purpose of these actions is to free up resources long-term. We are not today making a promise that we can reignite short-term growth at this stage. That would be, I think, naive. Lastly, we have initiated a strategic to ensure that our long-term plan addresses the ongoing transformation of the retail business. I would like to impress on you that I think that Matas is uniquely well-positioned to emerge stronger from that transformation. There are a few that still cast us as a conventional brick-and-mortar retailer struggling to defend against disruption. I believe that we are something different and more promising than that. I will come back to these three points in more detail after Anders has taken us through the financial results. To you, Anders.
Thank you, Gregers. Let me begin by giving you some headlines on the financials and the business development in the second quarter of our financial year. In the second quarter, we saw total sales rise 0.8% year-on-year. Sales growth except the material area and the average basket grew by 6.6% year-on-year in the quarter. We did, however, see a reduction in customer traffic. The development in the gross margin was disappointing with a drop of 2.7 percentage points compared to the same quarter last year. The gross margin stood at 44.2% in the second quarter. If we exclude the non-recurring DKK 12.7 million that we incurred in the quarter in connection with the change of CEO, total cost in the second quarter declined by around DKK 12 million compared to the same quarter last year.
Our EBITA margin fell to 11.4% in the second quarter, which was 1.2 percentage points lower than in the same quarter last year, where it stood at 12.6%. EBITA for the second quarter was DKK 89 million, while adjusted net profit came in at DKK 65 million, a drop of DKK 8.5 million and DKK 4.1 million, respectively. Cash from operating activities amounted to DKK 48 million in the quarter, a rise of DKK 46 million compared to the second quarter of last year due to a more positive development in working capital. If you could please turn to slide number five. On slide number five, we dive a little bit more into the growth. As I said, total sales were up by 0.8%, also was the case for the underlying sales. On the positive side, we saw an increase in the average basket.
However, also as mentioned before, when we look at our segments, sales in the beauty continued to show growth of almost 8%, while we continued to have problems in the mass market with beauty sales in the mass market falling by 2.6%. High-end beauty was supported by a trend towards moving upmarket for some customers, particularly within skincare, but also by the strong performance of some of the new brands we have introduced, in particular MAC and NYX. This, however, was negatively mirrored by a fall in the sales of mass beauty products. A higher number of competing stores compared to the second quarter last year. That, however, was expected. On top, we saw competition from supermarkets increasing in the quarter, which negatively affected sales in the mass-market beauty category.
The vital business, focusing on dietary supplements, saw sales rise by almost 12%, a strong performance on the back of very strong campaign offers, for example, get three for the price of two campaigns. In the material business, Q2 sales fell 8% due to an increased competition on a number of core products and disappointing sales of some seasonal products. Please turn to slide number six. On slide number six, we look at the gross margin development. Gross margin was realized at 44% in the second quarter, down from 46.9% in the same quarter last year. Despite the rise in sales, total gross profit in the quarter amounted to DKK 344 million, which was DKK 18 million lower than the same quarter last year.
As you know, our gross margin may fluctuate from quarter to quarter, depending on the competitive situation, on the exact timing and effect of products on campaign, and on several other factors, such as swings in the sale of seasonal products. This quarter, we saw, as mentioned, a further increase in competitive pressure, particularly from the supermarket sector. We responded by sharpening the prices of our campaign offers and by increasing the numbers of products on campaign. The result was an increase in the proportion of sales and campaign, and thus, a lower gross margin. Generally, we ourselves look most at the last 12 months trailing gross margin, and here we can now see a clear decline from 46.3% at the end of Q1 to 45.7% at the end of. Please turn to slide number seven. On slide number seven, we look at EBITDA.
As mentioned, the EBITDA margin came in at 11.4%, a decline of 1.2 percentage points when compared to last year. Please note that EBITDA excludes the non-recurring costs associated with the CEO change in Q2. EBITDA was DKK 89 million, down from DKK 98 million in the second quarter of last year. The drop in EBITDA margin was caused by the reduction in gross margin as costs fell as a percentage of sales in the second quarter compared to the same quarter last year. Staff costs, as you know, by far the biggest single cost item for us, excluding one-off costs, decreased to DKK 169 million from DKK 180 million in the second quarter of last year. Staff costs measured as a percentage of sales stood at 21.7% in the second quarter, down from 23.3% in the second quarter of last year.
The decrease was mainly driven by the cost-trimming program implemented at the end of the last financial year and a continued tight cost management in general. Please turn to slide number eight. You can see our net financial costs fell to DKK 5.3 million in the second quarter, a drop of DKK 3 million from DKK 8.4 million in the year earlier period. This, however, does not include the mark to market of the interest rate swap we have in place. The effective tax rate was 22% in the quarter and unchanged from the same quarter last year. The profit for the period after tax was DKK 40 million compared to DKK 55 million in the second quarter of last year. Adjusted profit after tax for the quarter was DKK 64 million from the second quarter of. With that, slide nine. On slide number nine, we take a short look at inventories.
As you can see, inventories increased by DKK 18 million in the quarter due to normal seasonal inventory buildup before the Christmas period. Inventories stood at 22.5% of last 12 months sales at the end of the quarter. Now, if you could turn to slide number 10, talk a little bit about net working capital. As said, slide number 10 is around net working capital. In the second quarter, we saw a cash DKK 53 million driven by changes in capital. The outflow was markedly lower than DKK 7 million in the second quarter of last year. This quarter, we saw both a smaller buildup of inventories and less of a reduction in trade payables than we saw in the same quarter of last year, which led to the improvement. Now please turn to slide number 11.
You can see cash flow from operating activities in the first quarter in DKK, up from just DKK 2 million in the first quarter of last year. With almost unchanged overall CapEx in the quarter, free cash flow rose to DKK 25 million from a negative DKK 22 million in the same quarter of last year. If you look at cash flow from financing activities, they were much lower than last year. That was just due to the timing of the financing of part of the dividend payment, which was paid out in the beginning of the quarter. Now please go to slide 12. Structure. Gross debt stood at DKK 1.75 billion at the end of September this year, thus within our target range for the gross debt of DKK 1.6 billion-DKK 1.8 billion.
Net interest-bearing debt stood at 2.8 times last 12 months EBITDA. That is before one-offs, which was the same level as at the end of September last year. There is no change to our capital structure. We still intend to pay out at least 60% of adjusted net profit as a dividend to our shareholders. To distribute excess cash through share buybacks. You will, however, hopefully have noticed that in connection with the announcement of our revised guidance for this financial year in October, we made it clear that the board to initiate a new buyback program for this year, 2017-18. With that, please turn to slide. Slide 13, we reiterate the guidance for 2017 as it was changed in October.
Our guidance for the full year is a decline in underlying like-for-like sales or revenue of between 0%-2% after the effect from fewer trading days of taking them into account. EBITA before exceptional items of between DKK 440 million-DKK 470 million. Investments CapEx of around DKK 90 million-DKK 100 million, excluding store acquisitions. Please note that EBITA is by definition stated before exceptional items. Accordingly, any exceptional items related to the announced measures to improve the profit performance are not included in the EBITA guidance for 2017-18. However, the non-recurring costs of DKK 12.7 million incurred in connection with the change of Matas' CEO, that sum is included in the EBITA guidance as we put it out in October. With that, I have concluded the run-through of the financial figures.
Over to Gregers again for comments on the announced measures to enhance Matas' short-term performance. Straight go to slide 14.
As you've just heard, Matas remains a solid business with a good cash flow. At the same time, we are facing increasing competition from both physical and online retailers. There are no significant tailwinds from consumption growth that will benefit us, and that obviously impacts footfall, consequently, we offer deeper discounts, we run more frequent campaigns to maintain top line. Our short-term response to the receding revenue and margin pressure is to launch a range of measures to first, deliver a more attractive value, the mass beauty category that troubles us the most, to shift resources from low growth loss and cost-consuming activities to more promising growth initiatives. These short-term measures include both the customer-centric measures and cost reductions. For the customer-centric measures, please turn to slide 15.
We strive to be a first choice for customers seeking a broad range, exclusive brands, and second to none service in store. As mentioned earlier, Matas, our countrywide network, our very successful web shop, and what I believe is a cutting-edge connected retail offering. Due to these strengths, we are growing above the market rate in high-end beauty and vital, but we are challenged in mass beauty due to increased price competition. I want to point out that the Matas concept should remain clearly differentiated and should not try to beat discounters on their own turf. We will step up investments in campaigns. We will reduce prices on key brands, including our own Striberne, in order to maintain the Matas formula and the customer promise of better quality at fair prices.
We will introduce tangible new benefits and more personalized offerings to our close to 1.8 million Club Matas members. I think it's a surprise to some, actually, in the public that Matas.dk, our online shop, offers by far the widest range in health and beauty. In the second half of the financial year, we will step up efforts to strengthen our digital position within health and beauty. We today announced that we have hired an e-commerce director, a very seasoned one, who will join the executive team and report directly to the CEO. He will be responsible for driving our online growth and expanding our position in online. We will allocate more resources to online to make it easier and to build awareness of our online offer. Also, we'll continue to develop Club Matas as well as our touchpoints on social media and mobile.
I can add that the margin pressure that arises from these initiatives is captured in our full year guidance as Anders mentioned before. Please turn to slide 16 for the cost reductions. To free up both the management focus and the funds and the people for customer-facing initiatives, we have made three decisions to exit low growth or cost-consuming activities. First, StyleBox by Matas will be closed down, five stores. Despite a consistent effort, StyleBox has not proven its potential to scale to a national level. We think that the gains from additional expansion of the chain is very limited, so the standalone stores will be closed for some converted into the Matas format in the second half of the financial year.
The StyleBox shop in shop in Rødovre store will stay open, and that will allow us to continue to market the most popular parts of the selective haircare and nail care range online. Second, we will accelerate the consolidation of our store network with particular focus on mid-sized towns. This will include store mergers, moves, potentially some store closures. To the extent that we end up closing stores, and we've made no decision to do so yet, we expect a substantial part of the revenue from those store closures to migrate to neighboring Matas stores. Third, we have initiated a cost-cutting program centered on back office and non-customer-oriented activities. We will continue to take out cost in the stores through implementation of new technology, like workforce planning tools.
Overall, these cost-cutting measures set out above are expected to reduce revenue by between DKK 40 million and DKK 50 million in the financial year 2018 and 2019. The measures are expected to trigger costs in the form of exceptional items in the amount of DKK 15 million to DKK 25 million in this financial year, 2017-2018. This will include, sorry, exclude any goodwill amortization. The positive effect on EBITA is expected to be between DKK 30 million and DKK 40 million in the financial year 2018 and 2019. As mentioned, a major share of these gains and this increase will be reinvested in initiatives to boost growth and to remain competitive. Therefore, from these initiatives, we only expect a moderate positive effect on our profit performance in 2019 and 2020. Please turn to slide 17 for the strategy update.
Matas presented its 2020 strategy, focusing on customer centricity and digitalization about a year and a half ago in June 2016. We will continue to pursue those two targets, customer centricity and digitalization. At the same time, it is clear that we need to adapt to a new reality. Despite whatever competitive pressure we're seeing now, we believe that Matas is very well-positioned to navigate this transition and succeed in the future. I think that is because we are at heart a relationship retailer. This is what most retailers dream of being. Most in-store transactions entail advice and service. It's very hard to copy. It enables upselling, and you all take note of our increase in basket size as evidence of that.
Over the years, we have invested in taking that relationship digital as well. Club Matas and our IT platform, our apps and matas.dk are completely up to date, and they are crucially free of teething problems. As a result, we can focus most of our resources on having a high technological and commercial innovation rate. For example, as one example, we are now in a position where about 20% of our online sales are driven by categories that are only online and not in the stores. I think that looking and coming from another part of retail, and also looking at it international, I think Matas is at the forefront of what we might call the connected retail revolution. We have a number of things in the pipeline, and we look forward to presenting new initiatives on this front.
As our current growth rates and the competitive situation will not allow us to reach our 2020 target of DKK 4 billion, we need to review and update our strategy and long-term financial targets. Therefore, we have decided to initiate a strategic review process. We will take a look at each of the building blocks in our strategy in order to refocus, reprioritize, and add new perspectives. This work will be ongoing to reflect the dynamic environment, and we will update you as soon as we have relevant news to share. Thank you. With that, we have concluded the presentation of our Q2 2017/18 financial results. Please turn to slide 18 for the Q&A. We are now ready to take your questions, and I'll hand over to you, operator.
Thank you, sir. If you would like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself by pressing star 2. Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We can take our first question from Claus Almer from Nordea. Please go ahead. Your line is open.
Thank you. I have a few questions. First of all, Gregers, congratulations with your job.
Thank you.
I guess you will be busy in the start, at least.
Absolutely.
Yeah. Well, my first question goes to some of these new strategies you're talking about in the report. I'm a little bit unclear, will you be more price aggressive also in the high-end beauty segment? That would be the first question.
Mainly in the mass beauty segment, but we continue to offer strong campaigns in the high-end beauty as well.
Okay, will you be fully or partly compensated by the suppliers when you're doing these campaigns?
I cannot comment on that at this point.
Okay. My final question goes to the capital structure, which was also part of the presentation. 2.8 times net debt to EBITDA. Do you see any issues with your capital structure to do the strategies you would like to implement?
No, at this present time, we don't see that this is a problem vis-a-vis that we are also, as you know, freeing up resources through the program that we've initiated. We don't feel that we are stretched. You should also keep in mind that the end of the second quarter is a point where debt is relatively high, as the third quarter is a big quarter from a turnover perspective and will entail a significantly positive cash flow.
Is there a threshold at 3 times, then we will start to see some changes to your ability to be flexible? Yeah, can you put some more into that?
As we've told you earlier, of course, there are covenants in our financial structures, but we are nowhere near them. I think that's as far as I can put it.
Okay. Just my final question, which goes to this wording about next year. This DKK 30 million-DKK 40 million positive impact, does that include the negative effect on the top line, or should we put that together and get this moderate positive impact on the EBITDA line?
The DKK 30 million to DKK 40 million on top line is of course included in the overall result. I think it's important to say that what we're saying is that we look for a positive impact of EBITDA of these measures to between DKK 30 million and DKK 40 million next year, but that most of that will be plowed back into the business. We won't actually see a net positive effect of that size. It'll be much more because we are using that money to fuel the initiatives.
Sure. I'll just be 100% sure. DKK 40 million to DKK 50 million less revenue, as I understand, I mean, with a 45% gross margin, will obviously have a material negative impact on the profit line.
Yeah.
Is that included in your EBITDA moderate impact comment?
Well, we're not guiding for next year yet. I mean, we are saying, look, if you're taking on the one hand, there are some negative impacts from the fact that we are not having the turnover from, say, StyleBox. We are saying on the positive side, there are these effects. We're not giving you a full guidance as such, of course, at this point in time. There are negatives and positives, you're quite right.
That I understand. I'm not trying to figure out your guidance for next year. I'm just trying to be 100% sure whether your impact on the EBITDA line is including the lower revenue.
That is including. Yeah, that is including the lower revenue. Yeah.
Okay. Thank you.
Thank you. We can now take our next question from Frans Høyer from Jyske Bank. Please go ahead. Your line is open.
Well, I just wanted to clarify the DKK 15 million-DKK 25 million one-off costs in the current year. I'm not clear whether it is or is not included in your EBITDA guidance.
No, that is not included. What is included is the DKK 12.7 specifically regarding the CEO change.
Excellent. Thank you. On the issue of goodwill write-offs, what are the items that are looking a bit risky there?
No. We're saying, look, if it ends up, as Greg has mentioned, we haven't taken any decisions on that, if it ends up that there are some stores that we close, we might be in a situation where there is some goodwill on some of the stores that we have in the portfolio that we need to adjust. These are not big numbers, and these are not cash-
No
they don't tie cash up in any way, there might be some technical adjustments that we have to carry out.
Are we talking the StyleBox goodwill or?
Not the StyleBox. The StyleBox is actually different because in StyleBox, we have to take some writes off on what we call key money. That is part of what we mentioned in the numbers already.
Understood.
It's potentially on Matas stores.
Another line of questioning regarding the margin, the gross margin pressure. It feels like the pressure has spread from the low end to higher up the price point, the price ladder. Is that so? How do you, if we look at especially the issue of supermarkets reacting now so forcefully as they are doing quite late, but very forceful, what are the key levers that you put to work to try and defend or counter that forceful reaction?
As mentioned today, I think our main issue is in the mass beauty category, and we decided to lower prices on selected items and selected brands in that case. With regards to other categories, we can't really be exact on the margins. If they are spreading, we're not seeing it at the current point, except to mention that we need to maintain an overall higher promotion pressure, and I think that's what you're seeing in the numbers.
Okay.
Thank you. We can now take our next question from Poul Jensen from Danske Bank. Please go ahead.
Yes, thank you. A few questions. First, if you could add some text of this change in all the current trading update. I was just having a thought that Normal, now they're going to much less store openings on a year-over-year comparison, as we've had in the last few years, when we look forward. Is it fair to assume that when you see the change here, it is more or less only related to the supermarkets reacting? Second question, when you talk about store closures, do you have any idea of how much we should look at, five, 10, 20, or how many that you're going to combine or close down?
Oh, sorry. Well, let me just take the first one, Poul. In the second quarter, now, there's a difference between second and third. In the second quarter, there was still a fair number of new stores in the Normal chain opening up in the second quarter of this year that wasn't open in the second quarter of last year. That tail off in the impact from new openings in Normal is really first from the third quarter and onwards, just to be precise.
Yeah, agreed.
What we saw in the second quarter, we both had the effect of these extra Normal stores, and we secondly also had the effect of the supermarkets reacting quite strongly on top of that. That was just to answer the first question.
My point is, if I may add it.
Yes.
My point is that if you in the past have been having like-for-like growth in a period where Normal has, in some quarters, doubled the number of stores or added this in the recent quarter, about two-thirds of more stores to it, when you go forward, you get down to about five additional stores or some 7% if we count stores. When you guide for the full year, the majority of that negative impact will be in the second half, where the market should ease up on the headwind. Therefore, the headwind must come from somewhere else. Is it only the supermarkets where you see the major headwind now?
No, what you're trying to say is that you're discussing whether or not the effects on Q3 and Q4.
Yeah
The reason why. We are seeing overall a pressure because of not only from what Normal is doing, not just from opening stores, but also the way they're acting. Also, as you quite rightly point out, we've also seen a sharp increase in the competitive pressures from the supermarket. Then the overall general development that we see, as you may note, we've seen the fall-off in traffic has continued into this quarter that we for the very first time, we're actually making a comment on this quarter by stating that the drop-off in traffic that we saw in the second quarter has continued in the first month of the new quarter.
Okay. Then about store closures.
Oh, store closures.
What is the magnitude we have to look at?
Just to be very clear, we have not decided to close stores. What we indicate is that we think there is and we have a very healthy store network. Surprisingly healthy for someone coming from the outside. Very few loss-making stores. What we're talking about is an overall store portfolio review to decide where can we consolidate in mid-size cities. Are there a few stores that underperform and might not perform in the future? Also, take note, please, that we are actually opening Matas in three of the StyleBox locations. We're actually adding stores on the short term.
If you consolidate stores in some towns or cities, then you must close some as well.
Yeah.
We do a review. We just want to indicate that we think there is some potential by looking at the store network to do a number of different things, we just indicate to you that we look at that.
There's a big difference because if we do like we did in Sønderborg, Poul, where we had three stores and amalgamated them into one store, that actually was not negative for the overall Matas sales. Yes, we closed down three stores. Net, we closed down two stores, but we moved that straight to the new store, which actually has higher sales numbers than those three old stores added up.
When you talk about the DKK 40 million-DKK 50 million in lower sales next year, or the negative impact from these actions, it's more from the price reductions?
StyleBox.
No, a big part of it is actually StyleBox.
Okay.
Yeah.
Back to the question that were before on being more aggressive in the high end. How is the dynamics there? Is it possible to go out and be major driven by campaigns, given that the larger brands are not happy that people are discounting the brands?
The brands are not necessarily, of course, they don't want their brands to become discount brands. The fact that we once in a while run a cross-brand campaigns is nothing new. You will see all the players do that. You see that in Magasin, for instance. It's not as if that's a no-go in the high end market.
Okay. Thank you.
Thank you. We will now take our next question from Christian Reinholdt from SmallCap Danmark. Please go ahead.
Hello. Back to the gross margin. You have taken this hit in the second quarter. I just wonder if you can shed any light on what you expect going forward. Is it enough, or should we expect a further deterioration of the gross margin in the coming years?
Well, first of all, you can read from the fact that we made the downgrade that we did on the expectations, that of course, there is a part of it coming from the sales part, and there's a part of it that has to do with margins. For this financial year, yes, we do expect margins to be lower, and that is covered by the revised guides we gave. As to the coming year, we're not discussing guidance right now. We're not of the opinion, in general, that this is just the beginning of a long slide to whatever, a much, much lower level. There is definitely a step change in gross margin, and that is what we've-
Yeah, it's very important if it's done with the 2%-3% we're seeing it right now, or we should expect it to drop further.
Yeah. That is something that we will also have to revert to when we come back to the more long-term strategic outlook that Gregers referred to earlier.
Yeah. Okay, fair enough. You have had a program where you have upgraded some of the shops. I just wonder if you could give us a status on that. It was 30-40 shops that you had in mind originally. Where are we now?
We are, I don't know, not quite at the midpoint. We're close to the midpoint. We can say that as is always the case with these kind of programs, we have some very successful stores that have done better than expected. We also have some where we have had to scratch our heads and say, "Hmm, what happened here? Didn't quite perform as expected." We are in a process where this is ongoing. As is also pointed out from the CapEx numbers that we shared with you, we are working with this process and going on with this process right now. It's more or less on schedule.
When we go to online, you had a nice growth there. Could you give us how much it is of total turnover you take on online these days?
We usually give out the numbers on that on a yearly basis. That's something that we'll hold on to right now. We're saying right now, last year we said about 3% of sales.
3%. Okay.
Yeah. As you're quite right, it's growing much faster than the rest. Of course it is increasing its share.
Is it margin diluting if you get the turnover from the physical?
It's a fair point. We've stated before that, look, we make money on our online and I will attest to that, we do. Of course, we've also made it clear that the margin from online is not as high as it is from the store level. Yes, there is some small margin diluted effect from it.
Do you think you can do something about that in going forward, or should we just accept that?
I think what you should look at is that we have a decent track record on having a web-only range as well, and we see further potential in that also to positively affect the margins on the online business. No promises, but we think there are opportunities.
Okay. My last question is your own product, Striber. Is it all included in mass beauty?
Not all. There's actually Striber products outside the beauty area, but there's nothing in the high end. There are also Striber products in material, and there are also Striber products in Vital for instance, we have our own cod liver oil pills and our own vitamin pills and so forth and so on. It's across all of the segments except high end. The bulk of it is in the mass market beauty.
Yeah. How much is it these days of the total turnover?
What was the last number we came up with that? Is it 16% or 17% on the Stripes?
Private labels in total accounts for about 18%. That includes other private labels than the Stripes.
Yeah. Okay.
We haven't-
That's all for me. Thank you.
Thank you.
Thank you. We will take a follow-up question from Frans Høyer. Please go ahead.
Yeah, I just wondered about the other external cost, the net figure there, which you didn't comment on. I wondered whether there's been any change in your share of voice in the market. Are you as visible to the consumers as you have been, or has there been any reduction or increase in that? Also a question about whether suppliers are likely, or what is their willingness nowadays to contribute towards your external communication costs and so on. Do you see any risk in that, or opportunity for that matter, in that aspect?
I think we've discussed earlier that some of the measures we did last year was that we were running the way we do the Matas leaflet, the way that it's produced and organized and so forth, has been tightened up and has been done more efficiently. There has been a small reduction in the number of pages. I would say that the Danish population as such would not have considered that there is a drop in the share of voice. That is very, very marginal. As to the willingness of our suppliers, we have a very close connection with our suppliers, and we still feel that they are very much willing to play with us in this, and they consider Matas to be an extremely important channel to which to bring their message out to the Danish public.
There's always a risk, of course, but right now we don't see that as being a huge thing.
Thanks.
You will notice that if you open up the Danish flow TV, if any of you still watch the flow TV, we are actually running TV campaigns more aggressively this year than we've done for the last at least many years as I can remember. That is going on 10 years now.
Okay, thanks.
Thank you. We will take another follow-up question from Claus Almer. Please go ahead.
Thank you. Yeah, it was just, Anders, your comment about the gross margin, just to be 100% sure I understood. Did you say that we should expect a further deterioration this year on the gross margin, or is Q2 the new level?
No, I'm saying that if you look at the guidance that we gave out, and you look at the numbers compared to the old guidance, in order to make those numbers stack up, and of course, there's a range here, but nonetheless, you see those numbers stack up. Some of it is, of course, because we're guiding on our lower sales, but some of it is also that necessary to make the numbers stack up given that costs are not running ahead of what they should be. Of course, there's also in that guidance, an implicit drop in overall gross margin from 2016-17 to 2017-18.
Yeah. Okay, it was compared to last year. This absolute level we saw in Q2 is more the new norm, so to speak.
That, of course, is very difficult to say exactly what number you're going to end up with, but implicitly through the guidance, you can see that there's a drop-off.
Yeah. The full deterioration was seen in the full quarter, more or less. There's no read over into the Q3 from that perspective?
I can't comment on that.
Okay. Fair enough. Thanks.
Yeah.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. We will take a further follow-up question from Poul Jensen. Please go ahead.
Yes. Thank you. That was just on the savings of the DKK 30 million to DKK 40 million, which then will be partly or mainly reinvested next year. Is that in lower prices, or is it in more cost on the OpEx side if you want to reinvest?
It's a combination. It's to strengthen our in-store offers in the Matas store, it's also to add resources, especially to our digital branch.
Do I have any indication if it's 50/50 or?
Not at the current. These early actions serve mainly to give us a reserve to be able to invest in future growth. We have not pinpointed exactly how we're going to spend it.
Okay. Thank you.
Thank you. There are no further questions in the phone queue at this time. I will hand back to our hosts for any additional or closing remarks.
Thank you so much.
Yeah
first time.
Yeah.
I don't think there's anything more to add. Thank you.
I don't think there is anything more to add. If there are no more questions.
Insightful questions.
Yeah.
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Thank you, ladies and gentlemen. That will conclude today's call. Thank you for your participation. You may now disconnect.