Welcome to the Matas Q1 report for 2023. For the first part of this call, all participants are in a listen-only mode. Afterwards, there'll be a question and answer session. To ask a question, please press five star on your telephone keypad. This call is being recorded. I now hand it over to the speakers. Please begin.
Thank you very much, operator, welcome all to the call covering the first quarter of our financial year. I am joined by our CFO, Per Madsen. This, of course, is a special quarter for us because it is the last quarter as a purely Danish company, the last quarter before we enter a new era for Matas, looking into the closing of the acquisition of KICKS Group. If you please turn to the next slide covering the agenda. I will give some comments, just high level on the quarter, especially on what the quarter tells you about our strategic progress. I will give you a very brief update and refresher of our acquisition of KICKS Group as we move towards closing.
Then I will hand over to Per to cover the financial results in more detail, and then we will open up for questions. If you turn to the next slide, please. This is last quarter as a Danish company. So a good testament to the health and the momentum of Matas as a business. If you turn to the next slide with the numbers, we have seen a very strong beginning of the financial year. So we are entering our new chapter in really strong form, both commercially and strategically. The numbers, almost DKK 100 million uplift to DKK 1,150 million kroner in revenues. Earnings improved by nearly DKK 10 million to DKK 201 million.
That's a revenue growth of 9.2%, and a EBITDA margin of 17.5, very well in line with our guidance for the year. I think the most significant number perhaps is, apart from the growth, is that growth is driven by transactions. This is really more customers shopping with Matas, and the customers who we already have are shopping more frequently with Matas, and we consider that to be a very healthy sign and a very healthy driver of growth. I will return to what comes back or what lies behind that. With this performance in the first quarter, we upgrade our financial expectations for the year. If you turn to the next slide, please, slide 6.
We change our revenue growth expectations from previously 3%-6% growth to now 4%-7% growth for the year. We maintain our EBITDA margin guidance before special items around 17%, reflecting our intention to invest in fueling the Growing Matas Group and continue to invest in expanding the assortment and creating awareness around the assortments. Finally, it's a big CapEx year for us, and this is excluding the acquisition of KICKS.
A CapEx year of DKK 425 million-DKK 450 million, and the big driver of that is the first phase of our Matas Logistics Center, which we are now in doing the real work, not just the paperwork, but actually starting to do the real work of constructing the Matas Logistics Center. If you turn to the next slide, slide 7. I'm happy to report that the Growing Matas Group strategy, with it, which is about two years old, is really proving its worth across all the six tracks that we monitor. I will get back to the first two, our online growth, and our assortment expansion. Just to mention that also on other tracks, we're making progress.
In Germany, we have just received news that we will be listing Nilens Jord, our makeup brand, in 65 stores in Germany, Nilens Jord being a higher value product than the stripes and with an attractive margin. This is definitely a good thing for our journey towards break even in our journey, German export business. we have broken ground on and are testing for all kinds of environmental samples that you have to do and starting to remove the soil to prepare for the construction of the Matas Logistics Center. now it's starting to feel real and we are according, exactly according to timeline. I just want to remind that the facilities that we're building, it is a big facility.
It has adequate room to support our long-term assortment expansion journey, and we will also be able to serve parts of Sweden if we find that to be, and parts of the Nordics as well, if we find that to be of relevance. Finally, we continue to make progress both on reporting and baselining and pre-preparation for CSRD on ESG issues, and we have a special focus on the social aspects of our ESG agenda. If you turn to slide number 8, this is really the core of our growth strategy. We're not relying too much these days or these, these years on getting a lot of market growth.
Our growth, key growth driver is to expand the assortment that's available on matas.dk and market that to our existing customers, enticing them to buy new brands, buy into new categories, new types of products that they don't usually shop with Matas. We're seeing that that strategy is working. We have seen that for a number of courses. Actually, half of the growth in Q1 is attributable to the recent brands and products that we have introduced. Very happy with the, with that result, and we see it as, as good proof that, that customers actually want to shop beyond their usual fare with Matas. This is, we find another quarter that proves that strategy to be solid and be a good driver of growth, even in a wobbly market.
If you turn to the next slide, one of the numbers that we're particularly happy with, is the e-commerce growth of 26% in the first quarter. Of course, as many of you know, e-commerce as such, has had, had a long period of slow growth online, if you look at the markets, after COVID, because COVID obviously boosted online, and, and, we're seeing even compared to our peak in COVID, a 12% up, and of course, 26% compared to last year, driven both by our core assortment and core offering, which just continues to deliver results, also, the assortment expansion, which gives us growth above and way, way above and beyond what the market is able to do.
If you turn to the next slide, one number that we monitor quite closely, even though it's not very significant in terms of revenue, this is the next step and next phase of expanding the assortment online, namely, to allow our colleagues in the store to offer the broadest assortment, the, the entire online assortment, to customers shopping in our physical stores. We spend a lot of time educating our colleagues in the stores on what's available online, and training them on how they can advise the customer and inspire the customer to buy from our online assortment.
For a store manager, this is really interesting because, because she's no longer just dependent on her footfall and the assortment she has in store, but she can actually do additional sales that are not cannibalizing to the business because it's new categories, new brands, new products, customers that she, she doesn't have to turn away. Really an initiative that is, I think pinpoints that assortment expansion is a lot more than just making the assortment available. It is also the entire group standing behind that assortment and making it known to the customer. A number we're really happy to see tracking well and even above our online growth.
With that, we'll turn, turn to the next slide, I will make a few comments on our acquisition of KICKS Group. We announced just before the summer, end of June, and if you turn to the next slide, that we will acquire what we consider to be our closest peer, based in Sweden, but active across the Nordic region, to create a Nordic market leader, with an equity purchase price of DKK 700 million, valuation EV/EBITDA of 4.7. We target synergies with an EBITDA effect of DKK 140 million, of which 40 comes from standalone improvements in the KICKS business, and minimum DKK 100 million in synergies coming from joining the two groups.
The acquisition is fully debt-financed, and as previously announced, we expect to close during Q3 of the calendar year. We can now be even more specific and say that we expect the transaction to close, closing procedures are going exactly according to plan, so we expect the acquisition to close by the end of August. You turn to the next slide, slide 13, this is the picture of the combined entity, a Nordic leader in beauty and wellbeing, with DKK 7.6 billion revenues and more than 5 million members, which is really the core of the business, the membership base.
Denmark still making up the majority of the markets, a proposition with very strong online stores and 500 physical stores, and a sales split with 28% online share of business. If you turn to the next slide, we as mentioned, expect the case to close on August 31st, and that means that we can get going on working on the integration planning and realizing the integration benefits, and of course, also being active in the Nordic markets. We look very much forward to that big step, that big chapter for, for, from Matas. Once we have gotten to know KICKS in detail from the inside, we will set out a date for a capital markets day.
We want to really get to know the company and really get to know how it works, and then we will have a capital markets day to announce the, the strategy for the joint companies. I will get back to that. With that, I will end my comments, and I will hand over to Per to cover the financial results. If you turn to slide 15, and Per, it's yours.
Thank you, Gregers. Yes, as Gregers just alluded to, a very strong quarter, and I'm very pleased to go through the numbers. Let's page, on page 16, just as already mentioned, a 9% growth in our, in our revenues. If you look at the gross margin, we, we also managed to keep that through the quarters compared to last year, even with the continuous expansion of our assortment. That also is reflected in our cost. As you see, we have an increase in our cost base. If we look at our staff cost, a slight increase, of course, also reflecting the union agreements and the increases that was already planned for this year.
On our other costs, that is, of course, impacted by two things, predominantly, and that is online, as already, mentioned earlier, growing online, 26% also drives some of our costs, such as, you know, transportation and so forth. The other big element in our cost base is really the whole assortment expansion a-and the way that we invest in that, which will also be, be, reflecting in, in the growth we just mentioned of 9%. All in all, following basically the, the whole initiatives around our expansion of our assortment. Last but not least, EBITDA in line with expectation and also the guidance we've given on the EBITDA margin, adding almost DKK 10 million on the actual numbers of EBITDA for the quarter.
Turning to our inventories, as you'll see for this quarter, we have a, a slight increase compared to last year in terms of percentages, 21.9% of compared to our last 12 months revenues. What is really driving that increase is twofold. One is the whole assortment expansion, of course, and then it's also about the increased sales and the speed of our sales. We decided to increase our inventory slightly also to make sure that we will be able to continue the very short delivery time to our customers once they order, especially online.
If we then turn to our cash flows, of course, increasing inventories will impact our cash flows, but that we've really managed through our trade payables, and you can see our working capital, a very big improvement compared to, compared to last year, and that is predominantly driven by our accounts payables. There is a bit of timing in that, which will be normalized over the next couple of quarters. Just to keep in mind, once we increase our inventories, we actually manage that from a cash flow perspective with, with our accounts payables. Otherwise, not that many movements. As you will see, total free cash flow before special item, DKK 217 million, and that is DKK 201 if we include the special items.
Last but not least, just want to, to highlight our, our, gearing, our debt position as we are approaching the closing of the KICKS acquisition, as Gregers was talking about, which we expect to happen end of this month. With the current cash flow and the performance in first quarter, we expect our gearing at the end of the transaction to be in the range of 2.8-3 times, which again, is within the range of our long-term guidance on, on our, our gearing for, for, for Matas Group. With that, I will hand over to the operator for, for questions.
Thank you. If you do wish to ask a question, please press five star on your telephone keypad. To withdraw your question, you may do so by pressing five star again. There will be a brief pause while questions are being registered. The first question will be from the line of Sebastian Graff from Nordea. Please go ahead. Your line will be unmuted.
Good morning, Gregers and Per, and thank you for taking my question. First of all, congratulations on a very strong quarter. I think the top-line story speaks for itself, so I rather want to go about the margins. You see better than expected top line, but you retain your margin guidance. Really what I want to understand, why does this extra growth. Why does it not translate into operating leverage? Also, you see a larger share of mass beauty, which usually comes with better profitability. Why is your gross margin slightly down year-on-year? Any comments will be helpful.
Yeah, overall comment from my side, is that the way we run the business is, of course, we have our expectations for the year. If we see opportunities to stimulate growth, that is a good business case, and if we have room in our performance to accelerate growth initiatives, to move forward growth initiatives and, and get more momentum behind the Growing Matas Group, we will absolutely execute on those opportunities. Don't see the refle- the, the growth mar- or the, the EBITDA margin decline as, as just a mechanical result. It is also a result of us deciding to fuel, for example, marketing or fuel assortment expansion, or bring on competence that we know we will be needing to execute on our Growing Matas Group strategy.
Absolutely, this is a function of us seeing that the strategy works and deciding to spend some of the headroom that we have compared to our guidance to fuel growth and invest ahead of the curve. As for the gross margin, I think it's, it's, it's not a, a, a big.
... a deviation from last year. It, it's a lot of factors, but I would point to one, which is the assortment expansion. In the early phases of an assortment expansion, you would normally not have the same trading terms or terms of trades with suppliers because your volumes are not that great. You're introducing products often with campaigns. We know that as we introduce new categories, new brands, new products, we have to stimulate with the campaigns. That actually also goes to the EBITDA margin that we, you know, compared to the revenues on those new products, we over-invest in marketing just to create awareness that we now also have sports nutrition on our shelves, just to take one example.
Just educating the consumer, spending more on promotion, this is a, a ramp-up investment, if you will, in getting the long-term growth going. As the categories, and we start seeing that with some of the early categories that we introduced, professional haircare that we introduced a couple of years back. As we see the momentum, as we see the habit with consumers, then marketing ratios go down, our trade terms improve, our gross margins go up. So both from a sales perspective and from a profitability perspective, we are seeing that, that our growth strategy is, is really delivering.
Okay, thank you, guys. Is it fair to say that, that what really drove the, the, the, the guidance upgrade was, was better than expected assortment expansion?
Yes, that's fair, and we got a little tailwind from exceptionally sunny weather in Denmark, leading-
Yeah
... to sunscreen sales, but also just to people going out a lot, partying a lot. You know, when people are happy, they shop at Matas. There's, there's that as well.
Yeah.
It was an exceptionally good quarter with good mix.
I guess then, given the poor weather in July, you're seeing a poor trading environment, no, just kidding. Maybe on my second question here: You booked DKK 21 million in special items in Q1, which, as you state, relates to the KICKS Group acquisition. Are these part of the DKK 100 million integration costs which you previously guided for?
Exactly, yes.
Yeah.
Yeah, as, as.
Yes, please go on.
... as presented, when we presented the acquisition of the KICKS Group, we basically said that the total acquisition cost of the KICKS Group amounted to roughly DKK 750 million. In that DKK 750 million is, is roughly the DKK 700 million that we need to pay for the KICKS Group, and the remaining DKK 50 million is, is the transaction cost associated with, with buying KICKS. We've set aside DKK 100 million for, for all the integration costs that, that is, will be coming over the next couple of years. So it's actually two separate elements.
Okay, this is part of transaction costs and not integration costs?
This is part of Yeah, this is part of transaction costs.
Okay, that's thank you.
As end of August, of course, we will then start initiating the, the whole integration, and, and then there will be, be other kind of costs com- coming on.
Okay, that's, that's very clear. Thank you, Per. Adjusting for special items, your SG&A base is up roughly 9% year-over-year. Is this the kind of level that we should be looking for for the remainder of the year?
Sorry, I didn't get the question.
Yeah, yeah, yeah. Sorry again. Adjusting for the DKK 21 million in special items in Q1, your underlying SG&A base is up roughly 9% compared to last year.
Mm.
Is this the level that we should be looking for for the remainder of the year, i.e., 9% behind?
Well, the... Yeah, I, yeah, I think we're- most of us are used to SG&A being a fixed cost. In our case, SG&A also covers variable costs relating to the online business, so there's that variable element. So really depending on the channel mix, you will see, you'll see SG&A acting in different ways, because shipping costs are, are in there. It's, it's really relating to the mix of the business.
Okay, that's fair. The last one from, from my side, could you confirm that your margin guidance still includes 1 percentage point margin dilution from, from the assortment expansion and in international initiatives, including investments...
Yes
... in Matas SE and Matas NO?
Yes, that is correct.
Maybe just a follow-up then.
Mm-hmm
does it make sense to, to scale back on investments on, in, in web shops, Matas web shops in, in Sweden and Norway, given that you, you, you will have KICKS on board in, in less than a month?
I think everything related to what we will do in Sweden and Norway following the closing, we will speak about post-closing. Obviously, this is an opportunity to assess, you know, how fast and how much to invest in, in Matas stores SE and NO, that's, that's, that's obvious. We'll comment on that after closing.
Okay, thank you so much.
Thank you, Sebastian. It seems we have no one in the line, so we will just have a brief pause while new questions could be registered. As there are no further questions at this moment, I'll hand it back to the speakers for any closing remarks.
Thank you, operator. Thank you everyone for joining on, on what is a very busy day, I know. We are really, really pleased with this quarter because going into an acquisition of KICKS, going into a next phase, having a Danish business performing like this, both commercially and strategically, I think just gives us that solid grounding and that momentum. We're, we're not on our heels, we're really leaning forward, and we're really looking forward to with, with a lot of surplus, both on the management teams and, of course, financially, going into the acquisition and entering new markets. Thank you very much for joining the call, and we will get back. Thank you, operator.