Thank you. Good morning, everyone, and thank you for joining us today to review our Q2 2016 financial results. As always, with me today are Ruben Ritter, one of our 3 Co CEOs responsible for Finance and Operations and Jan Kemper, SVP, Finance. Each will be available for Q and A following today's call. Before we begin, also as usual, I'd like to remind you that we will be making forward looking statements during this call regarding future events and financial performance.
These statements are based on assumptions that are believed to be reasonable at the time they're made and are subject to significant risks and uncertainties. You should not rely on these forward looking statements as predictions of future events, and we undertake no obligation to update or revise these statements. Our actual results may differ materially and adversely from any forward looking statements discussed on this call due to a number of factors, including without limitation, changes in general economic conditions, in particular, economic conditions in Europe changes affecting interest rate levels changes in competition levels changes in laws and regulations or the potential impact of legal proceedings and actions and Solana's ability to achieve operational synergies from past or future acquisitions. This call is being recorded and webcast live on our Investor Relations website, and a replay of the call will be available later today. With that, I'll turn it over to Ruben.
Yes. Thanks, Birgit. Also from my side, welcome, everybody. Thanks for joining our Q2 call. As always, the call will have 4 sections.
First, we'll start with the highlights and business update. Then secondly, we'll go deeper into the financials and then have a look at the guidance and then as the last part, come to your questions. So let me start with the results and business update. I think we are looking back at an outstanding first half of this year. So on this page, you see our key financials for the first half.
Starting with the revenue growth, we have seen very high growth at 24 0.4% to €1,700,000,000 in the first half of this year. And this is at the high end of our growth corridor of 20% to 25%. This is also perfectly in line with our guidance. And when I look back now 2 years when we did our IPO, we can say now for 8 quarters in a row, our growth has been in this corridor or above this corridor. So I think we can look back at 2 very successful years of continued growth.
The second point is clearly the profitability. I think this is also where we have seen a very positive development in the first half and specifically in the second quarter. So profitability has increased by 1.6 percentage points to a level of 5.9 percent adjusted EBIT in the first half of this year. This corresponds to an absolute adjusted EBIT of about €100,000,000 in the 1st 6 months of this year. This is driven by continued operating leverage and actually accelerating operating leverage in fulfillment and marketing.
We will come to that point in more detail later in the presentation. And this result is also achieved even though we continue to invest quite heavily into our future growth. And then the 3rd part on this page is the positive free cash flow, which is actually quite extraordinary when you look at it. So what you see is that we had an adjusted EBIT of about €100,000,000 and then cash flow from working capital of about €50,000,000 which brings us to an operating cash flow of about CHF 150,000,000 that you see on the slide. And what you also see is that our investment level has been quite high.
If you put CapEx and M and A together, we have spent €100,000,000 That is 3 times as much as in the same period of last year. And even though we have increased our investment level to such an extent, we still can show a positive free cash flow of €50,000,000 for the first half of this year. So I think those are very strong numbers that underline the attractiveness of our business and make us very bullish on our future. And this is also why we will continue to invest into our customer proposition, and we have continued to invest into our customer proposition in the Q2. We continue to drive at very high levels of customers and also are really paying off quite nicely for our customers and also translates quite nicely into growth.
Let me take maybe some highlights from this page, starting at the left with the brand. So we had a very successful joint campaign with Beyonce, the My Park campaign, which has driven an all time high in social media reach. So we had 260,000,000 impressions just from this one campaign, which is an outstanding result. We will continue to drive these types of campaigns because they're a differentiator. So for the upcoming season, we will do a campaign together with Tommy Hilfiger and Gigi Hadid, which actually will be presented at the Bread and Butter Trend Show that we are launching in September in Q3 here in Berlin.
Secondly, on the assortment side, we continue to onboard new and exciting brands that get our customers excited. We continue to grow very strongly, especially in the specialty categories, so more the niche categories around accessories, around kids, around premium. So all of those continue to perform quite strongly. We will have an exclusive footwear collection together with Mani. So the team continues to work to make sure that our assortment is the most attractive for the European customer.
And then on mobile, on the right hand side, mobile continues to be a growth area for our business and continues to be a very attractive area of our business, especially the app, where we have doubled app downloads over the last 12 months, and we have almost also doubled the order from app customers. So this continues to be a very promising development. We have also launched the iOS app for Zalando Lounge, which is now live in 7 countries. As you know, Zalando Lounge is our shopping club model, and that is one model that is specifically attractive for the app because every morning you bring live new campaigns, which is great to build this into an app business. And this app has been quite successful.
We continue to invest into our tech team. By now, we have 13 50 tech professionals working in our team. That's an increase of 70%. So we continue to invest very heavily into this area. Then on convenience, of course, we are a high convenience model.
We want to continue to increase convenience for our customers. We have launched Hermes in Germany, which increases the options for our customers but also increases our Stradella. It Italy in Stradella. It went live beginning of this year. Already now it fulfills about 60% of the Italian orders.
And we can see in the numbers quite nicely that it is driving customer retention and therefore also driving lifetime value and therefore also allows us to become even more aggressive in terms of customer acquisition in the Italian market. And I think based on these learnings, we already have started to evaluate potential next satellite warehouse projects. And then lastly, I would like to mention on the convenience side, our warehouse project in LA, which has been actually going into live testing. So we have shipped the 1st customer order 2 days ago. And yes, it's right on time to start to scale throughout the fallwinter season.
And this is a great project because it gives us significant additional capacity, and it also brings us closer to our very valuable customer base in the south of Germany and also Austria and Switzerland. So now I would like to come to the financial update to give you a bit more detailed background on the development of the numbers, starting with growth. Already mentioned that we are very happy with this growth, 24.4% for the first half and 25% in the second quarter. This is very strong growth at scale. When we take this one level deeper and look at the DAF revenue growth, you see that growth is around 15% for the first half and also for the Q2.
One additional comment I would like to make on this. I mean, of course, it is natural that the DACH revenue growth is below the rest of Europe revenue growth because it's our most mature region. But there are 2 specific factors that you might want to consider when you look at the DACH revenue growth. The first one is that last year, we had the fraud impact, which inflated our top line to some extent. And we also see that the DACH region is the region where the partner programs, our direct sales to consumer, are growing the fastest, where we obviously, when we talk about revenue, we only account the commission and not the full amount that the customer is spending.
So if you take those effects into account, in the Q2, the growth would have been somewhere around 20%. So we continue to be very happy with how the DACH region is growing. And then when we look at Rest of Europe, it actually has been accelerating growth in the second quarter to around 35%. So this is actually 8 points up versus the Q1. So we see very nice reacceleration in rest of Europe.
One other segment I would like to mention, which we don't show on the page, is the segment Others, which mainly consists of the Zalando Lounge and our offline outlets. This segment has continued to grow quite strongly like in the Q1. So we again are very proud to show 70% of growth in the segment. This is driven by more and more campaigns that we launched. It's driven by the app that I already mentioned.
And so it has been a very good development in the first half of this year. For the second half of the year, we expect the launch will continue to be very successful, although maybe not quite at this level because the comparison period for the launch in the second half of twenty fifteen already has been very strong. So I would like to come now to the customer KPIs. As always, I think they look really well balanced. So we have an active customer growth of 15%, and we have spending per active customer growth of 13%.
So we continue to grow by both levers. And our active customer base has now grown to 18,800,000 active customers, which is a very significant base. Yet again, we think in Europe, there's a lot more potential to acquire new customers. And on the spending per active customer, I think it's super positive that we continue to drive up the customer frequency because this is also an indication of really the customers liking our offer and liking our service and therefore coming back more frequently, which is the main driver behind the additional GMV per active commented also on the last calls that we continue to grow over proportionately with lower price points. And as a result of this, the basket remains fairly stable.
One other way actually to look at the growth de aggregation is to de aggregate it into traffic, conversion rate and basket size. Also there, we see a very positive development with traffic increasing by 17%, conversion rate increasing by 7% and the basket remaining stable. Now let's take a look one level deeper at our profitability levels, 1st by regions. And then on the next slide, we will look by cost line. So I've already commented that we are very happy with this extremely positive EBIT development.
It has been specifically pronounced in the Q2 of this year where we have increased our margin by 4 point 7 percentage points to 8.8, which means we have been earning €80,000,000 of adjusted EBIT in the 2nd quarter alone and as I mentioned, euros 100,000,000 in the first half of the year. This improvement is mainly driven by the DACH region, where we also see that the development is specifically pronounced in the second quarter, which, as you know, is also related to the fraud effect that we had in the last year. And I will comment on that in a bit more detail on the coming page. But as we said last year, the majority of the fraud issue was related to the DACH region. I would like to make one comment really on the margin level that we observe now in the first half of this year for the DACH region because I think this is a very nice proof point for our long term target margin guidance.
So actually, when we look at the last 12 months, so 12 months back, the EBIT margin for the DACH region is at 9.4% adjusted EBIT, and the growth has been around 20% on this 12 month period. I think this gives a very nice indication that actually something like a 10% margin and around 20% growth is doable. And I think this is a very strong result and very strong indication and very strong proof point in terms of our target margin we have communicated. Then one brief comment only on Rest of Europe. I think here, we have been really focusing on reaccelerating our growth.
Nevertheless, in the first half of the year, we have been operating around breakeven and in the second quarter, clearly profitable. So I think this is also a great result given the acceleration in growth. Then I would like to come to the next page where we show the EBIT development by cost line. And here, I would like to make some comment around the operating leverage and where we have seen it coming through. So if we start with gross profit, what you see is that gross profit has been actually decreasing by 2 points year to date and by about 1 point in the Q2.
This was also a discussion that we had after the Q1. I would like to emphasize that the Q2 is actually better than we internally expected because we actually also in this cost line see quite some significant operating leverage coming through from increased volumes, from increased negotiation success, from improved inventory management. So actually, we are quite positive on this development. However, then why is it still lower than last year, one point in the second quarter? The main reason is, first of all, exchange rate effects that we had that we also, I think, were able to observe with some of our competitors.
That effect is around 0.6 percentage points. And we had some increased discounting activity compared to last year, which is, in our view, not worrying because last year, the discount level in the first half of the year were actually surprisingly low. So this development is actually better than planned and even though it shows as a negative year compared to last year. On the fulfillment cost, you see an improvement by 3 points year to date and by 5.1 points in the Q2. So here, the biggest effect is around payments.
Last year, we communicated that around 2 percentage points of margin we have been lower due to the payment issue in the first half of the year. And we also mentioned that most of this had been booked in the Q2. So the effect of the second quarter is actually something around 4 percentage points. So this makes up the majority of this improvement. And we are very happy that we have been able to bring fraud levels back not only to old levels but also continue to drive improvements in the way that we manage fraud risks.
So there, we are at very low levels. The second lever of improvement has been the logistics and especially the warehouse efficiency. So in fulfillment, we continue to invest, as I mentioned, into our customer proposition. But at the same time, we are getting better and better. And this has specifically to do with the scale effects in our warehouses with improved processes with continued investment in automation.
So we are very happy that we see these scale effects coming through. And then the next line I would like to comment on is marketing cost has been improving by 1.5 points year to date and also in the Q2. Here you see continued operating leverage. I think this is nothing new, but I think it's great that it continues at this pace. I would like to point out again that the improvement in our marketing relative to sales is due to the fact that our revenue growth is faster than our marketing spending growth.
It is not caused by a decrease in the marketing spending. So actually, our absolute spending has been increasing by about 10%. I would also like to give the specific numbers. So year to date, last year, we spent in 2015, we spent €163,000,000 This year, we spent €179,000,000 So you see about 10 percentage points increase. And in the Q2, the same last year, we spent around €88,000,000 This year, we spent around €69,000,000 So we actually continue to become more aggressive in our marketing approach.
Yet we are able to grow our sales over proportionately, which leads to this operating leverage. And then last but not least, admin has been increasing by 0.7% year to date and 0.8% in the second This is mainly due to the scaling in Tech that we have commented on several times. So all in all, I think very strong operating leverage, very strong improvements despite the continued high level of growth Then let's move on to our working capital and CapEx numbers. Working capital, I already mentioned briefly that we have been seeing quite some very positive improvements. We have been working on all areas of our cash cycle, and I think it's very positive that we also see the results from this work.
I think the magnitude of the improvement you see here from positive 1% to almost minus 2%, I think the magnitude of this improvement is also, to some extent, driven by some cutoff effects, which you specifically always have around working capital. But underlying, there is, I think, a very solid improvement process that we have been driving. On the CapEx side, you see that we have been spending year to date €68,000,000 and in the second quarter €44,000,000 These numbers are now excluding M and A. The majority of the investments have been going into property, plant and equipment. So for example, the back sort I mentioned, Lappach, the LAA warehouse build out and other projects related to scaling our operations footprint.
One quick comment on liquidity. The strong cash flow has been leading to an increase in our cash position. So we have been driving around €85,000,000 of free cash flow in the second quarter, which brings us to a total liquidity of almost €1,200,000,000 whereas some of this is invested in short term investments. So the cash and cash equivalents that we show is around 1 1,000,000,000 All right. And that brings me to our outlook section.
Very clearly, we have been off to a great first half in 2016. And as we already communicated in our trading statement, this has some impact on our guidance. So we are well on track to over deliver on our promise We will grow at the upper end of the 20% to 25% growth corridor. And based on the strong performance we have witnessed, especially in the Q2 of this year, we increased our full year profitability guidance to a level of adjusted EBIT margin between 4% 5.5%. And I think this is really a very unique combination of fast growth and even expanding margin.
On capital efficiency, we continue to expect a level of €200,000,000 of CapEx, excluding M and A, and we also expect to continue to expect a neutral net working capital at the end of the year, as you know, with some movements as we move along the seasons. So that brings me to the end of my presentation and the start of your questions.
Thank you. Now we will begin our question and answer So we have our first question coming from the line of Jamie Merriman from Bernstein. Please go ahead.
Good morning. Thanks. I've got two questions. The first one is, I appreciate your discussion about the DAC margin in terms of it being a proof point for the long term margin. But just trying to think through the nearer term and we should think about that growth versus margin expansion trade off.
And I guess, I know you made the investments that you were planning to and that was you saw better operating leverage. But we think through the next few years, should we expect that you would want to invest more of that to try to drive top line growth faster? And then the second one is just I know it's small, but on your other segment, can
you just
help me think through, obviously, you had very good top line growth. And in terms of the EBIT margin, what was driving the drop? Was it more the platform investment or the growth in lounge and how we should think through that? Thanks.
Sure. So on your first question regarding the DAS segment, so I think around the target model, the message I wanted to send is that when we first put out this target model, there was a lot of question around can we actually earn a margin around 10% with this business model. And I think the number that we have generated in DACH over the last 12 months clearly underline that, yes, we can and that we actually can also generate 10% margin and continue to grow quite substantially. So I think this is just a very positive proof point that I wanted to point out. However, you're, of course, right with your question, what does this mean in terms of what we to invest into continued growth in the DACH region.
And I think the answer is, to the extent that we find good investment project in the DACH region that would drive top line growth again higher or keep it at this very high level, yes, for sure, we would be willing to invest. So the fact that we are generating 10% margin LCM in the DACH region doesn't mean that we are now tied to this margin. I think if we see, for example, that growth project in the DACH region is more promising than a growth region in the rest of Europe, of course, we will go for it if we think it generates long term value. On your second question with respect to the EBIT margin in the other segment, Yes, you're right that the EBIT margin has been coming down, which is mostly related to the growth investments we have been making in the Zalando launch. So I mentioned the app that we have launched.
So we have invested quite heavily to drive app downloads because we see that specifically for the Zalando launch business model, the app download customers show extremely good KPIs because you're able to activate them every day through push notifications of the new campaigns that are coming online. We have been investing in Italy, where we have launched our San Antonio launch model quite recently. So that has been an investment area. We have invested in attractive campaigns to our customers. This has also been the driver.
And we have also invested in some of the new projects that we have launched, some of the new platform initiatives. Also, they have been taking some investments that falls into this cost plan.
Thank you. Next question is coming from the line of Volker Bose from Baader Bank. Please go ahead.
Yes. Hello, Volker Bose, Baader Bank. Congratulations on your great set of figures. My three questions, I would like to start with the sales split by region. So could you provide a bit more flavor on that?
So which countries do you see the best momentum of the DACH region also perhaps underperforming countries worth to mention? And second question is on your partner program. I would like to ask you for an update here. So what is the status quo of the commission based business model as of today? And how many brands are participating at the program in the moment?
Any prominent joiners perhaps over the last 3 months? Perhaps an update was more than welcome. Thank you. And finally, a third question on the Brexit. Could you describe the effect you see on your UK business days after?
And how is this progressing? Thank you.
Sure. So in terms of the countries, especially in Rest of Europe, we see really very strong growth dynamics across the board. So we see continued very strong growth in very online ethyne markets like the Nordics and Benelux. Poland continues to actually, the actually the highest growth in UK even after the Brexit, which, of course, also has to do with a smaller base. But we also see growth in UK actually picking up and developing positively.
On your second question with respect to the Partner Program, so yes, it continues to be a fast growing part of our business. Right now, we have about 150 brands that are signed up for the Partner Program. 1 new brand in the Q2 was All Saints that joined the Partner Program. So we continue to broaden the brand reach. But of course, we also want to grow the business for each of the brands that actually has joined the Partner Program.
And in our view, it's actually still quite early days in with respect to what we might be able to do with Partner Program. And then on your third question with respect to the Brexit, it didn't have any operational implications. We also haven't seen any specific customer behavior. So the only that, of course, we have been observing is the FX rate. But operationally, there has been no implication.
Next question is coming from the line of Claire Aft from RBC. Please go ahead.
Yes, good morning everyone. Thanks for 3 as well please. The first one if I could just follow on from that UK question. Just wondering if you could give any update on any changes you've been making given the strong growth in the UK. I've noticed a bit more advertising through magazine flyers.
So if you could comment on any changes to marketing and delivery, the delivery proposition, that would be great. And the second question, given the success of the Italian satellite hub, just wondering if there's any plans to open any more in Europe. And if so, where could potentially be an option? And then third one, just in terms of the growth in app downloads. Just wondering if you could give any color on some of the KPIs for the app and the conversion rates, how they have been trending, please.
Sure. So on your first question, I think the main update that we have been driving over the last quarters in the UK has been around the assortment where we have been bringing live more and more brands that are also quite relevant to U. K.-based customers. 2nd area of improvement has been clearly fulfillment where we have been driving some improvements and also see positive customer reaction. And then as you mentioned, we are becoming a bit more aggressive in terms of marketing.
And we also may consider to do something on the branding side to support our UK growth because we actually think we do bring quite an attractive assortment and quite a broad assortment to the U. K. Market. And we think customers may react very positively in the future. On your second question, satellite warehouses.
So yes, I think we will consider to build a next facility at some point. There are different candidates that in terms of markets. So I think one candidate we just discussed is the UK. Another candidate would be France. Another one would be Nordics or Spain, yes?
So those countries where we currently have a disadvantage based on our very centralized footprint and could actually benefit from a local satellite addition. And then on your third question with respect to the app. So the economics of the app continue to be quite favorable. We see that customers that use the app have a high activity level, have a high spending level. They have good KPIs in terms of conversion rate.
They also have very good KPIs in terms of basket size. So we continue to push the app. The majority of the downloads that we generate are actually organic. But of course, we also use performance marketing to drive additional downloads to the extent that this is economically viable.
Next question is coming from the line of Rocco Stross. Please go ahead.
Yes. Good morning, Ruben. Two questions for me. First is with inventories being at the lowest levels of sales ever, I think I would appreciate some more color here on what is driven by a better in season buying or by shift to fast or faster fashion, What is driven by the Zalando platform in regards to the shop on shop or shop in shop concept? With the later making me also wonder if at some point you may start disclosing GMV and revenue separately for each region to help us understand better a bit how much of fashion sales you are actually driving through the platform?
And the second question, we see the efforts around distributor commerce, fleek, as well as the acquisition of the Amaze app. You touched on Ivy Park impressions and why we appreciate a much wider target age group compared to most online fashion peers you have. Could you talk a bit more of how you seek to close the actual gap on social media activity or rather engagement without that I want to get hung up here on follow on numbers or likes? Thanks.
Yes. So let me quickly start with the inventory question. As Rubin pointed out, the working capital development was very positive, especially also driven with from the inventory side. And as you also pointed out, we are continuously working on projects like Stock Tur and improving delivery curves and so forth. So there are continuous improvements that actually help us to reach the neutral working capital at year end.
And you also pointed out that there were some favorable cutoff effects, which is clear because it's simply a point in time view on the working capital and also on the inventories. So overall, we do not break it down into specific buckets, but then we also see like the improvements on the inventory side, which will help us till the end.
Yes. Thanks, Hannan. And let me maybe follow-up on your second question with respect to social media and target group. So actually, we are quite satisfied and quite happy with the social media performance that we are showing because I think a lot of this performance actually may be a bit difficult to observe from the outside or is also difficult to observe when you focus on numbers like Facebook likes. So I think one effect as we see it is that the social media impressions that we can drive through one specific campaign to us are much more valuable.
However, they are not sort of observable from the outside. But I mentioned the €260,000,000 social media impressions we have been driving with the Ivy Park campaign. That is an outstanding value. And I think you will find very little marketing campaigns that have been executed in the you I think that is really with the topic how can you from the outside really assess these level and the success of on social media. I also think that clearly because this is the question we always get asked in this context, ASOS is very has a very positive performance on social media.
ASOS has also a number of likes. I think for their campaigns, they probably don't get even close to these impression numbers that we are able to show for the large campaigns where we very successfully link, for example, TV and out of home and social media. There are also several other differences. So for example, ASOS is extremely successful on Instagram, which is a big thing in the U. K.
In the markets where we are prominent, Facebook is still much more relevant, where we are, I think, very, very happy with the performance we have been showing and with the amount of traffic we have also been able to drive from social media.
Next question is coming from the line of Michelle Wilson from Berenberg. Please go ahead.
Good morning. And just a couple of questions from me. First of all, sorry if I missed this, but could you clarify what proportion of sales are now on the commission model and how you see that developing over the next few years? And then also just on marketing spend, I mean, you mentioned marketing spends increased about 10%
this year. Is that the kind
of number we should expect going forward, a 10% increase in marketing spend to drive a 20% to 25% increase in revenues?
So on the commission model, right now, the share of Partner Program sales is continues to be single digit, although it varies by market. I mentioned that in the Dutch region, it's actually a higher share. This may be also is a good opportunity to follow-up on one question that was raised earlier that I think we didn't comment on. So in terms of are we going to report GMV separately, yes, I think that's an option at some point, but it's something we'll consider for the coming years Given how high the share of the Partner Program grows, I think at some point, it may make sense to give this additional insight because also from an internal perspective, at some point, of course, it makes sense to shift the steering much more towards the GMV type figure. In terms of marketing costs, I think this is the pattern that you have been able to see over the past quarters, so not only in the Q2 but really in the last 2 years, that we tend to slightly increase our marketing spending but increase it less than sales.
I think directionally, that's also where we are going in the future, although I'm not sure if I would like to commit to this 10% number. But I think directionally, that will be the case. And when you do the math, I think that also shows that this brings us to the 6% to 8% marketing spend as percent of sales that we have laid out in the target model.
Next question is coming from the line of Georgina Goian from JPMorgan. Please go ahead.
Good morning, everyone. Congratulations on your results guys. Excellent quarter. A few questions from me, please. Firstly, just on the partner program, appreciate that it's growing as a proportion of the business.
And my understanding is that it's effectively 100% gross margin part of the business. So could you just help us understand how much what's the magnitude of that supporting your gross margin in the first half please or whether it's still immaterial at the moment? And second question on the gross margin. Is there any impact from increasing tax costs in there? I think we saw some impact of around 50 bps or so in Q1.
Thirdly, on brand renegotiations on cost prices, Is this a particular initiative at the moment? Or is it just ongoing improvements that what you're seeing as a result of scale? And then finally, on the U. K, appreciate it's still a relatively small part of your business, but just because of the FX moves that we're seeing and so on, can you please clarify that it's still less than 5% of sales, please? Thank you very much.
Sure. So on the points around the gross margin. So the Partner Program, as you point out, has a positive effect on the gross margin, although it's also not a super large effect that we currently see. But as I mentioned with respect also to GMV, as soon as this becomes more relevant, we will also start to break it out. In terms of tech costs, yes, in all cost lines, you see an increase driven in the tech that are factored into this cost line.
So this is the case for cost of sales but also for fulfillment costs, where you see additional costs coming from the overproportionate growth of our tech team. And with respect to the brand renegotiation, that is an ongoing topic. We have very good brand relationships and in a very partnerful way. But of course, also we negotiate with the brands and the terms at which we buy merchandise and that is happening continuously over time. With respect to U.
K, maybe you could repeat your question. I understood something with 5%, but I didn't I lost some words around it.
Sorry, yes, just what proportion the UK is of sales at the moment? Is it sensible to assume that it's still less than 5% of group sales?
Yes. Well, as you know, we don't communicate sales number by market and also not for the UK. But you're right that it is a small part of our business given that we have been not been investing significantly in the market in the past.
So we have our next question is coming from the line of Juveen Kolb from Kepler Cheuvreux. Please go ahead.
Yes, thanks very much. Following up on the gross margin development, could you help us to break out the gross margin trend as you maybe did in the Q1 when you indicated what the launch effect was as you apparently bought in higher volumes and sold at higher discounts? And then also again on the tech investment, just to get a better feeling as to the how the gross margin developed here? Thank you.
So I think when you look at the Q2, you see a change of 1.1 percentage points. I commented that 0.6 percentage points are driven by exchange rate fluctuations, which leaves open half percentage points. The majority of that is changes in discounting activity. There's also some effect from the launch and there's some effect from tech, there's some effect from the pilot program, but they are all not so material that we would need to break them or would want to break them out.
Okay. Is there any way to quantify the impact from the switch from the fallwinter to the springsummer collection that you last year, I believe, had in the Q1 of this year but should have happened in the Q2?
Well, I think that effect mainly you would see in the Q1 or mainly we have seen in the Q1 that the switch was slightly later, and that is mainly an effect that we have in the Q1.
Okay. Very good. Thank you very much.
We have no further questions.
Well, thank you very much for joining us on our call today. As you know, the presentation will be uploaded to our Investor Relations website later today. Our next touch point will be our Q3 trading update, which we will schedule ahead of our regular Q3 earnings release. Like always, we will let you know about the exact date a little bit in Subsequently, our regular Q3 earnings call will be on November 10, 2016. So we'll speak with you then.
Bye bye.