Interim report – H1 2018/19 - Guidance upgrade: Stable earnings and record growth in online sales
Company announcement no. 10 2018/19
Allerød, 8 November 2018
Interim report – H1 2018/19
(1 April – 30 September 2018)
Guidance upgrade: Stable earnings and record growth in online sales
Matas made strong headway in implementing its new strategy in the second quarter of financial year 2018/19 and delivered record growth in online sales and stable earnings in the face of lower revenue. As a consequence, we raise our EBITDA margin before special items guidance for full-year 2018/19 from above 14.5 to above 15.
The profit performance is improving. Revenue for the first half of the year was almost unchanged at DKK 1,621.0 million compared with DKK 1,620.7 million in the year-earlier period, while operating profit (EBITDA before special items) was up to DKK 246.9 million from DKK 244.0 million in the first half of last year.
In the second quarter alone, sales fell by 1.6% relative to last year, due primarily to fewer trading days and a reshuffle of campaign activity. On the other hand, earnings increased, with operating profit (EBITDA before special items) growing to DKK 108.6 million from DKK 107.5 million last year.
“Q2 sales were down a notch, but as earnings were a thought better, we’re delivering a stable profit performance for the second quarter running, even though competition is tougher than ever. Overall, this means that we can keep up the high pace of development and at the same time lift our full-year earnings guidance”, said Gregers Wedell-Wedellsborg, CEO.
The digital transformation continued at full speed with online sales surging by 61%. Matas also announced the acquisition of Firtal Group, the owner of, e.g., helsebixen.dk. The transaction was approved by the Danish Competition and Consumer Authority on 5 November 2018. The second quarter also saw the opening of two Matas Natur concept stores and additions to the natural range on matas.dk, aimed at reinforcing the Group’s green market position.
“Our digital growth is accelerating. Our same-day delivery initiative has been well received by customers, and we’re delivering the highest growth rate since matas.dk was launched”, said Gregers Wedell-Wedellsborg, CEO.
Q2 2018/19 highlights
- Guidance for the EBITDA margin before special items is upgraded from above 14.5% to above 15% for financial year 2018/19.
- The work to implement the new strategy, “Renewing Matas”, progressed according to plan, and a range of measures aimed at lifting customer engagement, growing revenue and securing earnings were launched and implemented in the second quarter.
- Q2 2018/19 revenue came to DKK 777.2 million, down 1.6% on the DKK 789.9 million reported for Q2 2017/18 (restated, see note 1). Underlying like-for-like sales, i.e. sales in stores operated by the Group in both Q2 2018/19 and Q2 2017/18, were down by 1.9% in Q2 2018/19. Management estimates that the negative calendar effect reduced underlying revenue growth by approximately 0.6 of a percentage point.
- The High-End Beauty and Material segments reported higher sales, while sales in the remaining shops fell slightly back. The average basket size grew by 2.8% to DKK 154, while the number of transactions was down by 2.3% from 5.1 million in Q2 2017/18 to 5.0 million in Q2 2018/19.
- Online sales were up by 61% over the year-earlier period. More than half of all webshop orders in the second quarter were picked up at a Matas store.
- The High-End Beauty and Material segments performed as expected, growing sales by 1.5% and 4.5%, respectively. Mass Beauty sales disappointed despite the positive effects of higher sun screen sales. Overall Mass Beauty sales were down by 2.6% due to increasing competition from supermarkets, among others.
- Q2 2018/19 gross profit was DKK 349.0 million, taking the gross margin to 44.9%, a 1.3 percentage point increase from 43.6% in Q2 2017/18.
- Total costs increased by DKK 0.5 million relative to the year-earlier period. Other external costs were up by DKK 16.1 million. Costs were mainly driven upwards by non-recurring costs of DKK 9.5 million relating primarily to the acquisition of Firtal Group ApS and strategy implementation. Staff costs were reduced by DKK 15.6 million relative to the same period of last year, when staff costs were impacted by non-recurring costs of DKK 12.0 million relating to the change of CEO.
- Q2 2018/19 EBITDA came to DKK 99.1 million, up from DKK 94.8 million in the year-earlier period. The EBITDA margin was 12.8%, 0.7 of a percentage point higher than in Q2 2017/18. The higher EBITDA margin was attributable mainly to an improved contribution ratio compared with the same quarter of last year and a weaker negative impact from special items.
- EBITDA before special items came to DKK 108.6 million, up 1.0% on the DKK 107.5 million reported in the year-earlier period. Supported by the higher gross margin, the EBITDA margin before special items rose to 14.0% from 13.6% in Q2 2017/18.
- Q2 profit after tax was DKK 36.6 million, and Adjusted profit after tax net of amortisation not related to software and exceptional items was DKK 61.0 million, compared with DKK 40.3 million and DKK 65.3 million, respectively, in Q2 2017/18.
- The effective tax rate was 28.1% in Q2 2018/19, equivalent to a tax expense of DKK 14.3 million. The effective tax rate was inflated by the non-deductible transaction costs incurred in the second quarter in connection with the acquisition of Firtal Group ApS.
- Cash generated from operations fell by DKK 7.6 million in Q2 2018/19 to DKK 46.6 million. Impacted by significantly higher investment activity and a slightly reduced cash flow from operating activities, the free cash flow was an inflow of DKK 5.8 million against an inflow of DKK 25.3 million in Q2 2017/18.
- Gross debt stood at DKK 1,691.4 million at 30 September 2018. Net interest-bearing debt was DKK 1,636.5 million at 30 September 2018, equivalent to 2.9x LTM EBITDA before special items as compared with 2.8x at the end of Q2 2017/18.
H1 2018/19 highlights
- Management presented the Group’s updated strategy going forward to 2023, “Renewing Matas”, at its capital markets day on 30 May 2018, which was held in connection with the presentation of the Group’s financial statements for financial year 2017/18. The work to implement the strategy is progressing according to plan, and a range of measures aimed at lifting customer engagement, growing revenue and securing earnings were launched in the first six months of the financial year.
- H1 2018/19 revenue was DKK 1,621.0 million, almost unchanged from the DKK 1,620.7 million reported in H1 2017/18 (restated, see note 1). Underlying like-for-like revenue was down by 0.3%.
- H1 online sales were up by 55% over the year-earlier period.
- H1 2018/19 gross profit came to DKK 730.7 million for a gross margin of 45.1%, a 0.4 percentage point increase from 44.6% in H1 2017/18.
- H1 2018/19 EBITDA came to DKK 232.4 million for an EBITDA margin of 14.3%, in line with the margin reported for H1 2017/18.
- H1 2018/19 EBITDA before special items came to DKK 246.9 million for an EBITDA margin of 15.2% against 15.1% for H1 2017/18.
- H1 profit after tax was DKK 107.4 million, and Adjusted profit after tax net of amortisation not related to software and exceptional items was DKK 150.7 million, compared with DKK 114.4 million and DKK 154.2 million, respectively, in H1 2017/18.
- Cash generated from operations grew to DKK 151.9 million in H1 2018/19 from DKK 130.9 million in H1 2017/18. The free cash flow was an inflow of DKK 78.7 million against an inflow of DKK 58.6 million in H1 2017/18.
Outlook
The Group’s financial guidance for financial year 2018/19 is unchanged on three points compared with the guidance announced in company announcement no. 5 2018/19 concerning Matas’s acquisition of Firtal Group ApS. Our guidance for the EBITDA margin before special items has been revised from above 14.5% to above 15%.
Our total guidance is as follows:
- Underlying revenue unchanged relative to 2017/18 (like-for-like growth in the -1% to 1% range) (unchanged)
- An EBITDA margin before special items above 15% (revised)
- CAPEX between DKK 110 million and DKK 130 million (unchanged)
- Total investments (CAPEX and other investments) between DKK 240 million and DKK 260 million (unchanged)
Our financial guidance for 2018/19 is based on assumptions of slightly growing consumer spending, a continuing decline in physical store footfall and persistently intensive competition in the health, beauty and personal care market.
Our guidance includes costs for implementing Matas’s growth strategy.
The 2018/19 financial year contains an extra trading day compared with FY 2017/18, which is expected to have a slightly positive effect on revenue.
Firtal Group ApS will be recognised in the financial statements as from closing, which is expected to take place in mid- November 2018.
Conference call
Matas will host a conference call for investors and analysts on Thursday, 8 November 2018 at 09:15 a.m.
The conference call and the presentation can be accessed on our investor website: www.investor.en.matas.dk.
Conference call access numbers for investors and analysts:
DK +45 35 15 80 49
UK: +44 (0)330 336 9125
US: +1 929-477-0448
Event code: 6218306
Link to webcast: https://edge.media-server.com/m6/p/tu5xmv6n
Contacts
Gregers Wedell-Wedellsborg
CEO, tel +45 48 16 55 55
Anders T. Skole-Sørensen
CFO, tel +45 48 16 55 55
Elisabeth Toftmann Klintholm
Head of Investor Relations & Corp. Affairs, tel +45 48 16 55 55
Klaus Fridorf
Head of Communication, tel +45 61 20 19 97
Forward-looking statements
This interim report contains statements relating to the future, including statements regarding the Matas Group's future operating results, financial position, cash flows, business strategy and future targets. Such statements are based on management’s reasonable expectations and forecasts at the time of release of the interim report. Forward-looking statements are subject to risks and uncertainties and a number of other factors, many of which are beyond the Matas Group's control. This may have the effect that actual results may differ significantly from the expectations expressed in the interim report. Without being exhaustive, such factors include general economic and commercial factors, including market and competitive conditions, supplier issues and financial and regulatory issues.
