Interim report – H1 2019/20: Growth and stable earnings

Company announcement 10 2019/20 – INSIDE INFORMATION
Allerød, 30 October 2019

Interim report – H1 2019/20
(1 April – 30 September 2019)

Growth and stable earnings

Revenue grew by 5.8% over Q2 2018/19, and earnings came to DKK 107 million before IFRS 16 (EBITDA before special items) or DKK 154 million after IFRS 16.

“Earnings remained stable compared to the same period of last year despite our continued digital build-up and store upgrades, and for the sixth consecutive quarter, we grew online sales on matas.dk by at least 50% year-on-year. We intend to maintain this momentum by investing additional resources in the digital build-up,” states Gregers Wedell-Wedellsborg, CEO of Matas A/S, and he adds:

”At the same time, the store upgrade programme has gathered momentum with 15 roll-outs so far this year. The upgrades give us a fresher and more welcoming appearance, and our customers are responding well to this. Expanding, relocating or merging stores in connection with upgrades produces the most positive effect on our sales and earnings, because this enables us to offer our customers a larger selection of products and even better service. Going forward, we will therefore prioritise such upgrades and retail network adjustments, although they will take longer to implement.”

Due to the revised plan for the retail network adjustments, the Group has lowered its 2019/20 CAPEX target to DKK 150 – 170 million (previously DKK 200 – 220 million).  

At the same time, Matas is narrowing its financial targets for total revenue growth and underlying revenue growth for 2019/20 in light of a less positive sales growth in Q2 2019/20 than expected. Total revenue is expected to grow by 3.5 – 5.5% (previously 3.5 – 6.5%), while underlying like-for-like revenue is expected to increase by 0.5 – 1.5% (previously 0.5 – 2.5%). The efficiency measures implemented in Q2 2019/20 as part of the Group’s strategy will have a favourable impact of some DKK 25 million in the financial year 2019/20, and the target for the 2019/20 EBITDA margin before special items is reiterated.

The interim report for Q2 2019/20 is presented in accordance with IFRS 16. However, key financials are also presented before IFRS 16 in order to enable y-o-y comparisons with 2018/19. IFRS 16 implementation primarily affects EBITDA and EBIT as well as cash flows from operating and financing activities. Revenue and gross margin are not affected by IFRS 16 implementation.

Q2 2019/20 highlights

• Revenue grew by 5.8% over Q2 2018/19, while underlying like-for-like sales, i.e. sales in stores operated by the Group in both Q2 2019/20 and Q2 2018/19, were up by 0.3% in Q2 2019/20.
• Revenue was favourably affected by the extra trading day compared to Q2 2018/19. This positive calendar effect is estimated at 0.5% for the quarter but was partially offset by a less favourable distribution of trading days in the quarter. Adjusted for this effect, underlying sales are estimated to have fallen slightly in the quarter in the wake of a decline in sunscreen sales from last year’s record-high.
• Online sales via matas.dk were ahead by 53% over the year-earlier period, while overall online sales, including revenue acquired from Firtal, surged by 180% to make up 12.0% of Q2 2019/20 revenue from 4.6% in Q2 2018/19.
• The gross margin was 43.5%, compared with 44.9% in Q2 2018/19. The lower gross margin was primarily driven by non-recurring effects in connection with the Kosmolet acquisition (see note 5 for more information). Adjusted for this, the gross margin was 44.7%.

The below cost and earnings comments are based on pre-IFRS 16 numbers.

• As part of the Group’s strategy, the second quarter of the financial year saw the implementation of an efficiency programme that successfully reduced underlying costs. The positive effects of this programme will continue into the second half of the financial year and are expected to amount to a total of approximately DKK 25 million for the full financial year.
• Impacted by costs added by Firtal and Kosmolet and by costs associated with the rapid online growth, overall costs before special items were up by DKK 20.1 million, while overall costs were up by DKK 14.8 million year-on-year. Other external costs were up by DKK 1.5 million and staff costs rose by DKK 13.3 million.
• EBITDA before special items and including normalisations came to DKK 107.4 million, compared with DKK 108.6 million in Q2 2018/19. The EBITDA margin before special items and including normalisations was 13.1%, down from 14.0% in Q2 2018/19.
• Cash generated from operations was an inflow of DKK 62.8 million in Q2 2019/20, against an inflow of DKK 46.6 million in Q2 2018/19. The free cash flow for Q2 2019/20 was an inflow of DKK 12.7 million against an inflow of DKK 5.8 million in the year-earlier period.
• The ratio of net interest-bearing debt to EBITDA before special items and including normalisations was 3.3x compared with 2.9x at 30 September 2018. The increase was driven primarily by the acquisition of Kosmolet A/S. A pro forma gearing ratio including LTM EBITDA from Kosmolet and Firtal calculates at 3.1x.

H1 2019/20 highlights

• Revenue grew by 4.8% over H1 2018/19, while underlying like-for-like sales, i.e. sales in stores operated by the Group in both H1 2019/20 and H1 2018/19, were down by 0.5%.
• Revenue was adversely affected by the one trading day less than in H1 2018/19 (two days fewer in Q1 and one day more in Q2). Moreover, the distribution of trading days in the second quarter was not as favourable as in the year-earlier period. The total negative calendar effect is estimated at about 1.5% for the period.  
• Online sales via matas.dk were ahead by 59% year-on-year, while overall online sales, including revenue acquired from Firtal, surged by 192% to make up 11.5% of H1 2019/20 revenue from 4.1% in H1 2018/19.
• The gross margin was 44.3%, compared with 45.1% in H1 2018/19. Adjusted (normalised) for non-recurring effects relating to the acquisition of Kosmolet A/S, the gross margin was 44.9%.

The below cost and earnings comments are based on pre-IFRS 16 numbers.

• Total costs increased by DKK 43.3 million relative to the year-earlier period. Costs added from the acquisitions of Firtal and Kosmolet drove other external costs up by DKK 22.5 million and staff costs by DKK 11.6 million. The rest of the increase was driven by the continued digital build-up on matas.dk, increased marketing activity plus, to a lesser extent, transaction costs incurred in connection with the acquisition of Kosmolet.  
• H1 2019/20 EBITDA before special items and including normalisations was DKK 227.3 million against DKK 246.9 million the year before. The decline was driven by higher costs.
• The EBITDA margin before special items and including normalisations was 13.4%, down from 15.2% in H1 2018/19.
• Not taking the acquisition of Kosmolet into account, the free cash flow was down by DKK 73.1 million on the year-earlier period, driven by lower operating income and larger inventories, the latter caused primarily by inventories added from Firtal and Kosmolet which were only partially offset by increases in other working capital items. The free cash flow was also affected by larger investments in the first half of 2019/20 than in the year-earlier period. Factoring in the acquisition of Kosmolet (outflow of DKK 122.7 million), the free cash flow was an outflow of DKK 117.0 million in H1 2019/20, compared with an inflow of DKK 78.7 million in H1 2018/19.

	After IFRS 16			Bef. IFRS 16		Bef. IFRS 16		After IFRS 16		Bef. IFRS 16		Bef. IFRS 16
	2019/20			2019/20		2018/19		2019/20		2019/20		2018/19
(DKKm)	Q2			Q2		Q2		H1		H1		H1
Revenue		822.5	822.5		777.2		1,698.1		1,698.1		1,621.0
Gross profit		357.5	357.5		349.0		751.5		751.5		730.7
EBITDA before special items		153.6	107.4		108.6		316.9		227.3		246.9
EBIT		45.7	46.5		55.9		116.5		119.5		151.0
Adjusted profit after tax		56.1	60.7		61.0		122.1		132.7		150.7
Free cash flow		58.9	12.7		5.8		(27.4)		(117.0)		78.7
Revenue growth		5.8%	5.8%		(1.6)%		4.8%		4.8%		0.0%
Underlying like-for-like revenue growth		0.3%	0.3%		(1.9)%		(0.5)%		(0.5)%		(0.3)%
Gross margin		43.5%	43.5%		44.9%		44.3%		44.3%		45.1%
EBITDA margin before special items		18.7%	13.1%		14.0%		18.7%		13.4%		15.2%
NIBD debt/EBITDA b. special items							n.a.		3.3		2.9

Financial targets

In light of a less positive sales growth in Q2 2019/20 than expected, the Group’s financial targets for 2019/20 have been narrowed on two accounts (total revenue growth and underlying revenue growth) relative to the targets announced in connection with the release of the financial statements for 2018/19 (see company announcement no. 2 2019/2).

At the same time, the target for 2019/20 CAPEX has been reduced against the background of the adjusted store upgrade schedule.

The overall financial targets for financial year 2019/20 are as follows:

• Overall revenue growth of 3.5-5.5% (previously 3.5-6.5%)
• Underlying like-for-like revenue growth of 0.5-1.5% (previously 0.5-2.5%)
• CAPEX of DKK 150-170 million (lowered from DKK 200-220 million)

The following target is unchanged:

 §   EBITDA margin before special items of 14-15% (before effects of IFRS 16)

The Group’s financial targets for financial year 2019/20 reflect the full-year effects of the Firtal acquisition (closing at 13 November 2018), which is included in underlying revenue growth from December 2019, and the Kosmolet A/S acquisition (closing at 11 June 2019).

The Group’s financial targets for 2019/20 are based on assumptions of slightly growing customer demand for beauty, health and personal care products, a continuing decline in physical store footfall and persistently intensive competition in the beauty, health and personal care market.

The Group’s long-term financial ambitions are unchanged.

Realised and projected KPI levels are set out in the table below.

Financial targets and ambitions	Realised Q2 2019/20	Realised H1 2019/20	Targets for 2019/20	Ambitions for 2022/23
			Ongoing
Customer engagement (M-NPS)	64 (index 100)	64 (index 100)	improvement	70 (index 110)
Revenue (DKK)/revenue growth*	823 m/+5.8%	1,698 m/+4.8%	3.5-5.5%	Approx. 4.0 b
Underlying like-for-like revenue growth	0.3%	(0.5)%	0.5-1.5%	Positive
EBITDA margin** b. except. items (b. IFRS 16)	13.1%	13.4%	14-15%	Above 14%
CAPEX (DKK)	39 m	80 m	150-170 m	Below 90 m
Gearing** (before IFRS 16)	3.3	3.3	2.5-3	2.5-3

* Includes revenue from Firtal for the period 13 November 2018 to 30 September 2019 and revenue from Kosmolet from 11 June 2019 to 30 September 2019. ** Before effects of IFRS 16, inclusive of Firtal and Kosmolet.

As expected, the acquisition of Kosmolet A/S involved an initial investment of DKK 145 million, of which DKK 10 million was paid in Matas shares. To this should be added contingent consideration of up to DKK 20.0 million payable in June 2020.

Conference call

Matas will host a conference call for investors and analysts on Wednesday, 30 October 2019 at 10:00 a.m. CET.
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 32 72 80 42
UK:                                                    +44 (0) 844 571 8892
US:                                                    +1 631 510 7495
Event code:                                        9390208

Link to webcast:                                 https://edge.media-server.com/mmc/p/au8gmirq

Contacts

Gregers Wedell-Wedellsborg                                                                                                                 
CEO, tel +45 48 16 55 55                 

Anders Skole-Sørensen
CFO, tel +45 48 16 55 55                  

Elisabeth Toftmann Klintholm                                                                    
Head of Investor Relations & Corp. Affairs, tel +45 48 16 55 48

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.

Attachment

• UK Matas 6M 201920 FINAL