Matas A/S : Interim report — H1 2017/18

November 8, 2017

Company announcement 10 2017/18

Alleroed, 2017-11-08 08:00 CET (GLOBE NEWSWIRE) -- Interim report - H1 2017/18

(1 April - 30 September 2017)

Slow revenue growth and weaker earnings performance

'Although we were faced with intensified competition, Matas lifted revenue in the second quarter of 2017/18, thanks partly to growing demand for High-End Beauty products and an increase in basket sizes. However, falling short of Matas's ambitions, our performance in the first half of 2017/18 was unsatisfactory.

Against this background, we are launching a range of measures to strengthen our product offering and boost our performance. For our customers, this means lower prices and better bargains on a large selection of top-line products and more attractive benefits for Club Matas's almost 1.8 million members. At the same time, we will make it easier and quicker for our customers to shop at Matas.dk, which - with about 24,000 products - offers Denmark's largest product range within health, beauty and wellness', said Gregers Wedell-Wedellsborg, CEO.

'To free resources for proactive initiatives, we will carry out a cost reduction programme. Concurrently, we will close down StyleBox as an independent chain and speed up efforts to adjust the retail network. Lastly, based on the changing market conditions, we have launched a process to refocus our strategy based on Matas's fundamental strengths'.

Q2 2017/18 highlights

• Q2 2017/18 revenue was up by 0.8% year on year to DKK 778.0 million. Underlying like-for-like revenue growth was also 0.8%.
• Revenue growth was driven by increased sales in all shops-in-shop except the Material shop. Footfall declined in Q2 2017/18, which was reflected in a lower number of transactions, whereas the average basket size grew by 6.6%. Online sales were up by more than 35% over the year-earlier period.
• High-End Beauty sales developed satisfactorily, more than offsetting the negative impact of declining Mass Beauty sales amid a larger number of competing outlets relative to the same period of last year. Mass Beauty sales were also impacted by increased competition from supermarkets. Overall Beauty sales were slightly ahead.
• Q2 2017/18 gross profit came to DKK 344.2 million, taking the gross margin to 44.2%, a 2.7 percentage point decline from 46.9% in Q2 2016/17. The fall was driven by intensified competition from particularly supermarkets and a high proportion of campaign sales across categories.
• Disregarding non-recurring costs of DKK 12.7 million incurred in connection with the change of CEO, total costs were down by DKK 11.8 million relative to the same period of last year. The cost reduction was partly attributable to the cost trimming programme completed towards the end of financial year 2016/17.
• EBITA, stated before exceptional items as per the definition on page 80 of the Annual Report for 2016/17, was DKK 89.0 million for Q2 2017/18. This took the EBITA margin to 11.4% compared with 12.6% for the same period the year before. The margin was driven down by the lower contribution ratio. EBITDA before exceptional items came to DKK 107.5 million, for an EBITDA margin of 13.8%.
• Q2 profit after tax was DKK 40.3 million, and Adjusted profit after tax net of amortisation not related to software and exceptional items was DKK 65.3 million, compared with DKK 54.6 million and DKK 69.4 million, respectively, in Q2 2016/17.
• Cash generated from operations grew to DKK 54.2 million in Q2 2017/18 from DKK 13.1 million in the year-earlier period. The free cash flow was an inflow of DKK 25.3 million against an outflow of DKK 21.8 million in Q1 2016/17, driven by a working capital reduction.
• Gross debt stood at DKK 1,746.3 million at 30 September 2017. Our gross debt target remains DKK 1,600-1,800 million. Net interest-bearing debt was DKK 1,694.0 million at 30 September 2017, equivalent to 2.8 times LTM EBITDA before exceptional items, as compared with 2.8 times at the end of Q2 2016/17.

H1 2017/18 highlights

• H1 2017/18 revenue was DKK 1,598.9 million, a year-on-year decline of 1.3%. Underlying like-for-like revenue was down by 1.1%.
• Gross profit for H1 2017/18 was DKK 723.3 million, equivalent to a gross margin of 45.2%, down from 47.1% in the year-earlier period.

• EBITA for H1 2017/18 came to DKK 208 million, down from DKK 234.4 million in the year-earlier period. Overall, the EBITA margin came to 13.0%, a year-on-year decline of 1.5 percentage points. The margin was driven down by the lower contribution ratio. EBITDA before exceptional items came to DKK 244.0 million, for an EBITDA margin of 15.3%.
• H1 profit after tax was DKK 114.4 million, and Adjusted profit after tax net of amortisation not related to software and exceptional items was DKK 154.3 million, compared with DKK 139.1 million and DKK 168.7 million, respectively, in H1 2016/17.
• The free cash flow grew to DKK 58.6 million in H1 2017/18 from DKK 3.8 million in the same period of last year.

Measures to boost profits

• Against the backdrop of changing market conditions, Matas is launching a range of measures to free resources for new initiatives and to enhance the customer experience and our competitive strength. These measures will include cost reductions, closing down StyleBox as a chain and speeding up efforts to adjust the retail network, primarily in locations with more than one Matas store.
• We will enhance the customer experience by further developing Club Matas, the digital platform and the webshop. We will strengthen our competitive power through proactive commercial initiatives in the form of investments in campaigns, reducing prices and membership benefits.
• In addition, we are intensifying our focus on e-commerce through the appointment of a Director of e-commerce, who will be reporting directly to the CEO.

Outlook

• Falling short of Matas's ambitions, our performance in the first half of 2017/18 was unsatisfactory. In response, Matas has revised its full-year financial guidance, see company announcement no. 9 of 10 October 2017.
• Against this background, Matas has launched a process to refocus its strategy, which will include a revision of its long-term financial targets.
• It remains the Group's policy to distribute surplus capital to shareholders through a combination of dividends of a minimum of 60% of Adjusted profit after tax and share buybacks. No share buybacks will be carried out in 2017/18.
• The intention is to maintain dividend distributions at a level unchanged in DKK terms relative to 2015/16 and 2016/17 (DKK 6.30 per share).

The 2017/18 guidance is unchanged from company announcement no. 9 of 10 October 2017:

• A decline in underlying like-for-like revenue of 0-2% after taking a negative calendar effect into account.
• EBITA before exceptional items of DKK 440-470 million.
• Investments of around DKK 90-100 million (excluding store acquisitions).

EBITA is stated before exceptional items as per the definition on page 80 of the Annual Report for 2016/17. Accordingly, exceptional items related to planned measures to improve the profit performance are not included in the EBITA guidance for 2017/18. Non-recurring costs of DKK 12.7 million incurred in connection with the change of Matas A/S's CEO are included in EBITA guidance.

Conference call

Matas will host a conference call for investors and analysts on 8 November 2017 at 2:00 p.m.

The conference call and presentation can be accessed on our investor website: www.investor.en.matas.dk.

Conference call access numbers for investors and analysts:

DK: +45 38 32 28 69

UK: +44 (0)20 3427 1910

US: +1718 971 5768

Event code: 'Matas' or 1067169

Please call 5 minutes before the conference call begins.

Link to webcast: https://edge.media-server.com/m6/p/ zca7buar

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 & Strategy, tel +45 48 16 55 48

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