Annual Report 2019/20 and Trading Update

Company announcement no. 01 2020/21 – INSIDE INFORMATION
Allerød, 27 May 2020

Annual Report 2019/20 and Trading Update

Annual Report 2019/20 highlights and Trading Update for the period 1 April – 17 May 2020

• Growth and solid earnings performance for 2019/20: 4.2% topline growth and 0.7% underlying (like-for-like) growth. EBITDA before special items and before the effects of IFRS 16 came to DKK 518 million
• Estimated impact of corona pandemic on 2019/20 performance: DKK 50 million in lost sales, DKK 20 million in lost earnings, DKK 75 million in negative effect on cash flows
• The Board of Directors recommends that the dividend is suspended for 2019/20. No guidance for financial year 2020/21. Long-term financial growth and earnings ambitions maintained despite increased uncertainty about market conditions.
• Online sales up by about 300% in the weeks after the lockdown
• Strong comeback between 1 April and 17 May 2020: 7% topline growth, physical store sales recovered quickly after reopening, moderate pressure on margins and normalised cash flows

Annual Report 2019/20: Growth despite corona – driven by online boom
Matas generated total revenue of DKK 3,688.5 million in financial year 2019/20, a year-on-year increase of 4.2%. Sales in stores operated by the Group in both 2019/20 and 2018/19 were up by 0.7% (underlying growth). EBITDA before special items and before IFRS 16 came to DKK 517.9 million against DKK 548.6 million last year, and profit for the year after tax was DKK 206 million (before IFRS 16). 

Management estimates that the ramifications of the corona pandemic reduced revenue by about DKK 50 million and earnings by about DKK 20 million in the last three weeks of March 2020 when Denmark was under lockdown. Online sales grew strongly throughout the crisis, and customers quickly returned to the physical stores as Denmark began to reopen.

“The corona-induced lockdown inflicted an immediate and noticeable loss on Matas, but it also made our role in society crystal-clear: Danish consumers used Matas in a different way during the crisis than they usually do. Most of our stores remained open throughout the period, and our online sales exploded”, said Gregers Wedell-Wedellsborg, CEO of Matas A/S.

In Q4, online sales via matas.dk soared by 85%, and online sales, including Firtal, made up 19.3 % of overall sales. During the lockdown, Matas offered a four-days-a-week live online shopping service and launched a new advisory service enabling customers to interact with trained materialists via video. Sales on matas.dk grew by 76% year on year in 2019/20.

Factoring in revenue from Firtal, 14.7% of sales were completed online, compared with 7.1% in 2018/19.

DKKm	After IFRS 16 2019/20	Before IFRS 16 2019/20	Before IFRS 16 2018/19	After IFRS 16 Q4 2019/20	Before IFRS 16 Q4 2019/20	Before IFRS 16 Q4 2018/19
Revenue	3,688.5	3,688.5	3,541.3	817.0	817.0	827.7
Gross profit	1,640.4	1,640.4	1,588.8	373.8	373.8	377.2
EBIT	292.9	297.4	363.3	10.8	10.4	49.4
EBITDA	678.4	496.4	529.7	116.2	68.8	92.6
EBITDA before special items	699.9	517.9	548.6	119.1	71.7	95.7
Profit for the period	191.2	205.9	263.1	1.5	0.2	33.3
Adjusted profit after tax	282.6	297.3	343.2	23.0	21.7	52.7
Cash flow from operating activities	446.8	264.8	472.8	32.6	(14.8)	49.2
Special items	21.5	21.5	18.9	2.9	2.9	3.1
EBITDA margin	18.4%	13.5%	15.0%	14.2%	8.4%	11.2%
EBITDA margin before special items	19.0%	14.0%	15.5%	14.6%	8.8%	11.6%
Revenue growth	4.2%	4.2%	2.2%	(1.3)%	(1.3)%	7.6%
Underlying (like-for-like) revenue growth	0.7%	0.7%	0.5%	(2.2)%	(2.2)%	2.1%

Performance relative to 2019/20 financial guidance impeded by corona pandemic
The Company estimates that the lockdown of the Danish economy, which forced a number of shopping centres, and with them some 35 Matas stores, to temporarily shut down, reduced revenue by about DKK 50 million in the last three weeks of March 2020. At end-March 2020, 235 Matas stores were open, and by 11 May 2020, all the Group’s stores had reopened.

Total revenue for March 2020 was at index 86 compared with the year-earlier period, while sales for the full final quarter reached index 99 compared with the year before.

Revenue for the full year was DKK 3,688.5 million, a year-on-year increase of 4.2%. Underlying (like-for-like) revenue growth was 0.7%, and the EBITDA margin (EBITDA before special items as a percentage of revenue) was 14.0% (before IFRS 16).

Management estimates that, had Denmark not been hit by the corona pandemic, overall revenue growth for financial year 2019/20 would have exceeded 5.5%, and that underlying (like-for-like) revenue growth would have exceeded 2%.

The EBITDA margin before special items and before IFRS 16 would have been well over 14%, given that earnings were adversely affected to the tune of DKK 20 million during the last weeks in March due to lost sales and extraordinary costs.

“In light of the corona pandemic, our 2019/20 performance was satisfactory. We were on track to meet our growth and earnings expectations when the corona crisis set in, reducing revenue by DKK 50 million over the course of a few weeks. We do realise, however, that other parts of the retail industry have been hit much harder than us”, said Gregers Wedell-Wedellsborg.

The cash flow was adversely affected by the corona outbreak, due partly to the DKK 50 million sales shortfall in March and partly to stockbuilding of corona-related articles.

Trading Update: Strong comeback with 7% sales growth for the period 1 April – 17 May 2020
Matas grew sales by more than 7% year on year during the period 1 April – 17 May 2020. Matas has thus recovered quickly from this part of the crisis in step with the gradual reopening of Denmark and has recovered part of the revenue loss sustained in March. As a result, Matas has already called back all its employees, exited the wage compensation scheme and decided to pay back wage compensation already received.

Sales growth in the period 1 April – 17 May 2020 was driven by exceptionally strong online sales. Taken together, online sales via matas.dk and Firtal trebled year on year.

A higher proportion of campaign sales compared with the year before combined with the high proportion of online sales and extraordinary costs for the operation of matas.dk and delivery of online purchases to put earnings under moderate pressure.

“Recording robust revenue growth in April and the first half of May, Matas has recovered some of the ground lost in March and has escaped fairly unscathed from the crisis. Against this background, we have decided to pay back in full the wage compensation benefits we have received from the government. The wage compensation scheme helped us bridge the gap when sales plummeted during the first few weeks and helped preserve hundreds of Matas jobs. The parties behind the agreement deserve to be praised for quickly stepping in to safeguard our employees and allow management to focus on steering safely through the crisis”, said Gregers Wedell-Wedellsborg. 

The free cash flow normalised during the period 1 April – 17 May 2020.

Financial targets and ambitions
The health, financial and structural consequences of the COVID-19 pandemic are severe and could potentially affect consumer behaviour and society at large for a long time to come.

As a result, the current uncertainty pertaining to the retail industry in particular and economic developments in general has increased, and against this background, Matas has decided not to provide specific financial guidance for financial year 2020/21. 

Matas’ long-term financial ambitions for revenue and earnings going forward to 2022/23 are reiterated. The financial ambitions going forward to 2022/23 are based on continuing steady market growth and moderately increasing competition. In addition, the ongoing channel shift from physical store shopping to online shopping is expected to continue through the strategy period. It is noted that the assumptions are subject to increased uncertainty.

Implementation of IFRS 16 has led to a technical adjustment of the 2022/23 ambition for the EBITDA margin before special items, which has been lifted by about 4% percentage points. The underlying ambition for the EBITDA margin before special items remains unchanged, as the increase from 14% to 18% is purely technical.

The underlying long-term ambition for the Company’s gearing ratio (net interest-bearing debt to EBITDA before special items) has been revised. The target remains a gearing ratio of between 2.5 and 3. This effectively corresponds to a tightening of the previous target, as the technical effect of IFRS 16 implementation on the gearing ratio is an increase of about 0.3 of a percentage point (for a 2019/20 gearing ratio of 3.6 after IFRS 16 as compared with 3.3 before IFRS 16). 

Lastly, the annual CAPEX level has been lowered for the remaining three years of the strategy period, with investments having been skewed to the first two years of the strategy period.

The financial ambitions for the period to and including financial year 2022/23 are as follows:

• Overall 2022/23 revenue of about DKK 4 billion.
• Positive underlying revenue growth.
• An EBITDA margin before special items above 18% (after IFRS 16) by the end of the strategy period.
• Annual CAPEX of DKK 80–120 million during the last three years of the strategy period.
• A gearing ratio (after IFRS 16) of 2.5-3 (net interest-bearing debt to EBITDA before special items). The gearing ratio should not materially exceed 3 for extended periods of time.

The effects of the acquisitions of Firtal Group and Kosmolet and of the green market initiatives are reflected in the financial ambitions going forward to 2022/23. The effects of as yet unpublished growth initiatives have not been factored into the financial ambitions for the strategy period.

Dividends
Based on the current uncertainty pertaining to economic and societal conditions in 2020/21 and on the Board’s decision to strengthen Matas’ liquidity and reduce the gearing ratio, the Board of Directors proposes that no dividend be paid for financial year 2019/20.

Conference call
Matas will host a conference call for investors and analysts on 27 May 2020 at 12:30 p.m. CEST. The conference call and presentation can be accessed on our investor website: https://investor.en.matas.dk. Conference call access numbers for investors and analysts:

DK:          +45 82333194
UK:          +44 3333009263
US:          +1 8338230587

Link to webcast: https://matas.eventcdn.net/2020fy

Please call 5 minutes before the conference call begins.

Annual general meeting
The annual general meeting will be held on Thursday, 30 June 2020 at 4:00 p.m. CEST at Gorrissen Federspiel Advokater, Axel Towers, Axeltorv 2, 1609 Copenhagen V.

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 & Corporate Affairs, tel +45 48 16 55 48

Klaus Fridorf                                                                                            
Head of Communications, tel +45 61 20 19 97

Forward-looking statements
This announcement 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 this announcement. 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 announcement. Without being exhaustive, such factors include general economic and commercial factors, including market and competitive conditions, supplier issues and financial and regulatory issues as well as any effects of measures to contain the spread of COVID-19 that are not specifically mentioned above.

Attachments

• Matas Annual Report 2019_20 UK
• Matas Remuneration Report 2019_20_UK