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Matas A/S
Matas A/S
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Matas First Quarter 2019/2020 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 20th of August 2019. And now, I will like to hand the conference over to your speaker today, the CEO, Gregers Wedell. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to our presentation on the first quarter of the 2019/'20 financial year. With me on the call are CFO, Anders Skole-Sørensen; and Elisabeth Klintholm, Head of IR and Corporate Affairs. I will start out by offering some high-level comments on the quarter and then repeat our strategic process, progress and the initiatives launched this quarter. Anders will then take you through the presentation of our first quarter results, and finally, I will comment on the outlook for the financial year. Please note that this quarter is impacted by the implementation of the IFRS 16. We will, however, comment on the numbers on a pre-IFRS 16 basis, unless we mention otherwise, and that is in order to be able to make comparisons and explain developments compared to last year. We look forward to taking your questions at the end. Please turn to Slide #2. The results for the first quarter of 2019/'20 financial year was fully in line with our expectations, and thus, our guidance for the year remains unchanged. Revenue for the quarter came in at DKK 876 million compared to DKK 844 million in the same quarter of last year. This is an increase of 3.8%. The increase came from the acquisition of the Firtal Group, which closed mid-November 2018. Like-for-like growth declined 1.2% in the quarter compared to a 1.1% growth in Q1 of last year. The decline in like-for-like can be fully explained by 2 less trading days in the quarter. Our assessment of the effect of the loss of the 2 trading days is a decline in the like-for-like sales of between 1.25% and 1.75%. And therefore, our assessment is that the underlying growth remained in positive territory when we adjust for those 2 trading days.We maintained our gross margin at 45%, but as you'll note, our EBITDA margin before special items was 13.7%, down from 16.4% last year. And the cause of this is our digital business. It is now a business of significant size and it is in a rapid growth phase. The decline in EBITDA margin was driven by dilution margin, dilution from the shift towards the online business and added costs to fuel further digital growth. These investments reflect our commitment to the goal of becoming the undisputed market leader within the health and beauty space. So overall, the result of the quarter, fully in line with our own expectations and we maintain the guidance. Please turn to Slide #3, the highlights of the quarter. As mentioned, results in line with our own expectations. It's been a busy quarter. We've had progress on all strategic tracks, I'll return to that. Online sales, of course, pop out. It tripled to 10.9% of total group sales, up from 3.7% a year earlier. And of that increase, I take particular notice that we had very strong organic growth on matas.dk, 67% growth on the basis of -- against growth of 50% in Q1 of last year. We also introduced our new store concept, Matas Life, at the end of the quarter. We had 8 Matas Life stores operational, 4 of them fully in Q1. Towards the end of the quarter, we acquired Kosmolet, the owner of the leading makeup brand and added that makeup brand to our own brand portfolio. Like-for-like is 1.2% lower, and again, marginally positive when we adjust for calendar effects and the 2 trading days. Gross margin, we continue to see a stabilization in the gross margin. Cost development is in line with expectations and driven -- the increase in cost is driven by the inclusion of Firtal Group, in particular, but also marginally by the acquisition of the Kosmolet. Margin contraction, as mentioned, we see that as well due to the dilutive effect of higher online growth and the addition of resources to be able to continue and drive digital growth. And again, guidance for the financial year unchanged. Please turn to Slide #4. So we measure our success -- our long-term success with 3 KPIs: first is our ability to lift customer engagement across all channels and all media; second, we -- this is a growth strategy, we aim to grow revenue; and we think in the current retail environment, the way to secure earnings is to grow revenues over time. We are on track with all 3 ambitions for the Q1 '19/'20. We maintain our guidance and we are pleased with the progress that we're making on the strategic level. Please turn to Slide #5. These are our 5 pillars on the strategic framework. I'll just comment briefly on 2 and go deep dive on 3 of them. First, live our purpose is revitalizing the Matas brand and making sure that we're relevant for future generations as well. This has not been a big focus area for the quarter except I'll mention that we relaunched our legacy brand, the Stripes, our product brand, the Stripes, that every Dane knows in new packaging, which is very much in -- part of the whole brand of Matas and we've seen very, very good reception on that new launch. Also, we have an initiative, change how we work, and that actually covers 2 distinct areas that we work on. First is a cost program for our legacy business, so that we can run our legacy business more effectively and efficiently. And second, it is about building digital competences and adding digital competences and renewing the culture of Matas to be able to address the changes in the market. Please turn to Slide #5 (sic) [ Slide #6 ]. I will double-click on the digital developments in the quarter. So this has been, in many ways, a breakthrough quarter online. Of course, the acquisition of Firtal fully in the numbers drives that we have tripled online revenues compared to same quarter last year. Firtal is in the number of the accounts from mid-November, 13th of November to be exact, last year. And the share total turnover now is 10.9% in Q1, up from 3.7%. Again, I would like to take special notice that matas.dk, our own omnichannel proposition, is growing at 67% and now constitutes 5.9% of turnover in Q1. And there are a lot of sources of that growth. It has been a strategic priority for us from the outset of this strategy to drive digital growth and we now see real payoff on the resources that we are adding to our digital organization and the resources that -- or the attention we're devoting to that particular pillar of our strategy. This feature, just to give a few examples, we have ramped up our subscription business model offering subscription on vitamins and supplements as a new way of selling. We have also started testing out giving advice to customers online, one of the things we're famous for in the physical stores. We now use all the knowledge and skills of our materialists on the online platform as well to be able to migrate that brand positioning to the online space as well. Second, we have begun preparing a new online fulfillment center to be able to accommodate rapid growth in online for years to come, and in particular, be able to accommodate fast delivery times. This is one of those areas where we have been investing and will be investing to make sure that we can deliver day-to-day to the entire country. And as you -- some of you will know, we have, for about a year now, been doing same-day delivery to the Greater Copenhagen area and this is something that we see even more potential in. So we opened a new fulfillment center, which, apart from delivering a better product customer experience, actually will improve the unit economics of our e-commerce business as well. And finally, I would like to point out that our marketing transition from marketing in the conventional channels with the leaflet and TV has, again, this quarter taken a step-up with even more social media presence, social media reach and a general increase in the marketing, which is all about inspiring and teaching our great customers about our online opportunities. We have added and will continue to add resources to online. We are now -- we now have a fully outfitted organization with all the skills needed to drive growth. And we are seeing, in particular, very good payback on our digital marketing efforts, something that we become better at every year, every quarter including using all the data from Club Matas to drive effective marketing online. Please turn to the next slide, Slide #7. As for the stores, the main event in the quarter is that we have, at the end of the quarter, we now have 8 Matas Life stores, our idea of what a future Matas store should look like. We have also worked with the store network. As you know, we believe that down the line, we will have fewer physical stores and much more online sales. We haven't given out the exact split because that's really up to the consumer, how fast that development goes. But we are actually working with the store network including negotiating with the landlords. And then it's not just what the stores look like, it's also how we operate the store so we can operate them more effectively. And it is also about introducing newness to the stores, new brands and making new brand launches, to be the most attractive partner to all our suppliers, something that they are keen to see. Matas Life, we opened -- we now have a total of 10 stores after the quarter. We opened 4 in the old financial year, 4 openings in Q1, 2 openings in July. We are still in a test-and-learn phase. We are learning a lot from the stores that we had opened. With only 4 stores fully in the quarter, it's too soon to share conclusions about the effect of the operate, but I can tell you that we will continue operating stores in the second half of the calendar year and we will expect to open modernized 16 stores in -- before the end of the calendar year. As for the store network, we have merged 2 stores into 1 in Ringkøbing. We closed 2 stores, which is pretty much business as usual. And we have opened 1 new location. As for the brand side and the proposition to the customers, we have very successfully introduced the U.S. cult brand, IT Cosmetics, and we introduced it in a new way, starting online and then migrating into the stores. This is a launch method that we expect to see much more in the future. And as well, the French brand, Caudalie, which is green brand, one of our areas of interest and one of the growth areas that we see. And we rolled out some of our recent introductions that had performed well into more than 100 new doors including brands like Zarko Parfume, Filorga, green brands like Ren, RazSpa, just to give a few examples. Please turn to Slide #8. The quarter, of course, was also marked by the acquisition of Kosmolet. We acquired Kosmolet and closed Kosmolet on 11th of June. Kosmolet is the #1 makeup brand -- not just the #1 Danish makeup brand, but the #1 makeup brand overall in the Danish market. It is a brand that has been doing exceptionally well and continues to do exceptionally well. We aim to ramp up product development for Nilens Jord, which is the name of the brand owned by Kosmolet, and increase distribution of the brand and take out all the synergies that we can from now owning the company and being able to cooperate more closely with the company. I will note that we have, as part of our strategy, that Nilens Jord is to be sold not only in Matas, but also in other channels and we have seen no negative reactions from external customers. We continue on Nilen Jord's growth path, both in our own channels and in other channels but with a selective view. We won't sell it anywhere to anyone. We will be careful about where we distribute the brand from.Please go to Slide #9 and I will turn over the speaker role to CFO, Anders, to go through the numbers.
Thank you, Gregers. On the next page, you will see that we are showing the overview of the numbers. And as already mentioned by Gregers, we have a growth of 3.8% in overall revenue while our like-for-like, as also mentioned, was slightly down by 1.2%, although we believe that this is the result of the fewer trading days rather than the underlying. If we look at the category performance, we have the Beauty, which is about 70% of sales, increased by 1.9% in the quarter. High-End Beauty increased by 5.3%. That's roughly half of [indiscernible], 36% of the 70%. While Mass Market Beauty, which is the rest at 34% actually declined slightly by 1.5%. Vital increased by a dramatic 33.5%, but you have to take into account here that, that is primarily caused by the fact that the Firtal numbers are now in there and they didn't use to be in there and Firtal is primarily in the Vital area. The Material segment decreased sales by 8.9% with the reason primarily in our view being seasonal sales of some products that were a little -- because as I think you all know the first quarter was -- the weather wasn't quite as glorious as it was last year. And MediCare decreased marginally by 0.6%. If we look at gross margin, it was fairly stable, 45%, down from 45.2% in the same quarter last year. As we have mentioned a few times over, of course, when we see very high growth in online sales, it does tend to put a bit of pressure on the margin. But it's also fair to say that we are showing some progress in persuading our suppliers to make up for some of that shift. If we look at gross profit, it increased by DKK 12 million or 3.2%. Of course, this was driven by the higher sales. Other external costs rose due to the -- primarily due to the Firtal acquisition. Firtal is now in the numbers. Obviously, it wasn't in the numbers in the first quarter last year. And in addition, the costs that was already mentioned by Gregers that we had put on to grow future sales. And cost of staff costs, they also rose due to Firtal and due to increased online activity. Overall -- and this is very important to underline, overall, costs were in line with our expectations and I'll revert a little more to the cost development in detail later. EBITDA before special items was at DKK 117 million, which is against DKK 133 million last year. Adjusted profit was DKK 72 million compared to DKK 90 million last year. And of course, the decline was primarily due to the increase in costs. The number of transactions declined by 5.7%. Part of that decline, again, has to do with the fact that there were some calendar days missing, the sales days missing. Of course, that reflects in the number of transactions. At the same time, we saw a continuation of the trends we've seen over many quarters now, which was that the average basket size grew this time by 4.8%.With that, please turn to Slide #10. On Slide #10, you can see the more long-term developments in revenue growth, gross margin, EBITDA margin and also a bit about the level of inventories. If we look at revenue growth, we basically see that the picture we've seen over the sort of the last number of quarters is fairly stable. We have seen that the decline, underlying decline, in growth has stopped, but we are looking at a revenue growth, which is fairly flat. As to gross margin, picture is more or less the same. The decline we saw in '16, '17 and even back to '15, '16 has stopped and we are now seeing a fairly stable development in the longer-term trend of our gross margin. On the EBITDA margin, however, we are not seeing the same picture yet. We are seeing a decline. As we know we are changing the setup or changing the mix of the business with the online growth and some of the costs that we're adding there. So there, we are still seeing a declining trend. As to inventories, there is, as you can see, an increase in inventories in Q1 compared to the same quarter last year. However, very much -- or primarily all of that is related to the fact that we have both Firtal and Kosmolet now in the numbers both adding some inventories to the overall level, so it's not really the underlying old Matas business that is growing its level of inventories. If you please turn to Slide #11. As I promised, I'm coming back with a little more detail concerning the cost development. And as you can see here, we have other external costs, which were up by DKK 20 million year-on-year, of course, that's a fairly big number. However, please note that DKK 11 million of that increase was due to operating costs from the Firtal Group and to a much more limited extent, from Kosmolet now being in the numbers. Obviously, they weren't in the numbers last year. And then there is DKK 3 million of transaction costs in the numbers, primarily, but not totally, but primarily related to the acquisition of Kosmolet. Finally, there are increases, which you could say is from the older Matas business, primarily -- that DKK 7 million, primarily driven by the increase in activity on our online business, growing 67% does carry a bit of cost, and also because we have increased our marketing spend in Matas. If we look at the staff costs, they were up by DKK 8 million year-on-year. There, we have to look into -- or just look that nonrecurring costs fell by DKK 5 million compared to '18,'19, so we've got a bit of a positive form there. Those DKK 5 million in '18/'19 were related to executive changes in Matas. There were DKK 5 million of new staff costs again, primarily related to the acquisition of Firtal and a flat effect from Kosmolet, but there were also DKK 8 million of higher staff costs from the Matas business, again, primarily driven by the very, very strong growth in our online business and also some increase in our headquarter costs to support the online growth and social media presence, among other group's reported initiatives. With that, please turn to Slide #12. In Slide #12, we're looking at cash flow and working capital. Cash generated from operations including changes to working capital decreased by DKK 66 million. Working capital decreased due to the increase in the level of inventories, but there were other movements as well but they sort of leveled off so the net effect was the increase in inventories. And then there was, of course, a negative effect across the cash generated by the business decline.CapEx increased by a lot because -- or by DKK 16 million and that was because the investments that we put into Matas Life, the new warehouse or webshop that we talk about, the fulfillment center that Gregers mentioned and some online investments. And then, of course, a big chunk on the acquisitions, DKK 123 million, which is related to the Kosmolet acquisition. And obviously, with the result of all that was a fairly steep drop in free cash flow of -- by DKK 200 million to DKK 130 million negative. With that, please turn to Slide #13. Now as Gregers already mentioned, and I'm sure as you are well aware, Matas has implemented IFRS 16 leasing from the 1st of April, our new financial year. Now IFRS 16 primarily impacts the balance sheet due to the fact the store leases, which have previously been classified as operational leases are now included in the balance sheet. On the P&L, there's an effect on EBITDA, on EBIT and also on earnings before taxes. There is also a technical impact on cash flows, but of course in reality it doesn't change our underlying cash flows. EBITDA is positively affected as leasing costs from the operating leases are now recognized as depreciation and interest costs rather than previously as leasing costs or rent related to other external costs. EBIT is actually lowered marginally as a result of increased depreciation. And earnings before taxes is also affected by increase interests. But these are basically timing differences. It doesn't show any underlying changes. Now please turn to Slide 13, and I'll hand you back to Gregers for a look at our strategic progress.
Thank you, Anders. Before we go to Q&A, let's have a short look at the financial targets for 2019/'20. The targets are stated in the annual report, meaning that the full year guidance is that we expect overall revenue growth of between 3.5% to 6.5%. We expect underlying revenue growth of between 0.5% and 0.25% that's the like-for-like growth. And we expect an EBITDA margin before exceptional items of between 14% and 15% and that is before the effect of IFRS 16. We still expect CapEx of between DKK 200 million and DKK 220 million. As for the guidance, we stated a few tailwinds and headwinds to drive the different parts of the business. For revenue growth, I think that the main tailwind is that we have really been successful in getting our omnichannel, the 2 channels that we have, to support each other. We can talk about that in more detail, but the stores do actually support our online growth and our online growth actually supports traffic to the stores, working against the general trend of people shopping less in stores and more in online. And that is, of course, the headwind on revenue as we still see the structural change in retail overall, a decline in footfall to the high street and shopping centers. And we have also seen an increase in price competition over the last few years. We don't expect that price competition to be any lighter over the coming years. Actually, we are both telling ourselves that the price competition is here to stay and this, of course, we are taking into account. As for the total top line revenues, it is driven by the full year effect of the Firtal acquisition. We also get some help for having one more trading day in the year overall. So the 2 trading days that we lost in this quarter will be coming back in 1 more. Of course, we are looking selectively at opening new stores. We don't have an ambition to open many new stores but there are some underserved areas that really deserve a Matas in their proximity. As for top line revenue and the acquisition of Kosmolet, we don't expect -- it's only marginal effect because we are the main sales channel for Kosmolet. So Kosmolet's sales will be eliminated in the accounts. As for top line revenue headwinds, we have stated quite clearly and we continue to state that we have a very short patience with underperforming stores. We have been very -- it's very inexpensive for us compared to other retailers to exit stores and we use that flexibility actually in negotiations with landlords but also when we see stores that we don't see a future for, we have no romance surrounding the stores. We close them and serve the community with either fewer stores or serve the community online. As for online competition, we see a gradual increase in online competition at all times. This is expected and it's well within the expectations that we have on our strategy overall. As for the EBITDA margin, before special items, we continue to work very, very closely with suppliers to secure both innovation, exclusivity and also funding for campaigns and price reductions to be competitive. And suppliers do understand the new reality of the market, as Anders mentioned. And we have a very close and strong working relationship with the suppliers. We continue to work on promo effectiveness, particularly using the data from Club Matas to be able to promote Matas in a more one-to-one fashion, which is both gives better payoff on the marketing dollars that we spend. As for tailwinds, we do see, as I mentioned, digital organization now is fully operational and it's really delivering results. But I would like to add that the digital growth that we are seeing and expect to see is also driven by the fact the rest of our organization, of course, supports the online business as well. EBITDA margin will also be positively affected by the Kosmolet acquisition, and -- which goes straight to the bottom line. And given that revenues are eliminated, this will affect our EBITDA margin in a positive way. As for the headwinds, EBITDA margin, we are making less money on our digital business because it's in a growth phase. And fortunately, we do see positive scale effects and we have a lot of initiatives to bring down the margin dilution including the new fulfillment center. But the short-term margin dilution from online is inevitable and we do that with our eyes open because it is a very, very important part of our future. As for CapEx, we have increased CapEx this year to fuel investments in the store network based on what we are learning on the Matas Life launches and also to drive online growth and IT to make sure that our long-term financial ambitions are met. With this, we have concluded our presentation, and we now turn to the Q&A. I will hand it over to you, operator. Thank you.
[Operator Instructions] And the first question comes from the line of Aleksander Edemann from Nordea.
Congratulations for your earnings. My first question is maybe you can put some color on the like-for-like growth online compared to off-line. Your online is growing 67% coming from matas.dk, so it seems like your off-line like-for-like growth must be significantly down in this quarter. That's my first question.
Yes. It's correct that the off-line like-for-like is down obviously. It is affected by the calendar days, which is actually quite important. We mentioned that many times. And also to add a little bit more flavor, I think, last year, you all remember that the month of May was pretty much a summer month, this -- you could argue that this year was more like a winter month. And that did actually affect our traffic to the stores and our sales in materially in particular on sunscreen sales. I don't want to put too much emphasis on that, but it is part of the picture of this quarter. I think a key takeaway is that we do not see an underlying acceleration of the shift from stores to online when we adjust for the calendar effects and seasonal effects overall. So we still see the same kind of structural change from stores to online, but no significant development in this quarter.
Okay. And then my second question. So Q-on-Q, your Firtal share for online is slightly down, now accounting 5% whereas matas.dk is flattish Q-on-Q. So does that mean that flattish -- or Firtal is seeing a flattish to negative growth? How does that work?
No. Firtal is growing as expected and delivering according to the plan and ambition that we have for Firtal. We don't give out specific growth numbers for Firtal at this point of time.
All right. Then my third question, if that's okay. So your number of transactions declined 5.7% despite you now have a Firtal in the numbers. I was thinking if you could put some color to that?
Yes. Okay. Thank you for asking that question. When we give our transaction numbers in the quarterly report, that excludes Firtal. So it's only Matas. We will correct it -- or we will make a change when we have Firtal fully in the numbers and the comparisons fully in the numbers. But at this point in time, we thought it was more transparent to say matas.dk. So from Q3, you will see transaction comparisons including Firtal.
Okay. So it's more like a like-for-like basis, this transactional number to some effect.
Yes. Exactly right.
[Operator Instructions] And the next question comes from the line of Claus Almer from Nordea.
Yes. Also a few questions from my side. It seems only Nordea is going to ask questions today. The first question is about all the new initiatives that is being implemented in the stores. I guess, what works and what doesn't work? That will be the first question.
Yes. We actually discussed quite a lot whether we should start disclosing the effect of Life. But to be frank, to disclose on the basis of 4 stores fully in the quarter, I think would be more misguiding than guiding. So we are learning a lot. We get -- what we do know is a very systematic collection of customer feedback, looking at the numbers. With the first stores that we have made, we have also made a lot of experiments to see what works, what doesn't. So I think you should look at those first stores as prototypes that we are learning from. And if you want to draw any conclusions, the conclusion that you can draw is that we will continue rolling out the store format. So we are very pleased with the overall direction of the stores. But as in any retail case, the first stores you open, there's tons of learnings both with regard to how the stores fitted and the assortment and how we operate it, and we really want to see that learning curve come through before we start sharing numbers.
It was more like your own impression, maybe not numbers. But what are you mostly pleased by maybe could be another way to ask the question.
I think that -- I look at the stores through my own eyes and I look at the stores through the eyes of the customer and when we get reactions from the customers, they're very, very pleased with the layout and the overall impression of the store. And the fact that we have managed to actually make a route for the customer that wants advice, which is very key for us to be able to offer advice easily to those who want, but we have also offered a route through the stores for those customers who just pop in and buy one thing and want to exit fast. So I'm really pleased with the fact that the stores probably accommodate more types of customers and more kinds of shopping behaviors, if you will.
Okay. Then coming back to Alexander's question regarding the like-for-like growth in the physical stores. When I do the math, it seems to be down like 7%, 8% and I know it's a little bit tricky as these 4 fewer stores is excluded from your like-for-like growth. But is that roughly the right underlying like-for-like growth?
We can't just -- We can't immediately recognize that number.
But I mean -- okay. So let me ask another way. The like-for-like growth you are reporting, in that number, you are taking out those stores you have taken out. And I guess, those stores are also underperforming, that's the reason why they've been closed down, right?
It depends a little on what you're looking at. I mean, the stores that were closed in the quarter are very small stores...
Deserving.
Yes. and on top of that, then there are things like Ringkøbing where we had 2 stores and then we moved and opened a new store, just 1 store, like we did with Hillerød last time around. And it also gets a little -- it can create a few hiccup in the numbers. But obviously you are right in saying that with 67% growth online and overall a negative a like-for-like growth, there is a decline in the physical stores that is significant.
That must be substantially mean, it must at least be 5% decline, right?
Well, we haven't changed the definitions of the like-for-likes, so there's no effect of us having included some stores and not the others in the like-for-like. But you are right in saying in this quarter -- and you have to take note that there is probably reinforcement from the trading days and from weather in the quarter. So as I said before, we haven't seen an acceleration in the development of the stores compared to what we've seen historically.
Okay. And therefore, there's no larger share of stores that is loss-making. The tail of stores are still...
No. No. No. And that's an important point. There's not -- there is no sudden appearance of a red tail and it's a fair point to ask, but that is not the case.
Okay. And then regarding your full year guidance. Obviously, it's only first quarter so there's a long way to go. But you stated that profitability is down by DKK 23 million, and yes, you will get some extra profit from Kosmolet rest of the year. But the guidance mid range is reflecting a flattish EBITDA, i.e., that rest of the year, your EBITDA must be flattish to meet mid end of guidance range. Is that the way to think about it?
I think it's fair to say, Claus, that we don't go into a discussion as to the details of the guidance. I think it's suffice to say that given what we've seen and given where we are -- the way we look at the future, we are reiterating our guidance, and by reiterating our guidance, of course, we are pointing to a belief that the numbers that we will see for the rest of the year will make that guidance or make that expectation difficult. So we're not going to go into a technical discussion about exactly what has to happen in the different quarter. This is not exactly the biggest quarter of the year. Of course, that makes...
I mean just doing the math, I'm not talking about Q2, 3 and 4, but the last 9 months...
We're not disputing your math. The math is...
Just because you know...
I would like to reiterate, Q1 is perfectly in line with our own expectations. No material changes in the business to make us consider the guidance.
Sure. And that's why I'm asking that we should think about the underlying performance of Matas coming from a loss -- a larger decline in profitability in the first quarter, it will be more flattish rest of the year. There's no extra cost -- or less extra cost in certain quarters or something like that we should take into account.
No. If we had such events, we would have included it in the guidance or it would be nonrecurring cost or extraordinaries and we, of course, haven't.
There will be extraordinary...
No. It is not extraordinary cost. It might be marketing cost. It might be payment from your suppliers. There could be a number of different cost items. But none of those we should...
I think the one thing that we can say on -- I think that's worth reiterating because we are talking about margin dilution from online. When we open our new fulfillment center and as we climb the learning curve on our new online fulfillment center, we do see an improvement in the unit economics of our online business. That's not the major part of the business, but it does help us in that margin dilution respect. And as you mentioned, Kosmolet will also come into the numbers, a very stable business but we are very pleased with seeing the performance of Kosmolet.
Sure. Okay. And then just my final question regarding IFRS 16 and your cash flow statement. In which lines does IFRS 16 impact the numbers? Is that what you...
Are we talking about cash flow?
Yes.
Yes. We have -- there's an impact on the numbers across in -- and I only have it in Danish here just to make it very difficult. No, I have the underlying figures in Danish. Across the result before taxes is impacted by it and then there are impacts on the depreciations as well. And then there are impacts on financial costs. But we have -- if you need to, we can -- we have further explanation. There's note in the...
Note 1.
Yes. There's no note 1, but that's not particularly the cash flow number. It's just the overall impact on free cash flow. But we can go through that in more detail with you off-line if you want this.
Perfect.
Nothing strange about it, but as you know, it does take that, particularly depreciation and the interest cost.
[Operator Instructions] And the next question comes from the line of Aleksander Edemann from Nordea.
Yes. Only Nordea today. Just my last question. So I guess, I mean, you have adjusted EBITDA margin of 13.7% this in Q1 and normally your Q2 and Q4 is, I mean, in line or lower than that. So I guess Q3 is going to make -- or going to be the make or break for your EBITDA margin. Is that correct or can you put some color to that?
I think we missed the keyword.
The importance of the third quarter?
Yes. I mean it seems like Q3 is going to be the quarter where you're going to bring in most of your...
Q3 is always the most important quarter when it comes to profitability because it is the Christmas quarter and the Black Friday and all that. So obviously, as you know, that is the quarter where our margins normally will peak because costs rise in line with sales. So yes, it's fair to say that a great third quarter will be very beneficial for us and a horrible third quarter will not be so beneficial. That should not -- that's not surprising given that we are a retailer.
Yes. I know. I mean it does -- okay. All right. Okay.
Thank you to Nordea. That's it from Nordea?
Thank you so much. And there are no further questions at the moment. So please, speakers, go ahead.
Well, we will say thank you for your time today, and as usual, we are on the phone and can take follow-ups and those regarding the whole IFRS cash flow movement so just let me know. And if anyone else has anything they would like to ask, we are available for future calls. Thank you, and have a very nice day.
Thank you so much. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please continue to stand by.