CCC SA

WSE:CCC

Earnings Call Transcript 2022-Q2

[Marcin Czyczerski, executive]

Good afternoon, ladies and gentlemen. We're now summing up the Q2. It was a really good quarter for the company and so we're gradually moving on to Q3 -- at the end of Q3. So we're [indiscernible] So we now have a convention of this meeting that's been revamped and we hope that you're going to like it.

We'd like to encourage you to pose questions such that we'll have some opportunity to discuss things in the quarter. So we have 5 elements that really reflect the over [indiscernible] of Q2. So we have a [ rep ] in the group, has come from e-commerce. We're back to double-digit levels, each one of these tenets right now.

So we have a record-breaking top line. So Q2 was [indiscernible] but it's also better than Q2 2019. And so it was the best top line of our brands. It's making a positive contribution to the 43% increase in e-commerce. And so our e-commerce platform is not something -- even though the retail segment has been quite strong. So we have -- Modivo is up nearly 95%. DeeZee HalfPrice has also shown up with some PLN 40 million. And then 1 quarter ago, it was a mere PLN 1 million.

So of course, the retail sector hasn't negatively affected e-commerce. So e-commerce has grown by another 4 percentage points to 43% year-on-year. And so now we're going to look at each one of these segments separately. I'm going to start with CCC. So CCC has rebuilt its sales very quickly, and this has happened because within our strategy, we said the light motive is that we are basically focused on our customers.

So we're walking step by step with the customer. What does that actually mean at CCC? Well, we have 3 major directions, 3 major avenues. First, we're building our product offering. One example is the Badura brand, which was recently mentioned. It's now already on our shelves. It's in our e-commerce, and it's selling quite well. Along with Gino Rossi, it's expanding the price points upwards.

So in terms of the premium price points, the next part is the new channel -- digital channel of sales. So we're entering new markets, so 6 new markets. So we're expanding our geographic presence, our footprint, and we're also present in other marketplaces and -- with specific products. And the third element are tools to enhance the customer experience. And these are just some of the examples, like PayPal. So you pay -- you buy it now, pay later and so you -- pay afterwards.

And so in our retail brick-and-mortar stores, we're the only -- or one of the only people who have been able to do that across Europe. And another example is that we're even more strongly linked to our delivery, express delivery. And so we have a very unique approach in tens of cities within 90 minutes, we're able to make those deliveries. And so we're going to expand this service to other markets outside of Poland.

So what have we paid attention to? And also in terms of our concentration on customer needs and looking at the youngest customer groups, we have finished up the back-to-school season, which was dedicated to our younger customers, which is a very important component of Q3. We're pleased with that in 2 dimensions in terms of business, in terms of our branding.

In terms of our business, we've been able to achieve very rapid growth in sales of some 36% year-on-year. That's the top line growth. And our gross margin on sales is even faster because it's grown. It's 59% year-on-year. And so we've been able to achieve what we want to do. We're fighting for margin. We decided that we wanted to enter AW without using rebates. That's something we did on discounts.

We were focusing on the quality of our products, on our communication and this is something that has paid off. The second aspect in terms of our branding, well, this is no less important. We've created a very good perspective for our customers in terms of how our customer can assess us using the NPS score and the collections have been received, welcomed very warmly. And so we can look at one of the campaigns we utilized in the back-to-school campaign.

And this was done within the 360-degree marketing. And so this K-Pop tour, which is utilizing a very well-known, popular pop group from Korea with the influencers, very different types of activities, utilizing the roles of influencers. So this is a very successful campaign. So you're going to have an opportunity to see it right now with your very own eyes.

[Presentation]

[Marcin Czyczerski, executive]

So we've shown CCC to be an open brand, open to young people. And through these positive emotions that you've seen on the short clip, we've been able to build good relations with a very important client group. So for me, this is a very important event. And I'm happy with that because this is an investment, a long-term investment and are long -- building long-term relations with our youngest customer group, which will be an important group of customers for many, many years to come.

So focusing on our customers, you can see throughout our brands, especially in our eobuwie e-commerce brand. And so this is a brand that's been growing at a much faster clip than its competitors. It's not stopping. It continues to grow. We're continuing to grow that business, scale it up. It's got enormous potential.

How have we been doing that? So we are developing channels of sales. So we have Slovenia that's opened up. And so we have an omnichannel store in Czech, Prague. And so we have same-day delivery. This is an important moment in time. And so we've seen very rapid sales growth in that store. We're also ramping up that potential by referencing customers through these tools and facilities where you have comfort, which only eobuwie is able to provide.

So our innovative service which is called esize.me utilizing scanners, and we've developed that to include another 4 markets on top of Poland. And we're utilizing the scanning functionality to make sure that shoes fit people's feet and this is done in international markets as well. And this is an important milestone in the growth of eobuwie.

And so you can't have happy customers, ramped up operations unless you have rapid deliveries, credible deliveries and supply chain. This has to be done as the company grows. Quickly, you have to scale up logistics, and this is something that's happening in eobuwie as well. And a lot of has happened in Q2. And so you can see those elements, which will define the positive future of eobuwie and address the peaks that we have in front of us like Black Friday.

And so eobuwie has gone through some pretty important structural changes. We have some ownership changes. So the new ownership structure has been solid. So SoftBank has joined us. So the largest global technological fund, which is investing in companies, in pearls like eobuwie and we've also changed the structure of the management team. Damian Zaplata has joined, a very experienced seasoned manager in e-commerce, who's the CEO of the company and, in the future, shareholders.

So we've -- this chapter has wrapped up. We're going to do the IPO in 2022, 2023. So that will be the next chapter. So the story about eobuwie wouldn't be complete unless we were to talk about Modivo, which is a younger element of the eobuwie Group. So Modivo is a precursor of the apparel within the CCC Group. And so this is something that's picking up in importance across the group.

And how important Modivo is And this part of our operations is testified to by the revenue. Since we started in spring of 2019, we've got 30x growth. So in Q2 2020, we've doubled and so we have PLN 100 million in revenue in a quarter. And so it's got 12% share of the sales in eobuwie.

So how has this been done? We've been building the value for the customers, expanding the footprint, conversion, the basket, value of customers over time and also having a loyalty club, the first one in Modivo, and this has been very successful. We've also developed a technology, which improves conversion, which is raising the ARPU per transaction.

And so you can see creative styles, very nice interactive solutions, which enable you to select the various elements of your clothing. And then you can drop them into your basket and that improves the sales parameters. So apparel is not only the domain of Modivo. As you know, in December 2020, and so DeeZee also elected to go into clothing and expanding the category to include apparel. And so we have the 2 major axis of growth for DeeZee.

What are the aspects of this dynamic growth after less than a year? So they're very satisfactory. So in Q2, some nearly 20% of the sales have come from apparel. And you should remember that it's not even a year has passed. So it started less than a year ago. So how is this been done? We're utilizing the potential in the customer base. We're ramping up the awareness -- brand awareness and we've expanded the geographic presence to 6 markets.

These markets are some 35% of the sales revenue. And so we're going to fire up another 3 markets, so we're going to have a total 9 countries that -- where we'll be selling DeeZee. So this fashion and the expansion, this applies not only to DeeZee, but also to our youngest segment, our new youngest brand, which is the off-price where we have the HalfPrice format, which has started less than half a year ago. And we can say that we're very pleased related with the outcome of this start.

Why this launch? Because we've got dynamic growth. We have some 30 stores that have been opened. This is not easy to do in the current market conditions and with investments. And so we have some 50,000 square meters. So this is a big event, a flagship event. So we've done some restructuring of CCC stores. So we're decreasing the size.

So we're on plan and the markets we're present in, Poland and Czech, Hungary, Austria, pretty soon we're going to be in Croatia as well. And so this geographic accessibility is happening within our biggest stores. So 2,500 square meters, 800 square meters, we have HalfPrice. So we have sales revenue, which is much better.

The revenue is much better than we had with CCC there. So we're very pleased with that. So the third cause of our satisfaction is that we've been able to scale up our offering. So through off-price and achieving the -- satisfying customer expectations. So we have more -- double the number of SKUs. We have 5x more brands available. So that means that we're very strongly developed -- developing our brand here and focusing on customer needs. Another key event that took place in Q2, continued in Q3 with respect to individual segments.

Now I'd like to ask Kryspin, who is our CFO. And I'd like to ask him to tell us a little bit about the financial results delivered by these various segments.

[Kryspin Derejczyk, executive]

Thank you very much, Marcin. So ladies and gentlemen, welcome. We'd like to go ahead and talk about the financial results of the group. And so I'll walk through the various segments, and I'll start with the CCC. So in Q2, we continued the revision of our points. So we closed 35 stores that weren't profitable, with half of them where we reduced this base.

So we've marked that space to HalfPrice. We've opened several new stores and we've increased the most forward-looking stores in terms of their size. And so if you look -- if we look at traffic coming back after the lockdown and we see e-commerce growing and growing, this means that the revenue has improved per square meter by some 37% year-on-year. And we've been able to achieve now PLN 628 per square meter, which is 10% higher than what we saw in 2019.

And what contributed to that revenue spike? We have a 31% increase where the Romanian market grew by some 80-some-odd percent and the Hungarian market with 29% and 26% growth in Poland. This is where we saw the biggest growth. So we had Sprandi brand. So this was some 75% Jenny Fairy and so then Lasocki was 19%. So we've been improving the gross margin. And this is a result of the increasing, first, prices and effectively managing our discounting policy, the Rate B policy. And so our own brands, Jenny Fairy and Lasocki generate the growth means we've been able to improve our margins by some 6 percentage points. And also transferring production to Asia has improved our margins.

In Q2, we've optimized the cost of operation of our brick-and-mortar stores. So it's down by 2.4 percentage points as a result of renegotiating contracts, lease contracts. They represent a smaller percentage of revenue. And so we've effectively managed the other costs of maintaining stores. And so we've been able to reduce that by some 2.8 percentage points.

If we look at the OpEx increase, this is a result of our salaries. This is because of the low base effect because we had some co-financing or subsidies during the COVID period. And so we can see costs that are up in terms of marketing, selling expenses, because as revenue grew, and we saw higher costs of transportation, which is a result of higher sales in e-commerce. So this is why that has increased.

So we had higher gross margin. We've been able to improve our profitability of the segment to 11.6%. So it's almost 8 percentage points higher year-on-year. Now let's take a look at the results of the eobuwie group. So eobuwie, including Modivo, we have a growth rate in our revenue in excess of 50% and the foreign markets were the biggest drivers.

So Western Europe was the fastest-growing area, France, 167% growth; Germany, 88%; and Greece, with 8% growth. And so the margin that we were able to command there is 43.6%. This is the gross margin and it's higher than the margin that we received -- that we commanded prior to the pandemic. And comparing to 2020, we can see that there are 2 contributing factors for the margin being lower. So we had very good purchasing conditions during the pandemic, and then we had more sales this year.

This transferred -- had knock on effect on the profitability of 10.3% to sales. And so the difference in profitability between Poland and the other regions is the result of the product mix and having higher margin products with a bigger stake. And then we also had FX differences and also the producers prices on international markets.

What do the results of Modivo look like? In Q2, we saw that sales revenue was nearly twice as high, with the margin more or less at the same level. And so the major growth contributors are foreign markets. And so Western Europe is the fastest growing area. So we have nearly 4x growth.

And so Greece, Italy and France are amongst those markets. And so as we improve the profitability, this is a result of the ramping up of the scale of business, the economies of scale. What about the overall eobuwie Group? So we have top line up by some 50%. And so the operating profit is nearly 6% of sales revenue, which is in line with our expectations.

As I've mentioned previously, this is a result of a lower margin, higher logistics costs, which were dictated the higher prices of courier messenger services, while at the same time, the average ticket, discount value is falling. And then we had very active marketing efforts to continue growing sales, especially in our new markets.

Now we can talk about our new segment, which is HalfPrice. As Marcin mentioned previously, Q2 was a period of intensive growth in the HalfPrice. We opened up 19 stores in Poland. As of today, we have 30 stores on 4 markets outside of Poland. We have Austria, Czech Republic and Hungary and we're continuing our expansion in the latter half of the year. And so the gross margin of $53.2% is above our assumptions. So it doesn't take into consideration certain discounts.

And so we have a 6.6% result of profitability amongst functioning stores.

What's happening with our people in Greater Poland? So if we look at DC sales, so it's up by more than 80% in line with expectations, primarily as a result of entering new markets: Romania, Czech Republic, Slovakia, Hungary and also expanding the apparel. So the average gross margin is 56%, which is some 10 percentage points higher than the margin we saw in Poland, and this is because of differences in FX rates as well as lower discounts.

So the profitability of this segment, which is quite high for e-commerce, it's 9.3%. Nevertheless, it's lower than last year, primarily because of the investments we made in development as well as the marketing expenditures and performance as well as the cost of courier services that we've incurred on international markets.

And so let's go ahead and sum up the result of the CCC Group. So in Q2, we had an EBITDA of PLN 231 million. And so the operating result was improved as a result of the following factors. We had record high top line performance, which was in excess of PLN 2 billion. We have a clear improvement in the margin by 2.2 percentage points. And this is a result of effectively managing first price as well as making changes to the discounting policy.

So cost growth rate was much lower than the growth rate of revenue. And we also had restructuring in the Austrian and Switzerland Swiss markets. And so the reported results were lower than the ones we published in the preliminary results on the 2nd of [ Oct ] by some PLN 32 million. This was a result of a one-off event. And so this was a settlement of the motivation program for the management team as well as the additional costs of -- and so as of 31 July 2021, the group had reduced its debt by some PLN 283 million to PLN 928 million.

So during the first half of the year, the group generated an EBITDA of PLN 266 million. And so we've seen some changes in the net working capital. And so after AW21, we had some investment expenditures of PLN 120 million. That was our CapEx and this was linked to the development of the half-price network. And we had some investments in the eobuwie Group, and we are also doing some refreshening of CCC stores and these expenditures were offset by the sales of the business in Switzerland.

And so if we look at the financial flows, so this was primarily linked to the sales of shares in eobuwie as well to the 2 investors as well as payments for lease contracts, rental leases, rental agreements. So if you look at what's happening with inventory or stocks, we're building, basically, our stocks for AW21 as well as SS 2022. So we have eobuwie in HalfPrice moving up here. And so we can see that it's growing -- the inventory is growing at a slower pace than revenue.

And so 90% of our stocks are linked to this year's collections. And so we're optimizing our working capital. As a result, we're increasing the turnover of our inventory. And so we have more frequent deliveries of product and that means we're able to react more flexibly to needs. And so we have the right products in the right places at the right time.

And so basically, we're going to be implementing an OMS system and so we're in the process of implementing that at present. So as a result, we've been able to reduce the cash conversion circle from 147 -- 149 to 27 days.

So I'd like to thank you for your attention. I'd like to go ahead and give the floor back now to Marcin.

[Marcin Czyczerski, executive]

Thank you very much, Kryspin. So let me recap. I usually talk about what's contributed to the results of the group and the customer satisfaction, which is the very high quality perks. We're very pleased with our preparations for winter. As you can see, the autumn is prevalent also in our shelves in the stores as well as a large amount of winter. And so we can see what our brands have put in place for this season of the year.

So this is what Gino Rossi, so universal classical approach, and this would emphasize the modern aspects of our brand. And so this is item #4 in the ranking of brands in -- so it's got 5% of our sales. Then we have Badura, which is a new brand in our fashion portfolio. So we have a high price points here. It's a well-known liked brand but it's gone through a lifting. And so it's very popular amongst Internet sales customers, and this is something that very much pleases.

Then we have Lasocki, which is the top #1 classical style for every occasion and very fashion oriented. And so it's close to nature. That's how we portray it. That's how we're building the identity. So that means we can build our ecological lines of products. And so we have now a capsule brand within the brand of Lasocki. So we have recycled footwear. And so we have a session about this capsule. It's dedicated to this capsule. And this is very interesting, very nice. That's how I'd put it.

And so we've collaborated together with the Academy of Fine Arts. And so this specific design that actually won is done by a student, Joanna Wilczynska, who several months ago designed these recycled shoes. And in the near future, they're going to be on our shelves and they will be sold through e-commerce. And it's a nice way to expand our portfolio of products where we're following corporate social responsibility and sustainability.

Another brand that we want to talk about is Jenny Fairy. This is brand, fast fashion and the group's response to this [ is current ]. So it's got 18% of our sales. And so we have got the newest fashions, the most fashionable colors and styles and a lot has been said about Jenny Fairy as a result of the campaign, which is the Jenny Fairy Rose Garden campaign, which has generated spectacular reach. And that means we've got very good business.

Also, we have -- 10 million people have been -- have seen it through the digital and so that's more than we have in our target group, which has been defined for this brand. Our share of voice in television in September, so about 50%, which is a record-breaking level for a television campaign. And I'd like to go ahead and invite you to watch this clip, which is set in the 1970s, the style is in the '70s. And right now, it seems to be something that's quite nice and quite attractive in pop culture in the California Mountain region. And so it's something that's very nice to listen to and nice to look at.

[Presentation]

[Marcin Czyczerski, executive]

What is the business result of a good product and good communication of this brand, Jenny Fairy? Well, from the beginning of the year in the autumn and winter season is the top brand in our sales presence. And so this is our way of starting strongly in this season, along with back-to-school. And I mentioned early that we're very pleased with that, but we want to talk about some of the challenges that are related to the autumn and winter collections.

So there are discussions about some of the challenges linked to the supply chain where we'd mentioned about that when we talked about the problems with the suppliers and deliveries. And so we want to tell you very succinctly and briefly that we're fully prepared to sell our autumn and winter collection 2021. We've prepared ourselves very well for the spring and summer 2022 campaign.

Why do we have so much certainty? We have 3 reasons for that. First, the products are available. So if we look at the AW collection, which we'll have onboard until January. We have the full collection. Exactly 97% of the collection has been delivered to our warehouses, our central warehouse for e-commerce or it's in the stores on the shelves. The remaining 3% is on route. And at the same time, there's no risk that it won't be delivered on a timely basis.

If we look at the spring and summer collection, 100% of it has been ordered. It's being produced on schedule. Some 50% of the demand we have for the sales in the SS'21 campaign has already been -- is already available in the form of stock. So this is a very comfortable situation. Why -- the second reason why we're convinced that we're very well prepared for the upcoming period is that we have the flexibility in the delivery chain, the supply chain.

Several things are important. We've implemented 3 important IT systems, which, for the first time, give us a view on where things are, where they're coming in from, where -- how -- where it is on the seas. So we've enhanced our skills. We've brought on some experts on supply chain management and deliveries. We've become more flexible in terms of available suppliers. Our base of suppliers has more than doubled.

And the last thing is that we've expanded also the partners we have for logistics purposes, we have twice as many as we had before. So 100% Of the 1,000 campaigners that we need for the upcoming season have been secured. So we have a very comfortable situation as a result. So for more than a year, we've known and been -- have been tracking these difficulties. So we started working on this much, much earlier in order to be able to prepare for this properly.

And so a lot has been said, this is the third block. When we talk about cost inflation, of course, that applies to all parties across the board, and we should have clarity on that and it applies to us as well. But on top of suppliers and transport, we're mitigating -- more than mitigating that through our active price policy. As you've heard in the back-to-school campaign, we've reduced rebates, discounts. And the discounts in CCC were always high, but now we don't use those high discounts.

We're pleased with the gross margin. We don't think it's going to be lower. In fact, we expect that it's going to be a little bit higher. And this means that we can focus on our strengths, so having a unique format of half price, scaling it up. The e-commerce were very strong. We want to be even stronger. And we want to utilize what used to be a painful element, and this is digitalization and technology.

Today, we're a team that is very strong. And so every day is getting stronger with ultra-great talents we're bringing in from the fashion industry. And so you've seen the results in Q2 in our results. but you're also going to be able to witness those things in subsequent quarters, and we're going to talk more about that when we speak about the presentation of our strategy, which we plan to do that in autumn. I think this will happen in November about how and where and why we see this strategy fleshing out as it does.

So in Q2, I want to remember, Q2 in the following, that this is top -- a record-breaking top line performance, a very strong e-commerce, even though our brick-and-mortar network is doing very well. We have a high level of EBITDA of 11%. We've been developing the HalfPrice network, with some 50,000 square meters. And then eobuwie has a new structure, shareholder structure and a new management team with dynamic growth.

So I'd like to thank you very much for your attention and I'd like to ask you to pose your questions now, and we'd be more than happy to respond to your questions.

[Unknown Executive]

So we're going to go ahead and start the Q&A session. So let's go ahead and look the first question. The first 2 questions pertain to the supply chain management. You pose a large number of questions concerning this subject matter. So we basically compiled them to 2 questions, which I'll go ahead and read out, but I think they really reflect the questions that you've posed. The first question, the company has said next year's spring and summer selections are on the production and logistics side. Are there any threats to SS'21 -- '22 deliveries?

[Marcin Czyczerski, executive]

I'll respond to that question, even though I have the impression for sure that at least, in part, I responded to that question during the body of the presentation itself, but I think this topic is sufficiently that it's worthwhile to reiterate this message. We feel very comfortable in terms of our preparations in terms of AW21 as well as SS'22 collection.

I've pointed out to you that when we talk about the autumn and winter collection we can say -- we can sum it up as follows, that we're totally prepared. We have the entire collection on board by -- in terms of the -- through the end of the sales period through the end of January.

If we look at the spring and summer collection, the process of preparation is something that we assess very well. We feel comfortable. We have some 47% of the products we need to sell during spring and summer of course, we want to make sure that the rest of the product merchandise reaches us prior to the sales start and we're quite calm about that.

Why is there a distance in terms of what we're communicating as a company today and what you might be hearing in recent weeks and globally -- and locally in terms of supply chain difficulties or troubles. Well, those challenges, we basically anticipated them at least 1 year ago, and they were the natural offshoot of the experiences, well, some of the experiences.

For several years, I was also managing in the automotive sector supply chain management. It's a very complicated supply chain, and we had -- even a small movement in Europe leads to difficulties in -- amongst the Asian suppliers. So in 2020, we saw the turmoil in place. And so the retailers, the customers were shorting their purchase orders and that had a big impact in Asia.

You have to understand the nature of the labor market in China in order to really fathom what's going on. This is not the first crisis that we've gone through. So the rebalancing usually takes up to 2 years in supply chain. And so this is something that we had anticipated and contemplated and that's why we decided to prepare ourselves.

We changed our sales calendar. We accelerated the deliveries by several weeks. Of course, we have higher inventory stocks than we might like to have, but we have full comfort in terms of having total access to product. And we don't have to worry about getting -- having access to the stock.

So we've also prepared to this -- prepared for this on a systemic basis, a systemic approach. So we built IT tools. We strengthened the competencies on the HR side. We've expanded -- doubled the supplier base. We've doubled our marine transport arm. And so up until the end of the collection for SS'20, we have access to the containers. We've done our homework. And so our people and transports have been active for more than a year. So we're 100% comfortable in terms of our position.

Please go ahead and remember about this subject. Well, this is something that you can basically dig into in our report in the nonfinancial report in our sustainable strategy. More than half of our suppliers are suppliers we've been working with for several years, and in some cases is more than 10 years. And more than half of these suppliers are producing solely for us. They are locked in to us.

And so basically, this is an extended supply chain, which goes back into Asia. And so there's no moral hazard here about who they're going to be producing for, because we're basically -- we've been working together for better and for worse, and this has been the case for some 15 years. And having in mind our policy that we have towards the suppliers. We're generating additional benefits.

We have security in terms of getting the product. We have the comfort of deliveries. And so we have full comforts of production for the spring/summer collection. Yes, transport has been contracted. And so for spring itself, we're well prepared to a large extent, especially since we have mid-October now. And so I can assure you and calm you, and I wanted to tell you why we have a difference between ourselves as CCC and other global and local players who have been speaking and communicating about the supply chain management tabulations recently.

[Wojciech Latocha, executive]

Do you anticipate your cost in the supply chain growing in terms of production and transportation? To what extent will they affect your own cost of sales?

[Kryspin Derejczyk, executive]

So I'll try to respond to that question. Ladies and gentlemen, we mentioned during our presentation, but I'll try to clarify the subject once again. The situation we're encountering right now in the marketplace where we have higher cost of transportation, this is because of freight costs.

Well, freight costs have grown 10x compared to what we observed prior to the pandemic. This applies to the entire retail industry. And that means, for our group, that we have an increase in our cost of sales of some 8 percentage points. And so we have a loss of margin of some 2.2%. And so the increase in cost is something that we'd observed where we had margin that was up by 2.2% year-on-year.

So we have a method in which to deal with that. Above all, that's because we're effectively managing our discount policy and our discounting policy has changed materially compared to last year. So we're selling more products at the first prices. And at the same time, we're following customer expectations. So we're enlarging the product offering through quality. And so we have higher price points there. And so have in mind brands like Gino Rossi and Badura in particular.

[Wojciech Latocha, executive]

Thank you very much. The next question. How have you been managing to manage costs and control costs in eobuwie marketing cost? Is the next quarter going to be an increase in profitability for the company?

[Marcin Czyczerski, executive]

So let me begin with the general. We're very pleased with the results generated by eobuwie in Q2. And I -- and if you look at the competitors' results, you should share our satisfaction and elation. So we have some 9% profitability. So halfway within the target range that we guide you to, in terms of trying to achieve an 8% to 10% EBITDA return.

So along with Modivo, we want to grow very dynamically. We're increasing the markets. We're enlarging categories, new solutions, and we're investing a lot in the logistics and marketing. And on top of that, the level of marketing cost in eobuwie has the right to be a little bit higher than amongst players who are growing at the level that we see in eobuwie.

In subsequent quarters, we intend to grow equally dynamically. So the proportions will remain more or less, but I think there's going to be a downward trend because we're investing in branding campaigns. We're improving conversion. We're improving our SEO performance, a lot's happening here.

And so the costs of marketing against revenue long term should be lower in that share of cost. If we look at the peer group, so we have some of them where their growth rate is half of what we see in eobuwie. And then we can say that the profitability starts to look similar to ours, but the growth rate is half of ours.

And then we have other companies with growth rate that's similar to us, but their EBITDA is minus 1%, minus 2%, minus 3%. And so having all of that in mind we're within our targets. We're pleased, relieved that the results we're fighting for the market with high levels of profitability, and this is something that really distinguishes us from our customer competition at eobuwie.

[Unknown Executive]

So please tell us what is the net debt of the group today after settling for the transaction on the shares of eobuwie?

[Kryspin Derejczyk, executive]

So ladies and gentlemen, one moment ago, we discussed in detail our net debt at the end of Q2, which is PLN 928 million. And if we look at the debt we're going to have at the end of Q3, you'll learn about that in 2.5 weeks, along with our preliminary results, which we'll publish on the 24th -- sorry, on the second of November, on the second of November.

[Unknown Executive]

What is the share of the operating results or the EBITDA does leather footwear have?

[Kryspin Derejczyk, executive]

So if we look at the omnichannel approach, we can talk about 33% in the margin by PLN, and that's for the most recent 12 months.

[Unknown Executive]

And so the next question has been posted on the English language. I'll go ahead and read it in the original language. "Can you give us some color on the improvement of margins? Does this refer to online and traditional retail?"

[Kryspin Derejczyk, executive]

Yes. We've mentioned this mechanism how we're going to improve our margins. So on one hand, we're counting, reckoning with hiring costs of our logistics costs. Of course, we'll have negotiations with suppliers about the new seasons.

But on the other hand, if we look at the demand side, we monitor the market on an ongoing basis. And if we look at the implementation of products with higher margins, this is one of the things we're doing and then lowered discounting. And so we feel quite calm and we believe that we're going to be able to control this margin. So we do see room -- headroom for us to continue growing that.

[Unknown Executive]

So thank you very much. What type of growth in CapEx for space do you anticipate?

[Marcin Czyczerski, executive]

So I think we can respond to this question to a limit. First, the main part of our expansion in space is we're rolling out the HalfPrice concept. And basically, we have a large number of new stores for HalfPrice to make sure that they would have a decent share of our sales. That's what we'd like to say today. In November, we'll publish, our strategy, I assume it's going to be a strategy. Certainly, as I said, it will be in autumn. And then we'll have the opportunity to talk about what we see in upcoming years, what awaits us.

[Unknown Executive]

The next question in English. "Can you give us an update on the current liquidity position?"

[Kryspin Derejczyk, executive]

So -- sure, we've completed the refinancing process in the first half of the year. In September, we signed contract with PFR, the post development fund. And so we gaze into the future with a sense of calm. In terms of the long-term debt, this is PLN 2 billion. The financing and the refinancing agreement that we signed with banks give us, as a horizon, of 4 to 5 years.

[Unknown Executive]

So the next question pertains to Q3. How is this quarter looking in terms of sales in the brick-and-mortar network and online?

[Marcin Czyczerski, executive]

As I mentioned, with respect to this quarter, -- in terms of back-to-the-school and the Rose Garden campaign, we're quite pleased entirely as well as with respect to the individual components of that quarter.

What's the most important thing for us, and we would like for you to take this away from this conference, as a takeaway. We have a very good launch into the autumn. Back-to-school wasn't so good in recent years, but this year has been very good that execution has been very good. And so basically, this chain is working very well.

And so if Modivo continues to work, so it's very important. So we're very pleased. And the next element that we would like for you to draw attention to, and this is resounding in what we said, we've changed our policy -- promo policy, and that means we have much lower discounts. At the same time, we're very pleased with the sales results. So 2, 2.5 weeks we'll produce, publish prelim results.

So for Q3, in terms of business results and prices. And so we continue to uphold what we say that we have 3 strong engines, more drivers. So we've got basically brick-and-mortar, e-commerce and HalfPrice. So there's a high level of comfort and satisfaction with what's happening here.

[Wojciech Latocha, executive]

Would Dariusz Milek like to sell his shares? If so, what percentage of his shares? If not, why has he put forward a motion to convert his shares from registered shares into bearer shares?

[Marcin Czyczerski, executive]

So -- I don't know of any such intention. You'd have to ask Dariusz Milek that question. But in terms of the conversion, well, please have in mind, this is a procedural aspect that comes from the rights issuing that we had in April 2020 in order to give the opportunity in that first pool to now -- to allow fund investors to have -- basically to Dariusz Milek and [indiscernible] had a year for those shares to be proved for -- admitted for trading.

That's more or less -- that's -- there's no other topic there. So the plans in terms of the pace of growth in eobuwie for revenue and its profitability and the IPO, just as I mentioned, we're very pleased with the concept which we call eobuwie in conjunction with Modivo, we're happy with the growth rates, with the profitability, along with the new CEO Damian Zaplata.

We can say that we're going to throw it into our higher gear, and we're very pleased with the observations we've seen in terms of what we can actually strengthen eobuwie and write a new chapter. You'll be able to learn more at the time of the new strategy, which we plan to publish in the near future. So I'd ask you for a little bit of patience.

The timing of the IPO. I mentioned about that previously, is in place. So we're talking about 2022/2023. The priority, of course, is to build and scale up eobuwie, while retaining an exceptional level of profitability, having in mind that growth rate and the results.

[Unknown Executive]

What percentage of the merchandise in the group of CCC is currently produced in China? And how might this change in terms of the production structure in the future, having in mind to your plans?

[Marcin Czyczerski, executive]

So I can give you a reflection of today because this is something that changes. We have flexibility in our supply chain. This is something we've been working on for the last 2 years, especially over the last 12 months. What we report in our reports, what we disclosed in our reports, basically, 1/3 is in China, 1/3 is in Poland and 1/3 is in India and Bangladesh. We don't produce in Vietnam, which had some additional perturbations. We have some 60 suppliers in China.

What I want to draw your attention this structure, this production mix in terms of that loyalty of our suppliers and the stability of our suppliers. This is something that's very critical. More than half has been working with us for several years, more than a dozen or so years and are working for only us -- only for us. And so that's very important to have in mind in terms of the supplier base.

[Wojciech Latocha, executive]

In your opinion, during this trade fiscal year, will you have a higher revenue gross margin results than you had in 2019?

[Kryspin Derejczyk, executive]

So we're -- online, on track with our -- have -- barring any extraordinary events at the end of the year, I would say yes, our revenue and the percentage of e-commerce profitability, gross margin, these are those elements which we're driving to meet our ambitions that we outlined at the beginning of the year.

[Unknown Executive]

So the next question coming in from the English language chat. "What kind of areas will be covered in the strategy published in November?"

[Marcin Czyczerski, executive]

We anticipate -- let me start, once again. This is not -- this is not just a simple publication of a new strategy. Our task that we assigned to ourselves over the last half of the year, that's how we captured it in the company. We wanted to look under every stone. We want to turn over every stone and become more effective. We sound tens upon tens close to 100 ways of streamlining the business in e-commerce operationally in terms of our processes.

And in terms of what we defined, we're very pleased with what we've defined. We've scaled up our level of ambition and tuned it to market opportunities. So we -- in geography, it's an evolution, not a revolution. We want to take advantage of all of the post-COVID opportunities, which have popped up, and we've utilized them to some extent, over the last 6 months.

We've described them the megatrends. We've described them very well. And we've made very good decisions under the previous strategy, which was GO.22. As you've seen behind me, the group is changing. It's becoming more of a conglomerate of businesses where each one of them has a slightly different identity, a different P&L. Each one of them means something a little different.

And so within this strategy, we want to show you more of that. And what's the most important thing to us for a longer period of time, and basically, the customer has to be at the very center of our intention. We wanted to develop and nourish those relationships with our customers. We want to get ahead of the customer expectations. We want to be fully attuned to those customer needs and expectations.

This is something that's going -- this is something that's really repositioned us and given us a lot of comfort. There's going to be a lot of technology and there's going to be a large number of themes in terms of these brands that you can see here. Modivo, HalfPrice, DeeZee, how, in fact, they're going to be coming on to a 4x bigger market in apparel than just shoes and footwear themselves and so give us an opportunity to discuss that in November.

[Unknown Executive]

So thank you very much. Next question. what's going to happen in terms of the final accounting for the transaction in Q3 of the shares in eobuwie. Will the company report a profit on that transaction in its P&L?

[Kryspin Derejczyk, executive]

In Q2, we had a transaction with several of the people who sat that was booked. In Q3, we'll book the transaction with higher investments. And so the results will be invisible in the stand-alone financial statements, but it won't affect, of course, the consolidated financial statements.

[Wojciech Latocha, executive]

Okay. Thank you very much. So it seems that we've fielded all of the questions that you posed during the Q&A session. So let me remind you that we, as the IR team, are at your behest, and we are counting on your questions coming in after the conference as well. So I'll give the floor to the CEO to wrap up.

[Marcin Czyczerski, executive]

So I'd like to thank you very much for your attention, for your presence during today's conference -- earnings conference. And I hope, and I'm expressing this on behalf of Kryspin, and so I hope that we've some interesting information, and we responded to your questions.

We see that a large number of your questions, I think more of the questions, if I've understood Wojciech correctly, is focusing on the supply chain. I want to mention once again that we're very well prepared. We've got comfort in terms of quality, in terms of quantity. We've got great merchandise. That's the big message for the second half of the year. And so we have the strategy to be announced in the near future. We'll report the prelims for Q3. So stick with us. Thank you very much for your attention.

[Kryspin Derejczyk, executive]

Thank you very much.

[Unknown Executive]

Okay. Thank you very much.