CCC SA

WSE:CCC

Earnings Call Transcript 2023-Q2

[Marcin Czyczerski, executive]

[Foreign Language]

And macroeconomics that were typical. And so if you look at the FX base, they had a big impact. You see, we have very clear break through by HalfPrice of through the breakeven point. And so another quarter that basically confirms the market trend right path we have the [ eobuwie's ] marketplace and so this has been started, launched. Without involving a lot of capital, we've mapped the operating processes, capital processes to prepare the group through the uncertain market environment in which we're participating in 2022.

What does the environment look like? And how is this effecting our customers and our operations? We can say that there is a lot of uncertainty -- macroeconomic uncertainty that continues to grow. So the risks that out there, having aligned global macroeconomic policy, even though if you look at the beatings with the inflationary interest rates, even though they're high, we can't presume that they're not going to get any worse, having in mind a bad correlations with [ relevance ].

So this is effecting, basically, the disposable income of all the people in Central Eastern Europe. Because of inflation, we had an interest rate inflation of 18%, that was probably last week. In fact, in Hungary, it's even higher. So the cost of loans are higher. This has been mitigated by loan vacations. How long -- if we look at what's happened in the past, we can assume that this is going to last or persist.

Next year is election year and we can say that a fiscal policy will deviate from monetary policy and that means that there might be more inflation cost pressure at the point on customers' pockets. While it's -- we're not ignoring this. We are seeing what's happening around us and we're trying to adjust our trajectory where we want to get in terms of our long-term ambitions we are addressing. The answers to these in front of us, having mind that's handed today.

We've been preparing the group for a period of heightened uncertainty. How are we doing that. We've launched several programs to procure liquidity of key company, so we want to reduce the cost PLN 700 million. And so have already taken certain efforts we've gotten behind us. The effects will be accelerated over the upcoming quarter over the next 12 months and this will reduce our cost base by slightly more than PLN 300 million .

And we are also working hard on our working capital. At the end to the year, we can say that we'll have the inventory in today's turnover down by 60 days. And so we have things that return by 17%, so we have a lower level of stock, some 17 million pairs of shoes. We are able to generate a certain level of revenue and if we have favorable conditions, even more. So we're not freezing money in our stock. We're able to operate more effectively.

Another thing is the freshness of our stock. The stock that we have on board today, if we look and how much of that stock from this year, so it's 90%. Last year, it was 70%. Why is this important? So the freshness of our stock, the base structure means that it hasn't had any impact on margins. The older the stock, it's the lower the margins. And so there's figure pressure, to sum it off, that has a negative impact of the final margin that -- gross margin that we generate despite the fact that we have high gross margins on the -- at the first prices.

And so this is a result of the work that we've done as a company over the last 18 months. This is not the last thing we have to do. We have spring/summer '23, we see the big impact, a positive impact of the new sales calendar. And so we want to bring in the goods at the same time. When we're selling them, we basically, we're really tightening that calendar as opposed to having this disjointed.

We have new algorithms, and this should help us in the middle of this season to ensure that we're able to sell that stock, our products more quickly at higher margins. We're also extending our payables turnover ratio. And so we've revised our CapEx program for '23 by 25%. That's a lot, especially if we take into consideration the fact that we have higher prices. And so the 3 quarters of the budget means that we're going to be able to buy less than we were able to do this year. But we can say that we have that major investment round behind us. And now we need to monetize what we've been working on in the past periods.

We're also working on a liquidity cushion. And so this is a second line of defense in uncertain times. And so we have also issue of rights offering. And so this is a secondary thing. And so it will depend on the situation. We also want to pay down debt. And that means we'll reduce our financial leverage. And that means we'll reduce the base against which we pay costs, having in mind also higher interest rates. And so this has a bigger and bigger impact on our P&L statement.

And we're also working on what's the most important from the point of view of sales, so the product and the margin that we generate and the massive margin. How are we doing that? CCC has always been very good in terms of value for money. So we've taken a further step. So we see that polls are interested in a lower expense -- less expensive shoes. And so we want to go step by step with our consumers. We have higher inflation, higher uncertainty. That means that consumers have less money to spend.

Basically, everything we see shows that customers are looking for savings. They're spending less also in our categories. And so we see this trend, and we're addressing that trend. And that's why we have new budgetary shoes, budget shoes, footwear. And this is something that we'll utilize to a greater extent in S/S '23, so spring and summer '23. And so that means we have good high margins at the lower level of the shelf.

As you look at this picture, which is the product portfolio, the product matrix/product type and price. So we have a full coverage of the footwear market, and that gives us a lot of flexibility in terms of how we react to customer demand and the structure of that demand. We want customers to be able to find products for themselves regardless of their disposable income. And we're also, not only aligning the product, but also our communication. So what is important is not only the facts, but also the perception of these facts.

And so we want to convince customers that we have the best prices in our product categories and that according to the research we've done and continue to do on an ongoing basis, we can say that perception is spot on. We're seen as a company that offers the most affordable products. In every single product category, we have a strong perception and we continue to strengthen how we're perceived. This is another step taken consistently since 2018 that we've been doing.

I would also, like, to mention, we want to use the product potential to an even greater extent. We want to harness it greater. So there are other companies that have strong products for Poland and abroad. And so on top of their sales channels, oftentimes, they're selling their products through external marketplaces. We've done the same thing. So we debuted on external marketplaces at the end of October. And so this is an initiative that's better way for almost a year. And we're present now on several large external marketplaces in Germany or Benelux and other places.

It's too short of a time to say whether or not this was a strong outcome. I want to share the results with you, but we believe that this is going to be a good experience for us that will have translated into business results for us, but we'll talk about it when we have the real figures. Then if we look at our own channels of sales that are highly digital and interrelated, integrated, we've been talking about this a great extent. We have an omnichannel approach, an omnichannel ecosystem according to many reports, we're the leader in this approach, and we profoundly believe that, and this seems to be the winning model in sales, in commerce.

And so we've been talking to our consumers, our customers with multiple tools. And we can say that ccc.eu has grown by some 61% year-on-year. And we have a large number of applications that have been downloaded and then we have the tablets, the kiosks, which are available in 3/4 of our stores. So the app and these innovative solutions have added another -- some 40%, and this gives us even greater potential.

And we have grounds to believe this, that next year, e-commerce in CCC will continue to grow at a very fast clip because of the growing quality and breadth of our offering and how strong the off-line is connected to online. And then we're going to be able to monetize these solutions through the app which can show more positive effects. And we're talking about e-commerce that's been in place for some -- not entire -- not even 3 years.

And then we've built it in the last 3 years. And that means there's pressure on how many visits are paid to shopping galleries. So the sales per density, the density per square meter has grown to nearly PLN 700. And this is an increase of some 9% year-on-year, but this is also a good result. If we look at the last normal year, which is 2019. So I can tell you as a chronicler, so we're up over 2018 in Q3 and also a little bit better than in 2017.

For us, that was the best year. So even though we've had tough conditions, CCC, through the activities we've taken, has enabled us to achieve the highest levels of sales density, sales per square meter. We expected more, and we're not sitting on our laurels And so if the external conditions would have been a little calmer, then we think we would have had even better results. We believe that we can do more.

And in Poland, it's getting better, where we see the greatest potential and the delta between the good Polish result. We can see the foreign markets, so we've made profound organizational changes. We're in the process of role -- in rolling out omni-channel activities. The ones we have in place here in Poland, we want to roll them out elsewhere, and we see good results in e-commerce and also omni-channel approach and the sales density.

So you'll see on this slide, how we're improving things here. And this is happening not only in CCC, this -- the omni-channel nature, the hybridity of our model, we can see that in the eobuwie's zone, which we have within CCC, we are calling them kiosks, and so they have different sizes from 50 to 100 square meters, and this is a natural step in towards growth. In terms of continuing the optimization that CCC has, we're consistently realigning CCC space to our omni-channel approach.

We want to drive up sales per square meter, so sales density. We want to utilize the customer database that we have, the customer base we have in CCC. Only 20% of them are also in eobuwie. And so they're satisfying their needs in terms of footwear in various -- from various companies. We've looked at [indiscernible] and we've been able to witness that the traffic is being magnified, if you look at eobuwie and CCC, we can say that this -- eobuwie stores are larger than these kiosks.

And so we have a hub that's improved sales and generated a high level of sales even though the net charge was a little bit lower. So using the same number of square meters, we have sales up by -- in 2, 3x. So our plans. We have nearly 20 openings planned. But on a target basis, we might have 100 or more. So we want to continue expanding eobuwie. We want to generate traffic through that kiosk. We want to migrate people from off-line to online. We want to optimize the utilization of our working capital because that working capital will turn over more frequently.

And so we want to drive up e-commerce. And so we're doing things as blocks. We want to have less expensive marketing, because this is a great point of sale, where we can show you what eobuwie is, what advantages it offers in terms of handling, for example, returns and things like that. So this is something that's been expected by many. This is a solution that offers a lot of potential and there are benefits offered to CCC as well as the eobuwie.

We're rolling them out gradually. And this has been confirmed that it gives us a lot of potential for the future. How can we continue developing our business even though we have limited resources? We have the marketplace Modivo launch. This is also linked to our strategy. So it's an important marketplace in the industry where we see in international markets, so 65% share of sales. We believe that by 2025, it will move up to 75%. In Poland, it's only 40-some-odd percent.

So if we look at the e-commerce structure in the marketplace, we should anticipate that Poland and the percentage of the marketplace will catch up to the Western world. And so we've been working on this project for a longer period of time. And so we've made some capital expenditure in the middle teens of millions in terms of setting up these type of solutions. So since the autumn of last year, we've been setting up the marketplace.

It hasn't given us -- it's not been something that's been visible in revenue. So we started in mid-October after several months of testing. Now we have a rapid rollout. So we want to have a large number of merchants, and we want to extend the offering in Modivo without burdening the balance sheet by some 44%. So that's going to be the increase in the stock keeping units. So it's going to be done without investments, and we're going to -- and so our partners will be responsible for holding the stock.

We want to have a broader offering, and we're going to open up new categories. All of this is going to be done without utilizing our balance sheet. Of course, there are certain risks in terms of maintaining the same level of service, the same level of NPS. The technological architecture is more complicated, but the potential benefits more than outweigh the risks. And so now we're going to be involved in the scaling up of that business going abroad.

And later, we'll be able to talk about the results. And once we have those results, we're going to be able to share them with you in subsequent quarters. This is a great example, and we're going to be asked about this. How does Modivo intend to improve its results? How does it intend to improve its days turnover ratios? And what are the results that have been generated by the investment projects?

So let's take a look at HalfPrice, because something that's very important has happened. This is one of the projects where we've talked quite a bit to you about. And we've mentioned that these are going to be successful projects. Just like with that marketplace, we had costs, CapEx, OpEx and so the balance sheet was burdened by that, and it was hard to discuss with that. But after a mere 1.5 years, HalfPrice has achieved a very high level of operating profitability.

Year-to-date, this graph shows that how well it's been able to build up its EBITDA across the year. In terms of the cash EBITDA is in the black. This is the best proof that the concept has matured, not despite, but thanks to the turbulence on the market. If we look at the history of HalfPrice in the United States, basically, they lived -- they've lost them during periods when consumers had poor wallet potential, so when there were basically crisis.

And so the prices are 80% below list price and Pols have fallen in love with that. And so we can say that the like-for-like stores had the best results. So the stores, the ones that are comparable, their sales are up by 25% over Q3 of last year despite the macroeconomic turbulence. And so if you look at the traffic moving up by leaps and bounds, we can see that the brand awareness has moved up by 1/3 between one reading and the second reading of membership in the loyalty club that we have and having better stocking in the stores, it's -- we have more stocking.

That means you have breadth of offering, and this is possible, thanks to the fact that we have a very strong purchasing team, and it's stronger and stronger. And at the same time that our sales chain, supply chain is working more efficiently. So we have the individual transformations to hubs. So we had [ marginal cost curve ], so we have CCC stores where we had 25,000 square meters. Now we have -- we had negative profitability there of several thousand points.

And now we can say they've made massive improvement in their EBITDA. And so we can say that they've moved from a big minus to a delicate plus. And at the same time, they continue to operate. And this goes back to 2014, 2015, where CCC wasn't able to manage with that. Since we're talking about the results now of the group, let's go ahead and talk about them in detail. So I don't want to spend too much time on Q2 because we have such a dynamic backdrop.

So talking about the results from March or April, this -- now as a management team, we're a little bit somewhere else, basically, this is prehistory, prehistoric. I can tell you what we reported in Q2 and why we reported then a little bit different from what happened in the past. So I want to reconcile these things with you. What are the major differences in revenue, sales, gross margin in prelims? So the difference is -- so the only difference where there's something that's important, where there's a major number. This is other operating income.

So this is the clear message, and this is something that we said in our prelims, according to the established practice since these one-offs [ remain ] due to valuations and to impairment losses. So in our -- when we do our prelims, we don't know the level of these impairment losses. We do this as quickly as possible. And then we report it faster than anybody else does. And that means that these events can occur. And this is something that did happen. And above all, this was about the impairment losses on expected credit losses for receivables.

So we made the assumption -- a cautious assumption that the current market environment will affect our trading partners who are wholesalers. And then we also have FX differences, so we can say. But since, as of this quarter, because of the financial process, the tools that the financial team has, we have more and more refined tools and we're pleased with that. We're giving ourselves comfort that in our estimates, we're going to be able to give you information, the information we have about other operating income.

But of course, these things can change, but we'll try to provide that in the prelims. To understand the results of the group, as of this quarter, we have a new reporting aspect and this should enable you to understand and read better the results of the group. We're not a blend or a mix of different channels. The group, the CCC Group is 3 or 4 independent companies, 5 lines of business where 4 are very large. Each one of them has different competitors with different financial models.

All of them. Well, some of them have a stronger brick-and-mortar presence. Some of them have a stronger e-commerce presence. But they are different from one another. To understand the group, you have to look at each one of those lines separately, and that's how we're going to present the prelims for you to understand and see very well what the performance of CCC is, HalfPrice, Modivo and eobuwie. And starting in 2023, I think we're going to be able to show you in our financial statements as well.

So let's take a look at the cash flow of the group broken down by these business lines. So we have this broken down to EBITDA in H1. And also, we look at various balance sheet line items to show you basically the flows for individual lines of business. This is important to understand the performance of the group and not to mix things. In terms of the brick-and-mortar, HalfPrice, as opposed to the e-commerce HalfPrice. So we have Modivo, which a pure e-commerce model.

And so if you look at this picture, so in CCC segment, we have a number of operating steps to optimize costs to become more effective to improve our hit ratio, conversion ratio, cash conversion ratio, and this has a positive impact on our working capital at CCC. Both programs have enabled us to have positive cash flow in CCC. And so it's very important to improve the turnover ratios in liabilities. And so the stand-alone result of CCC confirms that we are confirming our results at the operating level.

And this means we have a high potential of generating cash. In your notes, you've been talking about that, but now we want to show you that out front -- upfront. And so we can show you how the money has been used. Basically, that they financed the development, the construction and the development of HalfPrice. So CCC generated more than PLN 315 million, which created the foundation for HalfPrice -- what we have today is HalfPrice.

And the nicest thing is happening that in September, that's the month, in which HalfPrice starts to generate a cash surplus, exceeding CapEx and working capital. And we called this the HalfPrice on its own program. So the development of HalfPrice, basically, is something that's interrelated with this capability to generate cash. And in the near future, we will have 2 lines of business that will have a positive cash spends and EBITDA.

That means that the turnover ratios of liabilities and stock or inventories will enable them to generate positive cash flow. And so we have the development of this brand. But starting in 3 quarters, we can say that the next line of business should make a positive contribution to our cash position. Let me tell you that we have 2 separate stand-alone lines of business cash flow. So we have CCC and HalfPrice and Modivo. We have different financial institutions, different covenants, different debt and net exposure.

This is not something that can be blended as the different ratios that are covenants that are used to judge us. So we'll have no longer inventories of the overall group, but inventories of individual segments of the business because we have separate lines of finance. And basically, they're distinctly separate and we have contracts with banks that address that. And then we can talk about the financial position of the group.

So in Modivo, which has -- basically, Modivo needs the cash to grow. So we have CCC and HalfPrice generating cash. And so basically one part of CCC is financing a different part of the group. And now both parts will be generating cash. That's it for me right now.

I'd like to give the floor to Kryspin and he can tell you a little bit about the results, so drill down on the results presentation.

[Kryspin Derejczyk, executive]

Thank you very much, Marcin. Good afternoon, ladies and gentlemen. Let's go ahead and talk about the preliminary results for Q3. Let me begin with revenue in the group over the last quarter. So we have sales that are up by 18% over last year's base. This is primarily because of digital channels and HalfPrice development. So we have more -- we have 214% up revenue in HalfPrice. This is because of more sales area, but we also have improvement in sales density, which has grown by 14% year-on-year.

If we look at the digital sales channel, they're growing at a faster pace than the -- over -- by some 30% year-on-year. And their per share of the total is up by 4%. So more than half of the revenue from -- in the group is coming from online. In 2019, it was a mere 25%, and so this is a huge move forward in terms of becoming an omni-channel group. I want to draw your attention to what's happening with the dynamics of stock.

In Modivo, in our price, we can say that it's growing quite fast because the scale of business is growing. But if we look at CCC, the stock is down by some 2%. It's at the end of October. So 80% of the collections were this year's collections. And so we're optimizing the working capital, and Marcin mentioned that earlier. This is one of the key projects in terms of having healthy operating flows, cash flows.

Since we're talking about CCC, let's take a look at the results of this segment in Q3. So revenue is up by 2%, even though consumer sentiment is down and also, we've optimized this sales area. So online is up by 16% -- 60% and it's becoming more and more important. So this is 19% of the total revenue in CCC and it's an improvement of 7 percentage points year-on-year. And so the margin is quite stable. It's basically fat -- flat, even though we've had strong depreciation of the Polish zloty and also the pressure on the supply chains. And so this is fully offset by our rebates and discounts policy.

And so if you look at our cost of sales and administration, it is down by some PLN 8 million even though sales costs and so, like, energy costs and the demanding labor market, those costs have moved up. And so in upcoming quarters, we should anticipate more impact from optimization programs. So this is more than PLN 220 million. And so this will have an impact on our cost base. And so we're talking about lower marketing spend, optimizing head count. So we're not doing recruitments. So the utilization of electricity. So it's down by some 12%. So rents linked to revenue.

So for stores in Poland, we have OCR clauses. And so there's -- they have a 30% share in terms of total rents. So last year, they represented only 8%. So if you look at the operating results as a result of nonrecurring factors, we're talking about operating expenses of PLN 22 million, and this is primarily because of FX. If we look at the adjusted EBITDA, it was 11.8%. So this is a good result in this demanding environment. So if we look at FX differences in Q3, so this is nearly PLN 100 million.

So how is the Modivo group dealing with this difficult market context? We can see that the revenue growth rate is clearly up above the market. And so we can say that competition is just barely above last year's results. And we can say the 90% upswing in sales under the Modivo brand is something worthy of mention. And so it's more than double what we've seen amongst other candidates. So the margin is down because of a lot of competition, a lot of the product being available in the market.

I'd like to draw your attention to the ongoing development of the Modivo Group which has meant that we've incurred major expenditures in the most recent quarters. In -- just in Q3, the cost of new businesses was roughly PLN 10 million. On top of the marketplace, we have the new mobile app, which we're starting to see benefit, because the app is generating higher sales of 34%. We have a major improvement in terms of the nonpaid traffic. So it's nearly 40%. And then we have higher conversion rates. And this means, for upcoming periods, that we're going to have higher sales and lower costs of marketing.

On top of that, in the Modivo Group, we've identified some savings steps that we can take this year or next year. In terms of the PLN 300 million savings that Marcin mentioned, some PLN 90 million will apply to Modivo. And so we're going to reduce expense spend on brand marketing, optimizing head count, structure, so also outsourcing to impose some logistics process. So we want to save a few million because we want to use paper packs as opposed to cardboard boxes.

And so if you look at other segments, HalfPrice, here, we have only good news. At the end of October, we have 84 stores. The profitability is 12.3% in Q3, and this is after the allocation of costs of SG&A. And we've already talked about the reasons for that. I would only emphasize, once again, that this took a mere 1.5 years to ensure that HalfPrice is able to earn money on its own, keep itself, that it's house is in order. And so we have good stocking in the stores, and we've been able to attract customers through our doors.

If we look at the HalfPrice, that type of approach, we can say that they usually had a boom if there was a turbulent business environment. And so we strongly believe that this is a great time for HalfPrice. And this will be a trampoline to its ongoing growth and development, and we're encouraged by these results, and we're going to enter other markets, and we're going to open the first store in Latvia.

So we've discussed the results of the individual lines of business. Now let's look at the -- and this is a recap of the group. I'd like to draw your attention to the record level of revenue that was generated in the quarter. So we have PLN 2.4 billion, so some 18% growth year-on-year, where we had a very high base last year. So our gross margin where it was stable in HP and CCC and its e-commerce is under pressure of strong or fierce competition.

So then we have the cost of sales and administration. So basically, it's -- the growth rate is lower than what's happened with sales revenue. And the cost ratio is down by 0.3 percentage points in the group. If we look at our savings program, we believe that the group has addressed the inflationary measures very well. As we've mentioned previously, nonrecurring events had a major impact, including FX differences. So Q3, that's a PLN 23 million negative impact -- PLN 24 million negative impact. So this is a difference of some PLN 40 million. The EBITDA margin for the group would have been lower by less than 1.5% if this adjustment were made.

We can mention that there's an unfavorable macroeconomic environment. And we have a strong inflationary environment and regular depreciation of the Polish zloty. So we've talked about the group results. I want to comment one other very important topic, let's look at individual balance sheet line items. Specifically, I'm thinking about the debt structure, how we look at financing the group and what banks and what bondholders see.

On one of the previous slides, we talked about 2 separate lines of finance. We should treat them separately. So if we look at Modivo, which is on the right, so the basis for financing, these are bank loans and SoftBank convertible bonds. Having in mind, the amount of cash, Modivo has a very safe liquidity structure. On the other side, we have the CCC business units. So this is CCC, HalfPrice and DeeZee. So basically, we have bank loans, we have public bonds as well as PFR bonds.

CCC has covenants about its net position, where the gross debt is reduced by basic [ PF1s ] and reverse factoring as well as cash on hand. So on a quarter-to-quarter basis, we can say that we've been stabilizing our debt position. Nevertheless, the management Board wants to refinance some of the instruments that will mature, and we want to deleverage the company. So at the end of October, so we have set a loan that was extended for PLN 150 million for another 24 months.

And we started our talks about extending financing for PLN 535 million in terms of instruments that will mature in February and March of next year. By the end of 2023, we would like to reduce our debt by PLN 360 million, which would reduce our debt servicing costs. And so the management Board is always trying to improve the liquidity and strengthen the balance sheet.

So I'd like to thank you very much for your attention, and I'll give the floor back to Marcin, who will do a recap of the overall meeting.

[Marcin Czyczerski, executive]

Thank you very much, Kryspin, for that part of the presentation. Before I come to the conclusion, I'd like to talk about something that's very close to our hearts and our team in terms of CCC. This is sustainable development, sustainability. You know what we've been doing here. Even though we have a very demanding unfavorable business environment, we're not slowing down.

We believe that the climate awareness is growing especially amongst our consumers, especially amongst the youngest consumers. This is our obligation and something that sets us apart. So the CCC team, HalfPrice as well as Modivo, all of the teams are very strongly involved and we're very proud of that. But let me -- I can't mention everything we've done. I'll mention some of the most important. We've been working on this according to our strategy that in every product category, we want to be able to brag about sustainable products.

So we have the capsule Sprandi collection, along with Disney. And then we're working very strongly on more ecological logistics. So with lower emissions. So CCC, HP ,Modivo has paper packs, which have replaced cardboard boxes, some 65%, 75%. They're smaller, they're lighter. We're not hauling air and this reduces CO2 emissions. And this is giving us savings of PLN 3.4 million already. And so we have a very demanding environment. That means this is something that's also important in terms of the group's results.

What does this mean for the full year results? So we presented to you the full year prospect, the war and the aggression against Ukraine and the macroeconomic deterioration. It was very difficult to assess what the impact on business would be, and that's why we had such a broad range. We had disruption of demand, so we're closer to the lower brand bracket.

Nevertheless, we're still within the range that we had originally indicated. If we look at leverage ratio, so that potential billion or -- we might have a higher, slightly higher cost ratio, but it's still within the range between our expectations, thanks to the savings that we've -- and programs that we've launched and -- we talked about with Kryspin. So the gross margin at CCC might be surprising because we've been improving the breadth of the offering and the quality of our products.

So we've been reducing our stock and level of inventory. And at the same time, we've been improving our planning and logistics processes and introducing new tools and there are a few positive elements in front of us. All of this means that we have a strong product, strong processes. And so even though there is fiercer competition, so we can react to things without burdening our margin. We've reduced CapEx and we'll continue to reduce it next year. We've talked about that.

We're not -- our belief in our strategy execution hasn't changed, but the trajectory has to be modified, and we have to have in mind, on a common sense basis, the changed circumstances. So basically, all of us are breaking time into 2 periods pre-war and post-war. And so we want to make sure that our organization is capable of delivering. And so we have ambitions and we're just adjusting the trajectory. We've slowed down the process of rolling out HalfPrice stores. We want this to be self-financing growth, a self-financing concept, and we're very close to that achievement, to achieving that goal.

Modivo is that line of business, which is the most strongly affected by the macroeconomic situation. Here, we have the demand side factors, which were 10%, 20% higher than what we're presenting. At the same time, there was a decline in demand. And it's not possible to adjust the purchasing so quickly. So this is something that affects Modivo in the competition. So we can see that there's pressure to deal with inventory stock. And so this has a negative impact on profitability and margins.

And so we believe that rebalancing of gross margin profitability is something that's going to happen at more or less in parallel with -- in February and March as we look at the collection for spring and summer. We think this is what's going to happen. But as we look at what's happening here and now and the conditions we have in 2022 and how this is affecting Modivo and other competitors -- competitive players, so as we've revised some of our expectations in terms of 15%, 20% in revenue, 20% -- 24% margin.

So in terms of how that's going to affect our EBITDA will be in the period range of 2.5 and 4. And so it's a little more difficult. But as you've seen during the presentation, we're taking proactive approach to all of these challenges. So let me sum up the conference now. What are the main effects which best summarize Q3 in the group? We have rapid growth of revenue, up 18%, where last year had grown by 28%. EBITDA is in the low teens.

And at the same time, it's been bottlenecked by nonrecurring events, could have been better. You can look at sales density. But having in mind the conditions, it seems that we've extracted from the market, what was possible. HalfPrice is earning its own way. It's earning its keep, so PLN 30 million profit EBITDA at HalfPrice. And so after a mere 5 quarters, it's reached operating profitability.

And then we have Modivo scaling up the business without investments in working capital and logistics. So we've launched a large number of activities to strengthen the group's capital position. So this is what I want you to take on. The company is aware of the conditions. We're working on our cost program and the liquidity program to ensure that we have a stable position for the company.

We have healthy sales channels that are integrated. We have a wonderful product, wonderful technology, great teams in place, and we're convinced that we're going to be able to navigate through these challenging market environment. Now we can go on to the Q&A session. So I'd like to thank you very much for your attention during this part of the conference and now ask you to go ahead and post any questions you may have.

[Wojciech Latocha, executive]

Welcome. We can start the Q&A session. Let's go to the first question. It's the IPO of Modivo, is this something that will take place?

[Marcin Czyczerski, executive]

As we've told you many times, nothing has changed what we've communicated to. We have assumptions about running the IPO at the turn of 2022, 2023. So we have a prospect of 10, 12 months. And so if the IPO market is ready today, this is the softest market for IPOs since 2008. So we want Modivo be prepared in order to show the full value of the group at that time. That's where we're focused on.

We have some other ideas about how to source capital. So we have the shareholder meeting. We don't want to have a fire sale for Modivo. We want the market to be ready to fully appreciate the value of this asset.

[Wojciech Latocha, executive]

Modivo, quarter-on-quarter, has softer and softer results. What's next?

[Marcin Czyczerski, executive]

Well, for quarter-to-quarter -- well, the overall e-commerce market's under pressure so Modivo is better than the competition. I could stop my response here, but we're not pleased with the results that Modivo has in terms of capital, working capital engagement and profitability.

And the management of Modivo, for 2 quarters, is working on steps. First, to restock -- destock, have a lower level of the rebalancing is happening and will take place at the beginning of spring and summer collection. And so margins will improve once the promotions end, and then we have the marketing costs, once they stabilize, and so a lot of unpayable traffic.

The third area, our costs related to logistics. This is something that will improve because we'll have higher utilization of the warehouse in Romania or the fulfillment center, which is prepared for apparel. And Modivo and InPost are in the process of setting that up. And then we have had many expenses.

We've told you that we have a savings program that's been run in each one of our lines of business, PLN 90 million in Modivo. All of that should help prop up or move up the profitability in Modivo in the upcoming quarter.

[Wojciech Latocha, executive]

If we look at the prelim structure, why do you -- why are you treating FX translation as a one-off?

[Kryspin Derejczyk, executive]

Well, FX translation is a natural part of our business. And if we look at the macroeconomic situation and the fluctuation of volatility of FX rates in the last 12, 14 months, we've seen above average volatility. And if we look at the comparison of the average exchange rate between the U.S. dollar and the Polish zloty, the last quarter versus Q3 2021, it's a 22% increase.

So having in mind EBITDA, which, in our definition of the bank covenants, certain exclusions in terms of unrealized FX differences. So basically, that's something that's removed from that calculation. So this was an investor expectation, and that's why we made this adjustment.

[Marcin Czyczerski, executive]

Let me add here, why are we treating them as one-offs. It's not the case that all FX translation differences. We're only talking about the unrealized ones, where if we look at the current FX rate, well, that's not a cash difference. We're talking about EBITDA. We're only -- in EBITDA, we only talk about cash, the entire effect of FX translation differences. In CCC, the total is PLN 94 million. If we look at various margin and cost elements. So it's the non-cost translation difference that's just in line with the definition that's been agreed with the banks.

[Wojciech Latocha, executive]

So we have many questions about the savings program. So the most representative question. About the PLN 300 million of savings, can you give more precise statements about which cost would be reduced in the results? Where would the results be affected? Will it be online? Or the CCC segment? And what's going to be the net impact of the PLN 300 million. Where we going to be able to see that in the operating result?

[Kryspin Derejczyk, executive]

So we've talked about that at greater length, both Marcin and I talked about that of the more than PLN 300 million, PLN 220 million of that figure is from the CCC business unit, PLN 90 million is from Modivo. The program, we started working on the savings program prior to the vacation.

We started to implement it as of September of this year. And the time horizon is July 2023. And so this is something that will be spread over time. Certain decisions have been made. Certain steps have already been taken. So we'll see the results in the current quarter and upcoming quarters. That's the first thing.

The second thing, most of these savings, if we look at the P&L, will be in the store portion, brick-and-mortar store portion of the results. So we're talking about 2 things. So this is rents. And the second element of the cost is labor, so employee benefits.

So we have negotiations with the landlords where we have a cap of 30%. So these clauses will give us, basically, some protection against volatility in sales. And we're also looking at optimizing processes in our stores, logistic processes as well as the head office processes to make sure that we have the highest level of cost effectiveness.

In terms of employee benefits. The next thing is marketing. We've mentioned that we're doing a review of our marketing activities. The last 2 years, we spent -- we built our brands to a big extent and the brands that function under the umbrella of CCC, within the group. And this is something well, if we look at the periods, the period we have in front of us in terms of economic slowdown, we're going to reduce the spend for bargaining campaigns, the frequency of these campaigns. So we have Black Friday or we'll use, to a better extent, the CCC Club.

If we look at the other activities we have, we've done an overall business review. And as I mentioned, we have regular work on the effectiveness of our processes. And this is something that will be visible in the admin, in the head office. We'll stop incurring certain expenditures for consulting and advertising. We spent quite a bit on that in previous years. And this is linked to the smaller number of projects.

So the challenges that we presented in the strategy, GO.25, basically, we have to adjust the pace of our programs to enable us to achieve that. Having in mind the current marketing conditions.

[Wojciech Latocha, executive]

Next question. I'd like to understand how do you want to deliver on net debt to EBITDA, so to go below 4x by Q4 '23. To what extent is that really possible in terms of operations? And to what extent will you have to divest assets to achieve that?

[Kryspin Derejczyk, executive]

Well, this question is linked to our covenants. At the end of October, we completed negotiations with the set loan and we received bank's consent for certain covenants to be loosened. The goals that we had, the targets we've had in the covenants basically have been pushed back by 12 months. This is strictly linked to the uncertainty on the marketplace to the turbulent environment.

The actions we've already taken will bear fruit in the form of improved EBITDA. So now in terms of the work to extend the loan period, it's not the case that we have last year's strategy as the underlying basis. We want to adjust the financial projections to the current market situation, so a number of the efforts we're taking give us this safety cushion. As we look at EBITDA, we're going to be able to achieve this. That's on one side.

On the other hand, if we look at cost elements, but not only, our financial liquidity, our cash flow is affected by balance sheet activities. So optimizing working capital, and above all, shortening the turnover ratio in days for inventory, all of this, extending payment terms, will have an impact on achieving these covenants.

It's also worth mentioning that the EBITDA that is the basis for the covenants, the definition of the EBITDA is different from the one that we published in our financial statements. There's a number of exclusions, noncash exclusions. That's why we talk about the 30-day period after the reporting period for the company in order to make the deconsolidation and to show the true picture.

So to sum up the Management Board is going to do everything it can to achieve the newly accepted covenants and deliver on them in the upcoming period.

[Marcin Czyczerski, executive]

We can look at this as simple as possible. Up until 2022, one line of business generated cash flow, of high positive cash flow and this was financing the other. But now we see that the 2 lines of business are generating positive cash flow, which is different from we had in the balance sheet up until now. And this is something that will accumulate and affect the future. And as we improve effectiveness in terms of rotation, turnover, so we're basically 1/3 along the path or 1/4 along the path.

[Wojciech Latocha, executive]

So a question, follow-up. To what extent do you intend to reduce your debt?

[Kryspin Derejczyk, executive]

We reported our intentions in our current reports recently. We have plans for next year. By the end of 2023, we want to reduce our debt by PLN 360 million. So PLN 320 million of paydown of loans. On top of that, around PLN 40 million, that's reducing our bond debt. That's the plan. We're motivated in order to work on deleveraging by growing our EBITDA, but also by reducing our debt.

[Wojciech Latocha, executive]

What was the cost of setting up the Modivo marketplace that was set up in Q3?

[Marcin Czyczerski, executive]

I'm not able to tell you directly from my head what the exact cost of Modivo was. This project, the marketplace for Modivo in Q3, that's what I'm not able to give you. But the OpEx, CapEx for the Modivo marketplace year-to-date was nearly PLN 9 million.

It's more or less 50-50 OpEx and CapEx for 3 quarters, was more or less split evenly. So it won't be that same amount in upcoming quarters. But the other effect that we so much and dearly expect, so it will be in the numerator, not the denominator, where we'll have revenue and we're generating that revenue even now.

[Wojciech Latocha, executive]

Half a year ago, you were investing in premium brands. Now you're investing in economic brands. Well, this confused customers.

[Marcin Czyczerski, executive]

Consumers aren't confused. We do regular research basically at every customer level after transactions, when customers leave our stores. So we have a very extensive database. I don't want to guess if we're the best in Poland or in the world, but we're very sophisticated, and we see that.

Year-by-year, our consumers and customers are happier and happier with the breadth of our offering and the variation in our offering. And that's the reason why they come to our stores and not to other stores. So our customers have come to like our product strategy. So we have premium strategies.

So it might be the case that wives prefer the premium strategy, whereas the men and kids prefer the economic brands. And so you have leather shoes. Well, basically, it's very important for consumers that they have, basically, choice. What we showed you in the presentation, the portfolio, the matrix of our products, we were showing you how the world looks at the product portfolio.

According to these 2 major categories, what sort of products I have and what prices I have. And of course, you don't have to be in every segment, but covering the market is a positive thing for customers. Customers are buying Badura and Gino Rossi's shoes and customers are happy with that, and that can be seen in the studies.

We also have economy brands. So CCC has the biggest amount of selection. So in every product category, we have the best prices. But you have to remember that the prices for synthetic footwear in the Internet in the summertime is something totally different from what's being offered in terms of the winter and a full leather shoe.

So it doesn't matter what the product category is, basically, our goal is one. We want to be the most attractive company in terms of the products we have in affordable prices. And this is how customers perceive us, and this is something that we test and research on a regular basis.

[Wojciech Latocha, executive]

As we observe CCC stores, I see more employees than customers, for example, in Wola Park. Is this what things should, like -- do you have overstaffing in your stores?

[Marcin Czyczerski, executive]

I can respond to that. We look at staff costs to revenue, and staff cost to revenue at the end of -- we're around 10% to 11% despite inflation in Poland. This is a benchmark result if we mention a specific shopping gallery in a specific location. But if we look at the level of staffing costs versus revenue in CCC, we're at a very good level.

[Wojciech Latocha, executive]

Has the Modivo marketplace really launched? If so, which brands are on that marketplace?

[Marcin Czyczerski, executive]

The main brands that we can mention, I think we can mention them, Lancerto, [indiscernible]. We have some 30 merchants. We want to have 300 merchants by the end of the year. And the most important thing, the marketplace has launched in Poland for good.

And we anticipate that we're going to have a large number of well-known brands that will actually show their wares on Modivo. And so there are some we didn't have a marketplace as Modivo opened to now. So we anticipate a lot of positive impacts.

[Wojciech Latocha, executive]

Could you comment what the chartered accountant said, the auditor said about your financial statements?

[Kryspin Derejczyk, executive]

The statutory auditor looked and mentioned according to the rules for reviewing the financial statements about continuity of business. This note is not different from what we saw at the end of 2021. This footnote is well described in our financial statements.

We draw attention to risks having in mind the current macroeconomic situation as well as the actions that the management board has taken and will take. We've described extensively this in the financial statements. There's no additional comment made by the statutory auditor.

[Wojciech Latocha, executive]

Are you thinking about strengthening Modivo brand through advertisements in CCC stores?

[Marcin Czyczerski, executive]

Well, the brand recognition of Modivo is moving up at a very fast pace. So it doesn't need to be strengthened even further. So take a look at Modivo pace and compare that to other apparel e-commerce units in Poland or abroad. So what we've been doing, because we're talking about eobuwie, Modivo, we're talking about strengthening its perception through eobuwie kiosks and CCC stores.

And we're going to continue that though we will wait a bit for an overall assessment after we have a larger number of these solutions. We have minor solutions in terms of leaflets. And we inform people about promotional campaigns. We're adding to shoeboxes and CCC stores about Modivo, HalfPrice, CCC.

But as I've mentioned, the brand recognition of Modivo is on the rise. I might be wrong. I think we have a mere -- the client penetration rate in eobuwie in terms of the customers that have been using eobuwie, I think it's in the low teens, but it's growing very intensively. And this is a result of boosting Modivo through a cross-selling approach.

[Wojciech Latocha, executive]

If we look at the financial costs, what do you estimate they will be over the next 12 months having in mind the current financial interest rates?

[Kryspin Derejczyk, executive]

The situation is dynamic. We had a recent inflation reading, which is almost 18%. This will have an impact on interest rates movement. They've changed quite extensively in recent months. So the interest expenses are strictly linked to monetary policy and inflation.

If you look at our gross debt for the CCC business unit, PLN 1.8 billion of net debt -- PLN 1.4 billion. So if you look at Modivo, it's PLN 2.5 billion gross. On net, it's PLN 2.1 billion. So if you look at the movements in interest rates, in the financial statements, we have a section which describes this in detail.

But 1 percentage point movement of interest rates increases costs by PLN 20 million, PLN 25 million. And so, brand, if we look at the CCC business unit, we're talking about PLN 190 million in interest payments, but we'll have to pay in this financial year.

[Wojciech Latocha, executive]

The planned savings that you talked about in the savings, will they be temporary? Or long term? So reducing marketing spend for only a certain period of time?

[Marcin Czyczerski, executive]

This is -- we can say that this is a long-term impact. We've mapped processes. We've improved productivity. Having in mind our survey, we see other things we can do. We've extracted this. So if you look at marketing, this is something related to what Kryspin said. We've invested a lot in terms of building the image of CCC, HalfPrice in past years as well as other brands.

The customers have fallen in love with them. We're amongst those entities that are nice entities that have gone through a nice positive image transformation, and this is something that we want to harness. We'll always have marketing expenditures. But we don't have to -- we don't want the brand to be a burden. We are saying that the brand is attracting customers into making purchase decisions.

[Wojciech Latocha, executive]

When can we anticipate information about the shares or rights offering?

[Marcin Czyczerski, executive]

So being not -- so the shareholder meeting is planned to be held on the 17th of November. So if the shareholders adopt a resolution, so this is all of our knowledge that within about 3 months, it can take place. So we'll inform you the results of the voting at the shareholder meeting, the extraordinary shareholder meeting and next steps.

[Wojciech Latocha, executive]

When will CCC have the opportunity as in eobuwie to order footwear, shoes through the Internet, pick them up in the stores without paying it?

[Marcin Czyczerski, executive]

We ask that question to ourselves as well. That opportunity or functionality would have been possible. In the near future, we're going to launch the click-and-collect offer. So at present, it doesn't have -- we're going to assess the impact and then we'll think about reserve and collect, which has worked well for eobuwie, but with a cheaper product. We're not sure if that's the path. We can do it at any point in time. We're going to wait to see what the results are going to be of click-and-collect, and then we can think about reserve-and-collect.

[Wojciech Latocha, executive]

We've partially responded to the question, but what CapEx is anticipated for next year? And the accompanying question, to what extent we have a decline in sales area?

[Marcin Czyczerski, executive]

So the CapEx, we said it's going to be down by 25%. It's going to be around, for CCC, HalfPrice, so PLN 160 million, PLN 200 million. If we look at Modivo, as I mentioned, the spend has been reduced intensively. If we look at expansion. We're growing by sales density through e-commerce.

So HalfPrice sales area is growing. But as a result, it's about the cash flow generated by HalfPrice. So 15, 20, 30 stores, then the sales and through eobuwie kiosks and CCC stores. So we plan to grow by intensifying sales density as opposed to expanding by new brick-and-mortar stores.

[Wojciech Latocha, executive]

If we look at like-for-like or comparable stores, how is that like-for-like sales changed over Q2 and Q3, in CCC, the like-for-like sales?

[Marcin Czyczerski, executive]

I think we stated that number in the presentation, but like-for-like was around 0 in both quarters. It's more or less flat. We're more attached to sales density, so sales per square meter under omnichannel approach because both of the channels are very much interrelated to one another.

[Wojciech Latocha, executive]

Why do you have lower lease payments in Q2 2022, PLN 62 million as opposed to PLN 88 million 1 year ago?

[Kryspin Derejczyk, executive]

Here, we mentioned to you, the savings program part of it is renegotiating rents. And this is the impact of more contracts having an OCR clause, and this is the impact of the renegotiation of those contracts. On Slide 13 of the presentation, you have information that the group's EBITDA was PLN 227 million.

This is the sum of the result we had for CCC HalfPrice and Modivo. Where does that number come from? Because in the current report, the number is higher in this PLN 270 million.

[Wojciech Latocha, executive]

Why is there a difference?

[Marcin Czyczerski, executive]

There are 2 things. One is the exclusion of Russia from that calculation and on addition, we have transactions with individual business units.

[Wojciech Latocha, executive]

Will the cost of rent grow as a result of inflation? If so when?

[Marcin Czyczerski, executive]

If we look at the costs of rents, we're discussing with our partners, our landlords. So according to our practice, we don't give a comment on that. We have very good relationships and we're developing a solution that will be the best for all of the parties concerned. An important thing we're doing is to have the OCR clause to a larger number of contracts, and that's something we've been working on doing.

[Wojciech Latocha, executive]

CCC products have price coverage as well as fashion and coverage. They might be a very strong selection criteria for people from Ukraine. But nevertheless, you see sales dropping in Modivo. It looks like that the main problem was the product and not the market environment.

[Marcin Czyczerski, executive]

According to the market information, we are gaining market share, especially in Q3. This is probably because as you can anticipate, these things go hand in hand. Customers are spending more but buying less. So the volumes are down. We don't break down customers into brick-and-mortar and e-commerce. I don't want to get into our whole world of omni-channel solutions and how all of them are operating.

Our competitors are also listening to us. We'd like to say hello to them. We look at consumers in total, and the sales density is growing. The market is changing. So having lower shelf product prices is more important. And so in our stores, we have many Ukrainian nationals, so in HalfPrice as well as CCC and both lines of business are being selected based on value for money considerations. We do regular our continuous research in every week from 2 external sources and our market share is growing. That's what these studies show.

[Wojciech Latocha, executive]

What about your financial goals? When do you plan to restate them in the strategy, GO.2025?

[Marcin Czyczerski, executive]

I think we said quite a bit about that during our presentation. Our ambition, in terms of the strategy, our assessment of macro trends haven't changed. We can say that we're very strongly convinced. I myself have been saying, since March, that the trajectory has to be adjusted to have in mind the current economic situation.

So every crisis changes your optics. It shortens your perspective from the long term to the short term. We're moving forward and we're thinking about what's happening right around us. We're slowing down because there's uncertainty in our immediate peripheral vision, and you drive differently when it's -- the sun is shining as opposed to when rain is falling as opposed to when it's a very foggy day.

And so if we look at our ambitions for 2025, maybe the time will come when we have to make an adjustment. Today, we're addressing trends properly, we're taking the right steps to utilize and harness these positive trends.

[Wojciech Latocha, executive]

Are you thinking about implementing Sprandi brand in discounters like Lidl or elsewhere?

[Marcin Czyczerski, executive]

No, not at all. We've spent too much in these products and they have a very positive market receipts. So today, not at all. We have other on white label offers. We made the decision to make it available to customers in the West through external marketplaces in Germany, Benelux countries and elsewhere. And we can later assess the outcome.

[Wojciech Latocha, executive]

Could you explain why you have high impairment losses on receivables? And how are you protecting yourselves against bankruptcies of franchisees?

[Kryspin Derejczyk, executive]

They're about 2 entities. One entity is operating in Ukraine. So the situation or the reason is clear. We're also in talks to recover a portion of the receivables, which is part of the impairment loss. If we look at our ongoing strategy for development, we'll reduce the percentage of franchisee stores in the overall group and we do not plan to develop that format in the longer term.

[Marcin Czyczerski, executive]

Let me add. So we work together with close entities. We're reorganizing things. So we believe that we'll be able to recover a major portion of these receivables and continue to develop operations and build up scale. And so in both cases, we have this type of prospects.

[Wojciech Latocha, executive]

Next question, why hasn't CCC published current reports about the impact of the Ukrainian war? We saw other apparel segments.

[Marcin Czyczerski, executive]

I can't react to what other companies have done, like LPB, according to my best knowledge, the scale of operations of that entity in Ukraine or Russia was much bigger than the scale of revenue. Well, it was hundreds of millions, but perhaps it was even PLN 1 billion in revenue, where CCC in both of these markets, we only had a number in the tens of millions. So we can say that these 2 markets represented less than 2% of sales for CCC and less than 1% of the structure. So in a way, it's below the level of materiality.

[Wojciech Latocha, executive]

On Slide 23, you have projections where you'll have at least a 6% operating margin. So PLN 540 million in EBITDA in 2022, where it's around 0. Is this forecast not overly ambitious?

[Marcin Czyczerski, executive]

Based on that indication, it would be hard to be -- to calculate the EBIT for the group. There are some of the items that talk about the margin or the cost ratio, and some of them are about CCC, some are about Modivo or costs that apply to the overall group, that calculation in that manner is not possible to be made. I wouldn't even try to make any calculations on the base of that slide. And that's why it's even more difficult for me to comment that question.

[Wojciech Latocha, executive]

The impact of FX rates. So if the FX swing changes, will we've reversed our impairment losses if the exchange rates move in a different direction?

[Marcin Czyczerski, executive]

We did not do an impairment loss of the negative. It was only PLN 94 million in CCC alone, and it's only about translation costs that are unrealized FX differences. In terms of our bank agreements, they are noncash. So for EBITDA to be a cash measure, we have to exclude it from that line item. So to be very clear, I said this during the presentation. So if they start moving in a different direction, they'll also be extracted from the calculation.

[Wojciech Latocha, executive]

Over the last 4 years, CCC has presented very ambitious region strategy. But the last time you had an annual positive result was a couple of years ago. Perhaps you've been trying to change your brand approach, premium brands, economic brands. And so the second time you have troubles and you're asking shareholders for capital in the last 3 years, but to be realistic, why 3?

[Marcin Czyczerski, executive]

In January of 2020, we announced the strategy GO.2022. If you look at premium, we have [ PLN 992 million ] in the -- sorry, -- so PLN 8.5 billion. Many of these goals and plans we've achieved. But if we look at the last 3 years and look at those assumptions, what happened during these last 3 years?

In 2020, we had COVID. In March 2020, nobody knew what was going to happen. We have to have in mind that COVID impact was a very big impact. So in 2020, we had impairment loss of PLN 1 billion. We stopped operations in German-speaking countries.

In 2021, we had the recurrence of COVID waves that were very impactful on Central and Eastern European companies. Omicron, then we had more inflation, consumer uncertainty. So I think it's worthwhile to bear in mind the context.

Now if we look at the last 3 years and what we've been able to achieve and what we've done, the product portfolio should be improved. If we look at the perception of aspired customers and the margin in CCC, we can say that it's very high. And from that perspective we've been able to achieve the targets we set.

If we look at 2019, we were mostly off-line. We said that we would be highly e-commerce in omni-channel. So we now are very much an e-commerce entity and the level of e-commerce is very high, and this is something that's highly regarded. And so if you look at the business lines, and I mentioned CCC is generating highly positive operating cash flow.

HalfPrice we invested in. It's now gone through the breakeven. It's in the black. Then if we have Modivo. And we have -- isn't easy. We've had a harder, more difficult time in 2022. So the response, have we decided to develop too strongly, too broadly, I think it's very good. We made a very good assessment of the trends.

We chose the right changes. The last 3 years -- we're not blaming or -- the last 3 years were the same for everybody. We weren't able to reveal the full loss that we had anticipated, but we can say that we can see the effects, and we can grasp it in upcoming quarters. Despite the turbulence, we should see ongoing appearance.

[Wojciech Latocha, executive]

Will you do the same as [ Allegro ] and Zalando in terms of publishing the GMV for Modivo?

[Marcin Czyczerski, executive]

We're going to publish certain ratios and the significance, like CCC in terms of marketplace sales for Modivo marketplace. We haven't made the decision whether and when and to what extent that's going to happen.

[Wojciech Latocha, executive]

Let me add starting in the financial statements or in the management Board, we show the operating KPIs for Modivo. I would encourage you to look at them. That table shows you information for the last 5 quarters.

Next question. In terms of returns in Modivo and HalfPrice. So now you can use Fit Analytics or the actual size of products in order to try things perfectly. Which solution is better for customers? And which tools are planned for half-line to reduce returns?

[Marcin Czyczerski, executive]

They're complementary solutions and -- that make -- its best to use both. So Fit Analytics and has been launched 2 weeks -- 2 months ago. So e-commerce HalfPrice is something we're focusing on scaling up and adding new countries and basically, to do polishing. Its time will come to do the polishing.

[Wojciech Latocha, executive]

In terms of Modivo and HalfPrice only?

[Marcin Czyczerski, executive]

So we have around 20%. And for Modivo it's around 26%. That's the level of e-commerce in the 2 brands. And so that -- it depends on the countries.

[Wojciech Latocha, executive]

How have your third quarter results have been affected by the warm autumn? Does that mean that November is the period when you have the demand for winter shoes?

[Marcin Czyczerski, executive]

Based on the information we have, it was the warmest August and October in history. So in August, people wanted to be on vacation. 30% of Pols were outside their homes. 30% more Pols were on vacation, and we spent 30% more than we did last year. So it's a very warm August end. So basically, that meant back-to-school, was re-shifted to September. September was very good.

Then we had a very warm October, basically, till the very last day of October has meant that in the 3 months, September was the best and August and September were softer. And so we're not pleased with the October. Whether or not that shifts to November or not, we can make that assumption. And that's something we could say after the first 3 days, in e-commerce or in brick-and-mortar stores.

How profound that effect will be? We have to wait to share that assessment until the next conference. What's very important in terms of the shift of demand into November. If it does happen, 1:1, then the probability of selling it higher, at first margins, the profitability is higher in October than in November because you have Black Friday and single-days.

And so sales in November and December, we have slightly lower margins expressed as percentages. But as I mentioned, we're counting, and we're observing that some of that demand will be shifted to the beginning of November.

[Wojciech Latocha, executive]

How much can your costs move up as a result of higher minimum wages and energy costs?

[Kryspin Derejczyk, executive]

So we're beginning the budgeting process. We're collecting assumptions for next year. We're analyzing the current situation. And we're talking with our suppliers of electricity. Based on the preliminary assumptions that we have for next year, we're talking about growth of energy by 2x, 2.5x. But as we mentioned previously, we've undertaken a number of saving steps, which means that we'll be able to reduce the utilization of energy by a number in the teens.

The second part of the question was about minimum wage. So we continue to calculate that impact on next year in terms of inflation and the minimum wage growth. Our preliminary estimates are that's around PLN 6 million. And that's just for the CCC business unit and HalfPrice. It doesn't include Modivo.

[Wojciech Latocha, executive]

When will CCC become a dividend company?

[Marcin Czyczerski, executive]

We want to return to the group of dividend companies as soon as possible. And we hope that the work we've talked about on the cost side, conversion, cash conversion are things that will be conducive to that. Today, we're focused on the fact that we live in uncertain times and we want the company to have a safe and liquid position.

And we want to develop the omni-channel approach and the investments we've made in previous years and quarters. And to a large extent, HalfPrice, apps, e-commerce, CCC, the products in CCC have already started to generate positive FX. This is where we're focusing our attention. If you have a lot of uncertainty, the management has to focus on shorter periods, and that's how we're dealing with this.

[Wojciech Latocha, executive]

Thank you very much for the response. We'd like to thank you, ladies and gentlemen, for the large number of questions you posed. We would like to invite you to be in touch with the Investor Relations division. You can see us in several investor conferences up till the end of the year. And I'll invite you to next year, the next conference for the results, which will take place in 2023.

[Kryspin Derejczyk, executive]

Thank you very much.

[Wojciech Latocha, executive]

Thank you very much, and goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]