Meko AB (publ) (MEKO) Earnings Call Transcript & Summary

Good morning, and welcome to Mekonomen Group Quarter 2 Report 2021. My name is Anna, and I will be your coordinator for today's conference. [Operator Instructions] I will now hand you over to CEO, Pehr Oscarson, your host for this call. Thank you.

Thank you, and good morning, and welcome to this presentation of the second quarter 2021. With me today, I have our CFO, Asa Kallenius, and we will guide you through our results. I'm very pleased to say that it has been a good second quarter with increased growth and improved profitability. Again, we set a new record with the best ever sales and EBIT for a single quarter in the group's history. Our solid financial position gives us both security in a continued uncertainty in our markets due to the bad pandemic, but foremost, the possibility to further invest in growth. During the quarter, we have continued to develop our collaboration model with electric car manufacturers and we'll be back on the most recent collaboration with Fisker later on this presentation. We have also had focus on widening and optimizing our assortment. This, in order, to increase this so important availability further. We'll talk more about that in a few minutes. All in all, we have a strong market position, stronger now than the last quarter. We clearly see that our concepts and offerings are appreciated by partners and customers. The pandemic has also proved what we already knew. We have a solid business model and a position that is not long term affected by uncertain times or economic cycles. Asa, please take it from here and give us some more details of the results.

Yes. Thank you, Pehr, and hello, everyone. We continue to develop strongly with an organic growth of 12% in the second quarter. Adjusting for currency effects and number of workdays in the quarter, the growth was 11%. As Pehr touched upon, the underlying demand for our products and services are stable over time, and we have a good platform to create further growth in all our markets. We had no significant effects from pandemic in the quarter, even though there are still some uncertainties in the development of the pandemic, we take advantage of our strong market and financial positions. We are on the right track towards reaching our long-term financial goals. Our cash flow continues to be strong. The difference from last year is mainly that we, in Q2 2020, got approximately SEK 300 million support input taxes and VAT from governments in Sweden and Norway. Looking at Page 4. As Pehr stated earlier, we report the highest EBIT for the quarter in the group's history so far. All business areas are on high levels. In MECA/Mekonomen, we reported increased EBIT of SEK 52 million from operations. Last year, we had the post-payment. We had governmental support of SEK 24 million, and we have changed the accruals for holiday pay debt in Norway this year affecting this quarter negatively by SEK 19 million. Looking at Page 5, we see that gross margins have increased further from an already high level, which we think is very positive, of course. Moving over to Page 7 and the results per business area. We had another strong quarter in FTZ, where we continue to strengthen our market position. The EBIT margin is stable at 10%, same as previous year. The organic growth in local currency is 12% in the quarter compared to minus 3% last year, which is a strong proof of the strong underlying demand. Page 8 and over to Inter-Team, where we had continued good development in line with our profitability strategy for the business area. The EBIT margin increased to 6% compared to 4% last year. As in other markets, we experienced a high underlying demand in Poland. We have succeeded to strengthen the market position with an organic growth of 21% in the quarter compared to minus 3% last year. This proves that our long-term Polish strategy is successful. We firmly believe we are on the right track with stable profitability in the rapidly growing Polish market. Moving further to Page 9, in MECA/Mekonomen. MECA/Mekonomen continued to develop in the right direction. The few branches that were still closed in Norway are now open since mid-April. All in all, the restrictions have had very limited effect on the business areas during the second quarter. In MECA/Mekonomen, we had an EBIT margin of 9% in the quarter compared to 7% last year. The organic growth rose to 10% compared to minus 6% last year. To summarize, MECA/Mekonomen showed solid development where we see the effects from higher demand and increased sales volume in combination with good cost control. Over to Page 10. Sørensen og Balchen. In Sørensen og Balchen, we continue to have a strong performance with an EBIT of 24% in the quarter compared to very high level last year. All stores are open since mid-April and the few branches that were closed during part of Q2 had no significant impact on the results. Organic growth in the quarter amounted to 4% compared to 19% last year. All in all, we are pleased to see that Sørensen og Balchen continue to maintain its long-term position -- strong position, thanks to the fact that they are a sharp niche player. I now will hand over to you, Pehr.

Thank you, Asa. Yes, I'm very proud that we have delivered a historic results this quarter, and I feel confident that we will benefit on our strong market from financial position going forward. On Page 12, we take a look at our strong footprint in the market. We will continue to optimize the network of branches to secure profitability and attract workshops with the right quality ambitions, customer focus and size. We move to Page 13 where we see an overview of the competition. The consolidation with few large players and less small independent workshops continues. The established large concept continues to grow, and that includes, of course, Mekonomen Group's concepts. And as I touched upon earlier, we have managed to strengthen our position and even more compared to last quarter. Looking at Page 14 and the drivers of our industry numbers are driven kilometers and number of cars. This shows our analysis and prognosis of the development towards 2030. It does not include the effects from the pandemic, but there is no doubt about the long-term trend, the underlying factors are strong and the market will grow over time. Page 15 shows total amount of cars on the roads in Sweden, Norway and Denmark, and we see an increase of number of cars in all our markets over the past 3 years. The numbers -- the number of new car registration was slightly lower during 2020 as a short-term effect of the pandemic. Moving on to Page 16. We have a high ambition to develop new solutions, services and offers to our customers. The purpose is clear: to always be relevant and meet the future customer needs. This enabled us to grow and broaden our business. As we see on Page 17, we have a new collaboration with electric car producer, Fisker. And during the second quarter, we signed a letter of intent to be their service partner in Denmark, Norway and Sweden. The Fisker car will be sold online, and it will start in the autumn 2022, and where the Mekonomen Group's concept in each market will deliver Fisker's services. This agreement is important in more than 1 way. It shows that we have found a well-functioning model for collaborations with electric car players that can be scaled up. Our network of branches and workshops, our strong brand awareness and our high competence makes us a very attractive partner. We move on to Page 18. We are well in line with the meeting of our target of 1,500 E+ workshops no later than 2022. E+ is our standard for electric car service that guarantees that the workshops have the right skills and equipment to take care of electric cars. We have initiated intensive training activities in all markets to implement E+ and the workshop concepts. In Sweden, for example, we start a mobility training roadshow this autumn, where training workshops will take place all over the country until next summer. Same kind of activities are also down in Denmark, Poland and Norway. Page 19. We are now taking new steps to be even more accessible and grow further through broader and more optimal assortments. In Sweden, we have widened the assortment in our branches in order to offer better availability for the workshops locally. At the same time, we have balanced the assortment in the central warehouse so not to increase the total stock value. In Poland, as we have communicated earlier, we have 2 new regional warehouses in order to be more available to the regions and to optimize the logistics. Moving over to Page 20. We'd like to highlight our updated strategy that we shared during our Capital Markets Day in February. In short, our vision is to be an enabler for mobility today, tomorrow and in the future. Our strategy is based on this vision, and will take us SEK 15 billion in revenue no later than 2025. Our neighboring mobility strategy consists of 4 focus areas: we will continue to develop operational excellence throughout the group in order to create efficiency, synergies and collaboration in our core business; second, we will accelerate our concept development for workshops to increase loyalty and revenues; third, we will create new customer solutions to make the customer journey easier. We will forcefully use all opportunities that comes with digitalization, data and customer insights; and fourth, we will create new revenue streams through a broad range of actions, for example, by entering new segments and developing new business models. Everything we do within these 4 focus areas will be done with a sustainable mindset. And as we have seen in our results, we stand strong and efficient and we are well on our way to deliver on our strategy to meet our long-term financial goals. So this concludes our report for the second quarter, and we now look forward to your questions.

[Operator Instructions] And the first question will come from Andreas Lundberg from SEB.

This is Andreas with SEB. First off, with a market-related question. If you look at the market structure today versus, let's say, pre-pandemic, any differences or -- can you say?

Not sure. But I mean the -- I would say, first of all, to conclude that we -- there's a lot of talks about corona winners and corona losers. And I think that our company and our business model is nothing of those mentioned. What we saw in the beginning of the pandemic was quite dramatic. But after that, we really can say that there's any big -- that the demand has been -- it's in somewhat a little bit fewer kilometers driven, but we don't see any big effect from that. So I would say that if you compare it to how it was before the pandemic, it's pretty much just the same situation at the moment.

Okay. So also similar competitors, similar competitive behavior?

Yes, yes. I think maybe. But that's not driven by the pandemic. It's more the -- let's say, the development in this industry. There is -- of course, I think that the bigger players are getting better and bigger and maybe the smaller, gets a little bit weaker. But I would say that's not connected to the pandemic itself. And I mean, we -- on most of our markets, we do increase our market shares. And that's probably on the smaller ones who we will lose some shares.

If you look at your own company and maybe from the time that you started as CEO, Pehr, what do you think has changed in your positioning and your -- yes, competitiveness of the market in the markets?

I think we have -- during the last years, we have -- I mean we did the big acquisitions in 2018, which, of course, strengthened the group in many ways in terms of buying power towards the suppliers and so on. So that's -- that was one thing. But then we have -- have been -- continue to be very focused on concept development and being innovating and create new solutions for our customers. And that gives us a good development. And I mean, the market leader position also makes us to -- let's say, we really do have all the resources to do what we like to do also.

You also mentioned some potential new revenue streams. I think maybe you touched upon it on your CMD, but these new segments or new business models that you look for. Can you give a concrete example of what that could be?

Not concrete example yet. But I mean, we had with this -- how we think about the development in the car sales, as we see with this new electric car manufacturers, there is new -- definitely new parts of the industry that we can take care of about that can't be deliver the cars to the car buyer. It could be one thing. It could be insurances. It could be a lot of new things connected to the car ownership. So that may be the most clear example.

And I ask a couple of questions on the numbers here. Sørensen og Balchen have been, at least in my view, strong growth given the very strong last year. what's going on in that business? And why it's still so strong?

But -- it's a good question. But I think that -- yes, it was very positive during last year. But I think that we should look at Sørensen og Balchen a little bit longer perspective and maybe 2 years perspective. And then you will see a very clear trend that they are increasing sales, and they are improving the profitability. And then quarter-by-quarter, it could be some ups and even more ups or slower ups, but they have a long-term, very good development. And what's going on here, they have the -- let's say, their store concept, the retail concept is working very well. They have had launched Click & Collect and other things, and they also very innovative in many ways. Also find a niche in the market where probably there is -- where they can be very, very successful. It's still a small business area, but we're growing very fast.

Okay, cool. And on MECA/Mekonomen, you took -- there's change in the accrual of all pays, right, payabilities in Norway, it was SEK 90 million. You don't report as a one-off? And is it an isolated cost?

No, we do not report it as an item affecting comparability because in the full year 2020, there will be no difference between the years. So it's only a shift from quarter-to-quarter. So it will have no effect on the full year. It will be some positive effects in the coming quarters, you can say.

Got you. And lastly, CapEx for the full year, what do you expect?

We expect to be around to SEK 150 million to SEK 180 million.

[Operator Instructions] The next question comes from Mats Liss from Kepler Cheuvreux.

And congrats on a very solid quarter. First, looking at organic sales, there's 12%, very impressive. Could you say something there about price and volume in the mix?

When we compare to last year, there is a price effect adjustments, which was done mainly around New Year, I would say, beginning of the year. But most of it, I don't have any exact effect, but most of it, it comes from volumes. And -- so maybe 2/3, at least from volumes and the rest from price.