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

Good morning, and welcome to the presentation of the fourth quarter and full year 2021. I have Asa Kallenius with me and we will guide you through the results. 2021 had been the most profitable year so far in the history of the group. The fourth quarter confirms our strong position with good profitability. Finally, we can now proceed further and continue to invest for future growth. Our size and simulation [indiscernible] crucial for our success. We've been able to [indiscernible] service despite the local challenges with deliveries and raw materials in the past year. This has led to increased customer loyalty and [indiscernible] for us. Throughout the year, we have had a lot of focus on the electric car transition, making us well positioned for the future. I'll come back [indiscernible] in 2 minutes. Overall, we have solid financial position with favorite conditions for future investments. As previously stated, we aim to use our solid financial position to invest in our core business and potential acquisitions ahead. On top of this, I'm pleased to announce that Board of Directors has proposed a dividend to shareholders of SEK 3. Looking forward, I have confidence in that we keep up the pace in our profitable growth journey. So Asa, please take us through the results.

Yes. Thank you, Pehr. For 2021, we reached a new milestone in the group with net sales exceeding SEK 12 billion, with EBIT of SEK 894 million. Hence, 2021 is the most profitable year ever in the group's history. We also reported an adjusted EBIT over SEK 1 billion sales for the first time in the history. The fourth quarter was the second Q4 quarter -- sorry, the fourth quarter was the second best quarter when we compared to 2020. We [indiscernible] better than previous year, primarily due to the insurance compensation [ each and every ] quarter in 2020 as well as high [indiscernible]. We have also made market investments such as marketing and a new establishment in the form of MECA/Mekonomen to ensure our future growth. All in all, we are improving and taking solid steps towards our long-term financial goals. As stated, Q4 2021 is Mekonomen's second best quarter ever, only beaten by Q4 2020. Both 2020 and '21 have been years affected by COVID-19 with different impact, different quarters in different markets. Therefore, it gives a more relevant picture to look at 2021 and compare to 2020 for the years. I move over to Page 5 and the overview of the full year EBIT. We can conclude that we had a successful 2021 with an EBIT of SEK 894 million. 2021 is the most profitable year in the group's history. For the full year, we have improved the EBIT by more than SEK 150 million, an improvement of 20%. All our business areas, as you see, have large increases in EBIT and the majority of the business areas have the best sales and EBIT ever in the history. We are, to some extent, affected by the cost crisis of the pandemic. For example, the product availability and higher transportation cost. So far, though, as you can see, we have managed to [ carry ] a significant impact. But going forward, we will guard our position and our margins in order to stay on track to reach our long-term financial targets. If necessary, we have the ability to adjust our costs and also our prices to the market in order to compensate for a continued increased inflation pressure. Efficiency is something we work with continuously. Move over to Page 6, we see that we had -- our gross margin -- on Page 6, we see that our gross margin increased further during 2021 from already high levels, we ended by 45.5%. Our position is stable. And as we stated, we have the possibility to compensate further for inflation pressure. And moving on to our businesses. First, we look at Denmark and FTZ. We had a continued good and impressive high EBIT margin of 10% for the full year and increased sales. In local currency, the EBIT in the quarter is higher than last year. For the full year, FTZ has record sales and record EBIT ever. We estimate an increased customer loyalty and further increased market position. We will continue to develop this going forward. Next page, in Poland and Inter-Team continued to improve EBIT margin for the full year to 5% compared to 4% last year. This is a successful development from the 0 margin we had back in 2018. We have a positive growth domestic in Poland and also in our export business. Going forward, we will continue to guard our margins and now that we face higher transformation cost and inflation. On Page 10, MECA/Mekonomen, we increased our EBIT margins and delivered an EBIT margin of 7% for the full year. And as stated earlier, the lower margin in Q4 is due to the insurance compensation in Q4 2020 as well as investments in its markets in order to strengthen our future position and that is marketing and a new establishment in Norway. We will be able to compensate for increase in cost from inflation pressure by lowering our cost and conduct price adjustment if necessary. Still, in absolute numbers, we report the highest EBIT since 2017 in MECA/Mekonomen for the full year, which shows that we are on the right track in Sweden and Norway. On Page 11, Sørensen og Balchen, we continue to deliver strongly from very high levels, previous year. The EBIT margin is impressive 21% for the full year and with record sales and EBIT ever for Sørensen og Balchen. We are pleased to see that we maintain our long-term strong position as a sharp niche player and one of the strongest players in industry in Norway. So that was the business areas. I now hand over to you, Pehr.

Thank you, Asa. It's a fantastic year for Mekonomen Group. And let's look at the footprint of the group. The number of workshops and branches differ slightly between the [indiscernible] Apart from continued large focus on our affiliated workshops, we have nonbranded concepts in Denmark, Sweden and Norway. The business cooperation with these workshops is very much like the affiliated workshop, except for the branding. And from the next report, to get to a clean full year comparisons, we will include also these nonbranded concept workshops in these numbers. On Page 14, looking at the underlying factors, number of cars and driven kilometers, we see an unchanged solid development. There is a continued rapid development towards the electric transition, why it's important to continue to increase our focus in that area. In line with the development, a large share of our business development is naturally focusing on electrical car services. On Page 16, we summarize the progress within this area. We have continued to train our workshops in EV technology. We now have 2,000 workshops meeting the requirements of our E+ standard. This is level 1 training, which enables workshop to do the majority of work on the EVs driving on the roads today. We now increase our ambition and conduct training on a more advanced level among other initiatives. We offer a more advanced level in our mobile training tour that's ongoing in Sweden. And on this level, we will meet the demands on older electric cars that needs more advanced work done around the batteries. We're also widening our training offer in order to prepare for the electric transition, for example, within tires for electric cars due to that EVs often are heavier than other cars, the tires is important to ensure safety of the EV owner. Here, we have introduced a training course for our workshops to increase their expertise. We now have relevant spare part coverage for most common electric cars in the Nordic region. Within this area, we will continue to expand the coverage in order to be the #1 to go to for the EV owners. On Page 17. Electrification and closely related technique is something we largely focus on within our academies in all markets. We have had high frequency in all academies. And apart from a large number of e-learning courses, we also conducted more than 1,000 physical training days in the group. In Denmark, we are developing the first Master Technician program in order to further develop our training offer. This is something that we will be able to adopt to other markets when launched in accordance with our best practice strategy for the group. Moving on to Slide 18, where we described the great development within digitalization towards B2C. While we and a large part of the industry have near a complete digital business when it comes to the B2B customer journey, the B2C journey has been less developed digitally. For the past years, we have had an increased focus on this with a result that digital bookings of workshop services have increased a bit over 20% in 2021 compared to the year before. In our recently conducted customer survey, we noticed that doubled interest for digital bookings compared to the same survey a few years ago. And we expect that this development to continue to grow and is a positive trend for us. Apart from the additional sales opportunities that the digital channel creates, we also get closer relation with the end customer in order for us to improve our offers. Our e-commerce sales B2C increased with over 40% in 2021. And this is from low levels, but is as well a large improvement also in this segment. Moving on to Page 19, we see an overview of proof of concept we have received from the recognized awards and ESG raters in 2021. We have the "Logistics initiative of the year" in Sweden; "Supplier of the year," "Workshop chain of the year" and "Marketing campaign of the year" in Denmark. And we rated AA in MSCI's ESG rating as well as Top-Rated ESG Performer in Sustainalytics ESG rating for both industry and regional. At Page 20, our vision is clear. We enable mobility today, tomorrow and in the future. And we delivered the most profitable year ever in the group's history with a great development in all business areas. We have reached a milestone of SEK 12 billion in sales and an adjusted EBIT over SEK 1 billion. Looking back, since we made large acquisitions in 2018, I'm proud that we now had doubled our size, but -- not only in sales but also in profit. We are well equipped for the future electric car fleet, and we have a good financial position to continue our journey of expansion and also reinstate the dividend. So this concludes our report for the fourth quarter and the full year 2021, and we now look forward to your questions. And you will now be able to unmute your microphone. But please raise your hand, and we will take the questions one by one.

Okay. First question is from Mats Liss. Welcome.

I had a question here about something, I guess. You mentioned that electrification is a large opportunity for you. And I guess that you have been sort of preparing for this for quite some time now and have a good comparison in Norway, I guess. Then again, I mean the service need for electric vehicle, some says it's lower. Could you sort of make some comments there about the difference compared to, well, the diesel engine car compared to electrical ones? What's your experience?

So far, the experience is that we -- it's with different kind of products to electrical vehicle. Of course, there's no oil and filters, but there's other parts that needs to be changed. We see that it's some of the brake parts is actually used more. So -- and then we have all the other trends with more cars on the streets and more kilometers driving. So even though we have a large portion of EVs, we don't see that it's -- so far at least have a significant impact on our sales in total, but it -- and as we said, we need to develop our assortment because it's somewhat little bit different products, and it's also new brands of cars coming into the market, which we need to find the products for. But we are, I would say, compared to competitors, we are definitely best-in-class in that area. So we have the availability. And yes, so there's no big driver.

Yes, good. Then if you look at the business areas, I feel that, well, MECA/Mekonomen maybe was sort of -- it's a quite big difference compared to the comparison quarter, even if you sort of -- yes, you received the insurance compensation that -- and I guess you have had some supply chain issues there and a shortage of some components. Could you sort of give some flavor about the impact year-over-year?

Yes. But what you also have in MECA/Mekonomen, we have made some -- with increased marketing, we opened 2 new stores in Norway. And when we open a store, it takes 12 to 18 months before it starts to be profitable. So there is -- when you look at the Q4 results, there is, except from the insurance is also, I would say, investments in the market. And when it comes to supply and then I would say that MECA/Mekonomen is no difference compared to the other business areas, it's pretty much the same situation.

Great. Yes. And now we have had -- well, you mentioned the winter condition in December. And I guess, is there anything to add about the start of the year there? I guess, we have had a quite new conditions here in Stockholm, but...

I would say when we ended December and beginning of the year, we had -- we could see that there was an impact due to actually lack of mechanics because there was -- in the beginning of January, there was a lot of sick people, and we also had this quarantine rules that made. If someone in the family was sick, then everybody stayed home. So that impacted the start of the year. And then the -- when it comes to winter and cold, I would say that, yes, last year was extremely cold. So that had a positive effect. Now we got that positive effect in December so -- but it's difficult to say. It's very early indications in the quarter. Then we have Andreas Lundberg.

Can you hear me?

Yes.

Great. Can I ask about the organic growth in the fourth quarter? How much was, let's say, driven by price versus volume?

We don't have that exact analysis, but very -- from -- guess would be that maybe 1/3 comes from price and the rest is volume. But we don't have the exact number, because it's -- I mean we have price increases, but we also have changes in the assortment. So if we sell more of a brake disk, that costs SEK 400 for 1 car except for not the cheaper brake disk, that's also -- it's still 1/1, but it could be -- so that's also a price effect. So it's difficult. But I would guess that 1/3 comes from inflation on, so to say.

And how do you view that now into 2022? Is there a need to further hike the prices?

Yes. If this trend continues, yes. And we actually -- what we have seen and what's discussed in the market is that most people believe that it will be continued inflation and continued price increases, higher transport costs and so on. So as well as a lot of other industry, I guess it will be the same for us.

You talked about good availability on your side. What would you say about the industry? And do you think that is 1 reason you have gained the market share?

Yes, definitely think so. We do suffer and we have somewhat lower availability. We also -- but we have -- due to good relations with the suppliers and of course -- and also the purchase power, which we stand for, we have managed to get some priority and to -- but we also have -- you can also see that we have increased our inventory compared to last year. That's also active actions in order to make sure that we have the availability.

And on the marketing -- increased marketing investments, anything sort of new there? Or what kind of activities have you been focusing on?

Now when it comes to the concrete marketing, it's a couple of things. It's a little bit more media spend, but we also had, during the fourth quarter, a little bit more possibilities to have customer events and so on [indiscernible].

And [indiscernible] opportunities versus acquisitions basically, where do you put most focus?

I would say that it's kind of 50-50. We -- when it comes to acquisitions, we only do the good ones. So it -- that's more to keep track of the possibilities and make sure that we are involved in those good acquisitions, which comes out. So that's where -- how we work with that. Then, of course, more operational, it's the large focus on efficiency and to grow the core business.

What kind of acquisition will be the most interesting? Is it from a product point of view or is it more geographically?

We -- I would say that both is interesting, but we focus more, at the moment, on geographical expansion. And we're looking for a little bit on the Eastern side. So it's Finland, the Baltics and Poland where we believe that there should be a possibility to do some good acquisitions. In other markets, we have high market shares [indiscernible]. Any other questions? It doesn't seem to be. So then thank you, everybody, for listening, and I wish you a great day and great weekend. Thank you.

Thank you.