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

Good day, and thank you for standing by, and welcome to Meko AB Q4 Report 2022. [Operator Instructions] I would now like to turn the conference over to CEO, Pehr Oscarson. Please go ahead.

Thank you. Good morning, and welcome to the presentation of the fourth quarter and year-end report for 2022. I'll now guide you through the results. Our CFO, Asa, is not joining us today, but will, of course, be back on next occasion. We continue to deliver organic growth in the quarter and have had a strong development in most markets. However, there has been some challenging market conditions in Denmark. We are taking actions to mitigate the effects in Denmark as well as intensifying our effort in all markets to increase our profitability. I will get back to our actions within respect market shortly, but one example is Norway, where we have optimized the organization further, including the branch network. This will create better efficiency, cost control for the future business. We have once again proven our resilient business model. Our strong cash flow and financial position creates value for our stakeholders, meaning that we are able to invest in the core business, new business and future growth. I'm also happy to announce that the Board of Directors proposed a dividend of SEK 3.3 per share for 2022. Looking at Page 3. As stated, I'm very satisfied with our continued solid growth. Our strong cash flow continues to improve, and the adjusted EBIT and earnings per share in Q4 are in line with the same quarter last year. Looking closer to the EBIT bridge on the quarter -- for the quarter on Page 4. We delivered in line with a very strong Q4 last year despite the weaker market in Denmark and items affecting comparability. This mainly refers to one-off efficiency measures in Norway that will bring positive effect on the result later this year and is in line with our strategy to optimize the supply chain and obtain synergies through the country organization. Regarding Denmark, we experienced a lower demand in the quarter related to macroeconomic situation. We initiated actions in order to secure our market shares, which I will be back in the short while. Our business in Finland is developing according to plan in the acquired Koivunen and for Mekonomen. Also significant development in Poland and Baltics both due to the acquisition of the Baltic part of Koivunen and the very strong development in Poland. Let's move on to Page 5. We have managed to hold on to a high gross margin for the full year, around 45%. As we can see, price adjustments have overall compensated for product and customer mix. In Koivunen, we had a slightly lower margin. Going forward, we will see improvements in that due to the purchasing synergies. Let me move over to Slide 7 and the business areas. And as stated, we experienced temporary challenges from a weaker demand in Denmark, especially in this quarter. In order to secure our market shares, we have met the tough competition in the market with sales activities successfully. But momentarily, we're lowering our margins. Still, FTZ is by far the market leader in Denmark as well as the most profitable player in the market. We know that the demand is stable over time, and we foresee improvements in the quarters to come. Car is still king when it comes to demand for mobility. Over to business area of Finland on Page 8, including Mekonomen Finland and the newly acquired company, Koivunen. We saw really good performance in Finland. The intense work with bringing out synergies is continuing according to plan with gradually ongoing effects and with full effect as from 2024. One of the larger upside lies in Mekonomen Finland using the backbones of Koivunen. This includes merging Mekonomen's central warehouse into Koivunen's, which will result in efficiency gain in the supply chain, and of course, also a much better availability. Over to Page 9. I'm satisfied that our strongest growth markets, Poland and the Baltics, are performing well. In Poland, we have an outstanding development, in the Baltics, we are performing according to plan, still with upside from the purchasing synergies as well as close collaboration with the group. And we move over to Page 10, Sweden/Norway. We delivered decent results in Sweden and Norway and with stable growth. The somewhat lower margins, however, are temporary, and this is something we focus on to improve. As I stated earlier, we have optimized the branch network and central functions in Norway. This is in order to improve availability, create efficiency and lower our costs. And this is in line with our strategy where we always try to optimize availability by merging, adding and closing branches in line with the market demand. On Slide 11, business area Sørensen og Balchen. We experienced a weaker retail market in Norway in the quarter, although we see signs of market recovery in the quarter compared with development throughout the year. We know that the demand will recover over time. Still in order to reduce the vulnerability towards retail, we continue to take action to address and develop the offer for the business-to-business customer area. Then on Page 13, looking at our footprint. The number of branches is stable over time. We have grown overall in a number of affiliated workshops. Here, we are especially successful to attract customers in Poland, which we can see in the growth results. And as stated before, the size of the workshops and the number of mechanics are most important for both the workshop profitability as well as ours. Moving to Page 14. We recently closed the acquisition of the leading car accessories company, Avant. We hereby strengthened our position further by adding new products and new customer segments in Denmark. Going forward, we have a potential to extract synergies with the purchasing area of accessories in the Nordics. This is a growing segment in the group with a large potential, foremost to that it's -- the demand is very stable regardless of which type of vehicles driving on the roads in the future. For example, electrical vehicles will still demand car care, assortment and so on. Moving on to Page 15. I'm proud that we continue to be one of the most equal companies in Sweden. Gender distribution in group management team has been equal since 2018, and we had a dedicated focus on increased diversity in the group. The gender perspective is one important part. It's also important for us to have teams that contribute with different strengths and perspectives. Moving to Page 16. I'm happy to announce our upcoming Capital Markets Day. And during that event, we will go deeper into our strategy, markets and initiatives going forward. So please save the date, 21st of March, in Stockholm. And we will send out more information on the event through a press release. And then finally, to summarize. We look back at the second best full year ever regarding our earnings and the best year ever when it comes to sales. The past quarter, we had a strong growth, strong cash flow, and we were able to defend our market shares despite challenging times. Also, we are in the forefront when it comes to new technology, where we have a leading competence within electric cars and digitalization of the business. I'm very happy that the Board proposed an increased dividend of SEK 3.3 for the year compared to SEK 3 last year. And with that, we'll open up for questions. And with my side, I have [indiscernible], Head of Group Business Controlling, who will assist me if there might be financial details that might come up. So please, welcome with your questions.

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

It seems that input costs and energy costs were on the high side and put some pressure on your margins. Is it fair to say that your own price hikes are lagging? Or are you not taking enough to fully compensate? And how are you thinking about on pricing in 2023?

Yes. Pricing is -- there is a big difference in the different markets. So there's not one simple answer to that. But we -- where it's possible, we, of course, increase the prices. Sometimes we -- there is a delay because we need to announce it to certain customer groups and so on. But we also need to be careful, so we -- although the time has a good offer to the customers, and of course, we have the competition. So that's one side. But the other side of compensating for the inflation is, of course, to create better efficiency, which the activities in Norway is an example, where we closed down and merged branches just to reduce costs in that way.

What do you say is the outlook to improve margins in 2023?

We don't guide forward like that. But I mean, we -- I don't see any big deviation from this level, both up and down. As I said, there is a lot of things to do with the gross margin but also on the cost side. So we'll see.

And on cash flows, you talked about the strong cash flow go with that. Firstly, what was the ordinary CapEx for 2022? And how do you see that in '23? And can you also comment on the current inventory levels?

To start with the inventory levels, it was still a little bit high due to that we increased inventories during last year to be more prepared for the disturbances in the supply chain. But it starts to be more normal. When it comes to CapEx, I will lean over to my colleagues here. Repeat the question on the CapEx.

Ordinary CapEx for 2022 and your plans for '23.

I will start with the -- there is no -- we don't see any big deviations going further. But we'll see what the -- 2022, it was...

Pehr, perhaps can I ask another question about Denmark and what's particularly challenging here versus the other markets. What's the issue in Denmark. Can you be more [indiscernible]?

Yes, it's a lower demand. We see that when we look at sales of diesel and petrol, which has decreased compared to years before. There is a lower customer confidence in general in Denmark. And when we talk to other industries, in Denmark, it seems to be [indiscernible] in a more dramatic way. So it's more careful among the consumers and among the companies. However, it starts -- already in the end of last year, we see some recovery, and we still believe that this will, at some point, bounce back. So it's more of a temporary. Then there is a tough competition, and so we have -- also that affected the gross margin lift where we needed to fight back to keep our market.

Yes. When it comes to investments, it's -- [indiscernible] report, we have investments of SEK 208 million for expenditures, and it's slightly more than 2021. And I don't think that we want to reveal exactly what we will have in 2023. But it's normal investments as we [indiscernible].

Did you say SEK 200 million? I couldn't hear you.