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

This call is being recorded. Welcome to the MEKO Q4 2023 presentation. [Operator Instructions] Now I will hand the conference over to the speakers: CEO, Pehr Oscarson; and Interim CFO, Anders Lindén. Please go ahead.

Good morning, and welcome to the presentation of the year-end report for 2023. Today, I will guide you through the results and answer questions together with our interim CFO, Anders Lindén, who I have by my side. So let's start by summarize the highlights and look at Slide 2. As we recap 2023, we can confirm that MEKO's business model remains solid. We increased net sales and strengthened our cash flow during the year. We improved operating results and initiated important investments for the future. All in all, our financial position is solid and I'm also pleased that we are in a position where the board can propose an increased dividend of SEK 3.70 share, up from SEK 3.30 last year. During the fourth quarter, we also accelerated our efforts regarding profitability. We have launched an initiative to improve margins named, "Building A Stronger MEKO". Looking closer at Q4, the growth persisted, net sales increased 12% in total and 10% organically. Our operating result was affected by costs related to our initiative to improve profitability. We also implemented onetime actions in Finland, partly due to the warehouse consolidation. A large part of these costs is not booked as item affecting comparability, but we regard them as seeing a effort. And to accelerate our work to improve profitability, we proceed with an efficiency program in Sweden, which I will be back to in just a minute. Turning to Page 3 for some key figures. Market conditions vary between countries with more favorable situation in Norway, Denmark and Sweden, showing strong growth. And as you can see, EBIT is affected by temporary costs in the quarter. Cash flow is improving looking at the full year, but affected in Q4 due to seasonal inventory buildup. And then let's look closer to our financial position and move over to Slide 4. At year-end, the debt-to-equity ratio was 2.7x compared to 3.1 a year ago. This is within our target range of 2 to 3x. This creates flexibility and the possibility of a dividend for our shareholders in line with our financial goals. Our stronger financial position enabled the Board to propose an increased dividend of SEK 3.70 per share, and that would be in 2 separate installments. We turn to Page 5 at our gross margin development. 2023 has been a year of currency headwinds with weak currencies in Sweden, Norway and Poland, especially in relation to this very strong euro. We have addressed this challenge through price increases and other measures. However, these measures has not fully offset the currency effect in full looking at the full year. But we are on the way of closing the gap, which we can see in Q4. Now let's move to Page 6 and adjusted EBIT is improving in all business areas, except in Finland and Poland and the Baltics. As you can see, there is a significant negative effect in Finland. We will be back to more details about Finland and other business areas in a minute. But first, let's review our roadmap for improved profitability. We are committed to Building a Stronger MEKO and this remains our highest priority. Our company-wide initiative will improve operating results throughout '24 and '25 with the full impact next year. We forecast improvement in EBIT of at least 1 percentage point. This corresponds to at least 15% increase in operating results. The initiative began in Norway in December focusing on extensive optimization within our branch and store network. Our next step within this initiative is targeted efficiency program in Sweden aimed at reinforcing the positive trend that we have established during '23. This will be done mainly through cost reductions, where we expect to achieve a positive impact of SEK 50 million in 2024. So let's go into the specifics of the business areas, starting with Denmark. The Danish market has faced intense-ed competition throughout '23. But I'm encouraged by the robust organic growth in the fourth quarter, along with the improvement in adjusted EBIT and EBIT margin. We are now fully committed to reinforcing this trend upwards, and we'll continue to roll out series of activities for improving mobility. We are the clear market leader in Denmark, and our goal is to strengthen our position. And let's turn to the business area of Finland on Page 10. The underlying demand in Finland remained stable in Q4. The total growth was 8%, which includes 3% from organic growth. The integration process between Koivunen and Mekonomen Oy is on track, and we are on schedule with the extraction of synergies. However, our results were impacted by one-off action as mentioned. To be specific, we decided to make a write-down of the inventory in Mekonomen Oy, enabling a more efficient and more profitable inventory. In addition to that, we have made some provisions for receivables to reduce risk going forward. Moreover, we have implemented strategic leadership changes within segments of this business area, which also have affected our results. And now let's turn to Poland and the Baltics on Page 11. Our strategy for the Polish operation has proven effective. Probability has clearly improved structurally since our acquisition of Inter-Team in 2018. However, the general demand in '23 is weaker or our organic growth was 2% in the fourth quarter. The market conditions are reflected in the development of our EBIT and EBIT margin. We are continuing the integration process within our Baltic operations. This is on track, and we will realize the full synergy effect by this year. And now let's turn to Sweden, Norway on Page 12. The positive trend in Sweden, Norway has continued marked by a robust performance and strong growth. Net sales saw an 11% increase with organic sales growing by 15%. As mentioned, we initiated extensive optimizations in Norway in the quarter, which are expected to improve long-term profitability and service availability for our customers. These efforts resulted in onetime costs of SEK 64 million for the quarter recorded as item affecting comparability. While these costs impacted EBIT, we improved adjusted EBIT. And now we are sharpening our focus on profitability within this business area and the newly introduced efficiency program in Sweden is underway and will be rolled out completely in 2024. And then let's move onto the business areas. Sørensen og Balchen on Page 13. Thanks to dedicated efforts in increasing B2B sales, Sørensen og Balchen achieved an organic growth of 17% in the quarter. In total, net sales increased 8%, still affected by a slow retail market. We will maintain our focus on business-to-business and the strategic shift has been underway during 2023. And I'm pleased of the gradually positive effect on the EBIT and EBIT margin, as you can see in the fourth quarter. Let's take a closer look at some of the Q4 highlights on Page 14. In November, we made the strategic decision to consolidate our logistic operations in Norway. We will build a new state-of-the-art warehouse in Oslo with proven automation technology. This will not only increase internal efficiency, it will also speed up delivery times, strengthen our position as the market leader in Norway. In addition, there will be a clear positive financial effect when the new warehouse is fully in use after 2025. In parallel, the process of building a similar high-tech warehouse in Denmark is on schedule. Both these projects are fully in line with our strategic focus area, better operations, and they will strengthen our position in 2 of the very important markets. Turning to highlights regarding our business development on Page 15. In November, we initiated 2 strategic partnerships with new electric car manufacturers, one of them is ZEEKR, which is in the process of launching its brand in Sweden. MEKO has been selected to provide authorized workshop services to ZEEKR owners in the Swedish market with the goal of expanding this partnership to other Nordic markets in the future. Additionally, we have reached a preliminary agreement with the car manufacturer HiPhi. And under this agreement, we will provide authorized out of aftermarket service to HiPhi owners throughout Northern Europe beginning with Norway. This once again demonstrates our extensive geographical presence and expertise in electric cars. And now let's turn to updates regarding MEKO's management team on Page 16. And I am pleased that we have appointed 2 new senior members to our company management. Christer Johansson will be our new CFO starting his position next Monday. He has extensive experience in finance and controlling and will be instrumental in further strengthening MEKO's position. Additionally, we have appointed Anders Oxelström as the new Director of Communications. Anders has a solid background as a leader in some of Sweden's largest media organizations, such as Broadcast Channel TV 4 and the morning paper, Dagens Nyheter. Anders Started his role in December. So let's provide a summary. As we recap 2023, we can confirm that MEKO's business model remains solid. We increased net sales, strengthened our cash flow during the year. We improved operating results and initiated important investments for the future. Our financial position is solid, enabling the board to propose an increased dividend. During Q4, our strong growth continued. We accelerated our efforts to improve profitability. We are now building a strong MEKO where we're implementing extensive programs in Norway and Sweden. We have made strategically new partnerships with new EV manufacturers and strengthen MEKO's management team. All in all, we are well positioned for 2024 and to continue to lead the green transformation. Lastly, I want to thank our Interim CFO, Anders Lindén, for his efforts during his time with MEKO. And that was it. So thank you very much for listening, and we will open up for questions.

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

Kepler Cheuvreux. A couple of questions. First, I mean, you mentioned, well, you haven't been able to implement the price increases you would have liked due to the euro headwind. Could you be somewhat more specific in how much that affected you in the fourth quarter?

[indiscernible] As I said before, we have kind of a delay, but I think [indiscernible] that delay [indiscernible] of course, depending on how the currency would develop us for the fourth quarter.

And could you give some flavor there on the outlook for 2024? What kind of price increases do you think that the market will -- well, what kind of price increases you are able to implement?

[indiscernible] When we ended September, we are quite [indiscernible] if it will move, I'm not in control of the currencies. But as it looks at the moment, we should not have any negative effects of that going forward. More on the [indiscernible].

And in Sweden, you performed well organically. And so you also talk about these cost measures that you have implemented, the SEK 50 million, I guess. When should we expect those to be fully implemented?

We have [indiscernible] during this year. I can't specify which quarter, but those savings should be in the full year of '24.

Okay. And well, moving further to Finland, and I guess you have some measures implemented there to make the integration. And I mean, that's necessary and good. Could you be a bit more specific to what they announced, money or the cost in the fourth quarter regarding these measures?

No, we haven't. I mean when you look at the results, we're very, very [indiscernible] receivables both for adjustment on the inventory where we [indiscernible].

And going forward, do you expect this measures to be effective so you will be able to present positive earnings numbers going forward?

Yes. [indiscernible].

The next question comes from Andreas Lundberg from SEB.

Andreas with SEB here. It was not for the organic growth, which is -- was very high in the quarter. Could you give a flavor on what's behind the strong organic growth?

I would say a little bit positive seasonal effect we had in the beginning of the quarter. We had an early start to the winter season in many of the countries. So beginning of the quarter was, let's say, healthy from that perspective. We have stable market shares, probably increasing the market shares in several of the markets. And the mix in the growth is -- let's say, if it was in the beginning of the year, it was more driven by price, then it starts to be more volume also. It's still a lot of price in the increase, but also volumes.

Okay. And why are you thinking you are taking market share in several markets?

We see, yes, a number of affiliated workshops and how we are doing that. In some other markets, we actually have some help with some industry statistics. So that's where we are quite sure.

Why are you thinking you are taking market share?

Because we are doing a good job. But if it's -- I mean we have a [indiscernible] the trends that the very, very small workshops, the mom-and-pops workshops, they cease to exist. They closed down or they -- there is no, let's say, next-generation. They also have more difficult investments in the future, and we see more, let's say, car on behavior towards digital bookings, and we have all these solutions. So I think that our workshops attract more car owners, and we have among the best onset. So that's where we also have some new workflows.

Okay, cool. And the cost ambitions in Sweden, could you say what the cost reductions are about?

It's a reduction of employees, and it's also other kind of costs like marketing spend and a lot of different costs. Part also, which is, let's say, optimization and more efficiency.

Is it like headquarter functions or for employees, family of employees?

It's both. It's streamlining in the network [indiscernible]. Yes.

Okay. And back to Finland. I couldn't hear everything in the last most questions by purpose? Or did you know that you were to streamline or go through the books and take so high cost when you acquire them? Or is it something that popped up to in a way or?

But this is actually -- a lot of the costs, not everything, but a lot of the cost, which now is more related to our old business, Mekonomen Oy when we -- because that is the business which we're now transferring into Koivunen. So their inventory, which wasn't completely optimal for the Finnish market and where we needed to do some write-downs. So it is about [indiscernible]. And then of course, there is also a cost in the acquired company. But that is more that we changing a little bit in the management and other structural costs. That was more, let's say, in plan.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay. But then thank you all for listening, and wish you a great day. Bye.

Thank you. Bye.