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

Welcome to MEKO Q2 Report 2026 presentation. [Operator Instructions] Now I will hand the conference over to the speakers, President and CEO, Pehr Oscarson; and CFO, Christer Johansson. Please go ahead.

Thank you, and thank you all for joining us this morning. I will start with an overview of our second quarter before handing over to Christer, who will elaborate on our financial performance. As many of you know, we have, for some time, focused on optimization and efficiency measures as part of our initiative, Building a stronger MEKO. Part of this work has included supply optimization and cost savings. During '26, we have also implemented targeted measures in Poland. The aim has been to achieve profitability in this market by the end of 2026. During the second quarter, we continued to see the results of these initiatives. Costs continued to decline, and our gross margin improved. We achieved profitability in both Poland and Finland, and that means that all our business areas were profitable in the quarter. Our adjusted EBIT increased by 32%, and we improved the adjusted EBIT margin to 5%. We also continue to reduce our leverage, which remains a priority for us. Our leverage ratio was 3.4x at the end of the second quarter, down from 3.6x 3 months earlier. At the same time, market conditions remained mixed. We delivered healthy organic growth in Finland, Poland and the Baltics, while we reported negative growth in Sweden, Norway and Sorensen og Balchen. Overall, sales was unchanged year-on-year, and performance that we definitely want to improve. We therefore continue to execute a number of initiatives to drive sustainable long-term growth as the automotive aftermarket continues to evolve. With that, let's take a closer look at this on Slide 3. In general, the industry is moving towards more electric vehicles, increased digitalization, expanding e-commerce and an aging car fleet and a growing focus on sustainability. We are addressing these trends through a strategy aimed at strengthening our position. One example is our e-commerce business, Mekster, our online platform for car owners. Mekster has expanded significantly during the first half of the year and have now been launched in both Finland and Denmark, and the product range has expanded by 130% to around 160,000 different products. This is an important step towards establishing Mekster as a leading online destination for consumers in the Nordics. At the same time, we continue to strengthen our skills and spare parts offering to support the growing number of electric vehicles. We're also expanding our portfolio of good quality spare parts at competitive prices under our own brands, making it more attractive and affordable to repair older vehicles. In addition, we continue to develop user-friendly digital booking services for car owners and launch new AI solutions to improve workshop productivity and service. These initiatives are examples of how we work to strengthen MEKO's leading position and deliver long-term growth as the market continues to evolve. We do this as we continue to build on our modern logistics platform and our extensive network of strong workshop chains located close to the car owners. And before handing over to Chris, I would like to highlight a couple of other important events during the second quarter. So let's move to Slide 4. In April, we published our annual sustainability report, which is more comprehensive than previous editions. In this year's report, we not only provide greater insight into our business strategy and market trends, but also describe in greater depth, how we work with sustainability. As a leader in our market, we see it natural to help drive our industry forward in this area. Among other things, we want to reduce our climate footprint. We also want to improve gender balance among managers in an industry that has been traditionally been very heavily male dominated. As we reported in connection with our full year report results for 2025, we are moving into the right direction, although there's still much more to do. I encourage you to read more about our work in the report. During the quarter, MEKO's Board of Directors was also strengthened at the Annual General Meeting. Camilla Monefeldt Kirstein and Louise Mortimer Unden were elected as new Board members. Camilla has an extensive experience in areas such as strategy and large-scale transformation. Louise also adds broad expertise in areas including digital transformation and aftermarket business models. We would like to extend a warm welcome to both Camilla and Louise. And with that said, I will now hand over to Christer.

Thanks, Pehr. So in many ways, Q2 constitute an improvement in financial performance, and this quarter is, as it should be, much better than Q2 last year. It is also better than Q1 of 2026. As Pehr mentioned, net sales remained unchanged, measured at constant FX rates. We do aim higher, but it is encouraging that the level of sales came at noticeably improved margins. It's also so that costs are down following earlier cost cutting and investment in automation. So this is a good combination, and there is nothing further down the P&L to dilute this. Hence, earnings per share is recovering nicely, reaching SEK 1.4 per share in Q2. So I'll go into some more details on the profitability improvement in a minute. But first, I wanted to touch on our financial position, which is also improving. The context here is one where leverage has been higher than desirable. We came into 2026 with a leverage ratio at 4 compared to our target range of 2 to 3. Our actions to address this, they have been effective, and you can say that we are halfway by half year. So currently, net debt sits at 3.4x rolling 12-month EBITDA. Our financial position has also been improved in other ways. To give two examples, we have, in the quarter, extended the term loan of close to SEK 2 billion, which now matures in 2028. And we have fully amortized the revolving credit facility, which adds flexibility and lowers financing costs going forward. So with that said, let's turn to the factors behind the EBIT improvement, starting with gross margin on Page 7. Here, we see an increase of roughly 1 percentage point. One part stems from optimizing purchasing cost and sales price. That's the first bar here. The other part stems from currency movement. And now we cannot take credit for FX rates moving up or down, but what I can say is that we've been fairly successful in navigating that ever-changing environment in the quarter. One of the markets where we have achieved healthier gross margin is Poland. And you can see the result thereof in the EBIT bridge on Page 8. As illustrated here, the positive development in Poland and the Baltics, Finland matter a lot. So these are both business areas which were loss-making in 2025 as a whole. In Q2 2026, they are both in positive EBIT territory. Now at 2% to 3% EBIT margin, we are not content, but it is rewarding to see that the hard work put in by the teams in 2025 is now finally translating into a clear uplift in performance. Let's now have a quick look at the various business areas, starting with Denmark on Page 9. So here, performance is stable at a reasonably attractive level. Similar to the group at large, the development has been characterized by improvements in gross margins and improvements in cost efficiency. We still have some fine-tuning to do in warehouse operations, but we are getting there step by step. Moving to Page 10 in Finland. There's a clear uplift in performance. One can note that in the first 6 months of 2026, we operate at a positive EBIT margin compared to a negative 5 percentage point margin in the same period of 2025. So as widely communicated, Sanna and the rest of our local team, they have changed many things in Finland over the last 2 years, and the platform is now more competitive. We're also growing 5% organic growth in Q2 and even a bit more for the first 6 months. Turning to Poland and the Baltics on Page 11. There are some similarities to Finland. So also here, a clear uplift in performance on the back of a growing top line, improved margins and improved cost efficiency. In fact, operations in the Baltics have also reached new highs, but the large improvement factor here is Poland, where I wish to mention two things. So firstly, the integration between our pre-existing Polish business, Inter-Team. And the parts acquired from Elit 2 years ago is now completed. So that's good. Secondly, as described on a previous call, we have set out to reduce staffing in Poland by roughly 200 FTEs. As of now, the reduction amounts to 160 FTEs. So all in all, a significant improvement in Poland. Turning to Page 12. Profitability in Sweden, Norway remained stable at a good level. We are, however, far from satisfied with negative organic growth. And it's not visible in the results yet, but the actions we are taking certainly reflect a higher growth ambition, and we will elaborate more on this in a later call. Finally then, Sorensen og Balchen on Page 13. Here, we have, since the comparison period, implemented extensive changes in how we run supply chain and warehouse operations. And we have no doubt whatsoever that this is more efficient for the future. But as commented on also in the Q1 call, it has not been without challenges. And this includes issues in IT integrations and other supply chain-related processes, which ultimately must work to guarantee full availability. And when they don't, this affects top line. We're working intensively to solve these issues. We are making progress, but we were not quite there by end of Q2. At EBIT level, I also want to mention that the comparison to last year is affected by warehouse-related cost allocations, and this explains circa half of the reduced EBIT. So it is neutral to the group, with a positive effect sitting in the other parts of our Norwegian business. Before handing back to Pehr, I would, on Page 14, also like to mention an upcoming change in our reporting. And we've earlier mentioned that our operations in Norway is being gathered under one joint leadership. So in light of this change, we have also reassessed the existing operating segments, and we've concluded that it is now more appropriate to separate the Sweden/Norway segment into two and instead report Norway and Sorensen og Balchen on a combined basis. Sweden and Norway are large markets in themselves. And based on discussions with investors, we believe the new segments to be more helpful to the reader. This change will apply from July 1, 2026, and it has no implications on our consolidated results or our financial standing as such. Neither does it change the way we run operations or how we use our brands in the marketplace. So Q3 will be the first report to incorporate these new segments. And we will publish a restatement of historical financials on the homepage, well ahead of the Q3 release date, which is over in November. So with that said, back to you, Pehr.

Thank you, Christer. Yes, a few final words from me. During the second quarter, we continued to see clear results from our efforts to improve profitability. Our costs continued to decline, and our gross margin increased. We achieved profitability in both Poland and Finland, meaning that all our business areas were profitable during the quarter. Our adjusted EBIT increased by 32%, and we reached an adjusted EBIT margin of 5%. We also continue to reduce our leverage, which remains a priority for us. At the same time, overall sales were unchanged, a performance that we want to improve. We, therefore, continue to work with a number of focused initiatives to drive long-term growth. We do this with a strong foundation on our modern logistic platform, our well-known brands close to the car owners and continued digital innovation. Our vision is clear. MEKO should strengthen its leading position as the automotive aftermarket continues to evolve. So with that said, thank you for listening, and we will now open up for questions.

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

A couple of questions. First, I mean, you talked about the measures there to improve -- well, sales in Sweden was a bit subdued compared to Bilia, for instance, which generated organic growth. Could you say something there about, first, the measures you will sort of implement or have implemented now and also maybe something about the performance during the quarter, April, May, June, please?

Yes. Happy to do so. When it comes to Sweden, there is -- we also have some challenges with new actors coming into the market. So the competition has been quite strong, stronger than ever, I would say. So -- but we have -- what we have communicated, of course, our initiatives of tires, e-commerce and exclusive brands. Exclusive brands, for example, that is -- the product is now coming into stock. So that will start to sale here after the summer. But I think the biggest effort from the Swedish organization, that is back to the core business. Last year was a year of a lot of integrations, mergers of stores and those kind of things, and now it's full focus on delivering good service to the workshops. And also, I would say, in Sweden, we have good traction on the fleet sales also, which will support also growth in Sweden. So there's a lot of initiatives and a full focus on the Swedish market.

Should I interpret this answer as you sort of keep your market position by and large, and it's not -- I mean, Bilia maybe benefit somewhat from their new car [indiscernible]? Difficult for you, of course, to comment on Bilia's performance, but...

But we have -- the difference between us and Bilia, just to make that clear, is that they have -- I would say, if you look at the market, they are -- their customers are usually owners of cars, let's say, 0 to 5, 6, 7 years old, while we have 5 to 15 years old. So that is a difference. And of course, that shifts also in how the market development and so on. So that's why it's not completely comparable. And the new competition, which I talked about that is in our area, it's not on the newer cars. So it's a little bit -- I lost your question.

And I guess we have some increase in new car deliveries, have implemented some sort of service also. And could you just say, during the development during the quarter, I mean, April to June, is there any sort of change in momentum? Or is it sort of...

It's -- I would say it's nothing extraordinary in the quarter, other than hard work for -- deliver long-term growth.

Okay. And then, well, Denmark is sort of -- probably, you are trying hard there as well, but maybe a bit weaker than I expected. Is it sort of more to come there regarding the implementation of the new logistical structure that will help you going forward or continue to help you going forward?

Yes. I think that we will expect some more efficiency out of the warehouse. We also reduced, compared to last year with -- we closed down several of the smaller branches. So if you would like to just measure sales per branch, that is actually increasing in Denmark thanks to that. But it was very small branches, so maybe not important. But there is still efficiency to gain in the, let's say, warehouse and logistics projects.

Yes. Great. And then for the Baltics, I mean, it's a pretty solid performance there compared to both sequentially and year-over-year. And the trend seems to be developing in the right direction still, given the reduction in manpower and so on. There are more to come, I guess?

Yes. I think Christer mentioned, we have -- the plan was to reduce with 200 FTEs, and we have these 160 that have left, so there is still more to come. And long term, I mean, we -- our ambition is that we should leave the year with profitability in Poland. So there's still more work to be done. And long term, we want to be as good as our competitors. So there is still room for improvement on the longer term.

And finally, just -- I mean, maybe cash flow was slightly weaker there. Any sort of change in trend going forward there?

Yes. No, maybe let me comment on the cash flow. So if you look at cash flow from operations, before changes in working capital, it's actually still strong. We did have some changes in working capital during the quarter. They actually do not relate to inventory. So inventory continued to reduce also in the quarter, and for the first 6 months in total, quite nicely. But the changes relate to other components of working capital. And this is where, as you may recall from the Q1 call, we described that we have accelerated some processes specifically relating to bonuses compared to last year. Now that doesn't change anything kind of for the first 6 months as a whole, but it did change things in between the quarters. So I wouldn't read too much into kind of those effects. Maybe if you look at the first 6 months on a combined basis, that's an easier number to relate to. I think overall, the working capital is at a good level.

[Operator Instructions] The next question comes from Anton Lund from SB1 Markets.

Gross margin coming in at the best level in quite some time. Is there more work to do in terms of supplier renegotiations here?

There is still room for improvement, yes. But on the other hand, also, there's a competitive market. So if that will reflect on more, let's say, competitive power or actually more increased gross margin, that is to be seen. But there is always room for improvement.

And is it mainly Poland driving the development here? Or how should we think about that?

I would say the improvement is actually broad-based. So we've seen improvement in most of our markets. But maybe Poland is the one where the starting point was the lowest. So that's where it also helps the most, in a sense.

Clear. And then I just have one question on cash flow as well. It's up year-over-year on a rolling 12-month basis. You're deleveraging quite fast now. Do you believe that you will reach your target range between 2x and 3x by year-end this year? And then how do you prioritize between the different allocation options once you get there?