Good day, and thank you for standing by. Welcome to the MEKO Q2 report conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pehr Oscarson. Please go ahead.
Thank you. Good morning, and welcome to the presentation of the Q2 2022. Together with CFO Åsa Källenius, we'll guide you through the results. On July 1, we closed the acquisition of Koivunen ahead of schedule, which is very positive, and this enable us to start to extract synergies earlier than expected.
The acquisition enables continued growth and a strengthened position for us in Northern Europe, and we take another step towards being the best and most complete partner to the customers in our markets by becoming the market leader in Finland, Estonia, and expanding to Latvia and Lithuania.
I'm fairly satisfied with the quarter given the circumstances. We are comparing to a record quarter last year. We grow organically. We improve our gross margin and achieve an all-time high result in Poland.
We experience market fluctuations in Denmark and Norway during the quarter. The demand is somewhat weaker, and we have therefore initiated cost balance activities in order to improve profitability.
This is something we have done before. We know how to adapt in costs in uncertain times and are expecting to see a gradual profitability improvement. Looking a little bit closer on the acquisition of Koivunen on page three.
We estimate synergies of SEK 40 million with full effect during 2024. Among other things, the synergies will come from economies of scale connected to our Mekonomen operation in Finland. We also estimate efficiency potential within distribution and warehousing, as well as purchasing synergies.
As a large group with presence in many markets, we will also gain benefits between the operations due to use of best practice, not least when it come to electric vehicles, where we have learned a lot from Norway that will benefit to the rest of the group as respective country progress in this area. We are now market leader in Sweden, Norway, Denmark, Finland, and Estonia, and with operation also in Poland, Latvia, and Lithuania.
I'm very much looking forward to the next chapter for MEKO, and I'm confident that we once again will prove that we have a resilient business model and that we will deliver profitable growth in the long run, regardless of uncertain times and economic cycles. I will now hand over to Åsa to take us through the results.
Thank you, Pehr. As stated, despite uncertain times, we see an organic growth and a strong cash flow in the quarter. Profitability is to a large degree negatively affected by cost, inflation, and currency effects. We had, as Pehr also mentioned, a strong development in Poland and also in Sweden, but weaker in Norway and Denmark, where we experienced a somewhat lower demand in the quarter.
I will get back to this within the respective business areas later. EBIT is affected by items affecting comparabilities of SEK 26 million related to the acquisition of Koivunen. Bear in mind that we are comparing to a fantastic Q2 2021, where we reported a very strong set of numbers. Our business model is resilient over time despite economic cycles.
We have experienced good and bad economic conditions during the years and are also negatively affected in an early stage of a recession when the demand temporarily is weaker. We know from earlier experience that we are also in an industry that rapidly recovers.
The demand will be delayed but not canceled in full. Service and repairs are necessary in order to retain the need for mobility. Our attractive and affordable concepts are an upside when the customer need to prioritize costs. Looking at page five and EBIT, we see that Mekonomen stands out.
We are negatively affected by lower demand in Norway, currency headwind, and cost inflation. We saw the same effect from lower demand in the total Norwegian market, meaning also including Sørensen og Balchen, as well as in Denmark.
Over to page six, we have increased the gross margins further from already high levels in the quarter. Increased gross margins is an ongoing priority for us to compensate for increasing purchase prices and inflation in general, of course. Moving over to the business areas, first, we look at Denmark and FTZ.
We had negative organic growth in FTZ, -2% in the quarter due to slower market with somewhat lower demand of our product and services. We do estimate that we have kept our market shares, and therefore, we get back to growth when the market demand stabilizes. We have initiated actions, of course, to balance our cost base and improve profitability going forward. Over to next page, number nine, and Inter-Team.
As Pehr mentioned, we had an exceptional great result for our Polish business area this quarter with the best Q2 result ever and close to the best quarter ever. We're very happy about the result in Inter-Team. We have continued to focus on customer loyalty, strategic customer groups in order to increase profitability. This is in line with our strategy. Next page, we come to MECA and Mekonomen.
Already spoke a little bit about MECA and Mekonomen. We had a solid growth in the business area, but decreased gross margin and EBIT due to the currency headwind. It was SEK 19 million in this business area, and we also had resource cost inflation. Bear in mind that we are comparing to very strong Q2 last year. The slower Norwegian retail market has affected the business area negatively in the quarter.
We have initiated activities in order to balance cost and support future profitability. Still, we had a strong performance in Sweden during the quarter with a stable demand and added customers, and we did manage to balance cost inflation and currency effects in Sweden. Over to page 11, and Sørensen og Balchen, where we report yet another quarter with very strong margins compared to our peers inside and outside the group.
Growth was negative. Organic growth was negative, and the business area is to large extent affected by the slower Norwegian retail market, even though 40% of the business is toward the consumer market. Still, we are pleased to see that we maintain our long-term strong position as a sharp niche player and one of the strongest player in our industry. I will now hand over back to you, Pehr.
Thank you, Åsa. We're in a good position to continue developing the business according to our strategy. We have a strong footprint in Northern Europe surrounding the Baltic Sea. On page 13, we see that we have increased the number of workshops in almost all markets. This is a clear sign that we have kept our market shares and will enable future upside when demand stabilizes. Over to page 14.
Before the summer, we conducted a cross-national mobility survey in Denmark, Finland, Norway, and Sweden with more than 4,000 respondents. This is a unique survey that has not been done before, and we have asked a broad range of questions about current habits in everyday life connected to the personal transportation.
We can conclude that car is still king, where eight out of ten use a car every week, and over 60% think that cars will be a big part of the future. We look forward to see its development by conducting the survey on an annual basis going forward. Over to page 15 and electric vehicles. Our target is to be the natural partner to go to for EV owners, and our offering includes wide range of short- and long-term initiatives.
We have a wide coverage of spare parts for electric cars, and that is matching the offering which we have for combustion engine cars. We have initiated a new collaboration with the Norwegian technology and innovation company Electric Way during this quarter, where we will become the service partner for the Chinese electric car brand Voyah.
Regarding our earlier announced collaboration with Fisker, the production starts in November this year, and there is more than 56,000 pre-orders for the model Fisker Ocean. Before the summer, we initiated the new central warehouse project in Norway. In this project, we will invest in further efficiency, improved competitiveness, and increased availability for our customers.
We will increase our local stock to around 100,000 items, and the new facility is expected to be completed in 2025. Finally, our strong position around the Baltic Sea, our size and experience will benefit us in uncertain times. We are well able to adjust to the market development and expect that our initiated cost balance actions will lead to gradual profitability improvement. The demand for our products and services are robust over time.
Service and repairs are necessary in order to retain the need of mobility. While we are temporarily affected from economic cycles, our type of business recovers rapidly. We will continue to follow the market development closely and adapt our operation based on the conditions. This concludes our report for the second quarter, and we now look forward to your questions.
Thank you. As a reminder, if you wish to ask a question, please press star one and one on your telephone and wait for your name to be announced. Please slowly press star one and one if you wish to ask a question. Once again, please slowly press star one and one. There is one question. Just one moment, please. We will now take the first question. One moment. It comes from the line of Mats Liss from Kepler Cheuvreux. Please go ahead. Your line is open.
Yeah. Hi. Thank you. Well, a couple of questions there. First, you indicate that you are in the early stage of a recession and so on. Then again, you also indicate that cost measures you are about to implement will sort of balance that. You expect well margin and profitability to improve going forward.
Could you give some sort of indication there? Is it sort of still happening in the third quarter, and it is more towards the end of the year and next year that you expect these measures to be effective? Also, maybe if you say something about the potential cost to implement these measures.
Yeah. I will try. Let's see if I will answer your question. We have based on history and experience, when we enter this kind of economic cycles towards recession and so on, we usually get hit in the beginning because it's a general slowdown in everything. People get more careful in everything. When the service lamp starts to light in the car, there is, let's say, let's wait a couple of weeks or a month, but sooner or later the car should be serviced.
It's impossible to say how it will be this time, but again, our experience says that we will recover quite quickly because even in bad economic cycles, we are still our business model is quite strong.
There is maybe one factor which you can look at, and that is unemployment. Since we don't have any unemployment yet, and there is nothing in sight either, that tells that people are going to work every day, and that means also that cars is used. If we get very high unemployment, then it's a bit another situation. Then we need to go many years back, and then it will be maybe affecting our the demand of our product and services. It will usually recover quickly.
Again, in this quarter, also compared to a very good quarter last year, especially because we mentioned in the report the retail business, and especially in Norway. Maybe this is more the normal level, and maybe last year was exceptional because retail was really blooming in all kind of industries, sport accessories or clothes and everything.
Now it seems to be much slower. It might be dangerous to talk about recovery because it's maybe this is a little bit more normal. We of course need to adapt when it comes to costs, which I guess was your second question.
That is, there's no program with a number of millions to save and an end date because this is so regional. It's only Denmark and Norway, and it's also on a regional level. We're doing kind of a portfolio of everything that we are reducing staff. It could be temps reduced. We look at transports and also sizes of branches and rents and so on. It's kind of a very general, I would say, nothing extremely focused and extremely dramatic.
Oh, okay. Great. Then again, you mentioned that you have sort of increased the number of affiliated workshops there, compared to the first quarter and so on. Do this sort of include any extra cost to for marketing or sort of startup costs?
No. There is some, but when we enter agreement with a new affiliate, there is some cost, but it's not significant. It should be hundreds of them when it starts to show in the P&L. It holds very often based on the shared investment. We take some of the investment in the workshop, some of them. It's nothing significant.
Okay. While coming back to Norway, you know, you talk about the high-tech automated central warehouse there, and it should be up and running 2025. What kind of investments are needed to make this happen?
There is, well, we haven't communicated the specific number for that, but it will be very much on a lease agreement.
Yeah.
I mean.
Yeah, we are currently looking into how to finance the new warehouse. There are different alternatives, but the main alternative would be that we do, like we do with the new warehouse in Denmark, a kind of lease operation that will be like IFRS 16 in the balance sheet. We find a lessee or rent to the owner of the property. We haven't finalized that yet, but it won't be cash out from the cash flow as we see it. That's still to be decided.
Okay, great. Thank you. While looking at the numbers again, cash flow looked pretty good, and cash conversion also.
Mm-hmm
... compared to earnings. Is this something that you expect to be able to, well, continue during the second half now?
Yes.
I mean, also keeping in mind that inventories are quite well.
Mm-hmm.
You indicate that you have some sort of H3-related inventory to be able to supply in a way may be tougher supply chain.
Mm-hmm.
On.
Well, we do not now see that we need to further increase inventories level. On the other side, we think we perhaps can start to decrease them a little bit when the logistic chain, supply chain are improving.
We see some signs of that, but it's still open what will happen during the autumn, of course, when it comes to supply chain and the global transfer of goods. As we see it now, we would keep the good cash flow we have, and we won't increase the inventory levels further during the autumn.
Okay, great. Just finally, I mean, calling Koivunen and makes your Nordic platform complete. Could you just indicate something there about what you see in the second half? Maybe also, I mean, the acquisition will be up and running first of July, and what will the sort of gearing be following that sort of?
We don't have any more new numbers else than what was communicated when we announced the acquisition. It's still those numbers and figures that are valid. We have been working now, of course, it's vacation time also, but we when it comes to the synergies, we have gained confidence in that it will be achievable. That is a good sign.
There is, I would say the first indications is that we have a market development, which is when it comes to the Baltic operation, very similar to the Polish, which we have with good growth and increased profitability, where we get some indication that Finland is more similar to somewhat between Sweden and Norway, which is fairly good still. It's again, we don't have the first month's sales number even. It's just feeling from the ground.
Okay, thank you very much.
You will have to wait for Q3 report, then we will have Koivunen and the acquisition included in the reporting.
Yeah. Thank you.
Okay, thank you. Once again, if you wish to ask a question, please press star one and one on your telephone. There are no more questions at this time. I would like to hand back over to the speakers for final remarks.
Okay. Thank you very much for listening, and have a lovely day. Goodbye.
Bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.