Hello, welcome to the Mekonomen Group conference call, year-end report January to December 2019. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded, and for the duration of the call, your lines will be on listen -only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Chief Executive Officer Pehr Oscarson, to begin today's conference. Thank you.
Thank you. Welcome to this call, where we will present a bit about our fourth quarter 2019. Together with me here is Åsa Källenius, our CFO, who will also take us through some numbers. To start, I would say we have a stable performance in the fourth quarter. Shortly, we talk about continued sales growth and a stable profitability. The ongoing EBIT improvement activities are according to plan. We have improved our cash flow generation, and the board has decided to propose a dividend of SEK 0.5 per share. We still see that our attractive concepts and brands contribute to increased sales to affiliated workshops. Let's move on to some numbers, Åsa.
Yes. Good morning, everybody. I will take you through the Q4 numbers for Mekonomen Group. Starting with the big picture, we have earned growth in the quarter of 3%. The organic growth is 1% in the quarter. Adjusted EBIT is on the same level as the same quarter last year, SEK 149 million, and EBIT amounts to SEK 104 million, compared to SEK 57 million last year. Earnings per share is SEK 1 in the quarter, compared to SEK 0.18 last year. We had a positive cash flow in the quarter and also for the full year. In the quarter, SEK 156 million, and in the full year, SEK 146 million. EBIT margin 3% compared to 2% last year, and adjusted EBIT 5%, same as last year. Nobody missed it. We had a mild winter season, and it's affecting our sales negatively.
We see it mostly in our business area, MECA/Mekonomen, with the activities in Norway and Sweden. I will show you on the coming pages the impact we estimate from the mild winter season. Some comments about the full year. We now had Inter-Team and FTZ the full year, we can see that we closed the year with a sale of almost SEK 12 billion, SEK 11,842,000,000. That's, of course, a great increase in sales mostly from the acquisitions. I'm also proud to see that our adjusted EBIT increased by SEK 275 million compared to last year and amounts to SEK 874 million. EBIT SEK 705 million, an increase of almost SEK 300 million compared to last year. As I said, a positive cash flow for the year and an organic growth of 2%.
We had an increase of earnings per share with 12% from SEK 6.56 last year to SEK 7.34 this year. A positive development of earnings per share after the rights issue we did 2018. Over to the waterfall for the quarter. As I said, we increased EBIT from SEK 57 million last year to SEK 104 million this year. The EBIT is positively impacted by that we have not that much items affecting comparability this quarter. As you remember, we had a lot of items affecting comparability last year in this quarter related to the acquisition of also the frames in stock. We had impact on gross profit from operation, positive SEK 7 million. We have an impact of adjustments in stock levels we did by SEK 15 million, but it's not classified as item affecting comparability.
We have a positive effect from high items affecting comparability 2018 of SEK 31 million. We see lower costs in the quarter, positively affecting EBIT by SEK 8 million, positively affected by lower integration costs. We had SEK 9.4 million as integration costs for the new company group structure of the acquisition of 2019. SEK 104 million. We estimate that the mild winter season in Sweden and Norway impact our sales negatively by approximately SEK 30 million, affecting EBIT by SEK 15 million. We also have this adjustment in the stock related to different items pressing down EBIT in the quarter. Over to the next page, the waterfall on the gross margin, it looks very much the same as it did in Q3. We had a gross margin of 45.2% when recalculating the margins for FTZ and Inter-Team as included the full year. We land this year with 44.8%.
As in Q3, we see a positive effect of the purchasing synergies and together with volumes. The synergies impact gross margin by 0.5%. As in Q3, we have a negative impact of the currency, mostly EUR towards the NOK and SEK. We still see market pressure, and we see a negative impact of product and customer mix, meaning that we sell to larger customers, for example. Over to our business areas, starting with FTZ, our Danish company. We saw a net sales growth of 5% in the quarter, of which 2% was organic growth. EBIT improved compared to same quarter last year as a result of the purchasing synergies. We have cost-saving activities ongoing and, as mentioned, less item affecting comparability. We have nine million items affecting comparability in FTZ related to integration cost.
We estimate our market share in Denmark to be stable, even though it's a tough market, and we experience tough competition in Denmark at the moment. Over to Inter-Team, our Polish company. They experienced, as we did for the whole year 2019, a very strong growth sales driven by shares of the domestic sales, resulting in an estimated market share gains. Inter-Team in Poland has, as you know, also a net sales to neighboring countries as Ukraine, Germany, et cetera. The strong sales growth was mostly in the Polish market with a higher EBIT, resulting in a higher EBIT margin and in improved EBIT as a total. The greatest improvement from the same quarter last year. EBIT amounts to SEK 20 million compared to zero the same quarter last year. We were able to have increased margins in Inter-Team.
They amounted to 4% in the quarter and for the full year, 2%. We continue to see high price pressure on the Polish market and aggressive activities from competition. We can now summarize Inter-Team and FTZ for the full year 2019. It was the first year we had those companies for a full year. We can conclude that we are satisfied with the acquisition. In total, the EBIT contribution in total from the acquired company amounts to SEK 342 million, which we see as the same level as we had in the prospect. Now over to MECA/ Mekonomen, our largest business area. We had net sale in line with last year. The very mild winter season, as I said, pressed the growth down. We estimate that we should have had 2% higher organic sales without this effect.
We had zero organic growth in MECA/Mekonomen in the quarter. High purchasing costs continues to press our cost of goods and thereby the margins. We did a price increase in Sweden and Norway during December, we did not see any effect, and we didn't expect to see any effect yet. We expect to see that the coming quarters this year. We have a stable EBIT. EBIT amounts to SEK 63 million compared to SEK 54 million. The same quarter last year, and we have cost saving activities compensating for the continued price pressure and negative customer product mix. We also have this inventory adjustment I mentioned of SEK 15 million in business area MECA/Mekonomen. Some updates on our new branch concept, BilXtra Sweden. So far, we have eight branches in the concept, whereof we own four ourselves and four is franchise.
Turnover during last year, 2019, was approximately SEK 50 million. We experienced a large interest from branches within competing concepts to join in our new BilXtra concept. Over to the next slide, the merging of our central warehouses in Sweden. The project is proceeding as planned. We still see that we will have the cost savings we have communicated before of SEK 50 million from the end of this year. We have successfully concluded the pilot with five branches and also the regional MECA warehouse in Gjøvik in Norway. They now receive their supply from Strängnäs. Next phase in this project is to gradually transfer the supply of all MECA branches from the warehouse in Eskilstuna to the new in Strängnäs. Our focus is to minimize the risk and ensure high service towards the customer. That must be our first priority.
To our smallest and our business area with our highest EBIT margin. We saw a very positive development in sales in this quarter to the affiliated workshops, and we also experienced a positive organic growth in the quarter. We had negative organic growth prior quarter in this year. The EBIT continues to be high, and we experienced that Sørensen og Balchen has a very good cost control, ending up in high EBIT margins and also high EBIT of course. Sørensen og Balchen is our business area with high sales to business to consumer and are exposed to the tough retail market. I guess everybody sees what happens in the retail lately and both in Sweden and Norway are heavily affected. We have actions ongoing to increase the B2B sales and it's proceeding well. Okay, Pehr, over to you for more specific things.
We are on slide 14 and that just an update on little bit figures about the markets where we are working. It's really nothing new here in this quarter. We of course follow the sales of new cars even though our normal customers have cars that is in the age of 5-1 2, 13 years old. We still don't see any direct effect. What is very important is to realize that in our markets still more than 90% of the cars which is sold now is sold by old or let's say diesel and petrol technique which we are very well known. Those cars sold now should at least be 15 years out on the streets, so we have a good market for the future.
Having that said, we are also very developing our concept to be able to also service and repair any kind of car or whatever kind of technique that they used. I'll move on to slide 15 with the Google footprint. Not so dramatic changes. We are growing in the number of affiliated workshops in total and that is our most priority, of course. That's very good. I will keep on and talk a little about digitalization. We have just launched in December a new booking solution in Mekonomen Sweden with improved features for instant quote and schedule functions. We had online booking already since a couple of years, but this is a new system with better functions for the car owners. This solution will also replace existing booking solutions in the other concepts during this year coming. In Denmark, we are in the end stage of developing DriveClever.
That's a call center and digital portal that provides one point of contact to everything the vehicle owner needs. This is a link between vehicle owners and independent workshop that provides the workshop with a stable flow of car owner customers. DriveClever is already working for companies and leasing fleets, and it will soon be available to all vehicle owners. We have also developed a learning management system within ProMeister, which are successfully also sold outside our group, in the countries around Europe. This is a portal where we can effectively take care about booking of training and courses, e-learning integration and so on. We have implemented this in Denmark, but in Denmark it was also supplemented with a technical support module, and where we have had very positive feedback from the customers with that solution.
Talking about business development, this morning I also announced that we have strengthened the group management with a Director of Business Development and Strategy, and that is Petra Bendelin, who has been in the company for 10 years, in different positions, and most recently as a Managing Director of ProMeister Solutions. She joined the group management as of today. Focus forward, of course, core growth and profitability, customer value, and business development. Finally, I would say that 2019 was a year where we integrated Inter-Team and FTZ. We have been working with the purchasing synergies. We have the project with the central warehouse and also the cost saving programs. We have had good development in cash flow and been able to reduce the debt. I would say that we have a very solid platform and are ready for 2020.
A year where we have continued focus on efficiency and cost control also, of course, but also to increase our ambitions within business development. That will be my last words, and we will open for questions.
Thank you. As a reminder, if you would like to ask a question on the call today, please press star one on your telephone keypad. Please ensure your line is unmuted locally, and you will be advised when to ask your question. Star one on your telephone keypad. We do have a question coming through from the line of Mikael Löfdahl calling from Carnegie. Please go ahead.
Yes. Hi. First of all, maybe I missed something at the beginning of the call, but this cleanup of stock that you mentioned having an impact of SEK 15 million or estimated impact of SEK 15 million, what is that?
Well, you can say it's three parts in that adjustment. One is that we had from when Mekonomen was active in Denmark, we had returns to the warehouse in Strängnäs, which we have sold some of it, and some of it we could not sell. That is now booked in our books, and we cleaned up all the returns we had from Denmark. The next part of this is that we have focused very much on working capital to reduce net debt. We have a huge return of goods from the branches to the main warehouse in MECA/Mekonomen, resulting in some adjustment in the stock levels. The third part is that we now finalize the next implementation in Mekonomen branches, and that has also ended up in some adjustment.
I would say those adjustments, some of them are earlier, should have been booked in 2016, and some part is for the total of 2019. We chose now to very much work on to have optimized stock levels and have booked this in the books in the Q4. It's relating to quarters prior to Q4.
One could say that you should have booked slightly lower revenues throughout the previous quarters?
Yes.
Previous years.
Previous years.
Yes. Okay. You had a similar thing about a year ago, but that was another issue.
That was something else. This is not seen as an item affecting comparability. It's something that should have impacted our margins historically.
Okay. For Q1 isolated, it is an item affecting comparability, you could say.
For Q4, yes. It's not classified as item affecting comparability.
Okay. Another thing also, when you specified the mild winter and the impact of SEK 30 million and -SEK 15 million for EBIT. Last year was a pretty mild winter as well. How do you come up with that number? One could argue that it was fairly easy comparisons, although I guess this winter is even more mild. Because in this slide you are comparing 2018 with 2019. It's not compared to a normal winter, I guess.
Yeah. One could argue what is a normal winter nowadays?
Yeah.
First of all, it is a significant difference. November was quite similar, in December it is very difficult to just look at how many degrees it is outside because something happens when it gets minus, zero is probably no effect. The method which we use is that we have checked on those products which we know are strongly affected by winter conditions. It could be batteries, it could be heating systems and so on. Compared just those product groups, what we have lost in those. That is how we came up with the number of SEK 15 million. I would say that it is the best analysis which we can do.
Yeah. Go ahead.
I guess the winter hasn't really become, even though it is pretty cold today, but I guess this has continued in January. Have you seen so far in January the same kind of negative year impact for these kind of products?
We don't want to comment on the quarter which we are in. There is mild weather still outside, that's true.
Yeah. The sale of these kind of products, it goes from you to customers and to the affiliated workshops and other stores and gasoline shops and stuff like that. When it goes to the more very winter-related products, when do you sell them typically? Are they sold by the day or are they sort of purchased and put on stock among your customers, or when do you see that there is a completely lost winter, so to say, for these kind of products?
It's a mix, because some products, for example, when it gets really cold, -10°C or something, then cars stops by the road. That creates more job for the workshops. They usually get delivery from our stores, or which fills up overnight from the central warehouse. That kind of sales, that comes immediately. We can see sometimes if it is very cold, three or four days, -10°C in a big area like Stockholm, then we will see it directly after a couple of days. There is also other products which, when we sell to larger customers, which we may make one sale in autumn and then hope that they will fill up their stock later. They won't do it. It's a little bit mixed, but we feel it quite directly, definitely.
Okay. Another thing, you mentioned before these sort of problem areas. We have Finland, for instance, and also part of your, what I call non-core businesses, like Preqas and so on. Could you mention anything on how these businesses are doing? If the losses are increasing or have stabilized or even improved?
I would say in general, it has been improved. We still have some losses, and we still have some, let's say, cost for reducing risks and so on. We don't have any more detailed information than that today.
You can't say anything else around Finland you have opened up for dismantling or divesting Finland if the profits doesn't turn, how much long time do they have and where are you in that?
I wouldn't want to comment on time, but as I have said before, we are looking for better solutions. Better solutions can be that we make it profitable ourself or that we can sell it to someone who can do something better about it, like we did with Mekonomen Denmark a couple of years ago. I would say we will probably not be in the area of completely shut down yet. It's not that bad. We're still working on the two other alternatives, but we're open for everything, of course.
Okay. Two questions on the two, call it programs, that are running. First of all, the purchasing synergies with FTZ and Inter-Team, I guess the other units as well. You're saying that SEK 60 million has been realized of the SEK 100 million. Is that on a full quarterly basis? Did you experience those synergies fully in Q4, the SEK 60 million? That's the first question. Secondly, the remaining SEK 40 million, when do you expect those to come through? At the time of the acquisition, you were quite long-term in this sense, now you have come a good way to the SEK 100 million already. When can we expect the remaining SEK 40 million? Again, was it a full run rate in Q4 of the [crosstalk]?
I would say yes. I would say it was full run rate in Q4, or at least in the end of Q4. We have those SEK 60 million are fully in the company as from this year, January 1st. To the second question, yes, we said that it will take some time to get out the synergies, and that is because you always start with the low-hanging fruits and the easy negotiations. I would say to get the first SEK 60 million is the easy part, and the last SEK 40 million is a bit more difficult. I wouldn't change, even though we are happy and it has been a successful project, but I still have respect for the work to be done ahead. It's still the same. We still have the same [uncertain] that it's from 2021 that we will have the full effect.
The other cost-saving program, the SEK 65 million that you have completed, I think you have said before that you expected a full run rate by the end of Q4 or sometime during Q4. How should we interpret that? Is it the full sort of quarterly effect will come in Q1? Is that the right interpretation?
Yeah, that's right.
Okay, good. The price increases you've carried out in Sweden and Norway, they are accepted and so on and will impact the gross margins in Q1 then?
Yes. They are accepted. Now it's always the challenge still about the purchasing prices and the Euro. This is done mostly to balance up that and to keep the margin. As we see the currency little bit better, but we still have in our stock, we have a very high EUR/SEK currency.
Yeah, I guess there's a lag of about one quarter or so if we look at the FX rate.
Yeah.
You should get the full benefit from a lower Euro by Q2 basically then in your gross margins?
Yeah.
Depending on how the exchange rate will develop.
Yeah, of course.
The final question from me, you have this other income that you report in the P&L, that declined quite significantly year-on-year. It was SEK 59 million in Q4 2018, now it dropped to SEK 40 million. Why is that?
I need to come back on that one. I do not have the answer right now.
It's probably in the area that it's something that has moved out to some business area, or if it's something which we have just stopped doing. Let us come back to that.
Okay. Thank you.
We currently have no further questions coming through. Another reminder, if you would like to ask a question, please press star one on your telephone keypad. The next question comes in from the line of Mats Liss calling from Kepler Cheuvreux. Please go ahead.
Yeah, hi. Two questions, please. First, I guess you talked about this mix change to larger customers. I guess it's been going on for quite some time. It will probably go on for quite some time more. Could you say something about the momentum there and how much we should expect going forward?
The mix [crosstalk].
The mix change. Okay.
Yes, continue.
Yeah, the mix change there. I mean the margin impact and yeah.
You're right that will probably be going on in the future. I don't think we should expect any more significant changes in the future because this has been, for example, some of the product groups which has changed selling pattern. It has changed. We don't see any further development. Difficult to give any guidance. Yes, it will continue. I don't think in the same speed as we have had the last couple of years.
Okay. You had a mild winter, and I guess you prepared for maybe a normal winter. Is there an excess inventory in some of these product groups that you need to get rid of, or is it normal? Could you say something about the inventory level currently?
No, we don't see that as a problem because these products, it's not like selling fashion or something. It will be sold somewhere and along the road. We don't see any risk in the inventory regarding that.
Okay, great. Finally, just we're looking at the tax charge. It was a bit on the high side. Could you say something about that also?
Yes. We have higher paid tax than the tax in P&L. It's related to a tax being paid in Denmark during the quarter of SEK 80 million, which was in the balance sheets. It's quite normal. We pay tax. They had a different year-end due to the acquisition from Mekonomen, making us pay tax in another period than we usually should have done. It's nothing strange. It's temporary this year.
Okay. While the tax charge for the full year is a good guidance for the future?
Yes.
Okay. Thank you.
Thanks.
We have no further questions coming through, so as a final reminder, if you would like to ask a question on the call today, please press star one on your telephone keypad. There are no further questions coming through, so I shall hand you back over to your host for any concluding remarks.
Okay. Thank you, everybody, for listening, and have a good day. Thank you.
Thank you.
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