Welcome to the MEKO Q2 Report 2025 presentation. During the questions- and- answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. We kindly ask you to mute yourself after having asked your question. I now hand the conference over to the speakers, President and CEO Pehr Oscarson, and CFO Christer Johansson. Please go ahead.
Thank you. Good morning and welcome to MEKO 's presentation of our results for the second quarter 2025. I'm here with our CFO, Christer Johansson, and together we will walk you through our performance and current position. Already in the first quarter, the market slowed somewhat, affected by international turbulence and uncertainty about the economy. This situation continued into the second quarter with lower demand. This also intensified competition, particularly in Denmark and Poland. All in all, this impacted our Q2 sales and our organic growth decline compared to the same quarter last year, which actually was the strongest in our history. For some time now, we have stepped up our efforts to build a stronger and more profitable MEKO . This has included extensive savings and optimization initiatives, which have shown clear effect.
The slower market has affected both our sales and results in Q2, despite our focus on efficiency. We are responding to this immediately. We're now launching a new cost reduction program that will lower our costs by SEK 100 million annually, with full effect going into 2026. Beyond reducing costs, we're also working with more focus to increase our sales. Several activities are underway, both locally and at the group level. We are renewing our focus on exclusive brands and have continued to bring our upgraded central warehouses into operation in Q2. In addition, we launched our new ERP in Poland as the first market. Let me show you a brief status on the efficiency improvements, and let's turn to the next slide. We launched the initiative Building a stronger MEKO in late 2023. The aim is clear: to improve profitability and long-term growth.
In short, Building a Stronger MEKO focuses on these three areas. First, cost reductions and increased efficiency through consolidating our branch network, cutting costs, and leveraging on our new warehouses. Second, supplier optimization, making sure we work more effectively with our suppliers. Third, our new business system for enabling greater synergies across the group. As of today, we are approaching the final stages of consolidating our branch network and driving down costs. We have also seen significant benefits from these efforts. We have almost completed the implementation of our new upgraded warehouses. However, the benefits are still ahead of us. Right now, we're still burdened by costs from the old manual solutions and paying double rents. This will no longer be the case in 2026. We are also about halfway through the implementation and realization of benefits from our supplier optimizations.
As for the ERP , we have already taken significant implementation costs, while the benefits are still to come. All in all, we have already achieved improvements of SEK 200 million thanks to these initiatives, and there are substantial gains still to be realized. To address the weaker market, we're launching a new cost reduction, adding another SEK 100 million in savings. Let's take a look at where we stand with our warehouse projects, and go to the next slide. All our high-tech warehouses in Denmark, Finland, and Norway were completed on time, and in Q2, we were able to go live in Norway as well. We still expect all warehouses to be fully operational during the autumn. These projects have demanded a lot of focus from us, and we have been careful to minimize the operational risks.
The project has not been without its challenges, but we are now very close to completing an important strategic upgrade of MEKO 's logistics. This will be key in our efforts to drive long-term growth. Let's take a look at another of our growth initiatives on slide five. During the quarter, we announced accelerated efforts within exclusive brands. This has been a priority for us for some time, but we see clear demand for more affordable products alongside our premium range under the ProMeister brand. To meet this need, we are creating a new division led by Henrik Pettersson. He will take full responsibility for our exclusive brands portfolio across the group. This will provide us with a sharper focus, allowing us to expand the product offering and create tailored solutions for every situation our customers face. Let's move to slide six.
Sustainability is a core part of everything we do at MEKO , and in that area, our key priority is reducing our climate footprint. That's why we're pleased to say that in May, our science-based climate targets were approved. Our long-term ambition is net zero emissions by 2050, and we now have clear milestones on the way there. This approval is an endorsement of our strategy, and we're proud to be among the first in our industry to reach this point. You can find a detailed description of our near-term and long-term targets at meko.com. Now, let's turn to our successful bond issue in June. I'll hand over to Christer.
Thanks, Pehr, and good morning to those of you who are on the call. To put the transaction into context, we did refinance our revolving credit facility in Q1 of this year, and we mentioned then that we would also explore refinancing of the SEK 1.25 billion bond maturing over in early 2026. Sticking to our proactive approach in managing the maturity profile, we opened books on June 4th, and we were pleased to see strong demand, especially for a five-year tenure. Pricing closed at three-month STIBOR + 215 basis points, with books being 1.4x oversubscribed. Now the proceeds are used to repurchase the equally sized existing bond, and we saw a 60% participation in the tender offer, with the remaining 40% being called here later in Q3.
The transaction also came with SEK 5 million in financial cost in the quarter, but we are, of course, very pleased both with securing a 35 basis point rate improvement and with the next maturity now being over in July 2027. Turning to financials for the quarter as a whole, on page eight, Q2 did indeed turn out to be a challenging quarter, especially when comparing to Q2 2024, which is the all-time high. To start, we have a revenue development characterized by negative organic growth amounting to - 5%. This is after adjusting for FX variation in working days, both of which also contributed negatively in the quarter. This negative organic growth was driven primarily by lower volumes, and despite the geographical diversification, this trend was largely uniform across business areas.
We identify end customer confidence and behavior as one factor, with repairs and service being delayed and in some cases migrating towards lower cost offerings products. With regards to margins, we see how the lack of underlying market growth contributed to a sharpening of the competitive dynamics. I will come back with more details on the following pages, but as is evident, we were not able to offset this shortfall in gross profit. Consequently, it translated into a steep decline in adjusted EBIT, which came in at SEK 175 million. The shortfall in gross profit also contributed to a lower cash flow from operations, which nevertheless amounted to almost SEK 500 million. In those SEK 500 million, we have absorbed an initial stocking up of the new warehouse in Norway, which amounted to a bit more than SEK 100 million in additional inventory.
Separate from operations, Q2 was, as expected, an intense quarter in terms of investment, and this is reflected also in the items affecting comparability, which include SEK 33 million of cost linked to our ERP program and SEK 22 million of cost linked to temporary double rents in connection with the large warehouse projects. While some of those will fall away fairly soon, the underlying development is certainly not one which we can accept. We are, as Pehr mentioned, taking firm actions. Moving to page nine, I mentioned sharpening competitive dynamics, and this was especially evident in Denmark and Poland, where we directed significant attention to monitor and mitigate movements in the market. On a slightly more technical note, it's also so that product margin is affected by the level of supplier bonuses. These are typically annual, but our accruals and the projections that underpin them are updated quarterly.
With volumes being lower than the earlier trend, this explained about a third of the year-over-year compression in margin. As a final remark, similar to the last three quarters, the fact that we have grown in a low-margin market like Poland will in itself dilute margins, and this alone represents about a percentage point reduction here included in other. On page 10, I mentioned already that many of the underlying factors were actually common across markets in Q2, and this included soft demand and margin pressure. Another common factor in Q2 was far-reaching changes in our internal logistics, which applied to Denmark, Norway, Poland, and Finland. It did involve some challenge, as Pehr mentioned, and I guess it often does, but thanks to the dedication of our respective teams, much of this is now behind us.
Consequently, it is with confidence that we now continue the ramp-up towards full efficiency and the ramp-down towards new staffing levels, and that activity will extend throughout Q3 and Q4. Before we look at the individual markets, I wish to comment briefly on our financial position on page 11. The development in leverage, which increased in Q2 to 2.7x, is the net result of two opposing factors. On the one hand, we have in the quarter reduced net debt by SEK 150 million. On the other hand, we've seen a larger reduction in EBITDA. That said, 2.5 is still well within our 2- 3 target range.
For the sake of clarity, I want to repeat that we define leverage excluding IFRS 16, and I also want to mention that EBITDA is measured on a rolling 12-month basis, where the strong Q3 last year will work against us in the short term. With regards to outlook, there are, however, two more fundamental things to highlight. Firstly, one should note that CapEx investment has been exceptionally high in recent quarters. This is, of course, due to the ongoing projects. It's not a new normal, and it will revert to normalized levels now that we are approaching completion. Secondly, we do, from time to time, get questions around M&A, and as I'm sure you will understand, our focus now is on completing all the things we have going and on reducing debt, and we don't see that changing anytime soon.
Leaving the topic of leverage and turning to liquidity, we note that MEKO 's available cash and unutilized credit facilities exceed SEK 2 billion, and in combination with an improved maturity profile, our financial position remains strong. On page 12, briefly on Denmark. I've already mentioned that this is one of the markets where competition is tangible. Fewer working days and the stronger SEK also added to the organic growth of - 7%. As one part of mitigating this, we have been tuning our pricing with promising initial signs, and this goes down to specific customers, specific products, with adaptation being surgical rather than broad-based. On the warehouse project in Denmark, just to give you a sense, I can mention that at the end of June, we had moved circa 85% of the inventory.
We're approaching 100% fast because we are handing back the keys to the old premises here in August. Moving on to Finland, the macroeconomic backdrop remains unhelpful, probably more so than in our other markets. Cost efficiency has been a focus for some time, but will remain so. In Q2, we have, however, added resources on the sales side, and we have also opened a new regional distribution center in Oulu. Similar to the warehouse automation, this is about positioning ourselves for the long term in Finland. Looking at Poland on page 14, there are quite a few moving parts. As in recent quarters, the year-over-year comparison is affected by the acquisition of Elite in Q3 2024. Now stripping out that, together with FX and variations in working days, this business area is exhibiting better organic growth than our other markets.
The bigger challenge in the short term is, however, the combination of salary inflation and price pressure, and that applies, of course, both to MEKO's pre-existing Polish business and to Elite. Consequently, the year-over-year reduction in EBIT is coming partly from the consolidation of Elite, but also partly from tougher conditions in our pre-existing business, where not least the export business has suffered in 2025. As Pehr mentioned, the quarter also included moving the regional warehouse in Warsaw and going live with the first parts of our new ERP . Quite an impressive effort by the Polish team, well beyond what the Q2 numbers themselves suggest. With regards to integration of Elite, we said in 2024 that this would be an ongoing activity up to the end of 2025. That still seems about right, and we're making good progress.
To give a few examples, we had by the end of Q2 eliminated half of the overlap in branch networks, with the outcome so far lining up well to the business case. Other examples of progress from this quarter include unifying the fleet offer and optimizing parts of logistics. In getting the first half of the integration done, we've actually spent less than expected, but we are obviously not done until this is a fully integrated and profitable part of the business area. Sweden-Norway on page 15 has been performing well in recent years, but did not escape the market slowdown. We saw organic growth coming in at - 6%. What is encouraging is the extent to which our previous cost-cutting efforts are coming through. These are actions that we took in 2024, and they explain why adjusted EBIT margin is still close to 10% despite the weak top line.
Also here, the quarter includes a certain level of product cost and duplication related to the central warehouse in Norway. Within Sørensen og Balchen on page 16, both volumes and margins were holding up relatively well. Adjusted EBIT margin is still north of 18%. On the operational side here, the new warehouse in Norway is designed to support all our business in the country, including that of Sørensen og Balchen . As we come back here after summer, we will pick up pace ahead of that move, which will take place late 2025. I can just mention that the related lease agreements have been canceled, and hence also here, it's only a matter of time until this duplication comes to an end. With that, I would like to hand back to you, Pehr.
Thank you. To summarize, we continue to see a slower market affected by international turbulence and economic uncertainty. This impacted our Q2 organic growth and results. We are acting immediately and have launched a forceful cost reduction program, adding to the Building a stronger MEKO initiative. As we have seen, we are near completion in several of the key areas in these initiatives and are burdened by implementation costs. However, many of the benefits are still to come. This is also true for the strategic upgrade of our logistics. It has demanded a lot of focus from us so far in 2025, but we are now very close to the finish line. This will strengthen us over time and enable future growth, just like the other initiatives we are undertaking to continue building a stronger company, even in a challenging market. That will be all for me.
Thank you for listening, and we are now open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. We kindly ask you to mute yourself after having asked your question. Next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead.
Yeah, hi, thank you. A couple of questions. First, I mean, you have this cost savings program implemented or about to be implemented of SEK 100 million. Could you give some more color there in what geographical areas and where you are sort of implementing these measures?
I can give you details, and that is respect to the different processes in different countries, firstly thinking about the negotiations with the unions and so on. It is spread all over all eight countries, a little bit in different ways, of course, and it is mostly related to personnel costs. A little part of it is other operating costs also, but the main part is sales people. It's in all levels and in all countries.
Should we expect these measures to be implemented by the end of the year, by and large, or is it?
Starting from next year, these costs will be out.
The extra costs you will sort of, what's the payback, I guess?
Good morning, Mats, Christer as well. We've not yet disclosed that, and we're kind of working out some of the details in those plans, so it would be a little bit too early to say. I would say typically, I mean, we're not expecting to see a big net benefit in this year, of course, because even though some of the cost savings will start, there's also a cost associated, as you alluded to. Going into next year, we should see the full benefits.
Thank you. Starting with Finland there, I mean, it's tough market conditions, as it sounds. You have made some measures already integrating your previous operation in Finland with the Koivunen, and it seems to be insufficient. What can you do to adapt to these weaker market conditions if they remain? I mean, it's still a loss there.
Yeah, Finland is also, of course, included in the cost-saving programs. There will be low costs and by that higher efficiency in Finland. They have done a lot of things already. There are still effects to gain with the new warehouse because that is not completed. We are a little bit overstaffed in the warehouse, which will be people that will be released in the autumn. There is a lot on the cost side. As Christer mentioned, we also started up the regional warehouse to increase the availability. We're working on the assortment to make sure that we have the right products for that kind of market and also actually doing some sales initiatives to actually have strengthened the sales organization just the last couple of months. There is a lot of activities ongoing.
Great. Moving to Denmark, it seems that you have met some tougher competition there. Are these sort of, and you also mentioned that you have implemented some price and customer changes or address. Could this new competition, is it something that will remain, or is it temporary that competitors try to reduce inventories on the back of softer demand, or could you say something about that?
I don't think it is very temporary. I think it's, I mean, Denmark has always been a competitive market. It goes in waves, and it's probably due to competitors wanting to try to gain some market shares, different efforts. To be very honest, I would suspect that we have people listening to this call. Exactly what we are doing to mitigate is more of a competition secret.
Okay, great. In Denmark, you also have this new tariff structure implemented, and you mentioned that 85% of the inventory have been moved and so on. Will there be, due to this, I mean, you do this in other markets as well, but can you release some working capital supporting cash flow going forward also besides the $200 million of cost savings? I mean.
Yeah, now let me give you a little bit of color to that. I think in the quarter, as I mentioned, we did see an impact on working capital, and this is specifically in Norway where we did not have a central warehouse. We've been stocking up. On the other hand, as we approach the end of 2025, we will merge the operations of Sørensen og Balchen into this new warehouse. I think by that time, we will sort of be able to get some of that back in terms of efficiency. Overall, we are not expecting a big benefit or a big negative effect in working capital from these initiatives. On the other hand, when it comes to staffing, of course, there's a totally different level of staffing required in an automated setup. That's the main sort of angle to these business cases.
Great. Okay. Pehr, it seems that these rather subdued market conditions have continued in the third quarter. Is that to be expected? You're moving here into this third quarter and it's sort of no big difference. The year-over-year comparison is still quite tough.
We don't guide in the future, but we do these measures with the cost savings because we can't hope that it will suddenly change. The uncertainty around us is probably more than I can control, and we need to do what we can do simply to improve our.
If I can add there, I think in the factors that we can influence, for example, the progress in our projects, we are confident. As we've said on this call, a lot of the challenges are actually behind us. We're moving forward at a good pace on that front. At the same time, of course, there are external factors which we may not be able to influence.
Okay, great. Thank you very much.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. Please remember to mute yourself after having asked your question. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you very much for listening, and I hope you will continue to have a great summer. Thanks.