Earnings Call: Q2 2021

Aug 20, 2021

Good morning, and welcome to Mekonomen Group Quarter 2 Report 2021. My name is Anna, and I will be your coordinator for today's conference. During this call, you will be on listening only. However, in the end of the presentation, you'll have opportunity to ask I will now hand you over to CEO, Pern Oskarsond, your host for this call. Thank you. Thank you, and good morning, and welcome to this presentation of the Q2 2021. With me today, I have our CFO, Asa Shilenius, and we will guide you through our results. I'm very pleased to say that it has been a good second quarter with increased growth and improved profitability. Again, we set a new record with the best ever sales and EBIT for a single quarter in the group's history. Our solid financial position gives us both security in a continued uncertainty in our markets due to the pandemic, but foremost the possibility Further invest in growth. During the quarter, we have continued to develop our collaboration model with electric car manufacturers, And we'll be back on the most recent collaboration with Fisker later on in this presentation. We have also had focus on widening and optimizing our assortment. This in order to increase this so important availability further. We'll talk more about that in a few minutes. Call. All in all, we have a strong market position, stronger now than the last quarter. We clearly see that our concept And offerings are appreciated by partners and customers. The pandemic has also proved what we already knew. We have a solid business model and a position that is not long term affected by uncertain times or economic cycles. Rosa, please take it from here and give us some more details of the results. Yes. Thank you, Per, and hello, everyone. Call. We continue to develop strongly with an organic growth of 12% in the Q2. Adjusting for currency effects call. A number of workdays in the quarter, the growth was 11%. As Per touched upon, call. The underlying demand for our products and services are stable over time and we have a good platform to create further growth call. We had no significant effects from pandemic in the quarter, Even though there are still some uncertainties in the development of the pandemic, we take advantage of our strong market and financial positions. We are on the right track towards reaching our long term financial goals. Call. Our cash flow continues to be strong. The difference from last year is mainly that we, in Q2 2020, call. Got approximately EUR 300,000,000 in support in pushed taxes and VAT from governments in Sweden and Norway. Looking at Page 4. As Per stated earlier, we report the highest EBIT for a quarter in the group's history so far. All business areas are on high levels. In MEKAM Mekonomen, we report an increased EBIT of NOK 52,000,000 from operations. Last year, we had the post payment. We had governmental support Of the SEK 24,000,000 and we have changed accruals for holiday paid debt in Norway this year, affecting this quarter negatively by SEK 19,000,000 Looking at Page 5, call. We see that gross margins has increased further from an already high level, which we think is very positive, of course. Call. Moving over to Page 7 and the results per business area. Call. We had another strong quarter in FCSET, where we continue to strengthen our market position. The EBIT margin is stable at 10%, same as previous year. The organic growth call. In local currency, it's 12% in the quarter compared to minus 3% last year, which is a strong proof call. Page 8 and over to Inter team, where we had continued good development in line with our profitability strategy for the business area. The EBIT margin increased to 6% compared 4% last year. As in other markets, we experienced a high underlying demand in Poland. We have succeeded to strengthen the market position with an organic growth of 21% in the quarter compared to minus 3 last year. This proves that our long term Sapolish strategy is successful. We firmly believe call. We are on the right track with stable profitability in the rapidly growing Polish market. Moving further to Page 9 and Meka Mekonomen. Meka Mekonomen continue to develop In the right direction, the few branches that were still closed in Norway are now open since mid April. All in all, the restrictions have had very limited effect on the business area during the Q2. In MYKAM Mekonomen, we had an EBIT margin of 9% in the quarter compared to 7% last year. The organic growth rose to 10% compared to minus 6% last year. To summarize, Mirkameko Novemend showed solid development where we see the effects from higher demand and increased sales volume In quarter compared to very high level last year. All stores are open since mid April, and the few branches call. That were closed during part of Q2 had no significant impact on the results. Organic growth in the quarter amounted to 4% compared to 19% last year. All in all, we are pleased to see that Sorenson and Barlshev continue to maintain its long term today's strong position, thanks to the fact that they are a sharp niche player. I now will hand over call. To you, Per. Thank you, Asa. Yes, I'm very proud that we have delivered historic results this quarter, and I feel confident that we will benefit on our strong market financial position going forward. On Page 12, we take a look at our strong footprint in the market. We will continue to optimize the network of branches to secure profitability and attract workshops with the right quality ambitions, customer focus and size. We move to Page 13, where we see an overview of the competition. The consolidation with few large players and less small independent workshops continues. The established large concept continues to grow and that includes of course Merk Honorman Group's concepts. And as I touched upon earlier, we have managed to strengthen our position and even more compared to last quarter. Looking at Page 14 and the drivers of our industry numbers of driven kilometers and number of cars. This shows our analysis and prognosis of the development towards 2,030. It does not include effects from the pandemic, But there is no doubt about the long term trend. The underlying factors are strong, and the market will grow over time. Page 15 shows total amount of cars on the roads in Sweden, Norway and Denmark. And we see an increase of number of cars in all our markets over the past 3 years. The numbers the number of new car registration was slightly lower during 2020 as short term effect of the pandemic. Moving on to Page 16. We have a high ambition to develop new solutions, services and offers to our customers. The purpose is clear, to always be relevant and meet the future customer needs. This enabled us to grow and broaden our business. As we see on Page 17, we have a new collaboration with electric car producer Fisker. And during the Q2, we signed a letter of intent to be their service partner in Denmark, Norway and Sweden. The Fisker car will be sold online and it will start in the autumn 2022 And where the Mekonomen Group's concept in each market will deliver fiscal services. This agreement is important in more than one way. It shows that we have found a well functioning model for collaborations with electric car players that can be scaled up. Call. Our network of branches and workshops, our strong brand awareness and our high competence makes us a very attractive partner. We move on to Page 18. We are well in line with the meeting of our target of 1500 E plus workshops No later than 2022. Eplus is our standard for electric car service that guarantees that the workshops have the right skills and equipment to take care of electric cars. We have initiated intensive training activities in all markets to implement Eplus in the workshop concepts. In Sweden, for example, we start a mobility training roadshow this autumn, where training or workshop will take place all over the country until next summer. Same kind of activities are also done in Denmark, Poland and Norway. Page 19, We are now taking new steps to be even more accessible and grow further through broader and more optimal assortments. In Sweden, we have widened the assortment in our branches in order to offer better availability for the workshops locally. At the same time, we have balanced the assortment in the central warehouse, so not to increase the total stock value. In Poland, as we have communicated earlier, we have 2 new regional warehouses in order to be more available to the regions and to optimize logistics. Moving over to Page 20. We like to highlight our updated strategy that we shared during our Capital Markets Day in February. In short, our vision is to be an enabler for mobility Today, tomorrow and in the future. Our strategy is based on this vision and will take us to SEK 15,000,000,000 SEC in revenue no later than 2025. Our enabling mobility strategy consists of 4 focus areas. We will continue to develop operational excellence throughout the group in order to create efficiency, synergies and collaboration in our core business. 2nd, we will accelerate our concept development for workshops to increase loyalty and revenues. 3rd, We will create new customer solutions to make the customer journey easier. We will forcefully use all opportunities that accounts with digitalizations, data and customer insights. And 4th, we will create new revenue streams Through a broad range of actions, for example, by entering new segments and developing new business models. Everything we do within these four focus areas will be done with a sustainable mindset. And as we have seen in our result, we stand strong and efficient, and we are well on our way to deliver on our strategy to meet our long term financial goals. Call. So this concludes our report for the Q2, and we now look forward to your questions. Call. We will now introduce you with your name when it's your turn to ask your question. And the first question conference from Andreas Lundberg from SEB. Please go ahead. Your line is now open. Thank you so much. Can you hear me? Call. Yes. This is Andreas with SEB. If I start with a market related question, if you look at the market structure today versus, Let's say, pre pandemic. Any differences? Or can you say? I would say, 1st of all to conclude that we there's a lot of talks about Corona winners and corona losers. And I think that our company and our business model is nothing of those mentioned. What we saw in the beginning of the pandemic was quite dramatic. But after that, we really can't say that there's And a big that the demand has been had been it's In somewhat a bit fewer kilometers driven, but we don't see any big effect from that. So I would say that if you compare to how it was before the pandemic, it's pretty much just the same situation at the moment. Okay. So also similar competitors, similar competitive behavior? Call. I think maybe, but that's not driven by the pandemic. It's more the, Let's say the development in this industry, there is of course, I think that the bigger players are Getting better and bigger and maybe the smaller get a little bit weaker. But I would say that That's not connected to the pandemic itself. And I mean, we on Most of our markets, we do increase our market shares. And that's probably on the smaller ones who will lose Some shares. And if you look at your own company and then maybe from the time that you started as CEO, What do you think has changed in your positioning and your competitiveness in the market? I think we have during the last years we have I mean we did the big acquisitions 2018, which of course strengthened the group in many ways in terms of buying power towards the suppliers and so on. So that was one thing. But then we have just been Continue to be very focused on concept development and be innovating and create new solutions for our customers and that Gives us a good development. And I mean this market leader position also Makes us to let's say, we really do have all the resources to do what we like to do also. You also mentioned some potential new revenue streams. I think maybe you touched upon it on your CMD. But call. On these new segments or new business models that you look for, can you give a concrete example of what that could be? Not concrete example yet, but I mean we have with this How we think about the development in the car sales as we see with these new electric car Manufacturers, there is new definitely new parts of the industry that we can take care of that can't be Deliver the cars to the car buyer could be one thing, it could be Assurances. It could be a lot of new things connected to the car ownership. So that may be the most clear example. Call. Thank you. And I have a couple of questions on the numbers here. Sorenson and Abaljan had, at least in my view, strong growth given Very strong last year. What's going on in that business and why it's still so strong? It's a good question. But I think that it was very Positive during last year, but I think that we should look at SARS and Belgium a little bit longer perspective and maybe a 2 years perspective. And Then you will see a very clear trend that they are increasing sales and they are improving the profitability. And then Quarter by quarter, it could be some ups and even more ups or slower ups. But they have long term very good development. And what's going on? Yes, they have, Let's say their store concept, the retail concept is working very well. They have had Launched Click and Collect and other things and they are also very innovative in many ways. Also find a niche in the market where Probably there is where they can be very, very successful. It's still a call. Small business area, but growing very fast. Okay, cool. And on Miakemekonormen, you took an you did this change in the accrual holder pays right, pay liabilities In Norway, it was EUR 19,000,000. You don't report that as a one off and is it an isolated call. No. We do not report it as an item affecting comparability because in the full year 2020, there will be no difference between the years. So it's only a shift from quarter to quarter. So It will have no effect on the full year. So it will be some positive effects in the coming quarters, you can say. Call. Got you. And lastly, CapEx for the full year, what do you expect? Call. We expect it to be around EUR 150,000,000 to EUR 180,000,000. Close your phone while the hosts are answering your questions, so we don't get background sounds into the call. The next question comes from Vasylis from Kepler Cheuvreux. Congrats on a very solid reporter. First, looking at organic sales there, 12%, very impressive. Could you say something there about price and volume in the mix? When we compare to last year, there is a price effect Adjustments, which was done mainly around New Year, I would say, beginning of the year. But most of it I don't have any excess mix, but most of it comes from volumes. And So maybe 2 thirds at least from volumes on the restaurant price. Yes. Great. And going forward there, I mean, we have had some substantial increases in raw material prices still and so Are you sort of gradually increasing prices now? Or have you sort of up could you say something about that? Yeah. We work on in both ends, so to say. So when it's needed then we will of course increase the prices, but we're also trying to push back and use the buying power which we have And also use the buying power together with LKQ to push back price increases. So we simply ask the suppliers to raise the prices to others than to us. So it's on both end. And we managed to keep the gross margin So far, and it looks good in the future as well. Okay. Sounds good for you. And I mean, there is a quite substantial shortage of everything in other industries. Do you have sort of expense Those kind of issues as well that you have a limited availability of some spare parts that you need to Yes. We there is some small disturbance on single product numbers, but with an assortments of more than 100,000 SKUs, it's still very, very small. And we are a little bit we have some kind of protection because since we have stock In so many levels, we have products in the branches, we have regional warehouses, we have central warehouses. So this the immediate effect, we don't suffer. If you for example compared To the car manufacturers who buys the product and they got to deliver in the same day it should be on the car. So we have maybe stock that lasts for 2 or 3 months. So and then we also have time to Fine alternative suppliers and so on. So yes, some small disturbances, but we manage it well, Werner. Great. Looking in the well, among the business areas, yes, I guess, most of them all of them performed well. But in the team, well, from a low level, did well, manage to outperform somewhat more. Is this a new level? Or is there sort of how should we see it going forward? Yes. I think We had already when we reported last year we had higher levels than expected when it comes So EBIT margin and a little bit higher than we forecasted when we did the acquisition. But I think that What we see now is a new level at least I wouldn't say that it's stable exactly, but we have reached a new level when it comes to profitability. So I would answer yes on that question. Good. And well, I appreciate the new sort of contract there with Fisker. And I guess you have A couple of ones out there waiting for you more and more perhaps to electrify To serve it, but I was also wondering that, I mean, some of your well, the main brands in the Scandinavian Maybe a market like Volvo, they're trying to sell more cars by Volvo directly to the customers that are using dealers. Do you feel that, that helps you sort of compete on a more sort of even level compared to Valvida, for instance, in the Nordic Yes. Short term, I don't see that trend. But of course, if the Kind of a philosophical question. But if the connection between the car buyer It's more to the car producer than a dealer than the connection or the relation with the dealer Doesn't exist, and that's also where you used to go when you used the authorized workshop. So maybe there will be more loose relation, which could help us to attract the owners of very new cars as well. But short term, I wouldn't count on that. No. And just finally, I mean, we have come quite a bit in the Q3 here, but Do you have any sort of do we have any reason to believe that the demand or demand trends have changed Compared to the Q2 in any way. I'm looking out the window on Airfield and looking at the traffic, And it seems to be quite okay traffic now as well. So not to give any guidance. I mean, call. We know and we talked about what are the main drivers, and there is no sign that there is any dramatic change in that Going forward. Okay, great. Thanks a lot. Thank question. Next question will come from Micha Kakinen from Handelsbanken. Please go ahead. Your line is now open. Yes. Hi, this is Mikael from Handelsbanken. One question concerning that gross margin bridge we see So for H1, but when trying to calculate the impact for Q2, it seems that the sort of this nicotine contribution from this customer product mix. So it clearly increased. So what's behind the sort of that negative trend there? Could you open up that a bit? Call. Well, we do not see this as a negative trend. We see this as Could shift from quarter to quarter this 6 months. The start of this year, it has been negative, but it varies between quarters years. So it's I wouldn't say it's a trend. No. And it's you should see it more like a fluctuation over the quarters. And it could be depending sometimes we see in, for example, in the winter months, if it's colder weather that To affect sales, but it could also affect the product mix and so on. So it's more fluctuations in trends. Meeting. Okay. So to sort of gradually, that component should start to sort of normalize all the nicotine might level out? Yes. Yes. Yes. Okay, good. Thank question. There's nobody in the queue at the moment, so I will connect you straight away. Thank you. Call. There are no further questions coming in. So I will hand the call back to you again. Thank you. Thank you. Just to repeat a little bit from the beginning that we are very pleased to Deliver this 2nd quarter report, and we have a very strong financial position going forward. So thank you all for listening and for the good questions. Goodbye. Call. Thank you for joining today's conference. You may now replace your handset to end this call. Thank you.