Good morning, and welcome to Mekonomen's Quarter Two Presentation 2019. 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 this presentation, you'll have opportunity to ask questions. If at any time you need assistance, please press star zero and you will be connected to an operator. I will now hand you over to CEO, Pehr Oscarson, your host for this call. Thank you.
Thank you. Good morning, and welcome. Today with me, I also have Åsa Källenius, the CFO. I will start the presentation with going directly into the first slide. The second quarter of 2019, we could report a stable organic sales. Of course, in total, we have an increase of 90% when we also include the acquisitions of FTZ and Inter-Team. Going forward, we will continue to focus with profitable growth and cash flow. We have an ongoing cost-saving program, which we have announced earlier, but that is working according to plan, and it will give us a full effect of annually SEK 65 million at the end of Q4. We are also acting on unprofitable business, streamlining our organization, and of course, high prioritization of the projects.
When I'm talking about unprofitable businesses, I also mentioned in the CEO comments in this report that we are quite happy with the development in Preqas, workshop equipment company, and also in some of the loss-making workshops which we had. We are still struggling with Finland, but we'll work on that as well in the future. When it comes to the integration of the acquisitions, FTZ and Inter-Team, that goes according to plan. Also, which I will come back to later, during the summer, we have made a customer survey asking workshop customers, which is very interesting, but I will be back on that later on in the presentation. I will hand over to Åsa to take us through some financials.
Yes. Good morning, everybody. Mekonomen Group second quarter, as Pehr said, we experienced a sales growth of 90%, of course, driven by the acquisition of Inter-Team, but we also had stable sales in old Mekonomen Group with an organic growth of zero, but we also had one working day less in the quarter. EBIT amounted to SEK 240 compared with SEK 173 the same quarter last year, and adjusted EBIT is up from SEK 117 to SEK 280. As Pehr wrote in his CEO comment, it is better to look at the first six months to get a more fair view of the sales and EBIT due to the Easter effect. Easter was in Q2 this year and in Q1 last year.
If we look at the development for the first six months, you can see that sales is up with 96%, and we had an organic growth even though we had one workday less in the first six months. EBIT up from SEK 233 to SEK 410, and adjusted EBIT up from SEK 316 to SEK 494. Looking at the bridge for the Q2, we had an EBIT of SEK 173 in 2018, and this year we are up to SEK 240. We added the EBIT from our acquired company, Inter-Team, amounting to SEK 102 million in the quarter.
Looking at the old Mekonomen Group, for MECA/Mekonomen, we were down with SEK 41 million, but we had one working day less and lower demand during Easter with -SEK 18 and -SEK 12, together -SEK 30 million, the rest is a consequence of the weak Swedish crown giving us higher purchasing prices and also the product and the customer mix in this quarter. We have a positive effect on central functions with SEK 27, that is, of course, that we last year had items affecting comparability of SEK 19 related to the acquisition of FTZ and Inter-Team, we also have lower cost in the central functions compared to last year. We added the amortization of FTZ and Inter-Team acquisition. From SEK 173 to SEK 240 in the quarter. To the sales and result in the business areas. First, our FTZ. FTZ is now included 10 months in the group.
Net sales amounts to SEK 860 million. It's slightly lower than last year due to Easter and also to general slow Danish market as in the rest of Europe. We retained our market shares in Denmark. We had a very stable EBIT margin of 10%. EBIT amounted to SEK 87 million. To Inter-Team in the second quarter, net sales amounted to SEK 582 million, which was a very strong sales growth, driven both by high demand within Poland and also high export to neighboring countries. In Poland, we gained market share. We improved EBIT. We experienced high competition and price pressure on gross margin, also, of course, impacting EBIT margin. EBIT margin was 3% in the quarter. Inter-Team is also included 10 months in the group. To MECA/Mekonomen in the second quarter, sales amounted to SEK 1,447 million.
We had a favorable organic sales trend in line with the market growth of 1%-2% annually. Adjusted to Easter, total sales is up to 2%, whereof 1% is organic. EBIT amounted to SEK 175 compared to SEK 186 last year, and adjusted EBIT was SEK 192 last year and SEK 145 this year. EBIT is negatively affected by less workdays, the Easter effect, and customer product mix, and also increased prices due to the weak Swedish crown.
We are, as Pehr said, acting on our unprofitable business as Preqas and our own workshops, but we still see challenging situation in Mekonomen Finland, which we are focusing on right now. To have a more fair view of the net sales and EBIT, you should look at the first six months to even out the Easter effects, and then you can see we had an increase in sales of 5%. 2% is organic.
EBIT amounted to SEK 248 to compare to last year to SEK 58. Adjusted EBIT to SEK 52 compared to SEK 277. The EBIT, as I said before, is affected by customer product mix and the weak Swedish crown against the Euro. This shows also that the cost reduction program is necessary, and we see that it's running like planned, and we will see cost savings in this area later on this year. The merging of our central warehouse in Strängnäs, Sweden, is continuing as planned, and we see that we will have cost savings of SEK 50 million with full effect on EBIT from 2020. During this year, we have seen positive effects from the new automation regarding the warehouse efficiency and delivery quality, which will gain sales. During this quarter, Q3, we will start to implement MECA in the warehouse in Strängnäs.
We will start with some test pilots, a number of MECA branches to ensure full delivery capacity without any disturbances in the MECA ongoing operations. To Sørensen og Balchen, our smallest business area. Sales amounted to SEK 207 compared to SEK 109, with two working days less in Norway. Net sales decreased with 1% in the quarter. Sørensen og Balchen has the largest part of business, the consumer sales within the group, and is more exposed to the retail market than the rest of the group, which is most up to 90% business to business sales. We are making actions in Sørensen og Balchen to increase the shares to business to business, and it is proceeding well.
As you can see, we could keep our EBIT and strong EBIT margin even though we experienced a small decrease in sales, and EBIT amounted to SEK 38 million compared to SEK 39 last year. The same numbers in adjusted EBIT. Well, I think I leave it there and leave it over to you, Pehr.
Thank you. Yes, for you who are following the presentation, we are now at slide 12. I'll talk a little bit about the market and trends. We have put up some numbers of the different main markets where we are working in, also how we are performing in those markets according to market shares and how also we are exposed to business to consumer versus business to business. The general trends in all markets is that the customer expectations is changing. We're meeting more digitalization. Online booking starts to be more and more asked for, we also see that the car fleet itself will change in the future. We have next generation of cars, electrical hybrids, and of course, higher share of software in cars also, which make the service and maintenance maybe a little bit more complex in the future.
Looking at a little bit longer perspective, we also see the impact of more connected cars, new actors selling cars, car sharing and so on. Also there will be some future consolidation and integration as well. As you see, we have high market shares in Denmark, Norway, and Sweden, and quite small one in Poland where we are at 4%. Poland is also very fragmented market compared to the others, with a lot of competitors in the same size. Moving on to our footprint. We have in general, quite stable number of branches and affiliated workshops. Especially in Sweden, the focus is very much into recruiting workshops for the main concepts, Mekanikern and Bilverkstan, where we also want to have workshops, which it's more important with capacity in terms of number of mechanics than actually number of workshops. We have a stable development.
It's every year, workshops leaving and we're also recruiting. We have a small increase in Norway, Denmark, and a bit higher increase in Poland. When it comes to the number of branches, it's also very much stable and this is also what we expect in the future, that it might be where we try to merge two branches or we might close down if it's unprofitable and so on. In general, the footprint will be stable in the future as well. Talking a little bit about group synergies. Since we almost doubled the size of the company, we have been working a lot with the purchasing synergies and that proceed according to plan. Now we also have started some collaboration between the group business areas. The first best practice area, which is ALTIS, within training and technical support.
It is very interesting to see that all four business areas are actually market leader when it comes to these areas. We are very good, but we can still be even better and/or that we will also as a next best practice area, start the common development of future product portfolio within the Group. I am on slide 15. We are launching a new branch concept in Sweden, called BilXtra, and this is to attract new customer groups and broaden the target group in Sweden.
The purpose is to gain market shares from the competitors. We are doing it in a very efficient establishment strategy, where we both can acquire small branches or do franchise corporations, but these branches has already a wide customer base, and that is what is important with it. The brand exists already in the Group in Norway, where it is operated by Sørensen og Balchen .
In Sweden, BilXtra are operated by MECA Sweden. Talking about attracting mechanics, we have usually most talk about Sweden, but now to widen the perspective a little bit, we also have some very good collaboration with technical upper secondary schools in Poland. We have in all the group and maybe after that in Denmark is the best one on this when it comes to always-on advertisement to ongoing advertisement to attract mechanics in traditional and social media and through organizations and authorities. Here I would say that our strong brand in all the markets it's a good argument and that also attracts mechanics, of course. The upper secondary school in Sweden, which we have run for a couple of years, started the third year. We still have ample classes in first grade in Stockholm and Lund, and we have students on all 3 grade levels.
We also started a mechanic training program for adults together with the Swedish Public Employment Service. The purpose in that is that within 30 weeks, unemployed adults are retrained to become automotive mechanics. As I said from the beginning, we made a very large customer survey during the summer. We have over 1,500 workshops who have been answering on this. We have generally high ratings within all the group companies. Of course, the result from this will be used to further develop and improve the customer experience in the group. The most important areas for the customers is development of services and concept. It's central marketing and providing new clients to the workshops. Also, which is very interesting, the contact with local store. This is also three areas where we are very high rated and get very good responses.
I think especially the contact with the local store is extremely important now and even in the future. We also ask about the most important reason for joining a concept or for an affiliation. The three top reasons is the brand and then deliveries and range of spare parts. This leads to some focus areas. We will continue the digitalization and the booking process. We will continue to attract car owners to our affiliated workshop and of course, development of the concepts. We also will continue development of private label and assortments in general. What maybe was the most interesting from this customer service is when we ask an affiliated workshop what they think about the future within the next five years. More than 50% who believes in an increase of their business. That's very encouraging.
We have always talk about that the affiliate workshop is a strategic, most important customer groups, and this is again, one good argument for that. It's of course, very nice to see that there is a positive view of the future among our customers. Finally, focus for the rest of the year is profitability. Synergies, best practice, we have the cost-saving program, and as I said, act on the unprofitable business. We will continue to develop concepts to create even better customer value. The growth, of course, is to leverage on the indicated strategic investments which we have and of course, focus on organic growth. That will be the focus for the rest of the year. That is the last slide. I will open up for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one. I will then introduce you when it's your turn to ask a question. The first question comes from Stellan Hellström from Nordea. Please go ahead. Your line is now open.
Thank you. First, I'd like to ask about the initiative to address unprofitable units here, and you say that situation has stabilized in some of the business. I guess it was loss-making, so stabilizing sounds like it's not really profitable yet, and also the situation has worsened in Finland. Just a little curious on if there's any deadline here when you expect to achieve profitability in these units and that we should look forward to.
I wouldn't say one deadline because it's several deadlines. We have made the kind of turnover plans for this, and it's very different. You have a workshop equipment company and a very small garage in another view. I would say that, and of course, there's always a risk that there will pop up new units in this list. We have a very strong commitment to act on it as fast as possible. We don't want to make any stupid decisions either, if we see some possible future. You said stabilized. I would say that, when we say stabilized in Preqas and some of the workshop which was unprofitable, then we are in turnaround phase. It has improved a lot compared to last year, but maybe still not on the positive side, but with a very good trend.
The only exceptions, I would say, is Mekonomen Finland, which I also mentioned, where we still haven't seen that, but we are acting on that very urgent at the moment.
Okay, good. It is fully possible that everything is continuing according to your plans here, and it could still be a loss in each of these units next year, for example?
I hope not so, but that's too early to promise.
All right. Maybe just a little bit further update on the cost savings initiatives. I think you said before that you expect the run rate of the cost savings program to be SEK 30 million for Q3. Is that still valid?
Yes. That's the plan, and that's still valid.
Are there any contributions from these initiatives at all in this quarter? Are there anything else that we could expect from maybe synergies or, yeah, in the third quarter?
In the second quarter, we had a very small impact on the cost savings. As we said Q3, Q4 will be the output from the program.
The synergy project, is there a time when you would start to see something there as well, or is it just you're only committing to the very long term probably, but I guess at some point you should start to see something a little bit early on?
Yeah, that's possible, but we have communicated the long-term goal, and that's what we stick to.
All right. Yeah, maybe you can also comment on Mekonomen MECA a little bit further on the weak margin development. Obviously, we can see the calendar effect. Maybe you can elaborate a bit on what the unfavorable customer mix is about and also a little bit how FX is impacting you in this quarter. There has been currency movements, yes, Haven't you been able to compensate with pricing, or is this a balance sheet effect?
If we start with the latter one, when it comes to the currency effect, we are struggling with that. We have higher purchasing prices in MECA and Mekonomen, which we couldn't move on to the next trade level. We are all the time monitoring the prices, and we do changes, and we do increases in some of the product groups. We also need to have a clear balance to still be competitive. There is a margin pressure thanks to that. If it would be room for increasements, then we will, of course, do it further on as well. The customer, the product mix, it's quite complicated, the Easter effect itself, it also is about seasonal variations. For example, we have increased our fleet sales, which is sustainably very good. That business is very low margin.
It's quite a complex material, but where we have the stable margins, I would say it's also back to the affiliated workshops. That's an area which is not on the grow, but also stable within total margins.
All right. Thank you.
The next question comes from Nicklas Fhärm from SEB Equities. Please go ahead, your line is now open.
Thanks, operator. Good morning to everyone. A few questions on the quarter. I would like to start by asking you have previously communicated that you would have to charge your P&L with some costs relating to FTZ and Inter-Team integration costs relating to potential synergy effects later on at about SEK 60 million or so. You took SEK 5 million in such costs in Q1. There were nothing in this quarter, and I was just wondering why. Should we just move our remaining cost assumptions this to Q3 and Q4 instead, please?
Well, all together we had SEK 30 million in cost for receiving synergies, and we said SEK 60 million. We had none in this quarter, but it could still be some costs for reaching synergies later on, but probably not up to SEK 60 million. We will probably have some more in the coming quarters since we are continuously working with different projects within the group now to receive synergies in other areas.
Okay. Second question, could you confirm that the net debt based on IFRS 16 is SEK 5.956 billion, please?
That's in the report. I have to look up the exact figure, but it sounds like true. SEK 5,149, yes. Net debt is SEK 4,042, excluding the IFRS 16 effect.
Yeah.
In the second. Yeah?
Yeah. No, absolutely. You said SEK 5.149 million, did you?
Yes.
Yes. All right. Thank you. My third question on the second quarter results. I would be very interested to learn about how the negative 40 basis points in organic growth is actually breaking down into volume and prices, please.
Can you repeat the question? I'm not sure if I understood you right.
Yeah. Sorry. How does the organic growth rate in the quarter break down into volume versus price, please?
Again, that's a little bit complicated because we have a trend with that spare part in general. Let me take an old example. A spark plug 10 years ago cost SEK 15, now it costs SEK 80, you don't change it that often again. Is that a price effect that spark plugs is more expensive, or is it because of a product change? That's one. You also have, of course, some price effect, and I would say that the volumes is quite stable. When we talk about the market in general, the increase of 1%-2%, that is included with the price effects and all these effects. When compared to markets, it really doesn't matter.
Thanks for that. It's helpful. Is it fair then to say that, generally speaking, the flat development in markets and in your organic growth rate is basically reflecting flat volumes? Any growth is up to price and changes in mix. Is that a fair assumption?
Yeah, I would say that is a fair assumption.
Yeah. Okay.
Again, that's the general market. If you compare to other companies in Europe or authorized, whatever, it's exactly the same trends, I would say.
Yep. Let's look into the future a bit. Current trading, I was just wondering, last year in Q3, you had a pretty decent organic growth rate. You have a bit of a difficult comparison year-over-year, perhaps. I was just wondering, could you just give us some idea of what will actually drive any organic growth in this quarter, and what are the main risks? Maybe it's economics and et cetera. Could you please elaborate?
We were not doing a forecast like that, and we're not disclosing, but we had a difficult summer last year. I wouldn't say that it was so much better this year, but that's one thing to look at. Again, for us, it's mostly to continue to be good in the market and be active on sales and so on. I don't see any general trends changing from Q2 to Q3, which would affect our business.
Yeah. Still, as we said, we are expecting the market to grow 1% to 2% organically. We are expecting ourselves to follow the market, at least.
Could you give us an update on your full year CapEx guidance and possibly also tax guidance, please?
I don't think we've made any guidance for CapEx or tax.
Perhaps you haven't, but if you can share any thoughts on the tax rate for the full year would be most helpful.
I think we'll come back to that later on.
Okay. CapEx, please?
I think we said before we will have CapEx approximately SEK 150 million.
That is still now halfway through the year, or actually more, eight months into the year. That's still a decent estimate.
Probably a little bit less, but I can't disclose anything at this moment.
No. All right. Very helpful. Thank you so much for taking all these questions.
Before we let the next person through, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead. Your line is now open.
Yeah. Hi, thank you for taking my question. First, while looking at the report, the Polish improvement there, do you expect that to be sustainable? Is it more like a strong second quarter with help from the export business, et cetera, that made it look better? Could you say something there?
I think we will need to go back to what we said when we did the acquisitions. We have, of course, long-term goal to increase the EBIT margin in Poland as well. This was a good step on that journey. How fast it will take and when it will be next step, that's too early to say.
Okay, good. Secondly, you mentioned the integration of the warehouses in Strängnäs and Eskilstuna, and you have SEK 50 million synergies there. When will this be complete? Is it early 2020, or is it gradually during the year?
I would leave that open because it's not that I want to hide anything, but it can come early in the year or very late in the year. Why we keep that open is because we need to be extremely sure that we will not have any disturbances in the deliveries to MECA. We started with pilots now. If that is very successful and when the ramp-up is doing good, yeah, then it could be early. If we need to make adjustments, could be in IT systems or whatever, we need to do those adjustments, and then it will take longer time. I really don't want to put a date on it. I would rather be sure that we have an efficient warehouse working.
Yeah. That sounds good. Then you have the synergies in the acquisitions, the SEK 100 million there. Could you say something about the progress there? You are talking about 2021 that will be fully implemented, but have you seen some of them already, or?
As I said before, we don't comment on that. It's still 2021 full effect. The project is working according to plan, and we haven't met any, let's say, obstacles or something. That's what we disclosed for the moment.
What I meant was the FTZ and the Inter-Team synergies.
Yeah. There is still a very limited effect in the P&L for the first half year. When it will come, again, that will be full effect from 2021.
Okay, great. I also got You mentioned the future private label for the whole group. Do that include all the business areas, including FTZ and Inter-Team, I guess, also, but when could we expect this to be launched?
Yeah. The situation is like this, that we have a private label both in Poland and Denmark. We would like to increase the number of categories. We will probably increase the number of brands or maybe consolidate the number of brands. The biggest, let's say, good thing out of that is when we do this together, we can consolidate the purchasing for private label, mostly from Asia. We can consolidate transport costs and so on. We have ProMeister in Sweden and Norway. We have Carwise in Sweden and Norway. We have a brand, Kraft, which is used in Poland, and some other brands as well. Now we're doing and put all the resources together to make something really good out of this. That's the plan.
You will keep the brands locally, and you won't make a single brand?
I don't think we'll have single brand because it has different purposes in terms of what should be premium or price fighting and so on. We will try to reduce the number of brands, but I wouldn't say that we definitely will change out something. That's more the market perspective view.
Do that include the LKQ brands also, or is it more like Mekonomen brands only?
In the first phase, we're looking mostly in Mekonomen, but we also have some working groups together with LKQ, where we, of course, try to benefit if they have something which we can use as well. We're working closely together with them also.
Okay. Thanks a lot.
Ladies and gentlemen, there is no question in the queue at the moment, so if you would like to ask a question, please press star one on your telephone keypad now. Ladies and gentlemen, if you would like to ask a question, please press star one now. We do have another question from Nicklas Fhärm from SEB Equities. Please go ahead. Your line is now open.
Thanks again. Just one final question. We've discussed it over the past few quarters, and it relates to your strategy in Inter-Team in the Polish market. As you remember, we discussed the strategic choice between growth and margins. I was just curious to understand if you've come to any new conclusions or you can give any update on that, please.
No, we are working on that strategy at the moment as we speak. You can also see that when you look at the number of branches in Poland, we haven't increased the number of branches this first six months. What we did was to make a pause in that expansion. Now we are evaluating and trying to form a new strategy for the future. If it will be more branches, less branches, that we'll come back to later.
All right. Thanks again.
We do one more reminder, ladies and gentlemen. If you would like to ask a question, please press star one on your telephone keypad. We do have another question from Mats Liss from Kepler Cheuvreux. Please go ahead. Line is now open.
Hi, just to follow up, I guess. You mentioned the third quarter last year was quite, you had tough trading conditions or whatever you indicated. Should we see that as things have sort of started out better this year?
I'm sorry, I can't comment on that.
Okay. That was my question. Thanks.
Okay.
We do our last reminder, ladies and gentlemen. If you would like to ask a question, please press star one on your telephone keypad. There is no questions coming through, I will hand the call back to you again. Thank you.
All right. Thank you everybody for listening in, and thank you for good questions. That will be all from us. Goodbye.
Thank you for joining today's conference. You may now replace your handsets to end this call. Thank you.