Earnings Call: Q3 2018

Nov 8, 2018

Good morning, and welcome to the Interim Report January to September 2018. My name is Anna, and I will be your coordinator for today's conference. During this call, this will be on listening only. However, in the end of the presentation, you will have opportunity to ask questions. I will now hand you over to CEO, Paolo Skasson, your host this morning. Thank you. Thank you, and good morning. I'd like to start with this presentation of the third quarter. With me here is Orsas Sjilinenius, our CFO, who will also take some comments during this presentation. During this quarter, we did a successful acquisition of after settling the team and that has recorded and resulted in record sales. We completed the acquisition early September And after that, we also has completed the right issue, which was also oversubscribed. So that has been successful as well. We have a sales growth of 33% that includes one month of eftheceton in the team. The old Mekonomen Group has also some increased sales. And as we also said in the prospectus for the right issue, we have earnings which is broadly in line with last year in the old group. And we have been affected by the unusual warm summer, which led to that the demand from the consumer was somewhat lower during July and August, leading to that a lot of workshop decided to close down and close down for a longer period than they usually do. And we also have an increased number of company owned workshops where we have all the costs during such amounts as July, but not so much income since we have it was very, very, very slow season. And one comment about the market, I would say that when we look at the quarter month by one month, it was much better in September. So I would say that the market woke up a little bit after the slow months of July and August. However, that doesn't increase any huge sales top as for us because we also have the challenge with the number of mechanics in the workshops and the capacity. So it usually leads when it wakes up, it leads to longer waiting time in workshops. But September was a much more normal month for us than July and August. With that, I will hand over to Wassup. Yes. Hello, everybody. As Per said, we had record sales during Q3, driven of course by the new sales we added from Efteset and Interteam. We had plus 33% in the group. If we exclude Efteset and Interteam, the underlying sales growth in Odin Economic Group was 2% this quarter. Looking at EBIT, I will explain a little bit more in the coming slides about EBIT, but EBIT, excluding STZ, Interchange and items affecting comparability, was €116,000,000 compared with 120,000,000 same quarter last year, and is broadly in line with last year as we said in the prospectus. EBIT margin is lower than we are used to. It's 6%. And we will have lower margins from the acquisition because the team has lower EBIT margin than the old macroeconomic growth and also after set. Next page is the bridge EBIT bridge explaining the EBIT in Q3 this year. And if we start with EBIT Q3 twenty seventeen, it amounted to SEK 127,000,000. We added SEK 13,000,000 from F2C and its team, and this is just one month. It's September EBIT from the acquired entities. We have amortization from goodwill, the acquired intangible assets from Express S and Inter team. We have excess gains of minus 2%, other plus 1% and also still impact from reduced sales from TAP. This quarter, it's approximately minus 4%. Items affecting comparability is minus 11. We have minus 4% in this quarter from acquisition costs. And last the quarter same quarter last year, we had a positive of 7%. So altogether, minus 11% makes the EBIT this quarter 118 And I proceed on to the segments. If we look at MEGA, we have good increase in sales. It's plus 6% from $442,000,000 to $467,000,000 It's impacted by a strong NOK, of course, but it's also impacted by an unusual warm summer. The underlying growth is 2% in this segment. EBIT $46.48 euros sorry, 56,000,000 last year, impacted by our own workshops being closed and also the strong euro. MEKA. MEKANOVAN third quarter increased sales to our affiliated workshops. We have also a positive impact from the strong NOK. But as I said, the extremely hot summer affected all of our companies. Sales growth is 1%. And as you see, it is minus 1% in Sweden. But if we compare last year to this year, we have to consider that we sold Marine Chopin in the beginning of this year. And if we put Marine Schopen back in the figures, Sweden is flat compared to same quarter last year. Good cost control in Mekonome Sweden, making EBIT good, it's SEK 90,000,000 compared to SEK 79 same quarter last year. Sorenson and Belgium, net sale of SEK 180,000,000 compared to SEK 178,000,000 last year, a change of plus 1%. Underlying sales growth is minus 5% and of course, still affected by DAB sales. The loss of DAB sales in Services and Auvergian this quarter is approximately €11,000,000 And if you adjust for that, we have positive underlying sales growth also in the Southern Central and Norwegian. Very good cost control, making EBIT 29,000,000 compared to 2027%. And so to FTSEF, both sales and EBIT is included only for September, and both are in line with last year. We are happy to say that management is intact and very committed. Net sales amounted to €252,000,000 and EBIT to 13,000,000 Interchange sales and EBIT in line with last year also included one month in the group and management also intact and committed. Net sales is €147,000,000 and EBIT is close to zero. And with an EBIT market, of course, it's amounting to zero, impacting the full group. Over to Per? Yes. We are on Page 11 for you who has the presentation. I want to talk a little bit about the synergies when we after the acquisitions. And as we have said before, the majority of the synergies will come from purchasing synergies. That work started already the same week as we have closing and has been going on for some time now. We still believe that there is a good possibility to reach our goals. We have a good focus and a large commit both from the existing group companies as well for us from the acquired companies. So then I will switch over to market growth, and we have Page 13, market trends. This is only for Sweden and Norway, and the car fleet is only for Sweden. Of course, we hope in the future to give some more about the market even in Denmark and Poland as well. But as you probably know that we have had the last couple of months in especially Sweden, a large drop in sales of new cars that doesn't lead to that the car fleet has decreased. It's still increasing. So that this should not affect our business in the short term. We still believe that the very high the years with very, very high car sales should give some positive effect in a couple of years when those cars reach our market or let's say, get the age when they become more common in our workshops. The stores and affiliated workshops, of course, that has increased a lot now with four brands in Denmark and two brands in Poland, leading to that we have 3,413 affiliated workshops. And when we compare to, especially in the old group, that's pretty much the same level as last year. Number of workshop is, of course, important, but what is even more important to have somewhat larger workshop with more mechanics and more thereby more capacity. So we have focus on numbers, but even more focus on size of the workshops. When it comes to number of stores or branches, it's in the old group, it's not so much changes. So what Harry, we mostly added the branches in from Denmark and Poland. I'm going to Slide 15, when we talk about the merge of the central warehouses in Sweden. Strenghness, who is the old Mekonomen warehouse, is now up and running in the automated solution. We the automation will take care about 80% of the volumes. And now we are already up at the volume of 65%. So we will soon reach the goal in that part. We have we still stick with the plan that we will have $50,000,000 in savings as from 2020 going forward. During next year, there will be migration from Merkas warehouse in SKS to this new one in Stringles. We have also rebranded the wholesale business. We changed name one year ago from Mekkonoma UCs to Billy Echocar Parts to be a more neutral wholesaler selling to more than one chain. And so now we also have started the rebranding of the full wholesale business. I also want to talk a bit about training competence center, Provenmeister education had up for secondary schools already started last year as secondary classes started this year, and we have expanded to a new facility in Malmo, which all besides having this upper secondary school also have Brumeister Academy, which is training for existing mechanics in existing workshops. We also have the technical support team. And we also run fully operating workshop in that facilities. It's very exciting to see how we can reach good synergies between those different parts of the company, and it's all focused on competence and new mechanics. Tonight, there is Industry Gala, Motor Gala. This is the first time the industry in Sweden gathered such an event. It's both it covers all automotive. So it's both independent and authorized parts of the market. And it's totally 12 categories where it will be winners in we get prices. And I'm very happy to see that MegaDomino Group has seven finalists in these different groups. So we are really looking forward for tonight and hoping to get some good prices. But just the fact that we have seven finalists is really proof of that we are focused on the right thing when it comes to the development in this industry. Last page, Focus 2018, just a couple of months left, but we will continue to focus on our strategic projects, which is the spare parts catalog and merging of the warehouses. We will continue to focus on workshop quality and especially, I would say, competence, recruitment, education, which is very important. We have still a huge need of new mechanics into the industry and into our workshops. Further on, of course, continue to focus on the organic growth in our core business by improving our customer offerings all the same. We want to retain and develop entrepreneurship. We will continue to focus on new business areas and we also continue with our acquisitions ambition, though we, when it comes to larger ambitions, are not planning anything more this week, at least. That was all. And we will open up for questions. Thank you. Do remember there are some people in the room that have not entered their names. So we're going have to take your name for the question. So ladies and gentlemen, if you would like to ask a question, please press star one now. And we have a question from Michael Lofdahl from Carnegie. Please go ahead. Your line is now open. Hi, thank you. Could you perhaps put some more color on the performance for FTZ in this quarter. First of all, the perhaps the seasonality of FTZ, what is a is there a different seasonality in Q3 versus the other quarters? And also whether or not September as an isolated month is hampered by anything in the OpEx versus revenue that you are aware of? Because the margin obviously in this quarter was much lower than the full year pro form a numbers that was given in the prospectus. Well, we only have SSEF and entities included one month. I can say that much that both companies are in line with last year, but September is usually not the best month for either of the companies. So you can't really make too much analysis from just one month. But the EBIT margins are better a full year in SSF than this September, of course. So you have the prospective numbers, they are correct. So September isn't the best month, but it's in line with last year. But is there anything in the mismatch between revenues and OpEx in September as a month? If you look at Q3, I guess Q3 typically is impacted by summer vacations and so on, which can have an effect on OpEx if you were to look at just one single month for the period. No, it's nothing like that. But no, it's nothing like that. It's in line with last year. But of course, both FCS and InterT, they have both other fiscal years than our group. So that can be like perhaps not September being that representative for the quarter. It's just one month and it's usually not the quarter end for FTSEF and the team. But the important thing is that what you see in the prospectus is really figures and September is just one month out of 12. And it's too early to say anything else than that. But in line with last year, so it's nothing strange in the result. And also what you can say that is that the gross margins in both FSS and E and T are lower than in the old macroeconomic group. So we will see a shift both in gross margin but also in EBIT margin caused by Interteam presently having such a low EBIT margin. But as we said, are normally in line with Mekonomen Group when it comes to EBIT. It has performed higher than Mekonomen Group if you look historically a couple of years at least. Yes. But I guess you have the numbers for last year and how the full quarter of 2017 looks like for FDS. Isn't it possible to provide more information on that? If there's a seasonality, I mean, if you have roughly 5% margin on the EBIT level in one month, I mean, does that say to the other months and also then for the quarter? Well, we took over the company September 3. So I can only say what's included from September 3. Yes. But you okay. But you have the numbers, I guess, you made a due diligence and then I guess you got the numbers and the full year figures. And from that, there should be monthly statements, statements, I I guess, guess, 2017 that you have of course. But you also have the figures in the prospectus. So you see the full year and you see the first half of this year. So you also have the figures there. In this report, we have month one month included, and that's from closing and onwards. And September is in line with last year for both Especet and Interteam. Okay. So assuming a double digit margin for FTSET going forward, that's nothing strange to do so even though it was only around 5% in Month Okay. Thanks. Also on the PPA or the acquisition related amortizations in this quarter, Could you say or is it fair to assume that they were they will be this amount times three on a run as a run rate per quarter? Or was it higher than normal in this quarter? The amortization of the $6,000,000 yes, the $6,000,000 of amortization. Is that a normal monthly rate or a normal quarterly rate? It's a normal monthly rate. The intangible assets for customer relation is $800,000,000 in the PPA, and that makes it if you take that over ten years, it's 6.6 something every month. Okay. And regarding Mecca, is it possible to say anything about this quarter and how much actually the proprietary workshops did impact the margin or the higher number of proprietary workshops impacted the margin in Q3 versus last year and perhaps also versus Q2? And also whether or not you've seen in that aspect, if it was the summer months or the warm summer months that hampered earnings in the fully owned workshops, Has that come back in the beginning of Q4 to a more normal profitability for the workshops? Well, first question, I think you it's the reasons for what we see in Mecca is exactly as you described. It's the warm summer and that we have more company owned workshops. And I can't comment on October. But as I said, we saw a much better market already in September. And that should also means that the let's say, the effects from the company owned workshops is not that significant at least in September. Okay. And you mentioned also purchasing prices being higher due to FX and so on. What is the lag here in terms of your own price increases because you tend to push that forward in your prices? It's almost impossible to answer on that question. We try to keep the lag as short as possible. But we also want to have a good, let's say, we always need to see what how the market is developing and what are possibilities. We made some price increases in the beginning of the year, which we which helped somewhat during the year. We analyze every day, week and month. We analyze different categories and different products, and we will evaluate if it's needed to have another more general price increase in the beginning of the year, but it's no such decision taken yet. We also need to follow the currency development and see how it's going on forward. At the moment, it's quite stable at this level anyways. Okay. Regarding your balance sheet now and the loan structure as the share issue is completed and the bridge loan is paid back and so on. First of all, will there be any one offs in the net financials in Q4 related to the bridge financing or anything like that? And secondly, what is the run rate, probably say on a monthly basis than now when the new financing structure is in place and the balance sheet has been sort of changed with the share issue? Your first question is if there will be any one off from the debt structure. And the answer is yes, it could. The great item you have this quarter is from the revaluation of the debt, the bridges, and they are all in euro and will not be representative going forward. But there was high debt when we ended the quarter and the euro moved a lot towards the Swedish crown. So therefore, we have this big one off in Q3. We still have we have lower loan now in euro, but we have still loan in euro. So that could be one offs in Q4 as well. But we are looking over our debt structure and if we should hedge in according to cash flow or equity or how we should handle the debt structure going forward. So this is something we discuss currently within the board. But in Q4, it could be some one offs, yes. And the normal run rate then if we exclude FX and these kind of items? Well, since we're not giving prognosis for coming quarters, I pass on that one right now. Ladies and gentlemen, there's nobody in the queue at the moment. If you would like to ask a question, please press one now. Thank you. There are no more questions coming through. So I will hand the call back to you. Thank you. Thank you, and thank you all for listening from us. Goodbye. Goodbye. Thank you for joining today's conference. You may now replace your handset to end this call. Thank you.