Hello. Welcome to the half-year report. My name is Josh. I will be your coordinator for today's event. For the duration of the call, you will be on listen only. At the end of the call, you will have the opportunity to ask questions by pressing star one on your telephone keypad. If you need assistance at any time, please press star zero on your telephone keypad, you will be connected to an operator. I am now handing you over to your host, Pehr Oscarson, to begin today's conference. Thank you.
Thank you. Very welcome. Nice that you can spend an hour of this lovely summer day to listen to our report. With me today I have Åsa Källenius, our CFO. We have published a presentation which we will try to follow. I will start with some summary about the quarter and other activities. We had a favorable sales growth, we have also improved our earnings. We had a seasonal effect when we compared the quarters between Q1 and Q2. I think that an early Easter and a late spring was somewhat mixing up the quarters. The second quarter is very good, we are very satisfied with that. When we look at the half year, we also think we have a very decent development.
What sticks out when we look deeper into the number is the sales growth to the affiliated workshops, which is a very strategically important group. We will go back a little bit more on that later. We still have some effects of the DAB products, the digital radio products in Norway. The second quarter, it was SEK 50 million, which affected negatively this quarter compared to last year. Of course, as we announced earlier this month, we are taking the company towards the doubling of the sales through the acquisitions of FTZ and Inter-Team. We will also be back a little bit on that later. I will hand over to Åsa to take us through some numbers.
Yes. Good morning, everybody. We see a very favorable sales growth in the second quarter, as Pehr said. It rose by 7%, up to SEK 1,673,000,000. Adjusted for currency and comparable number of workdays, the sales grow by 3%. We see EBIT on the same level as the second quarter last year, we are affected by items affecting comparability with SEK 25 million. I will explain that on the coming pages. On the next page, you see the EBIT development, for this quarter compared to the same quarter last year. As you can see, we have actually a positive impact from number of workdays and currency. This quarter, we have a positive growth by 7% coming from our core business, we have also the items affecting comparability I talked about, that relates to the ongoing acquisition in Poland and Denmark.
Costs taken for the acquisition amounts to SEK 19 million, we also had a negative effect of the sale of Marinshopen of SEK 6 million. Altogether, SEK 25 million. The decrease in DAB sales affect us this quarter by SEK 11 million, approximately. Altogether, we can say that the SEK 7 million in other is approximately 4% growth in EBIT if you exclude the items affecting comparability and the more or less one-offs with the currency and number of workdays. Altogether, we see increased EBIT in our core businesses for the second quarter. We are very happy to say that. If you look at the next page, the situation is the same as I just explained for Q2. We have a little effect, a negative effect from the number of workdays and currency, but not that high.
We have a positive from the core business of SEK 5 million, the DAB affect us with SEK 20 million on EBIT if you look at the first and second quarter combined, we have the items affecting comparability as I just mentioned, plus the impairment on the inventory for the DAB products we had in Q1. Altogether, I can say that we have a growth on EBIT of approximately 2% in the core business. I can also add that we are now entering the third quarter of this year, we see a limited effect on the decreased DAB sales. Now we will reach the levels we had last year in the third quarter. The effect of DAB sales going forward will be limited. Over to Pehr.
Thank you. We'll go into the different segments, I will start with MECA on slide number seven. Increased sale to MECA Car Service and other large customers is the main driver in the sales. We also have a strong Norwegian crown, which has affected the sales positively. We also did some acquisition in Norway where we acquired some workshop which has contributed positively. We have here also somewhat negatively affected by lower sales of DAB products. All in all, stable operation and a good development in the quarter. Moving on to Mekonomen. We have positive sales development and very good cost control in Sweden. Here I'm very happy to say that we have the old issue with Mekonomen Sweden starting in 2016 looks quite okay now.
I'm very convinced that we have the right management in place, we have the right leaders and especially the right employees doing a very committed and dedicated work all the days. This is operation which has really improved in many ways. We have some non-recurrent costs in Norway which affect us negatively. I would say for Mekonomen as a segment, it's also very stable and looks very good in this quarter. Moving on to Sørensen og Balchen. That is the segment which has had the most of the effect of the low DAB sales. You can see that its sales went down 9% in Sørensen og Balchen. However, if we exclude the effect of DAB, there is very good sales growth in Sørensen og Balchen as well, they also are in the core business taking market shares on the Norwegian market.
So I would say that there is still a very positive situation in Sørensen og Balchen. It's also a company which always has a very efficient cost control, so we never have any surprises in that area. We'll move on to what we will try to close here in the period in front of us. That's the expansion to the new markets. We announced it earlier this July. I would like to use a couple of minutes to again explain again about the two companies which we are about to acquire. It's FTZ in Denmark, which is the by far strongest market leader in Denmark. It's a very well-run company which is performing very good in logistics and sales and their offers.
They have somewhat 50 branches throughout Denmark, a little bit more than 1,000 employees, and the sales on 12 months basis until May 2000 was a little bit more than SEK 3 billion. And also very strong earnings with an EBITDA margin of 11.1%. This is a crown jewel in the Nordic market, which we are very happy to be able to acquire. And the second company, also from the same group, HELLA and Nordic Forum is Inter-Team, and that is a company in the Polish market. Poland is interesting because that is one of the markets in Europe where we have a much higher market growth. So that's one reason why this is very interesting. Has a sales just under SEK 2 billion.
As you see, a much lower EBITDA margin, but that is a result from a very tough competition situation and also that they are growing very fast with greenfield startups which consumes some margins. 80 branches, actually 79 in Poland and one in Czech Republic. Also have an interesting export business selling to countries around Poland, like Germany, Czech Republic, Ukraine, and so on. They also have a very good, let's say, private label position, which is interesting for us as well. What will happen with the acquisition is that we now have filed an application to the Polish antitrust, and we will expect that to take around a month. So we will hopefully have an approval here in the end of August, beginning of September. And approximately two weeks after that, we can close the acquisition.
And then we later on will have an AGM where we hopefully will decide about the rights issue, which will occur later in the autumn. I will go to market and growth. And on slide number 14, you have the market trends. Some of you have seen this before. It's not any big changes in the car park as of the first quarter this year. So it's more or less the same situation. We still believe that there will be, in coming years, a bigger market when the high sales the last couple of years will also affect our sweet spot in market, which is when the cars has been four or five years and older. I'm on slide 15 and where we can see how the sales growth has been divided into our customer groups.
As I mentioned already in the beginning, I'm very satisfied to see that we have a good growth in affiliated workshop. That is strategically very important because it is in this customer group where we have a closer relation to the end consumer. We have control of the quality, and we have the control of the, let's say, the offer to the consumers. If we do this right, then we also are very good positioned for the future. The other customer groups is quite stable. We have somewhat down in consumer and other B2B customers. I would say that most of this also comes from the DAB sales. DAB sales is not affecting affiliated workshops, only the other customer groups. Moving on to how the number of stores and affiliated workshops. The stores is pretty much stable, 333.
It's somewhat going down, but it's mostly that when we have merged some stores, nothing dramatic about that. Compared to Q2 last year, we have increased the number of workshops. However, this is also, if you look at compared to Q1, this is a decline. The very simple answer to that is that we are all the time looking into the workshop's ability to live up the expectations in the concepts. By that, I mean quality, having the right equipment, doing the right education, have the right consumer offer, and so on. Not everybody is fulfilling those requirements. That's why we need to reduce. However, since you saw that the sales is so much bigger, those who are leaving us in one or another way is usually the very small ones, and it's not affecting the sales in any matter. Some update on the warehouse project.
We are now have taken over the formally ownership for the automation system, and we are testing with the equipment, and we're also testing all the associated processes and, of course, the different software solutions which is used in this. During the autumn and winter, we will gradually move more articles into this new solution. We will ramp it up slowly and controlled, but it's working according to plan. We also announced a supplier agreement earlier this summer where we will act like we will be the new supplier of car accessories to St1 and their Shell stores in Sweden. This is, in terms of turnover, not a very big deal, but we still want to mention it because it's a strategic new business area which we would like to increase our business within. This is the first breakthrough in that area.
This cooperation will begin in the autumn this year. Some other interesting agreements which we have done are on slide 19. Both MECA and Mekonomen together will become Trygg-Hansa's partner in the segment of engine damages. This is collaboration which will start in September 2018, and of course bring new customer groups for MECA and Mekonomen workshops. I would say it's a proof of our quality to get such an agreement. We also like to mention that we have a fleet agreement with LeasePlan, where both MECA and Mekonomen is some of the partners which LeasePlan has. That's also, it's of course also driving a lot of revenue to our workshops. In Norway, there has been a change in how the training system will work for the PKK inspectors. PKK is a periodical control of cars, car inspection, we would say, in other markets.
In Norway, it is done by the workshops, but the workshops need to have educated persons, and that demand has increased. So now it is more than 10,000 inspectors who will need to undergo training during the next couple of years. ProMeister Solutions is one of 4 approved training suppliers for this. We have already premises, equipment, and teachers who are already in place, and we will start up this already in the autumn. Finally, about our focus for this year. We have our strategic projects, spare parts catalog, and the central warehouse. We are continuously working with workshop quality. Importance is the quality and of course, the number of mechanics. We need to focus a lot on recruitment and education because we do have lack of mechanics. That is somewhat holding us back a little bit. Then of course, look forward into growth and innovation.
In that, increase the organic growth in our core business. That should be done all the time by improved customer offerings. We should retain and develop entrepreneurship in the group. Of course, continue focus on new business and our acquisition ambition. I think that the, after settling into Inter-Team acquisition proves that last part in very good way. That is pretty much it. I think we will hand over to some questions.
Okay. If you would like to ask a question, please press star 1 on your telephone keypad. If you change your mind and wish to withdraw your question, please press star 2. Please ensure your line is unmuted locally, then you will be advised when to ask your question. That is star 1 on your telephone keypad now, please. Our first question comes from the line of Sacha Sæther from K&R. Please go ahead. Your line is now unmuted.
Hello, gentlemen. Thanks for the call. I am a bit curious in your M&A. I think Denmark is very easy to understand as an investor why you pursue that opportunity. Poland, for me at least, a bit harder to understand. Maybe you can go a bit into how you bring the margins up of that business and why you think Poland is an interesting market for you despite the strong competition in the market, Inter-Team being only number 4, and apparently the margins are far below your core geographies. Thank you.
Yeah. As I mentioned, Poland as a market because it's a growing market which we don't have in our existing markets. That's one reason. We believe that the Polish market will be even better in the future since the middle class gets it better and better, and we see that the cars in Poland starts to be more expensive, which means that the willingness to pay a little bit more for service and reparation will increase if your car is more expensive and have higher value. We also believe that there will be a consolidation as we have seen in all markets. It's too many actors in Poland at the moment, and it will be fewer, and that will also make it possible to increase the margins.
We also, of course, believe in ourself to take out some improvements in purchasing in our synergy project, which should be also improving the margins. I would say that we find this opportunity to be the right time to enter Poland because as I think it can't be worse, it can only be better in all these areas. Of course, there is a lower EBIT margin, and to reach the 10% which we have for the rest of the group will be challenging, but we definitely think that we can higher it from the level which is now.
Thank you. Our next question comes from the line of Mikael from Carnegie. Please go ahead. Your line is now unmuted.
Yes. Thanks. I was first wondering about the gross margin and the improvement that we saw in this quarter. Is it possible to quantify how much that comes from the price increases, and also how much is from purchasing agreements that you may have renegotiated together with LKQ, for instance?
I would say that it's a combination of a lot of things, we don't disclose exactly how it's built up. As you mentioned, yes, we have some price increases, which is mostly just to cover the more expensive euro, which we have had during the year. It's also product mix, it's consumer mix. The lower DAB sales ease up the margin because the DAB sales was with lower margins. I also think that we have had some positive effects from supplier agreements. It's a mix of everything.
Is it possible to say anything? In Q1, obviously, you had a lot of headwind from weather and calendar and so on, and you specified that quite explicitly in the report. Now you're only saying that you have tailwind coming from these things. Is it possible to shave off any extraordinary sales and earnings effect in Q2 isolated?
I think that the closest to a correct answer is, when you look at the EBIT bridge, where we have SEK 20 million, which is an impact of more working days. That's a firm number which we can rely on. It's much more difficult if we should evaluate how it affected the later spring effect, what sales came later, what sales didn't come at all. That's much harder to specify. I will stick to the SEK 20 as mentioned.
Okay. Is it possible to say something about June or potentially July? Because I guess all the Easter effect and late spring and everything came basically in May, should have been a very good month or even April. What are the sort of current trading conditions?
Okay. We can comment on June. I think you are making the right assumption that April, good, May we had all the positive effect, June was a much normal month for us. Normal is, in this term, quite good as well since we have a good quarter.
Okay. Also, could you give a CapEx update on the warehouse investments, how much you have taken and how much you expect to remain? Also if there will be any OpEx impact as we are now closing in on the actual start phase so to say.
Well, when it comes to the CapEx in the new warehouse in Strängnäs, we have now taken most of the CapEx related to that. We also can say that we stand firm with the prior communication that we see savings of SEK 50 million from 2020.
Yes. Will there be any costs to reach those SEK 50 million before that? I guess.
Yes
meaning the implementation or something that will not be in CapEx.
Yes. There will be cost, but there will also be gains. We see that it's plus minus in cost and savings until we reach 2020, then we will have only the savings.
Okay. On the affiliated workshops and how those develop with the number of workshops, rather. You did sort of a cleanup a few years ago where you increased quality control and so on, and you mentioned that as well, that some workshops are excluded from time to time. Where do you see this from now? Do you expect growth coming from, in this customer segment, from more affiliated workshops or those workshops that exist will sort of grow or gain market share? How do you see that develop? It's obviously a very important customer group since the others seems to be declining.
This cleanup process, I think we have had a couple of those if you look many years back. I'm not saying that we are in a such process now, but we are all the time evaluating. I would say that the workshops is evaluating us if they really are doing their best being a part of our chain. It's from both ways. The standard is higher and higher for each year. It will always be a need of changing the strategy, or let's say the wish is, of course, we want to increase the number of workshop, but we have a very good footprint. I don't see that. That is very good, of course, but the most important is that we get more mechanics into the chain. That could be either to have existing workshops to get more mechanics in place.
Most of them lack employees, but it can also be that we are shifting out very small workshop too, and instead recruiting larger workshop. This is an ongoing process which will continue in the future as well.
What about the store network? Is that optimal as it is right now, you think?
I think we will see, and we have seen, and I think we will see in the future, a small decline in number of stores. That's where we can find possibilities to merge stores and where we can find better way of distribute the parts. It will be not any dramatic. It will be somewhat from the other side. We still have some white spots which needs to be covered. I would say that number will be quite stable in the future, maybe somewhat declining. The footprint is not anything. It's more ongoing business when we evaluate good profitable and non-profitable stores.
I think that was it. You mentioned the SEK 50 million on sales year-over-year from DAB and also the EBIT effect. Then you just say that there was a minor impact on the Mekonomen business area. Could you say more on how much that was so we know the exact figure for Sørensen og Balchen? You mentioned SEK 50 million on sales and SEK 11 million on EBIT.
Out of the SEK 50 million in the quarter, SEK 32 million comes from Sørensen og Balchen.
Okay. The rest, is that divided between MECA and Mekonomen or?
Yes, both are affected by reduced sales.
We're searching for the numbers, so just hold on.
Yeah. MECA a little bit more than Mekonomen. MECA minus 17% and Mekonomen minus 5%.
Okay. Is it possible to say anything on the EBIT effect as well? The SEK 11 million, how that is divided?
I think if you take the sales split, you can calculate.
Okay. Good. Thank you.
Thanks.
Our next question comes from the line of Andreas Lundberg from ABG Sundal Collier. Andreas, please go ahead. Your line is now unmuted.
Thank you. Good morning. Andreas here from ABG. If I start on the Mekonomen business, it seems that your sales were up just about SEK 20 million year-on-year, while your EBIT grew more or less in line with that or also close to SEK 20 million. Can you explain that bridge for me? Why you had so high or drop through?
Just a moment.
Yeah. Well, what we see in Mekonomen Sweden is very good cost control that comes from the savings program we implemented last year that now has full effect. That's the majority of the explanation.
Okay. Underlying costs have come down in Mekonomen Sweden, is that it?
Yes.
That's not the case in MECA, for instance?
They had another starting point than Mekonomen, but Mekonomen came down according to the saving programs we implemented last year.
Were there any incremental cost savings in the second quarter versus previous quarters? Is it just the fact that it's affecting you on a year-on-year point of view?
Yes. It's year-on-year effect, I would say, because it wasn't implemented in second quarter last year.
When was the implementation fully completed?
It was fully completed in Q4.
Okay, got it. Back to the topic on your own branded workshops affiliates. Obviously, you had a very strong growth there, close to 20%. Can you explain what drove that growth?
I would say that these customers, our affiliate workshop, they are one of the winners in the market. In the different concept, we attract the consumers in a good way, so they have increased their market share. I think they're doing it on behalf of or let's say that it's the smaller non-branded, completely independent workshop, which is, let's say, the losers in the market at the moment because some of them are closing down, and then the customers come to our workshop or the affiliated, and they don't have the right education and equipment, so on. It's a market move. It's one explanation where we have a good concept for attracting the consumers. It's also that when you look at the net numbers, you can see a decline, but there's much higher numbers of workshop which is leaving and joining.
There we have a good trend that it's bigger workshops that are joining and it's smaller that are leaving. That also means that we are getting some higher sales. We are working very much with the loyalty. Let's say loyalty means that to try to convince the workshops to buy as much as possible from us, but it's also our ability to deliver as much as possible into their needs. That comes from how we organize our inventory structure, both in the central warehouse, but I would say mostly here in the local branches to have the right stock at the right time.
Cool. Lastly, on market trends, obviously, you got some support from calendar and effects and so forth. Anything else you can mention about the underlying market trends? Are you starting to see some effect from a very strong new car market for several years? Or how do you view it?
No, I think it's too early to count that in. I would say that if you look at the half year, then we believe that we have taken some market shares, which means that I would say that the market is pretty much in the same development as our sales, somewhat lower than that. To see something else in the future at the moment, I'm not prepared to do that guess yet. We still believe in this 1%-2% growth.
Thank you. That concludes my questions.
Thank you very much. Our next question comes from the line of Mats Liss from Kepler Cheuvreux. Mats, please go ahead. Your line is now unmuted.
Hi. Thank you. Congrats on the good numbers. First, you talked about pricing, have you seen some sort of pre-buying impact in these numbers? Could we get some flavor on that one?
How can you explain pre-buying in terms that-
If you implement the price increases, maybe you buy first and everyone needs some extra.
We don't have that effect. I would say that most of our sales is done to even if it's business to business, they are not storing any inventory. First of all, it's the customer group which is affiliated stores, which is a very small number. Let me just find it now. It's the 6% of partner stores where they actually have some inventory by themselves. It's only them who could do something. However, in this industry, since it's spare parts most of it, so it's nothing which you can buy a lot of just because there come a price increase. We don't have any of these effects in our business.
Sounds reassuring. Then about the affiliated workshops, I guess it was impressive growth there, and could you just remind me on the target there? Target, what you see longer term?
We don't have a disclosed and a specific target in that. I would say from a personal point of view, they stand for a little bit more than 40% of our sales. I would like that number to be somewhat higher and at least to be 50% of our sales in the future, but that should be reached by the development as we have now that we are selling more to those, but still not affect the other customer groups. The reason why is that this is a good way of distributing our parts and it's a way which is very safe for the future, and we have a good control of the concepts and all the time. It's much, let's say, safer sales to have that. That's why I wanted to increase the part of the total.
We don't have any clear goal, but it should be a bigger part of our total sales.
I guess previously there's been some margin dilution due to the increased larger customers, et cetera. Have you sort of reached a balance there? I mean, shouldn't be any more impact. I guess if it increased, that part of sales increase, it probably will be.
It can be, that's not so much if it's affiliated or not. It's more the size of the customer, because usually the pricing is mostly, this is the different strategies in the local companies, so it's a mix of everything. Usually, the pricing to the workshop is affected by the volume he buys and not if he affiliated or not. Since more of the affiliate workshops also are bigger, there can be some of that effect. I don't expect that to be big in the future.
Finally, I didn't see any improvement there. Market share.
Okay.
We removed that this quarter, but it's still.
It's the same.
14%. It's the same.
Yeah. We will be back on another way of explaining our total share of private label further on.
Yeah.
Yeah, sure. There will be some more with the acquisition, I guess.
It didn't change.
About the SEK 100 million synergies you expect from the acquisition, I guess that's being indicated mainly procurement related, so I guess it could be early on in the acquisition process if do it right.
It will come gradually because first you need to negotiate new purchasing prices, and then you need the turnover in the warehouses. It will start to ramp up already this year, later this year after closing, but it will be fully implemented in, I think we said 2020.
It will take a couple of years until all the SEK 100 million is in books.
We follow the very same successful process as we had with the acquisition of MECA and also Sørensen og Balchen before that. This is an area where we have the skills and we know the process how to do it. That's also why we know that it will take some time until we get the full effect.
Just a final one there on the acquisition, I guess you have your previous experiences in Denmark. I guess it's a totally new business case now with FTZ. Could you say something about how you sort of see that difference compared to the old?
It's a huge difference. It's not even comparable at all. What Mekonomen did in Denmark was, let's say, selling with a Swedish concept, trying to combine both retail and business to business, which is not working in Denmark, with a Swedish brand and a Swedish assortment and so on. That was not successful. I would say that FTZ was maybe the main reason why Mekonomen didn't succeed in Denmark. Learnings from that, of course, is that we will not do what we did last time. FTZ is very good, well-run company with good management. We will only work together within the purchasing. Otherwise, they will be held very independently and continue to focus on their growth. That's the very simple strategy.
Great. Thanks a lot.
We have no further questions on the line at the moment, please be reminded, if you would like to ask a question, it is star one on your telephone keypads now, please. We haven't had any questions come through, I'll hand back over to you, Pehr.
I'll thank you all for listening and hope that you will have a continually great summer and talk to you and see you in the future. Thank you very much.
Bye.
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