Earnings Call: Q1 2018

May 9, 2018

Good morning, ladies and gentlemen, and welcome to the Interim Report January to March 2018. My name is Anna, and I will be your coordinator for today's conference. For the duration of the call, you will be on listening only. However, in the end of this presentation, you will have opportunity to ask questions. I will now hand you over to CEO, Per Oscar von, to begin today's conference. Thank you. Thank you, and welcome, everybody, to this phone conference about the first quarter of the MacNolan Group. Just very shortly, we had a stable sales in the core business, but poor EBIT and which we will explain a little bit about. I'll go through the presentation and try to name the pages. And we'll start at Page two with some numbers of the quarters. And as you can see, we have slightly reduced sales or we'll be back on that because it's mainly due to some specific effects. But then, of course, a very poor result almost or more than half of the quarter last year. If we switch to Page three, we have we'll try to explain how this differs. So we start with the 126,000,000 which we had in Q1 twenty seventeen. We have estimated the impact from fewer workdays for about EUR 20,000,000 in EBIT effect. We also had the reduced sales of the DAB products. And for those who not informed about that very shortly, DAB is the Norwegian digital radio system, which started to change during last year, and we had a very good sales of this product, its adapters and its car radios, but which has slowed down significantly in the end of last year and especially during the first quarter. The effect of the lower sales is estimated to be about EUR 10,000,000. Then because of this rapid slowdown, we also ended up with too high inventories. We have done a write down of the value of the products, which amounts to 20,000,000. Then we also have exchange losses, which is really since the weakness of the Swedish krona versus euro, which causes us a revaluation of the balance sheet items of SEK 9,000,000. And then we have some other effects of SEK 7,000,000, which we will try to explain a little bit later, but all that sums up to the SEK 60,000,000, which we are reporting today. Then we will move on to Page five and the new segments reporting. I hand over to Wassar. Yes. As announced in q four, we will, from Stuart and ongoing, start to report in new segments. It's not a very big difference, but we changed to be compliant to EFSR regulation. And the segments will contain of MICA, that is MICA Sweden and MICA Norway as before. We will have one segment for Mekonomen with Mekonomen Sweden and Mekonomen Norway. And Sorensen and Belgium will be unchanged segment. This will mean that some of our smaller operation like Tungafolden Promise de Solution Pregas that used to belong to MEKA Scandinavia now is reported under other segments or other. And under other, we will also have like Mecanova, Finland, Marine shop and etcetera. So that's the new structure for our reporting. Yes. Thank you. And then we move on to Page six and look at the first segment, which is Mecca. In the first quarter, we had an underlying when we compare without FX from working days and currency, a little small growth, about 4%. We have we have good sales to Mega Car Service workshops, the affiliated. While on the other hand, we lose some sales to the other customer groups. And we'll be back on that when we talk about customer groups for the group. MEKA has also suffered from the lower sales of DAB products because of course, in the Norwegian operation, that affected the sales negative with 8,000,000. And due to the currency and the lower DUB, we also see a lower EBIT in Mecca. Then we move on to Page number seven in Metronome first quarter. In Sweden, we had a stable sales, not any significant change from last year. We however, then in the economic, also their Norwegian operation is, of course, suffered by the lower DAB sales, where it's affected the sales with EUR 9,000,000. And also here, we have a write down of the inventory of EUR 30,000,000, which is an explaining to the I am so sorry. To be able to listen to this call, I need to take your name. We've been told we need to have name of all participants in the call, and you have not given your name. Can I please take your name? I will connect you back to the meeting. If you are on mute, please open your line. This is the phone operator. I need to take your name for the call or we will close this phone line. So please, can I take your name, please? Hello? Hello? Can you hear me? I am so sorry. If you don't give up your name for this call, we need to disconnect this call for you. Are you not allowed to begin here? Hello? I am so sorry. We can't hear that you've given us the name for this call. The dub says it will affect servicing bonds. Moving on to Page number nine, it's an EBIT bridge. It's the same bridge as Per. Just spoke about, but broke in little more on the different segments. So if we first look at Mekonomen, containing both Mekonomen Sweden and Norway, We can see we have a division on gross profit of 22,000,000. Out of EUR 22,000,000, EUR 13,000,000 comes from the impairment of the double products we did this month. And the rest is a combination of lost sales due to dubbed less number of working days, etcetera. So it's a combination of different things. Million dollars is exchange losses in the revaluation of the balance sheet items and altogether it's $9,000,000 so it's 7,000,000 from Economen and 2,000,000 from Mecca in the quarter. We see cost savings from the cost savings program we launched and implemented last year of $6,000,000 in Economen segment. Moving on to MEGA segment, we have a slight positive effect on gross profit and that comes from the larger workshops we acquired late in 2017, adding sales and gross profit to Mecca. But if we exclude those workshops, we have the same effect in Mecca as in the other segment due to the lost working days, staff, etcetera. We also have higher cost and those are mainly related also to higher sales duty workshops. Moving on to service and embulsion, we had the most impact from that. We lost sale and we also also did write downs in the stock of GAAB products amounting to $7,000,000 Gross profit is down 16,000,000 and the same as in Equinor. It's a combination of impairment of that lost sales in that working days, etcetera. Other, we have also this month a negative impact on EBIT from other. This is a combination of smaller companies within our group underperforming in the quarter. And also some of the costs comes from different IT projects we had during Q1. So it's a combination of many things in that item. So over to Per, the markets. Yes. We talked about market trends. So and I'm on Page 11, where we can see that we have a still growing fleet of cars in our markets. The total mileage car driven is also stable and slightly increasing. And we have had a couple of years now, we've been more than three years, very good sales of newer cars. And when those cars hit the sweet spot, which is, in our case, age of seven to 10 years old, then we believe that there is a good potential for an increasing overall market. Of course, provided that not that scrapping and exports doesn't increase from the current level. We can I can also add some learnings which we have when we look at what kind of costs because we have an increased sales, especially of electrical and hybrids? We know that the electrical costs have a little bit lower maintenance costs because of fewer moving parts, but we also have learned that the hybrids have the same or maybe sometimes even higher maintenance or aftermarket value. So we don't see any big shift in the trends for the future. And still, we have a very old a lot of older cars out on the street, which should be taken care of for many years on the road. Then on Page 12, as I mentioned before, little bit about our customer groups, We have increased sales to Affiliated Workshop. Affiliated Workshop is those who carry out our brand names, Mekonomen, Nykaa and so on. This is very good that we have good sales development here, and it's very strategically important because they are the workshop which actually also gain market shares in the local markets. We see a clear trend that the very small workshops, they lose market shares or they stop to exist. And the winner of the market is affiliated workshops and maybe they authorize those two groups. So it's very important for us to have a high focus on this one. The challenge and the so that the problems with increasing this more is mostly depending on that we have to that we need more mechanics. We could easily hire about 500 mechanics on Monday if there was a possibility. So that was stopping that increase. On consumers and other B2B, this is areas which is affected by lower dub sales. Consumers is where we from our stores has sold these products. And also, Sergeant Bugsin had a very good part of the sales, both as a wholesaler to other business to business customers, car importers and car dealers and so on. Otherwise, under the double sales, it's quite stable in those two groups. We're losing a little bit more in other B2B, consumers quite stable. Then we have the partner stores, which is less than 6% of our sales, where we have a decline, mostly driven by that we have bought some of these stores, so they are now spread out into the other customer groups. So that's the main reason for that decline. And then I move over to Page 13, and we can see how we developed the stores and affiliated workshops. And as you can see, we have somewhat fewer stores now compared to before, and that's mainly because we have had some which we have closed down, but we have also where we have merged stores, especially in Norway, we had some of those projects where we have closed down one stores and moved the people inventory and the sales to neighbor store. The number of stores will, in the future, be quite stable. I think that we might see a small decline in the future, but we still have some white spots to cover. But there are also possibilities where we can merge stores in the future. When we look at the number of workshops, that's where we have a small increasement, and this is, of course, very important since this is affiliated. But even more important is the number of mechanics working in this. And we have even if it looks quite stable, we have a quite high turnover of workshops in this. So there is and the trend is that very, very small workshops, they either stop to be a member of this chain. Sometimes we ask them to leave something they leave by themselves. Sometimes they stop their business. But we always try to cover up with larger work shops that give us more mechanics and better capacity. Going to Page 14. It's the status of BlumMeister, our private label, which have a small increase from last quarter. The most important when we talk about BlumMeister is the quality and the testing of the products. We have some new categories, which have been launched during the quarter. So we'll see little bit higher sales of this in the future. We also have some categories where we added more references during this quarter. But absolutely most important is this is a premium private label brand, not the price side, the quality is extremely important. Moving on to Page 15, about our central warehouse. It's proceeding according to plan. And during the summer here, we will start to test the new the warehouse. We have the software is actually installed already before, but now and the hardware is under installation, and now it's testing how these work together during the summer. And then we will hopefully be ready to start using this. We have also changed all the lighting in the central warehouse, meaning that we have a lower energy consumption, of course, some and better work requirements. The other big strategic project is the parts catalog, and that has been now tested in Mekonoma Norway, and we have started implementation in Mekonoma Norway. That means that we are also starting up tests for Mekonome in Sweden. And since it's different markets, it's probably going need some tweaks to be done before we can be ready to implement it in Sweden as well. The benefit from this is, of course, for the workshop to have a wider assortment and more accurate search position, which also leads to lower return rates and other benefits out of that. Then I will move to Page 17. We have two big things happening in the market. GDPR is, of course, affecting all business in a company like Macronom and Group with a lot of different sub countries, different brands and consumer clubs and so on. It's quite complicated. We started with a project already one year ago, and we have done a lot of work to make sure that we have the right compliance towards GDPR now when the legislation starts to be abandoned. There's also a project for the industry in Sweden, something called Uchandelweisdau, which hopefully, all the workshop will, in the end, be certified for. We are in the group, have made all the preparations and are ready to start certifying our workshop in that area as well. Then a little bit about the focus for this year. We have the two big strategic projects, which the Catalogue and the Central Warehouse. We will continue to work with the workshop quality, both the quality towards the consumer from the concept, but also to help the workshops to increase their quality. We have the up to some builders, as I talked about, we will focus a lot on recruitment to get the right number of mechanics and education in the future. And then, of course, try to increase the organic growth through our core business, and that should be done by all the time improving the customer offerings, both the offer from us to the workshop, but also, of course, the workshop offers to the consumers. I believe a lot about retaining and developing entrepreneurship in the group, and we will continue to focus on new business and, of course, always look for interesting acquisitions. I would like to add here also as one focus can be not to focus, we have had a small business in the economic group called Marine Fotman, who was offering parts and accessories for boats. And that has not been core business for many years. And now we've finally found a solution, and we have sold that company to someone who will take much better care of that in the future. So that's also a sign of the focus on our core business. Well, that's what we had to speak about now. So I suppose that we will open up for questions. Thank you. We will introduce you with your name when it's your turn to ask your question. And we do have questions coming through and that's from Stellan Helstrom from Nordea. Please go ahead. Your line is now open. Thank you. Hi, it's Helen Helstrom here. I'll start just on the other division here or the other segments. The results was significantly lower than last year, I think, 37,000,000 compared to SEK 24,000,000. And I guess, you mentioned IT costs or anything else that is sort of a temporary nature or is this something a level that we should expect going forward? Well, the great deviation we have is in the smaller company group companies and especially in one, that's in Brekas. And last year, we had a fair. A fair making the turnover increase in the first quarters. And this year, the sales is lower. So we do expect the sales margin to be lower this year than last year, but not this great deviation as we had in Q1. But there are also smaller companies also underperforming, but it's mainly Preca. Right. And then I also asking on the lower sales from the B2B segment. I guess that has been ongoing for some time now. But it seems that the numbers that you're presenting might be bigger than what you see in the market. I understand that smaller workshops have a tough time, but there something else happening here? Are you do you think you're losing market share to someone? Are there other chains that are recruiting more aggressively? I would say that there is some probably a combination. Why it's much higher this quarter is mainly because of in that group other B2B customers is also car importers and car dealers who was very big customers to Samsung Belgium for the VIP products last year. So that's a big variation. But you're also right that we lose sales to other workshops and other B2B customers. If we lose market shares, I don't gamble somewhat, but that's the smaller explanation. The bigger explanation is that these customers lose market shares in their local market. The consumer doesn't go to these kind of workshops in the same amount as before. So that's probably the big reason that there's someone. Because when our competitors is recruiting from us, they are often pretty much the same. So it's in that case, we should have seen it more on the affiliated. All right. I don't know. Maybe we have talked about this before, but you have lost some franchise stores in the Stearns and the Vulcan concept. Is there any particular reason for this? And anything you see changing going forward? No, not any particular reason. I think it's some of the smaller which actually closed down. And we have still good interest from stores who wants to join the LEXTRA concept. So I don't see any dramatic trend in that. All right. And the slow market that you saw in this year, just wanted to see your reflections on that. Is there an effect of a late tire changing season or something else? Yes. It would be easy to blame the weather. But I'm not sure if it's possible when you look at the quarter because we did have a good start of the year because the winter was in our favor in January, definitely. So we had good sales in batteries and those typical winter products. But then you're completely right that March as a month was very slow due to that it was cold too long time, so we didn't get the spring sales with the tires and so on. But that usually comes later then, so it's not lost sales. All right. Thank you. There is no questions coming through. So I will hand the call back to you. Thank you. All right. Thank you all for listening and hope you all have a good rest of the day. We are going to our AGM this afternoon, so we have full schedule. Thank you and bye bye. Thank you for joining today's conference. You may now replace your handset to end the call. Thank you.