Good morning, ladies and gentlemen, 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. If anytime you need assistance, please press star zero on your telephone keypad and you will be connected to an operator. I will now hand you over to CEO Pehr Oscarson to begin today's conference. Thank you.
Thank you, and welcome everybody to this phone conference about the first quarter of the Mekonomen Group. Just very shortly, we have stable sales in the core business, but a poor EBIT, and which we will explain a little bit about. I'll go through the presentation and try to name the pages. We'll start at page two with some numbers of the quarters. 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. Then of course, a very poor result, almost or more than half of the quarter last year. If we switch to page three, we'll try to explain how this differs. We start with the SEK 126 million, which we had in Q1 2017. We have estimated the impact from fewer workdays for about SEK 20 million in EBIT effect.
We also had the reduced sales of the DAB products. For those who are 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. It's adapters and it's car radios, but which has slowed down significantly during the end of last year and especially during the first quarter. The effect of the lower sales is estimated to be about SEK 10 million. 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 SEK 20 million. We also have exchange losses, which is really since the weakness of the SEK versus EUR, which causes us a revaluation of the balance sheet items of SEK 9 million.
We have some other effects of SEK 7 million, which we'll try to explain a little bit later. All that sums up to the SEK 60 million which we are reporting today. We will move on to page-
New segments
five and the new segments report. I hand over to Åsa.
Yes. As announced in Q4, we will from Q1 and ongoing, start to report in new segments. It's not a very big difference, but we changed to be compliant to EBS regulation. The segments will contain of MECA, that is MECA Sweden and MECA Norway, as before. We will have one segment for Mekonomen, with Mekonomen Sweden and Mekonomen Norway. Sørensen og Balchen will be unchanged segment. This will mean that some of our smaller operation like Tunga Fordon, ProMeister Solutions, Preqas, that used to belong to MECA Scandinavia, now is reported under other segments or other. Under "other", we will also have Mekonomen Finland, Marinshopen, et cetera. That's the new structure for our reporting.
Yes. Thank you. We move on to page six, and look at the first segment, which is MECA. The first quarter we had an underlying when we compare without effect from working days and currency, a small growth, about 4%. We have a lot of good sales to MECA car service workshops, the affiliated. While on the other hand, we lose some sales to the other customer groups. We'll be back on that when we talk about customer groups for the group. MECA has also suffered from the lower sales of DAB products because of course in the Norwegian operation that affected the sales negative with SEK 8 million. Due to the currency and the lower DAB, we also see a lower EBIT in MECA. We move on to page number seven and Mekonomen first quarter.
In Sweden we have a stable sales. Not any significant change from last year. In Mekonomen, also the Norwegian operation is of course suffered by the lower DAB sales, where it's affected the sales with SEK 9 million. Also here we have a write-down of the inventory of SEK 13 million.
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The DAB sales which affects Sørensen og Balchen.
Moving on to page number nine. It's an EBIT bridge. It's the same bridge as Pehr just spoke about, but broke a little more on the different segments. If we first look at Mekonomen, containing both Mekonomen Sweden and Norway, we can see we have a deviation on gross profit of SEK 22 million. Out of SEK 22 million, SEK 13 million comes from the impairment of the DAB products we did this month, and the rest is a combination of lost sales due to DAB, less number of working days, et cetera. It's a combination of different things. SEK 7 million is exchange losses in the revaluation of the balance sheet items, and altogether it's SEK 9 million. It's SEK 7 million from Mekonomen and SEK 2 million from MECA in the quarter. We see cost savings from the cost savings program we launched and implemented last year of SEK 6 million in the Mekonomen segment.
Moving on to MECA segment, we have a slight positive effect on gross profit. That comes from the larger workshops we acquired late in 2017, adding sales and gross profit to MECA. If we exclude those workshops, we have the same effect in MECA as in the other segment due to lost working days, DAB, et cetera. We also have higher costs, and those are mainly related also to higher sales due to workshops. Moving on to Sørensen og Balchen. We have the most impact from DAB. We lost sale, and we also did write-downs in the stock of DAB products amounting to SEK 7 million. Gross profit is down SEK 16 million, and the same as in Mekonomen, it's a combination of impairment of DAB, lost sales in DAB, working days, et cetera. 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. Also some of the costs comes from different IT projects we had during Q1. It's a combination of many things in that item. Over to Pehr in the market.
We talk about market trends. 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. We have had a couple of years now, it's been more than three years, with very good sales of newer cars. 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 scrapping and export doesn't increase from the current level. I can also add some learnings which we have when we look at what kind of cars, because we have an increased sales, especially of electrical and hybrids.
We know that the electrical cars have a little bit lower maintenance costs because of the fewer moving parts. We also have learned that the hybrids has the same or maybe sometimes even a higher maintenance or aftermarket value. We don't see any big shift in the trends for the future. Still, we have a very old and a lot of older cars out on the street, which should be taking ProMeister for many years on the road. On page 12, as I mentioned before a little bit about our customer groups, we have an increased sales to affiliated workshop. Affiliated workshop is those who carry out our brand names, Mekonomen, MECA, 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 the authorized those two groups. It's very important for us to have a high focus on this one. The challenge, and the problems with increasing this more is mostly depending on that we need more mechanics. Could easily hire about 500 mechanics on Monday if there was a possibility. That was stopping that increase. On consumers and other B2B business areas, which is affected by lower DAB sales. Consumers is where we from our stores has sold these products, and also Svenska Bildelar had the very good part of the DAB sales was as a wholesaler to other business-to-business customers, car importers and car dealers and so on.
Otherwise, under the DAB sales, it's quite stable in those two groups. We're losing a little bit more in other B2B, consumers quite stable. 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, they are now spread out into the other customer groups. That's the main reason for that decline. I move over to page 13, and we can see how we develop the stores and affiliated workshops.
As you can see, we have somewhat fewer stores now compared to before, and that's mainly because we have 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 store and moved the people, inventory and the sales to a 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. Even more important is the number of mechanics working in this.
We have, even if it looks quite stable, we have a quite high turnover of workshops in this. The trend is that the 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. We always try to cover up with larger workshops that has more mechanics and better capacity. On to page 14, as the status of ProMeister, our product label, which have a small increase from last quarter. The most important when we talk about ProMeister is the quality and the testing of the products. We have some new categories which have been launched during the quarter, we'll see a little bit higher sales of this in the future. We also have some categories where we added more references during this quarter.
Absolutely most important, since it's a premium Private label brand. Not the price side, the quality is extremely important in that market. 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 warehouse. We have the software is actually installed already before, but now when the hardware is under installation and now it's testing how these work together, during the summer and then we'll 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, and better work environment. The other big strategy project is the parts catalog, and that has been now tested in Mekonomen Norway, and we have started implementation in Mekonomen Norway.
That means that we are also started up tests for Mekonomen Sweden and since it's different markets, it's probably need some tweaks to be done before we can be ready to launch it in Sweden as well. The benefit from this is, of course, for the workshop to have a wider assortment and a more accurate search position, which also leads to lower return rate and other benefits out of that. I will move to page 17. We have two big things happening in the market. GDPR is, of course, affecting all business and in a company like Mekonomen Group with a lot of different sub-companies, different brands, and consumer clubs and so on. It's quite complicated.
We started with the 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 valid. There's also a project for the industry in Sweden, something called Utbildningssystem, which hopefully all the workshops will in the end be certified for. We in the group have made all the preparations and are ready to start certifying our workshop in that area as well. A little bit about the focus for this year. We have the two big strategic projects, which are the catalog 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 Utbildningssystem I talked about.
We will focus a lot on recruitment to get the right number of mechanics and education in the future. Of course, try to increase the organic growth through our core business, 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 the entrepreneurship in the group, 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 Mekonomen Group called Marinshopen, who was offering parts and accessories for boats, and that has not been core business for many year, and now we've finally found a solution, and we have sold that company to someone who will take much better care about that in the future. That's also a sign of the focus on our core business. That's what we had to speak about now, I suppose that we will open up for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We would introduce you with your name when it's your turn to ask your question. Ladies and gentlemen, if you would like to ask a question, please press star one. We do have the questions coming through, and that's from Stellan Hellström from Nordea. Please go ahead, your line is now open
Thank you. Hi, Stellan Hellström here. I'll start just on the other division here or the other segments. The results was significantly lower than last year, I think SEK 37 million loss compared to SEK 24 million. I guess you mentioned IT costs or anything else that is sort of a temporary nature or is this a level that we should expect going forward?
The great deviation we have is in the smaller company group companies and especially in one, that's in Preqas. Last year we had.
A trade fair
A trade fair making the turnover increase in the first quarters. This year the sales is lower. We do expect the sales margin to be lower this year than last year, but not this great deviation as we had in Q1. There are also some smaller companies also underperforming, but it's mainly Preqas.
Right. 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 you're presenting might be bigger than what you see in the market. I understand that smaller workshops have a tough time, but is there something else happening here or 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 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 Sørensen og Balchen for the DAB products last year. That's a big variation. You're also right that we lose sales to other workshops and other B2B customers. If we lose market shares, 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. That's probably the bigger reason that there is some. When our competitors is recruiting from us, they are often pretty much the same. 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 Sørensen og Balchen concept. 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 BilXtra concept. I don't see any dramatic trend in that.
Right. The slow market that you saw this year-
Yes
I just wanted to see your reflections on that. Is there an effect of a late tire changing season or something else?
Yeah, 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. We had good sales in batteries and those typical winter products. 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. That usually comes later than, so it's not lost sales.
All right. Thank you.
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All right. Thank you all for listening and hope you will 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.
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