Earnings Call: Q1 2021

May 7, 2021

Hello, and welcome to the Mekonomen Group Conference for the Q1 2021 Report. My name is Rosie, and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions. I will now hand you over to Per Oskarsen, CEO, to begin today's conference. Thank you. Thank you, and good morning, and welcome to the presentation of the Q1 2021. With me here today, I have our CFO, Asaf Schindler, and we'll guide you through the result of the quarter. I'm very glad to say that we have had a very strong start of the year. This is now the Q4 in a row where we deliver on high level And actually this is the best Q1 ever. We saw sharply increased growth, better profitability and a strong cash flow in the Q1. As you all remember, we had some challenges in the same period last year making the comparison a little bit complicated. But the positive trend is very clear. There is a stable demand for our products and services and we estimate that we have gained market shares in several markets during On top of that, we have taken important strategic steps with launches of several innovative services. For example the new standard for electric car service in all our markets. During the quarter we issued a bond to secure future financing And to extend our debt maturity structure. This together with our strong result in the past 4 quarters has Contributed to our current very strong financial position. And all in all, we continue to deliver on our strategy on profitable growth And have a strong position. So, Orsar, please take it from here and give us some more details of the result. Thank you, Per. I'm happy to do that, and hello, everyone. We had a strong organic growth of 10% In the Q1, adjusting for currency effects and number of workdays in the quarter, we end up on 4%. We are still affected by the ongoing pandemic. For example, we had 45 branches closed For some periods in Norway during the quarter due to governmental restrictions, most All of them are now open again. We stand strong with a high underlying demand with a direct effect on our adjusted EBIT and cash flow. With this said, we are developing towards our long term financial goals. Our strong financial position is a result of dedicated work with structural and efficiency efforts The past year, for example, the successful central warehouse project in Sweden that was finalized last year. Looking at Page 4, EBIT. We can conclude a great recovery in all business areas, not least in Meka Meka Nomen. Despite difficult comparative figures as also Per mentioned, we See fundamental improvements in both organic growth and profitability. And this is mainly thanks to earlier implemented Cost efficiency measures and successful market activities. Now looking at Page 5, Gross margin has increased from already high levels. Adjustment in sales prices and purchasing prices are contributing positively and are balancing out the product mix effect we have due to higher sales of seasonal related products with somewhat lower margins. Moving on to Page 7 And the results for our business area. FTSET continues To be the undisputed leader in Denmark, we have strengthened our position even further. The profitability is improving and we estimate that FTS has gained market shares during the quarter. The EBIT margin rose to 11% compared to 10% last year. We now see That this has been a successful acquisition where the delivery from FSFET is in line with our expectations. FSF is a stable and robust business with a very good resilience despite economic cycles. We know firsthand that Denmark is a difficult market to operate in due to FCZ's strong market leading position. This makes us confident that FCZ's permanent position will remain regardless of future competition in the market. Turning to next page, Interteam. In Interteam, we have had a stable development despite Strong competition and the challenges with the pandemic. The organic growth is negative in the quarter, And this is mainly a result of weak Polish market due to COVID-nineteen restrictions and a lower export sales. But the EBIT margin increased to 1% compared to 0% last year. However, in March, we did notice an increase of the demand. And going forward, we will continue to focus On profitable sales, we are convinced this will be positive for us when the market stabilizes. And as we pointed out in the last quarter, the Polish strategy is long term, and it will take Some more time before we reach our long term goal and have a stable margin at higher levels. I'll now turn to Page 9, Meka Mekonomen. In Mecameca Nomen, as you saw before, we have had a sharply improved organic growth of 12% compared to minus 2% last year. The high demand for seasonal products such as batteries and accessories Have been beneficial to us but lowered the margin somewhat. We see a stable increased EBIT margin of 6% compared with 0 last year. The business area has also been Negatively affected by temporary closed branches due to the pandemic restriction in Norway. In Sweden, we are not as directly affected from restrictions. In Sweden, EBIT has improved as a result of the Structural initiatives we made in 2020. All in all, Meca Mekonomen Is improving and moving in the right direction even adjusted for the special challenges we had in Q1 last year. Turning to next page, Page 10. Sorenson and Sorenson and Sorenson. In Sonocento Balkan, we deliver another all time high result with impressing 32% organic growth And 20% EBIT margin compared to 13% last year. We are benefited from being a sharp niche player In a continued highly active Norwegian market. At the same time, the consumer market within accessories It's strong in Norway. 40% of Sorenson and Ovalsha's sales come from consumer sales. Consumers now prioritize their homes and cars instead of traveling and other activities that are restricted And that is positive for Sorenson Nebranchen. The strong performance is a Combination of click and collect and other consumer offers and at the same time, Sonae and Sonae, Also have succeeded in attracting other type of customers within B2B, for example, car importers and workshops from competitive concepts outside our group. I will now hand over back to you, Per. Thank you, Asa. Yes, I'm very proud that we have delivered another strong result and taken further steps towards our long term financial targets. On Page 12, we take a look at our strong footprint in the market and we will continue to optimize the network of branches to secure We increased the number of workshop customers in almost all markets. The numbers will change from time to time with little short We have a very clear idea of which workshops that are to be included in our concepts. They Must have the right quality ambitions, customer focus and size. On Page 13, we see an overview of the competition. We are number 1 and 2 in Sweden, number 1, 2 and 3 in Norway and by far the number 1 in Denmark. We're on the right track in Poland and these strong positions will benefit us going forward. Moving on to Page 14. We have high ambition to develop new solutions, services and offers to our customers. The purpose is clear, to always be relevant and meet the future customer needs. This enable us to grow and broaden our business. As we see on Page 15 during the Q1 Mekonomen Sweden launched a new unique service agreement for Swedish car owners That challenges the often expensive and complicated solutions that exists today. On Page 16, We also have taken the leading position in the aftermarket for electrical cars where there have been so far a lack of clear industry standards. In response, we launched a new standard for electrical car service E plus which guarantees that the workshops have the right skills and equipment. Shortly 1500 of our workshops will meet those requirements. Looking at Page 17, we present Forecast analysis of the electric vehicle market for 2,030. We focus on pure electric cars since hybrids have the same demand as Cars with combustion engines. Norway is the world leading market on electric cars with 300,000 pure electric cars on the roads today. In 2030, we estimate that there will be 2,000,000 fully electric cars on the roads in Norway. In Norway the political target is to reach a full car fleet of 0 emission vehicles. In Denmark there are 30,000 Fully electric cars on the roads today and we estimate that there will be around 600,000 pure electric cars 2030. And in Denmark the political target is today is to you can read it as low emission vehicles which also includes hybrids. And as far as to forecast the numbers between fully electrics and hybrids. In Sweden, there are 60,000 pure electric cars today. Here we estimate 1,000,000 pure electric cars in 2,030. Also in Sweden the political targets are not completely focused on electric cars, But a decrease of carbon emission of 70% compared to 2010. We will keep monitoring the electric car development in all our markets since things could change rapidly due to new political decisions in the market or on EU level. We see a large potential due to that we are an enabler of mobility regardless of which vehicle driving on our roads. With our size and innovating power we have the ability to meet the future demand. Okay, moving on. During the Capital Markets Day in February, we presented our updated strategy that will make us more profitable And make us grow in a sustainable way going forward. In short, we are an enabler of mobility today, tomorrow and in the future. This is our vision that our strategy is based on and that will take us to SEK15 1,000,000,000 in revenue no later than 2025. Our enabling mobility strategy consists of 4 focus areas. The first is operational excellence. That means that we will increase focus on efficiency, synergies and collaboration in our core business. That is absolutely crucial. 2nd, we will accelerate our concept development for workshops to increase loyalty and revenues, an area where we have a large potential going forward. 3rd, we will create new customer solutions and make the customer journey easier. We will force We'll use all the opportunities that comes with digitalization, data and customer insights. And 4th, we will create new revenue streams Through a broad range of actions, for example by entering new segments and developing new business models. Everything we do within these four focus areas will be done with a sustainable mindset. As we have seen in our results, we stand strong and efficient Even if circumstances are difficult and we are well on our way in line with our strategy and long term financial goals. So this concludes our report for the Q1, and we now look forward to your questions. Our first question comes from the line of Matt Flus from Kepler Cheuvreux. Please go ahead. Yes. Hi. Good morning. Can you hear me? Yes. Yes. Oh, fine. Yes, congrats on a good quarter then. And first, I just want to ask a bit about I mean, we see all these headings of lack of the semiconductors and so on. Do you expect to see any sort of shortage of Start out going forward? Yes. Now not by that reasons, there is some there is a couple of trends. We have increased Prices due to high demand of raw materials as steel. There is transportation that are more expensive from Asia. There's also this the problems with the semiconductors and so on. But all in all it doesn't affect us in any Specific matter, we have some simple product numbers that we are short term, but it's not that We can see in our numbers. And we don't expect that to be a problem in the future either. As the tightening fleet is implemented, you well, Could you say something there? Have they been sort of gradually implemented during the quarter? Or is it well Yes, we adjust the prices and this is different in the different markets, of course, but We follow the market, and we price accordingly. So that's an ongoing process. Yes. Okay. And I guess you are well into the Q2 now, and I guess you sound quite confident about the development in the Q1. And I mean, it seems Things are improving in Poland at least in the Q2. So and now we are Approaching driving season, I guess holidays will be more domestic this year as well maybe. So do experience an agreed Service demand and on this driving season as you normally do, Amit. Well, we usually don't comment future. But as you mentioned, I mean, We are heavily demanding on miles driven and if restrictions will ease enough that will be more traffic on the road which is Of course, it's positive for us. So going back to normal society should be good for us as well as for any other. And just looking at the P and L a bit So the financial net was affected by some one offs there regarding the refinancing. Should we see those as one offs? Or are they sort of Yes. You should. It's connected with the refinancing of The bond and the new RCF. So it's just in this quarter. Okay, great. And You also delayed some amortization of VAT taxes last year. Have they Do they sort of affect your cash flow gradually now up until the Q2? No yes, but Q2 2022 because during the quarter, We have repaid some of the pushed VAT and taxes and we got some new ones also in Denmark and they are To be repaid next year. So it will be repayments during all quarters and To the end of Q2 next year. So it's smaller amount every quarter. And We are not sure if they're going to be new push payments or not, but the status Right now is that we have payments coming until Q2 next year. And we have EUR 160,000,000 in pushed VAT and taxes at the moment. Okay. Great. Thanks a lot. The next question comes from the line of Andreas Lundberg from SEB. Please go ahead. Yeah. Good morning, everyone. First one on the cash flow statement or the ink Please see receivables or the drag on the cash flow, what was that? Well Yes. But that's connected to that. This is a normal effect we have in Q1. We didn't have it last year due to the data breach when we couldn't send out any invoices in the end of Q1. But it's an effect of higher sales in Q1 compared to December, The Q4 quarter. So it's normal. It always looks like that. And it's also connected with the customer bonuses, etcetera. So if you look at 2019, we'll have exactly the same. Okay. And then on The margin on a segment level, can you describe the is there any structural differences versus Your Danish operation versus Mirca Mekonomen, for instance, given that both these I mean, your positions in both countries are extremely strong. Yes. Can you I mean there is but there is still differences in the both in the Competitive landscape, its differences in if you compare for example Denmark and Norway is Completely different setup within logistics and transport costs and so on. So There is one way you can read the potential in Sweden and Norway, but it's also Other circumstances which makes it a little bit more expensive to run businesses in Sweden and Norway. Okay. So it's structurally the lower in Sweden and Norway? Yes, yes. Okay. And then you talked about Your long term agenda on Interteam in Poland, what's your margin ambitions in that country a few years out? I think we usually communicate 4% to 5% EBIT margin in Poland, And it's reachable. It's what some of the competition has. And we see that we are able to make Improvements to that level in the strategic period we have at the moment until 2025. And we see good signs in our work to focus on profitable customers and sales. And when it comes to reopenings, maybe it's early days in your markets, but have you any kind of indications or Trends in Reopen the Market. Thank you. Andreas, was that a question regarding reopening of our markets? Yes, I mean if you have seen any indications on what's happening in the reopen markets. Thank you. But during the quarter we So improvement in Poland, for example, Poland was very close in January or February, but in March that isn't up and That we also could see in our numbers. In the other markets It should be positive as I said to Mats as well that reopening and we can follow that. The restrictions which is hurting us is when people are not driving to the job. So it's less miles driven and the other one is when it's really disclosed down for example in Norway when we can't operate our stores and branches. Those are the Two main things to look for when you're looking at the pandemic effects. And as we said, we Part of the quarter had 45 branches closed in Norway. Oslo area, Bergen and other larger cities We're totally closed. So they are now I think we have like 5 shops branches today not open, But otherwise, they all operate again. And of course, that has hurt the sales in Norway during the quarter. Thank you so much. My apologies for interrupting during that question. Our next question comes from the line of Mikael Karpenen from Handelsbanken. Please go ahead. Yes. Hi. This is Mikael from Handelsbanken. Question concerning this new service agreement in Sweden to Mogilex C based contract. So Could you comment on the sort of the start for the sales activities? How it has started? And then generally, customer feedback And then how the sort of how the customer sees the sort of the pricing of the product. It's a bit early to say, and we don't communicate any numbers yet. But so far, the reception from the customers is very good. And I think the product is well received in the market. Okay. Thank you. We have no further questions coming through. So, I will now hand back to Per for any closing remarks. Thank you. Okay. Again, it's a good day at the office to be presenting another good quarter. Thank you all for listening and wish you a great day. Bye. Bye bye. Thank you everyone for joining today's conference. You may now disconnect your lines.